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HomeMy Public PortalAboutTritown 6-30-16 final FSORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS WITH INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED JUNE 30, 2016 ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS WITH INDEPENDENT AUDITOR’S REPORT FOR THE YEAR ENDED JUNE 30, 2016 TABLE OF CONTENTS Independent Auditor’s Report i Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards iii MANAGEMENT’S DISCUSSION AND ANALYSIS v BASIC FINANCIAL STATEMENTS: Statement of Net Position 1 Statement of Revenues, Expenses, and Changes in Net Position 2 Statement of Cash Flows 3 Notes to Financial Statements 4 REQUIRED SUPPLEMENTARY INFORMATION: Schedule of Pension Plan Contributions 17 Schedule of Funding Progress –District’s Other Post-Employment Benefit (OPEB) Plan 18 MANAGEMENT’S DISCUSSION AND ANALYSIS ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Management’s Discussion and Analysis June 30, 2016 v As management of the Orleans, Brewster, and Eastham Groundwater Protection District (the District), we offer readers of the District’s financial statements this narrative overview and analysis of the financial activities of the District for the year ended June 30, 2016. Basic Financial Statements The basic financial statements are prepared using the accrual basis of accounting. Revenue is recorded when earned, and expenses are recorded when incurred. The basic financial statements include a statement of net position, a statement of revenues, expenses, and changes in net position; a statement of cash flows and notes to the financial statements. The statement of net position presents information on the assets, deferred outflows of resources,liabilities and deferred inflows of resources of the District, with the difference being reported as net position. The statement of revenues, expenses, and changes in net position report the operating and non-operating revenues and expenses of the District for the fiscal year. The net result of these activities combined with the beginning of the year net position reconciles to the net position at the end of the current fiscal year. The statement of cash flows reports the changes in cash for the year resulting from operating and investing activities. The net result of the changes in cash for the year, when added to the balance of cash at the beginning of the year, equals cash at the end of the year. The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes to the financial statements follow the basic financial statements described above. Required supplementary information as mandated by the Government Accounting Standards Board (GASB) is presented following the financial statements and related notes to provide additional analysis. Financial Highlights The assets and deferred outflows of resources of the District were exceeded by its liabilities and deferred inflows of resources at the end of the most recent fiscal year by approximately $1.1 million (net position).This deficit was due primarily to the District’s net pension liability and net other post-employment benefit (OPEB) obligation of approximately $900 thousand and $370 thousand,respectively. The total cost of all District services for fiscal year 2016 was approximately $1.3 million. Overall, net position of the District decreased by approximately $900,000. This is after providing for $302,000 of depreciation and a capital asset impairment loss of $552,000 in fiscal year 2016. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Management’s Discussion and Analysis June 30, 2016 vi Current Financial Conditions In accordance with votes of the member towns, on February 11, 2016, the Board of Managers approved to cease the operations of the District on June 1, 2016. Certain employees will continue to work until the end of August, 2016. Condensed Financial Information As noted earlier, net position was in a deficit of approximately $1.1 million at the close of the most recent fiscal year as demonstrated in the following table. 2016 2015 Cash and cash equivalents $ 309,725 $ 132,353 Other current assets 274 84,666 Capital assets, net of accumulated depreciation - 854,822 Total assets 309,999 1,071,841 Deferred outflows of resources 73,033 1,382 Total assets and deferred outflows $ 383,032 $ 1,073,223 Current liabilities $ 195,755 $ 64,454 Long-term liabilities 1,269,713 1,181,854 Total liabilities 1,465,468 1,246,308 Deferred inflows of resources 229 - Total liabilities and deferred inflows $ 1,465,697 $ 1,246,308 Net investment in capital assets $$ 854,822 Unrestricted (1,082,665) (1,027,907) Total net position $(1,082,665)$( 173,085) Operating revenues $ 989,776 $1,005,438 Operating expenses (1,347,085) (1,420,133) Operating loss ( 357,309) ( 414,695) Investment income 290 141 Impairment loss (552,561) - Change in net position $( 909,580)$( 414,554) Capital Assets As of June 30, 2016, the District had no capital assets due to an impairment loss recognized in the amount of $553 thousand. The District’s investment in capital assets as of June 30,2015 amounted to approximately $850 thousand,which is net of accumulated depreciation of $19.38 million. The investment in capital assets includes the plant facility and improvements, including machinery and equipment. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Management’s Discussion and Analysis June 30, 2016 vii Requests for Information This financial report is designed to provide a general overview of the District’s finances for all those with an interest in the District's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Orleans, Brewster, and Eastham Groundwater Protection District, Attn: John Kelly, Town Administrator, 19 School Street, 2nd floor, Orleans, MA 02653-6773. BASIC FINANCIAL STATEMENTS ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Statement of Net Position June 30, 2016 Totals Cash and cash equivalents 309,725$ User charges receivable 274 Total assets 309,999 Changes in proportionate share of collective pension contributions 1,659 Net difference between projected and actual pension earnings 71,374 Total deferred outflows of resources 73,033 Total assets and deferred outflows of resources 383,032$ Accounts payable 28,688$ Salaries and withholdings payable 4,828 Severance package payable 84,931 Compensated absences 77,308 Long-term liabilities: Other post-employment benefits 370,290 Net pension liability 899,423 Total liabilities 1,465,468 Changes in proportionate share of collective pension amounts 229 Total deferred inflows of resources 229 Unrestricted (1,082,665) Total net position (1,082,665) Total liabilities, deferred inflows of resources and net position 383,032$ ASSETS LIABILITIES NET POSITION DEFERRED OUTFLOWS OF RESOURCES DEFERRED INFLOWS OF RESOURCES The accompanying notes are an integral part of these financial statements. 1 ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2016 Totals Operating revenues: User charges 971,600$ Capital member assessment 16,656 Finance charges 1,520 Total operating revenues 989,776 Operating expenses: Payroll, fringe benefits, and related costs 711,618 Chemicals 22,893 Utilities 95,237 Lab testing 9,130 Uniform service 1,635 Maintenance, repairs, and supplies 37,716 Sludge/compost disposal 100,205 Professional fees 11,974 Insurance 25,908 Office expense and supplies 3,361 Computer expense and office equipment leases 11,951 Postage and freight 1,981 Vehicle maintenance and fuel 6,424 Miscellaneous 4,791 Depreciation 302,261 Total operating expenditures 1,347,085 Operating loss (357,309) Nonoperating revenues: Interest income 290 Special item: Impairment loss on capital assets (552,561) Change in net position (909,580) Net position at beginning of year (173,085) Net position at end of year (1,082,665)$ The accompanying notes are an integral part of these financial statements. 2 ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Statement of Cash Flows For the Year Ended June 30, 2016 Totals Cash flows from operating activities: Cash received from users 1,051,496$ Cash received from assessments 16,656 Cash paid to employees and for employee benefits (600,535) Cash paid to vendors (290,535) Net cash provided by operating activities 177,082 Cash flows from investing activities: Cash received for interest 290 Net cash provided by investing activities 290 Net increase in cash 177,372 Cash and cash equivalents, beginning of year 132,353 Cash and cash equivalents, end of year 309,725$ Reconciliation of operating income to net cash provided by operating activities: Operating loss (357,309)$ Depreciation expense 302,261 Changes in operating assets and liabilities: User charges receivable 78,376 Prepaid expense 6,016 Net changes in proportionate share of collective pension contributions (1,659) Net change in projected and actual pension earnings (69,992) Accounts payable (27,992) Salaries and withholdings payable (2,946) Severance package payable 84,931 Compensated absences 10,940 Other post-employment benefits 61,535 Net pension liability 92,692 Net change in proportionate share of collective pension amounts 229 Net cash provided by operating activities 177,082$ The accompanying notes are an integral part of these financial statements. 3 NOTES TO FINANCIAL STATEMENTS ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 4 Note 1. Organization and Reporting Entity A. Organization Orleans, Brewster, and Eastham Groundwater Protection District (the District), Orleans, Massachusetts, was established under Chapter 327 of the Acts of 1988 of the Massachusetts General Laws for the purpose of treating and disposing of sewage and offal, including septic tank pumping’s. The District commenced full operations on March 19, 1990, with plant and facilities used exclusively by the District under an inter-municipal agreement with member towns of Orleans, Brewster, and Eastham. The plant and facilities were developed, constructed, and financed by member towns with federal and state grants and member contributions. The District is governed by a three-member Board of Managers appointed by the Chairman of the Board of Selectmen of each member town. The District does not have the authority to borrow money. Its members are responsible for funding deficits of the District (See Note 12). B. Reporting Entity General The accompanying financial statements present the District (the primary government) and its component units. Component units are included in the reporting entity if their operational and financial relationships with the District are significant. Pursuant to these criteria, the District did not identify any component units requiring inclusion in the accompanying financial statements. Joint Ventures The District has entered into a joint venture with other municipalities to pool resources and share the costs, risks, and rewards of providing goods or services to venture participants directly, or for the benefit of the general public or specific recipients. The following is the District’s joint venture, its purpose, and the annual amounts paid by the District. Financial statements may be obtained from the joint venture by contacting them directly. The District does not have an equity interest in the joint venture. 2016 Joint venture and address Purpose District’s Payments Cape Cod Municipal Health Group c/o Group Benefit Strategies 27 Midstate Office Park, Suite 204 Auburn, MA 01501 Barnstable County Retirement Assoc. To provide employee health benefits Employee pension $57,183 $ 78,594 The health care benefits consists of the total amounts billed to the District for all plans and is paid by a 75% and 25% primary care premium formula by the District and employees, respectively. The District budgets annually for its estimated share of contributions (See Note 12). ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 5 Note 2. Summary of Significant Accounting Policies A. Basis of Presentation The accounting policies of the District conform to generally accepted accounting principles applicable to governmental units and the financial statements conform to the reporting presentation set forth in “Governmental Accounting and Financial Reporting Standards” issued by the Governmental Accounting Standards Board (GASB). Accordingly, the District uses the accrual basis of accounting, which recognizes revenue when earned and liabilities when incurred, regardless of the timing of the related cash flows. B. Operating and Non-operating Revenue and Expense Operating revenues and expenses are distinguished from non-operating items. Operating revenues and expenses are principally derived from user charges billed to property owners, and haulers on the basis of weight and gallons of sewage discharged for treatment. Operating revenues are recognized when sewage is discharged and are considered fully collectible. Operating expenses include salaries and benefits for District personnel, sewage treatment and monitoring costs, as well as general administrative expenses and depreciation on the plant facility. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. C. Fair Value Measurement The District measures assets and liabilities at fair value according to the hierarchy established by generally accepted accounting principles. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy is based upon valuation inputs, which are assumptions that market participants would use when pricing an asset or a liability, including assumptions about risk. The following are levels considered: Level 1 inputs are quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs are directly observable for an asset or a liability (including quoted prices for similar assets or liabilities), as well as inputs that are indirectly observable for the asset or liability. Level 3 inputs are unobservable for the asset or liability. D. Cash, Cash Equivalents and Investments Cash balances from all funds, except those required to be segregated by law, are combined to form consolidated cash. For the purpose of the financial statements cash and cash equivalents include all demand and savings accounts. Massachusetts General Laws and local provisions place certain limitations on the nature of deposits and investments available. Deposits in any financial institution may not exceed certain levels within the financial institution. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 6 Investments are defined as securities or other assets that (a) a government holds primarily for the purpose of income or profit and (b) has a present service capacity based solely on its ability to generate cash or be sold to generate cash. Generally, investments are reported according to the fair value hierarchy established by generally accepted accounting principles. Certain investments, such as money market investments and 2a7-like external investment pools, are reported at amortized cost. 2a7-like pools are external investment pools that operate in conformity with the Securities and Exchange Commission’s (SEC) Rule 2a7 as promulgated under the Investment Company Act of 1940, as amended and should be measured at the net asset value per share provided by the pool. The District considers certificates of deposits as investments. Additional cash and investment note disclosures are presented in these Notes. E. Receivables Receivables consist of all revenues earned at year-end and not yet received, net of an allowance for uncollectible accounts and write-offs. Allowances for uncollectible accounts receivable and write-offs are based upon historical trends and the periodic aging of accounts receivable. F. Capital Assets Capital assets or leasehold improvements, if any, over the District’s capitalization threshold, are stated at historical cost. The District generally utilizes a $5,000 per unit capitalization threshold. Depreciation is provided over the asset’s estimated useful lives using the straight-line method of depreciation. The range of estimated useful lives by type of asset is as follows: Buildings 25-50 years Improvements 10-40 years Machinery and Equipment 3-20 years G. Deferred Outflows and Deferred Inflows Deferred outflows of resources, as applicable, represent a consumption of assets by the government that is applicable to a future reporting period. These deferred outflows of resources have a positive effect on net position and are reported after assets when applicable. Deferred inflows of resources, as applicable, represent the acquisition of assets by the government that is applicable to a future reporting period. These deferred inflows of resources have a negative effect on net position and are reported after liabilities when applicable. H. Liabilities Liabilities represent present obligations to sacrifice resources for which the government has little or no discretion to avoid. The primary focus is on the obligation for the government to perform. The accounting treatment for these obligations depends on whether they are reported in the government-wide or fund financial statements. Current liabilities are reported in both the fund and government-wide financial statements. Current liabilities represent obligations incurred in the operating cycle for acquisition goods, services, accruals for salaries/wages,vacation accruals, and other obligations due or generally expected to be liquidated within one year from the balance sheet date. Government-wide financial statements also report other current liabilities such as accrued interest, which is reported on a full accrual basis. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 7 I.Equity Classifications Equity is classified as net position and displayed in three components: Net investment in capital assets –Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt are also included in this component of net position. Restricted net position –Consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. These assets may be restricted by constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. Unrestricted net position –Represents the net amount of the assets, deferred outflows of resources, liabilities and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. J. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results may differ from those estimates. Note 3. Budget Process The District does not have a requirement for a legally adopted budget,however an annual operating budget is adopted by the Board of Managers after January first of each year for the next fiscal year.Budgeted items lapse at the end of the fiscal year unless otherwise voted by the Board of Managers. The operating budget includes amounts for operation and maintenance costs of the facility. The Board of Managers also adopts a multi-year capital plan. Capital costs not funded from operating revenues are shared equally by the member Towns of the District as provided for in the Intermunicipal Agreement. Note 4. Cash and Cash Equivalents Massachusetts General Laws, Chapter 44, Sections 54 and 55, place certain limitations on cash deposits and investments available to the District. Authorized deposits include demand deposits, term deposits, and certificates of deposit in trust companies, national banks, savings banks, and certain other financial institutions. Deposits may not exceed certain levels without collateralization of the excess by the financial institution involved. The District may also invest in securities issued by or unconditionally guaranteed by the U.S. Government or an agency thereof, and having a maturity from date of purchase of one year or less. The District may also invest in repurchase agreements guaranteed by such government securities with maturity dates of not more than ninety days from date of purchase. The District may invest in units of the Massachusetts Municipal Depository Trust (MMDT), a pooled investment account. The District does not have a formal depository and investment policy which addresses the various risks associated with maintaining its funds. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 8 The District maintains deposits in an authorized financial institution. In case of deposits, custodial credit risk is the risk that in the event of a bank failure, the District’s deposits may not be returned. The District does not have a formal deposit policy for custodial risk. At year-end,deposits totaled $316,302 and had a carrying amount of $309,725, which included cash equivalents of $64,920 on deposit in MMDT. Of the deposit amounts, $250,000 was covered by federal depository insurance. The difference between deposit amounts and insured amounts consists of the investments in MMDT. The difference between bank deposits and carrying amounts consists primarily of outstanding checks and deposits in transit. The District does not have a formal investment policy; however, the District’s only investments/cash equivalents consist of units of Massachusetts Municipal Depository Trust (MMDT), a pooled investment account which qualifies as an external investment pool. The MMDT is managed on behalf of the Treasurer of the Commonwealth of Massachusetts, who acts as trustee. Financial reports of the MMDT are publicly available and may be obtained by contacting the MMDT directly. This account is valued at amortized cost. The balance invested in MMDT at June 30, 2016 is $64,920 and is reported as a cash equivalent for fiscal reporting purposes. Note 5. User Charges Receivable The District reports total amounts due from customers net of any applicable allowances for uncollectible amounts and write-offs in the accompanying Statement of Net Position. Management believes all receivables are fully collectible and as such as not recorded an allowance for uncollectible amounts. The District reports the following receivables as of June 30, 2016: Gross Amount Allowance for Uncollectible Net Amount Accounts receivable $ 274 $ $ 274 Total $ 274 $ $ 274 Note 6. Capital Assets Capital assets consisted of costs of constructing and equipping the District’s plant and facilities. In accordance with votes of the member towns, on February 11, 2016 the Board of Managers approved to cease operations of the District on June 1, 2016. Accordingly, the remaining net book value of capital assets in the amount of $552,561 has been reported as an impairment loss at June 30, 2016. Changes in the Districts capital assets are as follows: Beginning Balances Increases Decreases Ending Balances Capital assets: Facility construction and improvements $ 20,234,358 $ $(20,234,358) $ Total capital assets 20,234,358 (20,234,358) Less accumulated depreciation 19,379,536 302,261 (19,681,797) . Total capital assets, net $ 854,822 $ (302,261) $ (552,561) $ . ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 9 Note 7. Deferred Outflows of Resources and Deferred Inflows of Resources The District reported the following deferred outflows and deferred inflows of resources at June 30, 2016. Deferred outflows of resources and deferred inflows of resources associated with the District's participation in the Barnstable County Retirement Association (the pension plan) are to be recognized in future pension expense in subsequent years. Deferred Outflows of Resources Amount Changes in proportionate share of collective pension contributions during the measurement period $ 1,659 Net difference between projected and actual pension earnings 71,374 Total deferred outflows of resources $ 73,033 Deferred Inflows of Resources Amount Changes in proportionate share of collective pension amounts of net pension liability (NPL) and deferred outflows at the beginning of the measurement period $ 229 Total deferred inflows of resources $ 229 Note 8. Long Term Obligations The following is a summary of changes in long-term obligations for the year ended June 30, 2016. Beginning Ending Purpose Balance Additions Reductions Balance Compensated absences $ 66,368 $ 10,940 $ 77,308 $ Net pension liability 806,731 92,692 899,423 Net other post-employment benefits liability 308,755 61,535 __________ 370,290 Total governmental activities $ 1,181,854 $ 165,167 $ 77,308 $ 1,269,713 Note 9. Employee Benefits A. Retirement Benefits Barnstable County Retirement Association Plan Description The Barnstable County Retirement Association (the Plan) is a multiple-employer, cost sharing, contributory defined benefit pension plan covering all employees of the governmental member units deemed eligible by the Barnstable County Retirement Board (the Board). Membership in the Plan is mandatory immediately upon the commencement of employment for all permanent employees working a minimum of 25 hours per week. As of January 1, 2014, the Association had 50 participating employers. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 10 The Association is a member of the Massachusetts Contributory Retirement System and is governed by Chapter 32 of the Massachusetts General Laws (MGL). The Public Employee Retirement Administration Commission (PERAC) is the state agency responsible for oversight of the Commonwealth's public retirement systems. The Association is governed by a five member Board who establish the policies under which the Association operates. The Association issues an audited financial statement for the year ended December 31, 2015, which may be obtained by contacting the Association directly at: Barnstable County Retirement Association, 750 Attucks Lane, Hyannis, MA 02601. Benefits Provided The Association provides retirement, disability, survivor and death benefits to members and their beneficiaries. Massachusetts General Laws (MGL) establishes uniform benefit and contribution requirements for all contributory public employee retirement systems (PERS). Those requirements provide for superannuation retirement allowance benefits up to a maximum of 80% of a member’s highest three-year average annual rate of regular compensation. For employees hired after April 1, 2012, retirement allowances are calculated on the basis of the last five years or any five consecutive years, whichever is greater in terms of compensation. Benefit payments are based upon a member’s age, length of credible service, and group creditable service, and group classification. The authority for amending these provisions rests with the Legislature. Contributions There are three classes of membership in the retirement system: Group 1, Group 2 and Group 4. Group 1 consists of general employees which includes clerical and administrative positions. Group 2 consists of positions that have specified as hazardous. Lastly, Group 4 consists of police officers, firefighters and other hazardous positions. Any individual in Group 1 or Group 2 whose membership began before January 1, 1978 and who maintains an annuity savings fund account, is eligible to receive a superannuation retirement allowance at age 55 or later, regardless of how many years or creditable service. There is no minimum vesting requirements for individuals in Group 4. Members in Group 1 and 2, hired after January 1, 1978 and prior to April 2, 2012, are eligible to receive a superannuation retirement allowance upon the completion of 20 years of service or upon completion of 10 years of service and upon reaching age 55. Members in Group 1 and 2, hired on or after April 2, 2012, are eligible to receive a superannuation retirement allowance upon the completion of 10 years of service and upon reaching age 60 (Group 1) or age 55 (Group 2). Governmental employers are required to pay an annual appropriation established by PERAC. The total appropriation includes the amount to pay the pension portion of each member's retirement allowance, an amount to amortize the actuarially determined unfunded liability to zero in accordance with the system's funding schedule, and an additional appropriation in accordance with adopted early retirement incentive programs. The total appropriations are payable July1 and January 1. Employers may choose to pay the entire appropriation in July at a discount rate of approximately 2%. The pension fund appropriations are allocated among employers based on covered payroll. The District's statutorily required contribution for the year was $78,594. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 11 Pension Liabilities, expenses, and deferred outflows of resources related to pensions The collective net pension liability of the Association was determined by an actuarial valuation as of January 1, 2014/ At December 31, 2015: 2015 Total pension liability $ 1,502,651,474 Less: plan fiduciary net position (873,002,092) Net pension liability $ 629,649,382 Plan’s fiduciary net position as a percentage of total pension liability 58.10% Total employer pension expense $ 69,712,851 The District's proportionate share of the collective net pension liability $ 899,423 The District's percentage share of the collective net pension liability 0.143% District covered payroll $ 396,115 The District's proportionate share of pension expense recognized $ 99,581 The District's proportionate share of collective deferred outflows of resources was $73,033 and share of collective deferred inflows of $229. The net effect of these are to be recognized in future pension expense in future years as follows: Net amount recognized in future Year pension expense June 30, 2017 $ 18,216 June 30, 2018 18,216 June 30, 2019 18,216 June 30, 2020 17,870 June 30, 2021 286 Total $ 72,804 Actuarial Assumptions Valuation date:January 1, 2014 Actuarial cost method:Entry Age Normal Cost Method Amortization method:Payments to increase at 4.0%, except for 2010 Early Retirement Incentive, which is a level payment. Inflation rate:4.0% Asset valuation method:Sum of actuarial value at beginning of the year, contributions and investment earnings based on the actuarial interest assumption less benefit payments and operating expenses plus 20% of the market value at the end of the year in excess of that sum, plus additional adjustment toward market value as necessary so that the final actuarial value is within 20% of market value. Projected salary increases:Varies by length of service with ultimate rates of 4.25% for Group 1; 4.50% for Group 2 and 4.75% for Group 4. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 12 Mortality rates: Pre-retirement:The RP-2000 Employee Mortality Table projected generationally with a Scale AA from 2010. Healthy retiree: The RP-2000 Healthy Annuitant Mortality Table projected generationally with a Scale AA from 2010. Disabled retiree:The RP-2000 Healthy Annuitant Mortality Table set forward three years for males only projected generationally with Scale AA from 2010. The pension plan's policy in regard to the allocation of invested assets is established by PRIT. Plan assets are managed on a total return basis with a long term objective of achieving a fully funded status for the benefits provided through the pension plan. The long term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce long-term expected rate of return by weighing the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of January 1, 2014 are summarized in the following table: Asset Class Target Allocation Long-Term Expected Rate of Return Domestic equity 20.0%6.6% International developed markets equity 16.0%7.1% International emerging markets equity 7.0%9.4% Core fixed income 13.0%2.2% High-yield fixed income 10.0%4.7% Real estate 10.0%4.4% Commodities 4.0%4.4% Hedge fund, GTAA, risk parity 10.0%3.9% Private equity 10.0%11.7% Total 100.0% Discount Rate The discount rate used to measure the total pension liability was 7.75%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rates and that contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rates. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all period of projected benefit payments to determine the total pension liability. Sensitivity Analysis The following illustrates the sensitivity of the collective net pension liability to changes in the discount rate. In particular, the table presents the Plan's and the District's proportionate share of the collective net pension liability assuming it was calculated using a single discount rate that is one- percentage-point lower or one-percentage-point higher than the current discount rate at December 31, 2015: ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 13 1% Decrease to 6.75%Current Discount Rate 7.75%1% Increase to 8.75% BCRA -Total Plan $798,489,114 $629,649,382 $486,357,107 District's proportionate share $ 1,140,602 $ 899,423 $ 694,737 B. Compensated Absences Employees are granted vacation leave under the terms of the District’s personnel by-laws. Vacation days may be accumulated up to 20 days depending on years of service. Upon termination, through no fault or delinquency on the part of the employee or by retirement, resignation, or entrance into the military, the employee is entitled to be compensated for 100% of accumulated vacation days at the then employee's regular rate of pay. Employees are entitled under the District personnel by-laws to accumulate sick leave at the rate of one day per month for each month actually worked, up to a maximum of 12 days per year. Sick leave may be accumulated from year to year up to a maximum of 150 days. Upon retirement, employees are eligible for payment of ten percent of the dollar value of unused sick leave. Payment shall be based on the wage or salary the employee is earning at time of retirement. At June 30, 2016, the District’s liability for vacation and sick leave amounted to $77,308. The liability is classified as a current liability due to the termination of all employees as of August 31, 2016. Accrued vacation and sick leave payables are included in the accompanying Statement of Net Position (See Note 12). C. Severance Package The Board of Managers approved a severance package to be paid out to the employees at the end of their employment for approximately $85,000, to assist with the close down of the plant through August 2016, after cessation of plant operations on June 1, 2016. These costs have been recorded as a current liability in the District’s basic financial statements. The employees will continue to work until the end of August 2016 (See Note 12). D. Other Post-Employment Benefits Plan Description The District administers a single employer defined benefit plan which provides health and dental insurance to substantially all retired employees and their spouses (plan members). Currently, the District has 2 retirees. The District provides health and dental benefits for retirees, beneficiaries and dependents on a pay as you go basis. These benefits are provided for and amended under various provisions of Massachusetts General Law (MGL), District Ordinances and the terms of collective bargaining agreements. The Plan does not issue separate financial statements. Funding Policy The contribution rates of retirees are established by collective-bargaining agreements, Massachusetts General Law, and District ordinances. The required contribution is based on pay as you go financing requirements. All benefits are provided through a third-party joint purchasing group that administers, assumes, and pays all claims. The District contributes up to 75% of the insurance premiums with the remainder funded through pension benefit deductions, as applicable. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 14 Annual OPEB Cost and Net OPEB Obligation The District’s annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the provisions of GASB Statement No. 45. Under GASB No. 45, employers with fewer than one hundred plan members are permitted the use of an alternative measurement method. The District has elected to utilize this method in estimating their OPEB liability. The ARC represents a level of funding that if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District’s annual OPEB cost for the fiscal year, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation. Annual OPEB cost $ 61,535 Contributions made Increase in net OPEB obligation 61,535 Net OPEB obligation, beginning of year 308,755 Net OPEB obligation, end of year $ 370,290 Funding Status and Schedule of Funding Progress The unfunded actuarial liability was determined using the level dollar thirty year open amortization basis. Alternative Valuation Date (a) Value of Assets (b) Alternative Accrued Liability (AAL) (b) –(a) Unfunded AAL (UAAL) (b) / (a) Funded Ratio (c) Covered Payroll [(b)-(a)]/(c) UAAL as a Percentage of Covered Payroll 6/30/13 $ $ 494,325 $ 494,325 0.00%N/A N/A 6/30/11 $ $ 478,822 $ 478,822 0.00%N/A N/A Alternative valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Alternative Method and Assumptions Projections of the benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between employer and plan members to that point. The alternative method and assumptions used include techniques that are designed to reduce the effects of short-term volatility in estimated accrued liabilities and the estimated value of assets, consistent with the long-term perspective of the calculations. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 15 The following methods and assumptions were utilized in the June 30, 2013 valuation: Amortization Period:30 years open Asset Valuation Method:Market value Investment Rate of Return: 5.00% Inflation Rate:3.30% Discount Rate:5.50% Dental:None Healthcare Trend Rates: 5.4% for 2015, 2016+ 5% Note 10. Risk Management The District was exposed to various risks of loss related to general liability, medical claims, property and casualty, workers' compensation, and unemployment compensation claims. Buildings and property are insured against fire, theft, and natural disaster. District vehicles are insured for losses. As discussed in Note 1, the District participates in the Cape Cod Municipal Health Group,a municipal joint-purchase group consisting of 51 governmental units, formed pursuant to Massachusetts General Law Chapter 32B to provide employee insurance benefits. Employees and the District both contribute to the Group based upon a 75% (District) and 25% (Employee) primary care premium formula. The District budgets, annually, for its estimated share of contributions. Additional information related to the Group may be obtained by contacting the Group directly. The District is insured for workers' compensation for District personnel to a limit of $1,000,000 per occurrence for each employee. Subsequent to cessation of operations of June 1, 2016, applicable changes were made to insurance coverages for the District. Note 11. Implementation of GASB pronouncements The following are pronouncements issued by the Governmental Accounting Standards Board (GASB), which may affect the District’s financial statements: Current pronouncements The GASB issued Statement #72, Fair Value Measurement and Application, which is required to be implemented in fiscal year 2016. The pronouncement addresses accounting and financial reporting issues related to fair value measurements. The District implemented the pronouncement as applicable. The GASB issued Statement #76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, which was required to be implemented in fiscal year 2016. The pronouncement replaced previously issued guidance and improves financial reporting by redefining the hierarchy of generally accepted accounting principles (GAAP).The District implemented the pronouncement as applicable. The GASB issued Statement #79, Certain External Investment Pools and Pool Participants, which was required to be implemented in fiscal year 2016.The pronouncement issues accounting and financial reporting guidance regarding qualifying external investment pools and state and local governments that participate in such external investment pools. The District implemented the pronouncement as applicable. ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Notes to the Financial Statements June 30, 2016 16 Note 12. Plant Closure and Going Concern In accordance with votes of the member towns, on February 11, 2016, the Board of Managers approved to cease the operations of the District on June 1, 2016.As of June 1, 2016 the District is no longer open for business and have begun the decommissioning process of the plant. According to Special Act, Chapter 327, Section 1 as amended 2012, upon the dissolution of the Orleans, Brewster, Eastham Ground Water Protection District, the retirement benefits including, pension and health benefits, of vested district employees, shall be paid by the towns of Brewster, Eastham and Orleans in equal amounts with each town paying a one-third share. The Towns have entered into two Supplemental Intermunicipal Agreements relating to health insurance and pension benefits for retirees of the District and construction administration for the demolition of septage treatment facility and site restoration. Pursuant to the Supplemental Intermunicipal Agreement relative to health insurance and pension benefits for retirees,the District continues for administrative purposes only for the purpose of paying retiree health insurance and pension benefits. The employer cost for these benefits will be split equally amongst the Towns in one-third shares. The Town of Brewster will serve as the financial administrator for the costs of these benefits and will bill the respective Towns for such costs. This agreement is effective from December 31, 2016 through December 31, 2021. Pursuant to the Supplemental Intermunicipal Agreement relative to construction administration for the demolition of the septage treatment facility, the Town of Orleans will serve as financial administrator for the costs associated with the demolition and site restoration project, and will invoice each Town for their respective one-third share of the costs, once any remaining District funds have been exhausted. The Board of Managers were dissolved on June 30, 2017. This agreement is in effect from July 1, 2017 through June 30, 2018. The closure is subject to normal closing costs associated with the decommissioning process of the septage plant. The costs are estimated to cost between $2 and $3 million for the full decommissioning, demolition of the plant and site restoration. AECOM of Pocasset has been selected to oversee the decommissioning. The demolition is under contract with work scheduled to begin September 2017 and site restoration completed by April 2018. No adjustments have been made to these financial statements for the closing costs. As a result of the issues noted above, the District is not a going concern as of June 30, 2016. REQUIRED SUPPLEMENTARY INFORMATION ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Required Supplementary Information Schedule of Pension Plan Contributions June 30, 2016 Schedule of pension plan contributions A. Barnstable County Retirement Association The Barnstable County Retirement Association (the Plan) is a multiple-employer, cost sharing contributory defined benefit pension plan covering eligible employees (except for school department employees who serve in a teaching capacity). Based upon the actuarial valuation date of the Plan of January 1, 2014, (current year) the following is presented. 2015 2014 Total pension liability 1,502,651,474$ 1,426,632,712$ Less: Plan fiduciary net position (873,002,092) (862,069,292) Net pension liability 629,649,382$ 564,563,420$ Plan fiduciary net position as a percentage of total pension liability 58.10%60.43% District's proportionate/allocated share of collective net pension liability 899,423$ 806,731$ District's proportionate share of pension expense 99,581$ 75,844$ District's share of collective net pension liability as a percentage of the total 0.143%0.143% Actuarially determined contribution 78,594$ 75,844$ Contributions in relation to actuarial determined contribution (78,594)$ (75,844)$ Contribution deficiency(excess)$ $ District's covered payroll 396,115$ 374,809$ District's contributions as a percentage of covered payroll 19.84%20.24% District's proportionate share of the collective net pension liability as a percentage of covered payroll 227.06%215.24% Note: This schedule is intended to present information for 10 years. Until a 10 year trend is compiled, information is presented for those years for which information is available. See Independent Auditor's Report. 17 ORLEANS, BREWSTER, AND EASTHAM GROUNDWATER PROTECTION DISTRICT Required Supplementary Information Schedule of Funding Progress –District’s Other Post-Employment Benefit (OPEB) Plan June 30, 2016 See Independent Auditor’s Report. 18 Schedule of Funding Progress The unfunded actuarial liability was determined using the level dollar thirty year open amortization basis. Alternative Valuation Date (a) Value of Assets (b) Alternative Accrued Liability (AAL) (b) –(a) Unfunded AAL (UAAL) (b) / (a) Funded Ratio (c) Covered Payroll [(b)-(a)]/(c) UAAL as a Percentage of Covered Payroll 6/30/13 $ $ 494,325 $ 494,325 0.00%N/A N/A 6/30/11 $ $ 478,822 $ 478,822 0.00%N/A N/A Alternative valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Alternative Method and Assumptions Projections of the benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between employer and plan members to that point. The alternative method and assumptions used include techniques that are designed to reduce the effects of short-term volatility in estimated accrued liabilities and the estimated value of assets, consistent with the long-term perspective of the calculations. The following methods and assumptions were utilized in the June 30, 2013 valuation: Amortization Period:30 years open Asset Valuation Method:Market value Investment Rate of Return: 5.00% Inflation Rate:3.30% Discount Rate:5.50% Dental:None Healthcare Trend Rates: 5.4% for 2015, 2016+ 5%