CEE CHEROKEE METROPOLITAN DISTRICT BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION With Independent Auditors’ Report ‘YEAR ENDED DECEMBER 31, 2015 BOARD OF TRUSTEES President, Janet Cederberg Vice President, Dave Mattes Secretary, Melody Helton Director Larry Keleher Director David HackerCHEROKEE METROPOLITAN DISTRICT ‘TABLE OF CONTENTS. INDEPENDENT AUDITORS’ REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS AS OF AND FOR THE ‘YEAR ENDED DECEMBER 31,2015: Government-vide Financial Statements: ‘Statement of Net Postion Statement of Activities nd Financial Statements: ‘Balance Shest ~ Gavernmental Funds and Reconciliation ofthe Governmental ‘und Balance Shoo othe Statement of Net Postion Statement of Revenues, Expenditures and Changes in Fund Balance — Governmental Funds Reconciliation ofthe Statement of Revenues, Expenditures and Changes in Fund Balance ~ Governmental Fund othe Statement of Net Position Statement of Net Postion ~ Proprietary Funds ‘Statement of Revenurs, Expenses and Change in Net Position ~ Propriotary Funds ‘Statement of Cath Flows ~ Proprietary Funds Schedule of Revenuss, Expenditures and Change in Fund Balance ~ Budget and Actual ~ ‘General Fund ‘Schedule of Revenues, Expenditures and Change in Fund Balance Budget and Actual— Darks Fund [Notes to the Financial Statements ‘SUPPLEMENTAL INFORMATION Schedule of Revenues, Expenses and Change in Funds Available ~ Budget and Actual (Non-GAAP Budgetary Basis) ~ Water and Wastewater Fund Schedule of Revenues, Expenses and Change in Funds Available Budget and Actual ‘(Noa-GAAP Budgelary Basis)~ Golf Course Fund Debt Service Coverage and Reserve Requirements Page L 10 n BR aSeal INDEPENDENT AUDITORS!’ REPORT Board of Director: (Cherokee Metropolitan Distict Colorado Springs, Colorado ‘We have ated the accompanying financial statements ofthe govemmental activities, the business ¢ype activites, and each major fund of Cherokee Metropolitan Distt, (dhe Distt) as of and for the year ended December 31, 2015, andthe related nots to the financial statzments, which collectively comprise the Distr: basic financial statements as listed in the table of contents, ‘Management's Responsibility forthe Financial Statements ‘Management i8 responsible for the preparation and fair presentation of those financial statements in sccordance with accounting principles gencrally accepted inthe United States of America; his includes the design, implementation, and maintenance of intemal control relevant to the preparation and fair presentation of financial statoments tat are fice from material misstatement, whether duc to fraud of Auditors! Responsibility Our responsiblity is to express opinions on these financial statements based on our audit. We conducted ‘our audit in acordance with auditing standards generally accepted inthe United States of America. Those standards requite that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are fie from material misstatement. ‘An audit ivolvs performing procedures to obsin audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment ofthe risk of material misstatement of the financial statements, whether due to fraud or ero. In making those risk assesements, the auditor considers internal contol relevant tothe ents preparation and fair presentation of the financial statements inorder to design auit procedures that ae appropritc in the cireumstancss, but not forthe purpose of expressing an opinion on the effoiveness of the entity's intemal control. Accoadinly, wo express 20 such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates ‘made by management, as well as evaluating the overall presentation of the financial statements. We teliove thatthe uit evidence we have obtained is sufficient and appropriate to provide a bass for vr it opinions, c iuors [102 N. Concade Avenve, Suite 400, Coloredo SpringOpinions In our opinion, the financial statcments refered to above present fisly, in all material respects, the respective financial position of the governmental activites, the businss-type activities and each major find of the Distt as of Docembr 31, 2015, and the respective changes in nancial postion and, where applicable, cash flows thereof forthe year then ended in accordance with secounting principles generally accepted inthe United States of America. Report on Required Supplemental Information ‘Accounting principles gonemlly nccopted inthe United States of Amevica rogue thatthe management's discussion and analysis on pages 1 Unough 5 be presented to supplomont the basic financial statomonts. Such information, although not a part of the basic financial statements is required by'the Governmental [Accounting Standards Board, who considers itt bean escatial part of financial reporting fo placing the ‘basi financial statements in an appropriate operational, economic or historical context. We have applied ‘certain limited procedures tothe required supplemental information in accordance with auditing standaads senerally accepted inthe United States of America, which consisted of inquires of management about the ‘methods of proping the information and comparing the information fo consistency with management's responses to our inquiries, the basic financial statements and other knowledge we obtained during out audit ofthe basic financial statements. We do not express an opinion or provide any assurance on the infomation because the limited procedures do not provide us with sufficient evidence to express an pinion or provide any assurance, Report on Other Supplemental Information ‘Our ait was conducted forthe purpose of forming opinions onthe financial statements that collectively comprise the Districts basic financial statements. The supplemental schedules are presented for purposes ‘of additional analysis and are nota required part of the base financial statements ‘Tho supplemental schodules on pages 38 though 40 are the responsibility of management and were derived from and relate directly tothe underlying accounting and other records ued to prepare the basic financial statements. Such information has boen subjected tothe auditing procedures applied in the audit ofthe basic financial statements and certain additonal procedurs, including comparing and reconciling such information directly to the underying accounting and otber records used to prepare the basic financial statements oF to the basic financial statements themselves, and other addtional procedures in sccordance with auditing standards generally accepted inthe United States of Ameria. In our opinion, the information i fairly state in all material respects in tlation to the basic financial statements as a whole Stockman Kase Ryan & Co. LLP ‘September 28, 2016MANAGEMENT'S DISCUSSION AND ANALYSIS.CHEROKEE METROPOLITAN DISTRICT (MANAGEMENT'S DISCUSSION AND ANALYSIS ‘Th Management Discussion and Analysis (MD&A) is presented to provide an overview ofthe Financia ssctivites and conditions fr the fiscal year ended on December 31,2015. The MD&A contains information Currently known to management as ofthe date of the auditor's report. The MDA&A should be readin conjunction with the District financial statements hat aesompany this repor. FINANCIAL HIGHLIGHTS ‘Total Assets equaled: $108,662, 193 for 2015, Cash, Cash Equivalent and Investments 25 cf December 31,2015 were $7,204,206. “Total Liabilities for 2015, ss of December 31,2015, equaled $30,909,617 [Net Position, at of December 31,2015, totaled $78,752,576 Governmental change in Net Postion from 2015 to 2014 totaled $115,564 Basinesstype change in Net Position from 2015 to 2014 totaled $4,260,620. FINANCIAL STATEMENTS “The financial statements consist of thre parts - management discussion and analysis, the basic inaneial slatements and supplemental information. The basic financial statements include two kinds of statements that present different views ofthe distr: +The first twa are governmentowvide statements that provide both long-term and short-term information abou the Distiet’s overall financial status, “+The remaining statements are fund financial statements that focus on individual pats of the Distt government, eporting the Districts operations in more detail than the government-wide statements ‘The financial statements also include notes that explain some of the infomation in the financial statements and provide more detailed data, The statements ate followed by a section of supplemental information that further explains and suppors the information in the financial statements, Government-wide Statements — The government-wide statements consist of the Statement of Net Position andthe Statement of Activites, Thse statements report information about the District as a whole tnd neo ll gsets end aliie using the accrual basi of accounting. Alf the caren yes evennas dnd expenses are taken ito sccount regardless of when the cash is received or paid. “These two statements report the Distit’s net postion and changes in thom. The Distrt'snet position, the difference between assets and liabilities, is one way to measure the District's nancial stats, or financial position, Overtime increases or decreases in the Distr et positon is one indicator wheter financial health is improving or deteriorating. ‘Fund Financial Statements — The fund financial statements provide more detailed information about the Distr’ funds, focusing on its most significant funds, not the District asa whole. ‘The Distiet's two kinds of funds, governmental and proprictary, use different accounting approaches, 1Governmental Pannds —The asivty ofthe Districts General fund is reported as a goveramental fund, hich focuses on how money flo into and out of the General fund, ‘This fund i reported using the modified accrual accounting method, which measures cash and all of the other financial assets that ean readily be converted to cash. The governmental fd statement provides a detailed short-term view ofthe Distit's general governmental operations and the basic services it provides. Governmental fund information helps to determine whether thee are more or less financial resources tat canbe spent inthe ea fur to finance the Distrit’s programs. Proprietary (Enterprise) Funds — The activity of the Distot Enterprise funds is to report the sme vay that ll activities are reported inthe Statoment of Net Poston and the Statement of Activites. In fc, the District’ Enterprise find isthe same a the busnes-ype activites reported in the governmentabvide staterents but provides more detailed and addtional information, such as cash flows, District Specific — The Cherokee Metropotitan Distict utilizes two separate financial categories of ctiviies; one forthe general distri functions and one for tho enterprise, or busines-ype unetions. Each ofthese, in tor, is segregated into operational and capital funetions. Together, these comprise the overall fovermentwide statements. The Governmental, or general, category covers the public functions lnvolvng:sret lighting and parks. ‘The Proprietary, or Businesséype, category involve the public provision of water, wastewater, re water, clated administration, and golf course functions. The Governmental finctions are funded by fees and conservation trust funds. The Proprietary functions are fanded by water and sewer user charges, ap fees, got fes, an, similarly, bond financing when required for capital projects FINANCIAL POSITION & RESULTS FROM OPERATIONS NET POSITION: ‘heiles | Acie Teal assers ber S$ RMI $ 93697 S967 § 2SAIE OIA 5 LOsIAHs a 2ass9 * oonidzu * soonsis asim _suxmo — saison oat es Ss? S.1006151 S.iungoniea $467.40 STI98L.08 $.1un4shandLuaBiLies| Terese Tot aie: er postion Inve aston ested poston ‘Unrest pain Tol poston gs frie Opeating ps “edits Cl as ‘nln levee earings ther rvenee wa torent ‘olen FUNCTIONAL Sree ht “i ‘GereramenaT Basins ‘Grvernmental Tans vpe “Kees Aciides Total Ae Acer Tot Rested Sas s asuasm sass S 4ase76 $aasrare SUIS E niiser * auimer —_ __aeugais __aaisa Lass Sumas snows $___ oman s_oraast S$ nason9 $ Micra § mMaTSE Ss 2sLmE Ss eryR INE > mAsnaOe mist” “Voasact > “2atzea * oasaa * “taneise © “Zon ep emis sien asap __dougssi __4047 S_stuome Spoor $_mamst6 $_awrsen S_Tagunrse $s Condensed Statements of Activites forthe years ended December 31,2015 and 2014 Gevermmeal Basie Governmental Busines Type ite rot “Aether Aetviie Tot Reve Samay § Mamas $ Lyme sz —STTIMED SUL3I94 1ogo04 ovo on ona 200 2219196 224186 stsea7—s0so7 st Bos R86 tone igure so 238983 aise 215883 —_, —Fiam 235mm __ _sm0 asi See ae ae sis SLs ue loess logan Hailes tera tenast sonsee 9m izo9321—taa0832 Golecuse Tol expedies ames postion etpation ening ot year Reroute sre ‘tepryens et pan cele soos _“Snsing __ ‘a0, as 99880 _oe50 gman) 1101606 uses 420 sss __ 490 uma __uswizis gos Maram 40nse7 ONS OND —loowns9s. _inasnses $.mLWwsm 5 mrmsI6 $__467490 $_m0n7m $_nisi6.92 Both Goveramental and Business-4ype Activities exhibited a postive change in net position primarily _tsibutable to monitoring appropiate expetues in conjunction with increasing fe revene,ANALYSIS OF POSITION ‘Tho overall financial position of the Distt improved during 2015, due to continued monitoring of operating expenditures During 2015, supplementary appropriations approved by the District's Board of Directors motifid the apropriation from $113,700 t0 $116,824 io tho General fund to account for addtional unanticipated ‘expenditures incured in 2015. ‘Capra ase fr bots Governmental and Busines-ype Asivilcy incase as dhe Distt coutiaues to make improverents tis parks and water and wastewater infasructue CAPITAL ASSET: ———— me Toraaneatt Fanner Torermmretat Benepe ‘Revie Acer” Total acini Aciniia” — Toa nsicearfind —$ Siaams $ mans Sings $ 10.9925 catteune Sosa S37 oncinpore 898 sisi soos san 08 Rennie eprtaion 3208) QL gsgom) cusseasy Gow) (asym, can) trate 65.10 —isssom “isan ses) SO PMocioenee CARED Balsa Leis KALE Taam’ Tmo “The long-term liabilities decreased during 2015 by $1,255,122 inthe Water and Wastewater fund due to significant principal payments being made.on oustanding debt LONG-TERM DEBT: "quiniie Acnoe” —Totst_ Retna Acviiar” Tota aves Bouispuybie Sinaia $746,186 5 "Tetonse: $ o04ou2 Noes mabe ina, avast $ wus —_U.si0x. “ou det 5 + Lmusn $ mss7 $__, 520414819 $ 2614812 UTURE TRENDS AND ECONOMIC FACTORS ‘While Colorado's economy has experienced amore robust grow facto than the national economy, Cherokee Metropolitan District's position hat maintained a record of moderate but steady growth. The Distet has successfully refinanced some existing debt, thereby lowering ongoing interest payments, and sta will continue to Took for innovative ways o reduce operating expenditures while mainsining hight level of customer service, AS of December 31,2015 thre are 7,091 residential taps and 576 commercial taps being serviced bythe District. Recent acministratve rulings regering water quality wil make itecesary forthe Distt lther design ‘and construct water filtration facilis or purchase new renewable water resources, inorder to improve 4retur flow qualities. As a result, the District as contracted with a consling frm to perform arate and {fe study in anticipation of acquiring futre debt o finance these nitive. Is antilpated that increased rates will be phased in over period of years meet the District's planned infestructure upgrade, ‘CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT “This financial report is designed to provide « gonecal overview of tho Charokee Metropolitan District's finanees forall those with an interest inthe Dist’ finances. Questions concerning any ofthe information provided in this report or request for additional information should be addressed to Kurt Schlegel, General Manager, at (719) 597-5080,FINANCIAL STATEMENTS(CHEROKEE METROPOLETAN DISTRICT ‘STATEMENT OF NET FOSITION ASSETS ‘Cashand nh equiaents (Chand nk alain rested "Tote an eas gave ‘Accounts resvble Inventories Propel expenses uo) moter nds Copal se, et of cumulated ‘precision “oi ats ‘IAILETIES| “Accounsppable ‘Aco expenses ‘accredit {stare deposits omar ies ‘Due within one year ue smote oe yen “Total ie er PosrTi0N ‘Nelvestnst in capil ass Retrited Unrated “ola et postion Decenber: Goverment BasaesType ‘tives __ Activites Toul s = $ agesais $4sssais 2208901 Fone 2258381 a0 s213 19.52.95, saan tss204 asi s246 tystst 2a3s9601 30909617 ussg09—Toeisi8 TaD mis gasaet 2212392 wo somes __ guinea ser Caes Tams “These financial statements shouldbe reed only in connection with the accompanying notesto financial statements 6a “soups eoueUy or sejou Suedoo2e a "gus wonosunco Su peat aq pods SUSWATNS TIoUeUY ASK, ‘Buurdog- vod. ‘2 ody weunip apron, oda: Koran se a30 Squutog - waned K, ogtsod ou 8m(CHEROKEE METROPOLITAN DISTRICT BALANCE SHEET (GOVERNMENTAL FUNDS December 31,2015, ‘Total General Parks Governmental ud und Funds ASSETS Tesi ash and ea quien s Due rm athe finds “otal asets E LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE Accounts payable Ss 98es uso other fds "Tota iabltes oa FUND BALANCE Rested sot 223607 2s ‘Unsigned 18376 3,09) 893947 Total fn balance BLAST 1 Bir 075 ‘TOTAL LIABILITIES AND FUND BALANCES sia sms 355401 ‘Reconciliation of the Governmental Fund Balance Sheet fo the Statement of Net Position: ‘Total und bance, governmental and s sinors Amouns reported for government activites in the Statement | fof NetPostion aeierent bens: Capital apes wed In governmental tivities are not ian | resources and, tharefore, ae not reported inthe uns ‘Capa ses 265, Net positon of governmental actives 3 si.004_ “Those financial statements shouldbe read only in connection with the accompanying notes to financial statements,CHPROKEE METROPOLITAN DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS. Year Kaded December 31,2018, ‘Total Genera Parks Governmental end Bond Fonds [REVENUES Fess S 116685 $3784 S$ 280439 Commreton Tot de rago08 tos.o08 (Gran EPC - 25,000 125,000 Interetincome 31 1 “Toa revenues Teas Bene __ ae EXPENDITURES. Lighting 624 e 4 Parks, lndscape and pen space 196013, 196.013 ‘Tota expenicues Tae 196015, 52,07 [EXCESS OF REVENUE OVER (UNDER) EXPENDITURES. 039) 100.96, 100687 [NEP CHANGE IN FUND BALANCE 039) 100,796 10,657 UND BALANCE - BEGINNING OF YEAR 122,016 9402 216.418 FUND BALANCE END OF YEAR Suis? $__1psio sions “These financial stutements shouldbe readonly in connection with the accompanying notes to Financial statements,(CHEROKEE METROPOLITAN DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUND TO THE STATEMENT OF ACTIVITIES. Year Ended December 31,2015 ‘A reconciliation reflecting the differences between the governmental funds net change in fund balancos and change in net position reported for ‘Eovernmentl aoivtos in the Statement of Activities as follow: [Net change in fund balances - Total governmental finds ‘Governmental funds report capital outlays as expenditures. However, inthe ‘satement of activities the costs of those assets is allocated over the ‘stmated useful lives and reported as depreciation expense, This is the amoust by which depreciation exceeded capital outlays forthe period 14907 ‘Change in net postion - Governmental activities $115,564 “These financial statoments should be real only in connection with the accompanying nots to financial statements 10.(CHEROKEE METROPOLITAN DISTRICT STATEMENT OF NET POSITION PROPRIETARY FUNDS December 31,2018 ASSETS Gatt course (Cureat assets Fund CCesh nd cash equivalents sae Inventories : 2230 ‘Propald expenses ss203 Die om oer funds 12304 : “Tal cureat assets ne. ae Noneurent asset ‘Restricted eth andes gulvalents Lossee : Capita ass, net of depreciation 7351380 __2,161854 Tota noncaren assets s9s36o48 2,167,854 TOTAL ASSETS 106909,723, _ 2275508 LIABILITIES AND NET POSITION Creat Lshlites “Accounts payable s suas ‘Aceued expenses 1ots62 Lae ‘Acerved intrest aaa ° uo o other fans E 119,080 Customer depois 73206 : ‘Notes payable eutent portion 97924 ‘Band pyable- current portion 500,000 “otal creat abies 258517 Ta Non-cen Libis ‘Notes payable o913s11 Bond payable 17446,186 ‘otal non-core bites 2359.91 = Total uabiities sosas2i4 ans NET POSITION ‘Net avestneat n copi assets e7g97s9 2,167,884 Rearited 198526 : rested 042 86 19791) “Total at poston 7521509 2,148,053 ‘TOTALLIABILITIES AND NETPOSITION —_$ 106,908,723 _$_ 2275508 “These financial sttements shouldbe readonly in connection with the accompanying notes to financial statements, oe Total F 4995315 2288381 32230 135213, 1ase4 ao 19ss264 9.719234 101,704,458, 109.185234 wos13st1 1744686 28,559.07 31015659 mi6613 asst 6.025595 F157 $109 185231,‘CHEROKEE METROPOLITAN pistHICT. ‘STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION ‘PROPRIETARY FUNDS ‘Year led December 31,2015 OPERATING REVENUE Water ses Gatfrerenes Rewle ‘Tot operating revere (OPERATING EXPENSES Wate syste Wise system Goi couse operations ‘ene and ire Depreaton ‘ot opesng epee OPERATING INCOME NONOPERATING REVENUE AND (EXPENSES) “Tp foes Inet icone Mircelneous incre etre expense Tot onoperaing revenue (expense) [CHANGER NET POSITION [NET FOSITION. BEGINNING OF YEAR, previously reported Retronctive aries for por years [NBT POSITION - BEGINNING OF YAR. Restated NET POSITION -END OF YEAR Water and Wastonter Fund 5 6309gz8 sens $s 2anom0 oigao ——2xaor0 ‘aes sms $s _usgm(CHEROKEE METROPOLITAN DISTRICT NOTES TO FINANCIAL STATEMENTS. NOTES - NET POSITION ‘The District has net position consisting of three components ~ net investment in capital assets, restricted, and unrestricted. [Net investment in capital asset consiste of capital arrotz act of accumulated depreciation rnced by outstanding debt that is attibutable to the acquisition, constuction, or improvement of those assets, As of December 31, 2015, the Distrit had net investment in capital assets, net of related debt as follows: Netinesant naples rte eb opt ast st of depen SH 8516 ead dt (09357621) Tolinete incapal set, oe debt Smansee Restricted net position is restricted for use either externally imposed by creditors, grantors, conttibulors, or laws and regulations of other govemments; or imposed by law through constitutional provisions or enabling legislation, As of December 31, 2015, the District had restricted net position as follows: Restted for Debt service 8 Lsigo1s Parks 23607 Customer deposits ‘TABOR “Total resisted net assets NOTE 10- PENSION ‘Ihe Distriet provides pension benefits through a SIMPLE IRA, All full-tinie eployces who are 21 years of age and have been in service in Tanuary for one year are eligible o participate. Eligible ‘employees immediately vest. The District can make an elective contribution of up to 4% of an ‘employee's regular salary annually, Contributions for 2015 totaled $49,457 2(CHEROKEE METROPOLITAN DISTRICT NOTES TO FINANCIAL STATEMENTS, NOTE 11 - RISK MANAGEMENT ‘The Districts exposed to various rsks of losses related to torts; theft of, damage to and destruction injuries to employees; and natural disasters. of assets; erors and omission “The District certes commercial insurance for these risk of loss, including worker's compensation, Settled claims resulting from these risks have not exceeded commercial insurance coverage during the past three fiscal years. Further, he District practices water supply planning and shor term contracting to ensure adequate supplis for the community. NOTE 12 - INTERGOVERNMENTAL AGREEMENTS (IGA) “The District has entered into several agreements with other governmental entities to provide water and wastewater treatment. These agreements stipulate various means to obiain, trade, or provide ‘water. These agreements are a normal part of the operations of the District and management believes that these agreements do not constitute significant long-term commitment ofthe District ‘which would require additional disclosures. ‘Specific information conceming the summaries of certain intergovernmental agreements can be obtained from the District. NOTE 13 - COMMITMENTS AND CONTINGENCIES Litigation - The Distict is involved in soveral ponding or threatened lawsuits and claims the most significant of which are described below. While the District and its legal counsel estimate thatthe potential claims against the Distt, if any, not covered by insurance or accrued for, resulting from. such litigation, would not materially affect the financial statements ofthe Di In 138A330, the Colorado Supreme Court issued Ordert in June of 2015 affirming the District Courts decision in favor of Cherokee, but adding some clarifying language regarding its interpretation of the 1999 Stipulation and Release between Cherokee and Upper Black Squirrel Creek Groundwater Management District and related objectors in 98CW80 Water Court diligence case on the Sweetwater conditional water rights, The Supreme Court held that Meridian Service “Metro Distrit and others using Cherokees regional wastewater treatment and reclamation facility (WWIPIWRE) were not obligated to return any portion of thei fully consumable water rights to 1s result ofthe language in 98CW80 Stipulation and Relesse referenced 3(CHEROKEE METROPOLITAN DISTRICT. NOTES TO FINANCIAL STATEMENTS ined NOTE 13- COMMITMENTS AND CONTINGENCIES-co above, This ruling limits liability that Cherokee could have faced ftom regional and intergovernmental agreement partners in the WWTP/WRF who were concemed that impacts of tho ruling could have encumbered thie rtwin flaw water right following the wastewater treatment tnd reclamation process. The limitation of impacts to third parties further enhances the marketability of the excess capacity in the WWTP/WRE to potential third part users in the Future, ‘The ruling in 138A330 does appear to limit Cherokee’s ability to directly reuse return flows from those water rights asthe subject of 98CW80 water court diligence ease and possibly other water rights owned at the time of the 1999 Stipulation and Release; but does not prohibit or preclude Cherokee from puiting those water rights into the replacement reuse plan, The Orders impact CCherokee’s ability to lease all non-potable treated wastewater return flows to the Bracket Creek Farms which curently uses a portion of the treated WWTP/WRE effluent as iigation water under 1 State Depertment of Public Health permit under Regulation 84. The Districts lease of return flows is availability dependent and the lease price is minimal for non-potable water ($25 per acre- oot, $0 the restriction on direct reuse will impact the Districts finances immaterially. Cherokee well nos, 14-17 - The Colorado Supreme Court ruled that the District hed abandoned certain portions oftheir conditional water rights, which were associated with well nos. 14-17. The District sought to have those conditional rights made absolute and the Upper Black Squirrel Management District objected on the grounds thatthe time period for filing had passed and the ‘wells were therefore abandoned, The Colorado Supreme Court agreed; however they indicated in ‘the ruling thatthe remaining conditional rights were still available for District use. That issue was ‘brought to the Division 2 Water Court, which ruled that those remaining conditional rights were also abandoned. The District appealed tis ruling to the Colorado Supreme Court who issued an order on June 6, 2012, remanding the ease tothe District Water Court to resolve ambiguity in the status of the remaining conditéonals. During 2014 a sotiement agreement was reached whereby the District received absolute water rights totaling 609 acre feet, while abandoning three well sits. ‘The Colorado Supreme Court issued an opinion, case 1384330, affirming the lower court's ruling, but containing language which may be seon as contradictory as it relates to the availabilty of credits relating fo the reuse ofthe return flows, The District received a settlement in relation to this case from thie former wate attorney, The initial settlement was for $275,000 which was received in 2015. ‘The final settlement for an addtional $2,000,000 was received in 2016. The District recorded the $275,000 in 2015, no amount was recorded in 2015 related to the $2,000,000 as the settlement was not complete as of December 31, 2015. Fn(CHEROKEE METROPOLITAN DISTRICT NOTES TO FINANCIAL STATEMENTS. NOTE 13- COMMITMENTS AND CONTINGENCIES-continued 1n 2014, the District also entered into an agreement with a customer to provide up to 400 acre-feet of irrigation water. The Upper Black Squirrel Ground Water Management District (UBS), is challenging the Distict’s right to the reuse of water relating tothe return Hows back into the ‘basin, The Distict's ability to meet the demands ofthe 2014 agreement of 400 acre-feet, and other ‘customers agreements is contingent on the outcome of the litigation relating tothe rease rights, Which as of December 31, 2015, could not be estimated as to a potential liability ‘Change of water rights - As the Distict obtains water rights itis sometimes necessary to change the type of right prior to usage. During fiscal year 2014, the District entered into a case to augment ‘the ground water rights purchased purchased from Black Forest. The District anticipates a favorable outcome, ‘The District has been working to purchase water relating to Albrecht water rights. Prior to ‘completing the purchase, the District requested a change of use tothe Ground Water Commission [As of September 23, 2016 a settlement has been reached between all involved parties that climinates the need fora hearing before the Ground Water Commission. Cherokee Wells Nos. 1-8 - The District is in litigation relating to the water tights for wells Nos. 1-8, In 1999, the District agreed to no longer export water from these wells, but rather the wells ‘would only befor in-basin use. Further, the court ruled that Cherokee could not use these wells to supply any agreements post 1999, UBS is curently contesting the Distriet’s ights to provide water ‘to customers using these wells and contesting thatthe Districts expanding its use of the wells. In 2015, the District filed a complaint with the water cour, Division 2. The eas is set for a hearing ‘before the Ground Water Commission in March of 2017, Schriever Air Force Base wastewater treatment - On November 6, 2000, the District was awarded a fity-year contract to provide wastewater treatment service forthe base. Ou May 4, ‘2009, the District agreed to provide water and sanitation taps to the Tierra Vista Communities evelopment on Schriever Air Force Base, The agreement between the District and the developer includes 242 water and sewer tap with a cumulative fee of $3,777,136 payable to the District over seven years, Payments were received by the District in annual inerements of $500,000 through 2015. The final amount of $277,136 is due in 2016. Environmental violations ~ As of December 31, 2015, District personne! were in ongoing, negotiations with the Colorado Department of Public Health and Environment (CDPHE) in segards 35(CHEROKEE METROPOLITAN DISTRICT NOTES TO FINANCIAL STATEMENTS. NOTE 13- COMMITMENTS AND CONTINGENCIES-continued to two water quality parameters that have been out of compliance at the District's wastewater treatment and water reclamation facility. The first parameter is Total Dissolved Solids (TDS), which are primarily salts, The District's wastewater treatment facility was not designed to remove “TDS, and conventional wastewater treatment process does not remove TDS. The feclity was designed to mect the Preliminary Effluent Limits (PELs) as specified by the CDPHE in the facility planning process. When the District received its draft permit in early 2010, a limit for TDS of 400 ‘g/l was included, which was not included in the PELs, Historical data from the Districts decommissioned wastewater plants effluent indicated TDS concentrations over 500 mg/l, and ‘consequently the new facility would not be able to meet the 400 mg/l limit. Based upon these ‘violations, the Distict negotiated with the CDPHE to agree to a “Compliance Order on Consent” (COC) enforcement order to be able fo meet the TDS limit in the future. The COC compliance schedule became effective July 2014 and requires the Distict to determine a solution (treatment ‘processes tha can effectively teat the wastewater stream to meet TDS permit limits. The second parametet in violation has been Total Inorganic Nitrogen (TIN). The treatment facility has been ‘unable to meet the 10 mg/l TEN limit due to insufficient biochemical oxygen demand and carbon loading. The District installed a preliminary screening treatment facility at the cost of approximately $2,800,000 to increase the organic loading and minimize sewage age and degradation at the treatment facility. This fueility was completed in May 2014, and has significantly improved wastewater quality and treatment processes, To mest the discharge permit parameter and primary drinking water standard for nitrate, methanol (a supplement earbon source) is being added to supply the carbon needed for biological de-nitification. This supplemental source as been ested in its impact on treatment under 2 CDPHE approved pilot study, and the District has eurrent approval to make application forthe pennit from the CDPHE to implement {ull scale carbon addition, and bas issued a notice of awaed on the installation construction project commenced in June 2014, “The District appealed the CDPHE's environmental rung and requested an alternate TDS effluent limit of 500 mg/L be approved. The Colorado Ground Water Quality Commission met in August cof 2016 to heat Cherokeo's request and subsequently denied this request, ‘The District is now reviewing options available to meet the State Standard and will choose and implement a solution to meet the Standard by 2022. 36(CHEROKEE METROPOLITAN DISTRICT ‘NOTES TO FINANCIAL STATEMENTS. NOTE 14~ NET POSITION RESTATEMENT “The District has restated the prior year’s net postion due to eliminating accumulated depreciation for Water Rights, adjusting the outstanding leave accrual, and correcting the reporting of bond premiums and related amortization, The net change is as follows: [Net positon ~ business-type activities ~as originally reported at December 31,2014 8 63,759,927 ‘Adjustment for accumulated depreciation of water rights 10,040,895 Adjustment for leave accrual 143,862 Adjustment to correct the amortization of bond premiums and capitalization of related interest 5.93 Net postion, business-type activities restated December 31, 2014 $21,908,752 ‘The effet of these adjustments on the 2014 Water and Wastewater financial statements was to increase net position as of January 1, 2014 by $10,040,895, decrease 2014 expense by $107,990 and increase net position as of December 31, 2014 by $10,148,825. NOTE 15 - AMENDMENT TO COLORADO CONSTITUTION In November 1992, the voters of Colorado approved the Taxpayer's Bill of Rights (TABOR), whieh added Section 20 to Article X, ofthe Colorado Constitution. In general, TABOR restricts the ability of the State and local governments to increase revenues and spending, to impose taxes, and to issue debt and certain other types of obligations without vote approval. TABOR generally applies tothe State and all local governments, including the District. Fiscal year spending and revenue limits are determined based on prior year spending adjusted for inflation and local grovvth, Revenue in excess ofthe limit must be refunded unless the voters approve retention of such revenue. TABOR requires local governments to establish Emergency Reserves. ‘Those reserves must be at least 3% of Fiscal Year Spending (excluding bonded debt service). Local governments are not allowed to use the emergency reserves to compensate for ‘economic conditions, evenue shortflls or salary or benefit increases ‘TABOR is complex and subject to judicial interpretation, The District believes iis in compliance with the requirements of the amendment. However, the District has made certain interpretations of the amendment’ language in order to determine its compliance. The District does not receive any mill levy revenues, and is therefore not subject to the revenue limitations of TABOR. aSUPPLEMENTAL INFORMATION‘CHEROKEE METROFOLITAN DISTRICT ‘SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES I [NEF POSITION (NON-GAAP BUDGETARY A815) Forth Yar Ended December 31,2015 Variance wit edged na eage- Amounts ite Origa inal _ Acta zn REVENUES, ‘We es S625 $ ap9san $user) Severs Shes * anus “asus Water lwo se Tinos 2219196 are mitment owo.00 ‘msm sou) inet toon sooo S945 3308 rans nae 8397 2598 rn “oa Rees Tamssi7 —_—Bsm6r ano Wes cued wae 33,00 23533 se pi 4318 sae ease Tratnet 9303 195107 134196 ‘mein and ion ose 856 gers Gone sevice S07 sos (et “onl Waterson Ziv. —— Fas SHA Tt assem sea.zas Feast 35619 "aims Cole sen? soa (Carer sce tam ans ove 900 a “ot Wasenser tem Zue1a0 ——aawa2 ‘Gener an aint aaouis——asmse 39) (ip oxen tomo demise 1138 Dekel pam Tietgohietaie ® Irs a bond er ‘soagis 96809 rot Tate ‘00 0.000 “et Oe samy apy ame “Toad eens arse __aosase 2.60584 EXCISS OF REVENUE OVER (UNDER) PXPENSES pom) ssi _s2s330 GAAP Adasen Copal expences smog Pla pment on 161810 Depress a3 Changin nt patton om 8‘CHEROKEE METROPOLITAN pistRICT [SCHEDULK OF REVENUES, EXPENDITURES AND CHANGES IN [NET FOSITION (NON-GAAP BUDGETARY BASIS) ‘GOLF COURSE FUND ore Yer Radi December 3, 2015 Acton Negative) REVENUES Gotfrevensee seas $— 6as ele 217798 9798 ao e 0.00, Tol Revenss 00° a a3 EXPENDITURES ‘pering expense sroats pa Renesas 127000 7s) Gener a dinitrate 217380 au Copegus 16200 as Tot Expenses wi on [EXCESS OF REVENUE OVER (UNDER) EXPENDITURES, 2219) 25486 23,705 ‘GAAP Adjustments apt expentinnes 16s Deprecaion ma, (Change ne penton sass(CHEROKEE METROPOLITAN DISTRICT DEBT SERVICE COVERAGE AND RESERVE REQUIREMENTS ‘Year Ended December 31,2018 Revenues ‘Water sles Sewer charges Tap fees Lawl stloment Interest income Miscellaneous income ‘TOTAL REVENUES Operating Expenses Less: depreciation NET OPERATING EXPENSES [NET REVENUES (PLEDGED PROPERTY) ‘Maximum debt service requirement DEBT SERVICE COVERAGE FACTOR S$ 6309928 42915115 22219,196, 275,000 54s 235985 836,745 1,759,364 7,381 S_ 6,262,786 $2218.79 210.26