Fiscal Year 2011 Comprehensive Annual Financial Report
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new york city water & sewer system 2011 A COMPONENT UNIT OF THE CITY OF NEW YORK A COMPREHENSIVE ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Pepacton Ashokan Cannonsville Rondout Neversink New Croton Schoharie Reservoir Reservoir Reservoir Reservoir Reservoir Reservoir Reservoir 140.2 122.9 95.7 49.6 34.9 19.0 17.6 Billion Billion Billion Billion Billion Billion Billion Gallons Gallons Gallons Gallons Gallons Gallons Gallons TABLE OF CONTENTS INTRODUCTORY SECTION 1 STATISTICAL SECTION 51 Letter of Transmittal 2 Schedules of Financial Trends Information 53 Organizational Chart 8 Schedules of Revenue Capacity Information 54 Certificate of Achievement 10 Schedules of Debt Capacity Information 55 System Officials 11 Schedules of Demographic and Economic Information 56 Schedules of Operation Information 58 FINANCIAL SECTION 12 Independent Auditor’s Report 12 Management’s Discussion and Analysis 13 Combining Balance Sheet – June 30, 2011 20 Combining Balance Sheet – June 30, 2010 22 PEPACTON RESERVOIR Combining Statement of Revenues, Expenses and Changes in Net Assets for 2011 24 Combining Statement of Revenues, Expenses and Situated in Downsville New York, the Pepacton Reservoir is New York City’s largest reservoir by volume and supplies Changes in Net Assets for 2010 25 the city with 25% of its drinking water. The Reservoir’s name was derived from “Peapackton”, the Lenape word Combining Statements of Cash Flows for 2011 26 for “marriage of the waters.” It has been active since 1955, and its primary inflows come from the East Branch of Combining Statements of Cash Flows for 2010 28 the Delaware River. Notes to Financial Statements 30 Required Supplementary Information 49 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL November 10, 2011 Members of the Board of the under the direction of a Chief Executive resources, manages the City’s water supply, The Authority’s ratings New York City Municipal Water Officer and an Executive Director. transmission and distribution system, and col- reflect the credit strengths Finance Authority. Members lects, treats, and disposes of waste and storm The Water Board leases the operating water. DEP supplies water and sewer service resulting from the strong of the New York City Water system from the City, sets rates, and collects to the Boroughs of the Bronx, Brooklyn, legal protections provided to Board. The Commissioner of the System revenue. The Lease Agreement dated Manhattan, Queens and Staten Island, an area bondholders and structural New York City Department of July 1, 1985 (the “Lease”), provides for a lease of over 300 square miles, and serves over 8.2 Environmental Protection term until all the bonds of the Authority million people. The City is also required by features, which provide a are paid in full, or provision for payment has We are pleased to submit to you this State law to sell water in counties where its true gross pledge of System been made. The Lease requires the Water Comprehensive Annual Financial Report water supply facilities are located. The System Board to make a payment to the City which revenue to bondholders for (“CAFR”) of the New York City Water and currently provides water to approximately is no more than the greater of: i) princi- debt payments. Sewer System (the “System”) for the year one million people located in Westchester, pal and interest for the fiscal year on City ended June 30, 2011. The financial section of Putnam, Orange and Ulster Counties. New York State Environmental Facilities general obligation bonds issued for water this CAFR includes management’s discussion Corporation (“EFC”) Clean Water and and sewer purposes, or ii) fifteen percent of The System provides an average of approxi- and analysis, the general-purpose financial Drinking Water Revolving Funds Revenue principal and interest on Authority debt for mately 1 billion gallons per day of water. In statements and the combining financial Bonds, issued for eligible projects are rated the fiscal year. The Water Board is obligated addition to a system of dams, reservoirs, statements and schedules, as well as the inde- “AAA” from all three rating agencies. EFC’s to first allocate the revenues of the System aqueducts, and water tunnels, DEP maintains pendent auditors’ report on these financial subordinated state revolving fund bonds are to debt service on Authority bonds and to approximately 6,700 miles of water mains. statements and schedules. rated “AA+” by Standard & Poor’s, “Aa1” by the Authority’s expense budget, after which DEP also maintains approximately 7,400 Moody’s and “AA+” by Fitch. The Bonds that revenues are allocated to the Water Board’s miles of sewers that collect and transport The System is responsible for the accuracy, the Authority places with EFC are an element expenses, DEP’s cost of operating and main- waste and storm water for treatment at cannonsville reservoir completeness and fairness of the presentation, new croton reservoir of security for EFC’s bonds, but are unrated taining the System, and to rental fees paid to the City’s 14 wastewater treatment plants. including all disclosures. The management’s second resolution bonds of the Authority. discussion and analysis provides an overview the City under the terms of the Lease. Additionally, the System operates four Location: Delaware County, New York Location: Westchester County, New York combined sewer overflow retention facili- Max. Length: 16.8 miles of the System’s financial results. Max. Length: 9.4 miles Internal Controls Max. Width: 1.0 miles DEP works to protect the Max. Width: 0.8 miles ties, wastewater pump stations, laboratories, The reporting entity consists of two separate environmental welfare and sludge dewatering facilities and inner-harbor The management of the Water Board and and independent corporate bodies that are vessels which transport sludge between the Authority is responsible for establishing One of four reservoirs in the City’s combined for reporting purposes: the New health of the City’s residents The New Croton Reservoir was placed facilities. The System collects and treats and maintaining an internal control structure Delaware system and the newest York City Municipal Water Finance Authority and natural resources, into service in 1905 and is the largest of an average of approximately 1,260 million designed to provide reasonable, but not abso- in New York City’s water supply, the the 12 reservoirs in the Croton System. (the “Authority”) and the New York City gallons per day of sewage. Sewer service is lute, assurance that the assets of the System Cannonsville Reservoir was formed manages the City’s water Located approximately 22 miles from New are protected from loss, theft or misuse, and by damming the West Branch of the Water Board (the “Water Board”). In addi- supply, transmission and York City, it replaced the City’s first upstate provided to virtually the entire City, except Delaware River. It has the largest tion, the New York City Department of water supply. for parts of the Borough of Staten Island, that accounting policies are complied with drainage basin of the New York Environmental Protection (“DEP”) operates distribution system, and and the Borough of Queens communities of and the preparation of financial statements reservoirs. the System. The passage of the New York collects, treats, and disposes Breezy Point. Sewer service is also provided conform with accounting principles generally City Municipal Finance Authority Act of 1984 of waste and storm water. to certain upstate communities in System accepted in the United States of America. (the “Act”) by the New York State Legislature watershed areas. Because the cost of internal control should authorized this financing and operating rela- The Water Board consists of seven mem- not exceed anticipated benefits, the objective tionship. The System is a component unit of bers who are appointed by the Mayor. The Credit Ratings is to provide reasonable, rather than absolute, assurance that the financial statements are the City of New York (the “City”) for finan- Act requires that at least one member have The Authority’s bonds continue to be free of any material misstatements. Internal cial reporting purposes. experience in the science of water resource highly rated by all three rating agencies. The control cannot provide absolute assurance development. Members of the Water Authority’s ratings reflect the credit strengths The Authority is authorized to issue bonds of achieving financial reporting objectives Board cannot be members of the Board resulting from the strong legal protections pro- and other debt instruments for construction because of its inherent limitations. Internal of Directors of the Authority. The Mayor vided to bondholders and structural features, of and improvements to the System. The control involves human diligence and compli- appoints the Chairman. The staff of the which provide a true gross pledge of System Authority also has the power to refund its ance; it is subject to human failures and may Water Board operates under the direction revenue to bondholders for debt payments. bonds and notes and the general obligation be circumvented. Because of such limitations, of an Executive Director. Standard and Poor’s Ratings Services rates bonds of the City issued for water or sewer the Authority and the Board have designed the Authority’s first general resolution debt purposes. The Authority is administered by The operation and maintenance of the water into the process safeguards to reduce, though “AAA”, their highest rating. The Authority’s a Board of Directors composed of seven and sewer system is performed by DEP. not eliminate, this risk. members, four of whom serve ex-officio, two DEP is managed by a Commissioner who second resolution debt is rated AA+ by of whom are appointed by the Mayor of the is appointed by the Mayor and oversees a Standard and Poor’s. Fitch Ratings rates both DEP is subject to the internal control direc- City and one of whom is appointed by the workforce of over 5,700 people.