BPC Agenda 11-18-11 - Monterey One Water...Nov 18, 2011 · The required supplementary information,...

Joint Powers Authority Member Entities: Boronda County Sanitation District, Castroville Community Services Water District, County of Monterey, Del Rey Oaks, Fort Ord, Marina Coast Water District,

Monterey, Moss Landing County Sanitation District, Pacific Grove, Salinas, Sand City, and Seaside.

M E E T I N G N O T I C E and A G E N D A

BUDGET/PERSONNEL COMMITTEE Gloria De La Rosa, Chair

Carmelita Garcia, Chris Orman, Dave Pendergrass, and Ron Stefani [Alternate – Lou Calcagno]

DATE: Friday, November 18, 2011

TIME: 1:30 p.m.

LOCATION: Admin Conference Room 5 Harris Court, Building D

PUBLIC COMMENTS Anyone wishing to address the Committee on matters not appearing on the Agenda may do so now. Comments on any other matter listed on the Agenda are welcome at the time the matter is being considered by the Committee.

1. ACCEPT FY 2010/11 FINANCIAL AUDIT REPORT (see attachment)

2. APPROVE CONTRACT FOR REGIONAL TREATMENT PLANT SEISMIC ASSESSMENT

(see attachment)

3. APPROVE SELECTION OF FIRM FOR CALPERS SIDE FUND FINANCING

(see attachment)

4. REVIEW STATUS OF SUCCESSION PLANNING/ EMPLOYEE MENTORING PROGRAM

(see attachment) Z:\BOARD COMMITTEES\BUDGET-PERSONNEL COMMITTEE\2011\November\BPC Agenda 11-18-11.doc

BUDGET/PERSONNEL COMMITTEE November 18, 2011 of 2

* * * * * * * * *

This Committee Meeting Notice and Agenda was hereby posted at the MRWPCA Administrative offices, 5 Harris Court, Building D, Monterey, California 93940.

POSTED: Tuesday, November 15, 2011 BY: /s/ Betty Nebb

Executive Assistant



MEMORANDUM TO: BUDGET/PERSONNEL COMMITTEE FROM: JOHN TIERNAN, DIR OF ADMIN SERVICES/DEPUTY GM (VIA GENERAL MANAGER) DATE: NOVEMBER 14, 2011 SUBJECT: ACCEPT FY 2010/11 FINANCIAL AUDIT REPORT

BACKGROUND

Enclosed for your review and approval is the 2010/11 Financial Audit Report, prepared by Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants (VTD). This is the final 2010-11 audit report on the annual financial statements for the Monterey Regional Water Pollution Control Agency. Staff is pleased to notify you that once again this report shows an “unqualified opinion.” The auditors found no significant exceptions and, additionally, VTD has advised staff that during this year's audit, nothing has arisen that requires a "Management Advisory Comment" letter. Mr. Leonard Danna will be present at the November 18 BPC meeting to provide a short executive summary, as well as to answer any questions you may have.

RECOMMENDATION:

Staff requests the Budget/Personnel Committee accept the 2010-11 audit report. Attachment: MRWPCA Financial Statements/Independent Auditors’ Report Z:\BOARD COMMITTEES\BUDGET-PERSONNEL COMMITTEE\2011\November\BPC Audit 11-14-11.doc

Vavrinek, Trine, Day & Co., LLP

MONTEREY REGIONAL WATERPOLLUTION CONTROL AGENCY

FINANCIAL STATEMENTS

JUNE 30, 2011 and 2010

WITH

INDEPENDENT AUDITOR’S REPORT

Certified Public Accountants

MONTEREY REGIONAL WATER POLLUTION CONTROL AGENCY

TABLE OF CONTENTSJUNE 30, 2011

fiNANCIAL SECTIONIndependent Auditor’s ReportManagement’s Discussion and Analysis 3Financial Statements

Statements of Net Assets 14Statements of Revenues, Expenses and Changes in Net Assets 15Statements of Cash Flows 16Notes to Financial Statements 1 8

OTHER SUPPLEMENTARY iNFORMATIONBudgetary Comparison Schedule 35Schedule of Federal Financial Assistance 36Notes to Other Supplementary Information 37

INDEPENDENT AUDITOR’S REPORTIndependent Auditor’s Report in Internal Control Over Financial Reporting and onCompliance and Other Matters Based on an Audit of Financial Statements Performedin Accordance with Governmental Auditing Standards 39

llavrinek, Trifle, Day & Co., LLPCertified Public Accountants


To the Board of DirectorsMonterey Regional Water Pollution Control AgencyMonterey, California

We have audited the accompanying statements of net assets of the Monterey Regional Water Pollution ControlAgency (the Agency) as of June 30, 2011 and 2010, and the related statements of revenues, expenses and changes innet assets and cash flows for the years then ended. These financial statements are the responsibility of the Agency’smanagement. Our responsibility is to express an opinion on these financial statements based upon our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of Americaand the standards applicable to financial audits contained in Government Auditing Standards, issued by theComptroller General of the United States. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for ouropinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positionof the Monterey Regional Water Pollution Control Agency as of June 30, 2011 and 2010, and the results of itsoperations and cash flows for the years then ended in conformity with accounting principles generally accepted inthe United States of America.

In accordance with Government Auditing Standards, we have also issued a report dated November 10, 2011 onour consideration of the Agency’s internal control over financial reporting and on our tests of its compliance withcertain provisions of laws, regulations, and contracts and other matters. The purpose of that report is to describethe scope of our testing of internal control over financial reporting and compliance and the results of that testing,and not to provide an opinion on the internal control over financial reporting or on compliance. That report is anintegral part of an audit performed in accordance with Government Auditing Standards and should be consideredin conjunction with this report in considering the results of our audit.

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • SACRAMENTO

I

260 Sheridan Avenue, Suite 440 Palo Alto, CA 94306 Tel: 650.462,0400 Fax: 650.462.0500 www.vtdcpa.com

VALUE THE DIFFERENCE

The required supplementary information, such as management’s discussion and analysis on pages 3 through 13,

and budgetary comparison on page 35, is not a required part of the financial statements, but is supplementary

information required by the accounting principles generally accepted in the United States of America. We have

applied certain limited procedures, which consisted principally of inquiries of management regarding the methods

of measurement and presentation of the required supplementary information. However, we did not audit the

information and express no opinion on it.

The supplementary information listed in the table of contents, including the Schedule of Federal Financial

Assistance is presented for purposes of additional analysis and is not a required part of the financial statements.

Such information has been subjected to the auditing procedures applied in the audit of the basic financial

statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements

taken as a whole.

uP

Palo Alto, CaliforniaNovember 10, 2011

2


MANAGEMENT’S DISCUSSION AND ANALYSISJUNE 30, 2011

This section of Monterey Regional Water Pollution Control Agency’s (MRWPCA) annual financial statementspresents our discussion and analysis of MRWPCA’s financial performance during the fiscal year that ended onJune 30, 2011. The intent of the management’s discussion and analysis is to provide highlights of the Agency’sfinancial activities. Please read it in conjunction with the Independent Auditor’s Report that precedes this sectionand MRWPCA’s financial statements, which follow this section.

Agency’s Financial Statements

The Agency functions in a self-supporting governmental enterprise capacity and accounts for the financing ofservices to the general public on a continuing basis with operating and other costs recovered primarily throughuser charges. Because of the nature of the Agency’s business, all funds are classified as enterprise or proprietaryfunds, using full accrual accounting, which recognizes business transactions when they occur, regardless of whencash is exchanged.

MRWPCA’s financial statements consist of the following parts: Independent Auditor’s Report, ManagementDiscussion and Analysis (this section), the basic financial statements (statements of net assets, statements ofrevenues, expenses, and changes in net assets, statements of cash flows, and notes to financial statements). Forcomparative purposes, the basic financial statements are presented for the two most recent fiscal years endingJune 30, 2011 and June 30, 2010.

The Agency’s Operations — an Overview

MRWPCA collects, treats, and recycles wastewater that is discharged from residential, military, commercial, andindustrial customers within its service area. MRWPCA is governed by a Board consisting of representativesappointed from its member entities: Del Rey Oaks, Marina, Monterey, Pacific Grove, Salinas, Sand City,Seaside, three County Sanitation Districts or Service Areas, and Monterey County.

Wastewater flows to the MRWPCA’s Regional Treatment Plant (RTP) in Marina average approximately 21million gallons a day. This wastewater is treated to remove solids, is tested for compliance with dischargerequirements, and then is either discharged to the Monterey Bay or diverted to a Recycled Water Plant at the samelocation for further treatment.

The Recycled Water Treatment Plant was constructed adjacent to the RTP and began operation in 1997. TheCounty of Monterey has contracted with the MRWPCA to operate the Recycled Water Treatment Plant as well asthe recycled water distribution system. The County of Monterey reimburses the MRWPCA for all operationalcosts of the Recycled Water Treatment Plant and the distribution system. In addition, the County of Montereyreimburses MRWPCA for the debt service on the two loans (Bureau of Reclamation and State Revolving LoanFund) which funded the construction of the facility, thus making the two projects cost and revenue neutral forMRWPCA.

During the growing season, nearly all of the water treated at the RTP is diverted to the Recycled Water Plant.Approximately 13,000-acre feet of recycled water suitable for irrigating crops is delivered annually to growers inthe Castroville area, which reduces the use of potable (drinking) water.

Through a program of education and inspection, MRWPCA has taken the lead in assisting its member entities inreducing the amount of grease that is discharged through the sewer system. The buildup of grease in sewer linesis a major contributing factor to sewage back-ups and spills.

3


MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2011

MRWPCA is currently working With member entities to formulate a regional solution to meet requirements of

State mandated storm water regulatioTis. In cooperation with a number of the member entities, MRWPCA is

working on a joint urban reclamation project to use recycled water for irrigation of landscaped areas and golf

courses within its service area.

FiNANCIAL hIGHLIGHTS

MAP (IF MRWPCA’S CURRENT SERVICE AREA

LI Operating revenues for the fiscaLyear ended June 30, 2011, were $1,097,668 more than operating revenues

for the fiscal year ended June 3 2010. Operating revenues for the fiscal year ended June 30, 2010 were

$154,192 more than operating rervenues for the fiscal year ended June 30, 2009. The increase in revenues for

FY1O/1 1 was due to an 8% increase in user fees..

LI Total revenues were $1,090,39 more for the fiscal year ended June 30, 2011 when compared to the fiscal

year ended June 30, 2010. Tot revenues were $118,030 less for the fiscal year ended June 30, 2010 when

compared to the fiscal year ended June 30, 2009.

LI MRWPCA’ s operating expense before depreciation for the fiscal year ended June 30, 2011 were

approximately $819,637 more than for the fiscal year ending June 30, 2010. Operating expenses before

depreciation for the fiscal year ended June 30, 2010 were approximately $354,979 less than for the fiscal year

ending June 30, 2009. Increases in maintenance and repair costs and operating supplies were the major

factors in the increase in operatillg expenses for FY 10/11.

LI Total expenses were $648,253 more for the fiscal year ended June 30, 2011, when compared to the fiscal year

ended June 30, 2010. Total exmenses were $890,141 less for the fiscal year ended June 30, 2010 when

compared to the fiscal year ended June 30, 2009.

4



D MRWPCA’s operating costs and debt-service for the Recycled Water Plant as well as costs for operating theRecycled Water Distribution System were reimbursed by the County of Monterey.

D Unrestricted cash, cash equivalents, and investments as of June 30, 2011, increased by $431,779 over theamount reported at June 30, 2010.

As of June 30, 2011, MRWPCA had long-term debt outstanding totaling $34,264,104 as compared with$36,712,380 in long-term debt outstanding at June 30, 2010.

MRWPCA’s total net assets were $80,264,754 at June 30, 2011, vs. $81,790,849 at June 30, 2010. Total netassets were $83,759,089 at June 30, 2009.

5



JUNE 30, 2011

REVENUES

Total revenues for the fiscal year ended June 30, 2011 totaled $19,061,249, an increase of $1,090,398 from the

prior year. The following table presents a comparison of revenues by category for the three fiscal years 2010/11,

2009/10, and 2008/09 and the amount and percentage of change betveen fiscal years 2010/11 and 2009/10:

REVENUES BY CATEGORYFor the Fiscal Year Ended June 30, 2011

(With Comparative Totals for the Fiscal Years Ended June 30, 2010 and June 30, 2009)

Increase!(Decrease)

2008/01 2009/10 2010/11 from 200Q/l0

Revenues by Category % of % of % of % of

Amount Total Amount Total Amount Total Amount Change

OPERATING REVENUE

User Fees

Residential $ 11,107,806 61.4% $ 11,150,033 62.0% $ 12,132,751 63.7% $ 982,718 8.8°A

Commercial 3,048,019 16.9% 3,031,172 16.9% 3,201,868 16.8% 170,696 5.6°A

Industrial 287,797 1.6% 289,802 1.6% 320,319 1.7% 30,517 10.5°A

Military 252,360 1.4% 487,553 2.7% 371,205 1.9% (116,348) -23.9°,4

Liquid Waste Haulers-User Fees 357,880 2.0% 362,210 2.0% 372,701 2.0% 10,491 2.9°A

Grease Haulers-User Fees 129,988 0.7% 138,980 0.8% 140,651 0.7% 1,671 1.2°A

Diluted Oily Wastes-User Fees 208,621 1.2% 88,240 0.5% 127,938 0.7% 39,698 45.0°/

BrineReceiving-UserFees 468,839 2.6% 408,683 2.3% 301,692 1.6% (106,991) -26.2°/

Penalty and Transfer Fees 295,665 1.6% 351,723 2.0% 461,245 2.4% 109,522 3 1.10/

Total User Fees 16,156,975 16,308,396 17,430,370 1,121,974

OtherOperatingRevenue 766,379 4.2% 769,150 4.3% 744,844 3.9% (24,306) -3.2°/

Total Operating Revenue 16,923,354 17,077,546 18,175,214 1,097,668

ON-OPERATTNG REVENUE

Interest Revenue 323,919 1.8% 70,761 0.4% 43,991 0.2% (26,770) -37.8°/

Capacity Charges 639,974 3.5% 588,530 3.3% 601,682 3.2% 13,152 2.2°/

Other 201,634 1.1% 234,014 1.3% 240,362 1.3% 6,348 2.7%

Total Non-Operating 1,165,527 893,305 886,035 (7,270)

Revenue

[I’OTAL REVENUES $ 18,088,881 TW%I $ 17,970,851 ]%I $ 19,061,249 I 100%I $ 1,090,398 6.1%

6


MANAGEMENT’S DISCUSSION AND ANALYSISJUNE 30. 2011

Changes in Revenue between 10/11, 09/10 and 08/09:

Operating revenue increased $1,097,668 in 10/11 and $154,192 in 09/10 due to an 8% increase inuser fees in FY1O/1 1 and the back-billing of military fees in 2009-10.

EXPENSES

Interest revenue decreased $26,770 or 37.8% in 10/11. This was the result of a decrease in interestearning cash balances during the year and continued low rates for interest bearing cash balances.Interest revenue decreased 78.26% or $253,158 in 09/10. This was a result of declining interest ratesand a decrease in interest earning cash balances.

Capacity charges collected increased by $13,152 in 10/11. Capacity charges collected decreased by$51,444 in 09/10. MRWPCA bills a capacity charge to customers for new construction, remodels,and category changes. Amounts collected vary from year to year based upon the number of businesschanges and construction permits issued within our service area. Growth restraints within the areaserved by MRWPCA, including the availability of water for future development, may have impactson the collection of capacity charges in the future.

Total expenses for 20 10/11 were $20,587,344, an increase of $648,253 over the prior year. The following tablespresent a comparison of expenses by category and by department for the three fiscal years 2010/1 1, 2009/10 and2008/09, and the amount and percentage of change between fiscal years 20 10/11 and 2009/10:

Revenues by Category for FiscaL Year 2010/11

Capacity Charges3.2% Other

1.3/aInterest Revenue.

Other OperatiRevenue

3.9%

\....User

Fees9 1.4%

7



JUNE 30, 2011

EXPENSES BY CATEGORYFor the Fiscal Year Ended June 30, 2011


Increase/(Decrease)

2008/09 2009/10 2010/11 from 2009/10

Expenses by Category % of % of % of % of

Amount Amount 1L Amount ( Total Amount Change

OPERATING EXPENSESWages&benefits $ 8,802,854 42.2% $ 8,911,826 44.7% $ 8,826,887 42.9% $ (84,939) -1.0

Training&administration 122,848 0.6% 111,869 0.6% 108,347 0.5% (3,522) -3.1

Ofliceexpense 276,239 1.3% 235,515 1.2% 263,692 1.3% 28,177 12.0

Informationsystems 187,517 0.9% 220,502 1.1% 241,117 1.2% 20,615 9.3

Professional services 504,483 2.4% 527,477 2.6% 620,979 3.0% 93,502 17.7

Operating supplies 360,600 1.7% 301,230 1.5% 389,437 1.9% 88,207 29.3

Contract services 402,947 1.9% 465,990 2.3% 478,931 2.3% 12,941 2.8

Chemicals 1,233,715 5.9% 1,107,464 5.6% 1,156,837 5.6% 49,373 4.5

Utilities 2,483,615 11.9% 2,244,831 11.3% 2,243,000 10.9% (1,831) -0.1

Maintenance&repairs 794,952 3.8% 910,083 4.6% 1,197,244 5.8% 287,161 31.6

Major maintenance & repairs 439,407 2.1% 209,116 1.0% 546,321 2.7% 337,205 161.3

Billable services 14,329 0.1% 22,624 0.1% 15,372 0.1% (7,252 -32.1

Total Operating Expenses before

Depreciation 15,623,506 15,268,527 16,088,164 819,637

DEPRECIATION 4,331,821 20.8% 3,822,747 19.2% 3,709,019 18.0% (113,728) -3.C

‘JON-OPERATING EXPENSESInterestexpense 887,760 4.3% 840,311 4.2% 782,655 3.8% (57,656) -6S

Amortization of bond issuance costs 7,760 0.0% 7,506 0.0% 7,506 0.0% - 0.(

TotalNon-OperatingExpenses 895,520 847,817 790,161 (57,656)

fOTAL EXPENSES $ 20,850,847 100%l $ 19,939,091 l00%I $ 20,587,344 I 100% $ 648,253 I 3.

8



EXPENSES BY DEPARTMENTFor the Fiscal Year Ended June 30, 2011


Expenses by Category for Fiscal Year 2010/11

Amortization ofBond Issuance Costs -

0.0%

30%

Chemicals5.6%

Depreciation _.___—

18.0%

.Contract Services2.3%

Wages & Benefits42.9%

Tranng&

MajorMaintenance& Repairs

2.7%

0.5%

Maintenance &Repairs

5.8%

1.3%

1.2%

Increase/(Decrease)2008/09 2009/10 2010/11 from 2009/10

Expenses by Dept. % of % of % of % ofAmount Total Amount Total Amount Total Amount Change

OPERATING EXPENSESAdminisfration $ 1,591,497 7.6% $ 1,471,053 7.4% $ 1,578,547 7.7% $ 107,494 7.3°/Finance/Human Resources 1,849,227 8.9% 1,996,228 10.0% 2,025,041 9.8% 28,813 1.4°/Environmental Services 1,443,842 6.9% 1,330,963 6.7% 1,322,405 6.4% (8,558) -0.6°/RTP-Administration 557,118 2.7% 617,151 3.1% 648,914 3.2% 31,763 5.1°/Field Maintenance 3,312,200 15.9% 3,367,567 16.9% 3,604,506 17.5% 236,939 7.0°/Cogeneration 1,099,069 5.3% 1,049,699 5.3% 1,167,425 5.7% 117,726 11.2°/RTP-Maintenance&Operations 5,331,146 25.6% 5,226,750 26.2% 5,195,005 25.2% (31,745) -0.6%Major Maintenance & Operations 439,407 2.1% 209,116 1.0% 546,321 2.7% 337,205 16 1.3%

Total Operating Expenses beforeDepreciation 15,623,506 15,268,527 16,088,164 819,637

DEPRECIATION 4,331,821 20.8% 3,822,747 19.2% 3,709,019 18.0% (113,728) -3.0°/

JON-OPERATING EXPENSESInterestexpense 887,760 4.3% 840,311 4.2% 782,655 3.8% (57,656) -6.9°/Amortization of bond issuance costs 7,760 0.0% 7,506 0.0% 7,506 0.0% - 0.0°/

Total Non-Operating Expenses 895,520 847,817 790,161 (57,656)

s’OTAL EXPENSES $ 20,850,847 T%I $ 19,939,091 ]i7[s 20,587,344ji4$ 648,253 I 3.3°/J

9



JUNE 30, 2011

Changes in Expenses between 10111, 09/10 and 08/09

• Operating expenses before depreciation increased 5.3 7% or $819,637 in 10/1 1. Operating expenses

before depreciation decreased 2.27% or $354,979 in 09/10. The following categories were

responsible for the change from the prior years:

Wages & Benefits — There was a decrease of $84,939 in 10/11 due mostly to a decline in

headcount. In 2009110, there was an increase of $108,792, due mostly to step increases, and cost

of benefits increases.

Utility costs in 2010/H were approximately the same as the prior year, decreasing by $1,891.

Utility Costs decreased by $238,784 in 09/10. The decrease in 09/10 was due to the decreased

cost of natural gas.

Chemical costs in 10/11 rose slightly by 4.5% or $49,373. Chemical costs decreased by $126,251

or 10.23% in 09/10 over 08/09 because of a change in chemical use optimization.

Maintenance and repair costs increased by $287,161, or 31 .6%, in FY 2010/11. Maintenance

costs continue to increase year over year as our plant ages and requires a greater investment in

ongoing maintenance. In the prior fiscal year, maintenance and repair costs increased by

$1 15,131, or 14.48%, over the prior fiscal year.

Major Maintenance & Repairs — This category was established in fiscal year 05/06. Project costs

that are not capitalized are now expensed on a fiscal year basis under this category. Fiscal year

10/11 costs increased by $337,205 due to an increased amount of major maintenance and repair

projects approved during the Agency’s Budget process for the fiscal year.

• Depreciation Expense charged to operations in 10/11 decreased 3% or $113,728, due to the number of

assets becoming fully depreciated, which more than offset the increase in depreciation expense on

new assets put in service

Expenses by Department for Fiscal Year 2010/li

Interest Ixpnse and AdministrationAmorOzation

Depreciation18.0%

Finance/I-Iuman

Malor Maintenancc& Operations

2.7%

V iron mentalServices

6.4%

RTP -

3.0%

RTP - Maintenance& Operations

25.2%Cogeneration

5.7%

Fie1d Maintenance17.5%

10



TOTAL NET ASSETS

Total Net Assets at June 30, 2011 totaled $80,264,754 a decrease of $1,526,095 from the prior year.

The following table presents a comparison of assets, liabilities, and total net assets for the three fiscal years endedJune 30, 2011, 2010 and 2009 and the amount and percentage of change between fiscal years 2011 and 2010.

11



JUNE 30, 2011

ASSETSNon-Restricted

CurrentOther Non-Restricted Assets

RestrictedCurrentCapital

Assets net of Acc. Depr.

_____________ __________________________

Total Assets

LIABILITIESCurrent LiabilitiesCurrent Liabilities Payable from

Restricted AssetsOther LiabilitiesLong-Term Debt

____________ ________________________

Total Liabilities

NET ASSETSInvested in Capital Assets

net of Related DebtRestrictedUnrestricted

17.12%

-6.67%-6.8 1%

TOTALNETASSETS $ 83,759,089 $ 81,790,849 $ 80,264,754 $ (1,526,095)1 -1.87%

Total Assets at June 30, 2011 were $125,274,416 vs. $130,096,495 at June 30, 2010, a decrease of $4,822,079 or

The Agency continues to pay down its debt (approximately $2.4 million per year) which contributes

to a decline in total assets but not net assets.

• Total Capital assets increased by 2,979,200 net while accumulated depreciation increased $4,416,239

resulting in a decrease of Capital assets net of depreciation of $1,437,039. See Note 4 of the Notes to

Financial Statements for more detail.• There was also a corresponding decrease in restricted assets and restricted liabilities of $887,719

which, again, reduces total assets but has no impact on net assets.

Total Liabilities at June 30, 2011 were $45,009,662 vs. $48,299,260 at June 30, 2010, a decrease of $3,289,598 or

6.8 1%.

• The decrease in total liabilities at June 30, 2011 over the prior year is primarily the result of the

reduction in Long-Term Debt, inclusive of current maturities, of approximately $2.5 million, as well

as the decrease in restricted liabilities as explained above. Of the total decrease in long-term debt,

approximately $1.13 million represents amounts paid by Monterey County on debt recorded on the

TOTAL NET ASSETSFor the Fiscal Year Ended June 30, 2011


I ncrease/(Dec rease)2008/09 2009/10 2010/11 I from 2009/10

S 7,468.700 $ 5,486.341 S 6,175,675 $ 689,33410,715,102 10,694,432 10,658,875 (35,557)

15,113.113 15,321,453 11,282,636 (4,038,817)

101,272,352 98,594,269 97,157,230 (1,437,039)

12.56%-0.3 3%

-26.36%-1.46%-3.71%

0.72%

134,569,267 130,096,495 125,274,416 (4,822,079)

6,839,899 6,404,622 6,450,519 45,897

4,818,345 5,1 82,258 4,295,039 (887,219)

39,151,934 36,712,380 34,264,104 (2,448,276)50,810,178 48,299,260 45,009,662 (3,289,598)

69,93 1,077 69,765,250 70,771,437 1,006,18710,294,768 10,134,219 6,987,597 (3,146,622)

3,533,244 1,891,380 2,505,720 614,340

3.7 1%.•

1.44%-3 1.05%32.48%

12



Agency’s books as a result of the Water Reclamation Project. See Notes 5and 6 of the Notes toFinancial Statements for further detail on the Project and the related debt.

The following table presents a comparison of the changes in net assets for the three fiscal years 20 10/11, 2009/10and 2008/09 and the amount and percentage of change between fiscal years 2010/11 and 2009/10:

CHANGES IN NET ASSETSFor the Fiscal Year Ended June 30, 2011


$ 18,088,881 $ 17,970,851 $ 19,061,249 $ 1,090,398

20,850,847 19,939,091 20,587,344 648,253

(2,761,966) (1,968,240) (1,526,095) 442,145

86,521,055 83,759,089 81,790,849 (1,968,240)

CONTACTING MRWPCA’S FINANCIAL MANAGE1’IIENT

This financial report is designed to provide MRWPCA’s Board members, customers, ratepayers, investors andcreditors with a general overview of MRWPCA’s finances and to demonstrate MRWPCA’s accountability for themoney it receives. If you have questions about this report or need additional financial information, contact theFinance Department, Monterey Regional Water Pollution Control Agency, 5 Harris Court, Bldg. D, Monterey,CA 93940.

TOTAL REVENUES

2008/09

TOTAL EXPENSES

2009/10

CHANGE IN NET ASSETS

Increase!(Decrease)

2010/11 from 2009/10

BEGINNING NET ASSETS

ENDING NET ASSETS- 83,759,089 $ 81,790,849 $ 80,264,754 $ (1,526,095)

13


STATEMENTS OF NET ASSETS

JUNE 30.

CURRENT ASSETS

Unrestricted cash and cash equivalents

Restricted cash and cash equivalents

Accounts receivable-trade

Accounts receivable-MCWRA

Inventory of materials and supplies

Prepaid expenses and other current assets

Other restricted assets

Total current assets

NONCURRENT ASSETS

Receivable from Monterey County

Debt issuance costs, net of accumulated amortization

Subtotal noncurrent assets

CAPITAL ASSETS

Land and easements

BuildingsImprovements other than buildings

Equipment

Construction in progress

Subtotal capital assets

Less accumulated depreciation

Total capital assets

Total noncurrent assets

Total Assets

CURRENT LIABILITIES

Current portion of long-term debt

Accounts payable and accrued expenses

Deferred user fees revenue

Utility taxes due to other governmental agencies

Accounts and deposits payable from restricted assets

Total current liabilities

NONCURRENT LIABILITIES

Long-term debt, net of amortized premium, less current portion

Total Liabilities

NET ASSETS

Invested in capital assets, net of related debt

Restricted for capital projects

UnrestrictedTotal net assets

$ 2,466,038

15,146,900118,082

2,437,058175,556283,221

174,553

20,801,408

The accompanying notes are an integral part of these financial statements.

2011 2010

$ 2,897,81711,219,408

2,820,923

1 83,837273,098

63,228

17,458,311

10,294,371364,504

10,658,875

2,097,82797,221,016

51,640,199

77,346,011

9,347,878

237,652,931

(140,495,701)

97,157,230

107,816,105

125,274,416

2,416,060

1,927,428677,188

1,429,843

4,295,03910,745,558

34,264,104

45,009,662

70,771,437

6,987,5972,505,720

$ 80,264,754

10,290,691403,741

10,694,432

2,097,827

96,679,989

51,640,199

76,910,3077,345,409

234,673,731

(136,079,462)

98,594,269

109,288,701

130,090,109

2,407,3302,168,471

598,556

1,230,265

5,182,25811,586,880

36,712,38048,299,260

69,765,250

10,139,195

1,886,404$ 81,790,849

14


STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETSFOR THE YEARS ENDED JUNE 30.

OPERATING REVENUESUser feesOther operating revenues

2011

$ 17,430,370744,844

18,175,214

1,578,5472,025,0411,322,405

648,9143,604,5061,167,4255,195,005

546,321

16,088,1643,709,019

19,797,183

2010

$ 16,308,396769,150

17,077,546

1,471,0531,996,2281,330,963

617,1513,367,5671,049,6995,226,750

209,116

15,268,5273,822,747

19,091,274

OPERATING LOSS (1,621,969) (2,013,728)

NONOPERATING REVENUES (EXPENSES)Interest revenueInterest expenseAmortization of bond issuance costCapacity chargesOther revenueMiscellaneous

Total nonoperating revenues

Decrease in net assets before capital contributions

Capital Contributions

Decrease in net assets

Beginning Net AssetsEnding Net Assets

70,761(840,311)

(7,506)588,530139,270

17,094

(37,734) (32,162)

(1,659,703) (2,045,890)

133,608 77,650

(1,526,095) (1,968,240)

81,790,849 83,759,089S 80,264,754 $ 81,790,849

The accompanying notes are an integral part of these financial statements.15

Total operating revenues

OPERATING EXPENSESAdministrativeFinanceLaboratoryRegional Treatment Plant-AdministrativeField MaintenanceCogenerationRegional Treatment Plant - Maintenance and OperationsMajor Maintenance and Operations Non Capital Projects

Total operating expenses before depreciationDepreciation expense

Total operating expenses

43,991(782,655)

(7,506)601,682106,754


STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE30 2011

______________________

CASH FLOWS FROM OPERATING ACTIVITIES 2011 2010

Cash received from customers for services $ 15,977,818 $ 17,341,216

Cash paid to vendors for services (11,999,979) (9,996,316)

Cash paid to employees (5,330,515) (5,366,326)

Other 106,754 149,010

Cash (used in) provided by operating activities (1,245,922) 2,127,584

CASH FLOWS FROM NON-CAPITAL FINANCING AN])

iNVESTiNG ACTIVITIES

Capacity charges 601,682 588,530

Cash provided by non capital fmancing and investing activities 601,682 588,530

CASH FLOWS FROM CAPITAL AND RELATED

FiNANCING ACTIViTIES

Interest expense (782,655) (840,311)

Reimbursement (Advance) on SRDD project 2,437,058 (594,547)

Acquisition and construction of property and equipment (3,409,667) (2,280,605)

Proceeds from sale of capital assets - 5,600

Principal payments on long-term debt (2,407,823) (2,461,957)

Debt service funding from Monterey County 1,134,015 1,1 19,128

Capital Contributions 133,608 77,650

Cash (used in) capital and related fmancing activities (2,895,464) (4,975,042)

CASH FLOWS FROM INVESTING ACTIVITIES

Interest income 43,991 70,761

Cash provided by investing activities 43,991 70,761

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (3,495,713) (2,188,167)

Cash and cash equivalents at beginning of year 17,612,938 19,801,105

Cash and cash equivalents at end of year $ 14,117,225 $ 17,612,938



STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED JUN 3020 1

_____

RECONCILIATION OF OPERATING LOSS TO NET CASH

(USED iN) PROVIDED BY OPERATING ACTIVITIES 2011 2010

Operating Loss $ (1,621,969) $ (2,013,728)

Adjustments to reconcile operating loss to netcash (used in) provided by operating activities:

Other income 106,754 149,010

Depreciation 3,709,019 3,822,747

Effect of changes in:Other current assets (2,589,674) 180,399

Accounts payable and accrued expenses (1,049,630) (862,288)

Due other governmental agencies 199,578 851,444

Cash (used in) provided by operating activities $ (1,245,922) $ 2,127,584



NOTES TO FINANCIAL STATEMENTS

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & OTHER MATTERS

Organization, Purpose and Basis of Accounting

In November 1971, the city of Pacific Grove and the Seaside County Sanitation District executed a joint powers

agreement (JPA), thus forming the Monterey Peninsula Water Pollution Control Agency (“Monterey Peninsula

WPCA”), with Fort Ord as an ex-officio member. In February 1972, the city of Monterey became a signatory of the

WA. The Monterey Peninsula WPCA was responsible for proceeding with the design and construction of a regional

wastewater treatment and disposal system for communities adjoining the Southern Monterey Bay area in Monterey

County, which were designated by the Environmental Protection Agency (“EPA”), and the State Water Resources

Control Board (SWRCB), as Clean Water Projects 748 and 1066. The Monterey Peninsula WPCA expanded its

membership to include the city of Salinas and Monterey County in April 1975. In March 1976, the cities of Seaside,

Sand City and Del Rey Oaks (cities which comprise the Seaside County Sanitation District), became individual

signatories to the WA. In January 1977, the Monterey County Board of Supervisors formed the Monterey Regional

County Sanitation District (“Monterey Regional CSD”) to provide sewage treatment and disposal services to the

sewered portions of the North Monterey County. Monterey Regional CSD was established to own and operate the

existing and proposed project facilities, and to establish, collect and enforce sewer user charges. In June 1979, the

present Monterey Regional Water Pollution Control Agency (the “Agency”), superseded the Monterey Peninsula

WPCA. Also, in June 1979, Monterey Regional CSD transferred all its properties and assets to the Agency. In

April 1985, Fort Ord became a full voting member of the Agency, and Castroville County Sanitation District

became a member of the Agency. The Boronda County Sanitation District became a member of the Agency in June

1987. The Agency has all of the broad powers of the older entities and has assumed all of their obligations. In April

1989, the Agency entered into an Annexation Agreement with the Marina County Water District (“MCWD”)

enabling the MCWD to become a full voting member of the Agency and establishing the terms and conditions by

which the MCWD would become a member entity. In November 1999, due to the closure of Fort Ord, Fort Ord’s

representation changed to that of a non-voting member. The Agency functions as a self-supporting governmental

enterprise activity and, accordingly, the financial statements have been prepared on the accrual basis.

Reporting Entity

The Agency operates in an enterprise capacity. An enterprise fund is used to account for the financing of services to

the general public on a continuing basis with operating and other costs recovered primarily through user charges.

As required by generally accepted accounting principles, the financial statements of the reporting entity include

those of the Agency (the primary government) and its component unit. The component unit discussed below is

included in the Agency’s financial statements because of the significance of its financial relationship with the

Agency.

The Monterey Regional Wastewater Finance Authority (the “Authority”), an entity legally separate from the

Agency, is governed by substantially all the board members of the Agency. The Authority is inactive as of and

for the year ended June 30, 2011.

18



Basis of Accounting

The Agency is a single enterprise fund and maintains its records on the accrual basis of accounting. Under thismethod, revenues are recorded when earned and expenses are recorded when the related liability is incurred. TheAgency has elected under Governmental Accounting Standards Board (GASB) Statement No. 20, Accounting and

Financial Reportingfor Proprietary Funds and Other Governmental Entities That Use Proprietary FundAccounting, to apply all applicable GASB pronouncements, as well as any applicable pronouncements of theFinancial Accounting Standards Board, the Accounting Principles Board, or any Accounting Research Bulletinsissued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASBpronouncements.

Accounts Receivable and User Fee Revenue Recognition

The Agency has made no provisions for uncollectible user fee receivables as all significant accounts are consideredto be collectible as of June 30, 2011 and 2010.

All user fee revenue is recognized when the related services are provided. Billings are on a bimonthly basis and, assuch, revenues reflected in the financial statements include accruals based on estimates for the period betweentermination of the billing cycle and the end of the fiscal year. User service charges are based on wastewater strengthcriteria as set forth by the EPA and Agency determined flow.

Cash and Cash Equivalents

The Agency’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-terminvestments with original maturities of three months or less from the date of acquisition. Cash equivalents alsoinclude cash with county treasury, state pooled fund, and other pooled investment fund balances for purposes ofthe statement of cash flows.

Investments

Investments are recorded at amortized cost, which approximates market value. Adjustments are made to cost forany premium/discount, which is amortized/accreted over the life of the investment. Gains or losses oninvestments are recognized under the specific identification method only when and if the related security is sold,or if permanent impairment of value occurs.

Inventory

Materials and supplies inventories are stated at the lower of cost (first-in, first-out) or market.

Restricted Assets

Assets required to be segregated pursuant to bond covenants or for other reasons are identified as restricted assets.

Debt Issuance Costs

Debt issuance costs are capitalized and amortized over the term of the related debt instrument on a straight-linebasis.

19



JUNE30, 2011 AND 2010

Capital Assets

Capital assets acquired through purchase or internal constructions are recorded at cost. Property contributions

received from municipalities are recorded at a negotiated value. Property donations received from other sewage

agencies are recorded at estimated market value on the date donated. The Agency’s capital asset capitalization

threshold is $2,500.

Depreciation is computed using the straight-line method. Estimated useful lives of the various classes of

depreciable capital assets are as follows: buildings, 20 to 40 years; improvements, 10 to 20 years; equipment, 3 to

10 years.

Construction in Progress

The cost of acquisition and construction of major plant and equipment is recorded as construction in progress

(CIP). As facilities are constructed by the Agency and become operative, they are transferred from C1P to the

plant and equipment accounts, or are expensed if determined that the cost does not meet the requirements of the

capitalization policy.

Compensated Absences

Accumulated unpaid vacation and compensatory time are accrued when earned and are included in accounts

payable and accrued expenses.

Accounts Payable for Construction Services

Accounts payable for construction services and unpaid retainage for construction services are included in accounts

and deposits payable from restricted assets.

Capital Grants and Capacity Charges

Funding for the property, plant and equipment of the Agency has been provided primarily from capital grants by

the EPA, the SWRCB, the Monterey County Water Resources Agency (MCWRA) and the Department of the

Army and Navy. When eligible costs are incurred, a corresponding grant payment receivable is recognized, less

an allowance for costs that may be subsequently ruled ineligible. All capital grant funds and capacity charge fees

are recognized in the statements of revenues, expenses and changes in net assets.

Net Assets

Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of

related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any

borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as

restricted when there are limitations imposed on their use either through the enabling legislation adopted by the

Agency or through external restrictions imposed by creditors, grantors, or laws or regulations of other

governments. The Agency first applies restricted resources when an expense is incurred for purposes for which

both restricted and unrestricted net assets are available.

20


NOTES TO FINANCIAL STATEMENTSJENE 30 2011 AND 2010

_____ ____________________________

Operating Revenues and Expenses

Operating revenues are those revenues that are generated directly from the primary activity of the enterprise fund.For the Agency, these revenues are user fees. Operating expenses are necessary costs incurred to provide thegood or service that are the primary activity of the fund.

Pension Plan

Contributions to the California Public Employees Retirement System (“PERS”) are expensed as incurred.

Income Taxes

The Agency is a municipal entity as defined in the Internal Revenue Code, Section 115, and the correspondingCalifornia Revenue and Taxation provisions. Accordingly, the Agency is not subject to income taxes.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management isrequired to make estimates and assumptions that affect the reported amounts of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues andexpenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

In November 2010, the GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus-an amendmentof GASB Statements No. 14 and No. 34. The objective of this Statement is to improve financial reporting for agovernmental financial reporting entity. The requirements of GASB Statement No. 14, The Financial ReportingEntity, and the related financial reporting requirements of GASB Statement No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments, were amended to better meet userneeds and to address reporting entity issues that have arisen since the issuance of those Statements.

This Statement modifies certain requirements for inclusion of component units in the financial reporting entity.For organizations that previously were required to be included as component units by meeting the fiscaldependency criterion, a financial benefit or burden relationship also would need to be present between the primarygovernment and that organization for it to be included in the reporting entity as a component unit. Further, fororganizations that do not meet the financial accountability criteria for inclusion as component units but that,nevertheless, should be included because the primary government’s management determines that it would bemisleading to exclude them, this Statement clarifies the manner in which that determination should be made andthe types of relationships that generally should be considered in making the determination.

This Statement also amends the criteria for reporting component units as if they were part of the primarygovernment (that is, blending) in certain circumstances. For component units that currently are blended based onthe “substantively the same governing body” criterion, it additionally requires that (1) the primary governmentand the component unit have a financial benefit or burden relationship or (2) management (below the level of theelected officials) of the primary government have operational responsibility (as defined in paragraph 8a) for theactivities of the component unit. New criteria also are added to require blending of component units whose totaldebt outstanding is expected to be repaid entirely or almost entirely with resources of the primary government.The blending provisions are amended to clarif,’ that funds of a blended component unit have the same financialreporting requirements as a fund of the primary government. Lastly, additional reporting guidance is provided for

21



QiiNDiQAO

blending a component unit if the primary government is a business-type activity that uses a single column

presentation for financial reporting.

This Statement also clarifies the reporting of equity interests in legally separate organizations. It requires a

primary government to report its equity interest in a component unit as an asset. The provisions of this Statement

are effective for financial statements for periods beginning after June 15, 2012. Early implementation is

encouraged.

NOTE 2- CASH, CASH EQUWALENTS AM INVESTMENTS

The Agency maintains deposits and investments in separate restricted and unrestricted accounts with various

safekeeping agents and financial institutions. Restricted deposits and investments are held to meet debt service

and capital expansion requirements.

For the purpose of the statement of cash flows, the Agency considers all investments with original maturities of

less than three months to be cash equivalents.

Cash is recorded in the accompanying statement of net assets, as follows:

UnrestrictedRestricted

2011

$ 1,621,384

6,983,128

$ 8,604,512 S

20101,748,2526,192,5927,940,844

Investments in pooled funds, also reflected as cash and cash equivalents, are recorded at amortized cost, which

approximated fair value, at June 30, 2011 and 2010, are summarized as follows:

$ 8,999772,068

4,731,646

$ 5,512,713

The above cash and cash equivalents are classified in the accompanying statement of net assets as follows:

UnrestrictedRestricted

2011

$ 2,897,81711,219,408

$ 14,117,225

2010

$ 2,466,03815,146,900

$ 17,612,938

California Asset Management Program (CAMP)

Pooled Investment Fund

County Pooled Investment Funds

State of California Local Agency Investment Fund

2011 2010

$ 8,98127,144

9,635,9695 9,672,094

22


NOTES TO FINANCIAL STATEMENTSJUNE 30, 2011 AND 2010

Policies and Practices

The Agency is authorized under the Agency’s investment policy to make direct investments in local agency bonds,notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securitiesof the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed withcommercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium termcorporate notes; shares of beneficial interest issued by diversified management companies, certificates ofparticipation, obligations with first priority security; and collateralized mortgage obligations.

Investment in the State Investment Pool

The Agency is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by Californiagovernment code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of theAgency’s investment in the pooi is reported in the accompanying financial statement at amounts based upon theAgency’s pro-rata share of the fair value provided by LAW for the entire LAIF portfolio (in relation to the amortizedcost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAW,which is recorded on the amortized cost basis.

California Asset Management Program (CAMP)

The Agency participates in the California Asset Management Program (CAMP), a joint powers authority establishedin 1989 under the provisions of the California Government Code Sections 6500 et. seq., to meet local governmentinvestment needs in a manner and cost determined by the members of the program. The Agency maintains its ownseparate account and directs its investments in conjunction with an investment advisor. Bank of New Yorkmaintains safekeeping of all securities.

23

MONTEREY REGIONAL WAIER POLLUTION CONTROL AGENCY


JUNE 30, 2011 AND 2010 -

General Authorizations

Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the

schedules below:

Maximum Maximum Maximum

Authorized Remaining Percentage Investment

investment Type Maturity of Portfolio in One Issuer

Local Agency Bonds, Notes, Warrants 5 years None None

Registered State Bonds, Notes, Warrants 5 years None None

U.S. Treasury Obligations 5 years None None

U.S. Agency Securities 5 years None None

Banker’s Acceptance 180 days 40% 30%

Commercial Paper 270 days 25%

Negotiable Certificates of Deposit 5 years 30% None

Repurchase Agreements 1 year None None

Reverse Repurchase Agreements 92 days 20% of base None

Medium-Term Corporate Notes 5 years 30% None

Mutual Funds N/A 20% 10%

Money Market Mutual Funds N/A 20% 10%

Mortgage Pass-Through Securities 5 years 20% None

County Pooled Investment Funds N/A None None

Local Agency investment Fund (LAIF) N/A None None

Joint Powers Authority Pools N/A None None

Authorized Under Debt Agreement

Debt resolutions stipulate only federal securities may be invested in for debt service requirements.

Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.

Generally, the longer the maturity of &n investment, the greater the sensitivity of its fair value to changes in market

interest rates. The Agency manages its exposure to interest rate risk by investing substantially all of its cash with

LAW and CAMP.

24



At June 30, 2011, the Agency, through the CAMP program, had the following investments:

Carrying Fair MaturityInvestment Type Value Value Date

Money Market Mutual Funds $ 8,999 $ 8,999 Less than 1 yearCounty Pool 772,068 Less than 1 yearState Investment Pool Less than 1 year

$

772,6204,743,2665,524,885

Credit Risk

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment.This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presentedbelow is the minimum rating required by the California Government Code, the Agency’s investment policy, or debtagreements, and the actual rating as of the year-end for each investment type.

CarryingValue

$ 8,999 $772,068

4,731,646$ 5,512,713 $

Value A-i Rated8,999 $ 8,999 $ -

772,620 - 772,6204,743,266 - 4,743,2665,524,885 $ 8,999 $ 5,515,886

Custodial Credit Risk - Deposits

Custodial Credit Risk - Investments

Total4,731,6465,512,713 $

Investment TypeMoney Market Mutual FundsCounty Pooled Investment FundsLocal Agency Investment Fund

Fair Not

This is the risk that in the event of a bank failure, the Agency’s deposits may not be returned to it. The Agency doesnot have a policy for custodial credit risk for deposits. However, the California Government Code requires that afinancial institution secure deposits made by state or local governmental units by pledging securities in an undividedcollateral pool held by a depository regulated under state law (unless so waived by the governmental unit). Themarket value of the pledged securities in the collateral pool must equal at least 110% of the total amount depositedby the public agencies. California law also allows financial institutions to secure public deposits by pledging firsttrust deed mortgage notes having a value of 150% of the secured public deposits and letters of credit issued by theFederal Home Loan Bank of San Francisco having a value of 105% of the secured deposits. As of June 30, 2011,the Agency was not exposed to any significant amount of custodial credit risk. The bank balances reported by theAgency are collateralized with securities held by the pledging financial institution’s trust department or agent, but notin the name of the Agency.

This is the risk that, in the event of the failure of the counterparty, the Agency will not be able to recover the value ofits investments or collateral securities that are in possession of an outside party. The Agency’s investments policyrequires delivery of securities to a safekeeping agent in the name of the Agency. The Agency believes it has nosignificant custodial credit risk.

25



JUNE 30, 2011 AND 2010

NOTE 3- RESTRICTED ASSETS AND LIABILTIES

Details of restricted assets and liabilities as of June 30, 2011 and 2010, are as follows:

2011 2010

Construction Other Total Construction Other Total

Current restricted assets:

Cash and cash equivalents $ 4,308,345 $6,911,063 $11,219,408 $8,999,278 $6,147,622 $15,146,900

Interest receivable 14,762 -14,762 36,762 - 36,762

Reclamation receivable - 42,774 42,774 - 132,099 132,099

Grant receivable 5,692 - 5,692 5,692 - 5,692

4,328,799 6,953,837 11,282,636 9,041,732 6,279,721 15,321,453

Current liabilities payable from

restricted assets:

Construction services payable 4,016,920 278,119 4,295,039 4,657,890 524,368 5,182,258

RestrictedNetAssets $ 311,879 $6,675,718 $ 6,987,597 $4,383,842 $5,755,353 $10,139,195

26


NOTES TO FINANCIAL STATEMENTSJUNE 30. 2011 AND 2010

NOTE 4- CAPITAL ASSETS

Capital asset activity for the fiscal year ended June 30, 2011, was as follows:

Capital Assets Not Being Depreciated:Land and easementsConstruction in Progress

Total Capital AssetsNot Being Depreciated

Capital Assets Being Depreciated:ImprovementsBuildingsEquipment

Total Capital Assets BeingDepreciated

Total Capital AssetsLess Accumulated Depreciation:

ImprovementsBuildingsEquipment

Less Accumulated Depreciation:Capital Assets, Net

NOTE 5- LONG-TERM DEBT

Summary

BalanceDeductions June30, 2011

- $ 2,097,8271,039,512 9,347,878

1,039,512 11,445,705

- 51,640,199- 97,221,016

443,418 77,346,011

443,418 226,207,2261,482,930 237,652,931

- 23,098,405- 52,544,015

430,476 64,853,281430,476 140,495,701

$ 1,052,454 $ 97,157,230

The changes in the District’s long-term obligations during the year consisted of the following:

Revenue BondsPremiumsConstruction loansConstruction loans-Guaranteed

Balance Balance Due inJuly 1, 2010 Additions Deductions June 30, 2011 One Year

$ 16,155,000 $ - $ 1,075,000 $ 15,080,000 $ 1,030,000464,088 - 31,723 432,365 31,723832,981 - 198,808 634,173 204,973

21,667,641 - 1,134,015 20,533,626 1,149,364$39,119,710 $ - $2,439,546 $36,680,164 $2,416,060

BalanceJuly 1, 2010 Additions

$ 2,097,827 $ -

7,345,409 3,041,981$

9,443,236 3,041,981

51,640,199 -

96,679,989 541,02776,910,307 879,122

225,230,495 1,420,149234,673,731 4,462,130

22,237,060 861,34550,162,079 2,381,93663,680,323 1,603,434

136,079,462 4,846,715$ 98,594,269 $ (384,585)

27



JUNE 30. 2011 AND 2010

Bonded Debt

in 2003, the Agency issued revenue refunding bonds in the amount of$11,430,000. Interest is payable June 2004

through June 2017 at a weighted average interest rate of 3.57%. Principal payments commenced on June 30,

2004. A portion of the proceeds froni the bonds were used to refund the balance of the 1993 revenue refunding

bonds ($4,405,000). The remaining lulance of the proceeds was used to refund a portion of the 1994 capital

appreciation waste water contract revnue bonds.

In 2006, the Agency issued revenue Ionds in the amount of $9,780,000. Interest is payable semiannually

beginning December 1, 2006 througlijune 1, 2026 at a weighted average interest rate of 4.77%. Principal

payments begin on June 30, 2014. Th e bonds were issued to finance the construction of a biosolid dewatering

facility, a new cogeneration facility, ond the Salinas pump capacity enhancement project.

The outstanding general obligation bonded debt is as follows:

Outstanding

Redeemed June 30, 2011

$ 1,075,000 $ 5,300,000

- 9,780,000

$ 1,075,000 $ 15,080,000

Debt Service Requirements to Maliurity

The bonds mature through 2026 as follows:

Year ending June 3020122013201420152016

20 17-202 12022-2026

Premium, net of amortization

Total

Principal Interest Total

$ 1,030,000 $ 707,563 $ 1,737,563

1,050,000 656,063 1,706,063

980,000 611,438 1,591,438

1,135,000 569,788 1,704,788

1,095,000 523,763 1,618,763

4,690,000 1,950,088 6,640,088

5,100,000 772,500 5,872,500

15,080,000 $ 5,791,203 $ 20,871,203

432,365

$ 15,512,365

Bonds

Issue Maturity Interest Original Outstanding

Date Date Rate Issue July 1, 2010 Issued

2003 2017 3.57% S 11,430,000 $ 6,375,000 $ -

2006 2026 4.77% 9,780,000 9,780,000 -

$ 16,155,000 $ -

Bonds

28


NOTES TO FINANCIAL STATEMENTSJUNE 30. 2011 AND 2010

Construction Loans

In 1995, the Agency participated in the State Revolving Loan Fund Program with a maximum loan amount of$3,275,425 at an interest rate of 3.1% per annum. The loan is payable in annual installments of $224,632,including interest, at 3.1% per annum, with the final payment due August 13, 2013.

In 1999, the District participated in the State Revolving Loan Fund Program with a maximum loan amount of

$8,850,000 at an interest rate of 3.03% per annum. The loan is payable in annual installments of approximately

$630,000, commencing March 31, 2000, including interest, with final payment due March 31, 2018. Repaymentof this loan is guaranteed by the County of Monterey (see Note 6).

In 2003, The Agency obtained a Bureau of Reclamation loan with a maximum loan amount of $20,544,400 at aperiodic interest rate of 7.625%. Debt service payments began on April 1, 2003, with final payment dueDecember 2036. Repayment of this loan is guaranteed by the County of Monterey (see Note 6).

The outstanding construction loan debt is as follows:

IssueDate

__________ __________

1995Monterey County Guaranteed

1999 2018 3.030%2003 2037 7.625%

4,417,89617,249,74521,667,641

$ 22,500,622

Debt Service Requirements to Maturity

The construction loans mature through 2014 as follows:

Year ending June 30201220132014

Principal Interest

$ 204,973 $ 19,659211,325 13,305217,875 6,754

$ 634,173 39,718

Loans

Maturity Interest Original Outstanding

Date Rate Issue July 1, 2010

2014 3.100% $ 3,275,425 $ 832,981

8,850,00020,544,400

LoansOutstanding

June 3 0, 2011634,173

Issued Redeemed

$ - $ 198,808 $

- 495,135 3,922,761- 638,880 16,610,865- 1,134,015 20,533,626

$ - $1,332,823 $ 21,167,799

Total

$ 224,632224,630224,629673,891

29


NOTES TO FINANCIAL STATEMENTSAND 2O1Q___

The Monterey County construction loans mature through 2037 as follows:

Year ending June 3020122013201420152016

2017-20212022-20262027-20312032-2036

2037

Principal Interest Total

$ 1,149,364 $ 567,856 $ 1,717,220

1,165,189 540,305 1,705,494

1,181,504 512,264 1,693,768

1,198,326 483,717 1,682,043

1,215,668 454,649 1,670,317

4,401,502 1,877,261 6,278,763

3,194,397 1,527,715 4,722,112

3,194,397 1,234,576 4,428,973

3,194,397 941,436 4,135,833

638,882 153,110 791,992

$ 20,533,626 $ 8,292,889 $ 28,826,515

NOTE 6- WATER RECLAMAT[ON PROJECT

In September 1995, construction began on a tertiary treatment plant, which would allow the Agency to reclaim

water and provide it to local agricultural water users (the Reclamation Project). The construction project was

substantially complete at June 30, 1 98, and the Agency transferred the cost of the project, totaling approximately

$33 million, from CIP to fixed assets, as of July 1, 1998. Funding for the construction project was provided by a

zero interest loan from the Bureau of Reclamation, a low interest loan from the California State Revolving Loan

Fund and funding from the Monterey County Water Resources Agency.

The Agency has contracted with the County of Monterey to provide the reclaimed water, which is sold to

agricultural water users. Water deliveries to users commenced during the later part of fiscal 1999.

The Agency receives operating resources from the County sufficient to fund both the ongoing operations and

maintenance of the tertiary treatmert plant and the debt service requirements on the loans incurred by the Agency

to build the plant. The sources of these operating resources are expected to be generated from water user charges

and assessments. In addition, the Agency has contracted with the County to provide services relating to the

distribution of the reclaimed water to the users.

The Reclamation Project, from an operational standpoint, is designed to be revenue-neutral to the Agency. All

identifiable operating costs of the tertiary treatment plant, including the storage and distribution of reclaimed

water to the users, are reimbursed from the County of Monterey. In addition, as noted above, the County is

responsible for reimbursing the Agency for the debt service on the loans used to fund the construction project as

the payments come due. Since the tertiary treatment plant is an asset of Agency, the Agency commenced

depreciating the plant during the 1998-99 fiscal year, the year it was placed into service.

30


NOTES TO FINANCIAL STATEMENTSOl1AD2OlO

Reimbursements from the County to pay the principal portion of the loans incurred to fund the plant constructionwill eventually offset the depreciation expense on the treatment plant. However those reimbursements will not bereceived by the Agency in the same timeline that the depreciation expense is being charged to operations, thuscreating a potential distortion of the Agency’s results of operations. Therefore, the Agency is accruing a noncurrent receivable from Monterey County for the unfunded depreciation expense on the reclamation plant,approximately $1,100,000 per year. Reimbursements from the County for debt service on the state loancommenced during the year ended June 30, 2000, and reimbursements on the Bureau of Reclamation loancommenced during the year ended June 30, 2006. Reimbursements that relate to principal repayments arecredited against the receivable balance. Such reimbursements totaled $1,134,015 and $1,l 19,128 for the yearsended June 30, 2011 and 2010, respectively.

The net impact of this treatment is to properly abate both the current depreciation expense on the reclamationplant and the future principal reimbursement to the Agency (otherwise reflected as income) resulting in no netimpact to the Agency’s statement of operations. The County is the primary guarantor of both loans and iscontractually obligated to the Agency to provide the necessary debt service reimbursements as those amountsbecome due.

NOTE 7- DEFUED BENEFIT PENSION PLAN

CaIPERS Pension Plan (The Plan)

Plan Description

The Agency provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits toplan members and beneficiaries.

The Plan is part of the Miscellaneous Plan of CaIPERS, a cost-sharing agent multiple-employer defined benefitplan administered by Ca1PERS, which acts as a common investment and administrative agent for participatingpublic employers within the State of California. A menu of benefit provisions as well as other requirements isestablished by State statutes within the Public Employees Retirement Law. The Agency selects optional benefitprovisions from the benefit menu by contract with CaIPERS and adopts those benefits through board resolutions.Ca1PERS issues a separate comprehensive annual financial report. Copies of the CaIPERS annual fmancial reportmay be obtained from the Ca1PERS Executive Office, 400 P Street, Sacramento, CA 95814.

Funding Policy

The Agency, on behalf of the employees participating in the Plan, contributes 8% of their annual covered salary.In addition, the Agency is required to contribute the actuarially determined remaining amount necessary to fundthe benefits for its members. The actuarial methods and assumptions used are those adopted by CaIPERS Boardof Administration. The employer contribution rate, which included the employee portion of 7%, was 23.679%,23 .006%, and 22.782% for the years ended June 30, 2011, 2010, and 2009, respectively. The contributionrequirements of the plan members are established by State statute and the employer contribution rate isestablished and may be amended by CaIPERS. The Agency’s annual pension cost was $2,238,988, $2,180,258and $2,097,847 for the years ending June 30, 2011, 2010 and 2009, respectively, and equals 100 percent of therequired contributions for each year.

31



2O1 AND 2OU

NOTE 8 — JOINT POWERS AGREEMENT

The Agency participates in one joint ‘venture under a joint power agreement (“JPA”) with the California

Sanitation Risk Management Authority (“CSRMA”). The relationship between the Agency and CSRMA is such

that CSRMA is not a component unit of the agency for financial reporting purposes.CSRMA arranges for and

provides worker’s compensation, property, liability, errors, and omissions insurance for its member governmental

entities. A board consisting of represeritatives from its member entities governs the CSRMA.The board controls

the operations of the CSRMA including selection of management and approval of operating budgets, independent

of any influence by the member distriot beyond their representation on the board. Each member district pays a

premium commensurate with the level of coverage requested and shares surpluses and deficits proportionate to

their participation in the CSRMA. CSRMA has budgeting and financial reporting requirements independent of

member units and its financial statements are not presented in these financial statements; however, fund

transactions between CSRMA and tb Agency are included in these statements. Audited financial statements are

available from the respective entity. The Agency has appointed one board member to the governing board of

CSRMA. During the year ended June 30, 2011, the Agency made payments of $360,382 to CSRMA for workers

compensation and property and liabilily insurance premiums.

NOTE 9- SALINAS RIVER DIVERSION FACILITY (SRDF)

This receivable represents amounts alvanced by the Agency to the Monterey County Water Resources Agency

(MCWRA) for costs of the design and construction of the Salinas River Water Disinfection System (SRDD) and

connection to the 80 acre foot pond at the Salinas Valley Reclamation Plant (SVRP). The project will impound

water from the Salinas River, and min the water with water produced by the SVRP in the Pond. The combined

water will then be chlorinated for food safety purposes and then distributed to growers for agricultural uses

through the existing Castroville Seawater Intrusion Project’s (CSIP) distribution system. As of June 30, 2011, it

has not been determined who will actually own the system, however the Agency and MCWRA are currently

working on an agreement whereby MRWPCA would operate and maintain the system with all operating costs

being subject to reimbursement from MCWRA. As such, the advanced costs have been treated as a receivable as

these costs as well are subject to reinibursement. The amounts recorded as of June 30, 2010 were repaid in the

2010-11 fiscal year.

NOTE 10- URBAN RECLAMATION PROJECTS

Project 501, Urban Recycled Watci Project - The Agency and Marina Coast Water District (MCWD) are in

involved in the Regional Urban Water Augmentation Project (RUWAP) to construct a new pipeline that will

convey recycled water from the Regional Treatment Plant to recycled water users. This project is designed to

deliver recycled water from the Agency’ s treatment facility, for urban reclamation purposes to users in and around

the Monterey Peninsula. It will consist of a pump station and pipe distribution system. The total cost of the

project at completion is estimated tobe in the $40 million range. At present, the Agency has expended $3.2

million on the project and those costs have been capitalized as part of construction in progress at year-end. The

Marina Coast Water District is the lead agency for completion of the RUWAP project and MRWPCA intends to

get reimbursed from the customers who will be receiving the advanced treated water.

Project 502, the Groundwater Replenishment Project — This project is designed to further treat secondary or

tertiary treated effluent to an advanced level such that it is suitable to inject the advanced treated water into the

Seaside Groundwater Basin. This project will include the construction of a microfiltration facility and a reverse

osmosis facility at the Agency’s treatment plant. In addition, additional pump stations and pipelines will be

required. The total cost of this project at completion is estimated to be $70 million. At present the Agency has

expended approximately $1 million to date. MI{WPCA intends to get reimbursed from the customers who will be

receiving the recycled water.32



These projects represent the Agency’s response to tackling the problem of finding new sources of water to meetthe needs of the population in the Monterey Bay Area. There are other proposed solutions to the water shortageproblem, including a regional desalinization plant that has been approved by the Public Utilities Commission, butis currently being reconsidered by the project proponents. The final solution to the area’s water needs mayinvolve a number of separate individual solutions that collectively solve the shortage problem. Management ofthe Agency are confident that, whatever series of alternatives are ultimately approved to solve the water shortageproblem, recycled water will be a vital, cost effective, part of the overall solution, thus capitalization of these costsin construction work in progress is appropriate.

Both of these projects, in order to be completed, will require substantial additional financing.

33

OTHER SUPPLEMENTARY INFORMATION

34


BUDGETARY COMPARISON SCHEDULEQI1XR. ENDED JUNE 3Oj

VarianceApproved Favorable

Budget Actuals (Unfavorable)OPERATING REVENUES

Userfees $16,218,940 $17,430,370 $ 1,211,430Other 1,993,806 744,844 (1,248,962)

Total Revenues 18,212,746 18,175,214 (37,532)

OPERATING EXPENSESAdministrative 1,559,547 1,578,547 (19,000)Finance 2,083,184 2,025,041 58,143Laboratory 1,323,076 1,322,405 671Regional Treatment Plant - Administrative 677,522 648,914 28,608Field Maintenance 3,688,424 3,604,506 83,918Cogeneration 984,823 1,167,425 (182,602)Regional Treatment Plant - Maintenance and Operations 5,846,281 5,195,005 651,276Major Maintenance and Operations Non Capital Projects 550,000 546,321 3,679

Total Operating Expenses 16,712,857 16,088,164 624,693

DEBT SERVICEPrincipal 1,273,808 1,273,808 -

Interest 787,135 782,655 4,480Total Debt Service 2,060,943 2,056,463 4,480

OTHER INCOME (EXPENSE)Interest income 29,935 43,991 14,056

Capacity charges 667,411 601,682 (65,729)Other 143,400 106,754 (36,646)

Total Other Income (Expense) 840,746 752,427 (88,319)

CAPITAL CONTRIBUTIONS - 133,608 133,608CAPITAL OUTLAY (4,282,000) (3,422,618) 859,382

(4,282,000) (3,289,010) 992,990

CHANGE [N NET ASSETS $ (4,002,308) $ (2,505,996) $ 1,496,312

See accompanying note to supplementary information.

35


SCHEDULE OF FEDERAL FINANCIAL

FOR THE YEAR ENDED JUNE 30. 2011

Program Name

Environmental Protection Agency

Revolving loan - Marina Project

Revolving loan - Reclamation Project

Department of the Interior

Bureau of Reclamation Loan 15.000

$ 832,981 $ - $ 198,808 $ 634,173

4,417,896 - 495,135 3,922,761

5,250,877 - 693,943 4,556,934

17,249,745 - 638,880 16,610,865

Totals

See accompanying note to supplementary information.

$22,500,622 $ - $1,332,823 $21,167,799

ASSISTANCE

Federal Loan Loan

CFDA Balance Balance

Number June 30, 2010 Add Delete June 30, 201 1

66.45866.458

36


NOTES TO OTHER SUPPLEMENTARY INFORMATIONFOR

NOTE 1- BUDGETARY BASIS OF ACCOUNTING

The Agency prepares its budget on a basis of accounting that differs from generally accepted accountingprinciples (GAAP). The actual results of operations are presented in the Supplemental Schedule on the budgetarybasis to provide a meaningful comparison of actual results with budget. In addition, certain budget amounts havebeen reclassified to conform to the presentation of actual amounts in the Supplemental Schedule. Budgetedamounts presented are the original adopted budget. The primary difference between the budgetary basis ofaccounting and GAAP is that capital assets are expensed rather than capitalized and depreciated and that debtprincipal payment are expensed rather than a reduction of liability.

NOTE 2- RECONCILIATION OF BUDGETARY BASIS TO GAAP BASIS

A reconciliation of the budgetary basis of accounting to GAAP is as follows:

Change in net assets - budgetary basis $ (2,505,996)Capital outlay 3,422,618Principal payments on long-term debt 1,273,808Depreciation and amortization (3,716,525)

Change in net assets GAAP basis $ (1,526,095)

NOTE 3- SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE

General

The accompanying schedule of Federal financial assistance presents the revolving loans from the EPA through theState of California and the loan from the Bureau of Reclamation through the Department of the Interior. Proceedsfrom such loans were used to fund construction of a tertiary water treatment plant to provide reclaimed water tobe used for agricultural purposes. The expenditures for construction of the plant have been tested in prior years.There were no significant project expenditures during the year ended June 30, 2011.

Basis of Accounting

The accompanying schedule of federal financial assistance is presented using the accrual basis of accounting.

Grant Amendments

No grant amendments were made during the current year.

37


38

Vavrinek, Trine, Day & Co., LIPCertified Public Accountants

Board of DirectorsMonterey Regional Water Pollution Control AgencyMonterey, California

Internal Control Over Financial Reporting

INDEPENDENT AUDITOR’S REPORT ON iNTERNAL CONTROLOVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS

BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED INACCORDANCE WITH GOVERNMENTAL AUDITING STANDARDS

We have audited the financial statements of Monterey Regional Water Pollution Control Agency (the “Agency”)as of and for the years ended June 30, 2011 and 2010, and have issued our report thereon dated November 10,2011. We conducted our audits in accordance with auditing standards generally accepted auditing in the UnitedStates and the standards applicable to financial audits contained in Government Auditing Standards, issued by theComptroller General of the United States.

In planning and performing our audit, we considered the Agency’s internal control over financial reporting as abasis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements,but not for the purpose of expressing an opinion on the effectiveness of the Agency’s internal control overfinancial reporting. Accordingly, we do not express an opinion on the effectiveness of the Agency’s internalcontrol over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management oremployees, in the normal course of performing their assigned functions, to prevent or detect and correctmisstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internalcontrol, such that there is a reasonable possibility that a material misstatement of the entity’s financial statementswill not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control over financial reporting was for the limited purpose described in the firstparagraph of this section and was not designed to identifi all deficiencies in internal control over financialreporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identifi anydeficiencies in internal control over financial reporting that we consider to be material weaknesses, as definedabove.

As part of obtaining reasonable assurance about whether the Agency’s financial statements are free of materialmisstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts andgrant agreements, noncompliance with which could have a direct and material effect on the determination offinancial statement amounts. However, providing an opinion on compliance with those provisions was not anobjective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed noinstances of noncompliance or other matters that are required to be reported under Government AuditingStandards.

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • SACRAMENTO

Compliance and Other Matters

39

260 Sheridan Avenue. Suite 440 Palo Alto, CA 94306 Tel: 650.462.0400 Fax: 650.462.0500 www.vtdcpa.com

VALUE THE DIFFERENC

This report is intended for the information of the board of directors, finance and personnel committee,

management, the State Controller’s Office, Federal awarding agencies, and pass-through entities, and is not

intended to be and should not be used by anyone other than these specified parties.

Palo Alto, CaliforniaNovember 10, 2011

40

Joint Powers Authority Member Entities: Boronda County Sanitation District, Castroville Community Services District, County of Monterey, Del Rey Oaks, Fort Ord, Marina Coast Water District, Monterey, Moss

Landing County Sanitation District, Pacific Grove, Salinas, Sand City, and Seaside.

MEMORANDUM TO: BUDGET/PERSONNEL COMMITTEE FROM: JERRY VALLADAO, ASSOCIATE ENGINEER (via Brad Hagemann, Assistant General Manager) DATE: NOVEMBER 15, 2011 SUBJECT: APPROVE CONTRACT FOR REGIONAL TREATMENT PLANT

SEISMIC ASSESSMENT ──────────────────────────────────────────────────

BACKGROUND: The Seismic Assessment Project was budgeted for this fiscal year to perform a seismic assessment of several buildings and tanks located at the Regional Treatment Plant (RTP). The need for a seismic assessment was identified during the Asset Management walkthrough and CIP development in 2010. Seismic design standards have changed since the RTP structures were initially designed in the mid-1970s. The objective of this project is to extend the structures’ and tanks’ service lives and to reduce the risks of significant damage or failure during seismic events by identifying any needed seismic retrofits. The work will include an analysis of the structures and tanks and provide findings and recommendations for a seismic retrofit, if required, in order for the structures and tanks to be in compliance with the 2010 California Building Code. The seismic assessment will include the following structures and tanks:

• Bioflocculation Building

• Storage Building (Metal Building System)

• Chemical Building

• Firehouse Building

• Two Welded Steel Tanks (Fire Suppression)

• One Polyethylene Tank (Fire Suppression and Plant Water Supply)

Budget/Personnel Committee November 15, 2011 Page 2 of 2

• High Pressure Methane Gas Storage Tank

• Power Generation Building

• Trickling Filter Electrical Building A request for proposals for the seismic assessment was sent to fifteen (15) engineering firms in mid-August. Five proposals were received on September 20 and reviewed by four staff members. The review team met on September 29 and unanimously recommended Carollo Engineers to perform the seismic assessment. Carollo was deemed best qualified because the methodology and procedures outlined in their proposal far exceeded the other proposals. Carollo Engineers have extensive experience in seismic assessment projects and are more familiar with the facilities at the RTP compared to the other firms that proposed. The review team agreed that Carollo will be able to provide an excellent product to meet the project objectives. After determining that Carollo was the best qualified firm, staff entered into price negotiations with Carollo Engineers and agreed on a price of $149,689. The original scope of the CP254 project did not include assessment of the power generation building and the high-pressure methane gas storage tank. Staff recommends that these two structures be added to the scope of work because the high-pressure methane gas storage tank is showing signs of corrosion and a seismic assessment of the power generation building was recommended as noted in the Assessment Management walkthrough in 2010 but was not originally included in the scope of CP254. The high-pressure methane gas storage tank structure could pose a safety hazard and should be assessed as part of this project. The amount budgeted for this project is $100,000 but, as stated above, the budget did not include the power generation building and high-pressure methane gas storage tank. Staff recommends adding available funds ($50,000) from CP163 (Cogeneration Gas Project) and completing the assessment to include the power generation building and high-pressure methane gas storage tank. Therefore, the available funds would total $150,000. RECOMMENDATION:

Staff recommends that the Budget/Personnel Committee recommend to the Board approval of a contract with Carollo Engineers to perform a seismic assessment of the above listed structures in the amount of $149,689, including the assessment of the Cogeneration Building and the High-Pressure Methane Gas Storage Tank. Z:\BOARD COMMITTEES\BUDGET-PERSONNEL COMMITTEE\2011\November\Seismic Assessment Project 11-2011.doc



MEMORANDUM TO: BUDGET/PERSONNEL COMMITTEE FROM: BRAD HAGEMANN, ASST. GENERAL MANAGER

(via Keith Israel, General Manager) DATE: NOVEMBER 16, 2011 SUBJECT: APPROVE SELECTION OF FIRM FOR CALPERS SIDE FUND

FINANCING At the October 31, 2011 Board meeting, the Board approved staff to consider and evaluate specific Side Fund refinancing recommendations to be considered in November by the Budget/Personnel Committee. As discussed previously, we are evaluating options to refinance about $9 million that is currently financed through PERS at 7.75%. Refinancing at a lower interest rate would save more than $100,000 per year. Bond Refinancing: The first step in preparing bond refinancing recommendations is to retain a Financial Advisor to advise and assist the Agency in formulating and/or executing a debt-refinancing plan. Staff sent out five Request for Proposals: two (2) RFPs were sent to banks and three (3) were sent to firms that specialize in financial advising. The banks did not return a proposal; however, we received proposals back from the three financial advising firms. The three (3) firms are:

• Mr. Brian O’Connor, HutchinsonShockeyErley&CO (HSE)

• Mr. Saul Rosenbaum, Prager & Co., representing California Special Districts Association (CSDA) Financial Corp

• Mr. Jeff Land, Brandis Tallman LLC

MEMORANDUM Budget/Personnel Committee November 16, 2011 Page 2 of 2 In reviewing the proposals, Prager & Co. offered the best overall proposal. Although the interest rate may change at the time of the offering, the firm believes our Agency can get an interest rate of around 4%. The other two proposals were in the 5% range. The Agency is currently paying 7.75% interest to CalPERS on our Side Fund. Prager’s proposal provides for a savings of about $3 million dollars over the fifteen year life of the loan and $1 million more than the other two firms. Prager & Co. estimates the cost of the issuance would be approximately $185,000 compared to around $100,000 for the other two firms. Staff believes we could work with Prager & Co. to reduce their estimated cost of issuance. In either case, the increased cost of issuance would be recovered within the first two years due to the more favorable interest rate. Reserve Refinancing: At the October 31 Board meeting, the Board also requested staff look into the possibility of using existing Agency reserves to “buy down” some or all of the Side Fund obligation. However, our preliminary findings are that our unrestricted reserve balances are approaching the Board approved levels (about $3.2 million) and, therefore, using reserves to buy down a portion of the Side Fund would not be prudent. In addition, we may want to keep any extra reserves available for special projects such as the Groundwater Replenishment Project. RECOMMENDATION: Staff recommends that the Budget/Personnel Committee recommend to the Board that staff initiate work with Prager & Co. to negotiate an underwriting contract that will result in refinancing the Agency’s CalPERS Side Fund as soon as practicable. C:\Users\betty\AppData\Local\Microsoft\Windows\Temporary Internet Files\Content.Outlook\766H`H33T\BP CalPERS Side Funding 111611.docx

REQUEST FOR UNDERWRITER PROPOSAL

JLEMONTEREY REGIONAL WATER POLLUTION CONTROL

AGENCY (MRWPCA)

TAXABLE PENSION OBLIGATION BONDS

PRAGER & Co., LLCINVESTMENT BANKERS

As underwriters for:

RESPONSE TO:

FOR:

NOVEMBER 15, 2011

CSDA Finance Corporation

PRAGER & Co., LLC1XVi.S1MINI B,x KRS

November 14, zon

Mr. John TiernanDirector of Administrative Services/Deputy GMMonterey Regional Water Pollution Control Agency5 Harris CourtBuilding DMonterrey, CA 9394°

Dear Mr. Tiernan,

On behalf of Prager & Co., LLC, I am pleased to submit our qualifications to provideunderwriting services to the Monterey Regional Water Pollution Control Agency(MRWPCA or Agency). As a result of our long-standing history of providing publicfinance services to California special districts, Prager is especially qualified to lead theAgency’s underwriting effort with regard to the proposed refinancing of its existing PERSSide Fund loan. Prager has provided public finance services for over ioo special districtfinancings, totaling over $750 million. This fact is especially relevant since, like MRWPCA,many of these special districts are water and/or sewerage districts, and episodic borrowersof tax-exempt debt. In a time when special districts are enduring continued economic andpolitical assault, it is essential that an Agency’s underwriter possess relevant experienceand knowledge regarding the unique financing constraints of special districts.

Our relevant experiences will guarantee a thoughtful financing plan and the timelyissuance of securities, structured and marketed in the most economical and efficientmanner possible.

PROFESSIONALS DEDICATED TO THE AGENCY

Our primary task is to work with the Agency to arrange, effectively and efficiently, arefinancing program which: (i) complies with all existing legal parameters; (ii) providesthe Agency with maximum debt service savings; (iii) receives significant market attention;and, (iv) preserves current and future financing flexibility. The Prager professionals whowill work with the Agency will offer significant insight into debt structuring options, andensure that the Agency staff understands and is comfortable with each step of thefinancing program.

PROACTIVE APPROACH

Prager takes a proactive approach to its underwriting work. We offer structuring advice,manage the credit rating process, and supervise the preparation of the official statements.Our approach is designed to ensure that the Agency stays in control of its plan offinancing.

PRAGER & Co., LLCINVEsI-MENr B\NKERs

Our work throughout the West has provided opportunities to apply sophisticatedsolutions to challenging problems. By working closely with our clients, credit analysts,legal counsel, and investors, we have designed financing programs that incorporate seniorand subordinated lien structures, favorable debt service coverage requirements, ratestabilization funds, variable and fixed rate obligations, and structures that maximizefinancing economics through reimbursement and/or project draw schedules. Our analysisconsiders the effect of the recommended plan-of-finance on the overall financing programand credit rating, identifies potential benefits and both credit and basis point riskexposure, describes the costs and implementation procedures, and concludes whether therecommendation is appropriate and under what market conditions it should beimplemented.

In addition, Prager, is extremely familiar with California special districts, and has theability to structure an offering to receive the greatest level of investor interest. Because ofour daily involvement in the fixed-income capitals market, we are aware of which types ofloans sell briskly, and who will likely be interested in purchasing certain maturities.Pragers salespeople and traders have marketed more than 5 public taxable transactionstotaling over $10.5 billion of par. Our San Francisco and New York underwriting desks willprovide the Agency with comprehensive market coverage and pricing information.

Prager’s success stems from the belief that public finance is local finance, and bydefinition, local finance frequently occurs off the beaten path. We are public financeprofessionals, and therefore dedicate ourselves to those of you who are dedicated to publicservice. Our corporate philosophy mandates that we extend our services to the publicagencies who will benefit the most from our expertise.

Prager would be privileged to work with the Agency on its refinancing, and, if selected, wewill approach this engagement with enthusiasm and innovation.

Very truly yours,PRAGER & CO., LLC

Saul RosenbaumManaging Director

Table of Contents

Response to RFP 1 - 10

A. Qualifications of Vendor

Prager & Co., LLC (“Prager” or “the Firm”) is responding to the Monterey Regional WaterPollution Control Agency’s (“the Agency”) RFP regarding its California Public Employees’Retirement System (“PERS”) pension obligation Side Fund refinancing.

NATIONAL BANKING PRESENCE

Headquartered in California with a nationwide scope, Prager is a full-service investment banking,bond trading, and financial advisory firm dedicated exclusively to public finance. The Firm isheadquartered in San Francisco, and maintains an office in New York from where its Sales &Trading activities occur. The total capital resources to which Prager & Co., LLC has accessexceeds $1.5 billion.

Since 1987, Prager has achieved recognition as a premier public utility financial advisoryand investment-banking firm in California. The firm’s professional staff possesses expertise inmajor areas of tax-exempt and taxable municipal finance including water/wastewater, publicpower, resource recovery and solid waste disposal, transportation, redevelopment, general leaserevenue, general obligation, and real estate finance for clients throughout the United States andits territories. Since 2006, the Firm has served as underwriter on over 57 taxable transactionstotaling more than $10.5 billion in par amount.

EXPERIENCE OF PRIMARY BANKER

Prager has assigned a talented and seasoned team to work with the Agency on its financingprogram. Saul Rosenbaum will serve as the District’s main contact.

Saul Rosenbaum is a Managing Director in the Firm’s San Francisco office and has over 25 years ofexperience in public finance. He has particular expertise with water and wastewater agencyfinancing, and is a regular speaker on certificate of participation financing techniques. Prior tojoining the firm in 1994, Saul was a Vice President in the San Francisco Public Finance Group ofPrudential Securities Incorporated, where he concentrated on utility finance for the westernUnited States. Before joining Prudential Securities Inc., Saul was a Senior Consultant in theMunicipal Finance Consulting Division of Ernst & Young where he provided escrow, cash flowand yield verification services for municipalities nationwide.

Saul has extensive technical background in structuring and designing various types of municipaltransactions and has assisted California public agencies with over $5.1 billion in tax-exemptfinancing to date. A partial listing of the types of issuers with whom Mr. Rosenbaum has worked

CSDA Finance CorporationtflPage 1 of 10

include water and wastewater authorities, public utility agencies, transportation authorities,redevelopment authorities, and pooled financing authorities.

Saul graduated with honors from the University of Arizona where he received a BS in Finance. Hehas been a faculty speaker for the California Debt Advisory Commission as well as a member ofthe Water Reclamation and Reuse subcommittee for the Association of California WaterAgencies. He is a general securities Registered Representative and Principal with the FinancialIndustry Regulatory Authority (FINRA).

Some of Saul’s noteworthy transactions include financings for the California Special DistrictsAssociation, Tn Cities Municipal Water District, Lassen Municipal Utility District, OrovilleWyandotte Irrigation District, and Goleta Sanitary District.

In 1988, the Board of Directors of the California Special Districts Association (“CSDA” or “theAssociation”) sponsored the formation of a non-profit public benefit corporation - the CSDAFinance Corporation - designed to assist California Special Districts and other member agenciesof the Association in their efforts to enhance revenues and reduce costs using innovativefinancing programs. In its 24 years of existence, the CSDA Finance Corporation has facilitatedwith the funding of over $750 million in capital improvement and equipment purchase projectsfor more than 100 California Special Districts.

B. At least three current Debt Financing performed for a Public Agency.

Prager serves as the sole underwriter to the California Special Districts Association.

Formed in 1987, Lassen MUD is a remotely located electric utility serving 10,000 customers innortheastern California. Prior to Prager’s involvement, the District was obligated to pay interestrates approximating 8.75% on its entire outstanding debt balance of $21 million. The capitalmarket provided an opportunity for Lassen MUD to lock-in approximately 8% present-valuesavings, thereby dramatically reducing the District’s cost of funds. Through negotiations withinvestors and the credit community, Prager was able to arrange a fixed-rate refinancing whichachieved the District’s economic goals and minimized future risk and uncertainty. Since then, theDistrict has been able to improve its financial situation through renegotiated power salescontracts and prudent financial management.

Located in the foothills of the Sierra Nevada mountains, Oroville-Wyandotte IrrigationDistrict provides treated and irrigation water to approximately 6,400 customers and operates

CSDA Finance CorporationPage 2 of 10

two hydro-electric power projects along the Feather River. The District, formed in 1914, operatesa water distribution system that experienced a significant amount of leakage, resulting insubstantial repair costs and lost water. In an effort to eliminate these repairs, the Districtembarked on a steel pipeline replacement project in 1995.

Prager provided senior managed underwriting services for the District’s pipeline replacementprogram.

The Tn Cities Municipal Water District financing was significant in that an “A” rating for theobligations was secured despite the fact that the District was wholly unknown to the publicfinance community and had operated with a very small operating margin for two decades. Pragercompleted a successful refinancing of the District’s original debt offering.

A financing for Goleta Sanitary District was an example of how a well-conceived bond issue wassuccessfully brought to market despite profound challenges such as no-growth sentiments andcrisis-level water shortages. Prager led the District’s effort to debt fund mission-critical capitalprojects and navigating unexpected problems and setbacks.

C. 3 Current References — Public Agencies Preferred

Current CSDA Contact:

California Special Districts AssociationNeil McCormick, Executive Director1112 IStreet, Suite 200Sacramento, CA [email protected]

Current Underwriting References:

Del Paso Manor Water DistrictDebra Sedwick, General Manager4268 Lusk DriveSacramento, CA [email protected]

CSDA Finance CorporationPage 3 oflO

Lake Hemet Municipal Water DistrictThomas Wagoner, General Manager26385 Fairview AvenueP.O. Box 5039Hemet, CA 92544951.658.3241 [email protected]

Rowland Water DistrictKen Deck, General ManagerP.O. Box 8460Rowland Heights, CA [email protected]

D. State the type of Debt Financing instrument that would be used.

After examining the Agency’s existing debt portfolio and current market conditions; and,considering the Agency’s financial outlook and enabling legislation, Prager recommends thefollowing debt financing instrument: fixed-rate taxable pension obligation bonds issued pursuantto California Government Code Section 53570 et seq. In terms of amortization structure, werecommend a solution possessing a final maturity in 2026 and one that generates uniform debtservice savings. This structure would be the most favorable to future projected budgets, since theestimated refunding debt service payments would be proportional to the existing estimated PERSpayments.

Assumptions:

1) The par amount of the fixed-rate taxable pension obligation refunding bonds will be lessthan the par of the remaining outstanding Side Fund, because PERS is offering a 3.7%discount as an incentive to prepay the Side Fund obligation. Prager excludes the 3.7%discount in this analysis, and assumes the outstanding par provided in the RFP.

2) A closing date of January 24, 2012 and interest rates as of November 11, 2011.


10%

8%

6%

4%

2%

0%

Source: Bloomberg

Alternative 1: Uniform Savings

14.0%

12.0%

8.0%

6.0%

4.0%

0.0%

This alternative generates a level amount of monetary savings over the duration of the existingobligation. Just as the Agency’s contribution to PERS is expected to grow at 3.25%, the Agency canelect to structure increasing refunding debt service that would produce approximately $220,000of savings each year until maturity. This provides constant budgetary relief throughout the termof the bond.

Key Figures and Statistics

Average Life: 8.78 Years

All-In TIC: 4.13%

PV Savings ($): $2.54 millionPV Savings (% of $8.79 million): 28.88%


10 Year Treasury Histogram of 10 Year Treasury Rates

12.8% 12.1%

0

10.0%

-

fl0%

-

-2-98.4%

5.__3%

6%2.0%

c m r-. o r’i m in D 00 O. -lO) C C 0 0 0 0 0 0 0O O O Q O 0 0 0 0 0 0 0 0-l ,- ,-1 ,-i ,-i - (N (N (N (N (N (N (N (N

Lqu

(N (N m rnV

OLOQinOinQOUQLrin in L.D D N N 00 00 0 0

Page 5 oflO

Alternative 1: Uniform Savings1.2

1.0

0.8‘I)

0.6

0.4

0.2

0.0

Alternative 2: Upfront Savings

The second option provides “upfront savings”. In year 2012, the Agency would realize savings ofapproximately $690,000, then $490,000 and $520,000 of budgetary relief in 2013 and 2014,respectively. After 2016, the Agency’s debt service payments would be equal to the existing SideFund payments. As currently projected, the total PV savings would be approximately $2.4 million.

Key Figures and Statistics

Average Life: 10.34 Years

TIC: 4.17%

PV Savings ($): $2.41 million

PV Savings (% of $8.79 million): 27.46%


— Interest

— Principal

—Budgetary Relief

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Page 6 of 10

1.4

1.2

1.0

0.80

0.6

0.4

0.2

0.0

Alternative 2: Upfront Savings

E. Complete the attached “worksheet” using only a 5 year “fixed interest rate”. The Agency doesnot want to refinance with a variable interest rate or shorten/extend the loan period.

Negative number shows savings asper the Agencys instructions

Annual Present Value

‘“s) I Cost at 3.25%216.1141 (209.(213,889) (200,E(217,055) (197.(217,165) (191,C(214,830) (183.C(215,530) (177(214,589) (171,(217,243) (168.2(218,694) (163,(218,994) (159.C(218,434) (153,€(217,398) (148,107(216,100) (142,588(214,735) (137,228(218,594) (135,297)

(3,249,365) (2,538,864)

Savings % New Issue 28.88%


— Principal

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Monterey Regional Water Pollution Control AgencySide Fund Refinancing - 15 year Fixed Interest RateSeries 2011 or 2012Gross Debt Service Schedule and Savinos Calculation (NPV Basis) - Miscellaneous

estimated

Fiscal Year Employer Side Fund

30-Jun Pension Obligation2012 806255

I’roposed Ketinancing cfleduIes

Interest AnnualRite Interest Princinal Debt Service1.80% 110.141 480.000 590.141

2013 832,4582014 859,5132015 887,4472016 916,2892017 946,0692018 976,8162019 1,008,5632020 1,041,3412021 1,075,1842022 1,110,1282023 1,146,2072024 1,183,4592025 1,221,9212026 1,261,634

Totals 15,273,285

1.94% 303,570 315,000 618,5702.08% 297,459 345,000 642,459232% 290,283 380,000 670,2832.60% 281,459 420,000 701,4592.89% 270,539 460,000 730,5393.15% 257,227 505,000 762,2273.40% 241,319 550,000 791,3193.58% 222,647 600,000 822.6473.74% 201,191 655,000 856,1913.90% 176,694 715,000 891,6944.03% 148,809 780,000 928,8094.14% 117,359 850,000 967,3594.23% 82,186 925,000 1,007,1864.30% 43,040 1,000,000 1,043,040

3,043,920 8,980,000 12,023,920

Page 7 of 10

F. Complete the “cost of issuance” worksheet.

Estimated orCategory Cost Fixed

Bond Counsel 40,000 Not to ExceedDisclosure Counsel 25,000

Underwriter’s Discount 67,350 Fixed

Trustee 5,050 Fixed

CSDA Fee (Program Sponsor) 13,440 FixedRating Agency (Assumes

30,000 FixedMoody’s and S&P)

Printer 3,000 Fixed

Other:-

Miscellaneous / Contingency 2,500 Estimated

Total $ 186,340

G. Length of time to complete refinancing, based on 12/1/11 start

Prager believes that the Agency can complete the pension obligation refinancing from start topricing in 38 days, or to closing in 45 days, assuming that a judical validation action is notrequired.

Below is a case study to show our ability to follow suchs a aggressive timeline.

CHANNEL ISlANDS BEACH COMMUNITY SERVICES AGENCY

Issue Size: $3,670,000

Rating: “AAA/Aaa”

Insurance: FSA Insured

Contact: Gerard Kapuscik

Phone: (805) 654-2706

Purpose: To fund Channel Island’s portion of the Port Hueneme water project.

Summary: The Districts of Port Hueneme and Channel Islands developed a joint water project toensure the continued availability of quality water to the region’s current and projected

CSDA Finance CorporationCflrAPage 8 oflO

consumers. In September 1996, with Proposition 218 looming and election day fast approaching,the District decided to finance its portion of the Port Hueneme joint water desalination softeningplant and distribution facilities with tax exempt obligations. Working closely with the District,legal counsel, and consulting engineers, Prager was able to secure a rating and bond insuranceand price the issue prior to November 5, 1996 -- a mere 40 calendar days from start to sale.

H. Provide any additional information that you feel will assist the Agency with the refinance

Infrequent Borrowers

Working with infrequent borrowers is a particular strength of the firm. For institutions, such asthe District, that have not accessed the tax-exempt/taxable markets in the past, there are manynew covenants, requirements and responsibilities that must be negotiated and understood. All ofthese issues will impact the District for years to come, so it is important to devote the energy tounderstand them today. Therefore, it is important that your chosen banker has the ability,experience and desire to guide the organization through this process and be able to explain issuesclearly and concisely. Taking the time to understand your needs, explaining the offering process,developing and articulating appropriate financing solutions, and being a partner in your futuresuccess are important to Prager.

Structuring and marketing infrequent borrowers of fixed-rate debt is a highly specialized area ofpublic finance. Prager’s bankers are regularly selected to work with first time and infrequentborrowers to develop and implement creative financing solutions. Prager possesses a powerfulnetwork and distribution system for both rated and non-rated credits. Prager believes we will beable to successfully place the Agency’s bonds with a buyer that will have the same interests as theAgency as a participant in the successful growth of this institution.

PRAGER EXPERIENCE WITh FIRST TIME BORROWERSASPIRE PUBLIC SCHOOLS (CA) MUSIC COMMUNITY CONCOURSE PROJECT (CA)BOULDER COUNTRY DAY SCHOOL (CO) OTIS COLLEGE OF ART AND DESIGN (CA)

NATIONAL CENTER FOR INTERNATIONALCANOE CREEK CHARTER SCHOOL (FL)SCHOOL (CA)

ESCONDIDO CHARTER HIGH SCHOOL (CA) NOTRE DAME DE NAMUR UNIVERSITY (CA)HOLY NAMES COLLEGE (CA) SRI INTERNATIONAL (CA)INTERNATIONAL SCHOOL OF THE PENINSULA

WILDLIFE CONSERVATION SOCIETY (NY)(CA)

MONTEREY INSTITUTE OF INTERNATIONALSTUDIES (CA)


Marketing CapabilitiesPrager has been underwriting California bonds since the Firm’s inception in 1987. Prager’smunicipal sales, trading and underwriting department is based in New York and is comprised of14 professionals, each with an average of 20 years of experience in the municipal bond sector. Thesales and trading desk covers more than 275 institutional investors that provide access to thenation’s most active bond funds, trust departments, corporate buyers, and insurance companies.The Firm boasts top-five relationships with several significant institutional clients, including StateFarm, Allstate Insurance, and JPMorgan Wealth Management. With regard to this transaction,the Firm would target insurance companies, money managers, and pension funds. Specifically,Prager would develop interest from Guardian Life Insurance, State Farm, Allstate, Prudential, MetLife, Guggenheim, Blackrock, and PIMCO. The Firm’s relationships with issuers, authorities, andother underwriters provide insight into a marketing strategy that is coherent and encompassesbond funds, wealth managers, and corporate investors.

While Prager is best known for its strong relationships with institutional investors, the Firmappreciates the benefits that true retail participation can bring to certain financings. To this end,Prager has enhanced its retail distribution capability by entering into two retail distributionagreements with HSBC Securities and HSBC Private Wealth Management Group. Theseagreements enable HSBC’s vast network of retail clients to submit orders for any new issue onwhich Prager serves as underwriter.

Prager’s true retail market penetration is further enhanced by its relationship with MuniCenter,an electronic trading platform. A web-based wholesaler, MuniCenter has effectively createdanother distribution channel to reach the investor sector that relies on automated tradingplatforms. Prager is ranked #1 (in terms of the par amount of bonds offered to theMuniCenter) and lists over $1.5 billion in municipal bonds on their platform on a dailybasis. The Firm regularly advises institutional customers on opportunities for developing theinterest of retail investors. Suitable securities are then listed on electronic platforms forconsideration by SMA accounts, individuals and retail representatives. By developing retaildemand for institutional customers’ retail-oriented positions, new capacity for institutional-oriented positions is created. This service results in two benefits: it broadens the retaildistribution channel and it helps key institutional purchasers beat industry indexes andoutperform their peers. The Firm also lists bonds on three other electronic platforms, whichtarget retail buyers: BondDesk, Knight BondPoint, and Tradeweb.




MEMORANDUM TO: BUDGET/PERSONNEL COMMITTEE FROM: JOHN TIERNAN, DIR OF ADMIN SERVICES/DEPUTY GM (via Keith Israel, General Manager) DATE: NOVEMBER 15, 2011 SUBJECT: REVIEW STATUS OF SUCCESSION PLANNING/EMPLOYEE

MENTORING PROGRAM ────────────────────────────────────────────────── For FY 10-11, the Board established a three year goal to “Enhance Internal and External Outreach and Communication.” Two objectives associated with this goal were for staff to develop and present to the Board a succession plan and an employee mentoring program. Staff has researched and benchmarked succession planning tools used in the industry and reviewed MRWPCA’s past efforts in mentoring staff and developing succession planning measures. DISCUSSION:

The importance of succession planning is evident when we look at some demographic statistics at our Agency. Fifty percent of our staff is eligible for retirement (age 50 is the CalPERS retirement age). The average age of staff is almost 47. The average age of management staff is 57. Our operations employees’ average age is almost 49. Our Human Resource staff benchmarked successful mentoring and succession plans throughout the nation. States such as Virginia and Iowa are some of the

MEMORANDUM

Budget/Personnel Committee November 15, 2011 Page 2 of 2 leaders in this area. In those states, succession planning typically involves management and supervisory positions. The objective of succession planning is to ensure that the organization (or units of the organization) continues to operate effectively when individuals occupying critical positions depart. A succession plan may not include all existing managerial positions and may include positions that are not supervisory or managerial but instead utilize unique, hard-to-replace competencies. Two concerns for agencies with an aging work force are the loss of intellectual capital in key positions and the lack of opportunities for the younger adults to develop the skills necessary to move into higher-level positions. In Virginia, they were forced to recruit outside for almost 70% of their management vacancies before implementing a succession plan. During the first two years of implementation, 100% of management vacancies were filled internally. In most successful plans there appears to be a standard process. First, identify key positions for succession. Next is to identify the competencies needed to succeed in the position. The third step would be mentoring and discussing with staff development needs and opportunities. Finally, conduct assessment and development activities with staff on a regular basis. Succession plans normally cover a 3-5 year period and are reevaluated at least annually. MRWPCA has addressed succession planning in a variety of ways throughout the years. One example was when we created lead positions in various departments that gave employees exposure to supervisory duties. Just recently one of our leads was promoted to a maintenance supervisor. In another example, we provided incentives for operators to train and study to achieve a Grade V Certification. We are required to have Grade V operators to run our plant. At one point we had only one Grade V operator; now we have seven. Staff has met and has started to draft a comprehensive succession planning and mentoring program. We propose to bring that draft program back to the committee for review after the first of the year. RECOMMENDATION:

Receive preliminary update of the Succession Planning and Mentoring Program. U:\BETTY\BOARD COMMITTEES\BUDGET-PERSONNEL COMMITTEE\2011\November\Succession Planning.doc

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