MARTIN COUNTY, FLORIDA UTILITIES DEPARTMENT COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEARS ENDED SEPTEMBER 30, 2011 AND 2010

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1 COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEARS ENDED SEPTEMBER 30, 2011 AND 2010 An Enterprise Fund Department of the Martin County, Florida, Board of County Commissioners Prepared by the Finance Division of the Utilities Department of Martin County, Florida

2 COMPREHENSIVE ANNUAL FINANCIAL REPORT Fiscal Years Ended September 30, 2011 and 2010 TABLE OF CONTENTS INTRODUCTORY SECTION (unaudited) Transmittal Letter...1 Principal Officials Management Team...12 Organization Chart Service Area Map...14 FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis (unaudited)...17 FINANCIAL STATEMENTS Statements of Net Assets...28 Statements of Revenues, Expenses and Changes in Net Assets Statements of Cash Flows Notes to Financial Statements...33 STATISTICAL SECTION (unaudited) Schedule of Net Assets by Component Last Ten Fiscal Years...47 Schedule of Changes in Net Assets Last Ten Fiscal Years...48 Operating Revenues and Expenses Fiscal Years Operating Income, Income Before Capital Contributions & Increase in Net Assets Schedule of Revenues by Source Last Ten Fiscal Years Schedule of Operating Expenses by Function Last Ten Fiscal Years Schedule of Annual Capital Contributions by Source Last Ten Fiscal Years Schedule of Capital Disbursements Last Ten Fiscal Years Schedule of Number of Water and Sewer Customers by Type Last Ten Fiscal Years Schedule of Water and Sewer Rates PAGE (continued)

3 TABLE OF CONTENTS Continued Percent of Meters by Dwelling Type as of September 30, Schedule of Average Residential Customer Billings Last Ten Fiscal Years Schedule of Ten Largest Customers Current Year and Nine Years Ago...58 Schedule of Residential Water/Wastewater Bill Comparisons as of Schedule of Meter Connections Last Ten Fiscal Years Schedule of Assessed Value & Actual Value of Taxable Property Last Ten Fiscal Years Schedule of Direct & Overlapping Property Tax Rates Last Ten Fiscal Years.. 62 Schedule of Demographic & Economic Statistics Last Ten Years...63 Schedule of Principal Employers Current Year and Nine Years ago Schedule of Property Tax Levies and Collections Last Ten Fiscal Years Schedule of Debt Service Coverage Last Ten Fiscal Years 66 Schedule of Ratio of Revenues Bonded Debt Outstanding: Schedule of Investment Per Equivalent Residential Connection (ERC) Last Ten Fiscal Years Schedule of Statistical Operating Indicators Last Ten Fiscal Years 69 Schedule of Capital Asset Statistics Last Ten Fiscal Years 69 Schedule of Capital Asset Statistics for the Fiscal Year Ended September 30, Schedule of Authorized Full Time Equivalent Employees by Function Last Ten Fiscal Years 71 Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards.72

4 INTRODUCTORY SECTION

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6 MARTIN COUNTY BOARD OF COUNTY COMMISSIONERS DOUG SMITH Commissioner, District 1 UTILITIES & SOLID WASTE DEPARTMENT PO Box 9000 Stuart, FL John E. Polley Director Phone (772) Fax (772) ED FIELDING Commissioner, District 2 PATRICK HAYES Commissioner, District 3 March 21, 2012 SARAH HEARD Commissioner, District 4 EDWARD CIAMPI Commissioner, District 5 Honorable Martin County Board of Commissioners Taryn Kryzda, County Administrator Dear Ladies and Gentlemen: TARYN KRYZDA, CPM County Administrator STEPHEN FRY County Attorney The Comprehensive Annual Financial Report ( CAFR ) of the Martin County Utilities Department (the Department ) for the fiscal year ended September 30, 2011 is hereby submitted. The Department is an enterprise fund operation of the Martin County, Florida, (the County ) Board of County Commissioners (the Board ). The Department s Financial Operations Division prepared the CAFR. The report consists of management s representations concerning the finances of the Department. Consequently, management assumes full responsibility for the completeness and reliability of all information presented in this report. To provide a reasonable basis for making these representations, management of the Department has established a comprehensive internal control framework that is designed both to protect its assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the Department s financial statements in conformity with accounting principles generally accepted in the United States of America ( GAAP ). Because the cost of internal controls should not outweigh their benefits, the Department s comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. We believe that the data, as presented, is accurate in all material respects; that it is presented in a manner designed to fairly state the financial position and results of the operations of the Department. The Department s financial statements have been audited by Cherry, Bekaert & Holland L.L.P., a certified public accounting firm. The goal of the independent audit was to provide reasonable assurance that the financial statements of the Department for the fiscal year ended September 30, 2010 are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditors report is presented as the first component of the financial section of this report. TELEPHONE WEB ADDRESS

7 GAAP requires that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of Management s Discussion and Analysis ( MD&A ). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The Department s MD&A can be found immediately following the report of the independent auditors. PROFILE OF THE DEPARTMENT History and purpose The Department was organized in conjunction with the purchase of Southern Gulf Utilities in 1981, which provided water to the Town of Sewall s Point by wholesale purchase of water from the City of Stuart. In 1984 the Department constructed its first water treatment facility (North System Treatment Plant). Subsequent milestones in the growth of the Department s utility system include the 1986 purchase of the Intercoastal Utilities water and wastewater system; the 1987 construction of the North County wastewater plant; the 1993 construction of the North System Reverse Osmosis Plant; the 1993 purchase of the Martin Downs Utility water and wastewater system; the 1994 construction of the Tropical Farms water and wastewater plant; and a major expansion of the Tropical Farms system which was completed in Today the Department s utility system service area ( System ) encompasses a large portion of the unincorporated eastern section of the County where the majority of the population of the County resides. The System s service area essentially surrounds and excludes the City of Stuart, the largest City in the County, which is serviced by its own municipally-owned water and wastewater system. As of September 30, 2011 the Department had approximately 32,069 water and wastewater connections, providing service to an estimated population of 87,030 customers. The Department, as an operating unit of the Board, reports directly to the County Administrator. Martin County provides a full range of services and is a Non-Charter County established under the Constitution and the laws of the State of Florida. The legislative and governing body of the County is the five-member Board of County Commissioners. In accordance with State Statutes Chapter 28-12, the Clerk of the Circuit Court is the Clerk of the Commission and official custodian of the accounting records for the Department. The Accounting Department of the Clerk s Office, and the Administrative Services Department, which report to the County Administrator, process accounting and budget entries generated by the Department. Budgetary control The Department s budget is included in the County s annual budget, which is prepared pursuant to Chapter 129, Florida Statutes. The Department s budget is adopted on a basis consistent with accounting principles generally accepted in the United States of America (GAAP) with the exception that capital asset purchases are budgeted as capital outlay expenditures for control purposes. Activities of the operation accounts (Revenue; Operations and Maintenance; Sinking Fund Accounts, including Bond Interest, Bond Principal, Renewal and Replacement; and Capital Improvement) required by covenants securing the Department s indebtedness are included in the annual budget. 2

8 The Department s facilities The Department has made significant improvements to the infrastructure of the water and wastewater system since 1981 to accommodate the customer growth within the System. In 2001 the Department evaluated future demand on the System, reviewed existing facilities and established a 10 year capital improvement master plan. This master plan is updated annually with the majority of funding provided by the issuance of revenue bonds, System development fees and reserves of the System. An overview of the Department s facilities Water treatment facilities The water treatment facilities of the System consist of two water treatment plants with a combined Florida Department of Environmental Protection (FDEP) permitted treatment capacity of MGD expressed as a maximum daily flow basis. The water treatment process consists primarily of reverse osmosis, membrane and/or lime softening, filtration, and disinfection. In addition to the water treatment plants, the System has three water storage/repumping tanks, high service pumping equipment, emergency diesel generators, a communications center for telemetry monitoring and operating system and a state-certified water quality testing laboratory. North Treatment Facility 3

9 Tropical Farms Treatment Facility The first phase of the Tropical Farms water plant expansion was completed in FY 2008 and consists of a 8.0 MGD reverse osmosis water treatment plant in addition to the original 2.0 MGD membrane softening plant, two new surficial wells and three floridan wells, iron treatment facility, a 5 million gallon storage tank and two 16 deep injection. Injection Well #2 Tropical Farms 4

10 Control Room Tropical Farms Operations Building Tropical Farms Reverse Osmosis Operations Building Completed FY

11 Head Works and Odor Control Tropical Farms Wastewater Plant Completed FY 2008 Well fields The Department draws its raw water supply from 30 Surficial Aquifer wells and nine Floridian Aquifer wells with an additional consumptive use permits from South Florida Water Management for five additional Floridian wells. Permitted capacity for these wells is 6,423 MGY. The South Florida Water Management District regulates the raw water supply through a consumptive use permitting process. Wastewater treatment facilities The wastewater treatment facilities of the System consist of two treatment plants with a combined FDEP permitted capacity of 7.76 MGD. In addition to the wastewater treatment plants, the System has three deep injection wells, water reuse and percolation ponds. The Department currently disposes of treated effluent through reuse lines for irrigation purposes or through permitted percolation ponds. Sludge is disposed of through dewatering, hauling and disposal at an approved FDEP landfill. The first phase of the Tropical Farms wastewater plant expansion from 0.94 MGD to 5.0 MGD, was completed in FY This expansion included two deep injection wells for disposal of reverse osmosis concentrate and wet weather disposal of effluent. In addition the design of the expansion of the North System wastewater treatment plant from 1.03 MGD to 2.76 MGD commenced in 2003 and was completed in FY

12 Tropical Farms Wastewater Lab/Workshop Building (Completed April 2011) Transmission and distribution system The Department maintains approximately 518 miles of finished waterlines. The pipeline ranges in size from 2 to 24 inches in diameter and is constructed of polyvinyl chloride or ductile iron. The System also maintains 3,363 fire hydrants and has five emergency interconnects with the City of Stuart (two), Port St. Lucie, South Martin Regional Utility and Fort Pierce Utilities Authority. Field Maintenance Building (Converted Water Tank) 7

13 Collection system The Department maintains collection and transmission facilities of over 362 miles of pipeline ranging in size from 2 to 20 inches in diameter, with 383 pump stations and 17 miles of vacuum sewers. North River Shores Wastewater Vacuum Building (Completion Date FY 2011) Effluent reuse system The Department maintains a wastewater reuse program which includes converting wastewater effluent into irrigation quality water (I.Q.) for use on golf courses, green spaces and some residential irrigation using 36 miles of I.Q. reuse water mains. During fiscal year 2011 approximately 90% of all wastewater effluent was processed into irrigation quality water. The use of I.Q. water is an important component of conserving water resources and wastewater management. The Department s operations The Department s operations are entirely related to providing water, wastewater and reuse (Irrigation Quality water) services. Technical Services operations division This division is responsible for implementing the Department s capital improvement master plan, coordinating and inspecting construction projects, designing in-house distribution and collection projects and maintaining the well field protection program, as well as maintaining drawings and records of the Department s water and wastewater system. The division maintains utility system data on its Geographic Information System (GIS), a computer system that stores data based on physical geographic location. The 8

14 data includes the size and type of pipe, valves, fire hydrants and other system components as well as the date the component was installed and other relevant data. Financial management division This division is responsible for all customer service and accounting activities, including customer billing, collection, meter reading and meter maintenance. The division is also responsible for preparation of all financial and budgetary documents, administering water, wastewater and solid waste assessment programs, as well as monitoring the daily financial operations of the Department for rate and bond covenant compliance. Water and wastewater plant operations division This division is responsible for the operations of the water supply and treatment plants and the wastewater treatment and effluent disposal facilities. The Department strives to ensure that the water supply meets the highest quality standards possible for safety, aesthetics and taste. The Department employs staff that is certified in treatment, testing, monitoring and distribution of the water supply. Water is tested regularly, both prior to and after treatment, to ensure that it complies with or surpasses all federal and state water quality requirements. An annual consumer confidence report is provided to the Department s customers by July 1 st of each year. This division is also responsible for the operation, maintenance and regulatory reporting for the wastewater treatment facilities and operation and maintenance of the effluent disposal facilities. Field operations division This division is responsible for the maintenance of water mains, gravity sewers, force mains and fire hydrants throughout the Department s total utility service area. In addition, this division provides prompt repair and maintenance of leaks, major line breaks, new installations, correction of sewer backups, and all customer service fieldwork. This division is also responsible for maintaining the cross connection control program to detect and prevent cross-connections that may create a potential health hazard. A cross-connection is any physical connection between the water supply and any private piping arrangement that contains a foreign liquid or substance. Prevention requires the installation of an approved backflow prevention device. Plant maintenance operations division This division is responsible for all maintenance and general routine upkeep of the water and wastewater treatment facilities and lift stations. These functions are performed by certified maintenance mechanics, instrument technicians and certified electricians. This division operates and monitors the supervisory control and data acquisition (SCADA) system that allows water and wastewater treatment operators to monitor and control pumping, treatment and discharge from their control panels, where automation can provide an extra level of efficiency. ECONOMIC CONDITION AND OUTLOOK The information presented in the financial statements is best understood when it is considered from the broader perspective of the specific environment within which the Department operates. Local economy and demand trends Martin County is located on the east coast of South/Central Florida in the area commonly referred to as the Treasure Coast. According to the 2010 Census the population of the County has increased 15.46%, and is currently ranked 31st in population and 25th in density among Florida s 67 counties. The economy of the County is based upon retail trade and services, healthcare, construction, manufacturing and tourism. The Department s service area continues to reflect 9

15 primarily residential and light businesses. Growth in the number of water connections increased 13.2% between fiscal years 2007 and 2011, or an average of 2.6% per year. A continued increase in population is projected through build-out which is expected to occur in Many residents are in the service area for only part of the year. The permanent year-around population of Martin County as of 2010 Census was approximately 146,318 residents. The Department experiences monthly fluctuations in water consumption and wastewater services depending on seasonal demands due to the changes in seasonal and permanent population. The Department has year-around mandatory irrigation restrictions that prohibit irrigation between 9:00 a.m. and 5:00 p.m. and during FY 2009 mandatory restrictions by South Florida Management District permanently limited irrigation to three days a week. In addition there is a surcharge on potable water rates above 10,000, 15,000 and 25,000 gallons per month to discourage excessive use of water for irrigation. Long-range financial planning The Department s capital improvement master plan is projected to require approximately $37 million over the next 10 years. These improvements include $6.8 million in transmission and distribution lines, $2.3 million in force mains and reuse lines, and $3.8 million for automatic meter retrofit or existing meters, $2.6 for membrane and sand filter replacement, $3.2 million for lift station construction and rehabilitation, $1.7 million for an additional reverse osmosis well and $4.8 million for Tropical Farms water and wastewater plant improvements. The completion of the first phase of the expansion of Tropical Farms facilities in FY 2008 resulted in the regionalization of the water and wastewater plants and the elimination in FY 2009 of the Martin Downs water and wastewater plants, Dixie Park wastewater plant and the Vista Salerno water plant. The Martin Downs and Dixie Park facilities have been converted into master re-pump facilities for wastewater. The Department anticipates funding these improvements with existing cash reserves, future capital facility charges, bond proceeds and any excess funds generated from rate revenue. During fiscal year 2009 the Board of County Commissioners approved automatically adjusting rates each year based on an amount equal to the prior year s price index for water and wastewater published by the Florida Public Service Commission on or about March 31 st or each year. Annual indexing will not be less than 0% or exceed 2.5% for the next five years. On October 1, 2010 the rates were indexed 2.5% and will be indexed 0.565% on October 1, Awards and acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Department for its comprehensive annual financial report for the fiscal year ended September 30, This was the eleventh consecutive year that the Department achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. 10

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17 PRINCIPAL OFFICIALS BOARD OF COUNTY COMMISSIONERS AS OF SEPEMBER 30, 2011 EDWARD CIAMPI County Commissioner District #5 DOUG SMITH ED FIELDING County Commissioner County Commissioner District #1 District #2 PATRICK HAYES SARAH HEARD County Commissioner County Commissioner District #3 District #4 TARYN KRYZDA County Administrator MANAGEMENT TEAM JOHN POLLEY Director NANCY SHUTTS Administrator Financial Management JIMMY MERCURIO Operations Administrator Treatment TED ROBBINS Administrator Technical Services DARREN BROTHERS Superintendent Maintenance 12

18 County Administrator Director of Utilities Financial Management Technical Service Field Operations Treatment Plant Maintenance Division Division Division Division Division Billing/Collections Financial Planning Accounting/Budget Centralized Parts/ Inventory Contract Meter Reading Contract Administration Construction Inspection Facilities Planning/Design Environmental Compliance Development Review Water Distribution Wastewater Collection Cross Connection Control Water Treatment Wastewater Treatment Reuse/IQ Laboratory Plant Maintenance Scada/Instrumentation Hansen System 13

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20 FINANCIAL SECTION

21 Independent Auditors' Report To the Honorable Board of County Commissioners of Martin County, Florida: We have audited the accompanying statements of net assets of the Martin County, Florida-Utilities Department (the Department ), an enterprise fund of Martin County, Florida, as of September 30, 2011 and 2010, and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended as listed in the table of contents. These financial statements are the responsibility of the Department s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the financial statements referred to above present only the Department and do not purport to, and do not, present fairly the financial position of Martin County, Florida as of September 30, 2011 and 2010, and the changes in its financial position and its cash flows, where applicable, for the years then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Department as of September 30, 2011 and 2010, and the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Management s discussion and analysis on pages 17 through 27 is not a required part of the basic financial statements but is supplementary information required by 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. 15

22 Our audits were performed for the purpose of forming an opinion on the basic financial statements of the Department. The accompanying introductory section and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements of the Department. This information is also the responsibility of the management of the Department. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we express no opinion on them. In accordance with Government Auditing Standards, we have also issued our report dated March 19, 2012 on our consideration of the Department s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Orlando, Florida March 19,

23 Martin County, Florida Utilities Department MANAGEMENT S DISCUSSION AND ANALYSIS (unaudited) Our discussion and analysis of the Department s financial performance provides an overview of the Department s financial activities for the fiscal years ended September 30, 2011 and Please read it in conjunction with the Department s financial statements that begin on page 28. HIGHLIGHTS Financial highlights 2011 Operating revenues increased to $29.4 million or 6.2% which is attributable to new customer growth mainly from assessments, including a full year of wastewater revenues from the North River Shores Assessment and the annual water and wastewater rate increase of 2.5%. The Department received the remaining $2.0 million of the North River Shores wastewater system capital grant. Operating expenses decreased to $25.7 million, or 1.5% in 2011, largely due to a decrease in retirement expense mid year from 10.7 % to 4.9% and a decrease in sludge removal (in FY 2010 there was a one time expense cleaning digesters on plant decommissioning) and a decrease in chemicals relating to the discontinuance of certain chemicals used in treatment. The Department s customer base increased by 270 water and wastewater customers or 0.9% and an additional 264 wastewater customers from the North River Shores Assessment project that were already water customers. New connections from construction continue to be slow as a result of adverse economic conditions Operating revenues increased to $27.7 million or 5.7% which is attributable to new customer growth from the purchase of the Miles Grant and Utilities Inc. of Hutchinson Island water and wastewater utility systems which added 1,290 residential customers and 128 multi-family units (1,400 equivalent residential connections) to the water and wastewater system. In addition, water and wastewater rates were increased 2.39% on October 1, The Department received $0.8 million in capital grant proceeds for the North River Shores wastewater system, which is part of a $2.8 million grant awarded for the project which is expected to be completed in early FY11. Operating expenses increased to $26.1 million, or 2.5% in 2010, largely due to a full year of new customers acquired from the purchase of two utility systems. Depreciation expense increased due to the addition of capital projects and the purchase of the utility systems. The Department s customer base increased by 1,783 water and wastewater customers, or 5.9%. The majority of the new customer growth was from the purchase of the Miles Grant and Utilities Inc. of Hutchinson Island water and wastewater systems. Economic conditions continue to be unfavorable, resulting in a lack of new connections from construction. 17

24 Martin County, Florida Utilities Department Department highlights 2011 The Department completed construction and was awarded First Green Building Certification (FGBC) for the Tropical Farms Wastewater Treatment Plant laboratory building. The Department issued the Utilities System Refunding Revenue Note, Series 2010 for $16.9 which was used to advance refund $16.0 million of the principal from the Utilities System Revenue Bonds, Series 2001, achieving an economic gain over the next sixteen years of $2.3 million. The Department completed the North River Shores wastewater assessment project, bringing service to 463 existing water customers. The Department completed the Piper s Landing and Rio East water assessment projects, bringing water service to 506 properties. The Department completed the Phase I force main between Indian River Plantation to Ocean Blvd. under the inter-coastal waterway The Department purchased Miles Grant and Utilities Inc. Hutchinson Island water and wastewater systems and connected 1,418 accounts to the system significantly improving the service to these customers. The Department completed a $1.1 million Customer Information System billing software upgrade, significantly enhancing the billing system and providing improved customer service. The Department issued the Utilities System Improvement Revenue Bonds, Series A for $8.0 million to finance the purchase of the Miles Grant and Utilities Inc. water and wastewater systems, and the Utilities System Refunding Revenue Bonds, Series 2009B for $28.7 million to refund the majority of the 1998 Series Refunding Bonds at a lower interest rate. The Department completed the final five miles of the 16-inch reclaimed water main along High Meadows Road which will furnish reclaimed water to the western portion of Palm City. USING THIS ANNUAL REPORT Required financial statements The financial statements of the Department report information about the Department using accounting methods similar to those used by private sector companies. These statements offer short-term and long-term financial information about its activities. The Statement of Net Assets includes the entire Department s assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and obligations to creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the Department and assessing the liquidity and financial flexibility of the Department. The Statement of Revenues, Expenses and Changes in Net Assets includes all of the current year s revenues and expenses. This statement measures the success of the Department s 18

25 Martin County, Florida Utilities Department operations over the past year and can be used to determine whether the Department has successfully recovered all its costs through its user fees and other charges, profitability, and credit-worthiness. The final required financial statement is the Statement of Cash Flows. The primary purpose of this statement is to provide information about the Department s cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing and capital and noncapital financing activities and explains where the cash came from, what the cash was used for and what was the change in the cash balance during the reporting period. FINANCIAL ANALYSIS OF THE DEPARTMENT AS A WHOLE One of the most important questions asked about the Department s finances is Is the Department, as a whole, better off or worse off as a result of the year s activities? The Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net Assets report information about the Department s activities in a way that will help answer this question. These two statements report the net assets of the Department and the changes in them. You can think of the Department s net assets, the difference between assets and liabilities, as one way to measure financial health or financial position. Over time, increases or decreases in the Department s net assets are one indicator of whether its financial health is improving or deteriorating. However, you will need to also consider other nonfinancial factors such as changes in economic conditions, population growth, and new or changed legislation. The Department s total net assets increased by $11 million in FY2011 and increased by $3.2 million in FY2010. Our analysis below focuses on the Department s net assets (Table 1) and changes in net assets (Table 2) during the year. Table 1 Net Assets As of September 30, 2011 As of September 30, 2010 % Change As of September 30, 2009 % Change Capital assets $ 239,608,575 $ 238,265, $ 228,155, Current and other assets 46,866,149 42,646, ,818,561 (8.9) Total assets 286,474, ,911, ,973, Bonds and loans payable 88,624,650 91,596,770 (3.2) 88,844, Other liabilities 4,037,035 6,469,895 (37.6) 6,520,839 (0.8) Total liabilities 92,661,685 98,066,665 (5.5) 95,365, Net assets: Invested in capital assets, net of debt 149,380, ,666, ,310, Restricted 15,936,299 16,695,872 (4.5) 21,888,414 (23.7) Unrestricted 28,496,223 19,482, ,409, Total net assets $ 193,813,039 $ 182,845, $ 179,608,

26 Martin County, Florida Utilities Department Net assets invested in capital assets, net of debt, increased $2.7 million or 1.9% for the fiscal year ended 2011 as compared to 2010, which was due to completed capital construction and the purchase of capital assets. Net assets invested in capital assets, net of debt, reflects an increase of $7.4 million or 5.3% for the fiscal year ended 2010 as compared to 2009, which was due to completed capital construction and purchase of utility assets and intangible assets. Restricted net assets decrease 4.5% in fiscal year 2011 and compared to 2010 due to the decrease in cash balances of investments in the Capital Facility and Replacement and Renewal Fund. Restricted net assets decreased 23.7% in fiscal year 2010 as compared to 2009 due to the payment date for principal and interest payments changing back from Oct 1 st to Sept 30 th. Unrestricted net assets increased $9.0 million or 46.3% in fiscal year 2011 due to an increase in operating income and capital contributions resulting from completed water and wastewater assessment projects and $1.1 million or 5.8% in fiscal year 2010 due to an increased operating income Long-term debt in fiscal year 2011 decreased $2.9 million or 3.2% due to annual principal payments on outstanding bonds and loans. In fiscal year 2010 long-term debt increased due to the issuance of Utilities Revenue Bonds Series 2009A for $7.9 million less two principal payments on outstanding bonds in fiscal year 2010 as a result of moving the payment date back to Sept 30 th. The use of net assets reported above as restricted are limited to purposes specified by the Department s various bond documents. 20

27 Martin County, Florida Utilities Department Changes in the Department s net assets can be determined by reviewing the following summary of Revenues, Expenses and Changes in Net Assets for the year. Table 2 Statement of Revenues, Expenses, and Change in Net Assets Operating Revenues: FY 2011 FY 2010 % Change FY 2009 % Change Water revenues $15,311,585 $14,278, $13,253, Sewer revenues 12,093,494 11,344, ,825, Water service availability fees 361, ,030 (13.8) 492,469 (14.7) Sewer service availability fees 350, ,277 (1.4) 418,181 (15.0) Miscellaneous 1,253,467 1,253, ,169, Total operating revenues 29,371,014 27,651, ,159, Non-operating revenues: Interest income 748, ,737 (3.3) 771, Gain on disposal of assets 5,865 4, ,000 (10.3) Total non-operating revenues 754, ,222 (3.2) 776, Total Revenues 30,125,667 28,430, ,935, Operating expenses: Administrative and general 4,740,726 5,066,052 (6.4) 4,651, Operating and maintenance 11,185,347 11,494,376 (2.7) 11,579,049 (0.7) Depreciation and amortization 9,749,429 9,496, ,189, Total operating expenses 25,675,502 26,056,465 (1.5) 25,419, Non-operating expenses: Interest expense 4,024,138 4,599,194 (12.5) 4,402, Amortization of bond discounts/costs 519, , , Other expenses ,012 (100.0) Total non-operating expenses 4,543,995 5,018,744 (9.5) 4,780, Total expenses 30,219,497 31,075,209 (2.8) 30,200, Loss before contributions (93,830) (2,644,856) (96.5) (3,265,009) (19.0) Contributions 11,061,763 5,881, ,848, Special item - - (4,622,040) Changes in net assets 10,967,933 3,236, (3,038,945) (206.5) Net assets at beginning of year 182,845, ,608, ,647,393 (1.7) Net assets at end of year $193,813,039 $182,845, $179,608,

28 Martin County, Florida Utilities Department Operating Revenue Total operating revenues reflect a 6.2% increase in fiscal year 2011 compared to 2010 and an increase of 5.7% in fiscal year 2010 compared to The increase was the result of the addition of new customers from completed water and wastewater assessments and a rate increase of 2.5%. In fiscal year 2010 the addition of new customers from the purchase of Miles Grant and Utilities Inc. Hutchinson Island utility systems increased water and sewer consumption and a rate increase of 2.39%. The Department added 1,783 new connections during the year Capital Contributions Capital contributions increased 88.1% in fiscal year 2011 as compared to 2010 due to the completion of several large water and wastewater special assessment projects. Capital contributions increased 21.3% in fiscal year 2010 as compared to 2009 due to a significant increase in developer contributions, there were no special assessments completed in the year. Operating Revenues Distribution Fiscal Year Ended September 30, 2011 Other 4% Guaranteed Revenues 3% Sewer Sales 41% Water Sales 52% 22

29 Martin County, Florida Utilities Department Operating Expenses Operating expenses, excluding depreciation and amortization, decreased $0.6 million or 3.8% over fiscal year 2010 due to a decrease sludge removal and chemical expenses. From fiscal year 2010 to 2009 operating expenses, excluding depreciation and amortization, increased $0.3 million or 2%. This increase was due to additional expenses associated with the addition of new customers from the utility acquisitions. Operating Expenses Distribution Fiscal Year Ended September 30, 2011 Maintenance Water 3% Sewer Treatment 13% Indirect Allocation Maintenance 5% Sewer 3% Administration 3% Depreciation 38% Water Treatment 14% Field Operations Sewer 6% Field Operations Water 4% Technical Services 5% Financial Operations 6% 23

30 Martin County, Florida Utilities Department Monthly Water and Sewer Revenue Comparison Fiscal Years Ended September 30, 2011 and 2010 $1,400,000 Water Sewer $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept As a self-supporting operation that receives no tax dollars, the Department derives its operating revenues primarily from charges for on-line potable water and wastewater services and fees from new development pending connection to the utility system (service availability fees). Nonoperating revenue includes interest income, gains from disposal of capital assets and new customers seeking to connect to the utility system through contributions and payment of connection fees (capital facility charges). Capital assets CAPITAL ASSETS AND DEBT MANAGEMENT At September 30, 2011, the Department had $239.6 million invested in a broad range of capital assets, including water and wastewater treatment plants, floridan and aquifer wells, water transmission and distribution mains, wastewater collection systems, water storage facilities, pump stations and effluent disposal systems. This amount represents a net increase (including additions and deductions) of $1.3 million or 0.6% over last year. 24

31 Martin County, Florida Utilities Department The following table summarizes the Department s capital assets, net of accumulated depreciation for the years ended September 30, 2011 and Table 3 Capital Assets Land $ 5,620,732 $ 5,620,732 Buildings 89,515,701 92,035,508 Wells 6,677,873 7,119,091 Water distribution system 55,456,787 55,755,587 Sewer collection system 71,269,744 64,402,646 Equipment and leasehold improvements 1,697,341 1,591,433 Intangible assets 6,543,948 6,743, ,782, ,268,700 Construction work in progress 2,826,449 4,996,485 Net utility plant $ 239,608,575 $ 238,265,185 The following table summarized the changes in capital assets. These changes are presented in detail in Note 5 to the financial statements. Balance at beginning of year $ 238,265,185 $ 228,155,091 Additions 13,263,325 16,384,911 Retirements (491,157) (138,560) Depreciation (9,749,429) (9,496,037) Accumulated depreciation retired 490, ,094 Decrease (increase) in construction work in progress (2,170,036) 3,228,686 $ 239,608,575 $ 238,265,185 The year s major additions to the utility system included: North River Shores Vacuum Sewer System $ 4.7 million Indian River Plantation Sewer Connection $ 1.8 million Miles Grant Sewer System $ 0.9 million Rio East Watermain $ 0.7 million Indian River Plantation Lift Station Upgrades $ 0.5 million Miles Grant Reclaimed Water System $ 0.4 million Bayshore Watermain $ 0.3 million Rio East Forcemain $ 0.3 million Piper s Landing Water/Wasterwater System $ 0.2 million 25

32 Martin County, Florida Utilities Department The Department s 2011 budget plans for investing in capital projects, including the following: Tropical Farms odor control treatment facility $2.5 million IRP Forcemain along Indian River Drive to Ocean Breeze $2.0 million IRP/Ocean Breeze Master Lift Station $1.3 million Watermain connection to the St. Lucie County line $0.8 million State Road 708 forcemain $0.4 million Forcemain to Baker Road $0.2 million These projects are budgeted to be funded from cash reserves, excess operating revenue, and capital facility charges. Debt At September 30, 2011, the Department had a total of $88.6 million in bonds and loans outstanding versus $91.6 million last year. During 2011 the Department issued $16,900,000 in a Utilities System Refunding Revenue Note to refund $16,020,000 in principal amount of the Department s Utility System Revenue Bonds, Series Utility System Refunding Revenue Bonds net of premium, discount and deferred refunding charges $ 28,416,094 $ 29,148,640 Utility System Refunding Note net of refunding Charges 15,800, Utility System Revenue Bonds 42,297,601 60,215,285 State Revolving Fund Loan 2,110,582 2,232,845 Total Outstanding Debt $ 88,624,649 $ 91,596,770 The Department s revenue bond rating is AA- insured and AA- underlying from S&P and AA insured and AA insured from Fitch rating services. All the revenue bonds are insured. More detailed information about the Department s long-term debt is presented in Note 7 of the financial statements. ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES The Department s service area continues to reflect primarily residential and light businesses. Growth in the number of water connections over the last five years has averaged 2.6%. Customer growth increased slightly due to the addition of new customers the completion of special assessments, the acquisition of private utilities and new construction. New development is minimal and reflects the current economic environment. Water restrictions implemented by the South Florida Water Management District were made permanent in November 2009 and limit irrigation to three days a week. Consistent with customer growth, raw water production increased about 137 million gallons, or approximately 4.3% to 3.32 billion gallons. The growth in the number of accounts served has occurred primarily due to the in-fill of existing developments, 26

33 Martin County, Florida Utilities Department special assessment projects for extension of water and wastewater lines, as well as new construction. The Department is in the process of implementing a septic tank elimination program. The first phase of this program was designed in 2003 for the Seagate Harbor/Lighthouse Point development. The Florida Department of Environmental Protection State Revolving Loan (SRF) funding was obtained for this project and property owners of the affected area were assessed for the cost of construction of the wastewater collection system. This project was completed in FY The SRF loan for this project was finalized in FY 2006 for $2.8 million. The Department recently completed the North River Shores project to provide wastewater service though a special assessment. During FY 2009 a financial feasibility and rate study was conducted to determine future revenue requirements. As a result of that study, the Board of County Commissioners approved rate indexing for the next five fiscal years, not to exceed 2.5% annually beginning on or after October 1, For fiscal year ending 2011, rates were increased 2.5% and will increase October 1, %. CONTACTING THE DEPARTMENT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, customers and creditors with a general overview of the Department s finances and to demonstrate the Department s accountability for the money it receives. If you have any questions about this report or need additional information, contact the Department s Financial Operations Administrator at P.O. Box 9000, Stuart, Florida

34 STATEMENTS OF NET ASSETS September 30, 2011 and 2010 ASSETS Current assets: Cash and cash equivalents $ 460,682 $ 298,780 Restricted cash and cash equivalents 124, ,225 Investments 15,165,469 13,886,376 Accounts receivable 2,628,587 2,583,108 Special assessment notes receivable 804, ,329 Due from other governmental units - 344,446 Inventories 579, ,979 Total current assets 19,763,382 18,209,243 Noncurrent assets: Restricted assets: Cash and cash equivalents 150, ,228 Accounts receivable 10,723 - Investments 16,617,598 17,363,145 Special assessment notes receivable 2,166, ,615 Total restricted assets 18,945,346 18,371,988 Capital assets: Land 5,620,732 5,620,732 Buildings 124,323, ,379,627 Water distribution system 93,854,460 91,895,352 Sewer collection system 99,566,257 89,831,114 Equipment 4,906,033 4,860,096 Intangible assets 8,008,352 7,920, ,279, ,507,580 Less depreciation and amortization (99,497,622) (90,238,880) 236,782, ,268,700 Construction work in progress 2,826,449 4,996,485 Capital assets, net 239,608, ,265,185 Other noncurrent assets: Special assessment notes receivable, less current portion 7,077,084 4,795,339 Deferred bond issuance costs, net 1,080,337 1,270,016 Total other noncurrent assets 8,157,421 6,065,355 Total noncurrent assets 266,711, ,702,528 TOTAL ASSETS $ 286,474,724 $ 280,911,771 See accompanying notes to financial statements. 28

35 STATEMENTS OF NET ASSETS September 30, 2011 and 2010 LIABILITIES AND NET ASSETS LIABILITIES Current liabilities: Payable from current assets: Accounts payable $ 699,902 $ 1,682,597 Accrued wages payable 111, ,595 Accrued compensated absences 96,134 98,192 Accrued interest payable 28,834 30,503 Unearned revenue - 2,408,862 Current portion of loans payable 1,330, ,263 2,266,947 4,693,012 Payable from restricted assets: Customer deposits 956, ,171 Contracts payable 1,603, ,555 Current portion of bonds, net 2,299,629 3,177,669 4,859,648 4,503,395 Total current liabilities 7,126,595 9,196,407 Long-term liabilities: Accrued compensated absences 540, ,420 Loans payable 17,589,956 2,110,582 Bonds payable, net 67,404,439 86,186,256 Total long-term liabilities 85,535,090 88,870,258 TOTAL LIABILITIES 92,661,685 98,066,665 NET ASSETS Invested in capital assets, net of related debt 149,380, ,666,415 Restricted: Capital projects 15,936,299 16,695,872 Unrestricted 28,496,223 19,482,819 TOTAL NET ASSETS $ 193,813,039 $ 182,845,106 See accompanying notes to financial statements. 29

36 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS For the Years Ended September 30, 2011 and Operating revenues: Water revenues $ 15,311,585 $ 14,278,309 Sewer revenues 12,093,494 11,344,357 Water service availability fees 361, ,030 Sewer service availability fees 350, ,277 Engineering fees 37,549 80,473 Miscellaneous 1,215,918 1,172,685 Total operating revenues 29,371,014 27,651,131 Operating expenses: Administrative and general 4,740,726 5,066,052 Operating and maintenance 11,185,347 11,494,376 Depreciation and amortization 9,749,429 9,496,037 Total operating expenses 25,675,502 26,056,465 Operating income 3,695,512 1,594,666 Nonoperating revenues (expenses): Interest income 748, ,737 Interest expense (4,024,138) (4,599,194) Amortization of bond discount and issue costs (519,857) (419,550) Gain (loss) on disposal of assets 5,865 4,485 Total nonoperating revenues (expenses), net (3,789,342) (4,239,522) Loss before contributions (93,830) (2,644,856) Capital contributions 11,061,763 5,881,514 Change in net assets 10,967,933 3,236,658 Net assets, beginning of year 182,845, ,608,448 Net assets, end of year $ 193,813,039 $ 182,845,106 See accompanying notes to financial statements. 30

37 STATEMENTS OF CASH FLOWS For the Years Ended September 30, 2011 and Cash flows from operating activities: Payments received from customers $ 29,314,812 $ 27,610,147 Deposits received from customers 499, ,001 Payments for salaries and benefits (5,014,653) (5,058,702) Payments to suppliers for goods and services (12,229,777) (10,971,303) Refunds of customer deposits (432,976) (442,850) Net cash provided by operating activities 12,136,821 11,665,293 Cash flows from capital and related financing activities: Capital grants 344, ,744 Proceeds from issuance of debt 16,900,000 36,665,000 Proceeds from special assessment fees (6,732,307) 3,017,304 Capital contributions 10,257, ,887 Proceeds from sale of assets 6,334 58,125 Payments for utility plant (9,120,827) (16,092,077) Debt obligation costs (1,045,036) (365,385) Principal payments on bonds and loans (19,157,262) (34,498,991) Interest payments on bonds and loans (4,025,807) (6,781,218) Net cash used by capital and related financing activities (12,573,303) (16,682,611) Cash flows from investing activities: Proceeds from sales and maturities of investments 5,908,031 6,195,469 Interest income 748, ,737 Purchase of investments (6,441,577) (6,319,700) Net cash provided by investing activities 215, ,506 Net decrease in cash and cash equivalents (221,240) (4,366,812) Cash and cash equivalents at beginning of period 957,233 5,324,045 Cash and cash equivalents at end of period $ 735,993 $ 957,233 Reconciliation to statement of net assets: Cash and cash equivalents - unrestricted 460, ,780 Cash and cash equivalents - restricted 275, ,453 Cash and cash equivalents - end of year $ 735,993 $ 957,233 See accompanying notes to financial statements. (continued) 31

38 STATEMENTS OF CASH FLOWS (continued) For the Years Ended September 30, 2011 and Reconciliation of utility operating income to net cash provided by operating activities: Operating income $ 3,695,512 $ 1,594,666 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 9,749,429 9,496,037 (Increase) decrease in accounts receivable (56,202) (40,984) Decrease in inventories (61,735) 86,761 (Increase) decrease in other current assets - 151,853 (Increase) decrease in accounts payable (982,695) 284,459 Increase in accrued wages payable (239,144) 23,561 Decrease in accrued compensated absences (34,783) (16,211) Decrease in customer deposits 66,439 85,151 Total adjustments 8,441,309 10,070,627 Net cash provided by operating activities $ 12,136,821 $ 11,665,293 Noncash investing, capital and financing activities: During the years ended September 30, 2011 and 2010, the Department had system assets contributed in the amount of $804,607and $4,222,437, respectively. See accompanying notes to financial statements. 32

39 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 1 - GENERAL The Martin County, Florida Utilities Department (the Department) operates as an enterprise fund of Martin County (the County). An enterprise fund is used to account for operations that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the costs of providing goods and services to the general public on a continuing basis be financed or recovered primarily through user charges. The Departments financial statements do not purport to reflect the financial position or the results of operations of the Martin County, Florida taken as a whole. The County is a political subdivision of the State of Florida, and operates as a noncharter government pursuant to Article VIII, Section (1)(f) of the Constitution of the State of Florida. The fiscal year of the County is from October 1 to September 30, as established in Section , Florida Statutes. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Financial Statement Presentation The Department functions as a self-supporting governmental enterprise fund of the County. An enterprise fund is used to account for the financing of services to the general public on a continuing basis with costs recovered primarily through user charges. The enterprise fund measurement focus is based upon determination of net income, financial position and changes in cash flows. Accounting principles in the United States of America (GAAP) for these funds are those applicable to similar businesses in the private sector and, thus, they are maintained on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. The Department issues a separate comprehensive annual financial report and its financial statements are combined in the County s comprehensive annual financial report. The accompanying financial statements combine the accounts of both the Water and Wastewater Systems (collectively, the System ) to provide meaningful information with respect to the Department, with all transactions of the Department accounted for as one enterprise fund. All significant inter-system accounts and transactions have been eliminated. Application of FASB Standards GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting, offers the option of following all Financial Accounting Standards Board (FASB) standards issued after November 30, 1989, unless the latter conflict with or contradict GASB pronouncements, or not following FASB standards issued after such date. The Department elected the option not to follow FASB standards issued after such date. 33

40 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Amounts reported as cash and cash equivalents include petty cash funds and restricted and unrestricted amounts deposited in interest-bearing demand deposit accounts. Investments in external investment pools, including the Local Government Surplus Funds Trust Fund and Florida Local Government Investment Trust, are considered to be investments. The Local Government Surplus Funds Trust Fund consists of Florida PRIME and Fund B investments administered by the State Board of Administration. Investments The Department participates in the County s pooled cash system as required for all departments reporting to the Board. The Accounting Department of the Clerk of the Circuit Court manages the pooled cash and investments guided by the County s Investment Policy. In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, investments are stated at fair value (quoted market price or best available estimate thereof), except for investments with remaining maturities of one year or less at time of purchase, which are stated at amortized cost and approximate fair value. Investments in Florida PRIME and Florida Local Government Investment Trust are recorded at their share price, which represents the fair value of the trusts underlying investments. Investments in Fund B are accounted for as a fluctuating NAV pool, using a fair value factor of at September 30, Operating Revenues and Expenses The Department distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the Department s principal on-going operations. The principal operating revenues of the Department are charges to customers for water and wastewater services. The Department also recognizes as operating revenue service availability fees and tap fees intended to cover the cost of connecting new customers to the System. Operating expenses for the Department include the cost of producing water and wastewater services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Department s policy to use restricted resources first, and then unrestricted resources as they are needed. 34

41 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Accounts Receivable and Revenue Recognition Billings to water utility customers are based on metered consumption which is determined at various dates each month. An estimate of unbilled accounts receivable are accrued at September 30 th to recognize the sales revenues earned between the last meter reading date and the end of the fiscal year. The accrual is based on the average consumption through September 30 for days of service that were not billed. The Department considers all receivables to be collectible and no allowance to doubtful accounts has been established. Inventories Inventories are valued at cost using the first-in, first-out (FIFO) method. Inventories primarily consist of water meters, meter boxes, pumps, SCADA parts, pipe and hardware used in the operations of the Department. Restricted Assets Assets are restricted in accordance with provisions of County bond resolutions authorizing the issuance of Utilities System Revenue Bonds, and other applicable obligations. Capital Assets The Department defines capital assets as assets with an initial, individual cost of $1,000 or more and an estimated useful life in excess of one year. Capital assets are recorded at cost. Assets contributed to the Department, such as from developers or special assessments, are recorded at estimated fair market value on the date contributed. Intangible plant assets relate to customer bases acquired from various purchased water systems. Dispositions and retirements and resulting gains and losses are reported in the year of disposal. Depreciation and amortization are provided using the straight-line method over the following estimated useful lives: Classification Useful Life in Years Buildings 5 40 Water distribution systems 3 40 Wells 5 20 Sewer collection systems 3 40 Equipment and leasehold improvements 3 15 Intangible assets Construction Work in Progress Construction work in progress represents costs accumulated for the replacement and new construction of sections of the Department s transmission and distribution systems, plant expansions and rehabilitations, and other projects that were not completed at year-end. 35

42 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Deferred Bond Issuance Costs, net Costs associated with the issuance of bonds and state revolving loans have been deferred and are being amortized over the life of the bonds using a method which approximates the effective interest method. Bond Premium, Bond Discount and Accounting Loss on Bond Refunding Both the bond discount and the accounting loss on bond refunding are associated with the issuance of the Consolidated Utilities System Refunding and Improvement Revenue Bonds, Series 1994, and the Utilities System Refunding Revenue Bonds, Series 1998 and are being amortized over the life of the refunded bonds using a method which approximates the effective interest method. The bond premium associated with the issuance of the Utility System Revenue Bonds Series 2003 Bonds is being amortized over the life of the Series 2003 Bonds using a method which approximates the effective interest method. Compensated Absences Employees of the Department are entitled to various amounts of paid time off depending on length of service. The liability for accrued leave is based upon the actual unused accrued leave at the employee s current rate of pay plus applicable benefits. The liability for unused sick leave balance is accrued at 50% for those employees with length of service of six years or more as employees are entitled to payment of 50% of the balance of their sick leave at time of retirement or termination. Reclassifications Certain 2010 balances have been reclassified to conform to the financial statement presentation used in NOTE 3 - CASH AND CASH EQUIVALENTS AND INVESTMENTS The accounting department of the Clerk of the Circuit Court, as Clerk to the Board of County Commissioners, performs all of the investing functions of the Department. Cash and Cash Equivalents The carrying amount of cash and cash equivalents as of September 30, 2011 and 2010 are as follows: Cash and cash equivalents: Unrestricted $ 460,682 $ 298,780 Restricted 275, ,453 $ 735,993 $ 957,233 Demand deposits $ 735,168 $ 956,408 Petty cash funds $ 735,993 $ 957,233 36

43 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 3 - CASH AND CASH EQUIVALENTS AND INVESTMENTS, continued Deposits whose values exceed the limits of federal depository insurance are entirely insured or collateralized pursuant to Florida Statutes, Chapter 280, Florida Security for Public Deposits Act, (the Act ). Under this Act, Florida s Chief Financial Officer shall determine the collateral requirements and the collateral pledging level for each qualified public depository in order to protect the integrity of the public deposits program. The Public Deposit Security Trust Funds have a procedure to allocate and recover losses in the event of default or insolvency. When public deposits are made in accordance with Chapter 280, no public depositor shall be liable for any loss thereof. All County depositories at year-end were designated as qualified public depositories; therefore, while the County does not have a specific policy regarding custodial credit risk, the County does not have exposure to this type of risk. Investments The Department s investments at September 30, 2011 and 2010 consisted of the following: Reported Amount/Carrying Value Florida PRIME $ 10,252,325 $ 13,708,662 Wells Fargo Advantage Funds 579, ,121 U.S. Government Securities 15,139,402 12,462,419 Florida Local Government Investment Trust 3,112,627 3,115,605 Fund B Surplus Funds Trust (Fund B) 79,463 93,472 Invesco Aim Trust 487, ,121 Florida Trust Day-to-Day Fund 2,132, ,121 $ 31,783,067 $ 31,249,521 Investments held at year-end are representative of investments held throughout the year. Martin County invests surplus funds in an external investment pool, the Local Government Surplus Funds Trust Fund (n/k/a Florida PRIME ). The State Pool is administered by the Florida State Board of Administration ( SBA ), which provides regulatory oversight. Monies that were invested in the SBA s Fund B Surplus Funds Trust Fund ( Fund B ) continue to be restricted; however, Fund B cash holdings are being distributed as they become available from maturities, sales, investment interest and other income received from the assets. According to the SBA, the investment objective of Fund B is to maximize the present value of distributions to participants. Investments in Florida PRIME, Florida Local Government Investment Trust Fund, Wells Fargo Advantage Money Market Funds-Govt., Invesco U.S. Institutional Money Market Fund, and Florida Trust Day to Day Fund are recorded at their share price, which represents the fair value of the funds' underlying investments. Fund B is accounted for as a fluctuating NAV pool. The fair value factor for Fund B at September 30, 2011 was

44 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 3 - CASH AND CASH EQUIVALENTS AND INVESTMENTS, continued The County investment policy and various bond covenants limit credit risk by restricting authorized investments to the following: the Local Government Surplus Funds Trust Fund; Security and Exchange Commission registered money market funds with a Moody s credit rating of Aaa or Standard & Poor s credit rating of AAAm or AAAg ; interest bearing time deposits or savings accounts in qualified public depositories; direct obligations of the U.S. Treasury; securities issued by Federal Agencies; and the Florida Local Government Investment Trust. The investment portfolio shall remain sufficiently liquid to meet all operating and capital requirements that may be reasonably anticipated. To the extent possible, an attempt will be made to match investment maturities with known cash needs and anticipated cash flow requirements. Unless matched to a specific cash flow requirement, investments shall not be directly in individual securities maturing more than five (5) years from the date of purchase. Florida PRIME is administered by the State Board of Administration, and has adopted operating procedures consistent with those of a 2a-7 like pool. GASB 31 describes a 2a-7 like pool as an external investment pool that is not registered with the Securities and Exchange Commission as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with Rule 2a-7 under the Investment Company Act of Rule 2a-7 is the rule that permits money market funds to use amortized cost to maintain a constant NAV value of $1.00 per share, provided that such funds meet certain conditions. Concerning credit quality, Florida PRIME is rated by Standard and Poors with a current rating of AAAm and Fund B is not rated by any nationally recognized statistical rating agency. The weighted average day to maturity (WAM) of Florida PRIME at September 30, 2011 was 38 days. The weighted average life (WAL) of Fund B at September 30, 2011 was 4.82 years, however, because Fund B consists of restructured or defaulted securities there is considerable uncertainty regarding the weighted average life. Funds invested in Florida PRIME have full liquidity, with no penalty for withdrawal. Fund B participants are prohibited from withdrawing any amount from the Fund and a formal withdrawal policy has not yet been developed. Additional information regarding Florida PRIME and Fund B may be obtained from the State Board of Administration, The Wells Fargo Advantage Money Market Fund-Government seeks current income, while preserving capital and maintaining liquidity. It invests in high-quality, short-term money market instruments that consist of U.S. Government obligations and repurchase agreements collateralized by U.S. Government obligations. As of September 30, 2011, the S & P Credit Rating for this fund was AAAm and the weighted average maturity was 25 days. U.S. Agency Bonds had maturities ranging from 21 months to 58 months as of September 30, These type investments made up 43.39% of the County s total investments. The Florida Local Government Investment Trust ( FLGIT ) is governed by a Board of Trustees consisting of six members. The Florida Association of Court Clerks and the Florida Association of Counties each appoint three trustees. Currently, the Board consists of 3 Clerks of Court and 3 County Commissioners. The FLGIT is required to submit a monthly report to Standard & Poor s. As of September 30, 2011, the trust had a credit quality rating of AAAf, a bond fund volatility rating of S1, and the weighted average maturity was 1.97 years. 38

45 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 3 - CASH AND CASH EQUIVALENTS AND INVESTMENTS, continued The Invesco U.S. Institutional Money Market Fund invests in direct obligations of the U.S. Treasury and other securities issued or guaranteed as to principal and interest by the U.S. Government or by its agencies or instrumentalities, as well as, repurchase agreements secured by such obligations. Its objective is to maximize current income with the preservation of capital and the maintenance of liquidity. At September 30, 2011, the weighted average maturity was days and the fund had a Standard & Poor s rating of AAAm. The Florida Trust Day to Day Fund was created in January 2009 and is governed by the same board and advisory committee that oversee the Florida Local Government Investment Trust. It is a money market fund that is AAAm-rated by Standard & Poor s and its weighted average maturity at September 30, 2011 was 50 days. NOTE 4 - RESTRICTED ASSETS Restricted assets consist of the following amounts at September 30, 2011 and 2010, held in various accounts established in part by the Department s bond documents. Cash and September 30, 2011 Cash Equivalents Investments Total Performance bonds $ - $ 44,638 $ 44,638 Customer deposits - 956, ,610 Lend a hand deposits 33,704-33,704 Debt reserve 183, ,853 Renewal and replacement 31,544 7,230,430 7,261,974 Capital improvement account 26,210 8,385,920 8,412,130 $ 275,311 $ 16,617,598 $ 16,892,909 Cash and September 30, 2010 Cash Equivalents Investments Total Performance bonds $ - $ 37,116 $ 37,116 Customer deposits - 890, ,171 Lend a hand deposits 33,005-33,005 Debt reserve 183, ,527 Renewal and replacement 91,355 6,935,700 7,027,055 Capital improvement account 350,566 9,500,158 9,850,724 $ 658,453 $ 17,363,145 $ 18,021,598 39

46 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 5 - CAPITAL ASSETS Changes in capital assets for the year ended September 30, 2011 and 2010 were as follows: Balance Balance Balance 9/30/2009 Additions Deletions 9/30/2010 Additions Deletions 9/30/2011 Capital assets, not being depreciated: Land $ 4,552,340 $ 1,068,392 $ $ 5,620,732 $ $ $ 5,620,732 Intangible assets, land use rights 30,143 30,143 76, ,055 Construction in progress 1,767,799 4,071,850 (843,164) 4,996,485 2,478,286 (4,648,322) 2,826,449 Total capital assets, not being depreciated: 6,320,139 5,170,385 (843,164) 10,647,360 2,555,198 (4,648,322) 8,554,236 Capital assets, being depreciated: Buildings 122,397, , ,379, , ,323,914 Water distribution system 76,380,949 4,004,332 80,385,281 1,912,989 82,298,270 Wells 10,783, ,840 11,510,071 46,119 11,556,190 Sewer collection system 85,803,068 4,143,706 (115,660) 89,831,114 9,797,009 (61,866) 99,566,257 Equipment & leasehold improvements 4,192, ,891 (69,075) 4,860, ,227 (429,290) 4,906,033 Intangible assets 3,151,456 4,739,060 7,890,516 10,781 7,901,297 TTotal capital assets, being depreciated 302,708,889 15,332,551 (184,735) 317,856,705 13,186,412 (491,156) 330,551,961 Less depreciation and amortization for: Buildings (27,894,938) (3,449,181) (31,344,119) (3,464,094) (34,808,213) Water distribution system (22,484,463) (2,145,231) (24,629,694) (2,211,789) (26,841,483) Wells (3,902,170) (488,810) (4,390,980) (487,337) (4,878,317) Sewer collection system (22,653,360) (2,844,592) 69,484 (25,428,468) (2,929,912) 61,867 (28,296,513) Equipment & leasehold improvements (2,960,961) (369,312) 61,610 (3,268,663) (368,849) 428,820 (3,208,692) Intangible assets (978,045) (198,911) (1,176,956) (287,448) (1,464,404) Total depreciation and amortization (80,873,937) (9,496,037) 131,094 (90,238,880) (9,749,429) 490,687 (99,497,622) Total capital assets, being depreciated, NET 221,834,952 5,836,514 (53,641) 227,617,825 3,436,983 (469) 231,054,339 Capital assets, net $228,155,091 $11,006,899 $ (896,805) $238,265,185 $ 5,992,181 $ (4,648,791) $ 239,608,575 The Department has active construction projects as of September 30, The projects include construction of a an odor control facility, SR707 Forcemain, IRP/Ocean Breeze Lift Station, Indian Street Bridge Utility Modification and reuse main from Tropical Farms to St. Lucie County. At September 30, 2011, the Department s commitments with contractors are as follows: Remaining Spent to date commitment Tropical Farms Odor Control Facility $ 2,236,057 $ 201,095 Reuse Main from TF to St. Lucie County 175, ,017 Indian Street Bridge Utility Modification. 102,983 52,176 IRP/Ocean Breeze Lift Station 56, ,456 Meter Reading Software Upgrade 15,344 4,375 Wastewater/Reuse Systems 47,722 21,788 Water Projects 192,733 0 Total $ 2,826,449 $ 1,206,907 The commitment for these projects is being financed by revenue bonds secured by water and sewer revenues, operating revenues and capital facility charges. 40

47 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 6 - LONG-TERM DEBT Utilities System Refunding Revenue Bonds On June 1, 1998, the Department issued $39,670,000 of Utility System Refunding Bonds Series 1998 (Series 1998 Bonds) to provide funds for the purpose of (1) refunding (a) a portion of the Consolidated Utilities System Refunding and Improvement Revenue Bonds, Series 1994; (b) all of the Department s outstanding Water and Wastewater System Revenue Bonds, Series 1996, (2) funding a portion of the Reserve Account through the purchase of a debt service reserve surety policy, and (3) paying certain expenses related to the issuance and sale of the Series 1998 Bonds. For the Series 1998 Bonds, interest is payable on April 1 and October 1 of each year and principal is payable on October 1 of each year. The interest rates on the outstanding bonds range from 4.0% to 5.0%; $15,075,000 are serial bonds, payable annually through 2015; $24,595,000 are term bonds, principal due annually from 2016 to On October 20, 2009, the Department issued $28,675,000 of Utility System Refunding Bonds Series 2009B (Series 2009B) to provide funds for the purpose of (1) refunding a portion of the Utilities System Revenue Bonds, Series 1998, (2) paying certain expenses related to the issuance and sale of the Series 2009B Bonds, and (3) paying a portion of the cost of purchasing a municipal bond insurance policy and debt service reserve surety policy. For the Series 2009B, interest is payable on April 1 and October 1 of each year and principal is payable on October 1 of each year. The interest rates on the outstanding bonds range from 2.0% to 5.0%; $16,945,000 are serial bonds, payable annually through 2020; $11,730,000 are term bonds, principal due annually from 2022 to Utilities System Revenue Bonds On October 1, 2001, the Department issued $25,000,000 of Utility System Revenue Bonds Series 2001 (Series 2001 Bonds) to provide funds for the purpose of (1) paying a portion of the cost of acquiring and construction additions, extensions and improvements to the Department s combined water and wastewater utility system, (2) funding a deposit to the Reserve Account through the purchase of a debt service reserve surety policy, and (3) paying certain expenses related to the issuance and sale of the Series 2001 Bonds. These bonds were refunded during fiscal 2011 through the issuance of the Utilities System Refunding Revenue Note, Series On September 22, 2003, the Department issued $40,450,000 of Utility System Revenue Bonds Series 2003 (Series 2003 Bonds) to provide funds for the purpose of (1) construction of a new reverse osmosis water treatment plant, expansion of wastewater treatment plants and construction of extensions and improvements to the Department s combined water and wastewater utility system, (2) funding a deposit to the Reserve Account through the purchase of a debt service reserve policy, and (3) paying certain expenses related to the issuance and sale of the Series 2003 Bonds. For the Series 2003 Bonds, interest is payable on April 1 and October 1 of each year and principal is payable on October 1 of each year. Interest rates on the outstanding bonds range from 2.0% to 5.0%; $20,495,000 are serial bonds, payable annually through 2023; $19,955,000 are term bonds, principal due annually from 2024 to

48 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 6 - LONG-TERM DEBT, continued On October 20, 2009, the Department issued $7,990,000 of Utility System Revenue Bonds Series 2009A (Series 2009A Bonds) to provide funds for the purpose of (1) paying a portion of the costs of acquiring two existing water and wastewater systems (2) paying certain expenses related to the issuance and sale of the Series 2009A Bonds, and (3) paying a certain portion of the cost of purchasing a municipal bond insurance policy and debt service reserve surety policy. For the Series 2009A, interest is payable on April 1 and October 1 of each year and principal is payable on October 1 of each year. The interest rate on the outstanding bonds is 5.0%; and the Series 2009A are term bonds, principal due annually from 2027 to On November 17, 2010, the Department issued $16,900,000 in a Utilities System Refunding Revenue Note, Series 2010, with an interest rate of 2.91 percent, to advance refund the Utilities System Revenue Bonds, Series The Refunding Note was issued to refund the $16,020,000 princial amount of the Department s Utilities System Revenue Bonds, Series 2001 that mature on or after October 1, The net proceeds of $16,850,581 (after payment of $45,152 in issuance costs) combined with the Department s equity contribution of $102,253 were placed in an irrevocable trust to call on October 1, 2011, all outstanding bonds and to pay all accrued interest and call premiums on the Utilities System Revenue Bonds, Series As a result, the $16,020,000 of the 2001 Series Bonds are considered to be in-substance defeased as of November 17, The refunding reduced its total debt service payments over the next sixteen years by $2,884,274 and to obtain an economic gain (difference between the present value of the debt service payments on the old and new debt) of $2,299,881. On October 15, 2009, the Department issued $28,675,000 in Utility System Refunding Bonds, Series 2009B, with an average interest rate of 4.38 percent, to advance refund a portion of the Utilities System Refunding Revenue Bonds, Series The Refunding Bonds are being issued to refund the $28,745,000 principal amount of the Department s Utilities System Refunding Revenue Bonds, Series 1998 that mature on or after November 30, The net proceeds of $28,854,507 (after payment of $601,515 in underwriting fees, insurance and other issuance costs) combined with the Department s equity contribution of $125,423 were placed in an irrevocable trust to call on November 30, 2009, the portion of the outstanding 1998 Series Bonds being refunded and to pay all associated accrued interest. As a result, a portion of the 1998 Series bonds are considered to be in-substance defeased and the liability for those bonds has been removed from the Department s financial statements. The Series 1998 Utilities System Refunding Bonds were refunded to reduce its total debt service payments over the next fourteen years by approximately $1,954,556 and to obtain an economic gain (difference between the present value of the debt service payments on the old and new debt) of $1,436,853. The Series 1998, 2003, and 2009A/B Bonds (collectively, the Bonds ) are collateralized by 100% of (i) net revenues of the Department, (ii) certain Capital Facilities Charges collected with respect to the Department, (iii) special assessments, if any, and (iv) amounts on deposit in funds and accounts established by the bond resolutions, equal to remaining principal and interest requirements over the terms of respective bond agreements. 42

49 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 6 - LONG-TERM DEBT, continued The Bonds include restrictive covenants which require the establishment and maintenance of various reserve and bond service accounts and also govern the flow of funds with respect to such accounts. In addition, such covenants generally require the Department to establish rates and fees sufficient to provide net revenues and special assessments equal to 110% of the annual debt service requirements, or rates and fees sufficient to provide net revenues, capital facilities charges and special assessments equal to 120% of annual debt service requirements. Based on the interpretations of the Resolutions, the Department s pledged revenues recognized during the period were approximately $16,678,553 with capital facilities charges and $15,906,723 exclusive of capital facilities charges, amounting to 275% and 262%, respectively, of principal and interest requirements. State Revolving Fund Loan In 2002, the Department entered into a loan agreement with the State of Florida, Department of Environmental Protection (FDEP) to fund the planning and design of wastewater collection systems for construction in Seagate Harbor, Lighthouse Point. The Seagate Harbor, Lighthouse Point project was finalized May 16, The outstanding principal due at September 20, 2011 and 2010 was $2,110,582 and $2,232,845, respectively. Interest rates on the outstanding loans range from 2.71% to 3.11%. Changes in long-term liabilities for the years ended September 30, 2011 and 2010 were as follows: Revenue Bonds Balance Balance Balance Due in 9/30/2009 Additions Reductions 9/30/2010 Additions Reductions 9/30/ Series 1998 Bonds $33,205,000 $ $(29,655,000) $ 3,550,000 $ $ (1,000,000) $ 2,550,000 $1,065,000 Series 2001 Bonds 19,050,000 (1,985,000) 17,065,000 (17,065,000) Series 2003 Bonds 36,620,000 (1,675,000) 34,945,000 (880,000) 34,065, ,000 Series 2009A Bonds 7,990,000 7,990,000 7,990,000 Series 2009B Bonds 28,675,000 (1,065,000) 27,610,000 27,610,000 Plus (Less): Unamortized premium 334, ,396 (63,848) 904,375 (67,049) 837,326 (68,502) Unamortized discount (720,370) (198,174) 303,726 (614,818) 99,262 (515,556) 49,942 Deferred accounting Loss on refunding (1,996,928) (1,925,021) 1,836,317 (2,085,632) (1,108,256) 361,185 (2,832,703) 343,189 Total revenue bonds 86,492,529 35,175,201 (32, ) 89,363,925 (1,108,256) (18, ) 69,704,067 2,299,629 Series 2010 Refunding Note 16,900,000 (90,000) 16,810,000 1,205,000 State Revolving Fund Loan (WWG P) 2,351,836 (118,991) 2,232,845 (122,263) 2,110, ,626 Total long-term debt 88,844,365 35,175,201 (32,422,796) 91,596,770 15,791,744 (18,763,865) 88,624,649 3,630,255 Other liabilities: Compensated absences 687, ,842 (501,053) 671, ,478 (686,261) 636,829 96,134 Total long-term liabilities $89,532,188 $35,660,043 $(32,923,849) $92,268,382 $16,443,222 $(19,450,126) $89,261,478 $3,726,389 43

50 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 6 - LONG-TERM DEBT, continued The future principal maturity amounts and related interest costs for all long-term debt and the sinking fund requirements of the Series 1998, 2003 and 2009A and B bonds, the state revolving fund loan (WWG P), and the Series 2010 Refunding Note are as follows: Bond/Loan Year Ended Sinking Fund September 30, Principal Interest Requirements 2012 $ 3,305,626 $ 4,020,189 $ 7,325, ,439,081 3,888,968 7,328, ,602,632 3,741,279 7,343, ,746,279 3,592,897 7,339, ,900,028 3,438,544 7,338, ,400,080 14,305,152 36,705, ,791,856 8,981,669 36,773, ,635,000 4,586,257 17,221, ,000,000 1,443,069 9,443, ,315, ,250 2,550,250 $ 91,135,582 $48,233,274 $139,368,856 NOTE 7 - CAPITAL CONTRIBUTIONS Capital contributions consist of monies received, capital assets contributed and special assessment revenue recognized for equipping and expanding capacity and facilities of the Department. Additions during fiscal year 2011 consisted of $2,654,669 in cash, $804,607 in capital assets, $1,958,334 in capital grants and $5,644,153 of special assessment revenue recognized. Additions during fiscal year 2010 consisted of $863,887 in cash, $795,190 in capital grants and $4,222,437 in capital assets. Additions during fiscal year 2009 consisted of $1,078,851 in cash, $1,826,203 in capital assets and $1,776,670 of special assessment revenue recognized. NOTE 8 - DEFINED BENEFIT PENSION PLAN Plan Description Substantially all full time employees of the Department are eligible to participate in the Florida Retirement System (FRS), a cost-sharing multiple-employer public retirement system administered by the State of Florida Department of Management Services. The FRS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. The Florida Legislature established the FRS under Chapter 121, Florida Statutes, and has sole authority to amend benefits provisions. Each year the FRS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the Florida Department of Management Services, Division of Retirement, P.O. Box 9000, Tallahassee, FL

51 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 8 - DEFINED BENEFIT PENSION PLAN, continued Funding Policy The FRS is a defined benefit plan for all state, participating county, district school board, community college and university employees. Contribution rates are established statewide for all participating governmental units. Accordingly, the actuarial information and related disclosures attributable to the Department s employees are not determinable. The Department is required to contribute an actuarially determined rate. The following rates, on annual covered payroll, were in effect for the classes of memberships for the fiscal year ended September 30, 2011 and 2010: 10/01/09-07/01/10-07/01/11-06/30/10 06/30/11 09/30/11 Regular 9.85% 10.77% 4.91% Senior Mangement 13.12% 14.57% 6.27% DROP 10.91% 12.25% 4.42% Substantial changes were made to FRS during fiscal year 2011 affecting members enrolled on or after July 1, 2011 by extending the vesting requirement to eight years of credited service and increasing normal retirement to age 65 with at least eight years of credited service or 33 years of service regardless of age. Also, the final average compensation of these members will be based on the eight highest years of salary. A post-employment health insurance subsidy is also provided to eligible retired employees through the FRS in accordance with Florida Statutes. The contributions of the Department are established and may be amended by the State Legislature. The Department s contributions to the FRS for the years ended September 30, 2011, 2010, and 2009 were $446,472, $527,851 and $513,869, respectively, each equal to the required contributions for the respective year. Drop Benefits The Deferred Retirement Option Program (DROP) is a program that provides an alternative method for payment of retirement benefits for a specified and limited period for members of the FRS, effective July 1, Under this program, the employee may retire and have their benefits accumulate in the Florida Retirement System Trust Fund, earning interest, while continuing to work for an FRS employer. The participation in the program does not change conditions of employment. When the DROP period ends, maximum of 60 months, employment must be terminated. At the time of termination, employees will receive payment of the accumulated DROP benefits, and begin receiving their monthly retirement benefit, in the same amount determined at retirement, plus annual costof-living increases. The FRS publishes an annual report that provides ten-year historical trend information about progress made in accumulating sufficient assets to pay benefits when due. This report may be obtained by writing to the Division of Retirement, Research, Education and Policy Section, P. O. Box 9000, Tallahassee, Florida , or by calling (850) , or accessing their Internet site at 45

52 NOTES TO FINANCIAL STATEMENTS For the Fiscal Years Ended September 30, 2011 and 2010 NOTE 9 POSTEMPLOYMENT BENEFITS Effective October 1, 2007, the County adopted the provisions of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postretirement Benefits Other Than Pensions. In conjunction with the implementation of GASB Statement 45, the Martin County Board of County Commissioners (the Board ) engaged an actuarial firm to determine the County s annual required contribution and unfunded obligation, which are the responsibility of the Board s General Fund. Further information about OPEB is available in the County s Comprehensive Annual Financial Report. NOTE 10 - RISK MANAGEMENT The Department is exposed to various risks of loss related to tort; theft of or damage to and destruction of assets, errors and omissions, injuries to employees; and natural disasters. As a department of the Board, coverage for employee health, property, general liability, automobile liability, workers compensation, public employee bond and comprehensive crime loss is covered through a comprehensive property and liability risk management program provided through Self-Insurance Internal Service Fund of the County. The self-insurance program is one whereby the Department makes annual contributions along with the other members of the program. The Department is subject to a special assessment in the event of a deficiency, except to the extent that the deficiency results from a specific claim against a member in excess of the reinsurance available; such a deficiency is solely the responsibility of that member. As of September 30, 2011 there have been no special assessments. Settlements have not exceeded coverage for each of the past three years. Additionally, the County allocated to the Department certain department support costs which include insurance coverage, legal, administrative, fiscal, purchasing, personnel and internal audit charges. The total of such costs charged to expense was $1,212,394 for the year ended September 30, 2011 and $1,212,394 for the year ended September 30, NOTE 11 - COMMITMENTS AND CONTINGENCIES The Department is contingently liable with respect to lawsuits and other claims incidental to the ordinary course of its operations. Claims covered by the self-insurance program are reviewed and losses are accrued as required in the judgment of management. In the opinion of management, based on the advice of legal counsel, the ultimate disposition of these lawsuits and claims will not have a material adverse effect on the financial position of the Department. 46

53 STATISTICAL SECTION

54 STATISTICAL SECTION This part of Martin County Utilities Department's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information reports about the Department's overall financial health. Contents Financial Trends These schedules contain trend information to help the reader understand how the Department's financial performance and well-being have changed over time. Schedule of Net Assets by Component 47 Schedule of Changes in Net Assets 48 Operating Revenue and Expenses Fiscal Years Operating Income, Income Before Capital Contributions and Increase in Net Assets 49 Revenue Capacity These schedules present information to help the reader understand the revenue base, rates and principal payers. Schedule of Revenues by Source 50 Schedule of Operating Expenses by Function 51 Schedule of Annual Capital Contributions by Source 52 Schedule of Capital Disbursements 53 Schedule of Number of Water and Sewer Customers by Type 54 Schedule of Water and Sewer Rates 55 Schedule of Percent of Meters by Dwelling Type 56 Schedule of Average Residential Customer Billings 57 Schedule of Largest Customers 58 Demographic & Statistical Information These schedules present information to help the reader to understand the demographics of the customers we serve. Schedule of Residential Water/Wastewater Bill Comparisons 59 Schedule of Meter Connections Last Ten Years 60 Schedule of Assessed Value and Actual Value of Taxable Property 61 Schedule of Direct and Overlapping Property Tax Rates 62 Schedule of Demographic & Economic Statistics 63 Schedule of Principal Employers 64 Schedule of Property Tax Levies and Collections 65 Debt Capacity These schedules present information to help the reader assess the affordability of the Department's current levels of outstanding debt, as well as the Department's ability to issue additional debt in the future. Schedule of Debt Service Coverage 66 Schedule of Ratio of Revenues Bonded Debt Outstanding Schedule of Investment Per Equivalent Residential Connection (ERC) 68 Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the Department's financial report relates to the services the Department provides and the activities it performs. Schedule of Statistical Operating Indicators 69 Schedule of Capital Asset Statistics 69 Detail Schedule of Capital Assets 70 Schedule of Authorized Full Time Equivalent Employees By Function 71 Page

55 Schedule of Net Assets by Component Last Ten Fiscal Years (unaudited) Fiscal Year Components of Net Assets at Year-End Invested in capital assets, net of related debt $ 149,380,517 $ 146,666,415 $ 139,310,726 $ 142,688,331 $ 138,345,047 $ 124,491,318 $ 111,599,051 $ 98,593,917 $ 93,925,683 $ 88,801,160 Restricted: Rate Stabilization ,500,000 1,500,000 1,500,000 Capital Projects 15,936,299 16,695,872 21,888,414 16,969,305 13,666,538 15,907,079 20,372,827 21,019,607 17,417,277 15,601,413 Unrestricted 28,496,223 19,482,819 18,409,308 22,989,757 24,424,801 17,496,761 12,969,859 10,467,469 9,208,407 6,975,687 Total Net Assets at Year-End $ 193,813,039 $ 182,845,106 $ 179,608,448 $ 182,647,393 $ 176,436,386 $ 157,895,158 $ 144,941,737 $ 131,580,993 $ 122,051,367 $ 112,878,260 Notes: 1. Accounting standards require that net assets be reported in three components in the financial statements: invested in capital assets, net of related debt; restricted; and unrestricted. Net assets are considered restricted when constraints placed on net asset use are either: (a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation. Source: Department's financial records 47

56 Schedule of Changes in Net Assets Last Ten Fiscal Years (unaudited) Fiscal Year Operating Revenues: Metered water sales $ 15,311,585 $ 14,278,309 $ 13,253,601 $ 12,467,630 $ 13,334,616 $ 13,297,035 $ 12,482,503 $ 12,403,642 $ 11,247,216 $ 10,324,428 Sewer sales 12,093,494 11,344,357 10,825,316 10,357,544 10,521,801 10,407,006 9,945,645 9,587,198 8,745,693 7,918,256 Guaranteed revenue 712, , , ,148 1,000,507 1,132, , , , ,097 Miscellaneous 1,215,918 1,172,685 1,085, ,723 1,039, , ,803 1,086, , ,391 Engineering fees 37,549 80,473 84, , , , , , , ,803 Total operating revenues 29,371,014 27,651,131 26,159,368 24,948,473 26,018,743 25,974,637 24,702,842 23,904,415 21,461,593 19,771,975 Operating Expenses: Administrative and general $ 4,740,726 $ 5,066,052 $ 4,651,397 $ 4,637,217 $ 5,307,238 $ 4,843,176 $ 4,089,513 $ 3,782,359 $ 3,253,654 $ 3,287,657 Operating and maintenance 11,185,347 11,494,376 11,579,049 11,295,598 10,309,513 10,461,426 9,207,286 8,452,730 7,412,306 6,234,485 Depreciation and amortization 9,749,429 9,496,037 9,189,290 8,296,285 7,205,658 6,735,327 6,732,057 6,430,860 6,091,556 5,237,424 Total operating expenses 25,675,502 26,056,465 25,419,736 24,229,100 22,822,409 22,039,929 20,028,856 18,665,949 16,757,516 14,759,566 Operating Income (Deficit) 3,695,512 1,594, , ,373 3,196,334 3,934,708 4,673,986 5,238,466 4,704,077 5,012,409 Nonoperating Revenues (Expenses): Investment income $ 748,788 $ 774,737 $ 771,162 $ 1,448,698 $ 2,712,279 $ 2,737,067 $ 1,981,973 $ 1,055,451 $ 731,967 $ 1,059,021 Interest expense (4,024,138) (4,599,194) (4,402,615) (2,899,179) (2,626,974) (2,864,588) (3,656,468) (4,257,138) (2,806,621) (2,747,852) Grants ,300 2,063,900 1,793, , , ,000 Amoritization of bond discount and issue costs (519,857) (419,550) (308,410) (313,079) (317,565) (317,987) (319,002) (347,572) (316,200) (318,674) Other income (expense) 5,865 4,485 (64,779) (113,563) (71,672) (6,852) (394,449) (23,040) (17,072) (28,909) Total nonoperating revenues (expenses) (3,789,342) (4,239,522) (4,004,642) (1,827,823) 1,759,968 1,340,640 (2,205,188) (3,412,601) (2,407,926) (1,736,414) Income (Deficit) before Capital Contributions (93,830) (2,644,856) (3,265,010) (1,108,450) 4,956,302 5,275,348 2,468,798 1,825,865 2,296,151 3,275,995 Special Item - - (4,622,039) (1,071,407) - - Capital Contributions 11,061,763 5,881,514 4,848,104 7,319,457 9,569,228 7,678,073 10,891,946 8,775,168 6,876,956 5,348,099 Increase in Net Assets 10,967,933 3,236,658 (3,038,945) 6,211,007 14,525,530 12,953,421 13,360,744 9,529,626 9,173,107 8,624,094 Net Assets, Beginning of Year $ 182,845,106 $ 179,608,448 $ 182,647,393 $ 176,436,386 $ 157,895,158 $ 144,941,737 $ 131,580,993 $ 122,051,367 $ 112,878,260 $ 104,254,166 Restatement ,015, Net Assets, at Year-End $ 193,813,039 $ 182,845,106 $ 179,608,448 $ 182,647,393 $ 176,436,386 $ 157,895,158 $ 144,941,737 $ 131,580,993 $ 122,051,367 $ 112,878,260 Note: Financial information for this schedule is only available back to fiscal year 2002, the year GASB Statement No. 34 was implemented. Source: Department's financial records 48

57 Last Ten Fiscal Years (unaudited) Operating Revenue and Expenses: $35,000 $30,000 $25,000 Thousands $20,000 $15,000 $10,000 $5,000 Operating Revenues Operating Expenses $ Operating Income, Income Before Capital Contributions and Increase (Decrease) in Net Assets: $20,000 $15,000 Increase (Decrease) in Net Assets Operating Income Income (Loss) Before Capital Contributions Thousands $10,000 $5,000 $ $(5,000) Note: Fiscal year 2009 includes the retirement of Martin Downs water and wastewater plant assets Source: Department's financial records 49

58 Schedule of Revenues By Source Last Ten Fiscal Years (Unaudited) Operating Revenues Non-Operating Revenues Fiscal Year Metered Total Ended Water Sewer Guaranteed Engineering Operating Investment Other Capital Total Sept. 30 Sales Sales Revenues Misc. Fees Revenues Income Income Contributions Revenues ,324,428 7,918, , , ,803 19,771,975 1,059, ,099 4,874,000 26,479, ,247,216 8,745, , , ,147 21,461, ,967 34,390 6,842,566 29,070, ,403,642 9,587, ,756 1,086, ,568 23,904,415 1,055, ,593 8,104,007 33,911, ,482,503 9,945, , , ,501 24,702,842 1,981, ,112 10,349,138 37,764, ,297,035 10,407,006 1,132, , ,753 25,974,637 2,737,067 2,590,110 6,890,569 38,192, ,334,616 10,521,801 1,000,507 1,039, ,012 26,018,743 2,712,279 2,063,900 9,569,228 40,364, ,467,630 10,357, , , ,428 24,948,473 1,448,698 49,300 7,319,457 33,765, ,253,601 10,825, ,650 1,085,491 84,310 26,159, ,162 5,000 4,848,104 31,783, ,278,309 11,344, ,307 1,172,685 80,473 27,651, ,737 4,485 5,881,514 34,311, ,311,585 12,093, ,468 1,215,918 37,549 29,371, ,788 5,865 11,061,763 41,187,430 Note: The Department changed the method of accounting for recognizing special assessment revenue effective October 1, Special assessment revenue is now included in Capital Contributions. Special assessment revenue is recognized when the project is completed rather than when cash from assessments is received. Source: Department's financial records 50

59 Schedule of Operating Expenses by Function Last Ten Fiscal Years (Unaudited) Operating Expenses Non-Operating Expenses Fiscal Year Total Amortization Ended Administrative Operating and Indirect Operating Interest of Bond Discount Other Total Sept. 30 and General Maintenance Costs Depreciation Expenses Expense and Issue Costs Expenses Expenses ,682,761 6,234, ,896 5,237,424 14,759,566 2,747, ,674 28,909 17,855, ,661,488 7,412, ,166 6,091,556 16,757,516 2,806, ,200 17,072 19,897, ,149,359 8,452, ,000 6,430,860 18,665,949 4,257, ,572 1,111,181 24,381, ,289,801 9,207, ,712 6,732,057 20,028,856 3,656, , ,995 24,403, ,889,953 10,461, ,223 6,735,327 22,039,929 2,864, ,987 16,458 25,238, ,177,595 10,309,513 1,129,643 7,205,658 22,822,409 2,626, ,565 71,672 25,838, ,446,276 11,295,598 1,190,941 8,296,285 24,229,100 2,899, , ,563 27,554, ,460,456 11,579,049 1,190,941 9,189,290 25,419,736 4,402, ,176 93,012 30,200, ,853,658 11,494,376 1,212,394 9,496,037 26,056,465 4,599, ,550-31,075, ,528,332 11,185,347 1,212,394 9,749,429 25,675,502 4,024, ,857-30,219,497 Source: Department's financial records 51

60 SCHEDULE OF ANNUAL CAPITAL CONTRIBUTIONS BY SOURCE Last Ten Fiscal Years (Unaudited) Water Sewer Developer Developer Fiscal Special Capital Capital Facility Capital Facility Infrastructure Infrastructure Year Assessments Grants Charges Charges Water Sewer Total ,753,512 1,544, , ,476 4,874, ,108,323 1,838,702 1,179,178 1,716,363 6,842, ,164,750 2,210,117 1,330,959 1,398,181 8,104, ,015,521 3,366,279 1,525,323 2,442,015 10,349, ,454, ,784 1,456,232 3,011,213 6,890, ,786 1,167,856 1,172,612 2,014,230 4,245,744 9,569, ,165 1,098,156 1,172,083 1,245,202 3,109,851 7,319, ,776, , , , ,638 1,171,565 4,848, , , ,300 1,354,077 2,868,360 5,881, ,644,154 1,958,334 1,096,555 1,558, , ,812 11,061,763 12,000,000 10,000,000 8,000,000 Annual Capital Contributions By Source Capital Grants Special Assessments Developer Infra Sewer Developer Infra Water Sewer CFC Water CFC 6,000,000 4,000,000 2,000, Source: Department's financial records Note: The Department has changed the method of accounting for recognizing special assessment revenue effective October 1, Special assessment revenue is now included in Capital Contributions rather than non-operating income as recorded prior to October 1, Special assessment revenue is recognized when the project is completed rather than when cash from assessments is received. 52

61 CAPITAL DISBURSEMENTS Last Ten Fiscal Years ($000) (Unaudited) Source: FY Audited Statement of Cash Flows 53

62 Schedule of Number of Water and Sewer Customers by Type Last Ten Fiscal Years (unaudited) Fiscal Water Sewer Total Year Residential Multi-Family Commercial Irrigation Other Residential Multi-Family Commercial I.Q Other Water Sewer , , , ,685 15, , , , ,488 17, , , , ,119 18, , , , ,355 19, , , , , ,171 19, , , , , ,953 20, , , , , ,294 20, , , , , ,864 20, , , , , ,528 22, , , , , ,881 22,839 Notes: Information is from customer billing records from Sept 30 of every year. "Other" includes service availability customers, lift station maintenance accounts, fire service and temporary accounts. Number of Water and Sewer Customers by Type 35,000 30,000 25,000 20,000 15,000 10,000 5, Water Sewer Source: Department's financial records 54

63 Schedule of Water and Sewer Rates September 30, 2011 MONTHLY BASE FACILITY (MINIMUM) CHARGE: ALL CUSTOMERS CUSTOMER ACCOUNT CHARGE: ALL CUSTOMERS (Per Bill) Meter Single Family Multi-Family Non-Residential Single Family Multi-Family Non-Residential Size (per dwelling unit) (per dwelling unit) (per meter) (per dwelling unit) (per dwelling unit) (per meter) Water Sewer Water Sewer Water Sewer Water Sewer Water Sewer Water Sewer 5/8" $13.49 $12.86 $6.74 $6.44 $16.05 $15.30 $2.16 $3.36 $2.15 $3.36 $2.15 $3.36 1" $33.72 $12.86 $6.74 $6.44 $40.19 $38.32 GALLONAGE CHARGE: ALL CUSTOMERS 11/2" $67.45 $12.86 $6.74 $6.44 $80.26 $76.54 (steps times # of units) Water Sewer 2" $ $12.86 $6.74 $6.44 $ $ Single Family: 1-10,000 gallon rate $2.02 $ ,001-15,000 gallon rate $2.83 3" $6.74 $6.44 $ $ ,001-25,000 gallon rate $ ,001 gallon rate or more $4.44 4" $6.74 $6.44 $ $ Multi-Family: 1-5,000 gallon rate $2.02 $3.95 6" $6.74 $6.44 $ $ ,001-7,500 gallon rate $2.83 $3.95 7,501-12,500 gallon rate $3.64 $3.95 8" $6.74 $6.44 $1, $1, ,501 gallon rate or more $4.44 $3.95 Non-Residential: Sewer Only $45.83 Commercial All gallons $2.44 $3.95 FIRE LINE SERVICE (Customers Served by Separate Fire Line) Irrigation 1-10,000 gallon rate $2.83 (potable) 10,001-25,000 gallon rate $3.64 No gallonage charge 25,001 gallon rate or more $ /2" $6.69 $6.69 $6.69 2" $10.70 $10.70 $10.70 Irrigation All gallons $0.43 3" $21.40 $21.40 $21.40 (I.Q.) 4" $33.45 $33.45 $ " $66.88 $66.88 $66.88 SEWER CHARGE CAPS (LIMITS): ALL SEWER CUSTOMERS 8" $ $ $ " $ $ $ Single Family: 10,000 gallons per month "per unit" 12" $ $ $ Multi Family: None Non-Residential: None Rates effective October 1, 2010 Source: Department's financial records 55

64 (unaudited) PERCENT OF METERS BY DWELLING TYPE AS OF SEPTEMER 30, 2011 (Unaudited) Commercial 5% Irrigation/I.Q. Water 1% Other 2% Multi-Family 1% Single Family 91% Number of Accounts by Dwelling Type Single Family 29,081 Multi-Family 390 Commercial 1,698 Irrigation/I.Q. Water 263 Other ,065 Source: Department's financial records 56

65 Schedule of Average Residential Customer Billings Last Ten Fiscal Years (Unaudited) CUSTOMER BASE FACILITY COMMODITY TOTAL FISCAL YEAR ACCOUNT CHARGE CHARGE FEE FEE % INCREASE % % % % % % % % % % NOTE: An average customer is defined as having combined service and using 7,000 gallons each month AVERAGE RESIDENTIAL CUTOMER'S MONTHLY BILLING (Unaudited) Fiscal Years Source: Department's financial records 57

66 SCHEDULE OF TEN LARGEST CUSTOMERS Current Year and Nine Years Ago (Unaudited) PERCENTAGE PERCENTAGE OF TOTAL OF TOTAL OPERATING OPERATING CUSTOMER REVENUES RANK REVENUES REVENUES RANK REVENUES Vista Del Lago Association, Inc. $ 152, % $ 155, % South River POA 150, % 148, % St. Lucie Falls POA 150, % 155, % Jensen Beach 117, % Coquina Cove Ltd. 105, % 100, % Sandpebble/Joe's Point 101, % Willoughby Cove LLC 93, % Life Care Services 85, % 92, % Hidden Harbor Estates 84, % Cinnamon Tree POA 75, % 72, AAA Linen Service 117, % Summerfield Stuart Partners 95, % Martin County School Board 85, % Martin Memorial Medical Center 76, % TOTAL $ 1,116, % $ 1,099, % TOTAL OPERATING REVENUES $ 29,371,014 $ 19,771,975 Source: Department's financial records 58

67 SCHEDULE OF RESIDENTIAL WATER/WASTEWATER BILL COMPARISONS September 30, 2011 (Unaudited) $ $ $ $80.00 $60.00 $40.00 $20.00 $0.00 Analysis based on 5/8" meters and 7,000 gallons per month consumption Source: Pubic Resources Management Group, Inc. 59

68 Schedule of Meter Connections Last Ten Fiscal Years (Unaudited) Fiscal Year Ended September 30, Source: Department's financial records 60

69 Martin County, Florida Schedule of Assessed Value and Actual Value of Taxable Property Last Ten Fiscal Years (unaudited) Fiscal Total Personal Assessed Assessed Homestead & Taxable Direct Year Residential Commercial Agricultural Other Real Property Property Property Value Other Exemptions Valuation Rate 2002 $ 9,320,657,631 $ 1,712,981,399 $ 775,198,005 $ 1,037,265,165 $ 12,846,102,200 $ 1,470,575,179 $ 27,296,656 $ 14,343,974,035 $ 3,220,071,622 $ 11,123,902, ,432,996,112 1,845,751, ,060,884 1,191,247,981 14,302,056,858 1,533,608,089 28,832,797 15,864,497,744 3,884,313,322 11,980,184, ,259,714,230 2,034,068, ,965,550 1,363,591,862 16,491,339,702 1,579,700,289 33,991,491 18,105,031,482 4,821,532,836 13,283,498, ,334,668,280 2,482,034,940 1,042,240,760 1,571,743,660 20,430,687,640 1,644,384,735 36,315,729 22,111,388,104 6,659,157,300 15,452,230, ,375,321,803 2,967,417,600 1,617,739,690 2,102,944,040 25,063,423,133 1,711,693,725 36,529,832 26,811,646,690 9,126,414,465 17,685,232, ,394,337,118 3,376,848,910 2,504,648,950 2,691,985,565 31,967,820,543 2,121,882,216 40,120,307 34,129,823,066 12,757,499,249 21,372,323, ,559,171,870 3,762,262,785 3,023,883,970 2,744,087,375 33,089,406,000 2,159,405,510 45,924,411 35,294,735,921 12,594,110,006 22,700,625, ,429,958,733 3,715,829,925 2,593,303,123 2,843,204,485 29,582,596,266 2,166,888,200 60,594,501 31,809,778,967 11,183,140,471 20,626,638, ,786,366,431 3,317,390,175 2,399,917,340 2,712,772,705 26,216,446,651 2,094,539,575 47,271,907 28,358,258,133 9,567,825,566 18,790,432, ,986,019,852 2,930,020,513 1,848,319,700 2,366,717,691 23,131,077,756 2,069,709,043 45,743,610 25,246,530,409 7,753,620,332 17,492,910, Note: Assessed values approximate estimated actual values and tax rates are per $1,000 of assessed value. Source: Martin County Property Appraiser's Office. 61

70 County Direct Rates Martin County, Florida Schedule of Direct and Overlapping Property Tax Rates Per Thousand of Taxable Value Last Ten Fiscal Years (unaudited) Fiscal Year Taxes Are Payable General- Countywide General Fund Bonds - General Obligation Bonds - Lands For You Bonds - FIT Municipal Service Taxing Units¹ Total County Direct Rate Overlapping Rates - Countywide School Board Children's Services South Florida Water Management Florida Inland Navigation District Overlapping Rates - Non-Countywide City of Stuart Town of Jupiter Island Town of Ocean Breeze Park Town of Sewall's Point Drainage Districts² /ac /ac /ac /ac /ac /ac /ac /ac /ac /ac Note: Per Florida Statute (F.S.) , no municipality can levy ad valorem taxes against real and tangible personal property in excess of 10 mills, except for voted levies. As defined in F.S , a mill is one-thousandth of a United States dollar. So, a one mill tax rate would produce one dollar of taxes on each $1,000 of assessed property valuation. ¹ Municipal Services Taxing Units are special taxing units established by the Board of County Commissioners via an adopted ordinance. They are geographic areas defined by specific boundaries and are in the unincorporated areas of the County. These taxes are used within the boundaries of the taxing unit for services such as sidewalk/street repair, fire/rescue services, stormwater abatement, parks operations, and community redevelopment area operations. ² Drainage Districts are special districts that have governing boards with policy-making powers. They have the responsibility for providing irrigation, drainage, etc. for the land areas within the drainage district boundaires. The tax rates are assessed on a per acre basis and are only assessed on the land within the drainage district boundaries. The total tax levy for taxes payable in fiscal year 2011 is $1,017,019. This is.74% of the total original levy of $137,569,894. Source: Martin County Tax Collector's Office. 62

71 Martin County, Florida Schedule of Demographic and Economic Statistics Last Ten Years (unaudited) Personal Income¹ Total Per Capita Unemployment Median Year Population Personal Income² Personal Income Rate Age³ ,051 $ 5,554,619 $ 42, % ,491 5,703,412 42, ,637 6,120,665 44, ,059 6,962,997 49, ,645 7,851,094 56, ,737 8,586,709 61, ,868 8,364,241 60, ,856 8,207,593 58, , , Data for 2010 and 2011 is not available. In thousands of dollars. Data for 2011 is not available. This is a preliminary figure for 2011 and is subject to revision. Sources: The personal income information is from the Bureau of Economic Analysis, U.S. Department of Commerce and the unemployment rate is from the State of Florida Agency for Workforce Innovation. All other information is from the University of Florida Bureau of Economic & Business Research. 63

72 Martin County, Florida Schedule of Principal Employers Current Year and Nine Years Ago (unaudited) Percentage of Percentage of Total County Total County Employer Employees Rank Employment Employees Rank Employment Martin Memorial Health Systems 2, % 2, % Martin County School District 2, % 2, % Martin County Government 1, % 1, % Publix Supermarkets 1, % 1, % State of Florida % % IVOX Solutions % TurboCombustor Technologies Inc % Winn-Dixie % % Liberator Medical Holdings Inc % Florida Power & Light % Armellini Express Lines % Vought Aircraft % The Home Depot % Hutchinson Island Marriot Beach Resort % Total 10, % 10, % Note: The data presented in this list includes part time and full time employees. The labor force figure for 2011 and 2002 is 63,454 and 54,858, respectively. These numbers were used to calculate the percentage of total county employment. The 2011 figure is a preliminary average and is subject to change. Sources: The 2001 and 2011 labor force figures are from the University of Florida Bureau of Economic and Business Research and the Florida Agency for Workforce Innovation, respectively. The Treasure Coast Magazine provided the 2002 employer data. The 2011 employer data is from the Business Development Board of Martin County, Lowes, Martin County School Board, State of Florida and Winn-Dixie. Please note this schedule includes both full time and part time employees. 64

73 Martin County, Florida Schedule of Property Tax Levies and Collections, Last Ten Fiscal Years (unaudited) Taxes Levied Collected within the Fiscal Year for the Fiscal Year of the Levy Collections Total Collections to Date Ended Fiscal Year Total Percentage of in Subsequent Percentage of September 30, (Original Levy) Adjustments Adjusted Levy Amount Original Levy Years Amount Adjusted Levy 2002 $ 93,748,160 $ (3,291,966) $ 90,456,194 $ 90,255, % $ 157,366 $ 90,413, % ,943,067 (3,567,072) 97,375,995 97,024, ,242 97,236, ,843,984 (4,091,574) 107,752, ,619, , ,719, ,241,036 (4,722,263) 121,518, ,383, , ,454, ¹ 138,792,622 (5,876,538) 132,916, ,795, , ,886, ,732,307 (5,826,007) 154,906, ,759, , ,861, ,197,512 (5,521,892) 149,675, ,509, , ,605, ,178,832 (5,912,683) 143,266, ,885, , ,940, ,048,660 (5,111,586) 135,937, ,671, , ,700, ,569,894 (4,935,830) 132,634, ,313, ,313, Note: The adjustments are discounts, errors and insolvencies. The errors and insolvencies could be errors in values, homestead omission, etc. Property tax levies become due and payable on November 1st of each year. A 4% discount is allowed if paid in November, with the discount decreasing by 1% each month. Thus, taxes paid in March will not receive any discount. ¹ For fiscal year 2006 only, additional early payment discounts were offered to taxpayers. A 4% discount was allowed for payments made by January 31, 2006, a 3% discount was allowed for payments made by February 28, 2006, and a 2% discount was allowed for payments made by March 31, Source: Martin County Tax Collector 65

74 Schedule of Debt Service Coverage Last Ten Fiscal Years (Unaudited) PRIMARY DEBT SERVICE COVERAGE Operating revenues $ 29,371,014 $ 27,651,131 $ 26,159,368 $ 24,948,473 $ 26,018,743 $ 25,974,637 $ 24,702,842 $ 23,904,415 $ 21,461,593 $ 19,771,975 General and administrative expenses (a) (14,713,133) (15,347,488) (15,109,284) (14,757,562) (14,558,780) (14,367,837) (12,896,082) (11,641,863) (10,079,623) (8,936,920) Non-operating income (b) 558, , ,237 1,028,230 1,638,364 1,988,350 1,362, , ,459 1,154,558 Special assessment fees (c) 690, , , , , Net revenues available for debt service $ 15,906,723 $ 13,492,521 $ 12,223,392 $ 12,105,311 $ 13,560,925 $ 13,595,150 $ 13,169,752 $ 13,246,573 $ 11,753,429 $ 11,989,613 Connection fees (d) 771,830 1,013, ,537 2,585,175 3,087,645 3,229,503 4,125,641 4,127,000 2,611,407 2,610,211 Net revenues & connection fees $ 16,678,553 $ 14,506,246 $ 12,934,929 $ 14,690,486 $ 16,648,570 $ 16,824,653 $ 17,295,393 $ 17,373,573 $ 14,364,836 $ 14,599,824 Debt service requirements (e) $ 7,106,186 $ 7,296,289 $ 7,065,799 $ 7,062,209 $ 7,066,689 $ 7,065,974 $ 7,066,874 $ 7,069,202 $ 4,473,120 $ 4,471,070 Actual coverage: Excluding connection fees Including connection fees Required coverage: Excluding connection fees Including connection fees STATE REVOLVING FUND LOAN DEBT SERVICE COVERAGE Net revenues available for debt service $ 15,906,723 $ 13,492,521 $ 12,223,392 $ 12,105,311 $ 13,560,925 $ 13,595,150 Less: revenue required for primary debt service coverage (f) 7,816,805 8,025,918 7,772,379 7,768,430 7,773,358 7,772,571 Less indirect costs 1,212,940 1,212,940 1,190,941 1,190,941 1,129, ,223 Adjusted net revenues $ 6,876,978 $ 4,253,663 $ 3,260,072 $ 3,145,940 $ 4,657,924 $ 4,869,356 Debt service requirements (g) $ 182,086 $ 182,439 $ 182,439 $ 182,439 $ 182,439 $ 163,649 Actual coverage Required Coverage a. Excludes depreciation, loss on disposal of assets, indirect costs to General Fund and includes other debt services costs exclusive of bond principal and interest. b. Does not include interest income on project funds from bond proceeds or interest income on connection fees. For fiscal year 2008 interest on project funds and connection fees totaled $420,468. c. Special assessment fees received in the fiscal year are included for purposes of debt service coverage in the calculation of net revenues per the bond covenants. On the Statement of Revenues, Expenses and Changes in New Assets special assessment revenues are recognized when the project is completed and recorded as a capital contribution. This change was made in FY 2008 and restated for FY 2007 only. d. Amounts shown reflect Capital Facility Charges and interest adjusted by the Capital Facility Charges Debt Service Component. e. Total debt service includes bond principal and total interest expense. Amount reported as interest expense in the Statement of Revenues, Expenses and Changes in Net Assets is net of capitalized interest and bond premiums. f. Represents 110% of primary debt service requirements. g. Represents debt service requirements on outstanding State Revolving Fund Loans for such fiscal year. 66

75 Schedule of Ratio of Revenues Bonded Debt Outstanding: (Unaudited) Revenue Ratio of Revenue Estimated Percentage Bonds/Loans Gross Debt to Population of Personal Debt Year Outstanding (1) Revenues (2) Gross Revenue Served Income(3) Per Capita (4) ,080,127 24,903, , % ,366,275 26,174, , % 1, ,208,897 31,182, , % 1, ,853,897 33,796, , % 1, ,817,859 33,724, , % 1, ,186,212 32,381, , % 1, ,342,642 29,868, , % 1, ,226,836 28,201, , % 1, ,392,845 30,008, ,894-1, ,135, ,588, ,030-1,047 (1) Details regarding outstanding debt can be found in the notes to the financial statements. (2) Gross Revenues are defined as operating revenues plus investment income plus gain on disposition of capital assets plus other income, capital contributions minus noncash capital contributions and special assessment cash. (3) See the schedule of demographic and economic statistics for personal income and population data. These ratios are calculated using personal income and population served by the utility for the calendar year. (4) Population estimates are utility water and wastewater customers only. Calculation was adjusted in FY 2007 to match BEBR (University of Florida Bureau of Economic & Business Research). Note: Data for is not available to calculate the percentage of personal income. Source: Department's Financial Records 67

76 SCHEDULE OF INVESTMENT PER EQUIVALENT RESIDENTIALCONNECTION (ERC) Last Ten Fiscal Years (Unaudited) $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 Note: Debt per ERC is outstanding princpal Debt Per ERC Gross Plant Per ERC Net Plant Per ERC $0 Source: Department's financial records

77 Martin County, Florida Utilities Department Schedule of Statistical Operating Indicators Last Ten Fiscal Years (unaudited) Water New Connections 1,020 2,064 1,636 1, , Average daily consumption (mgd) Peak daily consumption (mgd) Wastewater Average daily sewage treatment (mgd) Martin County, Florida Utilities Department Schedule of Capital Asset Statistics Last Ten Fiscal Years (unaudited) Water Water mains (miles) Fire Hydrants 2, ,349 2,575 2,746 2,860 3,011 3,078 3,283 3,363 Raw water wells (surficial) Raw water wells (floridian) Treatment capacity (mgd) Storage capacity (mg) Wastewater Force main and collection sewer Pump stations Reuse water mains Treatment Capacity (mdg) Soure: Department's financial records 69

78 SCHEDULE OF CAPITAL ASSET STATISTICS For the Fiscal Year Ending September 30, 2011 (Unaudited) WATER SUPPLY, TREATMENT AND DISTRIBUTION SYSTEMS Water Supply: The Surficial Aquifer and the Floridan aquifer provide the raw water for utility operations. Raw Water Well: 39 wells (30 Surficial and 9 Floridan**): 6,423 mg - Permitted yearly withdrawal and 40.2 mg emergency authorization* Treatment Plants: mgd - Average finished water produced from 10/1/10 to 9/30/11 2 primary operational plants with a combined permitted treatment capacity of mgd 3.30 mgd - North County WTP (Lime Softening/Filtration/Chloramination) 5.50 mgd - North County RO WTP (Reverse Osmosis/Chloramination) 2.00 mgd - Tropical Farms WTP (Membrane Softening/Chloramination) 8.00 mgd - Tropical Farms WTP (Reverse Osmosis/Chloramination) Distribution System: 518 miles of finished water pipe 15 miles of raw water pipe 2 remote storage and repump stations filled during low flow periods, used to meet peak flow water demands 6 emergency interconnects with City of Stuart, Port St. Lucie, FPUA and South Martin Regional Utility 3,363 fire hydrants WASTEWATER COLLECTION AND TREATMENT SYSTEMS Treatment Plants: mgd - Maximum three month average wastewater treated in FY2010/ mgd - Annual average wastewater treated in FY2010/ primary plants with a combined permitted treatment capacity of mgd 2.76 mgd - Permitted North County WWTP 5.00 mgd - Permitted Tropical Farms WWTP Collection System: 194 miles of collection sewer 383 pump stations 168 miles of force main 36 miles of reuse water mains 17 miles of vacuum sewers Effluent Disposal: 1 Deep injection well located at the North County WWTP and mgd permitted for reclaimed water irrigation 2 Deep injection wells Tropical Farms WWTP each with a permitted capacity of mgd, permitted for disposal of wastewater and R.O. concentrate 2.76 mgd - Permitted North County WWTP 5.00 mgd - Permitted Tropical Farms WWTP * SFWMD emergency authorization of 4824 mg/yr (MD #2 = 40.2 mg) ** MCU has SFWMD CUP for five additional Floridan wells Source: Department's GIS database 70

79 Martin County, Florida Utilities Department Schedule of Authorized Full Time Equivalent Employees By Function Last Ten Fiscal Years (unaudited) Administration Financial Operations Technical Services Field Operations Treatment Maintenance Total Full Time Equivalent Employees Source: Department's financial records 71

80 Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Honorable Board of County Commissioners of Martin County, Florida: We have audited the financial statements of the Martin County, Florida-Utilities Department (the Department ), an enterprise fund of Martin County, Florida, as of September 30, 2011, and have issued our report thereon dated March 19, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting Management of the Department is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the Department s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Department s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Department s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will 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 first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 72