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Fiscal Year 2020 Popular Annual Financial ReportPOPULAR ANNUAL FINANCIAL REPORT Fiscal Year Ending June 30, 2020 METROPOLITAN ST. LOUIS SEWER DISTRICT ST. LOUIS, MISSOURI MSD PROJECT CLEAR MSD Project Clear (MSDPC) is two utilities in one—responsible for approximately 7,000 miles of public wastewater and stormwater sewer systems in the St. Louis region. MSDPC is investing billions of dollars over a generation to improve water quality and minimize wastewater and stormwater issues by monitoring regulatory compliance, planning, designing, and building community rainscaping, system improvements, and performing an ambitious program of maintenance and repair. MSD MISSION To protect the public’s health, safety, and water environment by responsibly providing wastewater and stormwater management. TABLE OF CONTENTS Directors’ Letter .....................................................................................3 MSD is an Essential Service – Getting the Job Done .......4 What We Do ............................................................................................6 Small Grants Program .......................................................................7 Public Education and Community Outreach ......................8 Year in Review ......................................................................................10 Looking Ahead .......................................................................................11 Balance Sheet .......................................................................................12 MSD Assets and Long-Term Obligations ...............................13 Income Statement.............................................................................14 Revenues and Expenses ..................................................................15 Cash Flow Statement ........................................................................16 Cash Flow Activities Comparison ...............................................16 Performance Against Budget and Credit Rating .............17 ON THE COVER Pictured on the cover is Kevin Boyd, Operations Supervisor, getting his temperature checked before beginning work with MSD. MSD has implemented mandatory, daily temperature checks on all sites to protect employees and the public from the spread of COVID-19. 2 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY2020 | 3 We appreciate your interest in the Metropolitan St. Louis Sewer District (MSD) and are proud to present our Popular Annual Financial Report for the Fiscal Year ending June 30, 2020 (FY20). The COVID-19 pandemic presented unforeseen challenges for all, including MSD. Like many organizations, we made adjustments to protect the health and safety of employees, contractors, and the larger community, which you will learn more about in this report. What has not changed, however, is our mission to protect the public’s health, safety, and water environment by responsibly providing wastewater and stormwater management. In all that we do, MSD is committed to improving water quality, serving the daily needs of residents, and implementing improvements that will alleviate wastewater and stormwater concerns and benefit the region for decades to come. In FY20, for example, MSD appropriated funds for 143 new or continuing wastewater and stormwater design and construction projects. This annual report provides a non-technical overview of MSD’s work and a snapshot of our most recent fiscal year – July 1, 2019 to June 30, 2020. Within this report, you will learn how we are carefully investing the funds we receive to maintain and improve our region’s wastewater and stormwater systems. In fact, we are proud to share that MSD as a whole is financially improving. In addition, you will find financial information for the past fiscal year that summarizes the more in-depth financial review provided in our Comprehensive Annual Financial Report. Please note that while the summary information provided within this document uses principles and guidelines consistent with Generally Accepted Accounting Principles (GAAP), it has been simplified for general audiences, and it is not GAAP-compliant. Both reports are available online at www.msdprojectclear.org/about/fiscal-investor-relations/annual-reports/. To request a printed copy of this information, contact MSD at 314-768-6260 or send an email to customersvc@stlmsd.com. The purpose of this report is to be informative and useful. As always, we welcome any comments or suggestions on how we might improve future reports to better serve your interests and needs. Respectfully submitted, Brian Hoelscher, P.E. Marion Gee Executive Director & CEO Director of Finance Government Finance Officers Association of the United States and Canada (GFOA) has given an Award for Outstanding Achievement in Popular Annual Financial Reporting to the Metropolitan St. Louis Sewer District for its Popular Annual Financial Report for the fiscal year that ended June 30, 2019. The Award for Outstanding Achievement in Popular Annual Financial Reporting is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government popular reports. In order to receive an Award for Outstanding Achievement in Popular Annual Financial Reporting, a government unit must publish a Popular Annual Financial Report, the contents of which conform to program standards of creativity, presentation, understandability, and reader appeal. An Award for Outstanding Achievement in Popular Annual Financial Reporting is valid for a period of one year only. Metropolitan St. Louis Sewer District has received a Popular Award for the last eight consecutive years (fiscal years ended 2012–2019). We believe our current report continues to conform to the Popular Annual Financial Reporting requirements, and we are submitting it to GFOA to determine its eligibility for another Award. “ ” DIRECTORS’ LETTER Award for Presented to Metropolitan St. Louis Sewer District For its Annual June 30, 2019 Executive Director/CEO Financial Report for the Fiscal Year Ended Financial Reporting Popular Annual Achievement in Outstanding Text38:Missouri Text53: Government Finance Officers Association 4 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY2020 | 5 MSD IS AN ESSENTIAL SERVICE – GETTING THE JOB DONE It’s a big job managing the fourth largest sewer system in the United States. Everyone who lives, works, or pays a visit to the St. Louis region relies on the Metropolitan St. Louis Sewer District (MSD) to keep our waterways clean and safe. Serving over 1.3 million people, MSD brings decades of experience and dedication to protecting the place we’re proud to call home — a dedication that hasn’t wavered in spite of the challenges our world is facing as of late. While the COVID-19 pandemic has radically changed the business landscape, the community’s dependence on wastewater and stormwater services remains. “This pandemic has disrupted our lives, our work, and our community in countless ways. It has also brought out some of the best in us, including your continued dedication to serving our customers,” wrote CEO and Executive Director Brian Hoelscher in a memo to MSD employees. “I am optimistic that together we will overcome this challenge.” As many organizations have done, MSD has adjusted its business practices to protect the health and safety of employees, contractors, and the larger community. MSD is prepared to continue providing customers with reliable stormwater and wastewater services, regardless of what comes next. As a critical infrastructure provider, much of MSD’s work takes place within the community. In other words, promoting a safe work environment for employees has an impact on the community at large. As such, MSD has taken additional measures to protect maintenance crews, construction inspectors, and other field employees, including: • Providing additional vehicles to limit the number of employees riding together • Sanitizing vehicles between shifts • Restricting employees from entering customers’ homes and contractor facilities To date, MSD’s more than 1,000 employees have done their part to stay healthy and promote a safe workplace. In addition to immediate and severe health concerns, the COVID-19 pandemic has had a significant economic impact on businesses, organizations, and individuals alike. Wastewater utilities across the country have seen an increase in payment delinquencies, a reduction in billable water volumes, and decreased monthly revenues. Despite this, MSD is doing its part to assist its customers, many of whom are feeling the strain of the financial crisis. Late fees were suspended for some accounts from 3/23/2020 through 6/30/2020. The District also encourages customers who may have difficulty paying their wastewater bills to apply for the customer assistance program; those who qualify can have their sewer bills reduced by 50%. As a public utility, MSD has an obligation, especially now, to be a good steward of its customers’ money. To ensure MSD can navigate the financial challenges of the pandemic, the District has limited the use of overtime and delayed all expenditures that are not critical to its operations. MSD knows that the economy will eventually return to normal, but as always, it will remain vigilant in seeking cost-effective solutions to serve the community. See pages 12-17 of this publication for a detailed overview of MSD’s finances in FY20. The St. Louis region depends on MSD to provide a vital service and construct necessary infrastructure improvements crucial to the health of the St. Louis community and water environment. MSD is confident that the lessons learned through this hardship will make the District more resilient than ever and remains committed to serving its customers, adapting its business practices, and growing stronger as an essential service. The health of MSD’s employees is paramount. As such, MSD continues to listen to health experts and follow Centers for Disease Control and Prevention (CDC) guidelines. The District has shifted to an increasingly virtual business environment, instructing employees to work from home when possible to reduce potential exposure and conducting meetings virtually or via conference calls. Much of MSD’s essential work, however, cannot be done remotely. To promote a healthy workplace for employees who continue to report to their worksites, MSD has implemented several new policies, including: • Closing all facilities to contractors and visitors, unless necessary • Implementing employee temperature checks prior to entering the facility • Increasing the frequency and intensity of cleaning and sanitizing common workstations • Placing NanoSeptic® surfaces on high-touch areas of the buildings to help protect against viruses • Adjusting employee schedules by staggering start and end times, utilizing shared shifts, and implementing alternate-day schedules • Providing masks for all employees How MSD is keeping employees and customers safe during the COVID-19 pandemic. Workplace Changes Economic Impact 6 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY2020 | 7 Coldwater WWTP Grand Glaize WWTP Fenton WWTP MissouriRiver WWTP Lemay WWTP LowerMeramec WWTP I-270 I-270 I-270 I-44 I-44 I-64 I-64 I-255 I-55 I-170 I-70 I-70 Bissell Point WWTP MSD Wastewater Treatment Plants (WWTP) Service Area SOURCES: Northeast Ohio Regional Sewer District, Baltimore City Department of Public Works, KCWater, City of San Diego, Metro Government of Nashville & Davidson County, Tennessee, and San Antonio Water System (Rates based on 10 CCF) The Metropolitan St. Louis Sewer District owns, operates, and maintains a sewer system that consists of wastewater, stormwater, and combined collection sewers — carrying both wastewater and stormwater — pumping stations, and wastewater treatment facilities that have been incorporated into one entity over the last 60-plus years. MSD provides a variety of additional services, including monitoring of industrial waste, issuance of pretreatment discharge permits, plan review and approvals, issuance of connection permits, public education, and customer service. It is one of the largest and most complex systems in the United States. MSD is two separate utilities within one organizational structure: WHAT WE DO MSD’s Dual Function Residential Wastewater User Charge Cleveland Baltimore St. Louis Kansas City San Diego Nashville San Antonio $108.10 $92.55 St. Louis and Other Municipalities 454 sq. miles of St. Louis County (87%) 66 sq. miles of St. Louis City (100%) 1.3 MILLION SERVED 520 SQUARE MILE SERVICE AREA 427,000 accounts Wastewater — collect “used” water disposed of in sinks, toilets, and floor drains by households and businesses, and then treat it to regulatory standards before returning it to the region’s waterways. Stormwater — operate and maintain the public storm sewer system and help coordinate regional efforts to address pollution carried in or caused by stormwater runoff. In order to help reduce the amount of stormwater runoff in St. Louis, MSD Project Clear partners with the Missouri Botanical Garden to administer the Rainscaping Small Grants Program for landowners. Rainscaping is any combination of plantings, water features, catch basins, permeable pavement, and other features that help manage stormwater as close as possible to where it falls. When used effectively, rainscaping can reclaim stormwater, helping it absorb into the soil to reduce sewer overflows and minimize basement backups. Landowners can apply to MSD’s Rainscaping Small Grants Program and receive up to $4,000 to install rainscaping features. MSD is implementing several changes to the Small Grants Program since in-person meetings are no longer possible. Beginning in FY21: • Potential applicants are no longer required to attend a Landowner Orientation meeting. Instead, prior to submitting an application, applicants will be required to view a series of instructional videos and answer questions before advancing to the next video. MSD is in the process of adding these new videos to the website. • The Small Grants Program will move to a flexible time frame. Generally, initial applications will become available in the fall, with awards announced the following year prior to the spring planting season. Application requirements and more information on the small grants program can be found at www.msdprojectclear.org/rainscaping. SMALL GRANTS PROGRAM UPDATES In FY20, MSD issued 135 small grants totaling $495,000 that facilitated stormwater system improvements in the following locations: 55 - Mississippi River Combined Sewer Overflows (CSO) @ $4,000 = $220,000 35 - River des Peres CSO @ $4,000 = $140,000 45 - Remaining MSD Service Area (Water Quality Grants) @ $3,000 = $135,000 $66.64 $66.64 $49.36 $75.07 $73.45 8 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY2020 | 9 PUBLIC EDUCATION AND COMMUNITY OUTREACH Some events like the Greater St. Louis Hispanic Festival and the Builders of St. Louis Home & Garden Show were held earlier in the fiscal year, allowing MSD to engage with the public in-person. At the Home and Garden Show held in early March at America’s Center, for example, MSD distributed educational materials and reusable bags to over 3,000 show attendees. For the last three months of FY20, however, community outreach looked much different. MSD turned its focus to a digital strategy to educate residents about wastewater and stormwater issues, as well as MSD programs and services. New Website Launch In March, MSD launched a new customer-focused website, www.msdprojectclear.org, updating the version launched five years ago. The website features a clean and fresh look with more interactive elements. It combines the two previous sites stlmsd.com and projectclearstl.org. In FY20 from March 7 – June 30, the new website had a total of 230,915 page views with 88,243 unique users.* *During the technology switch to Office 365 (from March 7 – April 22), no data was collected. Social Media Changes Along with the rebranding of the website, MSD consolidated all of its social media channels under the MSD Project Clear brand: • MSDProjectClear • @MSDProjectClear • @msdprojectclear • msdprojectclear Staying engaged with customers is an important objective for MSD, and a quick peek at the website and social media numbers shows that MSD is maintaining consistent communication with the communities it serves. The top-performing Facebook post in FY20 garnered 4,200+ engagements. Overall, Facebook impressions saw an increase of 90.5% with 691,376 impressions, and there were 31,304 engagements on Facebook in FY20, an increase of 110% from FY19. Instagram impressions were up 517% in FY20 with 86,357 impressions, and engagement grew 79% with a total of 1,713 engagements. On Twitter, MSD earned 192,136 impressions, an increase of 190% in FY20. Additionally, there were 4,351 engagements for an increase of 123%. Follow us for news and updates, fun facts about MSD, educational videos, and so much more. Second highest-performing post on MSD Project Clear’s Facebook page in FY20. Highest-performing post on MSD Project Clear’s Facebook page in FY20. 10 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY2020 | 11 YEAR IN REVIEW Capital Improvement MSD made 143 appropriations for new or continuing wastewater and stormwater design and construction projects in FY20, totaling $271.4 million. Diversity MSD is committed to cultivating a diverse workforce and developing programs to assist under-utilized minority and women-owned firms. MSD continues to implement programs and create capacity-building opportunities to help fulfill this commitment. In FY20, minority-owned firms performed $31,435,398 on capital construction projects, representing 14.03% of the District’s capital program spending for the fiscal year. Women-owned firms performed $22,075,816 in capital construction work, representing 9.86% of the District’s capital construction program spending. Minority-owned design firms (professional services) accounted for $6,245,859, or 35.82%, of payments made to design firms, and women-owned design firms were paid $1,759,861, or 10.10%, of payments made to design firms in FY20.* During that same timeframe, minority workforce participation on capital construction projects was 196,065 hours, or 26.78%, and women participation was 52,513 hours, or 7.18%, of total hours worked on capital construction projects by contractors. Minorities and women comprised 17.71% and 37.38%, respectively, of the staff of design firms with workplace participation goals.* To learn more about MSD’s diversity-related initiatives, visit www.msdprojectclear.org/ diversityreport. *Numbers are as of September 2020. Please note, as project documentation is finalized, precise numbers may fluctuate. Peak Performance Award In 2020, MSD was awarded top environmental honors from the National Association of Clean Water Agencies (NACWA), which recognized six MSD treatment plants with Peak Performance Awards for excellence in compliance with National Pollutant Discharge Elimination System (NPDES) permit limits in the 2019 calendar year. Four MSD treatment plants — Grand Glaize, Lower Meramec, Fenton, and Missouri River — received the Platinum Peak Performance Award, which honors treatment plants that have completed at least five consecutive years of 100 percent NPDES permit compliance. The Bissell Point Wastewater Treatment Plant received the Gold Peak Performance Award, honoring plants that have achieved 100 percent compliance with the NPDES permit in the previous calendar year. The Coldwater Creek and Lemay treatment plants received the Silver Peak Performance Award for having no more than five NPDES permit violations in the 2019 calendar year. LOOKING AHEADWastewater Capital Rate Update In September 2019, the Rate Commission chair briefed the MSD Board of Trustees on the fiscal years 2021–2024 Rate Recommendation Report, including a wastewater rate proposal seeking to fund a four-year, $1.58 billion capital improvement program to meet regulatory and system improvement needs. The Board of Trustees accepted the Rate Commission’s recommendations, which would have resulted in voters deciding on bonding options in April 2020. The pandemic has delayed the vote until at least April 2021. The fiscal year 2021 increase of 1.5% (with or without bond authorization) would have been effective July 1, 2020; however, MSD postponed the increase until October 1, 2020. The chart to the right indicates FY21 — FY24 increases with and without bond authorization. MSD Project Clear In FY21, MSD has plans for 137 new, ongoing, or continued wastewater project appropriations totaling $366.7 million. These projects are funded primarily from the Sanitary Replacement fund and represent $23.9 million in continued projects from the previous fiscal year, and $342.8 million in new and ongoing projects. In addition to operating the existing stormwater system, MSD Project Clear plans 32 stormwater design and construction projects in FY21, including continued projects from FY20, totaling $25.0 million. Disparity Study In 2019, MSD commissioned Mason Tillman and Associates to produce the next five-year period (2013-2017) analysis of its prime and subcontractor performance. The initial Disparity Study completed in 2012 became the catalyst for the expansive offering of initiatives now in place, including more inclusive contractor goals, worksite inspectors, on-the-job training, internships, community partnerships, and other programs. The update will analyze MSD’s current diversity programs, practices, and results; measure inclusion and availability; and determine what advancements MSD has accomplished on projects in terms of workforce. MSD anticipates releasing and implementing the results by the end of FY21 (June 30, 2021). Wastewater Capital Rate Increase with Bond Authorization (Projects are funded with cash and debt) Wastewater Capital Rate Increase without Bond Authorization (Projects are funded with cash) FY21 FY22 FY23 FY24 1.5%3.4%3.5%3.7% FY21 FY22 FY23 FY24 1.5%15.4%17.1%13.0% 12 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY2020 | 13 FY20 FY19 FY18 ASSETS Current, restricted, and other assets $787,043 $821,030 $882,667 Capital assets (net of accumulated depreciation) 3,847,889 3,631,716 3,446,232 Total Assets 4,634,932 4,452,746 4,328,899 DEFERRED OUTFLOWS OF RESOURCES Bonds and notes payable-deferred loss on refunding 5,889 11,343 12,099 Pension-related outflows 15,673 34,238 17,333 OPEB-related outflows 2,843 1,246 1,278 Total Deferred Outflows of Resources 24,405 46,827 30,710 LIABILITIES Current liabilities 153,611 149,991 140,082 Non-current liabilities 1,722,223 1,723,830 1,722,146 Total Liabilities 1,875,834 1,873,821 1,862,228 DEFERRED INFLOWS OF RESOURCES Bonds and notes payable-deferred gain on refunding 1,393 — — Pension-related inflows 7,150 4,341 6,065 OPEB-related inflows  4,331 887 — Total Deferred Inflows of Resources 12,874 5,228 6,065 NET POSITION Net investment in capital assets 2,184,736 2,063,519 1,968,740 Restricted 97,034 127,414 129,579 Unrestricted 488,859 429,591 392,997 Total Net Position $ 2,770,629 $ 2,620,524 $ 2,491,316 Definitions Current, restricted, and other assets: all assets other than capital assets that are owned or due to the District. Capital assets (net of accumulated depreciation): the total value of all capital assets including all sanitary infrastructure, general plant and equipment, and land. Deferred outflows of resources: the use of resources that will be applied to future periods. Current liabilities: money owed by the District and due within 12 months. Non-current liabilities: money owed by the District that is due more than 12 months in the future. Deferred inflows of resources: the purchase of resources that will be applied to future periods. Net investment in capital assets: the value or net worth of all capital assets after related liabilities are deducted. Restricted: the value or net worth of all assets designated for specific purposes after related liabilities are deducted. Unrestricted: the value or net worth of all remaining assets after remaining liabilities are deducted. What it tells you A Statement of Net Position, also known as a Balance Sheet, is a financial statement that summarizes what MSD owns and owes at a given point in time. It also shows our net worth at that specific point in time. Our FY20 Balance Sheet shows that: • Overall, the District as a whole is financially improving as evidenced by the increase in the Total Net Position. • MSD’s assets and deferred outflows exceed liabilities and deferred inflows by $2.8 billion. • Overwhelmingly, MSD’s assets are in the form of capital assets. The $3.8 billion in net capital assets is split into the five categories shown on page 13. • Of the $1.9 billion in liabilities, $1.7 billion are in the form of bonds and notes payable. BALANCE SHEET Condensed Statements of Net Position (dollars in thousands) The financial information included is derived from the Comprehensive Annual Financial Report and presented in conformity with Generally Accepted Accounting Principles. Financials Financials MSD ASSETS Condensed Statements of Capital Assets Net of Depreciation (dollars in millions) What We Own (in millions) MSD LONG-TERM OBLIGATIONS Bonds and Notes Payable (Revenue Bonds and Direct Loan Balances Only) What We Owe 54% 26% 17%Collection and Pumping Plant $2,095 Construction in Progress 1,013 Treatment, Disposal Plant, and Equipment 639 Land 78 General Plant and Equipment 23 TOTAL FY20 ASSETS $3,848 <1% <2% $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 2019 202020112012201320142015201620172018 14 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY2020 | 15 FY20 FY19 FY18 FY17 FY16OPERATING REVENUES Sewer service charges $430,398 $399,929 $364,165 $330,873 $306,119 Recovery (Provision) for doubtful (5,612) (4,349) (2,990) (2,513) (4,107) sewer service charge accounts Licenses, permits, and other fees 3,012 3,063 3,777 4,036 3,620 Other 10,193 2,478 3,359 1,095 14,226 Total Operating Revenues 437,991 401,121 368,311 333,491 319,858 NON-OPERATING REVENUES Property taxes levied by the District 35,439 34,108 33,749 32,458 25,671 Investment income 16,259 16,699 7,406 2,903 4,636 Rent and other income 302 301 254 106 103 Total Non-Operating Revenues 52,000 51,108 41,409 35,467 30,410 Total Revenues 489,991 452,229 409,720 368,958 350,268 OPERATING EXPENSES Pumping and treatment 62,030 63,197 60,735 60,203 59,100 Collection system maintenance 47,652 45,617 44,786 43,928 42,853 Engineering 11,628 11,447 11,218 11,290 10,998 General and administrative 65,947 67,462 59,012 58,535 55,315 Water backup claims 4,653 5,600 1,557 5,035 7,631 Depreciation 87,633 83,640 81,326 81,194 83,984 Asset management 17,195 13,755 15,131 14,893 13,215 Total Operating Expenses 296,738 290,718 273,765 275,078 273,096 NON-OPERATING EXPENSES Net loss on disposal and sale of capital assets 962 971 1,834 673 325 Non-recurring projects and studies 12,458 15,628 9,296 7,459 11,000 Interest expense 36,119 33,082 36,695 31,251 28,943 Total Non-Operating Expenses 49,539 49,681 47,825 39,383 40,268 Total Expenses 346,277 340,399 321,590 314,461 313,364 INCOME BEFORE CAPITAL 143,714 111,830 88,130 54,497 36,904 GRANTS AND CONTRIBUTION Capital grants and contributions 6,391 17,378 26,077 9,614 12,037 CHANGE IN NET POSITION 150,105 129,208 114,207 64,111 48,941 Net position – beginning of year 2,620,524 2,491,316 2,391,168 2,327,057 2,278,116 Effect of adoption of GASB 75 — — (14,059) — — NET POSITION – END OF YEAR $ 2,770,629 $2,620,524 $2,491,316 $2,391,168 $2,327,057 INCOME STATEMENT Condensed Statements of Revenues, Expenses, and Changes in Net Position (dollars in thousands) Financials Definitions Operating revenues and expenses: all income and expenses received from the District’s daily normal business. Non-operating revenues and expenses: all income and expenses not related to the District’s daily normal business. What it tells you A Statement of Revenues, Expenses, and Changes in Net Position, also known as an Income Statement, tells you where MSD gets its funds and how they are spent. It also shows how much money MSD made or lost over a specific period of time. Our FY20 Income Statement shows that: • Sewer service charge revenue increased as a result of the scheduled rate increase that occurred in FY20. • Operating expenses increased due to higher depreciation and asset management related to increased sewer inspection costs. FY20 EXPENSES Year ended June 30, 2020 (dollars in thousands) Where The Money Goes Financials FY20 REVENUE Year ended June 30, 2020 (dollars in thousands) Where The Money Comes From Sewer Service Charges, Net $424,786 Other (in Detail) Property taxes levied by the District (7.3%) 35,439 Investment income (3.6%) 16,259 Other operating revenues (.5%) 10,193 Capital grants and contributions (3.7%) 6,391 Licenses, permits, and other fees (.7%) 3,012 Rent and other income (.1%) 302 TOTAL REVENUE $496,382 Employment Costs $115,576 Depreciation 87,633 Contracted Services 52,776 Interest Expense 36,119 Other (in Detail) Utilities (5%) 15,771 Non-recurring projects and studies (4.6%) 12,458 Materials and supplies (3.7%) 12,045 Other operating expenses (.9%) 5,656 Insurance (1.1%) 4,158 Chemical supplies (1.1%) 3,123 Net loss on disposal and sale of capital assets (.3%) 962 TOTAL EXPENSES $346,277 14% 33% 25% 86% 17% 15% 10% 16 | METROPOLITAN ST. LOUIS SEWER DISTRICT POPULAR ANNUAL FINANCIAL REPORT FY2020 | 17 Operating Activities Non-Capital Financing Activities Capital Activities Investing Activities-350,000 -300,000 -250,000 -200,000 -150,000 -100,000 -50,000 0 50,000 100,000 150,000 200,000 250,000 FY20 FY19 FY18 $217,829 $185,226 $160,989 $93,779 $113,338 $(135,363)$34,983 $33,850$33,181 CASH FLOW STATEMENT Condensed Statements of Cash Flows (dollars in thousands) CASH FLOW ACTIVITIES COMPARISON (dollars in thousands) Financials FY20 FY19 FY18 Cash flows from operating activities $217,829 $185,226 $160,989 Cash flows from non-capital financing activities 34,983 33,850 33,181 Cash flows from capital and related financing activities (306,220) (310,046) (72,534) Cash flows from investing activities 93,779 113,338 (135,363) Net increase (decrease) in cash and cash equivalents 40,371 22,368 (13,727) Cash and cash equivalents at beginning of year 56,754 34,386 48,113 CASH AND CASH EQUIVALENTS – END OF YEAR $97,125 $56,754 $34,386 Definitions Cash flows from operating activities: all cash received or spent related to MSD’s daily normal business activities. Cash flows from non-capital financing activities: all cash received or spent related to taxes. Cash flows from capital and related financing activities: cash received or spent related to construction of MSD’s infrastructure. Cash flows from investing activities: cash received or spent related to investing MSD’s cash reserves. What it tells you A Cash Flow Statement summarizes both the cash and the net cash coming in and going out of MSD during a given period. Our FY20 Cash Flow Statement compared to the prior year shows that: • Cash flows from operating activities increased due to increased receipts from customers. • Cash flows from non-capital financing activities increased due to more tax revenue collected. • Cash flows from capital and related financing activities increased as a result of more bond proceeds and premiums received during FY20. • Cash flows from investing activities decreased due to more cash spent on purchase of investments during FY20. Variance Explanation CIRP came in under budget for FY20, primarily due to postponed work. Postponements can occur for various reasons, including easement acquisition delays, scope revisions, and delays in choosing contractors. These delays contributed $75 million to the variance. In addition, cancelled projects or completed projects coming in under budget resulted in savings of $7 million. The remaining savings are attributed to projects under budget either from good bids or reduced scope. Debt Service expenses were unfavorable for the District in FY20.The District took advantage of lower market rates to refinance a portion of the Series 2012A bonds previously issued at rates ranging from 2.5% to 5.3%, with Series 2019C bonds having interest rates ranging from 1.8% to 3.3%. Debt service payments over the next 25 years will be $98.7 million lower than if the refinancing had not taken place. However, the financial statements for FY20 reflect a one-time increase in debt service expenses due to a required upfront payment of interest accumulated prior to the refinancing. Operating expenses came in under budget for FY20. The largest of the variances was $6.4 million in personnel services primarily due to vacancies. Supply expenses were favorable by $1.9 million, with machinery & equipment parts and construction & building supplies making up over half of that savings, along with approximately $558 thousand in savings from chemical and instrumentation supplies. Utilities contributed to the District’s favorable expense variance by finishing under budget by $1.5 million, and contractual services expenses were favorable by $2.6 million primarily due to machinery & equipment services. Capital outlay offset a portion of these savings, with expenses exceeding the budget by $1.8 million primarily for processing equipment at the treatment plants and pump stations. It was cost effective for the District to replace older equipment versus expending additional dollars to maintain existing equipment. What it tells you A credit rating provides an assessment of an organization’s credit worthiness, based on its history of borrowing and repayment of funds, as well as its assets and liabilities. A poor credit rating makes it more difficult to find financing and often results in higher interest rates. As the chart below illustrates, MSD has premium credit, with consistent ratings at the top of each credit rating agency’s scale. On a scale of Aaa to C, MSD earned an Aa1 rating from Moody’s. Similarly, on a scale of AAA to D, MSD earned AAA and AA+ ratings from Standard & Poor’s and Fitch, respectively. MSD has demonstrated to creditors and credit rating agencies its ability to manage large annual capital plans. The District’s solid financial management, including close monitoring of its financial performance, strong debt coverage, and liquidity also contribute to these ratings, which have remained constant the past three years. What it tells you In MSD’s case, it shows that MSD has been a good steward of the funds allocated to the District. FY20 FY19 FY18 Moody’s Aa1 Aa1 Aa1 Standard & Poor’s (S&P) AAA AAA AAA Fitch AA+ AA+ AA+ Expense Category Budget Expenses Unspent Budget Capital Improvement and Replacement Program (CIRP) $350.1M 245.0M 105.1M Debt Service $118.7M 140.8M (22.1)M Operating $215.9M 205.3M 10.6M TOTAL $684.7M 591.1M 93.6M CREDIT RATING Financials PERFORMANCE AGAINST BUDGET $(306,220)$(310,046) $(72,534) msdprojectclear.org MSDProjectClear @MSDProjectClear msdprojectclear msdprojectclear Metropolitan St. Louis Sewer District Metropolitan St. Louis Sewer District Check out our new website! mdsprojectclear.org 2350 MARKET STREET, ST. LOUIS, MO 63103