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Fiscal Year 2019 Popular Annual Financial ReportPOPULAR ANNUAL FINANCIAL REPORT Fiscal Year Ending June 30, 2019 METROPOLITAN ST. LOUIS SEWER DISTRICT ST. LOUIS, MISSOURI MSD PROJECT CLEAR MSD Project Clear (MSDPC) is two utilities in one—responsible for approximately 7,000 miles of public wastewater and stormwater sewer systems in the St. Louis region. MSDPC is investing billions of dollars over a generation to improve water quality and minimize wastewater and stormwater issues by monitoring regulatory compliance, planning, designing, and building community rainscaping, system improvements, and performing an ambitious program of maintenance and repair. MSD MISSION To prote ct the public’s health, safety, and water environment by responsibly providing wastewater and stormwater management. ON THE COVER Pictured on the cover is the Maline Creek Storage Facility with SAK Construction workers. This project will be completed in 2022. MSD Project Clear has several underground tunnel and storage facilities dedicated to reduce sewer overflows and improve the entire system for MSD customers. PHOTO CREDIT: SAK CONSTRUCTION TABLE OF CONTENTS Directors’ Letter .....................................................................................3 2019 Excessive Rain and Flood Event ....................................4–5 What We Do ............................................................................................6 Consent Decree Amendment .......................................................7 Public Education and Community Outreach ..................8–9 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 Cash Flows Activities Comparison ............................................16 Performance Against Budget and Credit Rating .............17 | METROPOLITAN ST. LOUIS SEWER DISTRICT2 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, 2018. 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 seven consecutive years (fiscal years ended 2012–2018). 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. “ ” POPULAR ANNUAL FINANCIAL REPORT FY2019 | 3 We appreciate your interest in the Metropolitan St. Louis Sewer District (MSD) and are pleased to present our Popular Annual Financial Report for the Fiscal Year 2019 (FY 19). MSD is committed to ensuring improved water quality and alleviating many wastewater concerns in our region. In FY19, MSD appropriated funds for 195 new 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 most recent fiscal year — July 1, 2018 to June 30, 2019. Within this report, you will learn how we are carefully investing the funds we receive to maintain and improve our region’s wastewater and stormwater systems. Additionally, you will 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 it is not GAAP-compliant. Both reports are available online at www.msdprojectclear.org/PAFR. To request a printed copy of this information, contact MSD at 314-768-6260 or send an email to customersvc@stlmsd.com. The purpose of this report is to be informative and useful. As always, we welcome any comments or suggestions on how we might improve future reports to serve your interests and needs better. Respectfully submitted, Brian Hoelscher, P.E. Marion Gee Executive Director & CEO Director of Finance DIRECTORS’ LETTER POPULAR ANNUAL FINANCIAL REPORT FY2019 | 3 | METROPOLITAN ST. LOUIS SEWER DISTRICT4 2019 EXCESSIVE RAIN AND FLOOD EVENT MSD’s Pump Station Division goes into flood duty when the Mississippi River hits 27 feet at the St. Louis gauge. The pump stations along the floodwall downtown are staffed 24 hours, seven days a week until the river drops below 27 feet. MSD stays prepared to handle extreme weather events. All three of the maintenance yards are placed on standby before any forecasted event, allowing for rapid response by MSD crews if needed. Additionally, back up teams are notified should the need for more support become necessary. If one part of the District is hit particularly hard, crews from other yards are dispatched to assist. MSD’s three maintenance yards have identified protocols to respond to flood events on the Mississippi and Meramec Rivers based on river levels. For example, when the Mississippi reaches a level of 38 feet as measured at the St. Louis gauge, crews will start plugging street inlets along Germania (and other low-lying streets prone to flooding), which is adjacent to the River Des Peres in the City of St. Louis. On June 8, 2019, the second highest river level was recorded: 45.93 feet. As a result of the excessive rain and flood event, MSD did experience a few project delays, mainly those located near the Missouri River, Mississippi River, and one of their tributaries due to the high groundwater levels. MSD is currently working on getting caught up on the preventative maintenance activities that were put on hold during the extra flood staffing. Teams anticipate being back on regular maintenance schedules by the end of 2019. On March 16, 2019, MSD entered “flood duty” operations and remained in that capacity for 128 days. POPULAR ANNUAL FINANCIAL REPORT FY2019 | 5 Customers can help to reduce these types of occurrences by making sure their sewer lateral is in good working condition by ensuring their downspouts, exterior drains, and sump pumps are not connected to their lateral line. Additionally, properly dispose of fats, oils, and grease (FOG) and never pour these items down the sink drains. Finally, MSD encourages customers to “Know Your Zone” and determine if they need flood insurance. POPULAR ANNUAL FINANCIAL REPORT FY2019 | 5 MSD crews worked more than 100,000 hours during the flood event. | METROPOLITAN ST. LOUIS SEWER DISTRICT6 Coldwater WWTP Grand Glaize WWTP Fenton WWTP MissouriRiver WWTP Lemay WWTP LowerMeramec WWTP I-270 I-270 I-270 I-44 I-44 I-64 I-64 I-255 I-55 I-170 I-70 I-70 Bissell Point WWTP MSD Wastewater Treatment Plants (WWTP) Service Area SOURCE: American Water Works Association “2019 Water and Wastewater Rate Survey” and information provided by KCWater (Rates based on 10 CCF) 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 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: WHAT WE DO MSD’s Dual Function Residential Wastewater User Charge Baltimore Cleveland Kansas City St. Louis Survey Average San Diego Nashville San Antonio $84.56 $51.31 $81.65 $45.54 $73.45 $37.16 $61.22 $56.03 St. Louis and Other Municipalities 454 sq. miles of St. Louis County (87%) 66 sq. miles of St. Louis City (100%) 1.3 MILLION SERVED 520 SQUARE MILE SERVICE AREA 427,000 accounts 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. POPULAR ANNUAL FINANCIAL REPORT FY2019 | 7 CONSENT DECREE AMENDMENT In April 2012, the consent decree between MSD, the Environmental Protection Agency (EPA), and the Missouri Coalition for the Environment went into effect. The initial consent decree required MSD to spend a minimum of $4.7 billion over the next 23 years to address the issue of sewer overflows and other sewer system improvements. On June 22, 2018, an amendment to the consent decree extended the program by five years to a 28-year program. The new amendment will allow MSD to accelerate new regulatory requirements for non-consent decree work in a fiscally responsible way and manage future ratepayer increases. MSD requested the amendment to the consent decree to address the following: — In 2016, the EPA issued new regulations, the impact of which compels MSD to accelerate the sewage sludge incineration (SSI) unit replacement schedule by five years with construction beginning in 2021. — To deliver the accelerated schedule of non-consent decree work without placing an additional financial burden on MSD’s ratepayers. As a result of the consent decree amendment, some tunnel work scheduled to start in 2021 will now begin in 2026. Tunnels affected by the amendment include the Upper River Des Peres Storage Tunnel, the River Des Peres Tributaries Storage Tunnel, and the Lower and Middle River Des Peres Storage Tunnel. Additionally, these tunnels are part of the Long-Term Control Plan to reduce combined sewer overflows in the River Des Peres watershed. Green infrastructure, or rainscaping, is another critical component of the consent decree amendment order. Rainscaping captures stormwater runoff and manages it where it falls, reducing the amount of untreated overflow into rivers and streams. MSD has agreed to invest at least $20 million in green infrastructure/rainscaping in the Lemay Service Area/River Des Peres Watershed. Ultimately, this will reduce the combined sewer overflows and improve water quality. $4.7 BILLION, 23-year effort extended by 5 YEARS ADDITIONAL $20 MILLION+ green infrastructure/ rainscaping commitment RESCHEDULED TUNNELS Upper River Des Peres Storage Tunnel River Des Peres Tributaries Storage Tunnel Lower and Middle River Des Peres Storage Tunnel START DATE 2021 2026 in the Lemay Service Area/ River Des Peres Watershed | METROPOLITAN ST. LOUIS SEWER DISTRICT8 PUBLIC EDUCATION AND COMMUNITY OUTREACH 2018 Operation Clean Stream Cleanup On Saturday, August 25th, MSD employees took part in the 51st Annual Operation Clean Stream event on the Meramec River. This event draws more than 2,000 volunteers per year who help improve over 500 miles of stream in the Meramec River Watershed. Operation Clean Stream is one of the largest and longest ongoing river restoration projects of its kind in America today. Special thanks to all the MSD employees and their family members who volunteered to help make this event a huge success. St. Louis Earth Day Festival At the 2019 festival, MSD distributed 3,500 reusable bags filled with educational materials to attendees covering MSD Project Clear, Know Your Zone, and stormwater management. MSD is a proud sponsor of the Reduce, Reuse, Recycle experience area of St. Louis Earth Day Festival. The Greater St. Louis Hispanic Festival MSD is a consistent supporter of the Greater St. Louis Hispanic Festival. The mission of the festival is to help increase regional awareness of the cultural contributions made by Hispanic musicians, dancers, artisans, and chefs. Home and Garden Show The Builders of St. Louis Home and Garden Show is one of the largest quality consumer home shows in North America. MSD distributed educational materials and reusable bags to over 3,000 attendees. 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: POPULAR ANNUAL FINANCIAL REPORT FY2019 | 9POPULAR ANNUAL FINANCIAL REPORT FY 2019 | 9 1 2 3 1 2 2 1 3 MSD also participated in: — Missouri History Museum Twilight Tuesdays — St. Louis Association of Community Organizations Conference (SLACO) — Enterprise Holdings Employee Eco Fairs — TEDxGatewayArch events 2018 Operation Clean Stream Cleanup St. Louis Earth Day Festival The Greater St. Louis Hispanic Festival 1 2 3 | METROPOLITAN ST. LOUIS SEWER DISTRICT10 YEAR IN REVIEW Capital Improvement MSD Project Clear made 195 appropriations for new or continuing wastewater and stormwater design and construction projects in FY19, totaling $311.8 million. Diversity In FY19, minority-owned firms performed $36,653,112 on capital construction projects, representing 21.3 percent of the District’s capital program spending for the fiscal year. Women- owned firms performed $14,183,523 in capital construction work, representing 8.2 percent of the District’s capital construction program spending. Minority-owned design firms (professional services) accounted for $11,777,262, or 30.2 percent of payments made to design firms. Women-owned design firms were paid $3,864,540, or 9.8 percent of payments made to design firms in FY19.* During that same timeframe, minority workforce participation on capital construction projects was 663,448 hours, or 29.7 percent, and women participation was 158,056 hours, or 7 percent of total hours worked on capital construction projects by contractors. Design firms with workforce participation goals represented 16.5 percent of minority and 37 percent of women in the design team’s workforce.* To learn more about MSD’s diversity-related initiatives, visit www.msdprojectclear.org/diversityreports. *Numbers are as of August 2019. Please note, as project documentation is finalized, precise numbers may fluctuate. Peak Performance Award In 2019, 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 2019 calendar year. Three MSD treatment plants, Missouri River, Fenton, and Lower Meramec, received the Platinum Peak Performance Award, which honors treatment plants that have completed at least five consecutive years of 100 percent NPDES permit compliance. In addition, two treatment plants, Grand Glaize and Lemay, received the Gold Peak Performance Award, honoring plants that have achieved 100 percent compliance with the NPDES permit in the previous calendar year. The Bissell Point and Coldwater treatment plants received the Silver Peak Performance Award for having no more than five NPDES permit violations in the 2018 calendar year. Stormwater Capital Rate Vote In April 2019, MSD presented a ballot initiative to voters who reside within MSD’s service area. Proposition S, the Stormwater Capital Rate Proposal, would address erosion and local/ regional flooding. The measure failed by a margin of 53 percent, no, and 47 percent in favor. MSD has identified more than 500 stormwater capital projects that need additional funds to address erosion and flooding. 2019 Wastewater Capital Rate In March 2019, the Rate Commission received a wastewater rate proposal from staff. The wastewater proposal seeks to fund a four-year, $1.58 billion capital improvement program to meet regulatory and system improvements needs. After a series of public hearings to garner ratepayers’ feedback on proposed rates, the Commission approved a resolution and submitted its Rate Recommendation Report to the Board of Trustees with proposed increases for fiscal years 2021–2024 with or without $500M in bonding. The Board of Trustees approved the recommendation and voters will decide on bonding or no bonding in April 2020. POPULAR ANNUAL FINANCIAL REPORT FY2019 | 11 LOOKING AHEAD MSD Project Clear In FY20, MSD has plans for 123 new, ongoing, or continued wastewater project appropriations totaling $335.1 million. These projects are funded primarily from the Sanitary Replacement fund and represent $20.0 million in continued projects from the previous fiscal year, and $315.1 million in new and ongoing projects. In addition to operating the existing stormwater system, MSD Project Clear plans 30 stormwater design and construction projects in FY20, including continued projects from FY19, totaling $15.1 million. New Website Launch Coming in early 2020, MSD will launch a new customer- focused website, msdprojectclear.org, updating the current version launched five years ago. The website will feature a clean and fresh look that will be more interactive. It will combine the two existing sites stlmsd.com and projectclearstl.org. Disparity Study Update In early 2019, MSD announced it would conduct an update to its 2012 Disparity Study. The initial study, which was completed a little over five years ago, became the catalyst for the expansive offering of initiatives now in place. The innovative programs and current policies include more inclusive contractor goals, worksite inspectors, on-the-job training, internships, community partnerships, and other programs. The 2019 update will analyze MSD’s current diversity programs, practices, and results. The update will measure inclusion and availability as well as determine what advancements MSD has accomplished on projects in terms of workforce. 113 applications received in FY19 98 GRANTS FUNDED TOTALING NEARLY $420K Anticipating funding for FY20 $520K Small Grants Program Expands Districtwide in FY20 MSD announces the expansion of its green infrastructure Small Grants Program (also called rainscaping) from the current Mississippi and River Des Peres watersheds to the entire District. | METROPOLITAN ST. LOUIS SEWER DISTRICT12 FY19 FY18 FY17 ASSETS Current, restricted, and other assets $821,030 $882,667 $743,572 Capital assets (net of accumulated depreciation) 3,631,716 3,446,232 3,252,238 Total Assets 4,452,746 4,328,899 3,995,810 DEFERRED OUTFLOWS OF RESOURCES Bonds and notes payable-deferred loss on refunding 11,343 12,099 11,321 Pension-related outflows 34,238 17,333 37,666 OPEB-related outflows 1,246 1,278 — Total Deferred Outflows of Resources 46,827 30,710 48,987 LIABILITIES Current liabilities 149,991 140,082 133,679 Non-current liabilities 1,723,830 1,722,146 1,515,345 Total Liabilities 1,873,821 1,862,228 1,649,024 DEFERRED INFLOWS OF RESOURCES Pension-related inflows 4,341 6,065 4,605 OPEB-related inflows  887 — — Total Deferred Inflows of Resources 5,228 6,065 4,605 NET POSITION Net investment in capital assets 2,063,519 1,968,740 1,876,249 Restricted 127,414 129,579 135,259 Unrestricted 429,591 392,997 379,660 Total Net Position $ 2,620,524 $ 2,491,316 $2,391,168 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 of resources: 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 of resources: 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. 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 FY19 Balance Sheet shows that: • MSD’s assets and deferred outflows exceed liabilities and deferred inflows by $2.6 billion. • Overwhelmingly, MSD’s assets are in the form of capital assets. The $3.6 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. BALANCE SHEET Condensed Statements of Net Position (dollars in thousands) The financial information included is derived from the CAFR and presented in conformity with GAAP. Financials POPULAR ANNUAL FINANCIAL REPORT FY2019 | 13 Financials MSD ASSETS Condensed Statements of Capital Assets Net of Depreciation (dollars in millions) What We Own (in millions) MSD LONG-TERM OBLIGATIONS Bonds and Notes Payable (Revenue Bonds and Direct Loan Balances Only) What We Owe 53% 26% 18%Collection and Pumping Plant $1,917 Construction in Progress 956 Treatment, Disposal Plant and Equipment 661 Land 74 General Plant and Equipment 23 TOTAL FY19 ASSETS $3,631 <1% <2% $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2018 201920102011201220132014201520162017 | METROPOLITAN ST. LOUIS SEWER DISTRICT14 FY19 FY18 FY17 FY16 FY15 OPERATING REVENUES Sewer service charges $399,929 $364,165 $330,873 $306,119 $284,367 Recovery (Provision) for doubtful (4,349) (2,990) (2,513) (4,107) (2,096) sewer service charge accounts Licenses, permits, and other fees 3,063 3,777 4,036 3,620 6,657 Other 2,478 3,359 1,095 14,226 1,460 Total Operating Revenues 401,121 368,311 333,491 319,858 290,388 NON-OPERATING REVENUES Property taxes levied by the District 34,108 33,749 32,458 25,671 24,764 Investment income 16,699 7,406 2,903 4,636 3,001 Rent and other income 301 254 106 103 37 Total Non-Operating Revenues 51,108 41,409 35,467 30,410 27,802 Total Revenues 452,229 409,720 368,958 350,268 318,190 OPERATING EXPENSES Pumping and treatment 63,197 60,735 60,203 59,100 60,766 Collection system maintenance 45,617 44,786 43,928 42,853 40,162 Engineering 11,447 11,218 11,290 10,998 10,954 General and administrative 67,462 59,012 58,535 55,315 48,551 Water backup claims 5,600 1,557 5,035 7,631 3,862 Depreciation 83,640 81,326 81,194 83,984 78,641 Asset management 13,755 15,131 14,893 13,215 13,586 Total Operating Expenses 290,718 273,765 275,078 273,096 256,522 NON-OPERATING EXPENSES Net loss on disposal and 971 1,834 673 325 1,421 sale of capital assets Non-recurring projects and studies 15,628 9,296 7,459 11,000 12,317 Interest expense 33,082 36,695 31,251 28,943 27,139 Total Non-Operating Expenses 49,681 47,825 39,383 40,268 40,877 Total Expenses 340,399 321,590 314,461 313,364 297,399 INCOME BEFORE CAPITAL 111,830 88,130 54,497 36,904 20,791 GRANTS AND CONTRIBUTION Capital grants and contributions 17,378 26,077 9,614 12,037 12,997 CHANGE IN NET POSITION 129,208 114,207 64,111 48,941 33,788 Net position – beginning of year 2,491,316 2,391,168 2,327,057 2,278,116 2,267,952 Effect of adoption of GASB 68 — — — — (23,624) Effect of adoption of GASB 75 — (14,059) — — — NET POSITION – END OF YEAR $2,620,524 $2,491,316 $2,391,168 $2,327,057 $2,278,116 INCOME STATEMENT Condensed Statements of Revenues, Expenses, and Changes in Net Position (dollars in thousands) Financials 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, also 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 FY19 Income Statement shows that: • Sewer service charge revenue increased as a result of the scheduled rate increase that occurred in FY19. • Operating expenses increased due to higher pension expense, costs related to systems upgrades and water backup claims due to spring flooding and pump station failures. POPULAR ANNUAL FINANCIAL REPORT FY2019 | 15 FY19 EXPENSES Year ended June 30, 2019 (dollars in thousands) Where The Money Goes Financials FY19 REVENUE Year ended June 30, 2019 (dollars in thousands) Where The Money Comes From Sewer Service Charges, Net $395,580 Other (in Detail) Property Taxes Levied by the District (7.3%) 34,108 Capital Grants and Contributions (3.7%) 17,378 Investment Income (3.6%) 16,699 Licenses, Permits, and Other Fees (.7%) 3,063 Other Operating Revenues (.5%) 2,478 Rent and Other Income (.1%) 301 TOTAL REVENUE $469,607 Employment Costs $114,570 Depreciation 83,640 Contracted Services 52,497 Interest Expense 33,082 Other (in Detail) Utilities (5%) 16,896 Non-recurring Projects and Studies (4.6%) 15,628 Materials and Supplies (3.7%) 12,446 Insurance (1.1%) 3,820 Chemical Supplies (1.1%) 3,667 Other Operating Expenses (.9%) 3,182 Net Loss on Disposal and Sale of Capital Assets (.3%) 971 TOTAL EXPENSES $340,399 16% 34% 24% 84% 17% 15% 10% | METROPOLITAN ST. LOUIS SEWER DISTRICT16 -300,000 -200,000 -100,000 0 100,000 200,000 300,000 Operating Activities Non-Capital Financing Activities Capital Activities Investing Activities FY19 FY18 FY17 $185,226 160,989 148,108 $(310,046) (72,534)$113,338 (135,363) (34,720) (146,484)$33,850 33,181 32,013 CASH FLOW STATEMENT Condensed Statements of Cash Flows (dollars in thousands) CASH FLOW ACTIVITIES COMPARISON (dollars in thousands) Financials FY19 FY18 FY17 Cash flows from operating activities $185,226 $160,989 $148,108 Cash flows from non-capital financing activities 33,850 33,181 32,013 Cash flows from capital and related financing activities (310,046) (72,534) (146,484) Cash flows from investing activities 113,338 (135,363) (34,720) Net increase (decrease) in cash and cash equivalents 22,368 (13,727) (1,083) Cash and cash equivalents at beginning of year 34,386 48,113 49,196 CASH AND CASH EQUIVALENTS AT END OF YEAR $56,754 $34,386 $48,113 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: cash received or spent related to construction of MSD’s infrastructure. Cash flows from investing activities: 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 FY19 Cash Flow Statement compared to the prior year shows that: • Cash flows from operating activities increased 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 decreased as a result of less bond proceeds and premiums received during FY19. • Cash flows from investing activities increased due to an increase in the volume of maturities of investments. POPULAR ANNUAL FINANCIAL REPORT FY2019 | 17 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 C, MSD earned an Aa1 rating from Moody’s. Similarly, on a scale of AAA to D, MSD earned AAA and AA+ ratings from Standard & Poor’s and Fitch, respectively. 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. What it tells you In MSD’s case, it shows that MSD has been a good steward of the funds allocated to the District. FY19 FY18 FY17 Moody’s Aa1 Aa1 Aa1 Standard & Poor’s (S&P) AAA AAA AAA Fitch AA+ AA+ AA+ Expense Category Budget Expenses Unspent Budget Variance Explanation Capital Improvement and Replacement Program (CIRP) $381.6M 267.9M 113.7M CIRP came in under budget for FY19. The primary factor is a result of work that was postponed. These delays contributed $43M to the variance. In addition, $3M of the savings resulted from either cancelled projects or completed projects coming in under budget at which point the unused budget dollars on a completed project reduce expenses in the year the project is finalized. The remaining savings is the result of projects being under budget either from good bids or reduced scope. Debt Service $122.1M 114.6M 7.5M Debt Service expenses were favorable for the District in FY19. The savings relative to budget came from direct loans that were not fully utilized during FY19, resulting in less interest expense along with favorable interest rates on the 2018A Water Infrastructure Finance and Innovation Act Loan and 2018B Revenue Bonds issued during FY19. Operating $210.5M 205.3M 5.2M Operating expenses came in under budget for FY19. The largest of the variances was in Personnel Services of $7.3 million primarily due to vacancies. Supply expenses were also favorable by $1.1 million with Chemical Supplies making up almost half of that savings. Utilities contributed to the District’s favorable expense variance by finishing under budget by $0.7 million. Contractual Services and Capital Outlay offset a portion of these savings, with expenses exceeding the budget by $3.9 million primarily for Structural Improvements and Processing Equipment at the treatment plants and pump stations. TOTAL $714.2M 587.8M 126.4M CREDIT RATING Financials PERFORMANCE AGAINST BUDGET msdprojectclear.org MSDProjectClear @MSDProjectClear msdprojectclear msdprojectclear Metropolitan St. Louis Sewer District Metropolitan St. Louis Sewer District 2350 MARKET STREET, ST. LOUIS, MO 63103