INTRODUCTORY SECTION Transmittal Letter GFOA Certificate of Achievement Organization Chart TM
LAS VEGAS VALLEY WATER DISTRICT 1001 South Vall ey View Boulevard Las Vegas, NV 89153 (702) 870-201 1 lvvwd.com November 13, 2014 Board of Directors Las Vegas Valley Water District 1001 S. Valley View Boulevard Las Vegas, NV 89153 We are pleased to present the Comprehensive Annual Financial Report (CAFR) of the Las Vegas Valley Water District (District) for the fiscal year ended June 30, 2014. The CAFR was prepared in conformance with accounting principles generally accepted in the United States of America (GAAP). District management is responsible for the completeness and reliability of the financial information presented in this report. To provide reasonable assurance of the proper recording of transactions, management has established and maintains a system of internal accounting and other controls. The concept of reasonable assurance recognizes that the cost of internal controls should not exceed the benefits derived. Where necessary, the basic financial statements include amounts based upon management's best estimates and judgments. Nevada Revised Statutes and bond covenants require an annual audit of the basic financial statements of the District. Piercy Bowler Taylor & Kern, a firm of licensed certified public accountants, has audited the District's basic financial statements as of and for the fiscal years ended June 30, 2014 and 2013. The objective of the independent audit was to provide reasonable assurance that the basic financial statements of the District for the fiscal years ended June 30, 2014 and 2013 are free of material misstatement. An independent audit involves examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Based upon the audit, the independent auditor concluded there was a reasonable basis for rendering an unmodified ("clean") opinion that the District's basic financial statements for the fiscal years ended June 30, 2014 and 2013 are fairly presented in all material respects in conformity with GAAP. The independent auditor' s report is presented as the first component of the financial section of this report. Management' s Discussion and Analysis (MD&A) immediately follows the independent auditor's report and provides a narrative introduction, overview and analysis of the basic financial statements. This transmittal letter is designed to complement the MD&A and should be read in conjunction with it. THE REPORTING ENTITY AND ITS SERVICES The District is a governmental subdivision of the State of Nevada and a quasi-municipal corporation created by a special act of the Nevada Legislature in 1947. The District was established to acquire and distribute water primarily in the Las Vegas Valley, which includes the unincorporated metropolitan area of Clark County and the City of Las Vegas. The District commenced operations on July l, 1954. The District is governed by a seven-member Board of Directors (Board) comprised of the elected Clark County Commissioners. The Board has the sole authority to set rates and charges for water. Such rates and charges must be reasonable and cannot be applied until after a public hearing and subsequent Board approval. The enabling legislation that created the District, in conjunction with various bond covenants,
require that rates and charges be sufficient to provide for operation and maintenance costs, general expenses of the District and debt service payments. Day-to-day operations of the District are directed by a general manager appointed by the Board, an assistant general manager and two deputy general managers. The District s vision is To be a global leader in service, innovation and stewardship and its mission is to Provide world class water service in a sustainable, adaptive and responsible manner to our customers through reliable, cost effective systems. The Board has adopted a series of strategic goals to support the District s vision and mission. Beginning in September 2008, the District was appointed to be the operating agent for the Big Bend Water District (BBWD). Prior to the appointment, BBWD s operating agent was the Clark County Water Reclamation District. BBWD was established in 1983 under the provisions of Nevada Revised Statutes 318 for the purpose of obtaining and distributing water in Laughlin, Nevada. The Clark County Board of Commissioners serves as the BBWD Board of Trustees. The District also functions as the operating agent for the Southern Nevada Water Authority (SNWA). The SNWA is a joint powers authority created in 1991 to address Southern Nevada s unique water needs on a regional basis. The SNWA is charged with acquiring and managing current and future resources, constructing and managing regional water facilities and promoting water conservation. The District is one of the SNWA s seven member agencies. In 1996, the SNWA assumed all assets and liabilities of the Southern Nevada Water System (SNWS) from the Colorado River Commission of Nevada (CRC). Originally financed and constructed by the State of Nevada with assistance from the federal government, the SNWS is responsible for the treatment and distribution of Colorado River water from Lake Mead. The District operates the SNWS on behalf of the SNWA as it did previously for the CRC. Additional information on the District s relationship to the SNWS and the SNWA can be found in the notes to the basic financial statements (Notes 7, 8 and 12). As required by Nevada law, the District s budget is approved annually by its Board following a public hearing, and a copy of the budget is submitted to the Nevada Department of Taxation. Budgetary controls are established at the levels of total estimated operating and non-operating expenses. The budget controls District expenditures at various levels. These levels always include departments and divisions, and in some instances, sections. Most disbursements are made through the issuance of purchase orders. Purchases of new furniture and vehicles are administered by the District s Operations Department and Fleet Division, respectively; communication and computer equipment purchases are administered under the authority of the Information Technology Department; and new positions are controlled by the Human Resources Department. Financial Services prepares variance reports by division and division managers are accountable for expenditures over and under budget. Because the members of the Clark County Commission also serve as the Board of Directors for the District, the District s financial report is included as a blended component unit within Clark County s CAFR. A blended component unit means that the District s balances and transactions are included in Clark County s financial report in combination with Clark County s balances and transactions. 2
FACTORS AFFECTING FINANCIAL CONDITION Local economy. According to a report from the University of Nevada, Las Vegas' Center for Business and Economic Research (CBER) issued on June 17, 2014, the Southern Nevada economy is in its fourth year of an accelerating recovery. The 2014 Midyear Economic Outlook publication states that the growth is widespread across Southern Nevada s industries. CBER noted that construction, real estate, leisure and hospitality, trade, transportation and utilities, education and health services, professional and business services, financial activities and other services are all doing well. Financial conditions are also improving and visitor volume is once again rising after a year of stagnation. Because the Southern Nevada economy is heavily dependent on tourism, its outlook is tied to the growth of the U.S. and western states economies. CBER forecasts visitor volume, gross gaming revenue and housing units permitted to continue to modestly improve through 2015. Visitor volume in Southern Nevada in 2013 reached 39.8 million people and is forecast to increase to 40.0 million in 2014 and 40.8 million in 2015. Gross gaming revenue in Southern Nevada was $9.7 billion in 2013 and forecast to increase to $10.0 billion in 2014 and $10.3 billion in 2015. Housing units permitted in Southern Nevada were 8,554 in 2013 and forecast to increase to 9,401 in 2014 and 10,181 in 2015. The Southern Nevada unemployment rate continues to show improvement. The Nevada Department of Employment, Training and Rehabilitation (DETR) reported that the unemployment rate for the Las Vegas Metropolitan Statistical Area (MSA) for June 2014 was 7.9%. This compares to an unemployment rate of 10.4% for June 2013. The seasonally adjusted unemployment rate for the State of Nevada was 7.7% for June 2014 compared to 10.0% for June 2013. Although improving, Nevada s unemployment rate is still well above the national average. The average seasonally adjusted unemployment rate for the United States was 6.1% for June 2014 and 7.5% for June 2013. Nevada has ranked among the top states for joblessness since 2010. In June 2014, Nevada ranked No. 3 and in June 2013 it ranked No. 1. Total employment for the Las Vegas MSA was 911.3 thousand in June 2014 compared to 888.1 thousand in June 2013, an increase of 2.6%. Although the local economy has been improving slowly and consistently since it hit bottom in 2010, the District continues to practice cautious fiscal responsibility, increased customer sensitivity and sustained organizational efficiency to provide high levels of service, maintain the community water system and deliver reliable, quality water to customers. The impacts of the recession have meant a change in Southern Nevada s economic environment, a slowing of population growth, a decrease in water sales, and a significant decrease in the facilities connection charges collected to help pay for the community s water infrastructure. The District implemented a number of interim measures to survive the worst of the economic downturn: Contract and staff positions were eliminated or left vacant. A Voluntary Furlough Program was implemented, allowing employees to contribute hours by taking leave without pay. Introduced in 2010 an early retirement option. Eliminated longevity pay for new hires on or after January 1, 2011. No Cost-Of-Living Adjustments in fiscal years 2009-10 and 2010-11. Deferred capital projects. Negotiated a Board-approved, five-year contract in 2010 for collective bargaining. Reduced contracts for consultants. Deferred fleet purchases. Deferred technology infrastructure costs. Reduced travel, training and professional dues budgets. 3
While these measures helped the District weather the worst of the economic downturn, they were not sustainable from an infrastructure management and operational perspective. In spring 2014 the District reduced budgeted positions by over 11%. Employees affected by the reduction were provided outplacement services and these reduced payroll costs were included in the 2014-15 adopted budget. As the District transitions from system expansion to operations, asset management and increased service to the community, it must adapt to the new business environment under which it operates. Financial policy. The District s financial policy is to charge reasonable rates, fees and other charges sufficient to pay for water service, the costs of operation and maintenance of its facilities, the general expenses of the District, and principal and interest on all bonds and other obligations of the District. It is also District policy to fix rates and charges sufficient to maintain a debt service coverage ratio in accordance with its bond covenants. The District deposits all moneys received from the sale or distribution of water or otherwise derived from the works or property of the District into the Revenue Fund. Further, the District keeps proper books of record and account in accordance with sound accounting practice; complete and correct entries are made of its works, properties, and the revenues received therefrom. The District has not deviated from its financial policy. Long Term Financial Planning. The District's long-term financing plan includes utilizing a combination of the District's unrestricted cash funds and debt financing. The District has substantially reduced expenditures, maintained budgetary restrictions and did not require a rate increase in fiscal year 2014 or fiscal year 2013. The District collects from District customers and remits to the SNWA several fees and charges. In March 2012 the District's Board approved a SNWA infrastructure charge based upon meter diameter size and type. In August 2012 a credit to the SNWA infrastructure charge amounting to 50 percent of the approved charges levied against fire meters was approved by the Board. In December 2013, the District s Board approved increases to the SNWA infrastructure charge and to the SNWA commodity charge. Increases to these SNWA charges were effective on January 1, 2014 and will increase annually on January 1 through 2017. Revenues generated from these SNWA charges will help to fund debt service on SNWA bond obligations which are associated with existing infrastructure and projects under construction. Revenue from the SNWA infrastructure charge, as well as revenue from other SNWA fees and charges, is forwarded to the SNWA (see Note 7 - Southern Nevada Water Authority (SNWA)). The District did not issue any long-term debt in fiscal year 2014. Strategic Plan and Realignment. Recent operational experiences have demonstrated the impact that dynamic economic conditions and environmental challenges can have on water resources and customers alike, emphasizing the need for proactive flexibility throughout the organization. The District underwent a strategic planning process that culminated in the realignment of the organization with Southern Nevada s new economic realities. The organization completed a new strategic plan, which was reviewed by the Board of Directors in 2013. As a result of this process, a blue print was developed to guide organizational transition, increase communication, emphasize accountability, and continue to cut costs and eliminate duplication in a manner representative of the District s commitment to internal efficiency and exemplary customer service. By developing measures, milestones and standards of excellence at all staff levels and incorporating them into the strategic plan, the entire District workforce has the opportunity to be engaged in its implementation through daily tasks and work objectives. Organizational Structure For the strategic plan to be successful, organizational realignment is necessary and will continue throughout 2014. As part of the realignment process, the District and SNWA Engineering departments merged and the District Facilities division merged with the SNWA Facilities divisions. These 4
consolidations will create increased efficiency and streamline internal processes. In addition, a new Infrastructure Management department was formed using existing staff to support the organization s focus on maintaining a reliable water delivery system and a comprehensive asset management program. Leadership Transformation After serving as General Manager for more than 25 years, Patricia Mulroy retired on February 6, 2014 and John Entsminger was selected by the Board of Directors as the new General Manager. While Mr. Entsminger s appointment comes at a time when organizational focus is shifting from system expansion to asset management and operations, and increased service levels, the organization s commitment to meeting those objectives in a fiscally responsible manner will remain unchanged. Major initiatives. The District evaluates on an ongoing basis opportunities to improve efficiencies and performance through major initiatives. The District has made significant efforts during the past year to increase its ability to respond to changes in the economy, environment and customer base through the efficient use of existing assets, the optimization of available resources and greater focus on customer experience. Major initiatives for the fiscal year 2014 unless otherwise indicated were as follows: The District currently operates and maintains more than 6,200 miles of pipeline, 53 pumping stations, 41 reservoirs/tanks, 63 active wells, more than 367,000 water meters and a 3.1 megawatt solar-electric system. With a system this large, continued maintenance and management of a robust Asset Management Plan is critical to meet the District's conservation objectives and customer obligations. Not only does the District's Asset Management System provide a means to evaluate current and future financial needs as they pertain to necessary water infrastructure, it also identifies opportunities to extend infrastructure life, improve operational efficiencies and reduce costs. The District will continue to implement this plan as a foundation for assessing the condition of the District's water production and distribution system infrastructure and forecasting short and long-term capital renewal needs. District staff is currently in the process of rehabilitating the 40 million gallon Fayle Reservoir which has been in service since 1971. When the structure was first evaluated to determine the extent of necessary improvements, it was thought that the entire reservoir and its pumping stations should be replaced - a construction project estimated at approximately $45 million. In an effort to minimize rate impacts, the District hired a structural engineering consultant to assess the condition of the reservoir and determine if rehabilitation could be performed more economically, but still bring the reservoir into compliance with seismic zone requirements, state regulations and county standards. Ultimately, the inspection report recommended that structural rehabilitation would not only cost significantly less, but it would bring the reservoir up to standard and extend its life up to 25 years. The cost of the rehabilitation is approximately $11.5 million and the project is currently under design. Since December 2011, approximately 220,000 water meters and automatic meter reader (AMR) devices have been replaced within the District service area as they experienced technical malfunctions or their batteries approached expiration. Approximately 27,000 meters/amr devices remain to be replaced within the District service area. The new devices being installed allow District staff increased flexibility and responsiveness to customer billing needs. Total funding for this project is $38.7 million. The District avoided an estimated $4 million in costs by implementing a new automated outbound system that calls customers in arrears and gives them the option to pay via an agent or the Interactive Voice Response system. By reminding customers their bill is due and avoiding service disconnection, the District reduced the number of manual meter reads required by 10,000 per month. The District also will launch a new mobile phone application for customer payments this 5
year, increasing convenience and options available to customers to pay their water bills. In addition, a recently enhanced customer call center ensures customer wait times are kept minimal. The District s Engineering Services division recently absorbed the SNWA Development Plan Review Team. This has resulted in a reduction of review duplication, fewer back-and-forth trips by engineers for submittals, and a consolidation of digital comments to further reduce supply costs. Also, numerous District facility replacement and improvement projects have been incorporated into city, county and Nevada Department of Transportation projects, reducing the District s costs and minimizing construction impact on the public. A major upgrade of ViryaNet, the District s mobile workforce management software was completed. The upgrade leveraged advanced technologies; in-route optimization, resource matching, and dispatch management. The route optimization and resource management components will automatically assign work based on skill level and route sequence. By utilizing technologies to perform this complex optimization algorithm, cost savings are achieved by a reduction in travel time and an increase in resource efficiency. In addition, the auto dispatching of work assignments will allow dispatchers to focus on higher priority work and field communication. District employees continue to contribute to the organization s cost-reducing efforts. Since the implementation of a voluntary furlough program, employees have contributed 55,288 hours, resulting in approximately $2.2 million in savings. To ensure water supplies remain available, the District, the SNWA and its other member agencies have implemented a number of initiatives. These efforts include water conservation programs, securing additional water resources and when appropriate, banking unused water resources. The District s award winning water conservation efforts have been particularly effective. Over the last 10 years, the District's average monthly water use for residential single-service declined by 23 percent, from approximately 15,100 gallons in fiscal year 2004 to approximately 11,600 gallons in fiscal year 2014. The Springs Preserve, located on District property, is a 180-acre cultural and historical attraction designed to commemorate Las Vegas dynamic history and provide a vision for a sustainable future. The Springs Preserve: Welcomed approximately 257,000 visitors in fiscal year 2014; Increased total operating revenues to approximately $2.3 million in fiscal year 2014 from approximately $2.1 million in fiscal year 2013, a 10% increase; Increased facility rental revenue for meetings and private events to approximately $253,000 in fiscal year 2014 from approximately $154,000 in fiscal year 2013, a 64% increase; Earned approximately $95,000 in fiscal year 2014 for the first full year of operating a trackless train to boost guest exploration of the trail system; Increased membership revenues to approximately $431,000 in fiscal year 2014 from approximately $420,000 in fiscal year 2013, a 3% increase; Welcomed approximately 29,000 students through the free field trip program in fiscal year 2014; Increased general admission revenues to approximately $509,000 in fiscal year 2014 from approximately $481,000 in fiscal year 2013, a 6% increase; 6
Received approximately $264,000 in contribution funding from program sponsors, grants and members in fiscal year 2014 from approximately $211,000 in fiscal year 2013, a 25% increase; Increased gift shop revenues to approximately $251,000 in fiscal year 2014 from approximately $228,000 in fiscal year 2013, a 10% increase; Increased education revenues to approximately $184,000 in fiscal year 2014 from approximately $153,000 in fiscal year 2013, a 20% increase; and Will receive approximately $1.6 million in federal grants for fiscal year 2014 capital expenditures. SEC REQUIREMENT On November 10, 1994, the U.S. Securities and Exchange Commission (SEC) amended the Securities Exchange Act of 1934, Rule 15c2-12, regarding continuing disclosure by issuers of municipal securities for the benefit of holders of such securities. Along with other requirements, the amendments require that certain annual financial information be provided to various information repositories for bond issues sold on or after July 3, 1995. The annual financial information must include an update of the same historical financial statements that are included in the final official statement issued at the time of the bond sale. The required annual financial information for the District is incorporated in the Statements of Revenues, Expenses, and Changes in Net Position, page 22, and in Note 4, Long Term Debt, pages 34 to 38, inclusive. Additional required information can be found in the Statistical Section on pages 61 to 89, inclusive. The District forwards its CAFR to the appropriate information repositories. AWARDS AND ACKNOWLEDGMENTS The Government Finance Officers Association (GFOA) of the United States and Canada awarded a Certificate of Achievement for Excellence in Financial Reporting to the District for its CAFR for the fiscal year ended June 30, 2013. This is a prestigious national award recognizing conformance with the highest standards for the preparation of state and local government financial reports. To receive this award, a governmental unit must publish an easily readable and efficiently organized financial report that conforms to program standards. Such reports must satisfy both accounting principles generally accepted in the United States as well as other applicable legal requirements. The District has received this award for the last 35 consecutive years. In addition, the District has also received the GFOA s Distinguished Budget Presentation Award for its budget documents for the previous 19 consecutive years. In order to receive this award, a governmental unit must publish a budget document that meets program criteria as an operations guide, a financial plan and a policy and communication document. The Distinguished Budget Presentation Award is awarded on an annual basis. We believe the current budget continues to conform to program requirements and we have submitted it for award consideration. We also believe this report continues to conform to certificate requirements and plan to submit it to the GFOA after approval from the Board. We express our appreciation to the District s accounting staff for their dedication in the preparation of this report, the staff members of other departments for their assistance, and the auditing firm of Piercy Bowler 7
Taylor & Kem for their professional services. We also want to thank the members of the Board of Directors for their continued support and sound governance. Sincerely, Joi.i:mil~ General Manager * (lldµt Chief Financial Officer 8
Organization Chart As of June 30, 2014 General Manager Assistant General Manager Deputy GM: Administration Deputy GM: Engineering / Operations Chief Financial Officer General Counsel Customer Care and Field Services Engineering Finance Legal Environmental, Health, Safety, and Corporate Security Infrastructure Management Energy Management Human Resources LVVWD Operations Information Technology SNWS Operations Public Services Water & Environmental Resources Water Quality and Treatment