Management Discussion and Analysis
The discussion and analysis is designed to provide an analysis of the District’s financial condition and operating results and to also inform the reader on District financial issues and activities.
The Management Discussion and Analysis (MD&A) should be read in conjunction with the District’s basic financial statement (beginning on page 12).
2007 Highlights – Business-type activities
In 2007, net assets were $77,821,403 or an increase of $4,091,097 (5.55%) when compared to 2006.
Total revenues were to $7,889,256 during 2007, which was $97,654 or 1.25% less when compared to 2006 of $7,986,910.
Total operating expenses were $5,061,482 or a decrease of $849,293 (14.37%) in 2007 when compared to 2006.
Net capital assets were $70,159,113 in 2007 compared to $67,508,516 in 2006 for an increase of $2,650,597 or 4%.
Long-term debt decreased to $12,410,687 during 2007, which was $1,171,151 or 8% less when compared to 2006.
Using this Annual Report
The financial statements included in this annual report are those of a quasi-municipal corporation and a political subdivision of the State of Colorado engaged only in a business-type activity. As an enterprise zone, the District’s basic financial statements include:
Statements of net assets – reports the District’s current financial resources (short-term spendable resources) with capital assets and long-term obligations. (See page 12-13).
Statements of revenues, expenses and changes in fund net assets – reports the District’s operating and non- operating revenues, by major source along with operating and non-operating expenses and capital contributions. (See page 14).
Statements of cash flows – reports the District’s cash flows from operating activities, investing, capital and non- capital activities. (See page 15-16).
3 Statement of Net Assets
(In thousands)
Year ending December 31 2007 2006
Current assets $ 8,109,206 $ 8,304,257 Restricted assets 12,227,944 11,825,826 Capital assets 70,159,113 67,508,516 Other assets 765,912 852,307 Total assets 91,262,175 88,490,906
Current liabilities 1,665,204 1,752,471 Non-Current liabilities 11,775,568 13,008,129 Total liabilities 13,440,772 14,760,600
Net assets Invested in capital assets, net of related debt 57,748,426 53,926,678 Restricted: Debt service 324,430 213,462 Bond and loan reserves 1,529,227 1,529,227 Board Designated 10,374,287 10,083,138 Unrestricted 7,845,033 7,977,802 Total net assets $ 77,821,403 $ 73,730,306
Total net assets increased to nearly $77.8 million during 2007, a $4.1 million increase from 2006. Current assets decreased $195,051. Cash held in banks and investments increased slightly by $220,206 with $1.1 million received in tap fees, $20,284 received in EZT line fees and net income of $2.3 million earned in 2007. Total restricted assets increased $402,116 which included a $497,500 increase in the Water Fee Reserve, and a net decrease of $206,224 in the Replacement Reserve with $1 million and $1.2 million spent on construction projects. Capital assets increased $2.56 million in 2007 from 2006 primarily due to the purchase of 179 C-BT (Colorado Big Thompson) water units for $1,716,300 and $500,500 in contributed waterline infrastructure related to the development of subdivisions. There was also $1.6 million spent in construction-in-progress in 2007 with the Boulder Waterline Extension and Niwot Road Waterline Relocation accounting for $1.1 million of the total. While current liabilities decreased by $87,267 (5%); non-Current liabilities decreased $1.2 million (9%) as a result of a $301,151 principal payment on the DWRF loan, a $870,000 principal payment on the 2004 Series Bond.
4 Review of Revenues
(In thousands)
Year ending December 31 2007 2006
Operating revenues Water – Treated $ 5,069,532 $ 5,322,913 Water – Basic 1,557,243 1,501,081 Other - Fees & Services 64,072 135,144 Other - Inventory Sales 9,551 65,464
Subtotal 6,700,398 7,024,602
Non-operating revenues Earnings on investments 896,974 856,880 Property rental and miscellaneous income 50,609 42,029 Water Lease Income 52,060 41,820 Unrealized Gain on Investments 189,214 20,707 Gain (loss) on disposition of capital assets 6,900 872 Subtotal 1,195,758 962,308 Total Revenues $7,896,156 $7,986,910
Operating revenues were $6,700,398 or 10% over the 2007 budget of $6,090,427 as a result of more water consumption than anticipated in late summer and early fall. While there was no increase in water usage rates except in the higher blocks, revenues were $612,995 over budget and $253,382 less when compared to 2006. Basic fees were $62,082 over budget and $56,162 less when compared to 2006 with no increase in the monthly rate but more customer connections than anticipated. After adjusting for the unrealized gain/loss on investments related to market value vs. book value (gain of $189,214 in 2007 and $20,707 in 2006) interest income was up slightly by $40,092 from 2006 ($896,974 vs. $856,882) with interest rates in 2007 about the same as 2006 with an additional $400,000 in investments. Water lease revenues were $52,060 in 2007 vs. $41,820 in 2006. Total revenues were down slightly in 2007 or $90,775 (1%) from 2006.
Review of Expenses
(In thousands)
Year ending December 31 2007 2006
Operating expenses Operation and maintenance $ 1,451,269 $ 1,433,935 Administrative services 1,715,301 1,629,904 Depreciation & Amortization 1,894,912 2,846,936 Total Operating Expenses $ 5,061,482 $ 5,910,775
Total operating expenditures were under budget by 5% or $200,111 and up 4% ($117,147) from the previous year after adjusting for $1,015,128 in recognized refunding costs related to the 2004 Series Bond. Operation and maintenance costs increased 3% or $31,748 in 2007 compared to 2006. Operation and maintenance salaries increased $91,404 or 14%; chemical costs decreased 10% or $14,909; repairs and maintenance costs increased 11% or $18,469%; utilities increased 4% or $8,165 and credits given for developer pit set installations decreased 11% or $17,960. Administrative services increased 5% or $85,397 from 2006 as a result of the following – an increase of 7% in water assessments as a result of a 10% increase in assessment fees for Colorado Big Thompson (CBT) water units; a 7% decrease or $5,040 in expenses related to winter water supply and a 30% decrease or $32,895 in the cross-tie water supply in 2007. Salaries were up $68,366 (11%). Commercial insurance decreased 14% or $12,432 as a result of getting better 5 coverage with a new carrier. Health insurance costs increased only $4,110 or 4% as a result of a change in the insurance plan along with more of the premium costs paid by employees. Depreciation costs were up $63,104 or 6% while amortization costs were down $1,015,128 ($75,000 in 2007 vs. $1,090,128 in 2006) as a result of refunding costs recognized in 2006 that were related to the 2004 Series Revenue Bond.
Capital Contributions and Transfers
(In thousands)
Year ending December 31 2007 2006
Capital Contributions $ 1,284,793 $ 3,232,241 Reimbursement of Contributions ( 140,716 ) ( 229,270 ) Net Contributions $ 1,144,077 $ 3,002,971
In 2007, total tap fees were $1,112,069 or $318,622 (40%) over budget. The system investment fee portion of tap fees were only $30,122 (6%) over budget while the water fee portion was $288,500 (236%) over budget. In 2007 system investment fees were $572,968 vs. $1,582,292 in 2006 and water fees were $500,500 vs. $547,230 in 2006. Contributed water for tap fee requirements was $96,000 or 8 CBT units in 2007.
In 2002, a developer contributed $500,000 in participation fees related to the funding of the Highway 52 Eastern Zone Transmission (EZT) Water Main project. Reimbursement, including a 6% interest component, will occur only when new taps are paid by customers who benefit from the transmission line and whose fees include their portion of the line fee cost plus the interest component. These line fees were $22,230 in 2007 compared to $751,319 in 2006, and were budgeted at $125,000. Reimbursements to the developer were $1,946 in 2007 and $72,540 in 2006. Line fee reimbursements paid- to-date to the developer is $118,778. Other reimbursements were credits given to developers for installation fees in the amount of $138,770 in 2007 compared to $156,730 in 2006.
Capital Assets (net of depreciation)
(In thousands)
Year ending December 31 2007 2006
Land & Easement Rights $ 784,176 $ 784,176 Water Rights 10,622,557 8,817,893 Contributed Water Rights 8,315,149 8,219,149 Building and improvements 527,583 538,434 Treatment Plants 12,087,903 12,470,978 Storage Tanks 6,011,556 6,191,900 Raw Water Reservoirs 547,440 577,334 T & D Water Lines & Contributed Water Lines 30,244,756 27,988,517 Office Equipment and furnishings 124,641 137,217 Equipment and Vehicles 197,905 151,696 Construction in progress 695,446 1,631,222
Total Capital Assets $ 70,159,112 $ 67,508,516 Major additions in 2007:
Increases included $74,297 for the payment requirement related to the Northern Integrated Supply project.
Contributed water rights increased $96,000 in 2007 as a result of a contribution by one developer as required per their subdivision agreement.
6 Total construction expenditures were $1,614,180 or $131,830 (109%) over budget due primarily due to the replacement of the Niwot Road Water Main - Phase One for $592,399. This CIP project was an unexpected capital expenditure and was therefore not budgeted. $870,000 is budgeted for Phase II in 2008 with the final Phase to be completed in 2009. The Boulder Extension was budgeted at $600,000 with costs at $535,944. The Dodd Plant Upgrade Study was budgeted at $150,000 with costs at $56,643. The 71st Street Line Extension was budgeted at $178,139 with only $11,366 spent in 2007 with was reimbursed by C-Dot early in 2007. The District’s portion of the upsizing of this water main was budgeted at $51,861 which was spent in 2007. $95,000 is budgeted in 2008 to complete the project with $95,000 expected to be reimbursed by C-Dot.
Contributed water lines increased $374,233. Those subdivision waterline infrastructure are as follows – Rinn Valley Ranch - $242,983 and Goldbranch $131,250.
Capital Improvement Program
In 1994, Boulder County enacted regulations pursuant to state statutes, which allow counties to review and approve water and sanitation facilities, lines, plants and extensions. The Boulder County regulations are quite extensive and allow the County to actually prohibit the installation of new lines and facilities if the statutory criteria are not met. The regulations can significantly limit the ability of a water district to expand its facilities. The District has commissioned studies of transmission, storage, treatment, and raw water delivery over the past thirteen years to determine infrastructure needs. The recommendations following the studies have formed the basis of the District’s Capital Improvement Plan (“CIP”), and resulted in 1041 permit applications in 1996, 1999 and 2001 to build the capital projects adopted in the CIP. The District received 1041 permit approval in 1996 for the projects financed with the Series 1996 Bonds, in 1999 for the construction of a Highway 52 Eastern Transmission Zone waterline to serve customers in Weld County and the Town of Frederick service area west of I-25, and in 2001 for the construction of a pump station and water line to deliver untreated water from Left Hand Valley Reservoir to the Spurgeon Water Treatment Plant. Projects permitted under all 1041’s were completed as of 2004, with the exception of the Joder Water Tank which was completed in 2005. Preliminary 1041 permitting work related to the Dodd Water Treatment Plant Upgrade and Expansion is budgeted in 2008.
In response to recommendations in the Transmission Distribution and Storage Master Plan commissioned by the District in 1995, the District developed a 10-year CIP for planning its growth and development and for implementing District goals. The plan was updated and refined in May 1997, following the approval of the 1996 1041 Permit from Boulder County, setting forth conditions for construction of the major projects funded by the 1996 Bond proceeds and District capital reserves. The 1997 Plan was modified to include a major upgrade to the District’s Spurgeon Water Treatment Plant which was completed in 2004.
Strategic Master Plan
In 2006, LHWD began a comprehensive strategic planning effort to address all of the significant challenges it will meet in fulfilling its mission in the coming years. The Strategic Plan was completed in 2007. It encompasses four major areas of study:
Treated Water Transmission & Distribution Capital Improvement Program
Dodd Water Treatment Plant Upgrade and Expansion
Water Resources Planning and Development
Financial Master Plan
The Plan sets forth infrastructure needs for the next 10 years (2017) with ongoing plans to implement and finance the projects. The projects have been divided into funded and unfunded and will be reviewed annually as part of the budget process.
Unfunded projects relating to Transmission & Distribution lines that benefit future development will require significant developer participation in all aspects of construction, as well as water rights acquisition. The Dodd Upgrade and Expansion project will qualify for the Drinking Water Program through the Colorado Water and Power Authority. This program offers loans at 80% of the current market rate, which represents the lowest possible cost of capital for the 7 District for this project. Water Resource Planning will require the District to evaluate its options related to costs. They will include: paying for the project with cash; issuing traditional fixed-rate revenue bonds for the project; issuing variable rate revenue bonds for the project or some combination of all three. Projects other than those described as Replacement Fund-related would be paid for by legally unrestricted carryover funds, which at December 31, 2007 is $17,960,317. All “Replacement Fund” related capital improvements projects will be paid for by the District’s Replacement Fund Reserve. As of December 31, 2007 the balance in the reserve is $5,270,269. The Replacement Fund Reserve will continue to be funded by profits from water sales and non-operating income. In 2007, the District funding was $1,017,557 based on analysis using our Water Rate Model software. Funding in 2008 is set at $1,000,000 and was based on estimates for future replacement project needs.
Replacement Fund Summary
Replacement Funding – 1995-2007 $ 11,662,194 Haldi Headgate 9,900 Prospect Rd Water Main 236,545 Hwy 287 Pump Station 271,017 CL2 Modification 67,573 Gunbarrel Estates Water Main 1,228,221 Airport Rd Water Main 136,466 Niwot Rd & 55th Water Main 103,712 Raw Meter Vault 19,415 Spurgeon Tank Improvements 141,191 71st St Line Extension 12,534 Joder Tank & Design & Meter Vault 1,142,696 Spurgeon Reservoir Pump Station 1,070,920 WCR Pressure Reducing Valve Relocation 32,583 Ouray Drive Water Main 324,161 Country Side Drive Water Main 276,235 Other Tank Improvements 180,820 Boulder Water Main Extension 534,944 Niwot Road Water Main Replacement 592,399 Great Western Drive Water Main 10,593
Total Uses Of Funds 6,391,925 Replacement Fund @ 12/31/07 $ 5,270,269
In 2002 and 2003 the District began the process of formulating a raw water master plan. Future capital improvements will include supply and infrastructure for the delivery of water supplies to both the Spurgeon and Dodd WTPs. The District has anticipated the need for additional raw water supplies and delivery systems in the next 10-15 years. To meet that need, the District is participating in the Northern Integrated Supply Project (“NISP”) through the Northern Colorado Water Conservancy District (“NCWCD”). This project will provide new yield of water rights deliverable through the NCWCD system. The District is participating in the project for a total of 4,900 acre-feet of annual yield to meet its needs at build-out for an anticipated total of 12,000 single-family equivalent taps. It is anticipated that the cost of the District’s allocation in the project, $49,502,000 will be funded through a combination of District Raw Water Reserve funds and future debt. 8 A Treated Water Master Plan was completed in January 2007. The plan includes the planned developments of the surrounding entities (Boulder and Weld Counties, Town of Erie, Town of Frederick and City of Longmont), demand projections, computer modeling and phased programs of needed facility improvements including distribution system scenarios over 5, 10, 20 years and system build out based on modeling results indicating timing, size, location and probable cost. This plan will be reviewed and updated every 5 years.
The following table sets forth a summary of the District’s major capital projects completed between 1996 and 2007 and proposed capital projects for 2006 through 2017.
Capital Projects Summary (Funded Projects) 1996-2007
Year Cost Hwy 119 Water Main 1996 $ 1,370,649 Hwy 287 Water Main 1997 352,035 Niwot 6 mg Tank 1997 2,760,278 30” Transmission Line to Niwot 6 mg Tank 1998 2,207,731 Dodd WTP Expansion & Pond 1998 4,004,424 Dodd Raw Water Pipeline 1998 1,307,218 Spurgeon Tank 1999 1,426,210 Scada System 1999 262,350 Del Camino Tank & Water Main & Pump Station 1999 1,755,151 Prospect Road Water Main 1999 236,545 1996 Bond Funded – Various Projects Various 458,078 Gunbarrel Water Main Replacement Phase I 2001 405,370 Raw Water Pipeline & Pump Station 2002 2,008,235 Hwy 287 Water Main 2002 271,017 Highway 52 Eastern Zone Transmission waterline 2003 4,579,466 Gunbarrel Water Main Replacement Phase II 2003 449,591 Spurgeon Water Treatment Plant Upgrade 2004 7,860,752 LHWD Funded – Various Projects Various 1,585,325 Joder Meter Vault 2004 127,780 Hwy 52 Pump Station 2004 487,342 Gunbarrel Water Main Replacement Phase III 2005 373,165 Country Side Water Main Replacement 2005 302,551 Ouray Water Main 2005 324,161 Joder Tank & Design 2005 1,112,542 New Spurgeon Tank Improvements 2005 141,114 Treated Water Master Plan 2007 152,625 Spurgeon Reservoir Pump Station 2007 1,085,686 Niwot Road Water Main Replacement Phase i 2007 593,643 71st Water Main Extension 2007 433,832 Schlagel Waterline Relocation 2007 57,401 89th Street Waterline Relocation 2007 45,691 Tank Improvements 2007 102,664 Del Camino Tank Valve 2007 24,563 Grand Total $38,665,185
9 Proposed Capital Project Plan 2008-2017
Project 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
New Meters & Upgrade/ Replacement Projects $307,542 $49,600 $49,600 $49,600 $49,600 $49,600 $49,600 $49,600 $49,600 $49,600 Unscheduled Construction 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 Southern Supply Line 375,000 300,000 3,500,000 3,700,000 N 115th St to Highway 52 49,950 95th St W/L Phase I 233,694 NISP Project 355,000 802,000 410,000 8,073,000 8,073,000 8,073,000 8,073,000 527,000 4,288,000 5,819,000 Niwot Rd W/L Phase II 870,000 71st Street Line Extension 95,000 Boulder W/L Extension 25,000 County Rd W/L Replacement 400,000 Raw Water Legal related 5,000 Great Western Drive W/L 207,000 Vehicles 51,850 Office Buildings & Grounds 17,500 Replacement Fund – Treatment Storage 150,000 Replacement Fund – Treated Pumping 250,000 250,000 100,000 121,000 Replacement Fund – Medium Priority - Distribution Mains 671,421 1,020,161 794,354 1,173,137 1,419,027 2,261,468 1,274,505 2,049,391 Replacement Fund – High Priority – Distribution Mains 2,194,426 1,603,672 1,314,478 Replacement Fund – Dodd WTP Upgrade 75,000 566,775 4,733,780 1,183,445 Growth Related - Distribution Mains 1,594,403 815,539 267,683 1,040,851 1,500,000 Growth Related – Treated Storage 25,000 275,000 400,000 3,000,000 200,000 2,480,000 Growth Related – Dodd WTP Expansion 75,000 566,775 4,733,780 1,183,445 1,163,430 7,287,942 4,858,628
Total $3,932,667 $5,54,576 $16,302,253 $17,545,129 $15,174,787 $18,099,218 $9,523,714 $2,037,291 $5,881,394 $6,878,000
Debt and Other Financial Obligations
The District’s long-term debt was $12,410,687 and $13,581,837 at December 31, 2007 and December 31, 2006, respectively. The decrease was a result of principal payments on the DWRF loan for $301,151 and $870,000 on the 2004 Series Bond.
Contracts and Agreements
The District is a party to several contracts and cooperative agreements concerning the financing, acquisition, construction, operation, maintenance, and use of certain water facilities. According to the general counsel for the District, to the best of his knowledge, with the exception of the contracts and agreements referenced hereafter or set forth below, there are no contracts or agreements in effect which would potentially have a material, pecuniary adverse effect on the District.
Economic and Other Factors
While tap sales have decreased over the last year due to a slow down in growth throughout Boulder, Weld and Broomfield counties, the District continues to show consistent water revenues as a result of water rate management utilizing a comprehensive rate and financial forecasting model. This model implements a rate structure strategy that will provide adequate funds to pay current operating expenses, capital costs and debt service requirements, and in addition to accumulate funds for future operating costs as well as future repair and replacement or upgrades
10 to our existing system and new capital projects related to growth to ensure the District will continue as a financially sound entity. Operating expenses have been consistent over the last few years and reflect only limited increases.
The annual rate and extent of future growth and development within the District will be materially affected by management, zoning and land use procedures and policies established by Boulder County, Weld County and the Town of Frederick. Although each of these governmental entities control growth in the areas under their governments the policies and procedures are outside of the control or influence of the District.
Financial Contact
The District’s financial statements are designed to present users (customers, citizens, creditors) with a general overview of the District’s finances and to demonstrate the District’s accountability. If you have any questions about the report or need additional financial information, please contact Connie Friedman CPA, the District Accountant/Finance Manager, Left Hand Water District, P.O. Box 210, Niwot, CO 80544.
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