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HomeMy Public PortalAboutFiscal Year 2014 Annual Comprehensive Financial Report (ACFR)THE METROPOLITAN ST. LOUIS SEWER DISTRICTFIN A N CIAL REPORT FISCAL YEAR ENDING JUNE 30 2014 C O M PREHENSIVE ANNUAL * Old North Rain Garden Old North St. Louis THE METROPOLITAN ST. LOUIS SEWER DISTRICT COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2014 AND 2013 Report prepared and submitted by the Department of Finance Janice M. Zimmerman Director of Finance/CFO Contents Page Part I - Introductory Section: Letter Of Transmittal .............................................................................................. i - xi Organizational Chart .................................................................................................. xii Certificate Of Achievement For Excellence In Financial Reporting .......................................................................................... xiii Part II - Financial Section: Independent Auditors’ Report .......................................................................... 1 - 3 Management’s Discussion And Analysis - Required Supplementary Information ........................................................................ 4 - 16 Basic Financial Statements Statement Of Net Position ............................................................................. 17 - 18 Statement Of Revenues, Expense And changes In Net Position ........................ 19 Statements Of Cash Flows ............................................................................. 20 - 21 Notes To Financial Statements ...................................................................... 22 - 77 Required Supplementary Information – Schedule Of Funding Progress Employees’ Pension Plan And Post-Employment Benefit Plan ............... 78 Part III – Statistical Section: Net Position By Component .................................................................................. 79 Change In Net Position ......................................................................................... 80 Operating Revenues By Source ............................................................................. 81 Operating Expenses ............................................................................................... 82 Non-Operating Revenues And Expenses .............................................................. 83 User Charge Rates ................................................................................................. 84 Sewer User Charges (Composite-Annual) ............................................................ 85 Number Of Customer By Type .............................................................................. 86 Ten Largest Customers ......................................................................................... 87 Ratios Of Outstanding Debt By Type ................................................................... 88 Computation Of Overlapping Debt ....................................................................... 89 Pledged Revenue Coverage ................................................................................... 90 Demographic And Economic Statistics ................................................................. 91 Principal Employers (St. Louis Metropolitan Area) ............................................ 92 Employment Level ................................................................................................. 93 Average Flow .......................................................................................................... 94 Operating And Capital Indicators ........................................................................ 95 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 23, 2014 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, 2014, 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, members of the Civil Service Commission, management staff, and an organization chart as of June 30, 2014. 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 Page 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 462 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 (the 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 (the 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 Page 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.  MSD must set user charge rates in compliance with the Federal Clean Water Act. These rates must be approved by 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 Page iv During fiscal 2014 the primary source of funding for the operation and maintenance of MSD’s wastewater system was a user charge averaging $418.20 per year or $34.85 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 2014, the operation and maintenance of the District’s stormwater system was funding by a combination of property taxes and flat fee billing of 24¢ for residential and commercial properties and 18¢ cents 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 (“MDNR”) 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 Page v Integral to helping MSD’s rate payers understand the Consent decree is MSD’s initiation of Project Clear. 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. Unlike previous MSD programs, 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. 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 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 ratepayers. 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 plans to submit a rate change proposal to the MSD Rate Commission in early 2015. This proposal is expected to recommend an increase in MSD’s wastewater rates in order adequately fund the work required by the Consent Decree. The proposal will also recommend the establishment of a new stormwater funding structure sufficient to provide adequate services across the entire MSD service area. The new stormwater funding structure relates to the below discussion regarding the impervious stormwater rate court case. 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. As stated above, the District plans to submit a rate change proposal to the MSD Rate Commission in early 2015. The Board of Trustees The Metropolitan St. Louis Sewer District Page vi Since February 2004, the voters of St. Louis have authorized the District to issue a total of $1.7 billion in wastewater revenue bonds. As of December 2013, the District has issued $1.2 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 is also upgrading 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 is expected by the summer of 2015. In 2013, MSD completed a Disparity Study to identify any disparities in the District’s expenditure of public funds against the availability of minorities and women to complete the required work. All contractual requirements allowed by the study for future vendor purchases and diverse workforce were put into place by August 2013. The Disparity Study also made recommendations as to other activities that the District should consider as part of a successful Diversity Program. Many of these are being accomplished through a Community Benefits Agreement (CBA). This is an agreement between MSD and eight Signatory organizations that allows the Signatories to be involved in the implementation and long term monitoring of the Disparity Study in exchange for agreeing to not interfere in MSD’s implementation of the Consent Decree. The Disparity Study and CBA, in combination, will assure that stakeholder’s who help pay for the work required to meet the Consent Decree also get the opportunity to participate in its completion. 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 9,563 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 removal 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. The Board of Trustees The Metropolitan St. Louis Sewer District Page vii MSD currently operates 7 wastewater treatment facilities. These facilities treated an average flow of 273.8 million gallons per day (MGD) in fiscal 2014 compared to 326.7 MGD in fiscal 2013. The design capacity and average flow, by watershed, in MGD was as follows in fiscal 2014: MAJOR WATERSHED LEVEL OF TREATMENT NUMBER OF FACILITIES DESIGN CAPACITY AVERAGE FLOW FISCAL 2014 Mississippi River Secondary Two 417 202.6 Missouri River Secondary Two 73 45.4 Meramec River Secondary Three 42.75 25.8 Total Seven 532.75 273.8 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. 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 7.5 percent in June 2014 and higher than the national unemployment rate of 6.3 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 2014 and 2013: 2014 2013 Sewer Plan Reviews: Number of Plans Approved 487 447 Number of Miles of Sewers 36 22 Sewer construction Permits: Number of Permits Issued 3,472 2,020 Number of Miles of Sewers 29 19 Customer Connections: Number of Connection Permits Issued 1,764 1,345 Connection Fee Revenue (in millions) $1.5 $1.1 Value of Sewers Dedicated to MSD by Developers (in millions) $6.9 $17.5 The Board of Trustees The Metropolitan St. Louis Sewer District Page viii 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. Financial Information Proprietary Operations. The current financial condition of MSD remains stable. The District realized a net operating income of $24.5 million compared to a net operating income of $11.8 million the prior year. The increase is explained by an increase in sewer service revenue as a result of rate increases. In addition, the provision for doubtful sewer service charges saw a reduction due to the District’s use of new analytical tools leading the District to change its methodology in determining doubtful accounts. 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 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 U.S. 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 footnotes to the financial statements. The Board of Trustees The Metropolitan St. Louis Sewer District Page ix 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, and United States Treasury instruments. The District utilizes competitive bidding for investment purchases and monitors market conditions daily. MSD receives interest on certificates of deposit monthly and reinvests it to maximize yields. Investment maturities are limited to a maximum five years per ordinance. 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 a 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, performs preventative maintenance to it, and maintains excess liability coverage. MSD maintains automobile and general liability insurance. The District is self-insured for workers’ compensation and funds those costs through annual appropriations from the District’s general 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; 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 Page x 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 1996 amendments to the Federal Single Audit Act and the United States Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. A Single Audit Report was issued for the year ended June 30, 2014. The financial statements of the Metropolitan St. Louis Sewer District’s Employees’ Pension Plan, Deferred Compensation Plan and Defined Contribution Plan are also audited annually. These audits were issued as of December 31, 2013 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, 2013. 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 Page xi 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-six 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 2014 annual budget. The District has received this award for twenty-seven consecutive years. We believe the FY15 budget presentation continues to meet the GFOA’s high standards and submitted it September 4, 2014, for consideration. Janice M. Zimmerman Director of Finance/CFO xii ORGANIZATION (as of June 30, 2014) BOARD OF TRUSTEES James H. Buford, Chair; Michael Yates, Vice Chair; Bob Berry; James Faul; Annette Mandel; Valerie Patton OFFICE OF INTERNAL AUDITOR RATE COMMISSION Leonard P. Toenjes, Chair OFFICE OF SECRETARY TREASURER Tim Snoke Secretary/Treasurer CIVIL SERVICE COMMISSION William C. Duffe Mavis T. Thompson R. Gary Durney EXECUTIVE DIRECTOR Brian L. Hoelscher/CEO FINANCE Janice M. Zimmerman/CFO 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 xiii 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, 2013 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, 2014 and 2013, 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, 2014 and 2013, 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. 65, Items Previously Reported as Assets and Liabilities, in fiscal year 2014. 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 and Schedule of Funding Progress for the Employees’ Pension Plans and 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise 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. Board of Trustees The Metropolitan St. Louis Sewer District Page 3 Other Reporting Required By Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 17, 2014, 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, 2014 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 4 MANAGEMENT’S DISCUSSION AND ANALYSIS For The Years Ended June 30, 2014 And 2013 The annual report of The Metropolitan St. Louis Sewer District (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. 2014 Financial Highlights  The District increased current, restricted and other assets by $101.2 million as a result of inflows from bond proceeds and increased receivables from slight increase in sewer rates.  The District placed $243.9 million of capital assets into service during fiscal year 2014. The continued high level of capitalization reflects the District’s work to meet long-term plans per the EPA consent decree entered into August 14, 2011. Capitalized assets included: Treatment and disposal plant and equipment $173.5 million Collection and pumping plant $60.8 million Land $5.5 million General plant and equipment $4.1 million In conjunction with the new assets, accumulated depreciation increased by $59.8 million and construction in progress decreased $60.6 million.  The District issued one new senior bond for $150 million. 2013 Financial Highlights  The District increased current, restricted and other assets by $195.4 million as the result of inflows from bond proceeds and increased revenue from slight increase in sewer rates and improved collection activities.  The District placed $200.6 million of capital assets into service during fiscal year 2013. The continued high level of capitalization reflects the District’s work to meet long-term plans per the EPA consent decree entered into August 2011. Capitalized assets included: Collection and pumping plant $178.4 million Treatment and disposal plant and equipment $15.5 million Land $4.0 million General plant and equipment $2.7 million THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 5 In conjunction with the new assets, accumulated depreciation increased by $66.5 million and construction in progress decreased $18.6 million.  The District issued one new senior bond for $225 million and refunded an existing bond with favorable interest reduction. 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 bond and notes payable. Deferred outflows and inflows, where applicable, will also be 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 6 Financial Analysis The District’s financial position improved in the current year, as evidenced by the increase in net position of $27.9 million. The improvement is due to the increases in restricted funds of $31.7 million and unrestricted funds of $28.5 million. Restricted funds increased due to maintaining higher reserves for debt service and unrestricted funds increased due to an overall positive change in net position. This was offset by a decrease in net investment in capital assets of $32.3 million as more debt was incurred than capital created during 2014. Condensed Financial Statements and Analysis Increase Increase 2013 (Decrease) 2012 (Decrease) 2014 As Restated 2014-2013 As Restated 2013-2012 Assets: Current, restricted, and other assets 704,266$ 603,104$ 101,162$ 407,731$ 195,373$ Capital assets (net of accumulated depreciation) 2,763,413 2,659,806 103,607 2,548,816 110,990 Total Assets 3,467,679 3,262,910 204,769 2,956,547 306,363 Deferred Outflow of Resources:     Bonds and Notes Payable-Deferred Loss on Refunding 10,108 10,618 (510) — (510)           Total Deferred Outflow of Resources 10,108 10,618 (510) — (510) Liabilities: Current liabilities 95,196 89,432 5,764 86,337 3,095 Non-current liabilities 1,114,639 944,038 170,601 660,307 283,731 Total Liabilities 1,209,835 1,033,470 176,365 746,644 286,826 Net Position: Net investment in capital assets 1,845,394 1,877,692 (32,298) 1,928,200 (50,508) Restricted 142,764 111,066 31,698 106,693 4,373 Unrestricted 279,794 251,300 28,494 175,010 76,290 Total Net Position 2,267,952$ 2,240,058$ 27,894$ 2,209,903$ 30,155$ Condensed Statements of Net Position (000s) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 7 2014 Analysis Current, restricted and other assets increased $101.2 million or 16.8% in the current year. The increase is predominately due to unrestricted and restricted cash and investments received as part of the issuance of debt in 2014. In addition, unrestricted receivables increased due to higher sewer rates and a lower allowance for sewer service charges. Capital assets net of accumulated depreciation increased by $103.6 million or 3.9% in the current year as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities increased by $5.8 million or 6.4%, as the result of increases for new debt interest accrual and the accounting change related to accrued interest, as discussed in the Reclassification section of Note 1 to the financial statements. Non-current liabilities increased by $170.6 million or 18.1% as the District issued $150 million in new senior debt with a premium. 2013 Analysis Current restricted and other assets increased $195.4 million or 47.9% in the current year. The increase is predominately due to the restricted cash and investments received as part of the issuance of debt in 2013, used to fund more of the capital program. Capital assets net of accumulated depreciation increased by $111.0 million or 4.4% in the current year as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities increased by $3.1 million or 3.6%, as the result of increases in deposits and accrued expenses from water backup claims and additional interest accruals on new debt. Non-current liabilities increased by $283.7 million or 43.0% as the District issued $225 million in new senior debt with premium. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 8 Increase Increase 2013 (Decrease) 2012 (Decrease) 2014 As Restated 2014-2013 As Restated 2013-2012 Operating Revenues: Sewer service charges 250,133$ 238,635$ 11,498$ 227,677$ 10,958$ Provision for doubtful sewer service charge accounts 7,210 (2,655) 9,865 (6,911) 4,256 Licenses, permits, and other fees 6,563 2,731 3,832 2,684 47 Other 1,867 3,235 (1,368) 2,550 685 Total Operating Revenues 265,773 241,946 23,827 226,000 15,946 Non-operating Revenues: Property taxes levied by the district 27,450 26,016 1,434 24,604 1,412 Investment income 2,967 1,057 1,910 2,407 (1,350) Rent and other income 302 293 9 295 (2) Total Non-operating Revenues 30,719 27,366 3,353 27,306 60 Total Revenues 296,492 269,312 27,180 253,306 16,006 Operating Expenses: Pumping and treatment 54,126 54,526 (400) 49,005 5,521 Collection system maintenance 39,988 37,877 2,111 36,695 1,182 Engineering 12,184 12,020 164 8,544 3,476 General and administrative 45,661 41,485 4,176 33,180 8,305 Water backup claims 2,713 3,503 (790) 2,050 1,453 Depreciation 74,087 70,030 4,057 66,742 3,288 Asset management 12,539 10,717 1,822 20,092 (9,375) Total Operating Expenses 241,298 230,158 11,140 216,308 13,850 Non-operating Expenses: Net (gain) loss on disposal and sale of capital assets 5,248 796 4,452 3,163 (2,367) Non-recurring projects and studies 3,493 4,676 (1,183) 6,403 (1,727) Legal Claims — — — 5 (5) Interest expense 25,661 21,062 4,599 16,365 4,697 Total Non-operating Expenses 34,402 26,534 7,868 25,936 598 Total Expenses 275,700 256,692 19,008 242,244 14,448 Income Before Capital Grants And Contribution 20,792 12,620 8,172 11,062 1,558 Capital Grants And Contributions 7,102 17,535 (10,433) 9,659 7,876 Change in Net Position 27,894 30,155 (2,261) 20,721 9,434 Net Position - Beginning of Year 2,240,058 2,209,903 30,155 2,189,182 20,721 Net Position - End of Year 2,267,952$ 2,240,058$ 27,894$ 2,209,903$ 30,155$ Statements of Revenues, Expenses, and Changes in Net Position (000s) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 9 2014 Analysis Net position increased $27.9 million or 1.2% over the prior year. Sewer service revenue increased as a result of rate increases. The provision for doubtful sewer service charges decreased due to the District’s use of new analytical tools leading the District to change its methodology in determining doubtful accounts. Operating expenses also increased primarily from various increases in operating costs. Interest expense also increased, as well as the loss on disposal. Total revenue increased by $27.2 million or 10.1%. Sewer service charges increased $11.5 million or 4.8% and the provision for doubtful accounts decreased by $9.9 million or 371.6% as explained above. Licenses, permits and other fees increased $3.8 million or 140.3% due primarily to an increase in waste haul permits. Investment income increased $1.9 million or 180.7% due to favorable market conditions. Property tax revenue increased by $1.4 million or 5.5% due to taxes collected from the prior year. Other revenue had a decrease of $1.3 million. Total expenses increased by $19.0 million or 7.4%. Operating expenses increased by $11.1 million or 4.8%. This increase is a result of the following:  $4.2 million or 10.1% increase in general administrative costs due to higher professional services primarily related to the upgrade in the District’s extensive billing and collection system. In addition, there were increases in worker’s compensation and general liability judgments and claims;  $4.1 million or 5.8% increase in depreciation costs due to new asset capitalization;  $2.1 or 5.6% increase in collection system maintenance costs as a result of increased personnel costs, as well as inventory. The increase related to inventory included new process implemented for inventory obsolescence;  $1.8 million or 17.0% increase in asset management as the capital improvement fund was increased;  Offset by a decrease of $0.8 million or 22.6% in water backup due to a reduction in the claim reserve. Non-operating expenses increased by $7.9 million or 29.7%. This increase is a result of the following:  $4.6 million or 20.4% increase in interest expense due to the issuance of new senior and subordinate bonds;  $4.5 million or 559.7% increase in the loss on disposals due to the MO River Waste Water Treatment Plant expansion that included demolition of some plant assets resulting in a loss for those demolished assets;  Offset by a decrease of $1.2 million or 25.3% in non-recurring projects and studies. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 10 2013 Analysis Net position increased $30.1 million or 1.4% over the prior year. Sewer service revenue increased as a result of rate increases and improved collection over the prior year, expenses also increased primarily from some increases in operating costs, as well as increased water backup claims from the prior year. Total revenue increased by $16.0 million or 6.3%. Sewer service charges increased $11.0 million and the provision for doubtful accounts decreased by $4.3 million or 61.6% as part of the increases collection activities. Property tax revenue increased by $1.4 million from increased in property valuation. Other revenue increased by $0.7 million due to projects completed for the City of Arnold. Investment income declined by $1.4 million or 56.1% due to changing market conditions Total expenses increased by $14.4 million or 5.9%. Operating expenses increased by $13.8 million or 6.4%. This increase is a result of the following:  $8.3 million or 25% increase in general and administrative costs primarily as the result of a large insurance reimbursement in FY12 that was not repeated in FY13;  $6.7 million or 7.8% increase in combined pumping and collection costs as a result of increased personnel costs, costs related to heavy spring rains, and equipment repair and replacement;  $1.5 million or 70.9% increase in water backup claims due to more claims over the prior year when drought conditions limited flooding claims;  $3.5 million or 40.7% increase in engineering costs due primarily to personnel costs related to non-capital, asset management projects;  $3.3 million or 4.9% increase in depreciation costs due to new asset capitalization;  Offset by a decrease of $9.4 million or 46.7% in asset management as costs were eliminated. Non-operating expenses increased by $0.6 million or 1.6%. This increase is a result of the following:  $4.7 million or 28.7% increase in interest expense offset by $4.1 million or 42.8% decreases in combined losses on disposal of assets and non-recurring projects and studies. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 11 Increase Increase (Decrease) (Decrease) 2014 2013 2014-2013 2012 2013-2012 Cash flows from operating activities 81,864$ 84,882$ $ (3,018) 67,839$ $ 17,043 Cash flows from non-capital financing activities 27,468 23,014 4,454 24,604 (1,590) Cash flows from capital and related financing activities (25,597) 83,449 (109,046) (91,085) 174,534 Cash flows from investing activities (86,487) (168,410) 81,923 60,540 (228,950) Net increase (decrease) in cash and cash equivalents (2,752) 22,935 (25,687) 61,898 (38,963) Cash and cash equivalents at beginning of year 181,755 158,820 22,935 96,922 61,898 Cash And Cash Equivalents At End Of Year 179,003$ 181,755$ $ (2,752) 158,820$ $ 22,935 Condensed Statements of Cash Flows (000s) 2014 Analysis The District ended the year with $179.0 million in cash and cash equivalents or a decrease of $2.8 million from the prior year. Cash flows from operating activities decreased by $3.0 million or 3.6% as the result of increased outflows to suppliers for goods and services. Cash flows from non-capital financing activities increased by $4.5 million or 19.4% due to greater tax revenue collected, mainly from the prior year. Cash flow from capital and related financing activities decreased by $109.0 million or 130.7% as the result of decreased bond proceeds and premiums received in 2014 compared to 2013. Cash flows from investing activities increased by $81.9 million or 48.6%. The increase primarily stems from a decrease in the purchase of investments and an increase in the volume of maturities of investments. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 12 2013 Analysis The District ended the year with $181.8 million in cash and cash equivalents or $22.9 million more than the prior year. Cash flows from operating activities increased by $17.0 million or 25.1% as the result of increased sewer service charge revenue noted above. Cash flows from non-capital financing activities decreased by $1.6 million or 6.5% from a decrease in tax revenue collected. The decrease stems from both a decrease in property tax collection and a decision by the District to eliminate some sub-district taxes because of sufficient fund balance. Cash flow from capital and related financing activities increased by $174.5 million or 191.6% as the result of new bond proceeds partially offset by payments for capital improvement. Cash flows from investing activities decreased by $229.0 million or 378.2%. The decrease primarily stems from the volume of purchases and maturities of investments. Capital Assets Increase Increase (Decrease) (Decrease) 2014 2013 2014-2013 2012 2013-2012 Land 55,538$ 50,077$ 5,461$ 46,027$ 4,050$ Construction in progress 299,945 360,508 (60,563) 379,119 (18,611) Treatment and disposal plant and equipment 737,833 599,178 138,655 611,249 (12,071) Collection and pumping plant 1,637,375 1,614,112 23,263 1,471,147 142,965 General plant and equipment 32,722 35,931 (3,209) 41,274 (5,343) Total 2,763,413$ 2,659,806$ 103,607$ 2,548,816$ 110,990$ Condensed Statements of Capital Assets Net of Depreciation (000s) 2014 Analysis Total capital assets, net of depreciation, increased by $103.6 million or 3.9% over the prior year. Treatment and disposal plant and equipment contained the majority of the increase with a net $157.2 million or 15.3% with 173.5 million additions offset by $16.3 retirements this fiscal year. Collection and pumping plant increased $59.9 million or 2.7% primarily for capitalization of assets including dedicated assets and infrastructure repairs. Land increased $5.5 million or 10.9% from the acquisition of thirteen different properties. General plant and equipment increased $1.4 million or 1.5% primarily due to the purchase of vehicles. Construction in progress decreased $60.6 million or 16.8% as constructed assets were placed in service. For more detailed information, see Note 4, capital assets, in the accompanying notes to the financial statements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 13 2013 Analysis Total capital assets, net of depreciation, increased by $111.0 million over the prior year. Collection and pumping plants contained the majority of the increase with $143.0 million coming on-line this fiscal year. Land increased $4.0 million from the acquisition of easements and other land. Construction in progress decreased by $18.6 million as constructed assets were moved into service. Treatment and disposal plant and equipment decreased by $12.1 million as the District’s plants depreciated. General plant and equipment decreased by $5.3 primarily due to depreciation of existing assets. For more detailed information, see Note 4, capital assets, in the accompanying notes to the financial statements. Long-Term Debt Increase Increase (Decrease) (Decrease) 2014 2013 2014-2013 2012 2013-2012 Senior Revenue Bonds: Series 2004A —$ 2,375$ (2,375)$ 163,630$ $ (161,255) 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 48,925 50,610 (1,685) 52,250 (1,640) Series 2012A 225,000 225,000 — — 225,000 Series 2012B 141,730 141,730 — — 141,730 Series 2013B 150,000 — 150,000 — — Subordinate Revenue Bonds: Series 2004B 105,155 108,780 (3,625) 115,960 (7,180) Series 2005A 4,750 4,750 — 5,055 (305) Series 2006A 32,085 32,085 — 34,225 (2,140) Series 2006B 10,945 10,945 — 11,620 (675) Series 2008AB 31,140 32,040 (900) 33,833 (1,793) Missouri DNR: Series 2009A 19,589 20,093 (504) 21,085 (992) Series 2010A 7,299 7,472 (173) 5,880 1,592 Series 2010C 33,224 33,999 (775) 35,519 (1,520) Series 2011A 39,769 31,963 7,806 1,007 30,956 Series 2013A 16,043 — 16,043 — — Energy Loan Program 166 225 (59) 237 (12) Oracle/Blue Heron — — — 3,096 (3,096) Total 1,040,820$ 877,067$ 163,753$ 658,397$ $ 218,670 The Metropolitan St. Louis Sewer District Condensed Statements of Long-Term Debt (000s) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 14 2014 Analysis The District ended fiscal year 2014 with $1,041 million in long-term debt outstanding. The District had one bond addition this year, a senior revenue bond (Series 2013B) for $150.0 million. In addition, the District added a new SRF bond (Series 2013A) for $16.0 million and added to SRF bonds 2009A ($.5M), 2010A ($.2M), 2010C ($.8M), and 2011A ($7.8M). For more detailed information, see Note 6, long-term liabilities, in the accompanying notes to the financial statements. 2013 Analysis The District ended fiscal year 2013 with $877.1 million in long-term debt outstanding. The District had two bond additions this year, a senior revenue bond (Series 2012A) for $225.0 million and a refunding of 2004A for $141.7 million (Series 2012B). In addition, the District added to SRF bonds 2010A ($1.9M) and 2011A ($31.0M). For more detailed information, see Note 6, long-term liabilities, in the accompanying notes to the financial statements. Decisions Impacting the Future On July 7, 2011, the District entered into a Consent Decree (CD) with the U.S. Environmental Protection Agency and the Coalition for the Environment settling a lawsuit for alleged violations of the Clean Water Act. Along with providing a schedule for implementation of various system improvements and programs, the CD also addressed all allegations made by the Plaintiffs in this action. The public comment period ended October 10, 2011. The Court extended the stay of litigation until November 18, 2011, with a joint status report due on November 25, 2011. The CD did not become final until it was entered by the Federal Court on April 27, 2012. See Note 12 for additional information regarding this litigation. Integral to helping MSD’s rate payers understand the Consent decree is MSD’s initiation of Project Clear. 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 15 Unlike previous MSD programs, 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. The District continued to implement the next phase of the capital program reflected in the $1 billion of projects through FY16 in order to comply with the CD. At an 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 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. This authorization has now seen three issuances of bonds; in August 2012 of $225,000,000, October 2013 of $52,000,000, and December 2013 of $150,000,000. These funds are restricted and can only be used to fund capital expenditures. The District is also upgrading 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 21st century 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 is expected by the summer of 2015. 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. The impervious based stormwater rate was again increased on January 1, 2009. On July 9, 2010, a circuit court of St. Louis County found this impervious rate to be unconstitutional, as implemented, 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 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 ratepayers. 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 METROPOLITAN ST. LOUIS SEWER DISTRICT Management’s Discussion And Analysis (Continued) Page 16 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: Janice M. Zimmerman, Director of Finance/CFO The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 314-768-6200 jzimmer@stlmsd.com THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 17 STATEMENTS OF NET POSITION Ended June 30, 2013 Assets 2014 (As Restated) Current Assets Unrestricted Current Assets Cash and cash equivalents  95,037,786$ 91,333,756$ Investments                                          105,100,875 68,975,608 Sewer service charges receivable, less allowance of                   $3,991,589 in 2014 and $3,819,791 in 2013 46,563,727 34,207,405 Unbilled sewer service charges receivable, less allowance of       $404,638 in 2014 and $351,645 in 2013 20,231,912 17,582,233 Property taxes receivable, less allowance of $515,097 in 2014 2,136,300 2,325,743 Accrued income on investments                        756,384 830,906 Other receivables                               1,057,452 964,595 Supplies inventory                                   6,223,099 6,621,892           Total Unrestricted Current Assets                            277,107,535 222,842,138        Restricted Current Assets Cash and cash equivalents 6,086,299 3,652,344 Investments                                          7,568,587 3,201,720 Total Restricted Current Assets                            13,654,886 6,854,064           Total Current Assets                            290,762,421 229,696,202 Non-Current Assets Restricted Assets Cash and cash equivalents  77,878,696 86,768,505 Investments                                          181,161,245 97,580,234 Long-term investments                                66,104,134 80,865,957 Property taxes receivable, less allowance of $623,992 in 2014 848,360 676,622 Accrued income on investments 309,140 178,775           Total Restricted Non-Current Assets                            326,301,575 266,070,093 Other Assets        Notes receivable                                     14,116,801 14,640,552        Long-term investments                                73,085,475 92,697,236             Total other assets                            87,202,276 107,337,788 Capital Assets     Depreciable:        Treatment and disposal plant and equipment           1,184,278,860 1,027,055,525        Collection and pumping plant                         2,286,108,470 2,226,256,235        General plant and equipment                          93,600,648 92,176,648                                                             3,563,987,978 3,345,488,408        Less:  Accumulated depreciation                      1,156,057,471 1,096,266,136        Net depreciable assets       2,407,930,507 2,249,222,272            Non-depreciable:        Land                                                 55,537,816 50,076,644        Construction in progress                             299,944,922 360,507,520           Net capital assets                                2,763,413,245 2,659,806,436                    Total Non-Current Assets                         3,176,917,096 3,033,214,317                         Total Assets                               3,467,679,517 3,262,910,519        Deferred Outflow of Resources Bonds and Notes Payable-Deferred Loss on Refunding 10,108,350 10,617,604             Total Deferred Outflow of Resources 10,108,350 10,617,604 For The Years THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 18 STATEMENTS OF NET POSITION (Continued) Ended June 30, 2013 2014 (As Restated) Liabilities   Current Liabilities        Contracts and accounts payable                       30,795,756$ 32,258,712$        Deposits and accrued expenses                        33,336,518 27,268,022        Retainage payable                                    9,566,082 9,749,687        Current portion of bonds and notes payable           20,268,080 19,435,714                                                             93,966,436 88,712,135   Current Liabilities-Payable From Restricted Assets        Contracts and accounts payable                       1,015,380 504,746        Retainage payable                                   214,063 215,334                                                             1,229,443 720,080             Total Current Liabilities                       95,195,879 89,432,215          Non-Current Liabilities        Deposits and accrued expenses                        11,811,608 10,398,107        Bonds and notes payable                              1,102,827,585 933,639,841             Total Non-Current Liabilities                       1,114,639,193 944,037,948                              Total Liabilities                     1,209,835,072 1,033,470,163   Net Position        Net investment in capital assets 1,845,394,270 1,877,692,035        Restricted for:          Debt service                                       71,843,246 47,140,132          Subdistrict construction and improvement           70,920,910 63,925,875        Unrestricted                                         279,794,369 251,299,918                       Total Net Position 2,267,952,795$ 2,240,057,960$   For The Years THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 19 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION 2013 2014 (As Restated)   Operating Revenues     Sewer service charges                                   250,133,022$ 238,634,709$     Recovery (provision) of doubtful sewer service charge accounts 7,210,322 (2,654,644)     Licenses, permits and other fees                       6,562,607 2,731,497     Other                                                   1,866,902 3,234,775     Total Operating Revenues                              265,772,853 241,946,337          Operating Expenses     Pumping and treatment                                   54,125,550 54,526,256     Collection system maintenance                           39,987,811 37,876,932     Engineering                                             12,184,007 12,019,666     General and administrative                              45,661,041 41,485,255     Water backup claims                                     2,713,168 3,503,220     Depreciation                                            74,087,207 70,029,840     Asset management                                               12,538,851 10,717,265     Total Operating Expenses                             241,297,635 230,158,434          Operating Income         24,475,218 11,787,903          Non-Operating Revenues     Property taxes levied by the District                   27,450,319 26,016,135     Investment income                                       2,966,549 1,056,966     Rent and other income                                   302,506 293,159     Total Non-Operating Revenues                          30,719,374 27,366,260          Non-Operating Expenses     Net loss on disposal and sale of capital assets         5,248,443 795,527     Non-recurring projects and studies                       3,492,667 4,676,203     Interest expense                                        25,661,127 21,062,474     Total Non-Operating Expenses                          34,402,237 26,534,204          Income Before Capital Grants And Contributions                     20,792,355 12,619,959          Capital Grants And Contributions     Utility plant contributed                               6,873,732 17,510,735     Grant revenue                                           228,748 24,184     Total Capital Grants And Contributions                          7,102,480 17,534,919          Change In Net Position 27,894,835 30,154,878   Net Position - Beginning Of Year, As Previously Stated     2,240,057,960 2,218,294,341 Effect of Adoption of GASB 65 — (8,391,259)   Net Position - Beginning Of Year, As Restated 2,240,057,960 2,209,903,082          Net Position - End Of Year                                    2,267,952,795$ 2,240,057,960$ For The Years Ended June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT See the accompanying notes to financial statements. Page 20 STATEMENTS OF CASH FLOWS 2014 2013 Cash Flows From Operating Activities Received from customers 251,198,137$ 242,341,372$ Paid to employees for services (91,425,385) (92,818,922) Paid to suppliers for goods and services (77,909,148) (64,640,786) Net Cash Provided By Operating Activities 81,863,604 84,881,664 Cash Flows Provided By Non-Capital Financing Activities Taxes levied and collected 27,468,024 23,013,770 Cash Flows From Capital And Related Financing Activities Proceeds from capital grants 233,450 24,639 Proceeds from issuance of debt 173,411,628 257,888,292 Premium on sale of bonds 9,937,121 35,097,262 Interest received on bond proceeds to be used for capital improvements 348,476 250,753 Principal paid on debt (10,071,556) (21,857,996) Interest and fees paid on debt (37,522,184) (35,117,398) Payments for capital assets (163,882,733) (154,847,862) Proceeds from sale of capital assets 345,039 269,073 Build America bond tax credit 1,603,658 1,742,160 Net Cash Provided By (Used In) Capital And Related Financing Activities (25,597,101) 83,448,923 Cash Flows From Investing Activities Purchase of investments (627,117,753) (671,031,454) Proceeds from sale and maturity of investments 535,352,043 497,314,140 Investment income 4,976,853 5,014,629 Proceeds from rents 302,506 293,159 Net Cash Used In Investing Activities (86,486,351) (168,409,526) Net Increase (Decrease) In Cash And Cash Equivalents (2,751,824) 22,934,831 Cash And Cash Equivalents At Beginning Of Year 181,754,605 158,819,774 Cash And Cash Equivalents At End Of Year 179,002,781$ 181,754,605$ Non-Cash Capital And Investing Activities Capital asset additions included in accounts payable 18,928,794$ 15,362,389$ Utility plant contributed by other governments and developers 6,873,732 17,510,735 Fair value investment adjustment gain (loss) 147,773 (3,140,483) Refunding - debt issued 2012B (See Note 6) — 141,730,000 Debt refunded 2004A (See Note 6) — (161,255,000) 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 (Continued) 2014 2013 Reconciliation Of Operating Income (Loss) To Net Cash Flows Provided By Operating Activities Operating Income (Loss) 24,475,218$ 11,787,904$ Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation 74,087,207 70,029,840 Change in operating assets and liabilities: (Increase) decrease in billed and unbilled sewer service charges receivable (15,006,001) 959,525 Increase in other receivables (97,560) (91,259) (Increase) decrease in supplies inventory 398,793 (320,858) Decrease in contracts and accounts payable (6,122,709) (1,109,475) Increase in deposits and accrued expenses 4,128,656 3,625,987 Net Cash Provided By Operating Activities 81,863,604$ 84,881,664$ For The Years Ended June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 22 NOTES TO FINANCIAL STATEMENTS 1. Organization And Summary Of Significant Accounting Policies Organization The Metropolitan St. Louis Sewer District (the 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 (the 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 23 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. 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. 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, 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 (GASB 33), which establishes accounting and financial reporting standards for nonexchange transactions involving financial or capital resources. GASB 33 groups non-exchange 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 non-exchange 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 24 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 33, have been met. Any resources received before 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 all highly liquid investments that are immediately available to the District to be cash equivalents. Investments The District accounts for its investments at fair value. Fair value is determined using quoted market prices. 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. Reclassifications Certain accounts in prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements. The District had two main areas of reclassifications within the financial statements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 25 The first new presentation affected numerous asset lines as well as two liability lines and the net position section. The District’s review of GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements (GASB 62), paragraphs 30 & 31 resulted in the District reclassifying the following:  Reclassified the District-wide Stormwater Fund out of Non-current Restricted Assets and placed into Current Unrestricted Assets as well as out of Current Liabilities Payable from Restricted Assets and placed into Current Liabilities. This was due to the determination of ordinance 13274 having no intent to restrict these funds and nearly all intended expenditures are operational, not capital in nature.  Reclassified the Stormwater Operations and Maintenance Fund out of Non- current Restricted Assets and placed into Current Restricted Assets. This was due to the determination of ordinance 13274 stating a restriction of using funds solely for “existing public stormwater facilities.” In addition, nearly all intended expenditures are to be operational, not capital, in nature.  The presentation of unspent bond proceeds changed from Current Restricted Assets and is now presented in Non-current Restricted Assets. This was due to the determination that these funds are to be disbursed for the construction and/or acquisition of non-current assets resulting in the assets being categorized as non-current. All expenditures are capital not operational, in nature. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 26 The reclassification presented in the 2013 financial statements is as follows:   Current Assets:  Current Assets:     Unrestricted Current Assets:    Unrestricted Current Assets:        Cash and cash equivalents  84,400,724$        Cash and cash equivalents  91,333,756$        Investments                                          67,190,638        Investments                                          68,975,608 Accrued income on investments 807,632 Accrued income on investments 830,906 152,398,994 161,140,270     Restricted Current Assets:    Restricted Current Assets:        Cash and cash equivalents                            69,449,837        Cash and cash equivalents                            3,652,344        Investments                                          79,625,995        Investments                                          3,201,720 149,075,832 6,854,064                 Non-current Assets:  Non-current Assets:     Restricted Assets:    Restricted Assets:        Cash and cash equivalents  27,904,044        Cash and cash equivalents  86,768,505        Investments                                          22,940,929        Investments                                          97,580,234        Long-term investments                                83,261,367        Long-term investments                                80,865,957 Accrued income on investments 202,049 Accrued income on investments 178,775 134,308,389 265,393,471 Other Assets Other Assets       Long-term investments                                90,301,826        Long-term investments                                92,697,236   Current Liabilities:  Current Liabilities:        Contracts and accounts payable                       27,421,384        Contracts and accounts payable                       32,258,712   Current Liabilities   Current Liabilities   Payable From Restricted Assets:  Payable From Restricted Assets:        Contracts and accounts payable                       5,342,074        Contracts and accounts payable                       504,746 Grand Total 493,321,583$ Grand Total 493,321,583$ Net Position: Net Position:        Restricted for:       Restricted for:          Subdistrict construction and improvement        70,225,233$          Subdistrict construction and improvement        63,925,875$        Unrestricted                                         245,000,561        Unrestricted                                         251,299,919 Grand Total 315,225,794$ Grand Total 315,225,794$ Old Presentation of FY 2013 New Presentation of FY 2013 The second presentation change relates to the District’s classification of principal and interest payments. All of the District’s subordinate debt requires monthly escrow deposits to be made for semiannual/annual principal and interest payments due on either January 1st or July 1st. In prior years, the principal liability was reduced and interest expense was recognized at the time each monthly escrow deposit was recorded. In order to align outstanding long-term debt on the District’s Statement of Net Position with bank account balances, the District now records a reduction to the liability only when the actual principal payments are made to the bond holders. In addition, the subordinate bonds’ interest is accrued and an expense is recognized when interest is due. This change represents a change in accounting practice and has been retroactively adopted and balances have been restated as of July 1, 2012. This change had no retroactive effect on net position. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 27 Adoption of New Accounting Standards During the year, 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 will now be 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 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 in fiscal year 2014 has been 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$ 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 28 Capital Assets Capital assets are valued at historical cost or estimated historical cost based in part upon a study performed in 1981. Donated capital assets are recorded at fair value at the time of the contribution to the District. 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 10 to 70 years Collection and pumping plant 10 to 100 years General plant and equipment 3 to 50 years When designing 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. Previously, the District defined capital assets as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of three years. In April of 2010 the District updated this policy and as a result, an asset must now have an individual cost of more than $5,000 to be considered a capital asset. This change in policy does not have a retroactive effect on capital assets put in place before April 2010. 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 2014 and 2013, the District capitalized $10,838,482 and $12,305,615, respectively, of net interest expense. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 29 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 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 outstanding debt that is attributable to the acquisition, construction, or improvement of those assets. The restricted component of net position consists of constraints placed on net position through 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 District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. Capital Contributions Capital contributions to the District represent government grants and other aid used to fund capital projects. In accordance with GASB 33, capital contributions are recognized as revenue when the expenditure is made and the amount becomes subject to claim for reimbursement. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 30 Bond Issuance Costs Bond issuance costs incurred are paid from the proceeds of revenue bond issues. Due to GASB 65, bond issue costs are now expensed when incurred, whereas previously they were deferred and amortized using the straight-line method over the term of the bonds. For more detail, please refer to the section entitled “Adoption of New Accounting Standards.” 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, who has unused accrued sick leave remaining, will be compensated for that portion of unused accrued sick leave at the rate of 1-1/4% for each year of District service. 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. 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 31 2. Deposits And Investments Deposits At June 30, 2014 the reported amount of the District’s deposits was $46,969,658 and the bank balance was $50,725,661. Of the bank balance, $537,812 was covered by federal depository insurance; $50,187,849 was collateralized with securities held by a third party financial institution in the District’s name. In addition, the District has money market mutual funds of $12,030,165 held in a trusted escrow account for the State that will be used to make future bond payments. At June 30, 2013 the reported amount of the District’s deposits was $37,781,854 and the bank balance was $40,154,696. Of the bank balance, $585,749 was covered by federal depository insurance and $39,568,947 was collateralized with securities held by a third party financial institution in the District’s name. 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 market value of 103%. Deposits in each bank are insured by the Federal Deposit Insurance Corporation (FDIC) in the amount of $250,000 for interest bearing accounts and noninterest bearing accounts. Investments With the approval of the District’s Board of Trustees, the Secretary-Treasurer is authorized to invest excess cash in any investment authorized by the District’s charter. The District’s investment policy conforms to the investment policy guidelines for the State of Missouri. The District’s investment policy authorizes the District to invest in the following instruments: U.S. Treasury obligations, certificates of deposit, obligations of any agency or instrumentality of the U.S., repurchase agreements, bankers’ acceptances, and commercial paper, all according to terms specified in the policy. The District also has investments in money market mutual funds that hold securities approved by the District’s investment policy. At June 30, 2014 and 2013, all of the District’s investments were in compliance with the District’s investment policy and charter. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 32 A summary of deposits and investments as of June 30, 2014 and 2013 is as follows: Investment Type Cost Fair Value Cost Fair Value Deposits 46,969,658$ 46,969,658$ 37,781,854$ 37,781,854$ Money Market Mutual Funds 12,030,165 12,030,165 4,857,117 4,857,117 Certificates of deposit 100,000 100,000 200,000 200,000 U.S. Treasury and agency obligations 456,905,358 455,362,626 388,684,118 386,857,519 Commercial paper 97,513,315 97,560,650 95,318,691 95,378,870 Total 613,518,495$ 612,023,098$ 526,841,780$ 525,075,360$ 2014 2013 Reconciliation to the financial statements: 2014 2013 Cash and Cash Equivalents Unrestricted current 95,037,786$ 91,333,756$ Restricted current 6,086,299 3,652,344 Restricted noncurrent 77,878,696 86,768,505 Investments Unrestricted current 105,100,875 68,975,608 Restricted current 7,568,587 3,201,720 Restricted noncurrent 181,161,246 97,580,234 Long-term Investments Restricted noncurrent 66,104,134 80,865,957 Other 73,085,475 92,697,236 612,023,098$ 525,075,360$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 33 Interest Rate Risk As of June 30, 2014 and 2013, the District had the following investments and maturities: Weighted Weighted Average Average Maturity Maturity Investment Type Fair Value (Years)Fair Value (Years) Money market mutual 12,030,165$ 0.00 4,857,117$ 0.00 Certificates of deposit 100,000 2.72 200,000 2.07 U.S. Treasury obligations 285,468,272 1.33 188,141,798 0.65 U.S. agency obligations 169,894,354 1.40 198,715,721 2.05 Commercial paper 97,560,650 0.24 95,378,870 0.19 Total 565,053,441$ 0.96 487,293,506$ 1.13 2014 2013 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. 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. A portion of the District’s long-term investments are considered 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 34 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, 2014 and 2013, 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+” besides one short-term U.S. agency obligation that carries a rating of “A-1+”, with a value of $11,099,030. Money market investments are rated as AAAm and Aaa-mf by S&P and Moody’s, respectively. Concentration Of Credit Risk The District’s investment policy places no limit on the amount the District may invest in any one issuer with respect to U.S. Treasury obligations and collateralized time and demand deposits. U.S. agency obligations and government-sponsored enterprises are limited to 60% of the portfolio, with no more than 30% of the total portfolio invested in securities of any one agency; and collateralized repurchase agreements are limited to 50% of the portfolio. U.S. agency callable securities are limited to 30% of the portfolio, and commercial paper and bankers’ acceptances are limited to 25% each, with no more than 5% of the total portfolio invested in any one issuer. The following table lists investments in issuers that represent 5% or more of total investments at June 30, 2014 and 2013: Issuer 2014 2013 Treasury Notes 50.7 35.8 Federal Home Loan Bank 6.1 13.3 Federal National Mortgage Association 10.1 13.1 Federal Home Loan Mortgage Corporation 9.7 10.1 Percent Of Total Investments THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 35 3. Note Receivable The District has a note receivable with the City of Arnold, Missouri (the “City”) for its portion of the capital costs related to the Lower Meramec Wastewater Treatment Plant. The original loan bears interest at 4.35%, while the two new loans added during the 2013 fiscal year bear interest of 4.50% and 3.52%. The current portion of this note is contained in the other receivables line on the statement of net position. The note receivable will mature in fiscal year 2033. At June 30, 2014, future payments are as follows: 2015 1,154,696$ 2016 1,154,696 2017 1,154,696 2018 1,154,696 2019 1,154,696 2020-2024 5,773,479 2025-2029 5,773,479 2030-2033 4,027,886 21,348,324 Less: Amount representing interest 6,701,534 14,646,790$ Classification in Statement of Net Position: Current 529,989$ Non-current 14,116,801 Total 14,646,790$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 36 4. Capital Assets The following is a summary of capital assets changes for the fiscal years ended June 30, 2014 and 2013: Balance Balance June 30, 2013 June 30, 2014 Capital assets not being depreciated: Land 50,076,644$ 5,461,172$ —$ 55,537,816$ Construction in progress 360,507,521 172,185,110 232,747,709 299,944,922 Total capital assets not being depreciated 410,584,165 177,646,282 232,747,709 355,482,738 Capital assets being depreciated: Treatment and disposal plant and equipment 1,027,055,525 173,558,583 16,335,248 1,184,278,860 Collection and pumping plant 2,226,256,235 60,764,222 911,987 2,286,108,470 General plant and equipment 92,176,648 4,066,119 2,642,119 93,600,648 Total capital assets being depreciated 3,345,488,408 238,388,924 19,889,354 3,563,987,978 Less: Accumulated depreciation: Treatment and disposal plant and equipment (427,877,724) (29,816,528) (11,248,064) (446,446,188) Collection and pumping plant (612,142,650) (37,117,725) (527,945) (648,732,430) General plant and equipment (56,245,762) (7,152,954) (2,519,863) (60,878,853) Total accumulated depreciation (1,096,266,136) (74,087,207) (14,295,872) (1,156,057,471) Total capital assets being depreciated, net 2,249,222,272 164,301,717 5,593,482 2,407,930,507 Total Capital Assets 2,659,806,437$ 341,947,999$ 238,341,191$ 2,763,413,245$ Additions Deletions Balance Balance June 30, 2012 June 30, 2013 Capital assets not being depreciated: Land 46,026,763$ 4,049,881$ —$ 50,076,644$ Construction in progress 379,119,335 160,031,402 178,643,216 360,507,521 Total capital assets not being depreciated 425,146,098 164,081,283 178,643,216 410,584,165 Capital assets being depreciated: Treatment and disposal plant and equipment 1,011,798,185 15,479,009 221,669 1,027,055,525 Collection and pumping plant 2,050,326,859 178,420,467 2,491,091 2,226,256,235 General plant and equipment 91,264,888 2,747,756 1,835,996 92,176,648 Total capital assets being depreciated 3,153,389,932 196,647,232 4,548,756 3,345,488,408 Less: Accumulated depreciation: Treatment and disposal plant and equipment (400,549,004) (27,550,389) (221,669) (427,877,724) Collection and pumping plant (579,180,437) (34,411,858) (1,449,645) (612,142,650) General plant and equipment (49,991,012) (8,067,593) (1,812,843) (56,245,762) Total accumulated depreciation (1,029,720,453) (70,029,840) (3,484,157) (1,096,266,136) Total capital assets being depreciated, net 2,123,669,479 126,617,392 1,064,599 2,249,222,272 Total Capital Assets 2,548,815,577$ 290,698,675$ 179,707,815$ 2,659,806,437$ Additions Deletions THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 37 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 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 distributed to the District monthly. On June 12, 2008, pursuant to Ordinance 12661, the District set the property tax rate at zero and began charging a stormwater service charge on March 1, 2008 based on the property’s impervious area. Only July 9, 2010, the St. Louis County Circuit Court declared that the stormwater user charge was a tax that requires voter approval under the Hancock Amendment I. In July, the District ceased charging customers for stormwater usage and reenacted the property tax that was previously charged. In fiscal years 2014 and 2013, the District recorded revenue from property taxes in the amount of $27,450,319 and $26,016,135, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 38 6. Long-Term Liabilities The following is a summary of changes in the District’s long-term liabilities for the year ended June 30, 2014: Original Balance Balance Issuance June 30, June 30, Current Amounts 2013 Additions Retirements 2014 Portion Bonds and notes payable: Wastewater System Senior Revenue Bonds: Series 2004A 175,000,000$ 2,375,000$ —$ 2,375,000$ —$ —$ 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 50,610,000 — 1,685,000 48,925,000 1,755,000 Series 2012A 225,000,000 225,000,000 — — 225,000,000 — Series 2012B 141,730,000 141,730,000 — — 141,730,000 — Series 2013B 150,000,000 — 150,000,000 — 150,000,000 2,125,000 Water Pollution Control and Drinking Water Subordinate Revenue Bonds (State Revolving Loans Program): Series 2004B 161,280,000 108,780,000 3,625,000 7,250,000 105,155,000 7,635,000 Series 2005A 6,800,000 4,750,000 305,000 305,000 4,750,000 310,000 Series 2006A 42,715,000 32,085,000 2,140,000 2,140,000 32,085,000 2,170,000 Series 2006B 14,205,000 10,945,000 675,000 675,000 10,945,000 685,000 Series 2008A/B 40,000,000 32,040,000 900,000 1,800,000 31,140,000 1,820,000 Missouri Department of Natural Resources: Energy Loan Program 98,595 1,312 — 1,312 — — Energy Loan Program 223,793 223,793 — 57,348 166,445 15,880 Series 2009A 23,000,000 20,093,400 498,400 1,002,500 19,589,300 1,025,700 Series 2010A 7,980,700 7,471,600 171,400 344,500 7,298,500 351,500 Series 2010C 37,000,000 33,999,000 765,000 1,540,000 33,224,000 1,580,000 Series 2011A 39,769,300 31,962,553 7,806,747 — 39,769,300 795,000 Series 2013A 52,000,000 — 16,043,275 — 16,043,275 — 1,344,052,388$ 877,066,658$ 182,929,822$ 19,175,660$ 1,040,820,820 20,268,080$ Add: Unamortized premium, net 82,274,845 Total 1,123,095,665$ Deposits and accrued expenses: Landfill closure and postclosure costs 735,800$ 21,136$ —$ 756,936$ —$ Compensated absences 7,524,797 873,144 414,718 7,983,223 1,995,805 Net OPEB obligation 4,018,709 2,442,145 1,393,600 5,067,254 — Total 12,279,306$ 3,336,425$ 1,808,318$ 13,807,413$ 1,995,805$ THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 39 The following is a summary of changes in the District’s long-term liabilities for the year ended June 30, 2013: Original Balance Balance Issuance June 30, June 30, Current Amounts 2012 Additions Retirements 2013 Portion Bonds and notes payable: Wastewater System Senior Revenue Bonds: Series 2004A 175,000,000$ 163,630,000$ —$ 161,255,000$ 2,375,000$ 2,375,000$ 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 52,250,000 — 1,640,000 50,610,000 1,685,000 Series 2012A 225,000,000 — 225,000,000 — 225,000,000 — Series 2012B 141,730,000 — 141,730,000 — 141,730,000 — Water Pollution Control and Drinking Water Subordinate Revenue Bonds (State Revolving Loans Program): Series 2004B 161,280,000 115,960,000 — 7,180,000 108,780,000 7,442,500 Series 2005A 6,800,000 5,055,000 — 305,000 4,750,000 310,000 Series 2006A 42,715,000 34,225,000 — 2,140,000 32,085,000 2,172,500 Series 2006B 14,205,000 11,620,000 — 675,000 10,945,000 685,000 Series 2008A/B 40,000,000 33,832,500 — 1,792,500 32,040,000 1,810,000 Missouri Department of Natural Resources: Energy Loan Program 98,595 13,468 — 12,156 1,312 1,312 Energy Loan Program 223,793 223,793 — — 223,793 32,402 Series 2009A 23,000,000 21,084,500 — 991,100 20,093,400 1,014,000 Series 2010A 7,980,700 5,880,389 1,932,311 341,100 7,471,600 348,000 Series 2010C 37,000,000 35,519,000 — 1,520,000 33,999,000 1,560,000 Series 2011A 39,769,300 1,006,572 30,955,981 — 31,962,553 — Capital Lease: Oracle/Blue Heron 12,000,000 3,096,140 — 3,096,140 — — 1,154,052,388$ 658,396,362$ 399,618,292$ 180,947,996$ 877,066,658 19,435,714$ Add: Unamortized premium, net 76,008,897 Total 953,075,555$ Deposits and accrued expenses: Landfill closure and postclosure costs 721,066$ 14,734$ —$ 735,800$ —$ Compensated absences 7,269,231 853,872 598,306 7,524,797 1,881,199 Net OPEB obligation 3,399,555 2,132,454 1,513,300 4,018,709 — Total 11,389,852$ 3,001,060$ 2,111,606$ 12,279,306$ 1,881,199$ 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. From the total voter authorization of $1,720,000,000, $518,000,000 has not been issued as of June 30, 2014. These funds were sought to enable the District to comply with federal and state clean water requirements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 40 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. 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 Revenue Bonds Series 2012B (Series 2012B). These bonds were issued pursuant to the June 2012 authorization: in this case 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 payments 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. 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. 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 41 In January 2010, the District issued $85,000,000 of Wastewater System Revenue Bonds 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. 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 of 2009, the District receives a subsidy payment from the Federal government equal to a percentage of the interest paid. In fiscal year 2013, the rate was 35%. On August 6, 2013, the District was notified that the subsidy percentage would be reduced to 32% for the 2013 fall payment and would be reduced to 32.5% after that. 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 improvements and replacement program. These senior bonds have interest rates ranging from 5.1% to 5.3% and are payable in semiannual installments at varying amounts through May 1, 2038. In November 2006, the District authorized and issued $60,000,000 of Wastewater System Revenue Bonds Series 2006C (Series 2006C) for the purpose of providing funds to finance the initial phase of its capital improvements and replacement program, including constructing, repairing, and replacing new wastewater facilities. These senior bonds have interest rates ranging from 4.1% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2036. In May 2004, the District authorized and issued $175,000,000 of Wastewater System Revenue Bonds Series 2004A (Series 2004A) for the purpose of providing funds to finance the initial phase of its capital improvements and replacement program, including constructing, repairing, and replacing new wastewater facilities. 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 are considered to be partially defeased. The original senior bonds had semiannual installments through May 1, 2034 but as a result of the refunding 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 METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 42 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 therefore 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 scheduled payment of the principal of and interest on the outstanding Series 2006C and 2004A Bonds are guaranteed under a financial guaranty insurance policy. Water Pollution Control and Drinking Water Revenue Bonds Payable In October 2008, the State Environmental Improvement and Energy Resources Authority (the 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 make loans to 14 Missouri political subdivisions that were used 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 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. 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 make loans to 7 Missouri political subdivisions that were used 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 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. 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 43 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 make loans to 13 Missouri political subdivisions that were used 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 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. 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. 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 1 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 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. 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 in the aggregate principal amount of $161,280,000, the proceeds of which were used to finance the District’s 3 water pollution control construction projects outlined in the agreement. 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 METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 44 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, and 2013A direct loans (pages 45-49) do not obligate the District to levy any form of taxation therefore 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 (the DNR). Monies from federal capitalization grants and state matching funds are used to fund a reserve account for each participant. As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits in a bond reserve fund in the District’s name an additional 60% of the expenditure amount for the Series 2004B bonds or 70% for the Series 2005A, 2006A, and 2006B bonds or 100% for the Series 2008A/B bonds. Interest earned from this reserve fund 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 reserve account to the master trustee an amount equal to 60% of the principal payment for the Series 2004B bonds or 70% for the Series 2005A, 2006A, and 2006B bonds or 100% for the series 2008A/B bonds. The costs of operation and maintenance of the wastewater treatment and sewerage facilities and the debt service is payable from wastewater revenues. In accordance with the Series 2004A, 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds, 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 portion of principal and interest due on all senior bonds and at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2014 and 2013, the District was in compliance with this covenant. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 45 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, 2014 are as follows: Years ending June 30,Principal Interest Total 2015 16,500,000$ 38,069,320$ 54,569,320$ 2016 22,860,000 37,686,773 60,546,773 2017 26,140,000 37,045,964 63,185,964 2018 26,685,000 36,261,508 62,946,508 2019 27,475,000 35,551,771 63,026,771 2020-2024 152,370,000 163,716,411 316,086,411 2025-2029 163,275,000 135,379,245 298,654,245 2030-2034 169,245,000 98,711,550 267,956,550 2035-2039 181,595,000 58,929,505 240,524,505 2040-2043 138,585,000 15,020,750 153,605,750 Total 924,730,000$ 656,372,797$ 1,581,102,797$ Wastewater System Revenue Bonds Payable/ Water Pollution Control and Drinking Water Revenue Bonds Payable Energy Efficiency Leveraged Note Payable In April 2004, the DNR loaned $98,595 to the District. The Energy Efficiency Leveraged Note Payable bore interest at a rate of 3.2% per annum and was payable through August 1, 2013. 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 was paid from the energy savings from the projects or avoided costs resulting from the projects. There is no outstanding balance for principal and interest at June 30, 2014. 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. As of June 30, 2014, the District completed the specific energy conservation projects and spent $199,489 of the $223,793 loan amount. The remaining $24,203 was returned to the DNR as a principal payment. The principal and interest on this note will be paid from the energy savings from the projects or avoided costs resulting from the projects. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 46 Principal and Interest Requirements on Energy Efficiency Leveraged Note Payable The annual principal and interest requirements to maturity on the Energy Efficiency Leveraged Note Payable outstanding as of June 30, 2014 are as follows: Years ending June 30, Principal Interest Total 2015 15,880$ 2,081$ 17,961$ 2016 32,359 3,563 35,922 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 166,445$ 11,569$ 178,014$ Energy Efficiency Leveraged Note Payable State of Missouri Direct Loan Series 2009A In October 2009, the DNR loaned $23,000,000 to the District. The State of Missouri Direct Loan Series 2009A bears interest at a rate of 1.5% per annum and is payable through January 1, 2030. The purpose of this note was to finance the designing, constructing, improving, renovating, repairing, replacing and equipping new and existing sewer facilities within the District. The principal and interest on the bonds are expected to be paid from future wastewater revenues. Principal and Interest Requirements on State of Missouri Direct Loan Series 2009A As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.5% based on the amount that has been borrowed. All funds have been drawn on this loan. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 47 The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2009A outstanding as of June 30, 2014 are as follows: Years ending June 30,Principal Interest Total 2015 1,025,700$ 282,268$ $ 1,307,968 2016 1,049,400 267,220 1,316,620 2017 1,073,700 251,811 1,325,511 2018 1,098,500 236,045 1,334,545 2019 1,123,900 219,915 1,343,815 2020-2024 6,021,700 844,253 6,865,953 2025-2029 6,751,100 381,212 7,132,312 2030-2031 1,445,300 15,856 1,461,156 Total 19,589,300$ 2,498,580$ $ 22,087,880 State of Missouri Direct Loan Series 2009A 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). 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 incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.5% based on the amount that has been borrowed. All funds have been drawn on this loan. The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010A outstanding as of June 30, 2014 are as follows: State of Missouri Direct Loan Series 2010C In December 2010, the State of Missouri Direct Loan Program - ARRA issued to the District an amount totaling $37,000,000 for the purpose of improving, renovating, repairing, replacing and equipping the District’s Wastewater System. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The District’s interest rate is 1.7% and is payable in semiannual installments at varying amounts through January 1, 2031. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 48 Years ending June 30,Principal Interest Total 2015 351,500$ 106,722$ 458,222$ 2016 358,600 101,495 460,095 2017 366,000 96,161 462,161 2018 373,300 90,717 464,017 2019 380,900 85,164 466,064 2020-2024 2,024,100 338,488 2,362,588 2025-2029 2,237,900 181,712 2,419,612 2030 -2032 1,206,200 26,958 1,233,158 Total 7,298,500$ 1,027,417$ 8,325,917$ State of Missouri Direct Loan Series 2010A Principal and Interest Requirements on State of Missouri Direct Loan Series 2010C As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.7% based on the amount that has been borrowed. All funds have been drawn on this loan. The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010C outstanding as of June 30, 2014 are as follows: Years ending June 30,Principal Interest Total 2015 $ 1,580,000 $ 541,700 $ 2,121,700 2016 1,620,000 515,485 2,135,485 2017 1,663,000 488,582 2,151,582 2018 1,705,000 460,969 2,165,969 2019 1,750,000 432,655 2,182,655 2020-2024 9,455,000 1,711,982 11,166,982 2025-2029 10,748,000 885,052 11,633,052 2030-2031 4,703,000 97,647 4,800,647 Total 33,224,000$ $ 5,134,072 $ 38,358,072 State of Missouri Direct Loan Series 2010C State of Missouri Direct Loan Series 2011A In November 2011, the State of Missouri Direct Loan Program - ARRA 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. The District’s interest rate is 1.5% and is payable in semiannual installments at varying amounts through January 1, 2034. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 49 Principal and Interest Requirements on State of Missouri Direct Loan Series 2011A As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.5% based on the amount that has been borrowed. 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, 2014 are as follows: Years ending June 30,Principal Interest Total 2015 $ 795,000 $ 604,491 $ 1,399,491 2016 1,620,000 586,291 2,206,291 2017 1,662,000 561,508 2,223,508 2018 1,704,000 536,086 2,240,086 2019 1,747,000 510,025 2,257,025 2020-2024 9,428,000 2,135,334 11,563,334 2025-2029 10,690,000 1,376,641 12,066,641 2030-2034 12,123,300 516,321 12,639,621 Total 39,769,300$ $ 6,826,697 $ 46,595,997 State of Missouri Direct Loan Series 2011A State of Missouri Direct Loan Series 2013A In October 2013, the State of Missouri Direct Loan Program - ARRA 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. The District’s interest rate is 1.6% and is payable in semiannual installments at varying amounts through July 1, 2034. In accordance with the Direct Loan Series 2009A, 2010A, 2010C, 2011A, and 2013A, 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 portion of principal and interest due on all bonds. At June 30, 2014 and 2013, the District was in compliance with this covenant. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 50 Principal and Interest Requirements on State of Missouri Direct Loan Series 2013A As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.6% based on the amount that has been borrowed. As of June 30, 2014 the outstanding loan balance was $16,043,275. The payment requirements to maturity will be determined after the debt is fully issued. 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 storm water 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. 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 expensed 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, 2014 and 2013, cash and investments in the Debt Service Reserve Fund totaled $57,168,703 and $46,962,390, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 51 Special Participant Bond Reserve Account For the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds, the District shall deposit into the Special Participant Bond Reserve Account amounts in accordance with the bond ordinance, 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, 2014 and 2013, cash and investments in the Special Participant Bond Reserve Account held on behalf of the District totaled $121,443,013 and $129,456,509, respectively. Monies in this account are not considered to be District funds. However, interest earnings on this account may be 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, 2014. Project Fund The Project Fund 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, 2014 and 2013, cash and investments in the Project Fund totaled $194,968,331 and $160,339,298, 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, 2014 and 2013, cash and investments in the Rebate Fund totaled $231,909 and $234,238, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 52 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. Fair Value of Financial Instruments The value of the District’s long-term debt is estimated based on the current rates offered to the District for debt of the same remaining maturities. The carrying amount and estimated fair value of the District’s long-term debt as of June 30, 2014 was $1,040,820,820 and $1,149,783,801, respectively. The carrying amount and estimated fair value of the District’s long-term debt as of June 30, 2013 was $877,066,658 and $950,947,897, respectively. 7. Pension Plan Plan Description The Metropolitan St. Louis Sewer District Employees’ Pension Plan (the 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 December 31, 2010, were eligible to be covered by the Plan. As of January 1, 2011 the Plan was frozen to new employees. Instead, new employees of the District may participate in the defined contribution plan. Current employees with less than ten years of service on this date could also voluntarily elect to transfer from the Plan and enter the defined contribution plan. The District’s Board of Trustees, primarily to improve benefits to members, amended the Plan, established on November 1, 1967. 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 Plan. A committee of the District’s Board of Trustees, with the aid of an investment advisor, reviews and evaluates the Plan’s investments and the related rates of return on a periodic basis. The Plan is exempt from the requirements of the Employee Retirement Income Security Act of 1974 and, as such, is not subject to the Act’s reporting requirements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 53 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 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 January 1, 1999, Ordinance No. 10491 amended the Plan benefits formula. The annual benefit payable became 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. Also, the annual reduction for early retirement was revised from 5% to 2% prior to age 60 and from 2.5% to 1% after age 60. Ordinance No. 10664, effective January 1, 2000, amended the Plan benefits formula to 1.45% 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. This ordinance also provided for a survivor’s benefit for vested members who have not yet reached their normal retirement date or earned 75 points. The survivor’s benefit is equal to the greater of 50% of the member’s monthly accrued retirement benefit as of the date of death, or 15% of the monthly earnings and the member’s monthly accrued retirement benefit actuarially reduced under the 100% joint and survivor annuity option. Members are also able to select a Contingent Annuity Pop-Up option. This option allows the member to elect a survivor annuity for life, with the provision that if the beneficiary should predecease the member, the benefit shall increase to the amount payable had the survivor option not been selected. Ordinance Number 10872, effective January 1, 2001, further amended the Plan to extend the cost of living increases for retirees from a maximum of 30% to 45% of the original benefit. Effective August 1, 2004, Ordinance No. 11781 amended the 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 times the amount of leave accrued. Also, the 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 Plan. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 54 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. Effective August 27, 2011, Ordinance No. 13288 amended the 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 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. Funding Policy The District’s employees do not contribute to the Plan. Ordinances establishing the 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. Annual Pension Cost Contributions of $11,850,000 and $11,564,228, excluding certain professional fees paid by the District, were made to the Plan during the District’s fiscal years ended June 30, 2014 and 2013, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at December 31, 2013 and 2012, respectively, and for 2013 consisted of a) $6,062,646 normal cost plus b) $4,558,601 amortization of the actuarial accrued assets in excess of the unfunded actuarial accrued liability and prior changes c) multiplied by an interest factor of 1.0725. The District provides certain professional fees, office space, utilities, and other services to the Plan at no cost. Other costs of administering the Plan are financed from plan net assets. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 55 Significant actuarial assumptions used in the valuations are as follows: Latest valuation date December 31, 2013 Actuarial cost method Entry Age Normal Amortization method Level dollar closed Amortization period 20-year period Asset valuation method Three-year average of adjusted market values Post-retirement benefit increases CPI with maximum 3% of current benefit or $50/month, and benefit increases lifetime maximum 45% in the original benefit or $750/month Investment rate of return 7.25% per annum Projected salary increases 4.5% - 10.0% per annum Social Security wage base 4.0% per annum increase Includes inflation component of 2.75% Trend Information Historical trend information about the District’s participation in the Plan is presented below to help readers assess the Plan’s funding status on a going- concern basis and assess progress being made in accumulating assets to pay benefits when due. Annual Pension Percentage Of Net Pension Fiscal Year Cost (APC) APC Contributed Obligation 2014 11,850,000$ 100% —$ 2013 11,564,228 100%— 2012 10,719,154 100%— Funded Status And Funding Progress As of January 1, 2014, the Plan was 86.1% funded. The actuarial accrued liability for benefits was approximately $275,657,000, and the actuarial value of assets was approximately $237,433,000, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $38,224,000. The covered payroll (annual payroll of active employees covered by the plan) was approximately $46,600,000, and the ratio of the UAAL to covered payroll was 82.0%. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 56 8. Other Pension Plans Deferred Compensation Plan The District offers its employees a 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 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 Deferred Compensation Plan. The Deferred Compensation Plan was amended and restated to comply with the Economic Growth and tax Relief Reconciliation Act of 2001 (the Act). The Act made significant changes to Section 457(b) of the Internal Revenue Code of 1986, as previously amended. The Deferred Compensation 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 Deferred Compensation Plan are not included in the accompanying financial statements. The Deferred Compensation 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. Defined Contribution Plan The Plan is a defined contribution benefit plan established by the District’s Board of Trustees through Ordinance 13180 and became effective January 1, 2011. The following employees are eligible to participate in the Plan: (i) employees first hired on or after January 1, 2011, and (ii) employees hired prior to January 1, 2011 who elect 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 Plan on the first day on which he performs an hour of service for the District. The District’s Board of Trustees, primarily to improve benefits to members, amends the 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 Plan. A committee of the District’s Board of Trustees, with the aid of an investment advisor, reviews and evaluates the Plan’s investments and the related rates of return on a periodic basis. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 57 This 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. The 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. 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. Employer Matching Contributions: For each payroll period, the District contributes an amount equal to 50% of the covered compensation of such participant withheld as an annual deferral (as defined in the Deferred Compensation Plan); 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 Plan year. In no event shall the sum of the employer contributions and employee contributions allocated to the account of a participant for the 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 $742,851 and $523,670 for the years ended June 30, 2014 and 2013, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 58 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% 9. Post-Employment Benefits Other Than Pensions Plan Description 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 provides a single-employer defined benefit health care plan to employees who retire from the District on or after age 62 and with five years of service or whose age plus years of service equal 75 points (“Rule of 75”). The District pays the monthly group health insurance premium for the individual until the retiree becomes eligible for Medicare at age 65. In addition, there is a closed group of disabled former employees who receive life insurance coverage from the District. Contributions for retirees are as follows: Coverage Tier Monthly Premium Retiree* $478.98 Retiree + Spouse $1,020.35 Retiree + Child $927.09 Family (1 child) $1,414.15 *The District pays the retiree’s premium for a retiree who retires after age 62 or after attaining 75 points. Eventually, affected retirees will have to pay up to 10% of the above premium. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 59 The District’s annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB 45 and in conjunction with Plan benefits currently in force. The actuarial valuations have been determined using estimated data provided by the District in combination with assumptions on the probability of future events, while also keeping an eye on long-term viability. These valuations are subject to continual revision as future actuarial measurements may differ significantly from current measurements due to the realization of new estimates and factors. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities. The District’s annual OPEB cost for the current year and the related information are as follows: Amortization of past service cost 875,500$ Normal cost 1,462,200 Interest to end of fiscal year 87,700 Annual Required Contribution (ARC) 2,425,400 Interest on net OPEB obligation 150,702 Adjustment to ARC (133,957) Annual OPEB cost 2,442,145 Contributions made (1,393,600) Increase in net OPEB obligation 1,048,545 Net OPEB obligation - beginning of year 4,018,709 Net OPEB obligation - end of year 5,067,254$ 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 60 Trend Information Percentage of Fiscal Net OPEB Net OPEB Cost Net OPEB Year Cost Contributed Obligation 2014 2,442,145$ 57.1 5,067,254$ 2013 2,132,454 71.0 4,018,709 2012 2,090,556 66.8 3,399,555 As of June 30, 2014, the Plan was not funded. The actuarial accrued liability for benefits as of July 1, 2013, the latest actuarial valuation, was approximately $26,264,000, and there were no assets, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $26,264,000. The covered payroll (annual payroll of active employees covered by the plan) in 2013 was approximately $60,238,000, and the ratio of the UAAL to covered payroll was 43.6%. The schedule of funding progress, presented as RSI following the notes to the 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, 2013 Actuarial cost method Projected Unit Credit Discount rate 3.75% per annum Amortization method Level percentage of payroll amount, open Amortization period 30-year period Inflation rate 2.5% Investment Rate of Return 3.75% annual returns net of both administrative and investment expenses Health cost trend assumption Getzen Trend Model – 6.9% graded to 4.5% over 70 years THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 61 Medical Trend: Year Medical Year Medical 2013 2040 2014 5.7 2045 5.8 2015 5.4 2050 5.7 2016 5.4 2055 5.5 2017 5.6 2060 5.4 2018 5.5 2065 5.3 2020 5.5 2070 5.2 2025 5.5 2075 5.0 2030 6.5 2080 4.7 2035 6.7 4.5 6.9% 6.1% 2083+ The healthcare trends used in this valuation are based on long term healthcare trends generated by the Getzen Trend Model (the 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. Payroll inflation 3.75% per annum Mortality RP 2000 Mortality Table (employee and healthy annuitant tables). Years Of Attained Service Rate Age Rate 020 1 12.0 30 3.7 2 7.5 40 1.1 50+0.0 Select rates based on service. Ultimate rates based on attained age. Ultimate rates are from the Sarason T-1 Table above. 20.0% 5.5% Termination Of Employment: Select Rates Ultimate Rates (0 to 4 years of service) (after 4 years of service) THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 62 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% Future Retiree Coverage: 90.0% of eligible employees retiring prior to age 65 are assumed to elect medical coverage Future Dependent Care: 25.0% elect spouse coverage 0.0% dependent children coverage 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 assets. At June 30, 2014 and 2013, these liabilities amounted to $2,923,884 and $3,041,045, respectively. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 63 The claims liabilities reported are based on the requirements of GASB Statement No. 10, which requires that a liability for claims be reported if information obtained prior to the issuance of the financial statements indicates it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Changes in the balance of claims liabilities during fiscal 2014 and 2013 were as follows: 2014 2013 Liability, beginning of year 3,041,045$ 2,575,977$ Current year claims and changes in estimates 12,455,966 12,547,715 Claim payments (12,573,127) (12,082,647) Liability, end of year 2,923,884$ 3,041,045$ 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. 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 period based on landfill capacity used as of the end of the fiscal year. The $756,936 and $735,800 reported as landfill closure and post- closure care liabilities at June 30, 2014 and 2013, respectively, represent the cumulative amounts reported at fiscal year-end based on the use of 94.7% and 92.1% of the estimated capacity of the landfill for fiscal years ended 2014 and 2013, respectively. The District will recognize the remaining estimated cost of closure and post-closure care of $42,273 at June 30, 2016 as the facility nears capacity. These amounts are based on what it would cost to perform all closure and post-closure care in 2014. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 64 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. 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 is 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 are other counts involving violations of permit conditions. The District has been the subject of several investigatory actions by EPA over the past several years. Negotiations have been ongoing with the EPA and the Missouri Department of Natural Resources (“MDNR”) 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 alleges that the District does not have an approved Long-Term Control Program (“LTCP”) for the combined system. The District has been working on these issues for several decades and has asked voters to approve bonds and rate increases to rehabilitate and maintain the collection system. As required by its Charter, the District has increased rates which will continue 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 65 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 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 District was originally a defendant in five (5) different flooding cases related to the September 14, 2008, rain event precipitating from remnants of Hurricane Ike. These cases consisted of three (3) property damage cases and two (2) wrongful death cases. The defense costs associated with these cases has been covered by the District’s insurance carrier, with a reservation of rights. Of the five (5) cases, one (1) involves flooding of Maline Creek and the others involve flooding of the River Des Peres. Of the five (5) original cases, only one (1) case remains open. The remaining case is a property damage case. Two (2) of the four (4) cases resolved were voluntarily dismissed by the plaintiffs, another case was a property damage case which settled, and the wrongful death case settled prior to trial. In addition to the above discussed flooding cases, on September 13, 2013, five (5) new property damage cases were filed against the District. These cases have yet to be served on the District. Contingencies The District has entered into construction and other contracts amounting to $247,737,650 and $213,088,826 at June 30, 2014 and 2013, respectively. Grants to be received from various governmental agencies and entities to partially offset the cost of the contract commitments amounted to $726,856 and $5,658 at June 30, 2014 and 2013, respectively. The District had $518,000,000 and $720,000,000 in revenue bonds authorized by the voters as of June 30, 2014 and 2013, respectively, but unissued. These funds were sought to enable the District to comply with federal and state clean water requirements. 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, 2014 and 2013 financial statements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 66 13. Restricted Net Position The Statements of Net Position report $142,764,156 and $111,066,007 of restricted net position at June 30, 2014 and 2013, respectively, of which $70,920,910 and $63,925,875 are restricted due to enabling legislation, as of June 30, 2014 and 2013, respectively. 14. Segment Information The District issued wastewater revenue bonds to finance wastewater infrastructure projects. The District accounts for both wastewater and stormwater activities in a single enterprise fund, but investors in those bonds rely solely on the revenue generated by the wastewater activities for repayment. Fiscal year 2014 and 2013 summary financial information for each business segment is presented below. Certain accounts in prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements. Please refer to the Reclassifications section of Footnote 1 for specific details. The reclassification presented in the 2013 segment financial statements is as follows: THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 67 Wastewater Stormwater Total Wastewater Stormwater Total  Current Assets:  Current Assets:    Unrestricted Current Assets:    Unrestricted Current Assets:       Cash and cash equivalents  83,202,960$ 1,197,764$ 84,400,724$        Cash and cash equivalents  83,202,960$ 8,130,796$ 91,333,756$        Investments                                          66,140,653 1,049,985 67,190,638        Investments                                          66,140,653 2,834,955 68,975,608 Accrued income on investments 807,632 — 807,632 Accrued income on investments 807,632 23,274 830,906 150,151,245 2,247,749 152,398,994 150,151,245 10,989,025 161,140,270     Restricted Current Assets:    Restricted Current Assets:        Cash and cash equivalents                            69,449,837 — 69,449,837        Cash and cash equivalents                            — 3,652,344 3,652,344        Investments                                          79,625,995 — 79,625,995        Investments                                          — 3,201,720 3,201,720 149,075,832 — 149,075,832 — 6,854,064 6,854,064                 Non-current Assets:  Non-current Assets:    Restricted Assets:    Restricted Assets:       Cash and cash equivalents  3,157,962 24,746,082 27,904,044        Cash and cash equivalents  72,607,799 14,160,706 86,768,505        Investments                                          5,540,709 17,400,220 22,940,929        Investments                                          85,166,704 12,413,530 97,580,234        Long-term investments                                59,910,456 23,350,911 83,261,367        Long-term investments                                59,910,456 20,955,501 80,865,957 Accrued income on investments 116,818 85,231 202,049 Accrued income on investments 116,818 61,957 178,775 68,725,945 65,582,444 134,308,389 217,801,777 47,591,694 265,393,471 Other Assets Other Assets       Long-term investments                                88,892,758 1,409,068 90,301,826        Long-term investments                                88,892,758 3,804,478 92,697,236   Current Liabilities:  Current Liabilities:       Contracts and accounts payable                       27,238,153 183,231 27,421,384        Contracts and accounts payable                       27,415,729 4,842,983 32,258,712   Current Liabilities   Current Liabilities   Payable From Restricted Assets:  Payable From Restricted Assets:—        Contracts and accounts payable                       — 5,342,074 5,342,074        Contracts and accounts payable                       — 504,746 504,746 Grand Total 429,607,627$ 63,713,956$ 493,321,583$ Grand Total 429,430,051$ 63,891,532$ 493,321,583$ Net Position:Net Position:       Restricted for:       Restricted for:         Subdistrict construction and improvement      9,449,946$ 60,775,287$ 70,225,233$          Subdistrict construction and improvement      9,449,946$ 54,475,929$ 63,925,875$        Unrestricted                                         239,094,779 5,905,782 245,000,561        Unrestricted                                         238,744,940 12,554,979 251,299,919 Grand Total 248,544,725$ 66,681,069$ 315,225,794$ Grand Total 248,194,886$ 67,030,908$ 315,225,794$ Old Presentation of FY 2013 New Presentation of FY 2013 The District has restated fiscal year 2013 due to changes mandated by GASB 65. Please refer to the Adoption of New Accounting Standards section of Note 1 for specific details. The restatement, related to GASB 65, presented in the 2013 segment financial statements impacts solely the wastewater segment and is as follows: THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 68 Wastewater Wastewater   Deferred Outflow of Resources:  Deferred Outflow of Resources:     Bonds and notes payable-deferred loss —$     Bonds and notes payable-deferred loss 10,617,604$             Total Deferred Outflow of Resources —             Total Deferred Outflow of Resources 10,617,604   Non-current Liabilities:  Non-current Liabilities:        Bonds and notes payable, net of                                 Bonds and notes payable                              cost of issuance 913,883,345 933,639,841 913,883,345 933,639,841 Grand Total 913,883,345$ Grand Total 923,022,237$ Total Change 9,138,892$ Non-operating Expenses: Non-operating Expenses: Interest expense                                        20,314,841$ Interest expense                                        21,062,474$ Fiscal 2013 change Amortization reversed (471,995)$ Cost of issuance 3,447,827 Refunded cost of issuance (2,228,199) Total fiscal 2013 change 747,633 Prior year adjustments 8,391,259 Total Change 9,138,892$ Old Presentation of FY 2013 New Presentation of FY 2013 In addition to the restatements identified above, there were two restatements between Wastewater and Stormwater Segments. Both the sewer service charges (SSC) receivable and contracts and accounts payable (A/P) for fiscal year 2013 and the sewer service charge prepaid balance recorded to contracts and accounts payable (A/P) and fiscal year 2013 Net Position - Beginning of Year (BOY) have been restated due to a variation in segmenting procedures. These restatements have no impact on the enterprise wide statements. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 69 Wastewater Stormwater Total Wastewater Stormwater Total   Current Assets:  Current Assets:     Unrestricted Current Assets:    Unrestricted Current Assets:       SSC receivable  34,207,405$ —$ 34,207,405$        SSC receivable  34,035,142$ 172,263$ 34,207,405$   Current Liabilities:  Current Liabilities:       Contracts and A/P 27,238,153$ 183,231$ 27,421,384$        Contracts and A/P 27,415,729$ 5,655$ 27,421,384$                 Reclass of Contracts and A/P   from Restricted to Unrestricted — 4,837,328 4,837,328   Grand Total 27,415,729$ 4,842,983$ 32,258,712$ Net Position - BOY 1,684,354,820$ 533,939,521$ 2,218,294,341$ Net Position - BOY 1,675,613,722$ 534,289,360$ 2,209,903,082$ COI Prior period adjustments also included in New Presentation of FY 2013 Net Position - BOY 8,391,259 - 8,391,259 Effect of segment restatement 349,839 (349,839) - Old Presentation of FY 2013 Net Position - BOY 1,684,354,820$ 533,939,521$ 2,218,294,341$ Old Presentation of FY 2013 New Presentation of FY 2013 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 70 Financial information as of and for the years ended June 30, 2014 and 2013 of the District’s Wastewater Segment is as follows: 2013 Assets 2014 (As Restated) Current Assets Unrestricted Current Assets Cash and cash equivalents  91,820,149$ 83,202,960$ Investments                                          100,878,371 66,140,653 Sewer service charges receivable, less allowance of                   $3,972,449 in 2014 and $3,799,414 in 2013 46,390,489 34,035,142 Unbilled sewer service charges receivable, less allowance of       $402,335 in 2014 and $349,448 in 2013 20,116,744 17,472,360 Accrued income on investments                        746,795 807,632 Other receivables                               1,057,452 964,595 Supplies inventory                                   6,223,099 6,621,892           Total Unrestricted Current Assets                            267,233,099 209,245,234        Non-Current Assets Restricted Assets Cash and cash equivalents  62,585,347 72,607,799 Investments                                          162,975,839 85,166,704 Long-term investments                                48,391,812 59,910,456 Property taxes receivable, less allowance of $13,382 in 2014      and $13,382 in 2013 26,294 9,667 Accrued income on investments                        259,601 116,818           Total Restricted Non-Current Assets                            274,238,893 217,811,444 Other Assets     Notes receivable                                     14,116,801 14,640,552 Long-term investments                                70,161,237 88,892,758             Total other assets                            84,278,038 103,533,310 Capital Assets     Depreciable:        Treatment and disposal plant and equipment           1,184,278,860 1,027,055,525        Collection and pumping plant                         1,678,492,307 1,623,517,635        General plant and equipment                          77,101,471 75,880,114                                                             2,939,872,638 2,726,453,274        Less:  Accumulated depreciation                      986,568,052 936,679,376        Net depreciable assets       1,953,304,586 1,789,773,898            Non-depreciable:        Land                                                 49,317,549 44,433,883        Construction in progress                             291,894,365 352,895,060           Net capital assets                                2,294,516,500 2,187,102,841                    Total Non-Current Assets                         2,653,033,431 2,508,447,595                         Total Assets                               2,920,266,530 2,717,692,829 Deferred Outflow of Resources Bonds and Notes Payable-Deferred Loss on Refunding                                     10,108,350 10,617,604                  Total Deferred Outflow of Resources                        10,108,350 10,617,604 WASTEWATER SEGMENT STATEMENTS OF NET POSITION For The YearsEnded June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 71 2013 2014 (As Restated) Liabilities Current Liabilities Contracts and accounts payable  30,764,638$ 27,415,729$ Deposits and accrued expenses 33,336,518 27,268,022 Retainage payable  9,566,082 9,746,267 Current portion of bonds and notes payable  20,268,080 19,435,714                                                             93,935,318 83,865,732 Current Liabilities-Payable From Restricted Assets Contracts and accounts payable  273,006 — Retainage payable  131,941 83,296                                                             404,947 83,296             Total Current Liabilities                       94,340,265 83,949,028        Non-Current Liabilities Deposits and accrued expenses 11,811,608 10,398,107 Bonds and notes payable  1,102,827,585 933,639,841 Total Non-Current Liabilities                       1,114,639,193 944,037,948        Total Liabilities                              1,208,979,458 1,027,986,976 Net investment in capital assets 1,376,497,525 1,404,988,440 Restricted for: Debt service                                       71,843,246 47,140,132 Subdistrict construction and improvement           6,027,838 9,449,946 Unrestricted 267,026,813 238,744,939 Total Net Position               1,721,395,422$ 1,700,323,457$   Net Position Ended June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 72 2013 2014 (As Restated)   Operating Revenues     Sewer service charges                                   248,762,503$ 237,296,436$     Recovery of (Provision for) doubtful sewer service charge accounts 7,230,389 (2,636,455)     Licenses, permits, and other fees                       6,562,607 2,731,497     Other                                                   1,866,902 3,206,237     Total Operating Revenues                              264,422,401 240,597,715          Operating Expenses     Pumping and treatment                                   54,125,550 54,526,256     Collection system maintenance                           32,721,633 31,094,470     Engineering                                             5,569,007 5,391,136     General and administrative                              45,661,041 41,485,255     Water backup claims                                     2,713,168 3,503,220     Depreciation                                            63,757,854 59,688,021     Asset management                                               12,431,515 10,372,082     Total Operating Expenses                             216,979,768 206,060,440          Operating Income                    47,442,633 34,537,275          Non-Operating Revenues     Property taxes levied by the District                   16,629 49,236     Investment income                                       2,670,333 956,664     Rent and other income                                   302,506 293,159     Total Non-Operating Revenues                          2,989,468 1,299,059          Non-Operating Expenses     Net loss on disposal and sale of capital assets         5,203,319 270,109     Non-recurring projects and studies                       2,115,233 2,521,722     Interest expense                                        25,661,127 21,062,474     Total Non-Operating Expenses                          32,979,679 23,854,305          Income Before Capital Grants And Contributions                       17,452,422 11,982,029          Capital Grants And Contributions     Utility plant contributed                               3,390,795 12,727,706     Grant revenue                                           228,748 —     Total Capital Grants And Contributions                          3,619,543 12,727,706   Change In Net Position 21,071,965 24,709,735   Net Position - Beginning Of Year, As Previously Stated     1,700,323,457 1,684,354,820 Effect of Adoption of GASB 65 — (8,391,259) Effect of Segment Restatement — (349,839)   Net Position - Beginning Of Year, As Restated 1,700,323,457 1,675,613,722          Net Position - End Of Year                                    1,721,395,422$ 1,700,323,457$ 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 73 2013 2014 (As Restated) Cash Flows From Operating Activities Received from customers 249,853,960$ 240,618,941$ Paid to employees for services (91,425,385) (92,818,922) Paid to suppliers for goods and services (60,318,262) (51,457,724) Net Cash Provided By Operating Activities 98,110,313 96,342,295 Cash Flows Provided By Non-Capital Financing Activities Taxes levied and collected — 39,569 Cash Flows From Capital And Related Financing Activities Proceeds from capital grants 233,450 455 Proceeds from issuance of debt 173,411,628 257,888,292 Premium and (discounts) on sale of bonds 9,937,121 35,097,262 Interest received on bond proceeds to be used for capital improvements 348,476 250,753 Principal paid on debt (10,071,556) (21,857,996) Interest and fees paid on debt (37,522,184) (35,117,398) Payments for capital assets (158,323,507) (151,321,500) Proceeds from sale of capital assets 273,138 225,258 Build America bond tax credit 1,603,658 1,742,160 Net Cash Provided By (Used In) Capital And Related Financing Activities (20,109,776) 86,907,286 Cash Flows From Investing Activities Purchase of investments (544,430,180) (611,440,175) Proceeds from sale and maturity of investments 460,116,950 451,665,623 Investment income 4,604,924 4,636,501 Proceeds from rents 302,506 293,159 Net Cash Provided By (Used In) Investing Activities (79,405,800) (154,844,892) Net Increase (Decrease) In Cash And Cash Equivalents (1,405,263) 28,444,258 Cash And Cash Equivalents At Beginning Of Year 155,810,759 127,366,501 Cash And Cash Equivalents At End Of Year 154,405,496$ 155,810,759$ Ended June 30, WASTEWATER SEGMENT STATEMENTS OF CASH FLOWS For The Years THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 74 Financial information as of and for the years ended June 30, 2014 and 2013 of the District’s Stormwater Segment is as follows: 2013 2014 (As Restated) Assets Current Assets Unrestricted Current Assets Cash and cash equivalents  3,217,637$ 8,130,796$ Investments                                          4,222,504 2,834,955 Sewer service charges receivable, less allowance of                   $19,140 in 2014 and $20,377 in 2013 173,238 172,263 Unbilled sewer service charges receivable, less allowance of       $2,303 in 2014 and $2,197 in 2013 115,168 109,873 Property taxes receivable, less allowance of $515,097 in 2014               and $590,868 in 2013 2,136,300 2,325,743 Accrued income on investments                        9,589 23,274           Total Unrestricted Current Assets                            9,874,436 13,596,904 Restricted Current Assets Cash and cash equivalents 6,086,299 3,652,344 Investments                                          7,568,587 3,201,720           Total Restricted Current Assets                            13,654,886 6,854,064           Total Current Assets                            23,529,322 20,450,968 Non-Current Assets Restricted Assets Cash and cash equivalents  15,293,349 14,160,706 Investments                                          18,185,406 12,413,530 Long-term investments                                17,712,322 20,955,501 Property taxes receivable, less allowance of $610,610 in 2014 and $347,278 in 2013 822,066 666,955 Accrued income on investments                        49,539 61,957           Total Restricted Non-Current Assets                            52,062,682 48,258,649 Other Assets Long-term investments                                2,924,238 3,804,478             Total other assets                            2,924,238 3,804,478 Capital Assets     Depreciable:        Collection and pumping plant                         607,616,163 602,738,600        General plant and equipment                          16,499,177 16,296,534                                                             624,115,340 619,035,134        Less:  Accumulated depreciation                      169,489,419 159,586,760        Net depreciable assets       454,625,921 459,448,374            Non-depreciable:        Land                                                 6,220,267 5,642,761        Construction in progress                             8,050,557 7,612,460           Net capital assets                                468,896,745 472,703,595                    Total Non-Current Assets                         523,883,665 524,766,722                         Total Assets                               547,412,987 545,217,690        STORMWATER SEGMENT STATEMENTS OF NET POSITION For The Years Ended June 30, THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 75 2013 2014 (As Restated) Liabilities   Current Liabilities Contracts and accounts payable  31,118$ 4,842,983$ Retainage payable  — 3,420                                                             31,118 4,846,403   Current Liabilities-Payable From Restricted Assets Contracts and accounts payable  742,374 504,746 Retainage payable  82,122 132,038                                                             824,496 636,784             Total Current Liabilities                       855,614 5,483,187          Net Position Net investment in capital assets 468,896,745 472,703,595 Restricted for:       Subdistrict construction and improvement           64,893,072 54,475,929 Unrestricted 12,767,556 12,554,979                  Total Net Position 546,557,373$ 539,734,503$   STATEMENTS OF NET POSITION (Continued) For The Years Ended June 30, STORMWATER SEGMENT THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Page 76 2013 2014 (As Restated)   Operating Revenues     Sewer service charges                                   1,370,519$ 1,338,273$     Recovery of (Provision for) doubtful sewer service charge accounts (20,067) (18,189)     Other                                                   — 28,538     Total Operating Revenues                              1,350,452 1,348,622          Operating Expenses     Collection system maintenance                           7,266,178 6,782,462     Engineering                                             6,615,000 6,628,530     Depreciation                                            10,329,353 10,341,819     Asset management                                               107,336 345,183     Total Operating Expenses                             24,317,867 24,097,994          Operating Income (Loss)                                         (22,967,415) (22,749,372)          Non-Operating Revenues     Property taxes levied by the District                   27,433,690 25,966,899     Investment income                                       296,216 100,302     Total Non-Operating Revenues                          27,729,906 26,067,201          Non-Operating Expenses     Net loss on disposal and sale of capital assets         45,124 525,418     Non-recurring projects and studies                       1,377,434 2,154,481     Total Non-Operating Expenses                          1,422,558 2,679,899          Income (Loss) Before Capital Grants And Contributions                       3,339,933 637,930          Capital Grants And Contributions     Utility plant contributed                               3,482,937 4,783,029     Grant revenue                                           — 24,184     Total Capital Grants And Contributions                          3,482,937 4,807,213   Change In Net Position 6,822,870 5,445,143   Net Position - Beginning Of Year, As Previously Stated     539,734,503 533,939,521 Effect of Segment Restatement — 349,839   Net Position - Beginning Of Year, As Restated 539,734,503 534,289,360          Net Position - End Of Year                                    546,557,373$ 539,734,503$ 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 77 2013 2014 (As Restated) Cash Flows From Operating Activities Received from customers 1,344,177$ 1,722,431$ Paid to suppliers for goods and services (17,590,886) (13,183,062) Net Cash Provided By Operating Activities (16,246,709) (11,460,631) Cash Flows Provided By Non-Capital Financing Activities Taxes levied and collected 27,468,024 22,974,201 Cash Flows From Capital And Related Financing Activities Proceeds from capital grants — 24,184 Payments for capital assets (5,559,226) (3,526,362) Proceeds from sale of capital assets 71,901 43,815 Net Cash Provided By (Used In) Capital And Related Financing Activities (5,487,325) (3,458,363) Cash Flows From Investing Activities Purchase of investments (82,687,573) (59,591,279) Proceeds from sale and maturity of investments 75,235,093 45,648,517 Investment income 371,929 378,128 Net Cash Provided By (Used In) Investing Activities (7,080,551) (13,564,634) Net Increase (Decrease) In Cash And Cash Equivalents (1,346,561) (5,509,427) Cash And Cash Equivalents At Beginning Of Year 25,943,846 31,453,273 Cash And Cash Equivalents At End Of Year 24,597,285$ 25,943,846$ STORMWATER SEGMENT STATEMENTS OF CASH FLOWS For The Years Ended June 30, 15. Subsequent Events In preparing these financial statements, the District has evaluated events and transactions for potential recognition or disclosure through October 17, 2014, the date the financial statements were available to be issued. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 78 REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES’ PENSION PLAN AND POST-EMPLOYMENT BENEFIT PLAN June 30, 2014 Employees' Pension Plan Schedule of Funding Progress In (000s) Unfunded Entry Age Actuarial UAAL As A Actuarial Actuarial Accrued Annual 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) 12/31/2013 237,433$ 275,657$ (38,224) 86.1 46,600$ 82.0 % 12/31/2012 221,144 266,371 (45,227) 83.0 48,333 93.6 12/31/2011 205,792 254,997 (49,205) 80.7 49,432 99.5 12/31/2010 189,012 231,599 (42,587) 81.6 51,703 82.4 12/31/2009 185,753 223,063 (37,310) 83.3 52,267 71.4 12/31/2008 183,679 212,066 (28,387) 86.6 48,077 59.0 Post-Employment Benefit Plan Schedule of Funding Progress In (000s) 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) 7/1/2013 —$ 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 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 ........................................................... 79 - 80 Revenue Capacity These schedules contain information to help the reader assess the District’s most significant local revenue sources, the user charge .......... 81 - 87 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. .................... 88 - 91 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. ................................................... 92 - 93 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 City provides and the activities it performs ............................................................ 94 - 95 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 79 NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (000’s) 2005 2006 2007 2008 2009Net PositionNet investment in capital assets1,618,219$ 1,651,792$ 1,682,063$ 1,704,322$ 1,798,914$ Restricted 47,584 66,973 85,447 97,422 94,769 Unrestricted 190,971 247,958 278,803 324,218 293,934 Total Net Position 1,856,774$ 1,966,723$ 2,046,313$ 2,125,963$ 2,187,617$ 2010 2011 2012 2013 2014Net PositionNet investment in capital assets1,868,974$ 1,915,233$ 1,928,200$ 1,877,692$ 1,845,394$ Restricted 80,782 94,926 106,693 111,066 142,764 Unrestricted 257,894 186,860 175,010 251,300 279,794 Total Net Position 2,207,649$ 2,197,019$ 2,209,903$ 2,240,058$ 2,267,952$ Fiscal YearFiscal Year THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 80 CHANGES IN NET POSITION LAST TEN FISCAL YEARS Income/(Loss) ChangeFiscal Operating Operating Operating Non-operating before Capital Capital in NetYear Revenues Expenses Income/(Loss) Income/(Loss) Contributions Contributions Position2005 188,993,673$ 162,373,895$ 26,619,778$ 4,678,347$ 31,298,125$ 22,585,702$ 53,883,827$ 2006 206,803,022 175,889,536 30,913,486 25,966,334 56,879,820 53,069,364 109,949,184 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 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 81 OPERATING REVENUES BY SOURCE LAST TEN FISCAL YEARS Fiscal Sewer Service Licenses, Permits,Year Charges, Net and Other Fees Other2005 181,966,427$ 6,549,221$ 478,025$ 188,993,673$ 2006 200,719,348 5,210,321 873,353 206,803,022 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 2012220,765,581 2,683,823 2,550,316 225,999,720 2013235,980,065 2,731,497 3,234,775 241,946,337 2014257,343,344 6,562,607 1,866,902 265,772,853 Total Operating Revenues THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 82 OPERATING EXPENSES LAST TEN FISCAL YEARS Fiscal Employment Materials and Contracted ChemicalYear Costs Utilities Supplies Services Supplies2005 52,656,509$ 11,244,255$ 7,231,297$ 30,424,935$ 946,182$ 2006 56,817,238 11,963,002 11,602,773 38,472,414 1,089,564 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 FiscalYear Insurance Other2005 2,968,245$ 12,459,569$ 117,930,992$ 44,442,903$ 162,373,895$ 2006 2,816,795 9,147,931 131,909,717 43,979,819 175,889,536 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 Subtotal, Expenses before DepreciationDepreciationTotal Operating Expenses THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 83 NON-OPERATING E REVENUES AND EXPENSES LAST TEN FISCAL YEARS 2005 2006 2007 2008 2009Non-operating revenuesProperty taxes levied by the District 22,015,870$ 23,210,982$ 24,401,167$ 27,512,070$ 2,129,475$ Investment income 5,501,708 7,610,461 16,946,145 17,476,621 13,115,519 Rent and other income 1,038,074 1,026,547 878,319 529,983 214,674 Total non-operating revenues 28,555,652$ 31,847,990$ 42,225,631$ 45,518,674$ 15,459,668$ Non-operating expensesInterest expense — — — — 9,079,269 Clean Water Capital Improvement refund 5,667,330 95,372 15,000 4,313,973 — Net (gain) loss on disposal and sale of capital assets 3,138,531 95,064 96,630 686,459 2,161,862 Non-recurring projects and studies 8,837,532 5,563,301 5,228,733 3,258,725 7,104,496 Total non-operating expenses 17,643,393$ 5,753,737$ 5,340,363$ 8,259,157$ 18,345,627$ Net non-operating revenue (expense) 10,912,259$ 26,094,253$ 36,885,268$ 37,259,517$ (2,885,959)$ 2010 2011 2012 2013 2014Non-operating revenuesProperty taxes levied by the District 1,401,100$ 27,125,451$ 24,604,173$ 26,016,135$ 27,450,319$ Investment income 6,553,760 3,847,324 2,407,485 1,056,966 2,966,549 Rent and other income 265,004 442,968 294,591 293,159 302,506 Total non-operating revenues 8,219,864$ 31,415,743$ 27,306,249$ 27,366,260$ 30,719,374$ Non-operating expensesInterest expense 13,189,283 7,971,088 16,365,309 21,062,474 25,661,127 Net (gain) loss on disposal and sale of capital assets 2,719,163 3,485,952 3,162,723 795,527 5,248,443 Non-recurring projects and studies 9,872,088 10,800,843 6,402,888 4,676,203 3,492,667 Legal claims — 4,828,828 5,000 — — Total non-operating expenses 25,780,534$ 27,086,711$ 25,935,920$ 26,534,204$ 34,402,237$ Net non-operating revenue (expense) (17,560,670)$ 4,329,032$ 1,370,329$ 832,056$ (3,682,863)$ Fiscal YearFiscal Year THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 84 USER CHARGE RAGES As Of June 30, 2014 Type of Monthly ChargeUnmetered cResidential cNon-Residential Wastewater User Charge Base Charge $14.85 14.85 14.85 Compliance Charge a Tier 1$16.00 Tier 241.85 Tier 389.15 Tier 4130.70 Tier 5172.25 Volume Charges per Ccf b- 2.50 2.50 per room 1.63 - - per water closet 6.10 - - per bath 5.08 - - per separate shower 5.08 - - Extra Strength Surcharges a SS over 300 ppm per ton - - 231.35 BOD over 300 ppm per ton - - 620.14 COD over 600 ppm per ton - - 310.07 Stormwater Service Charge per account: single residential unit 0.24 0.24 0.24 per account: multi-residential unit 0.18 0.18 0.18 Notes:a Applicable only to non-residential customers.b Ccf = Hundred cubic feet.c User charges for certain low income residential users will be 50 percent of the regular user charge.Source: Finance DepartmentMetered THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 85 SEWER USER CHARGES (COMPOSITE-ANNUAL) LAST TEN FISCAL YEARS 2005 b2006 c20072008 d2009Residential: Single Family/Unit a249.84$ 271.44$ 271.44$ 344.88$ 1344.88$ Multi-Family/Unit a210.00 228.00 228.00 299.76 299.76 Commercial/Industrial: Service Charge/Unit236.28 248.28 248.28 457.20 457.20 Sanitary Sewer Usage Charge/100 CCF 1.66 1.81 1.81 1.88 1.88 Storm Sewer Usage Charge/100 sq. feet of impervious area - - - - 0.12 Extra Strength Surcharges: Suspended Solids over 300 parts per million/ton 200.15 218.90 218.90 218.90 218.90 Biological Oxygen Demand (BOD's) over 300 parts per million/ton 412.58 461.44 461.44 529.90 529.56 Chemical Oxygen Demand (COD's) over 600 parts per million/ton 206.29 230.72 230.72 264.85 264.78 2010 e2011f20122013 g2014Residential: Single Family/Unit a351.12$ 1333.60$ 347.64$ 379.56$ 421.08$ Multi-Family/Unit a305.04 285.12 296.28 324.12 360.36Commercial/Industrial: Service Charge/Unit486.60 507.00 525.60 593.35 414.594 Sanitary Sewer Usage Charge/100 CCF 1.92 2.02 2.11 2.28 2.50 Storm Sewer Usage Charge/100 sq. feet of impervious area 0.14 - - - - Extra Strength Surcharges: Suspended Solids over 300 parts per million/ton 218.90 222.62 231.35 231.35 231.35 Biological Oxygen Demand (BOD's) over 300 parts per million/ton 551.52 596.72 620.14 620.14 620.14 Chemical Oxygen Demand (COD's) over 600 parts per million/ton 275.76 298.36 310.07 310.07 310.07 Notes:1 Years 2008-2010 saw an impervious rate charge that averaged $36 per year per customer. This was discontinued in 2011.a The above rates are based on actual rates and budgeted units.b Ordinance 11692, effective July 1, 2004, changed wastewater rates.c Ordinance 12019, effective July 1, 2005, changed wastewater rates.d Ordinance 12561, effective January 1, 2008, changed wastewater rates. Ordinance 12560, changed stormwater rates , effective March 1, 2008.e Ordinance 12754, effective July 1, 2009, changed wastewater rates.f Ordinance 13021, effective July 1, 2010, changed wastewater rates through FY 2012.g Ordinance 13402, effective July 1, 2012, changed wastewater rates through FY 2016.Source: Finance DepartmentFiscal YearFiscal Year THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 86 NUMBER OF CUSTOMERS BY TYPE LAST TEN FISCAL YEARS Single Multi-Fiscal Family Family Non- TotalYear Residential Residential ResidentialAccounts2005 360,104 44,506 25,758 430,368 2006 362,043 44,700 25,700 432,443 2007 362,569 44,875 25,647 433,091 2008 391,181 54,862 32,336 478,379 2009 388,791 51,441 32,161 472,393 2010 387,670 50,867 31,939 470,476 2011 362,739 43,471 24,702 430,912 2012 360,354 41,648 24,568 426,570 2013 359,243 41,117 24,441 424,801 2014 358,928 40,951 24,297 424,176 Source: Finance Departmenta Due to the implementation of the impervious area charge in 2008, approximately 46,000 additional stormwater only accounts are billed each month. This charge was challenged and a court decision was entered on 7/9/10. Based on that decision the 46,000 accounts will not be billed an impervious charge in FY '11.b The number of accounts were revised as stormwater accounts were underreported. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 87 TEN LARGEST CUSTOMERS CURRENT YEAR AND NINE YEARS AGO Customer Amount %InBev Anheuser-Busch 5,294,053$ 2.06%Mallinckrodt 1,306,741 0.51%Washington University 1,259,836 0.49%City of St. Louis 1,233,418 0.48%Sigma-Aldrich 819,862 0.32%Saint Louis Zoo 771,623 0.30%St. Louis University 744,536 0.29%The Dial Corporation 702,978 0.27%Sensient Colors Inc. 686,964 0.27%Trigen-Energy Corp 516,045 0.20%Subtotal (10 largest) 13,336,056 5.18%Balance from other customers 244,007,288 94.82%Grand totals 257,343,344$ 100.00%Customer Amount %Anheuser-Busch 6,803,995$ 3.74%Mallinckrodt, Inc 1,985,401 1.09%Washington University 1,306,720 0.72%Zoological Gardens 709,049 0.39%Chrysler Group 684,877 0.38%Boeing Company 679,444 0.37%St. Louis City 624,699 0.34%Sigma Chemical Company 611,368 0.34%Sensient Colors Inc. 591,443 0.33%St. Louis University 588,460 0.32%Subtotal (10 largest) 14,585,456 8.02%Balance from other customers 167,380,971 91.98%Grand totals 181,966,427$ 100.00%Source: Budget Division after data is accumulated for the GFOA reportFiscal Year 2005User ChargesUser ChargesFiscal Year 2014 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 88 RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS As a ShareFiscal Subordinate Capital of PersonalYear Senior Subordinate Direct Loans Lease Amount Per Capita Income2005 175,000,000$ 166,952,500$ 771,099$ —$ 342,723,599$ 253 0.35 2006 173,500,000 205,760,000 680,538 — 379,940,538 282 0.37 2007 231,995,000 213,652,500 337,730 — 445,985,230 330 0.42 2008 230,485,000 206,522,500 269,299 — 437,276,799 324 0.67 2009 258,965,000 235,932,500 215,790 4,130,000 499,243,290 373 0.81 2010 342,370,000 224,505,000 31,017,371 7,263,687 605,156,058 446 1.00 2011 340,590,000 212,655,000 25,259,899 6,095,981 584,600,880 431 0.97 2012 390,880,000 200,692,500 63,727,722 3,096,139 658,396,362 484 1.09 2013 594,715,000 188,600,000 93,751,658 — 877,066,658 660 1.45 2014 740,655,000 184,075,000 116,090,820 — 1,040,820,820 789 1.71 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 BureauRevenue BondsTotal THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 89 COMPUTATION OF OVERLAPPING DEBT As Of June 30, 2014 Amount of Debt Percentage of DebtGovernmental Unit Debt Outstanding within District Boundary within District Boundary City of St. Louis 28,130,000$ 28,130,000$ 100.0% St. Louis County 113,260,000 112,353,920 99.2 Municipalities 79,085,052 75,924,998 96.0 City of St. Louis School District 338,083,954 338,083,954 100.0 St. Louis County School Districts 1,290,912,740 1,277,418,820 99.0 Fire Districts 74,031,087 67,459,074 91.1 1,923,502,832$ 1,899,370,766$ 98.7% Total Direct Debt1,040,820,820 Total Direct and Overlapping Debt 2,940,191,586$ 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 DistrictsNote: 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 terrotiry lies within the District's territory.These percentages are weighted against the debt outstanding thus providing the amount of debt within District Boundary. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 90 PLEDGE REVENUE COVERAGE LAST TEN FISCAL YEARS Less: Operating Non- Expenses Net Fiscal Operating operating Gross (excluding Available Year Revenues Revenues Revenues depreciation) Revenues 2005 187,759,272$ 4,356,643$ 192,115,915$ 117,930,992$ 74,184,923$ 2006 205,554,460 6,135,347 211,689,807 131,909,717 79,780,090 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 Fiscal Coverage Year Principal Interest Total Ratio 2005 6,800,000$ 14,799,402$ 21,599,402$ 3.4 2006 5,407,500 13,835,332 19,242,832 4.1 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 22,956,366 39,496,566 2.3 2013 18,749,700 31,436,995 50,186,695 1.9 2014 10,037,200 34,199,286 44,236,486 2.6 Fiscal Coverage Year Principal Interest Total Ratio 2005 —$ 8,052,321$ 8,052,321$ 9.2 2006 1,500,000 8,165,734 9,665,734 8.3 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 16,489,572 18,449,572 5.0 2013 3,805,000 24,452,691 28,257,691 3.4 2014 4,060,000 30,159,387 34,219,387 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. Subordinate and Senior Debt Service Senior Debt Service THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 91 DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS PerPersonal Capita TotalFiscal Income Personal Labor Number ofYear Population (millions) Income City County State Force Households (1)2005 1,354,830 55,841$ 41,216 8.8 5.5 5.7 726,390 551,388 2006 1,347,691 57,660 42,784 7.5 5.1 5.0 723,627 551,388 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 Notes:(1) The number of households was taken from http://quickfacts.census.gov/qfd/states/29000.html. The 2014 figure is basedon 2012 data. The 2011-2013 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)Footnoteshttp://www.bea.gov/regional/reis/scb.cfmhttp://www.missourieconomy.org/indicators/LAUS/default.aspxUnemployment RateSaint Louis THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 92 PRINCIPAL EMPLOYERS (ST. LOUIS METROPOLITAN AREA) CURRENT YEAR AND NINE YEARS AGO Percentage PercentageEmployerEmployees (1)of Total RankEmployees (1)of Total RankBJC HealthCare 25,039 4% 1 21,468 3% 1Boeing, Integrated Defense Systems 14,868 2% 2 15,500 2% 2Washington University in St. Louis 14,091 2% 3 12,324 2% 4Scott Air Force Base 13,000 2% 4 12,600 2% 3SSM Healthcare 11,898 2% 5 11,951 2% 6Mercy 10,946 2% 6 8,402 1% 10Schnuck Markets, Inc. 10,919 2% 7 10,800 2% 8Wal-Mart Stores Inc. 10,550 2% 8 12,250 2% 5McDonald's Restaurants of St. Louis 9,500 2% 9AT&T 7,200 1% 10United States Postal Service 11,447 2% 7SBC Southwestern Bell Missouri 9,250 1% 9128,011 21% 125,992 18%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 2014St. Louis Business Journal's Book of Lists 2005Fiscal Year 2005Fiscal Year 2014 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 93 EMPLOYMENT LEVEL LAST TEN FISCAL YEARS 2005200620072008200920102011201220132014Administrative 122 118 125 131 133 131 124 129 124 122 Office/Clerical 76 88 86 92 94 89 84 85 86 82 Plant Operation & Laboratory 231 233 234 239 237 249 241 244 249 252 Engineering & Technical 114 119 122 133 144 151 147 153 148 151 Sewer Construction & Maintenance 258 258 271 276 301 315 296 311 324 328 Total Employees 801 816 838 871 909 935 892 922 931 935 Source: Human Resources DepartmentFiscal Years THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 94 AVERAGE FLOW LAST TEN FISCAL YEARS Average SewageFiscal Treatment in MillionsYear of Gallons per Day2005 348.72006 291.32007 313.42008 363.72009 394.72010 395.52011 370.62012 300.02013 326.72014 273.8Source: Operations Department THE METROPOLITAN ST. LOUIS SEWER DISTRICT Page 95 OPERATING AND CAPITAL INDICATORS LAST TEN FISCAL YEARS 20052006200720082009Miles of sewers 9,568 9,630 9,764 9,723 9,812 Number of treatment plants 8 8 8 7 7 Treatment capacity (MGD) a413 413 426 428 423 Annual engineering maximum plant capacity (millions of gallons) 150,745 150,745 155,490 154,395 154,395 Amount treated annually (millions of gallons) 127,276 106,339 114,391 132,751 144,066 Unused capacity (millions of gallons) 23,469 44,406 41,099 21,644 10,329 Percentage of capacity utilized 84% 71% 74% 86% 93%20102011201220132014Miles of sewers 9,900 9,843 9,738 9,578 9,563 Number of treatment plants 7 7 7 7 7 Treatment capacity (MGD) a423 528 528 528 533 Annual engineering maximum plant capacity (millions of gallons) 154,395 192,629 192,629 192,629 194,454 Amount treated annually (millions of gallons) 144,358 135,269 109,518 119,253 99,945 Unused capacity (millions of gallons) 10,037 57,360 83,111 73,376 94,509 Percentage of capacity utilized 93% 70% 57% 62% 51%Sources: Operations Department and Engineering DepartmentFiscal YearFiscal Year