SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
38 (Continued)
Maturity Due
Interest (Calendar Restated within
rate Year) 2020 Additions Reductions 2021* one y ear
2010B revenue bonds (Build America) 2040 $ 373,420 — (11,920) 361,500 12,330 2010D revenue refunding bonds 3.00 – 5.00 2021 30,990 — (30,990) — — 2010E revenue bonds (Build America) 4.90 – 6.00 2040 344,200 — — 344,200 — 2010G revenue bonds (Build America) 6.95 2050 351,470 — — 351,470 — 2011B revenue bonds 3.50 – 5.00 2041 1,485 — (730) 755 755 2011C revenue bonds 3.00 – 5.00 2041 1,620 — (795) 825 825 2011D revenue refunding bonds 4.00 – 5.00 2028 19,135 — (19,135) — — 2012A revenue bonds 4.00 – 5.00 2043 216,540 — (216,540) — — 2012B revenue bonds 4.00 – 5.00 2043 16,520 — (16,520) — — 2012C1 revenue refunding bonds 4.00 2031 8,465 — (8,465) — — 2012C2 revenue refunding bonds 4.00 – 5.00 2032 69,570 — (69,570) — — 2015A revenue refunding bonds 2.00 – 5.00 2036 412,380 — (14,635) 397,745 15,325 2016A revenue refunding bonds 4.00 – 5.00 2039 763,005 — (19,955) 743,050 23,315 2016B revenue refunding bonds 1.50 – 5.00 2030 95,980 — (14,455) 81,525 10,015 2016C revenue bonds 0.87 – 4.19 2046 242,755 — (5,705) 237,050 5,820 2017A revenue bonds 5.00 2047 121,140 — (94,140) 27,000 — 2017B revenue bonds 5.00 2047 147,725 — (114,795) 32,930 — 2017C revenue bonds 5.00 2047 70,675 — (54,925) 15,750 — 2017D revenue refunding bonds 2.00 – 5.00 2035 348,610 — (890) 347,720 925 2017E revenue refunding bonds 4.00 – 5.00 2031 48,890 — — 48,890 — 2017F revenue refunding bonds 5.00 2031 8,705 — — 8,705 — 2017G revenue refunding bonds 2.03 – 2.91 2024 33,280 — (500) 32,780 820 2019A revenue refunding bonds 1.81 – 3.47 2043 622,580 — (6,855) 615,725 24,405 2019B revenue refunding bonds 3.15 – 3.52 2041 16,450 — — 16,450 65 2019C revenue refunding bonds 3.15 – 3.52 2041 17,925 — — 17,925 75 2020A revenue bonds 4.00 – 5.00 2050 — 150,895 — 150,895 — 2020B revenue bonds 5.00 2050 — 61,330 — 61,330 —
2020C revenue bonds 4.00 2050 — 85,335 — 85,335 —
2020D revenue bonds 3.00 2050 — 49,200 — 49,200 —
2020E revenue refunding bonds 2.83 – 2.95 2047 — 341,435 — 341,435 5,900 2020F revenue refunding bonds 0.26 – 3.15 2047 — 136,880 — 136,880 1,425 2020G revenue refunding bonds 0.26 – 3.10 2043 — 120,585 — 120,585 5,820 2020H revenue refunding bonds 0.26 – 3.15 2047 — 65,495 — 65,495 680 Less issuance discount (143) — 10 (133) —
Add issuance premiums 311,923 73,542 (83,707) 301,758 — Total revenue bonds payable 4,695,295 1,084,697 (785,217) 4,994,775 108,500 2009C certificates of participation (COPs) 2.00 – 5.00 2022 8,918 — (2,824) 6,094 2,970 2009C COPs issuance premiums 161 — (92) 69 —
2009D COPs (Build America) 6.36 – 6.49 2041 92,499 — — 92,499 — State Revolving Funds Loan 1.00 2051 73,271 49,546 (15,410) 107,407 1,667 Other post-employment benefits obligations 163,684 14,036 (28,949) 148,771 — Leases 5,399 — (1,155) 4,244 1,381
Net pension liability 178,133 93,066 (54,782) 216,417 — Accrued vacation and sick leave 11,620 10,109 (7,813) 13,916 6,787 Accrued workers’ compensation 9,174 1,912 (2,258) 8,828 1,694 Damage claims liability 10,767 27,643 (1,687) 36,723 14,400 Wholesale balancing account 64,857 — (3,993) 60,864 21,538 Pollution remediation obligation 1,577 — (306) 1,271 — Total $ 5,315,355 1,281,009 (904,486) 5,691,878 158,937 *Restated due to implementation of GASB 87 - Leases
Revenue Bonds:
4.00% – 6.00%
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
39 (Continued)
The payments of principal and interest amounts on various bonds are secured by net revenues of the Enterprise.
The 2010 Series B Bonds in the par amount of $417,720 were issued as taxable Build America Bonds (with Direct Pay Subsidy) to provide $364,757 in new money for WSIP capital projects and pay financing costs. The 2010 Series B bonds were issued as serial and term bonds with coupons ranging from 4.0% to 6.0% and have a final maturity of 2040. The Series B bonds have a true interest cost (net of federal subsidy) of 3.9%. As of June 30, 2022 and 2021, the principal amount outstanding was $349,170 and $361,500, respectively.
In July 2010, the Enterprise issued revenue bonds 2010 Series DE in the combined principal amount of $446,925. The purpose of the bonds is to advance refund $31,570 of outstanding 2002 Series A revenue bonds and to provide $372,689 in new money for WSIP capital projects, with the balance applied to financing costs and a cash-funded debt service reserve fund. The bonds were rated “AA-” and “Aa2” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates ranging from 3.0% to 6.0%.
The 2010 Series D Bonds in the par amount of $102,725 were issued as tax-exempt bonds to provide $72,243 in new money for WSIP capital projects and $35,080 to advance refund a portion of outstanding 2002 Series A revenue bonds. The Series D bonds were issued as serial bonds with coupons ranging from 3.0% to 5.0% and have a final maturity of 2021. The Series D bonds have a true interest cost of 2.5%.
On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. $12,360 of the repayment proceeds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2010 Series D bonds. BAWSCA repayment funds were combined with $165 from the 2010 Series D Capitalized Interest Account. This deposit, together with certain other available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the e s c r o w a g e n t w i l l b e s u f f i c i e n t t o p a r t i a l l y d e f e a s e a p o r t i o n o f t h e 2 0 1 0 S e r i e s D b o n d s maturing November 1, 2015 through 2017. A portion of the proceeds from 2020 Series E and 2020 Series G refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated October 1, 2020, to refund and legally defease the outstanding 2010 Series D bonds. These deposits, together with certain other available monies were held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to refund and legally defease all of the maturities of the 2010 Series D bonds starting on November 1, 2021. As of June 30, 2022 and 2021, the principal amount of 2010 Series D bonds outstanding was $0.
The 2010 Series E Bonds in the par amount of $344,200 were issued as taxable Build America Bonds (with Direct Pay Subsidy) to provide $300,446 in new money proceeds for WSIP capital projects. The Series E bonds were issued as serial and term bonds with coupons ranging from
4.9% to 6.0% and have a final maturity of 2040. The Series E bonds have a true interest cost
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
40 (Continued)
(net of federal subsidy) of 3.8%. As of June 30, 2022 and 2021, the principal amount of 2010 Series E bonds outstanding was $344,200.
In December 2010, the Enterprise issued revenue bonds 2010 Series FG in the combined principal amount of $532,430. The purpose of the bonds is to provide $437,980 in new money for WSIP capital projects, with the balance applied to financing costs and a cash-funded debt service reserve. The bonds were rated “AA-” and “Aa2” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates ranging from 3.0% to 7.0%.
Th e $1 8 0, 9 6 0 S er i e s F b o nds w er e i ssu ed as t ax - exem pt b ond s t o pr ovi de $1 4 9, 7 2 8 i n n ew money for WSIP capital projects. The Series F bonds were issued as serial and term bonds with coupons ranging from 3.0% to 5.5% and have a final maturity of 2030. The Series F bonds have a true interest cost of 4.8%.
On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. $3,646 of the repayment proceeds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2010 Series F bonds. BAWSCA repayment funds were combined with $131 from the 2010 Series F Capitalized Interest Account. This deposit, together with certain other available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to partially defease a portion of the 2010 Series F bonds maturing November 1, 2017 and 2018.
A portion of the proceeds of the 2016 Series A refunding bonds and 2019 Series A refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated October 1, 2016 and December 1, 2019, respectively, to refund and legally defease a portion of the outstanding 2010 Series F bonds. These deposits, together with certain other available monies were held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escr ow ag ent wil l be suffici ent to r efund and legally defe ase all of the m atu rit ies of the 20 10 Series F bonds starting on November 1, 2020 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2010 Series F bonds outstanding was $0.
The $351,470 Series G bonds were issued as taxable Build America Bonds (with Direct Pay Subsidy) to provide $288,252 in new money for WSIP capital projects. The Series G bonds were issued as term bonds with a coupon of 7.0% and have a final maturity of 2050. The Series G bonds have a true interest cost (net of federal subsidy) of 4.5%. As of June 30, 2022 and 2021, the principal amount of 2010 Series G bonds outstanding was $351,470.
In August 2011, the Enterprise issued revenue bonds, 2011 Series ABCD in the combined principal amount of $720,750. The purpose of the bonds is to provide new money for WSIP capital projects, to finance Hetch Hetchy Water Improvements, and to finance the Local Water Main Replacement Projects, as well as refund $56,670 of outstanding 2001 Series A and 2002 Series A revenue bonds, with the balance applied to financing costs and a cash-funded debt
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
41 (Continued)
service reserve. The bonds were rated “AA-” and “Aa3” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates varying from 3.0% to 5.0%.
The $6 0 2,71 5 S er ies A b onds were i ssued as ta x- exempt bonds t o pr ovide $5 25,0 00 i n new money for WSIP capital projects. The Series A bonds were issued as serial and term bonds with coupons ranging from 4.3% to 5.0% and have a final maturity of 2041. The Series A bonds have a true interest cost of 4.6%.
A portion of the proceeds of the 2017 Series D and G and 2019 Series A refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017 and December 1, 2019, respectively, to refund and legally defease a portion of the outstanding 2011 Series A bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2011 Series A bonds starting on November 1, 2020 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2011 Series A bonds outstanding was $0.
The $28,975 Series B bonds were issued as tax-exempt bonds to provide $27,710 to finance improvements to certain up-country water storage and transmission facilities under the jurisdiction of Hetch Hetchy Water and Power and CleanPowerSF. The Series B bonds were issued as serial and term bonds with coupons ranging from 3.5% to 5.0% and have a final maturity of 2041. The Series B bonds have a true interest cost of 4.5%.
On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. $515 of the repayment proceeds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2011 Series B bonds. This deposit, together with certain other available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury S e c u r i t i e s - S L G S . T h e p r i n c i p a l a n d i n t e r e s t o n m o n i e s h e l d b y t h e e s c r o w a g e n t w i l l b e sufficient to partially defease a portion of the 2011 Series B bonds maturing November 1, 2017 through 2018.
A portion of the proceeds from the 2017 Series F and 2019 Series B refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017 and December 1, 2019, respectively, to refund and legally defease a portion of the outstanding 2011 Series B bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2011 Series B bonds starting on November 1, 2022 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2011 Series B bonds outstanding was $0 and $755, respectively.
The $33,595 Series C bonds were issued as tax-exempt bonds to provide $33,772 to finance certain water main replacement projects within the City. The Series C bonds were issued as s e r i al an d t e r m b on d s w i t h co u p o n s r a n g i n g f r o m 3 . 0 % t o 5 . 0 % a n d h a v e a f i n a l ma t ur i t y o f 2041. The Series C bonds have a true interest cost of 4.4%.
On February 27, 2013, the Wholesale Water Customers BAWSCA made an early repayment of $356,139 to the Enterprise. $3,824 of the repayment proceeds were deposited with the
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
42 (Continued)
trustee, acting as escrow agent under the irrevocable Escrow Agreement, dated February 27, 2013, to refund and legally defease a portion of the outstanding 2011 Series C bonds. This deposit, together with certain other available monies, was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities consisting of United States Treasury Securities - SLGS. The principal and interest on monies held by the escrow agent will be sufficient to partially defease a portion of the 2011 Series C bonds maturing November 1, 2014 through 2018.
A portion of the proceeds of the 2017 Series E and 2019 Series C refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017 and December 1, 2019, respectively, to refund and legally defease a portion of the outstanding 2011 Series C bonds. These deposits, together with certain other available monies were held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2011 Series C bonds starting on November 1, 2022 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2011 Series C bonds outstanding was $0 and $825, respectively.
The $55,465 Series D bonds were issued as tax-exempt bonds to provide $59,381 to refund, on a current basis, a portion of the 2001 Series A bonds as well as refund, on an advance basis, a portion of the 2002 Series A bonds. The Series D bonds were issued as serial bonds with coupons ranging from 4.0% to 5.0% and have a final maturity of 2028. The Series D bonds have a true interest cost of 3.8%.
A portion of the proceeds of the 2017 Series E and 2020 Series G refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017 and October 1, 2020, respectively, to refund and legally defease a portion of the outstanding 2011 Series D bonds. This deposit, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2011 Series D bonds starting on November 1, 2022 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2011 Series D bonds outstanding was $0.
In June 2012, the Enterprise issued revenue bonds, 2012 Series ABC in the combined principal amount of $701,880. The purpose of the bonds was to provide $530,000 of new money for WSIP capital projects, $15,750 to reimburse the Enterprise for costs to settle litigation arising out of certain capital projects of benefit to the Enterprise, and to refund $99,180 of outstanding 2001 Series A and 2002 Series A revenue bonds, with the balance applied to fi nancing costs and a cash-funded debt service reserve. The bonds were rated “AA-” and “Aa3” from S&P and Moody’s, respectively. The bonds included serial and term bonds with interest rates varying from
4.0% to 5.0%.
The $5 9 1,61 0 S er ies A b onds were i ssued as ta x- exempt bonds t o pr ovide $5 30,0 00 i n new money for WSIP capital projects. The Series A bonds were issued as serial and term bonds with coupons ranging from 4.0% to 5.0% and have a final maturity of 2043. The Series A bonds have a true interest cost of 4.3%. A portion of the proceeds of the 2017 Series D, 2019 Series A, and 2020 Series E refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements, dated December 1, 2017, December 1, 2019, and October
SAN FRANCISCO WATER ENTERPRISE
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June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
43 (Continued)
1, 2020 respectively, to refund and legally defease a portion of the outstanding 2012 Series A bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2012 Series A bonds starting on November 1, 2031 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2012 Series A bonds outstanding was $0.
The $16,520 Series B bonds were issued as tax-exempt bonds to reimburse the Enterprise $15,750 for costs to settle litigation arising out of certain capital projects of benefit to the Enterprise. The Series B bonds were issued as serial and term bonds with coupons ranging from
4.0% to 5.0% and have a final maturity of 2043. The Series B bonds have a true interest cost of
4.1%. A portion of the proceeds of the 2020 Series G refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement dated October 1, 2020 to refund and legally defease a portion of the outstanding 2012 Series B bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2012 Series B bonds starting on November 1, 2031 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2012 Series B bonds outstanding was $0.
The $93,750 Series C bonds were issued as tax-exempt bonds to provide $101,147 to refund, on a current basis, a portion of the 2001 Series A bonds as well as refund, on an advance basis, a portion of the 2002 Series A bonds. The Series C bonds were issued as serial bonds with coupons ranging from 4.0% to 5.0% and have a final maturity of 2032. The Series C bonds have a true interest cost of 3.7%. A portion of the proceeds of the 2017 Series E and 2020 Series G refunding bonds was deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreements dated December 1, 2017 and October 1, 2020, respectively, to refund and legally defease a portion of the outstanding 2012 Series C bonds. This deposit, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2012 Series C bonds starting on November 1, 2025 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2012 Series C bonds outstanding was $0.
In April 2015, the Enterprise issued tax-exempt revenue bonds, 2015 Series A in the amount of $429,600 for the purpose of refunding all the outstanding 2006 Series A bonds maturing on and after November 1, 2015 and portion of the outstanding 2009 Series A bonds maturing on and after November 1, 2023. The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2015 Series A bonds include serial bonds with interest rates varying from 2.0% to 5.0% and have a final maturity in 2036. The Series A bonds have a true interest cost of 3.3%.
Unamortized 2006 Series A bond issuance costs were $1,392, and there were no unamortized bond issuance costs for 2009 Series A bonds at the date of the refunding. The refunding resulted in the recognition of a deferred accounting loss of $25,365, gross debt service savings of $28,148 over the next 20 two-year terms, and an economic gain of $48,561 or 10.3% of refunded principal. As of June 30, 2022 and 2021, the principal amount of 2015 Series A bonds outstanding was $382,420 and $397,745, respectively.
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
44 (Continued)
In October 2016, the Enterprise issued tax-exempt revenue bonds, 2016 Series AB in the aggregate amount of $893,820. The 2016 Series A bonds were issued for the purpose of refunding a portion of the outstanding 2009 Series A bonds maturing on and after November 1, 2020, a portion of the outstanding 2009 Series B bonds maturing on and after November 1, 2020, and a portion of the outstanding 2010 Series F bonds maturing on and after November 1, 2021. The 2016 Series B bonds were issued for the purpose of refunding, on a current basis, all the outstanding 2006 Series B and Series C bonds, and a portion of the outstanding 2010 Series A bonds maturing on and after November 1, 2020, the bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2016 Series AB bonds include serial bonds with interest rates varying from 1.5% to 5.0% and have a final maturity in 2039. The Series AB bonds have a true interest cost of 2.9%. Unamortized bond issuance costs at the date of refunding were $145 for 2006 Series B bonds and $54 for 2006 Series C bonds. The refunding resulted in the recognition of a deferred accounting loss of $106,205, gross debt service savings of $135,966, and an economic gain of $107,152 or 11.5% of refunded principal. As of June 30, 2022 and 2021, the principal amount of 2016 Series AB bonds outstanding was $791,245 and $824,575, respectively.
In December 2016, the Enterprise issued taxable bonds, 2016 Series C in the amount of $259,350. The bonds were issued as Green Bonds. The purpose of the bonds was to refund all of the outstanding taxable commercial paper notes in the approximate amount of $237,000, and to provide $19,975 of new money for WSIP capital projects. The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2016 Series C bonds include serial bonds with interest rates varying from 0.9% to 4.0% and have a final maturity in 2046, and two term bonds with 4.0% and 4.2% interest rates and final maturities of 2041 and 2046. The Series C bonds have a true interest cost of 3.9%. As of June 30, 2022 and 2021, the principal amount of 2016 Series C bonds outstanding was $231,230 and $237,050, respectively.
In December 2017, the Enterprise issued tax-exempt revenue bonds, 2017 ABC in the aggregate amount of $339,540. The purpose of the 2017 Series ABC Bonds was to refund approximately $120,500 aggregate principal amount of commercial paper notes and to provide $230,500 new money for WSIP capital projects, other various capital projects of the Water Enterprise, and capital projects of Hetch Hetchy Water. The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2017 Series ABC bonds include serial bonds with coupon rates of 5.0% and have final maturity in 2045, and four term bonds with coupons of
5.0% and final maturities from 2045 to 2047.
The $121,140 2017 Series A bonds were issued as tax-exempt Green Bonds to refund approximately $60,265 of commercial paper notes and to provide $65,500 in new money for WSIP capital projects. The Series A bonds were issued as serial and term bonds with coupons of
5.0% and a final maturity of 2047. The Series A bonds have a true interest cost of 3.8%. A portion of the proceeds of the 2020 Series E refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement dated October 1, 2020 to refund and legally defease a portion of the outstanding 2017 Series A bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies
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June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
45 (Continued)
held by the escrow agent will be sufficient to redeem the maturities of the 2017 Series A bonds starting on November 1, 2030 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2017 Series A bonds outstanding was $27,000.
The $147,725 2017 Series B bonds were issued as tax-exempt bonds to provide $150,000 in new money for Water Enterprise capital projects (non-WSIP). The Series B bonds were issued as ser ial and ter m bon ds with cou pons of 5 .0% and hav e a final mat ur ity of 20 47. T he S er ies B b o n d s h a v e a t r u e i n t e r e s t c o s t o f 3 . 8 % . A p o r t i o n o f t h e p r o c e e d s o f t h e 2 0 2 0 S e r i e s F refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement dated October 1, 2020 to refund and legally defease a portion of the outstanding 2017 Series B bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2017 Series B bonds starting on November 1, 2030 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2017 Series B bonds outstanding was $32,930.
The $70,675 2017 Series C bonds were issued as tax-exempt bonds to refund approximately $60,266 of commercial paper notes and to provide $15,000 in new money for Hetch Hetchy Water capital projects. The Series C bonds were issued as serial bonds and a term bond with coupons of 5.0% and have a final maturity of 2047. The Series C bonds have a true interest cost of 3.8%. A portion of the proceeds of the 2020 Series H refunding bonds were deposited with the trustee, acting as escrow agent under the irrevocable Escrow Agreement dated October 1, 2020 to refund and legally defease a portion of the outstanding 2017 Series C bonds. These deposits, together with certain other available monies was held by the escrow agent under the Escrow Agreement and invested in non-callable Federal Securities. The principal and interest on monies held by the escrow agent will be sufficient to redeem the maturities of the 2017 Series C bonds starting on November 1, 2030 and thereafter. As of June 30, 2022 and 2021, the principal amount of 2017 Series C bonds outstanding was $15,750.
In December 2017, the Enterprise issued tax-exempt revenue bonds, 2017 Series DEF, and taxable 2017 Series G refunding bonds in the aggregate amount of $442,180. The 2017 Series D (WSIP, Green) bonds were issued for the purpose of refunding a portion of the outstanding 2011 Series A (WSIP) bonds maturing on and after November 1, 2022, a portion of the outstanding 2012 Series A bonds maturing on and after November 1, 2031.
The 2017 Series E bonds were issued for the purpose of refunding a portion of the outstanding 2011 Series C bonds maturing on or after November 1, 2022, a portion of the outstanding 2011 Series D bonds maturing on and after November 1, 2022, a portion of 2012 Series C1 bonds maturing on or after November 1, 2029.
The 2017 Series F bonds were issued for the purpose of refunding a portion of the outstanding 2011 Series B bonds maturing on or after November 1, 2022.
The taxable 2017 Series G (WSIP, Green) bonds were issued to refund a portion of the outstanding 2011 Series A bonds maturing on and after November 1, 2022.
The bonds carried “Aa3” and “AA-” ratings from Moody’s and S&P, respectively. The 2017 Series DEFG bonds include serial bonds with interest rates varying from 2.0% to 5.0% and have a final
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June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
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m a t u r i t y i n 2 0 3 5 . T h e S e r i e s D E F G b o n d s h a v e a t r u e i n t e r e s t c o s t o f 2 . 9 % . T h e r e f u n d i n g resulted in the recognition of a deferred accounting loss of $34,275, gross debt service savings of $68,942, and an economic gain of $51,698 or 10.7% of refunded principal. As of June 30, 2022 and 2021, the principal amount of 2017 Series DEFG bonds outstanding was $436,350 and $438,095 respectively.
In January 2020, the Enterprise issued taxable revenue bonds, 2019 Series ABC refunding bonds in the aggregate amount of $656,955. The 2019 Series A (WSIP, Green) bonds were issued for the purpose of refunding a portion of the outstanding 2010 Series F (WSIP) bonds maturing on and after November 1, 2020, a portion of the outstanding 2011 Series A (WSIP) bonds maturing on and after November 1, 2020, and a portion of the outstanding 2012 Series A (WSIP) bonds maturing on and after November 1, 2035.
The 2019 Series B (Hetch Hetchy Water) bonds were issued for the purpose of refunding a portion of the outstanding 2011 Series B bonds maturing on or after November 1, 2032.
The 2019 Series C (Local) bonds were issued for the purpose of refunding a portion of the outstanding 2011 Series C bonds maturing on or after November 1, 2032.
The bonds carried “Aa2” and “AA-” ratings from Moody’s and S&P, respectively. The 2019 Series ABC bonds include serial bonds with interest rates varying from 1.8% to 3.5% and have a final m a t u r i t y i n 2 0 4 3 . T h e S e r i e s A B C b o n d s h a v e a t r u e i n t e r e s t c o s t o f 3 . 3 % . T h e r e f u n d i n g resulted in the recognition of a deferred accounting loss of $17,329, gross debt service savings of $119,827, and an economic gain of $92,556 or 14.0% of refunded principal. As of June 30, 2022 and 2021, the principal amount of 2019 Series ABC bonds outstanding was $625,555 and $650,100, respectively.
In September 2020, the Enterprise issued tax-exempt revenue bonds, 2020 Series ABCD in the aggregate amount of $346,760. The purpose of the 2020 Series ABCD Bonds was to refund approximately $229,770 aggregate principal amount of commercial paper notes and to provide $164,632 new money for various capital projects of the Water Enterprise, and capital projects of Hetch Hetchy Water. The bonds carried “Aa2” and “AA-” ratings from Moody’s and S&P, respectively. The 2020 Series ABCD bonds include term bonds with coupons of 3.0% to 5.0% and final maturities from 2045 to 2050.
The $150,895 2020 Series A bonds were issued as tax-exempt Green Bonds to refund approximately $180,000 of commercial paper notes for WSIP capital projects. The Series A bonds were issued as term bonds with coupons of 4.0% and 5.0% and a final maturity of 2050.
The 2020 Series A bonds have a true interest cost of 3.3%. As of June 30, 2022 and 2021, the principal amount of 2020 Series A bonds outstanding was $150,895.
The $61,330 Series B bonds were issued as tax-exempt bonds to provide $69,644 in new money for Water Enterprise capital projects (non-WSIP, Regional). The Series B bonds were i ss ued a s t er m bon ds wi t h co u p on s o f 5. 0 % and h ave a fi nal m at u ri t y of 2 0 50 . T he S er ie s B bonds have a true interest cost of 3.7%. As of June 30, 2022 and 2021, the principal amount of 2020 Series B bonds outstanding was $61,330.
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
47 (Continued)
The $85,335 Series C bonds were issued as tax-exempt bonds to provide $94,948 in new money for Water Enterprise capital projects (non-WSIP, Local). The Series C bonds were issued as term bonds with coupons of 4.0% and have a final maturity of 2050. The Series C bonds have a true interest cost of 3.0%. As of June 30, 2022 and 2021, the principal amount of 2020 Series C bonds outstanding was $85,335.
The $49,200 Series D bonds were issued as tax-exempt bonds to refund approximately $49,761 of commercial paper notes for Hetch Hetchy Water capital projects. The Series D bonds were issued as term bonds with coupons of 3.0% and a final maturity of 2050. The 2020 Series D bonds have a true interest cost of 2.7%. As of June 30, 2022 and 2021, the principal amount of 2020 Series D bonds outstanding was $49,200.
In October 2020, the Enterprise issued taxable revenue bonds, 2020 Series EFGH refunding bonds in the aggregate amount of $664,395. The 2020 Series E (WSIP, Green) bonds were issued for the purpose of refunding a portion of the outstanding 2010 Series D (WSIP) bonds maturing on and after November 1, 2020, a portion of the outstanding 2012 Series A (WSIP) bonds maturing on and after November 1, 2038, and a portion of the outstanding 2017 Series A (WSIP) bonds maturing on and after November 1, 2030.
The 2020 Series F (non-WSIP, Regional) bonds were issued for the purpose of refunding a portion of the outstanding 2017 Series B bonds maturing on or after November 1, 2030.
The 2020 Series G (non-WSIP, Local) bonds were issued for the purpose of refunding a portion of the outstanding 2010 Series D bonds maturing on or after November 1, 2020, a portion of the 2011 Series D bonds maturing on or after November 1, 2022, a portion of 2012 Series B bonds maturing on or after November 1, 2031, and a portion of 2012 Series C bonds maturing on or after November 1, 2025.
The 2020 Series H (Hetch Hetchy Water) bonds issued for the purpose of refunding a portion of the outstanding 2017 Series C bonds maturing on or after November 1, 2030.
The bonds carried “Aa2” and “AA-” ratings from Moody’s and S&P, respectively. The 2020 Series EFGH bonds include serial bonds and term bonds with interest rates varying from 0.3% to 3.1% and have a final maturity in 2047. The Series EFGH bonds have a true interest cost of 2.7%. The refunding resulted in the recognition of a deferred accounting loss of $27,010, gross debt service savings of $117,114, and an economic gain of $75,212 or 12.0% of refunded principal.
As of June 30, 2022 and 2021, the principal amount of 2020 Series EFGH bonds outstanding was $650,570 and $664,395, respectively.
The following table presents the future annual debt service relating to the revenue and refunding bonds outstanding as of June 30, 2022. The federal interest subsidy amounts represent 35.0%, excluding sequestration, of the interest for the revenue bond 2010 Series B, E, and G.
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
48 (Continued)
As defined in the Indentures, the principal and interest of the Enterprise’s revenue and refunding bonds are payable from its revenues, as well as monies deposited in certain funds and accounts pledged thereto (see Note 5).
In September 2017, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a Clean Water State Revolving Fund (CWSRF) Loan and Grant to fund the Enterprise’s SF Westside Recycled Water Project. The CWSRF loan is in the amount of $186,220, which includes $15,000 of principal forgiveness, or a grant. It will bear an interest rate of 1.0% for a 30-year term, with loan repayment beginning one year after substantial completion of project construction. The CWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. The principal outstanding as of June 30, 2022 and 2021 were $121,761 and $107,407, respectively. In addition, there was $15,000 of principal forgiveness.
Principal
Interest
before
subsidy
Federal
interest
subsidy*
Interest n et
of s ubsidy
2023 $ 125,285 203,067 (21,290) 181,777
2024 135,095 197,481 (20,841) 176,640
2025 140,485 191,563 (20,370) 171,193
2026 151,930 185,085 (19,876) 165,209
2027 157,635 177,956 (19,345) 158,611
2028-2032 892,755 770,116 (87,360) 682,756
2033-2037 1,092,025 540,947 (64,682) 476,265
2038-2042 1,037,900 295,084 (35,116) 259,968
2043-2047 464,125 145,355 (17,128) 128,227
2048-2051 387,415 40,159 (4,608) 35,551
4,584,650 2,746,813 (310,616) 2,436,197
Less: Current portion (125,285)
Less: Unamortized bond discount (124)
Add: Unamortized bond premiums 276,409
Long-term portion as of June 30, 2022 $ 4,735,650
* The SFPUC received an IRS notice dated June 2, 2022 that the federal interest subsidies on the 2010 Series B bonds, 2010 Series E bonds, an d 2010 Series G bonds are reduced by 5.7%, or a total reduction of $18,776, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same after fiscal year 2023.
Fiscal years ending June 30:
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
49 (Continued)
In April 2022, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a Drinking Water State Revolving Fund (DWSRF) Loan to fund the Enterprise’s Mountain Tunnel Improvement Project. The DWSRF loan is in the amount of $238,219. It will bear an interest rate of 1.1% for a 30-year term, with interest payments beginning annually after the initial loan proceed draw occurs and loan principal repayment beginning one year after substantial completion of project construction. Power Enterprise is responsible for repayment for its share of SRF Loan debt service costs representing up to its allocable share of the cost of the Mountain Tunnel Project by a Memorandum of Understanding that will be executed with the Water Enterprise. The DWSRF loan is secured on a parity lien basis with the Enterprise’s outstanding revenue bonds. The principal outstanding as of June 30, 2022 was $0.
On November 5, 2002, the San Francisco voters passed Proposition A, which provides for the issuance of revenue bonds and/or other forms of indebtedness by the Commission in a principal amount not to exceed $1,628,000 to finance the acquisition and construction of improvements to the City’s Water System. As of June 30, 2022, there was no commercial paper outstanding pursuant to this authorization and $1,499,230 of bonds had been issued in fiscal years 2006, 2010, 2012, 2021 against Prop A. The total authorization against Prop A was $1,499,230 as of June 30, 2022.
On November 5, 2002, the San Francisco voters passed Proposition E, which authorizes the Board of Supervisors’ approval of the issuance of revenue bonds and/or other forms of indebtedness by the Commission to finance costs for the Commission’s capital programs, including WSIP. As of June 30, 2022, the Board of Supervisors authorized the issuance of $4,617,099 in revenue bonds with $3,898,744 issued against this authorization; in September 2017, the SFPUC entered into an Installment Sale Agreement with the State Water Resources Control Board for a Clean Water State Revolving Fund (CWSRF) Loan and Grant to fund the Enterprise’s SF Westside Recycled Water Project in the amount of $186,220 (which includes a California C lean W ater State R evolving F und Loan Principal Interest Total 2023 $ 3,283 1,142 4,425
2024 3,542 1,185 4,727
2025 3,577 1,149 4,726
2026 3,613 1,114 4,727
2027 3,649 1,077 4,726
2028-2032 18,801 4,833 23,634
2033-2037 19,760 3,874 23,634
2038-2042 20,768 2,866 23,634
2043-2047 21,827 1,806 23,633
2048-2052 22,941 692 23,633
121,761 19,738 141,499
Less: Current portion (3,283)
Long-term portion as of June 30, 2022 $ 118,478
Fiscal years ending June 30:
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
50 (Continued)
$15,000 grant) and in April 2022, the SFPUC entered in to an Installment Sale Agreement with the State Water Resources Control Board for a Drinking Water State Revolving Fund (DWSRF) Loan to fund the Mountain Tunnel Improvement Project in the amount of $238,219.
Additionally, $206,297 and $105,862 in commercial paper was outstanding pursuant to this authorization as of June 30, 2022 and 2021, respectively.
In October 2009, the City issued $167,670 in certificates of participation to fund the headquarters building of the SFPUC at 525 Golden Gate Avenue. The 2009 Series C were issued for $38,120 and 2009 Series D for $129,550 as “Build America Bonds” on a taxable basis under the 2009 American Recovery and Reinvestment Act. The 2009 Series C certificates carry interest rates ranging from 2.0% to 5.0% and mature on November 1, 2022. The 2009 Series D certificates carry interest rates ranging from 6.4% to 6.5% and mature on November 1, 2041, after adjusting for the federal interest subsidy, the true interest cost averages 3.4% and
4.3% for Series C and Series D, respectively.
Under the terms of a memorandum of understanding (MOU) between the City and the SFPUC dated October 1, 2009, the City conveyed the real property to the Trustee, the Bank of New York Mellon Trust Company, N.A., which was replaced by U.S. Bank in March 2014 under a property lease in exchange for the proceeds of the sale of the certificates. The Trustee has leased the property back to the City for the City’s use under a project lease. The City is obligated under the project lease to pay base rental payments and other payments to the Trustee each year during the 32-year term of the project lease. The Commission makes annual base rental payments to the City for the building equal to annual debt service on the certificates. It is anticipated these lease costs will be offset with reductions in costs associated with current office rental expense.
There are no events of default stated in the MOU.
Each of the three Enterprises has an ownership interest in the building equal to their projected usage of space as follows: Water (73%), Wastewater (15%), and Power (12%). Similarly, each Enterprise is responsible for a portion of the annual base rental payment based on their ownership percentages less contributed equity. The percentage share of base rental payments for the Enterprises is as follows: Water (71.4%), Wastewater (18.9%), and Power (9.7%).
The future annual debt services relating to the certificates of participation 2009 Series C and D outstanding as of June 30, 2022 are as follows:
Principal Interest Total
2023 $ 3,124 78 3,202
3,124 78 3,202
Less: Current portion (3,124)
Add: Unamortized bond premiums 14
Less: Current portion (14)
Long-term portion as of June 30, 2022 $ —
Certificates o f Participation 2 009 Series C ( Tax-Exempt) Fiscal years ending June 30:
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
51 (Continued)
In accordance with GASB Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowing and Direct Placements . Significant Events of default as specified in the Water Enterprise Indenture (applicable to Water Revenue Bonds, and SRF Loan) include 1) Non- payment 2) material breach of warranty, representation or indenture covenants (not cured within applicable grace periods) and 3) bankruptcy and insolvency events, which may result in the Trustee (upon written request by the majority of the owners (by aggregate amount of the bond obligations or of a credit provider), declaring the principal and the interest accrued thereon, to be due and payable immediately. As of June 30, 2022, there were no such events describe herein.
(
8) Revenue Pledge
The Enterprise has pledged future revenues to repay various revenue bonds and State Revolving Fund loans. Proceeds from the revenue bonds and State Revolving Fund loans provided financing for various capital construction projects, and to refund previously issued bonds. The bonds and State Revolving Fund loans are payable solely from revenues of the Enterprise through the fiscal year ending 2051.
The original amount of revenue bonds and State Revolving Funds loan issued, total principal and interest remaining, principal and interest paid during fiscal years 2022 and 2021, applicable net revenues and funds available for debt service are as follows:
Principal
Interest b efore
subsidy
Federal interest
subsidy *
Interest n et
of subsidy
2023 $ — 5,968 (1,970) 3,998
2024 3,267 5,864 (1,935) 3,929
2025 3,402 5,652 (1,865) 3,787
2026 3,545 5,431 (1,792) 3,639
2027 3,695 5,201 (1,716) 3,485
2028-2032 20,949 22,183 (7,321) 14,862
2033-2037 25,811 14,651 (4,835) 9,816
2038-2042 31,830 5,335 (1,761) 3,574
Total 70,285 (23,195) 47,090
Long-term portion as of June 30, 2022 $ 92,499
Certificates o f Participation 2 009 Series D ( Taxable) * The SFPUC received an IRS notice dated June 2, 2022 that the federal interest subsidy on the 2009 Series D bonds is reduced by 5.7%, or a total reduction of $1,402, due to sequestration over the remaining life of the bonds assuming the sequestration rate will remain the same after fiscal year 2023.
Fiscal years ending June 30:
2022 2021
Bonds issued with revenue pledge $ 4,891,480 4,891,480 Principal and interest remaining due at the end of the year 7,472,962 7,771,993 Clean Water State Revolving Fund (CWSRF) loans with revenue pledge 121,761 107,407 Principal and interest paid during the year 279,352 248,427 Net revenues for the year ended June 30 306,918 339,046 Funds available for debt service 410,424 467,738
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
52 (Continued)
(9) Leases
Water Enterprise as Lessee
The Enterprise has entered into long-term leases for land, office space, communication site, data processing, machinery, and other equipment. The terms and conditions for these leases vary, which range between 1 – 75 years.
A s u m m a r y o f i n t a n g i b l e r i g h t - t o - u s e l e a s e s d u r i n g t h e y e a r e n d e d J u n e 3 0 , 2 0 2 2 a n d 2 0 2 1 i s a s follows:
Balance Balance
July 1, 2021 Increases Decreases Remeasurements June 30, 2022 Right-to-use assets:
Land $ 605 - - - 605 Building/Facility 5,041 - - - 5,041 Equipment - - - - - Total lease assets 5,646 - - - 5,646 Less accumulated amortization:
Right-to-use assets:
Land 187 196 - - 383 Building/Facility 1,222 1,229 - - 2,451 Equipment - - - - - Total accumulated
amortization 1,409 1,425 - - 2,834 Total lease assets, net $ 4,237 (1,425) - - 2,812 Balance Balance
July 1, 2020 Increases Decreases Remeasurements June 30, 2021 Right-to-use assets:
Land $ 605 - - - 605 Building/Facility 4,794 250 (3) - 5,041 Equipment - - - - - Total lease assets 5,399 250 (3) - 5,646 Less accumulated amortization:
Right-to-use assets:
Land - 187 - - 187 Building/Facility - 1,225 (3) - 1,222 Equipment - - - - - Total accumulated
amortization
- 1,412 (3) - 1,409 Total lease assets, net $ 5,399 (1,162) - - 4,237
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
53 (Continued)
A summary of changes in the related lease liabilities during the year ended June 30, 2022 and 2021 is as follows:
Future annual lease payments for fiscal years 2022 and 2021 are as follows:
Variable lease payments
Variable lease payments, other than those payments that depend on an index or rate or are fixed in substance, are excluded from the measurement of the lease liability. Such amounts are recognized as lease expenses in the period in which the obligation for those payments is incurred.
Certain equipment or facility rental leases require the Enterprise to make variable lease payments that based on usage, related to the property taxes levied on the lessor, and insurance payments made by the lessor; these amounts are generally determined annually. The amounts recognized as expense for variable lease payments not included in the measurement of the lease liability were $34 and $0 during the year ended June 30, 2022 and 2021, respectively.
Balance Balance
July 1, 2021 Additions Remeasurements Deductions June 30, 202 2 Water lease liabilities $ 4,244 1,381 2,863 1,008 Total $ 4,244 - - 1,381 2,863 1,008 Amounts Due
Within One Year
Balance Balance
July 1, 2020 Additions Remeasurements Deductions June 30, 2021 Water lease liabilities $ 5,399 1,155 4,244 1,381 Total $ 5,399 - - 1,155 4,244 1,381 Amounts Due
Within One Year
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
54 (Continued)
Water Enterprise as Lessor
The Enterprise has leased facilities, easements, communication site and equipment to various tenants. The terms and conditions for these leases vary, which range between 1- 65 years.
Variable payments include percentage of sales, payments depended on an index made by the lessee; these amounts are generally determined periodically. The Enterprise did not incur revenue related to residual value guarantees or lease termination penalties. The total amounts for lease revenue, interest revenue, and other lease-related revenues recognized during the year ended June 30, 2022 and 2021 were $2,332 and $2,976, respectively.
Principal and interest requirements to maturity for the lease receivable at June 30, 2022 and 2021 are as follows:
Year ended
June 30 Principal Interest Total
2023 3,325$ 907$ 4,232$ 2024 3,389 848 4,237 2025 3,470 804 4,274 2026 2,951 743 3,694 2027 2,619 687 3,306 2028-2032 10,827 2,777 13,604 2033-2037 10,736 1,691 12,427 2038-2042 2,258 940 3,198 2043-2047 - 998 998 2048-2052 - 1,157 1,157 2053-2057 - 1,341 1,341 2058-2062 765 789 1,554 2063-2067 1,128 675 1,803 2068-2072 1,577 513 2,090 2073+ 3,120 327 3,447 46,165$ 15,197$ 61,362$
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
55 (Continued)
(10) Wholesale Balancing Account
Water Supply Agreement
From 1984-2009, the Enterprise provided water service pursuant to the terms of the 1984 Water Settlement Agreement and Master Water Sales Contract, which established the basis for water rates to be charged to those customers (Wholesale Customers). The Master Water Sales Contract expired on June 30, 2009. The Commission and the Wholesale Customers approved a Water Supply Agreement (WSA) effective July 1, 2009 (the contract was restated and amended by the SFPUC on December 11, 2018). The WSA has a 25-year term from July 1, 2009 with two options for five-year extensions. The existing 184 million gallons per day (mgd) Supply Assurance continues under the WSA and no increase in the Supply Assurance will be considered before December 31, 2028. During the period from 2009 to 2028, the WSA limits the quantity of water delivered to Retail Customers and Wholesale Customers from the watersheds to 265 mgd. Under the WSA, annual operating expenses, including debt service on bonds sold to finance regional system improvements and regional capital projects funded from revenues, will be allocated between Retail Customers and Wholesale Customers on the basis of proportionate annual water use. The original WSA stated the Wholesale Customers’ share of net book value of existing regional assets as of June 30, 2009 would be recovered on level annual payment over the 25-year term of the WSA at an interest rate of 5.13%. The 25-year term repayment obligation was settled in February 2013. The Wholesale Customers made an early repayment to the Enterprise of the outstanding balance of $356,139 as discussed further in the “BAWSCA Early Repayment” Section 5.03 of the WSA. The WSA continues much of the rate setting, accounting, and dispute resolution provisions contained in the expired contract, and has emergency and drought-pricing adjustment provisions.
Year ended
June 30 Principal Interest Total
2022 3,289$ 957$ 4,246$ 2023 3,285 901 4,186 2024 3,348 843 4,191 2025 3,427 800 4,227 2026 2,905 739 3,644 2027-2031 11,102 2,988 14,090 2032-2036 10,862 1,908 12,770 2037-2041 4,302 1,010 5,312 2042-2046 - 969 969 2047-2051 - 1,123 1,123 2052-2056 - 1,302 1,302 2057-2061 586 924 1,510 2062-2066 1,049 701 1,750 2067-2071 1,479 550 2,029 2072+ 3,476 414 3,890 Total 49,110$ 16,129 $ 65,239 $
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
56 (Continued)
Pursuant to the terms of the WSA, the Enterprise is required to establish water rates applicable to the Wholesale Customers annually. The wholesale water rates are based on an estimate of the level of revenues necessary to recoup the cost of distributing water to the Wholesale Customers in accordance with the methodology outlined in Article V of the WSA (the Wholesale Revenue Requirement (WRR), previously known as the Suburban Revenue Requirement). During fiscal years ending in 2022 and 2021, the WRR, net of adjustments, charged to such wholesale customers was $289,828 and $245,743 respectively. Such amounts are subject to final review by the Wholesale Customers, along with a trailing wholesale balancing account compliance audit of the WRR calculation.
Pursuant to Article VII, Section 7.02 of the WSA, the Enterprise is required to re-compute the WRR after the close of each fiscal year based on the actual costs incurred in the delivery of water to the Wholesale Customers. The difference between the wholesale revenues earned during the year and the “actual” WRR is recorded in a separate account (the Balancing Account) and represents the cumulative amount that is either owed to the Wholesale Customers (if the wholesale revenues exceed the WRR) or owed to the City (if the WRR exceeds the wholesale revenues paid). In accordance with Article VI of the WSA, the amount recorded in the Balancing Account shall earn interest at a rate equal to the average rate received by the City during the year on the invested pooled funds of the City Treasury, and shall be taken into consideration in the determination of subsequent wholesale water rates. The Enterprise owed the Wholesale Customers $79,150 and $60,864 for the years ended June 30, 2022 and 2021, respectively, an increase of $18,286. Refer to the compliance audit report for the final balancing account available at https://sfpuc.org/about-us/reports/audited-financial- statements-annual-financial-reports.
In addition to advancing funds to acquire the pre-2009 assets as discussed previously, the Enterprise has also previously appropriated funds, advanced through rates charged to Retail Customers, for construction of capital projects that were not yet placed into service as of June 30, 2009. Wholesale Customers’ share of these construction work in progress costs is calculated in accordance with the provisions in the WSA, including a 10-year repayment term and payment of annual principal and interest rate calculated at 4.0% annually. The total obligation of the Wholesale Customers to the Enterprise is estimated at $9,532, and the level annual payment including principal and interest is approximately $1,159. The Wholesale Customers made the first annual payment as of June 30, 2015 and will end on June 30, 2024.
(
11) Employee Benefits
The Enterprise participates in a cost-sharing multiple-employer defined benefit pension Plan ( t h e P l a n ) . T h e P l a n i s a d m i n i s t e r e d b y t h e S a n F r a n c i s c o C i t y a n d C o u n t y E m p l o y e e s ’ Retirement System (SFERS). For purposes of measuring the net pension liability, deferred outflows/inflows of resources related to pensions, pension expense, information about the fiduciary net position of the SFERS Plan, and additions to/deductions from the SFERS Plan’s fiduciary net position have been determined on the same basis as they are reported by the SFERS Plan. Contributions are recognized in the period in which they are due pursuant to legal requirements. Benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
57 (Continued)
Replacement Benefits Plan The Replacement Benefits Plan (RBP) is a qualified excess benefit plan established in October 1989. Internal Revenue Code Section 415(m) provides for excess benefit arrangements that legally permit benefit payments above the Section 415 limits, provided that the payments are not paid from the SFERS Plan. The RBP allows the City to pay SFERS retirees any portion of the Charter-mandated retirement allowance that exceeds the annual Section 415(b) limit. The RBP plan does not meet the criteria of a qualified trust under GASB Statement No. 73 because RBP assets are subject to the claims of the employer’s general creditors under federal and state law in the event of insolvency.
GASB Statements No. 68 and 73 require that the SFERS Plan and RBP reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used:
The City is an employer of the plan with a proportionate share of 94.64% as of June 30, 2021 (measurement date), and 94.39% as of June 30, 2020 (measurement date), 0.25% increase from prior year. The Enterprise’s allocation percentage was determined based on the Enterprise’s employer contributions divided by the City’s total employer contributions for fiscal years 2021 and 2020. The Enterprise’s net pension liability/(assets), deferred outflows/inflows of resources related to pensions, amortization of deferred outflows/inflows, and pension expense is based on the Enterprise’s allocated percentage. The Enterprise’s allocation of the City’s proportionate share was 4.27% as of June 30, 2021, and 4.21% as of June 30, 2020 (measurement dates).
Replacement Benefits Plan – The Enterprise’s allocation percentage was determined based on the Enterprise’s headcount (both active members and retirees) divided by the City’s total headcount for fiscal year 2021. The Enterprise’s total pension liability/(assets), deferred outflows/inflows of resources related to pensions, amortization of deferred outflows/inflows and pension expense is based on the Enterprise’s allocated percentage. The Enterprise’s allocation of the City’s proportionate share was 1.85% as of June 30, 2021, and 0.64% as of June 30, 2020 (measurement dates).
SFERS Plan Description – The Plan provides basic service retirement, disability, and death benefits based on specified percentages of defined final average monthly salary and provides annual cost-of-living adjustments after retirement. The Plan also provides pension continuation benefits to qualified survivors. The San Francisco City and County Charter and the Administrative Code are the authorities which establish and amend the benefit provisions and employer obligations of the Plan. The Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for the Plan.
That report may be obtained on the Retirement System’s website or by writing to the San Francisco City and County Employees’ Retirement System, 1145 Market Street, 5 th Floor, San
Francisco, CA 94103 or by calling (415) 487-7000.
Valuation Date (VD) June 30, 2020 updated to June 30, 2021 Measurement Date (MD) June 30, 2021
Measurement Period (MP) July 1, 2020 to June 30, 2021
Valuation Date (VD) June 30, 2019 updated to June 30, 2020 Measurement Date (MD) June 30, 2020
Measurement Period (MP) July 1, 2019 to June 30, 2020
Fiscal year 2 022
Fiscal year 2 021
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
58 (Continued)
SFERS Benefits – Retirement System provides service retirement, disability and death benefits based on specified percentages of defined final average monthly salary and annual cost of living adjustments (COLA) after retirement. Benefits and refunds are recognized when due and payable in accordance with the terms of the Plan. The Retirement System pays benefits according to the category of employment and the type of benefit coverage provided by the City and County. The four main categories of Plan members are:
a) Miscellaneous Non-Safety Members – staff, operational, supervisory, and all other eligible employees who are not in special membership categories. b) Sheriff’s Department and Miscellaneous Safety Members – sheriffs assuming office on and after January 7, 2012, and undersheriffs, deputized personnel of the sheriff’s department, and miscellaneous safety employees hired on and after January 7, 2012. c) Firefighter Members – firefighters and other employees whose principal duties are in fire prevention and suppression work or who occupy positions designated by law as firefighter member positions.
d) Police Members – police officers and other employees whose principal duties are in active law enforcement or who occupy positions designated by law as police member positions.
The membership groups and the related service retirement benefits are included in the Notes to the Basic Financial Statements of San Francisco Employees’ Retirement System.
All members are eligible to apply for a disability retirement benefit, regardless of age, when they have 10 or more years of credited service and they sustain an injury or illness that prevents them from performing their duties. Safety members are eligible to apply for an industrial disability retirement benefit from their first day on the job if their disability is caused by an illness or injury that they receive while performing their duties.
All retired members receive a benefit adjustment each July 1, which is the Basic COLA. The majority of adjustments are determined by changes in CPI with increases capped at 2%. The Plan provides for a Supplemental COLA in years when there are sufficient “excess” investment earnings in the Plan. The maximum benefit adjustment each July 1 is 3.5% including the Basic COLA. Effective July 1, 2012, voters approved changes in the criteria for payment of the Supplemental COLA benefit, so that Supplemental COLAs would only be paid when the Plan is a l so f ul l y fu nd e d o n a m ar k et v al ue o f as set s bas i s. C er ta in p r ovi s i o ns o f t hi s vot er - app r ov e d proposition were challenged in the Courts. A decision by the California Courts modified the interpretation of the proposition. Effective July 1, 2012, members who retired before November 6, 1996 will receive a Supplemental COLA only when the Plan is also fully funded on a market value of assets basis. However, the “full funding” requirement does not apply to members who retired on or after November 6, 1996 and were hired before January 7, 2012. For all members hired before January 7, 2012, all Supplemental COLAs paid to them in retirement benefits will continue into the future even where an additional Supplemental COLA is not payable in any given year. For members hired on and after January 7, 2012, a Supplemental COLA will only be paid to retirees when the Plan is fully funded on a market value of asset basis and in addition for these members, Supplemental COLAs will not be permanent adjustments to retirement benefits. That is, in years when a Supplemental COLA is not paid, all previously paid Supplemental COLAs will expire.
F
unding and Contribution Policy
SFERS Plan – Contributions are made by both the City and the participating employees.
Employee contributions are mandatory as required by the Charter. Employee contribution rates
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
59 (Continued)
varied from 7.5% to 13.0% as a percentage of gross covered salary in fiscal years 2022 and 2021. Most employee groups agreed through collective bargaining for employees to contribute the full amount of the employee contributions on a pretax basis. The City is required to contribute at an actuarially determined rate. Based on the July 1, 2020 actuarial report, the required employer contribution rate for fiscal year 2022 was 19.91% to 24.41%. Based on the July 1, 2019 actuarial report, the required employer contribution rate for fiscal year 2021 was
22.40% to 26.90%.
Employer contributions and employee contributions made by the employer to the Plan are recognized when due and the employer has made a formal commitment to provide the contributions. The City’s proportionate share of employer contributions recognized by the Retirement System in fiscal year ended June 30, 2021 and 2020 (measurement period) were $791,736 and $701,307, respectively. The Enterprise’s allocation of employer contributions for fiscal year 2021 and 2020 (measurement period) were $33,367 and $29,647, respectively.
For the year ended June 30, 2022, the City’s actuarial determined contribution was $729,578.
Water's share was $31,151 for fiscal year 2022 and will be recognized as a reduction of the net pension liability in the subsequent fiscal period.
Replacement Benefits Plan – The RBP is and will remain unfunded and the rights of any participant and beneficiary are limited to those specified in the RBP. The RBP constitutes an unsecured promise by the City to make benefit payments in the future to the extent funded by the City. The City paid $4,097 replacement benefits in the year ended June 30, 2022.
Pension Liabilities/(Asset), Pension Expenses, and Deferred Outflows and Inflows of Resources Related to Pensions
F
iscal Year 2022
As of June 30, 2022, the City reported net pension assets (NPA) for its proportionate share of the net pension (asset) of the SFERS Plan and net pension liability of RBP of $2,227 million. The City’s net pension asset for the SFERS Plan is measured as the proportionate share of the net pension asset. The net pension (asset) of the SFERS Plan is measured as of June 30, 2021 (measurement date), and the total pension asset for the SFERS Plan and RBP used to calculate the net pension (asset) was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The City’s proportion of the net pension (asset) for the SFERS Plan was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The Enterprise’s allocation of the City’s proportionate share of the net pension (asset) for the SFERS Plan and RBP as of June 30, 2022 (reporting year) was ($100,407). The Enterprise’s allocation of total pension liability for the RBP as of June 30, 2022 was $4,056.
For the year ended June 30, 2022, the City’s recognized pension (benefit) was ($922,979) including amortization of deferred outflow/inflow related pension items. The Enterprise’s allocation of pension (benefit) including amortization of deferred outflow/inflow related pension items was ($29,908). Pension (benefit) increased from the prior year, largely due to the amortization of deferrals
As of June 30, 2022, the Enterprise reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
60 (Continued)
Amounts reported as deferred outflows, exclusive of contributions made after the measurement date, and deferred inflows of resources will be amortized annually and recognized in pension expense as follows:
Fiscal Year 2021
The City reported net pension liabilities for its proportionate share of the pension liability of the Plan and RBP of $5,292,473 as of June 30, 2021. The City’s net pension liability for the SFERS Plan is measured as the proportionate share of the net pension liability. The net pension liability of the SFERS Plan is measured as of June 30, 2020 (measurement date), and the total pension liability for the SFERS Plan and RBP used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2019 rolled forward to June 30, 2020 using standard update procedures. The City’s proportion of the net pension liability for the SFERS Plan was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The Enterprise’s allocation of the City’s proportionate share of the net pension liability for the Plan as of June 30, 2021 was $215,240. The Enterprise's allocation of the total pension liability for the RBP as of June 30, 2021 was $1,177.
For the year ended June 30, 2021, the City’s recognized pension expense was $962,576 including amortization of deferred outflow/inflow related pension items. The Enterprise’s allocation of pension expense including amortization of deferred outflow/inflow related pension items was $43,929. Pension expense increased from the prior year, largely due to the amortization of deferrals.
As of June 30, 2021, the Enterprise’s reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows
of R esources
Deferred Inflows
of R esources
Deferred Outflows
of R esources
Deferred Inflow s
of R esources
Pension contribution subsequent to measurement date $ 31,151 — — — Differences between expected and actual experience 9,593 343 552 — Changes in assumptions 7,068 18,339 757 —
Net difference between projected and actual earnings on pension plan investments
— 226,935 — —
Change in employer’s proportion 3,531 1,706 200 1,381 Total $ 51,343 247,323 1,509 1,381
SFERS Plan Replacement B enefits Plan
Fiscal Y ear 2 022 S chedule o f Deferred Outflows a nd Inflows o f R esources Fiscal years SFERS Plan
Replacement
Benefits Plan
2023 $ (57,166) 247
2024 (51,954) 52
2025 (54,608) 1
2026 (63,403) (172)
Total $ (227,131) 128
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
61 (Continued)
Amounts reported as deferred outflows, exclusive of contributions made after the measurement date, and deferred inflows of resources will be amortized annually and recognized in pension expense as follows:
Actuarial Assumptions
Fiscal Year 2022
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability/(Assets) for both SFERS Plan and RBP as of June 30, 2021 (measurement year) is provided below, including any assumptions that differ from those used in the July 1, 2020 actuarial valuation. Refer to the July 1, 2020 actuarial valuation report for a complete description of all other assumptions, which can be found on the Retirement System’s website http://mysfers.org.
Deferred Outflows
of Resources
Deferred Inflows
of R esources
Deferred Outflows
of R esources
Deferred I nflows
of R esources
Pension contribution subsequent to measurement date $ 33,367 — — — Differences between expected and actual experience 7,310 674 112 — Changes in assumptions 11,817 3,728 315 13
Net difference between projected and actual earnings on pension plan investments
4,507 — — —
Change in employer’s proportion 6,987 54 382 416
Total $ 63,988 4,456 809 429
SFERS Plan Replacement B enefits Plan
Fiscal Y ear 2 021 Schedule o f Deferred Outflows a nd Inflows o f R esources Fiscal years SFERS Plan
Replacement
Benefits Plan
2022 $ 54 109
2023 6,166 193
2024 11,286 12
2025 8,659 66
Total $ 26,165 380
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
62 (Continued)
Mortality rates for health Miscellaneous members were based upon adjusted PubG-2010 Employee and Retiree tables for non-annuitants and retirees, respectively. Mortality rates were then projected generationally from the base year using the MP-2019 projection scale.
The actuarial assumptions used at the June 30, 2021 measurement date was based upon the result of a demographic experience study for the period July 1, 2014 through June 30, 2019 and an economic experience study as of July 1, 2020.
F
iscal Year 2021
A summary of the actuarial assumptions and methods used to calculate the Total Pension Liability for both SFERS Plan and RBP as of June 30, 2020 (measurement year) is provided below, including any assumptions that differ from those used in the July 1, 2019 actuarial valuation. Refer to the July 1, 2019 actuarial valuation report for a complete description of all other assumptions, which can be found on the Retirement System’s website http://mysfers.org.
Key Actuarial Assumptions
Valuation Date June 30, 2020 updated to June 30, 2021
Measurement Date June 30, 2021
Actuarial Cost Method Entry - Age Normal Cost
Expected Rate of Return 7.40% net of investment expenses Municipal Bond Yield 2.21% as of June 30, 2020
2.16% as of June 30, 2021
Bond Buyer 20-Bond GO Index, June 25, 2020 and June 24, 2021 Inflation 2.50%
Projected Salary Increases 3.25% plus merit component based employee classification and years of service Discount Rate 7.40% as of June 30, 2020
7.40% as of June 30, 2021
Administrative Expenses 0.60% of payroll as of June 30, 2020
0.60% of payroll as of June 30, 2021
Basic COLA
Old Miscellaneous
and All New Plans
Old Police & Fire,
pre 7/1/75
Old Police & Fire
Charters A8.595
and A8.596
Old Police & Fire
Charters A8.559
and A8.585
June 30, 2020 2.00% 2.50% 3.10% 4.20%
June 30, 2021 2.00% 1.90% 2.50% 3.60%
Key Actuarial Assumptions
Valuation Date June 30, 2020 updated to June 30, 2021
Measurement Date June 30, 2021
Actuarial Cost Method Entry-Age Normal Cost
Municipal Bond Yield 2.16% as of June 30, 2021
Bond Buyer 20-Bond GO Index, June 25, 2020 and June 24, 2021 Inflation 2.50%
Projected Salary Increases 3.25% plus merit component based employee classification and years of service Discount Rate 2.16% as of June 30, 2021
Administrative Expenses 0.60% of payroll as of June 30, 2021 Basic COLA Old Miscellaneous Old Police & Fire
Old Police & Fire,
Charters
Old Police & Fire,
Charters
June 30, 2020 2.00% 2.50% 3.10% 4.20%
June 30, 2021 2.00% 1.90% 2.50% 3.60%
SFERS Plan
Replacement Benefits Plan
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
63 (Continued)
For healthy annuitants, the sex distinct 2009 CalPERS healthy annuitant mortality table, adjusted 1.014 for females and 0.909 for males. For active members, the sex distinct 2009 CalPERS employee mortality tables, adjusted 0.918 for females and 0.948 for males. Rates are projected generationally from the 2009 base year using a modified version of the MP-2015 projection scale.
The actuarial assumptions used at the June 30, 2020 measurement date was based upon the result of a demographic experience study for the period July 1, 2009 through June 30, 2014 and an economic experience study as of July 1, 2019.
Key Actuarial Assumptions
Valuation Date June 30, 2019 updated to June 30, 2020
Measurement Date June 30, 2020
Actuarial Cost Method Entry - Age Normal Cost
Expected Rate of Return 7.40% net of pension plan investment, including inflation Municipal Bond Yield 3.50% as of June 30, 2019
2.21% as of June 30, 2020
Bond Buyer 20 - Bond GO Index, June 27, 2019 and June 25, 2020 Inflation 2.75%
Projected Salary Increases 3.50% plus merit component based employee classification and years of service Discount Rate 7.40% as of June 30, 2019
7.40% as of June 30, 2020
Administrative Expenses 0.60% of payroll as of June 30, 2019
0.60% of payroll as of June 30, 2020
Basic COLA
Old Miscellaneous
and All New Plans
Old Police & Fire,
pre 7/1/75
Old Police & Fire
Charters A8.595
and A8.596
Old Police & Fire
Charters A8.559
and A8.585
June 30, 2019 2.00% 2.50% 3.10% 4.20%
June 30, 2020 2.00% 2.50% 3.10% 4.20%
Key Actuarial Assumptions
Valuation Date June 30, 2019 updated to June 30, 2020
Measurement Date June 30, 2020
Actuarial Cost Method Entry - Age Normal Cost
Municipal Bond Yield 2.21% as of June 30, 2020
Bond Buyer 20 - Bond GO Index, June 27, 2019 and June 25, 2020 Inflation 2.75%
Projected Salary Increases 3.50% plus merit component based employee classification and years of service Discount Rate 2.21% as of June 30, 2020
Administrative Expenses 0.60% of payroll as of June 30, 2020 Basic COLA Old Miscellaneous Old Police & Fire
Old Police & Fire,
Charters
Old Police & Fire,
Charters
June 30, 2020 2.00% 2.50% 3.10% 4.20%
SFERS Plan
Replacement Benefits Plan
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
64 (Continued)
Discount Rate
Fiscal Year 2022
SFERS Plan – The beginning and end of year measurements are based on different assumptions and contribution methods that may result in different discount rates. The discount rate was 7.40% as of June 30, 2021 (measurement date) and June 30, 2020 (measurement date).
The discount rate used to measure the Total Pension Liability as of June 30, 2021 was 7.40%.
The projection of cash flows used to determine the discount rate assumed that plan member contributions will continue to be made at the rates specified in the Charter. Employer contributions were assumed to be made in accordance with the contribution policy in effect for July 1, 2020 actuarial valuation. That policy includes contributions equal to the employer portion of the entry age normal costs for members as of the valuation date, a payment for the expected administrative expenses, and an amortization payment on the unfunded actuarial liability.
The amortization payment is based on closed periods that vary in length depending on the source. Charter amendments prior to July 1, 2014 are amortized over 20 years. After July 1, 2014, any Charter changes to active member benefits are amortized over 15 years and changes to inactive member benefits, including Supplemental COLAs, are amortized over 5 years. The remaining unfunded actuarial liability not attributable to Charter amendments as of July 1, 2013 is amortized over a 19-year period commencing July 1, 2014. Experience gains and losses and assumption or method changes on or after July 1, 2014 are amortized over 20 years. The full amortization payment for the 2015 assumption changes is phased in over a period of 5 years.
For the July 1, 2016 valuation, the increase in the unfunded actuarial liability attributable to the Supplemental COLAs granted on July 1, 2013 and July 1, 2014 are amortized over 17-years and 5-years respectively. All amortization schedules are established as a level percentage of payroll so payments increase 3.25% each year. The unfunded actuarial liability is based on an actuarial value of assets that smooths investment gains and losses over five years and a measurement of the actuarial liability that excludes the value of any future Supplemental COLAs.
While the contributions and measure of actuarial liability in the funding valuation do not anticipate any future Supplemental COLAs, the projected contributions for the determination of the discount rate include the anticipated future amortization payments on future Supplemental COLAs for current members when they are expected to be granted. For members who worked after November 6, 1996 and before Proposition C passed (Post 97 Retirees), a Supplemental COLA is granted if the actual investment earnings during the year exceed the expected investment earnings on the actuarial value of assets. For members who did not work after November 6, 1996 and before Proposition C passed, the market value of assets must also exceed the actuarial liability at the beginning of the year for a Supplemental COLA to be granted.
When a Supplemental COLA is granted, the amount depends on the amount of excess earnings and the basic COLA amount for each membership group. The large majority of members receive a 1.50% Supplemental COLA when granted.
Because the probability of a Supplemental COLA depends on the current funded level of the Retirement System for certain members, an assumption was developed as of June 30, 2021 for the probability and amount of Supplemental COLA for each future year. A full Supplemental COLA will be paid to all retired members, and their beneficiaries, who were retired effective July 1, 2021. The table below shows the net assumed Supplemental COLA for members with a
2.00% Basic COLA for sample years.
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
65 (Continued)
The projection of benefit payments to current members for determining the discount rate includes the payment of anticipated future Supplemental COLAs.
Based on these assumptions, the Retirement System’s fiduciary net position was projected to be available to make projected future benefit payments for current members for all future years.
Projected benefit payments are discounted at the long-term expected return on assets of 7.40% to the extent the fiduciary net position is available to make the payments and at the municipal bond rate of 2.16% to the extent they are not available. The single equivalent rate used to determine the Total Pension Liability as of June 30, 2021 is 7.40%.
The long-term expected rate of return on pension plan investments was 7.40%. It was set by the Retirement Board after consideration of both expected future returns and historical returns experienced by the Retirement System. Expected future returns were determined by using a building-block method in which best-estimate ranges of expected future real rates of return were developed for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Target allocation and best estimates of geometric long-term expected real rates of return (net of pension plan investment expense and inflation) for each major asset class are summarized in the following table.
Replacement Benefits Plan – The beginning and end of year measurements are based on different assumptions that result in different discount rates. The discount rate was 2.16% as of June 30, 2021. This reflects the yield for a 20-year, tax-exempt general obligation municipal bond with an average rating of AA/Aa or higher. The Municipal Bond Yields are the Bond Buyer 20-Year GO Index as of June 25, 2020 and June 24, 2021. These are the rates used to determine the total pension liability as of June 30, 2021.
Fis cal y ears
2023 0.75 % 0.70 %
2025 0.75 0.70
2027 0.75 0.60
2029 0.75 0.60
2031 0.75 0.60
2033+ 0.75 0.50
Before 1 1/6/96 o r
Aft er P rop C96 - P rop C
Ass umed S upplemental C OLA f or M embers w ith a 2 .00% B asic C OLA Asset C lass Target A llocation L ong-Term E xpected R eal R ate o f R eturn Global Equity 37.0 % 4.2 %
Private Equity 23.0 7.9
Private Credit 10.0 5.1
Real Assets 10.0 5.1
Hedge Funds/Absolute Return 10.0 2.9
Treasuries 8.0 0.0
Liquid Credit 5.0 2.3
Leverage -3.0 0.1
Total 100.0
Long- Term Expected R eal R ates o f R eturn
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
66 (Continued)
The inflation assumption of 2.50% compounded annually was used for projecting the annual IRC Section 415(b) limitations. However, the actual IRC Section 415(b) limitations published by the IRS of $230 for 2021 was used for the 2021 measurement date.
The SFERS assumptions about Basic and Supplemental COLA previously discussed also apply to the Replacement Benefits Plan, including the impact of the State Appeals Court determination that the full funding requirement for payment of Supplemental COLA included in Proposition C was unconstitutional and the impact is accounted for as a change in benefits.
On June 30, 2022, City’s membership in the RBP had a total of 350 active members and 135 retirees and beneficiaries currently receiving benefits. The Enterprise has 9 active members and 3 retirees and beneficiary currently receiving benefits.
F
iscal Year 2021
SFERS Plan – The beginning and end of year measurements are based on different assumptions and contribution methods that may result in different discount rates. The discount rate was 7.40% as of June 30, 2020 (measurement date) and June 30, 2019 (measurement date).
The discount rate used to measure the Total Pension Liability as of June 30, 2020 was 7.40%.
The projection of cash flows used to determine the discount rate assumed that plan member contributions will continue to be made at the rates specified in the Charter. Employer contributions were assumed to be made in accordance with the contribution policy in effect for July 1, 2019 actuarial valuation. That policy includes contributions equal to the employer portion of the entry age normal costs for members as of the valuation date, a payment for the expected administrative expenses, and an amortization payment on the unfunded actuarial liability.
The amortization payment is based on closed periods that vary in length depending on the source. Charter amendments prior to July 1, 2014 are amortized over 20 years. After July 1, 2014, any Charter changes to active member benefits are amortized over 15 years and changes to inactive member benefits, including Supplemental COLAs, are amortized over 5 years. The remaining unfunded actuarial liability not attributable to Charter amendments as of July 1, 2013 is amortized over a 19-year period commencing July 1, 2014. Experience gains and losses and assumption or method changes on or after July 1, 2014 are amortized over 20 years. The full amortization payment for the 2015 assumption changes is phased in over a period of 5 years.
For the July 1, 2016 valuation, the increase in the unfunded actuarial liability attributable to the Supplemental COLAs granted on July 1, 2013 and July 1, 2014 are amortized over 17-years and 5-years respectively. All amortization schedules are established as a level percentage of payroll so payments increase 3.50% each year. The unfunded actuarial liability is based on an actuarial value of assets that smooths investment gains and losses over five years and a measurement of the actuarial liability that excludes the value of any future Supplemental COLAs.
While the contributions and measure of actuarial liability in the funding valuation do not anticipate any future Supplemental COLAs, the projected contributions for the determination of the discount rate include the anticipated future amortization payments on future Supplemental COLAs for current members when they are expected to be granted. For members who worked after November 6, 1996 and before Proposition C passed (Post 97 Retirees), a Supplemental COLA is granted if the actual investment earnings during the year exceed the expected investment earnings on the actuarial value of assets. For members who did not work after November 6, 1996 and before Proposition C passed, the market value of assets must also
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
67 (Continued)
exceed the actuarial liability at the beginning of the year for a Supplemental COLA to be granted.
When a Supplemental COLA is granted, the amount depends on the amount of excess earnings and the basic COLA amount for each membership group. The large majority of members receive a 1.50% Supplemental COLA when granted.
Because the probability of a Supplemental COLA depends on the current funded level of the Retirement System for certain members, an assumption was developed as of June 30, 2020 for the probability and amount of Supplemental COLA for each future year. There were no excess earnings during the fiscal year ending June 30, 2020; consequently, no Supplemental COLA will be paid effective July 1, 2020. The table below shows the net assumed Supplemental COLA for members with a 2.00% Basic COLA for sample years.
The projection of benefit payments to current members for determining the discount rate includes the payment of anticipated future Supplemental COLAs.
Based on these assumptions, the Retirement System’s fiduciary net position was projected to be available to make projected future benefit payments for current members for all future years.
Projected benefit payments are discounted at the long-term expected return on assets of 7.40% to the extent the fiduciary net position is available to make the payments and at the municipal bond rate of 2.21% to the extent they are not available. The single equivalent rate used to determine the Total Pension Liability as of June 30, 2020 is 7.40%.
The long-term expected rate of return on pension plan investments was 7.40%. It was set by the Retirement Board after consideration of both expected future returns and historical returns experienced by the Retirement System. Expected future returns were determined by using a building-block method in which best-estimate ranges of expected future real rates of return were developed for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Target allocation and best estimates of geometric long-term expected real rates of return (net of pension plan investment expense and inflation) for each major asset class are summarized in the following table.
Fis cal y ears
2022 0.75 % 0.19 %
2024 0.75 0.27
2026 0.75 0.30
2028 0.75 0.33
2030 0.75 0.35
2032 0.75 0.37
2034+ 0.75 0.38
Before 1 1/6/96 o r
After P rop C96 - P rop C
Assu med S upplemen tal C OLA f or M embers w ith a 2 .00% B asic C OLA
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
68 (Continued)
Replacement Benefits Plan – The beginning and end of year measurements are based on different assumptions that result in different discount rates. The discount rate was 2.21% as of June 30, 2020. This reflects the yield for a 20-year, tax-exempt general obligation municipal bond with an average rating of AA/Aa or higher. The Municipal Bond Yields are the Bond Buyer 20-Year GO Index as of June 27, 2019 and June 25, 2020. These are the rates used to determine the total pension liability as of June 30, 2020.
The inflation assumption of 2.75% compounded annually was used for projecting the annual IRC Section 415(b) limitations. However, the actual IRC Section 415(b) limitations published by the IRS of $230 for 2020 was used for the 2020 measurement date.
The SFERS assumptions about Basic and Supplemental COLA previously discussed also apply to the Replacement Benefits Plan, including the impact of the State Appeals Court determination that the full funding requirement for payment of Supplemental COLA included in Proposition C was unconstitutional and the impact is accounted for as a change in benefits.
On June 30, 2021, City’s membership in the RBP had a total of 683 active members and 105 retirees and beneficiaries currently receiving benefits. The Enterprise has 4 active members and 1 retiree and beneficiary currently receiving benefits.
Sensitivity of Proportionate Share of the Net Pension Liability (NPL)/Net Pension Assets (NPA) to Changes in the Discount Rate – The following presents the Enterprise’s allocation of the employer’s proportionate share of the net pension liability/(asset) for the SFERS Plan, calculated using the discount rate, as well as what the Enterprise’s allocation of the employer’s proportionate share of the net pension liability/(asset) would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate.
F
iscal Year 2022
Fiscal Year 2021
Asset C lass Target A llocation L ong-Term E xpected R eal R ate o f R eturn Global Equity 31.0 % 4.9 %
Private Equity 18.0 7.9
Real Assets 17.0 5.7
Hedge Funds/Absolute Return 15.0 3.0
Private Credit 10.0 4.8
Treasuries 6.0 -0.5
Liquid Credit 3.0 2.7
Total 100.0
Long- Term Expected R eal R ates o f R eturn
Employer
1% Decrease Share
of NPL @ 6.40%
Share of NPA
@ 7.40%
1% Increase Share
of NPA @ 8.40%
Water 69,621 $ (104,463) (248,184) Employer
1% Decrease Share
of NPL @ 6.40%
Share of NPL
@ 7.40%
1% Increase Share
of NPL @ 8.40%
Water 380,571 $ 215,240 78,645
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
69 (Continued)
The following presents the Enterprise’s allocation of the employer’s proportionate share of the total pension liability for the Replacement Benefits Plan, calculated using the discount rate, as well as what the Enterprise’s allocation of the employer’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate.
F
iscal Year 2022
Fiscal Year 2021
The Enterprise participates in a single-employer defined benefit other postemployment benefits plan (the Plan). The Plan is maintained by the City and is administered through the City’s Health Service System. It provides postemployment medical, dental and vision insurance benefits to eligible employees, retired employees, surviving spouses, and domestic partners. Health benefit provisions are established and may be amended through negotiations between the City and the respective bargaining units. The City does not issue a separate report on its other postemployment benefit plan.
GASB Statement No. 75 requires that reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used.
The Enterprise’s proportionate share percentage of the Plan was determined based on its percentage of citywide “pay-as-you-go” contributions for the year ended June 30, 2021 and June 30, 2020. The Enterprise’s net OPEB liability, deferred outflows/inflows of resources related to OPEB, amortization of deferred outflows/inflows and OPEB expense to each department is based on the Enterprise’s allocated percentage. The Enterprise’s proportionate share of the City’s OPEB elements as of June 30, 2021 and 2020 measurement dates were 3.90% and
3.89%, respectively.
Employer 1% Decrease @ 1.16%
Measurment
Date @ 2.16% 1% Increase @ 3.16%
Water 4,889$ 4,056 3,411 Employer 1% Decrease @ 1.21%
Measurment
Date @ 2.21% 1% Increase @ 3.21%
Water 1,418 $ 1,177 989
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
70 (Continued)
Benefits
Permanent full-time and elected employees are eligible to retire and receive postretirement health insurance benefits when they are eligible for retirement benefits from the City and County of San Francisco’s Retirement System. The eligibility requirements are as follows:
Normal Retirement Miscellaneous Age 50 with 20 years of credited service 1 A g e 6 0 w i t h 1 0 y e a r s o f c r e d i t e d s e r v i c e S a f e t y A g e 5 0 w i t h 5 y e a r s o f c r e d i t e d s e r v i c e Disabled Retirement2 Any age with 10 years of credited service Terminated Vested 5 years of credited service at separation 1 Age 53 with 20 years of credited service, age 60 with 10 years of credited service, or age 65 for Miscellaneous members hired on or after January 7, 2012.
2 No service requirement for Safety members retiring under the industrial disability benefit or for surviving spouses / domestic partners of those killed in the line of duty.
Retiree healthcare benefits are administered by the San Francisco Health Service System and include the following:
Medical: PPO – City Health Plan (self-insured) and UHC Medicare Advantage (fully-insured)
HMO – Kaiser (fully-insured) and Blue Shield (flex-funded) Dental: Delta Dental, DeltaCare USA and UnitedHealthcare Dental Vision: Vision benefits are provided under the medical insurance plans and are administered by Vision Service Plan.
Projections of the sharing of benefit related costs are based on an established pattern of practice.
C
ontributions
Benefits provided under the Plan are currently paid through “pay as you go” funding.
Additionally, under the City Charter, active officers and employees of the City who commenced employment on or after January 10, 2009, shall contribute to the Retiree Health Care Trust Fund (Trust Fund) a percentage of compensation not to exceed 2% of pre-tax compensation. The City shall contribute 1% of compensation for officers and employees who commenced employment on or after January 10, 2009 until the City’s GASB Actuary has determined that the City’s portion of the Trust Fund is fully funded. At that time, the City’s 1% contribution shall cease, and officers and employees will each contribute 50% of the maximum 2% of pre-tax compensation.
Starting July 1, 2016, active officers and employees of the City who commenced employment on or before January 9, 2009, shall contribute 0.25% of pre-tax compensation into the Trust Fund.
Beginning on July 1st of each subsequent year, the active officers and employees of the City who commenced employment on or before January 9, 2009, shall contribute an additional
0.25% of pre-tax compensation up to a maximum of 1%. Starting July 1, 2016, the City shall contribute 0.25% of compensation into the Trust Fund for each officer and employee who commenced employment on or before January 9, 2009. Beginning on July 1st of each subsequent year, the City shall contribute an additional 0.25% of compensation, up to a maximum of 1% for each officer and employee who commenced employment on or before
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
71 (Continued)
January 9, 2009. When the City’s actuary has determined that the City’s portion of the Trust Fund is fully funded, the City’s 1% contribution shall cease, and officers and employees will each contribute 50% of the maximum 1% of pre-tax compensation.
Additional or existing contribution requirements may be established or modified by amendment to the City’s Charter.
For the fiscal years ending June 30, 2022 and 2021, funding was based on “pay-as-you-go” plus a contribution of $41,841 and $39,555 to the Retiree Healthcare Trust Fund, respectively. The “pay-as-you-go” portion paid by the City was $211,025 for a total contribution of $252,866 for the fiscal year ending June 30, 2022, and $206,439 for a total contribution of $245,994 for the fiscal year ending June 30, 2021. The Enterprise’s proportionate share of the City’s contributions for fiscal year 2022 was $9,873, and for fiscal year 2021 was $9,572, and will be recognized as a reduction of the net OPEB liability in the subsequent fiscal period.
O
PEB liabilities, OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB Fiscal Year 2022
As of June 30, 2022, the City reported net OPEB liabilities relat ed to the Plan of $3, 691,1 22.
Th e En t er pr is e’ s pr op or ti on at e sh are o f t he C it y’ s net O PE B l i ab il i ty as of J u n e 3 0, 2 0 2 2 wa s $144,115.
For the year ended June 30, 2022, the City’s recognized OPEB expense was $272,001.
Amortization of the City’s deferred outflows and inflows is included as a component of OPEB expense. The Enterprise’s proportionate share of the City’s OPEB expense was $14,566.
As of June 30, 2022, the Enterprise reported its proportionate share of the City’s deferred outflows/inflows of resources related to OPEB from the following sources:
Deferred
Outflows o f
Resources
Deferred
Inflow s o f
Resources
Contributions subsequent to measurement date 9,873$ - $ Differences between expected and actual experience 4,330 22,191 Changes in assumptions 6,091 -
Net difference between projected and actual earnings
on plan investments
- 2,728
Change in Proportion 12,151 429
Total 32,445$ 25,348$
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
72 (Continued)
Amounts reported as deferred outflows, exclusive of contributions made after the measurement date, and deferred inflows of resources will be amortized annually and recognized in OPEB expense as follows:
Fiscal Year 2021
As of June 30, 2021, the City reported net OPEB liabilities relat ed to the Plan of $3, 823,3 34.
Th e En t er pr is e’ s pr op or ti on at e sh are o f t he C it y’ s net O PE B l i ab il i ty as of J u n e 3 0, 2 0 2 1 wa s $148,771.
For the year ended June 30, 2021, the City’s recognized OPEB expense was $320,684.
Amortization of the City’s deferred outflows and inflows is included as a component of OPEB expense. The Enterprise’s proportionate share of the City’s OPEB expense was a credit of $5,978.
As of June 30, 2021, the Enterprise reported its proportionate share of the City’s deferred outflows/inflows of resources related to OPEB from the following sources:
Year e nded J une 3 0:
2023 (313)$
2024 (324)
2025 (286)
2026 (263)
2027 (669)
Thereafter (921)
Total (2,776)$
Deferred
Outflows o f
Resources
Deferred
Inflows o f
Resources
Contributions subsequent to measurement date 9,572$ - $ Differences between expected and actual experience 5,394 21,315 Changes in assumptions 7,531 -
Change in Proportion 15,168
Net difference between projected and actual earnings
on plan investments
97 -
Total 37,762$ 21,315$
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
73 (Continued)
Amounts reported as deferred outflows, exclusive of contributions made after the measurement date, and deferred inflows of resources will be amortized annually and recognized in OPEB expense as follow:
Actuarial Assumptions
Fiscal Year 2022
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2021 (measurement date) is provided below:
Year e nded J une 3 0 :
2022 1,266$
2023 1,324
2024 1,312
2025 1,351
2026 1,368
Thereafter 254
Total 6,875$
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
74 (Continued)
The mortality rates in the base tables are projected generationally from the base year using the MP-2019 projection scale.
Fiscal Year 2021
A summary of the actuarial assumptions and methods used to calculate the Total OPEB Liability as of June 30, 2020 (measurement date) is provided below:
The mortality rates in the base tables are projected generationally from the base year using the MP-2019 projection scale.
Sensitivity of Liabilities to Changes in the Healthcare Cost Trend Rate and Discount Rate The following presents the Enterprise’s proportionate share of the City’s net OPEB liability calculated using the healthcare cost trend rate, as well as what the Enterprise’s allocation of the City’s net OPEB liability would be if it were calculated using a healthcare cost trend rate that is 1% lower or 1% higher than the current rate:
Valuation D ate June 30, 2020
Measurement D ate June 30, 2020
Actuarial C ost M ethod The Entry Age Actuarial Cost Method is used to measure the Plan's Total OPEB Liability Healthcare C ost T rend R ates Pre-Medicare trend starts at 4.00% in 2022, 7.00% in 2023, trending down to ultimate rate of 4.04% in 2075 Medicare trend starts at 1.00% in 2022, 7.50% in 2023, trending down to ultimate rate of 4.04% in 2075 10-County average trend starts at 4.5% in 2022, 5.50% in 2023, trending down to ultimate rate of 4.04% in 2075 Vision and expenses trend remains a flat 3.0% for all years Expected R ate o f R eturn o n Plan A ssets 7.00%
Salary I ncrease R ate Wage Inflation Component: 3.25%
Additional Merit Component (dependent on years of service):
Police: 0.50% - 7.50%
Fire: 0.50% - 14.00%
Muni Drivers: 0.00% - 16.00%
Craft: 0.50% - 3.75%
Misc: 0.30% - 5.50%
I
nflation R ate Wage Inflation: 3.25% compounded annually Consumer Price Inflation: 2.50% compounded annually
Mortality T ables
Published T able Male Female
Miscellaneous PubG-2010 Employee 0.834 0.866
Safety PubS-2010 Employee 1.011 0.979
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.031 0.977
Safety PubS-2010 Employee 0.947 1.044
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.045 1.003
Safety PubS-2010 Employee 0.916 0.995
Published Table Male Female
Miscellaneous PubG-2010 Employee 1.031 0.977
Safety PubG-2010 Employee 1.031 0.977
Adjustment Factor
Beneficiaries
Key A ctuarial A ssumptions
Base mortality tables are developed by multiplying a published table by an adjustment factor developed in SFERS experience study for the period ending June 30, 2019.
Non-Annuitants
Healthy Retirees
Disabled Retirees
Adjustment F actor
Adjustment Factor
Adjustment Factor
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
75 (Continued)
Fiscal Year 2022
The discount rate used to measure the Total OPEB Liability as of June 30, 2021 was 7.0%.
Based on the assumption that plan member contributions will continue to be made at the rates specified in the Charter, it was determined that the Plan’s projected fiduciary net position will be greater than or equal to the benefit payments projected for each future period. As such, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.
The long-term expected rate of return on OPEB plan investments was 7.0% based on expected future returns and historical returns experienced by the Trust Fund. Expected future returns were determined based on 10-year and 20-year capital market assumptions for the Trust Fund’s asset allocation. Target allocation for each major asset class and best estimates of geometric real rates of return are summarized in the following table:
Fiscal Y ear 2 022
Employer -1.00% Healthcare T rend 1.00%
Water 122,667$ 144,115 $ 170,851 $ Fiscal Y ear 2 021
Employer -1.00% Healthcare T rend 1.00%
Water 128,633$ 148,771 $ 175,020 $ Target A llocation
Long-term
Expected R eal
Rate o f R eturn
Equities
U.S. Large Cap 28.0% 8.2%
U.S. Small Cap 3.0% 9.5%
Developed Market Equity (non-U.S.) 15.0% 8.9%
Emerging Market Equity 13.0% 11.0%
Credit
Bank Loans 3.0% 4.4%
High Yield Bonds 3.0% 4.4%
Emerging Market Bonds 3.0% 4.3%
Rate S ecurities
Investment Grade Bonds 9.0% 1.9%
Long-term Government Bonds 4.0% 3.2%
Short-term Treasury Inflation-Protected Securities (TIPS) 4.0% 1.5% Private M arkets
Private Equity 5.0% 13.0%
Core Private Real Estate 5.0% 6.2%
Risk M itigating S trategies
Global Macro 5.0% 4.4%
Total 100.0%
Asset C lass
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
76 (Continued)
The following presents the Enterprise’s proportionate share of the City’s net OPEB liability calculated using the discount rate, as well as what the Enterprise’s proportionate share of the City’s net OPEB liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate:
F
iscal Year 2021
The discount rate used to measure the Total OPEB Liability as of June 30, 2020 was 7.0%.
Based on the assumption that plan member contributions will continue to be made at the rates specified in the Charter, it was determined that the Plan’s projected fiduciary net position will be greater than or equal to the benefit payments projected for each future period. As such, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.
The long-term expected rate of return on OPEB plan investments was 7.0% based on expected future returns and historical returns experienced by the Trust Fund. Expected future returns were determined based on 10-year and 20-year capital market assumptions for the Trust Fund’s asset allocation. Target allocation for each major asset class and best estimates of geometric real rates of return are summarized in the following table:
The asset allocation targets summarized above have a 20-year return estimate of 6.90%, which was weighted against a 10-year model estimating a 6.93% return, resulting in the ultimate long- term expected rate of return of 7.00%.
1% D ecrease
6 .00 %
Discount R ate
7.00 %
1 % I ncrease
8.0 0%
168,520$ 144,115 $ 124,181 $ Target A llocation
Long-term
Expected Real
Rate o f R eturn
Equities
U.S. Large Cap 28.0% 8.4%
U.S. Small Cap 3.0% 9.8%
Developed Market Equity (non-U.S.) 15.0% 9.6%
Emerging Market Equity 13.0% 11.7%
Credit
Bank Loans 3.0% 4.9%
High Yield Bonds 3.0% 4.9%
Emerging Market Bonds 3.0% 4.8%
Rate S ecurities
Investment Grade Bonds 9.0% 2.2%
Long-term Government Bonds 4.0% 3.1%
Short-term Treasury Inflation-Protected Securities (TIPS) 4.0% 1.9% Private M arkets
Private Equity 5.0% 12.5%
Core Private Real Estate 5.0% 6.4%
Risk M itigating S trategies
Global Macro 5.0% 4.1%
Total 100.0%
Asset C lass
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
77 (Continued)
The following presents the Enterprise’s proportionate share of the City’s net OPEB liability calculated using the discount rate, as well as what the Enterprise’s proportionate share of the City’s net OPEB liability would be if it were calculated using a discount rate that is 1% lower or 1% higher than the current rate:
The City issues a publicly available financial report that includes the complete note disclosures and required supplementary information related to the City’s postemployment health care obligations. The report may be obtained by writing to the City and County of San Francisco, Office of the Controller, 1 Dr. Carlton B. Goodlett Place, Room 316, San Francisco, California 94102, or by calling (415) 554-7500.
(
12) Related Parties
Various common costs incurred by the Commission are allocated among the Enterprise, Hetch Hetchy Water and Power and CleanPowerSF Enterprise, and the Wastewater Enterprise. The allocations are based on the Commission management’s best estimate and may change from year to year depending on the activities incurred by each Enterprise and the information available. The administrative costs including COVID-19 Project expenses of $52,769 or 49.2% and $48,374 or 49.4% were allocated to the Enterprise for the years ended June 30, 2022 and 2021, respectively.
The City performs certain administrative services such as maintenance of accounting records and investment of cash for all fund groups within the City. The various funds are charged for these services based on the City’s indirect cost allocation plan.
The Enterprise purchases water from Hetch Hetchy Water. The amounts, totaling $45,815 and $44,149 for the years ended June 30, 2022 and 2021, respectively, have been included in the services provided by other departments in the accompanying financial statements.
The Enterprise purchases electricity from Hetch Hetchy Power at market rates. The amounts, totaling $11,394 and $9,790 for the years ended June 30, 2022 and 2021, respectively, have been included in services provided by other departments in the accompanying financial statements.
The Enterprise sold water to the Wastewater Enterprise at retail rates. This amount, totaling $1,819 and $1,308 for the years ended June 30, 2022 and 2021, respectively, has been included in charges for services in the accompanying financial statements.
Since fiscal year 2008, the Enterprise has charged City departments for water usage except for fire hydrants, which are used for general public safety. In fiscal years 2022 and 2021, the Enterprise delivered water for fire hydrant purposes totaling $8 and $7, respectively, based on metered usage and applicable water rates, and the amount has been excluded from operating revenues in the accompanying financial statements.
A variety of City departments provide services such as engineering, purchasing, legal, data processing, telecommunications, and human resources to the Enterprise and charge amounts designed to recover those departments’ costs. These charges, totaling $15,951 and $16,239 for the years ended June 30, 2022 and 2021, respectively, have been included in services provided by other departments in the accompanying financial statements.
1% D ecrease
6 .00 %
Discount R ate
7.00 %
1 % I ncrease
8.0 0%
172,646$ 148,771 $ 129,281 $
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
78 (Continued)
During the fiscal year ended June 30, 2022, the Enterprise transferred $30,000 to Hetch Hetchy Water to fund various Mountain Tunnel projects, $500 to the Department of Public Works for the UN Plaza Large Alternative Water Source project and purchase of capital assets, $134 to the Arts Commission for arts enrichment fund for the new CDD Headquarters, and $32 to the Office of the City Administrator for the Enterprise’s contribution to the Surety Bond Program. The Enterprise received $15,030 for the Earthquake Safety and Emergency Response program, and $5 from the General Fund for low income assistance programs.
As of June 30, 2022, the Enterprise had interfund receivables of $102 from DPW relating to custom work projects and $69 from Academy of Sciences for unpaid interdepartmental services. As of June 30, 2021, the Enterprise had $248 due from DPW for custom work projects.
The Enterprise had receivables due from the Treasure Island Development Authority for capacity fees of $195 and from the Office of Community Investment and Infrastructure for custom work projects of $7 for the year ended June 30, 2022. As of June 30, 2021, the Enterprise had no receivables due from component units.
SFPUC’s 75-year lease agreement with the San Francisco Recreation and Park Department, for the use of parking spaces for its fleet of vehicles at the Civic Center Garage, commenced on February 1, 2011. The total payment under this agreement is $6,274, which was fully made as of fiscal year 2015. The expenses and prepayments among the three SFPUC Enterprises are based on 525 Golden Gate occupancy. As of June 30, 2022, the Enterprise’s allocable shares of expenses and prepayment were $44 and $3,265, respectively; and at June 30, 2021, the Enterprise’s allocable shares of expenses and prepayment were $45 and $3,309, respectively. (
13) Risk Management
The Enterprise’s Risk Management program includes both self-insured (i.e., self-retention) and insured exposures at risk. Risk assessments and purchasing of insurance coverage are collaboratively coordinated by SFPUC Risk Management and the City’s Office of Risk Management. With certain exceptions, the City and the Enterprise’s general approach is to first evaluate the exposure at risk for self-insurance. Based on this analysis, internal mitigation strategies and financing through a self- retention mechanism is generally more economical as the SFPUC in coordination with the City Attorney’s Office, administers, adjusts, settles, defends, and pays claims from budgeted resources (i.e., pay-as-you-go fund). When economically more viable or when required by debt financing covenants, the Enterprise obtains commercial insurance. At least annually, the City actuarially determines general liability and workers’ compensation risk exposures. The Enterprise does not maintain commercial earthquake coverage, with certain minor exceptions, such as a sub-limit for fire- sprinkler leakage due to earthquake under the SFPUC Property Insurance program. In the past three years, there was no settlements that exceeded insurance coverage.
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
79 (Continued)
Through coordination with the Controller Office and the City Attorney’s Office, the general liability risk exposure is actuarially determined and is addressed through pay-as-you-go funding as part of the budgetary process. Associated costs and estimates are recorded as expenses as required under GAAP for financial statement purposes for both the Enterprise and the City and County of San Francisco’s Annual Comprehensive Financial Report. The claim expense allocations are determined based on actuarially determined anticipated claim payments and the projected timing of disbursement.
The changes for the general liability (damage claims) for the years ended June 30, 2022 and 2021 are as follows:
The City actuarially determines and allocates workers’ compensation costs to the Enterprise according to a formula based on the following: (i) the dollar amount of claims; (ii) yearly projections of payments based on historical experience; and (iii) the size of the Enterprise’s payroll. The administration of workers’ compensation claims and payouts are handled by the Workers’ Compensation Division of the City’s Department of Human Resources. Statewide workers’ compensation reforms have resulted in budgetary savings in recent years. The City continues to develop and implement improved programs, such as return-to-work programs, to lower or mitigate the growth of workers’ compensation costs. Programs include accident prevention, investigation, and duty modification for injured employees with medical restrictions so return to work can occur as soon as possible.
The changes in the liabilities for workers’ compensation for the years ended June 30, 2022 and 2021 are as follows:
Risk Coverage A pproach
(a) General liability Self-Insured
(b) Workers’ compensation Self-Insured through Citywide Pool (c) Property Purchased Insurance and Self-Insured
(d) Public officials liability Purchased Insurance
(e) Employment practices liability Purchased Insurance
(f) Cyber Liability Purchased Insurance
(g) Crime Purchased Insurance
(h) Electronic data processing Purchased Insurance and Self-Insured (i) Surety bonds Purchased and Contractual Risk Transfer (j) Errors and omissions Purchased and Contractual Risk Transfer (k) Builders’ risk Contractual Risk Transfer
Beginning Claims a nd changes C laims End o f
of year in estimates paid year
$3 6 , 7 2 3 452 (1,106 ) 36,069
10,767 27,643 (1,687) 36,723
Fiscal years
2021
2022
Beginning Claims a nd c hanges Claims End o f
of year in estimates paid year
$ 8,828 2,793 (2,648) 8,973
9,174 1,912 (2,258) 8,828
Fiscal years
2021
2022
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
80 (Continued)
The Enterprise’s property risk management approach varies depending on whether the facility is currently under construction, the property is part of revenue-generating operations, the property is of high value, or is mission-critical in nature. During the course of construction, the Enterprise requires each contractor to provide its own insurance, while ensuring the full scope of work be covered with satisfactory levels to limit the Enterprise’s risk exposure. Once construction is complete, the Enterprise performs an assessment to determine whether liability/loss coverage will be obtained through the commercial property policy or self-insurance. The majority of property scheduled in the insurance program is for either: (1) revenue generating facilities, (2) debt-financed facilities, (3) mandated coverage to meet statutory requirements for bonding of various public officials, or (4) high-value, mission-critical property or equipment.
All Enterprise public officials with financial oversight responsibilities are provided coverage through a commercial Public Officials Liability Policy.
A Policy is retained to protect against employment-related claims and liabilities.
A Policy is retained to protect against cyber-related claims and liabilities.
The Enterprise also retains a Commercial Crime Policy, in lieu of bonding its employees, to provide coverage against liabilities or losses due to third-party crime or employee fraud.
The Electronic Data Processing policy protects selected high-value electronic property in case of damage or loss.
Bonds are required in most phases of the public utilities construction contracting process for such phases as bid, performance, and payment or maintenance. Additionally, bonds may be required in other contracts where goods or services are provided to ensure compliance with applicable terms and conditions such as warranty.
Errors and omissions, also known as Professional Liability, are commonly transferred through contract to the contracted professional, or retained through self-insurance on a case-by-case basis depending on the size, complexity, or scope of construction or professional service contracts. Examples of such contracts are inclusive of services provided by engineers, architects, design professionals, and other licensed or certified professional service providers.
SAN FRANCISCO WATER ENTERPRISE
Notes to Financial Statements
June 30, 2022 and 2021
(Dollars in thousands, unless otherwise stated)
81 Builders’ risk policies of insurance are required to be provided by the contractor on all construction projects for the full value of construction. (14) Commitments and Litigation
As of June 30, 2022 and 2021, the Enterprise has outstanding commitments with third parties of $322,132 and $185,161, respectively, for various capital projects and other purchase agreements for materials and services.
Grants that the Enterprise receives are subject to audit and final acceptance by the granting agency. Current and prior year costs of such grants are subject to adjustment upon audit.
The Enterprise is a defendant in various legal actions and claims that arise during the normal course of business. The final disposition of those legal actions and claims is not determinable.
However, in the opinion of management, the outcome of any litigation of these matters will not have a material effect on the financial position or changes in net position of the Enterprise.
As of June 30, 2022 and 2021, the pollution remediation liability of $1,271 related to the Pacific Rod & Gun Club site.
(15) Subsequent Events
On September 13, 2022, the Commission approved to extend moratorium on shutoff of water service for residents in the City through June 30, 2023 and granted the General Manager discretion to restart severance and liens processes to multifamily residential accounts carrying balances greater than $25 which are 90 days or more past due.
Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards
The Honorable Mayor and Board of Supervisors
City and County of San Francisco: We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of San Francisco Water Enterprise (the Enterprise), as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the basic financial
statements, and have issued our report thereon dated January 27, 2023.
Report on Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Enterprise internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Enterprise internal control. Accordingly, we do not express an opinion on the effectiveness of the internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses or significant deficiencies may exist that were not identified.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
KPMG LLP
Suite 1400
55 Second Street
San Francisco, CA 94105
KPMG LLP , a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
San Francisco, California
January 27, 2023
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