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HomeMy Public PortalAboutExhibit MSD 54 - 2014 Audited Financial StatementsExhibit MSD 54 THE METROPOLITAN ST. LOUIS SEWER DISTRICT FINANCIAL STATEMENTS JUNE 30, 2014 AND 2013 IT .E:iTa E:i 11 Contents Page Independent Auditors' Report 1 - 2 Management's Discussion Of Analysis 3 - 15 Financial Statements Statements Of Net Position 16 - 17 Statements Of Revenues, Expense And Changes In Net Position 18 Statements Of Cash Flows 19 - 20 Notes To Financial Statements 21 - 76 Required Supplementary Information Required Supplementary Information - Schedule Of Funding Progress - Employees' Pension Plan And Post Employment Benefit Plan 77 h RubinBrown Independent Auditors' Report Board of Trustees The Metropolitan St. Louis Sewer District St. Louis, Missouri Report On The Financial Statements RubinBrown LIP Certified Public Accountants & Business Consultants One North Brentwood Saint Louis, MO 63105 T 314.290.3300 F 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, 2014 and 2013, and the related notes to the financial statements, which collectively comprise the District's financial statements as listed in the table of contents. Management's Responsibility For The Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Controller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. me.cenn.m immix, .1 BAKER TTLLY INTERNATIONAL The 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, 2014 and 2013, and the changes in financial position and cash flows thereof for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 1 to the financial statements, the District adopted the provisions of Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities, in fiscal year 2014. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and Schedule of Funding Progress for the Employees' Pension Plans and Other Post -Employment Benefit Plan, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required By Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 17, 2014, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance. LLP October 17, 2014 Page 2 THE METROPOLITAN ST. LOUIS SEWER DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS For The Years Ended June 30, 2014 And 2013 The annual report of The Metropolitan St. Louis Sewer District (the "District") includes the independent auditors' report, management's discussion and analysis ("MD&A"), and the financial statements accompanied by notes essential to the user's understanding of the financial statements. Management of the District has provided this MD&A to be used in combination with the District's financial statements. This narrative is intended to provide the reader with more insight into management's knowledge of the transactions, events, and conditions reflected in the accompanying financial statements and the fiscal policies that govern the District's operations. 2014 Financial Highlights ➢ The District increased current, restricted and other assets by $101.2 million as a result of inflows from bond proceeds and increased receivables from slight increase in sewer rates. > The District placed $243.9 million of capital assets into service during fiscal year 2014. The continued high level of capitalization reflects the District's work to meet long-term plans per the EPA consent decree entered into August 14, 2011. Capitalized assets included: Treatment and disposal plant and equipment $173.5 million Collection and pumping plant $60.8 million Land $5.5 million General plant and equipment $4.1 million In conjunction with the new assets, accumulated depreciation increased by $59.8 million and construction in progress decreased $60.6 million. > The District issued one new senior bond for $150 million. 2013 Financial Highlights > The District increased current, restricted and other assets by $195.4 million as the result of inflows from bond proceeds and increased revenue from slight increase in sewer rates and improved collection activities. > The District placed $200.6 million of capital assets into service during fiscal year 2013. The continued high level of capitalization reflects the District's work to meet long-term plans per the EPA consent decree entered into August 2011. Capitalized assets included: Collection and pumping plant $178.4 million Treatment and disposal plant and equipment $15.5 million Land $4.0 million General plant and equipment $2.7 million Page 3 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) In conjunction with the new assets, accumulated depreciation increased by $66.5 million and construction in progress decreased $18.6 million. > The District issued one new senior bond for $225 million and refunded an existing bond with favorable interest reduction. Required Financial Statements The financial statements presented by the management of the District include the Statements of Net Position; Statements of Revenues, Expenses, and Changes in Net Position; and Statements of Cash Flows. These statements are prepared using the accrual basis of accounting. This method of accounting recognizes revenue at the time it is earned and expenses when the related liability occurs. As a result of using this method of accounting, the District's performance over the time period being reported is more easily determinable. The Statements of Net Position provide a report of the District's current, restricted, and other non -current assets such as cash, investments, receivables, and property. Also, the Statements of Net Position provide a summary of the District's current, restricted, and non -current liabilities, including contracts and accounts payable, deposits and accrued expenses, and bond and notes payable. Deferred outflows and inflows, where applicable, will also be included. The final section of the Statements of Net Position, the net position section, contains earnings retained for use by the District. Increases or decreases in the net position section may be indicative of an improving or declining financial position. This statement provides the basis for computing rate of return, evaluating the capital structure of the District, and assessing the liquidity and financial flexibility of the District. The Statements of Revenues, Expenses, and Changes in Net Position summarize all of the year's revenue and expense. These statements indicate how successful the District was at maintaining expenses below the level of revenue earned. The Statements of Cash Flows account for the net change in cash and cash equivalents by summarizing cash receipts and cash disbursements resulting from operating activities, non -capital financing activities, capital and related financing activities, and investing activities. These statements assist the user in determining the sources of cash coming into the District, the items for which cash was expended, and the beginning and ending cash balance. Page 4 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Financial Analysis The District's financial position improved in the current year, as evidenced by the increase in net position of $27.9 million. The improvement is due to the increases in restricted funds of $31.7 million and unrestricted funds of $28.5 million. Restricted funds increased due to maintaining higher reserves for debt service and unrestricted funds increased due to an overall positive change in net position. This was offset by a decrease in net investment in capital assets of $32.3 million as more debt was incurred than capital created during 2014. Condensed Financial Statements and Analysis Condensed Statements of Net Position (000s) lnnereaee • "Increase 2013 (Decrease) a 2012 (Decrease) 2014 As Restated 2014-2013 As Restated - 2013-2012 Assets: Current, restricted, and other assets $ 704,266 $ 603,104 .$ 101,162 . $ 407,731 . $ 195;373 , Capital assets (net of accumulated _ depreciation) 2,763,413 2,659,806 108;607: 2,548,816 . 110,990 Total Assets 3,467,679 3,262,910 204,769 , 2,956,547 •306,368 Deferred Outflow of Resources: Bonds and Notes Payable -Deferred Loss on Refunding 10,108 10,618 (510) Total Deferred Outflow of Resources 10,108 10,618 .. . (510); .(510) (51.0): Liabilities: Current liabilities 95,196 89,432 `5,764 86,337 •3,09$ Non -current liabilities 1,114,639 944,038 :. 170,601 . 660,307 , 283,731 Total Liabilities 1,209,835 1,033,470 .176,365 ; 746,644 286,$20 Net Position: Net investment in capital assets 1,845,394 1,877,692 • .(32,298).. 1,928,200 (50,508) Restricted 142,764 111,066 31,E 106,693 4,373: Unrestricted 279,794 251,300 •28,.494 175,010 76,290 Total Net Position $ 2,267,952 $ 2,240,058 $ 27,894 , $ 2,209,903 $ , 30,155 '1 Page 5 THE METROPOLITAN ST. LOUTS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2014 Analysis Current, restricted and other assets increased $101.2 million or 16.8% in the current year. The increase is predominately due to unrestricted and restricted cash and investments received as part of the issuance of debt in 2014. In addition, unrestricted receivables increased due to higher sewer rates and a lower allowance for sewer service charges. Capital assets net of accumulated depreciation increased by $103.6 million or 3.9% in the current year as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities increased by $5.8 million or 6.4%, as the result of increases for new debt interest accrual and the accounting change related to accrued interest, as discussed in the Reclassification section of Note 1 to the financial statements. Non -current liabilities increased by $170.6 million or 18.1% as the District issued $150 million in new senior debt with a premium. 2013 Analysis Current restricted and other assets increased $195.4 million or 47.9% in the current year. The increase is predominately due to the restricted cash and investments received as part of the issuance of debt in 2013, used to fund more of the capital program. Capital assets net of accumulated depreciation increased by $111.0 million or 4.4% in the current year as the result of continued high levels of construction and acquisition of assets by the District. Current liabilities increased by $3.1 million or 3.6%, as the result of increases in deposits and accrued expenses from water backup claims and additional interest accruals on new debt. Non -current liabilities increased by $283.7 million or 43.0% as the District issued $225 million in new senior debt with premium. 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 2013 (Decrease) 2012 .(Decrease) 2014 As Restated 2014-2013 ; As Restated 2613-2012 Operating Revenues: Sewer service charges $ 250,133 $ 238,635 ,• $ 11,49$ ` $ 227,677 , $ ' 10,968 Provision for doubtful sewer service charge accounts 7,210 (2,655) 9,865 (6,911) 4,256 Licenses, permits, and other fees 6,563 2,731 3,832. 2,684 47 Other 1,867 3,235 (1,368) 2,550 6$$ Total Operating Revenues 265,773 241,946 23,827 226,000 15946 Non -operating Revenues: Property taxes levied by the district 27,450 26,016 1,434 . 24,604 .1,412 Investment income 2,967 1,057 1,910 , 2,407 '.(1,$50) Rent and other income 302 293 9 , 295 - _ ) Total Non -operating Revenues 30,719 27,366 3,3531 27,306 -60 Total Revenues 296,492 269,312 27,180 ; 253,306 6,006 1 Operating Expenses: - Pumping and treatment 54,126 54,526 ' (400) 49,005 . 5,521 Collection system maintenance 39,988 37,877 2,111 36,695 '• . 1,182 Engineering 12,184 12,020 - 164 8,544 • 3,476 i General and administrative 45,661 41,485 . 4,176 i 33,180 ' '8,305 Water backup claims 2,713 3,503 (790) 2,050 •1,453 ' Depreciation 74,087 70,030 4,067 ; 66,742 ,8,288'; Asset management 12,539 10,717 •1,822 1 20,092 . (9,375) Total Operating Expenses 241,298 230,158 11,140 216,308 13,E Non -operating Expenses: Net (gain) loss on disposal and sale of capital assets 5,248 796 4,452E 3,163 (,367) Non -recurring projects and studies 3,493 4,676 (4163)6,403 (1,727), Legal Claims - - 5 ' Interest expense 25,661 21,062 4,599 . 16,365 " 4,607' Total Non -operating Expenses 34,402 26,534 'T,868 , 25,936 8 Total Expenses 275,700 256,692 19,00$ 242,244 14,448 .; Income Before Capital Grants And Contribution 20,792 12,620 8,172 11,062 ..1,558 Capital Grants And Contributions 7,102 17,535 (10,433) 9,659 7,876 • Change in Net Position 27,894 30,155 (2,261): 20,721 9,434 - Net Position - Beginning of Year 2,240,058 2,209,903 - 30,155 • 2,189,182 • 20,721`' Net Position -End of Year $ 2,267,952 $ 2,240,058 $ 27,894 ' $ 2,209,903 $ 30,156 Page 7 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2014 Analysis Net position increased $27.9 million or 1.2% over the prior year. Sewer service revenue increased as a result of rate increases. The provision for doubtful sewer service charges decreased due to the District's use of new analytical tools leading the District to change its methodology in determining doubtful accounts. Operating expenses also increased primarily from various increases in operating costs. Interest expense also increased, as well as the loss on disposal. Total revenue increased by $27.2 million or 10.1%. Sewer service charges increased $11.5 million or 4.8% and the provision for doubtful accounts decreased by $9.9 million or 371.6% as explained above. Licenses, permits and other fees increased $3.8 million or 140.3% due primarily to an increase in waste haul permits. Investment income increased $1.9 million or 180.7% due to favorable market conditions. Property tax revenue increased by $1.4 million or 5.5% due to taxes collected from the prior year. Other revenue had a decrease of $1.3 million. Total expenses increased by $19.0 million or 7.4%. Operating expenses increased by $11.1 million or 4.8%. This increase is a result of the following: • $4.2 million or 10.1% increase in general administrative costs due to higher professional services primarily related to the upgrade in. the District's extensive billing and collection system. In addition, there were increases in worker's compensation and general liability judgments and claims; • $4.1 million or 5.8% increase in depreciation costs due to new asset capitalization; • $2.1 or 5.6% increase in collection system maintenance costs as a result of increased personnel costs, as well as inventory. The increase related to inventory included new process implemented for inventory obsolescence; • $1.8 million or 17.0% increase in asset management as the capital improvement fund was increased; • Offset by a decrease of $0.8 million or 22.6% in water backup due to a reduction in the claim reserve. Non -operating expenses increased by $7.9 million or 29.7%. This increase is a result of the following: • $4.6 million or 20.4% increase in interest expense due to the issuance of new senior and subordinate bonds; • $4.5 million or 559.7% increase in the loss on disposals due to the MO River Waste Water Treatment Plant expansion that included demolition of some plant assets resulting in a loss for those demolished assets; • Offset by a decrease of $1.2 million or 25.3% in non -recurring projects and studies. Page 8 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2013 Analysis Net position increased $30.1 million or 1.4% over the prior year. Sewer service revenue increased as a result of rate increases and improved collection over the prior year, expenses also increased primarily from some increases in operating costs, as well as increased water backup claims from the prior year. Total revenue increased by $16.0 million or 6.3%. Sewer service charges increased $11.0 million and the provision for doubtful accounts decreased by $4.3 million or 61.6% as part of the increases collection activities. Property tax revenue increased by $1.4 million from increased in property valuation. Other revenue increased by $0.7 million due to projects completed for the City of Arnold. Investment income declined by $1.4 million or 56.1% due to changing market conditions Total expenses increased by $14.4 million or 5.9%. Operating expenses increased by $1 R._8 million or6►.4%. This increase la of the increase is a result 1.11C following: • $8.3 million or 25% increase in general and administrative costs primarily as the result of a large insurance reimbursement in FY12 that was not repeated in FY13; • $6.7 million or 7.8% increase in combined pumping and collection costs as a result of increased personnel costs, costs related to heavy spring rains, and equipment repair and replacement; • $1.5 million or 70.9% increase in water backup claims due to more claims over the prior year when drought conditions limited flooding claims; • $3.5 million or 40.7% increase in engineering costs due primarily to personnel costs related to non -capital, asset management projects; • $3.3 million or 4.9% increase in depreciation costs due to new asset capitalization; • Offset by a decrease of $9.4 million or 46.7% in asset management as costs were eliminated. Non -operating expenses increased by $0.6 million or 1.6%. This increase is a result of the following: • $4.7 million or 28.7% increase in interest expense offset by $4.1 million or 42.8% decreases in combined losses on disposal of assets and non -recurring projects and studies. Page 9 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Condensed Statements of Cash Flows (000s) 2014 2013 Cash flows from operating activities $ 81,864 $ 84,882 Cash flows from non -capital financing activities 27,468 23,014 Cash flows from capital and related financing activities (25,597) 83,449 Cash flows from investing activities (86,487) (168,410) Net increase (decrease) in cash and cash equivalents (2,752) 22,935 Cash and cash equivalents at beginning of year 181,755 158,820 Cash And Cash Equivalents At End Of Year $ 179,003 $ 181,755 Increase (Decrease) 2014-2013 $ E3,01 4,454 (109,046) 81,923 (25,687) 22,935 $ (2,752) 2012 $ 67,839 24,604 (91,085) 60,540 61,898 96.922 158,820 Increase (Decrease) 2013.2012 . 17,043 (1,590) .174,534 (228, 950) (38,) 61,898 $ 22,935 2014 Analysis The District ended the year with $179.0 million in cash and cash equivalents or a decrease of $2.8 million from the prior year. Cash flows from operating activities decreased by $3.0 million or 3.6% as the result of increased outflows to suppliers for goods and services. Cash flows from non -capital financing activities increased by $4.5 million or 19.4% due to greater tax revenue collected, mainly from the prior year. Cash flow from capital and related financing activities decreased by $109.0 million or 130.7% as the result of decreased bond proceeds and premiums received in 2014 compared to 2013. Cash flows from investing activities increased by $81.9 million or 48.6%. The increase primarily stems from a decrease in the purchase of investments and an increase in the volume of maturities of investments. Page 10 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2013 Analysis The District ended the year with $181.8 million in cash and cash equivalents or $22.9 million more than the prior year. Cash flows from operating activities increased by $17.0 million or 25.1% as the result of increased sewer service charge revenue noted above. Cash flows from non -capital financing activities decreased by $1.6 million or 6.5% from a decrease in tax revenue collected. The decrease stems from both a decrease in property tax collection and a decision by the District to eliminate some sub -district taxes because of sufficient fund balance. Cash flow from capital and related financing activities increased by $174.5 million or 191.6% as the result of new bond proceeds partially offset by payments for capital improvement. Cash flows from investing activities decreased by $229.0 million or 378.2%. The decrease primarily stems from the volume of purchases and maturities of investments. Capital Assets Condensed Statements of Capital Assets Net of Depreciation (000s) 2014 2013 Land $ 55,538 Construction in progress 299,945 Treatment and disposal plant and equipment 737,833 Collection and pumping plant 1,637,375 General plant and equipment 32,722 Total 2014 Analysis Increase. (Decrease) 22014,2013 Increase (Decrease) 2012 2013.2012 $ 50,077 $ . 6,46.1 . $ 46,027 $ ..4,060 360,508 (60,563)• 379,119 (18,61]). 599,178 138;655 611,249 (12,071) 1,614,112 23,263 . 1,471,147 142;965 . 35,931 .(3,209), 41,274 (5,343) 2,763,413 $ 2,659,806 $ 10a,607 ; $ 2,548,816 $ 110,990 Total capital assets, net of depreciation, increased by $103.6 million or 3.9% over the prior year. Treatment and disposal plant and equipment contained the majority of the increase with a net $157.2 million or 15.3% with 173.5 million additions offset by $16.3 retirements this fiscal year. Collection and pumping plant increased $59.9 million or 2.7% primarily for capitalization of assets including dedicated assets and infrastructure repairs. Land increased $5.5 million or 10.9% from the acquisition of thirteen different properties. General plant and equipment increased $1.4 million or 1.5% primarily due to the purchase of vehicles. Construction in progress decreased $60.6 million or 16.8% as constructed assets were placed in service. For more detailed information, see Note 4, capital assets, in the accompanying notes to the financial statements. Page 11 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2013 Analysis Total capital assets, net of depreciation, increased by $111.0 million over the prior year. Collection and pumping plants contained the majority of the increase with $143.0 million coming on-line this fiscal year. Land increased $4.0 million from the acquisition of easements and other land. Construction in progress decreased by $18.6 million as constructed assets were moved into service. Treatment and disposal plant and equipment decreased by $12.1 million as the District's plants depreciated. General plant and equipment decreased by $5.3 primarily due to depreciation of existing assets. For more detailed information, see Note 4, capital assets, in the accompanying notes to the financial statements. Long -Term Debt The Metropolitan St. Louis Sewer District Condensed Statements of Long -Term Debt (000s) 2014 2013 Senior Revenue Bonds: Series 2004A S - S 2,375 Series 2006C 60,000 60,000 Series 2008A 30,000 30,000 Series 2010B 85,000 85.000 Series 2011B 48,925 50,610 Series 2012A 225,000 225,000 Series 2012B 141,730 141,730 Series 201313 150,000 Subordinate Revenue Bonds: Series 2004B 105,155 108,780 Series 2005A 4,750 4.750 Series 2006A 32,085 32.085 Series 2006E 10,945 10,945 Series 2008A13 31.140 32,040 Missouri DNR: Series 2009A 19,589 20,093 Series 2010A 7.299 7,472 Series 2010C 33,224 33,999 Series 2011A 39.769 31,963 Series 2013A 16,043 - Energy Loan Program 166 225 Oracle/Blue Heron Total $ 1,040,820 $ 877,067 Increase (Decrease) 2014-2013 $ (2,375) (1,685). 150,000 (3,625) (a) (000) (504) (173) (776) 7,806 16,043 (59) .$ 163,753 2012 $ 163,630 60,000 30,000 85,000 52,250 115,960 5,055 34,225 11,620 33,833 21,085 5,880 35,519 1,007 237 3,096 $ 658,397 Increase (Decrease) 2013-2012 t (153,2551 `(i,6407 225,000 141,730 (7;180) (306) .(2,140) .(675) {1,.793•) lit - i 2 . r1,692 (1,520) 30,956 (12) '(3,096) $ 218,670 Page 12 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) 2014 Analysis The District ended fiscal year 2014 with $1,041 million in long-term debt outstanding. The District had one bond addition this year, a senior revenue bond (Series 2013B) for $150.0 million. In addition, the District added a new SRF bond (Series 2013A) for $16.0 million and added to SRF bonds 2009A ($.5M), 2010A ($.2M), 2010C ($.8M), and 2011A ($7.8M). For more detailed information, see Note 6, long-term liabilities, in the accompanying notes to the financial statements. 2013 Analysis The District ended fiscal year 2013 with $877.1 million in long-term debt outstanding. The District had two bond additions this year, a senior revenue bond (Series 2012A) for $225.0 million and a refunding of 2004A for $141.7 million (Series 2012B). In addition, the District added to SRF bonds 2010A ($1.9M) and 2011A ($31.0M). For more detailed information, see Note 6, long-term liabilities, in the accompanying notes to the financial statements. Decisions Impacting the Future On July 7, 2011, the District entered into a Consent Decree (CD) with the U.S. Environmental Protection Agency and the Coalition for the Environment settling a lawsuit for alleged violations of the Clean Water Act. Along with providing a schedule for implementation of various system improvements and programs, the CD also addressed all allegations made by the Plaintiffs in this action. The public comment period ended October 10, 2011. The Court extended the stay of litigation until November 18, 2011, with a joint status report due on November 25, 2011. The CD did not become final until it was entered by the Federal Court on April 27, 2012. See Note 12 for additional information regarding this litigation. Integral to helping MSD's rate payers understand the Consent decree is MSD's initiation of Project Clear. The goal of Project Clear is to help MSD's rate payers have a clear understanding of MSD's goals and objectives. Project Clear consists of three main components: • Getting The Rain Out which is focused on reducing the sewer system infrastructure to help reduce basement back-ups and overflows; • Performing Repair and Maintenance to the existing infrastructure to ensure it operates as well as possible for as long as possible, and • Building System Improvements where needed to increase the capacity of the system. Page 13 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Unlike previous MSD programs, Project Clear will greatly affect the daily lives of many of our rate payers. Project Clear is needed to help the rate payer understand the individual and regional, as well as the immediate and long term, benefits of the program. The District continued to implement the next phase of the capital program reflected in the $1 billion of projects through FY16 in order to comply with the CD. At an election held on June 5, 2012, voters within the District approved the issuance by the District of $945,000,000 in sewer system revenue bonds to enable the District to comply with federal and state clean water requirements. The District may use the proceeds of such revenue bonds for the purpose of constructing, repairing, replacing and equipping new and existing District wastewater facilities. This authorization has now seen three issuances of bonds; in August 2012 of $225,000,000, October 2013 of $52,000,000, and December 2013 of $150,000,000. These funds are restricted and can only be used to fund capital expenditures. The District is also upgrading its extensive billing and collection system to incorporate the latest utility technology. The new system will result in more efficient processes and the ability to continue to expand its customer outreach efforts. The new technology will provide 21st century capabilities to utilize the multiple ways now available to better communicate with its customers understand their needs and continue to align the District's responsiveness accordingly. Full implementation of the system is expected by the summer of 2015. The District's Board of Trustees implemented an impervious based stormwater rate on March 1, 2008 replacing its prior funding mechanism of property taxes and user fees. The impervious based stormwater rate was again increased on January 1, 2009. On July 9, 2010, a circuit court of St. Louis County found this impervious rate to be unconstitutional, as implemented, under Missouri law. In response to this ruling, the Board suspended the impervious based stormwater rate and reinstituted the District's stormwater property taxes and user fees previously rolled back on a voluntary basis as part of the stormwater rate plan. The District lost both its subsequent appeals to the Appellate and Missouri Supreme Court negating the culmination of a 20-year effort to adequately fund much needed stormwater services for District ratepayers. The impact of this court decision has resulted in a dramatic reduction in stormwater services being provided across the District with many customers receiving little or no stormwater services until an alternative funding source is identified. Page 14 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Management's Discussion And Analysis (Continued) Requests For Information This financial report is designed to provide a general overview of the District's finances for all those with an interest in the District's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed or e-mailed to: Janice M. Zimmerman, Director of.Finance/CFO The Metropolitan St. Louis Sewer District 2350 Market Street St. Louis, MO 63103-2555 314-768-6200 jzimmer@stlmsd.com Page 15 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF NET POSITION Assets Current Assets Unrestricted Current Assets Cash and cash equivalents Investments Sewer service charges receivable, less allowance of $3,991,589 in 2014 and $3,819,791 in 2013 Unbilled sewer service charges receivable, less allowance of $404,638 in 2014 and $351,645 in 2013 Property taxes receivable, less allowance of $515,097 in 2014 Accrued income on investments Other receivables Supplies inventory Total Unrestricted Current Assets Restricted Current Assets Cash and cash equivalents Investments Total Restricted Current Assets Total Current Assets Non -Current Assets Restricted Assets Cash and cash equivalents Investments Long-term investments Property taxes receivable, less allowance of $623,992 in 2014 Accrued income on investments Total Restricted Non -Current Assets Other Assets Notes receivable Long-term investments Total other assets Capital Assets Depreciable: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Less: Accumulated depreciation Net depreciable assets Non -depreciable: Land Construction in progress Net capital assets Total Non -Current Assets Total Assets Deferred Outflow of Resources Bonds and Notes Payable -Deferred Loss on Refunding Total Deferred Outflow of Resources For The Years Ended June 30, 2013 2014 (As Restated) $ 95,037,786 4 91,333,756 105,100,875 68,975,608 46,563,727 34,207,405 20,231.912 17,582,233 2,136,300 . 2,325, 743 756.384 830,906 1,057,452 964,595 6,223,099 6,621,892 277,107.535 222,842,138 6,086,299 3,652,344 7,568,587 3,201,720 13,654,886 6.854.064 290,762,421 229,696,202 77,878,696 86,768,505 181,161,245 97,580,234 66,104,134 80,865,957 848,360 676,622 309,140 178,775 326,301,575 266,070,093 14,116,801 14,640,552 73.085,475 92,697.236 87,202,2 76 107.337.788 1,184,278,860 1,027,055,525 2,286,108,470 2,226,256,235 93.600.648 92,176,648 3,563,987,978 1,156,05 7,4 71 3,345,488,408 1,096,266.136 2,407,930.507 2,249,222,272 55,537,816 299,944.922 50,076,644 360,507,520 2,763,413,245 2.659.806,436 3,176,917,096 3,033,214,317 3,467,679,517 3,262,910,519 10,108,350 10,617,604 10.108,350 10,617,604 See the accompanying notes to financial statements. Page 16 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, 2014 2013 (As Restated) 30,795,756 $ 32,258,712 33,336,518 27,268,022 9,566,082 9,749,687 20,268,080 19,435,714 93,966,436 88,712,135 1,015,380 504,746 214,063 215,334 1,229,443 720,080 95,195,879 89,432,215 11,811,608 1,102,827,585 10,398,107 933,639,841 1,114,639,193 944,037,948 1,209,835,072 1,033,470,163 1,845,394,270 71,843,246 70,920,910 279,794,369 1,877,692,035 47,140,132 63,925,875 251,299,918 $ 2,267,952,795 $ 2,240,057,960 See the accompanying notes to financial statements. Page 17 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Operating Revenues Sewer service charges Recovery (provision) of 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 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, As Previously Stated Effect of Adoption of GASB 65 Net Position - Beginning Of Year, As Restated Net Position - End Of Year For The Years Ended June 30, 2013 2014 (As Restated) $ 250,133,022 $ 238,634,709 7,210,322 6,562,607 1,866,902 (2,654,644) 2,731,497 3,234,775 265,772,853 241,946,337 54,125,550 39,987,811 12,184,007 45,661,041 2,713,168 74,087,207 12,538,851 54,526,256 37,876,932 12,019,666 41,485,255 3,503,220 70,029,840 10,717,265 241,297,635 230,158,434 24,475,218 27,450,319 2,966,549 302,506 11,787,903 26,016,135 1,056,966 293,159 30,719,3 74 27,366,260 5,248,443 3,492,667 25,661,127 34,402,237 20,792,355 795,527 4,676,203 21,062,474 26,534,204 12,619,959 6,873,732 228,748 17,510,735 24,184 7,102,480 17,534,919 27,894,835 2,240,057,960 30,154,878 2,218,294,341 (8,391,259) 2,240,057,960 2,209,903,082 $ 2,267,952,795 $ 2,240,057,960 See the accompanying notes to financial statements. Page 18 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 Used In Investing Activities Net Increase (Decrease) 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) Refunding - debt issued 2012B (See Note 6) Debt refunded 2004A (See Note 6) For The Years Ended June 30, 2014 2013 $ 251,198,137 (91,425,385) (77,909,148) 81,863,604 27,468,024 $ 242,341,372 (92,818,922) (64,640,786) 84,881,664 23,013,770 233,450 173,411,628 9,937,121 348,476 (10,071,556) (37,522,184) (163,882,733) 345,039 1,603,658 (25,597,101) (627,117,753) 535,352,043 4,976,853 302,506 (86,486,351) (2,751,824) 181,754,605 24,639 257,888,292 35,097,262 250,753 (21,857,996) (35,117,398) (154,847,862) 269,073 1,742,160 83,448,923 (671,031,454) 497,314,140 5,014,629 293,159 (168,409,526) 22,934,831 158,819,774 $ 179,002,781 $ 18,928,794 6,873,732 147,773 $ 181,754,605 $ 15,362,389 17,510,735 (3,140,483) 141, 730,000 (161,255,000) See the accompanying notes to financial statements. Page 19 THE METROPOLITAN ST. LOUIS SEWER DISTRICT STATEMENTS OF CASH FLOWS (Continued) Reconciliation Of Operating Income (Loss) To Net Cash Flows Provided By Operating Activities Operating Income (Loss) Adjustments to reconcile operating income (loss) 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 in deposits and accrued expenses Net Cash Provided By Operating Activities For The Years Ended June 30, 2014 2013 $ 24,475,218 74,087,207 (15,006,001) (97,560) 398,793 (6,122,709) 4,128,656 $ 11,787,904 70,029,840 959,525 (91,259) (320,858) (1,109,475) 3,625,987 $ 81,863,604 $ 84,881,664 See the accompanying notes to financial statements. Page 20 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. Page 21 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 22 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 accounts in prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements. The District had two main areas of reclassifications within the financial statements. Page 23 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The first new presentation affected numerous asset lines as well as two liability lines and the net position section. The District's review of GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre -November 30, 1989 FASB and AICPA Pronouncements (GASB 62), paragraphs 30 & 31 resulted in the District reclassifying the following: • Reclassified the District -wide Stormwater Fund out of Non -current Restricted Assets and placed into Current Unrestricted Assets as well as out of Current Liabilities Payable from Restricted Assets and placed into Current Liabilities. This was due to the determination of ordinance 13274 having no intent to restrict these funds and nearly all intended expenditures are operational, not capital in nature. • Reclassified the Stormwater Operations and Maintenance Fund out of Non- current Restricted Assets and placed into Current Restricted Assets. This was due to the determination of ordinance 13274 stating a restriction of using funds solely for "existing public stormwater facilities." in addition, nearly all intended expenditures are to be operational, not capital, in nature. • The presentation of unspent bond proceeds changed from Current Restricted Assets and is now presented in Non -current Restricted Assets. This was due to the determination that these funds are to be disbursed for the construction and/or acquisition of non -current assets resulting in the assets being categorized as non -current. All expenditures are capital not operational, in nature. Page 24 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The reclassification presented in the 2013 financial statements is as follows: Old Presentation of FY 2013 Current Assets: Unrestricted Current Assets: Cash and cash equivalents Investments Accrued income on investments Restricted Current Assets: Cash and cash equivalents Investments Non -current Assets: Restricted Assets: Cash and cash equivalents Investments Long-term investments Accrued income on investments Other Assets Long-term investments Current Liabilities: Contracts and accounts payable Current Liabilities Payable From Restricted Assets: Contracts and accounts payable Grand Total Net Position: Restricted for: Subdistrict construction and improvement Unrestricted New Presentation of FY 2013 Current Assets: Unrestricted Current Assets: $ 84,400,724 Cash and cash equivalents 67,190,638 Investments 807,682 Accrued income on investments 152,398,994 69,449,837 79,625,995 149,075,832 27,904,044 22,940,929 83,261,867 202,049 184,808,389 90,301,826 Restricted Current Assets: Cash and cash equivalents Investments Non -current Assets: Restricted Assets: Cash and cash equivalents Investments Long-term investments Accrued income on investments Other Assets Lang -term investments $ 91,333,756 68,975,608 830,906 161,140,270 3,662,344 3,201,720 6,854,064 86,768,505 97,580,234 80,865,957 178,775 266,898,471 92,697,236 Current Liabilities: 27,421,384 Contracts and accounts payable 32,258,712 5,342.074 Current Liabilities Payable From Restricted Assets: Contracts and accounts payable 504.746 $ 493,321.583 Grand Total $ 493,321,583 $ 70,225,288 245,000,561 Net Position: Restricted for: Subdistrict construction and improvement Unrestricted $ 63,925,875 251,299,919 Grand Total $ 315,225,794 Grand Total $ 315,225,794 The second presentation change relates to the District's classification of principal and interest payments. All of the District's subordinate debt requires monthly escrow deposits to be made for semiannual/annual principal and interest payments due on either January 1st or July 1st.. In prior years, the principal liability was reduced and interest expense was recognized at the time each monthly escrow deposit was recorded. In order to align outstanding long-term debt on the District's Statement of Net Position with bank account balances, the District now records a reduction to the liability only when the actual principal payments are made to the bond holders. In addition, the subordinate bonds' interest is accrued and an expense is recognized when interest is due. This change represents a change in accounting practice and has been retroactively adopted and balances have been restated as of July 1, 2012. This change had no retroactive effect on net position. THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Adoption of New Accounting Standards During the year, the District implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabilities (GASB 65), which amends or supersedes the accounting and financial reporting guidance for certainitems previously required to be reported as assets or liabilities. The objective is to either properly classify certain items that were previously reported as assets and liabilities as deferred outflows of resources or deferred inflows of resources or recognize certain items that were previously reported as assets and liabilities as outflows of resources (expenses) or inflows of resources (revenues). Under GASB 65, bond issuance costs will now be expensed as incurred, instead of being amortized over the term of the bond. The implementation of GASB 65 also resulted in the reclassification of the unamortized portion of bond refunding losses related to the District's 2012B refunding issue. These amounts are now reported as Deferred Outflows of Resources instead of as a reduction of Bonds Payable as shown below: Account New Classification Amount Deferred Loss on refunding (previously included in bonds payable, net) Deferred outflows of resources Bond issuance costs (the unamortized portion was previously reported as an asset) $ 10,617,604 Outflow of resources 9,138,892 The District's adoption of GASB 65 in fiscal year 2014 has been applied retroactively to fiscal year 2012 to reflect the expensing of bond issuance costs. The impact of this change on the District's Statement of Net Position is as follows: Net position, beginning of year, as previously reported Effect of change in accounting related to bond issuance costs Net position, end of year, as restated June 30, 2013 June 30, 2012 $ 2,249,196,853 $ 2,218,294,341 (9,138,893) (8,391,259) g 2,240,057,960 $ 2,209,903,082 Accounts Receivable Accounts receivable is composed primarily of charges to customers for wastewater and stormwater services. Receivables are reported at their gross values net of an allowance for uncollectible amounts. Page 26 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 2014 and 2013, the District capitalized $10,838,482 and $12,305,615, respectively, of net interest expense. Page 27 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 figure is netted against those materials and supplies deemed to be obsolete. All inventory is stated at cost and expenses are recognized when the inventory is consumed. Net Position The District's net position is calculated as follows: the net investment in capital assets component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding debt that is attributable to the acquisition, construction, or improvement of those assets. The restricted component of net position consists of constraints placed on net position through external constraints imposed by creditors, grantors, contributors, laws, or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Property taxes levied by the various subdistricts and other revenues received for construction in those sub -districts have also been restricted for that use. Sewer extension and connection fees, grants, and other revenues received for construction within certain sub -districts have been restricted for that use. In addition, a portion of sanitary sewer charges have been restricted for the payment of principal and interest on certain debt of the District. The unrestricted net position component of net position consists of net position that does not meet the definition of restricted or net investment in capital assets. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. Capital Contributions Capital contributions to the District represent government grants and other aid used to fund capital projects. In accordance with GASB 33, capital contributions are recognized as revenue when the expenditure is made and the amount becomes subject to claim for reimbursement. Page 28 TFIE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Bond Issuance Costs Bond issuance costs incurred are paid from the proceeds of revenue bond issues. Due to GASB 65, bond issue costs are now expensed when incurred, whereas previously they were deferred and amortized using the straight-line method over the term of the bonds. For more detail, please refer to the section entitled "Adoption of New Accounting Standards." Compensated Absences Vacation Under the terms of the District's personnel policies, employees are allowed to carry a maximum of 30 to 45 days of vacation (depending on length of service) from one calendar year to the next. Since vacation accrued at year-end is expected to be used by the employee during the following fiscal year, the accrual is reported as a component of current deposits and accrued expenses payable. Sick Leave Employees earn sick pay benefits at accrual rates ranging from 10 days per year to 12 days per year (depending on length of service). Unused sick leave can be carried over at year-end without limitation. An employee retiring from the District with five or more years of service, who has unused accrued sick leave remaining, will be compensated for that portion of unused accrued sick leave at the rate of 1-1/4% for each year of District service. The District has recorded a liability, which has been actuarially determined to be equal to the accumulated expense charge that will amortize the employees' benefits over their period of District service. The liability, included in current deposits and accrued expenses payable, includes vested accumulated rights to receive sick leave benefits estimated to be paid within one year. The portion of sick leave expected to be paid after one year is recorded as a component of non -current deposits and accrued expenses payable. Use Of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. Page 29 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 2. Deposits And Investments Deposits At June 30, 2014 the reported amount of the District's deposits was $46,969,658 and the bank balance was $50,725,661. Of the bank balance, $537,812 was covered by federal depository insurance; $50,187,849 was collateralized with securities held by a third party financial institution in the District's name. In addition, the District has money market mutual funds of $12,030,165 held in a trusted escrow account for the State that will be used to make future bond payments. At June 30, 2013 the reported amount of the District's deposits was $37,781,854 and the bank balance was $40,154,696. Of the bank balance, $585,749 was covered by federal depository insurance and $39,568,947 was collateralized with securities held by a third party financial institution in the District's name. Custodial credit risk for deposits is the risk that, in the event of bank failure, the District's deposits may not be returned to the District. The District's investment policy complies with the provisions of state laws and requires collateralization on repurchase agreements, time certificates of deposit and deposits with banking institutions with a market value of 103%. Deposits in each bank are insured by the Federal Deposit Insurance Corporation (FDIC) in the amount of $250,000 for interest bearing accounts and noninterest bearing accounts. Investments With the approval of the District's Board of Trustees, the Secretary -Treasurer is authorized to invest excess cash in any investment authorized by the District's charter. The District's investment policy conforms to the investment policy guidelines for the State of Missouri. The District's investment policy authorizes the District to invest in the following instruments: U.S. Treasury obligations, certificates of deposit, obligations of any agency or instrumentality of the U.S., repurchase agreements, bankers' acceptances, and commercial paper, all according to terms specified in the policy. The District also has investments in money market mutual funds that hold securities approved by the District's investment policy. At June 30, 2014 and 2013, all of the District's investments were in compliance with the District's investment policy and charter. Page 30 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) A summary of deposits and investments as of June 30, 2014 and 2013 is as follows: Investment Type Deposits Money Market Mutual Funds Certificates of deposit U.S. Treasury and agency obligations Commercial paper Total 2014 2013 Cost Fair Value Cost Fair Value $ 46,969,658 $ 12,030,165 100,000 456,905,358 97,513,315 46,969,658 $ 12,030,165 100,000 455,362,626 97,560,650 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 $ 613,518,495 $ 612,023,098 $ 526,841,780 $ 525,075,360 Reconciliation to the financial statements: Cash and Cash Equivalents Unrestricted current Restricted current Restricted noncurrent Investments Unrestricted current Restricted current Restricted noncurrent Long-term Investments Restricted noncurrent Other 2014 2013 $ 95,037,786 $ 6,086,299 77,878,696 105,100,875 7,568,587 181,161,246 66,104,134 73,085,475 91,333,756 3,652,344 86,768,505 68,975,608 3,201,720 97,580,234 80,865,957 92,697,236 $ 612,023,098 $ 525,075,360 Page 31 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Interest Rate Risk As of June 30, 2014 and 2013, the District had the following investments and maturities: 2014 2013 Investment Type Fair Value Weighted Average Maturity (Years) Fair Value Weighted Average Maturity (Years) Money market mutual 5 12,030,165 0.00 $ 4,857,117 0.00 Certificates of deposit 100,000 2.72 200,000 2.07 L.S. Treasury obligations 285,468,272 1.33 188,141,798 0.65 U.S. agency obligations 169,894,354 1.40 198,715,721 2.05 Commercial paper 97,560,650 0.24 95,378,870 0.19 Total S 565,053,441 0.96 8 487,293,506 1.13 In accordance with the District's investment policy, the District will minimize the risk that the fair value of debt securities in the portfolio will fall due to increases in general interest rates by: 1. Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. 2. Investing operating funds primarily in short-term securities. 3. State law limits the maximum stated maturities to five years on any investment from the date of purchase. Long-term Investments While the majority of the District's portfolio is made up of short-term investments, the District also categorizes a sizeable amount as long-term under the categories discussed in Note 1. A portion of the District's long-term investments are considered callable securities. These callable securities give the issuer the right to redeem at predetermined prices at a specific time prior to maturity. When a security is called, the District reflects an immediate reclass from long-term investment to cash. Custodial/Credit Risk The District will minimize credit risk for investments, the risk of loss due to failure of the security issuer or backer, by: 1. Prequalifying the financial institutions, broker/dealers, intermediaries, and advisors with which the District will do business. Page 32 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 2. Diversifying the portfolio so that potential losses on individual securities will be minimized. In accordance with its investment policy, the District limits its investments in these investment types to the top rating issued by Nationally Recognized Statistical Rating Organizations. As of June 30, 2014 and 2013, the District's investments in commercial paper were rated A-1 by Standard & Poor's (S&P) and P-1 by Moody's Investors Service (Moody's). The District's investments in U.S. agency obligations that do not carry the explicit guarantee of the U.S. Government all carry a rating assigned by S&P of "AA+" besides one short-term U.S. agency obligation that carries a rating of "A 1+", with a value of $11,099,030. Money market investments are rated as AAAm and Aaa-mf by S&P and Moody's, respectively. Concentration Of Credit Risk The District's investment policy places no limit on the amount the District may invest in any one issuer with respect to U.S. Treasury obligations and collateralized time and demand deposits. U.S. agency obligations and government -sponsored enterprises are limited to 60% of the portfolio, with no more than 30% of the total portfolio invested in securities of any one agency; and collateralized repurchase agreements are limited to 50% of the portfolio. U.S. agency callable securities are limited to 30% of the portfolio, and commercial paper and bankers' acceptances are limited to 25% each, with no more than 5% of the total portfolio invested in any one issuer. The following table lists investments in issuers that represent 5% or more of total investments at June 30, 2014 and 2013: Issuer Treasury Notes Federal Home Loan Bank Federal National Mortgage Association Federal Home Loan Mortgage Corporation Percent Of Total Investments 2014 2013 50.7 6.1 10.1 9.7 35.8 13.3 13.1 10.1 Page 33 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 3. Note Receivable The District has a note receivable with the City of Arnold, Missouri (the "City") for its portion of the capital costs related to the Lower Meramec Wastewater Treatment Plant. The original loan bears interest at 4.35%, while the two new loans added during the 2013 fiscal year bear interest of 4.50% and 3.52%. The current portion of this note is contained in the other receivables line on the statement of net position. The note receivable will mature in fiscal year 2033. At June 30, 2014, future payments are as follows: 2015 $ 1,154,696 2016 1,154,696 2017 1,154,696 2018 1,154,696 2019 1,154,696 2020-2024 5,773,479 2025-2029 5,773,479 2030-2033 4,027,886 Less: Amount representing interest Classification in Statement of Net Position: 21,348,324 6,701,534 $ 14,646,790 Current $ 529,989 Non -current 14,116,801 Total $ 14,646,790 Page 34 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 4. Capital Assets The following is a summary June 30, 2014 and 2013: 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 depredation: 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 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 of capital assets changes for the fiscal years ended Balance June S0, 2013 Additions Deletions Balance June 30, 2014 $ 50,076,644 $ 360,507,521 410,584,165 5,461,172 $ — 172,185,110 232,747,709 177,646,282 232,747,709 $ 55,537,816 299,944,922 355,482,738 1,027,055,525 2,226,256,235 92,176,648 173,558,583 60,764,222 4,066,119 16,335,248 911,987 2,642,119 1,184,278,860 2,286,108,470 93,600,648 3,345,488,408 238,388,924 19,889,354 3,563,987,978 (427,877,724) (612,142,650) (56,245,762) (1,096,266,136) 2,249,222,272 $ 2,659,806,437 (29,816,528) (37,117,725) (7,152,954) (74,087,207) 164,301,717 $ 341,947,999 (11,248,064) (527,945) (2,519,863) (14,295,872) 5,593,482 $ 238,341,191 (446,446,188) (648, 732,430) (60,878,853) (1,156,057,471) 2,407,930,507 $ 2,763,413,245 Balance June 30, 2012 Additions Balance Deletions June 80, 2013 $ 46,026,763 379,119,335 $ 4,049,881 $ — 160,031,402 178,643,216 $ 50,076,644 360,507,521 425,146,098 164,081,283 178,643,216 410,584,165 1,011,798,185 2,050,326,859 91,264,888 3,153,389,932 15,479,009 178,420,467 2,747,756 • 196,647,232 221,669 2,491, 091 1,835,996 4,548,756 1,027,055,525 2,226,256,235 92,176,648 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) (8,067,593) (70,029,840) 126,617,392 (221,669) (1,449,645) (1,812,843) (3,484,157) 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 Page 35 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 2014 and 2013, the District recorded revenue from property taxes in the amount of $27,450,319 and $26,016,135, respectively. Page 36 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, 2014: Original Issuance Amounts Bonds and notes payable: Wastewater System Senior Revenue Bonds: Series 2004A $ 175,000,000 Series 2006C 60,000,000 Series 2008A 90,000,000 Series 2010B 85,000,000 Series 2011E 52,250,000 Series 2012A 225,000,000 Series 2012B 141,730,000 Series 2018B 150,000,000 Water Pollution Control and Drinking Water Series 2004B 161,280,000 Series 2005A Series 2006A Series2006B Series 2008AJB 6,800,000 42,715,000 14,205,000 40,000,000 Missouri Department of Natural Resources: Energy Loan Program 98,595 Energy Loan Program Series 2009A Series 2010A Series 2010C Series 2011A Series2013A 223,793 23,000,000 7,980,700 37,000,000 39,769,300 52,000,000 Balance June 80, 2013 Additions Retirements 2,375,000 $ 60,000,000 30,000,000 86,000,000 50,610,000 225,000,000 141,730,000 Subordinate Revenue 108,780,000 4,750,000 32,085,000 10,945,000 32,040,000 1,312 223,799 20,093,400 7,471,600 33,999,000 31,962,553 — $ 2,375,000 1,685,000 150,000,000 Balance June 30, 2014 Bonds (State Revolving Loans Program): 3,625,000 7,250,000 305,000 2,140,000 675,000 900,000 498,400 171,400 765,000 7,806,747 16,043,275 305,000 2,140,000 675,000 1,800,000 1,312 57,348 1,002,500 344,500 1,540,000 $ 1,344,052,388 $ 877,066,658 $ 182,929,822 $ 19,175,680 Add: Unamortized premium, net Total . Deposits and accrued expenses: Landfill closure and postelosure costs Compensated absences Net OPEB obligation Total $ 736,800 7,524,797 4,018,709 $ 12,279,306 a..- $ 21,136 $ 873,144 2,442,145 414,718 1,393,600 $ 60,000,000 30,000,000 85,006,000 48,925,000 225,000,000 141,730,000 150,000,000 105,155,000 4,750,000 32,086,000 10,945,000 31,140,000 165,445 19,589,300 7,298,500 33,224,000 39,769,300 16,043,275 Current Portion 1,755,000 2,125,000 7,635,000 310,000 2,170,000 085,000 1,820,000 16,880 1,025,700 351,500 1,580,000 795,000 1,040,820,820 $ 20,268,080 82,274,845 $ 1,123,095,665 a $ 766,936 7,983,223 5,067,254 $ 3,336,425 $ 1,808,318 $ $ 1,995,805 13,807,413 $ 1,995,805 Page 37 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, 2013: Original Issuance Amounts Bonds and notes payable: Wastewater System Senior Revenue Bonds: Series 2004A $ 176,000,000 Series 2006C 60,000,000 Series 2008A 30,000,000 Series 2010B 85,000,000 Series 2011B 52,250,000 Series 2012A 225,000,000 Series 2012E 141,780,000 Balance June 30, 2012 Additions Retirements $ 163,630,000 $ 60,000,000 30,000,000 85,000,000 52,250,000 225,000,000 141,730,000 Balance June 30, 2013 Current Portion $ 161,255,000 $ 2,375,000 $ 2,375,000 60,000,000 30,000,000 — - 85,000,000 1,640,000 50,610,000 1,685,000 - 225,000,000 - 141,730,000 Water Pollution Control and Drinlang Water Subordinate Revenue Bonds (State Revolving Loan8 Program): Series 2004B 161,250,000 115,960,000 Series 2005A Series 2006A Series 2006B Series 2008A/B 6,800.000 42,715,000 14,205,600 40,000,000 Missouri Department of Natural Resources: Energy Loan Program 98,595 Energy Loan Program Series 2009A Series 2010A Series 2010C Series2011A Capital Lease: Oracle/Blue Heron 223,793 23,000,000 7,980,700 37,000,000 39,769,900 5,055,000 34,225,000 11,620,000 33,532,500 13,468 223,793 21,084,500 5,880,359 35,619,000 1,006,672 7,184,000 305,000 — 2,140,000 — 675,000 — 1,792,500 1,992,311 90,955.981 12,156 991,100 341,100 1,520,000 12,000,000 3,096,140 3,096,140 1,154,052,358 $ 658,396,362 Add: tinamortized premium, net Total Deposits and accrued expenses: Landfill closure and pastclosure costs Compensated absences Net OPEB obligation Total $ 399,618,292 5 180,947,996 108,780,000 4,750,000 92,095,000 10,945,000 32,040,000 1,312 223,793 20,093,400 7,471,600 33,999,000 31,962,553 7,442,500 310,000 2,172,500 685,000 1,610,000 1,312 32,402 1,014,000 348,000 1,560,000 877,066,658 $ 19,435, 714 76,008,897 $ 953,075,555 $ 721,066 $ 14,734 S -. $ 735,800 $ — 7.269,231 553.572 596,306 7,524,797 1,881,199 3,399.555 2,132,454 1,513,300 4,018,709 — $ 11,889,852 $ 3,001,060 3 2,111,606 $ 12,279,306 $ 1,881,199 Wastewater System Revenue Bonds Payable In February 2004, the District received voter authorization for $500,000,000 of revenue bonds. In August 2008, the District received voter authorization for an additional $275,000,000 of revenue bonds. In June 2012, the District received voter authorization for another $945,000,000 of revenue bonds. From the total voter authorization of $1,720,00.0,000, $518,000,000 has not been issued as of June 30, 2014. These funds were sought to enable the District to comply with federal and state clean water requirements. Page 38 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) In December 2013, the District issued $150,000,000 of Wastewater System Revenue Bonds Series 2013B (Series 2013B). These bonds were issued pursuant to the June 2012 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities. These senior bonds have interest rates ranging from 2.0% to 5.0% and are payable in semiannual installments at . varying amounts through May 1, 2043. In November 2012, the District issued $141,730,000 of Wastewater System Revenue Bonds Series 2012B (Series 2012B). These bonds were issued pursuant to the June 2012 authorization: in this case to advance refund the Series 2004A Bonds maturing in fiscal years 2015 and thereafter. These 2012B senior bonds have interest rates ranging from 1.3% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2034. The Series 2012B's net proceeds of $169,991,297 (including a premium of $29,613,138 and after payments of $761,593 in underwriting fees and $590,247 in issuance costs) were used to purchase U.S. government securities. These securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the bonds. As a result, Series 2004A bonds were partially defeased and the liability for those bonds related to a date after May 1, 2014 were removed from the financial statements. This refunding decreased total debt service payments over the next 22 years by $28,601,189, resulting in an economic gain (difference between the present values of the debt service payments on the old and new debt) of $22,439,375. In August 2012, the District issued $225,000,000 of Wastewater System Revenue Bonds Series 2012A (Series 2012A). These bonds were issued pursuant to the June 2012 authorization: in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities. These senior bonds have interest rates ranging from 2.5% to 5.3% and are payable in semiannual installments at varying amounts through May 1, 2042. In December 2011, the District issued $52,250,000 of Wastewater System Revenue Bonds Series 2011B (Series 2011B). These bonds were issued pursuant to the August 2008 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities. These senior bonds have interest rates ranging from 3.0% to 5.0.% and are payable in semiannual installments at varying amounts through May 1, 2032. Page 39 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) In January 2010, the District issued $85,000,000 of Wastewater System Revenue Bonds Series 2010B (Series 2010B). These bonds were issued pursuant to the August 2008 authorization; in this case for the purpose of constructing, repairing, replacing, and equipping new and existing District wastewater facilities. These senior bonds have an interest rate of 5.9% and are payable in semiannual installments at varying amounts through May 1, 2039. As Build America Bonds under The American Recovery and Reinvestment Act of 2009, the District receives a subsidy payment from the Federal government equal to a percentage of the interest paid. In fiscal year 2013, the rate was 35%. On August 6, 2013, the District was notified that the subsidy percentage would be reduced to 32% for the 2013 fall payment and would be reduced to 32.5% after that. In November 2008, the District issued $30,000,000 of Wastewater System Revenue Bonds Series 2008A (Series 2008A) from the August 2008 authorization for the purpose of providing funds to finance the capital improvements and replacement program. These senior bonds have interest rates ranging from 5.1% to 5.3% and are payable in semiannual installments at varying amounts through May 1, 2038. In November 2006, the District authorized and issued $60,000,000 of Wastewater System Revenue Bonds Series 2006C (Series 2006C) for the purpose of providing funds to finance the initial phase of its capital improvements and replacement program, including constructing, repairing, and replacing new wastewater facilities. These senior bonds have interest rates ranging from 4.1% to 5.0% and are payable in semiannual installments at varying amounts through May 1, 2036. In May 2004, the District authorized and issued $175,000,000 of Wastewater System Revenue Bonds Series 2004A (Series 2004A) for the purpose of providing funds to finance the initial phase of its capital improvements and replacement program, including constructing, repairing, and replacing new wastewater facilities. These senior bonds had interest rates ranging from 2.0% to 5.0% and were payable in semiannual installments at varying amounts through May 1, 2034; however, in November 2012, there was a partial refunding of the Series 2004A bonds. As a result of this refunding, Series 2004A bonds are considered to be partially defeased. The original senior bonds had semiannual installments through May 1, 2034 but as a result of the refunding the semiannual installments were through May 1, 2014. The liability related to Series 2004A after May 1, 2014 has been paid. See the explanation for Series 2012B above for further information. Page 40 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The revenue bonds do not constitute a legal debt or liability for the District, the State of Missouri, or for any political subdivision thereof and do not constitute indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Revenue derived from the operations of the Wastewater System is pledged for the retirement of the outstanding Wastewater System Revenue Bonds listed above. Under the provisions of the bond indentures, the District covenants to establish rates for the services of the Wastewater System sufficient to fund operations, maintain reserves, and provide revenues to apply principal and interest on these bonds. The issuance of the revenue bonds does not obligate the District to levy any form of taxation therefore or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The scheduled payment of the principal of and interest on the outstanding Series 2006C and 2004A Bonds are guaranteed under a financial guaranty insurance policy. Water Pollution Control and Drinking Water Revenue Bonds Payable In October 2008, the State Environmental Improvement and Energy Resources Authority (the Authority) authorized and issued $69,435,000 of Water Pollution Control and Drinking Water Revenue Bonds (State Revolving Funds Programs) Series 2008AB (Series 2008A/B). The Series 2008AB bonds provided funds to make loans to 14 Missouri political subdivisions that were used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series _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 were used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 4.0% to 5.7% and are payable in semiannual installments at varying amounts through January 1, 2029. In November 2006, the Authority authorized and issued $22,105,000 of State Revolving Funds Programs Series 2006B (Series 2006B). The Series 2006B bonds provided funds to make loans to 7 Missouri political subdivisions that were used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2006B bonds issued by the Authority were used to purchase Participant Bonds authorized and issued by the District in the aggregate principal amount of $14,205,000, the proceeds of which were used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 4.0% to 5.0% and are payable in semiannual installments at varying amounts through July 1, 2027. Page 41 THE METROPOLITAN ST. LOUTS 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 were used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 3.5% to 4.5% and are payable in semiannual installments at varying amounts through July 1, 2026. In May 2005, the Authority authorized and issued $53,060,000 of State Revolving Funds Programs Series 2005A (Series 2005A). The Series 2005A bonds provided funds to make loans to 10 Missouri political subdivisions and 1 Missouri non- profit corporation that were used to finance water pollution control and drinking water projects. A portion of the proceeds of the Series 2005A bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of $6,800,000, the proceeds of which were used for constructing, repairing, and equipping new and existing wastewater facilities. The District's Participant Bonds have interest rates ranging from 3.0% to 5.0% and are payable in semiannual installments at varying amounts through July 1, 2026. In May 2004, the Authority authorized and issued $179,780,000 of State Revolving Funds Programs Series 2004B (Series 2004B). The Series 2004B bonds provided funds to make loans to 7 Missouri political subdivisions that were used to finance water pollution control projects. A portion of the proceeds of the Series 2004B bonds issued by the Authority were used to purchase subordinate Participant Bonds authorized and issued by the District in the aggregate principal amount of $161,280,000, the proceeds of which were used to finance the District's 3 water pollution control construction projects outlined in the agreement. The District's Participant Bonds have interest rates ranging from 2.0% to 5.3% and are payable in semiannual installments at varying amounts through January 1, 2027. Page 42 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, 2011A, and 2013A direct loans (pages 45-49) do not obligate the District to levy any form of taxation therefore or to make any appropriation for their payments in any fiscal year. The principal and interest on the bonds are expected to be paid from future wastewater revenues. In connection with the District's issuance of the Participant Bonds, which were purchased with the proceeds of the Series 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds, the District participates in the State Revolving Loan Program established by the Missouri Department of Natural Resources (the DNR). Monies from federal capitalization grants and state matching funds are used to fund a reserve account for each participant. As the . District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits in a bond reserve fund in the District's name an additional 60% of the expenditure amount for the Series 2004B bonds or 70% for the Series 2005A, 2006A, and 2006B bonds or 100% for the Series 2008A/B bonds. Interest earned from this reserve fund can be used by the District to fund interest payments on the bonds. On the date of each payment of the principal amount of the District's Participant Bonds, the trustee transfers from this reserve account to the master trustee an amount equal to 60% of the principal payment for the Series 2004B bonds or 70% for the Series 2005A, 2006A, and 2006B bonds or 100% for the series 2008A/B bonds. The costs of operation and maintenance of the wastewater treatment and sewerage facilities and the debt service is payable from wastewater revenues. In accordance with the Series 2004A, 2004B, 2005A, 2006A, 2006B, and 2008A/B bonds, the District's annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 125% of the current portion of principal and interest due on all senior bonds and at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2014 and 2013, the District was in compliance with this covenant. Page 43 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, 2014 are as follows: Wastewater System Revenue Bonds Payable/ Water Pollution Control and Drinking Water Revenue Bonds Payable Years ending June 30, Principal Interest Total 2015 8 16,500,000 $ 38,069,320 $ 54,569,320 2016 22,860,000 37,686,773 60,546,773 2017 26,140,000 37,045,964 63,185,964 2018 26,685,000 36,261,508 62,946,508 2019 27,475,000 35,551,771 63,026,771 2020-2024 152,370,000 163,716,411 316,086,411 2025-2029 163,275,000 135,379,245 298,654,245 2030-2034 169,245,000 98,711,550 267,956,550 2035-2039 181,595,000 58,929,505 240,524,505 2040-2043 138,585,000 15,020,750 153,605,750 Total 8 924,730,000 $ 656,372,797 $ 1,581,102,797 Energy Efficiency Leveraged Note Payable In April 2004, the DNR loaned $98,595 to the District. The Energy Efficiency Leveraged Note Payable bore interest at a rate of 3.2% per annum and was payable through August 1, 2013. The purpose of this note was to finance the design, acquisition, installation, and implementation of energy conservation measures. The principal and interest on this note was paid from the energy savings from the projects or avoided costs resulting from the projects. There is no outstanding balance for principal and interest at June 30, 2014. Energy Efficiency Leveraged Note Payable In February 2012, the DNR loaned $223,793 to the District. The Energy Efficiency Leveraged Note Payable bears interest at a rate of 2.5% per annum and is payable through February 1, 2020. The purpose of this note was to finance the design, acquisition, installation, and implementation of energy conservation measures. As of June 30, 2014, the District completed the specific energy conservation projects and spent $199,489 of the $223,793 loan amount. The remaining $24,203 was returned to the DNR as a principal payment. The principal and interest on this note will be paid from the energy savings from the projects or avoided costs resulting from the projects. Page 44 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Principal and Interest Requirements on Energy Efficiency Leveraged Note Payable The annual principal and interest requirements to maturity on the Energy Efficiency Leveraged Note Payable outstanding as of June 30, 2014 are as follows: Energy Efficiency Leveraged Note Payable Years ending June 30, Principal Interest Total 2015 $ 15,880 $ 2,081 $ 17,961 2016 32,359 3,563 35,922 2017 33,173 2,749 35,922 2018 34,007 1,915 35,922 2019 34,863 1,059 35,922 2020 16,163 202 16,365 Total $ 166,445 $ 11,569 $ 178,014 State of Missouri Direct Loan Series 2009A In October 2009, the DNR loaned $23,000,000 to the District. The State of Missouri Direct Loan Series 2009A bears interest at a rate of 1.5% per annum and is payable through January 1, 2030. The purpose of this note was to finance the designing, constructing, improving, renovating, repairing, replacing and equipping new and existing sewer facilities within the District. The principal and interest on the bonds are expected to be paid from future wastewater revenues. Principal and Interest Requirements on State of Missouri Direct Loan Series 2009A As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.5% based on the amount that has been borrowed. All funds have been drawn on this loan. Page 45 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 2009A outstanding as of June 30, 2014 are as follows: State of Missouri Direct Loan Series 2009A Years ending June 30, Principal Interest Total 2015 S 1,025,700 $ 282,268 $ 1,307,968 2016 1,049,400 267,220 1,316,620 2017 1,073, 700 251,811 1,325,511 2018 1,098,500 236,045 1,334,545 2019 1,123,900 219,915 1,343,815 2020-2024 6,021,700 844,253 6,865,953 2025-2029 6,751,100 381,212 7,132,312 2030-2031 1,445,300 15,856 1,461,156 Total S 19,589,300 S 2,498,580 22,U6'l,t3tbU State of Missouri Direct Loan Series 2010A In January 2010, the State of Missouri's Direct Loan Program - ARRA issued to the District an amount totaling $7,980,700 for the construction, improvement, renovation, repair, replacement and equipping of its wastewater system, under the authority of and in full compliance with the District's Charter (Plan). The District's interest rate is 1.5% and is payable in semiannual installments at varying amounts through July 1, 2031. Principal and Interest Requirements on State of Missouri Direct Loan Series 2010A As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.5% based on the amount that has been borrowed. All funds have been drawn on this loan. The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010A outstanding as of June 30, 2014 are as follows: State of Missouri Direct Loan Series 2010C In December 2010, the State of Missouri Direct Loan Program - ARRA issued to the District an amount totaling $37,000,000 for the purpose of improving, renovating, repairing, replacing and equipping the District's Wastewater System. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The District's interest rate is 1.7% and is payable in semiannual installments at varying amounts through January 1, 2031. Page 46 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) State of Missouri Direct Loan Series 2010A Years ending June 30, Principal Interest Total 2015 $ 351,500 $ 106,722 $ 458,222 2016 358,600 101,495 460,095 2017 366,000 96,161 462,161 2018 373,300 90,717 464,017 2019 380,900 85,164 466,064 2020-2024 2,024,100 338,488 2,362,588 2025-2029 2,237,900 181,712 2,419,612 2030 -2032 1,206,200 26,958 1,233,158 Total $ 7,298,500 $ 1,027,417 $ 8,325,917 Principal. and Interest Requirements on State of Missouri Direct Loan Series 2010C As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.7% based on the amount that has been borrowed. All funds have been drawn on this loan. The annual principal and interest requirements to maturity on the State of Missouri Direct Loan Series 2010C outstanding as of June 30, 2014 are as follows: State of Missouri Direct Loan Series 2010C Years ending June 30, Principal Interest Total 2015 $ 1,580,000 $ 541,700 2,121,700 2016 1,620,000 515,485 2,135,485 2017 1,663,000 488,582 2,151,582 2018 1,705,000 460,969 2,165,969 2019 1,750,000 432,655 2,182,655 2020-2024 9,455,000 1,711,982 11,166,982 2025-2029 10,748,000 885,052 11,633,052 2030-2031 4,703,000 97,647 4,800,647 Total $ 33,224,000 6,134,072 $ 38,358,072 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%a and is payable in semiannual installments at varying amounts through January 1, 2034. Page 47 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Principal and Interest Requirements on State of Missouri Direct Loan Series 2011A As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.5% based on the amount that has been borrowed. All funds have been drawn on this loan. The annual principal and interest requirements to maturity on Missouri Direct Loan Series 2011A outstanding as of June 30, follows: State of Missouri Direct Loan Series 2011A the State of 2014 are as Years ending June 30, Principal 2015 2016 2017 2018 2019 2020-2024 2025-2029 2030-2034 795,000 1,620,000 1,662,000 1,704,000 1,747,000 9,428,000 10,690,000 12,123,300 Total $ 39,769,300 Interest Total $ 604,491 586,291 561,508 536,086 510,025 2,135,334 1,376,641 516,321 ti,b`Lti,tiy 8 1,399,491 2,206,291 2,223,508 2,240,086 2,257,025 11,563,334 12,066,641 12, 639,621 6 4ti,o b,997 State of Missouri Direct Loan Series 2013A In October 2013, the State of Missouri Direct Loan Program - ARRA issued to the District an amount totaling $52,000,000 for the purpose of improving, renovating, repairing, replacing and equipping the District's Wastewater System. The principal and interest on the bonds are expected to be paid from future wastewater revenues. The District's interest rate is 1.6% and is payable in semiannual installments at varying amounts through July 1, 2034. In accordance with the Direct Loan Series 2009A, 2010A, 2010C, 2011A, and 2013A, the District's annual net operating revenues from wastewater activities, as defined in the agreement, coupled with investments earnings must be at least 115% of the current portion of principal and interest due on all bonds. At June 30, 2014 and 2013, the District was in compliance with this covenant. Page 48 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Principal and Interest Requirements on State of Missouri Direct Loan Series 2013A As the District incurs approved capital expenses, the DNR reimburses the District for the expenses from the bond proceeds account and deposits the approved amount in a bond reserve fund. The District repays the bond at an interest rate of 1.6% based on the amount that has been borrowed. As of June 30, 2014 the outstanding loan balance was $16,043,275. The payment requirements to maturity will be determined after the debt is fully issued. Wastewater System Cash and Investments The following accounts have been established in accordance with bond ordinances and financing agreements that require receipts generated from operations be segregated and certain reserve accounts be established: Revenue Fund The Revenue Fund will be used for the purpose of depositing wastewater and stormwater operating revenues, providing funds to pay for expenses related to the operation and maintenance of the District, and fulfilling Sinking Fund requirements in accordance with the bond ordinances. Sinking Fund The bond ordinances provide for deposits to and the use of monies in the Sinking Fund to be used for the sole purpose of principal and interest payments on the bonds. Sufficient monies shall be paid in periodic installments from. the Revenue Fund. Debt Service Fund The Debt Service Fund shall be used by the Trustee for the sole purpose of paying the principal and interest on the bonds, as and when the same become due. Debt Service Reserve Fund After initial deposit of the amount required pursuant to the bond ordinances and financing agreements of the Series 2004A, 2006C, 2008A, 2010B, 2011B, 2012A, and 2013B bonds, monies in the Debt Service Reserve Fund shall be disbursed and expensed by the District solely for the payment of the principal and interest on the bonds and notes to the extent of any deficiency in the Debt Service Fund for such purpose. The District may disburse and expend monies from the Debt Service Reserve Fund for such purpose immediately. As of June 30, 2014 and 2013, cash and investments in the Debt Service Reserve Fund totaled $57,168,703 and $46,962,390, respectively. Page 49 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, 2014 and 2013, cash and investments in the Special Participant Bond Reserve Account held on behalf of the District totaled $121,443,013 and $129,456,509, respectively. Monies in this account are not considered to be District funds. However, interest earnings on this account may be used by the District to reduce interest payments on the bonds outstanding. Renewal and Extension Fund All sums accumulated and retained in the Renewal and Extension Fund shall be first used to prevent default in the payment of principal and interest on the bonds when due and shall then be applied by the District for purposes pursuant to the trust indenture. No monies have been deposited into this account at June 30, 2014. Project Fund The Project Fund for all bond issuances outstanding will be used for the purpose of providing monies to pay project costs. The proceeds from the bonds and notes, after a deposit into the Debt Service Reserve Fund for the amounts required pursuant to the bond ordinances and note agreements of Series 2004A, 2006C, 2008A, 2010B, 2011B, 2012A, and 2013B bonds, shall be deposited into the Project Fund. At June 30, 2014 and 2013, cash and investments in the Project Fund totaled $194,968,331 and $160,339,298, respectively. Rebate Fund The bond ordinances provide for the creation of a Rebate Fund into which shall be deposited such amounts as are required to be deposited therein pursuant to the arbitrage instructions regarding the calculation and payment of rebate amounts due. The District does not have any rights in or claims to such money; provided, however, any funds remaining in the Rebate Fund after redemption and payment of all bonds and payment of any rebatable arbitrage amount, or provision having been made therefore, shall be remitted to the District. At June 30, 2014 and 2013, cash and investments in the Rebate Fund totaled $231,909 and $234,238, respectively. Page 50 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 has the ability to immediately withdraw the fee amounts when due. Monies held in this account shall not be invested. Fair Value of Financial Instruments The value of the District's long-term debt is estimated based on the current rates offered to the District for debt of the same remaining maturities. The carrying amount and estimated fair value of the District's long-term debt as of June 30, 2014 was $1,040,820,820 and $1,149,783,801, respectively. The carrying amount and estimated fair value of the District's long-term debt as of June 30, 2013 was $877,066,658 and $950,947,897, respectively. 7. Pension Plan Plan Description The Metropolitan St. Louis Sewer District Employees' Pension Plan (the Plan) is a noncontributory single employer defined benefit plan providing retirement benefits as well as death and disability benefits. As a condition of employment, all full-time employees of the District commencing service prior to December 31, 2010, were eligible to be covered by the Plan. As of January 1, 2011 the Plan was frozen to new employees. Instead, new employees of the District may participate in the defined contribution plan. Current employees with less than ten years of service on this date could also voluntarily elect to transfer from the Plan and enter the defined contribution plan. The District's Board of Trustees, primarily to improve benefits to members, amended the Plan, established on November 1, 1967. A Pension Committee consisting of two members of the District's Board of Trustees, two elected employee members and four members of the District's management staff administer the Plan. A committee of the District's Board of Trustees, with the aid of an investment advisor, reviews and evaluates the Plan's investments and the related rates of return on a periodic basis. The Plan is exempt from the requirements of the Employee Retirement Income Security Act of 1974 and, as such, is not subject to the Act's reporting requirements. Page 51 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, 200U, 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 52 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 $11,850,000 and $11,564,228, excluding certain professional fees paid by the District, were made to the Plan during the District's fiscal years ended June 30, 2014 and 2013, respectively. These contributions were made in accordance with actuarially determined contribution requirements based on actuarial valuations performed at December 31, 2013 and 2012, respectively, and for 2013 consisted of a) $6,062,646 normal cost plus b) $4,558,601 amortization of the actuarial accrued assets in excess of the unfunded actuarial accrued liability and prior changes c) multiplied by an interest factor of 1.0725. The District provides certain professional fees, office space, utilities, and other services to the Plan at no cost. Other costs of administering the Plan are financed from plan net assets. Page 53 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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, 2013 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 4.5% - 10.0% per annum 4.0% per annum increase Includes inflation component of 2.75% Trend Information Historical trend information about the District's participation in the Plan is presented below to help readers assess the Plan's funding status on a going - concern basis and assess progress being made in accumulating assets to pay benefits when due. Fiscal Year 2014 2013 2012 Annual Pension Percentage Of Net Pension Cost (APC) APC Contributed Obligation $ 11,850,000 11,564,228 10,719,154 100% 100% 100% S Funded Status And Funding Progress As of January 1, 2014, the Plan was 86.1% funded. The actuarial accrued liability for benefits was approximately $275,657,000, and the actuarial value of assets was approximately $237,433,000, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $38,224,000. The covered payroll (annual payroll of active employees covered by the plan) was approximately $46,600,000, and the ratio of the UAAL to covered payroll was 82.0%. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits. Page 54 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 8, Other Pension Plans Deferred Compensation Plan The District offers its employees a Deferred Compensation Plan created in accordance with Internal Revenue Code Section 457. The Deferred Compensation Plan, available to all District employees, permits them to defer a portion of their salary up to Internal Revenue Code limits. The District does not contribute to the Plan. The deferred compensation is not available to employees until termination, retirement, death, disability or due to financial hardship as defined by the Deferred Compensation Plan. The Deferred Compensation Plan was amended and restated to comply with the Economic Growth and tax Relief Reconciliation Act of 2001 (the Act). The Act made significant changes to Section 457(b) of the Internal Revenue Code of 1986, as previously amended. The Deferred Compensation Plan assets are held in trust for the exclusive benefit of participants and their beneficiaries under Section 1448 of the Small. Business Job Protection Act of 1996. As a result, the assets and liabilities of the Deferred Compensation Plan are not included in the accompanying financial statements. The Deferred Compensation Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. Defined Contribution Plan The Plan is a defined contribution benefit plan established by the District's Board of Trustees through Ordinance 13180 and became effective January 1, 2011. The following employees are eligible to participate in the Plan: (i) employees first hired on or after January 1, 2011, and (ii) employees hired prior to January 1, 2011 who elect to terminate participation in the Pension Plan, effective as of April 1, 2011, in accordance with the provisions of such Pension Plan, and (iii) employees rehired on or after January 1, 2011 who are not eligible to accrue benefits under the Pension Plan. An employee shall become a participant in the Plan on the first day on which he performs an hour of service for the District. The District's Board of Trustees, primarily to improve benefits to members, amends the Plan in all its respects. A pension committee consisting of two members of the District's Board of Trustees, two elected employee members and four members of the District's management staff administer the Plan. A committee of the District's Board of Trustees, with the aid of an investment advisor, reviews and evaluates the Plan's investments and the related rates of return on a periodic basis. Page 55 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) This Plan is intended to provide a means whereby the District may provide retirement benefits to eligible employees and encourage such employees to establish a regular method of savings, thereby providing a measure of financial security for such employees and their beneficiaries upon retirement or in the event of death or disability. The Defined Contribution Plan issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing: The Metropolitan St. Louis Sewer District, 2350 Market Street, St. Louis, MO 63103-2555. Employer Basic Contributions: For each payroll period, the District contributes an amount equal to 7% of the covered compensation earned during such period by each participant entitled to. an allocation of such contribution. Employer Matching Contributions: For each payroll period, the District contributes an amount equal to 50% of the covered compensation of such participant withheld as an annual deferral (as defined in the Deferred Compensation Plan); provided that, before -tax contributions in excess of 4% of the covered compensation of the participant for the payroll period shall not be considered for purposes of Employer Matching Contributions. Employer Matching Contributions shall be up to the maximum amount of compensation that may be taken into account for the Plan year. In no event shall the sum of the employer contributions and employee contributions allocated to the account of a participant for the Plan year exceed the lesser of: (a) The amount specified in the applicable Internal Revenue Code, as adjusted annually for any applicable increases in the cost of living. (b) 100% of the participant's compensation for such year. The compensation limit referred to in (b) shall not apply to any contribution from medical benefits after separation from service. The District's contributions to the plan amounted to $742,851 and $523,670 for the years ended June 30, 2014 and 2013, respectively. Page 56 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 Less than 12 12 but less than 24 24 but less than 36 36 but less than 48 48 but less than 60 60 Vested(Non-Forfeitable) Percentage 0% 20% 40% 60% 80% 100% 9. Post -Employment Benefits Other Than Pensions Plan Description As part of a total compensation package effective August 1, 2004 for general employees and, with respect for union members, the later of August 1, 2004 or the date of union ratification of a Memorandum of Understanding with respect to this Plan modification, the District provides a single -employer defined benefit health care plan to employees who retire from the District on or after age 62 and with five years of service or whose age plus years of service equal 75 points ("Rule of 75"). The District pays the monthly group health insurance premium for the individual until the retiree becomes eligible for Medicare at age 65. In addition, there is a closed group of disabled former employees who receive life insurance coverage from the District. Contributions for retirees are as follows: Coverage Tier Monthly Premium Retiree* $478.98 Retiree + Spouse $1,020.35 Retiree + Child $927.09 Family (1 child) $1,414.15 *The District pays the retiree's premium for a retiree who retires after age 62 or after attaining 75 points. Eventually, affected retirees will have to pay up to 10% of the above premium. Page 57 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The District's annual other post -employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB 45 and in conjunction with Plan benefits currently in force. The actuarial valuations have been determined using estimated data provided by the District in combination with assumptions on the probability of future events, while also keeping an eye on long-term viability. These valuations are subject to continual revision as future actuarial measurements may differ significantly from current measurements due to the realization of new estimates and factors. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities. The District's annual OPEB cost for the current year and the related information are as follows: Amortization of past service cost 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 Net OPEB obligation - end of year $ 875,500 1,462,200 87,700 2,425,400 150,702 (133,957) 2,442,145 (1.393 600) 1,048,545 4,018,709 $ 5,067,254 The Plan was established by District Ordinance, which rict. establish and amend plan benefit provisions to the Dist The contribution requirements of the District and plan and may be amended by the District. The Plan does not report. assigned the authority to members are established issue a publicly available Page 58 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Trend Information Fiscal Year 2014 2013 2012 Net OPEB Cost $ 2,442,145 2,132,454 2,090, 556 Percentage of Net OPEB Coat Net OPEB Contributed Obligation 57.1 71.0 66,8 $ 5,067,254 4,018,709 3,399,556 As of June 30, 2014, the Plan was not funded. The actuarial accrued liability for benefits as of July 1, 2013, the latest actuarial valuation, was approximately $26,264,000, and there were no assets, resulting in an unfunded actuarial accrued liability (UAAL) of approximately $26,264,000. The covered payroll (annual payroll of active employees covered by the plan) in 2013 was approximately $60,238,000, and the ratio of the UAAL to covered payroll was 43.6%. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents trend information about whether the actuarial accrued liability for benefits is increasing or decreasing over time. Actuarial funding calculations of the Plan reflect a long-term perspective. The Plan's actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. Significant actuarial assumptions used in the valuation are as follows: Latest valuation date Actuarial cost method Discount rate Amortization method Amortization period Inflation rate Investment Rate of Return Health cost trend assumption July 1, 2013 Projected Unit Credit 3.75% per annum Level percentage of payroll amount, open 30-year period 2.5% 3.75% annual returns net of both administrative and investment expenses Getzen Trend Model — 6.9% graded to 4.5% over 70 years Page 59 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Medical Trend: Year Medical Year Medical 2013 6.9% 2040 6.1% 2014 5.7 2045 5.8 2015 5.4 2050 5.7 2016 5.4 2055 5.5 2017 5.6 2060 5.4 2018 5.5 2065 5.3 2020 5.5 2070 5.2 2025 5.5 2076 5.0 2030 6.5 2080 4.7 2035 6.7 2083+ 4.5 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 Select Rates (0 to 4 years of service) Years Of Service Rate 3.75% per annum RP 2000 Mortality Table (employee and healthy annuitant tables). Termination Of Employment: Ultimate Rates (after 4 years of service) Attained 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. Page 60 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 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 Disability Age Percent Becoming Disabled 20 0.056% 30 0.064 40 0.102 50 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 assets. At June 30, 2014 and 2013, these liabilities amounted to $2,923,884 and $3,041,045, respectively. Page 61 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The claims liabilities reported are based on the requirements of GASB Statement No. 10, which requires that a liability for claims be reported if information obtained prior to the issuance of the financial statements indicates it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Changes in the balance of claims liabilities during fiscal 2014 and 2013 were as follows: 2014 2013 Liability, beginning of year $ 3,041,045 $ 2,575,977 Current year claims and changes in estimates 12,455,966 12,547,715 Claim payments (12,573,127) (12,082,647) Liability, end of year $ 2,923,884 $ 3,041,045 The District obtains periodic funding valuations from the third -party administrators managing the self-insurance programs and adjusts the charges as required to maintain the appropriate level of estimated claims liability. The District " also maintains excess liability insurance coverage for workers' compensation and medical and hospitalization claims; general liability; and water backup damage to customers' property. The District purchases commercial insurance for all other risks of loss. Settled claims have not exceeded this commercial coverage in any of the past three years. 11. Closure And Post -Closure Care Costs State and federal laws and regulations require the District to place a final cover on its Prospect Hill Reclamation Project landfill site when it stops accepting waste and to perform certain maintenance and monitoring functions at the site for 30 years after closure. Although closure and post -closure care costs will be paid only near or after the date that the landfill stops accepting waste, the District reports a portion of these closure and post -closure care costs as an operating expense in each period based on landfill capacity used as of the end of the fiscal year. The $756,936 and $735,800 reported as landfill closure and post - closure care liabilities at June 30, 2014 and 2013, respectively, represent the cumulative amounts reported at fiscal year-end based on the use of 94.7% and 92.1% of the estimated capacity of the landfill for fiscal years ended 2014 and 2013, respectively. The District will recognize the remaining estimated cost of closure and post -closure care of $42,273 at June 30, 2016 as the facility nears capacity. These amounts are based on what it would cost to perform all closure and post -closure care in 2014. Page 62 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) The District is required to demonstrate that it has the financial capability to close the landfill to the State of Missouri through the use of a financial test as specified in 10 CSR 80-2.030(4)(D)6 of the Missouri Solid Waste Management Rules. The District has complied with the State's requirement. The District recognizes that estimates of closure costs may change as a result of inflation, deflation, and/or changes in technology and applicable laws and regulations. If closure cost estimates change, the liability currently reported on the Statement of Net Position will be adjusted accordingly. 12. Commitments And Contingencies United States And State Of Missouri V. Metropolitan St. Louis Sewer District; In The United States District Court For The Eastern District Of Missouri; Case No. 07-1120. A lawsuit was filed by the Department of Justice on behalf of the United States Environmental Protection Agency ("EPA") for various alleged violations of the Clean Water Act. The suit is based on violations of the Clean Water Act as a result of overflows in the combined and sanitary sewer systems causing pollutants to reach waters of the United States. There are other counts involving violations of permit conditions. The District has been the subject of several investigatory actions by EPA over the past several years. Negotiations have been ongoing with the EPA and the Missouri Department of Natural Resources ("MDNR") regarding the sewer collection system, both the combined system and the sanitary system, for several years. The Missouri Coalition for the Environment ("MCE") gave Notice of Intent to Sue the District under the citizen suit provisions of the Clean Water Act. EPA and the DNR then brought the suit in June 2007, and MCE moved to intervene. Intervention was granted in August 2007. In October 2007, the Court granted the District's motion to dismiss all of the plaintiffs' claims for civil penalties attributable to any and all of the District's alleged violations of the Clean Water Act that occurred before June 11, 2002. Also, the suit alleges that the District does not have an approved Long -Term Control Program ("LTCP") for the combined system. The District has been working on these issues for several decades and has asked voters to approve bonds and rate increases to rehabilitate and maintain the collection system. As required by its Charter, the District has increased rates which will continue to fund the improvements sought by the EPA and the DNR. In September 2008, the Judge put in place a Stay while the parties mediated the issues. Pursuant to MSD Ordinance No. 13277, MSD executed the Consent Decree ("CD") on July 15, 2011. The CD was lodged with the court on August 4, 2011. An extended public comment period ended October 10, 2011. Page 63 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) On April 27, 2012, the Court approved and entered the decree, thus concluding the litigation of this lawsuit. Although this litigation matter has concluded, MSD continues to work diligently to implement the CD. The CD requires the District to spend approximately $4.7 billion, in 2010 dollars, over a 23-year implementation period. Throughout this period improvements will be made to the District's separate sewer system, combined sewer system, and wastewater treatment plants. The District continues to comply with the CD. On June 1, 2011, the State of Missouri approved Chapter 11, Chapter 12, and Appendix Q of the District's Combined Sewer Overflow Long -Term Control Plan Updated Report, dated February 2011. Flooding Cases The District was originally a defendant in five (5) different flooding cases related to the September 14, 2008, rain event precipitating from remnants of Hurricane Ike. These cases consisted of three (3) property damage cases and two (2) wrongful death cases. The defense costs associated with these cases has been covered by the District's insurance carrier, with a reservation of rights. Of the five (5) cases, one (1) involves flooding of Maline Creek and the others involve flooding of the River Des Peres. Of the five (5) original cases, only one (1) case remains open. The remaining case is a property damage case. Two (2) of the four (4) cases resolved were voluntarily dismissed by the plaintiffs, another case was a property damage case which settled, and the wrongful death case settled prior to trial. In addition to the above discussed flooding cases, on September 13, 2013, five (5) new property damage cases were filed against the District. These cases have yet to be served on the District. Contingencies The District has entered into construction and other contracts amounting to $247,737,650 and $213,088,826 at June 30, 2014 and 2013, respectively. Grants to be received from various governmental agencies and entities to partially offset the cost of the contract commitments amounted to $726,856 and $5,658 at June 30, 2014 and 2013, respectively. The District had $518,000,000 and $720,000,000 in revenue bonds authorized by the voters as of June 30, 2014 and 2013, respectively, but unissued. These funds were sought to enable the District to comply with federal and state clean water requirements. The District is a defendant in various other matters of litigation. Of these matters, management and District's legal counsel do not anticipate any material effect on the June 30, 2014 and 2013 financial statements. Page 64 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) 13. Restricted Net Position The Statements of Net Position report $142,764,156 and $111,066,007 of restricted net position at June 30, 2014 and 2013, respectively, of which $70,920,910 and $63,925,875 are restricted due to enabling legislation, as of June 30, 2014 and 2013, respectively. 14. Segment Information The District issued wastewater revenue bonds to finance wastewater infrastructure projects. The District accounts for both wastewater and stormwater activities in a single enterprise fund, but investors in those bonds rely solely on the revenue generated by the wastewater activities for repayment. Fiscal year 2014 and 2013 summary financial information for each business segment is presented below. Certain accounts in prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements. Please refer to the Reclassifications section of Footnote 1 for specific details. The reclassification presented in the 2013 segment financial statements is as follows: Page 65 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Old Presentation of FY 2013 New Presentation of FY 2018 Wastewater S:srwas- Total Was:swam: Rkrnwater 'iota: Currant Assets: Current Assn: Unrestricted Current Mee's: Unrestricted °savant Assets: Cash and math equivelonte $ 83,202,960 9 1,197,764 9 84,400,724 Cash end cash equivalents $ 89.2.02,98C $ 8,180,796 $ 21,333,756 Investments 88,140,663 1,049,225 67,180,628 Investments =,147, 659 2,884,965 68,975,608 Accrued in®e an investments 207,632 — 807,682 Accrued income on investments 5.:7,822 23,274 830,906 150,151,245 2,247,749 152,386,994 161,101.246 10,989,1126 161,140,270 Restricted Current Meets: Retaliated Current Assets: Cash and ash eqMvalent.. 69,449,897 — 69,449,837 Cash and crib equivalents — 8,662,344 3,852,844 bivestmente 79,886,996 — 79,626,996 investments — 8,201,720 3.201,720 149,075,932 — 149,076,832 — 8,254,064 6,854,064 Non -current Assets: Non -current &seta, Restricted Assent Restricted Meets: Cash end ceah equivalents 3,157,982 24,746,082 27,90.1,044 Cull andmah equivalents 72,607,799 14,160,706 96,769,506 Investments 5,640,709 17,400,220 22,940,929 Investments 85,188,704 12,411,520 97,590,234 Long-term jn tmouta 69,910,456 28,350,911 83,261,367 Long-term investments 69,210,456 20,855,501 80,865,967 Accrued income on investments t16,818 86,281 202,049 Awed income on investment. 116,818 81,967 178,776 88,726,945 66,582,444 184,308,399 217,991,777 47,591,694 265,398,471 Other Assets Other &eats Long-term tnvstmenta 88,892,768 1,408,088 90,301,826 Long-term investments 88,992,768 3,804,478 92,297,238 Current liabilities: Current Liabilities: Contracts end account. payable 27,238,153 183,231 27,421,984 Contracts and accolade payable 27,415,729 4,242,983 22,258,712 Current Liabilities Current Liabilities Payable From Reetrinted Arita: Payable From Restricted Amnia: Contracts end ocaunta payable — 5,342,074 6,342,074 Contracts and amounts payable — 504,746 504,746 Grand Total $ 429,807,627 $ 83,718,958 $ 493,321,583 Grand Total 429,430 051 9 63,991,682 $ 493,321592 Net P:e_u _: Net Preitiott Reetriatedtc:: 1eB•rc:aL f.:: Sls3etrint :ozan-:r_r.. tn1:nyr temant $ 9,449,942 $ 60,775,267 $ 70,222,233 Sr.crieC.1 ocrs—patine andcaprovesae: $ 8,449,946 $ 64,475,929 $ 62,926,875 Unrestricted 239,094,779 5,906,789 246,000,561 Unrestcte3 238,744,940 12,564,979 261,299,918 Grand Total 6 249.644,725 9 89,66.,s69 9 312.226,704 9re=4 Total 9 248,194,898 $ 67,089,908 8 81,6,225,704 The District has restated fiscal year 2013 due to changes mandated by GASB 65. Please refer to the Adoption of New Accounting Standards section of Note 1 for specific details. The restatement, related to GASB 65, presented in the 2013 segment financial statements impacts solely the wastewater segment and is as follows: Page 66 THE METROPOLITAN ST. LOi7IS SEWER DISTRICT Notes To Financial Statements (Continued) Old Presentation of FY 2013 Deferred Outflow of Resources: Bonds and notes payable -deferred loss Total Deferred Outflow of Resources Non -current Liabilities: Bonds and notes payable, net of cost of issuance Grand Total Non -operating Expenses: Interest expense Wastewater $ 913,883,345 913,883,345 New Presentation of FY 2013 Deferred Outflow of Resources: Bonds and notes payable -deferred loss Total Deferred Outflow of Resources Non -current Liabilities: Bonds and notes payable . $ 913,888.345 Grand Total Total Change Non -operating Expenses: $ 20,814,841 Interest expense Wastewater $ 10,617,604 10,617,604 933,639,841 933,639,841 $ 923,022,237 $ 9,138,892, $ 21,062,474 Fiscal 2013 change Amortization reversed $ (471,995) Cost of issuance 3,447,827 Refunded cost of issuance (2.228,199) Total fiscal 2013 change 747 66333 Prior year adjustments 8,391,259 Total Change $ 9,138,892 In addition to the restatements identified above, there were two restatements between Wastewater and Stormwater Segments. Both the sewer service charges (SSC) receivable and contracts and accounts payable (A/P) for fiscal year 2013 and the sewer service charge prepaid balance recorded to contracts and accounts payable (A/P) and fiscal year 2013 Net Position - Beginning of Year (BOY) have been restated due to a variation in segmenting procedures. These restatements have no impact on the enterprise wide statements. Page 67 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Old Presentation an' 2013 i L NewPresentation of FY 201a C.. ra=t AM:ot,: Unresttr?cted Current Assets- SSC receivet-e Current Liati_itit:es: Cunt:meta and AP Net. Position - BOY Wastewater Stormwater Total Wastewater a... water Current Asada: Utwest-ricted Current Assets: 34, 7,495 $ — 8 34,257,405 SSC r'ere_vahte Currant 1-iatiiiSea: 27,255,153 $ 183,231 $ 27,421,384 Con'saccs and A'P Radius of Contracts and AIP from Restricted to Unrestricted $ 34, 55,142 $ 172,263 $ 34,207,405 8 27,415,729 $ 5,655 $ 27,421,384 — 4,887,828 4.457,828 Grand Total $ 27,415,729 $ 4,842,983 8 32,258,712 j 1,584,854,623 $ 533,559.521 $ 2218294,341 Net Pasitcn-BOY $ 1,675,613,722 $ 534,289,860 $ 2,209,903,082 COI Pr or period adjustments also included is New Preeentaticn cfTY 2613 Net Position- BOY 8,391,259 8,391,259 Effect of aeq:aen2 restatement Old Pceaentatira of FY 2013 Net Posit an - BOY 545,659 ("a49,?32i $ 1,684,354,820 $ 538,939,521 $ 2,218,294.341 A segment is an identifiable activity reported as a stand-alone entity for which one or more revenue bonds are outstanding. A segment has a specifically identifiable revenue stream pledged in support of the revenue bonds and has related expenses, gains and losses and assets and liabilities that are required by external parties to be accounted for separately. The wastewater system is the only reportable segment that meets the requirements of GASB Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. The stormwater system is reported on for informational purposes only. Page 68 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Financial information as of and for the years ended June 30, 2014 and 2013 of the District's Wastewater Segment is as follows: WASTEWATER SEGMENT STATEMENTS OF NET POSITION Assets Current Assets Unrestricted Current Assets Cash and cash equivalents Investments Sewer service charges receivable, less allowance of $3,972,449 in 2014 and $3,799,414 in 2013 Unbilled sewer service charges receivable, less allowance of $402,335 in 2014 and $349,448 in 2013 Accrued income on investments Other receivables Supplies inventory Total Unrestricted Current Assets Non -Current Assets Restricted Assets Cash and cash equivalents Investments Long-term investments Property taxes receivable, less allowance of $13,382 in 2014 and $13,382 in 2013 Accrued income on investments Total Restricted Non -Current Assets Other Assets Notes receivable Long-term investments Total other assets Capital Assets Depreciable: Treatment and disposal plant and equipment Collection and pumping plant General plant and equipment Less: Accumulated depreciation Net depreciable assets Non -depreciable: Land Construction in progress Net capital assets Total Non -Current Assets Total Assets Deferred Outflow of Resources Bonds and Notes Payable -Deferred Loss on Refunding Total Deferred Outflow of Resources For The Years Ended June 30, 2014 2013 (As Restated) F. 91,820,149 100,878,871 46,390,489 20,116,744 746,795 1,057,452 6,223,099 267,233,099 $ 83,202,960 66,140,653 34,035,142 17,472,360 807,632 964,595 6,621,892 209,245,234 62,585,847 162,975,839 48,391,812 26,294 259,601 274,238,893 14,116,801 70,161,237 84,278,038 72,607,799 85,166,704 59,910,456 9,667 116,818 217,811,444 14,640,552 88,892,758 103,533,310 1,184,278,860 1,678,492,307 77,101,471 2,939,872,638 986,568,052 1,953,304,586 49,317,549 291,894,365 2,294,516,500 1,027,055,525 1,623,517,635 75,880,114 2,726,453,274 936,679,376 1,789,773,898 44,433,883 352,895,060 2,187,102,841 2,653,033,431 2,508,447,595 2,920,266,530 10,108,350 10,108,350 2,717,692,829 10,617,604 10,617,604 Page 69 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial. Statements (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 Ended June 30, 2013 2014 (As Restated) 30,764,638 $ 33,336,518 9,566,082 20,268,080 93,935,318 273,006 131,941 404,947 94,340,265 11,811,608 1,102,827,585 27,415,729 27,268,022 9,746,267 19,435,714 83,865,732 83,296 83,296 83.949,028 10,398,107 933,639,841 1,114,639,193 944,037,948 1,208,979,458 1,027,986,976 1,376,497,525 71,843,246 6,027,838 267,026,813 1,404,988,440 47,140,132 9,449,946 238,744,939 $ 1,721.395,422 $ 1,700,323.457 Page 70 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) WASTEWATER SEGMENT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For The Years Ended June 30, 2013 2014 (As Restated) Operating Revenues Sewer service charges $ 248,762,503 $ 237,296,436 Recovery of (Provision for) doubtful sewer service charge accounts 7,230,389 (2,636,455) Licenses, permits, and other fees 6,562,607 2,731,497 Other 1,866,902 3,206,237 Total Operating Revenues 264,422,401 240,597,715 Operating Expenses Pumping and treatment 54,125,550 54,526,256 Collection system maintenance 32,721,633 31,094,470 Engineering 5,569,007 5,391,136 General and administrative 45,861,041 41,485,255 Water backup claims 2,713,168 3,503,220 Depreciation 63,757,854 59,688,021 Asset management 12,431,515 10,372,082 Total Operating Expenses 216,979,768 206,060,440 Operating Income 47,442,633 34,537,275 Non -Operating Revenues Property taxes levied by the District 16,629 49,236 Investment income 2,670,333 956,664 Rent and other income 302,506 293,159 Total Non Operating Revenues 2,989,468 1,299,059 Non -Operating Expenses Net loss on disposal and sale of capital assets 5,203,319 270,109 Non -recurring projects and studies 2,115,233 2,521,722 Interest expense 25,661,127 21,0622474 Total Non -Operating Expenses 32,979,679 23,854,305 Income Before Capital Grants And Contributions 17,452,422 11,982,029 Capital Grants And Contributions Utility plant contributed 3,390,795 12,727,706 Grant revenue 228,748 -- Total Capital Grants And Contributions 3,619,543 12,727,706 Change In Net Position 21,071,965 24,709,735 Net Position - Beginning Of Year, As Previously Stated 1,700,323,457 1,684,354,820 Effect of Adoption of GASB 65 — (8,391,259) Effect of Segment Restatement — (349,839) Net Position - Beginning Of Year, As Restated 1,700,32,3,457 1,675,613,722 Net Position - End Of Year $ 1,721,395,422 $ 1.700,323,457 Page 71 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) WASTEWATER SEGMENT 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 and (discounts) 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 (Decrease) In Cash And Cash Equivalents Cash And Cash Equivalents At Beginning Of Year Cash And Cash Equivalents At End Of Year For The Years Ended June 30, 2013 2014 (As Restated) $ 249,853,960 $ 240,618,941 (91.425,385) (92,818,922) (60,318,262) (51,457,724) 98,110.313 96,342,295 39,569 233,450 455 173,411,628 257,888,292 9,937,121 35,097,262 348,476 250,753 (10,071,556) (21,857,996) (37,522.184) (35,117,398) (158,323,507) (151,321,500) 273,138 225,258 1,603.658 1, 742,160 (20,109,776) 86,907,286 (544,430,180) (611,440,175) 460,116,950 451,665,623 4,604.924 4,636,501 302.506 293,159 (79,405,800) (154,844,892) (1,405,263) 28,444,258 155,810,759 127, 366, 501 $ 154.405.496 $ 1555.810,759 Page 72 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) Financial information as of and for the years ended June 30, 2014 and 2013 of the District's Stormwater Segment is as follows: STORMWATER SEGMENT STATEMENTS OF NET POSITION Assets Current Assets Unrestricted Current Assets Cash and cash equivalents Investments Sewer service charges receivable, less allowance of $19,140 in 2014 and $20,377 in 2013 Unbilled sewer service charges receivable, less allowance of $2,303 in 2014 and $2,197 in 2013 Property taxes receivable, less allowance of $515,097 in 2014 and $590,868 in 2013 Accrued income on investments Total Unrestricted Current Assets Restricted Current Assets Cash and cash equivalents Investments Total Restricted Current Assets Total Current Assets Non -Current Assets Restricted Assets Cash and cash equivalents Investments Long-term investments Property taxes receivable, less allowance of $610,610 in 2014 and $347,278 in 2013 Accrued income on investments Total Restricted Non -Current Assets Other Assets Long-term investments Total other assets Capital Assets Depreciable: Collection and pumping plant General plant and equipment Less: Accumulated depreciation Net depreciable assets Non -depreciable: Land Construction in progress Net capital assets Total Non -Current Assets Total Assets For The Years Ended June 30, 201E 2014 (As Restated) $ 3,217,637 $ 8,130,796 4,222,504 2,834,955 173,238 115,168 2,136,300 9,589 172,263 109,873 2,325,743 23,274 9,874,436 6,086,299 7,568,587 13,596,904 3,652,344 3,201,720 13,654,886 6,854,064 23,529,322 20,450,968 15,293,349 18,185,406 17,712,322 822,066 49,539 14,160,706 12,413,530 20,955,501 666,955 61,957 52,062,682 48,258,649 2,924,238 3,804,478 2,924,238 3,804,478 607,616,163 16,499,177 602,738,600 16,296,534 624,115,340 169,489,419 619,035,134 159,586,760 454,625,921 459,448,374 6,220,267 8,050,557 468,896,745 5,642,761 7,612,460 472,703,595 523,883,665 524,766,722 547,412,987 545,217,690 Page 73 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) STORMWATER SEGMENT STATEMENTS OF NET POSITION (Continued) For The Years Ended June 30, 2013 2014 (As Restated) Liabilities Current Liabilities Contracts and accounts payable $ 31,118 $ 4,842,983 Retainage payable — 3,420 31,118 4,846,403 Current Liabilities -Payable From Restricted Assets Contracts and accounts payable 742,374 Retainage payable 82,122 Total Current Liabilities 824.496 504,746 132,038 636.784 855,614 5,483,187 Net Position Net investment in capital assets 468,896,745 472, 703,595 Restricted for: Subdistrict construction and improvement 64,893,072 54,475,929 Unrestricted 12,767,556 12,554,979 Total Net Position $ 546,557,373 $ 539.734,503 Page 74 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) STORMWATER SEGMENT STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Operating Revenues Sewer service charges Recovery of (Provision for) doubtful sewer service charge accounts Other Total Operating Revenues Operating Expenses Collection system maintenance Engineering Depreciation Asset management Total Operating Expenses Operating Income (Loss) Non -Operating Revenues Property taxes levied by the District Investment income Total Non -Operating Revenues Non -Operating Expenses Net loss on disposal and sale of capital assets Non -recurring projects and studies Total Non -Operating Expenses Income (Loss) 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, As Previously Stated Effect of Segment Restatement Net Position - Beginning Of Year, As Restated Net Position - End Of Year For The Years Ended June 30, 2013 2014 (As Restated) $ 1,370,519 (20,067) $ 1,338,273 (18,189) 28,538 1,350,452 1,348,622 7,266,178 6,615,000 10,329,363 107,336 6,782,462 6,628,530 10,341,819 345,183 24,317,867 24,097,994 (22,967,415) (22,749,372) 27,433,690 296,216 25,966,899 100,302 27,729,906 26,067,201 45,124 1,377,434 525,418 2,154,481 1,422,558 2,679,899 3,339,933 637,930 3,482,937 4,783,029 24,184 3,482,937 4,807,213 6,822,870 5,445,143 539,734,503 533,939,521 349,839 539,734,503 534,289,360 $ 546.557.373 •$ 539,734.503 Page 75 THE METROPOLITAN ST. LOUIS SEWER DISTRICT Notes To Financial Statements (Continued) STORMWATER SEGMENT STATEMENTS OF CASH FLOWS Cash Flows From Operating Activities Received from customers Paid to suppliers for goods and services Net Cash Provided By Operating Activities For The Years Ended June 30, 2013 2014 (As Restated) S 1,344,17 7 (17.590,886) $ 1,722,431 (13,183,062) (16,246,709) (11,460,631) Cash Flows Provided By Non -Capital Financing Activities Taxes levied and collected 27,468,024 Cash Flows From Capital And Related Financing Activities Proceeds from capital grants Payments for capital assets Proceeds from sale of capital assets 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 Net Cash Provided By (Used In) Investing Activities Net Increase (Decrease) In Cash And Cash Equivalents Cash And Cash Equivalents At Beginning Of Year Cash And Cash Equivalents At End Of Year (5,559,226) 71,901 22,9 7 4,201 24,184 (3,526,362) 43,815 (5,487,325) (3,458,363) (82,687,573) 75,235,093 371,929 (59,591,279) 45,648,517 378,128 (7,080,551) (13,564,634) (1,346,561) 25,943,846 (5,509,427) 31,453,273 $ 24,597,285 $ 25,943.846 15. Subsequent Events In preparing these financial statements, the District has evaluated events and transactions for potential recognition or disclosure through October 17, 2014, the date the financial statements were available to be issued. Page 76 THE METROPOLITAN ST. LOUIS SEWER DISTRICT REQUIRED SUPPLEMENTARY INFORMATION EMPLOYEES' PENSION PLAN AND POST -EMPLOYMENT BENEFIT PLAN June 30, 2014 Actuarial Valuation Date 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 12/31/2008 Employees' Pension Plan Schedule of Funding Progress In (000s) Entry Age Actuarial Actuarial Value Accrued Of Assets Liability (1) (2) $ 237,433 $ 275,657 221,144 266,371 205,792 254,997 189,012 231,599 185,753 223,063 183,679 212,066 Actuarial Actuarial Value Valuation Of Assets Date (1) 7/1/2013 $ 7/1/2011 7/1/2009 7/1/2007 Unfunded Actuarial Accrued Annual Liability Funded Covered (UAAL) Ratio Payroll (1)-(2) (1)/(2) (3) (38,224) 86.1 $ 46,600 (45,227) 83.0 48,333 (49,205) 80.7 49,432 (42,587) 81.6 51,703 (37,310) 83.3 52,267 (28,387) 86.6 48,077 Post -Employment Benefit Plan Schedule of Funding Progress In (000s) Unfunded Actuarial Actuarial Accrued Accrued Liability Liability (UAAL) (2) (1)-(2) 26,264 $ 26,264 24,103 24,103 24,412 24,412 21,938 21,938 Funded Ratio (1)/(2) 0% 0% 0% 0% Covered Payroll (3) $ 60,238 52,649 50,230 43,640 UAAL As A Percentage Of Covered Payroll (1)-(2)/(3) 82.0 % 93.6 99.5 82.4 71.4 59.0 UAAL As A Percentage Of Covered Payroll (1)-(2)/(3) 43.6 % 45.8 48.6 50.3 Page 77 III 'II ; Ill II I II I II I III I 11 1 II I i li