HomeMy WebLinkAboutPW07-148 - Amendment - #9 - City of Tacoma - Regional Water Supply System Revenue Refunding Bonds - 6/1/2024 FOR CITY OF KENT OFFICIAL USE ONLY
Sup/Mgr:
Agreement Routing Form DirAsst:
• For Approvals,Signatures and Records Management Dir/Dep:
KENT This form combines&replaces the Request for Mayor's Signature and Contract Cover (optional)
WASHINGTON Sheet forms. (Print on pink or cherry colored paper)
Originator: Department:
Paula Painter Finance
Date Sent: Date Required:
> 02/06/2024 2/9/2024
0
Q Mayor or Designee to Sign. Date of Council Approval:
Q Interlocal Agreement Uploaded to Website 6/20/2023
Budclet Account Number: Grant? Yes Nor�']
41019000.67710.9134
Budget?OYes Type: N/A
Vendor Name: Category:
City of Tacoma Bond
Vendor Number: Sub-Category:
Original
0
to Project Name: Regional Water Supply System Revenue Refunding Bonds 2024
11
cProject Details: Agreement amount $9,985,000 plus interest $2,507,513.19 for a
c total of $12,492,513.19
40
c
(11.111 Basis for Selection of Contractor: El
Agreement $g,gg5,000 Interlocal Agreement
E *Memo to Mayor must be attached
i Start Date: 21 /1 4/2024 Termination Date: 12/1/2032
lm
a Local Business? Yes F]No*If meets requirements per KCC 3.70.100,please complete"Vendor Purchase-Local Exceptions"form on Cityspace.
Business License Verification: ❑Yes In-Process F1 Exempt(KCC 5.01.045) FlAuthorized Signer Verified
Notice required prior to disclosure? Contract Number:
Yes ✓�No PW07-148
Comments:
a�
Amendment #9
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� c
I
in 0
•�
a
Date Received:City Attorney: 2/6/24 Date Routed:Mayor's Office 2/9/24 'ty Clerk's Office 2/9/24
adccW22373_7_20 Visit Documents.KentWA.gov to obtain copies of all agreements
rev.20221201
AMENDMENT TO REPAYMENT AGREEMENT
This AMENDMENT TO REPAYMENT AGREEMENT (this "Amendment") is effective
as of the Effective Date set forth in Section 3 herein, by and among the City of Tacoma,
Washington ("Tacoma"), the City of Kent, Washington ("Kent"), Covington Water District
("Covington") and Lakehaven Water and Sewer District, formerly known as Lakehaven Utility
District("Lakehaven" and, collectively with Tacoma, Kent and Covington, the "Participants").
WHEREAS, the Participants entered into the Agreement for the Second Supply Project,
effective December 19, 2002 (the "Project Agreement")to design, finance, construct, operate and
maintain certain property and facilities to obtain and receive deliveries of water for the Participants
from the exercise by Tacoma of the Second Diversion Water Right(the "Project"); and
WHEREAS,the Project offers to all of the Participants an additional water delivery supply
system with the benefits of joint development, tax exempt financing and economies of scale; and
WHEREAS, Initial Project Construction costs (as defined in the Project Agreement) were
paid, in part, from proceeds of Tacoma's Regional Water Supply System Revenue Bonds, 2002
(the "2002 Bonds"); and
WHEREAS, Lakehaven elected to prepay its allocable portion of the Initial Project
Construction costs and did not participate in the 2002 Bonds; and
WHEREAS, in connection with the issuance of the 2002 Bonds, the Participants entered
into the Repayment Agreement, effective December 19,2002 (the"Original Agreement")in order
to elaborate on the Project Agreement's payment sections and to set forth Kent and Covington's
respective proportional payment obligation with respect to debt service on the 2002 Bonds; and
WHEREAS,on April 16,2013,Tacoma issued its Regional Water Supply System Revenue
Refunding Bonds, 2013 (the "2013 Bonds") to refund, for debt service savings, the 2002 Bonds;
and
WHEREAS,under the terms of the Original Agreement, Kent and Covington's respective
proportional payment percentages carried forward and applied to the 2013 Bonds; and
WHEREAS, the Tacoma Public Utility Board approved and the Tacoma City Council
adopted an ordinance authorizing Tacoma to refund the outstanding 2013 Bonds with, in part,
proceeds of its Regional Water Supply System Revenue Refunding Bonds, Series 2024 (Green
Bonds),proposed to be issued in the aggregate principal amount of not to exceed$40,850,000 (the
"2024 Bonds" or the "Bonds"); and
WHEREAS, the 2024 Bonds will be Project Bonds under the Project Agreement and
"Bonds"under the Original Agreement; and
WHEREAS, in connection with such refunding, Covington has elected to prepay its
allocable portion of the 2013 Bonds and will not participate in the 2024 Bonds; and
WHEREAS, the Participants wish to set forth the terms under which Kent shall make
payments to Tacoma equal to its share of the principal of and interest on the 2024 Bonds when due
and to confirm other matters required to market the 2024 Bonds;
NOW THEREFORE, the Participants agree as follows:
SECTION 1. Definitions. Unless otherwise specified herein, including in the recitals
hereto, all capitalized terms used in this Amendment shall have the meanings specified in the
Original Agreement. Furthermore, for purposes of the Original Agreement and this Amendment,
the following terms shall be defined as follows:
Bonds shall mean the City's Regional Water Supply System Revenue Refunding Bonds,
Series 2024 (Green Bonds), and any Refunding Bonds issued pursuant to Section 2(g) of this
Agreement.
Ordinance means Ordinance 28898, passed by the City Council on August 1, 2023, as it
may be amended from time to time.
SECTION 2. Amendments to the Original Agreement. Upon the satisfaction of the
conditions precedent set forth in Section 3 of this Amendment, the Original Agreement is hereby
amended as follows:
(A) Amendments, Additions and Deletions to Section 2. Section 2 of the Original
Agreement (Payments by Kent and Covington) is hereby amended as follows (deletions are
stem and additions are double underlined):
Section 2. Payments by Kent and Govinetee.
Notwithstanding any provision of Section 25 of the Project
Agreement to the contrary, Kent and !-'..yingto 's obligations Kent's
obligation to repay its fliek share of the Bonds shall be governed by the
following provisions.
(a) Covington a Kent hereby acknowledges and agrees that
they it shall pay Tacoma 30.8655%22.09140% and 22.93480%,
of the principal of and interest on the Bonds and are is liable to repay
Tacoma amounts due and owing with respect to such principal and interest
as estimated on Schedule A,as revised by,and appended to,the Amendment
to this Agreement, dated February 14, 2024. A final version of Schedule A
sehedule showing (''..•.ingto ^"a Kent's proportionate share of the
payments of debt service on the Bonds will be attached to this Agreement
when the Bonds have been issued. Resolution has been adopted by *he
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The Bonds shall bear interest at the rates and be payable as set forth
in the final Official Statement relating to the Bonds. Interest on the Bonds
shall be calculated based on a 360-day year of twelve 30-day months.
1, eemmeneing T""e 1, 2003. Pr-inEipal of the Bonds sh•,ll be payable
ally on eaeb Deeembe', in 20055-and ending n 2032.
hoe-est on the Bonds shall be .,alel,l.,to.l 1..,so.a on a 360 day.,ea-of tiwelye
30 The
l,e Bonds shall bear- interest at ttte m4e set-fefth-'ir"rtttG
Re ol„tie
r
(b) Kent and Gevingt shall remit to Tacoma on or before three
business days prior to each interest and principal payment date for the
Bonds, commencing with the June 1, 2024 payment date, an amount equal
to the interest and principal,if any,next coming due based on its percentage
by 1e 15th day of eaeh month (or-the next following business day if stieh
date is not-a business day), e6 i}g=v4t rthe month following the
is uanee of the Bonds, an vtm4 eq al to one sixth of the interest and one
twe!M of the p pa (or-sue sueh greater-fiaetio if There are loss than
twelve months, as appheable, to the next interest or-iirEipal date), next.
rt due based on thy;,.pe e ta-ge share of the Bonds as shown on the
debt service schedule applicable to the Bonds and attached in Schedule A,
as it may be revised in connection with the refunding of the Bonds. fpA
Se Payments shall be sent by check or electronic transfer to the
address or account shown on Schedule B. Tacoma shall not be required to
bill Kent and r,,, ingt for these payments. All interest v r *',Q
amoun4s submifted by Kent and Covington i
r-eduee their- Fespeetive first monthly interest and pr-ineipal pa�qment in the
next ssueeeeding—yeEln Each Deeember- Taeoma shall send--Kent
Covington a r-eeeneiliation sta4emenl showing their- ja*uar-y payment to
-et eet the ;,,to,-est eamed o their-prior-year's payme,its
(c) Tacoma agrees to deposit all amounts received from the
Participants under this Agreement in the City of Tacoma Regional Water
Supply System Bond Fund created or continued under the Ordinance and to
use such money for the sole purpose of paying the principal of and interest
on the Bonds and Future Parity Bonds (as defined in the Ordinance). If
Tacoma draws on the Reserve Account to cover a payment not made by any
Participant, Tacoma may deposit amounts related to such late payments
paid pursuant to paragraph(b) above to the Reserve Account to meet the
Reserve Account Requirement (as such terms are defined in the
Ordinance).
(d) Kent and r,,vingt r may provide for the prepayment of
all or a portion of its diem allocable share (in increments of$5,000) of
the Bonds on any date when the Bonds are subject to optional
redemption(at the price of par plus accrued interest to the date fixed for
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redemption set ferh in the Resolution) upon at least 60 days written
notice to Tacoma at the address shown on Schedule B. Tacoma shall
apply those amounts to the redemption and prepayment of an allocable
portion of the Bonds.
(e) Consistent with the terms of the Project Agreement, each
Participant agrees that it will establish, maintain and collect rates and
charges for water and other services, facilities and commodities sold,
furnished or supplied by it through its water system which shall be
adequate to provide revenues sufficient to enable the Participant to make
its required payments under this Agreement (in the case of Kent
Ems) and the Project Agreement and comply with the rate
covenants in them its respective resolutions or ordinances authorizing
theme its senior lien water bonds (as such covenants may be changed).
(f) Kent and Geving shall remain obligated to provide for
its thei-F respeetive shares of debt service on the Bonds listed on final
Schedule A unless all Participants consent to add a new Participant or to
permit an existing Participant to assign its interests to a new Participant
and all of the requirements set forth in Section 2-015(c) of the Ordinance
are met.In such event, Schedule A shall be adjusted to reflect the revised
debt service schedule for all Participants, including the new Participant.
All other terms and conditions of this Agreement shall remain in full
force and effect.
(g) Tacoma may in its sole discretion issue bonds that refund
the Bonds ("Refunding Bonds") if and only if there is a debt service
savings for each maturity of Refunding Bonds (compared to the Bonds
and except as necessary to round out maturities to the nearest $5,000)
and the final maturity date of the Refunding Bonds is not later than that
of the Bonds. In such event, Kent and Goving shall be obligated to
provide for the payment of its twig respe shares of the principal of
and interest on those Refunding Bonds, and Schedule A shall be
adjusted to reflect the revised debt service schedule for the Refunding
Bonds. Refunding Bonds that do not provide the debt service savings
with the maturities described above may be issued by Tacoma only with
the written approval by both Covington and Kent. "Refunding Bonds"
shall be treated as "Bonds" for the purposes of this Agreement, and all
other terms and conditions of this Agreement shall remain in full force
and effect.
(B) Amendment to Section 3(a). Section 3(a) of the Original Agreement is hereby
amended as follows (deletions are st-r-ieken and additions are double underlined):
(a) Kent and Govingtea shall not (a) enter into any contracts
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with private parties for the management of its the4 water systems or(b)
enter into any contracts with a private party or the Federal Government
that exceed three years (or such lesser period if informed in writing by
Tacoma) for the sale of water from the Project without providing a copy
of any such proposed contract to Tacoma for review by Tacoma and
Tacoma's designated nationally recognized bond counsel. Kent a d
Eoving shall not execute any such contract if, in the opinion of such
bond counsel, the sales or management agreement as proposed would
adversely affect the tax-exempt status on the Bonds.
(C) Amendment to Section 4. Section 4 of the Original Agreement is hereby amended
as follows (deletions are stfieke and additions are double underlined):
Section 4. Ongoing Disclosure. To assist the underwriters of the
Bonds in complying with the ongoing disclosure requirements of Section
(b)(5)(i) of Securities and Exchange Commission Rule 15c2-12 under the
Securities Exchange Act of 1934, as amended(the "Rule"), r-+,,..ing4e ara
Kent agrees to include reference to the Bonds in its regular ongoing
disclosure filings pursuant to the Rule or, in the absence of a regular
ongoing disclosure filing, to provide or cause to be provided annually to
each nationally recognized municipal securities information repository and
to the state information depository for the State of Washington (if one is
created),in each case as designated by the SEC in accordance with the Rule,
audited financial statements prepared in accordance with generally accepted
accounting principles applicable to Washington municipal corporations
(except as noted in such financial statements)within e*ht nine months after
each fiscal year. Covington a„a Kent shall provide Tacoma a copy of such
filing by each September 1 st
SECTION 3. Conditions Precedent. This Amendment shall become effective as of the
date of issuance and delivery of the 2024 Bonds (the "Effective Date") and defeasance and/or
refunding of the 2013 Bonds, in full, subject to satisfaction of all of the following conditions:
(A) Delivery by Tacoma of an executed (a) Resolution of the Tacoma Public Utilities
Board adopted on July 12, 2023 requesting the issuance of the 2024 Bonds, approving a form of
the Ordinance and requesting this Amendment; and (b) City Ordinance No. 28898 adopted on
August 1, 2023 authorizing the issuance of the 2024 Bonds and authorizing this Amendment;
(B) Delivery by each Participant to the other parties to the Original Agreement copies
of such Participant's resolution or ordinance authorizing the execution and delivery of this
Amendment; and
(C) Execution by each Participant of this Amendment.
SECTION 4. Failure to Issue Bonds or Prepay. Notwithstanding anything herein to the
contrary, this Amendment shall be null and void if either (a) the 2024 Bonds are not issued to
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defease and/or refund the 2013 Bonds, in full,by June 30,2024,or(b)Covington does not deliver,
or cause to be delivered, funds sufficient to prepay its obligation with respect to the 2013 Bonds
at or prior to the date of issuance of the 2024 Bonds and the defeasance and/or refunding of the
2013 Bonds. The Participants hereby acknowledge and consent to Tacoma issuing the 2024 Bonds
as "Bonds" under the Original Agreement in order to provide a portion of the funds necessary to
refund the 2013 Bonds.
SECTION 5. Term. The amendments set forth herein shall become effective as of the
Effective Date upon satisfaction of the conditions set forth in Section 3. The Original Agreement,
as amended by this Amendment, shall expire when the Bonds are no longer outstanding as
provided in Section 1 of the Original Agreement.
SECTION 6. Miscellaneous. Except as specifically amended herein, the Original
Agreement shall continue in full force and effect in accordance with its terms.
THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF WASHINGTON WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS PROVISIONS.
This Amendment may be simultaneously executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Participants have caused this Amendment to be duly executed
and delivered as of the Effective Date.
CITY OF TACOMA,DEPARTMENT OF PUBLIC CITY OF KENT,WASHINGTON
UTILITIES,WATER DIVISION
B By:
Na e: _� pw � Name:
Title: Title:
Approved as to Form: Approved as to Form:
By: By:
Name: Name:
Title: Title:
COVINGTON WATER DISTRICT LAKEHAVEN WATER AND SEWER DISTRICT
By: By:
Name: Name:
Title: Title:
Approved as to Form: Approved as to Form:
By: By:
Name: Name:
Title: Title:
Signature page to Amendment to Repayment Agreement
IN WITNESS WHEREOF, the Participants have caused this Amendment to be duly executed
and delivered as of the Effective Date.
CITY OF TACOMA,DEPARTMENT OF PUBLIC CITY OF KENT,WASHINGTON
UTILITIES,WATER DIVISION
By: By:
Name: Name:
Title: Title:
Approved as to Form: Approved as to Form:
By L
By:
Name.{OzC���Ct2.� t,J L� Name:
Title: G V d- CLxr'�- Title:
COVINGTON WATER DISTRICT LAKEHAVEN WATER AND SEWER DISTRICT
By: By:
Name: Name:
Title: Title:
Approved as to Form: Approved as to Form:
By: By:
Name: Name:
Title: Title:
Signature page to Amendment to Repayment Agreement
IN WITNESS WHEREOF, the Participants have caused this Amendment to be duly executed
and delivered as of the Effective Date.
CITY OF TACOMA,DEPARTMENT OF PUBLIC CITY OF KENT,WASHINGTON
UTILITIES,WATER DIVISION
By: By:
Name: Name:
Title: Title: AN hIC
Approved as to Form: Approved as to Form:
t
By: By:
Name: Name: Logan Todd
Title: Title: Assistant City Attorney
COVINGTON WATER DISTRICT LAKEHAVEN WATER AND SEWER DISTRICT
By: By:
Name: Name:
Title: Title:
Approved as to Form: Approved as to Form:
By: By:
Name: Name:
Title: Title:
Signature page to Amendment to Repayment Agreement
IN WITNESS WHEREOF, the Participants have caused this Amendment to be duly executed
and delivered as of the Effective Date.
CITY OF TACOMA,DEPARTMENT OF PUBLIC CITY OF KENT,WASHINGTON
UTILITIES,WATER DIVISION
By: By:
Name: Name:
Title: Title:
Approved as to Form: Approved as to Form:
By: By:
Name: Name:
Title: Title:
COVINGTON WATER DISTRICT LAKEHAVEN WATER AND SEWER DISTRICT
By: < By:
Name' 1ti)w,Pa,,-' t K(2Z g-A— Name:
Title: &x.MQ1V wA AhvIV�W QVI' Title:
Approved as to Form: Approved as to Form:
By: By:
Name: Name:
Title: Title:
Signature page to Amendment to Repayment Agreement
IN WITNESS WHEREOF, the Participants have caused this Amendment to be duly executed
and delivered as of the Effective Date.
CITY OF TACOMA,DEPARTMENT OF PUBLIC CITY OF KENT,WASHINGTON
UTILITIES,WATER DIVISION
By: By:
Name: Name:
Title: Title:
Approved as to Form: Approved as to Form:
By: By:
Name: Name:
Title: Title:
COVINGTON WATER DISTRICT LAKEHAVEN WATER AND SEWER DISTRICT
By: By:
Name: Name: o�n L7au9w�t,
Title: Title:
Approved as to Form:
By:
Name:
Title:
Signature page to Amendment to Repayment Agreement
Schedule A
City of Tacoma,Washington
Current Refunding of 2013(Kent)
Period Annual
Ending Principal Coupon Interest Debt Service Debt Service
0610112024 148,398.19 148,388.19
1210IM24 I,M,000 5.000% 249,625.00 1,294,626.00 1,443,013.19
0610IM25 223.500.00 223,500.00
1210IM25 950,000 5.000% 223,500.00 1,173,500.00 1,397,000.00
0610IM26 199,750.00 199,750.00
1210IM26 990,000 5.000% 199.750.00 1,189,750.00 1,389,500.00
0610IM27 175,COO.00 175,000.00
1210IM27 1,040,000 5.000% 175,CCC.00 1,215,000.00 1,390,000.00
0610IM28 149,C00.00 149,000.00
1210112028 105,000 5.000% 149,C00.00 1,244,000.00 11,393,000.00
0610IM29 121,625.00 121,625.00
12MIM29 1,155,000 5.000% 121,625.00 1,276,625.00 1,398,250.00
0610IM30 92,750.00 92,750.00
12101f2030 1,210,000 5.000% 92,750.00 1,302,750.00 1,395,500.00
06101M31 62,500.00 62,500.00
12MIM31 1,275,000 5.000% 62,500.00 1,337,500.00 1,400,000.00
0610IM32 30,625.00 30,626-00
12MIM32 1,225,000 5.000% 30,625.00 1,255,626.00 1,286,250.00
9,985,000 2,607,513.19 12,4.92,513.19 12,492,513.19
PARTICIPANT TAX CERTIFICATE
CITY OF KENT, WASHINGTON
I, DANA RALPH, Mayor of the City of Kent, Washington ("Kent"), do hereby make this
certification in connection with the issuance by the City of Tacoma ("Tacoma") of its Regional
Water Supply System Revenue Refunding Bonds, Series 2024 (Green Bonds) (the "Bonds").
Kent is responsible for approximately 30.87% of the debt service on the Bonds. The purpose of
the Bonds is to provide funds to refund the outstanding Regional Water Supply System Revenue
Bonds, 2013 of Tacoma and to pay costs of issuance.
Kent agrees that it will not take any action during the life of the Bonds that would
adversely affect the tax-exempt status of the Bonds.
Kent reasonably expects to use the water it receives from the Regional Water Supply
System to serve its own retail customers, which customers are served based on rate schedules.
Kent agrees that it will not sell its share of water from the Regional Water Supply System on a
wholesale basis with terms of more than three years unless it shall provide copies of any
proposed contract with private parties for the management of its water system or any contracts
with a private party or the Federal Government that exceed three years (or such lesser period if
informed in writing by Tacoma) for the sale of water from the Regional Water Supply System to
Tacoma. Tacoma and its bond counsel shall promptly review such contracts and shall inform
Kent if such contracts are expected to result in private use of the Regional Water Supply System.
If bond counsel concludes that such contracts will result in more private use than is permitted by
then current IRS laws and regulations based on Kent's percentage shares of debt service on the
Bonds, Kent shall not enter into such contract unless Kent, within 60 days after the contract is
executed, provides funds to Tacoma sufficient to redeem or defease the portion of the Bonds that
bond counsel concludes is required by federal tax law to be retired.
In addition, Tacoma shall provide to Kent copies of any of its proposed contracts that it
expects to execute and that is likely to result in private use prior to the time the contract is
executed. If Tacoma or Kent takes an action that creates a possibility that the Bonds could lose
their tax-exempt status, such party shall be responsible for paying costs to remedy such issue.
Capitalized terms not otherwise defined herein shall have the meanings set forth in
Tacoma Ordinance No. 28898, passed by the Tacoma City Council on August 1, 2023
authorizing the issuance of the Bonds or Tacoma's Federal Tax Certificate executed in
connection with the issuance of the Bonds, as applicable.
[signature page immediately follows]
This certificate is dated this 14th day of February, 2024.
CITY OF KENT, WASH ON
i✓
Dana Ralph, May
2
CERTIFICATE OF THE CITY OF KENT
I, DANA RALPH, Mayor of the City of Kent, Washington ("Kent"), am authorized to
executive this certificate on behalf of Kent. This certificate is executed in connection with the
issuance by the City of Tacoma ("Tacoma") of its Regional Water Supply System Revenue
Refunding Bonds,Series 2024(Green Bonds)(the"Bonds"),the Agreement for the Second Supply
Project effective December 19, 2002, as amended (the "Project Agreement") among Kent,
Tacoma, Lakehaven Water and Sewer District ("Lakehaven") and Covington Water District
("CWD," and together with Kent, Tacoma and Lakehaven, the "Participants"), the Repayment
Agreement for the Bonds effective December 19, 2002, also among the Participants (the "2002
Repayment Agreement"), as amended, including as amended by the Amendment to Repayment
Agreement to become effective as of the date hereof (the "Amendment," and together, the
"Repayment Agreement").
I hereby certify as follows:
1. Kent is a municipal corporation duly organized, existing and operating under the
provisions of Title 35A RCW.
2. Attached to this certificate as Exhibit A is a true and correct copy of the minutes of
the June 6, 2023 Committee of the Whole meeting and the minutes of the June 20, 2023 meeting
of the City Council of Kent (the "Council") authorizing and approving the execution and delivery
of the Amendment(together,the"Authorizing Motion"),which Authorizing Motion was approved
by the Committee of the Whole, and a majority of the Council at a regularly scheduled Council
meeting that was open to the public and at which a quorum of the Council was present throughout.
The Authorizing Motion is in full force and effect, and has not been amended,revised or repealed.
3. Pursuant to the authority granted by the Authorizing Motion, I have duly executed
the Amendment on behalf of Kent.
4. There is no action, suit,proceeding, inquiry or investigation by or before any court,
governmental agency, public board or administrative body pending which has been formally
served upon or otherwise noticed to Kent nor, to the best of my knowledge, threatened against
Kent which(a) challenges, contests or questions the Authorizing Motion or the validity thereof or
which seeks to prohibit, retrain or enjoin Kent from complying with the obligations on its part
contained in the Project Agreement, the Repayment Agreement, or the Amendment, (b) in any
way questions the validity or enforceability of the Project Agreement,the Repayment Agreement,
or the Amendment, or (c) challenges or affects the corporate existence of Kent or the titles of its
officers to their respective offices.
5. To the best of my knowledge, Kent has promptly met all principal and interest
payments of its bonds,when due, has not defaulted on a payment of principal or interest on any of
its bonds, and has never issued refunding bonds for the purpose of avoiding an impending default
on its debt or other obligations for borrowed money.
6. Kent has undertaken, in connection with bonds previously issued by Kent, to
provide continuing disclosure pursuant to Securities and Exchange Commission Rule 15c2-12,
and has complied with any such undertaking in all material respects.
7. The information contained in the Preliminary Official Statement for the Bonds
dated January 17,2024(the"Preliminary Official Statement"),and the final Official Statement for
the Bonds dated January 25, 2024 (the "Official Statement"), under the headings
"INTRODUCTION," "SECURITY FOR THE BONDS — Payment Obligations of the
Participants" and "—Rate Covenants," "THE SECOND SUPPLY PROJECT—Project
Participants—City of Kent"and in Appendix B,relating to or provided by Kent, is true and correct
in all material respects as of the date of the Preliminary Official Statement and the Official
Statement, respectively, and did not and does not as of the date hereof contain any untrue or
incorrect statement of material fact or omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were made, not
misleading. Kent hereby ratifies and approved the use of such information by Tacoma in the
Official Statement.
8. The Bonds are being issued to provide funds to be used, together with other
available funds, to refund Tacoma's Regional Water Supply System Revenue Refunding Bonds,
2013 (the "2013 Bonds") and to pay costs of issuance of the Bonds. The issuance of the Bonds
results in net present value monetary saving and debt service on the Bonds does not require an
increase of greater than $5,000 in debt service payments to be paid in any Fiscal Year hereafter
than would have been required to be paid in the same Fiscal Year for Annual Debt Service on the
2013 Bonds.
9. The Repayment Agreement has been duly authorized, executed, and delivered on
behalf of Kent and constitutes the legal, valid and binding obligation of Kent, enforceable in
accordance with its terms, except to the extent that enforceability is subject to bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors' rights.
10. Kent does not have any debt that is subject to acceleration.
11. Except as otherwise disclosed in the Official Statement, all necessary approvals
required to have been obtained by Kent,whether legal or administrative,have been obtained from
applicable federal, state and local entities and agencies for Kent's participation in the Second
Supply Project pursuant to the Project Agreement.
Capitalized terms not otherwise defined herein shall have the meanings set forth in Tacoma
Ordinance No. 28898, passed by the Tacoma City Council on August 1, 2023 authorizing the
issuance of the Bonds.
[signature page immediately follows]
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This certificate is dated this 14th day of February, 2024.
CITY OF KENT, WASHINGTON
°i
Dana Ralph, yor
2
Exhibit A—Minutes of the June 6, 2023 Committee of the Whole meeting and minutes of the
June 20, 2023 City Council meeting
Approved
Kent City Council - Committee
• of the Whole
KENT Committee of the Whole -
WAS HINRTON
Regular Meeting
Minutes
June 6, 2023
Date: June 6, 2023
Time: 4:00 p.m.
Place: Chambers
1. CALL TO ORDER Chair
Council President Boyce called the meeting to order.
2. ROLL CALL Chair
Attendee Name Title Status Arrived
Bill Boyce Council President Present
Brenda Fincher Councilmember Present
Satwinder Kaur Councilmember Present
Marli Larimer Councilmember Remote
Zandria Michaud Councilmember Present
Les Thomas Councilmember Present
Toni Troutner Councilmember Present
3. AGENDA APPROVAL YES Chair
Chief Administrative Officer, Pat Fitzpatrick opened the meeting by providing
an overview of the unique format of today's Committee of the Whole.
Fitzpatrick conveyed that, as the Council works through these first Committee
of the Whole meetings, they may decide to make some changes to the
format and adopt an ordinance revising the Council Rules.
A. I move to approve the agenda as presented.
RESULT: MOTION PASSES [UNANIMOUS]
MOVER: Les Thomas, Councilmember
SECONDER: Toni Troutner, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
4. DEPARTMENT PRESENTATIONS Chair
A. Operations Chair
Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
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A. Approval of Minutes of Prior Committees
i. Parks and Human Services Committee - CC Parks Regular Meeting -
May 4, 2023 4:00 PM
RESULT: APPROVED [UNANIMOUS]
MOVER: Toni Troutner, Councilmember
SECONDER: Satwinder Kaur, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
ii. Economic and Community Development Committee - CC ECDC Regular
Meeting - May 8, 2023 4:00 PM
RESULT: APPROVED [UNANIMOUS]
MOVER: Toni Troutner, Councilmember
SECONDER: Satwinder Kaur, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
iii. Public Works Committee - CC PW Regular Meeting - May 15, 2023
4:00 PM
RESULT: APPROVED [UNANIMOUS]
MOVER: Toni Troutner, Councilmember
SECONDER: Satwinder Kaur, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
iv. Operations and Public Safety Committee - CC Ops and PS Regular
Meeting - May 16, 2023 4:00 PM
RESULT: APPROVED [UNANIMOUS]
MOVER: Toni Troutner, Councilmember
SECONDER: Satwinder Kaur, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
B. Payment of Bills - Approve
MOTION: I move to approve the payment of bills received
through 5/31/23 and paid on 5/31/23 and approve the checks
issued for payroll 5/16/23 - 5/31/23 and paid on 6/5/23, all
audited by the Committee of the Whole on 6/6/23.
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Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
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RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Toni Troutner, Councilmember
SECONDER: Satwinder Kaur, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
C. Amendment to the Regional Water Supply System Repayment
Agreement to Remove Covington Water District - Authorize
Deputy Finance Director, Courtney Black provided an overview of the
agreement and the technical revisions. The bonds are available for
repayment and the City of Covington has decided to pay off their portion of
the debt. This will reset the agreement between the Cities of Tacoma and
Kent.
MOTION: I move to authorize the Mayor to sign the Amended
Regional Water Supply System Repayment Agreement which
removes Covington Water District, who paid off their share of
the repayment obligation during the 2023 bond refunding,
subject to final terms and conditions acceptable to the Finance
Director and City Attorney.
RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Brenda Fincher, Councilmember
SECONDER: Satwinder Kaur, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
D. INFO ONLY: April 2023 Financial Report
Michelle Ferguson, Financial Planning Manager presented the April 2023
financial report.
General Fund revenues are coming in at budget. Ferguson explained the
differences in general fund revenues.
The overall budget is coming in over target.
Ferguson advised that miscellaneous revenues are coming in coming in
strong - they are at pre-pandemic levels.
Ferguson explained the LTAC variance from 2022 are due to the transfer in
from the general fund. Revenues are back to pre-pandemic levels.
Variances in the Capital Resources Fund and Special Assessment Debt
Service funds were explained.
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Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
:onomic and Community
Development,
Councilmember Troutner, Chair
E. Subject Matter Chair
i. ARPA Reallocation; Agreements with National Development
Council - Authorize
Chief Economic Development Officer, Bill Ellis and Melissa La Fayette, from
the National Development Council conveyed information on the ARPA
Reallocation and agreements with the National Development Council.
Ellis refreshed the Council on definitions on Commercial Affordability and
Commercial Displacement.
Accesses to capital is one of the barriers for local businesses to participate in
new construction.
Today's action will improve customer service and access to technical services
and affordable spaces.
This motion will combine $600,000 for child-care expansion and early
learning with $1 million for commercial affordability and pass through the
National Development council grant portal. Additionally, $100,000 will be set
aside for a two-year technical assistance contract.
Ellis suggested there may be 4-8 grants with a sliding scale of $200K. Grants
would be selected by NDC after the City has developed scoring criteria with
CDFI. Evaluation of grants will take into consideration:
Community Impact
Project Viability
Equity
Ellis advised how success will be measured.
Ellis provided confirmation that these funds are honoring the Council's
original purpose of expending the funds.
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Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
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MOTION: I move to reallocate $600,000 of ARPA funds
budgeted for expansion and start-up of businesses and non-
profit day care and early learning operators to the Commercial
Affordability Grant Program, to award to the National
Development Council $1,600,000 in ARPA funds to use to
award grants to Kent businesses, to contract with National
Development Council to establish a Commercial Affordability
Grant Program and provide technical assistance at a cost of
$100,000, and authorize the Mayor to sign all necessary
documents, subject to terms and conditions acceptable to the
Economic and Community Development Director and the City
Attorney.
RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Toni Troutner, Councilmember
SECONDER: Zandria Michaud, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
iblic Works, Councilmember
F. Fincher, Subject Matter Chair Chair
i. Agreement with Totem Logistics for On-Call Garbage Cleanup
Services - Authorize
Conservation Coordinator, Tony Donati provided details on the Agreement
with Totem Logistics for on-call garbage clean up services.
Donati reviewed all of the locations that have been identified as areas to
clean up through this agreement and the budgeted funds available for
cleanup.
Donati advised of how this project will be funded and detailed how many
sites are repeatedly used as illegal dumping sites
MOTION: I move to authorize the Mayor to sign a Goods and
Services Agreement with Totem Logistics, in the amount of
$175,000 subject to final terms and conditions acceptable to
the Public Works Director and City Attorney.
RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Brenda Fincher, Councilmember
SECONDER: Bill Boyce, Council President
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
Parks and Human Chair
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Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
Services
G. 2024 South King Housing and Homelessness Partners (SKHHP)
Work Plan and Operating Budget — Approve
Human Services Manager, Merina Hanson indicated that typically this budget
and workplan are brought before the Council in the Fall, but this year, due to
the need to align with King County's request this budget and workplan need
to be approved by July.
Hanson reviewed the development process and covered the four goals of the
workplan:
1. Fund expansion of affordable housing
2. Develop policies that expand and preserve affordable housing
3. Continue to serve as an advocate on behalf of South King County
4. Manage operations and administration of SKHHP
There will be a 15% increase through 2026 to balance budget.
Mayor Ralph serves as the chair of the Executive Board and Hanson serves as
the Mayor's alternate. Hanson also serves on the staff work group.
Between the Mayor and Hanson, the City has a lot of input into the
development of the plan.
MOTION: I move to Approve the 2024 South King Housing and
Homelessness Partners Work Plan and Operating Budget as
adopted by the SKHHP Executive Board on May 19, 2023.
RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Zandria Michaud, Councilmember
SECONDER: Marli Larimer, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
H. Multi-Service Center Housing Navigation SLFRF Agreement -
Authorize
Senior Human Services Coordinator, Lori Guilfoyle presented on the Multi-
Service Center Housing Navigation SLFRF Agreement.
Housing Navigation is part of the Building Resiliency Plan.
Guilfoyle indicated that rental assistance is good, but not sufficient. This
program provides for approximately 90 families:
• Assessment that will identify housing/family goals
• Crisis intervention
• Debt reduction and management
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Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
• Mediation
• Connection to resources
This program should help evictions that are filed.
The Human Services Commission made this recommendation.
MOTION: I move to authorize the Mayor to sign an agreement
with the Multi Service Center for the Housing Navigation
Program providing up to $255,847 in ARPA funds, subject to
final terms and conditions acceptable to the Parks Director and
City Attorney.
RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Zandria Michaud, Councilmember
SECONDER: Satwinder Kaur, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
I. Lower Russell Levee Setback - Memorandum of Agreement
with US Army Corps of Engineers and WA Historic Preservation
Officer - Authorize
Deputy Parks Director, Brian Levenhagen presented information on the Lower
Russell Levee Setback Project Memorandum of Agreement between US Army
Corps of Engineers and the Washington Historic Preservation Officer.
Through the process of construction, some culturally significant artifacts were
found that necessitated cultural resource mitigation.
Levenhagen detailed the cultural resource mitigation elements included in the
agreement:
• Native plantings
• Interpretive signage
• Teaching station
• BBQ/First Foods Cooking Station
• Marker Stone
• Tribal Art
• Cultural Resource Training
• Japanese Outreach
• Web Site
MOTION: I move to authorize the Mayor to sign the
Memorandum of Agreement between the U.S. Army Corps of
Engineers and the Washington State Historic Preservation
Officer, subject to final terms and conditions acceptable to the
City Attorney and Parks Director.
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Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
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RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Zandria Michaud, Councilmember
SECONDER: Toni Troutner, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
Public Safety Chair
7. Regional Agreement Re: Opioid Abatement Council — Authorize
City Attorney, Tammy White provided an overview of the King County
Regional Agreement for Opioid Abatement.
White reviewed the class action lawsuit and detailed the terms of
settlements. Kent has received $86,000 and is scheduled to receive
$214,000 in 2023. The funds will be retained in a project fund.
Part of the settlement agreement includes a requirement to form an Opioid
Abatement Council at the county level to ensure jurisdictions comply with
spending funds on authorized expenses. The Council will also ensure the
annual reports are filed. Finally, a public dashboard will be created to
document how the funds are being spent.
White provided details of the agreement.
White advised that staff will return in July to discuss the funds received and
how Council will prioritize spending the funds.
MOTION: I move to authorize the Mayor to sign an interlocal
agreement that creates the King County Opioid Abatement
Council to monitor expenditure reporting of settlement funds
received through class action lawsuits related to community
impacts from opioids, subject to final terms and conditions
acceptable to the Chief Administrative Officer and City
Attorney.
RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Satwinder Kaur, Councilmember
SECONDER: Bill Boyce, Council President
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
K. Purchase of Police Supplies under a Cooperative Purchasing
Agreement with the Washington State Department of
Enterprise Services - Authorize
Assistant Chief Stansfield presented information on the purchase of
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Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
ammunition thru the State cooperative purchasing agreement.
Stansfied indicated there is a pending purchase of ammunition that will
exceed the $100K limit for Mayor to enter into contract without Council
approval.
Stansfield this agreement will save approximately 20% on future purchases.
MOTION: I move to authorize the Police Department to
purchase ammunition through the cooperative purchasing
agreement the Washington State Department of Enterprise
Services has with the San Diego Police Equipment Company, if
those purchases are within the City's established budgets and
made during the term of the state contract, including any
renewals.
RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Satwinder Kaur, Councilmember
SECONDER: Toni Troutner, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
L. SOAR Orders, Designated No Racing Zones — Ordinance - Adopt
Senior Assistant City Attorney, Victoria Robben provided details on the
ordinance amending section 9.43.030 of the Kent City Code relating to no
racing zones. The following two locations are being added to the Code: East
Valley Highway from 180th - 1901" and 132nd Avenue SE and SE Kent-
Kangley, specifically, the Trader Joes parking lot.
These two new locations were not previously problem racing areas.
Robben provided specifics of SOAR orders.
MOTION: I move to adopt Ordinance No. 4467, which amends
KCC 9.43.030 by designating two new areas within the City as
"No Racing Zones."
RESULT: MOTION PASSES [UNANIMOUS] Next: 6/20/2023 7:00 PM
MOVER: Satwinder Kaur, Councilmember
SECONDER: Bill Boyce, Council President
AYES: Boyce, Fincher, Kaur, Larimer, Michaud, Thomas, Troutner
5. ADJOURNMENT Chair
Council President Boyce adjourned the meeting.
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Kent City Council - Committee of the Whole June 6, 2023
Committee of the Whole - Regular Meeting Kent, Washington
Minutes
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Meeting ended at 5:10 p.m.
K�-wi ire Ley A. Kavwta-
City Clerk
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Approved
Kent City Council
40 Z
• City Council Regular Meeting
KENT Minutes
WAS HING70N
June 20, 2023
Date: June 20, 2023
Time: 7:00 p.m.
Place: Chambers
1. CALL TO ORDER/FLAG SALUTE
Council President Boyce called the meeting to order.
2. ROLL CALL
Attendee Name itlAE— Status Arrived
Bill Boyce Council President Present
Brenda Fincher Councilmember Remote
Satwinder Kaur Councilmember Present
Marli Larimer Councilmember Present
Toni Troutner Councilmember Present
Les Thomas Councilmember Present
Zandria Michaud Councilmember Excused
3. AGENDA APPROVAL
A. I move to approve the agenda as presented.
ER SULT: MOTION PASSES [UNANIMOUS]
MOVER: Les Thomas, Councilmember
SECONDER: Toni Troutner, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Troutner, Thomas
4. PUBLIC COMMUNICATIONS
A. Public Recognition
i. Proclamation for Macrina Bakery Day
Council President Boyce presented the Proclamation for Macrina Bakery Day
to Leslie Mackie, founder of Macrina Bakery. Mackie expressed appreciation
of the Proclamation.
ii. Presentation of City's Charitable Contributions Committee Donation to
Sound Generation's Meals on Wheels Program
Council President Boyce presented the City's Charitable Contribution
Committee donation to Dale Hoover from Sound Generation's Meals on
Wheels program.
Kent City Council City Council Regular Meeting June 20, 2023
Minutes Kent, Washington
Alesha Hart, representative from the City of Kent Charitable Contributions
Committee conveyed that City of Kent employees purchased plants and
donated money to raise funds for this charity.
Hoover expressed words of appreciation for the donation.
B. Community Events
Council President Boyce announced upcoming events at the accesso ShoWare
Center.
Councilmember Fincher announced upcoming concerts and invited the public
to attend the Fourth of July Splash event at Lake Meridian park.
C. Public Safety Report
Chief Padilla presented the Public Safety Report.
Chief Padilla provided backgrounds on two new officers: David Doucett and
Brandon Lyon. Both are laterals. Council President Boyce performed the
swearing in.
Chief Padilla announced recent promotions of:
Sergeant Doug Whitley
Sergeant Corey Chapman
Chief Padilla presented Lifesaving Awards to:
Corrections Officer Scott Kulin, Corrections Officer Alicia Day and Corrections
Officer Shareka Alexander are being commended for their quick actions as it
most certainly contributed to saving the life of the inmate. These officers
embody the Kent Police Department mission of protecting and caring for
people in our community, our value of service, and our vision of improving
the lives of our community members.
Chief Padilla presented Officer Matthew Fisher with his second Lifesaving
Award. Officer Fisher is being commended for his extreme bravery and
selflessness while providing critical lifesaving aid. His actions along with the
actions of the three Good Samaritans directly resulted in the patient
surviving his heart attack. Officer Fisher embodies the Kent Police
Department mission of protecting and caring for people in our community,
our value of service, and our vision of improving the lives of our community
members.
Additionally, Chief Padilla awarded three Good Samaritans: Phil Zegler,
Martin Flores, and Hector Gomez, with the Chief's Award for Citizen's
Commendation for administering CPR to the driver.
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Mark & Shelly McMasters Quality Towing Company presented a $10,000
donation to the Kent Police Foundation.
Chief Padilla awarded Officer Jonathan Silas with the Chief's Award of
Exceptional Duty. Officer Silas is being commended for his courageous and
selfless actions to protect his fellow officer. Officer Silas exemplifies the Kent
Police Department vison of providing the highest level of law enforcement
service with is utmost professionalism and heroism.
Chief provided details on the recent Gun Buyback event.
Chief Padilla advised two additional intersections have Red Light Cameras
that were activated. The warning period begins June 151" and tickets will be
issued starting July 16t". The locations of the additional intersections are:
• 116th Ave SE / SE 240th Street
• 68th Ave S / S 228th Street
Chief Padilla closed his report by providing information on the Department's
past and ongoing Street Racer Emphasis.
S. REPORTS FROM COUNCIL AND STAFF
A. Mayor Ralph's Report
No report.
B. Chief Administrative Officer's Report
Chief Administrative Officer, Pat Fitzpatrick advised a proposal will be
brought to the Council in July regarding utilizing opioid funds recovered in its
lawsuit against opioid manufactures. The proposal will include using funds to
provide actual treatment to those that cannot afford it.
Fitzpatrick indicated his report included in today's agenda packet.
C. Councilmembers' Reports
Council President Boyce provided an update on the Operations items on
today's Committee of the Whole agenda.
Boyce serves as the chair of the City Council Workshop and provided a recap
of the two presentations from tonight's meeting.
Councilmember Troutner provided an overview of the Economic and
Community Development agenda items from tonight's Committee of the
Whole agenda.
Councilmember Fincher indicated the Mental Illness and Drug Dependency
Council and the King Conservation District are reviewing their annual reports.
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Kent City Council City Council Regular Meeting June 20, 2023
Minutes Kent, Washington
Fincher invited the public to visit the art exhibit in the City of Kent Centennial
Center.
Fincher provided an overview of the Public Works agenda items from
tonight's Committee of the Whole agenda.
6. PUBLIC HEARING
None.
7. PUBLIC COMMENT
Serra Angel Schmeising, a Kent resident, provided public comment relating
to the Mill Creek Middle School track and field.
Stephen Schmeising, a Kent resident, provided public comment relating to
the Mill Creek Middle School track and field.
Melinda Schmeising, a Kent resident, provided public comment relating to the
Mill Creek Middle School track and field.
Kyle Johannes, a coach at the Mill Creek Middle School and resident of the
City of Seattle, provided public comment relating to inequity in funding at
various Kent School District schools.
Molly Rutter, a Kent educator and resident of Auburn, provided public
comment on behalf of a Kent student relating to the Mill Creek Middle School
track and field.
8. CONSENT CALENDAR
I move to approve consent items A - R.
RESULT: APPROVED [UNANIMOUS]
MOVER: Les Thomas, Councilmember
SECONDER: Toni Troutner, Councilmember
AYES: Boyce, Fincher, Kaur, Larimer, Troutner, Thomas
A. Approval of Minutes
Council Workshop - Workshop Regular Meeting - Jun 6, 2023 5:15 PM
City Council Meeting - City Council Regular Meeting - Jun 6, 2023 7:00 PM
B. Payment of Bills - Approve
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Minutes Kent, Washington
MOTION: I move to approve the payment of bills received
through 5/31/23 and paid on 5/31/23 and approve the checks
issued for payroll 5/16/23 - 5/31/23 and paid on 6/5/23, all
audited by the Committee of the Whole on 6/6/23.
C. Excused Absence for Councilmember Michaud - Approve
D. Accept the accesso ShoWare Scoreboard Replacement Project
as Complete - Authorize
MOTION: I move to authorize the Mayor to accept the accesso
ShoWare Scoreboard Replacement Project as complete and
release retainage to Daktronics, Inc. upon receipt of standard
releases from the State and the release of any liens.
E. Amendment to the Regional Water Supply System Repayment
Agreement to Remove Covington Water District - Authorize
MOTION: I move to authorize the Mayor to sign the Amended
Regional Water Supply System Repayment Agreement which
removes Covington Water District, who paid off their share of
the repayment obligation during the 2023 bond refunding,
subject to final terms and conditions acceptable to the Finance
Director and City Attorney.
F. ARPA Reallocation; Agreements with National Development
Council - Authorize
MOTION: I move to reallocate $600,000 of ARPA funds
budgeted for expansion and start-up of businesses and non-
profit day care and early learning operators to the Commercial
Affordability Grant Program, to award to the National
Development Council $1,600,000 in ARPA funds to use to
award grants to Kent businesses, to contract with National
Development Council to establish a Commercial Affordability
Grant Program and provide technical assistance at a cost of
$100,000, and authorize the Mayor to sign all necessary
documents, subject to terms and conditions acceptable to the
Economic and Community Development Director and the City
Attorney.
G. 2024 South King Housing and Homelessness Partners (SKHHP)
Work Plan and Operating Budget - Approve
MOTION: I move to Approve the 2024 South King Housing and
Homelessness Partners Work Plan and Operating Budget as
adopted by the SKHHP Executive Board on May 19, 2023.
H. Agreement with Totem Logistics for On-Call Garbage Cleanup
Services - Authorize
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MOTION: I move to authorize the Mayor to sign a Goods and
Services Agreement with Totem Logistics, in the amount of
$175,000 subject to final terms and conditions acceptable to
the Public Works Director and City Attorney.
I. Multi-Service Center Housing Navigation SLFRF Agreement -
Authorize
MOTION: I move to authorize the Mayor to sign an agreement
with the Multi Service Center for the Housing Navigation
Program providing up to $255,847 in ARPA funds, subject to
final terms and conditions acceptable to the Parks Director and
City Attorney.
J. Lower Russell Levee Setback - Memorandum of Agreement
with US Army Corps of Engineers and WA Historic Preservation
Officer - Authorize
MOTION: I move to authorize the Mayor to sign the
Memorandum of Agreement between the U.S. Army Corps of
Engineers and the Washington State Historic Preservation
Officer, subject to final terms and conditions acceptable to the
City Attorney and Parks Director.
K. Regional Agreement Re: Opioid Abatement Council - Authorize
MOTION: I move to authorize the Mayor to sign an interlocal
agreement that creates the King County Opioid Abatement
Council to monitor expenditure reporting of settlement funds
received through class action lawsuits related to community
impacts from opioids, subject to final terms and conditions
acceptable to the Chief Administrative Officer and City
Attorney.
L. Purchase of Police Supplies under a Cooperative Purchasing
Agreement with the Washington State Department of
Enterprise Services - Authorize
MOTION: I move to authorize the Police Department to
purchase ammunition through the cooperative purchasing
agreement the Washington State Department of Enterprise
Services has with the San Diego Police Equipment Company, if
those purchases are within the City's established budgets and
made during the term of the state contract, including any
renewals.
M. SOAR Orders, Designated No Racing Zones - Ordinance - Adopt
MOTION: I move to adopt Ordinance No. 4467, which amends
KCC 9.43.030 by designating two new areas within the City as
"No Racing Zones."
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Kent City Council City Council Regular Meeting June 20, 2023
Minutes Kent, Washington
N. Lodging Tax Grant Awards for Spring 2023 Application Cycle -
Authorize
MOTION: I move to award Spring 2023 Lodging Tax Grants to
the recipients and at the funding levels identified by the
Lodging Tax Advisory Committee, in the total amount of
$170,000, and authorize the Mayor to sign all grant
agreements, subject to final terms and conditions acceptable to
the City Attorney.
O. 2023 State Legislative Criminal Code Amendments - Emergency
Ordinance - Adopt
MOTION: I move to recommend Council declare an emergency
and adopt Ordinance No. 4468, amending the Kent City Code to
implement state legislation that enacts new crimes, addresses
drug paraphernalia, and criminalizes the possession and public
use of drugs.
P. City Council Bylaws, Rules, and Procedures - Resolution -
Adopt
MOTION: I move to adopt Resolution No. 2062, which enacts
new bylaws, rules, and procedures of the Kent City Council and
repeals Resolution No. 2061.
Q. Land Use Implementation of SB 5536 (Blake Fix) - Ordinance -
Adopt
MOTION: I move to adopt Ordinance No. 4469, amending Title
15 of the Kent City Code to implement amendments made to
the Revised Code of Washington concerning the location and
operation of opioid treatment programs, recovery residences,
and harm reduction programs.
R. Agreement with Kinetic West for STEM and Career Connected
Education Development Project - Authorize
MOTION: I move to authorize the Mayor to enter into an
agreement with Kinetic West to develop a STEM and Career
Focused set of educational resources to be utilized in the Kent
School District, in an amount not to exceed $140,000 in ARPA
funds, subject to final terms and conditions acceptable to the
Mayor and City Attorney.
9. OTHER BUSINESS
None.
10. BIDS
None.
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Kent City Council City Council Regular Meeting June 20, 2023
Minutes Kent, Washington
11. EXECUTIVE SESSION AND ACTION AFTER EXECUTIVE SESSION
None.
12. ADJOURNMENT
Council President Boyce adjourned the meeting.
Meeting ended at 8:21 p.m.
K&m�Le.y A. Ywmoto-
City Clerk
...........................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Page 8 of 8
CITY OF KENT
ONGOING DISCLOSURE CERTIFICATE
I, DANA RALPH, Mayor of the City of Kent, Washington ("Kent"), do hereby make this
certification in connection with the issuance by the City of Tacoma, Washington ("Tacoma") of
the Regional Water Supply System Revenue Refunding Bonds, Series 2024 (Green Bonds) (the
"Bonds"). Kent is responsible for approximately 30.87% of the debt service on the Bonds and is
therefore an "Obligated Person" as defined in the Continuing Disclosure Certificate of Tacoma
delivered in connection with the issuance of the Bonds.
Pursuant to the Repayment Agreement between Tacoma, Kent, the Covington Water
District, and the Lakehaven Water and Sewer District effective as of December 19, 2002, as
amended, Kent agrees to provide or cause to be provided, either directly or through a designated
agent, to the Municipal Securities Rulemaking Board (the "MSRB"), as designated by the
Securities and Exchange Commission (the "Commission"), in accordance with the Rule, in
electronic format as prescribed by the MSRB accompanied by identifying information as
prescribed by the MSRB, Kent's audited financial statements prepared in accordance with
generally accepted accounting principles, not later than the end of nine months after the end of
Kent's fiscal year, commencing in 2024 for the fiscal year ending December 31, 2023; provided,
that if the audited financial statements are not yet available,Kent shall provide unaudited financial
statements in substantially the same format, and audited financial statements soon after they
become available.
Capitalized terms not otherwise defined herein shall have the meanings set forth in Tacoma
Ordinance No. 28898, passed by the Tacoma City Council on August 1, 2023 authorizing the
issuance of the Bonds.
This certificate is dated this 14th day of February, 2024.
CITY OF KENT, WASHINGTON
By D
Dana Ral�,Ja r
NEW ISSUE RATINGS: Moody's: Aal
BOOK-ENTRY ONLY S&P Global Ratings: AA+
NOT BANK QUALIFIED See"RATINGS"herein.
In the opinion of Pacifica Law Group LLP,Seattle, Washington,Bond Counsel,under existing law and subject to certain qualifications
described herein,the interest on the Bonds is excludable from gross income forfederal income tax purposes.In addition,interest on the
Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals;however,interest
on the Bonds may affect the federal alternative minimum tax applicable to certain corporations. See"TAX MATTERS."
CITY OF TACOMA, WASHINGTON
T� $32,350,000
TACaMA WATER REGIONAL WATER SUPPLY SYSTEM REVENUE REFUNDING BONDS,
T• ...•" "'1-"'.. SERIES 2024 (GREEN BONDS)
Dated: Date of Delivery Due: December 1,as shown on the inside cover
The City of Tacoma,Washington(the"City"or"Tacoma"),Regional Water Supply System Revenue Refunding Bonds,Series 2024(Green
Bonds)(the"Bonds")will be issued in fully registered form under a book-entry system. When issued,the Bonds initially will be registered
to Cede&Co.,as bond owner and nominee for The Depository Trust Company("DTC"), New York, New York. DTC will act as initial
securities depository for the Bonds.Individual purchases of the Bonds will be made in the principal amount of$5,000 or integral multiples
thereof within a maturity. Purchasers of the Bonds(the "Beneficial Owners")will not receive certificates representing their beneficial
ownership interest in the Bonds purchased.The fiscal agent of the state of Washington(the"State"),currently U.S.Bank Trust Company,
National Association,will act as the registrar,paying agent,transfer agent and authenticating agent for the Bonds(the"Bond Registrar").
The Bonds will bear interest payable semiannually on each June 1 and December 1, commencing June 1, 2024,to the maturity of the
Bonds.The Bonds will mature on the dates and in the amounts and bear interest at the rates set forth on the inside cover.For so long as
the Bonds are held in book-entry only form,the principal of and interest on the Bonds will be paid by the Bond Registrar to DTC,which
in turn is obligated to remit such payments to its broker-dealer participants for subsequent disbursement to the Beneficial Owners.See
Appendix E—"BOOK-ENTRY SYSTEM."
Maturity Dates,Principal Amounts,Interest Rates,Yields and CUSIP Numbers on Inside Cover
The Bonds are not subject to redemption by the City prior to their stated maturities.See"DESCRIPTION OF THE BONDS—Redemption
of the Bonds."
Proceeds of the Bonds will be used,together with other available funds described herein,to refund,on a current basis,the outstanding
Regional Water Supply System Revenue Refunding Bonds,2013,and to pay costs of issuing the Bonds. See"PURPOSE AND APPLICATION
OF BOND PROCEEDS."
The Bonds are limited obligations of the City secured by a pledge of revenues("Revenues")of the City's Regional Water Supply System
(the"Regional System")equal to the lien securing the Outstanding Parity Bonds and any Future Parity Bonds,subject only to the prior
payment of Operating Expenses(each as defined herein)of the Regional System. Revenues of the Regional System consist of all income,
revenues,receipts and loan proceeds derived by the City through the ownership and operation of the Regional System,including amounts
due to the City under the Project Agreement and related repayment agreements from the Participants,including the City's Water System
(each as defined herein). The obligation of each Participant,including Tacoma Water,to make payments with respect to the Regional
System is an operation and maintenance expense of that Participant's water system. If a Participant other than Tacoma Water defaults
in its payment obligation with respect to the Regional System and the default includes any amounts necessary to make payment on the
Outstanding Parity Bonds or the Bonds,Tacoma Water is obligated to increase its participant share of the payment to the extent another
Participant does not,including paying debt service on the Bonds. See"SECURITY FOR THE BONDS."
- The Bonds have been designated as"Green Bonds." Kestrel has provided an independent external review and opinion
that the Bonds conform with the four core components of the International Capital Market Association Green Bond
Principles,and therefore qualify for Green Bonds designation. See"BONDS DESIGNATED AS GREEN BONDS"and
kestrel Appendix E—"GREEN BOND SECOND PARTY OPINION."
THE BONDS ARE NOT GENERAL OBLIGATIONS OF THE CITY, ANY OTHER PARTICIPANT, OR THE STATE OF
WASHINGTON, OR A CHARGE UPON ANY GENERAL FUND OR OTHER PROPERTY OF THE CITY, ANY OTHER
PARTICIPANT,OR THE STATE OF WASHINGTON NOT SPECIFICALLY PLEDGED THERETO BY THE BOND ORDINANCE,
AND NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY,ANY OTHER PARTICIPANT,OR
OF THE STATE OF WASHINGTON, NOR ANY REVENUES OF THE CITY DERIVED FROM SOURCES OTHER THAN THE
REGIONAL SYSTEM,ARE PLEDGED TO THE PAYMENT THEREOF.SEE"SECURITY FOR THE BONDS."
The City has not designated the Bonds as"qualified tax-exempt obligations"within the meaning of Section 265(b)(3)(B)of the Internal
Revenue Code of 1986,as amended.
This cover page includes certain information for reference only and is not a summary of matters set forth herein. Investors should read
the entire Official Statement to obtain information essential to the making of an informed investment decision.
The Bonds are offered when,as,and if issued and delivered,subject to the approving legal opinion of Pacifica Law Group LLP,Seattle,
Washington,Bond Counsel,and certain other conditions. A form of Bond Counsel's opinion is attached hereto as Appendix G.Certain
matters will be passed upon for the Underwriters by their counsel,Foster Garvey PC,Seattle, Washington. It is anticipated that the
Bonds in definitive book-entry form will be available for delivery through the facilities of DTC in New York,New York, or to the Bond
Registrar on behalf of DTC by Fast Automated Securities Transfer, on or about on or about February 14,2024.
KeyBanc Capital Markets Wells Fargo Securities
Official Statement Dated:January 25,2024
CITY OF TACOMA,WASHINGTON
$32,350,000
REGIONAL WATER SUPPLY SYSTEM REVENUE REFUNDING BONDS,SERIES 2024
(GREEN BONDS)
CUSIP*
Due Principal Interest Number
(December 1) Amount Rate Yield Price (87354T)
2024 $3,380,000 5.00% 3.06% 101.511 CD5
2025 3,070,000 5.00 2.91 103.629 CE3
2026 3,205,000 5.00 2.75 106.013 CFO
2027 3,375,000 5.00 2.66 108.394 CG8
2028 3,545,000 5.00 2.59 110.802 CH6
2029 3,745,000 5.00 2.55 113.121 02
2030 3,925,000 5.00 2.57 115.062 CK9
2031 4,140,000 5.00 2.58 116.989 CL7
2032 3,965,000 5.00 2.59 118.847 CM5
* CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services ("CGS") is
managed on behalf of the American Bankers Association by FactSet Research Systems Inc. CUSIP data herein is
provided by CGS. This data is not intended to create a database and does not serve in any way as a substitute for the
CUSIP service. CUSIP numbers are provided for convenience of reference only.None of the City,the Underwriters
or their agents or counsel assumes responsibility for the accuracy of such numbers.
The order and placement of materials in this Official Statement, including the Appendices, are not to be deemed to
be a determination of relevance,materiality or importance,and this Official Statement,including the cover page and
Appendices, must be considered in its entirety. The offering of the Bonds is made only by means of this entire
Official Statement.
The information within this Official Statement has been compiled from sources the City considers reliable and,
while not guaranteed as to accuracy,the City believes to be correct as of its date. The City makes no representation
regarding the accuracy or completeness of the information regarding The Depository Trust Company ("DTC") and
its book-entry-only system, the City's municipal advisor, the form of opinion provided by Bond Counsel, or the
Underwriters. The information and expressions of opinions herein are subject to change without notice, and neither
the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the City or in the other matters described herein since the
dates as of which such information is provided.
Information on website addresses set forth in this Official Statement is not incorporated into this Official Statement
and cannot be relied upon to be accurate as of the date of this Official Statement,nor should any such information be
relied upon in making investment decisions regarding the Bonds.
The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters
have reviewed the information in this Official Statement in accordance with, and as part of,their responsibilities to
investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the
Underwriters do not guarantee the accuracy or completeness of such information.
No dealer,broker, sales representative,or other person has been authorized by the City to give any information or to
make any representations with respect to the Bonds other than as contained in this Official Statement and,if given or
made, such information or representations must not be relied upon as having been authorized by the City. This
Official Statement does not constitute an offer to sell or the solicitation of an offer to buy,nor shall there be any sale
of the Bonds by any person, in any jurisdiction in which it is unlawful for such person to make such offer,
solicitation or sale.
Certain statements contained in this Official Statement do not reflect historical facts, but rather are forecasts and
"forward-looking statements." No assurance can be given that the future results discussed herein will be achieved,
and actual results may differ materially from the forecasts shown. In this respect, the words "estimate," "project,"
"anticipate," "expect," "intend," "believe" and similar expressions are intended to identify forward-looking
statements. The achievement of certain results or other expectations contained in forward-looking statements
involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or
achievements described to be materially different from any future results,performance or achievements expressed or
implied by such forward-looking statements. Such risks and uncertainties include, among others, changes in
regional, domestic and international political, social and economic conditions, federal, state and local statutory and
regulatory initiatives, litigation, technological change, seismic events, infectious disease including the coronavirus
pandemic, and various other events, conditions and circumstances, many of which are beyond the control of the
City.All estimates,projections, forecasts, assumptions and other forward-looking statements are expressly qualified
in their entirety by the cautionary statements set forth in this Official Statement. These forward-looking statements
speak only as of the date they were prepared. The City does not plan to issue any updates or revisions to those
forward-looking statements if or when their expectations or events, conditions or circumstances on which such
statements are based occur and specifically disclaims any such obligation.
The presentation of certain information, including tables of receipts from revenues, is intended to show recent
historical information and is not intended to indicate future or continuing trends in the financial position or other
affairs of the City or the Participants.No representation is made that past experience, as it might be shown by such
financial and other information,will necessarily continue to be repeated in the future.
The Bonds have not been registered under the Securities Act of 1933,as amended, and the Bond Ordinance has not
been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions contained in such
Acts. No federal or state securities commission or regulatory authority has passed upon the merits of the Bonds or
the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal
offense.
References to website addresses presented herein are for informational purposes only and may be in the form of a
hyperlink solely for the reader's convenience.Unless specified otherwise,such websites and the information or links
contained therein are not incorporated into, and are not part of, this final Official Statement for purposes of, and as
that term is defined in Rule 15c2-12,promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934,as amended.
TACOMA PUBLIC UTILITIES
3628 South 351 Street
Tacoma,Washington 98409
(253)502-8600
mytpu.org(l)
MAYOR AND TACOMA CITY COUNCIL
Victoria Woodards Mayor
John Hines(2) Deputy Mayor and Council Member
Joe Bushnell Council Member
Kiara Daniels Council Member
Olgy Diaz Council Member
Sarah Rumbaugh Council Member
Jamika Scott Council Member
Catherine Ushka Council Member
Kristina Walker Council Member
PUBLIC UTILITY BOARD
Carlos M.Watson Chair
John O'Loughlin Vice-Chair
William Bridges Secretary
Elly Claus-McGahan Member
Anita Gallagher Member
DEPARTMENT OF PUBLIC UTILITIES,TACOMA WATER
Jackie Flowers Director of Utilities,Chief Executive Officer
Scott Dewhirst Water Superintendent and Chief Operating Officer
Heather Pennington Deputy Superintendent,Customer/Employee Experience Manager
Sean Senescall Business Services Manager
Jodi Collins Financial Stewardship Manager
Jessica Knickerbocker Planning&Engineering Manager
Jerrod Davis Source Water and Treatment Operations Manager
Stuart Vaughan Maintenance and Construction Manager
CERTAIN CITY ADMINISTRATIVE STAFF
Elizabeth Pauli City Manager
Andy Cherullo Finance Director
Susan Calderon Assistant Finance Director/Controller
Michael San Soucie City Treasurer
Chris Bacha City Attorney
Nicole Emery City Clerk
BOND AND DISCLOSURE COUNSEL
Pacifica Law Group LLP
Seattle,Washington
MUNICIPAL ADVISOR INDEPENDENT AUDITORS
Montague DeRose and Associates,LLC Moss Adams LLP
Walnut Creek,California Portland,Oregon
�l> The City's website is not part of this Official Statement, and investors should not rely on information
presented in the City's website in determining whether to purchase the Bonds. This inactive textual
reference to the City's website is not a hyperlink and does not incorporate the City's website by reference.
(2) On December 9, 2023, the Tacoma City Council appointed Council Member John Hines to serve as the
City's Deputy Mayor in 2024.
-ii-
TABLE OF CONTENTS
Page Page
INTRODUCTION..........................................................................I State and Federal Environmental and Water Quality
General..................................................................................I Laws and Regulations...................................................33
Regional System,Participants and Project Agreement..........I Environmental Issues..........................................................34
Repayment Agreement Obligations.......................................2 Water Use...........................................................................34
Obligations of the Water System...........................................3 Regional System Operating Results....................................34
Limited Obligations...............................................................4 Regional System Capital Improvement Program................37
Documents and Summaries;Investor Considerations............4 THE CITY OF TACOMA WATER SYSTEM............................37
DESCRIPTION OF THE BONDS.................................................4 Tacoma Water—General....................................................37
General..................................................................................4 Service Area........................................................................38
Registration and Payment......................................................5 Tacoma Water Operations...................................................39
Redemption of the Bonds......................................................5 Sources of Supply...............................................................39
Open Market Purchase..........................................................5 Water Rights.......................................................................40
Defeasance............................................................................6 Endangered Species Act Compliance..................................40
PURPOSE AND APPLICATION OF BOND PROCEEDS...........6 State Department of Health/U.S.Environmental
Refunding Plan......................................................................6 Protection Agency Requirements..................................41
Sources and Uses of Funds of Bond Proceeds.......................7 Agreement with Muckleshoot Tribe....................................42
BONDS DESIGNATED AS GREEN BONDS..............................7 Water Quality and Treatment..............................................42
General..................................................................................7 Drought and Climate Change Resiliency............................43
Green Bonds Designation......................................................7 Water System Security........................................................44
Independent Second Parry Opinion on Green Bond Customers and Water Sales;Loss of Major Customer........45
Designation and Disclaimer.............................................8 Wholesale Agreements.......................................................46
SECURITY FOR THE BONDS.....................................................8 Agreement with Cascade Water Alliance............................46
Revenue Obligations of the Regional Water Supply Advanced Metering Program..............................................47
System.............................................................................8 Response to COVID-19;Billing and Delinquent
Payment Obligations of the Participants..............................10 Accounts.......................................................................47
Flowof Funds......................................................................12 Water Rates.........................................................................48
Rate Covenants....................................................................14 Water System Bonds...........................................................51
No Reserve Account for the Bonds;Reserve Account Water System Junior Lien Obligations................................52
for Outstanding Parity Bonds........................................14 Tacoma Water Capital Improvement Program....................52
Additional Obligations........................................................15 Historical Operating Results-Tacoma Water.....................54
Additional Covenants..........................................................16 Historical Revenue and Expenses.......................................55
Permitted Investments.........................................................16 CERTAIN INVESTMENT CONSIDERATIONS.......................56
Additional Terms of the Bond Ordinance............................16 Initiative and Referendum...................................................56
DEBT SERVICE REQUIREMENTS AND ADDITIONAL Limitations on Remedies....................................................56
BORROWING.......................................................................17 No Acceleration Upon an Event of Default.........................56
Parity Bonds Debt Service Requirements............................17 Municipal Bankruptcies......................................................57
Additional Borrowing..........................................................17 Federal and Local Regulations............................................57
Junior Lien Obligations.......................................................18 Seismic,Volcanic,Wildfire,Flooding and Other Risks......58
Debt Payment Record..........................................................18 Climate Change and Local Climate Change Initiatives.......58
THE CITY...................................................................................18 Public Health Emergencies.................................................59
General................................................................................18 Cybersecurity......................................................................59
City Administration.............................................................18 Lack of Secondary Market..................................................59
THE DEPARTMENT OF PUBLIC UTILITIES—TACOMA LITIGATION..............................................................................60
WATER.................................................................................19 TAX MATTERS.........................................................................60
Overview.............................................................................19 RATINGS....................................................................................61
Management........................................................................20 UNDERWRITING......................................................................61
Budgetary Policies...............................................................21 MUNICIPAL ADVISOR.............................................................62
Auditing..............................................................................21 APPROVAL OF CERTAIN LEGAL MATTERS.......................62
Labor Relations...................................................................21 POTENTIAL CONFLICTS OF INTEREST...............................62
Tacoma Water Operations...................................................22 CONTINUING DISCLOSURE UNDERTAKING.....................63
Guiding Principles...............................................................23 MISCELLANEOUS....................................................................63
StrategicPlan.......................................................................23
Retirement System..............................................................23 COPY OF THE BOND ORDINANCE...........................Appendix A
Other Post-Employment Benefits........................................25 PARTICIPANTS IN THE SECOND
Deferred Compensation.......................................................25 SUPPLY PROJECT ................................................Appendix B
Taxes Imposed on Tacoma Water.......................................25 SUMMARY OF THE PROJECT AGREEMENT..........Appendix C
Fleet Services......................................................................26 FORM OF CONTINUING DISCLOSURE
Program of Insurance..........................................................26 CERTIFICATE........................................................Appendix D
Strategic Planning and Financial Planning and BOOK-ENTRY SYSTEM..............................................Appendix E
Reporting.......................................................................26 GENERAL AND ECONOMIC
Investment Practices............................................................27 INFORMATION.......................................................Appendix F
THE SECOND SUPPLY PROJECT............................................27 FORM OF OPINION OF BOND COUNSEL.................Appendix G
Description of the Second Supply Project...........................27 CITY OF TACOMA WATER SYSTEM
Green River Filtration Facility.............................................28 2022 FINANCIAL STATEMENTS....................Appendix H
Project Agreement and Repayment Agreements.................29 GREEN BOND SECOND PARTY OPINION................Appendix I
Project Participants..............................................................32
[THIS PAGE INTENTIONALLY LEFT'BLANK]
OFFICIAL STATEMENT
CITY OF TACOMA,WASHINGTON
$32,350,000
REGIONAL WATER SUPPLY SYSTEM REVENUE REFUNDING BONDS,SERIES 2024
(GREEN BONDS)
INTRODUCTION
General
The City of Tacoma,Washington(the "City" or"Tacoma"), acting by or through its Department of Public Utilities
(the "Department"), furnishes this Official Statement in connection with the offering of $32,350,000 principal
amount of its Regional Water Supply System Revenue Refunding Bonds, Series 2024(Green Bonds)(the"Bonds").
The Bonds are being issued pursuant to Ordinance No. 28898, passed by the City Council on August 1, 2023
(the"Bond Ordinance"), and under the authority of chapters 35.41, 39.46 and 39.53 of the Revised Code of
Washington("RCW") and the City Charter. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Bond Ordinance or in the Project Agreement (defined herein). A copy of the Bond
Ordinance is attached hereto as Appendix A, and a summary of the provisions of the Project Agreement is set forth
in Appendix C.
The City is a municipal corporation organized and existing under the Constitution and laws of the state of
Washington (the "State"). The City Charter provides for the Department, which is governed by a five-member
Public Utility Board (the "Board"). The Board is responsible for general utility policy, and its members are
appointed by the City Mayor and confirmed by the City Council, the legislative authority of the City. See "THE
DEPARTMENT OF PUBLIC UTILITIES—TACOMA WATER."
The Department consists of the Water Division ("Tacoma Water"), the Light Division ("Tacoma Power"), and the
Belt Line Railroad Division ("Tacoma Rail"). The Water Division consists of two separate systems: the Water
System and the Regional Water Supply System(the"Regional System"). The Board serves as the sole policy board
for the approval of most Department business. In the case of budgets, rates, bond issues, and system expansions,
actions approved by the Board must also be approved by the City Council. Tacoma Water is one of the largest
publicly-owned water utilities in the Pacific Northwest and had approximately 103,644 customers as of
September 30,2023. See"THE CITY OF TACOMA WATER SYSTEM."
Regional System,Participants and Project Agreement
The Regional System is a City utility that,by contract among the City,the City of Kent("Kent"), Covington Water
District ("CWD"), and Lakehaven Water and Sewer District, formerly known as Lakehaven Utility District
("Lakehaven"), each a municipal corporation of the State, was formed to finance, construct, operate and maintain
certain property and facilities to deliver and receive water from the Second Supply Project, as described more fully
under "THE SECOND SUPPLY PROJECT." The City, Kent, CWD, and Lakehaven are referred to herein as the
"Participants."
The Regional System provides water from Tacoma's Second Diversion Water Right to the Water System and to the
other Participants under the terms of the Agreement for the Second Supply Project entered into by and among the
Participants effective December 19, 2002, as amended (the "Project Agreement"). Under the terms of the Project
Agreement, each Participant is responsible for its"Participant Share"of the costs associated with the Second Supply
Project (including operations and maintenance and capital costs) and each Participant is entitled to its "Project
Capacity Share" defined as the right of each Participant to use its Participant Share of the Project available under
varying operating conditions to move Second Diversion Water to their respective delivery points and such other uses
as authorized under the Project Agreement. Under the Project Agreement, the Participant Shares are assigned as
follows: Tacoma Water has a 15/36 Participant Share and each of Kent,CWD and Lakehaven has a 7/36 Participant
Share.
-1-
Revenues of the Regional System consist of all income, revenues, receipts and loan proceeds derived by the City
through the ownership and operation of the Regional System, including amounts due to the City from the
Participants under the Project Agreement and certain repayment agreements entered into in connection with the
issuance of bonds by the City to finance capital costs of the Regional System. Payments made by the Participants
under the Project Agreement and the repayment agreements are referred to as"Participants' Payments."
The obligation of each Participant, including Tacoma Water,to make its Participants' Payments with respect to the
Regional System is an operation and maintenance expense of that Participant's water system. If a Participant other
than Tacoma Water defaults in its payment obligation with respect to the Regional System and the default includes
any amounts necessary to make payment on the Parity Bonds (defined below), Tacoma Water is obligated to
increase its Participant Share of the payment to the extent another Participant does not,including paying debt service
on the Parity Bonds. Tacoma Water thus effectively guarantees the payment of substantially all of the debt service
on the Parity Bonds. See"SECURITY FOR THE BONDS"and"THE SECOND SUPPLY PROJECT."
As of the date of this Official Statement, the Regional System has the following parity lien obligations outstanding
in the following amounts:
• Regional Water Supply System Revenue Bonds,2010A(the"2010A Bonds"), outstanding in the aggregate
principal amount of$355,000;
• Regional Water Supply System Revenue Bonds,2010B (Taxable Build America Bonds—Direct Payment)
(the "2010B Bonds,"and together with the 2010A Bonds,the"2010 Bonds"), outstanding in the aggregate
principal amount of$44,245,000;and
• Regional Water Supply System Revenue Refunding Bonds, 2013 (the "2013 Bonds"), outstanding in the
aggregate principal amount $49,935,000, all of which will be refunded with proceeds of the Bonds and
other available funds described herein.
The outstanding 2010A Bonds, 2010B Bonds, and 2013 Bonds (so long as any are outstanding after the refunding
contemplated herein)are referred to herein as the"Outstanding Parity Bonds."
Proceeds of the Bonds will be used, together with other available funds described herein, to refund, on a current
basis, all of the outstanding 2013 Bonds and to pay costs of issuance for the Bonds. See"PURPOSE AND
APPLICATION OF BOND PROCEEDS." The Bonds will be issued on parity of lien with the Outstanding Parity
Bonds. The Bonds,the Outstanding Parity Bonds and any additional bonds issued on a parity of lien with the Bonds
("Future Parity Bonds")are referred to collectively as the"Parity Bonds."
Repayment Agreement Obligations
The Project Agreement allows each Participant to pay all or part of its Participant Share of the Second Supply
Project capital costs either in cash or over time. In connection with the Outstanding Parity Bonds, the Participants
entered into repayment agreements to document each Participant's determination to make a cash payment or its debt
service obligation. The repayment agreements govern debt service payments on Parity Bonds and do not otherwise
affect each Participant's rights and obligations under the Project Agreement (for example, with respect to its
obligation to pay its Participant Share); however, the repayment agreements take precedence over the debt
repayment provisions of the Project Agreement. See"SECURITY FOR THE BONDS—Payment Obligations of the
Participants."
Lakehaven chose to pay its entire share of the capital cost of projects financed and refinanced with proceeds of the
Outstanding Parity Bonds in cash,and therefore did not participate in the issuance of(and does not have an ongoing
financial obligation with respect to)the Outstanding Parity Bonds. As a result,Lakehaven will not have an ongoing
financial obligation with respect to the Outstanding Parity Bonds or the Bonds. The remaining Participants chose to
have the City issue the Outstanding Parity Bonds to finance their proportional shares. Consequently, Tacoma,CWD
and Kent's water utilities are obligated to pay amounts sufficient to provide for the payment of the principal of and
interest on the Outstanding Parity Bonds as shown in Table 1 below.
-2-
In connection with the issuance of the Bonds and pursuant to the terms of the Repayment Agreement effective
December 19, 2002, as amended by an Amendment to Repayment Agreement to become effective as of the date of
issuance of the Bonds, CWD has elected to prepay its proportional share of the 2013 Bonds in cash, and will not
have an ongoing repayment obligation with respect to the Bonds. As a result, Tacoma Water and Kent are
responsible for the payment of debt service on the Bonds.
The following table shows each Participant's proportional debt service obligation with respect to the Outstanding
Parity Bonds and the Bonds under the Payment Agreement and the applicable repayment agreement. As described
above, if a Participant other than Tacoma Water defaults in its payment obligation with respect to the Regional
System and the default includes any amounts necessary to make payment on the Parity Bonds, Tacoma Water is
obligated to increase its Participant Share of the payment to the extent another Participant does not,including paying
debt service on the Parity Bonds.
TABLE 1:
PARTICIPANT SHARES OF OUTSTANDING REGIONAL SYSTEM BONDS('
Tacoma Water(') CWD Kent
Bond Series Share(%) Share($) Share(%) Share($) Share(%) Share($) Total($)
2010A Bonds 0.00% -- 0.00% -- 100.00% $ 355,000 $ 355,000
2010B Bonds 74.42 $32,925,000 7.94 $3,515,000 17.64 7,805,000 44,245,000
The Bonds 69.13 22,365,000 0.00 -- 30.87 9,985,000 32,350,000
Lakehaven elected to pay its entire share of the capital cost of the projects financed and refinanced with the
proceeds of Outstanding Parity Bonds, and therefore does not have an ongoing financial obligation with
respect to any Outstanding Parity Bonds or the Bonds. Table 1 excludes the 2013 Bonds which will be
refunded with proceeds of the Bonds and other funds described herein. Prior to such refunding, Tacoma
Water had a payment share of 53.36%($26,645,000), CWD had a payment share of 22.82% ($11,395,000),
and Kent had a payment share of 23.82%($11,895,000)of the 2013 Bonds.
(2) If a Participant other than Tacoma Water defaults on a Participant's Payment allocable to debt service on the
Parity Bonds, Tacoma Water is obligated to increase its Participant Share to make such payment.
See"Obligations of the Water System"below.
Source: Tacoma Water.
Obligations of the Water System
The City has covenanted to establish,maintain and collect rates and charges for water and other goods and services
sold or supplied through the facilities of its Water System sufficient to pay the cost of operation and maintenance of
the Water System and to provide gross revenues of the Water System("Gross Revenues"or"Gross Revenues of the
Water System") sufficient, together with amounts on deposit in the Revenue Fund and available for such purpose
(including Participants' Payments), to pay all Regional System Costs (including principal of and interest on debt of
the Regional System, including the Bonds) and all obligations payable from Gross Revenues of the Water System
now or hereafter imposed by law or contract.
As of January 25, 2024, the City expects to have outstanding $219,520,000 of revenue bonds of the Water System
payable from and secured by a pledge of Gross Revenues of the Water System, subject to the payment of operation
and maintenance expenses of the Water System, including costs of the Regional System, and has reserved the right
to issue additional parity lien bonds in the future (together, the "Water System Bonds"). See Table 17. As a
contract resource obligation of the Water System, costs of the Regional System (including debt service on the Parity
Bonds) are payable prior to debt service on the Water System Bonds. In the ordinances authorizing the outstanding
Water System Bonds (the"Water Bond Authorizing Ordinances"), Tacoma Water has covenanted to collect Gross
Revenues of its Water System at least equal to 1.25 times annual debt service on the Water System Bonds, after
payment of obligations of the Regional System and other operation and maintenance expenses of the Water System.
See"THE CITY OF TACOMA WATER SYSTEM."
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The City issued its Water System Revenue Refunding Bonds, Series 2024 (Green Bonds) (the "Series 2024 Water
System Bonds") on January 25, 2024, in the aggregate principal amount of$63,800,000 as Water System Bonds to
provide funds, to be used with other available funds of the City,to defease and refund on a current basis all of the
City's Water System Bonds issued in 2013 and then-outstanding in the aggregate principal amount of$74,355,000,
and to pay costs of issuance for such bonds. See Table 17. The Series 2024 Water System Bonds are not being
offered for sale by this Official Statement, and this Official Statement should not be relied on by investors when
making an investment decision to purchase such bonds.
Limited Obligations
The Parity Bonds are special limited obligations of the City,payable from and secured by Revenues of the Regional
System, subject only to the prior payment of Operating Expenses of the Regional System. Revenues of the Regional
System include Participants' Payments,which are required to be deposited in the Revenue Fund held by the City for
the Regional System. In addition,pursuant to the Bond Ordinance, certain funds and accounts are pledged to secure
the payment of the principal of and interest on certain of the Parity Bonds. See"SECURITY FOR THE BONDS."
Documents and Summaries;Investor Considerations
The summaries of and references to all documents, statutes, reports and other instruments referred to herein do not
purport to be complete,comprehensive or definitive,and each such summary and reference is qualified in its entirety
by reference to each such document, statute, report or instrument. All references herein to the Bonds and the Bond
Ordinance are qualified in their entirety to the actual documents. See Appendix A for a copy of the Bond
Ordinance.
The City regularly prepares a variety of publicly-available reports, including audits,budgets and related documents.
Such reports are not incorporated herein by this reference. An investor may obtain a copy of any such report, as
available from the City.
In the preparation of the projections in this Official Statement,the City has made certain assumptions with respect to
conditions that may occur in the future.Although the City believes these assumptions are reasonable for the purpose
of the projections, they are dependent upon future events, and actual conditions may differ from those assumed. To
the extent actual future events or conditions differ from those assumed by the City or provided to the City by others,
the actual results will vary from those projected.The City has not committed itself to provide investors with updated
forecasts or projections.
The Bonds may not be suitable for all investors. Prospective purchasers of the Bonds should give careful
consideration to the information set forth in this Official Statement and confer with their own tax and financial
advisors before deciding whether to purchase the Bonds.
This introduction is qualified in its entirety by reference to the entire Official Statement, and a full review of the
Official Statement should be made by potential investors. This Official Statement speaks only as of its date, and the
information contained in it is subject to change.
DESCRIPTION OF THE BONDS
General
The Bonds will be dated their date of delivery and will be issued in fully registered form in denominations of$5,000
each or integral multiples thereof within a maturity. The Bonds will mature on the dates and in the principal
amounts set forth on the inside cover of this Official Statement and will bear interest from their date, payable on
June 1,2024 and semiannually thereafter on December 1 and June 1 of each year until maturity,at the rates set forth
on the inside cover of this Official Statement. Interest on the Bonds will be calculated on the basis of a year of 360
days and twelve 30-day months.
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The Bonds will be issued in registered form, initially registered in the name of Cede & Co., as nominee for The
Depository Trust Company, New York, New York ("DTC"). Individual purchases of the Bonds will be made
initially in book entry form only and purchasers will not receive certificates representing their interest in the Bonds
purchased. So long as Cede & Co. is the Registered Owner of the Bonds, as nominee of DTC,references herein to
the Registered Owners or bond owners will mean Cede & Co. and will not mean the `Beneficial Owners" of the
Bonds. In this Official Statement, the term`Beneficial Owner"will mean the person for whom a DTC participant
acquires an interest in the Bonds. See Appendix E—"BOOK-ENTRY SYSTEM."
Registration and Payment
The City has adopted the system of registration for the Bonds approved, from time to time, by the State Finance
Committee(the "Committee"). Pursuant to chapter 43.80 RCW, the Committee designates a fiscal agent for bonds
issued within the State. The State's fiscal agent, currently U.S. Bank Trust Company, National Association
(the"Bond Registrar"), will authenticate the Bonds and act as the paying agent and registrar for the purpose of
paying the principal of and interest on the Bonds,recording the purchase and registration, exchange or transfer, and
payment of Bonds and performing the other respective obligations of the paying agent and registrar. No resignation
or removal of the Bond Registrar shall become effective until a successor has been appointed and has accepted the
duties of Bond Registrar.
To pay the principal of and interest on the Bonds when due, the City will remit money from the City's Regional
Water Supply System Bond Fund(the"Bond Fund")to the Bond Registrar. See"SECURITY FOR THE BONDS."
The Bond Registrar is obligated to remit such payments only to DTC, which, in turn, is obligated to remit such
payments to DTC participants for subsequent disbursement to the Beneficial Owners of the Bonds as described in
Appendix E—"BOOK-ENTRY SYSTEM." For so long as the Bonds are held by a depository, payments of
principal thereof and interest thereon shall be made as provided in accordance with the operational arrangements of
DTC. In the event that the Bonds are no longer held by a depository,interest on the Bonds shall be paid by check or
draft mailed to the Registered Owners at the addresses for such Registered Owners appearing on the Bond Register
on the Record Date (as defined below),or upon the written request of a Registered Owner of more than$1,000,000
of Bonds (received by the Bond Registrar at least by the Record Date), such payment shall be made by the Bond
Registrar by wire transfer to the account within the United States designated by the Registered Owner. Principal of
the Bonds shall be payable upon presentation and surrender of such Bonds by the Registered Owners at the
designated office of the Bond Registrar. "Record Date" is defined in the Bond Ordinance as the Bond Registrar's
close of business on the 15t'day of the month preceding an interest payment date. With respect to redemption of a
Bond prior to its maturity, the Record Date means the Bond Registrar's close of business on the date on which the
Bond Registrar sends the notice of redemption.
The transfer of any Bond may be registered and Bonds may be exchanged as provided in the Bond Ordinance.Upon
such surrender, the Bond Registrar shall cancel the surrendered Bond and shall authenticate and deliver, without
charge to the Registered Owner or transferee therefor, a new Bond (or Bonds at the option of the new Registered
Owner) of the same date, maturity, and interest rate and for the same aggregate principal amount in any authorized
denomination, naming as Registered Owner the person or persons listed as the assignee on the assignment form
appearing on the surrendered Bond, in exchange for such surrendered and cancelled Bond. Any Bond may be
surrendered to the Bond Registrar and exchanged,without charge,for an equal aggregate principal amount of Bonds
of the same date, maturity, and interest rate, in any authorized denomination. The Bond Registrar shall not be
obligated to register the transfer of or to exchange any Bond during the period between the preceding Record Date
and the principal payment or redemption date.
Redemption of the Bonds
No Optional Redemption. The Bonds are not subject to optional redemption prior to their stated maturity.
Open Market Purchase
The City reserves the right to purchase any or all of the Bonds in the open market at any time at any price acceptable
to the City plus accrued interest to the date of purchase.
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Defeasance
In the event that the City,to effect the payment,retirement,or redemption of any Bond, sets aside in the Bond Fund
or in another special account, cash or noncallable Government Obligations, or any combination of cash and/or
noncallable Government Obligations, in amounts and maturities which, together with the known earned income
therefrom,are sufficient to redeem or pay and retire such Bond in accordance with its terms and to pay when due the
interest and redemption premium, if any, thereon, and such cash and/or noncallable Government Obligations are
irrevocably set aside and pledged for such purpose,then no further payments need be made into such Bond Fund for
the payment of the principal of and interest on such Bond. The owner of a Bond so provided for shall cease to be
entitled to any benefit or security of the Bond Ordinance except the right to receive payment of principal,premium,
if any, and interest from the Bond Fund or such special account, and such Bond shall be deemed to be not
outstanding under the Bond Ordinance. The City shall give written notice of defeasance to the Registered Owner(s)
of the Bonds and to each party entitled to receive notice in accordance with the Continuing Disclosure Certificate.
The term "Government Obligations" is defined in the Bond Ordinance to mean those obligations now or hereafter
defined as such in chapter 39.53 RCW constituting direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by the United States of America, as such chapter may be hereafter
amended or restated.
PURPOSE AND APPLICATION OF BOND PROCEEDS
Proceeds of the Bonds will be used together with other available funds of Tacoma Water, and a contribution from
CWD,to refund,on a current basis,all of the outstanding 2013 Bonds(as described below under"Refunding Plan"),
and to pay costs of issuing the Bonds. Proceeds of the 2013 Bonds were used to refund the City's Regional Water
Supply System Revenue Bonds, 2002 (the"2002 Bonds"),proceeds of which were used to provide a portion of the
funds necessary to construct the Second Supply Project. See"THE SECOND SUPPLY PROJECT."
The Bonds have been designated as"Green Bonds."See"BONDS DESIGNATED AS GREEN BONDS."
Refunding Plan
The City will use a portion of the proceeds of the Bonds, together with funds available from Tacoma Water, and a
contribution from CWD,to refund all of the following 2013 Bonds(the"Refunded Bonds").
TABLE 2:
REFUNDED BONDS
Maturity
Date Principal Interest Redemption Redemption CUSIP
(December 1) Amount Rate Date Price Numbers
2024 $4,575,000 5.00% 05/13/2024 100% 87354TBU8
2025 4,820,000 5.00 05/13/2024 100 87354TBV6
2026 5,035,000 5.00 05/13/2024 100 87354TBW4
2027 5,300,000 5.00 05/13/2024 100 87354TBX2
2028 5,560,000 5.00 05/13/2024 100 87354TBYO
2029 5,875,000 5.00 05/13/2024 100 87354TBZ7
2030 6,155,000 4.00 05/13/2024 100 87354TCAI
2031 6,425,000 4.00 05/13/2024 100 87354TCB9
2032 6,190,000 4.00 05/13/2024 100 87354TCC7
Refunding Procedure. The City will deposit a portion of the proceeds of the Bonds on their date of delivery,
together with the contribution from CWD and other available funds of Tacoma Water, to be escrowed to the
redemption date for the Refunded Bonds at which time the Refunded Bonds will be redeemed at a price of par plus
accrued interest to the date of redemption. To fund the escrow, the City may hold such amounts uninvested or
purchase certain direct noncallable Government Obligations (the "Acquired Obligations"). Cash and any Acquired
Obligations will be deposited in the custody of U.S. Bank Trust Company, National Association (the"Escrow
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Agent") pursuant to the terms of an Escrow Deposit Agreement between the City and the Escrow Agent. The
maturing principal of the Acquired Obligations, interest earned thereon, and necessary cash balance, if any, will
provide payment of interest on the Refunded Bonds when due,up to and including the redemption date; and on the
redemption date,the redemption price of the Refunded Bonds.
Verification of Calculations. The mathematical accuracy of the computations of the adequacy of the maturing
principal amounts of and interest on the Acquired Obligations and cash on deposit to be held by the Escrow Agent to
pay principal of and interest on the Refunded Bonds as described above will be verified by Robert Thomas CPA,
LLC(the"Verification Agent"). The report of the Verification Agent will include the statement that the scope of its
engagement was limited to verifying the mathematical accuracy of the computations contained in the schedules
provided to it and that it has no obligation to update its report because of events occurring, or data or information
coming to its attention,subsequent to the date of its report.
Sources and Uses of Funds of Bond Proceeds
The proceeds of the Bonds,together with other available funds of Tacoma Water attributable to the Regional System
(if any) and the contribution from CWD, are expected to be applied as follows (amounts in table have been
rounded):
TABLE 3:
ESTIMATED SOURCES AND USES OF BOND PROCEEDS
Sources of Funds Amount
Principal Amount of the Bonds $ 32,350,000
Original Issue Premium 3,554,620
Equity Contribution from CWD 10,580,728
Amount Released from Reserve Account 4,272,894
Total Sources $ 50,758,242
Uses of Funds
Refunding Escrow Deposit $ 50,404,843
Costs of Issuance(') 353,399
Total Uses $ 50,758,242
(D Includes underwriters' discount, legal fees, municipal advisor's fees, green bond verification report fees,
rating agency fees,Escrow Agent fees,verification agent fees, and other costs incurred in connection with the
issuance of the Bonds and the refunding of the Refunded Bonds,and additional proceeds.
BONDS DESIGNATED AS GREEN BONDS
General
The Bonds have been designated as"Green Bonds."This designation is intended to allow investors the opportunity
to invest directly in bonds that finance environmentally-beneficial projects. This designation is not intended to
provide or imply that the holders of the Green Bonds are entitled to any additional terms or security to those
provided in the Bond Ordinance.
The City has retained Kestrel, a Climate Bonds Initiative Approved Verifier, to verify that the Green Bonds
conform, in all material respects, with the International Capital Market Association ("ICMA") Green Bond
Principles(June 2021)(the"Green Bond Principles").
Green Bonds Designation
Per the ICMA, "Green Bonds" are any type of debt instrument where the proceeds will be exclusively applied to
finance or refinance, in part or in full, new and/or existing eligible "green projects"and which are aligned with the
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four core components of the Green Bond Principles. The four core components are: 1. Use of Proceeds; 2. Process
for Project Evaluation and Selection;3.Management of Proceeds;and 4.Reporting.
Kestrel has determined that the Bonds are in conformance with the four core components of the Green Bond
Principles,as described in Kestrel's"Second Party Opinion",which is attached hereto as Appendix I.
In the Second Party Opinion, Kestrel has agreed to provide one update report on the Bonds within 12 months of
issuance. This report is expected to be produced after all proceeds have been spent and will include confirmation of
continued alignment with the Green Bond Principles and relevant updates on refinanced projects including
allocation of proceeds. See Appendix I. The City regularly provides operating and other information regarding its
facilities as described in Appendix I.
Independent Second Party Opinion on Green Bond Designation and Disclaimer
For over 20 years,Kestrel has been consulting in sustainable finance. Kestrel is an Approved Verifier accredited by
the Climate Bonds Initiative and an Observer for the ICMA Green Bond Principles and Social Bond Principles.
Kestrel reviews transactions in all asset classes worldwide for alignment with ICMA Green Bond Principles, Social
Bond Principles,Sustainability Bond Guidelines and the Climate Bonds Initiative Standards and criteria.
The Second Party Opinion issued by Kestrel does not and is not intended to make any representation or give any
assurance with respect to any other matter relating to the Bonds. Second Party Opinions provided by Kestrel are not
a recommendation to any person to purchase, hold, or sell the Bonds and designations do not address the market
price or suitability of the Bonds for a particular investor and do not and are not in any way intended to address the
likelihood of timely payment of interest or principal when due. The Second Party Opinion may be withdrawn at any
time in the sole and absolute discretion of Kestrel and there is no assurance that the Second Party Opinion will not
be withdrawn.
In issuing the Second Party Opinion, Kestrel has assumed and relied upon the accuracy and completeness of the
information made publicly available by the City or that was otherwise made available to Kestrel.
Despite the Second Party Opinion being provided by Kestrel, it should be noted that there is currently no clearly
defined regulatory definition applicable to the Bonds, as to what constitutes a "green" or equivalently labelled
project. No assurance can be given that such a clear regulatory definition will develop over time, or that, if
developed, it will include the projects to be refinanced with the proceeds of the Bonds.Accordingly,no assurance is
or can be given to investors that any uses of the Bonds will meet investor expectations regarding such "green" or
other equivalently labeled performance objectives or that any adverse environmental and other impacts will not
occur during the construction or operation of projects to be refinanced with Bond proceeds.
No representation is made by the City or the Board as to the suitability of any Bonds to fulfill Green Bond criteria
required by prospective investors. Each potential purchaser of Bonds should determine for itself the relevance of
the information contained or referred to herein or in the Bond Ordinance, including regarding the intended use of
the Bond proceeds. Any purchase of Bonds should be based upon such investigation as the purchaser deems
necessary.
SECURITY FOR THE BONDS
Revenue Obligations of the Regional Water Supply System
The City has the authority under State law and the Bond Ordinance to establish separate utility "systems"
within the Water Division, each of which is financed separately. The Water System currently includes one such
separate additional system known as the "Regional Water Supply System" (the "Regional System"). The Regional
System was established to construct and operate the Second Supply Project and the City has transferred facilities of
the Second Supply Project from the Water System to the Regional System.
The Second Supply Project, is owned, operated and maintained by the Water Division. The Regional System is
comprised of certain property and facilities to deliver and receive water for the Participants from the exercise by the
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City of its Second Diversion Water Right, as described under"THE SECOND SUPPLY PROJECT." The Regional
System does not include the Water System of the City or any other separate system of the City or of any other
Participant.
The Regional System delivers water to the Water System and to the three other Participants. Under the Project
Agreement,the costs of the Regional System,including the payment of Operating Expenses of the Regional System
and debt service on the Parity Bonds (to the extent required under the repayment agreements),including the Bonds,
are payable as operation and maintenance expenses of the Water System and each Participant's water system.
See Figure 1 for an illustration of the flow of funds for the Water System and the Regional System.
The Water System currently is responsible for payment of approximately 41.7%of Operating Expenses, capital and
other costs of the Regional System, and its share of debt service on the Party Bonds. As described below, if a
Participant other than Tacoma Water defaults in its payment obligation with respect to the Regional System and the
default includes any amounts necessary to make payment on the Parity Bonds, Tacoma Water is obligated to
increase its Participant Share of the payment to the extent another Participant does not,including paying debt service
on the Parity Bonds. Tacoma Water thus effectively guarantees the payment of substantially all of the debt service
on the Regional System Revenue Bonds. See"Payment Obligations of the Participants"below.
"Revenues" of the Regional System mean the income, revenues, receipts and loan proceeds derived by the City
through the ownership and operation of the Regional System, including Participants' Payments. In addition, all
money and investments in the Bond Fund (including the Debt Service Account and the Reserve Account, to the
extent pledged to the repayment of any Parity Bonds) and any construction fund established for the Parity Bonds,
together with the earnings thereon, are pledged to secure the payment of the principal of and interest on the Parity
Bonds. The City has obligated itself to set aside and pay into the Bond Fund certain fixed amounts out of the
Revenue Fund, subject to prior payment of Operating Expenses, sufficient to pay the principal of,premium, if any,
and interest on the Parity Bonds,including the Bonds.
The Bond Ordinance defines "Operating Expenses" of the Regional System to mean all expenses incurred by the
City in causing the Regional System to be operated and maintained in good repair, working order and condition,
including without limitation: deposits, premiums, assessments or other payments for insurance, if any, on the
Regional System; payments into pension funds; State—imposed taxes; payments made to any other person or entity
for the receipt of water supply or transmission or other right, commodity or service; payments made to any other
person or entity that are required in connection with the operation of the Regional System or the acquisition or
transmission of water and that are not subordinate to the lien of the Parity Bonds; and payments with respect to any
other expenses of the Regional System that are properly treated as operation and maintenance expenses under
generally accepted accounting principles applicable to municipal corporations. Operating Expenses do not include
any depreciation or taxes levied or imposed by the City, Payment Agreement payments, or payments to the City in
lieu of taxes,any Rebate Amount,or capital additions or capital replacements to the Regional System.
THE BONDS ARE NOT GENERAL OBLIGATIONS OF THE CITY, ANY OTHER PARTICIPANT, OR THE
STATE,OR A CHARGE UPON ANY GENERAL FUND OR OTHER PROPERTY OF THE CITY,ANY OTHER
PARTICIPANT, OR THE STATE NOT SPECIFICALLY PLEDGED THERETO BY THE BOND ORDINANCE,
AND NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, ANY OTHER
PARTICIPANT, OR OF THE STATE, NOR ANY REVENUES OF THE CITY DERIVED FROM SOURCES
OTHER THAN THE REGIONAL SYSTEM,ARE PLEDGED TO THE PAYMENT THEREOF.
Under the Bond Ordinance, the Revenues of the Regional System and other money and securities pledged are
immediately subject to the statutory lien of the pledge of Revenues, subject only to the prior payment of Operating
Expenses of the Regional System, without any physical delivery or further act, and the statutory lien of this pledge
shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the
City. All Parity Bonds hereafter outstanding will be equally and ratably payable and secured without priority by
reason of date of adoption of the ordinance providing for their issuance or by reason of their number or date of sale,
issuance, execution or delivery, or by the liens, pledges, charges, trusts, assignments and covenants made in the
Bond Ordinance or in any ordinance authorizing Future Parity Bonds, except as otherwise expressly provided or
permitted in the Bond Ordinance and except as to insurance which may be obtained by the City to insure the
repayment of one or more series or maturities within a series.
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State law provides that the owner of a bond, such as the Bonds, the payment of which is pledged from a special
fund, such as the Bond Fund, has a claim only against that fund and proportionate amounts of revenue pledged to
that fund.Under State law,any bond owner may bring a mandamus action to compel a city to set aside and pay into
the special fund, such as the Bond Fund,the amount that a city is obligated to set aside and pay therein if funds are
sufficient and it has otherwise failed to do so.
Payment Obligations of the Participants
Tacoma Water, Kent, CWD and Lakehaven have entered into the Project Agreement to finance, construct, operate
and maintain the Second Supply Project and to receive delivery of water from the Second Supply Project("Project
Water"). In 2002, the Participants entered into the Project Agreement and a repayment agreement setting forth the
terms under which Tacoma Water,Kent and CWD agreed to pay to the City their proportionate shares of the amount
necessary to pay the principal of and interest on the 2002 Bonds issued for the Second Supply Project. In 2010, the
Participants executed a Filtration Treatment Financing Plan and a repayment agreement setting forth the terms under
which Tacoma Water,Kent and CWD agreed to pay to the City their proportionate shares of the amount necessary
to pay the principal of and interest on the 2010 Bonds. See "THE SECOND SUPPLY PROJECT—Project
Participants."
The Project Agreement permits Participants to elect to pay cash obtained from the issuance of their own bonds,from
the proceeds of loans from private or public sources, or by any other lawful means for their Participant Share of a
Project Cost to be otherwise financed with the proceeds of bonds of the Regional System. See "THE SECOND
SUPPLY PROJECT." Lakehaven elected to separately pay for its Participant Share of the costs of financing the
Second Supply Project and the Filtration Treatment Project (now known as the Green River Filtration Facility).
Consequently,Lakehaven has no obligation to make debt service payments on the Bonds or any Outstanding Parity
Bonds.
The Bonds are being issued to refund all of the outstanding 2013 Bonds,which were issued to refinance a portion of
the Second Supply Project originally financed with proceeds of the 2002 Bonds. In connection with the issuance of
the Bonds, CWD has elected to prepay its proportional share of the 2013 Bonds, and will therefore not have an
ongoing repayment obligation with respect to the Bonds. The Bonds, therefore,will be the obligation of Kent and
Tacoma Water as described in Table 1.
Such election does not relieve Lakehaven or CWD from paying its portion of other costs of the Second Supply
Project. The Participants are obligated to pay their Participants' Share of other costs of the Project in the following
proportions: Tacoma, 15/36;Kent,7/36;CWD,7/36;and Lakehaven,7/36.
In the Project Agreement, each Participant has covenanted to establish, maintain and collect rates or charges for
water and other services supplied by it which shall be adequate to provide revenues sufficient to enable such
Participant to make the payments required to be made pursuant to the Project Agreement, and to pay all other
charges and obligations payable from or constituting a charge or lien upon such Participant's water utility revenues.
Each Participant is obligated to make the payments required under the Project Agreement whether or not the Second
Supply Project was completed or is operable or operating and notwithstanding the suspension, interruption,
interference, reduction or curtailment in the operation of the Second Supply Project for any reason, in whole or in
part.
Under the Project Agreement,the Participant Share of a Participant that has been in default for a period of 60 days
or more on a payment obligation under the Project Agreement (if that payment obligation includes amounts
necessary for the City to make payment on any Outstanding Parity Bonds or the Bonds) will be offered for
assignment to the non-defaulting Participants. Any non-defaulting Participant may accept all or any portion of the
defaulting Participant's Participant Share and,upon that acceptance,will be obligated to cure a proportionate share
of any existing payment default and will be responsible for paying all obligations associated with the increased
Participant Share then assigned to it. In the event that other non-defaulting Participants decline any or all of the
defaulting Participant's Participant Share, Tacoma Water will increase its Participant Share in an amount equal to
the defaulting Participant's Participant Share then remaining unassigned and will be responsible for the amount in
default.
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Tacoma Water operates the Second Supply Project, maintains financial records, and provides reports to the
Participants in accordance with the Project Agreement. Tacoma Water's biennial budget for the Water System
appropriates its share of the Regional System expenses, and includes a memorandum biennial budget with all
revenues and expenses of the Regional System. Initial expenditures necessary to operate and maintain the Second
Supply Project and any proposed capital expenditures including renewals,replacements,additions,or improvements
are paid by Tacoma Water.Participants are billed and pay their share of Operating Expenses of the Regional System
monthly and capital expenditures quarterly. Debt service payments by Participants on the Outstanding Parity Bonds,
as applicable (see Table 1), are defined in the applicable repayment agreements and paid to Tacoma Water semi-
annually in advance of when the payments are due. Tacoma Water pays all Operating Expenses and debt service for
Regional System obligations and Revenues for the Regional System are established to approximately equal annual
costs and to reimburse Tacoma Water.
A Participant's share of debt service on Parity Bonds and a Participant's Participant Share of the Second Supply
Project are each subject to further change upon the occurrence of certain events.First, a Participant is entitled under
the Project Agreement to sell, assign or transfer in whole or in part its rights and obligations under the Project
Agreement with the prior written consent of all other Participants.Any new Participant must have a rating in one of
the three highest categories assigned by one Rating Agency. The City has covenanted in the Bond Ordinance that it
will not amend the Project Agreement in any manner that would increase or reduce a Participant's obligations to pay
its share of debt service on Parity Bonds,except that it may allow for a new Participant or for an existing Participant
(other than the City)to assign its interests in the Project Agreement upon satisfaction of certain specified conditions.
Such a sale or assignment could affect both an existing Participant's share of debt service on the Parity Bonds and
its Participant's Participant Share and would, as well, add a new Participant to the Project. Second, as described
above, the Participant Share of a Participant that has been in default for a period of 60 days or more on any debt
service payment obligation is offered for assignment to the non-defaulting Participants. If other non-defaulting
Participants decline any or all of the defaulting Participant's Participant Share, Tacoma Water's Participant Share
will increase in an amount equal to the defaulting Participant's Participant Share then remaining unassigned. Third,
since any Participant may make an election to pay cash in lieu of participating in the issuance of Future Parity
Bonds,the percentage shares of debt service on all Parity Bonds(including the Bonds)allocable to a Participant may
change. Fourth, Participants are permitted under the repayment agreements to prepay all or any portion of their
shares of debt service if the applicable Parity Bonds are then subject to optional redemption. In that event, the
percentage shares of future debt service for any Participant making an optional prepayment used to redeem Parity
Bonds would be reduced, and for other Participants would be increased, as to the Parity Bonds remaining
outstanding after that optional redemption.
The occurrence of an Uncontrollable Force(as defined in the Project Agreement)will not relieve any Participant of
its obligation to pay money when due. The Project Agreement requires disputed invoices to be paid in full and
provides a procedure for resolving invoice disputes and reconciling disputed payments.
City of Tacoma. The City has declared that its obligation to pay its share of costs of the Second Supply Project is a
"Contract Resource Obligation" of its Water System. In its Water Bond Authorizing Ordinances, the City reserved
the right to enter into contracts or other obligations for the acquisition, from facilities to be constructed, of water
supply,transmission,treatment or other commodity or service relating to the Water System. Upon compliance with
certain requirements of the Water Bond Authorizing Ordinances, the City may determine that such a contract or
obligation is a Contract Resource Obligation of its Water System and may provide that all payments under that
Contract Resource Obligation (including payments prior to the time that water supply, transmission, treatment or
other commodity or service is being provided,or during a suspension or after termination of supply or service) shall
be an operation and maintenance expense of the Water System.
In 2002, the City determined that the obligations of the City under the Project Agreement are a Contract Resource
Obligation of its Water System and that all payments to be made by the City under the Project Agreement shall be
an operation and maintenance expense of its Water System. In the Bond Ordinance, the City covenants to pay into
the Revenue Fund in each month, as an operation and maintenance expense payable from Gross Revenues of the
Water System, an amount which, together with Participants' Payments and other Revenues available for such
purpose, is equal to the Regional System Costs which are at that time outstanding, together with the estimated
Regional System Costs for the next succeeding month.
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City of Kent. The obligation of Kent to make Participants' Payments, including Participants' Payments allocable to
debt service on the Outstanding Parity Bonds and the Bonds, constitutes a"Contract Resource Obligation"payable
as an operation and maintenance expense of Kent's water system. Kent's ordinances authorizing its outstanding
water system revenue bonds provide that Kent may incur an obligation, designated as a "Contract Resource
Obligation," to make payments for water supply, transmission or other commodity or service relating to its water
system. Kent may provide that all payments under a Contract Resource Obligation(including payments prior to the
time that water supply, transmission, treatment or other commodity or service is being provided, or during a
suspension or after termination of supply or service) shall be an operation and maintenance expense of Kent's water
system, and therefore be secured a lien on the gross revenues of its water system prior to the lien that secures its
water system revenue bonds. Kent has determined that the Project Agreement is a Contract Resource Obligation of
its water system,which means that all payments to be made by Kent under the Project Agreement shall be operation
and maintenance expenses of its water system.
CWD. The obligation of CWD to make Participant's Payments, including Participants' Payments allocable to debt
service on the Outstanding Parity Bonds,is an operation and maintenance expense of CWD.
For a description of Tacoma Water, see the information under the heading "THE CITY OF TACOMA WATER
SYSTEM." For a description of the other Participants, see Appendix B—"PARTICIPANTS IN THE SECOND
SUPPLY PROJECT."
Flow of Funds
Under the Bond Ordinance, Revenue of the Regional System deposited into the Revenue Fund is required to be
applied in each month as follows:
First,to the payment of Operating Expenses of the Regional System for such month;and
Second, to the Bond Fund to pay interest, to pay principal and Mandatory Amortization Installments on
Parity Bonds that are Term Bonds, and to replenish the Reserve Account and, in the event the City has
entered into any Parity Payment Agreement, to make any regularly scheduled City Payments adjusted by
any regularly scheduled Receipts(provided,however,that termination payments with respect to any Parity
Payment Agreement shall not rank on a parity of lien with the Parity Bonds), and, in the event the City has
entered into a reimbursement agreement with respect to Qualified Insurance or a Qualified Letter of Credit
or other credit facility, to make all payments required to be made on a parity of lien with the Parity Bonds
pursuant to such reimbursement agreement; provided that if there is not sufficient money to make all
payments under more than one such reimbursement agreement, the payments shall be made on a pro rata
basis.
After such required payments are made, amounts in the Revenue Fund may be used to pay junior lien obligations of
the Regional System, to finance capital improvements or for any other lawful purpose of the Regional System.
See Appendix A----"COPY OF THE BOND ORDINANCE."
The flow chart on the following page shows the flow of funds for the Water System and the Regional System.
[remainder of page intentionally left blank]
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FIGURE 1: WATER SYSTEM AND REGIONAL SYSTEM
Tacoma Water System Regional Water Supply System
Water System Gross Revenues Lakehaven
Y City of Kent Covington Water
•Retail&Wholesale Rate Revenues Water District water and Sewer
•Other Operating Revenues District
•ikon-Operating Revenues(Includes Federal Subsidy)
•Planned Transfers from Rate stabilization Account
Water System Operating Expenses
Contract Resource Obligation(CRO) Regional System Revenues
Includes Water System's share of:
•Debt Service on Regionai System Bonds Payments made by Participants as an
•Operating&Maintenance Expenses
•Capital Expenditures Operating Expense of their Utilities
other Operating Expenses
•Personnel Expenses Regional System Obligations
•Supplies,Services &Other Charges
•City and TPU Shared Services Assessments •Debt Service on Regional System Bonds to the extent required
•Utility Taxes,B&O Taxes&Franchise Fee under Repayment Agreements(net of Federal Subsidy)
•Fixed and Variable Operating&Maintenance Expenses
•Capital Expenditures
•Other Casts of the Regional System
Water System Parity Bond Debt Service
•Interest(before Federal Interest Subsidies)
•Principal Payments
•Reserve Account Deposits
Subordinate Debt Service
•Principal&Interest Payments for Jr Lien including
Public Works Trust Fund(PWTF)and Drinking Water
State Revolving Fund(DWSRF)Loans
Other Purposes of the Water System
•Capitai Expenditures
•City Transfers for Gross Earnings Taxes
•Additions to Reserves or Deposits to Rate
Stabilization Account
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Rate Covenants
The City has covenanted in the Bond Ordinance to establish,maintain and collect contract charges or other amounts
for water and other goods and services sold or supplied through the facilities of the Regional System that will
provide the City with Revenues of the Regional System sufficient for the payment of Regional System Costs.
"Regional System Costs" mean with respect to each month, all costs attributable to the Regional System, to the
extent not paid from the proceeds of Parity Bonds or other sources, resulting from the ownership, operation,
maintenance and termination of, and repair, renewals, replacements, additions, improvements, betterments and
modifications to the Regional System, including without limitation(1)Operating Expenses of the Regional System,
(2)the amount required to be paid into the Bond Fund for the payment of debt service on the Parity Bonds, (3) any
amount that the City may be required during such month to pay for the prevention or correction of any unusual loss
or damage or for renewals, replacements, repairs, additions, improvements,betterments, and modifications that are
necessary to keep the Regional System in good operating condition,to improve the operation thereof or to prevent a
loss,and(4)all other charges or obligations against the Revenues.
The City has further covenanted to establish, maintain and collect rates and charges for water and other goods and
services sold or supplied through the facilities of its Water System sufficient to pay the cost of operation and
maintenance of the Water System and to provide Gross Revenues of the Water System sufficient, together with
amounts on deposit in the Revenue Fund and available for such purpose (including Participants' Payments),to pay
all Regional System Costs and all obligations against Gross Revenues of the Water System now or hereafter
imposed by law or contract.
Kent, CWD and Lakehaven have covenanted in the Project Agreement to collect water rates and charges sufficient
to pay their Participant Shares. See "THE SECOND SUPPLY PROJECT—Project Agreement and Repayment
Agreements."
No Reserve Account for the Bonds;Reserve Account for Outstanding Parity Bonds
The Bonds are not secured by funds on deposit in the Reserve Account or any other reserve account. The
Reserve Account Requirement for the Bonds is zero($0).
A Reserve Account has been created in the Bond Fund for the purpose of securing the payment of the principal of
and interest on certain Parity Bonds that have been specifically declared to be secured by the Reserve Account. The
Outstanding Parity Bonds are secured by the Reserve Account,but the Bonds are not. The City may create separate
reserve funds and establish separate Reserve Account Requirements,if any,to secure the payment of the principal of
and interest on Future Parity Bonds, in which case the Reserve Account Requirement, if any, for such issuance of
Future Parity Bonds may be set by ordinance and the Reserve Account shall not secure such series of Future Parity
Bonds.
The Reserve Account Requirement for the Outstanding Parity Bonds is an amount equal to the Average Annual
Debt Service on the Outstanding Parity Bonds calculated as of their closing date. The Reserve Account Requirement
with respect to Future Parity Bonds will be either an amount equal to Average Annual Debt Service on such
issuance of Future Parity Bonds, but in no case shall the amount in the Reserve Account allocable to such issuance
of Future Parity Bonds exceed 10%of the proceeds of such bonds,or(as described above)the ordinance authorizing
such issuance of Future Parity Bonds may provide for the creation of a separate reserve account, in which case the
Reserve Account Requirement, if any, for such issuance of Future Parity Bonds may be set in such ordinance and
the Reserve Account shall not secure such series of Future Parity Bonds.
The cash balance in the Reserve Account as of December 31, 2023 was $8,140,011, a portion of which will be
contributed to the refunding of the Refunded Bonds. See "SOURCES AND USES OF FUNDS." The remaining
balance in the Reserve Account after such transfer will be sufficient to satisfy the Reserve Account Requirement for
the Outstanding Parity Bonds as of the date of issuance of the Bonds($3,867,117).
The Reserve Account is held by the City Treasurer for the benefit of the owners of the Parity Bonds secured thereby,
rather than by a third-party fiduciary. In the event of the bankruptcy or insolvency of the City, a bankruptcy court
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may be able to direct the application of money in the Reserve Account to other purposes. See "CERTAIN
INVESTMENT CONSIDERATIONS—Municipal Bankruptcies."
See Appendix A for additional terms and definitions related to the Reserve Account and the Reserve Account
Requirement.
Additional Obligations
The City has, in the Bond Ordinance, reserved the right to issue Future Parity Bonds for the Regional System, to
enter into Parity Payment Agreements (as defined in the Bond Ordinance and described below), and to issue junior
lien obligations secured by a junior lien on Revenues of the Regional System.
Future Parity Bonds. Pursuant to the Bond Ordinance, the City has reserved the right to issue Future Parity Bonds
for any lawful purpose of the City relating to the Regional System, including but not limited to, acquiring,
constructing and installing additions, betterments and improvements to and extensions of, acquiring necessary
equipment for, or making necessary renewals, replacements or repairs and capital improvements to the Regional
System and refunding any outstanding indebtedness upon satisfaction of certain conditions set forth in the Bond
Ordinance. Among other things, the Bond Ordinance requires that at the time of the issuance of such Future Parity
Bonds there be no deficiency in the Bond Fund and the Project Agreement be in full force and effect.
Except for refunding Parity Bonds meeting the conditions described below, there shall be on file prior to the
issuance of any Future Parity Bonds either:
(1) a certificate of the Finance Director (or equivalent official) of each Participant (including the City in
the case of the Water System) that will be responsible for paying debt service on the Future Parity
Bonds stating that "Revenues" or "Gross Revenues" (as defined in the Participant's System bond
ordinance or resolution), as determined from the financial statements of the Participant's System, in
any 12 consecutive months out of the most recent 24 months were sufficient to pay the Participant's
operation and maintenance expenses of the Participant's System and the Participant's portion of the
debt service on the Future Parity Bonds then proposed to be issued based on the highest debt service in
the next three calendar years following the year through which interest is capitalized or the Project
being financed is placed in service, whichever is later, and "Net Revenues" (as defined in the
Participant's bond ordinance or resolution) for such 12-month period were sufficient to pay debt
service on the Participant's senior lien water revenue bonds and meet the Participant's rate coverage
required by such ordinance or resolution;or
(2) for each Participant(including the City)that will be responsible for paying debt service on the Future
Parity Bonds, a certificate of an Engineer or a Certified Public Accountant showing that the"Adjusted
Revenues" (determined as provided in the Bond Ordinance) for each calendar year during the life of
the Future Parity Bonds proposed to be issued will be sufficient to pay the operation and maintenance
expenses of the Participant's System and the Participant's portion of the debt service on outstanding
Parity Bonds and on the Future Parity Bonds then proposed to be issued, based on the highest debt
service in the three calendar years following the year interest is capitalized, or the project being
financed is placed in service, whichever is later, and "Adjusted Net Revenues" (determined as
provided in the Bond Ordinance) will be sufficient to pay debt service on the Participant's senior lien
water revenue bonds and meet the Participant's rate coverage required by the ordinances or resolutions
authorizing such senior lien bonds. In providing that certificate, the Engineer or Certified Public
Accountant may take into account certain adjustments to Net Revenue as permitted by the Bond
Ordinance.
If the Future Parity Bonds proposed to be issued are for refunding purposes, no such coverage certification shall be
required if the issuance of such refunding Future Parity Bonds results in net present value monetary saving to the
City and such refunding Future Parity Bonds will not require an increase of greater than $5,000 in debt service
payments to be paid in any Fiscal Year or calendar year thereafter than would have been required to be paid in the
same Fiscal Year or calendar year for Annual Debt Service on the Parity Bonds being refunded. See Appendix A—
"COPY OF THE BOND ORDINANCE."
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At or prior to the issuance of the Bonds, the City will have satisfied the Future Parity Bond requirements
summarized above.
Under the Project Agreement, each Participant has the option to pay in cash or to have the City issue Future Parity
Bonds to finance its Participant Share of the capital costs of the Second Supply Project. Upon each issuance of
Future Parity Bonds,the Participants' shares of debt service may be recalculated to reflect their respective aggregate
shares of debt service on all outstanding Parity Bonds. Consequently, the Participants' shares of debt service on all
Parity Bonds after the issuance of Future Parity Bonds could be different than their shares of debt service on the
Bonds. See"SECURITY FOR THE BONDS—Payment Obligations of the Participants."
Parity Payment Agreements. The Bond Ordinance permits the City to enter into a Payment Agreement for the
purpose of managing or reducing the City's exposure to fluctuations or levels of interest rates, currencies or
commodities or other interest rate, investment, asset or liability management purposes. Upon satisfaction of the
requirements for the issuance of Future Parity Bonds and of additional requirements contained in the Bond
Ordinance,a Payment Agreement may constitute a charge and lien on the Revenues of the Regional System equal in
rank with the charge and lien of the Parity Bonds. The City has not entered into any such Parity Payment
Agreements and has no plans to do so at this time. See Appendix A----"COPY OF THE BOND ORDINANCE."
Junior Lien Obligations. Nothing in the Bond Ordinance prohibits the City from issuing or incurring obligations of
the Regional System with a lien on Revenues of the Regional System junior to the lien of the Parity Bonds. The
City has no plans to issue junior lien obligations of the Regional System. See"DEBT SERVICE REQUIREMENTS
AND ADDITIONAL BORROWING Junior Lien Obligations."
Additional Covenants
The Bond Ordinance also contains covenants regarding, among other things, operation and maintenance of the
Regional System, limitations on amending the Project Agreement, restrictions on the sale, transfer or disposition of
the Regional System, books and accounts, and maintenance of insurance. See Appendix A----"COPY OF THE
BOND ORDINANCE."
Permitted Investments
Money held in the Bond Fund(and the accounts therein)may be invested in any legal investments,and any earnings
may be retained in such fund or account for the purpose of that fund or transferred to the Revenue Fund. For a
description of the funds and accounts created by the Bond Ordinance, see Appendix A----"COPY OF THE BOND
ORDINANCE."
Additional Terms of the Bond Ordinance
The Bond Ordinance defines certain Events of Default with respect to Parity Bonds, including but not limited to,
failure to make bond payments punctually and failure to observe or perform any of the covenants included in the
Bond Ordinance. The Bond Ordinance provides for the opportunity to cure certain defaults and the appointment of a
Bondowners' Trustee to take such steps and institute such suits, actions or other proceedings, all as it may deem
appropriate for the protection and enforcement of the rights of the owners of Parity Bonds. The Bond Ordinance
also sets forth provisions related to amending the Bond Ordinance,with and without the consent(including deemed
consent) of owners of Parity Bonds. See Appendix A—"COPY OF THE BOND ORDINANCE" for provisions
related to Events of Default,remedies,amendments,and other terms of the Bonds and other Parity Bonds.
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DEBT SERVICE REQUIREMENTS AND ADDITIONAL BORROWING
Parity Bonds Debt Service Requirements
The following table shows debt service requirements on the Outstanding Parity Bonds, excluding the Refunded
Bonds,and the Bonds.
TABLE 4:
SUMMARY OF DEBT AND DEBT SERVICE REQUIREMENTS—
REGIONAL SYSTEM PARITY BONDS
Outstanding Parity Bonds') The Bonds
Total Parity
Bond Debt
Year Principal Interest Principal Interest Service(2)
2024 $ 355,000 $ 2,495,136 $ 3,380,000 $ 1,289,507 $ 7,519,643
2025 370,000 2,480,936 3,070,000 1,448,500 7,369,436
2026 385,000 2,461,064 3,205,000 1,295,000 7,346,064
2027 400,000 2,440,385 3,375,000 1,134,750 7,350,135
2028 410,000 2,418,901 3,545,000 966,000 7,339,901
2029 425,000 2,396,880 3,745,000 788,750 7,355,630
2030 440,000 2,374,054 3,925,000 601,500 7,340,554
2031 455,000 2,350,421 4,140,000 405,250 7,350,671
2032 470,000 2,324,846 3,965,000 198,250 6,958,096
2033 4,495,000 2,298,427 -- -- 6,793,427
2034 4,655,000 2,045,763 -- -- 6,700,763
2035 4,830,000 1,784,105 -- -- 6,614,105
2036 5,005,000 1,512,611 -- -- 6,517,611
2037 5,185,000 1,231,280 -- -- 6,416,280
2038 5,375,000 939,831 -- -- 6,314,831
2039 5,570,000 637,702 -- -- 6,207,702
2040 5,775,000 324,613 -- -- 6,099,613
Total(') $ 44,600,000 $ 32,516,957 $ 32,350,000 $ 8,127,507 $117,594,464
0) Includes the 2010 Bonds and excludes the Refunded Bonds. Amounts in table reflect the total interest due on the
2010B Bonds, and do not take into account the federal credit payments expected to be received by the City with
respect to such bonds.
(2) Totals may not add due to rounding.
Source: City of Tacoma and Municipal Advisor.
Additional Borrowing
The City does not plan to issue Future Parity Bonds for the Regional System for several years.
The City issued $63,800,000 aggregate principal amount Series 2024 Water System Bonds on January 25, 2024 to
defease and refund certain outstanding bonds of the Water System. See Table 17. The City may issue additional
Water System Bonds from time to time to finance capital projects of the Water System,however,no such issuances
are currently planned.
The City periodically reviews its outstanding bonds for refunding opportunities, however, and may issue Future
Parity Bonds of the Regional System or Water System Bonds for refunding purposes if market conditions warrant.
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Junior Lien Obligations
The City retains the right to issue revenue obligations with a junior lien on Revenues of the Regional System. The
City does not currently have any junior obligations payable from Revenues of the Regional System outstanding.
The City has no plans to issue junior lien obligations of the Regional System.
Debt Payment Record
The City has promptly met all debt service payments on outstanding obligations. No refunding bonds have been
issued to avoid an impending default.
THE CITY
General
The City was incorporated in 1884 and operates under the council-manager form of government, which is
administered by a City Council under the Constitution and laws of the State and the City Charter. The City Council
is composed of nine members: a Mayor and eight Council Members, five of whom are elected from districts which
have been apportioned according to population. The three remaining positions are "at large"positions, nominated
and elected City-wide. The Council Member positions are four-year terms with overlapping terms to allow for the
election of four Council Members every two years. The Mayor is elected City-wide for a four-year term and is the
presiding officer of the City Council. The Deputy Mayor,who exercises the powers and duties of the Mayor in the
absence or disability of the Mayor, is elected by the Council Members for a one-year term. Council Members,
including the Mayor, can serve no more than 10 consecutive years as a member of the City Council, Mayor or
combination thereof.
In addition to the Department,various departments within the City provide a full range of services to the citizens of
the City including police and fire protection, electric production and distribution, wastewater and surface water
services, solid waste services,public works (which includes street operations, engineering, facility management and
fleet operations), planning and development services, community and economic development, neighborhood and
community services,and many others.
City Administration
The City Council appoints a City Manager who is the chief executive officer of the City. The City Manager is
responsible to the City Council for the administration of all departments of the City with the exception of the
Department of Public Utilities. Pursuant to an amendment to the City Charter approved by the voters in 2014, the
City Manager's appointments of department heads require confirmation by the City Council.
The City Manager appoints a Finance Director who supervises the financial and purchasing functions of the City,
including the City's accounting system. The Finance Director is responsible for preparing the Annual
Comprehensive Financial Report in accordance with generally accepted accounting principles and the instructions of
the State Auditor's Office. The Finance Director oversees and monitors the payment of principal and interest on all
bonds issued by the City, including the Bonds. Under the Finance Director, a Budget Officer of the Office of
Management and Budget is responsible for the preparation and monitoring of the biennial budget, which provides
for the servicing of debt and provides for anticipated revenues to meet the estimated costs of expenditures. The
budget is presented to the City Council for its review and approval and final adoption.
The City Manager appoints the City Treasurer,who is responsible for the receipt, custody and disbursement of City
funds. The City Treasurer receives all money due and belonging to the City, and keeps a detailed account of the
same in the manner prescribed by the Finance Director. The Government Performance and Finance Committee,
composed of four council members,is responsible for the financial management and policies of the City.
Elizabeth Pauli, City Manager. Ms.Pauli was appointed City Manager in May 2017. Prior to her appointment, she
served as Interim City Manager. She joined the City in May 1998 as Chief Assistant City Attorney and was
appointed City Attorney in 2004. Prior to her work with the City, she was a partner at McGavick Graves. Ms.Pauli
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is a graduate of the University of Wisconsin-Madison Law School. She also holds a Bachelor of Science degree in
education and social work from University of Wisconsin-Madison. Ms. Pauli is a member of the Washington State
Bar Association and the Washington State Association of Municipal Attorneys.
Andrew (`Andy') Cherullo, Finance Director. Andrew Cherullo joined the City in February 2013. Prior to joining
the City, he most recently served as the Chief Financial Officer for the Washington State Health Care Authority.
Prior to that, Mr. Cherullo served as the Chief Financial Officer for the Massachusetts School Building Authority.
He started his career in public finance at the Massachusetts House Ways and Means Committee, where within four
years he became the Budget Director. As Finance Director for the City, Mr. Cherullo serves as the Chief Financial
Officer for the City Manager and the City Council. He is responsible for overseeing the City's financial affairs,
including accounting, debt and investment management, procurement and purchasing, and financial reporting. Mr.
Cherullo has Bachelor's degrees in Economics and Political Science from the University of Montana and a Master's
degree in Economics from Tufts University.
Michael San Soucie, City Treasurer. Mr. San Soucie joined the City in April 2013. He served in the role of
Treasury Manager until his appointment to City Treasurer in March 2023. He has over 28 years of governmental
experience at both the state and local levels. Mr. San Soucie has a Bachelor of Science degree in Accounting from
Central Washington University and maintains a current CPA license.
Chris Bacha, City Attorney. Mr. Bacha has been a municipal practitioner since 1987 with an emphasis on the
following practice areas: transactional law; common carrier regulations — telecommunications, cable and rail;
municipal finance and taxation; municipal legislation; land use and planning; municipal utilities; labor and
employment law;public works contracting and construction law; criminal justice; constitutional law, administrative
law;real property;environmental law;elections; and public administration. He was named Interim City Attorney on
October 2, 2023 and City Attorney on December 19, 2023. Previously, he served as Deputy City Attorney and
Chief Deputy City Attorney for the City (2015 to 2023), as outside city attorney for various cities in Washington
(2006 to 2015), as an Assistant City Attorney for the City (1988 to 2006), and as a Lewis County Deputy
Prosecuting Attorney(1987 to 1988).
Nicole Emery, City Clerk. Ms. Emery was appointed as City Clerk effective August 14,2023.For nearly four years,
Ms. Emery previously served as an office administrator in the City Manager's Office providing direct support to the
Office of the Mayor with duties related to public records and public meeting administration and support.Prior to that
position, she spent six years in the City Clerk's Office where she acquired first-hand experience supporting the
City's Charter Review process,onboarding new staff,and finalizing the City Council's agenda and meeting.
THE DEPARTMENT OF PUBLIC UTILITIES—TACOMA WATER
Overview
The City Charter provides for the Department, which is governed by a five-member Board. The Board is
responsible for general utility policy, and its members are appointed by the Mayor and confirmed by the City
Council. The Department's budget is presented to the Board for review and approval and then forwarded to the City
Council for approval and inclusion in the City's budget. The Board meets twice monthly.
The Department consists of Tacoma Power, Tacoma Water, and Tacoma Rail. The Water Division consists of two
separate systems: the Water System and the Regional System. The Board serves as the sole policy board for the
approval of most Department business. In the case of budgets, rates, bond issues, and system expansions, actions
approved by the Board must also be approved by the City Council.
The Director of Utilities,who is chief executive officer of the Department,is appointed by the Board and confirmed
by the City Council. The Board must evaluate the performance of the Director annually and reappoint the Director
every two years subject to confirmation by the City Council. The current Director, Jackie Flowers, was appointed
Director in 2018 and reappointed in 2020 and 2022. The Director,with the concurrence of the Board,has the power
to appoint division superintendents.
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Utility rates and charges are initiated by the Board and adopted by the City Council,and are not subject to review or
approval by any other governmental agency. See"THE CITY OF TACOMA WATER SYSTEM—Water Rates."
The City Charter provides that, except for a reasonable gross earnings tax imposed by the City Council for the
benefit of the City's general fund not to exceed 8.0%,the revenues of utilities owned and operated by the City may
not be used for any purposes other than the ongoing operations of the utilities and payment of debt service on utility
debt. The funds of any utility may not be used to make loans to or purchase the bonds of any other utility,
department,or agency of the City.
Management
Brief descriptions of the backgrounds of key officials of the Department and Tacoma Water follow.
Jackie Flowers, P.E., Director of Utilities, was appointed Department Director in 2018. Ms. Flowers has over 30
years professional experience, with 15 of those managing public utilities, including hydropower generation, power
supply, power transmission and distribution, energy efficiency, engineering, operations technology, fiber optic
networks, and traffic signalization. She serves on the Board of Directors for the Tacoma-Pierce County Chamber of
Commerce, the Economic Development Board for Tacoma-Pierce County, the Large Public Power Council and
GridForward. She is also a member of the American Public Power Association CEO Climate Change Taskforce.
Scott Dewhirst, P.E., Superintendent, Water Division, was named superintendent and chief operating officer of
Tacoma Water in 2017. Mr. Dewhirst's experience includes 17 years at Newport News Waterworks including roles
as the assistant director and the interim director. He holds degrees in both civil and environmental engineering and
was the chair of the Virginia Section of the American Water Works Association in 2016. Mr. Dewhirst currently
serves on the Board of the Association of Metropolitan Water Agencies and the Water Information and Sharing
Center Board as Treasurer.
Heather Pennington, P.E., Deputy Superintendent/Customer and Employee Experience Manager, joined Tacoma
Water in 1994 and served as an engineer in Water Quality and Distribution Engineering. She later managed the
Distribution Engineering section and in 2011 was named deputy water superintendent. Ms. Pennington is a licensed
civil engineer, holds an MBA from Pacific Lutheran University and a B.S. in environmental engineering from
Northwestern University. Ms. Pennington's professional affiliations include serving on the PNWS-AWWA's
Washington Water Utility Council Executive Committee,Education and Training board,and Philanthropic Advisory
Council.
Sean Senescall, Business Services Manager, joined Tacoma Water in 2010 as the Rates and Financial Planning
assistant division manager. He became the Rates and Financial Planning manager in 2013. Mr. Senescall has many
years of experience in government finance and rate development, having worked for the financial consulting firm
FCS Group before coming to Tacoma Water.He studied economics at the U.S.Air Force Academy and has a B.S.in
economics from the University of Washington.
Jessica Knickerbocker, P.E., Planning and Engineering Manager,joined the City in 2010 as an Engineer and has
worked in both Environmental Services and Tacoma Power before joining Tacoma Water. Ms. Knickerbocker was
appointed Planning and Engineering Manager in June 2023 and has over two decades of municipal and utility
experience.
Jerrod Davis, P.E., Source Water and Treatment Operations Manager, joined Tacoma Water in 2023. His
experience includes international development work,private engineering consulting, and over 22 years at the State
Department of Health serving in several leadership roles. He is a licensed engineer and holds a Bachelors and
Masters degree in civil and environmental engineering.
Stuart Vaughan, P.E., Maintenance and Construction Manager, joined Tacoma Water in 2007 as part of the
engineering team within the Water Distribution Engineering section. Since starting he has worked on both the
supply and distribution systems in many different capacities, most recently leading the supply system maintenance
group. Mr. Vaughan started in his current role as the Maintenance and Construction Manager in 2019. He holds a
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B.S. in Mechanical Engineering from Washington State University and a Professional Engineering license in civil
engineering.
Jodi Collins, Financial Stewardship Manager, joined the City in 2004 as a Fund Accountant in the Finance
Department and moved to Tacoma Water in 2008 as the budget and financial analyst in the Water Resource
Planning section. She is currently an Assistant Water Division Manager and is committed to developing and leading
the team in support of financial strength for the utility on behalf of its ratepayers. She holds a B.S. in Accounting
from Central Washington University and an M.B.A.from the University of Washington
Budgetary Policies
The Tacoma Water biennial budget is proposed by the Board and adopted by the City Council with legal budgetary
control at the fund level; expenditures may not exceed budgeted appropriations at the fund level. The City Manager
or Director of Utilities, as appropriate, may authorize transfers within funds; however, the City Council must
approve,by ordinance,any amendments that increase fund expenditures beyond the amounts specified in the budget.
Auditing
Accounting systems and budgetary controls are prescribed by the Office of the State Auditor in accordance with
RCW 43.09.200 and RCW 43.09.230. State statutes require audits for cities to be conducted by the Office of the
State Auditor. The City complies with the systems and controls prescribed by the Office of the State Auditor and
establishes procedures and records which reasonably provide for safeguarding of assets and the reliability of
financial reporting.
The State Auditor is required to examine the affairs of cities at least once every two years. The City is audited
annually. The examination must include, among other things, the financial condition and resources of the City,
whether the laws and constitution of the State are being complied with, and the methods and accuracy of the
accounts and reports of the City. Reports of the auditor's examinations are required to be filed in the Office of the
State Auditor and in the finance department of the City.
Tacoma Water's financial statements are audited by an independent accounting firm. The financial statements of
Tacoma Water for fiscal years 2021 and 2022 were prepared by the City Finance Office and audited by Moss Adams
LLP, Tacoma Water's independent auditor. Tacoma Water's audited financial statements for such years, including
the audit letter,have been included in Tacoma Water's 2022 Annual Financial Report,a copy of which is attached in
Appendix H.
The audited financial statements of Tacoma Water are public documents. Tacoma Water has not requested that
Moss Adams LLP provide consent for inclusion of its audited financial statements in this Official Statement, and
Moss Adams LLP has not been engaged to perform and has not performed, since the date of its report included
herein, any procedures on the financial statements addressed in that report. Moss Adams LLP also has not
performed any procedures related to this Official Statement.
Labor Relations
As of September 30, 2023, Tacoma Water had approximately 293 employees, many of whom are represented by
Local 483-International Brotherhood of Electrical Workers ("IBEW"), one of the 12 labor organizations that
represent City employees. Other units representing Tacoma Water employees include Local 117-Teamsters, Local
17-Professional and Technical Engineers, and Local 120-AFSCME. Negotiations with unions are conducted by a
team selected by City leadership and chaired by a Labor Relations staff member (negotiator). Management of
Tacoma Water strives to promote sound labor relations policies that are beneficial both to its operations and to its
employees. This cooperative effort has precluded a significant work stoppage among utility employees for more
than three decades.
As provided by State law, matters that are delegated by the City Charter to the City's Civil Service Board are
established by law and are not negotiated at the bargaining table. Such matters include issues relating to tenure of
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employment, hiring, recruitment, and termination. Additionally, retirement benefits through the Tacoma City
Employees' Retirement System historically have been recommended by the Tacoma Retirement Board, which
includes representatives of City employees and retirees, as well as City management, and approved by the City
Council. See"Retirement System"below.
Tacoma Water Operations
The Division,doing business as Tacoma Water,is a division of the Department and is included as an enterprise fund
in the Annual Comprehensive Financial Report of the City. See "Overview" and "Management" above. See also
"THE CITY OF TACOMA WATER SYSTEM—Tacoma Water—General."
Tacoma Water owns and operates the City's Water System, which includes a surface water supply source; several
extensive well fields; a water transmission system consisting of several pipelines, water treatment and quality
facilities; various reservoirs, standpipes and pump stations; and an extensive distribution system. Tacoma Water
supplied water to approximately 103,644 customer accounts as of September 30,2023. Tacoma Water's service area
includes Tacoma and urbanized areas of Pierce and South King Counties. Water service outside the City limits is
provided under franchises granted by both Pierce and King Counties and multiple other cities.
Tacoma Water's water transmission and distribution system consists of approximately 150 miles of transmission
pipelines ranging in size from 28 to 96 inches in diameter,29 booster pump stations, 141 million gallons of reservoir
storage,and 1,292 miles of distribution pipeline ranging in size from two to 24 inches in diameter. The distribution
system includes a number of pressure zones;most are supplied by reducing the pressure gradient from the McMillin
Reservoir and the remainder require additional pumping of water to serve higher areas.
The storage available in the Water System is capable of supplying approximately three days at the average daily
usage rate. To maintain better water quality within the Water System and as a result of other system changes, such
as the construction of the Second Supply Project, storage was reduced by approximately 143 million gallons in 2012
from the historic storage amount to approximately 141 million gallons in 2023.
Tacoma Water also has approximately 22 interties with 11 wholesale purveyor systems. Some of these interties are
used to supply wholesale water to the systems on a regular basis and others are available for peak or emergency
demands of these systems. Several of these interties are capable of providing Tacoma Water with a limited amount
of emergency water supply.
Prior to 2020, Tacoma Water was organized as Water Distribution Engineering, Water Distribution Operations,
Water Quality, Water Supply, Water Asset and Information Management, and Water Finance and Analytics. In
2020, Tacoma Water reorganized to combine groups by functions in support of a 2020-2025 strategic plan. An
overview of the functions included in each of the new sections follows:
Superintendent Office. The Superintendent Office is responsible for all utility operations, and includes the
Enterprise Safety Team and Strategy Manager. Safety is a high priority for Tacoma Water. The Safety Team is
focused on the development, delivery, and administration of all safety program elements supporting Tacoma Water
employees with safe work practices and compliance with all applicable regulations. The Strategy Manager oversees
the development and management of the Tacoma Water Strategic Plan. Water System operations are managed from
the Water Control Center,located in the Tacoma Water Distribution Center,which is staffed 24 hours a day.
Customer and Employee Experience. Customer and Employee Experience is responsible for supporting new and
existing Tacoma Water customers, including development in its service area, facilitating services received,
enterprise communications, education, and conservation activities. This section supports employee workforce
development,workforce management,payroll administration,and knowledge management.
Business Services. Business Services delivers customer value through integrated, strategic capabilities across the
domains of finance,operational technology,project and portfolio management,data management and analytics.This
section is responsible for Tacoma Water's long-range financial planning strategy,cost of service ratemaking, special
pricing development, debt management, financial reporting, and internal controls. It is responsible for managing
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Tacoma Water's data through governance and stewardship, deploying advanced analytics tools and associated
training, process development, and data/technology/analytics project delivery. It is also responsible for Tacoma
Water's technology strategy and for application development,support,and solution architecture.
Project and Portfolio Management is a new area of deliberate focus for Business Services, and this capability is
responsible for connecting its project portfolio to Tacoma Water's strategy, and enabling portfolio-level capabilities
such as prioritization,portfolio health visibility,and enterprise resource management.
Source Water and Treatment Operations. Source Water and Treatment Operations produces, delivers, and balances
potable water across transmission and distribution systems to meet seasonal and short-term demand while protecting
source water and providing natural resource stewardship. This section also ensures water quality and treatment meet
all regulatory requirements through monitoring and reporting and cross-connection control.
Maintenance and Construction. Maintenance and Construction maintains and repairs all parts of the Water System
through effective logistics (including fleet and warehouse) and planning. This section supports economic
development through the installation of new service connections and water quality by performing system flushing.
Planning and Engineering. Planning and Engineering is responsible for all aspects of comprehensive strategic
development and engineering planning across all technical and operational functions of Tacoma Water. This section
provides technical support for Water System operations and maintenance and manages the planning, design, and
construction of projects to improve the Water System.
Guiding Principles
In 2019, the Department launched policy development of Government Process, Board-Director Linkage, and
Guiding Principles (formerly Strategic Directives). The Government Process policies are processes for how the
Board governs itself. The Board-Director Linkage policies clarify how the Board expects the Director to carry out
the work of the Department. The Guiding Principles establish the performance standards for which the Board will
hold the Department accountable on behalf of its ratepayers. Guiding Principles adopted by the Board include equity
and inclusion, financial sustainability, rates, stakeholder engagement, environmental sustainability, innovation,
reliability and resiliency, telecom, economic development, government relations, employee relations, customer
service,and resource planning.
Strategic Plan
The Department developed its first comprehensive strategic plan in 2023,providing a shared mission and vision for
Tacoma Power, Tacoma Water and Tacoma Rail. The Department's vision is to be a "trusted community partner,
where employees are proud to deliver equitable, affordable utility services" and its mission is to "deliver clean,
reliable services essential to quality of life."
Tacoma Water operates under the guidance of its divisional strategic plan to contribute to the mission of providing
clean, reliable water. The focus is on three key objectives: providing customer increased value; preparing the
workforce for the future; and improving systems, processes, and use of resources. Strategic initiatives and annual
goals have been developed to contribute to the success of those initiatives. Performance related to these initiatives
and goals is reported to the executive leadership quarterly.
Retirement System
Substantially all City employees, including employees of the Department, are covered by a contributory retirement
plan administered by the City's Employee Retirement System("TERS"), an actuarially funded system administered
by the City. Law enforcement officers and firefighters are covered by the Law Enforcement Officer and Firefighter
Retirement System ("LEOFF"), which is operated by the State for law enforcement officers and firefighters
throughout the State. Additionally, the City administers two single-employer pension funds as required by State
statute: a Police Relief and Pension Fund and a Firemen's Relief and Pension Fund.
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Tacoma Employees'Retirement System. The following information regarding TERS is provided on a City-wide
basis. The most recent actuarial valuation of TERS was completed as of January 1, 2023 by Milliman
(the"Milliman Report") and reported a funding ratio of 99.9%. Additional information, including the Milliman
Report, is available on the TERS website (which website is not incorporated herein by this reference) at:
www.cityoftacoma.org/retirement.
TERS is a cost-sharing multiple-employer, defined benefit retirement plan covering substantially all employees of
the City, with the exception of police officers, firefighters, Tacoma Rail, and employees who are covered by other
retirement plans. Employees of the Tacoma-Pierce County Health Department, as well as certain employees of
Pierce Transit and South Sound 911 (formerly known as the Law Enforcement Support Agency) who established
membership in TERS when these agencies were still City departments, are also members. As of January 1, 2023,
there were 2,765 retirees and beneficiaries currently receiving benefits, 638 vested terminated members entitled to
future benefits and 3,201 active members in TERS.
The Board of Administration of TERS (the "TERS Board") administers the plan, and benefit provisions are
established in accordance with chapter 41.28 RCW and Chapter 1.30 of the Tacoma Municipal Code. The TERS
Board consists of nine members,including the City Mayor,who serves as chair,Finance Director,City Manager(or
designee), Public Utilities Director(or designee),three employees, one retiree and one City resident(not employed
by the City)elected by the other eight members. The TERS Board is required by the City's municipal code to make
annual reports to the City Council on the financial condition of TERS. The TERS Board, subject to City Council
approval,appoints the Director,who is responsible for managing the daily operations of TERS.
Contributions City-wide totaled$58.0 million in 2022 ($31.3 million in employer contributions and$26.7 million in
employee contributions) and $55.0 million in 2021 ($29.7 million in employer contributions and $25.3 million in
employee contributions). The contribution rate for the City's covered payroll is currently set at 21.00% of
pensionable wages for 2023,with 11.34%paid by the City and 9.66%paid by employees.
The City, including Tacoma Water, is current in all payments to TERS. Further details about the plan are included
in Appendix H.
In addition to TERS, City employees participate in the federal social security program. The City withholds the
employee contribution from City employee's wages.
Law Enforcement Officer and Firefighter Retirement System. LEOFF is a cost-sharing multiple-employer defined
benefit pension plan. Membership in the plan includes all full-time, fully compensated local law enforcement
officers and fire fighters. The LEOFF system includes two plans. Participants who joined the system by
September 30, 1977, are LEOFF Plan 1 members. Those joining thereafter are enrolled in LEOFF Plan 2.
Retirement benefits are financed from employee and employer contributions, investment earnings, and State
contributions. LEOFF Plan 1 members are vested after the completion of five years of eligible service. Plan 1
members are eligible for retirement with five years of service at the age of 50.
For the years ending December 31, 2021 and December 31, 2022, the City contributcd approximately $4.9 million
and$5.8 million,respectively,to LEOFF Plan 2.
Information regarding LEOFF is presented in annual financial report of the State Department of Retirement Systems
("DRS"),which may be obtained from www.drs.wa.gov(which website is not incorporated herein by reference).
While the City's contributions in 2022 represented its full statutorily required contribution to LEOFF, any unfunded
pension benefit obligations within the systems could be reflected in future years as higher contribution rates. The
website of the Office of the State Actuary (which is not incorporated into this Official Statement by reference)
includes information regarding the values and funding levels of LEOFF and other State-administered pension plans.
The DRS Comprehensive Annual Financial Report for the year ended June 30, 2023, reported that LEOFF Plan 1
and Plan 2 each has a funded ratio in excess of 100%and a net pension asset.
Police Relief and Fire Relief and Pension Fund. The Police Relief and Pension Fund and the Fire Relief and
Pension Fund are single-employer, defined benefit pension funds established and administered by the City in
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accordance with the requirements of State law. Membership is limited to firefighters employed prior to March 1,
1970. Since the effective date of the LEOFF on March 1, 1970, no payroll deductions for active employees have
been taken under these pension plans.
GASB 67168 Reporting Rules. GASB Statement 68,Accounting and Financial Reporting for Pensions("GASB 68")
became effective for the City for the year ended December 31,2015. Among the changes imposed by GASB 68 are
that lower discount rates are required to be used for underfunded plans in certain cases and the difference between
expected and actual investment returns each year will be recognized over a closed five-year smoothing period.
GASB 68 also requires employers that participate in the State sponsored plans to report their proportionate share of
Net Pension Liability,Deferred Inflows of Resources,Deferred Outflows of Resources,and Pension Expense for the
State plans. DRS determines each participating employer's proportionate share of overall plan liability and the State
Actuary determines each plan's accounting valuation. GASB 68 affects the accounting for pensions, but does not
change the funding status of the plans calculated by State Actuary or pension contribution rates that are set based on
statutory assumptions.
In 2022, the City reported a pension asset of$146,649,370 and Tacoma Water's proportionate share was 9.65% of
that asset,or$14,152,644,which was based on total actual contributions for the year.
Other Post-Employment Benefits
In addition to pensions, many state and local governmental employers provide other post-employment benefits
("OPEB") as part of total compensation to attract and retain the services of qualified employees. OPEB includes
post-employment health care as well as other forms of post-employment benefits that are provided separately from
pension plan benefits. The City allows retirees to participate in medical, dental and vision programs from the time
retirement begins until they qualify for Federal funded programs. The City uses pay as you go funding, and upon
retirement the retiree is responsible for paying a blended premium,which prior to retirement was paid by the City.
The benefit is an implicit subsidy to the retiree. As of December 31, 2022, the City's net OPEB obligation was
$227,442,102,of which$5,350,651 was related to Tacoma Water. Further details about OPEB are provided in Note
13 in Appendix H.
Deferred Compensation
The City offers its employees a deferred compensation plan through a third party created in accordance with Internal
Revenue Code Section 457. The plan, available to all City permanent full-time and part-time employees, permits
them to defer a portion of their salary until future years. The deferred compensation is not available to employees
until termination,retirement,disability, death,or unforeseeable emergency,but the plan offers a loan provision. An
employee may defer 100%of their salary net of employee pension contributions and any Section 125 deductions.
Taxes Imposed on Tacoma Water
State law and the City Charter allow the City to impose a gross earnings tax not exceeding 8%upon the revenues of
Tacoma Water, unless approved by a vote of the citizens. Payment of the gross earnings tax to the City is
subordinate to the payments required to be made by Tacoma Water into any fund or funds previously or
subsequently created for the payment of the principal of,and interest on,Tacoma Water's water revenue bonds. The
City Charter provides that the tax on City-operated utilities shall not be disproportionate to the taxes the utility
would pay if it were privately owned.
Tacoma Water pays a public utility tax imposed by the State presently at the rate of 5.029%of gross revenues,with
certain exceptions. This tax is passed through to applicable ratepayers and reflected in their rates.
Tacoma Water also pays utility tax on a percentage of the utility's gross earnings in the City of University Place.
The current tax rate is 6.0%. This tax is assessed directly to University Place customers through their rates.
Tacoma Water also pays miscellaneous fees, licenses, business and occupation (`B&O"), sales, and use taxes.
Certain of these taxes and payments are operation and maintenance expenses of the Water System and Operating
Expenses of the Regional System.
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Fleet Services
The Department has established a Fleet Services Fund to perform scheduled maintenance,repair and replacement of
Department vehicles and related equipment. Tacoma Water pays into the Fleet Services Fund to cover fleet
operation and maintenance expenses. Per Ordinance No. 28688,passed in 2020,the Fleet Services Fund transferred
operating division fleet assets to Tacoma Power,Tacoma Rail, and Tacoma Water for funding flexibility. The Fleet
Services Fund maintains the purchasing and maintenance responsibilities. Starting January 1,2021, Tacoma Water
no longer pays capital replacement fees to the Fleet Services Fund, but still pays capital replacement fees for fleet
equipment necessary for utility operations. Tacoma Water also pays the Fleet Services Fund for maintenance,
administrative overhead, fuel and fuel loading, and pool car rentals. Payments made by Tacoma Water in 2022 and
2021 were$2,273,442 and$2,093,971,respectively.
Program of Insurance
The Department maintains a self-insurance program and insurance policies. The Department has established a Self-
Insurance Fund(the "Self-Insurance Fund")to insure Tacoma Water and other divisions within the Department for
certain losses arising from personal and property damage claims by third parties. The major risks to Tacoma Water
are flooding, wind damage, chemical spills, wildfires, and earthquakes. Mitigating controls and emergency and
business resumption plans are in place. To the extent damage or claims exceed insured values, rates may be
impacted.
Tacoma Water is required to make payments to the Self-Insurance Fund to cover claims incurred by Tacoma Water
and administrative expenses of the Self-Insurance Fund.Tacoma Water's premium payments were$240,000 in 2022
and 2021. As of September 30, 2023, assets in the Self-Insurance Fund total $8.7 million, and Tacoma Water's
portion is $6 million, which exceeds accrued and incurred but not reported liabilities. Equity in the Self-Insurance
Fund is transferred to the appropriate operating divisions in accordance with GASB 10. Management believes
Tacoma Water's investment in the Self-Insurance Fund is more than adequate to settle all its known or estimated
claims.
The City purchased a Fiduciary Liability policy with a limit of$15.0 million and a$100,000 deductible. A separate
deductible of$1.0 million applies to Excessive Fees Claims. This coverage provides for wrongful acts related to the
fiduciary duty of the City,trustees, or committee members arising out of the administration of the City's employee
benefit programs. The coverage also provides a Government Crime policy with a $5.0 million limit and $200,000
deductible for employee dishonesty and for fraudulent or dishonest act by employees against the City for loss of
money, securities, and property. Coverage also includes an Excess Worker's Compensation policy with a statutory
limit and a self-insured retention of$1.25 million per occurrence.Coverage also includes a Cybersecurity policy and
an Excess Cyber policy.
Separate from General Government, the Department maintains Property insurance and Excess liability insurance.
The Property insurance policy has a deductible of$250,000 per occurrence that applies to the buildings and contents
while a deductible of $10,000 per vehicle applies to motor vehicles. Coverage also provides a Wrongful Acts
liability policy with a limit of$2.25 million for each wrongful act and a $2.25 million aggregate. Excess liability
policies provide coverage in excess of the previously noted Wrongful Acts liability policy and include General
liability and Automobile liability coverage. These policies have a limit of$52.5 million each occurrence with a
$52.5 million aggregate in excess of a$2.5 million retention. Coverage also includes Aviation liability -Unmanned
aircraft liability for drones with a limit of$1.0 million.
Strategic Planning and Financial Planning and Reporting
Tacoma Water has formally adopted certain policies that serve as a guide to financial management and rate setting.
These are included in the "Water Rate and Financial Policy," which has been reviewed and adopted as a City
Resolution by the Board and City Council. These policies require that the utility set rates based on the cost of
service to each customer class, adhere to restrictions on the term of debt, and maintain a minimum of 60 days of
budgeted operation and maintenance expenses in the Current Fund, 1% of original cost plant-in-service in the
Capital Reserve Fund, and $2,000,000 in the System Development Charge Fund. These policies also specify debt
service coverage minimums that are higher than those that are required by the Bond Ordinance, including an"All In
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Debt Service Coverage" minimum of 1.25 times or 1.00 times during planned reserve spend down, and a "Senior
Debt Service Coverage" minimum of 1.50 times. The policies also require that water rates be designed to
adequately fund acquisitions of new resources and conservation and allow the utility to recover up to 65% of rate
revenues from fixed components of the rate. The Board and City Council approved the amended Water Rate and
Financial Policy in 2022, which now highlights certain areas of focus including long-term financial planning,
gradualism,equity,affordability and climate change.
State law and City policies permit City utilities to borrow on a short-term basis from the General Fund. Tacoma
Water has never borrowed from the General Fund and does not currently expect to do so.
Financial reports are provided to the Board, and budget performance reports are published for staff and policymaker
review on a quarterly basis.
Investment Practices
The City Investment Policy permits legal investments as authorized by State law. Among the investments permitted
by State law and the Investment Committee's policy are banker's acceptances of the top 50 world banks as
published by American Banker, U.S. Treasury bills, certificates, notes and bonds, certain U.S. Government agency
securities,commercial paper with the highest rating by at least two nationally recognized rating agencies,repurchase
agreements with the market value of collateral exceeding the dollar amount of the repurchase agreement by two
percent over the term of the agreement,reverse repurchase agreements,the State Local Government Investment Pool
(the "LGIP") (described below), municipal securities, certificates of deposit, corporate notes and supranational
agency bonds. Daily liquidity requirement to meet the City's daily obligations is maintained by investing a portion
of the City Treasurer's Tacoma Investment Pool("TIP")in the LGIP.
As of December 31,2022,the City's cash and investments on a fair value basis,totaled approximately$1.46 billion,
not including City pension funds. As of December 31, 2022, the majority of the portfolio was invested in
government agencies(39.7%)and U.S.Treasuries(51.3%).
State Local Government Investment Pool. The State Treasurer's Office administers the Washington State Local
Government Investment Pool (the "LGIP"), an optional investment tool that in fiscal year 2023 held an average
balance of$21.9 billion on behalf of 631 participants. In its management of LGIP,the State Treasurer is required to
adhere,at all times,to the principles appropriate for the prudent investment of public funds. These principles are, in
order of priority, (i)the safety of principal; (ii)the assurance of sufficient liquidity to meet cash flow demands; and
(iii)the attainment of the highest possible yield within the constraints of the first two goals. Historically,the LGIP
has had sufficient liquidity to meet all cash flow demands.
The LGIP, authorized by chapter 43.250 RCW,is a voluntary pool which provides its participants the opportunity to
benefit from the economies of scale inherent in pooling. It is also intended to offer participants increased safety of
principal and the ability to achieve a higher investment yield than would otherwise be available to them. Although
not regulated by the U.S. Securities and Exchange Commission (the "SEC"), the LGIP is invested in a manner
generally consistent with the SEC guidelines for Rule 2a-7 money market funds; for example, currently it has a
maximum weighted average maturity of 60 days and a maximum weighted average life of 120 days. The maximum
final maturity is 397 days except for floating and variable-rate securities and securities that are used for repurchase
agreements. The weighted average maturity of the LGIP generally ranges from 30 to 60 days. Investments
permitted under the pool's guidelines include U.S. government and agency securities, bankers' acceptances, high
quality commercial paper, repurchase and reverse repurchase agreements, motor vehicle fund warrants, and
certificates of deposit issued by qualified State depositories. The City may withdraw funds in their entirety on less
than 24 hours'notice.
THE SECOND SUPPLY PROJECT
Description of the Second Supply Project
To meet its own future water supply requirements as well as to increase regional supply, in 1968 Tacoma Water
began developing the Second Supply Project, which includes a second supply pipeline from Tacoma Water's Green
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River resource (the "Second Supply Pipeline"). The Second Supply Project is the major source of Tacoma Water's
water supply for its Water System. For a description of the Water System, see"THE CITY OF TACOMA WATER
SYSTEM."
The Second Supply Project consists of the following components: (1) a Main Branch pipeline to the City with a 72
million gallons per day ("MGD") nominal capacity; (2) headworks diversion dam and intake improvements;
(3)related fisheries and environmental enhancements; (4) improvements and additions to the Howard Hanson Dam
to raise the summer storage pool to elevation 1,167 to provide an additional 20,000 acre feet of water storage,
together with improvements and additions related to accommodating fish passage; and (5) treatment facilities
including the Green River Filtration Facility;and as the same will be added to,improved and extended for as long as
any of the Parity Bonds are outstanding.
The Second Supply Pipeline is approximately 34 miles long and varies from 48 to 90 inches in diameter. Its route
follows a more northerly route than Tacoma Water's Pipeline No. 1, traversing south King County and thereby
making water available to the urbanized areas north and east of Tacoma. In addition to increasing water supply,the
Second Supply Project increases flexibility and reliability of water delivery in both Tacoma Water's and the other
Participants' service areas.The Second Supply Project became operational in October 2005.
Tacoma Water is the holder of the Second Diversion Water Right and is the owner/operator of the Second Supply
Project assets on behalf of the Regional System. See "THE CITY OF TACOMA WATER SYSTEM—Water
Rights."
The Second Supply Project is separate from the Water System. Tacoma,Kent, CWD, and Lakehaven participate in
the Second Supply Project under the terms of the Project Agreement,which defines their rights and obligations with
regard to the Second Supply Project. Tacoma has a 15/36 Participant Share and each of Kent,CWD,and Lakehaven
has a 7/36 Participant Share in the Second Supply Project. Generally, a Participant Share represents a Participant's
proportional right to receive and obligation to pay for water delivered by the Second Supply Project.
See"SECURITY FOR THE BONDS—Payment Obligations of the Participants."
As owner/operator of the Second Supply Project on behalf of the Regional System, Tacoma Water directly pays all
operating, capital and debt service obligations on behalf of the Participants and in turn invoices Kent, CWD and
Lakehaven for their contracted share of the expenses. Operating Expenses of the Regional System are billed
monthly on a reimbursement basis, capital expenditures are billed each quarter on a reimbursement basis and debt
service is accrued monthly and paid when due.
The term of the Project Agreement extends through the operating life of the Second Supply Project, including all
renewals and replacements thereof and additions thereto. The Project Agreement provides that all obligations
incurred during its term will survive its termination or expiration, and will survive until such obligations are
satisfied.
For a summary of the provisions of the Project Agreement, see Appendix C—"SUMMARY OF THE PROJECT
AGREEMENT."
Green River Filtration Facility
The Project Agreement envisioned that future State or federal regulations may require additional or different
treatment facilities in order for Project Water to remain in compliance with water quality regulations. The Project
Agreement defines the costs associated with additional or different Treatment Facilities to be Project Costs,
apportioned to each of the Participants on the basis of their Participant Share. Further, the Project Agreement
requires the Project Committee (as described under "Project Agreement and Repayment Agreements—Project
Committee")to make a determination of what Treatment Facilities should be added to the Second Supply Project.
Until 2015,the Green River was one of the few remaining major unfiltered surface water supplies in the country. In
2006, the U.S. Environmental Protection Agency ("U.S. EPA") issued the Long Term 2 Enhanced Surface Water
Treatment Rule("LT2"),establishing new requirements for all water utilities providing water from lakes or rivers to
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provide treatment for inactivation or removal of Cryptosporidium. Cryptosporidium is a naturally-occurring micro-
organism that can be found in open surface water sources such as the Green River, and has been responsible for
waterborne disease outbreaks in some public water systems. While years of monthly testing from the Green River
indicates that the presence of this organism is extremely rare, the LT2 regulation required Tacoma Water to install
additional treatment for Cryptosporidium by 2014. The Participants worked with a consulting team to analyze
potential strategies for LT2 compliance. Following substantial analysis, significant public outreach and
communication, the filtration option was selected as the best solution for the long-term benefit of the utility
customers. Representatives from Kent, CWD and Lakehaven participated in the treatment plant decision process
conducted by Tacoma Water. In 2010, the Board, the Tacoma City Council, the CWD and Lakehaven Boards and
the Kent City Council each adopted a resolution approving the installation of the Green River Filtration Facility for
the Second Supply Project in order to address public health, supply reliability and regulatory compliance issues
associated with the Second Supply Project Water. The Project Agreement defines the costs associated with
additional or different treatments facilities to be Project Costs,apportioned to each of the Participants on the basis of
their Participant Share.
The Green River Filtration Facility was completed in 2015. Funding for the project was provided, in part, from
proceeds of the 2010 Bonds. The Green River Filtration Facility has the capacity to filter 150 MGD, above the 110
MGD typically required in peak summer season.
Project Agreement and Repayment Agreements
The term of the Project Agreement extends through the operating life of the Second Supply Project(which extends
beyond the term of the Bonds), including all renewals and replacements thereof and additions thereto. Consistent
with the Project Agreement,the Participants expect that the Second Supply Project will have an operating life of no
less than 100 years. The Project Agreement provides that all obligations incurred during its term will survive its
termination or expiration,and such obligations will survive until satisfied.
Rights and Obligations. The Project Agreement confers rights and imposes obligations on all four Participants,
including Tacoma Water, and on Tacoma Water as operator of the Second Supply Project(the "Project Operator").
Each Participant has contractual rights under the Project Agreement (i) to use an undivided share of the Second
Supply Project equal to its project capacity share and to use available excess project capacity; (ii) to schedule for
delivery and receive its Participant Share of Second Diversion Water at its points of delivery; (iii) to schedule for
delivery and receive additional water at its points of delivery; and (iv) to receive its Participant Share of storage.
Each Participant has a contractual obligation(i)to receive Second Diversion Water and additional water scheduled
for delivery by and delivered to it; and(ii)to pay its Participant Share of Project Costs.
As Project Operator, Tacoma Water is responsible for the day-to-day operation of the Second Supply Project and is
obligated, consistent with the approved annual budget ("Project Annual Budget") then in effect, to operate and
maintain the Second Supply Project in a manner that is consistent with Prudent Utility Practice. Tacoma Water also
is responsible as Project Operator for, among other things, (i) monitoring the delivery of water from the Second
Supply Project to each Participant and (ii) calibrating and testing for accuracy the master meter and all delivery
meters.
Water deliveries are scheduled on a weekly basis by an assigned Tacoma Water engineer. Tacoma Water tracks
availability of run-of-the-river water for the Regional System and also tracks and coordinates delivery of stored
water at Howard Hanson Dam. Tacoma Water maintains financial and water accounting records for the Regional
System, providing reports to the Participants in accordance with the Project Agreement. Daily flow records and
other daily data are available to the Participants through a secure website. A monthly meeting is held by the Project
Committee to discuss any issues or concerns related to the Second Supply Project.An operations subcommittee also
meets bi-monthly to deal with operations issues.
Project Committee. Decisions are made by a project committee consisting of one representative of each Participant
(the "Project Committee"). For the Project Committee to take action, a quorum of not less than three Participants is
required, with Tacoma's presence mandatory. For approval of certain matters, including approval of capital
expenditures contained in an annual budget and approval or revision of any financing plan, an affirmative vote of
29/36ths of the Project Committee votes and three of the Participants is required. Further, in order to vote on a
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financing plan, the representative of each Participant must present to the Project Committee a resolution by its
governing body indicating the nature of the vote to be cast by the representative. A financing plan sets forth the
purpose,amount,repayment schedule and timing of any proposed Regional System bond issuances.
Annual Budgets. Under the Project Agreement, the Second Supply Project operates under an annual budget, which
must include both the amounts necessary to operate and maintain the Second Supply Project and any proposed
capital expenditures for any renewals,replacements,additions or improvements to the Second Supply Project.
Tacoma Water is required to submit to the Project Committee by no later than each July 1 a proposed Project
Annual Budget for the next calendar year. By no later than October 15, the Project Committee must approve the
Project Annual Budget as submitted by Tacoma Water or approve a Project Annual Budget as revised by the Project
Committee. If the Project Committee has not approved a Project Annual Budget by January 1, Tacoma Water may
operate the Second Supply Project and expend funds in accordance with the Project Annual Budget from the
immediately preceding calendar year. The City has established a Second Supply Project operating reserve account
equal to two months of its annual operating budget.
Annual Operating Plans. Detailed provisions of the Project Agreement govern, among other things, (i)the
scheduling, withdrawal and use of Second Diversion Water from storage, (ii)the metering of water, (iii)the
introduction into the Second Supply Project of additional water, (iv)the storage of Second Diversion Water upon
completion of Phase I of the Howard Hanson Additional Storage Project, (v)the uses of project capacity and excess
project capacity, and(vi)the effects of Uncontrollable Force affecting the water systems of the Participants on the
obligations of the Participants under the Project Agreement.
Payment of Project Costs. The Project Agreement governs the City's billing of Participants,no more frequently than
once in each calendar month, for costs set forth in the Project Annual Budget then in effect. The Project Agreement
requires disputed invoices to be paid in full, and provides a procedure for resolving invoice disputes and reconciling
disputed payments.Payments will be considered past due and will accrue a late payment charge if not received on or
before the due date. Tacoma Water may elect to suspend deliveries of scheduled water to any Participant for which
an invoice or portion thereof remains unpaid for a period of 30 days after the due date, such suspension to apply
until the Participant has paid in full all amounts due and owing.
Payment of Bonds:Defaults in Payment. Under the Project Agreement,the Participant Share of a Participant that has
been in default for a period of 60 days or more on any payment obligation under the Project Agreement (if that
payment obligation includes amounts necessary for the City to make payments on any Project Bonds such as the
Bonds) will be offered for assignment to the non-defaulting Participants. In the event that other non-defaulting
Participants decline any or all of the defaulting Participant's Participant Share, Tacoma Water will increase its
Participant Share in an amount equal to the defaulting Participant's Participant Share then remaining unassigned.
Historically,Participants'Payments have been made timely and have not resulted in a default.
Financing of the Regional System. The Project Agreement allows each Participant to pay all or part of its
Participant Share of the Second Supply Project capital costs either in cash or over time. The total original project
cost was approximately$232 million,including financing costs. Tacoma issued its 2002 Bonds to finance a portion
of the construction of the Second Supply Project. Lakehaven used cash to finance its share of the initial project. In
2002, the Participants entered into a repayment agreement and Financing Plan governing the payment of Second
Supply Project costs and the obligation of Tacoma,CWD and Kent to pay debt service on the 2002 Bonds.
Tacoma issued the 2013 Bonds to refund the 2002 Bonds on April 16,2013. Pursuant to the repayment agreement,
Tacoma,CWD,and Kent were obligated to pay their share of debt service on the 2013 Bonds in the same proportion
as the 2002 Bonds. In connection with the issuance of the Bonds,CWD has elected to prepay its proportionate share
of the 2013 Bonds and will therefore not be financially obligated to pay debt service on the Bonds.
In 2010, the Participants entered into a financing plan to install the Green River Filtration Facility, and Kent and
CWD chose to have Tacoma issue the 2010 Bonds to finance their proportionate shares. Lakehaven chose to pay its
entire share of the capital cost of the Green River Filtration Facility in cash. Tacoma issued $47,840,000 of 2010
Bonds to finance a portion of the Green River Filtration Facility. See "Green River Filtration Facility" above.
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Consequently, Tacoma Water, MD and Kent are obligated to pay amounts sufficient to provide for the payment of
the principal of and interest on the 2010 Bonds.
See Table 1 for a summary of each Participant's share of the Outstanding Parity Bonds and the Bonds under the
Project Agreement and the applicable repayment agreements.
These payments by Tacoma Water, Kent and CWD are payable as operation and maintenance expenses from the
gross revenues of their respective water systems. The applicable repayment agreements govern debt service
payments on the Parity Bonds and do not otherwise affect each Participant's rights and obligations under the Project
Agreement. The applicable repayment agreements take precedence over the debt repayment provisions of the
Project Agreement.
[remainder of page intentionally left blank]
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The following table sets forth the Participants' allocable shares of the annual debt service on the Outstanding Parity
Bonds (excluding the Refunded Bonds) and the Bonds. If a Participant other than Tacoma Water defaults in its
payment obligation with respect to the Regional System and the default includes any amounts necessary to make
payment on Parity Bonds, Tacoma Water is obligated to increase its Participant Share of the payment to the extent
another Participant does not,including paying debt service on the Parity Bonds. Because Lakehaven chose to pay its
allocable share of the capital costs of the initial project and the filtration project with cash, it has no allocable share
of the debt service on the Parity Bonds.
TABLE 5:
REGIONAL SYSTEM PARITY BONDS
PARTICIPANTS'ALLOCABLE SHARES OF ANNUAL DEBT SERVICEM
Year Kent CWD(2) Tacoma Water Total
2024 $2,244,857 $ 197,578 $5,077,208 $7,519,643
2025 2,199,644 197,578 4,972,214 7,369,436
2026 2,187,271 197,578 4,961,214 7,346,064
2027 2,182,093 197,578 4,970,464 7,350,135
2028 2,173,609 197,578 4,968,714 7,339,901
2029 2,171,838 197,578 4,986,214 7,355,630
2030 2,161,261 197,578 4,981,714 7,340,554
2031 2,157,129 197,578 4,995,964 7,350,671
2032 2,032,803 197,578 4,727,714 6,958,096
2033 740,135 582,578 5,470,714 6,793,427
2034 727,592 575,937 5,397,234 6,700,763
2035 719,206 568,453 5,326,447 6,614,105
2036 709,695 560,126 5,247,790 6,517,611
2037 699,061 550,956 5,166,263 6,416,280
2038 687,302 545,942 5,081,587 6,314,831
2039 674,419 534,805 4,998,478 6,207,702
2040 665,412 522,824 4,911,377 6,099,613
Total $25,133,327 $6,219,825 $86,241,311 $117,594,464
Note: Totals may not foot due to rounding.
0)Excludes the Refunded Bonds and includes the Bonds. Debt service shown in table does not take into account the
federal interest subsidy expected to be received in connection with Outstanding Parity Bonds issued as Build
America Bonds.
(2)CWD is responsible for paying its proportional share of the debt service on the 2010 Bonds and has elected to
prepay its portion of the Refunded Bonds and will not be participating in the financing of the Bonds.
Source: City of Tacoma and Municipal Advisor.
Project Participants
Four Washington municipalities are the Participants in the Second Supply Project in the following fractional
Participant Shares: Tacoma- 15/36; Kent- 7/36; CWD- 7/36; and Lakehaven- 7/36. Each Participant is entitled to
use its Participant Share of Project Capacity and Second Diversion Water and is obligated to pay its Participant
Share of Project Costs pursuant to the Project Agreement. Under that agreement,Participants may elect to pay their
Participant Share of certain Project Costs by participating in the City's issuance of"Project Bonds"or may elect to
pay cash to the City for their Participant Share of those Project Costs. See "THE SECOND SUPPLY PROJECT—
Project Agreement and Repayment Agreements." For purposes of the Project Agreement, the Outstanding Parity
Bonds and the Bonds are all Project Bonds.
Tacoma Water. Tacoma Water is described under the heading"THE CITY OF TACOMA WATER SYSTEM."
City of Kent. Kent is a code city of the State, incorporated in 1890. It is organized under a mayor-council form of
government. Kent's water system is managed by Kent's Director of Public Works who is accountable to the city
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council, which sets rates and charges and authorizes borrowings for the utility. Kent's water system service area
encompasses the city and certain unincorporated areas of King County. See Appendix B—"PARTICIPANTS IN
THE SECOND SUPPLY PROJECT—The City of Kent."
CWD. CWD is a special purpose district established in 1960. CWD is governed by a five-member board of
commissioners and managed by a general manager. CWD is located in the southeastern portion of King County.
CWD's service area encompasses approximately 55 square miles, with boundaries that include the City of
Covington, approximately 60%of the City of Maple Valley, approximately 10%of the City of Black Diamond, and
unincorporated areas of King County (which is approximately 34% of its customer base). See Appendix B—
"PARTICIPANTS IN THE SECOND SUPPLY PROJECT—Covington Water District."
Lakehaven Water and Sewer District. Lakehaven (formerly Lakehaven Utility District) is a special purpose district
established in 1956. It is governed by a five-member board of commissioners and managed by a general manager.
Lakehaven is located between the cities of Seattle and Tacoma in King and Pierce Counties. Lakehaven's northern
boundary is one mile south of Kent, the southern boundary overlaps slightly the Pierce County line, the western
boundary follows the Puget Sound shoreline and the eastern boundary overlaps slightly the western city limits of
Auburn. Lakehaven provides service to most of the City of Federal Way and to small portions of the cities of
Auburn, Pacific, Tacoma, Des Moines and Milton. In addition, Lakehaven serves an unincorporated area of King
County approximately 18 square miles north of Federal Way and west of Auburn. Lakehaven contributed cash to
pay its share of the costs of the Second Supply Project and is not responsible for any debt service on the Outstanding
Parity Bonds or the Bonds. See Appendix B—"PARTICIPANTS IN THE SECOND SUPPLY PROJECT—
Lakehaven Water and Sewer District."
The following map shows Tacoma Water's service area.
Figure 2
Tacoma Water Service Area
— VASNON TACOMA WATER-WATER SUPPLY SYSTEM ,-
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.1 y rl.n.er,oeM� }__-----GreenWate River.......................
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walff of 8vrmey Enumcraw -
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service Mcirvlin -- `` •�ii....
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. GREEN RIVER WATER SHED
State and Federal Environmental and Water Quality Laws and Regulations
The Water System and the Regional System are subject to regulation under several federal laws and regulations,
including the Clean Water Act, the Safe Drinking Water Act and the Endangered Species Act ("ESA"), as
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applicable. Applicable State regulations also include the State Environmental Policy Act("SEPA") and State water
quality standards. Tacoma Water's management of the systems is required by State law to be consistent with the
Puget Sound Water Quality Management Plan, the City's own comprehensive plans as required by the Growth
Management Act, and various other State regulations. See"THE CITY OF TACOMA WATER SYSTEM—Water
Quality and Treatment."
Environmental Issues
The City's Habitat Conservation Plan ("HCP") for its Green River operations has been approved by the National
Marine Fisheries Service ("NMFS") and the U.S. Fish and Wildlife Service ("USFWS"), resulting in the July 2001
issuance of an Incidental Take Permit to Tacoma from each agency pursuant to the ESA.Incidental Take Permits are
for a term of 50 years, which provides critical long-term certainty for Tacoma's water supply operations on the
Green River. A programmatic environmental impact statement ("EIS") for the Second Green River Diversion and
Transmission Project was prepared in 1980, and a project-specific EIS was prepared in 1987 and updated in 1994.
See also"THE CITY OF TACOMA WATER SYSTEM—Endangered Species Act Compliance."
To gain support from the many interested parties potentially affected by the Second Supply Project, Tacoma Water
has used a consensus approach to solving various environmental issues and extension associated with completion of
the Second Supply Project. Tacoma Water has been involved in long-term monitoring obligations for some of the
stream and wetland crossing along the pipeline route. King County land use permitting and Washington Dept. of
Fish and Wildlife hydraulic approval project permitting required a suite of mitigation projects for impacted wetlands
and streams, respectively. Those projects were constructed and all required post-project monitoring has been
completed.
Water Use
The average daily water of the Regional System used by the Participants for the years 2018 through 2022 is shown
below. The Participants have other sources of water in addition to the Regional System. In 2022, the Regional
System accounted for 42% of Tacoma's water, 87% of Kent's water, 26% of Lakehaven's water, and 73% of
CWD's water.
TABLE 6:
REGIONAL SYSTEM
AVERAGE DAILY TOTAL WATER USE
(in millions of gallons per day)
2018 2019 2020 2021 2022
Tacoma Water 22.05 24.16 23.28 22.68 22.47
Kent 1.77 1.47 2.07 1.64 2.36
Lakehaven 6.01 6.13 6.69 7.03 6.19
CWD 3.82 3.59 4.03 4.29 3.99
Total Use 33.65 35.35 36.07 35.64 35.01
Source: City of Tacoma.
Regional System Operating Results
As described herein,Tacoma Water and the other Participants pay all costs of the Regional System on the same lien
as operating costs of their respective utilities,prior to the payment of debt service for revenue bonds of such utility
and capital expenses. The Participants are billed and reimburse their share of capital and operating and debt service
expenses. Tacoma Water receives the payments from the other Participants and pays all capital and operating costs
and debt service of the Regional System.
The Regional System annual revenues are established to approximately equal annual capital and operating costs and
debt service. Variations from year to year primarily reflect the timing of payments received by Tacoma Water and
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payments made for capital projects.If a Participant other than Tacoma Water defaults in its payment obligation with
respect to the Regional System and the default includes any amounts necessary to make payment on the Parity
Bonds, Tacoma Water is obligated to increase its Participant Share of the payment to the extent another Participant
does not, including paying debt service on the Parity Bonds. See"THE CITY OF TACOMA WATER SYSTEM—
Historical Operating Results."
[remainder ofpage intentionally left blank]
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The following table shows selected historical revenues and expenses for the Regional System for the years ending
2018 through 2022.
TABLE 7:
REGIONAL SYSTEM
HISTORICAL OPERATING RESULTSM
(Year ending December 31)
Audited
2018 2019 2020 2021 2022
Operating Revenues
Tacoma Water $ 5,041,520 $ 5,593,915 $ 5,717,532 $ 5,717,794 $ 6,374,785
Kent 2,105,769 2,263,368 2,257,617 2,361,879 2,610,210
CWD 1,580,946 1,815,592 1,756,042 1,888,693 2,115,299
Lakehaven 740,232 827,974 781,530 903,018 1,102,011
Total Operating Revenues $ 9,468,467 $10,500,849 $10,512,721 $10,871,384 $12,202,305
Operating Expenses
Operations&Maintenance $ 3,718,890 $ 3,928,423 $ 4,261,822 $ 4,218,612 $ 4,712,030
Depreciation 9,199,706 8,507,090 8,521,426 8,524,386 8,542,323
Total Operating Expenses $12,918,596 $12,435,513 $12,783,248 $12,742,998 $13,254,353
Net Operating Income
(Loss) $(3,450,129) $(1,934,664) $(2,270,527) $(1,871,614) $(1,052,048)
Non-Operating Revenue
(Expense)
Interest and Other Income $ 182,850 $ 346,329 $ 252,531 $ (32,977) $ (110,285)
Interest Charges(Net) (4,907,255) (4,645,692) (4,579,890) (4,500,797) (4,416,196)
Total Non-Operating
Revenue(Expense) $(4,724,405) $(4,299,363) $(4,327,359) $(4,533,774) $(4,526,481)
Net Income(Loss)Before
Capital Contributions $(8,174,534) $(6,234,027) $(6,597,886) $(6,405,388) $(5,578,529)
Debt Service Calculation
Adjustments
Add: Capital Contributions
from Participants $ 129,958 $ (163,022) $ 57,235 $ 151,393 $ 241,782
Add: Interest Subsidies on
2010B Bonds 813,046 816,007 825,426 818,833 818,833
Add: Depreciation 9,199,706 8,507,090 8,521,426 8,524,386 8,542,323
Add: Interest Charges(Net) 4,907,255 4,645,692 4,579,890 4,500,797 4,416,196
Net Regional System
Revenue Available for
Debt Service $ 6,875,431 $ 7,571,740 $ 7,386,091 $ 7,590,021 $ 8,440,605
Debt Service on
Outstanding Parity Bonds $ 5,610,671 $ 6,365,634 $ 6,359,276 $ 6,445,519 $ 6,459,139
0)The rate covenant of the Bond Ordinance requires the City to establish, maintain and collect contract charges or
other amounts for water and other goods and services sold or supplied through the facilities of the Regional
System that will provide the City with Revenues of the Regional System sufficient for the payment of Regional
System Costs. See Appendix A----"COPY OF THE BOND ORDINANCE."
Source: Water Division, 2021 and 2022 Financial Reports(Regional Water Supply System).
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Regional System Capital Improvement Program
Tacoma Water and the Regional System have been impacted by inflation and supply chain delays, resulting in
reprioritization and delays in certain infrastructure projects. Tacoma Water has conducted additional analyses to
determine that the projects it undertakes are still suited to its needs when constructed given the longer lead times or
higher prices. Tacoma Water cannot predict whether such trends will continue and what the impacts will be on its
capital planning.
The following table shows the 2024-2028 capital improvement program for the Regional System. Tacoma Water
expects to fund these maintenance and repair projects with Revenues of the Regional System. The City has no plans
for the issuance of Future Parity Bonds for the Regional System in the next several years.
TABLE 8:
REGIONAL SYSTEM
2024-2028 CAPITAL IMPROVEMENT PROGRAM
($000)
Use of Funds 2024 2025 2026 2027 2028
Communication -- $ 143 $ 1,043 $ 110 $ 110
Equipment $ 576 405 405 288 288
Fish Trap and Sort Facility 156 445 445 125 125
Fleet 424 291 291 195 195
General 617 -- -- -- --
Howard Hanson Additional
Water Storage 455 864 864 1,162 1,162
Piling Creek Bridge -- -- -- 250 250
Pipeline 5 5 3,500 3,500 -- 600
Renewal&Replacement 100 100 100 100 100
Treatment 465 735 535 100 100
Total Uses(' $ 2,798 $ 6,481 $ 7,181 $ 2,329 $ 2,929
(1)Totals may not foot due to rounding.
Source: City of Tacoma.
THE CITY OF TACOMA WATER SYSTEM
Tacoma Water—General
Tacoma Water was formed in 1893 when the City purchased the water and light utility properties of the former
Tacoma Water and Light Company. The City acquired rights for up to 73 MGD of water from the Green River and
in 1910 began construction of the Green River gravity system, which includes the Headworks dam facilities, 150
miles of transmission pipelines and 141 million gallons ("MG") of storage. Water from the Green River was first
delivered to the City in 1913. The City was awarded a second water right on the Green River in 1986 for 64.6
MGD,with an opportunity to store that right for peak summer usage.
As the City grew,a system of wells was developed in South Tacoma(and in other areas adjacent to the City)to meet
summer peak use periods, and on the North Fork of the Green River to meet the City's needs during periods of
turbidity in the Green River. Today, the system of wells used for peaking has an installed pumping capacity of
approximately 40 MGD, and the North Fork wells can produce up to 72 MGD as a replacement for Green River
water. Tacoma Water's use of service area well water on an annual basis is approximately 8% of the City's water
needs.
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Tacoma Water is one of the largest publicly owned water utilities in the State. Tacoma Water's customer base is
largely residential. Residential customers accounted for approximately 68%of water sales revenue and represented
approximately 47% of water billed in 2022. See "Customers and Water Sales; Loss of Major Customer" below.
The following table displays selected operating data regarding Tacoma Water as of December 31,2022 and 2021.
TABLE 9:
TACOMA WATER
SELECTED OPERATING AND FINANCIAL DATA
CALENDAR YEARS 2022 AND 2021
2022 2021
Average Number of Metered Customer Accounts 108,897 108,165
Operating Revenue $ 115,217,698 $ 111,365,886
Total Water Billed(MG) 18,214 19,542
Average Daily Delivery(MG) 53.85 55.70
Maximum Daily Delivery(MG) 87.90 97.44
First Water Right(MGD) 73.0 73.0
Second Water Right(MGD) 64.6 64.6
Total Water Rights(MGD) 137.6 137.6
Source: Water Division, 2021 and 2022 Financial Reports(consolidated).
Service Area
Tacoma Water's current service area consists of the City and areas of Pierce and south King Counties. The area
extends from the northerly boundary of Lakewood Water District and Parkland Light and Water Company in the
south,northward to the City of Federal Way in King County. The eastern boundary is the foothills of the Cascade
Mountains. The western boundary is Puget Sound. Approximately 40% of Tacoma Water's residential customer
accounts are outside of the City limits.
Tacoma Water's service outside of the City limits began in 1912 when customers adjacent to the first transmission
pipeline from the Green River were served from the transmission line and from distribution extensions from the
pipeline. As a result,the Water System serves customers as far away as Palmer and Cumberland in King County.
Tacoma Water is the exclusive retail provider of water service within the City and is designated as a key provider of
water service within Pierce County under the Pierce County Coordinated Water System Plan. Tacoma Water
presently provides direct service to some customers within the city limits of several municipalities, including the
cities of Federal Way,Puyallup,and University Place.
Historically, the Water System has expanded in order to meet City growth and to supply surrounding communities
and water utilities. Over the years,the City has acquired water districts,water companies, and cooperatives as well
as individual services outside the City limits. The City will continue such an acquisition program when requested,
provided it is economically sound and consistent with growth management policy.
Recent population trends for the retail service area indicate slow account growth inside the City, while growth
outside the City,particularly in unincorporated Pierce County,continues at a moderate pace due to greater available
buildable land.
Currently,wholesale service is a small part of Tacoma Water's operations,constituting approximately 2.4%of water
service revenues. Wholesale purchases under standard cost of service pricing are expected to remain stable.
Tacoma Water has begun to offer market-priced wholesale offerings that could result in near-term demand and
service revenue growth that is not currently reflected in plans and projections contained herein.
The map under"THE SECOND SUPPLY PROJECT—Project Participants"shows Tacoma Water's service area.
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Tacoma Water Operations
See "THE DEPARTMENT OF PUBLIC UTILITIES—TACOMA WATER" for an overview of Tacoma Water
operations.
Sources of Supply
The primary source of supply for the Water System is a Headworks diversion on the Green River approximately 30
miles east of the City,which is capable of supplying up to approximately 150 MGD to Tacoma Water and the other
Participants. Water withdrawn at the Headworks is treated with ozone, filtered, chlorinated, fluoridated, and pH
adjusted before being introduced into Pipeline No. 1 and the Second Supply Pipeline. Pipeline No. 1 transports up
to 68 MGD through or near the cities of Enumclaw, Buckley, Bonney Lake, Puyallup, and other urbanized areas
before discharging into McMillin Reservoir. The Second Supply Pipeline transports up to 95 MGD through the
cities of Black Diamond, Auburn, Federal Way, and Tacoma before discharging into Pipeline No. 4. The Green
River diversion and Pipeline No. 1 were originally constructed in 1913. Over the years, all of the original Pipeline
No. 1 has been replaced and improvements to the diversion dam have been made as components of the Second
Supply Project. The Second Supply Pipeline itself began delivering water in October 2005. The City completed
construction of the Green River Filtration Facility in 2015 as a component of the Regional System.
The watershed, located above the diversion, consists of approximately 230 square miles of timbered and
mountainous terrain. The U.S.Army Corps of Engineers(the"Army Corps")constructed Howard Hanson Dam and
Reservoir in 1961, forming the Eagle Gorge Reservoir, approximately three miles upstream from Tacoma Water's
Headworks Diversion Dam. The primary authorized purpose of the dam is to provide flood control for the Green
River valley during the winter. Secondary authorized purposes include augmentation of low summer flows
downstream of the dam, irrigation and storing water for municipal water supply purposes by Tacoma Water and the
Participants. In 2012,the Army Corps completed a dam safety rehabilitation project on the Howard Hanson Dam to
mitigate damages from a January 2009 storm event and insure reliability of the dam in the future. Since the
completion of the repairs and improvements to the Howard Hanson Dam in 2012, the Howard Hanson Dam has
operated normally per its Water Control Manual without issue through numerous winter high flow events,including
a significant flood in February of 2020. The Howard Hanson Dam operations staff continue to monitor the integrity
of the structure in real-time through a seepage monitoring tunnel and large network of monitoring wells. The Army
Corps was responsible for all dam safety costs. Projects implemented by the Army Corps include a substantial grout
curtain,vertical and horizontal short path seepage dewatering wells,rock armoring and additional log booms.
In the 1970s, Tacoma Water drilled seven wells on the North Fork of the Green River (the "North Fork Wells")
approximately six miles upstream from the Headworks. The North Fork Wells have been effective in maintaining
the quality of Tacoma Water's main water supply during high turbidity in the Green River source. The well water is
either blended with the river water or replaces the river water depending on the level of turbidity. This blending
system was used principally between 1978 and 2014 as an alternative to filtration. Tacoma Water continues to use
the blending system to reduce turbidity seasonally to optimize filtration and minimize waste leaving the Green River
Filtration Facility.
In addition to the North Fork Wells, Tacoma Water has a number of wells within its service area that can be used to
augment supply during peak summer demands,or in the event of emergency interruption of the Green River supply.
During a typical year, approximately 92% of the Water System's water supply is from the Green River and 8% is
from these wells.
The following table summarizes the water supplied by source from 2017 to 2022 to meet the peak and average water
requirements for Tacoma Water retail and wholesale deliveries (excluding Regional System water use by Kent,
CWD and Lakehaven).The table does not include capacity or production values for the Participants.
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TABLE 10:
TACOMA WATER
SOURCES OF SUPPLY OF THE WATER SYSTEM(MGD)
Total Production Surface Water Sources Ground Water Sources
(All Sources) (Green River)(') (Wells)(')
Peak Day Average Peak Day Average Peak Day Average
Year Production Production Production Production Production Production
2022 89.39 53.83 84.67 52.87 25.25 0.96
2021 97.06 55.53 76.68 51.83 33.53 3.71
2020 95.83 52.53 84.99 52.17 11.00 0.37
2019 82.30 53.20 76.30 52.08 15.00 1.12
2018 88.16 54.56 70.41 49.45 29.00 5.11
2017 91.97 53.48 85.34 51.29 14.00 2.19
0)As of 2022, Tacoma's peak Green River capacity is limited by filtration plant capacity (see "Water Rights"
discussion below),which is 150 MGD.
(2)As of 2022,Tacoma's wells have a peak capacity of 40 MGD.
Source: City of Tacoma.
Tacoma Water's long-term demand forecast, updated in 2023, indicates that the Water System has sufficient water
supply to meet projected demands for at least the next 50 years.
Water Rights
Tacoma Water has water rights on the Green River in excess of its current needs,which include a water right claim
for 73 MGD plus a water permit for up 64.6 MGD(the"Second Diversion Water Right")that is the source of supply
for the Regional System, as further described under "THE SECOND SUPPLY PROJECT." Second Diversion
Water is conditional based on Green River flow and is, therefore, only available approximately 60% of the time on
an annual basis. However, Second Diversion Water may be stored behind Howard Hanson Dam in the spring, and
as the water is being stored at a rate not to exceed the Second Diversion Water Right Rate, it may be withdrawn at a
later date, at any rate. Therefore,when needed in the peak season,water from the Green River source may be used
at a rate that is limited only by pipe/plant capacity.
Water rights for the Water System's 24 wells,most of which are located within its service area,total 110 MGD,with
an installed pumping capacity of 40 MGD.
During the last decade it has become increasingly difficult for water systems to obtain new water rights because of
uncertainties in the administration of these rights. Major concerns include legal challenges to the State Department
of Ecology's("Ecology")authority to administer water rights and concern that the additional appropriation of water
in many areas might deplete limited resources. At this time, there is no foreseeable near-term resolution of this
issue. Some water systems in King and Pierce counties have had a water moratorium in the recent past, restricting
development. These circumstances make the Second Diversion Water Right on the Green River particularly
valuable and attractive to the Participants in the Second Supply Project as well as potentially to other systems in the
vicinity of Tacoma Water's existing transmission pipelines. These other systems have experienced occasional water
shortages due to increased demands resulting from customer growth.
Endangered Species Act Compliance
In 1999, the NMFS listed Puget Sound Chinook salmon as a threatened species. Subsequently, the USFWS listed
Puget Sound bull trout and Puget Sound steelhead as threatened species in 1999 and 2007,respectively. Pursuant to
regulations,NMFS and USFWS have extended to these threatened species certain protections under the ESA. These
protections include a prohibition on "take," which includes not only harm to members of the species, but also
adverse effects or destruction of habitat. This caused water utilities throughout the region to assess their potential
liability under the ESA. Tacoma Water has approached these issues within a multi-faceted response strategy. First,
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it developed and received approval for a HCP providing ESA coverage for the three species listed above and 29
other ESA-listed or sensitive species over a 50-year period from 2001 through 2051. This significantly reduces the
risk to Tacoma Water that future water supply operations may be disrupted due to ESA issues. Second, Tacoma
Water has adopted a"take"avoidance strategy for its field operations on the water distribution system. Section 4(d)
of the ESA allows certain categories of activities defined by federal rule to be conducted without"take"liability. In
2001, the Department obtained coverage under this provision for a wide variety of its utility maintenance activities
by adopting and implementing the federally approved "Regional Road Maintenance Endangered Species Act
Program Guidelines." Tacoma Water has modified its operation to obtain coverage under this program for many of
its day-to-day operations.
An essential element of the HCP is its adaptive management framework, which provides an ongoing process to
evolve the strategy for managing water releases from Howard Hanson Dam to meet downstream flow needs. This
involves frequent communication with the Green River Flow Management Committee, which is an interagency
committee consisting of representatives from the Muckleshoot Indian Tribe, Tacoma Water, natural resource
agencies, and other groups. The Army Corps considers input from the committee to adjust the refill and release
regime based on a short-term planning horizon. In drought situations,the parties have historically agreed to institute
consensus derived water use restrictions to make the best use of the available resource.
The HCP also calls for Tacoma Water to provide funding support to the Army Corps for a downstream fish passage
facility at Howard Hanson Dam and for a monitoring and research program to support conservation of listed species
and for purposes of adaptive management. The Army Corps has been planning a downstream fish passage facility at
the Howard Hanson Dam since 1999,but the project has been continuously delayed due to cost overruns and federal
funding shortages. In 2019, the National Oceanic and Atmospheric Administration issued a Biological Opinion
requiring the Army Corps to finish the project and have the fish passage facility operational by the end of 2030.
Federal and other funding, including a 2022 award of$220 million through the Federal Bipartisan Infrastructure
Law, has now been allocated to the project. Construction of the fish passage is expected to begin in 2025 or 2026
and be completed by 2030. In addition to the positive impacts on regional salmon populations, the project is
expected to increase storage for municipal and industrial drinking water to benefit Tacoma Water and the
Participants and maintain dam performance to support the primary drinking water needs for customers of Tacoma
Water and the Participants.
Since 2001, Tacoma Water has been implementing the habitat conservation measures, conservation monitoring
measures, effectiveness monitoring measures, and research funding measures for 32 different species as required
under the HCP. Every five years, Tacoma Water provides progress reports on these activities to two national
regulatory agencies:National Oceanic and Atmospheric Administration("NOAA")Fisheries and United States Fish
and Wildlife Services.
In planning future projects, the City evaluates the construction and operation of the facilities to determine if there
will be any impact on endangered species through the use of site evaluations, special environmental studies, and
preparation of SEPA checklists or environmental impact statements, as appropriate. Best management practices are
employed during routine operation and maintenance activities to minimize impacts on the environment.
State Department of Health/U.S.Environmental Protection Agency Requirements
Tacoma Water must comply with the requirements of the rules and regulations promulgated by the U.S. EPA
pursuant to the Safe Drinking Water Act. The Washington State Department of Health("WSDOH")is delegated by
U.S. EPA to administer these regulations in the State. In addition,WSDOH has rules and regulations for the design
and operation of water systems. WSDOH provides oversight of water systems including reviews, approvals, and
monitoring of performance. Water supplied by Tacoma Water meets all federal and state drinking water regulations.
Tacoma Water's 2018 Comprehensive Water Plan (the "Water System Plan") was approved by the WSDOH in
2020. The development of the next update is planned to begin in late 2024. The Water System Plan includes
projections of future water demand requirements,water quality and treatment requirements,supply development and
system capital improvements. It also describes the financial plan for funding these improvements and includes other
required sections such as policies and design criteria, system inventory and operations and maintenance. Because
the Water System Plan as a whole is only periodically updated,Tacoma Water updates key components of the Water
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System Plan more frequently. These updates include Tacoma Water's water demand forecast,capital facilities plan,
strategic plan and reports of Tacoma Water's compliance with its strategic objectives.
U.S.EPA and WSDOH continue to develop and implement additional drinking water regulations and Tacoma Water
regularly monitors changing regulations and prepares for compliance with new regulations. Two key regulations
that are under development by U.S. EPA include revisions to the Lead and Copper Rule and proposed maximum
contaminant levels for per-and polyfluoroalkyl substances("PFAS").
The finalized Lead and Copper Rule revisions require all water systems to inventory and plan for replacement of
lead service lines within their systems. Additional revisions to the Lead and Copper Rule are expected in 2024.
With no known use of lead service lines within the water system and an established corrosion control treatment
program,Tacoma Water is well-positioned to respond to the new requirements.
The U.S. EPA's PFAS Rule is expected to be finalized in early 2024. In response to federal health advisory limits
and in anticipation of future regulatory requirements for PFAS substances, Tacoma Water has tested all of its water
sources that are planned for usage in meeting current and future demands. The primary water supply source at the
Green River showed no detections for the proposed regulated PFAS chemicals and is not anticipated to require
treatment to meet the new regulatory requirements. The groundwater supply, however, has had PFAS detections
above the proposed maximum contaminant levels, and preliminary planning is underway for treatment or
operational changes to ensure the groundwater supply will be in compliance with the new regulatory requirements.
Agreement with Muckleshoot Tribe
In 1995, Tacoma Water entered into an agreement with the Muckleshoot Indian Tribe (the "Muckleshoots") that
settles perceived impacts from utility operations on the Muckleshoots'treaty granted rights. The settlement package
had a cost of approximately $49 million in payments through 2044, of which $30.3 million has been paid to date,
and includes the following basic elements: (1)building a fish restoration facility and paying for annual operation
and maintenance of that facility or,at the Muckleshoots' election,making an equivalent cash payment; (2)providing
for enhanced flows in the Green River; and(3)providing for limited access into the Green River watershed. With
respect to item (1) above, the Muckleshoots have elected to accept an equivalent cash payment, relieving Tacoma
Water of the annual operation and maintenance obligation. The Muckleshoots are planning to utilize the cash
payment to construct a fish restoration facility at a future date. At that time, Tacoma Water will support the
Muckleshoots in the acquisition of water rights for the facility and will develop and operate groundwater and surface
water conveyance systems for the facility. The settlement resolved past damage claims by the Muckleshoots for
Tacoma Water's historical operations on the river, gained the Muckleshoots' acceptance of the Second Supply
Project and provided a basis for a long-term cooperative working relationship on the Green River.
Water Quality and Treatment
Watershed monitoring and protection programs are critical to ensuring high water quality. Well managed,
unpopulated watersheds minimize potential adverse effects on the water supply. Tacoma Water has a watershed
control program with inspectors who patrol the watershed to protect against any unauthorized entry. Tacoma Water
owns approximately I I% of the watershed area, including much of the land adjacent to the Green River and the
Eagle Gorge Reservoir, located approximately three miles upstream from the Green River Headworks behind
Howard Hanson Dam. Most of the land that is not owned by Tacoma Water is either U.S.Forest Service property or
is owned by timber companies, the Muckleshoots, or the State Department of Natural Resources. There are no
permanent residents living within the watershed boundaries. Tacoma Water, the timber companies, the
Muckleshoots, and the State Department of Natural Resources work cooperatively to ensure that timber harvesting
and other activities comply with watershed control best management practices, thereby minimizing any potential
adverse impacts on water quality. Tacoma Water has in place agreements with the State Department of Natural
Resources and the Muckleshoots to document their commitment to use these best management practices.
Tacoma Water began filtering the Green River Supply in 2015. The Green River Filtration Facility is configured for
"conventional" filtration operations, including coagulation, flocculation, and sedimentation processes prior to dual
media filtration, or may be operated in a"direct" filtration mode where the sedimentation process is bypassed. The
facility is configured for 90 MGD capacity when operated using the conventional filtration process. Typically, this
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occurs in the fall,winter, and spring periods when demands are lower and the Green River water entering the plant
has higher levels of turbidity and other treatment challenges. The direct filtration process, with a 150-MGD
capacity, is generally used in the summer when demand is high and raw water turbidity and other treatment
challenges are low.
The water from Tacoma Water's wells is chlorinated before being introduced into the distribution system. The
water quality is monitored on a regular basis in accordance with the requirements of the WSDOH and the U.S.EPA.
One of Tacoma Water's wells is equipped with an air stripping tower to remove organic compound contamination,
which was discovered during the early 1980s. This treatment maintains water quality by keeping water-borne
contaminants to levels that are below the detectable limits. Contaminant levels in this groundwater source have also
decreased as a result of the cleanup of the pollution source and significantly more rigorous land use controls within
the City to protect groundwater. In 2013, Tacoma Water completed construction of a 40-MGD groundwater
treatment system at its Hood Street Reservoir to bolster compliance with regulations related to corrosiveness of
water to household plumbing and to provide fluoridation of the groundwater. In 2016,the chlorination equipment at
Hood Street Reservoir—which allows Tacoma Water to generate its own sodium hypochlorite onsite—was
replaced,and additional upgrades to modernize the chlorination system are planned for the 2023/2024 biennium. In
addition, design is underway for improvements at the 9-MGD Gravity Pipeline Wells site, which will include new
pumps,motors,wellhouses,electrical systems, corrosion control treatment,and disinfection treatment for two wells.
Once constructed in 2025/2026, the updated facility will improve the reliability and flexibility of Tacoma Water's
groundwater supply.
Drought and Climate Change Resiliency
In the Puget Sound region, climate change models point to warmer weather year-round, drier summers, and rainier
winters. However, climate change is forecasted over large time scales, and thus carries uncertainty in how it will
manifest in day-to-day weather. For example, average temperature increases may be different in summer months
than in winter months. Land elevation, proximity to water bodies, and vegetation also affect local conditions.
Tacoma and Pierce County are diverse in these characteristics.
To understand and plan for these eventualities, Tacoma Water has created and implemented an Integrated Resource
Plan ("IRP"), which will assist with supply security decisions. A Water Yield, Supply, and Demand Model
("WYSDM")was developed to use data and projections to estimate available water during the current year(or near
term year). The WYSDM can also provide capacity planning,by determining the probability Tacoma Water will be
supply constrained in any future year (up to approximately 60 years). The IRP and WYSDM also include
groundwater system analysis, a water conservation program assessment and update and a written report with an
action plan.
Climate change is expected to impact both supply and demand. From the demand perspective, increased summer
temperatures will result in more water demand for lawn irrigation,absent other changes in irrigation practices. Peak
season demands could be affected strongly relative to year-round demands.
Warmer winter weather in the Green River watershed may reduce the amount of water stored annually in snowpack.
The winter surface water supplies may therefore be plentiful but flows from snowmelt could be reduced
substantially during spring and summer. If no action is taken, the overall impact to Tacoma Water's surface water
supply system is expected to be on the order of 18 percent reduction by 2050. Flows in the Green River could dip
more frequently to minimum flow levels that must be protected. This would reduce Tacoma's ability to divert
surface water for municipal supply.
Due to the diversification of Tacoma Water's supply portfolio,which includes significant groundwater resources in
the City that are used to supplement the surface water supply from the Green River, as well as a number of
emergency intertie arrangements with adjacent utilities with groundwater supplies,Tacoma Water believes that it is
well positioned to address future climate change and the drought conditions that might occur from year to year.
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Tacoma Water has worked proactively to understand, and plan for, any declines in source water due to climate
change. Several alternatives to increase supply are being explored. The following solutions were selected for
ongoing and future development:
• Tacoma Water will continue to work with the Army Corps to complete Phase 1 of the Additional
Water Storage Project at Eagle Gorge Reservoir, and possibly begin work on Phase 2. Phase 1 is scheduled to be
completed by 2030 and is expected to double the current municipal water storage capacity in Eagle Gorge Reservoir.
• Tacoma Water is sponsoring a Forecast-Informed Reservoir Operations ("FIRO") assessment at
Howard Hanson Dam to investigate the use of real-time weather information and advanced forecasting tools to
manage flood season operations. If successful, Tacoma Water may be able to store municipal water during the
winter months to help offset the impacts of climate change on water supply.
• Tacoma Water will explore the feasibility and cost of enhancing its groundwater production facilities
to make more use of its existing groundwater rights. This aligns with related efforts to upgrade groundwater
treatment systems to improve resiliency to major earthquakes that may occur in the Puget Sound region.
• Tacoma Water plans to implement long-term "peak shaving" strategies. These are demand
management actions that reduce peak summer water use,retaining water in storage as a buffer for the supply system
in the fall.
Also included in the IRP is a Resource Adequacy Standard ("RAS"). The RAS is a basis for determining whether
water supplies will remain sufficient to meet service area demands, including annual variations and future growth
and development. The RAS is a fixed measure of system performance that can be applied over a range of natural
hydrologic conditions, assumptions on growth rates, and improvements to the supply system. The RAS recognizes
that occasional curtailment of water use is one of the standard responses available within the community's"toolkit"
for managing droughts. This is more practical and cost-effective than building a system that would be immune to
any possibility of water shortage.
The RAS anticipates that water curtailments will be required approximately once in a 25-year period (on average).
And for use in those years,Tacoma Water has developed a Water Shortage Response Plan that specifies progressive
and phased curtailment measures that can be taken in the event of a drought, and includes taking the following
measures in the following order:
• Implementing voluntary curtailment messaging.
• Coordinating with state and federal resource agencies, as well as tribes, identifying and repairing
significant leaks,reducing system flushing,and requesting more aggressive and targeted voluntary curtailment.
• Implementing mandatory curtailment measures to eliminate discretionary use first, and essential
use as necessary,implementing emergency surcharge pricing,and enforcing violations.
• Declaring an emergency and instituting formal procedures to declare a City emergency.
In 2010, Tacoma Water started replacing its fleet of 37 step vans with hybrid models. These hybrids have shown to
use over 30%less fuel,produce over 30%less carbon dioxide and over 40%less nitrogen oxide from prior vehicles.
Water System Security
Tacoma Water, along with many other major water utilities, is taking additional steps to protect its water supply
facilities and to prevent contamination of the water supply. Tacoma Water covered the last of its open basins in
2012. The basins were replaced with smaller covered reservoirs that will provide improved water quality as well as
improved system security. The water quality leaving these new reservoirs has improved to an extent that a gas-
rechlorination system has been eliminated,thus providing a decreased level of risk.
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Tacoma Water also has taken actions to secure the source of supply on the Green River through increased
surveillance of watershed activities and closing additional areas to access. The camera security systems used to
augment security capabilities continue to be expanded and improved to meet needs. Tacoma Water staff at the
Green River watershed conduct regular emergency exercises and trainings using the Incident Command System to
better prepare for emergencies and natural events. In 2022 Tacoma Water completed a radio system upgrade for the
Headworks and Green River Watershed operating areas. This upgrade improved communications and increased the
ability to meet and respond to incidents posing a risk to water quality or the water supply.
Security has been tightened regarding chemical deliveries to Tacoma Water facilities,additional monitoring of water
quality has been initiated, and security provisions are reviewed on an ongoing basis to react to changes in threat
status. A system wide all-hazards analysis was completed in 2015. The intent of the analysis was to identify
Tacoma Water's vulnerabilities and develop remediation and resilience strategies in effort to promote the continued
safety and security of the Water System's assets. The assessment included all of Tacoma Water's infrastructure
assets. In general, Tacoma Water experiences low frequency and magnitude of vandalism and theft, and there has
never been an act of sabotage affecting the Water System. Natural events dominate risks to the Water System. In
response to that finding, a Seismic Vulnerability Assessment was also completed in 2015. This analysis of Tacoma
Water facilities, pipelines and the overall Water System was completed to evaluate the impact and damage states
due to seismic scenarios. Facility performance and predicted damage were determined, in part, using Hazus
Program methodologies, Risk Analysis and Management for Critical Asset Protection standards, and other data to
categorize damages. The assessment included specific risks as well as natural hazards such as wildfire,drought,and
flood, with a major focus on seismic threats. As a result, several recommended projects, such as radio
communication upgrades, reservoir retrofits, and other seismic improvements have been completed or included in
the Capital Improvement Program.The analysis is expected to be updated in 2024.
Customers and Water Sales;Loss of Major Customer
Tacoma Water serves residential, commercial, industrial and wholesale customers, and charges cost of service rates
by customer class. Approximately 68.3%and 68.4%of total water sales were to residential and domestic customers
in 2022 and 2021,respectively. Commercial and industrial sales were 21.7%and 21.0%of total water sales in 2022
and 2021,respectively. In 2022,Tacoma Water's 10 largest customers combined accounted for 12.8%of total water
sales revenue.
Special rate-contracted sales to WestRock CP LLC ("WestRock"), historically Tacoma Water's largest customer,
accounted for approximately 7.3% and 7.4% of Tacoma Water's total water sales in 2022 and 2021, respectively.
The City and WestRock executed an annual contract amendment for industrial water supply in July 2023. The
contract provided that the City would furnish 16.0 MGD to WestRock on a uniform basis, 24 hours a day. The
WestRock Tacoma mill produced kraft and white top liner and bleached pulp for a combined annual capacity of
510,000 tons. WestRock had operations in Tacoma for more than 90 years, and employed approximately 400
people.
In August 2023, WestRock announced that it would cease operations at its Tacoma mill effective September 30,
2023. WestRock is expected to continue to use some reduced amount of services from the City, including Tacoma
Water,while the plant ramps down toward full closure.
While the City, including Tacoma Water, manages its finances to mitigate unanticipated revenue losses while
minimizing impacts on its customers and maintaining the reliability of its systems,the financial impact of the loss of
this major customer is expected to be greater to Tacoma Water than other City departments. Westrock's usage
accounted for approximately 1/3 of overall average daily use of Tacoma Water's total consumption, equal to the
water use of approximately 100,000 homes and will require operational changes to the Water System. Further,
while Tacoma Water will no longer have the large water demand that it previously had from WestRock's water
usage(Tacoma Water is anticipating a reduction in system delivery by 13 MGD in 2024),the infrastructure (pipes,
filtration plant, reservoirs, water resources) used to serve WestRock and all other Tacoma Water customers will
continue to require care and most of the utility's costs are fixed.
Due to its financial significance, Tacoma Water has included the potential loss of this major customer as part of its
Long-Range Financial Plan during each budget and rate cycle. The Tacoma Water Long-Range Financial Plan has
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included a scenario of the pulp mill closure as the biggest financial risk to the utility due to the significant revenue
loss. The financial planning ensured that Tacoma Water would have enough cash reserves to provide financial
stability in the near-term and allow time for the development and approval of the rate increase that would be needed
to make up for the lost revenue and reserves. This strategic planning has also helped Tacoma Water identify
uncertainties,evaluate possible impacts,and develop mitigation strategies.
Under all scenarios presented in connection with the Westrock closure,rate adjustments to offset the loss of revenue
were shown to be necessary. On November 28,2023,the City Council adopted a 5.0%system average rate increase
for all customers to help compensate for the loss of the expected revenue from WestRock. See"Water Rates"below.
An updated revenue requirement,Long-Range Financial Plan,and cost of service analysis will be developed in early
2024 to inform the budget and rate proposal for the 2025-2026 biennium and will recommend rates as needed to
maintain financial stability and sustainability.
Tacoma Water is also pursuing opportunities to increase revenue from other sources, including potential wholesale
contracts, as well as reduce expenses by potentially delaying capital projects to ease immediate cost pressures.
Tacoma Water expects to refresh its demand forecast in the spring of 2024 with its 2025-2026 budget and rates
process.
The full impact of the departure of WestRock on the Water System is currently uncertain and Tacoma Water will
continue to monitor and take steps to mitigate the impact as needed.
Wholesale Agreements
Tacoma Water has agreements with a number of regional water purveyors to provide wholesale service. In 2023,
Tacoma Water successfully worked with the City of Fife to increase its peak water delivery by an additional 587,333
gallons per day.
Tacoma Water continues to look for opportunities to sell its surplus water supply. In 2024, Tacoma Water expects
to reach out to existing wholesale customers, and neighboring water utilities who do not have a wholesale
relationship with Tacoma Water,to explore options for expanded wholesale service.
Agreement with Cascade Water Alliance
In 2005, Tacoma Water entered into an agreement with the Cascade Water Alliance ("Cascade"), a regional
wholesale water supplier,that entitled Cascade to a permanent supply of four MGD of water(average daily demand)
each year, and an additional guaranteed reserved supply of six MGD (average daily demand) through 2026,
declining to one MGD (average daily demand) in 2030 (the "Additional Supply"), and discontinuing thereafter.
Tacoma Water entered into an Amended and Restated Agreement for the Sale of Wholesale Water with Cascade
effective December 31, 2012, that specifies a fixed payment stream from Cascade to Tacoma Water from 2012
through 2042. It also enabled Cascade to transfer capacity that was previously purchased from Tacoma Water to the
Cities of Auburn, Bonney Lake, Buckley, and Sumner(the "Four Cities") over a period of five years, after which
Tacoma Water made such capacity available for direct purchase to the Four Cities until December 31,2026. When
such capacity transfer occurs, a wholesale water agreement will be negotiated between Tacoma Water and one or
more of the Four Cities, and all water sales revenues will be received by Tacoma Water. The first such transfer
occurred in 2014 with the execution of the previously mentioned agreement with the City of Auburn, which
augmented the wholesale supply capacity of a prior agreement from 1.0 MGD to 3.5 MGD.
Tacoma Water will receive a fixed payment stream,totaling$119.7 million, from Cascade in amounts ranging from
$5,000,000 to $6,863,929 between 2012 and 2029, inclusive, and ranging from $1,000,000 to $1,268,242 between
2030 and 2042, inclusive. Revenues from additional wholesale sales that result from the transfer of capacity to one
of the Four Cities will be in addition to these payments from Cascade.
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Advanced Metering Program
In 2020, the Department began upgrading and replacing its water and electric meters with Advanced Metering
Infrastructure ("AMI"). The AMI project allows the Department to capture more water and electric data remotely,
improve billing accuracy and provide additional services to its customers, such as outage management and leak
detection. Certain customers who do not want to participate in the AMI project have the option to receive an
advanced electric meter with the radio frequency transmitter disabled, for potentially an additional fee for manual
billing. The Department, however, is not planning to offer an AMI opt-out option for residential water or
commercial accounts. The cost of the AMI project is included in current rates, and the project is expected to be
substantially completed in 2024. The Department has incorporated the City's Equity Index into its deployment of
the AMI project in an effort to bring awareness to underscrved communities in the service area and where low
historical infrastructure investment areas exist. Tacoma Water now offers grants and deferred loans to help
customers pay for leaking water line repairs.
Response to COVID-19;Billing and Delinquent Accounts
At the outset of the 2019 novel coronavirus ("COVID-19")pandemic,the City, including Tacoma Water, modified
certain of its operations in response to the public health emergency. In March 2020, the State issued a moratorium
on disconnecting electric,water,and other utility services due to nonpayment,and charging fees for late payment or
reconnection for certain utilities, including Tacoma Water. In March 2020, the City Mayor issued a similar
proclamation. All customers were included: residential, commercial, and industrial. The state-wide moratorium on
disconnections for nonpayment ended September 30,2021,and prohibition on late fees ended October 27,2021.
The Water System, similar to other City utilities, experienced an increase in delinquencies and outstanding accounts
because of the COVID-19 pandemic and the utility shut-off moratorium. Subsequent to the moratorium end date of
March 31,2022,accounts with outstanding balances were automatically put on an automatic,interest free,24-month
installment plan. At its peak,the Department had over$33 million in past due customer fees, including all services
for commercial, industrial, and residential accounts. Throughout the pandemic, Department staff worked with
customers to connect them with available funding through internal programs as well as federal and other funding
available by way of community partners. In addition, the Department received over $17 million from the Energy
Division of the Washington State Department of Commerce to assist eligible residential customers who still had
outstanding COVID-19 utility bill balances on installment plans. The funding came from the Coronavirus State and
Local Fiscal Recovery Funds program, from the American Rescue Plan Act. Of this amount, approximately $1.7
million was used by Tacoma Water to assist overdue utility accounts.
Delinquency rates have since returned to pre-COVID levels of approximately 0.6%. As of November 1, 2023,
Tacoma Water had approximately 650 past due accounts, totaling approximately $1.38 million. Of which,
approximately $1.3 million was past due from inactive accounts and approximately $80,000 was past due from
active accounts. The City continues to encourage customers to take advantage of any available relief assistance
funding and is developing long-term payment programs, including through its payment assistance programs. The
Department will continue to monitor the community impacts of COVID-19 and any other public health emergency
and remain flexible on responding to community needs.
The Department and the City's Department of Environmental Services offer a Bill Credit Assistance Plan and a
Discount Rate Program to qualifying customers. Beginning in 2023, qualifying customers enrolled in the
Department's Bill Credit Assistance Plan receive an automatic monthly bill credit for all services, regardless of
payment. Additional credits may be achieved with full and on time payments, among other requirements. The
amount of the monthly bill credits depend on the services received. The automatic monthly bill credit for water
service is $4.00, plus an additional achievable credit of$5.00 for qualifying customers. Tacoma Water estimates
that approximately 19,000 residential customers are eligible for automatic credits,which may help to mitigate 2023-
2024 rate impacts for qualifying customers while addressing equity needs within Tacoma Water's service area.
Beginning in 2024, automatic monthly bill credits for water service will increase by $3.00 to offset the additional
rate increase addressing the financial impact of WestRock's departure. See "Customers and Water Sales; Loss of
Major Customer"above
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Water Rates
State law provides that cities may establish water rates by action of the City Council, independent from review or
approval by any State board or commission.
Rate Structure. Tacoma Water's rate structure consists of two basic components, a monthly ready-to-serve and a
monthly consumption charge. The fixed charge includes a monthly hydrant fee. In addition,the City charges a one-
time system development charge on new services to more equitably distribute the costs associated with growth. The
Board has adopted a water rate policy that, among other provisions, provides that rates be set based on cost of
service within a customer class. Other charges and fees may apply, such as late fees or surcharges for water system
acquisitions.
Water rates and charges are codified in chapter 12.10 in the Tacoma Municipal Code("TMC"). Rates for 2024 were
initially adopted by the City Council in 2022 (approving a system average annual rate increase of 4.0%). In
response to the closure of WestRock and to help mitigate the financial impact from the loss of this major customer
(see "Customers and Water Sales; Loss of Major Customer" above), on November 28, 2023 the City Council
adopted an additional rate increase of 5.0%,for a total average annual rate increase beginning on January 1,2024 of
9.0%. This additional rate increase will raise the average monthly bill for residential customers by approximately
$2.28 (for customers located inside of the City) and $3.03 (for customers located outside of the City) each month,
however, Tacoma Water simultaneously increased the credit available under its Bill Credit Assistance Program by
$3.00 per month to offset the impact of this aggregate rate increase for low-income eligible customers.
See"Response to COVID-19;Billing and Delinquent Accounts"above.
Average annual rate increases since 2017 are summarized in the following table.
TABLE 11:
TACOMA WATER AVERAGE RATE INCREASES
Average Annual
Year Increase
2017 4.0%
2018 4.0
2019 2.5
2020 2.5
2021 1.5
2022 2.0
2023 4.0
2024 9.0
Source: City of Tacoma.
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Tacoma Water's current water rates for residential, commercial and large volume customers are summarized in the
tables below. These rates became effective January 1,2024.
TABLE 12:
TACOMA WATER
FIXED WATER RATES AND CHARGES
Size of
Meter
(inches) Inside City Limits Outside City Limits City of University Place
5/8 $ 28.95 $ 34.94 $ 37.53
3/4 41.92 50.51 54.24
1 67.84 81.62 87.66
1-1/2 132.65 159.38 171.19
2 210.42 252.70 271.44
3 391.89 470.47 505.33
4 651.14 781.57 839.49
6 1,299.25 1,559.30 1,674.84
8 2,076.98 2,492.58 2,677.29
10 2,984.34 3,581.41 3,846.80
12 4,377.79 5,253.55 5,642.84
Source: City of Tacoma.
TABLE 13:
TACOMA WATER
CONSUMPTION WATER RATES AND CHARGES
City of
Inside City Outside University
Limits City Limits Place
Consumption Up to and Including:
1/1/2024 1/1/2024 1/1/2024
Residential
Each 100 cubic feet of consumption October through May $2.575 $ 3.089 $ 3.318
First 500 cubic feet of consumption June through September 2.575 3.089 3.318
Each 100 cubic feet of consumption over 500 cubic feet June through
September.......................................................... 3.218 3.862 4.148
Commercial and Industrial
General................................................................. 2.606 3.127 3.359
Large Volume(over 65,000 cubic feet annually) 2.027 2.432 2.612
Parks and Irrigation
For each 100 cubic feet......................................... 5.322 6.387 6.861
Source: City of Tacoma.
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Tacoma Water's charges for water service are competitive with those of other major water utilities in the Pacific
Northwest as well as other regional water utilities. A comparison of Tacoma Water's current rates with those of
certain other water utilities located in major metropolitan areas and elsewhere in the region are set forth in the
following table.
TABLE 14:
2023 COMPARISON OF AVERAGE MONTHLY WATER BILLS
5/8" 2"
RESIDENTIAL COMMERCIAL
UTILITY (Average Bill)(0 (Average Bill)(')
Tacoma Water(1) $ 43.75 $ 314.36
Major Water Systems:
City of Everett,WA 37.83 238.84
Portland,OR Water Bureau 68.07 371.78
Seattle Public Utilities 61.45 346.23
Neighboring Water Systems:
City of Bellevue,WA 62.06 450.50
City of Lakewood,WA 27.32 156.18
City of Puyallup,WA 33.30 228.34
City of Olympia,WA 34.64 224.76
(1) Based on a consumption pattern of 600 cubic feet per winter month (October — May) and 900
cubic feet per summer month(June—September).
(2) Based on a consumption pattern of 5,000 cubic feet per month.
(3) Tacoma rates effective as of January 1, 2023; Inside-City customer. Average residential and
commercial bills based on rates effective as of January 1, 2024 are estimated to be $47.83 and
$340.72,respectively;Inside-City customer.
Source: Individual Utilities
In 1991, Tacoma Water implemented a system development charge ("SDC"), which is a one-time charge on each
new water service connection to the Water System,for a service upgrade requiring a larger meter,or for any existing
service with a 3-inch or larger meter that exceeds 150 percent of the highest maximum annual daily average water
use. The SDC fee is based on an equitable share of the cost of the entire existing Water System and future facilities
necessary to accommodate projected growth. This fee is established pursuant to RCW 35.92.025, the City Charter,
and chapter 12.10 TMC. SDCs are considered contributions for or in aid to construction, and are accounted for
accordingly. The following table shows current SDCs(which initially became effective on December 1,2020)for 2-
inch meter sizes or smaller.
TABLE 15:
TACOMA WATER SDC CHARGESM
(2-INCH METER SIZE OR SMALLER)
Residential Commercial and Other
Meter Size(in.) Inside City Outside City Inside City Outside City
5/8 $ 809 $ 907 $ 1,061 $ 1,273
3/4 1,213 1,456 1,592 1,910
1 2,022 2,426 2,653 3,183
1-1/2 4,043 4,852 5,306 6,367
2 6,469 7,763 8,489 10,187
0)Effective January 1,2020.
Source: City of Tacoma.
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For meters 3-inches and larger,the SDC is the sum of the average day use multiplied by the average day cost/gallon,
and the peak day use minus average day use multiplied by the peak day cost/gallon. Inside the City, average cost
per gallon is $2.09 for peak and average (non-summer) days, and outside of the City, average cost per gallon is
$2.51 for peak and average days. These rates became effective on January 1,2020.
The following table shows annual funds recognized as revenues from SDCs from 2016 through 2022.
TABLE 16:
TACOMA WATER ANNUAL SDC REVENUE
Year SDC Recognized Revenue
2016 $ 2,242,371
2017 2,585,712
2018 5,883,4990)
2019 2,418,367
2020 2,078,058
2021 3,545,748
2022 1,907,917
(D SDC revenue increased in 2018 due to two large volume customers adding capacity.
Source: City of Tacoma.
Tacoma Water has also implemented specific rates and charges for fire protection services,wholesale contracts, and
others, and offers discounts for certain eligible customers. For instance, residential customers who qualify as low-
income senior or low-income disabled may apply to qualify for such reduction. See chapter 12.10 TMC for more
information.
Water System Bonds
The City, acting by and through the Department, has or expects to have outstanding the following Water System
Bonds. The City has reserved the right to issue additional Water System parity bonds and subordinate lien
obligations of the Water System. The City issued its Series 2024 Water System Bonds,to refund,on a current basis,
all of the outstanding Water System Revenue and Refunding Bonds, 2013. The Series 2024 Water System Bonds
are not being offered for sale by this Official Statement, and this Official Statement should not be relied on by
investors when making an investment decision to purchase such bonds.
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TABLE 17:
OUTSTANDING WATER SYSTEM BONDS
(As of January 25,2024)
Maturity Original
Date Principal Outstanding
Water System Bonds0) (Dec. 1) Amount Principal Amount
Water System Revenue Bonds,2009(Taxable Build
America Bonds—Direct Payment) 2039 $ 76,775,000 $ 76,775,000
Water System Revenue Bonds,2010B(Taxable Build
America Bonds—Direct Payment) 2040 74,985,000 74,985,000
Water System Revenue Refunding Bonds,Series 2015A 2025 16,645,000 3,960,000
Water System Revenue Refunding Bonds,2024(2) 2041 63,800,000 63,800,000
Total $232,205,000 $219,520,000
(1) Table excludes the City's Water System Revenue and Refunding Bonds,2005, currently outstanding in the
principal amount of$5,000 with a final maturity date of December 1, 2025, which were defeased and will
be refunded with available funds of the City in conjunction with the issuance of the Series 2024 Water
System Bonds on January 25,2024. See Footnote 2 below.
(2) Table excludes the City's Water System Revenue and Refunding Bonds, 2013, previously outstanding in
the principal amount of$74,355,000 with a final maturity date of December 1,2043,which were defeased
and will be refunded with proceeds of the Series 2024 Water System Revenue Bonds issued on January 25,
2024.
Source: City of Tacoma.
Water System Junior Lien Obligations
As of December 1, 2023, the City has outstanding four low-interest loans from the State Public Works Trust Fund
loan program totaling $8,338,921 and ten low-interest loans from the State Revolving Fund loan program totaling
$44,778,675,which are junior to the Parity Bonds in their lien on the Gross Revenue of the Water System. The final
maturity for the currently outstanding junior lien obligations is October 1,2035. See Note 7 in Appendix H—"CITY
OF TACOMA WATER SYSTEM 2022 FINANCIAL STATEMENTS"to see the annual debt service on the junior
lien obligations.
The City retains the right to issue revenue obligations with a subordinate lien on Gross Revenue of the Water
System.
The City does not currently have any subordinate obligations payable from Revenues of the Regional System
outstanding.
Tacoma Water Capital Improvement Program
Tacoma Water actively maintains a 10-year capital improvement program projection, which includes capital
improvements, additions and renovations to the Water System necessary to address engineering recommendations,
regulatory requirements and water quality standards and to provide for present and projected future customer needs.
From this projection of need, Tacoma Water derives its Capital Improvement Program for the Water System. This
program is an element of the City's Growth Management Act Comprehensive Plan, which contains a six-year
projection of projects and is updated annually.
Tacoma Water and the Regional System have been impacted by inflation and supply chain delays, resulting in
reprioritization and delays in certain infrastructure projects. Tacoma Water has conducted additional analyses to
determine that the projects it undertakes are still suited to its needs when constructed given the longer lead times or
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higher prices. Tacoma Water cannot predict whether such trends will continue and what the impacts will be on its
capital planning.
The following table shows the 2024-2028 Capital Improvement Program for Tacoma Water. Tacoma Water
currently plans to fund these improvements with a combination of operating and capital reserves on hand, SDCs and
other miscellaneous revenue as well as proceeds of Future Parity Bonds and additional junior lien obligations. In
response to the closure of WestRock(see "Customers and Water Sales; Loss of Major Customer" above), Tacoma
Water has reviewed and will continue to review its capital improvement program focusing on those projects
impacted by this loss of demand. While Tacoma Water will no longer have the large water demand that it
previously had from WestRock's water usage, the infrastructure (pipes, filtration plant,reservoirs, water resources)
used to serve WestRock and all other Tacoma Water customers will continue to require maintenance. There will be
limited ability to remove segments of the Water System from service to reduce costs.
TABLE 18:
TACOMA WATER
2024-2028 CAPITAL IMPROVEMENT PROGRAM
($000)
Use of Funds 2024 2025 2026 2027 2028
Fleet $ 6,240 $ 2,009 $ 2,009 $ 812 $ 812
Technology Projects 1,978 1,795 1,795 1,605 1,605
Wells Master Plan(') 8,740 1,160 1,160 2,660 2,660
Pipeline 1 Pressurization Program 2,075 1,300 1,620 1,730 5,190
Water Supply 1,333 3,150 4,625 4,284 3,101
Water Treatment 1,715 378 378 886 886
Water Distribution(') 5,124 5,444 3,844 6,246 5,946
Contingency 1,025 900 900 900 900
Carry Forward Factor(') (2,823) (1,614) (1,633) (1,912) (2,110)
Total Uses(4) $ 25,406 $ 14,522 $ 14,697 $ 17,211 $ 18,990
0) Tacoma Water is currently reviewing the groundwater prioritization projects given the closure of WestRock.
(2) Includes main renewal replacement program and other distribution renewal replacement projects such as
hydrants,meters,and blowoffs.
(3) The Carry Forward Factor assumes some capital projects are carried from one year to the next by applying a
10%reduction to the capital budget.
(4) Totals may not foot due to rounding.
Source: City of Tacoma.
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Historical Operating Results-Tacoma Water
The following table shows Tacoma Water's customer accounts and water sales for the years 2018 through 2022.
June 28, 2021 was recorded as the hottest day on record for the City at 108 degrees, which also coincided with
record water delivery to the Water System at 97 MG. This generated above average water sales in 2021. In 2022,
Tacoma Water saw delayed peak temperatures leading to peak consumption shifting into late summer and early fall,
resulting in below average water sales in 2022(due to lower fall rates).
TABLE 19:
TACOMA WATER
HISTORICAL NUMBER OF CUSTOMERS AND WATER SALES
2018 2019 2020 2021 2022
Customer Accounts(Average)
Residential&Domestic Services 96,523 98,889 101,008 101,198 102,308
Commercial&Industrial Service 6,577 6,757 6,839 6,944 6,571
WestRock(') 1 1 1 1 1
Wholesale 15 16 24 22 17
Total Customer Accounts 103,116 105,663 107,872 108,165 108,897
Water Sales(ccf)(2)
Residential&Domestic Services 11,322,629 11,028,765 11,914,013 12,503,442 11,454,118
Commercial&Industrial Service 4,457,749 4,401,975 4,341,347 4,637,103 4,191,687
WestRock(') 7,800,282 7,735,140 7,752,656 7,749,840 7,772,053
Wholesale 1,184,264 1,188,982 973,219 1,232,283 930,770
Total Water Sales 24,764,924 24,354,862 24,981,235 26,122,668 24,348,628
0) In August 2023,WestRock announced that it would cease operations at its Tacoma mill effective September 30,
2023. See "THE CITY OF TACOMA WATER SYSTEM—Customers and Water Sales; Loss of Major
Customer."
(2) ccf= 100 cubic feet.
Source: Annual Tacoma Water financial reports.
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Historical Revenue and Expenses
The following table shows selected historical revenues and expenses for Tacoma Water for the years 2018 through
2022, based on consolidated audited financial statements that include Tacoma Water and the Regional System for
the period.
TABLE 20:
TACOMA WATER
HISTORICAL OPERATING RESULTS
2018 2019 2020 2021 2022
Operating Revenue('
Water Sales $ 89,449,722 $ 90,242,382 $ 92,707,740 $ 98,999,183 $101,188,399
Other Operating Revenue 12,491,739 12,302,372 11,760,454 12,360,117 14,029,299
Total Operating Revenue $101,941,461 $102,544,754 $104,468,194 $111,359,300 $115,217,698
Operating Expenses(')
Operating&Maintenance $ 45,892,214 $ 50,339,168 $ 52,116,679 $ 56,343,811 $ 54,350,532
Taxes(2) 5,273,751 5,188,882 5,398,410 5,856,255 6,574,082
Depreciation 26,117,843 25,295,078 25,723,865 27,727,624 28,400,190
Total Operating Expenses $ 77,283,808 $ 80,823,128 $ 83,238,954 $ 89,927,690 $ 89,324,804
Net Operating Income(Loss) $ 24,657,653 $ 21,721,626 $ 21,229,240 $ 21,431,610 $ 25,892,894
Non-Operating Revenue(Expenses)('
Other Income(3) $ 3,215,049 $ 1,802,296 $ 651,209 $ 2,441,693 $ 807,804
Interest Income 3,876,762 7,370,377 5,522,409 (1,182,910) (2,687,718)
Interest Charges(Net) (19,269,514) (18,181,445) (17,565,824) (17,094,995) (16,896,259)
Total Non-Operating Revenue(Expenses) $(12,177,703) $ (9,008,772) $(11,392,206) $(15,836,212) $(18,776,173)
Net Income(Loss)Before Capital
Contributions(') $ 12,479,950 $ 12,712,854 $ 9,837,034 $ 5,595,398 $ 7,116,721
Less: Regional System Net Income(Loss)
Before Capital Contributions (8,174,534) (6,234,027) (6,597,886) (6,405,388) (5,578,529)
Tacoma Water Net Income(Loss)Before
Capital Contributions $ 20,654,484 $ 18,946,881 $ 16,434,920 $ 12,000,786 $ 12,695,250
Debt Service Calculation Adjustments
Add: SDC Revenue $ 5,883,499 $ 2,418,367 $ 2,078,058 $ 3,545,748 $ 1,907,917
Add: Interest Subsidies on Water BABs 2,783,195 2,793,352 2,825,580 2,810,461 2,803,010
Add: Depreciation 16,918,137 16,787,988 17,202,439 19,203,238 19,857,867
Add: Interest Charges(Net) 14,362,259 13,535,753 12,985,934 12,594,198 12,480,063
Net Tacoma Water Revenue Available for
Debt Service $ 60,601,574 $ 54,482,341 $ 51,526,931 $ 50,154,431 $ 49,744,107
Debt Service on Outstanding Bonds
Tacoma Water Parity Bonds $ 18,704,395 $ 18,712,000 $ 18,782,440 $ 18,272,370 $ 18,229,022
Debt Service Coverage 3.24 2.91 2.74 2.74 2.73
(') Includes Regional System operating results. See Table 8.
(2) Excludes City transfer for gross earnings tax,which is payable after debt service.
(3) Excludes NCS Federal Assistance grant.
Source: Water Division,2021 and 2022 Financial Reports(consolidated).
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CERTAIN INVESTMENT CONSIDERATIONS
Prospective purchasers of the Bonds should consider the matters set forth below as well as other information
contained in this Official Statement in evaluating an investment in the Bonds. This section does not purport to be a
comprehensive list or description of all potential risks which, if realized, could adversely affect the payment or the
value of the Bonds. The order of presentation of these factors below is not intended to create any implication as to
the relative importance of any one risk factor over another.
Initiative and Referendum
Under the State Constitution, the voters of the State have the ability to initiate legislation and modify existing
legislation through the powers of initiative and referendum, respectively. The initiative power in Washington may
not be used to amend the State Constitution. Initiatives and referenda are submitted to the voters upon receipt of a
petition signed by at least 8% (initiative) and 4% (referenda) of the number of voters registered and voting for the
office of Governor at the preceding regular gubernatorial election. Any law approved in this manner by a majority
of the voters may not be amended or repealed by the Legislature within a period of two years following enactment,
except by a vote of two-thirds of all the members elected to each house of the Legislature. After two years,the law
is subject to amendment or repeal by the Legislature in the same manner as other laws.
Under the City Charter,voters may initiate City Charter amendments and local legislation, including modifications
to existing legislation, and through referendum may prevent legislation passed by the City Council from becoming
law. Some ordinances become effective immediately, including ordinances passed as emergency measures, or
relating to local improvements and assessments and authorization of bonds therefor, or adopting annual budgets, or
levying taxes, or making appropriations. Ordinances granting a franchise, right, or privilege, or authorizing the
issuance of revenue bonds in an amount exceeding $5 million take effect as the City Council determines. All other
ordinances take effect only after the expiration of 10 days from publication and are subject to the provisions of the
City Charter concerning referendum.
Limitations on Remedies
Any remedies available to the owners of the Bonds upon the occurrence of an Event of Default under the Bond
Ordinance are in many respects dependent upon judicial actions, which are in turn often subject to discretion and
delay and could be both expensive and time consuming to obtain. If the City fails to comply with its covenants
under the Bond Ordinance or to pay principal of or interest on the Bonds, there can be no assurance that available
remedies will be adequate to fully protect the interests of the owners of the Bonds.
In addition to the limitations on remedies contained in the Bond Ordinance, the rights and obligations under the
Bonds and the Bond Ordinance may be limited by and are subject to bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium, and other laws relating to or affecting creditors' rights, to the application of
equitable principles, and to the exercise of judicial discretion in appropriate cases. The opinion to be delivered by
Pacifica Law Group LLP, as Bond Counsel, concurrently with the issuance of the Bonds, will be subject to
limitations regarding bankruptcy, insolvency, and other laws relating to or affecting creditors' rights. The various
other legal opinions to be delivered concurrently with the issuance of the Bonds will be similarly qualified. A
complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix G.
No Acceleration Upon an Event of Default
Upon the occurrence of an Event of Default under the Bond Ordinance, neither any Owner of a Bond nor any
Bondowners' Trustee will have the right under the Bond Ordinance to accelerate the payment of debt service on the
Bonds. The City thus is liable for principal and interest payments only as they become due. The inability to
accelerate the Parity Bonds limits the remedies available to the Bondowners' Trustee and the Owners upon an Event
of Default, and could give rise to conflicting interests among Owners of earlier-maturing and later-maturing Bonds.
The nature and extent of any such conflicts would depend in part upon the nature and duration of any default. In the
event of successive defaults in payment of the principal of or interest on the Bonds,the Bondowners' Trustee or the
Owners may be required to file a separate action for each such payment not made. Any such action to compel
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payment or for money damages would be subject to the limitations on legal claims and remedies against public
bodies under State law. For a description of the Events of Default and remedies set forth in the Bond Ordinance,see
Appendix A—"COPY OF THE BOND ORDINANCE."
The Bond Ordinance does not prohibit the issuance of debt, including Future Parity Bonds, subject to mandatory
redemption or mandatory purchase or tender for purchase upon the occurrence and continuance of an Event of
Default or other default. A mandatory redemption or purchase or tender for purchase would be substantively similar
to the remedy of acceleration.
Municipal Bankruptcies
Under current Washington law, local governments, such as the City and the Participants, may be able to file for
bankruptcy under Chapter 9 of the United States Bankruptcy Code(the`Bankruptcy Code").A creditor cannot bring
an involuntary bankruptcy proceeding against a municipality, including the City or the Participants. The federal
bankruptcy courts have broad discretionary powers under the Bankruptcy Code. Taxing districts, including the City
and the Participants, in the State are expressly authorized to carry out a plan of readjustment if approved by the
appropriate court. Should the City or a Participant become a debtor in a federal bankruptcy proceeding, the owners
of the Parity Bonds would continue to have a statutory lien on Revenues of the Regional System after the
commencement of the bankruptcy case so long as the Revenues of the Regional System constitute "special
revenues" within the meaning of the Bankruptcy Code. "Special revenues" are defined under the Bankruptcy Code
to include, among other things, receipts by local governments from the ownership, operation or disposition of
projects or systems that are primarily used to provide utility services. The Bankruptcy Code provides that "special
revenues" can be applied to necessary operating expenses of the project or system, before they are applied to other
obligations. This rule applies regardless of the provisions of the transaction documents, such as the Bond Ordinance.
It is not clear precisely which expenses would constitute necessary operating expenses and any definition in the
Bond Ordinance may not be applicable.
Furthermore, in the event of a bankruptcy, the other parties (including the Registrar, the holders of the Bonds and
any Bondowners' Trustee)may be prohibited from taking any action to collect any amount from the City,to enforce
any obligations of the City, or to exercise any remedies unless the permission of the bankruptcy court is obtained.
The rate covenant may not be enforceable in bankruptcy by the holders of the Bonds. Legal proceedings to resolve
issues could be time-consuming and expensive,and substantial delays and reductions in payments could result.
The legal opinion of Bond Counsel regarding the validity of the Bonds will be qualified by reference to bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium and other similar laws affecting the rights of
creditors generally,and by general principles of equity. See Appendix G.
Federal and Local Regulations
A number of factors affect operations of the Regional System,the Water System, and the water systems of the other
Participants. Federal, state and local standards and procedures that regulate the operations and environmental
impacts of water utilities are subject to change. These changes may arise from continuing legislative,regulatory and
judicial action regarding such standards and procedures. Consequently,there is no assurance that such systems will
remain subject to the regulations currently in effect, will be in compliance with current or future regulations or will
always be able to obtain all required operating permits. Compliance with applicable environmental standards could
result in additional capital and operating expenditures and reduced operating and efficiency levels, as well as
possible fines,penalties or liabilities for noncompliance.
There are a variety of proposed regulations and legislation at the state and federal levels that could be considered in
2024. Topics include regulations on PFAS in drinking water, mandates related to the identification and removal of
lead service lines, ongoing policies related to federal sequestration, policies relating to tax-exempt financing, and
critical infrastructure cybersecurity.While these policies and others have been proposed for many years,it is unclear
which, if any, will be adopted. The City is considering ways that the regulations relating to PFAS and lead service
line replacement will or will not impact its ongoing delivery of drinking water to its customers.
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City officials charged with management of the Regional System and the Water System report that the City now
holds all licenses, permits and approvals necessary for the operation of the Regional System and the Water System
and that the City is in compliance in all material respects with such licenses,permits and approvals.
Seismic,Volcanic,Wildfire,Flooding and Other Risks
The City's Comprehensive Emergency Management Plan identifies the following natural hazards: severe storms,
earthquakes, floods, fire hazards, landslides, drought, tsunami, epidemic/pandemic and volcanic hazards. In 2001, a
6.8 magnitude earthquake occurred near Olympia, Washington, within 50 miles of the City. According to the U.S.
Geological Survey, over the past 10,000 years, Mount Rainier (located within 60 miles of the City) has been the
source of numerous lahars (volcanic debris flows). The most recent large lahar occurred approximately 500 years
ago. Such lahars could cause catastrophic damage to the City. The Emergency Management Plan addresses disaster
planning,but may not anticipate all potential hazards and their effects.
The Western United States, including Washington,has also recently experienced a series of major wildfires causing
extensive damage in certain areas and diminishing air quality. The City has developed and regularly updates a
wildfire protection plan. Other natural disasters, such as volcanic eruptions, flooding, mudslides, and windstorms,
are also possible. The City can give no assurance regarding the effect of an earthquake, a volcanic eruption,
mudslide or other natural disaster,or other risks such as climate change,epidemics and pandemics including without
limitation the COVID-19 pandemic, wildfires, or acts of terrorism. The City can give no assurance that the City's
insurance reserves or proceeds of insurance carried by the City would be sufficient, if available, to rebuild and
reopen City and/or Water System or Regional System facilities or that City and/or Water System and/or Regional
System facilities or surrounding facilities and infrastructure could or would be rebuilt and reopened in a timely
manner following a major disaster.
Climate change could intensify and increase the frequency of extreme weather events, such as drought, wildfires,
floods and heatwaves. The loss of life and property damage that could result from wildfires and other major natural
disasters could have a material and adverse impact on the City and the local community and economy. Under
Washington law, any person, firm or corporation may be liable if it creates or allows extreme fire hazards to exist
that contribute to the spread of the fires.
Climate Change and Local Climate Change Initiatives
There are potential risks to the City, including Tacoma Water, associated with long-term changes in climate and
associated changes in the frequency, timing, and severity of extreme weather events. Expected impacts include sea
level rise, more intense heavy rain events, more intense summer heat events, lower and warmer summer
streamflows, ocean acidification, and an increased risk of flooding, drought, landslides, and wildfires. The City
considers the environmental impacts associated with climate change in its decision making.
The City has set carbon pollution reduction targets and is tracking progress on priority environmental actions
associated with climate change for use in its decision-making. In 2008,the City developed its first Tacoma Climate
Action Plan ("CAP"), which was adopted to establish carbon reduction goals and strategies for the City and
community. The highest priority recommendations identified by the associated task force included creating an
Office of Sustainability and the Sustainable Tacoma Commission. Both were enacted in the spring of 2009. The
2016 Environmental Action Plan("2016 EAP")was developed by the City in partnership with the Department. The
2016 EAP provides a plan for taking action at both the City and community level to reduce greenhouse gas
emissions to meet the environmental goals outlined in the Tacoma 2025 Strategic Plan.
The City and the Department have continued to expand and refine the City's climate goals and policies. In
December 2019 (City Council Resolution No. 40509),the City declared a climate emergency in Tacoma and called
for a transformative climate action plan to reduce community greenhouse gas emissions and adapt to climate
impacts. In 2021, the City Council adopted the 2030 Climate Action Plan("2030 CAP"),which outlines strategies
to address the climate emergency by 2030, and a path for carbon-neutrality by 2050. With the 2030 CAP, the City
will take action for affordable housing; clean,reliable transportation;protections for public health; and green, good-
paying jobs. It is designed to direct City funding, investments, and work over the next nine years to improve
communities in the City and the environment. A progress report was delivered in 2022. Other City action includes
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legislation designed to reduce the City's carbon footprint by restricting use of natural gas and new fossil fuel (City
Council Resolution No. 40776, Board Resolution No. U-11193), the 2020 Anti-Racist Systems Transformation
Resolution(City Council Resolution No.40622),and others
While the City cannot predict precisely how,when, and where specific climate impacts will occur, there have been
and will be climate impacts on the City including Tacoma Water, and the surrounding region, which may have a
material impact on the City including Tacoma Water,and its operations and finances.
Public Health Emergencies
COVID-19 and variants of such may continue to affect commerce, financial markets, and the Puget Sound region,
including as a result of new variants. The dynamic nature of COVID-19 and other public health emergencies leads
to uncertainties, including (i) the geographic spread of viruses and variants and the emergence of new variants; (ii)
the severity of disease; (iii)the duration of any outbreak or pandemic;(iv)actions that governmental authorities may
take to contain or mitigate the outbreak or pandemic; (v) the development, efficacy, and distribution of medical
therapeutics and vaccines, vaccination rates, and the efficacy of therapeutics and vaccines to emerged and new
variants; (vi) the impact of outbreaks, including pandemics, on the local or global economy; (vii) the introduction
and extent of public health measures;and(viii)the impact of the outbreak or pandemic and actions taken in response
on County revenues, expenses, and financial condition. Other public health emergencies may occur and may occur
with greater frequency and intensity given trends in globalization.
Cybersecurity
Tacoma Water seeks to utilize best practices for securing utility operational networks and systems. These practices
include isolating command and control systems from the Internet; network surveillance; and overseeing physical
access. Tacoma Water has defined processes, measures and controls that guard the reliability of its systems and
protect it from cyber threats.
The City relies on a complex technology environment to conduct its operations. A cybersecurity breach could
damage the systems and cause material disruption to operations and services. The cost to remedy such damage or
protect against future attacks could be substantial. Security breaches could expose the City to litigation and other
legal risks, which could cause the City to incur costs related to legal or regulatory claims. The City currently
maintains cybersecurity insurance coverage.
The City occasionally encounters minor cybersecurity incidents, such as device theft, malware infection, and
credential compromise. As a result, small scale interruptions have occurred, though most affect only individuals.
Every incident will have some operational impact,drawing resources for incident response that could be performing
other work.
To help mitigate the risk of a cybersecurity incident, the City has adopted an enterprise information security
program. Within it, the City has established a comprehensive set of policies and procedures. Examples include
roles and responsibilities, acceptable use, configuration standards, change management, incident response,
architecture review,and vulnerability management. The program includes required annual awareness training for its
employees. The Chief Information Security Officer regularly works with a Technology Risk Advisory Board of key
department leaders to review, evaluate, and recommend controls to manage cybersecurity risk. Additionally,
cybersecurity staff participate regularly with third party sources to stay up to date and informed on the latest threats,
vulnerabilities,research,and technology.
Lack of Secondary Market
The Underwriters have advised the City that they intend initially to make markets in the Bonds; however, the
Underwriters are not obligated to make such markets, such markets may be discontinued at any time without notice,
and no assurance can be given that secondary markets therefor will develop.
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LITIGATION
There is no litigation pending or threatened in any court(local, state, or federal)to restrain or enjoin the issuance or
delivery of the Bonds, or questioning the creation, organization, existence, or title to office of the officers of the
Department, Tacoma Water or the City, the pledge of Revenues of the Regional System, the validity or
enforceability of the Bond Ordinance, or the proceedings for the authorization, execution, sale, and delivery of the
Bonds.
Because of the nature of its activities, the City and Tacoma Water are subject to various pending and threatened
legal actions which arise in the ordinary course of business. The City and Tacoma Water believe, based on the
information presently known,the ultimate liability for any legal actions, individually or in the aggregate,taking into
account established accruals for estimated liabilities, will not be material to the financial position of the City or
Tacoma Water, respectively, but could be material to results of operations or cash flows for a particular annual
period. No assurance can be given,however,as to the ultimate outcome with respect to any particular claim.
TAX MATTERS
General. In the opinion of Bond Counsel,under existing law and subject to certain qualifications described below,
interest on the Bonds is excludable from gross income for federal income tax purposes under Section 103 of the
Internal Revenue Code of 1986,as amended(the"Code"). Interest on the Bonds is not an item of tax preference for
purposes of the federal alternative minimum tax imposed on individuals;however,such interest is taken into account
in determining the annual adjusted financial statement income for the purpose of computing the alternative
minimum tax imposed on certain corporations. The proposed form of opinion of Bond Counsel with respect to the
Bonds to be delivered on the date of issuance of the Bonds is set forth in Appendix G.
The Code contains a number of requirements that apply to the Bonds, and the City has made certain representations
and has covenanted to comply with each such requirement. Bond Counsel's opinion assumes the accuracy of the
representations made by the City and is subject to the condition that the City comply with the above-referenced
covenants. If the City fails to comply with such covenants or if the City's representations are inaccurate or
incomplete, interest on the Bonds could be included in gross income for federal income tax purposes retroactively to
the date of issuance of the Bonds.
Except as expressly stated herein,Bond Counsel expresses no opinion regarding any tax consequences related to the
ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on,the Bonds. Owners of
the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning
the Bonds.
Original Issue Premium and Discount. If the initial offering price to the public at which a Bond is sold is less than
the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of
federal income taxes. If the initial offering price to the public at which a Bond is sold is greater than the amount
payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal
income taxes.
Under the Code, original issue discount is treated as interest excluded from federal gross income to the extent
properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section.
The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate
compounded on each interest or principal payment date (with straight-line interpolations between compounding
dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such
Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such
Bond. The Code contains certain provisions relating to the accrual of original issue discount in the case of
purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity.
Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of
Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original
offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued
original issue discount on such Bonds under the federal alternative minimum tax.
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Under the Code,original issue premium is amortized on an annual basis over the term of the Bond(said term being
the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year
reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon
disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of
the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with
straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal
income tax purposes. Owners of premium Bonds,including purchasers who do not purchase in the original offering,
should consult their own tax advisors with respect to federal income tax consequences of owning such Bonds.
Post Issuance Matters. The opinion of Bond Counsel is based on current legal authority, covers certain matters not
directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the
Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ("IRS") or the courts.
Furthermore,Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the
City, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the
enforcement thereof by the IRS.
Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and,unless separately
engaged, Bond Counsel is not obligated to defend the City or the Owners regarding the tax-exempt status of the
Bonds in the event of an audit examination by the IRS. Under current procedures,parties other than the City and its
appointed counsel, including the Owners, would have little, if any, right to participate in the audit examination
process. Moreover,because achieving judicial review in connection with an audit examination of tax-exempt bonds
is difficult,obtaining an independent review of IRS positions with which the City legitimately disagrees,may not be
practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or
result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the
marketability of,the Bonds,and may cause the City or the Owners to incur significant expense.
Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause
interest on the Bonds to be subject, directly or indirectly,to federal income taxation,or otherwise prevent beneficial
owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any
such legislative proposals, clarification of the Code or court decisions may also affect the market price for, or
marketability of,the Bonds.
Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters and any
pending or proposed legislation,regulations or litigation,as to which Bond Counsel expresses no opinion.
Not Bank Qualified. The City has not designated the Bonds as "qualified tax-exempt obligations" within the
meaning of Section 265(b)(3)(B)of the Code.
RATINGS
Moody's Investors Service Inc. and S&P Global Ratings have assigned ratings of"AaI"(outlook stable)and"AA+"
(outlook stable), respectively, to the Bonds. Ratings were applied for by the City and certain information was
supplied by the City to the rating agencies to be considered in evaluating the Bonds.
The ratings reflect only the views of the rating agencies and an explanation of the significance of the ratings may be
obtained from the rating agencies.There is no assurance that the ratings will be retained for any given period of time
or that the ratings will not be revised downward, suspended, or withdrawn entirely by the rating agencies if, in their
judgment, circumstances so warrant. Any such downward revision, suspension, or withdrawal of the ratings would
be likely to have an adverse effect on the market price of the Bonds. The City does not have any obligation to take
any action, other than filing notice of a listed event, if the ratings on the Bonds are changed, suspended or
withdrawn.
UNDERWRITING
KeyBanc Capital Markets, Inc. and Wells Fargo Bank, National Association (together, the "Underwriters") are
purchasing the Bonds at a price of $35,801,900.73 (representing the aggregate principal amount of the Bonds
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($32,350,000.00),plus original issue premium of$3,554,620.25 and less an underwriters' discount of$102,719.52).
The Underwriters' obligations are subject to certain conditions precedent, and they will be obligated to purchase all
Bonds, if any Bonds are purchased. The Bonds may be offered and sold to certain dealers at prices lower than the
public offering prices,and the public offering prices may be changed,from time to time,by the Underwriters.
Wells Fargo Securities is the trade name for certain securities-related capital markets and investment banking
services of Wells Fargo &Company and its subsidiaries, including Wells Fargo Bank,National Association,which
conducts its municipal securities sales, trading and underwriting operations through the Wells Fargo Bank, NA
Municipal Finance Group, a separately identifiable department of Wells Fargo Bank, National Association,
registered with the Securities and Exchange Commission as a municipal securities dealer pursuant to Section 15B(a)
of the Securities Exchange Act of 1934.
Wells Fargo Bank, National Association, acting through its Municipal Finance Group ("WFBNA"), one of the
Underwriters of the Bonds, has entered into an agreement (the "WFA Distribution Agreement") with its affiliate,
Wells Fargo Clearing Services, LLC (which uses the trade name "Wells Fargo Advisors") ("WFA"), for the
distribution of certain municipal securities offerings, including the Bonds. Pursuant to the WFA Distribution
Agreement,WFBNA will share a portion of its underwriting or remarketing agent compensation,as applicable,with
respect to the Bonds with WFA. WFBNA has also entered into an agreement (the "WFSLLC Distribution
Agreement")with its affiliate Wells Fargo Securities,LLC("WFSLLC"),for the distribution of municipal securities
offerings, including the Bonds. Pursuant to the WFSLLC Distribution Agreement, WFBNA pays a portion of
WFSLLC's expenses based on its municipal securities transactions. WFBNA, WFSLLC, and WFA are each
wholly-owned subsidiaries of Wells Fargo&Company.
MUNICIPAL ADVISOR
Montague DeRose and Associates,LLC, Walnut Creek, California, served as municipal advisor to Tacoma Water in
connection with the issuance of the Bonds (the "Municipal Advisor"). The Municipal Advisor has not audited,
authenticated, or otherwise verified the information set forth in this Official Statement or the other information
available from Tacoma Water with respect to the appropriateness, accuracy, and completeness of the disclosure of
such information, and the Municipal Advisor makes no guarantee, warranty, or other representation on any matter
related to such information. Montague DeRose and Associates, LLC is an independent municipal advisory and
consulting organization and is not engaged in the business of underwriting, marketing, or trading of municipal
securities or any other negotiable instruments.
APPROVAL OF CERTAIN LEGAL MATTERS
The validity of the Bonds and certain other legal matters are subject to the approving opinion of Pacifica Law Group
LLP, Seattle, Washington. A complete copy of the proposed form of Bond Counsel opinion is contained in
Appendix G hereto. Pacifica Law Group LLP is also serving as Disclosure Counsel to the City in connection with
the issuance of the Bonds.
Certain legal matters will be passed upon for the Underwriters by Foster Garvey PC, counsel to the Underwriters.
Any opinion of Underwriters' counsel will be rendered solely to the Underwriters,and any opinion of Underwriters'
counsel or Disclosure Counsel will be limited in scope and cannot be relied upon by investors.
POTENTIAL CONFLICTS OF INTEREST
Some or all of the fees of the Municipal Advisor, the Bond Registrar, the Underwriters, Underwriters' counsel,
Disclosure Counsel and Bond Counsel are contingent upon the issuance and sale of the Bonds. None of the
members of the City Council,the Board or other officers of the City have interests in the issuance of the Bonds that
are prohibited by applicable law. Currently and from time to time Bond Counsel and Disclosure Counsel serve as
counsel to other parties involved with the Bonds, such as Kent and the Underwriters (and has represented CWD)
with respect to transactions other than the issuance of the Bonds. From time to time Underwriters' counsel serves as
counsel to other parties involved with the Bonds (including Lakehaven) with respect to transactions other than the
issuance of the Bonds.
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The City's code of ethics sets forth types of prohibited conduct for City officers and employees. Such prohibited
conduct includes, but is not limited to, participating in the making of a contract in which they have a direct or
indirect financial interest; influencing the City's selection of or conduct of business with a corporation, person or
firm having or proposing to do business with the City, if the officer or employee has a financial interest in the
corporation, person or firm; and appearing or giving an official opinion before the City Council while having a
financial interest in any legislation coming before the City Council and participating in discussion with or giving an
official opinion to the City Council(excluding,in each case,a remote interest that is disclosed in advance).
CONTINUING DISCLOSURE UNDERTAKING
City Undertaking. Pursuant to a certificate to be executed by the City on or prior to the date of issuance and delivery
of the Bonds (a "Continuing Disclosure Certificate"), the City will covenant for the benefit of the owners and the
"Beneficial Owners" (as defined in the Continuing Disclosure Certificate) of the Bonds pursuant to Securities and
Exchange Commission Rule 15c2-12 ("Rule 15c2-12") to provide certain financial information and operating data
not later than the end of nine months after the end of each of the City's fiscal years (presently, December 31),
commencing in 2024 with the report for the fiscal year ended December 31, 2023, and to provide notices of the
occurrence of certain enumerated events with respect to the Bonds. The information will be filed by or on behalf of
the City with the Municipal Securities Rulemaking Board ("MSRB") through its Electronic Municipal Market
Access(`EMMA")system. See Appendix D for a form of the Continuing Disclosure Certificate.
Other Ongoing Disclosure Undertakings of the City. The City has previously entered into continuing disclosure
undertakings in connection with various City financings and obligations under Rule 15c2-12 (the "Prior
Undertakings"). With respect to its Prior Undertakings, the City (i) failed to timely file taxable sales information,
lodging tax information and solid waste tonnage percentage calculations for fiscal year ended December 31, 2018,
(ii) failed to timely file the incurrence of certain financial obligations (low-interest loans from State lending
programs),and(iii)while the City had timely filed its audited financial statements and notices for fiscal years ended
December 31, 2019 through 2022 for certain of its outstanding bonds, it did not link such filings to the State of
Washington Certificates of Participation, Series 2020C (Taxable), under which the City is an obligated person for
purposes of Rule 15c2-12. As of the date of this Official Statement,the foregoing information has been filed and/or
linked on EMMA.
Other Obligated Persons. In the Continuing Disclosure Certificate, the City has agreed to provide, or cause to be
provided, either directly by the Obligated Person or through a designated agent, to the MSRB, as designated by the
SEC,in accordance with Rule 15c2-12, in electronic format as prescribed by the MSRB accompanied by identifying
information as prescribed by the MSRB, with respect to each Obligated Person, such Obligated Person's audited
financial statements prepared in accordance with generally accepted accounting principles, not later than the end of
the nine months after the end of each of the Obligated Person's fiscal year, commencing in 2024 for the prior fiscal
year; provided, that if such Obligated Person's audited financial statements are not yet available, the City shall
provide unaudited financial statements in substantially the same format, and audited financial statements when they
become available. "Obligated Person" as defined in the Continuing Disclosure Certificate means any person or
entity which, at the time, is obligated directly or indirectly by contract, generally or through an enterprise, fund or
account,to make payment in the then current or any succeeding Fiscal Year to be applied to pay at least 10%of the
aggregate amount of principal of and interest scheduled to become due in such year on the Bonds.
Kent is currently an"Obligated Person"with respect to the Bonds. At the time of the issuance of the Bonds,Kent
will execute a certificate agreeing to provide or cause to be provided,the financial statements referenced in the prior
paragraph,beginning in 2024 with the report for the fiscal year ended December 31,2023.
See Appendix B—"PARTICIPANTS IN THE SECOND SUPPLY PROJECT—The City of Kent"for a summary of
Kent's compliance with its prior continuing disclosure undertakings.
MISCELLANEOUS
At the time of delivery of the Bonds,one or more officials of the City will furnish a certificate stating that to the best
of their knowledge,this Official Statement,as of its date and as of the date of delivery of the Bonds does not contain
any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained
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herein, in light of the circumstances under which they were made, not misleading (however,the City will make no
representation regarding DTC and its book-entry-only system, the City's municipal advisor, the form of opinion
provided by Bond Counsel,or the Underwriters).
All estimates, assumptions, statistical information and other statements contained herein, while taken from sources
the City considers reliable, are not guaranteed by the City. The statements relating to the Bond Ordinance, the
Project Agreement and the repayment agreements are in summarized form, and in all respects are subject to and
qualified in their entirety by express reference to the provisions of such document in its complete form. This
Official Statement is not to be construed as a contract or agreement between the City and the purchasers of the
Bonds. The City has authorized the preparation and distribution of this Official Statement.
CITY OF TACOMA,WASHINGTON
By /s/Scott Dewhirst
Superintendent/Chief Operating Officer,
Department of Public Utilities,Water Division
By /s/Andy Cherullo
Finance Director
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APPENDIX A
COPY OF THE BOND ORDINANCE
[THIS PAGE INTENTIONALLY LEFT'BLANK]
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A-46
APPENDIX B
PARTICIPANTS IN THE SECOND SUPPLY PROJECT
The information in this Appendix B has been furnished to the City by Kent, CWD and Lakehaven for use in this
Official Statement. Such information is not to be construed as a representation by or on behalf of the City.Although
the City has no reason to believe that the information in this Appendix B is not accurate or complete, the City has
not independently verified such information and does not guarantee the accuracy or completeness of such
information.
At or prior to the time of delivery of the Bonds, each Participant will certify to the City that the information
pertaining to such Participant in this Appendix B and elsewhere in this Official Statement is true and correct and
does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to
make the statements in this Appendix B and elsewhere in this Official Statement pertaining to such Participant, in
light of the circumstances under which they were made, not misleading.
The City of Kent
The following provides a brief summary of the City of Kent ("Kent") and its water collection and distribution
system(the"Kent Water System").
Under the Project Agreement,Kent is entitled to use its 7/36 Participant Share of the Project and is obligated to pay
its Participant Share of Project Costs. Kent is responsible for paying debt service on $355,000 (100%) of the
principal amount of the 2010A Bonds, and$7,805,000(17.64%)of the principal amount of the 2010B Bonds. Kent
is also responsible for paying debt service on $9,985,000 (approximately 30.9%) of the Bonds. See Table 1 and
"THE SECOND SUPPLY PROJECT—Project Participants"in the attached Official Statement.
Introduction. Kent is an optional municipal code city located in South King County, Washington. Kent was
incorporated in 1890 and, in 2023, had an estimated population of 131,320. Kent is governed by a mayor and a
seven-member City Council.
The Kent Water System was established in 1920, has a service area of approximately 24 square miles, served
approximately 15,886 accounts in 2022, and presently consists of the sources of water shown below. The Kent
Water System is accounted for as a separate enterprise fund for purposes of Kent's annual budget and annual
financial report.
Water Supply.Kent Water System's sources of water supply as of December 31,2022 included: Clark Springs,Kent
Springs, East Hill Wells and the Regional System. Kent received approximately 32% of its water supply from the
Regional System in 2022.
Seasonal or supplemental water supply sources are the 212th/208th Street wells (with treatment provided by the
Iron/Manganese Filtration Plant at 212th Street),Armstrong Springs, Seven Oaks, Garrison and O'Brien wells. The
Kent Water System's total reliable pumping capacity is about 33.8 million gallons per day from 22 water wells,
interties, and two springs, and has approximately 23.2 million gallons of reservoir capacity and 1,254.72 million
gallons of surface storage capacity. Auxiliary power generators are provided at selected pumping stations. Kent
considers the Kent Water System's source,storage,and transmission capabilities to be adequate for its customers.
B-1
Customer Information. In 2022, the Kent Water System provided water service to approximately 15,886 accounts,
approximately 75% of which were residential. Customer data and usage by class for the last five years is presented
below.
Table B-1:Kent Water System
Water Consumption(ccf)
2017 2018 2019 2020 2021 2022
Residential 878,554 898,594 895,511 968,005 996,523 945,127
Other 2,556,804 2,574,758 2,524,515 2,462,825 2,596,404 2,518,404
Total 3,435,358 3,473,352 3,420,026 3,433,830 3,592,927 3,463,531
Source: The City of Kent.
Table B-2:Kent Water System
Annual Billing
2018 2019 2020 2021 2022
Residential $ 2,617,358 $ 2,668,257 $ 2,982,754 $ 3,153,310 $ 3,030,011
Other 11,807,825 11,849,028 11,759,062 12,530,713 12,437,817
Total $14,425,183 $14,517,285 $14,741,816 $15,684,023 $15,467,828
Source: The City of Kent.
The following identifies the Kent Water System's ten largest customers by billings for 2022.
Table B-3:Largest Customers of the Kent Water System
Annual Billing for 2022
Customer Name Billings Percent of Revenue
Danone Waters of North America $222,549 0.92%
Air Gas 197,917 0.81
Rexam Beverage Can Company 155,299 0.64
Mikron Industries 143,055 0.59
Aramark Uniform Services 139,601 0.57
Kent 228 136,814 0.56
Smith Brothers Farms 116,849 0.48
King County Admin Bldg 117,063 0.48
Image First Healthcare Laundry 113,321 0.47
Boeing Defense and Space Grp 111,144 0.46
Source: The City of Kent.
B-2
Water Rates. The following table shows the Kent Water System's current water rates (for both summer and winter
consumption).
Table B-4:Kent Water System
Water Rates
(Effective January 1,2024)
Use Rate
0-800 $ 3.03
800+ $ 5.96
Lifeline Water Rate 0-800 $ 1.21
Lifeline Water Rate 800+ $ 2.38
Commercial Meter
3/4" $ 36.72
1" $ 53.25
1.5" $ 94.59
2" $ 144.18
3" $ 226.85
4" $ 342.57
6" $ 507.90
8" $ 673.23
10" $ 838.57
Residential Meter
3/4" $ 29.23
1" $ 45.76
(D This does not include a fixed monthly demand charge for service and meter.
(2) cf=cubic feet.
Source: The City of Kent.
Outstanding Debt. Pursuant to Ordinance No. 4259, Kent issued its Combined Utility System Revenue Refunding
Bonds, 2017 (the "2017 Bonds"). Under the bond ordinance, Kent has pledged combined Net Revenue of the
System and ULID Assessments to the repayment of the 2017 Bonds and any obligations issued on a parity with such
bonds. As of January 1, 2024, the 2017 Bonds were outstanding in the aggregate principal amount of$6,825,000.
Capitalized terms used in this Appendix regarding Kent and not otherwise defined have the meanings set forth in
Kent Ordinance No.4259 authorizing the 2017 Bonds.
Kent does not have any subordinate lien obligations of the Kent Water System outstanding at this time.
Bond Terms.
As used in the ordinances authorizing the Kent Water System bonds, the following terms have the following
meanings:
"System"means(a)the water collection and distribution system of Kent,as it existed as of the passage of Ordinance
No. 3925, and including all additions, betterments and extensions at any time made; (b) the sanitary sewage
collection and disposal system of Kent, as it existed as of the passage of Ordinance No. 3925, and including all
additions,betterments and extensions at any time made; (c)the storm and surface water utility of Kent,as it existed
as of the passage of Ordinance No. 3925, and including all additions,betterments and extensions at any time made,
and(d)any other system or utility that may lawfully be combined with the foregoing.
"Net Revenue"means Revenue of the System less Costs of Maintenance and Operation.
B-3
"Revenue of the System" means all of the earnings and revenues received by Kent from the maintenance and
operation of the System and connection and capital improvement charges collected for the purpose of defraying the
costs of capital facilities of the System, including investment earnings, but excluding government grants, proceeds
from the sale of System property, Kent taxes collected by or through the System, principal proceeds of bonds and
earnings or proceeds from any investment in a trust, defeasance or escrow fund created to defease or refund System
obligations (until commingled with any other earnings and revenues of the System) or held in a special account for
the purpose of paying a rebate to the United States Government under the Code. Revenue of the System shall also
include any federal or state reimbursements or operating expenses to the extent such expenses are included as Costs
of Maintenance and Operation; provided, however, that Revenue of the System shall not include ULID
Assessments.Amounts withdrawn from the Coverage Stabilization Account shall increase Revenue for the period in
which they are withdrawn, and amounts deposited in the Coverage Stabilization Account shall reduce Revenue for
the period during which they are deposited. Credits to or from the Coverage Stabilization Account that occur within
90 days after the end of a fiscal year may be treated as occurring within such fiscal year.
"Costs of Maintenance and Operation"means all reasonable expenses incurred by Kent in causing the System to be
operated and maintained in good repair, working order and condition, deposits, premiums, assessments or other
payments for insurance, if any, on the System; payments into pension funds; State-imposed taxes; amounts due
under Contract Resource Obligations (but only at the times described in Ordinance 4259); payments made to any
other person or entity that are required in connection with the operation of the System or the acquisition or
transmission of water or sewer or storm water and that are not subordinate to the lien of Parity Bonds; and payments
with respect to any other expenses of the System that are properly treated as operation and maintenance expenses
under generally accepted accounting principles applicable to municipal corporations, but shall not include any
payments for principal or interest or into the Reserve Account, depreciation or taxes levied or imposed by the City
or payments to the City in lieu of taxes,or capital additions or capital replacements to the System.
Kent has covenanted to establish,maintain and collect rates and charges for service of its System for so long as any
bonds are outstanding under Ordinance No. 4259 as will permit it to maintain Net Revenue in each fiscal year at
least equal to 120% of the amounts required in such fiscal year to be paid as scheduled debt service (principal and
interest) on all parity bonds, subtracting from the scheduled debt service (1) the amount of ULID Assessments
collected in such year and(2) Debt Service Offsets, including without limitation federal interest subsidy payments
designated as such. Furthermore, in determining compliance with the Rate Covenant, Net Revenues are subject to
adjustment to reflect the following: (a) it is the intent of Kent that regularly scheduled net payments under parity
derivative products be reflected in the calculation of debt service with respect to the associated parity bonds and not
as adjustments to revenue or costs of maintenance and operation, and (b) Revenue and Costs of Maintenance and
Operation may be adjusted,regardless of then-applicable generally accepted accounting principles, for certain items
(e.g., to omit unrealized gains or losses in investments) to reflect more fairly the System's annual operating
performance.
Under the ordinance, Kent has reserved the right to issue future bonds with a lien on Net Revenue on a parity with
the lien thereon of its outstanding system revenue bonds and parity payment agreements, upon compliance with
certain conditions set forth therein.
Kent's obligations to make Participants' Payments allocable to debt service on the Outstanding Parity Bonds and the
Bonds are Contract Resource Obligations of Kent,payable as Costs of Maintenance and Operation. Kent may at any
time enter into one or more contracts or obligations for the acquisition, from facilities to be constructed, of water,
sewer or storm water supply, transmission, treatment or other commodity or service relating to the System. Kent
may determine that such contract or other obligation is a Contract Resource Obligation, and may provide that all
payments under the Contract Resource Obligation(including payments prior to the time that water, sewer or storm
water supply, transmission, treatment or other commodity or service is being provided, or during a suspension or
after the termination of supply or service) shall be Costs of Maintenance and operation if certain conditions and
requirements are met. Contract Resource Obligations treated as Costs of Maintenance and Operation therefore enjoy
a prior lien on Revenue of the System.
Certain Historical Results.The following table shows historical operating revenues and expenses for the Kent Water
System from 2018 through 2022.
B-4
Table B-5:Kent Water System
Historical Financial Results for the Years Ended December 31
2018 2019 2020 2021 2022
OPERATING REVENUES
Sales $ 20,523,665 $ 20,776,776 $ 21,280,748 $ 22,166,727 $ 21,867,334
Charges for services 2,001,277 2,085,878 2,004,876 1,992,178 2,429,704
Other operating revenue 16,689 7,296 1,251 959 167,055
TOTAL OPERATING 22,541,631 22,869,950 23,286,875 24,159,864 24,464,093
REVENUES
OPERATING EXPENSESM
Salaries and wages 2,180,590 3,181,137 4,083,525 2,770,544 3,058,290
Benefits 785,133 -- -- -- --
Supplies 544,270 644,231 735,054 644,041 679,238
Services and charges 9,726,327 9,192,333 16,747,554 10,646,801 10,847,907
TOTAL OPERATING 13,236,320 13,017,701 21,566,133 14,061,386 14,585,435
EXPENSES
TOTAL OPERATING
INCOME 9,305,311 9,852,249 1,720,742 10,098,478 9,878,658
NON-OPERATING
REVENUE(EXPENSES)
Interest Income 812,994 1,152,796 839,805 448,885 447,978
Unrealized net gain/(loss)in fair
value of investments 20,475 437,085 271,836 (763,418) (1,718,107)
Interest Expense(2) (1,719,948) (1,643,856) (1,184,594) (1,141,026) (1,078,661)
TOTAL NON-OPERATING
REVENUE(EXPENSES) $ (886,479) $ (53,975) $ (72,953) $(1,455,559) $ (2,348,790)
DEBT SERVICE
(PRINCIPAL)(WATER
SYSTEM PORTION ONLY)
2017 Bonds $ 570,000 $ 7,940,000 $ 530,000 $ 555,000 $ 582,500
Regional System Bonds 2010(3) 290,000 300,000 310,000 315,000 330,000
Regional System Bonds 2013(3) 125,000 345,000 365,000 380,000 400,000
Public Works Trust Fund
Payments(4) 1,059,028 1,059,028 1,059,028 1,059,027 531,250
TOTAL DEBT SERVICE 2,044,028 9,644,028 2,264,028 2,309,027 1,843,750
BALANCE AVAILABLE
FOR CAPITAL
IMPROVEMENTS AND
OTHER PURPOSES $ 6,374,804 $ 154,246 $ (616,239) $ 6,333,892 $ 5,519,063
DEBT SERVICE
COVERAGE(5) 6.81 9.27 1.64 9.71 9.67
0) Excludes depreciation. Excludes payments to the City for the Regional System. For financial reporting purposes, Kent shows
payments for Regional System debt as a component of debt service.
(2) Interest expense on 2017 Bonds and Washington State Public Works Trust Fund loans.
(3) City issued debt for Regional System. Recorded with Kent as a contract or other long-term non-bonded debt.
(4) Repayment of Washington State Public Works Trust Fund loans.
0) Debt service coverage calculated on the portion of revenue bond debt service attributable to the Kent Water System only. The
City provides a breakdown of debt service requirements between the utilities within its annual financial reports in the pledged
revenue statistical tables. For purposes of coverage calculation requirements for Kent's 2017 Bonds,Kent calculates coverage on
a combined utility basis. Debt service coverage based on combined operating revenues for Kent's 2017 Bonds has been
calculated at 6.80,8.90,2.78,7.70 and 7.13 for fiscal years ending December 31,2018 through 2022,respectively. See Schedule
18 in Kent's financial statements,available from Kent or as referenced below.
Source: City of Kent;based on audited financial statements for years shown.
B-5
Financial Statements. Audited financial statements for Kent for the fiscal year ending December 31, 2022 are
available at https:Hemma.msrb.org/P11723488-P21353343-P11758236.pdf (which are not incorporated herein by
this reference).
Continuing Disclosure Undertaking—Obligated Person. Kent is currently an"Obligated Person"with respect to the
Bonds. At the time of the issuance of the Bonds,Kent will execute a certificate agreeing to provide or cause to be
provided, either directly or through a designated agent, to the MSRB, as designated by the Commission, in
accordance with the Rule, in electronic format as prescribed by the MSRB accompanied by identifying information
as prescribed by the MSRB, Kent's audited financial statements prepared in accordance with generally accepted
accounting principles,not later than the end of nine months after the end of Kent's fiscal year,commencing in 2024
for the fiscal year ending December 31,2023;provided,that if the audited financial statements are not yet available,
Kent shall provide unaudited financial statements in substantially the same format, and audited financial statements
soon after they become available.
Compliance with Prior Continuing Disclosure Undertakings. Kent has entered into ongoing disclosure undertakings
in connection with the issuance of certain of its outstanding obligations. Kent believes that it has complied with its
prior undertakings in all material respects over the last five years.
[remainder ofpage intentionally left blank]
B-6
Covington Water District
The following provides a brief summary of Covington Water District("CWD")and its financial condition.
Under the Project Agreement,CWD is entitled to use its 7/36 Participant Share of the Project and is obligated to pay
its Participant Share of Project Costs. CWD is responsible for paying debt service on $3,515,000 (approximately
7.9%) of the principal amount of the 2010B Bonds. CWD is not responsible for paying debt service on the 2010A
Bonds or the Bonds. See Table 1 and"THE SECOND SUPPLY PROJECT—Project Participants" in the attached
Official Statement.
CWD received State Revolving Fund loans for the Green River Filtration Facility and contributed $8,080,000 of
loan proceeds to finance a portion of its share of that project.In order to reduce the amount that the City would have
needed to borrow to pay its share of additional costs of the Green River Filtration Facility, the City agreed to use a
portion of CWD's share of unspent 2010 Bond proceeds for the City's share of the project, and in return, pay a
portion of the principal of and interest on the 2010 Bonds that were the responsibility of CWD. See"THE SECOND
SUPPLY PROJECT—Project Participants."
Introduction. CWD was organized in 1960 for the purpose of providing water services to areas of southeastern King
County, east of Kent and the City of Auburn. CWD encompasses approximately 55 square miles, including
unincorporated areas as well as all of the City of Covington, approximately 60% of the City of Maple Valley and
approximately 10% of the City of Black Diamond. Of these cities, only Black Diamond has a water utility, and
CWD continues to provide water to these incorporated areas.
CWD is managed by a five-member Board of Commissioners (the "CWD Board"). The CWD Board serves as the
governing body of CWD and has the authority to set rates and charges. The CWD Board appoints a general
manager, who is responsible for the administration of CWD. CWD operates its facilities with a total of
approximately 38 full-and part-time employees as of December 1,2023.
Water Supply. The CWD system contains over 320 miles of mains and appurtenances including fire hydrants.CWD
presently has 11 active wells with water rights totaling 5,765 gallons per minute ("GPM") or 7.5 MGD. Present
pump capacity is 9,080 GPM.All of CWD's average daily water demand(approximately 4 MGD) can be met from
its own wells. Summer water demand(approximately 8 MGD) is met through a combination of Covington's wells,
and Second Supply Project water. The partnership in the Regional System assures CWD of a sufficient water supply
well into the future. CWD has storage tanks at ten sites with a storage capacity of approximately 21.8 million
gallons.CWD received approximately 73%of its water supply from the Regional System in 2023.
Customer Information. CWD currently provides water service to 19,420 accounts, of which approximately 98%are
residential.Customer data and usage by class for the years 2018 through 2022 is presented below.
Table B-6: CWD
Water Sales
(including Flat Rate)
2018 2019 2020 2021 2022
Residential $ 11,494,225 $ 10,870,443 $ 11,771,374 $ 12,589,353 $ 12,118,882
Non-residential 2,524,362 2,461,339 2,271,162 2,689,151 2,643,267
Rental Equipment 100,205 55,070 61,989 84,713 193,276
Total $ 14,118,792 $ 13,386,852 $ 14,104,525 $ 15,363,217 $ 14,955,425
Source: CWD.
B-7
The following table shows CWD's largest customers based upon consumption and billing amount in 2022.
Table B-7: CWD
2022 Largest Customers
Percent of
Operating
Customer Name Consumption(ccf) Amount Revenues
Lake Meridian Water District 394,351 $414,592.51 2.624%
Lake Wilderness Golf Course 12,711 128,375.94 0.813
Washington National Golf LLC 26,509 80,330.06 0.508
Source: CWD.
Water Rates. Water rates and charges are set by resolution of the CWD Board. The CWD Board adopted the
following rate schedule effective January 1, 2023. All water bills include a fixed and a commodity charge. The
CWD Board has not adopted a rate increase for 2024.
Table B-8: CWD
Water Rates and Charges
(Effective January 1,2023)
Flat Rate Charge by Meter Size
Non-Residential Non-Residential
Residential Inside Meter Outside Meter Wholesale
Meter Size (Billed Bi-Monthly) (Billed Bi-Monthly) (Billed Bi-Monthly) (Billed Monthly)
5/8" $ 46.50 $ 80.90 $ 27.05 $ 82.90
3/4" 56.65 105.55 35.30 108.15
1" 77.15 154.70 51.73 158.50
1.5" 128.35 277.50 92.75 284.40
2" 189.05 424.95 142.05 435.40
3" 352.10 817.95 273.43 838.00
4" 535.80 1,258.45 420.58 1,289.15
Source: CWD.
[remainder of page intentionally left blank]
B-8
Table B-9 Continued: CWD
Water Rates and Charges
(Effective January 1,2023)
Residential Customers Billed Every Other Month($for ccf)
Single Meter <8ccf Winter 9-14ccf Winter 15-20ccf Winter >20ccf Winter
$2.80 $3.95 $5.10 $5.90
<8ccf Summer 9-14ccf Summer 15-20ccf Summer >20ccf Summer
$2.80 $3.95 $6.70 $8.50
Dual Meter(Inside&Outside Meter Consumption <8ccf Winter 9-14ccf Winter 15-20ccf Winter >20ccf Winter
Combined and Billed at Single Meter Rates)
$2.80 $3.95 $5.10 $5.90
<8ccf Summer 9-14ccf Summer 15-20ccf Summer >20ccf Summer
$2.80 $3.95 $6.70 $8.50
Kidney Dialysis <25ccf Winter 26-31ccf Winter 32-37ccf Winter >37ccf Winter
$2.80 $3.95 $5.10 $5.90
<25ccf Summer 26-31ccf Summer 32-37ccf Summer >37ccf Summer
$2.80 $3.95 $6.70 $8.50
Fire Meter All Winter Usage All Summer
Usage
$3.95 $7.00
Source: CWD.
Residential Customers Billed Every Month($for ccf)
Ravensdale(30 Connections) <120ccf 121-210ccf 211-300ccf >300ccf Winter
Winter Winter Winter
$2.80 $3.95 $5.10 $5.90
<120ccf 121-210ccf 211-300ccf >300ccf Summer
Summer Summer Summer
$2.80 $3.95 $6.70 $8.50
In addition,billed a flat rate of$23.25 monthly.
Source: CWD.
Non-Residential Customers
All Winter Usage All Summer Usage
Non-Residential Inside Use/Fire $3.95 $7.00
Non-Residential Outside Use/Irrigation $2.80 $6.75
Source: CWD.
B-9
Table B-9 Continued: CWD
Water Rates and Charges
(Effective January 1,2024)
Non-Residential Customers
Flat Charge All Winter Usage All Summer Usage
Hydrant Meter Rental Off Site(per week) $106.00 $4.90 $10.50
Hydrant Meter Rental On Site(per day) $57.80 $4.90 $10.50
Residential Service Meter Rental(per week) $19.76 $4.90 $10.50
Source: CWD.
Outstanding Debt. As noted above, CWD has a payment obligation with respect to the 2010B Bonds. See also
Table 1 in the attached Official Statement.
CWD does not have any outstanding senior lien water revenue bonds or obligations outstanding, but it may issue
such bonds or obligations in the future.
As of December 31, 2023, CWD had subordinate lien Washington State Public Works Trust Fund/Drinking Water
Fund Loans outstanding in the principal amount of$8,452,569.
Financial Statements. Unaudited financial statements for CWD for the fiscal year ending December 31, 2022 are
available at https:Hemma.msrb.org/P11671215-P11286467-P11715793.pdf (which are not incorporated herein by
this reference).). Such financial statements are unaudited,preliminary,and subject to change.
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B-10
Certain Historical Results. The following table shows CWD's historical operating revenues from 2017 through
2021 (audited)and 2022(unaudited).
Table B-10:CWD
Historical Operating Revenues for the Years Ended December 31
Audited Unaudited
DEBT SERVICE WITH
CONNECTION REVENUE 2017 2018 2019 2020 2021 2022
OPERATING REVENUES:
Water Service $13,664,454 $14,153,459 $13,406,932 $14,122,562 $15,314,625 $15,042,528
Street Light Service 210,424 212,300 211,418 207,678 206,285 206,379
Other Miscellaneous Revenues 586,432 534,449 509,878 354,153 328,752 551,095
TOTAL OPERATING REVENUES 14,461,310 14,900,208 14,128,228 14,684,393 15,849,662 15,800,002
OPERATING EXPENSESM
Total Production Costs-CWD Water 353,512 346,821 422,024 363,728 402,118 432,751
Total Purchased Water 708,999 688,486 686,217 768,411 758,106 945,564
Operations Department 1,453,505 1,894,450 2,089,832 2,080,548 1,843,760 2,023,663
Engineering Department 521,310 520,127 576,209 699,941 726,875 986,394
Finance Department and Information
Technology 1,821,167 1,965,718 2,009,986 2,051,026 2,071,629 2,174,765
Administration Department 1,414,004 1,598,858 1,343,736 1,875,534 618,389 1,387,914
Street Light Expense 174,777 167,427 164,627 164,487 175,329 177,950
Taxes 692,497 705,251 651,183 711,460 779,775 727,558
Contract Resource Obligation 940,101 935,370 1,111,967 1,108,251 1,112,657 566,215
Payments(2)
TOTAL OPERATING EXPENSES 8,079,872 8,822,508 9,055,781 9,823,386 8,488,638 9,422,774
NET OPERATING INCOME(LOSS)
BEFORE RESERVE 6,381,438 6,077,700 5,072,447 4,861,007 7,361,024 6,377,228
NONOPERATING REVENUES
(EXPENSES)(')
Interest IncomeO 252,436 462,088 685,336 474,819 263,140 458,017
Miscellaneous Income 20,638 21,257 21,884 22,541 23,217 23,914
TOTAL NONOPERATING REVENUE 273,074 483,345 707,220 497,360 286,357 481,931
CAPITAL CONTRIBUTIONS(5)
Connection Charges(') 3,621,244 4,257,355 2,722,265 4,031,482 4,135,736 1,336,704
TOTAL AVAIL/DEBT SERVICE $10,275,756 $10,818,400 $8,501,932 $9,389,849 $11,783,117 $8,195,863
DEBT SERVICE REQUIREMENTS $ 817,448 $ 818,848 $ 822,148 $ 819,923 $ 431,504 $ 433,560
BOND DEBT COVERAGE RATIO 12.57 13.21 10.34 11.45 27.31 18.90
0)Excludes depreciation.
(2)Payments for the Regional System.
0)Excludes loss on sale of assets,interest expense on debt financing,and amortized debt discounts.
(4)Excludes interest from restricted funds.
(5)Excludes donated capital assets.
0>Includes meter installation charges and facility charges.
B-11
Lakehaven Water and Sewer District
The following provides a brief summary of Lakehaven Water and Sewer District ("Lakehaven") and its financial
condition.
Under the Project Agreement,Lakehaven is entitled to use its 7/36 Participant Share of the Project and is obligated
to pay its Participant Share of Project Costs. Lakehaven is not responsible for paying debt service on the
Outstanding Parity Bonds or the Bonds. See"THE SECOND SUPPLY PROJECT—Project Participants."
Lakehaven has a combined water and sewer system.
Introduction. Lakehaven was incorporated in 1956. In 1985, voters authorized the consolidation of King County
Water District No. 124 into Lakehaven Sewer District. In conjunction with this merger, Lakehaven Sewer District
changed its name to "Federal Way Water and Sewer District."A merger with King County Water District No. 56
was completed in 1987. In 1994, Lakehaven changed its name to "Lakehaven Utility District," and in 2016,
Lakehaven changed its name to"Lakehaven Water and Sewer District,"as it is now known.
Lakehaven is located in the southwest corner of King County adjacent to the Pierce County boundary. Puget Sound
and the Green River Valley border Lakehaven on the west and east respectively. Lakehaven's northern border
generally follows South 2801 Street, except for a narrow strip of land extending north along the Puget Sound to
South 252"d Street.
Lakehaven provides service to most of the City of Federal Way and to small portions of the cities of Auburn,
Pacific, Tacoma, Des Moines, and Milton. In addition, Lakehaven serves an unincorporated area of King County
approximately 18 square miles east of Federal Way and west of Auburn. Lakehaven encompasses an area of
approximately 35 square miles with a 2023 service population of approximately 120,000 people. Lakehaven is
primarily residential in character with approximately 75%of the land area devoted to single-family dwellings.
Lakehaven is governed by a five-member Board of Commissioners (the "Lakehaven Board"), and managed under
the direction of its general manager and general counsel. Lakehaven employed approximately 120 employees as of
December 1,2023.
Water Supply. Lakehaven's water system includes 470 miles of mainline,23 active wells, and 12 storage tanks with
an approximate storage capacity of 31 million gallons. The average daily pumping rate is about 10 million gallons
per day("MGD").Lakehaven received approximately 26%of its water supply from the Regional System in 2023.
Customer Information. As of December 1, 2023, Lakehaven provided water service to approximately 31,626
accounts, 93% of which were residential. Customer data and usage by class for the last five years is presented
below.
Table B-11:Lakehaven
Customer Usage By Class(cc1)
2018 2019 2020 2021 2022
Residential 3,551,142 3,465,770 3,513,880 3,722,435 3,541,436
Non-residential 917,797 928,348 708,788 867,977 843,378
Total 4,468,939 4,394,118 4,222,668 4,590,412 4,384,814
Source: Lakehaven.
B-12
Table B-12:Lakehaven
Annual Water Billing
2018 2019 2020 2021 2022
Residential $12,752,309 $12,624,326 $13,428,955 $14,335,571 $14,299,000
Non-residential 4,094,953 3,937,834 3,283,438 3,667,243 4,012,628
Total $16,847,262 $16,562,160 $16,712,393 $18,002,814 $18,311,628
Source: Lakehaven.
The following table shows Lakehaven's five largest customers based on water consumption and billing amount in
2022. Each of the five largest customers accounted for less than 0.3%of operating revenues in 2022. Lakehaven's
top 10 customers accounted for approximately 2.60%of operating revenues in 2022.
Table B-13:Lakehaven
Largest Customers
Customer Name Consumption(ccf) Amount
Enchanted Village,LLC 36,182 $105,809
Camelot Square,Inc. 27,765 90,341
Belmor Golf and Country Club 24,144 44,763
Real Greek,LLC 15,005 60,404
City of Federal Way 12,753 44,850
Source: Lakehaven.
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B-13
Water Rates
The following tables show base rates for water customers. There is an additional 7.75%excise tax for Federal Way,
6.5%for Edgewood and 11.5%for Auburn. The following rates became effective January 1,2024.
Table B-14:Lakehaven
Water Rates inside Federal Way
Effective January 1,2024
Single Family Residences
Block 1 Block 2 Block 3
Meter Size Fixed Monthly 0-16 ccf 17-30 ccf 0) 31+ccf 0)
5/8" $16.05 +$1.94/ccf +$3.68/ccf +$5.42/ccf
3/4" $22.00 +$1.94/ccf +$3.68/ccf +$5.42/ccf
1" $33.90 +$1.94/ccf +$3.68/ccf +$5.42/ccf
1-1/2" $63.62 +$1.94/ccf +$3.68/ccf +$5.42/ccf
2" $99.32 +$1.94/ccf +$3.68/ccf +$5.42/ccf
Non-Residential
Meter Size Fixed Monthly Winter(2) Summer(2)
5/8" $16.05 +$2.54/ccf +$3.62/ccf
3/4" $22.00 +$2.54/ccf +$3.62/ccf
1" $33.90 +$2.54/ccf +$3.62/ccf
1-1/2" $63.62 +$2.54/ccf +$3.62/ccf
2" $99.32 +$2.54/ccf +$3.62/ccf
3" $182.56 +$2.54/ccf +$3.62/ccf
4" $301.49 +$2.54/ccf +$3.62/ccf
6" $598.84 +$2.54/ccf +$3.62/ccf
Fire Protection
Meter Size Fixed Monthly Winter(2) Summer
5/8" $8.32 +$2.54/ccf +$3.62/ccf
3/4" $10.05 +$2.54/ccf +$3.62/ccf
1" $13.42 +$2.54/ccf +$3.62/ccf
1-1/2" $21.90 +$2.54/ccf +$3.62/ccf
2" $32.07 +$2.54/ccf +$3.62/ccf
3" $55.78 +$2.54/ccf +$3.62/ccf
4" $89.69 +$2.54/ccf +$3.62/ccf
6" $174.42 +$2.54/ccf +$3.62/ccf
Multiple Residential Unit Structures
Fixed Monthly/dwelling unit Consumption
$9.00 +$2.05/ccf
Dormant Charge for Irrigation
Fixed Monthly
$16.05
(1)Plus additional charges per hundred cubic feet(ccf)of water consumed.
(2)Summer usage: Water usage billed from August through November(4 months). Winter Usage: All water usage
other than summer usage(8 months).
Source: Lakehaven.
B-14
Outstanding Debt. As of January 1,2024,Lakehaven had outstanding$71,630,000 in aggregate principal amount of
its Water and Sewer Revenue Bonds, 2021 (the "2021 Bonds"), as well as $11,301,973 in subordinate lien
Washington State Public Works Trust Fund/Department of Health Office of Drinking Water and State Revolving
Fund loans.
Bond Resolution. Pursuant to Lakehaven Resolution No. 2021-1355 authorizing Lakehaven's 2021 Bonds, such
bonds are secured by a pledge of the Net Revenue of the Lakehaven System(as described below). The 2021 Bonds
are special fund revenue obligations of Lakehaven, payable solely from the bond fund into which is deposited Net
Revenue of the Lakehaven System. Capitalized terms used in this Appendix regarding Lakehaven and not otherwise
defined have the meanings set forth in Lakehaven Resolution No. 2021-1355 authorizing Lakehaven's 2021 Bonds.
"System" is defined as the existing water and sanitary sewage supply, treatment, storage, transmission, and
distribution system of Lakehaven as the same shall be added to,bettered,improved,extended,repaired and replaced,
or combined with any other system,but does not include any separate utility system.
"Gross Revenue" is defined as all revenues, assessments, rates, tolls, charges, fees, and money received by the
System or its funds from any source whatsoever, including earnings on investments thereof, but does not include:
(a)revenues of a separate utility system; (b)non-cash grants in aid of construction; (c)Lakehaven-levied taxes (for
the avoidance of doubt, local improvement district and utility local improvement district assessments are not to be
deemed taxes); (d)fees and charges collected on behalf of a third party; (e)proceeds from the sale of Lakehaven
property; (f)principal proceeds of bonds or other indebtedness; (g)proceeds of liability, casualty, and other
insurance payments (other than business interruption insurance); (h)earnings on any of the foregoing; or(i)money
held in any trust, defeasance, or escrow fund created to defease or refund Lakehaven bonds or other indebtedness
(until commingled with other revenue or earnings of the Lakehaven) or held in a special account for the purpose of
paying a rebate to the United States Government under the Internal Revenue Code.
"Net Revenue" is defined as, for any fiscal year, Gross Revenue for the fiscal year,plus withdrawals from the Rate
Stabilization Account allocated to the fiscal year, less Operating and Maintenance Expenses for the fiscal year, less
deposits into the Rate Stabilization Account allocated to the fiscal year. In calculating Net Revenue, Lakehaven
need not take into consideration any unrealized gains or losses with respect to any real or personal property,
investment, agreement, pension obligation, or other post-employment benefit that Lakehaven may be required to
recognize under generally accepted accounting principles.
"Operating and Maintenance Expenses"is defined as all reasonable expenses incurred by Lakehaven in causing the
System to be operated and maintained in good repair, working order, and condition, including reasonable reserves
therefor;payments under any Contract Resource Obligation;deposits,premiums,assessments,or other payments for
insurance; payments into pension, health, and welfare funds; taxes imposed by governmental entities other than
Lakehaven and payments in lieu thereof, payments made to any other public or private entity for the supply,
treatment, storage, or transmission of water or sewage or for other services; and any other expenses of the System
properly treated as operation and maintenance expenses under applicable generally accepted accounting principles;
but not including: (a) depreciation or amortization; (b) capital additions or capital replacements to the System;
(c)interest on indebtedness;(d)taxes imposed by Lakehaven and payments in lieu thereof, (e)payments to any third
party of fees and charges collected on behalf of the third party;or(f)payments of judgments,payments in settlement
of litigation,and other extraordinary,nonrecurring expenses of the System.
Gross Revenue is to be used for the following purposes only and to be applied in the following order of priority:
(a)to pay Operating and Maintenance Expenses when due; (b)to pay interest on parity bonds when due; (c)to pay
principal of and premium, if any, on parity bonds when due, whether at maturity or pursuant to mandatory sinking
fund redemption or prepayment; (d) to make payments when due under any reimbursement agreement entered into
in connection with bond insurance; (e) to make required payments into the reserve account and to make payments
when due under any reimbursement agreement entered into in connection with any reserve security; (f) to make
required payments into any revenue bond, note, warrant, or other revenue obligation fund, debt service account, or
reserve account created to pay or secure the payment of any revenue bonds, notes, warrants, or other revenue
obligations of Lakehaven secured by a lien and charge on Net Revenue subordinate to the lien and charge that secure
payment of the parity bonds, in any priority that Lakehaven may establish by resolution; and (g) to retire by
redemption or repayment or purchase any outstanding revenue bonds, notes, warrants, or other revenue obligations
B-15
of Lakehaven;to make necessary additions,betterments,improvements,extensions, and repairs and replacements of
the System; to make deposits into the rate stabilization account; or for any other lawful System purposes; in each
case in any priority that the District may establish by resolution.
Under the 2021 Bond resolution, Lakehaven has covenanted that Net Revenue in each fiscal year will be not less
than 1.25 times annual debt service for all outstanding parity bonds in that fiscal year.
Under the 2021 Bond resolution, Lakehaven has reserved the right to issue future bonds secured by a lien on Net
Revenue on a parity with the lien that secures payment of the 2021 Bonds,upon compliance with certain conditions
set forth therein.
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B-16
Certain Historical Results. The following table shows historical operating revenues and expenses from 2018
through 2021 (audited)and 2022(unaudited).
Table B-15:Lakehaven
Historical Operating Results
Audited Unaudited
2018 2019 2020 2021 2022
OPERATING REVENUES
Customer Sales&Service Fees $34,033,947 $34,571,463 $35,768,841 $39,519,046 $42,142,845
Permits,Inspection&Delinquency Fees 407,296 435,604 227,107 76,142 315,344
Developer Revenues&Administrative
Charges 840,162 1,438,169 1,114,014 1,009,367 1,496,848
Street Lighting Revenues 90,989 89,788 90,611 90,576 90,564
Total Operating Revenues 35,372,394 36,535,024 37,200,573 40,695,131 44,045,601
OPERATING EXPENSES
Maintenance&Operations 19,048,797 18,569,684 21,550,598 17,686,669 20,507,335
Administrative&General 4,298,626 4,975,792 4,226,410 4,044,250 5,422,032
Depreciation and Amortization 8,623,852 9,107,464 9,654,056 9,641,047 9,482,170
Taxes,Other Than Income Tax 2,696,207 3,389,693 3,365,676 3,488,192 3,707,157
Total Operating Expenses 34,967,482 36,042,633 38,796,740 34,860,158 39,118,694
Net Operating Income 404,912 492,391 (1,596,167) 5,834,973 4,926,907
NON-OPERATING INCOME
(EXPENSE)(')
Interest Expense (37,732) (189,187) (173,336) (539,420) (1,645,704)
Amortization of Debt Expenses -- -- -- -- --
Gain(Loss)on Disposal of Fixed Assets 2,182 -- -- -- --
Interest Income 908,723 1,680,875 996,223 (244,855) (843,637)
Grants -- -- 28,550 2,424 56,482
Other Income 996,733 1,014,291 1,134,580 1,100,387 1,276,464
Total Non-Operating Income(Expense) 1,869,906 2,505,979 1,986,017 318,536 (1,156,395)
Net Income to Retained Earnings 2,274,818 2,998,370 389,850 6,153,509 3,770,512
Capital Contributions 7,939,785 5,589,880 4,506,304 5,380,271 6,530,078
Balance Available for Capital
Improvements And Other Purposes $11,410,748 $12,037,615 $9,795,241 $16,600,776 $10,300,590
Total Debt Service(Parity Bonds) 0 0 0 0 2,781,719
Debt Service Coverage N/A N/A N/A N/A 6.12
Source: Lakehaven.
Financial Statements. Unaudited financial statements for Lakehaven for the fiscal year ending December 31, 2022
are available at https:Hemma.msrb.org/P21727925-P21327765-P21761309.pdf(which are not incorporated herein
by this reference). Such financial statements are unaudited,preliminary,and subject to change.
B-17
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APPENDIX C
SUMMARY OF THE PROJECT AGREEMENT
Following is a summary of certain of the provisions of the Project Agreement, which summary is qualified in its
entirety by reference to the complete text of Project Agreement on file with the City Clerk of the City.
DEFINITIONS
"Additional Water" means water from any source, other than the First Diversion and Second Diversion
Water,that is proposed by any Participant for introduction into the Project,and such introduction is approved by the
Project Committee,pursuant to the provisions of the Project Agreement described in"PROJECT AGREEMENT—
Project Committee"and"Delivery ofAdditional Water."
"Annual Operating Plan"means the plan for the operation of the Project during any Operating Year that is
prepared in accordance with the provisions of the Project Agreement described in "PROJECT AGREEMENT—
Management of Project Water and Storage Use."
"Capital Expenditures" means expenditures of funds subsequent to Initial Project Construction, which are
in excess of five hundred dollars($500.00),or such other amount as may be established by the Project Committee in
accordance with the Project Agreement, are made to enhance the value or extend the life of the Project, and are
contained in the Capital Expenditures element of any Project Annual Budget. This definition is to be used after
Initial Project Construction for the purpose of categorizing costs for preparing the Project Annual Budget. This
definition has no application to the treatment of costs incurred during Initial Project Construction, or to costs
incurred pursuant to agreements entered into prior to the Project being placed in operation, and does not in any way
limit or require the Participants to utilize a similar definition in accounting for the costs of the Project on such
Participant's books of account.
"CWD"means the Covington Water District.
"Delivery Meter"means each of the meters which is located at or in the vicinity of the Points of Delivery
of each of the Participants, and which measures the amount of Project Water delivered to each Participant from the
Project.
"Due Date"means the date by which payment of any invoice issued pursuant to the provisions described in
"PROJECT AGREEMENT—Payment"is due to Tacoma or to an established escrow agent,which date shall be the
close of business on the thirtieth(30th)day after an invoice is issued pursuant to the Project Agreement, provided,
however, that if such thirtieth day falls on a Saturday, Sunday or legal holiday observed by Tacoma, the Due Date
shall be extended until the close of business of the next regular business day of Tacoma.
"Effective Date"means December 19,2002.
"Excess Project Capacity"means any capacity of the Project that is available during any Operating Year,or
any portion thereof,as a result of one or more Participants not making full use of their Project Capacity Share.
"Financing Plan" means a plan for the funding of Project Costs which includes the issuance (or multiple
issuances)of Project Bonds as approved by the Project Committee pursuant to the Project Agreement, and shall
generally be in the form attached to the Project Agreement.
"First Diversion Water"means water obtained under Tacoma's First Diversion Water Right Claim.
"Fixed O&M Costs"means the costs incurred by Tacoma to operate and maintain the Project in accordance
with the Project Agreement,which are neither Capital Expenditures nor Variable O&M Costs, and that do not vary
based on the quantity of Project Water delivered to the Participants.
C-1
"Flow Control Valve" means the valve located in the vicinity of the Point(s)of Delivery for each
Participant that controls the volume of Project Water that is delivered to each Participant. Flow Control Valves are
not part of the Project
"Headworks" means those Tacoma water system facilities located along a certain one-half mile section of
the Green River near Palmer,Washington,that generally include the river diversion structures and the water control
building/employee residence area.
"Howard Hanson Dam Additional Storage Project" means, under Phase I, the construction of certain
environmental enhancement features and raising the summer storage pool to elevation 1,167 which will make
available additional storage for water for municipal water supply purposes, and under Phase II, the construction of
additional environmental enhancement features and raising the summer storage pool to elevation 1,177, which will
make available additional water for fishery and municipal water supply purposes.
"Initial Project Construction" means the design, construction and placing in commercial operation those
Project elements set forth in the Initial Project Construction Budget and the Initial Project Construction Schedule.
"Initial Project Construction Budget"means the budget for Initial Project Construction.
"Initial Project Construction Schedule"means the schedule for Initial Project Construction.
"Interest Rate" means for each day that it is applied a rate equal to one-three hundred and sixty-fifth
(1/365)of the prime interest rate for preferred customers established from time to time by the Bank of America, or
such other bank as may be designated by the Project Committee pursuant to the Project Agreement. When used to
calculate the late payment charge pursuant to section 25, three (3)percentage points shall be added to such prime
interest rate for each thirty(30)days that the payment of any invoice remains past due.
"Joint Delivery Meter"means a type of Delivery Meter that measures the amount of Project Water that will
be shared between more than one Project Participant.
"Kent"means the City of Kent.
"Lakehaven"means the Lakehaven Utility District(now known as Lakehaven Water and Sewer District).
"Master Meter"means the meter located at or near the Headworks that measures the flow of Project Water
into the Second Supply Pipeline through the Headworks.
"Operating Life"means the period of time during which the Project is operational and capable of fulfilling
its delivery function in a reasonably efficient and economical manner. The provisions of the Project Agreement
described below in "PROJECT AGREEMENT—Term of the Project Agreement" summarizes the expectations of
the Participants regarding the Operating Life.
"Operating Year" means any consecutive twelve (12)month period commencing on each July 1st, and
ending on the following June 30th.
"Participant Share" means that fraction of the Project and Project Costs that, as provided in the Project
Agreement,each Participant is entitled to use and each Participant is obligated to pay. Each Participant's Share is as
follows:Tacoma- 15/36;Kent-7/36;CWD-7/36;and Lakehaven-7/36.
"Participants" means (1)the City of Tacoma, Department of Public Utilities, Water Division, (2) the City
of Kent, (3) the Covington Water District, and (4) the Lakehaven Utility District, the parties to the Project
Agreement.
C-2
"Point of Delivery" means the point where facilities have been constructed that permit a Participant or
Participants to divert and take delivery of Project Water from the Project, and which serve to interconnect the
Project and the water supply system of such Participant or Participants.
"Project" shall have the meaning ascribed to such term in the provisions of the Project Agreement
summarized below under"PROJECT AGREEMENT—The Project."
"Project Annual Budget" means the budget for all of the costs of the Project for each Operating Year,
including without limitation the costs of operation, maintenance, insurance, renewal, replacement, additions and
improvements to the Project, that are approved by the Project Committee pursuant to the provisions of the Project
Agreement summarized in"PROJECT AGREEMENT—Project Committee."
"Project Bonds" means those bonds issued by Tacoma's separate system in accordance with the Project
Agreement for the purpose of providing funds for the payment of certain Project Costs.
"Project Capacity Share" means the right of each Participant to use its Participant Share of the Project
available under varying operating conditions to move Second Diversion Water from the Headworks to their
respective Point(s)of Delivery,and for such other uses as set forth in the Project Agreement.
"Project Committee"means the committee constituted pursuant to the provisions of the Project Agreement.
"Project Costs" means costs, including but not limited to Fixed O&M Costs, Variable O&M Costs, Initial
Project Construction Costs and Capital Expenditures, which Tacoma incurs to permit, design, construct, operate,
maintain, insure, decommission, improve, renew, add to or replace Project pursuant to the terms of the Project
Agreement, and the costs incurred by Tacoma or any other Participant which qualify as Reimbursable Costs
pursuant to the Project Agreement.
"Project Cost Estimate"means the estimate of the costs of Initial Project Construction.
"Project Map"means the map of the Project set forth in the Project Agreement.
"Project Meter"means a meter that measures the flow of Project Water and is needed for the operation of
the Project,but is not a Master Meter or a Deliver Meter.
"Project Operator" means the Participant that is designated pursuant to the Project Agreement to operate
and maintain the Project,which Participant shall be Tacoma.
"Project Quality Assurance Procedures" means the quality assurance procedures followed during Initial
Project Construction.
"Project Specifications"means the specifications governing Initial Project Construction.
"Project Water" means any and all water, including without limitation First Diversion Water, Second
Diversion Water and Additional Water, that is introduced into and that uses some portion of the Project,regardless
of its source.
"Prudent Utility Practice" means at a particular time any of the practices, methods or acts which, in the
exercise of reasonable judgment in light of the facts known at the time a decision is made(including but not limited
to the practices,methods and acts engaged in or approved by a significant portion of the water utility industry in the
Puget Sound region), would be expected to accomplish the desired result at the lowest reasonable cost consistent
with Project longevity,reliability,safety and expedition.
"Reasonable Costs" means the costs that are consistent with, and not in excess of, the level of costs that a
water utility operating water facilities in the Puget Sound region and acting consistent with Prudent Utility Practice
C-3
and in a manner expected to produce the lowest total project cost would incur to design, construct and operate such
facilities,taking into account any circumstances particular to the facility or facilities.
"Reimbursable Costs" mean costs incurred by a Participant, other than costs incurred pursuant to the
Project Agreement, to plan, design and construct facilities that are subsequently incorporated into the Project, and
which are reviewed and approved pursuant to the Project Agreement, and may include to the extent incurred the
costs of project specific environmental documents, rights of way, real property acquisition, engineering and design,
permitting and regulatory approvals, surveying, field investigations, inspections,material, labor expenses, financing
costs, state and local taxes, project administration up to and including the project manager, special legal counsel,
consulting services related to the project, and indirect costs of up to ten percent(10%)of the direct labor costs of the
project, but shall not include the costs of programmatic environmental documents, project administration costs for
personnel above project manager, costs of in-house legal counsel, accounting or purchasing personnel, or gross
earnings taxes.
"Second Diversion Water" means water that is obtained under the provisions of the Second Diversion
Water Right.
"Storage"means the retention of water at the Howard Hanson Dam until withdrawn therefrom,all pursuant
to the Project Agreement.
"Surcharge Rate"means a rate equal to four times the highest wholesale water rate for sales to retail water
utilities that Tacoma then has in effect.
"Tacoma"means the City of Tacoma,Department of Public Utilities,Water Division.
"Treatment Facilities"means facilities that are necessary, as in effect as of the effective date of the Project
Agreement and in the future,to ensure that the quality of Project Water is in compliance with all applicable federal
and state drinking water regulations, laws and standards, including without limitation chlorination, fluoridation,
corrosion control and filtration facilities.
"Uncontrollable Force" means any event or occurrence that is beyond the reasonable control of a
Participant and which by the exercise of due diligence and reasonable foresight such Participant could not have
reasonably been expected to avoid or remove, and includes but is not limited to flood, earthquake, storm, accident,
fire, lightning and other natural catastrophes, epidemic, war, labor or material shortage, strike or labor dispute, or
sabotage, and also includes restraint by an order of a court of competent jurisdiction or by regulatory authorities
against any action taken or not taken by a Participant,after a good faith effort by such Participant to obtain: (a)relief
from such order; or (b)any necessary authorizations or approvals from any governmental agency or regulatory
authority. In no event shall the duty of a Participant to make any payment under the Project Agreement be excused
by reason of an Uncontrollable Force.
"Variable O&M Costs" means the costs incurred by Tacoma to operate and maintain the Project in
accordance with the Project Agreement, and which are neither Capital Expenditures nor Fixed O&M Costs, and
which costs vary based on the quantity of Project Water delivered to a Participant during an Operating Year.
PROJECT AGREEMENT
The Project
The Participants have entered into the Project Agreement to permit, design, finance, construct,operate, and
maintain the Project and to receive deliveries of Project Water. For purposes of the Project Agreement, the Project
consists of the following: (1)the water from the exercise of the Second Diversion Water Right(up to 100 cubic feet
per second); (2) the Second Supply Pipeline commencing at the Headworks and continuing to Tacoma's Pipeline
No. 4 near the Portland Avenue Reservoir(approximately thirty-four miles with a nominal capacity of seventy-two
MGD); (3) a portion of the improvements at the Headworks diversion dam and intake (associated with the Second
Diversion Water Right), as specified in the Project Agreement; (4) a portion of the Project fisheries and
environmental enhancements, as specified in the Project Agreement; (5) the right to store water as a result of the
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Howard-Hanson Dam Additional Storage Project(up to 20,000 acre-feet per year of municipal water supply storage
available for withdrawal during each Operating Year in Phase I and options to participate in Phase II); and (6) the
expansion of existing or the construction of additional Treatment Facilities.
Pursuant to the Project Agreement, the Project has been designed to permit all Participants to receive at
their point(s)of Delivery their respective Participant Share of Second Diversion Water simultaneously. The
Participants understand and acknowledge in the Project Agreement that the capability of Project facilities at any
point in time is dependent upon the use being made of the Project by the Participants,and external factors as well.
The Project Agreement provides that Tacoma shall own the Project,and all facilities related thereto.
Rights and Obligations of the Participants
Pursuant to the terms of the Project Agreement, each Participant shall have the following contractual rights
and obligations:
• The contractual right to use an undivided share of the Project equal to its Project Capacity Share,
and the contractual right to use available Excess Project Capacity.
• The contractual right to schedule for delivery and receive at its Point(s)of Delivery its Participant
Share of Second Diversion Water, and the contractual obligation to take delivery of the Second
Diversion Water so delivered.
• The contractual right to schedule for delivery and receive at its Point(s)of Delivery Additional
Water,and the contractual obligation to take delivery of the Additional Water so delivered.
• The contractual right to its Participant Share of storage.
• The contractual obligation to pay its Participant Share of Project Costs, initially as a capital
contribution in exchange for, and to qualify each Participant to enjoy, the rights and interests
described in this section, and upon operation as a share of operating and maintenance costs of a
Project providing water that is furnished by each of the Participants to its customers.
Rights and Obligations of Tacoma as Project Operator
Pursuant to the Project Agreement, Tacoma is the Project Operator and is responsible for the day to day
operation of the Project, including without limitation, coordination of Storage with the Army Corps of Engineers,
delivery of Project Water to the Participants at their Points of Delivery, performance of maintenance, renewals,
replacements, improvements and additions to the Project, reading and testing of the Master Meter and all Delivery
Meters, obtaining and maintaining required permits, approvals and regulatory authorizations needed to operate the
Project,all as set forth in the Project Agreement. As Project Operator,Tacoma is required,consistent with the terms
of the Project Agreement and the approved Project Budget then in effect, to operate and maintain the Project in a
manner that is consistent with Prudent Utility Practice.
As Project Operator, consistent with Prudent Utility Practice and the Project Agreement, Tacoma is
required:
• to deliver to each Participant at its Point(s)of Delivery Project Water as scheduled by each
Participant pursuant to the Project Agreement;
• to ensure that all Project Water delivered to Participants at their Point(s)of Delivery is in
compliance with all applicable state and federal drinking water laws, regulations and standards;
and
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• to ensure that Project Water is delivered to Participants at their Point(s)of Delivery, and that such
deliveries are made at the pressures specified, and measured at the locations set forth, in the
Project Agreement.
Tacoma is required to report to the other Participants its activities as Project Operator, as such reports are
required pursuant to the Project Agreement. Notwithstanding Tacoma's duty to report to the other Participants,
Tacoma may without consulting the other Participants take such actions as it determines to be appropriate under the
circumstances as Tacoma understands them to fulfill its duties under the Project Agreement as Project Operator,
consistent with Prudent Utility Practice.
In the event that circumstances require Tacoma to take actions not contemplated by the Project Annual
Budget then in effect, Tacoma is required to make a reasonable effort to consult with the other Participants if
circumstances permit. The Project Agreement provides,however,that Tacoma may take such actions as it judges to
be appropriate under the circumstances as Tacoma understands them without prior consultation with the other
Participants. If Tacoma takes such actions without prior consultation with the other Participants, it is required to
promptly notify the other Participants of the action taken and consult with them as soon as practicable.
Term of the Project Agreement
The Project Agreement took effect when executed by all of the Participants, and is to remain in full force
and effect during the Operating Life of the Project, including any and all renewals, replacements and additions
thereto. Except for those sections and subsections that expressly survive the termination,the Project Agreement is
to terminate for all Participants on the date that the Participants determine,pursuant to the provisions of the Project
Agreement summarized below,that the Operating Life of the Project has ended.
The Project Agreement provides that it is the expectation of the Participants that the Project will have an
Operating Life of not less than one hundred (100)years. The Project Agreement provides further that this is only
the expectation of the Participants, and does not impose any duty, obligation, liability or responsibility on Tacoma
regarding the Project other than as set forth in other sections of the Project Agreement.
Tacoma is the holder of the Second Diversion Water Right Permit. The rights of the other Participants to a
share of the water available under the Second Diversion Water Right arise under the terms of the Project Agreement.
Upon the termination of the Project Agreement pursuant, each Participant is to have the right to participate in any
subsequent project that is constructed, in whole or in part, to make available to one or more of the Participants
Second Diversion Water, and shall include the right to obtain and use a share of Second Diversion Water and
Storage then available on a basis and in amounts comparable to such Participant's right under the Project
Agreement. Pursuant to the Project Agreement, the rights and obligations of the Participants described in this
paragraph shall survive the termination of the Project Agreement,and shall be fully enforceable subsequent thereto.
Pursuant to the Project Agreement, all obligations incurred during the term of the Project Agreement shall
survive the termination or expiration of the Project Agreement,and shall survive until satisfied.
Project Committee
The Second Supply Project Committee provides that there shall be a Project Committee composed of one
(1)representative of each Participant. Each Participant may change its representative and/or its alternate
representative at any time by providing written notification to all other Participants. The representatives of the
Participants shall have the following votes at the Project Committee meetings: (i) Tacoma- Fifteen (15)votes; (ii)
CWD- Seven(7)votes;(iii)Kent-Seven(7)votes;and(iv)Lakehaven-Seven(7)votes.
The Project Agreement requires that for the Project Committee to take action, there must be present a
quorum of not less than three (3)Participants, one of which must be the Project Operator. Tacoma is obligated to
attend any Project Committee meeting convened pursuant to the Project Agreement. All decisions and actions of the
Project Committee are required to be taken by a vote of the Participants present. All matters decided by the Project
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Committee, other than those items described in the following two paragraphs,require a simple majority of the votes
cast by the Participants present.
Pursuant to the Project Agreement, the following matters require for approval the affirmative vote of
twenty-nine thirty-sixths(29/36)of the Project Committee votes and three of the Participants: (i)any amendment or
modification to the Project Specifications; (ii)approval of Treatment Facilities inconsistent with the description set
forth in the Project Agreement; (iii)any amendment or modification to the Initial Project Construction Budget;
(iv)any amendment or modification to the Initial Project Construction Schedule; (v)approval of any change order
that exceeds one-half of the original contingency for the contract for which the change order is requested,or which
exceeds the sum of$500,000.00; (vi)approval of the Capital Expenditures contained in any Project Annual Budget;
and (vii) approval or revision of any Financing Plan. In addition to the foregoing, in order for a representative to
vote on any Financing Plan or revision thereto,the representative must present to the Project Committee a resolution
(or ordinance, as appropriate)passed in the sixty (60)days prior to the Project Committee vote by the governing
body of the Participant on whose behalf the representative will vote, and indicating the nature of the vote to be cast
by such representative.
The Project Agreement provides that any determination of the Operating Life requires the affirmative vote
of all Participants. In order for a representative to vote on the determination of the Operating Life,the representative
must present to the Project Committee a resolution(or ordinance, as appropriate)passed in the sixty (60)days prior
to the Project Committee vote by the governing body of the Participant on whose behalf the representative will vote,
and indicating the nature of the vote to be cast by such representative.
The Project Committee is required to adopt such rules as it determines to be convenient and appropriate for
the conduct of its business, including without limitation rules of procedure for meetings. Persons who are not
designated representatives of any Participant but who are elected officials,directors,officers,employees,consultants
or agents of a Participant may attend meetings of the Project Committee.
After the completion of Initial Project Construction, the Project Committee is required to meet no less
frequently than once each quarter. The Project Committee may meet more frequently should circumstances warrant.
The dates for all regularly scheduled Project Committee meetings are to be established at the last Project Committee
meeting prior to the year in which such meetings shall take place.
Any Participant may convene a Project Committee meeting after the completion of Initial Project
Construction by giving written notice to all other Participants no less than fourteen(14)days prior to the proposed
date of the Project Committee meeting. The written notice shall indicate the time, location and agenda items to be
discussed.
Subsequent to the completion of Initial Project Construction, the Project Committee is responsible for the
following activities, and for such other activities as the Project Committee agrees to undertake: approving new
Points of Delivery; approving and revising the Project Annual Budget; approving Additional Water deliveries;
approving and revising Financing Plans; approving imposition of the Surcharge Rate; determining actions needed to
maintain water quality; determining amounts and types of insurance and self-insurance arrangements; determining
Project Operating Life; disposition of unexpended funds from Initial Project Construction Budget; establishing
operating ranges for the Master and Delivery Meters; establishing ramp rates for changes to scheduled flows;
establishing scheduling procedures; establishing metering testing standards; establishing procedures for scheduling
run of river Second Diversion Water; establishing procedures for excess deliveries of run of river Second Diversion
Water; receiving the annual operator's report; resolving hydraulic issues; revising the commencement date of any
Operating Year; revising deadlines set forth in the Project Agreement relating to management of project water and
storage use,delivery of Additional Water and water metering; revising dates for storage periods; revising the dollar
limit for Capital Expenditures; revising reporting requirements by Project Operator; review and approval of the
Capital Element of the Annual Budget; review and approval of the Annual Operating Plan; selecting a substitute
bank for computing Interest Rate;and selecting a third party auditor.
Decisions of the Project Committee taken pursuant to the provisions of the Project Agreement, and any
impasse or inability of the Project Committee to reach a decision on any topic, are not subject to the dispute
resolution process described below under "PROJECT AGREEMENT Dispute Resolution." By unanimous
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agreement, the Participants may voluntarily elect to submit to mediation or arbitration any topic that is subject to
disposition by the Project Committee.
Project Financing
After the completion of Initial Project Construction, from time to time the Participants will be required to
fund the replacement, renewal, repair, improvement or make capital additions to the Project pursuant to the Project
Agreement. If all or any portion of the funding for the costs of such replacements,renewals,repairs,improvements
and capital additions is to be provided by the issuance of Project Bonds, Tacoma is required to submit to the Project
Committee a Financing Plan setting forth the purpose, amount, repayment schedule and timing of the proposed
issuance(or issuances). Upon approval by the Project Committee, Tacoma may cause to be issued by such separate
system in accordance with the approved Financing Plan Project Bonds for such purposes, the repayment of which
shall be secured by the payments to be made by the Participants to the Project Agreement.
The costs of operating and maintaining the Project shall be established in accordance with the applicable
provisions of the Project Agreement.
Provisions Applicable to All Project Financing
Pursuant to the Project Agreement, Tacoma may establish a separate system for accounting and bond
issuance purposes for the Project. All Project Bonds are to be issued in accordance with a Financing Plan approved
by the Project Committee, are to be for the purpose of financing Project Costs, and may be issued by Tacoma's
separate system. If and to the extent permitted by the then current law, such Project Bonds are to be issued as non-
recourse,tax-exempt municipal bonds, the repayment of which shall be secured by the payments to be made by the
Participants pursuant to the Project Agreement.
The Participants shall be given the opportunity to review and comment upon any preliminary and final
official statements prepared in conjunction with the issuance of all project bonds.
If Tacoma issues Project Bonds on behalf of any other participants, Tacoma is required to take all
commercially reasonable actions necessary to ensure that the proceeds from such issuances are available in a timely
manner to fund the construction, replacement, renewal, repair, improvement of or capital additions to the Project,
while seeking to minimize the interest rates of such Project Bonds. Tacoma is authorized in the Project Agreement
to purchase bond insurance and other credit enhancement devices, issue bonds in series, and take all such other
actions as may be commercially reasonable to reduce the costs to the Participants of Project Bonds issued in
accordance with the Project Agreement.
The costs incurred by Tacoma from time to time to cause the issuance of Project Bonds, including without
limitation the costs of Tacoma staff and associated overheads,are to be treated as Project Costs.
Except to the extent Participants elect to make payments as described in the following paragraph, each of
the Participants agrees in the Second Supply Project to pay its Participant Share of any and all amounts necessary to
repay Project Bonds, including without limitation the costs of issuing such Project Bonds as described in this
section, and such payments are to be made in such amounts and at such times as required by the covenants of such
Project Bonds. Except as otherwise described in this section, and as described below under "PROJECT
AGREEMENT—Reimbursable Costs," the obligation of the Participants to make all such payments are to be
apportioned among the Participants based upon their Participant Shares.
In lieu of paying its Participant Share of amounts necessary to repay Project Bonds, any Participant may
elect to fund all or any part of its Participant Share of a Project Cost,which is to be funded by the issuance of Project
Bonds,by the payment of cash obtained by issuing its own bonds,by obtaining loans from private of public sources,
or any other lawful means. Any Participant electing to pay cash for its Participant Share of any such Project Cost is
required to inform all other Participants of such election in writing not less than ninety (90)days prior to the
proposed date of issuance of the Project Bonds, as set forth in the approved Financing Plan for such Project Bonds.
Upon receipt of such written notice from any Participant, the timing and amounts of the payments any Participant
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electing to pay cash will be obligated to make shall be established by the Project Committee, and is to be included in
the Project Annual Budget and in the Financing Plan containing the Project Cost to be so paid. The Participant so
electing will be required to make the payments in the amounts and at the times specified by the Project Committee
in the relevant Financing Plan and Project Annual Budgets.
Nothing in the provisions of the Project Agreement summarized in this section will prohibit two or more
Participants from entering into an agreement under which one Participant funds the Participant Share of a Project
Cost of the other Participant,provided,however, that such agreement will not serve to relieve any Participant of its
obligation to pay its Participant Share of a project Cost under the Project Agreement.
If and to the extent there is funding available from sources other than Project Bonds and cash payments
made as described above, including without limitation grants, cost sharing, federal, state or local government
funding, such funding is to be applied to the costs of constructing,operating or enhancing the Project,as determined
by the Project Committee,such that all Participants share the financial benefits of such funding in proportion to their
Participant's Share of federal, state or local loans to an individual Participant to assist the Participant in providing
for its Participant Share of Project Cost(e.g.public works trust fund loans)shall not be required to be so shared.
If and to the extent there are funds remaining in any bond fund established in conjunction with Project
Bonds after the repayment in full of all outstanding Project Bonds, such funds are to be used in accordance with the
applicable covenants and bond resolutions, or if no such direction is provided by the applicable covenants or bond
resolutions,at the discretion of the Project Committee for the benefit of the Project.
Notwithstanding any other provision of the Project Agreement, the obligation of the Participants to make
payments to pay any and all amounts necessary to repay Project Bonds issued by Tacoma's separate system,
including without limitation the costs of issuing Project Bonds, shall survive the expiration or termination of the
Project Agreement,and shall be fully enforceable subsequent thereto.
To the extent necessary for Tacoma to comply with applicable securities laws and regulations, including
continuing disclosure requirements under SEC Regulation 15c2-12, Participants for whom Tacoma issues bonds
shall provide information to Tacoma for inclusion in official statements, continuing disclosure filings and similar
documents to filings.
Treatment of Certain Cost Overruns
The Project Agreement states that modifications to the Headworks as set forth in the Project Specifications
will benefit both the Project and Pipeline No. 1. In the event that the modifications to the Headworks either exceed
or fall short of the amounts budgeted for such work in the Initial Project Construction Budget,then any such overrun
or surplus are to be apportioned between the Project and Pipeline No. 1 using the allocator that was applied to the
costs of the constructing the Headworks modifications, as set forth in the Project Agreement. The portion of any
such overrun or surplus allocated to Pipeline No. 1 shall not be treated as a Project Cost.
In the event that the cost of constructing a Point of Delivery either exceeds or falls short of the amounts
budgeted for such work, the Participant that will receive Project Water through such Point of Delivery will be
required to pay for any cost overrun, or receive a credit in the amount of any surplus attributable to the construction
of the Point of Delivery. The cost of constructing Points of Delivery is not to be treated as a Project Cost.
Except as described in the preceding two paragraphs, in the event that the cost of constructing any portion
of the Project exceeds or falls short of the amounts budgeted therefore in the Initial Project Construction Budget,
then any such amount is to be treated as a Project Cost or as surplus funds of the Project.
Use of Project for First Diversion Water
Pursuant to the Project Agreement, Tacoma shall have the right to use its Project Capacity Share to move
First Diversion Water when Tacoma deems it appropriate to do so. Tacoma shall also have the right to use any
Excess Project Capacity available to it under the Project Agreement to move First Diversion Water. In such event,
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the First Diversion Water shall have the same priority to Excess Project Capacity as Second Diversion Water. First
Diversion Water that is moved through the Project pursuant to the provisions of the Project Agreement described in
this section are not subject to the requirements of the Project Agreement relating to the delivery of Additional Water,
but are subject to all other provisions of the Project Agreement.
Use of Project Capacity During Certain Events
Certain Participants have entered into an agreement pursuant to which they will provide aid and assistance
upon the occurrence of specified events on their respective systems (the "agreement"). Nothing in the agreement
between such Participants entitles them to take any action or refrain from any action that would be inconsistent with
the rights under the Project Agreement,or that would result in any other Participant being unable to fully exercise its
rights under the Project Agreement.
Notwithstanding any other provision of the Project Agreement, the signatories to the agreement retain the
right to revise or modify the terms of their agreement without the approval or consent of any Participant that is not a
signatory thereto.
The Project Agreement provides that should Tacoma receive from any Participant a request for deliveries
of Project Water that exceeds the rights of such Participant under the Project Agreement,and such request is due to
the occurrence of an Uncontrollable Force event on the requesting Participant's system that renders such Participant
incapable of meeting the water supply needs of its retail customers, Tacoma is required to promptly notify all other
Participants of such request. Tacoma may, but shall not be obligated to, query the other Participants or convene a
Project Committee meeting to determine if there are voluntary actions that could be taken by some or all of the
Participants to alleviate the situation on the system of the Participant making such request. Tacoma shall not take
any action to comply with the request of any Participant subject to an Uncontrollable Force event without the
consent of each and every Participant that will be affected by such action.
Notwithstanding anything to the contrary in the Project Agreement, should Tacoma lose the use, in part or
in whole, of Tacoma's Pipelines Nos. 1, 2 or 4 due to an Uncontrollable Force event, and as a consequence thereof
experience a water supply shortage on the Tacoma water system, then in that event Tacoma may use the Project to
move First Diversion Water if so doing will alleviate such water supply shortage. In order to make such use of the
Project, Tacoma may curtail or interrupt deliveries of Project Water to other Participants, so long as the reductions
to the deliveries of Project Water to other Participants are: (i)made to all other Participants as nearly as practicable
in proportion to the Participant Share of each Participant; (ii)do not exceed the reductions in deliveries of Project
Water being experienced by Tacoma; and (iii)do not cause a water shortage on the water system of the other
Participants that exceeds the water supply shortage being experienced by Tacoma.
Discharge of Project Water
From time to time as Project Operator,Tacoma may judge it necessary to discharge Project Water into the
system of one or more Participants for purposes of maintaining water quality, performance of maintenance or for
other purposes.
The Project Agreement provides that when Tacoma determines that it is necessary to discharge Project
Water as described in the preceding paragraph, and the Project Water so discharged will enter the system of any
other Participant, Tacoma is required to promptly notify the Participant or Participants into whose distribution
systems the discharge will occur of the timing of such discharge, the volume of water involved, and the reason for
such discharge. The Project Agreement provides Tacoma shall not implement a proposed discharge unless and until
it has received the permission therefore from the Participant or Participants into whose distribution systems the
discharge will occur. Such Participant or Participants is not to unreasonably withhold permission for a discharge as
proposed by Tacoma.
Project Water received by a Participant due to a discharge implemented by Tacoma pursuant to the Project
Agreement in amounts equal to or less than the Project Water the Participant scheduled for delivery during the time
period when the discharged Project water is received shall be considered as the delivery of Project Water for all
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purposes under the Project Agreement. If and to the extent the Project Water received by a Participant due to such a
discharge exceeds the Project Water the Participant scheduled for delivery during the time period when the
Discharged Project Water is received, such amount of Project Water in excess of the scheduled amounts are not to
be considered as the delivery of Project Water for any purpose under the Project Agreement,and are to be deducted
from the amounts of Project Water metered pursuant to the Project Agreement.
Project Water discharged by Tacoma pursuant to the Project Agreement which is not considered as the
delivery of Project Water, is to be deducted from the amount of Project Water available to all Participants in
proportion to their respective Participant Share.
Water Quality
Project Water available to the Participants pursuant to the Project Agreement is to be in compliance with all
applicable state and federal drinking water laws,regulations and standards.
The Participants agree in the Project Agreement that if applicable state or federal drinking water laws,
regulations or standards require additional or different Treatment Facilities in order for Project Water to remain in
compliance therewith, the Participants will take the steps necessary to add such Treatment Facilities to the Project.
The costs of so doing shall be treated as Project Costs, and shall be apportioned to each of the Participants on the
basis of their Participant Share.
The Project Committee is required to make all necessary determinations regarding what Treatment
Facilities should be added to the Project in order to comply with the provisions of the Project Agreement
summarized in this section. For purposes of making all such determinations,any Treatment Facility shall be located
at or near the Headworks,is to be capable of treating water in amounts equal to the maximum capacity of the Project
as set forth in the Project Agreement, and is to use the technology which is expected to have the lowest life cycle
costs. Any decision by the Project Committee to take inconsistent actions must be approved in accordance with the
provisions of the Project Agreement summarized under"PROJECT AGREEMENT—Project Committee."
The Project Agreement provides that Tacoma may elect to increase the capacity of the Treatment Facilities
used for the chlorination of Project Water to enable such facilities to chlorinate First Diversion Water. To exercise
such option, Tacoma must give written notice of its election to all Participants prior to the initiation of final Project
design for Initial Project Construction. If Tacoma exercises such option to increase the capacity of such Treatment
Facilities to chlorinate First Diversion Water, Tacoma will be responsible for paying the incremental costs for such
increased treatment capacity.
Should Tacoma elect to increase the chlorination capacity of the Treatment Facilities to accommodate First
Diversion Water, and it is subsequently required that First Diversion Water and Second Diversion Water must be
given filtration treatment, then Tacoma will be required to pay to the Project, upon the commencement of
construction of such filtration facility,a credit calculated pursuant to the formula set out in the Project Agreement.
Availability of Storage
Pursuant to the Project Agreement, storage of Second Diversion Water is be provided by Phase I of the
Howard Hanson Additional Storage Project.
When Phase I is completed, each Participant will have the right to store Second Diversion Water in
proportion to their Participant Share of Second Diversion Water between February 15 and June 30. In most years,
the total amount of stored water is to equal 20,000 acre-feet if all Participants commit the full amount of their
allocation of Second Diversion Water to Storage. Second Diversion Water used by any Participant during the
February 15 through June 30 period for purposes other than Storage is to be accounted for as a use of that
Participant's share of Storage,unless full Storage has been achieved prior to June 30 and Second Diversion Water is
available as run of the river water.
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If the Howard Hanson Additional Storage Project proceeds to Phase II, then in that event the Participants
are to be afforded the opportunity to participate in such Phase II in proportion to their respective Participant Share.
Should any Participant decline to participate, in whole or in part, in Phase II, each Participant participating in Phase
II is to have a right of first refusal to any portion of Phase II in which any other Participant declines participation.
The share of Phase II which is declined by a Participant is to be made available to the Participants participating in
Phase II based on their Participant Share, assuming that the sum of the Participant Shares of those Participants that
will participate in Phase II equals one hundred percent of the Project.
The timing and amount of Storage available to the Participants under the Project Agreement will be
governed by the Howard Hanson Project Cooperation Agreement, executed by Tacoma and the Army Corps of
Engineers.
Management of Project Water and Storage Use
The Project Agreement provides that each Participant is entitled to schedule the use of its Project Capacity
Share to deliver Project Water to its Point(s)of Delivery,notwithstanding the use of such Project capacity as Excess
Project Capacity by any other Participant. Excess Project Capacity is to be first made available to Participants for
the delivery of Second Diversion Water to Participants Point(s)of Delivery, and in the case of Tacoma for the
delivery of First and Second Diversion Water, and then any Excess Project Capacity remaining thereafter is to be
made available to Participants for the delivery of Additional Water. Such rights and priorities are to apply to all
aspects of the provisions of the Project Agreement summarized in this section, including the review and revision of
Participants' operating plans,review and approval of Annual Operating Plans, and the scheduling of Project Water
within an Operating Year.
Participants'Operating Plans and Annual Operating Plan
On or before April Pt of each year during the term hereof, Tacoma is required to provide to each
Participant a written estimate of the expected availability of the Project for the next Operating Year, and the
expected availability of Second Diversion Water. This is to include, but not be limited to, information regarding
expected operating constraints and any additional information available to Tacoma that may be useful to Participants
in planning their use of the Project in the next Operating Year.
Not later than thirty(30)days after receipt of the information from Tacoma, each Participant is required to
submit to Tacoma and to all other Participants a written draft operating plan for the next Operating Year. Each
Participant's draft operating plan is to include, but not be limited to, the amount of Additional Water and Second
Diversion Water that each such Participant expects to receive from the Project in each week during the next
Operating Year,the amount of Second Diversion Water each Participant expects to place in Storage, and the timing
and amount of expected withdrawals from Storage. If any Participant expects to make use of Excess Project
Capacity during the next Operating Year, such Participant's draft operating plan is to identify the quantity,duration,
timing and the specific facilities that are intended to be so used.
In making Excess Project Capacity available to the Participants as may be requested in their draft operating
plans, all requests for the use of Excess Project Capacity to move Second Diversion Water (and, in the case of
Tacoma, to move First and Second Diversion Water)are required to be satisfied first, and then any Excess Project
Capacity remaining thereafter are required to be made available to fulfill requests to move Additional Water.
Not later than thirty (30)days after receipt of the Participants operating plans, Tacoma is required to
prepare and submit to the Project Committee a draft Annual Operating Plan that incorporates the draft operating
plans submitted to Tacoma. The Project Committee is to convene one or more meetings to consider the draft
Annual Operating Plan prepared by Tacoma, and to approve the Annual Operating Plan as submitted or as may be
revised by the Project Committee, for the next Operating Year. The Annual Operating Plan so approved is required
to include, at a minimum, the Participants' operating plans and any revisions thereto, allocation of Excess Project
Capacity among the Participants, scheduled maintenance outages, their timing and duration, and any constraints on
the availability of Second Diversion Water or Storage. If and to the extent that the Annual Operating Plan reflects a
constraint or diminution in the capability of the Project to deliver Project Water to the Participants, or in the amount
or availability of Second Diversion Water or Storage, the Annual Operating Plan for the Operating Year in which
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such constraint or diminution occurs is to apportion to all Participants in proportion to their Participant Share the
consequences of such constraint or diminution; provided however, that a constraint or diminution that affects
facilities that serve some but not all of the Participants is to be borne only by those Participants served thereby.
If any operating plan submitted by a Participant includes the introduction by that Participant of Additional
Water into the Project during the Operating Year, then as part of the consideration and approval process, all of the
conditions of the Project Agreement relating to the delivery of Additional Water shall also apply thereto.
The Project Committee may elect to advance or delay the commencement of any Operating Year if it
determines that it is necessary and appropriate to do so.
Scheduling Delivery of Project Water During an Operating Year
Prior to 10:00 A.M. on any Thursday during each Operating Year, any Participant may submit to Tacoma,
in the manner and in the form established by the Project Committee, a schedule for Project Water deliveries for the
following seven(7)days. Such schedule is required to contain at a minimum a uniform rate of water deliveries for
each day of the schedule, and shall take effect on the day following the Thursday the schedule is submitted.
Schedules so submitted are to remain in effect until replaced by a subsequent schedule submitted in accordance with
the provisions of the Project Agreement. As Project Operator, Tacoma, consistent with the priorities for the use of
Project capacity as set forth in the Project Agreement, will be required to take all reasonable actions required to
ensure that the amount of Project Water scheduled by each Participant is available to the scheduling Participant at its
Point(s)of Delivery. Tacoma will not be responsible for the operation of Flow Control Valves by which
Participants withdraw water from the Project.
Tacoma may revise schedules submitted, if and to the extent any such schedule calls for deliveries that are
in excess of the submitting Participant's rights under the Project Agreement, cannot be accommodated within
Excess Project Capacity available, or is inconsistent with Project operating constraints. Tacoma will be required to
notify any Participant whose schedule is revised. In the event that a change in circumstances necessitates a change
to a schedule then in effect,the submitting Participant may request a change to such schedule, and Tacoma will be
required to take all reasonable actions that are consistent with the Project Agreement to accommodate such schedule
change.
If Tacoma receives a schedule that exceeds the rights of the submitting Participant under the Project
Agreement, Tacoma will be required to make reasonable efforts to accommodate such schedule by using any
available Excess Project Capacity. To the extent that Tacoma receives more than one schedule that calls for
deliveries in excess of the rights of the submitting Participants under the Project Agreement, Tacoma will be
required to make reasonable efforts to accommodate such schedules by using Excess Project Capacity. If such
schedules so submitted exceed the amount of Excess Project Capacity available, Tacoma shall, consistent with the
priorities for the use of Project capacity summarized above, prorate the available Excess Project Capacity to the
schedules which require such Excess Project Capacity on the basis of the Participant Shares of the submitting
Participants, and will be required to promptly notify each such Participant of the amount of the schedule that cannot
be accommodated. Each Participant so notified will have until 3:00 P.M. to notify Tacoma if, and the extent to
which,it has been able to accommodate its schedule
Pursuant to the Project Agreement, the scheduling provisions summarized in this section are designed
primarily to apply to the withdrawal and use of Second Diversion Water from Storage,and are not meant to apply to
the scheduling of Second Diversion Water available as run of river water. The Project Committee will be required
to formulate,and revise from time to time as appropriate,procedures under which Tacoma shall provide Participants
with information regarding the availability of, and Participants shall schedule delivery of Second Diversion Water
available as run of river water.
Each week during every Operating Year, Tacoma will be required to transmit to each of the Participants a
report regarding the status of operations related to the Project. The report is to be transmitted to the Participants by
means determined by the Project Committee. The Project Committee may from time to time revise the information
to be included in the weekly report by Tacoma.
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The Project Committee may modify the deadlines for the submission of information required by the Project
Agreement.
Delivery of Additional Water
Subject to the requirements of the Project Agreement summarized in the preceding section and in this
section, each Participant will have the right to use its Project Capacity Share to move Project Water in accordance
with the Project Agreement.
Any Participant wishing to use Project facilities to move Additional Water that was not included in the
Annual Operating Plan then in effect is required to make all reasonable efforts to notify all other Participants at the
earliest practicable date of its intention to move such Additional Water. Such notification is to include, but not be
limited to information regarding the quantity, source, duration, destination and water quality of any Additional
Water proposed to be so moved. A Participant wishing to move Additional Water will be required to submit to the
Project Committee in writing the required information not later than sixty(60)days prior to the date the Additional
Water is proposed to be first introduced into the Project.
The Project Committee is then to determine whether the proposed introduction of Additional Water is:
(a)consistent with the proposing Participant's rights under the Project Agreement; (b)conforms with all applicable
state and federal drinking water laws, regulations and standards; and (c) is compatible with the water quality of
Project Water at the point of introduction into the Project. If the Project Committee makes a determination that such
Additional Water does not meet all of the foregoing conditions, it will disapprove the proposed introduction of the
Additional Water. Such determination is to be made within sixty (60)days of the date of receipt of the written
notice.
The Project Agreement provides that the testing and monitoring of the quality and quantity of any
Additional Water introduced into the Project is to be the responsibility of Tacoma.
The Participant that proposes to introduce Additional Water into the Project re to pay the costs of acquiring
and installing a separate meter that complies with Project meter standards,to measure the flow of Additional Water.
Tacoma is to acquire,install and maintain such meter,and the meter shall be part of the Project.
The Participant which introduces Additional Water into the Project is to be responsible for paying any and
all costs associated with the introduction of Additional Water as determined by the Project Committee, including
without limitation,the costs of any testing and monitoring water quality, increased Variable O&M Costs attributable
to such Additional Water,and the costs of additional metering.
Metering of Water Deliveries
The Master Meter will be located at the Headworks to measure the flow of Project Water. Each
Participant's Delivery Meter shall be located at the Point of Delivery for each such Participant. All Point of
Delivery facilities will be designed and constructed as part of the Project,but the costs of designing and constructing
such facilities will be billed separately to the Participant that will receive deliveries of Project Water at such Point
(or Points)of Delivery, and will not be treated as Project Costs. Each Participant shall be responsible, at its own
expense,for operating and maintaining those Point of Delivery facilities for which it is separately billed.
Unless alternative provision is made in the Project Annual Budget, the cost of installing the initial and any
replacement Delivery Meter(s)for each Participant are to be borne of each such Participant. The cost of installing
the Master Meter is to be a Project Cost. All such meters are to be considered a part of the Project.
The Project Agreement provides that, as Project Operator, Tacoma will be responsible for the calibration
and testing of the Master Meter,Project Meters,Joint Delivery Meters,and Delivery Meters(collectively referred to
as"All Meters"). All Meters are to be tested for accuracy at least once a year, and the results of such testing are to
be made available to all Participants at no charge. The costs of the annual test of the Master Meter and the Project
Meters are to be a Project Cost. The costs of the annual tests of the Delivery Meter(s) are to be borne by the
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Participant whose Project Water deliveries are measured by such Delivery Meter(s). The costs of the annual test of
the Joint Delivery Meters are to be apportioned to the Project Participants sharing the meter(s) by separate
agreement. In addition to the annual meter test, any Participant may test any meter that measures Project Water at
any reasonable time and at such Participant's expense. The results of any additional meter test are to be made
available to all other Participants at no charge.
Any and all maintenance, repairs, and replacements to the Master Meter, Project Meters, Joint Delivery
Meters, and Delivery Meters are to be the sole responsibility of Tacoma as Project Operator. The costs of any and
all maintenance,repairs and replacements of the Master Meter and Project Meters are to be Project Costs. The costs
of any and all maintenance, repair and replacement of Delivery Meters are to be borne by the Participant whose
Project Water deliveries are measured by such Delivery Meter. The costs of any and all maintenance, repairs, and
replacement of Joint Delivery Meters are to be apportioned to the Project Participants sharing the meter(s) by
separate agreement.
In the event there is a difference between the quantity of Project Water as measured at the Master Meter
and the quantity of Project Water as measured by summing the readings on each of the Delivery Meters, such
difference are to be apportioned among the Participants based on the volumes as recorded on each of the Participants
meters,unless the Project Committee determines that a different adjustment is appropriate under the circumstances.
For Joint Delivery Meters, an annual comparison is to be done between the summation of daily Joint
Delivery Meter readings and the summation of readings from daily Participants' Deliver Meter(s) downstream. If
the different between the two annual readings is greater than 2 percent,then an appropriate adjustment to the amount
of Project Water delivered to each affected Participant is to be made. The adjustment is to be apportioned among
the Participants based on the volumes recorded on each of the Participants' meters,unless the involved Participants
determine that a different adjustment is appropriate under the circumstances.
Pursuant to the procedures summarized above under"PROJECT AGREEMENT—Project Committee,"the
Project Committee is required to establish the size and the flow range within which each Delivery Meter must
operate. Should Tacoma determine that any Delivery Meter is operating outside the flow range so established, it
will be required to notify in writing the Participant whose Project Water deliveries are measured by such Delivery
Meter, and the size of the replacement meter needed to operate within the flow range. Tacoma will be required to
provide the Participant an opportunity to discuss the problem with the existing Delivery Meter, and the need for the
proposed replacement Delivery Meter. After providing such written notice,Tacoma may replace the faulty Delivery
Meter and bill the Participant for the costs of procuring and installing such meter, and such Participant will be
obligated to pay such bill.
The Flow Control Valve for each Participant is to be owned by and under the control of each Participant,
and Flow Control Valves will not be a part of the Project. Each Participant is responsible for the operation and
control of its own Flow Control Valve. Upon reasonable notice and subject to scheduling with the other Participant,
each Participant is to have the right to enter the meter and/or valve vault or vaults of any other Participant for any
reason related to the Project.
As Project Operator, Tacoma is to have access to the control signals from each meter station, and access to
each vault in which a Delivery Meter is located. Each Participant is to have the right to receive the control signal for
its Delivery Meter(s), and the control signal from any other meters operated in conjunction with the Project. The
costs of equipment necessary to receive any such control signals are to be borne by the Participant receiving such
signals.
Deliveries of Project Water in Excess of Schedules
The Project Agreement provides that, as Project Operator, Tacoma is to monitor the delivery of Project
Water to each Participant to ensure that the withdrawals and deliveries of Project Water comport with the schedules
submitted by each Participant.
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Should Tacoma determine that a Participant is receiving deliveries of Project Water at their Point(s)of
Delivery in excess of their scheduled amounts, Tacoma will be required to notify such Participant of the excess
deliveries, and the Participant will be required to promptly take the steps necessary to reduce its deliveries to
amounts equal to its scheduled amounts,or to revise its schedules to reflect the level of deliveries it is receiving.
If the Participant receiving deliveries in excess of its scheduled amounts has not taken action to revise its
schedules or to reduce its deliveries to a level equal to its scheduled amounts within twenty-four hours of receiving
notice from Tacoma,Tacoma may take any action it deems necessary to reduce the deliveries to a level equal to the
Participant's scheduled amounts.
For any Participant that has received deliveries of Project Water in excess of its scheduled amount,Tacoma
is to deduct from such Participant's balance of water remaining in Storage an amount equal to such excess delivery.
If such excess deliveries exceed the water remaining in Storage for such Participant, Tacoma is to charge such
Participant the Surcharge Rate for such excess deliveries that cannot be deducted from the Participant's Storage
balance.
For any Participant that takes delivery of Project Water in excess of scheduled amounts, and does so in a
manner that deprives any other Participant of their right to receive delivery of their Participant Share of Project
Water without the agreement of such Participant, then if any Participant protests, or if Tacoma deems appropriate,
Tacoma is to submit said matter to the Project Committee for its consideration on whether such excess deliveries be
subject to the Surcharge Rate. If approved by the Project Committee, Tacoma is to charge such Participant the
Surcharge Rate for such deliveries in excess of scheduled amounts.
Project Annual Budgets
At each quarterly meeting of the Project Committee, Tacoma will be required to present to the Participants
a comparison of actual expenditures to expenditures projected in the Project Annual Budget for the then current
calendar year,with an explanation of any material variations between budget and actual amounts.
Not later than each July 15t, Tacoma will be required to prepare and submit to the Project Committee a
proposed Project Annual Budget for the next calendar year, the work papers supporting each of the elements set
forth in such proposed Project Annual Budget and a comparison of actual expenditures to the expenditures projected
Project Annual Budget for the then current calendar year. Each such proposed Project Annual Budget shall contain,
at a minimum,the following elements:
• amounts necessary to operate and maintain the Project;
• for Variable O&M Costs,the cost per million gallons(MG);
• proposed Capital Expenditures including proposed Capital Expenditures for any renewals,
replacements,additions or improvements to the Project;
• amounts necessary to replenish any Project contingency fund;
• amounts and timing of any payments due on outstanding Project Bonds;
• amounts and timing of any proposed Project Bond issuances;and
• payment schedules for all elements in the Project Annual Budget.
Each proposed Project Annual Budget is to be prepared generally in the form set forth in the Project
Agreement. In preparing each proposed Project Annual Budget, Tacoma is to take into account any funds expected
to remain,or liabilities left unfunded,which are expected to remain at the end of the then current calendar year.
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The Project Committee will have until October 15'to approve the Project Annual Budget as submitted by
Tacoma, or to approve a Project Annual Budget as revised by the Project Committee. If the Project Committee has
not approved a Project Annual Budget by the first day of any calendar year, then Tacoma may operate the Project
and expend funds in accordance with the Project Annual Budget from the immediately prior calendar year, and the
Participants shall be obligated to pay invoices issued by Tacoma in accordance with such Project Annual Budget
unless and until the Project Committee approves a Project Annual Budget for the then current calendar year.
At any time during any calendar year,Tacoma may submit to the Project Committee a proposed revision to
any Project Annual Budget then in effect if,in Tacoma's judgment,the Project Annual Budget then in effect will not
be adequate to fund the operation of the Project. The proposed revision,as proposed by Tacoma or as revised by the
Project Committee,are to take effect upon approval by the Project Committee.
The Project Committee may modify the deadlines for the submission of the proposed Project Annual
Budget,and any action relating thereto.
Payments
Pursuant to the Project Agreement, Tacoma is required to prepare and forward to each Participant invoices
for the payment of costs as set forth in the Project Annual Budget then in effect. Each such invoice is to also set
forth the operations and maintenance costs that vary with use based on the use of the Project by the Participant in the
preceding month or months calculated using the rate for such use contained in the Project Annual Budget then in
effect. Such invoices are to be prepared and forwarded to the Participants no more frequently than once each
calendar month.
Any Participant may request from Tacoma, and Tacoma is to promptly provide to the requesting
Participant, any documentation or other information that the requesting Participant may reasonably require to
understand the nature of the costs contained in any invoice.
Payment of any and all invoices forwarded to each Participant by Tacoma shall be due and payable by the
Participant receiving such invoice on or before the Due Date, with payment to be made by wire transfer or such
other means as agreed to by Tacoma and the Participant, subject to the following:
• For any and all amounts set forth in any such invoice that are required to be paid to satisfy
principal and interest obligations set forth in Project Bonds and related covenants, payment shall
be made to the Project Bond escrow agent or fiscal agent specified in the Project Annual Budget
for such Operating Year.
• For any and all amounts set forth in such invoice, other than those amounts described in the
preceding clause,payment is to be made to the bank and account designated by Tacoma;provided
however, in the event that a Participant desires to make a cash payment towards its Participant
Share of Project Costs (e.g. a capital contribution in aid to construction for Project Costs), said
payment are to be made to the Project escrow agent, which is then, as a common paymaster and
subject to the approval of Tacoma or Project Committee,as appropriate,to direct said payment for
Project Costs.
If full payment of any invoice is not received by Tacoma on or before the Due Date, such payment will be
considered past due, and the unpaid amount of such invoice will accrue a late payment charge for each day that the
invoice remains unpaid in an amount equal to the product of the unpaid amount of the invoice and the Interest Rate.
Such charge will continue to accumulate until the unpaid amount of the invoice and all late payment charges are
paid in full to Tacoma. Further, if an invoice or any portion thereof remains unpaid for a period of thirty (30)days
after the Due Date, Tacoma may elect to suspend deliveries of Project Water scheduled by any Participant who has
failed to make full payment until such Participant has paid all amounts due and owing,and any late payment charges
due thereon.
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If any Participant disputes all or any portion of an invoice issued by Tacoma, the Participant will be
required to pay such invoice in full, and shall indicate in writing to Tacoma the portions of the invoice that the
Participant disputes and the reasons therefore. The Participants is to make a good faith effort to resolve such
dispute. If such efforts are unsuccessful,either Participant to the dispute may seek resolution of the dispute pursuant
to the provisions of the Project Agreement summarized below under "PROJECT AGREEMENT—Dispute
Resolution."
If the resolution of any dispute over an invoice, whether by agreement of the Participants or by dispute
resolution, results in the payment of money from Tacoma to the Participant disputing a bill, such payment is to
include an interest payment for the period commencing with the date the disputed invoice was paid, and ending on
the date the payment resolving the dispute is made to the Participant,calculated using the Interest Rate.
Each Participant covenants and agrees in the Project Agreement that it shall establish,maintain and collect
rates or charges for water and other services, facilities and commodities sold,furnished or supplied by it which shall
be adequate to provide revenues sufficient to enable the Participant to make the payments required to be made
pursuant to the terms of the Project Agreement, and to pay all other charges and obligations payable from or
constituting a charge or lien upon such revenues.
Each Participant is required to make the payments required under the Project Agreement whether or not the
Project is completed, operable or operating and notwithstanding the suspension, interruption,interference,reduction
or curtailment in the operation of the Project for any reason whatsoever,in whole or in part. Such payments will not
be subject to any reduction, whether by offset or otherwise, and will not be conditioned upon the performance or
nonperformance of any Participant to the Project Agreement,including without limitation the Project Operator,or of
any entity under the Project Agreement or any other agreement or instrument.
True-Up of Variable O&M Costs
The Project Agreement provides that if the cost or costs per MG as calculated as described in the preceding
paragraph vary from the cost per MG set forth in the Project Annual Budget for the immediately prior calendar year
for such Project uses,Tacoma is to calculate for each Participant either the additional payment required or the credit
due based on the actual usage of Project Water by each Participant during the prior calendar year. If any additional
payment is due from a Participant,Tacoma is to issue an invoice for such payment.If a credit is due to a Participant,
Tacoma is to first apply the credit to the reimbursement of the Regional Water Supply System Operating Reserve
Account, in the event such payment is needed pursuant to the provisions of the Project Agreement described below
under"PROJECT AGREEMENT—Regional Water Supply System Operating Reserve Account."No interest is to be
paid on any such adjustment.
Not later than sixty(60)days after the first day of each calendar year,Tacoma is to calculate the difference
between the actual Fixed O&M Costs incurred during the previous calendar year and the Fixed O&M Costs billed to
each Participant.
If the Fixed O&M Costs actually incurred as calculated as described in the preceding paragraph varies from
that billed,Tacoma is to calculate for each Participant either the additional payment required or the credit due.If any
additional payment is due from a Participant, Tacoma is to issue an invoice for such payment. If a credit is due to a
Participant,Tacoma is to first apply the credit to the reimbursement of the Regional Water Supply System Operating
Reserve Account in the event such payment is needed pursuant to the provisions of the Project Agreement described
below under"PROJECT AGREEMENT—Regional Water Supply System Operating Reserve Account."No interest
is to be paid on any such adjustment.
Dispute Resolution
Except as otherwise provided in the Project Agreement, any and all disputes arising under the Project
Agreement are be resolved by binding arbitration.
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Pursuant to the Project Agreement, the Participants are to make good faith efforts to resolve by informal
discussion any dispute arising under or in connection with the Project Agreement. If at any time a Participant to a
dispute determines that such informal discussions will not result in a resolution, such Participant may initiate
binding arbitration of any dispute arising under or in connection with the Project Agreement. Any such arbitration
shall be conducted pursuant to the rules for commercial arbitration of the American Arbitration Association or the
rules of such other non judicial dispute resolution service as agreed to by the Participants to the dispute. In any such
arbitration proceeding,the Participants to such dispute are to have the rights of discovery available to parties in civil
litigation under the Federal Rules of Civil Procedure.
The Project Agreement provides that the award of the arbitrators will be final, and may be enforced in any
court having jurisdiction. In making any such award, the arbitrators shall have the authority to grant such relief as
they deem appropriate,including without limitation the award of damages and the granting of specific performance.
Pending the decision in any binding arbitration process pursuant to the Project Agreement,the Participants
to such process are to continue to fulfill their respective duties under the Project Agreement.
Uncontrollable Forces
A Participant will not be in breach of the Project Agreement as a result of such Participant's failure to
perform its obligations under the Project Agreement when such failure is due to an Uncontrollable Force, to the
extent that such Participant, despite the exercise of due diligence, is unable to remove such Uncontrollable Force.
Nothing in the Project Agreement will be construed to require any Participant to prevent or settle any strike or labor
dispute in order to obtain relief under the provisions of the Project Agreement summarized in this section.
Any Participant subject to an Uncontrollable Force that may impair its performance under the Project
Agreement is required to notify all other Participants as soon as practicable. Any Participant subject to an
Uncontrollable Force is to be excused from performance under the Project Agreement only for the duration of and to
the extent of the Uncontrollable Force. Any Participant subject to an Uncontrollable Force will be required to take
all reasonable actions to remove the Uncontrollable Force. Neither the occurrence of an Uncontrollable Force nor
the provisions of the Project Agreement summarized in this section will relieve any Participant of its obligation to
pay money when due under the terms of the Project Agreement.
Default of Obligation
If any Participant fails to make any payment in full when due under the Project Agreement for a period of
forty-five (45)days or more, Tacoma will be required to make written demand upon such Participant to make
payment in full within ten(10) days of the date of such written demand. If the failure to pay is not cured with the
ten(10)day time period,the Participant shall be deemed to be in default.
The Project Agreement provides that in addition to the remedies summarized above under "PROJECT
AGREEMENT Payments," if the Participant has been in default of payment for a period of sixty (60)days or
more, and the payment in default includes any amounts necessary to make payment on any Project Bonds,then the
Project Committee is to offer for assignment to the non-defaulting Participants a pro rata share of the Participant
Share of the defaulting Participant. The assignment of the defaulting Participant's Participant Share is to vest in the
assignee all of the rights and obligations under the Project Agreement that the defaulting Participant could have
exercised by virtue of such Participant Share, including without limitation, the right to use a pro rata share of the
Second Diversion Water. If any non-defaulting Participant declines to accept all or any portion of the defaulting
Participant's Participant Share under the Project Agreement, such Participant Share (or the remaining portion
thereof)is to be reoffered to the remaining non-defaulting Participants until there is no unassigned Participant
Shares of the defaulting Participant remaining, or no Participant wishes to accept any additional assignment. Any
Participant accepting the assignment of all or any portion of the defaulting Participant's Participant Shares is upon
acceptance of such assignment to cure a proportionate share of any existing default in payment, and is to be
responsible for the payment of any and all obligations associated with the Participant Share so assigned under the
Project Agreement. For purposes of the provisions of the Project Agreement summarized in this paragraph,pro rata
share shall mean for each non-defaulting Participant the ratio obtained by dividing its Participant Share by the sum
of the Participant Shares of the non-defaulting Participants.
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If after following the process described in the preceding paragraph there remains unassigned all or a portion
of the Participant Share of the defaulting Participant, then Tacoma will be required to have its Participant Share
increased in an amount equal to the defaulting Participant's Participant Share remaining after any reassignment.
The Project Agreement provides that the fact that other Participants have assumed the obligation to make
payments which were due and owing from the defaulting Participant will not relieve the defaulting Participant of its
liability for such payments, and the Participants assuming such obligations,whether individually or as a member of
a group, will have a right of recovery from the defaulting Participant. Any Participant, as its interests may appear,
whether jointly or severally, may commence such suits, actions or proceedings, at law or in equity, including suits
for specific performance, as may be necessary or appropriate to enforce the obligations of the Project Agreement
against any defaulting Participant. To the extent that a Participant in said litigation is successful, then said
Participant is entitled to recover its reasonable attorney fees and costs against the defaulting Participant.
In the event that the Participant Share of a defaulting Participant is assigned to another Participant(s)as
described above, the non-defaulting Participants will be required to enter into good faith negotiations to revise by
mutual agreement the apportionment of votes and the approval requirements described above under "PROJECT
AGREEMENT—Project Committee." Any such revision are to be done in a manner that recognizes the change in
Participant Share as a result of such assignment, while maintaining the initial intentions of the Participants as
expressed therein. Absent a mutual agreement to such revision, notwithstanding any assignment pursuant to the
Project Agreement,no Participant will be entitled to cast the votes allocated to the defaulting Participant.
Pursuant to the Project Agreement,taking the actions described in this section, including without limitation
a determination of default, will not be subject to dispute resolution provisions described above under "PROJECT
AGREEMENT Dispute Resolution."
Assignment and Other Arrangements
Except as otherwise provided in the Project Agreement,the rights and obligations of the Project Agreement
may not be sold, assigned or, otherwise transferred in whole or in part by a Participant to a party that is not a
Participant without the prior written consent of all other Participants, which consent shall not be unreasonably
withheld.
The Project Agreement provides that nothing in the Project Agreement will prohibit a Participant from
transferring to any other Participant for a period longer than an Operating Year any right or privilege of such
Participant under the Project Agreement. Prior to consummating any such transfer, the Participant transferring the
right or privilege will be required to provide to all other Participants the contract under which the transfer will occur,
and permit the other Participants a reasonable period of time to comment on the proposed transfer. Any such
agreement between two or more Participants is not to change the rights and duties of such Participants under the
Project Agreement.
Waivers
Except as otherwise provided in the Project Agreement or as agreed to by the Participants,no provision of
the Project Agreement may be waived except as documented or confirmed in writing. Any waiver at any time by a
Participant of its rights with respect to a default under the Project Agreement or with any other matter arising in
connection therewith,will not be deemed a waiver with respect to any subsequent default or matter. Any Participant
may waive any notice or agree to accept a shorter notice than specified in the Project Agreement. Such waiver of
notice or acceptance of shorter notice by a Participant at any time regarding a notice will not be considered a waiver
with respect to any subsequent notice required by the Project Agreement.
Disposition of Funds Upon Termination of the Project
When the Project is terminated in accordance with the Project Agreement, the Participants will be require
to use any proceeds that are obtained by selling all or any portion of the Project for salvage to satisfy any obligation
then outstanding on any Project Bonds. If after satisfying all such obligations,the remaining proceeds are required
C-20
to be used to satisfy any other cost of the Project that remains unpaid. Any proceeds from the salvage of the Project
that remain after satisfying such obligations are to be divided among the Participants in accordance with their
Participant Shares.
Amendments
No change, amendment or modification of any provision of the Project Agreement will be valid unless set
forth in a written amendment to the Project Agreement signed by all Participants. Those changes, amendments or
modifications considered by unanimous vote of the Project Committee to be non-substantive in nature may be
preliminarily adopted and temporarily implemented by said vote bud do not become official until executed as a
written amendment signed by all Participants.
Liability
The Project Agreement provides that with respect to actions approved by the Project Committee, any
liability,loss,cost,damages or expense suffered by the Project are to be deemed a Project Cost and are to be shared
by all Participants in accordance with their respective Participant Share. With respect to actions or omissions by
Tacoma, if related to Tacoma's duties in operating and managing the Project pursuant to the Project Agreement,
then any liability, loss, cost,damages or expense suffered by the Project as a result of such actions or omissions are
to be deemed a Project Cost, and are to be shared by each Participant in accordance with their respective Participant
Share, excepting only those resulting from actions or omissions by Tacoma that are determined to be inconsistent
with Prudent Utility Practice.
Regional Water Supply System Operating Reserve Account
Pursuant to the Project Agreement, to provide for operating cash to cover Regional Water Supply System
Fixed O&M Costs and Variable O&M Costs during the period of time from when expenses are incurred by Tacoma
until the costs are reimbursed, Tacoma is required to maintain an operating reserve account equal to two-months
Fixed O&M Costs and Variable O&M Costs as projected in the current Project Annual Budget. Each Participant is
required to pay into the operating reserve account an amount equal to its two-month Participant Share of Fixed
O&M Costs and,for Variable O&M Costs, an amount equal to two-months of its Variable O&M Costs as projected
in the current Project Annual Budget.
Not later than sixty (60) days after the first day of each calendar year, Tacoma is to calculate the funds
necessary to maintain the Regional Water Supply System Operating Reserve Account equal to two months' Fixed
O&M Costs and Variable O&M Costs as projected in the current year Project Annual Budget for each Participant,
consistent with the payment requirements of the Project Agreement described in the preceding paragraph.
If the funds necessary to maintain the Regional Water Supply System Operating Reserve Account equal to
two months' Fixed O&M Costs and Variable O&M Costs as projected in the Project Annual Budget vary from the
actual amount in the Regional Water Supply System Operating Reserve Account after the above calculation is made,
Tacoma will be required to calculate for each Participant either the additional payment required or the credit due to
maintain the Regional Water Supply System Operating Reserve Account equal to two months' Fixed O&M Costs
and Variable O&M Costs of the current Project Annual Budget. If a payment is required, Tacoma is to issue an
invoice for such payment pursuant.No interest is to be paid on any such adjustment.
Any interest earned on the Regional Water Supply System Operating Reserve Account is to be used as a
credit, based on each Participant's cash balance in the Regional Water Supply System Operating Reserve Account,
in the annual calculation performed as described above.
Pursuant to the Project Agreement, should the Regional Water System Reserve Account be dissolved for
any reason,the funds are to be returned to the Project Participants consistent with each Participant's cash balance in
the Regional Water Supply System Operating Reserve Account.
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[THIS PAGE INTENTIONALLY LEFT'BLANK]
APPENDIX D
FORM OF CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate(this"Certificate")is executed and delivered by the City of Tacoma,
Washington(the"City"),in connection with the issuance by the City of its Regional Water Supply System Revenue
Refunding Bonds, Series 2024 (Green Bonds) (the "Bonds") pursuant to Ordinance No.28898, passed by the City
Council on August 1,2023 (the"Bond Ordinance"). Pursuant to the Bond Ordinance,the City hereby covenants and
agrees as follows:
Section 1. Purpose of this Certificate. This Certificate is being executed and delivered by the City
for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters
in complying with the Rule(each as defined below).
Section 2. Definitions. In addition to the definitions set forth herein,in the Bond Ordinance or in the
Official Statement,which apply to any capitalized term used in this Certificate unless otherwise defined herein, the
following capitalized terms shall have the following meanings:
Commission means the Securities and Exchange Commission.
EMMA has the meaning set forth in Section 5.
Financial obligation means a (A) debt obligation; (B) derivative instrument entered into in connection
with, or pledged as security or a source of payment for, an existing or planned debt obligation; or(C) guarantee of
clause (A) or (B) of this definition. The term financial obligation shall not include municipal securities as to which a
final official statement has been provided to the MSRB consistent with the Rule.
MSRB means the Municipal Securities Rulemaking Board.
Obligated Person has the meaning set forth in Section 6.
Official Statement means the Official Statement related to the Bonds.
Participating Underwriters mean the original underwriters of the Bonds required to comply with the Rule
in connection with offering the Bonds.
Rule means Section (b)(5) of Commission's Rule 15c2-12 under the Securities Exchange Act of 1934, as
the same may be amended from time to time.
Section 3. Provisions of Annual Information.
(a) Financial Statements/Operating Data. The City agrees to provide or cause to be provided to the
MSRB,the following annual financial information and operating data for the prior fiscal year(commencing in 2024
for the fiscal year ended December 31,2023):
(1) annual financial statements showing ending fund balances for the Water System,
including the Regional System, prepared (except as otherwise noted therein) in
accordance with the Budget Accounting and Reporting System presented by the
Washington State Auditor pursuant to RCW 43.09.200(or any successor statute),which
statements will not be audited, except that if and when audited financial statements are
otherwise prepared and available to the City they will be provided;
(2) principal amount of outstanding Parity Bonds and debt service coverage;and
(3) list of current Participants if other than the Participants at the date of the Bond Ordinance.
D-1
Items (2) and (3) shall be required only to the extent that such information is not included in the annual
financial statements. The annual financial information may be provided in a single or multiple documents and may
be incorporated by specific reference to documents available to the public on the Internet website of the MSRB or
filed with the SEC.
The information and data described above shall be provided on or before the last day of the ninth month
after the end of the City's fiscal year. The City's fiscal year currently ends on December 31. The City may adjust
such fiscal year by providing written notice of the change of fiscal year to the MSRB. In lieu of providing such
annual financial information and operating data,the City may cross refer to other documents available to the public
on the MSRB's internet website or filed with the Commission.
If not provided as part of the annual financial information discussed above,the City shall provide the City's
audited annual financial statement prepared in accordance with the Budgeting Accounting and Reporting System
prescribed by the Washington State Auditor pursuant to RCW 43.09.200 (or any successor statute) when and if
available to the MSRB.
(b) Listed Events. The City further agrees to provide or cause to be provided to the MSRB,in a timely
manner not in excess of 10 business days after the occurrence of the event, notice of the occurrence of any of the
following events with respect to the Bonds:
• Principal and interest payment delinquencies;
• Non-payment related defaults,if material;
• Unscheduled draws on debt service reserves reflecting financial difficulties;
• Unscheduled draws on credit enhancements reflecting financial difficulties;
• Substitution of credit or liquidity providers,or their failure to perform;
• Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final
determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material
notices or determinations with respect to the tax status of the Bonds, or other material events
affecting the tax status of the Bonds;
• Modifications to the rights of Bondholders,if material;
• Optional,contingent or unscheduled Bond calls other than scheduled sinking fund redemptions for
which notice is given pursuant to Exchange Act Release 34-23856,if material,and tender offers;
• Defeasances;
• Release,substitution,or sale of property securing repayment of the Bonds,if material;
• Rating changes;
• Bankruptcy,insolvency,receivership or similar event of the City;
• The consummation of a merger, consolidation, or acquisition involving the City or the sale of all
or substantially all of the assets of the City,other than in the ordinary course of business,the entry
into a definitive agreement to undertake such an action or the termination of a definitive
agreement relating to any such actions,other than pursuant to its terms,if material;
• Appointment of a successor or additional trustee or the change of name of a trustee,if material;
• Incurrence of a financial obligation of the City, if material, or agreements to covenants, events of
default,remedies,priority rights,or other similar terms of a financial obligation of the City,any of
which affect security holders,if material;and
• Default, event of acceleration, termination event, modification of terms, or other similar events
under the terms of a financial obligation of the City,any of which reflect financial difficulties.
Section 4. Notification Upon Failure to Provide Financial Data. The City agrees to provide or cause
to be provided, in a timely manner, to the MSRB notice of its failure to provide the annual financial information
described in above on or prior to the date set forth in above.
Section 5. EMMA; Format for Filings with the MSRB. Until otherwise designated by the MSRB or
the Commission,any information or notices submitted to the MSRB in compliance with the Rule are to be submitted
through the MSRB's Electronic Municipal Market Access system ("EMMA"), currently located at
www.emma.msrb.org. All notices, financial information and operating data required by this undertaking to be
D-2
provided to the MSRB must be in an electronic format as prescribed by the MSRB. All documents provided to the
MSRB pursuant to this undertaking must be accompanied by identifying information as prescribed by the MSRB.
Section 6. Other Obligated Persons. The City agrees to provide, or cause to be provided, either
directly by the Obligated Person or through a designated agent, to the MSRB, as designated by the SEC, in
accordance with Rule 15c2-12, in electronic format as prescribed by the MSRB accompanied by identifying
information as prescribed by the MSRB, with respect to each Obligated Person, such Obligated Person's audited
financial statements prepared in accordance with generally accepted accounting principles, not later than the end of
nine months after the end of each Obligated Person's fiscal year, commencing in 2024 for the prior fiscal year;
provided, that if such Obligated Person's audited financial statements are not yet available, the City shall provide
unaudited financial statements in substantially the same format, and audited financial statements soon after they
become available.
"Obligated Person" means any person or entity which, at the time, is obligated directly or indirectly by
contract,generally or through an enterprise, fund or account,to make payment in the then current or any succeeding
Fiscal Year to be applied to pay at least 10% of the aggregate amount of principal of and interest scheduled to
become due in such year on the Bonds.
Kent is currently an"Obligated Person"with respect to the Bonds.
Section 7. Termination/Modification. The City's obligations to provide annual financial information
and notices of listed events with respect to the Bonds shall terminate upon the legal defeasance or payment in full of
such series of Bonds. Any provision of this undertaking shall be null and void if the City(1) obtains an opinion of
nationally recognized bond counsel to the effect that the portion of the Rule that requires that provision is invalid,
has been repealed retroactively or otherwise does not apply to the Bonds and(2)notifies the MSRB of such opinion
and the cancellation of all or any portion of this undertaking.
Notwithstanding any other provision of this certificate, the City may amend this certificate, and any
provision of the undertaking contained herein may be waived, in accordance with Rule, which, as currently
interpreted by the Commission, requires that(i) the amendment or waiver be made in connection with a change in
circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or
status of the City, or type of business conducted; (ii)the undertaking, as amended or waived,would have complied
with the requirements of Rule at the time of the primary offering, after taking into account any amendments or
interpretations of Rule, as well as any change in circumstances; and (iii) the amendment or waiver does not
materially impair the interests of holders of the Bonds, as determined either by parties unaffiliated with the City
(such as bond counsel)or by the approving vote of holders of the Bonds.
In the event of any amendment or waiver of the undertaking provided for in this certificate, the City shall
describe such amendment or waiver in the next annual report, and shall include a narrative explanation of the reason
for the amendment or waiver and its impact on the type(or in the case of a change of accounting principles, on the
presentation) of financial information or operating data being presented by the City. In addition, if the amendment
relates to the accounting principles to be followed in preparing financial statements, (i)notice of such change shall
be given in the same manner as for a listed event above,and(ii)the annual report for the year in which the change is
made shall present a comparison(in narrative form and also, if feasible, in quantitative form)between the financial
statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former
accounting principles.
Section 8. Bond Owner's Remedies. The right of any bond owner or beneficial owner of Bonds to
enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the City's
obligations under this undertaking, and any failure by the City to comply with the provisions of this undertaking
shall not be an event of default with respect to the Bonds.For purposes of this Certificate,"beneficial owner"means
any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership
of,any Bonds,including persons holding Bonds through nominees or depositories.
D-3
Section 9. Responsible Officer; Dissemination Agent. The City Finance Director, or such
individual's designee, is designated to carry out this undertaking in accordance with Rule 15c2-12. The City may,
from time to time, appoint or engage a dissemination agent to assist it in carrying out its obligations under this
Certificate, and may discharge any such dissemination agent, with or without appointing a successor dissemination
agent.
DATED this day of ,2024.
CITY OF TACOMA,WASHINGTON
D-4
APPENDIX E
BOOK-ENTRY SYSTEM
The following information has been provided by DTC from its website. The City makes no representation regarding
the accuracy or completeness thereof. Beneficial Owners should therefore confirm the following with DTC or the
Direct Participants (as hereinafter defined). Language in [brackets] with s'u�'�� has been deleted as
permitted by DTC as it does not pertain to the Bonds.
1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the
securities (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of
Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative
of DTC. One fully-registered Security certificate will be issued for [e,, the Securities, [ea-Ck] in the
aggregate principal amount of such issue, and will be deposited with DTC. [if i.,., eve the aggregatepr-ineipal
ame,ant of [anyl issue exeeeds $500 million, one eei-76fleate will be issued with fespeet to eaeh $500 million e
pr-ineipal ametint, and an additional eei4ifieate will be issided with r-espeet to ai+y remaining pfineipal amedI4 of stl
issue]
2. DTC, the world's largest securities depository, is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S.
equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that
DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among
Direct Participants of sales and other securities transactions in deposited securities,through electronic computerized
book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical
movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned
subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC,
National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered
clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also
available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and
clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly
or indirectly("Indirect Participants"). DTC has Standard&Poor's rating of AA+. The DTC Rules applicable to its
Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at
www.dtcc.com.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants,
which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of
each Security (`Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are,
however, expected to receive written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into
the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the
books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Securities, except in the event that use of the book-entry system
for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are
registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an
authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede &
Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to
whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and
Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
E-1
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct
Participants to Indirect Participants,and by Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from
time to time. [Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of
notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed
amendments to the Security documents.For example,Beneficial Owners of Securities may wish to ascertain that the
nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In
the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that
copies of notices be provided directly to them.]
[6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being
redeemed,DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to
be redeemed.]
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to
Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual
procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are
credited on the record date(identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede
& Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to
credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from Issuer
or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend
payments to Cede&Co. (or such other nominee as may be requested by an authorized representative of DTC)is the
responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect
Participants.
•]
10. DTC may discontinue providing its services as depository with respect to the Securities at any time
by giving reasonable notice to Issuer or Agent.Under such circumstances,in the event that a successor depository is
not obtained,Security certificates are required to be printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a
successor securities depository).In that event,Security certificates will be printed and delivered to DTC.
12. The information in this section concerning DTC and DTC's book-entry system has been obtained
from sources that Issuer believes to be reliable,but Issuer takes no responsibility for the accuracy thereof.
E-2
APPENDIX F
GENERAL AND ECONOMIC INFORMATION
Tacoma, the county seat of Pierce County (the "County"), is located in the west central part of Washington State
near the southern tip of Puget Sound. It is the third largest city in the State with a 2023 estimated population of
222,400. The City is located 32 miles south of the City of Seattle and 31 miles northeast of the City of Olympia,the
State capital.
The historical population of the City and the County is shown in the following table.
Table F-1: Population
Year Tacoma Pierce County
2023 222,400 946,300
2022 220,800 937,400
2021 218,700 928,200
2020 219,346 921,130
2019 211,400 888,300
Source: Washington State Office of Financial Management estimates.
The following are economic indicators for the City and the County.
Table F-2: Pierce County
2020 Major Employers
Number of Full Time
Employer Sector Employees
Joint Base Lewis-McCord Military 54,000
MultiCare Health System Health Care 8,264
The State Government 7,859
CHI Franciscan Health Health Care 5,682
Tacoma School District Education 3,649
The City and Tacoma Public Utilities Government 3,623
Pierce County Government Government 3,304
Puyallup School District Education 2,711
Bethel School District Education 2,689
Safeway and Albertsons Retail 2,153
Source:Economic Development Board of Tacoma-Pierce County.
F-1
Table F-3: City Residential and Commercial Building Permit Values
Single Family Multifamily
Number of Number of
Year Dwellings Value of Permits Dwellings Value of Permits
20230) 69 $20,301,029 608 $ 127,667,936
2022 149 42,296,423 1,391 200,409,861
2021 250 69,159,564 2,220 278,672,092
2020 241 66,921,678 691 103,200,698
2019 162 44,650,935 914 114,839,154
(1) Latest data available through October 2023.
Source: United States Census Bureau
Table F-4: Pierce County and City of Tacoma
Taxable Retail Sales($000)
Year Pierce County City of Tacoma
20230) $ 11,360,504,753 $ 3,390,995,375
2022 23,881,668,344 7,104,415,018
2021 22,863,160,384 6,699,732,445
2020 19,407,955,285 5,700,693,214
2019 18,746,939,008 5,887,578,667
Latest data available; through second quarter. Taxable retail sales through second quarter 2022 for the
County and the City were$11,514,712,428 and$3,447,753,670,respectively.
Source: Washington State Department of Revenue.
Table F-5: Pierce County and Washington State Median Household Income
Year Pierce County Washington State
20220) $ 91,092 $ 86,343
2021(2) 85,492 84,155
2020 80,236 80,319
2019 78,779 78,674
2018 71,208 72,297
(1) Projected.
(2) Preliminary estimates.
Source: Washington State Office of Financial Management for County and State data.
F-2
Table F-6: Pierce County and Washington State Total Personal and Per Capita Income
Pierce County State of Washington
Total Total Personal
Personal Income Income(in Per Capita
Year (in thousands)(') Per Capita Income(') thousands)(2) Income(2)
2022 $ 55,630,100 $ 59,986 $ 586,520,188 $ 75,332
2021 55,137,240 59,466 574,266,835 74,188
2020 51,285,933 55,533 522,713,789 67,674
2019 47,470,340 51,939 484,334,162 63,405
2018 44,407,824 49,220 451,609,165 59,827
Census Bureau mid-year population estimates. Estimates for 2010-2019 reflect county estimates available
as of March 2020.
(2) Census Bureau mid-year state population. Estimates for 2010-2020 reflect estimates available as of
December 2020.
Source: U.S.Department of Commerce,Bureau of Economic Analysis.
[Remainder of page left intentionally blank.]
F-3
Employment within the County is described in the following table:
Table F-7: Tacoma Metropolitan Area(Pierce County)Residential Civilian Labor Force and Employment
and Average Civilian Nonagricultural Wage and Salary Employment
NAICS Industry Title Annual Average
Residential Labor Force 20230) 2022 2021 2020 2019
Civilian Labor Force 460,049 455,225 446,328 454,097 442,094
Total Employment 439,148 431,871 419,135 410,611 419,394
Total Unemployment 20,901 23,354 27,193 43,486 22,700
Unemployment Percent of Labor Force 4.5% 5.1% 6.1% 9.6% 5.1%
Total Nonfarm 341,470 334,258 321,058 312,108 327,342
Total Private 282,770 276,750 264,525 255,433 267,825
Goods Producing 43,760 43,708 42,467 41,475 43,200
Mining and Logging 300 342 375 300 300
Construction 26,530 26,433 25,425 24,708 25,167
Specialty Trade Contractors 17,030 17,375 16,775 16,392 16,725
Manufacturing 16,930 16,933 16,667 16,467 17,733
Services Providing 297,710 290,550 278,592 270,633 284,142
Trade,Transportation and Utilities 72,260 71,825 69,650 67,567 68,142
Wholesale Trade 13,750 13,233 12,683 12,575 13,375
Retail Trade 37,380 37,233 37,208 35,258 36,075
Food and Beverage Stores 6,830 6,667 6,742 6,408 5,975
General Merchandise Stores 9,380 9,475 9,292 8,842 8,842
Transportation and Utilities 21,130 21,358 19,758 19,733 18,692
Information 2,080 1,892 1,650 1,992 2,208
Financial Activities 14,360 14,325 14,483 14,433 14,708
Professional and Business Services 40,030 38,883 35,892 32,833 33,983
Admin, Support,Waste Mgmt. &
Remed. 25,630 25,250 23,167 20,750 22,350
Administrative and Support Services 23,480 23,050 21,017 18,825 20,625
Education and Health Services 61,070 59,267 58,242 57,075 56,942
Ambulatory Health Care Services 18,970 18,508 18,308 18,000 18,075
Hospitals 13,670 13,008 13,092 13,300 13,125
Leisure and Hospitality 35,640 33,850 29,900 27,258 33,975
Food Services and Drinking Places 28,540 27,567 24,550 22,758 27,400
Other Services 13,570 13,000 12,242 12,800 14,667
Government 58,700 57,508 56,533 56,675 59,517
Federal Government 11,260 11,208 11,350 11,700 11,892
State Government 9,970 9,900 10,533 10,833 11,167
State Government Educational
Services 2,790 2,792 2,942 3,167 3,608
Local Government 37,470 36,400 34,650 34,142 36,458
Local Government Educational
Services 20,630 20,275 19,008 18,992 20,367
(1) Information uses the most recent quarter from the Unemployment Insurance tax reports (currently June
2023) and estimates employment from that point to present. Most recent data available is preliminary
through October 2023.
F-4
APPENDIX G
FORM OF OPINION OF BOND COUNSEL
February 14,2024
City of Tacoma
Tacoma,Washington
Re: City of Tacoma,Washington
Regional Water Supply System Revenue Refunding Bonds, Series 2024(Green Bonds)
$32,350,000
To the Addressee:
We have acted as bond counsel to the City of Tacoma(the"City"),and have examined a certified transcript
of all of the proceedings taken in the matter of the issuance by the City of its Regional Water Supply System
Revenue Refunding Bonds, Series 2024 (Green Bonds), in the aggregate principal amount of $32,350,000
(the"Bonds") issued pursuant to Ordinance No. 28898 (the"Bond Ordinance"). Proceeds of the Bonds will be
used,together with other available funds, to refund, on a current basis, all or a portion of the outstanding Regional
Water Supply System Revenue Refunding Bonds, 2013, and to pay costs of issuing the Bonds. Capitalized terms
used in this opinion have the meanings given such terms in the Bond Ordinance.
The Bonds are not subject to optional redemption prior to maturity. The City has not designated the Bonds
as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of
1986,as amended(the"Code").
Regarding questions of fact material to our opinion, we have relied on representations of the City in the
Bond Ordinance, the Tax Certificate executed by the City in connection with the issuance of the Bonds and the
exhibits attached thereto, and in the certified proceedings and on other certifications of public officials and others
furnished to us without undertaking to verify the same by independent investigation.
Based on the foregoing,we are of the opinion that,under existing law:
1. The Bonds have been legally issued and constitute valid and binding special obligations of the
City,payable from and secured solely by the sources identified in the Bond Ordinance, except to the extent that the
enforcement of the rights and remedies of the holders and owners of the Bonds may be limited by laws relating to
bankruptcy, insolvency, moratorium, reorganization or other similar laws of general application affecting the rights
of creditors,by the application of equitable principles and the exercise of judicial discretion.
2. The Bond Ordinance is a legal,valid and binding obligation of the City,has been duly authorized,
executed and delivered and is enforceable in accordance with its terms,except to the extent that enforcement may be
limited by laws relating to bankruptcy, insolvency, moratorium, reorganization or other similar laws of general
application affecting the rights of creditors, by the application of equitable principles and the exercise of judicial
discretion.
3. The Bonds are special fund obligations of the City payable from the sources identified in the Bond
Ordinance. The City has pledged that the payments to be made into the Bond Fund out of Revenue of the Regional
System shall be a lien and charge thereon equal in rank to the lien and charge upon such Revenue of the amounts
required to pay and secure the payment of the Outstanding Parity Bonds and any regional water supply system
revenue bonds of the City hereafter issued on a parity with the Bonds, and superior to all other liens and charges
except the Operating Expenses of the Regional System. The City has reserved the right to issue Future Parity Bonds
on the terms and conditions set forth in the Bond Ordinance.
G-1
4. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not
an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals; however,
interest on the Bonds is taken into account in determining annual adjusted financial statement income for the
purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in the
preceding sentence is subject to the condition that the City comply with all requirements of the Code, that must be
satisfied subsequent to the issuance of the Bonds in order that the interest thereon be, and continue to be,excludable
from gross income for federal income tax purposes. The City has covenanted to comply with all applicable
requirements. Failure to comply with certain of such covenants may cause interest on the Bonds to be included in
gross income for federal income tax purposes retroactively to the date of issuance of the Bonds.
Except as expressly stated above, we express no opinion regarding any tax consequences related to the
ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on,the Bonds. Owners of
the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning
the Bonds.
We have not been engaged nor have we undertaken to review the accuracy, completeness or sufficiency of
the Official Statement or other offering material related to the Bonds (except to the extent, if any, stated in the
Official Statement),and we express no opinion relating thereto,or relating to the undertaking by the City to provide
ongoing disclosure pursuant to Securities and Exchange Commission Rule 15c2-12.
This opinion is given as of the date hereof, and we assume no obligation to update, revise or supplement
this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that
may hereafter occur.
Very truly yours,
PACIFICA LAW GROUP LLP
G-2
APPENDIX H
CITY OF TACOMA WATER SYSTEM
2022 FINANCIAL STATEMENTS
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20 Tacoma Water
2 Annual Financial Report
FOR THE FISCAL YEAR ENDING TAC O M A WAT E R
DECEMBER 31,2022
PREPARED BY THE FINANCE DEPARTMENT TA C O M A PUBLIC UTILITIES
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Public Utility Board
CARLOS M. WATSON
Chair
JOHN O'LOUGHLIN
Vice-Chair
HOLLAND COHEN
Secretary
WILLIAM BRIDGES
Member
ELLY CLAUS-MCGAHAN
Member
JACKIE FLOWERS
Director of Utilities
SCOTT DEWHIRST
Water Superintendent
ANDREW CHERULLO
Finance Director
DEPARTMENT OF PUBLIC UTILITIES
CITY OF TACOMA
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City of Tacoma, Washington
Department of Public Utilities, Water Division
Doing Business as
Tacoma Water
Table of Contents
FinancialData.............................................................................................................................................................1
Auditor's Report.....................................................................................................................................................2
Management Discussion and Analysis ...................................................................................................................5
FinancialStatements............................................................................................................................................... 13
Statementsof Net Position ................................................................................................................................. 14
Statements of Revenues, Expenses and Changes in Net Position....................................................................... 17
Statementsof Cash Flows ................................................................................................................................... 18
Notes to Financial Statements ............................................................................................................................ 20
Required Supplementary Information .................................................................................................................... 47
Proportionate Share of the Net Pension Liability Last 10 Years..........................................................................48
Schedule of Contributions Last 10 Fiscal Years................................................................................................... 48
Proportionate Share of the Collective OPEB Liability Last 10 Years.................................................................... 49
Statistical Data (Unaudited) .................................................................................................................................... 51
Ten-Year Financial Review................................................................................................................................... 52
Ten-Year Financial Review(RWSS)...................................................................................................................... 54
Statements of Net Position (RWSS)..................................................................................................................... 56
Statements of Revenues, Expenses, and Changes in Net Position (RWSS)......................................................... 58
Bond Debt Service Requirements........................................................................................................................ 59
Funds Available for Debt Service......................................................................................................................... 60
All In Debt Service Coverage ............................................................................................................................... 60
Summaryof Water Sales—2022......................................................................................................................... 61
2022 Statistical Information................................................................................................................................ 62
Taxes and Employee Welfare Contributions....................................................................................................... 63
2022 Water Rates................................................................................................................................................ 64
2022 Fire Protection Rates.................................................................................................................................. 65
Graphs..................................................................................................................................................................... 67
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Financial Data
2022 Annual Financial Report - 1- Tacoma Water
MOSSADAMS
Report of Independent Auditors
The Chair and Members of the Public Utility Board
City of Tacoma, Department of Public Utilities, Water Division
Tacoma, Washington
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of the City of Tacoma, Department of Public Utilities, Water
Division (the Division), which comprise the statements of net position as of December 31, 2022 and
2021, and the related statements of revenues, expenses, and changes in net position, and cash flows
for the year then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements referred to above present fairly, in all material
respects, the financial position of the Division as of December 31, 2022 and 2021, and the respective
changes in financial position and cash flows thereof for the years then ended in accordance with
accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America (GAAS) and the standards applicable to financial audits contained in Government
Auditing Standards(Government Auditing Standards), issued by the Comptroller General of the
United States. Our responsibilities under those standards are further described in the Auditor's
Responsibilities for the Audit of the Financial Statements section of our report. We are required to be
independent of the Division and to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audit. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Financial Reporting Entity
As discussed in Note 1, the financial statements present only the Division and do not purport to, and
do not, present fairly the financial position of City of Tacoma, Washington, as of December 31, 2022
and 2021, the changes in its financial position, or, where applicable, its cash flows for the years then
ended in accordance with accounting principles generally accepted in the United States of America.
Our opinion is not modified with respect to this matter.
Emphasis of Matter
As discussed in Note 3 of the financial statements,the Division adopted the provisions of
Government Accounting Standards Board (GASB) Statement No. 87, Leases, effective January 1,
2021. The financial statements have been retroactively restated in accordance with the requirements
of the new accounting standard. Our opinion is not modified with respect to this matter.
2022 Annual Financial Report -2- Tacoma Water
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with accounting principles generally accepted in the United States of America, and for the
design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute
assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and
Government Auditing Standards will always detect a material misstatement when it exists.The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that,
individually or in the aggregate, they would influence the judgment made by a reasonable user based
on the financial statements.
In performing an audit in accordance with GAAS and Government Auditing Standards, we
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of Division's internal control.Accordingly, no such opinion is
expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
financial statements.
We are required to communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit, significant audit findings, and certain internal
control—related matters that we identified during the audit.
2022 Annual Financial Report -3 - Tacoma Water
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
accompanying management's discussion and analysis, Proportionate Share of Net Pension Liability
Last 10 Years, Schedule of Contributions Last 10 Fiscal Years, and Proportionate Share of the
Collective OPEB Liability Last 10 Years (the"required supplementary information"), as listed in the
table of contents, be presented to supplement the financial statements. Such information is the
responsibility of management and, although not a part of the financial statements, is required by the
Governmental Accounting Standards Board who considers it to be an essential part of financial
reporting for placing the financial statements in an appropriate operational, economic, or historical
context. We have applied certain limited procedures to the required supplementary information in
accordance with auditing standards generally accepted in the United States of America, which
consisted of inquiries of management about the methods of preparing the information and comparing
the information for consistency with management's responses to our inquiries,the financial
statements, and other knowledge we obtained during our audit of the basic financial statements. We
do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any
assurance.
Other Information
Management is responsible for the other information included in the table of contents. The other
information comprises the statistical data and graphs but does not include the financial statements
and our auditor's report thereon. Our opinion on the financial statements does not cover the other
information, and we do not express an opinion or any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and consider whether a material inconsistency exists between the other information and
the financial statements, or the other information otherwise appears to be materially misstated. If,
based on the work performed, we conclude that an uncorrected material misstatement of the other
information exists,we are required to describe it in our report.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated June 5,
2023, on our consideration of the Division's internal control over financial reporting and on our tests of
its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and
other matters.The purpose of that report is solely to describe the scope of our testing of internal
control over financial reporting and compliance and the results of that testing, and not to provide an
opinion on the effectiveness of the Division's internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government
Auditing Standards in considering the Division's internal control over financial reporting and
compliance.
N� �[� 'UP
Tacoma, Washington
June 5, 2023
2022 Annual Financial Report -4- Tacoma Water
Management Discussion and Analysis
The following management discussion and analysis of Tacoma Water's(Utility)financial performance provides an
overview of the financial activities for the years ended December 31, 2022, 2021 and 2020. This discussion and
analysis is designed to assist the reader in focusing on the significant financial issues, provide an overview of the
financial activities, and identify changes in the financial position. We encourage readers to consider the
information presented here in conjunction with the financial statements and the accompanying notes taken as a
whole.
The management of the Finance Department of the City of Tacoma is responsible for preparing the accompanying
financial statements and for their integrity. The statements were prepared in accordance with generally accepted
accounting principles (GAAP) in the United States of America, applied on a consistent basis, and include amounts
that are based on management's best estimates and judgments.
The basic financial statements, presented on a comparative basis for the years ended December 31, 2022 and
2021, include Statements of Net Position, Statements of Revenues, Expenses and Changes in Net Position, and
Statements of Cash Flows. The Statements of Net Position present information on all of Tacoma Water's assets,
deferred outflows of resources, liabilities, and deferred inflows of resources with the difference being reported
as net position. The Statements of Revenues, Expenses and Changes in Net Position report all of the revenues
and expenses during the time periods indicated. The Statements of Cash Flows provide information on cash
receipts and disbursements during the year and report changes in cash resulting from operating, non-capital
financing, capital and related financing,and investing activities.
The Notes to Financial Statements provide additional disclosures that are essential to a full understanding of the
data provided in the financial statements. They are an integral part of Tacoma Water's presentation of financial
position, results of operations and changes in cash flows.
Financial Highlights
• Tacoma Water reported an increase in net position of $23.1 million or 3.5% in 2022 compared to an
increase of$16.5 million or 2.6% in 2021.
• Operating revenues increased by$3.9 million or 3.5%in 2022. Operating revenues increased $6.9 million
or 6.6%in 2021.
• Utility Plant in Service increased $23.6 million or 2.6% in 2022 and $11.8 million or 1.3% in 2021.
• Construction work in progress decreased $4.4 million or 21.3% in 2022 compared to a decrease of$5.2
million or 20.3%in 2021.
Overview of the Financial Statements
Tacoma Water reported net operating income of $25.9, $21.4, and $21.2 million in 2022, 2021, and 2020,
respectively. In 2022, operating revenues increased by $3.9 million and operating expenses decreased by
$603,000. For 2021, operating revenues increased by $6.9 million and operating expenses increased by
$6.7 million.
2022 Annual Financial Report -5 - Tacoma Water
The following tables highlight Tacoma Water's past three years' operating results and gallons billed.
Operating Results
(In thousands)
22/21 21/20
2021 Increase Increase
Category 2022 (As Restated) 2020 (Decrease) (Decrease)
Operating Revenues $ 115,218 $ 111,366 $ 104,468 $ 3,852 $ 6,898
Operating Expenses 89,325 89,928 83,239 (603) 6,689
Net Operating Income 25,893 21,438 21,229 4,455 209
Net Non-Operating Expenses (20,589) (15,833) (11,392) (4,756) (4,441)
Capital Grants and Contributions 20,742 15,398 16,459 5,344 (1,061)
Federal BAB Subsidies 3,622 3,630 3,651 (8) (21)
Transfers (6,586) (8,103) 3,302 1,517 (11,405)
Change in Net Position $ 23,082 $ 16,530 $ 33,249 $ 6,552 $ (16,719)
Gallons Billed
(In millions)
22/21 21/20
Increase Increase
Type of Customer 2022 2021 2020 (Decrease) (Decrease)
Residential 8,568 9,353 8,912 (785) 441
Commercial &Industrial 8,950 9,266 9,047 (316) 219
Wholesale 696 922 728 (226) 194
Total 18,214 19,541 18,687 (1,327) 854
2022 Annual Financial Report -6- Tacoma Water
Net Position
Net position may serve over time as a useful indicator of an entity's financial position. The following analysis
highlights net position for the last three years.
Statements of Net Position
(In thousands)
22/21 21/20
2021 Increase Increase
Description 2022 (As Restated) 2020 (Decrease) (Decrease)
Net Utility&Non-Utility Plant $ 932,773 $ 909,208 $ 897,352 $ 23,565 $ 11,856
Current&Other Assets 227,346 231,587 243,589 (4,241) (12,002)
Total Assets 1,160,119 1,140,795 1,140,941 19,324 (146)
Deferred Outflows 10,016 10,670 6,255 (654) 4,415
Total Assets & Deferred Outflows $1,170,135 $ 1,151,465 $ 1,147,196 $ 18,670 $ 4,269
Net Position:
Net Investment in Capital Assets $ 551,436 $ 512,097 $ 484,405 $ 39,339 $ 27,692
Restricted for:
Water Capital and Sys Dev Chg 56,719 73,158 79,233 (16,439) (6,075)
Debt Service Funds 2,057 2,339 2,678 (282) (339)
Net Pension Asset 14,153 - 1,637 14,153 (1,637)
Unrestricted 51,312 65,001 68,112 (13,689) (3,111)
Total Net Position 675,677 652,595 636,065 23,082 16,530
Long-Term Debt 383,331 398,389 414,308 (15,058) (15,919)
Current&Other LT Liabilities 59,032 63,244 54,659 (4,212) 8,585
Total Liabilities 442,363 461,633 468,967 (19,270) (7,334)
Deferred Inflows 52,095 37,237 42,164 14,858 (4,927)
Total Net Position, Liabilities
&Deferred Inflows $1,170,135 $ 1,151,465 $ 1,147,196 $ 18,670 $ 4,269
Revenues
Tacoma Water's operating revenues were$115.2 million in 2022,an increase of$3.9 million or 3.5%compared to
2021. Sales of water increased in 2022 by a net of$2.2 million of which $10.7 million is due to an average service
rate increase and $8.5 million decrease is due to consumption. There was an average rate increase of 2.0%
effective January 1,2022.In addition,other operating revenues increased by$989,000 and an increase in contract
resource obligations revenues of $674,000 from Regional Water Second Supply (RWSS) Partners to reimburse
Tacoma Water for O&M related expenses.
Tacoma Water's operating revenues were$111.4 million in 2021, an increase of$6.9 million or 6.6%compared to
2020.Sales of water increased in 2021 by a net of$6.3 million of which $805,000 is due to an average service rate
increase and $5.5 million is due to an increase in consumption. There was an average of 1.5% effective
January 1,2021. In addition,other operating revenues increased by$248,000 and an increase in contract resource
obligations revenues of $358,000 from Regional Water Second Supply (RWSS) Partners to reimburse Tacoma
Water for O&M related expenses.
2022 Annual Financial Report -7- Tacoma Water
The following table highlights water sales by type of customer for 2022, 2021 and 2020.
Water Sales
(In thousands)
22/21 21/20
Increase Increase
Type of Customer 2022 2021 2020 (Decrease) (Decrease)
Residential &Domestic $ 69,127 $67,702 $64,487 $ 1,425 $ 3,215
Commercial &Industrial 21,919 20,816 18,725 1,103 2,091
Special Rate 7,344 7,284 7,109 60 175
Wholesale 2,434 2,711 2,283 (277) 428
Unbilled Revenue 364 486 104 (122) 382
Total $101,188 $98,999 $92,708 $ 2,189 $ 6,291
Approximately 68.3%, 68.4%and 69.6%of water sales were to residential and domestic customers in 2022, 2021,
and 2020, respectively. Commercial and industrial sales were 21.7%, 21.0%, and 20.2%total sales for each year.
Special rate sales were 7.3%, 7.4%, and 7.7%of sales respectively.
Customers
Over the last five years, the overall number of customers has remained relatively stable. In 2022, 94.0% of all
customers were residential compared to 93.6%in 2021 and 2020.Commercial and industrial customers were 6.0%
in 2022 and remained at 6.4%in 2021 and 2020.
Below is a graphical representation of the number of customers by customer type for the last 5 years.
Number of Customers
110,000
105,000
100,000 ,-f,-
95,000 - ■Commercial/Industrial
90,000 - - - - - ■Residential
85,000 - - -- -
80,000
2022 2021 2020 2019 2018
2022 Annual Financial Report -8- Tacoma Water
Water Users
Tacoma Water generates the majority of its revenues from its residential and domestic customer base.
Consumption is measured in 100 cubic feet (CCF). In the years 2022, 2021, and 2020 residential customers used
11.5 million CCF or 47.1%, 12.5 million CCF or 47.8% and 11.9 million CCF or 47.7% of total consumption,
respectively. Special Rate customers used approximately 7.8 million CCF or 31.9%, 7.8 million CCF or 29.7% and
7.8 million CCF or 31.0%, respectively. Commercial and industrial customers used 4.2 million CCF or 17.2%, 4.6
million CCF or 17.8%and 4.3 million CCF or 17.4%, respectively. The remaining 931,000 CCF or 3.8%, 1.2 million
CCF or 4.7%and 973,000 CCF or 4.0%, respectively was consumed by other customers.
Below is a graphical representation of the annual water usage by customer type for the last 10 years.
Annual Water Usage
(In millions of CCF)
14 - -
12
10 ■Residential
8 ■Special Rate
6
4 Comm/Ind
0 ■ . , , ' 'fil
■Other
r2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Expenses
2022 Compared to 2021
In 2022,operating expenses decreased$603,000 or 0.7%,compared to an increase of$6.7 million or 8.0%in 2021.
The decreases are mainly$3.5 million decrease in bad debt expense due to lower aging accounts receivable and
$4.2 million decrease in GASB 68 pension adjustment. These decreases are off-set with the increases of
$2.3 million in labor costs due to general wage increases as well as additional filled positions, and $3.5 million
increase due to price increases, inflation, and supply chain issues.Taxes increased by$718,000 due to University
Place franchise administrative rate increase from 3%to 6% in 2022. Depreciation increased by$673,000 due to a
net increase in depreciable assets of$11.8 million in 2021.
2021 Compared to 2020
In 2021, operating expenses increased $6.7 million or 8.0%, compared to an increase of $2.4 million or 3.0% in
2020.
Personnel expenses increased $2.3 million primarily due to 18 additional full time employees filled in 2021 and
cost of living adjustments compared to 2020. Interns were hired in 2021, but the intern program was cancelled in
2020. Depreciation increased by$2.0 million primarily due to the transfer of fleet division assets to Water in 2020.
Assessments from internal service funds increased by $867,000 compared to 2020. Bad debt expense increased
$839,000 due to an increase in aging accounts receivable. An increase of $648,000 is attributed to general
increases on electricity, insurance, rent,and credit card fees.
2022 Annual Financial Report -9- Tacoma Water
The following table highlights Tacoma Water's operating expenses for 2022-2020.
Operating Expenses
(In thousands)
22/21 21/20
2021 Increase Increase
Category 2022 (As Restated) 2020 (Decrease) (Decrease)
Operations Expense
Power Pumping Expense $ 668 $ 653 $ 737 $ 15 $ (84)
Transmission&Storage Expense 3,669 3,953 1,715 (284) 2,238
Distribution Expense 15,747 16,324 17,359 (577) (1,035)
Total Operations Expense 20,084 20,930 19,811 (846) 1,119
Production Expense
Source of Supply 2,763 3,355 4,684 (592) (1,329)
Water Treatment 10,641 9,914 9,637 727 277
Total Production Expense 13,404 13,269 14,321 135 (1,052)
Administrative and General
Customer Accounting&Service 5,886 5,438 5,375 448 63
Other Administrative&General 14,963 16,693 12,610 (1,730) 4,083
Total Administrative and General 20,849 22,131 17,985 (1,282) 4,146
Depreciation 28,400 27,728 25,724 672 2,004
Lease Amortization 14 14 - - 14
Taxes 6,574 5,856 5,398 718 458
Total Operating Expenses $89,325 $ 89,928 $ 83,239 $ (603) $ 6,689
Non-Operating Revenues(Expenses)
Interest income decreased $1.5 million in 2022 primarily due to significant decrease in fair value of investments
by$2.2 million and lower interest rates brought down investment earnings by$220,000.The City bought securities
at a discount in 2022 compared to buying securities at a premium in 2021 and this partly offset decrease in income
by$910,000.
Other revenues/ (expenses) decreased by $1.6 million primarily due to $1.8 million expenses to assist overdue
utility accounts receivable. The Division received $1.8 million federal funds as pass-through federal funds from
Neighborhood and Community Services (NCS) as part of Emergency Rental Assistance, Tenant Utility Assistance,
and the corona virus state fiscal recovery fund federal appropriation programs. The fundings were applied to
overdue utility accounts receivable for customers impacted by COVID-19.
Gain on Sale/Disposal of Capital Assets decreased by$2.0 million because of the sale of land to the Puyallup School
District in 2021.
Capital Grants and Contributions
Capital Grants increased by$778,000 representing the federal grant from the Department of Interior-Bureau of
Reclamation for WaterSMART project(Sustain and Manage America's Resources for Tomorrow).
Transfers
Transfers from/(to) Other Funds increased by $1.9 million mainly due to $1.8 million federal funds from NCS as
discussed in the Non-operating Revenues(Expenses) section.
2022 Annual Financial Report - 10- Tacoma Water
Capital Assets
Tacoma Water invests in a broad range of utility assets and at the end of 2022 had $932.3 million in net utility
plant, an increase of$23.6 million from 2021.
Plant in Service increased $51.1 million compared to 2021. This increase is primarily due to the increase of
$18.9 million in cast iron mains, $3.4 million in services, pipes and accessories,$139,000 in meters, $18.1 million
in AMI (Advance Metering Infrastructure), $1.7 million in hydrants, and $6.2 million in miscellaneous intangible
assets. Intangible assets additions mainly included advanced meter modules and software, workforce
management software, and easements. Also in 2022, 15.77 miles of water main were added or replaced,
2.94 miles of water main were retired and construction was completed on 31 private contracts resulting in
12.83 net miles.
At the end of 2021,Tacoma Water had $908.7 million in net utility plant, an increase of$11.8 million compared
to 2020.
Plant in Service increased $36.7 million compared to 2020. This increase is primarily due to the increase of
$11.3 million in cast iron mains,$3.5 million in services, pipes and accessories,$9.1 million in meters,$1.8 million
in hydrants, and $6.4 million in miscellaneous intangible assets. Intangible assets additions mainly included
advanced meter modules and software, workforce management software, and easements. Also in 2021,
13.56 miles of water main were added or replaced, 2.69 miles of water main were retired and construction was
completed on 27 private contracts resulting in 10.87 net miles.
The following table summarizes Tacoma Water's capital assets, net of accumulated depreciation,for 2022-2020.
Capital Assets, Net of Accumulated Depreciation
(In thousands)
22/21 21/20
2021 Increase Increase
Net Utility Plant 2022 (As Restated) 2020 (Decrease) (Decrease)
I nta ngi bl a PI a nt $ 51,114 $ 45,495 $ 38,971 $ 5,619 $ 6,524
Right to Use Lease Assets 25 39 - (14) 39
Source of Supply Plant 51,185 52,878 54,171 (1,693) (1,293)
Pumping Plant 7,665 5,216 5,389 2,449 (173)
Water Treatment Plant 166,385 175,000 183,532 (8,615) (8,532)
Transmission Plant 158,485 161,850 165,638 (3,365) (3,788)
Distribution Plant 460,422 430,184 406,452 30,238 23,732
General Plant 20,886 17,583 17,010 3,303 573
Construction Work In Progress 16,113 20,470 25,696 (4,357) (5,226)
Total $ 932,280 $ 908,715 $ 896,859 $ 23,565 $ 11,856
The following graphs provide a visual presentation of the allocation of Tacoma Water's capital investments in 2022
and 2021. Right of use is immaterial so it is not shown in the following graphs.
2022 NV Utility Plant 2021 Nlt,Utility Plant Source of
Wor in Source of Wor in
General pro ress Su General Progress Intangible Supply
g Intangible PPY B
2% 5% Pumping 2% 5% 6% Pumping
Transmission^ 2% 6% 1% Transmission 2% 1% g
17/0 \ Treatment 18�0 Treatment
11
y
18% 19%
0
Distribution Distribution
49% 47%
Additional information on capital assets can be found in Note 5 of the financial statements.
2022 Annual Financial Report - 11- Tacoma Water
Debt Administration
At December 31, 2022 Tacoma Water had outstanding revenue bond obligations of$338.6 million (inclusive of
unamortized bond premiums), a decrease of$9.7 million compared to 2021. As of year-end 2021,the Utility had
outstanding revenue bond obligations of$348.3 million (inclusive of unamortized bond premiums), a decrease of
$9.5 million compared to 2020.
All outstanding bonds are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's.
Tacoma Water is required by bond covenants to maintain a debt service coverage ratio of 1.25 for principal and
interest. Debt service coverage ratios (excluding RWSS) were 2.73, 2.74, and 2.74 in 2022, 2021 and 2020,
respectively.
At the end of 2022, Tacoma Water had an outstanding State loan balance of $58.7 million compared to $64.8
million in 2021 and $71.8 million in 2020.
Additional information on Tacoma Water's long-term debt can be found in Note 7 of the financial statements and
in the supplementary statistical data.
Summary
The management of the Finance Department of the City of Tacoma is responsible for preparing the accompanying
financial statements and for their integrity. We prepared the financial statements according to GAAP in the United
States of America, and they fairly portray Tacoma Water's financial position and operating results. The Notes to
Financial Statements are an integral part of the basic financial statements and provide additional financial
information.
The financial statements have been audited by Moss Adams LLP. We have made available to them all pertinent
information necessary to complete the audit.
Management considers and takes appropriate action on audit recommendations. Management has established
and maintains a system of internal controls which includes organizational, administrative and accounting
processes. These controls provide reasonable assurance that records and reports are complete and reliable,that
assets are used appropriately and that business transactions are carried out as authorized.
Request for Information
Water financial statements are designed to provide a general overview of the Division's finances, as well as to
demonstrate the Division's accountability to its customers, investors, creditors, and other interested parties.
Questions concerning any of the information provided in this report or requests for additional financial
information should be addressed to City of Tacoma, Finance Department,747 Market Street, Room 132,Tacoma,
WA 98402-2773.
2022 Annual Financial Report - 12- Tacoma Water
Financial Statements
2022 Annual Financial Report - 13- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
Statements of Net Position
DECEMBER 31,
2021
ASSETS AND DEFERRED OUTFLOWS 2022 (As Restated)
UTILITY PLANT
In Service,at Original Cost $1,272,776,387 $1,221,697,392
Less-Accumulated Depreciation (356,634,343) (333,491,315)
Total 916,142,044 888,206,077
Right to Use Lease Assets 52,613 52,613
Less-Accumulated Amortization (27,548) (13,725)
Total 25,065 38,888
Construction Work In Progress 16,113,019 20,469,919
Net Utility Plant 932,280,128 908,714,884
NON-UTILITY PROPERTY 492,963 492,963
SPECIAL FUNDS
Debt Service Funds 3,646,592 3,970,318
Bond Reserve Funds 21,687,280 21,692,269
System Development Charge Fund 80,044,101 78,768,249
Other Cash&Equity in Pooled Investments 20,419,709 39,456,220
Total Special Funds 125,797,682 143,887,056
CURRENT ASSETS
Operating Funds Cash and Equity in
Pooled Investments 60,997,546 63,099,465
Grant Receivable 348,108 482,056
Accounts Receivable 6,360,358 7,920,878
(Net of Allowance for Doubtful Accounts
of$2,064,440 in 2022 and$3,599,687 in 2021)
BABs Interest Subsidies Receivable 2,112,742 301,820
Accrued Unbilled Revenues 6,771,474 6,407,783
Materials and Supplies 5,289,260 3,167,556
Prepayments 2,231,806 2,868,389
Total Current Assets 84,111,294 84,247,947
OTHER ASSETS
Regulatory Asset-Surcharges 3,284,200 3,451,604
Net Pension Asset 14,152,644 -
TotalOtherAssets 17,436,844 3,451,604
TOTAL ASSETS 1,160,118,911 1,140,794,454
DEFERRED OUTFLOWS OF RESOURCES
Unamortized Losses on Refunding Bonds 427,204 614,449
Deferred Outflows for Pensions 7,782,163 8,570,873
Deferred Outflows for OPEB 1,806,572 1,484,797
Total Deferred Outflows of Resources 10,015,939 10,670,119
TOTAL ASSETS AND DEFERRED OUTFLOWS $1,170,134,850 $1,151,464,573
The accompanying notes are an integral part of these financial statements
2022 Annual Financial Report - 14- Tacoma Water
DECEMBER 31,
2021
NET POSITION,LIABILITIES AND DEFERRED INFLOWS 2022 (As Restated)
NET POSITION
Net Investment in Capital Assets $551,436,437 $512,096,580
Restricted for:
Water Capital and System Development Charge 56,719,126 73,158,293
Debt Service Funds 2,056,732 2,339,098
Net Pension Asset 14,152,644 -
Unrestricted 51,311,959 65,000,909
Total Net Position 675,676,898 652,594,880
LONG-TERM DEBT
Revenue Bonds 330,212,955 339,675,968
Public Works Trust Fund Loans 8,338,921 9,864,297
Drinking Water State Revolving Fund Loan 44,778,674 48,848,868
Total Long-Term Debt 383,330,550 398,389,133
CURRENT LIABILITIES
Current Maturities of Long-Term Debt 14,014,913 14,745,235
Current Maturities of Long-Term Liabilities 160,291 164,300
Accrued Taxes 2,238,982 1,842,017
Accrued Expenses and Contracts Payable 5,220,571 3,434,544
Salaries,Wages and Fringe Benefits Payable 1,480,771 1,469,408
Interest Payable 1,589,860 1,631,220
Customers'Deposits 233,226 186,085
Current Lease Liability 14,098 14,098
Total Current Liabilities 24,952,712 23,486,907
LONG-TERM LIABILITIES
Muckleshoot Agreements 5,919,906 6,080,198
Customer Advances for Construction 12,093,103 12,163,597
Unearned Revenue 6,037,349 6,04%610
Long-Term Accrued Compensated Absences 3,196,288 2,942,578
Net Pension Liability - 6,337,863
Net OPEB Liability 5,350,651 4,780,773
Long Term Lease Liability 11,379 25,021
Other Long-Term Liabilities 1,470,678 1,378,409
Total Long-Term Liabilities 34,079,354 39,757,049
TOTAL LIABILITIES 442,362,616 461,633,089
DEFERRED INFLOWS OF RESOURCES
Rate Stabilization 35,575,447 35,575,447
Deferred Inflows for Pensions 16,189,221 1,356,280
Deferred Inflows for OPEB 330,668 304,877
Total Deferred Inflows of Resources 52,095,336 37,236,604
TOTAL NET POSITION,LIABILITIES,AND DEFERRED INFLOWS $1,170,134,850 $1,151,464,573
2022 Annual Financial Report - 15- Tacoma Water
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2022 Annual Financial Report - 16- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
Statements of Revenues, Expenses and Changes in Net Position
YEAR ENDED DECEMBER 31,
2021
2022 (As Restated)
OPERATING REVENUES
Sale of Water $101,188,399 $98,999,183
Other Operating Revenues 8,201,778 7,213,114
Contract Resource Obligation Revenues 5,827,521 5,153,589
Total Operating Revenues 115,217,698 111,365,886
OPERATING EXPENSES
Operations 20,083,968 20,930,455
Production 13,403,935 13,268,765
Administrative and General 20,848,806 22,130,866
Depreciation 28,400,190 27,727,624
Lease Amortization 13,823 13,725
Taxes 6,574,082 5,856,255
Total Operating Expenses 89,324,804 89,927,690
Net Operating Income 25,892,894 21,438,196
NON-OPERATING REVENUES(EXPENSES)
Investment Income(Loss) (2,687,718) (1,182,910)
Interest Expense on Lease Activity (456) (604)
Operating Grants 16,500 3,400
Other (1,250,616) 323,496
Gain on Sale/Disposal of Capital Asset 230,072 2,118,197
Interest on Long-Term Debt (17,752,684) (18,080,563)
Amortization of Premium and Loss on Refunding 856,425 986,172
Total Non-Operating Expenses (20,588,477) (15,832,812)
Net Income Before Capital Contributions
and Transfers 5,304,417 5,605,384
Capital Contributions
Cash 8,671,125 7,636,173
Capital Grants 1,256,942 478,656
Donated Capital Assets 10,813,613 7,283,053
Federal BAB Subsidies 3,621,843 3,629,294
Transfers
City of Tacoma Gross Earnings Tax (8,728,920) (8,305,896)
Transfer from/(to)Other Funds 2,142,998 202,778
CHANGE IN NET POSITION 23,082,018 16,529,442
NET POSITION-BEGINNING OF YEAR 652,594,880 636,065,438
TOTAL NET POSITION-END OF YEAR $675,676,898 $652,594,880
The accompanying notes are an integral part of these financial statements
2022 Annual Financial Report - 17- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
Statements of Cash Flows
YEAR ENDED DECEMBER 31,
2021
2022 (As Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash from Customers $118,036,462 $108,844,693
Cash Paid to Suppliers (24,354,340) (25,967,147)
Cash Paid to Employees (34,011,352) (31,636,565)
Taxes Paid (6,177,117) (5,782,320)
NET CASH FROM OPERATING ACTIVITIES 53,493,653 45,458,661
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Transfer from Other Funds 2,142,998 202,778
Transfer Out for Gross Earnings Tax (8,728,920) (8,305,896)
NET CASH FROM NONCAPITAL FINANCING ACTIVITIES (6,585,922) (8,103,118)
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:
Capital Expenditures,net (41,165,644) (32,271,853)
Principal Payments on Leases (14,098) (14,098)
Proceeds from Sale of Capital Assets 179,150 2,020,080
Principal Payments on Long-term (LT) Debt (14,745,235) (15,292,775)
Principal Payments on Muckleshoot LT Liability (164,299) (168,406)
Interest Paid (17,794,044) (18,123,684)
BABs Federal Interest Subsidies 1,810,921 5,440,217
Contributions in Aid of Construction (Cash) 8,671,125 7,636,173
System Development Charges&Other LT Liabilities 10,513 1,816,017
NET CASH FROM CAPITAL FINANCING ACTIVITIES (63,211,611) (48,958,329)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments Income(Loss) (2,687,718) (1,182,910)
Other Net Non-Op Revenues and Expenses (1,199,695) 432,207
NET CASH FROM INVESTING ACTIVITIES (3,887,413) (750,703)
NET CHANGE IN CASH AND EQUITY IN POOLED INVESTMENTS (20,191,293) (12,353,489)
CASH AND EQUITY IN POOLED INVESTMENTS ATJANUARY 1 206,986,521 219,340,010
CASH AND EQUITY IN POOLED INVESTMENTS AT DECEMBER 31 $186,795,228 $206,986,521
The accompanying notes are an integral part of these financial statements
2022 Annual Financial Report - 18- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
Statements of Cash Flows
YEAR ENDED DECEMBER 31,
2021
2022 (As Restated)
RECONCILIATION OF NET OPERATING INCOME TO
NETCASH FROM OPERATING ACTIVITIES:
Net Operating Income $25,892,894 $21,438,196
Adjustments to Reconcile Net Operating Income to
Net Cash From Operating Activities:
Depreciation 28,400,190 27,727,624
Lease Amortization 13,823 13,725
Pension(Credits) Expense (4,868,856) (621,404)
OPEB(Credits) Expense 273,894 170,801
Cash from Changes in Operating
Assets and Liabilities:
Accounts Receivable and Unbilled Revenue 2,604,219 (2,634,917)
Regulatory Asset-Surcharges 167,404 192,262
Materials and Supplies (2,121,704) (393,326)
Prepayments 636,583 (480,637)
Accrued Taxes 396,965 73,935
Salaries,Wages and Fringe Benefits Payable 11,363 202,895
Long-Term Accrued Compensated Absences 253,710 242,356
Customers'Deposits 47,141 (63,020)
Accrued Expenses and Contracts Payable 1,786,027 (409,829)
Total Adjustments 27,600,759 24,020,465
NETCASH FROM OPERATING ACTIVITIES $53,493,653 $45,458,661
Reconciliation of Cash and Equity in Pooled
Investments to Balance Sheet:
Cash and Equity in Pooled Investments in Special Funds $125,797,682 $143,887,056
Cash and Equity in Pooled Investments in Operating Funds $60,997,546 $63,099,465
Cash and Equity in Pooled Investments at December3l $186,795,228 $206,986,521
NON CASH INVESTING,CAPITAL,AND FINANCING ACTIVITIES
Donated Assets $10,813,613 $7,283,053
2022 Annual Financial Report - 19- Tacoma Water
Notes to the Financial Statements
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
Notes to Financial Statements
Years Ended December 31, 2022 and 2021
NOTE 1 OPERATIONS
OPERATIONS OF TACOMA WATER —The Division, doing business as Tacoma Water, is a division of the City of
Tacoma, Washington (the City), Department of Public Utilities (the Department) and is included as an enterprise
fund in the Annual Comprehensive Financial Report(ACFR)of the City.The Department consists of Tacoma Power,
Tacoma Water and Tacoma Rail and is governed by a five-member Public Utility Board (the Board) appointed by
the City Council. Certain matters relating to utility operations such as system expansion, issuance of bonds and
fixing of utility rates and charges are initiated and executed by the Board, but also require formal City Council
approval.
Tacoma Water owns and operates the City's Water System which includes a surface water supply source (the
Watershed); several extensive well fields; a water transmission system consisting of several pipelines, water
treatment and quality facilities; various reservoirs, standpipes and pump stations; and an extensive distribution
system.Tacoma Water had supplied water to approximately 108,897 customer accounts and had 281 employees
as of December 31, 2022.Tacoma Water's service area includes the City of Tacoma and urbanized areas of Pierce
and South King Counties.Water service outside the City limits is provided under franchises granted by both Pierce
and King Counties and multiple other cities.
Prior to 2020, Tacoma Water was organized as Water Distribution Engineering, Water Distribution Operations,
Water Quality, Water Supply, Water Asset and Information Management, and Water Finance and Analytics. In
2020, Tacoma Water reorganized to combine groups by functions in support of a 2020-2025 strategic plan. An
overview of the functions included in each of these sections follows:
The Superintendent Office is responsible for all utility operations including Enterprise Safety and Strategy and an
Assigned Projects Team. Safety is a high priority for the organization. The Safety Team is focused on the
development, delivery, and administration of all safety program elements supporting Tacoma Water employees
with safe work practices and compliance with all applicable regulations. The Strategy Manager oversees the
development and management of the Tacoma Water Strategic Plan. The Assigned Projects Team currently leads
the Advanced Metering Infrastructure Project.
Customer & Employee Experience is responsible for supporting new and existing Tacoma Water customers
including development in our service area, facilitating services received, enterprise communications, education,
and conservation activities. This section supports employee workforce development, workforce management,
payroll administration,and knowledge management.
Business Services delivers customervalue through integrated,strategic capabilities across the domains of finance,
operational technology, project and portfolio management, data management and analytics. This section owns
Tacoma Water's long-range financial planning strategy, cost of service ratemaking, special pricing development,
debt management, financial reporting, and internal controls; it is responsible for managing Tacoma Water's data
through governance and stewardship, deploying advanced analytics tools and associated training, process
development,and data/technology/analytics project delivery. It also, owns Tacoma Water's technology strategy,
and is responsible for application development, support, and solution architecture. Project and Portfolio
Management is a new area of deliberate focus for this group, and this capability is responsible for connecting our
project portfolio to Tacoma Water's strategy,and enabling portfolio-level capabilities like prioritization, portfolio
health visibility, and enterprise resource management.
2022 Annual Financial Report -20- Tacoma Water
Notes to the Financial Statements (continued)
Source Water and Treatment Operations produces,delivers,and balances potable water across transmission and
distribution systems to meet seasonal and short-term demand while protecting source water and providing
natural resource stewardship. This section also ensures water quality and treatment meet all regulatory
requirements through monitoring and reporting and cross-connection control.
Maintenance and Construction maintains and repairs all parts of the water system through effective logistics
(including fleet and warehouse) and planning. This section supports economic development through the
installation of new service connections and water quality by performing system flushing.
Planning & Engineering is responsible for all aspects of comprehensive strategic development and engineering
planning across all technical and operational functions of Tacoma Water.This section provides technical support
for system operations and maintenance and manages the planning, design, and construction of projects to
improve the water system.
The Regional Water Supply System (RWSS) is a partnership formed by Tacoma,the City of Kent,Covington Water
District and Lakehaven Water and Sewer District(the"Participants')to permit,design,finance,construct,operate,
maintain and receive delivery of water from the Second Supply Project.The Second Supply Project consists of the
following components: (i) water from the exercise of Tacoma Water's Second Diversion Water Right, (ii) the
Second Supply Pipeline, (iii) improvements made at the Headworks diversion dam and intake, (iv) Second Supply
Project fisheries and environmental enhancements, (v)the right to store water as a result of the Howard Hanson
Dam Additional Storage Project, and (vi)associated Treatment Facilities. Participants' rights and obligations with
regard to the Second Supply Project are called out in the Second Supply Project Agreement. Tacoma, consistent
with the Project Agreement, is the owner and operator of the Second Supply Project. Please refer to Note 8 for
further information.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND PRESENTATION — The financial statements of the Division are prepared in
accordance with GAAP issued by the Governmental Accounting Standards Board (GASB) applicable to
governmental entities that use proprietary fund accounting. The financial statements use a flow of economic
resources measurement focus to determine financial position and the change in financial position.The accounting
principles used are similar to those applicable to business in the private sector and are maintained on the accrual
basis of accounting. Revenues are recognized when earned,and costs and expenses are recognized when incurred.
The Division follows the provisions set forth in regulatory accounting guidance. In general, regulatory accounting
permits an entity with cost-based rates to defer certain costs or income that would otherwise be recognized when
incurred to the extent that the rate-regulated entity is recovering or expects to recover such amounts in rates
charged to its customers.
The Division generally follows the uniform system of accounts prescribed by the National Association of
Regulatory Utility Commissioners and the Division of Audits of the Washington State Auditor's Office.
2022 Annual Financial Report -21- Tacoma Water
Notes to the Financial Statements (continued)
ACCOUNTING CHANGES — Effective for the fiscal year 2022, the Division implemented the following new
accounting and reporting standard issued by the GASB):
GASB Statement No. 87 — Leases. The objective of this statement is to better meet the information needs of
financial statement users by improving accounting and financial reporting for leases by governments. This
statement requires recognition of certain lease assets and liabilities for leases that previously were classified as
operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions
of the contract. It establishes a single model for lease accounting based on the foundational principle that leases
are financing of the right to use an underlying asset. Under this statement,a lessee is required to recognize a lease
liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a
deferred inflow of resources, thereby enhancing the relevance and consistency of information about
governments' leasing activities. The Division implemented the provisions of GASB Statement No. 87 effective
January 1,2021 and restated financial results for the year ended December 31, 2021,as required by the standard
(see Note 3).
GASB Statement No. 91 — Conduit Debt Obligations. The primary objectives of this statement are to provide a
single method of reporting conduit debt obligations by issuers and eliminates diversity in practice associated with
commitments extended by issuers, arrangements associated with conduit debt obligations, and related note
disclosures. GASB No. 91 was implemented by the Division for the fiscal year ended December 31, 2022.There is
no effect on the Division's financial statements as a result of this statement.
GASB Statement No. 92—Omnibus 2020.The primary objective of this statement is to enhance comparability in
accounting and financial reporting and improve the consistency of authoritative literature by addressing practice
issues that have been identified during implementation and application of certain GASB Statements.GASB No.92
was implemented by the Division for the fiscal year ended December 31,2022.There is no effect on the Division's
financial statements as a result of this statement.
GASB Statement No. 93 —Replacement of Interbank Offered Rates (IBOR). The objective of this statement is to
address those and other accounting and financial reporting implications that result from the replacement of the
London Interbank Offered Rate (LIBOR). GASB No. 93 was implemented by the Division for the fiscal year ended
December 31, 2022.There is no effect on the Division's financial statements as a result of this statement.
GASB Statement No. 97—Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal
Revenue Code Section 457 Deferred Compensation Plans. The primary objectives are to (1) increase consistency
and comparability related to the reporting of fiduciary component units in circumstances in which a potential
component unit does not have a governing board and the primary government performs the duties that a
governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined
contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee
benefit plans other than pension plans or OPEB plans(other employee benefit plans)as fiduciary component unit
in fiduciary fund financial statement; and (3) enhance the relevance, consistency, and comparability of the
accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans
(Section 457 plans) that meets the definition of a pension plan and for benefits provided through those plans.
GASB No.97 was implemented by the Division for the fiscal year ended December 31, 2022.There is no effect on
the Division's financial statements as a result of this statement.
CASH AND EQUITY IN POOLED INVESTMENTS —The Division's fund cash balances are a "deposit" with the City
Treasurer's Tacoma Investment Pool (TIP) for the purpose of maximizing interest earnings through pooled
investment activities. Cash and equity in pooled investments in the TIP are reported at fair value and changes in
unrealized gains and losses are recorded in the Statements of Revenues, Expenses and Changes in Net Position.
Interest earned on such pooled investments is allocated daily to the participating funds based on each fund's daily
equity in the TIP.
2022 Annual Financial Report -22- Tacoma Water
Notes to the Financial Statements (continued)
The TIP operates like a demand deposit account in that all City departments, including the Division, have fund
balances which are their equity in the TIP. Accordingly, balances are considered to be cash equivalents.
The City of Tacoma Investment Policy permits legal investments as authorized by state law including Certificates
of Deposit with qualified public depositories (as defined in Chapter 39.58 of the Revised Code of Washington
(RCW)), obligations of the U.S.Treasury,Government Sponsored Agencies and Instrumentalities, bonds issued by
Washington State and its Local Governments with an A or better rating, general obligation bonds issued by any
State or Local Government with an A or better rating, Bankers'Acceptances, Commercial Paper, Repurchase and
Reverse Repurchase agreements, and the Washington State Local Government Investment Pool (LGIP). Daily
liquidity requirement to meet the City's daily obligations is maintained by investing a portion of the City's
Investment Pool in the LGIP and in certificates of deposit with Home Street Bank, and Opus Bank.
The Division's equity in that portion of the City of Tacoma Investment Pool held in qualified public depositories at
December 31, 2022 and 2021 is entirely covered by the Federal Deposit Insurance Corporation (FDIC) and the
Washington State Public Deposit Protection Commission (WSPDPC).
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an
investment. Generally, longer-term investments have greater exposure to changes in market interest rates. The
City of Tacoma investment policy allows for authorized investments up to 60 months to maturity. One way the
City manages its exposure to interest rate risk is by timing cash flows from maturities so that portions of the
portfolio are maturing over time to provide cash flow and liquidity needed for operations.
Credit risk is generally the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Repurchase agreements and commercial paper are protected by the Federal Deposit Insurance
Corporation (FDIC) insurance up to $250,000. All deposits not covered by the FDIC are covered by the WSPDPC.
The WSPDPC is a statutory authority established under RCW 39.58. It constitutes a fully insured or fully
collateralized pool.The WA State Treasures LGIP is authorized by RCW 43.250.The LGIP is operated like a money
market fund and is collateralized by short-term legal investments.
RESTRICTED ASSETS—In accordance with bond resolutions, agreements and laws,separate restricted funds have
been established.These funds consist of cash and investments in pooled investments with restrictions externally
imposed and legally enforceable, established by the City Council. Generally, restricted assets include bond
construction, reserve and debt service funds,system development charges funds,notes and contracts receivable,
and customer deposits.
ACCOUNTS RECEIVABLE AND ACCRUED UNBILLED REVENUES—Accounts receivable consist of amounts owed by
private individuals and organizations for goods delivered or services rendered in the regular course of business
operations. Receivables are shown net of allowances for doubtful accounts. The Division accrues an estimated
amount for services that have been provided but not billed as of December 31, 2022 and 2021.
ALLOWANCE FOR DOUBTFUL ACCOUNTS—A reserve has been established for uncollectible accounts receivable
based on historical write-off trends and knowledge of specific circumstances that indicate collection of an account
may be unlikely.Generally,accounts receivable are considered past due after 30 days.
INTERFUND AND INTERGOVERNMENTAL TRANSACTIONS - Unsettled transactions between entities at year end
are recorded as due to or due from either other funds or other governmental units as appropriate.
MATERIALS AND SUPPLIES INVENTORY— Materials and supplies consist primarily of items for maintenance of
Division assets and are valued at the lower of average cost or fair market value.
2022 Annual Financial Report -23- Tacoma Water
Notes to the Financial Statements (continued)
BOND PREMIUM AND LOSS ON REFUNDING—Bond premiums are amortized over the life of the bonds using the
weighted average of the bonds outstanding, are presented as an offset to the long-term debt balance in the
statement of net position. Losses on refunding are amortized on a straight-line basis over the applicable bond
period, and are presented as deferred outflows in the statement of net position.
RATE STABILIZATION—The Division has established a rate stabilization account to reduce significant year-to-year
variations in rates. Amounts deposited into the account are excluded from the statement of revenues, expenses
and changes in net position in accordance with regulated operations. Revenue will be recognized in subsequent
periods when it is withdrawn in accordance with rate decisions and debt service covenants.
REGULATORY ASSETS — The Division has deferred Andrain Surcharges and Curran Road Surcharges to future
periods matching the time when the revenues are included in rates.The deferred balance is reduced as fees and
surcharges are recovered and amortized as expenses on the statements of revenues,expenses and changes in net
position.
UTILITY PLANT AND DEPRECIATION — Utility plant is stated at original cost, which includes both direct costs of
construction or acquisition and indirect costs. The cost of maintenance and repairs is charged to expense as
incurred,while the cost of replacements and betterments is capitalized.Assets are capitalized when costs exceed
$5,000 and the useful life exceeds one year.
Depreciation is recorded using a straight-line composite method based on National Association of Regulatory
Utility Commissioners (NARUC) recommended economic asset lives from 13 to 60 years for related operating
assets placed in service at the beginning of the year.The original cost of property together with removal cost, less
salvage, is charged to accumulated depreciation at such time as property is retired and removed from service.
The economic lives for plant in service are as follows:
Source of Supply Plant 34 years
Pumpling Plant 40 years
Water Treatment Plant 28 years
Transmission Plant 60 years
Distribution Plant 53 years
General Plant 13 years
CONSTRUCTION WORK IN PROGRESS—Capitalizable costs incurred on projects which are not in service or ready
for use are held in construction in progress. When the asset is ready for service, related costs are transferred to
capital assets. Upon determining that a project will be abandoned,the related costs are charged to expense.
ASSET VALUATION—The Division periodically reviews the carrying amount of its long-lived assets for impairment.
An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset.
In the event the carrying amount of such asset is not deemed recoverable, the asset is adjusted to its estimated
fair value. Fair value is generally determined based on discounted future cash flows.
INTANGIBLE ASSETS — In accordance with GASB No. 51, "Accounting and Financial Reporting for Intangible
Assets", land use rights such as easements and right-of-ways are recorded as intangible assets.
CAPITAL CONTRIBUTIONS - In accordance with Generally Accepted Accounting Principles, capital grants and
capital contributions are recorded as capital contributions.
2022 Annual Financial Report -24- Tacoma Water
Notes to the Financial Statements (continued)
CONTRIBUTIONS IN AID OF CONSTRUCTION AND SYSTEM DEVELOPMENT CHARGES—GASB Statement No. 33,
which addresses accounting for contributed capital, requires that contributed capital be recognized as change in
net position. Capital contributions include new service connections and system development charges. System
development charges are collected on all new services prior to installation to ensure required new source,
transmission and storage facilities needed to meet new demands are funded.
The charge was developed using a cost-of-service approach and includes a share of historical plant investment
and projected future outlays that will increase system capacity. Because the funds collected for this charge can
only be used for system expansion projects,the balance is reflected as restricted in the Division's net position.
System development charges on uncompleted projects are recorded in other long term liabilities.
COMPENSATED ABSENCES — The City has two different policies for compensated absences. The City's original
policy allows employees to accrue vacation based on the number of years worked with a maximum accrual equal
to the amount earned in a two-year period.These employees also accrue one day of sick leave per month without
any ceiling on the maximum accrued.The City implemented a new policy in 1998 allowing employees to earn PTO
(personal time off)without distinction between vacation and sick leave. Employees who worked for the City prior
to the change could choose to stay with the original policy or opt to convert to the new policy.The amount of PTO
earned is based on years of service.The maximum accrual for PTO is 960 hours,and upon termination,employees
are entitled to compensation for unused PTO at 100%. Vacation pay and PTO are recorded as a liability and
expense in the year earned.
Employees in the original policy accumulate sick leave at the rate of one day per month with no maximum
accumulation specified. Employees receive 25%of the value at retirement or 10%upon termination for any other
reason. In the event of death, beneficiaries receive 25%of the value. Sick leave pay is recorded as a liability and
an expense in the year earned.
The accrued liability is computed at 100%vacation and PTO while sick leave is accrued at 10%,which is considered
the amount vested or 25% if the employee meets retirement criteria. Based on historical information, 10% of
compensated absences are considered short term.
DEFERRED OUTFLOWS OF RESOURCES- Deferred outflows of resources, represents a consumption of net assets
that applies to a future period and so will not be recognized as an outflow of resources (expense/ expenditure)
until then. Deferred outflows of resources consist of losses on refunding of bonds,deferred outflows of resources
related to pensions, and deferred outflows of resources related to other post-employment benefits other than
pensions.
DEFERRED INFLOWS OF RESOURCES- Deferred inflows of resources, represents an acquisition of net assets that
applies to a future period and so will not be recognized as an inflow of resources (revenue) until then. Deferred
inflows of resources consist of inflows for rate stabilization, deferred inflows of resources related to pensions,
deferred inflows of resources related to other post-employment benefits other than pensions.
OPERATING REVENUE — Service rates are authorized by the Tacoma City Council. Revenues are recognized as
earned and include an estimate of revenue earned but not billed to customers as of year-end. Utility revenues
are derived primarily from the sale and transmission of water. Utility revenue from water sales is recognized when
the water is delivered to and received by the customer.
Tacoma Water receives contract resource obligation revenue and debt service payments from our partners in the
Second Supply Project Agreement which are recorded as operating revenue.
NON-OPERATING REVENUES AND EXPENSES —These are items that do not qualify as operating defined above
such as interest and gain (loss) on disposition of property.
2022 Annual Financial Report -25- Tacoma Water
Notes to the Financial Statements (continued)
TAXES —The City charges the Division a Gross Earnings Tax at the rate of 8.0%. In addition, the Division pays a
5.029% public utility tax to the State on a certain portion of revenues identified as utility revenues. The Division
also pays business and occupation tax to the State at the rate of 1.75%on certain other non-utility revenues.The
Division is exempt from payment of federal income tax.
NET POSITION—The Statement of Net Position reports all financial and capital resources.The difference between
assets and deferred outflows, and liabilities and deferred inflows is net position.There are three components of
net position: net investment in capital assets, restricted and unrestricted.
Net investment in capital assets consists of capital assets, less accumulated depreciation, reduced by the
outstanding balances of any bonds, loans or other borrowings, less outstanding construction funds that are
attributable to the acquisition, construction,or improvements of those assets.
Net position components are restricted when constraints placed on net position use are either (1) externally
imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other
governments or(2) imposed by law through constitutional provisions or enabling legislation.
Unrestricted net position components are those that are not"net investment in capital assets" or"restricted".
LEASES
Division as a lessor-A lessor is required to recognize a lease receivable and a deferred inflow of resources.A lease
receivable is recognized at the net present value of the leased asset at a borrowing rate either explicitly described
in the agreement or implicitly determined by the City,as is reduced by principal payments received.The deferred
inflow of resources is recognized in an amount equal to the sum of the lease receivable and any payments relating
to future periods which were received prior to the lease commencement.These deferred inflows of resources are
amortized over the life of the lease.Key estimates and judgments related to lease include how the City determines
(1)the discount rate it uses to discount the expected lease payments to present value,(2)lease term,and (3)ease
payments. The City uses an average incremental borrowing rate as the discount rate for leases. The lease term
includes the noncancelable period of the lease. Lease receipts included in the measurement of the lease
receivable are compose of future payments to be received from the lessee. The City monitors change in
circumstances that would require a remeasurement of its lease, and will remeasure the lease receivable and
deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the
lease receivable.
Division as a lessee -A Lessee is required to recognize a lease payable and an intangible right-to-use lease asset.
A lease payable is recognized at the net present value of future lease payments and is adjusted over time by
interest and payments. Future lease payments include fixed payments,variable payments,based on index or rate,
reasonably certain residual guarantees.The right-to-use lease asset is initially recorded at the amount of the lease
liability plus prepayments less any lease incentives received prior to lease commencement, and is subsequently
amortized over the life of the lease.Key estimates and judgments related to lease include how the City determines
(1) the discount rate it uses to discount the expected lease payments to present value, (2) lease term, and (3)
lease payments. The City uses the interest rate charged by the lessor as the discount rate.When the interest rate
charged by the lessor is not provided, the City generally uses its average incremental borrowing rate as the
discount rate for leases. The lease term includes noncancelable period of the lease. Lease payments included in
the measurement of the lease liability are composed of fixed payments and purchase option price that the City is
reasonably certain to exercise. The City monitors changes in circumstances that would require a remeasurement
of its lease,and will remeasure the lease asset and liability if certain changes occur that are expect to significantly
affect the amount of the lease liability.
2022 Annual Financial Report -26- Tacoma Water
Notes to the Financial Statements (continued)
ARBITRAGE REBATE REQUIREMENT—The Division is subject to the Internal Revenue Code("IRC"),Section 148(f),
related to its tax-exempt revenue bonds.The IRC requires that earnings on gross proceeds of any revenue bonds
that are in excess of the amount prescribed will be surrendered to the Internal Revenue Service.As such,the fund
would record such a rebate as a liability.The Division had no liability in the current or prior year.
ENVIRONMENTAL REMEDIATION COSTS - The Division recognizes environmental obligations and accruals for
expected pollution remediation outlays which are recorded when one of the five obligating events occurs and are
adjusted as further information develops or circumstances change.
The five obligating events are applied when the Division is: 1) compelled to take action because of an imminent
endangerment, 2)the Division is in violation of a pollution prevention-related permit or license, 3)the Division is
named or evidence indicates that it will be named by a regulator as a responsible party or potentially responsible
party, 4) named in a lawsuit to compel participation in pollution remediation or 5) the Division commences or
legally obligates itself to commence pollution remediation.
Costs related to environmental remediation are charged to operating expense when the liability is recognized;
outlays are capitalized when goods and services are acquired under specific circumstances. Measurement is based
on the current value of the outlays for the individual remediation components using the expected cash flow
technique, adjusted for recoveries from other parties and insurance.
SHARED SERVICES — The Division receives certain services from other departments and agencies of the City,
including those normally considered to be general and administrative.The Division is charged for services received
from other City departments and agencies.
USE OF ESTIMATES — The preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying notes.The Division used estimates in
determining reported unbilled revenues, allowance for doubtful accounts, right-to-use lease assets, accrued
compensated absences, depreciation and amortization, Other Post Employment Benefit (OPEB), pension, self-
insurance liabilities, lease liability, and other contingencies.Actual results may differ from these estimates.
INCURRED BUT NOT REPORTED CLAIMS — Liabilities for incurred but not reported claims are initially recorded
when the expected loss is both probable and reasonably estimated in Self-Insurance Fund. Equity in the Self-
Insurance Fund is transferred to the Division in accordance with GASB 10 and reported under Prepayments and
Other Long-Term Liabilities on the Statement of Net Position.
SIGNIFICANT RISKS AND UNCERTAINTIES — The Division is subject to certain business risks that could have a
material impact on future operations and financial performance.These risks include, but are not limited to,water
conditions, weather and natural disaster-related disruptions, collective bargaining labor disputes, fish and other
endangered species act issues, Environmental Protection Agency regulations and federal government regulations.
RECLASSIFICATIONS—Changes have been made to prior year account classifications as needed to conform to the
current year presentation format.
2022 Annual Financial Report -27- Tacoma Water
Notes to the Financial Statements (continued)
NOTE 3 RESTATEMENT AND RECLASSIFICATION
The Division restated and reclassified the December 31, 2021,financial statements for the adoption of GASB
Statement No.87—Leases as summarized below:
2021 Effect of Restatement
(As previously related to adoption of 2021
reported) GASB No.87 (As Restated)
Statement of Net Position
Net Utility&Non-Utility Plant:
Net Utility&Non-Utility Plant,excluding lease assets $ 909,168,959 $ - $ 909,168,959
Right-to-use lease assets - 52,613 52,613
Less accumulated amortization - (13,725) (13,725)
Current&Other Assets 231,586,607 - 231,586,607
Total Assets 1,140,755,566 38,888 1,140,794,454
Deferred Outflows 10,670,119 - 10,670,119
Total Assets&Deferred Outflows 1,151,425,685 38,888 1,151,464,573
Net Position:
Net Investment in Capital Assets $512,096,811 (231) 512,096,580
Restricted for:
Water Capital and System Development Charge 73,158,293 - 73,158,293
Debt Service Funds 2,339,098 2,339,098
Net Pension Asset - - -
Unrestricted 65,000,909 - 65,000,909
Total Net Position 652,595,111 (231) 652,594,880
Long-Term Debt 398,389,133 - 398,389,133
Current Liabilities:
Current Liabilities,excluding lease liability 23,472,809 - 23,472,809
Current leases liability - 14,098 14,098
Long-term liabilities:
Long-term Liabilities,excluding lease liability 39,732,028 - 39,732,028
Long-term leases liability - 25,021 25,021
Total Liabilities 461,593,970 39,119 461,633,089
Deferred Inflows 37,236,604 - 37,236,604
Total Net Position,Liabilities&Deferred Inflows $1,151,425,685 $ 38,888 $1,151,464,573
2022 Annual Financial Report -28- Tacoma Water
Notes to the Financial Statements (continued)
December Year-to-Date
2021 Effect of Restatement
(As previously related to adoption of Reclassification 2021
reported) GASB No.87 * (As Restated)
Statement of Revenues,Expenses,and
Changes in Net Posistion
Operating revenues $111,365,886 $ - $ $111,365,886
Operating expenses:
Operating expenses,excluding lease amortization 89,928,063 (14,098) 89,913,965
Lease amortization - 13,725 13,725
Net Operating Income 21,437,823 373 21,438,196
Nonoperating revenues(expenses):
Nonoperating expenses,excluding interest expense (15,353,552) - (478,656) (15,832,208)
on lease activity
Interest expense on lease activity - (604) (604)
Net income before capital contributions and transfer 6,084,271 (231) (478,656) 5,605,384
Capital Contributions 14,919,226 - 478,656 15,397,882
Federal BAB Subsidies 3,629,294 - - 3,629,294
Transfers (8,103,118) - (8,103,118)
Change in Net Position 16,529,673 (231) 16,529,442
Net position-Beginning of year 636,065,438 - 636,065,438
Net position-Ending $652,595,111 $ (231)—$ $652,594,880
*$478,656 capital grants was re-classified from Nonoperating revenues(expenses)to Capital Contributions.
2022 Annual Financial Report -29- Tacoma Water
Notes to the Financial Statements (continued)
NOTE 4 INVESTMENTS MEASURED AT FAIR VALUE
The City measures and records its investments within the fair value hierarchy established by generally accepted
accounting principles.
The hierarchy is based on the valuation inputs used to measure the fair value of the asset,where fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.These guidelines recognize a three-tiered fair value hierarchy, as follows:
• Level 1 — Level 1 inputs are quoted (unadjusted) prices in active markets for identical assets or
liabilities that the government can access at the measurement date. Observable markets include
exchange markets, dealer markets, brokered markets and principal-to-principal markets.
• Level 2—Level 2 inputs are other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly. These inputs are sourced from pricing vendors
using models that are market-based and corroborated by observable market data including:quoted
prices; nominal yield spreads; benchmark yield curves; and other corroborated inputs.
• Level 3— Level 3 inputs are unobservable inputs for the asset or liability and should only be used
when relevant Level 1 or Level 2 inputs are unavailable.
The fair value evaluations are provided by Interactive Data.
Cash and cash equivalents include highly liquid investments including short-term investment funds.Cash and cash
equivalents are valued at cost and,therefore, excluded from the fair value schedule.
Data regarding the City's investments,valued and categorized according to the above outlined levels, is below:
As of
12/31/2022 Level Level Level
U.S.Treasury Securities $ 683,653,733 $ $ 683,653,733 $
U.S.Agency Securities 555,411,908 555,411,908
Supranational Securities 19,561,285 19,561,285
Municipal Bonds 20,114,217 20,114,217
Corporate Securities 61,142,820 61,142,820
$ 1,339,883,963 $ $1,339,883,963 $
As of
12/31/2021 Level Level Level
U.S.Treasury Securities $ 549,528,777 $ $ 549,528,777 $
U.S.Agency Securities 375,740,028 375,740,028
Supranational Securities 25,416,670 25,416,670
Municipal Bonds 5,094,110 5,094,110
Corporate Securities 56,527,275 56,527,275
$ 1,012,306,860 $ $1,012,306,860 $
Tacoma Water's share of the City Investments shown in the table above is 12.81%and 17.22%for 2022 and 2021.
2022 Annual Financial Report -30- Tacoma Water
Notes to the Financial Statements (continued)
NOTE 5 UTILITY PLANT
A summary of the balances and changes in utility plant for 2022 and 2021 follows:
Balance Balance
December 31, Transfers& December 31,
2021(Restated) Additions Retirements Adjustments 2022
Intangible Plant $ 45,587,916 $ 546,455 $ (164,300) $ 5,523,576 $ 51,493,647
Right to Use Lease Assets 52,613 - - 52,613
Sou rce of Supply PI a nt 88,134,903 (2,894) 378,307 88,510,316
Pumpi ng PI a nt 10,587,280 2,720,020 13,307,300
Water Treatment Plant 243,544,396 40,519 243,584,915
Transmission Facilities 232,702,290 1,440,451 234,142,741
Distribution Facilities 541,428,778 10,267,158 (2,329,960) 27,659,211 577,025,187
General Plant 59,711,829 - (1,331,383) 6,331,835 64,712,281
Total Water Plantin
Service 1,221,750,005 10,813,613 (3,828,537) 44,093,919 1,272,829,000
Less Accumulated
Depreciation (333,491,315) (28,400,190) 3,651,758 1,605,404 (356,634,343)
Amortization (13,725) (13,823) - - (27,548)
888,244,965 (17,600,400) (176,779) 45,699,323 916,167,109
Construction Work in
Progress 20,469,919 42,332,006 - (46,688,906) 16,113,019
Net Utility Plant $ 908,714,884 $ 24,731,606 $ (176,779) $ (989,583) $ 932,280,128
Balance Balance
December 31, Additions Transfers& December 31,
2020 (Restated) Retirements Adjustments 2021(Restated)
Intangible Plant $ 39,027,963 $ 393,887 $ (198,343) $ 6,364,409 $ 45,587,916
Rightto Use Lease Assets - 52,613 - 52,613
Source of Supply Plant 87,375,103 - 759,800 88,134,903
Pumping Plant 10,491,629 95,651 10,587,280
Water Treatment Plant 243,424,754 119,642 243,544,396
Transmission Facilities 232,656,909 - 45,381 232,702,290
Distribution Facilities 515,540,055 6,889,166 (4,839,769) 23,839,326 541,428,778
General Plant 56,481,464 - (524,657) 3,755,022 59,711,829
Total Water Plantin
Service 1,184,997,877 7,335,666 (5,562,769) 34,979,231 1,221,750,005
Less Accumulated
Depreciation (313,835,003) (27,727,624) 5,364,426 2,706,886 (333,491,315)
Amortization - (13,725) - - (13,725)
871,162,874 (20,405,683) (198,343) 37,686,117 888,244,965
Construction Work in
Progress 25,696,434 35,138,858 - (40,365,373) 20,469,919
Net Utility Plant $ 896,859,308 $ 14,733,175 $ (198,343) $ (2,679,256) $ 908,714,884
Total Water Plant in Service includes non-depreciable assets of$63,136,826 for 2022 and $61,848,171 for 2021.
2022 Annual Financial Report -31- Tacoma Water
Notes to the Financial Statements (continued)
NOTE 6 LEASES
Lease Liability
In December 2009, the Division entered into a real estate lease for space for equipment within an existing
communications building,and space on an existing communications tower at the Grass Mountain Communication
Site located in King County, Washington. The lease term is 15 years which will end October 31, 2024. Tacoma
Water is required to make an annual rent payment of$14,098 for the duration of the lease.
The City used its average incremental borrowing rate of 2.264% as of December 31, 2021 in calculation of net
present value of lease liability,as the interest rate is not stated in the agreement.
Lease liability for the year ended December 31, 2022 and 2021 is as follows:
Lease Liability
Beginning balance,January 1, 2022 $ (39,119)
Additions (456)
Reductions 14,098
Ending Balance, December 31, 2022 $ (25,477)
Beginning balance,January 1, 2021 $ (52,613)
Additions (604)
Reductions 14,098
Ending Balance, December 31,2021 $ (39,119)
Current lease liability as of December 31, 2022 is $14,098 which includes accrued interest payable of $275
compared to$14,098 as of December 31, 2021 which includes accrued interest payable of$456.
Interest expense on lease activity of$456 was recorded in 2022 and $604 in 2021.
Future annual lease liability as of December 31, 2022 is as follows:
Fiscal Year Principal Interest Total
2023 $ 13,823 $ 275 $ 14,098
2024 11,654 77 11,731
Total $ 25,477 $ 352 $ 25,829
2022 Annual Financial Report -32- Tacoma Water
Notes to the Financial Statements (continued)
NOTE 7 LONG-TERM DEBT
The Division's Long-term Liabilities are primarily for capital improvements. Long-term debt activities for the years
ended December 31, 2022 and 2021,were as follows:
Balance Balance
December 31, December 31, Due Within
2021 Additions Reductions 2022 One Year
Revenue Bonds $ 341,652,758 $ $ (8,618,415) $333,034,343 $ 8,419,343
Plus:Una mortized
Premium 6,641,625 - (1,043,670) 5,597,955 -
Net Revenue Bonds 348,294,383 (9,662,085) 338,632,298 8,419,343
Public Works Trust
Fund Loans 11,920,923 (2,056,626) 9,864,297 1,525,376
Drinking Water State
Revolving Fund Loans 52,919,062 (4,070,194) 48,848,868 4,070,194
Total Long-Term Debt $413,134,368 $ $(15,788,905) $397,345,463 $14,014,913
Balance Balance
December 31, December 31, Due Within
2020 Additions Reductions 2021 One Year
Revenue Bonds $350,017,516 $ $ (8,364,758) $341,652,758 $ 8,618,415
Plus:Una mortized
Premium 7,815,042 - (1,173,417) 6,641,625 -
Net Revenue Bonds 357,832,558 - (9,538,175) 348,294,383 8,618,415
Public Works Trust
Fund Loans 14,617,694 (2,696,771) 11,920,923 2,056,626
Drinking Water State
Revolving Fund Loans 57,150,308 (4,231,246) 52,919,062 4,070,194
Total Long-Term Debt $429,600,560 $ $(16,466,192) $413,134,368 $14,745,235
Tacoma Water's long-term debt at December 31 consists of the following payable from revenues of Tacoma
Water:
SENIOR LIEN BONDS
2022 2021
2005 Water System Revenue and Refunding Bonds,
with interest rate of 5.0%,due in 2025.
Original Issue: $46,550,000 $ 5,000 $ 5,000
Current Portion: $0
2009 Water System Revenue Bonds,with interest rate
at 5.751%,with Build America Bond (BAB) rebate
ranging from 32.45%to 32.62%,due in yearly
installments starting in 2033 ranging from $9,800,000 to
$12,210,000 through 2039.
Original Issue: $76,775,000 76,775,000 76,775,000
Current Portion: $0
2022 Annual Financial Report -33- Tacoma Water
Notes to the Financial Statements (continued)
SENIOR LIEN BONDS CONTINUED
2022 2021
2010E Water System Revenue Bonds,with interest
rates ranging from 4.581%to 5.621%,with Build
America Bond (BAB) Rebate ranging from 32.45%to
32.62%of interest,due in yearly installments starting in
2024 ranging from$2,115,000 to $15,390,000
through 2040.
Original Issue: $74,985,000 74,985,000 74,985,000
Current Portion: $0
2010A Regional Water Supply System Revenue Bonds,
with interest rates ranging from 3.0%to 4.0%,due in
yearly installments ranging from$345,000 to $355,000
through 2024. (See Note 6)
Original Issue: $3,595,000 700,000 1,030,000
Current Portion: $345,000
2010E Regional Water Supply System Revenue Bonds,
with interest rates ranging from 5.371%to 5.621%,with
Build America Bond (BAB) rebate ranging from 32.45%
to 32.62%of interest,due in yearly installments starting in
2025 ranging from$370,000 to$5,775,000 through
2040. (See Note 8)
Original Issue: $44,245,000 44,245,000 44,245,000
Current Portion: $0
2013 Water System Revenue and Refunding Bonds,
with interest rates of 4.0%, due in yearly installments
starting in 2041 ranging from$23,820,000 to $25,765,000
through 2043.
Original Issue: $78,305,000 74,355,000 74,355,000
Current Portion: $0
2013 Regional Water Supply System Revenue and
Refunding Bonds,with interest rates ranging from 4.0%
to 5.0%,due in yearly installments ranging from
$1,985,000 to $6,425,000 through 2032. (See Note 8)
Original Issue: $64,795,000 52,045,000 54,030,000
Current Portion: $2,110,000
2015A Water System Refunding Bonds with interest
rates ranging from 4.0%to 5.0%, due in yearly
installments ranging from$1,755,000to$2,025,000
through 2025.
Original Issue: $16,645,000 5,805,000 7,560,000
Current Portion: $1,845,000
2020 Water System Refunding Bonds with interest
of 1.4%due in yearly installments raninging from
$4,119,343 to$4,548,415 through 2023.
Original Issue: $17,466,514 4,119,343 8,667,758
Current Portion: $4,119,343
2022 Annual Financial Report -34- Tacoma Water
Notes to the Financial Statements (continued)
SENIOR LIEN BONDS CONTINUED
2022 2021
Subtotal Senior Lien Debt $ 333,034,343 $ 341,652,758
Unamortized Premium 5,597,955 6,641,625
Less Current Portion of Revenue Bond Debt (8,419,343) (8,618,415)
Long-term Portion of Revenue Bond Debt $ 330,212,955 $ 339,675,968
As of December 31, 2022, scheduled principal maturities on the bonds and interest payments are as follows:
Year Principal Interest
2023 $ 8,419,343 $ 16,738,540
2024 9,230,000 16,469,319
2025 9,655,000 16,021,278
2026 10,350,000 15,544,923
2027 10,785,000 15,031,862
2028-2032 60,640,000 66,446,937
2033-2037 88,350,000 47,711,156
2038-2042 109,840,000 20,934,445
2043 25,765,000 1,030,600
$ 333,034,343 $ 215,929,060
Tacoma Water's revenue bonds are secured by the net revenue of Tacoma Water and all cash and investments
held in the bond funds and construction funds. The bonds are also subject to certain financial and non-financial
covenants.The Division was in compliance with all debt covenants at December 31, 2022.
The carrying amounts of the Washington State Public Works Board Loans and Drinking Water State Revolving Fund
Loans approximate the fair value since such loans are exclusive and have no market.
2022 2021
Public Works Trust Fund Loans
2002 Public Works Trust Fund construction loan for
the Middle and Headworks section of the SSP,with
interestof.5%per annum,due in yearly installments of
$531,250 through 2022. $ - $ 531,250
2004 Public Works Trust Fund pre-construction loan
for the design of the Green River Ozone Facility with
interestof.5%per annum,due in yearly installments of
$53,363 through 2024. 106,725 160,088
2006 Public Works Trust Fund construction loan for the
Green River Ozone Treatment Plant,with interest of.5%
per annum,due in yearly installments of$370,588
through 2026. 1,482,353 1,852,941
2008 Public Works Trust Fund construction loan for the
McMillin Reservoir Reconstruction,with interest of.5%
per annum,due in yearly installments of$545,870
through 2028. 3,275,219 3,821,089
2012 Public Works Trust Fund construction loan for
the Green River Filtration Facility,with interestof.5%
per annum,due in yearly installments of$555,555
through 2031. 5,000,000 5,555,555
2022 Annual Financial Report -35- Tacoma Water
Notes to the Financial Statements (continued)
2022 2021
Drinking Water State Revolving Fund Loans
2008 construction loan for the McMillin Reservoir
Reconstruction,with interest of 1.5%per annum,due
in yearly installments of$215,108 through 2028. $ 1,290,651 $ 1,505,759
2009 construction loan for the McMillin Reservoir
Reconstruction,with interest of 1.0%per annum,due
in yearly installments of$367,088 through 2032. 3,670,879 4,037,967
2010 construction loan for the McMillin Reservoir
Reconstruction,with interest of 1.5%per annum,due
in yearly installments of$303,000 through 2032. 3,030,000 3,333,000
2010 construction loan for the Green River Water
Treatment Plant Filtration Facility,with interest of 1.5%
per a nnum,due i n yea rly i nsta I I ments of$304,579
through 2034. 3,654,947 3,959,526
2011 construction loan for the McMillin Reservoir
Reconstruction,with interestof 1.5%per annum,due
in yearly installments of$121,524 through 2033. 1,336,760 1,458,284
2011 construction loan for the Green River Water
Treatment Plant Filtration Facility,with interest of 1.5%
per annum,due in yearly installments of$303,000
through 2035. 3,939,000 4,242,000
2012 construction loan for the Green River Water
Treatment Plant Filtration Facility,with interest of 1.5%
per annum,due in yearly installments of$606,000
through 2035. 7,878,000 8,484,000
2013 construction loan for the Green River Water
Treatment Plant Filtration Facility,with interest of 1.5%
per annum,due in yearly installments of$606,000
through 2035. 7,878,000 8,484,000
2013F construction loan for the Green River Water
Treatment Plant Filtration Facility,with interest of 1.5%
per annum,due in yearly installments of$606,000
through 2035. 7,878,000 8,484,000
2015 construction loan for the Green River Water
Treatment Plant Filtration Facility,with interest of 1.5%
per annum,due in yearly installments of$637,895
through 2035. 8,292,631 8,930,526
Subtotal Junior Lien Debt $ 58,713,165 $ 64,839,985
Less Current Portion of Debt (5,595,570) (6,126,820)
Long-term Portion of Junior Lien Debt $ 53,117,595 $ 58,713,165
2022 Annual Financial Report -36- Tacoma Water
Notes to the Financial Statements (continued)
As of December 31, 2022, scheduled principal maturities of junior lien debt and interest payments are as follows:
Year Principal Interest
2023 $ 5,595,570 $ 722,237
2024 5,595,570 658,582
2025 5,542,207 594,927
2026 5,542,207 531,539
2027 5,171,619 468,151
2028-2032 22,258,626 1,453,464
2033-2035 9,007,366 244,693
$ 58,713,165 $ 4,673,593
NOTE 8 SECOND SUPPLY PROJECT AGREEMENT
Four Washington municipalities are the Participants in the Second Supply Project under the terms of the Second
Supply Project Agreement, which defines their rights and obligations with regard to the Second Supply Project.
Tacoma Water has a 15/36 Participant Share and each of the following municipalities City of Kent, Covington
Water District and Lakehaven Utility District has a 7/36 Participant Share in the Second Supply Project. Each
Participant has contractual rights under the Second Supply Project Agreement(i)to use an undivided share of the
Project equal to its project capacity share and to use available excess project capacity; (ii)to schedule for delivery
and receive its Participant Share of Second Diversion Water at its points of delivery; (iii) to schedule for delivery
and receive additional water at its points of delivery; and (iv)to its Participant Share of storage. Each Participant
has a contractual obligation (i)to receive Second Diversion Water and additional water scheduled for delivery and
delivered to it, and (ii)to pay its Participant Share of Project Costs, including but not limited to Fixed and Variable
O & M Costs, Initial Project Construction Costs and Capital Expenditures. Kent and Covington, in the "Repayment
Agreement", pledge to pay Tacoma Water a defined share of the principal and interest debt service on the
Regional Water Supply System Bonds. The term of the Second Supply Project Agreement extends through the
operating life of the Second Supply Project including all renewals and replacements thereof and additions thereto.
The Second Supply Project Agreement provides that all obligations incurred during its term will survive its
termination or expiration and will survive until satisfied.
NOTE 9 SIGNIFICANT CUSTOMER
Contracted sales to WestRock CP LLC accounted for 7.2%of Tacoma Water's total water sales in 2022 and 7.4%in
2021.There were no outstanding accounts receivables from WestRock at year-end 2022 or 2021.
Tacoma Water has contracted with WestRock to supply certain quantities of water at a specified rate through
July 31, 2023.
NOTE 10 FLEET SERVICES FUND
The Department of Public Utilities has established a Fleet Services Fund to perform scheduled maintenance, repair
and replacement of Department vehicles and related equipment.
Tacoma Water pays the Fleet Services Fund to cover fleet operating expenses. Per Ordinance No. 28688, in 2020
Fleet Services Fund transferred operating division fleet assets to Power, Rail, and Water for funding flexibility.
Fleet Services Fund maintains the purchasing and maintenance responsibilities. Starting Jan 1, 2021, Tacoma
Water no longer pays operating capital assets recovery revenues to Fleet Services Fund, but still pays for capital
recovery revenues on pool vehicles and other operating revenues including maintenance, administrative
overhead, fuel and fuel loading, and pool car rentals. Payments made by Tacoma Water in 2022 and 2021 were
$2,273,442 and $2,093,971, respectively.
2022 Annual Financial Report -37- Tacoma Water
Notes to the Financial Statements (continued)
Fleet Services' management makes an annual assessment of the capital replacement reserve balance for
appropriate funding levels. It is the Fund's policy to maintain the Fund's maximum balance at a level that will
provide adequate purchasing power for a three-year cycle.
NOTE 11 SELF-INSURANCE FUND
The Department of Public Utilities maintains a self-insurance program and insurance policies.The Department has
established a self-insurance fund to insure Tacoma Water and other divisions within the Department for certain
losses arising from personal and property damage claims by third parties. The major risks to Tacoma Water are
flooding, wind damage, chemical spills and earthquakes. Mitigating controls and emergency and business
resumption plans are in place.To the extent damage or claims exceed insured values, rates may be impacted.
Tacoma Water is required to make payments to the Self-Insurance Fund to cover claims incurred by Tacoma Water
and administrative expenses of the Fund. Tacoma Water's premium payments were $240,000 in 2022 and 2021.
Assets in the Self-Insurance Fund total $11.5 million which exceeds accrued and incurred but not reported
liabilities. Equity in the Self-Insurance Fund is transferred to the appropriate operating divisions in accordance
with GASB 10. Management believes Tacoma Water's investment in the Self-Insurance Fund is more than
adequate to settle all its known or estimated claims.
The City purchased a Fiduciary Liability policy with a limit of$15.0 million and a $100,000 deductible.A separate
deductible of$1.0 million applies to Excessive Fees Claims.This coverage provides for wrongful acts related to the
fiduciary duty of the City,trustees,or committee members arising out of the administration of the City's employee
benefit programs.The coverage also provides a Government Crime policy with a $5.0 million limit and $200,000
deductible for employee dishonesty and for fraudulent or dishonest act by employees against the City for loss of
money,securities, and property.Coverage also includes an Excess Worker's Compensation policy with a statutory
limit and a self-insured retention of$1.25 million per occurrence. Coverage also has a Cybersecurity policy with a
limit of$2.0 million and a deductible of$250,000.An Excess Cyber policy is maintained with a limit of$2.0 million
in excess of the primary policy.
Separate from General Government,the Department of Public Utilities maintains Property insurance and Excess
Liability insurance. The Property insurance policy has a deductible of $250,000 per occurrence applies to the
buildings and contents while a deductible of$10,000 per vehicle applies to motor vehicles.Coverage also provides
a Wrongful Acts Liability policy with a limit of$2.25 million for each wrongful act and a $2.25 million aggregate.
Excess Liability policies provide coverage in excess of the previously noted Wrongful Acts liability policy and
include General liability and Automobile liability coverage. These policies have a limit of $52.5 million each
occurrence with a $52.5 million aggregate in excess of a $2.5 million retention. Coverage also includes Aviation
Liability- Unmanned aircraft liability for drones with a limit of$1.0 million.
2022 Annual Financial Report -38- Tacoma Water
Notes to the Financial Statements (continued)
NOTE 12 TACOMA EMPLOYEES' RETIREMENT SYSTEM FUND(TERS OR THE SYSTEM)
The Tacoma Employees' Retirement System (TERS or System), a pension trust fund of the City of Tacoma,
issues a publicly available ACFR that includes financial statements and required supplementary information
may be obtained by writing to:
Tacoma Employee's Retirement System
3628 South 35th Street
Tacoma,WA 98409
Or the TERS ACFR may be downloaded from the TERS website at www.cityoftacoma.org/retirement.
Administration of The System - TERS is a cost-sharing, multiple-employer, defined benefit retirement plan
covering substantially all employees of the City of Tacoma, with the exception of police officers,firefighters, and
Tacoma Rail employees who are covered by state and federal retirement plans. Employees of the Tacoma-Pierce
County Health Department, as well as, certain employees of the Pierce Transit and South Sound 911 (formerly
known as Law Enforcement Support Agency) who established membership in the System when these agencies
were still City of Tacoma departments,are also members.
The Board of Administration of the Tacoma Employees' Retirement System administers the plan and derives its
authority in accordance with Chapter 41.28 RCW and Chapter 1.30 of the Tacoma City Code.
At the direction of the City Council, the System is administered by the Board of Administration (the Board)
consisting of nine regular members and one alternate member.The members of the Board are: the Mayor, who
serves as Chair;the Director of Finance;the City Manager(or designee);the Public Utilities Director(or designee);
three elected employee representatives;one elected retired representative;and one City resident(not employed
by the City) elected by the other eight members.The nine Board members appoint a TERS member,either active
or retired, as an alternate Board member. The Board is required by the Tacoma Municipal Code to make annual
reports to the City Council on the financial condition of the Retirement System.The Board,subject to City Council
approval,appoints the Director who is responsible for managing the daily operations of the System.
The breakdown of membership as of December 31, 2021 and 2020 (measurement dates) is as follows:
Measurement date as of
December 31,
2021 2020
Retirees and beneficiaries currently receiving benefits 2,695 2,653
Terminated vested and other terminated participants 842 790
Active members:
City of Tacoma 2,790 2,740
Pierce Transit 12 10
South Sound 911 2 2
Tacoma-Pierce County Health Department 292 285
Total active members 3,096 3,037
Total membership 6,633 6,480
2022 Annual Financial Report -39- Tacoma Water
Notes to the Financial Statements (continued)
Membership-Substantially all employees of the City of Tacoma are members of the System, with the exception
of police officers, firefighters, and Tacoma Rail employees,who are covered by state or federal retirement plans.
Other members include employees of the Tacoma-Pierce County Health Department, and certain employees of
the Pierce Transit and the South Sound 911 who established membership in the System when these agencies were
still City of Tacoma departments.
Benefits - There are two formulas to calculate the retirement benefits. The benefit paid will be issued on the
formula which provides the higher benefit.The most commonly applied formula,"service retirement",is a product
of the member's average monthly salary for the highest, consecutive 24-month period, the number of years of
membership credit, and a percentage factor (2% maximum) that is based on the member's age and years of
service.The other formula is an annuity based on member contributions.There are several options available for
the retiree to provide for their beneficiaries.The System also provides death, disability and deferred retirement.
Additionally, the System provides cost of living adjustment (COLA) increases up to 2.125% as of July 1st of each
year; the actual COLA granted is dependent on the Consumer Price Index (Seattle Area — all items) over the
preceding calendar year.
Any active member who has not retired and has five or more years of service as a member may purchase up to
five additional years of service at the time of retirement.Total service including service purchased cannot exceed
30 years.
The System participates in the portability of public retirement benefits in Washington State public retirement.As
provided under Chapter 4154 of the RCW, this allows a member to use all years of service with qualified
Washington systems to determine retirement eligibility and percentage factor for benefits under the System.
Contributions - The participating employers are responsible for funding the System at a level sufficient to pay
obligations and ensure the actuarial and financial soundness of the System. Contribution rates for the employer
and the employee are recommended by the Board of Administration and final approval rests with the Tacoma City
Council.
The total contribution rate continues to be 21%, divided as 54%for the employer and 46%for the employee,for
a new total of 11.34% from the employer and 9.66% from the employee. Changes to the contribution rate are
subject to Sections 1.30.340 and 1.30.360 of the Tacoma Municipal Code.
Significant Assumptions-The following actuarial methods were used in the funding valuation.
Measurement Date December 31, 2021
Valuation Date January 1, 2022
Actuarial Cost Method Entry Age Normal
Amortization Method Funding is based on statutory contributions rate.
This amount is compared to a 25-year amortization for the
purposes of calculating the Actuarially Determined
Contribution(ADC).The amortization method for the ADC is as
follows*:
• Level percent
• Open periods
• 25 year amortization period*
• 3.25%amortization growth rate
Asset Valuation Method 4 year smoothing period; Corridor- None
Inflation 2.50%
Salary Increases Varies by service
Investment Rate of Return 6.75%
2022 Annual Financial Report -40- Tacoma Water
Notes to the Financial Statements (continued)
Cost of Living Adjustment 2.125%
Retirement Age Varies by age,gender, and eligibility
Turnover Varies by service, and gender
Mortality 105%of the Male and 100%of the Female PubG-2010Amount-
Weighted Mortality Tables, sex distinct. Generational
improvements with unisex projection scale based on Social
Security Administration Data 1957-2017.
*The actual contribution is used if that rate is greater than the rate necessary to amortize the
UAAL. Note that the UAAL amortization period is 30 years for years 2017 and earlier and 25
for years beginning January 1,2018 and later.
Benefit and Assumption Changes-The comparability of the data from year to year can be affected by changes in
actuarial assumptions, benefit provisions, accounting policies, and other factors. There have been no significant
changes between the January 1,2022,valuation date and December 31,2021,the measurement date.Therefore,
no adjustments were needed from the January 1, 2022, actuarial valuation date to the calculated liabilities as of
December 31,2021,measurement date for reporting date of December 31,2022.There were no changes between
the January 1, 2021, and January 1, 2022,valuation dates.
Target Allocations-The long-term expected rate of return is determined by adding expected inflation to expected
long-term real returns and reflecting expected volatility and correlation. The capital market assumptions are per
Milliman's(the System's actuary) investment consulting practice as of December 31,2021 and December 31,2020
for reporting date December 31, 2022 and December 31, 2021, respectively. The target asset allocation is based
on the Tacoma Employees' Retirement System Investment Policy Statement dated November 2021 and March
2019 for reporting date December 31, 2022,and December 31,2021, respectively.
Reporting date
December 31, 2022 December 31, 20221
Long-term Long-term
Expected Expected
Target Arithmetic Real Target Arithmetic Real
Asset Class Allocation Rate of Return Allocation Rate of Return
Investment Grade Fixed Income 19.5% 2.00% 19.5% 1.30%
US Bank/Leveraged Loans 3.0% 3.14% 3.0% 2.39%
US Long Government Bonds 3.0% 2.30% 3.0% 1.75%
High Yield Bonds 6.0% 3.60% 6.0% 3.10%
Emerging Market Debt 5.0% 3.20% 5.0% 2.65%
Global Equity 34.5% 5.15% 34.5% 5.55%
Private Real Estate 10.0% 5.90% 10.0% 6.20%
Private Equity 10.0% 8.10% 10.0% 6.95%
Master Limited Partnerships 4.0% 6.60% 4.0% 7.30%
Timber 1.5% 3.88% 1.5% 6.15%
Infrastructure 2.0% 7.55% 2.0% 6.25%
Agriculture 1.5% 4.23% 1.5% 3.72%
Assumed Inflation - Mean 2.50% 2.50%
Assumed Inflation -Standard Deviation 1.23% 1.65%
Portfolio 30 year Arithmetic Rate of Return 7.26% 7.13%
Portfolio 30 year Geometric Rate of Return 6.71% 6.58%
Portfolio Standard Deviation 10.97% 10.89%
Long-Term Expected Rate of Return, net of 6.75% 6.75%
investment expenses
2022 Annual Financial Report -41- Tacoma Water
Notes to the Financial Statements (continued)
Sensitivity Analysis -The following presents the net pension liability (asset) of the System, calculated using the
discount rate of 6.75%as of December 31,2022 and 2021,as well as what the System's net pension liability(asset)
would be if it were calculated using a discount rate that is 1 percentage point lower,5.75%,or 1 percentage point
higher, 7.75%,than the current rate.
1% Current 1%
Decrease Discount Rate Increase
As of December 31, 2022 5.75% 6.75% 7.75%
Net pension liability(asset) $9,391,856 $(14,152,644) $(33,773,289)
1% Current 1%
Decrease Discount Rate Increase
As of December 31, 2021 5.75% 6.75% 7.75%
Net pension liability(asset) $28,056,796 $6,337,863 $(11,762,666)
As of December 31,2022 and 2021,the deferred inflows and outflows of resources are as follows:
December 31, 2022 December 31, 2021
Deferred Deferred Deferred Deferred
Inflows of of Outflows Inflows of of Outflows
Resources Resources Resources Resources
Difference Between Expected and
Actual Experience $ (511,727) $ 1,146,869 $ (887,406) $ 1,147,061
Changes of assumptions - 3,618,007 - 4,713,329
Net Difference Between Projected and
Actual Earnings (15,665,822) - (464,683) -
Changes in Employer Proportion (11,672) 66 (4,191) 86
Contributions Made Subsequent to the
Measurement Date - 3,017,221 - 2,710,397
Total $ (16,189,221) $ 7,782,163 $ (1,356,280) $ 8,570,873
The Division reported $3.0 million as deferred outflows of resources related to the amounts associated with
contributions subsequent to the measurement date and will be recognized as a reduction of the total pension
liability in the fiscal year ending December 31, 2023.
The net amount of deferred inflows and outflows,other than contributions made subsequent to the measurement
date,will be recognized as pension expense in each of the next five years.
Amounts will be recognized in pension expense as follows:
2023 $ (1,555,533)
2024 (4,634,961)
2025 (1,921,664)
2026 (3,338,421)
2027 26,300
$ (11,424,279)
At December 31, 2022, the Division reported a pension asset of$14,152,644 for its proportionate share of the
total System,compared to a pension liability of$6,337,863 at December 31,2021.The proportionate share of the
Water Division is 9.65% of total System's pension liability as of December 31, 2022, and 9.14% as of
December 31, 2021. The proportionate share was based on the actual contributions for the year as of
December 31, 2022 and 2021.
2022 Annual Financial Report -42- Tacoma Water
Notes to the Financial Statements (continued)
NOTE 13 OTHER POST EMPLOYMENT BENEFITS(OPEB)
Plan Description -The City provides the opportunity to receive medical benefits to most of its retirees until age
65.Eligibility and the amount of benefits paid by the City vary by group(TERS,LEOFF 1,LEOFF 2,or Rail employees).
The City charges some early retirees not yet eligible for Medicare a health premium based on the claims
experience of both actives and retirees. Since health claims costs generally increase with age, retiree health
premiums would be significantly higher if they were determined without regard to active claims experience.
Therefore,the employer effectively subsidizes the costs of the participating retirees' healthcare through payment
of the employer's portion of the premiums for active employees.
Benefit payments are recognized when due and payable in accordance with benefit terms. Pre-Medicare Retiree
Healthcare is a single-employer defined benefit OPEB plan that is treated like a cost-sharing plan for financial
reporting purposes, and is administered by the City of Tacoma Human Resources Department.The membership
as of January 1, 2022 for non-LEOFF 1 members includes 3,819 active participants, 584 vested terminated
participants, 176 retirees and surviving spouses, and 115 spouses of current retirees. The membership as of
January 1, 2022 for LEOFF 1 members includes 1 active participant and 348 retirees.
This plan is funded on a pay-as-you-go basis and there are no assets accumulated in a qualifying trust.
Actuarial Assumptions and Other Inputs-The valuation date is January 1,2022 for both non-LEOFF 1 and LEOFF
1 members.This is the date as of which the census data is gathered and the actuarial valuation is performed.
The measurement date is December 31, 2021.This is the date as of which the total OPEB liability is determined.
No adjustment is required between the measurement date and the reporting date.The reporting date is
December 31,2022.
In preparing the valuation, the actuary relied, without audit, on information as of January 1, 2022, furnished by
the City.This information includes, but is not limited to, statutory provisions, member census data, and financial
information.
Valuation Date: January 1, 2022
Census Date: January 1, 2022
Actuarial Cost Method: Individual Entry Age Normal Cost Method
Demographic Assumptions: Demographic assumptions regarding retirements,disability,
and turnover are based upon pension valuations for the
various pension plans.
Actuarial Assumptions:
Discount Rate: 2.00%for pay-as-you-go funding
Medical Cost Trend: 2022 5.50%
2023 5.30%
2024 5.00%
2030 4.50%
2040 4.50%
2050 4.40%
2060 4.40%
2070 4.10%
2080 3.90%
2022 Annual Financial Report -43- Tacoma Water
Notes to the Financial Statements (continued)
Note that the trend for year 2022 reflects the percent by
which 2023 medical costs are expected to exceed 2022
medical costs.The medical cost rate is assumed to continue
grading downward until achieving the ultimate rate of
3.90% in 2073 and beyond. These trend rates assume that,
over time,deductibles and out-of-pocket maximums
will be periodically increased as medical trends increase.
Discount Rate(Liabilities): 2.00%
Demographic Assumptions: Eligibility:
Disability- Five years of service are required for non-service
connected disability.
Retirement -TERS members are eligible for retiree medical
benefits after becoming eligible for service retirement
pension benefits(either reduced or full pension benefits).
• 30 years of service
• 60 years of age
• Age+Service=80 years
• Age 55 with 10 years of service
• Age 40 with 20 years of service
Former members who are entitled to a deferred vested
pension benefit are also eligible to receive medical benefits
after pension benefit commencement.
Survivors of members who die prior to retirement are
eligible for medical benefits.
The discount rate was based on the yield or index rate for 20-year,tax-exempt general obligation municipal bonds
with an average rating of AA/Aa or higher.
Changes of Assumptions:The discount rate was updated to 2.00%from 2.12%.The actuarial cost method is the
individual entry age actuarial cost method to be in compliance with GASB 75.
OPEB Liabilities,OPEB Expense,and Deferred Outflow of Resources and Deferred Inflows of Resources
At December 31, 2022 the Division reported a liability of$5,350,651 for its proportionate share of the collective
total City liability of$227.4 million compared to $4,780,773 at December 31, 2021. At December 31, 2022, the
participating Division's proportion was 2.35274% as compared to 2.08528% at December 31, 2021. For the year
ended December 31, 2022,the participating Division recognized an OPEB expense of$273,894.
2022 Annual Financial Report -44- Tacoma Water
Notes to the Financial Statements (continued)
At December 31, 2022 and 2021, the Division reported deferred outflows of resources and deferred inflows of
resources related to OPEB from the following sources:
December 31, 2022 December 31, 2021
Deferred Deferred Deferred Deferred
Inflows of Outflows of Inflows of Outflows of
Resources Resources Resources Resources
Difference Between Expected and Actual
Experience $ (43,638) $ 61,232 $ (51,158) $ 7,204
Changes of assumptions (217,833) 467,120 (200,771) 533,835
Changes in Employer Proportion - 1,032,099 - 677,828
Differences in Contributions (69,197) 68,598 (52,948) 87,316
Contributions Made Subsequent to the
Measurement Date - 177,523 - 178,614
Total $ (330,668) $ 1,806,572 $ (304,877) $ 1,484,797
The Division reported $177,523 as deferred outflows of resources related to the amounts associated with
contributions subsequent to the measurement date and will be recognized as a reduction of the total OPEB
Liability in the fiscal year ending December 31, 2023.
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will
be recognized in OPEB expense as follows:
2023 $ 257,053
2024 225,164
2025 289,735
2026 265,165
2027 206,827
Thereafter 54,437
$ 1,298,381
Sensitivity of the Division's Proportionate Share of the OPEB Liability to Changes in the Discount Rate
As of December 31,2022,the following presents the Division's proportionate share of the OPEB liability,calculated
using the discount rate of 2.00%, as well as what the Division's proportionate share of the OPEB liability would be
if it were calculated using a discount rate that is one percentage point lower, 1.00%, or one percentage point
higher, 3.00%,than the current rate.
1% Current 1%
Decrease Discount Rate Increase
As of December 31, 2022 1.00% 2.00% 3.00%
Net OPEB liability $6,032,560 $5,350,651 $4,778,945
As of December 31,2021,the following presents the Division's proportionate share of the OPEB liability,calculated
using the discount rate of 2.12%, as well as what the Division's proportionate share of the OPEB liability would be
if it were calculated using a discount rate that is one percentage point lower, 1.12%, or one percentage point
higher, 3.12%,than the current rate.
1% Current 1%
Decrease Discount Rate Increase
As of December 31, 2021 1.12% 2.12% 3.12%
Net OPEB liability $ 5,409,869 $4,780,773 $4,255,093
2022 Annual Financial Report -45- Tacoma Water
Notes to the Financial Statements (continued)
Sensitivity of the Division's Proportionate Share of the OPEB Liability to Changes in the Healthcare Cost Trend
Rates
As of December 31,2022,the following presents the Division's proportionate share of the OPEB liability using the
healthcare cost trend rate as well as what the Division's proportionate share of the OPEB liability would be if it
were calculated using a healthcare cost trend rate that is one percentage point lower or one percentage point
higher than the current rate:
1% Current 1%
Decrease Trend Rates Increase
As of December 31,2022 4.50% 5.50% 6.50%
Net OPEB liability $4,574,128 $5,350,651 $6,056,133
As of December 31,2021,the following presents the Division's proportionate share of the OPEB liability using the
healthcare cost trend rate as well as what the Division's proportionate share of the OPEB liability would be if it
were calculated using a healthcare cost trend rate that is one percentage point lower or one percentage point
higher than the current rate:
1% Current 1%
Decrease Trend Rates Increase
As of December 31,2021 5.00% 6.00% 7.00%
Net OPEB liability $4,204,834 $4,780,773 $5,466,132
NOTE 14 COMMITMENTS AND CONTINGENCIES
Capital Improvements -The financial requirement for Tacoma Water's 2021-2022 biennial Capital Improvement
program is approximately$79.3 million and Tacoma Water has substantial contractual commitments relating to
the program. At December 31, 2022 the remaining financial requirement for Capital Improvement Programs
relating to the current biennium is$21 million.
Muckleshoot Indian Tribe Settlement - A mutually beneficial settlement agreement was reached with the
Muckleshoot Indian Tribe in 1995. The settlement package has a cost of approximately$30 million and includes
five basic elements: 1)building a fish restoration facility and annual operation and maintenance of that facility,or
in the alternative, providing $12 million (indexed at 1995 dollars) into a fish restoration fund; 2) providing for
enhanced flows in the Green River; 3)transferring certain lands;4)establishing a trust fund payable over 40 years
which is intended to provide for the general welfare, educational and other needs of the Tribe; and 5) limited
access into the Green River Watershed. The settlement resolved past damage claims by the Tribe for Tacoma
Water's historical operations on the river,gain the Tribe's support for the Second Supply Project and provide the
basis for a long-term,cooperative working relationship on the Green River.Tacoma Water has been implementing
this agreement.
General Legal Matters - The Water Division has received several other miscellaneous claims or litigation that
either do not allege material amounts or that the Legal Department has determined do not pose a risk of liability
to the Utility.
2022 Annual Financial Report -46- Tacoma Water
Required Supplementary
Information
2022 Annual Financial Report -47- Tacoma Water
Proportionate Share of the Net Pension Liability Last 10 Years*
As of Measurement Date December 31,
2021 2020 2019 2018 2017 2016 2015 2014
Employer's proportion of the net
pension liability(asset)as a
percentage 9.65% 9.14% 8.80% 8.77% 8.74% 8.91% 8.99% 9.17%
Employer's proportion share of net
pension liability(asset) $(14,152,644) $ 6,337,863 $(1,636,678) $10,264,957 $(3,438,481) $ 8,278,522 $ 7,788,151 $ (881,279)
Employer's covered payroll $26,693,208 $24,449,314 $23,537,115 $21,819,996 $20,914,658 $20,220,795 $21,148,347 $20,099,527
Employer's proportionate share of net
pension liability(asset)as a
percentage of its covered employee
payroll -53.02% 25.92% -6.95% 47.04% -16.44% 40.94% 36.83% -4.17%
Plan fiduciary net position as a
percentage the total pension liability 107.74% 96.22% 101.08% 92.81% 102.53% 93.91% 93.94% 100.71%
Schedule of Contributions Last 10 Fiscal Years*
Fiscal Year Ended December 31,
2022 2021 2020 2019 2018 2017 2016 2015
Contractually required employer
contribution $3,017,221 $2,710,397 $2,518,860 $2,451,307 $2,309,710 $2,150,205 $2,124,252 $2,086,719
Contributions in relation to the
contractually required employer
contribution (3,017,221) (2,710,397) (2,518,860) (2,451,307) (2,309,710) (2,150,205) (2,124,252) (2,086,719)
Employer contribution deficiency
(excess)
Employer's covered employee payroll $28,341,901 $26,693,208 $24,449,314 $23,537,115 $21,819,996 $20,914,658 $20,220,795 $21,148,347
Employer contribution as a
percentage of covered-employee
payroll 10.65% 10.15% 10.30% 10.41% 10.59% 10.28% 10.51% 9.87%
* The above schedules are presented to illustrate the requirement to show information for 10 years.However,until o full 10-year trend is compiled,the
Division will present information for available years.
2022 Annual Financial Report -48- Tacoma Water
Proportionate Share of the Collective OPEB Liability Last 10 Years*
As of Measurement Date December 31,
2021 2020 2019 2018 2017 2016
Employer's proportion of the collective OPEB
liability as a percentage 2.35% 2.09% 1.76% 1.75% 1.71% 1.67%
Employer's proportion share of collective
OPEB liability $5,350,651 $4,780,773 $3,675,963 $3,565,886 $3,780,897 $3,492,067
Employer's covered-employee payroll** $26,693,208 $24,449,314 $23,537,115 $21,819,996 $20,914,658 $20,432,705
Employer's proportionate share of collective
OPEB liability as a percentage of its covered-
employee payroll 20.04% 19.55% 15.62% 16.34% 18.08% 17.09%
*The above schedule is presented to illustrate the requirement to show information for 10 years. However,until a fu1110-year
trend is compiled,the Division will present information for available years.
**The Division's covered employee payroll has been restated for the measurement date ended December 31,2017.
Notes to Required Supplementary Information
For the Fiscal Year Ended December 31,2022
There are no assets accumulated in a trust to pay related benefits.
Changes of benefit terms:There have been no changes to the benefit provisions since the prior actuarial
valuation.
Changes of Assumptions: The discount rate was updated to 2.00%from 2.12%. The actuarial cost method is the
individual entry age normal actuarial cost method to be in compliance with GASB 75.
2022 Annual Financial Report -49- Tacoma Water
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2022 Annual Financial Report -50- Tacoma Water
Statistical Data
( Unaudited )
2022 Annual Financial Report -51- Tacoma Water
City of Tacoma, Washington
Department of Public Utilities
Tacoma Water
Ten-Year Financial Review
2021
STATEMENTS OF NET POSITION 2022 (As Restated) 2020 2019
ASSETS AND DEFERRED OUTFLOWS
Utility Plant-Net $932,280,128 $908,714,894 $896,859,308 $874,659,681
Non-Utility Plant 492,963 492,963 492,963 492,963
Special Funds 125,797,682 143,887,056 151,998,322 155,002,719
Current Assets 84,111,294 84,247,947 86,310,156 84,942,679
Other Assets 17,436,844 3,451,604 5,280,544 2,058,552
Total Assets 1,160,118,911 1,140,794,454 1,140,941,293 1,117,156,594
Deferred Outflows 10,015,939 10,670,119 6,255,109 13,609,381
TOTALASSETS AND DEFERRED OUTFLOWS 1,170,134,850 1,151,464,573 1,147,196,402 1,130,765,975
NETPOSITION 675,676,898 652,594,880 636,065,438 602,816,562
LIABILITIES AND DEFERRED INFLOWS
Long-Term Debt 383,330,550 398,389,133 414,307,785 431,269,870
Current Liabilities 24,952,712 23,486,907 24,263,595 21,087,589
Long-Term Liabilities 34,079,354 39,757,049 30,395,281 38,297,146
Total Liabilities 442,362,616 461,633,089 468,966,661 490,654,605
Deferred Inflows 52,095,336 37,236,604 42,164,303 37,294,808
TOTAL NET POSITION,LIABILITIES,AND
DEFERRED INFLOWS $1,170,134,850 $1,151,464,573 $1,147,196,402 $1,130,765,975
STATEMENTS OF REVENUES,EXPENSES AND CHANGES IN NET POSITION
OPERATING REVENUES
Residential and Domestic $69,127,333 $67,702,012 $64,487,335 $60,847,540
Commercial and Industrial 21,918,942 20,816,460 18,724,562 19,836,364
Special Rate-WestRock/Other 7,344,132 7,283,918 7,109,384 6,883,021
Municipal - - - -
Wholesale 2,434,401 2,711,269 2,282,638 2,787,239
Unbilled 363,691 485,524 103,821 (111,782)
Total Water Sales 101,188,399 98,999,183 92,707,740 90,242,382
Other Operating Revenues 14,029,299 12,366,703 11,760,454 12,302,372
Total Operating Revenues 115,217,698 111,365,886 104,468,194 102,544,754
OPERATING EXPENSES
Operation and Maintenance 54,336,709 56,330,086 52,116,679 50,339,168
Taxes 6,574,082 5,856,255 5,398,410 5,188,882
Lease Amortization 13,823 13,725 - -
Depreciation 28,400,190 27,727,624 25,723,865 25,295,078
Total Operating Expenses 89,324,804 89,927,690 83,238,954 80,823,128
NET OPERATING INCOME(LOSS) 25,892,894 21,438,196 21,229,240 21,721,626
NON-OPERATING REVENUES(EXPENSES)
Other Income (1,004,044) 2,445,093 651,209 1,802,296
Interest Income (2,687,718) (1,182,910) 5,522,409 7,370,377
Interest Expense on Lease Activity (456) (604) - -
InterestCharges(Net) (16,896,259) (17,094,391) (17,565,824) (18,181,445)
Net Income(Loss)Before
Contributions&Transfers 5,304,417 5,605,384 9,837,034 12,712,854
Total Capital Grants and Contributions 20,741,680 15,397,882 16,459,062 12,775,630
Federal BAB Subsidies 3,621,843 3,629,294 3,651,006 3,609,359
Transfers In/(Out) (6,585,922) (8,103,118) 3,301,774 (8,019,638)
CHANGE IN NET POSITION $23,082,018 $16,529,442 $33,248,876 $21,078,205
In accordance with Governmental Accounting Standards Board Statement No.652012was restated
for comparative purposes.
2022 Annual Financial Report -52- Tacoma Water
2017
2018 (As Restated) 2016 2015 2014 2013
$871,008,433 $873,518,773 $879,547,650 $884,721,107 $872,083,357 $813,050,518
492,963 492,963 492,963 492,963 492,963 492,963
160,004,945 153,962,378 156,827,483 143,309,769 146,440,207 156,819,016
79,459,959 73,857,244 68,927,643 64,476,112 58,737,269 63,568,675
4,669,297 1,810,430 2,866,478 4,689,200 3,769,208 4,679,599
1,115,635,597 1,103,641,788 1,108,662,217 1,097,689,151 1,081,523,004 1,038,610,771
5,881,479 10,113,888 10,623,174 4,002,699 1,587,851 1,813,858
1,121,517,076 1,113,755,676 1,119,285,391 1,101,691,850 1,083,110,855 1,040,424,629
581,738,357 556,846,481 549,652,226 542,501,823 516,673,245 480,288,973
447,562,815 463,619,285 478,617,199 478,400,742 483,542,005 455,876,975
23,031,002 20,524,364 20,986,727 18,261,548 20,767,576 42,478,805
27,703,192 35,406,357 33,932,418 26,021,937 26,552,582 26,204,429
498,297,009 519,550,006 533,536,344 522,684,227 530,862,163 524,560,209
41,481,710 37,359,189 36,096,821 36,505,800 35,575,447 35,575,447
$1,121,517,076 $1,113,755,676 $1,119,285,391 $1,101,691,850 $1,083,110,855 $1,040,424,629
$59,624,491 $52,539,643 $50,742,135 $48,263,128 $44,655,076 $40,928,355
19,225,528 17,408,529 17,558,905 17,233,617 15,406,078 13,507,899
6,873,675 6,322,195 5,845,719 5,951,348 5,801,842 5,242,359
- - - - - 445,844
3,253,029 3,069,448 3,971,839 5,192,149 3,718,315 3,519,409
472,999 660,078 (137,857) 318,945 121,346 468,030
89,449,722 79,999,893 77,980,741 76,959,187 69,702,657 64,111,896
12,491,739 14,644,528 14,820,869 21,179,637 28,617,297 32,007,524
101,941,461 94,644,421 92,801,610 98,138,824 98,319,954 96,119,420
45,892,214 48,921,970 46,894,363 41,804,233 37,993,563 35,906,356
5,273,751 4,776,164 4,639,031 4,681,114 3,779,373 3,918,944
26,117,843 24,038,103 23,822,527 17,102,664 16,783,698 16,072,243
77,283,808 77,736,237 75,355,921 63,588,011 58,556,634 55,897,543
24,657,653 16,908,184 17,445,689 34,550,813 39,763,320 40,221,877
3,215,049 1,216,295 (221,125) (30,042) 537,052 (1,246,053)
3,876,762 1,762,813 1,826,299 1,112,850 1,718,226 807,466
(19,269,514) (18,321,085) (19,000,536) (16,677,645) (11,911,850) (14,141,036)
12,479,950 1,566,207 50,327 18,955,976 30,106,748 25,642,254
16,440,749 9,138,434 10,274,030 9,052,674 8,670,639 7,175,575
3,596,241 3,582,475 3,579,107 3,609,706 3,959,446 3,535,426
(7,625,062) (7,092,861) (6,753,061) (6,873,467) (6,352,561) (5,922,418)
$24,891,878 $7,194,255 $7,150,403 $24,744,889 $36,384,272 $30,430,837
2022 Annual Financial Report -53- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Regional Water Supply System
Ten-Year Financial Review(RWSS)
STATEMENTS OF NET POSITION 2022 2021 2020 2019
ASSETS
Utility Plant-Net $237,965,466 $245,786,121 $253,438,437 $261,815,181
Current Assets 10,099,311 9,766,278 10,343,200 10,493,887
Total Assets 248,064,777 255,552,399 263,781,637 272,309,068
Deferred Outflows 159,693 175,797 191,900 208,004
TOTAL ASSETS AND DEFERRED OUTFLOWS 248,224,470 255,728,196 263,973,537 272,517,072
NET POSITION 146,220,643 150,738,557 156,173,719 161,888,944
LIABILITIES AND EQUITY
Long-Term Debt 98,177,211 101,259,957 104,226,180 107,104,701
Current Liabilities 2,870,245 2,743,499 2,633,541 2,544,840
Total Liabilities 101,047,456 104,003,456 106,859,721 109,649,541
Deferred Inflows 956,371 986,183 940,097 978,587
TOTAL NET POSITION,LIABILITIES,AND
DEFERRED INFLOWS 248,224,470 255,728,196 263,973,537 272,517,072
STATEMENTS OF REVENUES,EXPENSES AND CHANGES IN NET POSITION
OPERATING REVENUES
CRO-Debt Service $6,459,139 $6,445,519 $6,359,276 $6,365,634
CRO-O&M 5,044,883 4,191,992 4,044,665 3,869,205
CRO-Capital 698,283 233,873 108,780 266,010
Other Operating Revenue - - - -
Total Operating Revenues 12,202,305 10,871,384 10,512,721 10,500,849
OPERATING EXPENSES
Operation and Maintenance 4,712,030 4,218,612 4,261,822 3,928,423
Depreciation 8,542,323 8,524,386 8,521,426 8,507,090
Total Operating Expenses 13,254,353 12,742,998 12,783,248 12,435,513
NET OPERATING INCOME(LOSS) (1,052,048) (1,871,614) (2,270,527) (1,934,664)
NON-OPERATING REVENUES(EXPENSES)
Other Income 6,586 - -
Interest Income (110,285) (39,563) 252,531 346,329
Interest Charges(Net) (4,416,196) (4,500,797) (4,579,890) (4,645,692)
Net Income(Loss)Before
Contributions&Transfers (5,578,529) (6,405,388) (6,597,886) (6,234,027)
Total Capital Contributions 241,782 151,393 57,235 (163,022)
Grants&Federal BAB Subsidies 818,833 818,833 825,426 816,007
Transfers Out - - - -
CHANGE IN NET POSITION ($4,517,914) ($5,435,162) ($5,715,225) ($5,581,042)
In accordance with Governmental Accounting Standards Board Statement No.65 2012 was restated
for comparative purposes.
2022 Annual Financial Report -54- Tacoma Water
2018 2017 2016 2015 2014 2013
$270,292,252 $279,190,310 $287,187,547 $295,780,351 $293,110,553 $264,883,717
10,420,340 10,442,765 10,395,435 9,274,080 11,321,557 20,473,681
280,712,592 289,633,075 297,582,982 305,054,431 304,432,110 285,357,398
224,106 240,210 256,313 272,417 288,520 304,624
280,936,698 289,873,285 297,839,295 305,326,848 304,720,630 285,662,022
167,469,986 174,701,516 180,852,158 186,712,448 183,898,541 154,285,209
109,899,314 112,594,314 114,364,416 116,113,730 117,798,157 120,006,348
2,558,764 1,564,360 1,601,549 1,496,773 1,993,880 10,436,851
112,458,078 114,158,674 115,965,965 117,610,503 119,792,037 130,443,199
1,008,634 1,013,095 1,021,172 1,003,897 1,030,052 933,614
280,936,698 289,873,285 297,839,295 305,326,848 304,720,630 285,662,022
$5,610,671 $5,554,208 $5,582,030 $6,047,314 $6,008,599 $6,208,432
3,764,605 3,858,622 3,858,714 2,840,435 2,706,023 2,740,645
93,191 202,255 483,498 7,621,901 15,132,508 18,535,695
- - - 1,675 - -
9,468,467 9,615,085 9,924,242 16,511,325 23,847,130 27,484,772
3,718,890 3,881,686 3,871,737 2,864,326 2,735,246 2,895,385
9,199,706 8,266,685 8,263,267 4,582,300 4,542,912 4,505,158
12,918,596 12,148,371 12,135,004 7,446,626 7,278,158 7,400,543
(3,450,129) (2,533,286) (2,210,762) 9,064,699 16,568,972 20,084,229
- - - (120,564) (18,732) (373,899)
182,850 91,554 87,696 64,497 114,387 51,743
(4,907,255) (4,697,999) (4,715,565) (4,072,780) (880,966) (2,665,310)
(8,174,534) (7,139,731) (6,838,631) 4,935,852 15,783,661 17,096,763
129,958 179,156 456,685 (2,924,135) 13,024,297 148,865
813,046 809,933 808,775 802,190 805,374 799,296
- - (287,119) - - 40,079
($7,231,530) ($6,150,642) ($5,860,290) $2,813,907 $29,613,332 $18,085,003
2022 Annual Financial Report -55- Tacoma Water
City of Tacoma, Washington
Department of Public Utilities
Tacoma Water
Statements of Net Position (RWSS)
WATER TACOMA WATER
ASSETS AND DEFERRED OUTFLOWS W/O RWSS RWSS ADJUSTMENTS STATEMENTS
UTILITY PLANT
In Service,at Original Cost $ 927,107,589 $345,668,798 $ $1,272,776,387
Less-Accumulated Depreciation (247,620,632) (109,013,711) (356,634,343)
Total 679,486,957 236,655,087 916,142,044
Right to Use Lease Assets 52,613 - 52,613
Less-Accumulated Amortization (27,548) (27,548)
Tota l 25,065 - 25,065
Construction Work In Progress 14,802,640 1,310,379 16,113,019
Net Uti I ity PI a nt 694,314,662 237,965,466 932,280,128
NET UTILITY PROPERTY 492,963 - 492,963
SPECIAL FUNDS
Debt Service Funds 3,269,546 377,046 3,646,592
Bond Reserve Funds 13,227,327 8,459,953 21,687,280
System Development Charge Fund 80,044,101 - 80,044,101
Other Cash&Equity in Pooled Investments 20,519,837 - (100,128) 20,419,709
Total Special Funds 117,060,811 8,836,999 (100,128) 125,797,682
CURRENT ASSETS
Operating Funds Cash&Equity in
Pooled Investments 60,997,546 (100,128) 100,128 60,997,546
Grant Receivable 348,108 - - 348,108
Accounts Receivable 5,600,145 760,213 6,360,358
(Net of Allowance for Doubtful Accounts
of$2,064,440 in 2022)
BABs Interest Subsidies Receivable 1,635,089 477,653 2,112,742
Accrued Unbilled Revenues 6,771,474 - 6,771,474
Materials and Supplies 5,289,260 - 5,289,260
Prepayments 2,107,232 124,574 - 2,231,806
82,748,854 1,262,312 100,128 84,111,294
OTHER ASSETS
Regulatory Asset-Surcharges 3,284,200 - - 3,284,200
Pension Asset 14,152,644 14,152,644
Total Other Assets 17,436,844 - 17,436,844
DEFERRED OUTFLOWS OF RESOURCES
Unamortized Losses on Refunding Bonds 267,511 159,693 427,204
Pension Contributions 7,782,163 - 7,782,163
OPEB 1,806,572 1,806,572
Total Deferred Outflows 9,856,246 159,693 10,015,939
TOTAL ASSETS AND DEFERRED OUTFLOWS $ 921,910,380 $248,224,470 $ $1,170,134,850
2022 Annual Financial Report -56- Tacoma Water
WATER WATER
NET POSITION,LIABILITIES AND DEFERRED INFLOWS W/O RWSS RWSS ADJUSTMENTS STATEMENTS
NET POSITION
Invested in Capital Assets,Net of Related Debt $ 405,483,536 $145,952,901 $ $ 551,436,437
Restricted for:
Water Capital and System Development Charge 56,719,126 - 56,719,126
Debt Service Funds 2,056,732 2,056,732
Net Pension Asset 14,152,644 - 14,152,644
Unrestricted 51,044,217 267,742 51,311,959
Total Net Position 529,456,255 146,220,643 675,676,898
LONG-TERM DEBT
Revenue Bonds 232,035,744 98,177,211 330,212,955
Public Works Trust Fund Loans 8,338,921 - 8,338,921
Drinking Water State Revolving Fund Loan 44,778,674 44,778,674
Total Long-Term Debt 285,153,339 98,177,211 383,330,550
CURRENT LIABILITIES
Current Maturities of Long-Term Debt 11,559,913 2,455,000 14,014,913
Current Maturities of Long-Term Liabilities 160,291 - 160,291
Accrued Taxes 2,238,982 - 2,238,982
Accrued Expenses and Contracts Payable 5,215,616 4,955 5,220,571
Salaries,Wages and Fringe Benefits Payable 1,480,771 - 1,480,771
Interest Payable 1,179,570 410,290 1,589,860
Customers'Deposits 233,226 - 233,226
Current Lease Liability 14,098 14,098
Total Current Liabilities 22,082,467 2,870,245 24,952,712
LONG-TERM LIABILITIES
Muckleshoot Agreements 5,919,906 - 5,919,906
Customer Advances for Construction 12,093,103 - 12,093,103
Unearned Revenue 5,080,978 956,371 6,037,349
Long-Term Accrued Compensated Absences 3,196,288 - 3,196,288
OPEB Liability 5,350,651 5,350,651
Long Term Lease Liability 11,379 11,379
Other Long-Term Liabilities 1,470,678 1,470,678
Total Long-Term Liabilities 33,122,983 956,371 34,079,354
DEFERRED INFLOWS OF RESOURCES
Rate Stabilization 35,575,447 - 35,575,447
Pension Contribution 16,189,221 16,189,221
OPEB Contribution 330,668 330,668
Total Inflows of Resources 52,095,336 52,095,336
TOTAL NET POSITION,LIABILITIES,AND DEFFERED INFLOWS $ 921,910,380 $248,224,470 $ $1,170,134,850
2022 Annual Financial Report -57- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
Statements of Revenues, Expenses,and Changes in Net Position (RWSS)
WATER TACOMA WATER
W/O RWSS RWSS ADJUSTMENTS STATEMENTS
OPERATING REVENUES
Sale of Water $ 101,188,399 $ $ $ 101,188,399
Other Operating Revenues 8,201,778 8,201,778
Contract Resource Obligation Revenues - 12,202,305 (6,374,784) 5,827,521
Total Operating Revenues 109,390,177 12,202,305 (6,374,784) 115,217,698
OPERATING EXPENSES
Operations 19,889,599 194,369 20,083,968
Production 9,261,586 4,142,349 13,403,935
Administrative and General 26,848,278 375,312 (6,374,784) 20,848,806
Depreciation 19,857,867 8,542,323 28,400,190
Lease Amortization 13,823 - 13,823
Taxes 6,574,082 6,574,082
Total Operating Expenses 82,445,235 13,254,353 (6,374,784) 89,324,804
Net Operating Income 26,944,942 (1,052,048) 25,892,894
NON-OPERATING REVENUES(EXPENSES)
Interest Income (2,577,433) (110,285) (2,687,718)
Interest Expense on Lease Activity (456) (456)
Operating Grant 16,500 16,500
Other (1,020,544) (1,020,544)
Interest on Long-Term Debt (12,724,845) (5,027,839) (17,752,684)
Amortization of Premium and Loss on Refunding 244,782 611,643 856,425
Total Non-Operating Expenses (16,061,996) (4,526,481) (20,588,477)
Net Income Before Capital Contributions
and Transfers 10,882,946 (5,578,529) 5,304,417
Capital Grants and Contributions
Cash 8,429,343 241,782 8,671,125
Capital Grant 1,256,942 - 1,256,942
Donated Fixed Assets 10,813,613 - 10,813,613
Federal BABs Subsidies 2,803,010 818,833 3,621,843
City of Tacoma Gross Earnings Tax (8,728,920) - (8,728,920)
Transfer to/from Other Funds 2,142,998 2,142,998
CHANGE IN NET POSITION 27,599,932 (4,517,914) 23,082,018
TOTAL NET POSITION-BEGINNING OF YEAR 501,856,323 150,738,557 652,594,880
TOTAL NET POSITION-END OF YEAR $529,456,255 $ 146,220,643 $ $ 675,676,898
2022 Annual Financial Report -58- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
Bond Debt Service Requirements
December 31, 2022
WATER W/O RWSS RWSS
YEAR PRINCIPAL INTEREST PRINCIPAL INTEREST TOTAL
2023 $5,964,343 $11,815,054 $2,455,000 $4,923,486 $25,157,883
2024 4,300,000 11,665,133 4,930,000 4,804,186 25,699,319
2025 4,465,000 11,460,042 5,190,000 4,561,236 25,676,278
2026 4,930,000 11,244,560 5,420,000 4,300,363 25,894,923
2027 5,085,000 11,003,926 5,700,000 4,027,936 25,816,862
2028 5,265,000 10,730,810 5,970,000 3,741,452 25,707,262
2029 5,445,000 10,448,028 6,300,000 3,441,430 25,634,458
2030 5,640,000 10,155,577 6,595,000 3,124,853 25,515,430
2031 5,835,000 9,852,652 6,880,000 2,855,022 25,422,674
2032 6,050,000 9,524,668 6,660,000 2,572,445 24,807,113
2033 11,915,000 9,184,597 4,495,000 2,298,427 27,893,024
2034 12,360,000 8,502,114 4,655,000 2,045,763 27,562,877
2035 12,820,000 7,794,145 4,830,000 1,784,105 27,228,250
2036 13,295,000 7,059,824 5,005,000 1,512,611 26,872,435
2037 13,790,000 6,298,290 5,185,000 1,231,280 26,504,570
2038 14,305,000 5,508,406 5,375,000 939,831 26,128,237
2039 14,835,000 4,689,021 5,570,000 637,702 25,731,723
2040 15,390,000 3,839,272 5,775,000 324,613 25,328,885
2041 23,820,000 2,974,200 - - 26,794,200
2042 24,770,000 2,021,400 26,791,400
2043 25,765,000 1,030,600 26,795,600
$236,044,343 $166,802,319 $96,990,000 $49,126,741 $548,963,403
2022 Annual Financial Report -59- Tacoma Water
City of Tacoma, Washington
Department of Public Utilities
Tacoma Water
Without RWSS
Funds Available for Debt Service
2021 2020
2022 (As Restated) (As Restated) 2019 2018
Total Income $112,331,475 $113,860,266 $110,377,311 $111,675,882 $113,090,167
Less:Operating Exp 62,587,368 63,705,835 58,970,799 57,193,541 52,488,595
Income Available for Debt Service $49,744,107 $50,154,431 $51,406,512 $54,482,341 $60,601,572
Bond Redemption 6,275,159 6,171,729 6,279,811 5,639,167 5,413,750
Bond Interest 11,953,863 12,100,641 12,502,629 13,072,833 13,290,645
Tacoma Water 11,953,863 12,100,641 12,502,629 13,072,833 13,290,645
Debt Service Payable $18,229,022 $18,272,370 $18,782,440 $18,712,000 $18,704,395
Times Debt Service Covered 2.73 2.74 2.74 2.91 3.24
Bond covenants requires debt service coverage of 1.25
All In Debt Service Coverage
(In thousands)
2022 2021 2020 2019 2018 2017
(As Restated) (As Restated) (As Restated)
Operating Revenue $109,390 $106,206 $99,673 $97,638 $97,515 $90,060
Non-Operating Revenue(Expense) (1,770) 1,298 5,801 8,826 6,909 2,888
Build America Bond Subsidy 2,803 2,810 2,825 2,793 2,783 2,773
System Development Charge 1,908 3,546 2,078 2,418 5,883 2,586
Total Revenue Available $112,331 $113,860 $110,377 $111,675 $113,090 $98,307
Tacoma Share of RWSS Debt Service(CRO Operating Expense) 3,754 3,734 3,683 3,669 3,274 3,239
Other Operating Expenses less Depreciation 58,833 59,972 55,288 53,525 49,215 51,608
Net Revenue Available for Debt Service Senior Lien $49,744 $50,154 $51,406 $54,481 $60,601 $43,460
Senior Debt Service(Water Bonds) 18,229 18,272 18,782 18,712 18,704 18,664
Gross Earnings Tax Transfer to City of Tacoma 8,729 8,307 7,816 8,020 7,695 7,144
Tacoma Share of RWSS Debt Service(CRO Operating Expense) 3,754 3,734 3,683 3,669 3,274 3,239
Net Revenue Available for Debt Service All-In 44,769 45,581 47,273 50,130 56,180 39,555
Subordinate Debt Service 6,630 7,408 7,438 7,946 8,645 8,062
Total All-In Debt Service(Senior+Tacoma Share of RWSS Debt Service+Subordinate) 28,613 29,414 29,903 30,327 30,623 29,965
Debt Service Coverage-Senior Lien 2.73 2.74 2.74 2.91 3.24 2.33
Debt Service Coverage-All-In 1.56 1.55 1.58 1.65 1.83 1.32
As stated in the Tacoma Water Rate and Financial Policy,Senior Debt Service Coverage will be maintained above 1.50,exceeding Tacoma Water's bond covenant requirement of net revenue at
least 1.25 times annual senior debt service.This calculation excludes transfers to the City of Tacoma and subordinate debt,and includes transfers from the Rate Stabilization Account and
Tacoma Share of RWSS debt service payments as a CRO operating expense.
The Policy also states that All-In Debt Service Coverage will be maintained above 1.25 except when cash reserves are budgeted to meet the annual revenue requirement,when it will be
maintained above 1.00.This calculation includes transfers to the City of Tacoma and subordinate debt,and excludes transfers from the Rate Stabilization Account.Tacoma Share of RWSS debt
service payments are included as debt service rather than CRO operating expense.
2022 Annual Financial Report -60- Tacoma Water
City of Tacoma, Washington
Department of Public Utilities
Tacoma Water
Summary of Water Sales-2022
AVERAGE %of %of
CONSUMPTION
MONTHS REVENUE TOTAL MGD TOTAL
RESIDENTIALAND DOMESTIC SERVICE BILLED (CCF) REVENUE MGD
Inside City
Single and Multiple House 57,262 4,547,090 $ 28,406,293 28.1% 9.32 18.7%
Multiple Unit Dwellings 3,486 1,702,823 7,092,005 7.0% 3.49 7.0%
Parks&Irrigation Services 193 78,615 462,350 0.5% 0.16 0.3%
Private Fire Services ill 752 111,612 0.1% 0.00 0.0%
61,052 6,329,280 36,072,260 35.7% 12.97 26.0%
Outside City
Single and Multiple Houses 38,962 3,975,250 26,736,821 26.4% 8.15 16.3%
Multiple Unit Dwellings 1,936 1,035,793 5,403,629 5.3% 2.12 4.3%
Parks&Irrigation Services 281 113,788 866,711 0.9% 0.23 0.5%
Private Fire Services 77 7 47,912 0.0% 0.00 0.0%
41,256 5,124,838 33,055,073 32.6% 10.50 21.1%
COMMERCIAL AND INDUSTRIAL SERVICE
Inside City
Large Volume Service 2 326,651 712,828 0.7% 0.67 1.3%
General Service 3,720 2,031,356 8,335,161 8.2% 4.16 8.3%
Parks&Irrigation Services 387 262,199 1,578,535 1.6% 0.54 1.1%
Private Fire Services 1,133 15,157 2,857,315 2.8% 0.03 0.1%
5,242 2,635,363 13,483,839 13.3% 5.40 10.8%
Outside City
Large Volume Service 4 710,395 1,847,676 1.8% 1.46 2.9%
General Service 934 643,454 3,940,421 3.9% 1.32 2.6%
Parks&Irrigation Services 133 189,314 1,328,062 1.3% 0.39 0.8%
Private Fire Services 258 13,161 1,318,944 1.3% 0.03 0.1%
1,329 1,556,324 8,435,003 8.3% 3.19 6.4%
WESTROCK 1 7,772,053 7,344,132 7.3% 15.93 31.9%
WHOLESALE 17 930,770 2,434,401 2.4% 1.91 3.8%
Unbilled Revenue 363,691 0.4%
TOTAL WATER SALES 108,897 24,348,628 $ 101,188,399 100.0% 49.90 100.0%
MGD defined as Millions of Gallons Per Day
2022 Annual Financial Report -61- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
2022 Statistical Information
As of December 31,2022
Tacoma Water System:
Average daily delivery exclusive of pulp mill 37.92 MG
Average daily delivery of pulp mill 15.93 MG
Total average daily delivery 53.85 MG
Maximum daily production 7/26/2022 87.90 MG
Minimum daily production 10/28/2022 36.88 MG
Total water produced in 2022* 19,719 MG
Regional Water Supply System(RWSS):
Total average daily delivery 12.55 MG
Average daily consumption per single family
residential service(Inside City) 162.6 GPD
Miles of transmission and wells supply mains -
28"to 96"diameter(includes North Fork wells system) 150 mi
Miles of distribution mains -2"to 24"in diameter 1,318.19 mi
Fire Hydrants (Inside) 6,211
Fire Hydrants (Outside) 5,356
The primary source of Tacoma's water supply is the Green River.Additionally the
North Fork well field provides blending options during periods of excessive river
turbidity.The Green River source consists of a 73 million gallons per day(MGD)
water right.Tacoma is also partner in the Regional Water Supply System(RWSS)
and holds a 27 MGD average share of that 64.6 MGD interruptible,junior water
right on the Green River.Tacoma also has ground water rights totaling 87 MGD
with an installed pumping capacity of47 MGD.
Tacoma's water supply is robust and of very high quality,benefiting from decades
of source protection and substantial investment in treatment.City of Tacoma
business and residents continued to receive extraordinary service reliability
while meeting or exceeding all regulatory requirements of the United States
Environmental Protection Agency and the Washington Department of Health.
Storage facilities are provided at 15 locations.These facilities consist of 10
concretetanks and 12 steel standpipes.The combined storage capacity is equal
to approximately 140.7 million gallons.Of this storage capacity 67.6 million gallons
are located at the McMillin Reservoir approximately 14 miles southeast of Tacoma.
*Includes losses and waterforself-consumption excludes RWSS
MG equals million gallons
GPD equals gallons per day
mi equals miles
2022 Annual Financial Report -62- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
Taxes and Employee Welfare Contributions
For the Year 2022
FEDERAL
Social Security(FICA) $2,122,781
STATE OF WASHINGTON
Retail Sales Tax 2,586,535
Utilities and Business Activities Tax 5,238,424
Total 7,824,959
COUNTY
Real Property 82,441
Total 82,441
MUNICIPALITIES
City of Tacoma Gross Earnings Tax 8,728,920
City of Fircrest Administrative Fee 7,277
City of Lakewood Administrative Fee 6,458
City of Puyallup Administrative Fee 24,620
City of University Place Administrative Fee 747,778
City of University Place Utility Tax 503,589
10,018,642
TOTAL TAXES $20,048,823
Taxes as a %of Non-CRO Revenues of$109,390,177 18.33%
EMPLOYEE WELFARE CONTRIBUTIONS
Industrial Insurance and Medical Aid $374,819
Pensions 2,978,744
Medical Insurance 5,434,978
Dental Insurance 431,418
TOTAL EMPLOYEE WELFARE CONTRIBUTIONS $9,219,959
2022 Annual Financial Report -63- Tacoma Water
City of Tacoma,Washington
Department of Public Utilities
Tacoma Water
2022 Water Rates
READY TO SERVE
CHARGE PER MONTH Effective4/1/22
INSIDE OUTSIDE University
TACOMA TACOMA Place
METER SIZE
5/8 inch $25.83 $31.28 $33.60
3/4 inch $37.25 $44.98 $48.32
1 inch $60.08 $72.38 $77.75
1-1/2 inch $117.15 $140.86 $151.30
2 inch $185.64 $223.05 $239.58
3 inch $345.45 $414.82 $445.56
4 inch $573.75 $688.78 $739.82
6 inch $1,144.50 $1,373.68 $1,475.47
8 inch $1,829.40 $2,195.56 $2,358.25
10 inch $2,628.45 $3,154.42 $3,388.17
12 inch $3,855.56 $4,626.95 $4,969.81
CHARGE FOR WATER
USED PER MONTH
PER 100 CUBIC FEET Effective4/1/22
INSIDE OUTSIDE University
TACOMA TACOMA Place
Residential Service
Each 100 cubic ft of water consumption during the
winter months of October through May $2.207 $2.648 $2.844
First 500 cubic ft of water consumption per month
during the summer months of.lunethrough September $2.207 $2.648 $2.844
Each 100 cubic ft of water consumption over 500
cubic ft during the summer months of June through
September $2.759 $3.310 $3.5S5
Commercial and Industrial
General Service $2.379 $2.855 $3.067
Large Volume Service(over 65,000 cubic feet $1.850 $2.220 $2.385
annually)
Parks and Irrigation Service
Each 100 cubic feet of water consumption $4.628 $5.554 $5.966
City of Ta coma water services are 100%metered.
Whereservice conditions areconsidered extraordinary,the Water Division may,
with City Council approval,enter into contracts for periods up to 20 years.
Water rates were esta bl i s h ed by O rd i na nce No.28711 and were effective January 1,2022.
Updated University Place rates were establ ished by Ordinance No.28736 and were effective April 1,2022.
Residential service rate for outside Tacoma does not include University Place.
2022 Annual Financial Report -64- Tacoma Water
City of Tacoma, Washington
Department of Public Utilities
Tacoma Water
2022 Fire Protection Rates
WATER INCLUDED
READY TO SERVE FOR MONTHLY LEAKAGE
CHARGE PER MONTH Effective 4/1/22 AND TESTING
INSIDE OUTSIDE University PURPOSES
TACOMA TACOMA Place (100 Cubic Feet)
METER SIZE
2 inch $29.79 35.75 38.40 2.99
3 inch $43.39 52.07 55.93 2.99
4 inch $72.48 86.98 93.43 2.99
6 inch $162.59 195.11 209.57 2.99
8 inch $289.44 347.33 373.07 2.99
10 inch $452.72 543.26 583.52 2.99
12 inch $724.12 868.94 933.33 2.99
No charge is made for water used through a fire service in extinguishing fires of
incendiary or accidental origin if the customer,at the location where the use occurs,
gives written notice to the Division within ten days from the time of such fire. Use of
water through a fire service for purposes other than extinguishing fires of incendiary
or accidental origin is charged as follows:
MONTHLY CHARGE
12 times the monthly service charge(minimum).
CONSUMPTION
Rates per 100 cubic feet per month $3.960
The above rates for fire service shall apply where City water is used for all
purposes on such premises exclusive of that amount allowed for testing and
leakage.
Costs associated with fire hydrant services are currently recovered from customers in
two different ways,depending on their location in the service area. Customers outside
the City of Tacoma with residential and commercial accounts pay a flat monthly franchise
"Franchise Hydrant Service Fee"as shown below:
Outside City,other contract $4.752
University Place $5.104 Effective 4/1/22
Outside Including Lakewood,Puyallup,and Fircrest Franchises $4.752
Water rates were established by Ordinance No.28711 and were effective January 1,2022.
Updated University Place rates were established by Ordinance No.28736 and were effective April 1,2022.
2022 Annual Financial Report -65- Tacoma Water
This page has been left blank intentionally.
2022 Annual Financial Report -66- Tacoma Water
Graphs
2022 Annual Financial Report -67- Tacoma Water
WATER SALES
Year to Date - December 2022 & 2021
69-1 67.7 ■2022
70-0 w 2021
60-0
a 50-0
40-0
0
30-0 21-9 20.8
20-0
7-4 7.3
10-0 2-8 3-2
F1 a"
Residential ComrMfdai special Other
Class of Customer
WATER CONSUMPTION
Year to Date - December 2022 & 2021
■2022
10.0 8 6 9-3 2021
9.0
_ 8.0
7-0 5-8 5-8
6.0
a 30
s 3-5
4.0 3.1
3.0
2.0 0.7 0.9
1.0
0.0
FCesidefetiall 15ornfnefcial Special Other
Class of Customer
2022 Annual Financial Report -68- Tacoma Water
WATER SALES
Year to Date - December 2022
( 101,185,399)
Special Other
7% 3°6
Commerdal
22%
Remidentiat
68%
WATER SALES
Year to Date - December 2021
($98,999,183)
Other
Spelfiak
7%
Commercial �
21%
esi,jen-iai
69%
2022 Annual Financial Report -69- Tacoma Water
TOTAL OPERATING EXPENSES
Year to Date - December 2022
( 89,324,8014)
Taxes
Administration 7%
17%
Power 9,Ti-arts De;reciatian
5% 32%
distributioa
18
Lease Amortization
Q96
Production Other Op fxp
5%
15%
TOTAL OPERATING EXPENSES
Year to Date - December 2021 (Restated)
( 89,927,690)
Taxes
Administration 6%
19%
Depreciation
31%
Power&Trans
5%
Distribution
18% i
I
I
i
Lease Amortization
0%
Other Op Exp
Prodaction 6%
15%
2022 Annual Financial Report -70- Tacoma Water
TEN-YEAR SUMMARY OF WATER SALES (MILLIONS Of $
$105.0
$99A
$92.7
544.4 —
Sas.a
—� 80.0
$75.4 $69.7
574.4 —
$55.4 —
R
$aa_4 — —
$35.4 —
515.0 —
514.4 —
$+0.4
2022 2021 2020 2019 2018 2017 241fi 2015 2014 2013
■Residential&❑omestit Service Inside City&Unbilled ■Residential&Qomestir Service outside City
■Commerrial&Industrial Service Inside City iD Commerical&Industrial Outside City
Pulpmill ■City of Tacoma
Wholesale
2022 Annual Financial Report -71- Tacoma Water
TEN-YEAR SUMMARY OF WATER DEMAND (MGD)
60.0'
SSA
49-9 51.2 49.9 50.8 49.4 50-4 50.3
50.0 �
450 — -- —
4aO — —
35.0 — —
7L 30A --
e
a 2&0 —
2aO
25.0
10.0 — —
5.43 —
21122 2021 2320 21119 2019 2017 2015 2915 2014 21113
■Residential&DomestiESemce Inside❑ty ■Residentai&Domestic Svvice 4ut�de Sty ■Cornnieecial&Ind�atrial5enri�6lside Crty
Commercial&Indu3trial5erAce outside City a PdPM1I ■Cityof7amtne
Molesale
2022 Annual Financial Report -72- Tacoma Water
TEN-YEAR SUMMARY OF Q&M EXPENSE{MILLIONS OF$}
59aD gg-g $89-9
$SSD ■ •
$B0.8
$s0D
77.7
S7sn $75.4
$70.0
$65D .c
$60.0
$55-9
$SSD ®�
C
8
c $45.f1
C
O
54).n -
535D
$3,10 —
$25.9 —
$
15.0
S5.f1 —.—
$10D —
$5-0
S-
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
+OperAions •Prod¢rion •Administrative&General +Cleprecetion Taxes
2022 Annual Financial Report -73- Tacoma Water
inThe City of Tacoma does not discriminate on the basis of disability in any of its programs, activities, or
services.To request this information in an alternative format or to request a reasonable accommodation,
please contact the City Clerk's Office at(253)591-5505.TTY or speech to speech users please dial
711 to connect to Washington Relay Services.
APPENDIX
GREEN BOND SECOND PARTY OPINION
[THIS PAGE INTENTIONALLY LEFT'BLANK]
' kestrel
Second Party Opinion
Issuer: City of Tacoma,Washington
Issue Description: Regional Water Supply System Revenue Refunding Bonds, Series 2024 (Green
Bonds)
Project: Second Supply Project
Green Standard: ICMA Green Bond Principles
Green Categories: 1. Climate Change Adaptation
2. Sustainable Water Management
Keywords: Drinking water, regional water supply, resilient supply, climate adaptation, Green
River watershed,fish habitat, Washington
Par: $32,350,000
Evaluation Date: December 26, 2023
GREEN BONDS DESIGNATION
Kestrel,an Approved Verifier accredited by the Climate Bonds Initiative,conducted an independent external
review of the City of Tacoma, Washington, Regional Water Supply System Revenue Refunding Bonds,
Series 2024(Green Bonds) ("Bonds")to evaluate conformance with the Green Bond Principles (June 2021
with June 2022 Appendix 1) established by the International Capital Market Association. Our team for this
engagement included analysts with backgrounds in environmental science and social science.
This Second Party Opinion reflects our review of the uses and allocation of proceeds, oversight, and
conformance of the Bonds with the Green Bond Principles. In our opinion, the Bonds are impactful and
conform with the four core components of the Green Bond Principles, and qualify for Green Bonds
designation.
ABOUT THE ISSUER
Tacoma,Washington, is located 32 miles south of Seattle and has a population of nearly 221,000.The City
of Tacoma (the "City") provides drinking water services through the Water Division of the Department of
Public Utilities ("Tacoma Water"), which serves approximately 375,000 people in the city and nearby
communities of Pierce and King Counties. Tacoma Water provides potable drinking water to residential,
commercial, and industrial accounts, and serves 15 wholesale customers in the Puget Sound region. The
City has also established a separate utility system known as the Regional Water Supply System ("Regional
System") in partnership with the City of Kent, Lakehaven Water and Sewer District, and Covington Water
District. The Regional System was formed to construct and operate the Second Supply Project, an
kestrelesg.com I info@kestrelesg.com 1 +1 800-756-8099
additional supply pipeline from the Green River. The City has water rights on the Green River, including for
the Second Supply Project. Under the terms of the 2002 Second Supply Project Agreement, each
participant in the Regional System has a right to project capacity share. Water is primarily sourced from
the Green River, with a watershed that consists of approximately 230 square miles of forested and
mountainous terrain located northeast of Tacoma in the Cascade Range. Drinking water from the
watershed is treated at the Green River Filtration Facility, which has a treatment capacity of up to 150
million gallons per day. Tacoma Water also owns and operates groundwater wells that provide
approximately 8% of the supply, used primarily in the summer or fall when demand increases.'
Tacoma Water plans for drought and climate change resiliency through data modeling and has an
Integrated Resource Plan to guide decisions related to water supply security. Tacoma Water proactively
plans for declines in water supply due to climate change and explores alternative options, such as
enhancing groundwater production, implementing demand management strategies, and developing a
water storage project at Eagle Gorge Reservoir. Additionally,the City published the 2030 Tacoma Climate
Action Plan which describes a pathway for Tacoma to reach net zero greenhouse gas emissions by 2050.
Tacoma Water ensures high water quality for customers through watershed stewardship. Tacoma Water
owns a portion of the upper Green River watershed and implements watershed protection programs and
monitoring upstream of the diversion.2 Green River diversions are managed under a Habitat Conservation
Plan and an agreement with the Muckleshoot Indian Tribe. Key strategies of this plan include fish and
wildlife habitat conservation, including upland forest and riparian management.
In 2020, Tacoma Water began upgrading and replacing water meters with Advanced Metering
Infrastructure ("AMI") to capture water usage data, improve billing, detect leaks and better manage
outages. To implement AMI projects, Tacoma Water utilizes the City of Tacoma Equity Index3 to identify
underserved communities and areas with historically low investments in drinking water infrastructure.
Tacoma Water also offers grants and deferred loans to help customers finance water line repairs.
ALIGNMENT TO GREEN STANDARDS4
Use of Proceeds
The Bonds refund the Regional Water Supply System Revenue Refunding Bonds, Green Bond
2013,that financed a portion of the Second Supply Project. The Bonds also pay Principles
costs of issuance. The Second Supply Project has improved resilience of the
drinking water system and is an eligible project as defined by the Green Bond
Principles in the project categories of Climate Change Adaptation and
Sustainable Water Management.
Groundwater and surface water supplies are treated separately for drinking water.
2 A diversion is a structure designed to divert river water for drinking water treatment and distribution.
3 The Equity Index is a data-driven tool used to identify locations,projects, and policies where there are opportunities to address
disparities in community conditions.
4 Green Bonds are any type of bond instrument where the proceeds will be exclusively applied to finance or refinance eligible Green
Projects which are aligned with the four core components of ICMA Green Bond Principles.
Kestrel I Second Party Opinion 2
The 2013 Bonds refunded bonds that financed a portion of capital improvements necessary to increase
water available during dry summer months and provide reliable drinking water to a growing population.
This project(the"Second Supply Project") is a major,multi-year,regional supply project consisting of water
rights to 65 million gallons per day from the Green River and infrastructure necessary to divert and deliver
this water. Infrastructure improvements consist of a diversion on the Green River, pipeline upgrades,
watershed enhancements, and expansion of water storage behind the Howard Hanson Dam. Tacoma
Water is the operator of the Second Supply Project.5
The Second Supply Project illustrates a proactive commitment to establishing and maintaining a diverse
water supply that is resilient to climate change-related supply fluctuations. It enables sustainable growth
of the water system by maximizing water supply reliability and creating redundancy. Major components of
the Second Supply Project are described below.
• Second Supply Pipeline: A 34-mile pipeline constructed from the existing headworks facility near
the diversion on the Green River to Pipeline No. 4 near Portland Avenue Reservoir.
• Headworks: Upgrades to headworks at the diversion infrastructure including raising the diversion
dam; constructing a new and larger intake; and installing a fish ladder and screening structures.
• Howard Hanson Dam Additional Storage Project: As part of the Second Supply Project, an
additional 20,000 acre-feet of water is stored in the reservoir behind the Howard Hanson Dam.
Included with this added storage are improvements to intake and outlet structures necessary for
downstream fish passage. As of 2023, these improvements are ongoing, and until they are
completed, Tacoma Water is constrained in the amount of water it may divert (10,000 acre-feet).
Availability of the full water right is contingent upon downstream flows for fish and other ecosystem
requirements.The Howard Hanson Dam is located three river miles upstream from the Green River
Diversion and is owned and operated by the US Army Corps of Engineers.
• Muckleshoot Fisheries Restoration Facility: The Muckleshoot Indian Tribe holds treaty rights to
certain natural resources in the Green River watershed.As part of the Second Supply Project,a fish
hatchery will be constructed to incubate and rear salmon and to ensure fish access in the upper
Green River watershed.The facility is owned and operated by the Muckleshoot Tribe. Development
of this facility and other aspects of the Second Supply Project are partially governed by a 1995
agreement between Tacoma Water and the Muckleshoot Tribe pertaining to management of
natural resources in the watershed.The agreement has since been strengthened through approval
of the Green River Habitat Conservation Plan (described in the following section).
The majority of the Second Supply Project is complete, except as described above, and water began
flowing through the diversion and pipeline in October 2005.
Sustainable Watershed Management
Tacoma Water has improved stewardship of natural resources in the Green River watershed while also
maintaining a reliable water supply in the service area. The Tacoma Water Habitat Conservation Plan,
watershed modeling, and partnership with the US Army Corps of Engineers have all supported sustainable
operation of the Second Supply Project and sustainability in the entire Green River watershed.
5 The Second Supply Project was developed through a partnership among Tacoma Water,the City of Kent,Covington Water District,
and Lakehaven Utility District.
Kestrel I Second Party Opinion 3
The Tacoma Water Habitat Conservation Plan' ("Plan") is a significant commitment to restoration and
stewardship in the watershed. Approved in 2001,the Plan was developed as part of the application to the
National Marine Fisheries Service and US Fish and Wildlife Service for the Second Supply Project and
describes plans for operations and improvements necessary to ensure consistency with the federal
Endangered Species Act. The Plan outlines steps to add upstream and downstream fish passage to the
Howard Hanson Dam, add large woody debris downstream of the new diversion for healthy ecosystem
function, and move gravel from upstream of the dam to downstream below the dam to improve salmon
spawning habitat. Activities in the Plan also include set-asides of approximately 40% of the watershed
owned by Tacoma Water for no active forest management and approximately 25% of the land for
development of more mature forests.
In addition to ongoing activities in the Habitat Conservation Plan that support sustainability of the Second
Supply Project,Tacoma Water has developed a sophisticated modeling tool called the"Water Yield,Supply,
and Demand Model" to evaluate long- and short-term management scenarios. The model generated
climate risk assessments from simulated weather years and informed Tacoma Water's Integrated
Resource Plan (2018). Consideration of climate change for planning scenarios is critical to proactive
climate adaptation and resilience.
Tacoma Water works with the US Army Corps of Engineers to monitor reservoir storage, conduct risk
assessments,and implement forecast-informed reservoir operations("FIRO"). Forecast-informed reservoir
operation is a relatively novel approach to reservoir management that uses real-time meteorological data
to manage reservoir storage and maximize water availability for downstream flow requirements in dry
months of the year. More precise management of the reservoir improves sustainability of the Second
Supply Project.
Advancing the Just Transition
The Bonds also finance activities which align with the just transition, characterized by the equitable
inclusion and accommodation of all individuals, with a special focus on disadvantaged groups who may
be directly or indirectly affected by the structural changes necessary for the transition to a low-carbon
economy. By financing proactive projects that ensure a long-term, reliable source of drinking water for all
residents, the Bonds support the just transition. The Projects address climate transition risks by planning
for variability in water supply and adding redundancy in a region experiencing unique water resource
challenges amidst regional population growth.Acquisition of additional water rights and construction of a
new reservoir increases resilience of the entire system.
Process for Project Evaluation and Selection
Tacoma Water uses several key planning documents to identify and prioritize projects that support a
resilient, reliable, and sustainable water system. The Integrated Resource Plan (2018) also provides a
framework for prioritizing projects that support and advance the Comprehensive Water System Plan
(2018).'
6 "Tacoma Water Habitat Conservation Plan: Green River Water Supply Operations and Watershed Protection," R2 Resource
Consultants, Tacoma Water, July 2001, https://www.mytpu.org/wp-content/uploads/habitat-conservation-plan-executive-
summary.pdf.
7 The Washington State Department of Health requires Tacoma Water to update this water system plan every ten years.This plan
includes a capital program needs assessment based on various analyses of the system and regional water supply. Other key
documents which inform Tacoma Water's activities include the Water Conservation Plan and the Water Shortage Response Plan.
Kestrel I Second Party Opinion 4
Tacoma Water leadership ensures that all bond-financed projects are aligned with and advance the goals
of the Tacoma Water Habitat Conservation Plan,the 2020-2025 Tacoma Water Strategic Plan,and regional
water infrastructure goals laid out in the Tacoma Climate Change Resilience Study(2016).
Management of Proceeds
Bond proceeds will solely be used to refund all or a portion of the Regional Water Supply System Revenue
Refunding Bonds, 2013, and to pay costs of issuance. Proceeds will not be held in temporary investments
prior to refunding the outstanding bonds. The Finance Department is responsible for disbursement of
funds and the City Treasurer will oversee the refunding.
Reporting
Tacoma Water provides multiple forms of ongoing reporting. A long-range financial plan is produced
annually and includes updates on the water system and ongoing capital projects. The most recent long-
range financial plan is available here: mytpu.org/about-tpu/investors/water-investor-information. Tacoma
Water reports quarterly on Strategic Directives, which are made publicly available. The Tacoma Public
Utilities annual report includes a dedicated Tacoma Water section with information about environmental
stewardship. These Tacoma Public Utilities annual reports are available at mytpu.org/about-tpu/tpu-
publications.
In addition to these reporting efforts, Kestrel will provide one update report on the Bonds within 12 months
of issuance. This report is expected to be produced after all proceeds have been spent and will include
confirmation of continued alignment with the Green Bond Principles and relevant updates on financed
projects including allocation of proceeds.
Tacoma Water will also submit continuing financial disclosures to the Municipal Securities Rulemaking
Board ("MSRB") as long as the Bonds are outstanding, as well as reports in the event of material
developments. This reporting will be done annually on the Electronic Municipal Market Access ("EMMA")
system operated by the MSRB.
ALIGNMENT WITH UN SDGs
) The Bonds support and advance the vision of the United Nations Sustainable Development
NABLIE
DEVELOPMENT
Goals ("UN SDGs"), including:
QEVELOPMENT
GOALS
Clean Water and Sanitation (Targets 6.1, 6.5)
.� Provide access to clean and reliable drinking water and use integrated water resource planning
Industry,Innovation and Infrastructure(Target 9.4)
Implement capital improvements to improve resilience and resource-use efficiency
Responsible Consumption and Production (Target 12.2)
Sustainable management of the Green River watershed and regional water supplies
Kestrel Second Party Opinion 5
Climate Action (Target 13.1)
Climate adaptation and resiliency as a result of diverse water supply
Full text of the Targets for Goals 6, 9, 12 and 13 is available in Appendix A, with additional information
available on the United Nations website: un.org/sustainabledevelopment
CONCLUSION
Based on our independent external review,the City of Tacoma,Washington, Regional Water Supply System
Revenue Refunding Bonds,Series 2024(Green Bonds) are impactful and conform, in all material respects,
with the Green Bond Principles (2021) and are in complete alignment with two eligible project categories:
Climate Change Adaptation and Sustainable Water Management. By financing construction of the Second
Supply Project to diversify the water supply, Tacoma Water has improved resilience to extreme weather
events and other unpredictable impacts on the drinking water system. Lasting, efficient, and reliable
infrastructure is critical to the sustainability of a municipal water system.
@ 2024 Kestrel 360, Inc.
Reproduction, repackaging,transmittal, dissemination, or redistribution of this content in whole or in part
is prohibited without the express written approval of Kestrel 360, Inc. and is protected by copyright law.
About
Kestrel provides Sustainability Intelligence and verification services designed to bring greater transparency and insight to fixed
income,helping to set the market standard for sustainable finance.
Kestrel is a leading provider of external reviews for green,social and sustainability bond transactions.We are qualified to evaluate
corporate and municipal bonds in all asset classes worldwide for conformance with international green and social bond standards.
kestrelesg.com I info@kestrelesg.com 1+1 800-756-8099
- For more information,contact:
Melissa Winkler,Chief Commercial Officer
melissa.winkler@kestrelesg.com
kestrel +1415-800-5944
�g°"Dysr Verification Team
¢ ° • Monica Reid-CEO
. April Strid,MS-Head of Research and Development,and Lead Verifier
r ���� • Emily Thompson,MS-ESG Analyst
"k¢ • Cailey Martin-Senior ESG Analyst
• Dara Morantes,MS-Technical Editor
Kestrel I Second Party Opinion 6
Disclaimer
This Opinion aims to explain how and why the discussed financing meets the ICMA Green Bond Principles based on the
information that was provided by Tacoma Water or made publicly available by Tacoma Water and relied upon by Kestrel only
during the time of this engagement(July— December 2023),and only for purposes of providing this Opinion.
We have relied on information obtained from sources believed to be reliable, and assumed the information to be accurate and
complete.However,Kestrel can make no warranty,express or implied,nor can we guarantee the accuracy,comprehensive nature,
merchantability,or fitness for a particular purpose of the information we were provided or obtained.
By providing this Opinion,Kestrel is neither addressing nor certifying the credit risk,liquidity risk,market value risk or price volatility
of the projects financed by the Green Bonds. It was beyond Kestrel's scope of work to review for regulatory compliance,and no
surveys or site visits were conducted by us. Furthermore,we are not responsible for surveillance,monitoring,or implementation
of the project,or use of proceeds.
The Opinion delivered by Kestrel is for informational purposes only, is current as of the date of issuance,and does not address
financial performance of the Green Bonds or the effectiveness of allocation of its proceeds. This Opinion does not make any
assessment of the creditworthiness of Tacoma Water,nor its ability to pay principal and interest when due.This Opinion does not
address the suitability of a Bond as an investment, and contains no offer, solicitation, endorsement of the Bonds nor any
recommendation to buy,sell or hold the Bonds. Kestrel accepts no liability for direct,indirect,special, punitive,consequential or
any other damages(including lost profits),for any consequences when third parties use this Opinion either to make investment
decisions or to undertake any other business transactions.
This Opinion may not be altered without the written consent of Kestrel.Kestrel reserves the right to revoke or withdraw this Opinion
at any time. Kestrel certifies that there is no affiliation, involvement, financial or non-financial interest in Tacoma Water or the
projects discussed. We are 100%independent. Language in the offering disclosure supersedes any language included in this
Second Party Opinion.
Use of the United Nations Sustainable Development Goal(SDG)logo and icons does not imply United Nations endorsement of the
products,services,or bond-financed activities.The logo and icons are not being used for promotion or financial gain. Rather,use
of the logo and icons is primarily illustrative,to communicate SDG-related activities.
Kestrel I Second Party Opinion 7
Appendix A.
UN SDG TARGET DEFINITIONS
Target 6.1
By 2030, achieve universal and equitable access to safe and affordable drinking water for all
Target 6.5
By 2030, implement integrated water resources management at all levels, including through transboundary
cooperation as appropriate
Target 9.4
By 2030, upgrade infrastructure and retrofit industries to make them sustainable,with increased resource-
use efficiency and greater adoption of clean and environmentally sound technologies and industrial
processes, with all countries taking action in accordance with their respective capabilities
Target 12.2
By 2030, achieve the sustainable management and efficient use of natural resources
Target 13.1
Strengthen resilience and adaptive capacityto climate-related hazards and natural disasters in all countries
Kestrel I Second Party Opinion 8
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