CITY OF CLARKSVILLE, TENNESSEE

Transcription

1 GAS, WATER AND Wastewater DEPARTMENTS AUDITED FINANCIAL STATEMENTS AND OTHER INFORMATION JUNE 30, 2018 AND 2017

2 JUNE 30, 2018 AND 2017 TABLE OF CONTENTS Financial Section Independent Auditor s Report 1 Management s Discussion and Analysis (Unaudited) 4 Gas Department: Statements of Net Position 11 Statements of Revenues, Expenses and Changes in Net Position 13 Statements of Cash Flows 14 Water Department: Statements of Net Position 16 Statements of Revenues, Expenses and Changes in Net Position 18 Statements of Cash Flows 19 Wastewater Department: Statements of Net Position 21 Statements of Revenues, Expenses and Changes in Net Position 23 Statements of Cash Flows 24 Notes to Financial Statements 26 Required Supplementary Information Schedule of Changes in the Departments, Proportionate Share of the Net Pension Liability and Related Ratios Based on Participation in the Public Employee Pension Plan of TCRS (Unaudited) 46 Schedule of Pension Contributions Based on Participation in the Public Employee Pension Plan of TCRS (Unaudited) 47 Schedule of Changes in the Departments, Proportionate Share of the Net OPEB Liability and Related Ratios (Unaudited) 48 Schedule of OPEB Contributions (Unaudited) 49 Other Information Schedule of Non-Revenue Water (Unaudited) 50 Schedule of Expenditures of Federal Awards and State Financial Assistance 52 Directory of Utility Committee and Management Personnel (Unaudited) 53 Schedule of Bonds and Interest Maturities (Jointly Issued) (Unaudited) 54 Schedule of Notes and Interest Maturities (Jointly Issued) (Unaudited) 56 Other Supplementary Information (Unaudited) 57 Other Reports Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 65 Schedule of Prior Year Findings and Questioned Costs 67

3 INDEPENDENT AUDITOR S REPORT To the Utility Committee Clarksville Gas, Water & Wastewater Clarksville, Tennessee Report on the Financial Statements We have audited the accompanying financial statements of the Gas, Water and Wastewater Departments (collectively, the Departments ) proprietary funds of the City of Clarksville, Tennessee, as of and for the year ended June 30, 2018 and 2017, and the related notes to the financial statements, which collectively comprise the Departments basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. The Astoria 3803 Bedford Avenue, Suite 103 Nashville, Tennessee phone: fax: An Independent Member of The BDO Alliance USA 1

4 To the Utility Committee Clarksville Gas, Water & Wastewater Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Gas, Water and Wastewater Departments of the City of Clarksville, Tennessee, as of June 30, 2018 and 2017, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As described in Note 1, the financial statements present only the Gas, Water and Wastewater Departments, proprietary funds of the City of Clarksville, Tennessee, and does not purport to, and do not, present fairly the position of the City of Clarksville, TN as of June 30, 2018 and 2017, the changes in its financial position, or, where applicable, it s cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. As discussed in Note 1, in fiscal year 2018 the Gas Water and Wastewater Departments adopted Governmental Accounting Standards Board ( GASB ) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, the schedule of changes in the net pension liability and related ratios and the schedule of pension contributions based on participation in the public employee pension plan of TCRS, the schedule of funding progress for other post-employment benefits, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Departments basic financial statements. The accompanying schedules of nonrevenue water, directory of utility committee and management personnel, schedule of bonds and interest maturities, schedule of notes and interest maturities, and other supplemental information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards and state financial assistance is presented for purposes of additional analysis as required by the State of Tennessee and is also not a required part of the financial statements. 2

5 To the Utility Committee Clarksville Gas, Water & Wastewater The schedule of expenditures of federal awards and state financial assistance 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 2018 audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards and state financial assistance is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The schedule of non-revenue water, directory of utility committee and management personnel, schedule of bonds and interest maturities, notes and interest maturities, and other supplemental information have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 7, 2018, on our consideration of the Departments internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Departments internal control over financial reporting and compliance. Nashville, Tennessee December 7,

6 CITY OF CLARKSVILLE TENNESSEE MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) The Gas, Water and Wastewater Departments of the City of Clarksville Management s Discussion and Analysis is an overview of financial activities for the fiscal years ended June 30, 2018 and Since the Management's Discussion and Analysis ( MD&A ) is designed to focus on the current year's activities and resulting changes, please read this information in conjunction with the accompanying financial statements. FINANCIAL HIGHLIGHTS The Gas Department s volumes were 24.7% higher, sales were 18.9% higher and commodity prices averaged 8.9% lower than the previous year. Contributed capital of $3.8M was $2.1M higher than the previous year. The change in net position was $6.3M. The Water Department s revenues increased 3.1% over the previous year. The change in net position increased $4.7M primarily as a result of higher contributed capital of $3.8M. The Wastewater Department s revenues were 4.8% higher than the previous year. The change in net position increased by $1.3M mainly due increased revenue of $1.8M and higher contributed capital of $2.7M which was partially offset by lower federal awards ($3.6M). USING THIS ANNUAL REPORT This annual report consists of a series of financial statements that give information about the Gas, Water and Wastewater Departments activities. Comparative summaries and tables are provided to aid in the discussion and analysis of such activities. The Statements of Net Position include all of the Departments assets and deferred outflows of resources less liabilities and deferred inflows of resources with the difference being identified as net position. Net position is presented in three components: net investment in capital assets, restricted and unrestricted. This report provides information about the nature and amounts of investments in resources (assets) and obligations (liabilities). All of the current year s revenues and expenses are accounted for in the Statements of Revenues, Expenses and Changes in Net Position. These statements measure the success of the Departments operations over the past year and can be used to determine if the Departments recovered all of their operating cost through sales and other charges. The primary purpose of the Statement of Cash Flows is to provide information about the Departments cash receipts and cash payments during the reporting period. This statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, non-capital and capital financing activities. This statement also provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period. The financial statements are prepared in accordance with U.S. generally accepted accounting principles. The Departments use economic resources measurement focus and the accrual basis of accounting, which is similar to accounting methods used by most private-sector companies. Accrual of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. As required by state law, each entity is accounted for separately. 4

7 CITY OF CLARKSVILLE TENNESSEE MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) FINANCIAL ANALYSIS OF THE DEPARTMENTS The Financial Statements of the Departments include only activities from our gas, water and wastewater operations; however, the Departments have inter-fund transfers with the City of Clarksville for payments in lieu of taxes ( PILOTS ). The PILOTS are similar in purpose to property taxes. The Departments also pay a portion of the City Attorney Department, Human Resources Department, Internal Audit Department and the Purchasing Department expenses. NET POSITION The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position report information about the Departments activities for the year. Over time, increases or decreases in net position may serve as a useful indicator as to whether the financial position of the Departments are improving or deteriorating. However, other nonfinancial factors such as economic conditions, weather, and changes in legislation should be considered. Summaries of each Department s Statement of Net Position are presented below. As shown, the net position of the Gas Department increased by $6.31 million from 2017 to From 2017 to 2018, the net position of the Water Department increased by $12.72 million. In 2018, the net position of the Wastewater Department increased by $14.92 million over

8 CITY OF CLARKSVILLE TENNESSEE MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) REVENUES, EXPENSES AND CHANGES IN NET POSITION While the Statements of Net Position show the change in assets and deferred outflows of resources and liabilities and deferred inflows of resources, the Statements of Revenue, Expenses and Changes in Net Position detail the nature and source of these changes. Revenues for the Gas Department are generated primarily by gas usage. Weather conditions can have a significant impact on revenue since heating accounts for a significant portion of gas usage. The method used to determine gas usage for heating is degree-days. Degree-days measure how much the average daily temperature varies from 65 degrees. This temperature is the value in which heating should not be needed. The heating degree-days for FYE 2018 were 3,910 and for FYE 2017 there were 2,907 degree-days. Operating expenses include work done on the system in the form of repairs and maintenance. Capital assets that are added to the system are capitalized as are the man-hours used to construct capital assets. However, repairs and maintenance and the man-hours used therein are operating expenses. During FYE 2018, the Gas Department responded to 777 odor complaints. A total of 111 regulator stations and 105 large commercial and industrial gas meters were tested and maintained. In addition, 1,889 valves were tested. The Water Department made 149 main repairs and 205 service line repairs in FYE They also replaced 582 feet of mains and 14,873 feet of service lines. There were 121 repairs and 27 replacements of fire hydrants. In addition, 1,512 valves were tested during the fiscal year. The Wastewater Department cleaned 190,592 feet of mains and 29,773 feet of lateral lines. They inspected, by closed circuit television, 42,533 feet of mains and 24,478 feet of laterals. Repairs or replacements were made to 2,565 feet and 12,777 feet of mains and lateral lines, respectively. 6

9 CITY OF CLARKSVILLE TENNESSEE MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) EXPENSES The following charts show the major expenses of each of department for the year ended June 30, Gas Expenses 70.00% 62.95% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 16.72% 10.67% 5.94% 2.71% 1.01% 0.00% Purchased Gas Wages & Benefits O&M Goods and Services Depreciation & Amortization PILOT Interest Water Expenses 35.00% 30.00% 25.00% 20.00% 15.00% 31.56% 29.56% 28.63% 10.00% 5.47% 4.78% 5.00% 0.00% O&M Goods and Services Wages & Benefits Depreciation & Amortization Interest PILOT 7

10 CITY OF CLARKSVILLE TENNESSEE MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) Wastewater Expenses 35.00% 31.45% 30.00% 25.00% 21.90% 20.66% 18.72% 20.00% 15.00% 10.00% 7.27% 5.00% 0.00% Depreciation & Amortization Interest O&M Goods and Services Wages & Benefits PILOT 8

11 CITY OF CLARKSVILLE TENNESSEE MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) CAPITAL ASSETS AND DEBT ADMINISTRATION At the end of 2018, the Gas Department had $45.42 million of net capital assets, the Water Department had $ million of net capital assets and the Wastewater Department had $ million of net capital assets. Capital assets include construction in progress, transmission lines, distribution lines, collection lines, manholes, fire hydrants, land, land rights, structures, office furniture, vehicles, and equipment. Please see Tables A-3, A-4 and A-5 for an analysis of capital assets for the Gas, Water and Wastewater Departments, respectively. 9

12 CITY OF CLARKSVILLE TENNESSEE MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) LONG-TERM DEBT At year-end, the Departments had long-term debt of $ million. All operating revenues of the Departments are security for the long-term debt, collectively. The notes in the audited financial statements give the details of the various components of the long-term debt and a detailed schedule of long-term debt obligations of the Departments by year. Please read it in conjunction with this summary. CONTACTING THE DEPARTMENTS FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the Departments finances. If you have any questions about this report or need any additional information contact the Chief Financial Officer, Clarksville Department of Gas, Water and Wastewater, 2215 Madison Street, Clarksville, Tennessee

13 City of Clarksville, Tennessee - Gas Department Statement of Net Position June 30, 2018 and 2017 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current Assets Cash and Cash Equivalents $ 24,940,549 $ 19,005,288 Accounts Receivable, Net 1,640,764 1,579,673 Receivable - Federal Awards - 573,143 Inventory 1,095,199 1,167,388 Prepaid Expense 9,737 9,677 Total Current Assets 27,686,249 22,335,169 Noncurrent Assets Restricted Assets Cash and Cash Equivalents 256, ,759 Investments 209,416 1,099,930 Total Restricted Assets 465,667 1,537,689 Capital Assets Capital Assets Not Depreciated 1,889,814 2,419,894 Capital Assets Depreciated, Net 43,534,092 42,572,474 Total Capital Assets 45,423,906 44,992,368 Total Noncurrent Assets 45,889,573 46,530,057 Total Assets 73,575,822 68,865,226 Deferred Outflows of Resources Pensions 667, ,251 Post Employment Benefits Other than Pensions 416,080 - Defeased Debt 89,691 - Total Deferred Outflows of Resources 1,172, ,251 Total Assets and Deferred Outflows of Resources $ 74,748,615 $ 69,502,477 11

14 City of Clarksville, Tennessee - Gas Department Statement of Net Position June 30, 2018 and 2017 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET POSITION Current Liabilities Accounts Payable $ 1,197,255 $ 768,084 Accrued Interest Payable 104, ,746 Current Portion of Bonds Payable 358, ,600 Current Portion of Accrued Compensated Absences 171, ,329 Total Current Liabilities 1,832,220 1,869,759 Noncurrent Liabilities Bonds Payable (less current portion) 5,646,036 6,871,389 Accrued Compensated Absences (less current portion) 66,776 58,956 Net Pension Liability 1,037,303 1,120,164 OPEB Liability (as restated) 5,273,789 4,982,426 Customer Deposits 1,112,467 1,080,528 Total Noncurrent Liabilities 13,136,371 14,113,463 Total Liabilities 14,968,591 15,983,222 Deferred Inflows of Resources Pensions 211, ,751 Net Position Net Investment in Capital Assets 39,375,589 37,316,338 Restricted for Debt Reserve 465,667 1,537,689 Unrestricted Net Position (as restated) 19,727,229 14,405,477 Total Net Position 59,568,485 53,259,504 Total Liabilities, Deferred Inflows of Resources and Net Position $ 74,748,615 $ 69,502,477 12

15 City of Clarksville, Tennessee - Gas Department Statement of Revenues, Expenses and Changes in Net Position June 30, 2018 and Operating Revenues: Sales $ 25,347,524 $ 21,323,109 Fort Campbell Operations 549, ,793 Other Income 708, ,463 Total Operating Revenues 26,606,331 22,576,365 Operating Expenses: Purchased Gas 15,358,180 13,670,852 Transmission and Distribution 3,625,897 3,383,818 Administrative and General 1,058,001 1,089,119 Customer Service 989,566 1,097,506 Engineering 460, ,081 Depreciation 1,466,641 1,958,808 Loss on Abandonment 37,425 2,235,147 Fort Campbell Operations 439, ,937 Other Expenses 103, ,191 Total Operating Expenses 23,539,155 24,174,459 Operating Income (Loss) 3,067,176 (1,598,094) Non-operating Income (Expense) Interest Income 236,393 96,603 Other (Expense) Income (5,017) 35,717 Interest Expense (245,700) (340,119) Amortization of Bond Premium 62,531 44,074 Total Non-operating Expense 48,207 (163,725) Income (Loss) before Contributions and Transfers 3,115,383 (1,761,819) Contributions and Transfers Capital Contributions 3,836,529 1,727,500 Transfers to Primary Government (660,403) (671,874) Federal Awards 17, ,143 Total Contributions and Transfers 3,193,598 1,628,769 Change in Net Position 6,308,981 (133,050) Net Position - Beginning of Year (as restated) 53,259,504 53,392,554 Net Position - End of Year $ 59,568,485 $ 53,259,504 13

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17 City of Clarksville, Tennessee - Gas Department Statements of Cash Flows Years ended June 30, 2018 and 2017 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ 3,067,176 $ (1,598,094) Adjustments to Reconcile Operating Income to Net Cash (Used In) Provided by Operating Activities: Depreciation and Loss on Abandonment 1,504,066 1,958,808 Changes in Assets and Liabilities: (Increase) in Accounts Receivable (61,091) (319,031) Decrease (Increase) in Inventory 72,189 (146,466) (Increase) Decrease in Prepaid Assets (60) 294 Increase (Decrease) in Accounts Payable 429,171 (437,133) Adjustment for Capital Asset Related Accounts Payable (12,640) 135,512 (Decrease) Increase in Accrued Compensated Absences (13,821) 26,230 Eliminate OPEB Expense (124,719) 260,505 Increase in Pension Contribution vs Expense (248,819) (156,257) Increase (Decrease in Customer) Deposits 31,939 (5,010) Net cash (used in) provided by operating activities $ 4,643,391 $ (280,642) Noncash Capital and Related Financing Activities Capital Contributed NonCash $ 862,723 $ 1,727,500 15

18 City of Clarksville, Tennessee - Water Department Statement of Net Position June 30, 2018 and 2017 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current Assets: Cash and Cash Equivalents $ 28,650,813 $ 21,798,405 Accounts Receivable, Net 1,308,129 1,124,941 Inventory 742, ,821 Prepaid Expense 23,802 23,650 Total Current Assets 30,725,394 23,625,817 Noncurrent Assets: Restricted Assets Cash and Cash Equivalents 1,170,369 1,576,285 Investments 1,096,972 3,959,116 Total Restricted Assets 2,267,341 5,535,401 Capital Assets: Capital Assets Not Depreciated 4,816,660 4,852,919 Capital Assets Depreciated, Net 142,516, ,361,834 Total Capital Assets 147,332, ,214,753 Total Noncurrent Assets 149,600, ,750,154 Total Assets 180,325, ,375,971 Deferred Outflows of Resources Pensions 999, ,123 Post Employment Benefits Other than Pensions 661,339 - Defeased Debt 610,908 - Total Deferred Outflows of Resources 2,271, ,123 Total Assets and Deferred Outflows of Resources $ 182,597,180 $ 174,321,094 16

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20 City of Clarksville, Tennessee - Water Department Statement of Revenues, Expenses and Changes in Net Position June 30, 2018 and Operating Revenues: Water Sales $ 21,203,861 $ 20,591,676 Other Income 3,266,327 3,147,716 Total Operating Revenues 24,470,188 23,739,392 Operating Expenses: Water Plant Operations 3,667,114 3,638,229 Water Transmission & Distribution 4,155,184 4,232,326 Customer Service 2,590,798 2,643,015 Administrative & General 1,076,818 1,078,604 Engineering 928, ,817 Depreciation 5,704,023 5,576,340 Loss on Abandonment 380,876 13,513 Other Expenses 126, ,019 Total Operating Expenses 18,629,741 18,268,863 Operating Income 5,840,447 5,470,529 Nonoperating Income (Expenses) Interest Income 298,673 88,481 Other (Expense) Income (38,420) 49,883 Interest Expense (1,126,854) (1,510,687) Amortization of Bond Premium 241, ,137 Total Nonoperating Expense (625,213) (1,185,186) Income before Contributions and Transfers 5,215,234 4,285,343 Contributions and Transfers Capital Contributions 8,487,444 4,721,122 Transfers to Primary Government (983,460) (912,794) Total Contributions and Transfers 7,503,984 3,808,328 Change in Net Position 12,719,218 8,093,671 Net Position - Beginning of Year (as restated) 124,241, ,147,914 Net Position - End of Year $ 136,960,803 $ 124,241,585 18

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22 City of Clarksville, Tennessee - Water Department Statement of Cash Flows Years ended June 30, 2018 and 2017 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ 5,840,447 $ 5,470,529 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation and Loss on Abandonment 6,084,899 5,589,853 Changes in Assets and Liabilities: (Increase) in Accounts Receivable (183,188) (66,641) (Increase) in Inventory (63,829) (8,545) (Increase) Decrease in Prepaid Assets (152) 724 Increase (Decrease) in Accounts Payable 551,813 (394,213) Adjustment for Capital Asset Related Accounts Payable (137,875) 371,135 Increase in Accrued Compensated Absences 17,506 15,287 Eliminate OPEB Expense (198,237) 403,190 Increase in Pension Contribution vs Expense (354,359) (233,649) Increase in Customer Deposits 56,134 14,866 Net cash provided by operating activities $ 11,613,159 $ 11,162,536 Noncash Capital and Related Financing Activities Capital Contributed NonCash $ 7,538,842 $ 4,721,122 20

23 City of Clarksville, Tennessee - Wastewater Department Statement of Net Position June 30, 2018 and 2017 ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current Assets: Cash and Cash Equivalents $ 7,966,522 $ 12,014,838 Accounts Receivable, Net 2,015,377 1,886,763 Receivable - Federal Awards 20,023,663 20,559,907 Inventory 223, ,229 Prepaid Expense 20,554 20,423 Total Current Assets 30,250,074 34,673,160 Noncurrent Assets: Restricted Assets Cash and Cash Equivalents 6,317,679 6,551,274 Investments 3,419,446 4,453,215 Total Restricted Assets 9,737,125 11,004,489 Capital Assets: Capital Assets Not Depreciated 4,041,093 7,056,254 Capital Assets Depreciated, Net 339,165, ,144,073 Total Capital Assets 343,206, ,200,327 Total Noncurrent Assets 352,943, ,204,816 Total Assets 383,193, ,877,976 Deferred Outflows of Resources Pensions 1,064,036 1,003,483 Post Employment Benefits Other than Pensions 664,535 - Defeased Debt 2,875,284 - Total Deferred Outflows of Resources 4,603,855 1,003,483 Total Assets and Deferred Outflows of Resources $ 387,797,616 $ 391,881,459 21

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25 City of Clarksville, Tennessee - Wastewater Department Statement of Revenues, Expenses and Changes in Net Position June 30, 2018 and Operating Revenues: Sewer Service Charges $ 35,732,606 $ 34,492,564 Other Income 3,678,836 3,102,822 Total Operating Revenues 39,411,442 37,595,386 Operating Expenses: Sewer Treatment Plant Operations 4,042,328 4,221,277 Sewer Discharge Collection and Pumping 5,119,171 5,269,715 Customer Service 1,612,826 1,683,131 Administrative & General 1,147,831 1,128,472 Engineering 943, ,684 Depreciation 11,747,081 11,386,160 Loss on Abandonment 68, ,336 Other Expenses 125, ,610 Total Operating Expenses 24,806,546 24,958,385 Operating Income 14,604,896 12,637,001 Nonoperating Income (Expenses) Interest Income 223,207 69,902 Other (Expense) Income (274,578) 191,070 Interest Expense (7,296,463) (7,822,571) Amortization of Bond Premium 1,513,790 1,348,957 Total Nonoperating Expense (5,834,044) (6,212,642) Income before Contributions and Transfers 8,770,852 6,424,359 Contributions and Transfers Capital Contributions 8,080,561 5,332,100 Transfers to Primary Government (2,420,327) (2,178,173) Federal Awards 489,436 4,085,535 Total Contributions and Transfers 6,149,670 7,239,462 Change in Net Position 14,920,522 13,663,821 Net Position - Beginning of Year (as restated) 156,240, ,576,342 Net Position - End of Year $ 171,160,685 $ 156,240,163 23

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27 City of Clarksville, Tennessee - Wastewater Department Statement of Cash Flows Years ended June 30, 2018 and 2017 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ 14,604,896 $ 12,637,001 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation and Loss on Abandonment 11,815,532 11,561,496 Changes in Assets and Liabilities: Increase in Accounts Receivable (128,614) (260,701) (Increase) Decrease in Inventory (32,729) 4,942 (Increase) Decrease in Prepaid Assets (131) 627 (Increase) Decrease in Accounts Payable 62,669 (525,312) Adjustment for Capital Asset Related Accounts Payable 772, ,776 (Decrease) Increase in Contracts and Retainage (3,044,099) 232,682 Increase (Decrease) in Accrued Compensated Absences 6,393 (5,395) Eliminate OPEB Expense (199,191) 418,613 Increase in Pension Contribution vs Expense (366,874) (248,135) Increase (Decrease) in Customer Deposits 91,000 (20,244) Net cash provided by operating activities $ 23,581,719 $ 24,517,350 Noncash Capital and Related Financing Activities Capital Contributed NonCash $ 7,043,479 $ 5,332,100 25

28 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General The Water and Wastewater Departments were begun in 1893 when a private water system was purchased by the City of Clarksville. The Gas Department was added to the City utility system in The Departments operate under the authority of the Utility Committee of the City of Clarksville and of the City Council as a whole. The service area of the Departments includes the City of Clarksville and certain surrounding portions of Montgomery County as well as portions of Cheatham and Robertson counties in Tennessee and Christian and Todd counties of Kentucky. The Departments are proprietary funds of the City of Clarksville, Tennessee. No other funds of the City of Clarksville are included in the financial statements of the Departments. B. Basis of Presentation and Measurement Focus The accounting system is organized and operated on a fund basis. A fund is designed as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus used. As proprietary funds, the Departments use the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. Proprietary funds account for business-type operations that are primarily financed by user charges. The economic resources focus concerns determining costs as a means of maintaining the capital investment and management control. Allocations of costs, such as depreciation, are recorded in proprietary funds. All assets and liabilities (whether current or noncurrent) associated with their activities are reported. Proprietary fund equity is classified as net position. C. Reporting Entity The Departments are proprietary funds of the City of Clarksville, Tennessee. No other funds of the City of Clarksville are presented. D. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. E. Concentrations Financial instruments that potentially subject the Departments to significant concentrations of credit risk consist principally of cash, cash equivalents, and accounts receivable. The Departments place cash and cash equivalents with federally insured financial institutions and limit the amount of credit exposure to any one institution by requiring collateral. With respect to accounts receivable, credit risk is dispersed across a large number of customers who are geographically concentrated in the Clarksville, Tennessee service area. The Departments perform an initial credit evaluation for new customers and obtain a security deposit or third-party guaranty where applicable. F. Cash and Cash Equivalents For the purposes of the statement of cash flows, the Departments consider all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased and local government investment pool to be cash and cash equivalents. 26

29 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued G. Inventories Inventories are stated at average cost and are determined by the moving average inventory method. A perpetual inventory is maintained by the Departments with monthly cycle counts and a physical inventory is taken annually. H. Restricted Assets Restricted assets represent cash, cash equivalents and investments as required by the bond covenants to be set aside for the retirement of bond obligations. Restricted assets at June 30, 2018 and June 30, 2017, were $12,470,133 and $18,077,579, respectively. I. Capital Assets All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Capital assets are stated at the original cost of construction, which includes the cost of contracted services, direct labor, materials and overhead items. Contributions from others toward the construction of an asset are charged to the applicable capital asset accounts. Maintenance and repairs are charged to the appropriate maintenance accounts. The Departments capitalize assets with a cost greater than $5,000. Donated capital assets are reported at the estimated fair value at the time of acquisition. Capital assets are valued for impairment or abandonment when necessary. Capital assets, excluding land and construction in progress, are depreciated using the straight-line method over the following estimated useful lives: Infrastructure Land Improvements Buildings Machinery and Equipment Vehicles Computers 50 years 50 years 40 years 5-10 years 5 years 5 years J. Operating and Non-operating Revenues and Expenses Operating revenues and expenses of the Departments are those that result from providing services and producing and delivering goods and/or services in connection with the Departments ongoing operations. The principal operating revenues of the Departments are charges for providing water and wastewater services and natural gas supply. This also includes all revenue and expenses not related to capital and related financing, non-capital financing, or investing activities. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. K. Recognition of Revenues and Expenses As is the general practice of the industry, unbilled service revenue and the related unbilled cost from the date of the most recent meter reading to the statement of net position date is not recorded. Therefore, only billed revenues and expenses are recognized in the financial statements. However, the effect is considered immaterial. L. Receivables Accounts receivables are presented net of any allowance for uncollectible accounts. The allowance for doubtful accounts was $164,524 and $138,975 as of June 30, 2018 and 2017, respectively. Bad debts are charged to expense using the allowance-for-bad-debt method. The Departments policy is to reserve 50% of all accounts 60 to 90 days past due and 100% for accounts more than 90 days past due. The bad debt expense for the years ended June 30, 2018 and 2017 was $150,676 and $108,482, respectively. 27

30 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued M. Interest Capitalization Interest costs are capitalized as part of the historical cost of acquiring certain assets. To qualify for interest capitalization, assets must require a period of time before they are ready for their intended purpose. Total interest incurred for the Gas Department for the years ended June 30, 2018 and June 30, 2017 was $245,700 and $340,119 respectively. No interest was capitalized in either year. Total interest incurred for the Water Department for the years ended June 30, 2018 and June 30, 2017 was $1,126,854 and $1,510,687, respectively. No interest was capitalized in either year. Total interest incurred for the Wastewater Department for the years ended June 30, 2018 and June 30, 2017, was $7,296,463 and $8,487,653, respectively. Interest capitalized was $0 and $665,082 and interest expense was $7,296,463 and $7,822,571 for the years ended June 30, 2018 and June 30, 2017, respectively. N. Restricted and Unrestricted Resources When both restricted and unrestricted resources are available for use, it is the Departments policy to use restricted resources first, and then unrestricted resources as they are needed. O. Unamortized Discount, Premium and Debt Expense Discounts and premiums are being amortized over the life of the bonds using the straight-line method which is not materially different from the interest method. Bonds payable are reported net of the applicable premiums and discounts. Debt issuance costs are expensed in the period that debt is incurred. P. GASB 75 The Departments have implemented GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB) which separates accounting for OPEB and funding of OPEB for fiscal years beginning after June 15, The beginning net positions as of June 30, 2017 have been restated for the Gas Department, the Water Department and the Wastewater Department to establish the net OPEB liability. The net position of the Gas Department was reduced by $2,251,919, the net position of the Water Department was reduced by $$3,579,315 and the Wastewater Department s net position was reduced by $3,596,610. Additionally, the June 30, 2017 balances for the OPEB liability were increased by $2,251,919, $3,579,315, and $3,596,610, respectively, for the Gas Department, the Water Department, and the Wastewater Department. 2. DEPOSITS AND INVESTMENTS The City has adopted an official investment policy. The primary objectives of investment activities in order of priority are safety of principal, liquidity to meet obligations as they become due and a reasonable yield on the City s investments. Investment types permitted are consistent with Government Finance Officers Association ( GFOA ) Policy Statement on State and Local Laws Concerning Investment Practices, and included but are not limited to: (1) U.S. government securities and obligations guaranteed by the U.S. government, (2) deposit accounts at state and federally chartered banks and savings and loan associations, and (3) the Local Government Investment Pool of the State of Tennessee. 28

31 2. DEPOSITS AND INVESTMENTS - continued NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 Statement No. 40, Deposit and Investment Risk Disclosures of the Governmental Accounting Standards Board (GASB 40), is designed to inform financial statement users about the deposit and investment risks that could affect a government s ability to provide services and meet its obligations as they become due. The Departments recognize their deposits and investments may have one or more of the following risks: Credit risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The City s investment policy minimizes this risk by limiting the types of securities to be purchased, pre-qualifying financial institutions, brokers/dealers, etc. that the City does business with and by requiring the diversification of the portfolio so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. Concentration of credit risk: A concentration of investments in any one single issuer of debt securities presents a greater risk for loss in the event that the issuer fails on its obligations. Although the City s investment policy does not place a specific percentage limit on any type of investment, it recommends diversification, requires competitive biddings, and requires investment officials to operate under the prudent-person rule. Interest rate risk: Interest rate risk is the risk that future changes in prevailing market rates of interest will have an adverse effect on the fair value of debt investments. Investments of the Departments have average weighted maturity of one year. The City s investment policy provides that to the extent practicable, that investments should be matched with anticipated cash flow requirements and that a portion of the portfolio should be continuously invested in readily available funds such as a local government investment pool. Custodial credit risk: Custodial credit risk is defined as the risk that a government will not be able to recover its deposits, investments or collateral from the bank in the event of bank failure. State statues require that all deposits with financial institutions must be collateralized by securities whose market value is equal to one hundred five percent (105%) of the value of the state deposit secured thereby, less so much of such amount as is protected by the federal deposit insurance corporation. As of June 30, 2018 and 2017, the carrying amounts of the Departments deposits were $69,302,183 and $61,383,849 and the bank balance of $65,254,101 and $61,616,515 was categorized as follows: The Departments categorize their fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the assets. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The Departments have the following recurring fair value measurements as of June 30, 2018 and U.S. agency securities of $4,725,833 and $9,512,261, respectively, are valued using quoted market prices (Level 1 inputs) 29

32 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND INTERFUND TRANSFERS Permanent reallocations of resources between funds of the City of Clarksville, Tennessee are classified as inter-fund transfers. The transfer recorded in the Departments financial statements is the City of Clarksville s portion of in-lieu of taxes. These in-lieu-of taxes occur on a routine basis and are similar in purpose to property taxes assessed by the City to nongovernmental entities. 30

33 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND CAPITAL ASSETS A summary of changes in capital assets are as follows: 31

34 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND CAPITAL ASSETS continued Depreciation expenses total $18,917,745 and $18,921,308 for the years ended June 30, 2018 and June 30, 2017, respectively. Of these amounts, $1,466,641 and $1,958,808 was charged to the Gas Department, $5,704,023 and $5,576,340 to the Water Department and $11,747,081 and $ 11,386,160 was charged to the Wastewater Department for the years ended June 30, 2018 and June 30, 2017, respectively. During the year ended June 30, 2018 and 2017, loss on abandonment charges totaling $37,425 and $2,235,147, respectively, were incurred by the Gas Department. The Water Department charges totaled $380,876 and $13,513 and the Wastewater Department had charges of $68,451 and $175,336 for the year ended June 30, 2018 and 2017 respectively. 5. ACCUMULATED UNPAID VACATION AND SICK LEAVE Eligible employees earn one day (eight hours) of vacation for each month of employment. For every year of service over ten years, 8 additional hours are accrued per year. On the employee s anniversary date, any unused vacation time over 240 hours is transferred to sick leave. Sick leave does not vest and is not limited in the amount that can accrue. Upon termination, the Departments pay out any accrued vacation pay but do not pay for unused sick leave. 32

35 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND LONG-TERM DEBT Long-term debt outstanding at June 30, 2018 is as follows: Gas Water Wastewater Series 2011 Water, Wastewater and Gas Revenue Refunding bonds due in annual installments of $1,390,000 to $4,090,000 to February 2025 at 4.00% to 5.00% interest $ 1,601,250 $ 8,006,250 $ 13,267,500 Series 2013A Water, Wastewater and Gas Revenue Refunding bonds due in annual installments of $375,000 to $3,740,000 to February 2032 at 3.00% to 5.00% interest Series 2013B Water, Wastewater and Gas Revenue Refunding bonds due in an annual installment of $2,855,000 in February 2019 at 5.00% interest - 1,248,450 16,586, ,855,000 Series 2016 Water, Wastewater and Gas Revenue Refunding bonds due in annual installments of $2,600,000 to $4,480,000 to February 2041 at 4.00% to 5.00% interest 1,852,400 5,052,000 74,160,600 Series 2017 Water, Wastewater and Gas Revenue Refunding bonds due in annual installments of $1,375,000 to $9,345,000 to February 2038 at 4.00% to 5.00% interest 1,813,788 10,849,650 38,686,564 Series 2005 Tennessee Municipal Bond Fund Loan due in annual installments of $1,722,001 to $3,341,373 to May 2032 at variable rate of interest - 2,083,728 32,645,074 Face Value of Long-Term Debt 5,267,438 27,240, ,201,288 Add: Premium 737,198 3,330,652 24,059,820 Less: Current Portion (358,600) (1,705,570) (9,277,831) Net Long-Term Debt $ 5,646,036 $ 28,865,160 $ 192,983,278 The bonds are collateralized by the operating revenues of the Departments. Bond covenants also require the establishment of a debt service fund from which to pay interest and principal maturities as they become due. At June 30, 2018 and June 30, 2017, principal and interest to maturity was $300,042,574 and $340,164,473, respectively. On the Series 2005 TMBF Loan, the variable interest rate is based on the adjusted program loan rate plus a letter of credit fee of 0.15%. Future payments on Long-Term Debt are as follows: Year Ending June 30, Bonds Payable Notes Payable Total Principal Total Interest 2019 $ 9,570,000 $ 1,772,001 $ 11,342,001 $ 9,266, ,360,000 1,860,601 12,220,601 8,774, ,860,000 1,953,631 12,813,631 8,214, ,225,000 2,051,313 13,276,313 7,627, ,910,000 2,153,879 17,063,879 7,020, ,635,000 12,496,617 59,131,617 24,800, ,160,000 12,440,760 42,600,760 14,976, ,665,002-29,665,002 7,374, ,595,000-12,595,000 1,280,000 Total Long-Term Debt Including Current Portion $ 175,980,002 $ 34,728,802 $ 210,708,804 $ 89,333,770 33

36 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND LONG-TERM DEBT - continued Changes in long-term debt and other noncurrent liabilities (including current portions) for the year ended June 30, 2018 were as follows: Amount Due Gas, Water and Wastewater Balance Balance Year Ending Departments 6/30/2017 Additions Reductions 6/30/2018 6/30/2019 Accrued compensated absences $ 885,428 $ 684,210 $ (674,132) $ 895,506 $ 682,267 Customer deposits 4,150,498 1,839,233 (1,660,160) 4,329,571 - Bonds and notes 237,996,422 51,350,000 (78,637,618) 210,708,804 11,342,001 Premiums on bonds 23,821,675 9,399,858 (5,093,863) 28,127,670 - Total long-term debt and other non-current liabilities $ 266,854,023 $ 63,273,301 $ (86,065,773) $ 244,061,551 $ 12,024, PENSION PLAN General - 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 Clarksville s participation in the Public Employee Retirement Plan of the Tennessee Consolidated Retirement System ( TCRS ), and additions to/deductions from Clarksville s fiduciary net position have been determined on the same basis as they are reported by the TCRS for the Public Employee Retirement Plan. For this purpose, benefits (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms of the Public Employee Retirement Plan of TCRS. Investments are reported at fair value. The pension related activity has been allocated to the individual funds of the City of Clarksville by use of an allocation ratio of the fiscal year 2017 pension contributions by fund. This ratio dictates that 75.01% of the pension related activity belongs to the General Government of the City, 19.54% is attributed to the Gas, Water and Wastewater Funds, and the remaining 5.45% is attributed to the Transit Fund. Plan Description - Employees of the City, with the exception of the employees of the Department of Electricity, are provided a defined benefit pension plan through the Public Employee Retirement Plan, an agent multiple-employer pension plan administered by the TCRS. The TCRS was created by state statute under Tennessee Code Annotated Title 8, Chapters The TCRS Board of Trustees is responsible for the proper operation and administration of the TCRS. The Tennessee Treasury Department, an agency in the legislative branch of state government, administers the plans of the TCRS. The TCRS issues a publically available financial report that can be obtained at Benefits Provided - Tennessee Code Annotated Title 8, Chapters establishes the benefit terms and can be amended only by the Tennessee General Assembly. The chief legislative body may adopt the benefit terms permitted by statute. Members are eligible to retire with an unreduced benefit at age 60 with 5 years of service credit or after 30 years of service credit regardless of age. Benefits are determined by a formula using the member s highest five consecutive year average compensation and the member s years of service credit. Reduced benefits for early retirement are available at age 55 and vested. Members vest with five years of service credit. Service related disability benefits are provided regardless of length of service. Five years of service is required for non-service related disability eligibility. The service related and non-service related disability benefits are determined in the same manner as a service retirement benefit but are reduced 10 percent and include projected service credits. A variety of death benefits are available under various eligibility criteria. 34

37 7. PENSION PLAN - continued NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 Member and beneficiary annuitants are entitled to automatic cost of living adjustments ( COLAs ) after retirement. A COLA is granted each July for annuitants retired prior to the 2nd of July of the previous year. The COLA is based on the change in the consumer price index (CPI) during the prior calendar year, capped at 3 percent, and applied to the current benefit. No COLA is granted if the change in the CPI is less than one-half percent. A one percent COLA is granted if the CPI change is between one-half percent and one percent. A member who leaves employment may withdraw their employee contributions, plus any accumulated interest. Contributions - Contributions for employees are established in the statutes governing the TCRS and may only be changed by the Tennessee General Assembly. Employees are non-contributory. Clarksville makes employer contributions at the rate set by the Board of Trustees as determined by an actuarial valuation. For the year ended June 30, 2018, the actuarially determined contribution ( ADC ) for Clarksville was $8,050,260 based on a rate of 17.33% of covered payroll for sworn personnel and 13.83% of covered payroll for all other employees. By law, employer contributions are required to be paid. The TCRS may intercept Clarksville s state shared taxes if required employer contributions are not remitted. The employer s ADC is expected to finance the costs of benefits earned by members during the year, the cost of administration, as well as an amortized portion of any unfunded liability. Net Pension Liability (Asset) Clarksville s net pension liability (asset) was measured as of June 30, 2017 and the total pension liability used to calculate net pension liability (asset) was determined by an actuarial valuation as of that date. The department s proportion of the net pension liability was based on their contributions for the pension plan relative to the total contributions to the pension plan. At June 30, 2018, the Department s proportion was 19.54% which was a decrease of 0.10% from its proportion measured as of June 30, Actuarial Assumptions - The total pension liability as of June 30, 2017 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary increases Investment rate of return Cost-of-Living Adjustment 2.5 percent Graded salary ranges from 8.75 to 3.45 percent based on age, including inflation, averaging 4.00 percent 7.25 percent, net of pension plan investment expenses, including inflation percent Mortality rates were based on actual experience including an adjustment for some anticipated improvement. The actuarial assumptions used in the June 30, 2017 actuarial valuation were based on the results of an actuarial experience study performed for the period July 1, 2012 through June 30, The demographic assumptions were adjusted to more closely reflect actual and expected future experience. Changes of Assumptions In 2017, the following assumptions were changed: decreased inflation rate from 3.00% to 2.50%; decreased the investment rate of return from 7.50% to 7.25%; decreased the cost-of-living adjustment from 2.50% to 2.25%; decreased salary growth graded ranges from an average of 4.25% to an average of 4.00%; and modified mortality assumptions. 35

38 7. PENSION PLAN - continued NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 The long-term expected rate of return on pension plan investments was established by the TCRS Board of Trustees in conjunction with the June 30, 2016 actuarial experience study. A blend of future capital market projections and historical market returns was used in a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) is developed for each major asset class. These best-estimates are combined to produce the long-term expected by weighting the expected future real rates of return by the target asset allocation percentage and by adding inflation of 2.5 percent. The best estimates of geometric real rates of return and the TCRS investment policy target asset allocation for each major asset class are summarized in the following table: Asset Class Long-Term Expected Real Rate of Return Target Allocation U.S. equity 5.69% 31% Developed market international equity 5.29% 14% Emerging market international equity 6.36% 4% Private equity and strategic lending 5.79% 20% U.S. fixed income 2.01% 20% Real estate 4.32% 10% Short-term securities 0.00% 1% 100% The long-term expected rate of return on pension plan investments was established by the TCRS Board of Trustees as 7.25 percent based on a blending of the three factors described above. Discount Rate - The discount rate used to measure the total pension liability was 7.25 percent. The projection of cash flows used to determine the discount rate assumed that contributions from Clarksville will be made at the actuarially determined contribution rate pursuant to an actuarial valuation in accordance with the funding policy of the TCRS Board of Trustees and as required to be paid by state statute. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of the projected benefit payments to determine the total pension liability. 36

39 7. PENSION PLAN - continued NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 Changes in Net Pension Liability (Asset) Total Pension Liability Plan Fuduciary Net Position Net Pension Liability (Asset) Balance at 6/30/16 $ 34,920,375 $ 30,374,992 $ 4,545,383 Changes for the year: Service cost 764, ,203 Interest 2,551,630-2,551,630 Differences between expected and actual experience 365, ,385 Changes in Assumptions 898, ,610 Employer contributions - 1,567,411 (1,567,411) Net investment income - 3,354,698 (3,354,698) Benefit payments (1,336,978) (1,336,978) - Administrative expense - (19,235) 19,235 Other changes - - Net changes 3,242,850 3,565,896 (323,046) Balance at 6/30/17 $ 38,163,225 $ 33,940,888 $ 4,222,337 Sensitivity of the Department s Proportionate Share of the Net Pension Liability (Asset) to Changes in the Discount Rate - The following presents the Department s proportionate share of the net pension liability (asset) of Clarksville calculated using the discount rate of 7.25 percent, as well as what the Departments proportionate share of the net pension liability (asset) would be if it were calculated using a discount rate that is 1-percentage-point lower (6.25 percent) or 1-percentage-point higher (8.25 percent) than the current rate: 1% Decrease (6.25%) Current Discount Rate 1% Increase (8.25%) Net pension liability (asset) $ 9,492,667 $ 4,222,337 $ (152,763) Pension Expense (Income) and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions Pension Expense - For the year ended June 30, 2018, the Departments recognized pension expense was $970,052. Deferred Outflows of Resources and Deferred Inflows of Resources - For the year ended June 30, 2018, the Departments reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: 37

40 7. PENSION PLAN - continued NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ 334,561 $ 855,310 Net difference between projected and actual earnings on pension plan investments 13,089 Change in Assumptions 770,237 Contributions subsequent to the measurement date of June 30, ,625,614 - Total $ 2,730,412 $ 868,399 The amount shown above for Contributions subsequent to the measurement date of June 30, 2017, will be recognized as a reduction (increase) to net pension liability (asset) in the following measurement period. Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended June 30: 2018 $ (144,709) , , (242,491) ,716 Thereafter 180,571 In the table shown above, positive amounts will increase pension expense while negative amounts will decrease pension expense. Payable to the Pension Plan At June 30, 2018, the Departments reported a payable of $0 for the outstanding amount of contributions to the pension plan required at the year ended June 30, Prior to April 1, 1993 the City of Clarksville was the administrator of a single employer public employee retirement system ( PERS ) established and administered by the City to provide pension benefits for its employees, excluding employees from the Department of Electricity. Current retirees and former employees vested in the City s PERS were not eligible to join TCRS. Annuities were purchased for these individuals from Plan assets, effective September 1,

41 8. OTHER POST-EMPLOYMENT BENEFITS NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 General - The Departments implemented the provisions of GASB Statement No. 75, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, during the year ended June 30, These provisions were applied prospectively with respect to the Departments postemployment benefit plans. GASB Statement No. 75 requires the accrual of other postemployment benefit obligations over the working careers of plan members rather than when benefits are paid. No assets are accumulated in a trust that meets the criteria in paragraph 4 of Statement 75. Plan Description - The Departments are part of the City of Clarksville's Retired Employees' Benefit Plan ("Plan ); hereafter, the Plan will refer to the Departments portion of the City plan. The Plan is a single-employer defined benefit medical, dental, and life insurance plan administered by the City of Clarksville. The plan is provided for in Section through Section of the Official Code of the City of Clarksville. The Plan provides medical, dental, and life insurance benefits to eligible retirees. Retirees are able to obtain medical and dental insurance at the City group rates for their spouses. Employees hired prior to July 1, 1997 must have attained the age of 55 and accrued at least 5 years of service (including any unused sick leave) or have at least 20 years of service (including any unused sick leave) to be eligible for benefits provided by the Plan. Employees hired on or after July 1, 1997 but before July 1, 2006 must have attained the age of 55 and accrued at least 10 years of service (including any unused sick leave) to be eligible. Employees hired on or after July 1, 2006 are not eligible under the Plan. The Plan has a total of 197 participants of which 82 are retired participants and 115 are active participants. The Plan does not issue a publicly available financial report that includes financial statements and required supplementary information. Funding Policy - The contribution requirements of the Departments are determined by an actuary study performed as of July 1, 2017, with a measurement date of June 30, 2017 and a reporting date of June 30, The level of actual funding is determined by the Clarksville City Council during the budget process. The City Council approved funding the estimated cost of insurance for current premiums. The City will continue to pay current premiums on a pay-asyou-go basis, however the Departments have an establish fund to accumulate assets to cover projected benefit payments. Funds approved in fiscal year 2018 were sufficient to pay the current cost of premiums for other postemployment benefits for eligible retirees in fiscal year For fiscal year 2018 and 2017, the Departments paid a total of $525,687 and $461,102, respectively, for current premiums for retiree insurance coverage. Changes in Plan Provisions, Actuarial Assumptions, and Actuarial Methods The following changes were made to the actuarial assumptions and methods effective July 1, The discount rate for Statement 75 is 3.67% based on the S&P Municipal Bond 20 Year High Grade Index as of March 31, 2017, compared to the prior year Statement 45 discount rate of 4.0%. 2. The medical trend was changed from 9% to 5% grade over 8 years beginning in 2015 to 8% to 5% graded over 12 years beginning in Actuarial Methods and Assumptions The total OPEB liability as of the June 30, 2017 valuation was determined using the entry age normal actuarial cost method and the following additional actuarial assumptions, applied to all periods included in the measurement Inflation Health care cost trend rates Dental cost trend rates 2.0 percent 8.0 percent to 5.0 percent graded over 12 years 4.0 percent 39

42 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND OTHER POST-EMPLOYMENT BENEFITS - continued Salary increases Discount rate Amortization period Mortality rates 2.0 percent 3.67 percent based on the S&P Municipal Bond 20 Year High Grade Index as of March 31, Experience gains or losses are amortized over the average working lifetime of all participants which for the current period is 8 years. Plan amendments are recognized immediately. Changes in actuarial assumptions are amortized over the average working lifetime of all participants. Based on actual experience from the June 30, 2012 actuarial experience study adjusted for some of the expected future improvements in life expectancy. Total OPEB Liability and Net OPEB Liability The following chart shows the changes in Total and Net OPEB liability over the year. Changes in Net OPEB Liability (Asset) Total OPEB Liability Plan Fuduciary Net Position Net OPEB Liability (Asset) Balance at 6/30/2017 $ 20,469,065 $ - $ 20,469,065 Changes for the year: Service cost 434, ,107 Interest 785, ,699 Differences between expected and actual experience Employer contributions - 525,687 (525,687) Benefit payments (525,687) (525,687) - Administrative expense Other changes Net changes 694, ,119 Balance at 6/30/2018 $ 21,163,184 $ - $ 21,163,184 The Departments have set aside investment funds to pay for OPEB liabilities; however, they are not in an irrevocable trust. Therefore, the OPEB liability is not offset by these funds. The balance of the OPEB investment account as of June 30, 2018 and 2017 totaled $11,882,729 and $10,529,074, respectively. Sensitivity of Net OPEB Liability to Changes in the Healthcare Cost Trend Rate - The following represents the net OPEB liability calculated using the stated healthcare cost trend assumption, as well as what the OPEB liability would be if it were calculated using a healthcare cost trend rate that is 1 percentage-point lower or 1 percentage-point higher than the assumed trend rate. 1% Decrease Current Rate 1% Increase 7% decreasing to 8% decreasing to 9% decreasing to 4% over 12 years 5% over 12 years 6% over 12 years Net OPEB liability (asset) $ 18,021,011 $ 21,163,184 $ 24,938,446 40

43 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND OTHER POST-EMPLOYMENT BENEFITS - continued Sensitivity of Net OPEB Liability to Changes in the Discount Rate - The following represents the net OPEB liability calculated using the stated discount rate, as well as what the net OPEB liability would be if it were calculated using a discount rate that is 1 percentage-point lower or 1 percentage-point higher than the current rate. 1% Decrease 2.67% Current Rate 3.67% 1% Increase 4.67% Net OPEB liability (asset) $ 23,379,670 $ 21,163,184 $ 18,395,905 OPEB Expense - The Departments annual other post-employment benefit ( OPEB ) expense is an accounting item designed to recognize, in the current periods Statement of Revenue, Expenses and Changes in Net Position, certain changes to the Net OPEB Liability (NOL). Additionally, changes to the NOL not fully recognized in a given year s OPEB expense will be tracked as deferred inflows and deferred outflows, and be recognized incrementally in the OPEB expense over time. OPEB Expense Fiscal Year Ending 6/30/2018 Service cost $ 434,107 Interest 785,699 Recognition of Deferred Inflows/Outflows of resources Contributions subsequent to measurement date (1,741,954) OPEB Expense $ (522,148) Schedule of Deferred Inflows and Outflows Deferred Outflows of Resources Deferred Inflows of Resources Contributions subsequent to measurement date $ 1,741,954 $ - Total $ 1,741,954 $ - 41

44 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND OTHER POST-EMPLOYMENT BENEFITS - continued Schedule of Changes in Deferred Outflows/Inflows Deferred Outflows of Resources Deferred Inflows of Resources Balance at 6/30/2017 $ 559,586 $ - Changes for the year: Contribution (prior year) (559,586) - Contribution (current year) 1,741,954 - Experience losses - Amortization of losses - - Net Changes 1,182,368 - Balance at 6/30/2018 $ 1,741,954 $ - 9. SELF-INSURANCE The Departments are exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injury to employees; and natural disasters. The Departments are part of the City of Clarksville self-insurance plan for workers compensation. The City chose not to participate in the Workers Compensation program as allowed by State statute and has implemented an onthe-job injury program. The City must pay all medical and related expenses of injured employees including 75% of the employee s salary. The City is subject to the Governmental Tort Liability Act (T.C.A to ), which sets the maximum liability at $700,000 per occurrence and $300,000 per individual. The City is a reimbursable entity for unemployment purposes and thus pays all claims as they occur. The Departments, through the City, are also self-insured on their general liability claims, automobile liability claims, and maintains reinsurance for claims in excess of $500,000 and up to $6,000,000 for a single occurrence with an annual aggregate of $18,000,000. The policy of the City is to recognize as an expense claims actually filed plus claims estimated by the City to have been incurred but not yet reported based on historical data. At June 30, 2018, the amount of these estimated insurance liabilities recorded in the accounting records of the City was $1,756,625. Changes in the reported liability for the last three fiscal years are as follows: 10. COMMITMENTS AND CONTINGENCIES The Departments have contractual commitments for various construction projects totaling $2.3 million as of June 30, Effective January 31, 2004, the Gas Department entered into an easement agreement with the U.S. Department of the Army that expires on January 30, Pursuant to this contract, the Gas Department will manage the construction, operation, maintenance, repair or replacement of the natural gas utility system at Fort Campbell Army post. The Gas Department will be compensated for these services on a cost-plus basis. 42

45 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND COMMITMENTS AND CONTINGENCIES continued The Departments are parties to various lawsuits, many of which occur in the normal course of governmental operations. The ultimate outcome of the actions is not determinable; however, the Departments management and legal counsel believes that the ultimate outcome, either singularly or in the aggregate, will not have a material adverse effect on the accompanying financial statements. The Departments exposure to property loss and general liability is handled through the purchase of commercial insurance. Insurance coverage was adequate to cover settlements for the past three fiscal years. On June 27, 2006, The Natural Gas Acquisition Corporation of the City of Clarksville ( NGAC ) issued bonds of $240,525,000. The bonds were issued to purchase for the City of Clarksville Gas Department ( CGW ) $218,834,969 of prepaid natural gas and for the Humphreys County Utility District ( HCUD ) $21,216,030 of prepaid natural gas. The bonds were issued to purchase a 15-year supply of natural gas from Merrill Lynch Commodities, Inc. The contracts between NGAC and CGW and between NGAC and HCUD guarantee a minimum discount to index of thirty cents per MMBtu. An additional fifteen cents per MMBtu is available, first, to pay operating expenses of NGAC, and second, to provide CGW and HCUD additional savings at the discretion of the NGAC Board of Directors. In order to structure the initial prepayment, both CGW and HCUD determined the quantity of natural gas needed on a monthly basis for fifteen years. A fixed natural gas curve was then determined by Merrill Lynch Commodities, Inc., based on a proprietary forward natural gas curve at the time of the pricing of the bonds, which when multiplied by the prepaid quantity, resulted in the amount needed to fund the prepayment. On a monthly basis, over the life of the delivery schedule, if the current market price is less than the prepaid price then CGW and HCUD will receive additional gas up to the initial monthly dollar amount funded. Alternatively, if the market price is higher than the prepaid price then CGW and HCUD receive a lower quantity of gas. Over the 15-year period of the prepayment, CGW is expected to receive 37,362,903 MMBtus of natural gas and HCUD is expected to receive 3,786,410 MMBtus of natural gas. Those amounts will fluctuate based on future natural gas prices as described above. The Federal Energy Regulatory Commission ( FERC ) regulates the rates charged to the Department for the transportation and storage of natural gas. FERC has retroactively adjusted charges in the past and may do so in the future. No estimate of any future adjustments can be made. However, the Departments have been able to pass through past adjustments approved by FERC. Management believes any further rate adjustments will be recovered through amounts charged to affected customers. On February 23, 2012 the Wastewater Department received a Tennessee Department of Environment and Conservation ( TDEC ) Commissioner issued enforcement order (this order supersedes all requirements of previous Commissioner s order in 2004). From the period September 2011 through November 2011 the Sewer Department s wastewater discharges exceeded TDEC National Pollutant Discharge Elimination System Permit limits and provisions. In order to comply with TDEC Commissioner s order, the Wastewater Department must develop several response and corrective action plans, complete assessments and maintenance, construct and rehabilitate flood damaged wastewater treatment plants, and issue reports on the status of the compliance with the order. The TDEC deadline for completion of all of the projects, with the exception of those outlined in the Long Term Control Plan and the Comprehensive Assessment of the Collection System ( CACS ) was March 31, The Wastewater Department has met the March 31, 2017 deadline for completing those projects. Reporting requirements for the CACS continue through March 31, The consequences of not complying with the Commissioner s order include civil penalties up to $287,300 total. In addition, noncompliance with the order could be a factor in future enforcement actions. The Wastewater Department currently estimates it may cost an additional $6 million to comply with this consent order. To date, the Department has spent $14.5 million. Noncompliance with the order is not anticipated. 43

46 11. DEFEASED DEBT AND DEBT ISSUANCES NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 On December 21, 2017, the Departments issued Wastewater and Gas Revenue Refunding Bonds, Series 2017, with interest rates ranging from 3.0% to 5.0% to refund $30,630,000 Revenue Refunding Bonds, Series 2011 and refund $28,700,000 Revenue Refunding Bonds, Series Sufficient proceeds were deposited with an escrow agent to provide for all future debt service payments on the refunded bonds. As a result, the refunded bonds are considered defeased and the liability for those bonds has been removed from the balance sheet. At June 30, 2018 and 2017, bonds outstanding of $59,330,000 and $10,995,000, respectively, were considered defeased. On August 1, 2017, the outstanding balance of the Series 2007 Water, Wastewater and Gas Revenue Refunding and Improvement Bonds were called and paid in full. The principal payment totaled $7,060, FLOOD RECOVERY Excessive rainfall on May 1 st and 2 nd, 2010 resulted in the Cumberland River eventually cresting at feet, well above the flood stage of 46 feet. This resulted in extensive damage to the wastewater treatment facility and several components of the wastewater collection system. All work on the treatment system was completed by February 28, For funding purposes, the Federal Emergency Management Agency ( FEMA ) has divided the damages into smaller components referred to as projects. The Departments were notified in 2011 that many of the projects at the wastewater treatment plant had been defunded by FEMA. The Departments appealed the defunding and in May of 2014, were informed by FEMA that the appeal was successful and projects totaling $19 million had been reobligated. The Departments continue to appeal various projects with FEMA and as of June 30, 2018, FEMA has obligated a total of $28.9 million in funding. The Departments total cost of the recovery was $133.6 million. 13. LEASES The Departments have entered into a number of leases, and with the exception of the non-cancelable leases, these leases have cancellation provisions and are renewable on monthly basis. Rent payments for all types of leases during the years ended June 30, 2018 and 2017, were $30,621 and $29,933, respectively. Future minimum lease payments under non-cancelable leases are as follows: 44

47 14. SUBSEQUENT EVENTS NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 AND 2017 Management has evaluated subsequent events through December 7, 2018, the date the financial statements were available for issuance, and has determined that there were two subsequent event requiring disclosure. On August 2, 2018, City Council approved a gas supply agreement with the Tennessee Energy Acquisition Corporation (TEAC). The supply of gas will begin following the expiration of the supply agreement with the Natural Gas Acquisition Corporation on September 31, 2021 and conclude on September 31, Under the agreement, TEAC will supply approximately 50% of the Department s gas demand at a discount from index of no less than $0.35 per MMBtu during the initial rate period which ends September 30, Thereafter, the discount resets every 5 years and would be no less than $0.20 per MMBtu. On December 7, 2018, the Departments defeased the 2023, 2024 and 2025 maturities of the Series 2011 Bonds. The total principal amount defeased was $9,740,000. Sufficient funds have been deposited with an escrow agent and the bonds will be called at maturity, February 1,

48 REQUIRED SUPPLEMENTARY INFORMATION

49 REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2018 Schedule of Changes in the Departments Proportionate Share of the Net Pension Liability (Asset) and Related Ratios Based on Participation in the Public Employee Pension Plan of TCRS (Unaudited) Last Fiscal year ending June Financial 2016 Financial 2017 Financial 2018 Financial Statement Date Statement Date Statement Date Statement Date Total Pension Liability 2014 Measurement Date 2015 Measurement Date 2016 Measurement Date 2017 Measurement Date Service cost $ 731,989 $ 721,286 $ 741,164 $ 764,203 Interest 2,319,042 2,342,640 2,426,557 2,551,630 Changes in benefit terms Differences between expected & actual experience (1,563,201) 30,551 (76,363) 365,385 Change of assumptions ,610 Benefit payments, including refunds of employee contributions (1,096,514) (1,175,306) (1,218,304) (1,336,978) Net change in total pension liability 391,316 1,919,171 1,873,054 3,242,850 Total pension liability-beginning 30,736,834 31,128,150 33,047,321 34,920,375 Total pension liability-ending (a) $ 31,128,150 $ 33,047,321 $ 34,920,375 $ 38,163,225 Plan Fiduciary Net Position Contributions-employer $ 1,458,342 $ 1,526,791 $ 1,540,277 $ 1,567,411 Net investment income 3,969, , ,008 3,354,698 Benefit payments (1,096,514) (1,175,306) (1,218,304) (1,336,978) Administrative expense and other charges (9,123) (11,498) (14,435) (19,235) Net change in plan fiduciary net position 4,322,497 1,209,883 1,069,546 3,565,896 Plan fiduciary net position-beginning 23,773,066 28,095,563 29,305,446 30,374,992 Plan fiduciary net position-ending (b) $ 28,095,563 $ 29,305,446 $ 30,374,992 $ 33,940,888 Net Pension Liability-ending (a) (b) $ 3,032,587 $ 3,741,875 $ 4,545,383 $ 4,222,337 Plan fiduciary net position as a percentage of total pension liability 90.26% 88.68% 86.98% 88.94% Department's proportionate share of the net pension liability % % % % Covered employee payroll $9,449,474 $9,947,916 $11,182,755 $11,360,503 Net pension liability as a percentage of covered-employee payroll 32.09% 37.61% 40.65% 37.17% This is a 10-year schedule; however, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available. 46

50 REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2018 Schedule of Pension Contributions Based on Participation in the Public Employee Pension Plan of TCRS (Unaudited) Last Fiscal year ending June Actuarially determined contribution $ 1,458,342 $ 1,526,791 $ 1,540,277 $ 1,567,411 $ 1,625,614 Contributions in relation to the actuarially determined contribution 1,458,342 1,526,791 1,540,277 1,567,411 1,625,614 Contribution deficiency (excess) $ - $ - $ - $ - $ - Covered employee payroll $ 9,449,474 $ 9,947,916 $ 11,182,755 $ 11,360,503 $ 11,766,237 Contributions as a percentage of covered employee payroll 15.43% 15.35% 13.77% 13.80% 13.82% This is a 10-year schedule; however, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available. Notes to Schedule Valuation Dates: Actuarial determined contribution rates for 2018 were calculated based on the June 30, 2017 actuarial valuation. Methods and assumptions used to determine contribution rates: Actuarial Cost Method Amortization Method Remaining Amortization Period Asset Valuation Inflation Salary Increases Investment Rate of Return Retirement Age Mortality Mortality Cost of Living Adjustments Entry Age Normal Level dollar, closed (not to exceed 20 years) Varies by year 10-year smoothed within a 20 percent corridor to market value 3.0 percent Graded salary ranges from 8.97 to 3.71 percent based on age, including inflation 7.5 percent, net of investment expenses, including inflation Pattern of retirement determined by experience study Customized table based on actual experience including an adjustment for some anticipated improvement 2.5 percent 47

51 REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2018 Schedule of Changes in the Departments Net OPEB Liability (Asset) and Related Ratios (Unaudited) Last Fiscal year ending June 30 Total OPEB Liability 2018 Service cost $ 434,107 Interest 785,699 Changes in benefit terms - Differences between actual & expected experience - Change of assumptions - Benefit payments, including refunds of employee contributions (525,687) Net change in total OPEB liability 694,119 Total OPEB liability-beginning 20,469,065 Total OPEB liability-ending (a) $ 21,163,184 Plan Fiduciary Net Position Contributions-employer $ 1,741,955 Net investment income 146,387 Benefit payments (525,687) Administrative expense and other charges - Net change in plan fiduciary net position 1,362,655 Plan fiduciary net position-beginning 10,520,074 Plan fiduciary net position-ending (b) $ 11,882,729 Net OPEB Liability-ending (a) (b) $ 9,280,455 Plan fiduciary net position as a percentage of total OPEB liability 56.15% Department's proportionate share of the net OPEB liability 9.99% Covered employee payroll $11,727,183 Net OPEB liability as a percentage of covered-employee payroll 79.14% This is a 10-year schedule; however, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available. 48

52 REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2018 Schedule of OPEB Contributions Last fiscal Year ending June 30 This is a 10-year schedule; however, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available. Notes to Schedule Valuation Dates: Actuarial determined contribution rates for 2018 were calculated based on the July 1, 2017 actuarial valuation. Methods and assumptions used to determine contribution rates: Actuarial Cost Method Amortization Method Amortization Period Discount Rate Salary Increases Medical Cost Trend Rate Dental Cost Trend Rate Entry Age Normal Level dollar, closed (not to exceed 20 years) 8-years for changes in actuarial assumptions and experience gains or losses 3.67 percent 2.0 percent 8.0 percent to grade uniformly to 5.0 percent over a 12 year period 4.0 percent 49

53 OTHER SUPPLEMENTARY INFORMATION

54 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30,

55 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, 2018 AWWA Free Water Audit Software: Reporting Worksheet WAS v5.0 American Water Works Association. Copyright 2014, All Rights Reserved.? Click to access definition + Click to add a comment Water Audit Report for: Clarksville Gas & Water Reporting Year: /2017-6/2018 Please enter data in the white cells below. Where available, metered values should be used; if metered values are unavailable please estimate a value. Indicate your confidence in the accuracy of the input data by grading each component (n/a or 1-10) using the drop-down list to the left of the input cell. Hover the mouse over the cell to obtain a description of the grades All volumes to be entered as: MILLION GALLONS (US) PER YEAR To select the correct data grading for each input, determine the highest grade where the utility meets or exceeds all criteria for that grade and all grades below it. Master Meter and Supply Error Adjustments WATER SUPPLIED < Enter grading in column 'E' and 'J' > Pcnt: Value: Volume from own sources: +? 9 6, MG/Yr +? % MG/Yr Water imported: +? n/a MG/Yr +? MG/Yr Water exported: +? n/a MG/Yr +? MG/Yr Enter negative % or value for under-registration WATER SUPPLIED: 6, MG/Yr Enter positive % or value for over-registration. AUTHORIZED CONSUMPTION Click here:? Billed metered: +? 8 4, MG/Yr for help using option Billed unmetered: +? n/a MG/Yr buttons below Unbilled metered: +? MG/Yr Pcnt: Value: Unbilled unmetered: +? MG/Yr 1.25% MG/Yr Default option selected for Unbilled unmetered - a grading of 5 is applied but not displayed AUTHORIZED CONSUMPTION:? 4, MG/Yr Use buttons to select percentage of water supplied OR WATER LOSSES (Water Supplied - Authorized Consumption) 1, MG/Yr value Apparent Losses Pcnt: Value: Unauthorized consumption: +? MG/Yr 0.25% MG/Yr Default option selected for unauthorized consumption - a grading of 5 is applied but not displayed Customer metering inaccuracies: +? MG/Yr 6.90% MG/Yr Systematic data handling errors: +? MG/Yr 0.25% MG/Yr Default option selected for Systematic data handling errors - a grading of 5 is applied but not displayed Apparent Losses:? MG/Yr Real Losses (Current Annual Real Losses or CARL) Real Losses = Water Losses - Apparent Losses: WATER LOSSES:? 1, MG/Yr 1, MG/Yr NON-REVENUE WATER NON-REVENUE WATER: = Water Losses + Unbilled Metered + Unbilled Unmetered SYSTEM DATA 1, MG/Yr Length of mains: +? 10 1,066.0 miles Number of active AND inactive service connections: +? 9 69,462 Service connection density:? 65 conn./mile main? Are customer meters typically located at the curbstop or property line? Yes (length of service line, beyond the property Average length of customer service line: +? ft boundary, that is the responsibility of the utility) Average length of customer service line has been set to zero and a data grading score of 10 has been applied Average operating pressure: +? psi COST DATA Total annual cost of operating water system: +? 10 $13,470,745 $/Year Customer retail unit cost (applied to Apparent Losses): +? 10 $4.65 $/1000 gallons (US) Variable production cost (applied to Real Losses): +? 10 $ $/Million gallons Use Customer Retail Unit Cost to value real losses WATER AUDIT DATA VALIDITY SCORE: *** YOUR SCORE IS: 88 out of 100 *** A weighted scale for the components of consumption and water loss is included in the calculation of the Water Audit Data Validity Score PRIORITY AREAS FOR ATTENTION: Based on the information provided, audit accuracy can be improved by addressing the following components: 1: Volume from own sources 2: Unauthorized consumption 3: Systematic data handling errors 51

56 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, 2018 AWWA Free Water Audit Software: System Attributes and Performance Indicators WAS v5.0 American Water Works Association. Copyright 2014, All Rights Reserved. Water Audit Report for: Clarksville Gas & Water Reporting Year: /2017-6/2018 System Attributes: Performance Indicators: Financial: *** YOUR WATER AUDIT DATA VALIDITY SCORE IS: 88 out of 100 *** Apparent Losses: MG/Yr + Real Losses: 1, MG/Yr = Water Losses: 1, MG/Yr? Unavoidable Annual Real Losses (UARL): MG/Yr Annual cost of Apparent Losses: $1,728,704 Annual cost of Real Losses: $392,578 Valued at Variable Production Cost Return to Reporting Worksheet to change this assumpiton Non-revenue water as percent by volume of Water Supplied: 26.8% Non-revenue water as percent by cost of operating system: 16.2% Real Losses valued at Variable Production Cost Operational Efficiency: Apparent Losses per service connection per day: Real Losses per service connection per day: Real Losses per length of main per day*: Real Losses per service connection per day per psi pressure: gallons/connection/day gallons/connection/day N/A 0.56 gallons/connection/day/psi From Above, Real Losses = Current Annual Real Losses (CARL):? Infrastructure Leakage Index (ILI) [CARL/UARL]: 1, million gallons/year 2.40 * This performance indicator applies for systems with a low service connection density of less than 32 service connections/mile of pipeline 52

57 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, 2018 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND STATE FINANCIAL ASSISTANCE Governmental Beginning Ending CFDA Agency/ Contract (Receivables) (Receivables) Number Program Name Number 7/1/2017 Receipts Expenditures 6/30/2018 Federal Awards: Department of Homeland Security Passed through the Tennessee Department of Military FEMA Disaster # $ (21,133,050) $ 1,616,295 $ 506,908 $ (20,023,663) Total Awards $ (21,133,050) $ 1,616,295 $ 506,908 $ (20,023,663) NOTES Basis of Presentation This schedule of expenditures of federal awards and state financial assistance includes the grant activity of the City of Clarksville, Tennessee, related to the Gas, Water and Wastewater Departments and is presented on the accrual basis of accounting. Compliance Audit Scope The information in the schedule of expenditures of federal awards and state financial assistance is presented in accordance with accounting principles generally accepted in the United States of America which is the same basis of accounting as the basic financial statements. The schedule of expenditures of federal awards and state financial assistance has been provided only to comply with the State of Tennessee reporting requirements. The Independent Auditor s Report on Compliance for Each Major Program and on Internal Controls over Compliance required by the Uniform Guidance will be issued in conjunction with the audit of the City of Clarksville and will encompass federal/state funds received by the Departments as applicable. De Minimis Cost Rate The Gas, Water and Wastewater Departments have elected not to use the 10-percent de minimis indirect cost rate, when applicable. See independent auditor s report. 53

58 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, 2018 DIRECTORY OF UTILITY COMMITTEE AND MANAGEMENT PERSONNEL (UNAUDITED) June 30, 2018 PUBLIC UTILITY COMMITTEE Term Expires Bill Powers Chair 12/31/2018 Valerie Guzman Committee Member 12/31/2020 David Allen Committee Member 12/31/2020 Jeff Henley Committee Member 12/31/2020 Mike Alexander Committee Member 12/31/2018 MANAGEMENT PERSONELL Years of Service Pat Hickey General Manager 11 Fred Klein Chief Financial Officer 8 Garth Branch Engineering Manager 13 Chris Lambert Water and Wastewater Division Manager 10 Stephanie Burd Gas Division Manager 2 54

59 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, 2018 SCHEDULE OF BONDS AND INTERST MATURITIES (JOINTLY ISSUED) (UNAUDITED) FYE Series 2011 Series 2013A Series 2013B June 30 Principal Interest Principal Interest Principal Interest Fixed 4.00%-5.00% Fixed 4.00%-5.00% Fixed 5.00% 2019 $ 3,740,000 $ 1,046,350 $ 375,000 $ 840,350 $ 2,855,000 $ 142, ,915, ,350 3,390, , ,090, ,600 3,565, , ,390, ,100 3,740, , ,150, ,600 1,625, , ,245, , , ,345, , , , , , , ,130, , ,210, , ,000 32, $ 22,875,000 $ 3,815,400 $ 17,835,000 $ 4,666,350 $ 2,855,000 $ 142,750 55

60 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, 2018 SCHEDULE OF BONDS AND INTERST MATURITIES (JOINTLY ISSUED) (UNAUDITED) FYE Series 2016 Series 2017 Totals June 30 Principal Interest Principal Interest Principal Interest Fixed 4.00%-5.00% Fixed 4.00%-5.00% 2019 $ 2,600,000 $ 4,027,250 $ - $ 2,466,500 $ 9,570,000 $ 8,523, ,055,000 3,923,250-2,466,500 10,360,000 8,070, ,205,000 3,770,500-2,466,500 10,860,000 7,552, ,005,000 3,610,250 3,090,000 2,466,500 11,225,000 7,009, ,890,000 3,460,000 7,245,000 2,312,000 14,910,000 6,448, ,030,000 3,315,500 8,980,000 1,949,750 15,255,000 5,734, ,185,000 3,164,000 9,345,000 1,500,750 15,875,000 5,004, ,345,000 3,004,750 1,575,000 1,033,500 4,920,000 4,243, ,510,000 2,837,500 1,655, ,750 5,165,000 3,997, ,685,000 2,662,000 1,735, ,000 5,420,000 3,739, ,870,000 2,477,750 1,820, ,250 5,690,000 3,468, ,065,000 2,284, ,250 6,195,000 3,184, ,270,000 2,081, ,250 6,480,000 2,895, ,480,000 1,867,500 1,375, ,250 6,655,000 2,593, ,980,000 1,643,500 2,160, ,500 5,140,000 2,269, ,130,000 1,494,500 2,270, ,500 5,400,000 2,012, ,285,000 1,338,000 2,380, ,000 5,665,000 1,742, ,450,000 1,173,750 2,475, ,800 5,925,000 1,482, ,625,000 1,001,250 2,575, ,800 6,200,000 1,211, ,805, ,000 2,670, ,800 6,475, , ,995, , ,995, , ,195, , ,195, , ,405, , ,405, ,250 $ 81,065,000 $ 51,236,500 $ 51,350,002 $ 23,529,152 $ 175,980,002 $ 83,390,152 56

61 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30,

62 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, GAS RATES Listed below are the gas rates per 100 cubic feet effective July 1, 2018 Residential Within the City of Clarksville Outside the City of Clarksville Monthly Meter Charge $ $ Usage Charge (per 100 cf) Commodity Charge (per 100 cf) Minimum Bill Connection Charge General Commercial and Industrial Within the City of Clarksville Outside the City of Clarksville Monthly Meter Charge $ $ Usage Charge (per 100 cf) Commodity Charge (per 100 cf) Minimum Bill Connection Charge High Load Factor Within the City of Clarksville Outside the City of Clarksville Monthly Meter Charge $ $ Usage Charge (per 100 cf) Commodity Charge (per 100 cf) Minimum Bill Connection Charge Number and Classification of Customers Residential 23,443 Commercial 3,397 Industrial 15 26,855 58

63 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, GAS SYSTEM CUSTOMER BASE AND USAGE 3. TEN LARGEST GAS SYSTEM CUSTOMERS Customer Annual Sales Percentage of Total Sales 1 FLORIM USA INC $ 3,922, % 2 HANKOOK TIRE MANUFACTURING TN LP 1,674, % 3 MW-MB LLC 1,587, % 4 AUSTIN PEAY STATE UNIV 758, % 5 BRIDGESTONE METALPHA USA 679, % 6 CLARKSVILLE MONT CO SCHOOL 420, % 7 POST ENGINEERS 337, % 8 TRANE COMPANY 336, % 9 MCASPHALT LLC 270, % 10 AKEBONO BRAKE, CLARKSVILLE PLANT 197, % Total Top Ten Customers 10,184, % Total Revenue from All Customers $ 25,347, % 4. OPERATING HISTORY OF GAS SYSTEM 59

64 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, WATER RATES Residential and Commercial Listed below are the water rates per 1,000 gallons which became effective August 9, 2008 Within the City of Clarksville Outside the City of Clarksville Per 1,000 gallons $ 3.54 $ 7.08 Meter Size Within the City of Clarksville Outside the City of Clarksville Meter Charge per Month Up to 3/4" $ 3.00 $ " /2" " " " " " " " or Larger Negotiated Negotiated Industrial Listed below are the water rates per 1,000 gallons which became effective January 1, 2018 Within the City of Clarksville Outside the City of Clarksville Per 1,000 gallons $ $ Number and Classification of Customers Residential 62,186 Commercial 4,627 Industrial 18 66,831 60

65 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, WATER SYSTEM CUSTOMER BASE AND USAGE Fiscal Year Number of Customers Gallons into System (Thousands) Gallons Sold (Thousands) Total Revenue ,831 6,231,924 4,563,711 21,203,861 Miles of Water Lines $ 1, ,016 5,972,127 4,434,313 20,591,676 1, ,390 5,733,450 4,290,239 19,882,495 1, ,026 5,846,072 4,395,497 20,115,617 1, ,666 5,692,170 4,186,288 18,948,359 1, TEN LARGEST WATER SYSTEM CUSTOMERS Customer Annual Sales Percentage of Total Sales 1 WOODLAWN UTILITY DISTRICT $ 1,200, % 2 AUSTIN PEAY STATE UNIV 335, % 3 BRIDGESTONE METALPHA USA 297, % 4 HANKOOK TIRE MANUFACTURING TN LP 296, % 5 MW-MB LLC 294, % 6 CLARKSVILLE MONT CO SCHOOL 237, % 7 AKEBONO BRAKE CLARKSVILLE PLANT 211, % 8 FLORIM USA INC 193, % 9 CLARKSVILLE HOUSING AUTHORITY 177, % 10 GATEWAY MEDICAL CENTER 167, % Total Top Ten Customers 3,411, % Total Revenue from All Customers $ 21,203, % 8. OPERATING HISTORY OF WATER SYSTEM 61

66 9. WASTEWATER RATES OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, 2018 Residential and Commercial Listed below are the wastewater rates per 1,000 gallons which became effective July 1, 2016 Within the City of Clarksville Outside the City of Clarksville First 2,000 gallons $ 8.07 $ All over 2,000 gallons Minimum bill per month based on 2,000 gallons Industrial Listed below are the sewer rates per 1,000 gallons which became effective January 1, 2018 Within the City of Clarksville Outside the City of Clarksville Fist 300,000 gallons $ $ Next 700,000 gallons Next 2,000,000 gallons All over 3,000,000 gallons Minimum bill per month based on 300,000 gallons Number and Classification of Customers Residential 54,897 Commercial 3,561 Industrial 9 58,467 62

67 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, WASTEWATER SYSTEM CUSTOMER BASE AND USAGE Fiscal Year Number of Customers Treated (Thousand Gallons) Total Revenue Miles of Sewer Lines ,467 4,790,500 $ 35,732, ,677 3,976,354 34,492, ,115 3,733,705 30,613, ,806 3,507,987 28,112, ,516 3,642,597 25,183, TEN LARGEST WASTEWATER SYSTEM CUSTOMERS Customer 12. OPERATING HISTORY OF WASTEWATER SYSTEM Annual Sales Percentage of Total Sales 1 AUSTIN PEAY STATE UNIV $ 514, % 2 CLARKSVILLE MONT CO SCHOOL 432, % 3 CLARKSVILLE HOUSING AUTHORITY 392, % 4 AKEBONO BRAKE CLARKSVILLE PLANT 360, % 5 HANKOOK TIRE MANUFACTURING TN LP 337, % 6 TRANE COMPANY 278, % 7 FREEMAN WEBB CLARKSVILLE NINE LLC 261, % 8 MW-MB LLC 239, % 9 GATEWAY MEDICAL CENTER 225, % 10 BRIDGESTONE METALPHA USA 172, % Total Top Ten Customers 3,215, % Total Revenue from All Customers $ 35,732, % 63

68 OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, HISTORICAL REVENUE COVERAGE- DEBT SERVICE REQUIREMENTS 14. BILLING AND COLLECTIONS Monthly bills for gas, water and sewer are calculated by the department. The data is then sent to a third party who prints and mails the invoices. Bills are due 20 days after the billing date. If a customer has not paid by the due date, a 10% penalty is applied. If a bill has not been paid 10 days after the bill is due, the customer's service is discontinued. Unpaid bills are sent to a collection agency and if the bill remains outstanding after 1 year, the balance is charged to allowance for doubtful accounts. Amounts charged to Allowance for Doubtful Accounts Fiscal Year Amount 2018 $ 122, , , , ,149 64

69 15. CAPITAL IMPROVEMENT PROGRAM OTHER SUPLEMENTARY INFORMATION (UNAUDITED) JUNE 30, 2018 Fiscal Year Proposed Water Projects Amount 2019 $ 12,225, ,833, ,453, ,967, ,923,000 Total $ 122,401,000 Fiscal Year Proposed Wastewater Projects Amount 2019 $ 10,385, ,105, ,275, ,150, ,000,000 Total $ 36,915,000 Fiscal Year Proposed Gas Projects Amount 2019 $ 3,549, ,365, ,650, ,650, ,650,000 Total $ 10,864,000 65

70 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Utility Committee Clarksville Gas, Water & Wastewater Clarksville, Tennessee 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 Gas, Water and Wastewater Departments (collectively, the Departments ), propriety funds of the City of Clarksville, Tennessee, as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Departments basic financial statements, and have issued our report thereon dated December 7, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Departments internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Departments internal control. Accordingly, we do not express an opinion on the effectiveness of the Departments internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 65