20 06 Working The City of Tucson Water Department with Our Customers to Build a Sustainable Water Future Annual Report Fiscal Year 2006 Our New Development area provides “one-stop shopping” for customers who come in to request a new water meter. Tucson, the county seat for Pima County, CAP CANAL PIMA • TUCSON is the second largest city in Arizona. Incorporated in 1877, the City of Tucson began as a 2 square mile village located in what is now Tucson’s central downtown. It has now grown to approximately 225 square miles and lies within a greater metropolitan region of more than 400 square miles, with a population of over one million people. Tucson Water services customers both inside and outside the Tucson city limits. The Central Arizona Project, delivering water via 335 miles of canals, meets an increasing portion of our community’s water demand. Table of Contents Letter from the Mayor 2 Letter from the Director 3 Working With Our Customers to Build a Sustainable Water Future 5 Financial Section: 13 Management’s Discussion and Analysis 15 Appendix A: Schedule of Flow of Funds 27 Appendix B: Water Rate Schedule 29 Report of Independent Auditor 31 Financial Statements 33 Statement of Net Assets 35 Statement of Revenues, Expenses, and Changes in Net Assets 37 Statement of Cash Flow 39 Notes to Financial Statements 41 Annual Safety Report Summary 53 1 City of Tucson Council Letter from Robert E. Walkup Mayor José J. Ibarra Ward 1 Carol W. West Ward 2 Karin Uhlich Ward 3 Shirley C. Scott Ward 4 Steve Leal Ward 5 Nina Trasoff Ward 6 Mike Hein City Manager Cooperation. It’s a word that has defined, for me, the best method of ensuring positive outcomes for any decision. In recent years, I’ve observed a growing spirit of cooperation among many diverse interests in the Tucson region. I believe that the economic and environmental well being of our community and our region depends powerfully on a well-informed and engaged citizenry. Tucson Water’s public education and involvement programs are crucial elements of creating that corps of knowledgeable and involved citizens. By building water wisdom from the ground up among the youngest in our community, they’re ensuring that future generations of Tucsonans are prepared to make wise decisions about water. If we want to make sure that Tucson continues to be a vibrant and thriving community, nothing is more important than careful planning. Tucson Water’s Water Plan 2000-2050 was developed as a discussion guide for our community to envision the opportunities and challenges that lie ahead and work together to select strategies that provide the highest potential for a sustainable future. One example of a cooperative planning effort that has arisen out of the Water Plan outreach program is Tucson Water’s Community Conservation Task Force, which represents a broad swath of business, environmental, educational and residential interests. The Task Force was empanelled to develop a consensus list of conservation strategies that have the potential to reduce per capita usage on a permanent basis. Because all segments of the community are involved in the discussion, the Task Force recommendations will already enjoy broad support among those who will be impacted. Cooperation. It has been a hallmark of Tucson Water’s relationship with its customers and the community at large. I hope that commitment comes through clearly as you read through this Annual Report. Sincerely, Robert E. Walkup Mayor 2 Tucson Water Marie S. Pearthree, PE Deputy Director Letter from David V. Modeer Director Bruce Johnson Assistant Director Over the past three decades, Tucson has become an internationally recognized leader in water conservation and water resource management. Looking to the future, how can we ensure that we remain a thriving and sustainable community in the decades to come? Four commitments come to mind: • • • • Make wise water use decisions on a daily basis Invest appropriately to ensure a sound water system Plan carefully in order to provide adequate supplies of safe and affordable water Work together to make important decisions about our water future In this Annual Report, you will read about Tucson Water’s multi-faceted programs to work cooperatively with our customers and stakeholders in order to meet that final commitment. As with any successful decision-making process, building a shared foundation of knowledge and information must be a priority. Tucson Water’s education programs are designed to engage students, teachers and parents in classroom and extracurricular activities that will enhance their understanding about the many water issues facing our region. Our outreach programs provide water information to both targeted and general audiences. Tucson Water’s long-standing commitment to public involvement ensures that interested citizens are provided with multiple opportunities to get involved in both operational and planning decisions. After you’ve read this Annual Report, be sure to visit our web site at www.tucsonaz.gov/water for examples of our many communication programs. I hope that you will be motivated to participate in the community discussions that will take place in the months and years ahead as we work together to ensure a sustainable water future for our desert home. Sincerely, David V. Modeer Director Citizens’ Water Advisory Committee Frank J. Boyle, Chair Jim Aslin Corina A. Baca Dr. James J. Riley John R. Carhuff Keith Gentzler, Vice Chair Robert Emanuel Dr. Evan Canfield, PE James Horvath Daniel J. Sullivan Martin M. Fogel Robert Logan David A. Smutzer James T. Barry, MA, PhD Sarah T. Evans 3 Dennis Rule Intergovernmental Affairs Eric Unangst Customer Services Ray Wilson Operations & Maintenance Pat Eisenberg, PE Engineering Jeff Biggs Water Quality Management Sandy Elder, PE Planning David Cormier, CPA Business Services Ralph Marra Water Resource Management The Zanjero Program, which provides free, individualized conservation assistance to residential customers, is one of Tucson Water’s most popular programs. Call 791-3242 to set up a Zanjero appointment! 4 Working with Our Customers to Build a Sustainable Water Future Annual Report Fiscal Year 2006 5 Keeping our staff up to date with the latest information is an important part of ensuring that our customers get accurate, timely information on a wide variety of water-related topics. 6 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Working With Our Customers to Build a Sustainable Water Future Partnerships are important to us at Tucson Water. Whether it’s working with advisory groups on water issues and policies, cooperating with educational institutions to teach students and teachers about our water, or asking for our customers’ input on important decisions that will direct our water future, we understand the need and benefits of sharing ideas with an informed and engaged community. We offer many programs to ensure our customers are aware of how we’re handling their most precious resource. We greatly value the partnership with our customers, and we need and appreciate their help in finding solutions to the challenges of water sustainability in our desert city. utility, such as water resource planning, engineering, law, financial management, or public health, etc. The members, who meet once a month, are appointed by the Mayor and Council and City Manager for up to two four-year terms, and represent water customers in our service area both inside and outside the city limits. In addition to reviewing Tucson Water’s capital and operating and maintenance budgets, the CWAC participates in the development of our utility’s annual financial plan and works with staff to determine water rate and other fee recommendations. The committee also assists with water supply and resource planning, conservation education and other issues. Customer Rate Design Group Since 2001, the Customer Rate Design Group, consisting of representatives from our major customer classes, has provided input during the annual water rate development process. While representing the interests of their specific customer class, group members gain insight and understanding of our rate process and the rate impacts of the resource and operational issues facing the utility. Tucson Water staff introduces group members to our current water rate design and alternative rate structures, cost of service allocations, and related policies. After some discussion, the group is asked for their input on general rate setting policies, structures, and potential rate design changes. Ultimately, each customer representative recommends a rate structure they believe to be most appropriate for their specific customer class. Their recommendations are provided to the CWAC and Mayor and Council as part of our annual water rates setting process. VOLUNTEER GROUPS We’re fortunate to have many interested Tucsonans willing to serve on water-related volunteer committees and task forces. These groups assist us in policy-making and help ensure our accountability to our ratepayers. Whether they’re appointed by our governing body or solicited throughout the community, the volunteers all share a common interest: to ensure our ability to efficiently deliver affordable, high quality water for the long term. Citizens Water Advisory Committee (CWAC) As the official advisory body, the CWAC forwards recommendations to the Mayor and Council for action on water issues. Since 1977, the CWAC has provided a direct voice for Tucson Water customers on many water policy issues including the budgeting, financial, and ratemaking processes of the utility. This 15-member committee is made up of Tucson Water customers who have professional or technical experience in an area relevant to a water Community Conservation Task Force For decades, Tucson Water customers have been among the most efficient water users in the nation. To reduce our usage further, we must take advantage of new technology, strengthen our conservation programming, and identify funding sources for these initiatives. In 2005, the utility convened the 7 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Working With Our Customers to Build a Sustainable Water Future Community Conservation Task Force. This group of stakeholders represents a variety of interested groups and individuals, including local businesses, neighborhoods, developers, property managers, environmentalists, landscape professionals, school systems, low-income support agencies and residential customers. The mission of the Task Force is to ensure community involvement in the development of a more aggressive water conservation program strategy that will provide measurable water savings for the future. classroom trainings include hands-on learning activities and activity books to further enhance the students’ experience. OUTREACH AND EDUCATION Public outreach and water education have long been a Tucson Water priority. Our Public Information Office is dedicated to “getting the word out” to customers and the community at large. Our programs and activities are designed not only to enhance the public’s knowledge of water-related issues, but to prepare our youth to be tomorrow’s good water stewards. In pursuit of these goals, we provide a variety of education programs and opportunities for our customers, both in and out of the classroom. We also invite all students in grades K – 12 to learn about our aquifer in preparation for guided tours by participating in our interactive Groundwater Flow Model presentations. Topics include groundwater storage and production, contamination and cleanup. The Groundwater Flow Model presentations are portable and can be tailored to classroom settings, field environments, or community events. We’ve reached over 30,000 students and adults since the program began in 1999. Teacher and Student Training An important part of being a responsible water provider includes providing local educational programs that directly involve the students and teachers in our schools. Our Educational Outreach programs include classroom presentations tailored to different grade levels from elementary to middle school, covering topics such as the water cycle, water sources and delivery systems, and conservation. Our Da-Drops and Dr. Faucet program is designed for students in grades K-3 and features an animated video presentation that introduces the youngsters to basic water information. More advanced information is provided to 4th and 5th graders through Our Water, Our Future, a teacher-led, easy to use lesson plan, followed up with a classroom presentation by Tucson Water staff. The Tucson Toolkit is a five-unit curriculum that teaches middle school children in grades 6 – 8 about water issues facing our community, in addition to more detailed information about water cycles and conservation. All of our We share information with educators, too. Our Summer Teacher Internship program is an intensive two week summer course for middle and high school teachers. Each year, we invite as many as 25 teachers to interact with us in an educational setting, and introduce them to water resource management issues facing the community. Not just for science teachers, the internship promotes water-related learning opportunities for all curriculum areas. By the end of the course, participants have developed lesson plans for water related projects to be taught in their classrooms in the school year following their internship. 8 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Working With Our Customers to Build a Sustainable Water Future Arizona Project WET (Water Education for Teachers) Speakers Bureau builds effective water education lessons and unique, Arizona-specific information into school districts’ core curriculum, and ensures that the water education unit meets Arizona Academic Standards for science. Tucson Water sponsors an average of 9 workshops each year that provide educators an opportunity to learn about Arizona’s resources by participating in fun, interactive, classroom-ready activities. The activities, developed and tested by teachers in Arizona and nationwide, are designed to develop critical thinking and build an understanding of concepts through experiential learning. We typically reach over 100 teachers (and college students preparing to be teachers) who, in turn, report reaching thousands of students. Our Speakers Bureau consists of Tucson Water employees who volunteer to go into the community, via town halls and meetings of various groups and associations, to talk with customers about important water news and upcoming events. For instance, hundreds of presentations may be given by our employee speakers in the months leading up to water revenue bonds elections to discuss and answer voters’ questions about the projects we intend the bonds to fund. Presentations by our Speakers Bureau are popular and effective tools to get information on the most current issues to our customers where they live and work. Conservation Education Although most of our public outreach and education touches on water conservation in some way, we also have campaigns and education programs that focus solely on the importance of wise water use in the desert. Spanish Language Outreach According to surveys and demographic data, approximately thirty percent of our water customers are of minority cultures, with Spanish-speaking Hispanics constituting the largest segment. Our Multi-Cultural Outreach program focuses on effective communication to the Hispanic population. To this end, we have developed tools such as public service announcements for Spanish language television and radio that address current water issues and provide information about our water facilities and organizational structure. Additionally, we are piloting a weekly call-in radio show in Spanish that explores various water topics of particular interest to our Hispanic customers. We first launched our Beat the Peak summer conservation campaign 30 years ago as a public information and awareness program to reduce peak hour water demands during our hottest months of the year. Ratepayers supported the program so strongly that Beat the Peak became an annual summer water conservation education program. Our water conservation duck mascot, Pete the Beak, reappears each year in a new identity, and is featured in public service announcements as well as in activity books distributed to thousands of students in classrooms across our region. Pete also makes appearances at dozens of school and community events to deliver his lighthearted but important tips on how to be water wise during our hot desert summers and throughout the year. We are also making a positive difference with our participation in the Hispanic community’s annual Women’s Leadership Training program. We train Community Health Promoters, or Promotoras, on environmental issues, including water quality and water conservation. The Promotoras then assist with staffing community events such as Cinco de Mayo and Mexican Independence Day, providing information to event goers in one-on-one settings. 9 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Working With Our Customers to Build a Sustainable Water Future Tucson Water sponsors the popular SmartScape conservation education program offered by the University of Arizona Cooperative Extension. The program offers free workshops to both residential and commercial customers to promote attractive, water-efficient landscaping. Homeowners attend Water$mart workshops to learn the how’s and why’s of drip irrigation, xeriscape, and rainwater harvesting for irrigation use. The SmartScape series targets professional landscapers and local green industry employees, and focuses on improving landscape irrigation water management practices, during the course of nine workshops. Since outdoor water use constitutes a significant portion of our total water demand, teaching our customers to maximize water efficiency in landscaping is an essential move toward water sustainability. Facilities Tours Guided tours of our water facilities provide participants with first hand information about where our water comes from, how its quality is maintained, and how we use reclaimed water to preserve our groundwater. Since 1998, more than 17,000 people have taken the opportunity to learn about our major facilities. The free tours, led by our Outreach Coordinator, are geared toward all ages. Tour locations include the Clearwater facility where Colorado River water is recharged through constructed basins, blends with the groundwater below, and is then recovered through a system of wells and a large pumping station. At the Hayden Udall Treatment Plant, also the site of our state-ofthe-art water quality lab, tour participants learn how water recovered from the Clearwater facility is processed and made ready for delivery to customers. Other tour options include our Reclaimed Water Treatment Plant where we demonstrate the filtration, disinfection, and pumping facilities involved in creating and distributing recycled wastewater for reuse as irrigation water, or the Tucson Airport Area Remediation Project (TARP) where participants learn about the air-stripping process to remove trichloroethylene (TCE) from the groundwater, and gain a broad understanding about groundwater contamination and cleanup in Tucson. A favorite of young and old alike, the Sweetwater Wetlands tour teaches about ecology and water resource management. This innovative treatment facility uses natural processes to filter treated wastewater to make it ready for use in our reclaimed water system, and is a perfect venue for viewing various migratory bird species and other wildlife not readily seen in other parts of the community. 10 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Working With Our Customers to Build a Sustainable Water Future SOLICITING FEEDBACK It’s our philosophy at Tucson Water to keep in touch with our customers, not only so they know what we’re doing with their water, but also so we can ask for their informed input when important decisions need to be made. Through the years, we’ve asked for feedback on the kinds of information our customers would like to receive from us, as well as their opinions on how well we serve them, and their responses have helped us improve our methods of communication and customer service. The public is encouraged to provide input by email, telephone comment line, focus groups, and customer surveys, in addition to participation at various water-related public meetings, presentations, and community events. learn about these options, including costs, household maintenance and environmental issues. Then, they will take the information to community, conducting taste tests and surveys at kiosks in local shopping malls, community events, neighborhood centers, trade shows, and other venues. We’ll provide the customer taste preferences and survey results to Mayor and Council for consideration in their final decision. Customers who want to submit comments or questions to us also may use the Tucson Water website. The public can access a wealth of information on topics from billing to water quality, including current water rates and fees, meeting agendas, documents, brochures and other educational materials (many also in Spanish), and tour information. Each web page contains a link to phone numbers, mailing addresses, a map, and an “email button” that will send customers’ messages to us directly. For those so inclined, the City of Tucson also maintains a website and Mayor and Council hotline, and water-related inquiries made there are forwarded to us for response. In these ways, we make sure that the public, and specifically, our customers, can contact us at their convenience. Some of the most important input we’ve received from the community has involved taste testing water of varying mineral levels. In the late 1990’s, in anticipation of the introduction of our blended water (recharged Colorado River mixed with groundwater), we launched the At the Tap campaign. Tucson Water staff distributed bottles of the blended water throughout the community and conducted taste tasting and customer surveys at malls and numerous local events. We also selected neighborhoods throughout the service area to receive the blend through their taps for a month in our Ambassador Program. Our customers overwhelmingly told us that a maximum mineral level of 450 mg/L in the blended water was acceptable, and as such, our Clearwater facility was designed to maintain mineral levels below that level for as long as possible. As we move into the future, we’ll continue to encourage honest dialogue between our staff and our customers. We believe that by working together as partners, we’ll best be able to meet the challenges of a secure water future for our service area. As we have shown in the past, this type of partnership is good for our customers, good for us, and good for our community. Now, in 2006, as we anticipate the mineral content in our blended water to naturally rise above 450 mg/L with an increased ratio of Colorado River water to groundwater, we’re about to begin another process that will determine what the water of the future will be like. We need to decide whether to let the mineral content rise to a maximum 650 mg/L (the naturally occurring mineral level of Colorado River water) or to construct a treatment facility to remove minerals to maintain the level at 450 mg/L. Later this year, as an expansion of our Speakers Bureau, employees will 11 Whether it’s in person, on the phone, or via e-mail, Tucson Water’s customers are assured prompt, friendly service. 12 Financial Section Annual Report Fiscal Year 2006 13 Reaching and teaching the next generation of Tucsonans means getting them involved in activities that make learning about water fun. 14 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis Overview Tucson Water is an enterprise In FY 2006, our Clearwater Potable Customer Connections 220,571 fund of the City of Tucson. Renewable Resource Facility, (FY 2005 average) This means we operate similar FY 2006 Growth in Connections 4,660 /2.2% (CRRF), an $81 million project to a private business, covering completed during fiscal year Potable Peak Day Demand 165.3 mg all costs of doing business 2004, pumped 46,305 acre-feet Potable Average Day Demand 109.5 mg with revenues from of blended recharged/ Miles of Pipelines over 4,500 operations. Our fiscal year recovered CAP water and Potable Reservoirs 51 runs from July 1 through June groundwater into our Potable Storage Capacity 296 mg 30. Our authority and distribution system. The responsibility are derived facility’s recharge and from the City’s Charter and ordinances and recovery production will increase to approximately resolutions of the Mayor and Council. We provide 77,000 acre-feet during FY 2007. CRRF, constructed water service to over 710,000 people (about 85% of northwest of the City of Tucson, is composed of the greater Tucson metropolitan area’s total recharge basins, recovery well fields, storage, and population) within a 300 square-mile service area of transmission facilities. The facility handles the Pima County. We ended fiscal year 2006 with recharge of up to 71.4 million gallons per day (80,000 approximately 221,000 customer connections to our acre-feet/year) of Colorado River water. Current water system, and during the year delivered enough recovery well capacity is 54 million gallons per day. potable water to fill nearly 2.3 million residential Within five years we intend to meet nearly one swimming pools (37.1 billion gallons). Additionally, hundred percent of our customers’ current demand we delivered 4.5 billion gallons of reclaimed water for potable water with Colorado River water, for turf irrigation. enabling us to nearly eliminate groundwater pumpage from the central well field, over which the Units of measure: 1 Acre foot = 325,851 gallons majority of the City of Tucson lies, thereby easing concerns related to land subsidence. 1 Ccf = 748 gallons Reclaimed Water: Operations Potable Water: During FY 2006 we obtained our municipal potable water (water meeting or exceeding all federal, state, and local drinking water standards) from our four groundwater well fields (Central, Avra Valley, Santa Cruz, and Southside) and a facility where we recharge and recover Colorado River water. These four well fields and the recharge and recovery facility provide us with an aggregate production capacity of approximately 190 million gallons per day. Our surface water source contract with the United States Department of the Interior and the Central Arizona Water Conservation District (“CAWCD”) provides us access to 135,966 acre-feet annually of Colorado River water, delivered via the Central Arizona Project (CAP). The CAP consists of 335 miles of waterworks and associated facilities designed to deliver water from Lake Havasu on the Colorado River to Maricopa, Pinal, and Pima Counties in central/southern Arizona. 15 Although only 10.8% of our total FY 2006 water sales, reclaimed water (effluent treated to higher water quality ) is playing an increasingly important role in our meeting current and future water demands. Tucson Water has the right to use over half of the effluent produced at the metropolitan wastewater treatment facilities owned and operated by Pima County. Planning for the reclaimed water system was initiated in 1982 and we began delivering reclaimed water to customers for turf irrigation in 1984. The reclaimed water we produce meets the State of Arizona standards for Class A water (water suitable for irrigation of sites having unrestricted public access, cooling towers, use on vegetable gardens and orchards, and for toilet flushing). Our reclaimed system currently includes a treatment plant which filters secondary effluent, a wetlands which biologically treats the backwash water from the filtration plant, constructed basins for the recharge of secondary effluent with wells to recover TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis this recharged water, and a managed in-channel recharge and recovery project recovering, via wells, some of the effluent that has been discharged by the Pima County Wastewater treatment plants into the nearby Santa Cruz River. This recovered water is blended with water produced at our filtration plant or distributed directly to customers throughout the reclaimed system. Additionally, we receive reclaimed water from a Pima County-operated wastewater treatment plant located mid-town. This facility generates 3 million gallons per day of Class A reclaimed water which is piped directly into the reclaimed water system. Statements A summary of our revenues and of Revenues, operating and non-operating Expenses expenses, and the resulting change in and Changes net assets. in Net Assets Statement of A summary of our cash sources, Cash Flows including proceeds from the sale of water revenue bonds, and our use of cash. Our next increment of reclaimed water supply will come from the expansion of the recharge and recovery facility. Tucson Water continues to work to bring additional customers onto the reclaimed water system, thereby transferring their demand from potable to reclaimed water. Net Assets: Our total assets exceeded our total liabilities at the close of the fiscal year by $635.3 million, an increase from FY 2005 of $26.1 million. Of this amount, $3.3 million was restricted for capital projects or debt service. At June 30, 2006 we had capital assets, net of depreciation, of $974.8 million, and outstanding long-term debt of $373.3 million. Financial Highlights/Condensed Financial Statements Discussion of Basic Financial Statements We report our financial results on the accrual basis of accounting, in conformance with all applicable Governmental Accounting Standards Board (GASB) Statements, including GASB Statement No. 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments, and the related statement numbers 36 (Recipient Reporting for Certain Shared Nonexchange Revenue), 37 (Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments: Omnibus), and 38 (Certain Financial Statement Note Disclosures. Tucson Water Summarized Statement of Net Assets as of June 30 (in thousands) 2006 2005 Current Assets $ 45,839 $ 43,657 Restricted Assets 31,063 52,552 Other Assets 4,415 4,685 Capital Assets 974,773 930,035 Total Assets 1,056,090 1,030,929 Current Liabilities 24,844 22,013 Liabilities from Restricted Assets 22,688 19,627 Long-term Debt Outstanding 373,265 380,065 Total Liabilities 420,797 421,705 Net assets Invested in capital assets net of debt 602,172 576,713 Restricted 3,254 186 Unrestricted 29,867 32,325 Total Net Assets $ 635,293 $ 609,224 Our annual financial reporting includes three basic financial statements and accompanying notes. Statement Description/Purpose Statement of A summary of our current and longNet Assets term obligations and our assets available to meet those obligations. The difference between total assets and total obligations represents our net assets. 16 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis Revenues –Potable and reclaimed water sales revenues, including the Central Arizona Project surcharge, make up approximately 88% of the Utility’s operating revenues. During FY 2006 water sales revenues were $105.9 million and water sales volume totaled 55.5 million Ccfs or about $5.1 million and 3.3 million Ccfs greater than in FY 2005. Total revenues, when combined with System Equity fee collections (reported as Contributed Capital on the Statement of Changes in Net Assets) increased by $9.9 million; in addition to the water sales revenue increase, significant increases included billing services revenues ($1.0 million) and increases in area development fees and connection fees ($.8 million each). Excluding the $.7 million increase in depreciation, FY 2006 operating costs were $5.2 million higher than FY 2005 costs. Operating Expenses - The majority of our operating costs are fixed, at least in the twelve months of our fiscal year. On average, approximately 65%-70% of our annual operating expenses will not vary as a result of the quantity of water we sell. Staff related expenses, payments to the City of Tucson for administrative support, and CAP capital payments are our most significant fixed items. The remaining 30%-35% of our operating expenses are made up of expenses that vary with the quantity of water produced (power costs, purchase of CAP water, chemicals) or are of a discretionary nature (for example, community relations, training, and consultant costs). water system maintenance costs resulting from increased gas prices and increased main break repair expenses. Fixed Costs ($1.3 million net increase from FY 2005) Increased costs: • Employee costs increased $1.3 million resulting from cost of living adjustments, employee merits, and increases in employee insurance costs. • The administrative charge paid to the City of Tucson for indirect services provided increased $.5 million. • Increases of $.3 million each in fleet related and Offsetting these increases were the following reductions to fixed costs: • A bond authorization election was held in FY 2005 with expenses of $.6 million – no election was held in FY 2006. • The CAP capital charge (set by the Central Arizona Water Conservation District) was reduced in FY 2006, lowering costs by $.5 million. Variable/Discretionary Costs $29.9 million ($3.9 million increase from FY 2005) Increased costs: Fixed vs Variable/Discretionary Operating Expenses ($ in millions - excludes depreciation and interest expenses) $100 $80 $ $ $60 $ 19.3 $ 37.1 $ $ $40 $20 $0 $ 17.1 $ 33.8 $ $ 14.8 34.0 19.2 $ 20.8 18.8 $ 22.0 $ $ 44.8 $ 26.0 24.8 • Increased power costs of $2.4 million reflecting 29.9 record water sales and higher power rates. • Increased chemical and other supply costs $ 38.3 $ 39.5 $ 42.3 44.2 $ 47.8 $ of $.5 million related to record water sales. 49.1 FY FY FY FY FY FY FY FY FY FY 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 VARIABLE/DISCRETIONARY • Increased CAP water expense of $.4 million resulting from purchasing more CAP water. FIXED • Increased consultant costs of $.6 million resulting from initiation of studies to assess future water quality treatment alternatives. 17 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis Tucson Water Summarized Statement of Revenues, Expenses and Changes in Net Assets Fiscal Years Ending June 30 ($$ in thousands) 2006 2005 Operating Revenues: Water Sales $ 103,951 $ 98,989 Other Revenues (including CAP surcharge) 15,887 15,358 Total Operating Revenues 119,838 111,347 Operating Expenses 99,637 93,781 Net Operating Income 20,201 17,566 Non-Operating Income 2,655 1,621 Non-Operating Expenses 19,550 18,578 Net Income before Capital Contributions/Adjustments 3,306 609 Capital Contributions System Equity (buy-in) Fee 7,844 7,438 Developer Contributions/Grant Receipts/Transfers 14,919 6,864 Total Capital Contributions 22,763 14,302 Change in Net Assets $ 26,069 $ 14,911 The remainder of this Management’s Discussion and Analysis provides a closer look into our fiscal year 2006 revenues, operating expenses, capital outlays, debt service, changes in net assets, and cash flows. Revenues KEY DATA: REVENUES Total Water Sales Revenue 1 Potable Reclaimed 2006 Actual $ 105.9 $ 100.1 $ 5.8 2006 Planned $ 103.3 $ 98.2 $ 5.1 2005 Actual $ 100.8 $ 95.2 $ 5.6 Other Revenue 2 $ $ $ Total Water Sales (Ccf 3) Potable Reclaimed 55,533,422 49,535,732 5,997,690 53,520,066 48,283,718 5,236,348 52,253,833 47,250,548 5,003,285 221,521 221,139 216,653 217,685 2,886 950 217,371 2,805 963 213,025 2,760 868 18.97 11.80 18.52 11.39 18.49 11.44 Total Additions: Potable Metered Service Connections4 4771 4744 3941 Average Monthly Water Service Connections3 Potable Metered Fire Protection Reclaimed Metered Potable Water 12-Month Average Use Per Svc Per Month (Ccf) Single Family Customers Only 1 2 3 4 24.4 22.4 19.6 Total water sales revenue includes revenue generated by usage rates, fixed monthly charges based on meter size, and special surcharges based on water usage. Other revenue consists of other operating revenues and non-operating income from the audited financial statements. Development fees which result in cash collections have been included in other revenue for both FY 2006 and FY 2005, but developer-contributed infrastructure has been excluded in both years. 1 Ccf = 748 gallons. Monthly average connections for the 12 months of the Fiscal Year. The change in potable metered connections from June of one fiscal year to June of the following fiscal year. 18 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis Potable Sales (1,000 Ccf) Annual Percentage Change in Sales FY 2006 set a record as Tucson Water’s Potable Sales Volumes FY 1987 - 2005 strongest revenue year ever. Water sales 10.0% 250,000 revenue, the combined total of the 8.0% potable and reclaimed systems, exceeded 6.0% 200,000 both the plan for the year and last year’s 4.0% 150,000 actual revenue by 2.5% and 5.0%, 2.0% respectively. Other revenue, including 0.0% 100,000 the ‘buy-in’ development fee known as -2.0% the system equity fee, also exceeded both -4.0% 50,000 the plan for the year and last year’s -6.0% actual revenue by 9.0% and 25.0%, -8.0% 0 respectively. Revenue from the system -10.0% equity fee ($7.8 million) exceeded last Percentage Change in Sales year’s by around $400,000, fueled by Potable Sales 4,771 new potable metered connections example, metered connection growth; weather; plumbing added during the course of the year. Of note, all of codes encouraging or enforcing low water use fixtures and these revenue increases occurred absent any change appliances in new construction; new single family homes in the Utility’s rates and fees. having less acreage than in the past; landscaping codes (See Appendix A for the FY 2006 monthly water encouraging low water use plants; on-going conservation rate schedule.) programs emphasizing education and behavioral changes; and conservation-oriented rate structures. Potable Water Sales Volume, Metered Connections, Revenue Effects: Our FY 2006 potable water sales volume (37.1 billion gallons or 49,535,732 Ccf) exceeded FY 2005’s volume by 4.8%. It was also greater than the plan for FY 2006 by 2.6%. Since Tucson Water’s rate structure is weighted in favor of volume rates, the level of sales volume was the main determinate in this particular year of the favorable revenue results. The most interesting aspect of the year, however, was the fact that both revenue and volume trailed the plan for eight months of the year, and the catch-up to the plan occurred during the winter and early spring months (December through March). For anyone familiar with Tucson’s climate, this pattern would be deemed unusual. FY 2006, while its outcomes were favorable financially, continued to illustrate the unpredictability of potable sales volume. The chart above, showing twenty years of volume sales, illustrates that fact. Management discussions in prior years have noted that both water sales volume and water sales revenues are influenced by many factors: for 19 Metered connection growth always pulls potable revenues in a positive direction, due to the additional volume of water provided to the new connection as well as the monthly service charge assessed to each account regardless of the amount of water used. FY 2006 growth in average metered service connections (4,660, or 2.2%) was greater than that for FY 2005 (4,201, 2.0%) and slightly above the plan for the year. However, it should be noted that the annual growth rate in average metered connections has been trending downward since FY 2000, FY 2004 being an exception to the trend; the system equity fee was first introduced in FY 2004 and a rush of meter applications occurred prior to the fee’s becoming effective. Weather can pull sales volume and hence revenue in either a positive or contrary direction. Overall, FY 2006 was both hotter and drier than FY 2005 (whose water sales volume and revenues were less than those of the prior year, FY 2004) and so weather is assumed to have had a positive water sales effect in FY 2006. The rainfall pattern for FY 2006 conforms particularly well to the pattern of water sales volume for the year. TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis Rainfall occurred almost entirely in summer months (6.11 inches of the 6.53 inches total for the year), with the winter months being extremely dry (0.42 inches). In addition, while the entire year was hotter than the prior year and hotter than normal, the winter months were over 30% hotter than either the prior year or the norm. FY 2006 represents the second year of our meter replacement program. Initial tests at the beginning of the program indicated that 20% of the thenexisting meters were under-registering water use, so it is also possible that improved meter accuracy contributed to sales volume being higher than in FY 2005. It is likely prudent to remember, however, that many variables can influence how much water customers use, that individually the variables may pull water usage in different directions, and that the majority of variables are beyond the control of Tucson Water. Positive water sales volume and metered connection growth combined in FY 2006 to produce the first upward tick in monthly usage per metered connection that Tucson Water has seen since FY 2002; average monthly usage per metered connection for FY 2006 (18.97 Ccf) was approximately 0.5 Ccf more than in FY 2005 but was still less than every fiscal year this century except for FY 2005. Reclaimed Water Sales Revenue, Sales Volume, Metered Connections: Reclaimed water sales revenue for FY 2006 offered the same positive results as potable sales revenue. FY 2006 revenue of $5.8 million was about 3.6% more than FY 2005 revenue and around 13.0% (about $0.7 million) greater than plan. Reclaimed water sales volume (5,997,690 Ccf or 4.5 billion gallons) was about 20.0%, or 994,405 Ccf, greater than in FY 2005 and 14.5% greater than the plan for the year. Two months into FY 2006, Tucson Water began selling reclaimed water to another nearby municipality which uses the reclaimed water to irrigate golf courses within its jurisdiction. Sales to this one new customer accounted for 41.0% of the increase in sales volume from FY 2005 to FY 2006. Average metered connections for FY 2006 increased by 82 to 950. New residential connections accounted for 71 of the 82. FY 2006 continued the trend of residential customers driving connection growth but commercial customers (golf courses, parks, schools) driving sales volume. Revenue Outlook: Next Five Years Service Connections Average Usage (Ccf) per Month 2005 2006 2003 2004 2001 2002 1999 2000 1997 1998 1995 1996 1993 1994 1991 1992 1989 1990 1987 1988 Avg Annual Service Connections The major revenue change we are expecting during the next five years continues to be in fees affecting new development, or connection growth, in our service area. While the pace of new connection growth appears to be tapering off in the early years Thus, the trend in monthly usage per connection of this century, growth is still occurring and remains downward while service growth continues additional water resources and water system to increase, albeit at a reduced pace. The following infrastructure are required as a result. Our analysis chart illustrates this conclusion. of long-term water resource requirements continues to be reviewed by the community Average Service Connections and Usage Per Service Connection and our governing body, and discussions 24.5 250,000 continue to indicate that impact, or 23.0 development, fees will play a major role in Trend Line 200,000 21.5 financing future water resource 150,000 20.0 requirements and related infrastructure. 100,000 18.5 Higher annual water rate increases are also 50,000 17.0 anticipated to provide for costs not eligible 0 15.5 to be recovered in development fees, such as increasing energy costs and replacement of FISCAL YEAR an aging infrastructure. Potable Metered Average Usage Per Connection Per Month 20 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis Operating Expenses reading and billing. A cost of living adjustment, employee merit increases, and increases in employee insurance premiums contributed to the $1.3 million increase in employee costs from FY 2005. Emp/1000 Services We expend considerable financial resources to operate our two water systems (potable and reclaimed). We incurred $79.0 million in operating expenses in FY 2006 (excluding depreciation of $20.6 million and taxes of $9.5 million) or about $357 per service account, a 4% increase over FY 2005. FY 2006 Operating Expenses $79.0 Million Other 23% Staffing 39% Admin. Service Charge 10% Power 18% CAP Water 10% Tucson Water Employee/Service Ratio 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 2.0 3.38 3.31 3.21 3.14 3.09 2.99 2.88 2.78 2.67 2.57 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 FISCAL YEAR Power costs (approximately $14.3 million in FY 2006 and $12.1 million in FY 2005 respectively) are incurred as we pump water up from depths ranging to 700 feet and move it through our distribution system. To control power costs, we have converted, where feasible, to less expensive, interruptible rates and designed our system to operate with a mix of electric and gas powered pumps. Despite continuing increases in the number of customers, our ratio of employees per 1,000 customer services (meter connections) has steadily decreased in recent years. Restructuring of meter reading routes, flexible work hours, reorganization of fieldwork tams, and increased use of technology and automation continue to contribute to a reduction in the employee per-service ratio. While our focus on obtaining efficiencies will continue, we expect that increasing maintenance and replacement needs, along with steady increases in our customer base, will require our staffing levels to rise in the coming years With both increased power rates and increased water sales during FY 2006, total power costs increased signficantly, nearly 17% over fiscal year 2005. We anticipate increasing power costs in the coming years as we increase production from our recharge and recovery facilities. Recharged water, recovered and moved from the facilities approximately 20 miles outside of our central service area, will continue to replace groundwater from numerous wells currently located throughout the central wellfield. We are a large utility with many varied expenses, four cost categories made up 77% of our total operating costs: employee costs, power costs, CAP water costs, and administrative service charges. Total Production Wells Employee costs ($30.5 million in FY 2006 and $29.2 million in FY 2005) relate to our diverse staff of 571 employees (a reduction of five employees from FY 2005). Our employees serve in varying roles: planning for our community’s growing water resource needs; insuring the quality of the water we deliver; designing storage and delivery systems to meet our customer demands; providing proper maintenance to all elements of our system; and providing customer service through accurate meter 250 200 150 171 174 181 189 191 192 187 191 190 38 100 50 0 28 28 29 28 30 34 38 38 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY FY 2005* 2006* ELECTRIC GAS *Includes 30 electric wells not currently in operation. 21 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis CAP water costs ($8.3 million in FY 2006 and $8.4 million in FY 2005) result from our purchase of Colorado River water from the CAWCD. Our FY 2006 CAP water costs consisted of two components: • The capital financing charge, $3.3 million in FY 2006 and $3.8 million in FY 2005, is based on the Utility’s allotment of 135,966 acre-feet. The FY 2006 decrease was the result of a rate reduction by CAWCD. • The commodity charge $5.0 million and $4.6 million in FYs 2006 and 2005, respectively is based on actual CAP water taken. We purchased approximately 48,000 acre-feet of CAP water in FY 2006, down slightly from FY 2005 purchases levels. The increased expenses reflects the increased cost per acre-foot charged by CAWCD. maintaining water rate adjustments to levels acceptable to the community we serve. We have ongoing planning efforts throughout our organization. Capital Improvements At the end of FY 2006, our water system was composed of 208 potable wells, 7 reclaimed wells, approximately 4,500 miles of delivery pipelines, 113 boosters to move water around our delivery area, and 52 reservoirs (46 potable and 6 reclaimed) to store water to meet peak demands. Our capital planning focuses on the design, and construction improvements to our system; the infrastructure requirements to meet the demands of our current and future customers. Administrative service charges, $7.7 million in both FY 2006 and FY 2005, are our payments to the City of Tucson for support services (procurement/payroll/ budget/etc). All payments are for direct services or indirect administrative support. No Utility funds are transferred to support non-Utility related purposes. FY 2005 administrative serve charges included direct costs resulting from holding a water revenue bond election; when adjusted for this non-recurring charge, FY 2006 administrative service charges costs increased by $.5 million over the prior year. We fund our capital program with a combination of current revenues (cash from the sale of water to our customers) and bond proceeds (cash from the sale of revenue bonds). This enables both current and future customers to participate in the funding of capital improvements. In May 2005, the citizens of Tucson approved a $142 million Water Revenue Bond authorization; as of June 30, 2006, we have utilized $36.2 million of this authorization. This authorization is anticipated to provide the funds to meet our bond requirements through FY 2010. Operating Expenses Outlook: Next Five Years Managing our operational expenses continues to be a significant challenge. Operating expenses are anticipated to increase significantly over the next five years due to expanded use of CAP water. Operating costs will be incurred for purchasing increasing amounts of water at increasing rates, as well as operation of the expanded recharge and recovery facilities. Additional operational cost pressures are expected from continued customer growth, the potential for continued volatility in power costs, increasing employee related costs (particularly those related to health care,) and general inflationary pressures. During FY 2006 we spent approximately $51 million on improvements to our system compared with FY 2005 spending of $39 million. Higher spending in FY Funding of FY 2006 Capital Improvement Program $50.9 Million Revenues 38% Bonds 62% The Utility will be challenged with managing costs while meeting increasing demands for water and *Includes vehicles and equipment 22 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis 2006 was partially the result of completing several large projects in the reclaimed program - over $12.7 million was expended on four reclaimed projects. In addition, $3.7 million was spent on three related potable projects focused on protecting the integrity of our water mains. Another $4.3 million was spent on System Enhancements (Roadway Improvement Projects), and $1.5 million on a meter replacement program. Also during FY 2006, $2.8 million was spent on projects related to construction of our second major recharge and recovery facility. Debt and Debt Service The following program areas made up the remaining $ 25.0 million of FY 2006 CIP spending: During FY 2006, the following bond sales or loans agreements occurred: Transmission and distribution mains Capitalized expense Reservoirs and pumping facilities New services Well drilling, equipping, and upgrades General plant improvement/vehicle/equipment $5.8 million $5.4 million $3.2 million $3.1 million $2.4 million $6.1 million Capital Expenditure Outlook: Next Five Years The Five-Year CIP is the infrastructure foundation of our water supply strategy for the community. Over the next five years, we plan to spend nearly $260 million to fund important capital projects. During this five year period, our emphasis will be on construction of our second facility (and related infrastructure) to enable us to eventually recharge and recover an additional 60,000 acre feet of Colorado River water, thereby reducing groundwater pumping and utilizing our full CAP allocation. This facility will include drilling additional recovery wells and construction of recharge basins, a 10 million gallon reservoir, and raw water and recovery transmission mains. Also included in our five-year CIP are storage and transmission projects to address the Utility’s growing customer base and various improvements to protect the security and integrity of the water system. At June 30, 2006, we had $342.9 million in outstanding water revenue bonds. In addition, we had $40.4 million outstanding in Water Infrastructure Finance Authority (WIFA) loans. Water revenue bond interest payments on this debt ($18.9 million in FY 2006) are reported as expenses on our income and flow of funds statements. Repayment of principal ($11.2 million in FY 2006) is reported only on our flow of funds statement. In addition, we paid $0.5 million in fiscal agent fees. Amount Interest Rate $2.5 million WIFA loan* 3.42% $2.0 million WIFA loan* 3.21% *Long Term Bonds payable are increased for WIFA loans as expenditures occur on loan financed projects. Cash receipts generated from the System Equity (buy-in) fee are dedicated to payment of the annual requirements for debt service. FY 2006 FY 2005 System Equity Fee Revenue $7.8 million $7.4 million Water Revenue Bond/WIFA Loan Debt Service $30.1 million $27.9 million System Equity Fee as % of Debt Service Bond Ratings: • Moody’s Investors Service • Standard and Poors • Fitch Month April April Aa3 A+ AA 23 26% 27% TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis The financing of our capital program with a combination of bond proceeds/loans and water sales revenues insures a healthy ratio of outstanding water revenue bond debt to system fixed assets. This ratio has averaged .37 over the last ten years. RATIO OF OUTSTANDING WATER REVENUE BONDS TO CAPITAL ASSETS(1) June 30, ($ in millions) 1997 Land Buildings Water Mains Reservoirs Construction in Progress Machinery Less Accumulated Depreciation $ 41.4 95.7 408.5 114 1998 1999 $ 43.1 $ 44.6 96.3 97.3 442.5 467 127.3 132.5 117.6 11.9 109.3 15.6 127.2 17.1 (143.8) (156.9) (169.6) 2000 2001 2002 2003 $ 46.9 97.3 528.2 142.1 $ 46.4 100.7 549.3 183.1 $ 45.1 102.1 582.2 199.6 $ 45.1 $ 45.1 108.5 108.6 608.6 635.7 198.2 202.3 108.3 15.2(2) 106.7 16.7 95.9 19.6 115.2 20.8 (181.6) (196.5) (217.1) -225 Total Capital Assets $ 645.3 $ 677.2 $ 716.1 $756.4 $ 806.4 Water Revenue Bonds/WIFA Loans Outstanding $216.7 $250.0 Ratio Water Revenue Bonds/ Capital Assets $223.9 0.35 0.32 0.35 $244.1 $273.9 0.32 0.34 $827.4 $335.0 0.40 2004 2005 2006 $ 45.3 134.5 739.7 102.4 $ 45.5 119.4 803.7 110.7 134.9 22.6 147.4 23.2 153.5 24.3 -244.3 (262.4) (282.3) $870.6 $ 904.9 $ 930.1 $ 974.8 $334.0 $365.8 $388.3 0.38 0.40 0.42(3) (1) Goodwill and capitalized water rights not included (2) $2 million of machinery assets were written off in FY 2000 due to change in capitalization threshold. (3) Includes $31.7 million of bonds sold in June and unspent at June 30, 2005; ratio with this debt removed is .38. 24 $383.3 0.39 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis Change in Net Assets and Flow of Funds The change in net assets is the amount by which our revenues and capital contributions exceed our expenses, including depreciation. The change in net assets for FY 2006 was $26.1 million, a $11.2 million increase from FY 2005. Change In Increase to Net Assets FY 2006 from FY 2005 ($ in millions) $ Increase to net assets FY 2006 Increase to net assets FY 2005 Change in amount of Increase $ 26.1 14.9 11.2 Detail of changes FY 2006 from FY 2005 Revenues Increase in water sale revenues (potable and reclaimed) Increase in other revenues Change in revenues Expenses Increase in depreciation expense Increase in power expense Increase in employee costs Increase in administrative service charge Increase in interest expense Increase in other expenses Changes in expenses $ -0.7 -2.3 -1.3 -0.5 -0.9 -1.0 -6.7 Capital contributions Increase – system equity (buy-in) fee Increase - contributed water systems/grant receipts Changes in Capital Contributions Change in Increase to Net Assets FY 2006 from FY 2005 Since we operate as a self-supporting utility of the City of Tucson, we must receive adequate cash (from revenues) during the year to support our operating and capital improvement cash requirements. In addition, we must meet financial policies governing cash reserve balances and debt service coverage. For this reason, we focus more on our projected and actual flow of funds than on net income. 5.1 4.4 9.5 0.4 8.0 8.4 $ 11.2 Cash Reserves – During June 2002, the Mayor and Council adopted a Financial Plan that targeted cash reserve levels at approximately $13 million by the end of FY 2006. At June 30, 2006, unrestricted/undesignated cash on hand was $15.3 million. Debt Service Coverage (the % by which revenues, after meeting operating cash needs, cover Water Revenue bond and WIFA loan principal and interest payments) – Mayor and Council policy is to maintain an annual average debt coverage of at least 1.75. 25 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Management’s Discussion and Analysis Our flow of funds does not include depreciation (a non-cash expense included in our income statement), but does include cash outlays for capital improvements and debt principal repayments (cash use items not included in our income statement). In addition, revenues resulting in long-term receivables are included in our flow of funds the year in which we receive payments. The following “summary flow of funds” identifies the major cash sources and uses during FY 2006. Appendix A provides additional details.: Summary FY 2006 Flow of Funds ($ in millions) CASH INFLOWS: What we received: from sale of water* from water system equity fees from other revenues/sources** $ TOTAL INFLOWS CASH OUTFLOWS & USES How much of our revenues we used for: operations/maintenance *** bond debt service (principal/interest) capital improvements other purposes TOTAL OUTFLOWS * includes CAP surcharge revenues ** includes taxes of $9.5 million $ $ $ 105.9 7.8 25.0 138.7 88.4 30.6 19.4 .3 138.7 *** includes taxes of $9.5 million and payment to City of Tucson for direct and indirect administrative support $7.7 Financial Planning and Outlook: Each year, we develop a rolling six-year Financial Plan (current year plus five). This plan is built on our projected capital improvement and operating budgets, and our projected water sales revenues under existing rates. Our plan is aligned with the City of Tucson’s budgetary process. This alignment enables Mayor and Council to be provided with the water revenue increases necessary to support operating and capital needs (over the five years of our financial plan period) as part of their review of those capital and operating budgets. As a result, our governing body has the opportunity to know the revenue/rate effects of the capital and operating plans being considered and can adjust the plans if the revenue/rate effects are not deemed acceptable. Our Financial Plan for the period FY 2006-FY 2011, which was adopted by Mayor and Council during FY 2006, calls for annual water revenue adjustments beginning in FY 2007. Primary drivers behind the need for increased revenues include the continued transition from groundwater to our recharged/ recovered Colorado River water resource and the financing of our capital program. 26 During fiscal year 2007, we will be developing a more defined business plan focusing on our strategic initiatives and core functions. This project will involve a wide cross-section of our staff and will become the cornerstone of future planning efforts and resource allocation. In addition, we will be increasing efforts to significantly improve security for our water delivery and storage infrastructure. We believe our financial planning process, combined with our ongoing focus on cost reductions and improved efficiencies, positions us to meet our goals of reduced dependence on groundwater and continued delivery of affordable, high quality water to a growing desert community. Requests for Financial Information Our annual report is intended to provide our customers, bondholders, and creditors with an overview of our operations and related financial activities. If you have any questions about our annual report or need additional financial information, contact Tucson Water Financial Services, P.O. Box 27210, Tucson, AZ 85726-7210, (520) 791-2666. TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Appendix A: Schedule of Flow of Funds1 Revenues for operations and debt service: Sale of potable water Sale of reclaimed water Total Sale of Water Central Arizona Project Surcharge 2 Connection fees System Equity Fees Taxes: Business privilege tax (State/City) Utility tax (City) Total taxes $ 98,096 5,855 103,951 1,966 3,767 7,844 8,142 1,383 9,525 Investment income: Operating fund interest earnings 765 Debt service fund interest earnings 340 Bond fund interest earnings 760 Other investment income 148 Total investment income available for operations and debt service Sewer billing services Pima County Sewer, City of Tucson Environmental Services Miscellaneous revenue: TCE Clean-up Reimbursement 1,172 Area Development Fees 1,232 ServiceCharges 1,995 Plan Review and Inspection Fees 1,867 Prior Year and Reimbursed Expenses 809 Other 117 Total miscellaneous revenue Other receipts: Proceeds from sale of property and equipment Principal received on loans to Starr Pass Total other receipts Total revenues for operations and debt service Other sources: CAP Reserve Fund interest earnings 2 Total revenues and other sources 2,013 2,962 7,192 284 123 407 139,627 24 $ 139,651 1 This schedule presents a flow of funds under the methodology utilized by the Utility in determining needs for revenue adjustments. That methodology, approved by the American Water Works Association and reviewed by the Utility’s independent rate consultant, looks at projected cash requirements for the year. This statement, based on actual results, enables the Utility to compare results with those projections. 2 CAP Reserve Fund revenues and interest were generated by a $.04/Ccf charge applied to potable water sales. Surcharge revenues are designated for payments of CAP water commodity or capital charges. Related interest earnings are designated for capital projects utilizing Colorado River water. 27 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Appendix A (Continued): Schedule of Flow of Funds1 Operations and maintenance expense: 3 Director’s office Business services Customer Sevices Water operations (excluding power) Planning and engineering (including waterline relocation) Water quality management (excluding CAP water purchases/power) CAP water: Capital charges Commodity Total CAP water Power: Potable system Reclaimed system Total power General expense (including sales taxes of $9,525) Capitalized operations and maintenance expense Total operations and maintenance expense Adjustment for accrued compensated absences 4 Adjusted total operations and maintenance expense $ 4,967 4,320 6,523 19,199 7,177 8,844 3,263 5,022 8,285 13,268 1,024 14,292 12,603 (5,396) 80,814 (148) 80,666 Debt service on water revenue bonds/loans: Interest Principal Water Revenue Bonds5 18,018 9,325 27,343 Water Infrastructure Finance Authority Loans5 907 1,877 2,784 Issuance Cost of Debt Total debt service on water revenue bonds and WIFA loans Capital outlay: Improvements/Equipment from revenues and other sources Capital equipment from revenue and other sources Capitalized operations and maintenance expense Improvements funded by Central Arizona Project Reserve Fund Total capital outlay Other uses: Administrative service charges Increase in reserves Total other uses Total expenses, debt service, capital outlay and other uses 3 4 5 18,925 11,202 30,127 523 30,650 14,214 502 5,396 50 20,162 7,727 446 $ 8,173 139,651 Capitalized operations and maintenance expense reported separately on this statement. It is allocated to Utility Divisions on the Statement of Operations. Change in year-end long-term compensated absences payable is subtracted from this statement. Debt service coverage calculation: Revenues (excludes other sources/other receipts and Bond Fund interest earnings) $138,460 Operations and maintenance expense (excludes adjustment for compensated absences) $ 80,814 Revenues available for Debt Service $ 57,646 Principal/Interest Water Revenue Bonds Principal/Interest Water Revenue Bonds and Loans 28 $ 27,343 coverage $ 30,127 coverage 211% 191% TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Appendix B: Water Rate Schedule POTABLE WATER SERVICE CHARGES A. MONTHLY MINIMUM CHARGE (1) Meter Size Inches Minimum Charge 5/8 $5.35 1 $6.99 1 1/2 $10.73 2 $15.41 2 1/2 $21.73 3 $28.05 Meter Size Inches 4 6 8 10 12 Minimum Charge $45.84 $90.78 $135.71 $205.92 $338.39 B. MONTHLY WATER USE CHARGES Customer Class Winter (per Ccf) 2 Single Family: 1-15 Ccf $1.03 16-30 Ccf $3.60 31- 45 Ccf $5.05 Over 45 Ccf $7.13 Summer (per Ccf) 3 $1.03 $3.60 $5.05 $7.13 1-20 Ccf 21-35 Ccf 36-50 Ccf Over 50 Ccf $1.03 $3.60 $5.05 $7.13 $1.03 $3.60 $5.05 $7.13 Multifamily Basic Volume Charge: 4 $1.59 $1.59 Sub-metered Mobile Home Parks Basic Volume Charge: 4 $1.25 $1.25 Commercial: Basic Volume Charge 4 Summer Surcharge-Tier 1 5 Summer Surcharge-Tier 2 6 $1.49 — — $1.49 $0.95 $0.25 Industrial: Basic Volume Charge 4 Summer Surcharge-Tier 1 5 Summer Surcharge-Tier 2 6 $1.47 — — $1.47 $0.95 $0.25 Construction Water: Basic Volume Charge 4 $1.94 $1.94 C. CENTRAL ARIZONA PROJECT CHARGE 7 $0.04 $0.04 Duplex-Triplex: The customer’s monthly bill is calculated by adding together the monthly minimum charge, all monthly water use charges for the customer’s class, and the Central Arizona Project (CAP) charge. 29 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 Appendix B (Continued): Water Rate Schedule FIRE SPRINKLER SERVICE MONTHLY CHARGES Connection Size Inches 2 3 4 6 8 10 12 Minimum Charge $5.41 $8.39 $12.96 $24.87 $38.87 $60.63 $97.58 RECLAIMED WATER SERVICE CHARGES A. MONTHLY SERVICE CHARGE Meter Size Inches Minimum Charge 5/8 $5.35 1 $6.99 1 1/2 $10.73 2 $15.41 2 1/2 $21.73 3 $28.05 4 $45.84 6 $90.78 8 $135.71 10 $205.92 12 $338.39 B. MONTHLY RECLAIMED USE CHARGE Reclaimed Water Charge $/Ccf $1.40 ($610 per acre foot) The reclaimed water customer’s monthly bill is calculated by adding together the monthly service charge and the monthly reclaimed use charge. The monthly reclaimed use charge is applied to all use. NOTES: 1 The monthly minimum charge is applicable to all customer classes. 2 Winter rates are applicable to water use from November through April. 3 Summer rates are applicable to water use from May through October. 4 The Basic volume rate is applicable to all usage. 5 Summer surcharge, Tier 1 is applied to all use during a summer month which is in excess of the actual average monthly use during the previous six winter months. The calculated surcharge amount is added to the basic volume charge. 6 Summer surcharge, Tier 2 is applied to all use during a summer month which exceeds 145 percent of the actual average monthly use during the previous six winter months.. The calculated surcharge amount is added to the basic volume charge and to the summer surcharge Tier 1 charge. 7 The CAP rate is applied to all potable water use. 30 31 Tucson Water’s downtown headquarters houses most of the Utility’s Planning, Engineering, Customer Service, Business Service, and Administrative staff. 32 Financial Statements Annual Report Fiscal Year 2006 33 Tucson Water’s Public Information Office offers a variety of publications on saving water, water quality, planning for the future and more. All this is free to our customers and available by calling 791-4331. 34 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) June 30, 2006 and 2005 ($ In Thousands) Statement of Net Assets 2006 Assets Current assets: Cash and cash equivalents Undesignated Designated for customer deposits Designated for infrastructure replacement Total cash and cash equivalents $ Billed accounts receivable, net of allowance for doubtful accounts of $353 and $280 respectively Unbilled accounts receivable Prepaids and other assets Total current assets Restricted assets Long-term accounts receivable Capital assets Utility property, plant and equipment Construction-in-progress Less accumulated depreciation Net capital assets Other Total assets $ 2005 15,321 3,117 10,158 28,596 $ 15,056 2,795 9,877 27,728 9,364 6,131 1,748 45,839 8,956 6,671 302 43,657 31,063 1,249 52,552 1,377 1,103,600 153,497 (282,324) 1,045,089 147,385 (262,439) 974,773 930,035 3,166 3,308 1,056,090 $ 1,030,929 (Continued on next page) 35 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) June 30, 2006 and 2005 ($ In Thousands) Statement of Net Assets (Continued) 2006 Liabilities and Net Assets Current liabilities: Accounts payable Salaries, wages and payroll taxes payable Current installments of revenue bonds payable Current installments of contract payable Refundable/customer deposits Unearned receipts Total current liabilities $ Liabilities payable from restricted assets Long-term liabilities: Revenue bonds payable Contract payable Other long-term liabilities Total long-term debt Total liabilities Commitments, contingencies and subsequent events (notes 15 and 16) Net assets Invested in capital assets net of debt Restricted for: Debt service Capital projects Unrestricted Total net assets $ See accompanying notes to financial statements. 36 5,664 2,639 13,192 232 3,117 — 24,844 2005 $ 5,574 2,440 11,084 115 2,795 5 22,013 22,688 19,627 371,114 706 1,445 373,265 420,797 378,284 484 1,297 380,065 421,705 602,172 576,713 225 3,029 29,867 635,293 45 141 32,325 609,224 $ TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) June 30, 2006 and 2005 ($ In Thousands) Statement of Revenues, Expenses and Changes in Net Assets 2006 Operating revenues: Potable water sales Reclaimed water sales Total water sales Central Arizona Project surcharge Connection fees Billing services Pima County Sewer, City of Tucson Environmental Services Miscellaneous: TCE cleanup reimbursement Area development fees Service charges Plan review and inspection fees Reimbursed prior year expenses Other Total miscellaneous Total operating revenues $ 98,096 5,855 103,951 1,966 3,767 2005 $ 93,336 5,653 98,989 1,852 2,997 2,962 1,915 1,172 1,232 1,995 1,867 809 117 7,192 119,838 714 439 1,903 1,877 576 85 5,594 111,347 1,735 1,237 155 3,127 2,294 1,591 527 4,412 Business services: Personal services Contractual services Commodities Total business services 1,836 1,007 1,244 4,087 1,574 815 1,074 3,463 Customer services: Personal services Contractual services Commodities Total customer services 5,664 305 554 6,523 5,311 346 471 6,128 Water operations: Personal services Contractual services Commodities Total water operations 11,719 10,857 4,671 27,247 11,318 14,556 4,308 30,182 Operating expenses: Director’s office: Personal services Contractual services Commodities Total director’s office (Continued on next page) 37 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) June 30, 2006 and 2005 ($ In Thousands) Statement of Revenues, Expenses and Changes in Net Assets (Continued) 2006 Planning and engineering: Personal services Contractual services Commodities Total planning and engineering $ Water quality management: Personal services Contractual services Commodities Total water quality 2005 3,139 453 262 3,854 $ 3,704 565 420 4,689 5,300 8,451 1,337 15,088 4,356 2,161 705 7,222 3,263 5,022 8,285 3,807 4,587 8,394 General expenses: Personal services Contractual services Commodities Total general expenses 1,095 9,595 115 10,805 594 8,639 147 9,380 Depreciation and goodwill amortization (note 2g & h) 20,621 19,911 99,637 93,781 20,201 17,566 2,360 284 11 2,655 1,175 436 10 1,621 18,881 669 19,550 3,306 17,992 586 18,578 609 22,758 5 26,069 609,224 635,293 14,302 — 14,911 594,313 609,224 CAP water charges: Capital charges Commodity charges Total CAP water charges Total operating expenses Net operating income Nonoperating income: Investment earnings Gain on sale of property/equipment Other nonoperating Total nonoperating income Nonoperating expenses: Interest expense Other nonoperating expenses Total nonoperating expenses Net income before capital contributions Capital contributions Transfers in Change in net assets Net assets - July 1 Net assets - June 30 $ See accompanying notes to financial statements. 38 $ TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) June 30, 2006 and 2005 ($ In Thousands) Statement of Cash Flow 2006 Cash flows from operating activities: Cash received from customers $ Cash payments to suppliers for goods and services Cash payments to employees for services Net cash provided by operating activities Cash flows from noncapital financing activities: Subsidy from federal grant Cash flows from capital and related financing activities: Bond proceeds Acquisition and construction of capital assets Principal paid on capital debt Interest paid on capital debt Fiscal agent fees paid on capital debt Proceeds from sale of property and equipment Net cash used in capital and related financing activities Cash flows from investing activities – interest received on investments Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ Reconciliation of operating income to net cash provided by operating activities: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization Decrease (increase) in cash resulting from changes in: Accounts receivable/due from other agencies Prepaids and other assets Long-term accounts receivable Accounts payable Accrued expenses Deferred revenues Customers/refundable deposits/due to other agencies Net cash provided by operating activities $ $ A reconciliation of cash and cash equivalents at June 30 follows: Unrestricted cash Restricted cash (included in restricted assets) Cash and cash equivalents at June 30 Noncash investing, capital and financing activities: Contributions of capital assets from developers Write off of Rita Ranch payable 39 $ 2005 120,421 (49,516) (31,852) 39,053 $ 112,533 (42,704) (30,602) 39,227 10 10 5,497 (41,548) (11,202) (18,955) (515) 286 (66,437) 2,480 (24,894) 62,966 38,072 $ 35,364 (27,563) (10,400) (17,980) (478) 428 (20,629) 1,638 20,246 42,720 62,966 20,201 $ 17,567 20,621 19,911 132 (3,407) 128 775 348 (1,095) (13) 259 366 (90) 255 39,053 $ $ 28,596 9,476 38,072 $ $ $ $ 12,185 (224) $ $ 2,322 39,227 27,728 35,238 62,966 6,869 (146) Reclaimed water is used in schools, parks, and in residential areas to save valuable drinking water for Tucson Water customers. We are constantly expanding this important system to keep in step with our growing community. 40 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements 1. DESCRIPTION OF THE BUSINESS recovery production will approach 60,000 acre-feet during FY 2007. CRRF, constructed northwest of the City of Tucson, is composed of recharge basins, recovery well fields, storage and transmission facilities. The facility permits the recharge of about 71.4 million gallons per day (80,000 acre-feet/year) of Colorado River water, a renewable source. Current recovery well capacity is 54 million gallons per day. Meeting approximately fifty percent of customers’ current demand for potable water with Colorado River water enables the Utility to reduce groundwater pumpage from the central well field, over which the majority of the City of Tucson lies, thereby easing concerns related to land subsidence. Tucson Water (the Utility), an enterprise fund of the City of Tucson, Arizona (the City), is operated and maintained as a self-supporting, municipally-owned utility of the City providing customers with potable and reclaimed water. The Utility provides water service to approximately 710,000 people within a 300 square-mile service area that encompasses approximately 85% of the greater Tucson metropolitan area’s total population. Customers are classified by the type of service they receive, including residential, multifamily, mobile home park with sub-meters, commercial, and industrial services, and are located both inside and outside of the corporate limits of the City. As part of a 1979 intergovernmental agreement (IGA) transferring the sewer system from the City to Pima County, the Utility was granted the right to use 90% of the effluent discharged from the metropolitan wastewater treatment facilities. Planning for use of this water resource was initiated in 1982. In 1984, the Utility began delivering reclaimed water, or effluent treated to tertiary levels, to customers for turf irrigation purposes. The Utility’s reclaimed system currently includes a reclaimed water treatment plant which processes effluent to a quality suitable for open-access turf irrigation, a wetlands which biologically treats secondary effluent, basins for the effluent recharge and wells for recovery of the recharged water for delivery in the reclaimed distribution system. Water Sources During FY 2006 the Utility obtained its municipal potable water (water meeting or exceeding all federal, state, and local drinking water standards) from four groundwater well fields (Central, Avra Valley, Santa Cruz, and Southside) and from a facility where the Utility recharges and recovers Colorado River water. These four well fields and the recharge and recovery facility provide the Utility with an aggregate production capacity of 175 million gallons per day. The Utility’s surface water source contract with the United States Department of the Interior and the Central Arizona Water Conservation District (“CAWCD”) provides access to 135,966 acre-feet annually of Colorado River water, delivered via the Central Arizona Project (CAP). The CAP consists of 335 miles of waterworks and associated facilities designed to deliver water from Lake Havasu on the Colorado River to Maricopa, Pinal, and Pima Counties in central/southern Arizona. In February 2000, the IGA was amended to resolve issues related to effluent and recharge permits. The amendment contained numerous agreements, including: (1) the City, Pima County and other effluent management entities (Marana/Oro Valley) agreed to establish a Conservation Effluent Pool for use on riparian projects, (2) the City and Pima County agreed to cooperatively plan and establish recharge basins for storage of effluent, (3) effluent from the new treatment facility at Ina Road would be divided among the City, Pima County and U.S. Department of the Interior, (4) the City would no longer control effluent from non-metropolitan treatment plants, (5) the County could use its 10% of effluent for any public use. In FY 2006, The Utility’s Clearwater Renewable Resource Facility, (CRRF), an $81 million project completed during fiscal year 2004, pumped 46,305 acre-feet of blended recharged/recovered CAP water and groundwater into the Utility’s distribution system. The recovery system was offline for a portion of the year to conduct planned inspection and maintenance activities. The facility’s recharge and 41 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements Assured Water Supply Arizona Department of Water Resources’ (ADWR) Assured Water Supply (AWS) Program is designed to encourage water providers to shift their reliance from groundwater to renewable water sources. It is important that water systems have an AWS designation because without it, no new growth can take place within the service area unless developers provide their own water supply. Receipt of the Assured Water Supply designation indicates a sufficient water supply is available to meet 100-years of projected demand for the existing population, committed demand (undeveloped, subdivided land within the service area) and provision for an increment of growth. The Utility’s service area received a designation of Assured Water Supply on January 1, 1998 based upon its membership in the Central Arizona Groundwater Replenishment District (CAGRD) and the planned recharge and recovery of CAP water at the CRRF. Utility Operations The Utility is operated and maintained as a selfsupporting, municipally-owned utility of the City. Although the Utility is a department of the City, it is operated in a manner similar to a private business enterprise where the costs of providing goods and services to its customers are financed primarily by user charges. A fund structure separate from other City accounts is maintained. The Utility’s authority and responsibility is derived from the City’s Charter and ordinances and resolutions of the Mayor and Council of the City. The Utility has within its organization virtually all of the elements of a selfcontained entity. The Mayor and Council adopt the Utility’s annual budget, establish water rates and fee structures in accordance with State laws governing municipal water systems, and provide overall policy direction. To assist with the task of operating the Utility, the Mayor and Council have adopted water service policies. A number of these policies establish guidelines for the water financing and ratemaking process. These water service policies include, but are not necessarily limited to, the following concepts: • All costs associated with the operation of the Utility (operating, maintenance, renewal and replacement, capital and debt service) shall be funded from revenues derived from the Water System’s water rates and other water-related income sources. • Various combinations of revenue bonds, taxsecured bonds and water revenues are used to finance Utility capital improvements; regardless of what type of bond is used, repayment of the bonds shall be made only from Water System revenues. • Some portion of the capital improvements are required to be funded from annual revenues to comply with existing bond covenants and Mayor and Council policy and to facilitate new debt issues by maintaining adequate debt coverage. An annual average debt coverage of at least 1.75 shall be maintained. The Utility was in compliance with debt coverage requirements for the fiscal year ending June 30, 2006. • The policies require the Utility to maintain cash reserves adequate for known future obligations. In June 2002, Mayor and Council adopted a Financial Plan including increasing cash reserve levels to approximately $13 million by the end of fiscal year 2007 (at June 30, 2006, cash reserves were $15.3 million). Cash reserves are non-restricted cash/ equivalents less cash designated for specific purposes. As reported on the Statement of Net Assets, the Utility maintains two designations of cash: ~ Designated for customer deposits-Cash/equivalents designated for reimbursement of customer deposits ($3,117 at June 30, 2006). ~Designated for infrastructure replacement-Cash/ equivalents designated for replacement of water system infrastructure. On June 3, 2002, the Mayor and Council utilized the payoff proceeds received under a legal settlement (and future interest earnings thereon) to establish a fund for future infrastructure replacement ($10,158 at June 30, 2006). • Charges for services shall be made on a cost of service basis. Water rate design elements shall reflect the cost of service areas across customer 42 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements C. Use of Estimates classes and seasons, and shall be designed so as to encourage water conservation and to control peak demand. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect (1) the reported amounts of assets and liabilities, (2) the disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. • Water rates and charges shall be reviewed annually. Mayor and Council created the Citizens’ Water Advisory Committee (CWAC) in 1977 as the official advisory body to the Council on water issues. The CWAC, composed of fifteen members, annually reviews the Utility’s Financial Plan and its underlying capital improvement program, operating plans, and revenue forecasts, and makes recommendations to the Mayor and Council on rate adjustments. D. Cash Equivalents All short-term investments purchased with an original maturity of three months or less are considered to be cash equivalents. For purposes of the statement of cash flow, all highly liquid investments (including participation in the City of Tucson’s investment pool account) are considered to be cash equivalents. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General Tucson Water is an enterprise fund of the City. The enterprise fund accounts for the financing and operations of the Utility. All activities necessary to provide water services to Utility customers are accounted for within this enterprise fund. Any Utility annual revenues remaining after providing for operating and maintenance expense and capital project funding are retained by the Utility. E. Investments/Deposits The City maintains an investment pool that is available for use by all City funds, including Tucson Water. All assets of the investment pool are held by a single master custodian in Trust. Pooled investments are reported at fair market value. B. Basis of Accounting F. Income and Other Taxes The Utility accounts for its activity on the accrual basis of accounting. The Utility applies all applicable Governmental Accounting Standards Board (GASB) Statements, as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements: Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins of the Committee on Accounting Procedure. Governments are given the option of whether or not to apply all FASB Statements and Interpretations issued after November 30, 1989, except for those that conflict with or contradict GASB Pronouncements. Tucson Water has elected not to implement FASB Statements and Interpretations issued after November 30, 1989. Tucson Water is subject to state and municipal (Tucson, South Tucson, Marana) business privilege taxes. In addition, the City of Tucson levies a separate utility tax on the Utility’s sales to customers residing within the City of Tucson limits and the State levies an environmental tax (to support Superfund cleanup efforts) on all potable water sales. The Utility is an enterprise fund of the City of Tucson, Arizona, a municipality exempt from federal and state income taxes. Accordingly, no provision for income taxes is included in the financial statements. G. Capital Assets Property, plant, and equipment acquired prior to June 30, 1965 are stated at estimated historical cost. Additions subsequent to that date are stated at actual 43 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements 3. DEPOSITS/INVESTMENTS historical cost. Depreciation has been provided using the straight-line method over the following estimated useful lives. The Utility had approximately $18,711 in cash and investments held with fiscal agents at June 30, 2006, included in restricted assets in the accompanying statements of net assets. Cash with fiscal agents was covered by collateral held in the fiscal agents’ trust departments but not in the Utility’s name. Each trust department pledges a pool of collateral against all trust deposits it holds. Asset Estimated useful life (years) Buildings 40 Improvements other than buildings 10-40 Wells, reservoirs and improvements 40-100 Machinery and equipment 3 to 20 At year-end, the Utility had $28,596 in unrestricted cash and cash equivalents. The City Charter and State Statutes authorize the City to invest City investment pool funds in obligations of the U.S. Government, its agencies and instrumentalities, money market funds consisting of the above, repurchase agreements, bank certificates of deposit, commercial paper rated A-1/P-1, corporate bonds and notes rated AAA or AA, and the State of Arizona Local Government Investment Pool. Operating and capital projects funds may be invested for a maximum of 3 years based on projected construction schedules. Since these funds are held by the City of Tucson in its investment pool, they are not categorized by the Utility. The Utility does not capitalize interest on capital projects unless it is material, using the effective interest method. No interest costs were capitalized during the fiscal years ended June 30, 2006 or 2005, as the amounts were not material. Maintenance and repairs are expensed as incurred. H. Goodwill and Water Rights Goodwill is recorded upon the acquisition of Water companies and represents the excess of cost over fair market value at the time of acquisition. Goodwill is being amortized over 40 years using the straight-line method. Total goodwill at June 30, 2006 was $1,122, of which $991 had been amortized. Additional information on the City’s investments/ deposits, including categorization of the level of custodial credit risk assumed, is provided in the City’s Comprehensive Annual Report (CAFR). Copies of the CAFR can be obtained from the City’s Finance Department, 255 W. Alameda Street, Tucson, AZ 85701. Water rights are recorded at historical cost and amortized over 40 years using the straight-line method. The total historical cost of water rights at June 30, 2006 was $802, of which $42 had been amortized. I. Deferred Charges 4. ACCOUNTS RECEIVABLE Deferred charges represent the unamortized costs resulting from the issuance of water revenue bonds. These deferred charges, reported under Other Assets on the Statement of Net Assets, are amortized over the life of the related bonds. Unamortized costs were $2,276 at June 30, 2006. B. Current The Utility’s current accounts receivable at June 30, 2006 were: Billed Accounts $ Unbilled (estimated unbilled water sales delivered at June 30) Less: Allowance for doubtful accounts Total current accounts receivable $ J. Restricted Assets/Liabilities In accordance with applicable covenants of Utility bond issues, Mayor and Council Resolutions, or other agreements, appropriate assets and liabilities have been restricted. 44 9,717 6,131 (353) 15,495 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements B. Long-term The Utility’s long-term accounts receivable at June 30, 2006 was: Receivable from promissory note $1,249 C. Promissory Note In October, 2003, the City of Tucson entered a Pre-annexation Development Agreement with Starr Pass Resort Developments, LLC. As part of the agreement, the City agreed to finance, through a promissory note, water infrastructure improvements for the development in the amount of $1,500. Interest will be paid on the note at a yearly rate of 4.25%. After substantial completion of Using desert-adapted plants and making sure that irrigation the water improvements, as evidenced by a water is used efficiently are two important methods to making “Notice of Substantial Completion”, Starr our region more sustainable. Pass Resort Developments LLC agreed to make monthly payments of $15 until all principal, interest and other associated charges on the Promissory Note have been paid to Tucson Water. As of June 30, 2005, the project was complete. As of June 30, 2006, the short term balance on the note was $128, and the long term balance was $1,249. 5. RESTRICTED ASSETS AND LIABILITIES PAYABLE FROM RESTRICTED ASSETS A. Restricted Assets Restricted assets as of June 30, 2006 consist of the following: Source Debt service Unspent revenue bond proceeds/loan proceeds receivable Restricted Purpose Cash/investments held by the City of Tucson restricted for payment of matured revenue bond principal and interest Amount $ Cash/investments held by the City of Tucson/ accrued interest receivable/other receivables restricted for authorized bond funded capital improvement projects 12,352 Construction project Construction vendor investments (deposited vendor deposited in lieu of Utility retainage on construction investments payments) restricted for reimbursement to vendor Total restricted assets 45 18,557 154 $ 31,063 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements B. Liabilities Payable from Restricted Assets Liabilities payable from restricted assets as of June 30, 2006 consist of the following: Source Debt service restricted assets Restricted Purpose Matured bonds and interest payable $ Amount Unspent revenue bond/loan proceed assets Accounts payable on authorized bond funded capital improvement projects/ due to other funds pending loan reimbursement Construction project vendor deposited Accounts payable, investments returnable to vendors (deposited in lieu of Utility retainage on construction payments) $ 3,712 644 Total liabilities payable from restricted assets $ 6. CAPITAL ASSETS The following is a summary of the changes in Capital Assets: Beginning Balance $ 45,296 134,567 Land Buildings & Equipment Transmission & Distribution Systems 865,226 Construction in Progress 147,385 Goodwill 1,122 Water Rights Purchases 749 Total at Historical Cost $ 1,194,345 Less Accumulated Depreciation for: Buildings & Equipment Transmission & Distribution Systems Goodwill Water Rights Purchases Total Accumulated Depreciation Net Capital Assets $ 37,741 Additions/ Transfers) $ 193 14,772 49,240 51,938 263,425 930,920 (45,826) $ 53 116,196 $ (51,520) $ 5,220 $ (689) 224,698 963 23 $ $ Reductions/ Transfers $ (17) (5,677) Ending Balance $ 45,472 143,662 914,466 153,497 1,122 802 $ 1,259,021 $ 15,354 28 19 $ $ 20,621 95,575 46 42,272 240,052 991 42 $ $ (689) (50,831) 18,332 $ $ 283,357 975,664 22,688 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements 7. CHANGES IN LONG-TERM DEBT A summary of changes in long-term debt as of June 30, 2006 is as follows: Beginning Balance Water revenue bonds and WIFA loans payable $ 388,325 Deferred amounts: Bond sale refundings (10,248) Bond sale premiums 11,291 Total water revenue bonds and WIFA loans payable 389,368 Compensated absences 3,193 Contracts payable 599 Total Long Term debt $ 393,160 Additions/ Refunded Issues Reductions/ Refunded Issues $ 6,214 $ (11,202) Ending Balance $ 383,337 Due Within One Year $ 13,192 816 (890) (9,432) 10,401 6,214 (11,276) 384,306 13,192 178 516 (177) 3,371 938 1,926 231 $388,615 $ 15,349 $ 6,908 $ (11,453) 8. REVENUE BONDS AND WATER INFRASTRUCTURE FINANCE AUTHORITY (WIFA) LOANS PAYABLE Water revenue bonds and WIFA loans, secured by water sales revenues, require approval of a majority of City of Tucson voters at a bond election. At the most recent bond election, held May 2005, voters approved an additional $142 million water revenue bond authorization. At June 30, 2006, the long-term portion of bonds payable was: Bonds Maturing 2007 - 2026 Less current installments Deferred amounts * Total long-term revenue bonds payable $ 383,337 (13,192) 969 371,114 $ * Losses on refundings are amortized over the shorter of (1) the period remaining on refunded bonds, or (2) the repayment period of refunding bonds. Amortization during the years ended June 30, 2006 and 2005 was $74 and $50, respectively. 47 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements Water Utility Revenue Bonds and WIFA Loans Outstanding Series 1984 Series D (1991) 1993 Refunding 1994 Series A (1996) 1994 Series B (1997) 1997 Refunding 1998A Water Infrastructure Finance Authority (WIFA) 1994 Series C (1999) 1999A Refunding 1994 Series D (2000) 2000 Water Infrastructure Finance Authority (WIF1) 2000 Water Infrastructure Finance Authority (WIF2) 2000 Series A (2001) 2001 A Refunding 2001 Water Infrastructure Finance Authority (WIF3) 2002 Refunding 2000 Series B (2002) 2003 Water Infrastructure Finance Authority (WIF4) 2003 Refunding 2000 Series C (2003) 2000 Series D (2004) 2000 Water Infrastructure Finance Authority (WIF5) 2004 Water Infrastructure Finance Authority (WIF6) 2005 Water Infrastructure Finance Authority (WIF7) 2005 Refunding 2005 Series A (2005) 2006 Water Infrastructure Finance Authority (WIF8) 2007 Water Infrastructure Finance Authority (WIF9) Total 1 Interest Rates 9.75% 5.25-5.50 6.0-8.0 4.50-6.25 4.20-5.125 Maturity Original Date Amount 2010 $ 48,000 2014 35,360 2018 33,000 2007 11,700 2021 32,980 Balance Outstanding June 30, 2006 $ 2,500 14,955 3,000 1,000 32,100 3.425 4.75-6.75 5.00 5.25-7.25 2017 2009 2010 2024 6,000 33,400 14,045 23,740 4,086 3,500 8,570 11,315 4.125 2020 5,120 4,127 4.125 5.0-7.5 5.0 2020 2023 2016 7,780 37,800 40,850 6,372 36,000 31,320 3.43 5.50 3.5-5.125 2021 2018 2021 8,800 57,820 18,900 7,385 54,910 17,400 3.48 5.00 4.25-5.25 4.0-5.0 2022 2018 2021 2023 8,300 12,000 16,300 18,765 7,317 12,000 9,400 18,765 3.75 2023 3,000 2,761 3.255 3.113 2023 2024 2,500 2,997 2,303 2,879 4.00-5.00 3.00-5.00 2022 2025 55,110 31,665 55,020 31,135 3.424 2026 2,500 2,500 3.210 2026 $ 2,000 570,432 717 1 $ 383,337 WIF9 was not fully drawn down during FY2006. The balance of the loan will be recognized in FY2007. 48 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements Maturities of the bonds, loans, and and related interest payable after June 30, 2006 are as follows: Year Ending June 30, 2007 2008 2009 2010 2011 2012-2016 2017-2021 2022-2026 Total Principal $ 13,192 14,562 15,776 17,417 18,652 109,461 135,238 59,039 $ 383,337 Interest $ 19,082 18,354 17,600 16,786 15,863 64,042 34,310 5,503 $ 191,540 Total 32,274 32,916 33,376 34,203 34,515 173,503 169,548 64,542 574,877 $ $ 9. ADVANCED REFUNDING/DEFEASANCE OF DEBT In prior years, the Utility has defeased various bond issues by creating irrevocable trusts. The proceeds from the advance refundings have been deposited in these trusts and invested in U.S. Governmental Securities that are designed to meet the requirements of the refunded debt. The debt associated with the refunding issues, as well as the trust assets, has been removed from the Utility’s basic financial statements. As of June 30, 2006, the amount of defeased debt outstanding, but removed, is $56,225. 10. LEASE OBLIGATIONS/ LONG TERM CONTRACTS PAYABLE The Utility has entered into long-term capital leases involving the acquisition of equipment for use by the Utility. Long term Contracts Payable for the Utility as of June 30, 2006 were: Equipment Contracts Less: Current Portion Long Term Contracts Payable $ $ 938 232 706 Below is a schedule by years of future minimum lease payments under the capital leases as of June 30, 2006. Years ending June 30, 2007 2008 2009 2010 2011 Total Minimum Lease Payments Less: Amount Representing Interest (interest rates range from 3.85% to 12.00%) Present Value of Net Minimum Lease Payments $ $ 262 262 262 210 14 1,010 72 938 Equipment purchased for the utility through long term capital leases totaled $1,796. 49 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements 11. OTHER LONG-TERM LIABILITIES Other long-term liabilities are made up of accrued compensated absences and arbitrage rebates on Water Revenue bonds as follows: A. Accrued Compensated Absences The costs of employee vacation leave, sick leave, accumulated compensatory time, and any salaryrelated amounts are expensed as earned. Accrued compensated absences not expected to be utilized by employees within the next year are recorded as longterm liabilities. The long-term liability related to accrued compensated absences was $1,445 at June 30, 2006. B. Arbitrage Tax Liability The arbitrage tax liability results when interest earnings on water revenue bond proceeds exceed the related water revenue bond’s yield. The Utility’s liability balance at June 30, 2006 was $0. The Utility’s next required rebate date is July 1, 2007. 12. CAPITAL CONTRIBUTIONS Developers of land within the Utility’s service area are required to install water distribution systems meeting the Utility’s standards. Once completed and inspected by Utility staff, the developer donates the systems to the Utility. During the year ended June 30, 2006, developers donated water systems valued at $14,903, the Utility received $11 in federal and state grants, and system equity fees totaled $7,844. 13. INSURANCE The Utility is exposed to various risks of losses related to tort: theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Coverage is obtained through participation in the City’s self-insurance program. The Utility pays a premium, calculated annually based on its claims history, to the City’s Self-Insurance Fund. During Fiscal Year 2006, the Utility premium was $900. All risk management activities are accounted for in this City Fund. During the last three years, claims and settlements have been paid out of the coverage provided by this fund. The City retains all of the risk not covered by commercial carriers and manages risk through various employee education and prevention programs. The City has obtained commercial coverage for Property Insurance, Public Employee Fidelity Bonds, Crime Insurance, Aircraft Insurance, and Miscellaneous Insurance (surety bonds, special event insurance as needed and fine arts coverage). 14. PENSION PLAN/DEFERRED COMPENSATION PLANS/POST RETIREMENT BENEFITS Utility employees are employees of the City of Tucson and eligible to participate in its pension, deferred compensation, and post-retirement benefit plans. A. Pension Plan Utility employees participate in the Tucson Supplemental Retirement System (TSRS), a singleemployer defined benefit plan. Currently, employee contributions are 5% of their annual covered payroll and are made through payroll deductions. A reserve is established for contributions and earnings allocations, less amounts transferred to reserves for retirement and disability and amounts reserved for terminated employees. If an employee leaves covered employment before attaining five years’ service credit (eight years’ service credit if the member dies), the accumulated contributions plus interest are refunded to the employee or his designated beneficiary. The City contributes the remaining amounts necessary to finance employee participation in the System and to fund the costs of administering the System. Tucson Water’s contribution rate for years ended June 30, 2006, 2005, and 2004 was 14.83%, 14.06% and 11.17%, or $3,888, $3,453, and $2,611, respectively. The TSRS issues an annual report that includes financial statements and required supplementary information. The financial statements may be obtained from their administrative office located at 255 W. Alameda Street, Tucson, AZ 85701. 50 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements B. Deferred Compensation C. Construction Retainage and Other Commitments Utility employees may participate in several deferred compensation plans offered by the City. These plans permit employees to defer a portion of their salaries until future years. The Utility enters into numerous capital improvement project contracts. Retainage on construction contracts for contract work completed as of June 30, 2006 are appropriately identified as accounts payable. Contract commitments for future capital improvement work totaled $14,905 as of June 30, 2006. C. Post Retirement Benefits The City subsidizes a health insurance benefit to Utility employees who have qualified to receive a monthly retirement allowance from the Tucson Supplemental Retirement System and are less than 65 years of age, and are not Medicare-eligible. These benefits apply only to those employees who retired after March 1, 1981 and were above the minimum eligible age in effect on the date of their retirement. Depending on the date of retirement, the City pays between 75% and 100% of the medical insurance premiums for eligible retirees and their dependents. The costs associated with this retirement benefit are expended as the appropriate medical insurance premiums are paid. During the year ended June 30, 2006, the Utility’s portion of retiree medical insurance premiums was $503. D. Central Arizona Project Contractual Obligation The Utility has a contractual obligation for the purchase of CAP water from the Central Arizona Water Conservation District, the entity responsible for contracting with the Secretary of Interior for CAP water and the resulting subcontracting with users within the State of Arizona. The Utility’s obligation consists of two components: (1) a capital financing charge based upon the Utility’s current allotment of 135,966 acre-feet, and (2) a commodity charge based upon actual CAP water taken. During fiscal year 2006, the Utility made capital and commodity payments of $3,263 and $5,022, respectively. Estimated CAP water expenses for the next five years are as follows: 15. CONTINGENCIES AND COMMITMENTS CAP Payment Schedule (Unaudited) A. Operating Leases The Utility has entered into operating leases with terms in excess of one year which are not material when taken either individually or collectively and, therefore, are not disclosed in these notes. All the operating leases are cancelable. The Utility’s total rent expense, resulting predominately from as needed rental of heavy equipment to support maintenance functions, was $328 for the year ended June 30, 2006. B. Litigation The Utility is contingently liable with respect to lawsuits and other claims incidental to the ordinary course of its operations. At June 30, 2006, it is the opinion of management, based on the advice of the City Attorney, that any pending litigation would not have a material adverse effect on the Utility’s financial condition or results of operations. Fiscal Year 2007 2008 2009 2010 2011 CAP Capital* $ 2,855 $ 4,214 $ 4,366 $ 2,059 $ 2,059 CAP Commodity** $6,713 $9,143 $12,550 $14,491 $16,215 * Includes capital cost impacts associated with obtaining an additional 8,206 acre-feet of CAP allocation in fiscal year 2008 as part of a statewide distribution of unallocated CAP water. ** Includes commodity costs associated with an additional 20,000 acre-feet for the Southern Avra Valley Storage and Recovery Project facility beginning in fiscal year 2008 and increasing to 45,000 acre-feet in fiscal year 2009. 51 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Notes to Financial Statements E. Membership in Central Arizona Groundwater Replenishment District (CAGRD) F. Water Quality Regulations The Utility entered into a membership agreement with the CAGRD during December 1996 to ensure meeting the December 31, 1996 deadline for early application for the State of Arizona’s Assured Water Supply (AWS) designation. By meeting the early filing deadline, the Utility was permitted to pump groundwater during 1998, 1999, and 2000 (about 300,000 acre-feet) without being subject to the groundwater pumping limitations in the AWS rules. 16. SUBSEQUENT EVENTS Under terms of the agreement, the Utility is committed to pay an annual replenishment tax for water recharged on the Utility’s behalf. Annual payments began in October 2002 and continue through October 2007. The per-acre-foot tax will consist of the current capital and commodity charges for CAP water, as established annually by CAWCD, plus an administrative fee, a CAGRD capital facility fee, and a CAGRD recharge facility operational fee. The tax will be multiplied by the acre-feet of water recharged by the CAGRD on behalf of the Utility during the prior calendar year, but in no case will it be less than 5,000 acre-feet annually during the sixyear membership period. The EPA continues to evaluate studies that may result in a new standard for radon in drinking water. Until the new standard is set, the Utility cannot estimate associated treatment costs. On December 21, 2006, the City issued $85,460,000 par amount in Water Revenue Refunding Bonds Series 2006 to refund all or partial debt scheduled after July 1, 2007 of the 1994-D (2000), 2000-A (2001), 2000-B (2002), 2000-C (2003) and 2000-D (2004) Water Revenue Bonds, and to pay costs relating to the issuance of the bonds. The interest rate on the bonds ranges from 3.5% to 5.0% with a final maturity date of July 1, 2024. Debt service payments are scheduled semi-annually at amounts that range from $240,000 to $17,050,000 for principal, and from $104,160 to $3,452,048 for interest. The economic gain from this refunding is $3,338,981, based on Net Present Value from delivery date. The difference in cash flow requirements to service the old debt ($138,341,875) and the cash flows to service the new debt ($133,735,781) is $4,606,094. Tours to the Sweetwater Wetlands (shown above), the Treatment Plant and other facilities are available for classes and individuals. Call 791-4331 to arrange your tour. 52 Annual Safety Report Summary Annual Report Fiscal Year 2006 53 Tucson Water employees often participate in public outreach to better inform our customers and to get their input about the choices we face in the future. 54 TUCSON WATER (An Enterprise Fund of the City of Tucson, Arizona) Fiscal Year 2006 ($ In Thousands) Annual Safety Report Summary Tucson Water participates in the 5 Star Safety System. The program is based on internationally recognized safety standards and compares our safety systems with the world’s best practices and quantifies our safety performance with a star rating system. Tucson Water achieved a 4 Star rating by certified external safety auditors during October 2006. The results of the audit are as follows: FY 2005 Effort Grade 73% ★ ★★ ★★★ ★★★★ ★★★★★ 40-50 51-60 61-74 75-90 91-100 Cumulative Injuries by Calendar Year 100 90 80 70 60 50 40 INJURIES Trendline 2000 FY 2006 80% 2001 2002 2003 YEAR 2004 2005 2006 • In 2006 the Utility had on average 550 full-time employees (filled positions); for this workforce Tucson Water reported 257 lost workdays and 37 restricted duty days. Fair Average Good Very Good Excellent • During 2006 Tucson Water employees incurred a total of 55 injuries as reported in the Federal OSHA 300 log. One of the components that affect our rating is employee injury experience. A reduction in injury rates occurs if accidents and injuries are tracked, reviewed for cause and followed up with prevention steps to decrease worker injury experience. In addition, we must comply with annual accident and injury reporting requirements as promulgated by the Occupational Safety and Health Act (OSHA). To achieve further safety improvements, each Division within Tucson Water is responsible for setting safety priorities and developing safe workplace strategies. New safety initiatives such as safety recognition programs, Division Administrator injury reviews, and a process to enable employee input on potential improved work methods have been implemented this year. All of the initiatives are focused on injury prevention and intended to ensure that all employees return home safely every day. Tucson Water continues to develop a strong, proactive approach to health and safety with the backing of senior management. Internal communications, safety meetings, and ongoing training; coupled with safety awareness throughout the organization has resulted in a trend of decreased lost time and OSHA recordable injuries. Two of the important initiatives attained this year were the completion of the Tucson Water Safety Manual and department training for the Federal Emergency Management (FEMA) Act. The safety manual provides an overview to our 5 star standards and our safety policy. It is provided to every new employee during orientation. The FEMA training for every employee included information on the Incident Command System and the National Incident Management System. As a result of this training, the department is eligible for grant funding. We began tracking Lost Time Incidents (LTI), OSHA reportable incidents and first aid cases in 2000 with the 5 Star Program. The graph provides a summary of reported injury incidents over the last seven years. Overall, all Department injuries, including First Aid, are down for 2006. Tucson Water continues to integrate the 5 Star Safety System with a goal of obtaining a 5 Star rating. The acquisition of the 4th Star shows that we are serious about safety and on our way to implementing the world’s best safety practices. Important statistics this year related to employee injuries include: • In 2006 the total number of all internally reported injuries noted on the graph such as Lost Time, Limited Duty, OSHA Recordable and First-Aid cases decreased from 79 to 71 reported injuries. 55 Credits: Editors: David Cormier, Business Services Administrator Mitch Basefsky, Public Information Officer Susan Valdez, Staff Assistant Contributors: Barbara Buus, Manager, Rates & Revenues Belinda Oden, Operating Budget Coordinator William Robinson, Staff Assistant Graphics/Photography: Anna Cota-Robles, Graphics Specialist Tucson Water City of Tucson Water Department P.O.Box 27210 • Tucson, AZ 85726-7210 (520) 791-2666 • FAX: (520) 791-3242 • WEBSITE: tucsonaz.gov/water