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HomeMy WebLinkAboutCOM 0989.000 2008-2010 /44. <<\ (19 ' 49 19 DEPARTMENT OF WATER SUPPLY • COUNTY OF HAWAII yr' . ...........: P,,' 345 KEKUANAO`A STREET, SUITE 20 • HILO, HAWAII 96720 TELEPHONE (808) 961 -8050 • FAX (808) 961 -8657 October 21, 2010 Mr. J Yoshimoto, Chair -. & Council Members Hawai`i County Council 25 Aupuni Street Hilo, Hawaii 96720 Dear Mr. Yoshimoto and Council Members, Attached for your review and action is the Manager's Report detailing recommendations and specifications for the installation of a dedicable water delivery system for the Kona Ocean View Properties subdivision as requested by Council Resolution No. 47 07. The attached report and application for USDA/RUS financing represents collaborative efforts on the part of the Department of Water Supply, the Department of Finance, the Planning Department, the National Rural Water Association, the USDA/RUS and the community to provide a water system to the Kona Ocean View Properties subdivision. In conjunction with a Council- initiated resolution to proceed with the making of a water improvement district, the Department of Water Supply looks forward to the completion of this long- awaited project. Please do not hesitate to call me at 961 -8050 if you have any questions or if I may be of further assistance. Sincerely yours, Milton D. Pavao, P.E. Manager RQ:dms Enclosure: MANAGER'S REPORT for Kona Ocean View Properties Subdivision Water System Improvement District North Kona, Hawai`i Corms, No. q 8 1 Ref. To: P W 1 RCS Ref: Date OCT 2 2 2010 .. Water, Our Most Precious Resource ... 7(a Wai A pane .. . The Department of Water Supply is an Equal Opportunity provider and employer. County of Hawaii Department of Water Supply MANAGER'S REPORT for Kona Ocean View Properties Subdivision Water System Improvement District North Kona, Hawaii CONTENTS Introduction 1 1. History, Recent Findings and Analysis Availability of Water to Subdivisions 2 Considerations 2 Governmental and Private Efforts 2 2. Character and Extent of Proposed Improvement 3 3. Proposed Method of Assessment 3 4. Land and Rights -of -Way to be Acquired 4 5. Recommended Materials 4 6. Improvement District Boundaries •.4 7. Estimated Cost of the Improvement 5 8. Necessary Plans, Data, Details and Specifications 6 Conclusion • 6 EXHIBITS A. Map titled "Proposed Kona Ocean View Properties Subdivision Water System Improvement District" B. Pre - Application by the DWS, Kona Ocean View Properties Water System Improvements, Water and Waste Disposal System for Rural Communities dated 12/9/09 C. USDA Letter of Conditions, County of Hawaii - Department of Water Supply Kona Ocean View Properties Subdivision Waterline Improvements $1,169,000 Direct Loan and $353,369 Grant, July 28, 2010 D. Proposed Assessment Roll Kona Ocean View Properties Water Improvement District" based upon available information from County Real Property Tax Division E. Identification of Lot Owners to be Credited for Prior Payment of Facilities Charges F. Preliminary Engineering Report for Kona Ocean View Properties Water System Improvements dated July 14, 2010 MANAGER'S REPORT Kona Ocean View Properties Subdivision Water System Improvement District Introduction This report has been prepared in response to Hawaii County Council Resolution No. 47 -07 dated February 22, 2007. It provides material requested by the Council in the order presented in the resolution. Council Resolution No. 47 -07 directed the Manager, Department of Water Supply to prepare and submit to the council a report containing the following: "(1) Preliminary data concerning the special improvement proposed to be opened, constructed, or improved; (2) The general character and extent of any improvement to be proposed; (3) The proposed assessment unit and method of assessment; (4) Whether any new land will be necessary to be acquired, and the estimated cost thereof and the proportion of the cost which should be borne by the County; (5) The materials recommended to meet the conditions of the improvement; (6) The boundaries of the proposed improvement district and any subdistricts or zones therein as to which different portions of the cost of improvements should be charged; (7) The estimated cost of the improvement, the portions of the cost to be borne by the County, and the portions of the cost to be assessed against the assessment units specially benefited with the maximum unit of assessment to be made against each assessment unit to be assessed; and (8) All necessary plans and other data, details, and specifications for the improvements and any other matters or details intended to apply thereto .... " The proposed improvement district, to be initiated by the Hawaii County Council, is for the design and installation of the water system for the Kona Ocean View Properties subdivision in North Kona that will meet the Department of Water Supply standards. Once completed, the system will be dedicated to the Department of Water supply for operation and maintenance. 1 1. History, Recent Findings and Analysis The Kona Ocean View Properties (KOVP) subdivision is located at Pu`ukala, approximately 6 miles north of Kailua Kona along Highway 190, also known as the Mamalahoa Highway. The subdivision was created in 1959 and currently consists of 81 lots ranging in size from 7,526 to 22,403 square feet. The TMKs for the individual lots include TMKs 7 -2- 008:1 -41 excluding lot 39 and 7- 2- 09:1 -42 excluding lot 41 for a total of 81 lots to be served by the proposed water system improvement project. The subdivision was created prior to the enactment of the County Subdivision Code and was granted final subdivision approval without water system improvements. Availability of Water to the Subdivision At the time of the subdivision approval there was no water system available in the area so potable water for each lot was by private water catchment systems. In the mid 1980's an 8 inch water line was constructed within the intersection of Mamalahoa Highway and Pu`ukala Loop Road and 20 water meters were installed within the Mamalahoa Highway right -of -way. Small diameter PVC pipes run from the meters overland through lots to service homes within the subdivision. The distance from the existing meters to the most makai lot is approximately 2,000 feet. According to the County of Hawaii Real Property Tax Office there are currently 67 residences within the subdivision. Homes not served by the meters use private water catchment systems or are provided water from the extension of services from neighboring properties that have water meters. Leakage of the long overland pipes is a problem and a ruptured line may introduce contaminants into the water system. According to the Department of Health (DOH) water catchment systems are not recognized as potable water and the DOH recommends against using catchment water for direct consumption or food preparation. Current County Department of Water Supply requirements include providing fire hydrants spaced 600 feet apart. There are currently no fire hydrants located within the subdivision. Considerations Given the health and safety issues associated with water catchment systems, the problems associated with long overland pipes and the fact that there is no fire protection for the Kona Ocean View Properties subdivision, time is of the essence to construct a water system in compliance with current County Standards in order to ensure the health and safety of the residence. Government and Private Efforts Over the years, the residents of the subdivision have made efforts to construct a County dedicable water system and in the mid 1990's they engaged an engineer to prepare preliminary plans and cost estimates for a county dedicable water system. The cost of the water system prohibited the residents from pursuing the water system construction. Over the years, the residents have been in communication with the Department of Water Supply, County Council members and government agencies to request assistance in funding the water system improvement project. In February 2007 via Resolution 47 -07 the County Council directed the Manager, Department of Water Supply to prepare this report in support of an Improvement District for the design and 2 installation of a water system within the Kona Ocean View Properties subdivision that will meet Department of Water Supply standards. In December of 2009 the Department of Water Supply submitted an application for financial assistance to the United States Department of Agriculture (USDA) Rural Development Office in Hilo. Along with the application a Preliminary Engineering Report for Kona Ocean View Properties Water System Improvements was submitted. As a follow up to the application submittal a meeting was held to discuss the USDA's review of the documents. At the meeting the USDA requested a salary survey of the residents in order to determine the eligibility for financial assistance. The National Rural Water Association was engaged to conduct the salary survey. The survey results were submitted in May of 2010. The USDA accepted the results and requested additional documents in order to complete the application process. In July of 2010 the following documents were submitted to the USDA in support of the application for financial assistance: Preliminary Engineering Report for Kona Ocean View Properties Water System Improvements dated November 2009, revised July 14, 2010, Environmental Review, Kona Ocean View Properties Subdivision, Water System Improvements dated July 2010, a Consistency Letter for the Planning Director dated June 18, 2010, a Survey on Ensuring Equal Opportunity for Applicants, and a Water and Waste Eligibility Certification. On July 28, 2010 the USDA provided a "Letter of Conditions County of Hawaii - Department of Water Supply Kona Ocean View Properties Subdivision Waterline Improvements $1,169,000 Direct Loan and $353,369 Grant" which contained 28 conditions which must be met in order for USDA to continue to process the application for financial assistance. Based upon the terms of the USDA loan/grant, the amount of the proposed improvement district general obligation bond will be $1,216,000. (The USDA letter requires $47,000 is to be funded by the applicant.) It should be noted that a general obligation bond, to be paid by assessed Kona Ocean View Properties subdivision property owners, is specified in paragraph 1780.14 of the USDA Rural Utility Service (RUS)/ Bulletin No. 1780 which states in part "Loans will be secured by the best security position practicable in a manner which will adequately protect the interest of RUS during the repayment period of the loan... Security, in the following order of preference, will consist of: (1) The full faith and credit of the borrower when the debt is evidenced by general obligation bonds; and/or (2) Pledges of taxes or assessments; ..." A meeting is scheduled for November 17, 2010 to discuss the Kona Ocean View Properties Water System Improvements project with the residents of the subdivision and to explain the assessments that will be required in order to move forward with the project. 2. Character and Extent of Proposed Improvements The proposed improvement district, to be initiated by the Hawai`i County Council, is for the design and construction of a water delivery system meeting Department of Water Supply standards for property owners within the Kona Ocean View Properties subdivision. The completed water system will be dedicated to the Department of Water Supply. 3. Proposed Method of Assessment The total estimated construction and related cost for the KOVP water system is $1,569,369. The cost shall be borne entirely by the assessees and shall be divided equally among all assessed 3 owners on a per assessment unit basis. It is determined that such assessees shall include the owners of 81 lots within the Kona Ocean View Properties subdivision. For reference, Exhibit F, Proposed Assessment Roll, Kona Ocean View Properties Water Improvement District, based upon information provided by the County's Real Property Tax Division, identifies the owners of the properties and related TMK "assessment units" subject to assessment in the proposed improvement district. The cost of any applicable facilities connection charge, which is subject to change, is not included in the cost estimate of the proposed water system improvements. Such charges shall be due separately to the Department of Water Supply upon hook -up to the completed water system installation. Credit shall be given to owners of parcels that already have service with DWS or have paid their facilities charge to the Department. 4. Land and Right -of -Way to be Acquired No land acquisition is required for the installation of the proposed water system. An easement will be required over the privately owned subdivision roads for maintenance and operation of the water system improvements. An easement within the Mamalahoa Highway right -of -way will also be needed for a portion of the water system. 5. Recommended Materials The materials recommended to meet the conditions of the water system improvements required for the KOVP improvement district, to be built in conformance with the Department of Water Supply Standards, shall include but not be limited to the following: • 1,022 linear feet of 8 -inch diameter ductile iron pipe • 3,620 linear feet of 6 -inch diameter ductile iron pipe • 1 pressure reducing valve (PRV) and box • 7 fire hydrants • 11 1 -inch Type "A" water laterals • 35 1' /2 -inch Type "C" water laterals As part of the improvement, all existing meters and laterals will be relocated to front each parcel. The roadway will be trenched to install the water system improvements and pavement repair consisting of asphalt patch over the trenched areas is included in the work. 6. Improvement District Boundaries The boundary of the proposed improvement district includes all of the existing lots within the Kona Ocean View Properties subdivision located in North Kona and shown on Tax Map Key Nos. 7 -2- 008:1 -41 excluding 39 which is not a part of the subdivision and 7 -2 -009: 1 -42 ( lot 41 is the road lot). For reference a map titled "Proposed Kona Ocean View Properties Subdivision Water System Improvement District" (Exhibit A) is appended to this report and outlines the general character and extent of the proposed ID boundaries, and shows the approximate location of the water system improvements. 4 7. Estimated Cost of the Improvement The total estimated cost of the Kona Ocean View Properties Water Improvement District shown on Table 1 is $1,569,369. The cost shall be borne entirely by the assessees in the improvement district. Included in this cost are the surveying, engineering design, and environmental assessment. TABLE 1 PRELIMINARY COST ESTIMATE PROJECT: KONA OCEAN VIEW PROPERTIES SUBDIVISION WATER SYSTEM IMPROVEMENTS LOCATION: NORTH KONA, HAWAII DEPARTMENT OF WATER SUPPLY ITEM ESTIMATED UNIT ITEM NO. QUANTITY UNIT DESCRIPTION COST COST WATER SYSTEM 1 L.S. LS Lump Sum for mobilization; demoblization; etc. $50,000.00 $50,000.00 2 1,022 LF 8" Ductile Iron Pipe _ $143.00 $146,146.00 3 3,620 LF 6" Ductile Iron Pipe $133.00 $481,460.00 4 5 EA 6 "x6 "x6" DI Tee, MJ $1,100.00 _ $5,500.00 5 4 EA 8 "x8 "x6" DI Tee, MJ $1,300.00 $5,200.00 6 2 EA 8 "x6" DI Reducer, MJ $860.00 $1,720.00 7 3 EA 6" 45 Deg DI Bend, MJ $860.00 $2,580.00 8 3 EA 6" 22.5 Deg DI Bend, MJ $860.00 $2,580.00 9 5 EA 6" 11.25 Deg DI Bend, MJ $860.00 $4,300.00 10 3 EA 6" DI Cap, MJ, Tapped 2" IPT $690.00 $2,070.00 11 5 EA 8" Gate Valve, MJ, w /Box & Cover $1,880.00 $9,400.00 12 4 EA 6" Gate Valve, MJ, w /Box & Covei $1,610.00 $6,440.00 13 6 EA 1" Air Relief Valve Unit w /Box & Cover $2,500.00 $15,000.00 14 3 EA 2" Clean Out Unit w /Box & Cover $2,500.00 $7,500.00 15 1 EA Fire Hydrant Unit Layout "A' $5,360.00 $5,360.00 16 6 EA Fire Hydrant Unit Layout "B' $6,500.00 $39,000.00 17 7 EA Fire Hydrant Concrete Slab, 4'x4' with Flexible MarkerE $535.00 $3,745.00 18 1 EA 4" & 2" Pressure Reducing Valve Unit w /Box and Cove' $35,000.00 535,000.00 19 11 EA 1" Type A Service Lateral $2,400.00 $26,400.00 20 35 ! EA 1 1/2" Type C Service Lateral $3,100.00 $108,500.00 21 6 1 EA Cut and Plug Existing Service Lateral at main $900.00 $5,400.00 22 1 1 LS Connect to existing 8" waterline at Mamalahoa Highway $9,390.00 $9,390.00 23 4,785 1 LF 'Warning Tape $0.75 $3,588.75 24 1 LS !Chlorination and Testing of Water System $15,000.00 $15,000.00 25 1 1 LS !Construction log, "As Built" plan drawings etc $8,000.00 $8,000.00 I Obtain National Pollution Discharge Elimination System 26 1 LS (NPDES) permit $6,000.00 $6,000.00 1 SUBTOTAL FOR WATER SYSTEM $1,005,279.75 1 WATER LINE TRENCH PATCHING 112 -Inch Minimum Compacted Thickness Subbase 27 73 SY !Course (State ROVV) $47.00 $3,431.00 28 1,118 SY 6 -Inch Minimum Compacted Thickness Subbase Course $26.00 $29,068.00 I 8 -Inch Minimum Compacted Thickness Aggregate Base 29 ! 73 SY 'Course $39.00 $2,847.00 4 -Inch Minimum Compacted Thickness Aggregate Base 30 1,118 SY Course $25.00 $27,950.00 31 73 1 SY 2 -1/2 -Inch Minimum Compacted Thickness AC Mix III $60.00 $4,380.00 32 _ 1,118 1 SY 2 -Inch Minimum Compacted Thickness AC Mix 3 $65.00_ $72,670.00 33 20 SY Patching five Concrete Driveways within State ROW $50.00 $1,000.00 SUBTOTAL - WATER LINE TRENCH PATCHING $141,346.00 1 SUMMARY 1 WATER SYSTEM 1 $1,005,279.75 WATER LINE TRENCH PATCHING $141,346.00 CONTINGENCY (15 %) 1 $171,993.86 TOTAL CONSTRUCTION COST ESTIMATE $1,318,619.61 1 ! 1 OTHER COSTS Design and Survey 1 $125,350.00 State Highway Easement j $20,000.00 Environmental Assessment $26,400.00 Legal Fees $39,500.00 Miscellaneous Costs $39,500.00 TOTAL OTHER COST ESTIMATE 1 $250,750.00 1 1 TOTAL PROJECT ESTIMATE $1,569,369.61 5 The majority of the funding for the project is proposed from the USDA's Rural Utilities Service Water and Waste Water Loan and Grant program through the USDA's State of Hawai`i Rural Development Office. The amount of the loan ($1,169,000) and grant ($353,369) is based on the median income of the users within the improvement district. The remaining $47,000 is to be financed by the Department of Water Supply. 8. Necessary Plans, Data, Detail, and Specifications All necessary plans and other data, details and specifications for the improvements and any other matters or details intended to apply thereto are contained in the following exhibits appended to this report: 1. Map titled Proposed Kona Ocean View Properties Subdivision Water System Improvement District ", Exhibit A. 2. Pre - Application by the County of Hawaii Department of Water Supply Kona Ocean View Properties Water System Improvements, Water and Waste Disposal System for Rural Communities dated 12/9/09, Exhibit B. 3. Letter of Conditions from USDA State Director Chris J. Kanazawa dated July 28, 2008, Exhibit C. 4. Proposed Assessment Roll Kona Ocean View Properties Water Improvement District" based upon available information from County Real Property Tax Division, Exhibit D. 5. List of 20 owners credited for prior payment of facilities connection charge to DWS, Exhibit E. 6. Preliminary Engineering Report for Kona Ocean View Properties Water System Improvements dated July 14, 2010, Exhibit F. Conclusion Given the public health and safety concerns associated with the existing substandard water supply to the Kona Ocean View Properties subdivision, it is imperative that a County dedicable water system be constructed within the subdivision. It is the finding of this report that the proposed water improvement district fully meets the "public interest" standard specified in Chapter 12 -10(i) of the Hawaii County Code to warrant a Council- initiated improvement district resolution. Moreover, given that all measures and proposals have been studied exhaustively, and that the only feasible, enforceable and affordable plan to implement such a system is through a combined USDA loan/grant and a Council- initiated improvement district resolution, it is incumbent on the Council, DWS, and all affected property owners to ensure that this effort goes forward. Milton D. Pavao, Manager, Department of Water Supply 6 EXHIBIT A S 11 111.111111 II al11111111 T " T. x ! ' \ \ I ,. 7/2 f\ -- Yi i . 1 T , V I i r _ _ , T 1 _- o 1 i� ____H .. --, 0 I i IC 1 — ,--, , 1 1 n , o I i r D -- -- --T li O , I A .0 ry, , , D 7J Z i I� I ! � 1 D �O 1i \- 2 I - I n � -- - - Frl D -- -- -- , i , o z -- -- 0 i m Z '' - I Fri -,N s h HI o K,-, 1(., z - 0 1 r^ ' � G V/ \ RO —I o ,-- r----.-/i.0,,,,, , ,,,, �y ,r,y < O /^ a i � I -I Z 0 _,, ,. , (7)- ,=) ,, _______ __, 0 1 GO I 1__ O ROAD "B'1 (30 FT ROW) C � J D O i ll (-7— ■ -<m - I z o. c [ 1 i AO. i A � D v .. .. .. .. .. N1bON 31 `! . - -- - - - - - MAMALAHOA HIGHWAY (STATE) EXHIBIT B APPLICATION FOR Version 7/03 FEDERAL ASSISTANCE 2. DATE SUBMITTED — Applicant Identifier 1. TYPE OF SUBMISSION: 3. DATE RECEIVED BY STATE State Application Identifier Application Pre - application n Construction Construction 4. DATE RECEIVED BY FEDERAL AGENCY Federal Identifier 0 Non - Construction _ 1_1 Non-Construction 5. APPLICANT INFORMATION __ Legal Name: — Organizational Unit: _— Department of Water Supply County of Hawaii, Department of Water Supply ____ _ Organizational DUNS: Division: 06 -254 -3587 _ __ Address: _..— _ Name and telephone number of person to be contacted on matters Street: involving this application (give area code) _ __ 345 Kekuanaoa Street Prefix: First Name: Mr. Ryan _____ City: - - -- - -- - Middle Name -• - -- Hilo - County: Last Name ~` Hawaii Quitoriano State: Zip Code Suffix: Hawaii __ 96740 _ Country: Email: United States of America rquitoriano ©hawaiidws.org 6. EMPLOYER IDENTIFICATION NUMBER (E!N): Phone Number (give area code) Fax Number (give area code) 9 9_ 6 0 0 0 7 2 5 (808) 961 -8070 Ext. 256 (808) 961 -8080 8. TYPE OF APPLICATION: - 7. TYPE OF APPLICANT: (See back of form for Application Types) il/ New T" i Continuation 1 -. Revision B If Revision, enter appropriate letter(s) in box(es) (See back of form for description of letters.) — _ Other (specify) _ Other (specify) 9. NAME OF FEDERAL AGENCY: U.S. Department of Agriculture, Rural Utility Service 10. CATALOG OF FEDERAL DOMESTIC ASSISTANCE NUMBER: 11. DESCRIPTIVE TITLE OF APPLICANT'S PROJECT: .--f- --0-_..7- 6 0 Kona Ocean View Properties Water System Improvements TITLE (Name of Program): Water and Waste Disposal System for Rural Communities 12. AREAS AFFECTED BY PROJECT (Cities, Counties, States, etc.): County of Hawaii 13. PROPOSED PROJECT 14. CONGRESSIONAL DISTRICTS OF: Start Date: Ending Date: a. Applicant b. Project 6/1/10 6/1/11 Hawaii District 2 Hawaii District 2 15. ESTIMATED FUNDING: 16. IS APPLICATION SUBJECT TO REVIEW BY STATE EXECUTIVE ORDER 12372 PROCESS? a. Federal °U THIS PREAPPLICATION /APPLICATION WAS MADE 1,519,368 a. Yes. AVAILABLE TO THE STATE EXECUTIVE ORDER 12372 b. Applicant i, 00 PROCESS FOR REVIEW ON 50,000 c. State - . °U DATE: d. Local $ 00 b. No. I J PROGRAM IS NOT COVERED BY E. O. 12372 - e. Other $ 1i OR PROGRAM HAS NOT BEEN SELECTED BY STATE ___ FOR REVIEW f. Program Income . 17. IS THE APPLICANT DELINQUENT ON ANY FEDERAL DEBT? g. TOTAL $ 1,569,368 1 Yes If "Yes" attach an explanation. i No 18. TO THE BEST OF MY KNOWLEDGE AND BELIEF, ALL DATA IN THIS APPLICATION / PREAPPLICATION ARE TRUE AND CORRECT. THE DOCUMENT HAS BEEN DULY AUTHORIZED BY THE GOVERNING BODY OF THE APPLICANT AND THE APPLICANT WILL COMPLY WITH THE ATTACHED ASSURANCES IF THE ASSISTANCE IS AWARDED. a. Authorized Representative__ pj efix First Name Middle Name r Milton D. Last Name Suffix Pavan _ b. Title - c. Telephone Number (give area code) Manager (808) 961 -8050 d. Signature of Authorized Representative e. Date Signed /2/749 Previous Edition Usable Standard Form 424 (Rev.9 -2003) Authorized for Local Reoroduction Prescribed by OMB Circular A -102 o o o o o l o o o o o a o 0 0 o 0 o o o o o o !! 0 0 0 o o o o o o o 0 0 0 0 m N O 0 O 0 0 0 O 0 I.0 0 0 U) d• CI O 0) 0) _ o p • O O U) O N O f` O (O (0 O O M (D CO Cr) 0) Cr) Cr) C'? Ts Q Z 0 O) O (f) (o (o O r O) O O) > a • W Cr) N 1 N CO M CO O (0 d v rt L 2 ,L0 c6 V) r r r A— r C2. 3 c U Q c O c N CO ° m U E a 3 • I-- LL 'o 0 , o P. L al •i a> 12 V N c as A m ER ER 69 69 ER ER ER 69 69 ER 63 ER 69 69 69 ER ER V) a z .0 0 0 0 0 0 0 0 0 0 0 o o O 0 0 0 t o 0 0 0 0 0 0 0 0 0 0 0 o a o 0 c) O 0 O y a) • .a c co c O 3 • o o V! u < a ., to z V to 03 o 112 0) � O En, O o o X L, a >, a .rn 0 a 'm C D O o 2 V u 69 ER ER ER EA 69 ER ER ER ER ER 69 69 69 69 69 U ( o c L p 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 r 47• 0 L. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 c u C o 0 o 0 0 (r) 0 (n v 0) 0) Z - v O v s° n 0 0 M CO (0 (° N- 0) CO CO z E a. 0 .c c o u (6 (o o) ' of m D CO N N N •;:r M O) r` co (o W v) C[ i o r r M r to u.) J to _ O V r r r r Q o 3 0 ca a) O Lu Q t I..- w m `o cd " w LL m �) N po w c U. o .c Z cr, j O c to ER 69 ER ER 69 69- ER ER ER EA 69 ER ER E/). 69 Q W 0 ca D () m CO .o 3 N (i O a) v` E co c) a) o o C .' h m Z p• w a) Z 0 a) a) O - a) co a N Q y 0. c N U Tti U ) -� q - cis N c o co IT c T E - 0 y U a) c0 Q M D. (0 N �) C �- LL t 3 a - m CO a) 0 0 0 • CO x v'_ d c co N I— y • sO Ca O - in 1•- a) L to O N w O � O c 0 N a) c m O c c w m c a 0 0 -o E ro a) > w G) d N to c c O J • J O 0 m y w (� 0 c s a c °- c a) < c Q x N a) co 3 .m N _2 o - 0 c .x o o a) c 1— rn 1- a d a) o c w m o = 2 E co O 0 w -J ca O ( y 3 • - O a v F- c 1- y Q n 0- vs Q 8 m - 0 m a� c W U t O N • tii -a Q J Q 0 al (1 o 0 W (.0 U (.1) a O V W o 5 2 r (...1 c v ui (d r; oe of ° - (r° 1 4. OMB Approval No. 0348 -0042 ASSURANCES - CONSTRUCTION PROGRAMS Public reporting burden for this collection of information is estimated to average 15 minutes per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding the burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Office of Management and Budget, Paperwork Reduction Project (0348- 0042), Washington, DC 20503. PLEASE DO NOT RETURN YOUR COMPLETED FORM TO THE OFFICE OF MANAGEMENT AND BUDGET. SEND IT TO THE ADDRESS PROVIDED BY THE SPONSORING AGENCY. NOTE: Certain of these assurances may not be applicable to your project or program. If you have questions, please contact the Awarding Agency. Further, certain Federal assistance awarding agencies may require applicants to certify to additional assurances. If such is the case, you will be notified. As the duly authorized representative of the applicant, I certify that the applicant: 1. Has the legal authority to apply for Federal assistance, 8. Will comply with the Intergovernmental Personnel Act and the institutional, managerial and financial capability of 1970 (42 U.S.C. § §4728 -4763) relating to prescribed (including funds sufficient to pay the non - Federal share standards for merit systems for programs funded of project costs) to ensure proper planning, under one of the 19 statutes or regulations specified in management and completion of the project described in Appendix A of OPM's Standards for a Merit System of this application. Personnel Administration (5 C.F.R. 900, Subpart F). 2. Will give the awarding agency, the Comptroller General 9. Will comply with the Lead -Based Paint Poisoning of the United States and, if appropriate, the State, Prevention Act (42 U.S.C. § §4801 et seq.) which through any authorized representative, access to and prohibits the use of lead -based paint in construction or the right to examine all records, books, papers, or rehabilitation of residence structures. documents related to the assistance; and will establish a proper accounting system in accordance with 10. Will comply with all Federal statutes relating to non - generally accepted accounting standards or agency discrimination. These include but are not limited to: (a) directives. Title VI of the Civil Rights Act of 1964 (P.L. 88 -352) which prohibits discrimination on the basis of race, 3. Will not dispose of, modify the use of, or change the color or national origin; (b) Title IX of the Education terms of the real property title, or other interest in the Amendments of 1972, as amended (20 U.S.C. § §1681 site and facilities without permission and instructions 1683, and 1685 - 1686), which prohibits discrimination from the awarding agency. Will record the Federal on the basis of sex; (c) Section 504 of the interest in the title of real property in accordance with Rehabilitation Act of 1973, as amended (29 U.S.C. awarding agency directives and will include a covenant §794), which prohibits discrimination on the basis of in the title of real property aquired in whole or in part handicaps; (d) the Age Discrimination Act of 1975, as with Federal assistance funds to assure non- amended (42 U.S.C. § §6101- 6107), which prohibits discrimination during the useful life of the project. discrimination on the basis of age; (e) the Drug Abuse Office and Treatment Act of 1972 (P.L. 92 -255), as 4. Will comply with the requirements of the assistance amended, relating to nondiscrimination on the basis of awarding agency with regard to the drafting, review and drug abuse; (f) the Comprehensive Alcohol Abuse and approval of construction plans and specifications. Alcoholism Prevention, Treatment and Rehabilitation Act of 1970 (P.L. 91 -616), as amended, relating to 5, Will provide and maintain competent and adequate nondiscrimination on the basis of alcohol abuse or engineering supervision at the construction site to alcoholism; (g) § §523 and 527 of the Public Health ensure that the complete work conforms with the Service Act of 1912 (42 U.S.C. § §290 dd -3 and 290 ee approved plans and specifications and will furnish 3), as amended, relating to confidentiality of alcohol progress reports and such other information as may be and drug abuse patient records; (h) Title Vill of the required by the assistance awarding agency or State. Civil Rights Act of 1968 (42 U.S.C. § §3601 et seq.), as amended, relating to nondiscrimination in the sale, 6. Will initiate and complete the work within the applicable rental or financing of housing; (i) any other time frame after receipt of approval of the awarding nondiscrimination provisions in the specific statute(s) agency. under which application for Federal assistance is being made; and, Q) the requirements of any other 7. Will establish safeguards to prohibit employees from nondiscrimination statute(s) which may apply to the using their positions for a purpose that constitutes or application. presents the appearance of personal or organizational conflict of interest, or personal gain. Standard Form 424D (Rev. 7 -97) Previous Edition Usable Authorized for Local Reproduction Prescribed by OMB Circular A -102 11. Will comply, or has already complied, with the National Environmental Policy Act of 1969 (P.L. 91- requirements of Titles 11 and III of the Uniform Relocation 190) and Executive Order (EO) 11514; (b) notification Assistance and Real Property Acquisition Policies Act of of violating facilities pursuant to EO 1173$; (c) 1970 (Pl. 91 -646) which provide for fair and equitable protection of wetlands pursuant to EO 11990; (d) treatment of persons displaced or whose property is evaluation of flood hazards in floodplains in accordance acquired as a result of Federal and federally- assisted with EO 11988; (e) assurance of project consistency programs. These requirements apply to all interests in real with the approved State management program property acquired for project purposes regardless of developed under the Coastal Zone Management Act of Federal participation in purchases. 1972 (16 U.S.C. § §1451 et seq.); (f) conformity of Federal actions to State (Clean Air) Implementation 12. Will comply with the provisions of the Hatch Act (5 U.S.C. Plans under Section 176(c) of the Clean Air Act of § §1501 -1508 and 7324 -7328) which limit the political 1955, as amended (42 U.S.C. § §7401 et seq.); (g) activities of employees whose principal employment protection of underground sources of drinking water activities are funded in whole or in part with Federal funds. under the Safe Drinking Water Act of 1974, as amended (P.L. 93 -523); and, (h) protection of 13. Will comply, as applicable, with the provisions of the Davis- endangered species under the Endangered Species Act Bacon Act (40 U.S.C. § §276a to 276a -7), the Copeland Act of 1973, as amended (P.L. 93 -205). (40 U.S.C. §276c and 18 U.S.C. §874), and the Contract Work Hours and Safety Standards Act (40 U.S.G. § §327- 16. Will comply with the Wild and Scenic Rivers Act of 333) regarding labor standards for federally- assisted 1968 (16 U.S.C. § §1271 et seq.) related to protecting construction subagreements. components or potential components of the national wild and scenic rivers system. 14. Will comply with flood insurance purchase requirements of Section 102(a) of the Flood Disaster Protection Act of 1973 17. Will assist the awarding agency in assuring compliance (P.L. 93 -234) which requires recipients in a special flood with Section 106 of the National Historic Preservation hazard area to participate in the program and to purchase Act of 1966, as amended (16 U.S.C. §470), EO 11593 flood insurance if the total cost of insurable construction (identification and protection of historic properties), and and acquisition is $10,000 or more. the Archaeological and Historic Preservation Act of 1974 (16 U.S.C. § §469a -1 et seq.). 15. Will comply with environmental standards which may be prescribed pursuant to the following: (a) institution of 18. Will cause to be performed the required financial and environmental quality control measures under the compliance audits in accordance with the Single Audit Act Amendments of 1996 and OMB Circular No. A -133, "Audits of States, Local Governments, and Non - Profit Organizations." 19. Will comply with all applicable requirements of all other Federal laws, executive orders, regulations, and policies governing this program. SIGNATURE OF U ORIZED CERTIFYING OFFICIAL TITLE Manager APPLICANT ORGANIZATION DATE SUBMITTED Department of Water Supply County of Hawaii November 20, 2009 SF -424D (Rev. 7 -97) Back EXHIBIT C USDA moo_ Rural United States Department of Agriculture Rural Development Hawaii State Office - Western Pacific Region July 28. 201(1 \Ir. Niilton U. i'avao. A1anaaer Department of Water Supply Comm of 1 lavWai1 -15 Kekuanaoa Street Hilo, Hawaii 967 20 Dear \1u. I'avao: Subject: Letter of Conditions County of 1 iawaii - Department of Water Supply Kona Ocean \'ie\\ Properties Sulldivision Waterline Impro\cnlenls S 1 ,169,1)0(1 Direct Loan and $353.3(;0 ( ;rant 1'his letter \\till the enclosures, establishes conditions \\Mich \ou must understand and agree to before further Ctinsidcralic n ilia\ be gi\en to vour application. 1110 1la\\aii State Office staff or i i);\ Rural Development (RI)) will administer the load and _rant on behalf of the Rural l tilities Scry icc ( 1■1 Iti) YOU ;must report any changes in design. project COS1, Source Of lulldS, S'.0 pe of ser\Ices. or all\ Other significut1 chan0cs In the project to RI) for re\ ie\\ and approval. A written amendment Io this letter \\ ill be prepared for approved changes. Changes not appro\ed h\ RD may he cause for discontinuing. processing of the application. Your documents concerning the creation and legal existence of your entity are administratively acceptable: ho\\e\ the documents will be reviewed further h\ our Office of the General Counsel at the time your file is for\\ arded for closing instructions. An\ changes required by our Office Of the General Counsel will be included in the closing Instructions. This letter is not to he considered as loan approval or as representation to the availability of funds. You ilia\ he required to refinance (graduate) the unpaid balance of the RI) lean, in \\ hole or in part. if at any time R1) deterillines your elltit\ Is able to obtain a loan for such purposes from responsible CooperatiA or private sources ai reasonable rates and terms Itir loans for silililar purposes aild periods of time. Room 3 i 1 Federal Building 154 , ,Naianuenue A.verue Hilo. Hav:a:: 96720 Tel ;3081 933 -8380. FAX r808> 933 -8327. TDD 1.808i 933 -8.321 ht.p /iwww rurdev usda gov Commuted to :'he (urure o f rural communities Rural Development is an Equal Opportunity Lender, Provider, and Employer Complaints of discrimination should be sent to USDA. Director, Office of Civil Rights, Washington. D C 20250 -9410 Mr. Milton D. Pavao, Manager Page 2 Department of Water Supply July 28, 2010 County of Hawaii All parties may access our website located at www.usda.gov /rus /water/ for the following: a. RUS Instruction 1780 b. RUS Bulletin 1780 -26, "Guidance for the Use of EJCDC Standard Documents on Water and Waste Projects with RUS Financial Assistance" c. RUS Bulletin 1780 -30, "Water Programs Audit Guide and Compliance Supplement " d. RUS Bulletin 1780 -31, "Water Programs Compliance Supplement For OMB Circular A- 133 Audits" The conditions referred to above are as follows: 1. Project Budget — Funding from all sources has been budgeted for the estimated expenditures as follows: Proiect Costs: Development . $ 1,146,625 Land and Rights 20,000 Administrative & Legal Fees 39,500 Environmental Report/Engineering Fees 125,350 Inspection Fees 26,400 Other 39,500 Project Contingency 171,994 Total Project Costs: $ 1,569,369 2. Project Funds — The project funding is planned in the form of a loan and grant from the following sources and amounts: Project Funding Source: Funding Amounts Applicant Contributions $ 47,000 RUS Loan 1,169,000 RUS Grant 353,369 Total Project Funding (All Sources): $ 1,569,369 Any changes in funding sources following the obligation of RD funds must be reported to the RD processing official. You must assure that all project funds are expended only for the eligible items included in the project budget of this letter of conditions or as amended by RD in writing at a later date. Prior to the advertisement for construction bids, you must provide evidence of applicant contributions and approval of the other grants. This evidence should include a copy of the grant award. An agreement should be reached with all funding sources on how funds are to be disbursed before the start of construction. 3. Disbursement of Funds — Any applicant contribution shall be considered as the first funds expended. After providing for all authorized costs, any remaining RD project funds will be considered to be RD grant funds and refunded to RD. If the amount of unused RD project funds exceeds the RD grant, that part would be RD loan funds and applied as an extra payment. Mr. Milton D. Pavao, Manager Page 3 Department of Water Supply July 28, 2010 County of Hawaii The RD funds will be advanced as they are needed in the amount(s) necessary to cover the RD proportionate share of any disbursements required of your entity, over 30 day periods. Funds will be disbursed by electronic transfer of funds. Interim financing should be used for the RD loan portion of funding if it is available at reasonable rates and terms. Interim financing should not increase project costs unless your proposed operating budget supports such additional costs. You must provide RD with a copy of the tentative agreement reached in connection with interim financing for review and approval. You must establish a separate account, to be known and hereafter referred to as the Construction Account, with a participating 31 CFR Part 202 collateral depository, federal agency, or Federal Reserve Bank acting as a fiscal agent in the United States. All project funds will be deposited into this account. The account shall be used solely for the purpose of paying authorized costs of the project as outlined in the project budget. Once the funds are deposited into the Construction Account, they become your responsibility. Financial institutions or depositaries accepting deposits of public funds and providing other financial agency services to the Federal Government are required to pledge adequate, acceptable securities as collateral. General requirements for designating depositaries and regulations governing the pledging of collateral are identified in 31 CFR Part 202 ( "Depositaries and Financial Agents of the Federal Government "). Treasury's current acceptability and valuation requirements are identified in 31 CFR Part 380 ( "Collateral Acceptability and Valuation ") and specific eligibility and valuation guidance is provided in Treasury's procedural instructions and on Treasury's Bureau of the Public Debt website at www.publicdebttreas.gov. All funds in the account will be secured by a collateral pledge equaling at least 100% of the highest amount of funds expected to be deposited in the Construction Account at any one time. Any RD grant funds not disbursed immediately upon receipt must be deposited in an interest bearing account except as follows: a. Federal grant awards (includes all federal funding sources) are less than $120,000 per year. b. The best available interest bearing account would not be expected to earn in excess of the following: Public Bodies Interest eamed on grant funds in excess of $100 per year will be submitted to RUS at least quarterly as required in 7 CFR 3016. c. The depository would require a minimum balance so high that it would not be feasible. 4. Security — (GO Bonds - Public Body) The loan must be secured by a general obligation bond, a pledge of the system's revenues and other agreements between you and RD as set forth in the bond resolution. The services of a recognized bond counsel are required. The bond counsel will prepare the form of resolution to be used, in accordance with Subpart D of RUS Instruction 1780. You should immediately provide your bond counsel with a copy of this letter of conditions, attachments, and enclosures. Mr. Milton D. Pavao, Manager Page 4 Department of Water Supply July 28, 2010 County of Hawaii 5. Loan Repayment — (Annual Installments) The loan will be scheduled for repayment over a period of 35 years. The payments due the first 2 years will consist of interest only. Payments for the remaining 33 years will be equally amortized annual installments. For planning purposes use a 3.25% interest rate and an annual amortization factor of $48.26/$1,000, which provides for an annual payment of $56,416. The interest rate will be the lower of the rate in effect at the time of loan approval or the time of loan closing, whichever is less, unless you choose otherwise. Should the interest rate be reduced, the payment will be recalculated to the lower amount. The payment due date will be established as the day that the loan closes. Interest only payments during the 24 -month deferral period will be made by your applicant funds on an annual basis. You will be required to complete SF -5510, Authorization Agreement for Preauthorized Payments for all new and existing indebtedness to RD. It will allow for your payment to be electronically debited from your account on the day your payment is due. 6. Reserves — Reserves must be properly budgeted to maintain the financial viability of any operation. Reserves are important to fund unanticipated emergency maintenance and repairs, and assist with debt service should the need arise. Reserves can also be established and maintained for the anticipated and expected expenses including but not limited to operation and maintenance, customer deposits, and asset management for short-lived assets. As a part of this RD loan proposal you must establish and fund monthly a debt service reserve fund equal to 10% of the annual payment each year over the life of the loan until you accumulate one annual installment. This reserve is required to establish an emergency fund for emergency maintenance and repairs and debt repayment should the need arise. Ten percent of the proposed loan installment would equal $5,642 per year. 7. Users — This letter of conditions is based upon you providing evidence or a certification that there will be at least 81 users on the existing system when construction has been completed. Before RD can agree to the project being advertised for construction bids, you must provide evidence or a certification that the total required number of users are currently using the system or signed up to use the system and that the monthly water usage projected for each by the engineer is reasonable. 8. Income Available — You must maintain a rate schedule that provides adequate income to meet the minimum requirements for operation and maintenance, debt service, and reserves. 9. Delayed Payment Penalty — On all accounts not paid in full within twenty (20) days of date of bill, ten percent (10 %) will be added to net amount due. Mr. Milton D. Pavao, Manager Page 5 Department of Water Supply July 28, 2010 County of Hawaii 10. Operation and Maintenance Expenses — O &M expenses must be properly budgeted to ensure the financial viability of any operation. For planning purposes, we have projected O &M expenses based on the information provided in the preliminary engineering report which should be representative of a typical year. This information is utilized to determine loan repayment and should be reflected in your proposed operating budget. It is expected that O &M will change over each successive year and user rates will need to be adjusted appropriately. 11. Proposed Operating Budget and User Rate Analysis — You will be required to submit a copy of your proposed annual operating budget and rate analysis to RD which supports the proposed loan repayment prior to RD giving you written authorization to proceed with the bidding phase. The operating budget should be based on a typical year cash flow after completion of the construction phase. The rate analysis will be required to show the number of users, their average consumption based on a twelve month consecutive average, and rate structure to support the necessary revenue to make the operating budget cash flow. Form RD 442 -7 - "Operating Budget," or similar form may be utilized for this purpose. 12. Insurance and Bonding Requirements — Prior to loan closing or start of construction, whichever occurs first, you must acquire the types of insurance and bond coverage shown below. The use of deductibles may be allowed providing you have the financial resources to cover potential claims requiring payment of the deductible. RD strongly recommends that you have your engineer, attorney, and insurance provider(s) review proposed types and amounts of coverage, including any exclusions and deductible provisions. It is your responsibility and not that of RD to assure that adequate insurance and fidelity or employee dishonesty bond coverage is maintained. a. General Liability Insurance — Include vehicular coverage. b. Workers' Compensation — In accordance with appropriate State laws. c. Position Fidelity Bond(s) — All positions occupied by persons entrusted with the receipt and/or disbursement of funds must be bonded. You should have each position bonded in an amount equal to the maximum amount of funds to be under the control of that position at any one time. The minimum coverage acceptable to RD will be for each position to be bonded for an amount at least equal to one annual installment on your loan(s). The coverage may be increased during construction of this project based on the anticipated monthly advances. The amount of coverage should be discussed and approved by RD. d. National Flood Insurance — If the project involves acquisition or construction in designated special flood or mudslide prone areas, you must purchase a flood insurance policy at the time of loan closing. e. Real Property Insurance — Fire and extended coverage will normally be maintained on all structures except reservoirs, pipelines and other structures if such structures are not normally insured and subsurface lift stations except for the value of electrical and pumping equipment. Prior to the acceptance of the facility from the contractor(s), you must obtain real property insurance (fire and extended coverage) on all facilities identified above. Mr. Milton D. Pavao, Manager Page 6 Department of Water Supply July 28, 2010 County of Hawaii 13. Accounting Services — You may be required to obtain the services of an independent licensed Certified Public Accountant (CPA). When permitted by state statutes or with the approval of RD, a state or Federal auditor may perform the audit in lieu of a CPA. A CPA will be considered independent if the CPA: a. Meets the standards for independence contained in the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct in effect at the time the CPA's independence is under review; b. Does not have any direct financial interest or any material indirect financial interest in the borrower during the period covered by the audit; and c. Is not, during the period of the audit, connected with the borrower as a promoter, underwriter, trustee, director, officer or employee. 14. Audit Aizreement - You must enter into a written audit agreement with the auditor and submit a copy to RD prior to advertisement of bids. The audit agreement may include terms and conditions that the borrower and auditor deem appropriate; however, the agreement should include the following: a. A statement that the auditor will perform and document the audit work in accordance with Generally Accepted Government Auditing Standards, (GAGAS) and the professional standards of the AICPA; b. A statement that the auditor will submit the completed audit and accompanying letters to your governing body 30 days prior to the date the audit is due to RD; c. A statement that the auditor will make all audit - related documents, including work papers, available to RD or its representatives, upon request; and d. A statement that the auditor will immediately report, in writing, all irregularities and illegal acts to your governing body and the Agency. e. Prior to the advertisement for bids, your accountant must certify to you and RD that the accounts and records as required by your bond resolution have been established and are operational. Quality Review Requirement: As required by GAGAS, the auditor must belong to and participate in an external quality review program and provide you with a copy of the most recent quality review report. These reviews are performed every 3 years by an independent organization to determine if the auditor is following established audit procedures and applicable auditing standards. • Mr. Milton D. Pavao, Manager Page 7 Department of Water Supply July 28, 2010 County of Hawaii Audit Requirements: The following management data will be required from you on an annual basis and be submitted to RD as specified below: a. A borrower that expends $500,000 or more in federal financial assistance per fiscal year shall submit an audit performed in accordance with the requirements of OMB Circular A - 133. As described above, the total federal funds expended from all sources shall be used to determine federal financial assistance expended. Projects financed with interim financing are considered federal expenditures. OMB Circular A -133 audits shall be submitted no later than 9 months after the end of the fiscal year. In addition to submitting two (2) copies of the audit report to RD, the borrower is also required to submit copies of OMB Circular A -133 audits, accompanying audit letters (the "reporting package "), and the Data Collection Form to the Federal clearinghouse designated by OMB to retain as an archival copy. The Federal clearinghouse address is: Federal Audit Clearinghouse, Bureau of the Census, 1201 E. 10th Street, Jeffersonville, Indiana 47132. RUS Bulletin 1780 -31, "Water Programs Compliance Supplement for OMB Circular A -133 Audits" outlines the requirements of OMB Circular A -133 audits." b. A borrower that expends less than $500,000 in Federal financial assistance per fiscal year and an outstanding RD loan balance of $1,000,000 or more shall submit an audit performed in accordance with Water and Waste audit requirements (i.e., a GAGAS audit). These audits shall be submitted to RD no later than 150 days after the end of the fiscal year. Two (2) copies of the audit report are required by RD. An audit performed in accordance with Water and Waste audit requirements should not be submitted to the Federal clearinghouse. RUS Bulletin 1780-30, "Water Programs Audit Guide and Compliance Supplement" outlines the requirements for Water Programs Audits. c. A borrower that expends less than $500,000 in Federal financial assistance per fiscal year and has an outstanding RD loan balance of less than $1,000,000 may submit a management report in lieu of an audit report unless notified by RD otherwise. Management reports shall be submitted to RD no later than 60 days after the end of the fiscal year. The audit report must be submitted no later than 150 days after the end of the borrower's fiscal year. d. Compensation for preparation of the A -133 audit or your annual audit is not included in project funds and should Et paid from the operational revenues generated from your system operation. 15. Legal Services — The Agency will review the "Legal Services Agreement." The Agreement should be submitted for Agency concurrence and approval. Project funding included for this purpose should be outlined in the Agreement. 16. Property Rights — Acquisitions of necessary land and rights must be accomplished in accordance with the Uniform Relocation and Real Property Acquisition Act. Mr. Milton D. Pavao, Manager Page 8 Department of Water Supply July 28, 2010 County of Hawaii Prior to advertisement for construction bids, you must furnish satisfactory evidence that you have or can obtain adequate continuous and valid control over the lands and rights needed for the project. Such evidence of control over the lands and rights must be in the following form: a. A right -of -way map showing clearly the location of all lands and rights needed for the project. The map must designate public and private lands and rights and the appropriate legal ownership thereof. b. Preliminary Title Work - Copies of deeds, contracts, leases, or options for any real estate needed along with a title insurance binder. c. For existing facilities, this will include previously acquired rights. The binder will be in the amount of the proposed loan and name the United States of America, acting through the United States Department of Agriculture, as the proposed insured. d. A certification and legal opinion relative to title to rights - of-way and easements. Form RD 442 -22, "Opinion of Counsel Relative to Rights -of- Way," may be used. This form may contain a few exceptions such as properties that must be condemned; however, prior to the start of construction or loan closing, whichever occurs first, a new Form RD 442 -22, must be provided which contains no exceptions. e. A narrative opinion from your attorney concerning all permits, certificates, licenses and other items necessary to show that all legal requirements can be met and stating how they will be met. f. Final Title Work - On the day of loan closing, your attorney must furnish a separate final title opinion on all existing land(s) and those to be acquired on the day of loan closing. Form RD 1927 -10, "Final Title Opinion" may be used. 17. Engineering Services — RD must approve any agreements or modifications to agreements for professional design services. The agreement for engineering services should consist of the EJCDC documents as indicated in RUS Bulletin 1780 -26, "Guidance for the Use of EJCDC Standard Documents on Water and Waste Projects with RUS Financial Assistance" or other approved form of agreement. 18. Resident Inspection — Full - time inspection is required unless waived or modified by RD in writing prior to advertisement for bids. This service is to be provided by the consulting engineer or other arrangements as approved by RD. Prior to the pre - construction conference, a resume of qualifications of the resident inspector(s) will be submitted to the owner and RD for review and approval. The owner will provide a letter of acceptance for all proposed inspectors to the engineer and RD. The resident inspector(s) must attend the pre - construction conference. 19. Environmental Requirements/Project Modifications — The project as proposed has been evaluated to be consistent with all applicable environmental requirements. If the project or any project element deviates from or is modified from the original approved project, additional environmental review may be required. Mr. Milton D. Pavao. 1\tana,er Page 9 Department of Water Supply July 28. 2010 Counh of Hawaii 20. Vulnerability Assessment (V and Emer gency Res ponse Plans ERP) a. Congress enacted the Public Health Security and Bioterrorism Preparedness Response Act of 2002. Public Law 107-188 (Bioterrorisin Act). The Bioterrorism Act amended the Safe Drinking Water (SD\\'A) to require all medium and large sized community water systems (serving populations greater than 3, i00) to assess vulnerability to terrorist attack and develop emergency plans for and to respond to such an attack. b. Existing Borrowers must provide a letter of certification that you have completed a VA and ERP prior to bid authorization. c. RD does not need or want a copy of the VA or I.R.P. The letter of certification will be sufficient to meet our needs. Technical assistance providers are available to provide on site assistance if desired. 2I. Permits - Copies of all permits needed for the project must be provided for review prior to advertisement for c bids. 22. Contract Documents, Final Plans and Specifications a. The contract documents should consist of the EJCDC Construction Contract Documents as indicated in R1. Bulletin 1780-26 or other approved form of agreement. E.JCDC requires all additions and changes to. and deletions from. the standard EJCDC text be clearl\ shown. b. The contract documents, final plans, and specifications nwsi comply with Rl!S Instruction 1780. Subpart C - Planning. Designing. Bidding, Contracting, Construction and Inspections and be submitted to RI..) for approval prior to the advertisement for bids. c. The use of any procurement method other than competitive kidding must he requested in writing and approved b■ RD. d. RD requires a pre - construction conference. pre - final. final. and warranty inspection. e. RD requires prior agency concurrence of all Change Orders. Invoices. and Payment Estimates. f. RD will monitor construction through routine inspections and review of monthly payment estimates. change orders. and Inspectors daily record t0 protect the Interest of the Agency. 2 ?. ;applicable State Statutes and Requirements - All applicable State statutes and requirements !must be islet. Mr. Milton D. Pavao, Manager Page 10 Department of Water Supply July 28, 2010 County of Hawaii 24. Processing Forms - At a properly called meeting, you must adopt and properly execute the following forms, and minutes showing the adoption must be provided: Form No. Name of Form Form RD 400 -1 "Equal Opportunity Agreement;" Form RD 400 -4 "Assurance Agreement;" Form AD 1047 "Certification Regarding Debarment, Suspension and other Responsibility Matters;" Form AD 1049 "Certification Regarding Drug -Free Workplace Requirements;" Form RD 1910 -11 "Applicant Certification, Federal Collection Policies;" FmHA Instruction 1940 -Q Exhibit A -1 "Certification for Contracts, Grants and Loans;" Standard Form LLL "Disclosure of Lobbying Activities" (If Applicable); RUS Bulletin 1780 -22 `Eligibility Certification;" RUS Bulletin 1780 -27 "Loan Resolution (Public Bodies);" RUS Bulletin 1780 -28 "Loan Resolution Security Agreement;" Form RD 1940 -1 "Request for Obligation of Funds;" Form RD 1942 -46 "Letter of Intent to Meet Conditions;" Please complete and return the enclosed Form RD 1942 -46, "Letter of Intent to Meet Conditions," if you desire further consideration be given your application. The loan will be considered approved on the date a signed copy of Form RD 1940 -1, "Request for Obligation of Funds," is mailed to you. Attached is a copy of RUS Bulletin 1780 -12, "Water and Waste System Grant Agreement," for your review. You will be required to execute a completed form at the time of grant closing. 25. Civil Rights & Equal Opportunity — You should be aware of and will be required to comply with other federal statute requirements including but not limited to: a. Section 504 of the Rehabilitation Act of 1973 -- Under section 504 of the Rehabilitation Act of 1973, as amended (29 U.S.C. 794), no handicapped individual in the United States shall, solely by reason of their handicap, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving RD financial assistance. b. Civil Rights Act of 1964 — All borrowers are subject to, and facilities must be operated in accordance with, title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.) and subpart E of part 1901 of this title, particularly as it relates to conducting and reporting of compliance reviews. Instruments of conveyance for loans and/or grants subject to the Act must contain the covenant required by paragraph 1901.202(e) of this title. • Mr. Milton D. Pavao, Manager Page 11 Department of Water Supply July 28, 2010 County of Hawaii c. The Americans with Disabilities Act (ADA) of 1990 — This Act (42 U.S.C. 12101 et seq.) prohibits discrimination on the basis of disability in employment, State and local government services, public transportation, public accommodations, facilities, and telecommunications. Title II of the Act applies to facilities operated by State and Iocal public entities which provides services, programs and activities. Title III of the Act applies to facilities owned, leased, or operated by private entities which accommodate the public. d. Age Discrimination Act of 1975 — This Act (42 U.S.C. 6101 et seq.) provides that no person in the United States shall on the basis of age, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving federal financial assistance. e. RD financial programs must be extended without regard to race, color, religion, sex, national origin, marital status, age, or physical or mental handicap. 26. Bid Authorization - Once all the conditions outlined in this letter have been met, RD may authorize you to advertise the project for construction bids. Such advertisement must be in accordance with appropriate State statutes. No Notice of Award will be issued until RD concurs with the engineer's recommendations. Immediately after bid opening you must provide RD with (a) bid tabulation, and (b) your engineer's evaluation of bids and recommendations for contract awards. If RD agrees that the construction bids received are acceptable, adequate funds are available to cover the total project costs, and all the administrative conditions of loan approval have been satisfied, loan closing instructions will be issued to you setting forth any further requirements that must be met before the loan can be closed, then a Notice of Award may be issued. When all parties agree that the closing requirements can be met, a mutually acceptable date for the loan closing will be scheduled. 27. Cost Overruns — Cost overruns must be due to high bids or unexpected construction problems that cannot be reduced by negotiations, redesign, use of bid alternatives, rebidding or other means prior to consideration by RD for subsequent funding. Such requests will be contingent on the availability of funds. Cost overruns exceeding 20% of the development cost at time of loan or grant approval or where the scope of the original purpose has changed will compete for funds with all other applications on hand as of that date. 28. Use of Remaininz Funds — Applicant contributions and connection or tap fees will be the first funds expended in the project. Remaining funds may be considered in direct proportion to the amounts obtained from each source and handled as follows: a. Remaining funds may be used for eligible loan and grant purposes, provided the use will not result in major changes to the original scope of work and the purpose of the loan and grant remains the same. Mr. Milton D. Pavao, Manager Page 12 Department of Water Supply July 28, 2010 County of Hawaii b. RD loan funds that are not needed will be applied as an extra payment on the RD indebtedness unless other disposition is required by the bond ordinance, resolution, or State statute. c. Grant funds not expended for authorized purposes will be cancelled within 90 days of project completion. Prior to actual cancellation, you and your attorney and engineer will be notified of RD's intent to cancel the remaining funds and given appropriate appeal rights. If the conditions set forth in this letter are not met within 12 months from the date of this letter, RD reserves the right to discontinue processing of the application. In the event the project has not advanced to the point of loan closing within 24 months and it is determined the applicant still wishes to proceed, it may be necessary to review the conditions outlined in this letter. If during that review, it is determined the conditions outlined are no longer adequate, RD reserves the right to require that the letter of conditions be revised or replaced. We believe the information in this letter clearly sets forth the conditions which must be complied with; however, this letter does not relieve you from meeting the requirements of RUS Instruction 1780. If you have any questions, please do not hesitate to contact Ted K. Matsuo, Community Programs Director, at (808) 933 -8310. Sincerely yours, 6 141 1,40 CHRIS JJ • ; A State Di - tor Attachments • • • EXHIBIT D Proposed Assessment Roll Kona Ocean View Properties Water Improvement District 10/9/2010 TMK OWNERS CONTACT ADDRESS Situs Address 7 -2- 08:001 Miller, Robert L.; Miller, Robert L Trst 72 -1110 Puukala Road Kailua -Kona H1 96740 72 -1110 Puukala Road 7 -2- 08:002 Brown, Janet Wells; Brown, Keith 72 -1104 Puukala Road Kailua -Kona HI 96740 72 -1104 Puukala Road 7 -2- 08:003 Brown, Janet Wells; Brown Keith 72 -1104 Puukala Road Kailua -Kona HI 96740 72 -1104 Puukala Road _ 7 -2- 08:004 Kuhns, Leah; Shander, Dina 72 -4003 Puukala Road Kailua -Kona HI 96740 72 -4003 Puukala Road 7 -2- 08:005 Pattengill, Douglas R; Pattengill, Nancy H P.O. Box 3450 Kailua -Kona HI 96745 72 -4007 C Road 7 -2- 08:006 Resetnikov, Lindsay; Resetnikov, Yurik; 73 -4125 Mamalahoa Hwy Kailua -Kona HI 96740 72 -4011 C Road Rice, Richard William 7 -2- 08:007 Francisco, Edgar /Agnes Trst 72 -4015 Mamalahoa Hwy Kailua -Kona HI 96740 72 -4015 C Road 7 -2- 08:008 Starsong, Alicia A; Starsong Daniel K r 72 -4019 Mamalahoa Hwy Kailua -Kona 96740 72 -4019 C Road 7 -2- 08:009 Fowler, Glen John 72 -4018 Mamalahoa Hwy Kailua -Kona 96740 72 -4018 C Road 7 -2- 08:010 Moore, Christine L; Moore, Reggie J 75 -1027 Henry St. Ste. 111A PMB 434 72 -4016 C Road Kailua -Kona HI 96740 7 -2- 08:011 Bell, Kurt D; Bell Lynn T _ P.O. Box 854 Holualoa HI 96725 72 -4012 C Road 7 -2- 08:012 Bollinger, Laura 72 -4008 Mamalahoa Hwy Kailua -Kona HI 96740 72 -4008 C Road 7 -2- 08:013 Madsen, Peter Trst 72 -4004 C Rd Mamalahoa Hwy Kailua -Kona HI 72 -4004 C Road 96740 7 -2- 08:014 j Jama Investments LLC 1436 Young St. Ste 311 Honolulu HI 96814 72 -1080 Puukala Road 7 -2- 08:015 j Fuhrer, Raymond Michael 73 -4820 Kanalani St. Kailua -Kona HI 96740 72 -981 Puukala Road Salone, Danielle Kathleen; Salone, Pierre 7 -2- 08:016 P.O. Box 375 Bolinas CA 94924 72 -985 Puukala Road Sauveur 7 -2- 08:017 Simmons, Garry Scott _ P.O. Box 1613 Kailua -Kona HI 96745 72 -989 Puukala Road 7 -2- 08:018 Malmstrom, Sandra 72 -993 Puukala Rd Kailua -Kona HI 96740 72 -993 Puukala Road 7 -2- 08:019 Eoff, Garry r.; Eoff, Karen M P.O. Box 1602 Kailua -Kona HI 96745 j 72 -1079 Puukala Road 7 -2- 08:020 Bottrell, Susan L; Bottrell Thomas W : 72 -1085 Puukala Rd Kailua -Kona HI 96740 ( 72 -1085 Puukala Road 7 -2- 08:021 Chasey, Lisa; Evans, Peter 72 -1089 Puukala Rd Kailua -Kona HI 96740 72 -1089 Puukala Road 7 -2- 08:022 Ching, Kendall A; Ching Kevin A 14792 Attboro PI Tustin CA 92780 72 -1095 Puukala Road 7 -2- 08:023 Bagwell, Barbara; Bagwell, John Wesley Jr. P.O. Box 5346 Kailua -Kona HI 96745 72 -1099 Puukala Road _ 7 -2- 08:024 Conn, Leodora G P.O. Box 429 Kailua -Kona HI 96745 72 -3986 B Road 7 -2- 08:025 j Zepf, Angela M, David C PO BOX 5433 Kailua -Kona HI 96745 72 -3990 B Road 7- 2- 08:026 Pawasarat, Juliann Marie _ 914 N Kenneth Dr. Green Valley AZ 85614 72 -3992 B Road 7 -2- 08:027 Mekawa, Chieko J Trst. 72 -3996 Hawaii Belt Rd. Kailua -Kona HI 96740 72 -3996 B Road 7 -2- 08:028 Grace, Lorelei; Grace, Ryan 72 -115 Hawaii Belt Rd. Kailua -Kona HI 96740 72 -1115 Puukala Road Chock, Bonnie W L; Chock, Cathy W A; Chock, c/o Chock Bonnie Wai Lung ETAL 7 -2- 08:029 W L; Chock, Cliford Y C; Chock, Galen Y K; 72 -3995 B Road Chock, Gary Y K; Chock Ronald Y S 3304 Kamaaina Dr. Honolulu HI 96817 7 -2- 08:030 Harvey, Verna Ellen; Johnson, Richard Call 72 -3991 Mamalahoa Hwy Kailua -Kona HI 96740 72 -3991 B Road 7 -2- 08:031 Kenney, Marny Louise, Vaughn Gordon RR 1 GRAND PRAIRIE AB, Canada j 72 -3989 B Road 7 -2- 08:032 Tripler, Thomas R P.O. Box 2967 Kailua -Kona HI 96745 72 -3998 E Hawaii Belt Roac 7 -2- 08:033 Victorino, Belinda J; Victorino, Leroy D — I 75 -5870 Walua Rd #100 Kailua -Kona HI 96740 72 -3974 Hawaii Belt Road 7 -2- 08:034 Honda, Yoshiko Trst 45 -202 Waikalua Rd. Kaneohe HI 96744 72 -3988 Hawaii Belt Road 7 -2- 08:035 Malapit, Cathryn Caron _ 72 -3990 Mamalahoa Hwy Kailua Kona, HI 96740 72 -3990 Hawaii Belt Road 7 -2- 08:036 Maekawa, Chieko J Trs. 72 -3996 Hawaii Belt Rd. Kailua -Kona HI 96740 72 -3992 Hawaii Belt Road 7 -2- 08:037 Berdon, Joselyn; Berdon, Clinton K 72 -3994 Hawaii Belt Rd. Kailua -Kona HI 96740 72 -3994 Hawaii Belt Road 7 -2- 08:038 Gomes, Flora; Gomes, Richard A 73 -4645 A Mamalahoa Hwy Kailua -Kona Hi 96740 72 -3998 Hawaii Belt Road 7 -2- 08:039 Not Part of Subdivsion 72 -4402 Hawaii Belt Road 7 -2- 08:040 Stephens, Candy Lei K; Stephens, Hayden B c/o Stephens Hayden B /Candy L K 72 -1081 Puukala Road 72 -1081 Hawaii Belt Rd. Kailua -Kona HI 96740 7 -2- 08:041 Unger, David Leonard, Nelani Kai j P.O. Box 231 Kailua -Kona HI 96745 72 -4020 Road C 7 -2- 09:001 Kobayashi, Betty S Trst; Kobayashi Earl H Trst 76 -6250 Plumeria Rd. Kailua -Kona HI 96740 72 -997 Puukala Road 7 -2- 09:002 Stockel, Arthur F /Annedorthe Trst.; Bell, 72 -1001 Puukala St. Kailua -Kona HI 96740 72 -1001 Puukala Road Nanette Suzanne Trst 7 -2- 09:003 Shinn, Alan L; Muller, Virginia M 2429 Mcgee Berkely CA 94703 72 -1005 Puukala Road 7 -2- 09:004 Fletcher, Joshua M 72 -1009 Mamalahoa Hwy Kailua -Kona HI 96740 72 -1009 Puukala Road 7 -2- 09:005 Mench, Pali L 72 -1011 Puukala Rd Kailua -Kona HI 96740 72 -1011 Puukala Road 7 -2- 09:006 _ Shaw, Kelly Denise; Shaw, Kevin Charles 72 -1017A Mamalahoa Hwy Kailua -Kona HI 96740 72 -1017 Puukala Road 7 -2- 09:007 Kaneshiro, Jan R; Lai,Michael Lee P.O. Box 524 Holualoa HI 96725 72 -1021 Puukala Road 7- 2- 09:008 j Davis, Deidra; Brauer, Dan 72 -1023 Puukala Rd #16 C Kailua -Kona HI 9 72 -1023 Puukala Road 7 -2- 09:009 Labrousse, Russel A; Labrousse,Theresa M 72 -1025 Puukala Rd Kailua -Kona HI 96740 72 -1025 Puukala Road Trst 7 -2- 09:010 China Trade LLC 7469 W Lake Mead Blvd #200 Las Vegas NV 89128 72 -1027 Puukala Road 7 -2- 09:011 McKerlie, Kathleen E Trst 72 -1031 Puukala Road Kailua -Kona HI 96740 72 -1031 Puukala Road 7 -2- 09:012 Coleman, Thomas 8975 Lawrence Welk Dr #331 Escondido CA 92026 72 -1035 Puukala Road 7 -2- 09:013 Hamilton, Catherine 72 -1039 Mamalahoa Hwy Kailua -Kona HI 96740 72 -1039 Puukala Road 7 -2- 09:014 Pacific Rim Education Foundation Inc 79 -7486 Mamalahoa Hwy Kealakekua HI 96750 N/A c/o Ching Albert/Donna 1560 N Michillinda Ave 7 -2- 09:015 Ching Family Trst Pasadena CA 91107 72 -1043 Puukala Road 7 -2- 09:016 Ching Living Trst c/o Ching, Aruthur 0 M 8745 Palmcreek Dr 72 -1047 Puukala Road Rosemead CA 91770 7 -2- 09:017 Calderon Mastros, Family Trst 260 S San Gabriel Blvd Pasadena CA 91107 72 -1051 Puukala Road 7 -2- 09:018 Emmerling, Nina M Trst P.O. Box 2055 Kailua -Kona HI 96745 73 -1055 Puukala Road 7 -2- 09:019 Holdbrook, Jacquelyn S; Holdbrook, Darrel M P.O. Box 3319 Kailua -Kona HI 96745 73 -1059 Puukala Road Nastor, Clarence S; Umu, Harriette H; Cacal, 7 -2- 09:020 Cecil W; Nastor, Bernadine 72-1063 Puukala Rd Kailua -Kona HI 96740 73 -1063 Puukala Road 7 -2- 09:021 Ballard, Bruce L; Ballard, Melanie K 370 Veronica Ave. Sparks NV 89436 73 -1067 Puukala Road Page 1 of 2 Exhibit D Proposed Assessment Roll Kona Ocean View Properties Water Improvement District.xls Proposed Assessment Roll Kona Ocean View Properties Water Improvement District 10/9/2010 TMK OWNERS CONTACT ADDRESS Situs Address 7 -2- 09:022 Stockel, Arthur F /Annedorthe Trst.; Bell, 1 72 -1071 Puukala Rd Kailua -Kona HI 96740 73 -1071 Puukala Road Nanette Suzanne Trst 7 -2- 09:023 Lee, Gerald Brian P.O. Box 5246 Kailua -Kona HI 96745 73 -1075 Puukala Road 7 -2- 09:024 Tanoai, Alfred; Tanoai, Marlis M 72 -982 Puukaala Rd Kailua -Kona HI 96740 73 -1074 Puukala Road 7 -2- 09:025 Szerlip, Stanley R Jr 72 -1070 Puukala Rd Kailua -Kona HI 96745 73 -1070 Puukala Road 7 -2- 09:026 Dawrs, John E; Dawrs, Gail A B ' 75 -1106 Keopu Mauka Dr Holualoa HI 96725 73 -1066 Puukala Road 7 -2- 09:027 Fong, Kooney; Uterra, Norma C; Chun, P.O. Box 1645 Kealakekua HI 96750 73 -1062 Puukala Road Lawrence Decd 7 -2- 09:028 Buser, Viktor P P.O. Box 5596 Kailua -Kona HI 96745 73 -1058 Puukala Road 7 -2- 09:029 Kawamoto, Maverick M P.O. Box 736 Kealakekua HI 96750 73 -1054 Puukala Road 7 -2- 09:030 Keefe, Yoshie W; Keefe, Neil D 21 Broadway Lynn MA 01904 73 -1050 Puukala Road 7 -2- 09:031 Breen, John M Jr; Breen, Orowan 1 P.O. Box 354 Kailua -Kona HI 96745 73 -1046 Puukala Road _ 7 -2- 09:032 Dayton, Linda j 72 -1042 Mamalahoa Hwy Kailua -Kona HI 96740 73 -1036 Puukala Road 7 -2- 09:033 Taylor, Matthew Allan Thomason, Barbara 23 Terrace Circle, Hilo, HI 96720 73 -1026 Puukala Road Faye, Taylor, Paul E. 7 -2- 09:034 Llanes, Donald R P.O. Box 44939 Kamuela HI 96743 73 -1018 Puukala Road _ 7 -2- 09:035 Lou enzuela, Douglas; Valenzuela, Roberta P.O. Box 1962 Kailua -Kona HI 96745 73 -1014 Puukala Road 7 -2- 09:036 Bowen, Peggy Ann P.O. Box 3566 Kailua -Kona HI 96745 73 -1010 Puukala Road 7 -2- 09:037 Youderian, Harvey R; Youderian, Lovena I 76 -177 Royal Poinciana Dr Kailua -Kona HI 96740 73 -1006 Puukala Road 7 -2- 09:038 Eveland, Virginia Frazier Trst 72 -998 Puukala Rd. Kailua -Kona HI 96740 73 -1002 Puukala Road 7 -2- 09:039 Eveland, Virginia Frazier Trst 72 -998 Puukala Rd. Kailua -Kona HI 96740 73 -998 Puukala Road 7 -2- 09:040 Cabral, Cynthia L 72 -992 Puukala Rd Kailua -Kona HI 96740 73 -992 Puukala Road 7 -2- 09:041 Aopo Of Kona Ocean View Properties Sr -Rdwy 7 -2- 09:042 Winterkamp, Antoinette R P.O. Box 619 Kealakekua HI 96750 73 -1032 Puukala Road Page 2 of 2 Exhibit D Proposed Assessment Roll Kona Ocean View Properties Water Improvement District.xls EXHIBIT E KONA OCEAN VIEW PROPERTIES WATER SYSTEM IMPROVEMENT DISTRICT LOT OWNERS TO BE CREDITED FOR PRIOR PAYMENT OF FACILITIES CHARGES Account No. Service Holder TMK 1 932 -47294 Keith/Janet Brown 7 -2- 008:003 2 932 -47292 Christine L Moore 7 -2- 008:010 3 932 -47297 Kurt D Bell 7 -2- 008:011 4 932 -47288 Jason H Hung 7 -2- 008:014 5 932 -47286 Leodora Conn 7 -2- 008:024 6 932 -47287 Angela /David Zepf 7 -2- 008:025 7 932 -46009 Lorelei N Grace 7 -2- 008:028 8 932 -46030 Bonnie Chock, ETAL 7 -2- 008:029 9 932 -46015 Verna E Harvey 7 -2- 008:030 10 932 -47296 Thomas Tripler 7 -2- 008:032 11 932 -46013 Belinda J Victorino 7 -2- 008:033 12 932 -46021 Chieko J Maekawa Tr 7 -2- 008:036 13 932 -46011 Clinton K Berdon 7 -2- 008:037 14 932 -46023 Richard Gomes 7 -2- 008:038 15 932 -47285 Chieko J Maekawa Tr 7 -2- 008:027 16 932 -47290 Nanette Bell 7 -2- 009:002 17 932 -47295 Paul Mench 7 -2- 009:005 18 932 -46007 Darrel Holdbrook 7 -2- 009:019 19 932 -46005 Gerald Lee 7 -2- 009:029 20 932 -47291 Virginia Eveland 7 -2- 009:039 EXHIBIT F PRELIMINARY ENGINEERING REPORT FOR KONA OCEAN VIEW PROPERTIES WATER SYSTEM IMPROVEMENTS Puukala, North Kona Island of Hawaii State of Hawaii November 2009 Revised July 14, 2010 Prepared For: Prepared By: Department of Water Supply Nancy E. Burns, P.E., LLC County of Hawaii 73 -1487 Hao Street 345 Kekuanaoa Street, Suite 20 Kailua Kona, Hawaii 96740 Hilo, Hawaii 96720 1. GENERAL This preliminary engineering report is in support of a proposal to construct permanent water system improvements within the Kona Ocean View Properties subdivision funded through the United States Department of Agriculture (USDA), Rural Development (RD), Rural Utilities Water and Waste Disposal Loan and Grant Program. Under the RD program a portion of the funding would be from a loan which would be repaid by the applicant and a portion would be through a grant which does not have to be repaid. As part of the process, the Hawai`i County Council would initiate an Improvement District (ID) which would ensure the repayment of the loan. The "Project" is to consist of a new water system conforming to current Department of Water Supply (DWS) standards. The Project is intended to provide adequate fire protection and reliable and safe water service to the residents of the subdivision. The Kona Ocean View Properties subdivision is an agricultural subdivision located at Pu'ukala, North Kona, Hawai`i. The subdivision was created in 1959 and currently consists of 81 residential lots ranging in size from 7,526 to 22,403 square feet. The 30 and 40 foot wide subdivision roads are privately owned by the homeowners association. Elevations within the subdivision range from approximately 1,520 feet on the makai (west) portion of the subdivision to approximately 1,860 feet on the mauka (east) portion of the subdivision where the access road intersects the Mamalahoa Highway. The average slope is approximately 14 %. The County of Hawaii Department of Water Supply is currently providing water service to some of the homes within the subdivision via twenty (20) 5/8" water meters located along the Mamalahoa Highway. Small diameter PVC pipes run overland cross country through lots to service homes within the subdivision. The distance from the meters along the Mamalahoa Highway to the most makai (westerly) lots is approximately 2,000 feet. Homes not served by the water meters either use water catchment systems or are provided water from the extension of services from neighboring properties that have water meters. There are no fire hydrants located within the subdivision. The nearest fire hydrant is located along the Mamalahoa Highway near the Pu'ukala Loop Road intersection. The source for the existing and proposed water system is the Department of Water Supply's Kalaoa well located approximately 1.23 miles south -east of the subdivision. Water is pumped from the well to the Pu'ukala 0.3 million gallon water tank located mauka of the Kona Ocean View subdivision. There is an existing 12 inch main from the tank that feeds an 8 inch main stubbed out to the Pu'ukala Loop Road within the Mamalahoa Highway right -of -way. The overflow elevation at the tank is 2,070 feet. A pressure reducing valve station located at approximately elevation 1,728 will be required as part of the Kona Ocean View Properties subdivision water system improvements. Individual pressure reducing valves will need to be installed by home owners prior to connecting to the water system at high pressure areas. The proposed water system improvements consist of approximately 4,711 linear feet of new 6 inch or 8 inch water main, individual 5/8 inch meters for each lot, fire hydrants located in accordance with current Department of Water Supply standards, and a pressure reducing valve station. The project will include connecting existing house laterals to the new meters and removal of the banks of meters located within the Mamalahoa Highway right -of -way. The scope of the project will include re- paving of the portion of the road impacted by trenching and providing traffic control during construction. 1 2. PROJECT PLANNING AREA a. Location The Kona Ocean View Properties subdivision water system improvement project is located within the Pu'ukala ahupua'a in the North Kona District on the Island of Hawai`i, State of Hawai`i. It is located on the makai (west) side of the Mamalahoa Highway and is on the west slopes of Hualalai volcano. The State Land Use Designation is Agricultural, and the County General Plan Land Use Pattern Allocation Guide Map (LUPAG Map) designation is Low Density Urban and the Zoning is A -5a. The project is outside of the Special Management Area. The project location is shown on the following Island and Location Maps. 2 o0 WEAN ' c� PA6IC O C MAW* e`. N. - TH KOH iuwA.u[� i SOUTH ....., KONA OCEAN VIEW KOHALA PROPERTIES NORTH HILO SUBDIVISION fr0 HAMAKUA NORTH KONA SOUTH HILO MW i i ( .. poi SOUTH \ _____\ „Z- P µO A KONA PUNA ` KAU m i m NAMFMI ISLAND MAP SUBDIVISION OCEAN ES UBDIVIS ON WA ER SYSTEM IMPROVEMENT PROJECT N NORTH KONA DISTRICT, HAWAII W E 0 5 to m s GRAPHIC SCALE IN PILES 3 1 / 7 j ; ' r . H Li r'�- „,--- �'` /.�``' }_ - �. - �__. mil - O .- _ O`er ” 2) - Q Qi ,t1-;r4 r - - SI1 , -� T / "4 T1 Y ' > ._ ; 1' 1 p _/7� • i ... _ l 1 i\ `\' is = ` '�t—"�i�<� �. C p� `` Grp -- ,- �.` _ - ' = " - -� "r. it �� "` ;_ _ Z 1 v O r :'i:r - 44 i * - '► • QW i a r :. Q ,\._ , ilee„....-- \ - . \ .. _ - _ : . : \ \:;______,. „ ." ;, , Lt . Q 7. S _,- r � 4 ••• _....i. I ,....1._______. .. , ..... z ,„,.,.. +_, „. •,...„,_ r<, ,,_..- ,..,..____ ,,, .____.. 4 b. Environmental Resources Present A State of Hawai`i Environmental Assessment and Federal Environmental Review is being prepared pursuant to: The Hawai`i Environmental Protection Act, Chapter 343, Hawai`i Revised Statutes (HRS), and Title 11, Chapter 200, Hawai`i Department of Health Administrative Rules (HAR) and the National Environmental Policy Act (42 U.S.C. 4332 (2)(c)), CEQ implementing regulations 40 CFR 1500 -1508, and USDA regulations at 7 CFR 1780.33 (c) and will be submitted separately. The average annual rainfall in the project area is approximately 30 inches. A flood insurance rate map (FIRM) panel was not printed for this area. The entire subdivision is located in FEMA Zone X, areas determined to be outside the 500 -year flood plain. There are no wetlands within the project area. According to the Soil Conservation Service's 1973 Soil Survey of Island of Hawai`i, State of Hawai`i, soils within the subdivision consist of both Punaluu and Kaimu series soil types. The Punaluu series consists of an extremely rocky peat approximately 4 inches thick underlain by pahoehoe lava bedrock. The Kaimu soils consist of very dark brown extremely stony peat about 3 inches thick underlain by fragmental a`a lava. There are nine (9) Lava Flow Hazard zones on the Island of Hawai`i with Zone 1 being the most hazardous and Zone 9 posing the least danger. The Project is located in Lava Flow Hazard Zone 4. The area is designated Zone 4 because due to the steep slopes flows could rapidly cover the distance between potential vent sites and the coast. Archaeology On March 2, 2009 Robert B. Rechtman, Ph.D. and Lizabeth A. Hauani`o, B.A., conducted an intensive pedestrian survey of the entire project area. There were no archaeological resources observed within the study area. Given the nature of the substrate and the past disturbance that has occurred in constructing the subdivision roadways and lots, it is highly unlikely that any archaeological resources are present in the subsurface stratum. On April 7, 2009 the State of Hawaii Department of Land and Natural Resources, State Historic Preservation Division (SHPD) concurred with the conclusion that no historic properties will be affected by the proposed project. The SHPD has requested that measures for the inadvertent discovery of historic properties during trenching be included in the Environmental Assessment (EA). The EA and construction specifications will include requirements to cease all work in the immediate vicinity of a find, protect the find from additional disturbance, and immediately contact SHPD, Hawaii Section at (808) 933 -7653. Flora and Fauna The project site consists of the road right -of -way that was graded in 1959 when the subdivision was constructed. Dr. Patrick Hart of the Biology Department of the University of Hawaii at Hilo and Dr. Ron Terry conducted a botanical survey of the road corridor in 2008 and found only low - stature vegetation within the right -of -way, primarily grasses and common alien herbs. Common introduced plants include guava, Christmas berry, lantana, Guinea grass, octopus plant, kukui, and jacaranda. The only native species observed were `uhaloa and popolo, two very common indigenous herbaceous plants that are frequently found on roadsides. No threatened or endangered plant species were found. 5 The avian fauna of the area is almost wholly alien, and no threatened or endangered birds are present. The U.S. Fish and Wildlife Service was consulted by letter and replied by letter on May 1, 2009, that no federally listed species or critical habitat occur within the project footprint. c. Growth Area and Population Trends According to the U.S. Census Bureau, Census 2000, the resident population of Kalaoa in the North Kona district was 6,794 within a land area of 39.48 square miles. There is no information available as to the number of residents within the Kona Ocean View Properties subdivision. The resident population of the North Kona District in 2000 was 28,543. The Hawaii County General Plan 2005 projects the resident population of North Kona to increase to 42,275 by the year 2020. The population in the Kona Ocean View Properties subdivision is estimated at approximately 134 persons based 2 persons per home. According to the County of Hawaii Real Property Tax site there are 67 residences within the subdivision. The Department of Water Supply currently provides water to 20 lots. The Project will provide a 5/8" meter to each lot of record or a total of 81 meters. 3. EXISTING FACILITIES a. Location Map The following "Kona Ocean View Properties, Plan Showing Existing Water Meters and Lots Currently Served" map shows the location of the water meters along Mamalahoa Highway. There are 20 lots within the subdivision and one lot outside the Kona Ocean View Properties subdivision that are currently being served from meters located along the Mamalahoa Highway near the intersection of the Pu'ukala Loop Road and the Mamalahoa Highway. The project will involve cutting and plugging the existing water laterals. New water lines will be provided within the subdivision roads and along the Mamalahoa Highway and water meters will be relocated to areas fronting the lots. In addition, an individual water lateral will be installed for TMK 7 -2- 008:039 which is not a part of the Kona Ocean View Properties subdivision but which is currently being served from a common water lateral which also serves lots from the Kona Ocean View Properties subdivision. 6 AVMNOIH VOHVIVIIVW -r, _ : • - i ! ; _ 8i 1 '1 _ 1 • • • • i \ .; '1 7 CD CI I • • -r I s > V) • L'-' 4 W X < W' / 1 �' W 1 /_ • , z` , J Lt, J - _� x wy- w I p -,...,_- - -.._.,.,, W • W J a r--,N \ / W 5 5 111 r j , \ W W :) V a O - 1 F _ Z I L I { j o— • to ( I - i I w "i • I I 1 I I Z Z 1 I I 1 0 1 — t i , I I i 1 1 i - --\ - -_./ t. \ 1 s �L_ !;, - �Q — �` " L_ -, - Ii b. History There was no water service available to the Kona Ocean View Properties subdivision when it was developed in the early 1960's. Water for the residences was provided by individual rain water catchment systems. When the water main within the Mamalahoa Highway was extended to the subdivision 5/8" meters were installed within the Mamalahoa Highway right -of -way to serve some of the homes. PVC lateral lines run cross country from the highway to the residences some of which are up to 2,000 feet from the meters. c. Condition of Facilities The existing PVC laterals from the meters at the highway run overland to homes through neighboring properties. These laterals are subject to leaks and potential contamination should infiltration occur at breaks in the lines. It is often difficult to locate the source of leaks due to the extraordinarily long overland lateral lines. There are no fire hydrants within the subdivision. The Department of Water Supply standards require fire hydrants every 600 feet. In addition, current County of Hawaii laws would not allow the use of catchment for this subdivision. D. Financial Status The Department of Water Supply's Financial Statements are attached as an Exhibit A. There is no site specific operation and income data available. 4. NEED FOR THE PROJECT a. Health and Safety The health and safety of the residents of the Kona Ocean View Properties subdivision is jeopardized by the current sub - standard water system. Potential contamination problems exist due to existing catchment systems and the long overland water laterals from the meters. Leakage is also a problem and leaks are hard to locate due to the excessive length of the water lines. County standards call for fire hydrants every 600 feet according to the existing lot sizes. There are currently no fire hydrants within the subdivision. According to the State of Hawaii Department of Health "Water catchment systems are not recognized as potable water, and there is no government agency oversight of these systems in Hawaii. Because they are private systems, their maintenance and proper usage is the responsibility of the system's owners or users. For health and safety reasons, homeowners should not use rainwater catchment water for direct consumption or food preparation. Additional precautions should be taken by rainwater catchment users during periods of increased volcanic activity." The only water source available to homes that are not connected to the existing meters is catchment. Catchments systems pose health risks from various sources such as fecal contamination and the leaching of lead and copper from plumbing fixtures due to acidic catchment water. It should be noted that the County of Hawaii Subdivision Code has required public water systems for subdivisions since 1967. The Kona Ocean View Properties subdivision is thus not compliant with current county standards. b. System Operation and Maintenance The proposed water system will become part of the North Kona water system which consists of wells and pumping stations. Additional water lines, fire hydrants, meters and a pressure 8 reducing station will be installed within the subdivision. Exhibit B includes the Operating Budget and Projected Cash Flow for the project. c. Growth The proposed water system improvements are intended to provide water service and fire protection to the 67 homes that currently exist. Twenty (20) of the homes currently have water service via the water meters located along the highway. It is anticipated that these twenty (20) meters will be relocated and forty -seven (47) additional water meters will be installed with the project. Water laterals for fourteen (14) vacant lots will be installed and meters will be installed in the future when homes are constructed on these lots. The proposed water system improvements will be designed to provide water meters and fire protection to all lots within the existing subdivision. To date the majority of property owners contacted have shown support for the project. 5. ALTERNATIVES CONSIDERED Alternatives considered included 1) no action, 2) construction of a water system funded by lot owners, 3) constructing a water system to be dedicated to the County of Hawaii within the existing private subdivision roadways and along the Mamalahoa Highway with an easement over the roads to be dedicated to the Department of Water Supply. The proposed funding source is the USDA RD Rural Utilities Water and Waste Disposal Loan and Grant Program with loan repayment insured through a County Council initiated Improvement District. The alternative of taking no action would not fulfill the purpose and need of the project which is to provide the community with a safe source of drinking water as well as fire protection. The alternative of constructing a water system funded by lot owners is not feasible as residents are not able to finance the improvements on their own. It should be noted that the homeowners sought to construct the water system improvements on their own in 1996 but failed as funding could not be obtained. The only practicable alternative is to extend the existing County Department of Water Supply's system to serve the lot owners with individual meters with funding from the USDA Loan/Grant program. The following describes this alternative. a. Description The preferred alternative is to install a water system meeting DWS standards within the Kona Ocean View Properties subdivision and along the Mamalahoa Highway. This would include providing water mains within the existing roads, service laterals to each lot, fire hydrants in accordance with current Department of Water Supply standards and a pressure reducing valve station. b. Design Criteria The water system will be designed in accordance with the County of Hawaii Department of Water Supply standards found in the Water System Standards, State of Hawaii 2002, as amended. Road repair and traffic control will be in accordance with County of Hawaii Department of Public Works standards including Standard Specifications for Public Works Construction, September 1986 as amended. 9 The water source for the project will be the Kalaoa well. The average daily water usage per the Water System Standards is 400 gallons per day per home and the maximum daily usage is 600 gallons per day per home. Peak hour flow is five time the average daily flow. Flows for the 81 lot subdivision are estimated as follows: Average Daily Flow: 400 gpd x 81 = 32,400 gpd Maximum Daily Demand: 600 x 81 = 48,600 gpd or 33.8 gpm Peak Hour Demand: 5 x 32,400gpd = 162,000 gpd or 112.5 gpm Fire Flow = 1,000 gpm Pipelines are to be sized for maximum daily flow plus fire flow with a residual pressure of 20 psi at the critical fire hydrant and peak hour flow with a residual pressure of 40 psi. For six inch diameter pipe a "C" value of 100 is to be used. For eight and 12 inch diameter pipe a "C" value of 110 is to be used. Design Flow = Maximum Daily Flow Plus Fire Flow = 1033.8 gpm (use 1034 gpm) at 20 psi residual pressure Peak Hour Flow = 112.5 gpm at 40 psi residual pressure Maximum velocity in distribution mains (without fire flow) is 6 feet per second. Maximum velocity in distribution mains with fire flow is 10 feet per second. Elevation at Pu'ukala Tank: 2,070 Feet Elevation at Subdivision Entrance: 1,875 Feet Static Head at Subdivision Entrance: 195 Feet (84.23 psi) Elevation at Bottom of Subdivision: 1,520 Feet Static Head at Bottom of Subdivision: 237.58 > 125 therefore a pressure reducing valve is required. c. Map The following "Water System Schematic Plan" shows the proposed water system design. The proposed project includes the installation of approximately 1,022 linear feet of eight inch ductile iron water main, 3,620 linear feet of six inch diameter ductile iron water main, seven (7) fire hydrants, a pressure reducing valve (PRV) station, 47 service laterals, 81 water meter boxes and associated appurtenances. 1 0 v. : , • .., Mr- Lil a 3 k Hi 1 . 1 1 • °Es <G..E Z 0 CO < ..,. > ..illa i I OCCD< „t1t7.,.:..- ,.! Q I ,.., .7., , ■ i`' 7;:J5Visif-t ' , 1 '1,..,,:..,`-2 , 1 -..:. ; ■11 E L'‘--,..„,,,.- _ . x 1 , z, . / ' r. • ” :”■"' ' i •-. ....„-1_ ,,,,,,/ 1 Z''''.' - ‘ , q- .:, 1 1 y 1_;;. -- ',._q•., . ....- - , -7--- V c• 3 . . I_ - ..-1-- --v. ----- - 1 7 , 1 r-- '!,-.----.--- - , ,z1 1 1 ■ .,,e...,;:. ..;;;. : ; - ,- -----... r - -- z : I 2., _ _.1 ,',.. ■ 1 ', \ 7 I ' ,, ■ .,.•-,-„, i• ,... . ) S ..-',-,• oi 1-. ' ' , : . ' N ■ 4 < \ ., , ._.,-.. .,, ■ ' -: ■ f 1sN 7" ---- 1 1 . • _L '...r,,,.9 '. "AZ- MI L'' !.i .=. :. 1 ,T, 1 • . - _4- .i.S•:;'.;-':f_ I ___--- - 1; : l <1 • i 1 r 4._ •, I J.,' 1 , : — 2 !' . ii :'.' .■ , 1 ■ 1 ' i. - '.• : ; -.- i - Fi a" ,t1 7 / -, .. ,- ---- '''''-'''. „ -■-■-.... -.."-- - - ---....,....... _ .1 11 d. Environmental Impacts The water system will be constructed within existing roadways. No environmental impacts to wetlands, floodplains, endangered species, historical or archaeological resources or other important land resources are anticipated. e. Land Requirements The proposed water system is to be constructed within existing roadway corridors. The roads within the subdivision are private. The property owners within the subdivision will be required to grant an easement to the Department of Water Supply for construction and maintenance of the water system. A portion of the water line will be constructed within the State right -of -way. An easement from the State will be required. Costs for the easement within the State right -of -way will be determined once plans have been prepared and an appraisal is completed. f. Construction Problems The existing subdivision roadway right -of -ways are narrow, 30 to 40 feet in width and in many cases there are steep cuts or fills within the right -of -way which will require careful location of meters to avoid the need for rock walls. The existing pavement is narrow and closure of one lane of traffic will most likely be required. Access to existing driveways will need to be maintained so that residents can get in and out of their properties. It is very likely that the underlying subgrade consists of lava rock which may make trenching difficult. There are at least two culverts that will need to be protected during the construction of the water line. g. Cost Estimates Preliminary cost estimates for the project are as follows: Construction Cost: $1,318,600 (includes 15% contingency) Other Costs: 250,750 $1,569,350 Exhibit B includes the estimated annual operations and maintenance costs. h. Advantages/Disadvantages There is no advantage in taking no action for this project as the purpose for the project would not be met. Disadvantages include the continuation of leaking pipes, the potential for cross contamination and fire hazards. The possible alternative of lot owners funding the construction of the water system has already been attempted but funding could not be obtained. The alternative of constructing a water system with financial assistance from the USDA RUS Loan /Grant Program will achieve the goal of providing safe, affordable sanitary water to the residents of the Kona Ocean View Properties subdivision. The proposed water system will meet the County of Hawaii Department of Water Supply Standards including providing fire hydrants for fire protection. Revenues from the sale of water will be used to maintain the system. Existing land uses within and adjacent to the Kona Ocean View Properties subdivision will not be adversely affected. The proposed project is consistent with the land use designations. The subdivision is a legal, nonconforming use, and water lines are allowed in all districts. The 12 subdivision to be served and the proposed improvements are both consistent with the LUPAG designation of Low Density Urban. Although the project site is partly within land classified as Other Important Agricultural Land, there will be no adverse direct effects, as the water system will be contained entirely within a transportation right -of -way. The subdivision properties that are served are too small for farming, but gardening uses will be encouraged by the availability of water. Several Kona residents and Native Hawaiians knowledgeable about the plan to upgrade the water system for Kona Ocean View Properties were interviewed at the request of the Office of Hawaiian Affairs to determine whether they had any concerns about the project's impact on cultural matters. Karin Haleamau, who was born and raised in Kona, works at the Natural Energy Lab of Hawai`i at Keahole Point, and whose family previously owned a lot in the project's subdivision, said he was not aware of the existence of any cultural sites nor gathering activities that might be affected by the project. Haleamau said he believed the project to be worthwhile. "I think it's good for the people," he said. The proposed action would not involve any relocation of businesses or homes or any other social impacts. Except for temporary construction impacts of the installation of new underground water lines, there would be no disruption of local traffic patterns or effects to neighborhood character or integrity. The proposed action would benefit public welfare for the subdivision's residents and in this area of North Kona by upgrading the water supply service in Kona Ocean View Properties to provide a steady and safe supply of water for residential use. In addition, the installation of fire hydrants where there now are none will enhance fire- fighting capabilities that will benefit the subdivision's residents as well as residents and property owners of surrounding areas and State and County agencies that provide fire- fighting services and protect public land and facilities. The project is consistent with the Hawai`i State Plan which was adopted in 1978 and revised in 1991. This plan establishes goals, objectives and policies that are meant to guide the State's long term growth and development activities. The three themes that express the basic purpose of the Hawai`i State Plan are individual and family self - sufficiency, social and economic mobility and community or social well- being. The project would promote these goals by enhancing water service on the Island of Hawai`i, improving quality -of -life and community and social well- being. The General Plan for the County of Hawai`i is a policy document expressing the broad goals and policies for the long -range development of the Island of Hawai`i. The plan was adopted by ordinance in 1989 and revised in 2005 (Hawai`i County Planning Department). The General Plan is organized into thirteen elements, with policies, objectives, standards, and principles for each. The project fits the General Plan water policies of insuring all water systems are designed and built to Department of Water Supply standards and that the replacement and inadequate systems are improved and replaced. In addition, the General Plan's water policy is that water system improvements should first be installed in areas that have established needs and characteristics, such as occupied dwellings. 13 The project has virtually no adverse impacts and would provide substantial benefits for the residents, as they would achieve County- standard water service, improving water quality and reliability, hygiene, and fire protection. The project would not produce disproportionately high and adverse human health or environmental effects on any population, including low- income and minority populations. The No Action Alternative would continue the condition in which over 80 residential lots are not served by County- standard water system, which leaves them at a disadvantage with respect to water supply, water quality, fire protection, and public health. 6. SELECTION OF AN ALTERNATIVE The only practicable alternative for supplying the Kona Ocean View Properties Subdivision with a safe and reliable source of water is the construction of water lines, laterals, fire hydrants and appurtenances within the existing subdivision roads and along the Mamalahoa Highway with funding assistance provided by the USDA RUS Loan/Grant Program. Payment of the loan would be assured by a County Council approved Improvement District in accordance with Chapter 12, Improvements by Assessments of the Hawaii County Code. 7. PROPOPSED PROJECT a. Project Design The proposed project consists of water lines, laterals, a pressure reducing valve station, fire hydrants and associated appurtenances. The system will be designed to the County of Hawaii Department of Water Supply Standards and will be dedicated to the County upon completion. The water system will be constructed within existing roadways. Pavement restoration will be required in the location of the water line trenches. The work will generally include but not be limited to: 1,022 linear feet of 8 -inch ductile iron waterline 3,620 linear feet of 6 -inch ductile iron waterline Seven fire hydrants Eleven Type "A" service laterals Thirty-five Type "C" service laterals One pressure reducing valve station Demolition of existing service laterals and meter boxes Pavement restoration Miscellaneous valves and fittings The new water system will be connected to an existing 8 -inch waterline located within the intersection of the Pu'ukala Loop Road and the Mamalahoa Highway. The water system will be installed within existing roadways. Water system utility easements will be granted to the Department of Water Supply. b. Total Project Costs The construction of the project is expected to take 12 -18 months. Itemized cost estimate based on the preliminary design is as follows: 14 PROilE621 CONSTRUCTION OF THE KC- A OCEAN VIEW PROPERTIES SUBDIVISION WATER SYSTEM IMPROVEMENTS LOCATION NORTH KONA HAWAII IMPART MENT06 SUPPLY JOB NO PRELIMINARY COST ESTIMATE ITEM ESTiMA9 ITEM !JC 00457 DESCR:PT'CS COST 0057 WATER SYSTEM Lump Sdir tor mobiiitation o obiization tieid inYestigations cisnirtt dr 1 L S LS measurements and testirg celper, dauling and removal or heavy erripment no 550 000 CO 550 000 00 2 102.1 LE 8 Ductiie iron P€ 314320 8145 145 00 3 620 LE s' 01501 011 Pipe 5133 90 S481 20002 4 3 EA 6 D. Tee 0, S1 100 00 S5 500 CC 4 EA 6'58"x6 Di The 0. 31 360 35 200 02 EA 5x6" 01 Reducer Myi 5850 00 51 720 00 3 04 6'' 45 Dp.i. DI Bend id.t) 3350 52 580 03 EA 6' 22 5 Deg DI Bend Nil, 55602:0 52 580 00 FA ) 6111 25 Deg 01 Benr MJ 363000 54 300 00 10 3 EA 6" 01 Cap 0.1 Tappet 2" 1 563000 32 070 00 11 5 EA 8" Gate Valve 0) v../Box 3 Cover 51 880 00 59 400 00 12 4 EA 63 Gate Varye 0) w/Box Cover 31 510 00 136 440 02 13 6 EA 1 Air Relief Valve Unit -.v./Box F. Covet 52 500 00 515 020 50 14 3 EA 2" Cean 031 Unit wiRoY. E. Cover 52 500 00 57 505 00 1 EA Eire Hydrant Unit Layout "A 55 360 00 35 380 00 16 6 EA Fire Hydrant Unit Layout '33 56 52000 539 000 00 17 7 EA Fire Hydrant Concrete Sab 4504 with Flexible Marken 5535 00 53 745 00 1 FA 4" 2' Pressure Reoirciir V'a Unit wi/Box and Coye 535 000 00 535 co: cy:', 10 1 04 1" Type A Service LaterEv 52 400 00 326 400 03 20 35 04 11/2' Type C Service Lateral 53 190 00 5108 500 00 21 6 EA Cut and Plug FltstIl5 Seryire 1 aterai 3t main 5000 00 55 407 0C Connect to existing 8" voterThe at Mamaianoa Higriway and Puuktala Roan Station 0 inciurtirg but hintlirrirer: to 1 5' Soiid Body Sleeve 0.' 71.pples ard DWS 2_ 1 LS charges 39 390 00 39 390 00 '3 4 785 LE 'Warning Tape 30 7 S3 588 75 24 1 LS Chlorination and Testing. or Warer S./sic-7r 315 000 TJ 35 000 00 Provide a construmirr 4)115 3.11-5 and chanpes ro plans Submit "As 501 i1 ' pdar dramnigs on reproducible my ar sma.virir all changes revisions corrections and the 1 LS erdie rnorect as actualy corstucted Deliver to the Debarment of 'Water Supply 55020 :0 38 505 35 Obtain .!31101:3 Pollut or E. ischarge Rimination t em 1552,ES) permit for General Permit Coverage [1 4.53914 of Storm Water Assodater Construction Act vines noir State of H,oii 1 2ecart,re1t Health 53311 water 26 1 LS Branch 36 .0 30 000 60 SUBTOTAL FOR WATER SYSTEM 51,005,27935 WATER LINE TRENCH PA T CHING 12-Incn Minimum ComPacted 1nickress 6350344 002144 State 50W1 noljding sprearrini.: v, veparattxv IC) Layirig me base 27 SY couise 34705 33 431 GC 6-Inch Minimum Compacted I hicknese Subbase Course Site no;_lb:15 lay,ng 1 118 SY snreacirg 00! and a: work preparatory to Layina the base course 526 00 521 535 8-Inch tylinirndm Compaoted Thickness Aogregate Base Course 1Sta1e 150i.1. including laying sore.adirg comoacting and all work orebaratory to daying the 3 SY asonalt concrete tin Site) 531/30 52 84 /' 05 4-50h Minimum Compacted Thicriress Aggiegale Base Course i.Situ: including 1ay1ng sprea;linc ■01:n■3 a,r.pact,g . .qc,rk preparatory 10 laying Ihe asphalt 30 1 115 i SY i concrete f Sited 325 OD 527 950 00 2-112-Inch Minimum Cdmoacred ilick^ess AC incidding sureading i23n5 31 73 SY compacting and all iricidenta. work -tle Ste and 519/1 6055 360 OD 34 38002 2-Inch Mnimur :C1)me37:10d Mckttess 40 Mix 3. !Et 3502d /53 , 011ing 32 1 118 SY compacting 302 /13 54,13 work Irri Sire and Stare ROW 555 00 572 570 30 33 20 SY P3120110 five Concrete Dr veways witnin State ROW 550 00 51 00200 SUBTOTAL • WATER LINE TRENCH PATCHING 5141,346.00 SUMMARY WATER SYSTEM 5' 005 27575 WATER LINE REr. i01 PATOt it3 314' 34500 CONTINGENCY ■15%3 S1 05366 TOTAL CONSTRUCTION COST ESTIMATE $1,318,619.61 OTHER COSTS Eesiqn 210 Survey 3125 350 00 State ilighway Easement 320 700 30 Eryironmenta Assessment 5826 400 06 Legal Fees 535 51/1/ Miscellaneous Costs 559 500 00 TOTAL OTHER COST ESTIMATE 5250,750.00 TOTAL PROJECT ESTIMATE $1569,369.61 15 c. Annual Operating Budget Financial statements for the County of Hawaii Department of Water Supply can be found in Exhibit A. Operations and maintenance cost estimates can be found in Exhibit B. Water rate schedules are found in Exhibit C. Financial assistance for this project is expected to be provided by the (USDA) United States Department of Agriculture Rural Utility Services (RUS) agency. Loan repayment will be through a Hawaii County Council initiated Improvement District process. 8. CONCLUSIONS AND RECOMMENDATIONS The Kona Ocean View Properties is currently served by a substandard water system which creates health and safety concerns for the residents. This project will provide safe and reliable water for consumption and fire protection. Any negative impacts will be temporary and short term during the construction of the system. The residents of the Kona Ocean View Properties have been trying to find a way to construct the much needed water system improvements since 1996. Preliminary engineering plans were done but the project was never constructed due to lack of funding. Funding provided by the USDA loan and grant program will facilitate the construction of this much needed water system improvement. It is recommended that the County and the Department of Water Supply move forward with the Improvement District requirements and apply to the USDA for the grant and loan. 16 EXHIBIT A Department of Water Supply County of Hawaii Financial Statements IrAM DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawaii) Financial Statements June 30, 2009 and 2008 (With Independent Auditors' Report Thereon) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawaii, State of Hawai`i) Table of Contents Page Independent Auditors' Report 1 Management's Discussion and Analysis 3 Financial Statements: Balance Sheets 7 Statements of Revenues, Expenses, and Changes in Net Assets 8 Statements of Cash Flows 9 Notes to Financial Statements 10 Required Supplementary Information 25 /FPM KPMG LLP PO Box 4150 Honolulu, HI 96812 -4150 Independent Auditors' Report The Water Board County of Hawai`i: We have audited the accompanying financial statements of the Department of Water Supply, County of Hawai`i (the Department), a component unit of the County of Hawai`i, State of Hawaii (the County), as of and for the years ended June 30, 2009 and 2008, as listed in the table of contents. These fmancial statements are the responsibility of the Department's management. Our responsibility is to express an opinion on these fmancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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 Department's internal control over fmancial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in note 2, the financial statements of the Department are intended to present the financial position, and the changes in fmancial position and, where applicable, cash flows of only that portion of component unit information of the County that is attributable to the transactions of the Department. They do not purport to, and do not present fairly the financial position of the County as of June 30, 2009, the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the fmancial statements referred to above present fairly, in all material respects, the financial position of the Department of Water Supply, County of Hawai`i as of June 30, 2009 and 2008, and the changes in its financial position and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. KPMG LLP, a U.S limited liaboity partnership, is the U.S Arhrf,..,rronnr . i.o nn i c «ry on o Management's discussion and analysis on pages 3 through 6 is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. C . LLP April 8, 2010 2 DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Management's Discussion and Analysis June 30, 2009 and 2008 Management's Discussion and Analysis The Department of Water Supply, County of Hawai`i (the Department) operates as a semiautonomous agency charged with the responsibility of operating and maintaining the County of Hawai`i's public water systems. The Department is a utility enterprise and presents its financial statements using the economic resources measurement focus and the full accrual basis of accounting. This discussion and analysis is designed to assist the reader in focusing on the significant financial issues and activities and to identify any significant changes in financial position. Readers are encouraged to consider the information presented here in conjunction with the financial statements taken as a whole. Financial Statements The financial statements are designed to provide readers with a broad overview of the Department's finances in a manner similar to a private sector business. The balance sheets present information on all of the Department's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the fmancial position of the Department is improving or deteriorating. Net assets increase when revenues exceed expenses. Increases in assets, without a corresponding increase in liabilities, result in increased net assets, which indicate an improved financial position. The statements of revenues, expenses, and changes in net assets present information showing how an entity's net assets changed during the fiscal year. All changes in net assets are reported as soon as the underlying event occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in these statements for some items that will result in cash flows in future fiscal periods. Notes to Financial Statements The notes to fmancial statements provide additional information that is essential to a full understanding of the data provided in the financial statements. Other Information In addition to the financial statements and accompanying notes, this report also presents certain supplementary information concerning the Department's changes in net assets. In the case of the Department, assets exceeded liabilities by $220.2 million at the close of the most recent fiscal year. This represents an increase of $5.1 million, or 2.4% above the previous year. At June 30, 2009, $195.1 million of the Department's net assets were invested in capital assets (net of related debt), and $25.1 million were unrestricted. 3 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Management's Discussion and Analysis June 30, 2009 and 2008 Condensed Financial Information The following are summaries from the Department's financial statements as of and for the years ended June 30, 2009, 2008, and 2007: 2009 2008 2007 Assets: Capital assets, net $ 218,987,319 204,980,889 198,146,445 Other assets 65,056,484 79,738,743 81,435,224 Total assets 284,043,803 284,719,632 279,581,669 Liabilities: Long -term debt 42,109,178 41,247,094 42,308,135 Customers' deposits payable from restricted assets 14,132,135 19,739,823 16,207,996 Other liabilities 7,564,207 8,607,005 7,460,133 Total liabilities 63,805,520 69,593,922 65,976,264 Net assets: Invested in capital assets, net of related debt 195,151,646 186,215,025 179,984,628 Unrestricted 25,086,637 28,910,685 33,620,777 Total net assets $ 220,238,283 215,125,710 213,605,405 Changes in net assets: Operating revenues — water sales $ 39,248,400 37,724,830 37,642,805 Total operating expenses (44,880,556) (42,966,607) (38,251,318) Operating loss (5,632,156) (5,241,777) (608,513) Total nonoperating revenues 12,821,135 8,896,067 8,965,423 Total nonoperating expenses (2,076,406) (2,133,985) (2,217,517) Change in net assets 5,112,573 1,520,305 6,139,393 Net assets at beginning of year 215,125,710 213,605,405 207,466,012 Net assets at end of year $ 220,238,283 215,125,710 213,605,405 Financial Analysis Capital assets, net increased by $14.0 million, or 6.8 %, in the fiscal year ended June 30, 2009 (FY2009), due primarily to an increase in utility plant in service of $42.8 million, offset by decreases in construction work in progress of $21.3 million, and depreciation of $8.3 million. In the fiscal year ended June 30, 2008 (FY2008), capital assets, net increased by $6.8 million, or 3 %, due primarily to increases in construction work in progress of $11.7 million and utility plant in service of $3.0 million, offset by depreciation of $8.2 million. 4 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai` i, State of Hawai`i) Management's Discussion and Analysis June 30, 2009 and 2008 Other assets decreased by $14.7 million, or 18.4 %, in FY2009, due primarily to a net decrease of $15.2 million in cash and cash equivalents, investments, and restricted investments, caused by an increase in capital expenditures, offset by a $0.6 million increase in deferred charges. In FY2008, other assets decreased by $1.7 million, or 2 %, due primarily to a $5.2 million decrease in current assets, offset by a $3.5 million increase in restricted investments. Long - term debt increased by $0.9 million, or 2 %, in FY2009, due to receipt of $3.2 million in debt proceeds being offset by $2.3 million in payments made on long -term debt obligations. In FY2008, long -term debt decreased by $1.1 million, or 3 %, due primarily to $1.3 million in payments made on long -term debt obligations. Net assets increased by $5.1 million, or 2.4 %, in FY2009, and by $1.5 million, or 1.0% in FY2008, primarily due to the results of current years' operations. Operating revenues increased $1.5 million, or 4.0 %, in FY2009 primarily due to increases in the power cost rate. The power cost rate increased 6% from $1.60 per 1,000 gallons to $1.70 per 1,000 gallons on July 1, 2008, and then again to $2.38 per 1,000 gallons on January 1, 2009. Offsetting these increases was a decrease in water consumption of 4 %. In FY2008, operating revenues stayed relatively flat as a 7% increase in the power cost rate and a 1% increase in services were offset by a 4% decrease in water consumption. Operating expenses increased by $1.9 million, or 4.5 %, in FY2009, primarily due to increases in transmission and distribution expenses of $0.5 million and power and pumping expenses of $0.5 million. In FY2008, operating expenses increased by $4.7 million, or 12.0 %, primarily due to increases in power and pumping expenses of $3.3 million, due to an increase in the cost of electricity, and general and administrative expenses of $1.4 million. Nonoperating revenues increased $3.9 million, or 44 %, in FY2009 as a $5.6 million increase in contributions in aid of construction was offset by a $1.6 million decrease in interest income. In FY2008, nonoperating revenues stayed relatively flat as a $0.3 million increase in interest income was offset by a $0.3 million decrease in miscellaneous income. Nonoperating expenses stayed relatively flat in FY2009 and FY2008 due to nominal changes in interest on long -term debt and miscellaneous expenses. Capital Assets and Debt Administration As of June 30, 2009 and 2008, the Department had $219.0 million and $205.0 million, respectively, invested in capital assets and $42.1 million and $41.2 million, respectively, of long -term debt outstanding. During 2009, major capital asset additions included: • $5.8 million for the Kona Coastview/Wonderview water system • $4.9 million for the Waiaha production well and reservoir • $4.3 million for the Puapuaa reservoir • $2.9 million for the Kualdni Highway water line 5 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawaii) Management's Discussion and Analysis June 30, 2009 and 2008 • $2.1 million for emergency backup power generators • $1.8 million for South Hilo pipeline replacement • $1.7 million for Ahualoa well development • $1.6 million for Puukapu - Nienie booster pump • $1.2 million for Mamalahoa Highway water line improvements • $1.0 million for Olaa booster pump improvements During 2008, major capital asset additions included: • $2.0 million for the Keopu - Puuhonua production well • $1.5 million for the Wainani Estates reservoir • $0.9 million for Mamalahoa Highway water line improvements More detailed information about the Department's capital assets is provided in note 6 to the fmancial statements. Long -term debt increased by $0.9 million, or 2 %, in FY2009, due to receipt of $3.2 million in debt proceeds offset by $2.3 million in payments made on long -term debt obligations. In FY2008, long -term debt decreased by $1.1 million, or 3 %, primarily due to $1.3 million in payments made on long -term debt obligations. At June 30, 2009, the Department had $34.0 million in public improvement bonds and $8.1 million in a State revolving fund loan. At June 30, 2008, the Department had $35.8 million in public improvement bonds and $5.4 million in a State revolving fund loan. The Department, through the County of Hawai`i, maintained an "AA -" rating from Standard & Poor's an "Al" rating from Moody's and an "A +" rating from Fitch for general obligation debt. Other Data Other statistics relating to the Department's operations are as follows: 2009 2008 2007 Consumption (thousands of gallons) 9,171,424 9,529,866 9,913,746 Services (number of meters) 41,209 41,089 40,681 6 DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawaii) Balance Sheets June 30, 2009 and 2008 Assets 2009 2008 Current assets: Cash and cash equivalents (note 3) $ 34,143,524 3,855,521 Investments (note 3) 2,363,441 42,226,609 Trade receivables, less allowance for doubtful accounts of $1,281,882 and $1,403,000 in 2009 and 2008, respectively 4,957,688 4,327,402 Interest receivable on investments 26,142 762,435 Loans receivable, current portion (note 4) 7,000 9,000 Inventories of materials and supplies 1,326,061 1,290,752 Prepaid expenses 195,319 213,535 Total current assets 43,019,175 52,685,254 Restricted investments – customer deposits (note 3) 14,132,135 19,739,823 Loans receivable, excluding current portion (note 4) 249,006 278,028 Capital assets (note 6): Utility plant in service 341,412,867 298,638,467 Less accumulated depreciation (157,081,081) (148,973,775) 184,331,786 149,664,692 Land and rights 1,714,727 1,116,933 Construction work in progress 32,940,806 54,199,264 Net capital assets 218,987,319 204,980,889 Deferred charges 7,656,168 7,035,638 Total assets $ 284,043,803 284,719,632 Liabilities Current liabilities: Accounts and construction contracts payable, including retainages $ 2,713,754 3,159,012 Long -term debt, current portion (note 7) 2,518,000 2,236,000 Accrued compensation 1,035,613 1,044,303 Customers' deposits for service connections 629,890 632,885 Accrued vacation, current portion (note 5) 467,985 402,816 Accrued interest payable 1,268,576 1,157,436 Accrued workers' compensation, current portion (note 8) 54,807 25,949 Postretirement liability (note 5) — 948,077 Total current liabilities 8,688,625 9,606,478 Accrued workers' compensation, excluding current portion (note 8) 190,193 90,051 Accrued vacation, excluding current portion (note 5) 1,203,389 1,146,476 Customers' deposits payable from restricted assets (note 3) 14,132,135 19,739,823 Long -term debt, excluding current portion (note 7) 39,591,178 39,011,094 Total liabilities 63,805,520 69,593,922 Net Assets Invested in capital assets, net of related debt 195,151,646 186,215,025 Unrestricted 25,086,637 28,910,685 Total net assets 220,238,283 215,125,710 Commitments and contingencies (notes 2, 5, and 8) Total liabilities and net assets $ 284,043,803 284,719,632 See accompanying notes to fmancial statements. 7 • DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Statements of Revenues, Expenses, and Changes in Net Assets Years ended June 30, 2009 and 2008 2009 2008 Operating revenues – water sales $ 39,248,400 37,724,830 Operating expenses (notes 5 and 8): Power and pumping 20,077,398 19,558,920 Depreciation (note 6) 8,349,607 8,231,643 General and administrative 6,101,509 5,841,087 Transmission and distribution 5,544,680 5,019,615 Purification 2,170,848 1,843,873 Customers' accounting and collecting 1,395,386 1,389,345 Maintenance and repairs 1,241,128 1,076,176 Source of supply — 5,948 Total operating expenses 44,880,556 42,966,607 Operating loss (5,632,156) (5,241,777) Nonoperating revenues: Contributions in aid of construction (note 2) 11,246,419 5,673,845 Interest (notes 3 and 4) 932,621 2,539,130 Gain on disposal of property — 66,437 Other 642,095 616,655 Total nonoperating revenues 12,821,135 8,896,067 Nonoperating expenses: Interest on long -term debt (note 7) (1,757,139) (1,817,975) Loss on disposal of property (17,158) — Other (302,109) (316,010) Total nonoperating expenses, net (2,076,406) (2,133,985) Change in net assets 5,112,573 1,520,305 Net assets at beginning of year 215,125,710 213,605,405 Net assets at end of year $ 220,238,283 215,125,710 See accompanying notes to fmancial statements. 8 DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawaii, State of Hawaii) Statements of Cash Flows Years ended June 30, 2009 and 2008 2009 2008 Cash flows from operating activities: Cash received from customers $ 33,038,453 41,210,796 Cash payments to suppliers for goods and services (28,652,830) (25,575,993) Cash payments to employees for services (9,028,997) (8,778,899) Net cash (used in) provided by operating activities (4,643,374) 6,855,904 Cash flows from capital and related fmancing activities: Principal paid on long -term debt (2,347,513) (1,278,357) Debt and bond proceeds 3,209,597 217,316 Interest paid on long -term debt (1,645,999) (1,056,422) Proceeds on sale of capital assets — 70,450 Acquisition and construction of capital assets (14,332,579) (12,658,251) Contributions in aid of construction 2,908,101 3,511,229 Net cash used in capital and related financing activities (12,208,393) (11,194,035) Cash flows from investing activities: Purchase of investments (83,010,876) (159,878,682) Proceeds from sale and maturities of investments 128,481,732 161,211,763 Interest on investments 1,668,914 3,054,305 Net cash provided by investing activities 47,139,770 4,387,386 Net increase in cash and cash equivalents 30,288,003 49,255 Cash and cash equivalents at beginning of year 3,855,521 3,806,266 Cash and cash equivalents at end of year $ 34,143,524 3,855,521 Reconciliation of operating loss to net cash (used in) provided by operating activities: Operating loss $ (5,632,156) (5,241,777) Depreciation 8,349,607 8,231,643 Loss (gain) on disposal of property 17,158 (66,437) Decrease (increase) in assets: Trade receivables, net (630,286) (36,567) Loans receivable 31,022 106,216 Inventories of materials and supplies (35,309) (89,476) Prepaid expenses 18,216 35,156 Increase (decrease) in liabilities: Accounts and construction contracts payable, including retainages (445,258) (409,157) Postretirement liability (948,077) 948,077 Customers' deposits payable from restricted assets (5,607,688) 3,531,827 Other liabilities 239,397 (153,601) Net cash (used in) provided by operating activities $ (4,643,374) 6,855,904 Noncash capital activities: The Department received $8,661,146 and $2,162,616 of infrastructure as contributions in aid of construction in fiscal years 2009 and 2008, respectively. See accompanying notes to financial statements. 9 DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 (1) Administration The Department of Water Supply, County of Hawai`i (the Department) is administered by the Water Board, which consists of nine members who serve staggered terms of five years in length. Board members are appointed by the Mayor of the County of Hawaii, State of Hawai`i (the County) and are confirmed by the County Council, as required by the County Charter. (2) Summary of Significant Accounting Policies This summary of significant accounting policies is presented to assist the reader in understanding the fmancial statements. These policies are considered essential and should be read in conjunction with the financial statements. (a) Financial Statement Presentation The Department is a component unit of the County (the primary government). The accompanying financial statements present only the activities of the Department and do not include other organizations, activities, and functions of the County. (b) Measurement Focus and Basis of Accounting The accounting policies of the Department conform to U.S. generally accepted accounting principles as applicable to enterprise activities of governmental units as promulgated by the Governmental Accounting Standards Board (GASB). The Department's operations are accounted for on the flow of economic resources measurement focus, and the accrual basis of accounting is utilized. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Restricted assets are recorded at fair value. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Department applies all applicable GASB pronouncements, as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements, Financial Accounting Standards Board statements and interpretations, Accounting Principles Board opinions, and Accounting Research Bulletins of the Committee on Accounting Procedures. (c) Capital Assets Capital assets in service as of January 1, 1950, date of inception of the Department, were recorded at cost of the assets acquired by the County for its water system from January 1, 1924 to December 31, 1949, less accumulated depreciation to December 31, 1949 as determined by the Department. Assets purchased prior to 1924 and property acquired by gift or grant prior to 1950 are not included in capital assets. Additions to capital assets since January 1, 1950 are stated at cost and include contributions by governmental agencies, private subdividers, and customers at their cost or estimated cost. Construction costs include amounts for contract work, engineering supervision, and other direct 10 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 costs and overhead costs. Construction period interest is capitalized on capital assets constructed with tax- exempt debt and amounted to $69,654 and $45,712 at June 30, 2009 and 2008, respectively. Maintenance and repairs and minor replacements are charged to operations. Major replacements, renewals, and betterments are capitalized to capital asset accounts. Provision for depreciation is computed using the straight -line method. Annual depreciation rates are applied to costs of the various classes of depreciable assets on the group basis or, as to transportation equipment, to the cost of individual units of property. Gains or losses resulting from the sale, retirement, or disposal of capital assets in service are charged or credited to operations in the year realized. (d) Cash and Cash Equivalents For purposes of the statements of cash flows, the Department considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents amounted to $29,456,000 and $2,744,000 at June 30, 2009 and 2008, respectively. (e) Trade Receivables Trade receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Department's best estimate of the amount of probable credit losses in the Department's existing trade receivables. The Company determines the allowance based on historical write -off experience. The Company reviews its allowance for doubtful accounts monthly. Past -due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. (f) Investments GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, establishes fair value standards for certain types of financial instruments. All of the Department's investments fall into categories that can be valued by cost -based measures. Investments comprise repurchase agreements, certificates of deposit, and a discounted note. These investments are stated at cost and amortized cost. (g) Inventories of Materials and Supplies Materials and supplies are stated at cost on an average cost basis. (h) Restricted Assets Funds received by the Department, which are refundable or restricted as to use, are recorded as restricted assets. 11 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 (i) Deferred Charges Deferred charges consist of preliminary survey and investigation charges. (j) Compensated Absences Employees earn vacation credits at the rate of either one or one and three- quarter working days for each month of service. Up to 90 days of vacation leave credits can be accumulated per employee. In addition, employees who work overtime can elect to take compensatory time off instead of overtime pay. The time off is earned at the rate of one and a half hours for each hour of overtime worked. Both compensatory time off and vacation credits are converted to pay upon termination of employment. Sick leave accumulates without limit. Sick leave can be taken only in the event of illness and is not convertible to pay upon termination of employment. Accumulated sick leave at June 30, 2009 and 2008 amounted to $5,835,000 and $5,358,000, respectively. (k) Contributions in Aid of Construction GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, requires the Department to recognize contributions in aid of construction as nonoperating revenues. The Department recognized $11,246,419 and $5,673,845 of contributions in aid of construction as nonoperating revenues for the fiscal years ended June 30, 2009 and 2008, respectively. (1) Operating Revenues and Expenses Revenues and expenses are distinguished between operating and nonoperating items. Operating revenues generally result from providing services in connection with the Department's principal ongoing operations. The principal operating revenues of the Department are fees charged to residents for providing water services. Operating expenses include the costs associated with providing water services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as nonoperating revenues and expenses. (m) Use of Estimates The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of capital assets, valuation allowances for trade and loans receivables, and accrued workers' compensation. Actual results could differ from those estimates. (3) Deposits and Investments Cash collected by the Department is deposited in separate accounts maintained with the County's Treasury. At June 30, 2009, information relating to the insurance and collateral of the Department's cash deposits was not available, since such information is determined on a county -wide basis and not for individual 12 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 departments or divisions. Complete information on a county -wide basis is contained in the County's Comprehensive Annual Financial Report. Hawai`i Revised Statutes (HRS) authorize the County to invest, with certain restrictions, in obligations of the State of Hawai`i or the United States, federally insured savings accounts, and time certificates of deposits with federally insured banks and savings and loans associations authorized to do business in the State of Hawai`i, provided that all deposits are fully insured or collateralized. At June 30, 2009 and 2008, deposits and investments amounted to $50,639,100 and $65,821,953, respectively, and consisted of the following: 2009 2008 Cash and cash equivalents $ 34,143,524 3,855,521 Investments 16,495,576 61,966,432 $ 50,639,100 65,821,953 (a) Custodial Credit Risk for Deposits Custodial credit risk for deposits is the risk that the Department will not be able to recover deposits or will not be able to recover collateral securities that are in possession of an outside party. The HRS does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits, other than the provision that a financial institution must 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. This risk is mitigated in that the Department's deposits are maintained at financial institutions that are fully insured or collateralized as required by state law. At June 30, 2009 and 2008, the carrying amount of deposits (cash, time certificates of deposit, and money market funds) of $34,143,524 and $3,855,521, respectively, with bank balances of $34,744,953 and $2,003,194, respectively, was held by the County on behalf of the Department. These balances were fully insured or collateralized with securities held by the County's agent in the County's name. (b) Investments At June 30, 2009 and 2008, the Department's investment portfolio consists of repurchase agreements, certificates of deposit, and a discounted note held by the County on behalf of the Department. (c) Investment Policy State law and regulations require that surplus moneys of the Department must be invested. The primary objective of the Department's investment policy is to safeguard the principal. The secondary objective is to meet the liquidity needs of the Department. The third objective is to return an acceptable yield. In general, the Department's investment policy permits investments in obligations 13 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 of the U.S. Treasury, agencies and instrumentalities, time certificates of deposit, bank repurchase agreements, and certain other investment instruments. (d) Interest Rate Risk Interest rate risk is the risk that changes in 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 changes in market interest rates. One of the ways that the Department manages its exposure to interest rate risk is by purchasing a combination of short- and mid -term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or nearing maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. The Department monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio. The weighted average maturity and actual rating by investment type of the Department's investment portfolio as of June 30, 2009 and 2008 are presented below: Weighted average maturity Rating as of year -end Investment type Fair value (in years) AAA Not rated 2009: Repurchase agreements $ 3,000,000 1.0 $ — 3,000,000 Certificates of deposit 6,495,576 1.0 — 6,495,576 Discounted note 7,000,000 2.0 — 7,000,000 Total $ 16,495,576 $ — 16,495,576 2008: Repurchase agreements $ 50,585,822 0.6 $ — 50,585,822 Certificates of deposit 11,380,610 9.0 — 11,380,610 Total $ 61,966,432 $ — 61,966,432 (e) Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. (0 Concentration of Credit Risk The Department's investment policy contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the HRS. As of June 30, 2009 and 2008, the Department's entire investment portfolio is invested in repurchase agreements, certificates of deposit, and a discounted note. 14 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 (g) Custodial Credit Risk for Investments Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker - dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The HRS does not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. All securities owned by the Department are deposited in trust for safekeeping with a custodial bank. Securities are not held in broker - dealer accounts. At June 30, 2009 and 2008, the Department held customer deposits of $14,132,135 and $19,739,823, respectively. These customer deposits are recorded as restricted investments and customers' deposits payable in the Department's balance sheets. Changes in customers' deposits payable are as follows: 2009 2008 Beginning liability $ 19,739,823 16,207,996 Collections 720,640 3,673,341 Payments (6,328,328) (141,514) Ending liability $ 14,132,135 19,739,823 (4) Loans Receivable At June 30, 2009 and 2008, loans receivable from various community associations for water system improvements consisted of the following: 2009 2008 Paauilo Camp Community Association – interest at 4.5 %, due in semiannual installments of $9,323 through 2033 $ 256,006 277,700 Ookala Community Association – interest at 4.5 %, paid off in 2009 — 9,328 256,006 287,028 Less current portion (7,000) (9,000) Loans receivable, excluding current portion $ 249,006 278,028 (5) Employee Benefits (a) Employees' Retirement System of the State of Hawai `i All eligible employees of the Department are required by Chapter 88, HRS, to become members of the Employees' Retirement System of the State of Hawai`i (the ERS), a cost - sharing, multiple- employer public employee retirement plan. The ERS provides retirement, survivor, and disability benefits with multiple benefit structures known as the contributory, hybrid, and 15 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 noncontributory plans. All contributions, benefits, and eligibility requirements are established by Chapter 88, HRS, and can be amended by legislative action. Employees covered by Social Security on June 30, 1984 were given the option of joining the noncontributory plan or remaining in the contributory plan. All new employees hired after June 30, 1984 and before July 1, 2006, who are covered by Social Security, were generally required to join the noncontributory plan. Qualified employees in the contributory and noncontributory plan were given the option of joining the hybrid plan effective July 1, 2006, or remaining in their existing plan. Starting July 1, 2006, all new employees covered by Social Security are required to join the hybrid plan. The three plans provide a monthly retirement allowance equal to the benefit multiplier percentage (1.25% or 2.00 %) multiplied by the average fmal compensation (AFC) multiplied by years of credited service. The AFC is the average salary earned during the five highest paid years of service, including the payment of salary in lieu of vacation, or three highest paid years of service, excluding the payment of salary in lieu of vacation, if the employee became a member prior to January 1, 1971. The AFC for members hired on or after this date is based on the three highest paid years of service, excluding the payment of salary in lieu of vacation. For postretirement increases, every retiree's original retirement allowance is increased by 2.5% on each July 1 following the calendar year of retirement. This cumulative benefit is not compounded and increases each year by 2.5% of the original retirement allowance without a ceiling (2.5% of the original retirement allowance the first year, 5.0% the second year, 7.5% the third year, etc.). The following summarizes the three plan provisions relevant to the general employees of the respective plan: Contributory Plan Employees in the contributory plan are required to contribute 7.8% of their salary and are fully vested for benefits upon receiving 5 years of credited service. The Department may also make contributions for these members. Under the contributory plan, employees may retire with full benefits at age 55 and 5 years of credited service, or may retire early at any age with at least 25 years of credited service and reduced benefits. The benefit multiplier is 2.0% for employees covered by Social Security. Hybrid Plan Employees in the hybrid plan are required to contribute 6.0% of their salary and are fully vested for benefits upon receiving 5 years of credited service. The Department may also make contributions for these members. Employees may retire with full benefits at age 62 and 5 years of credited service or at age 55 and 30 years of credited service, or may retire at age 55 and 20 years of credited service with reduced benefits. The benefit multiplier used to calculate retirement benefits is 2.0 %. 16 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawaii, State of Hawaii) Notes to Financial Statements June 30, 2009 and 2008 Noncontributory Plan Employees in the noncontributory plan are fully vested upon receiving 10 years of credited service. The Department is required to make all contributions for these members. Employees may retire with full benefits at age 62 years and 10 years of credited service or age 55 and 30 years of credited services or age 55 years and 20 years of credited service with reduced benefits. The benefit multiplier used to calculate retirement benefits is 1.25 %. The ERS funding policy provides for periodic employer contributions at actuarially determined rates, expressed as a percentage of annual covered payroll, such that the employer contributions, along with employee contributions and an actuarially determined rate of investment return, are adequate to accumulate sufficient assets to pay benefits when due. The funding method used to calculate the total employer contribution required is the entry age normal actuarial cost method. Effective July 1, 2005, employer contribution rates are a fixed percentage of compensation, including the normal cost plus amounts required to pay for the unfunded actuarial accrued liability. Employers contribute 15.75% for police officers and firefighters, and 13.75% for all other employees. These rates increase, as of July 1, 2008, to 19.70% for police officers and firefighters, and 15.00% for all other employees. Employer rates are set by statute based on the recommendation of the ERS actuary resulting from an experience study conducted every five years. The pension contributions by the Department for the years ended June 30, 2009, 2008, and 2007 were $1,383,338, $1,183,202, and $1,051,260, respectively, which equal the required contributions for each year. Measurement of assets and actuarial valuations is made for the ERS as a whole and is not separately computed for individual participating employers such as the Department. The ERS issues a Comprehensive Annual Financial Report that includes financial statements and required supplementary information, which may be obtained from the following address: Employees' Retirement System of the State of Hawai` i 201 Merchant Street, Suite 1400 Honolulu, Hawaii 96813 (b) Deferred Compensation Plan All full -time employees are eligible to participate in the County's Public Employees' Deferred Compensation Plan, adopted pursuant to Internal Revenue Code Section 457. The plan permits eligible employees to defer a portion of their salary until future years by contributing to a fund managed by a plan administrator. The deferred compensation amounts are not available to employees until termination, retirement, death, or unforeseeable emergency. All plan assets are held in a trust fund to protect them from claims of general creditors and from diversion to any uses other than paying benefits to participants and beneficiaries. The County has no responsibility for loss due to the investment or failure of investment of funds and assets in the plans, but does have the duty of due care that would be required of an ordinary prudent investor. 17 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawaii) Notes to Financial Statements June 30, 2009 and 2008 (c) Postretirement Healthcare and Life Insurance Benefits In addition to providing pension benefits, the Department, pursuant to HRS Chapter 87A, is a participating employer in an agent, multiple - employer defined benefit plan providing certain healthcare and life insurance benefits to all qualified employees and retirees. The Employer -Union Health Benefits Trust Fund (EUTF) was established on July 1, 2003 to design, provide, and administer medical, prescription, drug, dental, vision, chiropractic, dual- coverage medical and prescription, and group life benefits. For employees hired before July 1, 1996, the Department pays the entire monthly healthcare premium for employees retiring with 10 or more years of credited service, and 50% of the monthly premium for employees retiring with fewer than 10 years of credited service. For employees hired after June 30, 1996, and who retire with fewer than 10 years of service, the Department makes no contributions. For those retiring with at least 10 years but fewer than 15 years of service, the Department pays 50% of the retired employees' monthly Medicare or non - Medicare premium. For employees hired after June 30, 1996, and who retire with at least 15 years but fewer than 25 years of service, the Department pays 75% of the retired employees' monthly Medicare or non- Medicare premium. For those retiring with over 25 years of service, the Department pays the entire healthcare premium. For employees hired after June 30, 2001, and who retire with fewer than 10 years of service, the Department makes no contributions. For those retiring with at least 10 years but fewer than 15 years of service, the Department pays 50% of the retired employees' monthly Medicare or non - Medicare premium based on the self plan. For employees hired after June 30, 2001, and who retire with at least 15 years but fewer than 25 years of service, the Department pays 75% of the retired employees' monthly Medicare or non - Medicare premium; for those retiring with over 25 years of service, the Department pays the entire healthcare premium. For active employees, the employee's contributions are based upon negotiated collective bargaining agreements. Employer contributions for employees not covered by collective bargaining agreements and for retirees are prescribed by the HRS. The Department's annual other postemployment benefit (OPEB) cost is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45, Accounting and Financial Reporting by the Employees for Postemployment Benefits Other Than Pensions. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The 18 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawaii, State of Hawaii) Notes to Financial Statements June 30, 2009 and 2008 current ARC rate is 17.2% of annual covered payroll. The following table presents the components of the Department's annual OPEB cost for the year ended June 30, 2009 the amount actually contributed to the plan, and changes in the net OPEB obligation: Annual required contribution $ 1,493,000 Interest on net OPEB obligation — Adjustment to annual required contribution — Annual OPEB cost 1,493,000 Contributions made (2,441,077) Decrease in net OPEB obligation (948,077) Net OPEB obligation at beginning of year 948,077 Net OPEB obligation at end of year (reported as postretirement liability in the accompanying balance sheets) — Less current portion — $ — The annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the years ended June 30, 2009 and 2008 were as follows: Percentage of annual Annual OPEB cost Net OPEB Fiscal year ended OPEB cost contributed obligation June 30, 2008 $ 1,493,000 36.5% $ 948,077 June 30, 2009 1,493,000 163.5 — The schedule of funding progress based on the actuarial valuation date of July 1, 2007 is as follows: Actuarial accrued liability $ 17,236,000 Actuarial value of plan assets — Unfunded actuarial accrued liability (UAAL) $ 17,236,000 Funded ratio —% Covered payroll (active plan members) $ 8,689,000 UAAL as a percentage of covered payroll 198.4% 19 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts 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. Projections of benefits for fmancial reporting purposes are based on the substantive plan (the plan 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 benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long -term perspective of the calculations. In the July 1, 2007 actuarial valuation, the most recent actuarial valuation date, the entry age normal cost method was used. The actuarial assumptions included an 8.0% discount rate, which is based on the Department's anticipated funding level, and an annual healthcare cost trend rate of 9.5% initially, reduced by decrements to an ultimate rate of 5.0% after six years. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at July 1, 2007 was 30 years. The EUTF issues a financial report that included financial statements and required supplementary information, which may be obtained from the following address: Hawaii Employer -Union Health Benefits Trust Fund P.O. Box 2121 Honolulu, Hawaii 96805 -2121 (d) Accrued Vacation The following is a summary of changes in accrued vacation payable during the fiscal years ended June 30, 2009 and 2008: 2009 2008 Balance at beginning of year $ 1,549,292 1,422,023 Additions 709,421 626,703 Deletions (587,339) (499,434) Balance at end of year 1,671,374 1,549,292 Less current portion (467,985) (402,816) $ 1,203,389 1,146,476 20 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 (6) Capital Assets The following summarizes the Department's capital assets at June 30, 2009 and 2008: 2009 2008 In service: Distribution mains and accessories $ 122,284,184 114,310,438 Structures and improvements - 107,296,748 86,347,131 Electric and hydraulic pumping equipment 31,579,160 25,486,523 Services 27,253,827 24,116,974 Transmission mains and accessories 21,138,474 17,828,336 Hydrants 7,872,518 7,488,651 Meters 7,287,267 6,422,987 Purification system 6,641,628 6,749,701 Transportation equipment 3,445,635 3,348,620 Communication equipment 2,317,674 2,317,674 Office equipment and furniture 1,904,305 1,852,990 Tools and work equipment 1,224,217 1,201,212 Other equipment 1,147,643 1,147,643 Other fire protection plant 19,587 19,587 Total in service 341,412,867 298,638,467 Less accumulated depreciation (157,081,081) (148,973,775) 184,3 31,786 149,664, 692 Land and rights 1,714,727 1,116,933 Construction work in progress 32,940,806 54,199,264 Net capital assets $ 218,987,319 204,980,889 The following is a summary of changes in capital assets during the fiscal years ended June 30, 2009 and 2008: Construction Less Net Land and work in accumulated capital In service rights progress depreciation assets Balance at June 30, 2007 $ 295,675,414 815,962 42,489,082 (140,834,013) 198,146,445 Additions 3,059,642 300,996 11,789,322 (8,231,643) 6,918,317 Deductions (96,589) (25) (79,140) 91,881 (83,873) Balance at June 30, 2008 298,638,467 1,116,933 54,199,264 (148,973,775) 204,980,889 Additions 43,033,860 597,794 21,003,616 (8,349,607) 56,285,663 Deductions (259,460) — (42,262,074) 242,301 (42,279,233) Balance at June 30, 2009 $ 341,412,867 1,714,727 32,940,806 (157,081,081) 218,987,319 21 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 (7) Long -Term Debt At June 30, 2009 and 2008, long -term debt consisted of the following: 2009 2008 Public Improvement bonds ($8,000,000 issued) payable to the County, interest at 4% to 5.5 %, due in annual installments through 2010 $ 735,652 1,080,000 Public Improvement bonds ($10,000,000 issued) payable to the County, interest at 5.05% to 5.6 %, due in annual installments through 2013 3,085,000 3,755,000 Public Improvement Refunding bonds ($424,860 issued) payable to the County, interest at 5 %, due in annual installments through 2015 269,272 309,624 Public Improvement Refunding bonds ($5,752,612 issued) payable to the County, interest at 4% to 5 %, due in annual installments through 2021 5,752,612 5,752,612 Public Improvement bonds ($25,000,000 issued) payable to the County, interest at 4% to 5 %, due in annual installments through 2026 23,445,000 24,242,500 Public Improvement bonds ($775,600 authorized) payable to the County, interest at 4.5 %, due in annual installments through 2033 271,500 381,495 Public Improvement bonds ($259,200 issued) payable to the County, interest at 4.5 %, due in semiannual installments through 2039 248,635 252,312 Public Improvement bonds ($147,000 issued) payable to the County, interest at 4.125 %, due in semiannual installments through 2043 147,000 50,000 State Revolving Fund loan ($13,170,680 loaned) payable to the State of Hawai`i, interest at 0.41% to 1.37 %, due in semiannual installments through 2027 8,154,507 5,423,551 Total long -term debt 42,109,178 41,247,094 Less current portion (2,518,000) (2,236,000) Long -term debt, excluding current portion $ 39,591,178 39,011,094 22 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Notes to Financial Statements June 30, 2009 and 2008 The following is a summary of changes in long -term debt during the fiscal years ended June 30, 2009 and 2008: 2009 2008 Beginning balance $ 41,247,094 42,308,135 Additions 3,209,597 217,316 Repayments (2,347,513) (1,278,357) Ending balance $ 42,109,178 41,247,094 At June 30, 2009, future principal payments for long -term debt are scheduled as follows: Year ending June 30: 2010 $ 2,518,000 2011 2,625,000 2012 2,766,000 2013 2,881,000 2014 2,121,000 2015 — 2019 11,613,000 2020 — 2024 11,381,000 2025 — 2029 5,922,000 2030 — 2034 143,000 2035 — 2039 94,000 Thereafter 45,178 Total $ 42,109,178 (8) Commitments and Contingent Liabilities (a) Risk Management The Department is exposed to various risks of loss from torts; theft of, damage to, and destruction of assets; employee injuries and illnesses, and natural disasters. The Department maintains property, auto liability, and general liability insurance policies. The Department remains self-insured for workers' compensation liability. 23 (Continued) DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawaii) Notes to Financial Statements June 30, 2009 and 2008 Liabilities are recorded when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported (IBNR). Claim liabilities, including IBNR, are based on the estimated ultimate cost of settling the claims, and include incremental costs for the hiring of special counsel and expert witnesses. Claims liabilities are estimated by a case -by -case review of all claims and the application of historical experience to outstanding claims. Estimates of IBNR are based on historical experience. Accrued workers' compensation amounted to $245,000 and $116,000 at June 30, 2009 and 2008, respectively. Changes in the reported liability are as follows: 2009 2008 Beginning liability $ 116,000 202,000 Current year claims 196,338 16,560 Claim payments (67,338) (102,560) Ending liability 245,000 116,000 Less current portion (54,807) (25,949) $ 190,193 90,051 (b) Construction Contracts The Department is obligated under construction contracts for the utility plant and other projects. Such commitments approximated $33,664,000 and $24,071,000, respectively, at June 30, 2009 and 2008. (c) Litigation The Department is involved in various legal proceedings arising in the ordinary course of business. The Department provides for losses that, in the opinion of management, are both probable of being incurred and that can be reasonably estimated. In management's opinion, losses, if any, would not materially affect the Department's financial position or results of operations. 24 DEPARTMENT OF WATER SUPPLY COUNTY OF HAWAII (A Component Unit of the County of Hawai`i, State of Hawai`i) Required Supplementary Information June 30, 2009 and 2008 Schedule of Funding Progress (In thousands) UAAL as a percentage Actuarial Actuarial of annual Actuarial Actuarial accrued accrued Funded Annual covered valuation value of liability liability ratio covered payroll date assets (a) (AAL) (b) (b-a) (a/b) payroll (c) ((b -a) /c) July 1, 2007 $ — 17,236,000 17,236,000 —% $ 8,689,000 198.4% 25 EXHIBIT B Operating Budget and Projected Cash Flow Dept of Water Supply Kona Ocean View Water System Proposed Projected Operating Budget 81 Connections Operating Income $ 53,509 Operating Expenses: Power & Pumping $ 25,765 General & Admin $ 1,781 Maint & Repairs $ 1,238 Customer Acctg $ 278 Purification $ 95 Fuel & Oil $ 173 Depreciation $ 2,000 Taxes $ 136 Total Operating Expenses $ 31,467 Net Operating Income (Loss) $ 22,042 USDA Loan Annual Debt Service $92,062.44 81 Assessees @ $94.72 per month $92,067.84 Net ($5.40) Estimate of Improvement District Costs $1,569,350 Estimate of Monthly Assessment RD Loan $1,569,350 Annual Debt Service on Loan (35 year term @ 4.75 %) $92,062.44 Monthly Debt Service $7,671.87 Number of Assessees 81 Monthly Assessment $94.72 Facilities Charge for Improvement District Assessees Existing customers of DWS $0 or Facilities Charge/ new customer $1,190 Credit Deposit/new customer $50 Drop in meter fee /customer $75 Total/ customer $1,315 EXHIBIT C Department of Water Supply County of Hawaii Water Rate Schedule 8a' o =^ OOCO °0 °CC �� « o o 8 co m W~ w ,§; ,2,,i U �, o roV w ,. i v u co E . v : 'i o 0 0 0 o c o H o p ^ u o c� 1� w o "' o n "3 u .^.. -5 a 7CA O i5, _T_' N- v " SIN z _ ..s L2 b ,i bps* V O .^.. u ( ] uq O '.. 7 N M W'. 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