THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS

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1 NEW ISSUE BOOK-ENTRY ONLY RATINGS: S&P: AA FITCH: AA See the caption RATINGS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described in this Official Statement, interest (and original issue discount) on the 2018A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the opinion of Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the 2018B Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2018A Bonds and the 2018B Bonds is exempt from State of California personal income tax. See the caption TAX EXEMPTION. $9,710,000 Cucamonga Valley Water District Financing Authority $63,745,000 Cucamonga Valley Water District Financing Authority Water Revenue Bonds, Series 2018A Water Revenue REFUNDING Bonds, Series 2018B (FEDERALLY TAXABLE) Dated: Date of Delivery Due: September 1, as shown on inside front cover The Bonds are being issued by the Authority in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Individual purchases will be made in integral multiples of $5,000 and will be in book entry form only. Purchasers of the Bonds will not receive certificates representing their beneficial ownership in the Bonds but will receive credit balances on the books of their respective nominees. Interest on the Bonds is payable on September 1, 2018 and each March 1 and September 1 thereafter. Payment of the principal of and interest on the Bonds is to be made to Cede & Co., which is to disburse said payments to the Beneficial Owners of the Bonds through their nominees. The Bonds are subject to optional redemption as more fully described in this Official Statement. The 2018A Bonds are being issued to provide funds: (i) to finance the acquisition of certain improvements for the Water System of the Cucamonga Valley Water District, a member of the Authority; and (ii) to pay costs incurred in connection with the issuance of the 2018A Bonds. The 2018B Bonds are being issued to provide funds: (i) to defease a portion of the outstanding Cucamonga Valley Water District Water Revenue Refunding Bonds, 2011 Series A; and (ii) to pay costs incurred in connection with the issuance of the 2018B Bonds. The Bonds are being delivered pursuant to the Indenture of Trust, dated as of June 1, 2018, by and between the Authority and U.S. Bank National Association, as trustee. The Bonds are special limited obligations of the Authority payable solely from Receipts and certain other amounts on deposit in the funds and accounts established under the Indenture. Receipts consist primarily of Installment Payments received by the Trustee, as assignee of the Authority, from the District pursuant to the Installment Purchase Agreement (Series 2018), dated as of June 1, 2018, by and between the District and the Authority. Neither the full faith and credit nor THE TAXING POWER OF THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS OR ANY MEMBER OF THE AUTHORITY NOR ANY REVENUES OR funds of the Authority other than the Receipts are pledged to or available for the payment of debt service on the Bonds. The obligation of the Authority to make payments of principal and interest on the Bonds does not constitute an obligation for which the Authority is obligated to levy or pledge any form of taxation or for which the Authority has levied or pledged any form of taxation. The Authority has no taxing power. THE BONDS DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY) OR ANY MEMBER OF THE AUTHORITY WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL OR STATUTORY PROVISION. The obligation of the District to make the Installment Payments is a special obligation of the District payable solely from Net Revenues, consisting of Revenues of the District s Water System remaining after payment of Maintenance and Operation Costs, on a basis subordinate to Senior Obligations that are currently outstanding in the total aggregate principal amount of $33,311,428 (assuming the defeasance of a portion of the Cucamonga Valley Water District Water Revenue Refunding Bonds, 2011 Series A on the date of issuance of the 2018B Bonds as described herein) and on a parity with Parity Obligations that are currently outstanding in the total aggregate principal amount of $63,975,000. Notwithstanding anything contained IN THE Master Installment Purchase Agreement, dated as of October 1, 2012, by and between the District and the Authority, OR THE INSTALLMENT PURCHASE AGREEMENT, the District IS NOT required to advance any moneys derived from any source of income other than Net Revenues and the other funds provided IN THE MASTER AGREEMENT AND THE INSTALLMENT PURCHASE AGREEMENT for the payment of the Installment Payments, and other payments required to be made by it Thereunder, or for the performance of any agreements or covenants required to be performed by it contained Therein. The District has covenanted in the Master Agreement not to issue any additional obligation which is payable on a basis senior to the Installment Payments, and not to issue any additional obligation on a parity with any Senior Obligation. The District may issue obligations payable from Net Revenues on a parity with or subordinate to the Installment Payments, subject to the terms set forth in the Master Agreement. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. MATURITY SCHEDULE (See inside front cover) The Bonds are offered when, as and if delivered and received by the Underwriter, subject to approval as to legality by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, acting as Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the District and the Authority by Best Best & Krieger LLP, Riverside, California, for the District by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, acting as Disclosure Counsel, for the Underwriter by Katten Muchin Rosenman LLP, New York, New York, and for the Trustee by its counsel. It is anticipated that the Bonds will be available for delivery through the facilities of The Depository Trust Company on or about June 7, BofA Merrill Lynch Dated: May 3, 2018

2 MATURITY SCHEDULE BASE CUSIP 22972P $9,710,000 Cucamonga Valley Water District Financing Authority Water Revenue Bonds, Series 2018A Maturity (September 1) Principal Amount Interest Rate Yield Price CUSIP 2032 $2,290, % 3.280% CR ,365, CS ,465, (c) CT ,590, (c) CU4 $63,745,000 Cucamonga Valley Water District Financing Authority Water Revenue REFUNDING Bonds, Series 2018B (FEDERALLY TAXABLE) Maturity (September 1) Principal Amount Interest Rate Yield Price CUSIP 2018 $3,120, % 2.105% CB ,500, CC ,565, CD ,640, CE ,705, CF ,465, CG ,315, CH ,505, CJ ,685, CK ,895, CL ,085, CM ,315, CN ,555, CP ,395, CQ3 CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2018 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Authority, the District or the Underwriter takes any responsibility for the accuracy of such numbers. (c) Priced to first optional redemption date of September 1, 2026 at par.

3 CUCAMONGA VALLEY WATER DISTRICT FINANCING AUTHORITY BOARD OF DIRECTORS James V. Curatalo, Jr., Chair Luis Cetina, Vice Chair Oscar Gonzalez, Director Randall Reed, Director Kathleen J. Tiegs, Director CUCAMONGA VALLEY WATER DISTRICT BOARD OF DIRECTORS James V. Curatalo, Jr., President Luis Cetina, Vice President Oscar Gonzalez, Director Randall Reed, Director Kathleen J. Tiegs, Director DISTRICT STAFF Martin E. Zvirbulis, General Manager/Chief Executive Officer John Bosler, Assistant General Manager Carrie Corder, Assistant General Manager GENERAL COUNSEL Best Best & Krieger LLP Riverside, California SPECIAL SERVICES Bond Counsel and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Trustee U.S. Bank National Association Los Angeles, California Municipal Advisor Fieldman, Rolapp & Associates, Inc. Irvine, California Verification Agent Grant Thornton LLP Minneapolis, Minnesota

4 No dealer, broker, salesperson or other person has been authorized by the Authority, the District or the Underwriter to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the Bonds shall under any circumstances create any implication that there has been no change in the affairs of the Authority or the District or other matters described in this Official Statement since the date hereof. CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND FORWARD-LOOKING STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED IN THIS OFFICIAL STATEMENT WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN. IN THIS RESPECT, THE WORDS ESTIMATE, PROJECT, ANTICIPATE, EXPECT, INTEND, BELIEVE AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This Official Statement and the information contained herein are subject to completion or amendment without notice. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE INSIDE FRONT COVER PAGE OF THIS OFFICIAL STATEMENT AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. The District maintains a website. However, the information presented on such website is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds.

5 TABLE OF CONTENTS Page SUMMARY STATEMENT... i INTRODUCTION... 1 General... 1 The 2018 Project... 3 Refunding Plan... 3 Estimated Sources and Uses of Funds... 5 Changes Since the Preliminary Official Statement... 5 THE BONDS... 5 General Provisions... 5 Book-Entry Only System... 6 Transfers and Exchanges Upon Termination of Book-Entry Only System... 6 Redemption... 7 Selection of Bonds to be Redeemed... 7 Notice of Redemption... 8 Payment of Redeemed Bonds... 9 Debt Service Schedule SECURITY FOR THE BONDS General Flow of Funds Rate Stabilization Fund Rate Covenant No Reserve Fund Additional Obligations THE AUTHORITY THE DISTRICT General Land and Land Use Governance and Management Employee Relations Budget Process District Insurance Outstanding Senior Obligations Outstanding Parity Obligations THE WATER SYSTEM General Water Supply Historic and Projected Water Supply Historic Water System Service Connections Historic Water System Deliveries Historic Water System Service Charges and Sales Revenues Largest Retail Water System Customers Water System Rates and Charges Collection Procedures Future Water System Improvements Page Projected Water System Service Connections Projected Water System Deliveries Projected Water System Service Charges and Sales Revenues WATER SYSTEM FINANCIAL INFORMATION Financial Statements Investment of District Funds District Reserves Historic Water System Operating Results and Debt Service Coverage Projected Water System Operating Results and Debt Service Coverage CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB Proposition Future Initiatives APPROVAL OF LEGAL PROCEEDINGS LITIGATION The District The Authority TAX EXEMPTION A Bonds B Bonds CONTINUING DISCLOSURE RATINGS MUNICIPAL ADVISOR UNDERWRITING MISCELLANEOUS APPENDIX A - AUDITED FINANCIAL STATEMENTS OF THE DISTRICT... A-1 APPENDIX B - DEFINITIONS AND SUMMARY OF CERTAIN PROVISIONS OF CERTAIN LEGAL DOCUMENTS... B-1 APPENDIX C - FORMS OF OPINIONS OF BOND COUNSEL... C-1 APPENDIX D - INFORMATION CONCERNING DTC... D-1 APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE... E-1 i

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7 SUMMARY STATEMENT This summary is subject in all respects to the more complete information contained in this Official Statement, and the offering of the Bonds to potential investors is made only by means of the entire Official Statement. Purpose. The 2018A Bonds are being issued to provide funds: (i) to finance the acquisition of certain improvements for the Water System of the Cucamonga Valley Water District, a member of the Authority; and (ii) to pay costs incurred in connection with the issuance of the 2018A Bonds. The 2018B Bonds are being issued to provide funds: (i) to defease a portion of the outstanding Cucamonga Valley Water District Water Revenue Refunding Bonds, 2011 Series A; and (ii) to pay costs incurred in connection with the issuance of the 2018B Bonds. See the captions INTRODUCTION The 2018 Project, INTRODUCTION Refunding Plan and INTRODUCTION Estimated Sources and Uses of Funds. Security for the Bonds. The Bonds are special limited obligations of the Authority payable solely from Receipts and certain other amounts on deposit in the funds and accounts established under the Indenture. Receipts consist primarily of Installment Payments received by the Trustee, as assignee of the Authority, from the District pursuant to the Installment Purchase Agreement. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS OR ANY MEMBER OF THE AUTHORITY NOR ANY REVENUES OR FUNDS OF THE AUTHORITY OTHER THAN THE RECEIPTS ARE PLEDGED TO OR AVAILABLE FOR THE PAYMENT OF DEBT SERVICE ON THE BONDS. THE OBLIGATION OF THE AUTHORITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON THE BONDS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE AUTHORITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER. THE BONDS DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY) OR ANY MEMBER OF THE AUTHORITY WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL OR STATUTORY PROVISION. The obligation of the District to make the Installment Payments is a special obligation of the District payable solely from Net Revenues, consisting of Revenues of the District s Water System remaining after payment of Maintenance and Operation Costs, on a basis subordinate to Senior Obligations that are currently outstanding in the total aggregate principal amount of $33,311,428 (assuming the defeasance of a portion of the Cucamonga Valley Water District Water Revenue Refunding Bonds, 2011 Series A on the date of issuance of the 2018B Bonds as described under the caption INTRODUCTION Refunding Plan ) and on a parity with Parity Obligations that are currently outstanding in the total aggregate principal amount of $63,975,000. See the captions THE DISTRICT Outstanding Senior Obligations and THE DISTRICT Outstanding Parity Obligations. NOTWITHSTANDING ANYTHING CONTAINED IN THE MASTER AGREEMENT OR THE INSTALLMENT PURCHASE AGREEMENT, THE DISTRICT IS NOT REQUIRED TO ADVANCE ANY MONEYS DERIVED FROM ANY SOURCE OF INCOME OTHER THAN NET REVENUES AND THE OTHER FUNDS PROVIDED IN THE MASTER AGREEMENT AND THE INSTALLMENT PURCHASE AGREEMENT FOR THE PAYMENT OF THE INSTALLMENT PAYMENTS, AND OTHER PAYMENTS REQUIRED TO BE MADE BY IT THEREUNDER, OR FOR THE PERFORMANCE OF ANY AGREEMENTS OR COVENANTS REQUIRED TO BE PERFORMED BY IT CONTAINED THEREIN. See the caption SECURITY FOR THE BONDS. -i-

8 Rate Covenant. The District has covenanted in the Master Agreement that it will at all times fix, prescribe and collect rates, fees and charges for the Service during each Fiscal Year which are reasonably fair and nondiscriminatory and which are estimated to yield Adjusted Annual Net Revenues for such Fiscal Year in an amount not less than the Coverage Requirement for such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but will not reduce the rates, fees and charges then in effect unless the Adjusted Annual Net Revenues from such reduced rates, fees and charges are estimated to be sufficient to meet the foregoing requirements. See the caption SECURITY FOR THE BONDS Rate Covenant. Additional Obligations. The District has covenanted in the Master Agreement not to issue any additional obligation which is payable on a basis senior to the Installment Payments, and not to issue any additional obligation on a parity with any Senior Obligation, including any refunding of any Senior Obligations. The District may issue obligations payable from Net Revenues on a parity with or subordinate to the Installment Payments, subject to the terms set forth in the Master Agreement. See the caption SECURITY FOR THE BONDS Additional Obligations. Redemption. The Bonds are subject to optional redemption as more fully described under the caption THE BONDS Redemption. The District. The District was organized in March 1955 under the provisions of the County Water District Law (Division 12 of the State Water Code) following an election within boundaries established by the Board of Supervisors of the County of San Bernardino. The District is an independent public enterprise organized and existing under the County Water District Law and is not affiliated with or controlled in any way by the County. The District currently provides water service to an area encompassing approximately 47 square miles in the western portion of the County, including the City of Rancho Cucamonga, portions of the cities of Fontana, Upland and Ontario and certain adjacent unincorporated areas of the County. The District is bounded on the west by the City of Upland, on the south by the City of Ontario, on the east by the City of Fontana and on the north by the foothills of the San Gabriel Mountains. The District provides water, sewer and recycled water service within its service area. Revenues from the District s sewer system and recycled water program are not pledged to the payment of the Installment Payments. The District currently has three sources of water: (a) groundwater pumped from 21 active wells in the Chino Basin and the Cucamonga Basin, as well as groundwater pumped from the District s wells in the Chino Basin to which the District is entitled as a result of its ownership of shares of common stock in the Fontana Union Water Company; (b) local surface water derived from precipitation in the San Gabriel Mountains to the north of the District s service area and from Cucamonga Creek, as well as local surface water from Lytle Creek to which the District is entitled as a result of its ownership of shares of common stock in the Fontana Union Water Company; and (c) water purchased from The Metropolitan Water District of Southern California through the Inland Empire Utilities Agency. See the captions THE DISTRICT, THE WATER SYSTEM and WATER SYSTEM FINANCIAL INFORMATION. -ii-

9 $9,710,000 CUCAMONGA VALLEY WATER DISTRICT FINANCING AUTHORITY WATER REVENUE BONDS, SERIES 2018A $63,745,000 CUCAMONGA VALLEY WATER DISTRICT FINANCING AUTHORITY WATER REVENUE REFUNDING BONDS, SERIES 2018B (FEDERALLY TAXABLE) INTRODUCTION General This Official Statement, including the cover page and all appendices, provides certain information concerning the sale and delivery of the Cucamonga Valley Water District Financing Authority Water Revenue Bonds, Series 2018A (the 2018A Bonds ) and Series 2018B (Federally Taxable) (the 2018B Bonds and, together with the 2018A Bonds, the Bonds ). Descriptions and summaries of various documents set forth in this Official Statement do not purport to be comprehensive or definitive, and reference is made to each document for complete details of all applicable terms and conditions. All statements in this Official Statement are qualified in their entirety by reference to each such document. Capitalized terms used and not otherwise defined in this Official Statement have the meanings ascribed thereto in Appendix B. The Bonds are being issued pursuant to an Indenture of Trust, dated as of June 1, 2018 (the Indenture ), by and between the Cucamonga Valley Water District Financing Authority (the Authority ) and U.S. Bank National Association, Los Angeles, California, as trustee (the Trustee ). The Bonds are special limited obligations of the Authority payable solely from Receipts and certain other amounts on deposit in the funds and accounts established under the Indenture. Receipts consist primarily of Installment Payments received by the Trustee, as assignee of the Authority under the Indenture, from the Cucamonga Valley Water District (the District ) pursuant to the Installment Purchase Agreement (Series 2018), dated as of June 1, 2018 (the Installment Purchase Agreement ), by and between the Authority and the District. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA (THE STATE ) OR ANY OF ITS POLITICAL SUBDIVISIONS OR ANY MEMBER OF THE AUTHORITY NOR ANY REVENUES OR FUNDS OF THE AUTHORITY OTHER THAN THE RECEIPTS ARE PLEDGED TO OR AVAILABLE FOR THE PAYMENT OF DEBT SERVICE ON THE BONDS. THE OBLIGATION OF THE AUTHORITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON THE BONDS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE AUTHORITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER. THE BONDS DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY) OR ANY MEMBER OF THE AUTHORITY WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL OR STATUTORY PROVISION. The obligation of the District to make the Installment Payments pursuant to the Installment Purchase Agreement is a special obligation of the District payable solely from Net Revenues derived from all facilities for providing for the collection, treatment, storage and distribution of water, and all other contractual services provided by the District now owned by the District and all other facilities acquired and constructed by the District and determined to be a part of the Water System, together with all additions, betterments and improvements to such facilities or any part thereof later acquired and constructed by the District, not including any recycled water facilities (the Water System ), on a basis subordinate to the Senior Obligations and on a parity with the Parity Obligations, all as discussed below. 1

10 Net Revenues of the Water System consist of Revenues of the Water System remaining after payment of Maintenance and Operation Costs of the Water System. See the caption SECURITY FOR THE BONDS General for definitions of Revenues and Maintenance and Operation Costs. The Senior Obligations, which are payable from Revenues on a basis senior to the Installment Payments, consist of: (i) the Installment Sale Agreement, dated as of April 1, 2009 (the 2009 Installment Sale Agreement ), by and between the District and the Cucamonga Public Facilities Corporation (the Corporation ), which is currently outstanding in the aggregate principal amount of $5,745,000; (ii) the Installment Sale Agreement (CREB), dated as of April 1, 2009 (the 2009 CREB Installment Sale Agreement ), by and between the District and the Corporation, which is currently outstanding in the aggregate principal amount of $146,429; and (iii) the Cucamonga Valley Water District Water Revenue Refunding Bonds, 2011 Series A (the 2011 Bonds ), which are currently outstanding in the aggregate principal amount of $99,040,000. See the caption Refunding Plan General for a discussion of the defeasance of a portion of the 2011 Bonds in the aggregate principal amount of $71,620,000. After such defeasance, the 2011 Bonds will remain outstanding in the aggregate principal amount of $27,420,000. See the caption THE DISTRICT Outstanding Senior Obligations. The Parity Obligations, which are payable from Revenues on a parity with the Installment Payments, consist of: (1) the Installment Purchase Agreement (Series 2012), dated as of October 1, 2012 (the 2012 Installment Purchase Agreement ), by and between the Authority and the District, which is currently outstanding in the aggregate principal amount of $34,200,000; (2) the Installment Purchase Agreement (Series 2014), dated as of July 1, 2014 (the 2014 Installment Purchase Agreement ), by and between the Authority and the District, which is currently outstanding in the aggregate principal amount of $10,230,000; and (3) the Installment Purchase Agreement (Series 2016), dated as of February 1, 2016 (the 2016 Installment Purchase Agreement ), by and between the Authority and the District, which is currently outstanding in the aggregate principal amount of $19,545,000; and See the caption THE DISTRICT Outstanding Parity Obligations. NOTWITHSTANDING ANYTHING CONTAINED IN THE MASTER INSTALLMENT PURCHASE AGREEMENT, DATED AS OF OCTOBER 1, 2012 (THE MASTER AGREEMENT ), BY AND BETWEEN THE DISTRICT AND THE AUTHORITY, OR THE INSTALLMENT PURCHASE AGREEMENT, THE DISTRICT IS NOT REQUIRED TO ADVANCE ANY MONEYS DERIVED FROM ANY SOURCE OF INCOME OTHER THAN NET REVENUES AND THE OTHER FUNDS PROVIDED IN THE MASTER AGREEMENT AND THE INSTALLMENT PURCHASE AGREEMENT FOR THE PAYMENT OF THE INSTALLMENT PAYMENTS, AND OTHER PAYMENTS REQUIRED TO BE MADE BY IT THEREUNDER, OR FOR THE PERFORMANCE OF ANY AGREEMENTS OR COVENANTS REQUIRED TO BE PERFORMED BY IT CONTAINED THEREIN. See the caption SECURITY FOR THE BONDS. 2

11 The 2018A Bonds are being issued to provide funds: (i) to finance the acquisition of certain improvements for the Water System of the District, a member of the Authority; and (ii) to pay costs incurred in connection with the issuance of the 2018A Bonds. See the captions The 2018 Project and Estimated Sources and Uses of Funds. The 2018B Bonds are being issued to provide funds: (i) to defease a portion of the outstanding 2011 Bonds; and (ii) to pay costs incurred in connection with the issuance of the 2018B Bonds. See the captions Refunding Plan and Estimated Sources and Uses of Funds. The District regularly prepares a variety of reports, including audits, budgets and related documents. Any Beneficial Owner may obtain a copy of such report, as available, from the District s Finance Department at Ashford Street, Rancho Cucamonga, California 91730, (909) The 2018 Project A portion of the proceeds of the 2018A Bonds is expected to be used by the District, as agent of the Authority pursuant to the Master Agreement, to undertake the following capital improvements (collectively, the 2018 Project ): (1) Construction of a new well in the Cucamonga Groundwater Basin at an estimated cost of approximately $3,000,000. This component of the 2018 Project is expected to provide additional pumping capacity. (2) Construction of a new 1.5 million gallon reservoir in the District s Pumping Zone 3A at an estimated cost of approximately $3,700,000. This component of the 2018 Project is expected to increase water storage capacity in this zone. (3) Construction of a new 2.0 million gallon reservoir in the District s Pumping Zone 1 at an estimated cost of approximately $3,600,000. This component of the 2018 Project is expected to increase water storage capacity in this zone. The District currently expects to receive all necessary environmental and other approvals in connection with the 2018 Project in a timely manner and to complete the construction of all components of the 2018 Project in or before June Pursuant to the terms of the Installment Purchase Agreement, the District, as agent of the Authority, may modify the composition and description of the 2018 Project or components thereof at such time and in such manner as it deems necessary and appropriate, so long as the changes do not impair the ability of the Authority to make payments on the 2018A Bonds. See Appendix B under the caption INSTALLMENT PURCHASE AGREEMENT PURCHASE AND SALE OF PROJECT; INSTALLMENT PAYMENTS Changes to the 2018 Project. Refunding Plan General. The 2011 Bonds, which are currently outstanding in the aggregate principal amount of $99,040,000, were issued pursuant to an Indenture of Trust, dated as of August 1, 2011 (the 2011 Indenture ), by and between the District and Wells Fargo Bank, National Association, as trustee (the 2011 Trustee ). The District plans to apply a portion of the proceeds of the Bonds to defease a portion of the 2011 Bonds in the aggregate principal amount of $71,620,000 (such portion, the Defeased 2011 Bonds ), as shown in the below table. 3

12 Principal Payment Date (September 1) Outstanding Principal Amount of 2011 Bonds Original CUSIP (22972T) Undefeased 2011 Bonds Outstanding Principal Amount of 2011 Bonds After Defeasance New CUSIP for Undefeased 2011 Bonds (22972T) Defeased 2011 Bonds Defeased Principal Amount of 2011 Bonds New CUSIP for Defeased 2011 Bonds (22972T) 2018 $ 1,945,000 AG9 $ 535,000 BW3 $ 1,410,000 BB ,015,000 AH7 280,000 BX1 735,000 BC ,000,000 AT1 275,000 CH5 725,000 BN ,085,000 AJ3 300,000 BY9 785,000 BD ,000,000 AU8 275,000 CJ1 725,000 BP ,155,000 AK0 320,000 BZ6 835,000 BE ,000,000 AX2 275,000 CM4 725,000 BS ,470,000 AL8 405,000 CA0 1,065,000 BF ,000 AY0 205,000 CN2 545,000 BT ,670,000 AM6 1,295,000 CB8 3,375,000 BG ,895,000 AN4 1,635,000 CC6 4,260,000 BH ,075,000 AP9 295,000 CD4 780,000 BJ ,115,000 AZ7 1,415,000 CP7 3,700,000 BU ,495,000 AQ7 1,800,000 CE2 4,695,000 BK ,800,000 AR5 775,000 CF9 2,025,000 BL ,015,000 BA1 1,110,000 CQ5 2,905,000 BV ,130,000 AS3 1,975,000 CG7 5,155,000 BM ,735,000 AV6 6,580,000 CK8 17,155,000 BQ ,690,000 AW4 7,670,000 CL6 20,020,000 BR4 TOTAL $99,040,000 $27,420,000 $71,620,000 The defeased principal amounts of the 2011 Bonds, as shown in the sixth column of the above table, constitute the Defeased 2011 Bonds. Upon the defeasance of the Defeased 2011 Bonds, $27,420,000 aggregate principal amount of 2011 Bonds will remain outstanding. Such 2011 Bonds are payable from Revenues of the District s Water System on a senior basis to the Bonds. See the caption THE DISTRICT Outstanding Senior Obligations. Under an Escrow Agreement (2011 Bonds), dated as of June 1, 2018 (the 2011 Escrow Agreement ), by and between the District and the 2011 Trustee, the District will deliver a portion of the proceeds of the 2018B Bonds to the 2011 Trustee for deposit in the escrow fund established under the 2011 Escrow Agreement (the 2011 Escrow Fund ). In addition, the 2011 Trustee will deposit certain moneys held in connection with the 2011 Bonds in the 2011 Escrow Fund on or about the date of issuance of the 2018B Bonds. The 2011 Trustee will invest a portion of the amounts so deposited in the 2011 Escrow Fund in Federal Securities (as described in the 2011 Escrow Agreement). From the maturing principal of the Federal Securities and related investment income and any uninvested moneys on deposit in the 2011 Escrow Fund, the 2011 Trustee will make the regularly scheduled payments of principal and interest on the Defeased 2011 Bonds on and prior to September 1, 2021 and pay on September 1, 2021 the principal of the Defeased 2011 Bonds maturing on and after such date, plus interest accrued to such date, without premium (the Redemption Price ). CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2018 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Authority, the District or the Underwriter takes any responsibility for the accuracy of such numbers. 4

13 Sufficiency of the deposits in the 2011 Escrow Fund for such purposes will be verified by Grant Thornton LLP, Minneapolis, Minnesota (the Verification Agent ). Assuming the accuracy of such computations, as a result of the deposit and application of funds as provided in the 2011 Escrow Agreement, the Defeased 2011 Bonds will be defeased pursuant to the provisions of the 2011 Indenture as of the date of issuance of the Bonds. The amounts held by the 2011 Trustee in the 2011 Escrow Fund are pledged solely to the payment of the Defeased 2011 Bonds and will not be available for the payments on the Bonds. Verification of Mathematical Computations. Upon the issuance of the 2018B Bonds, the Verification Agent will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions provided to it by the Underwriter relating to the adequacy of the moneys deposited in the 2011 Escrow Fund to pay the Redemption Price of the Defeased 2011 Bonds. Estimated Sources and Uses of Funds The following table sets forth the estimated sources and uses of funds in connection with the issuance of the Bonds: Sources (1) : 2018A Bonds 2018B Bonds Total Principal Amount of Bonds $ 9,710,000 $63,745,000 $73,455,000 Plus Net Original Issue Premium 654, ,049 District Contribution (2) - 14,300,000 14,300,000 Total Sources: $10,364,049 $78,045,000 $88,409,049 Uses (1) : Deposit to 2011 Escrow Fund $ - $77,654,263 $77,654,263 Deposit to Improvement Fund 10,300,000-10,300,000 Costs of Issuance (3) 64, , ,786 Total Uses: $10,364,049 $78,045,000 $88,409,049 (1) (2) (3) Amounts rounded to the nearest dollar. Totals may not add due to rounding. Includes moneys contributed by the District from reserves. Such moneys will be applied to defease a portion of the 2011 Bonds. See the caption Refunding Plan. See the caption WATER SYSTEM FINANCIAL INFORMATION District Reserves Reserve Amounts for a discussion of the impact upon District reserves as a result of the contribution of such moneys. Includes fees of Bond Counsel, Disclosure Counsel, the Municipal Advisor, the Trustee, the Verification Agent and the Rating Agencies, Underwriter s discount and printing costs. Changes Since the Preliminary Official Statement Changes have been made to this Official Statement since the Preliminary Official Statement dated April 25, 2018 under the caption THE BONDS Redemption 2018B Bonds and in Appendix B to reflect edits to the Indenture. General Provisions THE BONDS The 2018A Bonds will be issued in the aggregate principal amount of $9,710,000 and the 2018B Bonds will be issued in the aggregate principal amount of $63,745,000. The Bonds will bear interest from and be dated the date of initial issuance, and will be payable upon maturity on the dates set forth on the inside front cover page. Interest on the Bonds will be payable on September 1, 2018 and each March 1 and September 1 thereafter (each, an Interest Payment Date ), and will be calculated at the rates set forth on the inside front cover page of this Official Statement on the basis of a year of 360 days comprised of twelve 30-day months. 5

14 The Bonds will be delivered only in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Bonds. Ownership interests in the Bonds may be purchased in book-entry form only in integral multiples of $5,000. See the caption Book-Entry Only System below and Appendix D. In the event that the book-entry only system described below is discontinued, the principal of any Bond will be payable by check or wire transfer of the Trustee upon presentation and surrender thereof at maturity or upon prior redemption at the Corporate Trust Office in Los Angeles, California. Such principal and interest will be payable in lawful money of the United States of America. Book-Entry Only System One fully-registered Bond will be issued for each maturity of the Bonds in the principal amount of the Bonds of such maturity, registered in the name of Cede & Co. and deposited with DTC. As long as the ownership of the Bonds is registered in the name of Cede & Co., the term Owner as used in this Official Statement will refer to Cede & Co. and not to the actual purchasers of the Bonds (the Beneficial Owners ). The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In such event, the Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer. The Authority cannot and does not give any assurances that DTC participants or others will distribute payments with respect to the Bonds received by DTC or its nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this Official Statement. See Appendix D for additional information concerning DTC. Transfers and Exchanges Upon Termination of Book-Entry Only System In the event that the book-entry system described above is discontinued, the Bonds will be printed and delivered as provided in the Indenture. Thereafter, the Bonds may be transferred and title thereto will pass only in the manner provided in the provisions for registration set forth in the forms of the Bond. The Authority has designated the Trustee as initial Bond Registrar to keep the books for the registration (the Bond Register ) and for the transfer of Bonds as provided in the Indenture. All Bonds presented for transfer or exchange will be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form and with guaranty of signature satisfactory to the Bond Registrar duly executed by the Owner or by the Owner s representative duly authorized in writing. The Authority, the Trustee, the Bond Registrar and any Paying Agent may deem and treat the Owner of any Bond as the absolute owner of such Bond for the purpose of receiving any payment on such Bond and for all other purposes of the Indenture, whether such Bond is overdue or not, and neither the Authority, nor the Trustee, nor the Bond Registrar nor any Paying Agent will be affected by any notice to the contrary. Payment of, or on account of, the principal or Redemption Price of, and interest on, any Bond will be made to such Owner or upon his written order. All such payments will be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. All Bonds issued under the Indenture will have such attributes of negotiability as are provided for under the laws of the State, subject to the registration requirements of the Indenture. In all cases in which the privilege of exchanging Bonds or registering the transfer of Bonds is exercised, the Authority will execute and the Trustee will authenticate and deliver Bonds in accordance with the provisions of the Indenture. All Bonds surrendered in any such exchanges or upon any such registration of 6

15 transfer will forthwith be delivered to the Bond Registrar and cancelled by it. There will be no charge to the Owner for any such exchange or registration of transfer of Bonds, but the Authority may require the payment of a sum sufficient to pay any tax or other governmental charge required to be paid with respect to any such exchange or registration of transfer. Neither the Authority nor the Bond Registrar are required to register the transfer of or exchange any Bond: (i) during the period commencing on the date 15 days prior to the date of selection of Bonds for redemption and ending on such date of selection; or (ii) selected for redemption in whole or in part. Redemption 2018A Bonds. The 2018A Bonds are subject to optional redemption prior to maturity on September 1, 2026 or any Business Day thereafter, in whole or in part, in a manner determined by the Authority and specified to the Trustee in writing by the Authority from prepayments of Installment Payments made at the option of the District pursuant to the Installment Purchase Agreement, at a Redemption Price equal to the principal amount thereof to be redeemed, without premium, together with accrued interest to the redemption date. 2018B Bonds. The 2018B Bonds are subject to redemption on any date prior to their respective maturity dates at the option of the Authority, as a whole or in part on any Business Day, at the Make-Whole Redemption Price. The Make-Whole Redemption Price, as determined by the Authority and provided to the Trustee at least two Business Days prior to the applicable redemption date, is the greater of: (i) 100% of the principal amount of the 2018B Bonds to be redeemed; or (ii) the sum of the present value of the remaining scheduled payments of principal of and interest to the maturity date on the 2018B Bonds to be redeemed, not including any portion of those payments of interest thereon accrued and unpaid as of the date on which the 2018B Bonds are to be redeemed, discounted to the date on which the 2018B Bonds are to be redeemed on a semiannual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (as such term is defined in Appendix B under the caption INDENTURE OF TRUST Definitions ) plus 20 basis points, plus, in each case, accrued and unpaid interest on the 2018B Bonds to be redeemed on the date of redemption. The 2018B Bonds maturing on or after September 1, 2029 are also subject to optional redemption prior to maturity on September 1, 2028 or any Business Day thereafter, in whole or in part, in a manner determined by the Authority and specified to the Trustee in writing by the Authority from prepayments of Installment Payments made at the option of the District pursuant to the Installment Purchase Agreement, at a Redemption Price equal to the principal amount thereof to be redeemed, without premium, together with accrued interest to the redemption date. Selection of Bonds to be Redeemed If Bonds are to be optionally redeemed as described under the caption Redemption, any redemption of less than all of the Bonds of a series will be effected by the Trustee among owners: (i) by lot in the case of the 2018A Bonds, subject to minimum Authorized Denominations; and (ii) on a pro rata basis in the case of the 2018B Bonds, subject to minimum Authorized Denominations, as described in the following paragraph. If the 2018B Bonds are registered in book-entry form and so long as DTC or a successor securities depository is the sole registered owner of the 2018B Bonds, if less than all of the 2018B Bonds of a maturity are called for prior redemption, the particular 2018B Bonds or portions thereof to be redeemed will be selected on a Pro Rata Pass-Through Distribution of Principal basis in accordance with DTC procedures, provided that, so long as the 2018B Bonds are held in book-entry form, the selection for redemption of such 2018B Bonds will be made in accordance with the operational arrangements of DTC then in effect and if the DTC operational arrangements do not allow redemption on a Pro Rata Pass-Through Distribution of Principal 7

16 basis, the 2018B Bonds will be selected for redemption in accordance with DTC procedures by lot and in Authorized Denominations. It is the Authority s intent that redemption allocations made by DTC, the DTC Participants or such other intermediaries that may exist between the Authority and the Beneficial Owners with respect to redemptions of 2018B Bonds be made on a Pro Rata Pass-Through Distribution of Principal basis as described above. However, the Authority can provide no assurance that DTC, the DTC Participants or any other intermediaries will allocate redemptions among Beneficial Owners on such basis. If the DTC operational arrangements do not allow for the redemption of the 2018B Bonds on a Pro Rata Pass-Through Distribution of Principal basis as discussed above, then the 2018B Bonds, as applicable, will be selected for redemption in accordance with DTC procedures by lot. Any selection of Bonds to be redeemed will be in such a manner that payments remaining to be made under the Installment Purchase Agreement will match debt service payments on the Bonds of such series which will remain Outstanding. The portion of any Bond of a denomination of more than the minimum Authorized Denomination to be redeemed will be redeemed in an Authorized Denomination and, in selecting portions of such Bonds for redemption, the party making the selection will treat each such Bond as representing that number of Bonds which is obtained by dividing the principal amount of such Bond by the minimum Authorized Denomination. Notice of Redemption In the case of any redemption of Bonds, the Trustee will give notice, as provided in the Indenture, that Bonds, identified by series, serial numbers and maturity date, have been called for redemption and, in the case of Bonds to be redeemed in part only, the portion of the principal amount thereof that has been called for redemption (or if all the Outstanding Bonds of a maturity and series are to be redeemed, so stating, in which event such serial numbers may be omitted), that they will be due and payable on the date fixed for redemption (specifying such date) upon surrender thereof at the Corporate Trust Office, at the Redemption Price (specifying such price) together with any accrued interest to such date, and that all interest on the Bonds, or portions thereof, so to be redeemed will cease to accrue on and after such date. Such notice will be mailed by first class mail, in a sealed envelope, postage prepaid, at least 30 but not more than 60 days before the date fixed for redemption, to the Owners of such Bonds, or portions thereof, so called for redemption, at their respective addresses as the same last appear on the Bond Register. No notice of redemption need be given to the Owner of a Bond to be called for redemption if such Owner waives notice thereof in writing, and such waiver will be filed with the Bond Registrar prior to the redemption date. Neither the failure of an Owner to receive notice of redemption of Bonds under the Indenture nor any error in such notice will affect the validity of the proceedings for the redemption of Bonds. Not later than the date that notice of redemption is given to the Owners, the Trustee will send a copy of the notice of redemption by certified mail or by overnight delivery, or by other means acceptable to such institutions, to the Securities Depositories and to the Information Services. Failure to provide notice to the Securities Depositories or to the Information Services will not affect the validity of proceedings for the redemption of Bonds. With respect to any notice of optional redemption of the Bonds, such notice may state that such redemption will be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such Bonds to be redeemed and that, if such moneys have not been so received, said notice will be of no force and effect and the Trustee will not be required to redeem such Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption will not be made, and the Trustee will within a reasonable time thereafter give notice in the manner in which the notice of redemption was given, that the redemption has been revoked, such moneys were not received and no Event of Default exists. 8

17 Payment of Redeemed Bonds If notice of redemption has been given or waived as provided in the Indenture, the Bonds or portions thereof called for redemption will be due and payable on the date fixed for redemption at the Redemption Price, together with any accrued interest to the date fixed for redemption, upon presentation and surrender of the Bond to be redeemed at the office specified in the notice of redemption. If there is called for redemption less than the full principal amount of a Bond, the Authority will execute and deliver and the Trustee will authenticate, upon surrender of such Bond, and without charge to the Owner thereof, Bonds of like interest rate and maturity in an aggregate principal amount equal to the unredeemed portion of the principal amount of the Bonds so surrendered in such Authorized Denominations as are specified by the Owner. If any Bond or any portion thereof has been duly called for redemption and payment of the Redemption Price, together with unpaid interest accrued to the date fixed for redemption, has been made or provided for, then interest on such Bond or such portion will cease to accrue from such date, and from and after such date such Bond or such portion will no longer be entitled to any lien, benefit or security under the Indenture and the Owner thereof will have no rights in respect of such Bond or such portion except to receive payment of such Redemption Price, and unpaid interest accrued to the date fixed for redemption. 9

18 Debt Service Schedule Set forth below is a schedule of Installment Payments, payments on the Senior Obligations and payments on the Parity Obligations for each annual period ending on June 30 of the years indicated. See the captions THE DISTRICT Outstanding Senior Obligations and THE DISTRICT Parity Obligations for further information with respect to the Senior Obligations and the Parity Obligations, respectively Bonds Installment Payments Attributable to 2018A Bonds Installment Payments Attributable to 2018B Bonds Fiscal Year Ending June 30 Senior Obligations (1) Parity Obligations (2) Principal Interest Total Principal Interest Total Total Installment Payments Total Parity Obligations (Including Installment Payments) Total Senior Obligations and Parity Obligations 2018 $ 9,003, $ 4,546, $ - $ - $ - $ - $ - $ - $ - $ 4,546, $ 13,549, ,997, ,557, , , ,120, ,557, ,677, ,971, ,528, ,526, ,993, ,564, , , ,500, ,070, ,570, ,971, ,536, ,529, ,986, ,569, , , ,565, ,002, ,567, ,968, ,537, ,523, ,930, ,402, , , ,640, ,927, ,567, ,968, ,371, ,301, ,922, ,407, , , ,705, ,847, ,552, ,954, ,361, ,283, ,532, ,534, , , ,465, ,735, ,200, ,602, ,137, ,669, ,799, ,640, , , ,315, ,577, ,892, ,293, ,934, ,733, ,791, ,644, , , ,505, ,395, ,900, ,302, ,947, ,738, ,794, ,635, , , ,685, ,201, ,886, ,287, ,923, ,717, ,790, ,637, , , ,895, , ,889, ,290, ,928, ,719, ,784, ,636, , , ,085, , ,860, ,261, ,898, ,682, ,787, ,637, , , ,315, , ,858, ,259, ,897, ,685, ,780, ,711, , , ,555, , ,852, ,254, ,965, ,746, ,777, ,711, , , ,395, , ,480, ,881, ,593, ,371, ,134, ,631, ,290, , ,655, ,655, ,286, ,421, ,132, ,641, ,365, , ,656, ,656, ,297, ,429, ,129, ,643, ,465, , ,656, ,656, ,299, ,428, ,125, ,660, ,590, , ,654, ,654, ,315, ,440, ,664, ,664, ,664, ,270, ,270, ,270, ,272, ,272, ,272, ,274, ,274, ,274, ,271, ,271, ,271, ,273, ,273, ,273, ,270, ,270, ,270, TOTAL $ 58,194, $ 102,711, $ 9,710, $ 6,421, $ 16,131, $ 63,745, $ 18,013, $ 81,758, $ 97,890, $200,602, $258,796, (1) Senior Obligations include the portion of the 2011 Bonds that is expected to remain outstanding after the partial defeasance described under the caption INTRODUCTION Refunding Plan General, the 2009 Installment Sale Agreement and the 2009 CREBs Installment Sale Agreement. Fiscal Year 2018 also includes September 1, 2017 payment on 2011 Bonds prior to defeasance. (2) Parity Obligations include the 2012 Installment Purchase Agreement, the 2014 Installment Purchase Agreement and the 2016 Installment Sale Agreement. Source: Fieldman, Rolapp & Associates, Inc. 10

19 SECURITY FOR THE BONDS General The Bonds are special limited obligations of the Authority payable solely from Receipts and certain other amounts on deposit in the funds and accounts established under the Indenture. Receipts consist primarily of Installment Payments received by the Trustee, as assignee of the Authority under the Indenture, from the District pursuant to the Installment Purchase Agreement. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS OR ANY MEMBER OF THE AUTHORITY NOR ANY REVENUES OR FUNDS OF THE AUTHORITY OTHER THAN THE RECEIPTS ARE PLEDGED TO OR AVAILABLE FOR THE PAYMENT OF DEBT SERVICE ON THE BONDS. THE OBLIGATION OF THE AUTHORITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON THE BONDS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE AUTHORITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER. THE BONDS DO NOT CONSTITUTE A DEBT, LIABILITY OR OBLIGATION OF THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY) OR ANY MEMBER OF THE AUTHORITY WITHIN THE MEANING OF ANY STATE CONSTITUTIONAL OR STATUTORY PROVISION. The obligation of the District to make the Installment Payments pursuant to the Installment Purchase Agreement is a special obligation of the District payable solely from Net Revenues, on a basis subordinate to the Senior Obligations and on a parity with the Parity Obligations, each as described below. Net Revenues consist of Revenues of the District s Water System remaining after payment of Maintenance and Operation Costs. The Senior Obligations, which are payable from Revenues on a basis prior to the Installment Payments, are currently outstanding in the total aggregate principal amount of $33,311,428 (assuming the defeasance of a portion of the 2011A Bonds on the date of issuance of the 2018B Bonds as described under the caption INTRODUCTION Refunding Plan ). See the caption THE DISTRICT Outstanding Senior Obligations. The Parity Obligations, which are payable from Revenues on a parity with the Installment Payments, are currently outstanding in the total aggregate principal amount of $63,975,000. See the caption THE DISTRICT Outstanding Parity Obligations. Certain definitions relating to Net Revenues are set forth below. Ad Valorem Taxes means, for any period, the ad valorem property taxes received by the District during such period pursuant to Article XIIIA of the State Constitution and Section 95 et seq. of the State Revenue and Taxation Code, including any such taxes levied to pay any voter approved general obligation indebtedness of the District. Historic and projected Ad Valorem Tax revenues are included in Other Revenues set forth in the tables entitled Historic Operating Results (Fiscal Year Ended June 30) and Projected Operating Results (Fiscal Year Ending June 30) under the caption WATER SYSTEM FINANCIAL INFORMATION. Maintenance and Operation Costs means all reasonable and necessary costs paid or incurred by the District for maintaining and operating the Water System, determined in accordance with Generally Accepted Accounting Principles (as such term is defined in Appendix B), including the cost of purchased water, scheduled payments on Contract Resource Obligations (as such term is defined in Appendix B), all reasonable expenses of management and repair and other expenses necessary to maintain and preserve the 11

20 Water System in good repair and working order, all administrative costs of the District that are charged directly or apportioned to the operation of the Water System, such as salaries and wages of employees, overhead, taxes (if any), insurance premiums and payments into pension funds, and all other reasonable and necessary costs of the District or charges required to be paid by it to comply with the terms of the Indenture or of any resolution authorizing the execution of any Supplemental Contract (as such term is defined in Appendix B) or of such Supplemental Contract, such as compensation, reimbursement and indemnification of the Trustee and fees and expenses of Independent Certified Public Accountants and Independent Engineers (as such terms are defined in Appendix B), but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles. Net Revenues means, for any period, the Revenues during such period less the Maintenance and Operation Costs coming due during such period. Revenues means all income and revenue received or receivable by the District during such period from the ownership or operation of the Water System, determined in accordance with Generally Accepted Accounting Principles, together with all Ad Valorem Taxes, ad valorem assessments, standby charges, rates, fees and charges received by the District for the Service (as such term is defined below) and the other services of the Water System and all proceeds of insurance covering business interruption loss relating to the Water System and all added facilities charges, service installation charges, distribution system fees and charges payable to the District for the Service made available or provided by the Water System and all payments for the lease of property comprising a part of the Water System and all other income and revenue howsoever derived by the District from the ownership or operation of the Water System or arising from the Water System, and including all Payment Agreement Receipts (as such term is defined in Appendix B), and including all investment income thereon, but excluding in all cases: (i) any proceeds of taxes (including Ad Valorem Taxes) and assessments levied and collected by or on behalf of the District for obligations that are payable solely from such taxes (including Ad Valorem Taxes) or assessments and not from any other Revenues; (ii) any refundable deposits made to establish credit and any advances or contributions of or in aid of construction; and (iii) any income from the investment of amounts on deposit in the Improvement Fund. Service means the water delivery services furnished and all other contractual services provided by the District, made available or provided by the Water System. NOTWITHSTANDING ANYTHING CONTAINED IN THE MASTER AGREEMENT OR THE INSTALLMENT PURCHASE AGREEMENT, THE DISTRICT IS NOT REQUIRED TO ADVANCE ANY MONEYS DERIVED FROM ANY SOURCE OF INCOME OTHER THAN NET REVENUES AND THE OTHER FUNDS PROVIDED IN THE MASTER AGREEMENT AND THE INSTALLMENT PURCHASE AGREEMENT FOR THE PAYMENT OF THE INSTALLMENT PAYMENTS, AND OTHER PAYMENTS REQUIRED TO BE MADE BY IT THEREUNDER, OR FOR THE PERFORMANCE OF ANY AGREEMENTS OR COVENANTS REQUIRED TO BE PERFORMED BY IT CONTAINED THEREIN. The obligation of the District to make the Installment Payments and other payments required to be made by it under the Installment Purchase Agreement, solely from Net Revenues, is absolute and unconditional, and until such time as the Installment Payments have been paid in full (or provision for the payment thereof has been made pursuant to the Installment Purchase Agreement), the District will not discontinue or suspend any Installment Payments or other payments required to be made by it thereunder when due, whether or not the Water System or any part thereof is operating or operable or has been completed, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such Installment Payments and other payments are not subject to reduction whether by offset or otherwise and are not conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. 12

21 Flow of Funds Deposit of Revenues into Revenue Fund and Parity Obligation Payment Fund. In order to secure the payment of principal of and interest on the Bonds, there has been established under the Master Agreement the Cucamonga Valley Water District Revenue Fund (the Revenue Fund ), which fund the District has agreed to hold and maintain so long as any Payments due under the Master Agreement (including the Installment Payments) are Outstanding; provided, however, that so long as any Senior Obligations remain Outstanding, the District will deposit Revenues as required pursuant to the related issuing documents of such Senior Obligations. So long as the Senior Obligations remain outstanding, the District will pay Maintenance and Operation Costs to be paid and Senior Payments pursuant to the Senior Obligations. Thereafter remaining Revenues will be deposited in the Revenue Fund and used as described in the Master Agreement. Subject to the foregoing, the District has irrevocably granted and pledged the Revenues deposited in the Revenue Fund after the payment of the Senior Obligations, to secure the Parity Obligations (as such term is defined in Appendix B, and including the Installment Payments) and then to secure Subordinate Obligations as set forth in the Master Agreement. The lien and pledge to secure Parity Obligations constitutes a lien on Revenues deposited in the Revenue Fund. Upon the payment in full of the Senior Obligations or other satisfaction of the lien of the Senior Obligations, then the lien and pledge to secure the Parity Obligations will constitute a first lien on Net Revenues. The District has represented and stated that it has not previously granted any lien or charge on any of the Net Revenues other than the Senior Obligations; provided, that out of Net Revenues there may be apportioned such sums for such purposes as are expressly permitted by the Master Agreement. All Parity Obligations will be of equal rank without preference, priority or distinction of any Parity Obligations over any other Parity Obligations. The District has agreed and covenanted that all Revenues received by it will be deposited when and as received in the Revenue Fund, and all money on deposit in the Revenue Fund will be applied and used only in the following order as provided in the Master Agreement: (A) The District will pay all Maintenance and Operation Costs (including amounts reasonably required to be set aside in contingency reserves for Maintenance and Operation Costs the payment of which is not then immediately required) from the Revenue Fund as they become due. (B) On or before the last Business Day in each month, the District will, from the remaining money then on deposit in the Revenue Fund, deposit in the Cucamonga Valley Water District Parity Obligation Payment Fund (the Parity Obligation Payment Fund ), which fund the District has agreed to hold and maintain so long as any Parity Payments due under the Master Agreement are Outstanding the following amounts in the following order of priority: (1) a sum equal to: (a) the interest and principal payments becoming due and payable under the Installment Purchase Agreement and all other Supplemental Contracts that are Parity Obligations (including the 2012 Installment Purchase Agreement, the 2014 Installment Purchase Agreement and the 2016 Installment Purchase Agreement); plus (b) regularly scheduled payments or the net payments becoming due and payable on all Parity Payment Agreements; plus (c) any other amounts due with respect to Parity Obligations (including any letter of credit and remarketing fees), in each case, during the next succeeding month; plus (2) all amounts due to make up any deficiency in any Reserve Funds for Parity Obligations in accordance with the provisions of the applicable Issuing Document, including all Reserve Fund Credit Facility Costs. From time to time, moneys on deposit in the Parity Obligation Payment Fund will be transferred by the District to the Trustee or other third party payee thereof in accordance with the terms of the Parity 13

22 Obligations to make and satisfy the Parity Payments due on the next applicable Payment Dates on such Parity Obligations. (C) After the payments contemplated by subparagraphs (A) and (B) above have been made, any amounts thereafter remaining in the Revenue Fund will be used for the payment of Subordinate Obligations so long as certain conditions described in the Master Agreement are met. See Appendix B under the caption MASTER AGREEMENT ACQUISITION, CONSTRUCTION AND SALE OF PROJECTS; FUNDS AND PLEDGE; RATE STABILIZATION FUND. (D) After deposits contemplated by subparagraphs (A), (B) and (C) above have been made, any amounts thereafter remaining in the Revenue Fund will be used for the payment of any Termination Payments on all Subordinate Payment Agreements. (E) After deposits contemplated by subparagraphs (A), (B), (C) and (D) have been made, any amounts thereafter remaining in the Revenue Fund may be used for any lawful purpose. Pursuant to the Installment Purchase Agreement, the District will pay the Installment Payments to the Trustee from moneys in the Parity Obligation Payment Fund four Business Days prior to each Interest Payment Date. Such payments constitute Receipts under the Indenture and will be applied to payment of the principal of and interest on the Bonds as described below under the caption Payment of Bonds. Payment of Bonds. There have been established with the Trustee the following special trust funds for the Bonds, which the Trustee will keep separate and apart from all other funds and moneys held by it: the Interest Fund, the Principal Fund, the Mandatory Redemption Fund, the Optional Redemption Fund and the Improvement Fund. The Trustee will receive all Receipts payable with respect to the Installment Purchase Agreement as described above and will apply such Receipts as set forth below: (a) The Trustee will deposit in the Principal Fund established under the Indenture the Principal Receipts received during each Principal Receipt Period. On each Principal Payment Date, the Trustee will withdraw from the Principal Fund and pay the Principal Installment (including mandatory sinking fund installments) required to be paid on said date. (b) The Trustee will deposit in the Interest Fund established under the Indenture from time to time the scheduled Interest Receipts received during each Interest Receipt Period. The Trustee will apply amounts on deposit in the Interest Fund as follows: (i) on each Interest Payment Date the Trustee will withdraw and pay from the Interest Fund the interest due and payable on the Bonds on said date; and (ii) if, immediately after having made the withdrawal required to be made pursuant to clause (i), amounts remain in the Interest Fund which are not required to be retained therein, the Trustee will retain any such amounts in the Interest Fund. (c) The Trustee will deposit in the Optional Redemption Fund amounts directed by the Authority to be deposited therein for the purpose of optionally redeeming Bonds pursuant to the optional redemption provisions described under the caption THE BONDS Redemption. The Trustee will use amounts in the Optional Redemption Fund for the payment of the Redemption Price and accrued interest to the date of redemption of Bonds called for optional redemption. Rate Stabilization Fund There has been established under the Master Agreement the Cucamonga Valley Water District Rate Stabilization Fund (the Rate Stabilization Fund ), which fund the District has agreed to hold and maintain as directed by the District so long as any Payments due under the Master Agreement (including the Installment Payments) are Outstanding. See the caption WATER SYSTEM FINANCIAL INFORMATION Liquidity 14

23 Fund Rate Stabilization Fund for information with respect to amounts that are currently held in the Rate Stabilization Fund, which is part of the District s Liquidity Fund. The District may at any time deposit in the Rate Stabilization Fund any Net Revenues and any other money available to be used therefor. The District may at any time withdraw from the Rate Stabilization Fund any money therein for the deposit in the Revenue Fund and the District will withdraw from the Rate Stabilization Fund any money therein for deposit in the Revenue Fund in the event that there are insufficient amounts in the Revenue Fund to make the deposits and transfers described under the caption Flow of Funds Deposit of Revenues into Revenue Fund and Parity Obligation Payment Fund; provided that any such deposits or withdrawals may be made up to and including the date that is 180 days after the end of the Fiscal Year or 12 calendar month period for which such deposit or withdrawal will be taken into account in determining Revenues; and provided further that no deposit of Net Revenues will be made into the Rate Stabilization Fund to the extent that such deposit would prevent the District from meeting the Coverage Requirement in any Fiscal Year or 12 calendar month period. Interest earnings on amounts in the Rate Stabilization Fund will be transferred to the Revenue Fund immediately upon receipt. Under the Master Agreement, amounts transferred to the Rate Stabilization Fund are not included in calculating Revenues for purposes of satisfying the additional debt test that is described under the caption Additional Obligations Parity Obligations. However, such amounts may be included in calculating Revenues for purposes of satisfying the rate covenant that is described under the caption Rate Covenant. See the definition of Revenues under the caption MASTER AGREEMENT Definitions in Appendix B. Rate Covenant The Master Agreement requires the District at all times to fix, prescribe and collect rates, fees and charges for the Service during each Fiscal Year which are reasonably fair and nondiscriminatory and which are estimated to yield Adjusted Annual Net Revenues for such Fiscal Year in an amount not less than the Coverage Requirement for such Fiscal Year. The District may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but may not reduce the rates, fees and charges then in effect unless the Adjusted Annual Net Revenues from such reduced rates, fees and charges are estimated to be sufficient to meet the foregoing requirements. Certain definitions relating to the rate covenant are set forth below. Adjusted Annual Debt Service means, for any Fiscal Year or 12 calendar month period, the Annual Debt Service for such Fiscal Year or 12 calendar month period minus the amount of such Annual Debt Service required to be paid from the proceeds of Parity Obligations or from any interest earnings on and releases of amounts on deposit in all Reserve Funds established in connection with Parity Obligations, as set forth in a Certificate of the District. Adjusted Annual Net Revenues means, for any Fiscal Year or 12 calendar month period, the Adjusted Annual Revenues during such Fiscal Year or 12 calendar month period minus the Maintenance and Operation Costs during such Fiscal Year or 12 calendar month period. Adjusted Annual Revenues means, for any Fiscal Year or 12 calendar month period, the Revenues during such Fiscal Year or 12 calendar month period minus any interest earnings from amounts on deposit in all Reserve Funds established in connection with Parity Obligations, as set forth in a Certificate of the District. Annual Debt Service means, for any Fiscal Year or 12 calendar month period, the Payments required to be made under all Parity Obligations in such Fiscal Year or 12 calendar month period. 15

24 Coverage Requirement means, for any Fiscal Year or 12 calendar month period, an amount of Adjusted Annual Net Revenues: (i) which equals at least 125% of the Adjusted Annual Debt Service and Senior Payments for such Fiscal Year or 12 calendar month period; and (ii) which is sufficient to cover payments due on all Senior Obligations, Parity Obligations and Subordinate Obligations for such Fiscal Year or 12 calendar month period (but excluding payments that are one-time or extraordinary payments, such as termination payments on Payment Agreements); provided, that, for purposes of determining compliance with the Coverage Requirement, it will be assumed that all Obligations accrue interest at the applicable Assumed Interest Rate (as such term is defined in Appendix B). No Reserve Fund Neither the Indenture, the Master Agreement nor the Installment Purchase Agreement establish a reserve fund for the Bonds. Pursuant to the Master Agreement, any debt service reserve fund established in connection with Parity Obligations will not be available to support payment of the Bonds. Additional Obligations No Additional Senior Obligations. The District has covenanted in the Master Agreement not to issue any additional obligation which is payable on a basis senior to the Installment Payments, and the District will not issue any additional obligation on a parity with any Senior Obligation, including any refunding obligations of any Senior Obligations. Parity Obligations. The District may at any time execute any Parity Obligations (other than the Installment Payments) subject to the following provisions: (A) There is on file with the District either: (1) A Certificate of the District demonstrating that, during the last audited Fiscal Year or any consecutive 12 calendar month period during the immediately preceding 18 calendar month period, the Net Revenues were at least equal to 125% of Maximum Annual Debt Service (as such term is defined below under the caption Definition of Maximum Annual Debt Service ); provided, that for the purpose of providing such Certificate, the District may adjust the foregoing Net Revenues to reflect: (I) An allowance for Net Revenues that would have been derived from each new connection to the Water System that, during all or any part of such Fiscal Year or 12 calendar month period, was not in existence, in an amount equal to the estimated additional Net Revenues that would have been derived from each such connection if it had been made prior to the beginning of such Fiscal Year or 12 calendar month period; and (II) An allowance for Net Revenues that would have been derived from any increase in the rates, fees and charges fixed and prescribed for Service that has been adopted and is then in effect but which, during all or any part of such Fiscal Year or 12 calendar month period, was not in effect, in an amount equal to the estimated additional Net Revenues that would have been derived from such increase in rates, fees and charges if it had been in effect prior to the beginning of such Fiscal Year or 12 calendar month period; or (2) A Certificate of the District based: (I) on audited figures; or (II) to the extent that audited figures are not available, on figures taken by an Independent Certified Public Accountant or an Independent Financial Advisor from the District s books and 16

25 records, showing that the estimated Net Revenues for each of the five Fiscal Years next following the earlier of: (a) the end of the period during which interest on the Parity Obligations proposed to be executed is to be capitalized or, if no interest is capitalized, the Fiscal Year in which the Parity Obligations proposed to be executed are executed; or (b) the date on which substantially all Projects financed with the Parity Obligations proposed to be executed are expected to commence operations, will be at least equal to 125% of the Maximum Annual Debt Service; provided that for the purpose of providing such Certificate of the District, the District may adjust the foregoing estimated Net Revenues to reflect: (i) An allowance for Net Revenues that would have been derived from each new connection to the Water System that, during all or any part of such Fiscal Year or 12 calendar month period, was not in existence, in an amount equal to the estimated additional Net Revenues that would have been derived from each such connection if it had been made prior to the beginning of such Fiscal Year or 12 calendar month period; and (ii) An allowance for Net Revenues that would have been derived from any increase in the rates, fees and charges fixed and prescribed for Service that has been adopted and is then in effect but which, during all or any part of such Fiscal Year or 12 calendar month period, was not in effect, in an amount equal to the estimated additional Net Revenues that would have been derived from such increase in rates, fees and charges if it had been in effect prior to the beginning of such Fiscal Year or 12 calendar month period; and (iii) An allowance for Net Revenues that are estimated to be derived from customers of the Water System anticipated to be served by the additions, betterments or improvements to the Water System to be financed by the Parity Obligations proposed to be executed together with any additional Supplemental Contracts, with such assumed debt service as the District may determine, expected to be executed and entered into during such five-year period. (B) With respect to any Balloon Contracts which may be Outstanding, the District may treat all principal and interest due on such Balloon Contracts as set forth in paragraph (D) of the definition of Assumed Interest Rate (as such term is defined in Appendix B) for purposes of determining Maximum Annual Debt Service. (C) Notwithstanding the foregoing provisions, there are no limitations on the ability of the District to execute any Parity Obligations at any time to refund any outstanding Parity Obligations or Senior Obligations so long as the Annual Debt Service payable by the District for each Fiscal Year with respect to such refunding Parity Obligations is less than or equal to 105% of the Annual Debt Service for each corresponding Fiscal Year for such Parity Obligations or Senior Obligations being refunded. Subordinate Obligations. The District may at any time issue any Subordinate Obligations payable as provided in the Master Agreement; provided that no Event of Default has occurred and is continuing; and provided further that, upon the issuance of such Subordinate Obligations, the District will demonstrate that, during the last audited Fiscal Year or any consecutive 12 calendar month period during the immediately preceding 18 calendar month period, Net Revenues were at least equal to 100% of Maximum Annual Debt Service plus the proposed Subordinate Obligations. Definition of Maximum Annual Debt Service. Maximum Annual Debt Service as used above under the captions Parity Obligations and Subordinate Obligations means the highest combined debt service for such period of Parity Payments and Senior Payments for any Fiscal Year or 12 calendar month period through the final maturity date of all Outstanding Parity Obligations, Parity Obligations to be issued 17

26 under the Master Agreement and Senior Obligations; provided, however, that for purposes of such calculation, the interest on all Parity Obligations will be computed at the applicable Assumed Interest Rate (as such term is defined in Appendix B). THE AUTHORITY The Authority is a joint exercise of powers agency organized under the provisions of Article 1, Chapter 5, Division 7, Title 1 (commencing with Section 6500) of the California Government Code, as amended (the JPA Law ) and the Joint Exercise of Powers Agreement, dated August 28, 2012 (the JPA Agreement ), by and between the District and the California Municipal Finance Authority, to provide for the financing and refinancing of capital improvement projects of the District and to finance working capital for the District by exercising the powers referred to in the JPA Agreement, and any other transaction authorized by law. The Authority was created in August Under the JPA Law and the JPA Agreement, the Authority has the power to issue bonds to pay the costs of public capital improvements. The Board of Directors of the Authority consists of the members of the Board of Directors of the District. General THE DISTRICT The District was organized in March 1955 under the provisions of the County Water District Law (Division 12 of the State Water Code) (the County Water District Law ) following an election within boundaries that were established by the Board of Supervisors of the County of San Bernardino (the County ). The District is an independent public enterprise organized and existing under the County Water District Law and is not affiliated with or controlled in any way by the County. The District currently provides water service to an area encompassing approximately 47 square miles in the western portion of the County, including the City of Rancho Cucamonga, portions of the Cities of Fontana, Upland and Ontario and certain adjacent unincorporated areas of the County. The District is bounded on the west by the City of Upland, on the south by the City of Ontario, on the east by the City of Fontana and on the north by the foothills of the San Gabriel Mountains. The District provides water, sewer and recycled water service within its service area. Revenues from the District s sewer system and recycled water program are not pledged to the payment of the Installment Payments. The District currently has three sources of water: (a) Groundwater: (i) The District is entitled to pump approximately 9,960 acre feet of groundwater from 12 active wells in the Chino Groundwater Basin (the Chino Basin ) and approximately 15,741 acre feet of groundwater from 9 active wells in the Cucamonga Groundwater Basin (the Cucamonga Basin ) as a result of the adjudication of such groundwater basins, as described under the captions THE WATER SYSTEM General Wells and THE WATER SYSTEM Water Supply Groundwater. (ii) In addition to the entitlement described in clause (i) above, the District is entitled to pump an average of approximately 10,000 acre feet of water per year from the District s wells in the Chino Basin as a result of local investment in groundwater management programs, including recycled water recharge, reallocation of agricultural rights, additional yield from stormwater recharge and the District s ownership of shares of common stock in the Fontana Union Water Company ( FUWC ), as described under the caption THE WATER SYSTEM Water Supply Fontana Union Water Company. 18

27 (b) Local Surface Water: (i) The District is entitled to collect local surface water derived from precipitation in the San Gabriel Mountains to the north of the District s service area and from Cucamonga Creek, all as described under the caption THE WATER SYSTEM Water Supply Local Surface Water. (ii) The District is entitled to collect local surface water derived from Lytle Creek as a result of its ownership of shares of common stock in FUWC. The District does not currently have the infrastructure to access such local surface water and instead sells it to San Gabriel Valley Water Company ( San Gabriel ). See the captions THE WATER SYSTEM Water Supply Fontana Union Water Company and THE WATER SYSTEM Water Supply Local Surface Water. (c) Imported Water purchased from The Metropolitan Water District of Southern California ( MWD ) through the Inland Empire Utilities Agency ( IEUA ), as described under the caption THE WATER SYSTEM Water Supply Imported Water. Land and Land Use The terrain of the District s service area generally slopes from north to south. The service area is divided into eight pressure zones and the slope of the terrain permits the use of ground-mounted steel tank reservoirs at elevations above their respective service zones. The early development of the region took place in the western portion of the District s service area known locally as Alta Loma and Cucamonga. Consequently, most of the District s facilities, including most of its well sites, are located on the west side of its service area. The District s service area is partially built out and includes single family residences, multifamily residential units, industrial properties and commercial properties. Recent growth in the service area has primarily been in the eastern portion and in an industrial area in the southern portion. Approximately 12.5% of the land within the District s service area is undeveloped. The population of the District is currently estimated to be approximately 190,000. The District s population is projected to increase to approximately 223,855 in 2035, when the District is expected to be fully built out. Of the 50,360 Water System accounts as of June 30, 2017, approximately 89% were single family residences. Governance and Management Board of Directors. The District is governed by a five-member Board of Directors (the Board ) elected at large for staggered four-term years. The names of the current directors are set forth below, together with brief biographical information regarding each director: James V. Curatalo, Jr., President. President Curatalo was elected to the Board in November 1999 and currently serves on the Water Resources and Human Resources/Risk Management Committees. President Curatalo serves as the regular special district member for the County Local Agency Formation Commission ( LAFCO ). He also serves as the Chair of FUWC. President Curatalo is retired from the Rancho Cucamonga Fire Protection District ( RCFPD ), where he served as a Batallion Chief. His background and experience include fire safety, technical rescue and hazardous material incident management, and he has served as a training officer for his department. Prior to his employment with the RCFPD, he was a contractor operating his own business in the San Gabriel Valley. President Curatalo s term expires in November Luis Cetina, Vice President. Vice President Cetina was elected to the Board in November 2012 and currently serves on the Finance and Water Resources Committees. He also serves on the Association of California Water Agencies ( ACWA ) Federal Affairs Committee and Region 9 Board. In addition, he is a 19

28 director (alternate) of FUWC. Vice President Cetina is a principal governmental and regional affairs representative for MWD, where he has been employed since In his capacity at MWD, Vice President Cetina promotes water policy among government, chambers of commerce and economic partnerships. His experience at MWD includes survey work, construction plan review, water supply forecasting and legislative and policy analysis. Vice President Cetina also serves as president of the San Gabriel Valley Public Affairs Network and vice chair of the San Gabriel Valley Legislative Coalition of Chambers. Vice President Cetina received a Bachelor of Science degree in Civil Engineering with an emphasis on the environment from the California State Polytechnic University, Pomona. Vice President Cetina s term expires in November Oscar Gonzalez, Director. Director Gonzalez was elected to the Board in November 2008 and currently serves on the Engineering and Legislative & Outreach Committees. He serves as a director of FUWC. Director Gonzalez is a Registered Professional Civil Engineer in the State of California and has over 20 years of experience in water and wastewater engineering. He received a Master s of Science degree from California State Polytechnic University, Pomona, in Environmental Engineering and a Bachelor of Science degree from California State University, Los Angeles, in Mechanical Engineering. He is currently employed as a water/wastewater engineering consultant. Director Gonzalez s term expires in November Randall Reed, Director. Director Reed was elected to the Board in November 2003 and currently serves on the Engineering and Finance Committees. Director Reed serves on the Board of the Association of San Bernardino County Special Districts. Director Reed has been an active member of the California Water Environment Association, where he has served as an officer. Director Reed has worked in the wastewater field for 30 years as an electrical and instrumentation supervisor. He is currently employed by the Inland Empire Utilities Agency and has a Bachelor of Arts degree in Information Management Systems from California State University, San Bernardino. He has a Grade 1 Freshwater Treatment Certification and a Grade 4 Instrumentation Technician Certification. Director Reed has lived in the region for over 50 years. Director Reed s term expires in November Kathleen J. Tiegs, Director. Director Tiegs was elected to the Board in November 2005 and currently serves on the Human Resources/Risk Management and Legislative & Outreach Committees and as a director of FUWC. Director Tiegs also serves as immediate Past-President of ACWA. She also serves on the Board and the Executive Committee of the ACWA Joint Powers Insurance Authority ( ACWA/JPIA ), a consortium of water agencies that pool their resources to offer cost effective insurance benefits for their members. Director Tiegs serves on the Legislative Committee of the California Special Districts Association. Director Tiegs has been a resident of Rancho Cucamonga for over 60 years. She is currently retired after a career in water resource management in which she worked for a local wholesale water agency for over 30 years. She is actively involved in the Water Education Water Awareness Committee, which promotes the efficient use of water and increases public awareness of the importance of water in Southern California. Director Tiegs attended San Diego State University. Her term expires in November Key District Staff Members. All daily operations of the District are administered by the General Manager/Chief Executive Officer, Martin E. Zvirbulis, and other District staff. The names of the key staff members are set forth below, together with brief biographical information. Martin E. Zvirbulis, General Manager/Chief Executive Officer. Mr. Zvirbulis has been the General Manager/Chief Executive Officer of the District since January 2011 and has worked for the District for approximately 19 years, formerly as Deputy General Manager. He is responsible for directing the activities of the District to fulfill its mission of delivering a high quality and reliable water supply and wastewater services in a cost-effective manner. Mr. Zvirbulis serves as the President of FUWC, a mutual water company that provides the District with additional water rights, and as a member of the Chino Basin Watermaster Advisory Committee, which oversees the management of local groundwater supplies. Prior to coming to the District, he was Chief Engineer for San Gabriel Valley Water Company, an investor-owned utility, where he was responsible for the management and supervision of the Engineering Department, including design and construction of the capital improvement program and development services. Mr. Zvirbulis has also worked as 20

29 a consulting engineer. Mr. Zvirbulis is a Registered Professional Civil Engineer in the State of California and received his Bachelor of Science degree in Civil Engineering, from California State University, Long Beach. John Bosler, Assistant General Manager. Mr. Bosler has been with the District since 2004 and is the Assistant General Manager. Mr. Bosler oversees the Operations and Engineering Services Department, which performs the functions of Engineering, Water and Wastewater Maintenance, Water Production, Water Treatment, Facilities Maintenance and Fleet Maintenance. Mr. Bosler has over 28 years of experience in civil and water resources engineering. Prior to coming to the District, Mr. Bosler oversaw the engineering and construction activities of a private design-build company which specialized in water resources projects. Mr. Bosler is a Registered Professional Engineer in the State of California and received his Bachelor of Science degree in Civil Engineering from California State Polytechnic University, Pomona. Carrie Corder, Assistant General Manager. Ms. Corder has been with the District since 2001 and is the Assistant General Manager. Ms. Corder oversees the Finance and Administration Department, which performs the functions of Accounting, Communications and Outreach, Customer Service, Finance, Human Resources, Information Technology and Legislative Affairs. Prior to coming to the District, she was employed for four years at a regional public accounting firm and for six years at the City of Claremont. She has a Bachelor of Science degree in Business Administration/Accounting from California State Polytechnic University, Pomona, and a Master s degree in Leadership and Organizational Studies from Azusa Pacific University. Ms. Corder is a Certified Public Accountant. Employee Relations General. The District currently has 126 full-time equivalent employees, comprised of 3 in the Executive Department, 47 in the Finance and Administration Department, 21 in the Engineering Department and 55 in the Operations Department. No District employees are currently represented by a union. The District has never experienced a strike, slowdown or work stoppage. Pension Plan. The following information is primarily derived from information that has been produced by the California Public Employees Retirement System ( CalPERS ), its independent accountants and its actuaries. The District has not independently verified such information and neither makes any representations nor expresses any opinion as to the accuracy of the information that has been provided by CalPERS. The comprehensive annual financial reports of CalPERS are available on CalPERS Internet website at The CalPERS website also contains CalPERS most recent actuarial valuation reports and other information that concerns benefits and other matters. The textual reference to such Internet website is provided for convenience only. None of the information on such Internet website is incorporated by reference herein. The District cannot guarantee the accuracy of such information. Actuarial assessments are forward-looking statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. The District contributes to CalPERS, an agent multiple-employer public employee defined benefit plan that acts as a common investment and administrative agent for participating public entities in the State. CalPERS provides retirement, disability and death benefits to plan members and their beneficiaries. All full-time District employees are eligible to participate in the District s plan, with benefits vesting after five years of service. The District participates in a 2.5% at 55 Plan for employees hired prior to January 1, 2011, a 2.0% at 60 Plan for employees hired on or after January 1, 2011 and a 2.0% at 62 Plan for employees hired on or after January 1, Required employer and employee contributions are determined from rates established by CalPERS based upon various actuarial assumptions which are revised annually. Participants in the 2.5% at 55 Plan are required by State statute to contribute 8% of their annual covered salary, participants in the 2.0% at 60 21

30 Plan contribute 7% of their annual covered salary and participants in the 2.0% at 62 Plan contribute 7% of their annual covered salary. In 2014, the District implemented cost sharing provisions requiring employees to contribute a portion of the employee contributions to the District s CalPERS plans. As of January 1, 2018, employees participating in the 2.5% at 55 Plan and the 2.0% at 60 Plan contribute 5% of the employee portion of such contributions (or 62.5% of the employee contribution for 2.5% at 55 Plan members and 71% of the employee contribution for the 2.0% at 60 Plan members). The District expects to continue to increase employee contributions by an additional 1% each year until employees participating in the 2.5% at 55 Plan and the 2.0% at 60 Plan contribute the full required employee contributions on their own behalf. There can be no assurance that such increased contributions will be instituted on January 1, 2019 or in any future year. Participants in the 2.0% at 62 Plan are required to make the full required 7% contributions on their own behalf. Participants in the 2.0% at 62 Plan (those hired on or after January 1, 2013 who meet the definition of a New CalPERS Member ) are subject to the California Public Employees Pension Reform Act of 2013 ( AB 340 ), which was signed by the State Governor on September 12, AB 340 established a new pension tier (2.0% at 62 formula) with a maximum benefit formula of 2.5% at age 67. Benefits for such participants are calculated on the highest average annual compensation over a consecutive 36 month period. Employees are required to pay at least 50% of the total normal cost rate. The District does not pay any portion of such contributions. AB 340 also caps pensionable income for 2018 at $121,388 ($145,666 for employees not enrolled in Social Security), subject to Consumer Price Index increases, and prohibits retroactive benefits increases, generally prohibiting contribution holidays and purchases of additional non-qualified service credit. CalPERS estimates savings for local agency plans as a result of AB 340 of approximately $1.653 billion to $2.355 billion over the next 30 years due primarily to increased employee contributions and, as the workforce turns over, lower benefit formulas that will gradually reduce normal costs. Savings specific to the District have not been quantified. Provisions in AB 340 will not likely have a material effect on District contributions in the short term. However, additional employee contributions, limits on pensionable compensation and higher retirement ages for new members will reduce the District s unfunded actuarial accrued liability (the UAL ) and potentially reduce District contribution levels in the long term. In addition to the District s contribution on behalf of employees, the District currently funds the normal pension costs, which are determined by CalPERS using the Entry Age Normal Actuarial Cost Method, as well as an amortization of the District s unfunded actuarial liability. On May 24, 2016, the Board approved an advance repayment plan for the District s CalPERS unfunded liability. Beginning in Fiscal Year 2017, and for the following four years, the District will contribute an additional $1,000,000 each year over the required contribution. For Fiscal Year 2017, the District s CalPERS contribution was approximately $3,032,158, which includes an advance repayment of $1,000,000. The employer normal cost contribution rates for Fiscal Years 2018 and 2019 have been established at 8.554% and 8.924%, respectively, of annual covered payroll. The annual payments for the employer amortization of the unfunded accrued liability for Fiscal Years 2018 and 2019 have been established at $1,252,958 and $1,425,812, respectively. The District had a net pension liability of $21,392,007 for its plan as of June 30, 2016, based on a fiduciary net position of $52,355,572, as set forth in the most recent actuarial report prepared by CalPERS in October The District s net position as a percentage of the total pension liability of $73,747,579 is 70.99%. Under Governmental Accounting Standards Board Statement No. 68 ( GASB 68 ), an employer reports the net pension liability, pension expense and deferred outflows/deferred inflows of resources related to pensions in its financial statements as part of its financial position. The net pension liability is the plan s total 22

31 pension liability based on the Entry Age Normal Actuarial Cost Method less the plan s fiduciary net position. This may be a negative liability (net pension asset). The pension expense is the change in net pension liability from the previous fiscal year to the current fiscal year, less adjustments. This may be a negative expense (pension income). Deferred outflows and deferred inflows of resources related to pensions are certain changes in total pension liability and fiduciary net position that are to be recognized in future pension expense. CalPERS prepared a GASB 68 Accounting Valuation Report with a measurement date of June 30, Because GASB 68 allows a measurement date of up to 12 months before the employer s fiscal year-end, the CalPERS Accounting Valuation Report was used for financial reporting for Fiscal Year The pension expense is for the measurement period of and the net pension liability is measured as of June 30, Liabilities are based on the results of the actuarial calculations performed as of June 30, 2015 and were rolled forward to June 30, Fiduciary net position is based on fair value of investments as of June 30, The staff actuaries at CalPERS annually prepare an actuarial valuation which covers a Fiscal Year ending approximately 15 months before the actuarial valuation is delivered (thus, the actuarial valuation delivered to the District in October 2017 covered the District s Fiscal Year ended June 30, 2016). The actuarial valuations express the District s required contribution rates in percentages of covered payroll, which percentages the District must contribute in the Fiscal Year immediately following the Fiscal Year in which the actuarial valuation is prepared (thus, the District contribution rate derived from the actuarial valuation as of June 30, 2016, which was delivered in October 2017, affected the District Fiscal Year 2018 required contribution rate). CalPERS rules require the District to implement the actuary s recommended rates. In calculating the annual actuarially recommended contribution rates, the CalPERS actuary calculates on the basis of certain assumptions the actuarial present value of benefits that CalPERS will fund under the CalPERS plans, which includes two components, the normal cost and the UAL. The normal cost represents the actuarial present value of benefits that CalPERS will fund under the CalPERS plans that are attributed to the current year, and the actuarial accrued liability represents the actuarial present value of benefits that CalPERS will fund that are attributed to past years. The UAL represents an estimate of the actuarial shortfall between actuarial value of assets on deposit at CalPERS and the present value of the benefits that CalPERS will pay under the CalPERS plans to retirees and active employees upon their retirement. The UAL is based on several assumptions such as, among others, the rate of investment return, average life expectancy, average age of retirement, inflation, salary increases and occurrences of disabilities. In addition, the UAL includes certain actuarial adjustments such as, among others, the actuarial practice of smoothing losses and gains over multiple years (which is described in more detail below). As a result, the UAL may be considered an estimate of the unfunded actuarial present value of the benefits that CalPERS will fund under the CalPERS plans to retirees and active employees upon their retirement and not as a fixed expression of the liability that the District owes to CalPERS under its CalPERS plan. Commencing with the June 30, 2013 valuation, all new gains or losses are tracked and amortized over a fixed 30-year period with a five year ramp up at the beginning and a five year ramp down at the end of the amortization period. All changes in liability due to plan amendments (other than golden handshakes, which are amortized over a five year period), changes in actuarial assumptions, or changes in actuarial methodology are amortized separately over a 20-year period with a five year ramp up at the beginning and a five-year ramp down at the end of the amortization period. In each actuarial valuation, the CalPERS actuary estimates the actuarial value of the assets (the Actuarial Value ) of the CalPERS plans at the end of the Fiscal Year. On December 21, 2016, the CalPERS Board voted to lower its discount rate from the current rate of 7.50% to 7.00% over the next three years according to the following schedule. 23

32 Fiscal Year Discount Rate % For public agencies such as the District, the new discount rate will take effect July 1, Lowering the discount rate means that employers that contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013 will also see their contribution rates rise under AB 340. The three-year reduction of the discount rate will result in average employer rate increases of approximately 1% to 3% of normal cost as a percentage of payroll for most miscellaneous retirement plans such as those of the District. Additionally, many employers will see a 30% to 40% increase in their current unfunded accrued liability payments. These payments are made to amortize unfunded liabilities over 20 years to bring pension funds to a fully funded status over the long-term. On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS amortization and rate smoothing policies. Beginning with the June 30, 2013 valuations (which set the rates), CalPERS employs an amortization and smoothing policy that pays for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a five-year period. CalPERS no longer uses the actuarial value of assets and only uses the market value of assets. This direct rate smoothing method is equivalent to a method using a five year asset smoothing period with no actuarial value of asset corridor and a 25-year amortization period for gains and losses. On February 14, 2018 the CalPERS Board of Administration approved a new amortization and rate smoothing policy. Beginning with the June 30, 2019 actuarial valuations, CalPERS will shorten the amortization period for actuarial gains and losses from 30 years to 20 years (applicable only to new gains and losses after the effective policy change date). The 5-year ramp up/down will be eliminated for assumption rate changes and any investment gains and losses. The aggregate total changes in the net pension liability as of June 30, 2016, the latest year for which such information is available, for the District s CalPERS plans were as follows: CUCAMONGA VALLEY WATER DISTRICT CHANGES IN NET PENSION LIABILITY Total Pension Liability Increase / (Decrease) Plan Fiduciary Net Position Net Pension Liability / (Asset) Balance at June 30, 2015 $70,108,811 $52,110,218 $17,998,593 Balance at June 30, ,747,579 52,355,572 21,392,007 Net Changes during Fiscal Year 2016 $ 3,638,768 $ 245,354 $ 3,393,414 Source: District. The June 30, 2016 balances are based on CalPERS actuarial valuation data of June 30, 2015 with assumptions and market values updated through June 30, The following table presents the aggregate net pension liability of the District s CalPERS plans as of June 30, 2016, the latest year for which such information is available, calculated using the discount rate of 7.65%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.65%) or 1 percentage point higher (8.65%) than the current rate: 24

33 CUCAMONGA VALLEY WATER DISTRICT SENSITIVITY OF THE NET PENSION LIABILITY TO CHANGES IN THE DISCOUNT RATE Discount Rate 1% (6.65%) Current Discount Rate (7.650%) Discount Rate + 1% (8.65%) Plan s Net Pension Liability/(Asset) $32,518,304 $21,392,007 $12,316,708 Source: District. For additional information relating to the District s CalPERS plans, see Note 14 to the District s Financial Statements set forth in Appendix A. CalPERS earnings reports for Fiscal Years 2010 through 2017 report an investment gain in excess of 13.0%, 21.7%, 1%, 12.5%, 18.4%, 2.4%, 0.61% and 11.2%, respectively. Future earnings performance may increase or decrease future contribution rates for plan participants, including the District. The District s projections of Maintenance and Operation Costs set forth under the caption WATER SYSTEM FINANCIAL INFORMATION Projected Water System Operating Results and Debt Service Coverage do not assume further unusual increases in CalPERS contributions or other labor costs. However, no assurance can be provided that such expenses will not increase significantly in the future. Other Post-Employment Benefits. The District administers a single-employer defined benefit healthcare plan which provides medical insurance benefits to eligible retirees hired before January 1, 2011 and their eligible dependents in accordance with District ordinances. For employees hired after January 1, 2011 who have attained five continuous years of District service, a predetermined amount will be deposited into a defined-contribution Health Reimbursement Account by the District. As of June 30, 2017, there were 40 District retirees who met the eligibility requirements for post-employment healthcare benefits. Employees are eligible for retiree health care benefits according to the following matrix. Employees can move between benefit tiers upon completion of a given numbers of years of service with the District. Benefit Tier Minimum Age at Retirement Years of Service with District Coverage Provided Tier 1 Hired Before 11/1/2006 and Employee Only Executives Tier 2 Hired Between 11/1/2006 and Employee Only 1/1/2011 Tier 3 Hired Before 11/1/2011 and Employee and Dependents Executives Tier 4 Hired Between 11/1/2006 and Employee and Dependents 1/1/2011 and Executives Tier 5 Hired After 1/1/ Health Reimbursement Account Retirees must pay the portion of the coverage, if any, not covered by their benefits. The required contribution is based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefits as determined annually by the Board. Governmental Accounting Standards Board Statement No. 45 ( GASB 45 ) requires governmental agencies that fund post-employment benefits on a pay-as-you-go basis, such as the District, to account for and report such outstanding obligations and commitments in essentially the same manner as for pensions. While requiring the District to disclose the unfunded actuarial accrued liability and the annual required contribution (the actuarial value of benefits earned during a Fiscal Year plus costs to amortize the unfunded actuarial 25

34 accrued liability, or OPEB ARC ) in its financial statements, GASB 45 does not require the District to fund the OPEB ARC. In 2009, the District entered into a contract with the California Employer s Benefit Retirement Trust ( CERBT ) pursuant to which the District will make deposits toward its unfunded actuarial accrued liability of approximately $11,900,000. The Board has established a policy of depositing a minimum of two times the annual actuarially calculated pay-as-you-go amount into CERBT. In Fiscal Years 2013 through 2017, the District deposited $909,000, $1,031,200, $960,000, $988,000 and $984,000, respectively, into CERBT, and in Fiscal Year 2018, the District expects to deposit $980,000 into CERBT. Such amounts are less than the District s OPEB ARC that is described in the following paragraph. In 2016, the District engaged Van Iwaarden Associates (the Consultant ) to calculate the District s post-employment benefits current funding status. The Consultant s report concluded that: (i) the District s actuarial accrued liability for post-employment benefits based upon a 6.75% discount rate was $16,728,353 as of June 30, 2015; (ii) the reported market value of assets in CERBT totaled $4,087,392 as of June 30, 2015 and the actuarial value of assets in CERBT totaled $4,584,369 using a five year smoothing method; and (iii) the unfunded actuarial accrued liability was $12,143,984 as of June 30, The Consultant s report also concluded that the District s OPEB ARC is $1,414,502. The District s annual post-employment benefits cost, the percentage of annual post-employment benefits cost contributed to the plan, and the net post-employment benefits obligation for the last five Fiscal Years are as follows: Fiscal Year Annual Post-Employment Benefit Cost % of Annual Post-Employment Benefit Cost Contributed Net Post-Employment Benefit Obligation 2013 $1,309, % $2,325, ,377, ,670, ,373, ,083, ,414, ,510, ,306, ,832,720 Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The District does not expect that any increased funding of post-employment benefits will have a material adverse effect on the ability of the District to make the Installment Payments. See Note 17 to the District s Financial Statements set forth in Appendix A for further information with respect to post-employment benefits. Budget Process Up to and including the Fiscal Year 2018 budget, the District adopted an annual budget each year. Commencing with the Fiscal Year 2019 budget, the District will adopt a biennial budget. The District will continue to divide the budget process into four major sections: capital improvement, operating expenses, operating revenues and employee wages and benefits. Oversight of the District s budget process is highly interactive in that each Board committee is responsible for budgeting for its respective budget sections. After each committee has reviewed and approved its section of the budget, the Finance Committee reviews the compilation of all major aspects of the budget prior to the final review by the Board. This approach allows the Board and District staff to place a greater emphasis on each of the four budget phases. 26

35 In addition to the annual budget process, staff presents a monthly budget report to the Board for review and approval. This report updates the Board on the process of all operating revenues and expenses for the Water Fund (through which the District accounts for operations of the Water System), the Sewer Fund and the Recycled Water Fund. The Finance Committee also undertakes a comprehensive mid-year review of the District s operating budget, which is then submitted to the full Board. The General Manager/Chief Executive Officer may exercise discretion in the administration of the budget to respond to changed circumstances, provided that any single modification in excess of $50,000 requires the approval of the Board. The Board approved the budget for Fiscal Year 2018 on June 13, The District participates in the budget awards programs offered by the California Society of Municipal Finance Officers (the CSMFO ) and the Government Finance Officers Association ( GFOA ). The District has received the GFOA Distinguished Budget Presentation Award for each of the past 12 years and has been awarded the Excellence Award in Operating Budget from CSMFO for each of the past 11 years. District Insurance Pursuant to the Master Agreement, the District is obligated to maintain insurance with respect to the Water System. See Appendix B under the caption MASTER INSTALLMENT PURCHASE AGREEMENT Covenants of the District Insurance. The District is a member of ACWA/JPIA, a risk-pooling, self-insurance authority for qualified State water agencies created under the provisions of California Government Code 6500 et seq. ACWA/JPIA commenced operations on October 1, Members of ACWA/JPIA have pooled funds for liability and property insurance coverage, including both self-insured coverage and excess coverage purchased from commercial insurers. As of July 1, 2017, the District maintained the following coverage: Property Loss. The District is insured for property damage up to replacement value with a $25,000 deductible per occurrence for buildings, personal property, fixed equipment, catastrophic coverage, and a $5,000 deductible for mobile equipment and vehicles. The District s boiler and machinery coverages have a deductible that varies based on the incident. ACWA/JPIA is risk-pooled for property losses up to $100,000 per occurrence and has purchased excess insurance coverage up to $150,000,000 per loss. Certain portions of the Water System, including distribution pipelines and other underground infrastructure that is not part of an above-ground structure, are not insured. General Liability. The District is insured for general liability through ACWA/JPIA up to $2,000,000 per occurrence, and ACWA/JPIA has purchased additional coverage from commercial insurers, subject to policy aggregate limits. Automobile Liability. The District is insured for automobile liability through ACWA/JPIA up to $2,000,000 per occurrence, and ACWA/JPIA has purchased additional coverage from commercial insurers, subject to policy aggregate limits. Cyber Liability. ACWA/JPIA provides cyber liability coverage up to $3,000,000 per occurrence through the commercial liability policy for participating members of the general liability pool program. Public Officials and Employees Errors and Omissions. The District is insured through ACWA/JPIA up to $2,000,000 per occurrence, and ACWA/JPIA has purchased additional coverage from commercial insurers, subject to policy aggregate limits. 27

36 Workers Compensation and Employer s Liability. The District is insured through ACWA/JPIA for worker s compensation to statutory limits and for employer s liability coverage up to $2,000,000 each accident. Crime Coverage. The District is insured for crime liability through ACWA/JPIA with variable limits based on the incident up to $1,000,000 per occurrence. The District does not maintain earthquake insurance for the Water System. The occurrence of any natural disaster in the District s service area, including, without limitation, fire, earthquake, landslide, drought, high winds or flooding, could have an adverse material impact on the economy within the District, the Water System and the Revenues that are available for the payment of the Bonds. There can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers. Settled claims have not exceeded any of the coverage amounts in any of the last three Fiscal Years and there were no reductions in the District s insurance coverage during the years ended June 30, 2017, 2016 and Outstanding Senior Obligations Descriptions of other outstanding obligations of the District, each of which is payable from Net Revenues of the Water System prior to the payment of the Installment Payments, are set forth below Installment Sale Agreement. The District caused the Cucamonga Valley Water District Certificates of Participation (2009 Water Facilities Financing) (the 2009 Certificates ) to be executed and delivered in the original aggregate principal amount of $27,960,000 pursuant to a Trust Agreement, dated as of April 1, 2009, by and among the District, the Corporation and Wells Fargo Bank, National Association, as trustee, to finance certain capital improvements of the Water System. The 2009 Certificates are currently outstanding in the aggregate principal amount of $5,745,000 and have a final maturity in In connection with the execution and delivery of the 2009 Certificates, the District entered into the 2009 Installment Sale Agreement, pursuant to which the District is obligated to make payments to the Corporation for the purchase of the projects described therein. The obligation of the District to make payments pursuant to the 2009 Installment Sale Agreement is payable from Net Revenues prior to the payment of the Installment Payments CREB Installment Sale Agreement. The District caused the Cucamonga Valley Water District Certificates of Participation (2009 Clean Renewable Energy Bonds Project) (the 2009 CREBs ) to be executed and delivered in the original aggregate principal amount of $410,000 pursuant to a Trust Agreement, dated as of April 1, 2009, by and among the District, the Corporation and Wells Fargo Bank, National Association, as trustee, to finance certain renewable energy projects of the District. The 2009 CREBs, which do not bear interest, are currently outstanding in the aggregate principal amount of $146,429 and have a final maturity in In connection with the execution and delivery of the 2009 CREBs, the District entered into the 2009 CREB Installment Sale Agreement, pursuant to which the District is obligated to make payments to the Corporation for the purchase of the projects described therein. The obligation of the District to make payments pursuant to the 2009 CREB Installment Sale Agreement is payable from Net Revenues prior to the payment of the Installment Payments Bonds. The District issued the 2011 Bonds in the original aggregate principal amount of $109,475,000 pursuant to an Indenture of Trust, dated as of August 1, 2011, by and between the District and Wells Fargo Bank, National Association, as trustee, to refinance certain capital improvements of the Water System. The obligation of the District to make payments of principal of and interest on the 2011 Bonds is payable from Net Revenues prior to the payment of the Installment Payments. 28

37 See the caption INTRODUCTION Refunding Plan General for a discussion of the defeasance of a portion of the 2011 Bonds. Upon such partial defeasance, the 2011 Bonds will remain outstanding in the aggregate principal amount of $27,420,000. The District has covenanted in the Master Agreement not to incur additional obligations that are payable from Net Revenues prior to the payment of the Installment Payments. The District may incur additional obligations that are payable from Net Revenues on a parity with the Installment Payments, provided that certain conditions are met. See the caption SECURITY FOR THE BONDS Additional Obligations. Outstanding Parity Obligations 2012 Bonds. The Authority issued the Cucamonga Valley Water District Financing Authority Water Revenue Bonds, Series 2012 (the 2012 Bonds ) in the original aggregate principal amount of $37,885,000 pursuant to an Indenture of Trust, dated as of October 1, 2012, by and between the Authority and Wells Fargo Bank, National Association, as trustee, to finance certain capital improvements of the Water System. The 2012 Bonds are currently outstanding in the aggregate principal amount of $34,200,000 and have a final maturity in In connection with the issuance of the 2012 Bonds, the District entered into the 2012 Installment Purchase Agreement, pursuant to which the District is obligated to make payments to the Authority for the purchase of the projects described therein. The obligation of the District to make payments pursuant to the 2012 Installment Purchase Agreement is payable from Net Revenues on a parity with the payment of the Installment Payments Bonds. The Authority issued the Cucamonga Valley Water District Financing Authority Water Revenue Bonds, Series 2014 (the 2014 Bonds ) in the original aggregate principal amount of $12,150,000 pursuant to an Indenture of Trust, dated as of July 1, 2014, by and between the Authority and Wells Fargo Bank, National Association, as trustee, to finance and refinance certain capital improvements of the Water System. The 2014 Bonds are currently outstanding in the aggregate principal amount of $10,230,000 and have a final maturity in In connection with the issuance of the 2014 Bonds, the District entered into the 2014 Installment Purchase Agreement, pursuant to which the District is obligated to make payments to the Authority for the purchase of the projects described therein. The obligation of the District to make payments pursuant to the 2014 Installment Purchase Agreement is payable from Net Revenues on a parity with the payment of the Installment Payments Bonds. The Authority issued the Cucamonga Valley Water District Financing Authority Water Revenue Refunding Bonds, Series 2016 (the 2016 Bonds ) in the original aggregate principal amount of $19,940,000 pursuant to an Indenture of Trust, dated as of February 1, 2016, by and between the Authority and U.S. Bank National Association, as trustee, to refinance certain capital improvements of the Water System. The 2016 Bonds are currently outstanding in the aggregate principal amount of $19,545,000 and have a final maturity in In connection with the issuance of the 2016 Bonds, the District entered into the 2016 Installment Purchase Agreement, pursuant to which the District is obligated to make payments to the Authority for the purchase of the projects described therein. The obligation of the District to make payments pursuant to the 2016 Installment Purchase Agreement is payable from Net Revenues on a parity with the payment of the Installment Payments. General THE WATER SYSTEM In Fiscal Year 2017, the Water System supplied approximately 39,690 acre feet of water to a population of approximately 190,000 within the District s service area through approximately 50,360 residential, industrial, landscape and public agency connections. 29

38 The Water System consists of various physical components, including approximately 707 miles of water transmission pipelines, 21 booster pump stations and 69 booster pumps, 29 deep wells (of which 21 are currently providing water to the District), 35 storage reservoirs with a combined capacity of 96,640,000 gallons and three water treatment facilities: the 11.5 million gallon per day ( mgd ) capacity Royer-Nesbit Water Treatment Plant, which primarily treats water local canyon surface water and can be augmented with water imported by MWD, the 2 mgd capacity Arthur H. Bridge Water Treatment Plant, which treats local canyon surface water, and the 60 mgd capacity Lloyd W. Michael Water Treatment Plant, which primarily treats water imported by MWD and can receive local canyon surface water. The District has a total treatment capacity of 73.5 mgd, or over 82,300 acre feet annually, at full capacity. Water Treatment. The District employs a variety of water treatment technologies depending on source water characteristics and water quality goals. The District s Arthur H. Bridge Water Treatment Plant utilizes dual-stage pressure filtration followed by disinfection, while the District s Royer-Nesbit Water Treatment Plant and Lloyd W. Michael Water Treatment Plant are conventional treatment plants in which the water supply is treated through: (a) coagulation, a process through which chemicals are added to raw water and then rapidly mixed so that small suspended particles form that are referred to as floc; (b) flocculation, a gentle agitation of these small clumps for the purpose of forming larger clumps and entrapping bacteria, viruses, silt, clay and other particles found in raw surface water; (c) sedimentation, which is undertaken on a large basin where velocity is slowed to allow floc clusters to settle to the bottom where they can be removed and disposed of; (d) filtration, the polishing process in which any remaining floc or suspended particles are removed through a filtering process; and (e) disinfection, a process which destroys the pathogenic organisms (bacteria) through the injection of chlorine into the finished water. Recent improvements at the Lloyd W. Michael Water Treatment Plant include additional enhanced treatment processes such as granulated activated carbon filtration for organics reduction and ultraviolet irradiation for primary disinfection. Such processes enable the District to address source water quality challenges unique to imported water and to comply with federal and State drinking water regulations. Wells. The District has 12 active wells in the Chino Basin and 9 active wells in the Cucamonga Basin. Both the Chino Basin and the Cucamonga Basin have been adjudicated. See the caption Water Supply Groundwater. The District s wells have a range in depth to groundwater from 110 feet in upper aquifers to 610 feet in lower aquifers. The total maximum daily production from the District s wells is approximately 45 million gallons, which is sufficient to supply 100% of the average daily water demand within the District. However, groundwater pumping from the Chino Basin is affected by the policies of the Chino Basin Watermaster (the Watermaster ), including optimizing the Chino Basin s safe yield, providing replenishment supplies to offset overproduction and levying and collecting administrative and replenishment assessments. Groundwater pumping from the Cucamonga Basin is governed by a stipulated judgment, but the Cucamonga Basin is not administered by a separate entity. See the caption Water Supply Groundwater. Although portions of the Chino Basin to the south of the District are subject to high nitrate levels as a result of runoff from agricultural and farming industries, the District s Chino Basin wells have not been found to contain excessive levels of nitrate. The District also has 8 wells in the Cucamonga Basin that are not currently active because of high nitrate levels. See the caption Water Supply Groundwater Cucamonga Basin for a discussion of nitrate levels in the District s Cucamonga Basin wells. Reservoirs. The Water System includes 35 water tanks and reservoirs with a combined capacity of approximately 96,640,000 gallons. The District s reservoirs are composed of welded steel or reinforced concrete construction. Booster Pump Stations. Although the terrain of the service area enables the District to deliver water via gravity throughout much of the Water System, the District also maintains 21 booster pump stations and 69 booster pumps, which pump water from lower elevations of the water source to the various higher pressure 30

39 zones in the system. The system s highest existing zone has a water surface elevation of 2,926 feet. The Water System includes 8 pressure zones at varying elevations to maintain pressure at the customer s tap between 30 to 181 pounds per square inch. Pipelines. The Water System consists of approximately 707 miles of pipelines. Water mains range in size from 4 to 36 inches in diameter. The District s pipelines are composed of cast iron, steel, asbestos cement, plastic and ductile iron. Water Supply The District currently has three sources of water: (a) Groundwater: (i) The District is entitled to pump approximately 9,960 acre feet of groundwater from 12 active wells in the Chino Basin and approximately 15,741 acre feet of groundwater from 9 active wells in the Cucamonga Basin as a result of the adjudication of such groundwater basins, as described under the caption Groundwater below. (ii) In addition to the entitlement described in clause (i) above, the District is entitled to pump an average of approximately 10,000 acre feet of water per year from the District s wells in the Chino Basin as a result of local investment in groundwater management programs, including recycled water recharge, reallocation of agricultural rights, additional yield from stormwater recharge and the District s ownership of shares of common stock in FUWC, as described under the caption Fontana Union Water Company below. (b) Local Surface Water: (i) The District is entitled to collect local surface water derived from precipitation in the San Gabriel Mountains to the north of the District s service area and approximately 3,620 acre feet per year from Cucamonga Creek, all as described under the caption Local Surface Water below. (ii) The District is entitled to collect local surface water derived from Lytle Creek as a result of its ownership of shares of common stock in FUWC. The District does not currently have the infrastructure to access such local surface water and instead sells it to San Gabriel. See the captions Fontana Union Water Company and Local Surface Water below. (c) Imported Water purchased from MWD through IEUA, as described under the caption Imported Water below. Fontana Union Water Company. FUWC, a mutual water company, holds groundwater rights in the Chino Basin, the Lytle Creek Groundwater Basin (the Lytle Creek Basin ) and Rialto Groundwater Basin and local surface water rights to a stream originating in the San Gabriel Mountains known as Lytle Creek. The District owns 8, shares of FUWC common stock, which represents approximately 57.59% of all outstanding FUWC common stock. As owner of the FUWC shares, the District is entitled to receive a proportionate share of the FUWC water supply from various sources to which FUWC has water rights. The District, Kaiser Resources, Inc. (now Kaiser Ventures Inc.), FUWC and San Gabriel entered into a Settlement Agreement, dated February 7, 1992, whereby the parties settled certain court proceedings and other claims, including disputes with respect to the allocation of water rights resulting from ownership of FUWC stock. San Gabriel owns approximately % of the outstanding shares of the common stock of FUWC, with the remaining shares owned by private individuals, the cities of Rialto and Fontana and West Valley Water District. In the Settlement Agreement, the parties agreed to annual allocations of FUWC s available water supply pursuant to which the District is entitled to the District s proportionate share of 31

40 FUWC s water supply from the following sources: (i) the Chino Basin; (ii) surface waters of Lytle Creek; and (iii) certain wells in the Lytle Creek and Rialto-Colton Basins. The District takes its share of FUWC s usable water by pumping groundwater from the Chino Basin and sells the remainder of its share of FUWC s usable water to San Gabriel. See the caption Local Surface Water below. The District does not currently take groundwater from the Lytle Creek or Rialto-Colton Basins. The District estimates, based on recent experience in the last five years, that ownership of the 8, FUWC shares will entitle the District to receive an average of approximately 6,340 acre feet of water per year from FUWC groundwater sources, which it takes entirely from the Chino Basin. The amount of local surface water to which the District is entitled as a result of its ownership of FUWC shares of common stock is entirely dependent on precipitation. There can be no assurance that the amount of such local surface water to which the District is entitled will not be significantly different from the historical average in future years. The District utilizes its own wells in the Chino Basin to pump the water which is allocated in that basin to the District by virtue of its ownership of the FUWC shares. In the alternative, the District may store such allocated water in the Chino Basin pursuant to a storage agreement with the Watermaster and/or sell such stored water to other producers of water from the Chino Basin. In Fiscal Year 2017, approximately 39% of the District s total water supply was derived from groundwater pumped from the Chino Basin pursuant to the District s ownership of the FUWC shares of common stock. See the caption LITIGATION The District for a discussion of certain litigation affecting FUWC. Groundwater. Approximately 58% of the Water System s water supply that was delivered to District retail customers was pumped from groundwater in Fiscal Year The Water System currently pumps approximately 66% of its groundwater from 12 active wells located in the Chino Basin and approximately 34% of its groundwater from 9 active wells in the Cucamonga Basin. As discussed under the caption Historic and Projected Water Supply, the District s projects that, for operational and financial reasons, it will increase production from the Cucamonga Basin while decreasing production from the Chino Basin in future years. Chino Basin. The Chino Basin is managed by the Watermaster, which was created pursuant to the terms of a judgment (the Judgment ) entered in Superior Court of California, County of San Bernardino (the Court ) Case No. RCV (formerly Case No. SCV ) entitled Chino Basin Municipal Water District v. City of Chino, et al. to administer the terms of the Judgment. The Watermaster provides a forum for Chino Basin stakeholders to work cooperatively in managing the Chino Basin to meet regional water supply needs. The Judgment, which was entered on January 27, 1978, established three pool committees: (1) the Agricultural Pool, which includes the State and all overlying producers of water for uses other than industrial or commercial purposes; (2) the overlying Non-Agricultural Pool, which represents producers of water for industrial or commercial purposes; and (3) the Appropriative Pool, which represents cities, districts, other public or private utilities and certain other users. The representatives of the pool committees constitute an Advisory Committee that advises the Watermaster s nine-member board, which is comprised of representatives of each of the three pools as well as representatives from the wholesale water agencies within the Chino Basin. The Judgment was amended in 2000 through the signing of the Peace Agreement, which, among other things, established procedures to implement an Optimum Basin Management Program (the OBMP ) to preserve and enhance the Chino Basin s safe yield and water quality through the construction of desalters and other measures, and again in 2007 through the signing of the Peace II Agreement, which, among other things, provided for the expansion of desalters to treat groundwater degraded by past agricultural practices. Watermaster staff provide accounting services for water appropriations and groundwater storage, groundwater monitoring services, services related to the implementation of special projects within the Chino Basin service area and services related to the purchase of replenishment water, when available. The 32

41 Watermaster s operations are governed by the Judgment, the OBMP, the Peace Agreement, the Peace II Agreement and rules and regulations approved by the Watermaster s board. The Watermaster is considered an arm of the Court and reports to the Court on a regular basis as part of the Court s ongoing jurisdiction to enforce the Judgment. The Watermaster estimates that the Chino Basin, which is approximately 235 square miles in area, currently holds approximately 5,000,000 acre feet of groundwater and has an additional 1,000,000 acre feet of unused capacity. The amount of groundwater held in the Chino Basin has fluctuated over the past five years depending upon precipitation, pumping demand and the availability of replenishment water. Replenishment water has not been available every year, resulting in limitations on the Watermaster s ability to recharge the Chino Basin. However, local replenishment supplies have been available in the form of purchases of water held in local storage accounts to offset overproduction. In addition, individual agencies, including the District, have the ability to purchase recycled water to offset their overproduction. For Fiscal Year 2018, the amount of native groundwater available for pumping is approximately 135,000 acre feet. If District production is in excess of the District s appropriative rights (as discussed below), the District may utilize water stored in the Chino Basin, purchase water from another Chino Basin groundwater producer or pay the Watermaster a replenishment assessment fee in the current amount of $668 per acre foot. In addition, the District pays the Watermaster administrative and OBMP assessments based on prior year production. Such assessments are equal to $18.03 and $53.60 per acre foot, respectively, for Fiscal Year The assessments provide funding for Watermaster staffing, administrative overhead costs and the Watermaster s implementation of the OBMP. Pursuant to the Judgment, the District is entitled to pump a total of approximately 9,960 acre feet of water annually from the Chino Basin. (The District has additional entitlements to pump an average of approximately 10,000 acre feet of groundwater per year from District wells in the Chino Basin pursuant to its majority ownership in FUWC and groundwater management programs in the Chino Basin. See the caption Fontana Union Water Company ). However, the District s total annual appropriative rights in the Chino Basin vary based on the Watermaster s allocation of unused Agricultural Pool rights, District annual purchases from other producers and other factors. Over the last two Fiscal Years, the District has underproduced its available base appropriative rights by approximately 2,833 acre feet (before the application of recycled water and Non-Agricultural Pool credits). The District also purchases recycled water from IEUA for the purpose of recharging the Chino Basin. In Fiscal Year 2017, the District s recycled water credits totaled approximately 3,385 acre feet, and such credits averaged approximately 3,016 acre feet over the past four Fiscal Years. Such purchases are credited to the District s Chino Basin storage account. As of June 30, 2017, the District had a total of 76,086 acre feet of water in its Chino Basin storage account. See the caption Recycled Water Revenues Not Pledged. As an adjudicated groundwater basin, the Chino Basin is not subject to the provisions of Assembly Bill No and Senate Bill Nos and 1319 (collectively, the Sustainable Groundwater Management Act, or SGMA ), which was enacted on September 16, The SGMA constitutes a legislative effort to regulate groundwater on a Statewide basis. Cucamonga Basin. The District is also entitled to pump groundwater from the Cucamonga Basin in accordance with a stipulated court judgment that was approved by the Superior Court of California, County of San Bernardino, in April 1958 (the Cucamonga Basin Stipulated Judgment ). Pursuant to the Cucamonga Basin Stipulated Judgment, the District received an entitlement to Cucamonga Basin water. In addition to such entitlement, the District has purchased the rights of certain other parties to the Cucamonga Basin Stipulated Judgment in perpetuity and is currently entitled, subject to the conditions set forth in the Cucamonga Basin Stipulated Judgment, to pump 15,741 acre feet of the safe yield of the Cucamonga Basin (established at 22,721 acre feet under the Cucamonga Basin Stipulated Judgment in 1958) in each year. San 33

42 Antonio Water Company, which serves the City of Upland, is entitled to pump the remaining 6,980 acre feet of safe yield. Because of high nitrate levels in the District s Cucamonga Basin wells, the District is required to blend water from this source with water from other sources in order to deliver Cucamonga Basin groundwater to customers. As a result, the District has pumped less than its entitlement from the Cucamonga Basin in recent years. The District is undertaking a nitrate treatment program to remediate this impediment and expects to complete such remediation in Fiscal Year Upon completion of such remediation, the District expects to be able to pump additional Cucamonga Basin water from its 9 active wells in the Cucamonga Basin and to recommence pumping, if necessary to meet water supply needs, from up to 4 of its 9 total wells in the Cucamonga Basin. See the caption General Wells. As an adjudicated groundwater basin, the Cucamonga Basin is not subject to the provisions of the SGMA. Local Surface Water. The District maintains and operates a series of water collection and conveyance systems, including a series of tunnels in the San Gabriel Mountains along the northern boundary of the District. The conveyance and collection systems enable the District to collect local surface water from precipitation falling in the San Gabriel Mountains that flows in local streams and canyons. Under State law, the District holds pre-1914 appropriative rights, which were acquired from predecessor mutual water companies, to such water. The elevation of the District s conveyance and collection systems allows water to flow by gravity from the source to the Water System. Because the quantity of water derived from this source is entirely dependent on annual precipitation, water produced from this source is highly variable. In Fiscal Year 2017, approximately 2,456 acre feet, or 6% of the District s water supply that was delivered to District retail customers, was derived from local surface water. See the caption Historic and Projected Water Supply for the District s historic water supply derived from local surface water. In addition, as a result of its groundwater rights in the Cucamonga Basin, as described above under the caption Groundwater Cucamonga Basin, the District is entitled to divert approximately 3,620 acre feet of surface water per year from Cucamonga Creek. Over the past five Fiscal Years, the District has diverted an average of approximately 262 acre feet per year from this source, which includes two Fiscal Years in which no water was diverted because of the need for improvements at the Arthur H. Bridge Water Treatment Plant. Such improvements became operational in Fiscal Year Through its ownership of a majority of the outstanding stock of FUWC, the District also has rights to local surface water in a waterway known as Lytle Creek. See the caption Fontana Union Water Company for further information with respect to the District s ownership of FUWC stock. The amount of local surface water derived from Lytle Creek is entirely dependent on precipitation. There can be no assurance as to the amount of local surface water from Lytle Creek that the District will have access to in the future. In order for the District to take delivery of Lytle Creek surface water, it would be necessary for the District to construct a pipeline to deliver such water from the Lytle Creek sources to the Water System. No such infrastructure is currently in place. For this reason, pursuant to the Settlement Agreement, the District sells its proportionate share of FUWC s available water supply from the Lytle Creek sources to San Gabriel on a monthly basis at a wholesale rate equal to 85% of MWD s Tier 1 untreated water rate, as described under the caption Imported Water. At such rate, the District s sale of Lytle Creek water to San Gabriel represents a cheaper alternative for San Gabriel than the purchase of MWD water. This arrangement is subject to renewal on an annual basis. In Fiscal Years 2015, 2016 and 2017 the District received $990,281, $0 and $0, respectively, from the sale of FUWC water to San Gabriel. The revenues from such water sales constitute Revenues of the Water System. Imported Water. The Water Enterprise purchased approximately 36% of its water supply that was delivered to District retail customers in Fiscal Year 2017 from IEUA, a member of MWD. The Water 34

43 System s purchased water supply consists entirely of untreated water imported by MWD from northern California via the State Water Project. Such water is delivered via MWD s Foothill Feeder, which passes through the northern portion of the District and has turn-outs for two of the District s water treatment facilities, the Royer-Nesbit Water Treatment Plant and the Lloyd W. Michael Water Treatment Plant. MWD, which was created in 1928, is the largest wholesale water agency in the United States, distributing water to a service area that extends from Ventura to the California-Mexico border over 5,200 square miles in the County and the counties of Los Angeles, Orange, Riverside, San Diego and Ventura. MWD s primary purpose is to provide a supplemental supply of water for domestic and municipal uses at wholesale rates to its member agencies. MWD is comprised of 27 member public agencies, including 14 cities, 12 municipal water districts and one county water authority. IEUA has a representative on MWD s board of directors. MWD s distribution system sells water directly to certain agencies and through subsidiary agencies such as IEUA to other entities such as the District. The District pays for its imported water through IEUA but takes actual delivery of water that it purchases through pipelines owned by MWD. The pipelines that are used to import MWD water have a combined capacity of approximately 102 mgd. The Water System currently has adequate capacity with existing pipelines to meet its peak demand. IEUA s charge to the Water Enterprise consists of three components: (a) IEUA s cost to purchase untreated water from MWD, as detailed below; (b) a meter equivalent unit charge in the current amount of $100,013 per month; and (c) capacity and readiness to serve charges in the current amount of $75,067 per month. The following table sets forth current and adopted future MWD rates per acre foot for treated and untreated water. The District purchases untreated water only from MWD through IEUA. (1) (2) Full Service Domestic Interim Agricultural Program (2) Direct Replenishment (2) Rates Effective Beginning Treated (1) Untreated Treated Untreated Treated Untreated January 1, 2018 Tier 1 $ 1,015 $695 N/A N/A N/A N/A January 1, 2018 Tier 2 1, N/A N/A N/A N/A Treated water rates are shown for comparison purposes only. The District does not purchase treated water from MWD. These programs are currently unavailable. Source: District. MWD and IEUA face various challenges in the continued supply of imported water to the District. A description of these challenges as well as a variety of other operating information with respect to MWD and IEUA is included in certain disclosure documents prepared by MWD and IEUA, respectively. MWD and IEUA have certain publicly available documents and have entered into certain continuing disclosure agreements pursuant to which each is contractually obligated for the benefit of owners of certain of their outstanding obligations to file certain annual reports, notices of certain enumerated events as defined under Rule 15c2-12 and annual audited financial statements (the MWD Information, and the IEUA Information, respectively) with the Municipal Securities Rulemaking Board s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at ( EMMA ). None of the MWD Information or the IEUA Information is incorporated into this Official Statement by reference thereto, and the District and the Authority make no representation as to the accuracy or completeness of such information. MWD AND IEUA HAVE NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE DISTRICT, THE AUTHORITY, THE TRUSTEE OR THE OWNERS OF THE BONDS TO PROVIDE MWD INFORMATION OR IEUA INFORMATION TO THE DISTRICT, THE AUTHORITY OR THE OWNERS OF THE BONDS. 35

44 MWD AND IEUA HAVE NOT REVIEWED THIS OFFICIAL STATEMENT AND HAVE NOT MADE REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED OR INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO MWD OR IEUA, RESPECTIVELY. MWD AND IEUA ARE NOT CONTRACTUALLY OBLIGATED, AND HAVE NOT UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE BENEFIT OF THE DISTRICT, THE AUTHORITY OR THE OWNERS OF THE BONDS UNDER RULE 15c2-12. Recycled Water Revenues Not Pledged. The District purchases recycled water from IEUA for sale to District customers. Recycled water purchases offset higher cost imported water purchases, as described under the caption Imported Water. Recycled water represents an additional reliable source of local water supply. Revenues from recycled water sales do not constitute Water System Revenues pledged to the Installment Payments. To the extent that current Water System customers purchase recycled water rather than potable water, Water System Maintenance and Operation Costs (in particular the costs of purchasing imported water) and Water System Revenues would be reduced. Although recycled water sales are expected to increase overall in the future as a result of increased sales, the District projects increases in Water System Revenues as a result of increases in connections and increases in Water System rates and charges. See the captions Projected Water System Service Connections, Water System Rates and Charges and WATER SYSTEM FINANCIAL INFORMATION Projected Water System Operating Results and Debt Service Coverage. In addition, the District purchases recycled water from IEUA for recharge into the Chino Basin. Such purchases are credited to the District s Chino Basin storage account and thereby increase the amount of groundwater available for pumping from the Chino Basin. See the caption Groundwater Chino Basin. Drought Declaration. State Orders. On January 17, 2014, the California Governor declared a drought state of emergency (the Declaration ) with immediate effect. The Declaration included several orders, including, among others: (a) local urban water suppliers, including the District, were encouraged to implement their local water shortage contingency plans; the District s plan is discussed under the caption District Response to Drought; and (b) local urban water suppliers, including the District, were encouraged to update their urban water management plans to prepare for extended drought conditions. A series of additional orders by the Governor and other agencies followed in the ensuing years. On May 18, 2016, the California State Water Resources Control Board (the SWRCB ) adopted a regulation that gave water agencies the ability to establish their own conservation standards based on a stress test of supply reliability. By June 22, 2016, water agencies were required to submit self-certifications to the SWRCB demonstrating that they had sufficient supplies to withstand three additional years of severe drought. Any identified percentage gap between supplies and demands would become the water agency s updated mandatory conservation target. As a result of the District s significant investments in water supply reliability as described herein, the District demonstrated that it has more than sufficient supplies to meet its projected demands, even if California had endured three more years of drought. Consequently, the District s mandatory conservation target (which was 32% from 2013 potable water use) was eliminated effective July 1, On April 7, 2017, after significant improvement in water supply conditions across California, the Governor issued Executive Order B-40-17, which rescinded mandatory conservation measures for most California counties (including the County). The order did not rescind certain drought-related prohibitions on wasteful water use and directed the SWRCB to develop: (i) permanent prohibitions on such use; and (ii) urban water use efficiency standards. Because the District s mandatory conservation target was eliminated in 2016, and because the District is currently prohibiting wasteful water use, the District does not believe that the April 36

45 7, 2017 Executive Order will have a significant effect on the District s ability to generate sufficient Net Revenues to pay the Installment Payments when due. District Response to Drought. Under the District s water supply shortage contingency plan (the WSSCP ), the District responds to a drought in stages. Implementation of each stage of the WSSCP other than the first stage is undertaken by Board resolution. The first stage prohibits activities that waste water, such as using hoses to clean paved surfaces, allowing runoff from outdoor irrigation systems and failing to repair water leaks. The first stage of the WSSCP is in effect at all times without the need for a Board resolution. The second stage calls for mandatory 10% reductions in water use and enables the Board to limit outdoor irrigation to between 4:00 p.m. and 9:00 a.m. The third phase calls for mandatory 15% reductions in water use and enables the Board to limit the frequency and duration of outdoor irrigation. The fourth stage calls for mandatory 20% reductions in water use and enables the Board to limit the frequency and duration of outdoor irrigation. The fifth stage calls for mandatory 25% reductions in water use and enables the Board to limit the frequency and duration of outdoor irrigation. The sixth stage calls for mandatory 35% reductions in water use. The sixth stage enables the Board to limit the frequency and duration of outdoor irrigation, prohibits irrigating ornamental turf areas on public streets with potable water and rescinds exceptions allowing irrigation of landscapes near newly constructed improvements in a manner inconsistent with District regulations. The seventh stage calls for mandatory 50% reductions in water use. The seventh stage enables the Board to limit the frequency and duration of outdoor irrigation, curtails the use of water for construction purposes and empowers the Board to prohibit non-essential outdoor water uses. The District is currently implementing the first stage of the WSSCP, which prohibits activities that waste water. See the caption Water System Rates and Charges Water Charges. The District believes that implementation of the first stage of the WSSCP is likely to be revenue neutral in Fiscal Year Implementation of the WSSCP in future years and corresponding drought rates adopted by the Board may result in lower water sales revenues in the future; however, such measures are also expected to result in lower operating costs, in particular imported water costs. The projected operating results that are set forth under the caption WATER SYSTEM FINANCIAL INFORMATION Projected Water System Operating Results and Debt Service Coverage reflect the continued implementation of the first stage of the WSSCP through Fiscal Year The District does not believe that the implementation of the first stage of the WSSCP will have a material adverse effect on its ability to generate sufficient Net Revenues to pay the Installment Payments when due. See the Official Statement under the caption SECURITY FOR THE BONDS General. If a water shortage should arise, legal issues exist as to whether different California Water Code provisions should be invoked to require reasonable regulations for the allocation of water in time of shortage. Any curtailment that is accompanied by an increase in water supply costs could necessitate an increase in the District s water rates. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. Historic and Projected Water Supply Set forth below is a summary of the District s sources of water supply, other than recycled water, for the last ten Fiscal Years. Decreases in water supply between Fiscal Years 2008 and 2011 reflect the effects of the economic recession as well as conservation measures. Decreases in water supply between Fiscal Years 2013 and 2016 reflect the effects of the Statewide drought. 37

46 Fiscal Year Chino Basin (1) CUCAMONGA VALLEY WATER DISTRICT HISTORIC WATER SUPPLY IN ACRE FEET PER YEAR MWD Dry Year Yield (2) Cucamonga Basin Local Surface Water (3) Imported Water Total Increase/ (Decrease) ,143 6,152 3,041 14,278 35,454 68,067 (8.61)% ,467 10,210 6,682 12,835 21,465 64,659 (5.01) ,921 11,260 5,683 12,582 21,782 61,228 (5.31) ,315 1,003 3,097 15,406 19,994 58,815 (3.94) ,949-5,774 16,657 26,144 63, ,740-6,275 9,481 (4) 25,847 60,343 (5.01) ,122-8,108 5,896 (4) 28,825 58,951 (2.31) ,640-10,415 3,226 21,306 49,586 (15.89) ,527-7,624 1,146 9,682 38,979 (21.39) ,549-8,379 2,456 15,288 42, (1) Includes groundwater pumped from the Chino Basin pursuant to the District s ownership of shares of common stock of FUWC. See the caption Water Supply Fontana Union Water Company. Reductions in pumping in Fiscal Years 2008 through 2010 reflect pumping from the Chino Basin pursuant to MWD s Dry Year Yield program, as described in Footnote (2). (2) Reflects pumping of Chino Basin groundwater allocated to MWD for storage. Under the Dry Year Yield program: (i) the District pumped such water in lieu of importing an equivalent amount of State Water Project water from MWD, paying MWD a Tier 1 rate (as described under the caption Water Supply Groundwater ) less a credit for a portion of the District s pumping costs in the approximate amount of $160 per acre foot pumped; and (ii) MWD paid the District approximately $8,400,000, which the District applied toward the construction of five new wells in the Chino Basin. The District s pumping obligation with respect to the Dry Year Yield program then in effect ended in There can be no assurance that MWD will not initiate another call under the Dry Year Yield program in the future. (3) Includes local surface water collected from Lytle Creek pursuant to the District s ownership of shares of common stock of FUWC and sold to San Gabriel. See the captions Water Supply Fontana Union Water Company and Water Supply Local Surface Water. (4) Decrease from Fiscal Year 2012 reflects hydrological conditions resulting in lower precipitation rates in local canyon and Lytle Creek sources. Source: District. Set forth below is a summary of the District s projected sources of water supply, other than recycled water, for the current and next four Fiscal Years. The below assumes that a Dry Year Yield program will not be in effect in the current or next four Fiscal Years. However, there can be no assurance that MWD will not initiate another call under the Dry Year Yield program in the future. 38

47 (1) Fiscal Year Chino Basin (1) CUCAMONGA VALLEY WATER DISTRICT PROJECTED WATER SUPPLY IN ACRE FEET PER YEAR Cucamonga Basin Local Surface Water (2) Imported Water Total Increase/ (Decrease) ,560 8,636 5,780 28,000 47, % ,300 8,000 2,940 28,368 49, ,600 8,000 2,940 28,368 50, ,000 8,000 2,940 28,368 52, ,000 8,000 2,940 28,368 52, Includes groundwater projected to be pumped from the Chino Basin pursuant to the District s ownership of shares of common stock of FUWC. See the caption Water Supply Fontana Union Water Company. The projected decrease in Chino Basin water supply from historical averages reflects a District goal of utilizing imported water whenever available. In addition, production from the Chino Basin is subject to the payment of assessments, while production from the Cucamonga Basin is not. See the caption Water Supply Groundwater. (2) Includes local surface water projected to be collected from Lytle Creek pursuant to the District s ownership of shares of common stock of FUWC. See the captions Water Supply Fontana Union Water Company and Water Supply Local Surface Water. Source: District. Historic Water System Service Connections The following table shows the number of service connections to the Water System for the last five Fiscal Years. CUCAMONGA VALLEY WATER DISTRICT HISTORIC WATER SYSTEM SERVICE CONNECTIONS Fiscal Year Residential Commercial Industrial Irrigation/ Landscaping Fire Lines Total Increase/ (Decrease) ,900 2, ,318 1,333 49, % ,079 2, ,333 1,340 49, ,217 2, ,315 1,354 50, ,296 2, ,328 1,359 50, ,446 2, ,337 1,369 50, Source: District. 39

48 Historic Water System Deliveries The following table shows historic deliveries for the Water System for the last five Fiscal Years. Decreases in water deliveries in Fiscal Years 2013 through 2016 reflect conservation measures resulting from the Statewide drought. See the caption Water Supply Drought Declaration. Differences between historic water deliveries set forth below and historic water supply set forth under the caption Historic and Projected Water Supply reflect system loss and the District s use of water for internal purposes. (1) Fiscal Year CUCAMONGA VALLEY WATER DISTRICT HISTORIC WATER SYSTEM DELIVERIES IN ACRE FEET PER YEAR Residential Commercial/ Multifamily Industrial Irrigation/ Landscaping Wholesale (1) Total Increase/ (Decrease) ,540 7,085 2,276 12,218 7,414 58,533 (5.08)% ,557 7,095 2,293 12,878 4,114 (2) 55,937 (4.44) ,147 6,720 2,244 10,667 5,629 (3) 51,407 (8.10) ,975 6,066 2,118 7, ,527 (28.95) ,480 6,493 2,253 8, , Reflects deliveries of FUWC water to San Gabriel. See the captions Water Supply Fontana Union Water Company and Water Supply Local Surface Water. (2) Decrease reflects hydrological conditions resulting in lower precipitation rates in local canyon and Lytle Creek sources. (3) Includes deliveries of 1,934 acre feet of FUWC water to San Gabriel and 3,695 acre feet of potable water to Fontana Water Company (City of Fontana). Source: District. Historic water deliveries reflect connections to the Water System as well as water demand, which is affected by weather conditions, economic conditions and other factors. See the caption Historic Water System Service Connections. 40

49 Historic Water System Service Charges and Sales Revenues Fiscal Year The following table shows Water System service charges and revenues from water sales for the last five Fiscal Years. Residential Commercial/ Multifamily CUCAMONGA VALLEY WATER DISTRICT HISTORIC WATER SYSTEM SERVICE CHARGES AND SALES REVENUES Industrial Irrigation/ Meter Landscaping Wholesale (1) Charges Water Services MWD Surcharge (2) Total Increase/ (Decrease) 2013 $22,941,754 $6,072,385 $2,110,168 $ 10,676,794 $3,810,933 $12,047,269 $1,229,226 $3,491,840 $62,380, % ,166,293 6,873,633 2,281,454 11,699,814 4,299,090 12,718,802 1,247,246 3,745,969 67,032, ,501,431 6,269,607 2,398,682 10,310,599 3,210,881 13,320,919 1,243,413 2,155,425 60,410,957 (9.88) ,830,920 7,735,923 4,194,963 10,865, ,154 14,482,824 1,266, ,208 62,860, ,462,798 6,447,043 2,683,913 9,188,164 5,641,974 16,651,893 1,224,368 1,920,494 64,220, (1) Reflects sales of FUWC water to San Gabriel at a wholesale rate equal to 85% of MWD s Tier 1 untreated water rate. See the captions Water Supply Fontana Union Water Company and Water Supply Local Surface Water. Also includes revenues paid to the District by other agencies for single-year lease rights to extract groundwater from the Chino and Cucamonga Basins. Such leases do not constitute delivery of water and are not reflected under the caption Historic Water System Deliveries. (2) See the caption Water System Rates and Charges MWD Surcharge. Source: District. Water System service charges and sales revenues reflect water deliveries described under the caption Historic Water System Deliveries as well as rates and charges described under the caption Water System Rates and Charges. 41

50 Largest Retail Water System Customers The following table shows the ten largest customers of the Water System for Fiscal Year 2017, as determined by monthly payments. See the captions Water Supply Fontana Union Water Company and Water Supply Local Surface Water for information with respect to water sales to San Gabriel. CUCAMONGA VALLEY WATER DISTRICT LARGEST RETAIL WATER SYSTEM CUSTOMERS Customer Type of Business Total Payments Percent of Total Revenues 1. City of Rancho Cucamonga Public Agency $2,464, % 2. County of San Bernardino Public Agency 1,201, Etiwanda School District Public Agency 712, Chaffey College Public Agency 644, City of Fontana Public Agency 564, Nestle Waters North America Industrial 542, Evolution Fresh Industrial 501, Parallel Products Leasing Industrial 488, Homecoming I at Terra Vista LLC Land Developer 487, Frito Lay Industrial 460, Total $8,067, % Source: District. These customers accounted for approximately 11.71% of total Revenues of $68,905,223 in Fiscal Year Water System Rates and Charges General. District rates and charges for water service are set by the Board and are not subject to the jurisdiction of, or regulation by, the California Public Utilities Commission or any other regulatory body. The District is, however, required to comply with the notice, hearing and majority protest provisions of Article XIIID of the State Constitution, which is popularly known as Proposition 218. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218 for further information with respect to Proposition 218. The District s policy is to fund Water System Maintenance and Operation Costs entirely from user fees. Water customers are charged a bimonthly fixed service charge based on meter size and a commodity charge based on usage, which are intended to be sufficient to offset all production, delivery and maintenance costs, as well as administrative costs, asset replacement costs and a portion of the cost of the capital improvement program. The commodity charge is tiered to encourage conservation. It is also the policy of the District to maintain a minimum operating reserve account in the Water Fund in the amount of 20% of total annual operating expenses, as described under the caption WATER SYSTEM FINANCIAL INFORMATION District Reserves Liquidity Fund Operating Reserve Account. See the caption Collection Procedures for further information with respect to the collection of Water System rates and charges. The District has covenanted in the Master Agreement that it will at all times fix, prescribe and collect rates, fees and charges for the Service during each Fiscal Year which are reasonably fair and nondiscriminatory and which are estimated to yield Adjusted Annual Net Revenues for such Fiscal Year in an amount not less than the Coverage Requirement for such Fiscal Year. See the caption SECURITY FOR THE BONDS Rate Covenant. 42

51 Water Charges. On June 9, 2015, in accordance with Proposition 218, the Board adopted water rate increases for Fiscal Years 2016 through 2019 reflecting the Statewide drought that is described under the caption Water Supply Drought Declaration. The projected water revenues that are set forth under the caption WATER SYSTEM FINANCIAL INFORMATION Projected Water System Operating Results and Debt Service Coverage reflect such water rate increases, as well as a projected rate increase of approximately 5.0% in Fiscal Year 2020 that has not yet been adopted. The projected rate increase in Fiscal Year 2020 is subject to the preparation of a rate study that is expected to be completed by the end of 2018 as well as the notice, public hearing and protest provisions of Proposition 218. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. There can be no assurance that the Board will adopt such rate increase as currently projected. There can also be no assurance that the Board will not repeal or modify any adopted rate increases in the future or that the District s ratepayers will not approve an initiative to repeal or modify any increase in water service rates and charges approved by the Board. Selected water rates and charges are set forth below. The District is currently implementing the first stage of the WSSCP, which stage does not impose additional charges on customers. See the caption Water Supply Drought Declaration District Response to Drought. The current water commodity charges are set forth below. (1) CUCAMONGA VALLEY WATER DISTRICT WATER COMMODITY CHARGES (1) Commodity Rate Per Unit (2) Effective July 1, 2017 Effective July 1, 2018 Tier 1 $1.61 $1.62 Tier Tier Tier In the event that the Board elects to implement a higher stage of the WSSCP, rates will increase above those shown in the table. (2) A unit is equivalent to 100 cubic feet of water, or approximately 748 gallons. Source: District. There can be no assurance as to whether or when precipitation levels will return to historic averages, or as to actions by the Board with respect to rates and charges related thereto. The imposition of rates and charges is subject to the notice, hearing and majority protest provisions of Article XIIID of the State Constitution. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition

52 The amount of water allocated to each of the above tiers is based on the hydraulic capacity factor of the customer s meter as follows: Meter Size (1) Allocation in Units (1) Hydraulic Capacity Tier 1 Tier 2 Tier 3 Tier 4 3/ > > > > ,000 >1, ,667 >1, ,333 1,334-3,333 >3, ,133 2,134-5,333 >5, ,200 3,201-8,000 >8, ,200 1,201-4,800 4,801-12,000 >12,000 A unit is equivalent to 100 cubic feet of water, or approximately 748 gallons. Source: District. Source: District. CUCAMONGA VALLEY WATER DISTRICT BIMONTHLY WATER SERVICE CHARGES Meter Size Effective July 1, 2017 Effective July 1, /8 and 3/4 $ $ / , , , , , , , , MWD Surcharge. In addition to the above rates, the Board has established an MWD Surcharge Rate. Effective July 1, 2017, the rate is set at $0.10 per hundred cubic feet of water. In the event that MWD or IEUA impose charges on the District that are greater than the charges that the District currently projects based on available information, an automatic pass-through of these future excess charges will be collected from District customers. In such event, the Board has adopted an MWD Surcharge Rate of not to exceed $1.00 per hundred cubic feet. See the caption Water Supply Imported Water. Historical revenues from the MWD surcharge are set forth under the caption Historic Water System Service Charges and Sales Revenues and projected revenues from the MWD surcharge, representing the District s estimate of the amount of such surcharge in future years, are set forth under the caption Projected Water System Service Charges and Sales Revenues. There can be no assurance that revenues from the MWD surcharge will not be materially different from such projected revenues. 44

53 Development Fees. The District funds growth-related Water System capital improvements primarily through a one-time charge (the Development Fee ) to new residential, commercial and industrial development for the right to connect to the Water System. The amount of the Development Fee is based on the size of meter which is to be installed for a new customer. For example, the Development Fee for a one-inch standard residential meter is currently $15,193 and the Development Fee for a three-quarter inch standard residential meter is currently $9,116. Development Fees are paid to the District directly by developers or property owners at the time of the approval of tentative subdivision maps and other development plans by the District. Historic and projected development fee revenues are set forth under the caption WATER SYSTEM FINANCIAL INFORMATION. Source: District. Current Development Fees are as follows: CUCAMONGA VALLEY WATER DISTRICT DEVELOPMENT FEES Meter Size Effective September 1, /4 $ 9, , , , , , , , ,246 Rate Comparison. The table below sets forth a comparison of the Water System s typical monthly water bill for a single family residential user to those of certain nearby water purveyors as of March 2018: 45

54 (1) Service Provider Bimonthly Charge (1) City of San Dimas $ City of Claremont City of Fontana (Fontana Water Company) City of LaVerne (zone average) City of Glendora (zone average) Walnut Valley Water District City of Chino Hills (zone average) City of Chino City of Ontario City of Upland Monte Vista Water District West Valley Water District City of Monrovia Jurupa Community Services District City of Pomona Cucamonga Valley Water District City of Azusa City of Riverside (seasonal average) Reflects usage of approximately 42 units in two months for a single family residential user with a 3/4 connection. A unit is equivalent to 100 cubic feet of water, or approximately 748 gallons. Source: District. Collection Procedures The District is on a bimonthly billing cycle for water and wastewater service. The District sends out a consolidated bill every other month to Water System customers. Payment is due by the 21st day after the billing date and is considered delinquent if not paid by that date. If payment is not received, a delinquency message appears on a reminder bill, with a penalty assessment equal to the greater of $3.00 or 0.5% of the bill. The delinquency message also informs customers that service will be discontinued if the bill is not paid in full within 10 days. Thirty-one days after the date billed, a notice of shutoff of service will be mailed to the billing address of the customer. A processing charge will be assessed on that notice and the date of discontinuance of service will again be noted. Accounts that have been shut off may be reconnected upon payment in full of outstanding balances and a reconnection fee of $20. As of July 1, 2017, approximately 14% of outstanding accounts receivable were more than 45 days delinquent. Such delinquencies are in the total amount (including amounts due for wastewater services) of approximately $335,453. The District reports that nearly all customers pay delinquent accounts and all required penalty assessments prior to shutoff of service. The District has budgeted $50,000 for the writeoff of uncollectible account in Fiscal Year 2018, representing approximately 0.001% of budgeted operating revenues. Future Water System Improvements The District projects total capital improvements (including the 2018 Project) to the Water System of approximately $49.6 million in the next five Fiscal Years, including treatment upgrades, pump and well replacements and improvements, the construction of one new well, reservoir replacements and improvements and pipeline replacements and improvements. Such capital improvements are expected to be financed by a combination of the 2018A Bonds, Revenues, including Development Fees, capital reserves and grants. Except for the 2018A Bonds, the District does not currently anticipate issuing new bonds or entering into additional Parity Obligations to finance such capital improvements. 46

55 Projected Water System Service Connections The following table shows the projected number of connections to the Water System for the current and next four Fiscal Years. CUCAMONGA VALLEY WATER DISTRICT PROJECTED WATER SYSTEM SERVICE CONNECTIONS Fiscal Year Residential Commercial Industrial Irrigation/ Landscaping Fire Lines Total Increase/ (Decrease) ,546 2, ,377 1,372 50, % ,746 2, ,456 1,374 50, ,946 2, ,560 1,377 51, ,346 2, ,765 1,380 51, ,746 2, ,970 1,383 52, Source: District. Projected Water System Deliveries The following table shows projected deliveries for the Water System for the current and next four Fiscal Years. Differences between projected water deliveries set forth below and projected water supply set forth under the caption Historic and Projected Water Supply reflect projected system loss and the District s projected use of water for other internal purposes. (1) Fiscal Year CUCAMONGA VALLEY WATER DISTRICT PROJECTED WATER SYSTEM DELIVERIES IN ACRE FEET PER YEAR Residential Commercial/ Multifamily Industrial Irrigation/ Landscaping Wholesale (1) Total Increase/ (Decrease) 2018 (2) 26,889 6,638 2,140 10,987 1,220 47, % ,523 6,795 2,191 11,246 2,440 50, ,046 6,924 2,232 11,460 2,440 51, ,808 7,112 2,293 11,771 2,440 52, ,469 7,275 2,346 12,042 2,440 53, Reflects projected deliveries of FUWC water to San Gabriel. See the captions Water Supply Fontana Union Water Company and Water Supply Local Surface Water. (2) Projected increases in deliveries in Fiscal Year 2018 reflect increased water usage after end of drought restrictions that are described under the caption Water Supply Drought Declaration. Source: District. Projected water deliveries reflect projected connections to the Water System as well as projected water demand, which is affected by weather conditions, economic conditions and other factors. See the caption Projected Water System Service Connections. 47

56 Projected Water System Service Charges and Sales Revenues The following table shows projected Water System service charges and revenues from water sales for the current and next four Fiscal Years. Fiscal Commercial/ Year Residential (1) Multifamily CUCAMONGA VALLEY WATER DISTRICT PROJECTED WATER SYSTEM SERVICE CHARGES AND SALES REVENUES Industrial Irrigation/ Meter Landscaping Wholesale (1) Charges Water Services MWD Surcharge (2) Total Increase/ (Decrease) 2018 $25,264,290 $6,674,883 $2,544,446 $12,355,542 $5,622,351 $19,942,262 $1,229,458 $2,032,291 $75,665, % ,813,065 7,348,275 2,801,141 13,602,025 6,628,698 21,077,235 1,290,931 2,237,318 82,798, ,731,952 7,855,250 2,994,398 14,540,459 7,086,027 22,286,728 1,361, ,856, ,025,825 8,461,296 3,225,421 15,662,282 7,632,727 23,701,934 1,429, ,139, ,362,854 9,078,744 3,460,791 16,805,209 8,189,712 25,202,948 1,501, ,601, (1) Reflects projected sales of FUWC water to San Gabriel at a wholesale rate equal to 85% of MWD s Tier 1 untreated water rate. See the captions Water Supply Fontana Union Water Company and Water Supply Local Surface Water. Includes projected revenues paid to the District by other agencies for single-year lease rights to extract groundwater from the Chino and Cucamonga Basins. Such leases do not constitute delivery of water and are not reflected under the caption Projected Water System Deliveries. (2) See the caption Water System Rates and Charges MWD Surcharge. A planned rate study for Fiscal Years 2020 through 2020 is expected to set the MWD Surcharge at $0. Source: District. Projected Water System sales revenues reflect water deliveries that are described under the caption Projected Water System Deliveries, the rate increases that were approved on June 9, 2015 and a projected rate increase of approximately 5.0% in Fiscal Year See the caption Water System Rates and Charges. The projected rate increase in Fiscal Year 2020 is subject to the notice, public hearing and protest provisions of Proposition 218. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. There can be no assurance that the Board will adopt such rate increase as currently projected. 48

57 WATER SYSTEM FINANCIAL INFORMATION Financial Statements A copy of the most recent audited financial statements of the District (the Financial Statements ) for the Fiscal Year ended June 30, 2017, prepared by Davis Farr LLP, Irvine, California (the Auditor ), are included as Appendix A to this Official Statement. The Auditor s letter dated October 25, 2017 is set forth therein. The Financial Statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor has not performed any post-audit analysis of the financial condition of the District, nor has the Auditor reviewed or audited this Official Statement. The summary operating results contained under the caption Historic Water System Operating Results and Debt Service Coverage are derived from the Financial Statements and the District s audited financial statements for prior years (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto. The Auditor has not reviewed or audited the summary operating results or any other portion of this Official Statement. The District accounts for moneys received and expenses paid in accordance with generally accepted accounting principles applicable to governmental agencies such as the District ( GAAP ). Under GAAP, revenues and expenses are recognized on the accrual basis of accounting. Revenues are recognized in the accounting period in which they are earned and expenses are recognized in the period incurred, regardless of when the related cash flow takes place. In certain cases, this means that GAAP requires or permits moneys that are collected in one Fiscal Year to be recognized as revenue in a subsequent Fiscal Year and requires or permits expenses that are paid or incurred in one Fiscal Year to be recognized as expenses in a subsequent Fiscal Year. See Appendix A. GAAP also requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Except as otherwise expressly noted herein, all financial information that has been derived from the District s audited financial statements reflects the application of GAAP. The District reports its activities as a set of proprietary funds. This means that the District utilizes the economic resources measurement focus, which emphasizes limitations on the use of net position. This is similar to a private-sector business. The Financial Statements have been prepared on a combined basis and include the Water Fund, the Sewer Fund and the Recycled Water Fund. The obligation of the District to make Installment Payments under the Master Agreement and the Installment Purchase Agreement is limited to Net Revenues of the Water System and the District is not obligated to apply any other revenues to make such Installment Payments. Operating revenues, such as charges for services (water sales, sewer services and water services) result from exchange transactions associated with the principal activity of the District. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as property taxes and investment income, result from nonexchange transactions or ancillary activities in which the District gives (receives) value without directly receiving (giving) equal value in exchange. The District distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses of the Water System generally result from providing services in connection with the distribution and transmission of potable water to users. All revenues and expenses that do not meet this definition are reported as nonoperating revenues and expenses. The District has adopted the GFOA s best practice of Audit Procurement. The GFOA recommends that governmental entities enter into multiyear agreements with auditors through a full-scale competitive process. On March 14, 2017 the District awarded a three-year auditing contract to Davis Farr LLP for the Fiscal Years ending June 30, 2017, June 30, 2018 and June 30,

58 The District prepares its Comprehensive Annual Financial Report in-house and actively participates in the GFOA financial reporting award program. The District has received the GFOA Certificate of Achievement for Excellence in Financial Reporting for each of the past fifteen years, indicating that the District provides financial information in its Comprehensive Annual Financial Report that exceeds the minimum reporting requirements. Investment of District Funds The District invests its funds in accordance with the District s Investment Policy, which was most recently amended on January 23, 2018 in accordance with Section et seq. of the State Government Code. Idle cash management and investment transactions are the responsibility of the Assistant General Manager/Chief Financial Officer. The District has retained PFM Asset Management, LLC to serve as its investment advisor. The Investment Policy sets forth the policies and procedures applicable to the investment of District funds and designates eligible investments. The Investment Policy sets forth a stated objective, among others, of insuring the safety of invested funds by limiting credit and interest rate risks. Eligible investments are limited to: (i) United States Treasury obligations; (ii) Federal agency or United States government-sponsored enterprise senior obligations; purchases of such obligations, if callable, are limited to a maximum of 30% of the District s portfolio; (iii) registered treasury notes or bonds of any state or local agency with a long-term rating of at least A or its equivalent or a short-term rating of at least A-1 or its equivalent from a Rating Agency; (iv) medium-term notes with maturities not greater than five years issued by United States corporations or depository institutions with a long-term rating of at least A or its equivalent from a Rating Agency; purchases of such obligations are limited to a maximum of 30% of the portfolio; (v) negotiable certificates of deposit; purchases of such obligations are limited to a maximum of 30% of the District s portfolio; (vi) certificates of deposit placed through a deposit placement service; purchases of such obligations are limited to a maximum of 30% of the District s portfolio; (vii) FDIC-insured or fully collateralized bank deposits with financial institutions in the State; (viii) commercial paper with the highest available ranking from a Rating Agency; purchases of such obligations are limited to 25% of the District s portfolio; (ix) bankers acceptances with a term of not more than 180 days and a short-term rating of at least A-1 or its equivalent from a Rating Agency; purchases of such obligations are limited to 25% of the District s portfolio; (x) the State of California Local Agency Investment Fund; (xi) shares of beneficial interest in a local government investment pool issued by a joint powers authority organized pursuant to State Government Code ; purchases of such obligations are limited to 50% of the District s portfolio; (xii) money market funds; purchases of such funds are limited to 20% of the District s portfolio; (xiii) repurchase agreements with a term of not more than 90 days; purchases of such agreements are limited to 10% of the District s portfolio; and (xiv) U.S. dollar denominated Supranationals with a long-term debt rating of at least AA from a Rating Agency; purchases of such obligations are limited to 30% of the District s portfolio. Funds are invested in the following order of priority: Safety of Principal Liquidity Return on Investment The Assistant General Manager/Chief Financial Officer provides a monthly report to the Board showing the types of investment, dates of maturity, amounts invested, current market values, rates of interest and other such information as may be required by the Board. See Note 2 to the Financial Statements set forth in Appendix A for further information with respect to the District s investment policies. District Reserves Reserve and Financial Benchmark Policy. The District s financial plan includes the establishment of reserve funds in accordance with the District s Reserve and Financial Benchmark Policy. In accordance with such policy, the District will maintain its Liquidity and Capital Funds in separate, designated sub-accounts in a 50

59 manner that ensures the District s financial soundness and provides transparency to ratepayers. Reserves will be held in amounts necessary to maintain the District s creditworthiness and provide for compliance with law, the financing of future capital facilities and the repair and replacement of existing assets, the financing of water purchases, cash flow requirements, economic uncertainties, local disasters and other financial hardships or downturns in the national or local economy and contingencies or unforeseen operating and/or capital needs. The District s Liquidity Fund includes a Rate Stabilization Fund, a Water Banking Account and an Operating Reserve Account, each of which is discussed further under the caption Liquidity Fund. The District s Capital Fund includes a Capital Project Account, an Emergency Account, an Administrative Capital Improvement Account and a Local Water Resource Development Account, each of which is discussed further under the caption Capital Fund. Fund balances will be reviewed annually. In the event that the balances in the Liquidity Fund exceed the established aggregate maximum, excess moneys will be transferred annually into the Capital Fund. Moneys may be moved between the Liquidity and Capital Funds as needed upon Board approval. Liquidity Fund. Rate Stabilization Fund. The Rate Stabilization Fund provides flexibility to the Board when setting water rates to allow for fluctuations in water demand. The Rate Stabilization Fund will be maintained at a minimum level of $2,200,000 and a maximum level of 25% of Water Fund operating income. In Fiscal Year 2016, the District transferred $7,711,722 in excess revenues to the Rate Stabilization Fund to be used in future years to buffer the impact of unanticipated expenses. The Rate Stabilization Fund had a balance of $10,310,722 as of June 30, This fund is established under and governed by the Master Agreement. See the caption SECURITY FOR THE BONDS Rate Stabilization Fund. Water Banking Account. The Water Banking Account is used for the purchase of available water supplies in order to hedge against future increases in water costs. The Water Banking Account will be maintained at a minimum level of $2,500,000 and a maximum level equal to the cost of purchasing 5,000 acre feet of MWD Tier II water. The Water Banking Account had a balance of $3,852,500 as of June 30, 2017 Operating Reserve Account. The Operating Reserve Account is used for unanticipated operating expenses. The Operating Reserve Account will be maintained at a minimum level equal to 20% of the District s total budgeted operating expenses and a maximum level equal to 50% of the District s total budgeted operating expenses. The Operating Reserve Account had a balance of $18,404,363 as of June 30, Balances in the Liquidity Fund accounts will be reviewed by District staff and the Board during the preparation of the annual operating and capital improvement budget. See the caption THE DISTRICT Budget Process. Capital Fund. Capital Project Account. The Capital Project Account is used for the funding of new capital assets or the replacement of existing capital assets. The Capital Project Account will be maintained at a minimum level of $13,000,000 for the Water Fund and a maximum level to be determined pursuant to the District s Master Plan and Long-Range Financial Plan. The Capital Project Account had a balance of $27,785,110 as of June 30, As discussed in Footnote (3) to the table under the caption INTRODUCTION Estimated Sources and Uses of Funds, the District expects to contribute approximately $14.3 million from the Capital Project Account to the defeasance of a portion of the 2011 Bonds. 51

60 Emergency Account. The Emergency Account is used in the event of economic events that cause a reduction in revenues or an increase in expenses or a material decline in other reserve funds. The Emergency Account may also be used to purchase or repair equipment and infrastructure after a natural disaster. The Emergency Account will be maintained at a minimum level equal to 1% of the value of the District s capital assets and a maximum level equal to 2% of the value of the District s capital assets, based on Federal Emergency Management Agency guidelines. The Emergency Account had a balance of $7,431,000 as of June 30, Administrative Capital Improvement Account. The Administrative Capital Improvement account is used to fund general, administrative and overhead projects. The District currently intends to maintain a minimum balance of $1,500,000 in the Administrative Capital Improvement Account for the Water Fund. The Administrative Capital Improvement Account had a balance of $1,688,000 as of June 30, Local Water Resource Development Account. The Local Water Resource Development Account is used for the funding of the development, improvement or acquisition of local water resource projects or efforts in order to reduce the District s reliance on costly imported water. Funds in the Local Water Resource Development Account may be used for either capital or operating purposes in accordance with Board approval. The Local Water Resource Development Account will be maintained at a minimum level of $2,000,000 and a maximum level of $5,000,000. The Local Water Resource Development Account had a balance of $2,000,000 as of June 30, Balances in the Capital Fund accounts will be reviewed by District staff and the Board during the preparation of the annual operating and capital improvement budget. See the caption THE DISTRICT Budget Process. Reserve Amounts. For the past five years, the Water System has maintained an average of approximately $43,027,948 of unrestricted cash on hand, capital replacement reserves, operating reserves and other available moneys. As of June 30, 2017, the District maintained approximately $51,406,735 in cash on hand, which is equivalent to approximately 440 days Maintenance and Operation Costs of the Water System. See Note 2 to the Financial Statements set forth in Appendix A for further information with respect to the District s reserves. As discussed in Footnote (3) to the table under the caption INTRODUCTION Estimated Sources and Uses of Funds, the District expects to contribute approximately $14.3 million from the Capital Project Account (which is described under the caption Capital Fund Capital Project Account above) to the defeasance of a portion of the 2011 Bonds. After such contribution, the District expects that approximately $38.8 million (or approximately 271 days Maintenance and Operation Costs) will remain in cash reserves. Financial Benchmarks. The Reserve and Financial Benchmark Policy also establishes the following financial benchmarks: Debt Ratio and Capital Improvement Funding Level. The following goals are set forth: The percentage of capital assets that are provided for via debt financing will be between 30% and 40%. The percentage of capital assets that are provided for on a pay-as-you-go basis will be 30%. The percentage of capital assets that are provided for from reserves will be 30%. Number of Days Cash. The District has established a goal of maintaining cash equal to between 365 and 400 days Maintenance and Operation Costs of the Water System. The District has met this benchmark since Fiscal Year

61 Historic Water System Operating Results and Debt Service Coverage The following table is a summary of operating results of the Water System for the last five Fiscal Years. These results have been derived from the Financial Statements and audited financial statements of the District for prior years, but exclude certain receipts which are not included as Revenues under the Master Agreement and certain non-cash items and include certain other adjustments. Reductions in Revenues and Maintenance and Operation Costs in Fiscal Year 2015 reflect the effect of the Statewide drought and associated mandatory conservation orders. See the caption THE WATER SYSTEM Water Supply Drought Declaration. 53

62 CUCAMONGA VALLEY WATER DISTRICT HISTORIC OPERATING RESULTS (FISCAL YEAR ENDED JUNE 30) (10) 2017 Revenues Water Sales (1) $ 49,103,874 $ 53,066,253 $ 45,846,626 $ 47,111,498 $ 46,344,386 Meter Charges (1) 12,047,269 12,718,802 13,320,919 14,482,824 16,651,893 Water Services (1) 1,229,226 1,247,246 1,243,413 1,266,310 1,224,368 Development Fees 2,485,344 3,081,162 1,775,867 2,604,149 1,686,078 Investment Income 648, , , , ,719 Rent and Lease Revenue 278, , , , ,838 Other (2) 826,674 1,562,697 6,009,335 1,348,879 1,562,941 Total Revenues $ 66,619,654 $ 72,455,849 $ 69,150,291 $ 67,923,649 $ 68,905,223 Maintenance and Operation Costs Source of Supply (3) $ 17,798,474 $ 20,931,761 $ 17,263,114 $ 10,910,630 $ 17,405,334 Pumping Operations (4) 5,491,422 5,707,682 6,932,863 6,485,127 6,120,261 Water Treatment 3,134,158 3,431,498 3,269,903 4,380,765 3,597,740 Transmission and Distribution 3,101,958 3,432,836 3,396,618 3,284,454 3,571,591 Customer Accounts 1,770,341 1,820,018 1,862,901 1,960,677 2,393,848 General and Administrative 8,585,907 8,981,820 8,845,466 9,139,955 9,544,913 Total Maintenance and Operation Costs $ 39,882,260 $ 44,305,615 $ 41,570,865 $ 36,161,608 $ 42,633,687 Net Revenues $ 26,737,394 $ 28,150,234 $ 27,579,426 $ 31,762,041 $ 26,271,536 Senior Obligations Debt Service 2003 Certificates (5) $ 963,075 $ 963,775 $ 805,688 $ - $ Certificates (6) 1,349,609 1,348,109 1,360,708 1,362, Certificates (7) 2,614,369 2,612,544 2,309,675 2,198,500 2,084, CREBs 29,286 29,286 29,286 29,286 29, Bonds 6,923,494 6,937,656 6,905,288 6,896,888 6,890,988 Total Senior Obligations Debt Service $ 11,879,833 $ 11,891,370 $ 11,410,645 $ 10,486,982 $ 9,005,198 Net Revenues Remaining After Payment of Senior Obligations Debt Service $ 14,857,561 $ 16,258,864 $ 16,168,781 $ 21,275,059 $ 17,266,338 Senior Obligations Debt Service Coverage Parity Obligations Debt Service 2012 Bonds $ 535,555 $ 2,274,763 $ 2,270,562 $ 2,275,288 $ 2,270, Bonds ,009 1,121,413 1,119, Bonds ,131 Total Parity Obligations Debt Service $ 535,555 $ 2,274,763 $ 2,654,571 $ 3,396,701 $ 4,178,356 Net Revenues Remaining After Payment of Parity Obligations Debt Service $ 14,322,006 $ 13,984,101 $ 13,514,210 $ 17,878,358 $ 13,087,982 Total Debt Service (8) $ 12,415,388 $ 14,166,133 $ 14,065,216 $ 13,883,683 $ 13,183,554 Total Debt Service Coverage (9) (1) (2) (3) (4) Reflects water sales revenues and service charges, including MWD surcharge, set forth under the caption THE WATER SYSTEM Historic Water System Service Charges and Sales Revenues. Excludes deposits and other receivables. Decrease in Fiscal Year 2015 reflects the implementation of State orders relating to drought. See the caption THE WATER SYSTEM Water Supply Drought Declaration. Includes taxes and assessments and other miscellaneous revenues. Fiscal Year 2015 includes $5,000,000 Proposition 50 grant from the State. Reflects water purchases from IEUA and Watermaster assessments. See the caption THE WATER SYSTEM Water Supply Groundwater. Decrease in Fiscal Year 2016 amount reflects reduced purchases from IEUA during the Statewide drought. See the caption THE WATER SYSTEM Water Supply Drought Declaration. Reflects expenses associated with groundwater pumping. See the caption THE WATER SYSTEM Historic and Projected Water Supply. (Footnotes Continued on Following Page) 54

63 (Footnotes Continued from Previous Page) (5) These obligations were refunded from proceeds of the 2014 Bonds. (6) These obligations were refunded from proceeds of the 2016 Bonds. (7) These obligations were refunded in part from proceeds of the 2016 Bonds. (8) Reflects the sum of Total Senior Obligations Debt Service and Total Parity Obligations Debt Service. (9) Reflects Net Revenues divided by Total Debt Service. (10) The amount of Net Revenues Remaining After Payment of Senior Obligations Debt Service and Net Revenues Remaining After Payment of Parity Obligations Debt Service and the Total Debt Service Coverage calculation do not reflect the transfer of $7,711,722 of Net Revenues Remaining After Payment of Senior Obligations Debt Service to the Rate Stabilization Fund in Fiscal Year 2016, as discussed under the caption District Reserves Liquidity Fund Rate Stabilization Fund. Under the Master Agreement, amounts transferred to the Rate Stabilization Fund are not included in calculating Revenues for purposes of satisfying the additional debt test that is described under the caption SECURITY FOR THE BONDS Additional Obligations Parity Obligations. However, such amounts may be included in calculating Revenues for purposes of satisfying the rate covenant that is described under the caption SECURITY FOR THE BONDS Rate Covenant. Total Debt Service Coverage would be approximately 1.73 after accounting for the impact of such transfer. Source: District. Projected Water System Operating Results and Debt Service Coverage The District s projected operating results for the Water System for the current and next four Fiscal Years are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the District s estimate of projected financial results based upon its judgment of the most probable occurrence of certain important future events and a variety of assumptions, including the assumptions set forth in the footnotes to the chart set forth below. All of such assumptions are material in the development of the District s financial projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material. 55

64 CUCAMONGA VALLEY WATER DISTRICT PROJECTED OPERATING RESULTS (FISCAL YEAR ENDING JUNE 30) 2018 (1) Revenues Water Sales (2) $ 54,493,803 $ 60,430,523 $ 62,208,087 $ 67,007,552 $ 71,897,310 Meter Charges (2) 19,942,262 21,077,235 22,286,728 23,701,934 25,202,948 Water Services (2) 1,229,458 1,290,931 1,361,710 1,429,795 1,501,285 Development Fees (3) 2,307,875 4,334,951 4,209,951 7,964,102 2,932,875 Investment Income (4) 1,066,550 1,117,070 1,175,855 1,403,815 1,513,407 Other (5) 1,194,113 1,217,995 1,242,355 1,267,202 1,292,546 Total Revenues $ 80,234,061 $ 89,468,705 $ 92,484,686 $102,774,399 $104,340,371 Maintenance and Operation Costs Source of Supply (6) $ 24,973,117 $ 26,221,773 $ 27,532,861 $ 28,909,504 $ 30,354,979 Pumping Operations (7) 3,813,548 3,889,819 3,967,615 4,046,967 4,127,907 Water Treatment (8) 5,477,423 5,586,971 5,698,711 5,812,685 5,928,939 Transmission and Distribution (9) 3,936,567 4,015,298 4,095,604 4,177,516 4,261,066 Customer Accounts (9) 2,409,464 2,457,653 2,506,806 2,556,942 2,608,081 General and Administrative (10) 11,659,621 11,892,813 12,130,670 12,373,283 12,620,749 Total Maintenance and Operation Costs $ 52,269,740 $ 54,064,328 $ 55,932,267 $ 57,876,898 $ 59,901,721 Net Revenues $ 27,964,321 $ 35,404,377 $ 36,552,419 $ 44,897,501 $ 44,438,650 Senior Obligations Debt Service (11) 2009 Certificates $ 2,081,738 $ 2,066,625 $ 2,063,125 $ 2,055,125 $ CREBs 29,286 29,286 29,286 29,286 29, Bonds 6,892,288 1,901,775 1,901,375 1,901,675 1,901,375 Total Senior Obligations Debt Service $ 9,003,311 $ 3,997,686 $ 3,993,786 $ 3,986,086 $ 1,930,661 Net Revenues Remaining After Payment of Senior Obligations Debt Service $ 18,961,010 $ 31,406,692 $ 32,558,633 $ 40,911,417 $ 42,507,989 Senior Obligations Debt Service Coverage Parity Obligations Debt Service 2012 Bonds $ 2,274,288 $ 2,271,888 $ 2,273,188 $ 2,273,088 $ 2,271, Bonds 1,124,238 1,114,263 1,118,188 1,114,288 1,115, Bonds 1,147,763 1,171,163 1,173,363 1,182,138 3,015, Bonds - 4,971,442 4,971,409 4,968,393 4,968,957 Total Parity Obligations Debt Service $ 4,546,288 $ 9,528,756 $ 9,536,148 $ 9,537,907 $ 11,371,146 Net Revenues Remaining After Payment of Parity Obligations Debt Service $ 14,414,722 $ 21,877,938 $ 23,022,487 $ 31,373,512 $ 31,136,844 Total Debt Service (12) $ 13,549,598 $ 13,526,440 $ 13,529,932 $ 13,523,991 $ 13,301,806 Total Debt Service Coverage (13) (1) (2) (3) (4) Reflects Fiscal Year 2018 budgeted amounts with certain adjustments. See the caption THE DISTRICT Budget Process. Reflects projected water sales revenues and service charges set forth under the caption THE WATER SYSTEM Projected Water System Service Charges and Sales Revenues as well as adopted rate increases described under the caption THE WATER SYSTEM Water System Rates and Charges. Assumes implementation of additional rate increase of approximately 5.0% in Fiscal Year 2020 that has not yet been adopted. Such rate increase is subject to the notice, public hearing and protest provisions of Proposition 218. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. There can be no assurance that the Board will adopt such rate increase as currently projected. Also includes projected revenues paid to the District by other agencies for single-year lease rights to extract groundwater from the Chino and Cucamonga Basins. Such leases do not constitute delivery of water and are not reflected under the caption THE WATER SYSTEM Projected Water System Deliveries. Reflects District projections of land development within the District. Projected at 1.90% per annum on District reserves. (Footnotes Continued on Following Page) 56

65 (Footnotes Continued from Previous Page) (5) Projected to increase 2% per annum from Fiscal Year 2018 budgeted amount. Includes taxes and assessments and other miscellaneous revenues. (6) Reflects water purchases from IEUA and Watermaster assessments, as well as projected MWD rate increases of 6% per annum. See the caption THE WATER SYSTEM Water Supply Groundwater. Increase in Fiscal Year 2018 above Fiscal Year 2017 amount reflects District expectation that imported MWD water purchased from IEUA will constitute a larger proportion of District water supply. Projected to increase 5% per annum from Fiscal Year 2018 budgeted amount. (7) Reflects expenses associated with groundwater pumping. See the caption THE WATER SYSTEM Historic and Projected Water Supply. Decrease in Fiscal Year 2018 from Fiscal Year 2017 amount reflect District expectation that the District will pump less groundwater and that imported MWD water purchased from IEUA will constitute a larger proportion of District water supply. Projected to increase 2% per annum from Fiscal Year 2018 amount. (8) Increase in Fiscal Year 2018 above Fiscal Year 2017 amount reflects District expectation that imported MWD water purchased from IEUA will constitute a larger proportion of District water supply. Such water must be treated prior to delivery to end users. See the caption THE WATER SYSTEM Water Supply Imported Water. Projected to increase 2% per annum from Fiscal Year 2018 amount. (9) Projected to increase 2% per annum from Fiscal Year 2018 budgeted amount. (10) Increase from Fiscal Year 2017 amount in Fiscal Year 2018 reflects the difference in the cost presentation method associated with capitalizable labor between the Financial Statements and the District s budget. In the Financial Statements, this cost appears in the Other Non-Operating Expenses category, but for purposes of the Fiscal Year 2018 projection, this cost is included in the General and Administrative category. Projected to increase 2% per annum from Fiscal Year 2018 budgeted amount. (11) Reflects partial defeasance of 2011 Bonds, as described under the captions INTRODUCTION General and INTRODUCTION Refunding Plan, and scheduled debt service. See the caption THE DISTRICT Outstanding Senior Obligations. (12) Reflects the sum of Total Senior Obligations Debt Service and Total Parity Obligations Debt Service. (13) Reflects Net Revenues divided by Total Debt Service. Source: District. Article XIIIB CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB of the State Constitution limits the annual appropriations of the State and of any district, county, school district, corporation or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The base year for establishing such appropriation limit is the State fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if: (a) the financial responsibility for a service is transferred to another public entity or to a private entity; (b) the financial source for the provision of services is transferred from taxes to other revenues; or (c) the voters of the entity approve a change in the limit for a period of time not to exceed four years. Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to an entity of government from: (i) regulatory licenses, user charges, and user fees (but only to the extent that such proceeds exceed the cost of providing the service or regulation); and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Certain expenditures are excluded from the appropriations limit, including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the provision of existing services more costly. The District is of the opinion that its charges for water service do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. The District has covenanted in the Master Agreement that it will fix, prescribe and collect rates, fees and charges for the Service during each Fiscal Year which are which are estimated to yield Adjusted Annual Net Revenues for such Fiscal Year in an amount not less than the Coverage Requirement for such Fiscal Year. See the caption SECURITY FOR THE BONDS Rate Covenant. 57

66 Proposition 218 General. An initiative measure entitled the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the State Constitution. According to the Title and Summary of the Initiative prepared by the State Attorney General, the Initiative limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Article XIIID. Article XIIID defines the terms fee and charge to mean any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service. A property-related service is defined as a public service having a direct relationship to property ownership. Article XIIID further provides that reliance by an agency on any parcel map (including an assessor s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water or wastewater service is ultimately determined to be a fee or charge as defined in Article XIIID, the local government s ability to increase such fee or charge may be limited by a majority protest. In addition, Article XIIID includes a number of limitations applicable to existing fees and charges including provisions to the effect that: (a) revenues derived from the fee or charge may not exceed the funds required to provide the property-related service; (b) such revenues may not be used for any purpose other than that for which the fee or charge was imposed; (c) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership may not exceed the proportional cost of the service attributable to the parcel; and (d) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted. Based upon the California Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the State Supreme Court, it was generally believed that Article XIIID did not apply to charges for water services that are primarily based on the amount consumed (i.e., metered water rates), which had been held to be commodity charges related to consumption of the service, not property ownership. The State Supreme Court stated in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (2006) (the Bighorn Case ), however, that fees for ongoing water service through an existing connection were property-related fees and charges. The State Supreme Court specifically disapproved the holding in Howard Jarvis Taxpayers Association v. City of Los Angeles that metered water rates are not subject to Proposition 218. The District has complied with the notice and public hearing requirements of Article XIIID in determining whether to change Water System rates and charges since its first post-bighorn Case rate increase in On April 20, 2015, the California Court of Appeal, Fourth District, issued an opinion in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal. App. 4th 1493 (2015) (the SJC Case ) upholding tiered water rates under Proposition 218 provided that the tiers correspond to the actual cost of furnishing service at a given level of usage. The opinion was specific to the facts of the case, including a finding that the City of San Juan Capistrano did not attempt to calculate the actual costs of providing water at various tier levels. The District s water rates are described under the caption THE WATER SYSTEM Water System Rates and Charges Water Charges. The District s Board adopted a four-year tiered rate structure on June 9, The District worked with an independent rate consultant and legal counsel to 58

67 prepare a comprehensive administrative record that the District believes complies with the provisions of Proposition 218. The District believes that its current water rates comply with the requirements of Proposition 218 and expects that any future water rates will comply with Proposition 218 s procedural and substantive requirements to the extent applicable thereto. Article XIIIC. Article XIIIC provides that the initiative power may not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges is applicable to all local governments. Article XIIIC does not define the terms local tax, assessment, fee or charge, so it was unclear whether the definitions set forth in Article XIIID referred to above are applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, On July 24, 2006, the State Supreme Court held in the Bighorn Case that the provisions of Article XIIIC included rates and fees charged for domestic water use. In its ruling, the State Supreme Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations. In any event, the District does not believe that Article XIIIC grants to the voters within the District the power to repeal or reduce rates and charges for the Service provided by the Water System in a manner which would be inconsistent with the contractual obligations of the District. However, there can be no assurance of the availability of particular remedies adequate to protect the Beneficial Owners of the Bonds. Remedies available to Beneficial Owners of the Bonds in the event of a default by the District are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time-consuming to obtain. So long as the Bonds are held in book-entry form, DTC (or its nominee) will be the sole registered owner of the Bonds and the rights and remedies of the Bond Owners will be exercised through the procedures of DTC. In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations with respect to the Bonds, the Indenture, the Master Agreement and the Installment Purchase Agreement are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. The various opinions of counsel to be delivered with respect to such documents, including the opinions of Bond Counsel (the forms of which are attached as Appendix C), will be similarly qualified. Future Initiatives Articles XIIIB, XIIIC and XIIID were adopted as a measure that qualified for the ballot pursuant to the State s initiative process. From time to time other initiatives could be proposed and adopted that affect the District s revenues or ability to increase revenues. APPROVAL OF LEGAL PROCEEDINGS The validity of the Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, acting as Bond Counsel. The forms of such legal opinions are attached as Appendix C to this Official Statement and such legal opinion will be attached to each Bond. Certain legal matters will be passed upon for the District and the Authority by Best Best & Krieger LLP, Riverside, California, for the District by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, acting as Disclosure Counsel, for the Underwriter by Katten Muchin Rosenman LLP, New York, New York, and for the Trustee by its counsel. 59

68 LITIGATION The District General. At the time of delivery of and payment for the Bonds, the District will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the District, threatened against the District affecting the existence of the District or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture, the Master Agreement or the Installment Purchase Agreement or any action of the District contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement to this Official Statement, or contesting the powers of the District or its authority with respect to the Bonds or any action of the District contemplated by any of said documents, nor to the knowledge of the District, is there any basis for such action, suit, proceeding, inquiry or investigation. Rialto-Colton Groundwater Basin Litigation. On September 12, 2013, San Bernardino Valley Municipal Water District, West Valley Water District and the cities of Colton and Rialto (collectively, the Plaintiffs ) filed a complaint (as amended, the Complaint ) against San Gabriel and FUWC in the Superior Court of California, County of San Bernardino (the Court ). The Complaint alleges that San Gabriel and FUWC are extracting more groundwater from the Rialto-Colton Basin (including from areas that the Plaintiffs allege are hydrologically part of the Rialto-Colton Basin but which are not subject to the herein-defined Decree) than is permitted under a 1961 decree (the Decree ) entered by the Court. FUWC is a party to the Decree and the Plaintiffs assert that San Gabriel is FUWC s agent for purposes of the Decree. The District intervened in the lawsuit as a defendant on December 17, 2014, in order to adequately protect: (1) its interests as the majority owner of FUWC; (2) its entitlement to a portion of the water pumped by San Gabriel from the Rialto-Colton Basin under the Settlement Agreement and the revenues that the District receives therefor; and (3) against the need to transfer a portion of the District s share of FUWC s rights in the Chino Basin to San Gabriel in order to satisfy the District s obligations under the Settlement Agreement (in the event that FUWC s production of water from the Rialto-Colton Basin is limited by Court order). See the caption THE WATER SYSTEM Water Supply Fontana Union Water Company for a discussion of the District s interest in FUWC and the Settlement Agreement. On February 13, 2015, a preliminary injunction that temporarily limits the extraction of groundwater by FUWC and San Gabriel to levels sought by the Plaintiffs was granted. The preliminary injunction was upheld on appeal. The District believes that it and FUWC have meritorious defenses to the allegations in the Complaint and is vigorously pursuing such defenses while simultaneously undertaking settlement efforts with the Plaintiffs. Litigation is currently in the discovery stage. On July 21, 2016, the parties agreed to stay discovery during settlement negotiations. The stay was terminated as to Plaintiffs the cities of Colton and Rialto on February 23, 2018, but remains in effect as to Plaintiffs San Bernardino Valley Municipal Water District and West Valley Water District. The parties have agreed to mediation, with mediation dates scheduled for May 18 and May 22, Trial is scheduled for August 22, In the event that supplies from the Rialto-Colton Basin are curtailed as a result of the litigation, the District does not believe that its ability to supply customers will be affected given that the District has numerous other sources of water, including Chino Basin groundwater, water imported from MWD and local surface water. See the caption THE WATER SYSTEM Water Supply. However, such alternative sources could be more expensive than supplies from the Rialto-Colton Basin in certain cases, resulting in increased Operation and Maintenance Costs in the future. In addition, revenues from sales of Rialto-Colton Basin groundwater to San Gabriel could be reduced if the litigation is determined adversely to the District. Such 60

69 revenues totaled $0 in Fiscal Year 2017 and are expected to total $0 in Fiscal Year See the captions THE WATER SYSTEM Historic Water System Service Charges and Sales Revenues and THE WATER SYSTEM Projected Water System Service Charges and Sales Revenues. As a result of the litigation, the District is projecting revenues of $750,000 from sales to San Gabriel in the next four Fiscal Years. See the caption THE WATER SYSTEM Projected Water System Service Charges and Sales Revenues. Although there can be no assurance as to the outcome of the litigation or the long-term effect on District operations, the District does not currently believe that an adverse determination will materially affect its ability to pay the Installment Payments from Net Revenues of the Water System when due. The Authority At the time of delivery of and payment for the Bonds, the Authority will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the Authority, threatened against the Authority affecting the existence of the Authority or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture, the Master Agreement or the Installment Purchase Agreement or any action of the Authority contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement to this Official Statement, or contesting the powers of the Authority or its authority with respect to the Bonds or any action of the Authority contemplated by any of said documents, nor to the knowledge of the Authority, is there any basis for such action, suit, proceeding, inquiry or investigation. 2018A Bonds TAX EXEMPTION In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2018A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2018A Bonds is exempt from State of California personal income tax. Bond Counsel s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2018A Bonds is based upon certain representations of fact and certifications made by the Agency and others and is subject to the condition that the Agency complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2018A Bonds to assure that interest (and original issue discount) on the 2018A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2018A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2018A Bonds. The Agency has covenanted to comply with all such requirements. In the opinion of Bond Counsel, the difference between the issue price of a 2018A Bond (the first price at which a substantial amount of the 2018A Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2018A Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial Owner s basis in the applicable 2018A Bond. The amount of original issue discount that accrues to the Beneficial Owner of a 2018A Bond is excluded from the gross 61

70 income of such Beneficial Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals, and is exempt from State of California personal income tax. The amount by which a 2018A Bond Owner s original basis for determining loss on sale or exchange in the applicable 2018A Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the 2018A Bond Owner s basis in the applicable 2018A Bond (and the amount of tax-exempt interest received with respect to the 2018A Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2018A Bond Owner realizing a taxable gain when a 2018A Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2018A Bond to the Owner. Purchasers of the 2018A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2018A Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2018A Bonds might be affected as a result of such an audit of the 2018A Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2018A Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the 2018A Bonds or their market value. SUBSEQUENT TO THE ISSUANCE OF THE 2018A BONDS THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY CHANGES TO OR INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE 2018A BONDS INCLUDING THE IMPOSITION OF ADDITIONAL FEDERAL INCOME OR STATE TAXES BEING IMPOSED ON OWNERS OF TAX- EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2018A BONDS. THESE CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2018A BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE 2018A BONDS STATUTORY CHANGES WILL NOT BE INTRODUCED OR ENACTED OR JUDICIAL OR REGULATORY INTERPRETATIONS WILL NOT OCCUR HAVING THE EFFECTS DESCRIBED ABOVE. BEFORE PURCHASING ANY OF THE 2018A BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE 2018A BONDS. Bond Counsel s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2018A Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any 2018A Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2018A Bonds is excluded from gross income for federal income tax purposes provided that the Agency continues to comply with certain requirements of the Code, the ownership of the 2018A Bonds and the accrual or receipt of interest (and original issue discount) on the 2018A Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, 62

71 before purchasing any of the 2018A Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2018A Bonds. Should interest (and original issue discount) on the 2018A Bonds become includable in gross income for federal income tax purposes, the 2018A Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed in accordance with the Indenture. A copy of the proposed form of opinion of Bond Counsel with respect to the 2018A Bonds is set forth in Appendix C. 2018B Bonds In the opinion of Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the 2018B Bonds is exempt from State of California personal income tax and is not excluded from gross income for federal income tax purposes under Section 103 of the Code. With certain exceptions, the difference between the issue price of a 2018B Bond (the first price at which a substantial amount of the 2018B Bonds of the same maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2018B Bond (to the extent the redemption price at maturity is greater than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method. The amount of original issue discount deemed received by the Beneficial Owner of a 2018B Bond will increase the Beneficial Owner s basis in the 2018B Bond. Beneficial Owners of the 2018B Bonds should consult their own tax advisors with respect to taking into account any original issue discount on the 2018B Bonds. The amount by which a 2018B Bond Beneficial Owner s original basis for determining loss on sale or exchange in the applicable 2018B Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which the Beneficial Owner of a 2018B Bond may elect to amortize under Section 171 of the Code; such amortizable bond premium reduces the 2018B Bond Beneficial Owner s basis in the applicable 2018B Bond (and the amount of taxable interest received with respect to the 2018B Bonds), and is deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2018B Bond Beneficial Owner realizing a taxable gain when a 2018B Bond is sold by the Beneficial Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2018B Bond to the Beneficial Owner. The Beneficial Owners of the 2018B Bonds that have a basis in the 2018B Bonds that is greater than the principal amount of the 2018B Bonds should consult their own tax advisors with respect to whether or not they should elect such premium under Section 171 of the Code. The tax discussion set forth above is included for general information only and may not be applicable depending upon a 2018B Bond Owner s particular situation. The ownership and disposal of the 2018B Bonds and the accrual or receipt of interest on the 2018B Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. BEFORE PURCHASING ANY OF THE 2018B BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR INDEPENDENT TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES RELATING TO THE 2018B BONDS AND THE TAXPAYER S PARTICULAR CIRCUMSTANCES. A copy of the proposed form of opinion of Bond Counsel with respect to the 2018B Bonds is set forth in Appendix C. 63

72 CONTINUING DISCLOSURE The District has covenanted in a Continuing Disclosure Certificate for the benefit of the holders and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the Water System by each April 1 following the end of the District s Fiscal Year (currently its Fiscal Year ends on June 30) (the Annual Report ), commencing with the report for Fiscal Year ending June 30, 2018, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the District with EMMA. The specific nature of the information to be contained in the Annual Report and the notice of enumerated events is set forth in Appendix E. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) promulgated under the Securities Exchange Act of In 2016, S&P Global Ratings, a Standard & Poor s Financial Services LLC business ( S&P ), upgraded the credit ratings for the District s Senior Obligations and Parity Obligations. The District filed notice of such ratings upgrades on EMMA more than ten business days after the upgrades occurred. Other than as set forth in the previous sentence, the District has not failed to comply in all material respects with its continuing disclosure undertakings in the last five years. The District has established procedures that are designed to promote timely compliance with its obligations under its continuing disclosure undertakings in the future. RATINGS S&P and Fitch Ratings, Inc. ( Fitch, and together with S&P, the Rating Agencies ) have assigned the Bonds the ratings of AA and AA, respectively. There is no assurance that any credit rating given to the Bonds will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by the Rating Agencies if, in the judgment of the Rating Agencies, circumstances so warrant. Any downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. Such ratings reflect only the views of the Rating Agencies and an explanation of the significance of such ratings may be obtained from the Rating Agencies. Generally, the Rating Agencies base their ratings on the information and materials that is furnished to them and on investigations, studies and assumptions of its own. In providing a rating on the Bonds, the Rating Agencies may have performed independent calculations of debt service coverage ratios using their own internal formulas and methodology, which may not reflect the provisions of the Master Agreement, the Installment Purchase Agreement or the Indenture. The District makes no representations as to any such calculations, and such calculations should not be construed as a representation by the District as to past or future compliance with any financial covenants, the availability of particular revenues for the payment of debt service or for any other purpose. MUNICIPAL ADVISOR The Authority has retained Fieldman, Rolapp & Associates, Inc., Irvine, California (the Municipal Advisor ) as municipal advisor in connection with the sale of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained herein. The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. 64

73 UNDERWRITING The Bonds will be purchased by Merrill Lynch, Pierce, Fenner & Smith Incorporated (the Underwriter ) pursuant to the Bond Purchase Contract, dated May 3, 2018 (the Purchase Contract ), by and among the Authority, the District and the Underwriter, pursuant to which the Underwriter has agreed to purchase all, but not less than all, of the $73,455,000 aggregate principal amount of the Bonds at a purchase price of $73,927, (being the aggregate principal amount thereof plus a net original issue premium of $654, and less an Underwriter s discount of $181,960.44). The obligation to make such purchase is subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel, and certain other conditions. The initial public offering prices stated on the inside front cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. The Underwriter and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage services. The Underwriter and its affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the District, for which they received or will receive customary fees and expenses. In the ordinary course of their various business activities, the Underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities, which may include credit default swaps) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the District. The Underwriter and its affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. 65

74 MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of such statements made will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the Bonds. The execution and delivery of this Official Statement have been duly authorized by the Authority and the District. CUCAMONGA VALLEY WATER DISTRICT FINANCING AUTHORITY By: /s/james V. Curatolo, Jr. Chair CUCAMONGA VALLEY WATER DISTRICT By: /s/martin E. Zvirbulis General Manager/Chief Executive Officer 66

75 APPENDIX A AUDITED FINANCIAL STATEMENTS OF THE DISTRICT

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77 CUCAMONGA VALLEY WATER DISTRICT COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDING JUNE 30, 2017 RANCHO CUCAMONGA, CA People, Service, Water

78 Comprehensive Annual Financial Report Fiscal Year Ending June 30, 2017 CUCAMONGA VALLEY WATER DISTRICT Ashford Street Rancho Cucamonga, CA General Manager/CEO Martin E. Zvirbulis, PE Assistant General Manager/ Assistant General Manager Assistant General Manager/ Chief Financial Officer Chief Operating Officer Carrie Corder, CPA Jo Lynne Russo Pereyra John Bosler, PE Prepared by Finance Division: Finance Manager Accounting Supervisor Senior Accountant Chad Brantley, CPA Agnes Boros, CPA Jennifer Fillinger, CPA

79 Introductory Section Cucamonga Valley Water District Comprehensive Annual Financial Report Fiscal Year Ending June 30, 2017 Table of Contents Page No. Letter of Transmittal i vii Board of Directors and Executive Staff viii Organization Chart ix Statement of Mission, Vision, Culture, and Values x Government Finance Officers Association Certificate of Achievement in Financial Reporting June 30, 2016 xi District Boundary xii Financial Section Independent Auditors Report 1 Management s Discussion and Analysis 3 9 Basic Financial Statements: Statement of Net Position 10 Statement of Revenues, Expenses and Changes in Net Position 11 Statement of Cash Flows Notes to the Basic Financial Statements Required Supplementary Information: Net Pension Liability and Related Ratios (CalPERS) 52 Schedule of Plan Contributions (CalPERS) 53 Net Pension Liability and Related Ratios, Retirement Enhancement Plan (PARS) 54 Schedule of Plan Contributions, Retirement Enhancement Plan (PARS) 55 Net Pension Liability and Related Ratios, Excess Benefit Pension Plan 56 Schedule of Plan Contributions, Excess Benefit Pension Plan 57 Funding Progress for Other Post Employment Benefits Plan 58 Statistical Section Financial Trends: Changes in Net Position and Net Position by Component Operating Revenue by Source 62 Operating Expenses by Activity 63 Revenue Capacity: Water Production in Acre Feet 64 Water Rate History 65 Water Service Accounts 66 Principal Water Customers 67 Debt Capacity: Ratio of Outstanding Debt 68 Debt Coverage 69 Demographic Information: Demographic and Economic Statistics 70 Principal Employers 71 Operating Indicators: Personnel Trends 72 Other Operating and Capacity Indicators 73

80 Introductory Section

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82 CUCAMONGA VALLEY WATER DISTRICT Ashford Street Rancho Cucamonga, CA (909) Fax (909) Martin E. Zvirbulis Secretary / General Manager/CEO November 2, 2017 Members of the Board of Directors Cucamonga Valley Water District Introduction State law requires that every general purpose government publish within six months of the close of each fiscal year a complete set of audited financial statements. This report is published to fulfill that requirement for the fiscal year ended June 30, Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. Davis Farr LLP has issued an unmodified ( clean ) opinion on the District s financial statements for the year ended June 30, The independent auditor s report is located at the front of the financial section of this report. Management s discussion and analysis (MD&A) immediately follows the independent auditor s report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. Profile of the District The Cucamonga Valley Water District (the District or CVWD ) is an independent special district that operates under the authority of Division 12 of the California Water Code. The District was incorporated on March 25, 1955, and is governed by a five member, elected Board of Directors. The District provides water, wastewater, and recycled water services to a population of approximately 190,000 within its 47 square mile service area, which is located in the western area of San Bernardino County, California. The District encompasses the majority of the community of Rancho Cucamonga and portions of the cities of Fontana, Ontario, Upland, and some of the unincorporated areas of San Bernardino County. Residential customers make up approximately 89% of the District s customer base and consume approximately 57% of the water produced annually by the District. The District currently has a total of 29 groundwater wells, of which 21 are in service with a maximum production capacity of approximately 37,292 gallons per minute (or an annual production equivalent of 60,152 acre feet). In addition, the District has surface and subsurface water rights in four local canyon watersheds with an annual production in 2017 of 2,456 acre feet. Lastly, untreated imported water from the Sacramento San Joaquin River Delta through the State Water Project makes up the third source of water available to the District. In 2017, the District purchased 15,288 acre feet of imported water. The following chart illustrates the water production sources. i

83 Service Beyond Expectation Water Production FYE 2017 Imported Water 35.83% Groundwater Production 58.42% Spring Water 0.02% Local Surface Water 5.74% High levels of precipitation during FY2017 brought an end to the statewide drought declaration. Greater availability of imported water and local surface water during FY2017 has allowed the District to transition away from the high levels of groundwater production that were utilized in FY2016. This flexibility in the sources of water supply is a reflection of the District s ongoing effort to enhance and maximize these sources. Past droughts as well as court orders affecting State Water Project operations have impacted the Metropolitan Water District of Southern California (MWD or Metropolitan) service area and main supply sources. This has raised the possibility that Metropolitan may not have access to the supplies necessary to meet total demands at some point in the future and may have to allocate shortages in supplies to the member agencies. As a result, the District has secured local groundwater resources from other purveyors in the Chino Basin for future use and has increased its use of recycled water. Fiscal Management The District Board of Directors annually adopts an operating and capital budget prior to the new fiscal year. The budget authorizes and provides the basis for reporting and control of financial operations and accountability for the District s enterprise functions, including the Water Utility Fund, Sewer Utility Fund, and Recycled Water Utility Fund. The budget and reporting treatment applied to each fund is consistent with the accrual basis of accounting and the financial statement basis. Each year the District adopts a balanced budget. ii Letter of Transmittal

84 Service Beyond Expectation Local Economy The District office is located in the City of Rancho Cucamonga in San Bernardino County. Rancho Cucamonga is considered a premiere city in the Inland Empire area of California. The District population is projected to increase to approximately 215,100 in 2035, when the District is expected to be fully built out. The community is located 37 miles east of downtown Los Angeles. The following chart highlights the growth of the City of Rancho Cucamonga, the County of San Bernardino, and the State of California. 2% 10 Year Population Growth Rate Rancho Cucamonga vs County & State Rancho Cucamonga San Bernardino County State of California 1% 0% The economics of the communities served by the District are heavily influenced by a multitude of factors. Historically, the construction industry has led the job growth in the Inland Empire. In the years since the economic downturn, construction industry job growth has improved steadily and now appears to have fully recovered. Also, growth in logistics has led to job creation in the land rich Inland Empire. In addition, the health care and manufacturing industries have demonstrated job growth in the Inland Empire. The Inland Empire consists of 52 cities within the counties of Riverside and San Bernardino. As far as the number of customers served by the District the top two cities are Rancho Cucamonga and Fontana. In 2017, the California Department of Finance released population data that indicates that the City of Fontana is second largest in the region followed by the City of Rancho Cucamonga as third. The San Bernardino Assessor s office reported that the City of Rancho Cucamonga has the second highest assessed valuation in the region followed by Fontana as the fifth highest. Clearly, these two cities served by CVWD are strong contributors to the economic engine of the Inland Empire. According to the State of California Employment Development Department, in 2006 the unemployment rate in Rancho Cucamonga was at a ten year low of 3.1%. However, unemployment rates increased to a high of 9.4% in Unemployment has since fallen to a rate of 4.0% in June of 2017, which is lower than the region as well as the State of California. Letter of Transmittal iii

85 Service Beyond Expectation California s water supply continues to be a concern due to past droughts and projected population increases. This concern has increased interest in recycled water for groundwater replenishment purposes. The District has expanded and will continue to expand its conservation efforts and the availability of local sources such as groundwater and canyon water. Such expansions will increase diversity of the District s water supply and water source reliability. The District will also continue to work with local and regional water suppliers in planning and constructing other water delivery systems throughout its service area. During the past six fiscal years, the District s customer base has grown slowly at around 0.35% per year. Water production increased each year from 2011 through 2014 but fell significantly in 2015 and Higher precipitation levels in 2017 marked another reversal of the trend. Improvements in economic conditions and less rainfall in 2013 and 2014 contributed to the increased demand for water in those years causing annual usage per customer to rise as high as 1.09 acre feet. However, in 2015 water production per customer fell to 0.97 acre feet and to 0.80 acre feet for This decrease in water usage was consistent with the statewide drought messaging that began in August 2014 and culminated with the Governor s executive order in April The drought declaration was officially lifted in April During the fiscal years 2011 through 2014, water sales revenues increased by approximately 9.3% per year on average, fell by 9.0% in 2015, recovered by 2.8% in 2016, and then decreased by 1.6% in The decrease in 2017 can be attributed to the high level of precipitation during the year. From 2011 to 2015 water rates increased about 5% per year. In FY2016, the District entered Drought Stage 6 in order to comply with the conservation target set by the SWRCB. Drought Stage 6 caused a 58% increase in water rates. For FY2017 the SWRCB allowed water purveyors to self certify their supply of water in order to set their own needed level of conservation. CVWD was able to certify a 3 year water supply that does not require any mandatory conservation. For this reason, rates were reduced by 27% to Drought Stage 1 prices. Rates will remain at Drought Stage 1 in Meter charge revenue has increased by approximately 9.5% per year on average since The District s policy direction ensures that all revenues from user charges generated from District customers must support all District operations including capital project funding. The District does not receive property tax subsidies. Water, recycled water, and sewer rates are user charges imposed on customers for services and are the primary component of the District s revenue. Water and recycled water rates are composed of a fixed meter charge and a commodity (usage) charge. Sewer rates are billed based on a unit of measure called an equivalent dwelling unit (EDU), which is equal to the average amount of wastewater flow from a single family household. The District bills each residential customer a fixed charge for each EDU. The following chart illustrates the average bi monthly utility bill for a ¾ inch meter single family residential customer who is connected to the District s sewer system and who uses the average amount of water while following conservation expectations. iv Letter of Transmittal

86 Service Beyond Expectation Average Residential Bi-Monthly Bill by Year $180 Sewer Services $160 $140 $120 $100 $80 $60 Water Commodity Service Charge $40 $ $0 FYE 2008 $ FYE 2009 $ FYE 2010 $ FYE 2011 $ FYE 2012 $ FYE 2013 $ FYE 2014 $ FYE 2015 $ FYE 2016 $ FYE 2017 $ Long term Financial Planning The District s financial plan includes the establishment of reserve funds in accordance with the District s Reserve and Benchmark Policy. Reserve funds are set to ensure the continued orderly operation of the District s water, recycled water and sewer systems, the provision of services to customers at established levels, and the continued stability of the District s rate structure. The District has committed to the following funds and objectives in the Reserve Policy as of June 30, 2017: 1. The District will strive to adopt balanced budgets in all operating funds. 2. Capital Reserves are established to provide funds for capital facility and equipment replacement. 3. Liquidity Reserves are established to safeguard the financial flexibility and stability of the District and to maintain stable customer charges and rates. 4. Restricted Reserves are maintained to comply with restrictions imposed by outside sources such as creditors, grantors, contributors, laws, or regulations. Debt Administration The District has earned and maintained for 2017 a debt rating of AA+ from Standard and Poor s on the Certificates of Participation. Moody s upgraded their rating of the Certificates of Participation to Aa2 and Fitch affirmed the rating of AA on the subordinate Revenue Bonds. The District s outstanding debt as of June 30, 2017 consists of three Certificate of Participation Issuances (C.O.P. s) and three Revenue Bonds, as follows: Letter of Transmittal v

87 Service Beyond Expectation Year of Issuance Use of Proceeds 2009 C.O.P.'s Provided funds for construction of the Frontier Project, well and reservoir acquisition, and other improvements to District facilities Clean Renewable Provided funding related to renewable energy Energy Bonds installations in the District's Frontier Project building 2011 C.O.P. s Provided funds to defease the 2000 C.O.P. s and the 2001 C.O.P.'s Revenue Bonds Provided funds for construction of improvements to water treatment plants and other District facilities Revenue Bonds Provided funds for construction of improvements to water treatment plants and other District facilities. Also used to payoff 2003 C.O.P Revenue Bonds Provided funds to payoff 2006 C.O.P. and a portion of the 2009 C.O.P. Relevant Financial Policies Internal Control Structure District management is responsible for the establishment and maintenance of the internal control structure that ensures that the assets of the District are protected from loss, theft, or misuse. The internal control structure also ensures that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The District s internal control structure is designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived and (2) the valuation of costs and benefits requires estimates and judgments by management. Major Initiatives The activities of the Board and staff at the District are driven by our mission statement, To Provide High Quality, Safe, and Reliable Drinking Water and Wastewater Services, While Practicing Good Stewardship of Natural and Financial Resources. In addition to our mission, major District initiatives are guided by our Strategic Vision. The Strategic Vision was developed nearly nine years ago and is continually re tooled to ensure it is reflective of our changing environment, opportunities and trends within our industry. In 2017, the District enhanced its documented goals and objectives in a newly revised budget document for FY2018. The primary areas of focus include Service, Water and People. Service relates to the identification of the needs of our customers and stakeholders that meets and exceeds their expectations. Water is the essential service that our organization provides and our ability to provide it consistently and at a reasonable price is imperative. The District has upgraded the treatment processes at the Lloyd Michael Water Treatment Plant (LMWTP), which will ensure our ability to meet changing regulatory requirements while continuing to provide high quality water to our customers. People are identified as the customers that we serve and the dedicated staff that provides the services to support our mission. Externally, key areas of focus include communication, education and outreach. Internally, succession planning, training and improving communication with employees is essential to our continued success. It is apparent that programs that develop effective leadership skills and encourage high performance and personal accountability are essential to prepare the next generation of leaders in our organization and industry. vi Letter of Transmittal

88 Service Beyond Expectation Award for Excellence in Financial Reporting The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Cucamonga Valley Water District for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, This was the fifteenth consecutive year that the District has received this prestigious award. In order to be awarded a Certificate of Achievement, the District published an easily readable and efficiently organized CAFR. This report satisfied both generally accepted accounting principles (GAAP) and applicable legal requirements. GFOA financial reporting guidelines and standards exceed the minimum disclosure requirements of state law, and provide for maximum disclosure to the public. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR 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. Acknowledgements Preparation of this report was accomplished by the combined efforts of District staff. We appreciate the dedicated efforts and professionalism that these staff members contribute to the service of the District s customers. The contributions made by Chad Brantley, Finance Manager, Agnes Boros, Accounting Supervisor, and Jennifer Fillinger, Senior Accountant, deserve special recognition. We would also like to thank and recognize the members of the Board of Directors and especially the Finance Committee members for their continued support in planning and implementation of the Cucamonga Valley Water District s fiscal policies. Respectfully submitted, Martin Zvirbulis General Manager/CEO Carrie Corder Assistant General Manager / CFO Letter of Transmittal vii

89 Service Beyond Expectation Cucamonga Valley Water District Board of Directors and Executive Staff James V. Curatalo, President Luis Cetina, Vice President Oscar Gonzalez, Director Randall James Reed, Director Kathleen Tiegs, Director Martin Zvirbulis General Manager/CEO Jo Lynne Russo Pereyra Assistant General Manager John Bosler Assistant General Manager / COO Carrie Corder Assistant General Manager / CFO viii Board of Directors and Executive Staff

90 Service Beyond Expectation Organization Chart ix

91 Service Beyond Expectation x CVWD Mission, Vision, Culture & Values

92 Service Beyond Expectation Certificate of Achievement in Financial Reporting June 30, 2016 xi

93 Service Beyond Expectation xii District Boundary

94 Financial Section

95 Board of Directors Cucamonga Valley Water District Rancho Cucamonga, California Report on the Financial Statements Independent Auditors Report We have audited the accompanying financial statements of the Cucamonga Valley Water District (District), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the financial statements based on our audit. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

96 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Cucamonga Valley Water District as of June 30, 2017, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, schedule of changes in net pension liability and related ratios, schedule of plan contributions, and schedule of funding progress be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The introductory section and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The introductory section and the statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 25, 2017 on our consideration of the District 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 in considering the District s internal control over financial reporting and compliance. Irvine, California October 25, 2017

97 CUCAMONGA VALLEY WATER DISTRICT Management s Discussion and Analysis For the Year Ended June 30, 2017 This section of the District s annual financial report presents our analysis of the District s financial performance during the fiscal year that ended on June 30, Please read it in conjunction with the basic financial statements, which follow this section. Financial Highlights The District s net position increased by $6,102 thousand or 1.97 percent. During the year the District s revenues increased 2.52 percent to $86,837 thousand, while expenses increased percent to $83,869. Capital contributions to the District amounted to $3,135 thousand. Overview of the Financial Statements The discussion and analysis are intended to serve as an introduction to the District s basic financial statements. The District s basic financial statements comprise two components: Financial Statements and Notes to the Financial Statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Required Financial Statements The financial statements of the District report information about the District 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 Position (page 10) includes all of the District s investments in resources (assets) and the obligations to creditors (liabilities). It also provides the basis for evaluating the capital structure of the District and assessing the liquidity and financial flexibility of the District. All of the current year s revenues and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Position (page 11). This statement measures the success of the District s operations over the past year and can be used to determine whether the District 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 (pages 12 and 13). The primary purpose of this statement is to provide information about the District 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 financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period. Financial Analysis of the District Our analysis of the District begins on page 10 of the financial statements. One of the most important questions to ask about the District s finances is Whether the District, as a whole, is better off or worse off as a result of the year s activities? The Statement of Net Position, and the Statement of Revenues, Expenses and Changes in Net Position report information about the District s activities in a way that will help answer this question. Measuring the change in the District s net position the difference between assets and liabilities is one way to measure financial health. Over time, increases or decreases in the District s net position are one indicator of whether its financial health is improving or deteriorating. However, one will need to consider other nonfinancial factors such as changes in economic conditions, population growth, zoning, and new or changed government legislation. Management s Discussion and Analysis 3

98 CUCAMONGA VALLEY WATER DISTRICT Management s Discussion and Analysis, continued For the Year Ended June 30, 2017 Condensed Statement of Net Position To begin our analysis, a summary of the District s Statements of Net Position are presented in Table A 1. TABLE A 1 Condensed Statements of Net Position (In thousands of dollars) Fiscal Fiscal Total Year Year Dollar Percent Change Change Current and Noncurrent Assets $ 142,091 $ 149,894 $ (7,803) (5.21)% Capital Assets 418, ,344 1, % Total Assets 560, ,238 (6,350) (1.12)% Deferred outflows of resources 10,602 9,298 1, % Long term Liabilities 217, ,941 (3,401) (1.54)% Other Liabilites 35,017 40,081 (5,064) (12.63)% Total Liabilities 252, ,022 (8,465) (3.24)% Deferred inflows of resources 2,786 5,470 (2,684) (49.07)% Net investment in Capital Assets 230, ,276 (77) (0.03)% Unrestricted 85,947 79,768 6, % Total Net Position $ 316,146 $ 310,044 $ 6, % As can be seen from the table above, net position increased $6,102 thousand to $316,146 thousand in fiscal year 2017, up from $310,044 thousand in fiscal year Total assets decreased minimally. The increase in deferred outflows and the decrease in deferred inflows are related to pension liability activities. Short term liabilities decreased due primarily to the timing of payment on our Intergovernmental Payable (Note 8). 4 Management s Discussion and Analysis

99 CUCAMONGA VALLEY WATER DISTRICT Management s Discussion and Analysis, continued For the Year Ended June 30, 2017 Statement of Revenues, Expenses and Changes in Net Position TABLE A 2 Condensed Statements of Revenues, Expenses and Changes in Net Position (In thousands of dollars) Fiscal Fiscal Total Year Year Dollar Percent Change Change Operating Revenues: Water Sales $ 47,067 $ 47,914 $ (847) (1.77)% Meter Charges 16,780 14,596 2, % Water Services 1,225 1,267 (42) (3.31)% Sewer Services 19,450 17,422 2, % Nonoperating Revenues: Investment income 227 1,570 (1,343) (85.54)% Rent and lease revenue % Other nonoperating revenue 1,637 1, % Total Revenues 86,837 84,704 2, % Operating Expenses: Source of supply 17,808 11,287 6, % Pumping operations 6,120 6,485 (365) (5.63)% Water treatment 3,598 4,381 (783) (17.87)% Transmission and distribution 3,576 3, % Collection and transmission 16,020 14,243 1, % Customer accounts 2,752 2, % General and administrative 11,579 11, % Depreciation and amortization 13,019 11,361 1, % Nonoperating Expenses: Interest expense 7,441 6,052 1, % Amortization of deferred bond costs and refunding % Loss on disposal of assets % Other nonoperating expenses 1,476 1, % Total Expenses 83,869 72,129 11, % Net Income/(Loss) Before Capital Contributions 2,967 12,575 (9,608) (76.41)% Capital Contributions 3,135 3, % Changes in Net Position 6,102 15,585 (9,483) (60.85)% Beginning Net Position 310, ,459 (1) 15, % Ending Net Position $ 316,146 $ 310,044 $ 6, % Note (1) Amount restated due to prior period adjustment Management s Discussion and Analysis 5

100 CUCAMONGA VALLEY WATER DISTRICT Management s Discussion and Analysis, continued For the Year Ended June 30, 2017 While the Statement of Net Position shows the change in financial position, the Statement of Revenues, Expenses and Changes in Net Position provides answers as to the nature and source of these changes. As can be seen in Table A 2 on page 5, net income before capital contributions of $2,967 thousand and capital contributions of $3,135 thousand were the sources of the increase in Net Position of $6,102 thousand in fiscal year A closer examination of the source of changes in net position reveals that the District s revenues increased by $2,133 thousand to $86,837 thousand in fiscal year 2017 from $84,704 thousand in fiscal year 2016 due primarily to increases in operating revenues. In particular, water sales decreased $847 thousand due to a record breaking wet year that brought the state out of the drought. As such customers were able to shut off outdoor watering during the winter and be more aggressive at conserving than the District expected. Meter charges increased $2,184 thousand due to a slight increase in customer connections and a rate increase. Non operating revenue decreased $1,190 thousand due to an increase in unrealized investment loss. Operating expenses increased $11,740 due to the increase in the amount of imported water purchased due to a change in the District s production mix. Operating Revenues Water Sales TABLE A 2a Water Sales (In thousands of dollars) Fiscal Fiscal Total Year Year Dollar Percent Change Change Customer Type: Domestic $ 28,689 $ 31,654 $ (2,965) (9.37)% Irrigation and Landscape 9,895 11,650 (1,755) (15.06)% Other Water Agencies 5,380 5, % Industrial 2,684 4,195 (1,511) (36.02)% Construction % Canyon Source Water (21) (7.42)% Total Water Sales $ 47,067 $ 47,914 $ (847) (1.77)% Water sales revenue to Domestic, Irrigation and Landscape, and Industrial customer types for the fiscal year 2017 decreased $6,231 thousand combined due to the net result of decreasing water rates from Drought Stage 6 to Non drought rates at the start of fiscal year 2017 combined with a small increase in the volume of water consumed. Sales to other water agencies increased $5,380 thousand due to the sale of groundwater to Fontana Water Company. Construction water sales increased $25 due to an increase in the use of water for building activity in the service area. 6 Management s Discussion and Analysis

101 CUCAMONGA VALLEY WATER DISTRICT Management s Discussion and Analysis, continued For the Year Ended June 30, 2017 Capital Asset Administration At June 30, 2017, the District had invested $418,797 thousand in a broad range of infrastructure as shown in Table A 3. TABLE A 3 Capital Assets (In thousands of dollars) Fiscal Fiscal Total Year Year Dollar Percent Change Change Non Depreciable Assets: Land $ 6,876 $ 6,876 $ 0.00% Water Rights 92,914 92, % Construction in Progress 3,148 8,434 (5,286) (62.67)% Total Non Depreciable Assets 102, ,218 (5,280) (4.88)% Depreciable Assets: Intangibles (3) (1.01)% Source of Supply 24,579 24, % Pumping Plant 23,810 21,618 2, % Transmission and Distribution 211, ,299 9, % Treatment plant 111, ,576 1, % General Water 49,467 47,832 1, % Wastewater Reclamation 5,795 5, % Pumping Station % Collection and Transmission 70,366 69,036 1, % General Sewer 9,949 9, % General Frontier Project % Total Depreciable Assets 507, ,645 16, % Less: Accumulated Depreciation (192,089) (182,519) (9,570) (5.24)% Net Depreciable Assets 315, ,126 6, % Total Capital Assets, Net $ 418,797 $ 417,344 $ 1, % The following is a summary of some of the major improvements to the system during fiscal year This year s major capital asset additions include (in thousands of dollars): Various water distribution mains $ 12,584 Buildings and equipment 2,530 Pumps and pumping equipment 2,398 Various sewer collection and transmission mains 1,330 Various water treatment facilities 1,110 Various developer water and sewer infrastructure 692 Recycled water distribution mains and connections 42 Management s Discussion and Analysis 7

102 CUCAMONGA VALLEY WATER DISTRICT Management s Discussion and Analysis, continued For the Year Ended June 30, 2017 In table A 4, the District s fiscal year 2018 Capital Budget is $24,520 thousand for capital projects, principally for groundwater treatment, pumps and pumping equipment, new water and sewer mains, and reservoir improvements. The District believes these projects can be financed from available resources provided by projected cash flows and capital reserves. More information about the District s Capital Assets is presented in Note 5 of the Notes to Basic Financial Statements. Debt Administration TABLE A 4 Fiscal Year 2018 Capital Budget (In thousands of dollars) Depreciable Assets: Source of Supply $ 645 Pumping Plant 2,090 Reservoirs 2,500 Transmission and Distribution 4,379 Treatment plant 6,630 General Water 3,634 Recycled Water Distribution 300 Sewer Collection and Transmission 3,797 General Sewer 545 Total Depreciable Assets 24,520 Less: Accumulated Depreciation (8,150) Total Fiscal Year 2018 Capital Budget, Net $ 16,370 During the year, the District s long term debt decreased $2,946 thousand which can be attributed the normal debt principal repayments. Additional information on long term debt is presented in Note 7 to Basic Financial Statements. TABLE A 5 Long Term Debt (In thousands of dollars) Fiscal Fiscal Year Year Dollar Change Net Certificates of Participation $ 115,620 $ 119,533 $ (3,913) Net Revenue Bonds 71,530 73,202 (1,672) Leases Payable 8,987 10,533 (1,546) Loan Payable Compensated Absences 2,023 1, Net OPEB Obligation 3,833 3, Net CalPERS Pension Plan Obligation 21,392 17,999 3,393 Net Excess Benefit Plan Obligation 1,556 1, Total Long term debt $ 225,425 $ 228,371 $ (2,946) 8 Management s Discussion and Analysis

103 CUCAMONGA VALLEY WATER DISTRICT Management s Discussion and Analysis, continued For the Year Ended June 30, 2017 Economic Factors and Next Year s Budget and Rates The District s Board of Directors and management considered many factors when setting the fiscal year 2017 budget, user fees, and charges. These indicators were taken into consideration when adopting the District s budget for year TABLE A 6 Fiscal Year 2017 Actual vs. Fiscal Year 2018 Budget (In thousands of dollars) Actual Budget Total Fiscal Year Fiscal Year Dollar Percent Change Change Operating Revenues $ 84,523 $ 93,566 $ 9, % Nonoperating Revenues 2,314 2, % Total Revenues 86,837 96,149 9, % Depreciation Expense 13,019 8,150 (4,869) (37.40)% Other Operating Expenses 61,454 72,159 10, % Nonoperating Expenses 9,397 15,200 5, % Total Expenses 83,870 95,509 11, % Net Income/(Loss) Before Capital Contributions 2, (2,327) (78.43)% Capital Contributions 3,135 3, % Changes in Net Position 6,102 3,943 (2,159) (35.38)% Beginning Net Position 310, ,146 6, % Total Net Position $ 316,146 $ 320,089 $ 3, % Contacting the District s Assistant General Manager / CFO This financial report is designed to provide our customers and creditors with a general overview of the District finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report or need additional financial information, please contact Carrie Corder, Assistant General Manager/CFO, at (909) Management s Discussion and Analysis 9

104 CUCAMONGA VALLEY WATER DISTRICT Statement of Net Position June 30, 2017 Recycled Water Sewer Water Frontier Utility Utility Utility Project Fund Fund Fund Foundation Totals CURRENT ASSETS: Cash and cash equivalents (note 2) $ 23,106,401 $ 8,326,098 $ $ 3,156 $ 31,435,655 Investments (note 2) 28,300,334 31,658,001 59,958,335 Customer receivables, net 10,897,343 2,048, ,160 13,130,122 Accounts receivable 3,833, , ,539,994 Due from other funds (note 6) 295, ,712 Accrued interest 253,076 82, ,814 Prepaid expense and deposit 532, , ,992 Inventories 1,244,475 1,244,475 TOTAL CURRENT ASSETS 68,463,533 42,932, ,160 3, ,584,099 NONCURRENT ASSETS: Restricted Cash and cash equivalents (note 2 & 3) 4,066,618 3,305,358 7,371,976 Water in storage (note 4) 21,986,771 21,986,771 Prepaid bond insurance 538, ,744 Net pension asset (note 15) 497,916 98,690 12, ,215 Capital assets (note 5): Non depreciable capital assets 102,847,698 90, ,937,703 Depreciable capital assets, net 268,715,820 42,306,730 4,833,306 3, ,858,940 TOTAL NONCURRENT ASSETS 398,653,567 45,800,783 4,845,915 3, ,303,349 TOTAL ASSETS 467,117,100 88,733,523 5,030,075 6, ,887,448 DEFERRED OUTFLOWS OF RESOURCES: Pension plans deferred outflows 5,806,849 1,199, ,301 7,128,699 Deferred charge on refunding 3,473,339 3,473,339 TOTAL DEFERRED OUTFLOWS OF RESOURCES 9,280,188 1,199, ,301 10,602,038 LIABILITIES: Current: Accounts payable 10,051,481 3,426, , ,603,478 Interest payable 2,718,100 2,718,100 Accrued expense payable 793,982 1,504,067 4, ,302,752 Unearned revenue 330, ,918 Customer deposits 2,279,651 2,279,651 Due to other funds (note 6) 295, ,712 Intergovernmental payable (note 8) 3,305,358 3,305,358 Water Held for Inland Empire Utilities Agency (note 9) 2,295,762 2,295,762 Lease payable (note 7) 1,416,571 1,416,571 Compensated absences payable (note 7) 733, ,324 18, ,725 Certificates of participation (note 7) 3,664,286 3,664,286 Revenue bonds (note 7) 1,845,000 1,845,000 Loans Payable (note 7) 68,895 68,895 Total current liabilities 26,129,558 8,374, , ,017,208 Noncurrent: Net other post employment benefits obligation (notes 7 & 17) 3,075, ,655 58,193 3,832,720 Net pension liability (notes 14,15,16) 18,646,155 3,996, ,091 22,947,945 Lease payable (note 7) 7,570,459 7,570,459 Compensated absences payable (note 7) 932, ,773 23,626 1,131,872 Certificates of participation, net (note 7) 111,955, ,955,489 Revenue bonds, net (note 7) 69,685,661 69,685,661 Loans Payable (note 7) 415, ,513 Total noncurrent liabilities 211,866,109 4,871, , ,539,659 TOTAL LIABILITIES 237,995,667 13,245,188 1,315, ,556,867 DEFERRED INFLOWS OF RESOURCES: Pension plans deferred inflows 2,256, ,012 28,984 2,786,315 TOTAL DEFERRED INFLOWS OF RESOURCES 2,256, ,012 28,984 2,786,315 NET POSITION: Net investment in capital assets (note 10) 182,966,009 42,396,735 4,833,306 3, ,199,134 Unrestricted (note 11) 53,179,293 33,790,137 (1,025,332) 3,072 85,947,170 TOTAL NET POSITION $ 236,145,302 $ 76,186,872 $ 3,807,974 $ 6,156 $ 316,146,304 See accompanying notes to the basic financial statements 10 Statement of Net Position

105 CUCAMONGA VALLEY WATER DISTRICT Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2017 Recycled Water Sewer Water Frontier Utility Utility Utility Project Fund Fund Fund Foundation Totals OPERATING REVENUES: Water Sales $ 46,344,386 $ $ 723,045 $ $ 47,067,431 Meter Charges 16,651, ,443 16,780,336 Water Services 1,224, ,224,963 Sewer Services 19,450,187 19,450,187 TOTAL OPERATING REVENUES 64,220,647 19,450, ,083 84,522,917 OPERATING EXPENSES: Source of supply 17,405, ,396 17,807,730 Pumping operations 6,120,261 6,120,261 Water treatment 3,597,740 3,597,740 Transmission and distribution 3,571,591 4,266 3,575,857 Collection and transmission 16,021,489 16,021,489 Customer accounts 2,393, ,722 3,085 2,751,655 General and administrative 9,544,913 1,656, ,357 82,077 11,578,873 Depreciation and amortization 11,161,454 1,735, ,283 6,221 13,019,164 TOTAL OPERATING EXPENSES 53,795,141 19,767, ,387 88,298 74,472,769 NET OPERATING INCOME (LOSS) 10,425,506 (317,756) 30,696 (88,298) 10,050,148 NONOPERATING REVENUES (EXPENSES): Investment income 174,273 52, ,841 Taxes and assessments Rent and lease revenue 450, ,838 Interest expense (7,441,446) (7,441,446) Amortization of deferred charge on refunding (309,984) (309,984) Gain (loss) on disposal of assets (180,171) 10,205 (169,966) Other nonoperating revenues 1,562,928 2,131 71,727 1,636,786 Other nonoperating expenses (1,168,380) (305,228) (2,250) (1,475,858) TOTAL NONOPERATING REVENUES (EXPENSES) (6,911,929) (240,324) (2,250) 71,727 (7,082,776) NET INCOME (LOSS) BEFORE CAPITAL CONTRIBUTIONS 3,513,577 (558,080) 28,446 (16,571) 2,967,372 Capital contributions (note 12) 2,102, , ,146 3,134,828 CHANGE IN NET POSITION 5,616, , ,592 (16,571) 6,102,200 NET POSITION BEGINNING 230,529,147 75,841,848 3,650,382 22, ,044,104 NET POSITION ENDING $ 236,145,302 $ 76,186,872 $ 3,807,974 $ 6,156 $ 316,146,304 See accompanying notes to the basic financial statements Statement of Revenues, Expenses and Changes in Net Position 11

106 CUCAMONGA VALLEY WATER DISTRICT Statement of Cash Flows For the Year Ended June 30, 2017 Recycled Water Sewer Water Frontier Utility Utility Utility Project Fund Fund Fund Foundation Totals CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers $ 61,806,437 $ 19,103,866 $ 836,566 $ $ 81,746,869 Receipts from others 9,638 9,638 Payment to suppliers (35,445,944) (15,215,351) (520,165) (100,050) (51,281,510) Payment to employees (7,595,217) (1,544,524) (149,182) (9,288,923) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 18,774,914 2,343, ,219 (100,050) 21,186,074 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Due to (due from) other funds 254,600 (254,600) Other noncapital financing activities 1,562,928 2,131 75,592 1,640,651 Taxes and assessments NET CASH PROVIDED (USED) BY NONCAPITAL FINANCING ACTIVITIES 1,817,541 2,131 (254,600) 75,592 1,640,664 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Principal payments Certificates of Participation & Revenue Bonds (5,542,541) (5,542,541) Principal payments lease payable (1,546,326) (1,546,326) Interest expense (7,894,679) (7,894,679) Proceeds from sale of equipment 61,611 10,204 71,815 Capital fees collected for/(paid to) Inland Empire Utilities Agency (8,289,459) (8,289,459) Additions to utility plant (12,074,192) (1,537,731) (39,515) (13,651,438) Other capital and related financing activities (1,168,380) (305,228) (2,250) (1,475,858) Cash contributions received in aid of construction 1,686, , ,146 2,442,828 NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES (26,478,429) (9,494,610) 87,381 (35,885,658) CASH FLOWS FROM INVESTING ACTIVITIES: Investment income 606, , ,597 Purchases of investments (19,408,910) (6,469,636) (25,878,546) Proceeds from sales and maturities of investments 18,672,709 6,049,662 24,722,371 Rent and lease revenue 450, ,838 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 321,442 (224,182) 97,260 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (5,564,532) (7,372,670) (24,458) (12,961,660) CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 32,737,551 19,004,126 27,614 51,769,291 CASH AND CASH EQUIVALENTS END OF YEAR $ 27,173,019 $ 11,631,456 $ $ 3,156 $ 38,807,631 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION: Cash and cash equivalents $ 23,106,401 $ 8,326,098 $ $ 3,156 $ 31,435,655 Cash and cash equivalents restricted 4,066,618 3,305,358 7,371,976 TOTAL CASH AND CASH EQUIVALENTS $ 27,173,019 $ 11,631,456 $ $ 3,156 $ 38,807,631 (continued on next page) See accompanying notes to the basic financial statements 12 Statement of Cash Flows

107 CUCAMONGA VALLEY WATER DISTRICT Statement of Cash Flows, continued For the Year Ended June 30, 2017 Recycled Water Sewer Water Frontier Utility Utility Utility Project Fund Fund Fund Foundation Totals RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (Loss) $ 10,425,506 $ (317,756) $ 30,696 $ (88,298) $ 10,050,148 Depreciation and amortization 11,161,454 1,735, ,283 6,221 13,019,164 Changes in: (Increase) Decrease in customer receivables, net 1,004,854 (397,046) (15,517) 592,291 (Increase) Decrease in accounts receivable (3,373,934) 50,725 (3,323,209) (Increase) Decrease in prepaid expense and deposit 104,312 (21,070) ,176 (Increase) Decrease in inventories (517,599) (517,599) (Increase) Decrease in water in storage (933,796) (933,796) (Increase) Decrease in deferred outflows (1,315,817) (271,637) (26,723) (1,614,177) Increase (Decrease) in accounts payable 2,429,967 (171,119) 33,702 (18,114) 2,274,436 Increase (Decrease) in accrued expense payable (1,498,795) 1,456, (42,180) Increase (Decrease) in unearned revenue 9,638 9,638 Increase (Decrease) in deposits payable (45,130) (45,130) Increase (Decrease) in compensated absences payable 143,831 31,641 2, ,938 Increase (Decrease) in net other post employment benefits obligation 257,061 58,720 6, ,601 Increase (Decrease) in net pension plans obligations 3,110, ,760 64,337 3,815,456 Increase (Decrease) in deferred inflows (2,186,997) (450,763) (45,923) (2,683,683) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 18,774,914 $ 2,343,991 $ 167,219 $ (100,050) $ 21,186,074 NONCASH INVESTING, CAPITAL AND FINANCING ACTIVITIES: Contributions in aid of construction $ 416,500 $ 275,500 $ $ $ 692,000 Changes in fair value of investments (805,281) (268,427) (1,073,708) Amortization of deferred bond costs and refunding (309,984) (309,984) NET NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES $ (698,765) $ 7,073 $ $ $ (691,692) See accompanying notes to the basic financial statements Statement of Cash Flows 13

108 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements June 30, 2017 (1) Reporting Entity and Summary of Significant Accounting Policies A. Organization and Operations of the Reporting Entity The reporting entity Cucamonga Valley Water District ( District ) includes the accounts of the District, the Cucamonga Public Facilities Corporation, the Cucamonga Valley Water District Financing Authority and Frontier Project Foundation. The District was incorporated as Cucamonga County Water District in March of 1955, under the provisions of the County Water District Law, Division 12 of the California Water Code. In fiscal year , the name of the District was changed to Cucamonga Valley Water District. The District s 47 square mile service area lies in western San Bernardino County and includes the City of Rancho Cucamonga, portions of the cities of Fontana, Upland, Ontario and some unincorporated areas. During , the Cucamonga Public Facilities Corporation ( Corporation ) was formed to issue Certificates of Participation (C.O.P. s). The Corporation transfers C.O.P. proceeds to the District in exchange for notes receivable bearing the same terms as the C.O.P. s. The District s five member Board of Directors is appointed as the Cucamonga Public Facilities Corporation s governing board. In the combined financial statements, interfund transactions between the Corporation and District have been eliminated. Amounts eliminated include $115,619,775 in interfund receivable/payable on the statement of net position, $4,980,207 in interest expense and $12,193 in investment income on the statement of revenues, expenses and changes in net position, and $7,256,425 in interest expense on the statement of cash flows. Separate financial statements are not available. During 2012, the Cucamonga Valley Water District Financing Authority ( Financing Authority ) was formed to issue Revenue Bonds. The Financing Authority transfers Revenue Bond proceeds to the District in exchange for notes receivable bearing the same terms as the Revenue Bonds. The District s five member Board of Directors is appointed as the Financing Authority s governing board. In the combined financial statements, interfund transactions between the Financing Authority and District have been eliminated. Amounts eliminated include $71,530,661 in interfund receivable/payable on the statement of net position, $2,461,239 in interest expense and $5,065 in investment income on the statement of revenues, expenses and changes in net position, and $638,254 in interest expense on the statement of cash flows. Separate financial statements are available by the District. The Frontier Project Foundation ( Foundation ) is a nonprofit public benefit corporation formed for the purposes of (i) creating an interactive indoor and outdoor educational center to demonstrate current and future building design methods and techniques that promote resource conservation, (ii) aiding, promoting and advancing the principles of sustainable design in California living and working environments, (iii) educating residents and business owners of the surrounding communities on how to incorporate sustainable design standards in their residence and businesses, (iv) engaging in other activities in furtherance of the purposes for which the Foundation was formed, and (v) receiving, investing and utilizing funds and property acquired through solicitation of contributions, donations, grants, gifts, bequests and the like for the purposes for which the Foundation was formed. The Foundation is governed by a Board of Directors, which consists of the District s Board of Directors and up to four additional members appointed by the District s Board of Directors. Currently, the District s Board of Directors has chosen not to fill any of the four open positions. Separate financial statements are available by the District. 14 Notes to the Basic Financial Statements

109 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements June 30, 2017 (1) Reporting Entity and Summary of Significant Accounting Policies, continued A. Organization and Operation of the Reporting Entity, continued The criteria used in determining the scope of the reporting entity is based on the provisions of the Governmental Accounting Standards Board Statement (GASB). The District is the primary government unit. Component units are those entities which are financially accountable to the primary government, either because the District appoints a voting majority of the component unit s board, or because the component unit will provide a financial benefit or impose a financial burden on the District. The District has accounted for the Corporation, the Financing Authority, and Foundation as blended component units. Despite being legally separate, these entities are so intertwined with the District that they are in substance, part of the District s operations. Accordingly, the balances and transactions of the Corporation and the Financing Authority are reported within the Water Utility Fund of the District, while the Foundation is accounted for in its own fund. Separate financial statements are not issued for the Corporation. The separate financial statements of the Financing Authority or the Foundation may be obtained from the District s office. B. Basis of Accounting and Measurement Focus The District reports its activities as a set of proprietary funds. This means that the District utilizes the economic resources measurement focus which emphasizes limitations on the use of net position. This is similar to a private sector business. Revenues and expenses are recognized on the accrual basis of accounting. Revenues are recognized in the accounting period in which they are earned and expenses are recognized in the period incurred, regardless of when the related cash flow takes place. Operating revenues, such as charges for services (water sales, sewer services and water services) result from exchange transactions associated with the principal activity of the District. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as property taxes and investment income, result from nonexchange transactions or ancillary activities in which the District gives (receives) value without directly receiving (giving) equal value in exchange. When both restricted and unrestricted resources are available for use, the District uses restricted resources and then unrestricted resources. The funds of the District are described below: Water Utility Fund This fund is used to account for the operations of the District s water system and related revenues. Sewer Utility Fund This fund is used to account for the operations of the District s wastewater system and related revenues. Recycled Water Utility Fund This fund is used to account for the operations of the District s recycled water system and related revenues. Frontier Project Foundation This fund is used to account for the activities related to the Frontier Project Foundation. D. Operating and Nonoperating Revenues and Expenses The District distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services in connection with the distribution and transmission of potable and recycled water to users, and the operation and maintenance of the sewer network within the District. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Notes to the Basic Financial Statements 15

110 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (1) Reporting Entity and Summary of Significant Accounting Policies, continued E. Assets, Liabilities and Net Position 1. Use of Estimates The preparation of the basic financial statements in conformity with generally accepted accounting principles (GAAP) in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. Cash and Cash Equivalents For the purpose of the statement of cash flows, cash equivalents are defined as short term, highly liquid investments that are both readily convertible to known amounts of cash or so near to their maturity that they present insignificant risk of changes in value because of changes in interest rates, and have an original maturity date of three months or less. 3. Investments and Investment Policy Investments are stated at their fair value which represents the quoted or stated market value. Investments that not traded on a market, such as investments in external pools, are valued based on the stated fair value as represented by the external pool. 4. Customer Receivables The District extends credit to customers in the normal course of operations. When management deems customer accounts uncollectible, the District uses the allowance method for the reservation and write off of those accounts. 5. Inventory Materials and supplies inventory consists primarily of water meters, pipe and pipefittings for construction and repair to the District s water transmission and distribution system. Inventory is valued at cost using a weighted average method. Inventory items are charged to expense at the time that individual items are withdrawn from inventory or consumed. 6. Prepaid Expense and Deposit Certain payments to vendors reflect costs or deposits applicable to future accounting periods and are recorded as prepaid items in the basic financial statements. 7. Capital Assets Capital assets acquired and/or constructed are capitalized at historical cost (or estimated historical cost) and updated for additions and retirements during the year. Donated assets are recorded at their acquisition value as of the date received. The District maintains a capitalization threshold of $5,000. Upon retirement or other disposition of capital assets, the cost and related accumulated depreciation are removed from the respective balances and any gains or losses are recognized. The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized. Depreciation is computed using the straight line method over the following useful lives: 16 Notes to the Basic Financial Statements

111 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (1) Reporting Entity and Summary of Significant Accounting Policies, continued E. Assets, Liabilities and Net Position, continued 7. Deferred Outflows/Inflows of Resources, continued Intangible Plant 40 years Source of Supply Plant 50 years Pumping Plant 10 to 20 years Treatment Plant 40 years Collection, Transmission and Distribution Plant 50 years General Plant 5 to 50 years 8. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The District only has two items that qualify for reporting in this category on the Statement of Net Position. The first item is the pension plan deferred outflows, which are the difference between expected and actual experience, the net difference between projected and actual earnings on pension plan investments and the employer contributions for the current fiscal year. The second item is a deferred charge on refunding which results from the difference in the net carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. These amounts are deferred and recognized as inflow of resources in the period that the amounts become available. The District has one item that qualifies for reporting in this category on the Statement of Net Position. Pension plan deferred inflows result from the change in assumptions, the difference between expected and actual experience and the difference between projected and actual earnings on the assets invested in the pension plan. 8. Compensated Absences The District's policy is to permit employees to accumulate a maximum of 200 hours of vacation and an unlimited amount of sick leave. Accumulated vacation time is accrued for the District's obligation to the employees for the amount owed up to the maximum of 200 hours. Sick leave is accrued at 50% of the earned balance in keeping with the District s policy of 50% pay out upon retirement or death of the employee. Upon retirement, the remaining 50% sick leave balance is reported to CalPERS for application to the employee s service credit. 9. Long Term Debt Long term debt and other financial obligations are reported as liabilities in the appropriate funds. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures. Notes to the Basic Financial Statements 17

112 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (1) Reporting Entity and Summary of Significant Accounting Policies, continued E. Assets, Liabilities and Net Position, continued 10. Net Pension Liability For the purpose of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan s fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office and PARS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. GASB requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used. Valuation Date (VD) June 30, 2015 Measurement Date (MD) June 30, 2016 Measurement Period (MP) June 30, 2015 to June 30, Restricted Assets and Amounts Payable from Restricted Assets Amounts shown as restricted assets have been restricted by bond indentures or are to be used for specified purposes based on contract provisions, such as bonded debt service. Certain liabilities which are currently payable have been classified as current liabilities payable from restricted assets since assets have been restricted for their payment. 12. Net Position The financial statements utilize a net position presentation. Net position is categorized as follows: Net Investment in Capital Assets This component of net position consists of capital assets, net of accumulated depreciation and reduced by any debt outstanding against the acquisition, construction or improvement of those assets. Restricted Net Position This component of net position consists of constraints placed on net position use through external constraints imposed by creditors, grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position This component of net position consists of net position that does not meet the definition of restricted or net investment in capital assets 13. Net Position Flow Assumption Sometimes the District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the District financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District s policy to consider restricted net position to have been depleted before unrestricted net position is applied. 14. Water Sales Water sales are billed on a bi monthly cyclical basis. Estimated unbilled water revenue through June 30 has been accrued at year end. 18 Notes to the Basic Financial Statements

113 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (1) Reporting Entity and Summary of Significant Accounting Policies, continued E. Assets, Liabilities and Net Position, continued 15. Capital Contributions Contributions in aid of construction represent cash and utility plant additions contributed to the District by property owners or developers desiring services that require capital expenditures or capacity commitment. In accordance with the GASB, the capital contributions are recorded on the Statement of Revenues, Expenses and Changes in Net Position. The following special charges levied by the District against newly connecting customers are being accounted for as contributions in aid of construction: (2) Cash and Investments Water Development Fees: Range from $9,116 to $729,246 based on meter size. Sewer Development Fees: Range from $1,239 to $99,140 based on meter size. Cash and investments are reported in the accompanying statement of net position as follows: Unrestricted: Cash and cash equivalents $ 31,435,655 Investments 59,958,335 Restricted: Cash and cash equivalents with fiscal agent 7,371,976 Total cash and investments $ 98,765,966 Cash and investments at June 30, 2017 consisted of the following: Cash on hand $ 4,202 Deposits with financial institutions 1,568,564 Investments 97,193,200 $ 98,765,966 Investments Authorized by the California Government Code and the District s Investment Policy The table below identifies the investment types that are authorized by the District in accordance with the California Government Code (or the District s investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the District s investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. Notes to the Basic Financial Statements 19

114 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (2) Cash and Investments, continued Maximum Maximum Maximum Percentage Investment Authorized Investment Type Maturity of Portfolio* in One Issuer United States (U.S.) Treasury Obligations 5 years 100% None U.S. Agency Securities 5 years 100% None Banker's Acceptances 180 days 20% 30% Negotiable Certificates of Deposits 5 years 30% None Time Certificates of Deposits 1 year 30% None Commercial Paper 270 days 40% 10% Medium Term Corporate Notes 5 years 30% None Local Agency Investment Fund (LAIF) N/A 100% $65,000,000 Repurchase Agreements 90 days 10% None Money Market Funds N/A 20% None State and Local Agencies Notes or Bonds 5 years 30% None Supranational 5 years 30% None * Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. Investments Authorized by Debt Agreements Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the District s investment policy. Investments authorized for funds held by bond trustee include, U.S. Treasury Obligations, U.S. Government Sponsored Enterprise Securities, the California Local Agency Investment Fund, Guaranteed Investment Contracts, Commercial Paper, Local Agency Bonds, Banker s Acceptance and Money Market Mutual Funds. There were no limitations on the maximum amount that can be invested in one issuer, maximum percentage allowed or the maximum maturity of an investment, except for the maturity of Banker s Acceptance which are limited to one year. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to a local government s indirect investment in securities through the use of mutual funds or government investment pools (such as LAIF). The California Government Code and the District s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure District deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. 20 Notes to the Basic Financial Statements

115 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (2) Cash and Investments, continued The District had deposits with a bank balance of $2,324,375 as of June 30, Of the bank balance, up to $250,000 is federally insured and the remaining balance is collateralized in accordance with the Code; however, the collateralized securities are not held in the District s name. The District CFO may waive the collateral requirement for deposits that are fully insured up to $250,000 by the FDIC. Investment in State Investment Pool The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. LAIF has invested a portion of the pool funds in Structured Notes and Asset Backed Securities. LAIF s investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these Structured Notes and Asset Backed Securities are subject to market risk as to change in interest rates. The fair value of the District s investment in this pool is reported in the accompanying financial statements at amounts based upon the District s pro rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated by a nationally recognized statistical rating organization, but, as stated previously, it is regulated by the California Government Code, and is therefore exempt from rating requirements. Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value will be to changes in market interest rates. One of the ways that the District manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio matures or comes close to maturity evenly over time as necessary to provide requirements for cash flow and liquidity needed for operations. The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. Information about the sensitivity of the fair values of the District s investments to market interest rate fluctuations and their fair value measurement levels are provided by the following table that shows the distribution of the District s investments by maturity date: Notes to the Basic Financial Statements 21

116 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (2) Cash and Investments, continued Remaining Maturity (in Months) 12 Months Level Investment Type or Less Months Months Total Investments: U.S. Agency Securities: Federal National Mortgage Association $ $ 2,768,998 $ 4,086,827 $ 6,855,825 $ $ 6,855,825 $ Federal Home Loan Mortgage Corporation 1,943,760 4,875,923 6,819,683 6,819,683 U.S. Treasuries 20,262,638 20,262,638 20,262,638 Municipal Bonds 938, , ,795 Medium term Corporate Notes 5,547,421 2,399,089 4,996,908 12,943,418 12,943,418 Negotiable Certificates of Deposit 4,004,950 5,640,293 9,645,243 9,645,243 Supranational Obligations 1,137, ,812 1,704,576 1,704,576 Total Investments 10,491,166 13,889,904 34,789,108 59,170,178 $ 20,262,638 $ 38,907,540 $ Local Agency Investment Fund (LAIF) 33,168,243 33,168,243 Money Market Funds 788, ,161 Cash with fiscal agent: Local Agency Investment Fund (LAIF) 2,087,661 2,087,661 Money Market Funds 1,978,957 1,978,957 $ 48,514,188 $ 13,889,904 $ 34,789,108 $ 97,193,200 Securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Municipal bonds, corporate notes and CD s, and supranational obligations classified in Level 2 of the fair value hierarchy are valued using a matrix pricing model. Matrix pricing is used to value securities based on the securities relationship to benchmark quoted prices. Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the District s investment policy, or debt agreements, and the actual rating as of year end for each investment type. 22 Notes to the Basic Financial Statements

117 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (2) Cash and Investments, continued Minimum Investment Type Legal Rating Rating June 30, 2017 U.S. Agency Securities: Federal National Mortgage Association AA+ AA+ $ 6,855,825 Federal Home Loan Mortgage Corporation AA+ AA+ 6,819,683 U.S. Treasuries AA+ AA+ 20,262,638 Municipal Bonds A AA 938,795 Medium term Corporate Notes A AAA 249,258 AA+ 1,407,754 AA 75,179 AA 3,956,863 A+ 2,180,729 A 2,343,149 A 1,935,590 BBB+ 794,896 Negotiable Certificates of Deposit N/A N/A 9,645,243 Supranational Obligations A AAA 1,704,576 Local Agency Investment Fund (LAIF) N/A N/A 33,168,243 Money Market Funds A AAA 788,161 Cash with fiscal agent: Local Agency Investment Fund (LAIF) N/A N/A 2,087,661 Money Market Funds A AAA 1,978,957 Concentration of Credit Risk $ 97,193,200 The investment policy of the District contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. Investments in any one issuer (other than for U.S. Treasury securities, mutual funds, and external investment pools) that represent 5% or more of total District s investments are as follows: Reported Percent of Issuer Investment Type Amount Investments Federal National Mortgage Association U.S. Agency Securities $ 6,855, % Federal Home Loan Mortgage Corporation U.S. Agency Securities 6,819, % (3) Restricted Assets Restricted assets were provided by, and are to be used for, the following: Funding Source Use Amount Sewer Facility Fees Construction of Sewer Treatment Facility (Note 8) $ 3,305,358 Debt service reserves Funds held in reserve for outstanding debt 2,116,980 Debt Proceeds Construction of specific assets outlined in issues 1,949,638 7,371,976 (4) Water in Storage The District is entitled to water in the Chino Basin. To accommodate future growth, the District has purchased additional water from other purveyors within the Basin, which is stored in the Basin. The water is intended for use in future years. As of June 30, 2017, the District s unsold water purchases amounted to $21,986,771. $ Notes to the Basic Financial Statements 23

118 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (5) Capital Assets Changes in capital assets for the year were as follows: Balance Additions/ Retirements/ Balance July 1, 2016 Transfers Transfers June 30, 2017 Non Depreciable Assets: Water: Land $ 6,876,087 $ $ $ 6,876,087 Water rights 92,907,569 6,000 92,913,569 Construction in progress 8,301,706 9,052,620 (14,296,284) 3,058,042 Sewer: Construction in progress 129, ,980 (440,765) 90,005 Recycled Water: Construction in progress 2,934 39,515 (42,449) Total non depreciable assets 108,218,086 9,499,115 (14,779,498) 102,937,703 Depreciable assets: Water: Intangibles 170,295 (3,000) 167,295 Source of supply 24,579,185 24,579,185 Pumping plant 21,618,236 2,397,783 (205,932) 23,810,087 Transmission and distribution 202,298,843 12,584,251 (3,091,060) 211,792,034 Treatment plant 110,575,789 1,109,608 (953) 111,684,444 General water 47,832,449 2,006,635 (371,907) 49,467,177 Sewer: Intangibles 127, ,819 Pumping station 104, ,726 Collection and transmission 69,036,236 1,329,811 70,366,047 General sewer 9,444, ,205 (18,721) 9,948,534 Recycled Water: Waste water reclamation 5,747,503 42,449 5,789,952 General recycled water 5,000 5,000 Frontier Project Foundation: Office equipment 105, ,274 Total depreciable assets 491,645,405 19,993,742 (3,691,573) 507,947,574 Less: accumulated depreciation Water: Intangibles (119,005) (4,038) 3,000 (120,043) Source of supply (7,290,996) (489,621) (7,780,617) Pumping plant (9,618,860) (921,067) 205,932 (10,333,995) Transmission and distribution (75,078,509) (4,593,718) 2,849,278 (76,822,949) Treatment plant (33,903,150) (3,532,019) 953 (37,434,216) General water (19,043,498) (1,620,991) 371,907 (20,292,582) Sewer: Intangibles (67,898) (3,196) (71,094) Pumping station (60,205) (4,384) (64,589) Collection and transmission (31,833,533) (1,345,083) (33,178,616) General sewer (4,562,275) (382,543) 18,721 (4,926,097) Recycled Water: Waste water reclamation (840,363) (116,283) (956,646) General recycled water (5,000) (5,000) Frontier Project Foundation: General Frontier Project (95,969) (6,221) (102,190) Total accumulated depreciation (182,519,261) (13,019,164) 3,449,791 (192,088,634) Total depreciable assets, net 309,126,144 6,974,578 (241,782) 315,858,940 Total capital assets, net $ 417,344,230 $ 16,473,693 $ (15,021,280) $ 418,796,643 Capital asset additions include $369,921 in capitalized interest. The total amount of interest incurred for the year ended June 30, 2017 was $7,441, Notes to the Basic Financial Statements

119 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (6) Interfund Receivables, Payables, and Transfers The composition of interfund balances as of June 30, 2017, is as follows: Due to/from other funds: Receivable Fund Payable Fund Amount Water Utility Fund Recycled Water Utility Fund $ 295,712 (7) Long term Liabilities Changes in long term liabilities for the year ended June 30, 2017, are as follows: Balance Balance Current July 1, 2016 Additions Retirements June 30, 2017 Portion Certificates of participation $ 112,114,999 $ $ (3,519,286) $ 108,595,713 $ 3,664,286 Deferred bond premium 7,417,871 (393,809) 7,024,062 Net certificates of participation 119,532,870 (3,913,095) 115,619,775 3,664,286 Revenue Bonds 67,205,000 (1,385,000) 65,820,000 1,845,000 Deferred bond premium 5,997,601 (286,940) 5,710,661 Net Revenue Bonds 73,202,601 (1,671,940) 71,530,661 1,845,000 CalPERS Pension Plan Obligation (Note 14) 17,998,593 5,707,734 (2,314,320) 21,392,007 Excess Benefit Plan Obligation (Note 16) 1,264, ,463 (25,205) 1,555,938 Net Pension Liability 19,263,273 6,024,197 (2,339,525) 22,947,945 Leases payable 10,533,356 (1,546,326) 8,987,030 1,416,571 Loan Payable 484, ,408 68,895 Compensated absences 1,844,659 1,068,663 (890,725) 2,022, ,725 Net OPEB Obligation (note 17) 3,510,119 1,306,601 (984,000) 3,832,720 $ 228,371,286 $ 8,399,461 $ (11,345,611) $ 225,425,136 $ 7,885,477 Certificates of participation principal balances for the year ended June 30, 2017 are as follows: 2009 Certificates of Participation $ 7,500, Certificates of Participation 100,920, Clean Renewable Energy Bonds 175,713 $ 108,595,713 Revenue Bond principal balances for the year ended June 30, 2017 are as follows: 2012 Revenue Bonds $ 34,995, Revenue Bonds 10,885, Revenue Bonds 19,940,000 $ 65,820,000 Notes to the Basic Financial Statements 25

120 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (7) Long term Liabilities, continued Leases Payable principal balances for the year ended June 30, 2017 are as follows: 2009 Certificates of Participation 2007 Fixed Network Meter Replacement $ 504, Fixed Network Meter Replacement 1,391, Fixed Network Meter Replacement 7,091,564 $ 8,987,030 In April 2009, the Cucamonga Public Facilities Corporation issued Certificates of Participation in the amount of $27,960,000. The proceeds were used to fund the acquisition and construction of certain capital improvements and equipment, to provide for a reserve fund, and to pay for the costs of issuance. The 2009 Certificates of Participation are scheduled to mature annually on September 1, 2010 to September 1, 2020 in amounts ranging from $1,420,000 to $2,005,000. Interest is payable semiannually on March 1 and September 1 of each year with interest rates ranging from 2% to 5.625%. Debt service requirements on the 2009 Certificates of Participation are as follows: 2011 Certificates of Participation Year Principal Interest Total 2018 $ 1,755,000 $ 326,738 $ 2,081, ,825, ,625 2,066, ,915, ,125 2,063, ,005,000 50,125 2,055,125 $ 7,500,000 $ 766,613 $ 8,266,613 In August 2011, the Cucamonga Public Facilities Corporation issued Certificates of Participation in the amount of $109,475,000. The proceeds of the Certificates were used to defease the 2000 Certificates of Participation outstanding in the amount of $84,860,000 and to defease the 2001 Certificates of Participation outstanding in the amount of $33,315,000. The deferred amount on the refunding (the difference between the reacquisition price (funds required to refund the old debt) and the net carrying amount of the old debt) was $3,477,217. At June 30, 2017 the remaining unamortized deferred amount of $2,614,078 on the refunding is shown as a deferred outflow of resources. The 2011 Certificates are scheduled to mature annually on September 1, 2017 to September 1, 2036 in amounts ranging from $1,655,000 to $8,315,000. Interest is payable semi annually on March 1 and September 1 of each year ranging from 0.25% to 5.375%. 26 Notes to the Basic Financial Statements

121 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (7) Long term Liabilities, continued Debt service requirements on the 2011 Certificates of Participation are as follows: 2009 Clean Renewable Energy Bonds Year Principal Interest Total 2018 $ 1,880,000 $ 5,012,287 $ 6,892, ,945,000 4,935,788 6,880, ,015,000 4,861,663 6,876, ,085,000 4,790,163 6,875, ,155,000 4,716,562 6,871, ,470,000 20,794,182 46,264, ,680,000 12,566,356 50,246, ,690,000 3,073,962 30,763,962 $ 100,920,000 $ 60,750,963 $ 161,670,963 In April 2009, the Cucamonga Public Finance Corporation issued Certificates of Participation in the amount $410,000 under the provisions of the American Recovery and Reinvestment Act ( Act ). Under the Act, public agencies may issue Clean Renewable Energy Bonds ( CREBs ), which are interest free loans for projects that promote clean renewable energy. In return for their investments, investors are allowed a tax credit under this provision. Since the investor is making money in the form of a tax credit, no imputed interest will be calculated. The proceeds were used to fund renewable energy initiatives related to the construction of the Frontier Project building. The 2009 Clean Renewable Energy Bonds are scheduled to mature annually on September 1, 2017 through September 1, 2022 in the amount of $29,286. Debt service requirements on the 2009 Clean Renewable Energy Bonds are as follows: 2012 Revenue Bonds Year Principal 2018 $ 29, , , , , ,286 $ 175,713 In October 2012, the Cucamonga Valley Water District Financing Authority issued Revenue Bonds in the amount of $37,885,000. The proceeds were used to fund the acquisition and construction of certain capital improvements and equipment, and to pay for the costs of issuance. Notes to the Basic Financial Statements 27

122 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (7) Long term Liabilities, continued The 2012 Revenue Bonds are scheduled to mature annually on September 1, 2017 to September 1, 2042 in amounts ranging from $690,000 to $2,215,000. Interest is payable semiannually on March 1 and September 1 of each year with interest rates ranging from 2.5% to 4%. Debt service requirements on the 2012 Certificates of Participation are as follows: 2014 Revenue Bonds Year Principal Interest Total 2018 $ 795,000 $ 1,479,288 $ 2,274, ,000 1,446,888 2,271, ,000 1,413,188 2,273, ,000 1,378,087 2,273, ,000 1,341,587 2,271, ,255,000 6,111,287 11,366, ,195,000 5,166,241 11,361, ,460,000 3,900,797 11,360, ,565,000 1,797,375 11,362, ,215,000 55,375 2,270,375 $ 34,995,000 $ 24,090,113 $ 59,085,113 In July 2014, the Cucamonga Valley Water District Financing Authority issued Revenue Bonds in the amount of $12,150,000. The proceeds were used to fund the acquisition and construction of certain capital improvements and equipment, to refund the outstanding 2003 Certificates of Participation, and to pay for the costs of issuance. The 2014 Revenue Bonds are scheduled to mature annually on September 1, 2017 to September 1, 2029 in amounts ranging from $605,000 to $1,575,000. Interest is payable semiannually on March 1 and September 1 of each year with interest rates ranging from 2.5% to 5%. Debt service requirements on the 2014 Certificates of Participation are as follows: Year Principal Interest Total 2018 $ 655,000 $ 469,238 $ 1,124, , ,263 1,114, , ,188 1,118, , ,288 1,114, , ,338 1,115, ,715,000 1,005,365 5,720, ,625, ,057 2,775,057 $ 10,885,000 $ 3,196,737 $ 14,081, Notes to the Basic Financial Statements

123 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (7) Long term Liabilities, continued 2016 Revenue Bonds In February 2016, the Cucamonga Valley Water District Financing Authority issued Revenue Bonds in the amount of $19,940,000. The proceeds were used to pay off the outstanding Cucamonga Valley Water District 2006 Certificates of Participation, a portion of the 2009 Certificates of Participation, and to pay costs incurred in connection with the issuance of the bonds. The 2016 Revenue Bonds are scheduled to mature annually on September 1, 2017 to September 1, 2036 in amounts ranging from $395,000 to $9,250,000. Interest is payable semiannually on March 1 and September 1 of each year with interest rates ranging from 3% to 5%. Debt service requirements on the 2016 Certificates of Participation are as follows: Year Principal Interest Total 2018 $ 395,000 $ 752,763 $ 1,147, , ,162 1,171, , ,363 1,173, , ,137 1,182, ,390, ,263 3,015, ,515,000 2,261,687 4,776, ,198,813 2,198, ,265,000 1,614,831 14,879,831 $ 19,940,000 $ 9,605,019 $ 29,545, Fixed Network Meter Replacement Capital Lease Payable The District entered into an agreement dated December 17, 2007 with LaSalle Bank National Bank Association to finance the purchase of certain equipment related to the District s fixed network retrofit and meter exchange program in the amount of $5,720,765. The lease purchase agreement required semi annual payments on June 17 and December 17 of each year of $354,268 at an interest rate of 4.26%. On December 17, 2010, the District refinanced the lease with Chase Equipment Finance. The total amount refinanced was $4,292,371. The lease refinance agreement requires quarterly payments of $170,608 at an interest rate of 2.98%. Debt service requirements on the 2007 fixed network meter replacement capital lease payable are as follows: Year Principal Interest Total 2018 $ 504,291 $ 7,533 $ 511,824 Notes to the Basic Financial Statements 29

124 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (7) Long term Liabilities, continued 2010 Fixed Network Meter Replacement Capital Lease Payable The District entered into an agreement dated October 1, 2010 with Chase Equipment Finance to finance the purchase of certain equipment related to the District s fixed network retrofit and meter exchange program in the amount of $2,200,000. The lease purchase agreement requires quarterly payments of $47,659 at an interest rate of 3.59%. Debt service requirements on the 2010 fixed network meter replacement capital lease payable are as follows: Year Principal Interest Total 2018 $ 142,597 $ 48,038 $ 190, ,786 42, , ,163 37, , ,736 31, , ,512 26, , ,381 42, , Fixed Network Meter Replacement Capital Lease Payable $ 1,391,175 $ 229,223 $ 1,620,398 The District entered into an agreement dated November 13, 2015 with Chase Equipment Finance to finance the purchase of certain equipment related to the District s fixed network retrofit and meter exchange program in the amount of $8,216,000. As of June 30, 2017, equipment in the amount of $7,224,441 had been purchased. The lease purchase agreement requires quarterly payments of $228,483 at an interest rate of 2.12%. Church Street Lateral Loan Payable Year Principal Interest Total 2018 $ 769,683 $ 144,249 $ 913, , , , , , , ,087 93, , ,611 76, , ,075, ,636 3,198,760 $ 7,091,564 $ 676,855 $ 7,768,419 The District entered into an agreement dated November 24, 2009 with Inland Empire Utilities Agency (IEUA) for the construction of a recycled water pipeline. A portion of the pipeline was for the purpose of IEUA s Regional Recycled Water system and a portion was for the purpose of the District s recycled water connections. The entire project is to be funded by a State of California Revolving Fund (SRF) loan, obtained by IEUA, which offers low interest rates for the purpose of constructing infrastructure. The District paid for the construction costs and was subsequently reimbursed by IEUA in the amount of $2,441,548. IEUA obtained two grants for the project. The amounts of the grants were $344,760 and $615,822. The grants were received from the California State Water Resources Control Board and the United States Bureau of Reclamation respectively. 30 Notes to the Basic Financial Statements

125 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (7) Long term Liabilities, continued The District s portion of the grants was $461,939. The District s portion of the pipeline amounted to $690,648, which is payable by the District in annual installments of $34,532 including interest at.074%. Debt service requirements on the Church Street Lateral loan payable are as follows: (8) Intergovernmental Payable Year Principal 2018 $ 68, , , , , , ,224 $ 484,408 The District, along with other agencies in the area, has an agreement with the Inland Empire Utilities Agency (IEUA) to share in construction costs of regional sewer treatment facilities. Construction costs are paid by tax increments each year by IEUA. If these tax increments do not cover the construction costs, the various agencies involved will be billed their allocated percentage. The District collects sewer facilities fees that by this agreement must be paid to IEUA when billed. The District is allowed to earn interest on any sewer facilities fees collected until remitted to IEUA. The District s liability for collected but unremitted sewer facilities fees at June 30, 2017 is $3,305,358. (9) Water Held for Inland Empire Utilities Agency The District entered into an agreement dated March 1, 2016 with IEUA in which IEUA will pay for the purchase and delivery of Metropolitan Water District imported water to the District. The District in return will account for an equivalent volume of Chino Basin groundwater to IEUA within the District s existing Excess Carryover Storage Account. The District s liability for this water held for IEUA at June 30, 2017 is $2,295,762. (10) Net Investment in Capital Assets Investment in capital assets, net of related debt, at June 30, 2017, consisted of the following: Non depreciable capital assets $ 102,937,703 Depreciable capital assets, net 315,858,940 Lease payable current portion (1,416,571) Certificates of participation current portion (3,664,286) Revenue bonds current portion (1,845,000) Lease payable non current portion (7,570,459) Certificates of participation non current portion (111,955,489) Revenue bonds non current portion (69,685,661) Revenue bonds unspent portion with trustee 4,066,618 Deferred charge refunding of cerificates of participation 3,473,339 $ 230,199,134 Notes to the Basic Financial Statements 31

126 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (11) Designation of Unrestricted Net Position The District has adopted a Reserve Policy to establish designations of unrestricted net position. The designations established at June 30, 2017 are as follows: Fund Reserve Types Water Sewer Recycled Water Designated Development Fees $ 5,262,136 $ 627,604 $ 201,225 Capital Facility & Equipment Replacement 27,785,110 17,311,539 Emergency 7,431,000 (1) 848,000 (1) 97,000 (1) Administrative 1,688,000 84,000 Local Water Resource Development 2,000,000 N/A N/A Liquidity Operating 18,404,363 (2) 7,868,000 (2) 443,190 (2) Rate Stabilization 10,310,722 (3) N/A N/A Water Banking 3,852,500 (4) N/A N/A Note (1) Emergency Reserve: The funding target is a minimum of 1% and a maximum of 2% of the capital assets in the fund. Note (2) Operating Reserve: The funding target is a minimum of 20% and a maximum of 50% of the budgeted total operating expenses in the fund. Note (3) Rate Stabilization Reserve: The funding target is a minimum of $2,200,000 and a maximum of 25% of the Water Fund operating income. Note (4) Water Banking Reserve: The funding target is a minimum of $2,500,000 and a maximum equal to the cost of purchasing 5,000 acre feet of Metropolitan Water District Tier 2 imported water. (12) Capital Contributions Capital contributions for the fiscal year ending June 30, 2017 were as follows: (13) Deferred Compensation Savings Plan Developer fees $ 2,442,828 Developer donated assets 692,000 Total Contributed Capital $ 3,134,828 For the benefit of its employees, the District participates in three 457 Deferred Compensation Programs (Programs). The purpose of these Programs is to provide deferred compensation for public employees that elect to participate in the Program. Generally, eligible employees may defer receipt of a portion of their salary until termination, retirement, death or unforeseeable emergency. Until the funds are paid or otherwise made available to the employee, the employee is not obligated to report the deferred salary for income tax purposes. Federal law requires deferred compensation assets to be held in trust for the exclusive benefit of the participants. Accordingly, the District is in compliance with this legislation. Therefore, these assets are not the legal property of the District, and are not subject to claims of the District s general creditors. Market value of all plan assets held in trust by the District s three deferred compensation plans at June 30, 2017 amounted to $5,247,350. Since the District has little administrative involvement and does not perform the investing function for this plan, the assets and related liabilities are not shown on the statement of net position. 32 Notes to the Basic Financial Statements

127 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (14) Defined Benefit Pension Plan Plan Description The District contributes to the California Public Employees Retirement System (CalPERS), an agent multipleemployer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost of living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public agencies within the State of California. Benefit provisions and all other requirements are established by state statute and the District. Copies of PERS annual financial report may be obtained from their executive Office at 400 P Street, Sacramento, CA, Benefits Provided Employees are eligible for benefits under the plan in one of three tiers. Employees hired before January 10, 2011 are in Tier 1, employees hired after January 11, 2011 are in Tier 2, and employees hired after January 1, 2013 are in Tier 3. The benefit formula for employees in Tier 1 is 2.5% at 55, the benefit formula for employees in Tier 2 is 2.0% at 60, and the benefit formula for employees in Tier 3 is 2.0% at 62. The final average compensation period is 12 months for employees in Tier 1, and 36 months for employees in Tiers 2 and 3. Beneficiaries in all tiers are current receiving a 2% cost of living adjustment (COLA). Employees Covered Table: Inactive employees or beneficiaries current receiving benefits: 84 Inactive employees entitled to but not yet receiving benefits: 42 Active employees 123 Total: 249 Contribution Description Section 20814(c) of the California Public Employees Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2016 (the measurement date), the average active employee contribution rate is 8% for Tier 1 employees and 7% for Tier 2 and 3 employees. Tier 1 employees pay 4% of the 8% required contribution and Tier 2 employees pay 4% of their 7% required contribution. The District makes the remaining portion of the contributions required of District Tier 1 and 2 employees on their behalf and for their account. Tier 3 employees must pay the full 7% share. The employer s contribution rate is % of annual payroll. Employer contribution rates may change if plan contracts are amended. It is the responsibility of the employer to make necessary accounting adjustments to reflect the impact due to any Employer Paid Member Contributions or situations where members are paying a portion of the employer contribution. Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2016 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2015 total pension liability. The June 30, 2015 and the June 30, 2016 total pension liabilities were based on the following actuarial methods and assumptions: Notes to the Basic Financial Statements 33

128 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (14) Defined Benefit Pension Plan, continued Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB Statement No. 68 Actuarial Assumptions Discount Rate 7.65% Inflation 2.75% Salary Increases Varies by Entry Age and Service Investment Rate of Return 7.65% Net of Pension Plan Investment and Administrative Expenses; includes Inflation Mortality Rate Table (1) Derived using CalPERS Membership Data for all Funds Post Retirement Benefit Increase Contract COLA up to 2.75% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter (1) The mortality table used was developed based on CalPERS specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2015 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CalPERS website under Forms and Publications. Change of Assumptions GASB 68, paragraph 68 states that the long long term expected rate of return should be determined net of pension plan investment expense but without reduction for pension administrative expense. The discount rate of 7.50 percent used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of 7.65 percent used for June 30, 2015 measurement date is without reduction of pension plan administrative expense. Discount Rate The discount rate used to measure the total pension liability was 7.65 percent. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.65 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The longterm expected discount rate of 7.65 percent is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called GASB Crossover Testing Report that can be obtained at CalPERS website under the GASB 68 section. According to Paragraph 30 of Statement 68, the long term discount rate should be determined without reduction for pension plan administrative expense. The discount rate was changed from 7.50 percent (net of administrative expenses) to 7.65 percent. 34 Notes to the Basic Financial Statements

129 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (14) Defined Benefit Pension Plan, continued The long term expected rate of return on pension plan investments was determined using a building block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long term expected rate of return, staff took into account both short term and long term market return expectations as well as the expected pension fund cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds asset classes, expected compound (geometric) returns were calculated over the short term (first 10 years) and the long term (11 60 years) using a building block approach. Using the expected nominal returns for both short term and long term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short term and long term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects long term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses. Asset Class New Strategic Allocation Real Return Years 1-10 (1) Real Return Years 11+ (2) Global Equity 51.90% 5.25% 5.71% Private Equity 9.00% 6.83% 6.95% Global Fixed Income 20.30% 0.99% 2.43% Liquidity 1.50% -0.55% -1.05% Real Assets 10.80% 4.50% 5.13% Inflation Sensitive Assets 6.00% 0.45% 3.36% Other 0.50% 4.50% 5.09% (1) An expected inflation of 2.5% used for this period (2) An expected inflation of3.0% used for this period Pension Plan Fiduciary Net Position The plan fiduciary net position disclosed in the GASB 68 accounting valuation report may differ from the plan assets reported in the funding actuarial valuation report due to several reasons. First, for the accounting valuations, CalPERS must keep items such as deficiency reserves, fiduciary self insurance and OPEB expense included as assets. These amounts are excluded for rate setting purposes in the funding actuarial valuation. In addition, differences may result from early Comprehensive Annual Financial Report closing and final reconciled reserves. Notes to the Basic Financial Statements 35

130 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (14) Defined Benefit Pension Plan, continued Changes in the Net Pension Liability The following table shows the changes in net pension liability recognized over the measurement period. Total Pension Liability (a) Increase (Decrease) Plan Fiduciary Net Position (b) Net Pension Liability/(Assets) (c)=(a)-(b) Balance at: 6/30/2015 (Valuation Date) (1) $ 70,108,811 $ 52,110,218 $ 17,998,593 Changes Recognized for the Measurement Period: Service Cost 1,524,172 1,524,172 Interest on the Total Pension Liability 5,279,223 5,279,223 Changes of Benefit Terms - Changes of Assumptions - - Difference between Expected and Actual Experience (558,291) (558,291) Contribution from the Employer 1,817,385 (1,817,385) Contributions from Employees 777,419 (777,419) Net Investment Income (2) 288,644 (288,644) Benefit Payments including Refunds of Employee Contributions (2,606,336) (2,606,336) - Administrative Expense (31,758) 31,758 Net Changes During ,638, ,354 3,393,414 Balance at: 6/30/2016 (Measurement Date) (1) $ 73,747,579 $ 52,355,572 $ 21,392,007 (1) The fiduciary net position includes receivables for employee service buybacks, deficiency reserves, fiduciary self insurance and OPEB expense. This may differ from the plan assets reported in the funding actuarial valuation report (2) Net of administrative expenses. Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the Plan as of the measurement date, calculated using the discount rate of 7.65 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.65 percent) or 1 percentage point higher (8.65 percent) than the current rate: Discount Rate - 1% (6.65%) Current Discount Rate (7.65%) Discount Rate +1% (8.65%) Plan's Net Pension Liability/(Assets) $ 32,518,304 $ 21,392,007 $ 12,316,708 Subsequent Events In December 2016, the CalPERS Board of Administration voted to lower the discount rate from 7.5 percent to 7.0 percent over the next three years. For public agencies, the discount rate changes approved by the Board for the next three fiscal years ending June 30, 2019, 2020, and 2021 are 7.375%, 7.25%, and 7.00%, respectively. 36 Notes to the Basic Financial Statements

131 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (14) Defined Benefit Pension Plan, continued Recognition of Gains and Losses Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss: Difference between projected and actual earnings All other amounts 5 year straight-line amortization Straight-line amortization over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired). The EARSL for the Plan for the measurement period is 4.9 years, which was obtained by dividing the total service years of 1,272 (the sum of remaining service lifetimes of the active employees) by 259 (the total number of participants: active, inactive, and retired). Note that inactive employees and retirees have remaining service lifetimes equal to 0. Also note that total future service is based on the members probability of decrementing due to an event other than receiving a cash refund. Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions For the measurement period ending June 30, 2016 (the measurement date), the District incurred a pension expense/(income) of $2,736,928 for the Plan. As of June 30, 2017, the District has deferred outflows and inflows of resources related to pensions as follows: Deferred Outflows of Resources Deferred Inflows of Resources Change in Assumptions $ - $ (827,234) Difference between Expected and Actual Experience 374,135 (444,354) Net Difference between Projected and Actual Earnings on Pension Plan Investments 2,877,286 - Contributions subsequent to the Mesaurement Date 3,032,158 - Total $ 6,283,579 $ (1,271,588) Notes to the Basic Financial Statements 37

132 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (14) Defined Benefit Pension Plan, continued $3,032,158 will be recognized as reduction to the Net Pension Liability in the following measurement period, the remaining amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows: Measurement Period ended June 30: (15) Retirement Enhancement Plan Plan Description Deferred Outflows/(Inflows) of Resources $ , , ,023, , Thereafter - Effective July 1, 2003, the District established the PARS Retirement Enhancement Plan (the "Plan"), a Single Employer defined benefit retirement plan, to provide a supplemental retirement benefit to the employee s pension benefit from CALPERS. The Plan is currently funded through PARS, a multiple agency trust. Benefit provisions and all other requirements are established by state statute and the District. Copies of the PARS audited GAAP basis annual financial report may be obtained by writing to PO Box 12919, Newport Beach, CA Eligibility and Benefit An employee is eligible to receive the Plan's benefit at retirement if employed by the District at July 1, 2003, is at least age 50 and has at least 20 years of service or 5 years of service on or after July 1, Employees hired on or after January 1, 2011 are not eligible for the Plan. The monthly retirement benefit is equal to the difference between 1) and 2) below: 1) Benefit Service x Final Pay x PARS Age Factor 2) Benefit Service x Final Pay x CalPERS Age Factor The CalPERS Age Factor is defined as the 2.5% at 55 Local Miscellaneous Member benefit age factor used by CalPERS determined at your age of retirement. The PARS Age Factor is determined at your age of retirement under CalPERS. Both factors by CalPERS retirement age are presented in the following table: Retirement Age CalPERS Age Factor PARS Age Factor REP % 2.000% 0.000% % 2.140% 0.040% % 2.280% 0.080% % 2.420% 0.120% % 2.560% 0.160% % 2.700% 0.200% Benefits are payable as a life annuity for the lifetime of the eligible employee subject to a 2% annual cost ofliving increase. Two Optional Forms of payments are also available. 38 Notes to the Basic Financial Statements

133 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (15) Retirement Enhancement Plan, continued Employees Covered Table: Contribution Description Inactive employees or beneficiaries current receiving benefits: 1 Active employees 98 Total: 99 The District currently funds the Plan through the PARS trust. As of June 30, 2016, the market value of Plan assets is $5,377,269. The actuarial value of asset method smooths past asset gains and losses over five years. The actuarial value of Plan assets at June 30, 2016 is $5,390,180. The unfunded actuarial accrued liability/ (surplus) is ($609,215). The funded status of the Plan on an accrued liability basis is 112.7% at June 30, 2016 an decrease from the 116.4% reported in the June 30, 2014 valuation. The annual required contribution for the 2015/2016 fiscal year is $229,000. The annual contribution represents a means to expense the Plan's liabilities in an orderly manner. The net pension obligation at the end of the fiscal year will reflect any contributions made during the fiscal period by the District. The District contributed $181,815 and $229,000 respectively in fiscal years and Contributions were taken from current fiduciary pension assets. In addition to being updated for new census and asset information, the valuation reflects an update to the demographic (mortality and retirement) assumptions to reflect rates from the most recent CalPERS experience study. Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2016 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2015 total pension liability. The June 30, 2015 and the June 30, 2016 total pension liabilities were based on the following actuarial methods and assumptions: Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB Statement No. 73 Actuarial Assumptions Discount Rate 2.85% Inflation 2.75% Salary Increases 3.0% per annum, in aggregate Investment Rate of Return N/A Mortality Rate Table (1) Derived using CalPERS Membership Data for all Funds Post Retirement Benefit Increase Assumed to increase 2% per year (1) The mortality table used was developed based on CalPERS specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CalPERS website under Forms and Publications. Notes to the Basic Financial Statements 39

134 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (15) Retirement Enhancement Plan, continued Changes since the prior valuation: The discount rate increased from 5.00% to 6.75% to reflect updated capital market assumptions. The salary increase assumption was updated to reflect the 2014 CalPERS experience study. The increase rate for the IRC 415 and 401(a)(17) limits changed from 3.00% to 2.75% to match the assumed inflation rate. An assumption regarding spouse information was added for simplification. Pension Plan Fiduciary Net Position The plan fiduciary net position disclosed in the GASB 68 accounting valuation report may differ from the plan assets reported in the funding actuarial valuation report due to several reasons. We have determined that the amount of the actuarial liability for the Plan as of June 30, 2016 the measurement date, is $4,780,965. This amount represents the present value of all Plan benefits projected to be paid by the District for current and future retirees. If the District were to place this amount in a fund earning interest at the rate of 6.75% per year, and all other actuarial assumptions were met, the fund would have enough to pay all expected benefits. This includes Plan benefits for the current retirees as well as for the current active employees expected to retire in the future. This plan was closed to employees hired after January 11, 2011, therefore, the valuation does not consider employees not yet hired as of the valuation date. If the amount of the actuarial liability is apportioned into past service, current service and future service components, the past service component (actuarial accrued liability) is $4,520,332, and the current service component (service cost) is $96,326. The remaining liability reflects the service components (not yet accrued liability) to be accrued in future fiscal years. Discount Rate The table below reflects long term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses. Asset Class Strategic Allocation Long-Term Expected Real Rate of Return U.S. Equity 34.86% 5.52% International Equity 18.26% 5.78% Fixed Income 44.89% 2.12% Real Estate and Alternatives 0.00% 4.12% Cash and Equivalents 1.99% 0.82% 40 Notes to the Basic Financial Statements

135 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (15) Retirement Enhancement Plan, continued Changes in the Net Pension Asset The following table shows the changes in net pension liability recognized over the measurement period. Total Pension Liability (a) Increase (Decrease) Plan Fiduciary Net Position (b) Net Pension Liability/(Assets) (c)=(a)-(b) Balance at: 6/30/2015 (Valuation Date) $ 4,520,332 $ 5,260,331 $ (739,999) Changes Recognized for the Measurement Period: Service Cost 96,326 96,326 Interest on the Total Pension Liability 306, ,815 Difference between Expected and Actual Experience - - Changes of Assumptions - - Changes of Benefit Terms - Contribution from the Employer 229,000 (229,000) Contributions from Employees - Net Investment Income 72,824 (72,824) Benefit Payments including Refunds of Employee Contributions (142,508) (142,508) - Administrative Expense (29,467) 29,467 Net Changes During , , ,784 Balance at: 6/30/2016 (Measurement Date) $ 4,780,965 $ 5,390,180 $ (609,215) Sensitivity of the Net Pension Liability to Changes in the Discount Rate The annual required contribution is highly sensitive to some of the assumptions used in the valuation. To the extent that a single or a combination of assumptions is not met the future liability may fluctuate significantly from its current measurement. The following presents the net pension liability of the Plan as of the measurement date, calculated using the discount rate of 6.75%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (5.75 percent) or 1 percentage point higher (7.75 percent) than the current rate: Discount Rate - 1% (5.75%) Current Discount Rate (6.75%) Discount Rate +1% (7.75%) Plan's Net Pension Liability/(Assets) $ 140,610 $ (609,215) $ (1,217,144) Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Recognition of Gains and Losses Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. Notes to the Basic Financial Statements 41

136 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (15) Retirement Enhancement Plan, continued The amortization period differs depending on the source of the gain or loss: Difference between projected and actual earnings All other amounts 5 year straight-line amortization Straight-line amortization over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions For the measurement period ending June 30, 2016 (the measurement date), the District incurred a pension expense/(income) of ($53,148) for the Plan. As of June 30, 2017, the District has deferred outflows and inflows of resources related to pensions as follows: Deferred Outflows of Resources Deferred Inflows of Resources Change in Assumptions $ - $ (1,057,221) Difference between Expected and Actual Experience - (42,696) Net Difference between Projected and Actual Earnings on Pension Plan Investments 307,400 - Contributions subsequent to the Mesaurement Date 180,000 - Total $ 487,400 $ (1,099,917) $180,000 will be recognized as reduction to the Net Pension Liability in the following measurement period, the remaining amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows: Measurement Period ended June 30: Deferred Outflows/(Inflows) of Resources $ 2017 (129,973) 2018 (129,973) 2019 (129,973) 2020 (156,985) 2021 (213,576) Thereafter (32,037) 42 Notes to the Basic Financial Statements

137 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (16) Excess Benefit Plan Plan Description Effective January 1, 2011, the District established the Excess Benefit Plan (the "Plan") to provide a benefit to participants in the PARS Retirement Enhancement Plan (REP) whose benefit is limited due to the dollar limitation under Section 415 of the Internal Revenue Code. The plan is a Single Employer plan. Benefit provisions and all other requirements are established by state statute and the District. Copies of the PARS audited GAAP basis annual financial report may be obtained by writing to PO Box 12919, Newport Beach, CA Eligibility Eligibility for the Plan requires participation in the REP. In general, the Plan will pay a benefit equal to the full REP benefit if the benefit payable under CalPERS is greater than the applicable dollar limitation at retirement. In addition, the Plan will pay a benefit equal to a portion of the REP benefit, if the combined REP and CalPERS benefit is greater than the applicable dollar limit at retirement. Employees hired on or after January 1, 2011 are not eligible for the Plan. Funding Policy The Plan is unfunded and benefits under the Plan are paid through the general fund of the District or through an Excess Benefit Plan Trust (the Trust ) that has been set up by the District through PARS. The Trust is a grantor trust held by the District subject to the claims of the District s creditors. As of June 30, 2016, the market value of assets in the Trust is $4,192. Employees Covered Table: Inactive employees or beneficiaries current receiving benefits: 1 Active employees 98 Total: 99 Contribution Description The annual required contribution for the fiscal year is $24,360. This amount is comprised of estimated benefit payables for the current fiscal year. The net pension obligation at the end of the fiscal year will reflect any benefit payments made during the fiscal period by the District. Actuarial Methods and Assumptions Used to Determine Total Pension Liability For the measurement period ended June 30, 2016 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2015 total pension liability. The June 30, 2016 total pension liabilities were based on the following actuarial methods and assumptions: Notes to the Basic Financial Statements 43

138 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (16) Excess Benefit Plan, continued Actuarial Cost Method Entry Age Normal in accordance with the requirements of GASB Statement No. 73 Actuarial Assumptions Discount Rate 2.85% Inflation 2.75% Salary Increases 3.0% per annum, in aggregate Investment Rate of Return N/A Mortality Rate Table (1) Derived using CalPERS Membership Data for all Funds Post Retirement Benefit Increase Assumed to increase 2% per year (1) The mortality table used was developed based on CalPERS specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2016 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CalPERS website under Forms and Publications. Changes is assumptions since the prior valuation: The discount rate increased from 3.75% to 3.80% based on bond index rates. The salary increase assumption was updated to reflect the 2014 CalPERS experience study. The increase rate for the IRC 415 and 401(a)(17) limits changed from 3.00% to 2.75% to match the assumed inflation rate. An assumption regarding spouse information was added for simplification. Pension Plan Fiduciary Net Position We have determined that the amount of the actuarial liability for the Plan as of June 30, 2016, the measurement date, is $1,555,938. This amount represents the present value of all Plan benefits projected to be paid by the District for current and future retirees. If the District were to place this amount in a fund earning interest at the rate of 3.80% per year, and all other actuarial assumptions were met, the fund would have enough to pay all expected benefits. This includes Plan benefits for the current retirees as well as for the current active employees expected to retire in the future. This plan was closed to employees hired after January 11, 2011, therefore, the valuation does not consider employees not yet hired as of the valuation date. If the amount of the actuarial liability is apportioned into past service, current service and future service components, the past service component (actuarial accrued liability) is $1,264,680, and the current service component (service cost) is $33,058. The remaining liability reflects the service components (not yet accrued liability) to be accrued in future fiscal years. 44 Notes to the Basic Financial Statements

139 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (16) Excess Benefit Plan, continued Changes in the Net Pension Liability The following table shows the changes in net pension liability recognized over the measurement period. Total Pension Liability (a) Increase (Decrease) Plan Fiduciary Net Position (b) Net Pension Liability/(Assets) (c)=(a)-(b) Balance at: 6/30/2015 (Valuation Date) $ 1,264,680 $ - $ 1,264,680 Changes Recognized for the Measurement Period: Service Cost 33,058-33,058 Interest on the Total Pension Liability 48,835-48,835 Difference between Expected and Actual Experience Changes of Assumptions 234, ,570 Changes of Benefit Terms Contribution from the Employer Contributions from Employees Net Investment Income Benefit Payments including Refunds of Employee Contributions (25,205) - (25,205) Administrative Expense - - Adjustment for GASB Net Changes During , ,258 Balance at: 6/30/2016 (Measurement Date) $ 1,555,938 $ - $ 1,555,938 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The annual required contribution is highly sensitive to some of the assumptions used in the valuation. To the extent that a single or a combination of assumptions is not met the future liability may fluctuate significantly from its current measurement. The following presents the net pension liability of the Plan as of the measurement date, calculated using the discount rate of 2.85 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (1.85 percent) or 1 percentage point higher (3.85 percent) than the current rate: Discount Rate - 1% (1.85%) Current Discount Rate (2.85%) Discount Rate +1% (3.85%) Plan's Net Pension Liability/(Assets) $ 1,868,651 $ 1,555,938 $ 1,310,416 Subsequent Events There were no subsequent events that would materially affect the results presented in this disclosure. Notes to the Basic Financial Statements 45

140 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (16) Excess Benefit Plan, continued Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions For the measurement period ending June 30, 2016 (the measurement date), the District incurred a pension expense/(income) of $71,684 for the Plan. As of June 30, 2017, the District has deferred outflows and inflows of resources related to pensions as follows: Deferred Outflows of Resources Deferred Inflows of Resources Change in Assumptions $ 208,821 $ (414,810) Difference between Expected and Actual Experience 123,189 - Net Difference between Projected and Actual Earnings on Pension Plan Investments - - Contributions subsequent to the Mesaurement Date 25,709 - Total $ 357,719 $ (414,810) $25,709 will be recognized as reduction to the Net Pension Liability in the following measurement period, the remaining amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows: Measurement Period ended June 30: Deferred Outflows/(Inflows) of Resources $ 2017 (10,209) 2018 (10,209) 2019 (10,209) 2020 (10,209) 2021 (10,209) Thereafter (31,755) 46 Notes to the Basic Financial Statements

141 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (17) Other Post Employment Benefits Plan Description The District administers a single employer defined benefit healthcare plan which provides medical insurance benefits to eligible retirees and their eligible dependents in accordance with District ordinances. Eligibility Employees are eligible for retiree health care benefits according to the following matrix: Minimum Age Years of Service Coverage at Retirement with District Provided Tier 1 Hired Before 11/1/2006 and Executives Employee Only Tier 2 Hired Between 11/1/2006 & 1/1/ Employee Only Tier 3 Hired Before 11/1/2011 and Executives Employee and Dependents Tier 4 Hired Between 11/1/2006 & 1/1/2011 Employee and and Executives Dependents Health Tier 5 Hired After 1/1/ Reimbursement Account Employees hired on or after January 1, 2011 are enrolled in a defined contribution health savings plan after five years of employment. Employees Covered Table: Funding Policy Inactive employees or beneficiaries with coverage 36 Inactive employees or beneficiaries without coverage 6 Active employees or beneficiaries with coverage 76 Active employees or beneficiaries without coverage 21 Total: 139 Retirees must pay the portion of the coverage, if any, not covered by their benefits. The required contribution is based on projected pay as you go financing requirements, with an additional amount to prefund benefits as determined annually by the District s Board of Directors. District assets designated for OPEB are invested in California Employers Retiree Benefits Trust (CERBT) Strategy 1, which is a GASB 45 qualified irrevocable trust under IRC Section 115 and administered by CalPERS. Annual contributions by the District are equal to at least 75% of the Annual Required Contribution (ARC). Benefit payments equal to the annual direct plus implicit subsidy are paid from the trust. For fiscal year 2017, the District contributed $984,000 to the plan, including $474,819 for current premiums (approximately 86% of the total premiums) and an additional $575,621 to prefund. Plan members receiving benefits contributed $66,440, or approximately 14% of the total premiums. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long term perspective of the calculations. Notes to the Basic Financial Statements 47

142 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (17) Other Post Employment Benefits, continued Actuarial Cost Method Liabilities are based on the Entry Age Normal level percent of pay cost method. Actuarial Assumptions Discount Rate 6.75% Investment Rate of Return General District Assets 3.75% Irrevocable Trust Assets 7.28% (CERBT Strategy 1) Inflation Rate 2.75% (General) 4.00% (CPI Medical Care) Payroll Growth Rate (1) 3.00% Healthcare Trend Rates Annual increases per capita claims costs and plan premium: Year Ending Medical 30-Jun Coverage % % % % % Increases in Direct Subsidy Transition to ultimate rate % Medicare Part B premiums are assumed to increase 5.0% annually. Dental and vision premiums are assumed to increase 4.0% annually. To apply the Entry Age Normal actuarial cost method, annual medical, Medicare Part B, dental and vision perium cost increases between each participant's entry age and the valuation date are assumed to be 8.25%, 5.0%, 4.0% and 4.0%, respectively. Assumed to increase with healhtcare trend rates (1) Annual Payroll Growth Rate was based on CalPERS 2014 experience study report Assumption changes: The discount rate was changed from 7.00% to 6.75% based on updated expectations of long-term returns on trust and general District assets. Healthcare, dental and vision trend rates were reset to reflect updated cst increase expectations. Medicare per capita claims costs were updated to reflect recent experience. Retirement, disability, mortality and salary increase rates were updated from the rates used in the 6/30/2012 CalPERS Public Agency Miscellaneous actuarial valuation to rates used in the 6/30/2014 CalPERS Public Agency Miscellaneous actuarial valuation. The percent of future retirees eligible for retiree only direct subsidy assumed to elect coverage at retirement changed from 50% to 100% to reflect recent plan experience. The inflation assumption was changed from 2.80% to 2.75% based on an updated historical analysis of inflation rates and forward-looking market expectations. The percent of retirees electing a spouse has changed to 65% to reflect updated expectations based on recent plan experience. The prior valuation assumed that 100% of future retirees currently covering a spouse would elect spouse coverage at retirement, and 80% of future retirees currently waiving coverage who elect coverage at retirement would elect a spouse. The above percentages were reduced by 50% if spouse coverage was only available on a self-pay basis. The percent of future retirees electing non-spouse dependent coverage at retirement changed from 10% to 0% to reflect updated expectations based on recent plan experience. 48 Notes to the Basic Financial Statements

143 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (17) Other Post Employment Benefits, continued Discount Rate The June 30, 2015 actuarial valuation included a 6.75% discount rate. This rate is based on a blend of the longterm expected return on (1) plan assets to the extent they are projected to be sufficient to pay plan benefits, and (2) employer general assets to the extent that projected plan assets are insufficient to pay plan benefits. The expected plan asset return (if any) is based on a blend of the plan s expected asset class returns and target asset allocation, which was based on CERBT investment Strategy 1 and was provided by CalPERS. The expected employer asset return is based on an estimate of short term investments, using the average 25 year historical return of the Local Agency Investment Fund (LAIF) as a reference. Annual OPEB Cost and Net OPEB Obligation The District s annual other post employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. GASB 45 accounting rules require selection of a method for amortizing the unfunded actuarial accrued liability (UAAL) when calculating the ARC and Annual OPEC Cost. For the current valuation, the District has elected to amortize the UAAL as a level percentage of payroll over a 30 year closed period. As of June 30, 2015, the remaining amortization period is twenty two years. The following table shows the components of the District s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District s net OPEB obligation: Annual required contribution $ 1,311,239 Interest on net OPEB obligation 232,073 (Adjustment to annual required contribution) (236,711) Annual OPEB cost (expense) 1,306,601 Contributions made (984,000) Increase in net OPEB obligation 322,601 Net OPEB obligation beginning of year 3,510,119 Net OPEB obligation end of year $ 3,832,720 The District s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2009 (the year of implementation) and 2017 were as follows: Funded Status and Funding Progress % of Annual Annual OPEB Cost Net OPEB Fiscal Year OPEB Cost Contributed Obligation ,373, % 3,083, ,414, % 3,510, ,306, % 3,832,720 As of June 30, 2015, the most recent actuarial valuation date, the plan was 27.4% funded. The actuarial accrued liability for benefits was $16,728,353, the actuarial value of assets was $4,584,369 and the unfunded actuarial accrued liability (UAAL) was $12,143,984. The covered payroll (annual payroll of active employees covered by the plan) was $8,003,311 and the ratio of the UAAL to the covered payroll was 151.7%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future Notes to the Basic Financial Statements 49

144 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (17) Other Post Employment Benefits, continued employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. (18) Risk Management The District is exposed to various risks of loss related to torts, theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The District has purchased various insurance policies to manage the potential liabilities that may occur from the previously named sources and is a member of the Association of California Water Agencies Joint Powers Insurance Authority ( Authority ). The Authority is a risk pooling, self insurance authority, created under provisions of California Government Code Sections 6500 et. seq. The purpose of the Authority is to arrange and administer programs of self insured losses and to purchase excess insurance coverage. At June 30, 2017, the District participated in the liability and property programs of the Authority as follows: Property Loss: Insured up to replacement value with $25,000 deductible per occurrence for buildings, personal property, fixed equipment, and catastrophic coverage. The deductible for mobile equipment is $5,000. The deductible on vehicles is $5,000. The boiler and machinery deductible varies on incident. There is a $150,000,000 program limit with replacement value. These deductible vary based on the property type. The Authority is self insured up to $100,000 per occurrence and has purchased excess insurance coverage in the amount of $50,000,000. General Liability: The District is insured for general liability through ACWA/JPIA up to $2,000,000 per occurrence, and ACWA/JPIA has purchased additional coverage from commercial insurers, subject to policy aggregate limits. Auto Liability: The District is insured for automobile liability through ACWA/JPIA up to $2,000,000 per occurrence, and ACWA/JPIA has purchased additional coverage from commercial insurers, subject to policy aggregate limits. UST Pollution Liability: The District is insured for underground storage tank liability through ACWA/JPIA with $10,000 deductible each incident. The Authority is self insured up to $3,000,000 per occurrence and has purchased excess insurance coverage in the amount of $3,000,000 subject to a $750,000 aggregate expense limit. Public Officials and Employees Errors and Omissions: The District is insured for through ACWA/JPIA up to $5,000,000 per occurrence, and ACWA/JPIA has purchased additional coverage from commercial insurers, subject to policy aggregate limits. Workers Compensation: The District is insured to statutory requirements. In addition to the above, the Authority also has purchased insurance coverage as follows: Fidelity Coverage: $100,000 total insurance with a $1,000 deductible covering public employee dishonesty, forgery or alteration, and computer fraud. Settled claims have not exceeded any of the coverage amounts in any of the last three fiscal year and there were no reductions in the District s insurance coverage during the years ending June 30, 2017, 2016 and Liabilities are recorded when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated net of the respective insurance coverage. Liabilities include an amount for claims that have been incurred but not reported (IBNR). There were no IBNR claims payable as of June 30, 2017, 2016 and Notes to the Basic Financial Statements

145 CUCAMONGA VALLEY WATER DISTRICT Notes to the Basic Financial Statements, continued June 30, 2017 (19) Commitments and Contingencies Construction Commitments The District has entered into several material construction contracts. The following schedule lists the major contractual commitments as of June 30, 2017: Project Vendor Amount Automatic Meter Reader Network Itron $ 1,497,468 Meter Replacement National Meter & Automation 588,970 Baseline and Interstate 15 City of Rancho Cucamonga 384,910 Waterline in Chestnut and Cornwall Merlin Johnson Pipeline Inc. 308,536 Grant Awards Grant funds received by the District are subject to audit by the grantor agencies. Such audit could lead to requests for reimbursements to the grantor agencies for expenditures disallowed under terms of the grant. Management of the District believes that such disallowances, if any, would not be significant. Litigation In the ordinary course of operations, the District is subject to claims and litigation from outside parties. After consultation with legal counsel, the District believes the ultimate outcome of such matters, if any, will not materially affect its financial condition. San Bernardino Valley Municipal Water District et al. vs. San Gabriel Valley Water Company et al., San Bernardino Superior Court Case No. CIV DS This case was filed September 12, 2013, and alleges that defendants San Gabriel Water Company and Fontana Union Water Company have extracted more water from the Rialto Colton Groundwater Basin than permitted under a 1961 decree. It alleges damages in an unknown amount and also seeks an injunction and other remedies. The case is currently in the discovery stage. The District is not a named party to the lawsuit, but it is potentially affected by the lawsuit in three ways: (1) The District is the majority owner of Fontana Union Water Company. (2) The District is entitled to a portion of the water pumped by San Gabriel Water Company from the Rialto Colton Basin, and is compensated by San Gabriel Water Company for that water. Thus, if San Gabriel Water Company and Fontana Union Water Company are forced to reduce pumping, the District will lose revenue. (3) Under Fontana Union Water Company s approved bankruptcy reorganization plan, if its production of water in the Rialto Colton Basin is limited by court order, the District is obligated to reduce its water production from the Chino Basin. This may in turn force the District to Purchase more expensive water. On October 13, 2014, the District s Board of Directors agreed to intervene in the lawsuit with the goal to assist the parties to reach a resolution. The defendants in the lawsuit are contesting the matter vigorously. The District believes there are meritorious defenses. However, the District s attorney is unable to characterize the likelihood of an unfavorable outcome as either probable or remote. Similarly, the attorney is unable to estimate the amount or range of potential loss, should an unfavorable outcome occur. Notes to the Basic Financial Statements 51

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147 Required Supplementary Information

148 CUCAMONGA VALLEY WATER DISTRICT Defined Benefit Pension Plan (PERS) Schedule of Changes in Net Pension Liability and Related Ratios As of June 30, for the Last Ten Fiscal Years (1) MEASUREMENT PERIOD TOTAL PENSION LIABILITY Service Cost $ 1,503,857 $ 1,489,827 $ 1,524,172 Interest 4,682,615 5,013,228 5,279,223 Changes of Benefits Terms Changes in Assumptions - (1,378,724) - Difference Between expected and Actual Experience - 623,559 (558,291) Benefit Payments, Including Refunds of employee Contributions (2,290,095) (2,363,439) (2,606,336) Net Change in Total Pension Liability $ 3,896,377 $ 3,384,451 $ 3,638,768 Total Pension Liability - Beginning 62,827,983 66,724,360 70,108,811 Total Pension Liability - Ending (a) $ 66,724,360 $ 70,108,811 $ 73,747,579 PLAN FIDUCIARY NET POSITION Contribution - Employer $ 1,517,017 $ 1,653,572 $ 1,817,385 Contribution - Employee 734, , ,419 Net Investment Income 7,556,918 1,140, ,644 Benefit Payments, Including Refunds of Employee Contributions (2,290,095) (2,363,439) (2,606,336) Administrative Expense - (58,593) (31,758) Net Change in Fiduciary Net Position $ 7,517,880 $ 1,270,706 $ 245,354 Plan Fiduciary Net Position - Beginning 43,321,632 50,839,512 52,110,218 Plan Fiduciary Net Position - Ending (b) $ 50,839,512 $ 52,110,218 $ 52,355,572 Plan Net Pension Liability/(Assets) - Ending (a) - (b) $ 15,884,848 $ 17,998,593 $ 21,392,007 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 76.19% 74.33% 70.99% Covered-Employee Payroll $ 9,088,151 $ 9,381,625 $ 9,867,521 Plan Net Pension Liability/(Asset) as a Percentage of Covered-Employee Payroll % % % (1) Historical information is required only for measurement for which GASB 68 is applicable. Fiscal Year 2015 was the first year of implementation, therefore only three years are shown. (2) Net of administrative expenses. Notes to Schedule: Benefit Changes: The figures above do not include any liability impact that may have rsulted from plan changes which occurred after June 30, 2014 valuation date. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes). Changes of Assumptions: The discount rate was changed from 7.5 percent (net of administrative expense) to 7.65 percent Subsequent Events: In December 2016, the CalPERS Board of Administration voted to lower the discount rate from 7.5 percent to 7.0 percent (net of administrative expense) over the next three years. For public agencies, the discount rate changes approved by the Board for the next three fiscal years ending June 30, 2019, 2020 and 2021 are 7.375%, 7.25% and 7.00%, respectively. 52 Defined Benefit Pension Plan (PERS) Schedule of Changes in Net Pension Liability

149 CUCAMONGA VALLEY WATER DISTRICT Defined Benefit Pension Plan (PERS) Schedule of Plan Contributions As of June 30, for the Last Ten Fiscal Years (1) Actuarially Determined Contribution $ 1,517,017 $ 1,653,572 $ 1,817,385 $ 2,032,158 Contribution in Relation to the Actuarially Determined Contribution (1,517,017) (1,653,572) (1,817,385) (3,032,158) Contribution Deficiency (Excess) $ - $ - $ - $ (1,000,000) Covered-Employee Payroll 9,088,151 9,381,625 9,867,521 10,315,083 Contributions as a Percentage of Covered-Employee Payroll 16.69% 17.63% 18.42% 29.40% (1) Historical information is required only for measurement for which GASB 68 is applicable. Fiscal Year 2015 was the first year of implementation, therefore only three years are shown. Note to Schedule: Valuation Date: June 30, 2014 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age normal cost method Amortization method Level percentage of payroll, closed Assets valuation method Market Value Inflation 2.75% Salary Increases 3.30% to 14.20% Payroll growth 3.00% Investment rate of return 7.50% net of pension investment and administrative expenses, including inflation. Retirement age Mortality The probabilities of retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to Pre-retirement and post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. Defined Benefit Pension Plan (PERS) Schedule of Plan Contributions 53

150 CUCAMONGA VALLEY WATER DISTRICT Retirement Enhancement Pension Plan (PARS) Schedule of Changes in Net Pension Liability and Related Ratios As of June 30, for the Last Ten Fiscal Years (1) MEASUREMENT PERIOD TOTAL PENSION LIABILITY Service Cost $ 155,755 $ 167,923 $ 96,326 Interest 275, , ,815 Difference Between expected and Actual Experience - (59,276) - Changes in Assumptions - (1,467,793) - Changes of Benefits Terms Benefit Payments, Including Refunds of employee Contributions (128,070) (128,012) (142,508) Net Change in Total Pension Liability $ 302,947 $ (1,196,139) $ 260,633 Total Pension Liability - Beginning 5,413,524 5,716,471 4,520,332 Total Pension Liability - Ending (a) $ 5,716,471 $ 4,520,332 $ 4,780,965 PLAN FIDUCIARY NET POSITION Contribution - Employer $ - $ 181,815 $ 229,000 Contribution - Employee Net Investment Income 642, ,980 72,824 Benefit Payments, Including Refunds of Employee Contributions (105,433) (128,012) (142,508) Administrative Expense (51,373) (29,113) (29,467) Net Change in Fiduciary Net Position $ 485,405 $ 141,670 $ 129,849 Plan Fiduciary Net Position - Beginning 4,633,256 5,118,661 5,260,331 Plan Fiduciary Net Position - Ending (b) $ 5,118,661 $ 5,260,331 $ 5,390,180 Plan Net Pension Liability/(Assets) - Ending (a) - (b) $ 597,810 $ (739,999) $ (609,215) Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 89.54% % % Covered-Employee Payroll $ 8,374,988 $ 8,236,440 $ 7,925,896 Plan Net Pension Liability/(Asset) as a Percentage of Covered-Employee Payroll 7.14% -8.98% -7.69% (1) Historical information is required only for measurement for which GASB 68 is applicable. Fiscal Year 2015 was the first year of implementation, therefore only three years are shown. (2) Net of administrative expenses. Notes to Schedule: Benefit Changes: There were no changes in benefits Changes of Assumptions: * The discount rate increased from 5.00% to 6.75% to reflect updated capital market assumptions. * The salary increase assumption was updated to reflect 2014 CalPERS experience study. * The increase rate for IRC 415 and 401(a)(17) limits changed from 3.00% to 2.75% to match the assumed inflation rate. * An assumption regarding spouse information was added for simplification. 54 Retirement Enhancement Pension Plan (PARS) Schedule of Changes in Net Pension Liability

151 CUCAMONGA VALLEY WATER DISTRICT Retirement Enhancement Pension Plan (PARS) Schedule of Plan Contributions As of June 30, for the Last Ten Fiscal Years (1) Actuarially Determined Contribution $ 221,769 $ 181,815 $ 229,000 $ 180,000 Contribution in Relation to the Actuarially Determined Contribution - (181,815) (229,000) (180,000) Contribution Deficiency (Excess) $ (221,769) $ - $ - $ - Covered-Employee Payroll 8,257,925 8,237,008 8,060,799 7,785,307 Contributions as a Percentage of Covered-Employee Payroll 0.00% 2.21% 2.84% 2.31% (1) Historical information is required only for measurement for which GASB 68 is applicable. Fiscal Year 2015 was the first year of implementation, therefore only three years are shown. Note to Schedule: Valuation Date: June 30, 2015 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age normal Amortization method Level percentage of payroll, closed Remaining amortization period 11 years Assets valuation method 5-year Inflation 2.75% Salary Increases 3.0% per annum, in aggregate Investment rate of return 6.75% net of pension investment and administrative expenses, including inflation. Retirement age Mortality The probabilities of retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to Pre-retirement and post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. Retirement Enhancement Pension Plan (PARS) Schedule of Plan Contributions 55

152 CUCAMONGA VALLEY WATER DISTRICT Excess Benefit Pension Plan Schedule of Changes in Net Pension Liability and Related Ratios As of June 30, for the Last Ten Fiscal Years (1) TOTAL PENSION LIABILITY Service Cost $ 59,051 $ 70,173 $ 33,058 Interest 55,507 59,298 48,835 Difference Between expected and Actual Experience - 153,569 - Changes in Assumptions - (517,106) 234,570 Changes of Benefits Terms Benefit Payments, Including Refunds of employee Contributions (24,485) (24,711) (25,205) Net Change in Total Pension Liability $ 90,073 $ (258,777) $ 291,258 Total Pension Liability - Beginning 1,433,384 1,523,457 1,264,680 Total Pension Liability - Ending (a) $ 1,523,457 $ 1,264,680 $ 1,555,938 PLAN FIDUCIARY NET POSITION Contribution - Employer $ 22,330 $ - $ - Contribution - Employee Net Investment Income Benefit Payments, Including Refunds of Employee Contributions (24,226) - - Other Changes in Fiduciary Net Position (48) (3,403) - Net Change in Fiduciary Net Position $ (1,838) $ (3,403) $ - Plan Fiduciary Net Position - Beginning 5,241 3,403 - Plan Fiduciary Net Position - Ending (b) $ 3,403 $ - $ - Plan Net Pension Liability/(Assets) - Ending (a) - (b) (2) $ 1,520,054 $ 1,264,680 $ 1,555,938 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 0.22% 0.00% 0.00% Covered-Employee Payroll $ 8,374,988 $ 8,236,440 $ 7,925,896 Plan Net Pension Liability/(Asset) as a Percentage of Covered-Employee Payroll 18.15% 15.35% 19.63% (1) Historical information is required only for measurement for which GASB 73 is applicable. Fiscal Year 2015 was the first year of implementation, therefore only three years are shown. (2) Plan Fiduciary Net Posistion balance at previos fiscal year end included pension assets. Under GASB 73, pension assets subject to District's creditors should be reported as assets of the District rather than Plan Fiduciary Net Position. Notes to Schedule: Benefit Changes: There were no changes in benefits Changes of Assumptions: * The discount rate increased from 3.75% to 3.80% based on bond index rates. * The salary increase assumption was updated to reflect 2014 CalPERS experience study. * The increase rate for IRC 415 and 401(a)(17) limits changed from 3.00% to 2.75% to match the assumed inflation rate. * An assumption regarding spouse information was added for simplification. 56 Excess Benefit Pension Plan Schedule of Changes in Net Pension Liability

153 CUCAMONGA VALLEY WATER DISTRICT Excess Benefit Pension Plan Schedule of Plan Contributions As of June 30, for the Last Ten Fiscal Years (1) Actuarially Determined Contribution $ 24,360 $ 24,360 $ 25,205 $ 25,709 Contribution in Relation to the Actuarially Determined Contribution (24,360) (24,360) (25,205) (25,709) Contribution Deficiency (Excess) $ - $ - $ - $ - Covered-Employee Payroll 8,257,925 8,237,008 8,060,799 7,785,307 Contributions as a Percentage of Covered-Employee Payroll 0.29% 0.30% 0.31% 0.33% (1) Historical information is required only for measurement for which GASB 73 is applicable. Fiscal Year 2015 was the first year of implementation, therefore only three years are shown. Note to Schedule: Valuation Date: June 30, 2015 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age normal Amortization method Level percentage of payroll, closed Remaining amortization period 13 years Assets valuation method 5-year Inflation 2.75% Salary Increases Varies by entry age and service Investment rate of return N/A Retirement age Mortality The probabilities of retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to Pre-retirement and post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. Excess Benefit Pension Plan Schedule of Plan Contributions 57

154 CUCAMONGA VALLEY WATER DISTRICT Other Post Employment Benefits Plan Schedule of Funding Progress For the Year Ended June 30, 2017 Schedule of Funding Progress The Schedule of Funding Progress below shows the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll. The schedule of funding progress, presented below presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Actuarial Entry Age Actuarial Value Unfunded Funded Annual Liability (Excess Valuation Normal Accrued of Assets Liability (Excess Ratio Covered Assets) as a % of Date Liability [A] [B] Assets) [A B] [B/A] Payroll [C] Payroll [(A B)/C] June 30, ,320,000 1,416,000 11,904, % 8,213, % June 30, ,955,000 2,813,000 12,142, % 7,907, % June 30, ,728,353 4,584,369 12,143, % 8,003, % 58 Other Post-Employment Benefits Plan Schedule of Funding Progress

155 Statistical Section

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157 CUCAMONGA VALLEY WATER DISTRICT Statistical Section This part of the District 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 says about the District s overall financial health. Table of Contents Page No. Financial Trends These schedules contain information to help the reader understand how the District s financial performance and well being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the District s most significant own source revenue, water sales. Debt Capacity These schedules present information to help the reader assess the affordability of the District s current levels of outstanding debt and the District s ability to issue additional debt in the future. Demographic Information These schedules offer demographic indicators to help the reader understand the environment within which the District s financial activities take place. Operating Information These schedules contains service and infrastructure data to help the reader understand how the information in the District s financial report relates to the service provided by the District. Statistical Section 59

158 CUCAMONGA VALLEY WATER DISTRICT Changes in Net Position and Net Position by Component Last Ten Fiscal Years Fiscal Year Changes in net position: Operating revenues (see Schedule 2) $ 57,450,068 $ 55,672,904 $ 61,108,993 $ 65,781,091 Operating expenses (see Schedule 3) (54,977,001) (57,386,251) (60,061,448) (58,192,485) Operating income(loss) 2,473,067 (1,713,347) 1,047,545 7,588,606 Non operating revenues(expenses) Investment income 3,102,442 2,093,797 1,938, ,000 Taxes and assessments Rent and lease revenue 209, , , ,842 Interest expense (7,666,073) (8,144,911) (8,915,969) (8,137,741) Amortization of deferred charge on refunding (174,390) (179,187) (193,578) (199,334) Gain (loss) on disposal of assets (466,311) 89, , ,398 Other nonoperating revenues 4,322,277 1,828,633 6,122,507 1,315,961 Other nonoperating expenses (2,759,643) (1,281,167) (4,045,032) (947,727) Total non operating revenues(expenses), net (3,432,126) (5,393,195) (4,512,163) (6,638,590) Net income before capital contributions (959,059) (7,106,542) (3,464,618) 950,016 Capital contributions 4,006,780 1,484,108 2,845,995 1,931,751 Changes in net position $ 3,047,721 $ (5,622,434) $ (618,623) $ 2,881,767 Net position by component: Net investment in capital assets $ 214,232,848 $ 217,733,045 $ 207,808,294 $ 206,948,235 Unrestricted 65,390,902 55,215,878 64,522,006 68,263,832 Total net position $ 279,623,750 $ 272,948,923 (1) $ 272,330,300 $ 275,212,067 Notes: (1) The District made a prior period adjustment of ($1,052,393). (2) The District made a net prior period adjustment of ($67,589). (3) The District made a net prior period adjustment of ($20,395,643). (4) The District made a prior period adjustment of ($7,045,639). SOURCE: Cucamonga Valley Water District Accounting Division 60 Changes in Net Position and Net Position by Component

159 Schedule 1 Fiscal Year $ 74,705,240 $ 77,575,410 $ 83,426,225 $ 77,904,102 $ 81,198,764 $ 84,522,917 (61,486,795) (62,940,607) (67,892,079) (67,584,114) (64,439,623) (74,472,769) 13,218,445 14,634,803 15,534,146 10,319,988 16,759,141 10,050, , , , ,174 1,569, , , , , , , ,838 (7,502,696) (8,493,530) (7,321,681) (6,814,957) (6,052,435) (7,441,446) 82,749 (8,643) 303,225 (150,560) (225,345) (309,984) 21,935 31,565 (16,526) 84,155 (6,153) (169,966) 2,054, ,483 1,634,133 6,124,244 1,498,448 1,636,786 (945,085) (979,443) (1,460,637) (984,585) (1,405,307) (1,475,858) (5,301,995) (8,062,136) (5,555,833) (581,467) (4,183,792) (7,082,776) 7,916,450 6,572,667 9,978,313 9,738,521 12,575,349 2,967,372 1,404,950 3,164,707 5,352,641 2,627,376 3,009,934 3,134,828 $ 9,321,400 $ 9,737,374 $ 15,330,954 $ 12,365,897 $ 15,585,283 $ 6,102,200 $ 215,183,046 $ 248,304,834 $ 212,123,526 $ 219,737,010 $ 230,275,675 $ 230,199,134 69,350,421 45,898,418 97,410,680 81,767,450 79,768,429 85,947,170 $ 284,533,467 $ 294,203,252 (2) $ 309,534,206 $ 301,504,460 (3) $ 310,044,104 (4) $ 316,146,304 Changes in Net position and Net Position by Component 61

160 CUCAMONGA VALLEY WATER DISTRICT Operating Revenue by Source Last Ten Fiscal Years Schedule 2 Fiscal Water Meter Water Sewer Total Operating Year Sales Charges Services Services Revenue 2008 $ 37,743,239 $ 9,001,080 $ 1,022,487 $ 9,683,262 $ 57,450, ,682,801 9,051,765 1,026,873 9,911,465 55,672, ,134,526 9,809,685 1,047,195 11,117,587 61,108, ,676,752 10,647,664 1,154,225 12,302,450 65,781, ,675,139 11,532,573 1,291,048 13,206,480 74,705, ,983,058 12,122,798 1,229,893 14,239,661 77,575, ,134,874 12,814,590 1,248,185 15,228,576 83,426, ,811,236 13,442,140 1,243,752 16,406,974 77,904, ,914,302 14,595,971 1,266,664 17,421,827 81,198, ,067,431 16,780,336 1,224,963 19,450,187 84,522,917 Revenue $85,000,000 $80,000,000 $75,000,000 $70,000,000 $65,000,000 $60,000,000 $55,000,000 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Fiscal Year SOURCE: Cucamonga Valley Water District Accounting Division 62 Operating Revenue by Source

161 CUCAMONGA VALLEY WATER DISTRICT Operating Expenses by Activity Last Ten Fiscal Years Schedule 3 Fiscal Source of Pumping Water Transmission and Collection and Customer General and Depreciation and Total Operating Year Supply Operations Treatment Distribution Transmission Accounts Administrative Amortization Expenses 2008 $ 15,410,729 $ 4,944,428 $ 2,747,185 $ 2,573,217 $ 8,281,559 $ 2,139,143 $ 9,723,052 $ 9,157,688 $ 54,977, ,999,196 6,426,333 2,900,825 2,928,555 8,344,368 2,301,799 10,776,455 9,708,720 57,386, ,387,130 5,659,006 2,674,214 2,828,207 9,174,247 2,080,551 10,915,992 10,342,101 60,061, ,188,936 5,625,091 2,733,477 3,125,140 9,679,819 2,071,599 11,213,478 10,554,945 58,192, ,506,123 4,908,418 3,161,739 3,134,960 10,547,211 2,134,887 10,030,142 10,063,315 61,486, ,006,105 5,491,422 3,134,158 3,104,700 11,116,847 2,044,545 9,840,029 10,202,801 62,940, ,286,846 5,707,682 3,431,498 3,436,889 11,622,712 2,115,655 10,479,755 9,811,042 67,892, ,671,304 6,932,863 3,269,903 3,399,409 13,326,807 2,172,880 10,473,636 10,337,312 67,584, ,286,663 6,485,127 4,380,765 3,284,484 14,240,864 2,266,296 11,134,118 11,361,306 64,439, ,807,730 6,120,261 3,597,740 3,575,857 16,021,489 2,751,655 11,578,873 13,019,164 74,472,769 $80,000,000 $75,000,000 $70,000,000 $65,000,000 $60,000,000 $55,000,000 $50,000,000 # Expenses $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Fiscal Year SOURCE: Cucamonga Valley Water District Accounting Division Operating Expenses by Activity 63

162 CUCAMONGA VALLEY WATER DISTRICT Water Production in Acre Feet Last Ten Fiscal Years Schedule 4 Source Fiscal Local Surface Spring Imported Total Year Groundwater Water Water Water Production ,335 4, ,454 58, ,359 4, ,465 56, ,864 4, ,782 52, ,415 4, ,994 48, ,723 4, ,144 51, ,015 1, ,846 52, ,230 1, ,825 54, ,055 1, ,306 47, , ,682 38, ,928 2, ,288 42,672 70,000 60,000 50,000 Acre Feet 40,000 30,000 20,000 10,000 0 Fiscal Year SOURCE: Cucamonga Valley Water District Production Division 64 Water Production in Acre Feet

163 CUCAMONGA VALLEY WATER DISTRICT Water Rate History Last Ten Fiscal Years Schedule 5 Water Rate per HCF (1) Fiscal Tiered Water Rates (2)(3) Non Gov't Temp/ Year Tier 1 Tier 2 Tier 3 Tier 4 Residential Irrigation Constr N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 4.63 Tier Allocation in HCF by Meter Size (3) 3/4 inch 1 inch 1 1/2 inch 2 inch 3 inch 4 inch 6 inch 8 inch 10 inch Tier Tier , , ,200 Tier , ,667 1,334 3,333 2,134 5,333 3,201 8,000 Tier 4 > 100 > 167 > 333 > 533 > 1,000 > 1,667 > 3,333 > 5,333 > 8,000 Fiscal Meter Charge Rates (bi monthly) Year 3/4 inch 1 inch 1 1/2 inch 2 inch 3 inch 4 inch 6 inch 8 inch 10 inch , , , , , , , , , , , , , , , , , , , , , , Notes: (1) HCF = 100 Cubic Feet = 748 gallons (2) In 2008, the District adopted a tiered rate structure for residential customers. Prior to 2008, residential customers were charged a uniform rate equal to non residential customers. Usage is based on a bi monthly billing period. Non residential customers are charged a uniform rate based on the average rate paid by residential customers. (3) In 2010, the District adopoted a tiered rate structure for all customers except temporary/construction customers. The tier structure is based on meter sizes. From 2008 to 2010, only residential customers were billed on the tiered rate structure and the 3/4" tier allocation was used for all residential customers regardless of meter size. SOURCE: Cucamonga Valley Water District Accounting Division Water Rate History 65

164 CUCAMONGA VALLEY WATER DISTRICT Water Service Accounts Last Ten Fiscal Years Schedule 6 Customer Type Fiscal Government Landscape/ Fire Year Domestic Industrial Irrigation Parkway Lines Total , ,087 1,090 48, , ,570 1,145 48, , ,629 1,299 49, , ,777 1,315 49, , ,790 1,325 49, , ,807 1,333 49, , ,828 1,340 49, , ,808 1,354 50, , ,821 1,359 50, , ,830 1,369 50,360 60,000 50,000 Number of Customers 40,000 30,000 20,000 10,000 0 Fiscal Year Note: Number of customers as of June 30 of fiscal year. SOURCE: Cucamonga Valley Water District Accounting Division 66 Water Service Accounts

165 CUCAMONGA VALLEY WATER DISTRICT Principal Water Customers Current Fiscal Year and Nine Years Ago Schedule Annual Percentage Annual Percentage Customer Usage (HCF) of Total Rank Usage (HCF) of Total Rank City of Rancho Cucamonga 664, % 1 1,252, % 1 County of San Bernardino 216, % 2 234, % 4 Etiwanda School District 200, % 3 228, % 5 City of Fontana 179, % 4 523, % 2 Geradu Ameristeel (Tamco) 129, % 5 178, % 8 Frito Lay 120, % 6 147, % 9 Chaffey College 106, % 7 211, % 6 Alta Loma School District 101, % 8 131, % 10 Homecoming I at Terra Vista LLC 83, % 9 N/A N/A N/A Evolution Fresh 72, % 10 N/A N/A N/A Lewis Management Corporation N/A N/A N/A 511, % 3 Chaffey Union High School District N/A N/A N/A 193, % 7 Total 1,875, % 3,612, % Total Water Consumed (HCF) 17,355, % 24,371, % HCF = 100 cubic feet SOURCE: Cucamonga Valley Water District Accounting Division Principal Water Customers 67

166 CUCAMONGA VALLEY WATER DISTRICT Ratio of Outstanding Debt Last Ten Fiscal Years Schedule 8 Certificates Revenue Capital Total Fiscal of Participation Bonds Lease and Loan Debt $ Per As a Share of Year (In Thousands) (In Thousands) (In Thousands) (In Thousands) Capita Personal Income ,155 5, , % ,325 5, ,708 1, % ,006 4, ,781 1, % ,171 7, ,834 1, % ,498 6, ,923 1, % ,860 41,615 5, ,010 1, % ,184 40,797 4, ,737 1, % ,875 53,506 3, ,357 1, % ,533 73,203 11, ,754 1, N/A ,620 71,531 9, ,622 1, N/A $220,000 $200,000 $180,000 $160,000 # $140,000 Thousands of Dollars $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 Fiscal Year N/A Data not available for time period NOTE: Amounts in thousands of dollars, except for per capita amounts and percentages. SOURCE: Cucamonga Valley Water District Accounting Division 68 Ratio of Outstanding Debt

167 CUCAMONGA VALLEY WATER DISTRICT Debt Coverage Last Ten Fiscal Years Schedule 9 Gross Operating Net Available Debt Service Coverage Fiscal Year Revenues (1) Expenses (2) Revenues Principal Interest Total Ratio ,734,579 35,790,012 20,944,567 1,810,000 7,666,073 9,476, ,436,612 37,308,718 12,127,894 2,200,000 8,144,911 10,344, ,356,424 38,754,710 19,601,714 2,319,286 8,602,555 10,921, ,402,290 36,121,871 20,280,419 3,834,286 8,637,034 12,471, ,386,200 39,431,891 25,954,309 3,964,286 8,182,797 12,147, ,141,954 40,232,688 26,909,266 4,159,286 8,256,101 12,415, ,855,711 44,836,095 30,019,616 4,954,286 9,211,847 14,166, ,788,304 42,148,489 28,639,815 5,104,286 9,106,864 14,211, ,430,664 36,809,953 32,620,711 5,204,286 8,345,317 13,549, ,492,506 43,338,791 26,153,715 4,875,000 8,279,270 13,154, Notes: (1) Gross revenues includes operating revenue, interest income, other nonoperating revenue (excluding taxes and assessments) and connection fees from the Water Utility Fund and Recycled Water Utility Funds. (2) Operating expenses less depreciation and amortization for the Water Utility Funds. SOURCE: Cucamonga Valley Water District Accounting Division Debt Coverage 69

168 CUCAMONGA VALLEY WATER DISTRICT Demographic and Economic Statistics Last Ten Fiscal Years Schedule 10 Riverside San Bernardino Ontario MSA Personal Population Income Personal Unemployment Rancho (thousands of Income Year Rate Cucamonga dollars) per Capita % 164, ,657 31, % 164, ,849 29, % 165, ,656 29, % 168, ,663 31, % 169, ,312 31, % 170, ,978 32, % 172, ,682 33, % 173, ,429 35, % 175,681 N/A N/A % 177,324 N/A N/A 200,000 Population 175, ,000 Fiscal Year $40,000 $35,000 $30,000 Dollars $25,000 $20,000 $15,000 Fiscal Year N/A Data not available for time period SOURCES: California State Department of Finance, United States Bureau of Economic Analysis and the United States Department of Labor 70 Demographic and Economic Statistics

169 CUCAMONGA VALLEY WATER DISTRICT Principal Employers Current Fiscal Year and Nine Years Ago Schedule Number of Percentage Number of Percentage Employer Employees of Total Rank Employees of Total Rank Inland Empire Health Plan (IEHP) 1, % 1 N/A N/A N/A Chaffey Community College 1, % 2 1, % 1 Etiwanda School District 1, % 3 1, % 2 Amphastar Pharmaceutical % % 3 City of Rancho Cucamonga % % 4 Southern California Edison % % 5 Alta Loma School District % % 6 Big Lots Distribution Center % 8 N/A N/A N/A Mercury Insurance Company % % 7 Central School District % 10 N/A N/A N/A West Coast Liquidators N/A N/A N/A % 8 Frito Lay, Inc. N/A N/A N/A % 9 CMC Steel Fabricators N/A N/A N/A % 10 NOTE: Data is from June 2016 (latest available data). SOURCE: City of Rancho Cucamonga Personnel Trends 71

170 CUCAMONGA VALLEY WATER DISTRICT Personnel Trends Last Ten Fiscal Years Schedule 12 Full Time Equivalent Employees by Department Department Fiscal Administrative Finance & General Year Executive Services Technology Services Services Engineering Operations Total Employees Fiscal Year SOURCE: Cucamonga Valley Water District Human Resources Division 72 Personnel Trends

171 CUCAMONGA VALLEY WATER DISTRICT Other Operating and Capacity Indicators Last Ten Fiscal Years Schedule 13 Water System Fiscal Miles of Number of Annual Average Year Water Mains Fire Hydrants Production (MG) Production (MGD) ,217 19, ,227 18, ,236 17, ,245 15, ,245 16, ,315 17, ,371 18, ,323 16, ,354 13, ,374 14, Sewer System Fiscal Miles of Service Annual Daily Year Sewers Connections Sewerage (MG) Sewerage (MGD) ,658 6, ,835 5, ,025 5, ,177 5, ,448 5, ,688 6, ,884 6, ,012 7, ,061 6, ,231 6, AF Acre Feet MG Millions of Gallons MGD Millions of Gallons per Day SOURCE: Cucamonga Valley Water District GIS, Industrial Waste and Production Divisions Other Operating and Capacity Indicators 73

172 10440 Ashford Street Rancho Cucamonga, CA (909)