HomeMy WebLinkAbout2019 & 2020-COH - DWS Financial Statements and Supplementary Information With Independent Auditor's ReportCOUNTY OF HAWAII
DEPARTMENT OF WATER SUPPLY
(A component unit of the County of Hawaii, State of Hawaii)
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
WITH INDEPENDENT AUDITOR'S REPORTS
Fiscal Years Ended June 30, 2020 and 2019
N&K CPAs, Inc.
ACCOUNTANTS CONSULTANTS
999 BISHOP STREET, SUITE 2200 HONOLULU, HAWAII 96813
T (808) 524-2255 F (808) 523-2090 nkcpa.com
COUNTY OF HAWAII
DEPARTMENT OF WATER SUPPLY
(A component unit of the County of Hawaii, State of Hawaii)
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT 4 - 6
MANAGEMENT'S DISCUSSION AND ANALYSIS 7-12
FINANCIAL STATEMENTS
Statements of Net Position 13-14
Statements of Revenues, Expenses, and Changes in Net Position 15
Statements of Cash Flows 16-17
Notes to Financial Statements 18-48
REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN
MANAGEMENT'S DISCUSSION AND ANALYSIS
Schedule of Proportionate Share of the Net Pension Liability 50
Schedule of Contributions (Pension) 51
Notes to Required Supplementary Information Required by
GASB Statement No. 68 52
Schedule of Changes in the Net OPEB Liability and Related Ratios 53
Schedule of Contributions (OPEB) 54
Notes to Required Supplementary Information Required by GASB
Statement No. 75 55-57
2
COUNTY OF HAWAII
DEPARTMENT OF WATER SUPPLY
(A component unit of the County of Hawaii, State of Hawaii)
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS 58-59
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS - STATUS
REPORT 60
3
N&K CPAs, Inc.
ACCOUNTANTS | CONSULTANTS
999 BISHOP STREET, SUITE 2200
HONOLULU, HAWAII 96813
T (808) 524-2255 F (808) 523-2090
INDEPENDENT AUDITOR'S REPORT
To the Water Board
County of Hawaii, Department of Water Supply
Report on the Financial Statements
We have audited the accompanying financial statements of the County of Hawaii,
Department of Water Supply (Department), a component unit of the County of Hawaii,
State of Hawaii, as of and for the fiscal years ended June 30, 2020 and 2019, and the
related notes to the financial statements, which collectively comprise the Department's
basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity's internal control. Accordingly, we express no such opinion. An audit also
includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
4
N&K CPAs, Inc.
ACCOUNTANTS | CONSULTANTS
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Department as of June 30, 2020 and 2019, and the
changes in its financial position and its cash flows for the fiscal years then ended in
accordance with accounting principles generally accepted in the United States of
America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis on pages 7 through 12 and the schedules of
proportionate share of the net pension liability, contributions (pension), changes in the net
OPEB liability and related ratios, and contributions (OPEB) on pages 50 through 57 be
presented to supplement the basic financial statements. Such information, although not
a part of the basic financial statements, is required by the Governmental Accounting
Standards Board who considers it to be an essential part of financial reporting for placing
the basic financial statements in an appropriate operational, economic, or historical
context. We have applied certain limited procedures to the required supplementary
information in accordance with auditing standards generally accepted in the United States
of America, which consisted of inquiries of management about the methods of preparing
the information and comparing the information for consistency with management's
responses to our inquiries, the basic financial statements, and other knowledge we
obtained during our audit of the basic financial statements. We do not express an opinion
or provide any assurance on the information because the limited procedures do not
provide us with sufficient evidence to express an opinion or provide any assurance.
5
N&K CPAs, Inc.
ACCOUNTANTS I CONSULTANTS
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
December 29, 2020 on our consideration of the Department's internal control over financial
reporting and on our tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements and other matters. The purpose of that report is solely to
describe the scope of our testing of internal control over financial reporting and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the
Department's internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards in
considering the Department's internal control over financial reporting and compliance.
N&K CPAs, Inc.
Honolulu, Hawaii
December 29, 2020
6
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 2020 and 2019
The Department of Water Supply, County of Hawaii (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 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 statements of net position present information on all of the Department's assets, deferred
outflows of resources, liabilities, and deferred inflows of resources, with the residual amount
reported as net position. Over time, increases or decreases in net position may serve as a useful
indicator of whether the financial position of the Department is improving or deteriorating. Net
position increases when revenues exceed expenses. Increases in assets and deferred outflows
of resources, without a corresponding increase in liabilities and deferred inflows of resources,
result in increased net position, which indicate an improved financial position. In the case of the
Department, assets plus deferred outflows of resources exceeded liabilities plus deferred inflows
of resources by $217.3 million, at the close of the most recent fiscal year. This represents a
decrease of $6.5 million, or 2.94% less than the previous year. At June 30, 2020, $236.0 million
of the Department's net position was invested in capital assets (net of related debt), and ($18.6)
million was unrestricted.
The statements of revenues, expenses and changes in net position present information showing
how the Department's net position changed during the fiscal year. All components of the changes
in net position are reported as soon as the underlying event occurs, regardless of the timing of
related cash flows. Thus, revenues and expenses are reported in the statements for some items
that will result in cash flows in future fiscal periods.
The statements of cash flows present changes in cash and cash equivalents (short-term
investments with original maturities of three months or less from the date of acquisition), resulting
from operating, investing, capital and related financing activities, and non -capital financing
activities.
Notes to Financial Statements
The notes to the financial 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
required supplementary information concerning the Department's participation in the Employees'
Retirement System of the State of Hawaii (ERS) and the Employer -Union Health Benefits Trust
Fund of the State of Hawaii (EUTF).
7
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
June 30, 2020 and 2019
Condensed Financial Information
The following are summaries from the Department's financial statements as of and for the fiscal
years ended June 30, 2020 and 2019, and 2018.
STATEMENTS OF NET POSITION
2020 2019 2018
Assets
Capital assets, net $301,507,187 $296,556,069 $303,062,991
Other assets $ 52,659,064 $ 63,430,514 $ 63,769,326
Total assets $354,166,251 $359,986,583 $366,832,317
Deferred outflows of resources
Deferred outflows of resources $ 10, 093, 069 $ 12,278,889 $ 10,143,200
Total deferred outflows of resources $ 10, 093, 069 $ 12,278,889 $ 10,143,200
Total assets and deferred
outflows of resources $364,259,320 $372,265,472 $376,975,517
Liabilities
Long-term debt $ 66,433,693 $ 70,622,680 $ 74,523,523
Other liabilities $ 76,578,688 $ 75,197,730 $ 70,857,883
Total liabilities $143,012,381 $145,820,410 $145,381,406
Deferred inflows of resources
Deferred inflows of resources $ 3,911,126 $ 2,515,745 $ 2,161, 311
Total deferred inflows of resources $ 3,911,126 $ 2,515,745 $ 2,161, 311
Net position
Net investment in capital assets $235,961,719 $226,821,614 $229,427,693
Unrestricted $(18,625,906) $ (2,892,297) $ 5,107
Total net position $217,335,813 $223,929,317 $229,432,800
Total liabilities, deferred inflows of
resources and net position $364,259,320 $372,265,472 $376,975,517
8
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
June 30, 2020 and 2019
Condensed Financial Information (Continued)
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
2020 2019 2018
Changes in net position
Operating revenues - water sales $ 49,052,933 $ 49,218,324 $ 45,016,591
Operating expenses $ 58,447,601 $ 58,985,608 $ 56,198,520
Operating loss $ (9,394,668) $ (9,767,284) $(11,181,929)
Nonoperating revenues $ 1,475,971 $ 1,478,183 $ 1,300,484
Nonoperating expenses $ (1,877,186) $ (2,246,105) $ (3,645,490)
Loss before contributions $ (9,795,883) $ (10,535,206) $ (13,526,935)
Contributions in aid of construction $ 3,202,379 $ 5,031,723 $ 8,122,713
Change in net position $ (6,593,504) $ (5,503,483) $ (5,404,222)
Net position at beginning of fiscal year $223,929,317 $229,432,800 $234,837,022
Net position end of fiscal year $217,335,813 $223,929,317 $229,432,800
Financial Analysis
Capital assets, net increased by $5.0 million, or 1.67%, during the fiscal years ended June 30,
2020 (FY2020), due primarily to an increase in accumulated depreciation of $14.4 million, offset
by increases in utility plant of $8.0 million, and CIP of $11.0 million. During the fiscal year ended
June 30, 2019 (FY2019), capital assets, net decreased by $6.5 million, or 2.15%, due primarily to
an increase in accumulated depreciation of $13.3 million, offset by increases in utility plant of $3.0
million, and CIP of $3.4 million.
Other assets decreased by $10.8 million, or 16.98%, in FY2020, due primarily to decreases in
investments of $8.0 million, and intergovernmental receivables of $2.0 million. In FY2019, other
assets decreased by $0.3 million, or 0.53%, due primarily to a decrease in cash and investments
of $3.2 million, offset by increases in trade receivables of $0.6 million, intergovernmental
receivables of $1.9 million, and interest receivable of $0.4 million.
Deferred outflows of resources decreased by $2.2 million, or 17.80%, in FY2020, due primarily to
a decrease in deferred outflows of resources for pensions of $2.48 million. During FY2019,
deferred outflows of resources increased by $2.1 million or 21.06%, due primarily to increases in
deferred outflows of resources for pensions of $1.7 million and deferred outflows of resources for
OPEB of $0.4 million.
9
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
June 30, 2020 and 2019
Financial Analysis (Continued)
Long-term debt decreased by $4.2 million, or 5.93%, in FY2020, due primarily to bond and loan
repayments of $5.7 million, offset by loan proceeds of $1.7 million. During FY2019, long term debt
decreased by $3.9 million, or 5.23%, due primarily to bond and loan repayments of $5.5 million
and loan forgiveness of $0.6 million, offset by loan proceeds of $2.5 million.
Other liabilities increased by $1.4 million, or 1.84% in FY2020, due primarily to an increase in
accounts and construction contracts payable of $2.9 million, offset by a decrease of net pension
iability of $1.5 million. In FY2019, other liabilities increased $4.3 million, or 6.12%, due primarily
to an increase in net pension liability of $5.1 million, offset by a decrease of net OPEB liability of
$0.8 million.
Deferred inflows of resources increased by $1.4 million, or 55.47%, in FY2020, due primarily to
an increase in deferred inflows of resources for pensions of $1.5 million. In FY2019, deferred
inflows of resources increased by $0.4 million, or 16.40%, due primarily to a decrease in deferred
inflows of resources for pensions of $0.5 million, offset by an increase in deferred inflows of
resources for OPEB of $0.9 million.
Net investment in capital assets increased by $9.1 million, or 4.03%, in FY2020, due primarily to
an increase in net capital assets of $5.0 million, and a reduction in long term debt of $4.2 million.
In FY2019, net investment in capital assets decreased by $2.6 million, or 1.14%, due primarily to
a reduction in net capital assets of $6.5 million, offset by a reduction in long term debt of $3.9
million.
Total net position decreased $6.6 million, or 2.94%, in FY2020, due primarily to the results of
operations of ($6.5 million). In FY2019, total net position decreased by $5.5 million, or 2.40%, due
primarily to the results of operations of ($5.5 million).
Operating expenses decreased by $0.5 million, or 0.91 %, in FY2020, due primarily to a decrease
in employee benefits of $0.6 million. In FY2019, operating expenses increased by $2.8 million, or
4.96%, due primarily to an increase in purchased power of $1.6 million.
Non-operating expenses decreased by $0.4 million, or 16.42%, in FY2020, due primarily to
decreases in interest on long term debt of $0.2 million and losses on disposal of property of $0.2
million. In FY2019, non-operating expenses decreased by $1.4 million, or 38.39%, due primarily
to Kapoho lava flow infrastructure losses incurred in the prior year of $1.5 million.
Contributions in aid of construction decreased by $1.8 million, or 36.36%, in FY2020, due primarily
to prior year dedications exceeding current year's by $1.4 million, and loan forgiveness of $0.6
million in the prior year. In FY2019, contributions in aid of construction decreased by $3.1 million,
or 38.05%, due primarily to generators valued at $0.5 million and State of Hawaii construction
funding of $0.6 million received in the prior year but not in FY2019.
10
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
June 30, 2020 and 2019
Capital Assets and Debt Administration
As of June 30, 2020 and 2019, the Department had $301.5 million and $296.6 million,
respectively, invested in capital assets, and $66.4 million and $70.6 million, respectively, of long-
term debt outstanding.
During 2020, major capital asset additions included:
• $5.1 million for the Kapulena Well Development
During 2019, major capital asset additions included:
• $0.4 million for the Paukaa waterline.
• $0.4 million for the HOVE well repairs.
• $0.2 million for Kahaluu booster repairs.
• $0.2 million for Kaieie Mauka well repairs.
• $0.2 million for Olaa #6 well repairs.
• $0.2 million for Hawi #2 well repairs.
• $0.2 million for Kaloko Mauka #3 booster repairs.
More detailed information about the Department's capital assets is provided in Note D to the
financial statements.
At June 30, 2020 and 2019, the Department had outstanding $22.2 million and $24.8 million,
respectively, in County of Hawaii general obligation bonds for public improvements, and $42.9
million and $44.3 million, respectively, in State of Hawaii revolving fund loans.
As of June 30, 2020, the Department, through the County of Hawaii, maintained an "AX rating
from Standard & Poor's, an "Aa2" rating from Moody's and an "AA+" rating from Fitch for general
obligation debt.
Currently Known Facts, Decisions, or Conditions
Effective July 1, 2020, water rates remained unchanged from FY19
11
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
June 30, 2020 and 2019
Novel Coronavirus (COVID-19)
The Water Board postponed implementing a projected 6.5% rate increase on July 1, 2020 due
to uncertainties of the COVID-19 outbreak. After further analysis, the Water Board approved a
13% rate increase effective January 1, 2021. Further increases are contingent upon continued
analysis of the Department's financial condition and the economy.
12
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
STATEMENTS OF NET POSITION
June 30, 2020 and 2019
ASSETS
Current assets
Cash and cash equivalents
Investments
Interest receivable
Trade receivables, less allowance for doubtful accounts
$1,590,000 in 2020 and $1,293,000 in 2019
Intergovernmental receivables
Other receivables
Inventories of materials and supplies
Prepaid expenses and other
Total current assets
Restricted cash
Investments
Capital assets
Utility plant in service
Less accumulated depreciation
Land and rights
Preliminary survey and investigation charges
Construction work in progress
Net capital assets
Total assets
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows of resources related to pensions
Deferred outflows of resources related to OPEB
Total deferred outflows of resources
Total assets and deferred outflows of resources
2020
2019
(276,541,289)
$ 19,663,115 $
20,115,848
7,000,000
13,000,000
676,804
791,922
7,097,098
7,299,899
496,269
2,480,348
255,082
266,823
1,537,355
1,531,481
45,116
55,968
36,770,839 45,542,289
888,225 888,225
15,000,000 17,000,000
516,049,178
508,026,103
(276,541,289)
(262,121,118)
239,507,889
245,904,985
5,261,319
5,204,598
6,417,849
6,140,398
5n 1190 1 in
088
301,507,187 296,556,069
.154 1 RR 951 MR .58.1
7,441,708
9,921,877
2,651,361
2,357,012
10,093,069
12,278,889
$ 364,259,320 $ 372,265,472
The accompanying notes are an integral part of these financial statements.
13
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
STATEMENTS OF NET POSITION (Continued)
June 30, 2020 and 2019
DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources related to pensions
2020
2019
LIABILITIES
1,093,632
1,194,508
Current liabilities
62,849
69,643
Accounts and construction contracts payable,
3,911,126
2,515,745
including retainages
$ 6,033,555
$ 3,099,214
Long-term debt, current portion
5,828,067
5,613,168
Accrued compensation
1,740,978
1,582,476
Accrued interest payable
545,682
605,077
Accrued workers' compensation, current portion
147,642
174,262
Accrued vacation, current portion
524,869
563,533
Customers' deposits, current portion
230,525
200,460
Total current liabilities
15,051,318
11,838,190
Accrued workers' compensation, noncurrent portion
512,358
604,738
Accrued vacation, noncurrent portion
1,285,023
1,144,142
Unearned revenue
1,583,953
1,583,953
Customers' deposits, noncurrent portion
15,865,108
15,686,076
Net pension liability
32,029,248
33,522,053
Net OPEB liability
16,079,747
16,431,746
Long-term debt, noncurrent portion
60,605,626
65,009,512
Total liabilities
143,012,381
145,820,410
DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources related to pensions
2,754,645
1,251,594
Deferred inflows of resources related to OPEB
1,093,632
1,194,508
Unamortized gain on advanced refunding
62,849
69,643
Total deferred inflows of resources
3,911,126
2,515,745
Net investment in capital assets 235,961,719 226,821,614
Unrestricted (18,625,906) (2,892,297)
Total net position 217,335,813 223,929,317
Total liabilities, deferred inflows of resources
and net position $ 364,259,320 $ 372,265,472
The accompanying notes are an integral part of these financial statements.
14
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
Fiscal Years ended June 30, 2020 and 2019
2020 2019
OPERATING REVENUES
Water sales $ 49,052,933 $ 49,218,324
OPERATING EXPENSES
Power and pumping
19,841,121
20,642,928
Depreciation
14,823,615
15,274,501
General and administrative
11,294,654
11,469,496
Transmission and distribution
7,178,319
6,755,397
Purification
2,295,797
1,850,821
Maintenance and repairs
1,729,486
1,727,475
Customers' accounting and collecting
1,284,609
1,264,990
Total operating expenses
58,447,601
58,985,608
Operating loss
(9,394,668)
(9,767,284)
NONOPERATING REVENUES
Interest income
775,456
824,715
Other
700,515
653,468
Total nonoperating revenues
1,475,971
1,478,183
NONOPERATING EXPENSES
Interest expense on long-term debt
(1,559,026)
(1,714,080)
Loss on disposal of capital assets
(107,891)
(326,031)
Other
(210,269)
(205,994)
Total nonoperating expenses
(1,877,186)
(2,246,105)
Loss before contributions
(9,795,883)
(10,535,206)
CONTRIBUTIONS IN AID OF CONSTRUCTION
3,202,379
5,031,723
Change in net position
(6,593,504)
(5,503,483)
Net position at beginning of fiscal year
223,929,317
229,432,800
Net position at end of fiscal year
$ 217,335,813 $
223,929,317
The accompanying notes are an integral part of these financial statements.
15
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
STATEMENTS OF CASH FLOWS
Fiscal Years ended June 30, 2020 and 2019
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 49,476,572 $ 48,578,543
Payments to suppliers for goods and services (21,544,372) (25,331,995)
Payments to employees for services (17,255,384) (15,716,422)
Net cash provided by operating activities 10,676,816 7,530,126
CASH FLOWS FROM CAPITAL AND RELATED FINANCING
ACTIVITIES
Principal paid on long-term debt (5,651,462) (5,530,182)
Debt proceeds 1,663,806 2,478,870
Interest paid on long-term debt (1,826,547) (1,984,026)
Acquisition and construction of capital assets (18,331,597) (5,679,219)
Proceeds on sale of capital assets 4,000 13,333
Federal grants received 2,365,967 (1,775,370)
Contributions in aid of construction 1,755,710 1,309,755
Net cash used in capital and related financing activities (20,020,123) (11,166,839)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments
(18,000,000)
(10,000,000)
Proceeds from sale and maturities of investments
26,000,000
5,000,000
Interest received
890,574
466,802
Net cash provided by (used in) investing activities
8,890,574
(4,533,198)
Net decrease in cash and cash equivalents
(452,733)
(8,169,911)
CASH AND CASH EQUIVALENTS - BEGINNING OF FISCAL YEAR
21,004,073
29,173,984
CASH AND CASH EQUIVALENTS - END OF FISCAL YEAR $
20,551,340 $
21,004,073
RECONCILIATION OF CASH AND CASH EQUIVALENTS
TO THE STATEMENTS OF NET POSITION
Unrestricted $
19,663,115 $
20,115,848
Restricted
888,225
888,225
$
20,551,340 $
21,004,073
The accompanying notes are an integral part of these financial statements.
iff
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
STATEMENTS OF CASH FLOWS (Continued)
Fiscal Years ended June 30, 2020 and 2019
SUPPLEMENTAL DISCLOSURE OF NONCASH CAPITAL
AND RELATED FINANCING ACTIVITIES
Contributions of capital assets that are recorded as
contributions in aid of construction $ 1,064,781 $ 2,980,250
Amortization of unamortized gain on advanced refunding
2020
2019
RECONCILIATION OF OPERATING LOSS TO NET CASH
Amortization of bond premium
$
PROVIDED BY OPERATING ACTIVITIES
201,331
Principal forgiveness of long-term debt
Operating loss $
(9,394,668) $
(9,767,284)
Depreciation
14,823,615
15,274,501
Provision for doubtful accounts
527,789
172,014
Change in assets, deferred outflows of resources, liabilities
and deferred inflows of resources
Trade and other receivables
(313,247)
(765,896)
Inventories of materials and supplies
(5,874)
(33,140)
Prepaid expenses and other
10,852
22,724
Deferred outflows of resources related to pensions
2,480,169
(1,715,225)
Deferred outflows of resources related to OPEB
(294,349)
(420,464)
Accounts and construction contracts payable,
including retainages
2,934,341
(125,246)
Customers' deposits
209,097
(45,899)
Other accrued liabilities
141,719
235,765
Net pension liability
(1,492,805)
5,156,600
Net OPEB liability
(351,999)
(833,982)
Deferred inflows of resources related to pensions
1,503,052
(579,988)
Deferred inflows of resources related to OPEB
(100,876)
955,646
Net cash provided by operating activities $
10,676,816 $
7,530,126
SUPPLEMENTAL DISCLOSURE OF NONCASH CAPITAL
AND RELATED FINANCING ACTIVITIES
Contributions of capital assets that are recorded as
contributions in aid of construction $ 1,064,781 $ 2,980,250
Amortization of unamortized gain on advanced refunding
$
6,795 $
21,224
Amortization of bond premium
$
201,331 $
201,331
Principal forgiveness of long-term debt
$
$
648,200
The accompanying notes are an integral part of these financial statements.
17
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE A - NATURE OF ACTIVITIES
The Department of Water Supply, County of Hawaii (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 Hawaii
(County) and are confirmed by the County Council, as required by the County Charter.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Financial Statement Presentation - The Department is a component unit of the County
(primary government). The accompanying financial statements present only the financial
position and activities of the Department and do not purport to, and do not present the
financial position of the County, the changes in its financial position, or, where
applicable, its cash flows.
(2) Measurement Focus and Basis of Accounting - The Department's financial
statements are prepared using the economic resources measurement focus and the
accrual basis of accounting. Under this method, revenues are recorded when earned
and expenses are recorded at the time liabilities are incurred.
(3) 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 or money market funds with a weighted average maturity of three months or less
when purchased to be cash equivalents.
(4) Investments - Investments in time certificates of deposits are carried at cost, which
approximates fair value.
(5) 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
Department determines the allowance based on historical write-off experience. The
Department reviews its allowance for doubtful accounts monthly. Past -due balances
over 90 days and over a specified amount are reviewed individually for collectability.
Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote.
(6) Inventories of Materials and Supplies - Materials and supplies are stated at cost on
an average cost basis.
(7) Restricted Assets - Unspent bond proceeds that are restricted for purchases of water
system improvements are recorded as restricted assets.
W
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(8) Capital Assets - Capital assets in service as of January 1, 1950, date of inception of
the Department, were recorded at the 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. The capitalization threshold of assets is $400
with estimated useful lives greater than one year. Construction costs include amounts
for contract work, engineering supervision, and other direct costs and overhead costs.
Preliminary survey and investigation charges represent expenditures incurred to determine
the feasibility of potential water system sites for future development.
Maintenance and repairs and minor replacements are charged to operations. Major
replacements, renewals, and betterments are capitalized to capital asset accounts.
Depreciation is computed using the straight-line method over the following estimated
useful lives:
Distribution mains and accessories
40 years
Structures and improvements
40 to 50 years
Electric and hydraulic pumping equipment
10 years
Services
25 years
Transmission mains and accessories,
hydrants and purification system
40 years
Meters
10 years
Transportation, communication, tools
and office equipment and furniture
5 years
Other equipment
5 to 10 years
Other fire protection plant
25 years
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.
(9) Compensated Absences - Employees earn vacation credits at the rate of 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.
19
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 2020 and 2019
amounted to $6,549,000 and $6,533,000, respectively.
(10) Pensions - For purposes of measuring the net pension liability, deferred outflows of
resources and deferred inflows of resources related to pensions and pension expense,
information about the fiduciary net position of the Employees' Retirement System of the
State of Hawaii (ERS) and additions to/deductions from the ERS's fiduciary net position
have been determined on the same basis as they are reported by the ERS. For this
purpose, employer and member contributions are recognized in the period in which the
contributions are legally due and benefit payments (including refunds of employee
contributions) are recognized when due and payable in accordance with benefit terms.
Investments are reported at fair value.
(11) Postemployment Benefits Other Than Pensions (OPEB) - For the purposes of
measuring the net OPEB liability, deferred outflows of resources and deferred inflows of
resources related to OPEB, and OPEB expense, information about the fiduciary net
position of the Hawaii Employer -Union Health Benefits Trust Fund (EUTF) and additions
to/deductions from EUTF's fiduciary net position have been determined on the same
basis as they are reported by EUTF. For this purpose, EUTF recognizes benefit
payments when due and payable in accordance with the benefit terms. Investments are
reported at fair value, except for investments in commingled and money market funds,
which are reported at net asset value (NAV). The NAV is based on the fair value of the
underlying assets held by the respective fund less its liabilities.
(12) Net Position - Net position represents the difference between assets and deferred
outflows of resources less liabilities and deferred inflows of resources. Net position is
classified in the following components: net investment in capital assets and unrestricted
net position. Net investment in capital assets consists of capital assets, net of
accumulated depreciation, reduced by outstanding debt related to the acquisition or
construction of those assets, less unspent bond proceeds. Unrestricted net position
consists of all other net position not categorized as net investment in capital assets.
When both restricted and unrestricted resources are available for use, generally, it is
management's policy to use restricted resources first, then unrestricted resources, as
they are needed.
(13) 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 customers 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.
20
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(14) Contributions in Aid of Construction - Contributions in aid of construction represent
cash or capital assets received by the Department to aid in the construction of
infrastructure assets. It also includes the forgiveness of principal due on state revolving
fund loans that were used to finance the costs of infrastructure needed to maintain the
water system. Contributions in aid of construction are recognized when they are
accepted by the Water Board and when all applicable eligibility requirements have been
met.
(15) Deferred Amounts on Advanced Refundings - For advanced refunding resulting in
defeasance of debt, the difference between the reacquisition price and the carrying
amount of the old debt is deferred. This amount is amortized as a component of interest
expense using the bonds outstanding method over the remaining life of the old debt or
the life of the new, whichever is shorter. The amount deferred is reported as a deferred
inflow or outflow of resources.
(16) Deferred Outflows of Resources and Deferred Inflows of Resources - Deferred
outflows of resources represent a consumption of net position that applies to a future
period and will not be recognized as an outflow of resources (expense) until that time.
Deferred inflows of resources represent an acquisition of net position that applies to a
future period and will not be recognized as an inflow of resources (revenue) until that
time.
(17) Use of Estimates - The preparation of the financial statements in accordance with
accounting principles generally accepted in the United States of America requires
management to make a number of estimates and assumptions that affect the reported
amounts of assets, deferred outflows of resources, liabilities, deferred inflows of
resources 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 receivables, valuation of
noncash contributions in aid of construction, accrued workers' compensation, pensions
and postretirement healthcare and life insurance benefits. Actual results could differ from
those estimates.
(18) Reclassification - Certain balances in the prior year financial statements have been
reclassified for comparative purposes to conform with the current year presentation.
Such reclassification had no effect on the previously reported change in net position.
(19) New Accounting Pronouncements - The GASB issued Statement No. 84, Fiduciary
Activities. This Statement establishes specific criteria for identifying activities that should
be reported as fiduciary activities and clarifies whether and how business -type activities
should report their fiduciary activities. Management has not yet determined the effect
this Statement will have on the Department's financial statements.
21
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The GASB issued Statement No. 87, Leases. This Statement requires the recognition
of certain lease assets and liabilities for leases that previously were classified as
operating leases and recognized as inflows of resources or outflows of resources based
on the payment provisions of the contract. It establishes a single model for lease
accounting based on the foundational principle that leases are financings of the right to
use an underlying asset. Under this Statement, a lessee is required to recognize a lease
liability and an intangible right -to -use lease asset, and a lessor is required to recognize
a lease receivable and a deferred inflow of resources. Management has not yet
determined the effect this Statement will have on the Department's financial statements.
The GASB issued Statement No. 90, Majority Equity Interests - an amendment of GASB
Statements No. 14 and No. 61. The primary objectives of this Statement are to improve
the consistency and comparability of reporting a government's majority equity interest in
a legally separate organization and to improve the relevance of financial statement
information for certain component units. It defines a majority equity interest and specifies
that a majority equity interest in a legally separate organization should be reported as
an investment if a government's holding of the equity interest meets the definition of an
investment. Management has not yet determined the effect this Statement will have on
the Department's financial statements.
The GASB issued Statement No. 91, Conduit Debt Obligations. The primary objectives
of this Statement are to provide a single method of reporting conduit debt obligations by
issuers and eliminate diversity in practice associated with (1) commitments extended by
issuers, (2) arrangements associated with conduit debt obligations, and (3) related note
disclosures. For accounting and financial reporting purposes, a conduit debt obligation
is a debt instrument issued in the name of a state or local government (the issuer) that
is for the benefit of a third party primarily liable for the repayment of the debt instrument
(the third -party obligor). Management has not yet determined the effect this Statement
will have on the Department's financial statements.
The GASB issued Statement No. 92, Omnibus 2020. This Statement establishes
accounting and financial reporting requirements for specific issues related to leases,
intra -entity transfers of assets, postemployment benefits, government acquisitions, risk
financing and insurance -related activities of public entity risk pools, fair value
measurements, and derivative instruments. Management has not yet determined the
effect this Statement will have on the Department's financial statements.
The GASB issued Statement No. 94, Public -Private and Public -Public Partnerships and
Availability Payment Arrangements. The primary objective of this Statement is to
improve financial reporting by addressing issues related to public-private and public
partnership arrangements (PPPs). As used in this Statement, a PPP is an arrangement
in which a government (the transferor) contracts with an operator (a governmental or
nongovernmental entity) to provide public services by conveying control of the right to
22
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
operate or use a nonfinancial asset, such as infrastructure or other capital asset (the
underlying PPP asset), for a period of time in an exchange or exchange -like transaction.
This Statement also provides guidance for accounting and financial reporting for
availability payment arrangements (APAs). As defined in this Statement, an APA is an
arrangement in which a government compensates an operator for services that may
include designing, constructing, financing, maintaining, or operating an underlying
nonfinancial asset for a period of time in an exchange or exchange -like transaction. The
requirements of this Statement are effective for reporting periods beginning after
June 15, 2022. Management has not yet determined the effect this Statement will have
on the Department's financial statements.
The GASB issued Statement No. 95, Postponement of the Effective Dates of Certain
Authoritative Guidance. This Statement extends the effective dates of the following
Statements that may have an effect on the Department's financial statements as follows:
• Statement No. 84; effective date postponed one year for reporting periods
beginning after December 15, 2019
• Statement No. 87; effective date postponed eighteen months for reporting
periods beginning after June 15, 2021
• Statement No. 90; effective date postponed one year for reporting periods
beginning after December 15, 2019
• Statement No. 91; effective date postponed one year for reporting periods
beginning after December 15, 2021
• Statement No. 92, paragraphs 6 and 7; effective date postponed one year for
fiscal years beginning after June 15, 2021
• Statement No. 92, paragraphs 8, 9, and 12; effective date postponed one year
for reporting periods beginning after June 15, 2021
The requirements of this Statement were effective in May 2020.
The GASB issued Statement No. 96, Subscription -Based Information Technology
Arrangements. This Statement provides guidance on the accounting and financial
reporting for subscription -based information technology arrangements (SBITA) for
government end users. This Statement (1) defines a SBITA; (2) establishes that a SBITA
results in a right -to -use subscription asset - an intangible asset - and a corresponding
subscription liability; (3) provides the capitalization criteria for outlays other than
subscription payments, including implementation costs of a SBITA; and (4) requires note
disclosures regarding a SBITA. The requirements of this Statement are effective for
reporting periods beginning after June 15, 2022. Management has not yet determined
the effect this Statement will have on the Department's financial statements.
23
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE C - DEPOSITS AND INVESTMENTS
At June 30, 2020 and 2019, the carrying amount of deposits (cash, time certificates of deposit,
and money market funds) were $42,551,340 and $51,004,073, respectively, with
corresponding bank balances of $43,261,291 and $52,005,269, respectively. These amounts
were fully insured or collateralized with securities held by the County's agent in the County's
name.
The Hawaii Revised Statutes (HRS) authorizes the County Director of Finance to invest
Department moneys that are in excess of the amounts necessary for meeting immediate
requirements. The primary objective of the County'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 accordance with the HRS, the County's
investment policy permits investments in obligations of or guaranteed by the U.S. government,
obligations of the State of Hawaii, federally insured savings and checking accounts, time
certificates of deposit, and repurchase agreements with federally insured financial institutions.
Investments in time certificates of deposits totaled $22,000,000 and $30,000,000 at June 30,
2020 and 2019, respectively.
Custodial Credit Risk - Custodial credit risk for deposits is the risk that, in the event of the
failure of a depository financial institution, 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 Department's policy requires deposits to be maintained at financial institutions that are
members of the Federal Deposit Insurance Corporation and for deposits in excess of insured
amounts to be collateralized with securities in accordance with the HRS.
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, the Department will not be able to recover
the value of its investment or collateral securities that are in the possession of another party.
The Department's policy provides a list of authorized counterparties as well as minimum
requirements that counterparties must demonstrate in order to be utilized by the Department.
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-term 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.
Credit Risk and Concentration of Credit Risk - Credit risk is the risk that an issuer of an
investment will not fulfill its obligation to the holder of the investment. Concentration of credit
risk is the risk of loss attributed to the magnitude of a government's investment in a single
issuer. The Department's policy limits investment options to those authorized in the HRS and
requires the diversification of assets as to issuer.
24
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE D - CAPITAL ASSETS
The following summarizes the Department's capital assets at June 30, 2020 and 2019:
Utility plant in service
Structures and improvements
Distribution mains and accessories
Electric and hydraulic pumping equipment
Transmission mains and accessories
Services
Meters
Hydrants
Purification system
Transportation equipment
Communication equipment
Office equipment and furniture
Tools and work equipment
Other equipment
Other fire protection plant
Total utility plant in service
Less accumulated depreciation
Land and rights
Preliminary survey and investigation charges
Construction work in progress
Net capital assets
2020
192, 860, 692
144, 493, 870
66, 324, 413
36, 614, 325
32, 317, 296
11, 389, 064
9,617,436
9,128, 460
4,170, 784
3,182, 341
2,730,591
1,629,868
1,570,451
19 587
516, 049,178
(276 541 ?89)
239, 507, 889
5,261,319
6,417,849
5n -ign 1 -in
$ 301, 507,187
2019
188, 900, 281
143, 922,145
64, 429, 458
36, 229, 522
32, 012,173
11,100, 028
9,466,414
9,128, 460
3,797,998
3,178, 729
2,655,687
1,594,288
1,591,333
1 A 5R7
508, 026,103
(262 121 118)
245, 904, 985
5,204,598
6,140, 398
'i9 ,inA nRR
$ 296, 556, 069
The following is a summary of changes in capital assets during the fiscal years ended
June 30, 2020 and 2019:
Balance
Retirements/
Balance
July 1, 2019
Additions
Transfers
June 30, 2020
Utility plant in service
$ 508,026,103 $
8,538,414
$ (515,339)
$ 516,049,178
Less accumulated depreciation
(262,121,118)
(14,823,615)
403,444
(276,541,289)
245,904,985
(6,285,201)
(111,895)
239,507,889
Land and rights
5,204,598
56,721
--
5,261,319
Preliminary survey and
investigation charges
6,140,398
283,527
(6,076)
6,417,849
Construction work in progress
39,306,088
18,857,495
(7,843,453)
50,320,130
$ 296,556,069 $
12,912,542
$ (7,961,424)
$ 301,507,187
25
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE D - CAPITAL ASSETS (Continued)
$ 303,062,991 $ (2,946,207) $(3,560,715) $ 296,556,069
NOTE E - LONG-TERM OBLIGATIONS
At June 30, 2020 and 2019, long-term debt consisted of the following:
2020 2019
Public improvement refunding bonds ($13,497,500 issued), 2016 Series B,
payable to the County, interest at 3% to 5%, due in semiannual
installments through 2026
Public improvement refunding bonds ($6,353,750 issued), 2016 Series E,
payable to the County, interest at 2% to 5%, due in semiannual
installments through 2029
Public improvement bonds ($6,107,099 issued), 2010 Series B, payable to
the County, interest at 3.33% to 6.1 %, due in semiannual
installments through 2030
Public improvement refunding bonds ($5,752,612 issued), 2007 Series C,
payable to the County, interest at 4% to 5%, due in semiannual
installments through 2021
Public improvement bonds ($147,000 issued), 2008 Series A, payable to
the County, interest at 4.125%, due in semiannual
installments through 2043
Public improvement refunding bonds ($1,111,221 issued), 2017 Series C,
payable to the County, interest at 4% to 5%, paid off in 2020
Balance carried forward
26
$ 10,070,000 $ 11,257,500
6,353,750 6,353,750
4,403,750 4,730,000
1,250,341 1,250,341
120,792 123,915
-- 568,653
$ 22,198,633 $ 24,284,159
Balance
Retirements/
Balance
July 1, 2018
Additions
Transfers
June 30, 2019
Utility plant in service
$ 504,994,061
$ 5,379,172
$ (2,347,130)
$ 508,026,103
Less: Accumulated depreciation
(248,865,070)
(15,274,501)
2,018,453
(262,121,118)
256,128,991
(9,895,329)
(328,677)
245,904,985
Land and rights
5,194,398
10,200
--
5,204,598
Preliminary survey and
investigation charges
5,840,355
367,426
(67,383)
6,140,398
Construction work in progress
35,899,247
6,571,496
(3,164,655)
39,306,088
$ 303,062,991 $ (2,946,207) $(3,560,715) $ 296,556,069
NOTE E - LONG-TERM OBLIGATIONS
At June 30, 2020 and 2019, long-term debt consisted of the following:
2020 2019
Public improvement refunding bonds ($13,497,500 issued), 2016 Series B,
payable to the County, interest at 3% to 5%, due in semiannual
installments through 2026
Public improvement refunding bonds ($6,353,750 issued), 2016 Series E,
payable to the County, interest at 2% to 5%, due in semiannual
installments through 2029
Public improvement bonds ($6,107,099 issued), 2010 Series B, payable to
the County, interest at 3.33% to 6.1 %, due in semiannual
installments through 2030
Public improvement refunding bonds ($5,752,612 issued), 2007 Series C,
payable to the County, interest at 4% to 5%, due in semiannual
installments through 2021
Public improvement bonds ($147,000 issued), 2008 Series A, payable to
the County, interest at 4.125%, due in semiannual
installments through 2043
Public improvement refunding bonds ($1,111,221 issued), 2017 Series C,
payable to the County, interest at 4% to 5%, paid off in 2020
Balance carried forward
26
$ 10,070,000 $ 11,257,500
6,353,750 6,353,750
4,403,750 4,730,000
1,250,341 1,250,341
120,792 123,915
-- 568,653
$ 22,198,633 $ 24,284,159
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE E - LONG-TERM OBLIGATIONS (Continued)
Balance brought forward
Public improvement bonds ($9,585,706 issued), 2010 Series A, payable to
the County, interest at 4% to 5%, paid off in 2020
Total public improvement bonds
State Revolving Fund loans ($67,364,022 loaned) payable to the State
of Hawaii, interest up to 1.37%, due in semiannual
installments through 2038
Total long-term debt
Add: Unamortized premium
Less: Current portion
Noncurrent portion
2020 2019
$ 22,198,633 $ 24,284,159
22,198,633
d9 ana r) 9.r)
65,108,158
1,325,535
66,433,693
(5,828,067)
$ 60,605,626
485,000
24,769,159
44,326,655
69,095,814
1,526,866
70,622,680
(5,613,168)
$ 65,009,512
The public improvement bonds consist of long-term obligations to the County that reflect the
Department's proportionate share of general obligation bonds that were issued by the County,
in part, for the purpose of improving the public water system. The County's general obligation
bonds are an absolute and unconditional general obligation of the County for which its full
faith and credit are pledged. The principal and interest payments on the bonds are a first
charge on the general fund of the County.
The Department's State Revolving Fund Loans are direct borrowings of the Department for
which its full faith and credit are pledged. The State Revolving Fund Loans are secured by the
gross revenues of the Department.
The following is a summary of changes in long-term debt during the fiscal years ended
June 30, 2020 and 2019:
Balance Balance Due Within
July 1, 2019 Additions Decreases June 30, 2020 One Year
State Revolving Fund Loans
$ 44,326,655 $
1,663,806 $ (3,080,936) $
42,909,525
Public improvement refunding bonds
24,769,159
(2,570,526)
22,198,633
Total
$ 69,095,814 $
1,663,806 $ (5,651,462) $
65,108,158
27
$ 3,118,177
2,709,890
$ 5,828,067
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE E - LONG-TERM OBLIGATIONS (Continued)
Balance Balance Due Within
July 1, 2018 Additions Decreases June 30, 2019 One Year
State Revolving Fund loans $
45,359,733 $
2,478,870 $ (3,511,948) $
44,326,655 $
3,042,642
Public improvement refunding bonds
27,435,593
(2,666,434)
24,769,159
2,570,526
Total $
72,795,326 $
2,478,870 $ (6,178,382) $
69,095,814 $
5,613,168
At June 30, 2020, future principal and interest payments for long-term debt are scheduled as
follows:
$ 42,909,525 $ 5,051,909 $ 22,198,633 $ 4,391,337 $ 65,108,158 $ 9,443,246
In July 2017, the County issued $139,895,000 in general obligation bonds which included
$3,195,000 of 2017 Series C refunding general obligation bonds. The proceeds of the 2017
Series C issuance were placed in an escrow fund used to defease and advance refund the
County's 2007 Series C bonds. The Department has a 34.78% proportionate share of the
2007 Series C general obligation bond. As a result of the refunding, total debt service
payments were reduced by approximately $46,200 and resulted in an economic gain of
approximately $48,200. During the fiscal year ended June 30, 2020, the bond matured. At
June 30, 2019, defeased bonds totaled $584,304. Accordingly, the assets of the irrevocable
trust and the liability of the defeased bonds are not included on the Department's financial
statements.
W
Public Improvement
Year Ending
State Revolving Fund Loans
Refunding Bonds
Total
June 30,
Principal
Interest
Principal
Interest
Principal
Interest
2021
$ 3,118,177
$ 672,005
$ 2,709,890
$ 963,039
$ 5,828,067 $
1,635,044
2022
3,102,546
602,864
2,848,337
824,355
5,950,883
1,427,219
2023
2,613,490
541,258
2,323,525
694,487
4,937,015
1,235,745
2024
2,642,221
495,343
2,443,671
574,107
5,085,892
1,069,450
2025
2,671,351
448,972
2,561,322
454,693
5,232,673
903,665
2026-2030
13,073,069
1,566,134
9,230,358
855,241
22,303,427
2,421,375
2031 -2035
11,134,072
640,383
26,448
14,722
11,160,520
655,105
2036-2040
4,554,599
84,950
32,372
8,798
4,586,971
93,748
2041 -2045
22,710
1,895
22,710
1,895
$ 42,909,525 $ 5,051,909 $ 22,198,633 $ 4,391,337 $ 65,108,158 $ 9,443,246
In July 2017, the County issued $139,895,000 in general obligation bonds which included
$3,195,000 of 2017 Series C refunding general obligation bonds. The proceeds of the 2017
Series C issuance were placed in an escrow fund used to defease and advance refund the
County's 2007 Series C bonds. The Department has a 34.78% proportionate share of the
2007 Series C general obligation bond. As a result of the refunding, total debt service
payments were reduced by approximately $46,200 and resulted in an economic gain of
approximately $48,200. During the fiscal year ended June 30, 2020, the bond matured. At
June 30, 2019, defeased bonds totaled $584,304. Accordingly, the assets of the irrevocable
trust and the liability of the defeased bonds are not included on the Department's financial
statements.
W
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE E - LONG-TERM OBLIGATIONS (Continued)
In prior years, the County issued the 2016 Series B and Series E refunding general obligation
bonds, in which proceeds were placed in an escrow fund, to repay future debt service
payments on the 2006 Series A and 2010 Series A general obligation bonds. The Department
has a 50% and 25% proportionate share of the 2006 Series A and 2010 Series A general
obligation bonds, respectively. As of June 30, 2020 and 2019, the Department's proportionate
share of the outstanding balance of the unpaid defeased bonds amounted to $17,752,500 and
$19,110,000, respectively. Accordingly, the assets of the irrevocable trust and the liability of
the defeased bonds are not included on the Department's financial statements.
NOTE F - OTHER LONG-TERM OBLIGATIONS
The following is a summary of other long-term obligations transactions for the fiscal years
ended June 30, 2020 and 2019:
29
Balance
Deductions
Balance
Due Within
July 1, 2019
Additions
and Payments
June 30, 2020
One Year
Accrued workers'
compensation
$ 779,000
$
29,049
$ (148,049)
$ 660,000
$
147,642
Accrued vacation
1,707,675
809,821
(707,604)
1,809,892
524,869
Customers' deposits
15,886,536
811,312
(602,215)
16,095,633
230,525
Total
$ 18,373,211
$
1,650,182
$ (1,457,868)
$ 18,565,525
$
903,036
Balance
Deductions
Balance
Due Within
July 1, 2018
Additions
and Payments
June 30, 2019
One Year
Accrued workers'
compensation
$ 684,000
$
313,516
$ (218,516)
$ 779,000
$
174,262
Accrued vacation
1,690,652
813,635
(796,612)
1,707,675
563,533
Customer deposits
17,573,972
730,635
(2,418,071)
15,886,536
200,460
Total
$ 19,948,624
$
1,857,786
$ (3,433,199)
$ 18,373,211
$
938,255
29
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS
Pension Plan
Plan Description - Generally, all full-time employees of the State and counties are required
to be members of the ERS, a cost-sharing multiple -employer defined benefit pension plan that
administers the State's pension benefits program. Benefits, eligibility, and contribution
requirements are governed by HRS Chapter 88 and can be amended through legislation. The
ERS issues publicly available annual financial reports that can be obtained at ERS' website:
https://ers.ehawaii.gov.
Benefits Provided - The ERS Pension Trust is comprised of three pension classes for
membership purposes and considered to be a single plan for accounting purposes since all
assets of the ERS may legally be used to pay the benefits of any of the ERS members or
beneficiaries. The ERS provides retirement, disability and death benefits with three
membership classes known as the noncontributory, contributory, and hybrid retirement
classes. The three classes provide a monthly retirement allowance equal to the benefit
multiplier (generally 1.25% or 2%) multiplied by the average final compensation multiplied by
years of credited service. Average final compensation for members hired prior to July 1, 2012
is an average of the highest salaries during any three years of credited service, excluding any
salary paid in lieu of vacation for members hired January 1, 1971 or later and the average of
the highest salaries during any five years of credited service including any salary paid in lieu
of vacation for members hired prior to January 1, 1971. For members hired after June 30,
2012, average final compensation is an average of the highest salaries during any five years
of credited service excluding any salary paid in lieu of vacation.
Each retiree's original retirement allowance is increased on each July 1 beginning the
calendar year after retirement. Retirees first hired as members prior to July 1, 2012, receive
a 2.5% increase each year of their original retirement allowance without a ceiling. Retirees
first hired as members after June 30, 2012, receive a 1.5% increase each year of their original
retirement allowance without a ceiling. The annual increase is not compounded.
The following summarizes the provisions relevant to the largest employee groups of the
respective membership class. Retirement benefits for certain groups, such as police officers,
firefighters, some investigators, sewer workers, judges, and elected officials, vary from
general employees.
Noncontributory Class
Retirement Benefits - General employees' retirement benefits are determined as 1.25%
of average final compensation multiplied by the years of credited service. Employees with
ten years of credited service are eligible to retire at age 62. Employees with 30 years of
credited service are eligible to retire at age 55.
Disability Benefits - Members are eligible for service -related disability benefits regardless
of length of service and receive a lifetime pension of 35% of their average final
compensation. Ten years of credited service is required for ordinary disability. Ordinary
disability benefits are determined in the same manner as retirement benefits but are
payable immediately, without an actuarial reduction, and at a minimum of 12.5% of
average final compensation.
30
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
Death Benefits - For service -connected deaths, the surviving spouse/reciprocal
beneficiary receives a monthly benefit of 30% of the average final compensation until
remarriage or re-entry into a new reciprocal beneficiary relationship. Additional benefits
are payable to surviving dependent children up to age 18. If there is no spouse/reciprocal
beneficiary or dependent children, no benefit is payable.
Ordinary death benefits are available to employees who were active at time of death with
at least ten years of credited service. The surviving spouse/reciprocal beneficiary (until
remarriage/re-entry into a new reciprocal beneficiary relationship) and dependent children
(up to age 18) receive a benefit equal to a percentage of the member's accrued maximum
allowance unreduced for age or, if the member was eligible for retirement at the time of
death, the surviving spouse/reciprocal beneficiary receives 100% Joint and Survivor
lifetime pension and the dependent children receive a percentage of the member's
accrued maximum allowance unreduced for age.
Contributory Class for Members Hired prior to July 1, 2012
Retirement Benefits - General employees' retirement benefits are determined as 2% of
average final compensation multiplied by the years of credited service. General
employees with five years of credited service are eligible to retire at age 55.
Police officers and firefighters' retirement benefits are determined using the benefit
multiplier of 2.5% for qualified service, up to a maximum of 80% of average final
compensation. Police officers and firefighters with five years of credited service are eligible
to retire at age 55. Police officers and firefighters with 25 years of credited service are
eligible to retire at any age, provided the last five years is service credited in these
occupations.
Disability Benefits - Members are eligible for service -related disability benefits regardless
of length of service and receive a one-time payment of the member's contributions and
accrued interest plus a lifetime pension of 50% of their average final compensation. Ten
years of credited service is required for ordinary disability. Ordinary disability benefits are
determined as 1.75% of average final compensation multiplied by the years of credited
service but are payable immediately, without an actuarial reduction, and at a minimum of
30% of average final compensation.
Death Benefits - For service -connected deaths, the surviving spouse/reciprocal
beneficiary receives a lump -sum payment of the member's contributions and accrued
interest plus a monthly benefit of 50% of the average final compensation until remarriage
or re-entry into a new reciprocal beneficiary relationship. If there is no surviving
spouse/reciprocal beneficiary, surviving children (up to age 18) or dependent parents are
eligible for the monthly benefit. If there is no spouse/reciprocal beneficiary or dependent
children/parents, the ordinary death benefit is payable to the designated beneficiary.
31
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
Ordinary death benefits are available to employees who were active at time of death with
at least one year of service. Ordinary death benefits consist of a lump -sum payment of the
member's contributions and accrued interest plus a percentage of the salary earned in the
12 months preceding death, or 50% Joint and Survivor lifetime pension if the member was
not eligible for retirement at the time of death but was credited with at least ten years of
service and designated one beneficiary, or 100% Joint and Survivor lifetime pension if the
member was eligible for retirement at the time of death and designated one beneficiary.
Contributory Class for Members Hired After June 30, 2012
Retirement Benefits - General employees' retirement benefits are determined as 1.75%
of average final compensation multiplied by the years of credited service. General
employees with ten years of credited service are eligible to retire at age 60. Judges and
elected officers' retirement benefits are determined as 3.0% of average final compensation
multiplied by the years of credited service up to a maximum of 75%. Judges and elected
officers with ten years of credited service are eligible to retire at age 60.
Police officers and firefighters' retirement benefits are determined using the benefit
multiplier of 2.25% for qualified service, up to a maximum of 80% of average final
compensation. Police officers and firefighters with ten years of credited service are eligible
to retire at age 60. Police officers and firefighters with 25 years of credited service are
eligible to retire at age 55, provided the last five years is service credited in these
occupations.
Disability and Death Benefits - Members are eligible for service -related disability benefits
regardless of length of service and receive a lifetime pension of 50% of their average final
compensation plus refund of contributions and accrued interest. Ten years of credited
service is required for ordinary disability. Ordinary disability benefits are 3% of average
final compensation for each year of service for judges and elected officers and 1.75% of
average final compensation for each year of service for police officers and firefighters and
are payable immediately, without an actuarial reduction, at a minimum of 30% of average
final compensation.
Death benefits for contributory members hired after June 30, 2012 are generally the same
as those for contributory members hired June 30, 2012 and prior.
Hybrid Class for Members Hired Prior to July 1, 2012
Retirement Benefits - General employees' retirement benefits are determined as 2% of
average final compensation multiplied by the years of credited service. General
employees with five years of credited service are eligible to retire at age 62. General
employees with 30 years of credited service are eligible to retire at age 55.
32
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
Disability Benefits - Members are eligible for service -related disability benefits regardless
of length of service and receive a lifetime pension of 35% of their average final
compensation plus refund of their contributions and accrued interest. Ten years of credited
service is required for ordinary disability. Ordinary disability benefits are determined in the
same manner as retirement benefits but are payable immediately, without an actuarial
reduction, and at a minimum of 25% of average final compensation.
Death Benefits - For service -connected deaths, the designated surviving
spouse/reciprocal beneficiary receives a lump -sum payment of the member's
contributions and accrued interest plus a monthly benefit of 50% of the average final
compensation until remarriage or re-entry into a new reciprocal beneficiary relationship. If
there is no surviving spouse/reciprocal beneficiary, surviving dependent children (up to
age 18) or dependent parents are eligible for the monthly benefit. If there is no
spouse/reciprocal beneficiary or dependent children/parents, the ordinary death benefit is
payable to the designated beneficiary.
Ordinary death benefits are available to employees who were active at time of death with
at least five years of service. Ordinary death benefits consist of a lump -sum payment of
the member's contributions and accrued interest plus a percentage multiplied by 150%,
or 50% Joint and Survivor lifetime pension if the member was not eligible for retirement at
the time of death but was credited with at least ten years of service and designated one
beneficiary, or 100% Joint and Survivor lifetime pension if the member was eligible for
retirement at the time of death and designated one beneficiary.
Hybrid Class for Members Hired After June 30, 2012
Retirement Benefits - General employees' retirement benefits are determined as 1.75%
of average final compensation multiplied by the years of credited service. General
employees with ten years of credited service are eligible to retire at age 65. Employees
with 30 years of credited service are eligible to retire at age 60. Sewer workers, water
safety officers, and emergency medical technicians may retire with 25 years of credited
service at age 55.
Disability and Death Benefits - Provisions for disability and death benefits generally remain
the same except for ordinary death benefits. Ordinary death benefits are available to
employees who were active at time of death with at least ten years of service. Ordinary
death benefits consist of a lump -sum payment of the member's contributions and accrued
interest, or 50% Joint and Survivor lifetime pension if the member was not eligible for
retirement at the time of death but was credited with at least ten years of service and
designated one beneficiary, or 100% Joint and Survivor lifetime pension if the member
was eligible for retirement at the time of death and designated one beneficiary.
33
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
Contributions - Contributions are governed by HRS Chapter 88 and may be amended
through legislation. The employer rate is set by statute based on the recommendations of the
ERS actuary resulting from an experience study conducted every five years. Since
July 1, 2005, the employer contribution rate is a fixed percentage of compensation, including
the normal cost plus amounts required to pay for the unfunded actuarial accrued liabilities.
The contribution rates for fiscal years 2020 and 2019 were 36.00% and 31.00%, respectively,
for police officers and firefighters, and 22.00% and 19.00%, respectively, for all other
employees. Contributions to the pension plan from the Department were $2,258,593 and
$1,950,328 for the fiscal years ended June 30, 2020 and 2019, respectively.
On May 18, 2017, the Governor signed into law Act 17 SLH 2017. Per Act 17, future employer
contributions from the State and counties are expected to increase pursuant to a phased -in
contribution rate increase over four years beginning July 1, 2017. The rate for police officers
and firefighters increases to 31.00% on July 1, 2018; 36.00% on July 1, 2019; and 41.00% on
July 1, 2020 and the rate for all other employees' increases to 19.00% on July 1, 2018; 22.00%
on July 1, 2019; and 24.00% on July 1, 2020.
The employer is required to make all contributions for noncontributory members. Contributory
members hired prior to July 1, 2012 are required to contribute 7.8% of their salary, except for
police officers and firefighters who are required to contribute 12.2% of their salary.
Contributory members hired after June 30, 2012 are required to contribute 9.8% of their salary,
except for police officers and firefighters who are required to contribute 14.2% of their salary.
Hybrid members hired prior to July 1, 2012 are required to contribute 6.0% of their salary.
Hybrid members hired after June 30, 2012 are required to contribute 8.0% of their salary.
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and
Deferred Inflows of Resources Related to Pensions - At June 30, 2020 and 2019, the
Department reported a liability of $32,029,248 and $33,522,053, respectively, for its
proportionate share of the net pension liability. The net pension liability was measured as of
June 30, 2019 and 2018, and the total pension liability used to calculate the net pension
liability was determined by an actuarial valuation as of that date. The Department's proportion
of the net pension liability was based on a projection of the Department's long-term share of
contributions to the pension plan relative to projected contributions of all participants,
actuarially determined. At June 30, 2019, the Department's proportion was 0.23%, a decrease
of 0.02% from its proportion measured as of June 30, 2018. At June 30, 2018, the
Department's proportion was 0.25%, which was an increase from its proportion measured as
of June 30, 2017.
34
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
For the fiscal years ended June 30, 2020 and 2019, the Department recognized pension
expense of $4,855,184 and $5,162,420, respectively. At June 30, 2020 and 2019, the
Department reported deferred outflows of resources and deferred inflows of resources related
to pensions from the following sources:
Differences between expected and actual experience
Changes in assumptions
Net difference between projected and actual earnings
on pension plan investments
Changes in proportion and differences between
Department contributions and proportionate share
of contributions
Department contributions subsequent to the
measurement date
Total
Differences between expected and actual experience
Changes in assumptions
Net difference between projected and actual earnings
on pension plan investments
Changes in proportion and differences between
Department contributions and proportionate share
of contributions
Department contributions subsequent to the
measurement date
Total
35
June 30, 2020
Deferred
Deferred
Outflows of
Inflows of
Resources
Resources
$ 560,393
$ (64,104)
2,180,671
--
-- (87,921)
2,442,051 (2,602,620)
2,258,593 --
$ 7,441,708 $ (2,754,645)
June 30, 2019
Deferred Deferred
Outflows of Inflows of
Resources Resources
$ 604,656
3,614,219
3,752,674
1,950,328
$ 9,921,877
$ (210,052)
(173,185)
(868,357)
$ (1,251,594)
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
At June 30, 2020, the Department reported $2,258,593 of deferred outflows of resources
related to pensions resulting from the Department's contributions subsequent to the
measurement date will be recognized as a reduction of the net pension liability in the fiscal
year ended June 30, 2020. Other amounts reported as deferred outflows of resources and
deferred inflows of resources related to pensions at June 30, 2020 will be recognized in
pension expense as follows:
Net Deferred
Fiscal Year Ending June 30, Outflows (Inflows)
2021
$ 1,458,414
2022
888,038
2023
306,430
2024
(81,909)
2025
(142,503)
$ 2,428,470
Actuarial Assumptions - The total pension liability in the June 30, 2019 and 2018 actuarial
valuation was determined using the following actuarial assumptions, applied to all periods
included in the measurement:
2019 2018
Inflation 2.50% 2.50%
Investment rate of return, including inflation 7.00% 7.00%
Salary increases, including inflation
Police and fire employees 5.00% to 7.00% 5.00% to 7.00%
General employees 3.50% to 6.50% 3.50% to 6.50%
Teachers 3.75% to 5.75% 3.75% to 5.75%
Mortality rates used in the actuarial valuation as of June 30, 2019 and 2018 were based on
the following:
Active members - Multiples of the RP 2014 mortality table for active employees based on
the occupation of the member.
Healthy retirees - 2019: The 2019 Public Retirees of Hawaii mortality table, generational
projection using the BB projection table from the year 2019 and with multipliers based on
plan and group experience. 2018: The 2016 Public Retirees of Hawaii mortality table,
generational projecting using the BB projection table from the year 2016 and with multipliers
based on plan and group experience.
Disabled retirees - 2019: Base table for healthy retirees' occupation, set forward five years,
generational projection using the BB projection table from the year 2019. Minimum mortality
rate of 3.50% for males and 2.50% for females. 2018: Base table for healthy retirees'
occupation, set forward five years, generational projection using the BB projection table from
the year 2016. Minimum mortality rate of 3.50% for males and 2.50% for females.
MET
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
The actuarial assumptions used in the actuarial valuation as of June 30, 2019 was based on
the results of an actuarial experience study as of June 30, 2018, with most of the assumptions
based on the period from July 1, 2013 through June 30, 2018. The actuarial assumptions used
in the actuarial valuation as of June 30, 2018 was based on the results of an actuarial
experience study for the five-year period ended June 30, 2015.
The long-term expected rate of return on pension plan investments, based on ERS'
investment consultant, was determined using a building-block method in which best -estimate
ranges of expected future real rates of return (expected returns, net of pension plan
investment expense and inflation) are developed for each major asset class. These ranges
are combined to produce the long-term expected rate of return by weighting the expected
future real rates of return by the target asset allocation percentage and by adding expected
inflation. The target allocation and best estimates of geometric real rates of return for each
major asset class as of June 30, 2019 and 2018 are summarized in the following tables:
Discount Rate - The discount rate used to measure the net pension liability at June 30, 2020
and 2019 was 7.00%. The projection of cash flows used to determine the discount rate
assumed that employee contributions will be made at the current contribution rate and that
contributions from the Department will be made at statutorily required rates, actuarially
37
June 30, 2019
Long -Term
Long -Term
Strategic Allocation
Target
Expected
Expected Real
(Risk -Based Classes)
Allocation
Rate of Return
Rate of Return*
Broad growth
63.00%
7.65%
5.40%
Crisis risk offset
20.00%
5.15%
2.90%
Real return
10.00%
4.55%
2.30%
Principal protection
7.00%
3.00%
0.75%
100.00%
*Uses an expected inflation of
2.25%
June 30, 2018
Long -Term
Long -Term
Strategic Allocation
Target
Expected
Expected Real
(Risk -Based Classes)
Allocation
Rate of Return
Rate of Return*
Broad growth
63.00%
7.10%
4.85%
Crisis risk offset
20.00%
4.60%
2.35%
Real return
10.00%
4.10%
1.85%
Principal protection
7.00%
2.50%
0.25%
100.00%
*Uses an expected inflation of
2.25%
Discount Rate - The discount rate used to measure the net pension liability at June 30, 2020
and 2019 was 7.00%. The projection of cash flows used to determine the discount rate
assumed that employee contributions will be made at the current contribution rate and that
contributions from the Department will be made at statutorily required rates, actuarially
37
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
determined. Based on those assumptions, the pension plan's fiduciary net position was
projected to be available to make all projected future benefit payments of current active and
inactive employees. Therefore, the long-term expected rate of return on pension plan
investments was applied to all period of projected benefit payments to determine the total
pension liability.
Sensitivity of the Department's Proportionate Share of the Net Pension Liability to
Changes in the Discount Rate - The following presents the Department's proportionate
share of the net pension liability at June 30, 2020 and 2019 calculated using the discount rate
of 7.00%, as well as what the Department's proportionate share of the net pension liability
would be if it were calculated using a discount rate that is one percentage point lower (6.00%)
or one percentage point higher (8.00%) than the current rate:
Pension Plan Fiduciary Net Position - Detailed information about the pension plan's
fiduciary net position is available in the separately issued ERS financial report. ERS' complete
financial statements are available at: https://ers.ehawaii.gov.
Payables to the Pension Plan - At June 30, 2020 and 2019, the amount payable to the ERS
were $239,615 and $106,258, respectively, which consists of statutorily required employer
contributions for the month of June and an accrual for excess pension costs attributed to the
fiscal year, as required by the HRS.
Postemployment Benefits Other Than Pensions (OPEB)
General Information about the OPEB Plan
Plan description. Chapter 87A of the Hawaii Revised Statutes (HRS) established the EUTF,
an agent multiple -employer defined benefit plan, which provides a single delivery system of
health and other benefits for state and county workers, retirees and their eligible dependents.
The EUTF issues a stand-alone financial report that is available to the public on its website at
https://eutf.hawaii.gov.
W;
June 30, 2020
1% Decrease
Discount Rate
1% Increase
(6.00%)
(7.00%)
(8.00%)
Department's proportionate share of
the net pension liability
$ 41,554,140
$ 32,029,248
$ 25,171,502
June 30, 2019
1% Decrease
Discount Rate
1% Increase
(6.00%)
(7.00%)
(8.00%)
Department's proportionate share of
the net pension liability
$ 43,590,009
$ 33,522,053
$ 25,222,572
Pension Plan Fiduciary Net Position - Detailed information about the pension plan's
fiduciary net position is available in the separately issued ERS financial report. ERS' complete
financial statements are available at: https://ers.ehawaii.gov.
Payables to the Pension Plan - At June 30, 2020 and 2019, the amount payable to the ERS
were $239,615 and $106,258, respectively, which consists of statutorily required employer
contributions for the month of June and an accrual for excess pension costs attributed to the
fiscal year, as required by the HRS.
Postemployment Benefits Other Than Pensions (OPEB)
General Information about the OPEB Plan
Plan description. Chapter 87A of the Hawaii Revised Statutes (HRS) established the EUTF,
an agent multiple -employer defined benefit plan, which provides a single delivery system of
health and other benefits for state and county workers, retirees and their eligible dependents.
The EUTF issues a stand-alone financial report that is available to the public on its website at
https://eutf.hawaii.gov.
W;
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
Benefits provided. Chapter 87A of the HRS grants the authority to establish and amend the
benefit terms to the board of trustees of the EUTF. The EUTF currently provides medical,
prescription drug, dental, vision, chiropractic, supplemental medical and prescription drug,
and group life insurance benefits for retirees and their dependents. The following table
provides a summary of the number of employees covered by the benefits terms as of
July 1, 2019 and 2018:
Contributions. The Department's contribution levels are established by Chapter 87A of the
HRS. For the fiscal years ended June 30, 2020 and 2019, the Department was required to
contribute 100% of the annual required contribution (ARC), as determined by an actuary
retained by the board of trustees of the EUTF. The ARC represents a level of funding that is
sufficient to cover, 1) the normal cost, which is the cost of the other postemployment benefits
attributable to the current year of service; and 2) an amortization payment, which is a catch-
up payment for past service costs to fund the unfunded actuarial accrued liability over the next
thirty years. For the fiscal years ended June 30, 2020 and 2019, contributions to the OPEB
Plan from the Department totaled $1,977,000 and $1,990,000, respectively, which resulted in
an average contribution rate of approximately 18.02% and 18.38%, respectively, of covered -
employee payroll.
For employees hired before July 1, 1996, the Department pays the entire base monthly
contribution for employees retiring with 10 or more years of credited service, and 50% of the
base monthly contribution for employees retiring with fewer than 10 years of credited service.
A retiree can elect a family plan to cover dependents. The Department's contribution is based
on the plan selected by the retiree (single, two-party, or family plans).
For employees hired after June 30, 1996, but before July 1, 2001, and who retire with fewer
than 10 years of service, the Department makes no contributions. For those retiring with at
least 10 years of service but fewer than 15 years of service, the Department pays 50% of the
base monthly contribution. For employees retiring with at least 15 years of service but fewer
than 25 years of service, the Department pays 75% of the base monthly contribution. For
employees retiring with at least 25 years of service, the Department pays 100% of the base
monthly contribution. The Department's contribution is based on the plan selected by the
retiree (single, two-party, or family plans).
39
2020
2019
Inactive employees or beneficiaries
currently receiving benefits
98
98
Inactive employees entitled but not yet
receiving benefit payments
11
11
Active employees
164
157
273
266
Contributions. The Department's contribution levels are established by Chapter 87A of the
HRS. For the fiscal years ended June 30, 2020 and 2019, the Department was required to
contribute 100% of the annual required contribution (ARC), as determined by an actuary
retained by the board of trustees of the EUTF. The ARC represents a level of funding that is
sufficient to cover, 1) the normal cost, which is the cost of the other postemployment benefits
attributable to the current year of service; and 2) an amortization payment, which is a catch-
up payment for past service costs to fund the unfunded actuarial accrued liability over the next
thirty years. For the fiscal years ended June 30, 2020 and 2019, contributions to the OPEB
Plan from the Department totaled $1,977,000 and $1,990,000, respectively, which resulted in
an average contribution rate of approximately 18.02% and 18.38%, respectively, of covered -
employee payroll.
For employees hired before July 1, 1996, the Department pays the entire base monthly
contribution for employees retiring with 10 or more years of credited service, and 50% of the
base monthly contribution for employees retiring with fewer than 10 years of credited service.
A retiree can elect a family plan to cover dependents. The Department's contribution is based
on the plan selected by the retiree (single, two-party, or family plans).
For employees hired after June 30, 1996, but before July 1, 2001, and who retire with fewer
than 10 years of service, the Department makes no contributions. For those retiring with at
least 10 years of service but fewer than 15 years of service, the Department pays 50% of the
base monthly contribution. For employees retiring with at least 15 years of service but fewer
than 25 years of service, the Department pays 75% of the base monthly contribution. For
employees retiring with at least 25 years of service, the Department pays 100% of the base
monthly contribution. The Department's contribution is based on the plan selected by the
retiree (single, two-party, or family plans).
39
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
For employees hired on or after July 1, 2001, and who retire with less 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 base monthly contribution. For
those retiring with at least 15 years but fewer than 25 years of service, the Department pays
75% of the base monthly contribution. For those employees retiring with at least 25 years of
service, the Department pays 100% of the base monthly contribution. Only single plan
coverage is provided for retirees in this category. The Department's contribution is based on
the single plan base monthly contribution. Retirees can elect family coverage but must pay
the difference.
Net OPEB Liability
The Department's net OPEB liability as of June 30, 2020 and 2019 was measured as of
July 1, 2019 and 2018, respectively, and the total OPEB liability used to calculate the net
OPEB liability was determined by an actuarial valuation as of those dates.
Actuarial assumptions. The total OPEB liability in the July 1, 2019 actuarial valuation was
determined using the following actuarial assumptions, applied to all periods included in the
measurement, unless otherwise specified:
Inflation
Salary increases
Investment rate of return
Healthcare cost trend rates
PPO
HMO
Part B & base monthly contribution
Dental
Vision
Life insurance
2.50%
3.50% to 7.00% including inflation
7.00%
Initial rates of 8.00%; declining to a rate of
4.86% after 12 years
Initial rate of 8.00%%; declining to a rate of
4.86% after 12 years
Initial rates of 5.00%, declining
to a rate of 4.70% after 11 years
Initial rates of 5.00% for first two years;
followed by 4.00%
Initial rates of 0.00% for first two years,
followed by 2.50%
0.00%
M
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
The total OPEB liability in the July 1, 2018 actuarial valuation was determined using the
following actuarial assumptions, applied to all periods included in the measurement, unless
otherwise specified:
Inflation 2.50%
Salary increases 3.50% to 7.00%, including inflation
Investment rate of return 7.00%
Healthcare cost trend rates
PPO Initial rates of 10.00%; declining to a rate of 4.86%
after 13 years
HMO Initial rate of 10.00%; declining to a rate of
4.86% after 13 years
Part B & base monthly contribution Initial rates of 4.00% and 5.00%, declining
to a rate of 4.70% after 12 years
Dental Initial rates of 5.00% for the first three years;
followed by 4.00%
Vision Initial rates of 0.00% for the first three years,
followed by 2.50%
Life insurance 0.00%
Mortality rates are based on system -specific mortality tables utilizing scale BB to project
generational mortality improvement.
The actuarial assumptions used in the actuarial valuation as of July 1, 2019 was based on the
results of an experience study as of June 30, 2018, with most of the assumptions based on
the period from July 1, 2013 through June 30, 2018. The actuarial assumptions used in the
actuarial valuation as of July 1, 2018 was based on the results of an actuarial experience
study for the five-year period ended June 30, 2015 as conducted for the ERS.
41
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
The long-term expected rate of return on OPEB plan investments was determined using a
building-block method in which best -estimate ranges of expected future real rates of return
(expected returns, net of OPEB plan investment expense and inflation) are developed for each
major asset class. These ranges are combined to produce the long-term expected rate of
return by weighting the expected future real rates of return by the target asset allocation
percentage and by adding expected inflation. The target allocation and best estimates of
arithmetic real rates of return for each major asset class as of July 1, 2019 and 2018 are
summarized in the following table:
2020 2019
Long -Term Long -Term
Target Expected Real Target Expected Real
Asset Class Allocation Rate of Return Allocation Rate of Return
International equity
U.S. equity
Private equity
Core real estate
Trend following
U.S. microcap
Global options
Private credit
Long treasuries
Alternative risk premium
T IPS
Core bonds
17.00%
6.90%
17.00%
6.50%
15.00%
5.35%
15.00%
5.05%
10.00%
8.80%
10.00%
8.65%
10.00%
3.90%
10.00%
4.10%
9.00%
3.25%
9.00%
3.00%
7.00%
7.30%
7.00%
7.00%
7.00%
4.75%
7.00%
4.50%
6.00%
5.60%
6.00%
5.25%
6.00%
2.00%
6.00%
1.90%
5.00%
2.75%
5.00%
2.45%
5.00%
1.20%
5.00%
0.75%
3.00%
1.50%
3.00%
1.30%
100.00%
100.00%
Discount rate. The discount rate used to measure the total OPEB liability at June 30, 2020
and 2019 was 7.00%. The projection of cash flows used to determine the discount rate
assumed that Department contributions will be made at rates equal to the actuarially
determined contribution rates. Based on those assumptions, the OPEB plan's fiduciary net
position was projected to be available to make all projected future benefit payments for current
active and inactive employees. Therefore, the long-term expected rate of return on OPEB plan
investments was applied to all periods of projected benefit payments to determine the total
OPEB liability.
W
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
Changes in the Net OPEB Liability
The following schedules presents the changes in the net OPEB liability for the fiscal years
ending June 30, 2020 and 2019:
Increase (Decrease)
Total OPEB
Plan Fiduciary
Net OPEB
Liability
Net Position
Liability
(a)
(b)
(a) - (b)
Balance at June 30, 2019
$ 33,703,543
$ 17,271,797
$
16,431,746
Changes for the fiscal year:
Service cost
746,672
--
746,672
Interest on the total OPEB liability
2,349,959
--
2,349,959
Difference between expected and actual
experience
(314,598)
--
(314,598)
Change of assumptions
137,542
--
137,542
Contributions - employer
--
1,990,000
(1,990,000)
Net investment income
--
764,696
(764,696)
Benefit payments
(1,012,084)
(1,012,084)
--
Administrative expense
--
(5,493)
5,493
Other
--
522,371
(522,371)
Net changes
1,907,491
2,259,490
(351,999)
Balance at June 30, 2020
$ 35,611,034
$ 19,531,287
$
16,079,747
Increase (Decrease)
Total OPEB
Plan Fiduciary
Net OPEB
Liability
Net Position
Liability
(a)
(b)
(a) - (b)
Balance at June 30, 2018
$ 32,509,555
$ 15,243,827
$
17,265,728
Changes for the fiscal year:
Serivice cost
698,126
--
698,126
Interest on the total OPEB liability
2,264,524
--
2,264,524
Difference between expected and actual
experience
(1,184,347)
--
(1,184,347)
Change of assumptions
432,233
--
432,233
Contributions - employer
--
1,936,548
(1,936,548)
Net investment income
--
1,111,306
(1,111,306)
Benefits payments
(1,016,548)
(1,016,548)
--
Administrative expense
--
(3,336)
3,336
Net changes
1,193,988
2,027,970
(833,982)
Balance at June 30, 2019
$ 33,703,543
$ 17,271,797
$
16,431,746
43
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
Sensitivity of the net OPEB Liability to changes in the discount rate. The following presents
the net OPEB liability of the Department, as well as what the Department's net OPEB liability
would be if it were calculated using a discount rate that is 1 -percentage point lower or 1 -
percentage point higher than the current discount rate:
Sensitivity of the net OPEB Liability to changes in the healthcare cost trend rates. The
following presents the net OPEB liability of the Department, as well as what the Department's
net OPEB liability would be if it were calculated using healthcare cost trend rates that are 1 -
percentage point lower or 1 -percentage point higher than the current healthcare cost trend
rates:
Net OPEB Liability
E15
1% Decrease
11, 367,109 $
June 30, 2020
Current
Healthcare
Cost Trend
Rates
16, 079, 747 $
June 30, 2019
1% Increase
22,124, 313
Current
Healthcare
Cost Trend
1% Decrease Rates 1% Increase
Net OPEB Liability $ 11,914,743 $ 16,431,746 $ 22,247,534
June 30, 2020
1% Decrease
Discount Rate
1% Increase
(6.00%)
(7.00%)
(8.00%)
Net OPEB Liability $ 21,678,839
$ 16,079,747
$ 11,620,115
June 30, 2019
1% Decrease
Discount Rate
1% Increase
(6.00%)
(7.00%)
(8.00%)
Net OPEB Liability $ 21,771,815
$ 16,431,746
$ 12,191,806
Sensitivity of the net OPEB Liability to changes in the healthcare cost trend rates. The
following presents the net OPEB liability of the Department, as well as what the Department's
net OPEB liability would be if it were calculated using healthcare cost trend rates that are 1 -
percentage point lower or 1 -percentage point higher than the current healthcare cost trend
rates:
Net OPEB Liability
E15
1% Decrease
11, 367,109 $
June 30, 2020
Current
Healthcare
Cost Trend
Rates
16, 079, 747 $
June 30, 2019
1% Increase
22,124, 313
Current
Healthcare
Cost Trend
1% Decrease Rates 1% Increase
Net OPEB Liability $ 11,914,743 $ 16,431,746 $ 22,247,534
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources
Related to OPEB
For the fiscal years ended June 30, 2020 and 2019, the Department recognized OPEB
expense of $1,229,776 and $1,691,200. At June 30, 2020 and 2019, the Department reported
deferred outflows of resources and deferred inflows of resources related to OPEB from the
following sources:
Difference between expected and actual experience
Changes of assumptions
Net difference between projected and actual earnings
on OPEB plan investments
Employer contributions subsequent to the
measurement date
June 30, 2020
Deferred Deferred
Outflows of Inflows of
Resources Resources
$ -- $ (1,093,632)
418,394 --
255,967 --
1,977,000 --
$ 2,651,361 $ (1,093,632)
June 30, 2019
Deferred Deferred
Outflows of Inflows of
Resources Resources
Difference between expected and actual experience $ -- $ (1,005,637)
Changes of assumptions 367,012
Net difference between projected and actual earnings
on OPEB plan investments -- (188,871)
Employer contributions subsequent to the
measurement date 1,990,000 --
$ 2,357,012 $(1,194,508)
45
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE G - EMPLOYEE BENEFITS (Continued)
At June 30, 2020, the Department reported $1,977,000 as deferred outflows of resources
related to OPEB resulting from Department contributions subsequent to the measurement
date, which will be recognized as a reduction of the net OPEB liability in the fiscal year ended
June 30, 2021. Other amounts reported as deferred outflows of resources and deferred
inflows of resources at June 30, 2020 will be recognized in OPEB expense as follows:
Fiscal Year
Ended June 30:
2021
2022
2023
2024
2025
Thereafter
Deferred Compensation Plan
Net Deferred
Inflows
$ (106,916)
(106, 918)
(47,201)
(44, 770)
(98,134)
(15, 332)
$ (419,271)
The Department participates in a deferred compensation plan established by the State of
Hawaii in accordance with Internal Revenue Code Section 457. The plan is available to all
the Department employees, and permits employees to defer a portion of their salary until
future years. The deferred compensation is 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
Department 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.
NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES
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.
Liabilities are recorded when it is probable that a loss has occurred and the amount of that
loss can be reasonably estimated. Claim liabilities 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.
MET
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Construction Contracts - The Department is obligated under construction contracts for the
utility plant and other projects. Such commitments totaled $42,807,730 and $43,754,063 at
June 30, 2020 and 2019, respectively.
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.
NOTE I - RELATED PARTY TRANSACTIONS
Long-term Debt - As discussed in Note E, the County has issued general obligation bonds
on the Department's behalf for improvements to the water system. The Department is liable
to the County for its proportionate share of the debt service requirements. In connection with
these general obligation bond issues, long-term debt payable to the County totaled
$22,198,633 and $24,769,159 at June 30, 2020 and 2019, respectively. Accrued interest
payable to the County totaled $417,975 and $460,092 at June 30, 2020 and 2019,
respectively.
Operating Lease - The Department leases office space in its Hilo office to the County. The
term of the lease is for ten years, starting on October 1, 2013, with an option to extend for an
additional ten years. The County is also obligated to pay for common area maintenance
expense. Thereafter and for the duration of the lease term, annual lease rent from the County,
including common area maintenance will be approximately $236,000, subject to annual
adjustments to the monthly common area maintenance charge. Payments received from the
County in connection with this lease totaled approximately $236,000 during the fiscal years
ended June 30, 2020 and 2019.
As of June 30, 2020, future minimum lease rental income was as follows:
Fiscal Year
Ending June 30,
2021
2022
2023
2024
47
Amount
—
$ 236,000
236,000
236,000
59,000
$ 767,000
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 and 2019
NOTE I - RELATED PARTY TRANSACTIONS (Continued)
Other - Amounts due to the County totaled approximately $214,000 and $198,000 as of
June 30, 2020 and 2019, respectively, and is included in accounts payable.
The County provides the Department with various administrative services including treasury,
legal, audit, and workers' compensation administration. The cost for these services are
generally invoiced and reimbursed on an annual basis.
MR
REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN
MANAGEMENT'S DISCUSSION AND ANALYSIS
i •
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
SCHEDULE OF PROPORTIONATE
SHARE OF THE NET PENSION LIABILITY
Last Ten Fiscal Years*
* This schedule is intended to present information for 10 years, as of the measurement date of
the collective net pension liability for each respective fiscal year. Additional years will be built
prospectively as information becomes available.
See accompanying notes to required supplementary information.
50
Proportionate
Plan
Share of the
Fiduciary
Net Pension
Net Position
Proportion
Proportionate
Liability
as a %age
Measurement
of the
Share of the
as a %age
of the Total
Period
Net Pension
Net Pension
Covered
of Covered
Pension
Ended
Liability (%)
Liability ($)
Payroll
Payroll
Liability
June 30, 2019
0.23%
$
32,029,248
$
10,318,136
310.4%
54.87%
June 30, 2018
0.25%
$
33,522,053
$
9,742,400
344.1%
55.48%
June 30, 2017
0.22%
$
28,365,453
$
9,358,187
303.1%
54.80%
June 30, 2016
0.22%
$
29,247,607
$
9,046,930
323.3%
51.28%
June 30, 2015
0.22%
$
18,940,065
$
9,012,196
210.2%
62.42%
June 30, 2014
0.26%
$
20,526,993
$
8,272,307
248.1%
63.92%
June 30, 2013
0.21%
$
18,469,400
$
7,640,477
241.7%
57.96%
* This schedule is intended to present information for 10 years, as of the measurement date of
the collective net pension liability for each respective fiscal year. Additional years will be built
prospectively as information becomes available.
See accompanying notes to required supplementary information.
50
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
SCHEDULE OF CONTRIBUTIONS (PENSION)
Last Ten Fiscal Years
Fiscal
Statutorily
Year
Required
Ended
Contribution
Actual
Contributions
Department
as a %age
Statutorily Contribution
of
Required Deficiency
Covered Covered
Contributions (Excess)
Payroll Payroll
June 30, 2020
$
2,258,593
$
2,258,593 $
June 30, 2019
$
1,950,328
$
1,950,328 $
June 30, 2018
$
1,757,461
$
1,757,461 $
June 30, 2017
$
1,603,278
$
1,603,278 $
June 30, 2016
$
1,553,128
$
1,553,128 $
June 30, 2015
$
1,520,994
$
1,520,994 $
June 30, 2014
$
1,664,580
$
1,664,580 $
June 30, 2013
$
1,214,933
$
1,214,933 $
June 30, 2012 $ 1,210,106 $ 1,210,106 $
June 30, 2011 $ 1,197,031 $ 1,197,031 $
$ 10,439,473 21.64%
$ 10,318,136 18.90%
-- $
9,742,400
18.04%
-- $
9,358,187
17.13%
-- $
9,046,930
17.17%
-- $
9,012,196
16.88%
-- $
8,272,307
20.12%
-- $
7,640,477
15.90%
-- $
7,849,473
15.42%
-- $
7,726,278
15.49%
See accompanying notes to required supplementary information.
51
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
REQUIRED BY GASB STATEMENT NO. 68
Fiscal Years Ended June 30, 2020 and 2019
NOTE A - CHANGES OF ASSUMPTIONS
There were no changes of assumptions or other inputs that significantly affected the
measurement of the total pension liability since the measurement period ended June 30, 2016.
Amounts reported in the schedule of the proportionate share of the net pension liability as of the
measurement period ended June 30, 2016 (fiscal year ended June 30, 2017) were significantly
impacted by the following changes of actuarial assumptions:
o The investment return assumption decreased from 7.65% to 7.00%
o Mortality assumptions were modified to assume longer life expectancies as well as
to reflect continuous mortality improvement
Prior to the measurement period ended June 30, 2016 (fiscal year ended June 30, 2017), there
were no other factors, including the use of different assumptions that significantly affect trends
reported in these schedules.
See accompanying notes to required supplementary information.
52
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY
AND RELATED RATIOS
Last Ten Fiscal Years *
Total OPEB liability
Service cost
Interest on the total OPEB liability
Difference between expected and actual
experience of the total OPEB liability
Changes of assumptions
Benefit payments
Net change in total OPEB liability
Total OPEB liability- Beginning
Total OPEB liability- Ending
Plan fiduciary net position
Contributions - employer
Net investment income
Benefit payments
Administrative expense
Other
Net change in plan fiduciary net position
Plan fiduciary net position - Beginning
Plan fiduciary net position - Ending
Net OPEB liability
2020 2019 2018
$ 746,672 $ 698,126 $ 687,414
2,349,959 2,264,524 2,135,490
(314,598) (1,184,347) --
137,542 432,233 --
(1,012,084) (1,016,548) (953,288)
1,907,491 1,193,988 1,869,616
33,703,543 32,509,555 30,639,939
$ 35,611,034 $ 33,703,543 $ 32,509,555
$ 1,990,000 $ 1,936,548 $ 1,867,788
764,696 1,111,306 1,245,946
(1,012,084) (1,016,548) (953,288)
(5,493) (3,336) (2,782)
522,371 -- 16,370
2,259,490 2,027,970 2,174,034
17,271,797 15,243,827 13,069,793
$ 19,531,287 $ 17,271,797 $ 15,243,827
$ 16,079,747 $ 16,431,746 $ 17,265,728
Plan fiduciary net position as a percentage
of the total OPEB liability 54.85% 51.25% 46.89%
Covered -employee payroll $ 10,264,425 $ 10,212,595 $ 9,791,132
Net OPEB Liability as a Percentage of Covered -employee Payroll 156.66% 160.90% 176.34%
*This schedule is intended to present information for ten years for each respective fiscal year. Additional
years will be built prospectively as information becomes available.
See accompanying notes to required supplementary information.
53
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
SCHEDULE OF CONTRIBUTIONS (OPEB)
Last Ten Fiscal Years
See accompanying notes to required supplementary information.
54
Contributions
Contributions
in Relation to
as a %age
Fiscal
Actuarially
the
Actuarially
Contribution
Covered-
of Covered -
Year
Determined
Determined
Deficiency
Employee
Employee
Ended
Contribution
Contribution
(Excess)
Payroll
Payroll
June 30, 2020
$
1,977,000
$
1,977,000
$
--
$
10,970,714
18.02%
June 30, 2019
$
1,990,000
$
1,990,000
$
--
$
10,264,425
19.39%
June 30, 2018
$
1,933,000
$
1,936,548
$
(3,548)
$
10,212,595
18.96%
June 30, 2017
$
1,867,000
$
1,867,788
$
(788)
$
9,791,132
19.08%
June 30, 2016
$
1,914,000
$
1,913,204
$
796
$
9,464,649
20.21%
June 30, 2015
$
1,850,000
$
1,848,389
$
1,611
$
9,426,509
19.61%
June 30, 2014
$
1,899,000
$
1,900,758
$
(1,758)
$
8,635,402
22.01%
June 30, 2013
$
1,834,000
$
1,833,733
$
267
$
7,966,529
23.02%
June 30, 2012
$
2,400,000
$
2,401,487
$
(1,487)
$
8,182,968
29.35%
June 30, 2011
$
2,319,000
$
2,067,678
$
251,322
$
8,056,398
25.67%
See accompanying notes to required supplementary information.
54
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
REQUIRED BY GASB STATEMENT NO. 75
Fiscal Years Ended June 30, 2020 and 2019
NOTE A - SIGNIFICANT METHODS AND ASSUMPTIONS
The actuarially determined annual required contributions ("ARC") for the fiscal year ending
June 30, 2020 was developed in the July 1, 2018 valuation. The following summarizes the
significant methods and assumptions used to determine the actuarially determined
contribution for the fiscal year ended June 30, 2020:
Actuarial valuation date
July 1, 2018
Actuarial cost method
Entry Age Normal
Amortization method
Level percent, closed
Equivalent single amortization period
17.9 as of June 30, 2020
Asset valuation method
Smoothed
Inflation rate
2.50%
Investment rate of return
7.00%
Payroll growth
3.50%
Salary increases
3.50% to 7.00% including inflation
Demographic assumptions
Based on the experience study covering the five year
period ending June 30, 2015 as conducted for the
Hawaii Employees' Retirement System (ERS)
Mortality
System -specific mortality tables utilizing scale BB to
project generational mortality improvement
Participation rates
98% healthcare participation assumption for retirees
that receive 100% of the Base Monthly Contribution.
Healthcare participation rates of 25%, 65%, and 90%
for retirees that receive 0%, 50%, or 75% of the base
monthly contribution, respectively. 100% for life
insurance and 98% for Medicare Part B
Healthcare cost trend rates
PPO
Initial rate of 10%, declining to a rate of 4.86%
after 13 years
HMO
Initial rate of 10%, declining to a rate of 4.86%
after 13 years
Part B
Initial rates of 4% and 5%; declining to a rate of
4.7% after 12 years
Dental
5% for the first 3 years; then 4% for all future years
Vision
0% for the first 3 years; then 2.5% for all future years
Life Insurance
0.00%
55
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
REQUIRED BY GASB STATEMENT NO. 75
Fiscal Years Ended June 30, 2020 and 2019
NOTE A - SIGNIFICANT METHODS AND ASSUMPTIONS (Continued)
The actuarially determined ARC for the fiscal year ending June 30, 2019 was developed in
the July 1, 2017 valuation. The following summarizes the significant methods and
assumptions used to determine the actuarially determined contribution for the fiscal year
ended June 30, 2019:
Actuarial valuation date
July 1, 2017
Actuarial cost method
Entry Age Normal
Amortization method
Level percent, closed
Equivalent single amortization period
18.9 as of June 30, 2019
Asset valuation method
Market
Inflation rate
2.50%
Investment rate of return
7.00%
Payroll growth
3.50%
Salary increases
3.50% to 7.00% including inflation
Demographic assumptions
Based on the experience study covering the five year
period ending June 30, 2015 as conducted for the
Hawaii Employees' Retirement System
Mortality
System -specific mortality tables utilizing scale BB to
project generational mortality improvement.
Participation rates
98% healthcare participation assumption for retirees
that receive 100% of the Base Monthly Contribution.
Healthcare participation rates of 25%, 65%, and 90%
for retirees that receive 0%, 50%, or 75% of the base
monthly contribution, respectively. 100% for life
insurance and 98% for Medicare Part B
Healthcare cost trend rates
PPO
Initial rate of 6.6%, 6.6%, and 9%, declining to a rate
of 4.86% after 14 years
HMO
Initial rate of 9%, declining to a rate of 4.86%
after 14 years
Part B
Initial rates of 2% and 5%; declining to a rate of
4.7% after 14 years
Dental
3.5%
Vision
2.5%
Life Insurance
0%
REV
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
REQUIRED BY GASB STATEMENT NO. 75
Fiscal Years Ended June 30, 2020 and 2019
NOTE A - SIGNIFICANT METHODS AND ASSUMPTIONS (Continued)
The actuarial valuation as of July 1, 2009, which was used to develop the ARC for fiscal year
2011 and 2012, included a reduction to the discount rate used from the prior valuation. The
discount rate changed from a blended discount rate of 7% - 8% to 7%. This resulted in an
overall increase to the actuarially determined OPEB liability and the ARC.
There were no other factors that significantly affected trends in the amounts reported in the
schedule of changes in the net OPEB liability and related ratios or the schedule of
contributions (OPEB).
57
ILI
N&K CPAs, Inc.
ACCOUNTANTS I CONSULTANTS
999 BISHOP STREET, SUITE 2200
HONOLULU, HAWAII 96813
T (808) 524-2255 F (808) 523-2090
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Water Board
County of Hawaii, Department of Water Supply
We have audited, in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in
Government Auditing Standards issued by the Comptroller General of the United States,
the financial statements of the County of Hawaii, Department of Water Supply
(Department), a component unit of the County of Hawaii, State of Hawaii, as of and for
the fiscal year ended June 30, 2020, and the related notes to the financial statements,
and have issued our report thereon dated December 29, 2020.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the
Department's internal control over financial reporting (internal control) as a basis for
designing audit procedures that are appropriate in the circumstances for the purpose of
expressing our opinion on the financial statements, but not for the purpose of expressing
an opinion on the effectiveness of the Department's internal control. Accordingly, we do
not express an opinion on the effectiveness of the Department's internal control.
A deficiency in internal control exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, misstatements on a timely basis. A material
weakness is a deficiency, or a combination of deficiencies, in internal control, such that
there is a reasonable possibility that a material misstatement of the entity's financial
statements will not be prevented, or detected and corrected, on a timely basis. A
significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness yet important enough to merit attention by
those charged with governance.
RN
N&K CPAs, Inc.
ACCOUNTANTS I CONSULTANTS
Our consideration of internal control was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal
control that might be material weaknesses or significant deficiencies. Given these
limitations, during our audit we did not identify any deficiencies in internal control that we
consider to be material weaknesses. However, material weaknesses may exist that have
not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Department's financial
statements are free from material misstatement, we performed tests of its compliance
with certain provisions of laws, regulations, contracts, and grant agreements,
noncompliance with which could have a direct and material effect on the financial
statements. However, providing an opinion on compliance with those provisions was not
an objective of our audit, and accordingly, we do not express such an opinion. The results
of our tests disclosed no instances of noncompliance or other matters that are required
to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control
and compliance and the results of that testing, and not to provide an opinion on the
effectiveness of the entity's internal control or on compliance. This report is an integral
part of an audit performed in accordance with Government Auditing Standards in
considering the entity's internal control and compliance. Accordingly, this communication
is not suitable for any other purpose.
Honolulu, Hawaii
December 29, 2020
59
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS - STATUS REPORT
Fiscal Year Ended June 30, 2020
This section contains the current status
recommendations are referenced to the pages
ended June 30, 2019, dated December 20, 2019
Reference
Number
Recommendation
of the prior audit recommendations. The
of the previous audit report for the fiscal year
2019-001 Properly Account for Capital Assessment Fees
(page 57)
Current Status
The various fees and deposits collected by the Department Accomplished.
may carry unique restrictions which could result in
differences in accounting. Management should account for
capital assessment fees in accordance with governmental
accounting standards.
we