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Fiscal Year 2018 Popular Annual Financial ReportP o P ular a nnual F inancial r e P ort Fiscal Year Ending June 30, 2018 METROPOLITAN ST. LOUIS SEWER DISTRICT ST. LOUIS, MISSOURI DEER CREEK SANITAR Y T U N N E L MALINE CREEK STORAGE FACILITY JEFFERSON BARRA C K S T U N N E L MSD MISSION MSD PROJECT CLEAR “To protect the public’s health, safety, and water environment by responsibly providing wastewater and stormwater management.” MSD Project Clear is our initiative to improve water quality and alleviate many wastewater concerns in the St. Louis region. It will invest billions of dollars over a generation in planning, designing, and building community rainscaping, system improvements, and an ambitious program of maintenance and repair. MSD is building eight underground tunnels and storage facilities to reduce the number of sewer overflows and improve the overall system. The project is part of MSD Project Clear. Pictured on the cover are three of the tunnel projects in progress: the Jefferson Barracks Tunnel, which began in early 2017 and will be completed in 2020; the Deer Creek Sanitary Tunnel, which will be completed in late 2022; and the Maline Creek Storage Facility, which will be completed in 2022. ON THE COVER TABLE OF CONTENTS Directors’ Letter ............................................................................................................3 Tunnel Projects Underway to Improve Water Quality .....4-5 What We Do .....................................................................................................................6-7 MSD Rate Commission ................................................................................................8 2018 Stormwater Capital Rate Proposal ..............................................9 Year in Review .................................................................................................................10 Looking Ahead ................................................................................................................11 Balance Sheet .................................................................................................................12 MSD Assets and Long-Term Obligations ...........................................13 Income Statement .......................................................................................................14 Revenues and Expenses ..........................................................................................15 Cash Flow Statement .............................................................................................16 Performance Against Budget and Credit Rating ....................17 POPULAR ANNUAL FINANCIAL REPORT FY 18 | 1 “Government Finance Officers Association of the United States and Canada (GFOA) has given an Award for Outstanding Achievement in Popular Annual Financial Reporting to the Metropolitan St. Louis Sewer District for its Popular Annual Financial Report for the fiscal year that ended June 30, 2017. The Award for Outstanding Achievement in Popular Annual Financial Reporting is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government popular reports. In order to receive an Award for Outstanding Achievement in Popular Annual Financial Reporting, a government unit must publish a Popular Annual Financial Report, the contents of which conform to program standards of creativity, presentation, understandability, and reader appeal. An Award for Outstanding Achievement in Popular Annual Financial Reporting is valid for a period of one year only. Metropolitan St. Louis Sewer District has received a Popular Award for the last six consecutive years (fiscal years ended 2012-2017). We believe our current report continues to conform to the Popular Annual Financial Reporting requirements, and we are submitting it to GFOA to determine its eligibility for another Award.” 2 | METROPOLITAN ST. LOUIS SEWER DISTRICT Thank you for your interest in the Metropolitan St. Louis Sewer District (MSD). We are pleased to present our Popular Annual Financial Report for the Fiscal Year 2018 (FY 18). MSD’s work is rooted in the present yet always looking ahead to the future. Our mission is singular in focus: to protect the public’s health, safety, and water environment through responsible wastewater and stormwater management. MSD serves the daily needs of residents by providing basic sewer services, while also implementing improvements that will benefit the region for decades to come. In FY 18, MSD appropriated funds for 180 new, ongoing, or continuing wastewater and stormwater design and construction projects. This annual report provides a non-technical overview of MSD’s work and a snapshot of our activities from the most recently completed fiscal year (July 1, 2017, to June 30, 2018), including how we are carefully investing funds in order to manage and improve our region’s wastewater and stormwater systems. Within these pages, you will also find financial information for the past fiscal year that summarizes the more in-depth financial review provided in our Comprehensive Annual Financial Report. Please note, that while the summary information provided here uses principles and guidelines consistent with Generally Accepted Accounting Principles (GAAP), it has been simplified for general audiences and is not GAAP-compliant. Both reports are available online at www.stlmsd.com/PAFR. To request a printed copy of this information, contact MSD at 314-768-6260 or send an email to customersvc@stlmsd.com. We hope you find this report useful and informative. We welcome any comments or suggestions on how we might improve future reports to better serve your interests and needs. Respectfully submitted, Brian Hoelscher, P.E. Marion Gee Executive Director & CEO Director of Finance DIRECTORS’ LETTER POPULAR ANNUAL FINANCIAL REPORT FY 18 | 3 MSD Project Clear is a multi-billion-dollar initiative taking place over a generation to improve water quality and lessen wastewater concerns in the St. Louis region. As the result of an agreement between MSD, the U.S. Environmental Protection Agency, and the Missouri Coalition for the Environment, MSD Project Clear has three main goals: • Preventing excess stormwater from entering the sewer system • Repairing, maintaining, and renewing the existing sewer system • Building system improvements To control sewer overflows and improve the overall system, MSD is building eight underground tunnels and storage facilities. Construction of the first project, the Lemay Redundant Force Main, was completed in 2014, and plans for the additional seven are underway. The majority of the deep tunnel projects will be built in the limestone rock layer by a specialized piece of equipment called a Tunnel Boring Machine (TBM), which causes minimal disturbance to areas in proximity of the project. A lining is then installed that keeps groundwater out and wastewater in the tunnel. For projects that are too small or short to use a TBM, controlled blasting will take place underground, causing minimal surface disturbance. Projects that are currently underway include Deer Creek Sanitary Tunnel, Jefferson Barracks Tunnel, and Maline Creek Storage Facility. Deer Creek Sanitary Tunnel The Deer Creek Sanitary Tunnel will be approximately 3.9 miles long, extending from Clayton Road in the City of Clayton to Interstate 44 in the City of Shrewsbury. It will be tunneled in deep rock between 150 and 250 feet below ground surface by a TBM and will have a finished inside concrete liner diameter of approximately 19 feet. The construction shaft (which will later serve as part of the pump station that drains the tunnel) is located at the downstream end of the tunnel near I-44 and Shrewsbury Avenue. This tunnel will collect and temporarily store peak wastewater overflows along the Deer Creek Sewer system, alleviating the overcharging of the existing system that contributes to basement backups and sewer overflows. As of September 2018, the Deer Creek Sanitary Tunnel was 15 percent complete. The project will be finished by late 2022 and is estimated to cost $150 million. TUNNEL PROJECTS UNDERWAY TO IMPROVE WATER QUALITY 4 | METROPOLITAN ST. LOUIS SEWER DISTRICT Jefferson Barracks Tunnel The Jefferson Barracks Tunnel project will be 11 feet in diameter and approximately 3.37 miles long, extending from south of I-255 at Koch Road to the Lemay Wastewater Treatment Plant located at the confluence of the River des Peres and the Mississippi River. The TBM will tunnel 120 to 220 feet below the surface, beneath zones of river bluff karst – limestone that is riddled with caves and sinkholes as a result of erosion. Design efforts included identifying the best alignment for the tunnel to avoid costly construction through these karst zones. As of July 2018, the project was about 27 percent complete. The project will be finished in 2020 and is estimated to cost $65 million. Maline Creek Storage Facility The Maline Creek Storage Facility will be approximately one half-mile long and 28 feet in diameter. Located about 175 feet below Riverview Drive between Chain of Rocks Drive and Church Road, it will reduce the volume of discharge into Maline Creek – a small tributary that lies on the northern edge of St. Louis City – during significant rain events. After the rain subsides, a pump station will transfer the stored flow back to the system for treatment at the Bissell Point Wastewater Treatment Plant. As of September 2018, the Maline Creek Storage Facility was about 69 percent complete. The project is expected to be finished in 2020 and is estimated to cost $84.4 million. POPULAR ANNUAL FINANCIAL REPORT FY 18 | 5 WHAT WE DO MSD’s Dual Function The Metropolitan St. Louis Sewer District owns, operates, and maintains a sewer system which consists of wastewater, stormwater, and combined collection sewers – carrying both wastewater and stormwater – pumping stations, and wastewater treatment facilities that have been incorporated into one entity over the last 60-plus years. MSD’s service area encompasses approximately 520 square miles, including all 66 square miles of St. Louis City and 454 square miles (87 percent) of St. Louis County. The current population served by MSD is approximately 1.3 million, representing more than 426,000 accounts. MSD provides a variety of additional services, including monitoring of industrial waste, issuance of pretreatment discharge permits, plan review and approvals, issuance of connection permits, public education, and customer service. It is one of the largest and most complex systems in the United States. MSD is two separate utilities within one organizational structure: Wastewater – collect “used” water disposed of in sinks, toilets, and floor drains by households and businesses, and then treat it to regulatory standards before returning it to the region’s waterways. Stormwater – operate and maintain the public storm sewer system and help coordinate regional efforts to address pollution carried in or caused by stormwater runoff. 6 | METROPOLITAN ST. LOUIS SEWER DISTRICT ColdwaterWWTP Grand GlaizeWWTP FentonWWTP MissouriRiverWWTP LemayWWTP Bissell PointWWTP LowerMeramecWWTP I-270 I-270 I-270 I-44 I-44 I-64 I-64 I-255 I-55 I-170 I-70 I-70 MSD Wastewater Treatment Plants (WWTP) Service Area Memphis Light, Gas and Water “2018 Utility Bill Comparisons” Survey Rates as of January 1, 2018, based on 10 CCF RESIDENTIAL WASTEWATER USER CHARGE ST. LOUIS AND OTHER MUNICIPALITIES SURVEY AVERAGE LOUISVILLEST. LOUISNEW ORLEANS BOSTONDETROIT $0 $10 $20 $30 $40 $50 $60 $70 $80 NASHVILLE SPRINGFIELD (MO.) Part of MSD’s mission is to inform and educate residents about wastewater and stormwater issues, as well as its programs and services. MSD engages with the public at a variety of local events each year, including: St. Louis Earth Day – Year after year, MSD is a proud supporter of St. Louis Earth Day. At the 2018 festival, MSD volunteers met with attendees to discuss MSD Project Clear and the District’s Know Your Zone initiative, as well as stormwater management. MSD sponsored the festival’s Reduce, Reuse, Recycle experience area. Green Living Festival – As an exhibitor and the sponsor of the NatureScaping area at the 17th annual Green Living Festival at the Missouri Botanical Garden, MSD Project Clear volunteers passed out reusable bags and brochures on clean water, yard waste, and flood zone awareness. The hands-on, day-long festival explores sustainability, energy efficiency, conservation at home, and a healthy environment. Stream Cleanup Events – Trash cleanup events, including Operation Clean Stream, the River des Peres Trash Bash, and the Confluence Trash Bash, invite the public to improve the community by removing trash from local rivers and streams. MSD partners with various community groups to help coordinate these cleanup events, provide trucks and supplies to manage trash and recycling, actively volunteer in the cleanup, and staff education booths. Home and Garden Show – The Builders St. Louis Home and Garden Show is one of the largest quality consumer home shows in North America. At its booth, MSD displayed a painted rain barrel from St. Louis ArtWorks and distributed education materials and reusable bags to attendees. St. Louis ArtWorks – To further MSD’s efforts to educate and promote stormwater management, MSD funds the Rain Barrel Program at St. Louis ArtWorks. The program supports teen apprentices who work under professional teaching artists, learning about painting techniques, color, and design to create one- of-a-kind rain barrels. The barrels are sold to the public, with proceeds supporting St. Louis ArtWorks’ efforts to provide educational and career opportunities for underserved youth. MSD also participated in: • The Greater St. Louis Hispanic Festivals • Enterprise Holdings Employee Eco Fairs • TEDxSTL events • St. Louis Association of Community Organizations Conference (SLACO) Public Education and Community Outreach POPULAR ANNUAL FINANCIAL REPORT FY 18 | 7 St. Louis Earth Day St. Louis ArtWorks Rain Barrel Program MSD RATE COMMISSION 8 | METROPOLITAN ST. LOUIS SEWER DISTRICT In 2000, amendments to MSD’s Charter were approved by area voters that required the creation of an independent Rate Commission. Composed of 15 member organizations representing a broad cross-section of MSD’s customers and the community it serves, the Rate Commission is designed to provide public input into how rates are set. The commission is required by Charter to review all rate proposals, seek public feedback, and submit a recommendation to MSD’s Board of Trustees before any rate changes occur. In FY 19, the Rate Commission will consider MSD’s proposal to address wastewater rates for FY 21 – 24. Rate Commission Public Streaming 2018 STORMWATER CAPITAL RATE PROPOSAL MSD presented its Stormwater Capital Rate Proposal to the Rate Commission in February 2018, seeking to add an impervious surface charge to all public and private property within MSD’s service area. The additional charge would generate revenues of $30 million annually to address flooding and erosion problems. Although MSD is not a flood control agency, these issues are currently unfunded, and many property owners are unable to resolve them on their own. The proposed rate was determined based on the recommended Stormwater Capital Improvement Program divided by the amount of impervious surface within MSD’s service area. For the average single-family homeowner, the annual charge will be $27 per year, or $2.25 per month. In addition to utilizing its own rate experts, legal counsel, and other technical resources, the independent Rate Commission held several public hearings throughout the St. Louis metropolitan area to allow the public to offer feedback on the proposed rate increase. In August 2018, the Rate Commission submitted its recommendation to the MSD Board of Trustees. The Board of Trustees accepted the Commission’s recommendation in September 2018. In November 2018, the Trustees approved the introduction of an ordinance that would allow St. Louis City and St. Louis County voters to consider the Stormwater Capital Rate. The proposed ordinance will appear on the Board’s December 2018 agenda, and if approved by the Board, the rate change will appear on the April 2019 ballot. If approved by a simple majority (51 percent of voters), the Stormwater Capital Rate would fund projects to address erosion and local/ regional flooding. POPULAR ANNUAL FINANCIAL REPORT FY 18 | 9 Rate Commission public hearings Capital Improvement MSD Project Clear made 180 appropriations for new, ongoing, or continuing wastewater and stormwater design and construction projects in FY 18, totaling $293.4 million. Diversity MSD recognizes that small and diverse businesses are the foundation for building a stronger, more vibrant St. Louis community. Accordingly, we have had policies in place for many years that help develop and grow minority- and women-owned business enterprises (M/WBEs). In FY 18, minority-owned firms performed $35,555,976 on capital construction projects, representing 20.9 percent of the District’s capital program spending for the fiscal year. Women-owned firms performed $5,758,593 in capital construction work, representing 3.4 percent of the District’s capital construction program spending. Minority-owned design firms (professional services) accounted for $12,696,857, or 29.4 percent of payments made to design firms. Women-owned design firms were paid $4,755,817, or 11 percent of payments made to design firms by the District in FY 18.* During that same timeframe, minority workforce participation on capital construction projects was 609,511 hours, or 29.6 percent, and women participation was 124,115 hours, or 6 percent of total hours worked on capital construction projects by contractors. Design firms with workforce participation goals represented 16 percent of minority and 36 percent of women in the design team’s workforce.* To learn more about MSD’s diversity- related initiatives, visit www.stlmsd.com/ diversityreports. *Numbers are as of August 2018. Please note, as project documentation is finalized, precise numbers may fluctuate. Peak Performance Award In 2018, MSD was awarded top environmental honors from the National Association of Clean Water Agencies (NACWA), which recognized all seven MSD treatment plants with Peak Performance Awards for excellence in compliance with National Pollutant Discharge Elimination System (NPDES) permit limits in the 2017 calendar year. The Lower Meramec and Fenton wastewater treatment plants received Platinum Awards, exclusive to treatment plants with at least five consecutive years of 100 percent NPDES permit compliance. This year represents Platinum Six for both Lower Meramec and Fenton, as they have maintained a perfect score since 2007. Gold Awards went to Grand Glaize and the Missouri River treatment plants for achieving 100 percent compliance with their NPDES permit for an entire calendar year. The Bissell Point, Coldwater Creek, and Lemay plants were given the Silver Award, recognizing facilities that have received no more than five NPDES permit violations per calendar year. National Association of Clean Water Agencies Excellence in Management Award MSD received the NACWA Excellence in Management Platinum Recognition, the highest award in the category. Since 2003, the Excellence in Management program has recognized water utilities that have adopted or made progress toward implementing management practices that address the unique challenges facing the sector today, such as rising costs, aging infrastructure, ongoing regulatory requirements, enhanced customer expectations, and rapidly evolving technology. MSD’s Platinum Recognition is valid for three years. MSD has fully implemented, or taken substantive steps to implement, nine of the Ten Attributes of Effectively Managed Water Sector Utilities. These include: product quality, customer satisfaction, financial viability, stakeholder understanding and support, operational optimization, enterprise resiliency, employee and leadership development, infrastructure strategy and performance, community sustainability, and water resource sustainability. YEAR IN REVIEW 10 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY 18 | 11 MSD Project Clear In FY 19, MSD Project Clear has plans for 148 new, ongoing, or continued wastewater project appropriations totaling $355.6 million. These projects are funded primarily from the Sanitary Replacement fund and represent $32.6 million in continued projects from the previous fiscal year and $323 million in new and ongoing projects. In addition to operating the existing stormwater system, MSD Project Clear plans 48 stormwater design and construction projects in FY 19, including continued projects from FY 18, totaling $26 million. Consent Decree Update The Consent Decree agreement between MSD, the Environmental Protection Agency (EPA), and the Missouri Coalition for the Environment has been extended by five years from a 23-year program to a 28-year program. Recent EPA regulations have compelled MSD to accelerate certain non Consent Decree work, including the replacement of sewage sludge incineration units at the Bissell Point and Lemay wastewater treatment plants. The amendment allows MSD to advance these projects in order to meet the new regulatory requirements in a fiscally responsible manner while better controlling rate increases over the coming years. Per the amended consent decree timeline, work on future tunnel projects will be pushed out five additional years. In addition, MSD agreed to spend at least $20 million in its green infrastructure grant program (also called rainscaping) in the Lemay Service Area/River des Peres Watershed. Rainscaping captures stormwater as close as possible to where it falls, slowing it down so it can be absorbed by the soil and/or plants to reduce runoff. Charter Amendment In the summer of 2019, MSD will engage each member of the Board of Trustees to appoint two members to a District Plan (Charter) Amendment Commission. To form the Commission, current Trustees appointed by the Mayor of the City of St. Louis will appoint members who are registered voters of St. Louis City, and Trustees appointed by the County Executive will appoint members who are registered voters of St. Louis County. The Commission shall review and recommend to the Board of Trustees any amendments to the District Plan it deems appropriate. Following the recommendations, the Commission will cease to exist. Any changes adopted by the Board of Trustees are then subject to a majority vote by the citizens of St. Louis City and St. Louis County. LOOKING AHEAD Consent Decree Update: Green Infrastructure Grant Program in the Lemay Service Area/River des Peres Watershed FY 18 FY 17 FY 16 ASSETS: Current, restricted, and other assets $ 882,667 $ 743,572 $ 707,033 Capital assets (net of accumulated depreciation) 3,446,232 3,252,238 3,052,043 Total Assets 4,328,899 3,995,810 3,759,076 DEFERRED OUTFLOW OF RESOURCES: Bonds and notes payable-deferred loss on refunding 12,099 11,321 11,974 Pension-related outflows 17,333 37,666 31,144 OPEB-related outflows 1,278 – – Total Deferred Outflow of Resources 30,710 48,987 43,118 LIABILITIES: Current liabilities 140,082 133,679 125,284 Non-current liabilities 1,722,146 1,515,345 1,344,141 Total Liabilities 1,862,228 1,649,024 1,469,425 DEFERRED INFLOW OF RESOURCES: Pension-related inflows 6,065 4,605 5,712 Total Deferred Inflow of Resources 6,065 4,605 5,712 NET POSITION: Net investment in capital assets 1,968,740 1,876,249 1,809,386 Restricted 129,579 135,259 136,547 Unrestricted 392,997 379,660 381,124 Total Net Position $ 2,491,316 $ 2,391,168 $ 2,327,057 WHAT IT TELLS YOU A Statement of Net Position, also known as a balance sheet, is a financial statement that summarizes what MSD owns and owes at a given point in time. It also shows our net worth at that specific point in time. OUR FY 18 BALANCE SHEET SHOWS THAT: • MSD’s assets and deferred outflows exceed liabilities and deferred inflows by $2.5 billion. • Overwhelmingly, MSD’s assets are in the form of capital assets. The $3.4 billion in net capital assets is split into the five categories, shown on page 13. • Of the $1.9 billion in liabilities, $1.7 billion are in the form of bonds and notes payable. DEFINITIONS: Current, restricted, and other assets: all assets other than capital assets, that are owned or due to the District. Capital assets (net of accumulated depreciation): the total value of all capital assets, including all sanitary infrastructure, general plant and equipment, and land. Deferred outflows: the use of resources that will be applied to future periods. Current liabilities: money owed by the District and due within 12 months. Non-current liabilities: money owed by the District that is due more than 12 months in the future. Deferred inflows: the purchase of resources that will be applied to future periods. Net investment in capital assets: the value or net worth of all capital assets after related liabilities are deducted. Restricted: the value or net worth of all assets designated for specific purposes after related liabilities are deducted. Unrestricted: the value or net worth of all remaining assets after remaining liabilities are deducted. BALANCE SHEET CONDENSED STATEMENTS OF NET POSITION (in thousands) 12 | METROPOLITAN ST. LOUIS SEWER DISTRICT The financial information included is derived from the CAFR and presented in conformity with GAAP. KEY Collection and Pumping Plant Construction In Progress Treatment, Disposal Plant, and Equipment Other (see Detail on right) Detail Land General Plant and Equipment MILLIONSWHAT WE OWN: MSD ASSETS WHAT WE OWE: MSD LONG-TERM OBLIGATIONS CAPITAL ASSETS NET OF ACCUMULATED DEPRECIATION (in millions): FY 18 BONDS AND NOTES PAYABLE $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2009 20182010 2011 2012 2013 2014 2015 2016 2017 POPULAR ANNUAL FINANCIAL REPORT FY 18 | 13 NOTE: Revenue Bonds and Direct Loan balances only $94 M $73 M $836 M $706 M $21 M $1,810 M 14 | METROPOLITAN ST. LOUIS SEWER DISTRICT FY 18 FY 17 FY 16 FY 15 FY 14 OPERATING REVENUES: Sewer service charges $364,165 $330,873 $ 306,119 $ 284,367 $ 250,133 Recovery (Provision) for doubtful sewer service charge accounts (2,990) (2,513) (4,107) (2,096) 7,210 Licenses, permits, and other fees 3,777 4,036 3,620 6,657 6,563 Other 3,359 1,095 14,226 1,460 1,867 Total Operating Revenues 368,311 333,491 319,858 290,388 265,773 NON-OPERATING REVENUES: Property taxes levied by the District 33,749 32,458 25,671 24,764 27,450 Investment income 7,406 2,903 4,636 3,001 2,967 Rent and other income 254 106 103 37 302 Total Non-Operating Revenues 41,409 35,467 30,410 27,802 30,719 Total Revenues 409,720 368,958 350,268 318,190 296,492 OPERATING EXPENSES: Pumping and treatment 60,735 60,203 59,100 60,766 54,126 Collection system maintenance 44,786 43,928 42,853 40,162 39,988 Engineering 11,218 11,290 10,998 10,954 12,184 General and administrative 59,012 58,535 55,315 48,551 45,661 Water backup claims 1,557 5,035 7,631 3,862 2,713 Depreciation 81,326 81,194 83,984 78,641 74,087 Asset management 15,131 14,893 13,215 13,586 12,539 Total Operating Expenses 273,765 275,078 273,096 256,522 241,298 NON-OPERATING EXPENSES: Net loss on disposal and sale of capital assets 1,834 673 325 1,421 5,248 Non-recurring projects and studies 9,296 7,459 11,000 12,317 3,493 Interest expense 36,695 31,251 28,943 27,139 25,661 Total Non-Operating Expenses 47,825 39,383 40,268 40,877 34,402 Total Expenses 321,590 314,461 313,364 297,399 275,700 INCOME BEFORE CAPITAL GRANTS AND CONTRIBUTION: 88,130 54,497 36,904 20,791 20,792 Capital grants and contributions 26,077 9,614 12,037 12,997 7,102 CHANGE IN NET POSITION: 114,207 64,111 48,941 33,788 27,894 Net position - beginning of year 2,391,168 2,327,057 2,278,116 2,267,952 2,240,058 Effect of adoption of GASB 68 — — — (23,624) — Effect of adoption of GASB 75 (14,059) — — — — NET POSITION – END OF YEAR $ 2,491,316 $ 2,391,168 $ 2,327,057 $ 2,278,116 $ 2,267,952 INCOME STATEMENT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (in thousands) DEFINITIONS: Operating revenues and expenses: all income and expenses received from the District’s daily normal business. Non-operating revenues and expenses: all income and expenses not related to the District’s daily normal business. WHAT IT TELLS YOU A statement of revenues, expenses, and changes in net position, known as an income statement, tells you where MSD gets its funds and how they are spent. It also shows how much money MSD made or lost over a specific period of time. OUR FY 18 INCOME STATEMENT SHOWS THAT: • Sewer service charge revenue increased as a result of the scheduled rate increase that occurred in FY 18. • Operating expenses decreased as a result of having fewer significant water backup claims than previous years. $4,598 $9,296 $33,749 $16,167 $50,115 $81,326 $101,555 $1,834 $254 $14,130 $3,359 $3,372 $2,502 $7,406 $3,777 $26,077 $36,695 $361,175 REVENUES WHERE THE MONEY COMES FROM (in thousands) EXPENSES WHERE THE MONEY GOES (in thousands) KEY Sewer Service Charges, Net Other (see Detail on right) Detail Property Taxes Levied by the District Capital Grants and Contributions Investment Income Licenses, Permits, and Other Fees Other Operating Revenues Rent and Other Income KEY Employment Costs Depreciation Contracted Services Interest Expense Other (see Detail on right) Utilities Detail Materials and Supplies Non-Recurring Projects and Studies Other Operating Expenses Insurance Chemical Supplies Net Loss on Sale of Assets POPULAR ANNUAL FINANCIAL REPORT FY 18 | 15 $74,622 $35,732 FY 18 FY 17 FY 16 Cash flows from operating activities $ 160,989 $ 148,108 $ 119,465 Cash flows from non-capital financing activities 33,181 32,013 25,583 Cash flows from capital activities (72,534) (146,484) (83,312) Cash flows from investing activities (135,363) (34,720) (74,347) Net increase (decrease) in cash and cash equivalents (13,727) (1,083) (12,611) Cash and cash equivalents at beginning of year 48,113 49,196 61,807 Cash and Cash Equivalents at End of Year $ 34,386 $ 48,113 $ 49,196 DEFINITIONS: Cash flows from operating activities: all cash received or spent related to MSD’s daily normal business activities. Cash flows from non-capital financing activities: all cash received or spent related to taxes. Cash flows from capital and related financing activities: all cash received or spent related to construction of MSD’s infrastructure. Cash flows from investing activities: all cash received or spent related to investing MSD’s cash reserves. WHAT IT TELLS YOU A cash flow statement summarizes both the cash and the net cash coming in and going out of MSD during a given period. OUR FY 18 CASH FLOW STATEMENT SHOWS THAT: • Cash flows from operating activities increased compared to the prior year due to increased receipts from customers. • Cash flows from non-capital financing activities increased due to more tax revenue collected. • Cash flows from capital and related financing activities increased as a result of more bond proceeds and premiums received during FY 18 and less cash spent on infrastructure. • Cash flows from investing activities decreased due to more cash spent on the purchase of investments during FY 18. CASH FLOW STATEMENT CASH FLOWS COMPARISON CONDENSED STATEMENTS OF CASH FLOWS (in thousands) -150000 -100000 -50000 0 50000 100000 150000 200000 Operating Activities Non-Capital Financing Activities Capital Activities Investing Activities FY 18 FY 17 FY 16 KEY THOUSANDS16 | METROPOLITAN ST. LOUIS SEWER DISTRICT $160,989$148,108$119,465$(72,534)$(146,484)$(135,363)$(34,720)$(74,347)$(83,312)$33,181$32,013$25,583 POPULAR ANNUAL FINANCIAL REPORT FY 18 | 17 CREDIT RATING WHAT IT TELLS YOU A credit rating provides an assessment of an organization’s credit worthiness, based on its history of borrowing and repayment of funds, as well as its assets and liabilities. A poor credit rating makes it more difficult to find financing and often results in higher interest rates. As the chart below illustrates, MSD has premium credit, with consistent ratings at the top of each credit rating agency’s scale. On a scale of AAA to D, MSD earned AAA and AA+ ratings from Standard & Poor’s and Fitch, respectively. Similarly, on a scale of Aaa to C, MSD earned an Aa1 rating from Moody’s. MSD has demonstrated to creditors and credit rating agencies its ability to manage large annual capital plans. The District’s solid financial management, including close monitoring of its financial performance, strong debt coverage, and liquidity also contribute to these ratings, which have remained constant the past three years. FY 18 FY 17 FY 16 Moody’s Aa1 Aa1 Aa1 Standard & Poor’s (S&P) AAA AAA AAA Fitch AA+ AA+ AA+ PERFORMANCE AGAINST BUDGET Budget Expenses Unspent Budget Capital Improvement and Replacement Program (CIRP) $339.2 M $276.0 M $63.2 M Postponed work resulted in CIRP coming in under budget for FY 18. These delays contributed $25 million to the variance. In addition, $22 million of the savings resulted from either cancelled projects or completed projects coming in under budget. The unused budget dollars on a completed project reduce expenses in the year the project is finalized. The remaining $16 million of the savings is the result of projects being under budget either from good bids or reduced scope. Operating $200.0 M $188.6 M $11.4 M Operating expenses came in under budget for FY 18. Personnel Services had the largest variance of $8.6 million primarily due to vacancies. Supply expenses had a variance of $2.3 million, with Chemical Supplies making up nearly half of that savings. Utilities and Contractual Services further contributed to the District’s favorable expense variance by finishing under budget by $1.3 million and $0.6 million, respectively. Capital Outlay offset a portion of these savings; it exceeded the budget by $1.5 million, primarily for Structural Improvements and Processing Equipment at the treatment plants. Debt Service $109.1 M $103.6 M $5.5 M Debt Service expenses were favorable for the District in FY 18. The partial refunding, or early repayment, of Series’ 2011B, 2012A, 2013B, and 2015B Revenue Bonds saved the District just over $3 million. The remaining savings relative to budget came from direct loans that were not fully utilized during FY 18, resulting in less interest expense along with favorable interest rates on the 2017A Revenue Bonds issued during FY 18. Total $648.3 M $568.2 M $80.1 M WHAT IT TELLS YOU In MSD’s case, it shows that MSD has been a good steward of the funds allocated to the District. METROPOLITAN ST. LOUIS SEWER DISTRICT ST. LOUIS, MISSOURI www.stlmsd.com @YourMSDFacebook.com/YourMSD YourMSD Metropolitan St. Louis Sewer District@YourMSD