813 financings. $10.1 billion in new money capital projects, supporting more 5,000 jobs than on average annually in the Badger State.

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2 813 financings Since its creation in 1979, WHEFA has completed $24 billion totaling more than and representing more than $10.1 billion in new money capital projects, supporting more 5,000 jobs than on average annually in the Badger State.

3 Executive Director s Letter On behalf of the Members and staff of the Wisconsin Health and Educational Facilities Authority (WHEFA), I am pleased to present this Annual Report of WHEFA activity for our fiscal year ending June 30, 2016 (FY2016). One of the joys of preparing an annual report is that it gives us the opportunity to look back and highlight the many accomplishments for the past year. This report is a true testament to the wonderful work we are doing on behalf of the non-profit organizations in Wisconsin. Thank you for taking the time to review the pages in our Annual Report. During FY2016, WHEFA completed 23 tax-exempt bond financings totaling more than $1.90 billion on behalf of various Wisconsin non-profit institutions (including certain of their out-of-state affiliates). In total, 18 different non-profit borrowers benefited from the issuance of tax-exempt bonds by WHEFA. We take great pride in the wide diversity of borrowers (both in size and type) that we served this past fiscal year. The list of borrowers included four long-term care facilities, four multi-site acute care facilities, three single-site acute care facilities, four educational facilities and three other facilities. It was a pleasure working with so many amazing institutions over the course of the year and we truly appreciate the trust and confidence these institutions placed in our services. Despite our successful activity fulfilling our mission in FY2016, we are not spending FY2017 looking back at what we have accomplished. Rather, WHEFA will continue to look forward, assisting all eligible borrowers with their capital financing and refinancing needs. Please do not hesitate to call if we can be of assistance or simply answer a question. Kindest regards, Dennis P. Reilly Executive Director We appreciate all the hard work of the Wisconsin Health and Educational Facilities Authority. They continue to promote economic development in Wisconsin while actively improving the overall quality of life for Wisconsin citizens. - Governor Scott Walker

4 Contents Mission & Vision Statements... 2 Location of WHEFA Borrowers WHEFA Charts of WHEFA Activity WHEFA Members, Staff and Consultants Independent Auditors Report... On Website The Year in Review Financial Statements... On Website Mission Statement The Wisconsin Health and Educational Facilities Authority ( WHEFA ) assists all eligible Wisconsin non-profit institutions to obtain and maintain access to tax-exempt financing in order to finance or refinance their capital improvement and expansion needs. Vision Statement WHEFA will fulfill its mission by providing prompt, user-friendly services including communication, education, and advocacy directed towards borrowers, lenders, government, the public, trade associations, and financing team participants. WHEFA s ability to be successful is dependent on effective Member leadership and a staff that can provide operational excellence. This success requires Members and staff to be well informed about the industries served and to stay abreast of financing needs and options. Regardless of whether or not WHEFA is involved in the ultimate issuance of bonds, WHEFA will be a resource to be used by Wisconsin non-profit institutions when researching and evaluating various financing options. WHEFA WHEFA, created by the Legislature in 1973 (Chapter 231, Wisconsin Statutes), has been providing active capital financing assistance to Wisconsin non-profit health care institutions since Over the years, the Wisconsin legislature has expanded the types of non-profit entities eligible for WHEFA financing assistance from just hospitals and other health care entities, to also include independent colleges and universities, certain continuing care facilities, private elementary and secondary schools, research facilities, and community rehabilitation providers. In July 2013, WHEFA s charter was permanently expanded to permit all Wisconsin 501(c)(3) nonprofit organizations access to WHEFA s low-cost capital financing. Funds for each project financed by WHEFA are obtained through the sale of revenue bonds of WHEFA. Bonds are sold to institutional lenders in direct placement transactions and to individual and institutional investors in public offerings. Bond sale proceeds are loaned by WHEFA to the borrowing institution or project sponsor. No state or other public funds are used. WHEFA s bonds are payable solely out of loan repayments from the borrowing institution, sponsor or guarantor. They are not a debt, liability, or moral obligation of the State of Wisconsin or any of its political subdivisions. WHEFA has no taxing power. 2 WHEFA 2016 Annual Report

5 WHEFA (continued) The credit supporting any WHEFA bond issue is the credit of the borrowing institution involved. The availability of financing and its terms and conditions depends in each case upon the credit-worthiness of each borrower. Interest paid on WHEFA bonds is exempt from federal income taxation, resulting in materially lower financing costs to the borrowing institution. Interest on bonds issued by WHEFA is not exempt from present Wisconsin income taxation, with limited exception, or unless such exemption is already available on bonds eligible to be issued for the same purpose through another Wisconsin conduit issuer. WHEFA Members James Dietsche, Chairperson Mr. Dietsche, a resident of DePere, Wisconsin, is Chief Financial Officer at Bellin Health, Green Bay. Mr. Dietsche was appointed as a Member in His current term expires June 30, Tim Size, Vice-Chairperson Mr. Size, a resident of Madison, Wisconsin, is the Executive Director at the Rural Wisconsin Health Cooperative, Sauk City. Mr. Size was appointed as a Member in His current term expires June 30, Kevin Flaherty, Member Mr. Flaherty, a resident of Milwaukee, Wisconsin, is Vice President/Relationship Manager in the Asset-Backed Lending Division of Associated Bank, NA, Milwaukee. Mr. Flaherty was appointed as a Member in His current term expires June 30, Paul Mathews, Member Mr. Mathews, a resident of Milwaukee, Wisconsin, is the President and CEO at the Marcus Center for the Performing Arts, Milwaukee. Mr. Mathews was appointed as a Member in His term expires June 30, Jim Oppermann, Member Mr. Oppermann, a resident of Brookfield, Wisconsin, is the Senior Vice President for Business and Management at Alverno College, Milwaukee. Mr. Oppermann was appointed as a Member in His current term expires June 30, 2023 and he is serving pending Wisconsin State Senate confirmation. Pamela Stanick, Member Ms. Stanick, a resident of Brookfield, Wisconsin, is the Controller at The Medical College of Wisconsin, Inc., Milwaukee. Ms. Stanick was appointed as a Member in Her current term expires June 30, 2022 and she is serving pending Wisconsin State Senate confirmation. Robert VanMeeteren, Member Mr. VanMeeteren, a resident of Reedsburg, Wisconsin, is President/CEO of Reedsburg Area Medical Center, Reedsburg. Mr. VanMeeteren was appointed as a Member in His current term expires June 30, WHEFA 2016 Annual Report 3

6 WHEFA Staff Dennis P. Reilly, Executive Director Mr. Reilly has been the Executive Director at WHEFA since October He began his career with WHEFA in 1996 and previously served as the Associate Executive Director. Mr. Reilly has been a member of the staff for 20 years. Tanya L. Coppersmith, Manager of Operations & Finance Ms. Coppersmith has been the Manager of Operations and Finance at WHEFA since She began her career with WHEFA in 1987 and previously served as the Operations and Finance Analyst. Ms. Coppersmith has been a member of the staff for 29 years. Tatiana M. Graver, Manager of Finance Ms. Graver has been the Manager of Finance at WHEFA since August Ms. Graver has been a member of the staff for four years. Stephanie L. Schirripa, Executive Assistant Ms. Schirripa has been the Executive Assistant at WHEFA since May She began her career with WHEFA in 2002 and previously served as the Senior Administrative Assistant. Ms. Schirripa has been a member of the staff for 14 years. WHEFA Consultants Quarles & Brady LLP General Counsel Quarles & Brady LLP has been General Counsel to WHEFA since Schenck SC Independent Auditors Schenck SC has been Independent Auditors to WHEFA since WHEFA 2016 Annual Report

7 The Year In Review WHEFA is pleased to submit its report on activities for its fiscal year 2016 (July 1, 2015 through June 30, 2016) represents WHEFA s 37th year of fulfilling its mission of assisting all eligible Wisconsin non-profit institutions to obtain and maintain access to tax-exempt financing in order to finance or refinance their capital improvement and expansion needs. During fiscal year 2016, 23 financings totaling $1,908,534,802 were successfully completed. As of June 30, 2016, WHEFA has cumulatively completed 813 financings totaling over $24 billion. Financing highlights for the fiscal year ending June 30, 2016 include: $792,241,191 (42%) was issued for new capital projects. $1,116,293,611 (58%) was issued for refinancing existing debt. 4 public placements totaling $1,219,215, private placements totaling $689,319, financings totaling $682,763,361 had a variable or reset interest rate. 5 financings totaling $1,225,771,441 had a fixed interest rate. 10 financings for new capital only. 9 financings for refinancing only. 4 financings for both refinancing and new capital. 3 financings totaling $256,575,361 were issued for the following first time borrowers: Milwaukee Regional Medical Center Thermal Service (Wauwatosa) REF Bridgeway Commons (Platteville) Society of St. Vincent de Paul Waukesha County (Waukesha, Oconomowoc) 18 different borrowers benefited from the bond proceeds during fiscal year 2016, including: 4 Long-Term Care Facilities: Bethany Lutheran Homes EastCastle Place New Glarus Home Saint John s Communities x 2 4 Multi-Site Acute Care Facilities: Ascension Beloit Health System Gundersen Lutheran x 2 UnityPoint Health 4 Educational Facilities: Indian Community School of Milwaukee Ripon College x 2 St. Norbert College x 2 The Medical College of Wisconsin 3 Single-Site Acute Care Facilities: Bay Area Medical Center x 2 Reedsburg Area Medical Center Stoughton Hospital Association 3 Other Facilities: Milwaukee Regional Medical Center Thermal Service REF Bridgeway Commons Society of St. Vincent de Paul Waukesha County WHEFA 2016 Annual Report 5

8 Individual Bond Issues for the Fiscal Year Ending June 30, 2016 $13,345,000 St. Norbert College Close Date: August 18, 2015 This tax-exempt refinancing resulted in lower annual costs for our College, ultimately assisting as we continue to address the affordability of a college education. As always, we appreciate all of the assistance we received from Dennis, Tatiana and the entire WHEFA staff, who provided professional assistance from the very beginning inquiries to the final successful refinancing. - Eileen Jahnke, CFO and VP Finance St. Norbert College St. Norbert College employs approximately 500 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help St. Norbert College refinance bonds previously issued by WHEFA in $22,738,000 Eastcastle Place Close Date: September 3, 2015 Our unique situation of maintaining and expanding a building founded in 1884 required a forward thinking organization such as WHEFA to guide us through our tax-exempt refinancing. With this support we can continue our mission of fostering active and fulfilling lifestyles of the elderly. We can now look forward to build partnerships to empower both staff and residents to live life to their fullest abilities. - Marge Gozdowiak, Executive Director Eastcastle Place, Inc. Eastcastle Place employs approximately 160 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help Eastcastle Place refinance bonds previously issued by WHEFA in 2004 and finance costs associated with certain capital improvements, including renovating and upgrading the fourth and fifth floors of Bradford Terrace. The net present value savings following the refinancing of the prior bonds was approximately $4.84 million. 6 WHEFA 2016 Annual Report

9 The Year In Review $10,000,000 (continued) Stoughton Hospital Association WHEFA partnered with us every step of the way in delivering a cost-effective financing plan supporting our mission of Trusted Care. Close to Home. It was a pleasure working with the experienced, customer focused WHEFA team. - Karen M. Myers, Senior VP Financial Services / CFO Stoughton Hospital Association Close Date: September 10, 2015 This project will create 2 permanent jobs with an annual payroll of $80,000, as well as 100 construction jobs. 43 jobs will be retained with an annual payroll of $2,355,000. Stoughton Hospital employs approximately 245 full-time equivalents in Wisconsin Bond financing facilitated by WHEFA will be used to help Stoughton Hospital Association finance the renovation, expansion and equipping of the emergency room, urgent care area, day surgery area, lab and certain other capital improvements at the hospital. $23,165,000 Ripon College Higher education must continue to find ways to operate more efficiently and with WHEFA s assistance, Ripon College was able to significantly lower its annual financing costs by refinancing its tax-exempt debt. These savings will allow the College to invest additional resources to further enhance the quality of the Ripon experience. Dennis, Tatiana, and the WHEFA staff provided a wealth of information and advice from the very beginning of the process to the successful completion of the refinancing. - Thomas Ponto, Vice President for Finance Ripon College Close Date: September 25, 2015 Ripon College employs approximately 204 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help Ripon College refinance bonds previously issued by WHEFA in WHEFA 2016 Annual Report 7

10 The Year In Review (continued) $6,556,441 Reedsburg Area Medical Center Close Date: November 10, 2015 Working with WHEFA for this tax-exempt refinancing has been very beneficial to Reedsburg Area Medical Center. We were able to save over $1 million dollars. Those savings are very important for our small and independent hospital in a time when fiscal resources are extremely constricted. As we look to the future, we look forward to working again with WHEFA for tax-exempt financing projects. - Robert Van Meeteren, President Reedsburg Area Medical Center, Inc. Reedsburg Area Medical Center employs approximately 400 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help Reedsburg Area Medical Center refinance bonds previously issued by WHEFA in The net present value savings following the refinancing of the prior bonds was approximately $1.17 million. $14,000,000 Bethany Lutheran Homes Close Date: November 20, 2015 Bond financing through WHEFA is a vital part of our organization s strategic planning process. The tax savings are passed directly on to those we serve in the community, making our senior living options affordable to a wide range of income levels. Kudos to the State of Wisconsin and WHEFA for providing this capital financing option. - Todd D. Wilson, Chief Executive Officer Bethany Lutheran Homes, Inc. Bethany Lutheran Homes employs approximately 300 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help Bethany Lutheran Homes refinance bonds previously issued in 2007 on behalf of Eagle Crest North, a senior housing community in Onalaska, Wisconsin. The net present value savings following the refinancing of the prior bonds was approximately $3.1 million. 8 WHEFA 2016 Annual Report

11 The Year In Review (continued) $63,000,000 Indian Community School of Milwaukee Close Date: December 1, 2015 Through this tax-exempt financing, WHEFA has helped Indian Community School meet our goal of providing outstanding educational opportunities for Milwaukee area Native American youth. The staff at WHEFA were very supportive throughout the entire financing process, working closely with us to address our school s specific needs and circumstances. - Thomas Oechler, Chief Financial Officer Indian Community School of Milwaukee, Inc. Indian Community School employs approximately 81 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help Indian Community School of Milwaukee refinance bonds previously issued by WHEFA in 2006 and $45,695,000 Saint John s Communities Close Date: December 8, 2015 WHEFA is a partner we know we can count on. Founded in 1868, Saint John s has a long history of service to older adults in Milwaukee. Cost effective capital coupled with the experienced, knowledgeable WHEFA team gives us peace of mind allowing us to continue to focus on our mission of enriching lives. - Renee Anderson, President Saint John s Communities, Inc. Saint John s Communities employs approximately 155 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help Saint John s Communities refinance bonds previously issued by WHEFA in The net present value savings following the refinancing of the prior bonds was approximately $8.7 million. Proceeds of the bond financing will also be used to finance certain capital renovation projects to existing facilities. WHEFA 2016 Annual Report 9

12 The Year In Review (continued) $25,734,482 REF Bridgeway Commons Close Date: December 16, 2015 The Real Estate Foundation is grateful to all the members of our team that made this financing possible. This Public Private Partnership allows us to provide a quality facility that is affordable for the students at UW-Platteville. The students can have the full benefit of an on campus public building operated by the University while the debt remains with the private non-profit Real Estate Foundation. - Bill Kloster, Executive Director UW Platteville Real Estate Foundation, Inc. This Public Private Partnership between the State of Wisconsin / UW-System and the Real Estate Foundation, provides the nearly 8,000 students at UW-Platteville a new campus dining facility and 440 quality and affordable, on campus, living spaces. The facility provides over 70 full-time and student jobs. Bond financing facilitated by WHEFA was used to help REF Bridgeway Commons, LLC refinance an interim taxable loan, the proceeds of which were used to finance the acquisition, construction and equipping of Bridgeway Commons, a 110 unit/440 bed student residence and dining facility of approximately 172,000 square feet located on the University of Wisconsin - Platteville campus and completed in August $85,600,000 Bay Area Medical Center Close Date: December 17, 2015 Although we will be paying for a substantial part of this project with Bay Area Medical Center cash reserves and dollars invested in BAMC by Aurora Health Care, our ability to obtain tax-exempt financing through WHEFA offers us substantial benefits. The competitive interest rates and terms of the bonds will give us the ability to meet key conditions our board set for this project, including scope, cost and ability to meet our debt obligations moving forward. The cost of issuing the bonds was also a very attractive element of this financing. - Ed Harding, President and CEO Bay Area Medical Center, Inc. This project will create 25 permanent jobs with an annual payroll of $1.3 million, as well as 600 construction jobs. 680 total jobs will be retained with an annual payroll of $49.5 million. Bay Area Medical Center employs approximately 606 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA will help finance the acquisition, construction, remodeling, renovation and equipping of a replacement hospital and medical clinic facilities on an approximately 90-acre parcel in the Town of Peshtigo, Wisconsin. 10 WHEFA 2016 Annual Report

13 The Year In Review (continued) $12,000,000 Gundersen Clinic Close Date: December 23, 2015 Our intent in obtaining financing for this project was to utilize a number of local financial institutions to obtain tax-exempt financing. The goal was to make this a community project in as many ways as possible. WHEFA was totally instrumental in facilitating the financing and allowing us to achieve this goal. - Don Brueggen, Director, Treasury Gundersen Health System, Inc. This project will create 12 permanent jobs with an annual payroll of $850, total jobs will be retained with an annual payroll of $3.6 million. Gundersen Health System, Inc. employs approximately 4,700 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA will help Gundersen Clinic, Ltd. finance the acquisition, construction and equipping of an approximately 35,000 square foot replacement medical clinic located in Sparta, Wisconsin. $40,000,000 Gundersen Lutheran Administrative Services Close Date: February 12, 2016 WHEFA was again instrumental in helping Gundersen with its tax-exempt financing needs. In our current refinancing, Gundersen was able to secure a longer term commitment at a lower interest rate. This type of financing facility allows Gundersen to provide a more financially secure environment, at lower costs for our patients. - Don Brueggen, Director, Treasury Gundersen Health System, Inc. Gundersen Health System, Inc. employs approximately 4,700 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help Gundersen Lutheran Administrative Services, Inc. refinance bonds previously issued by WHEFA in WHEFA 2016 Annual Report 11

14 The Year In Review $4,440,879 Society of St. Vincent de Paul of Waukesha County The ability to use a tax-exempt bond to refinance some existing debt has been extremely cost effective and provides us with a stable form of debt, allowing us to focus on our mission of loving God and helping others. - Bill James, Director of Store Development Society of St. Vincent de Paul of Waukesha County, Inc. (continued) Close Date: March 31, 2016 The Council operates two thrift stores and a ministry for attending to the needs of inmates in Waukesha County. The Council employs approximately 47 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help Society of St. Vincent de Paul of Waukesha County, Inc. refinance interim taxable loans, the proceeds of which financed the costs associated with the acquisition of two donated goods collection facilities and resale facilities located in Waukesha and Oconomowoc, Wisconsin. $226,400,000 Milwaukee Regional Medical Center Thermal Service Access to lower cost tax-exempt financing through WHEFA allowed Thermal to acquire the Milwaukee County Power Plant and will allow Thermal to make improvements to the facilities, equipment and distribution system. These improvements will modernize the 60-year-old plant, reduce emissions, improve reliability and create capacity for future growth while minimizing utility cost increases to the healthcare facilities served by it. Close Date: April 21, 2016 This project will create 23 permanent jobs. - Robert W. Mlynarek, Vice President of Finance Milwaukee Regional Medical Center Bond financing facilitated by WHEFA will be used to help Milwaukee Regional Medical Center Thermal Service, Inc. finance the acquisition of an existing steam and chilled water facility and distribution system that provides heating and cooling services to the Milwaukee Regional Medical Center campus. The project also includes the replacement of coal fired boilers with gas fired boilers and improvements to the power plant and distribution system will also be made. 12 WHEFA 2016 Annual Report

15 The Year In Review (continued) $12,840,000 New Glarus Home Close Date: April 27, 2016 This project will allow us to carry out our mission in a fashion that is consistent with the needs and expectations of our customers. We feel blessed to be able to contribute not only the services that will enhance the lives of our current and future residents, but to also create additional employment opportunities for our community and Green County. - Erin Francois, Chief Executive Officer / Executive Director New Glarus Home, Inc. This project will create approximately 25 permanent jobs with an annual payroll of $1,300,000, as well as approximately 100 construction jobs. 175 jobs will be retained with an estimated annual payroll of $5,500,000. New Glarus Home currently employs 116 full-time equivalents. Bond financing facilitated by WHEFA will be used to help New Glarus Home, Inc. finance the renovation, remodeling and expansion of the existing 97-bed skilled nursing facility to add an approximately 38,000 square foot addition for updated resident rooms, physical therapy and rehabilitation services. $1,019,750,000 Ascension Senior Credit Group Close Date: May 11, 2016 Bond financing facilitated by WHEFA will be used to help Ascension finance capital expenditures and refinance outstanding indebtedness in the States of Wisconsin, Indiana, Tennessee and Texas. The net present value savings following the refinancing of the prior bonds was approximately $133.2 million. Projects in Wisconsin include Ministry Health Care and Wheaton Franciscan Healthcare facilities. Ministry Health Care projects include the construction of the Fremont Tower and other improvements at Ministry s St. Elizabeth s Hospital in Appleton, Wisconsin, as well as capital expenditures at Calumet Medical Center in Chilton, Wisconsin, at Saint Mary s Hospital in Rhinelander, Wisconsin, and at Saint Michael s Hospital in Stevens Point, Wisconsin. Wheaton Franciscan Healthcare projects include financing a portion of the construction of a cancer clinic at All Saints, Inc. in Racine, Wisconsin and renovations related to sterile processing at St. Francis, Inc. in Milwaukee, Wisconsin. WHEFA 2016 Annual Report 13

16 The Year In Review (continued) $157,805,000 The Medical College of Wisconsin Close Date: May 11, 2016 The ability to issue tax-exempt debt through WHEFA is important to MCW. This issuance allows MCW to expand our academic facilities and further our missions, while reducing the overall cost of capital. It is always a pleasure working with the WHEFA team and I appreciate the support and expertise they provided for this financing. - Pamela J. Stanick, Controller Medical College of Wisconsin, Inc. This project will create between construction jobs. The Medical College employs approximately 5,000 full-time equivalents. Bond financing facilitated by WHEFA will be used to help The Medical College of Wisconsin finance the construction and equipping of an approximately 240,000 square foot professional office building, the renovation and equipping of existing facilities to integrate the office building and to accommodate the operations of a new school of pharmacy, as well as other improvements to existing facilities for educational, health and research programs. Proceeds of the bond financing were also used to refinance bonds previously issued by WHEFA in The net present value savings following the refinancing of the prior bonds was approximately $8.8 million. $16,465,000 Beloit Health System Close Date: May 25, 2016 This project will create 24 permanent jobs with an annual payroll of $2,601,000, as well as 41 construction jobs. 51 jobs will be retained with an annual payroll of $6,173,000. Beloit Health System employs 1,370 full-time equivalents. Bond financing facilitated by WHEFA will help finance the renovation of Beloit Health System s hospital in Beloit, Wisconsin, including renovations for cardiac services, catheterization laboratories, and additional ICU rooms, together with other improvements to existing facilities in Beloit and Janesville, Wisconsin. Proceeds of the bond financing will also be used to construct an ambulatory surgical treatment center on Beloit Health System s existing NorthPointe campus in Roscoe, Illinois approximately seven miles south of Beloit, Wisconsin. The center will include an addition of 19,147 square feet for two operating rooms and two procedure rooms and other general capital expenditures. 14 WHEFA 2016 Annual Report

17 The Year In Review $85,000,000 UnityPoint Health (continued) Close Date: June 8, 2016 UnityPoint Health is again happy to partner with WHEFA for our Wisconsin financing needs. The staff and Board work very hard to ensure a smooth and timely transaction process which helps us meet our financing needs in order to allow us to focus on the most important aspect of what we do, provide the best patient care possible in our efforts to achieve our vision of Best outcome for every patient every time. - Matthew Kirschner, Vice President, Treasury UnityPoint Health UnityPoint Health employs 31,000 people system-wide, and approximately 3,000 people in Wisconsin. Bond financing facilitated by WHEFA was used to help refinance bonds previously issued by WHEFA in $24,000,000 St. Norbert College This facility will fulfill needs of the college s students, especially student athletes, employees and the local community. The ability to finance this project on a tax-exempt basis will lower annual costs and ultimately assist in addressing the affordability of a college education. We appreciate the professional assistance provided by Dennis, Tatiana and the entire WHEFA staff in making this a successful financing process. - Eileen Jahnke, CFO and VP for Business and Finance St. Norbert College Close Date: June 9, 2016 This project will create 2 permanent jobs with an annual payroll of $100,000, as well as 60 construction jobs. 32 total jobs will be retained with an annual payroll of $1.5 million. St. Norbert College employs approximately 549 full-time equivalents in Wisconsin. Bond financing facilitated by WHEFA was used to help St. Norbert College finance the expansion of its current athletic facility from 53,000 square feet to approximately 130,000 square feet. The expanded and renovated athletic facility will house an upgraded fitness center and gymnasium, offices for athletics staff, and a competition-grade swimming pool and diving area. All of the College s health and wellness-related activities, including counseling, will be incorporated into the new center. WHEFA 2016 Annual Report 15

18 WHEFA is proud to have been able to assist these borrowers by reducing their overall debt service and allowing them to grow and compete by providing access to low-cost capital. 16 WHEFA 2016 Annual Report

19 Wisconsin Locations of WHEFA Borrowers Fiscal Year 2016 (07/01/15 06/30/16) 1. EastCastle Place (Milwaukee) 2. Saint John s Communities (Milwaukee) The Medical College of Wisconsin (Milwaukee) 4. Indian Community School of Milwaukee (Franklin) Eau Claire 6 6 Wausau Milwaukee Regional Medical Center Thermal Service (Wauwatosa) 6. Ascension (Appleton, Brookfield, Brown Deer, Chilton, Eagle River, Franklin, Glendale, Marshfield, Mequon, Milwaukee, Oshkosh, Pewaukee, Rhinelander, Stanley, Stevens Point, Sturgeon Bay, Tomahawk, Wauwatosa, Weston & Woodruff) 7. Society of St. Vincent de Paul Waukesha County (Oconomowoc & Waukesha) 6 6 Green Bay Ripon College (Ripon) 9. St. Norbert College (De Pere) 10. Bay Area Medical Center (Peshtigo) 11. Bethany Lutheran Homes (Onalaska) Gundersen Lutheran (La Crosse & Sparta) La Crosse Reedsburg Area Medical Center (Reedsburg) 14. New Glarus Home (New Glarus) Stoughton Hospital Association (Stoughton) 18 Madison Milwaukee UnityPoint Health (DeForest, Fitchburg, Madison, Monona, Stoughton & Sun Prairie) 17. Beloit Health System (Beloit, Janesville) 18. REF Bridgeway Commons (Platteville) WHEFA 2016 Annual Report 17

20 Credit Structure Fiscal Year Activity Number of Issues Dollars Issued Rated Unrated Total Fiscal # Fiscal $ $1,219,215,000 $689,319,802 $1,908,534,802 Credit Structure - Total WHEFA Activity Number of Issues Dollars Issued Enhanced Rated Unrated Total Total Activity - # Total Activity - $ $9,957,321,000 $9,421,559,430 $4,695,893,511 $24,074,773, WHEFA 2016 Annual Report

21 Borrower Type Fiscal Year Activity Number of Issues Dollars Issued Acute Care Long-Term Care Other Education Total Fiscal # Fiscal $ $1,212,825,941 $95,273,000 $256,575,361 $343,860,500 $1,908,534,802 Borrower Type - Total WHEFA Activity Number of Issues Dollars Issued Acute Care Long-Term Care Other Education Total Total Activity - # Total Activity - $ $18,225,697,920 $2,433,885,467 $1,138,796,361 $2,276,394,193 $24,074,773,941 WHEFA 2016 Annual Report 19

22 Use of Bond Proceeds Fiscal Year Activity Number of Issues Dollars Issued Refinancing New Money Total Fiscal # Fiscal $ $1,116,293,611 $792,241,191 $1,908,534,802 Use of Bond Proceeds - Total WHEFA Activity Number of Issues Dollars Issued Refinancing New Money Total Total Activity - # Total Activity - $ $11,027,843,718 $13,046,930,223 $24,074,773, WHEFA 2016 Annual Report

23 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2016 AND 2015

24 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY CONTENTS Page INDEPENDENT AUDITORS' REPORT FINANCIAL STATEMENTS Statements of Net Position... 4 Statements of Revenues, Expenses and Changes in Net Position... 5 Statements of Cash Flows... 6 Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Authority s Proportionate Share of the Net Pension Asset Wisconsin Retirement System Schedule of Authority Contributions Wisconsin Retirement System INDEPENDENT AUDITORS 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

25 INDEPENDENT AUDITORS REPORT ON FINANCIAL STATEMENTS To the Board Members of the Wisconsin Health and Educational Facilities Authority Brookfield, Wisconsin Report on the Financial Statements We have audited the accompanying financial statements of the Wisconsin Health and Educational Facilities Authority ("the Authority") which comprise the Statements of Net Position as of June 30, 2016 and 2015, and the related Statements of Revenues, Expenses and Changes in Net Position and Cash Flows for the years then ended and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Authority 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 Authority 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. schencksc.com Schenck SC

26 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Wisconsin Health and Educational Facilities Authority as of June 30, 2016 and 2015, and the changes in its net position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 2, the Authority implemented GASB Statement No. 72, Fair Value Measurement and Application. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Management has omitted the management s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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. Our opinion on the basic financial statements is not affected by this missing information. Accounting principles generally accepted in the United States of America require that the schedules relating to pensions and other post-employment benefits on pages 20 and 21 be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 27, 2016 on our consideration of Wisconsin Health and Educational Facilities Authority s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. 2

27 That report. is an integral part of an audit performed in accordance with GovernmentAuditing Standards in considering the Wisconsin Health and Educational Facilities Authority's internal confirol over financial reporting and compliance. Certified Public Accountants Milwaukee, Wisconsin December 27,

28 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY STATEMENTS OF NET POSITION June 30, 2016 and 2015 ASSETS Current assets Cash and cash equivalents $ 135,429 $ 125,522 Investment securities 2,086,861 2,194,590 Accrued annual fees 224, ,984 Receivables and other assets 24,220 22,348 Total current assets 2,470,525 2,597,444 Other assets Net pension asset - 52,053 Property and equipment Office furniture, equipment and leasehold improvements 104, ,116 Less accumulated depreciation 51,104 96,474 Net property and equipment 52,908 28,642 Total assets 2,523,433 2,678,139 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pension 193,944 62,507 LIABILITIES Current liabilities Accounts payable 9,975 20,484 Accrued expenses 69,258 55,422 Total current liabilites 79,233 75,906 Long-term liabilities Net pension liability 33,444 - Total liabilities 112,677 75,906 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pension 70,382 - NET POSITION Net Position Net Investment in capital assets 52,908 28,642 Unrestricted 2,481,410 2,636,098 Total net position $ 2,534,318 $ 2,664,740 See accompanying notes to financial statements. 4

29 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Years Ended June 30, 2016 and Operating revenues Annual fees $ 586,333 $ 603,870 Operating expenses Salaries and benefits 521, ,617 Professional fees 64,786 67,254 Board expense 3,146 4,956 Rent 49,977 59,299 Insurance 17,620 18,931 Supplies 15,867 22,581 Telephone 9,558 7,714 Travel 16,058 17,083 Membership dues 6,639 6,629 Hosted seminars 13,756 11,511 Staff education/training 4,445 4,560 Sponsorships 21,200 20,200 Depreciation 13,457 14,247 Other 13,891 12,172 Total operating expenses 771, ,754 Operating loss (185,625) (128,884) Nonoperating income (expense) Interest 33,789 32,947 Net realized investment loss (7,850) (9,047) Net unrealized investment gain 26,077 7,348 Miscellaneous income 3,187 - Net nonoperating income 55,203 31,248 Change in net position (130,422) (97,636) Net position, beginning of year 2,664,740 2,762,376 Net position, end of year $ 2,534,318 $ 2,664,740 See accompanying notes to financial statements. 5

30 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY STATEMENTS OF CASH FLOWS Years Ended June 30, 2016 and Cash flows from operating activities Cash received from customers $ 615,430 $ 602,365 Cash paid to vendors and employees (730,732) (721,182) Net cash used in operating activities (115,302) (118,817) Cash flows from capital and related financing activities Purchases of property and equipment (55,037) (1,489) Proceeds from sale of property and equipment 22,500 - Net cash used in capital and related financing activities (32,537) (1,489) Cash flows from investing activities Purchases of investment securities (757,399) (1,066,777) Proceeds from sales and maturities of investment securities 881,356 1,007,451 Interest received 33,789 32,947 Net cash provided by (used in) investing activities 157,746 (26,379) Net increase (decrease) in cash and cash equivalents 9,907 (146,685) Cash and cash equivalents, beginning of year 125, ,207 Cash and cash equivalents, end of year $ 135,429 $ 125,522 Reconciliation of operating loss to net cash used in operating activities Operating loss $ (185,625) $ (128,884) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 13,457 14,247 Net pension asset (liability) 24,442 (937) Increase (decrease) in operating assets: Accrued annual fees 30,969 (3,810) Receivables and other assets (1,872) 2,305 (Increase) decrease in operating liabilities: Accounts payable (10,509) (6,303) Accrued expenses 13,836 4,565 Total adjustments 70,323 10,067 Net cash used in operating activities $ (115,302) $ (118,817) See accompanying notes to the financial statements. 6

31 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: Wisconsin Health and Educational Facilities Authority (Authority) is a public body politic and corporate of the State of Wisconsin created and existing under Chapter 231 of the Wisconsin Statutes. The Authority consists of seven members (the Members), appointed by the governor, with the advice and consent of the state senate. The Authority is not considered a component unit of the State of Wisconsin for purposes of the state's Comprehensive Annual Financial Report. The financial statements of the Authority have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The purpose of the Authority is to facilitate financing for capital expenditures and refinancing of indebtedness for qualified Wisconsin not-for-profit institutions through the issuance of tax-exempt debt instruments. The Authority issues federal tax-exempt instruments (bonds, notes, or other obligations), which do not constitute a debt of the State of Wisconsin or any political subdivision. These debt instruments are limited obligations of the Authority, payable solely from payments made by the related borrowing institutions and related assets held by trustees. The Authority has no general liability with respect to these obligations and has no beneficial interest in the related assets held by trustees. Therefore, the Authority has excluded these obligations, and the related assets held by trustees, from the financial statements (see Notes 5 and 6). Cash and cash equivalents: The Authority considers all highly liquid debt instruments purchased with maturities less than 90 days to be cash equivalents. Investment securities: Investments in securities are carried at fair value. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Purchases and sales of securities are recorded as of the transaction date. Gains or losses on sales of securities are recognized using the specific identification method. Office furniture, equipment and leasehold improvements: Office furniture, equipment and leasehold improvements are carried at cost. Maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Depreciation is computed using the straight-line method. The estimated useful lives of office furniture, equipment and leasehold improvements are three to seven years. Depreciation expense for the years ended June 30, 2016 and 2015 was $13,457 and $14,247, respectively. Deferred Outflows of Resources: In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. The Authority has one item that qualifies for reporting in this category. 7

32 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) This item is related to the Authority s proportionate share of the Wisconsin Retirement System pension plan and is deferred and amortized over the expected remaining service lives of the pension plan participants. Deferred Inflows of Resources: In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The Authority currently does not have any items that qualify for reporting in this category. Accrued annual fees: The Authority considers accrued annual fees to be fully collectible; accordingly, no allowance is required. If amounts become uncollectible, they will be charged to operations when that determination is made. Operating revenue annual fees: Revenues consist primarily of annual fees charged to borrowing institutions. Revenues are recognized when earned. The fee charged to borrowing institutions for the years ended June 30, 2016 and 2015 was of a basis point on the amount of bonds outstanding at the end of the year. Income tax status: The Authority is considered a quasi-governmental entity under Chapter 231 of the Wisconsin statutes and therefore is exempt from federal and state income taxes. Basis of presentation: Financial transactions of the Authority and the results thereof are presented in the financial statements as an enterprise fund. Enterprise funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the Authority is that the costs (expenses, including depreciation) of providing services to its users on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. 8

33 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net position: Net position is classified and displayed in three components: Net Investment in capital assets Amount of capital assets, net of accumulated depreciation, less outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of these assets. Restricted net position Amount of net position that is subject to restrictions that are imposed by 1) external groups, such as creditors, contributors or laws or regulations or other governments or 2) law through constitutional provisions or enabling legislation. Unrestricted net position Net position that is neither classified as restricted nor as net investment in capital assets. The Authority does not have any restricted net position as of June 30, 2016 and Pensions: For purposes of measuring the net pension asset, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Wisconsin Retirement System (WRS) and additions to/deductions from WRS fiduciary net position have been determined on the same basis as they are reported by WRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENT SECURITIES Cash and cash equivalents and investment securies consist of deposits and investments that are restricted by Wisconsin Statutes to time deposits; repurchase agreements; securities issued by federal, state and local governmental entities; statutorily authorized commercial paper and corporate securities; and the Wisconsin Local Government Investment Pool. 9

34 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENT SECURITIES (CONTINUED) The carrying amount of the Authority s cash and cash equivalents totaled $135,428 and $125,522 on June 30, 2016 and 2015, respectively. The fair values and cost of investment securities held as of June 30, 2016 and 2015 are summarized as follows: June 30, 2016 Net Unrealized Cost Fair Value Gains (Losses) U.S. government and federal agency obligations $ 1,441,795 $ 1,457,947 $ 16,152 Other commercial asset-backed obligations 65,886 62,229 (3,657) Corporate bonds 531, ,502 4,593 Municipal agency obligations 30,000 30, Total $ 2,069,590 $ 2,086,861 $ 17,271 June 30, 2015 Net Unrealized Cost Fair Value Gains (Losses) U.S. government and federal agency obligations $ 1,352,985 $ 1,350,907 $ (2,078) Other commercial asset-backed obligations 346, ,945 (6,469) Corporate bonds 431, ,202 1,699 Municipal agency obligations 72,495 70,536 (1,959) Total $ 2,203,397 $ 2,194,590 $ (8,807) Fair Value Measurements The Authority implemented GASB Statement No. 72, Fair Value Measurement and Application, for the year ended June 30, The Authority categorizes its 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 asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant observable inputs; Level 3 inputs are significant unobservable inputs. 10

35 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENT SECURITIES (CONTINUED) The Authroity has the following fair value measurements as of June 30, 2016 and 2015: June 30, 2016 Fair Value Measurements Using: Level 1 Level 2 Level 3 U.S. government and federal agency obligations $ 1,457,947 $ - $ - Other commercial asset-backed obligations 62, Corporate bonds 536, Municipal agency obligations 30, Total investments by fair value level $ 2,086,861 $ - $ - June 30, 2015 Fair Value Measurements Using: Level 1 Level 2 Level 3 U.S. government and federal agency obligations $ 1,350,907 $ - $ - Other commercial asset-backed obligations 339, Corporate bonds 433, Municipal agency obligations 70, Total investments by fair value level $ 2,194,590 $ - $ - Debt securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Deposits and investments of the Authority are subject to various risks. Presented below is a discussion of the specific risks. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the Authority will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, the Authority will not be able to recover the value of its investment or collateral securities that are in the possession of another party. Wisconsin statutes require repurchase agreements to be fully collateralized by bonds or securities issued or guaranteed by the federal government or its instrumentalities. The Authority does not have an additional custodial credit risk policy. 11

36 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENT SECURITIES (CONTINUED) Deposits with financial institutions within the State of Wisconsin are insured by the Federal Deposit Insurance Corporation (FDIC) in the amount of $250,000 for time and savings deposits and $250,000 for interest-bearing demand deposits per official custodian per insured depository institution. Deposits with financial institutions located outside the State of Wisconsin are insured by the FDIC in the amount of $250,000 for all time accounts, savings accounts and interest-bearing demand deposit accounts per official custodian per depository institution. Also, the State of Wisconsin has a State Guarantee Fund which provides a maximum of $400,000 per public depository above the amount provided by an agency of the U.S. Government. However, due to the relatively small size of the State Guarantee Fund in relation to the Fund's total coverage, total recovery of insured losses may not be available. As of June 30, 2016 and 2015, the Authority had no deposits with financial institutions in excess of federal depository insurance limits. Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Wisconsin statutes limit the purchase of investments in securities to the top two ratings assigned by nationally recognized statistical rating organizations. Presented below is the actual rating as of year end for each investment type. The Authority does not have an additional credit risk policy. June 30, 2016 Investment Type Amount AAA Aa A U.S. government and federal agency obligations $ 1,457,947 $ 1,457,947 $ - $ - Other commercial asset-backed obligations 62,229 18,507 43,722 - Corporate bonds 536, , ,320 - Municipal agency obligations 30,183-30,183 - June 30, 2015 Investment Type Amount AAA Aa A U.S. government and federal agency obligations $ 1,350,907 $ 1,350,907 $ - $ - Other commercial asset-backed obligations 339, , ,306 - Corporate bonds 433,202 29, ,248 - Municipal agency obligations 70,536-70,536-12

37 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENT SECURITIES (CONTINUED) Concentration of Credit Risk The investment policy of the Authority contains no limitations on the amount that can be invested in any one issuer. There were no investments in any one issuer (other than U.S. Treasury Securities) that represent 5% or more of the total Authority s investments held at June 30, 2016 and Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Authority manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturing evenly over time as necessary to provide cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the Authority s investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Authority s investments by maturity: Investment Type Amount June 30, 2016 Remaining Maturity (in Months) 12 Months or Less Months Months More than 60 Months U.S. government and federal agency obligations $ 1,457,947 $ - $ 246,907 $ 1,100,715 $ 110,325 Other commercial asset-backed obligations 62,229 13,126-30,596 18,507 Corporate bonds 536, , , ,255 - Municipal agency obligations 30,183-30, Investment Type Amount June 30, 2015 Remaining Maturity (in Months) 12 Months or Less Months Months More than 60 Months U.S. government and federal agency obligations $ 1,350,907 $ - $ 160,469 $ 1,089,738 $ 100,700 Other commercial asset-backed obligations 339,945-55, , ,600 Corporate bonds 433,202 45, , ,052 - Municipal agency obligations 70,536 15,000 25,536 30,000-13

38 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENT SECURITIES (CONTINUED) Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations The Authority s investments include the following investments that are highly sensitive to interest rate fluctuations (to a greater degree than already indicated in the information already provided above): Fair Value at Year End Highly Sensitive Investments June 30, 2016 June 30, 2015 Mortgage backed securities. These securities are subject to early payment in a period of declining interest rates. The resultant reduction in expected total cash flows affects the fair value of these securities and makes the fair values of these securities highly sensitive to changes in interest rates. $ 246,296 $ 231,255 NOTE 3 - OPERATING LEASE COMMITMENT The Authority has an agreement to lease its office space through October 31, The lease agreement provides for a basic monthly rental payment of $2,587 plus operating costs through October 31, 2016 increasing by 2% every 12 months until October 31, Rental expense related to the office space amounted to $47,793 and $57,211 for the years ended June 30, 2016 and 2015, respectively. NOTE 4 - PENSION PLAN Plan Description: The WRS is a cost-sharing multiple-employer defined benefit pension plan. WRS benefits and other plan provisions are established by Chapter 40 of the Wisconsin Statutes. Benefit terms may only be modified by the legislature. The retirement system is administered by the Wisconsin Department of Employee Trust Funds (ETF). The system provides coverage to all eligible State of Wisconsin, local government and other public employees. All employees, initially employed by a participating WRS employer on or after July 1, 2011, and expected to work at least 1200 hours a year (880 hours for teachers and school district educational support employees) and expected to be employed for at least one year from employee s date of hire are eligible to participate in the WRS. Vesting: For employees beginning participation on or after January 1, 1990, and no longer actively employed on or after April 24, 1998, creditable service in each of five years is required for eligibility for a retirement annuity. Participants employed prior to 1990 and on or after April 24, 1998, and prior to July 1, 2011, are immediately vested. Participants who initially became WRS eligible on or after July 1, 2011, must have five years of creditable service to be vested. Benefits Provided: Employees who retire at or after age 65 (54 for protective occupation employees, 62 for elected officials and State executive participants) are entitled to receive an unreduced retirement benefit. The factors influencing the benefit are: (1) final average earnings, (2) years of creditable service, and (3) a formula factor. 14

39 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 4 - PENSION PLAN (CONTINUED) Final average earnings is the average of the participant's three highest years' earnings. Creditable service is the creditable current and prior service expressed in years or decimal equivalents of partial years for which a participant receives earnings and makes contributions as required. The formula factor is a standard percentage based on employment category. Employees may retire at age 55 (50 for protective occupation employees) and receive reduced benefits. Employees terminating covered employment before becoming eligible for a retirement benefit may withdraw their contributions and forfeit all rights to any subsequent benefits. The WRS also provides death and disability benefits for employees. Post-Retirement Adjustments: The Employee Trust Funds Board may periodically adjust annuity payments from the retirement system based on annual investment performance in accordance with s , Wis. Stat. An increase (or decrease) in annuity payments may result when investment gains (losses), together with other actuarial experience factors, create a surplus (shortfall) in the reserves, as determined by the system s consulting actuary. Annuity increases are not based on cost of living or other similar factors. For Core annuities, decreases may be applied only to previously granted increases. By law, Core annuities cannot be reduced to an amount below the original, guaranteed amount (the floor ) set at retirement. The Core and Variable annuity adjustments granted during recent years are as follows: Year Core Fund Adjustment Variable Fund Adjustment % 3% (2.1) (42) 2010 (1.3) (1.2) (7.0) (7) 2013 (9.6) Contributions: Required contributions are determined by an annual actuarial valuation in accordance with Chapter 40 of the Wisconsin Statutes. The employee required contribution is onehalf of the actuarially determined contribution rate for general category employees, including teachers, and Executives and Elected Officials. Required contributions for protective employees are the same rate as general employees. Employers are required to contribute the remainder of the actuarially determined contribution rate. The employer may not pay the employee required contribution unless provided for by an existing collective bargaining agreement. 15

40 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 4 - PENSION PLAN (CONTINUED) During the reporting period, the WRS recognized $20,389 in contributions from the Authority. Contribution rates as of June 30, 2016 are: Employee Category Employee Employer General (including teachers) 6.6% 6.6% Executives & Elected Officials 6.6% 6.6% Protective with Social Security 6.6% 9.4% Protective without Social Security 6.6% 13.2% Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions: At June 30, 2016, the Authority reported a liability of $33,444 for its proportionate share of the net pension liability. As a result of this reported liability, the Authority recognized a pension expense of $40,808 and this amount is included in Salaries and Benefits Expense for the year ended June 30, For the year ended June 30, 2015, the Authority recognized a pension expense of $20,712. The net pension liability was measured as of December 31, 2015, and the total pension liability used to calculate the net pension asset was determined by an actuarial valuation as of December 31, 2014 rolled forward to December 31, No material changes in assumptions or benefit terms occurred between the actuarial valuation date and the measurement date. The Authority s proportion of the net pension liability was based on the Authority s share of contributions to the pension plan relative to the contributions of all participating employers. At December 31, 2015, the Authority s proportion was %, which was a decrease of % from its proportion measured as of December 31, At June 30, 2016, the Authority reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of of Resources Resources Differences between expected and actual experience $ 5,826 $ 70,382 Changes in assumptions 23,399 - Net differences between projected and actual earnings on pension plan investments 137,474 - Changes in proportion and differences between employer contributions and proportionate share of contributions 1,795 - Employer contributions subsequent to the measurement date 25,450 - Total $ 193,944 $ 70,382 16

41 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 4 - PENSION PLAN (CONTINUED) At June 30, 2015, the Authority reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of of Resources Resources Differences between expected and actual experience $ 7,546 $ - Changes in assumptions - - Net differences between projected and actual earnings on pension plan investments 25,207 - Changes in proportion and differences between employer contributions and proportionate share of contributions 1,253 - Employer contributions subsequent to the measurement date 28,501 - Total $ 62,507 $ - $25,450 reported as deferred outflows related to pension resulting from the Authority s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pension will be recognized in pension expense as follows: Year ended Deferred Outflow of Deferred Inflows of June 30 Resources Resources 2016 $ 43,813 $ 17, ,813 17, ,813 17, ,278 17, ,250 17

42 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 4 - PENSION PLAN (CONTINUED) Actuarial Assumption: The total pension liability in the December 31, 2015, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Actuarial Valuation Date: December 31, 2014 Measurement Date of Net Pension Liability (Asset) December 31, 2015 Actuarial Cost Method: Entry Age Asset Valuation Method: Long-Term Expected Rate of Return: 7.2% Discount Rate: 7.2% Salary Increases: Inflation Seniority/Merit Fair Market Value 3.2% 0.2% - 5.6% Mortality: Wisconsin 2012 Mortality Table Post-retirement Adjustments* 2.1% * No post-retirement adjustment is guaranteed. Actual adjustments are based on recognized investment return, actuarial experience and other factors. 2.1% is the assumed annual adjustment based on the investment return assumption and the post-retirement discount rate. Actuarial assumptions are based upon an experience study conducted in 2012 using experience from The total pension liability for December 31, 2015 is based upon a roll-forward of the liability calculated from the December 31, 2014 actuarial valuation. 18

43 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 4 - PENSION PLAN (CONTINUED) Long-term expected Return on Plan Assets: The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Destination Long-Term Long-Term Current Asset Target Asset Expected Nominal Expected Real Allocation % Allocation % Rate of Return % Rate of Return % Core Fund Asset Class U.S. Equities 27% 23% 7.6% 4.7% International Equities 24.5% 22% 8.5% 5.6% Fixed Income 27.5% 37% 4.4% 1.6% Inflation Sensitive Assets 10% 20% 4.2% 1.4% Real Estate 7% 7% 6.5% 3.6% Private Equity/Debt 7% 7% 9.4% 6.5% Multi-Asset 4% 4% 6.7% 3.8% Total Core Fund 107% 120% 7.4% 4.5% Variable Fund Asset Class U.S. Equities 70% 70% 7.6% 4.7% International Equities 30% 30% 8.5% 5.6% Total Variable Fund 100% 100% 7.9% 5.0% Single Discount rate: A single discount rate of 7.20% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 7.20% and a long term bond rate of 3.57%. Because of the unique structure of WRS, the 7.20% expected rate of return implies that a dividend of approximately 2.1% will always be paid. For purposes of the single discount rate, it was assumed that the dividend would always be paid. The projection of cash flows used to determine this single discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments (including expected dividends) of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 19

44 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY NOTES TO FINANCIAL STATEMENTS Years Ended June 30, 2016 NOTE 4 - PENSION PLAN (CONTINUED) Sensitivity of the Authority s proportionate share of the net pension asset to changes in the discount rate: The following presents the Authority s proportionate share of the net pension asset calculated using the discount rate of 7.20 percent, as well as what the Authority s proportionate share of the net pension asset would be if it were calculated using a discount rate that is 1- percentage-point lower (6.20 percent) or 1-percentage-point higher (8.20 percent) than the current rate: 1% Decrease to 1% Increase to Discount Rate Current Discount Discount Rate (6.2%) Rate (7.2%) (8.2%) Authority's proportionate share of the net pension liability (asset) $ 234,576 $ 33,444 $ (209,140) Pension plan fiduciary net position:. Detailed information about the pension plan s fiduciary net position is available in separately issued financial statements available at NOTE 5 - ASSETS HELD BY TRUSTEES Resolutions adopted by the Authority have provided for trust and other agreements that establish specific funds to account for the proceeds of the various bond and note issues, notes receivable, debt service payments, payments by the participating health care and educational institutions, and construction and issuance costs. The investments held in specific funds established by such agreements are held by trustees and are excluded from the Statements of Net Position of the operating fund, as described in Note 1. NOTE 6 BONDS OUTSTANDING As of June 30, 2016, there were 254 revenue bond issues outstanding for a total of $10,447,277,000, including $1,338,260,000 of total advanced refunded bonds. As of June 30, 2015 there were 244 bond issues outstanding for a total of $9,524,711,000, including $313,165,000 of total advanced refunded bonds. A detailed listing of outstanding bond issues is available from the Authority upon request. 20

45 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY SCHEDULE OF AUTHORITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY WISCONSIN RETIREMENT SYSTEM Last 10 Fiscal Years* Authority's proportion of the net pension liability (asset) % % Authority's proportionate share of the net pension liability (asset) $ 33,444 $ (52,053) Authority's covered-employee payroll $ 299,842 $ 286,280 Plan fiduciary net position as a percentage of the total pension liability 98.20% % * The Authority implemented GASB Statement Nos. 68 and 71 for the year ended June 30, Information for prior years is not available. The amounts presented for each fiscal year were determined as of the calendar year-end that occurred within the fiscal year. The notes to the required supplementary information are an integral part of this statement. 21

46 WISCONSIN HEALTH AND EDUCATIONAL FACILITIES AUTHORITY SCHEDULE OF AUTHORITY CONTRIBUTIONS WISCONSIN RETIREMENT SYSTEM Last 10 Fiscal Years* Contractually required contributions $ 20,389 $ 20,040 Contributions in relation to the contractually required contributions $ 20,389 $ 20,040 Contribution deficiency (excess) $ - $ - Covered-employee payroll $ 299,842 $ 286,280 Contributions as a percentage of covered-employee payroll 6.80% 7.00% * The Authority implemented GASB Statement Nos. 68 and 71 for the year ended June 30, Information for prior years is not available. The amounts presented for each fiscal year were determined as of the calendar year-end that occurred within the fiscal year. The notes to the required supplementary information are an integral part of this statement. 22

47 INDEPENDENT AUDITORS 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 Members of the Wisconsin Health and Educational Facilities Authority Brookfield, Wisconsin Independent Auditors Report We have audited 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, the financial statements of Wisconsin Health and Educational Facilities Authority ( the Authority ) as of and for the year ended June 30, 2016 and the related notes to the financial statements and have issued our report thereon which included an emphasis of matter paragraph on Page 2, dated December 27, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion of the effectiveness of the Authority s internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Authority 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 over financial reporting 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 over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. schencksc.com Schenck SC