2017-COH - DWS Financial Statements and Supplementary Information With Independent Auditor's Report

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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, 2017 Financial Analysis (Continued) Operating expenses increased by $4.3 million, or 8.69%, in FY2017, due primarily to a $2.1 million increase in general and administrative expenses, a $1.3 million increase in depreciation expense, and a $1.0 million increase in transmission and distribution expenses. Contributions in aid of construction decreased by $7.7 million, or 45.26%, in FY2017, due primarily to a $7.2 million decrease in dedicated projects accepted and placed into service. Capital Assets and Debt Administration As of June 30, 2017 and 2016, the Department had $300.9 million and $293.1 million, respectively, invested in capital assets, and $65.5 million and $59.9 million, respectively, of long-term debt outstanding. During 2017, major capital asset additions included: • $4.4 million for the Kaloko Heights reservoir and distribution main. During 2016, major capital asset additions included: • $10.4 million for the Palani well development. • $2.5 million for UH Hilo water infrastructure improvements. • $1.9 million of the Olaa well and reservoir. More detailed information about the Department's capital assets is provided in Note D to the financial statements. At June 30, 2017 and 2016, the Department had outstanding $29.9 million and $32.3 million, respectively, in County of Hawaii general obligation bonds for public improvements and $33.8 million and $25.5 million, respectively, in State of Hawaii revolving fund loans. As of June 30, 2017, the Department, through the County of Hawaii, maintained an "AA-" 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, 2017, water rates increased by approximately 5.0%. 10