2012 Annual Report Cover2 - Irrigation districtAnnual+Report.pdf · 1391 Engineer Street - Vista, CA 92081 (760) 597-3100 / (760) 597-8757 FAX Vista Irrigation District 2012 Annual

1391 Engineer Street - Vista, CA 92081(760) 597-3100 / (760) 597-8757 FAX

www.vid-h2o.org

Vista Irrigation DistrictVista Irrigation District 2 0 1 22 0 1 2 Annual ReportAnnual Report

Front Cover Photos: (L) Warner-Carrillo Ranch House pre-reconstruction(R) Warner-Carrillo Ranch House post-reconstruction

Table of Contents

01 Division Boundary Map 09 Students Learn About the Importance of Water and Special Districts

02 Vista Irrigation DistrictBoard of Directors 10 Water Supply Facts

03 Howard S. Williams,Thank You For Your Service 12 Employee Appreciation

04 Message from the General Manager 14 District Demographics

06 San Diego County Water Authority Report 22 District Financials:Management’s Discussion and Analysis

07 Preserving Part of the Past…The Warner-Carrillo Ranch House 24 Financial Statements

08 Customers Show Off Their Water-Wise Landscapes 27 Notes to Financial Statements

2012 Annual Report

Division Boundary Map 01

The Vista Irrigation District serves more than 123,000 people through approximately 28,400 residential and busi-ness connections in Vista and portions of Escondido, Oceanside, San Marcos and unincorporated areas of San Diego County.

Vista Irrigation District Board of Directors

Marty MillerDivision 1

Richard L. VásquezDivision 2

Paul E. DoreyDivision 3

Howard S. Williams*Division 4

Jo MacKenzieDivision 5

The ultimate decision-making responsibility of the Vista Irrigation District (VID) rests with a fi ve-member govern-ing board. Elected to four-year terms, VID’s board members are active community leaders in many organiza-tions. Their awareness of the changing needs of the District is enhanced by their experience and understanding of local and state water issues. They are committed to effi cient and economic methods of supplying high-quality water to the District’s customers.

Board meetings are generally held on the fi rst and third Wednesday of each month. Standing committees meet on an as needed basis. All meetings are held at the District offi ce. Meetings are open to the public, and agendas are posted the Friday prior to the scheduled meeting. For further information about a meeting, or to request a copy of an agenda or staff report, please contact the Board Secretary at (760) 597-3128.

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Vista Irrigation District

* Howard S. Williams retired in 2012. John B. Franklin was elected to serve as the Director for Division 4 in November 2012.

2012 Annual Report

Howard S. Williams,

Thank You For Your Service 03

Director Williams, who preferred to be called simply “Howard”, was appointed to the VID Board in July 1991 to fi ll a vacancy in Division 4. He served

continuously and tirelessly for nearly 22 years since his appointment and was never opposed in an election in all those years. Howard served as President of the Board four times. In 1993, he was appointed to represent the District on the San Diego County Water Authority’s Board. Howard accepted the additional duty and contin-

ued to represent the District on the Water Authority Board until 2011, at which time he stepped down at the end of his most recent 6-year term.

Over the years, Howard served on nearly every committee at the District including Fiscal Policy, Public Affairs, Warner Ranch and Water Rights. As a Water Authority Board member, he also served on the SANDAG Borders Committee and the Regional Planning Committee.

Howard also served on the Palomar Airport Advisory Committee represent-ing the City of Vista, an appointment he accepted from the San Diego County Board of Supervisors in 1991. He was a retired newspaper and TV editor, a local Emmy Award winner, a six-time Golden Mike winner, and a proud Eagle Scout. During his career as a water offi cial, Howard was a tireless and dedicated public servant to the District and its customers. His public-spirited efforts will be remembered and appreciated far into the future.

The District wishes Howard and his wife of over 60 years, Ann, the very best in retirement.


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Message From the General ManagerMessage From the General Manager04 ...continued

This past year was an extremely successful one for the District, and was full of honors and recognition. As proud as I am of the accom-plishments by the District team and as much as I enjoy talking about them, it is especially gratifying when outside people and agencies take

notice. Whenever we are recognized for our outstanding efforts, I always em-phasize that such honors are refl ective of the outstanding teamwork, dedication and sense of customer service that we all have at the District.

Here is a summary of the honors received by the District in the past year:

• The Governor’s Historic Preservation Award for the preservation and res-toration of the Warner-Carrillo Ranch House, a National and State Historic Landmark owned by the District. This award is the only one presented by the State of California in the fi eld of historic preservation.

• The Preservationist of the Year Award by the Save Our Heritage Organisa-tion, the pre-eminent historical group in San Diego County, for completing the restoration of the historic Warner-Carrillo Ranch House.

• The Outstanding Outreach Participation Award from the Association of Cal-ifornia Water Agencies (ACWA) for exceptional legislative outreach efforts in our region for the benefi t of our customers and ratepayers.

• ACWA Joint Powers Insurance Authority (JPIA) safety awards were be-stowed on twelve District employees for innovative, cost-saving safety and risk management ideas and programs.

• As the District’s General Manager, I was named the General Manager of the Year by the California Special Districts Association. This award is given annually statewide to a general manager for bringing a substantial benefi t to the district and the public, and for demonstrating exceptional experience, effectiveness and leadership.

Here is a brief recap of some signifi cant accomplishments by the District in the past year:

• We fi nalized the 100-page agreement to settle our 43-year-old Indian water rights dispute between the Local Entities (the Vista Irrigation District and the City of Escondido) and the fi ve local Indian bands (La Jolla, Pala, Pau-ma, Rincon, and San Pasqual) over the San Luis Rey River. This signifi -cant milestone achieved a fi nal settlement between the Settlement Parties that had been in negotiations for decades. We are now actively working with representatives of Congress, Department of the Interior, Department of Justice, and others in order to get the Federal government to execute and implement the Settlement Agreement.

• We received approval of our requested conduit exemption from the Federal Energy Regulatory Commission (FERC) for the Bear Valley Power Plant, ending years of licensing issues and avoiding signifi cant expenditures of time and costs.

• We developed a District budget that, for the fourth year in a row, represent-ed a decrease from the previous year when adjusted for the uncontrollable expense of purchased water. This has allowed the District to live within its means, and meant that we had no water rate increase the previous year.

• As of this date, we have promoted 15 employees into more responsible positions, despite eliminating roughly 10% of the District’s workforce, by reorganizing and consolidating duties and positions.

“Our vision and commitment to excellence have contributed to the District’s exemplary reputation within the water industry.”

Roy A. CooxGeneral Manager

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• As part of the new labor agreement, we implemented pension reform that was recognized in a North County Times editorial titled “Vista District Right to Roll Back Pensions.” In the edito-rial, we were commended for reducing the District’s pension contributions for future employees by over 60%. This could result in a potential future savings of over $1 million per year.

• We completed signifi cant milestones in major District projects, including the comprehensive Water Supply Planning Study. This study evaluated of the condition of the Vista Flume. The initial conclusions are promising and indicate that there are alternatives to moving ahead with major capital projects like the replacement of the Flume that would have consumed our reserves, required large rate increases, and/or necessitated putting the District in debt.

• The District’s Recycled Water Study evaluated the feasibility, costs and benefi ts of delivering recycled water to appropriate customers, thereby reducing the reliance on imported water. At the District level, the study evaluated the feasibility of deliv-ering recycled water from Carlsbad to the Shadowridge Golf Course. At the regional level, a feasibility study was com-pleted that analyzed recycled water supplies and markets and integrated the needs and plans of ten North County water agencies. In the spirit of regional cooperation and good work-ing relationships, the District has worked closely with the City of Carlsbad, the City of Vista, and the City of Oceanside on the District’s Recycled Water Project to bring recycled water from Carlsbad through Vista to Oceanside.

In addition to specifi c honors and accomplishments, the District continues to promote an organizational culture and workplace pro-grams that are recognized throughout the industry. We have re-spected, innovative programs in the areas of safety, training, well-ness, workforce planning and career development that are often asked about and are frequent topics of outside presentations by our staff. In particular, our widely recognized Workforce Planning and Career Development Program encourages a direct partner-ship between the District and the employee in planning ahead for the needs of both parties in the future.

The District also promotes a workplace where employees value, respect, and enjoy each other. The District achieves this through a commitment to the “FISH” philosophy, which guides actions and interactions every day. There is also a wonderful volunteer spirit amongst the employees, as evidenced by increasing participation in District committees, which has fostered a sense of camaraderie in the workplace.

Our vision and commitment to excellence have contributed to the District’s exemplary reputation within the water industry. Em-ployee feedback continues to indicate that morale and volunteer spirit is at an all-time high, despite tough economic times, and our employees have partnered with the District to implement changes that could save the District up to half a million dollars per year.

Public employees in general have recently been subject to con-siderable negative publicity and perception, prompted by extreme situations like the City of Bell scandal.

However, District employees continue to receive awards, com-mendations, letters of appreciation, and well wishes from our cus-tomers and the general public. This past year, we again received a signifi cant number of accolades relating to two critical areas – employee safety and customer service.

These commendations have recurring themes, are focused on caring about the well being of others, and range from spending a little extra time with people to actually risking personal safety. The District’s employees are committed to public service, and through improved public outreach, communication with customers, and openness and accountability, have worked toward the goal of mak-ing the Vista Irrigation District second to none when it comes to providing exemplary customer service.

When our customers can turn on their faucets and count on clean water without a second thought, we recognize that we have ful-fi lled our mission of providing a safe, reliable supply of water, and that we always strive to do so in an economical, effi cient and envi-ronmentally responsible manner. Even with all of the honors and awards, that is the best recognition of all.

~ Roy A. Coox

Message From the General Manager ...continued...continued 05

“ As proud as I am of the accom-plishments by the District team and as much as I enjoy talking about them, it is especially gratifying when outside people and agencies take notice. ”

VID Director, Richard Vásquez (center) and Roy Coox, GM, accepting the Outstanding Outreach Participation Award from ACWA


T he San Diego County Water Authority (Water Authority) has continued its most important activities, the protec-tion of current water sources and the development of new ones. On November 29, 2012, the Water Authority

approved a 30-year water purchase agreement with Poseidon Resources (Poseidon) to purchase up to 56,000 acre-feet of de-salinated seawater annually. The plant, which is located adjacent to the Encina Power Station near I-5 and Cannon Street in Carls-bad, will be the nation’s largest seawater desalination plant. It is anticipated that the plant will start producing 50 million gallons of desalinated water per day in 2016.

Poseidon, a private, investor-owned company that develops water and wastewater infrastructure, will build the plant and bear all of the costs and risks of the new project. They will also be respon-sible for operating the plant once it is up and running. After 30 years of operation, the Water Authority has the option to buy the plant for $1. It also has an option to buy the facility after 10 years, although at a higher cost.

The price of desalinated seawater is very high. So is the cost of transporting water from the Sacramento-San Joaquin Delta (Delta) and the Colorado River to southern California. The fragile state of the Delta could be altered drastically by an earthquake or fl ood, which makes it imperative to fi nd a way to save the Delta and make water delivery from that source a certainty rather than a question mark. Estimates so far indicate that fi xing the Delta, which sup-plies almost one-third of the water used in southern California, will cost a few extra dollars on a monthly water bill. Add that to the cost of desalinating seawater and San Diego residents are facing higher water prices in the future. The real question is how much is too much to spend on creating reliable water supplies?

When discussions began in the late nineties, desalinated seawater was projected to cost between $1,000 and $2,000 per acre foot.

(An acre-foot of water can supply two typical single-family house-holds of four for a year.) However, based on current development cost, it appears that the price per acre-foot is going to be closer to $2,000.

According to the Water Authority, the cost of desalinated water is projected to be between $2,042 and $2,290 per acre-foot (in 2012 dollars), depending on how much water is purchased annu-ally. While desalinated water will cost more than current sources initially, analysis by the Water Authority shows that imported water from the Metropolitan Water District of Southern California could be more expensive than this source by the late 2020s. The Water Authority estimates that ratepayers will pay approximately $5 to $7 more per month for this new supply in 2016.

The Carlsbad plant is not the fi nal story on desalinated seawater. The Water Authority is also exploring the feasibility of building sea-water desalination plants at Camp Pendleton, north of the City of Oceanside, and in Baja California, Mexico. If constructed, both plants would provide additional drought-proof water supplies to the San Diego region.

Desalination is just one part of the Water Authority’s long-term strategy to increase the region’s water supply reliability. The other parts include implementing an agriculture-to-urban water conser-vation/transfer agreement with the Imperial Irrigation District, in-vesting in major infrastructure improvements such as the raising of the San Vicente Dam, and enhancing regional water-use effi cien-cy. Each of these approaches comes with inherent costs, not just economic but political and social as well. Some of these projects are more expensive than others, but how much is too much when you consider that water is our lifeline, and the region’s 3.1 million residents depend on it in their everyday lives?

San Diego County Water Authority ReportSan Diego County Water Authority Report

By Howard Williams, Vista Irrigation District’s Representative on the San Diego County Water Authority Board of Directors

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Future site of the Carlsbad Desalination PlantPhoto courtesy of Poseidon - Carlsbad Desal Project

http://carlsbad-desal.com/

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2012 Annual Report

In June 1946, after several years of negotiations, the Vista Irrigation District purchased the land and facilities owned by the San Diego Water Company in order to secure a reliable local water supply. Included in the purchase was the 43,000

acre Warner Ranch, a former Spanish land grant, which includes Henshaw Dam and Lake Henshaw. Unbeknownst to the Dis-trict, it had also purchased a structure of historical signifi cance, the Warner-Carrillo Ranch House.

The Warner-Carrillo Ranch House has been called a “national treasure” and serves as a landmark in the history of the Ameri-can west. The adobe ranch house and barn are associated with several historic events and themes, including the clash of Mexi-can and American cultures during the early period in the Mexican Republic; the frontier period in the American westward migration; trade and interaction with Native Americans; and the California Gold Rush.

Johnathan Trumbull Warner, a former California State Senator, owned the ranch house in the 1840’s and 1850’s when it was a camping stop on the Gila Overland Trail to California. Burned during an Indian uprising in 1851, the ranch house was rebuilt by the Car-rillo family and served as the Butter-fi eld Overland Mail Stage Station from 1858-1861. The ranch house and barn served as ranch headquarters, bunkhouse and storeroom for major cattle ranching operations, such as the Vail Ranch, until the 1960’s.

The Warner-Carrillo Ranch House represents one of the few remaining examples of Mexican period adobes in California, and the barn is the only hand-hewn timber barn still standing in San Diego County. In 1961, the ranch house was listed as a National Historic Landmark. In 1964, it became State Registered Land-mark Number 311. In 2000, the Save Our Heritage Organisation of San Diego called the ranch house site “the most important unprotected historical site in San Diego County.”

Thanks primarily to grants and donations, the Warner-Carrillo Ranch House has been restored to its period of historical signifi -cance in the mid to late 1800’s. The wooden fl oors, adobe walls and metal roof have been rebuilt, and the windows, doors, porch-

es, and surface fi nishes along with the historic manta ceilings (stretched can-vas) were restored. The restoration project has allowed the building to be opened to the public for the fi rst time.

The historic barn has been preserved in a state of arrested decay through permanent wooden structural bracing, replacing makeshift cables and turn-buckles holding the building together. Barn preservation has allowed the structure to be opened for viewing and enabled restoration efforts to focus on the ranch. The hope is to one day re-store the barn so it can be toured like the ranch house.

This year the historic preservation community has taken notice of the project and honored it with two prestigious awards. The District received the Governor’s Historic Preservation Award for its preservation and restoration of the Warner-Carrillo Ranch House and barn. This award is the only one presented by the State of California in the fi eld of historic preservation. The Dis-trict and its General Manager, Roy Coox, also were named Pres-ervationists of the Year by the Save Our Heritage Organisation, the pre-eminent historical group in San Diego County.

The Vista Irrigation District believes that it is important to be a good steward of the environment, preserving natural, ecological and cultural resources for current and future generations. The District’s commitment to this belief has led to the restoration of the Warner-Carrillo Ranch House for adults, children and fami-lies to enjoy for years to come.

San Diego County Water Authority Report

Preserving Part of the Past...

The Warner-Carrillo Ranch House 07

Warner-Carrillo Ranch House before restoration

Warner-Carrillo Ranch House after restoration

Interior of the hand-hewn timber barn

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W hether you are starting from scratch on a cleared lot or wanting to replace your thirsty natural grass, selecting water wise plants can be a daunting task. You can look on the Internet, peruse books and visit local nurseries to

research what types of fl ora are available. However, seeing plants in an established garden may be the best way to judge if a particular plant will work in your landscape.

There are many examples of water wise landscapes in our com-munity; people just don’t know about them. The Vista Irrigation Dis-trict, along with eleven other local water agencies, held California-Friendly Landscape Contests this year, providing an opportunity for water wise landscapes to be showcased throughout the region. The Vista Irrigation District was fortunate to receive a large number of submissions, and its top three entries showed how beautiful wa-ter wise, California-Friendly landscaping can be when used in the proper setting and mixed with other landscape components, such as hardscape and garden art.

With a majority of their water consumption going to watering land-scapes, homeowners are searching for ways to decrease their wa-ter use outdoors. By showcasing their beautiful landscapes in the California-Friendly Landscape Contest, these three Vista Irrigation District customers are providing other homeowners with ideas about how to reduce their own outdoor water use by installing attractive water wise landscaping. For more information about the contest and to see more examples of water wise landscaping, visit www.land-scapecontest.com.

Customers Show Off Their Water-Wise Landscapes08

1st Place - Vaclav Sabata was selected as the District’s fi rst place winner. He began his land-scape project in 2002, turning a barren half acre lot into a truly amazing landscape showpiece. Mr. Sabata designed and installed his landscape himself, slowly building his garden in stages. His property provides an excellent example of how to incorporate hardscape elements into a landscape as well as group plants with similar watering requirements together.

2nd Place - John and Lori Knepp were selected as the second place winners. They are for-tunate enough to have a talented gardener as a relative. John’s sister, Karen Fields, began to transform their “big lot full of weeds” four years ago into a vibrant garden focused on native plants. The landscape plantings not only are attractive but also have been specifi cally chosen to attract wildlife, such as birds and butterfl ies. The garden also incorporates a variety of art pieces along with hardscape to enhance the visual effects of the plantings.

3rd Place - Juergen and Stephanie Zierler were selected as the third place winners. They moved into their house in September 2008 and set out to rejuvenate the existing neglected landscape they inherited with the property. They did the work themselves with help from family members and the result is remarkable. The imaginative use of succulents mixed with mulch and hardscape elements really makes this landscape special.

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2012 Annual Report

Students Learn About the Importance of Water and Special Districts

A Message from the Kids

May is “Water Awareness Month” and the Vista Irrigation District (VID), in conjunction with other North County water agencies, sponsors a poster contest to promote awareness of the importance of water. Fourth grade students in each of the North County water agencies’ service areas sub-

mit posters illustrating the signifi cance of water in everyday life. The theme of this year’s contest was “Water is Life.”

VID received 196 entries from students in the District. The top three winners (shown left) in the District’s service area received cash prizes and their entries were eligible to compete in the regional contest against winners from the twelve other water Districts. A limited number of 2013 Water Awareness calendars, dis-playing artwork of District winners, are available at the District offi ce.

Students Learn About Water Supply ChallengesThe Vista Irrigation District also sponsors a scholarship contest. The purpose of the contest is to increase the knowledge of issues impacting the District’s water sources as well as raise awareness about alternative water supplies, such as de-salinated seawater and groundwater, and the importance of using water effi ciently. Congratulations to Ross Valeikas from Vista High School. He was the winner of the District’s 2012 scholarship contest. Stephanie Lu from Rancho Buena Vista High School and Catherine Mitchell from Guajome Park Academy were the runners-up. All participants are congratulated for a job well done.

Teaching the Importance of Special DistrictsThe Vista Irrigation District’s Board of Directors continued its support of educating youth about the importance of special districts by participating in the California Special Districts Association’s (CSDA) teacher grant program. This program pro-vided grants to teachers to add curriculum geared toward increasing students’ knowledge and awareness of special districts and their role in local government.

Margaret Jacobsen, an eighth grade teacher from the Vista Magnet Middle School, was the recipient of a CSDA teacher grant for her project, “Create a So-ciety”. Ms. Jacobsen’s project taught students about the benefi ts and services of special Districts that serve their geographical area and their impact on their own community. Based on what the students learned about special Districts, they cre-ated their own society. Eric Miller, a teacher from North County Trade Tech High School, also received grant funding from CSDA for his project, “A Holistic View of Water and Fire”. Mr. Miller’s project taught students about creating a water-wise and fi re safe com-munity. As part of the project, students installed water-saving devices at homes and small businesses and learned about defensible space from fi re safety profes-sionals.

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Maya Zarate from Temple Heights Elementary School won fi rst place in the District’s poster contest.

Vannessa Torralba Barba from Maryland Elemen-tary School was VID’s second place winner.

Samantha Aguilar from Temple Heights Elementary School was VID’s third place winner.

Water Supply Facts1010 Water Sources

The Vista Irrigation District’s original source of water, dating back to 1926, was from Lake Henshaw. The lake was later purchased by the District, along with the 43,000 acre Warner Ranch, in 1946. However, drought conditions and population growth eventually caused the District to look for other sources of water. In 1954, the District became a member of the San Diego County Water Authority to take advantage of

water imported from the Colorado River and Northern California.

Typically, thirty percent of the District’s water has come from Lake Henshaw and seventy percent has come from imported water from the Colorado River and Northern California. In fi scal year 2012, thirty-fi ve percent of the

District’s water came from Lake Henshaw. During years when rainfall is signifi cantly below average and the availability of local water is limited, over ninety percent of the District’s water supply can come from

imported sources.

In fi scal year 2012, a total of 17,241 acre feet, or 5.6 billion gallons, of water was distributed and sold within the District. Of that amount, 71% was distributed for residential use, 10% for

industrial and commercial, 10% for landscape irrigation, 6% for agriculture and 3% for gov-ernmental use.

Water Infrastructure

In 1995, the Board of Directors initiated an on-going Main Re-placement Program with the goal of replacing aging pipelines before they reach the end of their useful life and become a maintenance liability. Formalizing the Main Replacement Pro-gram has allowed pipe replacements to be prioritized based on the age of the line, leak history, and pipe material as well as a number of factors related to site conditions. Another important factor is input from District crews, who evaluate every line’s condition at the time repairs are being made.

Since its inception, the Board has allocated $15.5 million to this program which has allowed the replacement of just over 23 miles of older steel pipe ranging in size from 4 to 20 inches. This year the District spent about $2.1 million replacing ap-proximately 12,100 feet of pipe as part of this program.

Two 14-inch pipelines being installed in Knob Hill Road in San Marcos.


Lake Henshaw - VID Local Water Source

2012 Annual Report

Water Quality

The Vista Irrigation District takes all steps necessary to safe-guard its water supply. Each year staff conducts more than 12,000 tests for over 75 drinking water contaminants, ensuring that the District’s water meets safe drinking water standards. Last year, the District’s water met or exceeded all Federal and State safe drinking water standards.

In June of each year, the District sends its customers a Consum-er Confi dence Report, also known as the Water Quality Report. The report provides a snapshot of the quality of water provided during the past year. Included are details about what is in your water and how it compares to prescribed standards. It also pro-vides answers to commonly asked questions, such as “what af-fects the taste of my water?”

The District is committed to providing its customers with infor-mation about drinking water because informed customers are the District’s best customers. If customers have questions or concerns about water quality, they may contact the District and speak with the Water Distribution Supervisor.

Water Rates and Charges

Approximately 14% of the revenue generated by water usage charges is utilized by the Vista Irrigation District to cover operat-ing and maintenance expenses. The remaining 86% is used to pay the San Diego County Water Authority (Water Authority) for water purchases.

The Water Authority is responsible for supplying water to 24 member agencies within San Diego County. Not simply a water provider, the Water Authority is also responsible for the construc-tion and maintenance of regional storage, delivery and treatment infrastructure necessary to ensure the reliable delivery of water to local water agencies like the Vista Irrigation District.

The Vista Irrigation District’s service charge, which represents a small portion of a typical customer’s bill, helps pay for the Dis-trict’s fi xed costs, which exist regardless of the amount of water pumped and delivered. Fixed costs continue without regard to the amount of water that a customer uses in a particular month, and are sometimes called “readiness-to-serve” charges because they are incurred as part of keeping the water system ready to deliver water to any customer at a moment’s notice. The largest component of the service charge recovers the cost of replacing the District’s aging water system infrastructure.

More Information about the Vista Irrigation District

Information about the Vista Irrigation District’s water supply as well as an electronic copy of the latest Consumer Confi dence Report can be found on the District’s web site, www.vid-h2o.org. Additionally, you can fi nd out more information about District ser-vices, rates, water conservation, and recent announcements. Customers can also download publications, such as the District’s direct payment program application and engineering standard specifi cations/drawings.

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Excerpts from the 2012 Consumer Confi dence Report (CCR) reporting data for 2011.

Water Usage Charge Allocation as of June 30, 2012

VID Service Charge Components


EMPLOYEE APPRECIATION AWARDS12Annually the Board of Directors recognizes employees who have reached major milestones in their careers with the District.

Longevity is a hallmark of VID and this year was no exception. The employees pictured here received service awards commemorating their involvement with VID.

VID employees drive thousands of miles each year checking meters, testing water quality, constructing pipelines and responding to emergencies. Safety is always a top priority for our employees and that is why we honor one employee every year as the outstanding driver. The 2012 honoree was Chris Weatherwax. Working as a Facili-ties Worker in the Field Services Department, Chris has logged many miles behind the wheel. Congratulations Chris on a job well done!

20 Years of Service:

10 Years of Service:

Alvah DeWeese Johnna Pokjni Brett Hodgkiss Jay Vittachi Bruce Levy

5 Years of Service:

Brent Reyes Judy Miller Dean Farris Marlene Kelleher John Spangler Lee Hodges

M.A. Morrison

2012 Driver of the Year: Chris Weatherwax

District Demographics

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14RESERVOIR SIZE AND CAPACITY

EXISTING CAPACITY

(Million Gallons)

FLOOR ELEVATIONS

(Feet)

TOP WATER ELEVATIONS

(Feet)

Lupine Hills Prestressed Concrete – 137' Dia. – 34' High 3.30 536.0 568.0Pechstein Prestressed Concrete – 355’ Dia. - 28' High 20.00 810.0 837.0Deodar Prestressed Concrete - 86' Dia. - 31' High 1.30 869.0 899.0San Luis Rey Concrete - 156' x 136' x 26' High 3.00 540.0 565.0Virginia Pl. (A) Concrete - 100' Dia. - 13'8" High 0.76 695.0 708.0Summit Trail (C) Concrete - 100' Dia. - 13'8" High 0.76 625.0 638.0Edgehill (E) Concrete - 96' Dia. - 12' High 1.49 741.0 753.0Cabrillo Cir. (E-1) Concrete - 90' Dia. - 13'8" High 0.62 546.8 560.0Rockhill (MD) Concrete - 55' Dia. - 14' High 0.23 886.4 899.0Edgehill (HP) Prestressed Concrete – 160' Dia. – 33' High 4.85 942.7 972.0Buena Creek (HB) Prestressed Concrete – 160' Dia. – 33' High 4.85 950.9 980.0Elevado (H) Prestressed Concrete – 160' Dia. – 36' High 5.30 774.0 810.0 Total 46.46

This table shows the District’s treated water storage capacity by reservoir. The elevation numbers repre-sent each reservoir’s height above mean sea level.

Distribution System

Water Transmission Facilities

Escondido Canal and Intake Carrying Capacity:70 C.F.S

VID rights = 2/3rds

Vista Main Canal (Flume) Carrying Capacity:44 C.F.S.

Twelve miles of conduit from the Escondido-Vista Water Treatment Plant to Pechstein Reservoir

Water Meters

This table shows the total number of meters in service by the use type.

Residential (Single and Multi-Family) 24,061Commercial/Industrial 1,629Irrigation 887Agricultural 555Fire Service (Fire Sprinklers) 1,211Governmental 92 Total 28,435

Water Equivalents

• 1 Acre Foot equals 325,900 gallons • 1 Acre Foot equals 43,560 cubic feet • 1 Cubic Foot equals 7.48 gallons• 1 Cubic Foot per Second (cfs) equals 449 gallons per

minute and in 24 hours equals 1.983-acre feet

VID Pipelines

This table shows miles of pipeline in the District’s distribution system by size and material type.

8” to 36” Concrete Gravity 8 miles4” to 12” AC 270 miles14” to 36” AC 17 miles4” to 12” PVC 74 miles14” to 18” PVC 1 mile4” to 12” Steel 70 miles14” to 42” Steel 26 miles

All other materials larger than 4" 5 miles Total 471 miles

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2012 Annual Report

Lake Henshaw Releases (Fiscal Year 2011-2012)

This table accounts for the fate of water released from the lake in terms of contract deliveries and losses. The contracts with the Rincon Band of Mission Indians and the City of Escondido (formerly the Escondido Mutual Water Company), who had senior water rights on the San Luis Rey River, were entered into in 1923 when the Henshaw Dam was built and diverted fl ow on the river.

Losses in San Luis Rey River 75 Delivered to Rincon Indians 915 Escondido "A" Water* 1,564 In Lieu "A" Water* 0 Escondido "B" Water* 4,086 In Lieu "B" Water* 275 Replacement Water to Lake Wohlford 6,581 Loss of Release below Intake 233 Total Releases 13,729

“A”, “B”, “In Lieu” refer to different classes of water provided to the City of Escondido from Lake Henshaw per the terms of historic water contracts. These classes of water correspond to historic water rights and are available in quantities, times, and costs that vary per the terms of those contracts.

15Performance of Distribution Systems(Fiscal Year 2011–2012)

Water In Water OutReceived at Intake of Main Conduit (Henshaw Water) 6,547

Received from San Diego Aqueduct (Imported) 12,354

Miscellaneous Purchases 0Metered to VID users 17,241Losses 1,660 Total 18,901 18,901

Lake Henshaw PropertiesWarner Ranch:

43,402 acres(68 square miles)

Groundwater Development:21 wells and 91,000 feet of conduit

Semi-Hydraulic Earth Fill Dam:Height 110 feet, Length 1,950 feet

Reservoir (Lake Henshaw):51,774 acre feet capacity;

2,219 acres in area, 203 square mile watershed

Lake Henshaw Performance

This table presents an annual accounting of various sources of infl ows, such as run-off and pumped water from the Warner Basin aquifer, and outfl ows of water from the lake.

Acre Feet

Total Storage July 1, 2011 17,401

Less Release (13,729) Less Evaporation (5,854) Less Spill 0 Plus Pumped Water 3,782 Plus Runoff* 3,155

Total Storage July 1, 2012 4,755* Computed Runoff plus Rainfall, Conserved Evaporation, and Bank Storage

July 1, 2011 July 1, 2012Rincon Indians 410 359Escondido Replacement 0 0Vista Replacement 0 0Escondido Pumped 0 0Escondido Contract 5,914 2,710Vista Contract 5,281 2,006Vista Pumped 4 442Unallocated Henshaw Surplus 5,792 (762) Total 17,401 4,755

Ownership of Lake Henshaw WatersThis table presents a snapshot of ownership of the water stored in the lake at the beginning and end of the fi scal year. The categories of water listed are defi ned in terms of contractual obligations. Information gathered from Ownership Analysis Report.

The Performance of Distribution Systems table shows water delivered to the District (from imported and local sources) versus how much was delivered to customers. Losses encompass water that was delivered to the District but not sold to customers. Water losses can be attribut-able to a number of factors, including pipeline leaks and breaks, theft, hit fi re hydrants and fi re suppression activities.

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16 PopulationThis graph depicts population growth within the District’s service area, which is comprised of the city of Vista as well as portions of San Marcos, Escondido, Oceanside and unincorporated areas of the county. Source: San Diego Association of Governments.

Population Growth and Water Use

Even though the population served within the Vista Irrigation District’s service area has continued to grow, water consumed by that population has declined. Drought and the implementation of mandatory water use measures and tiered water rates in 2009 keyed a signifi cant reduction in water use by customers. The District’s estimated daily per capita water use in 2012 was 124 gallons per capita per day(GPCD), which is 18 GPCD less than its “20 X 2020” target. SBX 7-7 requires retail water agencies to achieve a 20% reduction in per capita water use by December 31, 2020 (referred to as “20 X 2020”).

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17Meters In UseThis graph below shows the increase in the numbers of meters in use over a ten year period.

Water Delivered by Use TypeThis graph shows how much water is delivered for dif-ferent uses. As illustrated, a majority of the water deliv-ered to District customers (72%) is for residential use. The balance is delivered for irrigation, commercial/in-dustrial (business), agriculture and governmental/insti-tutional (parks, libraries, schools) uses.

Meters in Service by Use Type

The Meters in Service by Use Type graph shows meters in service by use. Eighty-fi ve percent of the District’s 28,435 meters are used to supply water to single-family residences.

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18 Rainfall (July 1 - June 30)

This graph shows rainfall totals for Vista and the Lake Henshaw area over the past ten years.

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es

Water ReceivedThe District receives water from Lake Henshaw (local) and from Northern California and the Colorado River (imported). This graph shows how much of each source was received in a given year.

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19

Water Pumped from Warner Basin (Yearly Totals)

Lake Henshaw’s water comes from run-off as well as pumped groundwater from the Warner Basin, which sur-rounds the lake. This graph shows pumped water totals from 1988 to 2012. Typically, pumped water is more heavily relied on during extended dry periods.

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Water Year Ending in June

Distribution Effi ciencyThis graph shows water delivered to customers (from imported and local sources) which is represented by the blue bars. The dark red line shows historical water losses. Losses encompass water that was delivered to the District but not sold to customers. Water losses can be attributable to a number of factors, including pipeline leaks and breaks, under-registering meters, evaporation, theft, hit fi re hydrants and fi re suppression activities.

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Water Stored in Lake Henshaw

Lake Henshaw’s storage capacity is 51,774 acre feet. As depicted in this graph, the lake has been full once in the last 25 years; the last time the lake was full was 1993.

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Water Released from Lake Henshaw versus Local Water ReceivedThis graph compares water released from Lake Henshaw with local water received by the District. Typically, the amount of water received is less than the amount of water released because, by contract, the District must release a percentage of water to the City of Escondido and the Rincon Band of Mission Indians.

2012 Annual Report

District Financials

Management’s Discussion and Analysis

22Our discussion and analysis of the Vista Irrigation District’s fi nancial performance provides an overview of the District’s fi nancial activities for the year ended June 30, 2012. Please read it in conjunction with the District’s fi nancial statements which begin on page 24. This annual fi nancial report consists of two parts -- Management’s Discussion and Analysis (this section) and the Financial Statements.

Financial Statements

The District’s fi nancial statements include four components:

• Balance Sheets• Statements of Revenues, Expenses and Changes in

Equity• Statements of Cash Flows• Notes to Financial Statements

The balance sheets include all of the District’s assets and liabilities, with the difference between the two reported as equity. Equity is displayed in two categories:

• Invested in capital assets• Unrestricted

The balance sheets provide the basis for evaluating the capital structure of the District and assessing its liquidity and fi nancial fl exibility.

The statements of revenues, expenses and changes in equity present information which shows how the District’s equity changed during each year. All of the year’s revenues and expenses are recorded when the underlying transaction occurs, regardless of the timing of the related cash fl ows. The statements of revenues, expenses and changes in equity measure the success of the District’s operations during the year and determine whether the District has recovered its costs through user fees and other charges.

The statements of cash fl ows provide information regarding the District’s cash receipts and cash disbursements during the year. These statements report cash activity in four categories:

• Operating• Noncapital fi nancing• Capital and related fi nancing• Investing

These statements differ from the statements of revenues, expenses and changes in equity by only accounting for transactions that result in cash receipts or cash disbursements.

The notes to the fi nancial statements provide a description of the accounting policies used to prepare the fi nancial statements and present material disclosures required by accounting principles generally accepted in the United States of America that are not otherwise present in the fi nancial statements.

Financial Highlights

• Overall, operating revenues increased 4.4%, while operating expenses increased 7.1%.

• For fi scal year 2012, the District realized a $4.2 million operating gain primarily due to an increase in water revenues, resulting from the tiered-rate structure, as well as a decrease in wages and benefi ts, due to a decrease in the size of the District’s workforce.

• Nonoperating revenues decreased $0.3 million primarily due to the reversal of interest expense in the prior year, as a result of proposed changes to the Settlement Agreement discussed in Note 9.

• Contributed capital decreased $0.6 million due to the completion of four capital contribution jobs in the current year, as compared to nine in the prior year.

• The District made an $8.2 million payoff of the PERS retirement side fund. This resulted in a prior period adjustment of the June 30, 2011 equity balance, as well as the recording of the PERS side fund liability.

Financial Analysis of the District

Equity - The District’s overall equity increased $5.0 million between fi scal years 2011 and 2012, from $95.2 to $100.3 million. The equity invested in capital assets increased $0.1 million which refl ects the excess of net capital additions over the current year depreciation and dispositions. The unrestricted equity increased $4.9 million primarily due to operating income exceeding operating expenses.

Vista Irrigation District’s Equity(In Millions of Dollars)

Change in Equity - The District’s operating revenues increased by 4.4% to $40.0 million. In fi scal year 2012, 97.4% of the District’s operating revenues came from water sales. The increase in operating revenues resulted primarily due to increased water rates.

The District’s operating expenses increased 7.1% to $35.8 million primarily due to an increase of $3.1 million in purchased water.


2012 2011

Current and other assets $ 29.2 $ 31.7 Capital assets 82.4 82.2 Total Assets 111.6 113.9

Liabilities 11.3 18.7

Equity: Invested in capital assets 82.4 82.2 Unrestricted 17.9 13.0 Total Equity $ 100.3 $ 95.2

2012 Annual Report

The District’s nonoperating revenues decreased from $0.6 million to $0.3 million primarily due to the reversal of interest expense in the prior year.

The District’s contributed capital decreased from $1.2 million to $0.6 million primarily due to fewer capital contribution jobs completed in the current year.

Vista Irrigation District’s Changes in Equity(In Millions of Dollars)

2012 2011

Operating Revenues

Water sales $ 38.9 $ 36.9

Property rentals 0.5 0.8 System fees 0.3 0.3 Other services 0.3 0.3 Total Operating Revenues 40.0 38.3

Operating Expenses 35.8 33.4

Operating Income 4.2 4.9

Nonoperating Revenues (Expenses) Property taxes 0.3 0.3 Legal settlement (0.1) 0.2 Investment income - 0.1 Total Nonoperating Revenues 0.2 0.6

Contributed Capital 0.6 1.2

Increase in Equity $ 5.0 $ 6.7

Capital Assets

At June 30, 2012, the District had invested $155.5 million in capital assets with $73.1 million in accumulated depreciation. Net capital assets increased $0.2 million as a result of capital acquisitions exceeding the annual depreciation and dispositions. During the year, the District added $3.0 million in pipeline projects and $0.2 million in equipment. The largest capital additions were $2.6 million in costs for several mainline replacement projects, $0.1 million for the on-site chlorine generation system project, and $0.6 million of contributed pipeline projects. This year’s capital retirements were comprised of the replacement/disposal of pipelines; offi ce, computer, and pumping equipment with a total historical cost for all these items of $0.1 million. Depreciation for the year was $3.0 million.

Vista Irrigation District’s Capital Assets, Net(In Millions of Dollars)

2012 2011

Land, franchises and water rights $ 6.0 $ 6.0 Buildings, canals, pipelines, reservoirs and dams

74.2

74.1

Equipment 0.5 0.4 Henshaw pumping project 0.4 0.4 Construction in progress 1.3 1.3 Total Capital Assets, Net $ 82.4 $ 82.2

For more detailed information on capital asset activity, please refer to “Note 4 – Capital Assets” in the notes to the fi nancial statements.

Capital Debt

At June 30, 2012, the District had no capital debt and has no immediate need to issue debt.

Contacting the District’s Financial Management

This fi nancial report is designed to provide our citizens, taxpayers, customers and creditors with a general overview of the District’s fi nances and to demonstrate the District’s accountability for and the stewardship of the fi nancial resources and facilities it manages and maintains. If you have questions about this report or need additional fi nancial information, contact the Vista Irrigation District’s Finance Department at 1391 Engineer Street, Vista, California 92081.

Management’s Discussion and Analysis

23


Balance SheetsJune 30, 2012 and Comparative Data for June 30, 2011

ASSETS2012 2011

Current Assets: Cash and cash equivalents (note 2) $ 9,127,114 $ 11,642,117 Investments (note 2) 12,989,042 12,993,502 Accounts receivable, net (notes 1 and 3) 6,405,894 6,441,097 Taxes receivable 62,296 58,215 Accrued interest receivable 3,581 8,830 Inventories of materials and supplies 356,768 272,285 Prepaid expenses and other current assets 261,478 299,524

Total Current Assets 29,206,173 31,715,570 Noncurrent Assets: Capital assets: (note 4) Depreciable assets, net of accumulated depreciation: Buildings, canals, pipelines, reservoirs and dams 74,231,217 74,103,672 Equipment 457,048 444,812 Henshaw pumping project 361,517 369,664 Nondepreciable assets: Land, franchises and water rights 5,960,313 5,960,313 Construction in progress 1,349,392 1,337,861 Total capital assets 82,359,487 82,216,322

Total Noncurrent Assets 82,359,487 82,216,322 TOTAL ASSETS $ 111,565,660 $ 113,931,892

LIABILITIES AND EQUITY2012 2011

Current Liabilities: Accounts payable (note 5) $ 4,124,702 $ 3,212,251 Deposits 279,974 766,131 Accrued expenses and other liabilities 2,850,586 2,536,660 Total Current Liabilities 7,255,262 6,515,042 Noncurrent Liabilities: Claims payable (note 6) 4,038,371 3,955,275 Pension plan side-fund debt: (notes 6 and 11) Due within one year - 907,547 Due beyond one year - 7,324,573 Total Noncurrent Liabilities 4,038,371 12,187,395

Total Liabilities 11,293,633 18,702,437 Equity: Invested in capital assets 82,359,487 82,216,322 Unrestricted (note 7) 17,912,540 13,013,133 Total Equity 100,272,027 95,229,455

TOTAL LIABILITIES AND EQUITY $ 111,565,660 $ 113,931,892

The accompanying notes are an integral part of the fi nancial statements

24

2012 Annual Report

Statements of Revenues, Expenses and Changes in EquityFor the Year Ended June 30, 2012 and Comparative Data for June 30, 2011 25

2012 2011Operating Revenues: Water sales $ 38,929,306 $ 36,935,147 Property rentals 475,148 740,341 System fees 297,553 332,643 Other services 285,692 282,608 Total Operating Revenues 39,987,699 38,290,739

Operating Expenses: Purchased water 14,767,680 11,705,489 Wages and benefi ts 12,223,638 13,207,539 Contractual services 3,554,268 3,228,825 Depreciation 3,022,459 2,967,954 Supplies 1,078,481 1,025,154 Professional fees 831,775 730,715 Power 434,811 536,753 Offi ce and general 422,474 419,434 Insurance 363,291 332,528 Communications 72,668 83,428 Uncollectible accounts 72,180 80,472 Burden allocation (1,074,815) (932,041) Total Operating Expenses 35,768,910 33,386,250

Operating Income 4,218,789 4,904,489

Nonoperating Revenues (Expenses): Property taxes 313,008 305,985 Investment income 47,225 79,800 Federal and state assistance - 578 Loss on disposal of capital assets (6,235) (22,426) Legal settlement (83,096) 231,600 Total Nonoperating Revenues 270,902 595,537

Income Before Contributions 4,489,691 5,500,026 Capital Contributions 552,881 1,174,858 Change in Equity 5,042,572 6,674,884

Total Equity - Beginning, as restated (note 11) 95,229,455 88,554,571

TOTAL EQUITY - ENDING $ 100,272,027 $ 95,229,455



Statements of Cash FlowsFor the Year Ended June 30, 2012 and Comparative Data for June 30, 2011

2012 2011Cash Flows From Operating Activities: Receipts from customers $ 40,579,972 $ 37,678,954 Payments to suppliers (36,163,654) (25,792,661) Payments to employees (4,128,885) (4,407,890) Net Cash Provided by Operating Activities 287,433 7,478,403

Cash Flows From Noncapital Financing Activities:

Receipts from property taxes 313,008 305,985

Cash Flows From Capital and Related Financing Activities: Proceeds from disposal of capital assets 33 9,608 Collection of deposits 417,548 864,908 Acquisition of capital assets (2,686,254) (2,993,908) Return of deposits (903,705) (552,558) Proceeds from Federal and State assistance - 578

Net Cash Used by Capital and Related Financing Activities (3,172,378) (2,671,372)

Cash Flows From Investing Activities: Proceeds from maturities of investments 14,000,000 14,000,000

Interest on cash and investments 37,495 33,044

Purchase of investments (13,980,561) (13,964,712)

Net Cash Provided by Investing Activities 56,934 68,332

Net Increase (Decrease) in Cash and Cash Equivalents (2,515,003) 5,181,348

Cash and Cash Equivalents - Beginning 11,642,117 6,460,769

CASH AND CASH EQUIVALENTS - ENDING $ 9,127,114 $ 11,642,117

Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating Income $ 4,218,789 $ 4,904,489 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 3,022,459 2,967,954 Change in Assets and Liabilities: Accounts receivable, net 35,203 (1,060,820) Taxes receivable (4,081) 3,675 Inventories of materials and supplies (84,483) 32,204 Prepaid expenses and other current assets 38,046 332,103 Accounts payable 803,142 (39,794) Accrued expenses and other liabilities (7,741,642) 338,592

Net Cash Provided by Operating Activities $ 287,433 $ 7,478,403

Noncash Investing, Capital and Financing Activities: Contributed capital assets $ 552,881 $ 1,174,858 Capital asset acquisitions included in accounts payable and accrued expenses $ 109,308 $ 120,680 Increase in fair value of investments $ 14,980 $ 42,159


26

2012 Annual Report

Notes to Financial Statements

Note 1 - Reporting Entity and Summary of Signifi cant Accounting Policies:

Description of the Reporting Entity

Vista Irrigation District (District) is a public entity established in 1923, pursuant to the Irrigation District Act of the California Water Code, for the purpose of providing water services to the properties in the District. The District’s service area lies within the northwest-ern quadrant of San Diego County, encompassing approximately 21,200 acres. Historically, the District has received 30% of its water supply from Lake Henshaw which, along with the surrounding 43,000 acre Warner Ranch, is owned and operated by the District. The remaining 70% of the District’s supply comes from Northern California through the State Water Project and from the Colorado River. These sources are conveyed to the District via aqueducts owned and operated by water wholesalers, the Metropolitan Water District of Southern California and the San Diego County Water Authority. The District is governed by a Board of Directors consisting of fi ve direc-tors elected by geographical divisions, based on District population, for four-year alternating terms.

The criteria used in determining the scope of the reporting entity are based on the provisions of the Governmental Accounting Stan-dards Board (GASB) Statement 14. The District is the primary government unit and currently has no component units. Component units are those entities which are fi nancially accountable to the primary government, either because the District appoints a voting majority of the component unit’s board, or because the component unit will provide a fi nancial benefi t or impose a fi nancial burden on the District.

Basis of Accounting

The accounting principles of the District conform to accounting principles generally accepted in the United States of America applicable to enterprise funds. Accordingly, the balance sheets and the statements of revenues, expenses and changes in equity have been pre-pared using the economic resources measurement focus and the accrual basis of accounting.

Use of Estimates

The preparation of fi nancial statements in conformity with accounting principles generally accepted in the United States of America re-quires management to make estimates and assumptions. Those estimates and assumptions affect: the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The District recognizes revenues from water sales, property rentals, investments and other fees and services as they are earned. Taxes and assessments are recognized as revenue, based upon amounts reported to the District by the County of San Diego. The District fi rst utilizes restricted resources to fi nance qualifying activities, then unrestricted resources as they are needed. Operating activities gener-ally result from providing services and producing and delivering goods. As such, the District considers fees received from water sales, capacity fees, connection and installation fees and property rentals to be operating revenues. Operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this defi nition are reported as nonoperating revenues and expenses.

Pronouncements of GASB and FASB

The District’s fi nancial statements are prepared in accordance with generally accepted accounting principles (GAAP). The GASB is re-sponsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). Govern-ments are also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued through November 30, 1989 (when applicable) that do not confl ict with or contradict GASB pronouncements. Although the District has the option to apply FASB pronouncements issued after that date, the District has chosen not to do so.

Cash and Cash Equivalents

For purposes of the statement of cash fl ows, all investment instruments are considered to be cash equivalents if purchased with a ma-turity of three months or less and are readily convertible to known cash amounts.

Investments

Investments are reported at fair value in the balance sheet. All investment income, including changes in the fair value of investments, is recognized as revenues in the statement of revenues, expenses, and changes in equity.

27


Notes to Financials Statements

Note 1 - Reporting Entity and Summary of Signifi cant Accounting Policies: (Continued)

Investments (Continued)

Investments that are not traded on a market, such as investments in external pools, are valued based on the stated fair value as repre-sented by the external pool.

Accounts Receivable

Accounts receivable includes both billed and unbilled water sales provided to District customers. An allowance for doubtful accounts is provided for uncollectible accounts based on the District’s bad debt experience and on management’s estimate.

Inventories of Materials and Supplies

Inventories of materials and supplies consist primarily of materials used in the construction and maintenance of the water system and are valued at average cost.

Capital Assets and Depreciation

The District records at cost the acquisition of capital assets greater than $5,000 and with a useful life of 3 or more years. Contributed assets are recorded at their fair market value at the date of acceptance by the District. Self-constructed assets are recorded in the amount of labor, material, and overhead incurred. Depreciation is charged to expense and is computed using the straight-line method over the estimated useful lives of the respective assets as follows:

Useful Life

Buildings, canals, pipelines, reservoirs and dams 15 - 60 yearsEquipment 3 - 20 yearsHenshaw pumping project 10 - 20 years

Risk Management

The District is exposed to various risks of loss related to torts; thefts of, damage to and destruction of assets; errors and omissions; and natural disasters. To help mitigate this risk, the District is a member of the Association of California Water Agencies Joint Powers Insurance Authority (Authority). The Authority is a risk-pooling self-insurance authority, created under provisions of California Govern-ment Code Sections 6500 et. seq. The purpose of the Authority is to arrange and administer programs of insurance for the pooling of self-insured losses and to purchase excess insurance coverage.

The District participates in the following self-insurance programs of the Authority:

Property Loss - Insured up to $100,000,000 per occurrence (total insurable value $26,699,190) with $5,000 deductible for buildings, personal property, fi xed equipment, mobile equipment, and licensed vehicles; the Authority is self-insured up to $50,000 per occurrence and excess insurance coverage has been purchased.

General Liability - Insured up to $60,000,000 per occurrence with no deductible; the Authority is self-insured up to $2,000,000 and excess insurance coverage has been purchased.

Auto Liability - Insured up to $60,000,000 per occurrence with no deductible for property damage; the Authority is self-insured up to $2,000,000 and excess insurance coverage has been purchased.

Public Offi cials’ Liability - Insured up to $60,000,000 per occurrence; the Authority is self-insured up to $2,000,000 and excess insur-ance coverage has been purchased.

Fidelity - Insured up to $100,000 per occurrence with $1,000 deductible.

Dam Failure Liability - Insured up to $5,000,000 per occurrence; the Authority is self-insured up to $50,000 and excess insurance cover-age has been purchased.

28

2012 Annual Report


Note 1 - Reporting Entity and Summary of Signifi cant Accounting Policies: (Continued)

Risk Management (Continued)

The District pays annual premiums for these coverages. They are subject to retrospective adjustments based on claims experience. The nature and amounts of these adjustments cannot be estimated and are charged to expense as invoiced. There were no instances in the past three years where a settlement exceeded the District’s coverage.

Vacation and Sick Leave

The District records a liability equal to 100% of vacation earned and the applicable percentage of sick leave available to employees at year end (25%-100%), which is included in accrued expenses and other liabilities.

Burden Allocation

The District allocates overhead burden costs to pipeline installation jobs, inspection work, fi xed fee jobs, damage claims, and other small jobs. The overhead burden costs include management salaries, benefi ts, use of equipment, warehousing, and handling. Begin-ning in April 2011, the District began allocating overhead burden costs for managing contractual services.

Comparative Data

Comparative total data for the prior year have been presented in order to provide an understanding of the changes in the fi nancial posi-tion and operations of the District. Also, certain amounts presented in the prior year data have been reclassifi ed in order to be consis-tent with the current year’s presentation.

Property Taxes

Property taxes are attached as an enforceable lien on property as of March 1. Taxes are levied on July 1 and are due in two install-ments. The fi rst installment is due on November 1, and is payable through December 10 without penalty. The second installment is due February 1, and becomes delinquent on April 10. Property taxes are remitted to the District from the County of San Diego at vari-ous times throughout the year.

Note 2 - Cash and Investments:

The following is a detail of cash and cash equivalents as of June 30, 2012 and 2011:

2012 2011

Cash on hand $ 4,910 $ 5,112 Deposits 407,746 1,134,772 Money market funds - 25,200 State Treasurer’s investment pool 4,374,221 7,244,823 California Asset Management Program 4,340,237 3,232,210

Total cash and cash equivalents $ 9,127,114 $ 11,642,117

29



Note 2 - Cash and Investments: (Continued)

As of June 30, 2012 and 2011, the District had the following investments:2012 2011

Investment Maturity Fair Value Fair Value

Money market funds 2 months weighted average $ - $ 25,200 State Treasurer’s investment pool 9 months weighted average 4,374,221 7,244,823 California Asset Management Program 2 months weighted average 4,340,237 3,232,210 Total cash equivalents $ 8,714,458 $ 10,502,233

U.S. Treasury bills 6 months weighted average $ 12,989,042 $ 12,993,502 Total Investments $ 12,989,042 $ 12,993,502

Authorized deposits and investments of the District are governed by the California Government Code as well as policies set forth by the District’s Board of Directors. Within the contents of these limitations, permissible instruments include FDIC-insured institutions’ certifi -cates of deposit and savings accounts, corporate medium-term notes, U.S. government agency/instrumentalities, money market instru-ments, money market mutual funds, mortgage backed securities, U.S. government bills, notes and bonds, and asset backed securities. Funds may also be invested in the local government investment pools.

The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the District’s investment in this pool is reported in the accompanying fi nancial statements at amounts based upon the District’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting re-cords maintained by LAIF, which are recorded on an amortized cost basis.

The District is a voluntary participant in the California Asset Management Program (CAMP), an investment pool managed by Public Financial Management, Inc. CAMP was established under provisions of the California Joint Exercise of Powers Act. The fair value of the District’s investment in this pool is reported in the accompanying fi nancial statements at amounts based upon the District’s pro-rata share of the fair value provided by CAMP for the entire CAMP portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by CAMP, which are recorded on an amortized cost basis.

Interest Rate Risk. In accordance with its investment policy, the District manages its exposure to declines in fair values by limiting investment maturities to fi ve years. Express authority is granted to invest in investments with term to maturity of greater than fi ve years with a maximum term of ten years, provided the investments are in accordance with stated policy and total investments shall not exceed the amount of long term liabilities outstanding. Investments exceeding fi ve years will be matched with a corresponding liability.

Credit Risk. State law and District policy limits investments in money market funds to the top ratings issued by nationally recognized statistical rating organizations. The District’s investment in the California Asset Management Program was rated AAAm by Standard & Poor’s Corporation. The District’s investment in the California State Treasurer’s investment pool was unrated. U.S. Treasury bills are exempt from rating disclosures.

Concentration of Credit Risk. The District manages the concentration of credit risk by limiting local government investment pools and money market funds to a maximum of 40% and 20%, respectively, of the District’s total available investment capital as outlined in the District investment policy. Furthermore, no more than 10% of the District’s available investment capital can be invested in a single money market fund.

Custodial Credit Risk – Deposits. Custodial credit risk is the risk that in the event of a bank failure, the District’s deposits may not be returned to it. All deposits are entirely insured or collateralized. State law requires banks to secure the District’s deposits by pledging government securities valued at 110% of the amount of the deposit as collateral. The District may waive the collateral requirement for deposits that are fully insured by the Federal Deposit Insurance Corporation (FDIC). On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provided for unlimited deposit insurance coverage for deposit balances in noninterest-bearing transaction accounts beginning December 31, 2010, through December 31, 2012. As of June 30, 2012 and 2011, the District’s bank balances were $687,765 and $1,275,070, respectively, and were all fully insured.

30

2012 Annual Report


Note 3 - Accounts Receivable, Net:

As of June 30, 2012 and 2011, the net balances were comprised of accounts receivable balances of $6,847,118 and $6,843,548, re-spectively, less the allowances for doubtful accounts of $441,224 and $402,451, respectively.

Note 4 - Capital Assets:

Capital assets consist of the following at June 30, 2012:BeginningBalance Additions Retirements

EndingBalance

Capital assets not being depreciated: Land, franchises, and water rights $ 5,960,313 $ - $ - $ 5,960,313 Construction in progress 1,337,861 2,787,195 (2,775,664) 1,349,392 Total capital assets not being depreciated 7,298,174 2,787,195 (2,775,664) 7,309,705

Capital assets being depreciated:

Buildings, canals, pipelines, reservoirs and dams 137,907,236 2,955,692 (56,382) 140,806,546 Equipment 4,374,664 171,820 (66,182) 4,480,302 Henshaw pumping project 2,884,529 32,848 - 2,917,377 Total capital assets being depreciated 145,166,429 3,160,360 (122,564) 148,204,225

Less accumulated depreciation for:

Buildings, canals, pipelines, reservoirs and dams (63,803,564) (2,821,879) 50,114 (66,575,329)

Equipment (3,929,852) (159,584) 66,182 (4,023,254) Henshaw pumping project (2,514,865) (40,995) - (2,555,860)

Total accumulated depreciation (70,248,281) (3,022,458) 116,296 (73,154,443)

Total capital assets being depreciated, net 74,918,148 137,902 (6,268) 75,049,782

Total capital assets, net $ 82,216,322 $ 2,925,097 $ (2,781,932) $ 82,359,487

Capital assets consisted of the following at June 30, 2011: Beginning EndingBalance Additions Retirements Balance

Capital assets not being depreciated: Land, franchises, and water rights $ 5,960,313 $ - $ - $ 5,960,313 Construction in progress 498,962 3,003,868 (2,164,969) 1,337,861 Total capital assets not being depreciated 6,459,275 3,003,868 (2,164,969) 7,298,174

Capital assets being depreciated:

Buildings, canals, pipelines, reservoirs and dams 134,728,196 3,311,526 (132,486) 137,907,236 Equipment 4,437,226 113,688 (176,250) 4,374,664 Henshaw pumping project 2,884,529 - - 2,884,529 Total capital assets being depreciated 142,049,951 3,425,214 (308,736) 145,166,429

Less accumulated depreciation for:

Buildings, canals, pipelines, reservoirs and dams (61,209,268) (2,717,695) 123,399 (63,803,564) Equipment (3,872,691) (210,465) 153,304 (3,929,852) Henshaw pumping project (2,475,071) (39,794) - (2,514,865) Total accumulated depreciation (67,557,030) (2,967,954) 276,703 (70,248,281)

Total capital assets being depreciated, net 74,492,921 457,260 (32,033) 74,918,148

Total capital assets, net $ 80,952,196 $ 3,461,128 $ (2,197,002) $ 82,216,322

31


Note 5 - Accounts Payable:

At June 30, 2012, the accounts payable of $4,124,702 included $3,133,335 for water purchases from the San Diego County Water Authority and $991,367 for obligations to other vendors. The accounts payable of $3,212,251 at June 30, 2011 included $2,107,573 for water purchases from the San Diego County Water Authority and $1,104,678 for obligations to other vendors.

Note 6 - Noncurrent Liabilities:

Noncurrent liabilities consist of the following at June 30, 2012:

Beginning EndingBalance Additions Deletions Balance

Claims payable $ 3,955,275 $ 83,096 $ - $ 4,038,371 Pension plan side-fund debt: Due within one year 907,547 - (907,547) - Due beyond one year 7,324,573 - (7,324,573) -

Total noncurrent liabilities $ 12,187,395 $ 83,096 $ (8,232,120) $ 4,038,371

Noncurrent liabilities consist of the following at June 30, 2011:

Beginning EndingBalance Additions Deletions Balance

Claims payable $ 4,186,875 $ 105,275 $ (336,875) $ 3,955,275 Pension plan side-fund debt: Due within one year 1,786,528 - (878,981) 907,547 Due beyond one year 7,324,573 - - 7,324,573

Total noncurrent liabilities $ 13,297,976 $ 105,275 $ (1,215,856) $ 12,187,395

In prior fi scal years, interest on the original $3,850,000 claims payable was being accrued at 5% annually on a non-compounding basis; however, during fi scal year 2011, all accrued interest was reversed, due to proposed changes to the terms of the Settlement Agreement (see note 10). Instead, retroactive adjustments were made to increase the claims payable amount by the increase in the Consumer Price Index, All Urban Consumers, San Diego, published by the United States Department of Labor, Bureau of Labor Statistics, per the proposed changes to the Settlement terms.

Note 7 - Unrestricted Equity:

Unrestricted equity has been reserved by the Board of Directors for the following purposes:

2012 2011

Emergency and contingency $ 8,000,000 $ 8,000,000

Future construction 1,882,555 -

Working capital 8,000,000 4,805,529

Water purchase stabilization 23,065 -

Ranch improvements 6,920 207,604

Total unrestricted equity $ 17,912,540 $ 13,013,133


32

2012 Annual Report


Note 8 - Defi ned Benefi t Pension Plan:

Plan Description

The District’s contributes to the California Public Employees Retirement System (PERS), a cost-sharing multiple-employer public employee defi ned benefi t pension plan. PERS provides retirement, disability benefi ts and death benefi ts to plan members and ben-efi ciaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. PERS issues a publicly available fi nancial report that includes fi nancial statements and required supplementary information for the cost sharing plans that are administered by PERS. Copies of the PERS’ annual fi nancial report may be obtained by writing to 400 “P” Street, Sacramento, California 95814.

Contributions and Funding Policy

Active plan members in the Plan are required to contribute 4.5% of their annual covered salary. For the fi scal years ended June 30, 2005 through calendar year ended December 31 2011, the District elected to contribute 1.5% on behalf of the employees. Effective January 1, 2012, District employees are required to contribute the total 4.5% of their annual covered salary.

The District is required to contribute at an actuarially determined rate. The rate for the year ended June 30, 2012 was 30.253% of annual covered payroll; however, in January 2012, the District opted to make a lump sum payment of $8,232,120 in order to pay off the side fund (the difference between the funded status of the PERS pool and the funded status of the District’s plan at the time PERS pooled the agencies together in 2003) and reduce the pooled employer contribution rate to 19.360%.

The contribution requirements of plan members and the District are established and may be amended by the District’s Board of Direc-tors in conjunction with applicable labor contracts. The District’s contributions to the plan for the years ending June 30, 2010, 2011 and 2012 were $2,237,465, $2,364,295 and $10,135,592 (which includes the $8,232,120 side fund prepayment discussed above), respec-tively, and were equal to the required contributions for each year.

Note 9 - Other Postemployment Benefi ts:

Plan Description

In accordance with the terms and conditions of the employment agreements for all employees, the District offers postemployment healthcare benefi ts to eligible employees who retire on or after January 1, 2006 under CalPERS, who have reached the minimum age of 50, and have completed fi fteen years of service with the District (ten years for At-Will employees). The plan is a single-employer benefi t plan. Coverage will not extend beyond a combined fi fteen years for the retiree and their eligible spouse (twenty years for At-Will employees). The years of coverage may be split between the retiree and spouse; however, the maximum coverage for a retiree may not exceed ten years, and the number of years of coverage for the spouse may not exceed the number of years of coverage for the retiree. A specifi c health plan provides this direct insurance coverage to retiring employees that reside in the California service area as defi ned by the plan. If the retiree lives outside the California service area, the District reimburses the retiree quarterly for health insur-ance premiums not to exceed the current premiums paid to the specifi c health plan.

For employees who retired on or after January 1, 1990 and prior to January 1, 2006, the District offers postemployment healthcare ben-efi ts to eligible employees for a coverage period not extending beyond 10 years and does not cover dependents.

The District pre-funds its other postemployment benefi ts (OPEB) with CalPERS through the California Employers’ Retiree Benefi ts Trust (CERBT) Fund. The CERBT is a trust fund that allows public employers to pre-fund the future cost of their retiree health insurance benefi ts and OPEB obligations for their covered employees or retirees. Employers that elect to participate in the CERBT make contri-butions into the trust fund. Participating employers use investment earnings to pay for retiree health benefi ts, similar to the CalPERS pension trust. Pre-funding OPEB obligations produces important benefi ts: Investment returns from trust fund investments will be used to pay for future obligations thereby lowering future employer costs; the higher investment return rate, expected to be earned by trust assets used to pre-fund OPEB obligations, will lower the employer’s reported annual expense and the net OPEB obligation; a lower unfunded liability may result in a higher bond rating; and the fi nancial security of employees and retirees is improved.

The District fully funds its OPEB liability through the CERBT. For the years ended June 30, 2012 and 2011, the District’s contributions to the CERBT were $0 and $50,024, respectively.

CERBT publishes separate fi nancial statements that conform to GASB Statement No. 43 in separately issued fi nancial statements for the CalPERS Trust. Copies of the CalPERS’ annual fi nancial report for its OPEB Trust may be obtained from its executive offi ce at 400 P Street, Sacramento, California 95811.

33



Note 9 - Other Postemployment Benefi ts: (Continued)

Funding Policy and Annual OPEB Cost

The District’s annual other postemployment benefi t (OPEB) cost (expense) for the plan is calculated based on the “annual required contribution of the employer” (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the value of employer promised benefi ts expected to be earned or allocated for each fi scal year and to amortize any unfunded actuarial liabilities (or funding expense) over a period not to exceed thirty years. The District’s annual OPEB cost for the current year and the related information for the plan are as follows:

RetireeHealthcare Plan

ActuariallyContribution rate: determined District 4.4%

Annual required contribution $ 332,565

Contributions made (307,783)

Increase in net OPEB obligation/(asset) 24,782

Net OPEB obligation (asset) - beginning of year (68,679)

Net OPEB obligation (asset) - end of year $ (43,897)

In accordance with the provisions of GASB Statement No. 45, the District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation were as follows:

Percent ofFiscal Annual OPEB Cost Net OPEBYear OPEB Cost Contributed Obligation (Asset)

Retiree Healthcare Plan 2010 $ 302,281 100.0% $ (70,998)



Funded Status and Funding Progress

The funded status of the plan was as follows:Unfunded Liability

Actuarial Actuarial Actuarial Annual as a % of

Valuation Value of Accrued Unfunded Funded Covered Annual Covered

Date Plan Assets Liability Liability Ratio Payroll Payroll

(A) (B) (A-B) (A/B) (C) [(A-B)/C]

July 1, 2009 $ 589,747 $ 3,235,786 $ (2,646,039) 18.2% $7,599,457 (34.8%)

July 1, 2010 $ 848,599 $ 3,396,726 $ (2,548,127) 25.0% $7,741,925 (32.9%)

July 1, 2011 $ 1,109,493 $ 3,779,819 $ (2,670,326) 29.4% $7,523,865 (35.5%)

34

2012 Annual Report


Note 9 - Other Postemployment Benefi ts: (Continued)

Funded Status and Funding Progress (Continued)

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events in the future. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The required schedule of funding progress presented as required supplementary information provides multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefi ts.

Actuarial Methods and Assumptions

Projections of benefi ts are based on the substantive plan (the plan as understood by the employer and the plan members) and includes the types of benefi ts in force at the valuation date and the pattern of sharing benefi t costs between the District and the plan members to that point. Actuarial calculations refl ect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Signifi cant methods and assumptions were as follows:

Actuarial valuation date June 30, 2011 Actuarial cost method Projected Unit Credit Amortization method Level percentage of pay Remaining amortization period 26 years Asset valuation method Market Value Actuarial assumptions: Investment rate of return 7.61% Projected salary increases 3.25%

The actuarial cost method used for determining the benefi t obligations is the Projected Unit Credit with service prorated. The actuarial assumptions included a 7.61% investment rate of return, which is the assumed rate of the expected long-term investment returns on plan assets calculated based on the funded level of the plan at the valuation date, and an annual healthcare cost trend rate of 8.5% for 2012, 8 and 7 percent the second and third years, respectively, then reduced by decrements of 1% per year to an ultimate rate of 5% after the fi fth year. Both rates included a 3% infl ation assumption. The UAAL is being amortized over an initial 30 years using the level-percentage of pay method on a closed-basis. The remaining amortization period at June 30, 2011 is assumed to be 26 years. It is assumed the District’s payroll will increase 3.25% per year.

Note 10 - Commitments and Contingencies:

Commitments

Under terms of a 1922 contractual agreement with the United States Department of the Interior, the District and the City of Escondido are obligated to provide the fi rst 6 cubic feet per second of the natural fl ow of the San Luis Rey River to the Rincon Indians. The agree-ment is one of those claimed to be void ab initio by the United States and the Rincon Indians in the litigation discussed below.

In July 2007, the District announced entry into a “settlement agreement in principle” with the City of Escondido (Escondido) and the In-dian bands. Per the terms of the “settlement agreement in principle”, the Rincon Band would continue to receive its historic entitlement of water, but now quantifi ed as a right to 2,900 acre-feet per year, on average, adjusted by annual hydrologic conditions. Following are the provisions of the “settlement agreement in principle”:

1. Allocation of Local Water and Supplemental Water

a) The Rincon Band shall receive its historic right to the fi rst 6 cubic feet per second of the natural fl ow of the San Luis Rey River (local water). The District and Escondido shall have the right to use the remaining local water, subject to the right of the Bands to divert and use local water through an acre foot for acre foot exchange with supplemental water.

b) The Indian Water Authority (an intertribal entity established by the Bands) shall be entitled to the benefi t of the 16,000 acre feet of supplemental water provided by the Settlement Act. The Indian Water Authority may exchange supplemental water for local water.

35



Note 10 - Commitments and Contingencies: (Continued)

Commitments (Continued)

2. Financial Obligations

a) The Indian Water Authority is responsible for all costs associated with obtaining supplemental water. The District and Escondido are responsible for all costs associated with maintaining and operating the local water system, in-cluding the cost of a proposed canal undergrounding on the San Pasqual Indian Reservation (currently estimated to cost $15 million). The cost of the proposed undergrounding project will be divided evenly between the District and Escondido.

b) In return for the Bands’ and the United States’ agreement that the Settlement shall be an entire agreement, and no obligations among the parties from the 1894, 1914, and 1922 contracts shall endure, there shall be no annual charges paid by the District or Escondido for the use of tribal lands, and all liability among the parties shall be waived prior to the effective date of the Settlement Agreement. The District and Escondido agree to each pay the Indian Water Authority $3.85 million on October 1, 2008. This amount can be paid either as a lump sum, or paid over the next 20 years at 5% interest, or paid over 20 years, delayed for 5 years, at 6% interest. Any payment may be prepaid without a prepayment penalty.

c) The Rincon Band’s entitlement to 2,900 acre-feet per year of local water is estimated to cost the District approxi-mately $210,000 annually, based on the current cost of imported water and the assumption that the new formula-tion of the Rincon entitlement will result in the District purchasing additional imported water.

On September 30, 2008, the negotiators for the District, the Bands and Escondido announced a Settlement Agreement regarding the water rights issues. The provisions of the Settlement Agreement are essentially the same as those of the “settlement agreement in principle” announced in July, 2007 as mentioned above.

However, in order for the Agreement to take effect, the following conditions are necessary: (i) the Agreement must be executed by all of the parties; (ii) the Agreement must be approved by the United States District Court for the Southern District of California after the Court has ascertained in open court and on the record that all parties understand and agree with the terms of the Agreement and represent that: (a) the Settlement was entered into in good faith, and this Agreement provides fair and reasonable terms for the use of Local and Supplemental Water by the Parties and for fi nancial and other consideration among the Parties, and (b) that all Parties understand and agree with the terms of this Agreement and represent that they have received adequate legal representation in reaching that conclu-sion; (iii) a stipulated judgment of dismissal or other appropriate fi nal disposition has been entered in the litigation involving the City of Escondido and Vista Irrigation District (Local Entities), the United States, and the Bands in all of the proceedings among the parties pending in United States District Court for the Southern District of California and the Federal Energy Regulatory Commission (FERC); (iv) FERC has issued the Conduit Exemption License and has approved the Surrender Application; (v) the Secretary of the Interior has issued all necessary rights-of-way for the Local Water System in accordance with section 109(b) of the Settlement Act; and (vi) all ap-plicable appeal periods have expired. The date when all these conditions have been satisfi ed shall be the effective date of the Agree-ment.

The District’s legal counsel and management are unable to opine upon the length of time it will take to resolve the matter and obtain all required approvals for a fi nal settlement agreement.

Litigation

Several bands of Indians have claimed the rights to certain water now utilized by the District, substantial actual and punitive damages, and the invalidation of certain contracts. Actions on those claims naming the District as a defendant have been fi led in the United States District Court by the bands and by the United States, in its own right and on behalf of the bands. Legislation authorizing the settle-ment of the Indian water rights dispute was enacted on November 17, 1988, as the “San Luis Rey Indian Water Rights Settlement Act”. This legislation authorizes the parties to the dispute to enter into a settlement agreement and establishes a trust fund in the amount of $30,000,000. Implementation of this legislation is pending development of a 16,000 acre foot per year supplemental water supply and negotiation of the precise terms of the settlement agreement. In October 2000, the source of the 16,000 acre foot supplemental water supply was identifi ed as a portion of the water conserved from the lining of the All-American Canal and the Coachella Branch of the All-American Canal. Commencing in about January 2007, the settlement parties began obtaining 4,500 acre feet of water annually from the completed Coachella Branch Canal Lining Project. Construction of the lining of the All American Canal (which produces the remain-ing 11,500 acre feet) was completed in 2010.

36

2012 Annual Report


Note 10 - Commitments and Contingencies: (Continued)

Litigation (Continued)

The District’s legal counsel and management are unable to opine upon the ultimate outcome of the above matters. The Settlement Agreement summarizes some of the major proposed terms of agreement among the parties.

Discussions have continued on a long-standing dispute between the District and the City of Escondido (successor to Escondido Mutual Water Company) over the calculations and allocations between the two entities of natural fl ow of the San Luis Rey River. Manage-ment’s opinion is that this matter will be resolved concurrently with the dispute with the Indian bands by adhering to the settlement rubric outlined in the July 2007 “settlement agreement in principle.”

The District has been named as defendant in various other legal actions. In the opinion of management and legal counsel, it is too early to determine the outcome and effect on the District’s fi nancial position.

Note 11 – Prior Period Adjustment:

Equity has been adjusted to refl ect the PERS side fund liability at June 30, 2011. The District paid off this liability in fi scal year 2012. The adjustment to equity is as follows:

Equity at June 30, 2011, as previously stated $ 103,461,575

Prior period adjustment (8,232,120)

Equity at June 30, 2011, as restated $ 95,229,455

37

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