Vernon City Council
February 20, 2024

Water Enterprise Fund
of the City of Vernon
Vernon, California
Financial Statements and
Independent Auditors’ Reports
For the Year Ended June 30, 2023

Water Enterprise Fund of the City of Vernon
For the Year Ended June 30, 2023
Table of Contents
Page
INTRODUCTORY SECTION (UNAUDITED):

A Message from the General Manager of Vernon Public Utilities ...................................................................... i FINANCIAL SECTION:

Independent Auditor’s Report on the Audit of the Financial Statements .......................................................... 1 Management’s Discussion and Analysis (Required Supplementary Information) (Unaudited) ...................... 5 Basic Financial Statements:

Statement of Net Position ........................................................................................................................... 12 Statement of Revenues, Expenses, and Changes in Net Position ............................................................... 15 Statement of Cash Flows ............................................................................................................................ 16 Notes to the Basic Financial Statements ..................................................................................................... 23 Required Supplementary Information (Unaudited):

Schedule of Proportionate Share of the Net Pension Liability and Related Ratios ........................................... 44 Schedule Contributions – Pensions ................................................................................................................... 46 Schedule of Proportionate Share of the Net Other Postemployment Benefits Liability and Related Ratios .... 48 Schedule Contributions – Other Postemployment Benefits .............................................................................. 50 This page intentionally left blank.
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A Message From the General Manager Goes Here.

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ELECTRIC FUND
Introduction
Vernon Public Utilities (VPU) remains dedicated to its core mission of providing reliable, safe, and affordable energy while meeting California's clean energy goals. VPU is building a full-service utility that embraces emerging technologies and capitalizes on strategic opportunities.

VPU goes beyond electricity, offering water, natural gas, and fiber optic services. As a publicly owned utility, it prioritizes customer focus, responsible operations, and a sustainable future for the Vernon community. With local control, VPU ensures transparency, competitive rates, and tailored policies to serve the community's needs. In partnership with the local community, VPU is shaping a sustainable energy future for Vernon.

Awards
The American Public Power Association (APPA) designates Reliable Public Power Provider recognition (RP3) to utilities that demonstrate exceptional proficiency in four key areas: safety, reliability, workforce development, and system improvement. Consistent with its mission, VPU strives for excellence in these areas.

APPA has awarded VPU its highest – Diamond Level – RP3 designation for three consecutive terms, encompassing nine years from 2016 to 2025. VPU earned these honors by providing exceptionally reliable and safe electric service. VPU is one of only 26 of the more than 2,000 public power utilities across the United States to achieve Diamond Level RP3 designation from 2022 to 2025. APPA also awarded VPU the Safety Award for Excellence every year since 2018, recording no reportable safety incidents for 2023.

Reliability
VPU emphasizes operational reliability as a cornerstone of its strategic vision. VPU utilizes IEEE’s beta methodology to track reliability metrics to assess and enhance the resilience and dependability of VPU’s services. By tracking and analyzing key reliability indicators, VPU proactively identifies areas for improvement, allocates resources effectively, and implements targeted strategies to maintain an unwavering commitment to providing consistent and uninterrupted power supply to its valued customers. v
Three Reliability Indicators
VPU tracks three reliability indicators that the electric utility industry uses to assess and improve the performance of power distribution systems.

System Average Interruption Frequency Index (SAIFI)
Quantifies the frequency of power outages per customer within a year.

System Average Interruption Duration Index (SAIDI)
Measures the duration of power outages experienced by the average customer over a year.

Customer Average Interruption Duration Index (CAIDI)
Provides the average time it takes to restore power after an outage, calculated by dividing SAIDI by SAIFI.

VPU leverages data and industry benchmarks to improve service quality, minimize downtime, and ensure a reliable power supply. VPU benchmarks its performance against data from the U.S. Energy Information Administration (EIA) to ensure alignment with industry standards and best practices.

For the data year 2021, VPU’s average customer experienced 0.5 outages for 38.2 minutes. The restoration time was approximately 76.4 minutes. These metrics place VPU among the top 25 percent of the electric industry in reliability. Being in the top quartile of electric utility reliability benchmarking signifies VPU’s commitment to excellence, ensuring that the utility consistently delivers dependable service, promotes customer satisfaction, and contributes positively to the overall health of the community it serves.
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Cause of Outages
Virtually all outages in the City of Vernon are from
accidental causes. Contact with metallic balloons is the primary cause of outages (indicated as a “foreign object” in the chart below). The Other category includes single instances of storm damage, direct strike, and equipment damage.
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Energy Resources
VPU’s generation portfolio continues to evolve with state mandates for renewable energy and zerocarbon generation. Vernon participates in the CAISO wholesale energy markets under a metered subsystem agreement (MSSA). Five years ago, natural gas generation from MGS and market purchases supplied approximately 59 percent of VPU’s energy resource mix. The remaining energy came from 7.7 percent nuclear, 1.6 percent large hydroelectric, and approximately 32 percent renewables.

One of VPU’s central goals of the updated Integrated Resource Plan, approved by the City Council in October 2023, is to increase its renewable generation penetration to 60 percent by 2030 as directed by California statute. The chart below shows VPU’s Fiscal Year (FY) 2022-23 Energy Resource Mix. viii
Natural Gas Resources
Malburg Generating Station (MGS)
MGS is a 139 MW combined-cycle
(CC) plant in the City of Vernon. MGS
includes two Siemens GTXI00
natural gas-fired combustion turbine
generators (CTGs) and a steam
turbine generator (STG). MGS has
duct burners, evaporative inlet air
coolers, and filters that enable the
units to achieve higher levels of
power output in selected modes of
operation.

H. Gonzales Generating Station
Units 1 & 2
The H. Gonzales Generating Station
Unit 1 and Unit 2, located within the
City of Vernon, is a natural gas-fueled
facility powered by two Allison
571-KA combustion turbines (CTs),
each rated at 5.75 MW, operating
solely as peaking units. Both CT units
began commercial operation in 1988.

Each unit is restricted by air quality
regulators to run on natural gas for
no more than six hours per day.
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Zero-Emission Resources
Palo Verde Nuclear Station
The Palo Verde Nuclear Generating Station
(PVNGS) is in Tonopah, Arizona,
approximately 55 miles west of Phoenix. It
generates the largest capacity of electricity
in the United States, with the second-largest
rated capacity. The plant consists of three
nuclear electric generating units totaling
3,937 MW. In 1981, VPU signed a “take or
pay” contract with the Southern California
Public Power Authority (SCPPA) for 11 MW
of power from Palo Verde. Under the Power
Purchase Agreement (PPA), VPU must pay
for its proportionate share of power
generated and operating and maintenance
expenses, regardless of the amount of
power taken.

Hoover Dam Hydroelectric Power Plant
The Hoover Dam Hydroelectric Power Plant is
located on the Arizona-Nevada border,
approximately 25 miles southeast of Las
Vegas. This hydropower plant is part of the
larger Hoover Dam facility, which was
completed in 1935 and controls the flow of
the Colorado River. The Hoover Dam facility
consists of 17 generating units and two
service generating units with a total installed
capacity of 2,080 MW. In 1987, Vernon
entered a PPA to purchase 22 MW of firm
capacity from the Western Area Power
Administration (WAPA). SCPPA and other
contractor allocations of Hoover power have
been extended for 50 years beyond the PPA’s
original expiration in 2017, which now expires
in 2067.
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Renewable Energy Resources
Puente Hills Landfill Gas Plant
The Puente Hills Landfill Gas-to-Energy
facility is a 46 MW conventional Rankine
Cycle Steam Power Plant that uses
landfill gas as fuel to generate electricity.

The Los Angeles County Sanitation
District (LACSD) constructed the facility
and began full commercial operation in
January 1987.

SCPPA entered a PPA with LACSD for 43
MW of generating capacity from the
facility. VPU, through SCPPA, is entitled
to 10 MW of renewable capacity from
the facility. The PPA expires on
December 31, 2030.

Astoria II Solar Photovoltaic Facility
The Astoria II Solar PV facility is sited on
approximately 840 acres between Los
Angeles and Kern Counties, and
interconnects with the CAISO system at
the SCE Whirlwind Substation. The City
of Vernon, in conjunction with five other
SCPPA municipal utilities, participated in
a PPA with Recurrent Energy to purchase
the output from the Astoria II Solar
facility for 20 years. The PPA entitled
Vernon to 20 MW of capacity from
January 2017 to December 2021.

Starting in January 2022 and extending
until the PPA’s expiration in December
2036, VPU is entitled to 30 MW of
power.
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Antelope DSR 1 Solar PV Facility
The Antelope DSR 1 Solar PV facility is in the
City of Lancaster, Los Angeles County. It was
developed by the Sustainable Power Group
(sPower) and came online in December 2016.

Through SCPPA, VPU owns a PPA with
Antelope DSR 1 LLC (a subsidiary of sPower)
for 25 MW of output, 50 percent of the
facility’s 50 MW capacity, through December
31, 2036. In conjunction with the solar facility,
the cities of Riverside and Vernon negotiated
an energy storage option in the PPA, which
provides for the potential to design, build,
and operate an energy storage facility at the
site when economically feasible.

Desert Harvest 2 REC Solar PV Project
On December 17, 2020, SCPPA executed a PPA with EDF Renewables for 70 MW of solar PV capacity from the Desert Harvest 2 Solar PV project. The project is a fixed-tilt PV system that interconnects at the Marketplace substation and is located on 1,200 acres of Bureau of Land Management (BLM) land in Desert Center, California. The REC + Index agreement serves the cities of Anaheim, Burbank, and Vernon.

VPU is entitled to 17.14 percent of the Project’s output or about 12 MW. This PPA, which expires at the end of 2045, only provides renewable energy credits (RECs). xii
Daggett Solar PV and BESS Project
The Daggett Solar plus BESS project is a single-axis tracker 65 MW solar with a 33 MW 4-hour Lithium-Ion BESS. The commercial operation date (COD) was December 12, 2023. The project, located in the City of Daggett in San Bernardino County, is a portion of an approximately 482 MW solar PV facility. The project is being developed by Clearway Energy Group and is owned by Daggett Solar Power 2 LLC.

On June 24, 2022, SCPPA executed a PPA for 65 MW for the cities of Vernon and Cerritos. The PPA entitles VPU to 60 MW of solar PV output and 30 MW of energy storage. The PPA expires on December 31, 2044.

Sapphire Solar and BESS Project
The Sapphire Solar project is a solar PV and BESS facility being developed by EDF Renewables. Located on 1,140
acres of private land in Riverside County, the project will generate 117 MW of solar power paired with a 59 MW
4-hour Lithium-Ion BESS with a total capacity of 236
MWh.

The project will interconnect on an existing Desert
Harvest transmission line and deliver to the CAISO
System. The bundled energy products include renewable
energy, RECs, Resource Adequacy, and other energy
attributes. The estimated COD is December 31, 2026. VPU has executed a PPA for 39 MW of solar output combined
with 19.67 MW of BESS. The PPA expires on December 1,
2046.
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Distribution System Capital Improvement Plan
Investing in infrastructure is crucial for a reliable
electric utility. As such, Vernon proactively assesses its distribution system, identifying opportunities to
bolster reliability, enhance safety, optimize efficiency, and increase operational flexibility. These upgrades
will ensure a robust and adaptable electric
distribution system, powering a brighter future for the City and its customers.

For the past three years, from 2020 through 2023,
VPU has been working on a distribution Capital
Improvement Plan (CIP) focused on strengthening its
infrastructure to prevent outages and grid resiliency
to sustain reliability and maintain high service quality.

The result is VPU’s Five-Year CIP, which is updated as
part of the annual budget process. The plan focuses
on infrastructure upgrades to help achieve a strategic
vision that addresses its five-square-mile service
territory and the unique industrial characteristics that make up the City. The plan defined strategies that involve in-depth evaluation of the condition of the electric system, performing detailed engineering analysis of distribution system capability and performance, and listed construction and upgrade projects to help transform the system into an intelligent, increasingly automated, and technologically advanced electric system.

The CIP addresses the key areas and
construction required for
replacements or upgrades. The
success of the CIP results in the
improved electric system reliability
provided to the City of Vernon
residential and business customers.

The plan also aims to reduce VPU's
carbon footprint by removing
greenhouse gas (GHG) emissions
from the system. The plan includes
replacing switches and circuit
breakers that use sulfur
hexafluoride (SF6) for insulation and
leverages new technologies for replacing and upgrading these units. The plan aims to increase system xiv
reliability for the local electric grid and environmental improvements for a sustainable future for the community. VPU estimates that the FY 2024-25 CIP is $25 million. xv
Customer Service
VPU continues to educate its business community on the importance of efficiency through its no-cost energy audit services. Over the years, businesses have successfully leveraged VPU's energy audit services to identify various efficiency opportunities. The utility's longstanding Custom Incentive Program has consistently provided incentives for commercial electric customers that implement efficiency upgrades that produce above building code savings. For FY 2022-23, VPU's energy efficiency programs generated 3,157 MWh of energy savings, along with $212,934 of efficiency rebates issued to VPU customers for lighting retrofits and refrigeration control upgrades.

VPU has also been a key partner
throughout the customer’s
electrification journey, providing
incentives and expertise in the
transition towards increased
sustainability and GHG emission
reduction. In particular, the utility
issued electric vehicle and charger
rebates for customers who switched
to all-electric equipment. In July 2023,
the utility also opened its first fast
charging depot at 3805 S. Soto Street
to support the growing number of
electric vehicles on the road and help
expand public charging infrastructure
in the region.

VPU customers who are in the cold
storage and food processing business sectors continue to explore refrigeration control upgrades to achieve energy savings. The optimization of refrigeration controls often involves system hardware and software upgrades to maximize efficiency. To help support these complex energy efficiency projects, VPU works with a third-party engineering consultant to conduct the evaluation, measurement, and verification studies to confirm the validity of the savings generated. In addition, LED Lighting retrofits continue to account for a majority of energy savings through VPU's Customized Incentive Program. Customers with 24/7 operations and large warehouses can realize significant savings by upgrading from non-LED to LED lighting technology.

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WATER FUND
Introduction
The water supply in Vernon is extremely important for
the well-being of the public, economic growth, and
environmental sustainability. The VPU Water Division
has been working for over a century to ensure that this critical infrastructure is able to provide safe,
dependable, and affordable water services to more
than 800 customers. They distribute around 1.8 billion
gallons of water annually.

To accomplish its mission, the VPU Water Division
consists of professionals who are dedicated to
maintaining the water infrastructure, responding to
any issues as soon as possible, and proactively
planning for the future needs of the water system.

Their knowledge and commitment guarantee that the
water delivered meets the highest quality and service
standards. By prioritizing reliability, sustainability, and affordability, the VPU Water Division team ensures
that the Water Fund continues to succeed financially
and operationally.

Reliability
With a network of 7 Wells, 2 booster plants, and reservoirs with a total capacity of 16.6 million gallons spanning the City, as well as a direct connection to the Metropolitan Water District, the VPU Water Division ensures a consistent supply of high-quality water even during periods of peak demand or drought.

This commitment to reliability is further bolstered by a comprehensive water quality monitoring program that meets rigorous Federal and State regulations.

The VPU Water Division pursues innovative technologies and best practices to ensure high-quality and reliable water service. This includes a bidirectional flushing program, valve exercising programs, prompt repair of leaks to save water loss, and a state-of-the-art real-time UV spectrometer water quality analyzer. xvii
Capital Improvement Plan
The Water Fund continues to implement major capital investments that began in FY 2019-20. The VPU Water Division has made significant capital investments in such projects as the construction of the first new groundwater well since 1989, Well 22; well and reservoir rehabilitation; and an entirely new Supervisory Control and Data Acquisition (SCADA) system along with electrical and fiber service upgrades to ensure the continued reliability of the Water system. This eight-year capital investment program represents a total investment of almost $30 million.

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GAS FUND
Introduction
The VPU Gas Division is a reliable and cost-effective natural gas provider for businesses and residents in Vernon. They operate a state-of-the-art natural gas distribution and transmission system that serves over 125 customers. The Division is committed to providing its customers safe,
reliable, and affordable natural gas service and has been nationally recognized for its strong safety record. The VPU Gas Division is staffed with highly qualified technicians who are available 24/7 to respond to emergencies.

In addition to providing natural gas service, the VPU Gas Division offers various energy efficiency rebate programs and incentives to help customers reduce their GHG
emissions.

The services offered by the VPU Gas Division include:

Natural Gas Service
Provides natural gas services to residential, commercial, and industrial customers.

Energy Efficiency Programs
Offers a variety of energy efficiency programs and incentives to help customers reduce their GHG emissions.

Leak Detection and Repair
A team of experienced technicians who can detect and repair leaks immediately to ensure the continued reliability and safety of customers.

Awards
The VPU Gas Division has received the 2021 Safety Management Excellence Award and the Safety Award for calendar years 2018, 2020, 2021, and 2022 from the American Public Gas Association.

Reliability
As the only public utility in the state with a high-pressure natural gas transmission pipeline and one of the largest public gas systems by volume in the United States, the VPU Gas Division performs an annual assessment of its Integrity Management Plan and routinely surveys its gas system for compliance with regulatory requirements. Further, the VPU Gas Division annually conducts joint training with the Vernon xix
Police Department and the Los Angeles County Fire Department to provide a continued overall understanding of the City’s natural gas system.

Capital Projects
During FY 2022-23, the VPU Gas Division updated its
remote-access SCADA system by installing electronic
recording devices (ERX) in each regulator station. This new system allows for live monitoring of transmission
and distribution pressures, as well as monitoring of
temperatures and alarms.

Additionally, the high-pressure transmission pipeline
system at the Seville lateral underwent a guided-wave
ultrasonic test, and some gouges were discovered. The
system was swiftly repaired, and the lateral was placed back online.

Lastly, the VPU Gas Division conducted a systemwide
inspection of all transmission and distribution valves.

This critical project focused on maintenance to prevent valve leaks, as required by federal regulations.

Gas Energy Efficiency Rebate
The VPU Gas Division is dedicated to supporting its commercial and industrial gas customers in their efforts to decrease energy consumption and GHG emissions. To achieve this, the division provides an Energy Efficiency Rebate Program, which assists customers in saving money, improving energy efficiency, and reducing GHG emissions. The rebate covers a wide range of projects, such as upgrading to highefficiency equipment, implementing energy-saving retrofits, and replacing customer fleets for lower or zero-emission vehicles and forklifts.

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FIBER OPTICS FUND
Introduction
The VPU Fiber Optics Division offers high-speed
fiber optic internet service to residents and
businesses in Vernon. The service is up to 5 times
faster than AT&T and has a dedicated service line
for businesses and residents. Fiber Internet
includes 24-hour customer care technical
support, consistent bi-directional high-speed
connection, 99.9% up-time, and Dark Fiber
connections for lease.

Vernon customers have access to a high-quality and reliable internet service, which is constantly monitored in real-time to ensure a stable connection. The dedicated support team is available 24/7 to swiftly resolve any issues that may arise. Customers are assured reliable connectivity and significantly faster internet speeds and bandwidth due to fiber optic cables.

Significant benefits of the VPU Fiber Optics Division services include:

Smart Grid Infrastructure Support
Fiber optic networks support real-time data collection, fault detection, and remote control of grid components, improving grid stability and reducing power outages.

Diversification of Revenue Streams and Community Development Fiber-based internet services generate additional revenue for VPU and promote economic growth by attracting businesses to the City.

Community Development and Economic Growth
Access to high-speed internet is essential for economic development and attracting businesses to the City.

The VPU Fiber Optic Division is vital in bridging the digital divide by providing fiber-based internet services to underserved areas.
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Capital Projects
In 2023, the VPU Fiber Optics Division
underwent a major upgrade of the entire fiber
equipment system. This upgrade included the
installation of cutting-edge technology and
advanced equipment, resulting in faster
internet speeds and higher reliability for
customers. The upgraded system has
significantly improved the data transmission
rate, reducing latency and increasing
bandwidth.

The fiber system upgrade was a strategic move by the VPU Fiber Optics Division to meet the growing demand for high-speed internet services. VPU’s fiber upgrade significantly increased capacity, with the system now capable of handling 100 GB and offering customers up to 1GB fiber circuit service. With this upgrade, the fiber system is now capable of providing seamless and uninterrupted internet services to more customers, even during peak usage hours.

Moreover, the upgraded fiber system not only meets the current needs of customers but also secures the future growth of the fiber network. The new equipment and technology installed during the upgrade are designed to extend the life expectancy of the system and support future expansion and upgrades. The VPU Fiber Optics Division can confidently meet the increasing demand for high-speed internet services, ensuring the continued reliability and overall satisfaction of our customers. xxii
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2121 North California Blvd., Suite 290
Walnut Creek, California 94596
INDEPENDENT AUDITORS’ REPORT
To the Honorable Mayor and Members of the City Council
of the City of Vernon
Vernon, California
Report on the Audit of the Vernon Public Utilities Financial Statements Opinions
We have audited the accompanying financial statements of the Water Enterprise Fund (the “Water Fund”) of the City of Vernon, California (the “City”), as of and for the year ended June 30, 2023, and the related notes to the financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of the Water Fund as of June 30, 2023, and the change in financial position, and cash flows thereof for the year then ended, in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (“GAAS”), and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States (“Government Auditing Standards”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant requirements relating to out audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter
As discussed in Note 1 to the financial statements, the financial statements present only the Water Fund and do not purport to, and do not, present fairly the financial position of the City as of June 30, 2023, the changes in its financial position, or its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

Responsibility of Management for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

To the Honorable Mayor and Members of the City Council
of the City of Vernon
Vernon, California

2 Auditors’ Responsibility for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.

Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:
 exercise professional judgment and maintain professional skepticism throughout the audit.  identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, no such opinion is expressed.  evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management Discussion and Analysis, the Schedule of the Proportionate Share of the Net Pension Liability and Related Ratios, the Schedule of the Contributions – Pensions, the Schedule of the Proportionate Share of the Net Other Postemployment Benefits Liability and Related Ratios, and the Schedule of the Contributions – Other Postemployment Benefits be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by Government Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary Information in accordance with GAAS, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

To the Honorable Mayor and Members of the City Council
of the City of Vernon
Vernon, California

3 Other Information
Management is responsible for the other information included in this annual report. The other information comprises the Introductory Section but does not include the basic financial statements and our auditors’ report thereon. Our opinion on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon.

In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 8, 2024 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

Santa Ana, California
February 8, 2024
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City of Vernon, California
Water Fund
Management’s Discussion and Analysis (Unaudited)
Year ended June 30, 2023
5 The management of the Water Fund of the City of Vernon (“the City”) offers the following overview and analysis of the basic financial statements for the fiscal year ending June 30, 2023. Management encourages readers to utilize information in the Management’s Discussion and Analysis (“MD&A”) in conjunction with the accompanying basic financial statements.

OVERVIEW OF BASIC FINANCIAL STATEMENTS
The MD&A is intended to serve as an introduction to the Water Fund’s basic financial statements. Included as part of the financial statements are three separate statements.

The statement of net position presents information on the Water Fund’s total assets and deferred outflows of resources and total liabilities and deferred inflows of resources, with the difference between the two reported as net position.

The statement of revenues, expenses, and changes in net position presents information showing how the Water Fund's net position changed during the most recent fiscal year. Financial results are recorded using the accrual basis of accounting. Under this method, all changes in net position are reported as soon as the underlying events occur, regardless of the timing of cash flows. Thus, revenues and expenses reported in this statement for some items may affect cash flows in a future fiscal period (examples include billed but uncollected revenues and employee earned but unused vacation leave).

The statement of cash flows reports cash receipts, cash payments, and net changes in cash and cash equivalents from operations, noncapital financing, capital and related financing, and investing activities.

The notes to the financial statements provide additional information essential to understand the data provided in the financial statements fully.

City of Vernon, California
Water Fund
Management’s Discussion and Analysis (Unaudited)(Continued) Year ended June 30, 2023
6 FINANCIAL HIGHLIGHTS
Net Position
The table below summarizes the Water Fund’s net position as of the current fiscal year, which ended June 30, 2023, and the prior fiscal year, which ended June 30, 2022. The current year’s summary details can be found on pages 18-19 of this report.

City of Vernon
Water Fund
Net Position
June 30, 2023 and 2022
2023 2022 $ Variance
Current and other assets $ 20,467,062 $ 19,535,358 $ 931,704 Restricted assets 2,148,689 7,358,059 (5,209,370)
Due from other funds 18,247 202,798 (184,551)
Capital assets 22,413,711 16,268,011 6,145,700
Total assets 45,047,709 43,364,226 1,683,483
Deferred Outflows of Resources 1,969,039 1,031,044 937,995 Current liabilities 2,334,628 2,180,835 153,793
Long term liabilities 20,688,409 19,398,653 1,289,756
Total liabilities 23,023,037 21,579,488 1,443,549
405,979 2,062,003 (1,656,024)
Net investment in Capital Assets 8,238,109 6,869,387 1,368,722 Restricted for debt 160,440 - 160,440
Unrestricted (deficit) 15,189,183 13,884,392 1,304,791
Total net position $ 23,587,732 $ 20,753,779 $ 2,833,953 Assets
Liabilities
Net Position
Deferred Inflows of Resources
The assets and deferred outflows of resources of the Water Fund exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $23.6 million (net position).

The category of the Water Fund’s net position with the largest balance totaling $15.2 million represents the unrestricted net position that is expected to be used for future projects or other purposes. The remaining category of net position, totaling $8.2 million, represents resources that are invested in capital assets, net of related debt.

City of Vernon, California
Water Fund
Management’s Discussion and Analysis (Unaudited)(Continued) Year ended June 30, 2023
7 FINANCIAL HIGHLIGHTS (Continued)
Activities, Net Position
 Current assets increased by $931,704 from the prior year due to increases in cash and investments by $978,986 and a decrease in accounts receivable by $198,421.  Restricted assets decreased by $5.2 million in 2023 as VPU continue to draw down on the Water System Revenue Bonds, 2020 Taxable Series A to fund capital projects.  Net Capital assets increased $6.1 million from the prior year due to additional water plant investment. (See Note 5)
 Current liabilities decreased by $153,793 from the prior year, primarily due to a decrease in Accounts Payable of $135,694.
 The net investments in capital assets and net of related debt increased by $1.4 million, and the unrestricted (deficit) increased by $1.3 million, which resulted in an increase in the total net position by $2.8 million.

City of Vernon, California
Water Fund
Management’s Discussion and Analysis (Unaudited)(Continued) Year ended June 30, 2023
8 FINANCIAL HIGHLIGHTS (Continued)
Changes in Net Position
The table below summarizes the Water Fund’s changes in net position over the current and prior fiscal years.

The details of the current year’s changes in net position can be found on page 21 of this report.

City of Vernon
Water Fund
Changes in Net Position
June 30, 2023 and 2022
2023 2022 $ Variance
Charges for services $ 9,844,537 $ 10,845,652 $ (1,001,115) Cost of sales 6,226,053 7,743,964 (1,517,911)
Depreciation 575,512 500,102 75,410
Total operating expenses 6,801,565 8,244,066 (1,442,501) Operating income 3,042,972 2,601,586 441,386
Intergovernmental - 194,487 (194,487)
Investment income 327,529 11,991 315,538
Interest expense (551,437) (563,865) 12,428
Gain/Loss on disposition of assets 14,889 (409,841) 424,730 Net nonoperating revenue (expenses) (209,019) (767,258) 558,239 2,833,953 1,834,328 999,625
20,753,779 18,919,451 1,834,328
$ 23,587,732 $ 20,753,779 $ 2,833,953
Charge in net position
Net position - beginning of year
Net position - end of year
Operating Revenues
Operating Expenses
Nonoperating revenues (expenses)
The Water Fund’s change in net position for FY 2022-23 was $2,833,953, primarily due to an operating income of $3,042,972 and lower total nonoperating revenues (expenses) of ($209,019) when compared to the prior year.

Although operating revenues decreased by $1,001,115 compared to the prior year due to the loss of a major customer, it was more than offset by lower operating expenses of $1,517,911.

City of Vernon, California
Water Fund
Management’s Discussion and Analysis (Unaudited)(Continued) Year ended June 30, 2023
9 CAPITAL ASSET AND DEBT ADMINISTRATION

CAPITAL ASSETS
The Water Fund’s investment in capital assets as of June 30, 2023 amounted to $6.1 million (net of accumulated depreciation). This investment in capital assets includes land, construction in progress, and utility system improvements.

Additional information on the Water Fund's capital assets can be found in Note 5 of this report.

OUTSTANDING LONG-TERM DEBT
As of June 30, 2023, the following Water Fund debt remains outstanding:
 $14,350,000 City of Vernon Water System Revenue Bonds, 2020 Taxable Series A  $1,081,395 City of Vernon agreement with the Water Replenishment District of Southern California The City of Vernon Water System Revenue Bonds 2020 Taxable Series A were issued to provide funds to (i) finance the acquisition and construction of certain capital improvements to the Water System of the City, (ii) purchase a municipal bond debt service reserve insurance policy for deposit in the Reserve Fund in satisfaction of the Reserve Requirement, and (iii) to pay costs of issuance of the 2020 Bonds.

As of June 30, 2023, S&P's rating on Water System Revenue Bonds is A-/Stable.

Additional information on the Water Fund's long-term debt can be found in Note 6 of this report.

ECONOMIC FACTORS AND NEW YEAR’S BUDGET AND RATES
These factors were considered in preparing the Water Fund’s FY 2023-24 operating and capital budgets.  VPU is committed to providing dependable, high-quality electric, water, natural gas, and fiber services at the lowest competitive rates and the highest standards for reliability.  VPU continues to respond to inflation and supply chain issues, including higher chemical and construction costs, to maintain infrastructure investment, and to continue to provide exceptionally reliable service.
 The final phase of the multi-year water rate adjustment plan approved by the City Council was implemented in January 2024.

REQUESTS FOR INFORMATION
This report is designed to provide an overview of the Water Fund's FY 2022-23 financial results. Questions concerning the fund’s financial results can be addressed to the Finance Department, City of Vernon, 4305 Santa Fe Avenue, Vernon, California, 90058.
10 This page intentionally left blank.

FINANCIAL STATEMENTS
11 ASSETS
Current assets:

Cash and investments $ 17,994,763
Accounts receivable, net 943,517
Interest receivable 8,928
Accrued unbilled revenue 1,515,524
Due from other funds 18,247
Prepaid items 4,330
Total current assets 20,485,309
Noncurrent assets:

Restricted cash and investments 2,148,689
Capital assets:

Capital assets, not being depreciated 11,111,271
Capital assets, being depreciated, net 11,302,440
Total capital assets 22,413,711
Total noncurrent assets 24,562,400
Total assets 45,047,709

DEFERRED OUTFLOW OF RESOURCES
Pension related items 1,821,009
Other postemployment benefits related items 148,030
Total deferred outflow of resources $ 1,969,039
(Continued)
Water Enterprise Fund of the City of Vernon
Statement of Net Position
June 30, 2023
See accompanying Notes to the Basic Financial Statements. 12 LIABILITIES
Current liabilities:

Accounts payable $ 1,279,568
Accrued wages and benefits 31,872
Accrued interest payable 237,281
Due to other funds 110,329
Customer deposits payable 236,888
Compensated absences, due within one year 34,155
Bonds payable, due within one year 265,000
Note payable, due within one year 139,535
Total current liabilities 2,334,628
Noncurrent liabilities:

Compensated absences, due in more than one year 68,311
Bonds, due in more than one year 14,601,753
Note payable, due in more than one year 941,860
Net pension liability 4,598,715
Net other postemployment benefits liability 477,770
Total noncurrent liabilities 20,688,409
Total liabilities 23,023,037

DEFERRED INFLOWS OF RESOURCES
Pension related items 230,161
Other postemployment benefits related items 175,818
Total deferred inflows of resources 405,979

NET POSITION
Net investment in capital assets 8,238,110
Restricted for debt service 160,440
Unrestricted 15,189,182
Total net position $ 23,587,732
(Concluded)
Water Enterprise Fund of the City of Vernon
Statement of Net Position (Continued)
June 30, 2023
See accompanying Notes to the Basic Financial Statements. 13 This page intentionally left blank.
14 OPERATING REVENUES:

Charges for services $ 9,844,537
Total operating revenues 9,844,537
OPERATING EXPENSES:

Cost of sales 6,226,053
Depreciation expense 575,512
Total operating expenses 6,801,565
OPERATING INCOME 3,042,972
NONOPERATING REVENUES (EXPENSES):

Investment income 327,529
Interest expense (551,437)
Gain on disposal of assets 14,889
Total nonoperating revenues (expenses) (209,019)
CHANGE IN NET POSITION 2,833,953
NET POSITION:

Beginning of year 20,753,779
End of year $ 23,587,732
Water Enterprise Fund of the Citv of Vernon
Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2023
See accompanying Notes to the Basic Financial Statements. 15 CASH FLOWS FROM OPERATING ACTIVITIES:

Cash receipts from customers and users $ 9,900,629
Cash paid to suppliers for goods and services (5,024,168) Cash paid to employees for services (2,053,190)
Net cash provided by operating activities 2,823,271

CASH FLOWS FROM NONCAPITAL
FINANCING ACTIVITIES:

Receipt from other funds 313,127
Payment to other funds (18,247)
Net cash provided by noncapital financing activities 294,880

CASH FLOWS FROM CAPITAL AND
RELATED FINANCING ACTIVITIES:

Acquisition of capital assets (6,721,212)
Proceed from sale of capital assets 14,889
Principal paid on long-term debt (389,535)
Interest paid on long-term debt (575,726)
Net cash (used in) capital and related financing activities (7,671,584) CASH FLOWS FROM INVESTING ACTIVITIES:

Interest received 323,049
Net cash provided by investing activities 323,049
Net (decrease) in cash and cash equivalents (4,230,384) CASH AND CASH EQUIVALENTS:

Beginning of year 24,373,836
End of year $ 20,143,452
CASH AND CASH EQUIVALENTS:

Cash and investment $ 17,994,763
Restricted cash and investment 2,148,689
Total cash and cash equivalents $ 20,143,452
(Continued)
Water Enterprise Fund of the City of Vernon
Statement of Cash Flows
For the Year Ended June 30, 2023
See accompanying Notes to the Basic Financial Statements. 16 OPERATING INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:

Operating income $ 3,042,972
Adjustments to reconcile operating income to net cash
provided by operating activities:

Depreciation 575,512
Change in assets and liabilities:
(Increase) decrease in accounts receivable 198,421
(Increase) decrease in accrued unbilled revenue (142,329) (Increase) decrease in inventories and prepaid items (4,330) (Increase) decrease in deferred outflows
of resources related to pension (903,730)
(Increase) decrease in deferred outflows
of resources related to OPEB (34,265)
Increase (decrease) in accounts payable (135,694)
Increase (decrease) in accrued wages and benefits (12,423) Increase (decrease) in deposits payable 175,704
Increase (decrease) in compensated absences 18,258
Increase (decrease) in net pension liabilities 1,752,772 Increase (decrease) in OPEB liabilities (51,573)
Increase (decrease) in deferred inflows
of resources related to pension (1,560,735)
Increase (decrease) in deferred inflows
of resources related to OPEB (95,289)
Total adjustment (219,701)
Net cash provided by operating activities $ 2,823,271
(Concluded)
Statement of Cash Flows (Continued)
Water Enterprise Fund of the City of Vernon
For the Year Ended June 30, 2023
See accompanying Notes to the Basic Financial Statements. 17 This page intentionally left blank.
18 19

NOTES TO THE BASIC FINANCIAL STATEMENTS
20 This page intentionally left blank.

Water Enterprise Fund of the City of Vernon
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2023
21 Note 1 – Summary of Significant Accounting Policies ....................................................................................... 23 A. Basis of Accounting and Measurement Focus ..................................................................................... 23 B. Pooled Cash ......................................................................................................................................... 23 C. Cash, Cash Equivalents and Investments ............................................................................................. 23 D. Interfund Transactions ......................................................................................................................... 24 E. Accounts Receivables. ......................................................................................................................... 24 F. Prepaid Items ....................................................................................................................................... 24 G. Capital Assets ....................................................................................................................................... 24 H. Deferred Outflows and Inflows of Resources ...................................................................................... 24 I. Compensated Absences ........................................................................................................................ 24 J. Long-Term Obligations ........................................................................................................................ 25 K. Pensions ............................................................................................................................................... 25 L. Other Postemployment Benefits (“OPEB”) ......................................................................................... 25 M. Net Position .......................................................................................................................................... 26 N. Use of Estimates................................................................................................................................... 26 Note 2 – Cash and Cash Equivalents ................................................................................................................... 26 A. Equity in the Cash Pool of the City of Vernon .................................................................................... 27 B. Investments .......................................................................................................................................... 27 C. Fair Value Measurement ...................................................................................................................... 27 D. Risk Disclosures ................................................................................................................................... 27 Note 3 – Accounts Receivable ............................................................................................................................... 28 Note 4 – Interfund Transactions .......................................................................................................................... 29 A. Due From/To Other City Funds ........................................................................................................... 29 Note 5 – Capital Assets .......................................................................................................................................... 29 Note 6 – Long-Term Debt ..................................................................................................................................... 29 Note 7 – Risk Management ................................................................................................................................... 31 Note 8 – Pension Plan ............................................................................................................................................ 32 A. General Information about the Pension Plans ...................................................................................... 32 B. Net Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions ........................................................................... 34 Note 9 – Other Postemployment Benefits (“OPEB”) ......................................................................................... 37 A. General Information about the OPEB Plan .......................................................................................... 37 B. Net OPEB Liabilities, OPEB Expenses, and Deferred
Outflows/Inflows of Resources Related to OPEB ............................................................................... 38 22 This page intentionally left blank.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements
For the Year Ended June 30, 2023
23 Note 1 – Summary of Significant Accounting Policies
The accompanying financial statements present only the Water Fund (“Water Fund”) of the City of Vernon, California (“the City”), and do not present fairly the financial position and results of the operations of the City. The Water Fund accounts for the independent operations and the maintenance of the City’s water utility. The Water Fund is administered as an independent fiscal and accounting entity with a self-balancing set of accounts recording resources, related liabilities, obligations, reserves, and equities, segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.

For additional information regarding the City of Vernon, refer to the City’s annual Financial report.

The financial statements of the Water Fund have been prepared in conformity with the U.S. generally accepted accounting principles (“U.S. GAAP”). The Governmental Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The Water Fund’s significant accounting policies are described below.

A. Basis of Accounting and Measurement Focus
The Water Fund’s financial statements are reported using the “economic resources” measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Net Position presents increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred.

The Water Fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues, such as charges for services, result from exchange transactions associated with the sale of electricity and gas. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities. Operating expenses include the cost of sales and services, administrative expenses and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating expenses.

B. Pooled Cash
Part of the Water Fund’s operating cash balance is pooled with other City funds for deposit purposes. The share of each fund in the pooled cash account is recorded in each of the funds’ book of accounts, and interest income is apportioned to the participating funds based on the relationship of their average monthly balances to the total of the pooled cash.

C. Cash, Cash Equivalents, and Investments
For purposes of the statement of cash flows, the Water Fund considers all highly liquid investments (including restricted cash and investments) with an original maturity of three months or less when purchased to be cash equivalents. Investment transactions are recorded on the settlement date. Investments in nonparticipating interestearning investment contracts are reported at cost and all other investments are reported at fair value.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
24 Note 1 – Summary of Significant Accounting Policies
D. Interfund Transactions
Outstanding short-term borrowing between funds are reported as “due from/to other funds City funds”. Long-term interfund loans are classified as “advances to/from other City funds” on the statement of net position.

E. Accounts Receivables
Accounts receivables are shown net of an allowance for uncollectible accounts. Allowances for uncollectible accounts were $48,256 as of June 30, 2023. Utility customers are billed monthly. The estimated value of services provided, but unbilled at year-end has been included in the accompanying statement of net position.

F. Prepaid Items
Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements by using purchase method.

G. Capital Assets
Capital assets are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Donated capital assets are valued at their acquisition value. Capital assets include intangible assets with indefinite lives and public domain (infrastructure) general capital assets consisting of certain improvements including roads and bridges, sidewalks, curbs and gutters, and traffic light systems. The capitalization threshold for all capital assets is $5,000. Capital assets used in operations are depreciated using the straight-line method over their estimated useful lives in the government-wide and proprietary funds statements.

Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method.

Assets Years
Utility Plant 3-50
Maintenance and repairs are charged to operations when incurred. Betterments and major improvements, which significantly increase values, change capacities or extend useful lives, are capitalized. Upon sale or retirement of capital assets, the cost and related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in the statement of revenues, expenses, and changes in net position.

H. Deferred Outflows and Inflows of Resources
The statement of net position reports separate sections for deferred outflows of resources and deferred inflows of resources, when applicable.

Deferred Outflows of Resources represents consumption of net assets that applies to future periods.

Deferred Inflows of Resources represents acquisition of net assets that applies to future periods.

I. Compensated Absences
Accumulated vacation is accrued when incurred. Upon termination of employment, the Water Fund will pay the employee all accumulated vacation leave at 100% of the employee’s base hourly rate.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
25 Note 1 – Summary of Significant Accounting Policies (Continued) J. Long-Term Obligations
Long-term debt and other long-term obligations are reported as liabilities in the appropriate activities. Bonds payable are reported net of the applicable bond premium or discount. Debt issuance costs except for any portion related to prepaid insurance were recognized as expense in the period incurred. Premium or discount not considered as part of the reacquisition price was amortized over the life of the bond.

K. Pensions
For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the plans and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the plans. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with benefit terms. Investments are reported at fair value.

The following timeframes are used for pension reporting:

Valuation Date June 30, 2021
Measurement Date June 30, 2022
Measurement Period July 1, 2021 to June 30, 2022
Gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss. The difference between projected and actual earnings is amortized straight-line over 5 years. All other amounts are amortized straight-line over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period.

L. Other Postemployment Benefits (“OPEB”)
For the purpose of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the City’s OPEB Plan and additions to/deductions from the OPEB Plan’s fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, the OPEB Plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value, except for money market investments, which are reported at amortized cost.

The following timeframes are reported OPEB reporting:

Valuation Date June 30, 2022
Measurement Date June 30, 2022
Measurement Period July 1, 2021 to June 30, 2022
Gains and losses related to changes in total OPEB liability and fiduciary net position are recognized in OPEB expense systematically over time. The first amortized amounts are recognized in OPEB expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to OPEB and are to be recognized in future OPEB expense.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
26 Note 1 – Summary of Significant Accounting Policies (Continued) L. Other Postemployment Benefits (“OPEB”) (Continued)
The amortization period differs depending on the sources of gain or loss. The difference between projected and actual earnings is amortized on a straight-line basis over 5 years. All other amounts are amortized on a straight-line basis over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) at the beginning of the measurement period.

M. Net Position
The Water Fund financial statements utilize a net position presentation. Net position is classified as follows.

Net Investment in Capital Assets – This component of net position consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of retention payable and debt that are attributable to the acquisition, construction, or improvement of those assets, and related deferred outflows and inflows of resources, net of unspent debt proceeds.

Restricted – This component of net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets.

Unrestricted – This component of net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position.

When expenses are incurred for purposes for which both restricted and unrestricted components of net position are available, the City’s policy is to apply the restricted component of net position first, then the unrestricted component of net position as needed.

N. Use of Estimates
The preparation of basic financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Note 2 – Cash and Cash Equivalents
The Water Fund has the following cash and investments at June 30, 2023:

Cash and investments $ 17,994,763
Restricted cash and investments 2,148,689
Total cash and investments $ 20,143,452
The Water Fund cash and investments at June 30, 2023, in more detail:

Equity in pooled cash $ 3,539,326
Deposits with financial institutions 16,540
Investments 16,587,586
Total cash and investments $ 20,143,452
Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
27 Note 2 – Cash and Cash Equivalents (Continued)
A. Equity in the Cash Pool of the City of Vernon
The Water Fund has equity in the cash pool managed by the City. The Water Fund is a voluntary participant in that pool and the pool is governed by and under the regulatory oversight of the Investment Policy adopted by the City Council of the City. The Water Fund has not adopted an investment policy separate from that of the City. The amount of the Water Fund’s cash in this pool is reported in the accompanying financial statements based upon the Water Fund’s pro rata share of the amount calculated by the City. The balance available for withdrawal is based on the accounting records maintained by the City.

B. Investments
Under the provisions of the City’s investment policy, and in accordance with California Government Code, the following investments are authorized:

Maximum Maximum
Maximum Percentage Investments in Minimum
Authorized Investment Type Maturity Allowed* One Issuer Rating United States Treasury Bills, Bonds and Notes 5 Years None None None State and Local Agency Bonds 5 Years None None None
United States Government Sponsored Agency Securities 5 Years None None None Certain Asset-Backed Securities 5 Years 20% None AA
Negotiable Certificates of Deposit 5 Years 30% None None Banker's Acceptance Notes 180 days 40% 30% None
Commercial Paper 270 days 25% 10% of the issuer outstanding paper A Repurchasement Agreement 1 year None None None
Reverse Repurchase Agreement 92 Days 20% None None
Medium-Term Notes 5 Years 30% None A
Mutual Funds Incesting in Eligible Securities N/A 20% 10% AAA Money Market Mutual Funds N/A 20% 10% AAA
Mortgage-Backed Pass-Through Securities 5 Years 20% None AA State Administered Pool Investment N/A None $75 Million None N/A - Not Applicable
*Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.

C. Fair Value Measurement
At June 30, 2023, investments are reported at fair value. The following table presents the fair value measurements of investments on a recurring basis and the levels with GASB 72 fair value hierarchy in which the fair value measurements fall at June 30, 2023:

Investment Type Uncategorized
Money Market Funds $ 14,438,897
Investment with fiscal agent:

Money Market Funds 2,148,689
Total $ 16,587,586
D. Risk Disclosures
Interest Rate Risk - As a means of limiting its exposure to fair value losses arising from rising interest rates, the City’s investment policy limits investments to a maximum maturity of five years.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
28 Note 2 – Cash and Cash Equivalents (Continued)
D. Risk Disclosures (Continued)
At June 30, 2023, the Water Fund had the following investment maturities:

Remaining Maturity
1 Year
Investment Type or Less
Money Market Funds 14,438,897 $
Investment with fiscal agent:

Money Market Funds 2,148,689
Total $ 16,587,586
Credit Risk – Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City’s investment policy, or debt agreements, and the actual rating, by Standard and Poor’s and Moody’s at June 30, 2023 for each investment type:

Fair Value Minimum
at Legal
Investment Type June 30, 2023 Rating AAA
Money Market Funds 14,438,897 AAA 14,438,897
Investment with fiscal agent:

Money Market Funds 2,148,689 AAA 2,148,689
Total $ 16,587,586 $ 16,587,586
Concentration of Credit Risk – The investment policy of the City contains no limitations on the amount that can be invested in any one issuer excluding a 10% limitation on commercial papers, mutual funds, and money market mutual funds and a 30% limitation on banker’ acceptances. The City’s investment policy places no limit on the amount of debt proceeds held by a bond trustee that the trustee may invest in one issuer that is governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City’s investment policy.

Custodial Credit Risk – The Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of a third party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of the third party. At June 30, 2023, none of the City’s deposits or investments were exposed to custodial credit risk.

Note 3 – Accounts Receivable
The Water Fund’s accounts receivable at June 30, 2023 are as follows:

Accounts Receivabe $ 991,773
Less: Allowance for Uncollectible Accounts (48,256)
Total accounts Receivable, Net $ 943,517
Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
29 Note 4 – Interfund Transactions
A. Due From/To Other City Funds
At June 30, 2023, the Water Fund was due $18,247 from the Electric Fund.

At June 30, 2023, the Water Fund had $110,329 due to the General Fund of the City.

The interfund balances resulted from borrowing of cash for temporary purposes. All balances are expected to be reimbursed within the subsequent year.

Note 5 – Capital Assets
A summary of changes in the capital assets for the Water Fund for the year ended June 30, 2023 is as follows:

Balance Balance
July 1, 2022 Additions Deletions Transfers June 30, 2023 Capital assets, not being depreciated:

Water Utility - Water $ 467,640 $ - $ - $ 467,640 - $
Water Utility - Construction in Progress 6,914,299 5,933,375 (2,204,043) - 10,643,631 Total capital assets, not being depreciated 7,381,939 5,933,375 (2,204,043) - 11,111,271 Capital assets, being depreciated:

Water Utility Plant 23,730,271 787,837 (14,782) 2,204,043 26,707,369 Total capital assets, being depreciated 23,730,271 787,837 (14,782) 2,204,043 26,707,369 Less accumulated depreciation for:

Water Utility Plant (14,844,199) (575,512) 14,782 (15,404,929) - Total accumulated depreciation (14,844,199) (575,512) 14,782 (15,404,929) - Total capital assets, being depreciated, net 8,886,072 212,325 2,204,043 - 11,302,440 Total capital assets, net $ 16,268,011 $ 6,145,700 $ - $ 22,413,711 - $ The Water Fund’s total depreciation expense for the year was $575,512.

Note 6 – Long-Term Debt
A summary of changes in long-term debt for the Water Fund for the year ended Jun 30, 2023 is as follows:

Balance Balance Due within Due in More
July 1, 2022 Additions Deletions June 30, 2023 One Year Than One Year Public Offering:

Revenue Bonds:
2020 Taxable Revenue Bonds - Series A - Water 14,600,000 $ - $ (250,000) $ 14,350,000 $ 265,000 $ 14,085,000 $ Unamortized Premiums/(Discounts):
2020 Taxable Revenue Bonds - Series A - Water 535,833 - (19,080) 516,753 - 516,753 Total Public Offering 15,135,833 - (269,080) 14,866,753 265,000 14,601,753 Direct Borrowing:

Water Replenishment District Note Payable 1,220,930 (139,535) - 1,081,395 139,535 941,860 Total Direct Borrowing 1,220,930 (139,535) - 1,081,395 139,535 941,860 Compensated absences 84,208 121,522 (103,264) 102,466 34,155 68,311 Total business-Type activities $ 121,522 16,440,971 $ (511,879) $ 16,050,614 $ 438,690 $ 15,611,924 $ Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
30 Note 6 – Long-Term Debt (Continued)
$14,840,000 Water System Revenue Bonds (2020 Series A)
The bonds are special obligation bonds which are secured by an irrevocable pledge of water revenues payable to bondholders. Under the Indenture of Trust dated May 6, 2020, interest and principal on the bonds are payable from Net Revenues (or Revenues less Operation and Maintenance Expenses) and/or amounts in the Water Enterprise (as those terms are defined in the Indenture of Trust). The total unpaid balance as of June 30, 2023, was $14,350,000.

The future annual debt service requirements for the Taxable Revenue Bonds, Series 2020A-T are as followed:

Year Ending
June 30, Principal Interest Total
2024 265,000 $ 562,850 $ 827,850 $
2025 275,000 549,350 824,350
2026 542,475 - 542,475
2027 542,475 - 542,475
2028 542,475 - 542,475
2029-2033 1,985,000 2,464,250 4,449,250
2034-2038 2,180,000 1,943,625 4,123,625
2039-2043 2,680,000 1,445,000 4,125,000
2044-2048 3,180,000 940,625 4,120,625
2049-2051 3,785,000 331,188 4,116,188
Total $ 14,350,000 $ 9,864,313 $ 24,214,313
Water Replenishment District Note Payable – Direct Borrowing In May 2019, the City entered into an agreement with Water Replenishment District of Southern California (WRD) for assistance with the construction of a new groundwater well or rehabilitation of an existing groundwater well. The promissory note is unsecured and has no interest basis for an amount not to exceed $1,500,000. As of June 30, 2023, WRD has disbursed all of the funds under the agreement to the City. The note is payable in quarterly principal payments commencing September 1, 2020, in an amount which, together with all quarterly payments, will be sufficient to fully amortize the principal balance of the note by the maturity date of April 1, 2031. The total unpaid balance as of June 30, 2023, was $1,081,395.

Upon an event of default, WRD may declare any or all of the outstanding and unpaid principal balance immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice, declaration or act of any kind, all of which are hereby expressly waived by the City.

The future annual debt service requirements are as follows:

Year Ending
June 30, Principal Interest Total
2024 139,535 $ - $ 139,535 $
2025 139,535 - 139,535
2026 139,535 - 139,535
2027 139,535 - 139,535
2028 139,535 - 139,535
2029-2031 383,720 - 383,720
Total 1,081,395 $ - $ 1,081,395 $
Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
31 Note 6 – Long-Term Debt (Continued)
Compensated Absences
The balance outstanding at June 30, 2023, was $102,466.

Right to Accelerate Upon Default
Notwithstanding anything contrary in the indenture or in the bonds, upon the occurrence of an event of default, the Trustee may, with the consent of each credit provider whose consent is required by a supplemental indenture or a credit support agreement, and shall, at the direction of the owners of a majority in principal amount of outstanding bonds (other than bonds owned by or on behalf of the City) by written notice to the City, declare the principal of the outstanding bonds and the interest thereon to be immediately due and payable, whereupon such principal and interest shall, without further action, become and be immediately due and payable.

Credit Ratings
As of June 30, 2023, the ratings on Water System Revenue Bonds were A- stable by S&P and not rated by Moody’s.

Note 7 – Risk Management
The Water Fund is in the City’s self-insurance program as part of its policy to self-insure certain levels of risk within certain separate lines of coverage to maximize cost savings.

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets, errors, and omissions; injuries to employees, and natural disasters. The City utilizes insurance policy(s) to transfer these risks. Each policy has either self-insured retention or deductible, which are parts of the City’s Risk Financing Program. These expenses are paid on a cash basis as they are incurred. There have been no significant settlements or deductions in insurance coverage during the past three fiscal years. Starting in Fiscal 2010, the City chose to establish Risk Financing in the General Fund, whereby assets are set aside for claim-litigation settlements associated with the abovementioned risks up to their self-insured retentions or policy deductibles. Athens Administrators Inc. is the Third-Party Administrator for the City’s workers’ compensation program and they provide basic services for general liability claims and litigation.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
32 Note 7 – Risk Management (Continued)
The insurance limits for the fiscal year 2023 are as follows:

Insurance Type Program Limits Deductible/SIR (Self-Insured Retention) 1st Excess Liability $5,000,000 $2 Million
$3 Million Law Enforcement
2nd Excess Liability $5,000,000 $5,000,000
3rd Excess Liability $5,000,000 $10,000,000
4th Excess Liability $5,000,000 $15,000,000
Excess Workers Compensation $50,000,000 $1,000,000
$1.5 Million Presumptive Loss
Property - Power Generating $100,000,000 Various
Property - Residential $7,950,653 $2,500
Property - Municipal $59,614,930 $25,000
Commercial Propert/EQ and FL $50,000,000 -
Government Crime $1,000,000 $25,000
Premise Pollution/Environmental Impairment $5,000,000 $25,000 $5,000,000 per Claim $50,000 Utility Locs.
$100,000 Natural Gas Pipeline
Cyber Liability $5,000,000 $100,000
Auto Physical Damage $10,000,000 $5,000
Residential Property Insurance $7,950,653 $2,500
Terrorism $100 Million Property Terrorism $0
$5 Million Terrorism Liabilty
$5 Million Active Shooter
Special Events $2,000,000 $1,000,000 Each Occurrence
Note 8 – Pension Plan
A. General Information about the Pension Plans
Plan Descriptions
The City contribution to the California Public Employees Retirement System (“CalPERS”), an agent multipleemployer defined benefit pension plan for miscellaneous employees and a cost-sharing multiple-employer defined benefit plan for safety employees. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and City ordinance.

A full description of the pension plan regarding number of employees covered, benefit provisions, assumptions (for funding, but not accounting purposes), and membership information are listed in the June 30, 2021 Annual Actuarial Valuation Report. This report and CalPERS’ audited financial statements are publicly available reports that can be obtained at CalPERS’ website under Forms and Publications.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
33 Note 8 – Pension Plan (Continued)
A. General Information about the Pension Plans (Continued) Benefits Provided
CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions under both plans are established by State Statute and City Resolution as follows:

Classic PEPRA
Prior to On or After
Hire date January 1, 2013 January 1, 2013
Benefit formula 2.7% @ 55 2% @ 62
Benefit vesting schedule 5 years service 5 years service Benefit payments Monthly for life Monthly for life
Retirement age 50 yrs 52 yrs
Monthly benefits, as a % of eligible
compensation

2.0%-2.7%,
50 yrs -55 yrs,
respectively

1.0%-2.0%,
52 yrs -62 yrs,
respectively
Required employee contribution rate (FY22-23) 8.00% 6.25% Required employer contribution rate (FY22-23) 11.50% 11.50% Required employer contribution rate (FY21-22) 11.38% 11.38% Classic PEPRA
Prior to On or After
Hire date January 1, 2013 January 1, 2013
Benefit formula 3.0% @ 50 2.7% @ 57
Benefit vesting schedule 5 years service 5 years service Benefit payments Monthly for life Monthly for life
Retirement age 50 yrs 50 yrs
Monthly benefits, as a % of eligible 3%, 50 yrs 2.0%-2.7% 50 yrs - 57 yrs
respectively
Required employee contribution rate (FY22-23) 9.00% 13.75% Required employer contribution rate (FY22-23) 23.39% 20.70% Required employer contribution rate (FY21-22) 22.78% 22.78% Miscellaneous
Safety
Participants are eligible for non-industrial disability retirement if they become disabled and have at least 5 years credited service. There is no special age requirement. The standard non-industrial disability retirement benefit is a monthly allowance equal to 1.8 percent of final compensation, multiplied by service years.

Industrial disability benefits are not offered to miscellaneous employees. The City provides industrial disability retirement benefits to safety employees only. The industrial disability retirement benefit is a monthly allowance equal to 50 percent of final compensation.

An employee's beneficiary may receive the basic death benefit if the employee becomes deceased while actively employed. The employee must be actively employed with the City to be eligible for this benefit. An employee's survivor who is eligible for any other pre-retirement death benefit may choose to receive that death benefit instead of this basic death benefit. The basic death benefit is a lump sum in the amount of the employee's accumulated contributions, where interest is currently credited at 7.5 percent per year, plus a lump sum in the amount of one month's salary for each completed year of current service, up to a maximum of six months’ salary.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
34 Note 8 – Pension Plan (Continued)
A. General Information about the Pension Plans (Continued) Benefits Provided (Continued)
For purposes of this benefit, one month's salary is defined as the member's average monthly full-time rate of compensation during the 12 months preceding death. Upon the death of a retiree, a one-time lump sum payment of $500 will be made to the retiree’s designated survivor(s), or to the retiree’s estate.

Benefit terms provide for annual cost-of-living adjustments to each employee’s retirement allowance. Beginning the second calendar year after the year of retirement, retirement and survivor allowances will be annually adjusted on a compound basis up to 2 percent.

Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on July 1 following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute to the difference between the actuarially determined rate and the contribution rate of employees. For the year ended Jun 30, 2023, the Water Fund’s share of employer contributions made to the plans was $470,851.

B. Net Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions Assumptions
The net pension liability of each of the Plans is measured as of June 30, 2022, using an annual actuarial valuation as of June 30, 2021, rolled forward to June 30, 2022, using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below.

Actuarial Cost Method
Actuarial Assumptions:

Discount Rate
Inflation
Salary Increases
Mortality Rate Table(1)
Post Retirement Benefit Increase The lesser of contract COLA or 2.30% until Purchasing Power Protection. Allowance floor on purchasing power applies, 2.30% thereafter
(1)The mortality table used was developed based on CalPERS-specific data. The probabilities of mortality are based on the 2021 CalPERS Experience Study for the period from 2001 to 2019. Pre-retirement and Post-retirement mortality rates include generational mortality improvement using 80% of Scale MP-2020 published by the Society of Actuaries. For more details on this table, please refer to the CalPERS Experience Study and Review of Actuarial Assumptions report from November 2021 that can be found on the CalPERS website.

Entry Age Normal

6.90%

2.30%
Varies by Entry Age and Service
Derived using CalPERS’ Membership Data for all Funds.

Long-Term Expected Rate of Return
The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
35 Note 8 – Pension Plan (Continued)
B. Net Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Long-Term Expected Rate of Return (Continued)
In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses.

The expected real rates of return by asset class are as follows:

Assumed Asset
Asset Class1 Allocation Real Return1,2
Global Equity - Cap-weighted 30.00% 4.54%
Global Equity - Non-Cap-weighted 12.00% 3.80%
Private Equity 13.00% 7.28%
Treasury 5.00% 0.27%
Mortgage-backed Securities 5.00% 0.50%
Investment Grade Corporates 10.00% 1.56%
High Yield 5.00% 2.27%
Emerging Market Debt 5.00% 2.48%
Private Debt 5.00% 3.57%
Real Assets 15.00% 3.21%
Leverage -5.00% -0.59%
100%
1 An expected inflation of 2.30% used for this period.
2 Figures are based on the 2021 Asset Liability Management study.

Discount Rate
The discount rate used to measure the total pension liability was 6.90%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on the assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Proportionate Share of Net Pension Liability – Allocation of the City’s Pension Plans to the Water Fund The Water Fund’s net pension liability for the Plans is measured as the proportionate share of the aggregate net pension liability of the City’s miscellaneous agent multiple-employer plans and safety cost-sharing plan. The Water Fund’s proportionate share of the aggregate net pension liability was based on the Water Fund’s current year share of contributions of the pension plans relative to the City’s total current year contributions to the pension plans.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
36 Note 8 – Pension Plan (Continued)
B. Net Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Proportionate Share of Net Pension Liability – Allocation of the City’s Pension Plans to the Water Fund The Water Fund’s proportionate share of the aggregate net pension liability for the pension plans as of the measurement dare ended June 30, 2021 and 2022 were as follows:

Total Pension Plan Fiduciary Net Net Pension
Liability Position Liability/(Asset) Proportionate
(a) (b) (c) = (a) - (b) Share
Balance at 6/30/21 (Valuation Date) 20,712,814 17,866,870 2,845,944 $ 3.23% Balance at 6/30/22 (Measurement Date) 14,979,776 10,381,061 4,598,715 2.92% Net changes during 2021-2022 (5,733,038) (7,485,809) 1,752,771 -0.31% Increase (Decrease)
Pension Expense and Deferred Outflows and Inflows of Resources For the measurement period ended June 30, 2022, the Water Fund recognized its proportionate share of the aggregate pension expense of the Plans totaled $123,562. At June 30, 2023, the Water Fund reported its proportionate share of the Plans’ aggregate deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
Contribution made after measurement period 470,158 $ - $ Changes of assumptions 421,485 (32,019)
Difference between expected and actual experienc - 140,648 Net difference between projected and actual earning
on pension plan investments 700,913 -
Adjustment due to differences in proportions 87,805 -
Difference betwwen City contributions and
proportionate share of contribution - (198,142)
Total $ 1,821,009 $ (230,161)
$470,158 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the collective net pension liability in the year ending June 30, 2024. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Measurement Period
Ending June 30 Total
2023 336,479 $
2024 252,078
2025 110,995
2026 421,138
Total $ 1,120,690
Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
37 Note 8 – Pension Plan (Continued)
B. Net Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (Continued)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the Water Fund’s proportionate share of the Plans’ aggregate net pension liability, calculated using a discount rate of 6.90%, as well as what the Water Fund’s proportionate share of the Plans’ aggregate net pension liability would be if it were calculated using a discount rate that is a 1-percentage point lower (5.90%) or a 1-percentage point higher (7.90%) than the current rate:

Discount Rate Current Discount Discount Rate
- 1% (5.90%) Rate (6.90%) + 1% (7.90%)
Miscellaneous Plan $ 2,516,150 $ 1,650,154 $ 943,068
Safety Plan $ 4,187,062 $ 2,948,561 $ 1,936,367
Water Fund's Net Pension Liability/(Asset)
Pension Plan Fiduciary Net Position
Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports.

Payable to the Pension Plan
At June 30, 2023, the Water Fund had no outstanding amount of contributions to the pension plans required for the year ended June 30, 2023.

Note 9 – Other Postemployment Benefits (“OPEB”)
A. General Information about the OPEB Plan
The other postemployment benefits (“OPEB”) described in the following paragraphs relate to the City’s OPEB plan. The Water Fund’s share of the net pension liability of the City’s OPEB Plan is reported as a cost-sharing plan in these financial statements since the Water Fund’s operations are handled by City employees who are eligible to participate in the City’s OPEB plan.

Benefits Provided
Generally, the City will provide a postemployment benefit plan for the employee only to those who retire at age sixty (60) or later with twenty (20) years of continuous uninterrupted service up to the age of sixty-five (65).

Alternatively, employees who retire before the age of sixty (60) with twenty (20) years of continuous uninterrupted service, will be permitted to pay their medical and dental premium cost and upon reaching the age of fifty (50), the City will pay the premium for the medical and dental plans until they reach the age of sixty-five (65).

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
38 Note 9 – Other Postemployment Benefits (“OPEB”) (Continued) A. General Information about the OPEB Plan (Continued)
Benefits Provided (Continued)
Resolution 2011-129 provided lifetime medical benefits to Police Management employees and their spouses, who have been employed as sworn safety personnel for a minimum of twenty (20) years and a minimum of ten (10) years of that service have been with the City of Vernon. Resolution 2011-127 sets forth the MOU of the Vernon Police Officers’ Benefit Association, provided lifetime medical benefits to those employees and their spouses, who have been employed as sworn safety personnel for a minimum of twenty (20) years and a minimum of ten (10) years of that service has been with the City of Vernon. Resolution 2012-217 granted specific retiree medical benefits to employees who retire during the 2012-2013 fiscal year in order to provide an incentive for early retirement whereby the City authorized the payment of medical and dental insurance premiums for eligible retiring employees and their eligible dependents with at least ten (10) years of service plus 5% for each additional full year of service above the ten (10) years of service, and that this offer be extended as an option to safety and safety management groups, at their discretion, in addition to the related options provided in the Vernon Firefighters Association MOU and the Vernon Police Officers’ Benefit Association MOU. Resolution 2013-06 declared that the retiree medical benefits which had not been a vested right for employees will continue to be nonvested right for employees who continue to be employed by the City on or after July 1, 2013, but will become a vested right for those who retire during the 2012-2013 fiscal year. The City’s plan is considered a substantive OPEB plan and the City recognizes cost in accordance with GASB Statement No 75. The City may terminate its unvested OPEB in the future.

Contributions
The City has established an irrevocable OPEB trust with assets dedicated to paying future retiree medical benefits.

The City intends to contribute 100% or more of the actuarially determined contribution for the explicit subsidy liability only. The portion of the liability due to the implicit subsidy is not prefunded but is paid as benefits come due.

For the fiscal year ended June 30, 2023, the Water Fund’s proportionate share of contributions made to the trust was $44,864, $45,836 for retiree premiums, resulting in a total contribution of $90,700.

B. Net OPEB Liabilities, OPEB Expenses, and Deferred Outflows/Inflows of Resources Related to OPEB The OPEB liability was measured as of June 30, 2022, and total liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2022.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
39 Note 9 – Other Postemployment Benefits (“OPEB”) (Continued) B. Net OPEB Liabilities, OPEB Expenses, and Deferred Outflows/Inflows of Resources Related to OPEB (Continued)
Significant Actuarial Assumptions Used for Total OPEB Liability The total OPEB liability, measured as of June 30, 2022, was determined using the following actuarial assumptions:

Actuarial Cost Method
Actuarial Assumptions:

Asset Valuation Method
Inflation
Salary Increases
Long Term return on Assets
Discount Rate
Mortality Improvement
Healthcare Trend

6.00%
Entry Age Normal
Market value of assets

2.30%

2.80% wage inflation plus seniority, merit, and promotion salary increases based on CalPERS Expenditure Study and Review of Actuarial Assumptions published in November
2021

6.00%
CalPERS 2021 Experience Study; Project with MP Scale
Based on 2022 Getzen model with in inflation rate of 7.00% non-Medicare / 5.50% Medicare decreasing gradually to an ultimate rate of 3.73% by 2075
Change in assumptions
Discount rate changed from 6.25% at June 30, 2021 to 6.00% at June 30, 2022. Healthcare trend rate assumption and mortality improvement scale were updated.

Discount Rate
The discount rate used to measure the total OPEB liability was 6.00%. The projection of cash flows used to determine the discount rate assumed that City contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan's fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

Long-Term Expected Rate of Return
The long-term expected rate of return was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are aggregate to produce the long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
40 Note 9 – Other Postemployment Benefits (“OPEB”) (Continued) B. Net OPEB Liabilities, OPEB Expenses, and Deferred Outflows/Inflows of Resources Related to OPEB (Continued)
Long-Term Expected Rate of Return (Continued)
Long-term
Target Expected Real
Asset Class Allocation Rate of Return
Global Equity 49.00% 4.50%
Fixed Income 23.00% 1.40%
Global Real Estate (REITs) 20.00% 3.70%
Treasury Inflation Protected Securities (TIPS) 5.00% 0.50% Commodities 3.00% 1.10%
100.00%
* Preliminary estimate, pending confirmation by CalPERS The Water Fund’s proportionate share of the net OPEB liability as of the measurement dates ended June 30, 2021 and 2022 was as follows:

Total OPEB Plan Fiduciary Net Net OPEB
Liability Position Liability/(Asset) Proportionate
(a) (b) (c) = (a) - (b) Share
Balance at June 30, 2021 (Valuation Date) 885,514 $ 356,717 $ 529,343 $ 3.23% Balance at June 30, 2022 (Measurement Date) 796,735 318,965 477,770 2.92% Net changes during 2021-22 (88,779) (37,752) (51,573) -0.31% Sensitivity of the Net OPEB Liability to Changes in the Discount Rate The following presents the Water Fund’s proportionate share of the net OPEB liability if it were calculated using a discount rate that is 1% point lower (5.00%) or 1% point higher (7.00%) than the current rate:

Discount Rate Current Discount Discount Rate
-1% (5.00%) Rate (6.00%) +1 % (7.00%)
$ 477,770 568,304 $ 401,870 $
Plan's Net OPEB Liability
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates The following presents the Water Fund’s proportionate share of the net OPEB liability if it were calculated using a healthcare cost trend rates that are 1% point lower (5.3% decreasing to an ultimate rate of 2.8%) or 1% point higher (7.3% decreasing to an ultimate rate of 4.8%) than the current rate:

Water Enterprise Fund of the City of Vernon
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2023
41 Note 9 – Other Postemployment Benefits (“OPEB”) (Continued) B. Net OPEB Liabilities, OPEB Expenses, and Deferred Outflows/Inflows of Resources Related to OPEB (Continued)
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rates Healthcare Cost Healthcare Cost Healthcare Cost
Trend Rate - 1% Trend Rate Trend Rate + 1%
$ 477,770 443,084 $ 511,328 $
Plan's Net OPEB Liability
OPEB Expense and Deferred Inflows and Outflows of Resources Related to OPEB For the year ended June 30, 2023, the Water Fund recognized its proportionate share of the OPEB credit of $(20,488). At June 30, 2023, the Water Fund reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
Contribution made after measurement period $ 90,700 $ - Changes in assumptions 24,128 (74,887)
Difference between expected and actual experience 3,064 (100,931) Net difference between projected and actual earning on
OPEB plan investments 30,138 -
Total $ 148,030 $ (175,818)
The $90,700 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ending June 30, 2024. Differences between projected and actual investment earnings are amortized on a five-year straight-line basis and all other amounts are amortized over the expected average remaining service lives of all members that are provided with benefits. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows:

Deferred
Measurement Period Outflows/(Inflows)
Ending June 30 of Resources
2023 $ (56,973)
2024 (56,571)
2025 (6,950)
2026 9,194
2027 (4,867)
Thereafter (2,321)
Total $ (118,488)
Payable to the OPEB Plan
At June 30, 2023, the Water Fund had no outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2023.
42 This page intentionally left blank.

REQUIRED SUPPLEMENTARY INFORMATION
(UNAUDITED)
43 Fiscal year 2017 2018 2019 2020 2021
Measurement period 2015-16 2016-17 2017-18 2018-19 2019-20 Water Fund's proportion of the net
pension liability 3.80% 3.74% 3.11% 3.28% 3.45%
Water Fund's proportionate share of the
net pension liability 3,619,851 $ 4,100,788 $ 3,533,209 $ 3,964,339 $ 4,668,011 $ Covered payroll2 $ 499,838 $ 1,038,438 $ 1,100,727 $ 925,620 $ 891,592 Water Fund's proportionate share of the net
pension liability as a percentage of
covered payroll 724.20% 394.90% 320.99% 428.29% 523.56% Water Fund fiduciary net position as a
percentage of the total
pension liability 78.91% 77.85% 77.68% 76.15% 74.79%
1 2
Notes to Schedule:

Methods and assumptions used to determine contribution rates:

Actuarial cost method Entry Age Actuarial Cost Method
Amortization method Level percentage of payroll
Asset valuation method Fair Market Value
Inflation 2.500%
Salary increases varies by entry age and service
Payroll Growth 2.750%
Investment rate of return
Water Enterprise Fund of the City of Vernon
Required Supplementary Information (Unaudited)
Schedule of Proportionate Share of the Net Pension Liability and Related Ratios Last Ten Fiscal Years1
California Public Employees' Retirement System Defined Pension Plan For the Year Ended June 30, 2023
Fiscal year ended June 30, 2017 was the first fiscal year the City allocated a portion of the net pension liability to the Water Fund. Additional years of information will be displayed as it becomes available.

Includes one year’s payroll growth using 2.80 percent payroll growth assumption for fiscal years ended June 30, 2022; 2.75 percent payroll growth assumption for fiscal years ended June 30, 2018-21; 3.00 percent payroll growth assumption for fiscal years ended June 30, 2015-17.

The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2022-23 were derived from the June 30, 2020 funding valuation report.
7% Net of Pension Plan Investment and Administrative Expenses; includes Inflation. 44 Fiscal year 2022 2023
Measurement period 2020-21 2021-22
Water Fund's proportion of the net
pension liability 3.23% 2.92%
Water Fund's proportionate share of the
net pension liability $ 2,845,943 $ 4,598,715
Covered payroll2 $ 628,181 792,625 $
Water Fund's proportionate share of the net
pension liability as a percentage of
covered payroll 359.05% 732.07%
Water Fund fiduciary net position as a
percentage of the total
pension liability 85.45% 69.30%
Water Enterprise Fund of the City of Vernon
Required Supplementary Information (Unaudited)
Schedule of Proportionate Share of the Net Pension Liability and Related Ratios (Continued) For the Year Ended June 30, 2023
Last Ten Fiscal Years1
California Public Employees' Retirement System Defined Pension Plan 45 Fiscal year 2017 2018 2019 2020 2021
Actuarially determined contribution 346,113 $ 354,831 $ 339,930 $ 404,765 $ 435,752 $ Contributions in relation to the
actuarially determined contribution (346,113) (354,831) (339,930) (404,765) (435,752) Contribution deficiency (excess) $ - $ - $ - $ - $ -
Covered payroll2 $ 1,100,727 1,038,438 $ 925,620 $ 891,592 $ 792,625 $ Contributions as a percentage of covered payroll. 33.33% 32.24% 36.72% 45.40% 54.98% 1 2
Notes to Schedule:

Methods and assumptions used to determine contribution rates:

Actuarial cost method Entry Age Actuarial Cost Method
Amortization method Level percentage of payroll
Asset valuation method Fair Market Value
Inflation 2.500%
Salary increases varies by entry age and service
Payroll Growth 2.750%
Investment rate of return
Water Enterprise Fund of the City of Vernon
Required Supplementary Information (Unaudited)
Schedule of Contributions - Pensions
For the Year Ended June 30, 2023
Last Ten Fiscal Years1
California Public Employees' Retirement System Defined Pension Plan Fiscal year ended June 30, 2017 was the first year the City allocated a portion of the net position to the Water Fund. Additional years will be displayed as it becomes available.

Includes one year’s payroll growth using 2.80 percent payroll growth assumption for fiscal years ended June 30, 2018-21; 2.75 percent payroll growth assumption for fiscal years ended June 30, 2018-21; 3.00 percent payroll growth assumption for fiscal years ended June 30, 2015-17.

The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2022-23 were derived from the June 30, 2020 funding valuation report.
7% Net of Pension Plan Investment and Administrative Expenses; includes Inflation. 46 Fiscal year 2022 2023
Actuarially determined contribution $ 470,851 459,607 $ Contributions in relation to the
actuarially determined contribution (459,607) (470,851) Contribution deficiency (excess) $ - $ -
Covered payroll2 $ 628,181 $ 645,770
Contributions as a percentage of covered payroll. 73.16% 72.91% Water Enterprise Fund of the City of Vernon
Required Supplementary Information (Unaudited)
Schedule of Contributions - Pensions (Continued)
For the Year Ended June 30, 2023
Last Ten Fiscal Years1
California Public Employees' Retirement System Defined Pension Plan 47 Fiscal year 2018 2019 2020 2021 2022
Measurement period 2016-171 2017-18 2018-19 2019-20 2020-21 Water Fund's proportion of the net
OPEB liability 4.08% 3.11% 3.28% 3.45% 3.23%
Water Fund's proportionare share of the
net OPEB liability 1,482,614 $ 719,107 $ 719,261 $ 697,329 $ 529,343 $ Covered employee payroll 1,368,760 $ 1,368,166 $ 1,095,236 $ 1,048,734 $ 1,093,781 $ Water Fund's proportionate share of the net
OPEB liability as a percentage of
covered employee payroll 108.32% 52.56% 65.67% 66.49% 48.40% Water Fund Fiduciary Net Position as a
percentage of the total
OPEB liability 2.83% 8.62% 16.30% 25.70% 40.22%
1 Other Postemployment Benefits ("OPEB") Plan
Historical information is presented only for measurement periods after GASB 75 was implemented in fiscal year of 2017-18 (measurement period of 2016-17). Additional years of information will be displayed as it becomes available.

For the Year Ended June 30, 2023
Last Ten Fiscal Years1
Benefits Liability and Related Ratios
Water Enterprise Fund of the City of Vernon
Required Supplementary Information (Unaudited)
Schedule of Proportionate Share of the Net Other Postemployment 48 Fiscal year 2023
Measurement period 2021-22
Water Fund's proportion of the net
OPEB liability 2.92%
Water Fund's proportionare share of the
net OPEB liability $ 477,770
Covered employee payroll $ 739,897
Water Fund's proportionate share of the net
OPEB liability as a percentage of
covered employee payroll 64.57%
Water Fund Fiduciary Net Position as a
percentage of the total
OPEB liability 40.03%
Other Postemployment Benefits ("OPEB") Plan
For the Year Ended June 30, 2023
Last Ten Fiscal Years1
Benefits Liability and Related Ratios (Continued)
Water Enterprise Fund of the City of Vernon
Required Supplementary Information (Unaudited)
Schedule of Proportionate Share of the Net Other Postemployment 49 Fiscal year 2018 2019 2020 2021 2022
Actuarially determined contribution $ 109,990 $ 83,829 $ 63,389 $ 53,086 $ 49,744 Contributions in relation to the
actuarially determined contribution (84,361) (93,060) (128,484) (108,041) (94,830) Contribution deficiency (excess) $ 25,629 $ (9,231) $ (65,095) $ (54,955) $ (45,086) Covered-employee payroll $ 1,095,236 1,368,166 $ 1,048,734 $ 1,093,781 $ 1,024,922 $ Contributions as a percentage of covered-employee payroll 6.17% 8.50% 12.25% 9.88% 9.25% 1 Notes to Schedule:

Methods and assumptions used to determine contribution rates:

Actuarial cost method Entry Age Normal Cost Method
Amortization method Level percentage of payroll
Asset valuation method Market valuation of assets
Discount Rate 6.25%
Payroll Growth 3.00%
General Inflation Rate 2.5% per year
Health Trend 5.6 in FY2023, step down 0.5% per year to 3.9% by 2076 Historical information is presented only for measurement periods after GASB 75 was implemented in fiscal year of 2017-18 (measurement period of 2016-17). Additional years of information will be displayed as it becomes available.

The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2022-23 were derived from the June 30, 2020 funding valuation report.

Water Enterprise Fund of the City of Vernon
Required Supplementary Information (Unaudited)
Schedule of Contributions - Other Postemployment Benefits For the Year Ended June 30, 2023
Last Ten Fiscal Years1
Other Postemployment Benefits ("OPEB") Plan
50 Fiscal year 2023
Actuarially determined contribution $ 40,896
Contributions in relation to the
actuarially determined contribution (90,700)
Contribution deficiency (excess) $ (49,804)
Covered-employee payroll $ 713,856
Contributions as a percentage of covered-employee payroll 12.71% Water Enterprise Fund of the City of Vernon
Required Supplementary Information (Unaudited)
Schedule of Contributions - Other Postemployment Benefits (Continued) For the Year Ended June 30, 2023
Last Ten Fiscal Years1
Other Postemployment Benefits ("OPEB") Plan
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