HomeMy WebLinkAbout2021-COH - DWS Financial Statements and Supplementary Information With Independent Auditor's Report COUNTY 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 Year Ended June 30, 2021
rkV,
I
N&K C PAs, Inc.
ACCOUNTANTSICONSULTANTS
999 BISHOP STREET,SUITE 2200 1 HONOLULU, HAWAII 96813
T(808) 524-2255 F (808) 523-2090 1 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 - 11
FINANCIAL STATEMENTS
Statement of Net Position 12 - 13
Statement of Revenues, Expenses, and Changes in Net Position 14
Statement of Cash Flows 15 - 16
Notes to Financial Statements 17 - 43
REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN
MANAGEMENT'S DISCUSSION AND ANALYSIS
Schedule of Proportionate Share of the Net Pension Liability 45
Schedule of Contributions (Pension) 46
Notes to Required Supplementary Information Required by
GASB Statement No. 68 47
Schedule of Changes in the Net OPEB Liability and Related Ratios 48
Schedule of Contributions (OPEB) 49
Notes to Required Supplementary Information Required by GASB
Statement No. 75 50 - 51
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 52 - 53
SCHEDULE OF FINDINGS AND RESPONSES 54 - 55
CORRECTIVE ACTION PLAN 57
3
999 BISHOP STREET, SUITE 2200
N&K CPAs. Inc. HONOLULU, HAWAII 96813
ACCOUNTANTS I CONSULTANTS
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 year ended June 30, 2021, 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
audit. We conducted our audit 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 I 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, 2021, and the changes
in its financial position and its cash flows for the fiscal year then ended in accordance with
accounting principles generally accepted in the United States of America.
Emphasis of Matter
Adjustments to Prior Period Financial Statements
As discussed in Note J to the financial statements, certain errors were discovered in
relation to classification of capital asset balances as of June 30, 2020. Accordingly, the
accompanying financial statements have been restated to correct these errors. Our
opinion is not modified with respect to this matter.
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 11 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 45 through 51 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
January 21, 2022 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.
1.0.10
x,/ el,4-ro -X�Vr,,
Honolulu, Hawaii
January 21, 2022
6
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fiscal Year Ended June 30, 2021
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 $212.1 million, at the close of the most recent fiscal year. This represents a
decrease of$3.9 million, or 1.84% less than the previous year. At June 30, 2021, $235.9 million
of the Department's net position was invested in capital assets (net of related debt), and ($23.8)
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)
Fiscal Year Ended June 30, 2021
Condensed Financial Information
The following are summaries from the Department's financial statements as of and for the fiscal
years ended June 31, 2021 and 2020.
STATEMENTS OF NET POSITION
2020
2021 (as restated)
Assets
Capital assets, net $ 302,506,735 $ 300,269,903
Other assets 48,572,154 52,659,064
Total assets 351,078,889 352,928,967
Deferred outflows of resources
Deferred outflows of resources 10,072,803 10,093,069
Total deferred outflows of resources 10,072,803 10,093,069
Total assets and deferred
outflows of resources $ 361,151,692 $ 363,022,036
Liabilities
Long-term debt $ 6714511426 $ 6614331693
Other liabilities 76,550,883 76,578,688
Total liabilities 144,002,309 143,012,381
Deferred inflows of resources
Deferred inflows of resources 510291788 319111126
Total deferred inflows of resources 510291788 319111126
Net position
Net investment in capital assets 232,086,655 230,896,241
Unrestricted (19,967,060) (14,797,712)
Total net position 212,119,595 216,098,529
Total liabilities, deferred inflows of
resources and net position $ 361,151,692 $ 363,022,036
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)
Fiscal Year Ended June 30, 2021
Condensed Financial Information (Continued)
STATEMENTS OF REVENUES, EXPENSES,AND CHANGES IN NET POSITION
2020
2021 (as restated)
Operating revenues -water sales $ 50,502,359 $ 49,052,933
Operating expenses 58,171,860 58,942,515
Operating loss (7,669,501) (9,889,582)
Nonoperating revenues 1,271,384 1,475,971
Nonoperating expenses (1,927,397) (1,877,186)
Loss before contributions (8,325,514) (10,290,797)
Contributions in aid of construction 4,346,580 3,202,379
Change in net position (3,978,934) (7,088,418)
Net position at beginning of fiscal year 216,098,529 223,929,317
Prior period adjustment -- (742,370)
Net position at beginning of fiscal year,
as restated 216,098,529 223,186,947
Net position end of fiscal year $ 212,119,595 $ 216,098,529
Financial Analysis
Capital assets, net increased by $2.2 million, or 0.74%, during the fiscal year ended June 30,
2021 (FY2021), due primarily to an increase in accumulated depreciation of$14.9 million, offset
by increases in utility plant in service of $9.5 million and construction work in progress of $6.3
million.
Other assets decreased by $4.1 million, or 7.76%, in FY2021, due primarily to decreases in
investments of$2.0 million.
Deferred outflows of resources decreased by $0.02 million, or 0.20%, in FY2021, due primarily to
a decrease in deferred outflows of resources for OPEB of $0.07 million offset by an increase in
deferred outflows of resources for pensions of$0.05 million.
Long-term debt increased by $1.0 million, or 1.53%, in FY2021, due primarily to bond and loan
repayments of $5.8 million, offset by loan proceeds of $7.2 million, and refunding bond of $4.4
million with new issue of$3.7 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)
Fiscal Year Ended June 30, 2021
Financial Analysis (Continued)
Other liabilities decreased by $0.03 million, or 0.04% in FY2021, due primarily to collective
increases in accrued compensation, customers' deposits, accrued vacation, and net pension
liability totaling $3.73 million offset by collective decreases in accounts and construction contracts
payable, accrued interest payable, accrued workers' compensation, unearned revenue (non
current) and net OPEB liability totaling $3.75 million.
Deferred inflows of resources increased by $1.1 million, or 28.60%, in FY2021, due primarily to
an increase in deferred inflows of resources related to OPEB of$2.0 million offset by a decrease
in deferred inflows of resources related to pensions of$1.0 million.
Net investment in capital assets increased by $1.2 million, or 0.52%, in FY2021, due primarily to
an increase in net capital assets of $2.2 million, offset by an increase in long-term debt of $1.2
million.
Total net position decreased $3.9 million, or 1.84%, in FY2021, due primarily to the results of
operations of($3.9 million).
In October 2020, the Water Board approved a 13% rate increase for water consumption and
standby charges that became effective January 1, 2021. Total operating revenues increased by
$1.4 million, or 2.95% in FY2021, due primarily to an increase in water consumption charges of
$1.5 million and standby charges of $1.0 million offset by a decrease in power charges of $1.1
million.
Operating expenses decreased by $0.7 million, or 0.91%, in FY2021, due primarily to a decrease
in power and pumping of $1.4 million offset by increases in general and administrative and
transmission and distribution expenses of$1.0 million.
Nonoperating expenses increased by $0.05 million, or 2.67%, in FY2021, due primarily to a
decrease in interest on long-term debt of$0.28 million offset by an increase in losses on disposal
of property of$0.30 million.
Contributions in aid of construction (CIRC) increased by $1.14 million, or 35.73%, in FY2021, due
primarily to an increase in current year dedications of$0.16 million, the addition to CIAC of$1.60
million for Uplands Subd Ph II offset by decreases in external Federal funding of$0.11 million and
CIAC-Facilities Charge of$0.31 million.
Capital Assets and Debt Administration
As of June 30, 2021, the Department had $302.5 million invested in capital assets, and $67.4
million of long-term debt outstanding.
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)
Fiscal Year Ended June 30, 2021
During 2021, major capital asset additions included:
• $2.3 million for the Kaieie Mauka Facility Improvements.
$0.1 million for the Kaloko Mauka #1 Booster A&B repair.
$0.9 million for the Hualalai Deepwell Repair.
$0.8 million for the Keauohana Deepwell B Repair.
$0.2 million for the Parker#1 Deepwell Repair.
$0.2 million for the Honokaa Boosters A&B.
$0.3 million for the Kulaimano Well Repair.
$0.4 million for the Olaa Deepwell Repair.
• $0.6 million for the Holualoa Deepwell Repair.
$0.4 million for the Lalamilo Deepwell Repair.
• $1.0 milllion for the Keahuolu Deepwell Repair.
More detailed information about the Department's capital assets is provided in Note D to the
financial statements.
At June 30, 2021, the Department had outstanding $18.8 million in County of Hawaii general
obligation bonds for public improvements, and $47.0 million in State of Hawaii revolving fund
loans.
As of June 30, 2021, 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 January 1, 2021, water rates increased 13% from the fiscal year ended June 30, 2020.
11
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
STATEMENT OF NET POSITION
June 30, 2021
ASSETS
Current assets
Cash and cash equivalents $ 1711191629
Investments 18,000,000
Interest receivable 4371619
Trade receivables, less allowance for doubtful accounts of
$117001000 8,128,905
Intergovernmental receivables 2631386
Other receivables 2451871
Inventories of materials and supplies 114381500
Prepaid expenses and other 501019
Total current assets 45,683,929
Restricted cash 8881225
Investments 210001000
Capital assets
Utility plant in service 53817701419
Less accumulated depreciation (292,046,560)
246,723,859
Land and rights 512671919
Preliminary survey and investigation charges 515151581
Construction work in progress 4419991376
Net capital assets 30215061735
Total assets 351,078,889
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows of resources related to pensions 714881980
Deferred outflows of resources related to OPEB 215831823
Total deferred outflows of resources 1010721803
Total assets and deferred outflows of resources 36111511692
The accompanying notes are an integral part of these financial statements.
12
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
STATEMENT OF NET POSITION (Continued)
June 30, 2021
LIABILITIES
Current liabilities
Accounts and construction contracts payable,
including retainages $ 559005022
Long-term debt, current portion 652145530
Accrued compensation 159615911
Accrued interest payable 4755544
Accrued workers' compensation, current portion 975888
Accrued vacation, current portion 6295515
Customers' deposits, current portion 2845487
Total current liabilities 1555635897
Accrued workers' compensation, noncurrent portion 2825112
Accrued vacation, noncurrent portion 154005153
Customers' deposits, noncurrent portion 1558355180
Net pension liability 3552905257
Net OPEB liability 1453935814
Long-term debt, noncurrent portion 6152365896
Total liabilities 14450025309
DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources related to pensions 157745106
Deferred inflows of resources related to OPEB 350735292
Unamortized gain on refunding of debt 1825390
Total deferred inflows of resources 550295788
NET POSITION
Net investment in capital assets 23250865655
Unrestricted (195 967,060)
Total net position 21251195595
Total liabilities, deferred inflows of resources
and net position $ 36151515692
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)
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
Fiscal Year ended June 30, 2021
OPERATING REVENUES
Water sales $ 5015021359
OPERATING EXPENSES
Power and pumping 1814161244
Depreciation 1419341054
General and administrative 1210071335
Transmission and distribution 714701735
Purification 212961296
Maintenance and repairs 116821148
Customers' accounting and collecting 113651048
Total operating expenses 5811711860
Operating loss (7,669,501)
NONOPERATING REVENUES
Interest income 3811448
Other 8891936
Total nonoperating revenues 112711384
NONOPERATING EXPENSES
Interest expense on long-term debt (1,280,834)
Loss on disposal of capital assets (412,328)
Other (234,235)
Total nonoperating expenses (1,927,397)
Loss before contributions (8,325,514)
CONTRIBUTIONS IN AID OF CONSTRUCTION 413461580
Change in net position (3,978,934)
NET POSITION
Beginning of fiscal year, as previously reported 21713351813
Prior period adjustment (1,237,284)
Beginning of fiscal year, as restated 216,098,529
Net position at end of fiscal year $ 21211191595
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)
STATEMENT OF CASH FLOWS
Fiscal Year ended June 30, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 4915031797
Payments to suppliers for goods and services (22,763,519)
Payments to employees for services (17,758,696)
Net cash provided by operating activities 819811582
CASH FLOWS FROM CAPITAL AND RELATED FINANCING
ACTIVITIES
Principal paid on long-term debt (5,833,067)
Debt proceeds 712061603
Interest paid on long-term debt (1,610,328)
Acquisition and construction of capital assets (15,224,953)
Cash received from contributions in aid of construction and other 113161044
Net cash used in capital and related financing activities (14,145,701)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (13,000,000)
Proceeds from sale and maturities of investments 1510001000
Interest received 6201633
Net cash provided by investing activities 216201633
Net decrease in cash and cash equivalents (2,543,486)
CASH AND CASH EQUIVALENTS - BEGINNING OF FISCAL YEAR 2015511340
CASH AND CASH EQUIVALENTS - END OF FISCAL YEAR $ 18,007,854
RECONCILIATION OF CASH AND CASH EQUIVALENTS
TO THE STATEMENT OF NET POSITION
Unrestricted $ 1711191629
Restricted 8881225
$ 18,007,854
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)
STATEMENT OF CASH FLOWS (Continued)
Fiscal Year ended June 30, 2021
RECONCILIATION OF OPERATING LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Operating loss $ (7,669,501)
Depreciation 1459345054
Provision for doubtful accounts 2025367
Change in assets, deferred outflows of resources, liabilities
and deferred inflows of resources
Trade and other receivables (1,224,963)
Inventories of materials and supplies 985855
Prepaid expenses and other (4,903)
Deferred outflows of resources related to pensions (47,272)
Deferred outflows of resources related to OPER 675538
Accounts and construction contracts payable,
including retainages (133,533)
Customers' deposits 245034
Other accrued liabilities 1605709
Net pension liability 352615009
Net OPER liability (1,685,933)
Deferred inflows of resources related to pensions (980,539)
Deferred inflows of resources related to OPER 159795660
Net cash provided by operating activities $ 859815582
SUPPLEMENTAL DISCLOSURE OF NONCASH CAPITAL
AND RELATED FINANCING ACTIVITIES
Contributions in aid of construction $ 352635419
Amortization of unamortized gain on refunding of debt $ 175004
Amortization of bond premium $ 2425352
Public improvement bonds were issued to refund debt issued in 2010. The $4,448,051
proceeds were used for the current refunding of $4,403,750 of outstanding public
improvement bonds.
The accompanying notes are an integral part of these financial statements.
16
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
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 statement 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 collectibility.
Account balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote.
(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.
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, 2021
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.
18
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
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, 2021 amounted to
approximately $6,300,000.
(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) Postemp/oyment 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.
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, 2021
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
(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 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.
(16) 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.
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, 2021
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(17) New Accounting Pronouncements - The Governmental Accounting Standards Board
(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. The requirements of this Statement are
effective for reporting periods beginning after June 15, 2021. 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. This Statement achieves those objectives by clarifying the existing definition
of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of
the issuer; establishing standards for accounting and financial reporting of additional
commitments and voluntary commitments extended by issuers and arrangements
associated with conduit debt obligations; and improving required note disclosures. The
requirements of this Statement are effective for reporting periods beginning after
December 15, 2021. 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. The requirements in paragraphs 6 and 7 of
this Statement are effective for fiscal years beginning after June 15, 2021, while the
requirements in paragraphs 8, 9, and 12 of this Statement are effective for reporting
periods beginning after June 15, 2021. 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, 2021
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
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 (APRs). 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. 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.
NOTE C - DEPOSITS AND INVESTMENTS
At June 30, 2021, the carrying amount of deposits (cash, time certificates of deposit, and
money market funds) was $38,007,854, with a corresponding bank balance of$38,971,017.
These amounts were fully insured or collateralized with securities held by the County's agent
in the County's name.
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, 2021
NOTE C - DEPOSITS AND INVESTMENTS (Continued)
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 $20,000,000 at June 30, 2021.
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.
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, 2021
NOTE D - CAPITAL ASSETS
The following summarizes the Department's capital assets at June 30, 2021:
Amount
Utility plant in service
Structures and improvements $ 20171777444
Distribution mains and accessories 14674147763
Electric and hydraulic pumping equipment 7374037352
Transmission mains and accessories 3676147323
Services 3277927603
Purification system 1373847414
Meters 1174027561
Hydrants 977607517
Transportation equipment 475837687
Communication equipment 371827341
Office equipment and furniture 277527811
Tools and work equipment 176407771
Other equipment 176417245
Other fire protection plant 197587
Total utility plant in service 53877707419
Less accumulated depreciation (29270467560)
24677237859
Land and rights 572677919
Preliminary survey and investigation charges 575157581
Construction work in progress 4479997376
Net capital assets $ 30275067735
The following is a summary of changes in capital assets during the fiscal year ended
June 30, 2021:
Balance
July 1, 2020 Retirements/ Balance
(restated) Additions Transfers June 30, 2021
Utility plant in service $ 52972127470 $ 1076367869 $ (1,078,920) $ 53877707419
Less accumulated depreciation (27777787573) (1479347054) 6667067 (29270467560)
251,433,897 (4,297,185) (412,853) 246,723,859
Land and rights 572617319 67600 -- 572677919
Preliminary survey and
investigation charges 479267822 8227977 (2347218) 575157581
Construction work in progress 3876477865 1676397120 (1072877609) 4479997376
$ 300,269,903 $ 13,171,512 $ (107 934,680) $ 302,506,735
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, 2021
NOTE E - LONG-TERM OBLIGATIONS
At June 30, 2021, long-term debt consisted of the following:
Amount
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 $ 858305000
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 558385750
Public improvement refunding bonds ($3,751,250 issued), 2020 Series C&D,
payable to the County, interest at 5%, due in semiannual
installments through 2029 354055000
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 6395952
Public improvement bonds ($147,000 issued), 2008 Series A, payable to
the County, interest at 4.125%, due in semiannual installments
through 2043 1175541
State Revolving Fund loans ($73,624,812 loaned) payable to the State
of Hawaii, interest up to 1.37%, due in semiannual
installments through 2040 4659975951
Total long-term debt 6558295194
Add: Unamortized premium 156225232
67,451,426
Less: Current portion (6,214,530)
Noncurrent portion $ 6152365896
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 it pledges either its full faith and credit or gross revenues of the Department.
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, 2021
NOTE E - LONG-TERM OBLIGATIONS (Continued)
The following is a summary of changes in long-term debt during the fiscal year ended
June 30, 2021:
Balance Balance Due Within
July 1,2020 Additions Decreases June 30,2021 One Year
State Revolving Fund Loans $ 42,909,525 $ 71206,603 $ (31118,177) $ 46,997,951 $ 31417,443
Public Improvement Bonds 221198,633 -- (31367,390) 18,831,243 21797,087
Total $ 65,108,158 $ 71206,603 $ (61485,567) $ 65,829,194 $ 61214,530
At June 30, 2021, future principal and interest payments for long-term debt are scheduled as
follows:
Public
Year Ending State Revolving Fund Loans Improvement Bonds Total
June 30, Principal Interest Principal Interest Principal Interest
2022 $ 3,417,443 $ 726,119 $ 2,797,087 $ 751,032 $ 6,214,530 $ 1,477,151
2023 2,933,881 659,020 2,267,275 624,456 5,201,156 1,283,476
2024 2,968,161 607,556 2,384,921 508,185 5,353,082 1,115,741
2025 3,002,936 555,540 2,496,322 393,728 5,499,258 949,268
2026 3,038,178 503,001 2,603,980 288,195 5,642,158 791,196
2027-2031 14,615,768 1,769,103 6,205,000 370,421 20,820,768 2,139,524
2032-2036 12,280,555 752,069 27,539 13,631 12,308,094 765,700
2037-2041 4,741,029 119,132 33,708 7,462 4774737 126,594
2042-2046 -- -- 15,411 958 15,411 958
$ 46,997,951 $ 5,691,540 $ 18,831,243 $ 2,958,068 $ 65,829,194 $ 8,649,608
In November 2020, the County issued $15,005,000 in refunding bonds as the 2020 Series
C&D general obligation bond issue. The refunding bonds have a true interest cost of 0.86%
and were issued to refund $17,615,000 of the total callable bonds outstanding of the 2010
Series B general obligation bond issue. The bonds refunded bore interest at a rate of 5.0%.
The Department has a 25% proportionate share of the 2010 Series B and 2020 Series C&D
general obligation bond issues. The par amount of $3,751,250 plus a premium of $719,895
minus $23,094 in underwriting fees, insurance, and other issuance costs resulted in the
Department's share of net proceeds of$4,448,051.
The Department's total debt service requirements decreased by $585,931 as a result of the
refunding, and the net economic gain (difference between the present values on the old and
new debt) after taking into account all allocable costs of issuance of the bonds was $511,467.
26
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE E - LONG-TERM OBLIGATIONS (Continued)
In prior years, the County defeased certain general obligation bonds by placing the proceeds
of new bonds in irrevocable trusts to provide for all future debt service payments on the old
bonds. Accordingly, the assets of the irrevocable trust and the liability of the defeased bonds
are not included for the Department's proportionate share on the Department's financial
statements. As of June 30, 2021, the Department's proportionate share of the outstanding
balance of the unpaid defeased bonds amounted to $15,822,500.
NOTE F - OTHER LONG-TERM OBLIGATIONS
The following is a summary of other long-term obligations transactions for the fiscal year
ended June 30, 2021:
Balance Deductions Balance Due Within
July 1,2020 Additions and Payments June 30,2021 One Year
Accrued workers'
compensation $ 660,000 $ -- $ (280,000) $ 380,000 $ 97,888
Accrued vacation 11809,892 897,318 (677,542) 21029,668 629,515
Customers'deposits 16,095,633 896,631 (872,597) 16,119,667 2841487
Total $ 18,565,525 $ 11793,949 $ (1,830,139) $ 18,529,335 $ 11011,890
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
27
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
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 (2.5% of the
original retirement allowance the first year, 5.0% the second year, 7.5% the third year, etc.).
Retirees first hired as members after June 30, 2012 receive a 1.5% increase each year of
their original retirement allowance without a ceiling (1.5% of the original retirement allowance
the first year, 3.0% the second year, 4.5% the third year, etc.).
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.
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.
28
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
Contributory Class for Employees 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.
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 Employees 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.
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, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
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.
For police officers and firefighters, ordinary disability benefits are 1.75% of average final
compensation for each year of service 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 Employees 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.
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 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.
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, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
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 Employees 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.
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, plus a percentage multiplied by 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.
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.
Contributions to the pension plan from the Department were $2,579,631 for the fiscal year
ended June 30, 2021.
Per Act 17 (SLH 2017), employer contributions from the State and counties increased 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.
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, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and
Deferred Inflows of Resources Related to Pensions - At June 30, 2021, the Department
reported a liability of $35,290,257 for its proportionate share of the net pension liability. The
net pension liability was measured as of June 30, 2020, 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 proportion of the
Department's contributions to the pension plan relative to the contributions of all participating
employers. At June 30, 2020, the Department's proportion was 0.23%, a decrease of 0.01%
from its proportion measured as of June 30, 2019.
The actuarial assumptions used in the June 30, 2020 actuarial valuation are the same as
those used in the prior valuation. There were no changes between the measurement date,
June 30, 2020, and the reporting date, June 30, 2021 that are expected to have a significant
effect on the proportionate share of the net pension liability.
For the fiscal years ended June 30, 2021, the Department recognized pension expense of
$510521444. At June 30, 2021, the Department reported deferred outflows of resources and
deferred inflows of resources related to pensions from the following sources:
Deferred Deferred
Outflows of Inflows of
Resources Resources
Differences between expected and actual experience $ 3941865 $ --
Changes in assumptions 9931272
Net difference between projected and actual earnings
on pension plan investments 112331871 --
Changes in proportion and differences between
Department contributions and proportionate share
of contributions 212871341 (1,774,106)
Department contributions subsequent to the
measurement date 215791631 --
Total $ 71488,980 $ (1,774,106)
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, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
At June 30, 2021, the Department reported $2,579,631 of deferred outflows of resources
related to pensions resulting from the Department's contributions subsequent to the
measurement date, which will be recognized as a reduction of the net pension liability in the
fiscal year ended June 30, 2022. Other amounts reported as deferred outflows of resources
and deferred inflows of resources related to pensions at June 30, 2021 will be recognized in
pension expense as follows:
Net Deferred
Fiscal Year Ending June 30, Outflows (Inflows)
2022 $ 154325140
2023 8375447
2024 4495810
2025 3845809
2026 315037
$ 351355243
Actuarial Assumptions - The total pension liability in the June 30, 2020 actuarial valuation
was determined using the following actuarial assumptions, applied to all periods included in
the measurement:
Inflation 2.50%
Investment rate of return, including inflation 7.00%
Salary increases, including inflation
Police and fire employees 5.00% to 7.00%
General employees 3.50% to 6.50%
Teachers 3.75% to 5.75%
Mortality rates used in the actuarial valuation as of June 30, 2020 were based on the following:
Active members - Multiples of the Pub-2010 mortality table for active employees based on
the occupation of the member.
Healthy retirees-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.
Disabled retirees - 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 3.5% for males and 2.5% for females.
The actuarial assumptions used in the actuarial valuation as of June 30, 2020 were 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.
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, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
The long-term expected rate of return on pension plan investments was determined using a
"top down approach" of the Client-Constrained Simulation-based Optimization Model (a
statistical technique known as "re-sampling with replacement" that directly keys in on specific
plan-level risk factors as stipulated by the ERS Board) 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 then combined to
produce the long-term expected rate of return by weighting the expected future nominal rates
of return (real returns + inflation) by the target asset allocation percentage. The target
allocation and best estimates of geometric real rates of return for each major asset class as
of June 30, 2020 are summarized in the following table:
Long-Term Long-Term
Strategic Allocation Target Expected Expected Real
(Risk-Based Classes) Allocation Rate of Return Rate of Return*
Broad Growth 63.00% 7.90% 5.70%
Diversifying Strategies 37.00% 3.70% 1.50%
100.00%
*Uses an expected inflation of 2.20%
Discount Rate- The discount rate used to measure the net pension liability at June 30, 2021
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
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 periods 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 as of June 30, 2021, 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:
1% Decrease Discount Rate 1% Increase
(6.00%) (7.00%) (8.00%)
Department's proportionate share of
the net pension liability $ 45,3215338 $ 3552905257 $ 2750205579
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, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
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/resources/financials.
Payables to the Pension Plan - At June 30, 2021, the amount payable to the ERS was
$321,571, 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/reports.
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, 2020:
Inactive employees or beneficiaries currently receiving benefits 101
Inactive employees entitled but not yet receiving benefit payments 13
Active employees 160
274
Contributions - The Department's contribution levels are established by Chapter 87A of the
HRS. For the fiscal year ended June 30, 2021, the Department was not 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 year ended June 30, 2021, contributions to the OPEB plan from the Department totaled
$1,210,523 which resulted in an average contribution rate of approximately 10.45% of
covered-employee payroll.
35
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
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).
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, 2021 was measured as of
July 1, 2020, and the total OPEB liability used to calculate the net OPEB liability was
determined by an actuarial valuation as of that date.
Actuarial assumptions. The total OPEB liability in the July 1, 2020 actuarial valuation was
determined using the following actuarial assumptions, applied to all periods included in the
measurement, unless otherwise specified:
Actuarial cost method Entry age normal
Discount rate 7.00%
Inflation 2.50%
Salary increases 3.50% to 7.00% including inflation
36
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
Demographic assumptions Based on the experience study covering the five
year period ending June 30, 2018 as conducted by
the ERS
Mortality System-specific mortality tables utilizing scale BB
to project generational mortality improvement
Participation rates 98% healthcare participation assumption for
retirees that cover 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 7.50%; declining to a rate of
4.70% after 13 years
HMO* Initial rate of 7.50%; declining to a rate of
4.70% after 13 years
Part B & base monthly contribution Initial rate of 5.00%, declining to a rate of
4.70% after 10 years
Dental Initial rate of 5.00% for first year, followed by
4.00% for all future years
Vision Initial rate of 0.00% for first year, followed by
2.50% for all future years
Life insurance 0.00%
* Blended rates for medical and prescription drug
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, 2021
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, 2020 are summarized
in the following table:
Long-Term
Target Expected Real
Asset Class Allocation Rate of Return
Non-U.S. equity 16.00% 7.72%
U.S. equity 14.00% 6.23%
Private equity 10.00% 9.66%
Core real estate 10.00% 5.98%
Trend following 8.00% 2.12%
U.S. microcap 6.00% 7.85%
Global options 6.00% 4.65%
Private credit 6.00% 5.50%
Long treasuries 6.00% 0.86%
Alternative risk premium 5.00% 1.56%
TIPS 5.00% 0.11%
Reinsurance 5.00% 4.34%
Core bonds 3.00% 0.08%
100.00%
Discount Rate -The discount rate used to measure the total OPEB liability at June 30, 2021
was 7.00%. The discount rate was based on the expected rate of return on OPEB plan
investments of 7.00%.
The Department's funding policy is to pay the recommended actuarially determined
contribution, which is based on layered, closed amortization periods. 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 plan members. 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.
38
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
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 year
ending June 30, 2021:
Increase (Decrease)
Total OPEB Plan Fiduciary Net OPEB
Liability Net Position Liability
(a) (b) (a)-(b)
Balance at June 30,2020 $ 3516111034 $ 1915311287 $ 1610791747
Changes for the fiscal year:
Service cost 7731607 -- 7731607
Interest on the total OPEB liability 214831573 -- 214831573
Difference between expected and
actual experience (2,403,748) -- (2,403,748)
Change of assumptions (190,921) -- (190,921)
Contributions-employer -- 119771000 (1,977,000)
Net investment income -- 3761721 (376,721)
Benefit payments (1,036,438) (1,036,438) --
Administrative expense -- (3,013) 31013
Other -- (2,264) 21264
Net changes (373,927) 113121006 (1,685,933)
Balance at June 30,2021 $ 3512371107 $ 2018431293 $ 1413931814
The healthcare trend assumption was updated in the July 1, 2020 actuarial valuation to reflect
the repeal of the "Cadillac Tax" on high-cost employer health plans, which resulted in a
decrease to the total OPEB liability as of June 30, 2021.
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 one percentage point lower
or one percentage point higher than the current discount rate:
1% Decrease Discount Rate 1% Increase
(6.00%) (7.00%) (8.00%)
Net OPEB Liability $ 1978577974 $ 1473937814 $ 1070467035
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, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
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 one percentage point lower or one percentage point higher than the current
healthcare cost trend rates:
Current
Healthcare
Cost Trend
1% Decrease Rates 1% Increase
Net OPEB Liability $ 9,809,296 $ 14,393,814 $ 20,268,633
OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources
Related to OPEB
For the fiscal year ended June 30, 2021, the Department recognized OPEB expense of
$115711788. At June 30, 2021, the Department reported deferred outflows of resources and
deferred inflows of resources related to OPEB from the following sources:
Deferred Deferred
Outflows of Inflows of
Resources Resources
Difference between expected and actual experience $ -- $ (2)910,951)
Changes of assumptions 332,234 (162)341)
Net difference between projected and actual earnings
on OPEB plan investments 1,041,066 --
Employer contributions subsequent to the
measurement date 1,210,523 --
$ 2,583,823 $ (3)073,292)
40
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE G - EMPLOYEE BENEFITS (Continued)
At June 30, 2021, the Department reported $1,210,523 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, 2022. Other amounts reported as deferred outflows of resources and deferred
inflows of resources at June 30, 2021 will be recognized in OPEB expense as follows:
Fiscal Year Net Deferred
Ended June 30: Inflows
2022 $ (290,667)
2023 (230,950)
2024 (228,519)
2025 (281,885)
2026 (403,738)
Thereafter (264,233)
$ (156995992)
Deferred Compensation Plan
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.
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, 2021
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 $34,022,885 at June 30, 2021.
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
$18,831,243 at June 30, 2021. Accrued interest payable to the County totaled $340,850 at
June 30, 2021.
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 year
ended June 30, 2021.
As of June 30, 2021, future minimum lease rental income was as follows:
Fiscal Year
Ending June 30, Amount
2022 $ 2361000
2023 2361000
2024 591000
$
531,000
42
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
NOTES TO FINANCIAL STATEMENTS
June 30, 2021
NOTE I - RELATED PARTY TRANSACTIONS (Continued)
Other-Amounts due to the County totaled approximately $225,000 as of June 30, 2021.
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.
NOTE J - PRIOR PERIOD ADJUSTMENT
The financial statements for the fiscal year ended June 30, 2020 contained an error related to
construction work in progress and preliminary survey and investigation charges that should
have been placed in service and classified as utility plant in service as of June 30, 2018.
Therefore, an adjustment was made to increase utility plant in service by $13,163,292,
decrease construction work in progress by$11,672,265, and decrease preliminary survey and
investigation charges by $1,491,027 for the fiscal year ended June 30, 2020. The effect for
the fiscal year ended June 30, 2020 was an increase in depreciation expense of $494,914
and a decrease in beginning net position of $742,370 in relation to depreciation expense for
the fiscal years ended June 30, 2019 and 2018.
NOTE K - NOVEL CORONAVIRUS DISEASE
On March 11, 2020, the World Health Organization declared the outbreak of novel coronavirus
disease (COVID-1 9)as a pandemic, which has led to an economic downturn on a global scale
that has created significant uncertainty, volatility, and disruption across economies and
financial markets. The pandemic has also resulted in federal, state, and local governments
and private entities mandating various restrictions, including travel and business restrictions,
temporary closures of nonessential businesses, and wide-sweeping quarantines and stay-at-
home orders. While the disruption caused by COVI D-19 is expected to be temporary, there is
uncertainty around the duration and severity of the pandemic. The related financial impact on
the Department's financial statements cannot be reasonably determined at this time.
43
REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN
MANAGEMENT'S DISCUSSION AND ANALYSIS
44
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
SCHEDULE OF PROPORTIONATE
SHARE OF THE NET PENSION LIABILITY
Last Ten Fiscal Years*
Proportionate Plan
Share of the Fiduciary
Net Pension Net Position
Proportion Proportionate Liability as a %age
Measurement of the Share of the as a %age of the Total
Period Net Pension Net Pension Covered of Covered Pension
Ended Liability (%) Liability ($) Payroll Payroll Liability
June 30, 2020 0.23% $ 3552905257 $ 1054395473 338.0% 53.18%
June 30, 2019 0.23% $ 3250295248 $ 1053185136 310.4% 54.87%
June 30, 2018 0.25% $ 33,522,053 $ 957425400 344.1% 55.48%
June 30, 2017 0.22% $ 2853655453 $ 953585187 303.1% 54.80%
June 30, 2016 0.22% $ 2952475607 $ 950465930 323.3% 51.28%
June 30, 2015 0.22% $ 1859405065 $ 950125196 210.2% 62.42%
June 30, 2014 0.26% $ 2055265993 $ 852725307 248.1% 63.92%
June 30, 2013 0.21% $ 1854695400 $ 756405477 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.
45
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
Actual Contributions
Department as a %age
Fiscal Statutorily Statutorily Contribution of
Year Required Required Deficiency Covered Covered
Ended Contribution Contributions (Excess) Payroll Payroll
June 30, 2021 $ 2,579,631 $ 2,579,631 $ -- $ 11,016,038 23.42%
June 30, 2020 $ 2,258,593 $ 2,258,593 $ -- $ 10,439,473 21.64%
June 30, 2019 $ 1,950,328 $ 1,950,328 $ -- $ 10,318,136 18.90%
June 30, 2018 $ 1,757,461 $ 1,757,461 $ -- $ 9,742,400 18.04%
June 30, 2017 $ 1,603,278 $ 1,603,278 $ -- $ 9,358,187 17.13%
June 30, 2016 $ 1,553,128 $ 1,553,128 $ -- $ 9,046,930 17.17%
June 30, 2015 $ 1,520,994 $ 1,520,994 $ -- $ 9,012,196 16.88%
June 30, 2014 $ 1,664,580 $ 1,664,580 $ -- $ 8,272,307 20.12%
June 30, 2013 $ 1,214,933 $ 1,214,933 $ -- $ 7,640,477 15.90%
June 30, 2012 $ 1,210,106 $ 1,210,106 $ -- $ 7,849,473 15.42%
See accompanying notes to required supplementary information.
46
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 Year Ended June 30, 2021
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.
47
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 *
2021 2020 2019 2018
Total OPEB liability
Service cost $ 7735607 $ 7465672 $ 6985126 $ 6875414
Interest on the total OPEB liability 254835573 253495959 252645524 251355490
Difference between expected and actual
experience of the total OPEB liability (254035748) (3145598) (151845347) --
Changes of assumptions (1905921) 1375542 4325233 --
Benefit payments (150365438) (150125084) (150165548) (9535288)
Net change in total OPEB liability (3735927) 159075491 151935988 158695616
Total OPEB liability-Beginning 3556115034 3357035543 3255095555 3056395939
Total OPEB liability-Ending $ 3552375107 $ 3556115034 $ 3357035543 $ 3255095555
Plan fiduciary net position
Contributions-employer $ 159775000 $ 159905000 $ 159365548 $ 158675788
Net investment income 3765721 7645696 151115306 152455946
Benefit payments (150365438) (150125084) (150165548) (9535288)
Administrative expense (35013) (55493) (35336) (25782)
Other (25264) 5225371 -- 165370
Net change in plan fiduciary net position 153125006 252595490 250275970 251745034
Plan fiduciary net position -Beginning 1955315287 1752715797 1552435827 1350695793
Plan fiduciary net position -Ending $ 2058435293 $ 1955315287 $ 1752715797 $ 1552435827
Net OPEB liability $ 1453935814 $ 1650795747 $ 1654315746 $ 1752655728
Plan fiduciary net position as a percentage
of the total OPEB liability 59.15% 54.85% 51.25% 46.89%
Covered-employee payroll $ 1052665331 $ 1052645425 $ 1052125595 $ 957915132
Net OPEB Liability as a Percentage of
Covered-employee Payroll 140.20% 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.
48
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
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, 2021 $ 270467000 $ 172107523 $ 8357477 $ 1175877764 10.45%
June 30, 2020 $ 179777000 $ 179777000 $ -- $ 1072667331 19.26%
June 30, 2019 $ 179907000 $ 179907000 $ -- $ 1072647425 19.39%
June 30, 2018 $ 179337000 $ 179367548 $ (37548) $ 1072127595 18.96%
June 30, 2017 $ 178677000 $ 178677788 $ (788) $ 977917132 19.08%
June 30, 2016 $ 179147000 $ 179137204 $ 796 $ 974647649 20.21%
June 30, 2015 $ 178507000 $ 178487389 $ 17611 $ 974267509 19.61%
June 30, 2014 $ 178997000 $ 179007758 $ (17758) $ 876357402 22.01%
June 30, 2013 $ 178347000 $ 178337733 $ 267 $ 779667529 23.02%
June 30, 2012 $ 274007000 $ 274017487 $ (17487) $ 871827968 29.35%
See accompanying notes to required supplementary information.
49
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 Year Ended June 30, 2021
NOTE A - SIGNIFICANT METHODS AND ASSUMPTIONS
The actuarially determined annual required contributions ("ARC") for the fiscal year ending
June 30, 2021 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, 2021:
Actuarial valuation date July 1, 2018
Actuarial cost method Entry Age Normal
Amortization method Level percent, closed
Equivalent single amortization period 16.9 as of June 30, 2021
Asset valuation method 4-year smoothed 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 (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%
50
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 Year Ended June 30, 2021
NOTE A - SIGNIFICANT METHODS AND ASSUMPTIONS (Continued)
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).
51
999 BISHOP STREET,SUITE 2200
N&K CPAs. Inc. HONOLULU, HAWAII 96813
ACCOUNTANTS I CONSULTANTS
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, 2021, and the related notes to the financial statements,
and have issued our report thereon dated January 21, 2022.
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.
52
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 and therefore,
material weaknesses or significant deficiencies may exist that have not been identified.
We did identify certain deficiencies in internal control, described in the accompanying
schedule of findings and responses as items 2021-001 and 2021-002 that we consider to
be material weaknesses.
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.
Department's Response to Findings
The Department's response to the findings identified in our audit is described in the
accompanying schedule of findings and responses. The Department's response was not
subjected to the auditing procedures applied in the audit of the financial statements and,
accordingly, we express no opinion on it.
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
January 21, 2022
53
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
SCHEDULE OF FINDINGS AND RESPONSES
Fiscal Year Ended June 30, 2021
Ref. No. Description
2021-001 Improve Internal Controls Over Accounting for Constructed Capital Assets
Criteria:
Once constructed capital assets are completed and placed into operations, they
should be depreciated over their estimated useful lives.
Condition:
During our testing of construction work in progress, we noted the Department had
placed several projects into operations. However, these projects were not accounted
for as completed projects and were not being depreciated over their estimated useful
lives.
Cause:
Management transfers constructed capital assets from construction work in progress
to utility plant in service once the project is fully closed and all outstanding items are
resolved. However, management does not have a system in place to track whether
these projects are placed into operations prior to that.
Effect:
The following adjustments were necessary:
• Increase utility plant in service and decrease construction work in progress by
$1,583,953 as of June 30, 2021.
• Increase utility plant in service by $13,163,292, decrease construction work in
progress by $11,672,265, and decrease preliminary survey and investigation
charges by $1,491,027 as of July 1, 2020.
• Increase depreciation expense by $247,457, increase accumulated
depreciation by $1,484,741, and decrease beginning net position by
$1,237,284 as of and for the fiscal year ended June 30, 2021.
Recommendation:
Management should monitor construction work in progress to ensure constructed
capital assets placed into operations are being accounted for properly.
Views of Responsible Officials and Planned Corrective Action:
The Department agrees with the finding and recommendation. See Corrective Action
Plan.
54
County of Hawaii
Department of Water Supply
(A component unit of the County of Hawaii, State of Hawaii)
SCHEDULE OF FINDINGS AND RESPONSES (Continued)
Fiscal Year Ended June 30, 2021
Ref. No. Description
2021-002 Improve Internal Controls Over Accounting for Significant Nonroutine Transactions
Criteria:
Accounting for nonroutine transactions, including issuance of debt, may require the
application of accounting principles that an entity's personnel may not be familiar with.
Issuance of debt should be recorded on the closing date.
Condition:
During our testing of grant awards, we noted the Department recorded debt related to
an intergovernmental grant award not in accordance with GAAP.
Cause:
Although a grant award was executed, management presumed that accounting
treatment applicable to other grant awards would apply to this specific grant award.
Long-term debt was recorded prior to a closing date or debt proceeds received.
Effect:
An adjustment was necessary to decrease intergovernmental receivables and long-
term debt by $2,640,961 as of June 30, 2021.
Recommendation:
Management should identify significant, nonroutine accounting transactions and
ensure that a process is established whereby management-level fiscal personnel are
actively involved in both the determination of the proper accounting treatment and the
timely review of the transactions posted to the Department's accounting system.
Views of Responsible Officials and Planned Corrective Action:
The Department agrees with the finding and recommendation. See Corrective Action
Plan.
55
CORRECTIVE ACTION PLAN
56
b
q re
* f
19 49
DEPARTMENT OF WATER SUPPLY a COUNTY OFHAWAVI
.F w 345 KEKUANA0`A STREET,SUITE 20 - HILO, HAWAII 96720
TELEPHONE(808)961-8050 • FAX(808)961-8657
January 21,2022
Mr.Chad K. Funasaki,CPA,CDMA
N&K CPAs,Inc.
999 Bishop Street Suite 2200
Honolulu,HI 96813
Dear Mr.Funasaki:
Subject: N&K CPAs' Independent Auditor's Report,Schedule of Findings and
Responses,Fiscal Year Ended,June 30,2021
N&K CPAs' Independent Auditor's Report of the Department of Water Supply(DWS)has been reviewed.
The findings included in your report will be addressed in accordance with your recommendations as
follows:
2021-041 Improve Internal Controls Over 14ccauntingLor Constructed Capital Assets
Management's Response:
The Department intends to implement the auditor's recommendation. Management will review the current
accounting system and workflow for construction work in progress and implement necessary coordination
and improvements to ensure timely shifting of assets to fixed asset account(s)once they are placed in
service.
2021-002 Improve Internal Controls Over Accountft or Significant Non-Routine Transactions
Management's Response:
The Department intends to implement the auditor's recommendation to ensure proper accounting treatment
of non-routine transactions.
We appreciate your review and recommendations. If you have any questions,please do not hesitate to
contact us at(808)961-8050.
Sincerely yours,
6VWV40
Keith Okamoto,P.E.
Manager-Chief Engineer
CG:dmj
. Water, Our dost Precious 1&source. . . T�#Wai A ane. . .
The Department of Water Supply is an Equal Opportunity provider and employer.
57