WEST VALLEY SANITATION DISTRICT · 11/18/2015 · Treatment Plant Advisory Committee (“TPAC”)...

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WEST VALLEY SANITATION DISTRICT OF SANTA CLARA COUNTY, CALIFORNIA

AGENDA

BOARD OF DIRECTORS REGULAR MEETING

9:00 a.m., Wednesday, November 18, 2015

District Office -- 100 East Sunnyoaks Avenue

Campbell, California (408) 378-2407

Chairperson: Steven Leonardis Vice-Chairperson: Manny Cappello Staff Recommendation 1. Roll Call. Confirm Quorum 2. Approval of minutes of previous meeting. Action

Staff Recommendation: Approve the minutes of the regular meeting of the Board of Directors of October 14, 2015.

ORAL COMMUNICATIONS Information 3. This portion of the meeting is reserved for persons wishing to address the Board on any matter not on the agenda. WRITTEN COMMUNICATIONS Information 4. Letter from Ms. Kerrie Romanow, Director of Environmental Services,

City of San Jose, on Master Agreement Amendments dated October 22, 2015.

5. Letter to Mayor Jamie L. Matthews, Chair-Treatment Plant Advisory

Committee, San Jose - Santa Clara Regional Wastewater Facility, and Ms. Kerrie Romanow, Director of Environmental Services, City of San Jose, on Request to Provide Presentation at November 19, 2015 Treatment Plant Advisory Committee (“TPAC”) Meeting, dated October 28, 2015.

6. Letter dated November 10, 2015, to Ms. Kerrie Romanow, Director

of Environmental Services, City of San Jose, regarding City of San Jose letter dated October 22, 2015.

All items on the agenda are subject to action or change by the Board of Directors. In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the District Secretary at (408) 378-2407.

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WVSD Agenda November 18, 2015 (Continued)

REPORTS (Items to be taken in one motion) Action

7. San Jose/Santa Clara Regional Wastewater Facility: Minutes of the September 10, 2015 regular meeting of the Treatment Plant Advisory Committee. Staff Recommendation: Accept the report.

8. Investment of District funds: Report on commingled funds invested

by the County of Santa Clara for West Valley Sanitation District, as of September 30, 2015. Staff Recommendation: Accept the report.

9. Consolidated Income and Expense Statement of West Valley Sanitation

District for the period ended September 30, 2015. Staff Recommendation: Accept the report. UNFINISHED BUSINESS

10. None. PUBLIC HEARINGS

11. None. CONSENT CALENDAR (Items to be taken in one motion) Action

12. Approval of payment of invoices, October 15, 2015 – November 18, 2015.

Staff Recommendation: Approve the payment of invoices.

13. Rainfall and flow monitoring services for fiscal year 2015-2016. Staff Recommendation: Authorize the District Manager and Engineer to Issue Task Order 15-03 to V&A Engineers for a not-to-exceed amount of $74,000 for rainfall and sewer flow monitoring services.

NEW BUSINESS Action

14. Annual report of West Valley Sanitation District for Fiscal Year 2014-2015.

Staff Recommendation: Accept the Annual Report and the Memorandum on Internal Control and Required Communications of West Valley Sanitation District for Fiscal Year 2014-2015.

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WVSD Agenda November 18, 2015 (Continued)

DIRECTORS' ITEMS Information

15. Directors’ reports, announcements, and questions. 16. District Manager’s report. ADJOURNMENT 17. Adjournment. (Next meeting is scheduled for December 9, 2015, 6:00 p.m.)

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AGENDA ITEM NO. 2 9 11/18/15


BOARD OF DIRECTORS MEETING

October 14, 2015 The Board of Directors of West Valley Sanitation District of Santa Clara County, California, convenes this day in regular session at 6:02 p.m. at the district office, 100 East Sunnyoaks Avenue, Campbell, California. Roll Call 1. Present: Directors: Manny Cappello, Mike Kotowski, Ken Yeager and Steven Leonardis,

Chairperson.

Absent: Marshall Anstandig.

Staff: Jon Newby, District Manager and Engineer; Edward H. Oyama, Director of Engineering and Operations; Sarah Quiter, Deputy District Counsel; and Lesha Luu, Secretary.

Approval of Minutes of Previous Meeting 2. Approve the minutes of the regular meeting of the Board of Directors of September 16, 2015.

Motion by/Second by: Kotowski/Leonardis to approve the minutes of the previous meeting. Motion passed unanimously.

Oral Communications 3. None. Written Communications 4. Letter to Ms. Kerrie Romanow, Director of Environmental Services, City of San Jose and

Mr. Christopher de Groot, Director of Water & Sewer Utilities, City of Santa Clara, on Proposed Amendments to Master Agreements dated October 5, 2015. There were no questions or comments from Board or staff.

Reports 5. San Jose/Santa Clara Regional Wastewater Facility: Minutes of the August 13, 2015 regular

meeting of the Treatment Plant Advisory Committee.

Motion by/Second by: Cappello/Yeager to approve Minutes of the August 13, 2015 regular meeting of the Treatment Plant Advisory Committee. Motion passed unanimously.



October 14, 2015

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Unfinished Business 6. None. Public Hearings 7. None. Consent Calendar (Items to be taken in one motion) 8. Approval of payment of invoices, September 17, 2015 – October 14, 2015. 9. District sale of surplus vehicles. Authorization to sell District surplus vehicles identified as

2003 Ford F-350 Service Truck (MV70) and 2004 Sterling Vactor Ramjet F8015 (MV72) through First Capitol Auction, Inc. to the highest bid received.

Motion by/Second by: Cappello/Kotowski to approve Consent Calendar, items 8-9. Motion passed unanimously.

New Business 10. Final Budget for Fiscal Year 2015-2016. Accept the amendments and approve the Final

Budget for Fiscal Year 2015-2016. Manager reported changes to the Final Budget for Fiscal Year 2015-2016 include budget carryover, adjustments due to new or latest information, and additions for the recycled water pilot program. The most significant change includes a reduction in the District’s revenue by replacing the long-term debt in an amount of $25 million with a $5 million short-term financing. In addition, the line item for providing 60 days Operating Reserve to City of San Jose has been eliminated to reflect the City’s adopted budget. There were no questions or concerns from the Board.

Motion by/Second by: Yeager/Leonardis to accept the amendments and approve the Final Budget for Fiscal Year 2015-2016. Motion passed unanimously.

Closed Session 11. The Board adjourns at 6:06 p.m. to closed session - Conference with Legal Counsel -

anticipated litigation initiation of litigation pursuant to Government Code § 54956.9(c) (one potential case). The following directors were present: Manny Cappello, Mike Kotowski, Ken Yeager and Steven Leonardis, Chairperson.

Reconvene in Open Session 12. The Board reconvenes at 6:50 p.m. in open session. Nothing to report out.



October 14, 2015

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Directors’ Items 13. There are no Directors’ reports, announcements, and questions. 14. There are no District Manager’s reports. Adjournment 15. There being no further items of business, the meeting was adjourned at 6:50 p.m. The next

Board Meeting is scheduled for November 18, 2015 at 9:00 a.m.

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STEVEN LEONARDIS, CHAIRPERSON Attest: _________________________ Secretary

Environmental Services Department Office of the Director

200 E. Santa Clara Street, 10th Floor San José, CA 95113-1905 tel (408) 535-8550 fax (408) 292-6211 www.sanjoseca.gov/esd


October 22, 2015 West Valley Sanitation District Board 100 E. Sunnyoaks Avenue Campbell, CA 95008 Re: Master Agreement Amendments West Valley Sanitation District Board Members: The City of San José has been working with staff from your agency since early 2014 to finalize a framework to fund and rebuild our aging Regional Wastewater Facility. This effort has comprised of over 20 meetings with staff from Santa Clara and the tributary agencies. Through this inclusive process, we are meeting objectives set forward by TPAC, including:

• Developing comprehensive cost projections for the first ten years of the Capital Improvement Program (CIP)

• Pursuing low cost financing, such as State Revolving Fund (SRF) loans, to mitigate impact on rate payers and achieve intergenerational equity

• Allowing time for all agencies to plan for future revenue needs and smooth out capital expenditures by proposing to procure short term, interim financing vehicles such as a commercial paper (CP) program

Although a plan for long term bond financing was initially developed at the request of all agencies, tributary agency staff had concerns about the impact of funding reserves and wanted to evaluate other options such as a pooled financing. Also, it was originally envisioned that all agencies would participate in long term bond financing through the Clean Water Financing Authority. In a July 2015 Financing Update Information Memo it was communicated that, due to dedicated reserve requirements for financing through CWFA, San José would likely only participate in long term financing if all agencies were to participate. Since not all agencies are interested in a collective long term bond financing, the co-owners and tributary agencies will each need to develop its own plans if this type of financing is needed. Your agency staff have communicated to us that your agency does wish to participate in both SRF loans and a CP program. To enable your participation, please find attached a redlined Master Agreement for your review. Per prior direction from the Treatment Plant Advisory Committee (TPAC), the focus of this amendment is to facilitate obtaining 30 year term SRF loans and to establish a CP program in this fiscal year. The current Master Agreement term between San José, Santa Clara, and West Valley Sanitation District expires in 2031. In order for San José to enter into a SRF loan agreement for West Valley’s share of the $100 million Digester and Thickener Facilities (Digester) project, the term of the existing Master Agreement will have to be extended to cover this loan agreement term.

http://www.sanjoseinfo.org/external/content/document/1914/2573854/1/07-30-15ESD.PDF

West Valley Sanitation District Board October 22, 2015 Re: Master Agreement Amendments Page 2

200 E. Santa Clara Street, 10th Floor San José, CA 95113-1905 tel (408) 535-8550 fax (408) 292-6211 www.sanjoseca.gov/esd

Also, since we will be targeting SRF funding on other projects, the amended agreement term is intended to cover 30 year loan agreement terms for other projects in the ten year CIP. In order to have the SRF loan in place before the Digester project contract award in spring 2016, the Master Agreement amendments related to the term of the agreement and general financing terms need to be executed by January 2016 after approval by your Board, the Santa Clara City Council, and the San José City Council. San José does not require a CP program until FY 16-17, however, in order to assist your agency in meeting its funding needs this fiscal year; we are willing to accelerate the establishment of this program and to pay our share of the cost of this accelerated program. Of course, in order for us to proceed with establishing the CP program this fiscal year, we will need firm commitment from your agency, including execution of the Master Agreement amendment in January 2016 and subsequent financing agreement reflecting actual CP terms soon thereafter. To help you in your decision-making, we provided your staff with a CP term sheet in early July 2015; exact financing terms will be known at the time of program establishment. We request your preliminary feedback on the attached draft Master Agreement amendment by November 20, 2015. This will allow us to discuss any questions or comments and finalize the draft by December 15, 2015, in time for approval and execution by January 2016. Staff from your agency has indicated an interest in having additional modifications to the Master Agreement considered. As directed at the October 2015 TPAC meeting, we will be bringing forward a staff report on this topic to TPAC in November 2015. Despite the extensive discussions and correspondence with your staff, it appears that, at times not all relevant information has been communicated to the elected Board of your agency. We can appreciate that this is a complex topic and have routinely offered to present at your Board meetings. Given the importance of this topic and the confusion demonstrated in the letters received from your agency staff, we would like to request that this item be agendized at your next Board meeting so my staff and I can be available to directly respond to your questions or concerns. Thank you for your time and we look forward to continuing to work with you on the rebuilding of an essential facility that serves both our communities. Sincerely, /s/ Kerrie Romanow Cc: Jon Newby Rosa Tsongtaatarii – San José City Attorney’s Office Ashwini Kantak – Environmental Services Department City of Santa Clara Mayor and City Council Chris deGroot, Shilpa Mehta – City of Santa Clara

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AMENDMENT AND RESTATEMENT OF MASTER AGREEMENT FOR WASTEWATER TREATMENT

BETWEEN CITIES OF SAN JOSE AND SANTA CLARA AND WEST VALLEY SANITATION DISTRICT

This Amendment and Restatement of Agreement is made and entered into this ____

day of _______, 2015, by and between the City of San José and the City of Santa Clara, both being municipal corporations of the State of California (hereinafter referred to as “First Parties”), and West Valley Sanitation District (hereinafter referred to as “West Valley” or “Agency”).

WHEREAS, First Parties are co-owners of the “San José-Santa Clara Regional

Wastewater Facility,” (the “Plant”) formerly known as the “San Jose/Santa Clara Water Pollution Control Plant”; and

WHEREAS, First Parties and West Valley have previously entered into a Master

Agreement for Wastewater Treatment dated March 1, 1983 (then known as County Sanitation District No. 4), a First Amendment to Master Agreement for Wastewater Treatment dated December 17, 1985, a Second Amendment to Master Agreement for Wastewater Treatment dated December 4, 1995, a Third Amendment to Master Agreement for Wastewater Treatment dated August 7, 2006, and a Fourth Amendment to Master Agreement for Wastewater Treatment dated June 16, 2009 (collectively referred to as the “Original West Valley Master Agreement”) related to West Valley’s use of the Plant; and

WHEREAS, implementation of the Regional Wastewater Facility Plant Master Plan

would require investment in long-term capital improvement projects to upgrade and rebuild the Facility over the next thirty to fifty years necessitating certain additional amendment to the Original West Valley Master Agreement; and

WHEREAS, for convenience and ease of reference, the parties wish to amend and

restate the Original West Valley Master Agreement;

NOW, THEREFORE, the parties agree that the Original West Valley Master Agreement is hereby amended and restated to read as follows:

PART I DEFINITIONS

A. Administering Agency.

The City of San José is and shall be the Administering Agency of this Agreement and Formatted: No widow/orphan control

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as such shall execute and administer this Agreement in accordance with Section VIII of the 1959 Agreement excerpted in the attached hereto as Exhibit E.

B. Agencies. The term “Agencies” shall be those tributary agencies discharging wastewater into the San José-Santa Clara Regional Wastewater FacilitySan José/Santa Clara Water Pollution Control Plant, previously referred to as "outside users” in the 1959 Agreement.

C. 1959 Agreement. The term “1959 Agreement” shall mean the Agreement between San José and Santa Clara, dated May 6, 1959 and entitled “Agreement between San Jose and Santa Clara Respecting Sewage Treatment Plant,” as such Agreement now reads or as it may here after from time to time be amended or renegotiated.

D. Capacity. The term “capacity” shall mean the Mean Peak Five (5) Day Dry Weather Plant Treatment capacity as contained in Exhibit “A,” attached hereto and incorporated herein by reference as if fully set forth.

E. Director. The term “Director” shall mean the Director of Water Pollution Control the Environmental Services Department for the City of San José.

F. Engineering Study. The term “Engineering Study” shall mean those studies that the First Parties shall cause to be made when the Plan has reached eighty-five percent (85%) of its designed capacity, beginning with 167 MGD and for every incremental capacity increase thereafter. The first Engineering Study shall be performed when the mean peak five-day dry weather flow to the Plant reaches 142 MGD. The Engineering Study shall include an analysis of capacity needs, the size, and nature of proposed facilities to be constructed, a construction timetable, and an estimate of total project costs, and an estimate of each participating agency’s share of project cost.

G. Exhibits. The term “Exhibits” shall mean those Exhibits attached to this Agreement and incorporated into this Agreement by reference as if fully set forth. These Exhibits may be modified as contract amendments or amended from time to time as necessary to reflect changes of fact. The Exhibits shall be reviewed annually, or at such other times as significant changes occur, by the Treatment Plant Advisory Committee, which body shall recommend any modifications or amendments required.

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H. First Stage Expansion. The term “First Stage Expansion” shall mean that portion, as is presently described in the report of CH2M Hill, engineers, entitled “San José/Santa Clara Water Pollution Control Plant, Capital Improvement Program, Executive Summary, Revised June, 1982” and dated June 25, 1982, or as amended or revised, which consists of improvements to all areas of the Plant and expansion of the Liquid Process, Process Control System, Sludge Processing and Disposal and will provide a capacity of 167 mgd.

I. Interest. Interest will be to the extent permitted by law, equal to the rate of interest set forth in the monthly report to the Council of the City of San José, prepared by the Director of Finance of San José, with respect to said City’s portfolio and interest earnings thereon.

J. Intermediate-Term Improvements. The term “Intermediate-Term Improvements” shall mean that portion, as is presently described in the report of CH2M Hill, engineers, entitled “San José/Santa Clara Water Pollution Control Plant, Capital Improvement Program, Executive Summary, Revised June, 1982” and dated June 25, 1982, or as amended or revised, which consists of six (6) elements, as outlined in Chapter 2 of said report, which are designated to provide the Plant with a mean peak five (5) day dry weather treatment capacity of 143 mgd.

K. Long-Term Improvements.

The term “Long-Term Improvements” shall mean capital improvement projects identified in the Plant Master Plan dated March 2012 and approved by TPAC on November 14, 2013; Capital Improvement Program Validation Project Packages dated March 25, 2014; Ten-Year Funding Strategy dated February 2015 and approved by TPAC on May 14, 2015; and the Proposed 2016-2020 Capital Improvement Program for the Water Pollution Control Plant approved by TPAC on May 14, 2015, collectively referred to as “Project Documents,” as these Project Documents may be amended or revised through the annual budget process, and periodic updates. The capital improvement projects identified in the Project Documents are to repair, replace, and upgrade the aging facilities and treatment processes at the Plant. The process areas include, but are not limited to, liquids treatment, solids treatment, energy and automation, and support facilities process areas.

L. Operating and Maintenance Costs. Any and all costs and expenses incurred by the Administering Agency, for the administration, operation, maintenance and repair of the Plant, including but not limited to supplies and materials, labor, services, power, chemicals, laboratory control

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and monitoring, insurance, general administration and incidental items incurred during normal operations. Also included are those expenditures for ordinary repairs necessary to keep the facilities in proper operating conditions.

M. Parameters. The term “parameters” shall mean the four (4) treatment parameters of Flow, Biochemical Oxygen Demand (BOD), Suspended Solids (SS), and Ammonia (NH3) as expressed in terms of estimates, which are the common denominator for computing annual and/or daily loadings.

N. Plant (Existing Treatment Plant). The term “Plant” shall mean the “San José-Santa Clara Regional Wastewater Facility,” formerly known as the “San José/Santa Clara Water Pollution Control Plant.”.

O. Replacement Costs. All capital expenditures for obtaining and installing equipment, accessories or appurtenances which are necessary during the service life of the Plant to maintain the capacity and performance for which the Plant was designed and constructed except:

1. Major rehabilitation which will be needed as individual unit processes or other facilities near the end of their useful lives;

2. Structural rehabilitations;

3. Plant expansions or upgrades to meet future user demands.

P. Replacement Fund. Replacement fund shall mean those monies deposited with the aAdministering aAgency for the replacement of capital facilitiesReplacement Costs at the Plant.

Q. TPAC. The term “TPAC” shall mean the Treatment Plan Advisory Committee.

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PART II

CAPACITY RIGHTS GRANTED TO AGENCY

A. General. Commencing on the effective date of thisthe Original Agreement, and thereafter during the term of this Agreement, and subject to all the conditions, limitations, restrictions, terms and provisions contained in this Agreement, and Agency’s faithful compliance with and performance of the same, First Parties hereby grant to Agency a right to discharge wastewater into the Plant and to have the same treated and disposed of in and by said Plant the same as wastewaters of First Parties.

B. Capacity Rights. First Parties have designed the Plant to provide for capacity to treat and dispose the volume and strength of wastewater specified in Exhibit “A”. Agency shall be entitled for the duration of this Agreement to use the capacity as set forth in said Exhibit “A”. First Parties and Agency agree not to discharge more than its capacity in the parameters as is specified in said Exhibit “A”, except with the approval and agreement of the First Parties hereto in accordance with the terms and conditions hereinafter provided, or as provided in Part III. Any continuous and intentional violation of capacity rights will be considered a material breach of this Agreement and will be given priority in the claim of breach process as set forth in Part VII Section G.

C. San José-Santa Clara Water Pollution Control PlantRegional Wastewater Facility Engineering Study. First Parties agree to make an Engineering Study to redefine all “Agencies” future needs as set forth in Part I, Section F.

D. Restrictions and Regulations Respecting Nature, Kind, Type and Strength of Sewage. First Parties shall inform Agency of the Industrial Waste Ordinance of the City of San José concerning the type and condition of discharge, which would be detrimental to the Plant. Each party to this Agreement shall adopt and enforce ordinances, resolutions, rules, and regulations to conform to the restrictions of said Ordinance. Any waiver to the above must be authorized by written Resolution of both the Council of the City of San José and the Council of the City of Santa Clara. Each party to this Agreement shall also comply with the applicable statutes, ordinances, rules, and regulations of agencies of the United States of America, and the State of California.

E. Reports, Data and Maps to be Provided by Agency. It is mutually agreed that all parties shall prepare and file with the Director reports, Formatted: No widow/orphan control

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data and maps as deemed necessary by the Director and Agency.

F. Area Restrictions. Agency, unless otherwise authorized by written resolutions of the governing boards of both the City of San José and the City of Santa Clara shall not, and agrees that it will not, discharge or cause, allow, permit or suffer to be discharged into the Plant, or into any sewer line or lines which convey either directly or indirectly any wastewater to the Plant, any wastewater which is produced in, or emanates, or comes from any territorial property situated outside the service area map attached as Exhibit F. First Parties and Agency further agree not to discharge, or cause to be discharged, any wastewater into any sewer line or lines of the other party, either directly or indirectly, conveying wastewater to the Plant without written authorization of the owner of the sewer line.

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PART III

FUTURE DISCHARGE CAPACITY RIGHTS

A. Redistribution of Capacity Rights. 1. In order to dispose of capacity, any Agency or First Parties may designate all or a

portion of its capacity right as “excess pooled capacity,” which shall be available for disposal as hereinafter provided.

2. Any Agency or First Parties may acquire excess-pooled capacity as recommended by TPAC. Any Agency or First Parties may acquire excess pooled capacity at the replacement cost as described in Exhibit “B” plus that portion of the selling party’s replacement balance remaining in the rReplacement Fund maintained by the Administering Agency.

3. If requests for excess pooled capacity total more than the excess pooled capacity available, then as set forth in Part VI, TPAC will allocate the pooled capacity actually available in a manner to most closely achieve the same planning horizon for all requesting parties.

B. Acquisition of Additional Capacity Rights With Plant Expansion. Agency shall have the right to participate in Plant expansions for the purpose of increasing the capacity right into the expanded Plant, subject to the following terms and conditions:

1. Before commencing the design of any such additions, improvements or changes, First Parties shall give Agency written notice of their intention to expand the Plant, and the design year for the proposed expansion, as set forth in the Engineering Study prepared in accordance with Part II, Section C.

2. Within ninety (90) days from and after the giving of such notice, Agency shall notify First Parties in writing whether it wishes to participate in the proposed expansion, and the amount of capacity desired to serve until the design year. If Agency fails to give such notice within such time, it shall be deemed to have elected not to participate in such expansion.

3. If Agency elects not to participate in such expansion, it will pay no part of the cost of additions, improvements, and changes, which are made for the purpose of increasing the capacity of the Plant.

4. If Agency elects to participate in such expansion, it shall pay to First Parties that part of the total cost of such additions, improvements, and changes as defined in Part V, Section B.

5. If the needs of all parties are different than the next feasible increment of plant expansion capacity as described in the Engineering Study, then as set forth in

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Part VI. TPAC, will allocate the capacity available in a manner to most closely achieve the same planning horizon for all requesting parties.

C. Acquisition of Additional Capacity Rights Without First Parties Initiated Plant Expansion.

If Agency should desire to increase its capacity right into the Plant at a time when no expansion of the Plant as described in the Engineering Study, is proposed by First Parties and no excess pooled capacity is available, then Agency may seek additional capacity by the following method:

If requested by Agency, First Parties shall initiate a Special Engineering Study to determine the most feasible means to add to the Plant that capacity requested by Agency. When Agency agrees to pay for such increment, then First Parties shall expand the Plant by such increment. This right shall not be exercised within five (5) years of completion of the latest Engineering Study.

D. Adjustment to Capacity Rights Due to Operating Conditions. 1. In the event of a major Plant facility failure caused by an earthquake, explosion,

war, flooding or the like, reductions in operational capacity and any cost of restoration shall be borne by all Agencies, including San José/Santa Clara and Agency in accordance with Exhibit “A”, and the cost of restoration shall be borne proportionately.

2. Any changes in Plant capacity which either increase or decrease the capacity of the Plant, resulting from any means whatsoever, shall be proportioned to each agency including San José and Santa Clara in accordance with Exhibit “A”.

3. TPAC, as set forth in Part VI, shall determine annually, during the month of November, the operational capacity, and productive use of the Plant in all parameters for all parties and the remaining design capacity of the Plant.

4. Agency and First Parties shall not exceed the capacity rights agreed upon pursuant to Exhibit “A”.

5. If at any time, prior to the completion of the Intermediate-term Improvements, it becomes necessary to allocate connections to the sewer systems of the combined agencies; in that event, to the extent permitted by law, First Parties will receive forty percent (40%) of the connections of whatever type and all other dischargers will receive sixty percent (60%) of the connections of whatever type. Agency’s share will be determined by Agreement among the Agencies. This paragraph shall only remain in effect until completion of the Intermediate-term Improvements.

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PART IV

LAND A. Participation.

Participation and rights in Plant land shall be as described in Exhibit “C”.

B. Sale of Land. It is mutually agreed between First Parties and Agency that if First Parties should, during the term of this Agreement, sell or otherwise dispose of any of the lands of Exhibit “C” which is or are no longer needed for Plant purposes, Agency shall have the right to share in any revenue derived from such sale by First Parties proportionally in accordance with Exhibit “C.”

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PART V AMOUNTS PAYABLE BY AGENCY TO FIRST PARTIES

A. Payments for Existing Capacity Rights In The Intermediate Term And First Stage Expansion Projects and Phase 1 Water Recycling Program.

Payments for participation in the Intermediate-term and First Stage Expansion and Phase 1 Water Recycling Program shall be as described in Exhibit “D” attached hereto and incorporated by reference herein.

B. Payments for Additional Capacity Rights.

1. Payments with Plant Expansion. All payments associated with a Plant expansion as outlined in Part III, Section B, shall be paid for in proportion to the capacity rights requested in the basic parameters or based upon appropriate ratios of Agency design parameters to total project design parameters times total project cost.

2. Payments Without Planned Expansion. Should Agency elect to obtain additional capacity rights at a time when First Parties do not intend to expand Plant as designated in Part III, Section B, the expenses associated with this addition of capacity rights shall be the sole responsibility of Agency. All payments for studies, designs, and construction to provide additional capacity shall be deposited with the Administering Agency.

3. Payments for Transfer of Capacity Rights. Transfers of capacity rights between First Parties and Agency or between Agency and Agencies, shall be recommended by the Treatment Plant Advisory CommitteeTPAC and approved by First Parties and based upon the pooled capacity costs determined in Part IV, Section A. Transfer of capacity rights shall be based upon written agreement between the participating parties. Payment shall be due and payable as provided in said agreement.

C. Payments for Future Improvements.

1. All payments associated with future improvements at the Plant shall be made on the basis of Agency’s existing capacity rights. Final payment shall be determined based upon actual project cost. This payment shall be a proportional share in accordance with Exhibit “A”.

2. First Parties shall, not later than March 1st, of any fiscal year, provide Agency with a preliminary estimate of the amount of money required from Agency for future improvements or replacements for the ensuing fiscal year.

D. Payments for Operation and Maintenance Costs.

1. First Parties, Agency, and Agencies shall bear the cost of the operations and

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maintenance expenses of the Plant, including all reclamation facilities operated by the Plant. The cost of operation and maintenance of reclamation facilities shall be determined based upon the actual flow (in million gallons per day) of Agency’s discharge into the Plant. All other operation and maintenance expenses of the Plant shall be determined based upon the parameters of Agency’s actual discharge into the Plant. Agency shall provide to First Parties, by December 1st of each year, data indicating expected flow and discharge for the ensuing fiscal year.

2. First Parties shall, not later than March 1st of each year, provide Agency with a preliminary estimate of the amount of money required to operate and maintain the Plant, including all reclamation facilities operated by the Plant, for the ensuing fiscal year. In addition, First Parties shall indicate Agency’s estimated annual share for operation and maintenance costs as apportioned to treatment parameters, and for operation and maintenance costs for reclamation as apportioned to flow.

3. Agency shall provide to First Parties a copy of Agency’s adopted annual sewer revenue program by August 1st of each year. This revenue program shall conform to all federal and/or state guidelines as now exist of may exist in the future.

4. During the firstsecond quarter of each fiscal year, TPAC shall review each Agency’s total flow and total discharge to the Plant for the preceding fiscal year in terms of the parameters. Adjustments and costs, if any resulting from this review shall be made in accordance with Part V, Section E, Paragraph 3b herein.

E. Method of Payment.

1. Capital and Land Acquisition. All payments for capital and land acquisition shall be on a quarterly basis, the first quarter beginning July 1st. These invoices shall be presented at the beginning of the quarter in which the obligation is anticipated to occur. The date of financial obligations for capital expenses and land acquisitions shall be the date of award of contract. These payments shall be based upon the budget for capital costs for the Plant as recommended by TPAC and approved by the Administering Agency.

2. Operation and Maintenance Costs. All payments for operation & maintenance expenses shall be made on a quarterly basis, the first quarter beginning July 1st. Invoices for these payments shall be presented at the beginning of the quarter in which the obligation is anticipated to occur. These payments shall be based upon the budget for operation and maintenance costs of the Plant as recommended by TPAC and approved by the Administering Agency.

3. General Information. a. All bills shall be paid to the Administering Agency within forty-five (45) days from presentation. Interest will be charged on any late or unpaid bills.

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b. Adjustments in any payment described above shall be on the basis of actual payment to actual expenditures and shall be made no later than the third quarter billing of the following fiscal year. A statement outlining the method of adjusting costs and actual adjustments shall be included.

c. Any and all monies which Agency is herein required to pay to First Parties shall be paid to the Administering Agency.

F. Credits.

1. Grants or Outside Financial Assistance. Any grants, recoveries, or outside financial assistance received, and any interest earned thereon, shall be credited to First Parties, Agencies and Agency in the quarter following receipt, along with a statement outlining the source of grant revenue and method of distribution. Grants or outside financial assistance shall be shared on the basis of the Agency’s participation in the program for which the outside financial assistance is received.

2. Interest. Interest on moneys advanced, credits held for Agency or amounts due from Agency, shall be determined on a monthly basis.

3. Revenues and Income. If First Party should, during the term of this Agreement, receive any income or revenues related to land, products, or services at the Plant, then Agency shall be entitled to a share of the income. Agency’s share shall be that proportion of such income based on Agency’s contribution to the capital cost or O & M cost, which is applicable, during the fiscal year of receipt of such income.

G. General.

Payment to Agency of any moneys to which it may become entitled may be made by off-setting the amount of such moneys against any payments which Agency may be obligated to pay to First Parties under the provisions of this Agreement or Agency may request cash reimbursement of any credit balance. The request for cash reimbursement shall be honored by First Parties within forty-five (45) days following receipt of notice. Any additional payments requested from Agency shall be made with the third quarter payment.

H. Payments for Operating Reserves.

The Administering Agency’s annual operation and maintenance budget for the Plant shall include an operating reserve as an operating cost as described in this subsection. First Parties and all Agencies shall contribute their proportionate share to fund the operating reserve in the minimum amount of sixty (60) days of annual operating and maintenance expenses for unanticipated operation and maintenance costs for the Plant (“Operating Reserve”) beginning in Fiscal Year 2016-2017. Each Agency’s contribution to the Operating Reserve shall be determined in proportion to the

13 1245747_2

Agency’s estimated annual share of operation and maintenance costs of the Plant. The Operating Reserve contribution for each Agency shall be calculated as follows: annual Agency operation and maintenance allocation percentage multiplied by the total estimated annual Plant operation and maintenance budget amount, divided by 365 days, and then multiplied by 60 days. In each fiscal year following Fiscal Year 2016-2017, the calculation will take into account the amount held in the Operating Reserve as of the date of calculation.

The Administering Agency shall provide each Agency on or before March 1 of each fiscal year, commencing in Fiscal Year 2015-2016 for the amount of its estimated contribution to the Operating Reserve for the following fiscal year. Each Agency shall be billed for its contribution to the Operating Reserve following the Administering Agency’s adoption of the annual operation and maintenance budget for the Plant for Fiscal Year 2016-2017, and each fiscal year thereafter. If the adopted annual budget for operation and maintenance costs of the Plant is greater than or less than the amount on which the Agencies’ respective contributions were calculated and paid into the Operating Reserve for the prior fiscal year, then the billing statement presented to each Agency will identify the revised contribution amount and specify the amount of the adjustment due if an Agency’s contribution has increased or the amount subject to credit if an Agency’s contribution amount has decreased. Agency shall make payment in full of the amount of its contribution to the Operating Reserve within forty-five (45) days of presentation of the billing statement. Any credit due to the Agency shall be applied to the Agency’s first quarterly payment for operation and maintenance costs.

14 1245747_2

PART VI SAN JOSE-SANTA CLARA TREATMENT PLANT

ADVISORY COMMITTEE

A. Creation and Membership. The San José-Santa Clara Treatment Plant Advisory Committee (TPAC), created by the 1959 Agreement, shall consist of nine (9) members. Three (3) of the members shall be members of the Council of the City of San José, shall be appointed by said Council, and shall serve at the pleasure of said Council. Two (2) of the members shall be members of the Council of the City of Santa Clara, shall be appointed by the Council of the City of Santa Clara, and shall serve at the pleasure of said Council. One (1) of the members shall be a member of the Council of the City of Milpitas, shall be appointed by said Council, and shall serve at the pleasure of said Council. One of the members shall be a member of the governing body of the County Sanitation District No. 4 of Santa Clara CountyWest Valley Sanitation District, shall be appointed by the governing body of the County Sanitation District No. 4West Valley Sanitation District, and shall serve at the pleasure of said body. One (1) of the members shall be a member of the governing body of the Cupertino Sanitary District, shall be appointed by the governing body of the Cupertino Sanitary District, and shall serve at the pleasure of said body. The ninth (9th) member shall be the City Manager of San José or a designated representative. No member shall have more than one (1) vote.

B. Alternate Members. The Council of the City of San José may appoint three (3) of its Council members as alternative members of TPAC. The Council of the City of Santa Clara may appoint two (2) of its Council members as alternative members of TPAC. The Council of the City of Milpitas may appoint one (1) of its Council members as an alternative member of TPAC. The governing body of the County Sanitation District No. 4West Valley Sanitation District and the governing body of the Cupertino Sanitary District may each appoint one (1) of its members as an alternative member of TPAC. Said alternate members shall serve in the place and stead of any of the regular members whenever said regular member should be absent from a meeting of TPAC.

C. Chair. At the first meeting of each fiscal yearits July meeting, the members of TPAC shall elect a Chair and Vice Chair of TPAC. The Chair and Vice Chair shall serve as such until the election of his or her successor, or until cessation of membership of the TPAC, whichever is earlier. Vacancies in the office of the Chair and Vice Chair occurring in-between regular elections may be filled by TPAC electing a Chair and Vice Chair elected to serve until the next regular election. The Chair, or the Vice

15 1245747_2

Chair in the Chair’s absence, shall preside at all meetings. In the event the Chair and Vice Chair should both be absent from any meeting, the members of TPAC may elect a Chair pro tem to serve as Chair during the latter’s’ absence.

D. Secretary. The Administering Agency shall provide a secretary for TPAC. Said secretary shall keep minutes of TPAC proceedings and shall also have custody of all books, records and papers of TPAC.

E. Meetings. Regular meetings of TPAC shall be held at a time and place to be determined by TPAC. Special meetings may be called at any time by the Chair, to be held at a reasonable time and place specified in the notice calling the special meeting, subject to applicable requirements of law.

F. Procedure. Except as may otherwise be provided by Resolution of TPAC, the procedure to be followed by TPAC at its meeting shall be that set forth in Robert’s Rules of Order. TPAC may act by resolution of motion; a motion duly passed by TPAC and entered at length on TPAC’s minutes may be deemed to be a resolution.

G. Power and Duties. TPAC shall have the following powers and duties with respect to those items to be considered.

1. Make recommendation to First Parties and Agencies with respect to policy relating to the Plant and its maintenance, repair, expansion, replacement, improvement, and operation.

2. Make recommendation to the legislative bodies of First Parties and Agencies with respect to proposed amendments and revisions to exhibits to this Agreement.

3. Make recommendations to both First Parties and Agencies with respect to the advisability of selling interests in the Plant.

4. Make recommendations to First Parties with respect to the advisability of entering into contracts with other entities desiring to use the Plant on a rental or other basis.

5. Make recommendations to the Administering Agency and Agencies as to type and amount of insurance to be purchased for the Plant.

6. Annually, during the month of May in each fiscal year, TPAC shall review and recommend to the legislative bodies of First Parties and Agencies, a proposed

16 1245747_2

budget for the ensuing fiscal year for the maintenance, expansion, replacement, improvement, and operation of the Plant.

7. Make recommendations to the Administering Agency with respect to the award of consultant, construction, or service contacts relating to the Plant.

8. Annually, TPAC shall file with the legislative bodies of First Parties and Agencies, a report on Plant capacity pursuant to Part III, Section D, paragraph 3.

9. Make recommendations to First Parties and Agencies with respect to the redistribution of pooled excess capacity pursuant to Part III, Section A, paragraphs 1 and 2.

10. Periodically, TPAC shall review and make current, long-range plans for expansion and/or improvement of the Plant to provide for the anticipated Plant capacity required to accommodate the general plans of San José, Santa Clara and Agencies and to meet current wastewater discharge requirements.

11. Make recommendations to the legislative bodies of First Parties and Agencies with respect to claim of breach proceedings pursuant to Part VII, Section C.

H. Action Upon Recommendations. The legislative bodies of First Parties or the Agencies, shall not adopt any motion, Resolution or Ordinance that is contrary to any recommendation submitted to it by TPAC with respect to the Plant and its maintenance, repair, expansion, replacement, improvement and operation without a finding of fact or facts justifying such contrary action. The finding of fact or facts shall be submitted in writing to TPAC within fifteen (15) days after any contrary action. All policy matters as determined by the Director requiring an adoption of a motion, Resolution or Ordinance by the Council of the City of San José relating to the Plant and its maintenance, repair, expansion, replacement, improvement and operation, shall first be submitted to TPAC for its recommendation and in sufficient time, as determined by the Administering Agency, to allow TPAC to make a recommendation thereon. The Council of the City of San José shall not act upon any such policy matter until it has received the recommendation from TPAC. If TPAC does not submit its recommendation to the Council of the City of San José within the prescribed time, the City Council may adopt such a motion, Resolution or Ordinance. If a legislative body is presented with any evidence not considered by TPAC in the making of any recommendation, then, prior to the taking of action contrary to said recommendation, if time permits as determined by the Administering Agency, the legislative body shall refer the matter back to TPAC for a supplementary report. Said supplementary report shall be submitted by TPAC within thirty (30) days after reference, or such longer period as may be designated by the legislative body. If TPAC fails to make such supplementary report within the time specified, the legislative body is free to consider

17 1245747_2

such evidence without TPAC recommendations. In the event of an emergency as determined by the Director, the above procedure may be waived.

I. Expenses. Members of TPAC shall be reimbursed for all expenses reasonably incurred by them in the performance of their duties, and that provision therefor, shall be made in the annual budget. Such expenses shall be considered as “operating costs” of the Plant.

18 1245747_2

PART VII

MISCELLANOUS PROVISIONS

A. Effective Date and Duration of Agreement. It is hereby agreed that the effective date of this Agreement shall be the date on which all parties to this Agreement have executed same, and that this Agreement shall be in force and effect for a term beginning on said effective dateMay 10, 1983 and extending to, and including, and ending on January 01, 2031June 30, 2065, or until sooner termination by mutual written agreement of the parties hereto or by operation of law or because of a material breach by one of the parties hereto.

B. Extension, Renewal or Amendment to the Agreement. It is mutually agreed that the term of this Agreement may be extended or renewed only by mutual written agreement of the parties hereto and that this Agreement, including exhibits, may be amended or supplemented by a mutual written agreement of the parties hereto. This Agreement shall be reviewed in its entirety by First Parties and Agency in the year 200250. First Parties and Agency further agree that in the year 203065, they will meet and confer in good faith to negotiate a revised or new Agreement.

C. Use of Treatment PlantRegional Wastewater Facility After Expiration of Term. If for any reason the contact cannot be renewed in the year 203165, or subsequent to the termination date, the discharging Agency shall have the right to continue to discharging to the Plant, provided all payments of Agency’s share of Plant costs are made. All other rights under this Agreement shall cease.

D. Termination. If for any reason this Agreement is terminated by mutual consent of both parties, then the discharging capacity rights of the Agency shall be considered “excess pooled capacity” pursuant to the terms of Paragraph III Section A. This capacity shall be reserved for the Agency and Agency shall continue to pay for all costs associated with such capacity until such time as that capacity is either purchased by other users pursuant to the terms of this Agreement, or until failure of the Plant to treat wastewater.

E. Sale or Transfers by First Parties. Nothing in this Agreement contained shall be deemed to prohibit or restrict First Parties, or either of them, for selling, granting, assigning or otherwise transferring this Agreement or any part or interest therein, or the Plant or any part or interest therein,

19 1245747_2

or any right to discharge wastewater therein and to have the same therein treated and disposed of, to any corporation, district, governmental organization or entity or to any other person or persons, provided that any such transaction shall be subject to such rights and privileges as First Parties and Agency may have under and by virtue of the provisions of this Agreement.

F. Industrial Waste Program. The Administering Agency agrees to maintain personnel for the specific purposes of assisting all parties with matters concerning industrial waste. Such responsibilities shall include industrial waste monitoring, sampling and analysis, technical advice and surveillance of all industrial discharges tributary to the Plant. The Administering Agency agrees to be responsible for issuing notices of nonconformance within Agency’s service area for violations of the ordinance requirements in Part II, Section D. Agency shall be responsible for the adoption and enforcement of any Industrial Waste Ordinance requirements. The Administering Agency shall endeavor to keep all dischargers informed of federal, state, county and city laws, rules, regulations, standards, and ordinances relating to industrial waste requirements.

G. Claims of Breach of Agreement or of Inequities. In the event any party to this Agreement should at any time claim that the other party has in any way breached or is breaching this Agreement, or that the Agreement is inequitable, the complaining party shall file with the legislative body or bodies of the other parties, and with TPAC, a written claim of said breach or inequity, describing the alleged breach or inequity and otherwise giving full information respecting the same. TPAC shall within two (2) months at a place specified by it, give all concerned parties full opportunity to be heard on the matter, and shall, upon conclusion of said hearing, give the legislative bodies of both parties a full report of its finding and recommendations. Said report, findings, and recommendations shall be deemed advisory only; shall not be deemed to establish any facts, either presumptively or finally. Upon receipt of said report and recommendations, if any party is dissatisfied with or disagree with same, the legislative bodies of all parties concerned shall jointly meet with each other within two (2) months at a place to be determined by them, for the purpose of resolving their differences. No action for breach of this Agreement, and no action for any legal relief because of any breach or alleged breach of this Agreement shall be filed or commenced, and nothing shall be done by either party to rescind or terminate this Agreement, unless and until the above provisions of this paragraph have been complied with and unless the complaining party has first given to the other party three (3) months from the conclusion of said joint meeting of said legislative bodies within which to cure any breach or alleged breach.

20 1245747_2

H. Liability.

It is mutually agreed that any liability of San José and/or Santa Clara, or of San José as the administrative agencyAdministering Agency for any damage to any such person or property arising or resulting from any dangerous or defective condition in the Plant or any part or property thereof, or arising or resulting from any act or omission of San José or Santa Clara or their respective officers, agents, employees or contractors, in the control, administration, construction, expansions, installation, operation, maintenance or repair of said Plant or any part or property thereof, shall be mutually shared and paid for by First Parties and Agencies on the basis of operations and maintenance or capital costs, whichever is applicable. It is understood and agreed that First Parties in granting to Agencies certain discharge capacity rights in the Plant and to have wastewater treated and disposed of in said Plant, are not guaranteeing or warranting that the Plant will be able to satisfactorily treat such wastewater. In the event the Plant should for any reason other than by the gross negligence or intentional misconduct of First Parties be incapable of satisfactorily treating wastewater discharge into the Plant by Agency or First Parties, First Parties shall in no way be liable to Agency for any damages arising or resulting from or suffered because of the failure of the Plant to satisfactorily receive, hold, treat or otherwise dispose of wastewater.

I. Compliance with Federal and State Laws and Regulations. Agency and First Parties agree to comply with any and all Federal, State, or local laws, the rules, regulations, standards and requirements of any Federal, State, or local board, commission, agency or similar body, and the decisions of any court or competent jurisdiction which must be complied with to enable First Parties to qualify for Federal or State grants for the construction, improvement, administration, operation, maintenance, or repair of the Plant.

J. Assignment. Agency shall not assign or transfer any interest nor the performance of any of Agency’s obligations hereunder without the prior written consent of First Parties, and any attempt by Agency to so assign this Agreement or any rights, duties or obligations arising hereunder without written consent shall be void and of no effect.

K. Successors and Assigns. It is mutually agreed by all the parties hereto that the agreements, covenants, conditions, limitations, restrictions and undertakings herein contained shall, subject to

21 1245747_2

the provisions as to assignment, apply to and bind the successors and assigns of the respective parties hereto as if they were in all cases named.

L. Waivers. One or more waivers of any term, covenant or condition by either party shall not be construed as a waiver of a subsequent breach of the same or any other term, covenant or condition and the consent or approval by either party to any act shall not be deemed to waive or render unnecessary either party’s consent or approval for any subsequent similar act by the other party.

M. Performance and Time to be of The Essence.

It is understood and agreed that full and faithful compliance with and performance of each and every covenant and provision of this Agreement by the party or parties required to comply with or perform each such covenant or provision is and shall be of the essence; also that time is and shall be of the essence; also that such full and faithful compliance with and performance of each and every covenant and provision of this Agreement shall be deemed to be a material condition of this Agreement.

N. Insurance.

First Parties shall at all times maintain with responsible insurer or insurers sufficient insurance against loss or damage to the Plant as is customarily maintained with respect to loss and property of like character. Each party hereto shall be named as a co-insured. First Parties shall maintain with a responsible insurer or insurers, workmen’s compensation insurance and insurance against public liability and property damage. The premiums on all such insurance shall be a part of maintenance and operating expenses.

O. Titles and Headings.

The sub-heading and titles of this Agreement are inserted for the convenience of reference only and shall not be taken or considered as having any bearing on the interpretation thereof.

P. Notices.

All notices shall be mailed to the address designated beneath the signatures of the parties hereto or as subsequently designated in writing by the parties.

Comment [A1]: This provision does not reflect current practice, and will need to be modified prior to execution for accuracy. Risk Management must evaluate risk and loss if need to provide for change to current practice.

22 1245747_2

PART VIII

SPECIAL PROVISIONS

A. Termination of Agreements.

It is mutually agreed by all parties hereto that the following agreements heretofore entered into between the CITY OF SAN JOSE and the WEST VALLEY SANITATION DISTRICT (formerly COUNTY SANITATION DISTRICT NO. 4); or between the CITY OF SANTA CLARA and COUNTY SANITATION DISTRICT #4WEST VALLEY SANITATION DISTRICT; or between the COUNTY SANITATION DISTRICT #4WEST VALLEY SANITATION DISTRICT, and both the CITY OF SAN JOSE and the CITY OF SANTA CLARA relating to the Plant, and any and all supplements, addendums, changes, or amendments thereto, are herebyhave been terminated. 6. Agreement By and Between the Cities of San Jose, Santa Clara, and County

Sanitation District No. 4 Providing Interim Allocation of Treatment Capacity, dated April 13, 1981.

5. Settlement Agreement By and Between the Cities of San Jose, Santa Clara, and

County Sanitation District No. 4, dated January 14, 1981. 4. Agreement between Cities of San Jose, Santa Clara, and County Sanitation

District No. 4 Relating to Sharing of Operating Costs of The Sewage Treatment Plant, dated April 29, 1976.

3. Agreement Providing for the Sharing of Cost to be Incurred in Connection with

the Employment of a Consultant for the Preparation of a Study for Ultimate Disposition of South San Francisco Bay Waste Water, dated May 26, 1970.

2. Agreement Supplementing Agreements with CSD #4 and Cupertino Sanitary

District and City of Santa Clara, dated June 1, 1966. 1. Agreement between Cities of San Jose and Santa Clara and County Sanitation

District No. 4 Relating to Sewage Treatment Plant, dated April 1, 1965.

B. Annexation And Detachments

1. GENERAL.

It is contemplated that territories within the boundaries of Agency will become either annexed, consolidated, or otherwise a part of either of the First Parties. It is agreed by First Parties and Agency that when any Agency territory becomes a part of either of the First Parties, Agency will do all that it can legally do to facilitate the detachment of such territory from Agency. In no event shall Agency be obligated to initiate detachment proceedings.

23 1245747_2

2. TRANSFER OF CAPACITY RIGHTS.

Agency shall, when any Agency territory becomes a part of either of First Parties and is detached from Agency, transfer to First Parties capacity rights as specified in Exhibit “G”.

3. PAYMENTS FOR TRANSFER OF CAPACITY RIGHTS.

The capacity rights being used by existing developments in a territory being transferred from Agency to either of First Parties shall be computed using the parameters of Agency’s actual discharge into the Plant and the amounts subtracted from the amounts of capacity rights to be transferred to determine the amount of unused capacity rights. First Parties shall pay Agency an amount as specified in Exhibit “F””G”for the unused capacity rights transferred to either of the First Parties. Payment shall be made within ninety (90) days of detachment of territory from Agency. If the capacity rights being used by existing developments in a territory being transferred from Agency to either of First Parties exceeds the amount of capacity rights being transferred, First Parties shall be credited an amount as specified in Exhibit “G” for the excess used capacity. Credits shall be applied to future payments to be made by the First Parties to the Agency pursuant to this Section.

IN WITNESS WHEREOF, FIRST PARTIES, and WEST VALLEY SANITATION DISTRICT have caused this AMENDMENT AND RESTATEMENT OF MASTER AGREEMENT as to be executed in their respective names and their respective seals to be affixed hereunto by their duly authorized officers, all as of the date first above written.

APPROVED AS TO FORM CITY OF SAN JOSE, a municipal

corporation __________________________ ____________________________ ROSA TSONGTAATARII TONI TABER, CMC Senior Deputy City Attorney City Clerk 200 East Santa Clara Street San José, CA 95113-1905 APPROVED AS TO FORM CITY OF SANTA CLARA, a municipal

corporation __________________________ _________________________________ RICHARD E. NOSKY JR. ROD DIRIDON JR. City Attorney City Clerk 1500 Warburton Avenue Santa Clara, CA 95050

24 1245747_2

APPROVED AS TO FORM WEST VALLEY SANITATION

DISTRICT __________________________ _________________________________

A-1 1245747_2

EXHIBIT A

SAN JOSE-SANTA CLARA REGIONAL WASTEWATER FACILITY

TREATMENT PLANT CAPACITY ALLOCATIONS

Table 1 - 167 MGD Plant, Intermediate Term Improvements and First Stage Expansion.

Table 1 contains the Agencies’ and First Parties’ treatment plant capacities achieved by

implementation of the Intermediate-term Improvements and First Stage Expansion. Increased

capacity was allocated only to those Agencies that elected to participate in Plant expansion to

167 MGD. Milpitas was allocated 4 MGD of the 24 MGD expansion, and the First Parties’

share the remaining 20 MGD based on assessed valuation. BOD, SS, and Ammonia capacities

were allocated in the same proportion as Flow.

Table 2 – 167 MGD Plant, after transfer of capacity to Milpitas from West Valley and Cupertino.

Table 2 shows the Agencies’ and First Parties’ treatment plant capacities effective with the

transfer of 0.75 MGD from Cupertino to Milpitas with prorated shares of Suspended Solids and

Ammonia, but excludes any prorated share of Biochemical Oxygen Demand effective January 1,

2009. On July 1, 2006, West Valley Sanitation District transferred 1 MGD of flow with 2.430

KLBS/Day Biochemical Oxygen Demand, 2.308 KLBS/Day Suspended Solids, and 0.242

KLBS/Day Ammonia capacity to Milpitas. The other Agencies’ capacities remain the same as in

the 143/167 MGD Plant.

Table 3 – 167 MGD Plant, after annexations from West Valley and Sunol into San José.

Table 3 shows the Agencies and First Parties’ treatment plant capacities effective June 30, 2014

with the transfer of capacity associated with annexations into San José from West Valley in

2007-2013, and Sunol in November 30, 2009. The other Agencies’ capacities remain the same

as in the 143/167 MGD Plant.

A-2 1245747_2

TABLE 1


167 MGD PLANT

SUMMARY OF CAPACITY ALLOCATION*

(Intermediate-Term, First Stage Expansion & South Bay Water Recycling Improvements

Implemented)

AGENCY FLOW MGD BOD K LBS/DAY

SS K LBS/DAY

AMMONIA K LBS/DAY

San Joséa 110.800 390.393 346.342 34.332 Santa Claraa 21.298 75.042 66.575 6.599 Subtotalb 132.098 465.435 412.917 40.931 West Valley 13.052 31.713 30.120 3.156 Cupertino 8.600 16.419 17.856 2.506 Milpitas 12.500 24.819 22.125 2.386 Burbank 0.400 0.815 0.853 0.297 Sunol 0.350 1.799 2.129 0.324 Subtotal 34.902 75.565 73.083 8.669 TOTAL 167.000 541.000 486.000 49.600

*The term “capacity” is defined as the mean peak five-day dry weather plant treatment capacity.

Note(s): a. San José and Santa Clara allocations vary annually according to assessed property value; values shown are effective as of January 1, 2009.

b. CSD 2-3 rents capacity from San José and Santa Clara. Allocations vary annually depending flow from CSD 2-3.

Revised A-3 1245747_2

TABLE 2


167 MGD PLANT

SUMMARY OF CAPACITY ALLOCATION* (After transfer of capacity to Milpitas from West Valley in July 1, 2006, and Cupertino in January 1, 2009)


SS K LBS/DAY

AMMONIA K LBS/DAY

San Joséa 110.800 390.393 346.342 34.332 Santa Claraa 21.298 75.042 66.575 6.599 Subtotalb 132.098 465.435 412.917 40.931 West Valley 12.052 29.283 27.812 2.914 Cupertino 7.850 16.419 16.299 2.287 Milpitas 14.250 27.249 25.990 2.847 Burbank 0.400 0.815 0.853 0.297 Sunol 0.350 1.799 2.129 0.324 Subtotal 34.902 75.565 73.083 8.669 TOTAL 167.000 541.000 486.000 49.600

*The term “capacity” is defined as the mean peak five-day dry weather plant treatment capacity. Note(s):

a. San José and Santa Clara allocations vary annually according to assessed property value. The values shown are effective as of January 1, 2009.


Revised A-4 1245747_2

TABLE 3


167 MGD PLANT

SUMMARY OF CAPACITY ALLOCATION*

(June 30, 2014)


SS K LBS/DAY

AMMONIA K LBS/DAY

San Joséa,c 109.555 385.994 342.915 34.106 Santa Claraa 23.248 81.912 72.770 7.238 Subtotalb 132.803 467.906 415.685 41.344 West Valleyc 11.697 28.611 27.173 2.825 Cupertino 7.850 16.419 16.299 2.287 Milpitas 14.250 27.249 25.990 2.847 Burbank 0.400 0.815 0.853 0.297 Subtotal 34.197 73.094 70.315 8.256 TOTAL 167.000 541.000 486.000 49.600 *The term “capacity” is defined as the mean peak five-day dry weather plant treatment capacity. Note(s):

a. San José and Santa Clara allocations vary annually according to assessed property value. The values shown are effective as of June 30, 2014.


c. San José and West Valley Sanitation District allocations reflect the transfer of capacity associated with annexations from the District into San José from 2007-2013.

B-1 1245747_2

EXHIBIT B

9/18/15

SAN JOSE-SANTA CLARA REGIONAL WASTEWATER FACILITY REPLACEMENT COST OF PLANT AND EQUIPMENT

JUNE 2014

ACQUISITION ORIGINAL REPLACEMENT FACILITY DATE COST COST

Asset #1 - Original primary plant 1958 3,786,400 45,876,200 Asset #2 - Plant Additions 1960 1,370,200 15,269,000 Asset #3 - Plant Additions & New

Secondary Facility 1963 24,166,800 258,656,700 Asset #4 - Final Tank 1965 1,183,000 11,053,800

Asset #5 - Digesters

1966 993,600 8,419,400

Other Projects:

1965-66

1965 103,900 970,800

1966-67

1966 253,800 2,150,600 1967-68

1967 24,200 187,600

1968-69

1968 322,100 2,300,800 1969-70

1969 59,900 396,700

1970-71

1970 102,700 634,000

Sludge Lagoons

1968 839,000 5,993,000

Foam Flotation Program 1970 23,000 142,000 1970 94/MGD Improvements 1970 5,809,400 35,865,200 1970 66/MGD Additions 1970 23,049,000 142,296,600 A.W.T.F.

1977 62,810,900 219,021,500

Other Projects:

1977-78

1977 745,500 2,599,600

1978-79

1978 312,200 997,300 1979-80

1979 1,421,100 4,292,200

1980-81

1980 1,962,300 4,992,300 1981-82

1981 535,200 1,325,800

1982-83

1982 1,777,765 3,770,200

CAPITAL IMPROVEMENT PROGRAM:

Intermediate-term Improvement 1987 88,699,500 175,232,300 First Stage Expansion 1987 20,035,100 39,580,800 1987 Capitalized Expenditures 1987 894,900 1,767,900 1989 Capitalized Expenditures 1989 527,473 1,002,300 1990 Capitalized Expenditures 1990 823,720 1,485,800 1991 Capitalized Expenditures 1991 114,902 204,300 1992 Capitalized Expenditures 1992 407,154 708,700 1993 Capitalized Expenditures 1993 1,291,825 2,188,600 1994 Capitalized Expenditures 1994 255,378 424,500

B-2 1245747_2

1995 Capitalized Expenditures 1995 10,595,576 17,651,200 1996 Capitalized Expenditures 1996 3,396,270 5,650,100 1997 Capitalized Expenditures 1997 9,320,130 15,161,500 1998 Capitalized Expenditures 1998 2,829,981 4,559,800 1999 Capitalized Expenditures 1999 133,138,713 212,724,200 2000 Capitalized Expenditures 2000 2,464,590 3,749,200 2001 Capitalized Expenditures 2001 3,866,326 5,687,800 2002 Capitalized Expenditures 2002 930,265 1,323,300 2003 Capitalized Expenditures 2003 1,663,511 2,324,100 2004 Capitalized Expenditures 2004 3,321,630 4,443,200 2005 Capitalized Expenditures 2005 665,760 877,300 2006 Capitalized Expenditures 2006 2,096,762 2,707,600 2007 Capitalized Expenditures 2007 1,197,306 1,439,900 2008 Capitalized Expenditures 2008 68,856,165 81,431,200 2009 Capitalized Expenditures 2009 86,452,121 96,787,700 2010 Capitalized Expenditures 2010 5,337,506 5,871,000 2011 Capitalized Expenditures 2011 4,237,725 4,537,800 2012 Capitalized Expenditures 2012 14,961,081 15,701,600 2013 Capitalized Expenditures 2013 24,009,116 25,189,500 2014 Capitalized Expenditures 2014 909,001 909,000

TOTAL 624,951,452 1,498,533,500*

(*) Plant and equipment replacement cost is distributed to parameters using the percentages contained in the most current Revenue Program (Form No. 8, Summary of the Distribution of Capital Costs).

NOTE:

A. Major plant facilities or equipment items shall be added to this Exhibit in the year purchased. Construction projects shall be added to this Exhibit in the year of acceptance at full construction value.

B. Process related facilities and equipment that cost in excess of $2 million shall be allocated to parameters (flow, BOD, SS, Ammonia) based on engineering design. Capital costs that are less than $2 million and/or are not process related shall be allocated to parameters using the percentages contained in the most current Revenue Program (Form 8, Summary of Distribution of Capital Costs).

C. This Exhibit shall not include replacement or rehabilitation costs.

D. Facilities and equipment sold or otherwise disposed shall be deleted from this Exhibit.

E. This Exhibit shall be updated annually using the June ENR (San Francisco) Construction cost index.

C-1 1245747_2

EXHIBIT C


LAND DISTRIBUTION

1. Table 1 includes the original land purchase price for each parcel purchased before

June 30, 1982 (“Pre-1982 Land.”). The San José’s average yearly rate of return for

all investments was applied to this amount and compounded to establish a June 30,

1982 value for all Pre-1982 Land.

2. Land participation for Pre-1982 Lands was based upon the 167 MGD capacity of

the Plant (Flow BOD, Suspended Solids and Ammonia). Percentage of participation

in Pre-1982 Land is based upon the total acreage and not on an individual parcel

basis.

3. Agencies which still owe San José and West Valley Sanitation District for their

allocated share of cost for Pre-1982 Land shall pay all the costs of this land from sale,

lease or rental revenues to be received from the Regional Wastewater Facility

properties. Percentage of revenue shall be based upon each Agency’s full capacity

percentage. The Pre-1982 Land costs will be paid off only from sale, lease, or rental

revenues of the Plant property and shall have no fixed term. Table 2 shows First

Parties’ and Agencies’ allocations and amounts/credits due for Pre-1982 Land costs

as of June 30, 2014.

4. Table 3 shows the original purchase price, date of purchase and cost allocation for all

land purchased on or after July 1, 1982 (“Post 1982 Land”). Cost allocation in Post

1982 Land was based on the flow and wastewater strength allocations for First Parties

and participating Agencies, except for land purchased for recycled water facilities,

which is based on flow allocation only.

5. Table 4 shows the percentage participation in Pre-1982 Land and Post-1982 Land for

First Parties and Agencies effective June 30, 2014 including, the annexation of Sunol

into San José on November 30, 2009, the annexation of territory from West Valley

into San José from 2007-2013, the transfer of land equivalent to 0.75 MGD capacity

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from Cupertino to Milpitas effective January 1, 2009, and the transfer of land

equivalent to 1 MGD from West Valley to Milpitas effective July 1, 2006.

6. Sale, lease or rental revenues from Regional Wastewater Facility property shall be

first applied to an Agency’s debt, and only upon completion of that debt, will

revenues be passed on to the Agency.

7. If and when expansion of the facilities takes place in the future, land values shall

again be adjusted based upon the new MGD denominator. Each Agency’s percentage

of participation in land shall, at that time, be recomputed based upon total land cost

shown in the applicable Land Cost Allocation.

8. All purchases of land in the future shall be distributed to all Agencies in the

percentage of discharge capacity at the Plant, except that land purchased for recycling

improvements shall be based on the Agencies’ and First Parties’ purchased capacity

in the 167 MGD Plant for the flow parameter only.

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LAND COST ALLOCATION METHODOLOGY

1. Attachment A is a Regional Wastewater Facility Property map.

2. Table 1 includes the original land purchase price for each parcel purchased before

June 31, 1982. This amount was then applied to San José’s average yearly rate of

return for all investments and compounded to establish a June 30, 1982 value for the

Pre-1982 Land.

3. Table 2 shows the First Parties’ and Agencies’ share of Pre-1982 land Costs. Table 2

also shows the amounts still due or owing by First Parties and Agencies for Pre-1982

Land Costs, as of June 30, 2014.

4. Table 3 shows the land allocation for First Parties and Agencies for all land purchased

on or after July 1, 1982, based on the amount actually paid by First Parties and

Agencies for land purchased on or after July 1, 1982.

5. Table 4 shows the land participation allocation for First Parties and Agencies as of

June 30, 2014 including, the annexation of Sunol into San José on November 30,

2009, the annexation of territory from West Valley into San José from 2007-2013, the

transfer of land equivalent to 0.75 MGD capacity from Cupertino to Milpitas

effective January 1, 2009, and the transfer of land equivalent to 1 MGD from West

Valley to Milpitas effective July 1, 2006. The transfer of capacity and adjusted land

allocation percentages shall not affect the amounts due or owing by Agencies for Pre-

1982 Land Costs.

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Attachment A Regional Wastewater Facility Property Map

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TABLE 1


PRE-1982 LAND PURCHASES

Pre-1982 Purchases Parcel

Acres Original Cost Purchase Date

Cost*

Berger Williamson 43.668 $ 15,284 8/49 $ 88,282 Coolidge Quitclaim - - 150 3/52 805 John R. Watrous 106.747 101,043 7/54 490,206 John R. Medina 16.970 15,067 8/54 73,106 Other Costs (Easement-Condemnation)*

- - 23,468 1956-57 106,183

Curtner-Zanker .776 1,000 7/55 5,082 Los Altos Garbage 2.045 1,000 8/55 4,692 James Clayton 181.680 182,160 4/58 795,944 A. M. Standish .197 120 10/61 457 Spring Valley .180 50 4/62 189 Beatrice Standish 39.888 55,109 7/62 202,258 Other Costs (Unallocated)* - - 603 3/65 2,048 Nine-Par 46.970 201,515 1/68 596,405 A. L. Kricheberg 41.13 162,170 4/69 452,708 Anselmo-Campi 34.48 208,771 7/69 541,583 Casteel 117.78 932,240 11/69 2,418,376 Chisolm-Hopham Parcel 5,232 8/70 12,738 Rankin-Gilman Parcel 600 8/70 1,461 Owens-Corning 3.16 23,743 11/70 57,801 Standish 630.0 2,831,034 4/71 6,892,016 Owens-Corning 2.58 17,133 6/71 41,713 Phillips-Bosio Parcel 2,136 12/71 4,943 Zanker Ranch 145.7 1,496,478 8/72 3,446,515 Garcia 19.54 236,328 12/72 517,884 Martin-Moore 16.47 200,446 1/73 439,257 Tempco 12.33 327,153 7/75 566,730 County of Santa Clara Parcel 4,495 1975-76 7,788 County of Santa Clara 2.98 13,476 4/76 20,716 Brazil 54.546 513,359 7/76 841,819 McCarthy (lst) 43.0 483,880 12/76 793,479 McCarthy (2nd) 43.0 483,879 4/77 793,478 McCarthy (3rd) 43.0 483,879 1/78 743,861 Other Costs (Unallocated) - - 47,693 1978-79 67,043 Calvo 58.415 586,405 1/78 901,473 Leslie Salt Parcel 820 9/78 1,153 Graham-Cassin 52.8 3,339,932 8/80 3,775,793 Geomax 4.2 273,972 1/81 291,849 TOTAL 1,764.23** $13,271,823 $25,997,834 *Represents costs not allocable to a specific land purchase (e.g., appraisal of land not purchased). **Acreage has been and will be reduced by the following completed and pending conveyances:

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• Santa Clara Valley Water District - flood control easement dated November 25, 1986.

• State of California – 14.8 acres for widening of State Route 237, Grant Deed dated March

17, 1997. • PG&E - various completed and pending easements. • Los Esteros Critical Energy Facility - access road easement conveyed November 3,

2003, pursuant to Conveyance Agreement dated November 22, 2002, as amended May 4, 2005; open space easement and pole line license pursuant to Conveyance Agreement dated pending as of March 2006.

• City of Santa Clara, Silicon Valley Power, electric transmission line easement pursuant to

Conveyance Agreement dated July 15, 2003, pending as of March 2006. • Various Agency sanitary sewer trunk line easements.

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TABLE 2


LAND COST ALLOCATION

PRE-1982 PURCHASES

AGENCY % SHARE

AMOUNT SHOULD HAVE PAID 1982 DOLLARS

AMOUND PAID 1982 DOLLARS

AMOUNT PAYABLE <DUE> AS OF JUNE 30, 2014

San Joséa 66.494 $17,287,000 $19,144,541 <$439,491>

Santa Clara 15.620 $4,060,862 $3,234,047 $0

West Valleya,b 6.472 $1,822,188 $1,945,035 <$30,449>

Cupertinob 4.074 $1,160,283 $1,141,582 $0

Milpitas b 7.092 $1,603,026 $523,426 $439,549

Burbank 0.248 $64,475 $9,203 $30,391

TOTAL 100% $25,997,834 $25,997,834

County Sanitation District 2-3 rents capacity from San José and Santa Clara. The rental agreement does not entitle it to share in land revenue.

Note(s):

a. San José allocation reflects the annexation of Sunol into San José in November 30, 2009, and annexation of territory from West Valley into San José in 2007-2013.

b. Milpitas allocation reflects the capacity transfer from West Valley effective July 1, 2006, and from Cupertino effective January 1, 2009.

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TABLE 3


LAND COST ALLOCATION POST-1982 LAND PURCHASES

AGENCY SOUTH Bay Water Recycling Phase 1 easements $265,000; 1996-1997)

Moseley Tract (56 acres; $460,000; 9/96)

McCarthy Ranch (6 acres; $6,534,000; 8/00)

Cargill Pond A-18 (856 acres; $13,301,250; 10/05)

Silver Creek Reservoir (4.839 acres fee; 1.97 acres permanent easement; $7,800,000; 3/05)

San Joséa 64.869% 67.923% 67.385% 67.331% 64.869%

Santa Clara 14.440% 14.511% 15.049% 15.103% 14.440%

West Valleya,b 7.816% 6.928% 6.928% 6.928% 7.816%

Cupertinob 5.150% 4.360% 4.360% 4.360% 5.150%

Milpitasb 7.485% 6.040% 6.040% 6.040% 7.485%

Burbank 0.240% 0.238% 0.238% 0.238% 0.240%

TOTAL 100% 100% 100% 100% 100%


Note(s):



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TABLE 4


LAND PARTICIPATION ALLOCATION

(June 30, 2014)

AGENCY Pre-1982 Land

Moseley Tract , McCarthy, Cargill Pond A-18

South Bay Water

San Joséa 66.494 67.923% 64.869%

Santa Clara 15.620 14.511% 14.440%

West Valleya,b 6.472 6.397% 7.217%

Cupertinob 4.074 3.980% 4.701%

Milpitasb 7.092 6.951% 8.533%

Burbank 0.248 0.238% 0.240%

TOTAL 100% 100% 100%


Note(s):



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EXHIBIT D


PARTICIPATION IN MAJOR PROCESS RELATED IMPROVEMENTS

Intermediate Term Improvements and First Stage Expansion The construction and design cost of the Intermediate-term Improvement Project for restoration of the Plant capacity to 143 MGD was Eighty-Nine Million Three Hundred Thousand Two Hundred and Thirty Dollars ($89,300,230.00). The construction costs and design cost of the First Stage Expansion Project for expansion of Plant capacity to 167 MGD was Twenty-Seven Million Eighty-Four Thousand Eight Hundred and Four Dollars ($27,084,804.00). Agency has fully paid all amounts due for its capacity in the Intermediate Term Improvements and the First Stage Expansion Project. Water Recycling Improvements In October 1991, the Regional Water Quality Control Board (RWQCB) approved the San José Action Plan which included development of a reclamation program to reclaim a portion of the San José/Santa Clara Regional Wastewater Facility’s (Plant) effluent, thereby providing an alternative to discharging treated effluent to South San Francisco Bay (Bay). In October 1993, the RWQCB incorporated the Action Plan into the Plant’s NPDES permit. The South Bay Recycling Program (SBWRP) is intended to satisfy this permit requirement. Implementation of the SBWRP has been divided into two phases. Under the Phase 1, Water Recycling Program, approximately 9,000 acre-feet per year (up to 21.1 million gallons per day) of recycled water will be produced and distributed beginning in November 1997. The budgeted cost of Phase I was $139,840,000. Construction of Phase II is now underway, with an estimated cost of $100,000,000. On January 12, 1995, TPAC approved a cost sharing method whereby First Parties and Agencies would participate in payment for the Water Recycling Program based on their respective flows to the Plant. Table 1 contains First Parties’ and Agencies’ allocation of Phase 1 recycling costs, as of January 12, 1995. Table 2 contains First Parties and Agencies share of Phase 2 Recycling costs, as of January 12, 1995. The final Phase 2 cost allocation will be adjusted to reflect the actual cost when construction of the Phase 2 facilities is competed. First Party Santa Clara and Milpitas elected to cash fund their share of the Phase 1 Recycling Costs. However, effective January 1, 2009, Milpitas assumed the obligations of Cupertino, with respect to a portion of Cupertino debt service obligations for Recycling Cost. Table 3 shows the debt service allocation for the bond issued by San José for Phase 1 costs for First Party San José, and all Agencies including Milpitas, as of January 1, 2009.

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Milpitas also elected to cash fund its share of the Phase 2 Recycling Costs. First Parties and all other Agencies chose to utilize State Revolving Loan Fund proceeds for their share of the Phase 2 Recycling costs. However, effective January 1, 2009, Milpitas assumed the obligations of Cupertino, with respect to a portion of Cupertino debt service obligations for Phase 2 Recycling Costs. Table 4 shows the debt service allocation for the SRLF proceeds, as of January 1, 2009. Long-Term Improvements On May 14, 2015, TPAC approved the San José -Santa Clara Regional Wastewater Facility Ten-Year Funding Strategy (“Funding Strategy”) whereby First Parties and Agencies participate in the funding of Long-Term Improvements proportionately based on their capacity allocations detailed in Table 1 of Exhibit A, as may be amended. The Funding Strategy contemplates the Administering Agency, pursuing Clean Water State Revolving Fund (“SRF”) loans to the maximum extent possible to finance the Long-Term Improvements. If Agency elects to finance its proportionate share of the costs of the Long-Term Improvements through SRF, short term financing, and long term financing obtained by First Parties or Administering Agency, Agency agrees to execute and deliver to the Administering Agency the necessary documentation to secure such financing and Agency’s repayment thereof. In the event that all or a portion of financing for the Long-Term Improvements is secured through a short-term variable rate financing program, Agency acknowledges and agrees that any participating Agency will be responsible for its proportionate cost for establishing the financing program based on the total amount to be financed by Agency through the short-term variable rate financing program relative to the total dollar size of the program. Any Agency that requests participation in the program after the deadline established by the Administering Agency for participation may incur additional expenses associated with accommodating the Agency. Agencies that choose to participate in the program can cease their participation upon repayment of the funds and associated costs. Agency acknowledges and agrees that its participation in any financing obtained by First Parties or the Administering Agency, including amount financed, debt service and repayment scheduled shall be memorialized in a supplemental financing agreement. Any supplemental financing agreement shall be executed prior to or contemporaneous with the closing of the financing. Notwithstanding the terms and conditions of this Agreement, the process for asserting a claim for breach of the supplemental financing agreement such as nonpayment shall be governed by the provisions of the supplemental financing agreement. If Agency shall fail to make payment when due for their portion of the financing, Agency agrees First Parties shall have the right to institute an action for damages sustained as a result of any such default and shall have the right by mandamus or other proceeding at law or in equity to enforce their rights against Agency and to compel Agency and its officers or employees thereof to perform and carry out their obligations and duties under this Agreement, and any supplemental financing agreement. No remedy conferred upon or reserved to First Parties is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, any supplemental financing agreement, existing at law or in equity or by statute. First Parties or San Jose, as the Administering Agency,

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shall provide the Agency notice of payment past due at least thirty (30) calendar days prior to instituting an action for damages.

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TABLE 1


Participation in South Bay Water Recycling Program Phase 1 Capital Costs

Agency Percent Phase 1 Budgeted Costs City of San Joséa,b 64.007% $89,507,389. City of Santa Clarab 14.292% $19,985,933 West Valley Sanitation Districta,c 7.816% $10,929,894 Cupertino Sanitary Districtc 5.150% $7,201,760 City of Milpitasc 7.485% $10,467,024 County Sanitation District 2-3* 1.010% $1,412,384 Burbank Sanitary District .240% $335,616

TOTAL

100%

$139,840,000

*County Sanitation District 2-3 (CSD 2-3) has entered into an agreement with FIRST PARTIES for sharing Regional Wastewater Facility costs on a different basis than the other AGENCIES. The agreement provides for adjusting payments to reflect changes in CSD 2-3’s flow and loadings. The agreement between CSD 2-3 and FIRST PARTIES do not affect the other AGENCIES participation in the South Bay Water Recycling Program Phase 1 capital costs. Note(s): a. San José allocation reflects the annexation of Sunol into San José in November 30, 2009, and

annexation of territory from West Valley into San José in 2007-2013.

b. San José and Santa Clara allocations vary annually according to assessed property value; values shown are effective as of June 30, 2014.

c. Milpitas allocation reflects the capacity transfer from West Valley effective July 1, 2006, and from Cupertino effective January 1, 2009.

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TABLE 2 SAN JOSE-SANTA CLARA REGIONAL WASTEWATER FACILITY

Participation in South Bay Water Recycling Program

Phase 2 Capital Cost

Agency Percent Phase 2 Estimated Costs

City of San Joséa,b 64.007% $64,007,000 City of Santa Clarab 14.292% 14,292,000 West Valley Sanitation Districta,c 7.816% 7,816,000 Cupertino Sanitary Districtc 5.150% 5,150,000 City of Milpitasc 7.485% 7,485,000 County Sanitation District 2-3* 1.010% 1,010,000 Burbank Sanitary District .240% 240,000

TOTAL

100%

$100,000,000 *County Sanitation District 2-3 (CSD 2-3) has entered into an agreement with FIRST PARTIES for sharing Regional Wastewater Facility costs on a different basis than the other AGENCIES. The agreement provides for adjusting payments to reflect changes in CSD 2-3’s flow and loadings. The agreement between CSD 2-3 and FIRST PARTIES do not affect the other AGENCIES participation in the South Bay Water Recycling Program Phase 2 capital costs. Note(s): a. San José allocation reflects the annexation of Sunol into San José in November 30, 2009, and

annexation of territory from West Valley into San José in 2007-2013.

b. San José and Santa Clara allocations vary annually according to assessed property value; values shown are effective as of June 30, 2014.

c. Milpitas allocation reflects the capacity transfer from West Valley effective July 1, 2006, and from Cupertino effective January 1, 2009.

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TABLE 3 SAN JOSE-SANTA CLARA REGIONAL WASTEWATER FACILITY

PHASE 1 RECYCLING DEBT ALLOCATION

Series 2005 A Refunding Bonds - Principal $54,020,000; last payment due November 15, 2016 Series 2005 B Refunding Bonds - Principal $27,130,000; last payment due November 15, 2020 San Joséa West Valley Cupertino Milpitas District 2-3 Burbank 80.356% 10.594% 6.734% 0.643% 1.436% .237% Series 2009 A Refunding Bonds - Principal $21,420,000; last payment due November 15, 20201 San Joséa Milpitas District 2-3 Burbank 97.198% 0.778% 1.737% 0.287% Note(s): a. San José allocation reflects the annexation of Sunol into San José in November 30, 2009.

1 The 2009 Refunding Bonds were issued on January 29, 2009 in the Principal Amount of $21,420,000 for the purpose of refinancing the 2005B Refunding Bonds. On January 20, 2009, Cupertino made cash payment in the amount of ONE MILLION EIGHT HUNDRED TWENTY- SIX THOUSAND EIGHT HUNDRED FORTY-TWO DOLLARS ($1,826,842.00) to redeem its portion of the 2005B Refunding Bonds. Accordingly, Cupertino has no further obligation for 2005B Refunding Bonds and no obligation for 2009A Refunding Bonds. On January 20, 2009, West Valley made a cash payment in the amount of TWO MILLION EIGHT HUNDRED SEVENTY-FOUR THOUSAND ONE HUNDRED FIFTY-TWO DOLLARS and TWENTY CENTS ($2,874,152.20) to redeem its portion of the 2005B Refunding Bonds. Accordingly, West Valley has no further obligation for 2009A Refunding Bonds.

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TABLE 4

SAN JOSE-SANTA CLARA REGIONAL WASTEWATER FACILITY STATE REVOLVING LOAN FUND DEBT ALLOCATION FY 1998 thru 2019

Annual Debt

Service Annual Annual Annual Annual Annual Annual Annual Annual

Repayment Payment San José Santa Clara Milpitas West Valley

Cupertino Sanitation District 2-3

Burbank Sunol

Period(s) 100.000% 68.998% 15.409% 0.000% 8.448% 5.567%

1.092% 0.259% 0.227%

FY 1998/1999 $1,661,799 $1,146,608 $256,067 - $140,389 $92,512 $18,147 $4,304 $3,772 FY 1999/2000

thru 2007/2008

$4,463,882 $3,079,989 $687,840 - $377,109 $248,504 $48,746 $11,561 $10,133

Annual Debt Service

Annual Annual Annual Annual Annual Annual Annual Annual



Burbank Sunol

Period(s) 100.000% 68.998% 15.409% 0.486%a 8.448% 5.081%

1.092% 0.259% 0.227%

FY2008/2009 $4,463,882 $3,079,989 $687,840 $21,694 $377,109 $226,810 $48,746 $11,561 $10,133 Annual Debt

Service Annual Annual Annual Annual Annual Annual Annual Annual



Burbank Sunol

Period(s) 100.000% 69.225% 15.409% 0.486%a 8.448% 5.081%

1.092% 0.259% 0.000%b

FY2009/2010 Thru

FY2017/2018

$4,463,882 $3,090,122 $687,840 $21,694 $377,109 $226,810 $48,746 $11,561 -

FY 2018/2019 $1,804,020 $1,248,833 $277,981 $8,768 $152,404 $91,662 $19,700 $4,672 - Note(s): a. Milpitas shall be responsible for 0.486% of the debt service repayment, which is prorated share of the Cupertino payment due on or after

January 1, 2009.

b. San José allocation reflects the annexation of Sunol into San José in November 30, 2009.

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EXHIBIT E

ADMINISTERING AGENCY

A. San José to be Administering Agency. It is mutually agreed that the City of San José is and shall be the Administering Agency of this Agreement, and, as such, shall execute and administer this Agreement.

B. Powers and Duties of Administering Agency, Scope, and Exercise. Subject to such limitations as may be imposed in this Agreement, the Administering Agency shall have the following powers and duties:

1. To maintain, repair, expand, replace, improve and operate the treatment Plant, and to do any and all things which it shall find to be reasonably necessary, with respect to its maintenance, repair, expansion, replacement, improvement and operation (subject to the provision of funds therefor in accordance with the provisions of this Agreement), to treat and dispose of all sewage (and by-products thereof) of San José and Santa Clara and of any and all "Outside Users" now or hereafter authorized to discharge or convey sewage into or to said treatment plant or any sewer lines leading thereto, so that said sewage and all effluent from said Plant will not pollute the waters of San Francisco Bay, or any other waters, and so that said sewage will be disposed of in a manner authorized by law.

2. To make, award and enter into contracts with third parties for the construction, improvement, replacement, expansion, or repair of the Treatment Plant or any part or parts thereof. 3. To acquire, by purchase, condemnation or otherwise, any and all real or personal property which it should find to be reasonably necessary for Treatment Plant purposes.

4. To receive, be the depository for, expend and disburse, for the purposes of this Agreement, any and all funds or monies advanced, contributed or paid by the parties hereto to said Administering Agency pursuant to the provisions of this Agreement, together with all income collected from "Outside Users", all other Treatment Plant income, and all other Treatment Plant funds.

5. To keep accurate accounts of all receipts and disbursements of the above-mentioned funds and monies.

6. To provide and supply any and all personnel and services, including, but not limited to, legal, engineering and accounting services, which it should find to be reasonably necessary for the maintenance, repair, expansion, replacement, improvement and operation of said Treatment Plant, the cost and expense of providing such personnel

E-2 1245747_2

and services to be charged to and shared by San José and Santa Clara as part of operating or other Treatment Plant costs as elsewhere provided in this Agreement.

7. To exercise any and all other powers, common to both San José and Santa Clara, with respect to the maintenance, repair, expansion, replacement, improvement and operation of the Treatment Plant.

8. To do any and all things reasonably necessary to treatment and dispose of all sewage entering the Treatment Plant in such manner as will comply with all applicable laws and regulations.

9. To do any and all other things which the Administering Agency is required or authorized to do by other provisions of this Agreement.

C. Manner of Exercising Powers or Performing Duties. The manner in which the Administering Agency shall exercise its powers and perform its duties is and shall be subject to the restrictions upon the manner in which the City of San José could exercise such powers and perform such duties; and shall not be subject to any restrictions applicable to the manner in which the City of Santa Clara could exercise such powers or perform such duties.

D. Expenses of Administering Agency. It is mutually agreed that the City of San José shall be reimbursed from Treatment Plant funds for all costs and expenses incurred by it as Administering Agency of this Agreement, including, but not limited to, salaries, and wages paid by San José to its officers and employees for services rendered by them for Treatment Plant purposes. It is further agreed that San José shall be paid, from Treatment Plant funds, an amount equal to seventeen and three hundred thirteen one thousandths per cent (17,313%) of all the above mentioned salaries and wages as and for the following overhead expenses incurred by San José in furnishing said services and in administering this Agreement, to wit: payments made by San José for retirement benefits, payments made by San José for medical and hospital insurance covering officers and employees, miscellaneous overhead expenses of the auditing, purchasing and engineering departments of San José.

The percentage or amount of overhead allowance or expense payable to San José shall be increased or decreased from year to year to truly reflect actual overhead and incidental costs and expenses incurred by San José for Treatment Plant purposes to the extent that such costs and expenses are not included in other items of cost or expense for which San José is otherwise reimbursed from Treatment Plant Funds.

EXHIBIT F

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EXHIBIT G

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TRANSFER OF AND PAYMENT FOR CAPACITY RIGHTS ON ANNEXATION AND

DETACHMENT OF TERRITORY

Table 1 sets forth the amount of capacity rights to be transferred from Agency to First Parties on annexation of Agency territory by either of First Parties and detachment of territory from Agency.

Table 1


AMOUNT OF CAPACITY RIGHT TO BE TRANSFERRED ON ANNEXATION AND

DETACHMENT OF TERRITORY

Capacity Parameter Transfer Per Acre of Territory

Flow 759.60 GD

BOD 1.44 lbs/day

SS 1.37 lbs/day

Ammonia 0.19 lbs/day

Table 2 sets forth the amount of payment by First Parties to Agency for unused capacity transferred to First Parties on annexation of Agency territory by either of First Parties and detachment of the territory from Agency.

Table 2


AMOUNT PAYABLE FOR TRANSFER OF UNUSED CAPACITY RIGHTS ON

ANNEXATION AND DETACHMENT OF TERRITORY

Capacity Parameter Transfer Per Acre of Territory

Flow $0.79 per GD

BOD $191.35 per lbs/day

SS $230.45 per lbs/day

Ammonia $693.79 per lbs/day

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T A B L E O F C O N T E N T S

PART I DEFINITIONS…………………………………………………………………….1 PART II CAPACITY RIGHTS GRANTED TO AGENCY…………….………………….5

A. General. ........................................................................................................... 5 B. Capacity Rights. .............................................................................................. 5 C. San José/Santa Clara Regional Wastewater Facility Engineering Study. ....... 5 D. Restrictions and Regulations Respecting Nature, Kind, Type and Strength….. of Sewage. ....................................................................................................... 5 E. Reports, Data and Maps to be Provided by Agency. ....................................... 5 F. Area Restrictions. ............................................................................................ 6

PART III FUTURE DISCHARGE CAPACITY RIGHTS……..……………………………7

A. Redistribution of Capacity Rights……………………………………………7 B. Acquisition of Additional Capacity Rights With Plant Expansion. ................ 7 C. Acquisition of Additional Capacity Rights Without First Parties Initiated…… Plant Expansion. .............................................................................................. 8 D. Adjustment to Capacity Rights Due to Operating Conditions. ....................... 8

PART IV LAND ………………………………………………………………………….....9

A. Participation. .................................................................................................... 9 B. Sale of Land. .................................................................................................... 9

PART V AMOUNTS PAYABLE BY AGENCY TO FIRST PARTIES….………………10 A. Payments for Existing Capacity Rights In The Intermediate Term And……... First Stage Expansion Projects and Phase 1 Water Recycling Program……10

B. Payments for Additional Capacity Rights. .................................................... 10 C. Payments for Future Improvements. ............................................................. 10 D. Payments for Operation and Maintenance Costs. ......................................... 10 E. Method of Payment. ...................................................................................... 11 F. Credits. .......................................................................................................... 12 G. General. ......................................................................................................... 12 H. Payments for Operating Reserves. ................................................................ 12

PART VI SAN JOSE-SANTA CLARA TREATMENT PLANT ADVISORY……………... COMMITTEE……………………………………………………………………14 A. Creation and Membership…………………………………………………..14

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B. Alternate Members. ....................................................................................... 14 C. Chair. ............................................................................................................. 14 D. Secretary. ....................................................................................................... 15 E. Meetings. ....................................................................................................... 15 F. Procedure. ...................................................................................................... 15 G. Power and Duties. .......................................................................................... 15 H. Action Upon Recommendations. .................................................................. 16 I. Expenses. ....................................................................................................... 17

PART VII MISCELLANOUS PROVISIONS ...……………………………………………18 A. Effective Date and Duration of Agreement…………………………………18

B. Extension, Renewal or Amendment to the Agreement. ................................ 18 C. Use of Regional Wastewater Facility After Expiration of Term. .................. 18 D. Termination. .................................................................................................. 18 E. Sale or Transfers by First Parties. ................................................................. 18 F. Industrial Waste Program. ............................................................................. 19 G. Claims of Breach of Agreement or of Inequities. ......................................... 19 H. Liability. ........................................................................................................ 20 I. Compliance with Federal and State Laws and Regulations. ......................... 20 J. Assignment. ................................................................................................... 20 K. Successors and Assigns. ................................................................................ 20 L. Waivers. ......................................................................................................... 21 M. Performance and Time to be of The Essence. ............................................... 21 N. Insurance. ...................................................................................................... 21 O. Titles and Headings. ...................................................................................... 21 P. Notices. .......................................................................................................... 21

PART VIII SPECIAL PROVISIONS………………………………………………………...22

A. Termination of Agreements. .......................................................................... 22 B. Annexation and Detachments. ....................................................................... 22

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EXHIBIT A ESTIMATED REPLACEMENT COST OF PLANT AND EQUIPMENT EXHIBIT B AGENCY TREATMENT PLANT CAPACITY ALLOCATION EXHIBIT C LAND DISTRIBUTION EXHIBIT D PARTICIPATION IN MAJOR PROCESS RELATED IMPROVEMENTS EXHIBIT E ADMINISTERING AGENCY EXHIBIT F SERVICE AREA EXHIBIT G TRANSFER OF AND PAYMENT FOR CAPACITY RIGHTS ON

ANNEXATION AND DETACHMENT OF TERRITORY

October 28, 2015 Mayor Jamie L. Matthews Chair, Treatment Plant Advisory Committee San Jose - Santa Clara Regional Wastewater Facility 1500 Warburton Avenue Santa Clara, CA 95050 Kerrie Romanow 200 E. Santa Clara Street, 10th Floor San Jose, CA 95113 Re: Request to Provide Presentation at November 19, 2015 Treatment Plant Advisory

Committee (“TPAC”) Meeting Dear Mr. Chair and Ms. Romanow, The West Valley Sanitation District, Burbank Sanitary District, Cupertino Sanitary District, County Sanitation District 2-3, and the City of Milpitas (collectively, the “Tributary Agencies”) submitted proposed redlined restated and amended Agreements to our respective Master Agreements for the City of San Jose’s and the City of Santa Clara’s review and consideration on October 5, 2015. At the October 8, 2015 TPAC meeting, it was decided by TPAC that the Master Agreements between the City of San Jose, Santa Clara and the Tributary Agencies be added to the agenda for the upcoming November 19, 2015 TPAC meeting. The Tributary Agencies request the opportunity to provide a presentation on the proposed amendments to the Master Agreements, submitted by the Tributary Agencies. This presentation would be conducted by staff of the Tributary Agencies in the form of a 20 minute presentation, similar to the time provided to the Administrative Agency staff (City of San Jose Staff) on a monthly basis for various agenda items. The presentation from the Tributary Agency staff would provide an overview of the recommended redlines found within the proposed amendments of the respective Master Agreements, submitted on October 5, 2015. Because these redlines were generated by the Tributary Agencies with intent to bring the Master Agreement up to date with the current state of the treatment plant, enable the funding and implementation of major rehabilitation through the capital improvement program, continue with open and transparent administration of the plant, and comply with all applicable regulations and laws, it’s appropriate that an explanation on these redlines be provided by the respective agencies. The presentation will provide the

AGENDA ITEM NO. ____5____ 11/18/15

West Vaey Sanitation District

November 10, 2015

-

0 East Sunnyoaks Ave.

Campbell, CA 95008-6608

408.378.2407 fax 408.364.1821

ww.westvalleysan.org

AGENDA ITEM NO. 6 11/18/15

Kerrie Romanow City of San Jose 200 E. Santa Clara Street 10th Floor Tower San Jose, CA 95113

Re: City of San Jose letter dated October 22, 2015

Dear Ms. Roman ow,

I received your letter dated October 22, 2015, related to the Master Agreement between the Cities of San Jose and Santa Clara, and West Valley Sanitation District. Your letter transmitted a redline of the City of San Jose's proposed amendments to the Master Agreement, in which you asked us to provide you with preliminary feedback by November 20, 2015. You also requested that the District agendize this redline at our next Board meeting so that you and your staff can address the Board's questions and concerns.

As Chairperson of the Board, my most immediate concern is that your redline did not address any of the proposed amendments that District staff previously submitted to you on October 5, 2015. District staff spent many hours developing thoughtful and prudent amendments necessary to support the current and future plans of the Regional Wastewater Facility. Our Board fully supports the District's proposed amendments, and I was frankly discouraged to find that none of our amendments were incorporated into the City's redline.

Therefore, my preliminary feedback is that the redline you provided on October 22, 2015 is incomplete. It is also premature for the Board to consider this redline at its next meeting. A redline that is ripe for Board consideration is a redline that reflects the contributions of all parties involved - San Jose, Santa Clara, and the District. Our Board fully expects that District staff will meet with San Jose and Santa Clara staff on several occasions to discuss and eventually reach agreement on all parties' requested changes. Good faith negotiation of amendments to any agreement—especially a multi-party agreement that is thirty-two years old and is in critical need of a significant update—is essential to the successful understanding and implementation of the agreement.

I am aware that District staff already requested to meet with you to discuss its proposed amendments, but that such request has gone unanswered. A meeting of the minds between San Jose, Santa Clara, and District staff should occur before another redline is brought back to the Board for review. I encourage you to contact District staff to set up a meeting at your earliest convenience. Because all parties are invested in the long-terrn_sap_erational health of the Regional Wastewater Facility, I am confident that we will find a mutually ,agreeable oath towards resolution of any differences.

Sincerely,„ .

Steve Leonardis, Chair _ West Valley Sanitation District

Cc: Norberto Duenas, City of San Jose

West Valley Sanitation District of Santa Clara County

Serving: City of Campbell -Town of Los Gatos . City of Monte Sereno City of Saratoga - Unincorporated Areas

AGENDA ITEM NO. ____7____ 11/18/15


INVESTMENT REPORT AS OF SEPTEMBER 2015

COMMINGLED FUNDS INVESTED BY THE COUNTY OF SANTA CLARA FOR

WEST VALLY SANITATION DISTRICT OF SANTA CLARA COUNTY INTEREST FUND FUND BALANCE 7/1/15 TO DATE GENERAL (OPERATIONS) $ 26,643,704.17 $ 32,912.14 TRUST 460,698.76 622.04 (note 1) RESTRICTED – HILLSIDE 685,786.87 911.61 RESTRICTED – STORM 599,930.71 491.65 ---------------------- ----------------- $ 28,390,120.51 $ 34,937.44

EARNED INTEREST RATES (%) FISCAL YEAR 2002-03 2.286 FISCAL YEAR 2003-04 1.633 FISCAL YEAR 2004-05 2.134 FISCAL YEAR 2005-06 3.781 FISCAL YEAR 2006-07 4.884 FISCAL YEAR 2007-08 4.493 FISCAL YEAR 2008-09 2.535 FISCAL YEAR 2009-10 1.077 FISCAL YEAR 2010-11 0.790 FISCAL YEAR 2011-12 0.701 FISCAL YEAR 2012-13 0.561 FISCAL YEAR 2013-14 0.421 FISCAL YEAR 2014-15 0.464

1st Quarter (July-Sept) 0.615 (note 2) 2nd Quarter (Oct-Dec) (note 2) 3rd Quarter (Jan-Mar) (note 2) 4th Quarter (Apr-June) (note 2)

Note (1): Interest earned on the Trust Fund is posted to the General (Maintenance and Operations) Fund. Note (2): Interest on all funds is posted quarterly, following the quarter in which the interest is earned;

i.e. interest earned in the first quarter is posted in the second quarter.

WEST VALLEY SANITATION DISTRICTCONSOLIDATED EXPENSE STATEMENT BUDGET REPORTTHREE MONTHS ENDED SEPTEMBER, 2015 YR TO DATE BUDGETPERCENT OF YEAR EXPIRED, 25 UNDER LESS FINAL YEAR TO DATE % (OVER) EXP.EXPENSES BUDGET EXPENDED EXPENDED BUDGET %

SALARIES AND EMPLOYEE BENEFITS SALARIES $3,101,046 807,649 26% $2,293,397 74% BENEFITS 1,842,938 545,900 30% 1,297,038 70%

TOTAL SALARIES & BENEFITS 4,943,984 1,353,549 27% 3,590,435 73%

OPERATING EXPENSES DIRECTORS' FEES 13,800 1,200 9% 12,600 91% GASOLINE, OIL & FUEL 75,000 15,658 21% 59,342 79% INSURANCE 340,000 31,427 9% 308,573 91% MEMBERSHIPS 40,560 7,692 19% 32,868 81% OFFICE EXPENSE 57,750 5,512 10% 52,238 90% INFORMATION SERVICES 363,900 138,586 38% 225,314 62% CONTRACTUAL SERVICES 267,601 9,909 4% 257,692 96% TREATMENT PLANT 8,745,757 2,126,495 24% 6,619,262 76% PROFESSIONAL SERVICES 713,000 62,950 9% 650,050 91% PRINTING & PUBLICATIONS 19,200 1,437 7% 17,763 93% RENTS & LEASES 16,500 2,701 16% 13,799 84% REPAIRS & MAINTENANCE 370,750 44,719 12% 326,031 88% PROFESSIONAL DEVELOPMENT 101,950 10,618 10% 91,332 90% UTILITIES 154,000 17,158 11% 136,842 89% OTHER 11,050 6,322 57% 4,728 43% REVENUE BOND DEBT SERVICE 1,464,334 342,737 23% 1,121,597 77% COMMERCIAL PAPER 150,000 0 0% 150,000 100%

TOTAL OPERATING EXPENSES 12,905,152 2,825,121 22% 10,080,031 78%

GENERAL FIXED ASSETS 726,000 8,019 1% 717,981 99% SUBSURFACE LINES & MISC. CONSTRUCTION PROJ. 5,000,000 326,528 7% 4,673,472 93% SEPTIC SYSTEM ABANDONMENT PROGRAM 10,000 0 0% 10,000 100% SEPTIC SYSTEM ABANDONMENT PROJECTS 300,000 0 0% 300,000 100% TREATMENT PLANT & JOINT LINES 8,870,244 799,633 9% 8,070,611 91%

TOTAL CAPITAL OUTLAY 14,906,244 1,134,180 8% 13,772,064 92%

TOTAL EXPENDITURES $32,755,380 $5,312,850 16% $27,442,530 84%

AGENDA ITEM NO. ____9____ 11/18/15

WEST VALLEY SANITATION DISTRICTCONSOLIDATED INCOME STATEMENT BUDGET REPORTTHREE MONTHS ENDED SEPTEMBER, 2015 YR TO DATE RCD.PERCENT OF YEAR EXPIRED, 25 (UNDER) LESS FINAL YEAR TO DATE % OVER BUDGETINCOME BUDGET RECEIVED RECEIVED BUDGET %

OPERATING INCOME SEWER SERVICE CHARGES-TAX ROLL $21,423,747 $0 0% ($21,423,747) -100% SEWER SERVICE CHARGES-OTHER 1,183,198 1,059,565 90% (123,633) -10% CONNECTION FEES 1,025,006 522,115 51% (502,891) -49% PERMIT & INSPECTION FEES 408,807 90,383 22% (318,424) -78% LABOR AND OVERHEAD BILLED 25,000 0 0% (25,000) -100% PLAN CHECKING FEES 4,000 4,774 119% 774 19% TREATMENT PLANT CAPACITY FEES 500,000 168,884 34% (331,116) -66% STORM CLEANING FEES 86,162 0 0% (86,162) -100% STORM FUND ADMINISTRATIVE FEE 7,564 0 0% (7,564) -100%

TOTAL OPERATING INCOME 24,663,484 1,845,721 7% (22,817,763) -93%

NON-OPERATING INCOME INTEREST - COUNTY 139,000 33,534 24% (105,466) -76% SSAP PRINCIPAL & INTEREST 50,700 0 0% (50,700) -100% OTHER NON-OPERATING REVENUE 3,825 94,132 2461% 90,307 2361% COMMERCIAL PAPER PROCEEDS 5,000,000 0 0% (5,000,000) -100%

TOTAL NON-OPERATING REVENUE 5,193,525 127,666 2% (5,065,859) -98%

TOTAL INCOME 29,857,009 1,973,387 7% (27,883,622) -93%

TOTAL EXPENDITURES 32,755,380 5,312,850 16% (27,442,530) -84%

NET INCOME (EXPENDITURES) (2,898,371) (3,339,463) (441,092)$ CASH BALANCE JUNE 30, 2015 30,790,693 30,790,693 DECREASE (INCREASE) IN ACCOUNTS RECEIVABLE (768,943) CHANGE IN DUE TO (FROM) OTHER FUNDS 61,863 CHANGE IN DUE TO (FROM) OTHER ORGANIZATIONS (100,446)

CASH BALANCE SEP. 30, 2015 27,892,322$ 26,643,704$

Employee Contrib: payroll 9/14-10/11/15

32442 10/23/2015 US Healthworks Medical Group, PC Audiogram 37.00

WVSD GL - Board Approval - Payments Thursday, November 12, 2015 Page 1 of 3

Payment

Amount

32440 10/23/2015 Town of Los Gatos Encroachment Permits 1,611.36

32441 10/23/2015 US Healthworks Medical Group, PC Pre-Employment Physical/Inoculations 412.00

32438 10/23/2015 TelePacific Communications Office Telephones, Fax, Modem 584.93

32439 10/23/2015 The Gardensmith Gardening Services 334.00

32436 10/23/2015 Slingshot Connections, LLC WVCWP Temporary Staffing 1,048.87


32434 10/23/2015 Red Wing Shoe Store Safety Shoes 200.00

32435 10/23/2015 Royal Brass, Inc Part - MV-80 25.28

32432 10/23/2015 Patrick Salandro Expense Reimbursement 12.00

32433 10/23/2015 Pitney Bowes Global Financial Svcs Postage Machine Lease 138.00

32430 10/23/2015 Pacific Gas & Electric Office Utilities 2,547.53

32431 10/23/2015 Pacific Gas & Electric Co WVCWP Office Utilities 258.66

32428 10/23/2015 Meyers - Nave Legal Services 17,110.50

32429 10/23/2015 Occumetric Inc Fit for Duty Testing 245.00

32426 10/23/2015 Kenny Rogers Plumbing Plumbing Repairs 945.00

32427 10/23/2015 Los Gatos Swim & Racquet Club Refund of Storm Fee 548.29

32424 10/23/2015 FedEx Shipping 37.72

32425 10/23/2015 Karen Brauns Retiree Medical Insurance 1,002.93

32422 10/23/2015 County of Santa Clara Encroachment Permit 316.00

32423 10/23/2015 CWEA Membership Renewals 1,148.00

32420 10/23/2015 California Special Districts Assoc Annual Membership 1,156.00

32421 10/23/2015 Christopher Cumbo Expense Reimbursement 71.00

32418 10/23/2015 Bartle Wells Assoc Consulting Services 8,007.43

32419 10/23/2015 Business Card Misc. Conf. and Office Expense 6,282.30

32416 10/23/2015 All Car, LLC Annual Smog Checks 167.00

32417 10/23/2015 Bartel Associates LLC Consulting Services - OPEB Valuation 7,100.00

32414 10/23/2015 Adler Tank Rentals LLC Rental of Water Tank 882.90

32415 10/23/2015 Airgas USA, LLC Gloves 1,058.16

32412 10/16/2015 State Distribution Unit Garn: payroll 9/28-10/11/15 819.23

32413 10/16/2015 West Valley Sanitation District 46.00

32410 10/16/2015 Hartford Life insurance Co Def Comp: payroll 9/28-10/11/15 10,775.17


32408 10/16/2015 CalPERS Retirement: payroll 9/28-10/11/15 18,102.01

32409 10/16/2015 Carpenters Local 2236 Union Dues: payroll 9/14-10/11/15 693.00

Agenda Payments for Board Approval

Board Date: 11/18/15

Agenda Item No. 12

Payment

AmountCheck No Pay Date Vendor Payment Description

Expense Reimb. Calpelra, CalPERS Conf.

Registration Renewal - Godwin Generator32483 11/6/2015 State of Calif - Dept of Motor Vehicles 25.00




32479 11/6/2015 Santa Clara County Fire Department WVCWP Urban Runoff Program 3,460.82

32480 11/6/2015 Slingshot Connections, LLC WVCWP Temporary Staffing 924.27

32477 11/6/2015 San Jose Water Co Fire Service 91.30

32478 11/6/2015 San Jose Water Co Water for Sewer Cleaning 941.20

32475 11/6/2015 Professional Cleaning Systems, Inc Janitorial Services 1,266.00

32476 11/6/2015 Royal Brass, Inc Hose Adapter/Cam Lock Emerg. Pump 281.20

32473 11/6/2015 Ollie Hurd Welding Class 800.00

32474 11/6/2015 Phuong Vu Expense Reimb. CalPERS Conference 51.00

32471 11/6/2015 Lesha Luu 96.00

32472 11/6/2015 LeWiz Communications, Inc WVCWP IT Service and Support 1,625.00

32469 11/6/2015 Kaiser Foundation Health Plan Inc WVCWP Medical Insurance 20,917.24

32470 11/6/2015 Kelly Carroll WVCWP Expense Reimbursement 35.08

32467 11/6/2015 Kaiser Foundation Health Plan Inc Retirees' Medical Insurance 698.48

32468 11/6/2015 Kaiser Foundation Health Plan Inc Retirees' Medical Insurance 5,473.78

32465 11/6/2015 International Training & Rehab Tech NASSCO PACP/MACP Training 1,875.00

32466 11/6/2015 Julie Schaer WVCWP Expense Reimbursement 120.33

32463 11/6/2015 Dukes Sales & Service, Inc Root Control Lateral and Main Lines 8,131.05

32464 11/6/2015 Everett Olson Retiree Medical Insurance 581.70

32461 11/6/2015 Delwood's Inc Sewer Connection Permits 466.54

32462 11/6/2015 DKF Solutions Group LLC Safety Program/Training/Materials 2,990.00

32459 11/6/2015 CWEA Membership Renewal 328.00

32460 11/6/2015 David J. Davila Mileage Reimbursement 202.98

32457 11/6/2015 County of Santa Clara Employee/COBRA Dental Insurance 2,968.68

32458 11/6/2015 CWEA Membership Renewal 164.00

32455 11/6/2015 Chay & Harris Painting Contractors Inc Painting Water Valve and Assembly 1,300.00

32456 11/6/2015 Copyco Final Budget Printing 101.59

32453 11/6/2015 Alhambra & Sierra Springs WVCWP Office Water 29.09

32454 11/6/2015 CASA Annual Membership Dues 15,600.00


32452 11/6/2015 A Tool Shed Inc Equipment Rental 230.00

32449 10/30/2015 Hartford Life insurance Co Def Comp: payroll 10/12-10/25/15 10,775.17


32447 10/28/2015 Health Net of California Inc Retirees' Medical Insurance 1,998.27


32445 10/28/2015 City of Monte Sereno WVCWP Facilities Lease 1,200.00

32446 10/28/2015 Health Net Employee Medical Insurance 14,823.06

32443 10/23/2015 Verizon Communications WVCWP Office Telephones/Internet 256.72

32444 10/23/2015 Verizon Wireless Cell Phone Service 578.57

Payment


92 Checks Total Amount to Approve: 252,479.69





32497 11/13/2015 Hartford Life Insurance Co Def Comp: payroll 10/26-11/8/15 11,215.02

32494 11/6/2015 XL Vehicle Graphics & Digital Prints Clothing and Gear 178.16

32495 11/9/2015 County of Santa Clara City Lot File 1,282.53

32492 11/6/2015 XL Vehicle Graphics & Digital Prints Clothing 1,076.27

32493 11/6/2015 XL Vehicle Graphics & Digital Prints Clothing and Gear 450.72

32490 11/6/2015 Wendy Newby for WVSD Petty Cash Petty Cash Imprest Fund 278.54

32491 11/6/2015 Wilson Group Phone System Maintenance 150.00

32488 11/6/2015 US Postal Service - Postage-By-Phone Postage for Meter 300.00

32489 11/6/2015 Vision Service Plan Employee Vision Insurance 553.13

32486 11/6/2015 StormTek WVCWP Catch Basin Maint. 4,900.00

32487 11/6/2015 United Administrative Services Employee Life Insurance 2,029.21

32484 11/6/2015 State of Calif - Dept of Motor Vehicles Registration Renewal - Godwin Pump 25.00

32485 11/6/2015 Stepford Inc Computer Hardware 112.27

Payment



WEST VALLEY SANITATION DISTRICT MEMORANDUM

DATE: November 10, 2015

TO: Jon Newby, District Manager and Engineer

FROM: Alan Kam, Senior Engineer

SUBJECT: RAINFALL AND FLOW MONITORING SERVICES (2015/2016)

Recommendation

Authorize the District Manager to issue Task Order 15-03 to V&A Engineers for a not-to-exceed amount of $74,000 for rainfall and sewer flow monitoring services.

Background

A part of the District's Sewer System Management Objectives is to improve the hydraulic flow modeling effort to increase the accuracy, predictability of flow patterns and long term projections of flows within the service area. This effort was initiated in 2006 by utilizing consultant services from RMC Water and Environment (RMC) to develop a computerized hydraulic model of the major trunk sewers 10-inches in diameter and larger. This model is used to simulate present and future flows in the sewer system under dry and wet weather conditions. In order to ensure accuracy of the model, the model is calibrated with actual measured flow data. On June 25, 2014 the Board approved Task Order 14-01 to RMC to expand the model to include sewers less than 10- inches in diameter which serve large tributary areas.

Upon completion of RMC's efforts, all of the District's large capacity sewer system, approximately 20% of the District's system, will be incorporated into the hydraulic model. Sewers which are identified as having or projected to have capacity deficiencies will be further analyzed by staff. Projects to address the deficiencies will be developed and incorporated into the CIP accordingly. Additional efforts related to the hydraulic model will consist of periodic calibration and updating of the model. Staff estimates the need for updating the model every 5 years in order to incorporate actual measured flows, development activity and land use changes.

Discussion

The efforts by RMC to calibrate the hydraulic model will require rainfall and flow monitoring services at strategic locations throughout the District's service area. The data will also be utilized to identify areas which allow rainfall or groundwater into the sewer system, also known as inflow and infiltration (I&I). Once these areas are identified, staff will develop a strategy and/or projects to further pinpoint the source of 1&I and prevent the water from entering the sewer system. With the anticipated forecast for a significant wet season, the proposed flow meters will provide valuable information on how the District's system reacts during rainfall. Rainfall meters at two locations and sewer flow meters at 12 locations will be installed and monitored by V&A Engineering for up to a 10 week period under Task Order 15-03.

November 10, 2015 Rainfall and Flow Monitoring Services (2015/2016)

V&A Engineering submitted a not-to-exceed proposal for installation and monitoring of the meters in the amount of $74,000. Staff reviewed this proposal and determined the costs are fair and reasonable. The per location cost of the 2015/2016 proposal is comparable to the previously completed 2014/2015 flow monitoring service.

Recommend approval.

Jon Newby, District Manager and Engineer

2


WEST VALLEY SANITATION DISTRICT MEMORANDUM

DATE: November 12, 2015

TO: Board of Directors

FROM: / on Newby, District Manager and Engineer

SUBJECT: ANNUAL REPORT OF WEST VALLEY SANITATION DISTRICT FOR FISCAL YEAR 2014-2015

Recommendation

Accept the Annual Report and the Memorandum on Internal Control and Required Communications of West Valley Sanitation District for Fiscal Year 2014-2015.

Discussion

Attached is the Annual Report of West Valley Sanitation District for Fiscal Year 2014-2015. The annual report includes information produced by staff, as well as the independent auditor's report and the District's financial statements for the period ended June 30, 2015.

Professional auditing standards, contained in Statement on Auditing Standards (SAS) No. 114, require auditors to communicate with the Board on a number of subjects. The enclosed letters satisfy those requirements, and are solely for use of the Board of Directors and management.

Mr. Michael Djuroyic from the accounting firm of Chavan & Associates LLP will attend the Board meeting on November 18 to answer the Board's questions.

Page | 1 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 408-872-4159

[email protected] • www.cnallp.com

To the Board of Directors West Valley Sanitation District We have audited the basic financial statements of the West Valley Sanitation District as of and for the year ended June 30, 2015, and have issued our report thereon dated November 4, 2015. Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility under Generally Accepted Auditing Standards and Government Auditing Standards As communicated in our engagement letter, our responsibility, as described by professional standards, is to form and express an opinion(s) about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the West Valley Sanitation District solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. Other Information in Documents Containing Audited Financial Statements Pursuant to professional standards, our responsibility as auditors for other information in documents containing West Valley Sanitation District’s audited financial statements does not extend beyond the financial information identified in the audit report, and we are not required to perform any procedures to corroborate such other information. Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements. Planned Scope and Timing of the Audit We conducted our audit consistent with the planned scope and timing we previously communicated.



Qualitative Aspects of the Entity’s Significant Accounting Practices Significant Accounting Policies

Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the West Valley Sanitation District is included in Note 1 to the financial statements. There have been no initial selection of accounting policies and no changes in significant accounting policies or their application during June 30, 2015 other than the implementation of Governmental Accounting Standards Board (GASB) statement no. 68 related to the net pension liabilities of the District for its pension plans, which is documented in Note 1 and Note 9 of the District’s annual financial audit report. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. The most sensitive accounting estimates affecting the financial statements include accumulated depreciation related to capital assets and unfunded liabilities and expenses based on assumptions in actuarial studies performed on defined benefit pension plans (GASB 68 and GASB 45). We evaluated the key factors and assumptions used to develop the identified estimates and determined that it is reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units. Financial Statement Disclosures Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting West Valley Sanitation District’s financial statements relate to: cash and investments, capital assets, long-term obligations and defined benefit pension plans. Significant Difficulties Encountered during the Audit

We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and



communicate them to the appropriate level of management. None of the misstatements identified by us as a result of our audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole or applicable opinion units. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. There were no material, corrected misstatements noted during the audit. Disagreements with Management

For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the West Valley Sanitation District’s financial statements or the auditor’s report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in the attached letter dated November 4, 2015.

Management’s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.

Other Significant Findings or Issues In the normal course of our professional association with the West Valley Sanitation District, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the West Valley Sanitation District’s auditors.

This report is intended solely for the information and use of the Board and management of the West Valley Sanitation District and is not intended to be and should not be used by anyone other than these specified parties.

November 4, 2015 San Jose, California



West Valley Sanitation

District

Management Letter June 30, 2015

Prepared by

Chavan & Associates, LLP Certified Public Accountants



To the West Valley Sanitation District Introduction and Internal Controls In planning and performing our audit of the basic financial statements of West Valley Sanitation District, as of and for the year ended June 30, 2015, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, we considered West Valley Sanitation District’s internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we do not express an opinion on the effectiveness of West Valley Sanitation District’s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Recommendations As a result of the procedures performed during the June 30, 2015 audit, we made one recommendation to management that could increase the likelihood that misstatements will be prevented, detected and corrected in a timely basis related to capital assets. We recommended that the District perform an asset valuation on its subsurface lines to provide an improved method of tracking these assets for financial reporting purposes. The valuation can be performed by District staff or by a third party that specializes in this area. New Accounting Pronouncements The following is a summary of new accounting pronouncements from the Governmental Accounting Standards Board: 1. Implemented New Accounting Pronouncements

a. GASB Statement No. 68 - Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27 (Issued 06/12). The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local



governmental employers about financial support for pensions that is provided by other entities. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. This Statement establishes a definition of a pension plan that reflects the primary activities associated with the pension arrangement-determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. This Statement has been implemented as of June 30, 2015 resulting in a prior period adjustment of $4,343,392. See Note 9 for information related to the financial statement impact of this statement.

b. GASB Statement No. 69 – In January, 2013, GASB issued Statement No. 69,

Government Combinations and Disposal of Government Operations. This Statement establishes accounting and financial reporting standards related to government combinations and disposal of government operations. As used in this Statement, combinations include a variety of transactions referred to as mergers, acquisitions, and transfers of operations. There was no financial statement effect related to this Statement.

c. GASB Statement No. 70 – In April, 2013, GASB issued Statement No 70,

Accounting and Financial Reporting for Nonexchange Financial Guarantees. Some governments extend financial guarantees for the obligations of another government, a not-for-profit entity, or private entity without directly receiving equal or approximately equal value in exchange (a nonexchange transaction). The District does not participate in nonexchange financial guarantees. Therefore, this Statement had no financial statement effect.

d. GASB Statement No. 71 – In November, 2013, GASB issued Statement No 71,

Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government’s beginning net pension liability. The provisions of this Statement were required to be applied simultaneously with the provisions of Statement 68 and have been implemented as of June 30, 2015. See Note 9 for information related to the financial statement impact of this statement.

2. Upcoming New Accounting Pronouncements

a. GASB Statement No. 72 – In February, 2015, GASB issued Statement No 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair



value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015 (fiscal year ending June 30, 2016). The District is in the process of determining the impact this statement will have on the financial statements, but does not anticipate a material impact on its financial statements.

b. GASB Statement No. 73 – Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Effective date: the provisions in Statement 73 are effective for fiscal years beginning after June 15, 2015—except those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68, which are effective for fiscal years beginning after June 15, 2016. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency. This Statement also clarifies the application of certain provisions of Statements 67 and 68. The District is in the process of determining the impact this statement will have on the financial statements, but does not anticipate a material impact on its financial statements.

c. GASB Statement No. 74 – Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. Effective date: the provisions in Statement 74 are effective for fiscal years beginning after June 15, 2016. The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures. Management anticipates that this statement will not have a direct impact on the District’s financial statements.



d. GASB Statement No. 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Effective date: the provisions in Statement 75 are effective for fiscal years beginning after June 15, 2017. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The scope of this Statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about defined benefit OPEB also are addressed. The District is in the process of determining the impact this statement will have on the financial statements.

e. GASB Statement No. 76 – The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. Effective date: the provisions in Statement 76 are effective for reporting periods beginning after June 15, 2015. The objective of this Statement is to identify—in the context of the current governmental financial reporting environment—the hierarchy of generally accepted accounting principles (GAAP). The “GAAP hierarchy” consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015, and should be applied retroactively. Management anticipates that this statement will not have a material impact on the District’s financial statements.

f. GASB Statement No. 77 – Tax Abatement Disclosures. Effective date: the requirements of this Statement are effective for reporting periods beginning after December 15, 2015. This Statement requires governments that enter into tax



abatement agreements to disclose the following information about the agreements: brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients, the gross dollar amount of taxes abated during the period, and commitments made by a government, other than to abate taxes, as part of a tax abatement agreement. Management anticipates that this statement will not have a material impact on the District’s financial statements.

Purpose of Communication The purpose of this communication, which is an integral part of our audit, is to describe, for management and those charged with governance, the scope of our testing of internal control and the results of that testing. Accordingly, this communication is not intended to be and should not be used for any other purpose.


WEST VALLEY SANITATION DISTRICT OF SANTA CLARA COUNTY

ANNUAL REPORT 2014-2015

WEST VALLEY SANITATION DISTRICT

ANNUAL REPORT

OF

WEST VALLEY SANITATION DISTRICT SANTA CLARA COUNTY, CALIFORNIA

FOR

FISCAL YEAR 2014-2015

100 EAST SUNNYOAKS AVENUE CAMPBELL, CALIFORNIA 95008

(408) 378-2407 www.westvalleysan.org

TABLE OF CONTENTS Board of Directors........................................................................... 1 Administrative Officers.................................................................. 2 Manager's Message........................................................................ 3 West Valley Sanitation District Service Area………………........ 4 Organization Chart......................................................................... 5 Organizational Structure................................................................ 6 Administration and Information Services Division....................... 7 Engineering and Operations Division........................................... 8 Wastewater Treatment and Disposal............................................ 10 Sewer Extension Financing Programs.......................................... 11 District Participation Program…………………………….......... 12 Septic System Abandonment Program......................................... 13 Service Charges and Fees............................................................. 15 Sources and Uses of Funds........................................................... 17 Independent Auditor’s Report and Financial Statements.................................................. Appendix

1

BOARD OF DIRECTORS FISCAL YEAR 2014-2015

City of Campbell Even Low January 23, 2013 - December 1, 2014

Michael Kotowski January 6, 2015-

Town of Los Gatos Steve Leonardis January 23, 2013 - City of Monte Sereno Marshall Anstandig January 23, 2013 -

City of Saratoga Chuck Page February 14, 2007 - December 2, 2014

Manny Cappello December 17, 2014 -

Santa Clara County Ken Yeager January 10, 2007 -

Board of Supervisor, District 4

2

ADMINISTRATIVE OFFICERS

Jon Newby District Manager and Engineer 7/9/12 Steven R. Meyers District Counsel 6/1/10 Sarah Quiter Deputy District Counsel 2/12/14 Lesha Luu District Secretary 10/12/11

EX OFFICIO OFFICERS Emily Harrison Santa Clara County Director of Finance Lawrence E. Stone Santa Clara County Assessor

3

MANAGER’S MESSAGE Fiscal year 2014-15 was the 67th anniversary of West Valley Sanitation District. FY 2014-15 marks the second year of implementing the District’s Five Year Strategic Plan with objectives and action items set forth for the fiscal year focused on continuous improvement with an emphasis on gaining efficiency, improving communication, staff development and training, fiscal and financial health, improving data and information management, and long range planning. The success of the District can be directly linked to the commitment to the public and striving to improve access and communication. This year the District received recognition for the Transparency Certificate of Excellence issued by the Special District Leadership Foundation. The District demonstrated completion of eight essential governance transparency requirements such as properly conducting open public meetings, adopting policies for public records act request, filing financial transactions and compensation reports to the State Controller’s Office and fulfilling fifteen website requirements to provide easy access to information on board agendas and meeting minutes, current District budget, and the most recent financial audit. These and other requirements served to demonstrate the commitment of the District to transparency, communication, and openness to the public for participation in the development of District policies. The District was awarded the certificate in February 2015. The modernization and rehabilitation of the San Jose/Santa Clara Water Pollution Control Plant continues to be refined. The City of San Jose adopted a $2 billion Plant Master Plan that identifies improvements to be made to the treatment plant over the next thirty years with $1.5 billion planned in the first ten years. The District’s share of the Plant Master Plan will exceed $130 million. To maintain the fiscal health of the District, a five-year rate plan was adopted in 2013. The rate plan identifies five rate increases starting with 10% in FY 2013-14, followed by 10% rate increase in FY 2014-15, 10% in FY 2015-16, 9.5% in FY 2016-17, and 9.0% in FY 2017-18. This year the second rate increase was adopted to ensure sufficient revenues to fund the District’s portion of the improvements while funding the needs to maintain and operate the collection system. In addition to the rate increases, the District will need to secure debt financing to fund the large capital improvement projects that are expected in the next several years at the treatment plant. This year the District continues to explore and modify the CCTV (closed circuit television) program to improve efficiencies in pursuit of a system wide collection system inspection every 8 years. Annual CCTV footage continues to improve using existing staffing by staging the cleaning process in front of the CCTV work. Further refinements are still necessary to achieve the 8-year cycle goal. The additional data from the CCTV will allow the District to further refine its work order system and optimize its cleaning cycles with the goal of focusing on pipelines that have the greatest need of cleaning. The District must continue to modernize and update systems to maintain efficiency and effectiveness. The District completed a needs assessment for tracking and documenting permits to facilitate the preparing of the annual tax roll and ensuring compliance of discharges to the collection system. This has resulted in the development of an extensive work plan spanning the next five years to identify a flexible database platform and work efforts to migrate the physical permit records to an electronic database system. This new system will facilitate the analysis of the connected parcels and prepare the annual tax roll. The following pages present details on the District’s administration and operation during the fiscal year 2014-15 The independent auditor’s report on the examination of the District’s financial statements and accounting procedures reveals a financially strong and competently administered District. Jon Newby District Manager and Engineer

4

WEST VALLEY SANITATION DISTRICT SERVICE AREA The District was formed in 1948 as County Sanitation District No. 4 of Santa Clara County under the provisions of the California County Sanitation District Act. In 1988, the District changed its name to West Valley Sanitation District of Santa Clara County, to reflect its geographical service area. Fiscal year 2013-2014 was the District's 66th year of operation. Beginning with a population of 20,000 in 1948, the District now serves a population of approximately 109,000. The District's 1948 service area encompassed 35.9 square miles. As unincorporated areas were absorbed into the City of San Jose, the District's service area gradually decreased to its current level of 28.3 square miles. At the District's inception in 1948, its wastewater collection system consisted of twelve miles of sewer lines. As of June 30, 2015, the collection system maintained and operated by the District consists of approximately 415 miles of main and trunk sewers and 210 miles of sewer laterals, for a total of 625 miles of sewer lines. As of November 1, 2005, the District assumed ownership and maintenance responsibilities for the sewer system located within the Town of Los Gatos, including 3 pump stations. West Valley Sanitation District provides wastewater collection and disposal services for the cities of Campbell, Monte Sereno, Los Gatos, two-thirds of Saratoga, and the intervening unincorporated areas of the county. The population and distribution of sewer service is shown in the table below.

CONNECTION AND POPULATION DISTRIBUTION SINGLE- MULTI- FAMILY FAMILY INDUSTRIAL/ TOTAL DWELLING DWELLING COMMERCIAL TOTAL POPULATION UNITS UNITS COMPLEXES CONNECTIONS SERVED*

________________________________________________________________________________________ CAMPBELL 10,289 7,375 1,357 19,021 4,1857LOS GATOS 8,977 3,537 1,022 13,536 30,505MONTE SERENO 1,186 65 7 1,258 3,451SARATOGA 8,162 550 251 8,963 24,655SANTA CLARA CO. 2,906 237 98 3,241 9,335 TOTAL 31,520 11,764 2,735 46,019 109,803 In fiscal year 2014-2015, 633 sewer connection permits were issued for existing residences, 50 sewer connection permits for proposed residences, 28 permits for residential septic tank abandonment, 63 for existing commercial premises, and 6 permits for new commercial premises. *Note: Population data for Campbell, Los Gatos, and Monte Sereno are derived from the California Department of Finance. Population data for Saratoga and Santa Clara County are based on the number of connections and assumed household occupancy.

WEST VALLEY SANITATION DISTRICT

FY 2014-2015 ORGANIZATION CHART

Senior Civil Administrative Engineer Assistant II

Assistant Engineer

5

Worker II (S)

Maintenance Maintenance

Staffing3 Executive Management

12 Operations(S) - Specialized 4 Engineering

9 Administration6/30/2015 28 Total Positions

Worker I Worker I

AccountInspector I Worker II (S) Worker II (S) Worker II Technician Clerk II

Construction Maintenance Maintenance Maintenance Maintenance Assc. Engineering

AccountTechnician Leadworker (S) Leadworker Leadworker (S) Leadworker (S) Inspector II Clerk II

Assc. Engineering Maintenance Maintenance Maintenance Maintenance Construction

Supervising Asst. Engineer Senior AccountLeadworker Permits/Mapping Clerk

Operations Information Svcs SeniorSupervisor Coordinator Accountant

BOARD OF DIRECTORS

DISTRICT MANAGER & ENGINEER

Director of Engineering Director of Administration & Operations & Information Services

ORGANIZATIONAL STRUCTURE West Valley Sanitation District is governed by a five-member Board of Directors, and staffed by 28 employees. The District Manager and Engineer is responsible for the overall management of the District and implementation of board policies. The District staff is organized into two divisions: Administration and Information Services Division, and Engineering and Operations Division. The District is well staffed with outstanding and motivated employees, who are dedicated to provide prompt and cost-effective service to the community. Operation division staffs are available 24 hours a day, 7 days a week, to respond to sewer overflows, and the District’s front counter personnel are always available during business hours to provide sewer connection information and to answer questions about service availability. Sewer maintenance productivity continues to exceed industry standards, and productivity in other areas, such as connection permits and inspections, have increased by measurable amounts. The District’s performance incentive program continues to be successful in promoting employee achievement, goal-setting, and creative problem-solving.

Jon Newby, District Manager and Engineer 6

ADMINISTRATION AND INFORMATION SERVICES The Administration and Information Services Division is responsible for the financial and administrative aspects of the District. Services provided by the Division include: Budget preparation and tracking Payroll, accounts payable and receivable Clerk of the Board of Directors Issuance of sewer connection permits Fiscal agent of the West Valley Clean

Water Program

Accounting and financial reporting Collection of sewer service charges Personnel and human resources Information systems management

In fiscal year 2014-2015, the Administration and Information Services Division worked diligently to ensure the fiscal health of the District and improved public access to District information. The Division conducted an update of the District’s financial assumptions including projected revenues, staffing, operation and maintenance, and capital costs. The District finances are challenged by the San Jose/Santa Clara Water Pollution Control (WPCP) operating and maintenance (O&M), and large capital improvement program costs. While the District’s staffing and O&M costs are stable with projected annual increases of 3.5%, WPCP O&M costs have been averaging over double the District’s increases. WPCP capital costs include implementation of a $2 Billion capital program and necessitate debt financing to provide rate stabilization. Rate increases that average 10% per year starting in 2013 and expected for the next 5 years are needed to meet the funding levels required by the WPCP. The Division continues to monitor and update projection based on the most current information available from WPCP and make adjustments to the District finances to meet all of its obligations. Critical to the District’s values to “Operate with Transparency” and “Commitment to public good”, the need to lead by taking action has been demonstrated in the receipt of the District Transparency Certificate of Excellence issued by the Special District Leadership Foundation (SDLF). This award recognizes the District’s outstanding efforts to promote transparency and good governance through completion of eight essential governance transparency requirements and fulfill fifteen website requirements such as providing board agendas, minutes, and financial information to the public. To maintain prudent fiscal management and ensure the highest integrity of the District’s finances, Divisional staff engaged in the solicitation and selection of an independent auditing service for fiscal years 2015 to 2017. The independent auditing firm is responsible for reviewing the District financial records and provides the annual audit report regarding the condition of the District’s finances, accounting systems and procedures. Back Row: Gil Acosta, Scott Boehm, Patrick Salandro Front row: Lesha Luu, Phuong Vu, Joe Presnell, Diane Spiteri, Amy Yav, Lil Iida, Wendy Newby

7

ENGINEERING AND OPERATIONS The Engineering and Operations Division is responsible for the overall management of the sanitary sewer system, including maintenance and repair, engineering design, construction management and inspection, closed-circuit television inspection and analysis, and long-range planning for sewer rehabilitation projects, as well as fleet management and building and grounds maintenance. The Division provides continuous on-call service response to sanitary sewer main and service lateral stoppages and overflows throughout the year. In addition, under agreements with the cities within the District service area, District crews perform a pre-winter inspection and cleaning of the cities’ storm sewer systems. The District’s Sewer System Management Plan (SSMP) is a comprehensive document that describes the activities used by the District to effectively operate, maintain, and manage its wastewater collection system. In compliance with State Water Resources Control Board requirements, the District performed its bi-annual audit of its SSMP in May 2014. The SSMP was subsequently revised by incorporating the audit recommendations, in addition to other necessary updates, and then adopted by the District Board in April 2015. The current version of the SSMP is available for public review on the District’s website at www.westvalleysan.org. In fiscal year 2014-2015 the District witnessed a significant increase in private development projects and commercial improvements reflecting the positive economic trend in the region. There were 15 large private development projects which added approximately 2,300 lineal feet of new sewer mains and other public sewer improvements requiring engineering review and inspection. Additionally, there were nearly 100 commercial/tenant improvements that required engineering review. Approximately $1.7 million was expended on the design and construction of Capital Improvement Program (CIP) projects or ongoing engineering studies. Significant projects include completion of the Blossom Hill Sewer Replacement project, point repairs at 35 locations Districtwide, repair or replacement of 38 customer sewer connections to accommodate the City of Campbell’s Hacienda Avenue Green Street project and design of the Los Gatos Creek - Vasona Park Sewer Rehabilitation and Quito Basin 7 Areas 3 and 4 projects. Ongoing studies include Trunk Sewer Assessment, Risk Prioritization Modeling, and Hydraulic Modeling. In fiscal year 2014-2015 over 1.8 million lineal feet of sewer mains and nearly 1,600 sewer laterals were cleaned, respectively. In this same period, more than 230,000 lineal feet of sewer line was inspected and evaluated through closed circuit television (CCTV). Through televising efforts a condition assessment is made of our collection system which serves as a critical component in the District’s Risk Prioritization Model to help determine the priority of projects in the District’s CIP. As part of the District’s proactive lateral maintenance program which began in 2009, there has been an increased focus on lateral locating (GPS), mapping, and cleaning. Neighborhoods with historically recurring backup and overflow events were identified and prioritized for this effort. Once located and mapped, these laterals were cleaned and then put on a regular cleaning cycle. To date approximately 22,000 properties (70%) have been inspected and more than 6,500 cleanouts have been found and surveyed.

8

Left to Right: Alan Kam, Ed Oyama, Teejay Deleon, Jason Cumbo, Jorge Picado

9

WVSD OPERATIONS ACTIVITIES Fiscal Year Ending June 30, 2015

ACTIVITY QUANTITY SERVICE CALLS:

Service Calls Received 964 ea Avg. Response (Public Calls) 32 min

MAIN LINE SEWERS: Stoppages 60 ea Overflows: Category 1 4 ea Category 2 0 ea Category 3 14 ea Cleaning 1,833,000 feet CCTV Inspections 232,000 feet LATERAL SEWER LINES: Stoppages 508 ea Overflows: Category 1 0 ea Category 2 0 ea Category 3 2 ea Private Lateral 2 ea

Cleaning 1,550 ea CCTV Inspections 17,100 feet

Cleanout Locating (GPS) 540 ea

Front Row: Burt Cordera, Rob Panelli, Kelvin Hatchett, Mark Garrett Back Row: Michael Minchaca, Vandy VanDerPaardt, Doug Gillette, Paul Luis, Mark Bristow Not Pictured: Chad Pozas, Jason LaRosa

10

WASTEWATER TREATMENT AND DISPOSAL

West Valley Sanitation District contracts with the San Jose/Santa Clara Water Pollution Control Plant for wastewater treatment and disposal. In fiscal year 2013-2014, the District collected and conveyed 10.260 million gallons per day of wastewater to the treatment plant. The plant, located near Zanker Road in north San Jose, collects and treats wastewater from local municipalities and sanitation districts and discharges the treated wastewater into the San Francisco Bay. West Valley Sanitation District accounts for approximately 10% of the treatment flow at the plant.

Note: The flow reduction in fiscal year 2004-2005 was the result of reducing the assumed residential flow from 219 gallons per day per household to 184 gallons per day per household based on a capacity study completed in February 2005.

9.400

9.600

9.800

10.000

10.200

10.400

10.600

10.800

11.000

11.200

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Sewage Flow in

M.G.D.

Fiscal Year Ending June 30,

WASTEWATER FLOW

SEWER EXTENSION AND REPLACEMENT FINANCING PROGRAMS West Valley Sanitation District has four sewer extension financing programs, providing funds for extension of the District's sanitary system to new development, lateral replacement, as well as for the abandonment of septic systems. The financing programs are Assessment Districts, Private Lateral Replacement Program, District Participation, and the Septic System Abandonment Program. The following pages present details of these programs.

ASSESSMENT DISTRICTS Under assessment districts, sewers are financed by public improvement bonds, with costs assessed to property owners and collected over 15 years on the county tax roll. Due to the expense of forming assessment districts and issuing bonds, as well as the need for majority property owner approval, the district has not formed an assessment district in several years.

PRIVATE LATERAL REPLACEMENT PROGRAM

The Private Lateral Replacement Program was created to assist homeowners replace their failing, or failed sewer line serving their home. The Private Lateral Program provides homeowners with an interest-free five year term loan, up to a maximum amount of $3,500.

DISTRICT PARTICIPATION PROGRAM Under the District Participation Program, also known as the Sewer Extension Revolving Fund, or SERF program, the District participates with the installer in the costs of extending the sewer, and recovers costs by collection of connection fees from benefiting property owners. Unlike the Septic System Abandonment Program, district participation can be used to extend sewers to new development. The table on the next page shows the status of the District Participation Program.

11

DISTRICT PARTICIPATION PROGRAM – SEWER EXTENSION REVOLVING FUND

Fiscal Year Applications Sewers Installed Participation Ending 6/30 Submitted Accepted Footage Amount

1958 1 1 1,288 5,120 1959 2 2 97 3,453 1960 6 4 4,506 35,000 1961 4 2 3,893 35,000 1962 3 1 3,670 26,250 1963 5 4 10,101 48,011 1964 3 3 6,550 57,623 1965 0 0 0 0 1966 2 2 1,012 1,484 1967 3 2 833 11,277 1968 0 0 0 0 1969 4 4 2,994 32,381 1970 1 1 (Included Above) 10,678 1971 5 3 3,213 35,068 1972 6 3 2,219 22,194 1973 8 8 2,200 22,746 1974 8 7 3,725 25,693 1975 6 6 1,376 13,258 1976 4 4 1,805 32,026 1977 10 5 1,446 18,775 1978 20 13 1,693 22,265 1979 12 12 2,863 70,535 1980 13 10 1,966 57,222 1981 2 2 0 0 1982 3 3 419 12,010 1983 7 5 571 12,985 1984 6 6 332 10,105 1985 5 3 735 33,639 1986 6 5 1,154 51,788 1987 5 5 851 51,000 1988 3 3 4,320 75,000 1989 1 1 777 65,000 1990 0 0 0 0 1991 2 2 170 8,417 1992 3 3 2,224 131,758 1993 2 2 610 27,616 1994 1 1 290 5,077 1995 4 4 1,337 47,496 1996 10 10 2,557 84,000 1997 1998

9 1

6 1

1,153 366

71,504 24,500

1999 0 0 0 0 2000 0 0 0 0 2001 1 1 562 64,486 2002 0 0 0 0 2003 1 1 217 10,535 2004 0 0 0 0 2005 1 1 0 44,250 2006 0 0 468 (Included Above) 2007-2015 0 0 0 0

TOTALS 199 162 76,563 $1,417,225

12

SEPTIC SYSTEM ABANDONMENT PROGRAM The Septic System Abandonment Program (SSAP) was initiated by the District in March, 1986, and continued through the 2014-2015 fiscal year. The purpose of the program is to encourage property owners in the urbanized areas of the District to abandon their septic systems and connect to the public sewers. Under the Septic System Abandonment Program, the District designs and constructs the main and lateral sewers in neighborhoods where the residents have expressed interest in obtaining public sewer service. The District recovers the costs from the property owners when they choose to connect to the system. Unlike an assessment district, the program is entirely voluntary. Property owners are not required to participate in the costs until they decide to connect to the sewer. To encourage participation, the District offers a ten-year financing agreement at a low interest rate and collects the payments on the county tax roll. Property owners are also given the option of paying cash for their pro rata share of the sewer construction. In some instances, the District installs the laterals to serve neighborhoods where a main sewer is already available. These situations are referred to as Phase II of the SSAP program. The costs assigned to property owners who choose not to participate are tracked in the District's unconnected property inventory and updated when a sewer connection permit is issued. As of June 30, 2015, the District completed 44 projects providing sewer service to 1150 properties. On the next page is a table summarizing the activity in each project area. The column referring to project cost includes construction and engineering cost as well as district labor and overhead. There are also columns setting forth the cash payments received to date in each project as well as the amounts being collected on the ten-year financing agreements. (Phase II of the SSAP program is not included in the summary.)

13

COST RECOVERED

PROJECT PARCELS PROJECT COST PERMITS FINANCING

TITLE SERVED (APPROX.) ISSUED CASH AGREEMENTS

Emory 73 209,775 53 49,859 168,832

Wendell 6 29,153 6 21,554 12,000

Olympia 18 58,460 14 23,783 46,783

Pepper/Park 57 484,886 44 205,341 251,088

Mellowood 34 124,561 32 57,936 135,867

Saratoga Glen 47 221,678 35 23,758 218,415

Mc Bain 24 107,467 22 29,582 66,046

Bucknam 9 34,090 8 16,162 18,780

Wekiva 8 31,728 8 2,900 39,813

Cambrian Park 355 1,125,649 277 339,541 1,061,265

Clydelle 12 44,238 8 3,650 43,800

Saratoga 14 84,960 8 11,460 62,089

Greenwood 10 124,093 10 76,105 104,615

Chirco 12 94,127 6 10,533 38,648

Leroy 17 68,697 11 31,569 61,006

Bellecourt 24 358,563 14 99,264 193,523

Walnut 51 332,546 41 119,264 222,400

Hedegard 12 79,326 6 26,473 54,680

Lovell 29 136,445 21 25,016 97,799

Pleasant 4 40,718 3 - 32,357

Vasona 8 43,186 4 12,918 4,975

Rosemary 17 64,483 10 31,460 23,602

Camellia Terrace 21 109,264 11 38,578 61,017

Lucot 18 74,314 18 45,898 47,374

Walbrook 25 197,512 24 44,985 138,868

Paseo Lado 26 131,602 24 51,383 103,256

Cristich/Veitenheimer 14 110,134 3 32,274 -

Eucalyptus/Toyon 6 119,623 3 64,915 21,689

Willd Way 6 47,178 1 - 8,140

S. San Tomas Aquino 8 49,565 3 766 13,309

Redberry 6 62,895 6 37,581 31,270

Bainter 14 162,025 6 49,563 30,120

Mitchell 9 77,095 7 24,646 28,287

Kennedy Road 15 173,487 11 39,392 82,709

Sunnyside/El Camino 10 149,239 9 82,169 64,673

Glen Una Drive 10 74,077 4 17,966 48,011

Donna Ln/Nutwood Ln 14 110,466 11 99,397 17,298

GlenUna Dr/Red Hill Dr 23 309,826 19 128,163 116,592

Farwell Ave 6 116,398 9 64,261 74,792

Matilija Drive/Ojai Drive 12 177,790 10 106,063 43,489

Bella Vista Avenue 17 160,337 8 58,351 22,218

Redding Road 5 54,222 4 - 44,896

Overlook Road 24 768,193 8 61,553 183,249

Hoffman Lane 20 220,679 5 23,041 31,490

TOTAL 1,150 7,354,750 845 2,289,073 4,171,130

14

SEPTIC SYSTEM ABANDONMENT PROGRAM SUMMARY

June 30, 2015

15

SERVICE CHARGES AND FEES The cost of wastewater collection, conveyance, treatment and disposal is financed by an array of charges and fees. In May 2013, the Board of Directors enacted an ordinance establishing the sewer service rates for fiscal years 2013-2014 through 2017-2018. Effective July 1, 2014, the residential sewer service charges are $400.08 per year for a single-family residence, and $279.24 per year for multiple dwelling units. Sewer service charges for non-residential connections are based on flow and treatment parameters. In fiscal year 2014-2015, the District’s Board of Directors adopted a resolution continuing the collection of the "Hillside Sewer Maintenance Zone Fee," a $50.00 surcharge imposed on the sewer service bills of properties in the district's hillside areas. This fee is set aside in a reserve account and used to fund repairs of sewers, which have been damaged by land movement. Fiscal year 2014-2015 was the 21st year of the storm drain program fee. The program was established by the Board of Directors in order to assist the Cities of Campbell, Los Gatos, and Monte Sereno in their efforts to comply with the requirements of the Clean Water Act. The fees are established according to the recommendations of the cities in the program, and are collected on the District's tax roll along with sewer service charges. The funds are distributed to the municipalities upon collection of the fees.

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Monthly Sewer Service Charges Single Family Residence

Monthly Charges (dollars)

Fiscal Year Ending June 30,

16

CHARGES AND FEES As of July 1, 2014

ITEM AMOUNT Sewer Service Charge: Residential, Single-family, per month $ 33.34 Residential, Duplex, other Multi-family per unit per month 23.27 Commercial, per 100 cubic feet of water used 2.99 to 6.58 Industrial, per 100 cubic feet of water used 2.69 to 10.21 Schools and colleges, per 100 cubic feet of water used 3.98 Hospitals, per 100 cubic feet of water used 3.17 Sewer Connection Fees: Residential Connection: For construction without engineer’s report, per parcel: 8,552.70 For construction with engineer’s report, per parcel: Actual costs Non-Residential Connection: Based on flow and discharge characteristics. Treatment Plant Capacity Fee: Residential capacity fee:

Single-family residential: 1,288.00 Multi-family residential: 1,120.00

Non-residential capacity fee: Based on flow and discharge characteristics. Sewer Connection Permit Fee:

Connection requiring CCTV Inspection: 510.00 Connection not requiring CCTV Inspection: 335.00

Hillside Sewer Maintenance Zone Fee: Annual surcharge on properties within hillside zone: 50.00 Engineering Services: Plan Check Fee: $500.00 or 2% of project cost, whichever is greater Inspection Fee: 3% of project cost Storm Drain Management Fee: Residential properties within the cities of: Campbell $19.48 per year Los Gatos 20.37 per year

Monte Sereno 16.58 per year Commercial parcels: Fees vary according to lot size

FISCAL YEAR 2014-2015

Sewer Maintenance$2,539,239

11.0%

Administration$2,280,405

9.9%

Service Extension$1,172,940

5.1%

Sewage Disposal$6,681,850

28.9%

Debt Retirement$1,168,093

5.1%

Capital Outlay$5,333,349

23.1%

Interest$288,7671.2%

Reserve$3,638,403

15.7%

USE OF FUNDS$23,103,046

Connection Fees$1,164,779

5.0%

Permit and Inspection$404,7591.8%

Capacity Fees$595,4182.6%

Sewer Service Charges$20,579,912

89.1%

Interest$95,9350.4%

Other Revenue$262,2431.1%

SOURCE OF FUNDS$23,103,046

17

APPENDIX

INDEPENDENT AUDITOR’S REPORT AND FINANCIAL STATEMENTS

CHAVAN & ASSOCIATES LLP CERTIFIED PUBLIC ACCOUNTANTS 1475 SARATOGA AVE, SUITE 180

SAN JOSE, CA 95129

WEST VALLEY SANITATION DISTRICT OF SANTA CLARA COUNTY

FINANCIAL STATEMENTS AND

INDEPENDENT AUDITOR’S REPORT JUNE 30, 2015

* * *


Table of Contents

June 30, 2015

Independent Auditor’s Report....................................................................................... 1 - 2 Management’s Discussion and Analysis ....................................................................... 4 - 8 Basic Financial Statements: Statement of Net Position .............................................................................................. 10 - 11 Statement of Revenues, Expenses and Changes in Net Position ................................... 12 Statement of Cash Flows ............................................................................................... 13 Statement of Fiduciary Net Position - Clean Water Program Agency Fund ................. 14 Notes to Financial Statements ........................................................................................ 15 - 37

Required Supplementary Information: Schedule of Contributions for Pension Plans ................................................................ 39 Schedule of Proportionate Share of Net Pension Liability ........................................... 40 Schedule of Funding Progress for the Retiree Health Benefit Plan .............................. 41 Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ................................................................................. 43 - 44

1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 408-872-4159


INDEPENDENT AUDITOR’S REPORT To the Board of Directors West Valley Sanitation District Campbell, California Report on the Financial Statements We have audited the accompanying financial statements of the West Valley Sanitation District (the “District"), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise District’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements The District’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the State Controller's Minimum Audit Requirements for California Special Districts. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the West Valley Sanitation District, as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

1



Other Matters Comparative Information The financial statements of the District the year ended June 30, 2014, were audited by another auditor who expressed an unmodified opinion on those statements on October 28, 2014. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, schedule of contributions for pension plans, schedule of proportionate share of net pension liability, and schedule of funding progress for the retiree health benefit plan, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. New Accounting Principles As discussed in Notes 1 and 9 to the financial statements, the District adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, effective June 30, 2015 and GASB Statement No 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 4, 2015 on our consideration of the District’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance.


2

MANAGEMENT’S DISCUSSION AND ANALYSIS

3

West Valley Sanitation District Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2015

INTRODUCTION The Management’s Discussion and Analysis (MD&A) is a required section of the District’s annual financial report, as shown in the overview below. The purpose of the MD&A is to present a discussion and analysis of the District’s financial performance during the fiscal year that ended on June 30, 2015. This report will (1) focus on significant financial issues, (2) provide an overview of the District’s financial activity, (3) identify changes in the District’s financial position, (4) identify any individual fund issues or concerns, and (5) provide descriptions of significant asset and debt activity. This information, presented in conjunction with the annual Basic Financial Statements, is intended to provide a comprehensive understanding of the District’s operations and financial standing. The annual report consists of a series of basic financial statements and notes to those statements. These statements are organized so the reader can understand the District as an entire operating entity. The statements provide an increasingly detailed look at specific financial activities. The Statement of Net Position and Statement of Revenues, Expenses and Changes in Net Position provide information about the activities of the District, presenting both an aggregate view of the District’s finances and a longer-term view of those finances. The basic financial statements also include notes explaining pertinent information in the financial statements and provide more detailed data.

Required Components of the Annual Financial Report

Management’s Discussion & Analysis

Notes to the Financial Statements

Basic Financial Statements

4


FINANCIAL HIGHLIGHTS Key financial highlights for the fiscal year ended June 30, 2015 were as follows:

The Statement of Net Position indicates that total assets and deferred outflows of resources exceeded total

liability and deferred inflows of resources by $100,419,923. Unrestricted net position represents $27,021,328 and the remaining $73,398,595 is net investment in capital assets and capacity rights.

Total net position increased $2,133,216 (2.17%) in fiscal year 2015 compared to an increase of $4,117,762

(4.37%) in fiscal year 2014.

Total assets increased 4.83% from $109,224,807 in fiscal year 2014 to $114,496,453 in fiscal year 2015.

Total liabilities increased 22.63% from $10,938,100 in fiscal year 2014 to $13,413,521 in fiscal year 2015.

The District recorded deferred outflows of resources of $502,625 and deferred inflows of resources of $1,165,634 in order to record the different components required by GASB 68 for pension accounting and reporting. Deferred outflows of resources are technically not assets but increase net position similar to an asset and deferred inflows of resources are technically not liabilities but decrease net position similar to liabilities. See Note 1 under Measurement Focus and Basis of Accounting in the notes to financial statements for a definition of deferred inflows and outflows of resources.

Total operating revenue increased by $2,195,028 (11.22%) mainly due to an increase of $2,086,845 in sewer

service charges from prior year. The District increased sewer service rates by 10% in fiscal year 2015.

Total operating expenses increased $58,135 (.35%) from prior year. The increase is comprised of $269,847 increase in total operating expense offset by $211,712 adjustment to comply with GASB 68.

BASIC FINANCIAL STATEMENTS The financial statements of the District report information about the District’s accounting methods similar to those used by private sector companies. These statements offer short-term and long-term financial information about its activities. The Statement of Net Position includes all of the District’s assets, deferred inflows, deferred outflows, liabilities and net position. Net position serves over time as useful indicator of the District’s financial position. All of the current year’s revenues and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Position. These statements reflect the result of the District’s operations over the past year. The final financial statement required is the Statement of Cash Flows. The primary purpose of this statement is to provide information about the District’s cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations and investments. It also provides answers to questions such as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period.

5


FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Table 1 provides a summary of the District’s net position as of June 30, 2015 as compared to June 30, 2014, and Table 2 provides the changes in net position for fiscal year 2015 as compared to 2014. Net position is an indicator of the District’s financial health.

Dollar Percentage 2015 2014 Change ChangeAssetsCurrent Assets 31,464,637$ 27,719,757$ 3,744,880$ 13.51%Noncurrent Assets 83,031,816 81,505,050 1,526,766 1.87%Total Assets 114,496,453$ 109,224,807$ 5,271,646$ 4.83%

Deferred Outflows 502,625$ -$ 502,625$ 100.00%

LiabilitiesCurrent Liabilities 2,019,883$ 1,873,484$ 146,399$ 7.81%Noncurrent Liabilities 11,393,638 9,064,616 2,329,022 25.69%Total Liabilities 13,413,521$ 10,938,100$ 2,475,421$ 22.63%

Deferred Inflows 1,165,634$ -$ 1,165,634$ 100.00%

Net PositionNet Investment in Capital Assets 73,398,595$ 70,688,204$ 2,710,391$ 3.83%Unrestricted 27,021,328 27,598,503 (577,175) -2.09%Total Net Position 100,419,923$ 98,286,707$ 2,133,216$ 2.17%

Table 1 - Summary Statement of Net Position

As illustrated above, the District’s total net position increased by $2,133,216 from fiscal year 2014 to 2015. The increase can mostly be attributed to the increase in cash and investments resulting primarily from increased sewer service revenue. Total assets increased by $5,271,646 (4.83%) mostly due to an increase in cash and investment of $3,747,921 and capacity rights of $1,582,193. Noncurrent assets account for 72.52% of total assets. Included in noncurrent assets are the District’s capacity rights in the treatment plant and capital assets (e.g. subsurface lines, buildings, land, machinery and equipment). Total liabilities increased by $2,475,421 (22.63%) as a result of the implementation of GASB 68. The District’s proportionate share of the CalPERS miscellaneous pension plans’ net pension liability at June 30, 2015 was $3,468,671. Offsetting the increase caused by GASB 68 were debt service payments made in fiscal year totaling $1,168,093.

6


Dollar Percent2015 2014 Change Change

RevenuesOperating Revenue 21,758,880$ 19,563,852$ 2,195,028$ 11.22%

Operating Expenses Sewer maintenance 2,515,183 2,978,147 (462,964) -15.55%Service extension 1,117,665 1,263,934 (146,269) -11.57%Sewage disposal 6,681,850 6,177,658 504,192 8.16%General and administrative 2,267,425 2,315,991 (48,566) -2.10%

DDepreciation and amortization 4,215,263 4,003,521 211,742 5.29%Total Operating Expenses 16,797,386 16,739,251 58,135 0.35%Operating Income (Loss) 4,961,494 2,824,601 2,136,893 75.65%

Nonoperating Revenue (Expense) 1,108,245 1,120,510 (12,265) -1.09%CCapital Contributions 360,700 172,651 188,049 108.92%

Change in Net Position Before Adjustments 6,430,439 4,117,762 2,312,677 56.16%Prior Period Adjustments (4,297,223) - (4,297,223) -100.00%

Change in Net Position 2,133,216$ 4,117,762$ (1,984,546)$ -48.19%

Table 2 - Change in Net Position

While the Statement of Net Position shows the change in financial position, the Statement of Activities and Changes in Net Position (Table 2 above) provides answers as to the nature and sources of the changes. The increase in net position resulted mainly from $4,961,494 surplus of operating revenues over operating expenses (operating income) and $1,220,773 of connection fees recognized as part of non-operating revenue during the fiscal year. The Change in Net Position was reduced by $4,297,223 prior period adjustment. Sewer service charges account for 94.57% of total operating revenue, and payments to the City of San Jose for operating and maintenance of the San Jose/Santa Clara Regional Wastewater Facility (RWF) account for 39.78% of the District’s total operating expense. CAPITAL ASSETS Table 3 shows June 30, 2015 capital asset balances as compared to June 30, 2014. Total property, plant and Equipment, net of depreciation, account for 49.14% of total assets as of June 30, 2015.

Dollar PercentageDescription 2015 2014 Change ChangeLand and Easements 276,535$ 276,535$ -$ 0.00%Construction in Progress 4,706,767 4,861,148 (154,381) -3.18%Subsurface Lines 49,181,693 48,920,029 261,664 0.53%Building 1,123,215 1,168,019 (44,804) -3.84%Intangible 76,501 17,520 58,981 336.65%Land Improvements 229,255 245,559 (16,304) -6.64%Furniture and Fixtures 6,234 8,908 (2,674) -30.02%Vehicle and Equipment 659,972 802,349 (142,377) -17.75%

Total PPE - Net 56,260,172$ 56,300,067$ (39,895)$ -0.07%

Table 3 - Summary of Property, Plant and Equipment Net of Depreciation

7


LONG TERM OBLIGATIONS Table 4 summarizes the changes in long-term obligations over the past two years. Lease revenue bonds and state revolving fund loan account for $7,650,546 (57.03%) of total liabilities.

Dollar Percentage2015 2014 Change Change

Revenue Bonds 6,417,394$ 7,237,183$ (819,789)$ -11.33%State Revolving Fund Loan 1,233,152 1,581,456 (348,304) -22.02%Net Pension Liability 3,468,671 - 3,468,671 100.00%Compensated Absences 488,191 417,925 70,266 16.81%

Total Long-term Obligations 11,607,408$ 9,236,564$ 2,370,844$ 25.67%

Table 4 - Summary of Long-term Obligations

FACTORS BEARING ON THE DISTRICT’S FUTURE The District’s extensive financial planning and sewer rate setting over the past few years that have allowed the District to build up the financial capacity to undertake needed infrastructure rehabilitation, and meet obligations to RWF, where wastewater is conveyed and treated. Although there was an increase in the District’s cash and investment as a result of rate increases in fiscal year 2015, the District still face challenges to meet obligations totaling approximately $81.5 million over the next ten years to RWF’s $1.5 billion plant improvement. In efforts to meet those future obligations and maintain reserves pursuant to the District’s reserve policy, the District expect rate increases averaging 10% per year in the fiscal year 2016 through 2018. As the plan for modernization and rehabilitation of RWF continues to be refined the District has strategized cost-effective funding models for the District to meet future expenses, including a combination of commercial paper and bonds. On September 11, 2013, the District’s Board of Directors approved a five-year strategic plan establishing the District’s mission, vision and values. Specific goals and objectives were integrated in the strategic plan to encourage innovation and continuous improvement to provide cost effective and high quality service. District employees continue to achieve the goals and objective set forth in the strategic plan. CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT This financial report is designed to provide readers with a general overview of the District’s finances, and demonstrate the District’s accountability for the money it receives. Questions about this report or request for additional information should be addressed in writing to Jon P. Newby, District Manager & Engineer, at West Valley Sanitation District, 100 East Sunnyoaks Avenue, Campbell, California 95008, e-mail [email protected].

8

BASIC FINANCIAL STATEMENTS

9

2015 2014

Assets

Current Assets:

Cash and investments 31,197,441$ 27,449,520$

Accounts receivable 144,173 73,300

Accrued interest receivable 33,534 21,544

Prepaid expenses 82,618 102,807

Supplies and tools 6,871 72,586

Total Current Assets 31,464,637 27,719,757

Noncurrent Assets:

Restricted cash and investments 1,710,112 1,666,752

Accounts receivable - future tax roll 200,433 240,474

OPEB asset 72,130 90,981

Capacity rights in treatment plant 24,788,969 23,206,776

Capital assets:

Non-depreciable 4,983,303 5,137,683

Depreciable, net of accumulated depreciation 51,276,869 51,162,384

Total Capital Assets - Net 56,260,172 56,300,067

Total Noncurrent Assets - Net 83,031,816 81,505,050

Total Assets 114,496,453$ 109,224,807$

Deferred Outflows of Resources

Pension benefits and adjustments 502,625$ -$

West Valley Sanitation District

of Santa Clara County

Statement of Net Position

June 30, 2015

The notes to the financial statements are an integral part of this statement. (Continued)

10

2015 2014

Liabilities

Current Liabilities:

Accounts payable 340,493$ 283,766$

Accrued salaries and benefits 147,932 131,930

Accrued interest payable 69,561 77,990

Current portion of long-term obligations 1,461,897 1,379,798

Total Current Liabilities 2,019,883 1,873,484

Noncurrent Liabilities:

Liabilities payable from restricted assets:

Customer deposits 247,244 237,244

Hillside deposits 684,525 651,571

Storm drain deposits 316,358 319,035

Total Liabilities Payable from Restricted Assets 1,248,127 1,207,850

Long-term obligations, net of current portion 10,145,511 7,856,766

Total Noncurrent Liabilities 11,393,638 9,064,616

Total Liabilities 13,413,521$ 10,938,100$

Deferred Inflows of Resources

Pension obligations and adjustments 1,165,634$ -$

Net Position

Net Investment in Capital Assets and Capacity Rights 73,398,595$ 70,688,204$

Unrestricted 27,021,328 27,598,503

Total Net Position 100,419,923$ 98,286,707$



Statement of Net Position

June 30, 2015

The notes to the financial statements are an integral part of this statement. (Concluded)

11

2015 2014

Operating Revenues:

Sewer service charges 20,577,939$ 18,491,094$

Permit, inspection and other fees 411,604 398,050

Labor and overhead billed 31,109 26,053

Storm drain fees 112,801 110,286

Capacity fees 625,427 538,369

Total operating revenues 21,758,880 19,563,852

Operating Expenses:

Sewer maintenance 2,515,183 2,978,147

Service extension 1,117,665 1,263,934

Sewage disposal 6,681,850 6,177,658

General and administrative 2,267,425 2,315,991

Depreciation and amortization 4,215,263 4,003,521

Total operating expenses 16,797,386 16,739,251

Operating Income (Loss) 4,961,494 2,824,601

Nonoperating Revenues (Expenses):

Interest income 122,792 110,238

Interest expense (281,430) (316,372)

Connection fees 1,220,773 1,262,342

Gain (loss) on disposal of property, plant and equipment (903) (2,979)

Other income (expense) 47,013 67,281

Total nonoperating revenues (expenses) 1,108,245 1,120,510

Net Income (loss) before contributions 6,069,739 3,945,111

Capital contributions - contributed facilities 360,700 172,651

Change in net position 6,430,439 4,117,762

Beginning net position 98,286,707 94,168,945

Prior period adjustment - GASB 68 pension adjustments (4,297,223) -

Beginning net assets - as adjusted 93,989,484 94,168,945

Ending net position 100,419,923$ 98,286,707$



Statement of Revenues, Expenses and Changes in Net Position

For the Fiscal Year Ended June 30, 2015

The notes to the financial statements are an integral part of this statement.

12

2015 2014

Cash Flows from Operating Activities:

Cash received from customers and users 21,737,216$ 19,631,702$

Intergovernmental credits - 136,035

Cash payments to suppliers (8,077,084) (7,800,533)

Cash payments to employees (4,422,832) (4,466,067)

Other cash received (paid) 31,109 26,053

Net Cash Provided (Used) by Operating Activities 9,268,409 7,527,190

Cash Flows from Noncapital Financing Activities:

Other income 47,013 67,281

Net Cash Provided (Used) by Noncapital Financing Activities 47,013 67,281

Cash Flows from Capital and Related Financing Activities:

Cash received from capital contributions 1,581,473 1,434,993

Acquisition and construction of capital assets (5,758,464) (10,044,162)

Principal paid on long-term debt (1,168,093) (1,140,668)

Interest paid on long-term debt (289,859) (323,583)

Net Cash Provided (Used) by Capital and Related Financing Activities (5,634,943) (10,073,420)

Cash Flows from Investing Activities:

Investment income 110,802 112,422

Net Cash Provided (Used) by Investing Activities 110,802 112,422

Net Increase (Decrease) in Cash and Cash Equivalents 3,791,281 (2,366,527)

Cash and Cash Equivalents Beginning 29,116,272 31,482,799

Cash and Cash Equivalents Ending 32,907,553$ 29,116,272$

Reconciliation of Operating Income to Cash Flows Provided (Used)

by Operating Activities:

Operating Income (Loss) 4,961,494$ 2,824,601$

Adjustments to reconcile operating income (loss) to net cash provided

(used) by operating activities:

Depreciation and amortization 4,215,263 4,003,521

Pension expense adjustments - GASB 68 (211,712)

Prior period adjustment 46,169 -

(Increase) decrease in:

Accounts receivable (30,832) 16,181

Due from other government - 136,035

Prepaid expenses 20,189 -

Supplies and tools 65,715 343,700

OPEB asset 18,851 -

Increase (decrease) in:

Accounts payable 56,727 125,430

Accrued salaries and benefits 16,002 -

Deposits 40,277 77,722

Compensated absences 70,266 -

Net Cash Provided (Used) by Operating Activities 9,268,409$ 7,527,190$

For the Fiscal Year Ended June 30, 2015

Statement of Cash Flows




13

2015 2014

Assets

Restricted cash and investments 265,711$ 172,145$

Total Assets 265,711$ 172,145$

Liabilities

Deposits 265,711$ 172,145$

Total Liabilities 265,711$ 172,145$



Statement of Fiduciary Net Position

June 30, 2015

Clean Water Program Agency Fund


14

NOTES TO BASIC FINANCIAL STATEMENTS


Notes to Basic Financial Statements June 30, 2015

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of the Reporting Entity The financial statements of West Valley Sanitation District of Santa Clara County (the District) include the financial activities of the District as well as transactions made by the fiscal agent under authority granted by the District in various resolutions authorizing the issuance of revenue bonds. The District is a special district established as a sanitation district in the State of California and is exempt from federal income and State income taxes. The Financial Reporting Entity Although the nucleus of a financial reporting entity usually is a primary government, an organization other than a primary government, such as a stand-alone government, may serve as the nucleus for its financial reporting entity when the stand-alone government provides separately issued financial statements. A stand-alone government is a legally separate governmental organization that does not have a separately elected governing body and does not meet the definition of a component unit. West Valley Sanitation District meets the criteria as a stand-alone government, and accordingly, is accounted for and reported on as though it were a primary government. Component units are defined as legally separate organizations for which the primary government are financially accountable, and other organizations for which the nature and significance of their relationship with a primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The District considered all potential component units in determining what organizations should be included in the financial statements. Since no other entities are controlled by, or rely upon the District, the reporting entity consists solely of the District. Based on these criteria, there are no component units to include in the District's financial statements. Basis of Presentation Basic Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States. The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position display information about the West Valley Sanitation District. Business-type activities are financed in whole or in part by fees charged to external parties. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as interest income and connection fees, result from non-exchange transactions or ancillary activities. Fiduciary funds are reported using the economic resources measurement focus. An agency fund is a fiduciary fund used to account for assets of others for which the District acts as an agent. The District

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maintains an agency fund for the Clean Water Program. Measurement Focus and Basis of Accounting Enterprise funds are accounted for on the flow of economic resources measurement focus utilizing full accrual accounting. With this measurement focus, all assets deferred outflows of resources, liabilities, and deferred inflows of resources of the enterprise are recorded on its statement of net position, and under the full accrual basis of accounting, all revenues are recognized when earned and all expenses, including depreciation, are recognized when incurred. Deferred outflows of resources is a consumption of net position by the District that is applicable to a future reporting period; for example, prepaid items and deferred charges. Deferred inflows of resources is an acquisition of net position by the District that is applicable to a future reporting period; for example, unearned revenue and advance collections. Unearned revenue arises when assets are received before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are recorded as deferred inflows from unearned revenue. The District applies all applicable GASB pronouncements for certain accounting and financial reporting guidance. In December of 2010, GASB issued GASBS No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This statement incorporates pronouncements issued on or before November 30, 1989 into GASB authoritative literature. This includes pronouncements by the Financial Accounting Standards Board (FASB), Accounting Principles Board Opinions (APB), and the Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) Committee on Accounting Procedure, unless those pronouncements conflict with or contradict with GASB pronouncements. Statement of Net Position

The statement of net position is designed to display the financial position of the District. The District’s net position is classified into three categories as follows:

Net Investment in Capital Assets and Capacity Rights - This component of net position consists

of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt are also included in this component of net position, as applicable.

Restricted - This component of net position consists of constraints placed on an assets use through external constraints imposed by creditors (such as through debt covenants), grantors, contributors, or law and regulations of other governments, and reduced by liabilities and deferred inflows of resources related to those assets. It also pertains to constraints imposed by law or

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constitutional provisions or enabling legislation. The District applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available.

Unrestricted - This component of net position consists of the net amount of the assets, deferred

outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position.

Statement of Revenues, Expenses, and Changes in Net Position The statement of revenues, expenses, and changes in net position is the operating statement for proprietary funds. This statement distinguishes between operating and non-operating revenues and expenses and presents a separate subtotal for operating revenues, operating expenses, and operating income. Operating revenues and expenses generally result from providing services in connection with the District's principal ongoing operations. The principal operating revenues of the District are charges for services. Operating expenses for the District include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Revenues - Connection Fees Connection fees represent a one-time contribution of resources to the District imposed on property owners to allow the District to recover the costs associated with the provision of sewer collection lines in the District. Connection fees are recognized as other non-operating revenues in the statement of revenues, expenses and changes in net position. Budgets and Budgetary Accounting The District adopts an operating budget at the beginning of each fiscal year. The District Manager & Engineer is authorized to transfer any unencumbered amounts from one department to another within the same major account, to transfer any unencumbered appropriation from one line item account to another within the same major account, and to move unencumbered appropriation from one major account to another. The major accounts are defined as salaries and employee benefits, maintenance and operation, capital outlay and reserves. Any additional appropriations require approval by the Board of Directors. The District prepares a separate Final Budget document that demonstrates compliance with budgetary control. This document is available to the public on the District’s website. Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District’s California Public Employees’ Retirement System (CalPERS) plans (Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of

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employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

Cash and Investments In accordance with GASB Statement No. 40, Deposit and Investment Disclosures (Amendment of GASB No.3), certain disclosure requirements for deposits and investment risks were made in the areas of interest rate risk and credit risk. The credit risk disclosures include the following components; overall credit risk, custodial credit risk and concentrations of credit risk. In addition, other disclosures are specified including use of certain methods to present deposits and investments, highly sensitive investments, credit quality at year-end and other disclosures. Investments are reported in the statement of net position at fair value. Changes in fair market value that occur during the fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation or sale of investments. Cash Equivalents For purposes of the statement of cash flows, all highly liquid investments with original maturities of three months or less and amount categorized as “Cash in County Treasury” are considered cash equivalents. Supplies and Tools Supplies and small tools are stated at lower of cost (first-in, first-out) or market. Capital Assets Capital assets are recorded at cost or, if contributed, at estimated value at time of acquisition. Depreciation is recognized on buildings, furniture, fixtures, equipment and subsurface lines by the straight-line method over their estimated useful lives. Capacity rights in the San Jose/Santa Clara Regional Wastewater Facility are being amortized over a 30-year period. The purpose of depreciation is to spread the cost equitably over the life of the asset. District policy is to capitalize all assets, which cost $5,000 or more, and to charge to current operations all additions under that cost limit. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend lives are also expensed in the current period. Long-Term Debt Long-term debt and other long-term obligations are reported as liabilities in the Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bonds payable are reported net of applicable bond premium and discounts are reported as noncurrent assets along with any insurance payments made during issuance of the bond. Bond issuance costs, other than prepaid insurance, are expensed in the period incurred.

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Compensated Absences The District records the expense of employees' vacation and sick leave benefits in the period in which they accumulate and become vested. Accounting Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Subsequent Events Management has reviewed subsequent events and transactions that occurred after the date of the financial statements through the date the financial statements were issued. The financial statements include all events or transactions, including estimates, required to be recognized in accordance with generally accepted accounting principles. Management has determined that there are no non-recognized subsequent events that require additional disclosure. Implemented New Accounting Pronouncements GASB Statement No. 68 - Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27 (Issued 06/12). The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. This Statement establishes a definition of a pension plan that reflects the primary activities associated with the pension arrangement-determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. This Statement has been implemented as of June 30, 2015 resulting in a prior period adjustment of $4,343,392. See Note 9 for information related to the financial statement impact of this statement. GASB Statement No. 69 – In January, 2013, GASB issued Statement No. 69, Government Combinations and Disposal of Government Operations. This Statement establishes accounting and financial reporting standards related to government combinations and disposal of government operations. As used in this Statement, combinations include a variety of transactions referred to as mergers, acquisitions, and transfers of operations. There was no financial statement effect related to this Statement.

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GASB Statement No. 70 – In April, 2013, GASB issued Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. Some governments extend financial guarantees for the obligations of another government, a not-for-profit entity, or private entity without directly receiving equal or approximately equal value in exchange (a nonexchange transaction). The District does not participate in nonexchange financial guarantees. Therefore, this Statement had no financial statement effect. GASB Statement No. 71 – In November, 2013, GASB issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government’s beginning net pension liability. The provisions of this Statement were required to be applied simultaneously with the provisions of Statement 68 and have been implemented as of June 30, 2015. See Note 9 for information related to the financial statement impact of this statement. Upcoming New Accounting Pronouncements GASB Statement No. 72 – In February, 2015, GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015 (fiscal year ending June 30, 2016). The District is in the process of determining the impact this statement will have on the financial statements, but does not anticipate a material impact on its financial statements. GASB Statement No. 73 – Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Effective date: the provisions in Statement 73 are effective for fiscal years beginning after June 15, 2015—except those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68, which are effective for fiscal years beginning after June 15, 2016. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and interperiod equity, and creating additional transparency.

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This Statement also clarifies the application of certain provisions of Statements 67 and 68 with regard to the following issues:

Information that is required to be presented as notes to the 10-year schedules of required supplementary information about investment-related factors that significantly affect trends in the amounts reported

Accounting and financial reporting for separately financed specific liabilities of individual employers and nonemployer contributing entities for defined benefit pensions

Timing of employer recognition of revenue for the support of nonemployer contributing entities not in a special funding situation.

The District is in the process of determining the impact this statement will have on the financial statements, but does not anticipate a material impact on its financial statements.

GASB Statement No. 74 – Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. Effective date: the provisions in Statement 74 are effective for fiscal years beginning after June 15, 2016. The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement 43, and Statement No. 50, Pension Disclosures. The scope of this Statement includes OPEB plans—defined benefit and defined contribution—administered through trusts that meet the following criteria:

Contributions from employers and nonemployer contributing entities to the OPEB plan

and earnings on those contributions are irrevocable. OPEB plan assets are dedicated to providing OPEB to plan members in accordance with

the benefit terms. OPEB plan assets are legally protected from the creditors of employers, nonemployer

contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members.

Management anticipates that this statement will not have a direct impact on the District’s financial statements.

GASB Statement No. 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Effective date: the provisions in Statement 75 are effective for fiscal years beginning after June 15, 2017. The primary objective of this Statement is to improve accounting

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and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The scope of this Statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about defined benefit OPEB also are addressed. In addition, this Statement details the recognition and disclosure requirements for employers with payables to defined benefit OPEB plans that are administered through trusts that meet the specified criteria and for employers whose employees are provided with defined contribution OPEB. This Statement also addresses certain circumstances in which a nonemployer entity provides financial support for OPEB of employees of another entity.

In this Statement, distinctions are made regarding the particular requirements depending upon whether the OPEB plans through which the benefits are provided are administered through trusts that meet the following criteria:

Contributions from employers and nonemployer contributing entities to the OPEB plan

and earnings on those contributions are irrevocable. OPEB plan assets are dedicated to providing OPEB to plan members in accordance with

the benefit terms. OPEB plan assets are legally protected from the creditors of employers, nonemployer

contributing entities, the OPEB plan administrator, and the plan members.

The District is in the process of determining the impact this statement will have on the financial statements.

GASB Statement No. 76 – The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. Effective date: the provisions in Statement 76 are effective for reporting periods beginning after June 15, 2015. The objective of this Statement is to identify—in the context of the current governmental financial reporting environment—the hierarchy of generally accepted accounting principles (GAAP). The “GAAP hierarchy” consists of the sources of accounting principles used to prepare financial statements of state and local

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governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP.

This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2015, and should be applied retroactively. Management anticipates that this statement will not have a material impact on the District’s financial statements. GASB Statement No. 77 – Tax Abatement Disclosures. Effective date: the requirements of this Statement are effective for reporting periods beginning after December 15, 2015. This Statement requires governments that enter into tax abatement agreements to disclose the following information about the agreements:

Brief descriptive information, such as the tax being abated, the authority under which tax

abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients

The gross dollar amount of taxes abated during the period Commitments made by a government, other than to abate taxes, as part of a tax

abatement agreement.

Management anticipates that this statement will not have a material impact on the District’s financial statements.

NOTE 2 - CASH AND INVESTMENTS

The following summarizes the District’s cash and investments at fair value as of June 30, 2015:

Cash and Investments 2015 2014Unrestricted:

County Treasury 30,679,397$ 26,908,987$ Cash in banks 517,344 539,833Cash on hand 700 700

Total Unrestricted Cash and Investments 31,197,441 27,449,520

Restricted:

County Treasury 1,137,824 1,094,464County Treasury - Clean Water Program Agency Fund 265,711 172,145Held by City of San Jose for debt service reserve 572,288 572,288

Total Restricted Cash and Investments 1,975,823 1,838,897 Total Cash and Investments 33,173,264$ 29,288,417$

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The following summarizes the District’s cash and investments by fund:

Summary by Fund 2015 2014District Operating Fund (Enterprise Fund):

Unrestricted 31,197,441$ 27,449,520$ Restricted 1,710,112 1,666,752

Clean Water Program Agency Fund 265,711 172,145Total Cash and Investments 33,173,264$ 29,288,417$

Cash Deposits Bank balances are insured up to $250,000 per bank by the Federal Deposit Insurance Company ("FDIC"). The actual bank statement balance of the District’s cash in bank exceeded the insured limit by $319,347 as of June 30, 2015. The difference between the book balance and the bank statement balance was for outstanding checks. None of the District’s deposits with financial institutions in excess of FDIC limits were held in uncollateralized accounts. All of the District’s accounts met the collateral and categorization requirements as noted in the following paragraph. Investment Policy The District has authorized staff to deposit cash with the Santa Clara County Treasurer in a series of pooled accounts with cash from various other governmental entities within the County, for investment purposes. The pooled cash is invested principally in bankers' acceptances, negotiable certificates of deposit and various U.S. Government Agency and commercial notes. Interest earned from such time deposits and investments is allocated quarterly to the District based on its average daily cash balances. The fair values of the accounts at June 30, 2015 and 2014 were provided by the County Treasurer. The County's investment policies are governed by State statutes. In addition, the County has an investment committee, which prescribes written investment policies regarding the types of investments that may be made. The policies limit amounts that may be invested in anyone financial institution or amounts, which may be invested in long-term instruments. During the years ended June 30, 2015 and 2014, the investment committee's permissible investments included obligations of the U.S. Government Agencies bills, notes or bonds and certain time deposits, certificates of deposit, bankers' acceptances, commercial paper, repurchase and reverse repurchase agreements, money market funds, medium term corporate notes or deposit notes and municipal obligations. Risk Disclosures Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are described below: Interest Rate Risk - Interest rate risk is the risk that changes in market interest rates will adversely

affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to the changes in market interest rates. The District

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manages its exposure to interest rate risk by investing its cash in the County Treasury Investment Pool. The pool is managed by the County to minimize the sensitivity of investments to interest rate risk.

Credit Risk - Credit risk is the risk of loss due to the failure of the security issuer. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. In order to limit loss exposure due to Credit Risk, the District invests its cash in the County Treasury Investment Pool which is not subject to a minimum legal rating.

Custodial Credit Risk - Custodial credit risk is the risk that in the event of a bank failure, the District’s deposits may not be returned to it. The District does not have a written policy for custodial credit risk over deposits. The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105% of the secured deposits. The District has waived collateral requirements for the portion of deposits covered by federal deposit insurance.

Concentration of Credit Risk – The District limits in risks from concentrations by investing in

County investment pool which invests in a variety of bankers' acceptances, negotiable certificates of deposit, and various U.S. Government Agency and commercial notes. There were no investments in any one issuer that represented five percent or more of the total investments as of June 30, 2015.

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NOTE 3 – CAPITAL ASSETS The District’s capital assets consisted of the following as of June 30, 2015:

Balance Transfers/ BalanceDescription June 30, 2014 Additions Deletions Adjustments June 30, 2015Non-depreciable:Land and Easements 276,535$ -$ -$ -$ 276,535$ Construction in Progress 4,861,148 350,169 - (504,550) 4,706,767

Total Non-Depreciable 5,137,683 350,169 - (504,550) 4,983,302 Depreciable:Subsurface Lines 92,356,289 1,760,341 - 504,550 94,621,180 Building 1,879,656 6,400 - - 1,886,056 Intangible 205,401 73,072 (11,902) - 266,571 Land Improvements 435,212 - - - 435,212 Furniture & Fixtures 137,933 - (12,168) - 125,765 Vehicle & Equipment 2,379,783 30,321 (77,675) - 2,332,429 Total Depreciable 97,394,274 1,870,134 (101,745) 504,550 99,667,213 Less Accumulated Depreciation for:

Subsurface Lines 43,436,260 2,003,227 - - 45,439,487 Building 711,637 51,204 - - 762,841 Intangible 187,881 14,091 (11,902) - 190,070 Land Improvements 189,653 16,304 - - 205,957 Furniture and Fixtures 129,025 2,674 (12,168) - 119,531 Vehicle and Equipment 1,577,434 171,794 (76,771) - 1,672,457

Total Accumulated Depreciation 46,231,890 2,259,294 (100,841) - 48,390,343 Total Depreciable PPE - Net 51,162,384 (389,160) (904) 504,550 51,276,870

Total PPE - Net 56,300,067$ (38,991)$ (904)$ -$ 56,260,172$

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NOTE 4 - CAPACITY RIGHTS The District has a contract with the Cities of San Jose and Santa Clara which gives the District rights to a percentage of the capacity of their sewage treatment facilities. The contract terminates in 2031 and requires the District to pay its share of debt service on the treatment plant. The District also pays costs based on 1) allocated flow capacity rights of the total plant capacity and 2) operation and maintenance share based upon actual sewage flow and strengths. The maintenance and operation costs, net of prior year credits, were $6,681,850 and $6,177,658, for the years ended June 30, 2015 and 2014, respectively. The District is also required to pay a portion of plant improvements based on the District's capacity rights percentage. Plant improvement expenditures for the years ending June 30, 2015 and 2014 were $3,545,040 and $3,945,536, respectively. Changes in capacity rights accounts are summarized as follows:

Balance BalanceCapacity Rights in Treatment Plant June 30, 2014 Additions June 30, 2015Treatment Plant 55,340,385$ 3,545,040$ 58,885,425$ Land 2,001,095 - 2,001,095

Total Capacity Rights in Treatment Plant 57,341,480 3,545,040 60,886,520 Less Accumulated Depreciation (34,134,704) (1,962,847) (36,097,551) Total Capacity Rights in Treatment Plant - Net 23,206,776$ 1,582,193$ 24,788,969$

NOTE 5 - LONG-TERM OBLIGATIONS The District’s long-term obligations consisted of the following as of June 30, 2015:

Original Balance Balance Current NoncurrentLong-term Obligations Issue July 01, 2014 Additions Deductions June 30, 2015 Portion PortionLong-term Debt:

2005 Series A Sewer RevenueRefunding Bonds, 3.25-5.00%,Due 11/15/2016 5,722,879$ 1,742,183$ -$ 584,789$ 1,157,394$ 613,922$ 543,472$

2010 Sewer Revenue RefundingBonds, 2.00-4.25%, Due 10/1/2030 6,385,000 5,495,000 - 235,000 5,260,000 245,000 5,015,000

State Revolving Fund Loan1.803%, Due 6/30/2019 6,214,891 1,581,456 - 348,304 1,233,152 354,654 878,498

Total Long-term Debt 8,818,639 - 1,168,093 7,650,546 1,213,576 6,436,970 Net Pension Liability - PERS - 4,739,452 1,270,781 3,468,671 - 3,468,671 Compensated Absences 417,925 70,266 - 488,191 248,321 239,870 Total Long-term Obligations 9,236,564$ 4,809,718$ 2,438,874$ 11,607,408$ 1,461,897$ 10,145,511$

2005 Clean Water Financing Authority Refunding Bonds, Series A and B In September 2005, the District entered into a financing agreement with the Cities of San Jose and Santa Clara and the other tributary agencies of the San Jose/Santa Clara Regional Wastewater

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Facility whereby $81,150,000 of revenue bonds were issued. The Series A bonds have a fixed interest rate. The Series B bonds had a variable rate. The proceeds from the bonds were used to fully refund the 1995 Series A and B bond issue. The District's share of the bonds is 10.594%. The agreement calls for semi-annual payments in May and November to the City of San Jose through November 2016. The bonds are secured by a lien on the revenues derived by the Clean Water Financing Authority (Authority) from the improvement agreement by and among the Authority and the Cities of San Jose and Santa Clara. The District's share of the Series B bond issue was paid off as June 30, 2009. 2010 Sewer Revenue Refunding Bonds In April 2010, the District issued Sewer Revenue Refunding Bonds to refund and defease the outstanding 2000 Water and Wastewater Revenue Bonds. The bonds are secured by the District's System Net Revenues. Principal is payable annually and the bonds have an interest rate from 2.0% to 4.25% that is payable semi-annually through October 1, 2030. State Revolving Fund Loan In fiscal year ended June 30, 1999, the District entered into a financing agreement with the Cities of San Jose and Santa Clara and the other tributary agencies of the San Jose/Santa Clara Regional Wastewater Facility whereby $73,566,018 in State Revolving Fund Loan program funds were received. These funds have a fixed interest rate of 1.803%. The proceeds were used to additionally finance the South Bay Water Recycling Project. The District's share of the SRF loan is 8.448%. The agreement calls for semi-annual payments in April and October to the City of San Jose through April 2019. The loan is secured by a lien on the revenues derived by the Clean Water Financing Authority (Authority) from the improvement agreement by and among the Authority and the Cities of San Jose and Santa Clara. The District’s debt service requirements were as follows as of June 30, 2015:

Year Ending June 30, Principal Interest Total2016 1,213,576$ 246,758$ 1,460,334$ 2017 1,154,593 212,403 1,366,996 2018 632,706 188,528 821,234 2019 419,671 173,462 593,133 2020 285,000 161,388 446,388 2021 - 2025 1,585,000 640,539 2,225,539 2026 - 2030 1,920,000 295,231 2,215,231 2031 440,000 9,350 449,350 Total Debt Service 7,650,546$ 1,927,659$ 9,578,205$

NOTE 6 - CONTRIBUTEED FACILITIES Generally the District receives contributions to capital from three basic sources: reimbursements for the cost of lines providing new sewer service under the Septic System Abandonment Program (SSAP), reimbursements for the cost of connecting to main sewer lines, and lines installed and paid

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for by developers who are required to contribute their sewers to the District as a condition of project approval. In 1986 the District initiated the Septic System Abandonment Program (SSAP) to bring sewer mains within reach of residences which are still served by private septic systems. The District identifies urban residential area where a majority of the homeowners would be interested in abandoning their private septic systems and connecting to the public sewers. Homeowners participate on a voluntary basis after the District informs them of their pro rata share of project costs. SSAP contributions to capital consist of reimbursement for project costs, as identified at project completion from residence connecting to the new subsurface lines. These projects costs include design, construction, overhead and contingencies. In addition to SSAP projects and other recorded subsurface lines, the District maintains an unrecorded inventory of parcels, which are not yet connected to the District's main sewers. This inventory of collectible connection will be billed to future users at the time they connect their property to the District's sewer. The connection fees charged to these properties will be based upon the estimated construction costs at the time the sewer connection permit is issued. This collectible connection is an unrecorded asset because the District cannot estimate the amount or timing of the expected receipts. The value of lines contributed by developers is recorded at the cost of building the line as established by estimates prepared by the District's engineering department prior to project approval. NOTE 7 - COMMITMENTS AND CONTINGENCIES The District is party to various legal proceedings which normally occur in governmental operations. These legal proceedings are not likely to have a material adverse impact on the affected funds of the District. NOTE 8 - RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disaster. The District joined together with other entities to form the California Sanitation Risk Management Authority (CSRMA), a public entity risk pool currently operating a common risk management and insurance program for 60 member entities. The purpose of CSRMA is to spread the adverse effects of losses among the member entities and to purchase excess insurance as a group, thereby reducing its cost. The District pays annual premiums to CSRMA for its general liability, property damage, workers compensation insurance and automobile coverage. CSRMA is governed by a Board composed of one representative from each member agency. The Board controls the operations of CSRMA including selection of management and approval of operating budgets, independent of any influence by member entities. CSRMA is not a component unit of the District, and the District's share of CSRMA's assets, liabilities, and equity has not been calculated.

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Audited condensed financial information for CSRMA is presented below for the year ended June 30, 2014 (most recent information available):

Assets 27,379,073$ Liabilities 16,413,379 Net Position 10,965,694 Revenues 10,812,970 Expenses 11,887,608

The following is a summary of the insurance policies in force carried by the District as of June 30, 2015:

Type of Coverage Limits DeductibleGeneral Liability 15,000,000$ 25,000$ Excess General Liability 25,500,000 15,500,000 Special Form Property 2,910,408 5,000 Employee Dishonesty Bond 100,000 1,000 Worker's Compensation 750,000 NoneExcess Worker's Compensation Liability Statutory 750,000 Public Entity Physical Damage 901,500 5,000 Public Entity Pollution Liability 25,000,000 50,000 Tier 1Public Entity Pollution Liability 25,000,000 100,000 Tier 2Public Official Bond 50,000 NoneCyber Liability 2,000,000 5,000 Crime Policy 2,000,000 2,500 Identity Theft 25,000 None

In addition to the primary insurance types provided for through CSRMA listed above, the District also maintains employee fidelity bonds, public employee dishonesty and public official bonds. Settled claims for CSRMA or employee fidelity bonds have not exceeded coverage in any of the past three fiscal years. Audited financial statements of CSRMA may be obtained at 100 Pine Street, 11th Floor, San Francisco, CA 94111-5101. No material claims have been filed against the District to date. NOTE 9 - DEFINED BENEFIT PENSION PLAN

General Information about the Pension Plans Plan Description - The District provides benefits to eligible employees through cost-sharing multiple employer defined benefit pension plans (the Plan) administered by the California Public Employees’ Retirement System (CalPERS). Members of the Plan include all permanent employees working full-time. Benefit provisions under the Plans are established by State statute and District resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.

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Benefits Provided - CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 (age 52 for employees affected by the California Public Employees’ Pension Reform Act) with statutorily reduced benefits. All members are eligible for non-industrial disability benefits after 10 years of service. The death benefit is the Optional Settlement 2W Death Benefit. The cost of living adjustments for the Plan are applied as specified by the Public Employees’ Retirement Law. The Plans’ provisions and benefits in effect at June 30, 2015, are summarized as follows:

Hire date Prior to January 1, 2013 On or after January 1, 2013

Benefit formula 2.5% @ 55 2% @ 62

Benefit vesting schedule 5 Years 5 Years

Benefit payments Monthly for Life Monthly for Life

Retirement age 50 52

Monthly benefits as a % of eligible compensation 2.0% to 2.5% 2.0%

Required employee contribution rates 8% 6.25%

Required employer contribution rates 15.70% 6.25%

Miscellaneous

Employees Covered - At June 30, 2015, the following employees were covered by the benefit terms for the Plan:

Miscellaneous

Inactive employees receiving benefits 37

Inactive employees entitled to not receiving benefits 13

Active members 27

Total 77

Contributions - Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the year ended June 30, 2015, the contributions recognized as part of pension expense for the Plan were as follows:

MiscellaneousContributions - employer $ 458,892

Contributions - employee 239,511

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Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2015, the District reported net pension liabilities for its proportionate shares of the net pension liability of the Plan as follows:

Proportionate Share of Net

Pension Liability

Miscellaneous $ 3,468,671

The District’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2014, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. The District’s proportion of the net pension liability was based on a projection of the District’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The District’s proportionate share of the net pension liability for the Plan as of June 30, 2013 and 2014 was as follows:

Miscellaneous

Proportion - June 30, 2013 0.1446%

Proportion - June 30, 2014 0.1403%

Change -0.0043%

For the year ended June 30, 2015, the District recognized pension expense of $271,628. At June 30, 2015, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows of Resources

Deferred Inflows of Resources

483,340$ -$

Adjustment due to differences in proportions 19,285 -

(1,165,634)

502,625$ (1,165,634)$

Pension contributions subsequent to measurement date

Net differences between projected and actual earnings

on plan investments

Total

The District reported $483,340 as deferred outflows of resources related to contributions subsequent to the measurement date that will be recognized as a reduction of the net pension liability in the year ended June 30, 2016.

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Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Fiscal Year Ended June 30,

Recognized to Pension Expense

2016 (284,520)$

2017 (284,520)

2018 (285,899)

2019 (291,410)

Total (1,146,349)$

Actuarial Assumptions - The total pension liabilities in the June 30, 2013 actuarial valuations were determined using the following actuarial assumptions:

MiscellaneousValuation Date June 30, 2013Measurement Date June 30, 2014

Actuarial Cost Method Entry-Age Normal Cost Method

Actuarial Assumptions:

Discount Rate 7.50%Inflation 2.75%Payroll Growth 3.00%Projected Salary Increase 3.3% - 14.2% (1)Investment Rate of Return 7.5% (2)

Mortality (3)

(3) Derived using CalPERS' membership data for all funds

(1) Depending on age, service and type of employment(2) Net of pension plan investment and administrative expenses, including inflation

The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2013 valuation were based on the results of a January 2014 actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can found on the CalPERS website. Discount Rate - The discount rate used to measure the total pension liability was 7.50 percent for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.50 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be

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obtained from the CalPERS website. According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher Total Pension Liability and Net Pension Liability. CalPERS checked the materiality threshold for the difference in calculation and did not find it to be a material difference. CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management (ALM) review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as they have changed their methodology. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses.

New

Strategic Real Return Real Return

Asset Class Allocation Years 1 - 10 (a) Years 11+ (b)

Global Equity 47.00% 5.25% 5.71%Global Fixed Income 19.00% 0.99% 2.43%Inflation Sensitive 6.00% 0.45% 3.36%Private Equity 12.00% 6.83% 6.95%

Real Estate 11.00% 4.50% 5.13%Infrastructure and Forestland 3.00% 4.50% 5.09%Liquidity 2.00% -0.55% -1.05%

Total 100.00%

(b) An expected inflation of 3.0% used for this period.(a) An expected inflation of 2.5% used for this period.

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Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate - The following presents the District’s proportionate share of the net pension liability for the Plan, calculated using the discount rate for the Plan, as well as what the District’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:

Miscellaneous

1% Decrease 6.50%Net Pension Liability $ 6,180,099

Current Discount Rate 7.50%Net Pension Liability $ 3,468,671

1% Increase 8.50%

Net Pension Liability $ 1,218,443 Pension Plan Fiduciary Net Position - Detailed information about each pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. NOTE 10 - OTHER POST EMPLOYMENT BENEFITS Plan Description The District provides post-retirement benefits to eligible employees in the form of reimbursement for post-retirement health insurance premiums. Retired employees have a choice of remaining on the District's group health insurance plan or purchasing a plan of their choice. Reimbursement is made quarterly upon receipt of proof of payment. The District's contribution is capped at the amount of the Kaiser premium which was set at, $683 per month per individual for fiscal year 2015, $668 per month per individual for fiscal year 2014, and $627 for fiscal year 2013. The Board of Directors adopts a policy annually establishing the benefit provision. In order to qualify for postemployment medical benefits, an employee must retire from the District with at least 15 years of District service. The District contracts with CalPERS to administer its retiree health benefits plan and to provide an investment vehicle, the California Employees' Retiree Benefit Trust Fund (CERBT), to prefund future OPEB costs. The District chooses from a menu of benefit provisions and adopts certain benefit provisions by Board policy. A menu of benefit provisions as well as other requirements is established by State statute within the Public Employees' Retirement Law. By participating in CERBT, the District is also obligated to follow the actuarial assumptions established by the CalPERS Board of Administration. CalPERS issues a Comprehensive Annual Financial Report for the retirement plans. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office at 400 P Street, Sacramento, CA, 95814.

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Funding Policy The District's policy is to fund the Annual Required Contribution (ARC) of these benefits by accumulating assets with CERBT discussed above pursuant to the District's annual budget approved by Board and make benefit payments directly using District assets. The annual required contribution (ARC) was determined as part of a June 30, 2013 actuarial valuation using the entry age normal actuarial cost method. This is a projected benefit cost method, which takes into account those benefits that are expected to be earned in the future as well as those already accrued. The District's annual required contribution of the employer (ARC) is an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The fiscal year 2015 ARC is $166,000. Annual OPEB Cost, Net OPEB Obligation and Funded Status and Progress. The following table, based on the District’s actuarial valuation as of June 30, 2015, shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District’s Net OPEB obligation (asset):

2015 2014

Annual required contribution 166,000$ 323,000$ Interest on net OPEB obligation (6,596) (32,000) Adjustment to annual required contribution 25,774 101,000 Annual OPEB cost (expense) 185,178 392,000 Contributions made (166,327) (324,977) Increase in net OPEB obligation 18,851 67,023 Net OPEB obligation (asset) - beginning (90,981) (438,343) Adjustment to OPEB obligation - 280,339 Net OPEB obligation (asset) - ending (72,130)$ (90,981)$

The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year ending June 30, 2015 are as follows:

Contributions asAnnual OPEB Cost Net OPEB

Fiscal Year Annual Obligation/Ended OPEB Cost Cost (Asset)

June 30, 2013 198,241$ 66% (438,343)$ June 30, 2014 392,000 83% (90,981) June 30, 2015 185,178 90% (72,130)

Percentage of Annual OPEB

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Using the most recent actuarial valuation dated June 30, 2015, the following is the funded status of the OPEB plan:

Actuarial accrued liability (AAL) 2,704,000$ Value of plan assets 2,175,520 Unfunded actuarial accrued liability (UAAL) 528,480$

Funded ratio (actuarial value of plan assets/AAL) 80%Projected covered payroll (active Plan members) 2,533,000$ UAAL as a percentage of covered payroll 21%

Actuarial valuations of an ongoing plan involve estimates of the value of expected benefit payments and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities (assets) for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used are consistent with the long-term perspective of the calculations. In the June 30, 2015 actuarial valuation, the entry age normal actuarial method was used. The actuarial assumptions included a 7.25% investment rate of return (net of administrative expenses), inflation rate of 3%, projected salary increases of 3.25% and an annual medical cost trend rate of 8% initially, reduced by decrements to an ultimate rate of 5% by 2021. The plan's unfunded actuarial accrued liability in each year is amortized on a level dollar basis over a closed 4 year period. The actuarial value of assets is equal to the fair value of plan assets, including any receivable contributions.

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REQUIRED SUPPLEMENTARY INFORMATION

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Schedule of Contributions - Pension Plans June 30, 2015

2015 Contractually Required Contributions (Actuarially Determined) 396,060$ Contributions in Relation to Actuarially Determined Contributions 396,060 Contribution Deficiency (Excess) -

Covered Employee Payroll 2,829,829

Contributions as a Percentage of Covered Payroll 14.00%

Notes to Schedule:Valuation Date: June 30, 2013Assumptions Used: Entry Age Method used fro Actuarial Cost Method

Level Percentage of Payroll (Closed) Used Amortization Method3.8 Years Remaining Amortization PeriodInflation Assumed at 2.75%Investment Rate of Returns set at 7.5%CalPERS mortality table using 20 years of membership data for all funds

** Fiscal year 2015 was the first year of implementation. Therefore, only one year is shown.

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Schedule of Proportionate Share of Net Pension Liability June 30, 2015

2015 District's Proportion of Net Pension Liability 0.574%District's Proportionate Share of Net Pension Liability 3,468,671 District's Covered Employee Payroll 2,829,829

District's Proportionate Share of NPL as a % of Covered Employee Payroll 122.58%

Plan Fiduciary's Net Position as a % of the TPL 83.03%

** Fiscal year 2015 was the first year of implementation. Therefore, only one year is shown.

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Schedule of Funding Progress for the Retiree Health Benefit Plan June 30, 2015

ActuarialAccrued UAAL as

Actuarial Liability Unfunded a PercentageActuarial Value of (AAL) AAL Funded Covered of CoveredValuation Assets Entry Age (UAAL) Ratio Payroll Payroll

Date (a) (b) (b-a) (a/b) (c) ((b-a/c))6/30/2011 920,000$ 2,304,000$ 1,384,000$ 40% 2,327,000$ 59%6/30/2013 1,534,000 2,134,000 600,000 72% 2,533,000 24%6/30/2015 2,134,000 2,704,000 570,000 79% 2,533,000 23%

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OTHER INDEPENDENT AUDITOR’S REPORTS

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INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF

FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To the Board of Directors West Valley Sanitation District We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the West Valley Sanitation District (the “District”) as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our report thereon dated November 4, 2015. Internal Control over Financial Reporting Management is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

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Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.


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