$36,120,000 MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY (Marin County, California) Subordinate Revenue Bonds, Series 2017

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1 NEW ISSUE BOOK-ENTRY ONLY RATINGS: Fitch: AA S&P: AA See RATINGS herein. In the opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel, subject, however, to certain qualifications described in this Official Statement, under existing law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations. In addition, in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. See TAX MATTERS herein. Dated: Date of Delivery $36,120,000 MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY (Marin County, California) Subordinate Revenue Bonds, Series 2017 Due: July 1, as shown on the inside cover The $36,120,000 Marin Municipal Water District Financing Authority (Marin County, California) Subordinate Revenue Bonds, Series 2017 (the Bonds ), are being issued by the Marin Municipal Water District Financing Authority (the Authority ) pursuant to an Indenture of Trust, dated as of August 1, 2017 (the Indenture ), by and between the Authority and U.S. Bank National Association, as trustee (the Trustee ). The Bonds are special obligations of the Authority payable from Revenues (as defined herein) consisting primarily of installment payments (the 2017 Installment Payments ) payable by the Marin Municipal Water District (the District ) under an installment sale agreement, dated as of August 1, 2017, by and between the Authority, as seller, and the District, as purchaser (the 2017 Installment Sale Agreement ). The Bonds are being issued in integral multiples of $5,000. Interest on the Bonds is payable on January 1 and July 1 of each year, commencing January 1, See THE BONDS herein. The Bonds will be delivered in fully registered form only, and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). DTC will act as securities depository of the Bonds. Ownership interests in the Bonds may be purchased in book-entry form only. Principal of, premium, if any, and interest on the Bonds will be paid by the Trustee to DTC or its nominee, which will in turn remit such payment to its participants for subsequent disbursement to the beneficial owners of the Bonds. See THE BONDS General herein and APPENDIX G BOOK-ENTRY SYSTEM herein. The Bonds are being issued to (a) finance the acquisition and construction of additions, betterments, extensions and improvements to the District s municipal water system (the Water System ), and (b) pay costs incurred in connection with issuance, sale and delivery of the Bonds. See THE 2017 PROJECT herein. The District is obligated under the 2017 Installment Sale Agreement to make 2017 Installment Payments from a first and prior lien on the Pledged Net Revenues of the Water System, on a parity with obligations of the District (the Parity Obligations ) hereafter issued or incurred by the District. Pledged Net Revenues are the gross revenues of the Water System, less operating and maintenance expenses of the Water System ( Net Revenues ), and less the District s obligations under an installment sale agreement, dated as of June 1, 2012, by and between the Authority, as seller, and the District, as purchaser (the 2012 Installment Sale Agreement ), and the District s obligations under an installment sale agreement, dated as of November 1, 2016, by and between the Authority, as seller, and the District, as purchaser (the 2016 Installment Sale Agreement and, with the 2012 Instalment Sale Agreement, the Senior Obligations ). The 2017 Installment Payments are scheduled in an amount sufficient to pay, when due, the principal of and interest on the Bonds. The District has covenanted under the 2017 Installment Sale Agreement to prescribe, revise and collect such charges from the services and facilities of the Water System which will produce gross revenues sufficient in each Fiscal Year to provide Net Revenues equal to at least 1.25 times the aggregate of obligations of the District with respect to the Senior Obligations, the 2017 Installment Payments and payments with respect to the Parity Obligations in such Fiscal Year. The District will covenant in the 2017 Installment Sale Agreement that it will not issue any obligations senior to the 2017 Installment Payments and Parity Obligations and, specifically, will not issue or incur any obligations on a parity with the Senior Obligations. The 2017 Installment Payments are not subject to abatement. A debt service reserve fund will not be funded for the Bonds. THE OBLIGATION OF THE DISTRICT TO MAKE THE 2017 INSTALLMENT PAYMENTS DESCRIBED HEREIN IS A LIMITED OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM NET REVENUES OF THE WATER SYSTEM AND DOES NOT CONSTITUTE A DEBT OF THE DISTRICT, MARIN COUNTY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The Bonds are subject to redemption prior to maturity from optional prepayments of 2017 Installment Payments and from scheduled sinking fund payments, as described herein. See THE BONDS Redemption herein. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM AND SECURED SOLELY BY A PLEDGE OF AMOUNTS HELD IN CERTAIN FUNDS AND ACCOUNTS UNDER THE INDENTURE AND THE REVENUES DERIVED FROM THE 2017 INSTALLMENT PAYMENTS MADE BY THE DISTRICT UNDER THE 2017 INSTALLMENT SALE AGREEMENT. MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES OR YIELDS SEE THE INSIDE COVER THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR GENERAL REFERENCE ONLY. IT IS NOT INTENDED TO BE A SUMMARY OF THE SECURITY OR TERMS OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Quint & Thimmig LLP, Larkspur, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the Authority by Quint & Thimmig LLP, Larkspur, California, as Disclosure Counsel. Certain legal matters will be passed on for the Authority and the District by Mary R. Casey, Esq., Corte Madera, California, District General Counsel, and for the Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California. It is anticipated that the Bonds, in book entry form, will be available for delivery through the facilities of DTC, on or about August 1, Dated: July 20, 2017

2 $36,120,000 MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY (Marin County, California) Subordinate Revenue Bonds, Series 2017 MATURITIES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES OR YIELDS $18,415,000 Serial Bonds CUSIP Prefix: 56782U Maturity Principal Interest CUSIP Maturity Principal Interest CUSIP July 1 Amount Rate Yield Price Suffix July 1 Amount Rate Yield Price Suffix 2018 $735, % 0.800% AL $ 915, % 2.140% c AW , AM , c AX , AN , c AY , AP ,040, c AZ , AQ ,090, c BA , AR ,135, c BB , AS ,180, c BC , AT ,230, c BD , AU ,275, c BE , AV ,340, c BF5 $7,780, % Term Bonds due July 1, 2042, Price: c, to yield 2.830%; CUSIP 56782U BG3 $9,925, % Term Bonds due July 1, 2047, Price: c, to yield 2.930%; CUSIP 56782U BH1 Copyright 2017, American Bankers Association. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, operated by Standard & Poor s. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP numbers have been assigned by an independent company not affiliated with the Authority and are included solely for the convenience of the registered owners of the Bonds. None of the Authority, the District or the Underwriters is responsible for the selection or uses of these CUSIP numbers and no representation is made as to their correctness on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the delivery of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. c Priced to the July 1, 2027, par call date.

3 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the Bonds, nor shall there be any sale of the Bonds in any state or other jurisdiction in which it is unlawful to make such offer, solicitation or sale in such state or jurisdiction. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. 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 as contained herein in connection with the offering of the Bonds, and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the District or the Underwriter. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a 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. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The information set forth herein has been obtained from sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Authority or the District. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder, under any circumstances, shall create any implication that there has been no change in the affairs of any party described herein subsequent to the date as of which such information is presented. When used in this Official Statement and in any continuing disclosure by the Authority or the District, in any press release and in any oral statement made with the approval of an authorized officer of the Authority or the District, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend and similar expressions identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, give rise to any implication that there has been no change in the affairs of the Authority or the District since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH 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 AGENTS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. The District maintains a website. Unless specifically indicated otherwise, the information presented on such website is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the Certificates.

4 TABLE OF CONTENTS INTRODUCTION... 1 Issuance of Bonds... 1 Security for the Bonds Installment Payments... 2 The Authority... 3 The District... 3 District Finances... 4 The County... 4 Book-Entry System... 4 Continuing Disclosure... 5 Tax Matters... 5 Certain Risk Factors... 5 Other Information... 5 THE 2017 PROJECT... 6 Sources and Uses of Bond Proceeds... 7 Debt Service Schedule... 8 THE BONDS... 9 General... 9 Transfer and Exchange of Bonds... 9 Redemption SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General Revenues Installment Sale Agreement DISTRICT ORGANIZATION AND WATER SYSTEM Introduction Board of Directors District Management Water System and Treatment Facilities History of Water Supply Water Supply Water Rights Water Rates and Charges Fire Flow Fee Comparative Rates Principal Customers Water Recycling Seismic Considerations Capital Improvement Plan DISTRICT FINANCES Financial Statements Funds and Accounts Revenues and Expenses Impact of Drought on District Revenues and Expenses Projection of Revenues, Expenditures and Debt Service Coverage Outstanding Debt Investments Risk Management Employees Retirement Plan Other Post-Employment Benefits CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES Articles XIIIC and XIIID RISK FACTORS Net Revenues; Rate Covenant Limitations on Remedies Available to Owners Proposition Parity Obligations District Expenses Future Land Use Regulations Seismic Considerations Loss of Tax-Exemption Environmental Regulation Secondary Market for Bonds CONTINUING DISCLOSURE TAX MATTERS MUNICIPAL ADVISOR LEGAL MATTERS LITIGATION District Authority RATINGS UNDERWRITING MISCELLANEOUS APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F APPENDIX G COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2016 AND 2015 INVESTMENT POLICY OF THE DISTRICT GENERAL INFORMATION CONCERNING THE COUNTY SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FORM OF OPINION OF BOND COUNSEL FORM OF CONTINUING DISCLOSURE CERTIFICATE BOOK-ENTRY SYSTEM

5 P a c i f i c O c e a n Source: MMWD GIS, ESRI.com March 2012 Miles. Service Area Boundary S a n F r a n c i s c o B a y

6 MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY 220 Nellen Avenue Corte Madera, California BOARD OF DIRECTORS Larry L. Russell, President Armando Quintero, Vice President Larry Bragman, Boardmember John C. Gibson, Boardmember Cynthia Koehler, Boardmember AUTHORITY OFFICIALS Krishna Kumar, Executive Director Charles M. Duggan, Jr., Treasurer Mary R. Casey, Esq., General Counsel Stephanie Eichner-Gross, Secretary MARIN MUNICIPAL WATER DISTRICT 220 Nellen Avenue Corte Madera, California BOARD OF DIRECTORS Larry L. Russell, President, Division V Armando Quintero, Vice President Division II Larry Bragman, Division III John C. Gibson, Division I Cynthia Koehler, Division IV DISTRICT OFFICIALS Krishna Kumar, General Manager Charles M. Duggan, Jr., Administrative Services Division Manager Mikyung Pustelnik, Assistant Finance Division Manager Michael Ban, P.E., Environmental and Engineering Services Division Manager Crystal Yezman, Facilities and Watershed Management Division Manager Mary R. Casey, Esq., General Counsel Stephanie Eichner-Gross, Secretary to the Board SPECIAL SERVICES Municipal Advisor Sperry Capital Inc. Sausalito, California Bond and Disclosure Counsel Quint & Thimmig LLP Larkspur, California Trustee and Escrow Bank U.S. Bank National Association San Francisco, California

7 OFFICIAL STATEMENT $36,120,000 MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY (Marin County, California) Subordinate Revenue Bonds, Series 2017 INTRODUCTION This Introduction is not a summary of this Official Statement. It is only a brief description of, and guide to, and is qualified by, more complete and detailed information contained in the remainder of this Official Statement and the documents summarized or described herein. The offering of the abovecaptioned Bonds to potential investors is made only by means of the entire Official Statement and potential investors should thoroughly review it prior to purchasing such Bonds. Unless otherwise defined herein, all capitalized terms used in this Official Statement that are defined in the Indenture (defined below) will have the meanings set forth therein, some of which are set forth in APPENDIX D SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. Issuance of Bonds The $36,120,000 Marin Municipal Water District Financing Authority (Marin County, California) Subordinate Revenue Bonds, Series 2017 (the Bonds ) are being issued by the Marin Municipal Water District Financing Authority (the Authority ) to (a) finance the acquisition and construction of additions, betterments, extensions and improvements (the 2017 Project ) to the municipal water system (the Water System ) owned and operated by the Marin Municipal Water District (the District ), and (b) pay costs incurred in connection with issuance, sale and delivery of the Bonds. The Bonds will be issued pursuant to an Indenture of Trust, dated as of August 1, 2017 (the Indenture ), by and between the Authority and U.S. Bank National Association, as trustee (the Trustee ). The Bonds will be issued under the provisions of Article 4 of Chapter 5 of Division 7 of Title 1 (commencing with section 6584) of the California Government Code (the Act ). See THE BONDS and SECURITY AND SOURCES OF PAYMENT FOR THE BONDS. Security for the Bonds The Bonds are special limited obligations of the Authority payable from and secured by a pledge of the Revenues, consisting primarily of installment payments (the 2017 Installment Payments ) payable by the District under an Installment Sale Agreement, dated as of August 1, 2017, by and between the Authority, as seller, and the District, as purchaser (the 2017 Installment Sale Agreement ). See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS. A debt service reserve fund will not be funded for the Bonds. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM AND SECURED SOLELY BY A PLEDGE OF AMOUNTS HELD IN CERTAIN

8 FUNDS AND ACCOUNTS UNDER THE INDENTURE AND THE REVENUES DERIVED FROM THE 2017 INSTALLMENT PAYMENTS MADE BY THE DISTRICT UNDER THE 2017 INSTALLMENT SALE AGREEMENT. THE BONDS DO NOT CONSTITUTE A DEBT OF THE AUTHORITY, THE DISTRICT, THE COUNTY OF MARIN (THE COUNTY ) OR THE STATE OF CALIFORNIA (THE STATE ) OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND THEY DO NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER Installment Payments In general, the District is required to pay to the Trustee, as assignee of the Authority, from a first and prior lien on the Pledged Net Revenues the 2017 Installment Payments which are designed to be sufficient in both time and amount to pay, when due, the principal of and interest on the Bonds. Net Revenues are the Gross Revenues of the Water System, less Maintenance and Operating Expenses. Pledged Net Revenues are Net Revenues less the obligations of the District with respect to the Senior Obligations (hereinafter described). Gross Revenues means all gross income and revenue received or receivable by the District from the ownership or operation of the Water System, determined in accordance with generally accepted accounting principles, including all fees, rates, tolls and charges (including connection fees and standby charges) received by the District for the Water Service and the other services of the Water System and all proceeds of insurance covering business interruption loss relating to 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, but excluding refundable deposits made to establish credit and advances or contributions in aid of construction and main extension fees. Maintenance and Operation Costs means the 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, including all costs of water purchased by the District for resale through the Water System, and including all reasonable expenses of management and repair and all other expenses necessary to maintain and preserve the Water System in good repair and working order, and including 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) and insurance premiums, and including all other reasonable and necessary costs of the District, such as compensation, reimbursement and indemnification of the Trustee and fees and expenses of independent certified public accountants; but excluding in all cases depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles. Water System means all land and water facilities used and useful by the District for the production, storage, conveyance, treatment and distribution of water now owned by the District, together with all additions, betterments, extensions or improvements to such facilities or any part thereof hereafter acquired or constructed by the District. -2-

9 The District has covenanted in the 2017 Installment Sale Agreement to prescribe, revise and collect such charges from the services and facilities of the Water System which will produce gross revenues sufficient in each Fiscal Year to provide Pledged Net Revenues equal to at least 1.25 times the aggregate annual payment requirements with respect to the 2017 Installment Sale Agreement and aggregate annual payment requirements with respect to any Parity Obligations in such Fiscal Year. The obligation of the District to make payments under the 2017 Installment Sale Agreement will, in all respects, be subordinate, as to payment and security, with the District s obligations with respect to (a) that certain Installment Sale Agreement, dated as of June 1, 2012 (the 2012 Installment Sale Agreement ), by and between the Authority and the District, securing the Marin Municipal Water District Financing Authority (Marin County, California) Water Revenue Bonds, 2012 Series A, which are outstanding in the principal amount of $82,490,000 (the 2012 Bonds ), and (b) that certain Installment Sale Agreement, dated as of November 1, 2016 (the 2016 Installment Sale Agreement and, with the 2012 Installment Sale Agreement, the Senior Obligations ), by and between the Authority and the District, securing the Marin Municipal Water District Financing Authority (Marin County, California) Refunding Revenue Bonds, Series 2016, which are outstanding in the principal amount of $31,380,000 (the 2016 Bonds ). See DISTRICT FINANCES Outstanding Debt. The District s obligations with respect to the 2017 Installment Sale Agreement and any additional obligations hereafter issued and incurred on a parity as to payment and security with the 2017 Installment Payments (the Parity Obligations ) are secured by a first lien on the Pledged Net Revenues. The District has covenanted in the 2017 Installment Sale Agreement that it will not issue any obligations senior to the 2017 Installment Payments and Parity Obligations and, specifically, that it will not issue or incur any obligations on a parity with the Senior Obligations. THE OBLIGATION OF THE DISTRICT TO MAKE THE 2017 INSTALLMENT PAYMENTS DOES NOT CONSTITUTE A DEBT OF THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. The Authority The Authority is a joint exercise of powers entity duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement, dated as of April 16, 2010, between the District and the California Municipal Finance Authority, for the primary purpose of providing financial assistance to the District. The Board of Directors of the Authority consists of the Board of Directors of the District (the Board ). The District The District is a special district that provides water to residents of a portion of the County, which is located immediately north of the City of San Francisco. The District was formed in 1912 under the authority of the Municipal Water District Act of 1911 (Division 20 of the Water Code of the State) (the -3-

10 Municipal Water District Act ). The District serves a population of approximately 187,500 through 61,675 service connections. The District serves ten incorporated cities and towns, including San Rafael, Mill Valley, Fairfax, San Anselmo, Ross, Larkspur, Corte Madera, Tiburon, Belvedere and Sausalito, as well as a large unincorporated area of the County. The District is governed by its five-member Board, each member representing one of the five District divisions. The General Manager oversees the day-to-day activities of the District, and supervises its 245 employees. Pursuant to the Municipal Water District Law, the District is empowered to own and operate the Water System. For further information concerning the District, see DISTRICT ORGANIZATION AND WATER SYSTEM. District Finances The District s fiscal year water revenues totaled $56,202,000. Water sales are the primary source of revenue for the District and, in general, account for approximately 94% of District revenues. Other revenue sources include connection charges, a fire flow service fee and interest income. The District does not receive any property tax revenues. The District has the power and authority to establish charges for service without the review or approval of any other governmental body. The District s rates and charges are established by ordinance of the Board. The District can refuse or terminate service to delinquent customers and can require full payment of delinquent amounts and reconnection charges to resume service. Unpaid charges may become a lien on real property by recordation of a notice thereof. The County For further information concerning District finances, see DISTRICT FINANCES. The County is located just north of the Golden Gate Bridge and is one of the nine counties making up the San Francisco Bay Area. Geographically, the County forms a large, southward-facing peninsula, with the Pacific Ocean to the west, San Pablo Bay and San Francisco Bay to the east, and across the Golden Gate San Francisco to the south. The County's northern border is with Sonoma County. For further information concerning the County, see APPENDIX C GENERAL INFORMATION CONCERNING THE COUNTY. Book-Entry System The Bonds are being issued as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company ( DTC ) and ultimate purchasers of Bonds will not receive physical certificates representing their interests in the Bonds. Transfers and exchanges of Bonds will be conducted in accordance with DTC procedures. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bondholders or registered owners thereof means Cede & Co. as aforesaid, and not the Beneficial Owners (as defined in Appendix G) of the Bonds. See THE BONDS General and APPENDIX G BOOK-ENTRY SYSTEM. -4-

11 Continuing Disclosure The ultimate security for the payments of principal and interest on the Bonds comes from the 2017 Installment Payments to be made by the District, and, therefore, the District, as an obligated person within the meaning of the Rule (defined below), has agreed to undertake the continuing disclosure responsibilities required by the Rule as applicable to the Bonds. The Authority has not undertaken a commitment to provide any continuing disclosure with respect to the Bonds. The District has covenanted in a continuing disclosure certificate (the Continuing Disclosure Certificate ) to provide, or cause to be provided, certain annual financial information and operating data including, but not limited to, its audited financial statements and, in a timely manner, notice of certain enumerated events for purposes of Rule 15c2 12(b)(5) adopted by the Securities and Exchange Commission (the Rule ). See CONTINUING DISCLOSURE and APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE for a description of the specific nature of the annual reports and notices of certain enumerated events to be provided by the District, and a description of the terms of the Continuing Disclosure Certificate pursuant to which such reports and notices are to be made. Tax Matters In the opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel, subject, however, to certain qualifications described in this Official Statement, under existing law, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations. In addition, in the opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State. See TAX MATTERS. Certain Risk Factors Certain events could affect the ability of the Authority to make payments when due on the Bonds and the ability of the District to make the 2017 Installment Payments when due. See RISK FACTORS for a discussion of some of the risk factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Bonds. Other Information There follows in this Official Statement, which includes the cover page, the inside cover page and appendices hereto, a brief description of the Bonds, the Indenture, the 2017 Installment Sale Agreement and other documents, risk factors and certain other information relevant to the issuance of the Bonds. All references herein to the Indenture, the 2017 Installment Sale Agreement and other documents, agreements and statutes, and the description of the Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entirety by reference to each such document, agreement or statute, and to the form of the Bonds included in the Indenture. A summary of certain provisions of the Indenture and the 2017 Installment Sale Agreement is included in APPENDIX D SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. The audited financial statements of the District for fiscal years 2014 and 2015 are included in APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2016 AND

12 During the initial offering period for the Bonds, copies of the 2017 Installment Sale Agreement and the Indenture may be obtained, upon written request and payment of the costs of duplication and mailing, from the Authority, c/o Marin Municipal Water District, 220 Nellen Avenue, Corte Madera, CA 94925, Attention: Administrative Services Division Manager. After delivery of the Bonds, copies of such documents may be obtained from the Trustee. The information set forth herein and in the Appendices hereto has been furnished by the District and the Authority and includes information which has been obtained from other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the District, the Authority or the Underwriter (hereinafter defined). The information and expressions of opinion herein speak only as of the date of this Official Statement and are subject to change without notice. Neither delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement will, under any circumstances, create any implication that there has been no change in the affairs of the District or the Authority since the date hereof. All financial and other information presented in this Official Statement has been provided by the District and the Authority from their records, except for information expressly attributed to other sources. The presentation of information is intended to show recent historic information and is not intended to indicate future or continuing trends in the financial or other affairs of the District and the Authority. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. THE 2017 PROJECT The proceeds of the Bonds will be used to finance the 2017 Project and to pay the costs of issuance of the Bonds. The 2017 Project consists of the acquisition and construction of additions, betterments, extensions and improvements to the Water System including, but not limited to, the following specific projects: Cathodic protection Pipeline replacements Water treatment plant seismic and reliability upgrade Pump Station replacement and upgrade Supervisory control and data acquisition (SCADA) system upgrade and replacement Ross Valley tank replacement Reservoir environmental enhancement -6-

13 Sources and Uses of Bond Proceeds The sources and uses of proceeds to be received from the sale of the Bonds are as follows: SOURCES AND USES OF BOND PROCEEDS Sources of Funds Principal Amount of Bonds $36,120, Plus: Original Issue Premium 6,185, Total Sources $42,305, Uses of Funds Deposit to Project Fund (1) $42,000, Cost of Issuance (2) 305, Total Uses $42,305, (1) The amount deposited in the Project Fund will be used to fund the 2017 Project. See THE 2017 PROJECT. (2) This amount includes the Underwriter s discount, the fees and expenses of Bond Counsel, Disclosure Counsel, the Trustee, the District s municipal advisor and the rating agencies, costs of printing this Official Statement and other costs incurred in connection with the issuance of the Bonds. -7-

14 Debt Service Schedule The following table sets forth the scheduled debt service due on the Bonds, assuming no redemption of Bonds (other than mandatory sinking payment redemption) prior to maturity. Year Ending July 1 Principal (1) Interest Total 2018 $ 735,000 $ 1,558, $ 2,293, ,000 1,685, ,295, ,000 1,667, ,292, ,000 1,642, ,292, ,000 1,610, ,295, ,000 1,575, ,295, ,000 1,539, ,294, ,000 1,502, ,292, ,000 1,462, ,292, ,000 1,421, ,291, ,000 1,377, ,292, ,000 1,340, ,290, ,000 1,302, ,292, ,040,000 1,253, ,293, ,090,000 1,201, ,291, ,135,000 1,157, ,292, ,180,000 1,112, ,292, ,230,000 1,065, ,295, ,275,000 1,016, ,291, ,340, , ,292, ,410, , ,295, ,480, , ,294, ,550, , ,290, ,630, , ,293, ,710, , ,291, ,795, , ,291, ,885, , ,291, ,980, , ,292, ,080, , ,293, ,185, , ,294, TOTAL $36,120,000 $32,668, $68,788, (1) Includes mandatory sinking fund installments. Pursuant to the 2017 Installment Sale Agreement, the District is required to make 2017 Installment Payments which have been calculated to be sufficient to fund the scheduled interest and principal payments due on the Bonds. The 2017 Installment Payments are due on the fifteenth calendar day of the month preceding each Interest Payment Date. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS 2017 Installment Payments. -8-

15 THE BONDS General The Bonds will be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Bonds will mature on July 1 in each of the years and in the amounts, and will bear interest (calculated on the basis of a 360-day year of twelve 30-day months) at the rates set forth on the inside cover page hereof. Interest on the Bonds will be payable semiannually on each January 1 and July 1, commencing January 1, 2018 (each, an Interest Payment Date ), to the persons whose names appear on the Registration Books as the Owners thereof as of the 15th calendar day of the month immediately preceding each such Interest Payment Date (each, a Record Date ), such interest to be paid by check of the Trustee mailed by first-class mail to the Owners at the respective addresses of such Owners as they appear on the Registration Books; provided, however, that payment of interest may be made by wire transfer in immediately available funds to an account in the United States of America to any Owner of Bonds in the aggregate principal amount of $1,000,000 or more who furnishes written wire instructions to the Trustee at least five days before the applicable Record Date. Principal of any Bond and any premium upon redemption will be paid by check of the Trustee upon presentation and surrender thereof at the corporate trust office of the Trustee, except as provided in APPENDIX G BOOK-ENTRY SYSTEM. Principal of and interest and premium (if any) on the Bonds will be payable in lawful money of the United States of America. Each Bond will be dated as of its date of authentication and will bear interest from the Interest Payment Date next preceding such date of authentication thereof, unless (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date, or (b) it is authenticated on or before December 15, 2017, in which event it will bear interest from the Closing Date; provided, however, that if, as of the date of authentication of any Bond, interest thereon is in default, such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. The Bonds, when issued, will be registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company ( DTC, and together with any successor securities depository, the Securities Depository ). DTC will act as Securities Depository for the Bonds. Individual purchases of the Bonds will be made in book-entry form. Purchasers will not receive certificates representing their ownership interest in the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bondholders or the Owners of the Bonds means Cede & Co. as aforesaid, and not the Beneficial Owners (as defined in Appendix G) of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, principal of and interest on the Bonds are payable by wire transfer of same day funds by the Trustee to Cede & Co., as nominee for DTC. DTC is obligated, in turn, to remit such amounts to the Participants for subsequent disbursement to the Beneficial Owners. See APPENDIX G BOOK-ENTRY SYSTEM. Transfer and Exchange of Bonds Any Bond may, in accordance with its terms, be transferred on the Registration Books maintained by the Trustee by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of -9-

16 transfer, duly executed in a form acceptable to the Trustee. Transfer of any Bond will not be permitted by the Trustee during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption pursuant to the Indenture. Whenever any Bond or Bonds are required to be surrendered for transfer, the Authority will execute and the Trustee will authenticate and will deliver a new Bond or Bonds for a like aggregate principal amount and of like maturity. The Trustee may require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Any Bond may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations and of like maturity. Exchange of any Bond will not be permitted during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption. The Trustee may require the Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Redemption Mandatory Redemption of Bonds From Optional Prepayment of 2017 Installment Payments. The Bonds are subject to mandatory redemption as a whole or in part from the determination of the District to optionally prepay the 2017 Installment Payments, on any date on or after July 1, 2027, from any available source of funds of the District, at a redemption price equal to the principal amount of the Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. Any such redemption shall be in such order of maturity as the District shall designate (and, if no specific order of redemption is designated by the District, in inverse order of maturity). Mandatory Sinking Fund Redemption. The Bonds maturing on July 1, 2042, are subject to redemption from Mandatory Sinking Fund Payments in part on July 1, 2038, and on each July 1 thereafter to and including July 1, 2042, to the extent of the sinking fund payment made by the Authority, derived from 2017 Installment Payments by the District, with respect to each such redemption date, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium, as follows: Maturity Sinking Account Redemption Date (July 1) Principal Amount to be Redeemed or Purchased 2038 $1,410, ,480, ,550, ,630, ,710,000 The Bonds maturing on July 1, 2047, are subject to redemption from Mandatory Sinking Fund Payments in part on July 1, 2043, and on each July 1 thereafter to and including July 1, 2047, to the extent of the sinking fund payment made by the Authority, derived from 2017 Installment Payments by the District, with respect to each such redemption date, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium, as follows: -10-

17 Sinking Account Redemption Date (July 1) Principal Amount to be Redeemed or Purchased 2043 $1,795, ,885, ,980, ,080, ,185,000 Maturity In the event that the Trustee redeems Bonds maturing on July 1, 2042, or July 1, 2047, in part but not in whole pursuant to the other redemption provisions of the Indenture, the amount of the Bonds maturing on July 1, 2042, or July 1, 2047, to be redeemed in each subsequent year as described above will be reduced in such order as shall be determined by the District. Partial Redemption; Selection. All or a portion of any Bond may be redeemed, but only by lot and in a principal amount equal to an authorized denomination. In the event that less than all of the Bonds Outstanding of a particular maturity are to be redeemed, the Trustee will select the Bonds to be redeemed from all of the Bonds of such maturity or portion thereof not previously called for redemption by lot in any manner which the Trustee, in its discretion, shall deem appropriate and fair. Upon surrender of any Bond for redemption in part, the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations of the same maturity and in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. Purchase In Lieu of Redemption. In lieu of redemption of Bonds as described above, amounts held by the Trustee for such redemption received from the District may also be used on any Interest Payment Date, upon receipt by the Trustee at least 75 days prior to the next scheduled Interest Payment Date of the written request of an Authorized Representative of the Authority, for the purchase of Bonds at public or private sale as and when and at such prices (including brokerage, accrued interest and other charges) as the District may in its discretion direct, but not to exceed the redemption price which would be payable if such Bonds were redeemed. The aggregate principal amount of Bonds of the same maturity purchased in lieu of redemption pursuant to the foregoing provisions of the Indenture shall not exceed the aggregate principal amount of Bonds of such maturity which would otherwise be subject to such redemption. Remaining moneys, if any, will be transferred to the District. Notice of Redemption. Prior Notice of any such redemption will be given by the Trustee on behalf and at the expense of the District by mailing a copy of a redemption notice by first class mail at least 20 days and not more than 60 days prior to the date fixed for redemption to each Owner of the Bond or Bonds to be redeemed at the address shown on the Registration Books and to the Securities Depositories and to the Information Services; provided, however, that neither the failure to receive such notice nor any defect in any notice will affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of accrual of interest from and after the redemption date. All notices of redemption will state the date of the notice, the redemption date, the place or places of redemption, whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, the CUSIP numbers and (in the event that not all Bonds within a maturity are called for redemption) Bond numbers of the Bonds to be redeemed, the maturity or maturities of the Bonds to be redeemed, in the case -11-

18 of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed and, if such redemption is made pursuant to the provisions of the Indenture for mandatory redemption from optional payments of 2017 Installment Payments, that such redemption is conditioned upon receipt by the Trustee of sufficient funds to ensure the payment of the redemption price, including principal, interest and redemption premium, if any. Each such notice shall also state that on the redemption date there will become due and payable on each of said Bonds the redemption price thereof, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. So long as the book-entry system is used for the Bonds, the Trustee will give any notice of redemption or any other notices required to be given to registered Owners of Bonds only to DTC. Any failure of DTC to advise any Participant (as herein defined), or of any Participant to notify the Beneficial Owner (as herein defined), of any such notice and its content or effect will not affect the validity of the redemption of the Bonds called for redemption or any other action premised on such notice. Beneficial Owners may desire to make arrangements with a Participant so that all notices of redemption or other communications to DTC which affect such Beneficial Owners, and notification of all interest payments, will be forwarded in writing by such Participant. See APPENDIX G BOOK-ENTRY SYSTEM. Effect of Redemption. The Bonds or portions of Bonds so to be redeemed will, on the redemption date, become due and payable at the redemption price therein specified, and from and after such date interest with respect to such Bonds or portions of Bonds will cease to accrue and be payable. Upon surrender of such Bonds for redemption in accordance with said notice, such Bonds will be paid by the Trustee at the redemption price. Installments of interest due on or prior to the redemption date will be payable as herein provided for payment of interest. Upon surrender for any partial redemption of any Bond, there will be prepared for the Owner a new Bond or Bonds of the same maturity in the amount of the unpaid principal. All Bonds paid at maturity or prepaid prior to maturity pursuant to the provisions of the Indenture will be cancelled upon surrender thereof and destroyed. General SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The Bonds are special limited obligations of the Authority payable solely from and secured solely by the Revenues pledged therefor under and as such term is defined in the Indenture, together with amounts on deposit from time to time in the funds and accounts held by the Trustee under the Indenture. Under the Indenture, the Authority assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the rights of the Authority in the 2017 Installment Sale Agreement (except for certain rights to indemnification set forth therein). The Trustee is entitled to collect and receive all of the Revenues, and any Revenues collected or received by the Authority are required to be held, and to have been collected or received, by the Authority as the agent of the Trustee and must be paid by the Authority to the Trustee. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM AND SECURED SOLELY BY A PLEDGE OF AMOUNTS HELD IN CERTAIN -12-

19 FUNDS AND ACCOUNTS UNDER THE INDENTURE AND THE REVENUES DERIVED FROM THE 2017 INSTALLMENT PAYMENTS MADE BY THE DISTRICT UNDER THE 2017 INSTALLMENT SALE AGREEMENT. THE BONDS DO NOT CONSTITUTE A DEBT OF THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE OR OF ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION, AND THEY DO NOT CONSTITUTE AN OBLIGATION FOR WHICH THE AUTHORITY, THE DISTRICT, THE COUNTY OR THE STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE DISTRICT OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE AUTHORITY HAS NO TAXING POWER. Revenues Revenues are defined in the Indenture as (a) all 2017 Installment Payments (including both timely and delinquent payments, any late charges, and whether paid from any source) and prepayments thereof, and (b) subject to the provisions of the Indenture, all interest, profits or other income derived from the investment of amounts in any fund or account established pursuant to the Indenture Installment Sale Agreement Special Obligation. The District s obligation to pay the 2017 Installment Payments will be a special obligation limited solely to Pledged Net Revenues. Under no circumstances will the District be required to advance any moneys derived from any source of income other than the Pledged Net Revenues and other sources specifically identified in the 2017 Installment Sale Agreement for the payment of the 2017 Installment Payments, nor will any other funds or property of the District be liable for the payment of the 2017 Installment Payments. The obligations of the District to make the 2017 Installment Payments from Pledged Net Revenues and to perform and observe the other agreements contained in the 2017 Installment Sale Agreement will be absolute and unconditional and will not be subject to any defense or any right of set-off, counterclaim or recoupment arising out of any breach of the District, the Authority or the Trustee of any obligation to the District or otherwise with respect to the Project, whether under the 2017 Installment Sale Agreement or otherwise, or out of indebtedness or liability at any time owing to the District by the Authority or the Trustee. Until such time as all of the 2017 Installment Payments will have been fully paid or prepaid, the District (a) will not suspend, abate, or discontinue any payments provided for in the 2017 Installment Sale Agreement, (b) will perform and observe all other agreements contained in the 2017 Installment Sale Agreement, and (c) will not terminate the 2017 Installment Sale Agreement for any cause, including, without limiting the generality of the foregoing, the occurrence of any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the 2017 Project, the taking by eminent domain of title to or temporary use of any or all of the 2017 Project, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either thereof or any failure of the Authority or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Indenture or the 2017 Installment Sale Agreement. Pledge of Pledged Net Revenues. The District agrees that the payment of the 2017 Installment Payments shall be secured by a pledge, charge and first and prior lien upon Pledged Net Revenues, and -13-

20 Pledged Net Revenues sufficient to pay the 2017 Installment Payments as they become due and payable are pledged, charged, assigned, transferred and set over by the District to the Authority and its assigns for the purpose of securing payment of the 2017 Installment Payments. The Pledged Net Revenues shall constitute a trust fund for the security and payment of the 2017 Installment Payments. Deposit to Revenue Fund; Transfer to Pay Installment Payments. All of the Gross Revenues shall be deposited by the District immediately upon receipt in the Revenue Fund. The District shall withdraw from the Revenue Fund such amounts at such times as shall be required to pay all Maintenance and Operation Costs as they come due and payable, and for the payment of its obligations with respect to the Senior Obligations. The District covenants and agrees that all Gross Revenues will be held by the District in the Revenue Fund in trust for the benefit of the Trustee (as assignee of the rights of the Authority under the 2017 Installment Sale Agreement), the Owners, the owners of any Parity Obligations and the owners of any Subordinate Obligations. On or before each Installment Payment Date, the District shall withdraw from the Revenue Fund and transfer to the Trustee, for deposit in the Bond Fund, an amount which, together with the balance then on deposit in the Bond Fund (other than amounts resulting from the prepayment of the 2017 Installment Payments and other than amounts required for payment of the principal of or interest on any Bonds which have matured or been called for redemption but which have not been presented for payment), is equal to the aggregate amount of the 2017 Installment Payment coming due and payable on the next succeeding Interest Payment Date. In addition, the District shall withdraw from the Revenue Fund such amounts at such times as shall be required to pay (i) the principal of and interest on any Parity Obligations and otherwise comply with the provisions of the instruments authorizing the issuance of any Parity Obligations; and (ii) pay all other amounts when and as due and payable under the 2017 Installment Sale Agreement. Release from Lien. Following the transfer with respect to a July 1 Interest Payment Date, Pledged Net Revenues in excess of amounts required for the payment of 2017 Installment Payments and any Parity Obligations in that year shall be released from the lien of the 2017 Installment Sale Agreement and shall be available for any lawful purpose of the District. Rates, Fees and Charges. The District will, at all times while any of the Senior Obligations, the 2017 Installment Payments, any Parity Obligations and any Subordinate Obligations remain Outstanding, fix, prescribe and collect rates, fees and charges for the Water Service for each Fiscal Year so as to yield Gross Revenues at least sufficient, after making reasonable allowances for contingencies and errors in the estimates, to pay the following amounts during such Fiscal Year in the order below set forth: (1) All current Maintenance and Operation Costs. (2) Payments required with respect to the Senior Obligations. (3) The 2017 Installment Payments and all payments required with respect to any Parity Obligations. -14-

21 (4) Payments required with respect to any Subordinate Obligations. (5) All payments to meet any other obligations of the District which are charges, liens or encumbrances upon, or payable from, the Gross Revenues. (6) Any other lawful purposes of the District, including, but not limited to, deposits to the Rate Stabilization Fund in accordance with the Installment Sale Agreement. In addition, the District shall fix, prescribe and collect rates, fees and charges for the Water Service during each Fiscal Year which are sufficient to yield Net Revenues at least equal to one hundred twenty-five percent (125%) of the amounts payable under the preceding paragraphs (2) and (3) above in such Fiscal Year. No Obligations Superior to Installment Payments. In order to protect further the availability of the Pledged Net Revenues and the security for the 2017 Installment Payments and any Parity Obligations, the District agrees that the District shall not, so long as any 2017 Installment Payments or any Parity Obligations are outstanding, issue or incur any obligations payable from Gross Revenues superior to the 2017 Installment Payments or any Parity Obligations and specifically agrees that it will not issue or incur any obligations secured on a parity with the Senior Obligations. Incurrence of Parity Obligations. Additional obligations may be issued on a parity with the 2017 Installment Sale Agreement and any then existing Parity Obligations subject to the following specific conditions which are hereby made conditions precedent to the issuance and delivery of such Parity Obligations, except that the District need not comply with subparagraph (ii) if the proposed Parity Obligations are incurred to prepay or post a security deposit for the payment of the 2017 Installment Sale Agreement or Parity Obligations: (i) The District shall be in compliance with all covenants set forth in the 2017 Installment Sale Agreement and with all covenants set forth in the agreements relating to then existing Parity Obligations. (ii) The Net Revenues, calculated on sound accounting principles, as shown by the books of the District for the latest Fiscal Year or any more recent twelve (12) month period selected by the District, as shown by the books of the District, plus, at the option of the District, either or both of the items hereinafter in this covenant designated (A) and (B), shall at least equal one hundred twenty percent-five (125%) of Maximum Annual Debt Service immediately subsequent to the issuance of such Parity Obligations. The items any or all of which may be added to such Net Revenues for the purpose of issuing or incurring Parity Obligations hereunder are the following: (A) An allowance for Net Revenues from any additions to or improvements or extensions of the Water System to be made with the proceeds of such Parity Obligations, and also for Net Revenues from any such additions, improvements or extensions which have been made from moneys from any source but in any case which, during all or any part of such Fiscal Year or such twelve (12) month period, were not in service, all in an amount equal to seventy percent (70%) of the estimated additional average annual Net Revenues to be derived from such additions, improvements and extensions for the first thirty-six (36) month period in which each addition, improvement or extension is -15-

22 respectively to be in operation, all as shown in the written report of an Independent Financial Consultant engaged by the District. (B) An allowance for earnings arising from any increase in the charges made for service from the Water System which has become effective prior to the incurring of such additional indebtedness but which, during all or any part of such Fiscal Year or such twelve (12) month period, was not in effect, in an amount equal to the amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or such twelve (12) month period, all as shown in the written report of an Independent Financial Consultant engaged by the District. that: (iii) The instrument providing for the issuance of such Parity Obligations shall provide (A) The proceeds of such Parity Obligations shall be applied to the acquisition, construction, improvement, financing or refinancing of additional facilities, improvements or extensions of existing facilities within the Water System, or otherwise for facilities, improvements or property which the District determines are of benefit to the Water System, or for the purpose of refunding any Parity Obligations in whole or in part, including all costs (including costs of issuing such Parity Obligations and including capitalized interest on such Parity Obligations during any period which the District deems necessary or advisable) relating thereto; (B) Interest on such Parity Obligations shall be payable on January 1 and July 1 in each year of the term of such Parity Obligations except the first year, during which year interest may be payable on any January 1 or July 1; and (C) The principal of such Parity Obligations shall be payable on July 1 in any year in which principal is payable. (iv) A reserve fund may, but shall not be required to, be established for such Parity Obligations. Subordinate Obligations. The District further covenants that the District shall not issue or incur any Subordinate Obligations unless Net Revenues, calculated in the same manner as described in above with respect to additional Parity Obligations, are equal to at least 100% of Maximum Annual Debt Service and maximum annual debt service on all Subordinate Obligations outstanding immediately subsequent to the incurring of such Subordinate Obligations. Additional Payments. In addition to the 2017 Installment Payments, the District will pay, from Pledged Net Revenues, when due all costs and expenses incurred by the Authority to comply with the provisions of the Indenture and the 2017 Installment Sale Agreement, including, without limitation all Costs of Issuance (to the extent not paid from amounts on deposit in the Costs of Issuance Fund), compensation due to the Trustee for its fees, costs and expenses incurred under the Indenture, compensation due to the Authority for its fees, costs and expenses incurred under the Indenture and all costs and expenses of attorneys, auditors, engineers and accountants. -16-

23 2017 Installment Payments Installment Payments are required to be made by the District under the 2017 Installment Sale Agreement on the 15th day of each June and December (each a Due Date ). The Trustee will apply such amounts as are necessary to make principal and interest payments due with respect to the Bonds on January 1 and July 1 of each year sufficient to meet the Bond amortization schedule. Rate Stabilization Fund. A Rate Stabilization Fund was created in 2012 and is held and maintained by the District. From time to time, the District may deposit in the Rate Stabilization Fund from Gross Revenues such amounts as the District may determine, provided that deposits for each Fiscal Year may be made until (but not after) 180 days following the end of such Fiscal Year. The District may withdraw amounts from the Rate Stabilization Fund (i) for transfer to the Revenue Fund for inclusion in Gross Revenues for any Fiscal Year, such withdrawals to be made until (but not after) 180 days after the end of such Fiscal Year, or (ii) for any other lawful purpose of the District. All interest or other earnings on deposit in the Rate Stabilization Fund will be withdrawn and accounted for as Gross Revenues. No deposit of Gross Revenues to the Rate Stabilization Fund may be made to the extent that such Gross Revenues were included in the calculations of the additional bonds test hereof and withdrawal of the Gross Revenues to be deposited in the Rate Stabilization Fund from Gross Revenues that would cause noncompliance with the rate covenant. The Rate Stabilization Fund is not pledged to secure the 2017 Installment Payments, the payments with respect to any Parity Obligations or the payments with respect to any Subordinate Debt. Introduction DISTRICT ORGANIZATION AND WATER SYSTEM The District serves roughly 187,500 customers within approximately 147 square miles along the eastern corridor of Marin County from the Golden Gate Bridge northward. The District serves ten incorporated cities and towns, including San Rafael, Mill Valley, Fairfax, San Anselmo, Ross, Larkspur, Corte Madera, Tiburon, Belvedere and Sausalito, as well as a large unincorporated area of the County. The District was formed in 1912 for the purpose of developing a domestic water supply within its boundaries. It was the first water district in the State to be organized under the Municipal Water District Act. Board of Directors The five-member Board governs the District. Each director represents one of the five District divisions of approximately equal population. The directors serve overlapping four-year terms. The Board annually selects a president from among its members. The current directors are: Larry L. Russell, President (Division V), has been on the Board since He is a licensed Civil, Chemical and Corrosion Engineer, and is an expert in applied environmental chemistry and engineering with special emphasis on water quality, taste and odor control, corrosion control and materials selection and performance, ground water quality management, storm water runoff, water source selection and chemical usage in water and wastewater treatment. He has served one year as President of the Board and has chaired the District Operations Committee for several years. -17-

24 Larry Bragman, Vice President (Division III), was elected to the Board in Previously he served on the Fairfax Town Council for three terms, including two years as Mayor. In addition to his duties as a council member, he served as the Fairfax representative to the Marin Telecommunications Agency, Transportation Authority of Marin, Ross Valley Paramedic Authority and the Community Media Center of Marin. Director Bragman has been a practicing attorney in Marin County for over thirty years and maintains an office in San Rafael. John C. (Jack) Gibson (Division I), was elected to the board in He has been a practicing lawyer for over 30 years. Mr. Gibson is a lawyer specializing in trust and estates, real estate and business law. He currently or previously has served on the boards of directors for seven non-profit agencies and two for-profit organizations. Armando Quintero (Division II) was appointed to the Board in 2009 to fill a vacant seat and was elected to the Board in He is the Executive Director of the Sierra Nevada Research Institute at UC Merced. Mr. Quintero is currently the Chair of the California Water Commission. He was appointed to the Commission by Governor Brown in He also serves on the Board of the George Melendez Wright Society. Cynthia Koehler (Division IV), was first elected to the Board in She has been a public interest attorney and environmental advocate in the Bay Area for over 25 years. She is the cofounder and Executive Director of WaterNow Alliance, a nonprofit organization. She was the California Water Legislative Director for the Environmental Defense Fund and an Adjunct Professor at Golden Gate University School of Law. District Management The Board appoints a general manager, Board secretary and legal counsel. The District consists of five divisions, each with its own area of responsibility, as follows: (1) Finance, (2) Environmental and Engineering Services, (3) Facilities and Watershed, (4) Legal, and (5) Human Resources. The District s staff consists of 245 full-time employees. The General Manager oversees the day-to-day activities of the District and reports to the Board. Krishna Kumar is the District s General Manager. Mr. Kumar has worked in the water resources field for over 18 years. Prior to joining the District in 2012, Mr. Kumar served as the General Manager for the Valley of the Moon Water District. Previously he served as the Administrative Services Division Manager for the Sonoma County Water Agency. Mr. Kumar has a Master s Degree from the Cochin University of Science and Technology, India. Charles M. Duggan, Jr. was appointed Administrative Services Division Manager/Treasurer on February 20, Previously, he had served as City Manager of Auburn, Alabama, since February 1, Mr. Duggan received a bachelor s of science degree in Applied Physics (1990) and a Master of Business Administration (1994), both from Auburn University, and has additional doctoral coursework in Public Administration and Public Policy. His 29 years of local government experience includes time spent in parks and recreation, information technology, and city management including the supervision of water operations. -18-

25 Michael Ban, P.E. is the District s Manager of the Environmental and Engineering Services Division. Mr. Ban has worked in the water resources field for over 28 years. Prior to joining the District in 2010, Mr. Ban served as the Director of Water Resources and Conservation for the City of Petaluma. Mr. Ban has a bachelor of science degree in Civil Engineering from the University of California, Davis, and is a California registered Professional Engineer. Crystal Yezman, P.E. is the District's Facility and Watershed Division Manager. She has been with the District since She received a bachelor s of science in environmental science and master of science degree in civil and environmental engineering from the University of California, Berkeley in She is a licensed Civil Engineer in California and Oregon and has managed operations and maintenance for some of the largest water agencies in the Pacific Northwest, including Portland Water Bureau and Santa Clara Valley Water District. Mary R. Casey, Esq. has served as the District s General Counsel for the last 18 years. She received her undergraduate degree from Providence College in 1979 and her law degree from Southwestern University School of Law in Ms. Casey has practiced municipal/public agency law for her entire career. Stephanie Eichner-Gross is the District s secretary to the Board and administrative secretary to the General Manager and General Counsel. She has been with the District since Prior to joining the District, Ms. Eichner-Gross worked for three public agencies and has over 27 years of public service. She is a graduate of Santa Rosa Junior College. Water System and Treatment Facilities The District owns and operates water production, storage, treatment and distribution facilities to serve customers within its boundaries. The District s water system consists of 21,600 acres of watershed lands, seven reservoirs with a storage capacity of 79,566 acre-feet (one acre-foot is equal to 325,851 gallons, enough water to cover one acre to a depth of one foot), 900 miles of pipeline, 128 storage tanks, 97 pumping stations, three potable water treatment facilities, and one water recycling facility. District-owned land, including watershed, totals 22,450 acres. Five of the seven District reservoirs (Alpine, Bon Tempe, Kent, Lagunitas, and Phoenix Lake) are located on the north slopes of Mt. Tamalpais in the County. The other two (Nicasio and Soulajule) are located outside the District s service area in the western portion of the County. Presented below are summary descriptions of the District s reservoirs: 1. Alpine Lake was built in 1919 and has an arched concrete dam. The dam was raised in 1923 and 1941 to its present height and has a total storage capacity of 8,891 acre-feet. 2. Bon Tempe Lake has an earth-fill dam and was built in 1948 with a capacity of 4,017 acre-feet. 3. Kent Lake has an earth-fill dam and was built in The structure was enlarged in 1982 to accommodate a total capacity of 32,895 acre-feet. 4. Lake Lagunitas, the oldest facility, is an earth-fill dam built in Lake Lagunitas still maintains its original capacity of 350 acre-feet. 5. Phoenix Lake has an earth-fill dam, was constructed in 1905 and was significantly modified in 1968 and The last modification reduced the lake s capacity to 411 acre-feet. It now serves -19-

26 primarily as a scenic resource for the community and is used as a water supply source only in very dry years. 6. Nicasio Reservoir has an earth-fill dam and was built in 1960, with a capacity of 22,430 acre-feet. 7. Soulajule Reservoir is impounded by an earth-fill dam built in 1979 with a capacity of 10,572 acre-feet. As noted above, the District operates three potable water treatment facilities, the San Geronimo Treatment Plant, the Bon Tempe Treatment Plant and the Ignacio Pump Station, where the quality of potable water purchased from the Sonoma County Water Agency (the SCWA ) is adjusted to match that of the water in the rest of the District system. The District also operates a water recycling facility, the Las Gallinas Valley Water Recycling Plant. The San Geronimo and Bon Tempe Treatment Plants, with 35 million gallons per day (mgd) and 20 mgd maximum capacity, respectively, treat water originating from District reservoirs. The Ignacio Pump Station, with 16 mgd maximum capacity, performs chemical treatment in a polishing operation on water received from the SCWA via the North Marin Intertie Pipeline. See Water Supply below. The Las Gallinas Valley Water Recycling Plant, with a two mgd maximum capacity, performs tertiary treatment of wastewater effluent and distributes water used mainly for irrigation to more than 350 service connections through more than 25 miles of pipeline. History of Water Supply Historically, the District has relied on rainfall runoff collected in the western portion of the County for its water supply. Based upon District studies, the water supply potential of the western County basins has been developed to the maximum reasonable extent. The District s heavy reliance upon rainfall runoff for its water supply and its water storage capacity, limited by environmental concerns, has made the District very vulnerable to water shortages arising from changes in hydrological conditions. To mitigate this situation, the District originally negotiated a contract with SCWA for delivery of up to 4,300 acre-feet of water per year ( AFA ) in Such deliveries were to occur only in the winter months, when water demand was lowest, and only when SCWA had water surplus to meet its needs. In addition, the District developed and implemented a project to provide additional treatment to treated wastewater such that the produced water could be used to replace some selected potable water use. Nevertheless, severe drought conditions occurred in and reoccurred in In each case, such drought conditions compelled the District to impose water rationing and substantially increase water rates. See Water Supply Water Consumption and Water Rates and Charges below. Faced with limited water resources and storage capacity and increasing demand for water, the District, in 1989, completed a Water Supply Master Plan (the WSMP ) to identify the appropriate method of securing an adequate water supply. The WSMP recommended that the District secure an additional water supply of up to 10,000 AFA, to meet existing dry year supply shortfalls and projected growth through Consequently, the District negotiated improvements to the terms of its existing contract with SCWA and signed a new contract in 1991 with SCWA allowing delivery of up to an additional 10,000 AFA. Subsequently, in 1992, the District s electorate approved Measure V, authorizing issuance of up to $37.5 million of revenue bonds to fund a variety of water system improvements, including improvements to import additional water supply from SCWA, water reclamation, conservation/efficiency projects, water -20-

27 quality improvements and other general projects. In 1993, the District issued $39 million in revenue bonds to fund approximately $17 million of the $37.5 million for projects authorized under Measure V and refund prior debt. Approximately $11.8 million was to be used to fund improvements needed to import additional water supply from SCWA. The cost of a 13-mile pipeline and other facilities needed to import additional supply from SCWA was estimated at $62 million, and was not funded by the 1993 revenue bonds. The additional $62 million needed to fund the pipeline was to be included in a future debt issuance which will not require voter approval. The District has not pursued this project due to costs and a diminished need for additional water given reductions in water demand. Therefore, the District does not intend to pursue this project at this time. While the District s contractual entitlements from SCWA are now 14,300 AFA, the District has been able to meet customer demands for the last eight years by importing less than 8,000 AFA. SCWA s prices are subject to annual changes. On or before April 30 of each fiscal year, SCWA is required by contract to establish its charges for the ensuing fiscal year. The most recent change was effective July 1, 2017 and reflected a 7.76% increase. Water Supply Overview. Historically, the District s water supply has come primarily from rainfall runoff captured on the north slope of Mt. Tamalpais in the westerly slopes of the California coastal range. District facilities, constructed in stages during the twentieth century, diverted approximately two-thirds of the flow of Lagunitas Creek above Kent Lake and more than one-third of the flow of Nicasio Creek to the developed areas of the eastern portion of the County. The District s watershed system has four units: Lagunitas Creek above Kent Lake, Nicasio Creek above Nicasio Dam, Ross Creek above Phoenix Lake and Walker Creek above Soulajule Reservoir. The District and its predecessor agencies have maintained rainfall records for a period of over 130 years. Average annual precipitation varies across the drainage basins above the reservoirs from about 60 inches above Kent Lake to 28 inches on Walker Creek. Average annual net runoff (total runoff less losses) on the District s watershed lands is more than 75,000 acre-feet. However, year-to-year net runoff figures vary significantly from a high net runoff in fiscal year of approximately 213,000 acre-feet to a low of approximately 3,000 acre-feet in fiscal year , the baseline drought year. Today, about 75% of the potable water used by District customers comes from the local reservoir system. The District has considerable stewardship responsibility for the aquatic species that reside in the streams below its reservoirs. In particular, the District must release water from its reservoirs to help sustain downstream fisheries. To meet the terms included in the District s water rights, an average of about 12,500 AFA is released for that purpose. In addition to the above-described local water sources, since 1975 the District has contracted for imported delivery from SCWA. The latest contract with SCWA, executed in July 2015, allows the District to take delivery of up to 14,300 acre-feet of water per year, including a 5,300 cubic feet take or pay component. The contract remains in effect until June 30, 2025, cannot be terminated prior to expiration and can be extended at the District s option, for a term not to exceed the term of SCWA s Restructured Agreement for Water Supply with its water contractors, which is In fiscal year 2016, the District produced 22,454 acre-feet of water for its customers, including 5,300 acre-feet of water imported from SCWA. See Water Rates and Charges below. The District s current water supplies can serve a commitment of approximately 28,000 AFA based on the District s estimate of the yield of all supplies available to the District. Such estimate of yield includes about 20,000 AFA from the District s reservoirs and reclaimed water projects and about 8,

28 AFA of water from the SCWA. While the SCWA agreement allows the District to take up to 14,300 acrefeet of water per year, the current transmission infrastructure limits the District to take 8,000 AFA. Water use is measured both as the amount of water produced at District plants and the amount of water consumed by District customers as recorded by their water meters. Water Production. Water production is the total amount of potable water treated by the District for distribution throughout its system. The amount of water produced by the District is always larger than metered consumption by customers because of system losses and other non-metered uses. Table 1 shows water production, water purchases and lake storage data for the period from fiscal year through fiscal year As of May 31, 2017, reservoir storage was at 98.18% of capacity. For an explanation of the District s water yield based on lake storage and other supplies, see Water Supply above. TABLE 1 ANNUAL POTABLE WATER PRODUCTION AND STORAGE (acre-feet) Fiscal Treated Water Imported from Total Reservoir Percent of Year Production SCWA Production Storage (1) Capacity (2) ,631 7,820 30,451 77, % ,541 8,183 31,724 64, % ,926 8,412 31,338 75, % ,456 8,198 30,654 78, % ,026 7,785 31,811 72, % ,113 7,848 28,961 79, % ,164 7,115 29,279 77, % ,645 7,502 30,147 64, % ,165 7,568 29,733 67, % ,989 7,847 27,836 63, % ,529 6,702 25,231 78, % ,994 5,378 25,372 77, % ,163 5,907 26,070 77, % ,187 5,873 27,060 68, % ,473 8,236 26,709 59, % ,547 7,000 23,547 67, % ,154 5,300 22,454 72, % (3) 15,869 4,552 20,421 78, % Source: Marin Municipal Water District. (1) As of June 1 of fiscal year shown. (2) Total reservoir capacity is 79,566 acre feet. (3) data is as of May 31, Water Consumption. Table 2 summarizes metered water consumption by customer class for fiscal years 2012 to Un-metered water uses include firefighting, evaporation, District usage for backwashing and line flushing, leaks/breaks and other system losses. -22-

29 TABLE 2 METERED WATER USE BY CUSTOMER CLASS (in acre-feet by fiscal year (1)(2)) Customer Class Residential: Single-family & multi-family dwelling units, apartments, condominiums, mobile homes 17,309 18,363 18,537 16,404 (4) 14,551 (4) Institutional: San Quentin Prison, hospitals, hotels, fire stations 1,499 1,485 1,488 1,377 1,260 Business Establishments: Office buildings, restaurants, industrial, manufacturing, retail stores, schools, churches, and other service-oriented businesses 2,703 2,838 2,811 2,645 2,495 Irrigation: Parks, golf courses, nurseries 1,882 1,522 2,198 1,986 1,728 Total Metered Water Use 23,393 24,208 25,034 22,412 20,034 Total Water Production (2) 26,333 27,403 27,256 23,863 22,742 Unmetered Water Uses (3) 2,940 3,195 2,222 1,451 2,708 Percentage of Unmetered Water Use 11.2% 11.7% 8.2% 6.1% 11.9% Source: Marin Municipal Water District. (1) One acre-foot equals hundred cubic feet (ccf). (2) Water production includes potable and reclaimed water. (3) Includes water used for firefighting, evaporation, District usage for backwashing and line flushing, and system losses. (4) Decrease over prior year due to drought conditions. See DISTRICT FINANCES - Impact of Drought on District Revenues and Expenses. Table 3 summarizes the percentage contribution by customer class to water sale revenues for the fiscal years through In fiscal year , residential water use, which includes singlefamily and multi-family dwelling units, comprised approximately 73% of the total water use in the District, while non-residential customers accounted for approximately 27% of the total water use in the District. TABLE 3 PERCENTAGE CONTRIBUTION TO WATER SALES REVENUES BY CLASS OF USER For Fiscal Years through Customer Class Residential (1) 74.89% 74.74% 74.92% 73.68% 72.60% Non-Residential 25.11% 25.26% 25.08% 26.32% 27.40% Total % % % % % Source: Marin Municipal Water District. (1) Includes single family and multifamily residential. -23-

30 Water Rights The District holds five appropriative water rights and one water license, and three pre-1914 water rights, to operate its local reservoir system. Rights to divert water were granted to the District by the California State Water Resources Control Board ( SWRCB ) and allow diversion of over 86,000 AFA. District water supply can be obtained from Lagunitas Creek, Walker Creek, Ross Creek and Nicasio Creek in the County, via the District s water rights, and, through water rights of the SCWA, the Russian River in Sonoma County. See Water Supply above. With respect to the Russian River, the District purchases Russian River water from SCWA. SCWA has rights to re-divert up to 75,000 AFA. SCWA currently provides 46,000 AFA of water to all of its customers, including the District. See Table 1 for a history of the District s imports from SCWA. SCWA has entered into certain continuing disclosure agreements pursuant to which SCWA is contractually obligated for the benefit of owners of certain of their outstanding obligations, to file certain annual reports, notices of certain material events as defined under the Rule and annual audited financial statements (the SCWA Information ) with certain information repositories (a current listing of such repositories is maintained on the Internet at SCWA HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE AUTHORITY, THE DISTRICT, THE TRUSTEE OR THE OWNERS OF THE BONDS TO PROVIDE SCWA INFORMATION TO THE AUTHORITY, THE DISTRICT OR THE OWNERS OF THE BONDS. SCWA HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS NOT MADE REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED OR INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO SCWA. SCWA IS NOT CONTRACTUALLY OBLIGATED, AND HAS NOT UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE BENEFIT OF THE AUTHORITY, THE DISTRICT OR THE OWNERS OF THE BONDS UNDER RULE 15c2-12. Water Rates and Charges The District has the power and authority under California law to establish charges for service without the review or approval of any other government body. The District s rates and charges are established by ordinance of the Board and subject to the requirements of Proposition 218. The District has the right to refuse or terminate water service to delinquent customers and to require full payment of delinquent amounts and reconnection charges to resume service. Unpaid charges may become a lien on property by recordation of a notice thereof. In 1992, the District adopted a tiered rate structure pursuant to a water rate study conducted at that time. The rate structure incorporated a fixed service charge for all users and a tiered water use charge based on the volume of water used. From fiscal year 2007 through fiscal year 2012, the District increased water rates six times (3.5% effective in fiscal year 2007, 11.5% effective in fiscal year 2008, 8.25% effective in fiscal year 2009, 11.5% effective in fiscal year 2010, 4% effective in fiscal year 2011, and 6% effective in fiscal year 2012). On December 8, 2015, the Board approved a multi-year water rate restructuring and a 4% increase in water service rates, fees and charges based on a Cost of Service Analysis ( COSA ). The water rate -24-

31 restructuring, effective January 1, 2016, for billing starting on March 1, 2016, included increasing the fixed service charge (based on meter size), adding a new fixed Watershed Management Fee, adjustments to the tier rate of the variable commodity charge for all customer classes, changes in tier allotments for multifamily and duplex customer classes and a water pass-through adjustment for SCWA wholesale water rate increases above 5%, subject to the District providing all customers at least 30 days written notice prior to implementation. To date, the District has not elected to implement such a pass-through. The water rate restructuring increased total fixed revenues from the service charge and Watershed Management Fee from 17% to 32% of total water sales for improving revenue stability. The approved 4% increase in water service rates, fees and charges was effective May 1, 2016 for billing starting July 1, As indicated above, the Watershed Management Fee is a fixed charge based on the meter size. The Watershed Management Fee revenue is expected to be approximately $3.8 million in fiscal year 2017, the first fiscal year to realize one full year of revenue. The revenue generated from Watershed Management Fee is dedicated to pay for watershed related expenditures. For fiscal year 2017, the revenue generated from the Watershed Management Fee covers approximately 80% of the total watershed expenses. The long term goal is to fund the entire watershed expenditures through the Watershed Management Fee. This approach ensures a steady and reliable funding mechanism to fully invest in the District s watershed, which provides close to 75% of the District s water supply needs. On May 16, 2017, the Board approved a multi-year water rate increase based on a COSA update in The approved 7% increase in water service rates, fees and charges was effective July 1, 2017, for billing starting September 1, The second 7% increase is effective July 1, 2019, for billing starting September 1, Table 4 summarizes the current water rates which were adopted by the Board on May 16, 2017, after a Proposition 218 hearing held on that date, and reflect the 7% increase over the prior rates. Source: Marin Municipal Water District. TABLE 4 SUMMARY OF CURRENT WATER RATES Bi-Monthly Fixed Charges and Fees (As of 7/1/17) (As of 7/1/17) Meter Size Service Charge Watershed Management Fee 5/8 $36.79 $9.78 3/ / , , ,

32 Fire Line Fixed Service Charge Meter Size (As of 7/1/17) Service Charge 2 $ Source: Marin Municipal Water District. Bi-Monthly Commodity Charge Tier Rates and Allotments Residential (As of 7/1/17) Winter Use (1) Summer Use (1) Rate Bi-Monthly Bi-Monthly Tiered Water Rate ($/ccf) Quantity (ccf) Quantity (ccf) Single Family Tier 1 $ Tier Tier Tier Duplex Residential Tier 1 $ Tier Tier Tier Multi-Family (per dwelling unit) Tier 1 $ Tier Tier Tier Source: Marin Municipal Water District. (1) Winter use is from December 1 to May 31. Summer use is from June 1 to November 30. (2) A billing unit of water is equal to 100 cubic feet (ccf) or 748 gallons. -26-

33 Bi-Monthly Commodity Charge Tier Rates and Allotments Non-Residential (As of 7/1/17) Rate Percent of Tiered Water Rate ($/ccf)(1) Baseline (2) Commercial/Irrigation/Institutional Tier 1 $ Tier Tier Over 150 Single Family Irrigation Tier 1 $ Tier Tier Over 100 Recycled Water Tier 1 $ Tier Tier Over 150 Raw Water Tier 1 $ Tier Tier Over 150 Fire Lines 8.14 Hydrant Meters 6.11 Source: Marin Municipal Water District. (1) A billing unit of water is equal to 100 cubic feet (ccf), or 748 gallons. (2) The quantity of water charged at each rate is set as a percentage of the water budget for non-residential customers. Connection fees for residential service are $29,260 per acre-foot of estimated annual consumption. The annual consumption for residential use is based on the area average of the neighborhood in which the unit(s) are to be built. For all other uses, such as business, industrial, agricultural or institutional, the connections fees are based on consumption estimates formulated from information provided by the applicant. The amount of water purchased at the time of application, based on consumption estimates, becomes the water entitlement for the property to be served. The District bills residential customers on a bi-monthly basis. Based upon the newly adopted rate structure shown in Table 4, an average bi-monthly water bill for a residential customer based on 19 ccf of water use in winter or summer periods will be $ or $61.95 per month, respectively. -27-

34 Table 5 presents the average monthly water bill paid by the residents of a single-family home in the District based on average annual consumption for calendar years 2000 through The District s rates are determined based on the cost of service and to provide for ongoing operations and maintenance, debt service, and current and future capital needs. TABLE 5 AVERAGE MONTHLY CHARGE FOR DISTRICT WATER BASED ON AVERAGE ANNUAL SINGLE FAMILY RESIDENTIAL WATER USE For Years 2000 through 2016 Average Residential Average Average Calendar Monthly use Charge Monthly Year (ccf) per ccf (1) Charge $3.23 $ Source: Marin Municipal Water District. (1) The average single family residential monthly use was calculated using total residential water sales (not including reclaimed water) and determining the average annual usage per residential service. Fire Flow Fee In December 1996, upon approval of voters in an advisory vote, the District Board of Directors approved the initial 15-year fire flow improvement program. The fire flow program collected $75 per year from each parcel in the District s service area and generated funds of $4.5 million annually. The funds were used to improve the available flow to fire hydrants in key locations by replacing 61 miles of fire flow deficient pipelines as well as seismic retrofits of the treatment plants and critical transmission tanks and pump stations. The fire flow fee funded $70 million in fire flow improvements over the 15 year period. The initial fire flow program expired in In May 2012, the fire flow improvement program was extended to 2031 by the District Board of Directors, with the fee remaining at $75 per year form each parcel in the District s service area. The District expects that this fee will generate $4.5 million annually, funding $85.5 million in fire flow improvement projects over the next 19 years. -28-

35 The fire flow fee is specifically dedicated to these purposes and is not considered by the District as part of its Gross Revenues and, therefore, does not constitute security for the Bonds. Comparative Rates Table 6 shows comparative rates charges by water suppliers in the San Francisco Bay area: TABLE 6 COMPARATIVE ANNUAL SINGLE FAMILY RESIDENTIAL WATER CHARGES For 19 ccfs (bi-monthly) As of June 30, 2016 Average Annual Household Water Water Supplier Service Charge City of Palo Alto $1,025 City of Hayward 931 San Jose Municipal Water 885 San Francisco PUC 863 City of Mountain View 835 Marin Municipal Water District 707* City of Los Altos 698 East Bay Municipal Utility District 672 Contra Costa Water District 644 Dublin San Ramon Services District 642 Alameda County Water District 634 City of Livermore 634 North Marin Water District 587 City of Pleasanton 379 Source: Marin Municipal Water District. * The District s estimated annual household water charge will increase to $737 based upon the new rates, fees and charges effective July 1, 2017, for billing starting September 1,

36 Principal Customers Table 7 lists the District s ten largest customers for fiscal year The board has adopted a policy of confidentiality with respect to information on individual water use; however, the ten largest customers shown below collectively accounted for approximately 5.9% of revenue from water sales. Sales from no one customer exceeds 2.2% of total water sales revenue. TABLE 7 PRINCIPAL DISTRICT CUSTOMERS For Fiscal Year Name San Quentin State Prison County of Marin Equity Lifestyle Properties Marin General Hospital McInnis Park Golf Meadow Club National Park Service Peacock Gap Holdings LLC San Geronimo Golf Club Tamalpais Union HS District Type of Business Correctional facility College Mobile home community Hospital Golf course Golf course Government Golf course Golf course School District Source: Marin Municipal Water District. Water Recycling Water recycling is one of the District s most reliable water supplies. The use of recycled water conserves potable water, reduces wastewater discharge to San Francisco Bay, provides an important drought-proof source of water and preserves water in the District s reservoirs. The District was one of the first water agencies in Northern California to build a recycled water system. The 1-million-gallon-per-day (mgd) Las Gallinas Water Recycling Facility was completed in In 1989, the District upgraded the plant in order to meet the more stringent water quality requirements of the State Department of Health Services and expanded the plant s capacity to two mgd. During the 1990s the District expanded the distribution system to a total of 25 miles and averages about 600 AFA (about 2% of total District demand). While most of the use is for landscape irrigation, the District achieved permitting of the use of recycled water for toilet flushing, commercial laundries, air conditioning cooling towers, and car washes. Seismic Considerations One of the objectives involved in the planning and operation of the District s water system is to minimize potential effects on service availability and financial resources arising from natural disasters such as earthquakes. Several active fault zones lie within Northern California. In recognition of the potential hazard, the District s water conveyance facilities are designed, at a minimum, in accordance with the recommendations of the Uniform Building Code and appropriate American Water Works Association Standards. -30-

37 The District has implemented a risk management and security program, approved by District voters in 1997, to identify risk and fund remedial actions to minimize exposure to damage from, and operational problems associated with, earthquakes and other disasters. To date, no District facilities have suffered any major earthquake damage. Capital Improvement Plan As shown in Table 8, the District s budgeted expenditures for its Five Year Capital Improvement Plan for Fiscal Years 2018 through 2022 are $199 million in 2017 dollars. The projects include replacement and upgrade of transmission and distribution system facilities, pump stations, storage tanks, and improvements to the District s water treatment facilities. Pipeline Replacement Program. The Pipeline Replacement Program is designed to maintain and improve the level of service, quality and safety of the District s distribution and transmission piping system. Projects in this program provide for replacement of worn and deteriorated transmission and distribution system piping. Pipeline segments are selected for inclusion in this program based primarily on leak history. A segment s leak history is the primary indicator used to assess pipe condition and remaining service life. The District maintains records of all leaks and leak repairs. Staff utilizes the District s GIS to identify pipe segments with a significant leak rate (generally 1 leak/year/1,000 ft pipe). The segments identified through this process are added to the pipeline replacement (leak) list. Pipe segments on the leak list undergo a thorough investigation to determine their complete leak history, year installed, type of pipe material, as-installed details and potential real property issues. Pipeline replacements are prioritized primarily based on leak rate and risk related to damages to the environment or property in the event of a main break. Special consideration is given to pipelines in close proximity to salmonid bearing streams. Finally, when given adequate notification, the District endeavors to replace pipeline segments in advance of planned street work that coincide with pipe segments on the pipeline replacement list or that may be disturbed by the construction. $5.3 million is budged for Fiscal Year 2018 and $6.9 million is budgeted for Fiscal Year 2019, which together will support replacement of approximately eight miles of pipe. Distribution Pump Station Replacement Program. The Distribution Pump Station Replacement Program provides for the planning, design, construction and replacement of the District s pump stations. The District has 75 distribution pump stations in service. A significant number of these pump stations are now over 50 years old. A number of the pump houses are in poor condition, provide inadequate space for safe maintenance and repair of equipment, have poor and/or unsafe access, or provide insufficient space to allow inadequate pumps to be replaced with adequate equipment. Prioritization for pump station replacements is based on the following factors: station age, condition, type of construction, adequacy of interior space, station access, lack of standby pump and pump adequacy. The aggregate amount budgeted for Fiscal Years 2018 and 2019 for the Distribution Pump Station Replacement Program is $3.5 million. Redwood Tank Replacement Program. The Redwood Tank Replacement Program provides for the planning, design, construction and replacement of deteriorated redwood storage tanks. Redwood storage tanks often present water quality challenges, are seismically vulnerable, and leak. Since 2001, this program has replaced approximately 42 redwood storage tanks. There are eight redwood tanks that remain. The tanks are prioritized from the combination of their field condition rating and their storage adequacy rating. The current level of funding allows replacement of two or three tanks per year. The Five Year Capital Improvement Plan funds the Redwood Tank Replacement Program at $3.0 million, and is part of the Storage Facilities Program, as noted in Table

38 Treatment Plant Upgrades. This project involves a series of upgrades and improvements to the District s water treatment plants which are budgeted at $28.7 million, and are part of the Treatment Plants program. This project will strengthen the water treatment plant to withstand a major seismic event as well as provide new underdrains and replace the filter surface wash with an air scour system to improve backwashing efficiency at the San Geronimo water treatment facility. The District currently intends to finance its first year of the Capital Improvement Program with a mix of Fire Flow Fee revenue, bond proceeds and connections fees and available revenues on a pay-asyou-go basis. The following table displays projects planned to be funded during the next five years and the sources of payment for such projects. TABLE 8 FIVE YEAR CAPITAL IMPROVEMENT PROGRAM SUMMARY (Dollars in Thousands) Category/Project Title Total Transmission & Distribution $16,880 $18,420 $22,025 $18,155 $20,180 $95,660 Treatment Plants 3,930 2,365 9,850 9,120 3,440 28,705 Storage Facilities 850 1,900 5,927 6,414 6,680 21,771 Watershed 6,371 6,629 5,820 4,750 1,450 25,020 Communications 1,835 2, ,640 Fire Flow (1) 4,500 4,500 4,500 4,500 4,500 22,500 Total Capital Program $34,366 $35,849 $48,657 $43,474 $36,950 $199,296 Funding Sources Fire Flow Fee (1) $4,500 $4,500 $4,500 $4,500 $4,500 $22,500 Connection Charges ,500 Pay-As-You-Go 6,000 2,000 5,000 3,000 3,000 19,000 Grants 1,338 5,518 3,900 3, ,356 Reimbursable Project 1,880 1,880 1,880 1,880 1,880 9,400 SRF - Treatment Plant Seismic and Reliability Upgrades 9,650 8,920 3,240 21,810 Bond Proceeds 19,948 21,251 23,027 21,174 23, ,730 Total Funding $34,366 $35,849 $48,657 $43,474 $36,950 $199,296 Source: Marin Municipal Water District. (1) The District s fire flow improvement program will be funded with proceeds of the Fire Flow Fee. See DISTRICT ORGANIZATION AND WATER SYSTEM Fire Flow Fee. -32-

39 DISTRICT FINANCES Financial Statements A copy of the audited financial statements of the District for fiscal year audited by Badawi & Associates, Inc., Certified Public Accountants, Oakland, California, is included in APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2016 AND Funds and Accounts The District accounts for its activities using enterprise fund accounting methods. Its financial statements use the accrual basis of accounting. Under this method, all assets and liabilities associated with operations are included on the balance sheet, revenues are recorded when earned, and expenses are recorded at the time liabilities are incurred. Revenues and Expenses Table 9 summarizes the District s revenues, expenses, and changes in fund equity for fiscal years through The District s primary source of revenue is water sales which, in general, have accounted for approximately 92% of District revenue. In fiscal year , single family and multifamily residential users accounted for 72% of sales by volume and 73% of revenues generated, with industrial, commercial and other users accounting for the balance. Other revenue sources include fixed service charges, watershed management fee, connection charges, rents/leases and interest income. Personnel expenses account for about 53.8% of operating expenses, followed by expenses for operations, materials and supplies, electric power, and interest expense. The District s net loss in fiscal year was approximately $600,000. For fiscal year , total operating revenue of $60.1 million increased by $900,000 and operating expenses (including $11,032,196 of depreciation) of $65.1 million increased by $100,000, providing an decrease of net operating loss of $700,000 when compared to the prior year. The District s net loss on an accrual basis decreased by $1.4 million from the prior year. The major changes in net income from the prior fiscal year were from the following: Water sales decreased by $900,000 due to ongoing decreases in demand in response to mandatory water use reduction in response to the four year statewide drought. See - Impact of Drought on District Revenues and Expenses. Operating expenses increased by $100,000. Increases include personnel cost ($800,000), insurance and claims cost ($700,000) and other expenses ($600,000). Increases in operating expenses were offset by a $1.0 million decrease in water purchases and a $400,000 decrease in general and administrative expenses. Total non-operating revenues and expenses, net, decreased by $1.1 million. A decrease in grant revenue by $600,000 was offset by a decrease in interest expense by $900,000 and gain from the sale of assets of $400,

40 Capital contributions decreased by $200,000. Capital contributions include connection fees and the $75 per parcel fire flow fee. The decrease in capital contributions was largely due to a $400,000 decrease in capital-related connections fee offset by a $200,000 increase in capital grants. -34-

41 TABLE 9 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION For Fiscal Years through Fiscal Year Operating Revenues Water sales and service charges $57,277,794 $64,930,689 $64,677,493 $57,117,530 (4) $56,202,387 Connection Charges 1,034, ,597 1,705, ,356 1,603,209 Watershed Management Fee 1,244,800 Other operating revenue (1) 1,106,286 1,003,823 1,351,687 1,154,210 1,050,151 Total operating revenue 59,418,736 66,672,109 67,734,729 59,241,096 60,100,547 Operating Expenses Personnel services 29,685,634 31,077,225 33,237,254 34,245,965 35,006,286 Materials and supplies 2,194,427 2,413,999 2,331,826 2,173,853 1,655,915 Operations 2,410,100 3,713,314 4,006,611 4,238,297 4,392,451 Water conservation rebate program 1, , , ,052 Electrical power 2,853,620 3,046,751 3,397,161 3,152,661 3,250,983 Water purchased 5,419,232 5,606,167 7,437,740 6,720,104 5,732,110 Insurance, including claims 1,760,577 1,053,329 1,310,545 1,141,719 1,849,921 General and administrative 1,912,834 1,994,710 2,566,990 2,327,110 1,873,704 Depreciation 10,506,699 11,698,563 11,324,138 10,776,549 11,032,196 Total operating expenses 56,744,298 60,604,483 65,744,284 65,013,821 65,125,618 Net operating income 2,674,438 6,067,626 1,990,445 (5,772,725) (5,025,071) Non-operating Revenues (Expenses) Federal grant income 736,079 1,113,955 1,137, , ,335 Net decrease in the fair value of 88,242 75,509 69,251 4,630 investments 4,558 Interest income 124, , , , ,316 Other 1,590,443 1,744,362 1,584,785 1,172,977 1,922,674 Interest expense (2,605,738) (4,090,263) (4,686,280) (4,465,063) (3,578,557) Total non-operating revenues (expenses), net (66,637) (1,024,176) (1,747,859) (2,250,620) (1,176,674) Total income (loss) before capital contributions 2,607,801 5,043, ,586 (8,023,345) (6,201,745) Capital contributions Fire Flow Fees (2) 4,880,159 4,903,701 5,863,573 5,748,183 5,574,708 NET INCOME 7,487,960 9,947,151 6,106,159 (2,275,162) (627,037) Net Position: Beginning of year, as restated 290,155, ,643, ,590, ,960,802 (3) 243,058,603 End of year $297,643,210 $307,590,361 $313,696,520 $243,685,640 $244,769,210 Source: Marin Municipal Water District Audited Financial Statements for fiscal years through Fiscal year data is from the District s budget. (1) Other Operating Revenue includes miscellaneous income (settlements, reimbursements, other fees, etc.), rent revenue, grants (federal, state and other), special read and late charges, watershed permits and other various revenues. (2) These revenues are restricted in use and are not part of Pledged Net Revenues. (3) The District made a prior period adjustment to record the beginning balance of the net pension liability of $72,369,463 and to record an employer contribution of $4,633,745 in fiscal year as a deferred outflow of resources. This resulted in restating the beginning net position as $245,960,802 as required by the GASB 68 implementation. (4) Decrease over prior fiscal year due to drought conditions. See - Impact of Drought on District Revenues and Expenses. -35-

42 2016. Table 10 presents the District s statement of net position as of June 30, 2012, through June 30, TABLE 10 STATEMENT OF NET POSITION As of June 30, 2012 through June 30, 2016 Fiscal Year Ended June 30, ASSETS Current Assets: Cash and investments $12,207,533 $19,872,504 $21,026,899 $19,959,569 $16,947,252 Receivables: Customer-billed (net of allowance for doubtful 5,013,671 6,063,644 4,636,953 4,286,334 4,824,092 accounts) Customer - unbilled 5,415,779 5,748,262 4,846,666 3,736,770 6,090,684 Interest and other (net of allowance for 855, ,434 1,024,204 1,091,212 2,279,938 doubtful accounts) Materials and supplies 1,478,099 1,212,721 1,284,790 1,802,568 2,030,410 Prepaid Expense 525, , , ,601 4,262 Total current assets 25,496,391 34,295,230 32,937,520 31,000,054 32,176,638 Noncurrent Assets: Restricted cash and investments 74,094,908 63,478,816 49,929,461 33,093,240 19,745,997 Designated cash and investments 9,996,336 12,966,375 21,585,661 21,857,584 20,755,523 Deposits and advances 2,636,196 3,973,845 3,595,244 3,670,314 3,445,599 Total restricted and designated cash and 86,727,440 80,419,036 75,110,366 58,621,138 investments 43,947,119 Capital Assets: Land and land rights 11,264,770 10,800,399 11,128,405 11,129,340 11,465,962 Depreciable assets 474,573, ,037, ,323, ,596, ,134,006 Construction-in-progress 25,561,851 25,879,384 25,942,572 16,393,445 27,133,846 Less - accumulated depreciation (177,236,557) (187,872,490) (195,074,858) (204,401,491) (214,197,589) Total capital assets 334,163, ,844, ,319, ,717, ,536,225 Net OPEB Asset Total assets 446,387, ,558, ,367, ,338, ,030,199 DEFERRED OUTFLOWS OF RESOURCES Deferred loss on refunding 2,224,396 2,045,773 1,867,150 1,688,528 Deferred differences between projected and 1,418,821 actual earning on plan investment Deferred employer pension contributions 5,315,722 5,725,637 Total deferred outflows of resources 2,224,396 2,045,773 7,182,872 8,832,

43 LIABILITIES Current Liabilities: Accounts payable $3,755,030 $5,262,556 $4,218,283 $5,893,561 $6,221,441 Accrued payroll and payroll expenses 477,278 1,062, , , ,690 Compensated abscences 4,041,042 2,793,945 3,720,835 3,292,028 3,040,541 Customer and other deposits 333, , , , ,447 Long-term debt - due within one year 2,017,250 2,052,250 1,707,250 1,767,250 1,677,250 Accrued interest payable 1,068,021 2,793,619 2,745,369 2,716,670 2,685,282 Agency deposits payble 238, , , , ,888 Customer advances for construction 2,664,467 3,959,752 3,415,338 2,441,848 2,598,549 Claims payable 987,855 1,136, , , ,289 Total current liabilities 15,583,056 19,690,620 17,873,140 18,335,354 18,687,377 Noncurrent Liabilities Claims payable - due in more than one year 2,601,095 2,657,978 2,742,526 2,682,054 2,951,366 Compensated absences - due in more than one year 412,012 1,903,481 1,589,626 2,099,871 2,336,475 Long-term debt - due in more than one year 130,911, ,940, ,511, ,422, ,179,001 Net pension liability 62,139,077 69,753,895 Total noncurrent liabilities 133,924, ,502, ,843, ,343, ,220,737 Total liabilities 149,507, ,192, ,717, ,679, ,908,114 DEFERRED INFLOWS OF RESOURCES Pension related amounts 10,156,785 3,896,468 Total deferred inflows of resources 10,156,785 3,896,468 NET POSITION Net investment in capital assets 262,581, ,939, ,964, ,038, ,875,362 Restricted for fire flow parcel fee program 4,684,736 2,483,468 1,736,460 1,939, ,839 Unrestricted 30,377,266 38,167,094 45,995,586 (17,292,019) (23,333,804) Total net position $297,643,210 $307,590,361 $313,696,520 $243,685,640 $243,058,604 Source: Marin Municipal Water District Audited Financial Statements for fiscal years through Impact of Drought on District Revenues and Expenses The District s revenues are dependent upon the demand for water sales, which can be affected by weather, economy, population factors, more stringent drinking water regulations, or problems with the water supply. On January 21, 2014 the Board, in response to the lowest recorded rainfall in calendar year 2013 and California Governor Brown s declaration of a state-wide drought emergency, requested 25% voluntary water use reductions from customers. On April 1, 2015, Governor Brown issued Executive Order B directing the SWRCB to impose restrictions on water use to achieve a statewide 25% reduction in urban water use through February 28, On May 5, 2015, the SWRCB adopted an emergency conservation regulation in accordance with the Governor s Executive Order. To reach the statewide 25% reduction, the May 2015 regulation assigned each urban water supplier a conservation standard, relative to cumulative water usage from June to February 2013, that ranged between 4% and 36% based on their residential gallons per capita for the months of July through September The state set the District s conservation standard at 20%. As a result of the request for voluntary water use reductions and the state drought restrictions, District customers decreased their water use by 20% in fiscal years 2015 to 2016 in compliance with the State s emergency conservation regulation. -37-

44 On May 18, 2016, the SWRCB adopted a revised emergency conservation regulation that replaced the mandatory conservation standards with a new self-certification standard which required local water agencies to analyze their supply and demand for the next three water years to determine an agency specific conservation standard based on a potential supply shortfall, using the specific methodology proscribed by the State. If there is no projected water supply shortfall, the agency specific conservation standard is 0%. Using the State s required methodology indicates the District s available water supply is sufficient to meet demand for the next three years and there is no water supply shortfall at the end of Year 3 (September 30, 2019). Therefore, the District s new State conservation standard relative to 2013 is 0%. The District s new State conservation standard became effective June 1, For the fiscal year ended June 30, 2015, water demand decreased by 10.5% from the prior year and resulted in water revenue decreasing by approximately $7.6 million or 14%. The debt coverage ratio for the fiscal year ended June 30, 2015, before utilization of the Rate Stabilization Fund was 1.07x. On November 3, 2015, the Board approved a withdrawal of $1.4 million from the Rate Stabilization Fund to increase the debt coverage ratio for the year ended June 30, 2015 to 1.28x. The Rate Stabilization Fund balance as of June 30, 2015 was $5.9 million. For the fiscal year ended June 30, 2016, water demand decreased by 10.7 % from the prior year and revenues increased by $330,000 or 0.6%. To address the decline in water revenues, on December 8, 2015, the Board approved a two-year water rate package which incorporated rate restructuring effective January 1, 2016 and a 4% increase in all water rates, fees, and charges effective May 1, The rate restructuring changes effective January 1, 2016, are projected to increase the total revenue from fixed charges from 17% to 28% in order to reduce the District s revenue volatility. The 4% rate increase effective May 1, 2016, applies to all fixed and variable portions of the water rates, fees, and charges. On November 1, 2016, the Board approved an additional withdrawal of $200,000 from the Rate Stabilization Fund in order to meet the 1.25x annual debt service coverage requirement for the Fiscal Year ended June 30, The balance of the Rate Stabilization Fund at June 30, 2016, was $5.7 million. Many of the District s costs are fixed and did not decrease as a result of the decline in water usage in fiscal years 2015 and Total operating expenses for the three year period from fiscal year 2014 through 2016, excluding depreciation and amortization, remained relatively flat. However, during the three year period, the quantity of purchased water from SCWA varied significantly as did the concomitant cost. As a result of the lowest recorded rainfall in calendar year 2013, for fiscal year 2014, the District purchased 8,236 acre-feet of water resulting in a $1.8 million increase in purchased water expenses compared to the prior year. In fiscal year 2015, purchased water was 7,000 acre-feet resulting in a decrease of $718,000 from the prior year. In fiscal year 2016, purchased water was 5,300 acre-feet resulting in a decrease of $988,000 from the prior year. Leveraging water purchases to maximize reservoir levels and continued water conservation by District customers resulted in reservoir levels at 12% above average or 98.2% of capacity as of May 31, The Governor lifted the drought state of emergency for most of California (including the County) in April

45 Table 11 presents District revenues and expenditures for each of the last five fiscal years, including debt service coverage for all of the District s obligations backed by a pledge of Net Revenues: TABLE 11 HISTORICAL REVENUES, EXPENDITURES AND DEBT SERVICE COVERAGE For fiscal years through Fiscal Year Ended June 30, Gross Revenues Water sales and service fees and charges $57,277,794 $64,930,689 $64,677,493 $57,117,530 (5) $56,202,387(5) Connection charges 1,034, ,597 1,705, ,356 1,603,209 Watershed Management Fee 1,244,800 Other operating revenues (1) 3,432,808 3,862,140 4,073,802 3,192,630 3,218,160 Interest income 124, , , , ,316 Total Gross Revenues 61,869,595 69,662,687 70,603,899 61,450,909 62,497,872 Maintenance & Operations Costs Personnel services 29,685,634 31,077,225 33,237,254 34,245,965 35,006,286 Materials and supplies 2,194,427 2,413,999 2,331,826 2,173,853 1,976,319 Operations 2,410,100 3,713,314 4,006,611 4,238,297 4,072,047 Water conservation rebate program 1, , , ,052 Electrical power 2,853,620 3,046,751 3,397,161 3,152,661 3,250,983 Water purchased 5,419,232 5,606,167 7,437,740 6,720,104 5,732,110 Insurance, including claims 1,760,577 1,053,329 1,310,545 1,141,719 1,849,921 General and administrative 1,912,834 1,994,710 2,566,990 2,327,110 1,873,704 Total Maintenance & Operations Costs 46,237,599 48,905,920 54,420,146 54,237,272 54,093,422 Net Revenues 15,631,996 20,756,767 16,183,753 7,213,637 8,404,450 Transfer (To)/From Rate Stabilization Fund (2) (2,400,000) (4,900,000) 1,400, ,000 Net Revenues Available for Debt Service 15,631,996 18,356,767 11,283,753 8,613,637 8,604,450 Debt Service 2002 Installment Payments 2,211, COPs Debt Service (6) 3,423,688 2,140,925 2,079,425 1,118, , Installment Payments (7) 1,526,338 1,526,338 1,526,338 2,236, Installment Payments 2,918,213 3,768,078 4,081,678 3,755,078 Total Debt Service 5,634,926 6,585,476 7,373,841 6,726,441 6,878,665 Debt Service Coverage (3) 2.77x 2.79x 1.53x 1.28x 1.25x Net Revenues after Debt Service $9,997,070 $11,771,291 $3,909,912 $1,887,196 $1,725,785 Clean Renewable Energy Bonds Debt Service (4) $122,250 $122,250 $122,250 $122,250 $122,250 Source: Marin Municipal Water District. (1) Other Operating Revenue includes miscellaneous income (settlements, reimbursements, other fees etc.), rent revenue, grants (federal, state and other), special read and late charges, watershed permits and other various revenues. (2) The District may deposit into the Rate Stabilization Fund gross revenue from one year which can be withdrawn and added to the gross revenues in calculating the debt coverage ratio for a future year. (3) Debt Service Coverage equals Net Revenues divided by Total Debt Service. (4) Clean Renewable Energy Bonds are Subordinate Obligations and are paid after all other debt service. (5) Decrease over prior fiscal year due to drought conditions. See - Impact of Drought on District Revenues and Expenses. (6) Matured during fiscal year ended June 30, (7) The 2010 Installment Payments were refunded in November

46 Projection of Revenues, Expenditures and Debt Service Coverage Table 12 presents a projection of Water System revenues and expenditures for each of the five fiscal years ending June 30, 2017, through June 30, 2021, including debt service coverage for the Bonds and outstanding Parity Obligations. TABLE 12 PROJECTION OF REVENUES, EXPENDITURES AND DEBT SERVICE COVERAGE Fiscal Years Ended June 30, Fiscal Year Ended June 30, Gross Revenues Water sales and service fees and charges (1) $65,302,000 $74,362,344 $74,362,344 $79,707,376 $85,286,892 Connection charges 750,000 1,865,000 1,865,000 1,865,000 1,865,000 Other operating revenues (2) 2,800,000 3,317,000 3,450,000 3,588,000 3,731,000 Interest income 250, , , , ,000 Total Gross Revenues 69,102,000 79,794,344 79,927,344 85,418,376 91,140,892 Maintenance & Operations Costs Personnel services 40,200,000 40,799,754 43,078,030 45,231,930 46,815,050 Materials and supplies 2,000,000 2,084,537 2,734,085 2,952,810 3,130,480 Operations 4,100,000 4,462,107 5,060,498 5,465,340 5,738,610 Water conservation rebate program 300, , , , ,840 Electrical power 3,800,000 3,868,063 4,000,361 4,320,390 4,622,820 Water purchased 6,200,000 6,363,399 6,674,509 7,208,470 7,713,060 Insurance, including claims 1,650,000 1,250,000 1,260,000 1,348,200 1,442,570 General and administrative 2,450,000 2,891,387 3,517,800 3,962,000 4,102,000 Total Maintenance & Operations Costs 60,700,000 62,218,747 66,924,783 71,106,630 74,194,430 Net Revenues Available for Debt Service 8,402,000 17,575,597 13,002,561 14,311,746 16,946,462 Debt Service 2012 Installment Payments 5,615,078 5,609,278 5,612,878 5,608,078 5,616, Installment Payments 868,602 1,481,975 1,481,975 1,481,975 1,481, Installment Payments 2,293,792 2,295,800 2,292,500 2,292,500 Proposed 2019 Installment Payments (3) 2,000,000 2,724,000 Total Debt Service (4) 6,483,680 9,385,045 9,390,653 11,382,553 12,114,865 Debt Service Coverage (3)(4) 1.30x 1.87x 1.38x 1.26x 1.40x Net Revenues available after Debt Service 1,918,320 8,190,552 3,611,908 2,929,193 4,831,597 Clean Renewable Energy Bonds Debt Service (5) 122, , , , , Aqueduct Energy Efficient Project Agreement (6) 245, , , , , Las Gallinas Recycled Water Agreement (7) 789, , , , ,000 Source: Marin Municipal Water District. (1) Water sales and service charges for the fiscal years ending 2017 to 2020 are based on the annual projected rate increases per the May 2017 COSA. Water consumption is assumed to rebound in fiscal year % from the historic low of fiscal year 2016 and to increase 1.4% each year thereafter. For the fiscal years ending June 30, 2018, and 2020, the 7% rate increases effective July 1, 2017 and July 1, 2019 respectively, approved by the Board on May 16, 2017 are fully reflected. Fiscal year ending 2021 includes an additional projected 7% which has not been considered or approved by the Board. Rate increases may be considered in 2020 after a new COSA is conducted for compliance with the requirements of Proposition 218. (2) Other Operating Revenues includes miscellaneous income (settlements, reimbursements, other fees etc), rent and lease revenue, grants (federal, State and other), special and late charges, watershed permits and other various revenues. (3) The Fiscal Year 2020 payment for the Proposed 2019 Installment Payments is interest only. (4) Debt Service Coverage equals Net Revenues Available for Debt Service divided by Total Debt Service. (5) The Clean Renewable Energy Bonds are paid after all other debt service. (6 The 2014 Aqueduct Energy Efficient Project obligations are paid after all other debt service. (7) The 2017 Las Gallinas Recycled Water Project obligations are paid after all other debt service. -40-

47 Outstanding Debt Table 13 summarizes the District s outstanding debt as of August 1, 2017, which consists of the 2016 Installment Sale Agreement, the 2012 Installment Sale Agreement and the 2017 Installment Sale Agreement, each secured by a pledge of Net Revenues, and the CREBs, the 2015 Aqueduct Energy Efficient Project Agreement and the 2017 Las Gallinas Recycled Water Agreement (each defined below) which are not secured by a pledge of Net Revenues. TABLE 13 OUTSTANDING DEBT AS OF AUGUST 1, 2017 Principal Original Balance Issue Principal Final as of Date Amount Maturity Aug. 1, 2017 Clean Renewable Energy Bonds (1) 9/29/08 $ 1,960,000 9/30/23 $ 978, Installment Sale Agreement 6/20/12 85,000,000 7/1/52 82,490, Aqueduct Energy Efficient Project Agreement 2/2/15 4,410,000 2/1/32 2,620, Installment Sale Agreement 11/30/16 31,380,000 7/1/40 31,380, Las Gallinas Recycled Water Agreement 3/17/17 6,350,720 4/1/42 6,120, Installment Sale Agreement 8/1/17 36,120,000 7/1/47 36,120,000 $165,220,720 $159,709,431 Source: Marin Municipal Water District (1) Payable from Net Revenues on a subordinate basis to the 2012 Installment Payments, the 2016 Installment Payments and the 2017 Installment Payments Installment Sale Agreement. On June 20, 2012, the Authority issued the 2012 Bonds for the purpose of (a) refunding the District s outstanding Marin Municipal Water District (Marin County, California) Water Revenue Refunding Bonds, Series 2002, (b) refunding a portion of the District s outstanding Certificates of Participation (2004 Financing Project), (c) financing a portion of the costs of capital improvements to the Water System, (d) funding interest on a portion of the 2012 Bonds, and (e) paying certain costs incurred in connection with issuance, sale and delivery of the 2012 Bonds Installment Sale Agreement. On November 30, 2016, the Authority issued the 2016 Bonds for the purpose of (a) refunding the Authority s outstanding Marin Municipal Water District Financing Authority (Marin County, California) Water Revenue Refunding Bonds, Series 2010, and (b) paying certain costs incurred in connection with issuance, sale and delivery of the 2012 Bonds. -41-

48 Table 14 summarizes the District s debt service on the 2012 Installment Sale Agreement, the 2016 the Installment Sale Agreement and the 2017 Installment Sale Agreement. TABLE 14 DEBT SERVICE PAYMENTS SCHEDULE Year Ending Installment Sale Installment Sale Installment Sale July 1 Agreement Agreement Agreement Total 2018 $ 5,609, $ 1,481, $ 2,293, $ 9,385, ,612, ,481, ,295, ,390, ,608, ,481, ,292, ,382, ,616, ,481, ,292, ,390, ,606, ,481, ,295, ,383, ,602, ,481, ,295, ,380, ,607, ,481, ,294, ,384, ,606, ,481, ,292, ,380, ,605, ,481, ,292, ,379, ,612, ,481, ,291, ,385, ,612, ,481, ,292, ,386, ,610, ,481, ,290, ,383, ,871, ,716, ,292, ,881, ,871, ,720, ,293, ,885, ,871, ,722, ,291, ,885, ,871, ,724, ,292, ,888, ,869, ,722, ,292, ,884, ,872, ,715, ,295, ,882, ,873, ,718, ,291, ,882, ,872, ,720, ,292, ,885, ,870, ,721, ,295, ,887, ,872, ,721, ,294, ,888, ,872, ,722, ,290, ,885, ,105, ,293, ,398, ,104, ,291, ,396, ,106, ,291, ,397, ,105, ,291, ,397, ,106, ,292, ,398, ,105, ,293, ,398, ,108, ,294, ,402, ,104, ,104, ,108, ,108, ,104, ,104, ,108, ,108, ,108, ,108, Totals $160,174, $58,709, $68,788, $287,672, Source: Marin Municipal Water District. CREBs. On September 29, 2008, the District entered into two installment sale agreements, which constituted Clean Renewable Energy Bonds (the CREBs ), for the installation of solar panels on the District s administration building and at its corporate yard. The CREBs were structured so that the investor in the CREBs receives a federal income tax credit in lieu of interest. The amount of the tax credit -42-

49 is set by the U.S. Treasury Department on a daily basis. The total principal amount of the CREBs for both projects was $1,956,000. The net proceeds of the two issues were $1,845,030, less original issue discount of $56,630 and issuance costs of $54,340. The debt service is paid annually over 15 years in the amount of $122,250, principal only. The issues mature on September 30, The District s obligations with respect to the CREBs are payable on a subordinate basis to its obligations with respect to the 2012 Installment Payments, the 2016 Installment Payments, the 2017 Installment Payments and any future Parity Obligations. Another $963,000 in CREBs was authorized by the Internal Revenue Service for a solar panel project on the District s watershed but remains unissued Aqueduct Energy Efficiency Project Agreement. On February 5, 2015, the District entered into an agreement with the North Marin Water District (the 2015 Aqueduct Energy Efficiency Project Agreement ) to pay 51% of the final actual costs, currently estimated at $4,080,000, of the Aqueduct Energy Efficiency Project which will upsize the North Marin Aqueduct from Kastania Pump Station to Redwood Landfill road. The District takes delivery of water through a connection to an aqueduct in northern Novato. Part of the aqueduct is being replaced under the Marin-Sonoma Narrows High Occupancy Vehicle Widening project, a joint project between Caltrans and the Federal Highway Administration. The relocation and replacement of the aqueduct is called the Aqueduct Energy Efficiency Project, which includes relocation and replacement of 24,000-feet of aqueduct with a larger diameter pipe. The final costs of the Aqueduct Energy Efficiency Project are to be determined once the Aqueduct Energy Efficiency Project is completed, which is expected to occur in The District is obligated to make payments in the amount of $245,000 to the North Marin Water District, each July 1, from 2015 through 2032 as fair compensation for the Aqueduct Energy Efficiency Project capital cost. The District s obligations with respect to the Aqueduct Energy Efficiency Project are payable on a subordinate basis to its obligations with respect to the 2012 Installment Payments, the 2016 Installment Payments, the 2017 Installment Payments and any future Parity Obligations Las Gallinas Recycled Water Agreement. On March 17, 2017, the District entered into a partnership agreement with the Las Gallinas Valley Sanitary District (the LGVSD ) for purchase and sale of recycled water (the 2017 Las Gallinas Recycled Water Agreement ). The agreement is to decommission the District s tertiary recycled water treatment facility, transfer production of recycled water from the District to the LGVSD, and expand the LGVSD s recycled water facility. The LGVSD will construct additional filtration capacity for the facility in order to provide additional recycled water capacity to meet the District s and LGVSD s needs. The District will pay $2,049,595 as a buy-in cost for the initial construction of the LGVSD facility over 14 years. In addition to the buy-in cost, the District will pay 62.5% of the total cost for construction of the Recycled Water Facility Upgrade Project, which is estimated at $4,301,125, for a total estimated obligation of $6.35 million. The District s obligations with respect to the 2017 Las Gallinas Recycled Water Agreement are payable on a subordinate basis to its obligations with respect to the 2012 Installment Payments, the 2016 Installment Payments, the 2017 Installment Payments and any future Parity Obligations. -43-

50 Investments The District has adopted an investment policy (the Investment Policy ), last revised on February 7, 2017, to cover all funds and investment activities of the District, except investments governed by bond indentures and employee deferred compensation funds. The text of the Investment Policy is attached as APPENDIX B INVESTMENT POLICY OF THE DISTRICT Table 15 is a schedule of the District s cash and investments, totaling $43,459,197, as of April 30, TABLE 15 SCHEDULE OF CASH AND INVESTMENTS As of April 30, 2017 Investment Amount Percent of Total United States Government Obligations $ 3,003, % State Local Agency Investment Fund 35,587, Money Market Fund 4,803, Corporate Notes 65, Total Investments $43,459, % Source: Marin Municipal Water District. Risk Management The District is exposed to various risks of loss related to workers' compensation and general liability. It is the policy of the District not to purchase first dollar commercial insurance for risk of losses to which it is exposed for general liability and all risk property losses. Instead, District management believes it is more economical to manage this risk internally and set aside assets for claim settlements. However, the District carries excess liability insurance for losses in excess of $250,000, not to exceed $15,000,000 on a per occurrence basis. For property and equipment losses, the District carries coverage up to $200 million with a $25,000 deductible. Settled claims have never exceeded the District's policy limits in any fiscal year. The District is self-insured for workers' compensation, and has purchased an excess policy to cover catastrophic losses. The policy has a self-insured retention of $750,000 per claim and $1 million for employer s liability. Claim liabilities are recorded when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claim liabilities depend on such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount. Claim liabilities are reevaluated periodically to take into consideration recently settled claims, the frequency of claims, and other economic and social factors. These liabilities are the District's best estimate based on available information. Changes in the reported liabilities for the years ended June 30, 2016 and 2015 resulted from the following: -44-

51 TABLE 16 CHANGES IN CLAIMS LIABILITIES Workers General Workers General Compensation Liabilities Total Compensation Liabilities Total Balance at beginning of year $3,148,058 $548,655 $3,696,713 $3,289,000 $218,539 $3,507,539 Current year claims and changes in estimate 556, , , ,266 1,015,429 1,422,695 Claims payments (415,235) (528,198) (943,433) (273,266) (820,313) (1,093,579) Balance at end of year $3,289,000 $218,539 $3,507,539 $3,423,000 $413,655 $3,836,655 Due within one year $606,846 $218,539 $825,485 $471,634 $413,655 $885,289 Source: Marin Municipal Water District CAFR. Employees Retirement Plan Plan Description. All qualified permanent and probationary employees are eligible to participate in the District s Miscellaneous Plan (the Plan ), agent multiple-employer defined benefit pension plan administered by the California Public Employees Retirement System ( CalPERS ), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and Local Government resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees Retirement Law. The Plan s provisions and benefits in effect at June 30, 2016 are summarized as follows: Miscellaneous Benefit vesting schedule 5 years of service Benefit payments monthly for life Earliest retirement age 50 Benefit factor for each year of service as a % of salary 2.7% at age 55 Required employee contribution rate 8.00% Required employer contribution rate % On January 1, 2013, the Public Employee Pension Reform Act ( PEPRA ) went into effect. This State law applies to employees hired after January 1, 2013 who are new to CalPERS. These employees are termed PEPRA members and employees that were enrolled in CalPERS (without significant separation) prior to January 1, 2013 are now referred to as classic members. PEPRA miscellaneous members will be enrolled in a 2% at 62 plan. PEPRA members will be required to pay half the normal cost of their plans. -45-

52 Employees Covered. At June 30, 2015, the following employees were covered by the benefit terms for the Plan: TABLE 17 CALPERS MISCELLANEOUS PLAN MEMBERSHIP Miscellaneous Inactive employees or beneficiaries currently receiving benefits 292 Inactive employees entitled to but not yet receiving benefits 99 Active Employees 238 Total 629 Source: CalPERS GASB 68 Accounting Valuation Report, measurement date of June 30, Contributions. 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. Funding contributions for the Plan is determined annually on an actuarial basis as of June 30th by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2015 (the measurement date), the average active employee contribution rate is 8.052% of annual pay for the Miscellaneous Plan, and employer contribution rate is % of annual payroll for the Miscellaneous Plan. Net Pension Liability. The District s net pension liability for the Plan is measured as the total pension liability, less the pension plan s fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2015, using an annual actuarial valuation as of June 30, 2014 rolled forward to determine the June 30, 2015 total pension liability using standard update procedures. For additional information concerning the actuarial assumptions used, see Note 6 Employee Retirement Plans in APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DISTRICT FOR THE FISCAL YEARS ENDED JUNE 30, 2016 and

53 The following table shows the changes in net pension liability recognized over the measurement period for the Plan. TABLE 18 NET PENSION LIABILITIY Increase/(Decrease) Total Plan Pension Fiduciary Net Pension Liability Net Position Liability/Asset (a) (b) (c)=(a)-(b) Balance at June 30, 2014 $ 210,015,518 $ 147,876,441 $ 62,139,077 Service cost 3,820,110-3,820,110 Interest on total pension liability 15,696,251-15,696,251 Difference between actual and expected experience 2,035,700-2,035,700 Changes in assumptions (3,613,804) - (3,613,804) Contribution employer - 5,315,722 (5,315,722) Contribution employee - 1,835,178 (1,835,178) Net investment income - 3,338,982 (3,338,982) Administrative expenses - (166,443) 166,443 Benefit payments (incl. refunds of employee contributions) (10,335,415) (10,335,415) 10,335,415 Net changes 7,602,842 (11,976) 7,614,818 Balance at June 30, ,618, ,864,465 69,753,895 Source: CalPERS GASB 68 Accounting Valuation Report, measurement date of June 30, Deferred Outflows and Deferred Inflows of Resources Related to Pensions. For the year ended June 30, 2016, the District recognized pension expense of $5,251,402. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: TABLE 19 DEFERRED OUTFLOWS AND INFLOWS OF RESOURCES Deferred Deferred Outflows of inflows of Resources Resources Contributions subsequent to measurement date 5,725,637 - Difference between actual and expected experience 1,418,821 - Changes in Assumptions - (2,518,712) Difference between project and actual earnings on plan investments - (1,377,756) Total 7,144,458 (3,896,468) Source: CalPERS GASB 68 Accounting Valuation Report, measurement date of June 30,

54 $5,725,637 related to contributions subsequent to the measurement date have been recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: TABLE 20 RECOGNITION SCHEDULE Deferred Measurement Periods Outflows/(Inflows) of Ended June 30, Resources 2016 $(1,457,451) 2017 (1,457,451) 2018 (1,122,704) ,559, Remaining 0 Source: CalPERS GASB 68 Accounting Valuation Report, measurement date of June 30, See Note 6 Employee Retirement Plans in APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DISTRICT FOR THE FISCAL YEARS ENDED JUNE 30, 2016 and 2015 for additional information about the Plan. Payable to Pension Plans. As of June 30, 2016 and 2015, the District reported a payable of $372,281 and $310,718 for the outstanding amount of contributions to the pension plans required for the year ended June 30, 2016 and 2015 respectively. Deferred Compensation Plan. The District offers its employees a 457 deferred compensation plan which assets are invested by independent third party custodians. The assets are not subject to claims by creditors of the District and are not reflected in the accompanying financial statements. On December 21, 2016, the CalPERS Board voted to lower its discount rate from the current 7.5% to 7.0% over the next three years according to the following schedule: Fiscal Year Discount Rate % For public agencies like the District, the new discount rate would take effect July 1, Lowering the discount rate means 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, under the Public Employees' Pension Reform Act will also see their contribution rates rise. The three-year reduction of the discount rate will result in average employer rate increases of about 1 percent to 3 percent of normal cost as a percent of payroll for most miscellaneous retirement plans, and a 2 percent to 5 percent increase for most safety plans. Additionally, many CalPERS employers will see a 30 to 40 percent increase in their current unfunded accrued liability payments. These payments are made to amortize unfunded liabilities over 20 years to bring the pension fund to a fully funded status over the longterm. -48-

55 Other Post-Employment Benefits Plan Description. The District provides retiree medical insurance and dental benefits to eligible retirees and a dependent in accordance with various labor agreements. Medical insurance benefits are provided under the CalPERS health plan. Dental benefits are provided by a private insurance carrier. Eligibility. The District provides medical and dental benefits to employees if they retire from the District on or after age 50 (unless disabled), and are eligible for a CalPERS pension. The medical benefits cover the employee and their one dependent from retirement date for life. Funding Policy. The employee and their one dependent receive dental coverage from retirement until the employee reaches age 65. Employees are not obligated to contribute unless plan costs exceed the District's maximum contribution. For health insurance, the District pays the cost for the health insurance premium up to the cost for the retiree plus one dependent. Medicare Supplemental insurance coverage is used when a plan participant reaches age 65. For dental coverage, the District pays the entire cost of the dental insurance until the retiree reaches age 65. The retiree at age 65 may elect to continue coverage for themselves plus a dependent at their own cost. The contribution requirement of plan members and the District are established and may be amended by agreement between the District and its collective bargaining units. The District must agree to make a defined monthly payment towards the cost of each retiree's medical and dental coverage. The required contribution is based on an amount established by the District annually. Effective January 1, 2017, the District's contribution rate for medical coverage was up to $ and $1, per month for retiree and retiree plus one dependent, respectively. For dental coverage the annual contribution amount is up to $1,500 and $3,000 for retiree and retiree plus one dependent, respectively. Actual contributions by the District for each retiree for medical and dental benefits vary depending on medical plan coverage and actual dental costs. The District's contribution requirements for the plan provides for annual contributions authorized by the District's board of directors. The required contribution rate is based on the annual required contribution (ARC), an amount that is actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) of the District's plan over a period not to exceed thirty years. The ARC rate is 16.8% in FY

56 Annual OPEB Cost and Net OPEB Asset. For the years ended June 30, 2016 the District's annual OPEB costs (expenses) of $3,683,000 was equal to the ADC plus the accrued interest on prior OPEB liabilities. Actual contributions were based on the actuarial projection for the year. The District's net OPEB obligations as of and for the fiscal year June 30, 2016 was as follows: TABLE 21 CHANGE IN OPEB OBLIGATION Actuarially determined contribution $ 3,683,000 Annual OPEB costs 3,683,000 Contributions made (4,053,217) Increase in net OPEB obligation (370,217) Net OPEB asset beginning of year - Net OPEB asset end of year (370,217) The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for the current fiscal year and each of the two preceding years are as follows: TABLE 22 HISTORICAL OPEB OBLIGATIONS Fiscal Year Annual OPEB Cost (AOC) (Employer Contribution) % of AOC Contributed Net OPEB Obligation/(Asset) 2014 $4,153, % ,817, ,683, (370,217) Funded Status and Funding Progress. As of June 30, 2013, the most recent actuarial valuation date, the plan was not fully funded. The actuarial accrued liability for benefits was $45,087,000, and the actuarial value of assets was $11,983,000, resulting in an unfunded actuarial accrued liability (UAAL) of $33,104,000. The covered payroll (annual payroll of active employees covered by the plan) was $21,921,000, and the ratio of the UAAL to the covered payroll was 151%. For the years ended June 30, 2016 $1,475,500 was contributed to an irrevocable trust established with CalPERS to temporarily hold funds in anticipation of unfunded future retiree benefits. The contribution amounts in FY were not reflected in the actuarial calculation as of June 30, 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 schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. See Note 8 Postemployment Benefits Other Than Pensions in APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DISTRICT FOR THE FISCAL -50-

57 YEARS ENDED JUNE 30, 2016 AND 2015 for additional about the post-employment health care benefits provided to the employees of the District. CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES Articles XIIIC and XIIID On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the Right to Vote on Taxes Act ( Proposition 218 ). Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contained a number of interrelated provisions affecting the ability of local governments, including the District, to levy and collect both existing and future taxes, assessments, fees and charges. Section 1 of Article XIIIC requires majority voter approval for the imposition, extension or increase of general taxes and Section 2 thereof requires two thirds voter approval for the imposition, extension or increase of special taxes. These voter approval requirements of Article XIIIC reduce the flexibility of the District to raise revenues by the levy of general or special taxes and, given such voter approval requirements, no assurance can be given that the District will be able to enact, impose, extend or increase any such taxes in the future to meet increased expenditure requirements. Section 3 of Article XIIIC expressly extends the initiative power to give voters the power to reduce or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees or charges were imposed. Section 3 expands the initiative power to include reducing or repealing assessments, fees and charges, which had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996, the effective date of Proposition 218, and absent other legal authority could result in the reduction in any existing taxes, assessments or fees and charges imposed prior to November 6, Fees and charges are not expressly defined in Article XIIIC or in SB 919, the Proposition 218 Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local jurisdictions in complying with Article XIIIC and Article XIIID ( SB 919 ). However, on July 24, 2006, the California Supreme Court ruled in Bighorn-Desert View Water Agency v. Virjil (Kelley) (the Bighorn Decision ) that charges for ongoing water delivery are property-related fees and charges within the meaning of Article XIIID and are also fees or charges within the meaning of Section 3 of Article XIIIC. The California Supreme Court held that such water service charges may, therefore, be reduced or repealed through a local voter initiative pursuant to Section 3 of Article XIIIC. In the Bighorn Decision, the Supreme Court stated that nothing in Section 3 of Article XIIIC authorizes initiative measures that impose voter-approval requirements for future increases in fees or charges for water delivery. The Supreme Court stated that water providers may determine rates and charges upon proper action of the governing body and that the governing body may increase a charge which was not affected by a prior initiative or impose an entirely new charge. The Supreme Court further stated in the Bighorn Decision that it was not holding that the initiative power is free of all limitations and was not determining whether the initiative power is subject to the statutory provision requiring that water service charges be set at a level that will pay debt service on bonded debt and operating expenses. Such initiative power could be subject to the limitations imposed on -51-

58 the impairment of contracts under the contract clause of the United States Constitution. Additionally, SB 919 provides that the initiative power provided for in Proposition 218 shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after [the effective date of Proposition 218] assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by the United States Constitution. No assurance can be given that the voters of the District will not, in the future, approve initiatives which repeal, reduce or prohibit the future imposition or increase of assessments, fees or charges, including the District s water service fees and charges, which are the source of Net Revenues pledged to the payment of debt service on the 2012 Installment Sale Agreement, the 2016 Installment Sale Agreement, the 2017 Installment Sale Agreement and any future Parity Obligations. Notwithstanding the fact that water service charges may be subject to reduction or repeal by voter initiative undertaken pursuant to Section 3 of Article XIIIC, the District has covenanted to levy and charge rates which meet the requirements of the 2012 Installment Sale, the 2016 Installment Sale Agreement and the 2017 Installment Sale Agreement in accordance with applicable law. Article XIIID defines a fee or charge as any levy other than an ad valorem tax, special tax, or assessment imposed upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property-related service. A property-related service is defined as a public service having a direct relationship to a property ownership. In the Bighorn Decision, the California Supreme Court held that a public water agency s charges for ongoing water delivery are fees and charges within the meaning of Article XIIID. Article XIIID requires that any agency imposing or increasing any propertyrelated 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, the local government s ability to increase such fee or charge may be limited by a majority protest. The District s water charge is comprised of a commodity charge based on the volume of water consumed and a fixed bi-monthly service charge and watershed management fee. The District has ratified prior water rate measures and otherwise complied with the applicable notice and protest procedures of Article XIIID for its current water rates and charges. The District s rate structure in effect between 2010 and 2015 was challenged. See LITIGATION District. In addition, Article XIIID also includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service; (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel; and (iv) 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. Article XIIID establishes procedural requirements for the imposition of assessments, which are defined as any charge upon real property for a special benefit conferred upon the real property. Standby charges are classified as assessments. Procedural requirements for assessments under Article XIIID include conducting a public hearing and mailed protest procedure, with notice to the record owner of each parcel subject to the assessment. The assessment may not be imposed if a majority of the ballots returned -52-

59 oppose the assessment, with each ballot weighted according to the proportional financial obligation of the affected parcel. Existing, new or increased assessments are subject to the procedural provisions of Proposition 218. However, certain assessments existing on November 6, 1996, are classified as exempt from the procedures and approval process of Article XIIID. Expressly exempt assessments include (i) an assessment imposed exclusively to finance capital costs or maintenance and operation expenses for sewers, water, flood control and drainage systems, but subsequent increases are subject to the procedures and approval requirements; (ii) an assessment imposed pursuant to a petition signed by all affected landowners (but subsequent increases are subject to the procedural and approval requirements); (iii) assessments, the proceeds of which are used exclusively to pay bonded indebtedness, where failure to pay would violate the U.S. Constitution s prohibition against the impairment of contracts; and (iv) any assessment which has previously received approval by a majority vote of the voters (but subsequent increases are subject to the procedural and approval requirements). On July 14, 2008, the California Supreme Court ruled in Silicon Valley Taxpayers Association, Inc. v. Santa Clara County Open Space Authority (the SCCOSA Decision ) that the Santa Clara County Open Space Authority s county-wide assessment which was designed to fund the acquisition and maintenance of unspecified open-space lands in the County was invalid under Proposition 218. The Court held that deference should not be accorded to local agencies when Proposition 218 legislative acts are challenged. Under Proposition 218, courts must make an independent review of whether the assessment and formation of an assessment district meet the special benefit and proportionality requirements of Article XIIID. Further, while an assessment will not be invalidated because it confers a benefit upon the public at large, the special benefit must affect the assessed property in a distinct and particular manner not shared by other parcels and the public at large. Specifically, in the SCCOSA Decision the assessment did not meet the requirements of a special benefit and the assessment was not proportional to the special benefits conferred. Finally, the Court held that the Santa Clara Open Space Authority did not meet the proportionality requirement of Article XIIID because it did not specifically identify the improvements to be financed by the assessment and failed to sufficiently connect any costs of and benefits received from the open space assessment to the specific assessed parcels. The District believes that current water fees and charges that are subject to Proposition 218 comply with the provisions thereof and that the District will comply with the rate covenant set forth in the 2017 Installment Sale Agreement in conformity with the provisions of Article XIIID of the California State Constitution. The interpretation and application of Proposition 218 will ultimately be determined by the courts or through implementing legislation with respect to a number of the matters described above, and it is not possible at this time to predict with certainty the outcome of such determination or the nature or scope of any such legislation. -53-

60 RISK FACTORS The following section describes certain special considerations and risk factors affecting the risk of nonpayment or the security for the Bonds. The following discussion is not meant to be an exhaustive or definitive description of the risks associated with a purchase of any Bond and does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following special factors regarding the Bonds, together with all other information in this Official Statement in order to make an informed investment decision with respect to the Bonds. There can be no assurance that other risk factors are not or will not become material in the future. Net Revenues; Rate Covenant Net Revenues are dependent upon the demand for water sales, which can be affected by population factors, more stringent drinking water regulations, or problems with the District s treatment facilities. There can be no assurance that water service demand will be consistent with the levels contemplated in this Official Statement. A decrease in the demand for water could require an increase in rates or charges in order to comply with the rate covenant. The District s ability to meet its rate covenant is dependent upon its capacity to increase rates without driving down demand to a level insufficient to meet debt service with respect to the 2012 Installment Payments, the 2016 Installment Payments, the 2017 Installment Payments and any future Parity Obligations. Projections shown herein assume rate increases not yet approved. If rates are not increased, the debt service coverages could be lower than presented. Limitations on Remedies Available to Owners The ability of the District to comply with its covenants under the 2017 Installment Sale Agreement and to generate Net Revenues sufficient to pay the 2012 Installment Payments, the 2016 Installment Payments, the 2017 Installment Payments and any future Parity Obligations may be adversely affected by actions and events outside of the control of the District, and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. Furthermore, any remedies available to the Owners upon the occurrence of an event of default under the 2017 Installment Sale Agreement are in many respects dependent upon judicial actions, which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the limitations on Owner remedies contained in the 2012 Installment Sale Agreement, the 2016 Installment Sale Agreement and the 2017 Installment Sale Agreement, the rights and obligations under the 2012 Installment Sale Agreement, the 2016 Installment Sale Agreement and the 2017 Installment Sale Agreement may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. -54-

61 Proposition 218 On November 5, 1996, the voters of the State approved Proposition 218, the so-called Right to Vote on Taxes Act. Proposition 218 adds Articles XIIIC and XIIID to the State Constitution which affect the ability of local governments to levy and collect both existing and future taxes, assessments, fees and charges. Proposition 218, which became effective on November 6, 1996 (although application of some of its provisions was deferred until July 1, 1997) changes, among other things, the procedure for the imposition of new or increased fees or charges. Specifically, Article XIIIC requires that all new local taxes be submitted to the electorate for approval before such taxes become effective. General taxes, imposed for general governmental purposes of the District, require a majority vote, and special taxes, imposed for specific purposes require a two-thirds vote. As noted above under CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES - Article XIIIC and XIIID, the District believes that current water fees and charges that are subject to Proposition 218 comply with the provisions thereof and that the District will comply with the rate covenant set forth in the 2017 Installment Sale Agreement in conformity with the provisions of Article XIIID of the California State Constitution; however there can be no assurance that the voters of the District will not, in the future, approve an initiative which attempts to reduce the District s water rates or curtail their increase. Parity Obligations As described in SECURITY AND SOURCES OF PAYMENT FOR THE BONDS above, the 2017 Installment Sale Agreement permits the District to issue or incur Parity Obligations, its obligations under which would be payable on a parity with the 2017 Installment Payments. In the event of a decline in Pledged Net Revenues available to the District, the existence of Parity Obligations could adversely affect the District s ability to pay the 2017 Installment Payments. The District intends to incur additional obligations in 2019 to funds its Capital Improvement Program. District Expenses There can be no assurance that expenses of the District will be consistent with the levels contemplated in this Official Statement. Changes in technology, changes in quality standards, increases in the cost of operation of the Water System or other expenses could require substantial increases in rates or charges in order to comply with the rate covenant in the 2017 Installment Sale Agreement. Such rate increases could drive down demand for water and related services or otherwise increase the possibility of nonpayment of the 2017 Installment Payments. Future Land Use Regulations Development within the District s service area is contingent upon the future construction and acquisition of a number of public improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, drainage facilities and street lighting, as well as the necessary local in-tract improvements. The installation of the necessary infrastructure improvements and the construction of the residential development are subject to the receipt of discretionary approvals from a number of public agencies concerning the layout and design of the development, the nature and extent of the improvements, land use, health and safety requirements and other matters. The failure to obtain any such approval could adversely affect the planned land development within the District. -55-

62 In addition, there can be no assurance that land development operations within the District will not be adversely affected by future government policies, including, but not limited to, governmental policies to restrict or control development. Seismic Considerations The District is located in close proximity to several seismically active earthquake faults. The District area has experienced earthquakes with a Richter magnitude of 6.0 or greater and with the epicenter being within the San Francisco Bay Area. If there were to be an occurrence of severe seismic activity in the area of the District, there could be an interruption in the service provided by the Water System, resulting in a temporary reduction in the amount of Net Revenues available to pay the 2017 Installment Payments and debt service on any Parity Obligations when due. The District does not maintain earthquake insurance on its facilities. Loss of Tax-Exemption As discussed under the caption TAX MATTERS, interest with respect to the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were delivered, as a result of future acts or omissions of the District in violation of its covenants in the 2017 Installment Sale Agreement. Should such an event of taxability occur, the Bonds are not subject to special redemption and will remain Outstanding until maturity or until redeemed under other provisions set forth in the Indenture. Environmental Regulation The kind and degree of water treatment which is effected through the Water System is regulated, to a large extent, by the federal government and the State. Treatment standards set forth in federal and State law control the operations of the Water System and mandate the technology it must use. In the event that the federal government, acting through the Environmental Protection Agency, or the State, acting through the Department of Health Services, or additional federal or state legislation, should impose stricter water quality standards upon the Water System, the District s expenses could increase accordingly and rates and charges would have to be increased to offset those expenses. It is not possible to predict the direction federal or State regulation will take with respect to drinking water quality standards, although it is likely that both will impose more stringent standards with attendant higher costs. Secondary Market for Bonds There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price. -56-

63 CONTINUING DISCLOSURE The ultimate security for the payments of principal of and interest on the Bonds comes from the 2017 Installment Payments to be made by the District and, therefore, the District, as an obligated person within the meaning of the Rule (defined below), has agreed to undertake the disclosure responsibilities required by the Rule with respect to the Bonds by executing separate Continuing Disclosure Certificate. The Authority has not undertaken to provide any continuing disclosure required by the Rule. The District has covenanted for the benefit of holders and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District (the Annual Report ) by not later than nine months following the end of the District s fiscal year (which date would be March 31 following the current end of the District s fiscal year on June 30), commencing with the report for the fiscal year, and to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the District with the Municipal Securities Rulemaking Board (the MSRB ). The notices of material events will be filed by the District with the MSRB. The specific nature of the information to be made available and to be contained in the notices of material events is summarized below under the caption APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with the Rule. With respect to the District s Certificates of Participation (2004 Financing Project) (the 2004 COPs ), the District s audited financial statements were not filed for fiscal years 2012 and 2013, without notice of late filing, although they were timely filed with respect to the District s other obligations. The 2004 COPs have been fully paid and are no longer outstanding. With respect to the 2012 Bonds, while the annual reports for fiscal years 2012 and 2013 were timely filed, they did not include the required description of the District capital improvement program. That information has now been filed. Except as described above, during the last five years the District has not failed to comply in all material respects with its previous undertakings under the Rule to provide annual reports or notices of material events although the District has not consistently filed notices of the downgrades of the ratings of municipal bond insurer that insured certain of its obligations. TAX MATTERS Federal tax law contains a number of requirements and restrictions which apply to the Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Authority and the District have covenanted to comply with all requirements that must be satisfied in order for the interest on the Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. Subject to compliance by the Authority and the District with certain covenants, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and -57-

64 corporations but Bond Counsel expresses no opinion as to whether interest on the Bonds is taken into account in computing adjusted current earnings, which is used as an adjustment in determining the federal alternative minimum tax for certain corporations. Failure to comply with certain of such covenants could cause interest on the Bonds to be includable in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. In rendering its opinion, Bond Counsel will rely upon certifications of the District with respect to certain material facts within their respective knowledge and upon the mathematical computation of the yield on the Bonds and the yield on certain investments by the Verification Agent. Bond Counsel s opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result. Ownership of the Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Bonds should consult their tax advisors as to applicability of any such collateral consequences. The issue price (the Issue Price ) for each maturity of the Bonds is the price at which a substantial amount of such maturity of the Bonds is first sold to the public. The Issue Price of a maturity of the Bonds may be different from the prices set forth, or the price corresponding to the yields set forth, on the inside cover page hereof. Owners of Bonds who dispose of Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Bonds in the initial public offering, but at a price different from the Issue Price, or purchase Bonds subsequent to the initial public offering, should consult their own tax advisors. If a Bond is purchased at any time for a price that is less than the Bond s stated redemption price at maturity (the Reduced Issue Price ), the purchaser will be treated as having purchased a Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser s election, as it accrues. Such treatment would apply to any purchaser who purchases a Bond for a price that is less than its Revised Issue Price. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. An investor may purchase a Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as bond premium and must be amortized by an investor on a constant yield basis over the remaining term of the Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor s basis in the Bond. Investors who purchase a Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Bond s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Bond. -58-

65 There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. The Internal Revenue Service (the IRS ) has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the IRS, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the IRS will commence an audit of the Bonds. If an audit is commenced, under current procedures the IRS may treat the Issuer as a taxpayer and the Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of the ultimate outcome. Payments of interest on, and proceeds of the sale, redemption or maturity of, tax exempt obligations, including the Bonds, are in certain cases required to be reported to the IRS. Additionally, backup withholding may apply to any such payments to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the IRS of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Ownership of the Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Bonds. Prospective purchasers of the Bonds should consult their tax advisors regarding the applicability of any such state and local taxes. The complete text of the final opinion that Bond Counsel expects to deliver upon the issuance of the Bonds is set forth in APPENDIX E FORM OF OPINION OF BOND COUNSEL. MUNICIPAL ADVISOR The District has retained Sperry Capital Inc., Sausalito, California, as municipal advisor (the "Municipal Advisor") in connection with the planning, sale and delivery of the Bonds. The fees of the Municipal Advisor are contingent upon the delivery of the Bonds. 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. -59-

66 LEGAL MATTERS The validity of the 2017 Installment Sale Agreement, the Indenture and the Bonds, and certain other legal matters, are subject to the approving opinion of Quint & Thimmig LLP, Larkspur, California, Bond Counsel. A complete copy of the proposed form of Bond Counsel s opinion is contained in APPENDIX E FORM OF OPINION OF BOND COUNSEL. Quint & Thimmig LLP is also serving as disclosure counsel to the Authority in connection with the Bonds. Certain legal matters will also be passed upon for the Authority and the District by Mary R. Casey, Esq., General Counsel to the District, and for the Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California. Payment of the fees and expenses of Bond Counsel, Disclosure Counsel and Underwriter s Counsel is contingent upon the execution and delivery of the Bonds. District LITIGATION The District is not aware of any litigation that is pending or threatened concerning the validity of the 2017 Installment Sale Agreement. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the District s ability to make the 2017 Installment Payments. There are a few lawsuits and claims pending against the District. In the opinion of the District, the aggregate amount of liability that the District might incur as a result of adverse decisions in cases not covered under the District s various insurance programs would not materially adversely impact the District s ability to make the 2017 Installment Payments. On May 26, 2015, Anne Walker filed a class action lawsuit against the District and asserted that the District s rate structure in effect between 2010 and 2015 did not comply with the provisions of Article XIIID of the California Constitution (Proposition 218) in that the cost of water for the tiered rates was calculated using an arbitrary percentage increase, was not based upon the cost of providing water service, represented a financial penalty intended to force conservation and was not a fee for service. The case was filed in Marin County Superior Court and the Case Number is Civ The District asserts that its rate structure, as challenged by the petitioner, complied in all respects with Proposition 218. On April 6, 2017, the District won a favorable decision in the trial court based on the argument that the plaintiff failed to exhaust her administrative remedies in failing to file a rate protest. The Plaintiff has filed a noticed motion for a new trial which will be heard on July 17, If the plaintiff loses the motion for a new trial, her last day to appeal the trial court s decision is 60 days after the court s ruling on that motion. Should an appeal of the trial court decision be filed, the District will continue to vigorously oppose this lawsuit An adverse decision in the Court of Appeal would send this case back to the trial court for a hearing on the merits of the District s 2011 and 2012 rate increases. Thereafter, either party could appeal the trial court s decision on the merits. However, if the plaintiff were to ultimately prevail in all respects, the District would apply available reserves to satisfy any amounts determined to be owed to rate payers. Authority The Authority is not aware of any litigation that is pending or threatened concerning the validity of the Indenture or the 2017 Installment Sale Agreement or its issuance of the Bonds. -60-

67 RATINGS Fitch Ratings ( Fitch ) has assigned the rating of AA (negative outlook) to the Bonds and S&P Global Ratings, a Standard & Poor's Financial Services LLC business ( S&P ), has assigned the rating of AA (negative outlook) to the Bonds. Such ratings reflect only the view of such organizations and any desired explanation of the significance of such ratings should be obtained from Fitch at One State Street Plaza, New York, NY 10004, and from S&P at 55 Water Street, New York, NY 10041, (212) Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by Fitch and/or S&P if, in the judgment of Fitch and/or S&P, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price for the Bonds. UNDERWRITING The Bonds will be sold to Stifel, Nicolaus & Company, Incorporated (the Underwriter ) under a bond purchase agreement among the Authority, the District and the Underwriter. The Underwriter has agreed to purchase the Bonds at a purchase price of $42,226,896.36, which amount represents the principal amount of the Bonds of $36,120,000.00, less $79,065.39, representing the Underwriter s discount, plus $6,185,961.75, representing original issue premium. The obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in the bond purchase agreement relating to the Bonds. The Underwriter may offer and sell the Bonds to certain dealers and others at prices different from the prices stated on the inside cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriter. -61-

68 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 the statements 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. MARIN MUNICIPAL WATER DISTRICT FINANCING AUTHORITY By /s/ Charles M. Duggan, Jr. Treasurer MARIN MUNICIPAL WATER DISTRICT By /s/ Charles M. Duggan, Jr. Administrative Services Division Manager -62-

69 APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DISTRICT FOR THE FISCAL YEARS ENDED JUNE 30, 2016 and 2015 Appendix A

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71 COMPREHENSIVE ANNUAL FINANCIAL REPORT For the years ended June 30, 2016 and Nellen Avenue, Corte Madera, CA 94925

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73 Corte Madera, California Comprehensive Annual Financial Report for the years ended June 30, 2016 and 2015 Prepared by Finance Division

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75 Marin Municipal Water District Basic Financial Statements Table of Contents For the years ended June 30, 2016 and 2015 Page INTRODUCTORY SECTION Transmittal Letter... i List of Board Members and Committees... xiii Division Map... xvi Organizational Chart... xvii GFOA Award... xviii FINANCIAL SECTION Independent Auditor s Report... 1 Management s Discussion and Analysis... 5 Basic Financial Statements: Statements of Net Position Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Statements of Fiduciary Net Position Notes to Basic Financial Statements Required Supplementary Information: Defined Benefit Pension Plans OPEB Plan Schedule of Funding Progress Other Supplementary Information: Statement of Changes in Fiduciary Assets and Liabilities STATISTICAL SECTION: Financial Trends Revenue Capacity Debt Capacity Demographic and economic information Operating information... 75

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77 INTRODUCTORY SECTION

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79 220 Nellen Avenue Corte Madera CA marinwater.org December 27, 2016 Honorable President and Members of the Board of Directors: We are pleased to submit this Comprehensive Annual Financial Report (CAFR) of the Marin Municipal Water District (MMWD) for the fiscal year ended June 30, Since incorporation, the district has submitted an annual audited financial report to the Board of Directors and the public in accordance with California Government Codee section The CAFR provides the Board and the public with an overview of the district s finances. Responsibility for the accuracy of this data and the completeness and fairness of thee presentation, including all disclosures, rests with the district. In the opinion of managemen nt, the enclosed data is accurate in all material respects and are reported in a manner designed to fairly set forth the financial position and results of operations of the district, and contains all disclosures necessary to enablee the reader to understandd the district s financial affairs. FINANCIAL STATEMENT PRESENTATION The Comprehensive Annual Financial Report is preparedd in accordance with Generally Accepted Accounting Principles (GAAP) as promulgated by thee Governmental Accounting Standards Board (GASB). This report consists of management s representations concerning the finances of the district. Consequently, management assumes full responsibility for the accuracy and the completeness of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the district has established a comprehensive internal control framework that is designed both to protect the district s assetss from loss, theft, or misuse, and to compile sufficient and reliable information for the preparation of the district s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the district s comprehensive framework of internal controls has been designedd to provide reasonablee rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The district s financial statements have been audited by Badawi & Associates, a public accounting firm licensed and qualified to perform audits of local governments within the State of California. The purpose of the independent audit was to provide reasonable assurance that the financial statements of the district for the fiscal year ended June 30, 2016, are free of material misstatement. The independent audit involved examining, on a testt basis, evidence i

80 supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The audit included obtaining an understanding of the entity and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the district s financial statements for the fiscal year ended June 30, 2016, are fairly presented in conformity with GAAP. The independent auditor s report is presented as the first component of the financial section of this report. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The district s MD&A can be found immediately following the report of the independent auditor. DISTRICT PROFILE On April 25, 1912, the Marin Municipal Water District received its charter as the first municipal water district in California. Before that, water in central and southern Marin was provided by a number of small, private companies, many of them subsidiaries of real estate developers. To ensure a reliable water supply, the citizens of Marin came together to create a publicly owned and managed water system. Over the years, our customer base has expanded through the acquisition of 26 small, private water companies. Today, MMWD provides high quality drinking water to 189,400 people in a 147 square mile area of south and central Marin County that includes ten towns and cities as well as unincorporated areas, located immediately north of the Golden Gate Bridge and the City of San Francisco. The district is responsible for the stewardship of more than 21,600 acres of watershed land on Mt. Tamalpais and in west Marin. Seventy five percent of the district's water supply comes from the protected watershed on Mt. Tamalpais and hills of west Marin. The Mt. Tamalpais Watershed is a unique natural resource providing prime recreational and open space for the district s surrounding communities. Over 1.5 million visitors use the 150 miles ii

81 of watershed roads and trails per year. Caring for nature, managing visitors, and involving the public in watershed stewardship are the central tasks of district rangers, natural resource specialists, and watershed maintenance staff. Watershed responsibilities include protecting resources, managing fire risks, assisting visitors, monitoring plants and animal populations, restoring natural habitats, and maintaining access roads and trails. As an independent special district, MMWD operates as a separate local government agency that has no reporting responsibilities to either Marin cities or Marin County. Our five member Board of Directors governs MMWD, with each director elected to represent one of five geographic areas. Directors serve overlapping four year terms. The board, in turn, elects one of its members to serve as board president each year. The board appoints the general manager, treasurer, board secretary, and legal counsel, each of whom serves at the pleasure of the board. The general manager is the chief executive and is responsible for the district s operations and to administer the programs in accordance with the policies. WATER SYSTEM & TREATMENT FACILITIES With the annual water production currently averaging 25,800 acre feet over the last five fiscal years, MMWD maintains 886 miles of pipeline for potable water and 24 miles of pipeline for recycled water, four treatment plants including one plant for recycled water, seven reservoirs with a storage capacity of 79,566 acre feet (one acre foot is equal to 325,851 gallons, enough water to cover one acre to a depth of one foot), total 29,927 million gallons, 128 storage tanks, 97 pumping stations, and over 61,800 service connections. Five of the seven district reservoirs (Alpine, Bon Tempe, Kent, Lagunitas, and Phoenix Lake) are located on the north slope of Mt. Tamalpais. The other two (Nicasio and Soulajule) are outside the district s service area in western Marin County. Alpine Lake was built in 1919 and has an arched concrete dam. The dam was raised in 1923 and 1941 to its present height and a total storage capacity of 8,891 acrefeet. Bon Tempe Lake has an earth fill dam and was built in 1948 with a capacity of 4,017 acre feet. Kent Lake has an earth fill dam and was built in The structure was enlarged in 1982 to accommodate a total capacity of 32,895 acre feet. Lake Lagunitas, the oldest facility, has an earth fill dam built in Lake Lagunitas still maintains its original capacity of 350 acre feet. Phoenix Lake, has an earth fill dam, was constructed in 1905, and was significantly modified in 1968 and The last modification reduced the lake s capacity to 411 acre feet. It now serves primarily as a scenic resource for the community and is used as a water supply source only in very dry years. Nicasio Reservoir has an earth fill dam and was built in 1960, with a capacity of 22,340 acre feet. Soulajule Reservoir is impounded by an earth fill dam built in 1979 with a capacity of 10,572 acre feet. iii

82 The district operates three water treatment facilities: San Geronimo Treatment Plant, Bon Tempe Treatment Plant, and Ignacio Pump Station, where the quality of potable water purchased from the Sonoma County Water Agency (SCWA) is adjusted to match that of the water in the rest of the district s system, and one water recycling facility, Las Gallinas Valley Water Recycling Plant. San Geronimo and Bon Tempe Plants, with 35 million gallons per day (mgd) and 20 mgd maximum capacity, respectively, treat water originating from the district reservoirs. Ignacio Pump Station, with 16 mgd maximum capacity, performs chemical treatment in a polishing operation on water received from SCWA via the North Marin Intertie Pipeline. Las Gallinas Reclamation Plant, with two mgd current maximum capacity, performs tertiary treatment of wastewater effluent and distributes water used mainly for irrigation to more than 350 service connections through more than 25 miles of pipeline. WATER SUPPLY Historically, the district s water supply comes primarily from rainfall runoff captured on the north slope of Mt. Tamalpais in the westerly slopes of the coastal range. District facilities, constructed in stages over the last 100 years, divert approximately two thirds of the flow of Lagunitas Creek above Kent Lake and more than one third of the flow of Nicasio Creek to developed areas of eastern Marin. The district s watershed drainage system has four creek units: Lagunitas Creek above Kent Lake, Nicasio Creek at Nicasio Dam, Ross Creek above Phoenix Lake, and Walker Creek above Soulajule Reservoir. The district and its predecessor agencies have maintained rainfall records for a period over 130 years. Average annual precipitation varies across the drainage basins above the reservoirs from about 60 inches above Kent Lake to 28 iv

83 inches on Walker Creek. Average annual net runoff (total runoff less losses) on the district s watershed lands is more than 75,000 acre feet. However, year to year net runoff figures vary significantly from a high net runoff in 1982/83 of approximately 213,000 acre feet to a low of approximately 3,000 acre feet in 1976/77. Today, about 75% of the potable water used by district customers comes from the local reservoir system. The district has considerable stewardship responsibility for the aquatic species that reside in the streams below its reservoirs. In particular, the district must release water from its reservoirs to help sustain downstream fisheries. To meet the terms included in the district s water rights, an average of about 11,000 acre feet per year is released for that purpose. In addition to the above described local water sources, since 1976 the district has contracted for imported delivery from Sonoma County Water Agency (SCWA). The contract with SCWA allows the district to take delivery of up to 14,300 acre feet of water per year. During the fiscal year 2016, the district produced 23,248 acre feet of water for its customers, including 5,300 acre feet of water imported from SCWA. ECONOMIC CONDITION AND OUTLOOK Local Economy The district is located in Marin County with a diversified economic base, which includes hightech, financial, service based, entertainment, and industrial businesses. The local economy continues to be in an economic recovery after signs of stabilization appeared in In June 2016, the county s unemployment rate of 3.5% (not seasonally adjusted) has been steady from 3.4% in June 2015, and lower than the rates of the state and the nation of 5.7% and 4.9%, respectively. Marin County s per capita income in 2015 was $109,076 to the nation s per capita income of $56,116. Factors Affecting the District s Financial Condition The district s revenues are dependent upon the demand for water sales, which can be affected by weather, economy, population factors, more stringent drinking water regulations, or problems with the water supply. As of June 2016, the District s reservoir levels were at 91.53% of capacity due to continued water conservation by District customers and unusual rainfall events. Despite the strong local economy and aboveaverage water supply, the District has faced a steady decrease in water sales as the California four year statewide drought continued through the fiscal year The state v

84 conservation standard of a 20% reduction, which started in April 2015, remained in effect through October Water production for the fiscal year ended June 30, 2016, was 23,248 acre feet, 4.8% less than the previous fiscal year of 24,407 acre feet. The decrease in the demand for water resulted in a decrease in water sales and service charge revenue by approximately $0.9 million or 1.6% less than the previous fiscal year. The debt coverage ratio for the fiscal year ended June 30, 2016, before utilization of the Rate Stabilization Fund was 1.22x. MMWD's board approved on November 1, 2016, the withdrawal of $0.2 million from the Rate Stabilization Fund to increase the debt coverage ratio for the year ended June 30, 2016 to 1.25x. After the withdrawal of $0.2 million, the Rate Stabilization Fund balance is $5.7 million as of June 30, As a result of the state drought restrictions, MMWD customers have had to decrease their water use through the fiscal year ended June 30, To address the decrease in water sales revenue as a result of water use reductions, on December 8, 2015, the Board of Directors approved a two year water rate package which incorporated rate restructuring effective January 1, The new rate structure reflect modifications which include increasing the fixed service charge, adding a new fixed watershed management fee, adjustments to the tier rates of the commodity charge for all customer classes and changes in the tier allotments for multi family and duplex customer classes. Also included in the new rate structure is drought surcharges, revenue recovery and Sonoma County Water Agency surcharges and the introduction of a pass through water service rate in the event Sonoma County Water Agency raises their rates in excess of 5% per year. The board approved an additional 4% increase in all water rates, fees, and charges effective May 1, Due to the rate restructure and the 4% rate increase the total operating revenue increased to $60.10 million for fiscal year ended June 30, 2016 from $59.24 million for fiscal year ended June 30, Long Term Financial Planning Consistent with Government Finance Officers Association (GFOA) recommendations, MMWD adopted a five year strategic plan in 2014 which is the how MMWD will respond to current challenges and make the best of future opportunities for the benefit of our customers. The plan confirms our mission and goals as a public agency dedicated to high quality water delivery and service. It establishes approaches for the preservation of our precious resources for future generations utilizing the principles of sustainability and prudent fiscal practices. It also outlines the specific goals, strategies, and objectives the District will pursue to move us from where we are to where we want to be, and establishes a process to measure our progress. Management of the District also is in the process of developing long term financial plan to fund the future capital projects. vi

85 Vision Statement MMWD will be a valued water service provider supporting the high quality of life in Marin County. Mission Statement MMWD will manage our natural resources in a sustainable manner and provide our customers with reliable, high quality water at a reasonable price. Values MMWD will embody the following core values in the setting and implementation of its policies and practices. Environmental stewardship & sustainability Integrity and ethics Open and responsive communications Diversity Healthy work environment Cooperation Fairness, dignity, and respect Continuous improvement through initiative, leadership, personal development, training Culture of excellence and innovation Responsible financial management Goals Water Supply Resiliency We will maintain a level of reliability that supports MMWD s customers needs, our community s quality of life, and the local economy. Financial Stewardship We will prudently manage the public resources entrusted to us. Communications We will partner with our community, customers, and staff to understand and reflect their interests and clearly articulate the programs and policies of Marin Municipal Water District. Environmental Stewardship We will serve the community and manage the environmental assets entrusted to us for the benefit of present and future generations. Workforce We will maintain a diverse, highly qualified and trained, motivated, and productive workforce to achieve MMWD s goals. vii

86 FINANCIAL POLICIES Budgetary Controls The district s budget is balanced when operating revenues are equal to or greater than operating expenditures including debt service but excluding depreciation and amortization (i.e., budgeted expenditures shall not exceed budgeted revenues). The district wide funds management system provides budgetary controls that monitor spending within budgeted amounts. Budgetary controls function differently for operating and capital budget expenditures. For the operating budget, each department is controlled within an expenditure category such as materials, supplies, freight and utilities, repairs, and maintenance, for example. A department cannot exceed their authorized operating budget within an expenditure category or the total department budget for a fiscal year. Capital project spending is controlled based on the funding source. There may be more than one capital project assigned to a funding source. Reallocation of the operating budget for a department among its line item expenses allows the departments to have financial flexibility within the funds management system. Budget adjustments to a departmental budget are reallocations of funds between line item expenses and between fund centers. Approval from the affected department(s), applicable division manager, and the finance manager are required for all departmental budget adjustments. The general manager s approval is required for the reallocation of funds between the operating and capital budgets and between departments. Overall increases to the operating or capital budgets require approval from the Board of Directors. Investments Annually, the board adopts an investment policy that is in compliance with the California Government Code et eq. The investment of funds is delegated by the board to the district s finance manager as the treasurer who assumes full responsibility for the vestment transactions. The objectives of the investment policy are safety, liquidity, yield, and diversity. The district s investments are in compliance with the adopted investment policy. See Note 2 of the finance statements for detailed investment information. Rate Stabilization Fund The Installment Sale Agreement from the 2012 Revenue Bond issue allowed the creation of a Rate Stabilization Fund. The district may deposit into the fund gross revenue from one year, which can then be withdrawn and added to the gross revenues in calculating the debt ratio for a future year. The funds may also be used by the district for any other lawful purpose. A deposit of gross revenue to or a withdrawal from the Rate Stabilization Fund may be made within 180 days after the fiscal year end. Accordingly, the district revised its Policy No. 46 Reserve Policy on November 21, 2013, to establish a Rate Stabilization Fund. viii

87 Per the bond covenants for the district s existing debt, the district is required to meet an annual debt service ratio of 1.25x annual debt service. In order to meet the required debt service ratio of 1.25x for the fiscal year ended June 30, 2015, the board approved a withdrawal of $1.4 million from the Rate Stabilization Fund on November 3, On November 1, 2016, the board approved another withdrawal of $0.2 million to meet the debt service ratio of 1.25x for the fiscal year ended June 30, After the withdrawal, the Rate Stabilization Fund balance is $5.7 million. Debt Management The district s primary source of revenue is water sales and related service charges, followed by connection charges, rent and lease revenues, and interest. The district has the power and is mandated to establish rates and charges for water service as necessary to meet all of its expenses and obligations including debt service on existing revenue bonds, coverage requirements, and installment payments. The outstanding revenue bonds have a first lien on net revenues. Net revenues are all enterprise revenues after deducting all maintenance and operation costs, plus connection charges after all costs of connections are deducted. The district rating on existing debt was downgraded to AA from AA+ by Fitch on March 30, Fitch stated that the downgrade was due to the lower than anticipated debt service coverage in 2015, and the District s revised rate strategy, which is expected to maintain coverage at a level more consistent with a AA rating. In addition, Fitch anticipates that the already high debt levels will rise in the near term given additional expected borrowing and very slow amortization of current debt. Standard & Poor s rating of AA continued through the fiscal year ended June 30, 2016, and subsequently, Standard & Poor upgraded the rating to AA+ from AA on November 10, S&P assessed that the District s general creditworthiness is extremely strong and stable. ix

88 Budget The district adopts biennial budgets and employs long term planning as the framework for its fiscal decisions. The district makes decisions on the efficient use of its resources. The financial plan and biennial budget includes the operating and capital programs, and sets levels of related operating, capital, and debt service expenditures that may be made during the budget period. The budget is developed to reflect the costs necessary to provide customers with safe and reliable water service over the long term while keeping rate increases as low as possible. The budget not only allocates resources but is also used to develop rates and charges that provide adequate revenues to meet the district s needs and encourages the efficient use of water. Decisions on allocating resources and addressing budget needs do not end when the board adopts the budget. Throughout the year, departments are responsible for implementing the budget and monitoring budget performance, responding to unforeseen or emergency circumstances, and participating in long range financial planning. The adopted budget for fiscal year 2016/17 supports the mission, value, goals, and objectives of the district s strategic plan. The total budget for 2016/17 is $ million, with an operating budget of $72.12 million and capital improvement program budget of $28.15 million. MAJOR INITIATIVES On September 29, 2015, the board authorized issuance of the notification of Prop. 218 and October 16, 2015, the Prop. 218 notice was mailed to property owners and ratepayers notifying them of the proposed water rate restructuring effective January 1, 2016 and a subsequent 4% increase to all water rates, fees and charges effective May 1, The new rate structure was a result of multi year long range financial analysis for the period from fiscal years 2015/ /20 which includes a five year financial forecast, projection of revenue requirements and rate review and analysis. The rate review and analysis included modifications to the existing rate structure design to improve the District s revenue and financial stability in light of ongoing reductions in water usage. The board adopted the rate structure modifications and a 4% rate increase on December 8, x

89 The Capital Improvement Program (CIP) includes both district capital and fire flow projects. The budget is based on the 10 year capital improvement plan developed by the Engineering and Environmental Services Division and incorporates staff requests for upgrading or replacing water system and watershed facilities and information systems software and equipment. The 2015/16 CIP spending was approximately $19.24 million, a decrease of 19% from the 2014/15 CIP expense of $23.62 million. The district s capital projects, excluding fire flow and reimbursable projects, was funded from the 2012 Revenue Bond proceeds in the amount of $12 million. Pipeline Replacement Program: Projects in this capital program provide for replacement of worn and deteriorated transmission and distribution system piping. The district maintains records of all leaks and leak repair. Staff utilizes the district s GIS (Geographic Information System) to identify pipe segments with a significant leak rate (generally 1 leak/year/1,000 ft pipe). The segments identified through this process are added to the pipeline replacement (leak) list. Pipeline replacements are prioritized primarily based on leak rate and risk related to damages to the environment or property in the event of a main break. Special consideration is given to pipelines in close proximity to salmonid bearing streams. The pipeline spending including Fire Flow Improvement Program was approximately $11.49 million, which replaced about 7 miles. Treatment Plants: Capital projects at the treatment plants address three main functional areas; (1) Structure, (2) Primary treatment unit processes, and (3) Secondary unit processes. The capital work is guided by a Treatment Plant Master Plan that started in 2013 to provide a roadmap for replacement of these critical facilities. The district spent approximately $1.01 million during FY2016. Tank Recoating Program: Coating and linings are an integral part of corrosion control as they provide a barrier between the structure and a corrosive environment. Corrosion control staff also work with water quality staff to ensure that interior tank coatings and linings are in compliance with State Department of Health Services drinking water requirements. Prioritization of tanks requiring recoating is based on maintaining water quality and the current requirement for interior cathodic protection. During the FY2016, the District spent approximately $0.3 million. Storage Tanks Replacement and Improvement Program: MMWD has 138 tanks storing the daily water needs of the customers. They contain approximately 80 million gallons of water. These tanks are of vastly different ages and a variety of materials (redwood, welded steel, bolted steel, riveted steel, concrete), all requiring different maintenance and capital investment. Over the past 10 years, the district has invested approximately $21 million replacing deficient redwood tanks. During the FY2016, six redwood tanks were replaced, total spending of $1.89 million. xi

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91 MARIN MUNICIPAL WATER DISTRICT BOARD OF DIRECTORS Jack Gibson, President Division I Representative Cynthia Koehler, Vice President Division IV Representative Armando Quintero Division II Representative Larry Bragman Division III Representative Larry Russell Division V Representative BOARD COMMITTEES District Operations Committee Finance Committee Communications Committee Watershed Committee Drought Resiliency Taskforce Committee Compensation Committee Conservation Action Committee Russian River Committee Ad Hoc Committee Ad Hoc Committee Ad Hoc Committee xiii

92 BOARD COMMITTEES AND OTHER ASSIGNMENTS FOR 2016 STANDING BOARD COMMITTEES DISTRICT OPERATIONS Larry Russell, Chair Armando Quintero, Vice-Chair WATERSHED Larry Bragman, Chair Armando Quintero, Vice-Chair FINANCE Cynthia Koehler, Chair Jack Gibson, Vice-Chair COMMUNICATIONS Cynthia Koehler, Chair Jack Gibson, Vice Chair DROUGHT RESILIENCY TASKFORCE Jack Gibson, Chair Larry Russell, Vice Chair STAFF LIAISON Mike Ban Crystal Yezman Oreen Delgado Libby Pischel Krishna Kumar AD HOC BOARD COMMITTEES Conservation Action Cynthia Koehler, Member Larry Russell, Member Compensation Larry Russell, Chair Jack Gibson, Vice Chair Russian River Jack Gibson Larry Russell (Alternate) Dan Carney Krishna Kumar Krishna Kumar OTHER ASSIGNMENTS Tamalpais Lands Collaborative Executive Committee Armando Quintero Jack Gibson Technical Advisory Committee - Lagunitas Creek Larry Bragman Cynthia Koehler, Alternate Krishna Kumar Gregory Andrew xiv

93 OTHER ASSIGNMENTS (con t) North Bay Watershed Association Jack Gibson Larry Russell, Alternate Tomales Bay Watershed Council Armando Quintero Sonoma County Water Agency, Water Advisory Committee (WAC) Jack Gibson Larry Russell, Alternate North Bay Water Reuse Authority Jack Gibson Larry Russell Las Gallinas Recycled Water Ad Hoc Jack Gibson Larry Russell ACWA Federal Affairs Committee Cynthia Koehler STAFF LIAISON Krishna Kumar Krishna Kumar Krishna Kumar Krishna Kumar Krishna Kumar Krishna Kumar xv

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95 MMWD Organizational Chart Board of Directors Legal Counsel General Manager Environmental & Engineering Division Human Resources Division General Manager Division Finance Division Facilities & Watershed Management Division Operations Recruitment & Examination Board Administration Support Customer Service System Maintenance Planning Labor / Employee Relations Public Information Office Support Watershed Management Design and Construction Staff Development Water Conservation Purchasing Facilities Maintenance Water Treatment & Water Quality Benefits Administration Information Technology Meter Operations Support Services Support Services Accounting Safety Environmental Services Payroll xvii Revised May 2012

96 Certificate of Achievement for Excellence in Financial Reporting Presented to Marin Municipal Water District Text38: Government Finance Officers Association California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2015 Executive Director/CEO xviii

97 FINANCIAL SECTION

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99 INDEPENDENT AUDITOR S REPORT To the Board of Directors of the Marin Municipal Water District Corte Madera, California Report on the Financial Statements We have audited the accompanying financial statements of the enterprise fund and the agency fund information of Marin Municipal Water District (District) as of and for the years ended June 30, 2016 and June 30, 2015, 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 opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 auditor s 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. Address: 180 Grand Avenue, Suite 1500 Oakland, CA Phone: Fax:

100 To the Board of Directors of the Marin Municipal Water District Corte Madera, California Page Two Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the the enterprise fund and the agency fund information of the District, as of June 30, 2016 and June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the years 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, defined benefit pension plan, and schedule of funding progress for OPEB plans on pages 5 to 12 and pages 55 to 57 to 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, Statement of Changes in Fiduciary Assets and Liabilities, and Statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The statements of changes in fiduciary assets and liabilities are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the statements of changes in fiduciary assets and liabilities are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2

101 To the Board of Directors of the Marin Municipal Water District Corte Madera, California Page Three The Introductory section and Statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Badawi & Associates Certified Public Accountants Oakland, California December 27,

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103 Marin Municipal Water District Management s Discussion and Analysis For the Years Ended June 30, 2016 and 2015 As management of the Marin Municipal Water District (MMWD), we offer readers of MMWD s financial statements this narrative overview and analysis of the financial statements of MMWD for the fiscal year ended June 30, We encourage readers to considerr the information presented here in conjunction with the transmittal letter in the Introductory Section andd with the basic financial statements and related notes, whichh follows this section. Overview of the Financial Statements MMWD s financial section consistss of the following threee parts: Management s Discussion and Analysis, Basic Financial Statements and Other Required Supplementary Information. This management s discussion and analysis is intended to servee as an introduction too the MMWD s basic financial statements. The financial statements include notes which explain in detail some of the informationn included in the financial statements. Proprietary Fund Financial Statements MMWD s operations are accounted for as a single proprietary enterprise fund using the full accrual basis of accounting. In this regard, MMWD operations are accounted for in a manner similar to a private business enterprise. Within this one proprietary fund, MMWD segregates revenues and expenses for various purposes such as operations, debt service and capital improvements, but that segregation does not create separate proprietary funds. Notes to the Financial Statements The notes provide additional information thatt is essentiall to a full understanding of the data provided in the financial statements. The notes to the financial statements can be found beginning on page 23 of this report. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain supplementary and statistical information. Supplement tary and statistical information can be found beginning on page 60 of this report. Financial Highlights for Fiscal Year Ended June 30, 2016 The District s net position decreased by $0.62 million or 0.26% from $243.7 million to $243.1 million mainly due to the loss from operation compared to June 30, The operating expenses were higher than the operating revenue by $5.0 at Junee 30, The revenues from water sales have been declining due to the California state mandatedd water use reduction which caused by the state wide drought since early Capital assets, net of accumulated depreciation, at June 30, 2016 increased by $10.8 million or 2.9% as compared to June 30,

104 Marin Municipal Water District Management s Discussion and Analysis For the Years Ended June 30, 2016 and 2015 Operating revenue increased by $0.86 million or 1.45%, and operating expenses increased by $0.1 million or 0.17% as compared to June 30, For the fiscal year ended June 30, 2016 net operating loss decreased by $0..75 million or 12.95%, and net loss decreased by $1.65 million or 72.44% as compared to the prior fiscal year, mainly becausee of a revised rate structure, including the introduction of a new watershed management fee, which went into effect starting January 1, 2016, and an additional 4% rate increase effective May 1, As of June 30, 2016, unrestricted and designated reserves were $37.7 million, a decrease of $4. 10 million over the prior fiscal year. Designated reserves include a Rate Stabilization Fund of $5.7 million. Amounts placed in the Rate Stabilization Fund can be used in the calculation to meet the District s annual debt service ratio in any future year or may be used by the District for any other lawful purpose. Financial Analysis The Statements of Net Position in page and the Statement of Revenues, Expenses and Changes in Net N Position in page 17 provide an indication of the District ss financial position and changes during the fiscal year. The District s net position reflects the difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources. 6

105 Marin Municipal Water District Management s Discussion and Analysis For the Years Ended June 30, 2016 and 2015 Table 1 NET POSITION Assets: Current assets Non current assets Capital assets, net Total assets $ ,176,639 44,317, ,536, ,030,200 $ ,000,054 $ (Decrease) 1,176,585 Change 3.80% % $ ,937,520 $ (Decrease) (1,937,466) Change 5.88% 58,621,138 (14,303,802) 24.40%% 75,110,366 (16,489,228) 21.95% 372,717,620 10,818, % % 358,319,959 14,397, % 462,338,812 (2,308,612) 0.50%% 466,367,845 (4,029,033) 0.86% Deferred outflows of resources: 8,832,986 7,182,872 1,650, % % 2,045,773 5,137, % Total assets and deferred outflows of resources 468,863, ,521,684 (658,498) 0.14%% 468,413,618 1,108, % Liabilities: Current liabilities Non current liabilities Total liabilities 18,687, ,220, ,908,118 18,335, , % % 17,873, , % 197,343,905 5,876, % % 136,843,958 60,499, % 215,679,259 6,228, % % 154,717,098 60,962, % Deferred inflow off resources: 3,896,468 10,156,785 (6,260,317) 61.64%% 10,156,785 Total liabilities and deferred inflows of resources 225,804, ,836,044 (31,458) 0.01%% 154,717,098 71,118, % Net position: Net Investmentt in capital assets Restricted Unrestricted Total net position $ 265,735, ,839 (23,333,804) 243,058,604 $ 263,879,191 1,939,529 (22,133,080) 243,685,640 $ 1,856,378 (1,282,690) (1,200,724) (627,036) 0.70% % 66.13%% 5.43% % 0.26%% $ 265,964,474 1,736,460 45,995, ,696,520 $ (2,085,283) 203,069 (68,128,666) (70,010,880) 0.78% 11.69% % 22.32% As the above table indicates, total assets decreased by $2.31 million from $ million to $ million during the fiscal year ended June 30, This decrease is mainly due to a reduction of $ million in non current assets because of withdrawal from the 2012 Water Revenue Bond proceeds to fund the District s capital projects and a decrease in other designated reserve, offset by $11.99 million increases in net capital assets and accrued unbilled revenue at the end of the fiscal year. Deferred outflows of resources is the amount of the unamortized deferred charge on debt refunding and the effect of the GASB Statement No. 68 that defers the CalPERS (California Public Employees Retirement System) pension contributions after the measurement date until the next fiscal year as a subsequent offset to the net pension liability. The deferred outflow of resources due to unamortized loss on refunding at June 30, 2016 and 2015 were $1.69 million and $1..87 million, respectively. The deferred outflows of resources due to GASB Statement No. 68 at June 30, 2016 andd 2015 were $7.14 million and $5.32 million, respectively. 7

106 Marin Municipal Water District Management s Discussion and Analysis For the Years Ended June 30, 2016 and 2015 For fiscal year ended June 30, 2016, total liabilities reflect an increase of $6.22 million mainly due to an increase of $7.62 million in pensionn liability, offset by a reduction in long term debt due to scheduled debt service payments of $2.24 million, and a $0. 51 million increase in accrued expense and an increase in claims payable of $0.333 million. For fiscal year ended June 30, 2015,, total liabilities reflect an increase of $60.96 million due to several factors including the implementation off GASB Statement No. 68 resulting in initial net pension liability recognition of $62.14 million, and an increase of $0.46 million in current liabilities, offset by a reduction in long term debt of $1.64 million. Deferred inflows of resources is the result of GASB Statement No. 68 and is comprised of changes in assumptions, the difference between expected and actual investmentt returns in the CalPERS pension plan, which will be amortized as a component of pension expense over the remaining 4 years. The deferred inflows of resources for June 30, 2016 and 2015 were $3.900 million and $10.16 million, respectively. The District s net position decreased by $0.63 million or 0.26% due to the net loss from operation as the water saless have continuously decreased since March The declined water sales are results of California state wide drought and the continued effort of water conservation. The District s long term liabilities increased by $5.88 million mainly due to the increase in net pension liability by $7.61 million or 12.25%, offset by a decrease in the long term debt by $2.30 million. As a result, the District s net position decreased by $0.63 million or 0.26% compared to June 30, The largest portion of the District s net position reflects the District ss investment in capital assets, net of related debt, % and % as of June 30, and 2015 respectively. The net investment in capital assets increased by $1.86 million or 0.70% from $ million to $ million. This is comprised of an increase of $10.82 million in capital assets, net of accumulated depreciation, offset byy a decrease in the 2012 Water Revenue Bond proceeds by $11.27 million and a decrease in the long term debt by $2.31 million. The District ss capital projects are funded by the 2012 Water Revenue Bond proceeds. 8

107 Marin Municipal Water District Management s Discussion and Analysis For the Years Ended June 30, 2016 and 2015 Table 2 Statement of Revenues, Expenses and Changes in Net Position June 30, vs vs June 30, Increase/ % June 30, Increase/ % 2015 (Decrease) Changee 2014 (Decrease) Change Revenues: Water sales and service charges Connection charges Watershed management fee Other operating revenue Total operating revenue Expenses: Electrical power Water purchased Other operating expenses Depreciation and amortization Total operating expenses Net operating income (loss) Non operating revenue, net Less: Interest expense Total nonoperating revenue/(expense) Income (Loss) before capital contributions Capital contributions Net Income (Loss) Net Position: Beginning of year Prior year adjustment for GASB 68 End of year $ $ 56,202,387 $ 57,117,530 $ (915,143) 1.60% $ 64,677,,493 $ (7,559,963) 11.69% 1,603, , , % 1,705,,549 (736,193) 43.16% 1,244,800 1,244,800 1,050,151 1,154,210 (104,059) 9.02% 1,351,,687 (197,477) 14.61% 60,100,547 59,241, , % 67,734,,729 (8,493,633) 12.54% ` 3,250,983 3,152,661 98, % 3,397,,161 (244,500) 7.20% 5,732,110 6,720,104 (987,994) 14.70% 7,437,,740 (717,636) 9.65% 45,110,330 44,364, , % 43,585,, , % 11,032,195 10,776, , % 11,324,,138 (547,589) 4.84% 65,125,618 65,013, , % 65,744,,284 (730,465) 1.11% (5,025,071) (5,772,723) 747, % 1,990,,445 (7,763,168) % 2,401,883 2,214, , % 2,938,,421 (723,980) 24.64% (3,578,557) (4,465,063) (886,506) 19.85% (4,686,280) (221,217) 4.72% (1,176,674) (2,250,622) 1,073, % (1,747,859) (502,763) 28.76% (6,201,745) (8,023,345) 1,821, % 242,,586 (8,265,931) % 5,574,709 5,748,183 (173,474) 3.02% 5,863,,573 (115,390) 1.97% (627,036) (2,275,162) 1,648, % 6,106,,159 (8,381,321) % 243,685, ,696,520 (70,010,880) 22.32% 307,590,,361 6,106, % (67,735,718) 67,735, ,058,604 $ 243,685,640 $ (627,036) 0.26% $ 313,696,,520 $ (70,010,880) 22.32% The Statements of Revenues, Expenses and Changes in Net Position identify the various revenue and expense items which impact the changes in net position. As the above information in Table 2 indicates, net n loss before capital contribution of $6.20 million, offset by capital contributions of $5.57 million resulted in an overall decrease of $0.63 million in net position for the fiscal year ended June 30, In fiscal year ended June 30, 2015, net loss before capital contributions of $8.02 million, offset by capital contributions of $5.75 million resulted in an overall decrease of $2.28 million in net position. 9

108 Marin Municipal Water District Management s Discussion and Analysis For the Years Ended June 30, 2016 and 2015 For fiscal year ended June 30, 2016, Table 2 indicates thatt the District s total operating revenues increased by $0.86 million or 1.45% to $ million from $ million in the prior year. This was due to the combinationn of rate restructure and rate increase approved by the board on December 8, The new rate structure includes a new fixed charge, watershedd management fee. However, the watershed management fee revenue was partially offset by a furtherr reduction in water demand by $0.92 million, as compared to the prior fiscal year ended June 30, 2015, due to increased customer conservation during ongoing drought. Total operating expense increased by $0.11 million or 0.17%, due to an increase in depreciation and amortization expense of $0.26 million combined with an increase of $0.75 million in other operating expenses which was a combination n of increases in personnel cost and insurance and claim costs. Electrical power expense increased by $0.09 million compared to the fiscal year ended June 30, However, the increases were almost offset by a decrease of $0.99 million in water purchase expense relative to the previous fiscal year because the District s reservoir level was normal due to unusual rainfall specific to the area, and thus, reducedd the water purchase from Sonoma County Water Agency. Non operating revenues increased by $0.19 million or 8.46% compared over the prior year mainly due to an increase in gain on sale of the District s assets by $0.82 million, offset by reduced grant and rent revenue by $0.63 million. Interest expense decreased by $0.89 million from $4.47 million to $3.58 million largely due to interest expense allocated to capital projects. Capital contributions, which include connection fees, the $75 per parcel Fire Flow Fee and decreased by $0.17 million primarily due to the decreased capital activities. capital grants Table 3 CAPITAL ASSETS, NET OF ACCUMULATED DEPRECIATION Plant, buildings and equipment, net Land Construction in progress North Marin Water Right, net (AEEP) Sonoma County Water Rights, net Total $ $ 2016 vs vs June 30, June 30, Increase/ % June 30, Increase/ % , 311,866 $ ,286,240 $ (Decrease) 25,626 Change 0.01% $ ,056,350 $ (Decrease) 24,,229,890 Change 7.76% 11, 465,962 11,129, , % 11,128, % 27, 133,846 16,393,445 10,740, % 25,942,572 (9,549,127) 36.81% 3, 718,481 3,873,417 (154,936) 4.00% 4,028,354 (154,937) 3.85% 4, 906,070 5,035,178 (129,108) 2.56% 5,164,278 (129,100) 2.50% 383, 536,225 $ 372,717,620 $ 10,818, % $ 358,319,959 $ 14,,397, % As of June 30, 2016, the District ss net investment in capital assets totaled $ million, which is an increase of $1.86 million or 0.70% over the prior fiscal year. The investment in capital assets includes: land, buildings, improvements, water treatments plants, filter plants, waterr transmission and distribution mains, water storage facilities, reservoirs, pump stations, water reclamation facilities, machinery, equipment and 10

109 Marin Municipal Water District Management s Discussion and Analysis For the Years Ended June 30, 2016 and 2015 water rights as shown above in Table 3. Additional information on the District s capital assetss is provided in Note 4 starting on page 34 of the financial statements. Table 4 LONG TERM DEBT 2004 Certificates of Participation 2010 Water Revenue Bonds 2012 Water Revenue Bonds Clean Renewablee Energy Bonds (CREBs) Aqueduct Energy Efficiency Project (AEEP) Unamortized costs, net $ 2016 vs vs June 30, June 30, Increase/ % June 30, Increase/ % ,000 31,850,000 84,350, ,915,000 31,850,000 84,680,000 (Decrease) (1, 070,000) ( 330,000) Change 55.87% 0.00% 0.39% ,935,000 31,850,000 85,000,000 (Decrease) (1,020,000) (320,000) Change 34.75% 0.00% 0.00% 978,000 1,100,250 ( 122,250) 11.11% 1,222,500 (122,250) 10.00% 2,865,000 3,355,000 ( 490,000) 14.61% 3,600,000 (245,000) 8,968,253 9,289,903 ( 321,650) 3.46% 9,611,556 (321,653) 3.35% 129,856,253 $ 132,190,153 $ (2, 333,900) 1.77% $ 134,219,056 $ (2,028,903) 1.51% As of June 30, 2016 the District had total long term debt outstanding of $ million, net of unamortized costs, decrease of $2.33 million over the prior year due to a reduction in principal of debt service as shown in Table 4 above. Additional information on the District s long term debt is provided in Note 5 starting on page 35 of the financial statements. The District is required by bond covenants to maintain principal, interest and reserve funds for each bond issue outstanding. In addition, the District is required to set rates and charges to yield revenues equal to at least 125% of the current annual debt service requirements of the outstanding revenue bonds and certificates of participation. The coverage of annual debtt service forr the year ended June 30, 2016 was w 125% after the transfer of $0.20 million from the Rate Stabilization Fund. At the board meeting of December 8, 2015, the Board of Directors adopted new rate structure modifications which include increasing the fixed service charge, adding a fixed Watershed Management Fee, adjustments to the tier rates of the Commodity Charge for all customer classes and changes in the tier allotments for multi family and duplex increase, and a new rate structure on December 8, The new tiered rate went into effect on January 1, 2016, stabilizingg the decreased water revenue as a result of the state mandated water use restriction and added a new fixed fee for Watershed Management. Request for Information This financial report is designed to provide interested parties with a general overview of the District s financial operations and condition. Should the reader have any questions regarding the information included in this report or wish to request additional information, please submit a request in writing to: t 11

110 Marin Municipal Water District Management s Discussion and Analysis For the Years Ended June 30, 2016 and 2015 the Administrative Services Division Manager, Marin Municipal Water District, 220 Nellen Avenue, Corte Madera, CA 94925, or telephone (415)

111 BASIC FINANCIAL STATEMENTS 13

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113 Marin Municipal Water District Statement of Net Position Enterprise Fund June 30, 2016 and ASSETS Current assets: Cash and investments (Note 2) $ 16,947,252 $ 19,959,569 Receivables: Customer - billed (net of allowances for doubtful account of $208,564 and $308,866 in 2016 and 2015, respectively.) 4,824,092 4,286,334 Customer - unbilled 6,090,684 3,736,770 Interest and other (net of allowances for doubtful account of $377,649 and $384,900 in 2016 and 2015, respectively.) 2,279,938 1,091,212 Materials and supplies 2,030,411 1,802,568 Prepaid expenses 4, ,601 Total current assets 32,176,639 31,000,054 Noncurrent assets: Restricted cash and investments (Note 3) 19,745,997 33,093,240 Designated cash and investments (Note 3) 20,755,523 21,857,584 Deposits and advances (Note 3) 3,445,599 3,670,314 Total restricted cash and investments 43,947,119 58,621,138 Capital assets: (Note 4) Land and land rights 11,465,962 11,129,340 Depreciable assets 559,134, ,596,326 Construction-in-progress 27,133,846 16,393,445 Total capital assets 597,733, ,119,111 Less accumulated depreciation 214,197, ,401,491 Total Capital Assets, Net of Accumulated Depreciation 383,536, ,717,620 Net OPEB Asset 370,217 - Total noncurrent assets 427,853, ,338,758 Total assets 460,030, ,338,812 DEFERRED OUTFLOWS OF RESOURCES Deferred loss on refunding 1,688,528 1,867,150 Deferred outflow of resources-actuarial 1,418,821 - Deferred employer pension contributions 5,725,637 5,315,722 Total deferred outflows of resources 8,832,986 7,182,872 See accompanying Notes to Basic Financial Statements. 15

114 Marin Municipal Water District Statement of Net Position Enterprise Fund, Continued June 30, 2016 and LIABILITIES Current liabilities: Accounts payable $ 6,221,441 $ 5,893,561 Accrued payroll and payroll expenses 936, ,954 Compensated absences 3,040,541 3,292,028 Customer and other deposits 406, ,431 Long-term debt - due within one year 1,677,250 1,767,250 Accrued interest payable 2,685,282 2,716,670 Agency deposits payables 235, ,127 Customer advances for construction 2,598,549 2,441,848 Claims payable 885, ,485 Total current liabilities 18,687,377 18,335,354 Noncurrent Liabilities: (Note 5) Claims payable- due in more than one year 2,951,366 2,682,054 Compensated absences- due in more than one year 2,336,475 2,099,871 Long-term debt - due in more than one year 128,179, ,422,903 Net pension liability 69,753,895 62,139,077 Total noncurrent liabilities 203,220, ,343,905 Total liabilities 221,908, ,679,259 DEFERRED INFLOWS OF RESOURCES Pension related amounts (Note 6) 3,896,468 10,156,785 Total deferred inflows of resources 3,896,468 10,156,785 NET POSITION Net investment in capital assets 265,735, ,879,193 Restricted for fire flow parcel fee program 656,839 1,939,529 Unrestricted (23,333,804) (22,133,082) Total net position $ 243,058,604 $ 243,685,640 See accompanying Notes to Basic Financial Statements. 16

115 Marin Municipal Water District Statements of Revenues, Expenses and Changes in Net Position Enterprise Fund For the Years Ended June 30, 2016 and OPERATING REVENUES Water sales and service charges $ 56,202,387 $ 57,117,530 Connection charges 1,603, ,356 Watershed Management Fee 1,244,800 - Other operating revenue 1,050,151 1,154,210 Total operating revenues 60,100,547 59,241,096 OPERATING EXPENSES Water Purchases 5,732,110 6,720,104 Watershed Maintenance 4,993,983 5,206,134 Water treatment 6,841,197 7,070,203 Pumping 2,828,355 2,742,815 Transmission and distribution 12,339,800 12,568,990 Customer service and meter operation 2,719,372 2,796,058 Water Conservation 2,069,277 2,238,765 Administrative and general 16,569,328 14,894,201 Depreciation and amortization (Note 4) 11,032,196 10,776,549 Total operating expenses 65,125,618 65,013,819 Operating income (loss) (5,025,071) (5,772,723) NONOPERATING REVENUES (EXPENSES) Federal, state and other grants 245, ,443 Investment income 4,558 4,630 Interest income 229, ,393 Other income (Note 9) 1,922,674 1,172,975 Interest & other expense (3,578,557) (4,465,063) Total nonoperating revenues (expenses), net (1,176,674) (2,250,622) Total income (loss) before capital contributions (6,201,745) (8,023,345) Fire flow parcel fee (Note 9) 4,511,652 4,511,604 Contributions in aid of construction (Note 9) 1,063,057 1,236,579 Total capital contributions 5,574,709 5,748,183 Net income (627,036) (2,275,162) NET POSITION: Beginning of year, as restated 243,685, ,960,802 End of year $ 243,058,604 $ 243,685,640 See accompanying Notes to Basic Financial Statements. 17

116 Marin Municipal Water District Statements of Cash Flows Enterprise Fund For the Years Ended June 30, 2016 and 205 CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 56,129,740 $ 59,615,388 Other operating revenue (199,045) 917,793 Cash payments to employees (35,684,885) (34,706,642) Cash payments to suppliers for goods and services (18,538,645) (19,028,571) Net cash provided by operating activities 1,707,165 6,797,968 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Rent and watershed permits and other income 1,546,386 1,619,503 Increase (decrease) in deposits - North Bay Watershed Association 28,761 5,183 Federal, state and other grant revenues 325, ,896 Net cash provided by noncapital financing activities 1,900,636 2,486,582 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Principal payments on long-term debt (2,012,250) (1,707,250) Interest paid on long-term debt (5,355,055) (5,272,109) Acquisition and construction of capital assets (20,561,021) (24,858,545) Proceeds from sale of capital assets 688,590 15,221 Decrease in customer advances for construction 156,701 (973,490) Proceeds from fire flow parcel fee 4,511,652 4,511,604 Cash Contributions in aid of construction 1,063,057 1,236,579 Net cash provided (used) by capital and related financing activities (21,508,326) (27,047,990) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of investment securities 4,055, ,864 Purchase of investment securities - (2,014,371) Interest received on investments 243, ,579 Net cash provided by investing activities 4,299,079 (1,674,928) Net change in cash and cash equivalents (13,601,446) (19,438,368) CASH AND CASH EQUIVALENTS: Beginning of year 71,394,977 90,833,345 End of year $ 57,793,531 $ 71,394,977 See accompanying Notes to Basic Financial Statements. 18

117 Marin Municipal Water District Statements of Cash Flows Enterprise Fund, Continued For the Years Ended June 30, 2016 and 2015 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES Operating income (loss) $ (5,025,071) $ (5,772,723) Adjustments to reconcile operating income (loss) to net cash provided by Operating activities: Depreciation and amortization 11,032,195 10,776,549 (Increase) decrease in assets : Receivables, net (4,140,868) 1,224,098 Materials and supplies (227,843) (517,778) Prepaid expenses 119,339 (5,593) Increase (decrease) in liabilities: Accounts payable 327,880 1,675,278 Accrued payroll and payroll expenses 165, ,901 Claims payable 329,116 (189,173) Customer deposits (28,984) 67,987 Net Pension Liabilities 7,614,818 (10,230,386) OPEB Asset (370,217) - Deferred inflows of resources - pension (6,260,317) 10,156,785 Deferred outflow of resources-actuarial (1,418,821) - Deferred employer pension contributions (409,915) (681,977) Net cash provided by operating activities 1,707,165 6,797,968 RECONCILIATION OF CASH AND CASH EQUIVALENTS Unrestricted 16,947,252 19,959,569 Restricted 19,745,997 33,093,240 Designated 20,755,523 21,857,584 Deposits and advances 3,445,599 3,670,314 Total cash and investments 60,894,371 78,580,707 Less investments with original maturities in excess of three months (3,100,840) (7,185,730) Cash and cash equivalents $ 57,793,531 $ 71,394,977 NON-CASH INVESTING, CAPITAL AND FINANCING ACTIVITIES Change in fair value of investments (29,750) (35,948) Capitalized interest 1,602, ,347 See accompanying Notes to Basic Financial Statements. 19

118 Marin Municipal Water District Statement of Fiduciary Net Position Agency Fund June 30, 2016 and 2015 Wolfback Ridge Assessment District ASSETS Cash and investments $ 153,535 $ 255,761 Total assets $ 153,535 $ 255,761 LIABILITIES Deposits and Advances $ 153,535 $ 255,761 Total liabilities $ 153,535 $ 255,761 See accompanying Notes to Basic Financial Statements. 20

119 NOTES TO FINANCIAL STATEMENTS 21

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121 Marin Municipal Water District Notes to Basic Financial Statements For the years ended June 30, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Marin Municipal Water District (the District ) was formed on April 25, 1912 as a public district under the provisions of the Municipal Water District Act of 1911 for the purpose of developing a domestic water supply for the central and southwestern areas of Marin County. The District is governed by a five-member Board of Directors who are elected for four-year alternating terms. A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: A. Reporting Entity Generally accepted accounting principles of the United States of America require that these financial statements present the District (the primary government) and its component units. Component units generally are legally separate entities for which a primary government is financially accountable. Financial accountability ordinarily involves meeting both of the following criteria: the primary government is accountable for the potential component unit and is able to impose its will upon the potential component unit, or there is a possibility that the potential component unit may provide specific financial benefits or impose specific financial burdens on the primary government. The MMWD Financing Corporation ("Financing Corporation") is a blended component unit that is a separate government entity that was created in It is reported as if it is part of the primary government as the District Board of Directors, although acting in a different capacity, is the controlling authority. Accounting and administrative functions are performed by the District. The purpose of the Financing Corporation is to issue debt, acquire certain property pursuant to an installment agreement with the District and defease certain outstanding debt. In May 2004 the Financing Corporation issued the 2004 Certificates of Participation. The Financing Corporation does not issue separate financial statements. See Note 5 for additional information. In April 2010, the District formed the Marin Municipal Financing Authority (Financing Authority), a joint powers authority, with the California Municipal Financing Authority. The Authority is also reported as if it is part of the primary government as the District s Board of Directors, although acting in a different capacity, is the controlling authority. Accounting and administrative functions are performed by the District. The purpose of the Financing Authority is to issue debt to acquire certain property pursuant to an installment agreement with the District. The Financing Authority issued in May 2010 the 2010 Series A, Water Revenue Bonds and in May 2012, the 2012 Series A, Water Revenue Bonds. The Financing Authority does not issue separate financial statements. See Note 5 for additional information. A fiduciary fund is used to account for resources held for the benefit of others outside the District. The District's fiduciary fund consists of the Wolfback Ridge Assessment District Agency Fund, for which the District is acting as an agent for the property owners and bondholders. Assets held by the District as an agent for the fiduciary fund are excluded from the District's balance sheet. 23

122 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued B. Basis of Accounting and Measurement Focus The District accounts for its activities as a proprietary fund. The financial statements are accounted for on a flow of economic resources measurement focus, using the accrual basis of accounting. Under this method all assets, deferred outflows and inflows of resources, and liabilities associated with operations are included on the balance sheet, revenues are recorded as earned and expenses are recorded at the time liabilities are incurred. Grants and similar items are recognized as revenue as soon as all eligibility requirements are met. The accounting for fiduciary funds is much like that used for proprietary funds. The District applies all applicable GASB pronouncements, including all NCGA Statements and Interpretations currently in effect. The intent of the District is to establish water usage rates sufficient to provide for payment of general operations and maintenance expenses as well as required debt service. When both restricted and unrestricted resources are available for use, restricted resources are generally assumed to have been used first. The District distinguishes operating revenues and expenses from non-operating items. Operating revenues include revenues derived from water sales and water related activities; operating expenses include all expenses applicable to the furnishing of these services. Nonoperating revenue and expenses include revenue and expenses not associated with the District's normal business of supplying water. Non-operating revenues and expenses include interest income and expense, gain and loss on disposition of property and equipment, grants, and other peripheral activities. Although capital contributions, as well as special and extraordinary items when there are any, are shown separately, technically they are subcategories of non-operating revenues and expenses. C. Cash, Cash Equivalents and Investments Investments are stated at fair value based on quoted market prices. For purposes of the statement of cash flows, the District considers all highly liquid investments (including restricted and designated assets) with original maturities of three months or less to be cash equivalents. D. Materials and Supplies Materials and supplies are stated at average cost. E. Capital Assets The cost of purchased and self-constructed additions to utility plant and major replacements of property are capitalized with a capitalization threshold of $2,000. Cost includes materials, direct labor, transportation, and such indirect items as engineering, supervision, employee fringe benefits, and interest incurred during the construction period. Repairs, maintenance, and minor replacements of 24

123 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued E. Capital Assets, Continued property are charged to expense. Contributed assets are capitalized at the developer's cost, which approximates fair value. Depreciation is computed on the straight-line basis over the estimated useful lives of the various classes of assets as follows: Buildings Dams and reservoirs Pumping plant Water treatment plant Transmission and distribution Vehicles Equipment years 100 years years 30 years years 12 years 5-40 years F. Bond Issuance Costs/Advance Refunding of Long-Term Debt Bond premiums and discounts, are deferred and amortized over the life of the bonds using the straight line method which does not significantly differ from the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed as incurred. Accounting gains or losses resulting from advance refunding of long-term debt are deferred in accordance with GASB Statement No. 65, Items preiviously Reported as Assets and Liabilities, and are reported as deferred inflows of resources or deferred outflows of resources on the financial statements. Deferred amounts on bond refunding are amortized over the remaining life of the old debt (had it not been refunded) or the life of the new debt, whichever is shorter. G. Compensated Absences Unused vacation may be accumulated and paid to a District employee at the time of termination from District employment in accordance with the current collective bargaining agreement. At the time of retirement, an employee will be paid out, in a lump sum, seventy-five percent of their accumulated sick leave balance, not to exceed 750 hours, based upon their current salary. Compensated absences are expensed in the fiscal year incurred. 25

124 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued H. Customer Advances for Construction, Contributions in Aid of Construction and Connection Fees Customer advances for construction include deposits which are restricted to fund new subdivisions, transmission lines, tank and storage facilities, and other specific assets, along with connection fees. Connection fees are assessed on new connections to recover the past and future capital costs of the District's water system. Upon completion of construction of specific assets, the District will record an amount equal to the actual construction costs of providing service as connection charge revenue and will record the portion relating to the recovery of past and future capital costs, other fees, and advances as contributions in aid of construction. Advances in excess of construction costs are refundable. I. Net Position In the statements of net position, net position are classified in the following categories: Net Investment in Capital Assets This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that is attributed to the acquisition, construction, or improvement of the capital assets. Restricted Net Position This amount is restricted by external creditors, grantors, contributors, laws or regulations of other governments. Unrestricted Net Position This amount is all net position that do not meet the definition of net investment in capital assets or restricted net position. J. Water Sales Revenue Generally, customers are billed as the water meters are read on a bimonthly cyclical basis. Revenues related to water delivered through the fiscal year-end, but unbilled, are accrued. K. Use of Estimates The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management, at the date of the financial statements, to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets, deferred inflows and outflows of resources, and liabilities as well as the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. 26

125 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued L. Pension For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District s California Public Employees Retirement System (CalPERS) plan (Plan) and additions to/deductions from the Plan s fiduciary net position has been determined on the same basis as it is reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. M. 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 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 government reports a deferred loss on refunding debt, deferred employer pension contributions and other deferrals related to the District s pension in this category in the statement of net position. A deferred loss on refunding results from the difference in the 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. Employer pension contributions made during period between the measurement date and the report date are deferred and reflected as a reduction in the net pension liability in the subsequent fiscal year. Certain changes in the District s net pension liability are required to be deferred and reflected in pension expense over a closed amortization period. In addition to liabilities, the statement of net position or balance sheet 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. The District reported certain deferrals related to the District s pension in this category. Certain changes in the District s net pension liability are required to be deferred and reflected in pension expense over a closed amortization period. N. New Pronouncements In 2016, the District adopted new accounting standards in order to conform to the following Governmental Accounting Standards Board Statements: GASB Statement No. 72, Fair Value Measurement and Application This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. There was no impact on beginning net position as part of implementation of this accounting standard. 27

126 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued N. New Pronouncements, Continued GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68- The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decisionuseful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. There was no impact on beginning net position as part of implementation of this accounting standard. GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify in the context of the current governmental financial reporting environment the hierarchy of generally accepted accounting principles (GAAP). The GAAP hierarchy consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. There was no impact on beginning net position as part of implementation of this accounting standard. GASB Statement No. 79, Certain External Investment Pools and Pool Participants - This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. Significant noncompliance prevents the external investment pool from measuring all of its investments at amortized cost for financial reporting purposes. Professional judgment is required to determine if instances of noncompliance with the criteria established by this Statement during the reporting period, individually or in the aggregate, were significant. There was no impact on beginning net position from implementation of this accounting standard. 28

127 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued N. New Pronouncements, Continued GASBS 82 Pension Issues an amendment of GASB Statements No. 67, No. 68, and No The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. 2. CASH AND INVESTMENTS The District pools its cash and investments for investment purposes. Certain cash and investments are segregated for specific purposes. Under the provisions of the District s investment policy, and in accordance with California Government Code, the following investments are authorized: Maximum Maximum Minimum Credit Percentage of Authorized Investment Type Maturity Quality Portfolio U.S. treasury Bonds/Notes/Bills 365 days N/A No limit U.S. Government Agency Obligation 5 years N/A No limit Time Certificates of Deposits 180 days AAA 20% Money Market Mutual Fund N/A AAA 10% California Local Agency Investment N/A N/A No limit Negotiable Certificate of Deposit 180 days AA 20% Medium Term Corporate Notes 5 years A 30% Commercial Paper 270 days AAA 15% Bank's Acceptances 180 days AAA 40% Repurchase Agreements 90 days AAA 10% Investments are stated at fair value. Included in investment income (loss) on the accompanying statement of activities and changes in net position is the net change in the fair value of investments, which consists of realized gains or losses and the unrealized appreciation (depreciation) of those investments. Measurement of the fair value of investments is based upon quoted market prices, if available. The estimated fair value of investments that have no quoted market price is determined based on equivalent yields for such securities or on securities of comparable maturity, quality, and type as obtained from market makers. 29

128 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and CASH AND INVESTMENTS, Continued Investments made by the District are summarized below at June 30, 2016 and 2015: 2015 Business-Type Fiduciary Business-Type Fiduciary Activities Activities Total Activities Activities Total Cash in banks $ 2,170,851 $ - $ 2,170,851 $ 3,179,250 $ - $ 3,179,250 U.S. Government Obligations 3,023,340-3,023,340 7,076,980-7,076,980 Corporate notes 77,500-77, , ,750 Money Market 4,589, ,535 4,743, , , ,839 Cash & Cash Equivalent- Bond Funds: Certificate of Participation 866, ,125 1,119,213-1,119, Water Revenue Bond 1,774,876-1,774,876 1,064,886-1,064, Water Revenue Bond 13,218,511-13,218,511 24,669,265-24,669,265 Local Agency Investment Fund 35,173,498-35,173,498 41,028,285-41,028,285 Total $ 60,894,371 $ 153,535 $ 61,047,906 $ 78,580,707 $ 255,761 $ 78,836,468 Cash and investments, unrestricted $ 16,947,252 $ - $ 16,947,252 $ 19,959,569 $ - $ 1 9, 9 5 9, Cash and investments, restricted 19,745,997-19,745,997 33,093,240-33,093,240 Cash and investments, designated 20,755,523-20,755,523 21,857,584-21,857,584 Cash and investments, deposits and advances 3,445,599-3,445,599 3,670,314-3,670,314 Cash and investments - Agency Fund - 153, , , ,761 Total $ 60,894,371 $ 153,535 $ 61,047,906 $ 78,580,707 $ 255,761 $ 78,836,468 Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a depositor 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 counter-party (e.g., broker-dealer) to a transaction, a depositor will not be able to recover the value of its investment or collateral securities that are in the possession of another party. 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, other than the following provisions for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governments units by pledging securities in an undivided collateral pool held by a depository regulated under state law. 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. The carrying amount of the District's deposits as of June 30, 2016 and 2015 was $2,170,851 and $3,179,250 respectively. The bank balance of deposits as of June 30, 2016 and 2015 was $3,267,140 and $3,803,767, of which $500,000 was covered by federal depository insurance. The difference between the carrying amount and the bank balance is primarily due to checks outstanding at June 30, 2016 and The remaining was uninsured and not collateralized in the District's name. However, as noted above, the financial institutions which hold these deposits are required by state statute to maintain collateral pools against all public deposits they hold. As a means to limiting its exposure to fair value losses arising from interest rates, the District's investment policy limits the District's investment portfolio to maturities of five years or less. 30

129 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and CASH AND INVESTMENTS, Continued Under the District's investment guidelines and state statute, the District is authorized to invest in certificates of deposit, U.S. government securities, the State Local Agency Investment Fund, and other investment pools, money market funds and commercial paper with a bond rating of "A" or better. As of June 30, 2016 and 2015, one of the District s investments on Medium Term Corporate Notes were in default even though the investment at time of purchase was rated in accordance with the investment policy. The investment in default has been recorded at fair market value of $77,500 and $108,750 respectively, while the cost basis of the investment were $589,731 and $630,812 respectively. 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 to changes in market interest rates. As a means of limiting exposure to fair value losses arising from rising interest rates, the District s investment policy provides that final maturities of securities cannot exceed five years. Specific maturities of investments depend on liquidity needs. At June 30, 2016 and 2015, the District s pooled cash and investments had the following maturities: Percentage of Investment Maturity Less than one year 98% 96% One to two years 2% 3% Two to five years 0% 1% The District's investments at June 30, 2016 and 2015 are summarized as follows: Remaining Maturity (in Months) at June 30, 2016 Remaining Maturity (in Months) at June 30, Months 13 to Months 13 to to 60 Investment Type Fair Value Or Less Months Fair Value Or Less Months Months U. S. Government Agency Obligation $ 3,023,340 $ 2,008,140 $ 1,015,200 $ 7,076,980 $ 4,055,140 $ 2,010,980 $ 1,010,860 Corporate Notes 77,500 77, , , State investment pool (LAIF) 35,173,498 35,173,498-41,028,285 41,028, Money market 4,743,205 4,743, , , Held by bond trustee: Money market 15,859,512 15,859,512-26,853,364 26,853, Total $ 58,877,055 $ 57,861,855 $ 1,015,200 $ 75,657,218 $ 72,635,378 $ 2,010,980 $ 1,010,860 31

130 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and CASH AND INVESTMENTS, Continued Credit Risk This is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. It is measured by the assignment of a rating by a nationally recognized credit rating organization. Presented below are the actual ratings, at June 30, 2016 and 2015, for each investment type: Rating at June 30, 2016 Rating at June 30, 2015 Investment Type Fair Value AA+ In Default Not Rated Fair Value AA+ In Default Not Rated U. S. Government Agency Obligation $ 3,023,340 $ 2,008,140-1,015,200 $ 7,076,980 4,033,660-3,043,320 Corporate Notes 77,500-77, , ,750 - State investment pool (LAIF) 35,173, ,173,498 41,028, ,028,285 Money market 4,743, ,743, , ,839 Held by bond trustee: Money market 15,859, ,859,512 26,853, ,853,364 Total $ 58,877,055 $ 2,008,140 $ 77,500 $ 56,791,415 $ 75,657,218 $ 4,033,660 $ 108,750 $ 71,514,808 The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429, under the oversight of the Treasurer of the State of California. The balance is available for withdrawal on demand. The District s investments with LAIF at June 30, 2016 include a portion of the pool funds invested in Structured Notes and Asset-Backed Securities. These investments include the following: Structured Notes are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. Asset-Backed Securities, the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as Collateralized Mortgage Obligations) or credit card receivables. As of June and 2015, the District had $35,173,498 and $41,028,285 invested in LAIF respectively, which had respectively invested 2.81% and 2.08% of the pool investment funds in Structured Notes and Asset-Backed Securities. The District reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value of the pool share. The fair value of LAIF were calculated by applying a factor of and to total investments held by LAIF respectively. Investment Valuation Investments (except for money market accounts, time deposits, and commercial paper) are measured at fair value on a recurring basis. Recurring fair value measurements, are those that Governmental Accounting Standards Board (GASB) Statements require or permit in the statement of net position at the end of each reporting period. Fair value measurements are categorized based on the valuation inputs used to measure an asset s fair value: 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. 32

131 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and CASH AND INVESTMENTS, Continued Investment fair value measurements at June 30, 2016 are described below. Investment Type Fair Value Level 1 Level 2 Level 3 U. S. Government Agency Obligation $ 3,023,340 $ 1,015,200 $ 2,008,140 $ - Corporate Notes 77,500 77,500 State investment pool (LAIF) 35,173,498-35,173,498 Money market 4,743,205 4,743,205 Total $ 43,017,543 $ 1,015,200 $ 42,002,343 $ - Investment not subject to fair value measurement Held by bond trustee: Money market 15,859,512 Total Investments 58,877,055 Fair Value Measurement Using 3. RESTRICTED AND DESIGNATED CASH AND INVESTMENTS The District, because of certain bond covenants and legal requirements, is required to establish and maintain prescribed amounts of resources (consisting of cash and investments) that can be used only for their specified purposes. A portion of the District's cash and investments have been internally designated for the acquisition or the construction of specific capital projects, future self insurance claims, and for rate stabililzation. These designations may be removed at the discretion of the Board. Restricted and designated cash and investments are as follows as of June 30: Restricted cash and investments: 2004 Certificates of Participation, 2010 Revenue Bonds and 2012 Revenue Bonds: June 30, Principal and interest fund $ 7,210,582 $ 8,186,445 Reserve fund 1,275,620 1,275,563 Project fund 10,367,067 21,484,576 Agency deposits 235, ,127 Fire Flow Parcel Fee Program 656,839 1,939,529 Deposits and advances 3,445,599 3,670,314 Total restricted cash and investments 23,191,596 36,763,554 Designated cash and investments: Capital projects 8,607,523 8,559,584 Rate stabilization 5,700,000 5,900,000 Liability claims 6,448,000 7,398,000 Total designated cash and investments 20,755,523 21,857,584 Total restricted & designated cash and investments $ 43,947,119 $ 58,621,138 33

132 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and CAPITAL ASSETS Capital assets consists of the following at June 30: Balance 2015 Balance 2016 Balance June 30, 2014 Additions Reductions CIP Transfer June 30, 2015 Additions Reductions CIP Transfer June 30, 2016 Capital assets not being depreciated, excluding construction in progress: Land and land rights $ 11,128,405 $ - $ - $ 935 $ 11,129,340 $ - $ - $ 336,622 $ 11,465,962 Capital assets being depreciated: Water Rights 13,273, ,273, ,273,601 Buildings 21,999, ,184,432 23,184, ,965 23,435,207 Dams and reservoirs 98,099,616 - (343,143) 11,142, ,899, ,367, ,266,491 Pumping plants 32,430, ,435 32,938, ,816 33,424,128 Water treatment plants 42,937,155 - (18,915) 3,572,077 46,490,317 - (4,046) 430,697 46,916,968 Transmission and distribution 279,241,492 - (639,487) 17,538, ,140,918 - (982,090) 7,226, ,385,765 Vehicles 7,123, ,061 (199,349) - 7,515, ,383 (432,027) - 7,755,984 Equipment 21,217, ,089 (710,769) ,154, ,857 (130,238) - 21,675,862 Total assets being depreciated 516,323,840 1,238,150 (1,911,663) 33,945, ,596,326 1,324,240 (1,548,401) 9,761, ,134,006 Total capital assets, excluding construction in progress 527,452,245 1,238,150 (1,911,663) 33,946, ,725,666 1,324,240 (1,548,401) 10,098, ,599,968 Construction in progress 25,942,572 24,397,807 - (33,946,934) 16,393,445 20,838,864 - (10,098,463) 27,133,846 - Total capital assets 553,394,817 25,635,957 (1,911,663) - 577,119,111 22,163,104 (1,548,401) - 597,733,814 Less accumulated depreciation for: Water Rights 4,080, , ,365, , ,649,051 Buildings 10,527, , ,266, , ,044,032 Dams and reservoirs 31,049,192 1,746,291 (152,555) - 32,642,928 1,850,378-34,493,306 Pumping plants 16,473,116 1,188, ,661,978 1,166, ,828,462 Water treatment plants 26,015,052 1,268,698 (16,104) - 27,267,646 1,246,038 (4,046) - 28,509,638 Transmission and distribution 83,425,427 4,278,850 (371,300) - 87,332,977 4,466,507 (680,898) - 91,118,586 Vehicles 5,520, ,544 (199,349) - 5,755, ,149 (431,190) - 5,770,229 Equipment 17,983, ,605 (710,606) - 18,108, ,455 (119,965) - 18,784,285 Total accumulated depreciation 195,074,857 10,776,548 (1,449,914) - 204,401,491 11,032,197 (1,236,099) - 214,197,589 Total capital assets, net $ 358,319,959 $ 14,859,409 $ (461,749) $ - $ 372,717,620 $ 11,130,907 $ (312,302) $ - $ 383,536,225 Sonoma County Water Rights In January 1996, the District revised its agreement with the Sonoma County Water Agency (the "Agency") for the purchase of water during off-peak periods. The revised contract guarantees the District a source of water during drought years. For revisions to the agreement the District has paid $2,867,344, which has been capitalized, and is being amortized, over the life of the agreement of 18 years on a straight-line basis. In June 2005, MMWD exercised an option within the agreement to convert 5,000 acre-feet of water from an "as available" basis to a "firm" basis of water supply from Sonoma County Water Agency for a one-time payment of $6,326,257. This amount is being amortized on a straight-line basis over the remaining term of the agreement of nine years, plus an additional 40 years which is the renewal term at the option of the District, as management believes it is likely the agreement will be renewed. 34

133 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and CAPITAL ASSETS, Continued Aqueduct Energy Efficiency Project On February 5, 2015, the district entered into an agreement with the North Marin Water district to pay 51% of the final actual costs, currently estimated at $4,080,000, of the Aqueduct Energy Efficiency Project which will upsize the North Marin Aqueduct from Kastania Pump Station to Redwood Landfill road. This amount is being amortized on a straight-line basis over the remaining term of the agreement of 26 years and 4 months. 5. LONG-TERM DEBT Long-term debt consists of the following at June 30: Issue Due Interest Principal Amount Date Serially Rate Certificates of Participation 4/1/04 To % % $ 845,000 $ 1,915, Water Revenue Bonds 5/1/10 To % % 31,850,000 31,850, Water Revenue Bonds 6/20/12 To % % 84,350,000 84,680,000 Clean Renewable Energy Bonds 9/29/08 To 2023 Tax credit 978,000 1,100,250 Aqueduct Energy Efficiency Project 2/5/14 To 2032 N/A 2,865,000 3,355,000 Total 120,888, ,900,250 Original issue premium/discount, net 8,968,251 9,287,903 Less Long-term debt, due within one year 1,677,250 1,767,250 Long-term debt - Due in more than one year $ 128,179,001 $ 130,422,903 35

134 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and LONG-TERM DEBT, Continued On April 30, 2004, the District issued $40,165,000 of 2004 Certificates of Participation (COPs) for the purpose of refunding the $11,925,000 of outstanding 1994 Revenue Bonds, prepayment of the Federal Drought Loan and the State Reclamation Loan in the amounts of $2,592,146 and $2,528,101, respectively, financing capital improvements to the District's water system, funding a deposit to a reserve fund, and paying the costs of the financing. Interest payments are payable semi-annually on January 1 and July 1. The bonds mature through July 1, 2029, and bear interest at the rate of 5%. The bonds were partially refunded by the 2012 Series A Water Revenue Bonds. The COPs are limited obligations of the District payable from, and secured by, a pledge of the Net Revenues of Water systems. The refunding took advantage of lower interest rates which were available and resulted in reductions in debt service requirements over the life of the new debt. Proceeds of $11,869,114 from the COPs were transferred to a trustee and placed in an irrevocable trust to redeem the 1994 Revenue Bonds. These funds were invested in U.S. government securities to provide for the redemption price and interest through the call date. Accordingly, the 1994 Revenue Bonds were removed from the balance sheet as of June 30, Proceeds of approximately $25 million from the COPS were transferred to a trustee to fund capital improvements to the District's water system over the next three years. These funds were fully invested in a guaranteed investment contract. As of June 30, 2008 there were no funds remaining. The advanced refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $1,208,048 which has been deferred and amortized in accordance with GASB Statement No. 23. A portion of the unamortized deferred amount of refunding of $293,181 was written off and included in interest expense for the year ended June 30, 2012 as the bonds were partially refunded by the 2012 Series A Water Revenue Bonds. Total amortization related to the above bond refunding was $25,995 and $25,995 for fiscal 2016 and 2015, which was included in interest expense. On September 29, 2008, the District issued Clean Renewable Energy Bonds (CREBs) for the installation of solar panels on the District's administration building and at its corporate yard. The CREBs were authorized by the Internal Revenue Service and are structured so that bondholders receive a federal income tax credit in lieu of interest. The amount of the tax credit is set by the U.S. Treasury department on a daily basis. The total principal amount of the CREBs issued for both projects was $1,956,000. The net proceeds of the two issues were $1,845,030, less original issue discount of $56,630 and issuance costs of $54,340. The debt service is paid annually over 15 years in the amount of $122,250, principal only. The issues mature on September 30, The installment payments are payable from the net revenue of the District. On May 26, 2010, the joint power authority, Marin Municipal Water District Financing Authority issued the 2010 Series A Water Revenues Bonds in the amount of $32,235,000 to fund the acquisition and construction of additions, betterments, extensions and improvements to the District s municipal water system including, but not limited to: watershed improvement projects, water treatment and water quality projects, water distribution piping and related facility projects, water storage projects and computer and technology system projects. Interest payments are payable semi-annually on January 1 and July 1. The bonds mature through July 1, 2040, and bear interest at the rate of 5%. The Bonds are special limited obligations of the Financing Authority payable from and secured by a pledge of the Net Revenues of Water Systems. 36

135 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and LONG-TERM DEBT, Continued On June 20, 2012, the joint power authority, Marin Municipal Water District Financing Authority issued the 2012 Series A Water Revenues Bonds in the amount of $85,000,000 to refund the District s outstanding 2002 Water Revenue Bonds and a portion of the 2004 Certificant of Participation. Interest payments are payable semi-annually on January 1 and July 1. The bonds mature through July 1, 2052, and bear interest at the rate of 5%. The bonds are special limited obligations of the Financing Authority payable solely from and secured by a pledge of amounts held in certain funds and accounts under the indenture and the revenues derived from the 2012 installment payments made by the District under the 2012 installment sale agreement. The net proceeds of $38,126,123 from these refunding bonds were transferred to a trustee and placed in an irrevocable trust to redeem 2002 Water Revenue Bonds and a portion of the 2004 Certificant of Participation. These funds were invested in U.S. government securities to provide for the redemption price and interest through the call date. Accordingly, the 2002 Revenue Bonds and a portion of the 2004 Certificant of Participation were removed from the balance sheet as of June 30, The advanced refunding resulted in a difference of $2,303,279 between the reacquisition price and the net carrying amount of the old debt, that has been deferred and amortized in accordance with GASB Statement No. 23. On February 5, 2015, the district entered into an agreement with the North Marin Water district to pay 51% of the final actual costs, currently estimated at $4,080,000, of the Aqueduct Energy Efficiency Project which will upsize the North Marin Aqueduct from Kastania Pump Station to Redwood Landfill road. Marin Municipal Water District takes delivery of Agency water through a connection to an Aqueduct in Northern Novato. Part of the Aqueduct is being replaced under the Marin-Sonoma Narrows High Occupancy Vehicle Widening project, a joint project between Caltrans and the Federal Highway Administration. The relocation and replacement of the Aqueduct is called the Aqueduct Energy Efficiency Project, which includes relocation and replacement of 24,000-feet of Aqueduct with a larger diameter pipe. The final costs of the Aqueduct Energy Efficiency Project are to be determined once the Aqueduct Energy Efficiency Project is completed, which is expected to occur in Marin Municipal Water District shall make payments in the amount of $245,000 to the North Marin Water District, each July 1, from 2015 through 2032 as fair compensation for the AEEP capital cost. The District is subject to certain debt covenants, the most restrictive of which requires the setting of rates and charges to yield net revenue equal to at least 125 percent of the current annual debt service requirement of the revenue bonds and other parity debt, as well as the establishment of certain principal, interest and reserve funds. The 2004 COPS, 2010 Revenues Bonds and 2012 Revenues Bonds are collateralized by a pledge of the District's net revenues of Water Systems, as defined in the Master Indenture. The total principal and interest remaining on the bonds is $223,643,111, payable through June, For FYE 15/16 principal and interest paid, and total net revenues of Water Systems received, were $6,878,665 and $8,604,450 respectively. For FYE 14/15 principal and interest paid, and total net revenues of Water Systems received, were $6,755,140 and $8,613,637 respectively. 37

136 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and LONG-TERM DEBT, Continued Changes in long-term obligations and debt for the fiscal years ended June 30, 2016, and 2015 are as follows: Balance 2015 Balance 2016 Balance Due Within July 1, 2014 Additions Reductions June 30, 2015 Additions Reductions June 30, 2016 One Year Bonds payable: 2004 $ 2,935,000 $ - $ 1,020,000 $ 1,915,000 $ - $ 1,070,000 $ 845,000 $ 845, ,850, ,850, ,850, , ,000, ,000 84,680, ,000 84,350,000 - Clean Renewable Energy Bonds (CREBs) 1,222, ,250 1,100, , , ,250 Original bond premium/discount, net 9,611, ,653 9,289, ,652 8,968,251 Aqueduct Energy Efficiency Project (AEEP) 3,600, ,000 3,355, ,000 2,865,000 - Total $ 134,219,056 $ - $ 2,028,903 $ 132,190,153 $ - $ 2,333,902 $ 129,856,251 $ 1,677,250 The annual debt service requirements are as follows: Fiscal Year 2004 COP 2010 Revenue Bonds 2012 Revenue Bonds CREBS AEEP Ending June 30, Principal Interest Principal Interest Principal Interest Principal Principal 2017 $ 845,000 $ 21,125 $ 710,000 $ 1,512,137 $ - $ 3,755,077 $ 122,250 $ ,000 1,479,563 1,860,000 3,727, , , ,000 1,445,687 1,910,000 3,661, , , ,000 1,410,063 1,990,000 3,592, , , ,600,000 6,484,763 11,090,000 16,705, ,000 1,210, ,665,000 5,372,550 14,020,000 13,691, , ,220,000 3,773,250 2,530,000 11,770, ,210,000 1,728,750 3,205,000 11,076, ,130,000 53,250 13,715,000 9,235, ,925,000 5,184, ,105, , Total $ 845,000 $ 21,125 $ 31,850,000 $ 23,260,012 $ 84,350,000 $ 83,316,973 $ 978,000 $ 2,865,000 38

137 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and LONG-TERM DEBT, Continued Non-District Obligation: During October 1996, the District issued the following debt, for which the District is acting as an agent for the property owners and bondholders; accordingly, unpaid principal balances on June 30, 2016 and 2015 are not included in the District's financial statements. During the fiscal years ended June 30, 2016 and 2015, bonds in the amounts of $180,000 and $20,000 respectively were repaid: Issue Due Interest Authorized Outstanding Outstanding Date Serially Rates And Issued June 30, 2016 June 30, 2015 Limited obligation bonds: Wolfback Ridge Assessment District 10/3/96 9/2/ % % $ 996,920 $ 145,000 $ 325, EMPLOYEE RETIREMENT PLANS A. General Information about the Pension Plans Plan Descriptions All qualified permanent and probationary employees are eligible to participate in the District s Miscellaneous Plan, agent multiple-employer defined benefit pension plans administered by the California Public Employees Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and Local Government resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees Retirement Law. 39

138 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and EMPLOYEE RETIREMENT PLANS, Continued A. General Information about the Pension Plans, Continued The Plans provisions and benefits in effect at June 30, 2016 and 2015, are summarized as follows: FY FY Miscellaneous Miscellaneous Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life Earliest retirement age Benefit factor for each year of service as a % of annual salary 2.7% at age % at age 55 Required employee contribution rates 8.0% 7.50% Required employer contribution rates % % On January 1, 2013, the Public Employee Pension Reform Act (PEPRA) went into effect. This State law applies to employees hired after January 1, 2013 who are new to PERS. These employees are termed PEPRA members and employees that were enrolled in PERS (without significant separation) prior to January 1, 2013 are now referred to as classic members. PEPRA miscellaneous members will be enrolled in a 2% at 62 plan. PEPRA members will be required to pay half the normal cost of their plans. Employees Covered At June 30, 2016 and 2015, the following employees were covered by the benefit terms for each Plan: Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits FY FY Miscellaneous Miscellanous Active employees Total Contributions 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. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 th by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2015 and 2014(the measurement date), the average active employee contribution rate is percent and percent of 40

139 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and EMPLOYEE RETIREMENT PLANS, Continued A. General Information about the Pension Plans, Continued annual pay for the Miscellaneous Plan, and employer contribution rate is percent and percent of annual payroll for the Miscellaneous Plan. B. Net Pension Liability The District s net pension liability for the Plan is measured as the total pension liability, less the pension plan s fiduciary net position. The net pension liability of the Plans is measured as of June 30, 2015 and 2014, using an annual actuarial valuation as of June 30, 2014 and 2013 rolled forward to June 30, 2015 and 2014 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below. Actuarial Assumptions The total pension liabilities in the June 30, 2014 and 2013 actuarial valuations were determined using the following actuarial assumptions: FY FY Valuation Date June 30, 2014 June 30, 2013 Measurement Date June 30, 2015 June 30, 2014 Actuarial Cost Method Entry-Age Normal Cost Method Entry-Age Normal Cost Method Actuarial Assumptions: Discount Rate 7.65% 7.50% Inflation 2.75% 2.75% Salary Increases Varies by Entry Age and Service Varies by Entry Age and Service Investment Rate of Return (1) 7.65% 7.50% Mortality (2) Derived using CalPERS' Membership Data for all Funds 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 Protection Allowance Floor on Purchasing Power applies, 2.75% thereafter (1) Net of pension plan investment expenses. (2) 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. 41

140 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and EMPLOYEE RETIREMENT PLANS, Continued B. Net Pension Liability, Continued The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2014 and 2013 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to Further details of the Experience Study can be found on the CalPERS website. Discount Rate The discount rate used to measure the total pension liability was 7.65% and 7.5% for the Plan for the measurement period ended June 30, 2015 and 2014 respectively. The rate includes investment expenses and inflation. 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 and 7.5 percent discount rate are adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.65 percent and 7.5 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a buildingblock 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, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds asset classes, expected compound 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. The table following reflects the 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 rates of return are net of administrative expenses. 42

141 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and EMPLOYEE RETIREMENT PLANS, Continued B. Net Pension Liabilit, Continued FY FY New New Strategic Real Return Real Return Strategic Real Return Real Return Asset Class Allocation Years 1-10(a) Years 11+(b) Allocation Years 1-10(a) Years 11+(b) Global Equity 51.00% 5.25% 5.71% 47.00% 5.25% 5.71% Global Fixed Income Inflation Sensitive 19.00% 0.99% 2.43% 19.00% 0.99% 2.43% 6.00% 0.45% 3.36% 6.00% 0.45% 3.36% Private Equity 10.00% 6.83% 6.95% 12.00% 6.83% 6.95% Real Estate 10.00% 4.50% 5.13% 11.00% 4.50% 5.13% Infrastructure and Forestland 2.00% 4.50% 5.09% 3.00% 4.50% 5.09% Liquidity 2.00% -0.55% -1.05% 2.00% -0.55% -1.05% Total 100% 100% (a) An expected inflation of 2.5% used for this period. (b) An expected inflation of 3.0% used for this period. The changes in the Net Pension Liability for the Plan for the year ended June 30, 2016 follows: Miscellaneous Plan Total Pension Plan Fiduciary Net Pension Liability Net Position Liability/(Asset) Balance at June 30, 2015 (1) $ 210,015,518 $ 147,876,441 $ 62,139,077 Changes in the year: Increase (Decrease) Service cost 3,820,110-3,820,110 Interest on the total pension liability 15,696,251-15,696,251 Differences between actual and expected experience 2,035,700-2,035,700 Changes in assumptions (3,613,804) - (3,613,804) Changes in benefit terms Plan to Plan Resource Movement Contribution - employer - 5,315,722 (5,315,722) Contribution - employee - 1,835,178 (1,835,178) Net investment income - 3,338,982 (3,338,982) Administrative expenses - (166,443) 166,443 Benefit payments, including refunds of employee contributions (10,335,415) (10,335,415) - Net changes 7,602,842 (11,976) 7,614,818 Balance at June 30, 2016 $ 217,618,360 $ 147,864,465 $ 69,753,895 (1) The fiduciary net position includes receivables for employee service buyback, deficiency reserve, and fiduciary self-insurance. 43

142 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and EMPLOYEE RETIREMENT PLANS, Continued B. Net Pension Liability, Continued The changes in the Net Pension Liability for the Plan for the year ended June 30, 2015 follows: Miscellaneous Plan Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability/(Asset) Balance at June 30, 2014 (1) $ 201,686,269 $ 129,316,806 $ 72,369,463 Changes in the year: Service cost 3,643,451-3,643,451 Interest on the total pension liability 14,880,788-14,880,788 Differences between actual and expected experience Changes in assumptions Changes in benefit terms Contribution - employer - 4,633,745 (4,633,745) Contribution - employee - 1,909,494 (1,909,494) Net investment income - 22,211,386 (22,211,386) Administrative expenses Benefit payments, including refunds of employee contributions (10,194,990) (10,194,990) - Net changes 8,329,249 18,559,635 (10,230,386) Balance at June 30, 2015 $ 210,015,518 $ 147,876,441 $ 62,139,077 (1) The fiduciary net position includes receivables for employee service buyback, deficiency reserve, and fiduciary self-insurance. C. Changes in the Net Pension Liability Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the District for each Plan, calculated using the discount rate for each Plan, as well as what the District s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: 44

143 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and EMPLOYEE RETIREMENT PLANS, Continued C. Changes in the Net Pension Liability, Continued FY FY Miscellaneous Miscellaneous 1% Decrease 6.65% 6.50% Net Pension Liability $ 96,972,537 $87,637,727 Current Discount Rate 7.65% 7.50% Net Pension Liability $ 69,753,895 $62,139,077 1% Increase 8.65% 8.50% Net Pension Liability $ 47,010,300 $40,725,228 Pension Plan Fiduciary Net Position Detailed information about each pension plan s fiduciary net position is available in the separately issued CalPERS financial reports. D. Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2016 and 2015, the District recognized pension expense of $5,251,402 and $4,560,144. At June 30, 2016 and 2015, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources FY FY Deferred Inflows of Resources Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $ 5,725,637 $ - $ 5,315,722 $ - Differences between expected and actual experience 1,418, Changes in assumptions - (2,518,712) - - Net differences between projected and actual earnings on plan investments - (1,377,756) - (10,156,785) Total $ 7,144,458 $ (3,896,468) $ 5,315,722 $ (10,156,785) 45

144 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and EMPLOYEE RETIREMENT PLANS, Continued D. Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions, Continued $5,725,637 and $5,315,722 related to contributions subsequent to the measurement date have been recognized as a reduction of the net pension liability in the year ended June 30, 2016 and Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: FY FY Deferred Deferred Measurement Period Outflows/(Inflows) Outflows/(Inflows) Ending June 30: of Resources of Resources 2016 (1,457,451) 2,539, (1,457,451) 2,539, (1,122,704) 2,539, ,559,959 2,539,196 E. Payable to Pension Plans As of June 30, 2016 and 2015, the District reported a payable of $372,281 and $310,718 for the outstanding amount of contributions to the pension plans required for the year ended June 30, 2016 and 2015 respectively. 7. DEFERRED COMPENSATION PLAN The District offers its employees a 457 deferred compensation plan which assets are invested by independent third party custodians. The assets are not subject to claims by creditors of the District and are not reflected in the accompanying financial statements. 8. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS In FYE 2009, the District implemented Governmental Accounting Standards Board Statements No. 45, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions by State and Local Governmental Employers (GASB 45). A. Plan Description The District provides retiree medical insurance and dental benefits to eligible retirees and a dependent in accordance with various labor agreements. Medical insurance benefits are provided under the CalPERS health plan. Dental benefits are provided by a private insurance carrier. 46

145 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS, Contiuned B. Eligibility The District provides medical and dental benefits to employees if they retire from the District on or after age 50 (unless disabled), and are eligible for a CalPERS pension. The medical benefits cover the employee and their one dependent from retirement date for life. C. Funding Policy The employee and their one dependent receive dental coverage from retirement until the employee reaches age 65. Employees are not obligated to contribute unless plan costs exceed the District's maximum contribution. For health insurance, the District pays the cost for the health insurance premium up to the cost for the retiree plus one dependent. Medicare Supplemental insurance coverage is used when a plan participant reaches age 65. For dental coverage, the District pays the entire cost of the dental insurance until the retiree reaches age 65. The retiree at age 65 may elect to continue coverage for themselves plus a dependent at their own cost. The contribution requirement of plan members and the District are established and may be amended by agreement between the District and its collective bargaining units. The District must agree to make a defined monthly payment towards the cost of each retiree's medical and dental coverage. The required contribution is based on an amount established by the District annually. Effective January 1, 2016, the District's contribution rate for medical coverage was up to $ and $1, per month for retiree and retiree plus one dependent, respectively. For dental coverage the annual contribution amount is up to $1,500 and $3,000 for retiree and retiree plus one dependent, respectively. Actual contributions by the District for each retiree for medical and dental benefits vary depending on medical plan coverage and actual dental costs. The District's contribution requirements for the plan provides for annual contributions authorized by the District's board of directors. The required contribution rate is based on the annual required contribution (ARC), an amount that is actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) of the District's plan over a period not to exceed thirty years. The ARC rate is 16.8% and 18.0% in FY 2016 and FY 2015, respectively. 47

146 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS, Continued D. Annual OPEB Cost and Net OPEB Obligation For the years ended June 30, 2016 and 2015, the District's annual OPEB costs (expenses) of $3,683,000 and $3,817,000, was equal to the ARC plus the accrued interest on prior OPEB liabilities. Actual contributions were based on the actuarial projection for the year. The District's net OPEB obligations as of and for the fiscal year June 30, 2016 and 2015 were as follows: Net OPEB obligation as of June 30, 2014 $ - Annual required contribution 3,817,000 Annual OPEB costs 3,817,000 Contributions made (3,817,000) Increase in net OPEB obligation - Net OPEB obligation as of June 30, 2015 $ - Annual required contribution 3,683,000 Annual OPEB costs 3,683,000 Contributions made (4,053,217) Increase in net OPEB obligation (370,217) Net OPEB obligation as of June 30, 2016 $ (370,217) The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation for the current fiscal year and each of the two preceding years are as follows: Annual Annual OPEB Cost Net OPEB Fiscal Year OPEB Cost Contributed Obligation/(Asset) 6/30/2014 4,153, % - 6/30/2015 3,817, % - 6/30/2016 3,683, % (370,217) E. Funded Status and Funding Progress As of June 30, 2013, the most recent actuarial valuation date, the plan was not fully funded. The actuarial accrued liability for benefits was $45,087,000, and the actuarial value of assets was $11,983,000, resulting in an unfunded actuarial accrued liability (UAAL) of $33,104,000. The covered payroll (annual payroll of active employees covered by the plan) was $21,921,000, and the ratio of the UAAL to the covered payroll was 151%. For the years ended June 30, 2016 and 2015, $1,475,500 and $1,855,000 respectively were contributed to an irrevocable trust established with CalPERS to temporarily hold funds in anticipation of unfunded future retiree benefits. The contribution amounts in FY14-15 and FY were not reflected in the actuarial calculation as of June 30,

147 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS, Continued E. Funded Status and Funding Progress, Continued 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 schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. F. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the District and 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 District and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the June 30, 2013, actuarial valuation, the entry age level percentage of payroll method was used. The actuarial assumptions included a 7.5% investment rate of return, (net of administrative expenses), which is based upon the expected rate of return on the CalPERS California Employers' Retiree Benefit Trust Fund (CERBT); an annual healthcare cost trend rate of 7.8% initially, graded down by decrements to an ultimate rate of 5% after 5 years; and a 4% dental cost trend rate. These rates include an inflation assumption of 3.0% and projected payroll increases of 3.25%. The UAAL is being amortized as a level percentage of payroll on a closed basis. The remaining amortization period at June 30, 2016 was 19 years. 9. OTHER INCOME/CAPITAL CONTRIBUTIONS Other income and capital contributions are comprised of the following for the years ending June 30: Other income: Rents and royalties $ 1,546,386 $ 1,619,503 Net gain (loss) on sale of assets 376,288 (446,528) Total other income $ 1,922,674 $ 1,172,975 Capital contributions: Fire flow parcel fee $ 4,511,652 $ 4,511,604 Contributions in aid of construction 1,063,057 1,236,579 Total capital contributions $ 5,574,709 $ 5,748,183 49

148 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and COMMITMENTS AND CONTINGENCIES Capital Budget The District's fiscal 2016 and 2015 capital budget is approximately $28 million and $ 23.5 million respectively of which approximately $601,000 and $1,880,000 is anticipated to be reimbursed to the District by contractors, users and grants. Commitments As of June 30, 2016 and 2015, the District has $3,634,174 and $3,944, 475 of outstanding construction contracts and purchase orders. This is the amount that the District is obligated to pay if all contractors and vendors perform per their contract or commitments. The District could substantially reduce the amount of this commitment by notifying contractors to suspend further work and paying for work completed to that point. Legal Matters The District is a defendant in a number of lawsuits and claims pending at June 30, Based on correspondence with the District's legal counsel, it is the opinion of District management that unfavorable outcomes are unlikely and that the settlement of such pending cases would not have a material adverse effect on the District's financial position. Accordingly, no provision for any liability that may result from adjudication has been made in the accompanying financial statements. Grants The District participates in several federal and state grant programs. These programs are subject to examination by the grantors and the amount, if any, of expenses which may be disallowed by the granting agency cannot be determined at this time. The District expects such amounts, if any, to be immaterial. Joint Power Agreement The District participates in a joint powers agreement through the Marin Emergency Radio Authority ("MERA") under an operating agreement dated February 1, MERA was created July 1, 1997 by an agreement between certain public agencies in Marin County to provide a public safety radio system, which is owned by MERA, to its members. The members have agreed to assign a portion of their revenues to make annual payments to MERA on a pro rata basis to cover the costs of debt financing and operating the system. The District's annual payments related to the debt financing and to fund operations are recorded as an expense. The future payments required for the fiscal years ending after June 30, 2016 are as follows: , , , , ,322 Total $ 101,692 50

149 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and COMMITMENTS AND CONTINGENCIES, Continued Joint Power Agreement, Continued Summarized audited financial information for the Marin Emergency Radio Authority as of June 30, 2015 is shown below. FY FY Total assets & deferred outflows of resources $ 13,701,446 $ 17,132,405 Total liabilities 14,580,268 16,314,651 Total net position (878,822) 817,754 Total operating revenues 1,707,654 1,651,432 Total operating expenses 5,288,449 5,237,503 Total non-operating revenues & expenses 1,884,219 1,841, RISK MANAGEMENT The District is exposed to various risks of loss related to workers' compensation and general liability. It is the policy of the District not to purchase commercial insurance for risk of losses to which it is exposed for general and auto liability. Instead, District management believes it is more economical to manage this risk internally and set aside assets for claim settlements. However, the District carries excess liability insurance for losses in excess of $250,000, not to exceed $10,000,000 on a per occurrence basis. Settled claims have never exceeded the District's policy limits in any fiscal year. The District is self-insured for workers' compensation, and has purchased an umbrella policy to cover catastrophic losses. The policy has a self-insured retention of $750,000 per occurrence with a maximum limit of indemnity per occurrence of $25,000,000. Claim liabilities are recorded when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claim liabilities depend on such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claim liabilities does not necessarily result in an exact amount. Claim liabilities are reevaluated periodically to take into consideration recently settled claims, the frequency of claims, and other economic and social factors. These liabilities are the District's best estimate based on available information. Changes in the reported liabilities for the years ended June 30, 2016 and 2015 resulted from the following: 51

150 Marin Municipal Water District Notes to Basic Financial Statements, Continued For the years ended June 30, 2016 and RISK MANAGEMENT, Continued Workers Compensation General Liabilities Total Workers Compensation General Liabilities Total Balance at the beginning of year $ 3,148,058 $ 548,655 $ 3,696,713 $ 3,289,000 $ 218,539 $ 3,507,539 Current year claims and changes in estimate 556, , , ,267 1,015,429 1,422,696 Claims payments (415,235) (528,198) (943,433) (273,267) (820,313) (1,093,580) Balance at the end of year $ 3,289,000 $ 218,539 $ 3,507,539 $ 3,423,000 $ 413,655 $ 3,836,655 Due within one year $ 606,946 $ 218,539 $ 825,485 $ 471,634 $ 413,655 $ 885, COMPENSATED ABSENCES The District records a liability to recognize the financial effect of unused vacation and other compensated absences. Changes in the reported liabilities for the years ended June 30, 2016 and 2015 resulted from the following: Balance 2015 Balance 2016 Balance Due Within June 30, 2014 Additions Reductions June 30, 2015 Additions Reductions June 30, 2016 One Year Compensated Absences $ 5,310,462 $ 3,311,318 $ (3,229,880) $ 5,391,899 $ 3,484,173 $ (3,499,055) $ 5,377,016 $ 3,040,541 Total $ 5,310,462 $ 3,311,318 $ (3,229,880) $ 5,391,899 $ 3,484,173 $ (3,499,055) $ 5,377,016 $ 3,040, PRIOR PERIOD ADJUSTMENT In fiscal year ended June 30, 2015, the District recorded prior period adjustments to record the beginning balance of the net pension liability, and to record employer contributions made for pension in fiscal year 2014 as a deferred outflow of resources. Net Position as of Net Position as of June 30, 2014 Deferred Employer Net Pension June 30, 2014 as Previously Reported Pension Contributions Liability as Restated Business-Type Activities $ 313,696,520 $ 4,633,745 $ (72,369,463) $ 245,960,802 Total $ 313,696,520 $ 4,633,745 $ (72,369,463) $ 245,960,802 52

151 REQUIRED SUPPLEMENTARY INFORMATION 53

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153 Marin Municipal Water District Required Supplementary Information For the years ended June 30, 2016 and DEFINED BENEFIT PENSION PLANS A. Schedule of Changes in Net Pension Liability and Related Ratios During the Measurement Period Last 10 Years (1) Miscellaneous Plan Measurement Period (1) TOTAL PENSION LIABILITY Service Cost $ 3,820,110 $ 3,643,451 Interest 15,696,251 14,880,788 Changes of Benefit Terms - - Difference Between Expected and Actual Experience 2,035,700 - Changes of Assumptions (3,613,804) - Benefit Payments, Including Refunds of Employee Contributions (10,335,415) (10,194,990) Net Change in Total Pension Liability 7,602,842 8,329,249 Total Pension Liability - Beginning 210,015, ,686,269 Total Pension Liability - Ending (a) $ 217,618,360 $ 210,015,518 PLAN FIDUCIARY NET POSITION Contributions - Employer $ 5,315,722 $ 4,633,745 Contributions - Employee 1,835,178 1,909,494 Net Investment Income 3,172,539 22,211,386 Benefit Payments, Including Refunds of Employee Contributions (10,335,415) (10,194,990) Other Changes in Fiduciary Net Position - - Net Change in Fiduciary Net Position (11,976) 18,559,635 Plan Fiduciary Net Position - Beginning 147,876, ,316,806 Plan Fiduciary Net Position - Ending (b) $ 147,864,465 $ 147,876,441 Plan Net Position Liability/(Asset) - Ending (a) - (b) $ 69,753,895 $ 62,139,077 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 67.95% 70.41% Covered Payroll $ 22,791,661 $ 20,899,731 Plan Net Pension Liability/(Asset) as a Percentage of Covered Payroll % % (1) Historical information is required only for measurement periods for which GASB 68 is applicable. Notes to Schedules Benefit Changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 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. 55

154 Marin Municipal Water District Required Supplementary Information For the years ended June 30, 2016 and DEFINED BENEFIT PENSION PLANS, Continued B. Schedule of Plan Contribution Last 10 Years (1) Miscellaneous Plan Fiscal Year Fiscal Year Actuarially determined contribution $ 5,725,637 $ 5,315,722 Contribution in relation to the actuarially determined contributions (5,725,637) (5,315,722) Contribtion deficiency (excess) $ - $ - Covered payroll $ 22,829,052 $ 22,791,661 Contributions as a percentage of covered payroll 25.08% 23.32% Notes to Schedules Valuation Date: 6/30/2013 6/30/2012 (1) Historical information is required only for measurement periods for which GASB 68 is applicable. 56

155 Marin Municipal Water District Required Supplementary Information For the years ended June 30, 2016 and OTHER POSTEMPLOYMENT BENEFIT PLAN SCHEDULE OF FUNDING PROGRESS The table below, which is from the latest available actuarial valuation, shows a three-year analysis of the actuarial value of assets as a percentage of the actuarial accrued liability and the funded status of the accrued liability as a percentage of the annual covered payroll for the District s contribution to OPEB as of June 30: Funded Status of Plan Entry Age Actuarial Liability as Actuarial Actuarial Actuarial Unfunded Percentage of Valuation Value of Accrued (Overfunded) Funded Covered Covered Date Assets Liability Liability Ratio Payroll Payroll 6/30/2010 $ 4,725,000 $ 38,989,000 $ 34,264, % $ 22,385, % 6/30/2012 9,028,000 42,419,000 33,391, % 21,231, % 6/30/ ,983,000 45,087,000 33,104, % 21,921, % 57

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157 OTHER SUPPLEMENTARY INFORMATION 59

158 Marin Muncipal Water District Statement of Changes in Fiduciary Assets and Liabilities Agency Fund For the year ended June 30, 2016 Wolfback Ridge Assessment District Balance Balance July 1, 2015 Additions Deductions June 30, 2016 Assets: Cash and investments $ 255,761 $ - $ - $ 255,761 Total assets $ 255,761 $ - $ - $ 255,761 Liabilities: Deposits and Advances $ 255,761 $ - $ - $ 255,761 Total liabilities $ 255,761 $ - $ - $ 255,761 60

159 STATISTICAL SECTION

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161 MARIN MUNICIPAL WATER DISTRICT Statistical Section This part of Marin Municipal Water District s comprehensive annual financial statement report presents detailed information as a context for understanding what the information in the financial statement, note disclosures, and required supplementary information says about the District s overall financial health. Index Page Financial Trends These schedules contain trend information to help the reader understand how the District s 63 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 67 local revenues source, the water revenues. Debt Capacity These schedules present information to help the reader assess the affordability of the District s 71 current level of outstanding debt and the District s financial activities take place. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand 73 the environment within which the District s financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the 75 activities it performs. 61

162 Marin Municipal Water District Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2016 Statistical Section Table of Content Page Financial Trends: Changes in Net Position Last Ten Fiscal Years 63 Net Position Last Ten Fiscal Years 65 Revenue by Source Last Ten Fiscal Years 66 Revenue Capacity: Ten Year Summary of Water Rates Bimonthly Readings and Billings 67 Ten Year Summary of Water Sales by Category 68 Largest Distribution Water Revenue Accounts 69 Fire Flow Parcel Fee Program 70 Debt Capacity: Net Revenues and Debt Service Coverage Last Ten Fiscal Years 71 Ten Year Summary of Outstanding Debt 72 Demographic and Economic Information: Demographic and Economic Statistics 73 Principal Employers in County of Marin 74 Operating Information: Full Time Employees by Function 75 Ten Year Summary of Utility Plant and Accumulated Depreciation 76 Ten Year Summary of Water Production by Water Supply Sources 77 Ten Year Summary of Water Demand 78 Miscellaneous Statistics 79 62

163 Marin Municipal Water District TEN YEAR SUMMARY OF REVENUES, EXPENSES BY FUNCTION AND RATE INCREASES Year ended June 30, OPERATING REVENUES: Water sales and service charges $ 47,022,277 $ 49,151,241 $ 50,802,203 $ 50,111,192 $ 53,969,373 $ 57,277,794 $ 64,930,689 $ 64,677,493 $ 57,117,530 $ 56,202,387 Connection charges 2,404,381 1,371,798 2,748,427 1,311,139 1,009,829 1,034, ,597 1,705, ,356 1,603,209 Watershed Management Fee (1) 1,244,800 Other operating revenue 1,489,844 1,949, ,306 1,727,948 1,300,208 1,106,286 1,003,823 1,351,687 1,154,210 1,050,151 Total operating revenues 50,916,502 52,472,384 54,549,936 53,150,279 56,279,410 59,418,736 66,672,109 67,734,729 59,241,096 60,100,547 OPERATING EXPENSES: Water Purchases 4,403,617 4,644,304 4,912,997 5,617,017 4,960,870 5,419,232 5,606,167 7,437,740 6,720,104 5,732,110 Watershed Maintenance 3,273,313 3,125,209 3,245,397 3,718,014 3,310,471 3,595,992 4,259,670 4,632,367 5,206,134 4,993,983 Water treatment 5,429,841 5,879,008 6,517,390 6,604,356 6,736,995 6,548,344 6,721,730 6,657,304 7,070,203 6,841,197 Pumping 2,602,698 2,885,435 2,810,450 2,755,879 2,382,117 2,482,649 2,650,674 2,955,530 2,742,815 2,828,355 Transmission and distribution 10,487,676 10,002,424 11,066,171 10,178,125 10,077,643 9,537,758 10,360,869 10,682,167 12,568,990 12,339,800 Customer service and meter operation 1,999,286 2,203,839 2,652,404 2,399,933 2,430,379 2,580,350 2,567,618 2,734,368 2,796,058 2,719,372 Water Conservation 1,413,590 1,976,548 2,363,591 2,431,791 1,861,704 1,439,227 1,285,842 1,925,266 2,238,765 2,069,277 Administrative and general 12,825,302 12,781,180 15,546,768 13,439,062 13,991,401 14,634,047 15,453,350 17,395,404 14,894,201 16,569,328 Depreciation and amortization 8,073,345 8,723,817 9,384,921 10,350,791 10,480,987 10,506,699 10,935,168 11,324,138 10,776,549 11,032,196 Total operating expenses 50,508,668 52,221,764 58,500,089 57,494,968 56,232,567 56,744,298 59,841,088 65,744,284 65,013,819 65,125,618 NONOPERATING REVENUES (EXPENSES): Federal, state and other grants 1,331, ,276 1,487, , , ,079 1,113,955 1,137, , ,335 Investment income (loss) 802, ,149 (560,702) (52,176) 75,634 88,242 75,509 69,251 4,630 4,558 Interest income 2,488,169 2,134,914 1,380, , , , , , , ,316 Other income 1,126,356 1,262,289 1,178,798 1,520,928 1,407,414 1,590,443 1,744,362 1,584,785 1,172,975 1,922,674 Interest expense (2,857,380) (2,707,312) (2,574,404) (2,399,793) (3,887,448) (3,730,202) (4,090,263) (4,686,280) (4,465,063) (3,578,557) Total nonoperating revenues (expenses), net 2,890,597 1,930, ,588 5,847 (1,844,546) (1,191,101) (1,024,176) (1,747,859) (2,250,622) (1,176,674) Captial contributions 5,302,034 6,086,208 5,098,404 6,147,539 5,184,421 4,880,159 4,903,701 5,863,573 5,748,183 5,574,709 Increase in Net Positions (2) $ 8,600,465 $ 8,267,144 $ 2,059,839 $ 1,808,697 $ 3,386,718 $ 6,363,496 $ 10,710,546 $ 6,106,159 $ (2,275,162) $ (627,036) % Water rate increase (3) Number of Employees (4) * (1) New Watershed Management Fee and new rate structure effective on January 1, 2016 (2) Implemented GASB 68 requirement for pension liability in FY 2015 (3) Rate increased on July 5, 2009, March 1, 2010 (4) The number represents filled positions only (5) New water rate restructuring and 4% increase in water service rates, fees and charge based on a Cost of Service Analysis effective January 1, 2016 and May 1,

164 Marin Municipal Water District TEN YEAR SUMMARY OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Year ended June 30, OPERATING REVENUES: Water sales and service charges $ 47,022,277 $ 49,151,241 $ 50,802,203 $ 50,111,192 $ 53,969,373 $ 57,277,794 $ 64,930,689 $ 64,677,493 $ 57,117,530 $ 56,202,387 Connection charges 2,404,381 1,371,798 2,748,427 1,311,139 1,009,829 1,034, ,597 1,705, ,356 1,603,209 Watershed Management Fee (2) 1,244,800 Other operating revenue 1,489,844 1,949, ,306 1,727,948 1,300,208 1,106,286 1,003,823 1,351,687 1,154,210 1,050,151 Total operating revenues 50,916,502 52,472,384 54,549,936 53,150,279 56,279,410 59,418,736 66,672,109 67,734,729 59,241,096 60,100,547 OPERATING EXPENSES: Personnel services 26,766,178 28,007,711 32,570,801 29,857,987 30,042,858 29,685,634 31,077,225 33,237,254 34,245,965 35,006,286 Materials and supplies 2,212,118 2,191,405 2,849,991 2,195,723 2,062,044 2,194,427 2,413,999 2,331,826 2,173,853 1,976,319 Operations 3,579,822 3,281,367 3,894,330 2,220,017 2,042,623 2,410,100 3,713,314 4,006,611 4,238,295 4,072,047 Water conservation rebate program 358, , , ,202 94,634 1, , , ,052 Electrical power 2,991,607 3,316,592 3,230,402 3,167,677 2,738,066 2,853,620 3,046,751 3,397,161 3,152,661 3,250,983 Water purchased 4,403,617 4,644,304 4,912,997 5,617,017 4,960,870 5,419,232 5,606,167 7,437,740 6,720,104 5,732,110 Insurance, including claims 1,466,562 1,389,867 1,236,816 1,313,605 1,896,908 1,760,577 1,053,329 1,310,545 1,141,719 1,849,921 General and administrative 2,436,332 2,331,121 2,313,539 2,029,949 1,913,577 1,912,834 1,994,710 2,566,990 2,327,110 1,873,705 Depreciation and amortization 8,073,345 8,723,817 9,384,921 10,350,791 10,480,987 10,506,699 10,935,168 11,324,138 10,776,549 11,032,195 Research and development 722, , Indirect costs capitalized (2,501,785) (2,575,500) (2,694,596) Total operating expenses 50,508,668 52,221,764 58,500,089 57,494,968 56,232,567 56,744,298 59,841,088 65,744,284 65,013,819 65,125,618 NONOPERATING REVENUES (EXPENSES): Federal, state and other grants 1,331, ,276 1,487, , , ,079 1,113,955 1,137, , ,335 Investment income (loss) 802, ,149 (560,702) (52,176) 75,634 88,242 75,509 69,251 4,630 4,558 Interest income 2,488,169 2,134,914 1,380, , , , , , , ,316 Other income 1,126,356 1,262,289 1,178,798 1,520,928 1,407,414 1,590,443 1,744,362 1,584,785 1,172,975 1,922,674 Interest expense (2,857,380) (2,707,312) (2,574,404) (2,399,793) (3,887,448) (3,730,202) (4,090,263) (4,686,280) (4,465,063) (3,578,557) Total nonoperating revenues (expenses), net 2,890,597 1,930, ,588 5,847 (1,844,546) (1,191,101) (1,024,176) (1,747,859) (2,250,622) (1,176,674) Captial contributions 5,302,034 6,086,208 5,098,404 6,147,539 5,184,421 4,880,159 4,903,701 5,863,573 5,748,183 5,574,709 Increase in Net Positions $ 8,600,465 $ 8,267,144 $ 2,059,839 $ 1,808,697 $ 3,386,718 $ 6,363,496 $ 10,710,546 $ 6,106,159 $ (2,275,162) $ (627,036) 64

165 MARIN MUNICIPAL WATER DISTRICT TEN YEAR SUMMARY OF NET POSITION Year ended June 30, NET POSITION: Net investment in capital assets $ 211,986,804 $ 227,155,224 $ 243,945,226 $ 273,838,602 $ 273,186,687 $ 262,581,208 $ 266,939,799 $ 265,964,474 $ 259,038,130 $ 265,735,569 Restricted for Fire Flow Parcel Fee Program 7,649,780 8,263,843 6,845,171 3,999,728 3,855,977 4,684,736 2,483,468 1,736,460 1,939, ,839 Unrestricted 54,240,616 46,725,277 34,169,438 8,930,201 13,112,586 29,252,802 38,167,094 45,995,586 (17,292,019) (23,333,804) TOTAL NET POSITION $ 273,877,200 $ 282,144,344 $ 284,959,835 $ 286,768,531 $ 290,155,250 $ 296,518,746 $ 307,590,361 $ 313,696,520 $ 243,685,640 $ 243,058,604 Millions $350 $300 $250 $200 $150 $100 $50 $ $(50) Net Investment in Capital Assets Restricted for Debt Service Unrestricted 65

166 MARIN MUNICIPAL WATER DISTRICT REVENUE BY SOURCE LAST TEN FISCAL YEARS Year Ended Service Connection Watershed Interest Fire Flow June 30, Total Water Sales Charge Charges Management Fee Income Parcel Fee Other 2007 $ 61,966,512 39,462,839 7,559,438 2,404,381 2,488,169 4,507,996 5,543, $ 63,196,220 41,305,864 7,845,377 1,371,798 2,134,914 4,510,433 6,027, $ 63,134,332 42,628,226 8,173,977 2,748,427 1,380,137 4,502,860 3,700, $ 61,703,450 41,557,677 8,553,515 1,311, ,623 4,467,137 5,373, $ 63,506,733 45,101,916 8,867,457 1,009, ,886 4,483,662 3,805, $ 66,837,996 48,069,979 9,207,815 1,034, ,337 4,523,329 3,877, $ 74,641,897 55,125,168 9,805, , ,261 4,540,389 4,300, $ 76,536,722 54,840,298 9,837,195 1,705, ,055 4,524,178 5,482, $ 67,203,721 47,239,262 9,878, , ,393 4,511,604 4,433, $ 68,077,139 44,206,306 11,996,081 1,603,209 1,244, ,316 4,511,652 4,285,775 Millions Watershed Management Fee Other Fire Flow Parcel Fee Interest Income Connection Fee Service Charge Water Sales

167 TEN YEAR SUMMARY OF WATER RATES BIMONTHLY READINGS AND BILLINGS Year ended June 30, FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Effective Date 5/1/2007 5/1/2008 5/1/2008 7/5/2009 3/1/2010 6/1/2011 5/1/2012 5/1/2012 5/1/2012 5/1/2012 1/1/2016 5/1/2016 Single-Family Residential. Tier 1 $ 2.52 $ 2.81 $ 2.81 $ 3.04 $ 3.39 $ 3.53 $ 3.74 $ 3.74 $ 3.74 $ 3.74 $ 3.81 $ 3.96 Tier Tier Tier Duplex Residential Tier Tier Tier Tier Multi-Unit Residential Tier Tier Tier Tier Business, Institutional and Irrigation Tier Tier Tier Single-Family Irrigation Tier Tier Tier Raw Water Tier Tier Tier Recycled Water Tier Tier Tier Bimonthly Service Charges by meter size 5/8" /4" " " " " " " , , " , , " 1, , , , , , , , , , , , Bimonthly Watershed Management Fee 5/8" /4" " " " " " " " "

168 MARIN MUNICIPAL WATER DISTRICT TEN YEAR SUMMARY OF WATER SALES BY CATEGORY Year ended June 30, (dollars in thousands) Treated Recycled Raw Fiscal Year Water Sales Water Sales Water Sales Total , , , , , , , , , , , , ,536 1, , , , , , , ,206 60,000 50,000 (dollars in thousands) 40,000 30,000 20,000 10, Treated Water Sales Recycled Water Sales Raw Water Sales 68

169 MARIN MUNICIPAL WATER DISTRICT LARGEST DISTRIBUTION WATER REVENUE ACCOUNTS Year ended June 30, City of Mill Valley City of Mill Valley City of Mill Valley City of Mill Valley City of Mill Valley City of San Rafeal City of Mill Valley City of Mill Valley City of Mill Valley City of Mill Valley City of San Rafeal City of San Rafeal City of San Rafeal City of San Rafeal City of San Rafeal County of Marin City of San Rafeal City of San Rafeal City of San Rafeal City of San Rafeal County of Marin County of Marin County of Marin County of Marin County of Marin Department of Corrections County of Marin County of Marin County of Marin County of Marin Department of Corrections Department of Corrections Department of Corrections Department of Corrections Department of Corrections Marin General Hospital Department of Corrections Department of Corrections Department of Corrections Department of Corrections Meadow Club Marin General Hospital Marin General Hospital Marin General Hospital Mcinnis Park Golf Mcinnis Park Golf Marin General Hospital Marin General Hospital Marin General Hospital Marin General Hospital National Park Service Meadow Club Meadow Club Meadow Club Meadow Club Meadow Club Meadow Club Meadow Club Meadow Club Meadow Club Peacock Gap Holdings LLC National Park Service National Park Service National Park Service National Park Service National Park Service National Park Service National Park Service National Park Service National Park Service San Geronimo Golf Course Peacock Gap Holdings LLC Peacock Gap Holdings LLC Peacock Gap Holdings LLC Peacock Gap Holdings LLC Peacock Gap Holdings LLC Peacock Gap Holdings LLC Peacock Gap Holdings LLC Peacock Gap Holdings LLC Peacock Gap Holdings LLC San Rafael School District San Geronimo Golf Course San Geronimo Golf Course San Geronimo Golf Course San Geronimo Golf Course San Geronimo Golf Course San Geronimo Golf Course San Geronimo Golf Course San Geronimo Golf Course San Geronimo Golf Course Tamalpais Union HS District San Rafael School District San Rafael School District San Rafael School District San Rafael School District San Rafael School District San Rafael School District San Rafael School District San Rafael School District San Rafael School District 69

170 MARIN MUNICIPAL WATER DISTRICT FIRE FLOW PARCEL FEE PROGRAM Year ended June 30, Revenue Parcel fee $ 4,507,996 $ 4,510,433 $ 4,502,860 $ 4,467,137 $ 4,483,662 $ 4,523,329 $ 4,540,389 $ 4,524,178 $ 4,511,604 $ 4,511,652 Interest income 146, ,458 37,917 19,503 18,235 15,067 9,412 3,799 5,327 3,327 4,654,727 4,673,891 4,540,777 4,486,640 4,501,897 4,538,396 4,549,801 4,527,977 4,516,931 4,514,979 Expenses Personnel 575, , ,327 1,067,404 1,150,107 1,037,543 1,492,017 1,244,252 1,205,830 1,461,144 Materials and supplies 343, ,641 1,001, , , ,468 1,100, , , ,669 General and administrative 8,304 3,497 7,807 42,636 2,426 3,875 4,083 2,269 4,099 6,861 Operations 30,428 47,118 98,020 87,568 85,374 85, , ,205 43, ,233 Construction contracts 1,546,678 2,940,648 4,190,869 1,062,601 2,753,118 2,056,836 3,974,019 3,248,806 2,379,061 3,571,453 Professional fees 64,332 46, ,095 78,205 80,587 56,970 49,169 50,361 52, ,708 $ 2,568,834 $ 4,271,767 $ 6,318,990 $ 2,936,594 $ 4,645,648 $ 3,709,637 $ 6,751,068 $ 5,274,984 $ 4,313,862 $ 5,833,068 Notes: In January 1996, Fire Flow Master Plan was developed and identified a wide range of capital projects needed to improve the water system's fire fighting capabilities. This program is to assess Municipal Water District's water system, both in flow capacity and seismic stability, and to replace inadequate pipelines with larger pipelines that can carry greater volumes of water and to construct seismic improvements. The Fire Flow Parcel Fee Program is funded by a $75 per parcel fee charged and collected by the Marin County Tax Collector. The District also contributes to the program in accordance with the requirements of the Fire Flow Mater Plan. 70

171 MARIN MUNICIPAL WATER DISTRICT NET REVENUES AND DEBT SERVICE COVERAGE LAST TEN FISCAL YEARS Year ended June 30, Operating revenue and other revenue Water sales, connection charges and other revenue $ 53,460,011 $ 54,700,337 $ 56,240,991 $ 55,167,470 $ 58,008,792 $ 61,745,258 $ 69,530,426 $ 70,456,844 $ 61,279,514 $ 62,268,556 Operating expense Source of supply 4,403,617 4,644,304 4,912,997 5,617,017 4,960,870 5,419,232 5,606,167 7,437,740 6,720,104 5,732,110 Other operating expense (1) 36,983,474 38,421,370 43,873,488 41,527,160 40,790,710 40,818,367 43,299,753 46,982,406 47,517,166 48,361,312 Total operating expense 41,387,091 43,065,674 48,786,484 47,144,177 45,751,580 46,237,599 48,905,920 54,420,146 54,237,270 54,093,422 Interest income on operating funds 2,488,169 2,122,526 1,380, , , , , , , ,316 Net operating income 14,561,088 13,757,189 8,834,643 8,463,918 12,495,098 15,631,996 20,756,767 16,183,753 7,213,637 8,404,450 Transfer (to)/from Rate Stabilization Fund (2,400,000) (4,900,000) 1,400, ,000 Net income available for $ 14,561,088 $ 13,757,189 $ 8,834,643 $ 8,463,918 $ 12,495,098 $ 15,631,996 $ 18,356,767 $ 11,283,753 $ 8,613,637 $ 8,604,445 bonded debt service Actual annual bonded debt service $ 6,810,325 $ 6,804,075 $ 6,808,750 $ 6,796,675 $ 5,675,363 $ 5,570,990 $ 6,585,476 $ 7,422,090 $ 6,755,140 $ 6,878,665 Coverage factor (1) Excludes depreciation, amortization, and interest expenses 71

172 MARIN MUNICIPAL WATER DISTRICT TEN YEAR SUMMARY OF OUTSTANDING DEBT Year ended June 30, (collars in thousands, except per capita) Description Revenue Refunding Bonds (1) 26,105 23,805 21,440 19,005 17, % 5.00% Maturity: Fiscal Year Certificates of Participation (2) 35,845 34,005 32,105 30,145 28,110 6,760 4,865 2,935 1, % 5.25% Maturity: Fiscal Year 2030 Capital Lease Obligation Maturity: Fiscal Year 2010 Clean Renewable Energy Bonds 1,834 1,712 1,589 1,467 1,345 1,223 1, Maturity: Fiscal Year Water Revenue Bonds 31,850 31,850 31,850 31,850 31,850 31, % 5.25% Maturity: Fiscal Year Water Revenue Bonds 85,000 85,000 85,000 84,680 84, % 5.25% Maturity: Fiscal Year 2030 Original Bond Premium/discount, net 3,636 10,255 9,933 9,611 9,290 8,968 Aqueduct Energy Efficiency Project (AEEP) 3,600 3,355 2,865 Maturity: Fiscal Year 2032 Total $ 62,246 $ 58,011 $ 55,481 $ 50,862 $ 82,810 $ 135,332 $ 132,993 $ 134,219 $ 132,190 $ 129,856 Percentage of Personal Income (3) 0.28% 0.25% 0.27% 0.25% 0.36% 0.57% 0.53% 0.52% 0.46% unavailable Per Capita (3) $ 255 $ 237 $ 245 $ 202 $ 312 $ 528 $ 515 $ 515 $ 506 unavailable (1) 2002 Revenue Refunding Bonds were fully refunded by the 2012 Water Revenue Bonds (2) 2004 Certificates of Participation were partially refunded by the 2012 Water Revenue Bonds (3) See the Demographic Statistics Schedule for personal income and population data used to calculate the ratios 72

173 MARIN MUNICIPAL WATER DISTRICT DEMOGRAPHIC AND ECONOMIC STATISTICS Year ended June 30, Fiscal Year Population(1) Personal Income(1) Per Capita Personal Income(1) Unemployment Rate (2) ,206 20,100,642,000 81, % ,580 21,801,503,000 89, % ,248 22,428,914,000 91, % ,398 22,862,328,000 93, % ,862 20,188,247,000 89, % ,971 20,748,885,000 82, % ,493 22,741,276,000 85, % ,069 23,918,732,000 93, % ,365 25,093,401,000 97, % ,750 25,716,754,000 98, % ,221 28,492,821, , % 2016 * * * 3.50% Sources: (1) US Department of Commerce, Bureau of Economic Analysis- (2) Employment Development Department, Labor Market Information- * Not published as of November 30,

174 MARIN MUNICIPAL WATER DISTRICT PRINCIPAL EMPLOYERS IN COUNTY OF MARIN Year ended June 30, Percentage of Total County Employment Employer Employees Percentage of Total County Employment Employer Employees County of Marin 2, % County of Marin 2, % San Quentin State Prison* 1, % San Quentin Prison 1, % Marin General Hospital 1, % Kaiser Permanente Medical Center 1, % BioMarin Pharmaceutical 1, % Fireman's Fund Insurance Co. 1, % Autodesk, Inc % Novato Unified School District 1, % Novato Unified School District % Autodesk, Inc % Kaiser Permanente Medical Center % Marin General Hospital % Autodesk, Inc % Safeway Inc % Fireman's Fund Insurance Co % GreenPoint Mortgage % San Rafael City Schools % Macy's % 11, % 11, % Total County Employment 136,400 Total County Employment 125,000 Source: North Bay Business Journal, Novato Unified School District and San Quentin State Prison, County of Marin Employment Development Department, Labor Market Information ( *Total Employees as of November

175 MARIN MUNICIPAL WATER DISTRICT FULL TIME EMPLOYEES BY FUNCTION Year ended June 30, General Manager Division Legal Service Division Finance & Administrative Service Division * Human Resources Division Environmental & Engineering Service Division Facilities & Watershed Division * Note: The numbers represent filled positions only. * Meter operations moved from Facilities & Watershed Division to Finance Division starting in FY

176 MARIN MUNICIPAL WATER DISTRICT TEN YEAR SUMMARY OF UTILITY PLANT AND ACCUMULATED DEPRECIATION Year ended June 30, Description Water Rights $ $ $ $ 9,193,601 $ 9,193,601 $ 9,193,601 $ 9,193,601 $ 13,273,601 $ 13,273,601 $ 13,273,601 Land 9,390,003 9,636,159 10,048,109 10,594,873 10,594,873 11,264,770 10,800,399 11,128,405 11,129,340 11,465,962 Buildings 16,809,361 16,819,104 17,165,185 19,516,014 20,664,817 21,211,552 21,756,787 21,999,810 23,184,242 23,435,207 Dams and reservoirs 77,450,146 80,212,406 85,269,192 88,938,115 91,135,326 92,173,162 96,928,260 98,099, ,899, ,266,491 Pumping plants 20,256,022 21,142,309 22,396,751 23,409,848 24,481,281 27,442,607 30,306,613 32,430,877 32,938,312 33,424,128 Water treatment plants 33,096,954 34,081,638 35,086,377 36,468,376 40,129,254 41,875,744 42,601,382 42,937,155 46,490,317 46,916,968 Transmission and distribution lines 204,162, ,464, ,562, ,340, ,575, ,902, ,691, ,241, ,140, ,385,765 Vehicles 6,076,172 6,342,322 6,813,743 6,767,908 6,761,371 6,781,324 7,100,593 7,123,916 7,515,628 7,755,984 Equipment 23,150,392 23,675,417 21,417,674 21,801,734 21,928,113 21,992,937 22,458,489 21,217,373 21,154,243 21,675,862 Construction in Progress 15,078,435 18,407,108 20,694,560 23,805,971 25,039,690 24,437,387 25,879,384 25,942,572 16,393,445 27,133,846 Total Plant In Service 405,469, ,781, ,454, ,837, ,503, ,275, ,716, ,394, ,119, ,733,814 Less Accumulated Depreciation (131,482,653) (139,783,454) (144,173,245) (156,641,467) (166,909,603) (177,236,557) (187,872,490) (195,074,858) (204,401,491) (214,197,589) Net Utility Plant $ 273,987,256 $ 284,997,699 $ 299,280,836 $ 318,195,591 $ 327,594,352 $ 333,039,275 $ 345,844,486 $ 358,319,959 $ 372,717,620 $ 383,536,225 76

177 MARIN MUNICIPAL WATER DISTRICT TEN YEAR SUMMARY OF WATER PRODUCTION BY WATER SUPPLY SOURCES Year ended June 30, Fiscal Year San Geronimo Treatment Plant Bon Tempe Treatment Plant Water Purchased* TOTAL (Acre Foot) CHANGE PERCENT POPULATION Gallons per capita per day Raw Water Recycled ,723 6, , , % 185, ,879 5, , ,342 (495) -1.6% 185, ,126 5, , ,385 (1,957) -6.5% 185, ,837 4, , ,988 (2,397) -8.4% 184, ,799 6, , , % 185, ,042 5, , , % 186, ,192 5, , ,059 1, % 186, ,872 4, , ,689 (370) -1.3% 187, ,101 4, , ,407 (3,281) -11.9% 188, ,515 4, , ,248 (1,159) -4.8% 188, Total: 129,571 48,954 2,824 62,080 5, , YEAR AVERAGE ( ) 14,209 5, , ,185 * Purchased water from Sonoma County Water Agency Production by Water Supply Sources 35,000 30,000 AF/Year 25,000 20,000 15,000 10,000 5, San Geronimo Treatment Plant Bon Tempe Treatment Plant Raw Water Water Purchased* Recycled 77

178 MARIN MUNICIPAL WATER DISTRICT TEN YEAR SUMMARY OF WATER DEMAND Year ended June 30, Fiscal Year Total Water Supply (AF) Million Gallons Per Day (MGD) , , , , , , , , , , ,000 Water Demand 30,000 25,000 20,000 15,000 10,000 5,

179 Service Area Square miles Population 185, , , , , , , , , ,400 Water Supply Watershed lands (acres) 21,250 21,250 21,250 21,250 21,250 21,250 21,635 21,600 21,600 21,600 Number of storage reservoirs Total reservoir storage capacity In acre feet 79,566 79,566 79,566 79,566 79,566 79,566 79,566 79,566 79,566 79,566 In millions of gallons 29,927 29,927 29,927 29,927 29,927 29,927 29,927 29,927 29,927 29,927 Average yearly rainfall in inches at Lagunitas Lake Average yearly runoff, less losses (due to evaporation): In acre feet 61,415 61,415 61,415 61,415 61,415 61,415 61,400 61,400 61,400 61,400 In millions of gallons 20,012 20,012 20,012 20,012 20,012 20,012 20,000 20,000 20,000 20,000 Water imported from Russian River (average annual, acre feet) 7,300 7,300 7,300 7,300 7,700 7,700 7,400 7,000 7,000 6,200 Operational yield (acre feet) * 28,800 28,400 28,400 28,400 28,500 28,500 28,500 28,500 28,500 29,000 Water Use Service connections (active) 59,817 60,903 60,940 61,061 61,266 61,266 61,391 61,675 61,675 61,800 Residential 55,525 54,958 55,225 55,015 55,769 55,769 55,166 55,402 55,402 55,600 Other 4,292 5,945 5,715 6,046 5,497 5,497 6,225 6,273 6,273 6,200 Maximum annual use (1987) In acre feet 33,100 33,100 33,100 33,100 33,100 33,100 33,100 33,100 33,100 33,100 In millions of gallons 10,785 10,785 10,785 10,785 10,785 10,785 10,785 10,785 10,785 10,785 Average annual use over 10 years In acre feet 29,745 31,020 29,750 29,302 29,200 29,200 28,009 27,560 27,560 25,730 In millions of gallons 9,692 10,108 9,694 9,548 9,500 9,500 9,127 8,980 8,980 8,380 Facilities Miles of pipeline Number of storage tanks Total tank storage capacity (millions of gallons) Number of pump stations Number of potable water treatment plants Maximum daily treatment plant capacity (millions of gallons) Average daily treatment plant production (millions of gallons) Recycled Water Facilities Miles of pipeline Number of storage tanks Total tank storage capacity (millions of gallons) Number of pump stations Number of recycled water treatment plants Maximum daily treatment plant capacity (millions of gallons) * Amount of water that can be supplied in all but the driest years. MARIN MUNICIPAL WATER DISTRICT MISCELLANEOUS STATISTICS Year ended June 30, 79

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181 APPENDIX B INVESTMENT POLICY OF THE DISTRICT Appendix B

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183 MARIN MUNICIPAL WATER DISTRICT BOARD POLICY No. 33 DATE: Revised Revised Revised Revised SUBJECT: INVESTMENT POLICY I. Introduction The purpose of this document is to identify various policies and procedures that enhance opportunities for a prudent and systematic investment policy and to organize and formalize investment-related activities. The investment policies and practices of the Marin Municipal Water District ("District") are based on State law and prudent money management. All funds will be invested in accordance with the District's Investment Policy and the authority governing investments for local agencies as set forth in the California Government Code, through II. Scope It is intended that this policy cover all funds and investment activities of the District, except investments governed by employment retirement funds and bond documents. The provisions of relevant bond documents will restrict the investment of bond proceeds. III. Prudence Investments shall be made with judgment and care - under circumstances then prevailing - which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. All persons investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds shall act with care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the District.