2013 was California’s driest year since record keeping began in 1849, and 2014 is forecast to be even drier. Water resources are already under pressure due to low snow pack levels in the Sierra Nevada Mountains and, in response to the extreme conditions, Governor Brown declared a drought state of emergency for the entire state. The proclamation gives the Department of Water Resources and State Water Resource Board power to implement water conservation plans for all state facilities, accelerates funding for water supply enhancement projects, expedites water transfer rights to help water flow to where it is needed most and enacts plans to provide emergency food supplies, financial assistance and unemployment services to communities that could suffer from drought-related unemployment. These extreme drought conditions are problematic for small water districts that rely on wells as their primary source of water. Areas such as San Diego County don’t rely on well water, but rather on a network of canals to move water from wetter northern California. It is amazing to consider that 80% of San Diego County’s water could come from over 500 miles away. Given how difficult it is to predict when and how much it will rain and snow, we are not relying on potential changes in the weather to assess water district credit quality. All of our water district credits have high liquidity and robust coverage ratios. In all, our water district credits have strong balance sheets that provide protection against near- and mid-term variation in precipitation and drought events.