Central Arkansas Water Finance Department 221 East Capitol Avenue | P
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COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR YEARS ENDED DECEMBER 31, 2018 & 2017 SAFE, LOW-COST, ABUNDANT, DEPENDABLE, HIGH-QUALITY WATER COMPREHENSIVE ANNUAL FINANCIAL REPORT For Years Ended December 31, 2018 & 2017 Prepared by the Central Arkansas Water Finance Department 221 East Capitol Avenue | P. O. Box 1789 | Little Rock, AR 72203 | carkw.com Central Arkansas Water TABLE OF CONTENTS Introductory Section Transmittal Letter ................................................................................................................................... 1 Organizational Chart ............................................................................................................................. 13 Board of Commissioners ....................................................................................................................... 14 Management Team ............................................................................................................................... 15 Certificate of Achievement for Excellence in Financial Reporting ...................................................... 16 Glossary of Acronyms and Abbreviations ............................................................................................ 17 Financial Section Independent Auditor’s Report .............................................................................................................. 19 Management’s Discussion and Analysis ............................................................................................... 22 Basic Financial Statements Statements of Net Position .............................................................................................................. 37 Statements of Revenues, Expenses and Changes in Net Position .................................................... 39 Statements of Cash Flows ................................................................................................................ 41 Statements of Fiduciary Net Position ............................................................................................... 43 Statements of Changes in Fiduciary Net Position ............................................................................ 44 Notes to Financial Statements ......................................................................................................... 45 Required Supplementary Information Ten Year Summary of the Utility’s Proportionate Share of the Net Pension Liability ...................... 81 Ten Year Summary of the Utility’s Contributions to Arkansas Public Employees Retirement System ..................................................................................................... 82 Other Postemployment Benefit Plan (OPEB) – Ten Year Schedule of Changes in Net OPEB Liability and Related Ratios .......................................................................................................... 83 Other Postemployment Benefit Plan (OPEB) – Schedule of the Utility’s Contributions ................. 84 Other Postemployment Benefit Plan (OPEB) – Ten Year Schedule of Investment Returns ............. 85 (This page intentionally left blank) Central Arkansas Water TABLE OF CONTENTS (Continued) Statistical Section (Unaudited) Index ...................................................................................................................................................... 86 Financial Trends Ten Year Summary of Revenues, Expenses and Rate Increases ....................................................... 87 Ten Year Summary of Net Position ................................................................................................... 89 Ten Year Summary of Write‐Offs ..................................................................................................... 91 Revenue and Debt Capacity Ten Year Summary of Revenues, Expenses and Debt Service Coverage .......................................... 92 Ten Year Summary of Outstanding Debt‐to‐Customer Count ......................................................... 94 Ten Year Summary of Ten Largest Water Customers ...................................................................... 96 Demographic and Economic Information Largest Employers within Pulaski County ......................................................................................... 97 Ten Year Summary of Demographic and Economic Statistics within Pulaski County ................................................................................................................... 98 Operating Information Ten Year Summary of New Connections .......................................................................................... 99 Ten Year Summary of System Highlights ........................................................................................ 100 Ten Year Summary of Capital Assets .............................................................................................. 101 Ten Year Summary of Filled Positions by Department ................................................................... 103 Schedule of Water Rates – CAW .................................................................................................... 104 (This page intentionally left blank) INTRODUCTORY SECTION April 15, 2019 To the Board of Commissioners and Our Customers: We are pleased to present the Comprehensive Annual Financial Report (CAFR) of Central Arkansas Water (CAW or the Utility) for the years ended December 31, 2018 and 2017. We believe the report presented is accurate in all material respects; that it is presented in a manner designed to fairly set forth the financial position, the changes in financial position, and cash flows of the Utility; and that all disclosures necessary to enable the public to gain the maximum understanding of the Utility’s financial activity have been included. Additionally, the Financial Section of this report includes a detailed discussion and analysis by management of the Utility’s financial performance for the years ended December 31, 2018 and 2017. See Management’s Discussion and Analysis, beginning on Page 22. Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the Utility. Maintaining an adequate internal control structure is critical to the success of CAW. Properly implemented internal controls reasonably ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. These controls also safeguard assets and assist with the accomplishment of the Utility’s goals and objectives. The maintenance of the internal control structure is the responsibility of CAW Management. There are inherent limitations to internal controls, however. The first is perhaps the most recognized; the cost of an internal control should not exceed the related benefit. Cost‐benefit analyses are crucial to the success of a business and as such, are performed on proposed internal controls. Management override and risk of collusion are other inherent limitations to internal controls that must be considered in the maintenance and evaluation of the internal control structure. The CAFR follows the guidelines recommended by the Government Finance Officers Association of the United States and Canada (GFOA). THE REPORTING ENTITY In 1936, the City of Little Rock purchased the water facilities serving the south side of the Arkansas River. The City of North Little Rock purchased the water facilities serving its corporate boundaries and rural customers in 1959. Following the acquisitions by the respective cities, the municipalities appointed separate governing boards to oversee operations, planning, and expansion of Little Rock Municipal Water Works and the North Little Rock Water Department. On March 5, 2001, city and water officials signed a Water Utilities Consolidation Agreement. On July 1, 2001, Little Rock Municipal Water Works and the North Little Rock Water Department officially merged operations under the governance of a Board of Commissioners and Our Customers Page 2 single entity, Central Arkansas Water. On March 1, 2016, Maumelle Water Management (MWM) became part of CAW through a merger that added 7,500 customers in the city of Maumelle. The Utility remains under public ownership. A seven‐member Board of Commissioners governs the Utility and I, as Chief Executive Officer, oversee day‐to‐day operations and administration. The Utility’s organizational structure includes eight departments: Administration, Distribution, Engineering, Finance, Customer Service, Information Services, Water Production, and Water Quality. The Utility collects, stores, treats, and distributes water for a population of approximately 450,000 in central Arkansas. The major components of the system are two raw water supplies, Lake Winona and Lake Maumelle; a regulating and storage facility, Jackson Reservoir; two treatment facilities, Jack H. Wilson Treatment Plant (Wilson Plant) and Ozark Point Treatment Plant (Ozark Point Plant); approximately 2,518 miles of public pipeline; 26 remote booster pumping stations; and 29 remote storage facilities. As of December 31, 2018, the Utility provides water service to approximately 530 square miles and approximately 135,000 active customer accounts. MAJOR INITIATIVES AND ACCOMPLISHMENTS IN 2018 As an organization, CAW saw a very busy 2018. One of the main focuses was to move forward with the replacement of the current