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Official Statement Series 2016C $150MMNEW ISSUE Ratings: Book-Entry Only Moody’s Aa1 S&P AAA Fitch AA+ See “RATINGS” herein In the opinion of Gilmore & Bell, P.C., St. Louis, Missouri, and White Coleman & Associates, LLC, St. Louis, Missouri, Co-Bond Counsel, under existing law and assuming continued compliance with certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”), (1) the interest on the Series 2016C 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 and corporations, (2) the interest on the Series 2016C Bonds is exempt from Missouri income taxation by the State of Missouri and (3) the Series 2016C Bonds have not been designated as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Code. See the section herein captioned “TAX MATTERS” and the form of opinion of Co- Bond Counsel attached hereto as Appendix E. $150,000,000 ThE METROPOlITAN ST. lOUIS SEWER DISTRIcT Wastewater System Revenue Bonds Series 2016c Dated: Date of Delivery Due: As shown on the inside cover The Wastewater System Revenue Bonds, Series 2016C (the “Series 2016c Bonds”) will be issued by The Metropolitan St. Louis Sewer District (the “District”) to provide funds to (a) pay a portion of the costs of the Series 2016C Project, as defined herein and (b) pay the Costs of Issuance of the Series 2016C Bonds. The Series 2016C Bonds will be secured by a pledge of certain revenues of the District as further described herein under the section captioned “SEcURITY AND SOURcES OF PAYMENT FOR ThE SERIES 2016c BONDS.” The Series 2016C Bonds are issuable only as fully registered bonds and when issued will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company (“DTC”), New York, New York. See the section herein captioned “ThE SERIES 2016c BONDS – Book-Entry Only System.” Principal of the Series 2016C Bonds is payable to the registered owners of the Series 2016C Bonds as set forth on the inside cover of this Official Statement. Interest on the Series 2016C Bonds is payable semiannually on May 1 and November 1 of each year, beginning on May 1, 2017. The Bank of New York Mellon Trust Company, N.A., is serving as Bond Registrar and Paying Agent. The Series 2016c Bonds and the interest thereon are limited obligations of the District payable solely from the Pledged Revenues, as defined herein, on a parity with the District’s Outstanding Series 2010B Bonds, Series 2011B Bonds, Series 2012A Bonds, Series 2012B Bonds, Series 2013B Bonds and Series 2015B Bonds, all as defined herein. The Series 2016c Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness or obligation of, or a pledge of the faith and credit of, the District or the State of Missouri (the “State”) or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision whatsoever. Neither the faith and credit nor the taxing power of the District, the State or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the Series 2016c Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Series 2016c Bonds. Neither the members of the Board of Trustees of the District nor any person executing the Series 2016c Bonds shall be personally liable on the Series 2016c Bonds by reason of the issuance thereof. The Series 2016C Bonds are subject to optional and mandatory redemption as described herein. See the section herein captioned “ThE SERIES 2016c BONDS – Redemption.” Maturities, Principal Amounts, Interest Rates, Yields, Prices and cUSIP Numbers are shown on the inside cover page This cover page contains information for quick reference only. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2016C Bonds are offered when, as and if issued by the District and accepted by the group of Underwriters shown below, subject to prior placement, withdrawal or modification of the offer without notice and subject to the approval of their validity by Gilmore & Bell, P.C., St. Louis, Missouri, and White Coleman & Associates, LLC, St. Louis, Missouri, Co-Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed upon for the District by its General Counsel and by its Disclosure Counsel, the Hardwick Law Firm, LLC, St. Louis, Missouri. Certain legal matters will be passed upon for the Underwriters by their co-counsel, Thompson Coburn LLP, St. Louis, Missouri, and Richard G. Hughes & Associates, LLC, St. Louis, Missouri. It is expected that the Series 2016C Bonds will be available for delivery through the facilities of DTC in New York, New York on or about December 20, 2016. Morgan Stanley Barclays Backstrom Mccarley Berry & co., llc Siebert cisneros Shank & co., l.l.c. Stern Brothers & co. Stifel Wells Fargo Securities The date of this Official Statement is December 8, 2016. $150,000,000 The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds Series 2016C MATURITY SCHEDULE Series 2016C Serial Bonds Maturity May 1 Principal Amount Interest Rate Yield Price CUSIP(1) Number 2018 $2,705,000 2.000% 1.110% 101.200% 592481 HJ7 2019 2,760,000 3.000 1.380 103.753 592481 HK4 2020 2,840,000 4.000 1.580 107.896 592481 HL2 2021 2,955,000 4.000 1.810 109.147 592481 HM0 2022 3,070,000 4.000 1.940 110.444 592481 HN8 2023 3,195,000 4.000 2.070 111.450 592481 HP3 2024 3,325,000 4.000 2.220 112.028 592481 HQ1 2025 3,455,000 4.000 2.330 112.622 592481 HR9 2026 3,595,000 5.000 2.440 121.311 592481 HS7 2027 3,775,000 5.000 2.540 c 120.383 592481 HT5 2028 3,965,000 5.000 2.610 c 119.738 592481 HU2 2029 4,160,000 5.000 2.700 c 118.914 592481 HV0 2030 4,370,000 5.000 2.800 c 118.007 592481 HW8 2031 4,590,000 5.000 2.870 c 117.377 592481 HX6 2032 4,815,000 5.000 2.930 c 116.841 592481 HY4 2033 5,060,000 5.000 2.990 c 116.307 592481 HZ1 2034 5,310,000 5.000 3.040 c 115.864 592481 JA4 2035 5,575,000 5.000 3.090 c 115.423 592481 JB2 2036 5,855,000 5.000 3.130 c 115.072 592481 JC0 Series 2016C Term Bonds $33,295,000 Term Bond due May 1, 2041; Interest Rate: 4.000%, Yield: 3.660% c; Price: 102.671%; CUSIP No. 592481 JD81 $41,330,000 Term Bond due May 1, 2046; Interest Rate: 5.000%, Yield: 3.270% c; Price: 113.853%; CUSIP No. 592481 JE61 1 CUSIP numbers shown above have been assigned by an organization not affiliated with the District. The District was not responsible for the selection of CUSIP numbers nor does it make any representation as to the correctness of such numbers on the Series 2016C Bonds or as indicated herein. C Yield to the first optional par call date of May 1, 2026. THE METROPOLITAN ST. LOUIS SEWER DISTRICT BOARD OF TRUSTEES Michael Yates, Chairman James Faul, Vice Chairman Rev. Ronald Bobo, Member Ruby Bonner, Member Annette Mandel, Member James I. Singer, Member ADMINISTRATION Brian L. Hoelscher, P.E., Executive Director Tim R. Snoke, Secretary-Treasurer John Strahlman, Assistant Secretary-Treasurer Susan M. Myers, General Counsel Marion M. Gee, Director of Finance Richard Unverferth, P.E., Director of Engineering Vicki L. Taylor Edwards, Director of Human Resources Barbara Mohn, Director of Information Systems Jonathon Sprague, P.E., Director of Operations ADVISORS AND CONSULTANTS Co-Bond Counsel Gilmore & Bell, P.C. White Coleman & Associates, LLC St. Louis, Missouri St. Louis, Missouri Co-Financial Advisors to the District PFM Financial Advisors LLC Independent Public Advisors, LLC Cleveland, Ohio Kansas City, Missouri Financial Feasibility Consultant Raftelis Financial Consultants, Inc. Kansas City, Missouri Disclosure Counsel Hardwick Law Firm, LLC St. Louis, Missouri Co-Underwriters’ Counsel Thompson Coburn LLP Richard G. Hughes & Associates, LLC St. Louis, Missouri St. Louis, Missouri REGARDING USE OF THIS OFFICIAL STATEMENT THE SERIES 2016C BONDS HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS ANY DOCUMENT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS OF THE DISTRICT AND THE TERMS OF THE OFFERING. THE SERIES 2016C BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. IN CONNECTION WITH THE OFFERING OF THE SERIES 2016C BONDS, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2016C BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 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 respective 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, salesman or other person has been authorized by the District, the Underwriters or the Co- Financial Advisors to give any information or to make any representations with respect to the Series 2016C Bonds other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. 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 Series 2016C Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been furnished by the District and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Co-Financial Advisors or the Underwriters. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of fact. The information and expressions of opinion 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 the information herein is correct as of any time subsequent to its date. CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT Certain statements included or incorporated by reference in this Official Statement constitute “forward- looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “anticipate,” “project,” “budget” or other similar words. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH 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. NEITHER THE DISTRICT NOR ANY OTHER PARTY PLANS TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN THEIR EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES UPON WHICH SUCH STATEMENTS ARE BASED OCCUR EXCEPT AS DESCRIBED IN THE SECTION HEREIN CAPTIONED “CONTINUING DISCLOSURE.” i TABLE OF CONTENTS INTRODUCTION ..................................................... 1 Purpose of the Official Statement .......................... 1 The District ............................................................ 1 Purpose of and Authority for the Series 2016C Bonds .............................................................. 2 Security and Sources of Payment for the Series 2016C Bonds................................................... 3 Other Indebtedness ................................................. 4 Continuing Disclosure Information ........................ 5 Additional Information .......................................... 5 THE SERIES 2016C BONDS ................................... 6 General ................................................................... 6 Redemption ............................................................ 6 Effect of Notice of Redemption ............................. 8 Book-Entry Only System ....................................... 8 Registration, Transfer and Exchange of Series 2016C Bonds................................................. 10 Persons Deemed Owners of Series 2016C Bonds 11 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016C BONDS .......................... 11 General ................................................................. 11 Pledged Revenues ................................................ 11 Flow of Funds ...................................................... 14 Rate Covenant ...................................................... 17 Senior and Subordinate Bonds ............................. 18 PLAN OF FINANCE .............................................. 18 Purpose of and Authority for the Series 2016C Bonds ............................................................ 18 Other Indebtedness ............................................... 18 Estimated Sources and Uses of Funds.................. 20 DEBT SERVICE SCHEDULE ............................... 21 THE DISTRICT ...................................................... 22 General ................................................................. 22 Organization and Management ............................ 23 Board of Trustees ................................................. 24 Administration ..................................................... 25 The System........................................................... 26 Employees and Employee Relations .................... 27 Economic Conditions in the District .................... 27 Security ................................................................ 27 Insurance .............................................................. 28 THE CIRP ............................................................... 28 General ................................................................. 28 Historical Capital Improvement Expenditures ..... 28 Financing Plans for the CIRP ............................... 29 Issued Revenue Bonds by Authorization ............. 30 Total Capital Expenditures Under CIRP .............. 32 Capital Finance Plans Contemplated Under Consent Decree ............................................. 32 FINANCIAL OPERATIONS OF THE DISTRICT ............................................................ 34 General ................................................................. 34 Budget and Appropriation Process ....................... 34 Finance Department ............................................. 34 Fund Structure ...................................................... 35 Basis of Accounting ............................................. 35 Financial Statements ............................................ 35 Selected Financial Data of the District ................. 35 MANAGEMENT’S DISCUSSION AND ANALYSIS ................................................... 39 Financial Highlights ............................................. 39 Required Financial Statements ............................. 40 Financial Analysis ................................................ 40 Condensed Financial Statements and Analysis .... 41 Capital Assets ....................................................... 46 Decisions Impacting the Future ........................... 49 Sewer Rates and Revenues................................... 49 Rate Commission and Rate Setting Process ......... 50 Billing and Collections ......................................... 51 Rate Increases ...................................................... 52 Historical and Projected Sewer Rates and Charges ....................................................... 52 Customer Accounts .............................................. 55 Largest User Charge Customers ........................... 55 User Charge Revenues ......................................... 56 Outstanding Indebtedness .................................... 56 Pro Forma Statement of Pledged Revenues and Debt Service Coverage ................................. 58 Employee Benefits ............................................... 59 Other Post-Employment Benefits ........................ 60 Tax Limitation Amendment – Hancock Amendment ................................................... 60 REGULATORY REQUIREMENTS ...................... 60 General ................................................................. 60 Regulatory Matters – Consent Decree ................. 61 LITIGATION .......................................................... 61 TAX MATTERS ..................................................... 62 Opinion of Co-Bond Counsel ............................... 62 Other Tax Consequences ..................................... 63 LEGAL MATTERS ................................................ 63 RATINGS ................................................................ 64 CONTINUING DISCLOSURE ............................... 64 UNDERWRITING .................................................. 65 CERTAIN RELATIONSHIPS ................................ 66 ENGINEERING AND FEASIBILITY CONSULTANT.................................................... 66 FINANCIAL ADVISORS ....................................... 66 INDEPENDENT AUDITORS ................................ 67 MISCELLANEOUS ................................................ 67 APPENDIX A: Independent Auditors’ Report, Management’s Discussion and Analysis and Basic Financial Statements of The Metropolitan St. Louis Sewer District for the Fiscal Years ended June 30, 2015 and 2016 APPENDIX B: Information Regarding the District’s Service Area APPENDIX C: Definitions and Summaries of Certain Provisions of the Bond Ordinance and the Continuing Disclosure Agreement APPENDIX D: Report on the Financial Feasibility of The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds, Series 2016C APPENDIX E: Form of Opinion of Co-Bond Counsel [THIS PAGE INTENTIONALLY LEFT BLANK] 1 OFFICIAL STATEMENT $150,000,000 The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds Series 2016C INTRODUCTION The following introductory information is not a summary of this Official Statement. It is only a brief description of, and is qualified by and subject in all respects to more complete and detailed information contained elsewhere in, this Official Statement, including the cover page and appendices hereto and the documents described herein. The order and placement of materials in this Official Statement, including the appendices hereto, are not to be deemed a determination of relevance, materiality or relative importance. This Official Statement, including the cover page and appendices, should be considered in its entirety. The offering of the Series 2016C Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings set forth in the Bond Ordinance, as defined below. Purpose of the Official Statement The purpose of this Official Statement is to set forth certain information concerning The Metropolitan St. Louis Sewer District (the “District”), a body corporate, municipal corporation and political subdivision organized and existing under the laws of the State of Missouri (the “State”), and the District’s Charter (Plan), approved by the voters of The City of St. Louis, Missouri (the “City”) and St. Louis County, Missouri (the “County”) at a special election on February 9, 1954, as amended, and approved by the voters of the City and the County at special elections on November 7, 2000 and June 5, 2012 (collectively and as amended, the “Charter”) and the $150,000,000 principal amount of Wastewater System Revenue Bonds, Series 2016C (the “Series 2016C Bonds”) to be issued by the District. See the sections herein captioned “THE DISTRICT” and “THE SERIES 2016C BONDS.” The District The District was created in 1954 to provide a metropolitan-wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage to serve the City and most of the more heavily populated areas of the County. When the District began operations, it took over the publicly owned wastewater and stormwater drainage facilities within its jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. The District’s service area now encompasses approximately 525 square miles, including all 62 square miles of the City and 463 square miles (approximately 90%) of the County. The current population served by the District is approximately 1.3 million. A map of the District’s service area is included on the back cover hereof. See the sections herein captioned “THE DISTRICT,” “THE CIRP,” “FINANCIAL OPERATIONS OF THE DISTRICT,” “MANAGEMENT’S DISCUSSION AND ANALYSIS” and “REGULATORY REQUIREMENTS.” 2 Purpose of and Authority for the Series 2016C Bonds At a special election held on June 5, 2012, voters within the District approved the issuance by the District of $945,000,000 in sewer system revenue bonds (the “2012 Authorization”) to enable the District to comply with federal and state clean water requirements. The District may use the proceeds of such revenue bonds for the purpose of constructing, repairing, replacing and equipping new and existing District wastewater facilities. The District plans to use the proceeds of the Series 2016C Bonds to finance a portion of the costs of the District’s Capital Improvement and Replacement Program (the “CIRP”). The District previously issued bonds in a par amount of $652,000,000 of the 2012 Authorization, consisting of $225,000,000 of the Series 2012A Bonds, $52,000,000 of the Series 2013A Bonds, $150,000,000 of the Series 2013B Bonds, $75,000,000 of Series 2015A Bonds and $150,000,000 of the Series 2015B Bonds. In addition the District anticipates that it will issue $20,000,000 in aggregate principal amount of the Series 2016A Bonds and $75,500,000 in aggregate principal amount of the Series 2016B Bonds prior to the end of the calendar year. Upon the issuance of the Series 2016A Bonds, the Series 2016B Bonds and Series 2016C Bonds, the par amount of bonds issued under the 2012 Authorization will increase to $897,500,000. See the section herein captioned “THE CIRP.” The District will issue the Series 2016C Bonds pursuant to the 2012 Authorization, a Master Bond Ordinance (the “Master Bond Ordinance”) that was approved by the Board of Trustees (the “Board”) of the District on April 22, 2004, and an Ordinance approved by the Board on December 8, 2016 (the “2016C Ordinance,” which together with the Master Bond Ordinance is referred to herein as the “Bond Ordinance”), to provide funds to (a) pay a portion of the costs of certain additions to and improvements to the System (the “Series 2016C Project”) and (b) pay the Costs of Issuance of the Series 2016C Bonds. See the sections herein captioned “PLAN OF FINANCE” and “THE CIRP.” A description of the Series 2016C Bonds is contained in this Official Statement under the caption “THE SERIES 2016C BONDS.” All references to the Series 2016C Bonds are qualified in their entirety by the definitive form thereof and the provisions with respect thereto in the Bond Ordinance. See Appendix C – “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” for the definitions of all capitalized words used herein and not otherwise defined herein. [Remainder of page intentionally left blank] 3 Security and Sources of Payment for the Series 2016C Bonds General. The Series 2016C Bonds are revenue bonds secured by and payable from certain revenues of the District received from operation of its sanitary sewer system (the “System”) on a parity with six prior series of Bonds issued by the District: Name of Issue Series Designation Issue Date Original Principal Amount Outstanding Principal Amount Taxable Wastewater System Revenue Bonds (Build America Bonds – Direct Pay), Series 2010B (“Series 2010B Bonds”) 01/28/2010 $85,000,000 $85,000,000 Wastewater System Revenue Bonds, Series 2011B (“Series 2011B Bonds”) 12/22/2011 52,250,000 45,325,000 Wastewater System Revenue Bonds, Series 2012A (“Series 2012A Bonds”) 08/23/2012 225,000,000 220,000,000 Wastewater System Refunding Revenue Bonds, Series 2012B (“Series 2012B Bonds”) 11/14/2012 141,730,000 137,280,000 Wastewater System Revenue Bonds, Series 2013B (“Series 2013B Bonds”) 12/18/2013 150,000,000 149,000,000 Wastewater System Improvement and Refunding Revenue Bonds, Series 2015B (“Series 2015B Bonds”) 12/15/2015 223,855,000 223,855,000 Collectively, the District’s Outstanding Series 2010B Bonds, Series 2011B Bonds, Series 2012A Bonds, Series 2012B Bonds, Series 2013B Bonds, Series 2015B Bonds, Series 2016C Bonds and any additional Bonds then Outstanding issued on a parity therewith are referred to herein as the “Senior Bonds.” The Series 2016C Bonds are also secured by amounts in the Renewal and Extension Fund (as defined herein). See the section herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016C BONDS.” The Series 2016C Bonds and the interest thereon are limited obligations of the District, payable solely from the Pledged Revenues, as defined herein, on a parity with the other Senior Bonds. The Series 2016C Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness, or obligation of, or a pledge of the faith and credit of, the District, the State or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision whatsoever. Neither the faith and credit nor the taxing power of the District, the State, or any political subdivision thereof is pledged to the payment of the Principal of, premium, if any, or interest on the Series 2016C Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Series 2016C Bonds. Neither the members of the Board nor any person executing the Series 2016C Bonds shall be liable personally on the Series 2016C Bonds by reason of the issuance thereof. 4 Pledged Revenues. The Series 2016C Bonds are revenue bonds secured by a pledge of certain revenues of the System, referred to herein as “Pledged Revenues.” Pledged Revenues means (a) Net Operating Revenues (as defined herein), (b) Investment Earnings (as defined herein), (c) Hedge Receipts (as defined in Appendix C to this Official Statement) and (d) all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance, but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund created in the Bond Ordinance. See the sections herein captioned “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016C BONDS – Pledged Revenues” and “ – Flow of Funds” and “FINANCIAL OPERATIONS OF THE DISTRICT – Selected Financial Data of the District” for further discussion of the specific District revenues constituting Pledged Revenues under the Bond Ordinance. Renewal and Extension Fund. The Bond Ordinance establishes a Renewal and Extension Fund into which the District may deposit a portion of the Pledged Revenues. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016C BONDS – Deposits to and Uses of Moneys in the Renewal and Extension Fund.” Series 2016C Bonds Not Secured by the Debt Service Reserve Account. The Bond Ordinance also establishes a Debt Service Reserve Account for the Senior Bonds, excluding any Senior SRF Bonds (as defined herein) and Senior Uncovered Bonds. “Senior Uncovered Bonds” means all series of Senior Bonds, other than Senior SRF Bonds, with respect to which the District has specified pursuant to a Series Ordinance authorizing such series of Senior Bonds that such series of Senior Bonds will not be secured by the Debt Service Reserve Account. The Series 2016C Bonds are Senior Uncovered Bonds and therefore are not secured by the Debt Service Reserve Account. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016C BONDS − Flow of Funds − Deposits to and Uses of Moneys in the Debt Service Reserve Account.” Additional Bonds. The Bond Ordinance authorizes the District to issue additional Bonds thereunder which may be either “Senior Bonds” or “Subordinate Bonds,” subject to certain requirements of the Bond Ordinance. The Bond Ordinance defines “Senior Bonds” as Bonds which have a right to payment and to be secured by a lien on a parity with the Outstanding Senior Bonds and any additional Bonds issued on a parity therewith (except with respect to any Credit Facility which may be available only to one or more series of Senior Bonds) with respect to the Pledged Revenues. The Bond Ordinance defines “Subordinate Bonds” as Bonds, including Subordinate SRF Bonds (defined in the Bond Ordinance as SRF Bonds which are Subordinate Bonds), which have a right to payment from the Pledged Revenues and to be secured by a lien on the Pledged Revenues expressly junior and subordinate to the Senior Bonds. The Series 2016C Bonds and any other Senior Bonds or Subordinate Bonds issued by the District previously or in the future under the Master Bond Ordinance are referred to herein collectively as the “Bonds.” See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto for a discussion of the requirements that must be satisfied under the Bond Ordinance prior to the issuance of additional Bonds thereunder. Other Indebtedness The District has previously issued 20 series of bonds (not including the Series 2016A Bonds, the Series 2016B Bonds or the Series 2016C Bonds) which are or were payable from Pledged Revenues of the System for the purpose of financing or refinancing the cost of constructing, repairing, replacing and equipping new and existing District wastewater facilities. Prior to the issuance of the Series 2016C Bonds, the aggregate principal amount of Senior Bonds Outstanding is $860,460,000. In addition to the six series of outstanding Senior Bonds (not including the Series 2016C Bonds), the District has issued 5 five additional series of Subordinate Bonds payable from Pledged Revenues on a subordinate basis to the Senior Bonds outstanding in the aggregate principal amount of $155,385,000 that were purchased by the State Environmental Improvement and Energy Resources Authority of the State of Missouri (the “Authority”) through the Missouri State Revolving Fund Program (the “SRF Program”) of the Authority and the Missouri Department of Natural Resources (“DNR”). The District has also issued six series of bonds (not including the Series 2016A Bonds and the Series 2016B Bonds to be issued by the end of the calendar year) payable from Pledged Revenues on a subordinate basis to the Senior Bonds, which are outstanding in the aggregate principal amount of $187,347,986 under the State’s Direct Loan Program, which were issued as Subordinate Bonds under the Master Bond Ordinance and the applicable Series Ordinances. It is anticipated that the full aggregate principal amount outstanding will be $307,673,000 when all the loans under the program are drawn down including the Series 2016A Bonds and the Series 2016B Bonds expected to be issued by the end of the calendar year. For additional information on these thirteen series of Subordinate Bonds (collectively, the “Subordinate SRF Bonds”), see the section herein captioned “PLAN OF FINANCE – Other Indebtedness” for a table of outstanding Subordinate Bonds. Continuing Disclosure Information At the time of issuance of the Series 2016C Bonds, the District will enter into a Disclosure Dissemination Agent Agreement dated as of December 1, 2016 (the “Continuing Disclosure Agreement”) with Digital Assurance Certification, L.L.C. (“DAC”), under which the District will designate DAC as Dissemination Agent. Pursuant to the Continuing Disclosure Agreement, the District will covenant to provide certain financial and operating information with respect to the District on an on- going basis and notice of certain events in accordance with Rule 15c2-12 promulgated by the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (“Rule 15c2-12”). These covenants have been made in order to assist the Underwriters (defined herein) in complying with Rule 15c2-12. See the section herein captioned “CONTINUING DISCLOSURE” and “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. Additional Information Appendix A to this Official Statement contains the Independent Auditors’ Report, Management’s Discussion and Analysis and Basic Financial Statements of the District for the Fiscal Years ended June 30, 2016 and 2015. Appendix B to this Official Statement contains certain information regarding the service area of the District. Appendix C to this Official Statement includes definitions of certain capitalized terms used in this Official Statement and summaries of certain provisions of the Bond Ordinance and the Continuing Disclosure Agreement. Appendix D to this Official Statement contains the Financial Feasibility Report prepared on behalf of the District with respect to the Series 2016C Bonds (the “Feasibility Report”). Appendix E to this Official Statement contains the proposed form of the opinion which is anticipated to be rendered by Co-Bond Counsel at the time of delivery of the Series 2016C Bonds. Brief descriptions of the Series 2016C Bonds, the Bond Ordinance and the District are included in this Official Statement. Such descriptions, information and summaries provided herein do not purport to be comprehensive or definitive. All references herein to any documents are qualified by the terms of such documents in their entirety. Until the issuance and delivery of the Series 2016C Bonds, copies of the documents described herein may be obtained from the District. After delivery of the Series 2016C Bonds, copies of such documents will be available for inspection at the corporate trust office of The Bank of New York Mellon Trust Company, N.A. in St. Louis, Missouri, as the Paying Agent under the Bond Ordinance (the “Paying Agent”). 6 THE SERIES 2016C BONDS General The Bond Ordinance authorizes the issuance of Bonds thereunder from time to time in one or more series. The 2016C Ordinance further authorizes the execution, issuance and delivery of a series of Bonds under the Bond Ordinance to be designated as “The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds, Series 2016C” in the aggregate principal amount of $150,000,000 which series of Bonds shall be executed, issued and delivered under, and secured by, the Bond Ordinance. Additional Senior Bonds and Subordinate Bonds may also be issued from time to time as provided in, and subject to the limitations set forth in, the Bond Ordinance. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. The Series 2016C Bonds shall be issued in fully registered form in the denomination of $5,000 each or integral multiples thereof and shall be dated the date of delivery thereof. Each Series 2016C Bond shall be numbered in a convenient manner, established by The Bank of New York Mellon Trust Company, N.A. in St. Louis, Missouri (the “Bond Registrar”), and shown on the Bond Register. The Series 2016C Bonds shall bear interest at the rates per annum set forth on the inside cover hereof, computed on the basis of a 360-day year consisting of twelve 30-day months, payable on May 1, 2017, and semiannually thereafter on May 1 and November 1 of each year and shall mature in the principal amounts as set forth on the inside cover hereof, unless earlier called for redemption. So long as any of the Series 2016C Bonds are in book-entry form, the Principal, redemption premium, if any, and interest on such Series 2016C Bonds are payable by check or draft mailed, or wire transfer, to Cede & Co. as Registered Owner thereof and will be redistributed by DTC and the Participants as described below under “Book-Entry Only System.” Redemption Optional Redemption of Series 2016C Bonds. At the District’s option, the Series 2016C Bonds or portions thereof maturing on May 1, 2027, and thereafter may be called for redemption and payment prior to their Stated Maturity on May 1, 2026, and thereafter, in whole or in part on any date in such order of maturity as shall be determined by the District at the Redemption Price of 100% of the principal amount thereof plus accrued interest thereon to the Redemption Date. Mandatory Sinking Fund Redemption of the Series 2016C Bonds. The Series 2016C Bonds maturing on May 1, 2041, and May 1, 2046, are Term Bonds and are subject to mandatory redemption prior to maturity on May 1 in each of the years set forth below, at 100% of the principal amount thereof plus accrued interest to the redemption date, without premium: [Remainder of page intentionally left blank.] 7 Series 2016C Bonds Maturing May 1, 2041 Year Principal Amount 2037 $6,145,000 2038 6,395,000 2039 6,650,000 2040 6,915,000 2041 7,190,000* * Final Maturity Series 2016C Bonds Maturing May 1, 2046 Year Principal Amount 2042 $7,480,000 2043 7,855,000 2044 8,245,000 2045 8,660,000 2046 9,090,000* * Final Maturity The District shall redeem such an aggregate Principal amount of the Series 2016C Bonds that are Term Bonds at a redemption price equal to the Principal amount thereof plus the interest due thereon to the mandatory redemption date. Selection of Bonds to be Redeemed; Redemption Among Series. If less than all of the Bonds of like maturity of any series shall be called for redemption, the particular Bonds, or portions of Bonds, to be redeemed shall be selected by the Paying Agent in such equitable manner as the Paying Agent may determine. The portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the Principal amount of $5,000 or an integral multiple thereof, and, in selecting portions of such Bonds for redemption, the District shall treat each such Bond as representing that number of Bonds which is obtained by dividing the Principal of such Bond to be redeemed in part by $5,000. Subject to the redemption provisions of any Series Ordinance, the District in its discretion may redeem the Bonds of any series, or a portion of the Bonds of any such series, before it redeems the Bonds of any other series. Within any particular series, any redemption of Bonds shall be effected in the manner provided in the Master Bond Ordinance and in any Series Ordinance. Notice of Redemption. Unless waived by any registered owner of Bonds to be redeemed and except as may be otherwise provided in a Series Ordinance, official notice of any such redemption shall be given by the Bond Registrar on behalf of the District by mailing a copy of an official redemption notice by first class mail, at least 30 days and not more than 60 days prior to the date fixed for redemption to the registered owner of the Bond or Bonds to be redeemed at the address shown on the Bond Register or at such other address as is furnished in writing by such registered owner to the Bond Registrar. All official notices of redemption shall be dated, shall contain the complete official name of the Bond issue, and shall state: (1) the redemption date; (2) the redemption price; (3) the interest rate and maturity date of the Bonds being redeemed; (4) if less than all the Outstanding Bonds are to be redeemed, the Bond numbers, and, when part of the Bonds evidenced by one Bond certificate are being redeemed, the respective Principal amounts of such Bonds to be redeemed; (5) that on the redemption date the redemption price will become due and payable upon each such Bond or portion thereof called for redemption and that interest thereon shall cease to accrue from and after such date; and (6) the place 8 where such Bonds are to be surrendered for payment of the redemption price (which place of payment shall be the principal payment office of the Paying Agent or at such other office designated by the Paying Agent for such purpose) and the name, address, and telephone number of a person or persons at the Paying Agent who may be contacted with respect to the redemption. Any notice of redemption of any Bonds may specify that the redemption is contingent upon the deposit of moneys with the Paying Agent in an amount sufficient to pay the redemption price (which price shall include the redemption premium, if any) of all the Bonds or portions of Bonds which are to be redeemed on that date. Prior to any redemption date, the District shall deposit with the Paying Agent an amount of money sufficient to pay the redemption price of all the Bonds or portions of Bonds which are to be redeemed on that date. For so long as DTC is effecting book-entry transfers of the Bonds, the Bond Registrar shall provide the notices specified in the Bond Ordinance to DTC. It is expected that DTC shall, in turn, notify its participants and that the participants, in turn, will notify or cause to be notified the Beneficial Owners. Any failure on the part of DTC or a participant, or failure on the part of a nominee of a Beneficial Owner of a Bond (having been mailed notice from the Bond Registrar, a participant or otherwise) to notify the Beneficial Owner of the Bond so affected, shall not affect the validity of the redemption of such Bond. Any defect in any notice of redemption shall not affect the validity of proceedings for redemption of the Bonds. Effect of Notice of Redemption Official notice of redemption having been given in the manner and under the conditions provided in the Bond Ordinance and moneys for payment of the redemption price being held by the Paying Agent as provided in the Bond Ordinance, the Bonds or portions of Bonds called for redemption shall, on the redemption date designated in such notice, become and be due and payable at the redemption price provided for redemption of such Bonds or portions of Bonds on such date, and from and after such date interest on the Bonds or portions of Bonds called for redemption shall cease to accrue, such Bonds or portions of Bonds shall cease to be entitled to any lien, benefit, or security under the Bond Ordinance, and the owners of such Bonds or portions of Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. Upon surrender for partial redemption of any Bond, there shall be prepared for and delivered to the registered owner a new Bond or Bonds of the same series, maturity, and interest rate in the amount of the unpaid Principal. Book-Entry Only System General. The Series 2016C Bonds are available in book-entry only form. Purchasers of the Series 2016C Bonds will not receive certificates representing their interests in the Series 2016C Bonds. Ownership interests in the Series 2016C Bonds will be available to purchasers only through a book-entry system (the “Book-Entry System”) maintained by The Depository Trust Company (“DTC”), New York, New York. The following information in this section concerning DTC and DTC’s Book-Entry System has been obtained from sources the District believes to be reliable, but the District takes no responsibility for the accuracy thereof. DTC will act as securities depository for the Series 2016C Bonds. The Series 2016C Bonds 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 Bond certificate will be issued for each principal maturity of the Series 2016C Bonds each in the aggregate principal amount of such principal maturity of the Series 2016C Bonds, and will be deposited with the Paying Agent as DTC’s Fast Agent. 9 DTC and its Participants. 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 a 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. Purchases of Ownership Interests. Purchases of Series 2016C Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2016C Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2016C Bond (“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 Series 2016C Bonds 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 the Series 2016C Bonds, except in the event that use of the Book-Entry System for the Series 2016C Bonds is discontinued. Transfers. To facilitate subsequent transfers, all Series 2016C Bonds 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 Series 2016C Bonds 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 Series 2016C Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2016C Bonds 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. Notices. 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 Series 2016C Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2016C Bond 10 documents. For example, Beneficial Owners of Series 2016C Bonds may wish to ascertain that the nominee holding the Series 2016C Bonds 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. Redemption notices will be sent to DTC. Redemption notices shall be sent to DTC. If less than all of the Series 2016C Bonds 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. Voting. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2016C Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 Series 2016C Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of Principal, Redemption Price and Interest. Redemption proceeds, distributions, and dividend payments on the Series 2016C Bonds 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 Paying Agent or the District, on the 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, the Paying Agent or the District, 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 the Paying Agent or the District, 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. Discontinuation of Book-Entry System. DTC may discontinue providing its services as depository with respect to the Series 2016C Bonds at any time by giving reasonable notice to the Paying Agent or the District. Under such circumstances, in the event that a successor depository is not obtained, Series 2016C Bond certificates are required to be printed and delivered. The Direct Participant holding a majority position in the Series 2016C Bonds may decide to discontinue use of the system of book-entry transfer through DTC (or a successor securities depository). In that event, Series 2016C Bond certificates will be printed and delivered to DTC. Registration, Transfer and Exchange of Series 2016C Bonds The Paying Agent has been appointed the Bond Registrar and as such shall maintain the Bond Register for the registration and transfer of Series 2016C Bonds as provided in the Bond Ordinance. Any Series 2016C Bond may be transferred only upon the books kept for the registration and transfer of Series 2016C Bonds upon surrender thereof to the Paying Agent duly endorsed for transfer or accompanied by a written instrument of transfer duly executed by the registered owner or his attorney or legal representative in such form as shall be satisfactory to the Paying Agent. Upon any such transfer, the District shall execute and the Paying Agent shall authenticate and deliver in exchange for such Series 2016C Bond a new fully registered Series 2016C Bond or Series 2016C Bonds, registered in the name of the transferee, of any denomination or denominations authorized by the Bond Ordinance. 11 Any Series 2016C Bond, upon surrender thereof at the principal corporate trust office of the Paying Agent together with a written instrument of transfer duly executed by the registered owner or his attorney or legal representative in such form as shall be satisfactory to the Paying Agent, may at the option of the registered owner thereof, be exchanged for an equal aggregate principal amount of Series 2016C Bonds of the same series and maturity and bearing interest at the same rate. In all cases in which Series 2016C Bonds shall be exchanged or transferred, the District shall execute and the Paying Agent shall authenticate and deliver, at the earliest practicable time, Series 2016C Bonds in accordance with the provisions of the Bond Ordinance. All Series 2016C Bonds surrendered in any such exchange or transfer shall forthwith be cancelled by the Paying Agent. The District or the Paying Agent may charge the Bondholder requesting the same for every such exchange or transfer of Series 2016C Bonds sufficient to reimburse it for any tax or other governmental charge required to be paid with respect to such exchange or transfer, and such charge shall be paid before any such new Series 2016C Bond shall be delivered. Persons Deemed Owners of Series 2016C Bonds The person in whose name any Series 2016C Bond shall be registered as shown on the Bond Register required to be maintained by the Paying Agent shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal of and redemption premium, if any, and interest on any such Series 2016C Bond shall be made only to or upon the order of the Registered Owner thereof or his legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Series 2016C Bond, including the interest thereon, to the extent of the sum or sums so paid. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016C BONDS General The Series 2016C Bonds are revenue bonds secured by and payable from Pledged Revenues on a parity with the District’s Outstanding Senior Bonds and any other Senior Bonds issued under the terms of the Master Bond Ordinance. The Senior Bonds are also secured by amounts on deposit in the Renewal and Extension Fund and, except with respect to Senior Uncovered Bonds, the Debt Service Reserve Account. The Series 2016C Bonds are Senior Uncovered Bonds and therefore are not secured by the Debt Service Reserve Account. The Series 2016C Bonds and the interest thereon are limited obligations of the District payable solely from the Pledged Revenues on a parity with the other Senior Bonds. The Series 2016C Bonds and the interest thereon shall not constitute a general or moral obligation of the District nor a debt, indebtedness or obligation of, or a pledge of the faith and credit of, the District or the State or any political subdivision thereof, within the meaning of any constitutional, statutory or charter provision whatsoever. Neither the faith and credit nor the taxing power of the District, the State or any political subdivision thereof is pledged to the payment of the Principal of, premium, if any, or interest on the Series 2016C Bonds or other costs incident thereto. The District has no authority to levy any taxes to pay the Series 2016C Bonds. Neither the members of the Board nor any person executing the Series 2016C Bonds shall be liable personally on the Series 2016C Bonds by reason of the issuance thereof. Pledged Revenues Pursuant to the Master Bond Ordinance, the District has pledged all Pledged Revenues to the payment of the Principal of, premium, if any, and interest on all Bonds issued thereunder. Such pledge is for the equal and proportionate benefit and security of the District’s Outstanding Senior Bonds and any other Senior Bonds issued under the terms of the Master Bond Ordinance regardless of the time or times 12 of their issuance or maturity. In the Master Bond Ordinance, the District covenants that it will not issue obligations of any kind or nature payable from, or with a lien on, the Pledged Revenues or any part thereof having a prior lien over or, except as permitted in the Master Bond Ordinance for the issuance of Senior Bonds, on a parity with the Series 2016C Bonds. Notwithstanding the foregoing, the Master Bond Ordinance permits the issuance of Subordinate Bonds secured by the Pledged Revenues on a subordinate basis to the Senior Bonds. “Pledged Revenues” means (a) Net Operating Revenues of the System, (b) Investment Earnings (defined in the Bond Ordinance as all interest received on and profits derived from investments of moneys in all funds and accounts of the District other than investments derived from or with respect to (i) stormwater revenues, as described below, (ii) all funds and accounts established in connection with SRF Bonds and (iii) obligations issued by the District on behalf of its subdistricts), (c) Hedge Receipts and (d) all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance, but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund created in the Bond Ordinance. The Bond Ordinance defines the “System” as the sanitary sewer system of the District, as it now exists and as it may be added to, extended, improved and equipped, the costs of which may be paid either from the proceeds of the Bonds or from any other sources at any time, including without limitation, (a) all sanitary sewers, all combined sewers, all sanitary and combined sewer pumping stations, all wastewater treatment plants, and all equipment used in connection therewith, all facilities for the collection, treatment and disposal of sewage and wastewater, including industrial wastes, and (b) all other facilities or property of any nature or description, real or personal, tangible or intangible, owned or used by the District in the collection, treatment and disposal of wastewater. The Bond Ordinance defines “Net Operating Revenues” as all Operating Revenues, after provision for payment of all Expenses of Operation and Maintenance. The Bond Ordinance defines “Operating Revenues” as all income and revenue of any nature derived from the operation of the System, including periodic wastewater billings, service charges, other charges for wastewater service and the availability thereof (other than any special assessment proceeds), connection or tap fees (whether accounted for as revenues or as contributed capital), net proceeds from business interruption insurance, the principal of gifts, bequests, contributions, grants and donations available to pay debt service of Bonds, and any amounts deposited in escrow in connection with the acquisition, construction, remodeling, renovation and equipping of facilities to be applied during the period of determination to pay interest on Bonds. The Bond Ordinance expressly excludes the following from the definition of Operating Revenues: (1) any profits or losses on the early extinguishment of debt or on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, and local, state or federal grants or other moneys received for the payment of Expenses of Operation and Maintenance (See Appendix C for definition of “Expenses of Operation and Maintenance”), (2) local, state, or federal grants, loans (including Government Loans), capital improvement contract payments, or other moneys received for capital improvements to the System, (3) Investment Earnings, (4) any stormwater charges (referred to herein as the “Stormwater Service Charges”) and (5) any property tax revenues. Although revenues from the Stormwater Service Charge are not included in Operating Revenues and thus are not available for payment of debt service on any Bonds issued under the Bond Ordinance, including the Series 2016C Bonds, such revenues are accounted for and included in the amount of Operating Revenues identified in the Independent Auditor’s Report and Financial Statements included as Appendix A to this Official Statement. 13 The schedule of Pledged Revenues below was prepared to show the amount of Pledged Revenues available historically to pay debt service on the Bonds. WASTEWATER SEGMENT SCHEDULE OF PLEDGED REVENUES For the Years Ended June 30, 2012 Through 2016 (In Thousands) 2012 2013 2014 2015 2016 Operating Revenues Sewer service charges1 $219,648 $237,296 $248,763 $282,957 $304,685 Recovery (provision) of doubtful sewer services charge account (2,636) 7,230 (2,230) (4,063) Licenses, permits and other fees 2,684 2,732 6,563 6,657 3,620 Other 2,550 3,206 1,867 1,452 14,221 Total Operating Revenues $224,882 $240,598 $264,422 $288,836 $318,463 Nonoperating Revenues2 Investment income $2,058 $957 $2,670 $2,556 $3,894 Total Operating and Nonoperating Revenues $226,940 $241,554 $267,093 $291,392 $322,358 Operating Expenses Pumping and treatment $49,005 $54,526 $54,126 $60,766 $59,100 Collection system maintenance 29,409 31,095 32,722 32,141 33,292 Engineering 2,423 5,391 5,569 4,589 3,523 General and administrative 33,713 41,485 45,661 48,555 54,802 Water backup claims 1,517 3,503 2,713 3,862 7,631 Asset Management 19,166 10,372 12,432 13,374 12,969 Total Operating Expenses $135,232 $146,372 $153,222 $163,288 $171,317 Total Expenses $135,232 $146,372 $153,222 $163,288 $171,317 Pledged Revenues $91,708 $95,182 $113,871 $128,104 $151,041 Senior Debt Service $18,449 $28,257 $34,221 $38,352 $46,381 Subordinate Debt Service 20,609 21,684 10,215 23,496 27,379 Total Annual Debt Service2 $39,058 $49,941 $44,436 $61,848 $73,760 Senior Debt Coverage Ratio 5.0x 3.4x 3.3x 3.3x 3.3x Total Annual Debt Coverage Ratio 2.3x 1.9x 2.6x 2.1x 2.0x Source: The District. ______________________ 1 These numbers are based on the District’s year end audited financial statements and may differ from the historical numbers shown on Table 11 of the Feasibility Report. These differences are due to presentation requirements for auditing purposes. 2 Audited figures exclude Build America Bond federal subsidy payments from nonoperating revenues and reduce the total annual debt service figure by the corresponding amount. 14 Flow of Funds Bond Ordinance Funds and Accounts. The Bond Ordinance establishes or ratifies the establishment of the following funds and accounts and provides that the moneys deposited in such funds and accounts shall be held by US Bank, National Association, St. Louis, Missouri, as the depository (the “Depository”) for the account of the District, in trust for the purposes set forth in the Bond Ordinance: (1) Metropolitan St. Louis Sewer District Wastewater Revenue Fund (the “Revenue Fund”); (2) Metropolitan St. Louis Sewer District Wastewater Sinking Fund (the “Sinking Fund”), and within such Sinking Fund a Payments Account (held by The Bank of New York Mellon Trust Company, N.A.) and a Debt Service Reserve Account; (3) Metropolitan St. Louis Sewer District Wastewater Renewal and Extension Fund (the “Renewal and Extension Fund”); (4) Metropolitan St. Louis Sewer District Wastewater Rebate Fund (the “Rebate Fund”), and within such Rebate Fund a Series 2016C Rebate Account; and (5) Metropolitan St. Louis Sewer District Wastewater Project Fund (the “Project Fund”), and within such Project Fund a Series 2016C Project Account and a Series 2016C Costs of Issuance Account. Deposits to and Uses of Moneys in the Revenue Fund. The Bond Ordinance requires that the District deposit all Operating Revenues into the Revenue Fund from time to time as and when received. The Bond Ordinance also requires that the District apply moneys in the Revenue Fund, prior to the occurrence and continuation of an Event of Default under the Bond Ordinance, in the following order of priority: (1) to pay Expenses of Operation and Maintenance; (2) to deposit into the Sinking Fund the amounts required by the Bond Ordinance, as described below under the heading captioned “Deposits to and Uses of Money in the Sinking Fund”; (3) to make Replenishment Payments to the Debt Service Reserve Account and to pay to any Credit Facility Provider any amounts due under any Credit Facility Agreement, including Additional Interest; (4) to deposit into the Rebate Fund the amounts required by the Bond Ordinance; (5) to pay any amounts due any Reserve Account Credit Facility Provider pursuant to a Reserve Account Credit Facility Agreement; (6) to deposit the amounts required to be deposited into the funds and accounts created by any Series Ordinance authorizing the issuance of Subordinate Bonds, for the purpose of paying Principal of (whether at maturity, upon mandatory redemption or as otherwise required by a Series Ordinance relating to Subordinate SRF Bonds) and interest on Subordinate Bonds, making Hedge Payments under Subordinate Hedge Agreements, and accumulating reserves for such payments; (7) to make Accumulation Payments to the Debt Service Reserve Account in accordance with the Bond Ordinance; and (8) to pay any amounts required to be paid with respect to any Other System Obligations. 15 In addition to, and after, the deposits described above, the District may from time to time deposit into the Renewal and Extension Fund any moneys and securities held in the Revenue Fund in excess of 45 days’ estimated Expenses of Operation and Maintenance. If at any time the amounts in any account of the Sinking Fund are less than the amounts required by the Bond Ordinance, and there are not on deposit in the Renewal and Extension Fund available moneys sufficient to cure any such deficiency, as described herein under the subsection captioned “Deposits to and Uses of Moneys in the Renewal and Extension Fund,” then the District shall withdraw from the funds and accounts of the District relating to Subordinate Bonds which are not Subordinate SRF Bonds and deposit in such account of the Sinking Fund, as the case may be, the amount necessary (or all the moneys in such funds and accounts, if less than the amount required) to make up such deficiency. Deposits to and Uses of Moneys in the Sinking Fund. After the District deposits all Operating Revenues into the Revenue Fund and applies such moneys to pay Expenses of Operation and Maintenance, then the Bond Ordinance provides for deposits to and uses of moneys in the accounts and subaccounts in the Sinking Fund as follows: Payments Account – General. Sufficient moneys shall be paid in periodic installments from the Revenue Fund into the Payments Account for the purpose of paying the Principal of and interest (excluding Additional Interest) on the Senior Bonds as they become due and payable and for the purpose of making Hedge Payments under Senior Hedge Agreements. Amounts held in the Payments Account shall be used solely to pay interest (excluding Additional Interest) and Principal of the Senior Bonds as the same become due and payable (whether at maturity or upon redemption) and to pay Hedge Payments under Senior Hedge Agreements when due. As of the date of this Official Statement, there are no Senior Hedge Agreements in effect. Interest. Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Interest Payment Date for Senior Bonds (or, in the case of Senior Bonds bearing interest at a Variable Rate, on or before the Business Day preceding each Interest Payment Date), the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment and, in the case of Senior SRF Bonds, anticipated investment earnings on reserve funds held by a bond trustee relating to such Senior SRF Bonds, is not less than the interest (excluding Additional Interest) coming due on such Senior Bonds on such Interest Payment Date. The District shall also deposit and continue to deposit all Hedge Receipts under Senior Hedge Agreements in the Payments Account from time to time as and when received. Principal. Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Principal Maturity Date for Senior Bonds, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than the Principal coming due on such Senior Bonds on such Principal Maturity Date. Hedge Payments. On or before the 30th day preceding each payment date for Hedge Payments under Senior Hedge Agreements, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than such Hedge Payments coming due on such payment date. Application of Moneys in Payments Account. No further payments need be made into the Payments Account whenever the amount available in the Payments Account, if added to the amount then in the Debt Service Reserve Account (without taking into account any amount available to be drawn on any Reserve Account Credit Facility), is sufficient to retire all Senior Bonds then Outstanding and to pay 16 all unpaid interest accrued and to accrue prior to such retirement. No moneys in the Payments Account shall be used for or applied to the optional purchase or redemption of Senior Bonds prior to maturity unless: (i) provision shall have been made for the payment of all the Senior Bonds; or (ii) such moneys are applied to the purchase and cancellation of Senior Bonds which are subject to mandatory redemption on the next mandatory redemption date, which falls due within 12 months, such Senior Bonds are purchased at a price not more than would be required for mandatory redemption, and such Senior Bonds are cancelled upon purchase; or (iii) such moneys are applied to the purchase and cancellation of Senior Bonds at a price less than the amount of Principal which would be payable on such Senior Bonds, together with interest accrued through the date of purchase, and such Senior Bonds are cancelled upon purchase; or (iv) such moneys are in excess of the then required balance of the Payments Account and are applied to redeem a part of the Senior Bonds Outstanding on the next succeeding redemption date for which the required notice of redemption may be given. Deposits to and Uses of Moneys in the Debt Service Reserve Account. The Bond Ordinance provides that with respect to Senior Bonds which are not Senior Uncovered Bonds that the Debt Service Reserve Account will be funded in an amount equal to the Debt Service Reserve Requirement for the Senior Bonds which are not Senior Uncovered Bonds. The Bond Ordinance requires that the District deposit into the Debt Service Reserve Account the amounts specified in the Series Ordinances with respect to Senior Bonds. Notwithstanding the foregoing, there shall be no deposit into the Debt Service Reserve Account with respect to any SRF Bonds or Senior Uncovered Bonds nor shall the Debt Service Reserve Account secure any SRF Bonds or Senior Uncovered Bonds. The Series 2016C Bonds are Senior Uncovered Bonds and therefore are not secured by the Debt Service Reserve Account. Whenever for any reason the amount in the Payments Account is insufficient to pay all interest or Principal becoming due on the Senior Bonds which are not Senior Uncovered Bonds within the next seven days (or, in the case of Senior Bonds bearing interest at a Variable Rate, on the next Business Day), the District shall make up any deficiency by transfers first from the Renewal and Extension Fund and second from the funds and accounts of the District relating to Subordinate Bonds which are not Subordinate SRF Bonds. Whenever, on the date that such interest or Principal is due, there are insufficient moneys in the Payments Account available to make such payment on Senior Bonds (except with respect to Senior SRF Bonds and Senior Uncovered Bonds which are not secured by the Debt Service Reserve Account), the District shall, without further instructions, apply so much as may be needed of the moneys in the Debt Service Reserve Account to prevent default in the payment of such interest or Principal, with priority to interest payments. Whenever by reason of any such application or otherwise (other than required Accumulation Payments, as required in the Bond Ordinance) the amount remaining to the credit of the Debt Service Reserve Account is less than the amount then required to be in the Debt Service Reserve Account, such deficiency shall be remedied by monthly deposits (“Replenishment Payments”) from the Revenue Fund, to the extent funds are available in the Revenue Fund for such purpose after all required transfers set forth above have been made. The District may elect to satisfy in whole or in part the Debt Service Reserve Requirement by means of a Reserve Account Credit Facility, subject to certain requirements as set forth in the Bond Ordinance. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. Deposits to and Uses of Moneys in the Renewal and Extension Fund. All sums accumulated and retained in the Renewal and Extension Fund shall be used first to prevent default in the payment of interest on or Principal of the Senior Bonds when due and then shall be applied by the District from time to time, as and when the District shall determine, to the following purposes and, prior to the occurrence and continuation of an Event of Default, in the order of priority determined by the District in its sole discretion: (a) for the purposes for which moneys held in the Revenue Fund may be applied pursuant to 17 the Bond Ordinance and as described above; (b) to pay any amounts which may then be due and owing under any Hedge Agreement (including termination payments, fees, expenses, and indemnity payments); (c) to pay any governmental charges and assessments against the System or any part thereof which may then be due and owing; (d) to make acquisitions, betterments, extensions, repairs, or replacements or other capital improvements (including the purchase of equipment) to the System deemed necessary by the District (including payments under contracts with vendors, suppliers, and contractors for the foregoing purposes); (e) to acquire Senior Bonds by redemption or by purchase in the open market at a price not exceeding the callable price as provided and in accordance with the terms and conditions of the Bond Ordinance, which Senior Bonds may be any of the Senior Bonds, prior to their respective maturities, and when so used for such purposes the moneys shall be withdrawn from the Renewal and Extension Fund and deposited into the Payments Account for the Senior Bonds to be so redeemed or purchased; and (f) for any other purpose of the District. Rate Covenant The Bond Ordinance provides that the District shall continuously own, control, operate, and maintain the System in an efficient and economical manner and on a revenue producing basis and shall at all times prescribe, fix, maintain, and collect rates, fees, and other charges for the services, facilities, and commodities furnished by the System fully sufficient at all times to: (1) provide for 100% of the Expenses of Operation and Maintenance and for the accumulation in the Revenue Fund of a reasonable reserve therefor; and (2) produce Net Operating Revenues in each Fiscal Year which, together with Investment Earnings: (a) will equal at least 125% of the Debt Service Requirement on all Senior Bonds then Outstanding for the year of computation and 115% of the Debt Service Requirement on all Bonds then Outstanding for the year of computation; (b) will enable the District to make all required payments, if any, into the Debt Service Reserve Account and the Rebate Fund and to any Credit Facility Provider, any Reserve Account Credit Facility Provider, and any Qualified Hedge Provider; (c) will enable the District to accumulate an amount to be held in the Renewal and Extension Fund which, in the judgment of the District, is adequate to meet the costs of major renewals, replacements, repairs, additions, betterments, and improvements to the System, necessary to keep the same in good operating condition or as is required by any governmental agency having jurisdiction over the System; and (d) will remedy all deficiencies in required payments into any of the funds and accounts established under the Bond Ordinance from prior Fiscal Years. If the District fails to prescribe, fix, maintain, and collect rates, fees, and other charges, or to revise such rates, fees, and other charges, in accordance with these provisions of the Bond Ordinance, the owners of not less than 25% in aggregate Principal amount of the Bonds then Outstanding, without regard to whether any Event of Default shall have occurred, may institute and prosecute in any court of competent jurisdiction an appropriate action to compel the District to prescribe, fix, maintain, or collect such rates, fees, and other charges, or to revise such rates, fees, and other charges, in accordance with the requirements of the Bond Ordinance. 18 Senior and Subordinate Bonds Upon satisfaction of certain conditions, the Bond Ordinance permits the District, for specified purposes, to issue additional Senior Bonds without express limit as to principal amount, which will be equally and ratably secured on a parity basis with the Outstanding Series 2010B Bonds, Series 2011B Bonds, Series 2012A Bonds, Series 2012B Bonds, Series 2013B Bonds, Series 2015B Bonds and Series 2016C Bonds under the Bond Ordinance. The Debt Service Requirement, as defined in the Bond Ordinance, which is used in the calculation of the additional bonds test, allows the District to take into account the anticipated receipt of U.S. Treasury Interest Subsidy payments to arrive at a net debt service figure with respect to the Series 2010B Bonds issued as “Build America Bonds.” The District may issue additional Senior Bonds in the future to finance part of the cost of capital improvements identified in the District’s CIRP. See the section herein captioned “THE CIRP.” The Bond Ordinance also permits the District to issue Subordinate Bonds which would be secured by a lien on the Pledged Revenues that would be junior and subordinate to the Series 2016C Bonds and any other Senior Bonds. See “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. PLAN OF FINANCE Purpose of and Authority for the Series 2016C Bonds At a special election held on June 5, 2012, voters within the District approved the issuance by the District of $945,000,000 in sewer system revenue bonds (the “2012 Authorization”) to enable the District to comply with federal and state clean water requirements. The District previously issued bonds in a par amount of $652,000,000 from the 2012 Authorization, consisting of the Series 2012A Bonds, the Series 2013A Bonds, the Series 2013B Bonds, the Series 2015A Bonds and a portion of the Series 2015B Bonds. In addition the District anticipates that it will issue $20,000,000 in aggregate principal amount of the Series 2016A Bonds and $75,500,000 in aggregate principal amount of the Series 2016B Bonds prior to the end of the calendar year. Upon the issuance of the Series 2016A Bonds, the Series 2016B Bonds and Series 2016C Bonds, the par amount of bonds issued under the 2012 Authorization will increase to $897,500,000. The District will issue the Series 2016C Bonds pursuant to the 2012 Authorization and the Bond Ordinance to provide funds to (a) finance the Series 2016C Project as described below under the heading “THE CIRP − Capital Finance Plans Contemplated Under Consent Decree,” and (b) pay the Costs of Issuance of the Series 2016C Bonds. Other Indebtedness The Series 2016C Bonds are revenue bonds secured by and payable from Pledged Revenues on a parity with six series of Senior Bonds: (1) the Series 2010B Bonds, (2) the Series 2011B Bonds, (3) the Series 2012A Bonds, (4) the Series 2012B Bonds, (5) the Series 2013B Bonds and (6) the Series 2015B Bonds. The District has also issued (or expects to issue soon in the case of the Series 2016A and Series 2016B Bonds) thirteen series of Subordinate Bonds: 19 Name of Bonds Series Designation Original Principal Amount Amount Outstanding Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program) Series 2004B (“Series 2004B Bonds”) $161,280,000 $89,650,000 Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program) Series 2005A (“Series 2005A Bonds”) 6,800,000 3,800,000 Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program) Series 2006A (“Series 2006A Bonds”) 42,715,000 25,600,000 Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program) Series 2006B (“Series 2006B Bonds”) 14,205,000 8,860,000 Subordinate Wastewater System Revenue Bonds (State Revolving Fund Program) Series 2008B (“Series 2008B Bonds”) 40,000,000 27,475,000 Subordinate Wastewater System Revenue Bonds (State of Missouri – Direct Loan Program) Series 2009A (“Series 2009A Bonds”) 23,000,000 16,980,400 Subordinate Wastewater System Revenue Bonds (State of Missouri – Direct Loan Program) Series 2010A (“Series 2010A Bonds”) 7,980,700 6,406,300 Subordinate Wastewater System Revenue Bonds (State of Missouri – Direct Loan Program) Series 2010C (“Series 2010C Bonds”) 37,000,000 29,198,000 Subordinate Wastewater System Revenue Bonds (State of Missouri – Direct Loan Program) Series 2011A (“Series 2011A Bonds”) 39,769,300 36,528,300 Subordinate Wastewater System Revenue Bonds (State of Missouri – Direct Loan Program) Series 2013A (“Series 2013A Bonds”) 52,000,000 48,860,000 Subordinate Wastewater System Revenue Bonds (State of Missouri – Direct Loan Program) Series 2015A (“Series 2015A Bonds”) 75,000,000 49,374,986 (1) Subordinate Wastewater System Revenue Bonds (State of Missouri – Direct Loan Program) Series 2016A (“Series 2016A Bonds”) 20,000,000 0 (2) Subordinate Wastewater System Revenue Bonds (State of Missouri – Direct Loan Program) Series 2016B (“Series 2016B Bonds”) 75,500,000 0 (2) (1) Bond proceeds drawn down as of September 30, 2016. (2) Series 2016A Bonds and Series 2016B Bonds are expected to be issued by the end of the calendar year. 20 The Series 2004B Bonds, Series 2005A Bonds, Series 2006A Bonds, Series 2006B Bonds and Series 2008B Bonds have been purchased by the Authority through the State Revolving Fund Program. The Series 2009A Bonds, Series 2010A Bonds, Series 2010C Bonds, Series 2011A Bonds, Series 2013A Bonds, Series 2015A Bonds, Series 2016A Bonds and Series 2016B Bonds have been or will be purchased by DNR through the Direct Loan Program. Estimated Sources and Uses of Funds The following table summarizes the anticipated sources and uses of funds in connection with the issuance of the Series 2016C Bonds: Sources of Funds Par amount of Series 2016C Bonds Plus Original Issue Premium $150,000,000.00 17,678,054.40 Total $167,678,054.40 Uses of Funds Deposit to Series 2016C Project Account $166,331,776.33 Deposit to the Series 2016C Costs of Issuance Account* 1,346,278.07 Total $167,678,054.40 ___________________________ * Proceeds in the account to be used to pay costs of issuance of the Series 2016C Bonds, including Underwriters’ discount. [Remainder of page intentionally left blank] 21 DEBT SERVICE SCHEDULE The following table sets forth the debt service requirements for all Outstanding Senior Bonds, the Series 2016C Bonds, the Subordinate Bonds and total debt service on all System revenue bonds. Year Ending June 30 Debt Service on Outstanding Senior Bonds* Debt Service on Series 2016C Bonds Debt Service on Subordinate Bonds** Total Debt Service 2017 $55,688,169 $2,489,837 $31,705,094 $89,883,100 2018 55,466,294 9,547,300 32,484,430 97,498,024 2019 55,453,107 9,548,200 32,511,876 97,513,183 2020 55,549,807 9,545,400 32,533,008 97,628,215 2021 55,431,807 9,546,800 32,529,597 97,508,204 2022 55,396,757 9,543,600 32,734,635 97,674,992 2023 55,327,507 9,545,800 32,560,168 97,433,475 2024 54,976,457 9,548,000 32,576,372 97,100,829 2025 54,875,540 9,545,000 32,578,445 96,998,985 2026 58,036,090 9,546,800 29,142,677 96,725,567 2027 60,629,540 9,547,050 22,456,671 92,633,261 2028 61,425,365 9,548,300 18,683,217 89,656,882 2029 61,202,115 9,545,050 17,804,647 88,551,812 2030 63,651,015 9,547,050 15,340,017 88,538,082 2031 63,268,615 9,548,550 13,883,497 86,700,662 2032 63,064,215 9,544,050 11,212,752 83,821,017 2033 58,677,878 9,548,300 10,972,164 79,198,342 2034 58,483,978 9,545,300 10,980,430 78,009,708 2035 55,462,428 9,544,800 6,686,163 71,693,391 2036 55,495,372 9,546,050 65,041,422 2037 56,263,040 9,543,300 65,806,340 2038 56,317,860 9,547,500 65,865,360 2039 58,308,505 9,546,700 67,855,205 2040 57,765,750 9,545,700 67,311,450 2041 57,764,500 9,544,100 67,308,600 2042 57,762,500 9,546,500 67,309,000 2043 19,898,750 9,547,500 29,446,250 2044 9,895,000 9,544,750 19,439,750 2045 9,896,250 9,547,500 19,443,750 2046 9,544,500 9,544,500 Totals $1,541,434,211 $279,329,287 $449,375,860 $2,120,139,358 _________________ * Debt service figures are reduced by a 32.62% federal interest rate subsidy on the District’s Series 2010B Bonds for the years 2017 through 2024, and by a 35% federal interest rate subsidy thereafter. Such subsidy may be changed or eliminated at any point in the future. ** This does not include debt service on Series 2016A Bonds and Series 2016B Bonds. Figures assume complete draw down of Series 2015A Bonds. 22 THE DISTRICT General The District is organized pursuant to Article VI, Section 30 of the Missouri Constitution which empowers the people of the County and the City “to establish a metropolitan district for functional administration of services common to the area included therein.” The District is the only special district in the State established pursuant to that section of the Missouri Constitution. The Charter established the District. The District was created to provide a metropolitan-wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage to serve the City and most of the more heavily populated areas of the County. Before the District’s creation, the City, various municipalities in the County and private sewer companies provided sewer service that primarily included only collecting and transporting sewage from small geographic areas to nearby rivers and streams with little or no treatment. Most of the municipalities or private sewer companies serving the area did not have the jurisdictional authority or financial resources needed to eliminate health hazards from untreated sewage. When the District began operations in 1956 it took over the publicly-owned wastewater and stormwater drainage facilities within its jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. In 1977, voters approved the District’s annexation of a 270 square mile area of the lower Missouri River and lower Meramec River watersheds in the County. The District purchased the Fee Fee Trunk Sewer Company and the Missouri Bottoms Sewer Company in 1978. The District has since acquired other investor-owned or municipally operated systems. The District operates the fourth largest wastewater treatment system in the United States. The District’s service area now encompasses approximately 525 square miles including all 62 square miles of the City and 463 square miles (approximately 90%) of the County. Only the far western section of the County is not served by the District. The District provides sanitary sewer collection and treatment and stormwater management to a population of approximately 1.3 million. As of June 30, 2016, the District served approximately 422,512 accounts, including approximately 356,926 single family residences, approximately 41,585 multi-family apartments and condos, and approximately 24,001 commercial/ industrial businesses. For further description of the District’s service area, see the service area map located on the back cover of this Official Statement. For certain economic and demographic information regarding the City and the County, see Appendix B to this Official Statement. The Charter describes the District as “a body corporate, a municipal corporation and a political subdivision of the state.” The District’s Charter was amended in 2000 in order to update the District’s procedures and improve its operations. The amendments provided additional flexibility and structure to several aspects of District operations, including (1) establishment of an independent 15-member Rate Commission to review adjustments to the District’s wastewater and stormwater charges before the Board acts on them; (2) authorization for the District to issue revenue bonds on a District-wide basis and lowering the margin required for passage of both revenue and general obligation bonds to be consistent with the Missouri Constitution; (3) requiring a mandatory rotation of outside auditors every five years and the appointment of an internal auditor; (4) requiring a periodic independent management audit; and (5) permitting the investment of District funds in the same manner as authorized by the Missouri Constitution for the investment of State funds. Other amendments to the Charter include (1) limiting the term on Trustee and a three-member civil service commission (the “Civil Service Commission”) appointments to two terms (eight years), (2) requiring the publication of Board vacancies, and (3) requiring the Board to make a written report to the Mayor and Board of Alderman of the City and to the County Executive and County Council on an annual basis. 23 Eight additional amendments to the Charter were approved by voters at the special election held on June 5, 2012. The approved changes (1) remove the actual boundaries of the District from the Charter so that boundary changes do not require Charter amendment and are kept by the Office of the Secretary- Treasurer; (2) streamline the process of forming subdistricts; (3) more clearly delineate the District’s responsibility for stormwater management; (4) allow use of electronic media, or such other form of communication as may be required by Missouri law; (5) provide that the budget include a list of capital projects to be undertaken; (6) allow the District to use the design-build approach for projects; (7) provide that each Rate Commission representative organization shall serve until its successor shall be appointed and qualified; and (8) support gender neutrality. The Charter requires the District to adopt a continuing five-year strategic and operating plan on an annual basis. The strategic and operating plan states the District’s objectives for the succeeding five years and includes objective targets against which the District’s performance in meeting these objectives is measured. The District is subject to the provisions of the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., commonly referred to as the Clean Water Act, the stated objective of which is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters. The District is also subject to the Missouri Clean Water Law, Sections 644.006 through 644.141, Revised Statutes of Missouri, as amended, and other laws and regulations. The regulatory requirements are administered by the United States Environmental Protection Agency through the Missouri Department of Natural Resources. See the section herein captioned “REGULATORY REQUIREMENTS.” Organization and Management General. The Charter established the Board as the governing body of the District. The Board is composed of six members, with three members appointed by the Mayor of the City and three members appointed by the County Executive of the County. No more than two trustees from each area can be of the same political affiliation. According to the Charter, the Board enacts District ordinances, determines policies, and appoints the Executive Director, the Secretary-Treasurer and the Internal Auditor. The Executive Director appoints all other District officials. Among its duties, the Board makes all appropriations, approves contracts for improvements, and engages an accounting firm to perform the annual independent audit of the District. The Board’s standing committees include Audit, Finance, Pension, Program Management and Stakeholder Relations. Administration of district-wide operations is by the executive staff under the direct supervision of the Executive Director. The Civil Service Commission serves in an advisory position regarding personnel administration and civil service matters, and hears appeals of disciplinary actions. The 15-member Rate Commission, an advisory body established pursuant to the amendments to the Charter adopted on November 7, 2000 (the “Rate Commission”) makes recommendations to the Board regarding all proposed changes in wastewater rates, stormwater rates and tax rates or regarding changes in structure to the foregoing. See the section herein captioned “MANAGEMENT’S DISCUSSION AND ANALYSIS – Rate Commission and Rate Setting Process.” District Initiatives. During the last decade the District instituted an in-depth review of District policies and practices. Based on this review, the Board implemented a process of measuring the District’s effectiveness in several key areas and made a number of policy initiatives which are still in force today. Among the above-mentioned policy decisions made by the Board was the institution of a revised code of ethics for Board members and District employees concerning conflicts of interest. The policy prohibits any activities that could be construed as a conflict between personnel and District needs, and makes individuals responsible for reporting any potential conflicts. These new standards brought the District’s ethics policy in line with that of other public agencies. 24 The Board instituted “zero-based budgeting” in the development of the District’s annual budget. This budgeting process breaks the District’s budget into two distinct sections: (i) a base budget representing the cost to run basic operations and (ii) an incremental budget representing initiatives that are tied directly to the District’s Strategic Business and Operating Plan. Both sections undergo multiple reviews to ensure that planned expenditures are justified and appropriate for the supported business activity. For the incremental budget, an expenditure cannot be justified solely by a like expenditure in a previous year; the expenditure has to clearly support a business objective from the Strategic Business and Operating Plan. The use of zero-based budgeting has played a strong part in helping to keep key areas of the District’s budget at or below the rate of annual inflation. See the section herein captioned “MANAGEMENT’S DISCUSSION AND ANALYSIS” for further discussion. Board of Trustees The current members of the Board are as follows: Name Current Term Expires Michael Yates, Chairman March 15, 20141 James Faul, Vice Chairman March 15, 2017 Rev. Ronald Bobo March 15, 20161 Ruby Bonner, Member March 15, 2018 Annette Mandel, Member March 15, 2020 James I. Singer, Member March 15, 2017 _____________________ 1 Pursuant to Section 5.010 of the District’s Charter, members continue to serve until a successor is appointed. Set forth below is certain biographical information on the members of the Board. Michael Yates, Chairman (St. Louis County). Mr. Yates is the business representative for the Operating Engineers Local 148 and has served on the Board since January 17, 2012. James Faul, Vice Chairman (St. Louis City). Mr. Faul is an attorney with the law firm of Hartnett Gladney Hetterman, L.L.C. (formerly Bartley Goffstein, L.L.C.). Mr. Faul has served on the Board since April 2013. Rev. Ronald Bobo (St. Louis County). Reverend Bobo is the senior pastor of Westside Missionary Baptist Church and a member of the St. Louis Clergy Coalition. Reverend Bobo has served on the Board since January 12, 2016. Ruby Bonner (St. Louis City). Ms. Bonner is a former Executive Director for the St. Louis Civil Rights Enforcement Agency and has previously served as a municipal court judge and as General Counsel for the St. Louis Pubic School’s Board of Education. Ms. Bonner has served on the Board since May 2014. Annette Mandel (St. Louis City). Ms. Mandel is an attorney with the law firm of Mandel & Mandel and a former mayor of Creve Coeur, Missouri. She has served on the Board since April 2012. James I. Singer (St. Louis County). Mr. Singer is a partner in the law firm of Schuchat, Cook & Werner. Mr. Singer has served on the Board since January 12, 2016. 25 Administration Management of the District is provided by a management team that reports to the Board, including an Executive Director, Secretary-Treasurer, Assistant Secretary-Treasurer, Internal Auditor, General Counsel, and Directors of Finance, Engineering, Human Relations, Operations and Information Systems. Set forth below is certain biographical information regarding selected members of the executive management staff of the District: Brian Hoelscher, P.E., Executive Director. Mr. Hoelscher served as the District’s Director of Engineering for more than nine years before his appointment as Executive Director on March 27, 2013. As the Director of Engineering, he was responsible for the delivery of the District’s CIRP as well as other environmental and regulatory duties. Mr. Hoelscher held several other management positions in the District’s engineering department prior to his tenure as Director of Engineering. Before joining the District in May 1995, Mr. Hoelscher served as the St. Louis area office manager for consulting engineers Consoer, Townsend, Envirodyne, Inc. (now AECOM). Mr. Hoelscher has a Bachelor of Science in Chemical Engineering from Washington University in St. Louis, and is licensed as a Professional Engineer in Missouri and Illinois. Tim R. Snoke, Secretary-Treasurer. Mr. Snoke joined the District as Secretary-Treasurer in May 2014. Before becoming Secretary-Treasurer, he spent 21 years at Ralcorp Holdings, Inc. in various finance and treasury management positions, most recently as Assistant Treasurer. Mr. Snoke holds a Bachelor of Science degree in Business Administration from Valparaiso University and a Masters of Business Administration from St. Louis University. John Strahlman, Assistant Secretary-Treasurer. Mr. Strahlman was hired by the District in January 2015. His previous experience includes treasury management positions at Metropolitan Pier and Exposition Authority in Illinois, and at the Cook County Treasurer’s office. He holds a Bachelor of Science degree in Public Finance from Indiana University and a Masters of Business Administration from DePaul University. Susan M. Myers, General Counsel. Ms. Myers has been employed by the District as in-house counsel since 2001 and was promoted to General Counsel in 2011. Prior to joining the District, she served as an environmental engineer for two years with EPA Region VII in RCRA Permitting and for nine years on a billion dollar Department of Energy Superfund clean-up project. Ms. Myers earned her law degree from St. Louis University School of Law and a Bachelor of Science in Geological Engineering from the University of Missouri-Rolla (currently Missouri University of Science and Technology). Marion Gee, Director of Finance. The District announced Mr. Gee as the new Director of Finance in September 2015. Mr. Gee most recently served as Assistant Finance Director for the City of San Antonio. He previously served as the Finance Director for the Louisville Metropolitan Sewer District for 11 years. Mr. Gee is a Certified Public Accountant and has a Bachelor of Science in Business Administration and a Masters of Business Administration, both from the University of Louisville. Richard Unverferth, P.E., Director of Engineering. Mr. Unverferth has served as the District’s Director of Engineering since May 2013. Mr. Unverferth has been with the District for 29 years. Prior to his current position, he held numerous positions in the District’s Engineering and Operations departments. Mr. Unverferth has a Bachelor of Science in Civil Engineering from the University of Missouri-Rolla (currently Missouri University of Science and Technology), and is a licensed Professional Engineer in Missouri. 26 Vicki L. Taylor Edwards, Director of Human Resources. Ms. Edwards has served as the Director of Human Resources at the District since 2001. Before her promotion to her current position, Ms. Edwards held several other positions within the human resources department. Before joining the District, she was with Mercantile Bank for seventeen years, also in human resources. Ms. Edwards received her Bachelor Degree from Lindenwood University in Human Resources Management. Barbara Mohn, Director of Information Systems. Ms. Mohn was named the District’s Director of Information Systems in September 2006, and has extensive experience in the information technology field, primarily in the telecommunications and financial services industries. Her most recent position was IT Director – Program Management for General Electric Commercial Distribution Company. Before that, she held positions at Deutsche Financial Services, CIBER Consulting and AT&T. Ms. Mohn has a Bachelor of Science in Business Administration from Southeast Missouri University and a Masters of Business Administration from the University of Central Florida. Jonathon Sprague, P.E., Director of Operations. Mr. Sprague has been the Director of Operations for the District since July 2007. He joined the District in May 2005 as Assistant Director of Operations with more than 15 years of experience in public utilities management. Mr. Sprague has a Bachelor of Science in Electrical Engineering from the University of Akron and a Masters of Business Administration from the College of William and Mary. The System The District owns and operates the System, which consists of sanitary, stormwater and combined collection sewers, pumping stations, and wastewater treatment facilities in its service area. The District provides sewer collection, pumping and treatment services within three major watersheds located within the District’s service area, including the Mississippi River watershed, the Missouri River watershed and the Meramec River watershed. In addition, the District provides a variety of other services, including sanitary sewer maintenance, stormwater sewer maintenance, floodwater control, monitoring of industrial waste, issuance of pretreatment discharge permits, engineering design and specification, construction of sewer lines, plan review and approvals, issuance of connection permits, public education and customer service. Collection and Trunk Sewers and Force Mains. As of July 2016, the District operates and maintains 9,501 miles of collection and trunk sewers and force mains, ranging in size from six inches to 29 feet in diameter. They are classified as one of three types: sanitary, storm or combined. Sanitary sewers accommodate household and industrial waste. Storm sewers carry rainwater and surface water runoff. Combined sewers carry both types of waste. The System currently includes approximately 4,711 miles of sanitary sewers and force mains, approximately 3,045 miles of stormwater sewers and improved channels, and approximately 1,756 miles of combined sewers that handle both wastewater and stormwater flows. Maintenance of the System is controlled and conducted out of three regional facilities. Pumping Stations and Force Mains. The District currently owns and maintains 273 pumping stations and 123 miles of force mains which are included in the sewer system totals above. Pump station and force main support is divided into three geographic regions under a pump station manager. All pump stations are maintained regularly and monitored continuously by telemetry. Of the 273 stations, 36 are floodwall (overflow regulation), 16 wet weather relief stations, 5 are stormwater and the remaining 216 are sanitary and combined sewage pump stations which move the flow of wastewater through the wastewater system and into District treatment plants. Wastewater Treatment Facilities. The District currently owns and operates seven wastewater treatment facilities. These facilities treated an average flow of 313 million gallons of wastewater per day 27 (“MGD”) for the previous five Fiscal Years 2012 to 2016. The Bissell Point and Lemay wastewater treatment plants are the District’s two largest plants. Both of these plants serve the Mississippi River watershed. The Coldwater Creek and Missouri River wastewater treatment plants service the Missouri River watershed. The remaining wastewater treatment plants serve the Meramec River watershed. Employees and Employee Relations The District had 1,018 budgeted positions for Fiscal Year 2017, of which 944 are filled. Approximately 86% of the District’s employees within the Operations Department are represented by one of six unions: American Federation of State, County and Municipal Employees; Bricklayers; International Association of Machinists; International Brotherhood of Electrical Workers; Operating Engineers; and Service Employees International. The District had one labor dispute in 1977. For more than the past 35 years, the District has had no record of any labor dispute or work stoppage and considers its employee relations to be excellent. The District entered into new collective bargaining agreements with the six unions in 2016 which extend through June 30, 2020. Salary increases between FY 2017 and FY 2020 average 3% annually. The District also retains private companies and consultants from time to time to supplement and expand its existing staffing resources. Economic Conditions in the District Generally, the District’s major revenue sources do not fluctuate with the local and national economies as much as local governments that depend on sales or income taxes for their major sources of revenue. The District uses several measures to forecast economic development in the District. Such factors are listed below for Fiscal Years 2012 through 2016: 2012 2013 2014 2015 2016 Sewer Plan Reviews: Number of Plans Approved 396 447 487 529 613 Number of Miles of Sewers 23 22 36 22 38 Sewer Construction Permits: Number of Permits Issued 1,912 2,020 3,472 3,447 4,546 Number of Miles of Sewers 16 19 29 33 30 Customer Connections: Number of Connection Permits Issued 802 1,345 1,764 2,017 2,165 Connection Fee Revenue $625,812 $1,058,063 $1,543,209 $1,808,160 $1,691,032 Value of Sewers Dedicated to the District by Developers $9,495,264 $17,510,735 $6,873,732 $12,304,126 $11,271,085 _________ Source: The District Over the years, the St. Louis economy has undergone a transformation from reliance on traditional manufacturing industries to those industries based on advanced technology and service. The St. Louis area is a center for health care, banking, finance, transportation, tourism, and education and has a strong and diverse manufacturing economy. For more information on economic and demographic trends in the City and the County, see Appendix B hereto. Security The System is subject to safety and security inspections on a continuing basis by the District. All treatment plants are maintained as secure facilities with fences, locked gates and electronic surveillance equipment. The District does not represent that any existing or additional safety or security measures will 28 be adequate in the event that terrorist activities are directed at the System. Further, damage to components to the System could have a material adverse impact on the District’s expenditures for repairs to the System. Insurance The District maintains third-party commercial insurance coverage for various risks while self- insuring for other risks and liabilities. Presently commercial insurance coverage is maintained for officers’, directors’ and general liability, property, boiler and machinery, excess flood, combined liability, excess liability, excess workers’ compensation, public official performance bond, public entity fiduciary liability, crime, major facility pollution liability and sewer backup (blocked line and overcharged line). Such policies contain liability limits, deductions and retentions that management of the District believes to be customary for similar enterprises. Total premiums for third-party insurance coverage for Fiscal Year 2016 were $3,276,398, an approximately 4.2% increase from Fiscal Year 2015. In addition, the District has established a risk management program and self-insures a portion of the risk related to its obligation to provide workers’ compensation and medical and hospitalization benefits to its employees and water backup claims of its customers. The estimated liabilities for payment of incurred (both reported and unreported) but unpaid claims relating to these matters are included in the District’s financial statements as a component of current deposits and accrued expenses. As of June 30, 2016 and 2015, these liabilities amounted to $4,076,994 and $4,317,384 respectively. The District obtains periodic funding valuations from the third-party administrators managing the self-insurance programs and adjusts the charges as required to maintain the appropriate level of estimated claims liability. For more information regarding the District’s self-insurance program, see Note 10, Self Insurance, to the District’s Notes to Financial Statements contained in Appendix A to this Official Statement. THE CIRP General The District developed the CIRP in 2004 which identifies proposed expenditures by the District for capital improvements to the District’s sewer facilities over the next several decades. The general objectives of the CIRP are to meet federal and state requirements and District policy regarding water pollution control, to provide a satisfactory level of service to users of the District’s sewer system, including reduction of building back-ups, and to continue the District’s program to rehabilitate its infrastructure system. The CIRP addresses the District’s infrastructure capital improvement projects involving the construction, repair, replacement and upgrade of sanitary and combined sewers, forcemains, pump stations, tanks, tunnels, treatment plants, and stormwater sewers. The District has designated the portion of the CIRP improvements agreed to under the Consent Decree, hereinafter defined, as “Project Clear.” Project Clear has an estimated cost of approximately $4.7 billion (in 2010 dollars). Historical Capital Improvement Expenditures Before 2004, the District financed substantially all of the capital improvements to its facilities from available revenues on a “pay-as-you-go” basis. Since Fiscal Year 2004 the District has paid for more than $1.9 billion in capital improvements through a combination of debt financing and “pay-as-you- go” financing. Since the District began implementation of the CIRP in 2004, the District has completed project improvements in the following categories: 29 • Increasing wastewater treatment capacity • Increasing quality of treatment levels to meet new regulations • Finishing construction of a new wastewater treatment plant • Improving infrastructure to reduce combined sewer overflows • Improving infrastructure to reduce sanitary sewer overflows • Rehabilitating and replacing aging infrastructure Financing Plans for the CIRP There are two primary funding sources for financing the capital improvements identified in the CIRP: (1) debt, including Bonds issued under the Bond Ordinance; and (2) available Operating Revenues on a “pay-as-you-go” basis. The District will use the proceeds of previously issued Bonds, a portion of the proceeds of the Series 2016C Bonds and any Bonds issued by the District in the future under the Bond Ordinance to finance the infrastructure projects identified in the CIRP. At special elections held February 3, 2004, and August 5, 2008 (the “Prior Authorizations”) the voters approved the issuance of an aggregate principal amount of $775,000,000 of System Revenue Bonds, all of which have been issued in furtherance of the CIRP. At a special election held June 5, 2012, the District obtained voter approval to issue an additional $945,000,000 of System Revenue Bonds. After the issuance of the Series 2016A Bonds, the Series 2016B Bonds and the Series 2016C Bonds, the remaining amount of the 2012 Authorization will be $47,500,000. At a special election held April 5, 2016, the District obtained voter approval to issue an additional $900,000,000 of System Revenue Bonds (the “2016 Authorization”). No bonds have been issued pursuant to the 2016 Authorization. The following table sets forth voter approval percentages for each of the CIRP bond authorizations: Year of Election Percentage in Favor of Bond Authorization 2004 68% 2008 75% 2012 85% 2016 76% Major projects constructed with proceeds of the Prior Authorizations were the Lower Meramec Treatment Plant, $177,000,000; Coldwater Creek Treatment Plant Improvements, $61,000,000; Missouri River Plant Rehab and Improvements, $52,000,000; Grand Glaize Plant Improvements, $35,000,000; Other Treatment Plant Improvements, $24,000,000; CSO/SSO Collection System Improvements, $80,000,000; and the Lemay Plant Improvements, $40,000,000. Major projects constructed or under construction with proceeds of the 2012 Authorization to date include: Maline Creek CSO BP 051 & 052 Local Storage Facility (Chair of Rocks Drive to Church Drive), $86,000,000; Lemay Pump Station No. 1 Redundant Force Main, $25,000,000; Coldwater Sanitary Relief Section B, C, and D Wet Weather Storage Facility Tank C, $20,000,000; Lemay WWTP Secondary Improvements, $15,000,000; completion of the Missouri River WWTP Secondary Treatment Expansion and Disinfection, $20,000,000; Maplewood – Blendon Combined Sewer Relief, $11,000,000; Bissell & Lemay WWTP Incinerator Scrubber Replacement, $8,000,000; and FF-11 Fee Fee Creek Sanitary Relief, $7,000,000. 30 Issued Revenue Bonds by Authorization The table on the following page reflects the revenue bond authorizations since 2012 approved by the voters in connection with the CIRP Projects. In addition, the District, pursuant to Rate Commission recommendations, has financed a portion of the CIRP Projects on a “pay-as you go” basis. The District also anticipates that it may have certain grant proceeds and has had, and will have, interest earnings available to finance the costs of the CIRP. [Remainder of page intentionally left blank.] 31 ISSUED REVENUE BONDS BY AUTHORIZATION(1) Voter Authorized Amount Date of Authorization Series(1) Bond Amount Bond Date Remaining Authorization $ 945,000,000 June 2012 2012A $ 225,000,000(3) August-2012 $ 720,000,000 2013A 52,000,000(2) October-2013 668,000,000 2013B 150,000,000(3) December-2013 518,000,000 2015A 75,000,000(2) August-2015 443,000,000 2015B* 150,000,000(3)* December-2015 293,000,000 2016A 20,000,000(2) December-2016 273,000,000 2016B 75,500,000(2) December-2016 197,500,000 2016C 150,000,000(3) December-2016 47,500,000 $900,000,000 April 2016 Notes: (1) Wastewater System Revenue Bonds, Series 2004A were refunded by the Series 2012B Bonds. The Series 2012B Bonds are not included in the chart above because they do not count against voted authorization. (2) State Revolving Fund Program/Subordinate Revenue Bonds (Subordinate Bonds) (3) Senior Bonds ______________ * Refunding portions of Series 2015B Bonds do not count against voted authorization. 32 Total Capital Expenditures under CIRP The following table sets forth the District’s historic capital improvement expenditures for improvements to the System for Fiscal Years 2007 through 2016, including expenditures funded both by Bond proceeds and on a “pay-as-you-go” basis: Fiscal Year Ending June 30 Capital Improvement Expenditures(1) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $134,588,843 147,953,723 182,150,854 116,125,747 99,958,334 134,909,742 151,321,500 158,323,507 196,100,162 216,933,464 Total: $1,538,365,876 ___________________ Source: The District. (1) Since separate wastewater and stormwater statements were not prepared prior to Fiscal Year 2009, the capital improvement expenditures from Fiscal Year 2007 and Fiscal Year 2008 represent the payments for all capital improvements to the District’s sanitary, stormwater and combined collection sewers, pumping stations and wastewater treatment facilities. Fiscal Year 2009 through Fiscal Year 2016 represent Wastewater Capital Expenditures only. Capital Finance Plans Contemplated Under Consent Decree The District identified an estimated $4.7 billion (in 2010 dollars) in capital improvement needs for wastewater system improvements which are to be constructed over a 23-year period. The Board has approved a budget that identified proposed expenditures by the District for wastewater capital improvements of approximately $354 million through the District’s Fiscal Year ending June 30, 2017, for a portion of the projects that are included in the CIRP. The District estimates that the cost of the projects identified in the CIRP for the period from Fiscal Year 2017 through Fiscal Year 2020 will be approximately $1.5 billion. Approximately 25% of the total major capital improvement expenditures for Fiscal Year 2017 to Fiscal Year 2020 are anticipated to be from operating revenues and the drawdown of available fund balances and the remaining approximately 75% is expected to be funded by the issuance of additional debt pursuant to the 2012 Authorization, the 2016 Authorization and additional voted authorization. [Remainder of page intentionally left blank.] 33 The District’s capital program in Fiscal Year 2017 includes more than 100 projects, a portion of which will be financed with the proceeds of the 2016C Bonds (the “Series 2016C Project”), “pay-as- you-go” revenues of the System and future financings under the Bond Ordinance. Among these projects, some of which are multi-year efforts, are the following projects which are budgeted at $4 million or more in Fiscal Year 2017: Project Name Task Description Budget Amount Maline Creek CSO BP 051 & 052 Local Storage Facility (Chain of Rocks Drive to Church Drive) Construction $30,000,000 Deer Creek Sanitary Tunnel (Clayton Road to RDP) Construction 30,000,000 Jefferson Barracks Tunnel (Lemay WWTP to Martigney PS) Construction 18,900,000 DC-02 & DC-03 Sanitary Relief (Brentwood Boulevard to Conway Road) Phase I Construction 11,750,000 Upper Maline Trunk Sanitary Relief Phase IV Section A Construction 9,100,000 Caulks Creek Forcemain Rehabilitation Construction 9,000,000 LMRDP CSO Storage Tunnel (Broadway to RDP Tubes) Design Services 7,500,000 Construction Management Services - Lower Meramec And Deer Creek Tunnels Professional Services 6,800,000 Caulks Creek Forcemain (River Valley Road to L-52) Construction 6,600,000 West Wise I/I Reduction (NW Quad I-64 and Big Bend Boulevard) Construction 5,700,000 Deer Creek Public I/I Reduction (2017) Contract A Construction 5,700,000 Caulks Creek Trunk Sewer (SKME-011) Phase I Construction 5,600,000 Construction Management Services - Tank/Treatment/Pump Station Facilities Professional Services 5,500,000 Infrastructure Repairs (Wastewater) (2017) Work Order Repair Costs (Capital) 5,500,000 University City Public I/I Reduction - East (UR-08 and UR-09) Construction 5,500,000 Lemay Public I/I Reduction (2017) Contract B Construction 5,320,000 Lemay Pump Stations 1 and 2 Improvements Construction 5,300,000 Lemay Watershed I/I Removal - North Hampton Creek Construction 5,270,000 FF-16 Schuetz - Meadowside to Page Sanitary Relief Construction 5,000,000 CSO Volume Reduction Green Infrastructure Construction 5,000,000 Dammert and Broadway Sanitary Relief (SKME-551) Construction 5,000,000 RDP Tributaries (Deer Creek) CSO Tunnel Design Services 5,000,000 Deer Creek Public I/I Reduction (2017) Contract B Construction 4,950,000 Bissell - Coldwater - Missouri - Meramec Public I/I Reduction (2017) Contract B Construction 4,850,000 Lemay Public I/I Reduction (2017) Contract A Construction 4,300,000 Lemay Public I/I Reduction (2017) Contract C Construction 4,200,000 Bissell - Coldwater - Missouri - Meramec Public I/I Reduction (2017) Contract F Construction 4,180,000 Baden Creek Extension (BP-001) - I/I Reduction Construction 4,070,000 Caulks Creek Pump Station B Forcemain Construction 4,000,000 LMRDP CSO Storage Tunnel (Broadway to RDP Tubes) Land Purchase 4,000,000 _________ Source: The District 34 Other planned CIRP improvements in Fiscal Years 2017 through 2020 expected to be included in the approximately $1.5 billion of capital projects during this timeframe include the following: • Infrastructure improvements to reduce combined sewer overflows • Infrastructure improvements to reduce sanitary sewer overflows • Collection systems renewal and replacement activity • Planning and Capacity, Management, Operation and Maintenance activity See page D-27 of Appendix D – “FINANCIAL FEASIBILITY REPORT” for a summary of the projected CIRP Financing Plan for Fiscal Years 2017 through 2020. FINANCIAL OPERATIONS OF THE DISTRICT General The District is supported by various taxes and user charges imposed on taxpayers and users of its facilities within its boundaries. The District has the power, subject to voter approval, to issue general obligation bonds, District-wide revenue bonds, sub-district revenue bonds, or special assessment bonds. The Executive Director is responsible for preparing the annual budget of the District and is responsible for drawing warrants to meet the financial obligations of the District. The Executive Director appoints the Director of Finance, who is responsible for assisting the Executive Director in preparing the annual budget, maintaining the accounting records of the District, and certifying that all warrants are proper and valid under the District’s Charter. The Secretary-Treasurer is appointed by the Board and is responsible for custody of the funds of the District and investing the funds of the District pursuant to the Charter of the District and State law. Budget and Appropriation Process The Executive Director of the District is responsible for preparing the District’s annual budget. Not later than the fifteenth day of March in each year, the Executive Director must submit to the Board a budget for the ensuing year. The Charter requires that the Board adopt the budget no later than June 30. In the event that the Board does not pass a new budget by June 30, the prior year’s budget continues in force until the Board adopts a new budget. The proposed budget is available for public inspection and the District conducts public hearings on the proposed budget prior to its adoption. On or before the thirtieth day of June in each Fiscal Year the Board determines the amount of taxes that will be required during the next succeeding Fiscal Year to pay the principal of and interest on general obligation bonds issued and certain costs of operations, maintenance, construction and improvements. The budget provides a complete financial plan for the budget year for all District funds. In no event can the total amount of expenditures for the budget year from any fund exceed the estimated revenues to be actually received plus any unencumbered balance or less any deficit estimated for the beginning of the budget year. After submittal of the budget to the Board, the Board must hold a public hearing at least 21 days before adoption of the budget in order to obtain public comment on the proposed budget. Finance Department The Finance Department is enhancing its efforts to substantially reduce its portfolio of accounts receivable, using a combination of internal collection efforts, liens and service shut-off. In addition, a portion of the District’s billing and past-due collections has been outsourced to several outside vendors. These agencies focus on collecting overdue sewer bills from rate payers. This outsourcing initiative emergency fund also brought new information systems technology to the District. See the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT − Fund Structure.” 35 The Government Finance Officers Association of the United States and Canada has honored the District for excellence in budgeting, financial accounting and full disclosure. In 2016, for the 29th consecutive year, the District earned the Distinguished Budget Presentation Award, the highest form of recognition in governmental budgeting. In 2016, for the 28th consecutive year, the District also received the Certificate of Achievement for Excellence in Financial Reporting, the highest recognition in governmental accounting and financial reporting. Fund Structure The General Fund was established to provide for the ordinary operations of the District. Since 1978, all operation and maintenance has been funded out of the General Fund. The General Fund receives revenues from ad valorem property taxes levied on all property, real and personal, within the District’s boundaries based on assessed valuations established by the City and County assessors. Tax rates vary by subdistrict and purpose, and are levied in accordance with the Charter of the District. The District discontinued levying real and personal property taxes after Fiscal Year 2008 as a result of the impervious stormwater charge which it began collecting in March 2008. The District rescinded its stormwater impervious charge as a result of a July 9, 2010, court decision which declared the charge unconstitutional. Property taxes were reinstated effective December 31, 2010, to partially replace this stormwater funding. Currently, a main source of income for the General Fund is a wastewater user charge. The General Fund also receives miscellaneous income from a number of sources, and reimbursement of engineering services provides other non-operating funds. The District’s Revenue Funds consist of the Wastewater Revenue Fund and the Stormwater Revenue Fund. Wastewater user charge revenues are deposited into the Wastewater Revenue Fund and revenues from the District’s stormwater service charge are deposited into the Stormwater Revenue Fund. The District also maintains two emergency funds − the Wastewater Emergency Fund and the Stormwater Emergency Fund. These funds were created for the purpose of providing funding for emergency work or repairs requiring prompt attention in the operation and maintenance of the District. The work or repairs are of such a nature as to be non-measureable in the budgeting and appropriation of annual revenues. District policy requires minimum balances of $500,000 and $250,000 be maintained in the Wastewater Emergency Fund and the Stormwater Emergency Fund, respectively. As of June 30, 2016, the Wastewater Emergency Fund and the Stormwater Emergency Fund had fund balances of $3,692,248 and $1,914,725, respectively. Basis of Accounting The accounts of the District are maintained on the full accrual basis and are reported as a single enterprise. Separate accounting records are maintained for certain subdistricts and to account for restricted resources; however, interorganizational transactions and balances are eliminated for reporting purposes. Financial Statements The accounts of the District are audited annually by an independent firm of certified public accountants. The accounting firm of RubinBrown LLP served the District as auditor for Fiscal Years ending June 30, 2012, through June 30, 2016. The District’s audited financial statements for the Fiscal Years ended June 30, 2015 and 2016 are attached hereto as Appendix A. Selected Financial Data of the District The District follows Governmental Accounting Standards Board (“GASB”) Statement No. 33, “Accounting and Financial Reporting for Non-Exchange Transactions,” which establishes accounting and financial standards for non-exchange transactions involving financial or capital resources. During Fiscal Year 2005, the District adopted GASB Statement No. 40, “Deposit and Investment Risk Disclosures, an Amendment of GASB Statement No. 3,” the adoption of which modified certain financial statement 36 disclosure requirements. The standard enhances the deposit and investment risk disclosures by updating the previous custodial credit risk disclosure requirements and addressing other common risks, including concentrations of credit risk, interest rate risk, and foreign currency risk. The implementation of Statement No. 40 had no effect on financial statement amounts. GASB Statement No. 43, “Financial Reporting for Post-employment Benefit Plans Other Than Pension Plans” and GASB Statement No. 45, “Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pension Plans” establish accounting and financial reporting standards for post-employment benefits other than pensions. As part of a total compensation package, many governments offer post-employment benefit plans other than pensions such as health care and life insurance. Statement No. 43 establishes uniform financial reporting standards for other post-employment benefit (“OPEB”) plans and applies to OPEB trust funds included in the financial reports of plan sponsors or employers, as well as in stand-alone financial reports. Statement No. 45 establishes standards for the measurement, recognition and display of OPEB expenses and expenditures and related liabilities and assets, note disclosure, and, if applicable, required supplementary information in the financial reports of state and local government employers. Statement No. 43 became effective for the District for the Fiscal Year ending June 30, 2007, and Statement No. 45 became effective for the District for the Fiscal Year ending June 30, 2008. See “MANAGEMENT’S DISCUSSION AND ANALYSIS – Other Post - Employment Benefits” for additional discussion of the District’s OPEB liabilities. During Fiscal Year 2014, the District implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabilities (“GASB 65”), which amends or supersedes the accounting and financial reporting guidance for certain items previously required to be reported as assets or liabilities. The objective is to either properly classify certain items that were previously reported as assets and liabilities as deferred outflows of resources or deferred inflows of resources or recognize certain items that were previously reported as assets and liabilities as outflows of resources (expenses) or inflows of resources (revenues). Under GASB 65, bond issuance costs are expensed as incurred, instead of being amortized over the term of the bond. The implementation of GASB 65 also resulted in the reclassification of the unamortized portion of bond refunding losses related to the District’s 2012B refunding issue. These amounts are now reported as deferred outflows of resources instead of as a reduction of bonds payable as shown below: Account New Classification Amount (as of June 30, 2013) Deferred loss on refunding (previously included in bonds payable, net) Deferred outflows of resources $ 10,617,604 Bond issuance costs (the unamortized portion was previously reported as an asset) Outflow of resources 9,138,892 The District’s adoption of GASB 65 during Fiscal Year 2014 was applied retroactively to Fiscal Year 2012 to reflect the expensing of bond issuance costs. The impact of this change on the District’s Statement of Net Position is as follows: June 30, 2013 June 30, 2012 Net position, beginning of year, as previously reported $ 2,249,196,853 $ 2,218,294,341 Effect of change in accounting related to bond issuance costs (9,138,893) (8,391,259) Net position, end of year, as restated $ 2,240,057,960 $ 2,209,903,082 37 GASB Statement No. 68, “Accounting and Financial Reporting for Pensions (Employer Reporting)” (“GASB 68”) replaces the requirements of Statement No. 27, “Accounting for Pensions by State and Local Governmental Employers,” as well as the requirements of Statement No. 50, “Pension Disclosures.” The primary objective of GASB 68 is to improve accounting and financial reporting by state and local governments for pensions, in particular bringing to the financial statements pension-related liabilities and corresponding deferred inflows and outflows and these effects on net position. The District’s adoption of GASB 68 in Fiscal Year 2015 resulted in restating the beginning balance of net position due to the recognition of a beginning net pension liability. The impact of this change on the D istrict’s Statement of Net Position is as follows: July 1, 2014 July 1, 2013 Net position, beginning of year, as previously stated $ 2,267,952,795 $ 2,240,057,960 Effect of Adoption of GASB 68: Establishing a beginning net pension liability (23,623,660) - Net position - Beginning of year, as restated $ 2,244,329,135 $ 2,240,057,960 The following table shows the historic cash and investments for the previous five fiscal years. FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Unrestricted Cash & Investments (Current) $114,403,797 $149,343,613 $188,544,191 $132,950,967 $182,927,020 Total Unrestricted Cash & Investments $165,246,915 $238,236,371 $257,118,093 $298,732,325 $339,921,143 Days Cash on Hand (No Long-Term Unrestricted) 309 372 449 297 390 Days Cash on Hand (Adds Long-Term Unrestricted) 446 594 612 668 724 The following table illustrates the financial result of operations of the District for the Fiscal Years ended June 30, 2016, 2015, 2014, 2013 and 2012. Revenues from the Stormwater Service Charge are included in these figures but are not included in Pledged Revenues and, therefore, are not available to pay debt service on the Bonds issued under the Master Bond Ordinance, including the Series 2016C Bonds. See Appendix A to this Official Statement for additional detail. The following financial information is intended to provide historical information on the financial health of the District. [Remainder of page intentionally left blank.] 38 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION ($000) 2012 2013(1)2014 2015(2) 2016 Operating Revenues: Sewer service charges $227,678 $238,635 $250,133 $284,367 $306,119 Recovery (Provision) doubtful service charge accounts (6,911) (2,655) 7,210 (2,096) (4,107) Licenses, permits and other fees 2,684 2,731 6,563 6,657 3,620 Other 2,550 3,235 1,867 1,460 14,226 Total Operating Revenues $226,000 $241,946 $265,773 $290,388 $319,858 Non-operating Revenues: Property taxes levied by District $ 24,604 $26,016 $27,450 $24,764 $25,671 Investment income 2,407 1,057 2,967 3,001 4,636 Rent and other income 295 293 302 37 103 Total Non-operating Revenues $27,306 $27,366 $30,719 $27,802 $30,410 Total Revenues $253,306 $269,312 $296,492 $318,190 $350,268 Operating Expenses: Pumping and treatment $49,005 $54,526 $54,126 $60,766 $59,100 Collection system maintenance 36,695 37,877 39,988 40,162 42,853 Engineering 8,544 12,020 12,184 10,954 10,998 General and administrative Water backup claims 33,180 2,049 41,485 3,503 45,661 2,713 48,551 3,862 55,315 7,631 Depreciation 66,742 70,030 74,087 78,641 83,984 Asset Management 20,092 10,717 12,539 13,586 13.215 Total Operating Expenses $216,308 $230,158 $241,298 $256,522 $273,096 Non-operating Expenses: Total Non-operating Expenses $25,936 $26,534 $34,402 $40,877 $40,268 Total Expenses $242,244 $256,692 $275,700 $297,399 $313,364 Income before Capital Contributions $11,062 $12,620 $20,792 $20,791 $36,904 Capital Contributions $9,659 $17,535 $7,102 $12,997 $12,037 Change in Net Position $20,721 $30,155 $27,894 $33,788 $48,940 Net Position Beginning of Year $2,197,019 $2,209,903 $2,240,058 $2,267,952 $2,278,117 Effect of Adoption of GASB65 (7,837) (8,391) Effect of Adoption of GASB68 (23,624) Net Position End of Year $2,209,903 $2,240,058 $2,267,952 $2,278,117 $2,327,057 Annual Debt Service $39,058 $49,941 $44,436 $61,848 $73,760 _________________ Source: The District’s Audited Financial Statements. (1) Non-operating Expenses were restated in 2012 and 2013 due to the implementation of GASB 65. (2) Net position restated due to GASB 68 implementation. 39 MANAGEMENT’S DISCUSSION AND ANALYSIS For the Years Ended June 30, 2016 and 2015 The Comprehensive Annual Financial Report of the District includes the independent auditors’ report, management’s discussion and analysis (“MD&A”), and the financial statements accompanied by notes essential to the user’s understanding of the financial statements. Management of the District has provided the MD&A to be used in combination with the District’s financial statements. This narrative is intended to provide the reader with more insight into management’s knowledge of the transactions, events, and conditions reflected in the financial statements and the fiscal policies that govern the District’s operations. 2016 Financial Highlights  The District increased capital assets by $160.5 million as a result of an increase in construction in progress for $122.3 million, in land for $13.2 million and in depreciable capital assets net of depreciation for $25.0 million.  The District placed $123.6 million of capital assets into service during fiscal year 2016. The continued high level of capitalization reflects the District’s work to meet long-term plans. Capitalized assets included: Collection and pumping plant $80.0 million Treatment and disposal plant and equipment $25.9 million Land $13.3 million General plant and equipment $4.4 million In conjunction with the new assets, the net increase to accumulated depreciation was $79.3 million. During Fiscal Year 2015, the District implemented GASB Statement No. 72, Fair Value Measurement and Application (“GASB 72”). The primary objective of GASB 72 is to improve financial reporting by state and local governments by clarifying the definition of fair value for financial reporting purposes, establishing general principles for measuring fair value, providing additional fair value application guidance, and enhancing disclosures about fair value measurements. The impact of adopting GASB 72 is minimal as all material investments have been and are valued at fair value. No restatement is required as no changes were made to the prior year financial statements in order to comply with GASB 72. 2015 Financial Highlights  The District increased capital assets by $128.2 million as a result of an increase in construction in progress for $108.5 million, in land for $1.0 million, and in depreciable capital assets net of depreciation for $18.7 million.  The District placed $100.1 million of capital assets into service during fiscal year 2015. The continued high level of capitalization reflects the District’s work to meet long-term plans. Capitalized assets included: Collection and pumping plant $62.9 million Treatment and disposal plant and equipment $33.8 million General plant and equipment $2.4 million Land $1.0 million In conjunction with the new assets, the net increase to accumulated depreciation was $65.1 million. 40 During Fiscal Year 2015, the District implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions (Employer Reporting). The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions, in particular updates to the financial statements pension-related liabilities and corresponding deferred outflows and inflows and these effects on net position. Non-current liabilities increased by $43.8 million or 3.9% as the District implemented GASB Statement No. 68 resulting in recognizing the District’s net pension liability. Net deferred outflows and inflows increased $15.8 million or 156.2% primarily due to the implementation of GASB Statement No. 68 resulting in various pension-related transactions. Required Financial Statements The financial statements presented by the management of the District include the Statements of Net Position; Statements of Revenues, Expenses, and Changes in Net Position; and Statements of Cash Flows. These statements are prepared using the accrual basis of accounting. This method of accounting recognizes revenue at the time it is earned and expenses when the related liability occurs. As a result of using this method of accounting, the District’s performance over the time period being reported is more easily determinable. The Statements of Net Position provide a report of the District’s current, restricted, and other non-current assets such as cash, investments, receivables, and property. Also, the Statements of Net Position provide a summary of the District’s current, restricted, and non-current liabilities, including contracts and accounts payable, deposits and accrued expenses, and bonds and notes payable. Deferred outflows and inflows, where applicable, are also included. The final section of the Statements of Net Position, the net position section, contains earnings retained for use by the District. Increases or decreases in the net position section may be indicative of an improving or declining financial position. This statement provides the basis for computing rate of return, evaluating the capital structure of the District, and assessing the liquidity and financial flexibility of the District. The Statements of Revenues, Expenses, and Changes in Net Position summarize all of the year’s revenue and expense. These statements indicate how successful the District was at maintaining expenses below the level of revenue earned. The Statements of Cash Flows account for the net change in cash and cash equivalents by summarizing cash receipts and cash disbursements resulting from operating activities, non-capital financing activities, capital and related financing activities, and investing activities. These statements assist the user in determining the sources of cash coming into the District, the items for which cash was expended, and the beginning and ending cash balance. Financial Analysis The District’s financial position improved in Fiscal Year 2016, as evidenced by the increase in net position of $48.9 million. The improvement is due to the increases in unrestricted funds of $42.3 million and net investment in capital assets of $11.8 million. Unrestricted funds increased $23.6 million from Fiscal Year 2015 due to increases in unrestricted current assets and pension related outflows and increased $29.4 million as operating revenues grew due to rate changes and due to the insurance recoveries recorded as a result of the December 2015 rain event; however, these increases were partially offset by an increase in operating expenses of $11.2 million (excluding depreciation) due partially to increased costs related to the December 2015 flooding. While debt increased at an amount greater than the capital to which it relates, the unspent cash received upon the issuance of the Series 2015B Bonds) accounts for the net increase in the net position’s net investment in capital assets. The unrestricted funds and net investment in capital asset increases were offset by a decrease in restricted funds of $5.2 million resulting primarily from the use of excess bond reserve funds to partially advance refund existing debt. 41 Condensed Financial Statements and Analysis Increase Increase Fiscal Year Fiscal Year (Decrease) Fiscal Year (Decrease) 2016 2015 2016-2015 2014 2015-2014 Assets: Current, restricted, and other assets 707,033$ 628,246$ 78,787$ 704,266$ (76,020)$ Capital assets (net of accumulated depreciation)3,052,043 2,891,569 160,474 2,763,413 128,156 Total Assets 3,759,076 3,519,815 239,261 3,467,679 52,136 Deferred Outflow of Resources:     Bonds and Notes Payable-Deferred Loss 11,974 9,599 2,375 10,108 (509)     Pension-related Outflows 31,144 19,210 11,934 — 19,210           Total Deferred Outflow of Resources 43,118 28,809 14,309 10,108 18,701 Liabilities: Current liabilities 125,284 109,153 16,131 95,196 13,957 Non-current liabilities 1,344,141 1,158,445 185,696 1,114,639 43,806 Total Liabilities 1,469,425 1,267,598 201,827 1,209,835 57,763 Deferred Inflow of Resources:     Pension-related Inflows 5,712 2,910 2,802 — 2,910           Total Deferred Inflow of Resources 5,712 2,910 2,802 — 2,910 Net Position: Net investment in capital assets 1,841,178 1,829,394 11,784 1,845,394 (16,000) Restricted 146,105 151,292 (5,187) 142,764 8,528 Unrestricted 339,774 297,430 42,344 279,794 17,636 Total Net Position 2,327,057$ 2,278,116$ 48,941$ 2,267,952$ 10,164$ Condensed Statements of Net Position (000's) 2016 Analysis Current, restricted and other assets increased $78.8 million or 12.5% in Fiscal Year 2016. The increase is predominantly due to an increase in cash and investments due to higher sewer rates charged and collected and due to the unspent cash received on the Series 2015B Bonds in Fiscal Year 2016. In addition, receivables recorded for insurance recoveries due to the December 2015 rain event increased current, restricted and other assets. Capital assets net of accumulated depreciation increased by $160.5 million or 5.5% in Fiscal Year 2016 as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities increased by $16.1 million or 14.8% due to an increase in the current portion of bonds and notes payable, contracts and accounts payable and retainage held on capital projects. Non-current liabilities increased by $185.7 million or 16.0% due to the Series 2015B Bonds and subordinate Series 2015A Bonds issued in Fiscal Year 2016, offset partially by the advance refunding of existing debt, and the increase in the District’s net pension liability resulting from the implementation of GASB Statement No. 68 in Fiscal Year 2015. Net deferred outflows and inflows increased by $11.5 million due primarily to various pension- related transactions. 42 2015 Analysis Current, restricted and other assets decreased $76.0 million or 10.8% in Fiscal Year 2015. The decrease is predominantly due to lower amounts of unrestricted and restricted cash and investments relative to 2014 when the District issued debt. This was offset slightly as unrestricted receivables increased due to higher sewer rates. Capital assets net of accumulated depreciation increased by $128.2 million or 4.6% in Fiscal Year 2015 as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities increased by $14.0 million or 14.7%, due to an increase in the current portion of bonds and notes payable and deposits and accrued expenses. Non-current liabilities increased by $43.8 million or 3.9% as the District implemented GASB Statement No. 68 resulting in recognizing the District’s net pension liability. Net deferred outflows and inflows increased $15.8 million or 156.2% due to the implementation of GASB Statement No. 68 resulting in various pension-related transactions. [Remainder of page intentionally left blank.] 43 Increase Increase Fiscal Year Fiscal Year (Decrease) Fiscal Year (Decrease) 2016 2015 2016-2015 2014 2015-2014 Operating Revenues: Sewer service charges 306,119$ 284,367$ 21,752$ 250,133$ 34,234$ Recovery (provision) for doubtful sewer service charge accounts (4,107) (2,096) (2,011) 7,210 (9,306) Licenses, permits, and other fees 3,620 6,657 (3,037) 6,563 94 Other 14,226 1,460 12,766 1,867 (407) Total Operating Revenues 319,858 290,388 29,470 265,773 24,615 Non-operating Revenues: Property taxes levied by the district 25,671 24,764 907 27,450 (2,686) Investment income 4,636 3,001 1,635 2,967 34 Rent and other income 103 37 66 302 (265) Total Non-operating Revenues 30,410 27,802 2,608 30,719 (2,917) Total Revenues 350,268 318,190 32,078 296,492 21,698 Operating Expenses: Pumping and treatment 59,100 60,766 (1,666) 54,126 6,640 Collection system maintenance 42,853 40,162 2,691 39,988 174 Engineering 10,998 10,954 44 12,184 (1,230) General and administrative 55,315 48,551 6,764 45,661 2,890 Water backup claims 7,631 3,862 3,769 2,713 1,149 Depreciation 83,984 78,641 5,343 74,087 4,554 Asset management 13,215 13,586 (371) 12,539 1,047 Total Operating Expenses 273,096 256,522 16,574 241,298 15,224 Non-operating Expenses: Net loss on disposal and sale of capital assets 325 1,421 (1,096) 5,248 (3,827) Non-recurring projects and studies 11,000 12,317 (1,317) 3,493 8,824 Interest expense 28,943 27,139 1,804 25,661 1,478 Total Non-operating Expenses 40,268 40,877 (609) 34,402 6,475 Total Expenses 313,364 297,399 15,965 275,700 21,699 Income Before Capital Grants And Contributions 36,904 20,791 16,113 20,792 (1) Capital Grants And Contributions 12,037 12,997 (960) 7,102 5,895 Change in Net Position 48,941 33,788 15,153 27,894 5,894 Net Position - Beginning of Year 2,278,116 2,267,952 10,164 2,240,058 27,894 Effect of Adoption of GASB 68 — (23,624) 23,624 — (23,624) Net Position - Beginning of Year, As Restated 2,278,116 2,244,328 33,788 2,240,058 4,270 Net Position - End of Year 2,327,057$ 2,278,116$ 48,941$ 2,267,952$ 10,164$ Statements of Revenues, Expenses, and Changes in Net Position (000's) 44 2016 Analysis Net position increased $48.9 million or 2.1% over Fiscal Year 2015. Sewer service revenue increased as a result of rate increases. Other operating revenue increased due to the insurance recoveries recorded related to the December 2015 rain event. Operating expenses also increased primarily from various increases in operating costs, costs related to the December 2015 rain event, and GASB Statement No. 68 pension expense and depreciation. Total revenue increased by $32.1 million or 10.1%. Sewer service charges increased $21.8 million or 7.6% with the provision for doubtful accounts increasing by $2.0 million or 95.9% due to increased receivables. Other operating revenue increased $12.8 million or 874.4% as explained above. Total expenses increased by $16.0 million or 5.4%. Operating expenses increased by $16.6 million or 6.5%. This increase is primarily the result of the following: • $6.8 million or 13.9% increase in general and administrative costs primarily related to an increase in the GASB Statement No. 68 pension expense. In addition, costs incurred by the District related to the December 2015 rain event are recorded in the General Insurance Fund in the general and administrative operating expense line; • $5.3 million or 6.8% increase in additional depreciation due to new asset capitalization; • $3.8 million or 97.6% increase in water backup costs resulting from the historic flooding in December 2015. Non-operating expenses decreased by $0.6 million or 1.5%. 2015 Analysis Net position increased $10.2 million after the restatement of net position due to GASB Statement No. 68 or 0.4% over the prior year. Sewer service revenue increased as a result of rate increases. In Fiscal Year 2014 the methodology for calculating the provision for doubtful sewer service charges changed which resulted in an adjustment not repeated in Fiscal Year 2015. Operating expenses also increased primarily from various increases in operating costs and depreciation. Non-operating expenses also increased due to expenses related to non-recurring projects and studies. Total revenue increased by $21.7 million or 7.3%. Sewer service charges increased $34.2 million or 13.7% with the provision for doubtful accounts increasing by $9.3 million or 129.1% as explained above. Property tax revenue decreased by $2.7 million or 9.8% due to revenue recorded net of commission fees for collection from the County in Fiscal Year 2015 compared to Fiscal Year 2014. Total expenses increased by $21.7 million or 7.9%. Operating expenses increased by $15.2 million or 6.3%. This increase is a result of the following: • $6.6 million or 12.3% increase in pumping and treatment primarily related to increase in utility costs resulting from excessive rain. In addition, there was an increase in chemicals and supplies for the Fiscal Year 2015 completion of in-house disinfection; • $4.6 million or 6.1% increase in additional depreciation due to new asset capitalization; • $2.9 million or 6.3% increase in general and administrative costs resulting from professional fees associated with the implementation of the new billing system, and information system professionals and associated costs related to an increase in collection efforts; 45 • $1.2 million or 42.4% increase in water backup costs due to overcharged mains claims resulting from excessive rain in Fiscal Year 2015; Non-operating expenses increased by $6.5 million or 18.8%. This increase is a result of the following: • $8.8 million or 252.6% increase in non-recurring projects and studies due primarily to Green Infrastructure projects; • $1.5 million or 5.8% increase in interest expense due primarily to the first full fiscal year for Series 2013B Bond interest payments; • Offset by a decrease of $3.8 million or 72.9% in net loss on disposals and sale of capital assets due to an asset demolition in Fiscal Year 2014 not repeated in Fiscal Year 2015. Increase Increase Fiscal Year Fiscal Year (Decrease)Fiscal Year (Decrease) 2016 2015 2016-2015 2014 2015-2014 Cash flows from operating activities 127,665$ 116,430$ 11,235$ 81,864$ 34,566$ Cash flows from non-capital financing activities 25,583 25,824 (241) 27,468 (1,644) Cash flows from capital and related financing activities (91,512) (225,778) 134,266 (25,597) (200,181) Cash flows from investing activities (74,347) 86,331 (160,678) (75,473) 161,804 Net increase (decrease) in cash and cash equivalents (12,611)2,807 (15,418)8,262 (5,455) Cash and cash equivalents at beginning of year 61,807 59,000 2,807 50,738 8,262 Cash And Cash Equivalents At End Of Year 49,196$ 61,807$ (12,611)$ 59,000$ 2,807$ Condensed Statements of Cash Flows (000's) [Remainder of page intentionally left blank.] 46 2016 Analysis The District ended Fiscal Year 2016 with $49.2 million in cash and cash equivalents or a decrease of $12.6 million from the prior year. Cash flows from operating activities increased by $11.2 million or 9.6% as a result of increased receipts from customers. Cash flows from non-capital financing activities decreased by $0.2 million or 0.9% due to less tax revenue collected. Cash flow from capital and related financing activities increased by $134.3 million or 59.5% as the result of increased bond proceeds and premiums received in Fiscal Year 2016 compared to Fiscal Year 2015. Cash flows from investing activities decreased by $160.7 million or 186.1%. The decrease primarily stems from a net outflow of cash related to purchases and proceeds in investments in Fiscal Year 2016, whereas Fiscal Year 2015 had a net inflow. In Fiscal Year 2016, cash and cash equivalents include only investments with original maturities less than 91 days. Under the new policy, investments with an original maturity of greater than 90 days remain as investments until they mature and the cash is received. The retroactive change resulted in $90.1 million, $87.7 million and $120.0 million from cash and cash equivalents to investments in Fiscal Year 2016, 2015, and 2014, respectively. 2015 Analysis The District ended Fiscal Year 2015 with $61.8 million in cash and cash equivalents or an increase of $2.8 million from the prior year. Cash flows from operating activities increased by $34.6 million or 42.2% as a result of increased receipts from customers. Cash flows from non-capital financing activities decreased by $1.6 million or 6.0% due to less tax revenue collected. Cash flow from capital and related financing activities decreased by $200.2 million or 782.0% as the result of decreased bond proceeds and premiums received in Fiscal Year 2015 compared to Fiscal Year 2014. Cash flows from investing activities increased by $161.8 million or 214.4%. The increase primarily stems from a net inflow of cash related to purchases and proceeds in investments in Fiscal Year 2015, whereas Fiscal Year 2014 had a net outflow. Capital Assets Increase Increase (Decrease)(Decrease) 2016 2015 2016-2015 2014 2015-2014 Land 69,702$ 56,521$ 13,181$ 55,538$ 983$ Construction in progress 530,734 408,464 122,270 299,945 108,519 Treatment and disposal plant and equipment 729,884 739,563 (9,679) 737,833 1,730 Collection and pumping plant 1,697,795 1,659,321 38,474 1,637,375 21,946 General plant and equipment 23,928 27,700 (3,772) 32,722 (5,022) Total 3,052,043$ 2,891,569$ 160,474$ 2,763,413$ 128,156$ Condensed Statements of Capital Assets (000's) Net of Depreciation 47 2016 Analysis Total capital assets, net of depreciation expense, increased by $160.5 million or 5.5% over the prior year. Construction in progress contained the majority of the increase with net additions of $122.3 million or 29.9% consisting of $231.8 million in additions offset by $109.5 million placed into service. Collecting and pumping plant increased $38.5 million or 2.3% primarily for capitalization of assets including dedicated assets and infrastructure repairs. Land increased $13.2 million or 23.3% including $12.4 million land reclass from Lower Meramec treatment plant asset and $0.8 million from the acquisition of easements and other land. Treatment and disposal plant and equipment decreased a net $9.7 million or 1.3% with $25.5 million increase in additions offset by $35.2 million in additional depreciation partially driven by Lower Meramec treatment plant asset reclass in February 2016 resulting in a $12.4 million decrease in treatment plant assets which was reclassified to land and an increase of $3.2 million in additional depreciation. General plant and equipment decreased $3.8 million or 13.6% primarily due to depreciation of existing assets. For more detailed information, see Note 4, Capital Assets, in the District’s Notes to Financial Statements contained in Appendix A to this Official Statement. 2015 Analysis Total capital assets, net of depreciation expense, increased by $128.2 million or 4.6% over the prior year. Construction in progress contained the majority of the increase with net additions of $108.5 million or 36.2% consisting of $191.5 million in additions offset by $83.0 million placed into service. Collection and pumping plant increased $21.9 million or 1.3% primarily for capitalization of assets including dedicated assets and infrastructure repairs. Treatment and disposal plant and equipment increased a net $1.7 million or 0.2% with $30.2 million in additions offset by $28.5 million in additional depreciation. Land increased $1.0 million or 1.8% from the acquisition of easements and other land. General plant and equipment decreased $5.0 million or 15.3% primarily due to depreciation of existing assets. For more detailed information, see Note 4, Capital Assets, in the District’s Notes to Financial Statements attached hereto in Appendix A. [Remainder of page intentionally left blank.] 48 Long-Term Debt Increase Increase (Decrease)(Decrease) 2016 2015 2016-2015 2014 2015-2014 Senior Revenue Bonds: Series 2006C —$ 60,000$ (60,000)$ 60,000$ —$ Series 2008A — 30,000 (30,000) 30,000 — Series 2010B 85,000 85,000 — 85,000 — Series 2011B 45,325 47,170 (1,845) 48,925 (1,755) Series 2012A 220,000 225,000 (5,000) 225,000 — Series 2012B 137,280 139,605 (2,325) 141,730 (2,125) Series 2013B 149,000 150,000 (1,000) 150,000 — Series 2015B 223,855 — 223,855 — — Subordinate Revenue Bonds: Series 2004B 89,650 97,520 (7,870) 105,155 (7,635) Series 2005A 4,125 4,440 (315) 4,750 (310) Series 2006A 27,950 29,915 (1,965) 32,085 (2,170) Series 2006B 9,565 10,260 (695) 10,945 (685) Series 2008AB 27,475 29,320 (1,845) 31,140 (1,820) Missouri DNR: Series 2009A 17,514 18,564 (1,050) 19,589 (1,025) Series 2010A 6,588 6,947 (359) 7,299 (352) Series 2010C 30,024 31,644 (1,620) 33,224 (1,580) Series 2011A 37,354 38,974 (1,620) 39,769 (795) Series 2013A 49,920 52,000 (2,080) 16,043 35,957 Series 2015A 42,623 — 42,623 — — Energy Loan Program 118 151 (33) 166 (15) Total 1,203,366$ 1,056,510$ 146,856$ 1,040,820$ 15,690$ Condensed Statements of Long-Term Debt (000's) 2016 Analysis The District ended Fiscal Year 2016 with $1.2 billion in long-term debt outstanding. The District issued one series of senior revenue bonds in Fiscal Year 2016 (Series 2015B Bonds) for a total of $223.9 million of which $73.9 million was used to advance refund the above-referenced Series 2006C Bonds and the Series 2008A Bonds. Premium received on the new Series 2015B Bonds and excess funds in the bond reserve account were used to advance refund the remaining principal and interest on the Series 2006C and the Series 2008A debt. In addition, the District issued a new Subordinate SRF bond (Series 2015A Bond) for $42.6 million. For more detailed information, see Note 6, Long-Term Liabilities, in the District’s Notes to Financial Statements contained in Appendix A to this Official Statement. 2015 Analysis The District ended Fiscal Year 2015 with $1.1 billion in long-term debt outstanding. The District did not issue any new senior bonds or new SRF bonds in Fiscal Year 2015 but did add $36.0 million of SRF Series 2013A Bonds. For more detailed information, see Note 6, Long-Term Liabilities, in the District’s Notes to Financial Statements contained in Appendix A to this Official Statement. 49 Decisions Impacting the Future Integral to helping the District’s rate payers understand the Consent Decree (“CD”) with the U.S. Environmental Protection Agency and the Missouri Coalition for the Environment, which settled a lawsuit for alleged violations of the Clean Water Act, was the initiation of Project Clear. See Note 12, Commitments And Contingencies, in the District’s Notes to Financial Statements contained in Appendix A to this Official Statement, for additional information regarding this litigation. The goal of Project Clear is to help the District’s rate payers have a clear understanding of the District’s goals and objectives. Project Clear consists of three main components: • Getting The Rain Out which is focused on reducing the sewer system infrastructure to help reduce basement back-ups and overflows; • Performing Repair and Maintenance to the existing infrastructure to ensure it operates as well as possible for as long as possible; and • Building System Improvements where needed to increase the capacity of the system. Project Clear will greatly affect the daily lives of many of the District’s rate payers. Project Clear is needed to help the rate payer understand the individual and regional, as well as the immediate and long- term, benefits of the program. Since February 2004, the voters of St. Louis have authorized the District to issue a total of $3.5 billion in wastewater revenue bonds. As of June 30, 2016, the District has issued $1.4 billion par amount of bonds against the total authorization. The District’s long-term wastewater capital improvement program will continue to be funded through a combination of additional bonds and wastewater rate increases. The District also upgraded its extensive billing and collection system to incorporate the latest utility technology. The new system will result in more efficient processes and the ability to continue to expand its customer outreach efforts. The new technology will provide state of the art capabilities to utilize the multiple ways now available to better communicate with its customers, understand their needs, and continue to align the District’s responsiveness accordingly. Full implementation of the system occurred on September 1, 2015. Sewer Rates and Revenues The primary source of funding for the operation and maintenance of the District’s sewerage system is a user charge. The following table shows the typical bill amount for a single family residence using 7ccf per month with the rates approved by the Board for the year indicated and the percentage increase in such charge over the prior year: Fiscal Year Rate Percentage Change FY 2016 $40.72 13.14% FY 2017 44.59 9.50 FY 2018 49.31 10.59 FY 2019 54.63 10.79 FY 2020 60.44 10.64 The District’s charges for residential wastewater service are tied to the amount of measured water usage during a winter quarter. For residential properties without water meters, the charges are based on housing attributes (such as the number of rooms, baths, and toilets) that correlate to water usage. That methodology is the same billing methodology used by the City of St. Louis Water Division for its non- metered properties. Multi-family residential and commercial and industrial rates are proportionate to the single-family charge and are based on water consumption and the strength of the discharge. 50 The District has other sources of revenue. Real and personal property taxes are levied by the District. The District discontinued levying real and personal property taxes after Fiscal Year 2008 as a result of the impervious stormwater charge which it began collecting in March 2008; however, the District suspended collection of the impervious stormwater charge and resumed collection of real and personal property taxes in Fiscal Year 2011 in light of the court decision concerning the impervious stormwater charge. See page vi of the District’s Comprehensive Annual Financial Statements included as Appendix A to this Official Statement for a discussion of the impervious stormwater charge. In Fiscal Year 2016, the total real and personal property taxes levied for stormwater was $25.7 million. The District also receives some federal, state, and local grants to help defray the cost of constructing sewage treatment and drainage facilities and improvements. The District also charges fees for plan review, permits, construction inspection of new system development, and special discharges. The District charges a uniform connection fee in all service areas. The District may issue general obligation bonds and revenue bonds to finance the cost of improvements and extensions to the sewer system. The District also may issue, on behalf of each of its subdistricts, general obligation bonds or revenue bonds. The issuance of general obligation bonds, payable from a general tax levy on all taxable property within the District or a subdistrict, requires the approval of either a four-sevenths or two-thirds majority of the voters voting at an election held in the District or subdistrict, as the case may be. General obligation bonds outstanding cannot exceed five percent of the assessed valuation of the area benefitted. Subdistricts may also issue revenue bonds, payable from user charges after a similar procedure, but require only a simple majority vote. Rate Commission and Rate Setting Process General. The District’s Rate Commission reviews and makes recommendations to the Board regarding all proposed changes in wastewater rates, stormwater rates and tax rates or change in the structure of any of the foregoing. Upon receipt of a rate change notice from the District pursuant to the Charter, the Rate Commission recommends changes in rates to the Board that will be necessary to pay interest and principal falling due on bonds issued to finance assets of the District, the costs of operation and maintenance and such amounts as may be required to cover emergencies and anticipated delinquencies. The Rate Commission has reviewed and recommended all rate increases that were approved by the Board since August 2003. On June 9, 2016, the Board increased the District’s wastewater user rates effective each July 1 from 2016 through 2019. See “Rate Increases” below. Membership. The Rate Commission consists of one representative from each of fifteen organizations within the District, each of which have been identified and designated by the Board as a “Rate Commission Representative Organization.” The organizations selected by the Board are diverse and represent residential customers, commercial and industrial customers, environmental interests, labor interests, community and neighborhood organizations and nonprofit organizations. The previous Rate Commission Representative Organizations were as follows: Missouri Coalition for the Environment Missouri Industrial Energy Consumers North County Incorporated St. Louis County Municipal League Engineers Club of St. Louis League of Women Voters of St. Louis The Mound City Bar Association Missouri Botanical Garden Associated General Contractors of St. Louis Education Plus St. Louis Regional Chamber 51 West St. Louis County Chamber of Commerce St. Louis Council of Construction Consumers Greater St. Louis Labor Council Lutheran Senior Services Term of Membership. Pursuant to Section 7.240 of Charter, each Rate Commission Representative Organization selected by the Board shall have the right to designate a Rate Commission Delegate to the Rate Commission for a term of six (6) years or completion of any unexpired term. The Board shall designate organizations within the District to succeed such Rate Commission Representative Organization, provided, however, that each Rate Commission Representative Organization shall serve until its successor shall be appointed and qualified. Nothing herein shall bar a Rate Commission Representative Organization from being named to successive terms. Rate Setting Process. Pursuant to the Charter, whenever the District proposes or recommends a change in rates, it shall give written notice (“Rate Change Notice”) to the Board and the Rate Commission. Upon receipt of a Rate Change Notice and after review of same, the Rate Commission shall cause at least one public hearing to be held on the record regarding the proposed rate change. The Rate Commission shall issue its rate recommendation report (“Rate Commission Report”) to the Board and to the public no later than 120 days after receipt of a Rate Change Notice. If the Board accepts the Rate Commission Report or if the Board is deemed to have accepted a Rate Commission Report as set forth in the Charter, the Board enacts an ordinance consistent with the Rate Commission Report. The Board may reject, or fail to accept, the Rate Commission Report only upon a finding that such report does not conform to the requirements of the Charter. No ordinance to effect a change in rates shall be introduced for adoption under the Charter prior to the earlier of 45 days after receipt of the Rate Commission Report or 45 days after the date on which the Rate Commission Report is due. Pursuant to the Charter, any change in a rate recommended to the Board by the Rate Commission must be accompanied by a statement of the Rate Commission that the proposed rate change and all portions thereof: (1) is consistent with constitutional, statutory or common law as amended from time to time; (2) enhances the District’s ability to provide adequate sewer and drainage systems and facilities, or related services; (3) is consistent with and not in violation of any covenant or provision relating to any outstanding bonds or indebtedness of the District; (4) does not impair the ability of the District to comply with applicable Federal or State laws or regulations as amended from time to time; and (5) imposes a fair and reasonable burden on all classes of rate payers. Billing and Collections The District bills residential and commercial customers monthly for sewer service charges. As described above (See first paragraph under “Sewer Rates and Revenues”), sewer bills are calculated upon several different bases, including the amount of water used each quarter, the winter quarter usage only or, when water meters are not in use, the structure of the building. For customers whose bills are based upon water usage, the District purchases data from the three water agencies serving the metropolitan area: the St. Louis City Water Division, Missouri-American Water Company and Kirkwood Water. In the City, most single family homes and smaller multi-unit buildings are not equipped with water meters. There are also a small number of properties in the County that use well water. When no water meter reading is available, the District calculates the bill based on the attributes of the structure, including the number of rooms, toilets, baths and separate showers. 52 Single family residential properties that have water meters are billed based on the winter quarter water usage. The winter quarter is defined as the 3-month water meter reading taken in February, March or April. With each July sewer bill the service charges are calculated on a 91-day prorated amount using the previous winter quarter water meter reading. The monthly usage remains the same until the following July, when the process is repeated. For single-family customers who have limited income, the District offers a Customer Assistance program. For eligible customers, the monthly sewer bill is reduced by 50% each month. Commercial and multi-unit properties are billed based on the amount of water used each quarter or, in a few cases, each month. The District’s monthly bill is based on one-third of the prior quarter’s reading and remains the same amount for three months. The process is repeated for the next three months. In the case of commercial properties, there is an additional compliance charge on each month’s bill and the bill may include a surcharge for difficult to treat industrial waste or there may be a reduction factor, based on water used in processing and not entering the sewer system. Multi-unit property owners also have the option of being billed on the winter quarter reading or on each quarter reading. Rate Increases Pursuant to the rate review and setting procedures discussed under the caption “Rate Commission and Rate Setting Process” above, the District submitted to the Rate Commission a request to increase wastewater user charge rates. A Wastewater Rate Change (the “Rate Change”) was presented to the Rate Commission on February 26, 2015. The Rate Commission then initiated proceedings to provide for the submission of written testimony, technical conferences, discovery procedures, a public hearing and post-hearing briefs. Pursuant to the Charter, the Rate Commission is required to submit a rate recommendation to the District’s Board of Trustees upon conclusion of its deliberations. On July 30, 2015, the Rate Commission submitted its recommendation to the Board. In that report the Rate Commission found that the Rate Change is necessary to pay (i) interest and principal due on bonds issued to finance assets of the District, (ii) the costs of operation and maintenance of the System and (iii) such amounts as may be required to cover emergencies and anticipated delinquencies. The Board accepted the Rate Commission’s recommendation on October 8, 2015. On June 9, 2016, by Ordinance 14395 the Board approved these recommendations for Fiscal Years 2017, 2018, 2019, and 2020. Historical and Projected Sewer Rates and Charges The following table sets forth the wastewater sewer user charge rates in effect on July 1, 2014, July 1, 2015, and July 1, 2016: [Remainder of page intentionally left blank] 53 Effective Effective Effective Effective Effective Type of Monthly Charge July 1, 2012 (FY 2013) July 1, 2013 (FY 2014) July 1, 2014 (FY 2015) July 1, 2015 (FY 2016) July 1, 2016 (FY 2017) Base Charge - $/Bill Billing & Collection Charge $ 3.25 $ 3.45 $ 3.55 $ 3.70 $ 5.44 System Availability Charge 9.90 11.40 12.70 14.55 14.02 Total Base (Residential) Service Charge $ 13.15 $ 14.85 $ 16.25 $ 18.25 $ 19.46 Compliance Charge - $/Bill(a) Tier 1 $ 23.00 $ 16.00 $ 9.00 $ 2.15 $ 2.86 Tier 2 Tier 3 Tier 4 Tier 5 39.80 84.75 124.25 163.75 41.85 89.15 130.70 172.25 43.55 92.75 136.00 179.25 44.50 94.80 139.00 183.15 57.20 125.84 185.90 243.10 Tier 1 and Total Base = Total Nonresidential Service Charge (Tier 1) $ 36.15 $ 30.85 $ 25.25 $ 20.40 $ 22.32 Volume Charge Metered - $/Ccf $ 2.28 $ 2.50 $ 2.82 $ 3.21 $ 3.59 Unmetered - $/Bill Each Room 1.48 1.63 1.83 2.09 2.12 Each Water Closet 5.56 6.10 6.88 7.83 7.92 Each Bath 4.64 5.08 5.73 6.53 6.60 Each Separate Shower 4.64 5.08 5.73 6.53 6.60 Extra Strength Surcharges - $/ton(a) Suspended Solids over 300 mg/l $231.35 $231.35 $244.03 $251.88 $262.00 Biological Oxygen Demand: (BOD’s) over 300 mg/l $620.14 $620.14 $620.14 $632.38 $654.00 Chemical Oxygen Demand: (COD’s) over 600 mg/l $310.07 $310.07 $310.07 $316.19 $327.00 ________________________ Source: The District (a) Applicable only to non-residential customers. Key: Ccf – Hundred Cubic Feet. mg/l – milligram per liter. The recommended rate change is for a term of four years, Fiscal Years 2017 through 2020. The Rate Commission Report states that the record of proceedings supports a finding that the District’s CIRP would allow the District to meet the near-term capital improvements needs through 2020. The Rate Commission further believed that the Rate Change and/or the issuance of debt are required to comply with the CD. See “REGULATORY REQUIREMENTS – Regulatory Matters – Consent Decree” herein. 54 The following table sets forth the current sewer rates and the rate increases recommended by the Rate Commission and accepted by the Board on June 9, 2016, for the next three fiscal years. Type of Monthly Charge Effective July 1, 2016 (FY 2017) Effective July 1, 2017 (FY 2018) Effective July 1, 2018 (FY 2019) Effective July 1, 2019 (FY 2020) 96 Base Charge - $/Bill Billing & Collection Charge $ 5.44 $ 6.02 $ 6.67 $ 7.38 System Availability Charge 14.02 15.50 17.16 18.97 Total Base (Residential) Service Charge $ 19.46 $ 21.52 $ 23.83 $ 26.35 Compliance Charge - $/Bill(a) Tier 1 $ 2.86 $ 2.95 $ 3.05 $ 3.14 Tier 2 57.20 58.94 60.89 62.61 Tier 3 125.84 129.67 133.96 137.75 Tier 4 185.90 191.56 197.91 203.49 Tier 5 243.10 250.50 258.79 266.10 Tier 1 and total base = Total Nonresidential Service Charge (Tier 1) $ 22.32 $ 24.47 $ 26.88 $ 29.49 Volume Charge Metered - $/Ccf $ 3.59 $ 3.97 $ 4.40 $ 4.87 Unmetered - $/Bill Each Room $ 2.12 $ 2.35 $ 2.61 $ 2.89 Each Water Closet 7.92 8.76 9.70 10.72 Each Bath 6.60 7.30 8.08 8.93 Each Separate Shower 6.60 7.30 8.08 8.93 Extra Strength Surcharges - $/ton(a) Suspended Solids over 300 mg/l $ 262.00 $ 269.07 $ 277.03 $ 283.87 BOD over 300 mg/l 654.00 671.63 691.50 708.56 COD over 600 mg/l 327.00 335.82 345.76 354.30 _________ Source: Feasibility Report [Remainder of page intentionally left blank] 55 Customer Accounts The District imposes a user charge on all customers that use its system of sewers, treatment plants and other facilities. The number of customers per category of accounts is as follows: Number of Customers by Type Last Ten Fiscal Years Fiscal Year Ending June 30 Single Family Residential Multi- Family Residential Commercial/ Industrial Total Accounts2 2007 362,569 44,875 25,647 433,091 20081 391,181 54,862 32,336 478,379 20091 388,791 51,441 32,161 472,393 2010 387,670 50,867 31,939 470,476 2011 362,739 43,471 24,702 430,912 2012 360,354 41,648 24,568 426,570 2013 359,243 41,117 24,441 424,801 2014 358,928 40,951 24,297 424,176 2015 359,317 41,131 24,389 424,837 2016 356,926 41,585 24,001 422,512 _________________ Source: The District. 1 Due to the implementation of the impervious area charge in 2008, approximately 46,000 stormwater only accounts were billed each month. This charge was challenged and a court decision was entered on July 9, 2010. Based on that decision the 46,000 accounts are no longer billed an impervious charge. 2 These numbers are based on the District’s year end financial statements and may differ from the historical numbers shown on Table 5 of the Feasibility Report. These differences are due to presentation requirements for auditing purposes. Largest User Charge Customers The following table lists the District’s ten largest wastewater user charge customers for the Fiscal Year ended June 30, 2016: Customer User Charges Percent of Total InBev Anheuser-Busch $5,428,513 1.80% City of St. Louis 2,697,436 0.89 Washington University 1,613,905 0.53 Bridgeton Landfill LLC 1,597,732 0.53 Sigma-Aldrich 1,149,118 0.38 Mallinckrodt 756,826 0.25 Jost Real Estate 736,728 0.24 Sensient Colors Inc 729,584 0.24 BJC HealthCare 725,948 0.24 Monsanto 725,861 0.24 Subtotal (10 largest) $16,161,651 5.35% Balance from other customers 285,850,242 94.65% Grand totals $302,011,893 100.00% _______________________ Source: The District. 56 User Charge Revenues The following table shows the amount of wastewater user charge revenues which were billed and collected by the District for the Fiscal Years ended June 30, 2007 through June 30, 2016 Collections as a Fiscal Wastewater Wastewater % of Wastewater Year Charges Billed Charges Collected Charges Billed 2007 $192,676,922 $189,346,856 98.27% 2008 203,646,332 195,452,994 95.98 2009 207,801,047 197,892,342 95.23 2010 204,248,506 198,138,619 97.01 2011 2012 213,503,732 222,425,957 203,520,769 217,396,623 95.32 97.74 2013 2014 2015 233,882,795 245,555,628 279,555,881 233,877,875 241,549,548 275,049,684 99.99 98.37 98.39 2016 300,803,084 299,932,808 99.71 __________________________ Source: The District. Outstanding Indebtedness General Obligation Indebtedness. As of the date of this Official Statement, the District has no outstanding general obligation indebtedness on either a District-wide or subdistrict basis. [Remainder of page intentionally left blank] 57 Other Outstanding Debt. The District ended Fiscal Year 2016 with approximately $1.2 billion in long-term revenue bond debt outstanding. The following table summarizes the outstanding long-term debt for the District at the end of Fiscal Years 2014, 2015 and 20161: _________ Source: The District 1 The table reflects outstanding debt as of the end of each of the respective Fiscal Years and varies from the information presented under the caption “PLAN OF FINANCE - Other Indebtedness”, which reflects outstanding debt as of the date of this Official Statement. [Remainder of page intentionally left blank] Total Long-Term Debt Outstanding (000s) 2014 2015 2016 Revenue Bonds: Series 2004B $105,155 $97,520 $89,650 Series 2005A 4,750 4,440 4,125 Series 2006A 32,085 29,915 27,950 Series 2006B 10,945 10,260 9,565 Series 2006C 60,000 60,000 0 Series 2008A 30,000 30,000 0 Series 2008B 31,140 29,320 27,475 Series 2009A 19,589 18,564 17,514 Series 2010A 7,299 6,947 6,588 Series 2010B 85,000 85,000 85,000 Series 2010C 33,224 31,644 30,024 Series 2011A 39,769 48,925 38,974 37,354 Series 2011B 47,170 45,325 Series 2012A 225,000 225,000 220,000 Series 2012B (Refunding of 2004A) 141,730 139,605 137,280 Series 2013A 16,043 52,000 49,920 Series 2013B 150,000 150,000 149,000 Energy Loan Program 166 151 118 Series 2015A - - 42,623 Series 2015B - - 223,855 $1,040,820 $1,056,510 $1,203,366 58 Pro Forma Statement of Pledged Revenues and Debt Service Coverage The following table shows pro forma statements(1) showing projected wastewater revenues and expenditures and debt service coverage on existing and anticipated revenue bonds during the current Fiscal Year and next four Fiscal Years. COMPARISON OF PROJECTED PLEDGED REVENUES AND PROJECTED DEBT SERVICE COVERAGE(1) FY 2016 Actual FY 2017 Projected FY 2018 Projected FY 2019 Projected FY 2020 Projected Total Service Charge Revenue $299,593,202 $322,527,776 $352,925,875 $388,038,071 $426,029,029 Other Operating Revenue $ 17,905,293 $ 4,487,643 $ 4,392,599 $ 4,265,762 $ 4,138,851 Connection Fee Revenue 1,242,782 1,038,000 1,048,380 1,058,864 1,069,452 Subtotal: Other Miscellaneous Revenue $ 19,148,075 $ 5,525,643 $ 5,440,979 $ 5,324,626 $ 5,208,304 Interest Income Reserve 251,952 251,952 251,952 251,952 251,952 Interest Income Other(2) 3,642,353 3,748,048 3,748,048 3,748,048 3,748,048 Total Revenue $322,635,582 $332,053,419 $362,366,854 $397,362,697 $435,237,333 General Operating Expenses $147,842,830 $149,432,953 $154,579,838 $160,967,537 $167,335,343 Other Operating Expenses 23,473,946 16,103,849 13,835,190 14,105,259 14,549,813 Subtotal Operating Expenses $171,316,776 $165,536,802 $168,415,028 $175,072,796 $181,885,156 Net Revenue Available for Debt Service $151,318,807 $166,516,617 $193,951,826 $222,289,901 $253,352,177 Actual and Projected Debt Service (Payments To Bondholders) Senior Bonds $ 46,381,319 $ 59,438,169 $ 69,655,544 $ 82,221,232 $ 97,067,019 Subordinate SRF Bonds 27,378,273 31,705,094 36,249,430 39,878,026 41,869,796 Total Projected Debt Service $ 73,759,592 $ 91,143,263 $105,904,974 $122,099,257 $138,936,815 Total Projected Senior Debt Coverage 3.26 2.80 2.78 2.70 2.61 Total Projected Coverage for all Debt 2.05 1.83 1.83 1.82 1.82 _________ Source: Feasibility Report (1) See Appendix D – Financial Feasibility Report pages D-48 and D-56 for detailed discussion of principal assumptions upon which projections are based. (2) Includes interest earned from the Missouri-American Water Company. 59 Employee Benefits The District currently maintains three pension plans for its employees: (i) a noncontributory single employer defined benefit plan (the “Defined Benefit Plan”) providing retirement benefits as well as death and disability benefits to all full-time District employees commencing services prior to December 31, 2010, (ii) a defined contribution plan (the “Defined Contribution Plan”) and (iii) a deferred compensation plan (the “Deferred Compensation Plan”). A Pension Committee (consisting of two members of the District’s Board of Trustees, two elected employee members and four members of the District’s management staff) administers the Defined Benefit Plan. The Defined Benefit Plan is exempt from the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) and, as such, is not subject to ERISA’s reporting requirements. As a noncontributory plan, the District’s employees do not contribute to the Defined Benefit Plan. Ordinances establishing the Defined Benefit Plan provide for actuarially determined annual contributions, paid solely by the District, that are sufficient to pay benefits when due. Contributions of $10,096,075 and $10,359,139, excluding certain professional fees paid by the District, were made to the Defined Benefit Plan during the District’s Fiscal Year ending June 30, 2016 and 2015, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at December 31, 2015, and 2014, respectively. For 2016, the actuarially determined contribution consists of (a) $5,106,625 normal cost plus (b) $4,375,209 amortization of the actuarial accrued assets in excess of the actuarial accrued liability and prior changes (c) multiplied by an inflation factor of 1.07, which totals $10,145,562. For 2015, the actuarially determined contribution consists of (a) $5,253,091 normal cost plus (b) $4,147,847 amortization of the actuarial accrued assets in excess of the actuarial accrued liability and prior changes (c) multiplied by an inflation factor of 1.07, which totals $10,059,004. In the 2016 valuation, the number of active members included in the valuation decreased from 710 to 665 and the number of retirees and beneficiaries increased from 660 to 691. The Funded Ratio for December 31, 2015, is 87.5%, up.01% from the period ended December 31, 2014. The District provides certain professional fees, office space, utilities, and other services to the Defined Benefit Plan at no cost. Other costs of administering the Defined Benefit Plan are financed from plan net assets. For more information regarding the District’s Defined Benefit Plan, see Note 7 in the District’s Notes to Financial Statements contained in Appendix A to this Official Statement. Effective January 1, 2011, the District started the Defined Contribution Plan for all new hires. Current employees with less than 10 years of service on December 31, 2010, could voluntarily elect to transfer from the Defined Benefit Plan into the Defined Contribution Plan. The Defined Contribution Plan provides a basic contribution of 7% of employee annual earnings and provides a matching contribution of 50% of the first 4% of earnings the employee defers into the Deferred Compensation Plan. (This is a maximum matching contribution of 2% of earnings.) Employees decide upon the investment of these contributions and investment earnings from funds offered by Vanguard. Initial participation consisted of twenty-three employees who transferred balances totaling $70,869 from the Defined Benefit Plan. At December 31, 2015, the Defined Contribution Plan consisted of 286 participants with account balances just over $3.5 million in net position. For more information regarding the District’s Defined Contribution Plan, see Note 8 in the District’s Notes to Financial Statements contained in Appendix A to this Official Statement. 60 The District also offers its employees the Deferred Compensation Plan created in accordance with Internal Revenue Code Section 457. The Deferred Compensation Plan, available to all District employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until separation from service, or in special approved circumstances due to financial hardship as defined by the Deferred Compensation Plan. Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries. As a result, the assets and liabilities of the Deferred Compensation Plan are not included in the District’s financial statements. For more information regarding the District’s Deferred Compensation Plan, see Note 8 in the District’s Notes to Financial Statements contained in Appendix A to this Official Statement. Other Post-Employment Benefits The District pays the monthly group health insurance premium for the individual until the retiree becomes eligible for Medicare. During Fiscal Years 2016 and 2015, expenses of $2,554,734 and $2,474,689, respectively, were recognized for post-retirement health care premiums as those premiums were paid. The District’s net current OPEB obligation at June 30, 2016 and 2015, respectively, were $7,003,477 and $5,968,543. It is estimated that for the Fiscal Year ending June 30, 2016, the District’s unfunded accrued liability will be approximately $25 million assuming a 3.75% return on investment. For more information regarding the District’s OPEB plans, see Note 9 to the District’s Notes to Financial Statements contained in Appendix A to this Official Statement. Also see the section herein captioned “FINANCIAL OPERATIONS OF THE DISTRICT – Selected Financial Data of the District.” Tax Limitation Amendment – Hancock Amendment An amendment to the Missouri Constitution (the “Hancock Amendment”) limits the rate of increase and the total amount of taxes on property which may be imposed in any year, and the limit may not be exceeded without voter approval. Provisions are included in the amendment for rolling back tax rates to produce an amount of revenues equal to that of the previous year if the definition of the tax base is changed or if property is reassessed. The tax levy on the assessed valuation of new construction is exempt from this limitation. The Hancock Amendment also requires a political subdivision of the State to seek voter approval in order to increase any “tax, license or fee” over existing rates. A Missouri court has held that the District’s current wastewater user charge structure does not constitute a “tax, license or fee” for purposes of the Hancock Amendment’s voter approval requirements. Since the Series 2016C Bonds are approved by the voters, the Hancock Amendment does not prohibit an increase in the District’s wastewater user charges to pay debt service on the Series 2016C Bonds. REGULATORY REQUIREMENTS General The District is subject to the provisions of the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., commonly referred to as the “Clean Water Act,” the stated objective of which is to restore and maintain the chemical, physical, and biological integrity of the nation’s waters. The District is also subject to the Missouri Clean Water Law, Sections 644.006 through 644.141, Revised Statutes of Missouri, as amended, and other laws and regulations. The regulatory requirements are administered by the United States Environmental Protection Agency (“EPA”) through DNR. The District is currently not subject to the Federal Safe Drinking Water Act, as amended, 42 U.S.C. 300f et seq., which is also administered by the EPA. The Clean Water Act imposes several permit and regulatory requirements on wastewater treatment systems. Public sewage treatment plant owners and operators such as the District are required 61 to provide secondary treatment as established by federal regulation for all wastewater discharge from treatment plants into waters of the United States. Under the Clean Water Act, states also establish water quality standards, classifying water body uses, and pollutant control criteria to protect those uses. All sewage system discharges require National Pollutant Discharge Elimination System (“NPDES”) permits specifying the permissible pollutant levels in wastewater effluent discharged from the plants. In addition to secondary treatment requirements for publicly-owned treatment plants, all discharges from plants and combined sewer overflows (“CSO”) may be subject to additional stringent controls (which are then incorporated into NPDES permits) if such discharges are required to achieve the water quality standards established by the state pursuant to federal regulations. Under State law, the State also requires treatment plants to obtain state surface water discharge permits, which, in the discretion of EPA and DNR, may be issued jointly with the NPDES permit. Major wastewater treatment systems also must adopt and enforce pretreatment regulations for industries and other non-domestic sources discharging into sewers. Treatment plants are also subject to Clean Water Act and state regulations governing sludge use and disposal. The Clean Water Act is enforced by EPA through administrative orders and procedures. Violations may be the basis for federal lawsuits brought on EPA’s behalf by the U.S. Department of Justice or by private citizens. Regulatory Matters – Consent Decree In 2007, the Department of Justice filed suit on behalf of the EPA against the District for various alleged violations of the Clean Water Act. The District had been the subject of several investigatory actions by EPA over the prior several years. The District, EPA, DNR, represented by the Missouri Attorney General, and an environmental group allowed to intervene in the lawsuit engaged in several years of litigation. In 2011, the District and the EPA negotiated the Consent Decree that resulted in settlement and dismissal of the original lawsuit. See Note 12, Commitments and Contingencies, in the District’s Notes to Financial Statements contained in Appendix A to this Official Statement for additional information regarding this litigation. The District’s Board of Trustees adopted Ordinance No. 13277 at its June 29, 2011, meeting that authorized the Executive Director and General Counsel to sign the Consent Decree. Under the Consent Decree, the District agreed to spend $4.7 billion over the next 23 years to implement various system improvements and programs designed to eliminate or reduce overflows from the combined and separate sewer system in order to improve water quality and protect human health and the environment. Most of the improvements enumerated in the Consent Decree were already addressed in the District’s long-term $4.7 billion (in 2010 dollars) CIRP. The State did not agree to sign the Consent Decree in its present form. However, all parties, including the State, accepted language in a motion filed with the U.S. District Court for the Eastern District of Missouri (the “Court”) in August 2011, which indicated that there were no issues remaining to be resolved in the proceedings. On August 4, 2011, the Consent Decree was lodged with the Court. An extended public comment period ended October 10, 2011. On April 27, 2012, the Court entered the Consent Decree, thus concluding the litigation of this lawsuit. On that same day the Court entered a Memorandum and Order which realigned the State as a defendant and reaffirmed a 2009 decision by the Eighth Circuit Court of Appeals that the State had waived its sovereign immunity. Although this litigation matter has concluded, the District is working diligently to implement the Consent Decree on schedule. LITIGATION Except as described in the “REGULATORY REQUIREMENTS – Regulatory Matters – Consent Decree” above, to the knowledge of the District there is no legal action, suit, proceeding, inquiry or investigation at law or in equity before or by any court, public board or body for which the District has been served with process or official notice or threatened against or affecting the District or any reasonable 62 basis therefor, wherein an unfavorable decision, ruling or finding would adversely affect the transaction contemplated by this Official Statement or the validity of the Series 2016C Bonds, the Bond Ordinance, or any agreement or instrument to which the District is a party and which is used or contemplated for use in the transactions contemplated by this Official Statement, and no member, employee or agent of the District has been served with any legal process regarding such litigation or other proceeding. TAX MATTERS The following is a summary of the material federal and State of Missouri income tax consequences of holding and disposing of the Series 2016C Bonds. This summary is based upon laws, regulations, rulings and judicial decisions now in effect, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all aspects of federal income taxation that may be relevant to investors in light of their personal investment circumstances or describe the tax consequences to certain types of owners subject to special treatment under the federal income tax laws (for example, dealers in securities or other persons who do not hold the Series 2016C Bonds as a capital asset, tax- exempt organizations, individual retirement accounts and other tax deferred accounts, and foreign taxpayers), and, except for the income tax laws of the State of Missouri, does not discuss the consequences to an owner under any state, local or foreign tax laws. The summary does not deal with the tax treatment of persons who purchase the Series 2016C Bonds in the secondary market. Prospective investors are advised to consult their own tax advisors regarding federal, state, local and other tax considerations of holding and disposing of the Series 2016C Bonds. Opinion of Co-Bond Counsel In the opinion of Gilmore & Bell, P.C. and White Coleman & Associates, LLC, Co-Bond Counsel, under the law existing as of the issue date of the Series 2016C Bonds: Federal and Missouri Tax Exemption. The interest on the Series 2016C Bonds is excludable from gross income for federal income tax purposes and is exempt from income taxation by the State of Missouri. Alternative Minimum Tax. Interest on the Series 2016C Bonds is not an item of tax preference for purposes of computing the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Bank Qualification. The Series 2016C Bonds have not been designated as “qualified tax-exempt obligations” for purposes of Section 265(b) of the Internal Revenue Code of 1986, as amended (the “Code”). Co-Bond Counsel’s opinions are provided as of the date of the original issue of the Series 2016C Bonds, subject to the condition that the District complies with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2016C Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The District has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2016C Bonds in gross income for federal and Missouri income tax purposes retroactive to the date of issuance of the Series 2016C Bonds. Co-Bond Counsel are expressing no opinion regarding other federal, state or local tax consequences arising with respect to the Series 2016C Bonds but has reviewed the discussion under the heading “TAX MATTERS.” 63 Other Tax Consequences Original Issue Premium. If a Series 2016C Bond is issued at a price that exceeds the stated redemption price at maturity of the Series 2016C Bond, the excess of the purchase price over the stated redemption price at maturity constitutes “premium” on that Series 2016C Bond. Under Section 171 of the Code, the purchaser of that Series 2016C Bond must amortize the premium over the term of the Series 2016C Bond using constant yield principles, based on the purchaser’s yield to maturity. As premium is amortized, the owner’s basis in the Series 2016C Bond and the amount of tax-exempt interest received will be reduced by the amount of amortizable premium properly allocable to the owner. This will result in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes on sale or disposition of the Series 2016C Bond prior to its maturity. Even though the owner’s basis is reduced, no federal income tax deduction is allowed. Prospective investors should consult their own tax advisors concerning the calculation and accrual of bond premium. Sale, Exchange or Retirement of Bonds. Upon the sale, exchange or retirement (including redemption) of a Series 2016C Bond, an owner of the Series 2016C Bond generally will recognize gain or loss in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale, exchange or retirement of the Series 2016C Bond (other than in respect of accrued and unpaid interest) and such owner’s adjusted tax basis in the Series 2016C Bond. To the extent a Series 2016C Bond is held as a capital asset, such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the Series 2016C Bond has been held for more than 12 months at the time of sale, exchange or retirement. Reporting Requirements. In general, information reporting requirements will apply to certain payments of principal, interest and premium paid on the Series 2016C Bonds, and to the proceeds paid on the sale of the Series 2016C Bonds, other than certain exempt recipients (such as corporations and foreign entities). A backup withholding tax will apply to such payments if the owner fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. The amount of any backup withholding from a payment to an owner will be allowed as a credit against the owner’s federal income tax liability. Collateral Federal Income Tax Consequences. Prospective purchasers of the Series 2016C Bonds should be aware that ownership of the Series 2016C Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with “excess net passive income,” foreign corporations subject to the branch profits tax, life insurance companies, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Series 2016C Bonds. Co-Bond Counsel express no opinion regarding these tax consequences. Purchasers of Series 2016C Bonds should consult their tax advisors as to the applicability of these tax consequences and other federal income tax consequences of the purchase, ownership and disposition of the Series 2016C Bonds, including the possible application of state, local, foreign and other tax laws. LEGAL MATTERS Certain legal matters incident to the authorization, issuance, sale and delivery of the Series 2016C Bonds are subject to the approval of Gilmore & Bell, P.C., St. Louis, Missouri, and White Coleman & Associates, LLC, St. Louis, Missouri, Co-Bond Counsel, whose approving legal opinions will be delivered with the Series 2016C Bonds in substantially the form of Appendix E hereto. Certain other legal matters will be passed on for the District by its General Counsel and by its Disclosure Counsel, the Hardwick Law Firm, LLC, St. Louis, Missouri. Certain legal matters will be passed upon for the Underwriters by their co-counsel, Thompson Coburn LLP, St. Louis, Missouri, and Richard G. Hughes & Associates, LLC, St. Louis, Missouri. 64 The various legal opinions to be delivered concurrently with the delivery of the Series 2016C Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of parties to such transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction. RATINGS Moody’s Investors Service, S&P Global Ratings and Fitch Ratings (the “Rating Agencies”) have assigned the Series 2016C Bonds the ratings of Aa1, AAA and AA+, respectively, based on each Rating Agency’s evaluation of the creditworthiness of the District. Such ratings reflect only the views of the Rating Agencies at the time such ratings are given, and the Underwriters and the District make no representation as to the appropriateness of such ratings. An explanation of the significance of such ratings may be obtained only from the Rating Agencies. The District has furnished the Rating Agencies with certain information and materials relating to the Series 2016C Bonds and the District that have not been included in this Official Statement. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies and assumptions by the rating agencies. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the agency originally establishing such rating, circumstances so warrant. Neither the District nor the Underwriters have undertaken any responsibility to bring to the attention of the holders of the Series 2016C Bonds any proposed revision or withdrawal of a rating of the Series 2016C Bonds or to oppose any such proposed revision or withdrawal. Any revision or withdrawal of a rating could have an adverse effect on the market price and marketability of the Series 2016C Bonds. CONTINUING DISCLOSURE Pursuant to a Disclosure Dissemination Agent Agreement dated as of December 1, 2016 (the “Continuing Disclosure Agreement”) between the District and Digital Assurance Certification, L.L.C. (“DAC”), under which the District has designated DAC as Dissemination Agent, the District has covenanted for the benefit of the holders and beneficial owners of the Series 2016C Bonds to provide, or cause to be provided, certain financial information and operating data relating to the District to certain parties by not later than 180 days following the end of the District’s Fiscal Year (the “Annual Report”), commencing with the report for the Fiscal Year ending June 30, 2017, and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Dissemination Agent on behalf of the District with the Municipal Securities Rulemaking Board (“MSRB”) through its Electronic Municipal Market Access (“EMMA”) website pursuant to Rule 15c2- 12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (“Rule 15c2-12”). EMMA is an instrument-based on-line portal for free investor access to municipal bond information, including offering documents, event notices, real-time municipal securities trade prices and education resources available at www.emma.msrb.org. Nothing contained on EMMA relating to the District or the Series 2016C Bonds is incorporated by reference in this Official Statement. The notices of material events will be filed by the Dissemination Agent on behalf of the District with the MSRB through EMMA. These covenants have been made in order to assist the Underwriters in complying with Rule 15c2-12. The specific nature of the information to be contained in the Annual Report and in the notices of material events is summarized in “DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT” in Appendix C hereto. During the past five years, the District believes it has materially complied with its continuing disclosure undertakings to provide financial and operating information required by Rule 15c2-12. 65 The Dissemination Agent has only the duties specifically set forth in the Continuing Disclosure Agreement. The Dissemination Agent’s obligation to deliver the information at the times and with the contents described in the Continuing Disclosure Agreement is limited to the extent that the District has provided such information to the Dissemination Agent as required by the Continuing Disclosure Agreement. The Dissemination Agent has no duty with respect to the content of any disclosures or notice made pursuant to the terms of the Continuing Disclosure Agreement. The Dissemination Agent has no duty or obligation to review or verify any information in the Annual Report, the District’s audited financial statements, a Notice Event (as defined in the Continuing Disclosure Agreement), or any other information, disclosures or notices provided to it by the District and shall not be deemed to be acting in any fiduciary capacity for the District, the holders of the Series 2016C Bonds or any other party. The Dissemination Agent has no responsibility for the District’s failure to report to the Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the District has complied with the Continuing Disclosure Agreement. The Dissemination Agent may conclusively rely upon certifications of the District at all times. UNDERWRITING The Series 2016C Bonds are being purchased for reoffering by the group of underwriters shown on the cover page hereof (collectively, the “Underwriters”), for whom Morgan Stanley & Co. LLC acts as representative, pursuant to a Purchase Contract between the District and the Underwriters. The Purchase Contract provides that the Underwriters shall purchase all, but not less than all, of the Series 2016C Bonds at a price of $167,058,266.33, which amount is equal to the par amount of the Series 2016C Bonds, less underwriters’ discount of $619,788.07, plus original issue premium of $17,678,054.40. Morgan Stanley, parent company of Morgan Stanley & Co. LLC, an underwriter of the Series 2016C Bonds, has entered into a retail distribution arrangement with its affiliate Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Series 2016C Bonds. 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 Products 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 Products Group (“WFBNA”), one of the underwriters of Series 2016C Bonds, has entered into an agreement (the “WFA Distribution Agreement”) with its affiliate, Wells Fargo Advisors, LLC (“WFA”), for the distribution of certain municipal securities offerings, including the Series 2016C 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 Series 2016C 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 Series 2016C 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. 66 Siebert Cisneros Shank & Co., L.L.C. (“SCS”) has entered into an agreement with Muriel Siebert & Co. for the retail distribution of certain securities offerings, at the original issue prices. Pursuant to said agreement, if applicable to the Bonds, Muriel Siebert & Co. will purchase the Bonds at the original issue price less the selling concession with respect to any Bonds that Muriel Siebert & Co. sells. SCS will share a portion of its underwriting compensation with Muriel Siebert & Co., if applicable. The Underwriters may offer and sell the Series 2016C Bonds to certain dealers (including dealers depositing the Series 2016C Bonds into investment trusts) and others at prices lower than the public offering price stated on the inside cover page hereof. The initial public offering price may be changed from time to time by the Underwriters. The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principle investment, hedging, brokerage and other financial and non-financial activities and services. Certain of the Underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the District and to persons and entities with relationships with the District, for which they received or will receive customary fees and expenses. In the ordinary course of their various business activities, the Underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the District (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the District. The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. CERTAIN RELATIONSHIPS Gilmore & Bell, P.C. and White Coleman & Associates, LLC, Co-Bond Counsel, have represented certain of the Underwriters in transactions unrelated to the issuance of the Series 2016C Bonds, but are not representing any of the Underwriters in connection with the issuance of the Series 2016C Bonds. The Hardwick Law Firm, LLC has represented the District as co-bond counsel in prior transactions. Thompson Coburn LLP represents the District in certain matters unrelated to the issuance of the Series 2016C Bonds. ENGINEERING AND FEASIBILITY CONSULTANT The District has retained Raftelis Financial Consultants, Inc., to serve as the Engineering and Feasibility Consultant to the District in connection with the issuance of the Series 2016C Bonds. See Appendix D – “Report on the Financial Feasibility of The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds, Series 2016C.” FINANCIAL ADVISORS PFM Financial Advisors, LLC, Cleveland, Ohio, and Independent Public Advisors, LLC, Kansas City, Missouri, have served as Co-Financial Advisors to the District in connection with the Series 2016C 67 Bonds, relative to a plan of financing and assisting the District in drafting certain portions of this Official Statement for the sale of the Series 2016C Bonds. The Co-Financial Advisors have participated in the compilation and editing of this Official Statement. The Co-Financial Advisors have not, however, independently verified the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the District for the purpose of determining the accuracy or completeness of any of the information contained herein. The Co-Financial Advisors have relied on the diligence and accuracy of the District which has certified that this Official Statement contains no material misstatement or omission of information. INDEPENDENT AUDITORS The Independent Auditors Report, Management’s Discussion and Analysis and Basic Financial Statements of the District for the Fiscal Years ended June 30, 2015 and June 30, 2016, included in Appendix A of this Official Statement, have been audited by RubinBrown LLP. MISCELLANEOUS The references, excerpts and summaries of all documents referred to herein do not purport to be complete statements of the provisions of such documents, and reference is made to all such documents for full and complete statements of all matters of fact relating to the Series 2016C Bonds, the security for the payment of the Series 2016C Bonds and the rights of the owners thereof. During the period of the offering, copies of drafts of such documents may be examined at the offices of the Co-Financial Advisors; following delivery of the Series 2016C Bonds, copies of such documents may be examined at the corporate trust office of the Paying Agent in St. Louis, Missouri. The information contained in this Official Statement has been compiled from official and other sources deemed to be reliable, and while not guaranteed as to completeness or accuracy, is believed to be correct as of this date. It is anticipated that CUSIP identification numbers will be printed on the Series 2016C Bonds, but neither the failure to print such numbers on any Series 2016C Bonds nor any error in printing of such numbers will constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for any Series 2016C Bonds. The attached appendices are integral parts of this Official Statement and must be read together with all of the foregoing statements. The closing documents will include a certificate by the proper official of the District that, to the best of his knowledge and belief at the time of the acceptance of the delivery of the Series 2016C Bonds, this Official Statement and any information furnished by the District supplementary thereto did not and do not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements made in light of the circumstances under which they were made, not misleading in any material respect. Any statement made in this Official Statement involving matters of opinion or of estimates, whether or not expressly so stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The information and expressions of opinion 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 information presented herein since the date hereof. This Official Statement is not to be construed as a contract or agreement between the District, the Paying Agent, or the Underwriters and the purchasers or Owners of any Series 2016C Bonds. 68 This Official Statement has been authorized and approved by the District. For purposes of compliance with Rule 15c2-12, this Official Statement constitutes an official statement of the District that has been deemed final by the District as of its date except for the omission of no more than the information permitted by Rule 15c2-12. The Official Statement has been duly executed and delivered on its behalf by the officials signing below. By: /s/ Brian L. Hoelscher Executive Director By: /s/ Tim R. Snoke Secretary-Treasurer APPENDIX A INDEPENDENT AUDITORS’ REPORT, MANAGEMENT’S DISCUSSION AND ANALYSIS AND BASIC FINANCIAL STATEMENTS OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT FOR THE FISCAL YEARS ENDED JUNE 30, 2015 AND 2016 [THIS PAGE INTENTIONALLY LEFT BLANK] COMPREHENSIVE ANNUALFINANCIAL REPORTTHE METROPOLITAN ST. LOUIS SEWER DISTRICTST. LOUIS, MISSOURI FISCAL YEARENDINGJUNE 30, 2016 Small Grants Rainscaping Program: Rain Garden at Ranken Technical College THE METROPOLITAN ST. LOUIS SEWER DISTRICT COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEARS ENDING JUNE 30, 2016 AND 2015 Report prepared and submitted by the Department of Finance Marion M. Gee Director of Finance Contents Page Part I - Introductory Section: Letter Of Transmittal ............................................................................................ i - xiv Organizational Chart .................................................................................................. xv Certificate Of Achievement For Excellence In Financial Reporting .......................................................................................... xvi Part II - Financial Section: Independent Auditors’ Report .......................................................................... 1 - 3 Management’s Discussion And Analysis - Required Supplementary Information ........................................................................ 4 - 17 Basic Financial Statements Statements Of Net Position............................................................................ 18 - 19 Statements Of Revenues, Expenses And Changes In Net Position ................... 20 Statements Of Cash Flows ............................................................................. 21 - 22 Notes To Financial Statements ...................................................................... 23 - 83 Required Supplementary Information - Schedule Of Changes In Net Pension Liability And Related Ratios, Schedule Of Employer Contributions - Employees’ Pension Plan And Other Post-Employment Benefit Plan Schedule of Funding Progress ....... 84 - 85 Part III – Statistical Section: Net Position By Component .................................................................................. 86 Changes In Net Position ........................................................................................ 87 Operating Revenues By Source ............................................................................. 88 Operating Expenses ............................................................................................... 89 Non-Operating Revenues And Expenses .............................................................. 90 User Charge Rates ................................................................................................. 91 User Charge Revenues .......................................................................................... 92 Sewer User Charges (Composite-Annual) ............................................................ 93 Number Of Customers By Type ............................................................................ 94 Ten Largest Customers ......................................................................................... 95 Ratios Of Outstanding Debt By Type ................................................................... 96 Computation Of Overlapping Debt ....................................................................... 97 Pledged Revenue Coverage ................................................................................... 98 Demographic And Economic Statistics ................................................................. 99 Principal Employers (St. Louis Metropolitan Area) .......................................... 100 Employment Level ............................................................................................... 101 Average Flow ........................................................................................................ 102 Operating And Capital Indicators ...................................................................... 103 Introductory Section Vision Statement Quality Service Always Mission Statement To protect the public’s health, safety, and water environment by responsibly providing wastewater and stormwater management Values Integrity Teamwork Excellence and Innovation The District Employees Customer Satisfaction Mission, Vision, Value statements are important elements of a strategic business plan. The Mission statement keeps the District focused on its essential activity, the Vision statement points to its ideal purpose, and the Value statement conveys the principles that must shape our actions. i October 17, 2016 The Board of Trustees The Metropolitan St. Louis Sewer District The Comprehensive Annual Financial Report (“CAFR”) of The Metropolitan St. Louis Sewer District (“MSD” or the “District”) for the fiscal year ended June 30, 2016, is submitted herewith. The District’s Finance Department prepared this report. The District is responsible for the accuracy of the data and the completeness and fairness of the presentation of the financial statements and other information presented herein. We believe the presentation is accurate in all material respects and includes all disclosures necessary to enable the reader to gain a reasonable understanding of the District’s financial activities. In the CAFR, the District’s financial activities are measured on a single enterprise fund basis where all funds of the District and its sub- districts are consolidated. The District’s CAFR includes an Introductory Section, a Financial Section, and a Statistical Section. The Introductory Section includes this transmittal letter, lists of the District’s Board of Trustees, Rate Commission Chair, members of the Civil Service Commission, management staff, and an organization chart as of June 30, 2016. The Financial Section includes the independent auditors’ report, management’s discussion and analysis, and the District’s basic financial statements. The Statistical Section includes financial, economic, and demographic information, generally presented on a multi-year basis. The CAFR includes all funds of the District. The operations of these funds, as reflected in the financial statements, are under the control of the District’s governing body. The District has determined there were no other agencies or entities that met the established criteria for inclusion in the reporting entity. The Board of Trustees The Metropolitan St. Louis Sewer District ii Organization MSD was created in 1954 to provide a metropolitan-wide sewer system to serve the City of St. Louis and most of the more heavily populated areas of St. Louis County. Before MSD’s creation, the City of St. Louis, various municipalities, and private sewer companies provided sewer service that primarily included only collecting and transporting sewage from small geographic areas to nearby rivers and streams with little or no treatment. Most of the municipalities or private sewer companies serving the area did not have the jurisdictional authority or financial resources needed to eliminate health hazards from untreated sewage. When the District began operations, it took over the publicly owned wastewater and stormwater drainage facilities within its jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. In 1977, voters approved the District’s annexation of a 270 square mile area of the lower Missouri River and lower Meramec River watersheds. The District purchased the Fee Fee Trunk Sewer Company and the Missouri Bottoms Sewer Company in 1978. MSD has since acquired other investor-owned or municipally operated systems. The District’s service area now encompasses 525 square miles including all 62 square miles of the City of St. Louis and 463 square miles of St. Louis County. The current population served by the District is approximately 1.3 million. MSD is organized pursuant to Article VI, Section 30 of the Missouri State Constitution that empowers the people of St. Louis County and the City of St. Louis “to establish a metropolitan district for functional administration of services common to the area.” MSD is the only district established pursuant to that section of the Missouri State Constitution. The Charter of MSD (“Plan”), approved by voters in 1954 and amended in 2000 and 2012, established the District. The Plan describes the District as “a body corporate, a municipal corporation, and a political subdivision of the state.” As a political subdivision of the state, MSD is comparable to a county or city, such as St. Louis County or the City of St. Louis. The Plan established the governing body of the District as a six-member Board of Trustees (“Board”) with three members appointed by the Mayor of St. Louis and three members appointed by the St. Louis County Executive. No more than two trustees from each area can be of the same political affiliation. The Board of Trustees The Metropolitan St. Louis Sewer District iii Unlike a corporation’s board of directors that is responsible solely to the stockholders who choose to invest in the corporation, MSD’s Board members are trustees of public property and public funds. They are responsible to all citizens within the District. According to the Plan, the Board enacts District ordinances, determines policies, and appoints the Executive Director, the Secretary-Treasurer, and the Internal Auditor. The Executive Director appoints all other District officials. Among its duties, the Board makes all appropriations, approves contracts for improvements, and engages an accounting firm to perform the annual independent audit of the District. The Plan prescribes other duties of the Board and grants numerous broad powers, subject to federal and state laws, to the District and the Board of Trustees. Among other things, the Plan outlines the following requirements or provisions:  Requires that MSD operate with a balanced budget;  Details how MSD can tax property and requires an annual public hearing on all taxes levied by the District;  Details how MSD can establish user charges;  Requires MSD to establish civil service rules and regulations governed by a Civil Service Commission;  Provides how the original boundaries of the District may be extended to include any area in St. Louis County; and  Requires MSD to approve all plans and designs for proposed construction, alteration, or reconstruction of sewer or drainage facilities within the District’s boundaries. The District is also governed by the Missouri State Constitution and various federal and state laws that among other requirements mandate the following:  MSD must hold permits for all sanitary discharges. These permits require a minimum of secondary treatment;  MSD must provide wastewater treatment in an area-wide manner to qualify for federal and state grants;  MSD must operate, maintain, and replace facilities to provide proper wastewater treatment or be subject to penalties and fines; and  MSD must set user charge rates in compliance with the Federal Clean Water Act. These rates must be submitted to the Missouri Department of Natural Resources to receive future construction grants and to avoid the possibility of refunding past grants. The Board of Trustees The Metropolitan St. Louis Sewer District iv During fiscal 2016 the primary source of funding for the operation and maintenance of MSD’s wastewater system was a user charge averaging $488.64 per year or $40.72 per month for a single-family residence. The District’s charges for residential wastewater service are tied to the amount of measured water usage during a winter quarter. For residential properties without water meters, the charges are based on housing attributes (such as the number of rooms, baths, and toilets) that correlate to water usage. That methodology is the same billing methodology used by the City of St. Louis Water Division for their non-metered properties. Multi-family residential and non- residential rates are proportionate to the single-family charge and are based on water consumption and the strength of the discharge. In fiscal year 2016, the operation and maintenance of the District’s stormwater system was funded by a combination of property taxes and flat fee billing of 24¢ per month for residential and commercial properties and 18¢ per month per unit for multi-unit properties. MSD also receives some federal, state, and local grants to help defray the cost of constructing sewage treatment and drainage facilities and improvements. The District also charges fees for plan review, permits, construction inspection of new system development, and special discharges. The District charges a uniform connection fee in all service areas. The District, itself, may issue general obligation bonds and revenue bonds to finance the cost of improvements and extensions to the sewer system. The District also may issue, on behalf of each of its sub-districts, general obligation bonds, revenue bonds, or special assessment bonds. Major Initiatives Affecting The Financial Resources Of The District In June 2007 the District was sued by the Department of Justice on behalf of the United States Environmental Protection Agency (“EPA”) and the Missouri Department of Natural Resources (“DNR”) for various alleged violations of the Clean Water Act. The Missouri Coalition for the Environment joined the suit as an intervener in August 2007. After a lengthy mediation, a Consent Decree (“CD”) was entered by the Federal Court on April 27, 2012. This entry resolved all alleged violations. Compliance with the CD requires the District to implement a multi-decade, multi-billion dollar capital improvement program and rehabilitate significant portions of the existing wastewater sewer system. This effort will continue to be funded by a combination of rate increases and issuance of additional debt based on the completion of milestones defined in the CD. The Board of Trustees The Metropolitan St. Louis Sewer District v Integral to helping MSD’s rate payers understand the Consent Decree is MSD’s initiation of Project Clear. MSD Project Clear is a long-term effort by MSD, undertaken as part of the Consent Decree agreement with the U.S. Environmental Protection Agency and the Missouri Coalition for the Environment. Project Clear’s aims are to:  Improve water quality for everyone;  Solve problems for some of our customers created by the very nature and design of St. Louis’ wastewater system; and  Provide clear, up-to-date information to the public about Consent Decree activities. MSD Project Clear focuses on three categories of work: Get the rain out; Repair and maintain; and Build system improvements. Get the rain out focuses on preventing excess stormwater from entering the sewer system through a variety of project types, including downspout disconnections, and rainscaping. Repair and maintain continues the work MSD has done to repair, maintain, and renew the existing sewer system, on a faster timeline. Build system improvements involves new construction of wastewater management structures, including deep underground tunnels and above-ground storage tanks. In December 2015, a prolonged period of rainfall occurred from the early morning hours of December 26th to the evening of December 28th. The St. Louis area received a range of 6 to 12 inches of precipitation, with an average of 9 inches of rain falling over the three days. This rainfall impacted area rivers, causing severe flooding throughout the region. The Meramec River reached record flood levels at 44.1’ - eclipsing the level reached during the Great Flood of 1993 - causing flooding and damage at three MSD treatment plants. MSD crews and contractors worked around the clock to bring the Grand Glaize and Fenton Wastewater Treatment Plants back online as soon as possible and to repair damage to the Missouri River Wastewater Treatment Plant. The Board of Trustees The Metropolitan St. Louis Sewer District vi In addition to the damage sustained at the three treatment plants, the District received approximately 3,000 calls for service during the rain event and subsequent flooding. MSD crews responded accordingly. MSD saw 1,382 basement backups due to overcharged mains, meaning that during the rain event, more water entered the system than it could handle. MSD also verified 263 basement backups due to blocked mains, meaning that flood debris prevented water from flowing through the mains. An additional 350 calls were related to street flooding, to which MSD crews also responded. About 1,000 service calls were overland flooding and stormwater. Overland flooding is unrelated to the operations of the sewer system. To date, MSD has sustained an estimated $25 million dollars in overall expenses and damages due to the rain and flood event. Insurance and disaster assistance from the Federal Emergency Management Agency (“FEMA”) and other governmental agencies are expected to cover the majority of these losses. However, it is not yet possible to determine exact numbers as MSD is in the process of submitting claims to FEMA and its insurance carrier. The District’s Board of Trustees implemented an impervious based stormwater rate on March 1, 2008, replacing its prior funding mechanism of property taxes and user fees. On July 9, 2010, a circuit court of St. Louis County found this impervious rate to be unconstitutional under Missouri law. In response to this ruling, the Board suspended the impervious based stormwater rate and reinstituted the District’s stormwater property taxes and user fees, previously rolled back on a voluntary basis, as part of the stormwater rate plan. The District lost both of its subsequent appeals to the Appellate and Missouri Supreme Court negating the culmination of a 20-year effort to adequately fund much needed stormwater services for District rate payers. The impact of this court decision has resulted in a dramatic reduction in stormwater services being provided across the District with many customers receiving little or no stormwater services until an alternative funding source is identified. The District submitted a rate change proposal to the MSD Rate Commission on February 26, 2015. The proposal recommended an increase in MSD’s wastewater rates in order to adequately fund the work required by the Consent Decree. The proposal also recommended the establishment of a new District-wide tax structure to replace the multi-layered taxes now assessed on the real estate value of our customers’ property. These taxes have traditionally been used to fund stormwater services, including operations, maintenance, very limited capital projects, and regulatory compliance. The Rate Commission’s recommendation to the District’s proposal was received by the Board on August 5, 2015. On October 8, 2015, the Rate Commission’s recommendation was adopted by the Board of Trustees. The Board of Trustees The Metropolitan St. Louis Sewer District vii The Rate Commission was established in the District’s Plan by amendment in 2000. Beginning in 2002, the District began submitting rate increase proposals to the MSD Rate Commission to fund its operations and multi-decade capital infrastructure improvement program. The District submits rate increase proposals to the Rate Commission as needed in accordance with the Plan. Since February 2004, the voters of St. Louis have authorized the District to issue a total of $2.6 billion in wastewater revenue bonds. As of June 30, 2016, the District has issued $1.4 billion of the total authorization. The District’s long-term wastewater capital improvement program will continue to be funded through a combination of additional bonds and wastewater rate increases. On April 5, 2016, MSD presented two initiatives to voters that reside within MSD’s service area. Proposition Y: Wastewater Bond Authorization Per an agreement with the U.S. Environmental Protection Agency and the Missouri Coalition for the Environment, MSD must implement $1.5 billion in wastewater projects from July 1, 2016 through June 30, 2020. Similar to what MSD has done in the past (2004, 2008, and 2012), an option for financing wastewater projects was presented to voters on April 5, 2016, versus paying for the projects strictly through increased rates. Seventy six percent of voters in MSD’s service area approved Proposition Y and the issuance of $900 million in bonds. The bond financing – which is to be used exclusively for projects associated with the agreement – will help lessen the steepness of rate increases over the next few years. For example, with the approval of Proposition Y, the average single family home’s monthly MSD bill will eventually increase from $40.72 per month on July 1, 2015, to $60.44 per month on July 1, 2019. Without Proposition Y, that same bill would have increased to $95.13 per month on July 1, 2019. Proposition S: Stormwater Funding & Service Equalization Through the same April 5, 2016, election, 62% of voters in MSD’s service area also approved Proposition S. The approval of Proposition S puts all MSD customers under the same property tax rates to pay for stormwater service. In turn, all MSD customers will receive the same level of stormwater service. This process will occur gradually throughout MSD’s fiscal year 2017 (July 1, 2016 through June 30, 2017). Prior to July 1, 2016, MSD’s stormwater services were paid for through a variety of property taxes and a flat stormwater fee on each month's MSD bill. The amount of property taxes paid by an individual customer – and the stormwater service received – The Board of Trustees The Metropolitan St. Louis Sewer District viii was dependent on where a customer lived. Thus, not all customers paid the same rates and, not all customers received the same level of stormwater service. Proposition S allows MSD to rollback and eliminate several existing taxes; eliminate the stormwater fee; and, in lieu of these funding mechanisms, institute or leave in place two taxing districts that cover MSD’s entire service area. The overriding benefit of Proposition S is that customers will be treated equally under the new system. This means that all customers are subject to the same tax rates and all customers receive the same level of stormwater services. One tax structure for everyone means some customers will receive a reduction in what they pay annually to MSD; some customers will essentially pay the same annually to MSD; and other customers will see an increase in what they pay to MSD. With the approval of Proposition S and the implementation of a new funding structure for stormwater services, MSD will have “fund balances” left over from the former taxing and fee system. These fund balances will allow for a finite and limited four-year stormwater capital program of $67 million, starting in fiscal year 2017 (July 1, 2016 through June 30, 2017). However, this limited and set amount of money barely begins to address the overall need for stormwater projects throughout MSD’s service area. The development of a funding solution for longer term stormwater projects began in 2016. Any proposed solution is subject to future review by the Rate Commission, approval by the Board of Trustees, and a vote of MSD customers. The District completed an extensive upgrade of its billing and collection system in fiscal year 2016. The updated system resulted in more efficient processes and the ability to continue to expand customer outreach efforts. Full implementation of the system occurred on September 1, 2015. In 2013, MSD completed a Disparity Study to identify any disparities in the District’s expenditure of public funds when compared to the availability of minority and women owned firms. The study also examined the number of minorities and women working on MSD projects compared to the racial and gender composition of workers available to work on MSD projects. Procurement and contractual changes based on the study’s findings were put into place in August 2013. The Disparity Study also made recommendations for other activities the District should consider as part of a successful Diversity Program. The Board of Trustees The Metropolitan St. Louis Sewer District ix To help implement some of the recommendations, MSD developed a Community Benefits Agreement (“CBA”). A CBA is a formal agreement between MSD and community organizations that establishes a framework for addressing issues in workforce training, business development, and other areas that often act as obstacles in developing a diverse labor pool and contracting community. (In short, it’s one thing to have inclusion goals, but it’s another to have a program that helps develop the capacity to meet those goals.) The CBA will support the development of initiatives that address these issues, both in terms of workforce and business ownership. To our knowledge, the CBA is the only one of its kind in the St. Louis region. Operations The Executive Director and his staff administer the operation and maintenance of the District’s collection and treatment systems. The District’s sanitary, stormwater, and combined sewer collection system includes more than 9,700 miles of pipe and channel and will grow larger over the long term due to new development. Some years may actually see a reduction in total miles of pipe. This is due to the replacement of inefficiently placed pipe with shorter, more direct lines of pipe. The District’s responsibilities for stormwater drainage range from cleaning and maintaining street inlets to operating and maintaining the floodwall pump stations along the Mississippi River. MSD currently operates seven wastewater treatment facilities. These facilities treated an average flow of 335.2 million gallons per day (“MGD”) in fiscal 2016 compared to 327.5 MGD in fiscal 2015. The design capacity and average flow, by watershed, in MGD was as follows in fiscal 2016: MAJOR WATERSHED LEVEL OF TREATMENT NUMBER OF FACILITIES DESIGN CAPACITY AVERAGE FLOW FISCAL 2016 Mississippi River Secondary Two 417.00 249.3 Missouri River Secondary Two 78.00 53.2 Meramec River Secondary Three 42.75 32.7 Total Seven 537.75 335.2 In addition to construction initiated by the District to protect the public’s health and property from raw sewage and flooding, the District also provides various engineering- related design review and inspection services for the construction of sanitary and stormwater sewers by individuals, businesses, and municipalities in the community. The Board of Trustees The Metropolitan St. Louis Sewer District x Economic Conditions In The St. Louis Metropolitan Area As a rule, the District’s major revenue sources do not fluctuate with the local and national economy as much as local governments that depend on sales or income taxes for their major sources of revenue. The combined unemployment rate for the City of St. Louis and St. Louis County was 4.9 percent in June 2016 and lower than the national unemployment rate of 5.1 percent for the same time period. MSD has its own internal barometers for measuring economic development within the District. These are listed below for fiscal 2016 and 2015: 2016 2015 Sewer Plan Reviews: Number of Plans Approved 613 529 Number of Miles of Sewers 38 22 Sewer Construction Permits: Number of Permits Issued 4,546 3,447 Number of Miles of Sewers 30 33 Customer Connections: Number of Connection Permits Issued 2,165 2,017 Connection Fee Revenue (in millions) $1.7 $1.8 Value of Sewers Dedicated to MSD by Developers (in millions)$11.3 $12.3 Over the years, the St. Louis economy has undergone a transformation from reliance on traditional manufacturing industries to those industries based on advanced technology and services. The St. Louis area is a center for health care, biotechnology, banking, finance, transportation, tourism, and education and has a strong and diverse manufacturing economy. The area has an abundance of energy, water, and sewerage facilities and can sustain future economic growth. The Board of Trustees The Metropolitan St. Louis Sewer District xi Financial Information Proprietary Operations. The current financial condition of MSD remains stable. The District realized a net operating income of $46.8 million in fiscal 2016 compared to a net operating income of $33.9 million the prior year. The increase is explained by an increase in sewer service revenue (as a result of rate increases) and insurance recoveries due to the December 2015 rain event offset by an increase in operating expenses (primarily water backup and other costs related to the flooding in December 2015 and depreciation). A more in-depth analysis of the District’s financial position and the magnitude of the capital improvement and replacement program (“CIRP”) is provided in the Management’s Discussion and Analysis section that appears later in this report. Budgetary Controls. The District’s Plan requires MSD to submit a proposed budget to the Board by March 15th each year. After Board review, a final budget is approved in June. The District’s Plan also requires MSD to maintain budgetary controls and to adopt a balanced budget. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the appropriation process approved by the Board. The annual appropriated budget includes activities of the District’s operating and debt service funds. The Board adopts ordinances to appropriate funds for capital improvement expenditures at the time of the contract award and acceptance of any grant offers. Budgetary control is by Division and major expenditure category within the General Fund, each Debt Service Fund, and each capital improvement contract. The District utilizes an encumbrance accounting system in conjunction with internal variance and projection analysis to maintain budgetary control. Certain encumbrances carry over from one year to the next as approved by the Board during the budget process. Monthly and year-end financial reports are prepared in accordance with United States generally accepted accounting principles for Enterprise Funds. Adjustments are made to the accounting records, where necessary, to reflect the full accrual method of accounting. Under the full accrual method of accounting, revenues are recognized when earned and expenses are recorded as liabilities when incurred. Encumbrances and unearned capital and operating grants are eliminated under the full accrual method of accounting. These amounts are disclosed as commitments in the notes to financial statements. The Board of Trustees The Metropolitan St. Louis Sewer District xii Cash Management. In compliance with its Plan, the District invests temporarily idle funds in cash, cash equivalents and investments such as collateralized certificates of deposit, collateralized repurchase agreements, obligations of any agency of the United States, and United States Treasury instruments. The District utilizes competitive bidding for investment purchases and monitors market conditions daily. Risk Management. In-house staff and consultants jointly conduct risk management activities. MSD maintains third-party commercial insurance coverage for various risks while self-insuring for other risks and liabilities at levels customary for similar enterprises. The District maintains replacement cost property and casualty insurance with a policy limit of $1.25 billion on certain facilities and equipment that have an estimated replacement cost of $1.5 billion. The District assumes the risk of loss (including payment of water backup claims to its customers) on the majority of its underground pumping facilities and collection system. MSD is one of the few sewer districts in the country known to provide water backup claim coverage to its customers. The underground pumping facility and collection system assets have an estimated replacement cost of $9.9 billion. To minimize exposure to loss, the District inspects its facilities regularly and performs preventative maintenance on them. MSD maintains automobile, general liability and excess liability insurance. The District is self-insured for workers’ compensation and funds those costs through annual appropriations from the District’s general insurance fund. The District maintains reinsurance for workers’ compensation liabilities in excess of specified limits up to the statutory limit. Risk control activities include using a third-party claims administrator, maintaining a computerized claim tracking system, and annually reevaluating medical insurance claims and health benefit costs. The District also has programs designed to promote safety in the workplace and employee wellness. The District provides group medical coverage for its employees and offers dependent medical coverage on a contributory basis through a self-insured plan. Effective February 1, 2014, the District maintained stop loss coverage for specific claims exceeding $175,000 per year and for total annual claims greater than 125 percent of the annual claims estimate. The District provides its employees with contributory group dental insurance coverage and non-contributory life insurance and contributory optional life insurance coverage. The District also contributes $100 every fiscal year, up to a maximum of $300, to a vision care program for employees. Effective July 1, 2013, spouses were eligible to use the benefits; effective July 1, 2016, dependent children up to age 26 were eligible to use the benefits; however, the amount could not exceed the maximum amount of $300. The District reevaluates insurance coverage and providers annually. The Board of Trustees The Metropolitan St. Louis Sewer District xiii For most construction projects, insurance is obtained by the individual contractor and included in the contract price. Internal Controls. District Management is responsible for designing, establishing, and maintaining an internal control system that protects District assets from loss, theft, or misuse and ensures that adequate accounting data is compiled to prepare financial statements in conformity with United States generally accepted accounting principles. Internal control systems are designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and that the evaluation of costs and benefits requires estimates and judgments by management. The District’s internal control system is subject to periodic evaluation by Management, the Board and the District’s independent accountants. Other Information Audit Requirements. The District’s Plan requires an annual audit by independent certified public accountants. The District’s CAFR includes a report on the District’s financial statements by the accounting firm of RubinBrown LLP. Besides meeting the requirements set forth in the Plan, the annual audit is also designed to meet the requirements of the 2013 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”) that was issued by the Office of Management and Budget (“OMB”). A Single Audit Report was issued for the year ended June 30, 2016. The financial statements of The Metropolitan St. Louis Sewer District Employees’ Pension Plan, The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust and The Metropolitan St. Louis Sewer District Defined Contribution Plan are also audited annually. These audit reports were issued for the periods ending December 31, 2015 and 2014 and are available to interested parties upon request. Awards. The Government Finance Officers Association of the United States and Canada (“GFOA”) awarded a Certificate of Achievement for Excellence in Financial Reporting to MSD for its CAFR for the fiscal year ended June 30, 2015. The Certificate of Achievement is a prestigious national award that recognizes conformance with the highest standards for preparation of state and local government financial reports. The Board of Trustees The Metropolitan St. Louis Sewer District xiv To be awarded the Certificate of Achievement, a government unit must publish an easily readable and efficiently organized CAFR, the contents of which conform to program standards. The CAFR must satisfy both U.S. generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for one year only. The District has received a Certificate of Achievement for the last twenty-eight consecutive years. We believe the current CAFR continues to conform to the GFOA’s high standards, as reflected in the Certificate of Achievement program requirements, and are submitting it again this year for consideration. The District also received the GFOA’s Distinguished Budget Presentation award for its fiscal 2016 annual budget. The District has received this award for twenty-nine consecutive years. We believe the fiscal year 2017 budget presentation continues to meet the GFOA’s high standards and submitted it on August 29, 2016, for consideration. Marion M. Gee Director of Finance xv ORGANIZATION (as of June 30, 2016) BOARD OF TRUSTEES Michael Yates, Chair; James Faul, Vice Chair; Rev. Ronald Bobo; Ruby Bonner; Annette Mandel; James I. Singer OFFICE OF INTERNAL AUDITOR RATE COMMISSION Leonard P. Toenjes, Chair OFFICE OF SECRETARY TREASURER Tim R. Snoke Secretary/Treasurer CIVIL SERVICE COMMISSION Tara Buckner Annette Adams Daniel Gonzales EXECUTIVE DIRECTOR Brian L. Hoelscher/CEO FINANCE Marion M. Gee Director OFFICE OF GENERAL COUNSEL Susan M. Myers General Counsel OPERATIONS Jonathon C. Sprague Director ENGINEERING Rich Unverferth Director OFFICE OF HUMAN RESOURCES Vicki L. Taylor Edwards Director INFORMATION SYSTEMS Barbara E. Mohn Director xvi Government Finance Officers Association Certificate of Achievement for Excellence In Financial Reporting Presented to Metropolitan St. Louis Sewer District Missouri For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2015 Executive Directors/CEO Financial Section METROPOLITAN ST. LOUIS SEWER DISTRICT SERVICE AREAS Independent Auditors’ Report Board of Trustees The Metropolitan St. Louis Sewer District St. Louis, Missouri Report On The Financial Statements We have audited the accompanying financial statements of the business-type activities of The Metropolitan St. Louis Sewer District (the District) as of and for the years ended June 30, 2016 and 2015, and the related notes to the financial statements, which collectively comprise the District’s financial statements as listed in the table of contents. Management’s Responsibility For The Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes 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. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Controller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements 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 the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Board of Trustees The Metropolitan St. Louis Sewer District Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of the District as of June 30, 2016 and 2015, and the 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. Change In Accounting Principle As discussed in Note 1 to the financial statements, the District adopted the provisions of Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application in fiscal year 2016. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, Schedule of Changes in Net Pension Liability and Related Ratios for the Employees’ Pension Plan, Employees’ Pension Plan Schedule of Employer Contributions and Schedule of Funding Progress for the Other Post-Employment Benefit Plan, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic 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 basic 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. Board of Trustees The Metropolitan St. Louis Sewer District Page 3 Other Information Our audit was conducted for the purpose of forming an opinion on the District’s basic financial statements. The introductory section and statistical section are presented for purposes of additional analysis and are not a required part of the financial statements. These sections have not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required By Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 17, 2016, on our consideration of the District’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 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 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 District’s internal control over financial reporting and compliance. October 17, 2016 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 4 MANAGEMENT’S DISCUSSION AND ANALYSIS For The Years Ended June 30, 2016 And 2015 The annual report of The Metropolitan St. Louis Sewer District (“MSD” or the “District”) includes the independent auditors’ report, management’s discussion and analysis (“MD&A”), and the financial statements accompanied by notes essential to the user’s understanding of the financial statements. Management of the District has provided this MD&A to be used in combination with the District’s financial statements. This narrative is intended to provide the reader with more insight into management’s knowledge of the transactions, events, and conditions reflected in the accompanying financial statements and the fiscal policies that govern the District’s operations. 2016 Financial Highlights  The District increased capital assets by $160.5 million as a result of an increase in construction in progress for $122.3 million, in land for $13.2 million and in depreciable capital assets net of depreciation for $25.0 million.  The District placed $123.6 million of capital assets into service during fiscal year 2016. The continued high level of capitalization reflects the District’s work to meet long-term plans. Capitalized assets included: Collection and pumping plant $80.0 million Treatment and disposal plant and equipment $25.9 million Land $13.3 million General plant and equipment $4.4 million In conjunction with the new assets, the net increase to accumulated depreciation was $79.3 million. During the year, the District implemented Governmental Accounting Standards Board (“GASB”) Statement No. 72, Fair Value Measurement and Application. The primary objective of this Statement is to improve financial reporting by state and local governments by clarifying the definition of fair value for financial reporting purposes, establishing general principles for measuring fair value, providing additional fair value application guidance, and enhancing disclosures about fair value measurements. The impact of adopting GASB Statement No. 72 is minimal as all material investments have been and are valued at fair value. No restatement is required as no changes were made to the prior year financial statements in order to comply with the new Statement. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 5 2015 Financial Highlights  The District increased capital assets by $128.2 million as a result of an increase in construction in progress for $108.5 million, in land for $1.0 million, and in depreciable capital assets net of depreciation for $18.7 million.  The District placed $100.1 million of capital assets into service during fiscal year 2015. The continued high level of capitalization reflects the District’s work to meet long-term plans. Capitalized assets included: Collection and pumping plant $62.9 million Treatment and disposal plant and equipment $33.8 million General plant and equipment $2.4 million Land $1.0 million In conjunction with the new assets, the net increase to accumulated depreciation was $65.1 million. During the year, the District implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions (Employer Reporting). The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions, in particular updates to the financial statements pension- related liabilities and corresponding deferred outflows and inflows and these effects on net position. Non-current liabilities increased by $43.8 million or 3.9% as the District implemented GASB Statement No. 68 resulting in recognizing the District’s net pension liability. Net deferred outflows and inflows increased $15.8 million or 156.2% primarily due to the implementation of GASB Statement No. 68 resulting in various pension- related transactions. Required Financial Statements The financial statements presented by the management of the District include the Statements of Net Position; Statements of Revenues, Expenses, and Changes in Net Position; and Statements of Cash Flows. These statements are prepared using the accrual basis of accounting. This method of accounting recognizes revenue at the time it is earned and expenses when the related liability occurs. As a result of using this method of accounting, the District’s performance over the time period being reported is more easily determinable. The Statements of Net Position provide a report of the District’s current, restricted, and other non-current assets such as cash, investments, receivables, and property. Also, the Statements of Net Position provide a summary of the District’s current, restricted, and non-current liabilities, including contracts and accounts payable, deposits and accrued expenses, and bonds and notes payable. Deferred outflows and inflows, where applicable, are also included. The final section of the Statements of Net Position, the THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 6 net position section, contains earnings retained for use by the District. Increases or decreases in the net position section may be indicative of an improving or declining financial position. This statement provides the basis for computing rate of return, evaluating the capital structure of the District, and assessing the liquidity and financial flexibility of the District. The Statements of Revenues, Expenses, and Changes in Net Position summarize all of the year’s revenue and expense. These statements indicate how successful the District was at maintaining expenses below the level of revenue earned. The Statements of Cash Flows account for the net change in cash and cash equivalents by summarizing cash receipts and cash disbursements resulting from operating activities, non-capital financing activities, capital and related financing activities, and investing activities. These statements assist the user in determining the sources of cash coming into the District, the items for which cash was expended, and the beginning and ending cash balance. Financial Analysis The District’s financial position improved in the current year, as evidenced by the increase in net position of $48.9 million. The improvement is due to the increases in unrestricted funds of $42.3 million and net investment in capital assets of $11.8 million. Unrestricted funds increased $23.6 million from fiscal year 2015 due to the GASB Statement No. 68 reduction to net position in fiscal year 2015 and increased $29.4 million as operating revenues increased due to rate changes and due to the insurance recoveries recorded as a result of the December 2015 rain event; however, these increases were partially offset by an increase in operating expenses of $11.2 million (excluding depreciation) due partially to increased costs related to the December 2015 flooding. While debt increased at an amount greater than the capital to which it relates, the unspent cash received upon the issuance of the new senior debt (“Series 2015B”) accounts for the net increase in the net position’s net investment in capital assets. The unrestricted funds and net investment in capital asset increases were offset by a decrease in restricted funds of $5.2 million resulting primarily from the use of excess bond reserve funds to partially advance refund existing debt. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 7 Condensed Financial Statements and Analysis 2016 Analysis Current, restricted and other assets increased $78.8 million or 12.5% in the current year. The increase is predominately due to an increase in cash and investments due to higher sewer rates charged and collected and due to the unspent cash received on the senior debt issued in fiscal 2016. In addition, receivables recorded for insurance recoveries due to the December 2015 rain event increased current, restricted and other assets. Capital assets net of accumulated depreciation increased by $160.5 million or 5.5% in the current year as the result of continued high levels of construction and acquisition of assets by the District. Increase Increase Fiscal Year Fiscal Year (Decrease) Fiscal Year (Decrease) 2016 2015 2016-2015 2014 2015-2014 Assets: Current, restricted, and other assets 707,033$ 628,246$ 78,787$ 704,266$ (76,020)$ Capital assets (net of accumulated depreciation)3,052,043 2,891,569 160,474 2,763,413 128,156 Total Assets 3,759,076 3,519,815 239,261 3,467,679 52,136 Deferred Outflow of Resources:     Bonds and Notes Payable-Deferred Loss 11,974 9,599 2,375 10,108 (509)     Pension-related Outflows 31,144 19,210 11,934 — 19,210           Total Deferred Outflow of Resources 43,118 28,809 14,309 10,108 18,701 Liabilities: Current liabilities 125,284 109,153 16,131 95,196 13,957 Non-current liabilities 1,344,141 1,158,445 185,696 1,114,639 43,806 Total Liabilities 1,469,425 1,267,598 201,827 1,209,835 57,763 Deferred Inflow of Resources:     Pension-related Inflows 5,712 2,910 2,802 — 2,910           Total Deferred Inflow of Resources 5,712 2,910 2,802 — 2,910 Net Position: Net investment in capital assets 1,841,178 1,829,394 11,784 1,845,394 (16,000) Restricted 146,105 151,292 (5,187) 142,764 8,528 Unrestricted 339,774 297,430 42,344 279,794 17,636 Total Net Position 2,327,057$ 2,278,116$ 48,941$ 2,267,952$ 10,164$ Condensed Statements of Net Position (000's) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 8 Current liabilities increased by $16.1 million or 14.8% due to an increase in the current portion of bonds and notes payable, contracts and accounts payable and retainage held on capital projects. Non-current liabilities increased by $185.7 million or 16.0% due to the senior and subordinate debt issued in fiscal 2016, offset partially by the advance refunding of existing debt, and the increase in the District’s net pension liability resulting from the implementation of GASB Statement No. 68 in fiscal year 2015. Net deferred outflows and inflows increased $11.5 million or 44.4% due primarily to the cumulative effect of the implementation in fiscal year 2015 of GASB Statement No. 68 resulting in various pension-related transactions. 2015 Analysis Current, restricted and other assets decreased $76.0 million or 10.8% in fiscal 2015. The decrease is predominately due to lower amounts of unrestricted and restricted cash and investments relative to 2014 when the District issued debt. This was offset slightly as unrestricted receivables increased due to higher sewer rates. Capital assets net of accumulated depreciation increased by $128.2 million or 4.6% in fiscal 2015 as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities increased by $14.0 million or 14.7%, due to an increase in the current portion of bonds and notes payable and deposits and accrued expenses. Non-current liabilities increased by $43.8 million or 3.9% as the District implemented GASB Statement No. 68 resulting in recognizing the District’s net pension liability. Net deferred outflows and inflows increased $15.8 million or 156.2% due to the implementation of GASB Statement No. 68 resulting in various pension-related transactions. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 9 Increase Increase Fiscal Year Fiscal Year (Decrease) Fiscal Year (Decrease) 2016 2015 2016-2015 2014 2015-2014 Operating Revenues: Sewer service charges 306,119$ 284,367$ 21,752$ 250,133$ 34,234$ Recovery (provision) for doubtful sewer service charge accounts (4,107) (2,096) (2,011) 7,210 (9,306) Licenses, permits, and other fees 3,620 6,657 (3,037) 6,563 94 Other 14,226 1,460 12,766 1,867 (407) Total Operating Revenues 319,858 290,388 29,470 265,773 24,615 Non-operating Revenues: Property taxes levied by the district 25,671 24,764 907 27,450 (2,686) Investment income 4,636 3,001 1,635 2,967 34 Rent and other income 103 37 66 302 (265) Total Non-operating Revenues 30,410 27,802 2,608 30,719 (2,917) Total Revenues 350,268 318,190 32,078 296,492 21,698 Operating Expenses: Pumping and treatment 59,100 60,766 (1,666) 54,126 6,640 Collection system maintenance 42,853 40,162 2,691 39,988 174 Engineering 10,998 10,954 44 12,184 (1,230) General and administrative 55,315 48,551 6,764 45,661 2,890 Water backup claims 7,631 3,862 3,769 2,713 1,149 Depreciation 83,984 78,641 5,343 74,087 4,554 Asset management 13,215 13,586 (371) 12,539 1,047 Total Operating Expenses 273,096 256,522 16,574 241,298 15,224 Non-operating Expenses: Net loss on disposal and sale of capital assets 325 1,421 (1,096) 5,248 (3,827) Non-recurring projects and studies 11,000 12,317 (1,317) 3,493 8,824 Interest expense 28,943 27,139 1,804 25,661 1,478 Total Non-operating Expenses 40,268 40,877 (609) 34,402 6,475 Total Expenses 313,364 297,399 15,965 275,700 21,699 Income Before Capital Grants And Contributions 36,904 20,791 16,113 20,792 (1) Capital Grants And Contributions 12,037 12,997 (960) 7,102 5,895 Change in Net Position 48,941 33,788 15,153 27,894 5,894 Net Position - Beginning of Year 2,278,116 2,267,952 10,164 2,240,058 27,894 Effect of Adoption of GASB 68 — (23,624) 23,624 — (23,624) Net Position - Beginning of Year, As Restated 2,278,116 2,244,328 33,788 2,240,058 4,270 Net Position - End of Year 2,327,057$ 2,278,116$ 48,941$ 2,267,952$ 10,164$ Statements of Revenues, Expenses, and Changes in Net Position (000's) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 10 2016 Analysis Net position increased $48.9 million or 2.1% over the prior year. Sewer service revenue increased as a result of rate increases. Other operating revenue increased due to the insurance recoveries recorded related to the December 2015 rain event. Operating expenses also increased primarily from various increases in operating costs, costs related to the December 2015 rain event, GASB Statement No. 68 pension expense and depreciation. Total revenue increased by $32.1 million or 10.1%. Sewer service charges increased $21.8 million or 7.6% with the provision for doubtful accounts increasing by $2.0 million or 95.9% due to increased receivables. Other operating revenue increased $12.8 million or 874.4% as explained above. Total expenses increased by $16.0 million or 5.4%. Operating expenses increased by $16.6 million or 6.5%. This increase is primarily the result of the following:  $6.8 million or 13.9% increase in general and administrative costs primarily related to an increase in the GASB Statement No. 68 pension expense. In addition, costs incurred by the District related to the December 2015 rain event are recorded in the General Insurance Fund in the general and administrative operating expense line;  $5.3 million or 6.8% increase in additional depreciation due to new asset capitalization;  $3.8 million or 97.6% increase in water backup costs resulting from the historic flooding in December 2015. Non-operating expenses decreased by $0.6 million or 1.5%. 2015 Analysis Net position increased $10.2 million after the restatement of net position due to GASB Statement No. 68 or 0.4% over the prior year. Sewer service revenue increased as a result of rate increases. In fiscal year 2014 the methodology for calculating the provision for doubtful sewer service charges changed which resulted in an adjustment not repeated in fiscal year 2015. Operating expenses also increased primarily from various increases in operating costs and depreciation. Non-operating expenses also increased due to expenses related to non-recurring projects and studies. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 11 Total revenue increased by $21.7 million or 7.3%. Sewer service charges increased $34.2 million or 13.7% with the provision for doubtful accounts increasing by $9.3 million or 129.1% as explained above. Property tax revenue decreased by $2.7 million or 9.8% due to revenue recorded net of commission fees for collection from the County in fiscal year 2015 compared to fiscal year 2014. Total expenses increased by $21.7 million or 7.9%. Operating expenses increased by $15.2 million or 6.3%. This increase is a result of the following:  $6.6 million or 12.3% increase in pumping and treatment primarily related to increase in utility costs resulting from excessive rain. In addition, there was an increase in chemicals and supplies for the fiscal year 2015 completion of in-house disinfection;  $4.6 million or 6.1% increase in additional depreciation due to new asset capitalization;  $2.9 million or 6.3% increase in general and administrative costs resulting from professional fees associated with the implementation of the new billing system, and IS professionals and associated costs related to an increase in collection efforts;  $1.2 million or 42.4% increase in water backup costs due to overcharged mains claims resulting from excessive rain in fiscal year 2015; Non-operating expenses increased by $6.5 million or 18.8%. This increase is a result of the following:  $8.8 million or 252.6% increase in non-recurring projects and studies due primarily to Green Infrastructure projects;  $1.5 million or 5.8% increase in interest expense due primarily to the first full fiscal year for Series 2013B interest payments;  Offset by a decrease of $3.8 million or 72.9% in net loss on disposals and sale of capital assets due to an asset demolition in fiscal year 2014 not repeated in fiscal year 2015. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 12 2016 Analysis The District ended the year with $49.2 million in cash and cash equivalents or a decrease of $12.6 million from the prior year. Cash flows from operating activities increased by $11.2 million or 9.6% as a result of increased receipts from customers. Cash flows from non-capital financing activities decreased by $0.2 million or 0.9% due to less tax revenue collected. Cash flow from capital and related financing activities increased by $134.3 million or 59.5% as the result of increased bond proceeds and premiums received in fiscal year 2016 compared to fiscal year 2015. Cash flows from investing activities decreased by $160.7 million or 186.1%. The decrease primarily stems from a net outflow of cash related to purchases and proceeds in investments in fiscal year 2016, whereas fiscal year 2015 had a net inflow. In fiscal year 2016, cash and cash equivalents include only investments with original maturities less than 91 days. Under the new policy, investments with an original maturity of greater than 90 days remain as investments until they mature and the cash is received. The retroactive change resulted in $90.1 million, $87.7 million and $120.0 million from cash and cash equivalents to investments in fiscal year 2016, 2015, and 2014, respectively. Increase Increase Fiscal Year Fiscal Year (Decrease)Fiscal Year (Decrease) 2016 2015 2016-2015 2014 2015-2014 Cash flows from operating activities 127,665$ 116,430$ 11,235$ 81,864$ 34,566$ Cash flows from non-capital financing activities 25,583 25,824 (241) 27,468 (1,644) Cash flows from capital and related financing activities (91,512) (225,778) 134,266 (25,597) (200,181) Cash flows from investing activities (74,347) 86,331 (160,678) (75,473) 161,804 Net increase (decrease) in cash and cash equivalents (12,611)2,807 (15,418)8,262 (5,455) Cash and cash equivalents at beginning of year 61,807 59,000 2,807 50,738 8,262 Cash And Cash Equivalents At End Of Year 49,196$ 61,807$ (12,611)$ 59,000$ 2,807$ Condensed Statements of Cash Flows (000's) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 13 2015 Analysis The District ended the year with $61.8 million in cash and cash equivalents or an increase of $2.8 million from the prior year. Cash flows from operating activities increased by $34.6 million or 42.2% as a result of increased receipts from customers. Cash flows from non-capital financing activities decreased by $1.6 million or 6.0% due to less tax revenue collected. Cash flow from capital and related financing activities decreased by $200.2 million or 782.0% as the result of decreased bond proceeds and premiums received in fiscal year 2015 compared to fiscal year 2014. Cash flows from investing activities increased by $161.8 million or 214.4%. The increase primarily stems from a net inflow of cash related to purchases and proceeds in investments in fiscal year 2015, whereas fiscal year 2014 had a net outflow. Capital Assets Increase Increase (Decrease)(Decrease) 2016 2015 2016-2015 2014 2015-2014 Land 69,702$ 56,521$ 13,181$ 55,538$ 983$ Construction in progress 530,734 408,464 122,270 299,945 108,519 Treatment and disposal plant and equipment 729,884 739,563 (9,679) 737,833 1,730 Collection and pumping plant 1,697,795 1,659,321 38,474 1,637,375 21,946 General plant and equipment 23,928 27,700 (3,772) 32,722 (5,022) Total 3,052,043$ 2,891,569$ 160,474$ 2,763,413$ 128,156$ Condensed Statements of Capital Assets (000's) Net of Depreciation THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 14 2016 Analysis Total capital assets, net of depreciation expense, increased by $160.5 million or 5.5% over the prior year. Construction in progress contained the majority of the increase with net additions of $122.3 million or 29.9% consisting of $231.8 million in additions offset by $109.5 million placed into service. Collecting and pumping plant increased $38.5 million or 2.3% primarily for capitalization of assets including dedicated assets and infrastructure repairs. Land increased $13.2 million or 23.3% including $12.4 million land reclass from Lower Meramec treatment plant asset and $0.8 million from the acquisition of easements and other land. Treatment and disposal plant and equipment decreased a net $9.7 million or 1.3% with $25.5 million increase in additions offset by $35.2 million in additional depreciation partially driven by Lower Meramec treatment plant asset reclass in February 2016 resulting in a $12.4 million decrease in treatment plant assets which was reclassified to land and an increase of $3.2 million in additional depreciation. General plant and equipment decreased $3.8 million or 13.6% primarily due to depreciation of existing assets. For more detailed information, see Note 4, Capital Assets, in the accompanying notes to financial statements. 2015 Analysis Total capital assets, net of depreciation expense, increased by $128.2 million or 4.6% over the prior year. Construction in progress contained the majority of the increase with net additions of $108.5 million or 36.2% consisting of $191.5 million in additions offset by $83.0 million placed into service. Collection and pumping plant increased $21.9 million or 1.3% primarily for capitalization of assets including dedicated assets and infrastructure repairs. Treatment and disposal plant and equipment increased a net $1.7 million or 0.2% with $30.2 million in additions offset by $28.5 million in additional depreciation. Land increased $1.0 million or 1.8% from the acquisition of easements and other land. General plant and equipment decreased $5.0 million or 15.3% primarily due to depreciation of existing assets. For more detailed information, see Note 4, Capital Assets, in the accompanying notes to financial statements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 15 Long-Term Debt 2016 Analysis The District ended fiscal year 2016 with $1.2 billion in long-term debt outstanding. The District had one senior revenue bond addition this year (“Series 2015B”) for a total of $223.9 million of which $73.9 million was used to partially advance refund the Series 2006C and the Series 2008A debt. Premium received on the new Series 2015B and excess funds in the bond reserve account were used to advance refund the remaining principal and interest on the Series 2006C and the Series 2008A debt. In addition, the District added a new State Revolving Fund (“SRF”) bond (“Series 2015A”) for $42.6 million. For more detailed information, see Note 6, Long-Term Liabilities, in the accompanying notes to financial statements. Increase Increase (Decrease)(Decrease) 2016 2015 2016-2015 2014 2015-2014 Senior Revenue Bonds: Series 2006C —$ 60,000$ (60,000)$ 60,000$ —$ Series 2008A — 30,000 (30,000) 30,000 — Series 2010B 85,000 85,000 — 85,000 — Series 2011B 45,325 47,170 (1,845) 48,925 (1,755) Series 2012A 220,000 225,000 (5,000) 225,000 — Series 2012B 137,280 139,605 (2,325) 141,730 (2,125) Series 2013B 149,000 150,000 (1,000) 150,000 — Series 2015B 223,855 — 223,855 — — Subordinate Revenue Bonds: Series 2004B 89,650 97,520 (7,870) 105,155 (7,635) Series 2005A 4,125 4,440 (315) 4,750 (310) Series 2006A 27,950 29,915 (1,965) 32,085 (2,170) Series 2006B 9,565 10,260 (695) 10,945 (685) Series 2008AB 27,475 29,320 (1,845) 31,140 (1,820) Missouri DNR: Series 2009A 17,514 18,564 (1,050) 19,589 (1,025) Series 2010A 6,588 6,947 (359) 7,299 (352) Series 2010C 30,024 31,644 (1,620) 33,224 (1,580) Series 2011A 37,354 38,974 (1,620) 39,769 (795) Series 2013A 49,920 52,000 (2,080) 16,043 35,957 Series 2015A 42,623 — 42,623 — — Energy Loan Program 118 151 (33) 166 (15) Total 1,203,366$ 1,056,510$ 146,856$ 1,040,820$ 15,690$ Condensed Statements of Long-Term Debt (000's) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 16 2015 Analysis The District ended fiscal year 2015 with $1.1 billion in long-term debt outstanding. The District did not issue any new senior bonds or new SRF bonds in fiscal year 2015 but did add $36.0 million to SRF Series 2013A. For more detailed information, see Note 6, Long-Term Liabilities, in the accompanying notes to financial statements. Decisions Impacting the Future Integral to helping MSD’s rate payers understand the Consent Decree (“CD”) with the U.S. Environmental Protection Agency and the Missouri Coalition for the Environment, which settled a lawsuit for alleged violations of the Clean Water Act, was the initiation of Project Clear. See Note 12, Commitments And Contingencies, for additional information regarding this litigation. The goal of Project Clear is to help MSD’s rate payers have a clear understanding of MSD’s goals and objectives. Project Clear consists of three main components:  Getting The Rain Out which is focused on reducing the sewer system infrastructure to help reduce basement back-ups and overflows;  Performing Repair and Maintenance to the existing infrastructure to ensure it operates as well as possible for as long as possible; and  Building System Improvements where needed to increase the capacity of the system. Project Clear will greatly affect the daily lives of many of our rate payers. Project Clear is needed to help the rate payer understand the individual and regional, as well as the immediate and long-term, benefits of the program. Since February 2004, the voters of St. Louis have authorized the District to issue a total of $2.6 billion in wastewater revenue bonds. As of June 30, 2016, the District has issued $1.4 billion of the total authorization. The District’s long-term wastewater capital improvement program will continue to be funded through a combination of additional bonds and wastewater rate increases. The District also upgraded its extensive billing and collection system to incorporate the latest utility technology. The new system will result in more efficient processes and the ability to continue to expand its customer outreach efforts. The new technology will provide state of the art capabilities to utilize the multiple ways now available to better communicate with its customers, understand their needs, and continue to align the District’s responsiveness accordingly. Full implementation of the system occurred on September 1, 2015. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 17 Requests For Information This financial report is designed to provide a general overview of the District’s finances for all those with an interest in the District’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed or e-mailed to: Marion M. Gee, Director of Finance The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 314-768-6200 mgee@stlmsd.com THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 18 STATEMENTS OF NET POSITION June 30, Assets 2016 2015 Current Assets Unrestricted Current Assets Cash and cash equivalents  26,934,021$ 34,101,094$ Investments                                          166,147,564 106,369,986 Sewer service charges receivable, less allowance of                   $55,728,507 in 2016 and $53,205,047 in 2015 50,025,233 49,975,078 Unbilled sewer service charges receivable 24,728,826 22,169,181 Property taxes receivable, less allowance of $39,127 in 2016 and $44,595 in 2015 1,265,106 1,413,045 Accrued income on investments                        805,879 618,436 Other receivables, less allowance of $98,460 in 2016                        and $32,962 in 2015 10,184,895 1,650,498 Supplies inventory                                   7,088,804 6,360,539           Total Unrestricted Current Assets                            287,180,328 222,657,857 Restricted Current Assets Cash and cash equivalents 2,065,003 1,859,493 Investments                                          13,393,010 8,670,810           Total Restricted Current Assets                            15,458,013 10,530,303           Total Current Assets                            302,638,341 233,188,160 Non-Current Assets Restricted Assets Cash and cash equivalents  20,197,452 25,846,754 Investments                                          134,209,021 108,223,482 Long-term investments                                69,479,563 70,493,703 Property taxes receivable, less allowance of $22,419 in 2016 and $21,956 in 2015 724,886 511,835 Accrued income on investments 300,628 308,455           Total Restricted Non-Current Assets                            224,911,550 205,384,229 Other Assets Notes receivable                                     12,999,370 13,563,540 Long-term investments                                166,483,086 176,110,060 Total Other Assets                            179,482,456 189,673,600 Capital Assets Depreciable:        Treatment and disposal plant and equipment           1,239,993,981 1,214,483,762        Collection and pumping plant                         2,419,647,020 2,341,025,509        General plant and equipment                          92,393,025 92,198,891                                                             3,752,034,026 3,647,708,162        Less:  Accumulated depreciation                      1,300,427,525 1,221,123,113        Net depreciable assets       2,451,606,501 2,426,585,049 Non-depreciable:        Land                                                 69,702,470 56,520,708        Construction in progress                             530,734,241 408,463,554 Net Capital Assets                                3,052,043,212 2,891,569,311        Total Non-Current Assets                         3,456,437,218 3,286,627,140        Total Assets                               3,759,075,559 3,519,815,300 Deferred Outflows of Resources     Bonds and notes payable-Deferred loss on refunding 11,973,700 9,599,096      Pension-related outflows 31,144,263 19,210,323 Total Deferred Outflows of Resources                            43,117,963 28,809,419 THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 19 STATEMENTS OF NET POSITION (Continued) June 30, Liabilities 2016 2015 Current Liabilities-Payable From Unrestricted Assets        Contracts and accounts payable                       37,420,758$ 34,082,818$        Deposits and accrued expenses                        38,958,762 37,559,072        Retainage payable                                    9,119,490 6,952,750        Current portion of bonds and notes payable           38,059,873 29,620,359   Total Current Liabilities-Payable From Unrestricted Assets 123,558,883 108,214,999 Current Liabilities-Payable From Restricted Assets        Contracts and accounts payable                       1,286,539 736,658        Retainage payable                                   438,547 201,441   Total Current Liabilities-Payable From Restricted Assets 1,725,086 938,099             Total Current Liabilities                       125,283,969 109,153,098        Non-Current Liabilities        Deposits and accrued expenses                        14,198,048 13,067,791        Net pension liability 52,600,003 39,895,991        Bonds and notes payable                              1,277,342,521 1,105,481,067             Total Non-Current Liabilities                       1,344,140,572 1,158,444,849                              Total Liabilities                     1,469,424,541 1,267,597,947 Deferred Inflow of Resources     Pension-related inflows 5,711,868 2,910,142             Total Deferred Inflow of Resources 5,711,868 2,910,142 Net Position        Net investment in capital assets 1,841,178,265 1,829,394,892        Restricted for:          Debt service                                       66,328,378 73,177,341          Subdistrict construction and improvement           79,776,581 78,114,762        Unrestricted                                         339,773,889 297,429,635 Total Net Position 2,327,057,113$ 2,278,116,630$   THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 20 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION 2016 2015   Operating Revenues     Sewer service charges                                   306,118,545$ 284,366,564$     Provision for doubtful sewer service charge accounts (4,106,652) (2,096,371)     Licenses, permits and other fees                       3,620,240 6,656,831     Other                                                   14,225,598 1,459,565     Total Operating Revenues                              319,857,731 290,386,589          Operating Expenses     Pumping and treatment                                   59,099,820 60,765,831     Collection system maintenance                           42,853,337 40,160,207     Engineering                                             10,997,619 10,953,900     General and administrative                              55,315,372 48,551,121     Water backup claims                                     7,631,197 3,862,390     Depreciation                                            83,983,749 78,641,259     Asset management                                               13,214,611 13,586,440     Total Operating Expenses                             273,095,705 256,521,148          Operating Income         46,762,026 33,865,441          Non-Operating Revenues     Property taxes levied by the District                   25,671,058 24,764,324     Investment income                                       4,635,866 3,000,591     Rent and other income                                   102,865 37,321     Total Non-Operating Revenues                          30,409,789 27,802,236          Non-Operating Expenses     Net loss on disposal and sale of capital assets         324,513 1,420,902     Non-recurring projects and studies                       11,000,403 12,317,488     Interest expense                                        28,943,200 27,138,546     Total Non-Operating Expenses                          40,268,116 40,876,936          Income Before Capital Grants And Contributions                       36,903,699 20,790,741          Capital Grants And Contributions     Utility plant contributed                               11,271,085 12,304,126     Grant revenue                                           765,699 692,628     Total Capital Grants And Contributions                          12,036,784 12,996,754          Change In Net Position 48,940,483 33,787,495   Net Position - Beginning Of Year, As Previously Stated     2,278,116,630 2,267,952,795 Effect of Adoption of GASB 68 — (23,623,660)   Net Position - Beginning Of Year, As Restated 2,278,116,630 2,244,329,135          Net Position - End Of Year                                    2,327,057,113$ 2,278,116,630$ For The Years Ended June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 21 STATEMENTS OF CASH FLOWS 2016 2015 Cash Flows From Operating Activities Received from customers 307,087,452$ 285,114,625$ Paid to employees for services (94,386,428) (94,150,602) Paid to suppliers for goods and services (85,035,869) (74,533,975) Net Cash Provided By Operating Activities 127,665,155 116,430,048 Cash Flows Provided By Non-Capital Financing Activities Taxes levied and collected 25,583,025 25,824,104 Cash Flows From Capital And Related Financing Activities Proceeds from capital grants 22,649 692,920 Proceeds from issuance of debt 192,622,808 35,956,725 Premium on sale of bonds 26,727,475 — Interest received on bond proceeds to be used for capital improvements — 291,725 Principal paid on debt (38,565,916) (20,268,080) Interest and fees paid on debt (47,582,180) (43,213,255) Payments for capital assets (227,194,869) (201,243,602) Proceeds from sale of capital assets 834,701 390,173 Build America bond tax credit 1,623,694 1,614,982 Net Cash Provided By (Used In) Capital And Related Financing Activities (91,511,638) (225,778,412) Cash Flows From Investing Activities Purchase of investments (414,418,954) (422,750,555) Proceeds from sale and maturity of investments 333,435,010 503,079,743 Investment income 6,533,672 5,965,270 Proceeds from rents 102,865 37,321 Net Cash Provided By (Used In) Investing Activities (74,347,407) 86,331,779 Net Decrease In Cash And Cash Equivalents (12,610,865) 2,807,519 Cash And Cash Equivalents At Beginning Of Year 61,807,341 58,999,822 Cash And Cash Equivalents At End Of Year 49,196,476$ 61,807,341$ Non-Cash Capital And Investing Activities Proceeds from debt issuance placed into escrow to refund bonds 73,855,000$ —$ Principal amount reduced and placed in escrow less reserve funds (81,054,443) — Capital asset additions included in accounts payable 24,337,151 19,226,222 Utility plant contributed by other governments and developers 11,271,085 12,304,126 Fair value investment adjustment gain 1,763,059 249,364 For The Years Ended June 30, Continued on Next Page THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 22 STATEMENTS OF CASH FLOWS (Continued) 2016 2015 Reconciliation Of Operating Income (Loss) To Net Cash Flows Provided By Operating Activities Operating Income (Loss) 46,762,026$ 33,865,441$ Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation 83,983,749 78,641,259 Change in operating assets and liabilities: Increase in billed and unbilled sewer service charges receivable (2,609,800) (5,348,620) Increase in other receivables (7,749,740) (593,338) Increase in supplies inventory (728,265) (137,440) Increase in contracts and accounts payable 2,564,950 4,100,708 Increase in deposits and accrued expenses 1,870,437 5,929,890 Net increase (decrease) in pension-related liability, inflows & outflows 3,571,798 (27,852) Net Cash Provided By Operating Activities 127,665,155$ 116,430,048$ For The Years Ended June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 23 NOTES TO FINANCIAL STATEMENTS 1. Organization And Summary Of Significant Accounting Policies Organization The Metropolitan St. Louis Sewer District (“District”) was authorized by the voters, established and chartered under the provisions of the Constitution of Missouri, as a municipal corporation and a political subdivision of the State of Missouri. Upon creation in 1954, the District assumed responsibilities to provide for the construction, operation, and maintenance of the sewer facilities within its defined boundaries. The District’s service area now comprises all of the City of St. Louis and most of St. Louis County. Subdistricts within the District’s total service area represent separate geographic areas within which specific taxes are levied for the retirement of indebtedness issued to finance construction of sanitary or stormwater facilities within the area or to operate, maintain, or construct improvements within the subdistrict. The District also maintains all of the publicly owned stormwater sewers within its original boundaries and is continuing to accept maintenance of the stormwater sewers in the remainder of its service area. Pursuant to provisions of its Charter and subject to limitations imposed by the Constitution of Missouri, all powers of the District are vested in a six-member Board of Trustees (“Board”), three of whom are appointed by the Mayor of the City of St. Louis and three of whom are appointed by the County Executive of St. Louis County. Reporting Entity The District defines its financial reporting entity to include all component units for which the District’s governing body is financially accountable. To be considered financially accountable, the component unit must be fiscally dependent on the District and the District must either 1) be able to impose its will on the component unit or 2) the relationship must have the potential for creating a financial benefit or imposing a financial burden on the District. Based on the foregoing, the District’s financial statements include all funds that are established under the authority of the District’s charter. There are no agencies, boards, commissions, or authorities that are controlled by or dependent on the District. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 24 Measurement Focus, Basis Of Accounting And Financial Statement Presentation Throughout the year, the District maintains its detailed accounting records on the modified accrual basis of accounting. In order to account for the transactions related to certain subdistricts and restricted resources, separate fund accounting records are maintained. For financial reporting purposes, the District reports its operations as a single enterprise fund. Accordingly, the accounting records are converted to the accrual basis of accounting and all interfund transactions are eliminated. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recognized when the related liability is incurred. The District’s measurement focus is on the flow of economic resources. Revenues and expenses are divided into operating and non-operating items. Operating revenues generally result from providing services in connection with the District’s principal ongoing operations. The principal operating revenues of the District are user fees, licenses, and permits for wastewater treatment services. Operating expenses include the costs associated with the conveyance and treatment of wastewater and stormwater, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as non-operating revenues and expenses. The District follows GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, which establishes accounting and financial reporting standards for nonexchange transactions involving financial or capital resources. GASB Statement No. 33 groups nonexchange transactions into the following four classes, based upon their principal characteristics: derived tax revenues, imposed nonexchange revenues, government-mandated nonexchange transactions, and voluntary nonexchange transactions. The District recognizes assets from imposed nonexchange revenue transactions in the period when an enforceable legal claim to the assets arises or when the resources are received, whichever occurs first. Revenues are recognized in the period when the resources are required to be used for the first period that use is permitted. The District recognizes revenues from property taxes, net of estimated refunds and estimated uncollectible amounts, in the period for which the taxes are levied. Imposed nonexchange revenues also include licenses, permits, and other fees. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 25 Intergovernmental revenues, representing grants and assistance received from other governmental units, are generally recognized as revenues in the period when all eligibility requirements, as defined by GASB Statement No. 33, have been met. Any resources received where all requirements are met with the exception of the time requirement are recorded as deferred outflows. All other resources received before any other eligibility requirements are met are reported as unearned revenues. When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, and then unrestricted resources as they are needed. Cash And Cash Equivalents The District considers highly liquid investments that have original maturity of less than 91 days to the District to be Cash Equivalents. In fiscal year 2016 the District changed the investment policy to only include investments with original maturity of less than 91 days in the Cash Equivalents category from all liquid investments included in Cash Equivalents in the past year. Investments The District accounts for its investments at fair value. The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles pursuant to GASB Statement No. 72. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the Statements of Revenues, Expenses and Changes in Net Position. Restricted Cash, Cash Equivalents And Investments Cash, cash equivalents and investments that are externally restricted are classified as restricted assets. These assets are used to make debt service payments, maintain sinking or reserve funds, purchase or construct capital or other non-current assets or for other restricted purposes. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 26 Accounts Receivable Accounts receivable is composed primarily of charges to customers for wastewater and stormwater services. Receivables are reported at their gross values net of an allowance for uncollectible amounts. Unbilled sewer service charge revenues are accrued by the District based on estimated billings for services provided through the end of the current fiscal year. Capital Assets In order to measure long-term assets such as capital assets, including infrastructure, a study was performed in 1981 to value existing assets at historical cost or estimated historical cost. Capital assets acquired since that historical study are recorded at historical cost on the acquisition date. In accordance with GASB Statement No. 72, donated capital assets are recorded at acquisition value at the time the asset is considered operational. Interest cost is capitalized as part of the historical cost of acquiring certain assets when the effect of such capitalization is material to the financial statements. Interest is not capitalized on assets constructed with contributions from other governmental sources. Depreciation is calculated on a straight-line basis over the following estimated useful lives: Treatment and disposal plant and equipment 16 to 100 years Collection and pumping plant 20 to 100 years General plant and equipment 3 to 10 years When developing user charge rates, the District includes funding for replacement cost of assets, which may differ from depreciation expense recorded for financial reporting purposes. Normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Betterments are capitalized and depreciated over the remaining useful lives of the related assets, as applicable. The District defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of three years. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 27 Capitalization Of Interest Interest costs are capitalized as part of the costs of capital assets during the period of construction based on the related weighted average net borrowing costs incurred. Interest earned on temporary investments acquired with the proceeds of such borrowed funds from the date of the borrowing until the assets are ready for their intended use is used to reduce the interest costs capitalized on the constructed assets. Interest is not capitalized for outlays financed by capital grants (or other outside parties) externally restricted for the acquisition of specified assets. In 2016 and 2015, the District’s total interest cost incurred on tax-exempt borrowings during the fiscal year was $37,475,123 and $35,613,319, respectively. Of this net interest cost, $14,733,405 and $11,502,639 was capitalized and $22,741,718 and $24,110,680 was expensed in 2016 and 2015, respectively. Supplies Inventory Supplies inventory consists of parts and supplies to be used to operate and maintain treatment facilities and various treatment-related equipment at the District. This inventory figure is netted against those materials and supplies deemed to be obsolete. All inventory is stated at weighted average cost and expenses are recognized when the inventory is consumed. Net Position The District’s net position is calculated as follows: the net investment in capital assets component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the net outstanding debt, including premiums and discounts on such debt, that is attributable to the acquisition, construction, or improvement of those assets. The restricted component of net position consists of assets and liabilities regulated by external constraints imposed by creditors, grantors, contributors, laws, or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Property taxes levied by the various subdistricts and other revenues received for construction in those sub- districts have also been restricted for that use. Sewer extension and connection fees, grants, and other revenues received for construction within certain sub- districts have been restricted for that use. In addition, a portion of sanitary sewer charges have been restricted for the payment of principal and interest on certain debt of the District. The unrestricted net position component of net position consists of net position that does not meet the definition of restricted or net investment in capital assets. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 28 The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. Deferred Outflow Of Resources And Deferred Inflow Of Resources In addition to assets, financial statements may report a separate section for deferred outflows of resources. Deferred outflows of resources consists of the consumption of net position that is applicable to a future reporting period and so will not be recognized as an outflow of resources until then. Deferred outflows of resources related to refunding long-term debt is reported in the statement of net position. A deferred bond refunding amount results from the difference in the carrying value of refunded debt and its reacquisition price, and is amortized over the shorter of the life of the refunded or refunding debt. The pension related deferred outflows of resources represent contributions made to the plan between the measurement date of the pension obligations and the end of the fiscal year as well as certain actuarial differences and changes that are amortized over future periods. In addition to liabilities, financial statements may report a separate section for deferred inflows of resources. Deferred inflows of resources consists of the acquisition of net position that is applicable to a future reporting period and so will not be recognized as an inflow of resources until then. Deferred inflows of resources relate to certain changes in pension obligations that are amortized over future periods. Capital Contributions Capital contributions to the District represent government grants and other aid used to fund capital projects. In accordance with GASB Statement No. 33, capital contributions are recognized as revenue when the expenditure is made and the amount becomes subject to claim for reimbursement. Bond Premiums, Discounts And Issuance Costs In the District’s financial statements, bond premiums and discounts are amortized over the life of the bonds using the effective interest method. Bond issuance costs are expensed when incurred. Bonds and notes payable are reported net of the applicable bond premium or discount. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 29 Compensated Absences Vacation Under the terms of the District’s personnel policies, employees are allowed to carry a maximum of 30 to 45 days of vacation (depending on length of service) from one calendar year to the next. Since vacation accrued at year-end is expected to be used by the employee during the following fiscal year, the accrual is reported as a component of current deposits and accrued expenses payable. Sick Leave Employees earn sick pay benefits at accrual rates ranging from 10 days per year to 12 days per year (depending on length of service). Unused sick leave can be carried over at year-end without limitation. An employee retiring from the District with five or more years of service will be compensated for any unused accrued sick leave at the rate of 1.25% for each year of District service multiplied by the unused accrued sick leave remaining at the employee’s current rate of pay. The District has recorded a liability which has been actuarially determined to be equal to the accumulated expense charge that will amortize the employees’ benefits over their period of District service. The liability, included in current deposits and accrued expenses payable, includes vested accumulated rights to receive sick leave benefits estimated to be paid within one year. The portion of sick leave expected to be paid after one year is recorded as a component of non- current deposits and accrued expenses payable. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of The Metropolitan St. Louis Sewer District Employees’ Pension Plan (“Plan”) and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, benefit payments are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Use Of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 30 Adoption Of New Accounting Standards During fiscal year 2016, the District implemented GASB Statement No. 72, Fair Value Measurement and Application. This Statement supersedes selected paragraphs and footnotes and amends selected paragraphs in various Statements of the Governmental Accounting Standards Board. The primary objective of this Statement is to improve financial reporting by state and local governments by clarifying the definition of fair value for financial reporting purposes, establishing general principles for measuring fair value, providing additional fair value application guidance, and enhancing disclosures about fair value measurements. The District accounts for investments at fair value by using quoted market prices which materially matches the new GASB Statement No. 72. No restatement was required. The disclosures required by this Statement are presented in Footnote 2, Deposits and Investments. During fiscal year 2015, the District implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions (Employer Reporting). This Statement replaced the requirements of GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of GASB Statement No. 50, Pension Disclosures. The primary objective of this Statement was to improve accounting and financial reporting by state and local governments for pensions, in particular bringing to the financial statements pension-related liabilities and corresponding deferred outflows and inflows and these effects on net position. In addition, the District implemented GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date in fiscal year 2015. This statement established accounting requirements related to certain pension contributions made by employers. The District’s adoption of GASB Statement No. 68 in fiscal year 2015 resulted in restating the beginning balance of net position due to the recognition of a beginning net pension liability net of any deferred outflows of resources. The impact of this change on the District’s Statement of Net Position was as follows: THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 31 2. Deposits And Investments Deposits At June 30, 2016 the reported amount of the District’s deposits was $33,734,360 and the bank balance was $37,603,299. Of the bank balance, $865,854 was covered by federal depository insurance; $36,653,652 was collateralized with securities held by a third party financial institution in the District’s name; and $83,793 represents cash equivalent funds in a prime money market fund. In addition, the District has money market mutual funds of $15,462,116 held in a trusted escrow account for the State that will be used to make future bond payments. At June 30, 2015 the reported amount of the District’s deposits was $42,838,260 and the bank balance was $50,312,948. Of the bank balance, $762,049 was covered by federal depository insurance; $49,550,899 was collateralized with securities held by a third party financial institution in the District’s name. In addition, the District had money market mutual funds of $13,971,481 held in a trusted escrow account for the State that was used to make future bond payments. July 1, 2014   Net Position - Beginning Of Year,   As Previously Stated     2,267,952,795$ Effect of Adoption of GASB 68: Establishing a Beginning Net Pension Liability (23,623,660)   Net Position - Beginning Of Year, As Restated 2,244,329,135$ Restatement consists of: Net Pension Liability reported as a noncurrent liability at July 1, 2014 (29,409,433)$ Contributions made subsequent to the beginning net pension liability's measurement date of December 31, 2013 are reported as deferred outflows of resources 5,785,773 (23,623,660)$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 32 Custodial credit risk for deposits is the risk that, in the event of bank failure, the District’s deposits may not be returned to the District. The District’s investment policy complies with the provisions of state laws and requires collateralization on repurchase agreements, time certificates of deposit and deposits with banking institutions with a fair value of 103%. Deposits in each bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) in the amount of $250,000 for interest bearing accounts and noninterest bearing accounts. Investments With the approval of the District’s Board of Trustees, the Secretary-Treasurer is authorized to invest excess cash in any investment authorized by the District’s Charter. The District’s investment policy conforms to the investment policy guidelines for the State of Missouri. The District’s investment policy authorizes the District to invest in the following instruments: U.S. Treasury obligations, certificates of deposit, obligations of any agency or instrumentality of the U.S., repurchase agreements, bankers’ acceptances, and commercial paper, all according to terms specified in the policy. The District also has investments in money market mutual funds that hold securities approved by the District’s investment policy. At June 30, 2016 and 2015, all of the District’s investments were in compliance with the District’s investment policy and charter. A summary of deposits and investments as of June 30, 2016 and 2015 is as follows: Investment Type Cost Fair Value Cost Fair Value Deposits $ 33,734,360 $ 33,734,360 42,838,260$ 42,838,260$ Money Market Mutual Funds 15,462,116 15,462,116 13,971,481 13,971,481 Certificates of Deposit 100,000 100,000 100,000 100,000 U.S. Treasury and Agency Obligations 495,637,069 496,034,377 404,229,430 402,931,741 Commercial Paper 53,478,311 53,577,867 71,781,633 71,833,900 Total 598,411,856$ 598,908,720$ 532,920,804$ 531,675,382$ 2016 2015 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 33 Reconciliation to the financial statements: Interest Rate Risk As of June 30, 2016 and 2015, the District had the following investments and maturities: In accordance with the District’s investment policy, the District will minimize the risk that the fair value of debt securities in the portfolio will fall due to increases in general interest rates by: 1. Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. 2. Investing operating funds primarily in short-term securities. 2016 2015 Cash and Cash Equivalents Unrestricted Current 26,934,021$ 34,101,094$ Restricted Current 2,065,003 1,859,493 Restricted Non-Current 20,197,452 25,846,754 Investments Unrestricted Current 166,147,564 106,369,986 Restricted Current 13,393,010 8,670,810 Restricted Non-Current 134,209,021 108,223,482 Long-Term Investments Restricted Non-Current 69,479,563 70,493,703 Other 166,483,086 176,110,060 598,908,720$ 531,675,382$ Weighted Weighted Average Average Maturity Maturity Investment Type Fair Value (Years)Fair Value (Years) Money Market Mutual Funds 15,462,116$ 0.00 13,971,481$ 0.00 Certificates of Deposit 100,000 0.72 100,000 1.72 U.S. Treasury Obligations 252,489,204 0.39 287,004,218 1.30 U.S. Agency Obligations 243,545,173 0.73 115,927,523 1.38 Commercial Paper 53,577,867 0.24 71,833,900 0.19 Total 565,174,360$ 1.03 488,837,122$ 1.15 2016 2015 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 34 3. State law limits the maximum stated maturities to five years on any investment from the date of purchase. Long-Term Investments While the majority of the District’s portfolio is made up of short-term investments, the District also categorizes a sizeable amount as long-term under the categories discussed in Note 1, Organization and Summary of Significant Accounting Policies. The District is allowed to purchase long-term callable securities. These callable securities give the issuer the right to redeem at predetermined prices at a specific time prior to maturity. When a security is called, the District reflects an immediate reclass from long-term investment to cash. Custodial/Credit Risk The District will minimize credit risk for investments, the risk of loss due to failure of the security issuer or backer, by: 1. Prequalifying the financial institutions, broker/dealers, intermediaries, and advisors with which the District will do business. 2. Diversifying the portfolio so that potential losses on individual securities will be minimized. In accordance with its investment policy, the District limits its investments in these investment types to the top rating issued by Nationally Recognized Statistical Rating Organizations. As of June 30, 2016 and 2015, the District’s investments in commercial paper were rated “A-1” by Standard & Poor’s (“S&P”) and “P-1” by Moody’s Investors Service (“Moody’s”). The District’s investments in U.S. agency obligations that do not carry the explicit guarantee of the U.S. Government all carry a rating assigned by S&P of “AA+” except for five short- term U.S. agency obligations that carry a rating of “A-1+”, with a value of $4,543,869 in fiscal year 2016. Money market investments are rated as “AAAm” and “Aaa-mf” by S&P and Moody’s, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 35 Concentration Of Credit Risk The District’s investment policy places no limit on the amount the District may invest in any one issuer with respect to U.S. Treasury obligations and collateralized time and demand deposits. U.S. agency obligations and government-sponsored enterprises are limited to 60% of the portfolio, with no more than 30% of the total portfolio invested in securities of any one agency; and collateralized repurchase agreements are limited to 50% of the portfolio. U.S. agency callable securities are limited to 30% of the portfolio, and commercial paper and bankers’ acceptances are limited to 25% each, with no more than 5% of the total portfolio invested in any one issuer. The following table lists investments in issuers that represent 5% or more of total investments at June 30, 2016 and 2015: Fair Value Measurement and Application The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles pursuant to GASB Statement No. 72. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The District has the following recurring fair value measurements as of June 30, 2016:  Money Market Mutual Funds of $15.5 million are valued using a market approach to measuring fair value prices that considers relevant information generated by market transactions involving identical or similar assets or groups of assets. (Level 2 inputs)  U.S. Treasury and Agency Obligations of $495.6 million are valued using a market approach to measuring fair value prices that considers relevant information generated by market transactions involving identical or similar assets or groups of assets. (Level 2 inputs) Issuer 2016 2015 Treasury Notes 45.9 58.8 Federal Home Loan Bank 20.6 9.3 Federal National Mortgage Association 10.5 3.6 Federal Home Loan Mortgage Corporation 11.3 11.0 Percent Of Total Investments THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 36  Commercial Paper of $53.6 million are valued using a market approach to measuring fair value prices that considers relevant information generated by market transactions involving identical or similar assets or groups of assets. (Level 2 inputs) 3. Notes Receivable The District has a note receivable with Missouri American Water Company (“MOAM”) for its portion of the capital costs related to the Lower Meramec Wastewater Treatment Plant. The original loan bears interest at 4.35%, while the two loans added during fiscal year 2013 bear interest at 4.50% and 3.52%. The current portion of this note is contained in the Other Receivables line on the Statements of Net Position. The note receivable will mature in fiscal year 2033. At June 30, 2016, future payments are as follows: The District also has a note receivable due to its participation in the Contractor Loan Fund, a consortium of local organizations desiring to pool bank loans, private investment, and new market tax credits to provide access to capital for Minority and Women-owned Business Enterprise companies that are certified through a City of St. Louis agency. At June 30, 2016, MSD’s note receivable related to the Contractor Loan Fund is $13,385. 2017 1,154,696$ 2018 1,154,696 2019 1,154,696 2020 1,154,696 2021 1,154,696 2022-2026 5,773,479 2027-2031 5,773,479 2032-2033 1,718,495 19,038,933 Less: Amount representing interest 5,475,392 13,563,541$ Classification in Statement of Net Position: Current 577,556$ Non-current 12,985,985 Total 13,563,541$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 37 4. Capital Assets The following is a summary of capital assets changes for the fiscal years ended June 30, 2016 and 2015: Balance Balance June 30, 2015 June 30, 2016 Capital assets not being depreciated: Land 56,520,708$ 13,261,762$ 80,000$ 69,702,470$ Construction in progress 408,463,554 231,846,707 109,576,024 530,734,241 Total capital assets not being depreciated 464,984,262 245,108,469 109,656,024 600,436,711 Capital assets being depreciated: Treatment and disposal plant and equipment 1,214,483,762 25,920,471 410,251 1,239,993,981 Collection and pumping plant 2,341,025,509 80,022,506 1,400,995 2,419,647,020 General plant and equipment 92,198,891 4,374,911 4,180,777 92,393,025 Total capital assets being depreciated 3,647,708,162 110,317,888 5,992,023 3,752,034,026 Less: Accumulated depreciation: Treatment and disposal plant and equipment (474,920,704) (35,577,561) (387,883) (510,110,382) Collection and pumping plant (681,703,916) (40,728,438) (580,015) (721,852,339) General plant and equipment (64,498,493) (7,677,750) (3,711,440) (68,464,804) Total accumulated depreciation (1,221,123,113) (83,983,749) (4,679,338) (1,300,427,525) Total capital assets being depreciated, net 2,426,585,049 26,334,139 1,312,686 2,451,606,501 Total Capital Assets 2,891,569,311$ 271,442,609$ 110,968,709$ 3,052,043,212$ Additions Deletions Balance Balance June 30, 2014 June 30, 2015 Capital assets not being depreciated: Land 55,537,816$ 982,892$ —$ 56,520,708$ Construction in progress 299,944,922 191,548,710 83,030,078 408,463,554 Total capital assets not being depreciated 355,482,738 192,531,602 83,030,078 464,984,262 Capital assets being depreciated: Treatment and disposal plant and equipment 1,184,278,860 33,797,176 3,592,274 1,214,483,762 Collection and pumping plant 2,286,108,470 62,947,593 8,030,554 2,341,025,509 General plant and equipment 93,600,648 2,365,107 3,766,864 92,198,891 Total capital assets being depreciated 3,563,987,978 99,109,876 15,389,692 3,647,708,162 Less: Accumulated depreciation: Treatment and disposal plant and equipment (446,446,188) (31,634,323) (3,159,807) (474,920,704) Collection and pumping plant (648,732,430) (39,645,122) (6,673,636) (681,703,916) General plant and equipment (60,878,853) (7,361,814) (3,742,174) (64,498,493) Total accumulated depreciation (1,156,057,471) (78,641,259) (13,575,617) (1,221,123,113) Total capital assets being depreciated, net 2,407,930,507 20,468,617 1,814,075 2,426,585,049 Total Capital Assets 2,763,413,245$ 213,000,219$ 84,844,153$ 2,891,569,311$ Additions Deletions THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 38 5. Property Tax On or before October 1 of each year, the District levies ad valorem taxes on all taxable tangible property, real and personal, within its boundaries based on assessed valuations established by the City of St. Louis and St. Louis County Assessors. Tax rates vary by sub-district and purpose. Taxes levied are used for operations and stormwater maintenance, debt service, and construction. Taxes are recorded as non-operating revenues. Property tax bills are typically mailed in October. They become delinquent and represent a lien on the related property if not paid by December 31. All property taxes are billed and collected by the City of St. Louis and St. Louis County Collectors’ of Revenue and are remitted to the District monthly. In fiscal years 2016 and 2015, the District recorded revenue from property taxes in the amount of $25,671,058 and $24,764,324, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 39 6. Long-Term Liabilities The following is a summary of changes in the District’s long-term liabilities for the year ended June 30, 2016: Original Balance Balance Issuance June 30,June 30,Current Amounts 2015 Additions Retirements 2016 Portion Bonds and Notes Payable: Wastewater System Senior Revenue Bonds: Series 2006C 60,000,000$ 60,000,000$ —$ 60,000,000$ —$ —$ Series 2008A 30,000,000 30,000,000 — 30,000,000 — — Series 2010B 85,000,000 85,000,000 — — 85,000,000 — Series 2011B 52,250,000 47,170,000 — 1,845,000 45,325,000 1,915,000 Series 2012A 225,000,000 225,000,000 — 5,000,000 220,000,000 5,300,000 Series 2012B 141,730,000 139,605,000 — 2,325,000 137,280,000 2,570,000 Series 2013B 150,000,000 150,000,000 — 1,000,000 149,000,000 3,000,000 Series 2015B 223,855,000 — 223,855,000 — 223,855,000 2,500,000 Water Pollution Control and Drinking Water Subordinate Revenue Bonds (State Revolving Funds Program): Series 2004B 161,280,000 97,520,000 — 7,870,000 89,650,000 8,105,000 Series 2005A 6,800,000 4,440,000 — 315,000 4,125,000 325,000 Series 2006A 42,715,000 29,915,000 — 1,965,000 27,950,000 2,350,000 Series 2006B 14,205,000 10,260,000 — 695,000 9,565,000 705,000 Series 2008A/B 40,000,000 29,320,000 — 1,845,000 27,475,000 1,870,000 Missouri Department of Natural Resources: Energy Loan Program 223,793 150,565 — 32,359 118,206 33,173 Series 2009A 23,000,000 18,563,600 — 1,049,400 17,514,200 1,073,700 Series 2010A 7,980,700 6,947,000 — 358,600 6,588,400 366,000 Series 2010C 37,000,000 31,644,000 — 1,620,000 30,024,000 1,663,000 Series 2011A 39,769,300 38,974,300 — 1,620,000 37,354,300 1,662,000 Series 2013A 52,000,000 52,000,000 — 2,080,000 49,920,000 2,134,000 Series 2015A 75,000,000 — 42,622,810 — 42,622,810 2,488,000 1,467,808,793$ 1,056,509,465$ 266,477,810$ 119,620,359$ 1,203,366,916 38,059,873$ Add: Unamortized premium, net 112,035,478 Total Bonds and Notes Payable 1,315,402,394$ Current Portion of Bonds and Notes Payable 38,059,873$ Non-Current Bonds and Notes Payable 1,277,342,521 Total Bonds and Notes Payable 1,315,402,394$ Net Pension Liability 39,895,991$ 12,704,012$ —$ 52,600,003$ —$ Deposits and Accrued Expenses Landfill closure and post-closure costs 783,473$ 38,259$ —$ 821,732$ —$ Compensated absences 8,421,028 825,228 749,142 8,497,114 2,124,274 Net OPEB obligation 5,968,543 2,554,734 1,519,800 7,003,477 — Total Deposits and Accrued Expenses 15,173,044$ 3,418,221$ 2,268,942$ 16,322,323$ 2,124,274$ Current Portion of Deposits and Accrued Expenses 2,124,274$ Non-Current Deposits and Accrued Expenses 14,198,048 Total Deposits and Accrued Expenses 16,322,323$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 40 The following is a summary of changes in the District’s long-term liabilities for the year ended June 30, 2015: Original Balance Balance Issuance June 30,June 30,Current Amounts 2014 Additions Retirements 2015 Portion Bonds and Notes Payable: Wastewater System Senior Revenue Bonds: Series 2006C 60,000,000$ 60,000,000$ —$ —$ 60,000,000$ —$ Series 2008A 30,000,000 30,000,000 — — 30,000,000 — Series 2010B 85,000,000 85,000,000 — — 85,000,000 — Series 2011B 52,250,000 48,925,000 — 1,755,000 47,170,000 1,845,000 Series 2012A 225,000,000 225,000,000 — — 225,000,000 5,000,000 Series 2012B 141,730,000 141,730,000 — 2,125,000 139,605,000 2,325,000 Series 2013B 150,000,000 150,000,000 — — 150,000,000 1,000,000 Water Pollution Control and Drinking Water Subordinate Revenue Bonds (State Revolving Funds Program): Series 2004B 161,280,000 105,155,000 — 7,635,000 97,520,000 7,870,000 Series 2005A 6,800,000 4,750,000 — 310,000 4,440,000 315,000 Series 2006A 42,715,000 32,085,000 — 2,170,000 29,915,000 1,965,000 Series 2006B 14,205,000 10,945,000 — 685,000 10,260,000 695,000 Series 2008A/B 40,000,000 31,140,000 — 1,820,000 29,320,000 1,845,000 Missouri Department of Natural Resources: Energy Loan Program 223,793 166,445 — 15,880 150,565 32,359 Series 2009A 23,000,000 19,589,300 — 1,025,700 18,563,600 1,049,400 Series 2010A 7,980,700 7,298,500 — 351,500 6,947,000 358,600 Series 2010C 37,000,000 33,224,000 — 1,580,000 31,644,000 1,620,000 Series 2011A 39,769,300 39,769,300 — 795,000 38,974,300 1,620,000 Series 2013A 52,000,000 16,043,275 35,956,725 — 52,000,000 2,080,000 1,168,953,793$ 1,040,820,820$ 35,956,725$ 20,268,080$ 1,056,509,465 29,620,359$ Add: Unamortized premium, net 78,591,961 Total Bonds and Notes Payable 1,135,101,426$ Current Portion of Bonds and Notes Payable 29,620,359$ Non-Current Bonds and Notes Payable 1,105,481,067 Total Bonds and Notes Payable 1,135,101,426$ Net Pension Liability —$ 39,895,991$ —$ 39,895,991$ —$ Deposits and Accrued Expenses Landfill closure and post-closure costs 756,936$ 26,537$ —$ 783,473$ —$ Compensated absences 7,983,223 856,080 418,275 8,421,028 2,105,253 Net OPEB obligation 5,067,254 2,474,689 1,573,400 5,968,543 — Total Deposits and Accrued Expenses 13,807,413$ 3,357,306$ 1,991,675$ 15,173,044$ 2,105,253$ Current Portion of Deposits and Accrued Expenses 2,105,253$ Non-Current Deposits and Accrued Expenses 13,067,791 Total Deposits and Accrued Expenses 15,173,044$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 41 Wastewater System Revenue Bonds Payable In February 2004, the District received voter authorization for $500,000,000 of revenue bonds. In August 2008, the District received voter authorization for an additional $275,000,000 of revenue bonds. In June 2012, the District received voter authorization for another $945,000,000 of revenue bonds. In April 2016, the District received voter authorization for another $900,000,000 of revenue bonds. From the total voter authorization of $2,620,000,000, $1,193,000,000 has not been issued as of June 30, 2016. These funds were sought to enable the District to comply with federal and state clean water requirements. In December 2015, the District issued $223,855,000 of Wastewater System Revenue Bonds Series 2015B (“Series 2015B”). These bonds were issued for two purposes: $73,855,000 was issued to advance refund the Series 2006C and Series 2008A Bonds and $150,000,000 was issued pursuant to the June 2012 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities and as of June 30, 2016, $83,305,619 has been expended. A premium of $26,727,475 was received on the $150,000,000 portion of Series 2015B. These 2015B senior bonds have interest rates ranging from 3.0% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2045. The Series 2015B refunding net proceeds of $86,848,034 (including a premium of $13,623,487 and after payments of $337,848 in underwriting fees and $292,605 in issuance costs) and the $8,945,557 in excess debt reserves the District contributed were used to purchase U.S. government securities. These securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the Series 2006C and Series 2008A bonds. The sum of the $95,793,591 deposited into escrow and the earnings on the U.S. government securities will fund the $90 million in principal payments outstanding at June 30, 2016 relating to the Series 2006C and Series 2008A bonds on their May 1, 2017 call date and the interest thereon. Interest only payments of $2,267,218 were made from escrow in fiscal year 2016. As a result of placing the cash with an escrow agent in a trust, Series 2006C and Series 2008A bonds were defeased and the liability for those bonds were removed from the financial statements. This refunding decreased total debt service payments over the next 22 years by $33,032,176, resulting in an economic gain (difference between the present values of the debt service requirements on the old and new debt adjusted for additional cash paid) of $14,544,866. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 42 In December 2013, the District issued $150,000,000 of Wastewater System Revenue Bonds Series 2013B (“Series 2013B”). These bonds were issued pursuant to the June 2012 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities. All funds from this issuance have been expended. These senior bonds have interest rates ranging from 2.0% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2043. In November 2012, the District issued $141,730,000 of Wastewater System Refunding Bonds Series 2012B (“Series 2012B”). These bonds were issued to advance refund the Series 2004A Bonds maturing in fiscal years 2015 and thereafter. These 2012B senior bonds have interest rates ranging from 1.3% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2034. The Series 2012B’s net proceeds of $169,991,297 (including a premium of $29,613,138 and after payments of $761,593 in underwriting fees and $590,247 in issuance costs) were used to purchase U.S. government securities. These securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the bonds. As a result, Series 2004A bonds were partially defeased and the liability for those bonds related to a date after May 1, 2014 were removed from the financial statements. This refunding decreased total debt service payments over the next 22 years by $28,601,189, resulting in an economic gain (difference between the present values of the debt service requirements on the old and new debt) of $22,439,375. In August 2012, the District issued $225,000,000 of Wastewater System Revenue Bonds Series 2012A (“Series 2012A”). These bonds were issued pursuant to the June 2012 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities. All funds from this issuance have been expended. These senior bonds have interest rates ranging from 2.5% to 5.3% and are payable in semiannual installments at varying amounts through May 1, 2042. In December 2011, the District issued $52,250,000 of Wastewater System Revenue Bonds Series 2011B (“Series 2011B”). These bonds were issued pursuant to the August 2008 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities. All funds from this issuance have been expended. These senior bonds have interest rates ranging from 3.0% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2032. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 43 In January 2010, the District issued $85,000,000 of Taxable Wastewater System Revenue Bonds (Build America Bonds – Direct Pay) Series 2010B (“Series 2010B”). These bonds were issued pursuant to the August 2008 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities. All funds from this issuance have been expended. These senior bonds have an interest rate of 5.9% and are payable in semiannual installments at varying amounts through May 1, 2039. As Build America Bonds under The American Recovery and Reinvestment Act (“ARRA”) of 2009, the District receives a subsidy payment from the Federal government equal to a percentage of the interest paid. In fiscal years 2013 and prior, the rate was 35%. Beginning with refund payments processed on March 1, 2013 and annually beginning on October 1, 2013, the IRS has adjusted this rate as part of the sequestration. In fiscal year 2016 and fiscal year 2015, the subsidy percentage was 32.6% and 32.4%, respectively. In fiscal year 2017 the subsidy percentage is again expected to be 32.6%. In November 2008, the District issued $30,000,000 of Wastewater System Revenue Bonds Series 2008A (“Series 2008A”) from the August 2008 authorization for the purpose of providing funds to finance the capital improvement and replacement program. All funds from this issuance have been expended. These senior bonds had interest rates ranging from 5.1% to 5.3% and were payable in semiannual installments at varying amounts through May 1, 2038; however, in December 2015, there was an advance refunding of the Series 2008A bonds. As a result of this refunding, Series 2008A bonds are considered to be defeased. See the explanation for Series 2015B above for further information. In November 2006, the District authorized and issued $60,000,000 of Wastewater System Revenue Bonds Series 2006C (“Series 2006C”) from the February 2004 authorization for the purpose of providing funds to finance the initial phase of its capital improvement and replacement program, including constructing, repairing, and replacing new wastewater facilities. All funds from this issuance have been expended. These senior bonds had interest rates ranging from 4.1% to 5.0% and were payable in semiannual installments at varying amounts through May 1, 2036; however, in December 2015, there was an advance refunding of the Series 2006C bonds. As a result of this refunding, Series 2006C bonds are considered to be defeased. See the explanation for Series 2015B above for further information. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 44 In May 2004, the District authorized and issued $175,000,000 of Wastewater System Revenue Bonds Series 2004A (“Series 2004A”) from the February 2004 authorization for the purpose of providing funds to finance the initial phase of its capital improvement and replacement program, including constructing, repairing, and replacing new wastewater facilities. All funds from this issuance have been expended. These senior bonds had interest rates ranging from 2.0% to 5.0% and were payable in semiannual installments at varying amounts through May 1, 2034; however, in November 2012, there was a partial refunding of the Series 2004A bonds. As a result of this refunding, Series 2004A bonds were considered to be partially defeased and the semiannual installments were through May 1, 2014. The liability related to Series 2004A after May 1, 2014 has been paid. See the explanation for Series 2012B above for further information. The revenue bonds do not constitute a legal debt or liability for the District, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Revenue derived from the operations of the Wastewater System is pledged for the retirement of the outstanding Wastewater System Revenue Bonds listed above. Under the provisions of the bond indentures, the District covenants to establish rates for the services of the Wastewater System sufficient to fund operations, maintain reserves, and provide revenues to apply principal and interest on these bonds. The issuance of the revenue bonds does not obligate the District to levy any form of taxation or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 45 Water Pollution Control And Drinking Water Revenue Bonds Payable In October 2008, the State Environmental Improvement and Energy Resources Authority (“Authority”) authorized and issued $69,435,000 of Water Pollution Control and Drinking Water Revenue Bonds (State Revolving Funds Programs) Series 2008A/B (“Series 2008A/B”). The Series 2008A/B bonds provided funds to issue loans to 14 Missouri political subdivisions that used the funds to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2008A/B bonds issued by the Authority were used to purchase subordinate Participant Revenue Bonds (“Participant Bonds”) authorized and issued by the District from the February 2004 authorization in the aggregate principal amount of $40,000,000, the proceeds of which were used for constructing, repairing, and equipping new and existing wastewater facilities. All funds from this issuance have been expended. The District’s Participant Bonds have interest rates ranging from 4.0% to 5.7% and are payable in semiannual installments at varying amounts through January 1, 2029. In November 2006, the Authority authorized and issued $22,105,000 of State Revolving Funds Programs Series 2006B (“Series 2006B”). The Series 2006B bonds provided funds to issue loans to 7 Missouri political subdivisions that used the funds to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2006B bonds issued by the Authority were used to purchase Participant Bonds authorized and issued by the District from the February 2004 authorization in the aggregate principal amount of $14,205,000, the proceeds of which were used for constructing, repairing, and equipping new and existing wastewater facilities. All funds from this issuance have been expended. The District’s Participant Bonds have interest rates ranging from 4.0% to 5.0% and are payable in semiannual installments at varying amounts through July 1, 2027. In May 2006, the Authority authorized and issued $87,505,000 of State Revolving Funds Programs Series 2006A (“Series 2006A”). The Series 2006A bonds provided funds to issue loans to 13 Missouri political subdivisions that used the funds to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2006A bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District from the February 2004 authorization in the aggregate principal amount of $42,715,000, the proceeds of which were used for constructing, repairing, and equipping new and existing wastewater facilities. All funds from this issuance have been expended. The District’s Participant Bonds have interest rates ranging from 3.5% to 4.5% and are payable in semiannual installments at varying amounts through July 1, 2026. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 46 In May 2005, the Authority authorized and issued $53,060,000 of State Revolving Funds Programs Series 2005A (“Series 2005A”). The Series 2005A bonds provided funds to make loans to 10 Missouri political subdivisions and one Missouri non-profit corporation that were used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2005A bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District from the February 2004 authorization in the aggregate principal amount of $6,800,000, the proceeds of which were used for constructing, repairing, and equipping new and existing wastewater facilities. All funds from this issuance have been expended. The District’s Participant Bonds have interest rates ranging from 3.0% to 5.0% and are payable in semiannual installments at varying amounts through July 1, 2026. In May 2004, the Authority authorized and issued $179,780,000 of State Revolving Funds Programs Series 2004B (“Series 2004B”). The Series 2004B bonds provided funds to make loans to 7 Missouri political subdivisions that were used to finance water pollution control projects. A portion of the proceeds of the Series 2004B bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District from the February 2004 authorization in the aggregate principal amount of $161,280,000, the proceeds of which were used to finance the District’s three water pollution control construction projects outlined in the agreement. All funds from this issuance have been expended. The District’s Participant Bonds have interest rates ranging from 2.0% to 5.3% and are payable in semiannual installments at varying amounts through January 1, 2027. The Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds do not constitute a legal debt or liability for the District, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds and the Series 2009A, 2010A, 2010C, 2011A, 2013A and 2015A direct loans (pages 48-53) do not obligate the District to levy any form of taxation or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. In connection with the District’s issuance of the Participant Bonds, which were purchased with the proceeds of the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds, the District participates in the State Revolving Loan Program established by the Missouri Department of Natural Resources (“DNR”). Monies from federal capitalization grants and state matching funds are used to fund a bond reserve account for the participants. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 47 As the District incurred approved capital expenditures, the DNR reimbursed the District for the expenditures from the bond proceeds account and deposited in a bond reserve account, in the District’s name, an additional 60% of the expenditure amount for the Series 2004B bonds and 70% for the Series 2005A, 2006A, and 2006B bonds. For the Series 2008A/B bonds, 70% of the entire anticipated borrowed amount was deposited into this bond reserve account at the beginning of the loan versus as the expenditures were reimbursed. Interest earned from this bond reserve account can be used by the District to fund interest payments on the bonds. On the date of each payment of the principal amount of the District’s Participant Bonds, the trustee transfers from this bond reserve account to the master trustee account an amount equal to 60% of the principal payment for the Series 2004B bonds and 70% for the Series 2005A, 2006A, 2006B and 2008A/B bonds. In accordance with the Master Bond Ordinance and the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds’ ordinances, the District’s annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings, must be at least 125% of the current year’s principal and interest due on all senior bonds and at least 115% of the current year’s principal and interest due on all bonds. At June 30, 2016 and 2015, the District was in compliance with this covenant. Principal And Interest Requirements On Revenue Bonds Payable The annual principal and interest requirements to maturity on revenue bonds payable outstanding as of June 30, 2016 are as follows: Years ending June 30,Principal Interest Total 2017 28,640,000$ 43,546,831$ 72,186,831$ 2018 29,260,000 42,683,954 71,943,954 2019 30,150,000 41,871,217 72,021,217 2020 31,295,000 40,918,206 72,213,206 2021 32,375,000 39,810,805 72,185,805 2022-2026 179,320,000 181,313,888 360,633,888 2027-2031 178,250,000 145,441,284 323,691,284 2032-2036 189,860,000 101,899,479 291,759,479 2037-2041 230,325,000 56,261,902 286,586,902 2042-2045 89,750,000 7,702,500 97,452,500 Total 1,019,225,000$ 701,450,066$ 1,720,675,066$ Wastewater System Revenue Bonds Payable/ Water Pollution Control and Drinking Water Revenue Bonds Payable THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 48 Energy Efficiency Leveraged Note Payable In February 2012, the DNR loaned $223,793 to the District. The Energy Efficiency Leveraged Note Payable bears interest at a rate of 2.5% per annum and is payable through February 1, 2020. The purpose of this note was to finance the design, acquisition, installation, and implementation of energy conservation measures. The principal and interest on this note will be paid from the energy savings from the projects or avoided costs resulting from the projects. Principal And Interest Requirements On Energy Efficiency Leveraged Note Payable The annual principal and interest requirements to maturity on the Energy Efficiency Leveraged Note Payable outstanding as of June 30, 2016 are as follows: State Of Missouri Direct Loan Series 2015A In August 2015, the State of Missouri Direct Loan Program issued to the District an amount totaling $75,000,000 for the purpose of improving, renovating, repairing, replacing and equipping the District’s Wastewater System. The principal and interest on the bonds are expected to be paid from future wastewater revenues and the bonds are issued from the June 2012 authorization. The District’s interest rate is 1.2% and is payable in semiannual installments at varying amounts through January 1, 2035. Principal And Interest Requirements On State Of Missouri Direct Loan Series 2015A As the District incurs approved capital expenditures, the DNR reimburses the District for the expenditures from the bond proceeds account. The District repays the loan at an interest rate of 1.2% based on the amount that has been borrowed. As of June 30, 2016 the outstanding loan balance was $42,622,810. The payment requirements to maturity will be determined after the debt is fully issued. Years ending June 30, Principal Interest Total 2017 33,173$ 2,749$ 35,922$ 2018 34,007 1,915 35,922 2019 34,863 1,059 35,922 2020 16,163 202 16,365 Total 118,206$ 5,925$ 124,131$ Energy Efficiency Leveraged Note Payable THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 49 State Of Missouri Direct Loan Series 2013A In October 2013, the State of Missouri Direct Loan Program issued to the District an amount totaling $52,000,000 for the purpose of improving, renovating, repairing, replacing and equipping the District’s Wastewater System. The principal and interest on the bonds are expected to be paid from future wastewater revenues and the bonds were issued from the June 2012 authorization. The District’s interest rate is 1.6% and is payable in semiannual installments at varying amounts through July 1, 2034. Principal And Interest Requirements On State Of Missouri Direct Loan Series 2013A As the District incurred approved capital expenditures, the DNR reimbursed the District for the expenditures from the bond proceeds account. All funds have been drawn on this loan. The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2013A outstanding as of June 30, 2016 are as follows: State Of Missouri Direct Loan Series 2011A In November 2011, the State of Missouri Direct Loan Program issued to the District an amount totaling $39,769,300 for the purpose of improving, renovating, repairing, replacing and equipping the District’s Wastewater System. The principal and interest on the bonds are expected to be paid from future wastewater revenues and the bonds were issued from the August 2008 authorization. The District’s interest rate is 1.5% and is payable in semiannual installments at varying amounts through January 1, 2034. Years ending June 30, Principal Interest Total 2017 2,134,000$ 765,422$ 2,899,422$ 2018 2,190,000 732,251 2,922,251 2019 2,247,000 698,089 2,945,089 2020 2,305,000 663,036 2,968,036 2021 2,365,000 627,076 2,992,076 2022-2026 12,785,000 2,562,290 15,347,290 2027-2031 14,540,000 1,511,692 16,051,692 2032-2035 11,354,000 356,562 11,710,562 Total 49,920,000$ 7,916,418$ 57,836,418$ State of Missouri Direct Loan Series 2013A THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 50 Principal And Interest Requirements On State Of Missouri Direct Loan Series 2011A As the District incurred approved capital expenditures, the DNR reimbursed the District for the expenditures from the bond proceeds account. All funds have been drawn on this loan. The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2011A outstanding as of June 30, 2016 are as follows: State Of Missouri Direct Loan Series 2010C In December 2010, the State of Missouri Direct Loan Program issued to the District an amount totaling $37,000,000 for the purpose of improving, renovating, repairing, replacing and equipping the District’s Wastewater System. The principal and interest on the bonds are expected to be paid from future wastewater revenues and the bonds were issued from the August 2008 authorization. The District’s interest rate is 1.7% and is payable in semiannual installments at varying amounts through January 1, 2031. Principal And Interest Requirements On State Of Missouri Direct Loan Series 2010C As the District incurred approved capital expenditures, the DNR reimbursed the District for the expenditures from the bond proceeds account. All funds have been drawn on this loan. Years ending June 30, Principal Interest Total 2017 1,662,000$ 561,485$ 2,223,485$ 2018 1,704,000 536,086 2,240,086 2019 1,747,000 510,025 2,257,025 2020 1,792,000 483,304 2,275,304 2021 1,838,000 455,891 2,293,891 2022-2026 9,913,000 1,843,236 11,756,236 2027-2031 11,242,000 1,045,448 12,287,448 2032-2034 7,456,300 200,418 7,656,718 Total 37,354,300$ 5,635,893$ 42,990,193$ State of Missouri Direct Loan Series 2011A THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 51 The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010C outstanding as of June 30, 2016 are as follows: State Of Missouri Direct Loan Series 2010A In January 2010, the State of Missouri’s Direct Loan Program - ARRA issued to the District an amount totaling $7,980,700 for the construction, improvement, renovation, repair, replacement and equipping of its wastewater system, under the authority of and in full compliance with the District’s Charter (“Plan”) and the bonds were issued from the August 2008 authorization. The District’s interest rate is 1.5% and is payable in semiannual installments at varying amounts through July 1, 2031. Principal And Interest Requirements On State Of Missouri Direct Loan Series 2010A As the District incurred approved capital expenditures, the DNR reimbursed the District for the expenditures from the bond proceeds account. All funds have been drawn on this loan. Years ending June 30, Principal Interest Total 2017 1,663,000$ 488,559$ 2,151,559$ 2018 1,705,000 460,969 2,165,969 2019 1,750,000 432,655 2,182,655 2020 1,795,000 403,590 2,198,590 2021 1,842,000 373,783 2,215,783 2022-2026 9,953,000 1,393,871 11,346,871 2027-2031 11,316,000 523,438 11,839,438 Total 30,024,000$ $ 4,076,865 $ 34,100,865 State of Missouri Direct Loan Series 2010C THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 52 The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010A outstanding as of June 30, 2016 are as follows: State Of Missouri Direct Loan Series 2009A In October 2009, the DNR loaned $23,000,000 to the District. The State of Missouri Direct Loan Series 2009A note bears interest at a rate of 1.5% per annum and is payable through January 1, 2030. The purpose of this note was to finance the designing, constructing, improving, renovating, repairing, replacing and equipping of new and existing sewer facilities within the District. The principal and interest on the note are expected to be paid from future wastewater revenues and the note was issued from the August 2008 authorization. Principal And Interest Requirements On State Of Missouri Direct Loan Series 2009A As the District incurred approved capital expenditures, the DNR reimbursed the District for the expenditures from the bond proceeds account. All funds have been drawn on this loan. Years ending June 30, Principal Interest Total 2017 366,000$ 96,156$ 462,156$ 2018 373,300 90,717 464,017 2019 380,900 85,164 466,064 2020 388,700 79,498 468,198 2021 396,600 73,717 470,317 2022-2026 2,107,100 277,661 2,384,761 2027-2031 2,329,600 114,460 2,444,060 2032 246,200 1,822 248,022 Total 6,588,400$ 819,195$ 7,407,595$ State of Missouri Direct Loan Series 2010A THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 53 The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2009A outstanding as of June 30, 2016 are as follows: In accordance with the Direct Loan Series 2009A, 2010A, 2010C, 2011A, 2013A and 2015A ordinances, the District’s annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 115% of the current year’s principal and interest due on all bonds. At June 30, 2016 and 2015, the District was in compliance with this covenant. Wastewater System Cash And Investments The following accounts have been established in accordance with bond ordinances and financing agreements that require receipts generated from operations be segregated and certain reserve accounts be established: Revenue Fund The Revenue Fund will be used for the purpose of depositing wastewater and stormwater operating revenues, providing funds to pay for expenses related to the operation and maintenance of the District, and fulfilling Sinking Fund requirements in accordance with the bond ordinances. Sinking Fund The bond ordinances provide for deposits to and the use of monies in the Sinking Fund to be used for the sole purpose of principal and interest payments on the bonds. Sufficient monies shall be paid in periodic installments from the Revenue Fund. Debt Service Fund The Debt Service Fund shall be used by the Trustee for the sole purpose of paying the principal and interest on the bonds, as and when the same become due. Years ending June 30, Principal Interest Total 2017 1,073,700$ 251,746$ 1,325,446$ 2018 1,098,500 236,045 1,334,545 2019 1,123,900 219,915 1,343,815 2020 1,149,900 203,411 1,353,311 2021 1,176,500 186,526 1,363,026 2022-2026 6,303,500 665,364 6,968,864 2027-2030 5,588,200 186,020 5,774,220 Total 17,514,200$ 1,949,027$ 19,463,227$ State of Missouri Direct Loan Series 2009A THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 54 Debt Service Reserve Fund After initial deposit of the amount required pursuant to the bond ordinances and financing agreements of the Series 2004A, 2006C, 2008A, 2010B, 2011B, 2012A, and 2013B bonds, monies in the Debt Service Reserve Fund shall be disbursed and expended by the District solely for the payment of the principal and interest on the bonds and notes to the extent of any deficiency in the Debt Service Fund for such purpose. The District may disburse and expend monies from the Debt Service Reserve Fund for such purpose immediately. As of June 30, 2016 and 2015, cash and investments in the Debt Service Reserve Fund totaled $49,575,170 and $57,664,537, respectively. Series 2015B was issued without a debt service requirement and at that time $8,945,557 in excess debt reserves along with part of the Series 2015B proceeds were used to advance refund Series 2006C and Series 2008A. Special Participant Bond Reserve Account For the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds, the DNR deposited into the Special Participant Bond Reserve Account, amounts in accordance with the bond ordinances, which shall be disbursed and expensed by the District solely for the payment of the principal and interest on the Participant Bonds to the extent of any deficiency in the Sinking Fund for such purpose. At June 30, 2016 and 2015, cash and investments in the Special Participant Bond Reserve Account held on behalf of the District totaled $104,751,185 and $113,155,635, respectively. Monies in this account are not considered to be District funds. However, interest earnings on this account are used by the District to reduce interest payments on the bonds outstanding. Renewal And Extension Fund All sums accumulated and retained in the Renewal and Extension Fund shall be first used to prevent default in the payment of principal and interest on the bonds when due and shall then be applied by the District for purposes pursuant to the trust indenture. No monies have been deposited into this account at June 30, 2016. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 55 Project Fund The Project Funds for all bond issuances outstanding will be used for the purpose of providing monies to pay project costs. The proceeds from the bonds and notes, after a deposit into the Debt Service Reserve Fund for the amounts required pursuant to the bond ordinances and note agreements of Series 2004A, 2006C, 2008A, 2010B, 2011B, 2012A, and 2013B bonds, shall be deposited into the Project Fund. At June 30, 2016 and 2015, cash and investments in the Project Fund totaled $92,563,751 and $63,327,909, respectively. Rebate Fund The bond ordinances provide for the creation of a Rebate Fund into which shall be deposited such amounts as are required to be deposited therein pursuant to the arbitrage instructions regarding the calculation and payment of rebate amounts due. The District does not have any rights in or claims to such money; provided, however, any funds remaining in the Rebate Fund after redemption and payment of all bonds and payment of any rebatable arbitrage amount, or provision having been made therefore, shall be remitted to the District. At June 30, 2016 and 2015, cash and investments in the Rebate Fund totaled $228,797 and $230,318, respectively. Administrative Fee Fund The Administrative Fee Fund will be used for the payment of the Trustee’s fees and other administrative fees pursuant to the note agreement. The Trustee has the ability to immediately withdraw the fee amounts when due. Monies held in this account shall not be invested. Pledged Revenues The District pledges revenues to ensure the repayment of all outstanding revenue bonds. These bonds’ proceeds are used for the District’s capital improvement and replacement program and their repayment comes from, and is collateralized by, the District’s wastewater revenues. These revenues are pledged through 2045 at an approximate amount of $1.7 billion. The proportion of future pledged revenues to future wastewater revenues is not estimable as annual total revenues fluctuate. Principal and interest paid out during fiscal year 2016 was $82.7 million with pledged revenues of $151.0 million. This provided a coverage ratio of 2.0 and represented 47.4% of all net operating revenues. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 56 7. Pension Plan General Information About The Pension Plan Pension Plan Description. The Metropolitan St. Louis Sewer District Employees’ Pension Plan (“Pension Plan”) is a noncontributory single employer defined benefit plan providing retirement benefits as well as death and disability benefits. As a condition of employment, all full-time employees of the District commencing service prior to January 1, 2011, were eligible to be covered by the Pension Plan. As of January 1, 2011, the Pension Plan was frozen to new employees. Instead, new employees of the District may participate in the The Metropolitan St. Louis Sewer District Defined Contribution Plan (“DC Plan”) and/or the The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust. Current employees with less than ten years of service on January 1, 2011 could also voluntarily elect to transfer from the Pension Plan and enter the DC Plan. Benefits Provided. All benefits vest after five years of credited service. Members retiring at or after age 65 with five or more years credited service are entitled to a pension benefit. The Pension Plan permits early retirement with reduced benefits beginning at age 55 if the member has completed five years of employment. Ordinance No. 10664 provides for unreduced retirement benefits to any member whose combined age and term of service is equal to 75. Effective August 1, 2004, Ordinance No. 11781 amended the Pension Plan to change the benefit formula to 1.7% of final average earnings plus 0.4% of final average earnings that are in excess of covered earnings multiplied by the period of years and months of credited service not to exceed 35 years without including accrued sick leave. Sick leave is paid out at 1.25% per year of service multiplied by the amount of the unused accrued sick leave remaining at the employee’s current rate of pay. Also, the Pension Plan was amended to provide the retiring member with a 10% partial lump sum payment option. The balance of the distribution will be paid in accordance with any one of the other payment options available under the Pension Plan. The retirement benefit payable to a member who retires after the normal retirement date is the greater of a) the benefit that would have been payable on the normal retirement date plus a special annual retirement benefit provided by the accumulated value, at 4% per annum interest, of the monthly benefit that would have been received prior to the postponed retirement date or b) the benefit determined as of the postponed retirement date under the normal formula. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 57 Effective August 27, 2011, Ordinance No. 13288 amended the Pension Plan to include the following: “Upon termination or complete discontinuance of contributions under the Plan, the rights of all Members to benefits accrued to the date of such termination or discontinuance shall be non-forfeitable, to the extent then funded.” Amounts in participants’ accounts are distributed upon retirement, death, disability, or termination of employment. The normal form of retirement benefit is either a lump sum payment or equal monthly installments. The Pension Plan reports financial data on a calendar year basis and issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. Employees Covered by Benefit Terms. At December 31, 2015 and 2014, the financial reporting period of the Pension Plan, the following employees were covered by the benefit terms: Required Employer Contributions. The District’s employees do not contribute to the Pension Plan. Ordinances establishing the Pension Plan provide for actuarially determined annual contributions, paid solely by the District, that are sufficient to pay benefits when due. The Entry Age Normal actuarial funding method is used to determine contributions. Contributions of $10,096,075 and $10,359,139, excluding certain professional fees paid by the District, were made to the Pension Plan during the District’s fiscal years ended June 30, 2016 and 2015, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at December 31, 2015 and 2014, respectively. Increase 2015 2014 (Decrease) Active plan members 665 710 (45) Retirees and beneficiaries currently receiving benefits 691 660 31 Terminated members entitled to receive benefits 175 180 (5) Total 1,531 1,550 (19) For the Years Ended December 31, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 58 Net Pension Liability The net pension liability was measured as of December 31, 2015 and 2014 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Actuarial Assumptions. The total pension liability in the December 31, 2015 and 2014 actuarial valuations were determined using the following actuarial assumptions, applied to all periods included in the measurement: Mortality rates were based on the RP-2000 Healthy Annuitant Mortality Table for Males or Females, as appropriate, with adjustments for mortality improvements based on Scale AA and the RP-2000 Disability Mortality Table for Males or Females. The actuarial assumptions are based on prior and current year experiences. Inflation 2.50 percent Salary Increases 4.25 percent, average, including inflation Investment Rate of Return 7.00 percent, net of pension plan investment expense, including inflation THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 59 Long-Term Expected Rate of Return. 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 at December 31, 2015 and 2014 are as follows: Long-Term Expected Arithmetic Target Real Rate Asset Class Allocation of Return Large Cap US Equity 20.0%7.1% Small Cap US Equity 6.0%8.1% International Equity 10.0%7.7% Emerging Market Equity 4.0%9.9% Core Bonds 26.0%1.2% Global Fixed Income 9.0%1.3% Absolute Return/HFOF 15.0%3.2% Real Estate 5.0%5.4% Real Assets 5.0%3.5% Total 100.0% Long-Term Expected Arithmetic Target Real Rate Asset Class Allocation of Return Domestic Equity 27.0%7.1% International Equity 10.0%7.6% Emerging Market Equities 3.0% 10.8% Global Fixed Income 35.0%0.8% Absolute Return/HFOF 15.0%5.6% Real Estate 5.0%4.9% Real Assets 5.0%5.0% Total 100.0% December 31, 2015 December 31, 2014 Discount Rate. The discount rate used to measure the total pension liability at December 31, 2015 and 2014, was 7.00 percent. The Pension Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the discount rate for calculating the total pension liability is equal to the long-term expected rate of return. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 60 Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Changes in Net Pension Liability (a)(b)(a) - (b) Balances as of December 31, 2014 290,411,812$ 250,515,821$ 39,895,991$ Changes for the year: Service cost 5,253,091 5,253,091 Interest 20,198,502 20,198,502 Effect of economic/demographic gains or losses (4,576,597)(4,576,597) Benefit payments (14,474,566) (14,474,566)— Employer contributions 10,059,004 (10,059,004) Net investment income (1,888,020) 1,888,020 Balances as of December 31, 2015 296,812,242$ 244,212,239$ 52,600,003$ Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Changes in Net Pension Liability (a)(b)(a) - (b) Balances as of December 31, 2013 $275,656,711 $246,247,278 $29,409,433 Changes for the year: Service cost 5,409,485 5,409,485 Interest 19,900,507 19,900,507 Effect of economic/demographic gains or losses (3,667,991)(3,667,991) Effect of assumption changes or inputs *6,500,227 6,500,227 Benefit payments (13,387,127) (13,387,127)— Employer contributions 10,675,321 (10,675,321) Net investment income 6,980,349 (6,980,349) Balances as of December 31, 2014 $290,411,812 $250,515,821 $39,895,991 * In order to better reflect anticipated future experience, the discount rate was decreased from 7.25% to 7.0% effective December 31, 2014 and the salary increase assumption was changed from 10.0% grading down to 4.50% over the first three years of service to 4.25% for all years. Changes in Net Pension Liability for the Year Ended December 31, 2015 Changes in Net Pension Liability for the Year Ended December 31, 2014 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 61 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability calculated using the 7.00 percent discount rate, as well as what the District’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.00 percent) or 1-percentage-point higher (8.00 percent) than the current rate: 1%Current 1% Decrease Discount Rate Increase (6.00%) (7.00%) (8.00%) Net Pension Liability 85,662,163$ 52,600,003$ 24,315,305$ 1%Current 1% Decrease Discount Rate Increase (6.00%) (7.00%) (8.00%) Net Pension Liability 72,651,593$ 39,895,991$ 11,897,781$ December 31, 2015 December 31, 2014 Pension Plan Fiduciary Net Position. Fiduciary net position is the market value of all plan assets. Net pension liability is the plan’s total pension liability less its fiduciary net position, i.e., the plan’s unfunded accrued liability. Pension Expense And Deferred Outflows Of Resources And Deferred Inflows Of Resources Related To Pensions For the years ended June 30, 2016 and 2015, the District recognized pension expense of $3,571,798 and negative $27,850, respectively, after accounting for all deferred outflows and inflows of resources. The District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Deferred Deferred Outflows of Inflows of Outflows of Inflows of Resources Resources Resources Resources Differences between expected and actual experience —$ 5,711,868$ —$ 2,910,142$ Changes of assumptions 3,814,183 — 5,157,205 — Net difference between projected and actual earnings 21,823,418 — 8,583,527 — Contributions made subsequent to measurement date 5,506,662 — 5,469,591 — Total 31,144,263$ 5,711,868$ 19,210,323$ 2,910,142$ June 30, 2016 June 30, 2015 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 62 In the years ending June 30, 2016 and 2015, amounts currently reported as deferred outflows of resources, $5,506,662 and $5,469,591, respectively, related to the District’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017 and 2016, respectively. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Payable To The Pension Plan At June 30, 2016 and 2015, the District did not have outstanding required contributions to the pension plan. 8. Other Retirement Plans Deferred Compensation Plan and Trust The District offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust (“Plan”), available to all District employees, permits them to defer a portion of their salary up to Internal Revenue Code limits. The District does not contribute to the Plan. The deferred compensation is not available to employees until termination, retirement, death, disability or due to financial hardship as defined by the Plan. Net Deferred Outflows of Resources Year ended June 30,: 2017 5,560,476$ 2018 5,560,476 2019 5,466,846 2020 3,337,935 19,925,733$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 63 The Plan was amended and restated to comply with the Economic Growth and Tax Relief Reconciliation Act of 2001 (“Act”). The Act made significant changes to Section 457(b) of the Internal Revenue Code of 1986, as previously amended. The Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries under Section 1448 of the Small Business Job Protection Act of 1996. As a result, the assets and liabilities of the Plan are not included in the accompanying financial statements. The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. Defined Contribution Plan The Metropolitan St. Louis Sewer District Defined Contribution Plan (“DC Plan”) was established by the District’s Board of Trustees, through Ordinance 13180, which became effective January 1, 2011. The following employees are eligible to participate in the DC Plan: (i) employees first hired on or after January 1, 2011, and (ii) employees hired prior to January 1, 2011 who elected to terminate participation in the Pension Plan, effective as of April 1, 2011, in accordance with the provisions of such Pension Plan, and (iii) employees rehired on or after January 1, 2011 who are not eligible to accrue benefits under the Pension Plan. An employee shall become a participant in the DC Plan on the first day on which he or she performs an hour of service for the District. The District’s Board of Trustees, primarily to improve benefits to members, amends the DC Plan in all its respects. A pension committee consisting of two members of the District’s Board of Trustees, two elected employee members and four members of the District’s management staff administer the DC Plan. A committee of the District’s Board of Trustees, with the aid of an investment advisor, reviews and evaluates the DC Plan’s investments and the related rates of return on a periodic basis. This DC Plan is intended to provide a means whereby the District may provide retirement benefits to eligible employees and encourage such employees to establish a regular method of savings, thereby providing a measure of financial security for such employees and their beneficiaries upon retirement or in the event of death or disability. Employer Basic Contributions: For each payroll period, the District contributes an amount equal to 7% of the covered compensation earned during such period by each participant entitled to an allocation of such contribution. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 64 Employer Matching Contributions: For each payroll period, the District contributes an amount equal to 50% of the covered compensation of such participant withholding as an annual deferral (as defined in The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust) pursuant to The Metropolitan St. Louis Sewer District Deferred Compensation Plan and Trust; provided that, before-tax contributions in excess of 4% of the covered compensation of the participant for the payroll period shall not be considered for purposes of Employer Matching Contributions. Employer Matching Contributions shall be up to the maximum amount of compensation that may be taken into account for the DC Plan year. In no event shall the sum of the employer contributions and employee contributions allocated to the account of a participant for the DC Plan year exceed the lesser of: (a) The amount specified in the applicable Internal Revenue Code, as adjusted annually for any applicable increases in the cost of living. (b) 100% of the participant’s compensation for such year. The compensation limit referred to in (b) shall not apply to any contribution from medical benefits after separation from service. The District’s contributions to the plan amounted to $1,297,704 and $1,003,944 for the years ended June 30, 2016 and 2015, respectively. Forfeitures were $45,109 and $108,383 for the years ended June 30, 2016 and 2015, respectively, and there were no liabilities outstanding as of June 30, 2016. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 65 Vesting: As of any time before the normal retirement age of a participant, the first day of the month coinciding with or next following a person’s sixty-fifth birthday and completion of sixty months of continuous service (other than upon death or permanent disability), the vested percentage of the amounts credited to the participant’s employer basic contributions account shall be determined in accordance with the following schedule: Months Of Continuous Service Vested(Non- Forfeitable) Percentage Less than 12 0% 12 but less than 24 20% 24 but less than 36 40% 36 but less than 48 60% 48 but less than 60 80% 60 100% The Metropolitan St. Louis Sewer District Defined Contribution Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. 9. Post-Employment Benefits Other Than Pensions Plan Description The District’s only post-employment benefit provides a single-employer defined benefit health care plan (“Plan”) to employees who retire from the District on or after age 62 with five years of service or whose age plus years of service equal 75 points (“Rule of 75”) as part of a total compensation package effective August 1, 2004 for general employees and, with respect for union members, the later of August 1, 2004 or the date of union ratification of a Memorandum of Understanding with respect to this Plan modification. The District pays the same portion of the monthly group health insurance premium for the qualified retiree as it would for an active employee until the retiree becomes eligible for Medicare at age 65. In fiscal year 2016 the portion the District paid was 85% of the retiree only premium for the period July 1, 2015 through January 31, 2016 and 80% for the period February 1, 2016 through June 30, 2016. In addition, there is a closed group of disabled former employees who receive life insurance coverage from the District. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 66 The District periodically contracts for an actuarial valuation of the Plan and the latest actuarial valuation was performed as of July 1, 2015. While the actuarial report has the February 2015 monthly medical premium rates, updated rates received from the Human Resources Department for retirees, which are the same rates for active employees, beginning February 2016 are as follows: Premiums for retirees are as follows: Coverage Tier Monthly Premium Retiree* $620.70 Retiree + Spouse $1,322.26 Retiree + Child(ren) $1,201.41 Family $1,832.58 *The District pays 80% of the retiree’s premium for a retiree who retires after age 62 with five years of service or after attaining 75 points. The retiree pays 20% of the individual retiree premium above plus 100% of the spousal, children or family premium incremental increases. The District’s annual other post-employment benefit (“OPEB”) cost (expense) is calculated based on the annual required contribution (“ARC”) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, and in conjunction with Plan benefits currently in force. The actuarial valuations have been determined using estimated data provided by the District in combination with assumptions on the probability of future events, while also keeping an eye on long-term viability. These valuations are subject to continual revision as future actuarial measurements may differ significantly from current measurements due to the realization of new estimates and factors. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and the amortization of any unfunded actuarial accrued liabilities. The District’s annual OPEB cost for fiscal year 2016 and 2015 and the related information are as follows: THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 67 The Plan was established by District Ordinance which assigned the authority to establish and amend Plan benefit provisions to the District. The contribution requirements of the District and Plan members are established and may be amended by the District. The Plan does not issue a publicly available report. Trend Information: As of June 30, 2016 and 2015, the Plan was not funded. The actuarial accrued liability for benefits as of July 1, 2015, the latest actuarial valuation, was approximately $25,308,300, and there were no assets, resulting in an unfunded actuarial accrued liability (“UAAL”) of approximately $25,308,300. The covered payroll (annual payroll of active employees covered by the Plan) in 2015 was approximately $66,958,077, and the ratio of the UAAL to covered payroll was 37.8%. 2016 2015 Amortization of Past Service Cost 935,300$ 908,300$ Normal Cost 1,524,000 1,462,200 Interest to End of Fiscal Year 92,200 88,900 Annual Required Contribution ("ARC") 2,551,500 2,459,400 Interest on Net OPEB Obligation 223,820 190,022 Adjustment to ARC (220,586) (174,733) Net Annual OPEB Cost 2,554,734 2,474,689 Actual Contribution (1,519,800) (1,573,400) Increase in Net OPEB Obligation 1,034,934 901,289 Net OPEB Obligation - Beginning of Year 5,968,543 5,067,254 Net OPEB Obligation - End of Year 7,003,477$ 5,968,543$ Percentage of Net Annual Fiscal Net Annual Actual OPEB Cost Net OPEB Year OPEB Cost Contribution Contributed Obligation 2016 2,554,734$ 1,519,800$ 59.5 7,003,477$ 2015 2,474,689 1,573,400 63.6 5,968,543 2014 2,442,145 1,393,600 57.1 5,067,254 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 68 The Schedule of Funding Progress, presented as required supplementary information following these notes to financial statements, presents trend information about whether the actuarial accrued liability for benefits is increasing or decreasing over time. Actuarial funding calculations of the Plan reflect a long-term perspective. The Plan’s actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. Significant actuarial assumptions used in the valuation are as follows: Latest Valuation Date: July 1, 2015 Actuarial Cost Method: Projected Unit Credit Discount Rate: 3.75% per annum Amortization Method: Level Percentage of Payroll Amount, Open Amortization Period: 30 years Inflation Rate: 2.50% Payroll Growth Rate: 3.00% Investment Rate of Return: 3.75% annual returns, net of both administrative and related investment expenses Health Cost Trend Assumption: Getzen Trend Model – 6.90% graded to 4.50% over 67 years Medical Trend: The healthcare trends used in the valuation are based on long-term healthcare trends generated by the Getzen Trend Model (“Model”). The Model is the result of research sponsored by the Society of Actuaries and completed by a committee of economists and actuaries. This Model is the current industry standard for projecting long-term medical trends. Inputs to the Model are consistent with the assumptions used in deriving the discount rate used in the valuation. Year Medical Year Medical 2015 2045 2016 6.40 2050 5.80 2017 5.60 2055 5.60 2018 5.30 2060 5.50 2019 5.30 2065 5.10 2020 5.30 2070 4.60 2025 5.30 2075 4.60 2030 6.80 2080 4.60 2035 6.80 2082+ 4.50 2040 6.20 6.90%5.90% THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 69 Payroll Inflation 3.00% per annum Healthy Mortality RP 2000 Mortality Table (employee and healthy annuitant tables), projected 5 years from the valuation date using Scale AA. Disabled Mortality RP 2000 Disabled Mortality Table Future Retiree Coverage: 90% of eligible employees retiring prior to age 65 are assumed to elect medical coverage under the Plan. Future Dependent Coverage: 25% elect spouse coverage and it is assumed that no dependent children are covered in retirement. Years O f Attained Service Rate Age Rate 020 112.00 30 3.70 27.50 40 1.10 50+0.00 Select Rates based on years of service. Ultimate Rates based on attained age. Ultimate Rates are from the Sarason T-1 Table. Termination Of Employment: Select Rates Ultimate Rates (0 to 4 years of service)(after 4 years of service) 20.00%5.50% Age Before 75 Points After 75 Points 55 56 2.0 10.0 57 2.0 10.0 58 2.0 10.0 59 3.0 10.0 60 4.0 15.0 61 5.0 15.0 62 20.0 35.0 63 10.0 25.0 64 20.0 25.0 65 100.0 100.0 Retirement - Rates Vary By Age 1.0%10.0% Percent Becoming Age Disabled 20 30 0.064 40 0.102 50 0.311 Disability 0.056% THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 70 10. Self-Insurance Programs The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The District has established a risk management program and retains the risk related to its obligation to provide workers' compensation and medical and hospitalization benefits to its employees; and to pay water backup claims to its customers. The estimated liabilities for payment of incurred (both reported and unreported) but unpaid claims relating to these matters are included as a component of current deposits and accrued expenses, and as such are expected to be paid within one year of the date of the Statement of Net Position. At June 30, 2016 and 2015, these liabilities amounted to $4,076,993 and $4,317,384, respectively. The claims liabilities reported are based on the requirements of GASB Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, which requires that a liability for claims be reported if information obtained prior to the issuance of the financial statements indicates it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Changes in the balance of claims liabilities during fiscal 2016 and 2015 were as follows: The District obtains periodic funding valuations from the third-party administrators managing the self-insurance programs and adjusts the charges as required to maintain the appropriate level of estimated claims liability. The District also maintains excess liability insurance coverage for workers' compensation and medical and hospitalization claims; general liability; and water backup damage to customers’ property. The District purchases commercial insurance for all other risks of loss. Settled claims have not exceeded this commercial coverage in any of the past three years. 2016 2015 Liability - Beginning of Year 4,317,384$ 2,923,884$ Current year claims and changes in estimates 21,213,424 15,852,729 Claim payments (21,453,814) (14,459,229) Liability - End of Year 4,076,994$ 4,317,384$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 71 11. Closure And Post-Closure Care Costs State and federal laws and regulations require the District to place a final cover on its Prospect Hill Reclamation Project landfill site when it stops accepting waste and to perform certain maintenance and monitoring functions at the site for 30 years after closure. Although closure and post-closure care costs will be paid only near or after the date that the landfill stops accepting waste, the District reports a portion of these closure and post-closure care costs as an operating expense in each fiscal year. The $821,732 and $783,473 reported as landfill closure and post-closure care liabilities at June 30, 2016 and 2015, respectively, represent the cumulative amounts reported at fiscal year-end and represent 100.0% and 96.7% of the estimated closure and post-closure care costs of the landfill for fiscal years ended 2016 and 2015, respectively. These amounts are based on what it would cost to perform all closure and post-closure care in 2016. The remaining disposal life estimate was calculated in 2009 and was estimated at eight years factoring in a future annual average disposal rate of 96,500 cubic yards. It was noted in the 2009 Black and Veatch study that this life could be extended further if the actual disposal rate is less than projected or alternative uses and off-site beneficial options for the incinerator ash are later developed. Since the actual average disposal rate has been less than 96,500 cubic yards, the landfill is not at capacity and MSD expects the landfill to be in use for another 10-15 years. The District will continue to accrue the remaining estimated cost of closure and post-closure care annually. The District is required to demonstrate that it has the financial capability to close the landfill to the State of Missouri through the use of a financial test as specified in 10 CSR 80-2.030(4)(D)6 of the Missouri Solid Waste Management Rules. The District has complied with the State’s requirement. The District recognizes that estimates of closure costs may change as a result of inflation, deflation, and/or changes in technology and applicable laws and regulations. If closure cost estimates change, the liability currently reported on the Statement of Net Position will be adjusted accordingly. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 72 12. Commitments And Contingencies United States And State Of Missouri V. Metropolitan St. Louis Sewer District; In The United States District Court For The Eastern District Of Missouri; Case No. 07-1120. A lawsuit was filed by the Department of Justice on behalf of the United States Environmental Protection Agency (“EPA”) for various alleged violations of the Clean Water Act. The suit was based on violations of the Clean Water Act as a result of overflows in the combined and sanitary sewer systems causing pollutants to reach waters of the United States. There were other counts involving violations of permit conditions. The District had been the subject of several investigatory actions by EPA over the past several years. Negotiations had been ongoing with the EPA and the Missouri Department of Natural Resources (“DNR”) regarding the sewer collection system, both the combined system and the sanitary system, for several years. The Missouri Coalition for the Environment (“MCE”) gave Notice of Intent to Sue the District under the citizen suit provisions of the Clean Water Act. EPA and the DNR then brought the suit in June 2007, and MCE moved to intervene. Intervention was granted in August 2007. In October 2007, the Court granted the District’s motion to dismiss all of the plaintiffs’ claims for civil penalties attributable to any and all of the District’s alleged violations of the Clean Water Act that occurred before June 11, 2002. Also, the suit alleged that the District did not have an approved Long-Term Control Program (“LTCP”) for the combined system. The District had been working on these issues for several decades and had asked voters to approve bonds and rate increases to rehabilitate and maintain the collection system. As required by its Charter, the District had increased rates which continued to fund the improvements sought by the EPA and the DNR. In September 2008, the Judge put in place a Stay while the parties mediated the issues. Pursuant to MSD Ordinance No. 13277, MSD executed the Consent Decree (“CD”) on July 15, 2011. The CD was lodged with the court on August 4, 2011. An extended public comment period ended October 10, 2011. On April 27, 2012, the Court approved and entered the decree, thus concluding the litigation of this lawsuit. Although this litigation matter has concluded, MSD continues to work diligently to implement the CD. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 73 The CD requires the District to spend approximately $4.7 billion, in 2010 dollars, over a 23-year implementation period. Throughout this period improvements will be made to the District’s separate sewer system, combined sewer system, and wastewater treatment plants. The District continues to comply with the CD. On June 1, 2011, the State of Missouri approved Chapter 11, Chapter 12, and Appendix Q of the District’s Combined Sewer Overflow Long-Term Control Plan Updated Report, dated February 2011. Flooding Cases The remaining flooding cases related to the September 14, 2008 rain event are being covered by the District’s insurance carrier, with a reservation of rights. These cases appear to have a very low risk of liability to the District. The District is a defendant in various other matters of litigation. Of these matters, management and District’s legal counsel do not anticipate any material effect on the June 30, 2016 and 2015 financial statements. Contingencies The District has entered into construction and other contracts amounting to $354,141,397 and $302,603,787 at June 30, 2016 and 2015, respectively. Grants to be received from various governmental agencies and entities to partially offset the cost of the contract commitments amounted to $12,090 and $34,228 at June 30, 2016 and 2015, respectively. The District had $1,193,000,000 and $518,000,000 in revenue bonds authorized by the voters but unissued as of June 30, 2016 and 2015, respectively. These funds were sought to enable the District to comply with federal and state clean water requirements. 13. Restricted Net Position The Statements of Net Position report $146,104,959 and $151,292,103 of restricted net position at June 30, 2016 and 2015, respectively, of which $79,776,581 and $78,114,762 are restricted due to enabling legislation, as of June 30, 2016 and 2015, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 74 14. Segment Information The District issued wastewater revenue bonds to finance wastewater infrastructure projects. The District accounts for both wastewater and stormwater activities in a single enterprise fund, but investors in those bonds rely solely on the revenue generated by the wastewater activities for repayment. Fiscal year 2016 and 2015 summary financial information for each business segment is presented below. A segment is an identifiable activity reported as a stand-alone entity for which one or more revenue bonds are outstanding. A segment has a specifically identifiable revenue stream pledged in support of the revenue bonds and has related expenses, gains and losses and assets and liabilities that are required by external parties to be accounted for separately. The wastewater system is the only reportable segment that meets the requirements of GASB Statement No. 34, Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments. The stormwater system is reported on for informational purposes only. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 75 Financial information as of and for the years ended June 30, 2016 and 2015 of the District’s Wastewater Segment is as follows: Assets 2016 2015 Current Assets Unrestricted Current Assets Cash and cash equivalents  25,577,264$ 31,943,006$ Investments                                          157,349,756 101,007,961 Sewer service charges receivable, less allowance of                   $55,537,161 in 2016 and $53,052,032 in 2015 49,733,852 49,642,870 Unbilled sewer service charges receivable 24,607,682 22,049,122 Accrued income on investments                        780,051 601,855 Other receivables, less allowance of $98,460 in 2016                               and $32,962 in 2015 10,184,895 1,650,498 Supplies inventory                                   7,088,804 6,360,539           Total Unrestricted Current Assets                            275,322,304 213,255,851 Non-Current Assets Restricted Assets Cash and cash equivalents  17,009,874 21,857,289 Investments                                          113,535,586 91,317,382 Long-term investments                                32,736,862 28,088,302 Property taxes receivable, less allowance of $164 in 2016      and $634 in 2015 5,318 (126,463) Accrued income on investments                        144,289 216,287        Total Restricted Non-Current Assets                            163,431,929 141,352,797 Other Assets     Notes receivable                                     12,999,370 13,563,540 Long-term investments                                156,994,123 165,781,358             Total Other Assets                            169,993,493 179,344,898 Capital Assets     Depreciable:        Treatment and disposal plant and equipment           1,239,993,981 1,214,483,762        Collection and pumping plant                         1,798,181,091 1,727,606,247        General plant and equipment                          75,752,926 75,667,913                                                             3,113,927,998 3,017,757,922        Less:  Accumulated depreciation                      1,111,825,269 1,041,916,229        Net depreciable assets       2,002,102,729 1,975,841,693            Non-depreciable:        Land                                                 63,374,303 50,292,691        Construction in progress                             519,044,798 399,987,281           Net Capital Assets                                2,584,521,830 2,426,121,665                    Total Non-Current Assets                         2,917,947,252 2,746,819,360                  Total Assets                               3,193,269,556 2,960,075,211 Deferred Outflows of Resources:        Bonds and notes payable-Deferred loss                                          11,973,700 9,599,096        Pension-related Outflows                                              26,520,052 16,300,636                  Total Deferred Outflows of Resources                        38,493,752 25,899,732 WASTEWATER SEGMENT STATEMENTS OF NET POSITION June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 76 Liabilities 2016 2015 Current Liabilities Contracts and accounts payable  37,396,996$ 34,058,044$ Deposits and accrued expenses 29,325,752 30,338,248 Retainage payable  9,118,945 6,952,750 Current portion of bonds and notes payable  38,059,873 29,620,359                                                             113,901,566 100,969,401 Current Liabilities-Payable From Restricted Assets Contracts and accounts payable  36,495 — Retainage payable  156,537 156,538                                                             193,032 156,538             Total Current Liabilities                       114,094,598 101,125,939 Non-Current Liabilities Deposits and accrued expenses 14,198,048 13,067,791 Net Pension Liability 44,732,007 33,853,154 Bonds and notes payable  1,277,342,521 1,105,481,067             Total Non-Current Liabilities                       1,336,272,576 1,152,402,012                         Total Liabilities                              1,450,367,174 1,253,527,951 Deferred Inflow of Resources:        Pension-related Inflows                                              4,868,566 2,469,358                  Total Deferred Inflow of Resources                        4,868,566 2,469,358 Net Position Net investment in capital assets 1,373,656,883 1,363,947,246 Restricted for:       Debt service                                       66,328,378 73,177,341       Subdistrict construction and improvement           4,371,001 4,334,588 Unrestricted 332,171,306 288,518,459                  Total Net Position               1,776,527,568$ 1,729,977,634$ June 30, WASTEWATER SEGMENT STATEMENTS OF NET POSITION (Continued) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 77 2016 2015   Operating Revenues     Sewer service charges                                   304,684,984$ 282,957,325$     Recovery of (Provision for) doubtful sewer service charge accounts (4,062,990) (2,229,949)     Licenses, permits, and other fees                       3,620,240 6,656,831     Other                                                   14,221,063 1,451,670     Total Operating Revenues                              318,463,297 288,835,877          Operating Expenses     Pumping and treatment                                   59,099,820 60,765,831     Collection system maintenance                           33,291,567 32,141,159     Engineering                                             3,523,227 4,589,048     General and administrative                              54,802,220 48,555,339     Water backup claims                                     7,631,197 3,862,390     Depreciation                                            73,782,843 68,289,230     Asset management                                               12,968,747 13,373,795     Total Operating Expenses                             245,099,621 231,576,792          Operating Income                    73,363,676 57,259,085          Non-Operating Revenues     Property taxes levied by the District                   (17,525) (152,757)     Investment income                                       3,894,305 2,555,654     Rent and other income                                   102,865 37,321     Total Non-Operating Revenues                          3,979,645 2,440,218          Non-Operating Expenses     Net loss on disposal and sale of capital assets         309,877 1,026,567     Non-recurring projects and studies                       9,342,338 10,579,078     Interest expense                                        28,943,200 27,138,546     Total Non-Operating Expenses                          38,595,415 38,744,191          Income Before Capital Grants And Contributions                       38,747,906 20,955,112          Capital Grants And Contributions     Utility plant contributed                               7,036,329 6,979,980     Grant revenue                                           765,699 692,628     Total Capital Grants And Contributions                          7,802,028 7,672,608   Change In Net Position 46,549,934 28,627,720   Net Position - Beginning Of Year, As Previously Stated      1,729,977,634 1,721,395,422 Effect of Adoption of GASB 68 — (20,045,508)   Net Position - Beginning Of Year, As Restated      1,729,977,634 1,701,349,914          Net Position - End Of Year                                    1,776,527,568$ 1,729,977,634$ WASTEWATER SEGMENT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For The Years Ended June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 78 2016 2015 Cash Flows From Operating Activities Received from customers 304,602,849$ 283,741,361$ Paid to employees for services (94,386,428) (94,150,602) Paid to suppliers for goods and services (70,500,534) (66,614,057) Net Cash Provided By Operating Activities 139,715,887 122,976,702 Cash Flows Provided By Non-Capital Financing Activities Taxes levied and collected (86,140) — Cash Flows From Capital And Related Financing Activities Proceeds from capital grants 22,649 692,920 Proceeds from issuance of debt 192,622,808 35,956,725 Premium and (discounts) on sale of bonds 26,727,475 — Interest received on bond proceeds to be used for capital improvements — 291,725 Principal paid on debt (38,565,916) (20,268,080) Interest and fees paid on debt (47,582,180) (43,213,255) Payments for capital assets (216,933,464) (196,100,162) Proceeds from sale of capital assets 681,101 301,443 Build America bond tax credit 1,623,694 1,614,982 Net Cash Provided By (Used In) Capital And Related Financing Activities (81,403,833) (220,723,702) Cash Flows From Investing Activities Purchase of investments (360,630,035) (332,640,382) Proceeds from sale and maturity of investments 285,557,144 427,154,335 Investment income 5,530,955 5,383,326 Proceeds from rents 102,865 37,321 Net Cash Provided By (Used In) Investing Activities (69,439,071) 99,934,600 Net Increase (Decrease) In Cash And Cash Equivalents (11,213,157) 2,187,600 Cash And Cash Equivalents At Beginning Of Year 53,800,295 51,612,695 Cash And Cash Equivalents At End Of Year 42,587,138$ 53,800,295$ Ended June 30, WASTEWATER SEGMENT STATEMENTS OF CASH FLOWS For The Years THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 79 Financial information as of and for the years ended June 30, 2016 and 2015 of the District’s Stormwater Segment is as follows: Assets 2016 2015 Current Assets Unrestricted Current Assets Cash and cash equivalents  1,356,757$ 2,158,088$ Investments                                          8,797,808 5,362,025 Sewer service charges receivable, less allowance of                   $191,346 in 2016 and $153,015 in 2015 291,381 332,208 Unbilled sewer service charges receivable 121,144 120,059 Property taxes receivable, less allowance of $39,127 in 2016               and $44,595 in 2015 1,265,106 1,413,045 Accrued income on investments                        25,828 16,581        Total Unrestricted Current Assets                            11,858,024 9,402,006 Restricted Current Assets Cash and cash equivalents 2,065,003 1,859,493 Investments                                          13,393,010 8,670,810        Total Restricted Current Assets                            15,458,013 10,530,303  Total Current Assets                            27,316,037 19,932,309 Non-Current Assets Restricted Assets Cash and cash equivalents  3,187,578 3,989,465 Investments                                          20,673,435 16,906,100 Long-term investments                                36,742,701 42,405,401 Property taxes receivable, less allowance of $22,255 in 2016 and $21,322 in 2015 719,568 638,298 Accrued income on investments                        156,339 92,168        Total Restricted Non-Current Assets                            61,479,621 64,031,432 Other Assets Long-term investments                                9,488,963 10,328,702             Total Other Assets                            9,488,963 10,328,702 Capital Assets     Depreciable:        Collection and pumping plant                         621,465,929 613,419,262        General plant and equipment                          16,640,099 16,530,978                                                             638,106,028 629,950,240        Less:  Accumulated depreciation                      188,602,256 179,206,884        Net depreciable assets       449,503,772 450,743,356     Non-depreciable:        Land                                                 6,328,167 6,228,017        Construction in progress                             11,689,443 8,476,273           Net capital assets                                467,521,382 465,447,646                    Total Non-Current Assets                         538,489,966 539,807,780                         Total Assets                               565,806,003 559,740,089 Deferred Outflow of Resources:        Pension-related Outflows                                              4,624,211 2,909,687                  Total Deferred Outflow of Resources                        4,624,211 2,909,687 STORMWATER SEGMENT STATEMENTS OF NET POSITION June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 80 Liabilities 2016 2015 Current Liabilities Contracts and accounts payable  23,762$ 24,774$ Deposits and accrued expenses  9,633,010 7,220,824 Retainage payable  545 —                                                             9,657,317 7,245,598 Current Liabilities-Payable From Restricted Assets Contracts and accounts payable  1,250,044 736,658 Retainage payable  282,010 44,903                                                             1,532,054 781,561             Total Current Liabilities                       11,189,371 8,027,159        Non-Current Liabilities        Net Pension Liability                   7,867,996 6,042,837             Total Non-Current Liabilities                       7,867,996 6,042,837                          Total Liabilities                     19,057,367 14,069,996 Deferred Inflow of Resources:        Pension-related Inflows                                              843,302 440,784                  Total Deferred Inflow of Resources                        843,302 440,784 Net Position Net investment in capital assets 467,521,382 465,447,646 Restricted for:       Subdistrict construction and improvement           75,405,580 73,780,174 Unrestricted 7,602,583 8,911,176                   Total Net Position 550,529,545$ 548,138,996$   June 30, STORMWATER SEGMENT STATEMENTS OF NET POSITION (Continued) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 81 2016 2015   Operating Revenues     Sewer service charges                                   1,433,561$ 1,409,239$     Recovery of (Provision for) doubtful sewer service charge accounts (43,662) 133,578     Other                                                   4,535 7,895     Total Operating Revenues                              1,394,434 1,550,712   Operating Expenses     Collection system maintenance                           9,561,770 8,019,048     Engineering                                             7,474,392 6,364,852     General and administrative                              513,152 (4,218)     Depreciation                                            10,200,906 10,352,029     Asset management                                               245,864 212,645     Total Operating Expenses                             27,996,084 24,944,356   Operating Income (Loss)                                         (26,601,650) (23,393,644)   Non-Operating Revenues     Property taxes levied by the District                   25,688,583 24,917,081     Investment income                                       741,561 444,937     Total Non-Operating Revenues                          26,430,144 25,362,018   Non-Operating Expenses     Net loss on disposal and sale of capital assets         14,636 394,335     Non-recurring projects and studies                       1,658,065 1,738,410     Total Non-Operating Expenses                          1,672,701 2,132,745   Income (Loss) Before Capital Contributions                       (1,844,207) (164,371)   Capital Contributions     Utility plant contributed                               4,234,756 5,324,146     Total Capital Contributions                          4,234,756 5,324,146   Change In Net Position 2,390,549 5,159,775   Net Position - Beginning Of Year, As Previously Stated      548,138,996 546,557,373 Effect of Adoption of GASB 68 — (3,578,152)   Net Position - Beginning Of Year, As Restated      548,138,996 542,979,221          Net Position - End Of Year                                    550,529,545$ 548,138,996$ STORMWATER SEGMENT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For The Years Ended June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 82 15. Subsequent Events In preparing these financial statements, the District has evaluated events and transactions for potential recognition or disclosure through October 17, 2016, the date the financial statements were available to be issued. 2016 2015 Cash Flows From Operating Activities Received from customers 2,484,603$ 1,373,264$ Paid to employees for services — — Paid to suppliers for goods and services (14,535,335) (7,919,918) Net Cash Provided By Operating Activities (12,050,732) (6,546,654) Cash Flows Provided By Non-Capital Financing Activities Taxes levied and collected 25,669,165 25,824,104 Cash Flows From Capital And Related Financing Activities Payments for capital assets (10,261,405) (5,143,441) Proceeds from sale of capital assets 153,600 88,730 Net Cash Provided By (Used In) Capital And Related Financing Activities (10,107,805) (5,054,711) Cash Flows From Investing Activities Purchase of investments (53,788,919) (90,110,173) Proceeds from sale and maturity of investments 47,877,866 75,925,408 Investment income 1,002,717 581,944 Net Cash Provided By (Used In) Investing Activities (4,908,336) (13,602,821) Net Increase (Decrease) In Cash And Cash Equivalents (1,397,708) 619,918 Cash And Cash Equivalents At Beginning Of Year 8,007,046 7,387,128 Cash And Cash Equivalents At End Of Year 6,609,338$ 8,007,046$ Ended June 30, STORMWATER SEGMENT STATEMENTS OF CASH FLOWS For The Years THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 83 In December 2015, MSD facilities were damaged due to a flood that resulted from the St. Louis area receiving a range of 6 to 12 inches of precipitation. To date, MSD has sustained an estimated $25 million dollars in overall expenses and damages due to the rain and flood event. Insurance and disaster assistance from the Federal Emergency Management Agency (“FEMA”) and other governmental agencies are expected to cover the majority of these losses. However, it is not yet possible to determine exact numbers as MSD is in the process of submitting claims to FEMA and its insurance carrier. FEMA has authorized potential reimbursements of approximately $6 million of which MSD has received $80,670 in fiscal year 2017. The fiscal year 2016 financial statements included a $743,561 accrual for FEMA approved funding. The insurance recovery receivable recorded at June 30, 2016 was approximately $8 million dollars of which $3 million was received through October 17, 2016. Work is ongoing to mitigate and replace damaged items. On April 5, 2016, MSD customers voted to approve a stormwater service proposition whereby effective July 1, 2016, MSD will begin to rollback and eliminate several existing taxes, will eliminate the stormwater fee and, in lieu of these funding mechanisms, institute or leave in place two taxing districts that cover MSD’s entire service area. The overriding benefit of the stormwater proposition is that customers will be treated equally under the new system, meaning that all customers are subject to the same tax rates and all customers receive the same level of stormwater services. On July 12, 2016, MSD received notification from the U.S. Environmental Protection Agency that the Federal Grant XP-97704601 was being decreased $12,090 effective July 12, 2016 and MSD submitted a Final Status Report on August 22, 2016. These funds are no longer available to partially offset the cost of the contract commitments existing at June 30, 2016. On August 3, 2016, the IRS announced an increase in the sequestration rate for refundable credit amounts submitted on IRS Form 8038-CP for qualified bonds from 6.8% to 6.9%. This will be effective for all refund payments processed from October 1, 2016 to September 30, 2017. Since the District participates in Build America Bonds, the District will receive 93.1% of the amount requested during its fiscal year 2017. The District received 93.2% of the amount requested during fiscal year 2016. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 84 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS June 30, 2016 Schedule of Changes in Net Pension Liability and Related Ratios In (000's) 2016 2015 Total Pension Liability Service cost $5,253 $5,409 Interest on total pension liability 20,199 19,901 Effect of plan changes — — Effect of economic/demographic gains or (losses)(4,577)(3,668) Effect of assumption changes or inputs — 6,500 Benefit payments (14,475)(13,387) Net Change in Total Pension Liability 6,400 14,755 Total Pension Liability - Beginning 290,412 275,657 Total Pension Liability - Ending (a)296,812 290,412 Fiduciary Net Position Employer contributions 10,059 10,676 Member contributions — — Investment income net of investment expenses (1,888)6,980 Benefit payments (14,475)(13,387) Administrative expenses — — Net Change in Plan Fiduciary Net Position (6,304)4,269 Fiduciary Net Position - Beginning 250,516 246,247 Fiduciary Net Position - Ending (b)244,212 250,516 Net Pension Liability - Ending = (a) - (b)$52,600 $39,896 Fiduciary Net Position as a % of Total Pension Liability 82.28%86.26% Covered Payroll $43,345 $44,664 Net Pension Liability as a % of Covered Payroll 121.35%89.32% Notes to Schedule: 1. Changes of Assumptions. In 2014, amounts reported as changes of assumptions resulted primarily from adjustments to the discount rate and employee rate increases. 2. This schedule will ultimately present ten years of information when available. Fiscal Year Ending June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 85 REQUIRED SUPPLEMENTARY INFORMATION (Continued) EMPLOYEES’ PENSION PLAN AND POST-EMPLOYMENT BENEFIT PLAN June 30, 2016 Employees' Pension Plan Schedule of Employer Contributions Plan Year Actuarially Contribution Covered Contribution Ending Determined Annual Deficiency Employee as a % of December 31, Contribution Contribution (Excess)Payroll* Covered Payroll 2006 $6,847,278 $6,847,278 — $42,113,000 16.26% 2007 7,673,240 7,673,240 — 43,640,000 17.58% 2008 7,425,602 7,425,602 — 48,077,000 15.45% 2009 8,859,535 8,859,535 — 52,267,000 16.95% 2010 10,306,739 10,306,739 — 51,703,000 19.93% 2011 10,969,154 10,969,154 — 49,432,000 22.19% 2012 11,737,168 11,737,168 — 48,333,000 24.28% 2013 11,391,287 11,391,287 — 46,600,000 24.44% 2014 10,675,321 10,675,321 — 44,663,896 23.90% 2015 10,059,004 10,059,004 — 43,344,502 23.21% * Payroll as of prior December 31 Measurement Date Notes to Schedule: Valuation Date: Actuarially determined contribution rates are calculated as of January 1 of the fiscal year in which the contributions are reported. Methods and assumptions used to determine contribution rates: Actuarial Cost Method:Entry Age Normal Amortization Method:Level dollar layered, 20 year periods Asset Valuation Method:3-year smoothing period Inflation:2.50% Salary Increases:4.25%, average, including inflation Investment Rate of Return:7.00%, net of pension plan investment expense, including inflation Mortality:In the 2016 actuarial valuation, assumed life expectancies were calculated using the RP-2000 Healthy Annuitant Mortality Table and the RP-2000 Disabled Mortality Table. Other Post-Employment Benefit Plan Schedule of Funding Progress In (000's) Unfunded Actuarial UAAL As A Actuarial Actuarial Accrued Percentage Actuarial Value Accrued Liability Funded Covered Of Covered Valuation Of Assets Liability (UAAL) Ratio Payroll Payroll Date (1)(2) (1)-(2) (1)/(2) (3) (1)-(2)/(3) 7/1/2015 —$ 25,308$ 25,308$ 0% 66,958$ 37.8 % 7/1/2013 — 26,264 26,264 0% 60,238 43.6 7/1/2011 — 24,103 24,103 0% 52,649 45.8 7/1/2009 — 24,412 24,412 0% 50,230 48.6 7/1/2007 — 21,938 21,938 0% 43,640 50.3 The Metropolitan St. Louis Sewer District Statistical Section This part of the District’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the District’s overall financial health. Contents Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. Page Financial Trends These schedules contain trend information to help the reader understand how the District’s financial performance and well-being have changed over time…………………………………….............86 - 87 Revenue Capacity These schedules contain information to help the reader assess the District’s most significant local revenue sources, the user charge….………88 - 95 Debt Capacity These schedules present information to help the reader assess the affordability of the District’s current levels of outstanding debt and the District’s ability to issue additional debt in the future…………….…...96 - 98 Demographic And Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the District’s financial activities take place………………………….…………….99 - 101 Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the District’s financial report relates to the services the District provides and the activities it performs……………………………………….……102 - 103 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 86 2007 2008 2009 2010 2011 Net Position Net investment in capital assets 1,682,063$ 1,704,322$ 1,798,914$ 1,868,974$ 1,915,233$ Restricted 85,447 97,422 94,769 80,782 94,926 Unrestricted 278,803 324,218 293,934 257,894 186,860 Total Net Position 2,046,313$ 2,125,962$ 2,187,617$ 2,207,650$ 2,197,019$ 2012 2013 2014 2015 2016 Net Position Net investment in capital assets 1,928,200$ 1,877,692$ 1,845,394$ 1,829,394$ 1,841,178$ Restricted 106,693 111,066 142,764 151,292 146,105 Unrestricted 175,010 251,300 279,794 297,430 339,774 Total Net Position 2,209,903$ 2,240,058$ 2,267,952$ 2,278,116$ 2,327,057$ NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (000's) Fiscal Year Fiscal Year THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 87 Non-operating Income/(Loss)Change Fiscal Operating Operating Operating Revenue/ before Capital Capital in Net Year Revenues Expenses Income/(Loss) (Expenses) Contributions Contributions Position 2007 202,205,532$ 183,810,507$ 18,395,025$ 36,885,268$ 55,280,293$ 24,309,430$ 79,589,723$ 2008 221,925,048 225,145,882 (3,220,834) 37,259,517 34,038,683 45,609,805 79,648,488 2009 249,725,358 212,177,779 37,547,579 (2,885,959) 34,661,620 26,993,385 61,655,005 2010 246,587,174 228,778,874 17,808,300 (17,560,670) 247,630 19,786,012 20,033,642 2011 219,444,257 244,503,099 (25,058,842) 4,329,032 (20,729,810) 10,098,552 (10,631,258) 2012 225,999,720 216,307,965 9,691,755 1,370,329 11,062,084 9,658,857 20,720,941 2013 241,946,337 230,158,434 11,787,903 832,056 12,619,959 17,534,919 30,154,878 2014 265,772,853 241,297,635 24,475,218 (3,682,863) 20,792,355 7,102,480 27,894,835 2015 290,386,589 256,521,148 33,865,441 (13,074,700) 20,790,741 12,996,754 33,787,495 2016 319,857,731 273,095,705 46,762,026 (9,858,327) 36,903,699 12,036,784 48,940,483 CHANGES IN NET POSITION LAST TEN FISCAL YEARS THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 88 Licenses, Fiscal Sewer Service Permits, and Year Charges, Net Other Fees Other 2007 194,798,878$ 6,030,583$ 1,376,071$ 202,205,532$ 2008 216,618,417 4,345,961 960,670 221,925,048 2009 244,699,964 3,475,283 1,550,111 249,725,358 2010 241,495,357 3,084,552 2,007,265 246,587,174 2011 214,653,310 2,976,253 1,814,694 219,444,257 2012 220,765,581 2,683,823 2,550,316 225,999,720 2013 235,980,065 2,731,497 3,234,775 241,946,337 2014 257,343,344 6,562,607 1,866,902 265,772,853 2015 282,270,193 6,656,831 1,459,565 290,386,589 2016 302,011,893 3,620,240 14,225,598 319,857,731 OPERATING REVENUES BY SOURCE LAST TEN FISCAL YEARS Total Operating Revenues THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 89 Fiscal Employment Materials and Contracted Chemical Year Costs Utilities Supplies Services Supplies 2007 58,731,260$ 11,362,805$ 12,335,366$ 40,879,286$ 1,260,789$ 2008 60,787,548 12,837,998 14,081,785 64,192,143 1,387,122 2009 70,475,293 12,587,699 14,855,989 48,783,447 1,589,650 2010 85,030,456 12,355,232 13,297,892 39,561,050 1,478,605 2011 84,264,583 14,170,680 11,010,962 42,854,613 1,415,826 2012 87,148,397 12,612,858 13,942,690 29,585,028 1,355,113 2013 91,939,437 14,533,557 10,355,992 31,133,523 1,455,725 2014 93,634,080 14,986,388 11,835,900 40,148,088 2,440,843 2015 96,832,265 16,500,052 17,596,766 46,020,308 3,964,165 2016 99,162,132 16,624,607 16,202,414 49,782,063 3,498,796 Fiscal Year Insurance Other 2007 2,915,236$ 10,604,787$ 138,089,529$ 45,720,978$ 183,810,507$ 2008 2,939,390 13,986,037 170,212,023 54,933,859 225,145,882 2009 2,746,119 13,769,203 164,807,399 47,370,379 212,177,779 2010 3,062,439 19,981,424 174,767,098 54,011,776 228,778,874 2011 2,578,316 21,353,854 177,648,834 66,854,265 244,503,099 2012 2,470,343 2,451,472 149,565,901 66,742,064 216,307,965 2013 2,696,416 8,013,944 160,128,594 70,029,840 230,158,434 2014 2,737,491 1,427,638 167,210,428 74,087,207 241,297,635 2015 2,791,622 (5,825,289) 177,879,889 78,641,259 256,521,148 2016 3,218,041 623,903 189,111,956 83,983,749 273,095,705 OPERATING EXPENSES LAST TEN FISCAL YEARS Subtotal, Expenses before Depreciation Depreciation Total Operating Expenses THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 90 2007 2008 2009 2010 2011 Non-operating revenues Property taxes levied by the District 24,401,167$ 27,512,070$ 2,129,475$ 1,401,100$ 27,125,451$ Investment income 16,946,145 17,476,621 13,115,519 6,553,760 3,847,324 Rent and other income 878,319 529,983 214,674 265,004 442,968 Total non-operating revenues 42,225,631 45,518,674 15,459,668 8,219,864 31,415,743 Non-operating expenses Interest expense — — 9,079,269 13,189,283 7,971,088 Clean Water Capital Improvement refund 15,000 4,313,973 — — — Net loss on disposal and sale of capital assets 96,630 686,459 2,161,862 2,719,163 3,485,952 Non-recurring projects and studies 5,228,733 3,258,725 7,104,496 9,872,088 10,800,843 Legal claims — — — — 4,828,828 Total non-operating expenses 5,340,363 8,259,157 18,345,627 25,780,534 27,086,711 Net non-operating revenue (expense)36,885,268$ 37,259,517$ (2,885,959)$ (17,560,670)$ 4,329,032$ 2012 2013 2014 2015 2016 Non-operating revenues Property taxes levied by the District 24,604,173$ 26,016,135$ 27,450,319$ 24,764,324$ 25,671,058$ Investment income 2,407,485 1,056,966 2,966,549 3,000,591 4,635,866 Rent and other income 294,591 293,159 302,506 37,321 102,865 Total non-operating revenues 27,306,249 27,366,260 30,719,374 27,802,236 30,409,789 Non-operating expenses Interest expense 16,365,309 21,062,474 25,661,127 27,138,546 28,943,200 Net loss on disposal and sale of capital assets 3,162,723 795,527 5,248,443 1,420,902 324,513 Non-recurring projects and studies 6,402,888 4,676,203 3,492,667 12,317,488 11,000,403 Legal claims 5,000 — — — — Total non-operating expenses 25,935,920 26,534,204 34,402,237 40,876,936 40,268,116 Net non-operating revenue (expense)1,370,329$ 832,056$ (3,682,863)$ (13,074,700)$ (9,858,327)$ Fiscal Year NON-OPERATING REVENUES AND EXPENSES LAST TEN FISCAL YEARS Fiscal Year THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 91 Type of Monthly Charge Unmetered c Residential c Non-Residential Wastewater User Charge Base Charge 18.25 18.25 18.25 Compliance Charge a Tier 1 2.15 Tier 2 44.50 Tier 3 94.80 Tier 4 139.00 Tier 5 183.15 Volume Charges per Ccf b — 3.21 3.21 per room 2.09 — — per water closet 7.83 — — per bath 6.53 — — per separate shower 6.53 — — Extra Strength Surcharges a SS over 300 ppm per ton — — 251.88 BOD over 300 ppm per ton — — 632.38 COD over 600 ppm per ton — — 316.19 Stormwater Service Charge per account: single residential unit 0.24 0.24 0.24 per account: multi-residential unit 0.18 0.18 0.18 Notes: a Applicable only to non-residential customers. b Ccf = Hundred cubic feet. c User charges for certain low income residential users will be 50 percent of the regular user charge. Source: Finance Department USER CHARGE RATES As Of June 30, 2016 Metered THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 92 Fiscal Year Wastewater Charges Billed 1 Wastewater Charges Collected 2 Collections as a % of Wastewater Charges Billed 2007 192,676,922$ 189,346,856$ 98.27% 2008 203,646,332 195,452,994 95.98% 2009 207,801,047 197,892,342 95.23% 2010 204,248,506 198,138,619 97.01% 2011 213,503,732 203,520,769 95.32% 2012 222,425,957 217,396,623 97.74% 2013 233,882,795 233,877,875 99.99% 2014 245,555,628 241,549,548 98.37% 2015 279,555,881 275,049,684 98.39% 2016 300,803,084 299,932,808 99.71% Note: The table shows the amount of wastewater user charge revenues which were billed and collected by the District for the last ten fiscal years. 1 Wastewater Charges Billed includes wastewater user charge revenues billed and accrued for the year. 2 Wastewater Charges Collected includes wastewater user charge revenues collected for the current year and previous years billings. USER CHARGE REVENUES LAST TEN FISCAL YEARS THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 93 2007 2008 a 2009 2010 b 2011 c Residential: Single Family/Unit a 271.44$ 344.88$ 344.88$ 1 351.12$ 1 333.60$ 1 Multi-Family/Unit a 228.00 299.76 299.76 305.04 285.12 Commercial/Industrial: Service Charge/Unit 2 245.40 457.20 457.20 486.60 507.00 Sanitary Sewer Usage Charge per Ccf 1.81 1.88 1.88 1.92 2.02 Storm Sewer Usage Charge/100 sq. feet of impervious area — — 0.12 0.14 — Extra Strength Surcharges: Suspended Solids ("SS") over 300 parts per million/ton 218.90 218.90 218.90 218.90 222.62 Biological Oxygen Demand ("BOD") over 300 parts per million/ton 461.44 529.90 529.56 551.52 596.72 Chemical Oxygen Demand ("COD") over 600 parts per million/ton 230.72 264.85 264.78 275.76 298.36 2012 2013 d 2014 2015 2016 Residential: Single Family/Unit a 347.64$ 379.56$ 421.08$ 434.76$ 491.52$ Multi-Family/Unit a 296.28 324.12 360.36 434.04 490.80 Commercial/Industrial: Service Charge/Unit 2 525.60 478.56 412.56 348.12 296.80 Sanitary Sewer Usage Charge per Ccf 2.11 2.28 2.50 2.82 3.21 Storm Sewer Usage Charge/100 sq. feet of impervious area — — — — — Extra Strength Surcharges: Suspended Solids ("SS") over 300 parts per million/ton 231.35 231.35 231.35 244.03 251.88 Biological Oxygen Demand ("BOD") over 300 parts per million/ton 620.14 620.14 620.14 620.14 632.38 Chemical Oxygen Demand ("COD") over 600 parts per million/ton 310.07 310.07 310.07 310.07 316.19 Notes: 1 Years 2008-2010 saw an impervious rate charge that averaged $36 per year per customer. This was discontinued in 2011. 2 Service Charge/Unit for Commerical/Industrial is calculated by using the sum of annualized base charge and compliance charge. Starting FY2013, MSD implemented 5-tier Compliance Charge Rate Model, so the Service Charge/Unit is based on calculated weighted average compliance charge. FY2013, FY2014 & FY2015 Service Charge/Unit were adjusted to reflect the weighted average compliance charge calculations. Prior to FY2013, there was only one tier compliance charge. a Ordinance 12561, effective January 1, 2008, changed wastewater rates. Ordinance 12560, changed stormwater rates , effective March 1, 2008. b Ordinance 12754, effective July 1, 2009, changed wastewater rates. c Ordinance 13021, effective July 1, 2010, changed wastewater rates through FY 2012. d Ordinance 13402, effective July 1, 2012, changed wastewater rates through FY 2016. Source: Finance Department Fiscal Year Fiscal Year SEWER USER CHARGES (COMPOSITE-ANNUAL) LAST TEN FISCAL YEARS THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 94 Single Multi- Fiscal Family Family Non-Total Year Residential Residential Residential Accounts 2007 362,569 44,875 25,647 433,091 2008 391,181 54,862 32,336 478,379 a 2009 388,791 51,441 32,161 472,393 a 2010 387,670 50,867 31,939 470,476 a 2011 362,739 43,471 24,702 430,912 b 2012 360,354 41,648 24,568 426,570 2013 359,243 41,117 24,441 424,801 2014 358,928 40,951 24,297 424,176 2015 359,317 41,131 24,389 424,837 2016 356,926 41,585 24,001 422,512 Source: Finance Department a Due to the implementation of the impervious area charge in 2008, approximately 46,000 additional stormwater only accounts were billed each month. This charge was challenged and a court decision was entered on 7/9/10. Based on that decision the impervious charge was discontinued in FY '11. b The number of accounts were revised as stormwater accounts were underreported. NUMBER OF CUSTOMERS BY TYPE LAST TEN FISCAL YEARS THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 95 Customer Amount % InBev Anheuser-Busch 5,428,513$ 1.80% City of St. Louis 2,697,436 0.89% Washington Unversity 1,613,905 0.53% Bridgeton Landfill LLC 1,597,732 0.53% Sigma-Aldrich 1,149,118 0.38% Mallinckrodt 756,826 0.25% Jost Real Estate 736,728 0.24% Sensient Colors Inc 729,584 0.24% BJC HealthCare 725,948 0.24% Monsanto 725,861 0.24% Subtotal (10 largest)16,161,651 5.35% Balance from other customers 285,850,242 94.65% Grand totals 302,011,893$ 100.00% Customer Amount % Anheuser-Busch 7,748,781$ 3.98% Mallinckrodt Inc.1,861,938 0.96% Washington University 812,536 0.42% Zoological Gardens 772,108 0.40% Sigma-Aldrich 641,540 0.33% St. Louis Coca-Cola Bottling Co.637,326 0.33% Rockwood Pigments NA, Inc.592,840 0.30% Chrysler Corporation 545,368 0.28% Sensient Colors Inc.516,200 0.26% City of St. Louis 503,653 0.26% Subtotal (10 largest)14,632,290 7.51% Balance from other customers 180,166,588 92.49% Grand totals 194,798,878$ 100.00% Source: Budget Division after data is accumulated for the GFOA report Fiscal Year 2007 User Charges TEN LARGEST CUSTOMERS CURRENT YEAR AND NINE YEARS AGO User Charges Fiscal Year 2016 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 96 Unamortized As a Share Fiscal Subordinate Capital Premium, debt of Personal Year Senior Subordinate Direct Loans Lease loss, net Amount Per Capita Income 2007 231,995,000$ 213,652,500$ 337,730$ —$ 4,189,928$ 450,175,158$ 330 0.42 2008 230,485,000 206,522,500 269,299 — 3,974,435 441,251,234 324 0.67 2009 258,965,000 235,932,500 215,790 4,130,000 2,640,838 501,884,128 373 0.81 2010 342,370,000 224,505,000 31,017,371 7,263,687 1,457,910 606,613,968 446 1.00 2011 340,590,000 212,655,000 25,259,899 6,095,981 862,654 585,463,534 431 0.97 2012 390,880,000 200,692,500 63,727,722 3,096,139 5,805,206 664,201,567 484 1.09 2013 594,715,000 188,600,000 93,751,658 — 56,252,401 933,319,059 660 1.45 2014 740,655,000 184,075,000 116,090,820 — 82,274,845 1,123,095,665 852 1.86 2015 736,775,000 171,455,000 148,279,465 — 78,591,961 1,135,101,426 860 1.83 2016 860,460,000 158,765,000 184,141,916 — 112,035,478 1,315,402,394 997 2.09 Notes: Calculation of "Per Capita" for 2011 through 2013 is based on estimated population levels. Calculation of "As a Share of Personal Income" for 2011 through 2013 is based on estimated income levels. In fiscal year 2012, a decision was made to discontinue considering SRF receivable amounts as liabilities. The liability is now recorded when the funds are received. Sources: Regional Economic Information System, Bureau of Economic Analysis, U.S. Department of Commerce, and the U.S. Census Bureau LAST TEN FISCAL YEARS Revenue Bonds Total RATIOS OF OUTSTANDING DEBT BY TYPE THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 97 Amount of Debt Percentage of Debt within within Governmental Unit Debt Outstanding District Boundary District Boundary City of St. Louis 16,795,000$ 16,795,000$ 100.0% St. Louis County 101,310,000 100,499,520 99.2 Municipalities 89,607,953 86,402,953 96.4 City of St. Louis School District 298,119,000 298,119,000 100.0 St. Louis County School Districts 1,413,594,262 1,397,300,622 98.8 Fire Districts 107,099,039 99,578,034 93.0 2,026,525,254$ 1,998,695,129 98.6% Total Direct Debt 1,315,402,394 Total Direct and Overlapping Debt 3,314,097,523$ Sources: City of St. Louis, Office of Comptroller St. Louis County, Department of Revenue St. Louis Public Schools, Financial/Treasurer Office Missouri Department of Education, School Finance Polled Governments Polled Fire Districts COMPUTATION OF OVERLAPPING DEBT As Of June 30, 2016 Note: Although the District comprises all of the St. Louis City and most of St. Louis County, it does not entirely match the County's boundaries. The calculation of overlapping debt is based on the percentage that a political jurisdiction's territory lies within the District's terriroty. These percentages are weighted against the debt outstanding thus providing the amount of debt within District Boundary. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 98 Less: Operating Non-Expenses Net Fiscal Operating operating Gross (excluding Available Year Revenues Revenues Revenues depreciation) Revenues 2007 200,963,085$ 13,501,751$ 214,464,836$ 138,089,529$ 76,375,307$ 2008 208,981,377 13,281,919 222,263,296 142,725,186 79,538,110 2009 209,972,662 10,283,104 220,255,766 138,971,881 81,283,885 2010 204,697,929 4,908,296 209,606,225 145,598,505 64,007,720 2011 217,011,360 3,202,219 220,213,579 160,572,145 59,641,434 2012 224,882,086 2,058,300 226,940,386 135,232,302 91,708,084 2013 240,597,715 956,664 241,554,379 146,372,419 95,181,960 2014 264,422,401 2,670,333 267,092,734 153,221,914 113,870,820 2015 288,835,877 2,555,654 291,391,531 163,287,562 128,103,969 2016 318,463,297 3,894,305 322,357,602 171,316,778 151,040,824 Fiscal Coverage Year Principal Interest Total Ratio 2007 7,817,500$ 16,512,429$ 24,329,929$ 3.1 2008 8,640,000 17,694,791 26,334,791 3.0 2009 12,110,000 17,503,892 29,613,892 2.7 2010 13,022,500 20,187,151 33,209,651 1.9 2011 14,576,800 20,140,021 34,716,821 1.7 2012 16,540,200 22,517,473 39,057,673 2.3 2013 18,749,700 31,191,190 49,940,890 1.9 2014 10,037,200 34,399,261 44,436,461 2.6 2015 20,252,200 41,596,192 61,848,392 2.1 2016 29,588,000 44,171,592 73,759,592 2.0 Fiscal Coverage Year Principal Interest Total Ratio 2007 1,505,000$ 9,369,084$ 10,874,084$ 7.0 2008 1,510,000 11,067,634 12,577,634 6.3 2009 1,520,000 11,677,272 13,197,272 6.2 2010 1,595,000 13,396,341 14,991,341 4.3 2011 1,780,000 15,467,269 17,247,269 3.5 2012 1,960,000 16,488,587 18,448,587 5.0 2013 3,805,000 24,451,656 28,256,656 3.4 2014 4,060,000 30,161,408 34,221,408 3.3 2015 3,880,000 34,472,415 38,352,415 3.3 2016 10,170,000 36,211,319 46,381,319 3.3 Note: The methodology used to calculate the net available revenues and the coverage ratio was adjusted during fiscal year 2013 and all previous years were restated for comparative purposes. The 2013 change in methodology consisted of removing agency fees, previously reflected as a deduction from net available revenues, and now combining them with interest in the debt service section. Additionally, in fiscal years 2010 and 2011, the change in methodology consisted of removing the Build America Bond Tax Credit from the pledged revenue section and reapplying the credit to interest expense in the debt service section. This was made to ensure consistency with fiscal years 2012 and 2013. Senior and Subordinate Debt Service PLEDGED REVENUE COVERAGE LAST TEN FISCAL YEARS Senior Debt Service THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 99 Per Personal Capita Total Fiscal Income Personal Labor Number of Year Populations (millions) Income City County State Force Households (1) 2007 1,349,778 59,200$ 43,859$ 7.5 5.1 5.0 723,627 551,388 2008 1,348,462 62,135 46,079 7.9 5.9 6.0 690,006 551,388 2009 1,339,011 61,947 46,263 11.5 9.7 9.5 681,801 551,388 2010 1,356,289 60,792 44,822 12.3 9.4 9.3 682,165 551,388 2011 1,357,035 60,420 44,523 11.8 8.9 9.0 692,071 546,744 2012 1,360,085 60,283 44,323 9.7 6.9 7.0 672,945 546,744 2013 1,328,610 60,399 45,460 10.5 7.3 7.1 665,086 543,851 2014 1,318,610 60,968 46,237 9.6 6.9 6.6 666,200 543,991 2015 1,319,295 61,910 46,926 7.1 5.5 5.8 703,317 543,945 2016 1,319,047 62,983 47,749 5.9 4.6 4.9 718,821 542,223 Notes: (1) The number of households was taken from http://quickfacts.census.gov/qfd/states/29000.html. The 2016 figure is based on 2010-2014 data. The 2015 figure is based on 2013 data. The 2011-2012 figures are based on the 2010 census. Information for prior years are unavailable; therefore, the 2000 census information is used for the other years in this table. Sources: Regional Economic Information System, Bureau of Economic Analysis, U.S. Department of Commerce, and Missouri Economic Resource and Information Center (MERIC) Footnotes- http://www.bea.gov/regional/reis/scb.cfm http://www.missourieconomy.org/indicators/LAUS/default.aspx http://quickfacts.census.gov/qfd/states/29000.html Unemployment Rate Saint Louis DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 100 Percentage Percentage Employer Employees (1)of Total Rank Employees (1)of Total Rank BJC HealthCare 24,182 4% 1 23,001 3%1 Wal-Mart Stores Inc.22,006 3% 2 13,005 2%5 SSM Healthcare 15,949 2% 3 12,582 2%6 Washington University in St. Louis 14,692 2% 4 12,423 2%7 Boeing Defense, Space & Security 14,617 2% 5 16,000 2%2 Mercy 13,715 2% 6 0% Scott Air Force Base 13,000 2% 7 13,331 2%3 Schnuck Markets Inc.10,897 2% 8 10,700 2%8 Archdiocese of St. Louis 10,460 2% 9 AT & T 10,015 1% 10 9,442 1%9 United States Postal Service 13,304 2%4 St. John's Mercy Health Care 8,642 1% 10 149,533 22%132,430 20% Notes: (1) Employees are for the St. Louis area which includes several counties not served by the District. Sources: St. Louis Business Journal's Book of Lists 2016 (as of May 2016) St. Louis Business Journal's Book of Lists 2007 Fiscal Year 2007Fiscal Year 2016 PRINCIPAL EMPLOYERS (ST. LOUIS METROPOLITAN AREA) CURRENT YEAR AND NINE YEARS AGO THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 101 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Administrative 125 131 133 131 124 129 124 122 129 126 Office/Clerical 86 92 94 89 84 85 86 82 84 82 Plant Operation & Laboratory 234 239 237 249 241 244 249 252 236 226 Engineering & Technical 122 133 144 151 147 153 148 151 155 152 Sewer Construction & Maintenance 271 276 301 315 296 311 324 328 345 358 Total Employees 838 871 909 935 892 922 931 935 949 944 Source: Human Resources Department EMPLOYMENT LEVEL LAST TEN FISCAL YEARS THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 102 Average Sewage Fiscal Treatment in Millions Year of Gallons per Day 2007 313.4 2008 363.7 2009 394.7 2010 395.5 2011 370.6 2012 300.0 2013 326.7 2014 273.8 2015 327.5 2016 335.2 Source: Operations Department AVERAGE FLOW LAST TEN FISCAL YEARS THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 103 2007 2008 2009 2010 2011 Miles of sewers 9,764 9,723 9,812 9,900 9,843 Number of treatment plants 8 7 7 7 7 Treatment capacity (MGD) a 426 428 423 423 528 Annual engineering maximum plant capacity (millions of gallons)155,490 154,395 154,395 154,395 192,629 Amount treated annually (millions of gallons)114,391 132,751 144,066 144,358 135,269 Unused capacity (millions of gallons)41,099 21,644 10,329 10,037 57,360 Percentage of capacity utilized 74% 86% 93% 93% 70% 2012 2013 2014 2015 2016 Miles of sewers 9,738 9,578 9,563 9,531 9,700 Number of treatment plants 7 7 7 7 7 Treatment capacity (MGD) a 528 528 533 538 538 Annual engineering maximum plant capacity (millions of gallons)192,629 192,629 194,454 196,279 196,279 Amount treated annually (millions of gallons)109,518 119,253 99,945 119,547 122,366 Unused capacity (millions of gallons)83,111 73,376 94,509 76,732 73,913 Percentage of capacity utilized 57% 62% 51% 61% 62% Sources: Operations Department and Engineering Department Note: a Million gallons per day. Fiscal Year Fiscal Year OPERATING AND CAPITAL INDICATORS LAST TEN FISCAL YEARS APPENDIX B INFORMATION REGARDING THE DISTRICT’S SERVICE AREA [THIS PAGE INTENTIONALLY LEFT BLANK] B-1 INFORMATION REGARDING THE DISTRICT’S SERVICE AREA The Series 2016C Bonds are special, limited obligations of the District and are not obligations of The City of St. Louis, Missouri (the “City”), St. Louis County, Missouri (the “County”), the State of Missouri (the “State”), or any political subdivision of the City, the County or the State. The Series 2016C Bonds are payable solely from the revenues described in this Official Statement. As described elsewhere in this Official Statement, the service area of the District consists of the City and most of the County. The following information regarding the City and the County has been obtained from sources that the District believes to be reliable, but should not be construed as an indication that the Series 2016C Bonds are payable from any source other than the revenues of the District described in this Official Statement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016C BONDS,” “THE DISTRICT,” and “THE CIRP” in this Official Statement. Such information is not guaranteed as to accuracy or completeness by the Underwriters and is not to be construed as a representation by the Underwriters. The Underwriters have not verified this information. No representation is made by the Underwriters as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date as to which such information is provided. The delivery of this Official Statement, including this Appendix B, is not intended to create any implication that there has been no change in the affairs of the District, the City or the County since the date hereof or that the information contained or incorporated by reference in this Appendix is correct as of any time subsequent to its date. THE SERVICE AREA As more fully described in this Official Statement under the caption “THE DISTRICT - General”, the District was organized in 1954 pursuant to Article VI, Section 30 of the State Constitution, which empowers the people of the City and the County “to establish a metropolitan district for functional administration of services common to the area included therein.” The District provides a metropolitan- wide system of wastewater treatment and sanitary sewerage facilities for the collection, treatment and disposal of sewage within the City and most of the more heavily populated areas of the County. When the District began operations, it took over the publicly-owned wastewater and stormwater drainage facilities within its then-existing jurisdiction and began the construction of an extensive system of collector and interceptor sewers and treatment facilities. In subsequent years, voters have approved the District’s annexation of a 270 square mile area of the lower Missouri River and lower Meramec River watersheds, and the District purchased various investor-owned or municipally operated systems serving areas of the County. The District’s service area now encompasses 525 square miles, including all approximately 62 square miles of the City and 463 square miles (approximately 90%) of the County. A map showing the District’s current service area appears on the back cover of this Official Statement. The City of St. Louis, Missouri The history of the City dates to 1764 when Pierre Laclede and Auguste Chouteau selected the site as a fur trading post due in large part to its proximity to the confluence of the Mississippi and Missouri Rivers. The City was incorporated in 1823, and its current boundaries were established in 1876, when voters approved separation from the County and establishment of a home rule charter. The City is a constitutional charter city not a part of any county, and exists under and pursuant to its Charter and the laws of the State. The eastern boundary of the City is formed by the Mississippi River, and the City is bordered on the north, west and south by the County. The City occupies approximately 62 square miles of land, all of which lie within the service area of the District. St. Louis County, Missouri The County was formed by a proclamation of Governor William Clark on October 1, 1812, nine years before Missouri attained statehood. In 1876, by vote of the entire county, the City separated itself B-2 from the County. The City of Clayton is the County seat and located in the east central part of the County. Sixty-six percent of the land area of the County is contained within the jurisdictional boundaries of 92 self-governing municipalities, containing more than two-thirds of the County population. The remaining unincorporated area comes under the direct jurisdiction of the County government. The County is a constitutional charter county operating and existing under its Charter and the laws of the State. The County covers an area of approximately 525 square miles, 463 square miles of which lie within the service area of the District. ECONOMIC AND DEMOGRAPHIC DATA Population The City and the County are a part of the St. Louis Standard Metropolitan Statistical Area (the “St. Louis MSA”), comprised of the City, the County, the Counties of Franklin, Jefferson, Lincoln, St. Charles, Warren, and Washington in Missouri and the Counties of Bond, Calhoun, Clinton, Jersey, Macoupin, Madison, Monroe and St. Clair in Illinois. According to the U.S. Census Bureau, the population patterns for the City, the County, and the St. Louis MSA have been as follows: City of St. Louis St. Louis County St. Louis MSA Percentage Percentage Percentage Year Population Change Population Change Population Change 2000 348,189 - 1,016,315 - 2,701,634 - 2010 319,294 -8.29 998,954 +1.71 2,790,026 +3.27 2011 318,069 -0.38 998,692 -0.03 2,793,783 +0.13 2012 318,172 +0.03 1,000,438 +0.17 2,797,113 +0.12 2013 318,496 +0.10 1,001,491 +0.10 2,800,914 +0.14 2014 317,222 -0.40 1,001,876 +0.04 2,806,191 +0.19 2015 315,685 -0.48 1,003,362 +0.15 2,811,588 +0.19 _____________________ Source: U.S. Census Bureau Population for the years 2000 and 2010. 2011-2015 represent unofficial estimates of the U.S. Department of Commerce, Bureau of the Census. The largest municipalities within the District’s service area are as follows: Population Population Population Municipality 2010 2000 1990 St. Louis (City) 319,294 348,189 396,685 Florissant 52,158 50,497 51,206 Chesterfield 47,484 46,802 37,991 University City 35,371 37,428 40,087 Ballwin 30,404 31,283 21,816 Kirkwood 27,540 27,324 27,291 Hazelwood 25,703 26,206 15,512 Maryland Heights 27,472 25,756 25,407 Webster Groves 22,995 23,230 23,097 Ferguson 21,203 22,406 22,286 ______________ Source: Missouri Census Data Center B-3 Employment The following table sets forth information relating to the average composition of non-farm employment in the City and the County for the years 1990, 2000, and 2010: City of St. Louis Employment St. Louis County Employment Private Employment: 1990 2000 2010 1990 2000 2010 Manufacturing 48,675 35,503 36,243 118,736 87,687 29,431 Agriculture 631 N/A N/A 5,072 6,931 279 Mining 234 N/A N/A 1,241 1,227 801 Construction 9,977 10,067 11,903 34,149 45,746 49,020 Transportation, Communication and Utilities 27,154 25,951 18,622 38,254 51,152 26,599 Wholesale Trade 19,399 15,224 15,691 42,228 46,961 28,334 Retail Trade 36,083 29,934 17,222 121,977 134,854 135,148 Finance, Insurance and Real Estate 28,422 25,436 13,738 62,176 77,300 79,435 Services 99,547 109,830 134,345 215,147 279,413 342,429 Total Private Employment 270,122 252,951 183,081 638,980 731,271 507,530 Governmental Employment 51,100 47,092 32,051 53,783 59,826 55,402 Total 321,222 300,043 215,132 692,763 791,097 562,932 ___________________ Source: U.S. Department of Commerce, Bureau of Economic Analysis; Missouri State Census Data Center. The following table sets forth the total labor force, number of employed and unemployed workers in the City and the County for 2007 through 2016: City of St. Louis(1) St. Louis County(1) Labor Force Labor Force Year Employed Unemployed Total Employed Unemployed Total 2007 147,204 11,091 158,295 502,536 25,933 528,469 2008 146,109 11,945 158,054 492,099 30,462 522,561 2009 140,825 18,945 159,770 471,612 47,331 518,943 2010 126,979 18,671 145,650 478,049 47,651 525,700 2011 128,480 17,096 145,576 483,699 43,217 526,196 2012 128,812 14,086 142,898 486,689 36,591 523,280 2013 128,095 14,950 143,045 483,977 38,064 522,041 2014 148,789 12,411 161,200 499,383 31,066 530,449 2015 153,139 9,862 163,001 515,848 24,953 540,801 2016(2) 155,351 10,943 166,294 523,612 27,851 551,463 _________________________________________ (1) Figures are rounded and based on unofficial results; 2014, 2015 and August 2016 are averages not seasonally adjusted. Source: Missouri Department of Labor & Industrial Relations (Employment Security Division), Missouri Department of Economic Development, Missouri Economic Research & Information Center and U.S. Department of Labor, Bureau of Labor Statistics. (2) As of August 2016. B-4 The following table sets forth unemployment rates for the City, County, State and the United States for 2006 through 2016 as of June 30: Unemployment Rates Fiscal Year City of St. Louis(1) St. Louis County(1) State of Missouri(1) United States(2) 2006 7.5% 5.1% 5.0% 4.6% 2007 7.5 5.1 5.0 4.6 2008 7.9 5.9 6.0 5.8 2009 11.5 9.7 9.5 9.3 2010 12.3 9.4 9.3 9.6 2011 11.8 8.9 9.0 8.9 2012 9.7 6.9 7.0 8.1 2013 10.5 7.3 7.1 7.8 2014 9.6 6.9 6.6 6.1 2016 7.1 5.5 5.8 5.1 _______________________________________ (1) Source: District Comprehensive Annual Financial Report, June 30, 2016 (2) Source: Bureau of Labor Statistics Major Employers The following list sets forth the names and approximate number of employees of major employers within the St. Louis MSA as of June 30, 2016: St. Louis MSA Major Employers Company Nature of Business Approximate Number of Employees BJC HealthCare Health Care 24,082 Boeing Integrated Defense Systems Manufacturing 15,000 Washington University Education 14,170 Scott Air Force Base Government 13,000 SSM Healthcare Health Care 12,697 Mercy Health Health Care 12,013 Schnucks Markets Retail 11,008 Walmart Stores Retail 10,550 McDonald’s Restaurant 9,500 City of St. Louis Government 7,463 ____________________ Source: St. Louis Business Journal’s Book of Lists 2016. B-5 Per Capita Personal Income The following table presents per capita personal income for the District, the State and the United States for the years 2006 through 2016, the latest date for which such information is available: District (1) State of Missouri(1) United States(1) Calendar Year Per Capita Personal Income Per Capita Personal Income Per Capita Personal Income 2006 $42,784 $34,013 $37,725 2007 43,859 35,521 39,506 2008 46,079 37,738 40,947 2009 46,263 35,837 38,637 2010 44,822 36,406 39,791 2011 44,523 37,969 41,670 2012 44,323 39,049 42,693 2013 45,460 39,897 44,543 2014 46,237 41,613 46,129 2016 46,926 42,416(2) 41,814(3) _______________________________________ (1) Per Capita Personal Income is the annual total personal income of residents divided by resident population as of July 1. “Personal Income” is the sum of net earnings by place of residence, rental income of persons, personal dividend income, personal interest income, and transfer payments. “Net Earnings” is earnings by place of work — the sum of wage and salary disbursements (payrolls), other labor income, and proprietors’ income — less personal contributions for social insurance, plus an adjustment to convert earnings by place of work to a place-of-residence basis. Personal Income is measured before the deduction of personal income taxes and other personal taxes and is reported in current dollars (no adjustment is made for price changes). Source: U.S. Department of Commerce, Bureau of Economic Analysis. Released March 2016 (2) As of August 2016. (3) As of June 2016. *** [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C DEFINITIONS AND SUMMARIES OF CERTAIN PROVISIONS OF THE BOND ORDINANCE AND THE CONTINUING DISCLOSURE AGREEMENT [THIS PAGE INTENTIONALLY LEFT BLANK] C-1 The following is a brief summary of certain provisions of the Master Bond Ordinance adopted by the District on April 22, 2004, as supplemented by the Ordinance adopted by the District on December 8, 2016 authorizing the issuance of the Series 2016C Bonds (collectively, the “Bond Ordinance”). This summary is not to be considered as a full statement of the provisions of such documents and is qualified by reference to and is subject to the complete Bond Ordinance, copies of which may be obtained from PFM Financial Advisors, LLC or Independent Public Advisors, LLC, as Co-Financial Advisors to the District. After delivery of the Series 2016C Bonds, copies of such documents will be available for inspection at the corporate trust office of the Paying Agent in St. Louis, Missouri or at such other office as shall be designated by the Paying Agent. DEFINITIONS The definitions of certain words and terms used in this Official Statement with respect to the Series 2016C Bonds are set forth below: “Accumulation Payments” shall have the meaning ascribed therefor under the caption “Sinking Fund – Debt Service Reserve Account” in this Appendix C. “Additional Interest” means, for any period during which any Pledged Bonds are owned by a Credit Facility Provider pursuant to a Credit Facility or Credit Facility Agreement, the amount of interest accrued on such Pledged Bonds at the Pledged Bond Rate less the amount of interest which would have accrued during such period on an equal Principal amount of Bonds at the Bond Rate. “Annual Budget” means the annual budget of the District relating to the System (which shall include all costs, obligations and expenses properly allocable to the System), as amended or supplemented in accordance with established procedures of the District, adopted or in effect for a particular Fiscal Year. “Bond Counsel” means any firm of nationally recognized bond counsel experienced in matters relating to tax-exempt financing, appointed by the District. “Bond Ordinance” means the Master Bond Ordinance adopted by the Board of Trustees of the District on April 22, 2004, and the Ordinance adopted by the Board of Trustees of the District on December 8, 2016 authorizing the issuance of the Series 2016C Bonds, as the same may from time to time be modified, supplemented or amended by Supplemental Ordinances. “Bond Rate” means the rate of interest per annum payable on specified Bonds other than Pledged Bonds. “Bond Register” means the books for the registration, transfer and exchange of Bonds maintained by the Bond Registrar. “Bond Registrar” means any bank or trust company designated as such by the District in the Bond Ordinance with respect to any of the Bonds. Such Bond Registrar shall perform the duties required of the Bond Registrar in the Bond Ordinance. The Bank of New York Mellon Trust Company, N.A. has been designated as Bond Registrar for the Bonds in the Master Bond Ordinance; provided, however, that in connection with the issuance of any SRF Bonds, the District shall appoint such separate Bond Registrar designated by the issuer of the SRF Bonds. “Bondholder” means the registered owner of one or more Bonds. “Bonds” means any revenue bonds authorized by and authenticated and delivered pursuant to the Bond Ordinance, including the Series 2016C Bonds, any other Senior Bonds, and any Subordinate Bonds. C-2 “Business Day” means a day other than a Saturday, Sunday or holiday on which the Paying Agent, Bond Registrar or applicable Credit Facility Provider is scheduled in the normal course of its operations to be open to the public for conduct of its banking operations. “Charter” means the District’s Charter (Plan) approved by the voters of the City of St. Louis, Missouri and St. Louis County, Missouri on February 9, 1954 and amended on November 7, 2000 and on June 5, 2012, and as further amended from time to time in accordance with its terms. “Chief Financial Officer” means the individual presently holding the office of Secretary-Treasurer of the District or the individual presently holding the office of Assistant Secretary-Treasurer of the District, and any successors who might hereafter hold either such office, and any individual, body or authority to whom or to which may hereafter be delegated by law the duties, powers, authority, obligations or liabilities of either such office. “Chief Officer” means the individual presently holding the office of Executive Director or Acting Executive Director of the District as appointed by the Governing Body and any successor who might hereafter hold such office, and any individual, body or authority to whom or which may hereafter be delegated by law the duties, powers, authority, obligations or liabilities of such office. “Code” means the Internal Revenue Code of 1986, as amended, and the applicable regulations of the Treasury Department proposed or promulgated thereunder. “Consultant” means an independent engineer or utility consultant or firm of independent engineers or utility consultants experienced in the planning and management of wastewater systems and having a nationally recognized reputation for such work. “Continuing Disclosure Agreement” means (i) with respect to the Series 2016C Bonds, the Disclosure Dissemination Agent Agreement dated as of December 1, 2016 between the District and Digital Assurance Certification, L.L.C., as Dissemination Agent, as amended from time to time in accordance with its terms, in substantially the form attached as an exhibit to the Bond Ordinance, and (ii) with respect to any other series of Bonds, the continuing disclosure agreement relating to such series of Bonds, as amended from time to time in accordance with its terms. “Costs,” with respect to any Project, means the total cost, paid or incurred, to study, plan, design, finance, acquire, construct, reconstruct, renovate, repair, replace, equip, install, or otherwise develop such Project and shall include, but shall not be limited to, the following costs and expenses relating to such Project and the reimbursement to the District for any such items previously paid by the District: (i) the cost of all lands, real or personal properties, rights, easements, and franchises acquired; (ii) the cost of all machinery and equipment, financing charges, and interest prior to and during construction and for six months after completion of construction; (iii) the cost of the acquisition, construction, reconstruction or installation of such Project; (iv) the cost of engineering, architectural, development and supervisory services, fiscal agents’ and legal expenses, plans and specifications, and other expenses necessary or incident to determining the feasibility or practicability of any Projects, administrative expenses, and such other expenses as may be necessary or incident to any financing by Bonds; (v) the cost of placing such Project in operation; (vi) the cost of condemnation of property necessary for such construction and operation; C-3 (vii) Costs of Issuance; and (viii) any other costs which may be incident to such Project. “Costs of Issuance” means issuance costs with respect to the Bonds, including but not limited to the following: underwriters’ spread (whether realized directly or derived through purchase of Bonds at a discount below the price at which they are expected to be sold to the public), management fee and expenses; Credit Facility fees and Reserve Account Credit Facility fees; counsel fees (including bond counsel, underwriter’s counsel, District’s counsel, as well as any other specialized counsel fees incurred in connection with the borrowing); financial advisor fees of any financial advisor to the District incurred in connection with the issuance of the Bonds; rating agency fees; escrow agent and paying agent fees; accountant fees and other expenses related to issuance of the Bonds; printing costs (for the Bonds and of the preliminary and final official statement relating to the Bonds); and fees and expenses of the District incurred in connection with the issuance of the Bonds. “Credit Facility” means any letter of credit, insurance policy, guaranty, surety bond, standby bond purchase agreement, line of credit, revolving credit agreement, or similar obligation, arrangement, or instrument issued by a bank, insurance company, or other financial institution which is used by the District to perform one or more of the following tasks: (i) enhancing the District’s credit by assuring owners of any of the Bonds that Principal of and interest on such Bonds will be paid promptly when due; (ii) providing liquidity for the owners of Bonds through undertaking to cause Bonds to be bought from the owners thereof when submitted pursuant to an arrangement prescribed by a Series Ordinance; or (iii) remarketing any Bonds so submitted to the Credit Facility Provider (whether or not the same Credit Facility Provider is remarketing the Bonds). The term Credit Facility shall not include a Reserve Account Credit Facility. “Credit Facility Agreement” means an agreement between the District and a Credit Facility Provider pursuant to which the Credit Facility Provider issues a Credit Facility and may include the promissory note or other instrument evidencing the District’s obligations to a Credit Facility Provider pursuant to a Credit Facility Agreement. The term Credit Facility Agreement shall not include a Reserve Account Credit Facility Agreement. “Credit Facility Provider” means any issuer of a Credit Facility then in effect for all or part of the Bonds. The term Credit Facility Provider shall not include any Reserve Account Credit Facility Provider. Whenever in the Bond Ordinance the consent of the Credit Facility Provider is required, such consent shall only be required from the Credit Facility Provider whose Credit Facility is issued with respect to the series of Bonds for which the consent is required. “Debt Service Requirement” means the total Principal and interest coming due on Senior Bonds, or all Bonds, as applicable, whether at maturity or upon mandatory redemption, in any specified period; provided, however, that (i) Debt Service Requirement with respect to SRF Bonds shall mean the net amount of Principal and interest coming due on such SRF Bonds after taking into account any so-called “SRF Subsidy” (i.e., the amount of anticipated investment earnings which will accrue on any reserve account relating to the SRF Bonds and which will reduce the debt service payments of the District with respect to such SRF Bonds), and (ii) Debt Service Requirement with respect to Bonds issued as “build America bonds” shall mean the net amount of Principal and interest coming due on such Bonds after taking into account the anticipated receipt of U.S. Treasury Interest Subsidy payments on such Bonds. If any Bonds Outstanding or proposed to be issued shall bear interest at a Variable Rate, the interest coming due in any specified future period shall be determined as if the Variable Rate in effect at all times during such future period equaled the average of the BMA Municipal Bond Index (formerly PSA Municipal Bond Index) for the prior 5 calendar years, or any successor index as certified by a Financial Advisor. With respect to any Bonds secured by a Credit Facility, Debt Service Requirement shall include (i) any upfront or periodic commission or commitment fee obligations with respect to such Credit Facility, (ii) the outstanding amount of any Reimbursement Obligation owed to the applicable Credit Facility Provider and interest thereon, (iii) any Additional Interest owed on Pledged Bonds to a Credit Facility Provider, and (iv) any remarketing agent fees. With respect to any Hedged Bonds, the interest on such Hedged Bonds during any Hedge Period and for so long as the provider of the related Hedge Agreement has C-4 not defaulted on its payment obligations thereunder shall be calculated by adding (x) the amount of interest payable by the District on such Hedged Bonds pursuant to their terms and (y) the amount of Hedge Payments payable by the District under the related Hedge Agreement and subtracting (z) the amount of Hedge Receipts payable by the provider of the related Hedge Agreement at the rate specified in the related Hedge Agreement; provided, however, that to the extent that the provider of any Hedge Agreement is in default thereunder, the amount of interest payable by the District on the related Hedged Bonds shall be the interest calculated as if such Hedge Agreement had not been executed. In determining the amount of Hedge Payments or Hedge Receipts payable or receivable for any future period which are not fixed throughout the Hedge Period (i.e., which are variable), such Hedge Payments or Hedge Receipts for any period of calculation (the “Determination Period”) shall be computed by assuming that the variables comprising the calculation (e.g., indices) applicable to the Determination Period are equal to the average of the actual variables which were in effect (weighted according to the length of the period during which each such variable was in effect) for the most recent twelve-month period immediately preceding the date of calculation for which such information is available (or shorter period if such information is not available for a twelve-month period). The Principal of and interest on Bonds and Hedge Payments shall be excluded from the determination of Debt Service Requirement to the extent that (1) the same were or are expected to be paid with amounts on deposit on the date of calculation (or Bond proceeds to be deposited on the date of issuance of proposed Bonds) in the Project Fund, the Sinking Fund or a similar fund for Subordinate Bonds or (2) cash or non-callable Government Securities are on deposit in an irrevocable escrow or trust account in accordance with the provisions of the Bond Ordinance (or a similar escrow or trust account for Subordinate Bonds) and such amounts (including, where appropriate, the earnings or other increment to accrue thereon) are required to be applied to pay Principal or interest and are sufficient to pay such Principal or interest. “Debt Service Reserve Account” means the account by that name within the Sinking Fund established in the Bond Ordinance. “Debt Service Reserve Requirement” means an amount determined from time to time by the District as a reasonable reserve for the payment of Principal of and interest on Senior Bonds which are not Senior SRF Bonds or Senior Uncovered Bonds. On the date of issue of a series of Senior Bonds, this amount shall be the least of (a) 10% of the stated Outstanding Principal amount of the Senior Bonds which are not Senior SRF Bonds or Senior Uncovered Bonds, (b) the maximum annual Principal and interest requirements (taking into account the anticipated receipt of U.S. Treasury Interest Subsidy payments on the Series 2010B Bonds) on the Senior Bonds which are not Senior SRF Bonds or Senior Uncovered Bonds (determined as of the issue date of each series of Senior Bonds which are not Senior SRF Bonds or Senior Uncovered Bonds), or (c) 125% of the average annual Principal and interest requirements (taking into account the anticipated receipt of U.S. Treasury Interest Subsidy payments on the Series 2010B Bonds) on the Senior Bonds which are not Senior SRF Bonds or Senior Uncovered Bonds (determined as of the issue date of each series of Senior Bonds which are not Senior SRF Bonds or Senior Uncovered Bonds). The District may in its sole discretion change, reduce or increase this amount from time to time by Supplemental Ordinance, but in no event may the District reduce this amount (A) below the greater of (1) while the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds or the Series 2013B Bonds are Outstanding, the least of (x) the aggregate of 10% of the stated Outstanding Principal amounts of the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds and the Series 2013B Bonds, (y) the aggregate of the maximum annual Principal and interest requirements on the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds and the Series 2013B Bonds (taking into account the anticipated receipt of U.S. Treasury Interest Subsidy payments on the Series 2010B Bonds) (determined as of their respective issue dates), or (z) the aggregate of 125% of the average annual Principal and interest requirements on the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds and the Series 2013B Bonds (taking into account the anticipated receipt of U.S. Treasury Interest Subsidy payments on the Series 2010B Bonds) (determined as of their respective issue dates), or (2) 50% of the average annual Debt Service Requirement with respect to Senior Bonds (other than Senior SRF Bonds and Senior Uncovered Bonds) in the then current or any succeeding Fiscal Year, and (B) unless each Rating Agency indicates in writing to the District that such reduction will not, by itself, result in a reduction or withdrawal of its current Rating on the Senior Bonds. If the aggregate initial offering price of a series of Bonds to the public is less than 98% or more than 102% of par, such offering price shall be used in lieu of the stated Principal amount. C-5 Notwithstanding anything in the Bond Ordinance to the contrary, (1) when all or a portion (the “Refunding Portion”) of a series of Senior Bonds is issued to refund a portion of a series of Outstanding Senior Bonds (the “Refunded Series”), the annual Principal and interest requirements to be used for purposes of clauses (b), (c), (A)(1)(y) and (A)(1)(z) above shall not include both the Principal and interest requirements of the Refunding Portion and the Refunded Series, but instead shall be, as between the Refunding Portion and the Refunded Series, the one that, when added to the Principal and interest requirements for all other Senior Bonds included in such computation, results in the greatest aggregate amount; (2) in no event shall the deposit to the Debt Service Reserve Requirement for each series of Senior Bonds exceed an amount permitted for a reasonably required reserve fund under the Code; and (3) the Debt Service Reserve Requirement, if any, in connection with any Senior SRF Bonds or any Subordinate Bonds, including Subordinate SRF Bonds, shall be as provided in the Series Ordinance authorizing the issuance of such Senior SRF Bonds or such Subordinate Bonds. “Depository” means the depository of each fund established under the Bond Ordinance, and any successor depository of such fund hereafter designated by the District from time to time by Supplemental Ordinance. The Depository for the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds, the Series 2013B Bonds, the Series 2015B Bonds and the Series 2016C Bonds is U.S. Bank, N.A., St. Louis, Missouri. “District” means The Metropolitan St. Louis Sewer District, a body corporate, a municipal corporation and a political subdivision duly created and existing under the laws of the State, and any successor thereto. “DTC” means The Depository Trust Company, New York, New York, or its nominee, or its successors and assigns, or any other depository performing similar functions under the Bond Ordinance. “Event of Default” means any of the events defined as such in the Bond Ordinance. “Expenses of Operation and Maintenance” means all expenses reasonably incurred in connection with the operation, maintenance and repair of the System, including salaries, wages, the cost of materials and supplies, rentals of leased property, if any, management fees, payments to others for the treatment and disposal of sewage, the cost of audits and periodic Consultant’s reports, Paying Agent’s and Bond Registrar’s fees and expenses, payment of premiums for insurance required by the Bond Ordinance and other insurance which the District deems prudent to carry on the System and its operations and personnel, obligations (other than for borrowed money or for rents payable under capital leases) incurred in the ordinary course of business, liabilities incurred by endorsement for collection or deposit of checks or drafts received in the ordinary course of business, short-term obligations incurred and payable within a particular Fiscal Year, other obligations or indebtedness incurred for the purpose of leasing (pursuant to a true or operating lease) equipment, fixtures, inventory or other personal property, and, generally, all expenses, exclusive of interest on the Bonds and depreciation or amortization, which under accounting principles generally accepted for municipal utility purposes are properly allocable to operation and maintenance; however, only such expenses as are reasonable and necessary or desirable for the proper operation and maintenance of the System shall be included. “Expenses of Operation and Maintenance” also includes the District’s obligations under any contract with any other political subdivision or public agency or authority of one or more political subdivisions pursuant to which the District undertakes to make payments measured by the expenses of operating and maintaining any facility which constitutes part of the System and which is owned or operated in part by the District and in part by others. “Financial Advisor” means an investment banking or financial advisory firm, commercial bank, or any other Person who or which is appointed by the District for the purpose of passing on questions relating to the availability and terms of specified types of Bonds and is actively engaged in and, in the good faith opinion of the District, has a favorable reputation for skill and experience in underwriting or providing financial advisory services in respect of similar types of securities. C-6 “Fiscal Year” means the 12-month period used by the District for its general accounting purposes, as it may be changed from time to time. The Fiscal Year at the time the Bond Ordinance was adopted begins on July 1 and ends on June 30 of the immediately following calendar year. “Fitch” means Fitch, Inc. or, if such corporation is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the District. At the time the Bond Ordinance was adopted, the notice address of Fitch is One State Street Plaza, New York, New York 10004. “Forecast Period” means a period of three consecutive Fiscal Years commencing with the Fiscal Year in which any proposed Senior Bonds are to be issued. “Governing Body” means the Board of Trustees of the District and any predecessor or successor in office to such present body, and any Person to whom or which may hereafter be delegated by law the duties, powers, authority, obligations, or liabilities of the present body, either in whole or in relation to the System. “Government Loans” means loans to the District by the government of the United States or the State, or by any department, authority or agency of either, for the purpose of acquiring, constructing, reconstructing, improving, bettering or extending any part of the System. “Government Obligations” means (a) direct obligations of the United States of America for the full and timely payment of which the full faith and credit of the United States of America is pledged or (b) obligations issued by a person controlled or supervised by and acting as an instrumentality of the United States of America, the full and timely payment of the principal of and the interest on which is fully and unconditionally guaranteed as a full faith and credit obligation of the United States of America (including any securities described in (a) or (b) issued or held in book-entry form on the books of the Department of the Treasury of the United States of America), which obligations, in either case, (i) are not subject to redemption or prepayment prior to maturity except at the option of the holder of such obligations and (ii) may include U.S. Treasury Trust Receipts. “Hedge Agreement” means, without limitation, (i) any contract provided by a Qualified Hedge Provider known as or referred to or which performs the function of an interest rate swap agreement, currency swap agreement, forward payment conversion agreement, or futures contract; (ii) any contract provided by a Qualified Hedge Provider providing for payments based on levels of, or changes or differences in, interest rates, currency exchange rates, or stock or other indices; (iii) any contract provided by a Qualified Hedge Provider to exchange cash flows or payments or series of payments; (iv) any type of contract provided by a Qualified Hedge Provider called, or designed to perform the function of, interest rate floors, collars, or caps, options, puts, or calls, to hedge or minimize any type of financial risk, including, without limitation, payment, currency, rate, or other financial risk; and (v) any other type of contract or arrangement provided by a Qualified Hedge Provider that the District determines is to be used, or is intended to be used, to manage or reduce the cost of any Bonds, to convert any element of any Bonds from one form to another, to maximize or increase investment return, to minimize investment return risk, or to protect against any type of financial risk or uncertainty. “Hedge Contingency Payments” means amounts payable by the District pursuant to any Hedge Agreement as termination payments, fees, expenses and indemnity payments. “Hedge Payments” means amounts payable by the District pursuant to any Hedge Agreement, other than Hedge Contingency Payments. “Hedge Period” means the period during which a Hedge Agreement is in effect. “Hedge Receipts” means amounts payable by any provider of a Hedge Agreement pursuant to such Hedge Agreement, other than termination payments, fees, expenses and indemnity payments. C-7 “Hedged Bonds” means any Bonds for which the District shall have entered into a Hedge Agreement. “Independent Certified Public Accountant” means a certified public accountant, or a firm of certified public accountants, who or which is “independent” as that term is defined in Rule 101 and related interpretations of the Code of Professional Ethics of the American Institute of Certified Public Accountants, of recognized standing, who or which does not devote his or its full time to the District (but who or which may be regularly retained by the District). “Interest Payment Date” means each date on which interest is to become due on any Bonds, as established in the Series Ordinance for such Bonds, and with respect to the Series 2016C Bonds, shall be as specified in the Bond Ordinance. “Investment Earnings” means all interest received on and profits derived from investments of moneys in all funds and accounts of the District other than investments derived from or with respect to (a) stormwater revenues, (b) all funds and accounts established in connection with SRF Bonds and (c) obligations issued by the District on behalf of any of its subdistricts. “Maximum Annual Debt Service” means the maximum amount of Debt Service Requirements as computed for the then current or any future Fiscal Year. “Moody’s” means Moody’s Investors Service, Inc. or, if such corporation is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the District. At the time the Bond Ordinance was adopted, the notice address of Moody’s is 99 Church Street, New York, New York 10007. “Net Operating Revenues” means Operating Revenues, after provision for payment of all Expenses of Operation and Maintenance. “Operating Revenues” means all income and revenue of any nature derived from the operation of the System, including periodic wastewater billings, service charges, other charges for wastewater service and the availability thereof (other than any special assessment proceeds), connection or tap fees (whether accounted for as revenues or as contributed capital), net proceeds from business interruption insurance, the principal of gifts, bequests, contributions, grants and donations available to pay debt service of Bonds, and any amounts deposited in escrow in connection with the acquisition, construction, remodeling, renovation and equipping of facilities to be applied during the period of determination to pay interest on Bonds, but excluding (a) any profits or losses on the early extinguishment of debt or on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, and local, state or federal grants or other moneys received for the payment of Expenses of Operation and Maintenance, (b) local, state, or federal grants, loans (including Government Loans), capital improvement contract payments, or other moneys received for capital improvements to the System, (c) Investment Earnings, (d) any stormwater charges and (e) any property tax revenues. “Other System Obligations” means obligations of any kind, including but not limited to, Government Loans, general obligation bonds, revenue bonds, capital leases, installment purchase agreements, or notes (but excluding Bonds and related obligations to Credit Facility Providers, Reserve Account Credit Facility Providers and Qualified Hedge Providers), incurred or issued by the District to finance or refinance the cost of acquiring, constructing, reconstructing, improving, equipping, bettering, or extending any part of the System. “Outstanding” means, when used in reference to Bonds, all Bonds which have been duly authenticated and delivered under the Bond Ordinance, with the exception of (a) Bonds in lieu of which other Bonds have been issued under agreement to replace lost, mutilated, stolen, or destroyed obligations, (b) Bonds surrendered by the owners in exchange for other Bonds under the Bond Ordinance, and (c) Bonds for the payment of which provision has been made in accordance with the Bond Ordinance. C-8 “Paying Agent” means any bank or trust company, including any successors and assigns thereof, authorized by the District in the Bond Ordinance to pay the Principal of, premium, if any, or interest on any Bonds on behalf of the District. Such Paying Agent shall perform the duties required of the Paying Agent in the Bond Ordinance. The Bank of New York Mellon Trust Company, N.A. is designated as Paying Agent for the Series 2016C Bonds. “Payments Account” means the account by that name within the Sinking Fund established in the Bond Ordinance. “Permitted Investments” means obligations in which the District is permitted to invest moneys of the District pursuant to applicable law, which have (or are collateralized by obligations which have) a Rating by any Rating Agency which is equal to or greater than the third highest long-term Rating of such Rating Agency, or which bears (or are collateralized by obligations which bear) the second highest short-term Rating of such Rating Agency. As of the date of adoption of the Master Bond Ordinance, obligations in which the District is permitted to invest proceeds of Bonds are described in Section 7.020 of the Charter. “Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, body, authority, government, or agency or political subdivision thereof. “Pledged Bond” means any Bond purchased and held by a Credit Facility Provider pursuant to a Credit Facility Agreement. A Bond shall be deemed a Pledged Bond only for the actual period during which such Bond is owned by a Credit Facility Provider pursuant to a Credit Facility Agreement. “Pledged Bond Rate” means the rate of interest payable on Pledged Bonds, as may be provided in a Credit Facility or Credit Facility Agreement. “Pledged Revenues” means Net Operating Revenues, Investment Earnings, Hedge Receipts, and all moneys paid or required to be paid into, and all moneys and securities on deposit from time to time in, the funds and accounts specified in the Bond Ordinance, but excluding any amounts required in the Bond Ordinance to be set aside pending, or used for, rebate to the United States government pursuant to Section 148(f) of the Code, including, but not limited to, amounts in the Rebate Fund. “Principal” means, with respect to a Current Interest Bond, the principal amount of such Bond. “Principal Maturity Date” means each date on which Principal is to become due on any Bonds, by maturity or mandatory sinking fund redemption, as established in the Series Ordinance for such Bonds. “Project” means the acquisition, construction, reconstruction, improvement, betterment, extension or equipping of the System, in whole or in part, with the proceeds of a series of Bonds, including, but not limited to, the Series 2016C Project. “Project Fund” means the fund by that name established in the Bond Ordinance. “Purchase Contract” means, with respect to the Series 2016C Bonds, the Purchase Contract between the District and the Underwriter of the Series 2016C Bonds and, with respect to any additional Bonds, the Purchase Contract between the District and the Underwriter relating to such series of Bonds. “Qualified Hedge Provider” means an entity whose senior unsecured long term obligations, financial program rating, counterparty rating, or claims paying ability, or whose payment obligations under the related Hedge Agreement are absolutely and unconditionally guaranteed by an entity whose senior unsecured long term obligations, financial program rating, counterparty rating, or claims paying ability, are rated either (i) at least as high as the third highest Rating of each Rating Agency, but in no event lower than any Rating on the related Hedged Bonds at the time of execution of the Hedge Agreement, or (ii) in any such lower Rating which each Rating Agency indicates in writing to the District will not, by itself, result in a reduction or withdrawal of C-9 its Rating on the related Hedged Bonds that is in effect prior to entering into the Hedge Agreement. An entity’s status as a “Qualified Hedge Provider” is determined only at the time the District enters into a Hedge Agreement with such entity and shall not be redetermined with respect to that Hedge Agreement. “Rating” means a rating in one of the categories by a Rating Agency, disregarding pluses, minuses, and numerical gradations. “Rating Agencies” or “Rating Agency” means Fitch, Moody’s, and S&P or any successors thereto and any other nationally recognized credit rating agency then maintaining a rating on any Bonds at the request of the District. If at any time a particular Rating Agency does not have a rating outstanding with respect to the relevant Bonds, then a reference to Rating Agency or Rating Agencies shall not include such Rating Agency. “Rebate Fund” means the fund by that name established in the Bond Ordinance. “Record Date” means, with respect to any semiannual Interest Payment Date, the 15th day of the calendar month immediately preceding such Interest Payment Date, and any record dates designated by the District in a Series Ordinance. “Reimbursement Obligation” means the obligation of the District to directly reimburse any Credit Facility Provider for amounts paid by such Credit Facility Provider under a Credit Facility, whether or not such obligation to so reimburse is evidenced by a promissory note or other similar instrument. “Renewal and Extension Fund” means the fund by that name established in the Bond Ordinance. “Replenishment Payments” shall have the meaning ascribed therefor in under the caption “Sinking Fund – Debt Service Reserve Account” in this Appendix C. “Reserve Account Credit Facility” means any letter of credit, insurance policy, line of credit, or surety bond, together with any substitute or replacement therefor, if any, complying with the provisions of the Bond Ordinance, thereby fulfilling all or a portion of the Debt Service Reserve Requirement. “Reserve Account Credit Facility Agreement” means any agreement between the District and a Reserve Account Facility Provider relating to the issuance of a Reserve Account Credit Facility, as such agreement may be amended from time to time. “Reserve Account Credit Facility Provider” means any provider of a Reserve Account Credit Facility. “Revenue Fund” means the fund by that name established in the Bond Ordinance. “Senior Bonds” means the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds, the Series 2013B Bonds, the Series 2015B Bonds, the Series 2016C Bonds and any Bonds, including Senior SRF Bonds and Senior Uncovered Bonds, issued with a right to payment and secured by a lien on a parity with the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds, the Series 2013B Bonds, the Series 2015B Bonds and the Series 2016C Bonds (except with respect to any Credit Facility which may be available only to one or more series of Senior Bonds and except that Senior SRF Bonds and Senior Uncovered Bonds shall not be secured by the Debt Service Reserve Account) pursuant to the Bond Ordinance. “Senior Hedge Agreements” means Hedge Agreements relating to Hedged Bonds which are Senior Bonds. “Senior SRF Bonds” means SRF Bonds which are Senior Bonds. C-10 “Senior Uncovered Bonds” means all series of Senior Bonds, other than Senior SRF Bonds, with respect to which the District has specified pursuant to a Series Ordinance authorizing such series of Senior Bonds that such series of Senior Bonds will not be secured by the Debt Service Reserve Account. “Series 2016C Bonds” means the District’s Wastewater System Revenue Bonds, Series 2016C, in the original aggregate Principal amount of $150,000,000 authorized under the Bond Ordinance. “Series 2016C Costs of Issuance Account” means the account by that name within the Project Fund established in the Bond Ordinance. “Series 2016C Project” means the project as particularly described in plans and specifications on file from time to time with the District. “Series 2016C Project Account” means the account by that name within the Project Fund established in the Bond Ordinance “Series 2016C Rebate Account” means the account by that name within the Rebate Fund established in the Bond Ordinance. “Series Ordinance” means a bond ordinance or bond ordinances of the District (which may be supplemented by one or more bond ordinances) to be adopted prior to and authorizing the issuance and delivery of any series of Bonds. The Master Bond Ordinance shall constitute a Master Bond Ordinance for Senior Bonds and Subordinate Bonds. Such a bond ordinance as supplemented shall establish the date or dates of the pertinent series of Bonds, the schedule of maturities of such Bonds, whether any such Bonds will be capital appreciation bonds, the name of the purchaser(s) of such series of Bonds, the purchase price thereof, the rate or rates of interest to be borne thereby, whether fixed or variable, the interest payment dates for such Bonds, the terms and conditions, if any, under which such Bonds may be made subject to redemption (mandatory or optional) prior to maturity, the form of such Bonds, and such other details as the District may determine. “Sinking Fund” means the fund by that name established in the Bond Ordinance. “SRF Bonds” means such Bonds or other obligations issued in connection with the District’s participation in the Missouri State Revolving Fund Program of the Missouri Department of Natural Resources and the State Environmental Improvement and Energy Resources Authority, which SRF Bonds may be Senior SRF Bonds or Subordinate SRF Bonds. “Standard and Poor’s” or “S&P” means S&P Global Ratings, a division of S&P Global Inc., or, if such corporation is dissolved or liquidated or otherwise ceases to perform securities rating services, such other nationally recognized securities rating agency as may be designated in writing by the District. At the time the Master Bond Ordinance was adopted, the notice address of S&P is 25 Broadway, New York, New York 10004. “State” means the State of Missouri. “Subordinate Bonds” means Bonds, including Subordinate SRF Bonds, issued with a right to payment from the Pledged Revenues and secured by a lien on the Pledged Revenues expressly junior and subordinate to the Senior Bonds. “Subordinate Hedge Agreements” means Hedge Agreements relating to Hedged Bonds which are Subordinate Bonds. “Subordinate SRF Bonds” means SRF Bonds which are Subordinate Bonds. C-11 “Supplemental Ordinance” means (a) any Series Ordinance and (b) any modification, amendment, or supplement to the Master Bond Ordinance other than a Series Ordinance. “System” means the sanitary sewer system of the District, as it now exists and as it may be hereafter added to, extended, improved and equipped, either from the proceeds of the Bonds or from any other sources at any time hereafter, including, without limitation, (a) all sanitary sewers, all combined sewers, all pumping stations, all wastewater treatment plants, and all equipment used in connection therewith, all facilities for the collection, treatment and disposal of sewage and wastewater, including industrial wastes, and (b) all other facilities or property of any nature or description, real or personal, tangible or intangible, now or hereafter owned or used by the District in the collection, treatment and disposal of sewage. The District may own a partial interest in any sanitary sewer facility, the remaining interest in which may be owned by or on behalf of a political subdivision of the State or any agency or authority thereof. In case of such ownership, the rights and interests possessed by the District in such facility shall be included as part of the System. “Tax-Exempt Bonds” means any Bonds the interest on which has been determined, in an opinion of Bond Counsel, to be excludable from the gross income of the owners thereof for federal income tax purposes. “Underwriter” means (i) with respect to the Series 2016C Bonds, Morgan Stanley & Co. LLC, as representative of the original purchasers of the Series 2016C Bonds, and (ii) with respect to any additional series of Bonds, the underwriter(s) specified in the Series Ordinance authorizing such series of Bonds. “U.S. Treasury Trust Receipts” means receipts or certificates which evidence an undivided ownership interest in the right to the payment of portions of the principal of or interest on obligations described in clauses (a) or (b) of the term Government Obligations, provided that such obligations are held by a bank or trust company organized under the laws of the United States acting as custodian of such obligations, in a special account separate from the general assets of such custodian. “U.S. Treasury Interest Subsidy” means any interest subsidy paid by the United States Treasury to the District. “Variable Rate” means a rate of interest applicable to Bonds, other than a fixed rate of interest which applies to a particular maturity of Bonds, so long as that maturity of Bonds remains Outstanding. FUNDS AND ACCOUNTS The District establishes or ratifies the establishment of the following funds and accounts, and the moneys deposited in such funds and accounts shall be held in trust for the purposes set forth in the Bond Ordinance: (a) The Metropolitan St. Louis Sewer District Wastewater Revenue Fund (the “Revenue Fund”), to be held by the Depository for the account of the District. (b) The Metropolitan St. Louis Sewer District Wastewater Sinking Fund (the “Sinking Fund”), to be held by the Depository for the account of the District, and within said Sinking Fund a Payments Account and a Debt Service Reserve Account. (c) The Metropolitan St. Louis Sewer District Wastewater Renewal and Extension Fund (the “Renewal and Extension Fund”), to be held by the Depository for the account of the District. (d) The Metropolitan St. Louis Sewer District Wastewater Rebate Fund (the “Rebate Fund”), to be held by the Depository for the account of the District, and within said Rebate Fund a Series 2016C Rebate Account. C-12 (e) The Metropolitan St. Louis Sewer District Wastewater Project Fund (the “Project Fund”), to be held by the Depository for the account of the District, and within said Project Fund a Series 2016C Project Account and a Series 2016C Costs of Issuance Account. Each account listed above shall be held within the fund under which it is created. The District reserves the right, in its sole discretion, to create additional subaccounts or to abolish any subaccounts within any account from time to time. Revenue Fund The District shall deposit and continue to deposit all Operating Revenues in the Revenue Fund from time to time as and when received. Moneys in the Revenue Fund shall be applied by the District from time to time to the following purposes and, prior to the occurrence and continuation of an Event of Default, in the following order of priority: (1) to pay Expenses of Operation and Maintenance, (2) to deposit into the Sinking Fund the amounts required by the Bond Ordinance and described below under the caption “FUNDS AND ACCOUNTS – Sinking Fund,” (3) to make Replenishment Payments to the Debt Service Reserve Account and to pay to any Credit Facility Provider any amounts due under a Credit Facility Agreement, including Additional Interest, in accordance with the Bond Ordinance and described below under the caption “FUNDS AND ACCOUNTS – Sinking Fund – Debt Service Reserve Account,” (4) to deposit into the Rebate Fund the amounts required by the Bond Ordinance, (5) to pay any amounts due any Reserve Account Credit Facility Provider pursuant to the Reserve Account Credit Facility Agreement, (6) to deposit the amounts required to be deposited into the funds and accounts created by any Series Ordinance authorizing the issuance of Subordinate Bonds, for the purpose of paying Principal of (whether at maturity, upon mandatory redemption or as otherwise required by a Series Ordinance relating to Subordinate SRF Bonds) and interest on Subordinate Bonds, making Hedge Contingency Payments under Senior Hedge Agreements, making Contingency Payments under Senior Hedge Agreements, making Hedge Payments and making Hedge Contingency Payments under Subordinate Hedge Agreements, and accumulating reserves for such payments, (7) to make Accumulation Payments to the Debt Service Reserve Account in accordance with the Bond Ordinance and described below under the caption “FUNDS AND ACCOUNTS – Sinking Fund – Debt Service Reserve Account,” and (8) to pay any amounts required to be paid with respect to any Other System Obligations. In addition to, and after, the deposits described above, the District may from time to time deposit into the Renewal and Extension Fund any moneys and securities held in the Revenue Fund in excess of 45 days’ estimated Expenses of Operation and Maintenance. Any money withdrawn from the funds and accounts described in clause (6) above relating to Subordinate Bonds for use in making payments described in said clause (6) shall be released from the lien of the Bond Ordinance. If at any time the amounts in any account of the Sinking Fund are less than the amounts required by the Bond Ordinance, and there are not on deposit in the Renewal and Extension Fund available moneys sufficient to cure any such deficiency, then the District shall withdraw from the funds and accounts of the District relating to Subordinate Bonds and deposit in such account of the Sinking Fund, as the case may be, the amount necessary (or all the moneys in such funds and accounts, if less than the amount required) to make up such deficiency. Sinking Fund Payments Account-General. Sufficient moneys shall be paid in periodic installments from the Revenue Fund into the Payments Account for the purpose of paying the Principal of and interest (excluding Additional Interest) on the Senior Bonds as they become due and payable and for the purpose of making Hedge Payments under Senior Hedge Agreements. Amounts held in the Payments Account shall be used solely to pay interest (excluding Additional Interest) and Principal of the Senior Bonds as the same become due and payable (whether at maturity or upon redemption) and to pay Hedge Payments under Senior Hedge Agreements when due. Amounts held in the Payments Account shall not be used to pay Additional Interest. C-13 Interest. Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Interest Payment Date for Senior Bonds (or, in the case of Senior Bonds bearing interest at a Variable Rate, on or before the Business Day preceding each Interest Payment Date), the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment and, in the case of Senior SRF Bonds, anticipated investment earnings on reserve funds held by a bond trustee relating to such Senior SRF Bonds, is not less than the interest (excluding Additional Interest) coming due on such Senior Bonds on such Interest Payment Date. The District shall also deposit and continue to deposit all Hedge Receipts under Senior Hedge Agreements in the Payments Account from time to time as and when received. Principal. Except as otherwise provided in any Series Ordinance authorizing Senior SRF Bonds, on or before the 30th day preceding each Principal Maturity Date for Senior Bonds, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than the Principal coming due on such Senior Bonds on such Principal Maturity Date. Hedge Payments. On or before the 30th day preceding each payment date for Hedge Payments under Senior Hedge Agreements, the District shall deposit in the Payments Account an amount which, together with any other moneys already on deposit therein and available to make such payment, is not less than such Hedge Payments coming due on such payment date. Application of Moneys in Payments Account. No further payments need be made into the Payments Account whenever the amount available in the Payments Account, if added to the amount then in the Debt Service Reserve Account (without taking into account any amount available to be drawn on any Reserve Account Credit Facility), is sufficient to retire all Senior Bonds then Outstanding and to pay all unpaid interest accrued and to accrue prior to such retirement. No moneys in the Payments Account shall be used or applied to the optional purchase or redemption of Senior Bonds prior to maturity unless: (i) provision shall have been made for the payment of all of the Senior Bonds; or (ii) such moneys are applied to the purchase and cancellation of Senior Bonds which are subject to mandatory redemption on the next mandatory redemption date, which falls due within 12 months, such Senior Bonds are purchased at a price not more than would be required for mandatory redemption, and such Senior Bonds are cancelled upon purchase; or (iii) such moneys are applied to the purchase and cancellation of Senior Bonds at a price less than the amount of Principal which would be payable on such Senior Bonds, together with interest accrued through the date of purchase, and such Senior Bonds are cancelled upon purchase; or (iv) such moneys are in excess of the then required balance of the Payments Account and are applied to redeem a part of the Senior Bonds Outstanding on the next succeeding redemption date for which the required notice of redemption may be given. Debt Service Reserve Account. With respect to Senior Bonds which are not Senior Uncovered Bonds, there shall be deposited into the Debt Service Reserve Account the amounts specified in Series Ordinances with respect to Senior Bonds. Notwithstanding the foregoing, there shall be no deposit into the Debt Service Reserve Account with respect to any SRF Bonds or Senior Uncovered Bonds nor shall the Debt Service Reserve Account secure any SRF Bonds or Senior Uncovered Bonds. After the issuance of any Senior Bonds, the increase in the amount of the Debt Service Reserve Requirement resulting from the issuance of such Senior Bonds shall be accumulated, to the extent not covered by deposits from Bond proceeds or funds on hand, over a period not exceeding 61 months from the date of delivery of such Senior Bonds in monthly deposits (“Accumulation Payments”), none of which is less than 1/60 of the amount to be accumulated. The balance of the Debt Service Reserve Account shall be maintained at an amount equal to the Debt Service Reserve Requirement (or such lesser amount that is required to be accumulated in the Debt Service Reserve Account in connection with the periodic accumulation to the Debt Service Reserve Requirement after the issuance of Senior Bonds or upon the failure of the District to provide a substitute Reserve Account Credit Facility in certain events). There shall be transferred from the Revenue Fund on a pro rata basis (1) to the Debt Service Reserve Account the amount necessary to restore, as further described below, the amount of cash and securities in the Debt Service Reserve Account to an amount equal to the difference between (a) the Debt Service Reserve Requirement (or such lesser monthly amount that is required to be deposited into the Debt Service Reserve Account after the issuance of Senior Bonds or upon the failure of the District to provide a C-14 substitute Reserve Account Credit Facility in certain events) and (b) the portion of the required balance of the Debt Service Reserve Account satisfied by means of a Reserve Account Credit Facility, and (2) to any Reserve Account Credit Facility Provider the amount necessary to reinstate any Reserve Account Credit Facility which has been drawn down. Whenever for any reason the amount in the Payments Account is insufficient to pay all interest or Principal becoming due on the Senior Bonds within the next seven days (or, in the case of Senior Bonds bearing interest at a Variable Rate, on the next Business Day), the District shall make up any deficiency by transfers first from the Renewal and Extension Fund and second from the funds and accounts of the District relating to Subordinate Bonds which are not Subordinate SRF Bonds. Whenever, on the date that such interest or Principal is due, there are insufficient moneys in the Payments Account available to make such payment, the District shall, without further instructions, apply so much as may be needed of the moneys in the Debt Service Reserve Account to prevent default in the payment of such interest or Principal, with priority to interest payments. Whenever by reason of any such application or otherwise (other than required Accumulation Payments), the amount remaining to the credit of the Debt Service Reserve Account is less than the amount then required to be in the Debt Service Reserve Account, such deficiency shall be remedied by monthly deposits (“Replenishment Payments”) from the Revenue Fund, to the extent funds are available in the Revenue Fund for such purpose after all required transfers set forth above have been made. The District may elect to satisfy in whole or in part the Debt Service Reserve Requirement by means of a Reserve Account Credit Facility, subject to the following requirements: (A) the Reserve Account Credit Facility Provider must have a credit rating issued by a Rating Agency not less than the then current Rating on the related series of Senior Bonds (or, in the case of a series of Senior Bonds supported by a Credit Facility, the underlying rating on such Senior Bonds); (B) the District shall not secure any obligation to the Reserve Account Credit Facility Provider by a lien equal to or superior to the lien granted to the related series of Senior Bonds; (C) each Reserve Account Credit Facility shall have a term of at least one (1) year (or, if less, the remaining term of the related series of Senior Bonds) and shall entitle the District to draw upon or demand payment and receive the amount so requested in immediately available funds on the date of such draw or demand; (D) the Reserve Account Credit Facility shall permit a drawing by the District for the full stated amount in the event (i) the Reserve Account Credit Facility expires or terminates for any reason prior to the final maturity of the related series of Senior Bonds, and (ii) the District fails to satisfy the Debt Service Reserve Requirement by the deposit to the Debt Service Reserve Account of cash, obligations, a substitute Reserve Account Credit Facility, or any combination thereof, on or before the date of such expiration or termination; (E) if the Rating issued by the Rating Agency to the Reserve Account Credit Facility Provider is withdrawn or reduced below the Rating assigned to the related series of Senior Bonds immediately prior to such action by the Rating Agency, the District shall provide a substitute Reserve Account Credit Facility within sixty (60) days after such rating change, and, if no substitute Reserve Account Credit Facility is obtained by such date, shall fund the Debt Service Reserve Requirement in not more than twenty-four (24) equal monthly deposits commencing not later than the first day of the month immediately succeeding the date representing the end of such sixty (60) day period; (F) if the Reserve Account Credit Facility Provider commences any insolvency proceedings or is determined to be insolvent or fails to make payments when due on its obligations, the District shall provide a substitute Reserve Account Credit Facility within sixty (60) days thereafter, and, if no substitute Reserve Account Credit Facility is obtained by such date, shall fund the Debt Service Reserve Requirement in not more than twenty-four (24) equal monthly deposits commencing not later than the first day of the month immediately succeeding the date representing the end of such sixty (60) day period; and (G) the prior written consent of the Credit Facility Provider, as to the provider and the structure of the Reserve Account Credit Facility, shall be obtained by the District. If the events described in either clauses (E) or (F) above occur, the District shall not relinquish the Reserve Account Credit Facility at issue until after the Debt Service Reserve Requirement is fully satisfied by the provision of cash, obligations, or a substitute Reserve Account Credit Facility or any combination thereof. Any amount received from the Reserve Account Credit Facility shall be deposited directly into the Payments Account, and such deposit shall constitute the application of amounts in the Debt Service Reserve Account. Repayment of any draw-down on the Reserve Account Credit Facility (other than repayments which reinstate the Reserve Account Credit Facility) and any interest or fees due the Reserve Account Credit Facility Provider under such Reserve Account Credit Facility shall be secured by a lien on the Pledged Revenues subordinate to payments into the Sinking Fund and the Rebate Fund and payments to any Credit Facility Provider securing Senior Bonds. C-15 Any such Reserve Account Credit Facility shall be pledged to the benefit of the owners of all of the Senior Bonds. The District reserves the right, if it deems it necessary in order to acquire such a Reserve Account Credit Facility, to amend the Bond Ordinance without the consent of any of the owners of the Bonds in order to grant to the Reserve Account Credit Facility Provider such additional rights as it may demand, provided that such amendment shall not, in the written opinion of Bond Counsel filed with the District, impair or reduce the security granted to the owners of Senior Bonds or any of them. Renewal and Extension Fund In addition to the deposits to be made to the Renewal and Extension Fund pursuant to the Bond Ordinance, the District shall deposit in the Renewal and Extension Fund all termination payments received under any Hedge Agreements. All sums accumulated and retained in the Renewal and Extension Fund shall be used first to prevent default in the payment of interest on or Principal of the Senior Bonds when due and then shall be applied by the District from time to time, as and when the District shall determine, to the following purposes and, prior to the occurrence and continuation of an Event of Default, in the order of priority determined by the District in its sole discretion: (a) for the purposes for which moneys held in the Revenue Fund may be applied under the Bond Ordinance, (b) to pay any amounts which may then be due and owing under any Hedge Agreement (including termination payments, fees, expenses, and indemnity payments), (c) to pay any governmental charges and assessments against the System or any part thereof which may then be due and owing, (d) to make acquisitions, betterments, extensions, repairs, or replacements or other capital improvements (including the purchase of equipment) to the System deemed necessary by the District (including payments under contracts with vendors, suppliers, and contractors for the foregoing purposes), (e) to acquire Senior Bonds by redemption or by purchase in the open market at a price not exceeding the callable price as provided and in accordance with the terms and conditions of the Bond Ordinance, which Senior Bonds may be any of the Senior Bonds, prior to their respective maturities, and when so used for such purposes the moneys shall be withdrawn from the Renewal and Extension Fund and deposited into the Payments Account for the Senior Bonds to be so redeemed or purchased and (f) for any other purpose of the District. Payments for the purposes set forth in clause (e) of the preceding sentence are not “required payments” for purposes of the District’s rate covenant set forth in the Bond Ordinance. Rebate Fund The District shall calculate, from time to time, as required in order to comply with the provisions of Section 148(f) of the Code, the amounts required to be rebated (including penalties) to the United States and shall deposit or cause to be deposited into the Rebate Fund any and all of such amounts promptly following a determination of any such amount. The District shall direct the Depository of the Rebate Fund to keep all moneys held therein invested in Permitted Investments. To the extent and at the times required in order to comply with Section 148(f) of the Code, the District may withdraw funds from the Rebate Fund for the purpose of making rebate payments (including penalties) to the United States as required by Section 148(f) of the Code. Except as otherwise specifically provided in the Bond Ordinance, moneys in the Rebate Fund may not be withdrawn from the Rebate Fund for any other purpose. All earnings on investments held in the Rebate Fund shall be retained in the Rebate Fund and shall become part of the Rebate Fund. Moneys held in the Rebate Fund, including the Investment Earnings thereon, if any, shall not be subject to a pledge in favor of the owners of the Bonds under the Bond Ordinance and may not be used to pay amounts due on the Bonds or under any Credit Facility Agreements or Hedge Agreements or amounts required for the operation, maintenance, enlargement, or extension of the System. C-16 Project Fund The District shall establish within the Project Fund a separate account for each Project. Except as may be otherwise provided in the Series Ordinance authorizing the issuance of SRF Bonds, moneys in the Project Fund shall be held by the Depository, or such other bank as may from time to time be designated by the District, and applied to the payment of the Costs of the Project, or for the repayment of advances made for that purpose in accordance with and subject to the provisions and restrictions set forth in the Bond Ordinance. The District covenants that it will not cause or permit to be paid from the Project Fund any sums except in accordance with such provisions and restrictions; provided, however, that any moneys in the Project Fund not presently needed for the payment of current obligations during the course of construction may be invested in Permitted Investments maturing not later than (i) the date upon which such moneys will be needed according to a schedule of anticipated payments from the Project Fund filed with the District by the Consultant in charge of the Project or (ii) in the absence of such schedule, 36 months from the date of purchase, in either case upon written direction of the District. Any such investments shall be held by the Depository, in trust, for the account of the Project Fund until maturity or until sold, and at maturity or upon such sale the proceeds received therefrom including accrued interest and premium, if any, shall be immediately deposited by the Depository in the Project Fund and shall be disposed of in the manner and for the purposes provided in the Bond Ordinance. At such time as the Depository is furnished with a certificate from the Chief Financial Officer stating that all Costs of Issuance have been paid, and in any case not later than 6 months after the date of issuance of the Series 2016C Bonds, the Depository shall transfer any money in the Series 2016C Costs of Issuance Account to the Series 2016C Project Account of the Project Fund. Moneys in each separate account in the Project Fund shall be used for the payment or reimbursement of the Costs of the Project for which such account was established as provided in the Bond Ordinance. All payments from the Project Fund shall be made upon draft except as provided in the Bond Ordinance, signed by an officer of the District properly authorized to sign on its behalf, but before such officer shall sign any such draft, there shall be filed with the Depository a requisition for such payment, in substantially the form attached as an exhibit to the Bond Ordinance, stating each amount to be paid and the name of the person to whom payment is due, and certifying: (a) That an obligation in the stated amount has been incurred by the District and that the same is a proper charge against the Project Fund and has not been paid and stating that the bill or statement of account for such obligation, or a copy thereof, is on file in the office of the District; (b) That the signer has no notice of any vendor’s, mechanic’s, or other liens or rights to liens, chattel mortgages, or conditional sales contracts which should be satisfied or discharged before such payment is made; and (c) That such requisition contains no item representing payment on account of any retained percentages which the District is, at the date of any such certificate, entitled to retain. In the event the United States government or government of the State, or any department, authority, or agency of either, agrees to allocate moneys to be used to defray any part of the Cost of any Project upon the condition that the District appropriate a designated amount of moneys for such purpose, and it is required of the District that its share of such cost be deposited in a special account, the District shall have the right to withdraw any sum so required from the Project Fund by appropriate transfer and deposit the same in a special account for that particular Project; provided, however, that all payments thereafter made from such special account shall be made only in accordance with the requirements set forth in the Bond Ordinance. Withdrawals for investment purposes only may be made by the Depository to comply with written directions from the District without any requisition other than such direction. For each series of Bonds, the District shall, when a Project has been completed, and may, when a Project has been substantially completed, file with the Depository a certificate signed by the Chief Financial C-17 Officer estimating what portion of the funds remaining in the separate account relating to such Project will be required by the District for the payment or reimbursement of the Costs of such Project. The Chief Financial Officer shall attach to his or her certificate a certificate of the supervising engineer certifying that such Project has been completed or substantially completed, as the case may be, in accordance with the plans and specifications therefor and approving the estimates of the Chief Financial Officer with respect to the portion of funds in the account required for Costs of the Project. Such funds that will not be used shall be (1) transferred to the Payments Account and used to redeem Bonds of the related series on the next redemption date or to pay Principal of such Bonds on the next Principal Maturity Date, or (2) transferred to the Payments Account and used to pay interest on Bonds of the related series, provided that the District shall first obtain an opinion of Bond Counsel to the effect that, under existing law, the application of such moneys to pay interest on such Bonds (a) is allowed under State law, and (b) if such Bonds are Tax-Exempt Bonds, will not, by itself and without more, adversely affect the exclusion from gross income for federal income tax purposes of interest payable on such Bonds. When all moneys have been withdrawn or transferred from any separate account within the Project Fund in accordance with the provisions of the Bond Ordinance, such separate account shall terminate and cease to exist. DEPOSITS AND INVESTMENTS All moneys in the funds and accounts established under the Bond Ordinance, except those funds and accounts created by a Series Ordinance in connection with the issuance of SRF Bonds, shall be held by the District in one or more Depositories qualified for use by the District. Uninvested moneys shall, at least to the extent not guaranteed by the Federal Deposit Insurance Corporation, be secured to the fullest extent required by the laws of the State for the security of public funds. Moneys in the funds and accounts established under the Bond Ordinance, except those funds and accounts created by a Series Ordinance in connection with the issuance of SRF Bonds, shall be invested and reinvested in Permitted Investments bearing interest at the highest rates reasonably available (except to the extent that a restricted yield is required or advisable under Section 148 of the Code) and containing such maturities as are deemed suitable by the District; provided, however, that without the prior written consent of the Credit Facility Provider, investments of moneys in the Debt Service Reserve Account shall not have maturities extending beyond five years. Investment of moneys in funds and accounts created by a Series Ordinance in connection with the issuance of SRF Bonds shall be as set forth in such Series Ordinance. Investment Earnings in each fund and account (except the Debt Service Reserve Account) shall be retained therein. Investment Earnings from the investment of moneys in the Debt Service Reserve Account shall be retained in the Debt Service Reserve Account at all times the balance is less than the Debt Service Reserve Requirement; thereafter and at all times the balance of the Debt Service Reserve Account is equal to or greater than the Debt Service Reserve Requirement, such Investment Earnings shall be deposited in the Payments Account. The Series Ordinance authorizing the issuance of any Subordinate Bonds shall specify any maturity limitations and allocations of Investment Earnings on investments of moneys in the funds and accounts relating to such Subordinate Bonds. Moneys in each of such funds shall be accounted for as a separate and special fund apart from all other District funds, provided that investments of moneys therein may be made in a pool of investments together with other moneys of the District so long as sufficient Permitted Investments in such pool, not allocated to other investments of contractually or legally limited duration, are available to meet the requirements of the foregoing provisions. All investments made under the Bond Ordinance shall, for purposes of the Bond Ordinance, be valued at fair market value on the 45th day (or the next succeeding Business Day if such 45th day is not a Business Day) prior to each Interest Payment Date. The valuation of the investment of moneys in funds and accounts C-18 created by a Series Ordinance in connection with the issuance of SRF Bonds shall be as set forth in such Series Ordinance. MAINTENANCE OF SYSTEM The District covenants that it will enforce reasonable rules and regulations governing the System and the operation thereof, that it will operate the System in an efficient and economical manner and will at all times maintain the System in good repair and in sound operating condition, that it will make all necessary repairs, renewals, and replacements to the System, and that it will comply with all valid acts, rules, regulations, orders, and directions of any legislative, executive, administrative, or judicial body applicable to the System and the District’s operation thereof. RATE COVENANT See the heading “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Rate Covenant.” INSURANCE With respect to the System, the District will carry adequate public liability, fidelity and property insurance, such as is maintained by similar utilities as the System. The District shall indemnify itself against the usual hazards incident to the construction of any Project, and without in any way limiting the generality of the above, shall: (a) require each construction contractor and each subcontractor to furnish a bond, or bonds, of such type and in amounts adequate to assure the faithful performance of their contracts and the payment of all bills and claims for labor and material arising by virtue of such contracts; and (b) require each construction contractor or the subcontractor to maintain at all times until the completion and acceptance of the Project adequate compensation insurance for all of their employees and adequate public liability and property damage insurance for the full and complete protection of the District from any and all claims of every kind and character which may arise by virtue of the operations under their contracts, whether such operations be by themselves or by anyone directly or indirectly for them, or under their control. All such policies shall be for the benefit of and made payable to the District and shall be on deposit with the District; provided, however, the District may elect to be a self-insurer with respect to any risks for which insurance is required under the Bond Ordinance. The cost of such insurance may be paid as an Expense of Operation and Maintenance. All moneys received for losses under any such insurance policies, except public liability policies, are pledged by the District as security for the Bonds until and unless such proceeds are paid out in making good the loss or damage in respect of which such proceeds are received, either by repairing the property damaged or replacing the property destroyed or by depositing the same in the Renewal and Extension Fund. Adequate provision for making good such loss and damage shall be made within 120 days from the date of the loss. Insurance proceeds not used in making such provision shall be deposited in the Renewal and Extension Fund on the expiration of such 120-day period. Such insurance proceeds shall be payable to the District by appropriate clause to be attached to or inserted in the policies. C-19 NO SALE, LEASE OR ENCUMBRANCE; EXCEPTIONS Except as expressly permitted in the Bond Ordinance, the District irrevocably covenants, binds, and obligates itself not to sell, lease, encumber, or in any manner dispose of the System as a whole or in part until all of the Bonds and all interest thereon shall have been paid in full or provision for payment has been made in accordance with the Bond Ordinance. The District shall have and reserves the right to sell, lease, or otherwise dispose of any of the property comprising a part of the System in the following manner, if any one of the following conditions exists: (i) such property is not necessary for the operation of the System; (ii) such property is not useful in the operation of the System; (iii) such property is not profitable in the operation of the System; or (iv) the disposition of such property will be advantageous to the System and will not adversely affect the security for the Bondholders. All proceeds of any such sale, lease or other disposition shall be deposited in the Renewal and Extension Fund. Prior to any such sale, lease or other disposition, there shall be filed with the District: (i) an opinion of Bond Counsel to the effect that such sale, lease or other disposition will not adversely affect the extent to which interest on any Tax-Exempt Bonds is excluded from gross income for federal income tax purposes (provided that such opinion shall not be required if the Chief Financial Officer determines that such portion of the System was not financed with the proceeds of any Tax-Exempt Bonds); and (ii) an opinion of a Consultant expressing the view that such sale, lease or other disposition will not result in any diminution of Net Operating Revenues to the extent that in any future Fiscal Year the Net Operating Revenues and Investment Earnings will be less than (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds to be Outstanding after such sale, lease or other disposition or (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds to be Outstanding after such sale, lease or other disposition. In reaching this conclusion, the Consultant shall take into consideration such factors as the Consultant may deem significant, including (i) anticipated diminution of Operating Revenues, (ii) anticipated increase or decrease in Expenses of Operation and Maintenance attributable to the sale, lease or other disposition, and (iii) reduction in the annual Debt Service Requirement attributable to the application of the proceeds of such sale, lease or other disposition to the provision for payment of Bonds theretofore Outstanding. Such sale, lease or other disposition may include a partial interest in a sanitary sewer facility owned or to be owned in whole or in part by the District. The District reserves the right to transfer the System as a whole to any political subdivision or authority or agency of one or more political subdivisions of the State to which may be delegated the legal authority to own and operate the System, or any portion thereof, on behalf of the public, and which undertakes in writing, filed with the District, the District’s obligations under the Bond Ordinance, provided that there shall be first filed with the District: (i) an opinion of Bond Counsel to the effect that such sale will not adversely affect the extent to which interest on any Tax-Exempt Bonds is excluded from gross income for federal income tax purposes; and (ii) an opinion of a Consultant expressing the view that such transfer will not result in any diminution of Net Operating Revenues to the extent that in any future Fiscal Year the Net Operating Revenues and Investment Earnings will be less than (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds to be Outstanding after such transfer or (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds to be Outstanding after such transfer. In reaching this conclusion, the Consultant shall take into consideration such factors as the Consultant may deem significant, including any rate schedule adopted by the transferee political subdivision, authority, or agency. Upon receipt of an opinion of Bond Counsel to the effect that such action will not adversely affect the extent to which interest on any Tax-Exempt Bonds is excluded from gross income for federal income tax purposes, the District may enter into such management contracts and sale/leaseback agreements as the District may deem appropriate, and such management contracts and sale/leaseback agreements shall not constitute a sale, lease or other disposition within the meaning of the Bond Ordinance. C-20 ENFORCEMENT OF CHARGES AND CONNECTIONS Except as otherwise determined in accordance with District policy and provided that such action or inaction will not materially impair the rights of the Bondholders, the District shall compel the prompt payment of rates, fees, and charges imposed for service rendered on every lot or parcel connected with the System, and to that end will vigorously enforce all of the provisions of any resolution or ordinance of the District having to do with sanitary sewer connections and with sanitary sewer charges, and all of the rights and remedies permitted the District under law. The District expressly covenants and agrees that such charges will be enforced and promptly collected to the full extent permitted by law, including the requirement for the making of reasonable deposits by customers of the System to the extent required by the District and the securing of injunctions against the disposition of sewage or industrial waste into the System by any premises delinquent in the payment of such charges. None of the facilities or services afforded by the System will be furnished to any user without a reasonable charge being made therefor. ANNUAL BUDGET The District agrees to adopt an Annual Budget for the System for each Fiscal Year in compliance with the Charter and the rate covenants as stated in the Bond Ordinance. BOOKS AND AUDITS The District will install and maintain proper books, records and accounts for the System according to standard accounting practices for the operation of facilities comparable to the System. Annual audits will be made by a certified public accountant. SENIOR AND SUBORDINATE LIEN BONDS No Prior Lien Bonds nor Senior Bonds Except as Permitted in the Bond Ordinance All Senior Bonds shall have complete parity of lien on the Pledged Revenues despite the fact that any of the Senior Bonds may be delivered at an earlier date than any other of the Senior Bonds. The District may issue Senior Bonds in accordance with the Bond Ordinance, but the District shall issue no other obligations of any kind or nature payable from or enjoying a lien on the Pledged Revenues or any part thereof having priority over or, except as permitted in the Bond Ordinance, on a parity with the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds, the Series 2013B Bonds, the Series 2015B Bonds and the Series 2016C Bonds. Refunding Bonds Any or all of the Senior Bonds may be refunded prior to maturity, upon redemption in accordance with their terms, or with the consent of the owners of such Senior Bonds, and the refunding Bonds so issued shall constitute Senior Bonds, if: (a) The District shall have obtained a report from an Independent Certified Public Accountant or a Financial Advisor demonstrating that the refunding will reduce the total debt service payments on Outstanding Senior Bonds on a present value basis. (b) As an alternative to, and in lieu of, satisfying the requirements of paragraph (a) above, all Outstanding Senior Bonds are being refunded under arrangements which immediately result in making provision for the payment of the refunded Bonds. C-21 (c) The requirements described in paragraphs (e) and (g) below under the caption “SENIOR AND SUBORDINATE LIEN BONDS – Senior Bonds”) are met with respect to such refunding Bonds. Senior Bonds Bonds (including refunding Bonds which do not meet the requirements of the Bond Ordinance described above under the caption “SENIOR AND SUBORDINATE LIEN BONDS – Refunding Bonds” may also be issued on a parity with the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds, the Series 2013B Bonds, the Series 2015B Bonds and the Series 2016C Bonds pursuant to a Series Ordinance, and the Bonds so issued shall constitute Senior Bonds, if all of the following conditions are satisfied: (a) There shall have been filed with the District either: (i) a report by an Independent Certified Public Accountant to the effect that the historical Net Operating Revenues and Investment Earnings for a period of 12 consecutive months of the most recent 18 consecutive months prior to the issuance of the proposed Senior Bonds were equal to at least (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds and (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds, or (ii) a report by a Consultant to the effect that the forecasted Net Operating Revenues and Investment Earnings for each Fiscal Year in the Forecast Period are expected to equal at least (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds and (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds. The report by the Independent Certified Public Accountant that is required by the Bond Ordinance and described in subparagraph (i) above may contain pro forma adjustments to historical Net Operating Revenues equal to 100% of the increased annual amount attributable to any revision in the schedule of rates, fees, and charges for the services, facilities, and commodities furnished by the System, adopted prior to the date of delivery of the proposed Senior Bonds and not fully reflected in the historical Net Operating Revenues actually received during such 12-month period. Such pro forma adjustments shall be based upon a report of a Consultant as to the amount of Operating Revenues which would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. The report by the Consultant that is required by the Bond Ordinance and described in subparagraph (ii) above may not take into consideration any rate schedule to be imposed in the future, unless such rate schedule has been adopted by ordinance of the Governing Body. Such rate schedule adopted by ordinance may contain, however, future effective dates. (b) The District shall have received, at or before issuance of the Senior Bonds, a report from an Independent Certified Public Accountant to the effect that the payments required to be made into each account of the Sinking Fund have been made and the balance in each account of the Sinking Fund is not less than the balance required by the Bond Ordinance as of the date of issuance of the proposed Senior Bonds. (c) Except with respect to Senior SRF Bonds, the Series Ordinance authorizing the proposed Senior Bonds must either (a) state that the proposed Senior Bonds are Senior Uncovered Bonds and thus not secured by the Debt Service Reserve Account or (b) require (i) that the amount to be accumulated and maintained in the Debt Service Reserve Account be increased to not less than 100% of the Debt Service Reserve Requirement computed on a basis which includes all Senior Bonds C-22 which will be Outstanding immediately after the issuance of the proposed Senior Bonds and (ii) that the amount of such increase be deposited in such account on or before the date and at least as fast as specified in the Bond Ordinance. (d) The Series Ordinance authorizing the proposed Senior Bonds must require the proceeds of such proposed Senior Bonds to be used solely to make capital improvements to the System, to fund interest on the proposed Senior Bonds, to acquire existing or proposed sanitary sewer utilities, to refund other obligations issued for such purposes (whether or not such refunding Bonds satisfy the requirements of the Bond Ordinance described above under the caption “SENIOR AND SUBORDINATE LIEN BONDS – Refunding Bonds”), and to pay expenses incidental thereto and to the issuance of the proposed Senior Bonds. (e) If any Senior Bonds would bear interest at a Variable Rate, the Series Ordinance under which such Senior Bonds are issued shall provide a maximum rate of interest per annum which such Senior Bonds may bear. (f) The Chief Officer shall have certified, by written certificate dated as of the date of issuance of the Senior Bonds, that the District is in compliance with all requirements of the Bond Ordinance. (g) The District shall have received an opinion of Bond Counsel, dated as of the date of issuance of the Senior Bonds, to the effect that the Series Ordinance and any related Supplemental Ordinance authorizing the issuance of Senior Bonds have been duly adopted by the District. Subordinate Bonds Bonds may also be issued on a subordinate basis to the Series 2010B Bonds, the Series 2011B Bonds, the Series 2012A Bonds, the Series 2012B Bonds, the Series 2013B Bonds, the Series 2015B Bonds, the Series 2016C Bonds and any other Senor Bonds pursuant to a Series Ordinance, and the Bonds so issued shall constitute Subordinate Bonds, if all of the following conditions are satisfied: (a) There shall have been filed with the District either: (i) a report by an Independent Certified Public Accountant to the effect that the historical Net Operating Revenues and Investment Earnings for a period of 12 consecutive months of the most recent 18 consecutive months prior to the issuance of the proposed Subordinate Bonds were equal to at least (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Subordinate Bonds and (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Subordinate Bonds, or (ii) a report by a Consultant to the effect that the forecasted Net Operating Revenues and Investment Earnings for each Fiscal Year in the Forecast Period are expected to equal at least (A) 125% of the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Subordinate Bonds and (B) 115% of the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Subordinate Bonds. The report by the Independent Certified Public Accountant that is required by the Bond Ordinance and described in subparagraph (i) above may contain pro forma adjustments to historical Net Operating Revenues equal to 100% of the increased annual amount attributable to any revision in the schedule of rates, fees, and charges for the services, facilities, and commodities furnished by the System, adopted prior to the date of delivery of the proposed Subordinate Bonds and not fully reflected in the historical Net Operating Revenues actually received during such 12-month period. Such pro forma adjustments shall be based upon a report of a Consultant as to the amount of Operating Revenues which would have been received during such 12-month period had the new rate schedule been in effect throughout such 12-month period. C-23 The report by the Consultant that is required by the Bond Ordinance and described in subparagraph (ii) above may not take into consideration any rate schedule to be imposed in the future, unless such rate schedule has been adopted by ordinance of the Governing Body. Such rate schedule adopted by ordinance may contain, however, future effective dates. (b) The Series Ordinance authorizing the Subordinate Bonds shall provide that such Subordinate Bonds shall be junior and subordinate in lien and right of payment to all Senior Bonds Outstanding at any time. (c) The Series Ordinance authorizing the Subordinate Bonds shall establish funds and accounts for the moneys to be used to pay debt service on the Subordinate Bonds, to pay Hedge Payments under Subordinate Hedge Agreements, and to provide reserves therefor. (d) The requirements of the Bond Ordinance described in paragraphs (d), (e) and (g) above under the caption “SENIOR AND SUBORDINATE LIEN BONDS – Senior Bonds”) are met with respect to such Subordinate Bonds (as if such Bonds constituted Senior Bonds). In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization, or other similar proceedings in connection therewith, relative to the District or to its creditors, as such, or to its property, and in the event of any proceedings for voluntary liquidation, dissolution, or other winding up of the District, whether or not involving insolvency or bankruptcy, the owners of all Senior Bonds then Outstanding and related Qualified Hedge Providers shall be entitled to receive payment in full of all Principal and interest due on all such Senior Bonds in accordance with the provisions of the Bond Ordinance and related Hedge Payments in accordance with the provisions of the Senior Hedge Agreements before the owners of the Subordinate Bonds or related Qualified Hedge Providers are entitled to receive any payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance on account of Principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements. In the event that any of the Subordinate Bonds are declared due and payable before their expressed maturities because of the occurrence of an Event of Default (under circumstances when the provisions of preceding paragraph are not be applicable), no owners of Subordinate Bonds or related Qualified Hedge Providers may receive any accelerated payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance of Principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements, until the owners of all Senior Bonds Outstanding and related Qualified Hedge Providers have received timely payment when due of all Principal of and interest on all such Senior Bonds and all Hedge Payments under related Senior Hedge Agreements. If any Event of Default shall have occurred and be continuing (under circumstances when the provisions of second preceding paragraph are not applicable), the owners of all Senior Bonds then Outstanding and related Qualified Hedge Providers shall be entitled to receive payment in full of all Principal and interest then due on all such Senior Bonds and all Hedge Payments under related Senior Hedge Agreements before the owners of the Subordinate Bonds or related Qualified Hedge Providers are entitled to receive any Payment from the Pledged Revenues or the amounts held in the funds and accounts created under the Bond Ordinance of Principal of, premium, if any, or interest on the Subordinate Bonds or Hedge Payments under Subordinate Hedge Agreements. The obligations of the District to pay to the owners of the Subordinate Bonds the Principal of, premium, if any, and interest thereon in accordance with their terms and to pay Hedge Payments to related Qualified Hedge Providers in accordance with the terms of the Subordinate Hedge Agreements shall be unconditional and absolute. Nothing in the Bond Ordinance shall prevent the owners of the Subordinate Bonds or related Qualified Hedge Providers from exercising all remedies otherwise permitted by applicable law or under the Bond Ordinance or the Subordinate Hedge Agreements upon default thereunder, subject to the rights contained in the Bond Ordinance of the owners of Senior Bonds and related Qualified Hedge Providers to receive cash, property, or securities otherwise payable or deliverable to the owners of the Subordinate Bonds and related Qualified Hedge Providers, and any Series Ordinance authorizing Subordinate Bonds may provide C-24 that, insofar as a trustee or paying agent for the Subordinate Bonds is concerned, the foregoing provisions shall not prevent the application by such trustee or paying agent of any moneys deposited with such trustee or paying agent for the purpose of the payment of or on account of the Principal of, premium, if any, and interest on such Subordinate Bonds and Hedge Payments under Subordinate Hedge Agreements if such trustee or paying agent did not have knowledge at the time of such application that such payment was prohibited by the foregoing provisions. Any series of Subordinate Bonds and related Subordinate Hedge Agreements may have such rank or priority with respect to any other series of Subordinate Bonds and related Subordinate Hedge Agreements as may be provided in the Series Ordinance authorizing such series of Subordinate Bonds and may contain such other provisions as are not in conflict with the provisions of the Bond Ordinance. Accession of Subordinate Bonds and Related Subordinate Hedge Agreements to Senior Status By proceedings authorizing all or any Subordinate Bonds, the District may provide for the accession of such Subordinate Bonds and related Subordinate Hedge Agreements to the status of complete parity with the Senior Bonds and related Senior Hedge Agreements if, as of the date of accession, the conditions of the Bond Ordinance described in subparagraphs (a), (e) and (f) above under the caption “SENIOR AND SUBORDINATE LIEN BONDS – Senior Bonds”) are satisfied, on a basis which includes all Outstanding Senior Bonds and such Subordinate Bonds, and if on the date of accession: (a) the Debt Service Reserve Account contains an amount equal to the Debt Service Reserve Requirement computed on a basis which includes all Outstanding Senior Bonds and such Subordinate Bonds (but which excludes, in the case of both Outstanding Senior Bonds and such Subordinate Bonds, any SRF Bonds and Senior Uncovered Bonds); and (b) the Payments Account contains the amount which would have been required to be accumulated therein on the date of accession if the Subordinate Bonds had originally been issued as Senior Bonds. Credit Facilities and Hedge Agreements In connection with the issuance of any Bonds under the Bond Ordinance, the District may obtain or cause to be obtained one or more Credit Facilities providing for payment of all or a portion of the Principal of, premium, if any, or interest due or to become due on such Bonds, providing for the purchase of such Bonds by the Credit Facility Provider, or providing funds for the purchase of such Bonds by the District. In connection therewith the District shall enter into Credit Facility Agreements with such Credit Facility Providers providing for, among other things, (i) the payment of fees and expenses to such Credit Facility Providers for the issuance of such Credit Facilities; (ii) the terms and conditions of such Credit Facilities and the Bonds affected thereby; and (iii) the security, if any, to be provided for the issuance of such Credit Facilities. The District may secure any Credit Facility by an agreement providing for the purchase of the Bonds secured thereby with such adjustments to the rate of interest, method of determining interest, maturity, or redemption provisions as are specified by the District in the applicable Series Ordinance. The District may in a Credit Facility Agreement agree to directly reimburse such Credit Facility Provider for amounts paid under the terms of such Credit Facility, together with interest thereon; provided, however, that no Reimbursement Obligation shall be created for purposes of the Bond Ordinance until amounts are paid under such Credit Facility. Any such Reimbursement Obligation shall be deemed to be a part of the Bonds to which the Credit Facility relates which gave rise to such Reimbursement Obligation, and references to Principal and interest payments with respect to such Bonds shall include Principal and interest (except for Additional Interest and Principal amortization requirements with respect to the Reimbursement Obligation that are more accelerated than the amortization requirements for the related Bonds, without acceleration) due on the Reimbursement Obligation incurred as a result of payment of such Bonds with the Credit Facility. All other amounts payable under the Credit Facility Agreement (including any Additional Interest and Principal amortization requirements with respect to the Reimbursement obligation that are more accelerated than the amortization requirements for the related Bonds, without acceleration) shall be fully subordinate to the payment of debt service on the related class of Bonds. C-25 Any such Credit Facility shall be for the benefit of and secure such Bonds or portion thereof as specified in the applicable Series Ordinance. In connection with the issuance of any Bonds or at any time thereafter so long as such Bonds remain Outstanding, the District may enter into Hedge Agreements with Qualified Hedge Providers, and no other providers, with respect to any Bonds. The District shall authorize the execution, delivery, and performance of each Hedge Agreement in a Supplemental Ordinance, in which it shall designate the related Hedged Bonds. The District’s obligation to pay Hedge Payments may be secured by a pledge of, and lien on, the Pledged Revenues on a parity with the lien created by the Bond Ordinance to secure the related Hedged Bonds, or may be subordinated in lien and right of payment to the payment of the Bonds, as determined by the District. Other Obligations The District expressly reserves the right, at any time, to adopt one or more other bond ordinances and reserves the right, at any time, to issue any other obligations not secured by the amounts pledged under the Bond Ordinance. DEFAULT AND ENFORCEMENT Events of Default An “Event of Default” shall mean the occurrence of any one or more of the following: (a) failure to pay the Principal or redemption price of any Bond when the same shall become due and payable, either at maturity or by proceedings for redemption or otherwise; or (b) failure to pay any installment of interest on any Bond when and as such installment of interest shall become due and payable; or (c) default shall be made by the District in the performance of any obligation in respect to the Debt Service Reserve Account and such default shall continue for 30 days thereafter; or (d) the District shall (1) admit in writing its inability to pay its debts generally as they become due, (2) file a petition in bankruptcy or take advantage of any insolvency act, (3) make an assignment for the benefit of its creditors, (4) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or (5) be adjudicated a bankrupt; or (e) a court of competent jurisdiction shall enter an order, judgment, or decree appointing a receiver of the System or any of the funds or accounts established in the Bond Ordinance, or of the whole or any substantial part of the District’s property, or approving a petition seeking reorganization of the District under the federal bankruptcy laws or any other applicable law or statute of the United States of America or the State, and such order, judgment, or decree shall not be vacated or set aside or stayed within 60 days from the date of the entry thereof; or (f) under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of any of the funds or accounts established in the Bond Ordinance, or of the whole or any substantial part of the District’s property, and such custody or control shall not be terminated or stayed within 60 days from the date of assumption of such custody or control; or (g) the District shall fail to perform any of the other covenants, conditions, agreements, and provisions contained in the Bonds or in the Bond Ordinance (other than the covenant in the Bond Ordinance relating to continuing disclosure) on the part of the District to be performed, and such failure shall continue for 90 days after written notice specifying such failure and requiring it to be remedied shall have been given to the District by the owners of not less than, or a Credit Facility Provider securing not less than, 25% in aggregate Principal of the Bonds then Outstanding; provided, however, if the failure stated in such notice can be corrected, but not within such 90-day period, the District shall have 180 days after such written notice to cure C-26 such default if corrective action is instituted by the District within such 90-day period and diligently pursued until the failure is corrected; or (h) (1) an Event of Default relating to the non-payment of the Principal or redemption price or installment of interest shall occur under any Series Ordinance or (2) an Event of Default, other than as described in clause (h)(1) shall occur under any Series Ordinance; or (i) failure by any Credit Facility Provider to pay the purchase price of Bonds under any Credit Facility then in effect; or (j) delivery to the District by a Credit Facility Provider of written notice stating that an “Event of Default” has occurred under any Credit Facility Agreement; or (k) delivery to the District by a Qualified Hedge Provider of written notice stating that an “event of default” has occurred under any Senior Hedge Agreement. Remedies Upon the happening and continuance of any Event of Default described in clauses (a), (b) and (h)(1) above under the caption “Events of Default” as to any Senior Bond, then and in every such case, upon the written declaration of the owners of more than 50% in aggregate Principal of all Senior Bonds then Outstanding or upon the written demand of a Credit Facility Provider securing more than 50% in aggregate Principal of the Senior Bonds then Outstanding, the Principal of all Senior Bonds then Outstanding shall become due and payable immediately, together with the interest accrued thereon to the date of such acceleration, at the place of payment provided therein, and interest on the Senior Bonds shall cease to accrue after the date of such acceleration, anything in the Bond Ordinance or in the Senior Bonds to the contrary notwithstanding. With respect to any Senior Bonds secured by a Credit Facility, only the applicable Credit Facility Provider may give written demand to declare the Principal of and accrued interest on such Senior Bonds to be immediately due and payable. Upon the happening and continuance of any Event of Default described in clause (i) above under the caption “Events of Default”, then and in every such case, upon the written declaration of the owners of more than 50% in aggregate Principal of the Senior Bonds of the affected series then Outstanding, the Principal of all Senior Bonds of the affected series then Outstanding shall become due and payable immediately, together with the interest accrued thereon to the date of such acceleration, at the place of payment provided therein, and interest on the Senior Bonds of the affected series shall cease to accrue after the date of such acceleration, anything in the Bond Ordinance or in the Senior Bonds of the affected series to the contrary notwithstanding. Upon the happening and continuance of any Event of Default described in clause (k) above under the caption “Events of Default”, then and in every such case, upon the written declaration of the owners of more than 50% in aggregate Principal of the Senior Bonds of the affected series then Outstanding, the Principal of all Senior Bonds of the affected series then Outstanding shall become due and payable immediately, together with the interest accrued thereon to the date of such acceleration, at the place of payment provided therein, and interest on the Senior Bonds of the affected series shall cease to accrue after the date of such acceleration, anything in the Bond Ordinance or in the Senior Bonds of the affected series to the contrary notwithstanding. Notwithstanding the foregoing, with respect to any Senior Bonds secured by a Credit Facility, only the applicable Credit Facility Provider may give written demand to declare the Principal of and accrued interest on such Senior Bonds to be immediately due and payable. Upon any declaration of acceleration under the Bond Ordinance, the District shall immediately draw under the applicable Credit Facility to the extent permitted by the terms thereof that amount which, together with other amounts on deposit under the Bond Ordinance, shall be sufficient to pay the Principal of and accrued interest on the related Senior Bonds so accelerated. The above provisions, however, are subject to the condition that if, after the Principal of the Senior Bonds shall have been so accelerated, all arrears of interest upon such Bonds, and interest on overdue C-27 installments of interest at the rate on such Bonds, shall have been paid by the District, the Principal of such Bonds which has matured (except the Principal of any Bonds not then due by their terms except as provided above) have been paid, and the District shall also have performed all other things in respect to which it may have been in default under the Bond Ordinance, and, if applicable, each Credit Facility Provider shall have reinstated the Credit Facility in the full amount available to be drawn thereunder by written notice to the District, then, in every such case, the owners of more than 50% in aggregate Principal of all Senior Bonds then Outstanding by written notice to the District, may waive such default and its consequences and such waiver shall be binding upon the District and upon all owners of the Bonds; but no such waiver shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. Notwithstanding the foregoing, as long as the applicable Credit Facility Provider shall not then continue to dishonor draws under the Credit Facility, no Event of Default with respect to the related Senior Bonds may be waived without the express written consent of such Credit Facility Provider. Upon the happening and continuance of any Event of Default, any owner of Senior Bonds then Outstanding affected by the Event of Default or a duly authorized agent for such owner may proceed to protect and enforce its rights and the rights of the owners of Senior Bonds by such of the following remedies as it shall deem most effectual to protect and enforce such rights: (1) by mandamus or other suit, action, or proceeding at law or in equity, enforce all rights of the owners of Senior Bonds, including the right to require the appointment of a receiver for the System or to exercise any other right or remedy provided by the Constitution and laws of the State and the Charter and to require the District to perform any other covenant or agreement contained in the Bond Ordinance; (2) by action or suit in equity, require the District to account as if it were the trustee of an express trust for the owners of the Senior Bonds; (3) by action or suit in equity, enjoin any acts or things which may be unlawful or in violation of the rights of the owners of the Senior Bonds; or (4) by pursuing any other available remedy at law or in equity or by statute. In the enforcement of any remedy under the Bond Ordinance, owners of Senior Bonds shall be entitled to sue for, enforce payment on, and receive any and all amounts then or during any default becoming, and at any time remaining, due from the District for Principal, redemption premium, interest, or otherwise, under any provision of the Bond Ordinance or of the Senior Bonds, and unpaid, with interest on overdue payments at the rate or rates of interest specified in such Senior Bonds, together with any and all costs and expenses of collection and of all proceedings under the Bond Ordinance and under such Senior Bonds, without prejudice to any other right or remedy of the owners of Senior Bonds, and to recover and enforce a judgment or decree against the District for any portion of such amounts remaining unpaid, with interest, costs, and expenses, and to collect from any moneys available for such purpose, in any manner provided by law, the moneys adjudged or decreed to be payable. If no Senior Bonds are then Outstanding or if no Event of Default with respect to any Senior Bonds has then occurred and is continuing, in the enforcement of any remedy under the Bond Ordinance, owners of Subordinate Bonds shall be entitled to sue for, enforce payment on, and receive any and all amounts then or during any default becoming, and at any time remaining, due from the District for Principal, redemption premium, interest, or otherwise, under any provision of the Bond Ordinance or of the Subordinate Bonds, and unpaid, with interest on overdue payments at the rate or rates of interest specified in such Subordinate Bonds, together with any and all costs and expenses of collection and of all proceedings under the Bond Ordinance and under such Subordinate Bonds, without prejudice to any other right or remedy of the owners of Subordinate Bonds, and to recover and enforce a judgment or decree against the District for any portion of such amounts remaining unpaid, with interest, costs, and expenses, and to collect from any moneys available for such purpose, in any manner provided by law, the moneys adjudged or decreed to be payable. Nothing in C-28 this paragraph is intended to diminish the rights of the owners of Subordinate Bonds described in clauses (1) through (4) above. No remedy conferred upon or reserved to the Bondholders is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Bond Ordinance or now or hereafter existing at law or in equity or by statute. Application of Moneys After Default If an Event of Default occurs and shall not have been remedied, the District or a receiver appointed for the purpose shall apply all Pledged Revenues (except with respect to the Debt Service Reserve Account which does not secure Subordinate Bonds, Senior SRF Bonds and Senior Uncovered Bonds) as follows and in the following order of priority: (a) Expenses of Receiver and Paying Agent and Bond Registrar - to the payment of the reasonable and proper charges, expenses, and liabilities of any receiver and the Paying Agent and Bond Registrar under the Bond Ordinance; (b) Expenses of Operation and Maintenance and Renewals and Replacements - to the payment of all reasonable and necessary Expenses of Operation and Maintenance and major renewals and replacements to the System; (c) Principal or Redemption Price, Interest, and Hedge Payments Relating to Senior Bonds - to the payment of the interest and Principal or redemption price then due on the Senior Bonds and Hedge Payments then due under Senior Hedge Agreements, as follows: (i) Unless the Principal of all the Senior Bonds shall have become due and payable, all such moneys shall be applied as follows: first: To the payment to the persons entitled thereto of all installments of interest then due on the Senior Bonds, in the order of the maturity of such installments (with interest on defaulted installments of interest at the rate or rates borne by the Senior Bonds with respect to which such interest is due, but only to the extent permitted by law), and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or preference. If some of the Senior Bonds bear interest payable at different intervals or upon different dates and if at any time moneys from the Debt Service Reserve Account must be used to pay any such interest, the moneys in the Debt Service Reserve Account shall be applied (to the extent necessary) to the payment of all interest becoming due on the dates upon which such interest is payable to and including the next succeeding semiannual Interest Payment Date specified for the Senior Bonds. After such date, moneys in the Debt Service Reserve Account plus any other moneys available in the Payments Account shall be set aside for the payment of interest on Senior Bonds of each class (a class consisting of all Senior Bonds payable as to interest on the same dates) pro rata among Senior Bonds of the various classes on a daily basis so that there shall accrue to each owner of a Senior Bond throughout each Fiscal Year the same proportion of the total interest payable to such owner of a Senior Bond as shall so accrue to every other owner of a Senior Bond during such Fiscal Year. second: To the payment of the Hedge Payments due under any Senior Hedge Agreements pursuant to their terms. third: To the payment to the persons entitled thereto of the unpaid Principal of any of the Senior Bonds which shall have become due at maturity or upon mandatory redemption prior to maturity (other than Senior Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Bond Ordinance), in the order of their due dates, with interest upon such Senior Bonds from the respective dates upon which they became due, and, if the amount C-29 available shall not be sufficient to pay in full Senior Bonds due on any particular date, together with such interest, then to the payment first of such interest, ratably according to the amount of such interest due on such date, and then to the payment of such Principal, ratably according to the amount of such Principal due on such date, to the persons entitled thereto without any discrimination or preference. If some of the Senior Bonds mature (including mandatory redemption prior to maturity as a maturity) upon a different date or dates, and if at any time moneys from the Debt Service Reserve Account must be used to pay any such Principal becoming due, the moneys in the Debt Service Reserve Account not required to pay interest under paragraph first above shall be applied to the extent necessary to the payment of all Principal becoming due on the dates upon which such Principal is payable to and including the final annual Principal Maturity Date specified for the Senior Bonds. After such date, moneys in the Debt Service Reserve Account not required to pay interest plus any other moneys available in the Payments Account shall be set aside for the payment of Principal of Senior Bonds of each class (a class consisting of all Senior Bonds payable as to Principal on the same date) pro rata among Senior Bonds of the various classes which mature or must be redeemed pursuant to mandatory redemption prior to maturity throughout each Fiscal Year in such proportion of the total Principal payable on each such Senior Bond as shall be equal among all classes of Senior Bonds maturing or subject to mandatory redemption within such Fiscal Year. fourth: To the payment of the redemption premium on and the Principal of any Senior Bonds called for optional redemption pursuant to their terms. (ii) If the Principal of all the Senior Bonds shall have become due and payable, all such moneys shall be applied to the payment of the Principal and interest then due and unpaid upon the Senior Bonds, with interest thereon as aforesaid, and due and unpaid Hedge Payments under Senior Hedge Agreements, without preference or priority of Principal over interest or Hedge Payments or of interest over Principal or Hedge Payments, or of Hedge Payments over Principal or interest, or of any installment of interest over any other installment of interest, or of any Senior Bond over any other Senior Bonds, or of any such Hedge Payment over any other such Hedge Payment, ratably, according to the amounts due respectively for Principal, interest, and Hedge Payments, to the persons entitled thereto without any discrimination or preference. Rights of Credit Facility Provider Notwithstanding any other provision of the Bond Ordinance, in the event that the District shall draw under a Credit Facility any amount for the payment of Principal of or interest on any Bonds, then upon such payment the related Credit Facility Provider shall succeed to and become subrogated to the rights of the recipients of such payments and such Principal or interest shall be deemed to continue to be unpaid and Outstanding for all purposes and shall continue to be fully secured by the Bond Ordinance until the Credit Facility Provider, as successor and subrogee, has been paid all amounts owing in respect of such subrogated payments of Principal and interest. Such rights shall be limited and evidenced by having the District note the Credit Facility Provider’s rights as successor and subrogee on its records, and the District shall, upon request, deliver to the Credit Facility Provider (i) in the case of interest on the Bonds, an acknowledgment of the Credit Facility Provider’s ownership of interest to be paid on the Bonds specifying the amount of interest owed, the period represented by such interest, and the CUSIP numbers of the Bonds on which such interest is owed and (ii) in the case of Principal of the Bonds, either the Bonds themselves duly assigned to the Credit Facility Provider or new Bonds registered in the name of the Credit Facility Provider or in such other name as the Credit Facility Provider shall specify. Whenever moneys become available for the payment of any interest then overdue, the Credit Facility Provider shall be treated as to interest owed to it as and as if it had been the Bondholder of the Bonds upon which such interest is payable on any special record date therefor. No Obligation to Levy Taxes Nothing contained in the Bond Ordinance shall be construed as imposing on the District any duty or obligation to levy any taxes either to meet any obligation incurred in the Bond Ordinance or to pay the Principal of or interest on the Bonds. C-30 DEFEASANCE Except as otherwise provided in any Series Ordinance with respect to Bonds secured by a Credit Facility, Bonds for the payment or redemption of which sufficient moneys or sufficient Government Obligations shall have been deposited with the Paying Agent or the Depository of the Sinking Fund (whether upon or prior to the maturity or the redemption date of such Bonds) shall be deemed to be paid and no longer Outstanding under the Bond Ordinance; provided, however, that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been duly given as provided in the Bond Ordinance or firm and irrevocable arrangements shall have been made for the giving of such notice; and, provided, further, that Bonds bearing interest at a Variable Rate shall not be deemed to have been paid and discharged within the meaning of the Bond Ordinance unless the interest rate payable on such Bonds is calculated at the maximum interest rate specified for such Bonds to the earlier of the first tender or redemption date. Government Obligations shall be considered sufficient for purposes of the Bond Ordinance only: (i) if such Government Obligations are not callable by the issuer of the Government Obligations prior to their stated maturity; and (ii) if such Government Obligations fall due and bear interest in such amounts and at such times as will assure sufficient cash to pay currently maturing interest and to pay Principal and redemption premiums, if any, when due on the Bonds without rendering the interest on any Tax-Exempt Bonds includable in gross income of any owner thereof for federal income tax purposes. The District may at any time surrender to the Bond Registrar for cancellation by it any Bonds previously authenticated and delivered under the Bond Ordinance which the District may have acquired in any manner whatsoever. All such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. SUPPLEMENTAL ORDINANCES Supplemental Ordinances Not Requiring Consent of Bondholders The District, from time to time and at any time, subject to the conditions and restrictions in the Bond Ordinance, may adopt one or more Supplemental Ordinances which thereafter shall form a part of the Bond Ordinance, for any one or more or all of the following purposes: (a) To add to the covenants and agreements of the District in the Bond Ordinance other covenants and agreements thereafter to be observed or to surrender, restrict, or limit any right or power reserved in the Bond Ordinance to or conferred upon the District (including but not limited to the right to issue Senior Bonds); (b) To make such provisions for the purpose of curing any ambiguity, or of curing, correcting, or supplementing any defective provision contained in the Bond Ordinance, or in regard to matters or questions arising under the Bond Ordinance, as the District may deem necessary or desirable and not inconsistent with the Bond Ordinance; (c) To subject to the lien and pledge of the Bond Ordinance additional revenues, receipts, properties, or other collateral; (d) To evidence the appointment of successors to any Depository, Paying Agent, or Bond Registrar; (e) To modify, amend, or supplement the Bond Ordinance in such manner as to permit the qualification of the Bond Ordinance under the Trust Indenture Act of 1939 or any federal statute hereinafter in effect, and similarly to add to the Bond Ordinance such other terms, conditions, and provisions as may be permitted or required by such Trust Indenture Act of 1939 or any similar federal statute; C-31 (f) To make any modification or amendment of the Bond Ordinance required in order to make any Bonds eligible for acceptance by DTC or any similar holding institution or to permit the issuance of any Bonds or interests therein in book-entry form; (g) To modify any of the provisions of the Bond Ordinance in any respect if such modification shall not become effective until after the Bonds Outstanding immediately prior to the effective date of such Supplemental Ordinance shall cease to be Outstanding and if any Bonds issued contemporaneously with or after the effective date of such Supplemental Ordinance shall contain a specific reference to the modifications contained in such subsequent proceedings; (h) Subject to the provisions of the Bond Ordinance relating to the Project Fund, to modify the provisions of the Bond Ordinance with respect to the disposition of any moneys remaining in the Project Fund upon the completion of any Project; (i) To increase the size or scope of the System, to add other utilities to the System, to create additional subaccounts or to abolish any subaccounts within any account, or to change the amount of the Debt Service Reserve Requirement, but not below the amount specified in such definition; (j) To modify the Bond Ordinance to permit the qualification of any Bonds for offer or sale under the securities laws of any state in the United States of America; (k) To modify the Bond Ordinance to provide for the issuance of Senior Bonds or Subordinate Bonds, and such modification may deal with any subjects and make any provisions which the District deems necessary or desirable for that purpose; (l) To make such modifications in the provisions of the Bond Ordinance as may be deemed necessary by the District to accommodate the issuance of capital appreciation bonds or Bonds which bear interest at a Variable Rate; and (m) To modify any of the provisions of the Bond Ordinance in any respect (other than a modification of the type described below under the caption “SUPPLEMENTAL ORDINANCES – Supplemental Ordinances Requiring Consent of Bondholders”) requiring the unanimous written consent of the Bondholders); provided that for (i) any Outstanding Bonds which are assigned a Rating and which are not secured by a Credit Facility providing for the payment of the full amount of Principal and interest to be paid thereon, each Rating Agency shall have given written notification to the District that such modification will not cause the then applicable Rating on any Bonds to be reduced or withdrawn, and (ii) any Outstanding Bonds which are secured by Credit Facilities providing for the payment of the full amount of the Principal and interest to be paid thereon, each Credit Facility Provider shall have consented in writing to such modification. Any Supplemental Ordinance of the District may modify the provisions of the Bond Ordinance in such a manner, and to such extent and containing such provisions, as the District may deem necessary or desirable to effect any of the purposes stated above. As used in the Bond Ordinance, the term “modify” shall mean “modify, amend, or supplement” and the term “modification” shall mean “modification, amendment, or supplement.” Supplemental Ordinances Requiring Consent of Bondholders With the consent (evidenced as provided in the Bond Ordinance) of the owners of not less than a majority in aggregate Principal of the Outstanding Bonds of each class (senior and subordinate), voting separately by class, the District may from time to time and at any time adopt a Supplemental Ordinance for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Bond Ordinance or of any Supplemental Ordinance; provided, however, that no such Supplemental Ordinance shall: (1) extend the maturity date or due date of any mandatory sinking fund redemption with respect to any C-32 Bond Outstanding under the Bond Ordinance; (2) reduce or extend the time for payment of Principal of, redemption premium, or interest on any Bond Outstanding under the Bond Ordinance; (3) reduce any premium payable upon the redemption of any Bond under the Bond Ordinance or advance the date upon which any Bond may first be called for redemption prior to its stated maturity date; (4) give to any Senior Bond or Senior Bonds (or related Senior Hedge Agreements) a preference over any other Senior Bond or Senior Bonds (or related Senior Hedge Agreements); (5) permit the creation of any lien or any other encumbrance on the Pledged Revenues having a lien equal to or prior to the lien created under the Bond Ordinance for the Senior Bonds; (6) reduce the percentage of owners of senior or subordinate classes of Bonds required to approve any such Supplemental Ordinance; or (7) deprive the owners of the Bonds of the right to payment of the Bonds or from the Pledged Revenues (except as otherwise provided herein with respect to the Debt Service Reserve Account), without, in each case, the consent of the owners of all the affected Bonds then Outstanding. No amendment may be made under the Bond Ordinance which affects the rights or duties of any Credit Facility Provider securing any of the Bonds or any Qualified Hedge Provider under any Hedge Agreement without its written consent. If the District intends to enter into or adopt any Supplemental Ordinance as described in this caption, the District shall mail, by registered or certified mail, to the registered owners of the Bonds at their addresses as shown on the Bond Register, a notice of such intention along with a description of such Supplemental Ordinance not less than 30 days prior to the proposed effective date of such Supplemental Ordinance. The consents of the registered owners of the Bonds need not approve the particular form of wording of the proposed Supplemental Ordinance, but it shall be sufficient if such consents approve the substance thereof. Failure of the owner of any Bond to receive the notice required in the Bond Ordinance shall not affect the validity of any Supplemental Ordinance if the required number of owners of the Bonds of each class shall provide their written consent to such Supplemental Ordinance. Notwithstanding any provision of the Bond Ordinance to the contrary, upon the issuance of a Credit Facility to secure any Bonds and for the period in which such Credit Facility is outstanding, the Credit Facility Provider may have the consent rights of the owners of the Bonds which are secured by such Credit Facility pertaining to some or all of the amendments or modifications of the Bond Ordinance, to the extent provided in the applicable Series Ordinance. Notwithstanding the foregoing, if a Credit Facility Provider is granted the consent rights of the owners of any Bonds in a Series Ordinance and refuses to exercise such consent rights, either affirmatively or negatively, then the registered owners of the Bonds secured by the related Credit Facility may exercise such consent rights. Notice of Supplemental Ordinances The District shall cause the Bond Registrar to mail a notice by registered or certified mail to the registered owners of all Bonds Outstanding, at their addresses shown on the Bond Register or at such other address as has been furnished in writing by such registered owner to the Bond Registrar, setting forth in general terms the substance of any Supplemental Ordinance which has been adopted and approved. * * * C-33 SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT The following is a summary of certain provisions and covenants contained in the Continuing Disclosure Agreement. Such summary does not purport to be a complete statement of the terms of the Continuing Disclosure Agreement and accordingly is qualified in its entirety by reference thereto and is subject to the full text thereof. Definitions In addition to the definitions set forth in the Continuing Disclosure Agreement, the following capitalized terms shall have the following meanings: “Annual Filing Date” means the date, set in the Continuing Disclosure Agreement, by which the Annual Report is to be filed with the MSRB. “Annual Financial Information” means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in the Continuing Disclosure Agreement. “Annual Report” means an Annual Report containing Annual Financial Information described in and consistent with the Continuing Disclosure Agreement. “Audited Financial Statements” means the annual financial statements (if any) of the District for the prior fiscal year, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i)(B) of the Rule and as specified in the Continuing Disclosure Agreement. “Certification” means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure delivered to the Disclosure Dissemination Agent is the Annual Report, Audited Financial Statements, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure required to be submitted to the MSRB under the Continuing Disclosure Agreement. A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the District and shall include the full name of the Bonds and the 9-digit CUSIP numbers for all Bonds to which the document applies. “Disclosure Dissemination Agent” means Digital Assurance Certification, L.L.C., acting in its capacity as Disclosure Dissemination Agent (“DAC”) under the Continuing Disclosure Agreement, or any successor Disclosure Dissemination Agent designated in writing by the District pursuant to the Continuing Disclosure Agreement. “Disclosure Representative” means the Secretary-Treasurer of the District or his or her designee, or such other person as the District shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent. “Failure to File Event” means the District’s failure to file an Annual Report on or before the Annual Filing Date. “Force Majeure Event” means: (i) acts of God, war, or terrorist action; (ii) failure or shut-down of the Electronic Municipal Market Access system maintained by the MSRB; or (iii) to the extent beyond the Disclosure Dissemination Agent’s reasonable control, interruptions in telecommunications or utilities services, failure, malfunction or error of any telecommunications, computer or other electrical, mechanical or technological application, service or system, computer virus, interruptions in Internet service or telephone service (including due to a virus, electrical delivery problem or similar occurrence) that affect Internet users generally, or in the local area in which the Disclosure Dissemination Agent or the MSRB is located, or acts of any government, regulatory or any other competent authority the effect of which is to prohibit the Disclosure Dissemination Agent from performance of its obligations under this Disclosure Agreement. C-34 “Holder” means any person (a) having 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, depositories or other intermediaries) or (b) treated as the owner of any Bonds for federal income tax purposes. “Information” means, collectively, the Annual Reports, the Audited Financial Statements, the Notice Event notices, the Failure to File Event notices, the Voluntary Event Disclosures and the Voluntary Financial Disclosures. “MSRB” means the Municipal Securities Rulemaking Board, or any successor thereto, established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934. “Notice Event” means any of the events enumerated in paragraph (b)(5)(i)(C) of the Rule and listed in the Continuing Disclosure Agreement. “Obligated Person” means any person, including the District, who is either generally or through an enterprise, fund, or account of such person committed by contract or other arrangement to support payment of all, or part of the obligations on the Bonds (other than providers of municipal bond insurance, letters of credit, or other liquidity facilities). “Official Statement” means that Official Statement prepared by the District in connection with the Bonds. “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. “Voluntary Event Disclosure” means information of the category specified in any of subsections (e)(vi)(1) through (e)(vi)(11) of Section 2 of the Disclosure Agreement that is accompanied by a Certification of the Disclosure Representative containing the information prescribed by Section 7(a) of the Disclosure Agreement. “Voluntary Financial Disclosure” means information of the category specified in any of subsections (e)(vii)(1) through (e)(vii)(9) of Section 2 of the Disclosure Agreement that is accompanied by a Certification of the Disclosure Representative containing the information prescribed by Section 7(b) of the Disclosure Agreement. Provision of Annual Reports The District shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent, not later than the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide an Annual Report to the MSRB not later than 180 days after the end of each fiscal year of the District, commencing with the fiscal year ending June 30, 2017. Such date and each anniversary thereof is the Annual Filing Date. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in the Continuing Disclosure Agreement. If on the fifteenth (15th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail) to remind the District of its undertaking to provide the Annual Report. Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification) no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the District will not be able to file the Annual Report within the time required under the Continuing Disclosure Agreement, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent to immediately send a Failure to File Event notice to the MSRB in substantially the form specified in the Continuing Disclosure Agreement. C-35 If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 10:00 a.m. Eastern time on the Annual Filing Date (or, if such Annual Filing Date falls on a Saturday, Sunday or holiday, then the first business day thereafter) for the Annual Report, a Failure to File Event shall have occurred and the Issuer irrevocably directs the Disclosure Dissemination Agent to immediately send a Failure to File Event notice to the MSRB in substantially the form specified in the Continuing Disclosure Agreement. If Audited Financial Statements of the District are prepared but not available prior to the Annual Filing Date, the District shall, when the Audited Financial Statements are available, provide at such time an electronic copy to the Disclosure Dissemination Agent, accompanied by a Certification for filing with the MSRB. The District may adjust the Annual Filing Date upon change of its fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent, Paying Agent (if any) and the MSRB, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year. Content of Annual Reports Each Annual Report shall contain Annual Financial Information with respect to the District, including the information provided in the Official Statement under the headings: “FINANCIAL OPERATIONS OF THE DISTRICT - Historical and Projected Sewer Rates and Charges,” “- Customer Accounts,” “- Largest User Charge Customers,” and “ – User Charge Revenues.” Each Annual Report shall include Audited Financial Statements prepared as described in the Official Statement. If Audited Financial Statements are not available, then, unaudited financial statements, prepared in accordance with generally accepted accounting principles or alternate accounting principles as described in the Official Statement will be included in the Annual Report. Any or all of the items listed above may be included by specific reference from other documents, including official statements of debt issues with respect to which the District is an Obligated Person (as defined by the Rule), which have been previously filed with each of the Securities and Exchange Commission or available on the MSRB Internet Website. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The District will clearly identify each such document so incorporated by reference. Reporting of Notice Events The occurrence of any of the following events with respect to the Bonds constitutes a Notice Event: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults, if material; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. 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; 7. Modifications to rights of Bondholders, if material; 8. Bond calls, if material, and tender offers; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Bonds, if material; C-36 11. Rating changes; 12. Bankruptcy, insolvency, receivership or similar event of the Obligated Person; For the purposes of the event described in this subsection, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an Obligated Person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Obligated Person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Obligated Person. 13. The consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of the Obligated Person, 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; and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material; The District shall, in a timely manner not later than nine business days after its occurrence, notify the Disclosure Dissemination Agent in writing of the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence and shall be accompanied by a Certification. Such notice or Certification shall identify the Notice Event that has occurred, include the text of the disclosure that the District desires to make, contain the written authorization of the District for the Disclosure Dissemination Agent to disseminate such information, and identify the date the District desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth business day after the occurrence of the Notice Event). The Disclosure Dissemination Agent is under no obligation to notify the District or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure Representative will within two business days of receipt of such notice (but in any event not later than the tenth business day after the occurrence of the Notice Event, if the District determines that a Notice Event has occurred), instruct the Disclosure Dissemination Agent that either (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to the Continuing Disclosure Agreement, together with a Certification. Such Certification shall identify the Notice Event that has occurred, include the text of the disclosure that the District desires to make, contain the written authorization of the District for the Disclosure Dissemination Agent to disseminate such information, and identify the date the District desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth business day after the occurrence of the Notice Event). If the Disclosure Dissemination Agent has been instructed by the District to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence with the MSRB in accordance with the Continuing Disclosure Agreement. Voluntary Filings The District may instruct the Disclosure Dissemination Agent to file a Voluntary Event Disclosure or a Voluntary Financial Disclosure with the MSRB, from time to time pursuant to a Certification of the Disclosure Representative. C-37 Nothing in the Continuing Disclosure Agreement shall be deemed to prevent the District from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in the Continuing Disclosure Agreement or including any other information in any Annual Report, Audited Financial Statement, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure, in addition to that required by the Continuing Disclosure Agreement. If the District chooses to include any information in any Annual Report, Audited Financial Statement, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure in addition to that which is specifically required by the Continuing Disclosure Agreement, the District shall have no obligation under the Continuing Disclosure Agreement to update such information or include it in any future Annual Report, Audited Financial Statement, Notice Event notice, Failure to File Event notice, Voluntary Event Disclosure or Voluntary Financial Disclosure. Termination of Reporting Obligation The obligations of the District and the Disclosure Dissemination Agent under the Continuing Disclosure Agreement shall terminate with respect to the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds, when the District is no longer an Obligated Person, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of counsel experienced in federal securities laws to the effect that continuing disclosure is no longer required. Disclosure Dissemination Agent The District has appointed Digital Assurance Certification, L.L.C. (“DAC”) as exclusive Disclosure Dissemination Agent under the Continuing Disclosure Agreement. The District may, upon thirty days written notice to the Disclosure Dissemination Agent, replace or appoint a successor Disclosure Dissemination Agent. Upon termination of DAC’s services as Disclosure Dissemination Agent, whether by notice of the District or DAC, the District agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under the Continuing Disclosure Agreement for the benefit of the Holders of the Bonds. Notwithstanding any replacement or appointment of a successor, the District shall remain liable to the Disclosure Dissemination Agent until payment in full for any and all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign at any time by providing thirty days’ prior written notice to the District. Remedies in Event of Default In the event of a failure of the District or the Disclosure Dissemination Agent to comply with any provision of the Continuing Disclosure Agreement, the Holders’ rights to enforce the provisions of the Continuing Disclosure Agreement shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the parties’ obligation under the Continuing Disclosure Agreement. Any failure by a party to perform in accordance with the Continuing Disclosure Agreement shall not constitute a default on the Bonds or under any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated in the Continuing Disclosure Agreement. Amendment; Waiver Notwithstanding any other provision of the Continuing Disclosure Agreement, the District and the Disclosure Dissemination Agent may amend the Continuing Disclosure Agreement and any provision of the Continuing Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to both the District and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Holders of the Bonds and would not, in and of itself, cause the undertakings in the Continuing Disclosure Agreement to violate the Rule if such amendment or waiver had been effective on the date of the Continuing Disclosure Agreement but taking into account any subsequent change in or official interpretation of the Rule; provided neither the District or the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto. C-38 Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to the Continuing Disclosure Agreement necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days written notice of the intent to do so together with a copy of the proposed amendment to the District. No such amendment shall become effective if the District shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment. * * * APPENDIX D REPORT ON THE FINANCIAL FEASIBILITY OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT WASTEWATER SYSTEM REVENUE BONDS, SERIES 2016C [THIS PAGE INTENTIONALLY LEFT BLANK] 3013 Main Street Kansas City, MO 64108 Phone 816 . 285 . 9020 Fax 816 . 285 . 9021 www.raftelis.com December 8, 2016 Board of Trustees The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 Raftelis Financial Consultants, Inc. (“RFC”) is submitting herewith the Report on the Financial Feasibility of The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds, Series 2016C prepared at the request of The Metropolitan St. Louis Sewer District (“District”) in connection with the issuance of its Wastewater System Revenue Bonds, Series 2016C (the “Series 2016C Bonds”). The purpose of the report is to summarize findings of studies performed by RFC related to the wastewater system of the District (“System”). The report provides a financial feasibility analysis of the District’s Capital Improvement and Replacement Program (“CIRP”) as it relates to the issuance of the Series 2016C Bonds. The report also addresses other technical and financial issues that affect the operation of the System and the District’s ability to issue and repay wastewater revenue bonds issued during the study period of fiscal years 2016 through 2020. The District’s fiscal year ends on June 30 of each year. In preparing the report RFC has examined the financial operations of the District through reviews of financial reports, operating and capital budgets, and other statistical and financial information as well as through discussions with the District’s management and financial staff. We have performed various financial tests and analyses necessary to support our findings and opinions. In the development of the forecast of future financial operations summarized in the report, RFC has made certain assumptions with respect to conditions, events, and circumstances which may occur in the future. The methodologies utilized in performing our studies follow generally accepted industry practice. While RFC believes such assumptions are reasonable and attainable for the purpose of forecasting the District’s future operations, the actual results may differ materially from the forecasts as influenced by the conditions, events, and circumstances which actually occur. Subject to the limitations set forth herein, the report is based on information not within the control of RFC. RFC has not been requested to make an independent analysis, to verify the accuracy of information provided to us, or to render independent judgment of the validity of information provided by others. As such, RFC cannot, and does not, guarantee the accuracy thereof to the extent that such information, data, or opinions were based on information provided by others. Page 2 December 8, 2016 D-2 Use of the report, or any information contained therein, by a third party shall constitute a waiver and release of RFC from and against all claims and liability, including, but not limited to, liability for special, incidental, indirect, or consequential damages in connection with such use. In addition, to the extent permitted by applicable law, use of the report, or any information contained therein by a third party (other than the underwriters of the Series 2016C Bonds), shall constitute an agreement to defend and indemnify RFC from and against any claims and liability, including, but not limited to, liability for special, incidental, indirect, or consequential damages in connection with such use. The benefit of such releases, waivers, or limitations of liability shall extend to the related companies and subcontractors of any tier of RFC and the directors, officers, partners, employees, and agents of all released or indemnified parties. RFC shall have no liability to a third party for any losses or damages arising from or in any way related to this report and/or the information contained therein. Such express waiver of liability by the third party shall include all claims that the third party may allege in connection with RFC’s report including, but not limited to, breach of contract, breach of warranty, strict liability, negligence, and/or negligent misrepresentation. Our principal findings and opinions, which are discussed more fully in the report, are as follows: Wastewater System Financing • The District has developed a detailed CIRP required to meet regulatory requirements, maintain the integrity of the System, and continue to address water quality issues. During the five-year study period (study period) the District plans to spend approximately $1.7 billion on major capital improvements to the System. • As shown in Table 3 of the report, capital program requirements are projected to be funded from a combination of available funds on hand, senior and subordinate revenue bond proceeds, annual operating revenues, grants and contributions and interest income. Approximately 25 percent of total major capital improvement expenditures are anticipated to be funded from operating revenues and the drawdown of available fund balances and approximately the remaining 75 percent will be debt financed. Less than one percent of major capital improvements are anticipated to be financed by grants and contributions and interest earned on construction funds. • The average number of wastewater customers served by the District during fiscal year 2016 was approximately 424,700. Modest decreases in the number of customers are projected during the study period based on analysis of historical trends. • District revenue is derived principally from charges for wastewater service. The existing schedule of wastewater rates has been in effect since July 1, 2016. The Board adopted these wastewater rates on June 9, 2016 by Ordinance 14395. Page 3 December 8, 2016 D-3 • The District has six senior revenue bond issues currently outstanding (excluding the Series 2016C Bonds) and eleven subordinate series of revenue bonds issued under the state’s revolving fund (“SRF”) and Department of Natural Resources Direct Loan program currently outstanding (excluding the Series 2016A & 2016B Bonds). The District’s previous bond authorizations for senior revenue and subordinate revenue bond issues from elections on February 3, 2004 ($500 million) and August 5, 2008 ($275 million) have been fully utilized. Five bond issues totaling $652 million have been made from the District’s most recent bond authorization of $945 million approved by voters on June 5, 2012. The District is expected to issue the Series 2016A and Series 2016B SRF loans in the amounts of $20 million and $75.5 million, respectively, shortly after issuance of the Series 2016C Bonds. After issuance of the Series 2016A, Series 2016B, and Series 2016C Bonds the District will have $47.5 million of remaining bond authorization for senior revenue and subordinate revenue bond issues. The Rate Commission accepted the District's proposal to seek an additional $900 million in revenue bond authorization, which was authorized by voters on April 5, 2016. • A portion of the proceeds of the Series 2016C Bonds will be used to design and construct collection system repairs and improvements to reduce CSOs and SSOs (defined herein), and to eliminate sanitary sewer overflow structures. These collection system improvements will include cured in place pipe lining of existing sewers, reconstruction of sewers, construction of new sewers and force mains, green infrastructure, and elimination of sources of inflow/infiltration into the sewer system. Proceeds will also be used for construction of the Coldwater Wet Weather Storage Facility Tank C and to begin construction of the Maline Creek CSO Local Storage Facility. Work will also include various wastewater treatment facility improvements and repairs. • The Master Bond Ordinance adopted by the Board on April 22, 2004, as supplemented and amended by ordinances adopted by the Board for each bond issue, including the ordinance adopted by the Board for the Series 2016C Bonds (collectively, the “Bond Ordinance”), establishes covenants between the District and bondholders and various terms and conditions related to the Bonds. • The cash flow analysis of projected wastewater utility revenue and revenue requirements presented in Table 11 of the report shows that projected revenues, including projected revenue increases, will be sufficient to fund the operation and maintenance of the System, provide debt service coverage in excess of the requirements of the Bond Ordinance and continue full funding of the CIRP. • Based on the financial projections and analyses presented in the report, it is our opinion that the District will be able to adequately finance the CIRP, meet all known cash requirements of the System, and comply with all Bond Ordinance financial and rate covenants during the study period. Page 4 December 8, 2016 D-4 Bond Covenant Compliance • The proposed wastewater charges for fiscal years 2017 through 2020 will allow the District to issue additional revenue bonds within the study period as currently anticipated and make needed improvements and replacements of the System. • Indicated debt service coverage levels are above the minimum Bond Ordinance requirements. • The additional bonds test required for the issuance of the Series 2016C Bonds has been met. Conclusion • Based on the financial study performed by RFC related to the System, we believe that the District’s organizational structure, planned CIRP, and financing plans are sound for purposes of supporting the Series 2016C Bonds and subsequent bonds required to support the full implementation of the CIRP for the 2016 through 2020 fiscal years. The summary statements presented in this letter do not address all of the issues examined and described in the full report. Accordingly, the findings and conclusions presented herein should not be considered complete except in the context of the detailed descriptions and information contained in the report. We appreciate the opportunity to be of service to the District in this important matter. Very truly yours, RAFTELIS FINANCIAL CONSULTANTS, INC. William G. Stannard, PE President & Chief Executive Officer The Metropolitan St. Louis Sewer District Contents D-5 Contents Page Introduction ........................................................................................................................... D-7 Purpose .............................................................................................................................. D-8 Scope ................................................................................................................................. D-8 Raftelis Financial Consultants' Qualifications .................................................................. D-8 Organization ...................................................................................................................... D-9 Board of Trustees .......................................................................................................... D-9 Rate Commission ........................................................................................................ D-10 Civil Service Commission .......................................................................................... D-10 Internal Auditor ........................................................................................................... D-11 Secretary-Treasurer ..................................................................................................... D-12 Executive Director ...................................................................................................... D-12 General Counsel .......................................................................................................... D-13 Human Resources ....................................................................................................... D-14 Finance ........................................................................................................................ D-14 Information Systems ................................................................................................... D-15 Engineering ................................................................................................................. D-16 Operations ................................................................................................................... D-17 Peak Performance Awards .......................................................................................... D-17 Staffing ............................................................................................................................ D-18 Contractors .................................................................................................................. D-19 Revenue Collection and Enforcement ............................................................................ D-20 Strategic Business Plan ................................................................................................... D-22 Wastewater System Financing ............................................................................................ D-23 Program Planning ........................................................................................................... D-23 Capital Improvement and Replacement Program ........................................................... D-24 Bond Financed Projects .............................................................................................. D-28 CIRP Financing ............................................................................................................... D-29 Wastewater Service Charges .......................................................................................... D-32 Wastewater Service Charge Components ................................................................... D-32 Customer Assistance Program .................................................................................... D-34 Other Charges and Fees .............................................................................................. D-34 Rate Setting Process .................................................................................................... D-35 Revenues ......................................................................................................................... D-37 Customer Growth ........................................................................................................ D-37 The Metropolitan St. Louis Sewer District Contents D-6 Wastewater Volumes .................................................................................................. D-38 Wastewater Revenues Under Projected Rates ............................................................ D-39 Other Operating Revenues .......................................................................................... D-40 Revenue Requirements ................................................................................................... D-41 Operation and Maintenance Expense .......................................................................... D-42 Routine Capital Improvements ................................................................................... D-44 Cash Financing of Capital Improvements ................................................................... D-44 Debt Service ................................................................................................................ D-44 Operating Reserve Allowance .................................................................................... D-46 Financial Analysis ........................................................................................................... D-47 Wastewater Bill Comparison .......................................................................................... D-50 Bond Covenant Compliance ............................................................................................... D-52 Rate Covenants ............................................................................................................... D-52 Reasonable Charges ........................................................................................................ D-52 Adequate Maintenance ................................................................................................... D-53 Additional Bonds Tests ................................................................................................... D-53 Principal Assumptions ........................................................................................................ D-56 The Metropolitan St. Louis Sewer District Wastewater System Financing D-7 Report on the Financial Feasibility of The Metropolitan St. Louis Sewer District Wastewater System Revenue Bonds, Series 2016C Introduction The Metropolitan St. Louis Sewer District (“District”) is responsible for providing wastewater and stormwater services for the City of St. Louis, Missouri (“City”) and most of St. Louis County, Missouri (“County”). In order to continue to improve and expand its wastewater system (“System”) and keep the System in compliance with state and federal regulations, the District has developed a major capital improvement and replacement program (“CIRP”). To provide for equitable recovery of capital financing costs from existing and future wastewater customers, the District plans to partially finance System improvements through the issuance of long-term debt. The remainder of the funds required to finance the CIRP will be obtained from annual operating revenues, interest income, grants and contributions, and funds on hand. The District is governed by a Board of Trustees (“Board”), which is comprised of six members, three of whom are appointed by the Mayor of the City and three of whom are appointed by the County Executive of the County. The Board enacts ordinances and resolutions, adopts the annual budget and the strategic plan, and approves rate changes. The Board also appoints the Executive Director, the Secretary-Treasurer, the Internal Auditor and various organizations that serve staggered terms on the Rate Commission. The Executive Director is the chief executive officer and chief administrative officer of the District and appoints the General Counsel and the directors of the five operating departments. Revenue bonds are issued pursuant to the District’s Charter, which was approved by the voters of the City and the County at a special election held on February 4, 1954 and amended at special elections held on November 7, 2000 and June 5, 2012 (“Charter”). Assent of the majority of voters voting at the initial bond authorization election held on February 3, 2004, authorized the District to issue up to $500 million of wastewater revenue bonds. A second authorization was approved by the majority of voters on August 5, 2008, which authorized the District to issue up to $275 million of additional wastewater revenue bonds. A third authorization of up to $945 million was approved by the majority of voters on June 5, 2012. A fourth bond authorization of up to $900 million was approved by the majority of voters on April 5, 2016. All bonds are issued under the provisions of the Master Bond Ordinance adopted by the Board on April 22, 2004, as supplemented and amended by ordinances adopted by the Board for each bond issue including the ordinance expected to be adopted by the Board The Metropolitan St. Louis Sewer District Wastewater System Financing D-8 on December 8, 2016 (collectively, the “Bond Ordinance”) for the Wastewater System Revenue Bonds, Series 2016C (“Series 2016C Bonds”). Purpose The purpose of this report is to summarize findings of the financial feasibility study performed by Raftelis Financial Consultants, Inc. (“RFC”) related to the System and independently assess the financial feasibility of the District’s issuance of the Series 2016C Bonds. This report addresses financial issues that affect the operation of the System and the District’s ability to issue and repay wastewater revenue bonds. Scope This report addresses the organization and management of the District. Also included are the results of analyses related to existing and future financial requirements of the System based on a review of financial reports, ordinances, budgets and other information. Information from these documents was supplemented through meetings and conversations with key District representatives. Projections of revenue and revenue requirements of the System are shown in this report for a study period that includes fiscal years 2016 through 2020. Evaluation of the financial feasibility of the Series 2016C Bonds is based upon a review of historical financial information provided by the District, an examination of revenue and expenditure projections by District staff and RFC, and the preparation of cash flow analyses examining projected System operation and capital programming financing through fiscal year 2020. The level of debt service coverage for the Series 2016C Bonds and subsequent bonds projected to be issued through fiscal year 2020 is determined and compared with requirements of the Bond Ordinance. Raftelis Financial Consultants' Qualifications RFC was founded in 1993 and has grown to become one of the largest and most respected utility financial, rate, and management consulting firms in the nation. RFC has experience providing these services to hundreds of utilities across the country and abroad. RFC staff has provided bond feasibility reports for dozens of utilities throughout the United States for billions of dollars in bonds. RFC currently has a professional staff of 55 consultants located in eleven offices throughout the United States providing financial and management consulting services to municipal water and wastewater utilities. RFC has been working with the District since 2007 as the Consultant to the Rate Commission and was selected by the District in March 2012 to provide bond feasibility and rate consulting services to the District for a five-year period. The Metropolitan St. Louis Sewer District Wastewater System Financing D-9 District Organization Figure 1 presents an organization chart of the District. As indicated, the District is managed by a Board of Trustees. The Board appoints community organizations to serve on the Rate Commission, the three-member Civil Service Commission, Internal Auditor, Secretary- Treasurer, and Executive Director. The Executive Director appoints the General Counsel and the directors of the five operating departments. Board of Trustees The Board is composed of six members, three of whom are appointed by the Mayor of the City and three of whom are appointed by the County Executive of the County. Each Trustee is appointed for a four-year term and may not serve more than two consecutive terms. No more than two Trustees appointed by the City or County can be affiliated with the same political party. Trustees must be registered voters, have lived in their representative areas for at least three years, and continue to reside in their respective areas for the tenure of their office. A Trustee cannot hold “an office of profit under the United States or any state or local government” with the exception of serving in an organized militia, reserve corps, or as a notary The Metropolitan St. Louis Sewer District Wastewater System Financing D-10 public. They must not “have been convicted of a felony, malfeasance in office, bribery, or other corrupt practice, or of a misdemeanor involving moral turpitude” (Charter Section 5.020). The Board enacts ordinances and resolutions, adopts the annual budget and the strategic plan, and approves rate changes. A majority of both City and County Trustees is required to approve an ordinance. Members appoint a chair and vice-chair to manage Board meetings, with these positions alternating between the City and County representatives every two years. A Board member chairs the Audit, Finance, Program Management, and Stakeholder Relations committees of the Board while the District's Secretary-Treasurer chairs the Pension committee. Each committee is allowed to have citizen advisors that can serve one-year terms if approved by the Board and continue to serve up to three years with annual Board approval. The Board conducts its business under rules and procedures periodically adopted by resolution. The current rules were adopted by Resolution 2941 on November 10, 2010. Rate Commission The Charter provides for the formation of an independent Rate Commission “to review and make recommendations to the Board regarding all proposed changes in wastewater rates, stormwater rates and tax rates or change in the structure of any of the foregoing” (Charter Section 7.040). Organizations are selected to provide a diverse mixture of residential customers, commercial and industrial customers, environmental interests, labor interests, community and neighborhood organizations, and nonprofit organizations. Each Rate Commission member serves a six-year staggered term that allows re-appointment or replacement of five members of the Rate Commission every two years. The Rate Commission performs its duties under a set of Operational Rules, Regulations, and Procedures, as amended. These rules were most recently amended by the Rate Commission on May 20, 2015. Civil Service Commission Section 8.020 of the Charter requires the Board to appoint a three-member Civil Service Commission. The qualifications for these members are the same as those for the Board plus members must be “persons who are known to be in sympathy with the application of merit principles to public employment”. The duties of the Civil Service Commission include: (1) advising the Board, Executive Director, and Human Resources Director on problems concerning personnel administration; (2) reporting to the Board at least once a year concerning personnel administration matters; (3) recommending civil service rules to the Board; (4) hearing appeals from disciplinary actions; and (5) fostering the improvement of personnel standards and conditions in the District. The Metropolitan St. Louis Sewer District Wastewater System Financing D-11 Internal Auditor The Internal Auditor is the auditing officer of the District as provided by Section 7.030 of the Charter. This position is appointed directly by the Board and may be held by either an individual or a firm of Certified Public Accountants if such firm has no personal or financial interest in District affairs or has any material financial relationship with any Trustee or any officer of the District. The Internal Auditor must have at least ten years’ experience in accounting. The duties of the Internal Auditor include: (1) review and recommend periodic changes to the District’s accounting system; (2) audit the accounts and records of accountable officers and employees of the District; (3) investigate matters relating to the receipt, disbursement and application of public funds; (4) perform investigations and create reports on fiscal matters required by the Board; (5) perform periodic operational audits and recommend potential changes to the Board; (6) evaluate compliance with District policies, ordinances, Charter, and third party agreements; (7) examine District staff and others as required to complete an investigation; and (8) perform such other duties as may be required by the Board. On April 12, 2012, the Board of Trustees adopted Ordinance 13380 which authorized the District to enter into a one-year contract with the accounting firm Brown, Smith, Wallace, LLC. The District has exercised one-year options each of the past four years, most recently on May 16, 2016 by Resolution 3274. The current contract provides for internal auditing services to be coordinated by an Internal Audit Administrator. This arrangement allows the District to provide independent audit services at lower costs than full-time in-house services while receiving required specialized audit skills of the respective firms. The Mission of the Internal Auditor is to provide independent, objective assurance and consulting services designed to add value and improve the operations of the District. The Department assists the Board and the Executive Director in accomplishing their oversight responsibilities by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, internal control, and governance processes. The Metropolitan St. Louis Sewer District Wastewater System Financing D-12 Secretary-Treasurer Section 7.020 of the Charter requires the Board to appoint a Secretary-Treasurer who “shall have at least ten years’ experience in the management and investment of public funds, and have knowledge of banking operations and municipal accounting.” The duties of this position include: (1) maintain a journal of Board proceedings and all ordinances, resolutions, regulations, rules, and orders; (2) make daily deposits of District revenues; (3) invest available District funds; (4) pay money out of the treasury on warrants drawn by the Executive Director or Finance Director; (5) appoint and remove any employees provided for his/her office, subject to personnel provisions; (6) foster the improvement of personnel standards and conditions in the District; (7) keep records of the District's service boundaries (pursuant to the Charter Amendment approved by voters on June 5, 2012); and (8) perform such other duties as are required by the Board. The department is organized and operated by the following four functions: (1) Secretary, to maintain all records of the District; (2) Treasurer, to handle and invest the available funds of the District; (3) Audit, to serve as the administrative coordinator for an independent audit of the District’s financial records; and (4) Elections, to assure that the relevant issues are placed on the ballot in an appropriate and timely fashion and monitor District funds used by the Board of Election Commissioners. The District’s Public Funds Investment Policy is reviewed at least annually (as required by Ordinance 10908). It was last updated on May 14, 2015 through Resolution 3210. Executive Director The Executive Director is “the chief executive and administrative officer of the District and all subdistricts” and is “responsible to the Board for the proper administration of all affairs of the District and all subdistricts” (Charter Section 6.010). To qualify for this position, a person must be a registered professional engineer, possess technical or specialized skill or knowledge in the field of engineering, and have at least ten years of practical experience as an engineer with at least five years in a responsible administrative and executive capacity. The duties of the Executive Director include: (1) appoint and, when necessary, remove all officers and employees of the District, except as otherwise provided by the Charter or delegated to department heads; (2) prepare and submit an annual budget to the Board; (3) prepare and submit an annual report of the finances and administrative activities of the District to the Board; (4) advise the Board of the District’s The Mission of the Executive Director is to ensure that all affairs of the District are in accordance with the Charter and the policies of the District and to inform and engage the stakeholders regarding the services they receive from the District and the District’s importance to the community. The Mission of the Secretary-Treasurer is to serve as the Secretary to the Board of Trustees, manage District funds, provide administrative support and oversight to the Audit function, and provide services to all customers. The Metropolitan St. Louis Sewer District Wastewater System Financing D-13 financial condition and make recommendations concerning future needs; (5) attend all Board meetings and, in so far as possible, its committee meetings; (6) enforce all District ordinances and see that all contracts are faithfully performed; (7) foster the improvement of personnel standards and conditions in the District; and (8) perform such other duties as may be prescribed by the Charter or required by the Board which are not inconsistent with the Charter. This department is organized under two major functions: (1) District Administration; and (2) Public Information. The District Administration function is responsible for the administration of all affairs of the District in accordance with the Charter and as directed by the Board. Efforts to inform the District’s rate payers about the services they receive from the District and the District’s importance to the community is the responsibility of the Public Information function. General Counsel The General Counsel oversees all legal matters affecting the District including specialized matters that may require legal assistance from private law firms. This department has the following three major organizational functions: (1) Legal Administration; (2) Litigation and Claims; and (3) Collection Litigation. The Legal Administration function is responsible for all legal matters involving or affecting the District and provides legal services as required by the Board or Executive Director. It also has the responsibility of coordinating with federal, state, and local officials to secure additional support as required and informing public officials about the beneficial services provided by the District. The Litigation and Claims function handles all litigation and claims involving the District, and supervises outside counsel, if required. The Collection Litigation function assists the Finance Department in the collection of delinquent customer accounts and any other amounts due the District. The Mission of the General Counsel is to handle all legal matters involving or affecting the District. The Department provides legal services and guidance as requested or required by the Board of Trustees, Executive Director and District staff. The Metropolitan St. Louis Sewer District Wastewater System Financing D-14 Human Resources The Director of Human Resources supervises all personnel related issues. These issues are addressed by the five functional areas of Training; Employee Benefits; Employment and Classification; Diversity; and Risk Management. Training activities are designed to help achieve the District’s Strategic Business and Operating Plan by administering programs to improve employee performance. The Employee Benefits function administers and communicates employee benefit programs consistent with the Charter and ensures proper fiscal management of all benefit programs. Responsibilities of ensuring accurate job descriptions; job performance accountabilities and performance standards; employee recruitment; internal job posting and promotional opportunities; and consistent compensation practices are part of the Employment and Classification function. The Diversity function develops, recommends, implements, and administers policies, procedures and programs which advance the District’s commitment to inclusion in all of its activities and communicates these to internal personnel and others. This function also administers District policies and goals related to the inclusion of minority and women business owners in District contracts. The protection of the District’s assets from loss is the responsibility of the Risk Management function. Finance Section 7.010 of the Charter states that the Director of Finance “shall have charge of the administration of the financial affairs of the District and all subdistricts, subject to the supervision and direction of the Executive Director.” This section also requires the Finance Director to “have knowledge of municipal accounting and taxation and shall have had experience in budgeting and finance control.” The duties of the Director of Finance include: (1) assisting the Executive Director in the preparation of the annual operating and capital budgets; (2) maintaining the District’s financial records; (3) prescribing reimbursement documentation criteria; (4) certifying that sufficient funds are available before a contract is executed; (5) auditing and approving bills and other District expenditures prior to payment; (6) inspecting, supervising, and auditing all financial transactions; (7) contracting for, purchasing, storing, and distributing all supplies, materials, and equipment required by any department; and (8) performing such other duties as may be imposed by the Executive Director or by ordinance. The Finance Department is organized into three functional areas: (1) Accounting; (2) Purchasing; and (3) Accounts Receivable, which also includes the District’s Customer Billing Call Center. The Accounting function ensures that District payments and receipts are The Mission of the Human Resources Department is to support a learning and business oriented culture based on accountability. This Department measures its success by customer’s satisfaction with performance in accomplishing mutual objectives. The Mission of the Finance Department is to manage the District’s costs and revenues to improve financial performance. The Metropolitan St. Louis Sewer District Wastewater System Financing D-15 properly authorized, recorded and reported in accordance with District policy and generally accepted accounting principles. A dedicated financial analysis team prepares the District’s budget incorporating the debt service schedules and CIRP from the Secretary-Treasurer and Engineering Departments, respectively. The Purchasing function is responsible for contracting all of the supplies, materials, equipment, construction repairs, professional services, and improvement construction projects required by the District. It is also responsible for the timely disposal of all surplus property and equipment. The Accounts Receivable function generates monthly customer bills, collects District revenue and maintains an account receivable record for each of the District’s customers. This function also assists District customers with user charge billing and collection questions, and enforces user charge ordinances. Through the efforts of the Finance Department, the District has received the Distinguished Budget Presentation Award from the Government Finance Officer Association for its comprehensive annual budgets every year since fiscal year 1987 and a Certificate of Achievement for Excellence in Financial Reporting for its Comprehensive Annual Financial Reports every year since fiscal year 1988. The District also received the award for Outstanding Achievement for its Popular Annual Financial Report every year since fiscal year 2012, the first year of submittal. Information Systems The Director of Information Services is responsible for all computer related services and applications required by the District. The department is organized by the following three functions: (1) Business Integration; (2) Application Services; and (3) Technical Services. The primary function of the Business Integration function is to ensure that business and stakeholder needs are satisfied through enhancements to the District’s business application systems. This includes working with the business departments to review and improve business processes to better support stakeholders. The Application Services function provides technical support to all District users and maintains the District’s business application systems. This group develops new systems and also provides ongoing support for change to existing systems. The Technical Services function is responsible for managing the District’s information technology infrastructure, including servers, enterprise storage, desktop services, peripheral devices and telecommunications equipment. The Technical Services group manages and supports both the Local Area Network and the Wide Area Network and serves as the focal point for the evaluation, procurement, and installation of new technologies. The The Mission of the Information Systems Department is to lead the District in the implementation of business processes and information technology that will assist the District in providing the highest quality services in the most efficient and cost effective manner possible. The priority is placed on making it easier for residents, businesses and community agencies to “do business” with the District through improved business processes and the effective use of information technology. The Metropolitan St. Louis Sewer District Wastewater System Financing D-16 Information Systems Department in partnership with the business departments has just recently implemented an enterprise initiative that replaced legacy business processes and applications with an enterprise resource planning (“ERP”) system. The new ERP system provides an integrated view of corporate data enabling the District to be more efficient in its operation. Engineering The Director of Engineering is responsible for the design, planning, and management of all of the District’s wastewater and stormwater capital improvement projects. This department is also responsible for all environmental compliance activities. The Director of Engineering is assisted by four Assistant Directors of Engineering that are each directly responsible for one of the following four functions: (1) Design; (2) Planning; (3) Construction Management; and (4) Environmental Compliance. The Design function consists of three groups that provide for preparation of construction bid documents and property rights acquisition for sanitary sewer, storm, and combined sewer projects to execute the District’s capital and infrastructure repair program and includes work performed in-house as well as by contracted consultant resources. Long and short-term planning for all sewer projects within the District is provided by the Planning function. This function evaluates, prioritizes and selects projects to be included in the CIRP and is responsible for infiltration/inflow investigations, mapping activities, regulatory coordination concerning overflow issues, evaluation of sewer system hydraulic models and management of engineering documents. This function also provides plan review and permitting of all private development involving sewers and drainage systems located within the District. Management, coordination and monitoring of the construction of all capital improvement projects is the responsibility of the Construction Management function. This includes project reviews, budget and schedule compliance monitoring, fee negotiation, contract management, and construction management and inspection. The responsibilities of the Environmental Compliance function include the monitoring of waters and wastewaters, analytical support for compliance programs and treatment plants, investigation of pollution sources, environmental compliance assessments of District facilities and pollution control programs, administration of programs designed to recover the cost of treating high-strength wastes from industrial and hauled waste customers, administration of the District’s Industrial Pretreatment Program, overseeing cleanup of collection system overflows, and implementing stormwater quality best management practices. The Mission of the Engineering Department is to responsibly deliver stormwater and wastewater facilities to protect the water environment. The Metropolitan St. Louis Sewer District Wastewater System Financing D-17 Operations The Director of Operations is responsible for the day to day operation of all wastewater collection and treatment services provided by the District as well as all stormwater removal and pollution abatement services. The Director of Operations is assisted by two Assistant Directors of Operations and seven Division Managers. Operations related services are organized into eight basic functions consisting of (1) Mintert Yard; (2) Grand Glaize Yard; (3) Sulfur Yard and Garage/Shops; (4) Lemay Treatment; (5) Bissell Point Treatment; (6) County Treatment; (7) Pump Stations and Technical Services; and (8) Support Services. The three regional maintenance yards are responsible for the sanitary, combined, and storm sewers within their designated service areas. The Garage and Shops Division provides for the maintenance, repair, and upkeep of the District’s vehicles, office buildings and grounds. It also operates machine shop, garage, and carpentry facilities. The three regional treatment control centers are responsible for treatment services provided in their respective service areas. The Pump Stations and Technical Services Division is responsible for all wastewater pumping across the District; the automated overflow regulation systems; flood wall pump stations; and the flow monitoring group. The Support Services Division is responsible for the proper management of the Department’s spare parts inventory out of three warehouse hubs. It also supports all customer calls of a non-billing nature, provides administrative support to all treatment plants and maintenance yards, and tracks and reports on a variety of performance indicators. The Assistant Directors have direct responsibility for operation of the Fleet Facilities and Support Services Division. Each of the three regional treatment control centers, the pump station group and each of the three maintenance yards are supervised by one of the seven Division Managers. Peak Performance Awards The success of the District’s wastewater operations can be measured by its ability to consistently meet the requirements of its National Pollutant Discharge Elimination System (“NPDES”) permits. The District has been very successful in meeting its discharge requirements as recognized by the National Association of Clean Water Agencies (“NACWA”). NACWA has a three-tiered recognition system consisting of Silver, Gold and Platinum Awards. Silver Awards recognize facilities that received no more than five NPDES permit violations over the past calendar year. Gold Awards honor treatment plants that have achieved 100 percent compliance with their NPDES permit during an entire calendar year. The Platinum Award is only presented to treatment plant facilities that have achieved at least five The Mission of the Operations Department is to protect the public’s health, safety and water environment by effectively operating and maintaining the District’s wastewater and stormwater infrastructure. The Metropolitan St. Louis Sewer District Wastewater System Financing D-18 consecutive Gold Awards, which represent five consecutive years of no NPDES permit violations. The table below shows a 10-year history of the Peak Performance Awards presented to the District. As indicated by this table, all of the District’s treatment plants earned awards for permit compliance during calendar years 2006 through 2015 (Lower Meramec plant was not in service in 2006). Staffing Authorized staffing for the District is summarized in Table 1 by department and compared to prior levels since the first successful issuance of District-wide revenue bonds in fiscal year 2004. These levels include all personnel involved with the day to day operation of the District, including all stormwater operations. Of the 1,018 budgeted positions, 944 positions (approximately 93 percent) were filled as of June 30, 2016. About 82 percent of these full-time equivalent positions are required for the operation and maintenance of the System with the remaining positions required for stormwater activities. All of the stormwater positions are in the Operations and Engineering departments with support from other departments. The District employs both union and nonunion employees. About 86 percent of the employees within the Operations Department are eligible to be represented by one of six unions consisting of the American Federation of State, County and Municipal Employees (AFSCME) No. 410; the Bricklayer’s Union No. 1; the International Association of Machinists (IAM) District 9; International Brotherhood of Electrical Workers (IBEW) No. 1; the International Union of Operating Engineers (IUOE) No. 513; and the United Wastewater Workers Association, advisor of Service Employees International Union Local 1. About 37 percent of eligible employees within the Operations Department are actual union members. The Metropolitan St. Louis Sewer District Wastewater System Financing D-19 Table 1 Historic Staffing Levels Since the first series of District-wide revenue bonds was issued, the District has increased staffing from 852 positions in 2004 to 1,018 positions in FY 2017, a 19.5 percent increase in a thirteen-year period. Most of this increase was realized by the Operations Department as the District continues to actively address overflow problems in both the combined and sanitary sewer systems as required by the Consent Decree as discussed in more detail in the Capital Improvement and Replacement Program section later in this report. The increase in positions from FY 2016 to FY 2017 was due to the passage of Proposition S on April 5, 2016, which created a uniform taxing structure for storm water customers and allowed for the funding of additional storm water operation and maintenance activities. The current authorized staffing level for wastewater operations is expected to remain relatively stable through fiscal year 2020. Contractors To supplement and expand its existing staffing resources, the District enlists the aid of private companies and consultants on an as needed basis. Currently, the District has outstanding contracts for such services as billing and collection of user charges, collection of The Metropolitan St. Louis Sewer District Wastewater System Financing D-20 past due bills, legal, project management, claims management administration, public relations activities, internal auditing, consulting and various other professional services. To assist the District with the CIRP, a number of design and construction firms will be contracted. The District has established specific procedures to be used to retain private firms for such services. Revenue Collection and Enforcement The District bills all customers monthly with payment for each bill due 20 calendar days after the bill is generated. If the bill is not paid by the due date, the customer is assessed a penalty of .75%. In fiscal year 2011 the District implemented changes to its procedures for collection of delinquent accounts. With these changes, the District's current procedures are: • Pre-collect - Residential customers that are less than 90 days delinquent and commercial customers that are less than 60 days delinquent receive automated call reminders providing the option to make an immediate payment or payment arrangement. This program was implemented in September 2011. • Collection agencies - The District uses three collection agencies to collect commercial accounts greater than 60 days delinquent and residential accounts greater than 90 days delinquent. These collection agencies are allowed 7 months to collect a specified percentage of delinquent balances in addition to current charges. Failure to meet these specific parameters results in the transfer of accounts to a second placement collection agency. • 2nd Placement Collection Agency - The District uses two collection agencies in a 2nd placement capacity to address accounts unsatisfactorily collected by 1st placement agencies. The 2nd placement agencies are allowed 9 months to collect a specified percentage of delinquent balances in addition to current charges. Failure to meet these parameters results in the transferred of accounts to contracted law firms for litigation action. • Litigation - The District uses three law firms to pursue court judgments against the owner of the property for payment of delinquent balances. Several legal options are pursued to collect the debt such as Writ of Execution, wage and asset garnishment and cash box levies. • Liens - In addition to the previously described collection efforts, the District has the authority to place a lien on a property more than 90 days past due. In 2011, the District began using a collections agency to accelerate the processing of liens, thereby securing more of the District's delinquencies. The District is also actively promoting its customer assistance program, including the expansion of eligibility to tenants and multi-unit properties. The customer assistance program The Metropolitan St. Louis Sewer District Wastewater System Financing D-21 provides a 50% discount for eligible customers. There are currently approximately 3,400 customers in the customer assistance program. The District recently implemented process changes designed to make the program more accessible and increase customer participation. The following table reflects the historic trend of the District’s bad debt: Fiscal Year Provision for Bad Debt (2) Year-End Allowance for Bad Debt (3) 2006 (1) $ 3,160,972 $ 27,333,697 2007 (1) 4,193,703 30,765,585 2008 (1) 5,161,982 34,872,959 2009 (1) 9,678,495 42,082,602 2010 (1) 10,187,508 51,752,128 2011 6,248,681 55,242,721 2012 6,680,112 61,091,846 2013 2,636,455 61,131,571 2014 (4) (7,230,389) 51,689,211 2015 2,229,949 53,052,032 2016 4,062,990 55,537,162 (1) Includes delinquencies associated with the impervious-based stormwater rate. (2) Annual bad debt expenses shown as Provision for doubtful sewer service charge accounts on the District’s financial statements. This number is the change in the District’s uncollectable receivable balances throughout the year. (3) Cumulative bad debt expenses as of the end of each fiscal year. These balances include the Provision for Bad Debt, but are also influenced by write-offs of debt uncollectible by law and other adjustments. (4) This adjustment is the result of the District’s use of new analytical tools leading the District to change its methodology in determining doubtful accounts. The Metropolitan St. Louis Sewer District Wastewater System Financing D-22 Strategic Business Plan Section 5.110 of the Charter requires the District to adopt a continuing five-year Strategic Business and Operating Plan or strategic business plan on an annual basis. The Strategic Business and Operating Plan must “state the District’s objectives for the succeeding five years and include objective targets by which to measure the District’s performance in meeting these objectives.” The objectives are achieved by various strategies consistent with overall goals established by the District. The first strategic business plan was completed in June 2001 and was based on priority initiatives recommended by an Advisory Committee composed of 50 individuals and groups from throughout the St. Louis community. The five initial goals lend support to the District’s capital improvement planning and financing plan and provide the foundation for the District to update and revise the Strategic Business and Operating Plan on an annual basis. The updated Strategic Business and Operating Plan provides a broad look at where the District needs to focus its attention and resources over the five-year study period (fiscal years 2016 through 2020). It identifies four near-term goals compatible with the original goals and develops six business-focused strategies to achieve those goals. A set of specific objectives that support the six strategies required to achieve the goals of the Strategic Business and Operating Plan are delineated in the plan and segmented into applicable time frames for their completion. The near term goals for the fiscal year 2016 Strategic Business and Operating Plan are as follows: Goal 1. Deliver consistent, high quality customer service. Goal 2. Comply with all legal and regulatory requirements and schedules. Goal 3. Minimize customer rate increases. Goal 4. Be accountable to the St. Louis Community. To achieve these goals, the fiscal year 2016 Strategic Business and Operating Plan proposes the following six business-focused strategies: Strategy 1. Educate and partner with stakeholders to build support. Strategy 2. Manage the District’s costs and revenues to optimize financial impacts. Strategy 3. Integrate and improve the District’s business processes. Strategy 4. Promote appropriate standards through proactive regulatory and legislative involvement. Strategy 5. Address customer and regulatory needs through a comprehensive infrastructure management program. Strategy 6. Create a learning- and business-oriented culture based on competency and accountability. The Metropolitan St. Louis Sewer District Wastewater System Financing D-23 The annual Strategic Business and Operating Plan is a critical and invaluable document that provides the framework, the direction, and the plan for success that the District’s various stakeholders require and expect. Wastewater System Financing The general objectives of the District’s wastewater CIRP are to provide the facilities necessary to meet federal and state requirements, maintain the integrity of the System, and provide satisfactory levels of service and performance to customers. To accomplish these objectives, the District must have sufficient operating revenues and adequate funding for CIRP projects. The District uses proceeds of revenue bonds along with wastewater service charge revenues, grants, other revenues and available fund balances to meet the costs of the ongoing CIRP. Program Planning The District is responsible for operating and maintaining an extensive system of sanitary, combined and stormwater sewers. The age of the sewers maintained by the District range from 150 years old to brand new. The District operates and maintains approximately 9,500 miles of sewers consisting of sanitary sewers, combined sewers, and stormwater sewers and improved channels. It also operates and maintains 275 pumping stations and utilizes seven treatment facilities treating more than 335 million gallons of wastewater daily. This extensive collection, drainage, and treatment system required a comprehensive plan to prioritize and address the wastewater infrastructure needs that are present in the City and the County. The District’s sewer collection system contains constructed Sanitary Sewer Overflows (SSOs) and Combined Sewer Overflows (CSOs) – locations where flows may leave the system during some wet weather events, thereby protecting private property and avoiding sewer backups directly into homes or businesses. Many of these constructed SSOs and CSOs were inherited by the District as it assimilated or acquired sewer systems from various public and private sewer authorities. The Clean Water Act prohibits discharge of pollutants except as authorized by permit, so the District took a proactive approach to investigate its system. A Watershed Facility Planning consultant team was selected by the District in 2003 to provide the required program planning services. The Watershed Facility Planning consultant, together with staff, built upon completed work to identify projects that would reduce CSOs and eliminate constructed SSOs, mitigate building backups, and assure adequate capacity in the sewer system. The effort resulted in the development of a CSO Long Term Control Plan and an SSO Control Master Plan, which were submitted to regulators and approved in 2011 and The Metropolitan St. Louis Sewer District Wastewater System Financing D-24 2014, respectively. The CSO Long Term Control Plan and SSO Control Master Plan each account for approximately one-third of the long range CIRP. Capital Improvement and Replacement Program A detailed CIRP plan was completed in September 2002 by the District and the joint venture team of Sverdrup, Kwame, and Metcalf & Eddy. This plan was updated with the results of the Watershed Facility Planning effort, and after a more thorough understanding of the District’s sewer collection system was obtained. The resulting approved regulatory Plans have been incorporated into the CIRP and are being followed by the District with annual modifications as required to reflect changing needs and priorities. In June of 2007, a lawsuit was filed by the U.S. Environmental Protection Agency (“EPA”) and the State of Missouri accusing the District of violating state and federal clean water statutes. The lawsuit alleged that the District allowed polluted water to be dumped into waterways through “overflows”, sewer pipes that empty into rivers and act as relief valves when heavy rainfall overwhelms the system. Through court filings, the District denied all allegations in the federal lawsuit. In the past 15 years, the District has spent approximately $2.0 billion on improvements to comply with the Clean Water Act. In July 2008, all parties to the lawsuit agreed to try to resolve the case out of court and hired a mediator. In June 2011, the District agreed in principle to sign a Consent Decree agreement with the EPA and the Coalition for the Environment, which intervened in the lawsuit, that commits it to constructing system improvements estimated at $4.7 billion (2010 dollars) over a 23-year period. The State of Missouri did not agree to sign the Consent Decree in its present form. However, all parties, including the State of Missouri, have accepted language in an August 2011 motion stating that there are no remaining issues to be resolved in the proceedings. Major components of the Consent Decree are presented in the following text box. The Metropolitan St. Louis Sewer District Wastewater System Financing D-25 Major Federal Consent Decree Components: 1. Schedule and Estimated Cost – The Consent Decree will have an implementation schedule of 23 years after the Combined Sewer Overflow (“CSO”) Long Term Control Plan is approved by the State of Missouri. The District estimates the cost to comply with the Consent Decree to be $4.7 billion in 2010 dollars. 2. Early Elimination Projects – Requires the completion of sanitary sewer projects that will eliminate 50 specific constructed Sanitary Sewer Overflow (“SSO”) Outfalls by December 31, 2012. 3. SSO Master Plan – Requires the submission of an SSO Master Plan that includes an extensive sewer system evaluation survey, hydraulic modeling, and capacity analysis of the sanitary sewer system. The SSO Master Plan will identify remedial measures and projects aimed at eliminating all constructed SSO Outfalls, known SSOs, treatment plant bypassing within the sanitary sewer system, and reducing building backups. This plan must be submitted by the District no later than December 31, 2013. 4. Remedial Measures – Requires the completion of the remedial measures and elimination projects identified in the SSO Master Plan in accordance with the schedule provided therein, which includes the removal of 85 percent of the constructed SSO Outfalls, and a goal of eliminating all other known SSOs by no later than December 31, 2023, and all remaining constructed SSO Outfalls by December 31, 2033. 5. CMOM Program – Requires the District to continue its development and implementation of a Capacity, Management, Operations, and Maintenance (CMOM) program that includes detailed performance goals for the prioritization, cleaning, inspection, and rehabilitation of the entire sewer system. This program also includes continued implementation of the District’s Fats, Oils, and Grease (FOG) program, the development and implementation of a Private Inflow and Infiltration Reduction Program, Building Backup Response Plan, and a Non-Capacity Related SSO Response Plan. 6. Cityshed Mitigation Program – Requires the commitment of a regular annual program to mitigate the effects of wet weather surcharging and overland flooding of the combined sewer system, with an anticipated expenditure of $230 million over the life of the Consent Decree. 7. CSO Long Term Control Plan (LTCP) – Requires the construction and implementation of CSO control measures in accordance with the requirements and schedule set forth in the approved LTCP and Consent Decree. The projects in the LTCP will be completed 23 years after the LTCP is approved by the State of Missouri. 8. CSO Post Construction Monitoring Program – Requires the implementation of a Post Construction Monitoring Program to validate performance of completed CSO control measures as set forth in the approved LTCP and Consent Decree. 9. CSO Green Infrastructure Program – Includes the commitment of $100 million to implement a Green Infrastructure Program. This will include a five-year pilot program aimed at using green infrastructure to reduce stormwater and resulting CSO volumes. 10. Consent Decree Reporting – Requires significant and continuous detailed reporting and transparency on all activities identified above, as well as reporting progress in achieving the overall goals of the Consent Decree to eliminate and reduce sewer system overflows. The annual reports will be made available on the District’s website. 11. Supplemental Environmental Project (SEP) – To offset civil penalties, the District will spend $1.6 million dollars for a SEP program that will implement a sewer connection and septic tank closure program for low-income residents. This program must be completed within five years of the effective date of the Consent Decree. 12. Civil Penalty – Within 30 days of the effective date of the Consent Decree, the District will pay the United States $1,200,000 as a civil penalty. This penalty is consistent with public entities of similar size that have begun the process of addressing overflow issues. 13. Stipulated Penalties – The District will be subject to stipulated penalties if it fails to meet certain specified requirements outlined in the Consent Decree. 14. Coalition for the Environment – In settlement of the Coalition’s claim for costs of litigation, including attorneys’ fees, the District will pay $116,050 to be used to fund projects as determined by joint agreement between the District and the Coalition. The Consent Decree also requires the District to provide a copy of various documents and reports to the Coalition. The Metropolitan St. Louis Sewer District Wastewater System Financing D-26 Table 2 presents a summary of the projected CIRP for fiscal years 2016 through 2020. These costs were obtained from the District’s supplemental budget documents and other data provided by District staff. The costs for projects benefiting special assessment districts are not included in Table 2 since they are fully funded by subdistrict tax revenues and thus do not impact the magnitude of the proposed bonds or required revenue increases. All projected costs shown in Table 2 include an inflation allowance of 2.75% per year. Metropolitan St. Louis Sewer District Wastewater System Financing D-27 Table 2: Capital Improvement & Replacement ProgramFiscal Year Ending June 302016 - 2020Capital Improvement and Replacement Progam Needs FY 2016FY 2017FY 2018FY 2019FY 2020TotalActual Projected Projected Projected Projected1. Asset Management - Capacity49,738,000$ 61,207,520$ 56,886,292$ 77,484,964$ 66,934,687$ 312,251,463$ 2. Asset Management - Renewal27,100,400 27,912,440 28,159,706 19,092,089 20,113,121 122,377,756 3. Cityshed887,000 4,730,000 20,827,022 35,145,053 19,969,059 81,558,135 4. Combined Sewer Overflow27,496,000 51,890,940 52,192,817 31,101,873 153,801,646 316,483,275 5. Districtwide6,034,451 6,409,499 7,532,436 7,722,090 7,776,373 35,474,848 6. Other- 500,000 60,000 - - 560,000 7. Sanitary Sewer Overflow (1)138,802,000 151,739,620 166,085,717 223,551,380 124,939,697 805,118,414 8. Treatment Plants (2)7,109,000 4,412,800 17,192,946 9,926,056 9,870,483 48,511,285 9.Subtotal: CIRP257,166,851$ 308,802,819$ 348,936,935$ 404,023,505$ 403,405,066$ 1,722,335,176$ 10. Less: Capital Funded in O&M (Asset Management) (12,968,746)$ (13,151,000)$ (10,800,000)$ (11,070,000)$ (11,346,750)$ (59,336,496)$ 11. Less: Non-recurring Projects & Studies(11,000,403) (6,034,848) (5,194,950) (5,101,732) (5,281,442) (32,613,375) 12. Plus: Capitalized Internal Labor7,704,858 7,160,003 7,446,403 7,744,259 8,054,030 38,109,553 13.Total: CIRP Needs (3)240,902,560$ 296,776,974$ 340,388,388$ 395,596,032$ 394,830,904$ 1,668,494,858$ (1) The investment is driven by Consent Decree requirements to eliminate at least 85% of all constructed SSO's by 12/31/2023.(2) The investment is necessary to repair aging infrastructure and to meet regulatory requirements.(3) CIRP costs for FY 2016 represent new appropriations approved in that year, and FY 2017 through FY 2020 represent estimated appropriations adjusted for inflation and net of prior years’ unspent appropriations released for future use. The Metropolitan St. Louis Sewer District Wastewater System Financing D-28 Table 3 Capital Improvement and Replacement Program The proposed CIRP is primarily focused on collection system improvements projects that include an estimated $805 million to eliminate sanitary sewer overflows and $316 million to reduce or eliminate combined sewer overflows. About $552 million is earmarked for system improvements throughout the District that includes asset management and collection system improvements. Improvements related to existing treatment plants are expected to cost about $48 million during the five-year study period. Bond Financed Projects At special elections held on February 3, 2004, August 5, 2008, June 5, 2012, and April 5, 2016, District voters approved the issuance of $500 million, $275 million, $945 million, and $900 million, respectively, of wastewater system revenue bonds. The Board has adopted resolutions and ordinances to provide assurances to its ratepayers that the revenue bonds authorized by the elections would be properly expended on the most essential projects, such as those designed to bring the community into compliance with federal and State clean water laws, regulations, and the Consent Decree. An independent audit of the projects by an outside accounting firm is performed and made available to the public annually. Projects financed by the 2004 Authorization included improvements to the collection system to reduce or eliminate CSO’s, SSO’s and building backup problems as well as several improvements to the District’s wastewater treatment plants. The bond financed treatment plant improvements included $177 million applied toward the estimated $239 million total cost of constructing the new Lower Meramec River Wastewater Treatment Plant, $61 million to expand and improve the Coldwater Treatment Plant, $52 million to rehabilitate and improve the Missouri River Treatment Plant, $35 million to expand and improve the Grand Glaize Wastewater Treatment Plant, and $64 million for other treatment costs such as wet weather expansion of the Lemay Plant and increasing capacity at the Fenton Plant. Projects financed by the 2008 authorization also include improvements to the collection system to reduce or eliminate CSO and SSO overflows and building backup problems as well as additional wastewater treatment plant improvements. Treatment plant improvements financed by the 2008 authorization include $62 million for aeration blower modifications, incinerator improvements and wet weather expansion at the Lemay plant and $50 million for secondary treatment expansion and additional disinfection facilities at the Missouri River Treatment Plant. Projects financed by the 2012 and 2016 authorizations include design and construction of collection system repairs and improvements to reduce CSOs and SSOs, and to eliminate sanitary sewer overflow structures. These collection system improvements include cured in place pipe lining of existing sewers, reconstruction of sewers, construction of new sewers and force mains, green infrastructure, and elimination of sources of inflow/infiltration into the The Metropolitan St. Louis Sewer District Wastewater System Financing D-29 sewer system. Proceeds will also be used for high rate treatment facilities, storage tanks, and tunnels. Work will also include disinfection facilities at some of the District’s treatment plants and construction of various other wastewater treatment facility improvements and repairs. CIRP Financing Table 3 presents the proposed CIRP financing plan and summarizes the projected source and application of funds over the five-year study period. This plan reflects the recommendations of the Rate Commission and anticipates that proposed capital improvements will be financed from a combination of bond proceeds, annual operating revenues, and interest income. A fiscal year 2016 beginning year balance of $43,991,741 in unencumbered capital funds was available to assist in the financing plan as shown on Line 1 of Table 3. Senior revenue bond issues in the amount of $150.0 million in fiscal year 2016 (which generated proceeds, including issuance premium, of $176.7 million), $150.0 million in fiscal year 2017 (which are expected to generate proceeds, including issuance premium, of $167.7 million), $173.4 million in fiscal year 2018 (which are expected to generate estimated proceeds, including issuance premium, of $198.0 million), $220.5 in fiscal year 2019 (which are expected to generate estimated proceeds, including issuance premium, of $251.8 million), and $224.1 million in fiscal year 2020 (which are expected to generate estimated proceeds, including issuance premium, of $258.6 million) for a total of $1.053 billion are shown on Line 2 of Table 3. State revolving loan proceeds of $75 million were received in fiscal year 2016, and $95.5 million are expected to be received in fiscal year 2017, with projected future state revolving loan proceeds of $30 million in fiscal year 2018 and $25 million per year in fiscal year 2019 and 2020 as shown on Line 4 of Table 3. The revenue bonds and state revolving loan proceeds together total $1.317 billion and are expected to finance approximately 77 percent of the total five-year major CIRP program costs (Lines 2 and 4 of Table 3) net of issuance costs and funding of applicable bond reserve requirements. Use of existing fund balance, a mix of unspent bond proceeds and paygo contributions, accounts for minimal CIRP funding. The amount of each debt issue is developed considering capital program needs, current policies, other sources of capital improvement program financing, and debt service coverage requirements related to the issuance of District-wide revenue bonds. Cash financing of capital improvements from annual revenues is expected to total $384 million for the study period as indicated on Lines 3 and 5 of Table 3. Pay-as-you-go cash financing is expected to provide about 23 percent of capital improvement funding over the study period. The District anticipates receiving contributions from Missouri American Water for a share of capacity in the Lower Meramec River Wastewater Treatment Plant. District staff estimates that this revenue will average about $598,000 per year for FY 2016-2020. These The Metropolitan St. Louis Sewer District Wastewater System Financing D-30 amounts are shown on Line 8 of Table 3. Interest income earned on invested capital improvement funds is also available to meet capital improvement expenditures. Interest earnings recognize an assumed 0.50 percent average annual interest rate on funds maintained in the construction account. Line 9 indicates the estimated interest income earned on capital improvement program balances and Line 10 shows the total of all funds available to finance the capital improvement program. Total revenues obtained by grants, contributions and interest income will provide less than 1 percent of major capital improvement costs for the five-year study period. The application of funds shows that $1.668 billion in total major capital improvement expenditures is projected over the planning period. Line 12 of Table 3 shows the debt issuance costs associated with projected revenue bond issues. These costs are provided by the District’s Financial Advisor for the revenue bonds and estimated at 0.80 percent of total principal amount for future SRF Bonds (as defined in the Bond Ordinance). D-31 Metropolitan St. Louis Sewer District Wastewater System Financing Table 4 Capital Improvement Program Financing g Table 3: Capital Improvement & Replacement Program Financing PlanFiscal Year Ending June 302016 - 2020FY 2016FY 2017FY 2018FY 2019FY 2020TotalActual Projected Projected Projected ProjectedSources of Funds1. Beginning Year Balance (1)43,991,741$ 88,767,136$ 131,248,747$ 100,517,133$ 73,298,289$ 2. Revenue Bond Proceeds (2,3)176,727,475 167,678,054 197,987,089 251,804,039 258,577,099 1,052,773,756 3. Cash Financing of Construction (PAYGO) 21,000,000 70,000,000 75,000,000 85,000,000 95,000,000 346,000,000 4. State Revolving Loan Proceeds (3)75,000,000 95,500,000 30,000,000 25,000,000 25,000,000 250,500,000 5. Capitalized Internal Labor7,704,858 7,160,003 7,446,403 7,744,259 8,054,030 38,109,553 6. Commercial Paper- - - - - - 7. Line of Credit- - - - - - 8. Grants & Contributions524,621 577,556 602,919 629,397 657,040 2,991,533 9. Interest Income910,000 310,000 550,000 570,000 430,000 2,770,000 10.Subtotal: Available Funds325,858,695$ 429,992,749$ 442,835,158$ 471,264,828$ 461,016,458$ Uses of Funds11. Major Capital Improvements(240,902,560)$ (296,776,974)$ (340,388,388)$ (395,596,032)$ (394,830,904)$ (1,668,494,858)$ 12. Issuance Costs(1,737,980) (1,967,028) (1,929,637) (2,370,507) (2,408,695) (10,413,847) 13. Commercial Paper & Line of Credit Payments- - - - - - 14.Subtotal: Uses of Funds(242,640,540)$ (298,744,002)$ (342,318,025)$ (397,966,539)$ (397,239,599)$ 15.End of Year Balance (4)83,218,155$ 131,248,747$ 100,517,133$ 73,298,289$ 63,776,859$ (1) Includes balance in Sanitary Replacement Fund, Project Bond Funds, WW OMCI and Construction Funds, Capital Improvement Surcharge Fund, and the Bond Place Special Taxing Subdistrict Fund. (2) Assumes par amount issued of $150.0M in FY 16, $150.0M in FY 17, $173.4M in FY 18, $220.5M in FY 19, and $224.1M in FY 20.(3) Issuance costs are included in the total proceeds shown. (4) The ending balance amounts are calculated based on the estimated cashflow within the capital improvements fund. The estimate includes adjustments and allowances for unused encumbrances, liquidations, project timing, and other items. The difference between the reportingmethodologies for actual results causes the variance between the calculated FY16 ending balance and FY 17 beginning balance. The Metropolitan St. Louis Sewer District Wastewater System Financing D-32 Wastewater Service Charges Table 4 presents a summary of the District-wide charges imposed by the District since the beginning of fiscal year 2011 as well as the proposed charges for the forecast period. Wastewater Service Charge Components The current wastewater rates were adopted on June 9, 2016 and became effective on July 1, 2016, with a rate increase that took effect on July 1, 2016 and a schedule of rate increases to take effect on July 1 of 2017, 2018 and 2019. These rates are part of the fifth set of rates to go through the Rate Commission review procedures mandated by the Charter. The rates consist of a monthly base charge, a uniform volume charge, and extra strength surcharges for biochemical oxygen demand (“BOD”) in excess of 300 milligrams per liter (“mg/l”) or chemical oxygen demand (“COD”) in excess of 600 mg/l, and suspended solids (“SS”) in excess of 300 mg/l. The base charge includes a billing and collection charge component and a system availability charge component that are applicable to all customer classes. A compliance charge is applied to non-residential customers, in addition to the base charge, to recover monitoring and pretreatment program related costs. As a part of the 2011 Rate Commission proceedings the District further differentiated the compliance charge into tiers to better reflect the cost of providing these services to different non-residential customers served by the District. D-33 Metropolitan St. Louis Sewer District Wastewater System Financing Table 4. Historical and Projected Wastewater Rates Fiscal Year Ending June 30FY 2012FY 2013FY 2014FY 2015FY 2016FY 2017FY 2018FY 2019FY 2020Actual Actual Actual Actual Actual Current Approved Approved ApprovedBase Charge ($/Bill)Billing & Collection Charge2.65$ 3.25$ 3.45$ 3.55$ 3.70$ 5.44$ 6.02$ 6.67$ 7.38$ System Availability Charge9.20$ 9.90$ 11.40$ 12.70$ 14.55$ 14.02$ 15.50$ 17.16$ 18.97$ Total: Base Charge 11.85$ 13.15$ 14.85$ 16.25$ 18.25$ 19.46$ 21.52$ 23.83$ 26.35$ Compliance Charge ($/Bill) (b)Tier 131.95$ 23.00$ 16.00$ 9.00$ 2.15$ 2.86$ 2.95$ 3.05$ 3.14$ Tier 231.95$ 39.80$ 41.85$ 43.55$ 44.50$ 57.20$ 58.94$ 60.89$ 62.61$ Tier 331.95$ 84.75$ 89.15$ 92.75$ 94.80$ 125.84$ 129.67$ 133.96$ 137.75$ Tier 431.95$ 124.25$ 130.70$ 136.00$ 139.00$ 185.90$ 191.56$ 197.90$ 203.49$ Tier 531.95$ 163.75$ 172.25$ 179.25$ 183.15$ 243.10$ 250.50$ 258.79$ 266.10$ Volume ChargeMetered ($/Ccf)2.11$ 2.28$ 2.50$ 2.82$ 3.21$ 3.59$ 3.97$ 4.40$ 4.87$ Unmetered ($/Bill)Per Room1.38$ 1.48$ 1.63$ 1.83$ 2.09$ 2.12$ 2.35$ 2.61$ 2.89$ Per Water Closet5.15$ 5.56$ 6.10$ 6.88$ 7.83$ 7.92$ 8.76$ 9.70$ 10.72$ Per Bath4.30$ 4.64$ 5.08$ 5.73$ 6.53$ 6.60$ 7.30$ 8.08$ 8.93$ Per Separate Shower4.30$ 4.64$ 5.08$ 5.73$ 6.53$ 6.60$ 7.30$ 8.08$ 8.93$ Extra Strength Surcharges ($/ton) (b)Suspended Solids over 300 mg/l231.35$ 231.35$ 231.35$ 244.03$ 251.88$ 262.00$ 269.07$ 277.03$ 283.87$ Biochemical Oxygen Demand over 300 mg/l 620.14$ 620.14$ 620.14$ 620.14$ 632.38$ 654.00$ 671.63$ 691.50$ 708.56$ Chemical Oxygen Demand over 600 mg/l 310.07$ 310.07$ 310.07$ 310.07$ 316.19$ 327.00$ 335.82$ 345.76$ 354.30$ Ccf = hundred cubic feet (approx. 748 gallons)mg/l = milligram per liter The Metropolitan St. Louis Sewer District Wastewater System Financing D-34 Customer Assistance Program The first low-income rates were adopted by the Board in 1993 by Ordinance 9031, which was promulgated at the same time as the general service wastewater charges enacted by Ordinance 9029. Current District policy defines low-income discount eligibility as residential customers with household income (for the previous calendar year) less than 200 percent of the most recent Health and Human Services poverty guidelines by household size and less than 250 percent for disabled individuals and seniors at least age 62. Also, eligible to be considered are customers residing in multifamily housing consisting of six units or less. The Water Quality Act of 1987 (Public Law 100-4) allows such consideration for low-income customers and states that: “A system of user charges which imposes a lower charge for low-income residential users (as defined by the Administrator) shall be deemed to be a user charge system meeting the requirements of clause (A) of this paragraph if the Administrator determines that such system was adopted after public notice and hearing.” Wastewater charges applicable to eligible low-income residential customers are set equal to 50 percent of those presented in Table 4 by District policy. The cost impact on a typical single family residential customer not eligible for low-income assistance and discharging 7 hundred cubic feet (“Ccf”) per month of wastewater is expected to be approximately $0.13 per month in fiscal year 2016. This cost is expected to increase in subsequent years as the District more actively promotes this program and the number of customers participating in the customer assistance program increases. Other Charges and Fees In addition to the normal and excess strength wastewater service charges, the District also imposes a number of other charges to meet cost related to growth and system operations. The District imposes District-wide sewer system connection fees per Ordinance 9346 adopted in 1994. Under this system of capital recovery charges, new customers buy into the wastewater system so that they are on an equal equity basis with customers having similar service requirements. The current charge is based on a unit equity value of $2.96 per gallon of wastewater per day attributed to each new customer. For all single family residential customers, the sewer system connection fee is $1,072. For non-residential customers, the charge varies from $1,072 for customers served by a 5/8 or 3/4-inch water meter to $82,655 for customers served by a 10-inch water meter. Multifamily customers have the option to be billed on a flat $713 per unit basis or on the standard meter size basis. The Metropolitan St. Louis Sewer District Wastewater System Financing D-35 A $0.08 per gallon charge for septage or other wastewater hauled to the Bissell Wastewater Treatment Plant is imposed on all permitted waste haulers that serve customers having septic tanks, cesspools, private treatment facilities, or customers otherwise not connected to the District’s sewer system per Ordinance 12716, adopted on August 14, 2008. Costs incurred for sampling and testing wastewater samples from industrial users are recovered by a system of wastewater monitoring fees. These fees are typically published in ordinances updating the wastewater service charges. A number of engineering and service fees are also applied to reimburse the District for various services such as plan review, construction permits, construction related inspections, machine taps, project bid fees, provision of blueprint and microfilm copies, and permitting pretreatment customers. Rate Setting Process Historically, wastewater rates have been based on cost of service principles and then presented to the Board for their consideration and final approval. This general rate setting process was significantly changed upon passage of the amendments to the Plan in November 2000, which required the formation of a Rate Commission and a much more detailed rate setting procedure based on five governing criteria. Wastewater rates are still determined based on cost of service principles recognized throughout the industry but now the District is required to submit a written rate change notice to the Board and Rate Commission to initiate a 120 to 165-day rate review process. The District must also submit direct testimony of all District witnesses and other rate setting documents within three business days after submission of the rate change notice. These documents will typically present the District’s case concerning how the proposed rate change meets the five governing criteria specified by Section 7.270 of the Charter. Specifically, the documents must present sufficient information to allow the Rate Commission to determine if the rate change and all portions thereof: 1) is consistent with constitutional, statutory or common law as amended from time to time; 2) enhances the District’s ability to provide adequate sewer and drainage systems and facilities, or related services; 3) is consistent with and not in violation of any covenant or provision relating to any outstanding bonds or indebtedness of the District; 4) does not impair the ability of the District to comply with applicable Federal or State laws or regulations as amended from time to time; and 5) imposes a fair and reasonable burden on all classes of ratepayers. Per Section 7.300(b) of the Charter, the Board is required to accept the Rate Commission report unless it finds that the report or any part thereof, violates any of the five governing criteria. If the Board fails to accept or reject the Rate Commission report or any part The Metropolitan St. Louis Sewer District Wastewater System Financing D-36 thereof after consideration at two Board meetings, the Rate Commission report is deemed to be accepted by the Board. Once the report is accepted or deemed to be accepted, the Board must enact an ordinance consistent with the Rate Commission report. If the Rate Commission report is rejected by the Board, the Board must submit a written report to the Rate Commission explaining the reasons why the Rate Commission report was rejected. Rejection of the Rate Commission report does not prevent the Board from enacting an ordinance establishing different rates or taxes. Although the current rate setting process extends the time required to obtain rate adjustments, the involvement of local organizations and the opportunity for interveners and other ratepayers to participate in the process, provides assurances to the public that the proposed rates are needed and have been thoroughly reviewed by an independent Rate Commission. The process can also provide a deeper understanding and appreciation of the detailed rate design process by all participants of the rate review proceedings. Such understanding can avoid potential future rate related misunderstandings between interested parties and the District. A new wastewater rate change proposal was submitted to the Rate Commission on February 26, 2015 and the Board of Trustees adopted the recommendations on October 8, 2015. The Metropolitan St. Louis Sewer District Wastewater System Financing D-37 Revenues District revenue is derived primarily from charges for wastewater service, including revenues from extra strength surcharges. Other sources of income include dedicated subdistrict assessments, connection fees, waste hauler permits, industrial monitoring charges, various engineering fees, interest earnings, late charges and other operating income. Customer Growth Table 5 presents a summary of the historical and projected average number of wastewater customers served by the District. All customer projections are based on an analysis of historic growth patterns by customer class during the past five years. As indicated by Table 5, the number of metered customers is projected to decrease from 347,100 in 2016 to 345,075 in 2020 and the number of unmetered customers is projected to remain constant at 77,600 throughout the forecast. The total number of customer accounts is expected to decrease at an average rate of 0.1 percent per year over the study period. Table 5. Historical and Projected Average Customer Accounts Fiscal Year Ending June 30 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Projected Projected Projected Projected Metered Customers 1. Single Family 302,000 301,638 301,276 300,914 300,553 2. Multi-Family 20,800 20,800 20,800 20,800 20,800 3. Non-Residential 24,300 24,154 24,009 23,865 23,722 4.Subtotal: Metered Customers 347,100 346,592 346,085 345,579 345,075 Unmetered Customers 5. Single Family 56,600 56,600 56,600 56,600 56,600 6. Multi-Family 21,000 21,000 21,000 21,000 21,000 7. Non-Residential - - - - - 8.Subtotal: Unmetered Customers 77,600 77,600 77,600 77,600 77,600 Total Customer Accounts 9. Single Family 358,600 358,238 357,876 357,514 357,153 10. Multi-Family 41,800 41,800 41,800 41,800 41,800 11. Non-Residential 24,300 24,154 24,009 23,865 23,722 12.Total: Customer Accounts 424,700 424,192 423,685 423,179 422,675 13.% Change 0.4% -0.1% -0.1% -0.1% -0.1% The Metropolitan St. Louis Sewer District Wastewater System Financing D-38 Wastewater Volumes Table 6 presents a summary of historical and projected contributed or billed wastewater volumes. Billed wastewater volume is the amount of wastewater flow contributed to the System by residential and non-residential customers. The determination of contributed wastewater volume for unmetered residential customers is based on an analysis of customers with similar characteristics using statistical methods and was updated in the past year for the most recent Rate Change Proposal. The indicated unit volumes which became effective on July 1, 2016 are shown along with the current allowance below: • 14.5 gallons per day (“gpd”) for each room • 54.2 gpd for each water closet • 45.2 gpd for each bath or separate shower Billable wastewater volumes for all single family customers with metered water usage are determined on the basis of water used during the period best equated to contributed wastewater volume. For District customers, this period is from January 15 through April 30. Billed wastewater volume for non-residential customers is equal to actual metered water usage less exemption allowances for any water that does not enter the sewer system. Multifamily customers are either billed based on actual annual water usage or the average annual water usage established during the best equated period for wastewater contribution, depending on the billing method selected by each multifamily customer. The selected billing basis is permanent and cannot be changed. Projected volumes are based on the recognition of historical billing volumes and trends. Also considered are projections of numbers of customers and average historic billed volume per customer. Total wastewater volume for metered and unmetered customers is expected to decrease during the study period from 62,214,409 Ccf in 2016 to 58,602,645 Ccf in 2020. This equates to an annual compound rate of change of -1.5%, which is consistent with the actual realized change between FY 2011 and FY 2016. The Metropolitan St. Louis Sewer District Wastewater System Financing D-39 Table 7 Historical and Pontributed Wastewater Volume Wastewater Revenues Under Projected Rates A summary of historical revenues for fiscal year 2016 and projected wastewater revenues under approved rates for fiscal years 2017 through 2020 is presented in Table 7. Projected billed wastewater revenues do not include allowances for bad debt, refunds or billing adjustments. These billing adjustments are included with other operating revenues in Table 8. Full year revenues from normal and excess strength wastewater billings under approved rates, are projected to increase from $299 million in 2016 to about $426 million in 2020. Table 6. Historical and Projected Contributed Wastewater Volumes (Ccf) Fiscal Year Ending June 30 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Projected Projected Projected Projected Metered Customers (1) 1. Single Family 21,749,859 21,335,271 21,038,951 20,856,087 20,680,281 2. Multi-Family 7,955,270 7,796,760 7,680,500 7,604,498 7,529,409 3. Non-Residential 21,159,685 20,736,491 20,425,444 20,221,190 20,018,978 4.Subtotal: Metered Customers 50,864,814 49,868,522 49,144,895 48,681,775 48,228,668 Unmetered Customers 5. Single Family 6,847,008 6,207,628 6,224,448 6,244,464 6,268,283 6. Multi-Family 4,502,587 4,081,497 4,088,207 4,096,192 4,105,694 7. Non-Residential - - - - - 8.Subtotal: Unmetered Customers 11,349,595 10,289,125 10,312,655 10,340,656 10,373,977 Total Contributed Wastewater Volume 9. Single Family 28,596,867 27,542,899 27,263,399 27,100,551 26,948,564 10. Multi-Family 12,457,857 11,878,257 11,768,707 11,700,690 11,635,103 11. Non-Residential 21,159,685 20,736,491 20,425,444 20,221,190 20,018,978 12.Total: Contributed Volumes 62,214,409 60,157,647 59,457,550 59,022,431 58,602,645 13.% Change -3.7% -3.3% -1.2% -0.7% -0.7% (1) Residential and Non-Residential flows are projected to decline by 2.0% in FY17, 1.5% in FY18, and 1.0% in FY19 and FY20. The Metropolitan St. Louis Sewer District Wastewater System Financing D-40 Other Operating Revenues Projected other wastewater utility revenues are presented in Table 8. These revenues are grouped in the same manner as summarized in the District’s budget documents. All of these revenues are used to offset operating costs. Wastewater billing adjustments are determined based on current budget estimates and are projected to increase slightly between 2017 and 2020 as shown on Line 1 of Table 8. These adjustments include late charges, refunds and other adjustments. The annual allowance for bad debt expense reflects the actual amount in FY 2016, the budgeted amount in FY 2017, and is projected to be 1.4% of rate revenues thereafter, as shown on Line 2 of Table 8. The balance of the wastewater billing adjustment revenue is estimated to remain stable. Revenue from inspection, plan review fees and submittal fees are expected to remain stable over the forecast period. Miscellaneous revenue in FY 2016 includes approximately $13 million for reimbursement of District costs related to flood damages; this amount was a one-time reimbursement and is not projected to be repeated in future years. Therefore, miscellaneous revenue is projected to remain stable over the forecast period. Total other operating revenue is therefore forecast to steadily decrease from 2016 to 2020, as shown on Line 8 of Table 8, primarily due to the projected increases for bad debt allowances. Revenue derived from connection fees, as shown on Line 10 of Table 8, is projected to generate approximately $1 million per year. Table 7. Historical and Projected Wastewater Revenues under Recommended Rates Fiscal Year Ending June 30 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Projected Projected Projected Projected Metered 1. Single Family 135,654,992$ 146,622,294$ 160,786,843$ 177,104,697$ 194,810,260$ 2. Multi-Family 30,070,278 32,821,947 35,831,766 39,369,402 43,197,775 Non-Residential 3. Normal Strength 75,109,667 82,548,899 89,813,459 98,389,606 107,642,282 4. Extra Strength 5,784,082 5,989,797 6,151,303 6,333,286 6,489,563 5.Subtotal: Metered Customers 246,619,019$ 267,982,938$ 292,583,372$ 321,196,991$ 352,139,880$ Unmetered 6. Single Family 34,048,119$ 35,142,442$ 38,877,946$ 43,065,566$ 47,609,306$ 7. Multi-Family 18,926,064 19,402,396 21,464,557 23,775,515 26,279,843 8.Subtotal: Unmetered Customers 52,974,183$ 54,544,838$ 60,342,503$ 66,841,080$ 73,889,149$ Total Wastewater Revenues 9. Single Family 169,703,112$ 181,764,736$ 199,664,789$ 220,170,263$ 242,419,567$ 10. Multi-Family 48,996,342 52,224,343 57,296,323 63,144,917 69,477,618 11. Non-Residential 80,893,749 88,538,696 95,964,762 104,722,891 114,131,844 12.Total: Wastewater Revenues 299,593,202$ 322,527,776$ 352,925,875$ 388,038,071$ 426,029,029$ 13.% Change 9.3% 7.7% 9.4% 9.9% 9.8% The Metropolitan St. Louis Sewer District Wastewater System Financing D-41 Table 8 Historical and Projected Billed Wastewater Service Revenue Wastewater Operating Revenue Revenue Requirements The revenue required to provide for the continued operation of the District must be sufficient to meet the cash requirements for System operation. Revenue requirements include (1) total System operation and maintenance expenses; (2) expenditures for routine and major capital improvements met directly from revenues; (3) total System debt service (consisting of principal and interest payments); and (4) provision for an adequate operating reserve. Projections of the cash requirements to meet these System expenditures for the period of 2016 through 2020 from the rates approved by the Board for fiscal years 2016 through 2020 are presented in this section. Table 8. Projected Other Wastewater Operating Revenues Fiscal Year Ending June 30 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Projected Projected Projected Projected Other Operating Revenue 1. Billing Adjustments (1)6,272,871$ 6,204,596$ 6,535,966$ 6,901,551$ 7,307,378$ 2. Bad Debt Provision (4,062,990) (4,575,389) (5,001,802) (5,494,225) (6,026,962) Other Fees 3. Construction Inspection Fees 560,075$ 520,506$ 520,506$ 520,506$ 520,506$ 4. Waste Hauler Permits 975,537 675,000 675,000 675,000 675,000 5. All Other Fees (2)733,195 421,396 421,396 421,396 421,396 6.Subtotal: Other Fees 2,268,806$ 1,616,902$ 1,616,902$ 1,616,902$ 1,616,902$ 7. Miscellaneous Revenues (3)13,426,606 1,241,534 1,241,534 1,241,534 1,241,534 8.Subtotal: Other Operating Revenue 17,905,293$ 4,487,643$ 4,392,599$ 4,265,762$ 4,138,851$ 9. Other Non-Operating Revenue (4)(207,013) 172,397 172,397 172,397 172,397 10. Connection Fee Revenue 1,242,782 1,038,000 1,048,380 1,058,864 1,069,452 11.Total: Other Miscellaneous Revenue 18,941,062$ 5,698,039$ 5,613,376$ 5,497,023$ 5,380,700$ % Change -69.9% -1.5% -2.1% -2.1% (1) Includes late charges, refunds, adjustments, lien interest and fees, and other adjustments, including revenue from Missouri American Water. (2) Includes plan review fees, submittal fees, monitoring cost fees, pretreatment discharge permits, and all other fees. (3) Includes reimbursements, reimbursable engineering and maintenance, and all other miscellaneous revenue. (4) Includes rental income, clean water surcharge, and sale of fixed assets. The Metropolitan St. Louis Sewer District Wastewater System Financing D-42 Operation and Maintenance Expense Operation and maintenance expense includes the total annual salaries and wages of District personnel, costs for materials and supplies, fuel and electrical power costs and other costs such as employee benefits, insurance, and contract services. Since these costs are an ongoing annual obligation of the District, they are met from wastewater and stormwater operating revenues as they are incurred. A summary of projected wastewater related operation and maintenance expense for the period 2016 through 2020 is presented in Table 9. Wastewater related operation and maintenance expense projections for the fiscal year 2016 are actual results, fiscal year 2017 through 2020 are based on the fiscal year 2016 actual results using the escalation rates as documented in the most recent Rate Change Proposal. Future operation and maintenance expense for the wastewater system is projected to increase from about $171.3 million in 2016 to about $181.9 million in 2020 as shown on Line 24 of Table 9. This includes estimated additional amounts required for new facilities to be completed during the study period. The Metropolitan St. Louis Sewer District Wastewater System Financing D-43 Table 10 Projected Wastewater Operating Costs Table 9. Projected Wastewater Operating Costs Fiscal Year Ending June 30 Operating Expenses FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Projected Projected Projected Projected General Fund Expenses 1. Board of Trustees 2,000$ 2,036$ 2,072$ 2,150$ 2,234$ 2. Rate Commission 116,788 - - 494,253 - 3. Civil Service Commission 1,404 1,429 1,454 1,508 1,567 4. Secretary - Treasurer 1,920,882 1,972,237 2,024,965 2,117,606 2,871,987 5. Executive Director 1,279,948 1,309,560 1,339,858 1,396,348 1,457,295 6. General Counsel 2,321,411 2,376,955 2,433,829 2,538,332 2,651,052 7. Office of Human Resources 8,172,323 8,426,448 8,688,475 9,120,128 9,588,941 8. Engineering (1, 2)11,228,085 11,567,988 11,918,180 12,304,881 12,711,228 9. Finance 18,851,261 19,601,728 20,382,072 21,260,966 22,184,624 10. Information Systems 11,557,343 11,796,378 12,040,358 12,515,447 13,027,415 Operations 11. Collection System 25,758,986 27,571,970 28,511,947 29,462,141 30,454,598 12. Pump Stations 13,281,615 10,274,589 10,681,003 11,102,029 11,542,667 13. Wastewater Treatment 45,818,205 44,408,200 46,136,740 47,928,494 49,802,771 14. Support 7,532,580 10,123,434 10,418,885 10,723,253 11,038,963 15.Subtotal: Operations 92,391,387$ 92,378,194$ 95,748,576$ 99,215,917$ 102,838,999$ 16.Subtotal: General Fund Expenses 147,842,830$ 149,432,953$ 154,579,838$ 160,967,537$ 167,335,343$ 17. Water Backup Program 7,631,197$ 4,463,852$ 4,434,764$ 4,656,502$ 4,889,327$ 18. General Insurance Fund 10,578,860 5,649,000 5,874,960 6,109,958 6,354,357 19. Capital Funded in O&M (Asset Management) 12,968,746 13,151,000 10,800,000 11,070,000 11,346,750 20. Capitalized Internal Labor (7,704,858) (7,160,003) (7,446,403) (7,744,259) (8,054,030) 21.Subtotal: Other Operating Expenses 23,473,946$ 16,103,849$ 13,663,321$ 14,092,201$ 14,536,404$ 22.Subtotal: Operating Expenses 171,316,776$ 165,536,802$ 168,243,159$ 175,059,738$ 181,871,747$ 23. Additional O&M (3)- - 171,869 13,057 13,409 24.Total: Operating Expenses (O&M)171,316,776$ 165,536,802$ 168,415,028$ 175,072,796$ 181,885,156$ 25. Routine Annual Capital Improvements/Outlay 320,648$ 4,472,736$ 5,226,145$ 5,330,668$ 5,437,282$ 26. Non-recurring Projects & Studies 11,000,403 6,034,848 5,194,950 5,101,732 5,281,442 27.Total: Operating Expenses + Capital Outlay 182,637,826$ 176,044,386$ 178,836,123$ 185,505,196$ 192,603,879$ (1) Engineering expenses include capitalized internal labor associated with the Capital Improvement and Replacement Program. The amount of this capitalized labor is backed out of the operating expenses, as shown on line 20. (2) The engineering expenses include costs from the Environmental Compliance cost center, These costs are presented on the Wastewater Treatment line of the audited segmented financial statements. (3) Future year's costs include one-time and recurring items the District will need to meet operating requirements of the system, but are not accounted for in the currently adopted budget. The Metropolitan St. Louis Sewer District Wastewater System Financing D-44 Routine Capital Improvements Expenditures for routine annual capital improvements include those costs that tend to be routinely incurred each year for normal replacements such as vehicles and office equipment, and minor improvements or repairs. Since the costs of these improvements are a continuing expense to be met each year, the District appropriately finances these expenditures from current wastewater and stormwater revenues. These expenditures are included in the District's annual budgets as Capital Outlay costs. Cash Financing of Capital Improvements In addition to cash financing routine capital improvements, the District partially finances major capital improvements on a cash or pay-as-you-go basis. The District is expected to continue to cash finance all routine capital improvements and a portion of the CIRP. The amount of projected cash financing of the major capital improvement program was previously identified on Line 3 of Table 3. Debt Service The District issued its first District-wide series of revenue bonds in April 2004 and additional Senior Bonds were issued in November 2006, November 2008, January 2010, December 2011, August 2012, November 2012, December 2013, and December 2015 with the 2010 issue being issued under the Build America Bond federally subsidized program. Total Senior Bonds issued to date total $1,142,835,000 as indicated by the adjoining table. The District has also participated in eleven subordinate series of revenue bonds issued under the Missouri State Revolving Fund (“SRF”) and Department of Natural Resources Direct Loan program. The total amount of Subordinate Bonds issued to date is $499,750,000. The District is expected to close on two additional subordinate SRF loans shortly after the close of the Series 2016C Bonds in the amounts of $20 million and $75.5 million, which will increase the total amount of Subordinate Bonds issues to $595,250,000. The first nine Subordinate Bonds, together with the first five series of Senior The Metropolitan St. Louis Sewer District Wastewater System Financing D-45 Bonds, used all of the District’s approved $775,000,000 total revenue bond authorization received in 2004 and 2008. On June 5, 2012 the District received an additional bond authorization of $945,000,000, $525,000,000 of which was issued in August 2012, December 2013 and December 2015 as revenue bonds and $127,000,000 of which was used for the 2013 and 2015 Department of Natural Resources Direct Loans, with the remainder of the 2012 authorization as well as an additional authorization of $900,000,000 projected to be used over the study period and subsequent years, including for the issuance of $768,005,000 in additional senior revenue bonds and $175,500,000 in additional state revolving fund loans over the forecast period. Additional revenue bonds are assumed to have 30-year terms and with annual bond yields ranging from 3.40 percent to 4.00 percent for fiscal years 2017 through 2020. Additional revenue bonds issued as part of the SRF loan program are expected to have 20-year terms and a net effective annual interest and administration cost of about 2.75 percent per year to 3.50 percent per year. The total annual debt service requirement resulting from existing debt plus proposed debt issued during the study period is expected to increase from $73,759,592 in 2016 to $138,618,965 in 2020 as indicated in the Payments to Bondholders section of Table 10. Table 10 presents debt service in two ways, by Payments to Sinking Fund, which is used for modeling the District's cash flow in Table 11, and Payments to Bondholders, which is used to determine coverage in accordance with the District's bond covenants. The Payments to Bondholders for FY 2017 through FY 2020 shown in Table 10 was provided by the District's Financial Advisor, PFM Financial Advisors, LLC. The scheduling of the proposed revenue bond issues and SRF loans reflects current planning considerations, as recognized for purposes of this report. This is not intended to preclude the possible modification or rescheduling of issues at a later date, if desirable, due to market conditions, local financing policy, or other practical considerations. The Metropolitan St. Louis Sewer District Wastewater System Financing D-46 Operating Reserve Allowance The operating reserve allowance is a recommended balance to accommodate fluctuations in annual revenues and expenditures. The existing revenue bond covenants require the District to maintain a minimum balance equal to 45 days of operation and maintenance expense. For this report, an operating reserve allowance equal to 60 days or about 16.4 percent of annual operating expense is assumed to be maintained, as provided by the current budget. Operating expense, as routinely presented in the District's annual budgets, is equal to the sum of operation and maintenance expense and routine annual capital improvements. The operating reserve for wastewater operations is projected to increase to about $58.1 million in fiscal year 2020 through revenues set aside to maintain a 60-day operating reserve allowance. Table 10. Projected Debt Service Requirements Fiscal Year Ending June 30 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Projected Projected Projected Projected Payments to Sinking Fund Revenue Bonds Existing 47,932,461$ 55,651,190$ 55,464,096$ 55,469,224$ 55,530,140$ Projected - 3,666,081 15,058,242 27,950,463 42,746,340 Subtotal: Revenue Bonds 47,932,461$ 59,317,271$ 70,522,338$ 83,419,686$ 98,276,480$ SRF Loans Existing 29,722,982$ 32,053,961$ 32,523,911$ 32,543,316$ 32,548,034$ Projected - 1,882,500 5,565,575 8,351,469 10,207,736 Subtotal: SRF Loans 29,722,982$ 33,936,461$ 38,089,486$ 40,894,785$ 42,755,770$ Total: Debt Service to Sinking Fund 77,655,443$ 93,253,732$ 108,611,825$ 124,314,471$ 141,032,249$ Payments to Bondholders Revenue Bonds Existing 46,381,319$ 55,688,169$ 55,466,294$ 55,453,107$ 55,549,807$ Projected - 2,489,837 13,881,550 26,454,075 41,199,363 Subtotal: Revenue Bonds 46,381,319$ 58,178,006$ 69,347,844$ 81,907,182$ 96,749,169$ SRF Loans Existing 27,378,273$ 31,705,094$ 32,484,430$ 32,511,876$ 32,533,008$ Projected - - 3,765,000 7,366,150 9,336,788 Subtotal: SRF Loans 27,378,273$ 31,705,094$ 36,249,430$ 39,878,026$ 41,869,796$ Total: Debt Service to Bondholders 73,759,592$ 89,883,100$ 105,597,274$ 121,785,207$ 138,618,965$ The Metropolitan St. Louis Sewer District Wastewater System Financing D-47 Financial Analysis A pro forma cash flow statement showing projected wastewater revenues and revenue requirements for the District during the study period is presented in Table 11. System revenues must be at least sufficient to finance the costs of operation and maintenance expense, routine annual capital improvements, and debt service costs on existing and proposed debt, while maintaining adequate operating reserve funds and complying with all revenue bond debt service coverage requirements. Annual revenues can also be used to finance a portion of the major capital improvement program. Table 11 presents annual wastewater revenues and expenditures under the District’s approved rates for the study period. Line 1 of Table 11 shows projected revenue under the approved rates for each year of the study period. The Metropolitan St. Louis Sewer District Wastewater System Financing D-48 Table 11. Comparison of Projected Wastewater Revenue with Projected Revenue Requirements Fiscal Year Ending June 30 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Projected Projected Projected Projected Wastewater Revenue 1 User Charge Revenue (1)299,593,202$ 322,527,776$ 352,925,875$ 388,038,071$ 426,029,029$ Other Miscellaneous Revenue 2. Other Operating Revenue 17,905,293$ 4,487,643$ 4,392,599$ 4,265,762$ 4,138,851$ 3. Connection Fee Revenue 1,242,782 1,038,000 1,048,380 1,058,864 1,069,452 4.Subtotal: Other Miscellaneous Revenue 19,148,075$ 5,525,643$ 5,440,979$ 5,324,626$ 5,208,304$ 5. Interest Income - Reserve Funds 251,952 251,952 251,952 251,952 251,952 6. Interest Income - Other (2)3,642,353 3,748,048 3,748,048 3,748,048 3,748,048 7.Total: Wastewater Revenue 322,635,582$ 332,053,419$ 362,366,854$ 397,362,697$ 435,237,333$ Operating Expenses 8. General Fund Operating Expenses 147,842,830$ 149,432,953$ 154,579,838$ 160,967,537$ 167,335,343$ 9. Other Operating Expenses 23,473,946 16,103,849 13,835,190 14,105,259 14,549,813 10.Subtotal: Operating Expenses (O&M)171,316,776$ 165,536,802$ 168,415,028$ 175,072,796$ 181,885,156$ 11.Net Revenue Available for Debt Service 151,318,807$ 166,516,617$ 193,951,826$ 222,289,901$ 253,352,177$ Debt Service (Payments to Sinking Fund) Revenue Bonds 12. Existing 47,932,461$ 55,651,190$ 55,464,096$ 55,469,224$ 55,530,140$ 13. Projected - 3,666,081 15,058,242 27,950,463 42,746,340 14.Subtotal: Revenue Bonds 47,932,461$ 59,317,271$ 70,522,338$ 83,419,686$ 98,276,480$ SRF Loans 15. Existing 29,722,982$ 32,053,961$ 32,523,911$ 32,543,316$ 32,548,034$ 16. Projected - 1,882,500 5,565,575 8,351,469 10,207,736 17.Subtotal: SRF Loans 29,722,982$ 33,936,461$ 38,089,486$ 40,894,785$ 42,755,770$ 18.Total: Debt Service 77,655,443$ 93,253,732$ 108,611,825$ 124,314,471$ 141,032,249$ Other Revenues and Expenditures 19. Other Non-Operating Revenue (207,013)$ 172,397$ 172,397$ 172,397$ 172,397$ 20. Routine Annual Capital Improvements 320,648 4,472,736 5,226,145 5,330,668 5,437,282 21. Cash Financing of Major Capital Improvements 21,000,000 70,000,000 75,000,000 85,000,000 95,000,000 22. Non-recurring Projects & Studies 11,000,403 6,034,848 5,194,950 5,101,732 5,281,442 23. Commercial Paper & Line of Credit Payments - - - - - 24.Subtotal: Other Expenditures 32,321,051$ 80,507,584$ 85,421,095$ 95,432,400$ 105,718,723$ 25.Net Annual Balance (3)41,135,300$ (7,072,303)$ 91,303$ 2,715,426$ 6,773,601$ 26. Beginning Balance (4)41,654,227$ 55,590,610$ 48,518,307$ 48,609,610$ 51,325,036$ 27. Ending Balance (4)82,789,527 48,518,307 48,609,610 51,325,036 58,098,637 Debt Service (Payments to Bondholders) 28. Revenue Bonds 46,381,319$ 58,178,006$ 69,347,844$ 81,907,182$ 96,749,169$ 29. SRF Loans 27,378,273 31,705,094 36,249,430 39,878,026 41,869,796 30.Total: Debt Service 73,759,592$ 89,883,100$ 105,597,274$ 121,785,207$ 138,618,965$ Debt Service Coverage 31. Revenue Bonds 3.26 2.86 2.80 2.71 2.62 32. Total Debt 2.05 1.85 1.84 1.83 1.83 (1) User charge revenues for FY16 vary slightly from the audite d financial statements. The two reasons for the differences are that the feasibility stud y uses averaging of monthly account data to calculate the revenue and further does not factor into the calculation some manual adjustments made to individual customer accounts. (2) Includes interest earned from the Missouri American Water Loan. (3) Net Annual Balance is Net Revenue Available for Debt Service (Line 11) less Debt Service and Other Expenditures (Lines 18 and 26) plus Other Non-Operating Revenue (Line 19). (4) Includes funds set aside for a minimum operating reserve equal to 60 days of operating expenses. The Metropolitan St. Louis Sewer District Wastewater System Financing D-49 As indicated on Lines 2 and 3 of Table 11, other operating revenue and connection fee revenue, previously projected in Table 8, are available for the wastewater system. Projected revenue from District-wide connection fees are expended as part of the cash financing of major improvements line item (Line 21), which is also shown as Line 3 of Table 3. Interest income that is available from restricted or reserve funds for operating purposes is shown on Line 5 of Table 11. Interest earned on operating fund balances and the interest portion of the Missouri American Water’s debt repayment for a portion of the Meramec River Treatment Plant is shown on Line 6 of Table 11. Interest income is estimated based on a 1.0 percent annual interest rate applied to the average beginning and end of year fund balances. A slightly higher rate of 1.2 percent is assumed for funds held in the revenue bond reserve fund to reflect the ability to invest these funds for a longer term. Total revenue available for wastewater utility operations is shown on Line 7 of Table 11. Total operation and maintenance expense for the wastewater system, previously projected on Line 23 of Table 9, is shown on Lines 8 and 9 of Table 11. Line 11 shows the estimated net revenue remaining after deducting total projected operation and maintenance expense (Line 10) from total wastewater revenue (Line 7). This net wastewater revenue is available or pledged for debt service coverage purposes. Debt service requirements on existing and projected revenue bonds and SRF loans are presented on Lines 12 through 18. As previously described, it is projected that revenue bond proceeds in the aggregate amount of $1,052,773,756 and SRF loan proceeds in the aggregate amount of $250,500,000 will be received in fiscal years 2016 through 2020 to help finance major capital program expenditures. This debt financing program will provide a mechanism to spread the costs of major capital improvements over a portion of their useful lives and more equitably recover these costs from both current and future users of the improvements. Line 19 of Table 11 shows other non-operating revenue of the wastewater utility, previously shown on Line 9 of Table 8. Line 20 of Table 11 shows the total amount of routine annual improvements which are completely financed by annual revenues. Funds used to finance a portion of the major capital improvement program are reported as a cost on Line 21 of Table 11 and as a source of revenue on Line 3 of Table 3. The net annual balance of annual revenues less expenditures is presented on Line 25. Lines 26 and 27 of Table 11 show the projected combined beginning and ending cash balances of the wastewater utility for each year of the study period exclusive of the targeted operating reserve balances. District staff provided information regarding the unencumbered balance of funds available at the beginning of fiscal year 2017. The Metropolitan St. Louis Sewer District Wastewater System Financing D-50 Wastewater Bill Comparison Table 12 presents a comparison of typical wastewater service bills under approved and recommended rates for fiscal years 2016 through 2020 for various billable wastewater volumes and customer types. As indicated in the table, the monthly wastewater bill for the average metered residential customer contributing 7 Ccf of wastewater per month will increase by 10.6 percent in 2018 with additional increases of 10.8 percent in 2019 and 10.6 percent in 2020. T Table 13 presents the results of a rate survey of the 50 largest U.S. cities based on published rates as of September 2016. St. Louis’ rates have risen more quickly than some of the other large cities in this survey, resulting in above average residential charges while the commercial charges are still below average for the representative customers. Table 12. Typical Bill Comparison Fiscal Year Ending June 30 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Current Approved Approved Approved Wastewater Bills Single Family Residential (Metered) 1. 1 Ccf per month $ 21.46 $ 23.05 $ 25.49 $ 28.23 $ 31.22 2. 5 Ccf per month $ 34.30 $ 37.41 $ 41.37 $ 45.83 $ 50.70 3. 7 Ccf per month $ 40.72 $ 44.59 $ 49.31 $ 54.63 $ 60.44 4. 10 Ccf per month $ 50.35 $ 55.36 $ 61.22 $ 67.83 $ 75.05 5. 15 Ccf per month $ 66.40 $ 73.31 $ 81.07 $ 89.83 $ 99.40 6. 20 Ccf per month $ 82.45 $ 91.26 $ 100.92 $ 111.83 $ 123.75 Multi-Family Residential (Metered) 7. 20 Ccf per month $ 82.45 $ 91.26 $ 100.92 $ 111.83 $ 123.75 8. 40 Ccf per month $ 146.65 $ 163.06 $ 180.32 $ 199.83 $ 221.15 9. 60 Ccf per month $ 210.85 $ 234.86 $ 259.72 $ 287.83 $ 318.55 Non-Residential (Normal Strength Wastewater) 10. 70 Ccf per month $ 245.10 $ 273.62 $ 302.37 $ 334.88 $ 370.39 11. 100 Ccf per month $ 341.40 $ 381.32 $ 421.47 $ 466.88 $ 516.49 12. 160 Ccf per month $ 534.00 $ 596.72 $ 659.67 $ 730.88 $ 808.69 Non-Residential (Excess Strength Wastewater) (1) 13. 70 Ccf per month $ 404.07 $ 465.30 $ 499.64 $ 538.43 $ 579.43 14. 100 Ccf per month $ 522.48 $ 595.90 $ 642.26 $ 694.64 $ 750.34 15. 160 Ccf per month $ 737.18 $ 834.20 $ 903.98 $ 982.86 $ 1,067.35 (1) The 70, 100, and 160 Ccf bills assume excess strength of 150, 200, and 250 mg/l, respectively, of suspended solids and BOD. The Metropolitan St. Louis Sewer District Wastewater System Financing D-51 The Metropolitan St. Louis Sewer District Bond Covenant Compliance D-52 Bond Covenant Compliance Rate Covenants The majority of all District wastewater and stormwater revenues are deposited into and accounted for by separate wastewater and stormwater operating funds. Portions of these revenues are transferred to the General Fund, as required, to pay each utility’s portion of operation and maintenance expense and routine capital expenditures. Section 6.1 of the Master Bond Ordinance requires the District to operate the System on a revenue producing basis and at all times to prescribe, fix, maintain, and collect rates, fees, and other charges for the services, facilities, and commodities furnished by the System fully sufficient at all times to pay annual operation and maintenance expense, provide a reasonable operating reserve, produce net revenues in each fiscal year equal to at least 1.25 times the Debt Service Requirement on all Senior Bonds currently outstanding and 1.15 times the Debt Service Requirement on all Bonds then outstanding and accumulate sufficient funds to meet the costs of major renewals, replacements, repairs, additions, betterments, and improvements to the System to keep it in good working condition. In addition, Section 3.020(16) of the Charter requires the District to establish fair and reasonable schedules of charges and Section 7.130 of the Charter requires a balanced budget. Based on a detailed analysis of the System’s revenue and revenue requirements, as presented in the Wastewater System Financing section of this report, the District will continue to meet the rate covenant requirements after issuance of the Series 2016C Bonds. In addition, the existing wastewater rates in effect for fiscal year 2017 and the rates approved for fiscal years 2018 through 2020 are projected to provide sufficient user charge revenues, together with other available revenue sources, to meet all projected revenue requirements related to the proposed CIRP and remain in compliance with the rate covenants throughout the study period. Reasonable Charges Section 6.7 of the Master Bond Ordinance requires that: “None of the facilities or services afforded by the System will be furnished to any user without a reasonable charge being made therefor.” Current and future rates for the System are based on detailed cost of service analyses to provide reasonable assurance that each customer class pays its proportionate share of the costs required to provide utility service. All users of the System are paying their proportionate share of operating and maintenance expenses in compliance with the Master Bond Ordinance Capitalized terms are defined in the Bond Ordinance. The Metropolitan St. Louis Sewer District Bond Covenant Compliance D-53 requirement and Federal user charge requirements. No free service is being provided by the District. Adequate Maintenance Section 6.2 of the Bond Ordinance requires the District to operate the System in an efficient and economical manner and maintain the System at all times in good repair and sound operating condition. The System has historically been adequately maintained and found to be in good working order. Although costs are considered reasonable and result in rates comparable to similar sized utilities, the District is continuously looking at ways to reduce costs and keep utility rates as low as possible. Additional Bonds Tests In order to issue additional revenue bonds on parity with prior Senior Bonds, the District must have sufficient revenues to meet either a preceding year or ensuing year additional bonds coverage test. Section 5.3 of the Master Bond Ordinance requires historical Net Operating Revenues and Investment Earnings (“net revenues”) for a period of 12 consecutive months of the most recent 18 consecutive months prior to the issuance of the proposed Senior Bonds to be at least equal to (i) 1.25 times the Maximum Annual Debt Service Requirement on all Senior Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds, and (ii) 1.15 times the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds. For the ensuing year additional bonds test, the Master Bond Ordinance requires the forecasted net revenues for each fiscal year in the Forecast Period (the three consecutive fiscal years commencing with the fiscal year in which any proposed Senior Bonds are to be issued) to be at least (i) 1.25 times the Maximum Annual Debt Service Requirement on all Senior Bonds that will be Outstanding immediately after the issuance of the proposed Senior Bonds, and (ii) 1.15 times the Maximum Annual Debt Service Requirement on all Bonds which will be Outstanding immediately after the issuance of the proposed Senior Bonds. Revenue adjustments are allowed for the preceding year test for any rate increase enacted prior to the delivery date of the proposed Senior Bonds and not fully reflected in the historical Net Operating Revenues actually received during the 12-month period. A similar adjustment is allowed for the ensuing year test if the rates were actually adopted by ordinance prior to issuance of the bonds. Without a future rate adjustment provision for the ensuing year test, the normal inflationary increases in operation and maintenance expenses could outpace the revenues obtained from a relatively stable customer base such that future net revenues and ensuing year debt service coverage may significantly decrease towards the end of the Forecast Period. This may require the District to enact multiple year rate increases prior to issuance of The Metropolitan St. Louis Sewer District Bond Covenant Compliance D-54 the bonds, set rates at a current year debt service coverage level of 1.50 times the Debt Service Requirement or higher to account for the expected coverage deterioration, or only rely on the historic year test to issue additional Senior Bonds. The Master Bond Ordinance also specifies additional bond tests for the issuance of any Subordinate Bonds. These tests are identical to the additional Senior Bond tests. The District has never defaulted on any District-wide or subdistrict revenue bond payment and is expected to be able to issue additional revenue bonds throughout the study period. Table 14 presents the results of the rate covenant and additional bond coverage tests during the study period and projects revenue based on the Board-approved rate increases through 2020. As indicated by Line 4 of Table 14, the indicated annual rate covenant coverage ranges from 2.61 times annual debt service to 3.26 times annual senior lien debt service, exceeding the 1.25 minimum requirement. Likewise, the additional bond coverage levels for Senior Bonds, as shown on Lines 11 and 16 of Table 14, exceed their 1.25 minimum requirements throughout the study period. Coverage indicated for total debt is also above the 1.15 minimum requirement throughout the study period, as shown on Lines 12 and 17 of Table 14. Lines 19 and 20 present the ensuing year additional bonds test as calculated for the Series 2016C Bonds and does not consider the potential impact of future rate increases or bond issues. The District is in compliance with the ensuing year additional bonds test as the senior lien coverage exceed 1.25 times and total debt coverage exceed 1.15 times in each of the next three years. The Metropolitan St. Louis Sewer District Bond Covenant Compliance D-55 a Table 14. Debt Service Coverage under Projected Revenue Levels Fiscal Year Ending June 30 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Actual Projected Projected Projected Projected Rate Covenant Coverage 1. Projected Net Revenue (1)151,318,807$ 166,516,617$ 193,951,826$ 222,289,901$ 253,352,177$ Projected Debt Service to Bondholders (2) 2. Senior Lien Bonds 46,381,319$ 58,178,006$ 69,347,844$ 81,907,182$ 96,749,169$ 3. Total Debt (3)73,759,592$ 89,883,100$ 105,597,274$ 121,785,207$ 138,618,965$ Debt Service Coverage Levels 4. Senior Lien Bonds (4)3.26 2.86 2.80 2.71 2.62 5. Total Debt (5)2.05 1.85 1.84 1.83 1.83 Additional Parity Test Coverage Projected Maximum Annual Debt Service (6) 6. Senior Lien Bonds 66,301,015$ 75,848,065$ 87,289,065$ 101,832,065$ 116,921,490$ 7. Total Debt 88,131,392 103,772,204 117,265,387 133,505,485 150,294,660 Preceding Year Test 8. Net Revenue for Prior Fiscal Year 131,796,250$ 151,318,807$ 166,516,617$ 193,951,826$ 222,289,901$ 9. Net Revenue Adjustment (7)15,815,550 15,964,134 17,484,245 20,364,942 23,562,729 10. Adjusted Net Revenue 147,611,800$ 167,282,941$ 184,000,861$ 214,316,768$ 245,852,630$ Preceding Year Debt Service Coverage Levels 11. Senior Lien Bonds (8)2.23 2.21 2.11 2.10 2.10 12. Total Debt (9)1.67 1.61 1.57 1.61 1.64 Ensuing Year Test 13. Net Revenue for Ensuing Fiscal Year 166,516,617$ 193,951,826$ 222,289,901$ 253,352,177$ 282,123,725$ 14. Net Revenue Adjustment (10)- - - - - 15. Adjusted Net Revenue 166,516,617$ 193,951,826$ 222,289,901$ 253,352,177$ 282,123,725$ Ensuing Year Debt Service Coverage Levels 16. Senior Lien Bonds (11)2.51 2.56 2.55 2.49 2.41 17. Total Debt (12)1.89 1.87 1.90 1.90 1.88 Ensuing Year Additional Bonds Test - Current Issue 18. Net Revenue for Ensuing Year (13)208,685,306$ 241,243,529$ 277,250,354$ 19. Senior Lien Bonds (13)2.75 3.18 3.66 20. Total Debt (13)2.01 2.32 2.67 (1) Net revenue as shown on Line 11 of Table 11. Includes the impact of approved rate increases each year. (2) Projected actual payments to of principal and interest from the sinking fund to bondholders. (3) Includes senior revenue bonds and subordinate debt obligations. (4) Line 1 / Line 2. The Bond Ordinance requires net revenue to equal or exceed 1.25 times actual senior lien debt service. (5) Line 1 / Line 3. The Bond Ordinance requires net revenue to equal or exceed 1.15 times actual total debt service. (6) Maximum future debt service for all series of revenue bonds issued in previous years or during the current fiscal year. (7) Adjustment for revenues increases to be fully operative July 1 of the current fiscal year as allowed by the Bond Ordinance. (8) Line 10 / Line 6. The Bond Ordinance requires adjusted net revenue for the preceding fiscal year to equal or exceed 1.25 times the maximum annual debt service on all then outstanding senior lien obligations. (9) Line 10 / Line 7. The Bond Ordinance requires adjusted net revenue for the preceding fiscal year to equal or exceed 1.15 times the maximum annual debt service on all then outstanding debt obligations. (10) Adjustment for revenues increases not permitted for ensuing year coverage test unless already adopted by the Board. (11) Line 15 / Line 6. The Bond Ordinance requires net revenu e for the ensuing three fiscal years to equal or exceed 1.25 times the maximum annual debt service on all then outstanding senior lien revenue bonds. (12) Line 15 / Line 7. The Bond Ordinance requires net revenu e for the ensuing three fiscal years to equal or exceed 1.15 times the maximum annual debt service on all then outstanding bonds. (13) The test for the currently proposed issue considers the next three fiscal years, with adjustments for future rate increas es adopted by the Board. The coverage calculations all use the FY 2017 MADS amounts per the rate covenant. The Metropolitan St. Louis Sewer District Principal Assumptions D-56 Principal Assumptions In conducting our analyses and in forming an opinion of future operations summarized in this report, RFC has made certain assumptions with respect to conditions, events, and circumstances that may occur in the future. The methodology utilized by RFC in performing the analysis follows generally accepted practices for such projections. Such assumptions and methodologies are summarized in this report and are reasonable and appropriate for the purpose for which they are used. While we believe the assumptions are reasonable and the projection methodology valid, actual results may differ materially from those projected, as influenced by the conditions, events, and circumstances that actually occur. The principal assumptions used in the forecast of future operations are as follows: 1. In preparation of this report, RFC has relied on certain historical, financial, and statistical data supplied by District staff. While such data is considered reliable, RFC has not independently verified the detailed accuracy of such data. 2. The District’s estimates of content, scheduling, and cost of the capital improvement program present a reasonable projection of the future construction program and complies with the initial terms of the Consent Decree. 3. Billed wastewater volume will continue to decrease but will level off towards the end of the study period. 4. Debt service for the revenue bonds proposed to be issued after the Series 2016C Bonds will be approximately as estimated. 5. The District will maintain a minimum operating reserve balance at all times that is at least equal to 60 days of operating expenditures. 6. There will be no material changes in federal and state laws or regulations that would adversely impact the District’s ability to secure tax-exempt financing for its System, place more stringent limitations on wastewater effluent discharges, materially increase the cost of constructing or operating the wastewater system, or otherwise adversely impact operations of the System. 7. The general economy that impacts System costs and users’ capabilities to pay wastewater service charges will remain relatively stable at current conditions. APPENDIX E FORM OF OPINION OF CO-BOND COUNSEL [THIS PAGE INTENTIONALLY LEFT BLANK] E-1 Gilmore & Bell, P.C., St. Louis, Missouri, and White Coleman & Associates, LLC, St. Louis, Missouri, Co-Bond Counsel, propose to issue their approving opinions upon the issuance of the Series 2016C Bonds in substantially the following form: The Metropolitan St. Louis Sewer District St. Louis, Missouri Morgan Stanley & Co. LLC, as representative of the Underwriters Chicago, Illinois Re: $150,000,000 The Metropolitan St. Louis Sewer District, Wastewater System Revenue Bonds, Series 2016C Ladies and Gentlemen: We have acted as co-bond counsel in connection with the issuance by The Metropolitan St. Louis Sewer District (the “District”), of the above-captioned bonds (the “Bonds”). In this capacity, we have examined the District’s Charter, the law and the certified proceedings, certifications and other documents that we deem necessary to render this opinion. The Bonds are issued pursuant to Master Bond Ordinance No. 11713 adopted by the Board of Trustees of the District on April 22, 2004, as supplemented by Ordinance No. 14567 adopted by the Board of Trustees of the District on December 8, 2016 (collectively, the “Bond Ordinance”). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Bond Ordinance. Regarding questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. Based on and subject to the foregoing, we are of the opinion, under existing law, as follows: 1. The Bonds have been duly authorized, executed and delivered by the District and are valid and legally binding limited obligations of the District, payable solely from the Pledged Revenues of the District’s sanitary sewer system, after providing for the costs of operation and maintenance thereof. The Bonds do not constitute general obligations of the District nor do they constitute an indebtedness of the District within the meaning of any constitutional, statutory or charter provision, limitation or restriction, and the taxing power of the District is not pledged to the payment of the Bonds. 2. The Bond Ordinance has been duly adopted by the Board of Trustees of the District and constitutes a valid and legally binding obligation of the District enforceable against the District. The Bond Ordinance creates a valid lien on the revenues and other funds pledged by the Bond Ordinance for the security of the Bonds on a parity with any Senior Bonds issued or to be issued as provided under the Bond Ordinance. 3. The interest on the Bonds (i) is excludable from gross income for federal income tax purposes, (ii) is exempt from income taxation by the State of Missouri, and (iii) is not an item of tax preference for purposes of computing the federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinions set forth in this paragraph are subject to the E-2 condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”) that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The District has covenanted to comply with all of these requirements. Failure to comply with certain of these requirements may cause the interest on the Bonds to be included in gross income for federal and State of Missouri income tax purposes retroactive to the date of issuance of the Bonds. The Bonds have not been designated as “qualified tax-exempt obligations” for purposes of Section 265(b) of the Code. We express no opinion regarding the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds (except to the extent, if any, stated in the Official Statement). Further, we express no opinion regarding the perfection or priority of the lien on revenues or other funds pledged under the Bond Ordinance or tax consequences arising with respect to the Bonds other than as expressly set forth in this opinion. The rights of the owners of the Bonds and the enforceability of the Bonds and the Bond Ordinance may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights generally and by equitable principles, whether considered at law or in equity, and their enforcement may be subject to the exercise of judicial discretion in appropriate cases. This opinion is given as of its date, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may come to our attention or any changes in law that may occur after the date of this opinion. Very truly yours, [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] ThE METROPOlITAN ST. lOUIS SEWER DISTRIcT • WasteWater system revenue Bonds, series 2016C!( !( !( #* #* #* #* #* #* #* §¨¦44 §¨¦55 §¨¦64 §¨¦70 §¨¦270 §¨¦170 §¨¦255 §¨¦44 §¨¦70 §¨¦64 §¨¦270 §¨¦55 C LAYTON BALLASPAGE NEW HALLS FERRYWI L D H O R S E C R E EKDELMAR LUCAS N HUNTS T ALBANS LADU E LACLEDE STATIONU SHIGHWAY66 EARTHCITYWOODS MILLHANLEYPA G E HANLEYFOR E S T P A R K OLIVE MO109GRAVOISMO364MO100 TELE GRAPHMO30MO141 WATSON ST CHARLES ROCK LEMAY FER RY TESSONFERRYLEWISNCLARKCLARKSONCHIPPEWAR IVERVIEWNATURALBRIDGE M AN C H E S T E R MANCHESTER MO370 MO340 £¤67 £¤67 MINTERT SULPHUR GRAND GLAIZE Lemay Fenton Coldwater Grand Glaize Lower Meramec Bissell Point Missouri River LEMAYLEMAY MISSOURI RIVERMISSOURI RIVER BISSELL POINTBISSELL POINT COLDWATERCOLDWATER LOWER MERAMECLOWER MERAMEC ¶ SERVICE AREAS ST. CHARLES COUNTY ST. CLAIR COUNTY MADISON COUNTY LEGEND #*TREATMENT PLANTS !(MAINTENANCE YARDS ST. LOUIS COUNTY MSD BOUNDARY BISSELL POINT COLDWATER LEMAY MISSOURI RIVER LOWER MERAMEC The Metropolitan St. Louis Sewer District JEFFERSON COUNTYFRANKLIN COUNTYMiles of Pipe & Force Mains: (as of 01/01/2016) Sanitary Sewers = 4,711 Miles Storm Sewers = 3,045 Miles Combined Sewers = 1,745 Miles Total = 9,501 Miles