PLAINFIELD MUNICIPAL UTILITIES AUTHORITY. (A component unit of the City of Plainfield) REPORT OF AUDIT FORTHEYEARSENDED DECEMBER 31, 2015 AND 2014

Transcription

1 (A component unit of the City of Plainfield) REPORT OF AUDIT FORTHEYEARSENDED DECEMBER 31, 2015 AND 2014

2 TABLE OF CONTENTS Independent Auditor's Report Management's Discussion and Analysis Basic Financial Statements Exhibit A Comparative Statements ofnet Position as ofdecember 31,2015 and 2014 B Comparative Statements of Revenues, Expenses and Changes in Net Position for the Years Ended December 31,2015 and 2014 C Comparative Statements of Cash Flows for the Years Ended December 31, 2015 and 2014 Notes to Financial Statements Required Supplementary Information -Pension Information Schedule 1 Schedule of Authority's Proportionate Share ofnet Pension Liability 2 Schedule of Authority's Contributions Notes to the Required Supplementary Information Supplementary Schedules 3 Combining Schedule of Net Position as of December 31, Combining Schedule of Revenues, Expenses and Changes in Net Position for the Year Ended December 31, Combining Schedule of Cash Flows for the Year Ended December 31, Schedule of Revenues and Expenses Compared to Budget with a Budget to GAAP Reconciliation - Sewer- for the Year Ended December 31, Schedule of Revenues and Expenses Compared to Budget with a Budget to GAAP Reconciliation - Solid Waste- for the Year Ended December 31, 2015 Roster of Officials as of December 31, Government Auditing Standards Report 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 Schedule of Findings and Responses Summary Schedule of PriorY ear Findings General Comments Recommendations

3 LERCH, VINCI & HIGGINS,LLP CERTIFIED PUBLIC ACCOUNTANTS REGISTERED MUNICIPAL ACCOUNTANTS DIETER P. LERCH. CPA, RMA, PSA GARY J. VI NCI, CPA, RM A, PSA GARY IV. HIGGINS, CPA, RMA. PSA JEFFREY C. BLISS. CPA, RMA, PSA PAULJ. LERCH. CPA, RM A. PSA DONNA L. JAPHET. CPA, PSA JULIUS B. CON SON I, CPA, PSA ANDREW D. PARENTE, CPA, RMA, PSA INDEPENDENT AUDITOR'S REPORT ELI ZABETH A. SHJCK. CPA. RMA, PSA ROBERT IV. HAAG. CPA. PSA DEBORA H K. LERCH. CPA. PSA RA LPH M. PICONE. CPA. RMA. PSA DEBRA GOLLE. CPA CINDY JANACEK. CPA. RMA MA RK SACO.CPA SHERYL M. NICOLOS I. CPA ROBERT AMPONSA H. CPA Honorable Chairman and Members of the Board of Commissioners Plainfield Municipal Utilities Authority Plainfield, New Jersey Report on the Financial Statements We have audited the accompanying financial statements of the Plainfield Municipal Utilities Authority, a component unit of the City of Plainfield, as of and for the years ended December 31, 2015 and 2014, and the related notes to the financial statements, which collectively comprise the Plainfield Municipal Utilities Authority'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 fi aud 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 ofthe 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 ROUTE 208 FA IR LAWN, NJ TELEPHONE (20]) FACSIMILE (201 )

4 We believe 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 Plainfield Municipal Utilities Authority as of December 31, 2015 and 2014, and the respective changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Adoption of New Accounting Pronouncement As discussed in Note I to the financial statements, in the year ended December 31, 2015, the Plainfield Municipal Utilities Authority adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions. Our opinion is not modified with respect to this matter. Other Matters Required Supplementmy Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and pension information be presented to supplement the basic financial statements. Such information, although not a pati 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 an opinion on the financial statements that collectively comprise the Plainfield Municipal Utilities Authority's basic financial statements as a whole. The supplementary schedules listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary schedules 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 cetiain 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 supplementary schedules listed in the table of contents are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 25, 2016 on our consideration of the Plainfield Municipal Utilities Authority's internal control over financial repotiing and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that repoti 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 repmiing or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Plainfield Municipal Utilities Authority's internal control over financial repmiing and compliance. Fair Lawn, New Jersey May 25,2016 l<(r.<:.~. v,~<:, ~ f-(t~~~. c..c..-p LERCH, VINCI & HIGGINS, LLP Cetiified Public Accountants Registered Municipal Accountants effrey C. Bliss Registered Municipal Accountant RMA Number CR00429 ' 3

6 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

7 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2015 This section ofthe Plainfield Municipal Utilities Authority's ("PMUA" or "Authority") annual financial report presents our discussion and analysis of the Authority's financial performance during the fiscal year ended on December 31, Please read it in conjunction with the Authority's financial statements and accompanying notes. The Management's Discussion and Analysis (MD&A) is an element of Required Supplementary Information specified in the Governmental,Accounting Standard Board's (GASB) Statement No Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. Certain comparative information between the current year (20 15) and the previous two years (20 14 and 2013) are required to be presented in the MD&A. The 1995 creation ordinance for the PMUA had three key tasks to be accomplished by the PMUA: ~ Upgrading Plainfield's Sanitary Sewer System to reduce emergencies and property damage; ~ Implementing a comprehensive Solid Waste System, including improvement and upgrade of the Transfer Station; ~ Generation and collection of revenues to accomplish those quality of life tasks. For more than twenty years the PMUA has accomplished all of those tasks, added value to the infrastructure of our City; employed, trained and developed many Plainfield citizens; returned millions of dollars to City operations and to Plainfield citizens; and positioned the Authority to be of continuing benefit to the City of Plainfield. FINANCIAL HIGHLIGHTS The Authority's assets and deferred outflows of resources were less than its liabilities and deferred inflows of resources at December 31, 2015 by $4,53 7,916 as a result of recognizing the net pension liability in accordance with GASB Statement No. 68. The Authority's total net position increased $860,505 (16%). Cash and Cash Equivalents (i.e. Investments) decreased $303,592 (2%). Long-term liabilities increased by $1,247,226 (4%) reflecting the increase in net pension liability. Operating Revenues increased by $461,298 (2%). Operating Expenses increased by $1,589,666 (8%). Operating Income decreased by $1,128,368 (52%) mainly as a result of an increase in the cost of providing services. OVERVIEW OF FINANCIAL STATEMENTS The financial section of the annual report consists of four parts - Independent Auditor's Report, required supplementary information which includes the management's discussion and analysis (this section), the basic financial statements, and supplementary information. 4

8 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2015 (Continued) OVERVIEW OF FINANCIAL STATEMENTS (Continued) Financial Statements The Authority is a self-supporting entity and follows enterprise fund reporting; accordingly, the financial statements are presented using the economic resources measurement focus and the accrual basis of accounting similar to those used by private-sector companies. Enterprise fund statements offer short-term and long-term financial information about the activities and operations of the Authority. The statement of net position includes all of the Authority's assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the difference reported as net position. All of the current year's revenues and expenses are accounted for in the statement of revenues, expenses and changes in net position regardless of when cash is received or paid. The statement of cash flows provides a presentation of cash flow information that complements the accrual basis financial statements of net position and revenues, expenses and changes in net position. The financial statements report the Authority's net position and how it has changed. Net position - the difference between the Authority's assets, deferred outflows and liabilities, deferred inflows is one way to measure the Authority's financial health or position. Over time, increases or decreases in the Authority's net position are an indicator of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the Authority you need to consider additional non-financial factors such as changes in the Authority's customer base, its major suppliers of goods and services, regulatory changes and the condition of the Authority buildings, other facilities and equipment used in sewer and solid waste system operations. Notes To The Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes to the financial statements can be found following the financial statements. Other Information In addition to the financial statements and accompanying notes (the basic financial statements), this report also presents certain required supplementary information concerning the Authority's employee retirement system and pension plan. The required supplementary information can be found following the notes to the financial statements. Other supplementary information concerning the Authority's operation segments and budget process is presented as supplementary schedules. The Authority operates separate sewer and solid waste systems. Combining schedules of net position, revenues, expenses and changes in net position; and cash flows present individual financial information for each system are provided as supplementary information. The Authority adopts an annual revenue and expense budget for each system on the budgetary basis. Budget to actual schedules - budgetary basis have been provided for both systems as supplementary information. The supplementary schedules can be found following the required supplementary information on the Authority's employee pension plan. 5

9 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2015 (Continued) FINANCIAL ANALYSIS OF THE AUTHORITY Net Position The following table summarizes the Net Position of the Authority between December 31, 2015, 2014 and 2013: ASSETS: Current and Other Assets $ 17,813,294 $ 18,988,252 $ 19,003,732 Capital Assets 11,349,136 11,271,232 11,178,785 Total Assets 29,162,430 30,259,484 30,182,517 DEFERRED OUTFLOWS OF RESOURCES 2,272, , ,845 LIABILITIES: Long-Term Liabilities 30,488,072 29,240,846 32,944,575 Other Liabilities 4,146,050 4,875,188 4,327,477 Total Liabilities 34,634,122 34,116,034 37,272,052 DEFERRED INFLOWS OF RESOURCES 1,338,880 2,132,049 NET POSITION: Net Investment in Capital Assets (1,863,179) (2,980,706) (4,580,856) Restricted 11,160,151 10,788,217 11,391,715 Unrestricted (13,834,888) (13,205,932) (13,689,549) Total Net Position $ (4,537,916) $ (5,398,421) $ (6,878,690) Effective for the year ended December 31, 2015, the Authority implemented the new accounting guidance GASB Statement No. 68, "Accounting and Financial Reporting for Pensions". As a result, the financial statements reflect the Authority's proportionate share of the Public Employees Retirement System's net pension liability and related deferred outflows of resources and deferred inflows of resources of this cost-sharing multiemployer defined benefit pension plan sponsored and administered by the State of New Jersey. The effect of implementing GASB Statement No. 68 was a reduction in the Authority's unrestricted net position of $16,226,946 as ofdecember 31,2015,$15,995,110 as ofdecember 31,2014 and $16,145,881 as of December 31, The recording of these amounts caused the Authority's total net position for these years to be in a negative or deficit position at year end as detailed above. The Authority's Net Position increased $860,505, or 16% in 2015 and $1,480,269, or 22% in elements ofthis change are as follows: Key For 2015, sewer fees decreased slightly by $118,292 or 1% due to a decrease in usage by customers in the current year. For 2015 solid waste fees increased slightly by $120,585 or 1% due to an increase in certain solid waste services provided to City customers during the current year. Other operating revenues (exclusive of municipal solid waste contribution) increased $459,005 or 16% primarily due to increased revenues from solid waste gate fees collected at the transfer station including outside municipal shared service contracts in The municipal solid waste contribution remained the same in 2015 as in These revenue changes were in addition to operating expense increases of $1,589,666, or 8% in 2015 primarily due to increases in cost of providing services. Total sewer system operating expenses increased $239,640 or 3% and total solid waste system operating expenses increased $1,350,026 or 12%. 6

10 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2015 (Continued) FINANCIAL ANALYSIS OF THE AUTHORITY (Continued) Unrestricted Net Position decreased $628,956 (5%) in 2015 and increased $483,617 (4%) in The net position component of Net Investment in Capital Assets increased $1,117,527 in 2015 and $1,600,150 in The balances in the Net Investment in Capital Assets represented the value of capital assets net of their related debt and are in a negative position at December 31,2015, 2014 and This is the result of the Authority repaying its capital related debt over a longer period than the capital assets' useful lives. Restricted net assets increased $371,934 in 2015 and decreased $603,498 in 2014 which is the result of how the Authority utilizes and finances Debt Service Reserves required under its bond covenants and Renewal and Replacement Reserves that provide funds for current and future capital related improvements and acquisitions. In addition, the Authority has an Operating Expense Reserve established under the bond resolution which represents the net position at year end restricted for future operating expenses (exclusive of depreciation). OPERATING ACTIVITIES The following table summarizes the changes in Net Position between fiscal years 2015, 2014 and 2013: OPERATING REVENUES Sewer Fees $ 9,072,974 $ 9,191,266 $ 9,590,864 Solid Waste Fees 9,096,811 8,976,226 9,320,508 Municipal Solid Waste Contribution 1,200,000 1,200,000 1,200,000 Other 3,370,279 2,911,274 2,388,519 Total Operating Revenues 22,740,064 22,278,766 22,499,891 OPERATING EXPENSES Administration 4,858,648 4,895,386 4,686,026 Cost of Providing Services 15,456,212 14,050,688 13,654,207 Depreciation 1,399,351 1,178,471 1,171,550 Total Operating Expenses 21,714,211 20,124,545 19,511,783 OPERATING INCOME 1,025,853 2,154,221 2,988,108 NON-OPERATING REVENUES (EXPENSES) Interest Income Interest Expense (779,542) (822,977) (867,521) Other- Net 613, , ,806 Total Non-Operating Revenues (Expenses) (165,348) (673,952) (662,612) CHANGE IN NET POSITION $ 860,505 $ 1,480,269 $ 2,325,496 7

11 OPERATING ACTIVITIES (Continued) MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2015 (Continued) Operating revenue increased $461,298 in 2015 and decreased $221,125 in 2014 or approximately 2% and 1%, respectively. For 2015, although the Authority solid waste rates charged to residential users for garbage collection and disposal services remained unchanged from 2014, revenues associated with additional services provided to City residences increased slightly by $120,585 or 1%, as a result of an increase in the demand for such services. The sewer user rates charged to customers remained unchanged in 2015 from 2014 as well; however, overall usage declined, therefore, sewer fees decreased slightly by $118,292 or 1% in In 2015, other operating revenue increased by $459,005. This increase in 2015 was mainly the result of increases in revenues from sewer connection fees of$45,440 and other solid waste fees and charges of$561,236 mainly due to increased activity at the transfer station and revenues earned from outside contracts for services provided to surrounding municipalities during the year. These increases in other revenues in 2015 were offset by a decrease in interest charged on delinquent accounts of $117,579 due to an increase in customer collections during the current year resulting in a decline in outstanding customer balances due at year end. In 2014, other operating revenue increased $522,755. This increase in 2014 was the result of increases in solid waste revenues from other fees and charges of $606,397 due to increased activity at the transfer station and revenues earned from outside contracts for services provided to surrounding municipalities during the year. The collection rate of services billed to customers increased during the current year. As a result the amounts due from customers at year end decreased by approximately $800,000 from the previous year. In recent years the Authority's collection rates were below the projected and budgeted 95% range. Through the use of consistent billing and delinquency processes and the State authorized municipal tax lien sale, the Authority will continue to make every effort to maintain its collection rate within the 95% range. Total operating expenses increased $1,589,666 (8%) in 2015 and increased $612,762 (4%) in The increase in operating expenses in 2015 was mainly due to increases in cost of providing services of $1,405,524 or 10% primarily related to increases in all solid waste disposal costs due to increased tonnages from additional activity at the transfer station and shared services provided to other municipalities. Expenses related to the administration remained relatively unchanged in In 2015, administrative expenses increased $12,366 or 1% for the sewer system and decreased $49,104 or 2% for the solid waste system. Cost of providing services increased $150,526 or 3% for the sewer system and $1,254,998 or 15% for the solid waste system in The increase in operating expenses in 2014 was mainly due to increases in administration expenses and cost of providing services in the solid waste system. Administrative expenses increased $209,360 or (4%) in Costs of providing solid waste services increased approximately $414,000 in 2014 due to increases in bulky waste disposal costs. Total net non-operating expenses decreased $508,604 or 76% in 2015 and increased $11,340 or 2% in In 2015 the non-operating revenue related to grants and other miscellaneous revenue items increased $464,788 in In 2014, the increase in non-operating expenses related to interest expense which was offset by an increase in non-operating revenue related to grants. 8

12 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2015 (Continued) CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The following table summarizes the changes in capital assets, net of depreciation, between the years ended December 31,2015,2014 and Land $ 1,185,195 $ 1,185,195 $ 1,185,195 Land Improvements 17,127 24,713 35,695 Buildings and Building Improvements 373, , ,124 Leasehold Improvements 7,586,837 6,736,329 7,158,594 Property and Equipment 2,186,623 1,830,526 2,382,177 Construction in Progress 1,099,230 Total $ 11,349,136 $ 11,271,232 $ 11,178,785 There were some notable capital asset events during the current year. New sewer and solid waste equipment purchases were made during the year through the use of capital lease financings and purchases funded in the 2015 budget from renewal and replacement reserves. In addition, construction of the Rock A venue sewer interceptor project was completed in This project was funded from the Authority's sewer renewal and replacement reserves. Additional information on the PMUA's capital assets can be found in the notes to the financial statements. Capital Debt Total capital debt decreased by $1,031,397 in 2015 and $1,502,100 in The following table summarizes the changes in capital debt between the years ended December 31, 2015, 2014 and Sewer Revenue Bonds $ 5,235,000 $ 5,790,000 $ 6,315,000 Sewer Capital Leases 283,153 Solid Waste Revenue Bonds 9,672,382 10,426,137 11,047,119 Solid Waste Capital Leases 849, ,365 1,211,483 $ 16,040,105 $ 17,071,502 $ 18,573,602 Additional information on the PMUA's capital debt can be found in the notes to the financial statements. 9

13 OTHER FINANCIAL INFORMATION OTHER LONG-TERM LIABILITIES PLAINFIELD MUNICIPAL UTILITIES AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2015 (Continued) Total other long-term liabilities increased by $2,115,788 in 2015 and decreased $1,809,927 in The following table summarizes the changes in other long-term liabilities between the years ended December 31, 2015, 2014 and Compensated Absences $ 171,823 $ 210,031 $ 187,190 Settlement Agreements Payable 381, ,500 Deferred Pension Obligation 187, ,506 Net Pension Liability 16,413,716 13,690,751 15,533,482 Total $ 16,585,539 $ 14,469,751 $ 16,279,678 Additional information on the PMUA's other long-term liabilities can be found in the notes to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S RATES Sewer system service fee rates and solid waste service fee rates remained unchanged for 2016 from those charged in Increasing sewage processing fees, solid waste disposal fees, and vehicle replacement costs and their effect on future rates. Use of unrestricted net assets to stabilize rates and its effect on future year rates. Use of renewal and replacement reserves to finance 2016 budgetary costs in the sewer and solid waste system and its effect on future years rates. Increased pressure to control rising costs of employee salary and wages and employee health benefits. Continue to seek opportunities to provide services to customers and entities outside the City to generate new sources of income. Review of operating procedures to improve efficiency and effectiveness of providing services. Financing of future capital improvements and acquisitions and their effect on future rates. All of these factors were considered in preparing the PMUA's budget for the 2016 fiscal year. CONTACTING THE AUTHORITY'S FINANCIAL MANAGEMENT This financial report is designed to provide Plainfield, New Jersey citizens and rate payers and our customers, investors and creditors, with a general overview of the Authority's finances to demonstrate the PMUA's accountability for the Revenues it receives. If you have questions about this report or need additional financial information, contact the office of the Chief Financial Officer at 127 Roosevelt Avenue, Plainfield, New Jersey

14 BASIC FINANCIAL STATEMENTS

15 COMPARATIVE STATEMENTS OF NET POSITION AS OF DECEMBER 31,2015 AND 2014 EXHIBIT A Page I (Restated) ASSETS Unrestricted Current Assets Cash and Cash Equivalents $ 7,137,733 $ 6,737,419 Accounts Receivable (net of allowance for uncollectibles) 3,084,735 3,867,828 Due from City 77, ,870 Prepaid Items 7,087 7,408 Other Assets 27,061 43,728 Total Unrestricted Current Assets 10,334,201 10,805,253 Restricted Current Assets Revenue Account Cash Equivalents 2,923 5,076 General Fund Account Cash Equivalents 6 Developers Escrow Account Cash 67,986 54,478 Bond Service Account Cash Equivalents 1,037,766 1,000,130 Bond Reserve Account Cash Equivalents 2,244,745 2,244,696 Renewal and Replacement Account Cash Equivalents 4,125,673 4,878,613 Total Restricted Current Assets 7,479,093 8,182,999 Total Current Assets 17,813,294 18,988,252 Noncurrent Assets Capital Assets Land 1,185,195 1,185,195 Land Improvements 79,024 79,024 Buildings and Building Improvements 722, ,765 Leasehold Improvements 11,488,215 10,175,937 Property and Equipment 11,951,432 10,973,059 Construction in Progress 1,099,230 Accumulated Depreciation (14,077,495) (12,963,978) Total Noncurrent Assets 11,349,136 11,271,232 Total Assets 29,162,430 30,259,484 DEFERRED OUTFLOWS OF RESOURCES Deferred Amounts on Refunding of Debt 118, ,667 Deferred Amounts on Net Pension Liability 2,154, ,511 Total Deferred Outflows of Resources 2,272, ,178 Total Assets and Deferred Outflows of Resources $ 31,435,086 $ 30,849,662 The Accompanying Notes are an Integral Part of the Financials Statements 11

16 COMPARATIVE STATEMENTS OF NET POSITION AS OF DECEMBER 31, 2015 AND 2014 LIABILITIES Current Liabilities (Payable from Unrestricted Assets) Accounts Payable $ Due to City of Plainfield Capital Lease Payable Accrued Expenses Accrued Salary and Related Benefits Deferred Pension Obligation Accrued Compensated Absences Settlement Agreement Payable Other Liabilities ,027,288 $ 62, , ,714 50,000 17,182 75,551 EXHIBIT A Page (Restated) 1,027, , , ,686 25,777 21, ,250 84,245 Total Current Liabilities Payable from Unrestricted Assets 2,414,368 3,264,890 Current Liabilities (Payable from Restricted Assets) Accounts Payable Revenue Bonds Payable Accrued Interest on Bonds Escrow Deposits Payable Total Current Liabilities Payable from Restricted Assets Total Current Liabilities 1,614,373 50,953 66,356 1,731,682 4,146,050 20,788 1,482,668 53,986 52,856 1,610,298 4,875,188 Non-Current Liabilities Revenue Bonds Payable (net of unamortized premiums and discounts) Capital Lease Payable Deferred Pension Obligation Accrued Compensated Absences Net Pension Liability Total Non-Current Liabilities Total Liabilities 13,287, , ,641 16,413,716 30,488,072 34,634,122 14,723, , , ,028 13,690,751 29,240,846 34,116,034 DEFERRED INFLOWS OF RESOURCES Deferred Amounts on Net Pension Liability Total Deferred Inflows of Resources Total Liabilities and Deferred Inflows of Resources 1,338,880 1,338,880 35,973,002 2,132,049 2,132,049 36,248,083 NET POSITION Net Investment in Capital Assets Restricted For: Debt Service Debt Reserves Renewal and Replacement Operating Expense Reserves Unrestricted Total Net Position $ (1,863,179) 986,803 1,167,699 3,304,847 5,700,802 ( 13,834,888) (4,537,916) $ (2,980,706) 944,139 1,047,841 4,057,788 4,738,449 (13,205,932) (5,398,421) The Accompanying Notes are an Integral Part of the Financials Statements 12

17 EXHIBITB PLAINFIELD MUNICIPAL UTILITIES AUTHORITY COMPARATIVE STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED DECEMBER 31, 2015 AND (Restated) OPERATING REVENUES Sewer Fees $ 9,072,974 $ 9,191,266 Solid Waste Fees 9,096,811 8,976,226 Municipal Solid Waste Contribution 1,200,000 1,200,000 Other Fees and Charges 2,654,600 2,047,924 Interest on Delinquent Balances 691, ,978 Miscellaneous 24,280 54,372 Total Operating Revenues 22,740,064 22,278,766 OPERATING EXPENSES Administration Board of Commissioners 91, ,604 Administration and Executive 1,218,219 1,410,383 Finance and Accounting 1,321,276 1,343,763 Communications 600, ,857 Public Information 392, ,955 Information Technology 456, ,057 Human Resources 487, ,059 Purchasing 291, ,708 Cost of Providing Services Central Services 2,203,115 2,110,362 Sewer Operations 5,366,531 5,210,945 Solid Waste Collection & Disposal 3,128,401 2,924,085 Bulky Waste Pick-Up 2,440,108 1,830,592 Transfer Station 2,175,779 1,841,855 Public Can and Street Maintenance 142, ,849 Depreciation 1,399,351 1' 178,471 Total Operating Expenses 21,714,211 20,124,545 OPERATING INCOME 1,025,853 2,154,221 NON-OPERATING REVENUES (EXPENSES) Interest Income Interest Expenses (779,542) (822,977) Intergovernmental Grants 195, ,870 Gain on Disposition of Capital Assets 68,066 Miscellaneous 349,946 Total Non-Operating Revenues (Expenses) (165,348) (673,952) CHANGE IN NET POSITION 860,505 1,480,269 Total Net Position, January 1 (5,398,421) (6,878,690) Total Net Position, December 31 $ (4,537,916) $ (5,398,421) The Acccompanying Notes are an Integral Part of the Financial Statements 13

18 COMPARATIVE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 EXHIBITC Page (Restated) CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers $ 22,314,463 Cash Received from Municipality 1,200,000 Cash Paid to Suppliers and Others (14,529,396) Cash Paid to Employees (6,245,889) Net Cash Provided by Operating Activities 2,739,178 $ 22,096,062 1,200,000 (13,319,259) (5,591,647) 4,385,156 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Proceeds from Intergovernmental Grants 329,035 Proceeds from Insurance Reimbursements 82,716 Proceeds (Payments) from Escrow Deposits 13,500 Net Cash Provided by Non-Capital Financing Activities 425,251 CASH FLOWS FROM CAPITAL RELATED FINANCING ACTIVITIES Principal Payment on Bonds ( 1,482,668) Principal Payment on Capital Leases (522,209) Acquisition of Capital Assets (713,126) Principal Payment of Deferred Pension Obligation (168,983) Interest Payment of Deferred Pension Obligation (22,650) Interest Paid on Bonds (512,234) Interest Paid on Capital Leases (46,687) Net Cash (Used for) Capital and Related Financing Activities (3,468,557) (1,311,287) (356,118) (1,250,130) (25,197) (554,355) (34,987) (3,532,074) CASH FLOWS FROM INVESTING ACTIVITIES Interest Received 536 Net Cash Provided by Investing Activities 536 Net Increase (Decrease) in Cash and Cash Equivalents (303,592) Cash and Cash Equivalents, January 1, 14,920,418 Cash and Cash Equivalents, December 31, $ 14,616,826 $ ,237 14,067,181 14,920,418 ANALYSIS OF BALANCE AT DECEMBER 31, Unrestricted - Cash and Cash Equivalents $ 7,137,733 Restricted - Cash and Cash Equivalents 7,479,093 $ 14,616,826 $ $ 6,737,419 8,182,999 14,920,418 The Accompanying Notes are an Integral Part of the Financial Statements 14

19 COMPARATIVE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 EXHIBITC Page (Restated) Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation (lncrease)/decrease in Accounts Receivable (Increase)/Decrease in Prepaid Expenses (lncrease)/decrease in Other Assets 1,025,853 1,399, , ,667 (Increase)/Decrease in Deferred Outflows- Net Pension Liability (1,723,765) Increase/(Decrease) in Accounts Payable (674) Increase/(Decrease) in Accrued Expenses 29,428 Increase/(Decrease) in Accrued Salary and Related Benefits (292,740) Increase/(Decrease) in Accrued Compensated Absences (38,208) lncrease/(decrease) in Settlement Agreement Payable (381,250) Increase/(Decrease) in Other Liabilities (8,694) Increase/(Decrease) in Net Pension Liability 2,722,965 Increase/(Decrease) in Deferred Inflows- Net Pension Liability (793,169) Total Adjustments 1,713,325 Net Cash Provided by Operating Activities $ 2,739,178 $ $ 2,154,221 1,178,471 1,017,924 (337) (430,511) 16,633 (5,673) 124,147 22,841 18,750 (628) ( 1,842, 731) 2,132,049 2,230,935 4,385,156 Schedule of Noncash Investing, Capital and Related Financing Activities Borrowing Under Capital Lease-Purchase $ 799,567 Purchase of Capital Assets on Account Accretion of Capital Appreciation Bonds 173,913 Accrued Interest on Deferred Pension Obligation 3,914 Original Issue Discount 8,799 Original Issue Premium (4,259) Deferred Loss on Refunding 41,287 $ 20, ,304 16,410 10,366 (4,259) 51,178 The Accompanying Notes are an Integral Part of the Financial Statements 15

20 NOTES TO BASIC FINANCIAL STATEMENTS

21 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The Plainfield Municipal Utilities Authority (the "Authority"), a public body corporate and politic of the State of New Jersey, was created pursuant to the Municipal and County Utilities Authorities Law (the "Act") by virtue of an ordinance of the governing body of the City of Plainfield ("the City") duly and finally adopted by the City Council on September 18, 1995 and approved by the Mayor on September 20, 1995, pursuant to the act. The City created the Authority for the principal purpose of undertaking and financing the required refurbishment, expansion and restructuring, as applicable, and operation of the Sewer System and Solid Waste System. To define the Authority's obligations with respect to the provision of the sewer and solid waste services and to effect the transfer of all Sewer System and Solid Waste System operations to the Authority, the Authority and the City entered into an Interlocal Agreement, dated October 17, 1997 (the "Interlocal Agreement"). The lnterlocal Agreement provides, among other things, for the following: (1) the combined long-term lease or purchase, as applicable, of the entire Sewer System and Solid Waste System from the City by the Authority; (2) the establishment of annual rental charges payable by the Authority to the City for the leased components of the Sewer System; (3) the purchase price for the purchased components of the Sewer System; and (4) the establishment of annual rentals/installment purchase payments for the leased and purchased components of the Solid Waste System. The Authority was also charged with the responsibility of developing, implementing and administering a system for the billing and collection of "user charges" from City residents for the use of the Sewer System. Concerning the Solid Waste System, the Authority was charged with establishing a coordinated solid waste collection process for the collection and disposal of all City solid waste and simultaneously collect solid waste user fees from City residents. The Authority has broad powers under the Act including, among others, the following: to retain, operate and administer its property; to provide for bonds and to secure their payment and rights of holders thereof; to charge and collect service charges for the use of its facilities and to revise such service charges to ensure that the revenues of the Authority will at all times be adequate to pay all operating and maintenance expenses, including reserves, insurance, extensions and replacements, and to pay the principal of and the interest on any bonds or loans, and to maintain such reserves or sinking funds therefore as may be required by the terms of any contract of the Authority; and to make and enforce rules and regulations for the management of its business and affairs. The Authority is governed by a Board of Commissioners (the "Board") consisting of five members, and two altemative members, each of whom is appointed by the Mayor with the advice and consent of the City Council for staggered fiveyear terms. An Executive Director is appointed by the Board and functions as Chief Executive Officer responsible for the daily operations of the Authority. A Chief Financial Officer is appointed by the Board and oversees the fiscal affairs of the Authority. The Governmental Accounting Standards Board (GASB) requires the financial reporting entity to include both the primary government and component units. Component units are legally separate organizations for which the Authority is financially accountable. The Authority is financially accountable for an organization if the Authority appoints a voting majority of the organization's governing board and (I) the Authority is able to significantly influence the programs or services performed or provided by the organization; or (2) the Authority is legally entitled to or can otherwise access the organization's resources; the Authority is legally obligated or has otherwise assumed the responsibility to finance the deficits of, or provide financial support to, the organization; or the Authority is obligated for the debt of the organization. Component units may also include organizations that are fiscally dependent on the Authority in that the Authority approves the budget, the issuance of debt or the levying of taxes. Based on such criteria, the Authority has no component units; however, the Authority is considered a component unit of the City of Plainfield. 16

22 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. New Accounting Standards During fiscal years 2015 and 2014, the Authority adopted the following GASB statements: GASB 68, Accounting and Financial Reporting for Pensions. The objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements that meet ce1tain criteria. dasb 71, Pension Transition for Contributions Made Subsequent to the Measurement Date- an amendment of GASB Statement No. 68, should be applied simultaneously with the provisions of Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government's beginning net pension liability. Other accounting standards that the Authority is currently reviewing for its potential impact on the financial statements include: GASB 72, Fair Value Measurement and Application, will be effective beginning with the fiscal year ending Jtme 30, This Statement addresses accounting and financial reporting issues related to fair value measurements. This Statement provides guidance for determining a fair value measurement for financial rep01iing purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. GASB 73, Accounting and Financial Reporting for Pensions and Related Assets that Are Not Within the Scope ofgasb Statement 68, and Amendments to Certain Provisions ofgasb Statements 67 and 68, will be effective beginning with the fiscal year ending June 30, The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. GASB 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans, will be effective beginning with the fiscal year ending June 30, The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, will be effective beginning with the fiscal year ending June 30, The primary objective of this Statement is to improve accounting and financial rep01iing by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial supp01i for OPEB that is provided by other entities. 17

23 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. New Accounting Standards (Continued) Other accounting standards that the Authority is currently reviewing for its potential impact on the financial statements include: (Continued) GASB 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, will be effective beginning with the fiscal year ending June 30, The objective of this Statement is to identify - in the context of the current governmental financial reporting environment - the hierarchy of generally accepted accounting principles (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. C. Basis of Presentation - Financial Statements The accounts of the Authority are organized on the basis of funds, in accordance with the 1997 Bond Resolution (see Note 3), each of which is considered a separate accounting activity. The operations of the sewer and solid waste systems are each accounted for with a separate set of self-balancing accounting records that comprise its assets, deferred outflows of resources, liabilities, deferred inflows of resources, net position, revenues and expenses. Government resources are allocated and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various activities are grouped into one generic fund type and one broad fund category, as follows: Proprietary Fund Type Enterprise Fund- The Enterprise Fund is used to account for governmental operations which are financed and operated in a manner similar to private enterprises, where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to its users on a continuing basis be financed or recovered primarily through user charges. During the course of its operations, the Authority has numerous transactions between funds (accounts) to finance operations, provide services, construct assets, and retire debt. To the extent that ce11ain transactions between the accounts had not been paid or received as of the balance sheet dates, balances of interfund or intrafund amounts receivable and payable have been eliminated and therefore are not reported in the financial statements. Reclassifications Certain reclassifications may have been made to the December 31, 2014 balances to conform to the December 31, 2015 presentation. D. Measurement Focus and Basis of Accounting The accounting and financial repm1ing treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The Authority's financial statements are repm1ed using the economic resources measurement focus and the accrual basis of accounting. All assets, all deferred outflows of resources, all liabilities and all deferred inflows of resources associated with these operations are included on the Statement of Net Position. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 18

24 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Measurement Focus and Basis of Accounting (Continued) The Authority's financial transactions are recorded in accounts that are created by various resolutions adopted by the Authority to meet bond or note covenant requirements (more fully defined in Note 3). When both restricted and unrestricted resources are available for use, it is the Authority's policy to use restricted resources first, then unrestricted resources as they are needed. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management of the Authority to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities and deferred inflows of resources and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position 1. Cash, Cash Equivalents and Investments Cash and cash equivalents are considered to be cash on hand, cash in banks, certificates of deposit, deposits with the New Jersey Cash Management Fund and all short-term investments with original maturities of six months or less from the date of purchase. Investments are reported at fair value and except for the operating accounts are limited by the 1997 Bond Resolution as amended and supplemented thereto. Operating account investments are limited by NJSA 40A: et seq. 2. Inventory The costs of inventories are deemed immaterial and are recognized as expenses when purchased rather than when consumed. The Authority does not record inventory on its statement of net position. 3. Accounts Receivable All receivables are reported at their gross value and where appropriate, are reduced by the estimated portion that is expected to be uncollectible. Changes in the allowance for uncollectibles is recorded as an adjustment to revenue or as bad debt expenses depending on its effect on current year or prior year allowance amounts and the results of those changes. 4. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. The cost of prepaid items is recorded as expense when consumed rather than when purchased. 5. Restricted Assets Certain assets are classified as restricted on the statement of net position because they are maintained in separate bank accounts and their use is limited by the 1997 Bond Resolution as amended and supplemented thereto, the 2007 Subordinate Bond Resolution or are held in trust for developers escrow deposits. 19

25 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position (Continued) 6. Capital Assets All capital assets acquired or constructed by the Authority are reported as expenses in the account that finances the acquisition of the assets and are capitalized in the Operating Accounts. Capital assets are defined by the Authority as assets with an individual cost of $2,000 and an estimated useful life of at least two years, or items which in aggregate exceed $75,000 and an estimated useful life of at least two years. Such capital assets are valued at historical costs. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Construction costs are charged to construction in progress until such time as they are completed and certified by the Authority's consulting engineers, at which time they are transferr-ed to their respective asset category and are then depreciated over their useful lives. Interest incuned during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. The total net interest expense incuned by the Authority for the years ended December 31, 2015 and 2014 was $779,542 and $822,977, respectively. None of these amounts were included as part of the cost of capital assets under construction for these years. All capital assets are depreciated on the straight-line method based on their asset class and estimated useful lives as follows: Land Improvements Buildings and Building Improvements Leasehold Improvements Machinery and Equipment Vehicles Furniture and Computers 7 Years Years 2-40 Years 3-15 Years 5 Years 3 Years 7. Deferred Outflows of Resources and Deferred Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for defened outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense) until then. The Authority has two items that qualify for reporting in this category. One item is the defened amounts on refunding of debt which results from the loss on a debt refunding reported in the statement of net position. A deferred charge on refunding of debt results from the loss on the transaction when the debt's reacquisition price is greater than the canying value of the refunded debt. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt using the effective interest method. The other item that qualifies for reporting in this category is the deferred amounts on net pension liability. Deferred amounts on net pension liability are reported in the district-wide statement of net position and result from: (I) differences between expected and actual experience; (2) changes in assumptions; (3) net difference between projected and actual investment earnings on pension plan investments; (4) changes in proportion and differences between employer contributions and proportionate share of contributions; and (5) contributions made subsequent to the measurement date. These amounts are deferred and amortized over future years. In addition to liabilities, the statement of financial position will sometimes report a separate section for defened inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has one type of item that qualifies for reporting in this category. It is the defened amounts on net pension liability. Deferred amounts on net pension liability are reported in the district-wide statement of net position and result from: (I) differences between expected and actual experience; (2) changes in assumptions; (3) net difference between projected and actual investment earnings on pension plan investments; and (4) changes in proportion and differences between employer contributions and proportionate share of contributions. These amounts are deferred and amortized over future years. 20

26 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources and Net Position (Continued) 8. Compensated Absences Sick leave, personnel time, compensatory time and salary related payments and in certain instances vacation benefits are accrued as a liability as the benefits are earned if the employee's rights to receive compensation are attributable to services already rendered and it is probable that the Authority will compensate the employee for the benefits. 9. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Public Employees Retirement System (PERS) sponsored and administered by the State of New Jersey and additions to/deductions from this retirement system's fiduciary net position have been determined on the same basis as they are reported by the retirement system. For this purpose, benefit payments (including refunds of employee contributions) are recognized for the period incurred in accordance with the benefit terms. Investments are reported at fair value. 10. Long-Term Obligations Long-term debt and other long-term obligations are reported as liabilities in the statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuances costs (other than prepaid insurance) are treated as an expense. 11. Net Position In the statement of net position, there are three classes of net position: Net Investment in Capital Assets- consists of net capital assets (cost less accumulated depreciation) reduced by outstanding balances of related debt obligations from the acquisition, construction or improvement of those assets. Deferred outflows of resources and defened inflows of resources attributable to the acquisition, construction or improvement of those assets or related debt also should be included. Restricted Net Position - reports net position when constraints placed on the residual amount of noncapital assets are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments, or imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position- any portion of net position not already classified as either net investment in capital assets or net position - restricted is classified as net position - unrestricted. 12. Net Position Flow Assumption Sometimes the Authority will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position in the financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority's policy to consider restricted- net position to have been depleted before unrestricted - net position is applied. 21

27 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,2015 AND 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. Revenues and Expenses Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietmy fund's principal ongoing operations. The principal operating revenues of the Authority are charges to customers for sewer and solid waste services. Operating expenses include the cost of operations and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. State and federal grants for the operation of the sewer or solid waste system are considered non-operating revenues. Transactions or other events that are both unusual in nature and infi equent in occurrence that are not within the control of management are reported as extraordinary items. Transactions or other events that are significant that are within the control of management are reported as special items. NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgets and Budgetary Accounting The Authority annually prepares operating budgets for its Sewer and Solid Waste systems. The budgets are prepared in accordance with the Budget Manual for Local Public Authorities as promulgated by the Division of Local Government Services, Bureau of Authority Regulation, which differs in certain respects from accounting principles generally accepted in the United States of America. The budgets serve as a plan for expenses and the proposed means for financing them. Budgetary control is exercised within the respective system. Unexpended appropriations lapse at year end. The annual budgets are approved at least sixty days prior to the beginning of the fiscal year. The budgets must be approved by the Board and submitted to the Division of Local Government Services, Bureau of Authority Regulation for approval prior to adoption. Budget adoptions and amendments are recorded in the Authority's minutes. Six Year Capital budgets are also prepared for each system. Included within the budgets are individual projects along with their estimated cost, completion date and source of funding. The encumbrance method of accounting is utilized by the Authority for budgetary purposes. Under this method purchase orders, contracts and other commitments for expenditures of resources are recorded to reserve a portion of the applicable budget appropriation. In accordance with accounting principles generally accepted in the United States of America, outstanding encumbrances at year-end for which goods or services are received, are classified to expenses and accounts payable. All other encumbrances in the annual budgeted funds are designated at year-end and are either cancelled or are included as reappropriations of unrestricted net position for the subsequent year. Encumbrances at year-end in funds that are budgeted on a project basis automatically carry forward along with their related appropriations and are not subject to annual cancellations and reappropriations. 22

28 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (Continued) B. Revenues After the operating budgets are adopted, sewer and solid waste user rates are approved by the Board. Sewer user charges are directly imposed on users through quarterly bills based on water consumption provided by American Water and include a minimum usage charge. Revenue is recognized in the year that the user is billed. Solid waste fees are imposed on users through quarterly bills based on the budget as adopted. Solid Waste fees are based on the number of units (households), pick-ups (frequency) and/or quantity (weight) per location or service and include a shared service component fee to all city residences and businesses. Revenue is recognized in the year the services are rendered. C. Designated Unrestricted Net Position The Authority is permitted under budgetary accounting practices promulgated by the Division of Local Government Services to designate unrestricted net position. The Authority Board of Commissioners may dedicate net position to establish designations of unrestricted net position to meet policy adopted by the Board. As of December 31, 2015 and 2014, the Authority has established the following unrestricted net position designations: Designation for Subsequent Year's Budget Expenditures- This designation in the amount of$1,200,000 and $700,000 at December 31, 2015 and 2014, respectively was established to designate the portion of the unrestricted net position utilized to balance the subsequent year's budgets. Designation for Future Budgetary Operations - This designation in the amount of $2,819,290 and $3,442,496 at December 31, 2015 and 2014, respectively, was established to designate the portion of the unrestricted net position which is available for future budgetary operations in accordance with the budgetary basis of accounting permitted by the Division of Local Government Services, Department of Community Affairs, State of New Jersey which excludes the impact of recognizing the net pension liability reported under GASB Statement Number 68 and the accreted value of capital appreciation bonds at year end. NOTE 3 CREATION OF FUNDS Under the original Bond Resolutions dated August 14, 1997 and amended and supplemented thereto, the following funds (accounts) are required to be created and held by the Authority's Trustee: A) Revenue Fund (Restricted) B) Operating Fund (Unrestricted) C) Bond Service Fund (Restricted) D) Sinking Fund (Restricted) E) Bond Reserve Fund (Restricted) F) Renewal and Replacement Fund (Restricted) G) General Fund (Restricted) Each of the above funds represents separate accounts held by a trustee, except for the operating accounts which are held by the Authority. Only those funds and accounts that are presently required by the Trustee are described herein. Revenue Fund- To account for all revenues and deficiency advances received by the Authority. All revenues and deficiency advances deposited into the Revenue Fund are transferred by the Trustee on the transfer dates as defined by the Bond Resolution to the following funds described below. 23

29 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 3 CREATION OF FUNDS (Continued) Operating Fund- To account for the payment of all operating costs of the Authority. Bond Service Fund- To account for the accumulation of resources for the payment of principal and interest due during the current fiscal year on outstanding bonds. Sinking Fund- To account for the accumulation of resources required to pay principal on all term bonds in accordance with the Sinking Fund requirements. This fund is included in the Revenue Bond Service Accounts on the statement of net position. Bond Reserve Fund- To account for funds held in accordance with the Bond Resolution to meet the Bond Reserve requirement, an amount which is equal to the lesser of the amount equal to 125% of average annual debt service or the maximum annual debt service on outstanding bonds. Renewal and Replacement Fund- To account for the accumulation of resources to meet the renewal and replacement reserve requirement, as certified by the Authority's consulting engineers, in accordance with the Bond Resolution. The Trustee can withdraw from this fund, upon a certification of the consulting engineers, for the use of reasonable and necessary expenses of the Authority with respect to major repairs, renewals, replacements, maintenance items, equipment or operating expenses. General Fund- To account for the accumulation of resources resulting from excess monies which are not required to be maintained in any of the above funds. Withdrawals from this Fund are permitted for the funding of any deficit which may occur in the above funds, payments to the City under the revenue sharing percentage or to the Authority for any lawful purpose. NOTE 4 CASH DEPOSITS AND INVESTMENTS Cash Deposits- The Authority's deposits are insured through either the Federal Deposit Insurance Corporation (FDIC), Securities Investor Protection Corporation (SIPC) or New Jersey's Governmental Unit Deposit Protection Act (GUDPA). The Authority is required to deposit their funds in a depository which is protecting such funds pursuant to GUDPA. The New Jersey Governmental Unit Deposit Protection Act requires all banks doing business in the State of New Jersey to pledge collateral equal to at least 5% of the average amount of its public deposits and 100% of the average amount of its public funds in excess ofthe lessor of75% of its capital funds or $200 million for all deposits not covered by the FDIC. Bank balances are insured up to $250,000 in the aggregate by the FDIC for each bank. SIPC replaces cash claims up to a maximum of $250,000 for each failed brokerage firm. At December 31, 2015 and 2014, the book value of the Authority's deposits were $7,205,719 and $6,791,897, respectively, and bank balances ofthe Authority's cash and deposits amounted to $7,171,200 and $6,212,652, respectively. The Authority's deposits which are displayed on the statement of net position as "cash" are categorized as: Depository Account Insured Restricted Unrestricted $ Bank Balance ,986 $ 7,103,214 54,478 6,158,174 $ 7,171,200 $ 6,212,652 24

30 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 4 CASH DEPOSITS AND INVESTMENTS (Continued) Custodial Credit Risk - Deposits - Custodial credit risk is the risk that in the event of a bank failure, the government's deposits may not be returned to it. The Authority does not have a formal policy for custodial credit risk. As of December 31, 2015 and 2014, none of the Authority's bank balances were exposed to custodial credit risk. Investments - The Authority is required by its Bond Resolutions to maintain each of its investment in the fund (account) in which the investment is made. In all accounts, except the operating and developer escrow accounts, the securities and the underlying collateral are held by the Bond Trustees and are within their care, custody and control. The type, quality and length oftime of investment are regulated by the Bond Resolution. Investments permitted under the Authority's Bond Resolution include deposits or certificates of deposit with public depositories under the provisions of the Governmental Unit Deposit Protection Act, bonds or other obligations of the United States of America or obligations guaranteed by the United States of America., bond of any federal intermediate credit bank, federal home loan bank, federal land bank, federal national motigage association, United States Bank for Cooperatives, export-import bank, Tennessee Valley Authority, government national motigage association, fatmer's home administration, federal financing bank, student loan marketing association, U.S. Postage Service and Resolution Funding Corporation, bonds or other obligations of the Authority or other obligations of school districts of which the district of the Authority is a pati, in either case having a credit rating of at least "A" by Standard & Poor's Corporation and/or Moody's Investors Service, bonds or other obligations having a maturity date of not more than 397 days from the date of purchase that are approved by the Division oflnvestments of the Department of Treasury, the New Jersey Cash Management Fund, negotiable or non-negotiable cetiificates of deposit issued by any bank, savings and loan association, trust company or national banking association, full faith and credit obligation of any state, which is rated in either of the two highest rating categories, any obligations which are expressly authorized as permissible investments for municipal utilities authorities under the laws of the State of New Jersey. The Authority is petmitted to invest unrestricted operating funds in accordance with the types of securities authorized by N.J.S.A. 40A: Investments include bonds or other obligations of the United States or obligations guaranteed by the United States of America, Government Money Market Mutual Funds, bonds or other obligations of the City or bonds or other obligations of the school districts which are a part of the City or school districts located within the City. Local Government investment pools, and agreements or the repurchase of fully collateralized securities, if transacted in accordance with NJSA 40A: (8a-8e ). As of December 31, 2015 and 2014, the Authority had the following investments: Fair Value Investment Type U.S. Treasury Obligation Mutual Funds: Restricted $ 7,411,107 $ 8,128,521 Cash Equivalents $ 7,411,107 $ 8,128,521 25

31 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 4 CASH DEPOSITS AND INVESTMENTS (Continued) Custodial Credit Risk - Investments - For an investment, this is the risk, that in the event of the failure of the counterparty, the Authority will not be able to recover the value of its investments or collateral securities that are held by an outside party. The Board does not have a policy for custodial risk. As of December 31,2015 and 2014$7,411,407 and $8,128,521, respectively of the Authority's investments was exposed to custodial credit risk as follows: Fair Value Uninsured and Collateralized: Collateral held by pledging financial institutions' trust department or agent but not in the Authority's name $ 7,411,107 $ 8,128,521 Interest Rate Risk - The Authority does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk- The Bond Resolution and State law (N.J.S.A. 40A:5-15.1) limits investments as noted above. The Authority does not have an investment policy that would further limit its investment choices. Concentration of Credit Risk - The Authority places no limit in the amount the Authority may invest in any one issuer. 100% of the Authority's investments are in U.S. Treasury Obligation Mutual Funds. The fair value of the above-listed investments were based on market prices and values provided by the respective financial institution. NOTE 5 RESTRICTED ASSETS Bond covenants of the Authority require portions of the debt proceeds as well as other resources to be set aside for various purposes under the control of the Bond Trustee. These amounts are reported as restricted assets. The "Revenue Fund" account reserves all revenues received for future distribution to the various accounts of the Authority in accordance with the Bond Resolution. Cash and investments restricted for debt service payment on bonds are segregated in "Bond Service Fund" and "Sinking Fund" accounts. Cash and investments reserved to meet future debt service contingencies are segregated in "Bond Reserve Fund" accounts. Cash and investments reserved for major repairs, renewals, replacements and non-routine maintenance items are segregated in "Renewal and Replacement Fund" accounts. Cash and investments reserved for funding any deficiencies under the bond resolution or for payment to the City under the revenue sharing percentage or future distribution to the Authority are segregated in the "General Fund" accounts. Monies held in trust for developers' escrow deposits are maintained in separate accounts under the control of the Authority in the name of the developer. These amounts are reported as restricted assets and their use is restricted to the payment of professional and other related costs incurred by the Authority for certain projects requiring Authority review and approval relating to the sanitary sewer system. 26

32 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 6 USER CHARGES AND OTHER FEES RECEIVABLE User charges and other fees receivable at December 31, 2015 and 2014, including the applicable Allowance for Doubtful Accounts, consisted of the following: December 31, December 31, Gross Accounts Receivable $ 4,116,453 $ 4,989,808 Less: Allowance for Uncollectibles {1,031,718) {1,121,980) Net Accounts Receivable $ 3,084,735 $ 3,867,828 NOTE 7 CAPITAL ASSETS Capital asset activity for the years ended December 31, 2015 and 2014 was as follows: 2015 Balance Balance, January I, December 31, 2015 Increases Decreases 2015 Capital Assets, Not Being Depreciated: Land $ 1' 185,195 $ 1,185,195 Construction in Progress 1,099,230 $ 213,048 $ (1,312,278) Total Capital Assets, Not Being Depreciated 2,284, ,048 (1,312,278) Capital Assets, Being Depreciated: Land Improvements 79,024 79,024 Buildings and Building Improvements 722, ,765 Leasehold Improvements 10,175,937 1,312,278 11,488,215 Property and Equipment 10,973,059 1,278,857 (300,484) 11,951,432 Total Capital Assets Being Depreciated 21,950,785 2,591,135 (300,484) 24,241,436 Less Accumulated Depreciation For: Land Improvements (54,311) (7,586) (61,897) Buildings and Building Improvements (327,526) (21,885) (349,411) Leasehold Improvements (3,439,608) (461,770) (3,901,378) Property and Equipment (9,142,533) (908,110) 285,834 (9,764,809) Total Accumulated Depreciation (12,963,978) (1,399,351) 285,834 (14,077,495) Total Capital Assets, Being Depreciated, Net 8,986,807 1, 191,784 (14,650) 10,163,941 Total Capital Assets, Net $ 11,271,232 $ 1,404,832 $ ( 1,326,928) $ 11,349,136 27

33 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 7 CAPITAL ASSETS (Continued) 2014 Balance Balance, January I, December 3I, 20I4 Increases Decreases 20I4 Capital Assets, Not Being Depreciated: Land $ I, I85, I95 $ I,I85,I95 Construction in Progress $ I,099,230 I,099,230 Total Capital Assets, Not Being Depreciated I,I85,I95 I,099,230 2,284,425 Capital Assets, Being Depreciated: Land Improvements 79,024 79,024 Buildings and Building Improvements 722, ,765 Leasehold Improvements I 0, I53,400 22,537 IO,l75,937 Property and Equipment I0,823,908 I49,I51 I0,973,059 Total Capital Assets Being Depreciated 2I,779,097 I71,688 21,950,785 Less Accumulated Depreciation For: Land Improvements (43,329) (10,982) (54,3II) Buildings and Building Improvements (305,64I) (21,885) (327,526) Leasehold Improvements (2,994,806) (444,802) (3,439,608) Property and Equipment (8,441,731) (700,802) (9,I42,533) Total Accumulated Depreciation (I1,785,507) (l,i78,47i) (12,963,978) Total Capital Assets, Being Depreciated, Net 9,993,590 (1,006,783) 8,986,807 Total Capital Assets, Net $ 11,178,785 $ 92,447 $ $ II,271,232 NOTE 8 LONG-TERM LIABILITIES A. Revenue Bonds On February 3, I999, the Authority authorized the issuance of$9,390,000 of Sewer System Revenue Bonds (the "1999 Sewer Bonds") and $7,025,000 of Solid Waste System Revenue Bonds, (the "I999 Solid Waste Bonds"). The I999 Sewer Bonds were issued to (i) permanently finance the Sewer System Acquisition and Improvements, (ii) provide monies to pay a portion of the I999 Sewer Notes on their April I5, 2000 maturity date, (iii) fund the Bond Reserve Requirement for the I999 Sewer Bonds, (iv) provide for the capitalized interest on the 1999 Sewer Bonds for the period from the date of their original issuance through December 15, 2000 and (vi) provide for payment of the costs of issuance related to the I999 Sewer Bond. The 1999 A Sewer Bonds were refunded by the 2009 Sewer System Revenue Refunding Bonds issued on December 30, 2009 as more fully described below. 28

34 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 8 LONG-TERM LIABILITIES (Continued) A. Revenue Bonds (Continued) The 1999 Solid Waste Bonds were issued to (i) permanently finance the Solid Waste Acquisition and Improvements, (ii) provide for certain Solid Waste System operating expenses for an approximately one month period, (iii) reimburse the Sewer Operating Fund for certain preliminary Solid Waste System operating expenses previously funded on an interim basis, (iv) fund the Bond Reserve Requirement for the 1999 Solid Waste Bonds, (v) provide for capitalized interest on the 1999 Solid Waste Bonds for the period from their date of original issuance through December 15, 2000, and (vi) provide for payment of the costs of issuance related to the 1999 Solid Waste Bonds. The 1999A Solid Waste Bonds were refunded by the 2009 Solid Waste System Revenue Refunding Bonds issued on December 30, 2009 as more fully described below. On September 17, 2003, the Authority authorized the issuance of $1,935,000 of Sewer System Revenue Bonds (the "2003 Sewer Bonds") and $5,414,004 of Solid Waste System Revenue Bonds, (the "2003 Solid Waste Bonds"). The 2003 Sewer Bonds were issued to: (i) permanently finance the construction of a garage for storage of sanitary sewer equipment and vehicles, construction of a 2,500 square foot field administration office building and conversion of the existing building at 127 Cottage Place to an equipment and vehicle maintenance garage; (ii) fund the bond reserve requirement; (iii) pay capitalized interest on the 2003 Sewer Bonds through October 1, 2004; and (iv) provide for payment ofthe costs of issuance related to the 2003 Sewer Bonds. The 2003 Solid Waste Bonds were issued to: (i) permanently finance the acquisition of catis to be used in the Authority's curbside solid waste and recycling collection program; (ii) permanently finance the acquisition of vehicles to be used in the Authority's bulky waste and transfer station operations; (iii) permanently finance various improvements at the Rock Avenue Transfer Station presently operated by the Authority; (iv) fund the bond reserve requirement; (v) pay capitalized interest on the 2003 Solid Waste Bonds through April 1, 2004; and (vi) provide for payment ofthe costs of issuance related to the 2003 Solid Waste Bonds. On April 5, 2007, the Authority authorized the issuance of $2,100,000 of Subordinate Solid Waste System Revenue Bonds (the "2007 Solid Waste Bonds"). The 2007 Solid Waste Bonds were issued to: (i) permanently finance improvements at the Rock Avenue Transfer Station facility; (ii) pay capitalized interest on the 2007 Solid Waste Bonds through December 1, 2007; and (iii) provide for the payment of costs of issuance related to the 2007 Solid Waste Bonds. On December 30, 2009 the Authority issued $6,330,000 of Sewer System Revenue Refunding Bonds (the "2009 Sewer Bonds") and $4,690,000 of Solid Waste System Revenue Refunding Bonds (the "2009 Solid Waste Bonds"). The 2009 Sewer Bonds were issued to: (i) currently refund all of the $6,135,000 outstanding principal amount of Sewer System Revenue Bonds, Series 1999A, maturing on December 15 in each of the years 2011 through 2023, inclusive, and interest thereon, (ii) deposit funds into the Bond Reserve Fund, as necessary, and (iii) provide for payment of the costs of issuance related to the 2009 Sewer Bonds. The 2009 Solid Waste Bonds were issued to: (i) currently refund all of the $4,820,000 outstanding principal amount of Solid Waste System Revenue Bonds, Series 1999A, maturing on December 15 in each of the years 2011 through 2023, inclusive, and interest thereon, (ii) deposit funds into the Bond Reserve Fund, as necessary, and (iii) provide for payment of the costs of issuance related to the 2009 Solid Waste Bonds. 29

35 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 8 LONG-TERM LIABILITIES (Continued) A. Revenue Bonds (Continued) Revenue Bonds outstanding at December 31,2015 and 2014, consist of the following: $1,935,000 Sewer Revenue Bonds, Series % to 4.60% due in annual installments of$100,000 to $145,000 on October 1, 2015 to 2023 $6,330,000 Sewer Revenue Refunding Bonds, Series 2009A 3.00% to 4.25% due in annual installments of $455,000 to $590,000 on December 15,2015 to 2023 $5,414,004 Solid Waste Revenue Bonds, Series % to 5.34% due in annual installments of$425,000 to $945,000 on October 1, 2015 to 2023 (Includes Accretion of $1,627,231 and $1,453,318 through December 31, 2015 and 2014, respectively) $2,100,000 Subordinate Solid Waste Revenue Bonds, Series % due in monthly installments of$10,808 to $16,232 on January 1, 2015 to 2023 $4,690,000 Solid Waste Revenue Refunding Bonds, Series 2009A 3.00% to 4.25% due in annual installments of $160,000 to $480,000 on December 15, 2015 to 2023 Total $ 990,000 $ 1,090,000 4,245,000 4,700,000 5,326,235 5,577,322 1,201,147 1,333,815 3,145,000 3,515,000 $ 14,907,382 $ 16,216,137 30

36 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 8 LONG-TERM LIABILITIES (Continued) A. Revenue Bonds (Continued) The Authority's schedule of principal and interest requirements for long-term debt issued and outstanding as of December 31, 2015 is as follows: Year Ending Revenue Bonds December 31, PrinciQal Interest Total (l) 2016 $ 1,614,373 $ 459,779 $ 2,074, ,746, ,149 2,146, ,858, ,040 2,191, ,166, ,529 2,425, ,229, ,084 2,436, ,480, ,328 6,766,531 Less: Unaccreted Value of Capital Appreciation Revenue Bonds at December 31, 2015 (1,188,765) 16,096,147 $ 1,944,909 $ 18,041,056 $ 14,907,382 ( 1) Includes accreted value at maturity of capital appreciation revenue bonds. B. Capital Lease The Authority has entered into an Installment Purchase Agreement for the purchase of a heavy haul tractor and four ( 4) rear load packer garbage trucks totaling $872,093. The amount borrowed under the Installment Purchase Agreement is to be repaid over a term of 5 years at an interest rate of 2.66% to be repaid over the period October 15, 2011 to September 15,2016. The Authority has also entered into a capital lease-purchase agreement on November 9, 2011 for the acquisition of two (2) rear load packer garbage trucks totaling $602,784. The lease is for a term of 6 years at an interest rate of 3.89% to be repaid over the period January 3, 2012 to December 31, On April 9, 2012, the Authority entered into a capital lease-purchase agreement for the acquisition of a four wheel drive loader with 2.5 yard bucket totaling $172,803. The lease is for a term of 5 years at an interest rate of3.30% to be repaid over the period April 9, to April 9, On September 1, 2013 the Authority entered into a capital lease-purchase agreement for the acquisition of a new broom street sweeper totaling $183,450. The lease is for a term of 3 years at an interest rate of 2. 79% to be repaid over the period March 1, 2014 to February 1,

37 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 8 LONG-TERM LIABILITIES (Continued) B. Capital Lease (Continued) On September 1, 2014, the Authority financed the purchase of two (2) 28 yard rear loading sanitation trucks totaling $460,959 through a lease-purchase agreement with Kansas State Bank of Manhattan. The lease is for a term of 5 years at an interest rate of 2. 79% due in monthly installments of $8,246 to be repaid over the period J anuaty 1, 2015 to December 1, On September 23, 2014, the Authority financed the purchase of a jet vac sewer truck totaling $338,608 through a lease-purchase agreement with Leasing 2, Inc. The lease is for a term of 5 years at an interest rate of 3.03% due in monthly installments of$6,151 to be repaid over the period February 1, 2015 to Januaty 1, The capital assets acquired through capital leases at December 31, and 2014 are as follows: Machinery and Equipment $ 2,630,697 $ 1,831,130 Less: Accumulated Depreciation (1,534,276) (1,013,781) Total $ 1,096,421 $ 817,349 ====~~~"'====~ The following is a schedule of the future minimum lease obligations and the net present value of the net minimum lease payments as of December 31, 20 15: Year Ending December 31, Amount $ 527, , , ,767 6,151 Total Lease Payments Less: Amount Representing Interest Present Value of Minimum Lease Payment $ 1,185,703 52,980 $ 1,132,723 32

38 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 8 LONG-TERM LIABILITIES (Continued) C. Accrued Compensated Absences Under the existing policies of the Authority, employees are allowed to accumulate (with certain restrictions) unused sick leave, personal time, compensatory time in lieu of overtime and vacation benefits over the life of their working careers and to redeem such unused leave time in cash (with certain limitations) upon retirement, termination in good standing or by extended absence immediately preceding retirement. It is estimated that the current cost of such unpaid compensation and salary related payments would approximate $171,823 and $210,031 at December 31, 2015 and 20 14, respectively. These amounts are expensed as earned and accrued as a liability at December 31, 2015 and D. Settlement Agreements In March, 2011 the Authority's Executive Director and Assistant Executive Director (the "Parties") announced their intention to separate their employment from the Authority. These employees sought payment under their employment contract totaling $1,160,606. The Board determined to utilize severance funds that had been budgeted totaling approximately $275,000 to be used in partial settlement of the employees' compensation claims under their contracts. The Authority then entered into Arbitration Hearings for the additional monies the Parties claimed were owed to them under their employment contracts. On January 10, 2012, the Board approved additional settlement payments of $725,000 to be paid in equal installments over a period of four years beginning in All four of the installment payments of $181,250 were paid by the Authority as of December 31, On July 15, 2013, a complaint was filed in the Superior Comt of Union County by the Authority's former Chief Financial Officer against the Authority and its Commissioners seeking certain severance payment and other costs under his employment agreement with the Authority. The Court recommended that the parties try to settle the dispute and the patties subsequently engaged in settlement negotiations with the Court's assistance. On February 10, 2015, the Board approved a settlement payment in the amount of$200,000 to be paid in The settlement payment in the amount of $200,000 has been paid by the Authority as of December 31, The total settlement amount due to the Authority's fonner Executive Director, Assistant Executive Director and Chief Financial Officer have been recorded as a liability as of December 31, and 2014 in the amount of $-0- and $381,250, respectively. E. Deferred Pension Obligation During the year ended December 31, 2009 the Authority elected to contribute 50% of its normal and accrued liability components ofthe PERS obligations and deferred the remaining 50% in accordance with P.L. 2009, c.19. The deferred amount totaled $179,438 and was being paid back with interest over 15 years beginning in the 2012 year. The Authority elected to pay off the total outstanding deferred PERS pension obligation on June 1, Therefore, the total defetted liability including accrued interest (at 7.90% effective July 1, 2012 and at 8.25% prior to July 1, 2012) at December 31, 2015 and 2014 is $-0- and $187,719, respectively. 33

39 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 8 LONG-TERM LIABILITIES (Continued) F. Changes in Long-Term Liabilities The Authority's long-term liability activity for the years ended December 31, 2015 and are as follows: Balance, Balance, January 1, December 31, Due Within Additions Reductions 2015 One Year Revenue Bonds $ 16,216,137 $ 173,913 $ (1,482,668) $ 14,907,382 $ 1,614,373 Plus: Issuance Premiums 35,137 (4,259) 30,878 Less: Issuance Discounts (45,165) 8,799 (36,366) Total Bonds Payable 16,206, ,913 (1,4 78, 128) 14,901,894 1,614,373 Capital Lease Payable 855, ,567 (522,209) 1,132, ,529 Compensated Absences 210,031 (38,208) 171,823 17,182 Settlement Agreements Payable 381,250 (381,250) Deferred Pension Obligation 187,719 3,914 (191,633) Net Pension Liability 13,690,751 2,722,965 16,413,716 Long-Term Liabilities $ 31,531,225 $ 3,700,359 $ (2,611,428) $ 32,620,156 $ 2,132,084 Balance, Balance, January 1, December 31, Due Within Additions Reductions 2014 One Year (Restated) Revenue Bonds $ 17,362,120 $ 165,304 $ (1,311,287) $ 16,216,137 $ 1,482,668 Plus: Issuance Premiums 39,396 (4,259) 35,137 Less: Issuance Discounts (55,531) 10,366 ( 45, 165) Total Bonds Payable 17,345, ,304 (1,305,180) 16,206,109 1,482,668 Capital Lease Payable 1,211,483 (356,118) 855, ,681 Compensated Absences 187,190 22, ,031 21,003 Settlement Agreements Payable 362, ,000 (181,250) 381, ,250 Deferred Pension Obligation 196,506 16,410 (25,197) 187,719 25,777 Net Pension Liability 15,533,482 (1,842,731) 13,690,751 Long-Term Liabilities $ 34,837,146 $ 404,555 $ (3,710,476) $ 31,531,225 $ 2,290,379 34

40 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 9 DEFICIENCY AGREEMENT In connection with the Interlocal Services Agreement, the Authority and the City have entered into a Deficiency Agreement, dated as of October 17, 1997 (the "Deficiency Agreement"). The Deficiency Agreement requires the City to pay an annual charge to the Authority for any amounts which may be necessary to provide for any deficit in the operation and maintenance and debt service requirements of the Authority. The Deficiency Agreement may be terminated at any time, after the payment in full of all obligations including bonds of the Authority. As of December 31, 2015 the City has not been required to pay an annual charge to the Authority under the Deficiency Agreement. NOTE 10 INTERLOCAL SERVICE AGREEMENT The Authority entered into an Interlocal Agreement with the City of Plainfield (the City) dated October 17, Under the terms of the agreement, the City leased to the Authority the Sewer and Solid Waste Systems' assets for a period not greater than forty (40) years. During the lease term, the Authority is responsible for all costs of operating, repairing, constructing and maintaining the assets and the Systems, including, but not limited to, all utility and insurance costs and any taxes, fees, fines or other charges, and the City shall have no responsibility or liability with respect thereto. In consideration for the lease of the Sewerage System Assets, the Authority paid to the City a lease payment of $812,000 on June I, 1998 and payments of$1,062,000 which commenced on June I, 1999 and payable on June I each year thereafter during the term of the Interlocal Agreement. As of June I, 1999 and each June 1 thereafter, the lease payment amount is adjusted in accordance with the Escalation Factor as defined in the Interlocal Agreement In consideration for the lease of the Solid Waste System Assets, the City shall appropriate as part of its annual budget, in each City Fiscal Year commencing July 1, 1997, an amount necessary to pay the cost of disposal of Solid Waste originating within the geographical boundaries of the City. The City appropriation is based upon an estimate of the Solid Waste tonnage available for disposal and the disposal cost per ton during the fiscal year as set forth in the cettificate approved by resolution of the Authority. In addition, the Authority shall pay to the City as a lease payment for the Solid Waste System Assets, an amount equal to the difference between the amount the City appropriated and $1,200,000. The City subsequently has elected to allow the Authority to pay all disposal costs directly. In tum, the City provides an appropriation in its budgets from which it pays an annual contribution of $1,200,000 to the Authority for disposal costs. The Interlocal Agreement also included a provision whereby the City agreed to sell to the Authority, for the additional sum of$250,000, certain Assets ofthe Solid Waste System. Under the Interlocal Agreement, the Authority agreed to pay the City its Revenue Sharing Percentage for each Fiscal Year, as set forth in the Agreement. After the close of each fiscal year the Authority is required to perform a calculation, in accordance with the Inter local Agreement, of the Revenue Sharing Percentage, due the City, if any, for such fiscal year. The Authority was not required to pay any amounts to the City under the revenue sharing percentage for the years ended December 31, 2014 and None of the properties owned or controlled by the City and connected to the Sewerage System are subject to the payment of Service Charges or other periodic charges. In addition, the City is not subject to the payment of Service Charges for any Solid Waste generated by the properties owned or controlled by the City. However, the City shall pay Service Charges for the cost of collection and disposal of Solid Waste illegally dumped on City owned property that the Authority collects and for which it arranges disposal at the direction of the City. 35

41 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 10 INTERLOCAL SERVICE AGREEMENT (Continued) The Assets purchased by the Authority are the property of the Authority, and the Authority has a leasehold interest in the leased Assets. The Assets leased and purchased by the Authority are deemed public property and, to the extent permitted by the Act, in particular held by the Authority for the use and benefit of the inhabitants and property owners of the City. NOTE 11 OPERATING LEASES Operating Leases As previously discussed, the Authority leases certain sewer system assets under an interlocal service agreement which will expire October 17,2037. The lease payment for years ended December 31,2015 and 2014 were $1,686,822 and $1,667,237, respectively. Future minimum lease payments for the next three years are as follows: Year Ending December 31, Amount $1,686,822 1,686,822 1,686,822 The lease payment amounts for the years 2017 and 2018 will be adjusted in accordance with the Escalation Factor as defined in the Interlocal Agreement. In addition, the Authority leased office space to house the Authority's central services and human resources departments, vehicles and copiers. The lease terms are for 2 to 10 years. The lease payments for the years ended December 31, 2015 and 2014 were $82,346 and $103,466, respectively. The future minimum lease payments for these leases which include taxes, sewer, insurance, and heat on the leased office space but do not include adjustments to these costs that maybe required under the agreement are as follows: Year Ending Office December 31, Space Copiers Total 2016 $ 54,827 $ 18,098 $ 72, ,477 5,472 60, ,428 5,472 62, ,114 58, ,174 60, , ,323 Total $ 457,343 $ 29,042 $ 486,385 36

42 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 12 SEGMENT INFORMATION The Authority issued revenue bonds to finance its sewer and solid waste systems. Both systems are accounted for in a single enterprise fund. However, investors in the sewer and solid waste revenue bonds rely solely on revenue generated by the individual activities of the respective system for repayment. Summary financial information for each system is presented below. Condensed Statement of Net Position 2014 (Restated) Solid Solid Waste Waste Assets Unrestricted Current Assets $ 6,820,567 $ 3,513,634 $ 6,953,705 $ 3,851,548 Restricted Current Assets Capital Assets 3,719,045 6,180,779 3,760,048 5,168,357 3,956,550 6,033,567 4,226,449 5,237,665 Total Assets 16,720,391 12,442,039 16,943,822 13,315,662 Deferred Outflows of Resources 764,394 1,508, , ,643 Liabilities Current Liabilities 498,610 1,915, ,020 2,461,870 Current Liabilities Payable from Restricted Assets Noncurrent Liabilities 664,476 10,250,318 1,067,206 20,237, ,371 9,794, ,927 19,445,926 Total Liabilities 11,413,404 23,220,718 11,246,311 22,869,723 Deferred Inflows of Resources 435, , ,769 1,438,280 Net Position Invested in Capital Assets, Net of Related Debt Restricted Unrestricted 1,022,850 8,232,159 (3,619,300) (2,886,029) 2,927,992 (10,215,588) 658,942 7,983,385 (3,413,050) (3,639,648) 2,804,832 (9, 792,882) Total Net Position $ 5,635,709 $ (10,173,625) $ 5,229,277 $ (10,627,698) 37

43 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 12 SEGMENT INFORMATION (Continued) Condensed Statement of Revenues, Expenses, and Changes in Net Position Operating Revenues Sewer Fees Solid Waste Fees Municipal Solid Waste Contribution Other Depreciation Expense Other Operating Expenses Sewer $ 9,072, Solid Waste $ 9,096,811 1,200, ,848 2,947,431 (404,443) (994,908) (8,493,588) (11,821,272) Sewer $ 9,191, (Restated) Solid Waste $ 8,976,226 1,200, ,962 2,467,312 (327,695) (850,776) (8,330,696) (10,615,378) Operating Income Non-operating Revenues (Expenses) Interest Income Interest Expense Intergovernmental Grants and Reimbursements Gain on Disposition of Capital Assets Miscellaneous Total Non-Operating Revenues (Expenses) Change in Net Position Beginning Net Position Ending Net Position (264,652) (514,890) 195,646 68,066 73, ,916 (191,359) 26, , ,073 5,229,277 (10,627,698) $ 5,635, (277,996) (544,981) 148,870 (277,954) (395,998) 698, ,386 4,530,394 (11,409,084) $ 5,229,277 $ (I 0,627,698) Condensed Statement of Cash Flows Solid Solid Sewer Waste Sewer Waste Net Cash Provided By (Used For): Operating Activities $ I, 163,230 $ 1,575,948 $ 1,853,042 $ 2,532,114 Noncapital Financing Activities 13, ,751 Capital and Related Financing Activities Investing Activities (1, 145,726) (2,322,831) (1,909,460) (I,622,614) Net Increase/(Decrease) 31,267 (334,859) (56,376) 909,613 Beginning Cash and Cash Equivalents 9,172,712 5,747,706 9,229,088 4,838,093 Ending Cash and Cash Equivalents $ 9,203,979 $ 5,412,847 $ 9,172,712 $ 5,747,706 38

44 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,2015 AND 2014 NOTE 13 AMOUNTS REQUIRED BY BOND RESOLUTION COVENANTS Certain restricted funds are required to be on deposit under the provisions of the Authority's bond covenants. The balances required to be on deposit at December 31,2015 and 2014 are as follows: December 31, 2015 December 31,2014 Solid Solid Sewer Waste Total Sewer Waste Total Bond Service Fund Required Balances $ 394,330 $ 643,426 $ 1,037,756 $ 390,655 $ 607,470 $ Cash and Investments 394, ,431 1,037, ,655 Excess or (Deficit) $ 5 $ 5 $ 2,000 Bond Reserve Fund Required Balances $ 792,430 $ 1,451,960 $ 2,244,390 $ 792,430 $ 1,451,960 $ 2,244,390 Cash and Investments 792,785 1,451,960 2,244, ,736 1,451,960 2,244,696 Excess or (Deficit) $ $ 355 $ $ 306 Renewal and Reulacement Fund Required Balances $ 2,137,743 $ 1,167,104 $ 3,304,847 $ 2,390,684 $ 1,667,104 $ 4,057,788 Cash and Investments 2,461,069 1,664,604 4,125,673 2,714,009 2,164,604 4,878,613 Excess or (Deficit) $ 323,326 $ 497,500 $ 820,826 $ 323,325 $ 497,500 $ 820,825 Revenue Fund Required Balances Cash and Investments $ 2,870 $ 53 $ 2,923 $ 2,666 $ 2,410 $ 5,076 Excess or (Deficit) $ 2,870 $ 53 $ 2,666 $ 2,410 $ 5,076 General Fund Required Balances Cash and Investments $ $ $ $ 6 $ $ 6 Excess or (Deficit) $ - $ $ 6 - $ 6 Operating Expense Reserve Under the provisions of the Bond Resolution, the Authority is permitted to reserve in the Operating Fund together with the amount reserved in the Revenue Fund and the amount, if any, budgeted to be withdrawn from the Renewal and Replacement Fund for operating expenses an amount equal to the budgeted operating expenses for said fiscal year. Such amount must be on deposit for operating expenses along with the required balances for the Bond Service Fund, Bond Reserve Fund and Renewal and Replacement Fund prior to the withdrawal of amounts from the General Fund to the Authority that are forever free and clear of any lien or pledge created by the Bond Resolution. As of December 31, 2015 and 2014, the net amounts available for Operating Expense Reserves were as follows: Year Ending Solid December 31, Sewer Waste Total 2015 $ 5,206,184 $ 494,618 $ 5,700, ,738,449 4,738,449 39

45 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 14 EMPLOYEE RETIREMENT SYSTEMS AND PENSION PLANS The State of New Jersey sponsors and administers the following contributory defined benefit public employee retirement system (retirement system) covering substantially all state and local government employees which includes those Authority employees who are eligible for pension coverage. Public Employees' Retirement System (PERS) - established in January 1955, under the provisions of N.J.S.A. 43: 15A to provide coverage, including post-retirement health care for those eligible employees whose local employers elected to do so, to substantially all full-time employees of the State or any county, municipality, school district, or public agency provided the employee is not a member of another Stateadministered retirement system. Membership is mandatory for such employees and vesting occurs after 10 years of service for pension benefits and 25 years for post-retirement healthcare coverage. PERS is a costsharing multi-employer defined benefit pension plan. The State of New Jersey sponsors and administers the following defined contribution public employee retirement program covering certain state and local government employees which include those Authority employees who are eligible for pension coverage. Defined Contribution Retirement Program (DCRP)- established under the provisions of Chapter 92, P.L and Chapter 103, P.L to provide coverage to elected, certain appointed officials, and certain Board employees not eligible for enrollment in PERS. Effective July 1, 2007 membership is mandatory for such individuals with vesting occurring after one ( 1) year of membership. This provision was extended by Chapter I, P.L effective May 21,2010, to new employees who would otherwise be eligible to participate in PERS and do not work the minimum required hours but earn a base salary of at least $5,000 are eligible for participation in the DCRP. DCRP is a defined contribution pension plan. Other Pension Funds The state established and administers a Supplemental Annuity Collective Trust Fund (SACT) which is available to active members of the State-administered retirement systems to purchase annuities to supplement the guaranteed benefits provided by their retirement system. The state or local governmental employers (i.e., the Authority) do not appropriate funds to SACT. The cost of living increase for PERS is funded directly by the system, but is currently suspended as a result of reform legislation. According to state law, all obligations of the retirement system will be assumed by the State of New Jersey should any retirement system be terminated. The State of New Jersey, Department of the Treasury, Division of Pensions and Benefits, issues publicly available financial reports that include the financial statements and required supplementary information of the above system, fund, and trust. The financial reports may be accessed via the New Jersey Division of Pensions and Benefits website at Basis of Accounting The financial statements of the retirement system are prepared on the accrual basis of accounting. Employer contributions are recognized when payable to the retirement system. Benefits and refunds are recognized when due and payable in accordance with the terms of the retirement system. 40

46 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 14 EMPLOYEE RETIREMENT SYSTEMS AND PENSION PLANS (Continued) Investment Valuation Investments are repotied at fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Mortgages are valued on the basis of future principal and interest payments, and are discounted at prevailing interest rates for similar instruments. The fair value of real estate investments is based on independent appraisals. Investments that do not have an established market are reported at estimated fair values. The State of New Jersey, Department of the Treasury, Division of Investment, issues publicly available financial reports that include the financial statements of the State ofnew Jersey Cash Management Fund. The financial reports may be obtained by writing to the State ofnew Jersey, Department of the Treasury, Division oflnvestment, P.O. Box 290, Trenton, New Jersey , or at Funded Status and Funding Progress As of July I, 2013, the most recent actuarial valuation date, which was rolled forward to June 30, 2014, the aggregate funded ratio for all the State administered retirement systems, including PERS, is 62.8 percent with an unfunded actuarial accrued liability of $51.0 billion. The aggregate funded ratio and unfunded accrued liability for the local PERS system is percent and $18.7 billion, respectively. The funded status and funding progress of the retirement system includes actuarial valuations which involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. These amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the probability of future events. Actuarial calculations reflect a long-term perspective and are based on the benefits provided under the terms of the retirement system in effect at the time of each valuation and also consider the pattern of the sharing of costs between the employer and members at that point in time. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and members in the future. Actuarial Methods and Assumptions In the July I, 2013 actuarial valuation, the date of the most recent actuarial valuations, the projected unit credit was used as the actuarial cost method, and the five year average of market value was used as the asset valuation method for pension trust funds. The actuarial assumptions included: (a) an investment rate of return for the retirement system of 7.90 percent and (b) projected salary increases of percent based on age for PERS. Employer and Employee Pension Contributions The contribution policy is set by laws of the State of New Jersey and contributions are required by active members and participating employers. Plan members and employer contributions may be amended by State of New Jersey legislation, with the amount of contributions by the State of New Jersey contingent upon the annual Appropriations Act. As defined, the various retirement systems require employee contributions based on 6.92 percent for fiscal year 2015 for PERS and 5.50% for DCRP of employees' annual compensation. 41

47 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 14 EMPLOYEE RETIREMENT SYSTEMS AND PENSION PLANS (Continued) Annual Pension Cost (APC) Per the requirements of GASB Statement No. 27, Accounting for Pensions by State and Local Government Employees, for the year ended June 30, 2015 for PERS, which is a cost sharing multi-employer defined benefit pension plan, annual pension cost equals contributions made. In the DCRP, which is a defined contribution plan, member contributions are matched by a 3% employer contribution. During the years ended December 31, 2015, 2014 and 2013, the Authority was required to contribute for normal cost pension contributions, accrued liability pension contributions, and non-contributory life insurance premiums. The following amounts represent the actual contributions incurred by the Authority for each year: Year Ending December 31 PERS DCRP 2015 $628,626 None ,821 None ,399 None Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions for PERS At December 31, 2015 and 2014, the Authority reported in the statements of net position a liability of$16,413,716 and $13,690,751, respectively for its proportionate share of the PERS net pension liability. The net pension liability was measured as of June 30, 2015 and 2014, respectively, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of July 1, 2014 and 2013, respectively. The Authority's proportionate share of the net pension liability was based on a projection of the Authority's long-term share of contributions to the pension plan relative to the projected contributions of all participating governmental entities, actuarially determined. At June 30,2015, the Authority's proportionate share was percent, which was unchanged from its proportionate share measured as of June 30,2014 of percent. For the years ended December 31, 2015 and 2014, the Authority recognized in the statements of revenues, expenses and changes in net position pension expense of $834,657 and $461,628, respectively for PERS. At December 31, 2015, the Authority reported deferred outflows of resources and deferred inflows of resources related to PERS pension from the following sources: Deferred Deferred Deferred Deferred Outflows Inflows Outflows Inflows of Resources of Resources of Resources of Resources Difference Between Expected and Actual Experience $ 391,574 Changes of Assumptions 1,762,702 $ 430,511 Net Difference Between Projected and Actual Earnings on Pension Plan Investments $ 263,901 $ 815,894 Changes in Proportion and Differences Between Borough Contributions and Proportionate Share of Contributions 1,074,979 1,316,155 Total $ 2,154,276 $ 1,338,880 $ 430,511 $ 2,132,049 42

48 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 14 EMPLOYEE RETIREMENT SYSTEMS AND PENSION PLANS (Continued) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions for PERS (Continued) At December 31,2015, the amounts reported as deferred outflows of resources and deferred inflows ofresources related topers pension will be recognized in pension expense as follows: Year Ending December 31, Total 2016 $ 102, , , , ,270 $ 815,396 Actuarial Assumptions The total pension liability for the June 30, 2015 measurement date was determined by an actuarial valuation as of July 1, 2014, which was rolled forward to June 30, The total pension liability for the June 30, 2014 measurement date was determined by an actuarial valuation as of July 1, 2013 which was rolled forward to June 30, This actuarial valuation used the following actuarial assumptions, applied to all periods in the measurement date: Inflation Rate 3.04% 3.01% Salary Increases: % % Based on Age Based on Age Thereafter % % Based on Age Based on Age Investment Rate of Return 7.90% 7.90% Mortality Rate Table RP-2000 RP-2000 Assumptions for mortality improvements are based on Society of Actuaries Scale AA. The actuarial assumptions used in the July 1, 2014 and 2013 valuation were based on the results of an actuarial experience study for the period July 1, 2008 to June 30,

49 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 14 EMPLOYEE RETIREMENT SYSTEMS AND PENSION PLANS (Continued) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions for PERS (Continued) Long-Term Expected Rate of Return The long-term expected rate of return on pension plan investments was detennined using a building-block method in which best-estimate ranges of expected future real rate of return (expected returns, net of pension plans investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting 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 plans' target asset allocation as of June 30, 2015 and 2014 are summarized in the following table: Long-Term Long-Term Target Expected Real Target Expected Real Asset Class Allocation Rate of Return Allocation Rate of Return Cash 5.00% 1.04% 6.00% 0.80% U.S. Treasuries 1.75% 1.64% Investment Grade Credit 10.00% 1.79% Core Bonds 1.00% 2.49% Intermediate-Term Bonds 11.20% 2.26% Mortgages 2.10% 1.62% 2.50% 2.17% High Yield Bonds 2.00% 4.03% 5.50% 4.82% Inflation-Indexed Bonds 1.50% 3.25% 2.50% 3.51% Broad US Equities 27.25% 8.52% 25.90% 8.22% Developed Foreign Equities 12.00% 6.88% 12.70% 8.12% Emerging Market Equities 6.40% 10.00% 6.50% 9.91% Private Equity 9.25% 12.41% 8.25% 13.02% Hedge Funds/ Absolute Return 12.00% 4.72% 12.25% 4.92% Real Estate (Property) 2.00% 6.83% 3.20% 5.80% Commodities 1.00% 5.32% 2.50% 5.35% Global Debt ex US 3.50% -0.40% REIT 4.25% 5.12% Discount Rate The discount rate used to measure the total pension liabilities of the PERS plan was as follows: Discount Rate % 5.39% 44

50 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,2015 AND 2014 NOTE 14 EMPLOYEE RETIREMENT SYSTEMS AND PENSION PLANS (Continued) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions for PERS (Continued) Discount Rate (Continued) The following table represents the crossover period, if applicable, for the PERS defined benefit plan: Period of Projected Benefit Payments for which the Following Rates were Applied: Long-Term Expected Rate of Return Municipal Bond Rate * Through June 30, 2033 From July I, 2033 and Thereafter *The municipal bond return rate used is 3.80% and 4.29% as of June 30,2015 and 2014, respectively. The source is the Bond Buyer Go 20-Bond Municipal Bond Index, which includes tax-exempt general obligation municipal bonds with an average rating of AAI Aa or higher. Sensitivity of Net Pension Liability The following presents the Authority's proportionate share of the PERS net pension liability as of December 3 I, 2015 calculated using the discount rate of 4.90%, as well as what the Authority's proportionate share of the PERS net pension liability would be if it were calculated using a discount rate that is!-percentage-point lower (3.90 percent) or!-percentage-point higher (5.90 percent) than the current rate: 1% Current 1% Decrease Discount Rate Increase (3.90%} (4.90%} (5.90%} Authority's Proportionate Share of the PERS Net Pension Liability $ 20,400,241 $ 16,413,716 $ 13,071,443 The sensitivity analysis was based on the proportionate share of the Authority's net pension liability at December 31, A sensitivity analysis specific to the Authority's net pension liability was not provided by the pension system. Pension Plan Fiduciary Net Position Detailed information about the PERS pension plan's fiduciary net position is available in the separately issued financial report from the State ofnew Jersey, Department of the Treasury, Division of Pension and Benefits. The financial reports may be accessed via the New Jersey, Division of Pensions and Benefits, website at 45

51 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 15 FEDERAL ARBITRAGE REGULATIONS The Authority is subject to Section 148 of the Internal Revenue Code as it pertains to the arbitrage rebate on all tax-exempt obligations, both long and short-term debt. Under the 1986 Tax Reform Act, the Internal Revenue Service (IRS) required that all excess earnings from investment proceeds be rebated to the IRS. Arbitrage, for purposes of these regulations, is defined as the difference between the yield on the investment and the yield on the obligations issued. If there are excess earnings, this amount may be required to be rebated to the IRS. At December 31, 2015 and 2014, the Authority had no estimated arbitrage earnings due to the IRS. NOTE 16 OTHER INFORMATION A. Contingent Liabilities The Authority is a party defendant in some lawsuits, none of a kind unusual for an Authority of its size and scope of operation. In the opinion of the Authority's Attorneys the potential claims against the Authority not covered by insurance policies would not materially affect the financial condition of the Authority. B. Other Matters Plainfield Resident Complaint Filed with Governor Christie- In 2011, a Plainfield resident wrote a letter to Governor Christie complaining about an action taken by the Board of the Authority in that year, approving an employment settlement matter (see Note 8, "Settlement Agreement") with respect to the former Executive Director and Assistant Executive Director. In response to the resident complaint, Governor Christie forwarded the matter to the New Jersey Department of Community Affairs, Division of Local Government Services. The Division in tum forwarded the matter to the New Jersey Office of the State Comptroller for review. The Division advised the Authority not to approve subsequent settlements of employment without extensive vetting of the legal merits and to institute controls preventing such irregularities from occurring in the future. The Division also advised that it would subject the Authority's budgets to intense examination and scrutiny. This matter remained open as of December 31, 2015 and continues to be open with respect to the Comptroller's review. C. Risk Management The Authority is exposed to various risks of loss related to general liability, automobile coverage, damage and destruction of assets; errors and omissions; injuries to employees; termination of employees and natural disasters. The Authority has obtained insurance coverage to guard against these events which will provide minimum exposure to the Authority should they occur. The Authority is a member of the New Jersey Utility Authorities Joint Insurance Fund (NJUAJIF) and Municipal Excess Liability Joint Insurance Fund (MEL). The joint insurance funds are both an insured and self-administered group of local government entities established for the purpose of insuring against property damage, general liability, motor vehicles and equipment liability and worker's compensation. The Funds are a risk-sharing public entity pool, providing coverage in amounts which are on file with the Authority. The relationship between the Authority and the insurance funds is governed by a contract and by-laws that have been adopted by resolution of each unit's governing body. The Authority is contractually obligated to make all annual and supplementary contributions to the insurance funds, to report claims on a timely basis, cooperate with the management of the Funds, its claims administrators and attorneys in claims investigation and settlement, and to follow risk management procedures as outlined by the insurance pools. Members have a contractual obligation to fund any deficit of the insurance funds attributable to a membership year during which the entity was a member. 46

52 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 16 OTHER INFORMATION (Continued) C. Risk Management (Continued) The funds provide its members with risk management services, including the defense of and settlement of claims, and established reasonable and necessary loss reduction and prevention procedures to be followed by the members. There has been no significant reduction in insurance coverage from the previous year, nor have there been any settlements in excess of insurance coverages in any of the prior three years. D. Post-Retirement Medical Benefits The Authority currently does not provide employer paid post-retirement medical benefits to its active or retired employees. NOTE 17 RESTATEMENT On January 1, 2015, the Authority implemented GASB Statement No. 68, "Accounting and Financial Reporting for Pensions". The Authority has determined that the effect of implementing this accounting change on the financial statements previously reported as of and for the year ended December 31, 2014 was to recognize the Authority's proportionate share of the Public Employees' Retirement System's (PERS) net pension liability, deferred outflows of resources and deferred inflows of resources with a corresponding reduction in the unrestricted component of net position in the amount of $16,145,881 at January 1, 2014 and $15,995,110 at December 31, 2014 is as follows: Statement of Net Position- December 31,2014 DEFERRED OUTFLOWS OF RESOURCES Deferred Amounts on Net Pension Liability Total Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources LIABILITIES Current Liabilities (Payable from Unrestricted Assets) Accrued Expenses Total Current Liabilities Payable from Unrestricted Assets Total Current Liabilities Noncurrent Liabilities Net Pension Liability Total Noncurrent Liabilities Total Liabilities DEFERRED INFLOWS OF RESOURCES Deferred Amounts on Net Pension Liability Total Deferred Inflows of Resources Total Liabilities and Deferred Inflows of Resources NET POSITION Unrestricted Total Net Position As Originally Reported $ $ 159,667 30,419,151 49,465 2,662,069 4,272,367 15,550,095 19,822,462 19,822,462 2,789,178 10,596,689 As Adjusted 430,511 $ 590,178 30,849, ,286 3,264,890 4,875,188 13,690,751 29,240,846 34,116,034 2,132,049 2,132,049 36,248,083 (13,205,932) (5,398,421) Effect of Change 430, , , , , ,821 13,690,751 13,690,751 14,293,572 2,132,049 2,132,049 16,425,621 (15,995, 11 0) (15,995,110) 47

53 NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 NOTE 17 RESTATEMENT (Continued) Statement of Revenues, Expenses and Changes in Net Position As Originally ReQorted As Adjusted OPERATING EXPENSES Administration Administration and Executive $ 1,419,955 $ 1,410,383 Finance and Accounting 1,359,319 1,343,763 Communications 550, ,857 Public Information 357, ,955 Information Technology 463, ,057 Human Resources 444, ,059 Purchasing 247, ,708 Cost of Providing Services Central Services 2,136,685 2,110,362 Sewer Operations 5,222,913 5,210,945 Solid Waste Collection & Disposal 2,950,409 2,924,085 Bulky Waste Pick-Up 1,836,575 1,830,592 Transfer Station 1,864,593 1,841,855 Public Can and Street Maintenance 135, ,849 Total Operating Expenses 20,275,316 20,124,545 OPERATING INCOME 2,003,450 2,154,221 CHANGE IN NET POSITION 1,329,498 1,480,269 NET POSITION, January 1, ,267,191 (6,878,690) NET POSITION, December 31, ,596,689 (5,398,421) Effect of Change $ (9,572) (15,556) (11,966) (4,786) (3,590) (5,982) (3,590) (26,323) (11,968) (26,324) (5,983) (22,738) (2,393) (150,771) 150, ,771 (16,145,881) (15,995, 11 0) 48

54 REQUIRED SUPPLEMENTARY INFORMATION PENSION INFORMATION

55 SCHEDULE 1 PLAINFIELD MUNICIPAL UTILITIES AUTHORITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE AUTHORITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY PUBLIC EMPLOYEES' RETIREMENT SYSTEM Last Three Years * Authority's Proportion of the Net Position Liability (Asset) Authority's Proportionate Share of the Net Pension Liability (Asset) Authority's Covered-Employee Payroll Authority's Proportionate Share of the Net Pension Liability (Asset) as a Percentage of its Covered-Employee Payroll Plan Fiduciary Net Position as a Percentage of the Total Pension Liability % % % $ 16,413,716 $ 13,690,751 $ 15,533,482 $ 5,079,284 $ 4,875,523 $ 5,275, % % % 47.93% 52.08% 48.72% *The amounts presented for each year were determined as of June 30 of the respective year. This schedule is presented to illustrate the requirement to show information for 10 years in accordance with GASB Statement No. 68. However, until a full10-year trend is compiled, the Authority will only present information for those years for which information is available. 49

56 SCHEDULE2 PLAINFIELD MUNICIPAL UTILITIES AUTHORITY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF THE AUTHORITY'S CONTRIBUTIONS PUBLIC EMPLOYEES' RETIREMENT SYSTEM Last Three Years Statutorily Required Employer Contribution $ 628,626 $ 602,82I $ 6I2,399 Contributions in Relation to the Contractually Required Contributions Contribution Deficiency (Excess) Authority's Covered- Employee Payroll Contributions as a Percentage of Covered-Employee Payroll 628, ,82I 6I2,399 $ - $ - $ ~==== $ 5,079,284 $ 4,875,523 $ 5,275,379 I2.38% I2.36% I1.61% This schedule is presented to illustrate the requirement to show information for I 0 years in accordance with GASB Statement No. 68. However, until a full I 0-year trend is compiled, the Authority will only present information for those years for which information is available. 50

57 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF AUTHORITY'S PROPORTIONATE SHARE OF NET PENSION LIABILITY AND SCHEDULE OF AUTHORITY'S CONTRIBUTIONS NOTES TO REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2015 Change of Benefit Terms: Change of Assumptions: None. Assumptions used in calculating the net pension liability and statutorily required employer contribution are presented in Note

58 SUPPLEMENTARY SCHEDULES

59 COMBINING SCHEDULE OF NET POSITION AS OF DECEMBER 31, 2015 SCHEDULE 3 Page I Solid Sewer Waste Total ASSETS Unrestricted Current Assets Cash and Cash Equivalents $ 5,484,934 $ 1,652,799 $ 7,137,733 Accounts Receivable (net of allowance for uncollectibles) 1,318,956 1,765,779 3,084,735 Due from City - Grants 77,585 77,585 Prepaid Items 3,147 3,940 7,087 Other Assets 13,530 13,531 27,061 Total Unrestricted Current Assets 6,820,567 3,513,634 10,334,201 Restricted Current Assets Revenue Account Cash Equivalents 2, ,923 General Fund Account Cash Equivalents Developers Escrow Account Cash 67,986 67,986 Bond Service Account Cash Equivalents 394, ,431 1,037,766 Bond Reserve Account Cash Equivalents 792,785 1,451,960 2,244,745 Renewal and Replacement Account Cash Equivalents 2,461,069 1,664,604 4,125,673 Total Restricted Current Assets 3,719,045 3,760,048 7,479,093 Total Current Assets 10,539,612 7,273,682 17,813,294 Noncurrent Assets Capital Assets Land 1,161,085 24,110 1,185,195 Land Improvements 73,087 5,937 79,024 Buildings and Building Improvements 476, , ,765 Leasehold Improvements 5,536,908 5,951,307 11,488,215 Property and Equipment 2,649,299 9,302,133 11,951,432 Accumulated Depreciation (3,715,916) ( 10,361,579) (14,077,495) Total Noncurrent Assets 6,180,779 5,168,357 11,349,136 Total Assets 16,720,391 12,442,039 29,162,430 DEFERRED OUTFLOWS OF RESOURCES Deferred Amounts on Refunding of Debt 63,393 54, ,380 Deferred Amounts on Net Pension Liability 701,001 1,453,275 2,154,276 Total Deferred Outflows of Resources 764,394 1,508,262 2,272,656 Total Assets and Deferred Outflows of Resources $ 17,484,785 $ 13,950,301 $ 31,435,086 52

60 COMBINING SCHEDULE OF NET POSITION AS OF DECEMBER 31, 2015 SCHEDULE 3 Page 2 Solid Sewer Waste Total LIABILITIES Current Liabilities (Payable from Unrestricted Assets) Accounts Payable $ 150,015 $ 877,273 $ 1,027,288 Due to City of Plainfield 62,104 62,104 Capital Lease Payable 66, , ,529 Accrued Expenses 233, , ,714 Accrued Salary and Related Benefits 10,500 39,500 50,000 Accrued Compensated Absences 5,967 11,215 17,182 Other Liabilities 32,438 43,113 75,551 Total Current Liabilities Payable from Unrestricted Assets 498,610 1,915,758 2,414,368 Current Liabilities (Payable from Restricted Assets) Revenue Bonds Payable 580,000 1,034,373 1,614,373 Accrued Interest on Bonds 18,I20 32,833 50,953 Escrow Deposits Payable 66,356 66,356 Total Cmrent Liabilities Payable from Restricted Assets 664,476 I,067,206 1,73I,682 Total Current Liabilities I,I63,086 2,982,964 4,I46,050 Non-Current Liabilities Revenue Bonds Payable (net of unamortized premiums and discounts) 4,638,577 8,648,944 13,287,52I Capital Lease Payable 2I7,0I4 4I5,I80 632,I94 Accrued Compensated Absences 53,704 I00,937 I54,64I Net Pension Liability 5,341,023 I1,072,693 I6,413,716 Total Non-Cmrent Liabilities I0,250,3I8 20,237,754 30,488,072 Total Liabilities II,4I3,404 23,220,7I8 34,634,122 DEFERRED INFLOWS OF RESOURCES Deferred Amounts on Net Pension Liability 435, ,208 1,338,880 Total Deferred Inflows of Resources 435, ,208 I,338,880 Total Liabilities and Deferred Inflows of Resomces 11,849,076 24,I23,926 35,973,002 NET POSITION Net Investment in Capital Assets 1,022,850 (2,886,029) (I,863, I79) Restricted For: Debt Service 376,2IO 6I0, ,803 Debt Reserves 512, ,677 I,I67,699 Renewal and Replacement 2,137,743 1,167,I04 3,304,847 Operating Expense Reserves 5,206,I84 494,6I8 5,700,802 Unrestricted (3,6I9,300) (I 0,215,588) ( I3,834,888) Total Net Position $ 5,635,709 $ (IO,I73,625) $ (4,537,9I6) 53

61 SCHEDULE4 PLAINFIELD MUNICIPAL UTILITIES AUTHORITY COMBINING SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2015 Solid Sewer Waste Total OPERATING REVENUES Sewer Fees $ 9,072,974 $ 9,072,974 Solid Waste Fees $ 9,096,811 9,096,8I I Municipal Solid Waste Contribution 1,200,000 1,200,000 Other Fees and Charges 53,9IO 2,600,690 2,654,600 Interest on Delinquent Balances 345, , ,399 Miscellaneous 23, ,280 Total Operating Revenues 9,495,822 13,244,242 22,740,064 OPERATING EXPENSES Administration Board of Commissioners 46,014 45,796 91,810 Administration and Executive 609, ,051 1,218,219 Finance and Accounting 652, ,367 1,321,276 Communications 300,3 I5 300, ,535 Public Information I96,I97 196, ,354 Information Technology 228, , ,308 Human Resources 243, , ,057 Purchasing 145,463 I45,626 29I,089 Cost of Providing Services Central Services 705,I09 1,498,006 2,203,I I5 Sewer Operations 5,366,531 5,366,53I Solid Waste Collection & Disposal 3,128,401 3,128,40I Bulky Waste Pick-Up 2,440,108 2,440,108 Transfer Station 2,175,779 2,175,779 Public Can and Street Maintenance 142, ,278 Depreciation 404, ,908 1,399,351 Total Operating Expenses 8,898,031 12,816,180 21,7I4,2I 1 OPERATING INCOME 597, ,062 1,025,853 NON-OPERATING REVENUES (EXPENSES) Interest Income Interest Expenses (264,652) (514,890) (779,542) Intergovernmental Grants 195, ,646 Gain on Disposition of Capital Assets 68,066 68,066 Miscellaneous 73, , ,946 Total Non-Operating Revenues (Expenses) (191,359) 26,0 I I (165,348) CHANGE IN NET POSITION 406, , ,505 Total Net Position, January 1 (Restated) 5,229,277 (1 0,627,698) (5,398,42I) Total Net Position, December 31 $ 5,635,709 $ (I0,173,625) $ (4,537,9I6) 54

62 COMBINING SCHEDULE OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015 SCHEDULE 5 Page I Solid Sewer Waste Total CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers $ 9,889,506 $ 12,424,957 $ 22,314,463 Cash Received from Municipality 1,200,000 1,200,000 Cash Paid to Suppliers and Others ( 6,540,560) (7,988,836) (14,529,396) Cash Paid to Employees (2, 185, 716) (4,060,173) (6,245,889) Net Cash Provided by Operating Activities 1,163,230 1,575,948 2,739,178 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Proceeds from Intergovernmental Grants 329, ,035 Proceeds from Insurance Reimbursements 82,716 82,716 Proceeds from Escrow Deposits 13,500 13,500 Net Cash Provided by Non-Capital Financing Activities 13, , ,251 CASH FLOWS FROM CAPITAL RELATED FINANCING ACTIVITIES Principal Payment on Bonds (555,000) (927,668) ( 1,482,668) Principal Payment on Capital Leases (55,455) (466,754) (522,209) Acquisition of Capital Assets (233,835) (479,291) (713,126) Principal Payment of Deferred Pension Obligation (55,480) (113,503) (168,983) Interest Payment of Deferred Pension Obligation (7,436) (15,214) (22,650) Interest Paid on Bonds (226,310) (285,924) (512,234) Interest Paid on Capital Leases (12,210) (34,477) (46,687) Net Cash (Used for) Capital and Related Financing Activities ( 1' 145, 726) (2,322,831) (3,468,557) CASH FLOWS FROM INVESTING ACTIVITIES Interest Received Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents 31,267 (334,859) (303,592) Cash and Cash Equivalents, January 1, 9,172,712 5,747,706 14,920,418 Cash and Cash Equivalents, December 31, $ 9,203,979 $ 5,412,847 $ 14,616,826 ANALYSIS OF BALANCE AT DECEMBER31, Unrestricted- Cash and Cash Equivalents $ 5,484,934 $ 1,652,799 $ 7,137,733 Restricted- Cash and Cash Equivalents 3,719,045 3,760,048 7,479,093 $ 9,203,979 $ 5,412,847 $ 14,616,826 55

63 COMBINING SCHEDULE OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015 SCHEDULE 5 Page 2 Solid Sewer Waste Total Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ 597,791 $ 428,062 $ 1,025,853 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation 404, ,908 1,399,351 (Increase)/Decrease in Accounts Receivable 393, , ,093 (Increase)/Decrease in Prepaid Expenses (lncrease)/decrease in Other Assets 8,334 8,333 16,667 (Increase)/Decrease in Deferred Outflows- Net Pension Liability (560,913) (1,162,852) (1,723,765) Increase/(Decrease) in Accounts Payable (15,659) 14,985 (674) Increase/(Decrease) in Accrued Expenses 9,358 20,070 29,428 Increase/(Decrease) in Accrued Salary and Related Benefits (90,139) (202,601) (292,740) Increase/(Decrease) in Accrued Compensated Absences (21,000) (17,208) (38,208) Increase/(Decrease) in Settlement Agreement Payable (190,625) (190,625) (381,250) Increase/(Decrease) in Other Liabilities 108 (8,802) (8,694) Increase/(Decrease) in Net Pension Liability 886,053 1,836,912 2,722,965 Increase/(Decrease) in Deferred Inflows- Net Pension Liability (258,097) (535,072) (793,169) Total Adjustments 565,439 1,147,886 1,713,325 Net Cash Provided by Operating Activities $ 1,163,230 $ 1,575,948 $ 2,739,178 Schedule of Noncash Investing, Capital and Related Financing Activities Borrowing Under Capital Lease-Purchase $ 338,608 $ 460,959 $ 799,567 Accretion of Capital Appreciation Bonds 173, ,913 Accrued Interest on Deferred Pension Obligation 1,285 2,629 3,914 Original Issue Discount 4,400 4,399 8,799 Original Issue Premium (4,259) (4,259) Deferred Loss on Refunding 22,054 19,233 41,287 56

64 SCHEDULE OF REVENUES AND EXPENSES COMPARED TO BUDGET WITH A BUDGET TO GAAP RECONCILIATION SEWER FOR THE YEAR ENDED DECEMBER 31,2015 (With Comparative Amounts for the Year Ended December 31, 2014) SCHEDULE6 Page Variance Modified 2015 Excess 2014 Budget Actual (Deficit) Actual OPERATING REVENUES User Fees $ 8,924,961 $ 9,072,974 $ 148,013 $ 9,191,266 Interest on Delinquent Accounts 350, ,591 (4,409) 400,383 Other 77,257 77,257 43,579 Total Operating Revenues 9,274,961 9,495, ,861 9,635,228 NON-OPERATING REVENUES Interest on Investments Renewal & Replacement Reserves 368, ,941 (115,829) I, 157,230 Other 73,030 73,030 Total Non-Operating Revenues 368, ,234 (42,536) 1,157,272 UNRESTRICTED NET POSITION UTILIZED 600, , ,000 Total Sewer Revenues 10,243,731 10,422, ,325 10,892,500 OPERATING APPROPRIATIONS ADMINISTRATION Salaries and Wages 1,317,570 1,300,006 17,564 1,259,212 Fringe Benefits 560, ,713 7, ,272 Other Expenses 789, ,513 37, ,146 Total Administration 2,668,010 2,605,232 62,778 2,484,630 COST OF PROVIDING SERVICES Salaries and Wages 828, ,571 54, ,535 Fringe Benefits 468, ,768 19, ,506 Other Expenses 4,978,161 4,842, ,043 4,739,357 Total Cost of Providing Services 6,275,976 6,066, ,519 5,946,398 NON-OPERATING APPROPRIATIONS Principal Payments on Debt 610, , ,000 Interest Payments on Debt 238, , ,935 Other Reserves 100, ,000 Total Non-Operating Appropriations 948, , , ,935 CAPITAL OUTLAY 350, , ,722 I, 156,041 Total Appropriations 10,243,731 9,733, ,019 10,353,004 Total Budgetary Income (Balance Forward) $ 688,344 $ 539,496 57

65 SCHEDULE OF REVENUES AND EXPENSES COMPARED TO BUDGET WITH A BUDGET TO GAAP RECONCILIATION SEWER FOR THE YEAR ENDED DECEMBER 31, 2015 (With Comparative Amounts for the Year Ended December 31, 2014) SCHEDULE6 Page Modified Budget 2015 Actual Variance Excess (Deficit) 2014 Actual Total Budgetary Income (Brought Forward) $ 688,344 $ 539,496 Reconciliation to Change in Net Position- GAAP Increases to Budgetary Income: Principal Paid on Bonds Payable Principal Paid on Capital Leases Payable Principal Paid on Deferred Pension Obligation Interest Paid on Deferred Pension Obligation Accrued Interest Payable- Net Settlement Agreement Payable Accrued Pension Expense Capital Outlay Budgetary Charge Decreases to Budgetary Income: Accrued Interest on Deferred Pension Obligation Interest Expense- Deferred Amounts on Refunding of Debt Interest Expense - Original Issue Discount Settlement Agreement Payable Accrued Pension Expense Depreciation Renewal & Replacement Reserve Realized as Budget Revenue Unrestricted Net Position Utilized Change in Net Position- GAAP 555,000 55,455 55,480 7,436 1, , ,048 (I,285) (22,054) (4,400) (75,440) (404,443) (252,941) (600,000) $ 406, ,000 8,272 1,472 90,625 49,061 1,156,041 (5,387) (27,802) (5,344) (47,626) (327,695) (I,!57,230) (100,000) $ 698,883 58

66 SCHEDULE OF REVENUES AND EXPENSES COMPARED TO BUDGET WITH A BUDGET TO GAAP RECONCILIATION SOLID WASTE FOR THE YEAR ENDED DECEMBER 31,2015 (With Comparative Amounts for the Year Ended December 31, 2014) SCHEDULE 7 Pagel 2015 Variance Modified 2015 Excess 2014 Budget Actual (Deficit) Actual OPERATING REVENUES Service Charges $ 8,918,185 $ 9,096,811 $ 178,626 $ 8,976,226 Municipal Solid Waste Contribution 1,200,000 1,200,000 1,200,000 Interest on Delinquent Accounts 350, ,808 (4,192) 408,595 Other 2,530,000 2,601,623 71,623 2,058,717 Total Operating Revenues 12,998,185 13,244, ,057 12,643,538 NON-OPERATING REVENUES Interest on Investments Intergovernmental Grants/FEMA Reimbursements 69, , , ,870 Renewal & Replacement Reserves 930, ,000 (430,000) 391,109 Other 276, ,916 Total Non-Operating Revenues 999, ,835 (26,165) 540,092 UNRESTRICTED NET POSITION UTILIZED 100, , ,000 Total Solid Waste Revenues 14,097,185 14,317, ,892 13,283,630 OPERATING APPROPRIATIONS ADMINISTRATION Salaries and Wages 1,308,470 1,299,938 8,532 1,257,661 Fringe Benefits 557, ,712 4, ,326 Other Expenses 774, ,335 6, ,490 Total Administration 2,639,910 2,619,985 19,925 2,508,477 COST OF PROVIDING SERVICES Salaries and Wages 2,614,465 2,540,426 74,039 2,438,227 Fringe Benefits 1,764,171 1,716,492 47,679 1,459,920 Other Expenses 4,884,223 5,107,315 (223,092) 4,318,014 Total Cost of Providing Services 9,262,859 9,364,233 (101,374) 8,216,161 NON-OPERATING APPROPRIATIONS Principal Payments on Debt 1,394,425 1,394, ,142,407 Interest Payments on Debt 319, ,401 (410) 348,405 Total Non-Operating Appropriations 1,714,416 1,714,823 (407) 1,490,812 CAPITAL OUTLAY 480, , ,877 Total Appropriations 14,097,185 14,178,332 (81,147) 12,330,327 Total Budgetary Income (Balance Forward) $ 138,745 $ 953,303 59

67 SCHEDULE OF REVENUES AND EXPENSES COMPARED TO BUDGET WITH A BUDGET TO GAAP RECONCILIATION SOLID WASTE FOR THE YEAR ENDED DECEMBER 31,2015 (With Comparative Amounts for the Year Ended December 31, 2014) SCHEDULE 7 Page Modified Budget 2015 Actual Variance Excess (Deficit) 2014 Actual Total Budgetary Income (Brought Forward) $ 138,745 $ 953,303 Reconciliation to Change in Net Position - GAAP Increases to Budgetary Income: Principal Paid on Bonds Payable Principal Paid on Capital Leases Payable Principal Paid on Deferred Pension Obligation Interest Paid on Deferred Pension Obligation Interest Expense - Original Issue Premium Accrued Interest Payable- Net Settlement Agreement Payable Accrued Pension Expense Capital Outlay Budgetary Charge Gain on Disposition of Capital Assets Decreases to Budgetary Income: Accrued Interest on Deferred Pension Obligation Interest Expense- Deferred Amounts on Refunding of Debt Interest Expense - Original Issue Discount Interest Expense - Capital Appreciation Bonds Settlement Agreement Payable Accrued Pension Expense Depreciation Renewal & Replacement Reserve Realized as Budget Revenue Unrestricted Net Position Utilized 927, , ,503 15,214 4,259 1, , ,291 68,066 (2,629) (19,233) (4,399) (173,913) (156,396) (994,908) (500,000) (100,000) 786, ,118 16,925 4,259 3,892 90, , ,877 (11,023) (23,376) (5,022) (165,304) (100,000) (850,776) (391,109) (100,000) Change in Net Position - GAAP $ 454,073 $ 781,386 60

68 PLAINFIELD MUNICIPAL UTILITITES AUTHORITY ROSTER OF OFFICIALS AS OF DECEMBER 31, 2015 Authority Board Members Charles W. Tyndale Michelle Graham-Lyons Carol Ann Brokaw, Esq. Henry V. Robinson Jacinth Clayton-Hunt Robin C. Bright Pedro Estevez Position Chairperson Vice Chairperson Treasurer Secretary Commissioner Alternate Commissioner # 1 Alternate Commissioner #2 Authority Executive Staff Daniel Mejias Duane D. Young, CPA Executive Director Chief Financial Officer Consultants and Advisors DeCotiis, Fitzpatrick & Cole, LLP Maser Consulting, P.A. Hatch Mott MacDonald General Counsel Sewer Consulting Engineers Solid Waste Consulting Engineers 61

69 GOVERNMENT AUDITING STANDARDS REPORT AND SCHEDULE OF FINDINGS AND RESPONSES

70 LERCH, VINCI & HIGGINS,LLP CERTIFIED PUBLIC ACCOUNTANTS REGISTERED MUNICIPAL ACCOUNTANTS DIETER P. LERCH, CPA, RMA. PSA GARY J. VINCI. CPA, RMA. PSA GARY \V. HIGG INS, CPA, RMA. PSA JEFFREY C. BLI SS, CPA. RMA. PSA PAU Ll. LERCH. CPA, RMA, PSA DONNA L. JAPHET. CPA, PSA JULI US B. CONSON I.CPA, PSA ANDREW D. PARENTE. CPA. RMA. PSA 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 Honorable Chairman and Members of the Board of Commissioners Plainfield Municipal Utilities Authority Plainfield, New Jersey ELIZABETH A. SHICK. CPA. RMA. PSA ROBERT \V. HAAG. CPA. PSA DEBORAH K. LERCH. CPA. PSA RALPH M. PICONE, CPA. RMA. PSA DEBRA GOLLE. CPA CINDY JANACEK. CPA. RMA MARK SACO, CPA SHERYL M. NICOLOS I. CPA ROBERT AMPONSA H. CPA 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 Plainfield Municipal Utilities Authority, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the Plainfield Municipal Utilities Authority's basic financial statements, as listed in the table of contents, and have issued our report thereon dated May 25, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Plainfield Municipal Utilities Authority'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 opinion on the financial statements but not for the purpose of expressing an opinion on the effectiveness of the Plainfield Municipal Utilities Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority'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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. 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 ROUTE 208 FALR LAWN, NJ TELEPHONE C20D FACSIMILE (20 1) WWW. LV ~2PA.COM