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HomeMy Public PortalAboutExhibit MSD 53 - 2013 Audited Financial StatementsExhibit MSD 53 THE METROPOLITAN ST. LOUIS SEWER DISTRICT FINANCIAL STATEMENTS JUNE 30, 2013 AND 2012 Wise Contents Page Independent Auditors' Report 1 - 2 Management's Discussion And Analysis 3 - 13 Financial Statements Statements Of Net Position 14 - 15 Statements Of Revenues, Expenses And Changes In Net Position 16 Statements Of Cash Flows 17 - 18 Notes To Financial Statements 19 - 70 Required Supplementary Information Required Supplementary Information - Schedule Of Funding Progress - Employees' Pension Plan And Post Employment Benefit Plan 71 RubinBrown" Independent Auditors' Report Board of Trustees The Metropolitan St. Louis Sewer District St. Louis, Missouri Report On The Financial Statements RubinBrown LLP Certified Public Accountants & Business Consultants One North Brentwood Saint Louis, MO 63105 314.290.3300 314.290.3400 W rubinbrown.com E info@rubinbrown.com 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, 2013 and 2012, 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. Ina.o.neeM nx,kn of BAKER TILLY INTERNATIONAL Board of Trustees The Metropolitan St. Louis Sewer District 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, 2013 and 2012, 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. 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 Reporting Required By Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 17, 2013, 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. IkriirAgcust LL P October 17, 2013 Page 2 TIE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS For The Years Ended June 30, 2013 And 2012 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. 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 rising sewer rates and improved collection activities. > The District placed $196.6 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. Capitalized assets included: Collection and pumping plant $178.4 million Treatment and disposal plant and equipment $15.4 million Land $4.0 million General plant and equipment $2.7 million 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. 2012 Financial Highlights > The District placed $170.9 million of capital assets into service during fiscal year 2012. This high level of capitalization and construction is reflective of an accelerated building program to meet the needs of the District. These capitalized assets include: Collection and pumping plant $112.1 million Treatment and disposal plant and equipment $41.0 million Land $9.1 million General plant and equipment $8.7 million THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) In conjunction with the new assets, accumulated depreciation increased by $55.7 million. Contracts and accounts payable decreased by $18.2 million due to a decrease in water backup claims, a decrease in litigation claims and a decrease in outstanding construction payables. Operating expenses declined by $28.2 million as the result of declines in asset management costs as expenditures shifted to capital. 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 years' revenue and expense. These statements indicate how successful the District was at maintaining expenses below the level of revenue earned. Page 4 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) The Statements of Cash Flows account for the net change in cash and cash equivalents by summarizing cash receipts and cash disbursements resulting from operating activities, non -capital financing activities, capital and related financing activities, and investing activities. These statements assist the user in determining the sources of cash coming into the District, the items for which cash was expended, and the beginning and ending cash balance. Financial Analysis The District's financial position improved in the current year, as evidenced by the increase in net position of $30.9 million. The main reason for the improvement is the increase in unrestricted funds of $70 0 million as the District has increased the use of bond funding for capital projects. Net investment in capital assets decreased by $49.8 million as more debt was incurred than capital created during 2013. Condensed Financial. Statements and Analysis Condensed Statements of Net Position (000s) Increase Increase (Decrease) (Decrease) 2018 2012 ,2013.2012 _ 2011 2012.2011 Assets: Current, restricted, and other assets $ 603,104 $ 407,731 $ 195,373 $ 403,397 $ 4,334 Capital assets (net of accumulated depreciation) 2,659,806 2,548,816 110,990 • 2,469,496 79,320 Total Assets 3,262,910 2,956,547 806,363 ° 2,872,893 83,654 Liabilities: Current liabilities 89,432 86,337 3,095 101,429 (15,092) Non -current 'abilities 924,281 651,916 272,365 ' 574,445 77,471 Total Liabilities 1,013,713 738,253 ?75,460 675,874 .g2,379 Net Position: Net investment in capital assets 1,886,831 1,936,590 (49,759) 1,915,233 ', 21,357 Restricted 117,365 106,694 10,671 : 94,926 11,768 Unrestricted 245,001 175,010 69,991 186,860 (11,850) Total Net Position $ 2,249,197 $ 2,218,294 .$ 30;903 $ 2,197,019 $ 21,275� Page 5 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 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 8111.0 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 $272.4 million or 41.8% as the District issued $225 million in new senior debt with premium. 2012 Analysis Current restricted and other assets increased $4.3 million or 1.1% in the current year. The increase is predominately due to the restricted cash and investments required as part of the issuance of debt in 2012. Capital assets net of accumulated depreciation increased by $79.3 million or 3.2% in the current year as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities decreased by $15.1 million or 14.9%, as the result of decreases in contracts and accounts payable from the prior year water backup claims payables and the stormwater litigation costs. Non -current liabilities increased by $77.5 million or 13.5% as the District issued $93.3 million in new debt and paid down existing debt. Page 6 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Statements of Revenues, Expenses, and Changes in Net Position (000s) Increase : Increase (Decrease); (Decrease) 2013 2012 2013.2012; 2011 2012-2011• Operating Revenues: Sewer service charges $ 238,635 $ 227,677 $ 10,958 ` $ 223,276 $ 4,401 Provision for doubtful sewer service charge accounts (2,655) (6,911) 4,256 ; (6,249) , (662) Provision for uncollected stormwater charge accounts - (2,374) 2,374 Licenses, permits, and other fees 2,731 2,684 „ 47 2,976 (292): Other 3,235 2,550 68� 1,815 ,'.735 i Total Operating Revenues 241,946 226,000 I5 946 ' 219,444 6 CBS' Non -operating Revenues: Property taxes levied by the district 26,017 24,604 1,413 ; 27,126 (2,522) Investment income 1,057 2,407 (1,$50): 3,847 (1,440) Rent and other income 293 295 .. . (2) 443 (148)• Total Non -operating Revenues 27,367 27,306 61 31,416 . (4,110). Total Revenues 269,313 253,306 18,007 ' 250,860 2,446 . Operating Expenses: Pumping and treatment 54,526 49,005 5,521 50,532 (1,527) Collection system maintenance 37,877 36,695 1,182 ' 33,152 3,543 Engineering 12,020 8,544 3,476 12,486 (3,942)E General and administrative 41,485 33,180 £1,305 36,075 (2,895); Water backup claims 3,503 2,050 1,453 8,912 (6,862) Depreciation 70,030 66,742 3,288 66,854 (3.12); Asset management 10,717 20,092 • . (9,375)' 36,492 (16,400)' Total Operating Expenses 230,158 216,308 18,850 ' 244,503 (28,195)'. Non -operating Expenses:II Net loss on disposal and sale of capital assets 796 3,163 (2,9.$7)! 3,486 • • (323)• Non -recurring projects and studies 4,676 6,403 (1,727), 10,801 (4,398) Legal Claims - 5 (5) 4,829 (4824) Interest expense 20,315 15,511 ,504 7,971 7,840 Total Non -operating Expenses 25,787 25,382 405 27,087 (1705): Total Expenses 255,945 241,690 ..EL.5. i 271,590 (29,900) Income Before Capital Grants And Contributions 13,368 11,616 1,752 (20,730) 32,346 Capital Grants And Contributions 17,535 9,659 7,876 e 10,099 ; (440) Change in Net Position 30,903 21,275 9,628 : (10,631) • 31,906 , Net Position - Beginning of Year 2,218,294 2,197,019 21,275 2,207,650 (10,631): Net Position - End of Year $ 2,249,197 2 218 294 $ 30,903 $ 2,197,019 $ 21,275 Page 7 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2013 Analysis Net position increased by $30.9 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 increased 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 $14.3 million or 5.9%. Operating expenses increased by $13.8 million. General and administrative costs increased by $8.3 million primarily as the result of a large insurance reimbursement in FY12 that was not repeated in FY13. Operations increased by $6.7 million or 7.8% as a result of increased personnel costs, costs related to heavy spring rains, equipment repair and replacement. Water backup claims increased $1.5 million from increased claims over the prior year when drought conditions limited flooding claims. Engineering costs increased by $3.5 million or 40.7% primarily due to personnel costs related to non -capital, asset management projects. Depreciation costs increased by $3.3 million in conjunction with new asset capitalization. Asset management decreased $9.4 million as costs were eliminated. Non -operating expenses increased by $0.4 million or 1.6% as the result of increased interest expense countered by decreased costs of both losses on disposal of assets and non -recurring projects and studies. 2012 Analysis Net position increased by $21.3 million or 1.0% over the prior year. While revenue increased slightly over the prior year, expenses decreased rapidly, as more District resources were targeted toward capital projects. Total revenue increased by $2.4 million or 1.0%. Sewer service charges increased $4.4 million and the provision for uncollected stormwater charges was eliminated as part of the discontinuation of the stormwater impervious fee discussed below, increasing operating revenue by $6.6 million. At the same time, property tax revenue decreased by $2.5 million from decreases in property valuation. Investment income also declined by $1.4 million as a result of low interest rates. Page 8 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Total expenses decreased by $29.9 million or 11.0%. Operating expenses decreased by $28.2 million. Asset management decreased $16 4 million as costs were eliminated and water backup claims decreased $6.9 million from the non -repetition of overland flooding in the prior year. Non -operating expenses decreased by $1.7 million. Non -recurring projects and studies decreased by $4.4 million and legal claims decreased by $4.8 million from the prior year stormwater legal claim. Capital asset sale losses declined by $0.3 million. Interest expenses increased by $7.8 million in connection with new debt issuance. Condensed Statements of Cash Flows (000s) Increase (Decrease) 2013 _ 2012 2013-2012 Cash flows from operating activities $ 84,882 Cash flows from non -capital financing activities 23,014 Cash flows from capital and related financing activities 83,449 Cash flows from investing activities (168,410) 60 540 (228y950) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Increase (Decrease) 2011 2012-2011 $ 67,839 $ 17,043.: $ 56,676 $ 1.1,163 1 24,604 (1,590) 27,125 , (2,521); (91,085) . .174,534 , (141,136) : 50,051 i 25,355 35,185 3�. 22,935 61,898 (38,963) (31,980) 93,878 158,820 96,922 61,898 ; 128,902 (31,9809 Cash And Cash Equivalents At End Of Year $ 181,755 $ 158,820 $ 22,935 $ 96,922 $ 61,898 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2012 Analysis The District ended the year with $158.8 million in cash and cash equivalents or $61.9 million more than the prior year. Cash flows from operating activities increased by $11.2 million as the result of the decrease in litigation and water backup costs noted above. Cash flows from non -capital financing activities decreased by $2.5 million from a decrease in tax revenue. The decrease stems from both a decrease in property values and also 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 $50.1 million as the result of new bond proceeds offset by payments for capital improvement. Cash flows from investing activities increased by $35.2 million. The increase mostly stems from the volume in the purchases and maturities of investments. Capital Assets Land Construction in progress Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total 2013 Analysis Condensed Statements of Capital Assets Net of Depreciation (000s) 2013 2012 50,077 $ 46,027 360,508 379,119 599,178 1,614,112 35,931 611,249 1,471,147 41,274 $ 2,659,806 $ 2,548,816 Increase (Decrease) 2013-2012 $ 4,050 (19,611) (12,071.) 142,965 (5;343) $ 110,990 2011 $ 36,924 400,756 597,316 1,393,394 41,106 $ 2,469,496 Increase (Decrease) 2012-2011 $ 9,103 (21,637) 13,933 77,753 168 $ 79,320 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. Page 10 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2012 Analysis Total capital assets, net of depreciation, increased by $79.3 million over the prior year. Collection and pumping plants contained the majority of the increase with $77.8 million coming on-line this fiscal year. Construction in progress decreased by $21.6 million as $159.6 million in constructed assets were moved into service. Treatment and disposal plant and equipment increased by $13.9 million. Land contributed $9.1 million from acquisition of easements and other land. Long -Term Debt The Metropolitan St. Louis Sewer District Condensed Statements of Long -Term Debt (000s) Increase -Increase- (Decrease)' (Decrease) 2013 2012 2013-2012 2011 2012-2011 ' Senior Revenue Bonds: Series 2004A $ 2,375 $ 163,630 Series 2006C 60,000 60,000 Series 2008A 30,000 30,000 Series 2010B 85,000 85,000 Series 2011E 50,610 52,250 Series 2012A 225,000 Series 2012B 141,730 Subordinate Revenue Bonds: Series 2004B Series 2005A Series 2006A Series 2006B Series 2008AB Missouri DNR: Series 2009A Series 2010A Series 2010C Series 2011A Energy Loan Program Oracle/Blue Heron $ (161,255) (1,640), 225,000 - ' 1.41,730 - $ 165,590 $ (1,960; 60,000 . 30,000 - • - 85,000 -- 52,250 108,780 115,960 (7,180) 123,055 (7,095) 4,750 5,055 (305). 5,370 (315): 32,085 34,225 (2,140)'. 36,335 ; (2,110) 10,945 11,620 (675) 12,285 (665)• 32,040 33,833 (1;793). 35,610 (1,777). i 20,093 21,085 (992) 22,053 (968)'. 7,472 5,880 1,592 •• 2,852 .3,028 33,999 35,519 (1,520)- 329 35,190: 31,963 1,007 30,356 - 1,007 225 237 .•(12) 25 212 ' - 3,096 (3,096)! 6,096 ' (3,000)' Total $ 877,067 $ 658,397 $ 218,670 $ 584,600 • $ 73,797 Page 11 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 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.OM). For more detailed information, see Note 6, long-term liabilities, in the accompanying notes to the financial statements. 2012 Analysis The District ended fiscal year 2012 with $658.4 million in long-term debt outstanding. The District had two bond additions this year, a senior revenue bond (Series 2011B) for $52.3 million and an SRF Bond (2011A) for $1.0 million and added to SRF bonds 2010C ($35.2M) and 2010A ($3.OM). 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. 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. In August of 2012 the District issued the first $225,000,000 in bonds under this authorization, funding capital expenditures for the current year and next year. Page 12 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) The District implemented an impervious area based stormwater rate in March 2008. In conjunction, the District elected to discontinue the assessment of approximately $24.4 million per year in property taxes and flat fees previously used for stormwater funding. The impervious stormwater rate structure in place throughout the 2010 fiscal year generated $90.9 million in revenue for stormwater services across the St. Louis region. On July 9, 2010, the Circuit Court of St. Louis County of Missouri ruled the impervious rate unconstitutional. As a result, the District's Board of Trustees rescinded the impervious based rate effective August 1, 2010. The elimination of the rate resulted in an estimated $48.3 million loss in revenue anticipated to address stormwater issues throughout the St. Louis region. The District reinstated the property taxes and flat fees previously discontinued in order to provide a base level of stormwater services as required by the District's Charter. Stormwater services were drastically reduced in fiscal year 2011 and have continued at reduced levels since. On May 29, 2012, MSD filed its Application directly to the Missouri Supreme Court requesting a transfer. On June 1, 2012, the National Association of Clean Water Agencies was allowed to file suggestions in support of the Application for Transfer. On May 21, 2013 the Missouri Supreme Court heard oral arguments. The District is currently awaiting their ruling. 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 The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 314-768-6200 jzimmerC stlmsd. coin Page 13 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF NET POSITION Assets For The Years Ended June 30, 2013 2012 Current Assets Unrestricted Current Assets Cash and cash equivalents $ 84,400,724 $ 104,532,663 Investments 67,190,638 12,228,539 Sewer service charges receivable, Less allowance of $3,819,791 in 2013 and 84,038.932 in 2012 34,207,405 34,608,839 Unbilled sewer service charges receivable, less allowance of $351,645 in 2013 and $362,806 in 2012 17,582,233 18,140,324 Property taxes receivable, less allowance of $590,868 in 2013 2,325,743 Accrued income on investments 807,632 436,251 Other receivables 964,595 928,832 Supplies inventory 6,621,892 6,301,034 Total Unrestricted Current Assets 214.100,862 17 7,176,482 Restricted Current Assets Cash and cash equivalents 69,449,837 12, 709,234 Investments 79,625,995 39,253,780 Total Restricted Current Assets 149,0 75,832 51,963,014 Total Current Assets 363,176,694 229.139.496 Non -Current Assets Restricted Assets Cash and cash equivalents 27,904,044 41,577,877 Investments 22.940,929 20,573,626 Long-term investments 83,261,367 49,958,324 Property taxes receivable, less allowance of $360,660 in 2013 676,622 Accrued income on investments 202,049 266,592 Total Restricted Non -Current Assets 134,985,011 112,376,419 Other Assets Notes receivable 14,640,552 14,417,074 Long-term investments 90,301,826 51,798,633 Total other assets 104,942,378 66,215,707 Capital Assets Depreciable: Treatment and disposal plant and equipment 1,027,055,525 1,011.798,185 Collection and pumping plant 2,226,256,235 2.050,326,859 General plant and equipment 92,176,648 91,264,888 3,345,488,408 3,153,389,932 Less: Accumulated depreciation Net depreciable assets 1,096,266,136 1,029,720.453 2,249,222,272 2,123,669.479 Non -depreciable: Land 50,076.644 46,026,763 Construction in progress 360,507,521 379,119,335 Net capital assets 2,659,806,437 2,548,815,577 Total Non -Current Assets Total Assets 2.899,733,826 2,727,407,763 3.262,910,520 2,956,547,199 See the accompanying notes to financial statements. Page 14 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF NET POSITION (Continued) Liabilities Current Liabilities Contracts and accounts payable Deposits and accrued expenses Retainage payable Current portion of bonds and notes payable Current Liabilities -Payable From Restricted Assets Contracts and accounts payable Retainage payable Total Current Liabilities Non -Current Liabilities Deposits and accrued expenses Bonds and notes payable Total Non -Current Liabilities Total Liabilities Net Position Net investment in capital assets Restricted for: Debt service Subdistrict construction and improvement Unrestricted Total Net Position For The Years Ended June 30, 2013 2012 $ 27,421,384 $ 27,268,022 9,749,687 19,435,714 27,152,656 22,949,200 8,694,165 21,857,997 83,874,807 80,654,018 5,342,074 215,334 5,399,672 283,053 5,557,408 5,682,725 89,432,215 86,336,743 10,398,107 913,883,345 9,572,545 642,343,570 924,281,452 651,916,115 1,013,713,667 738,252,858 1,886,830,927 47,140,132 70,225,233 245,000,561 1,936,590,862 39,892,760 66,800,934 175,009,785 $ 2,249,196,853 $ 2,218,294,341 See the accompanying notes to financial statements. Page 15 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Operating Revenues Sewer service charges Provision for doubtful sewer service charge accounts Licenses, permits and other fees Other Total Operating Revenues Operating Expenses Pumping and treatment Collection system maintenance Engineering General and administrative Water backup claims Depreciation Asset management Total Operating Expenses Operating Income Non -Operating Revenues Property taxes levied by the District Investment income Rent and other income Total Non -Operating Revenues Non -Operating Expenses Net loss on disposal and sale of capital assets Non -recurring projects and studies Legal claims Interest expense Total Non -Operating Expenses Income Before Capital Grants And Contributions Capital Grants And Contributions Utility plant contributed Grant revenue Total Capital Grants And Contributions Change In Net Position Net Position - Beginning Of Year Net Position - End Of Year For The Years Ended June 30, 2018 2012 $ 238,634,709 $ (2,654,644) 2,731,497 3,234,775 227,6 7 7,430 (6,911,849) 2,683,823 2,550,316 241,946,337 225,999,720 54,526,256 37,8 76,932 12,019,666 41,485,255 3,503,220 70,029,840 10,717 ,264 49,005,251 36,695,192 8,543,316 33,180,189 2,049,901 66, 742,064 20,092,052 230,158,433 216,307,965 11, 787,904 26,016,135 1,056,966 293,159 9,691,755 24,604,173 2,407,485 294,591 27,366,260 27,306,249 795,527 4,676,203 20.314,841 3,162,723 6,402,888 5,000 15,811,045 25,786,571 25,381,656 13,367,593 11,616,348 17,510,735 24,184 9,495,264 163,593 17,534,919 9,658,857 30,902,512 2,218,294,341 $ 2,249,196,853 21,275,205 2,197,019,136 $ 2,218,294,341 See the accompanying notes to financial statements. Page 16 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF CASH FLOWS Cash Flows From Operating Activities Received from customers Paid to employees for services Paid to suppliers for goods and services Net Cash Provided By Operating Activities Cash Flows Provided By Non -Capital Financing Activities Taxes levied and collected Cash Flows From Capital And Related Financing Activities Proceeds from capital grants Proceeds from issuance of debt Premium on sale of bonds Interest received on bond proceeds to be used for capital improvements Principal paid on debt Interest and fees paid on debt Payments for capital assets Proceeds from sale of capital assets Build America bond tax credit Net Cash Provided By (Used In) Capital And Related Financing Activities Cash Flows From Investing Activities Purchase of investments Proceeds from sale and maturity of investments Investment income Proceeds from rents Net Cash Provided By (Used In) Investing Activities Net Increase In Cash And Cash Equivalents Cash And Cash Equivalents At Beginning Of Year Cash And Cash Equivalents At End Of Year Non -Cash Capital And Investing Activities Capital asset additions included in accounts payable Utility plant contributed by other governments and developers Fair value investment adjustment gain (loss) For The Years Ended June 30, 2013 2012 $ 242,841,372 $ (92,818,922) (64,640,786) 84,881,664 225,182,816 (85,434,376) (71,909,584) 67,838,856 23,013,770 24,604,173 24,639 257,888,292 35,097,262 250,753 (21,857,996) (35,117,398) (154,847,862) 269,073 1,742,160 164,164 93,347,308 6,104,835 141,569 (19,551,825) (25,391,770) (147, 723,685) 82,464 1,742,160 83,448,923 (91,084,780) (671,031,454) 497,314,140 5,014,629 293,159 (222,515,358) 278,208,830 4,551,539 294,591 (168,409,526) 60,539,602 22,934,831 158,819,774 $ 181,754,605 61,897,851 96,921,923 $ 158,819,774 $ 15,362,389 17,510,735 (3,140,483) $ 13, 744,285 9,495,264 (778,235) See the accompanying notes to financial statements. Page 17 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF CASH FLOWS (Continued) Reconciliation Of Operating Income To Net Cash Flows Provided By Operating Activities Operating Income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Change in operating assets and liabilities: (Increase) decrease in billed and unbilled sewer service charges receivable Increase in other receivables (Increase) decrease in supplies inventory Decrease in contracts and accounts payable Increase (decrease) in deposits and accrued expenses Net Cash Provided By Operating Activities For The Years Ended June 30, 2013 2012 $ 11,787,904 $ 9,691,755 70,029,840 959,525 (91,259) 320,858) (1,109,475) 3,625,987 66,742,064 (1,110,166) (172,227) 660,251 (7,408,601) (564,220) $ 84,881,664 S 67,838,856 See the accompanying notes to financial statements. Page 18 THE METROPOLITAN ST. LOUIS SEWER DISTRICT 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) 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. Page 20 THE METROPOLITAN ST, LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 amounts in prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements. More specifically, in 2013, the District created new categories for cash and investments, to enhance transparency and facilitate greater understanding of the District's cash and investment position. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) In prior years, the statement of net position contained the categories cash, pooled cash and investments, and investments. The District now divides these assets into the categories cash and cash equivalents, investments, and long-term investments. Cash and cash equivalents have maturities of 90 days or less, investments mature between 91-365 days, and long-term investments mature after 365 days. The reclassification presented in the 2012 financial statements is as follows: New Categories in FY 2012 Unrestricted Current Assets Cash and cash equivalents Investments Restricted Current Assets Cash and cash equivalents Investments $ 104,532,663 12,228,539 116,761,202 12,709,234 39,253,780 Non -Current, Restricted Assets Cash and cash equivalents Investments Long-term investments 51,963,014 41,577,877 20,573,626 49,958,324 Old Categories in FY 2012 Current Assets Cash Pooled cash and investments Investments $ 15,322,804 162,269,011 42,931,034 Non -Current, Restricted Assets Cash Pooled cash and investments Investments 220,522,849 5,256,795 72,357,560 34,495,472 112,109,827 $ 112,109,827 Non -Current Other Assets Long-term investments S 51,798,633 The presentation of Restricted and Unrestricted Assets has changed from prior years to reflect the net position for unspent bond proceeds from recent debt issues restricted solely for sanitary construction projects. Previously, these balances were presented in the pooled cash and investments category as Unrestricted Current Assets. These are now presented in a new category as Restricted Current Assets. 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. Page 22 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 2013 and 2012, the District capitalized $12,305,615 and $7,412,451, respectively, of net interest expense. Page 23 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 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. 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. Bond Issuance Costs/Bond Premiums And Discounts Bond issuance costs incurred, as well as bond premiums and discounts, are paid from the proceeds of revenue bond issues and are deferred and amortized using the straight-line method over the term of the bonds. Page 24 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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. 2. Deposits And Investments Deposits 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) At June 30, 2012, the reported amount of the District's deposits was $56,122,489 and the bank balance was $54,926,226. Of the bank balance, $45,540,519 was covered by federal depository insurance and $9,385,707 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%. Effective January 1, 2013, deposits in each bank are insured by the Federal Deposit Insurance Corporation (FDIC) in the amount of $250,000 for interest - bearing accounts and non -interest -bearing accounts. Prior to January 1, 2013, deposits in non -interest -bearing accounts were fully insured. 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 rated in the three highest classifications, for terms specified in the policy. The District also has investments in money market mutual funds. This investment and the related interest represent an escrow account for potential legal fees. At June 30, 2013 and 2012, all of the District's investments were in compliance with the District's investment policy and charter. A summary of deposits and investments as of June 30, 2013 and 2012 is . as follows: Investment Type Deposits Money Market Mutual Funds Certificates of deposit U.S. Treasury and agency obligations Commercial paper Bankers' acceptance notes 2013 Coat Fair Value 37,781,854 4,857,117 200,000 388,684,118 95,318,691 $ 37, 781,854 4,857,117 200,000 386,857,519 95,378,870 Total $ 526,841,780 $ 525,075,360 2012 Cost Fair Value S 56,122,489 4,851,168 900,000 $ 56,122,489 4,851,168 900,000 180,442,248 181,714,022 81,436,568 81,485,196 7,554,253 7,559,801 3 331,306,726 $ 332,632,676 Page 26 THE METROPOLITAN ST. LOUTS SEWER DISTRICT Notes To Financial Statements (Continued) Reconciliation to the financial statements: Cash and Cash Equivalents Unrestricted current Restricted current Restricted non -current Investments Unrestricted current Restricted current Restricted non -current Long-term Investments Restricted non -current Other 2013 2012 $ 84,400,724 69,449,837 27,904,044 67,190,638 79,625,995 22,940,929 83,261,367 90,301,826 $ 104,532,663 12,709,234 41,577,877 12,228,539 39,253,780 20,573,626 49,958,324 51,798,633 $ 525,075,360 $ 332,632,676 Interest Rate Risk As of June 30, 2013 and 2012, the District had the following investments and maturities: Investment Type Money market mutual Certificates of deposit U.S. Treasury obligations U.S. agency obligations Commercial paper Bankers' acceptance notes Total 2013 Fair Value $ 4,857,117 200,000 188,141,798 198,715,721 95,378,870 Weighted Average Maturity (Years) 0.00 2.07 0.65 2.05 0.19 0.00 2012 Fair Value $ 4,851,168 900,000 50,229,767 131,484,255 81,485,196 7,559,801 Weighted Average Maturity (Years) 0.00 1.11 0.78 2.25 0.11 0.16 $ 487,293,506 1.13 $ 276,510,187 1.28 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. Page 27 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 large 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. 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, 2013 and 2012, the District's investments in commercial paper were rated Al by Standard & Poor's and P-1 by Moody's Investors Service. 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 Standard & Poor's of "AA+." The District's investment in money market mutual funds carries a rating assigned by Standard & Poor's of Al. Page 28 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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; and collateralized repurchase agreements are limited to 50% of the portfolio. U.S. agency obligations are limited to 30% of the portfolio, and commercial paper and bankers' acceptances are limited to 25% each. The following table lists investments in issuers that represent 5% or more of total investments at June 30, 2013 and 2012: Issuer Percent Of Total Investments 2013 2012 Treasury Notes 35.4 10.5 Federal Home Loan Bank 13.3 9.7 Federal National Mortgage Association 13.1 25.7 Federal Home Loan Mortgage Corporation 10.1 7.8 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 2033. At June 30, 2013, future payments are as follows: 2014 $ 1,148,340 2015 1,154,696 2016 1,154,696 2017 1,154,696 2018 1,154,696 2019-2023 5,773,479 2024-2028 5,773,479 2029-3033 5,182,582 Less: Amount representing interest Classification in Statement Of Net Position: 22,496,664 7,348,531 $ 15,148,133 Current $ 507,581 Non -Current 14,640,552 Total $ 15,148,133 THE METROPOLITAN ST. LOUIS SEWER D1S't RiC T Notes To Financial Statements (Continued) 4. Capital Assets The following is a summary of capital assets changes for the fiscal years ended June 30, 2013 and 2012: Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total capital assets being depreciated Less: Accumulated depreciation: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total accumulated depreciation Total capital assets being depreciated, net Total Capital Assets Balance June 30, 2012 Additions Balance Deletions June 30, 2013 $ 46,026,763 $ 4,049,881 $ — S 50,076,644 379,119,335 160,031,402 17 8,643,216 360,507,521 425,146,098 164,081,283 178,643,216 410,584,165 1,011,798,185 2,050,326,859 91.264,888 15,479,009 178,420,467 2,747,756 221,669 1,027, 055,525 2,491,091 2,226,256,235 1,835,996 92,176,648 3,153,389,932 196,647,232 4,548,756 3,345,488,408 (400,549,004) (579,180,437) (49,991,012) (1,029,720,453) 2,123,669,479 (27,550,389) (34,411,858) (8,06 7 ,593) (70,029,840) 126,617,392 (221,669) (1,449,645) (1,812,843) (3,484,1572 1,064,599 (427,877,724) (612,142,650) (56,245,762) (1,096,266,136) 2,249,222,272 $ 2,548,815,577 $ 290,698,675 $ 179,707,815 $ 2,659,806,437 Balance June 30, 2011 Additions Balance Deletions June 30, 2012 Capital assets not being depreciated: Land $ 36,924,144 Construction in progress 400,756,348 Total capital assets not being depreciated 437,680,492 Capital assets being depreciated: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total capital assets being depreciated Less: Accumulated depreciation: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Total accumulated depreciation Total capital assets being depreciated, net Total Capital Assets 979,414,620 1,941,575,848 84,858, 812 3,005,879,280 S 9,102,619 137,925.986 147,028,6055 41.013,831 112,106,178 8.721,309 161,841,318 S -- $ 46,026, 763 159,562,999 379,119,335 159,562,999 425,146,098 8,660,266 3,355,167 2,315,233 14,330,666 1,011,798,185 2,050,326,859 91,264,888 3,153,389,932 (382,129,043) (548,181,682) (43,753,142) (974,063,867) 2,031,815,413 (26,025,377) (32,259,885) (8,456,802: (66,742,064) 95,099.254 (7,605,416) (1,261,130) (2.218,932) (11,085,478) 3,245,188 (400.549,004) (579,180,437) (49,991,012) (1,029,720,453 2,123,669,479 $ 2,469.495,905 S 242,127,859 $ 162,808,187 $ 2,545,815,577 Page 30 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 2013 and 2012, the District recorded revenue from property taxes in the amount of $26,016,135 and $24,604,173, respectively. Page 31 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 6. Long -Term Liabilities 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 3 175,000,000 $ 163,630,000 $ ; 161,266,000 6 2,375,000 $ 2,375,000 Series 2006C 60,000.000 60,000,000 60.000.000 Series 2008A 30,040,000 30,000,000 — 30,000,000 Series 2010B 95,000,000 95,000,000 — 95,000,000 — Series 2011E 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 33.932,50G 1,792.500 32,040,000 1,910,000 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 21.064,500 — 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 97,000,000 35,519,000 — 1,520,000 33,999,000 1,560,000 Series 2011A 99,760,300 1,006,572 30,955,981 — 31.962,553 — Capital Lease: Oracle/Blue Heron 12,000,000 3,096,140 — 3,096,140 $ 1,154,052,369 $ 6588,396,362 $ 399,618,292 $ 180,947;996 877,066,658 $ 19,435,714 Add: Unamortized premium, net 76,008,897 Less: Deferred loss on refunding (10,617,604) Bond issue costs, net (9,138,892) Total $ 933,319,059 Deposits and accrued expenses: Landfill closure and pcstc:osure costs 8 721,066 $ 14,734 $ — c 735,800 $ — Compensated absences 7,269,231 853,872 595,306 7,524,797 1,981,199 Net OPEB obligation 3,399,5555 2,132,454 1,513,300 4,018,709 — Total $ 11,989,852 $ 3,001,060 $ 2,111,606 $ 12,279,306 $ 1,881.199 Page 32 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The following is a summary of changes in the District's long-term liabilities for the year ended June 30, 2012: Original Issuance _ Amounts Bonds and notes payable: Wastewater System Senior Revenue Bonds: Series 2004A $ Series 2006C Series 2008A Series 2010E Series 2011E Water Pollution Control and Drinking Water Subordinate Revenue Bonds (State Revolving Loans Program): Series 2004)3 Series 2005A Series 2006A Series 2006B Series 2008A/B Missouri Department of Natural Resources: Energy Loan Program Energy Loan Program Series 2009A Series 2010A Series 2010C Series 2011A Capital Lease: OraclelBlue Heron Add: Unamortiaed premium, net Less: Bond issue costs, net Total 175,000,000 60,000,000 90,000,000 85,000,000 52,250,000 161,280,000 6,800,000 42,715,000 14,205,000 40,000,000 98,595 223,793 28,000,000 7,980,700 37,000,000 39,769,300 12 000,000 $$ 78 Balance June 30, 2011 Additions Retirements $ 165,590,000 $ 60,000,000 30,000,000 95,000,000 123,055,000 5,370,000 36,395,000 12,285,003 35,610,000 25,251 22,053,200 2,852,447 329,000 52,250,090 223,793 3,195,942 36,671,000 1,006,572 Balance June 30, 2012 Current Portion $ 1,960,000 $ 163,630,000 $ 2,165,000 60,000,000 30,000,000 85,000,000- 52,250,000 7,095,000 315,000 2,110,000 665,000 1,777,500 11,783 968,700 168,000 1,481,000 115,960,000 5,055,000 34,225,000 11,620,000 33,832,500 13,468 223,798 21,084,500 5,880,989 35,519,000 1,006,672 1,640,000 7,180,000 305,000 2,140,000 675,000 1,792,500 12,157 991,100 341,100 1,520,000 6,005,982 — 2,999,942 1096140 3,096,140 $ 684,600,880 $ 93 347,907 $, 19,551,825 , 658,896,962 $ 21.857.997 14,196,464 (8,391.259), $ 869,201,567 Deposits and accrued expanses: Landfill closure and poeklosure costs $ 709,120 $ 11,946 $ — $ 721,066 $ Compensated absences 6,601,946 851,568 184,283 7,269,231 1,817,907 Net OPI1B obligation 2304,799 2.090.556 1,395,800 3,399,555 — Total $ 10,015,E $ 2.954.070 $ 1.580.088 , $ 11,389.86 $ 1.817.807 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, $720,000,000 has not been issued as of June 30, 2013. These funds were sought to enable the District to comply with federal and state clean water requirements. Page 33 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 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 have been removed from the financial statements. This refunding decreases 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. 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 years 2013 and 2012, the rate was 35%. Subsequent to year end, the District was notified the subsidy percentage would be reduced to 32% beginning in fiscal year 2014. Page 34 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 are now through May 1, 2014. The liability related to Series 2004A after May 1, 2014 has been removed from the financial statements. See the explanation for Series 2012B above for further information. The revenue bonds do not constitute a legal debt or liability for the District, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Revenue derived from the operations of the Wastewater System is pledged for the retirement of the outstanding Wastewater System Revenue Bonds listed above. Under the provisions of the bond indentures, the District covenants to establish rates for the services of the Wastewater System sufficient to fund operations, maintain reserves, and provide revenues to apply principal and interest on these bonds. Page 35 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The issuance of the revenue bonds does not obligate the District to levy any form of taxation or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The 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 2008AB (Series 2008A/B). The Series 2008A/B bonds provided funds to make loans to fourteen Missouri political subdivisions that were used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2008AB 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 will be used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 4% 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 seven 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 will be 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. Page 36 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 will be 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 ten Missouri political subdivisions and one Missouri non- profit corporation that were used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2005A bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of $6,800,000, the proceeds of which will be 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 seven 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 will be used to finance the District's three 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_ Page 37 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 and 2011A direct loans (pages 40-43) 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, 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, 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 Bons], 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, 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, 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, 2013 and 2012, the District was in compliance with this covenant. Page 38 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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, 2013 are as follows: Wastewater System Revenue Bonds Payable/ Water Pollution Control and Drinking Water Revenue Bonds Payable Years Ending June 30, Principal Interest Total 2014 $ 16,480,000 $ 38,591,403 $ 55,071,404 2015 16,440,000 37,849,836 54,289,836 2016 22,395,000 37,086,774 59,481,774 2017 23,242,500 36,050,811 59,293,311 2018 23,917,500 34,942,274 58,859,774 2019-2023 131,842,500 157,224,025 289,066,525 2024-2028 134,072,500 124,050,926 258,123,426 2029-2033 138,132,500 91,899,861 230,032,361 2034-2038 141,660,000 57,583,323 199,243,323 2039-2042 135,132,500 17,287,550 152,420,050 Total $ 783,315,000 $ 632,566t783 $ 1,415,881,783 Energy Efficiency Leveraged Note Payable In April 2004, the DNR loaned $98,595 to the District. The Energy Efficiency Leveraged Note Payable bears interest at a rate of 3.2% per annum and is payable through August 1, 2013. The purpose of this note is to finance the design, acquisition, installation, and implementation of energy conservation measures. The principal and interest on this note is paid from the energy savings from the projects or avoided costs resulting from the projects. Principal And Interest Requirements On Energy Efficiency Leveraged Note Payable The annual principal and interest requirements to maturity on the Energy Efficiency Leveraged Note Payable outstanding as of June 30, 2013 are as follows: Energy Efficiency Leveraged Note Payable Years Ending June 30, Principal Interest Total 2014 $ 1,312 $ 21 $ 1,332 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 is to finance the design, acquisition, installation, and implementation of energy conservation measures. As of June 2013, the District has completed the specific energy conservation projects and spent $199,489 of the $223,793 loan amount. The remaining $24,203 will be 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. 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, 2013 are as follows: Energy Efficiency Leveraged Note Payable Years Ending June 30, Principal Interest Total 2014 32,402 $ 3,520 $ 35,922 2015 31,332 4,590 35,922 2016 32,120 3,802 35,922 2017 32,928 2,994 35,922 2018 33,756 2,166 35,922 2019-2020 61,254 1,762 63,017 Total S 223,793 $ 18,834 S 242,627 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 is 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. Page 40 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2009A outstanding as of June 30, 2013 are as follows: State of Missouri Direct Loan Series 2009A Years Ending June 30, Principal Interest Total 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029-2031 Total $ 1,014,000 1,037,600 1,061,500 1,086,000 1,111,100 6,963,300 6,674,300 2 155 700 $ 20,093,400 $ 289,684 274,794 259,560 243,973 228,026 887,712 429,934 31,592 $ 1,303,684 1,312,294 1,321,060 1,329,973 1,339,126 6,841,012 7,104,234 2,187,292 $ 2,645,275 $ 22,738,675 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. Page 41 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010A outstanding as of June 30, 2013 are as follows: State of Missouri Direct Loan Series 2010A Years Ending June 30, Principal Interest Total 2014 $ 348,000 $ 109,299 $ 457,299 2015 355,000 104,122 459,122 2016 362,300 98,842 461,142 2017 369,600 93,452 463,052 2018 377,100 87,955 465,055 2019-2023 2,003,800 353,316 2,357,116 2024-2028 2,215,600 198,108 2,413,708 2029-2032 1,440,200 37,616 1,477,816 Total $ 7,471,600 $ 1,082,710 $ 8,554,310 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. 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. Page 42 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010C outstanding as of June 30, 2013 are as follows: State of Missouri Direct Loan Series 2010C Years Ending June 30, Principal Interest Total 2014 $ 1,560,000 $ 554,590 $ 2,114,590 2015 1,600,000 528,685 2,128,685 2016 1,641,000 502,120 2,143,120 2017 1,684,000 474,862 2,158,862 2018 1,727,000 446,903 2,173,903 2019-2023 9,335,000 1,788,996 11,123,996 2024-2028 10,611,000 972,593 11,583,593 2029-2032 5,841,000 145,835 5,986,835 Total $ 33,999,000 $ 52.414,584 $ 39,413,584 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. In accordance with the Direct Loan Series 2009A, 2010A, 2010C and 2011A, 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, 2013 and 2012, the District was in compliance with this covenant. 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. As of June 30, 2013 the outstanding loan balance was $31,962,553. The payment requirements to maturity will be determined after the debt is fully issued. Page 43 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Master Equipment Lease / Purchase Agreement In June 2009, the District entered into a lease purchase agreement in which the District has received proceeds in the total amount of $12,000,000 in varying installments. These proceeds were used to lease technology related to the District's upgrade to a new enterprise system. The lease bears interest at a rate of 3.2% and was payable through June 19, 2013, at which time the District has the option to purchase the leased equipment. 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 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 tar 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 2012B 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, 2013 and 2012, cash and investments in the Debt Service Reserve Fund totaled $46,962,390 and $34,861,380, respectively. Page 44 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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, 2013 and 2012, cash and investments in the Special Participant Bond Reserve Account held on behalf of the District totaled $129,456,509 and $137,354,308, 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, 2013. 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, and 2012A bonds, shall be deposited into the Project Fund. At June 30, 2013 and 2012, cash and investments in the Project Fund totaled $160,339,298 and $51,976,851, 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, 2013 and 2012, cash and investments in the Rebate Fund totaled $234,238 and $234,216, respectively. Page 45 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 shall 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, 2013 was $877,066,658 and $950,947,897, respectively. The carrying amount and estimated fair value of the District's long-term debt as of June 30, 2012 was $658,396,362 and $733,956,055, respectively. 7. Pension Plan Plan Description The Metropolitan St. Louis Sewer District Employees' Pension Plan (the Plan) is a non-contributory 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 District's Defined Contribution Plan and/or the Deferred Compensation 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, amends 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. Page 46 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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. Page 47 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 $11,564,228 and $10,719,154, excluding certain professional fees paid by the District, were made to the Plan during the District's fiscal years ended June 30, 2013 and 2012, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at December 31, 2012 and 2011, respectively, and for 2012 consisted of a) $6,195,693 normal cost plus b) $4,748,053 amortization of the unfunded actuarial accrued liability and prior changes c) multiplied by an interest factor of 1.0725. Page 48 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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. Significant actuarial assumptions used in the valuations are as follows: Latest valuation date Actuarial cost method Amortization method Amortization period Asset valuation method Post -retirement benefit increases Investment rate of return Projected salary increases Social Security wage base December 31, 2012 Entry Age Normal Level dollar closed 20-year period Three-year average of adjusted market values CPI with maximum 3% of current benefit or $50/month, and benefit increases lifetime maximum 45% in the original benefit or $750/month 7.25% per annum (1) 4.5% - 10.0% per annum (1) 4.0% per annum increase (1) Includes inflation component of 3.0% Trend Information Certain actuarial assumption changes were made and went into effect January 1, 2012. They are as follows: • The assumed interest rate was decreased from 7.5% to 7.25%. • A five-year projection was added to the healthy mortality assumption to reflect expected future mortality improvements. • The amount of assumed investment related expenses paid from the Trust was decreased to reflect a more conservative interest rate assumption. 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 2013 2012 2011 $ 11,564,228 10,719,154 10,500,769 100% 100% 100% Page 49 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Funded Status And Funding Progress As of January 1, 2013, the Plan was 83.0% funded. The actuarial accrued liability for benefits was approximately $266,371,000, and the actuarial value of assets was approximately $221,144,000, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $45,227,000. The covered payroll (annual payroll of active employees covered by the plan) was approximately $48,333,000, and the ratio of the UAAL to covered payroll was 93.6%. 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. 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. Page 50 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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. 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. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 $523,670 and $254,433 for the years ended June 30, 2013 and 2012, respectively. 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% Page 52 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 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. Page 53 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 Normal cost Interest to end of fiscal year Annual Required Contribution (ARC) Interest on net OPEB obligation Adjustment to ARC Annual OPEB cost Contributions made Increase in net OPEB obligation Net OPEB obligation - beginning of year $ 839,500 1,166,900 90,300 S 2,096,700 8 152,980 (117 ,226) 2,132,454 (1,513,300) 619,154 3,399,555 Net OPEB obligation - end of year $ 4,018,709 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. Trend Information Fiscal Year 2013 2012 2011 Annual Required Contribution (ARC) $ 2,096,700 2,059,000 2,142, 000 Percentage Of ARC Contributed 72.2 67.8 64.5 Net OPEB Obligation $ 4,018,709 3,399,555 2,704,799 As of June 30, 2013, the Plan was not funded. The actuarial accrued liability for benefits as of July 1, 2011, the latest actuarial valuation was approximately $24,103,000, and there were no assets, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $24,103,000. The covered payroll (annual payroll of active employees covered by the plan) in 2011 was approximately $52,649,000, and the ratio of the UAAL to covered payroll was 45.8%. Page 54 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 Actuarial cost method Discount rate Amortization method Amortization period Inflation rate Investment Rate of Return Health cost trend assumption Medical Trend: July 1, 2011 Projected Unit Credit 4.5% per annum Level percentage of payroll amount, open 30-year period 3.0% 4.5% annual returns net of both administrative and investment expenses Getzen Trend Model - 7.6% graded to 4.7% over 70 years Year Medical Year Medical 2011 7.6% 2040 5.4% 2012 6.9 2045 5.3 2013 6.3 2050 5.3 2014 6.0 2055 5.3 2015 6.0 2060 5.3 2016 6.0 2065 5.2 2020 5.9 2070 5.2 2025 5.8 2075 5.0 2030 5.8 2080 4.8 2035 5.7 2081+ 4.7 Page 55 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 Mortality 4.5% per annum RP 2000 Mortality Table (employee and healthy annuitant tables) Termination Of Employment: Select Rates Ultimate Rates (0 to 4 years of service) (after 4 years of service) Years Of Attained Service Rate Age Rate 0 20.0% 20 5.5% 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. Retirement - Rates Vary By Age Age Before 75 Points After 75 Points 55 1.0% 10.0% 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 Page 56 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Disability Percent Becoming Age Disabled 20 30 40 50 0.056% 0.064 0.102 0.311 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 position. At June 30, 2013 and 2012, these liabilities amounted to $3,041,045 and $2,575,977, respectively. 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 2013 and 2012 were as follows: Liability, beginning of year Current year claims and changes in estimates Claim payments Liability, end of year 2013 2012 $ 2,575,977 12,547,715 (12,082,647) $ 5,557,000 9,350,602 (12,331,625) $ 3,041,045 $ 2,575,977 Page 57 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 $735,800 and $721,066 reported as landfill closure and post - closure care liabilities at June 30, 2013 and 2012, respectively, represent the cumulative amounts reported at fiscal year-end based on the use of 94.3% and 92.4% of the estimated capacity of the landfill for fiscal years ended 2013 and 2012, respectively. The District will recognize the remaining estimated cost of closure and post -closure care of $44,202 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 2013. 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 statements of net position will be adjusted accordingly. Page 58 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 Department of Natural Resources ("DNR") regarding the sewer collection system, both the combined system and the sanitary system, for several years. The Missouri Coalition for the Environment ("MCE") gave Notice of Intent to Sue the District under the citizen suit provisions of the Clean Water Act. EPA and the DNR then brought the suit in June 2007, and MCE moved to intervene. Intervention was granted in August 2007. In October 2007, the Court granted the District's motion to dismiss all of the plaintiffs' claims for civil penalties attributable to any and all of the District's alleged violations of the Clean Water Act that occurred before June 11, 2002. Also, the suit 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) On January 23, 2011, the Plaintiffs, excluding the State of Missouri, filed a Motion to Enter the Proposed CD. That same day the State of Missouri filed a Motion to Dismiss their Claims without Prejudice. On January 17, 2012, MSD filed a Motion to Support the State of Missouri's Motion only if conditions were imposed. On February 9, 2012, the State filed a Motion opposing the conditions proposed by MSD. On April 27, 2012, the Court entered the decree, thus concluding the litigation of this lawsuit. On that same day the Court entered a Memorandum and Order regarding the State of Missouri's Motion to Dismiss its Claims. The Court realigned the State of Missouri as a defendant and reaffirmed the August 3, 2009, decision by the Eighth Circuit Court of Appeals that the State had waived its sovereign immunity. Although this litigation matter has concluded, MSD is working 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's first report was submitted on May 24, 2012. 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. William Zweig et al. v. Metropolitan Sewer District. This case was filed on July 18, 2008 and, as amended, contends that Metropolitan Sewer District Ordinances No. 12560 and No. 12789, which enacted increases in the District's stormwater user charge based on the amount of impervious area on the customer's property, are unconstitutional. The lawsuit claims the ordinances violate the so-called Hancock Amendment, Mo. Const. art. X, § 22(a), because the stormwater user charge is in reality a tax that requires voter approval. The District's Board of Trustees passed the ordinances in December 2007 and December 2008, respectively, without submitting them to the voters. The District contends the stormwater user charge is not a tax and, thus, not subject to voter approval. The original plaintiff is a District stormwater customer who seeks to represent a class of all the District stormwater customers. In July 2009, two more plaintiff class representatives were added to the lawsuit. The lawsuit seeks (1) a declaration that the stormwater user charge is unconstitutional, (2) a refund of all stormwater user charges collected, and (3) payment of the plaintiffs' costs, including attorneys' fees. Page 60 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Trial was held April 13, 2010 through April 16, 2010. On July 9, 2010, the court handed down Findings of Fact, Conclusions of Law, Judgment and Decree in the first phase of the bifurcated trial. The Court declared the Stormwater User Charge is a tax under the Hancock Amendment. The second phase of the trial was heard on October 6, 2010, to determine the amount, if any, to be refunded. The amount of a full refund would be approximately $87 million; a partial refund for the additional amount collected under the user charge would amount to approximately $35 million. The judge ruled on November 29, 2010, that no refund would be issued by MSD. The third phase, to determine the amount of Plaintiffs' counsel's attorneys' fees, to be paid by MSD, was heard on January 18, 2011. On February 4, 2011, the judge awarded Plaintiff's counsel $4.8 million in attorney's fees and expenses. The record on appeal was filed July 20, 2011, with the Court of Appeals, Eastern District of Missouri. The attorney's fees and expenses were paid into escrow on September 9, 2011, and will remain in escrow pending finality of the litigation. The Court of Appeals heard oral argument on March 6, 2012. On March 27, 2012, the Appellate Court Ruling upheld the Trial Court's decision that the stormwater fee is a tax and that no refund was due, and reversed the application of a multiplier on attorney's fees. On April 11, 2012, MSD filed a Motion for Rehearing by the Appellate Court and an Application for Transfer to the Missouri Supreme Court. The Appellate Court denied both. On May 29, 2012, MSD filed its Application directly to the Missouri Supreme Court requesting a transfer. On June 1, 2012, the National Association of Clean Water Agencies was allowed to file suggestions in support of our Application for Transfer. On May 21, 2013 the Missouri Supreme Court heard oral arguments. The District is currently awaiting their ruling. 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 two (2) cases remain. The remaining cases are one (1) wrongful death and one (1) property damage case. Two (2) of the three (3) cases resolved were voluntarily dismissed by the plaintiffs and the other case was a property damage case which settled. Subsequent to June 30, 2013, five (5) new property damage cases were filed against the District. Page 61 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) For The Years Ended June 30, 2013 2012 Cash Flows From Operating Activities Received from customers $ 1,722,431 $ 1,170,326 Paid to suppliers for goods and services (13,183,062) (12,771,139) Net Cash Provided By Operating Activities (11,460,631) (11,600,813) Cash Flows Provided By Non -Capital Financing Activities Taxes levied and collected 22,974,201 24,586.887 Cash Flows From Capital And Related Financing Activities Proceeds from capital grants 24,184 — Payments for capital assets (3,526,362) ;12,813,943) Proceeds from sale of capital assets 43,815 Net Cash Used In Capital And Related Financing Activities ;3,458,363: (12,813,943) Cash Flows From Investing Activities Purchase of investments (59,591,279) (30,941,951; Proceeds from sale and maturity of investments 45,646,517 45,598,720 Investment income 376,128 445,672 Net Cash Provided By (Used In)Investing Activities (13,564,634) 18,102,441 Net Increase (Decrease) In Cash And Cash Equivalents (5,509,427) 18,274,572 Cash And Cash Equivalents At Beginning Of Year 31,453,273 13,178,701 Cash And Cash Equivalents At End Of Year $ 25,943,646 g 31.453.273 15. Subsequent Events In preparing these financial statements, the District has evaluated events and transactions for potential recognition or disclosure through October 17, 2013, the date the financial statements were available to be issued. Page 70 THE METROPOLITAN ST. LOUIS SEWER DISTRICT REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES' PENSION PLAN AND POST -EMPLOYMENT BENEFIT PLAN June 30, 2013 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)1(2) (3) (1)-(2)/(3) 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 12/31/2007 185,356 195,834 (10,478) 94.6 43,640 24.0 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) 7/1/2011 $ — $ 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 Page 71 I