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PINEWOOD SPRINGS WATER DISTRICT <br /> MANAGEMENT'S DISCUSSION AND ANALYSIS <br /> December 31,2011 <br /> FINANCIAL ANALYSIS OF PINEWOOD SPRINGS WATER DISTRICT <br /> The financial analysis of the District begins on page 4 of this report. The true picture of the <br /> financial health of the District must be tempered with the operational theory and fmancial control <br /> that is practiced on a daily basis by the District. <br /> Financial Policy Priorities <br /> The financial goal of the District is to operate in a cost efficient manner that is similar to the <br /> practices of private enterprise. The District annually reviews its financial policies to assess their <br /> impact upon fmancial activities. Policies that affected fmancial activities are: <br /> 1. Debt service is funded from property taxes; <br /> 2. Administration and operation_s are funded from user fees; <br /> 3. User fees will fund a portion of capital improvements needs. <br /> Day-to-Day Operational Control of the District <br /> For operational control, the District has segmented its budget into two basic categories: <br /> operating and non-operating. Operating revenue is obtained from user fees and operating expenses <br /> are funded by operating revenue. Non-operating revenue is obtained from various sources including <br /> property taxes, interest income, and sale of assets. Non-operating expenses (capital improvements) <br /> are funded for the most part from non-operating revenue. Use of this type of categorization allows <br /> one to easily track operating revenues vs. operating expenses and non-operating revenue vs. non- <br /> operating expenses, and to quickly make prudent decisions regarding matters such as rate structures <br /> and expenditures. <br /> Non-operating revenue and non-operating expenses are designed to provide for infrastructure <br /> needs of the District. Also contributing to non-operating revenue are contributions from operating <br /> revenue user fees, including funding depreciation reserves which allow the District to plan for and <br /> replace/improve infrastructure as the infrastructure ages and deteriorates. State and federal mandates <br /> are addressed as non-operating expenditures (capital improvements). <br /> The District is organized as a self-supporting enterprise. User fees fund day-to-day <br /> operations of the District and assist in funding capital improvements primarily through the <br /> depreciation funds. <br /> Page 3 <br />