NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM

Transcription

1 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM Report of Audit For the Years Ended June 30, 2015 and 2014

2 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM Table of Contents Independent Auditor s Report 1 Independent Auditor s Report on Internal Control Over Financial Reporting 4 and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Required Supplementary Information Management s Discussion and Analysis 7 Basic Financial Statements A Balance Sheets 15 B Statements of Revenues, Expenses, and Changes in Net Position 17 C Statements of Cash Flows 19 Notes to the Financial Statements 21 Supplementary Information Schedule 1 Combining Balance Sheet State Revolving Fund - Clean Water Schedule 2 Combining Balance Sheet State Revolving Fund Clean Water Schedule 3 Combining Statement of Revenues, Expenses, and Changes in Net Position State Revolving Fund - Clean Water Schedule 4 Combining Statement of Revenues, Expenses, and Changes in Net Position State Revolving Fund - Clean Water Schedule 5 Combining Balance Sheet State Revolving Fund - Drinking Water Schedule 6 Combining Balance Sheet State Revolving Fund - Drinking Water Schedule 7 Combining Statement of Revenues, Expenses and Changes in Net Position State Revolving Fund Drinking Water Schedule 8 Combining Statement of Revenues, Expenses and Changes in Net Position State Revolving Fund Drinking Water Findings & Recommendations Schedule of Findings & Recommendations 57 Summary Schedule of Prior Year Audit Findings & Recommendations as Prepared by Management 58 Appreciation 59 Page i

3 INDEPENDENT AUDITOR S REPORT The Program Management of the New Jersey Clean Water and Drinking Water State Revolving Fund Program Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the New Jersey Clean Water and Drinking Water State Revolving Fund Program (the Program ), State of New Jersey, as of and for the fiscal years ended June 30, 2015 and 2014 and the related notes to the financial statements, which collectively comprise the Program s basic 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. Auditor s 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 Comptroller 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 auditor s 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. 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 New Jersey Clean Water and Drinking Water State Revolving Fund Program as of June 30, 2015 and 2014, and the changes in its financial position and its cash flows thereof for the fiscal years then ended, in accordance with accounting principles generally accepted in the United States of America. 1

4 32000 Emphasis of Matter Reporting Entity As discussed in Note 1 to the financial statements, the basic financial statements referred to above are intended to present the financial position and the changes in financial position and cash flows of the New Jersey Clean Water and Drinking Water State Revolving Fund Program. They do not purport to, and do not, present fairly the financial position of the State of New Jersey Department of Environmental Protection ( NJDEP ) or the New Jersey Environmental Infrastructure Trust ( NJEIT ) as of June 30, 2015 and 2014, and the changes in their financial position and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Prior Period Adjustment Correction of an Error As discussed in Note 12 to the financial statements, an understatement of cash and cash equivalents, investments, interest receivable, loans receivable, accrued interest payable, loans payable, revenue and expense in previously issued financial statements was discovered by Program management during the current year. Accordingly, amounts reported for cash and cash equivalents, investments, interest receivable, loans receivable, accrued interest payable, loans payable, revenue and expense have been restated in the June 30, 2014 financial statement now presented, and an adjustment has been made to net position as of July 1, 2013, to correct the error. 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 as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Program s basic financial statements. The accompanying supplementary schedules as listed in the table of contents are not a required part of the basic financial statements. The accompanying supplementary schedules as listed in the table of contents are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information, as listed in the table of contents is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2

5 32000 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 6, 2017 on our consideration of the Program 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 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 Program s internal control over financial reporting and compliance. Respectfully submitted, BOWMAN & COMPANY LLP Certified Public Accountants & Consultants Voorhees, New Jersey March 6,

6 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 INDEPENDENT AUDITOR S REPORT The Program Management of the New Jersey Clean Water and Drinking Water State Revolving Fund Program We have audited, in accordance with the 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 Comptroller General of the United States, the financial statements of the business-type activities of the New Jersey Clean Water and Drinking Water State Revolving Fund Program (the Program ), as of and for the fiscal year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Program s basic financial statements, and have issued our report thereon dated March 6, Our report on the financial statements included an emphasis of matter paragraph describing the restatement of the prior period financial statements as a result of the correction of an error. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Program s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Program s internal control. Accordingly, we do not express an opinion on the effectiveness of Program s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 4

7 32000 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Program s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Program s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Respectfully submitted, BOWMAN & COMPANY LLP Certified Public Accountants & Consultants Voorhees, New Jersey March 6,

8 REQUIRED SUPPLEMENTARY INFORMATION 6

9 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM (A Component Unit of the State of New Jersey) MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) For the Years Ended June 30, 2015 and 2014 This section of the annual financial report of New Jersey Clean Water and Drinking Water State Revolving Fund Program (the Program ) presents management's discussion and analysis of the Program s financial performance during the years ended June 30, 2015 and 2014 relative to the respective previous years. Please read this section in conjunction with the Program s financial statements and accompany notes FINANCIAL HIGHLIGHTS Clean Water State Revolving Fund The total net position is $1,747,604,644, an increase of $76,684,803, or 4.39% over 2014 Cash and investments are $793,806,538, an increase of $42,075,259, or 5.30% from 2014 Loans receivable are $1,989,978,753, a decrease of $10,413,615, or 0.52% over 2014 Drinking Water State Revolving Fund The total net position is $468,112,032, an increase of $21,490,797, or 4.59% over 2014 Cash and investments are $174,993,372, a decrease of $615,584, or 0.35% from 2014 Loans receivable are $617,909,697, a decrease of $145,593, or 0.02% over FINANCIAL HIGHLIGHTS Clean Water State Revolving Fund The total net position is $1,670,919,841 Cash and investments are $751,731,279 Loans receivable are $2,000,392,368 Drinking Water State Revolving Fund The total net position is $446,621,235 Cash and investments are $175,608,956 Loans receivable are $618,055,290 OVERVIEW OF THE FINANCIAL STATEMENTS This annual financial report consists of three parts, the Management s Discussion and Analysis (this section), the combined financial statements of the New Jersey Department of Environmental Protection ("NJDEP") and New Jersey Environmental Infrastructure Trust ("NJEIT") for the entire State Revolving Fund Program, including notes, and also, the combined financial statements for the Clean Water State Revolving Fund ("CWSRF") and Drinking Water State Revolving Fund ("DWSRF"), which are presented as supplemental information. The NJDEP is a state governmental agency. The accounting policies of the NJDEP conform with generally accepted accounting principles as applicable to special revenue funds. The NJEIT is an independent state financing authority. The accounting policies of the NJEIT conform to accounting principles generally accepted in the United States of America as applicable to enterprise funds. 7

10 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM (A Component Unit of the State of New Jersey) MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) (Continued) For the Years Ended June 30, 2015 and 2014 OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) These statements offer short and long term financial information about the Program s activities. The balance sheet includes all of the CWSRF and DWSRF assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the accounts payable (liabilities). All of the current year s revenues and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Position. The final required financial statement is the Statement of Cash Flows. The primary purpose of this statement is to provide information about the CWSRF and DWSRF Programs cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, and financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period. The notes to financial statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. FINANCIAL ANALYSIS OF THE PROGRAM The purpose of the Program is to improve the environment by making loans to qualified municipalities, counties, regional authorities, and water purveyors throughout the state. There are two sources for the financing of these projects. The NJDEP receives Federal Clean Water and Drinking Water Capitalization Grants from the U.S. Environmental Protection Agency. The NJEIT acts as a conduit lender selling bonds in order to provide a portion of the necessary funding for most of the projects, and also acts as a direct lender for the remainder of the applicable projects. The current assets consist of committed funds which have not been requested by the borrowers, uncommitted state match and repayments from prior obligations and current portion of loans receivable. The loans receivable is the amount of loans net of funds not yet requisitioned. The utilization of the capitalization grants and bond proceeds is reflected in loans receivable. As a result, analyzing the assets as a whole would not be a good measurement of the Program s success. Net Position - the following tables summarize the Program's net position for the CWSRF and DWSRF. In the tables, assets include available cash, investments, interest and loans receivable. Liabilities consist of accounts payable unearned revenue, and bonds payable. Restricted funds are funds held for debt service reserve, for the Interim Financing Program and by enabling legislation. These tables illustrate that the total net position of the CWSRF Program has increased from $1,670,919,841 in 2014 to $1,747,604,644 in The total net position of the DWSRF Program has increased from $446,621,235 in 2014 to $468,112,032 in

11 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM (A Component Unit of the State of New Jersey) MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) (Continued) For the Years Ended June 30, 2015 and 2014 FINANCIAL ANALYSIS OF THE PROGRAM (CONTINUED) Clean Water State Revolving Fund Condensed Balance Sheet Clean Water (Restated) Percent Increase (Decrease) Current loans receivable $ 171,859,656 $ 142,406, % Non-current loans receivable 1,818,119,097 1,857,985,408 (2.15%) Undisbursed project funds 96,296, ,685,663 (22.14%) Total Loans 2,086,274,984 2,124,078,031 (1.78%) Current cash and equivalents, as reduced by undisbursed loan project funds 83,163, ,048,514 (44.58%) Current investments 518,190, ,589, % Non-current investments 96,156,323 50,407, % Other assets 18,252,036 20,822,701 (12.35%) Total assets 2,802,037,327 2,772,946, % Current bonds payable 70,897,271 67,745, % Non-current bonds payable 968,982,385 1,018,608,712 (4.87%) Total Bonds 1,039,879,656 1,086,354,372 (4.28%) Other liabilities 14,553,027 15,672,135 (7.14%) Total liabilities 1,054,432,683 1,102,026,507 (4.32%) Restricted net position 1,744,744,381 1,667,957, % Unrestricted net position 2,860,263 2,962,612 (3.45%) Total net position $ 1,747,604,644 $ 1,670,919, % 9

12 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM (A Component Unit of the State of New Jersey) MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) (Continued) For the Years Ended June 30, 2015 and 2014 FINANCIAL ANALYSIS OF THE PROGRAM (CONTINUED) Drinking Water State Revolving Fund Condensed Balance Sheet Drinking Water (Restated) Percent Increase (Decrease) Current loans receivable $ 49,069,184 $ 43,983, % Non-current loans receivable 568,840, ,072,037 (0.91%) Undisbursed project funds 24,640,466 41,325,197 (40.37%) Total Loans 642,550, ,380,487 (2.55%) Current cash and equivalents, as reduced by undisbursed loan project funds 30,686,577 42,449,453 (27.71%) Current investments 70,895,241 58,983, % Non-current investments 48,771,088 32,851, % Other assets 5,922,999 6,285,548 (5.77%) Total assets 798,826, ,949,794 (0.14%) Current bonds payable 21,394,718 20,671, % Non-current bonds payable 304,375, ,385,550 (7.03%) Total Bonds 325,770, ,057,152 (6.40%) Other liabilities 4,943,355 5,271,407 (6.22%) Total liabilities 330,714, ,328,559 (6.40%) Restricted net position 464,455, ,544, % Unrestricted net position 3,656,409 3,077, % Total net position $ 468,112,032 $ 446,621, % 10

13 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM (A Component Unit of the State of New Jersey) MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) (Continued) For the Years Ended June 30, 2015 and 2014 FINANCIAL ANALYSIS OF THE PROGRAM (CONTINUED) Changes in Net Position the following tables summarize the Program s changes in net position for CWSRF and DWSRF for the years ended June 30, 2015 and Clean Water State Revolving Fund Condensed Statements of Revenues, Expenses and Changes in Net Position Clean Water (Restated) Percent Increase (Decrease) Investment income $ 930,779 $ 1,757,477 (47.04%) Loan interest income 33,392,507 31,398, % Net interim financing and SAIL 14,117,395 3,000, % Non-operating revenues / transfers 71,974,898 76,905,505 (6.41%) Total revenues 120,415, ,061, % Interest expense 28,803,509 30,389,264 (5.22%) Cost of Issuance - 523,875 (100.00%) Community Development & Environmental Management 14,889,349 11,557, % Administrative Expenses 37,918 - n/a Total expenses 43,730,776 42,470, % Change in net position 76,684,803 70,590, % Net Position, Beginning of Year, Before Cumulative Effects of Prior Period Adjustment 1,670,919,841 1,594,778,188 Cumulative Effects of Prior Period Adjustment - 5,551,169 Net Position, Beginning of Year, As Adjusted for Cumulative Effects of Prior Period Adjustment 1,670,919,841 1,600,329,357 Net Position, End of Year $ 1,747,604,644 $ 1,670,919,841 11

14 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM (A Component Unit of the State of New Jersey) MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) (Continued) For the Years Ended June 30, 2015 and 2014 FINANCIAL ANALYSIS OF THE PROGRAM (CONTINUED) Drinking Water State Revolving Fund Condensed Statements of Revenues, Expenses and Changes in Net Position Drinking Water (Restated) Percent Increase (Decrease) Investment income $ 420,568 $ 773,103 (45.60%) Loan interest income 11,169,570 12,319,990 (9.34%) Net interim financing and SAIL - - n/a Non-operating revenues / transfers 24,606,821 21,897, % Total revenues 36,196,959 34,990, % Interest expense 10,616,481 10,396, % Cost of Issuance - 182,940 (100.00%) Community Development & Environmental Management 4,083,774 4,113,091 (0.71%) Administrative Expenses 5,907 - n/a Total expenses 14,706,162 14,692, % Change in net position 21,490,797 20,297, % Net Position, Beginning of Year, Before Cumulative Effects of Prior Period Adjustment 446,621, ,938,160 Cumulative Effects of Changes in Acct Prin - 5,385,546 Net Position, Beg of Year, As Adj for Cumulative Effects of Changes in Acct Principals 446,621, ,323,706 Net Position, End of Year $ 468,112,032 $ 446,621,235 While the balance sheets show the change in financial position, the statements of revenues, expenses and changes in net position illustrate the investment income and administrative fees received by the Program as compared to the administrative expenses and forgiveness of loan principal. A portion of the change in net position represents investment income earned on the Project Fund investments and the Debt Service Fund with respect to the direct clean water and drinking water loans, as well as administrative expenses paid by the Program. NJDEP may utilize the investment income for loans and other approved State Revolving Fund ("SRF") purposes. Non-operating revenues include federal grants and transfers from either non-srf funds or between the CWSRF and DWSRF. Transfers to other funds represent monies transferred between the CWSRF and DWSRF or due to a State bond act or the general fund for administrative and set-aside expenses. 12

15 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM (A Component Unit of the State of New Jersey) MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited) (Continued) For the Years Ended June 30, 2015 and 2014 OTHER FINANCIAL INFORMATION Loans to borrowers in the 2015 program combine proceeds of the bond sale, lent at market rate, with interest-free loans from the State of New Jersey, Department of Environmental Protection Clean Water State Revolving Fund and Drinking Water State Revolving Fund. Thus, most public borrowers will pay a composite interest rate on their loans of less than 1.15%. Restatement of 2014 Financials and Conduit Debt During fiscal year ending June 30, 2015, the Program recognized a change in accounting for net proceeds of the sale of certain NJEIT bonds. In accordance with the Clean Water and Drinking Water State Revolving Fund regulations, when SRF Funds are used as security or a source of revenue for the payment of principal and interest on the NJEIT bonds (for example, maintained on deposit as the debt service reserve requirement), the net proceeds of the sale of the bonds must be deposited in the CWSRF or DWSRF, as applicable, and therefore accounted for in the SRF annual audit. In accordance with this requirement, the net proceeds of all NJEIT bond funds that are securitized by SRF funds should be deposited in the SRF accounts and therefore included in the financial statements of the SRF audit. The adjustment is detailed in Note 12 to the financial statements. CONTACTING THE PROGRAM S FINANCIAL MANAGEMENT This financial report is designed to provide users of the financial statements with a general overview of the Program activities and to demonstrate the Program s accountability for the Clean Water and Drinking Water State Revolving Fund appropriations it receives. If you have any questions about this report or need additional financial information from New Jersey Department of Environmental Protection, contact the Manager, Federal Funds Administration, P.O. Box 420, Trenton, New Jersey ; or for the New Jersey Environmental Infrastructure Trust, contact the Executive Director, 3131 Princeton Pike, Building 4, Suite 216, Lawrenceville, New Jersey

16 BASIC FINANCIAL STATEMENTS 14

17 32000 Exhibit A NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND Balance Sheets As of June 30, 2015 Clean Water Drinking Water Fund Fund Total ASSETS Current Assets: Unrestricted Assets: Cash and Cash Equivalents $ 408,840 $ 561,354 $ 970,194 Restricted Assets: Cash and Cash Equivalents 179,051,060 54,765, ,816,749 Investments 518,190,315 70,895, ,085,556 Interest Receivable 16,575,581 5,774,805 22,350,386 Loans Receivable 171,859,656 49,069, ,928,840 Other Assets 1,676, ,194 1,824,649 Total Current Assets 887,761, ,214,467 1,068,976,374 Noncurrent Assets: Restricted Assets: Investments 96,156,323 48,771, ,927,411 Loans Receivable 1,818,119, ,840,513 2,386,959,610 Total Noncurrent Assets 1,914,275, ,611,601 2,531,887,021 Total Assets $ 2,802,037,327 $ 798,826,068 $ 3,600,863,395 LIABILITIES AND NET POSITION Current Liabilities: Accounts Payable $ 166,895 $ 166,895 Accrued Interest Payable $ 12,876,572 4,628,266 17,504,838 Unearned Revenue 1,676, ,194 1,824,649 Current Portion of Bonds Payable 70,897,271 21,394,718 92,291,989 Total Current Liabilities 85,450,298 26,338, ,788,371 Noncurrent Liabilities: Bonds Payable 968,982, ,375,963 1,273,358,348 Total Noncurrent Liabilities 968,982, ,375,963 1,273,358,348 Total Liabilities 1,054,432, ,714,036 1,385,146,719 Net Position: Restricted for: Debt Service 120,505,095 61,909, ,415,074 Interim Financing Trust Loan Program 83,056,137 30,020, ,076,857 Restricted by Enabling Legislation 1,541,183, ,524,924 1,913,708,073 Unrestricted 2,860,263 3,656,409 6,516,672 Total Net Position 1,747,604, ,112,032 2,215,716,676 Total Liabilities and Net Position $ 2,802,037,327 $ 798,826,068 $ 3,600,863,395 The accompanying Notes to Financial Statements are an integral part of this statement. 15

18 32000 Exhibit A NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND Balance Sheets As of June 30, 2014 Clean Water Drinking Water Fund Fund Total (Restated) (Restated) ASSETS Current Assets: Unrestricted Assets: Cash and Cash Equivalents $ 581,332 $ 739,877 $ 1,321,209 Restricted Assets: Cash and Cash Equivalents 273,152,845 83,034, ,187,618 Investments 427,589,683 58,983, ,572,762 Interest Receivable 17,251,896 6,005,983 23,257,879 Loans Receivable 142,406,960 43,983, ,390,213 Other Assets 3,570, ,565 3,850,370 Total Current Assets 864,553, ,026,530 1,057,580,051 Noncurrent Assets: Restricted Assets: Investments 50,407,419 32,851,227 83,258,646 Loans Receivable 1,857,985, ,072,037 2,432,057,445 Total Noncurrent Assets 1,908,392, ,923,264 2,515,316,091 Total Assets $ 2,772,946,348 $ 799,949,794 $ 3,572,896,142 LIABILITIES AND NET POSITION Current Liabilities: Accounts Payable $ 166,895 $ 166,895 Accrued Interest Payable $ 13,545,001 4,825,844 18,370,845 Unearned Revenue 2,127, ,668 2,405,802 Current Portion of Bonds Payable 67,745,660 20,671,602 88,417,262 Total Current Liabilities 83,417,795 25,943, ,360,804 Noncurrent Liabilities: Bonds Payable 1,018,608, ,385,550 1,345,994,262 Total Noncurrent Liabilities 1,018,608, ,385,550 1,345,994,262 Total Liabilities 1,102,026, ,328,559 1,455,355,066 Net Position: Restricted for: Debt Service 166,882,604 61,589, ,472,453 Interim Financing Trust Loan Program 94,880,070 30,013, ,893,654 Restricted by Enabling Legislation 1,406,194, ,940,741 1,758,135,296 Unrestricted 2,962,612 3,077,061 6,039,673 Total Net Position 1,670,919, ,621,235 2,117,541,076 Total Liabilities and Net Position $ 2,772,946,348 $ 799,949,794 $ 3,572,896,142 The accompanying Notes to Financial Statements are an integral part of this statement. 16

19 32000 Exhibit B NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND Statements of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2015 Clean Water Drinking Water Fund Fund Total Operating Revenue: Investment Income: Interest Income $ 999,617 $ 379,771 $ 1,379,388 Net Increase (Decrease) in the Fair Value of Investments (68,838) 40,797 (28,041) Interest Income from Loans 33,392,507 11,169,570 44,562,077 Total Operating Revenues 34,323,286 11,590,138 45,913,424 Operating Expenses: Interest Expense 28,803,509 10,616,481 39,419,990 Community Development & Environmental Management 14,889,349 4,083,774 18,973,123 Administrative Expenses 37,918 5,907 43,825 Total Operating Expenses 43,730,776 14,706,162 58,436,938 Operating Income (Loss) (9,407,490) (3,116,024) (12,523,514) Non-operating Revenues/Transfers: Federal Grants 77,381,619 23,751, ,132,993 Transfers From Other Funds 8,710, ,447 9,566,005 Other Revenue Total Non-operating Revenues/Transfers 86,092,293 24,606, ,699,114 Change in Net Position 76,684,803 21,490,797 98,175,600 Net Position, Beginning of Year 1,670,919, ,621,235 2,117,541,076 Net Position, End of Year $ 1,747,604,644 $ 468,112,032 $ 2,215,716,676 The accompanying Notes to Financial Statements are an integral part of this statement. 17

20 32000 Exhibit B NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND Statements of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2014 Clean Water Drinking Water Fund Fund Total (Restated) (Restated) Operating Revenue: Investment Income: Interest Income $ 1,636,185 $ 566,258 $ 2,202,443 Net Increase in the Fair Value of Investments 121, , ,137 Interest Income from Loans 31,398,126 12,319,990 43,718,116 Total Operating Revenues 33,155,603 13,093,093 46,248,696 Operating Expenses: Interest Expense 30,389,264 10,396,747 40,786,011 Community Development & Environmental Management 11,557,485 4,113,091 15,670,576 Cost of Issuance 523, , ,815 Total Operating Expenses 42,470,624 14,692,778 57,163,402 Operating Income (Loss) (9,315,021) (1,599,685) (10,914,706) Non-operating Revenues/Transfers: Federal Grants 68,392,978 21,449,350 89,842,328 Transfers From Other Funds 8,512, ,864 8,960,391 SAIL Bridge Loan Program 3,000,000 3,000,000 Total Non-operating Revenues/Transfers 79,905,505 21,897, ,802,719 Change in Net Position 70,590,484 20,297,529 90,888,013 Net Position, Beginning of Year, Before Cumulative Effects of Prior Period Adjustment 1,594,778, ,938,160 2,015,716,348 Cumulative Effects of Prior Period Adjustment 5,551,169 5,385,546 10,936,715 Net Position, Beginning of Year, As Adjusted for Cumulative Effects of Prior Period Adjustment 1,600,329, ,323,706 2,026,653,063 Net Position, End of Year $ 1,670,919,841 $ 446,621,235 $ 2,117,541,076 The accompanying Notes to Financial Statements are an integral part of this statement. 18

21 32000 Exhibit C NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND Statements of Cash Flows For the Year Ended June 30, 2015 Clean Water Drinking Water Fund Fund Total Cash Flows from Operating Activities Cash payments for goods and services $ (13,483,597) $ (4,088,785) $ (17,572,382) Cash payments for loan funds to borrowers (84,541,955) (25,962,377) (110,504,332) Cash received for principal received from loans to borrowers 85,050,114 22,520, ,570,468 Cash received for interest on loans to borrowers 44,171,537 15,076,366 59,247,903 Cash paid for interest on bond maturities (39,377,392) (14,401,676) (53,779,068) Cash received for interest on investments 834, ,614 1,127,548 Net cash (used in) operating activities (7,346,359) (6,563,504) (13,909,863) Cash Flows from Non-Capital Financing Activities Proceeds from sale of bonds 48,450,798 14,653,350 63,104,148 Principal paid on bond maturities (85,020,059) (33,352,203) (118,372,262) Federal support received, net of ARRA principal forgiveness 77,381,619 23,751, ,132,993 State appropriations received / (returned) (63,272,879) (63,272,879) Transfers from other funds 8,710,558 8,710,558 Transfers to other funds 63,272, ,447 64,128,442 Net cash provided by non-capital financing activities 49,523,032 5,907,968 55,431,000 Cash Flows from Investing Activities Purchase of investments (237,376,928) (58,830,445) (296,207,373) Proceeds from sale and maturity of investments 100,925,978 31,038, ,964,352 Net cash (used in) investing activities (136,450,950) (27,792,071) (164,243,021) Net (decrease) in cash and cash equivalents (94,274,277) (28,447,607) (122,721,884) Cash and cash equivalents, beginning of year 273,734,177 83,774, ,508,827 Cash and cash equivalents, end of year $ 179,459,900 $ 55,327,043 $ 234,786,943 Reconciliation of Operating Income to Net Cash Used In Operating Activities: Operating loss $ (9,407,490) $ (3,116,024) $ (12,523,514) Adjustments to reconcile operating loss to net cash (used in) operating activities: Net unrealized gain (loss) on investments 101,415 (39,953) 61,462 Amortization of bond discounts and premiums (9,905,455) (3,587,617) (13,493,072) Change in assets and liabilities (Increase) decrease in interest receivable 676, , ,493 (Increase) decrease in other receivable 1,894, ,371 2,025,721 (Increase) decrease in loans receivable 10,413, ,593 10,559,206 Increase (decrease) in unearned revenue (450,679) (130,474) (581,153) Increase (decrease) in accrued interest payable (668,428) (197,578) (866,006) Net cash (used in) operating activities $ (7,346,359) $ (6,563,504) $ (13,909,863) The accompanying Notes to Financial Statements are an integral part of this statement. 19

22 32000 Exhibit C NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND Statements of Cash Flows For the Year Ended June 30, 2014 Clean Water Drinking Water Fund Fund Total (Restated) (Restated) Cash Flows from Operating Activities Cash payments for goods and services $ (13,001,193) $ (4,113,987) $ (17,115,180) Cash payments for loan funds to borrowers (167,923,142) (67,262,558) (235,185,700) Cash received for principal received from loans to borrowers 180,601,447 58,179, ,781,440 Cash received for interest on loans to borrowers 42,483,910 16,076,333 58,560,243 Cash paid for interest on bond maturities (41,419,168) (14,070,467) (55,489,635) Cash received for interest on investments 1,162, ,254 1,587,600 Net cash provided by (used in) operating activities 1,904,200 (10,765,432) (8,861,232) Cash Flows from Non-Capital Financing Activities Proceeds from sale of bonds 51,412,657 15,472,787 66,885,444 Principal paid on bond maturities (72,053,527) (22,781,520) (94,835,047) Federal support received, net of ARRA principal forgiveness 68,392,978 21,449,350 89,842,328 SAIL Bridge Loan Program 3,000,000 3,000,000 State appropriations received 80,000,000 30,000, ,000,000 Transfers from other funds (80,000,000) (30,000,000) (110,000,000) Transfers to other funds 8,512, ,864 8,960,391 Net cash provided by non-capital financing activities 59,264,635 14,588,481 73,853,116 Cash Flows from Investing Activities Purchase of investments (72,705,907) (21,611,261) (94,317,168) Proceeds from sale and maturity of investments 112,581,562 38,345, ,927,194 Net cash (used in ) investing activities 39,875,655 16,734,371 56,610,026 Net increase in cash and cash equivalents 101,044,490 20,557, ,601,910 Cash and cash equivalents, beginning of year, as restated 172,689,687 63,217, ,906,917 Cash and cash equivalents, end of year $ 273,734,177 $ 83,774,650 $ 357,508,827 Reconciliation of Operating Income to Net Cash Used In Operating Activities: Operating loss $ (9,315,021) $ (1,599,685) $ (10,914,706) Adjustments to reconcile operating income loss to net cash provided by (used in) operating activities: Net unrealized gain (loss) on investments (521,590) (342,054) (863,644) Amortization of bond discounts and premiums (10,248,519) (3,516,660) (13,765,179) Change in assets and liabilities (Increase) decrease in interest receivable 763, , ,610 (Increase) decrease in other assets (1,155,659) (36,479) (1,192,138) (Increase) decrease in loans receivable 23,450,699 (5,382,963) 18,067,736 Increase (decrease) in accounts payable (243,085) (243,085) Increase (decrease) in unearned revenue (288,049) 278,668 (9,381) Increase (decrease) in accrued interest payable (781,385) (157,060) (938,445) Net cash provided by (used in) operating activities $ 1,904,200 $ (10,765,432) $ (8,861,232) The accompanying Notes to Financial Statements are an integral part of this statement. 20

23 NEW JERSEY CLEAN WATER AND DRINKING WATER STATE REVOLVING FUND PROGRAM Notes to Financial Statements For the Fiscal Years Ended June 30, 2015 and 2014 Note 1: ORGANIZATION AND FUNCTION OF THE PROGRAM The New Jersey Clean Water and Drinking Water Funds were created by the Legislature of the State of New Jersey (the State ) in November 1985 and 1998, respectively. The New Jersey Clean Water and Drinking Water State Revolving Fund Program (the "Program") leverages federal and state dollars to finance environmental infrastructure projects of local governments and private water companies pursuant to the Federal Clean Water Act (the "CWA") and Safe Drinking Water Act (the "SDWA"). The Program s financial statements are comprised of the Clean Water and Drinking Water financial statements of the New Jersey Environmental Infrastructure Trust ("NJEIT or Trust"), which is an independent State financing authority, and the New Jersey Department of Environmental Protection (the "NJDEP"). NJDEP is administered by a Commissioner,appointed by the Governor and confirmed by the State Senate. NJDEP follows the State s fiscal policies established by the Office of Management and Budget. In the comprehensive annual financial statements of the State of New Jersey, the NJEIT financial statements are reported as non- major component units, and the NJDEP Clean Water and Drinking Water financial statements are reported as non-major special revenue funds. Component Unit In evaluating how to define the Program for financial reporting purposes, management has considered all potential component units. The decision to include any potential component units in the financial reporting entity was made by applying the criteria set forth in GASB Statements No. 14, The Financial Reporting Entity, as amended by GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, and GASB Statement No. 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34. The definitions in the Statements indicate that blended component units, although legally separate entities, are in-substance part of the government's operations. Each discretely presented component unit would be or is reported in a separate column in the government-wide financial statements to emphasize that it is legally separate from the government. The basic-but not the only-criterion for including a potential component unit within the reporting entity is the governing body's ability to exercise oversight responsibility. The most significant manifestation of this ability is financial interdependency. Other manifestations of the ability to exercise oversight responsibility include, but are not limited to, the selection of governing authority, the designation of management, the ability to significantly influence operations, and accountability for fiscal matters. A second criterion used in evaluating potential component units is the scope of public service. Application of this criterion involves considering whether the activity benefits the government and / or its citizens. A third criterion used to evaluate potential component units for inclusion or exclusion from the reporting entity is the existence of special financing relationships, regardless of whether the government is able to exercise oversight responsibilities. Finally, the nature and significance of a potential component unit to the primary government could warrant its inclusion within the reporting entity. Based upon the application of these criteria, the NJEIT is a component unit of the State of New Jersey, and accordingly, the financial statements of the NJEIT are included in the financial statements of the State of New Jersey. As of June 30, 2015 and 2014, it has been determined by the Program that no component units exist. In addition to an interest-bearing loan from the Trust, the borrowers receive an interest-free loan from the New Jersey Department of Environmental Protection (the "Department"). The sources for the Department loans are State general obligation bond issuances approved to capitalize the various loan funds and the Federal Capitalization Grants under the Clean Water Act and the Safe Drinking Water Act, respectively (the "Department Funds''). Under the terms of the Enabling Act, the assets of the Trust cannot be used to satisfy the obligations of the Department. 21

24 32000 Notes to Financial Statements (Cont'd) Note 1: ORGANIZATION AND FUNCTION OF THE PROGRAM (CONTINUED) Generally, either the Trust or the Department may finance up to 75% of the allowable project costs. The Trust lends its share of allowable costs to borrowers for various terms at a rate equal to the interest rate on its revenue bonds. Such loan repayments will be used to pay debt service on the Trust's revenue bonds. The Department maintains internally designated Clean Water (the CW ) and Drinking Water (the DW ) State Revolving Funds, which consists of Clean Water and Drinking Water projects, to separately account for the portion of these Trust loan financings that have been matched by federal sources from the Department Funds. The Trust is administered by an executive director and staff, under the guidance of the board of directors that appoint trustees (currently both U.S. Bank and Bank of New York Mellon) and loan servicers (currently U.S. Bank, TD Bank and the Trust). The initial proceeds from a bond issuance are invested and held by the trustee. The Trust authorizes the trustee to disburse funds to the borrowers based on a review and approval process in conjunction with the Department to verify that the disbursed funds are allowable within the loan agreements. The loan servicer receives all repayments of principal and interest from the borrowers and forwards such funds to the trustee and the Master Program Trustee (U.S. Bank) or the department, as appropriate. The trustee invests the monies received in the applicable fund. For the 2004 and later loans, the Trust's accounting staff also acts as loan servicer. As a public body under existing statute, the Program is exempt from both federal and state taxes. Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements of the Program have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to enterprise funds of State and Local Governments on a going concern basis. The focus of enterprise funds is the measurement of economic resources, that is, the determination of operating income, changes in net position (or cost recovery), financial position and cash flows. The Governmental Accounting Standards Board ( GASB ) is the accepted standard setting body for establishing governmental accounting and financial reporting principles and is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). The more significant accounting policies established in GAAP and used by the Program are discussed below. Basis of Accounting Basis of accounting determines when transactions are recorded in the financial records and reported on the financial statements. The Program maintains its records on the accrual basis of accounting. Revenues -- Exchange and Non-Exchange Transactions - Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded when the exchange takes place. Investment income, administrative fees and federal grants are recognized as revenue in the period they are earned. Non-exchange transactions, in which the Program receives value without directly giving equal value in return, include grants, contributed capital, and donations. Revenue from grants, contributed capital, and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the Program must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the Program on a reimbursement basis. Expenses / Expenditures Expenses are recognized at the time they are incurred. 22

25 32000 Notes to Financial Statements (Cont'd) Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash, Cash Equivalents and Investments Cash and cash equivalents include petty cash, change funds and cash in banks and all highly liquid investments with a maturity of three months or less at the time of purchase and are stated at cost plus accrued interest. Cash and cash equivalents include funds invested in PFM Funds Prime Institutional Class, Goldman Sachs Treasury Obligation Money Market and Federated Prime Obligation Funds. Such is the definition of cash and cash equivalents used in the statement of cash flows. U.S. treasury and agency obligations and certificates of deposit with maturities of one year or less when purchased are stated at cost. Investments are purchased with the intent to hold to maturity. Investments, which consist primarily of U.S. Government Obligations, are stated at fair value and mature in periods ranging from one to five years. The Program accounts for its investments at fair value in accordance with GASB Statement No. 31 Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying value of investments are reported as a component of investment income in the statement of revenues, expenses and changes in net position. Bond Discounts and Bond Premiums / Bond Issuance Costs Bond discounts and bond premiums arising from the issuance of long-term debt are amortized or accreted over the life of the bonds, utilizing the straight line method allowable under GAAP. Bond discounts and bond premiums are presented as an adjustment to the par amount of the bonds, whereas bond issuance costs are expensed in the year incurred. Operating and Non-Operating Revenues and Expenses Operating revenues include all revenues derived from administration fees, interest income on Loans, Direct, Construction, and SAIL loans and investment income. Non-operating revenues principally consist of transfers from the State of New Jersey for additional loan programs and federal grants. Operating expenses include interest expense on outstanding bonds and expenses associated with the general administration. Non-operating expenses principally consist of transfer of interest earned on and unspent funding back to the State of New Jersey and principal forgiveness of loans receivable. Allowance for Loan Losses The allowance for loan losses is established through a provision for loan losses charged to expense. Amounts are charged against the allowance for loan losses when management believes that collectability of some or the entire loan principal is uncertain. Subsequent recoveries, if any are credited to the allowance. The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectability of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower's ability to pay. This evaluation does not include the effects of expected losses on specific loans or groups of loansthat are related to future events or expected changes in economic conditions. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. 23