ALEXANDRIA RENEW ENTERPRISES

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3 ALEXANDRIA RENEW ENTERPRISES Alexandria, Virginia COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEARS ENDED SEPTEMBER 30, 2015 AND 2014 Prepared by the Finance Department

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5 TABLE OF CONTENTS INTRODUCTORY SECTION LETTER FROM THE CEO LETTER OF TRANSMITTAL DIRECTORY OF PRINCIPAL OFFICALS ORGANIZATIONAL CHART CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING FINANCIAL SECTION INDEPENDENT AUDITOR'S REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position Notes to Financial Statements SUPPLEMENTARY INFORMATION Schedule of Funding Progress - Other Post-Employment Benefits Schedule of Changes in Net Pension Liability and Related Ratios Schedule of Pension Contributions Notes to Required Supplementary Information STATISTICAL SECTION (UNAUDITED) Financial Trends Revenue Capacity Information Debt Capacity Information Demographic and Economic Information Operating Information

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7 INTRODUCTORY SECTION

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13 ALEXANDRIA RENEW ENTERPRISES DIRECTORY OF PRINCIPAL OFFICIALS September 30, 2015 BOARD OF DIRECTORS John Hill - Chairman Thomas Van Wagner - Vice Chairman William Dickinson - Secretary/Treasurer Matt Ries Bruce Johnson Shahram Mohsenin, Fairfax County Representative CHIEF EXECUTIVE OFFICER (CEO) Karen L. Pallansch, P.E., BCEE INDEPENDENT AUDITORS Brown, Edwards & Company, L.L.P. 5

14 ALEXANDRIA RENEW ENTERPRISES BOARD OF DIRECTORS Pictured from top left to right: Chairman John Hill, Vice Chairman Thomas Van Wagner Bottom Row from left to right: Mr. William Dickinson (Secretary/Treasurer), Mr. Bruce Johnson, and Mr. Matt Ries 6

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17 9 FINANCIAL SECTION

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21 MANAGEMENT S DISCUSSION AND ANALYSIS 13

22 Alexandria Renew Enterprises Management s Discussion and Analysis Summary of Organization and Business On May 15, 2012, the Board of Alexandria Sanitation Authority approved an amendment to its bylaws to permit the use of Alexandria Renew Enterprises as the trade name of the organization. Alexandria Renew Enterprises (the Authority) is a public body organized and created under the Virginia Water and Waste Authorities Act of the Code of Virginia of 1950 as amended. The Authority was created by the City Council of the City of Alexandria (the City) in The purpose of the Authority is to acquire, construct, improve, extend, operate and maintain a sewage disposal system. Five citizen members appointed by the Alexandria City Council to four-year staggered terms govern the Authority. In 1953, the Authority and neighboring Fairfax County signed a service agreement in which the Authority would build a sewage treatment plant and the County would have reserved treatment capacity and share in the annual operating costs of the plant in proportion to its actual use as measured by the volume of sewage it contributed. The Service Agreement was last amended and restated in October The major provisions relating to the County s reserved capacity (60%), the payment of capital, asset additions, (i.e. upgrade costs), and the calculation of its share of operating costs remained unchanged. The Authority receives no financial support from the City and has no taxing power. The revenues of the Authority are derived from wastewater treatment charges based on metered water consumption of Alexandria users of the system, fixed Base charges based on customer water meter size and payments from Fairfax County for its proportional share of operating expenses. Audit Assurance The unmodified (i.e. clean) opinion of our independent external auditors, Brown, Edwards, & Company L.L.P., is included in this report. The financial section presents management s discussion and analysis of the Authority s financial condition and activities for the fiscal years (FY) ended September 30, 2015 and This information should be read in conjunction with the financial statements. Financial Highlights Management believes the Authority s financial position is strong. The Authority maintained strong debt service coverage and was in compliance with all debt covenants required by borrowing agreements. The following are key financial highlights: The Authority treated and billion gallons of wastewater during the years ended September 30, 2015 and 2014, respectively. This represents an 8.92% decrease in wastewater treated, consistent with an decrease of rainfall in the area, of 9.35% for 44.6 inches rainfall in the fiscal year ended September 30, 2015 versus 49.2 inches in The Authority experienced a slight decrease in its number of accounts to 26,233 customers down 2.3% over

23 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Financial Highlights (Continued) The Wastewater treatment charge approved by the Board for 2015 was $6.64 per 1,000 gallons of water usage plus a base charge. Customer billing was switched to monthly billing versus quarterly billing in prior years. The 2015 wastewater treatment volume usage rate increased by approximately 2.0% from $6.51 in Alexandria Renew residential rates consisted of a per 1,000 gallon wastewater treatment charge of $6.51 and a Base Charge of $8.38 per month Commercial customers pay a fixed fee charge based on meter size with an increasing rate for larger water meters. Fairfax County contributed 6.11 and 6.69 billion gallons of wastewater during the years ended September 30, 2015 and 2014, respectively. This represents a 8.75% decrease over fiscal year 2014 and is within the County s contracted allocation. Debt service coverage, on the accrual basis was 1.89 and 1.97 for the years ended September 30, 2015 and 2014, respectively, which exceeded the 1.1 required by the Financing Agreement with the Virginia Resources Authority for loans from the Virginia Water Facilities Revolving Fund (VWFRF). Total assets as of September 30, 2015 and 2014 were $793.5 million and $737.5 million, respectively. Total assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources in the amount of $628.0 million and $589.3 million, as of September 30, 2015 and 2014, respectively (i.e. net position). Of the total net position, $24.1 million and $34.7 million were unrestricted and were available to support short-term operations for the years ended September 30, 2015 and 2014, respectively. The increase in total assets is a result of the continued construction of the State of the Art Nitrogen Upgrade projects (SANUP) the Authority s nutrient management facilities including plant, equipment and infrastructure additions. Capital assets net of depreciation and amortization increased $65.6 million in 2015 and $72.2 million in 2014 over the prior fiscal years. The increases are primarily due to the continued build out of the SANUP projects. Wastewater Treatment Charges of $37.50 million were 0.3% lower in 2015 than in 2014 consistent with the decrease in wastewater billed. Contributing to the revenue decrease was a continuing water conservation effort by customers who installed more efficient plumbing equipment and sustainable products that resulted in a reduction in the amount of billed water. Payments from Fairfax County of $10.28 million during fiscal year 2015 represented the County s share of operating costs based upon their proportional contribution to plant total flow. Fairfax County payments amounted to $10.95 million in fiscal year This decrease in the County s payment is a result of reduced County flow for fiscal year Payments from the County were $10.95 million during fiscal year 2014 and $10.66 million in fiscal year

24 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Financial Highlights (Continued) The Authority received $1 million in additional compensation under its land sale development rights agreement with the Development Company in The Authority s final development rights compensation is to be determined by an appraisal at a future closing with the Development Company. There was no land transaction in In Prior years, the Authority received its initial land sale development rights payments from Developers. A series of commercial and residential development projects will be constructed next to the new Nutrient Management Facility west of the main plant. The Nutrient Management Facility is part of the Authority s SANUP project that is scheduled to open in The 170,000 square feet of jointly purchased land and development rights sold for $15,203,750 including $4,340,678 attributed to jointly owned property (Fairfax County and Alexandria purchased land). Total operating expenses, excluding depreciation and amortization, for fiscal year 2015 decreased 1.89% compared to fiscal year The decrease in operating expenses of $482,391 was due primarily to decreases in the Authority s personnel service costs of $549,098. Required Financial Statements The Authority s financial statements are prepared using generally accepted accounting principles for governmental units operated as a governmental enterprise. As a result, the financial statements of the Authority report financial information using enterprise accounting methods similar to those used by private sector companies. These statements offer short and long-term financial information about its activities. The statement of net position includes all of the Authority s assets, deferred outflows of resources, liabilities and deferred inflows of resources and provides information about the nature and amounts of investments in resources (assets) and obligations to Authority creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the Authority and assessing the liquidity and financial flexibility of the Authority. All of the current year s revenues and expenses are accounted for in the statement of revenue, expenses, and changes in net position. This statement measures the success of the Authority s operations over the past year and can be used to determine whether the Authority has successfully recovered all its costs through its wastewater treatment rates and other fees. The Authority s rates are based on a cost of service rate study that was completed in This rate study is updated at least annually or more often as circumstances warrant. The final required financial statement is the statement of cash flows. The primary purpose of this statement is to provide information about the Authority s cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operating, investing, and financing activities, and the total change in cash during the reporting period. The Authority established an OPEB Trust Fund to fund its Other Post-Employment Benefits (OPEB) liability in future years. The trust fund was established by the Authority with the Virginia Pooled OPEB Trust Fund (Trust), sponsored by the Virginia Municipal League and the Virginia Association of Counties. The trust is an investment permitted for participating municipal employers to accumulate assets to pay future OPEB benefits to retirees and their beneficiaries. The financial statements include a Statement of Fiduciary Net Position as of September 30, 2015 and a Statement of Changes in Fiduciary Net Position, for the Year Ending September 30,

25 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Required Financial Statements, continued The notes to the financial statements provide required disclosures and other information that are essential to a full understanding of material data provided in the statements. The notes present information about the Authority s accounting policies, significant account balances and activities, material risks, obligations, commitments, contingencies and subsequent events, if any. Financial Analysis: The following comparative condensed financial statements and other selected information provide key financial data and indicators for management, monitoring and planning. The following table reflects the Authority s net position at September 30, 2015 and 2014: Condensed Statements of Net Position (Balance Sheet) (in Millions of Dollars) $ Change % Change Current assets $ $ $ (10.32) (19.70) % Restricted assets (1.94) (11.40) % Investments % Plant and equipment, net % Deferred Outflows Total Assets and Deferred Outflows % Current liabilities (0.35) (0.80) % Long-term debt % Deferred Inflows Total Liabilities and Deferred Inflows % Net Investment in capital assets % Restricted % Unrestricted (10.70) (30.80) % Total Net Position $ $ $ % 17

26 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Required Financial Statements, continued The following table reflects the Authority s net position at September 30, 2014 and 2013: Condensed Statements of Net Position (Balance Sheet) (in Millions of Dollars) $ Change % Change Current assets $ $ $ % Restricted assets % Investments % Plant and equipment, net % Total assets % Current liabilities % Long-term debt % Total Liabilities % Net Investment in capital assets % Restricted % Unrestricted (2.61) (7.00) % Total Net Position $ $ $ % 18

27 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Financial Analysis (Continued) The following table reflects the Authority s net position at September 30, 2015 and 2014: Condensed Statements of Revenues, Expenses and Changes in Net Position (in Millions of Dollars) $ Change % Change Operating Revenues: Wastewater Treatment Fees $ $ (0.11) (0.30) % Fairfax County Wastewater Fees (0.65) (5.90) % Total Operating Revenues (0.76) (1.60) % Operating Expenses: Depreciation and Amortization expenses % Other Operating Expenses (0.47) (1.80) % Total Operating Expenses % Operating Income (0.98) (7.30) % Non-operating Revenues (Expenses) Investment Income % Non-operating Expenses (3.89) (2.27) (1.62) % Total Non-Operating Revenues (Expenses) (3.41) (1.99) (1.42) % Changes in Net Position before Capital Contributions (2.41) (21.07) % Capital Contributions (13.29) (25.50) % Changes in Net Position (15.70) (24.70) % Net Position: Beginning, as restated (Note 14) % Ending $ $ $ % 19

28 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Financial Analysis (Continued) The following table summarizes the changes in revenue and expenses for fiscal years 2014 and 2013: Condensed Statements of Revenues, Expenses and Changes in Net Position (in Millions of Dollars) $ Change % Change Operating Revenues: Wastewater Treatment Fees $ $ (0.54) (1.40) % Fairfax County Wastewater Fees % Total Operating Revenues (0.24) (0.50) % Operating Expenses: Depreciation and Amortization expenses (0.61) (6.00) % Other Operating Expenses % Total Operating Expenses % Operating Income (0.75) (5.30) % Non-operating Revenues (Expenses) Investment Income % Non-operating Expenses (2.27) (14.24) (119.00) % Total Non-Operating Revenues (Expenses) (1.99) (14.02) (116.50) % Changes in Net Position before Capital Contributions (14.77) (56.40) % Capital Contributions % Changes in Net Position % Net Position: Beginning % Ending $ $ $ % 20

29 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Financial Analysis (Continued) The following table summarizes other selected information of the Authority for fiscal years 2015 and 2014: Other Selected Information Difference % Change Selected data: Employees at year end % Alexandria accounts 26,233 26, % Wastewater treated (millions of gallons) 12,035 13, % Portion contributed by Fairfax County (millions of gallons) 6,112 6, % Percentage contributed by Fairfax County % % 0.1 % 0.2 % Rates, Residential Customers: Charge per 1000 gallons of water consumption $ 6.64 $ 6.51 $ % Base Charge (quarterly in FY14) $ $ (25.15) 0 % Base Charge (monthly) $ 8.38 $ % Average residential customer bill (based on 9,000 water usage): Per year $ $ $ % Per quarter $ $ $ % Per month $ $ $ % Rates, Commercial Customers: Charge per 1000 gallons of water consumption $ 6.64 $ 6.51 $ % Base Charge Water Meter Size Monthly Quarterly 5/8" $ $ /4" $ $ " $ $ /2" $ $ " $ $ " $ $ 1, " $ $ 1, " $ 1, $ 3, " $ 2, $ 6, General Trends and Significant Events The Authority s service area in the City of Alexandria can be referred to as mature. The City is over 250 years old and for the most part is built out. While there are several tracts of underdeveloped land, the flows from these parcels, when developed, will not increase the Authority s sewage disposal charge revenue significantly. This is especially true given the trend for water conservation and sustainability efforts within our community. 21

30 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) General Trends and Significant Events, (continued) The number of the Authority s Alexandria accounts decreased by 615, which represents a 2.29% decrease from fiscal year The current number of accounts 26,233 represents a 4.94% increase for the ten-year period beginning with fiscal year Previously, the number of the accounts increased in fiscal year 2014 by 518, which represents a 1.97% increase over fiscal year New Pension Accounting In 2015 the Authority adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions. The overall effect of this new standard is to reflect the Authority s long-term Virginia Retirement System (VRS) obligations directly in the financial statements. Previously, such amounts were mostly disclosed, but were not recognized as long as the Authority was current with its required VRS contributions. The new standard not only changes certain measurement methodologies, but also requires certain new disclosures and that the Authority records a net pension liability directly on the statement of net position. Beginning net position has been restated as discussed in footnote 13, and this has had a significant impact on the Authority s net position. However, because similar information has been disclosed in prior years, both in the notes to the financial statements and in required supplementary information, the effect of this new standard is not expected to negatively affect how most governmental entities are viewed by sophisticated readers of their financial statements. Because information to restate prior years is not readily available, the prior year comparative information included in this discussion and analysis has not been restated. Financial Condition The Authority s financial condition remained strong at year-end with adequate liquid assets and a reasonable level of unrestricted net position. The current financial condition, operating plans and upgrade plans to meet future water quality requirements are well balanced and under control. Total assets grew $53.60 million (7.27%) and $86.75 million (13.30%) during fiscal years 2015 and 2014, respectively. Net position increased by $38.69 million during fiscal year 2015, with a substantial portion of the change resulting from an increase in net investment in capital assets. Additional information on the Authority s capital assets can be found in Notes 1 and 5 of the Notes to Financial Statements. In prior years, net position increased by $63.60 million during fiscal year 2014, with a substantial portion of the change resulting from an increase in net investment in capital assets. As indicated in the preceding section the Authority adopted GASB 68, resulting in a prior period adjustment decrease of $9,211,206 to the beginning 2014 Net Position. This item is also discussed in Note 14 of the Notes to Financial Statements. 22

31 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Results of Operations Operating revenues: The Authority s revenues from operations fall into two main categories: 1) Wastewater Treatment and Base charges to customers in Alexandria which are based upon metered water consumption; these are billed monthly and quarterly for commercial and residential accounts, respectively; and 2) The Authority charges Fairfax County for wastewater treatment for its share of operating expenses based upon metered flow to the plant. Capital contributions: Fairfax County pays for 60% of the cost of capital improvements to the plant, such as the current upgrade, based upon a contractual agreement with the Authority. These payments are recorded as non-operating revenues in the Statement of Revenues, Expenses and Changes in Net Position. Capital contributions also include Capital grants provided to the Authority by the Commonwealth of Virginia, Department of Environmental Quality. Total capital contributions amounted to $38.87 million and $52.16 million for the years ended September 30, 2015 and 2014, respectively including $2.12 million and $7.90 million from VDEQ. Expenses: comparison: Total operating expenses, excluding depreciation and amortization, decreased by $482,391 or 1.89% less than Personnel service that includes salaries, retirement and benefit expense decreased $549,098 or 4.41%. The adoption of GASB 68 is the primary reason personnel service is less than 2014 as it reduced 2015 cost by a net $690,000. Customer billing expense increased because we implemented monthly billing and is the primary reason General, Administrative expenses have increased $428,997 or 9.34%. Decreases in Utility and Chemical expenses offset increases in Arlington waste water treatment expense Comparison: Total operating expenses, excluding depreciation and amortization, increased by $1.12 million or 4.6% over fiscal year The Authority s personnel services, which include wages, retirement, and insurance, were 35.5% of the total operating expenses of $35.15 million for fiscal year 2015 and 34.8% of the total operating expenses for Capital Assets The Authority maintains investments in a broad range of capital assets, which includes land, buildings, sanitary intercepting sewer lines and force mains, pumping stations, a water reclamation facility, machinery and equipment, computers and vehicles. The Authority also owns capacity rights at the Arlington Water Pollution Control Facility. By a service agreement with Arlington County, the City of Alexandria and Alexandria Renew Enterprises, the Authority pays for 8.5% of the cost of capital improvements to the Arlington plant. Additional information on the Authority s capital assets can be found in Notes 1 and 5 of the Notes to Financial Statements. The Authority is currently in the planning and detailed design processes of an upgrade required to improve treatment of the water to meet new standards imposed by the Chesapeake Bay restoration. This project will have phased construction packages and last upwards of seven years. 23

32 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Results of Operations, (Continued) The Authority maintains its equipment annually on a prioritized basis through a committed improvements, renewals and replacements fund. By agreement, Fairfax County invests a percentage of the total facility assets into this fund for adequate reinvestment to insure continuing compliance with regulations. The Authority finances its capital assets through rates and charges, Fairfax County capital contributions, long term debt (Bonds), a bank line of credit and, when available, capital grants. Long Term Debt The Authority has million in long-term debt outstanding at September 30, 2015 including $8.9 million considered short-term. Principal payments made by the Authority totaled $15.8 million and included $7.5 million of refinanced 2008 Bonds during the fiscal period. During fiscal 2015 the Authority issued new bonds totaling $24.3 million including $7.8 million issued to refund a portion of its 2008 Bonds. Long term debt increased during the fiscal year by $8.5 million. As of September 30, 2014, the Authority had $113.3 million in short-term and long-term debt. Principal payments were made on outstanding debt for $7.8 million and new debt of $14.1 million resulted in a net increase of $6.3 million in debt over fiscal year

33 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Results of Operations, (Continued) One area that demonstrates the Authority s financial strength, ability to pay current debt service (principal and interest), and future borrowing capability is seen in its Revenue Covenant, which is currently a strong This covenant requires the Authority to establish, fix, charge and collect rates, fees and other charges for the use of and for services furnished by the System so that in each fiscal year net revenues are not less than 1.1 times the debt service (principal and interest) for the fiscal year. The graph below provides an indication of how much principal and interest are due each year until the revenue bonds mature in Thousands $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ Principal Series3 25

34 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Results of Operations (Continued) The following table calculates the Revenue Covenant for the fiscal years 2015 and 2014: (in millions) % Change Unrestricted Operating Revenue $ $ (1.58) % Total Operating Expenses (Less Depreciation and Replacements) (1.83) % Net Revenue $ $ (1.30) % Annual Debt Service $ $ % Revenue Covenant (Minimum 1.4 allowed) (4.17) % The following table calculates the Revenue Covenant for the fiscal years 2014 and 2013: (in millions) % Change Unrestricted Operating Revenue $ $ (0.50) % Total Operating Expenses (Less depreciation and replacements) % Net Revenue $ $ (5.59) % Annual Debt Service $ $ % Revenue Covenant (Minimum 1.4 allowed) (15.05) % Additional information on the Authority s debt can be found in Notes 6 and 9 to the Financial Statements. Budget Information The Authority prepares an annual budget and submits it to its Board of Directors for approval every May for the fiscal period starting October 1 st through September 30 th every year. The budget receives final approval by the board in its September meeting prior to the start of the fiscal period. The Alexandria Renew Board does not have the authority to create appropriations bills or ordinances but approves the annual budget to ensure compliance with environmental regulations, compliance with its debt trust agreements and to recover the organization s cost of delivering service. The Authority has two major sources of revenue, including wastewater treatment charges paid by Alexandria customers and reimbursements of a proportion of expenses by Fairfax County. Under the Service Agreement, Fairfax County pays a percentage of operating expenses based upon flow volume. Fairfax County also pays sixty percent (60%) of the annual deposit into the Improvement, Renewal & Replacement Fund and the same percentage into the Capital Improvement Fund. Fairfax County and the Authority have engaged in discussions to extend the Service Agreement. Discussions are not at a 26

35 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Budget Information, (Continued The Authority has two major sources of revenue, including wastewater treatment charges paid by Alexandria customers and reimbursements of a proportion of expenses by Fairfax County. Under the Service Agreement, Fairfax County pays a percentage of operating expenses based upon flow volume. Fairfax County also pays sixty percent (60%) of the annual deposit into the Improvement, Renewal & Replacement Fund and the same percentage into the Capital Improvement Fund. Fairfax County and the Authority have engaged in discussions to extend the Service Agreement. Discussions are not at a The Authority has two major sources of revenue, including wastewater treatment charges paid by Alexandria customers and reimbursements of a proportion of expenses by Fairfax County. Under the Service Agreement, Fairfax County pays a percentage of operating expenses based upon flow volume. Fairfax County also pays sixty percent (60%) of the annual deposit into the Improvement, Renewal & Replacement Fund and the same percentage into the Capital Improvement Fund. Fairfax County and the Authority have engaged in discussions to extend the Service Agreement. Discussions are not at a final stage to establish a final document. Terms of the existing service agreement continue with joint project cost shared at 60% and 40% respectively. Fairfax participates in the cost of the Environmental Center and Parking Structure at 49% and 26% respectively. The Authority s Budget is a modified accrual basis document with revenues established based upon available resources. Alexandria Renew bills customers monthly for wastewater treatment based on water consumption at rates approved by the Board of Directors. The effect of the implementation of GASB 68 was to reduce beginning Net Position (September 30, 2014) by $9.2 million (see note 14 to financial statements) and to reduce FY2015 Personnel Service operating expenses by a net $690,000. The Authority s Budget includes sources/revenues for new debt issues that for accounting purposes are not shown as revenues but are included on the Statement of Net Position to comply with GAAP. Likewise, capital project spending and debt service principal payments are treated as capital outlays (expenses) for budget purposes but are included as assets and liabilities in the Statement of Net Position for GAAP compliance purposes. The Authority s budget expense classifications are in several cases different than the Financial Statement presentation as is the case for Personnel Services, Business Support and Professional Services. Certain Expenses for construction have been estimated net of contractual retainage not paid by contract terms until projects are complete. In some cases, the Authority has issued debt for its share of construction cost (Net of Fairfax share) through the Virginia Resources Authority (VRA). Bond proceeds are reimbursable by VRA to the Authority for progress payments made to contractors based upon submission of payment documents to the Virginia Department of Environmental Quality (DEQ). The significant differences in Debt Principal Payments and Proceeds from Debt are caused by the Authority entering into a transaction to refinance a portion of its 2008 Bonds to achieve a lower interest cost. Debt payments include the defeasance of $7.5 million in 2008 Bonds and the issuance of $7.8 million in new bonds to accomplish the interest rate reduction. The following Statement of Consolidated Enterprise Budget is presented to compare 2015 operations to budget estimate 27

36 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Budget Information, (Continued CONSOLIDATED ENTERPRISE BUDGET FY 2015 Revised FY 2015 EOY 2015 Actual Budget Variance Variance % Revenues and Other Sources: Wastewater Treatment charges $ 37,494,486 $ 37,500,000 $ (5,514) 0.01% Fairfax County: Operating 10,278,587 10,822,700 (544,113) 4.88% IR & R 2,348,904 2,348, % Total $ 50,121,977 $ 50,671,600 $ (549,623) 1.08% Expenditures: Personnel services 12,558,016 13,511,987 (953,971) 6.85% Fuel, Power & Utilities 2,937,466 3,057,508 (120,042) 4.12% Chemicals 1,437,048 1,500,000 (62,952) 4.09% Operations Maintenance (includes Product Support) 1,966,190 2,390,500 (424,310) 17.54% Business Support 2,107,635 1,578, , % Professional Services 1,888,348 1,399, , % Arlington Sewage Disposal 2,227,676 1,685, , % Alex only Improvement, Renewal & Replacement 433, , , % Joint Improvement, Renewal & Replacement 4,390,110 5,340,000 (949,890) 17.79% Alex only Capital Projects 6,311,975 6,280,000 31, % External Wastewater Treatment Capital 266, ,410 (374,823) 4.93% Joint Capital Projects 65,408,737 76,155,062 (10,746,325) 14.21% Total $ 101,933,662 $ 113,863,967 $ (11,930,305) 9.81% Nonoperating Revenues (Expenditures): Investment income 483, , , % Debt Principal Payments (15,800,434) (8,035,082) (7,765,352) % Debt Interest expense (3,975,648) (4,161,523) 185, % Proceeds from Debt 24,326,500 15,500,000 8,826, % Finance Fees 215,594 (410,000) 625, % Grants 2,121,162 4,021,452 (1,900,290) % Fairfax County contributions 34,400,616 41,183,537 (6,782,921) 16.19% Other Income % Total $ 41,771,130 $ 48,324,684 $ (6,553,554) 11.46% Excess (Deficiency) of Revenues $ (10,040,555) $ (14,867,683) 28

37 Alexandria Renew Enterprises Management s Discussion and Analysis (Continued) Final Comments Fiscal year 2015 continued a trend of strong financial performance by the Authority. This strong performance is needed for the Authority to maintain flexibility in future borrowing decisions, ensure that there is an appropriate reserve for operating expenses, and that we continue to provide for the effects of time and usage on the significant investment in equipment that is made as we continue upgrade efforts. Contacting the Authority s Financial Management: This financial report is designed to provide our citizens, customers, and creditors with a general overview of the Authority s finances and to demonstrate the Authority s accountability for the money it receives. If you have any questions about this report or need additional financial information, contact the Alexandria Renew Enterprises, 1500 Eisenhower Avenue, Alexandria, Virginia You can also call , or visit us on the web at 29

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39 BASIC FINANCIAL STATEMENTS 31

40 ALEXANDRIA RENEW ENTERPRISES Statement of Net Position September 30, 2015 (With Comparative Totals At September 30, 2014) Assets Current Assets Cash & Equivalents, Unrestricted $ 25,455,902 $ 31,217,645 Cash & Equivalents, Restricted 6,358,311 8,600,980 Accounts Receivable 7,344,898 13,467,469 Prepaid Expenses 536, ,580 Inventory 249, ,802 Inves tments: Res tricted 8,710,692 8,408,145 Unres tricted 17,331,365 17,047,746 Due from Fairfax County 8,469,666 6,607,177 Total Current As s ets $ 74,456,170 $ 86,428,544 Non-current Assets Capital Assets, Net of Depreciation $ 716,656,368 $ 651,084,163 Deferred Contributions Subsequent to the Measurement Date $ 1,180,030 $ - Deferred Charge on Refunding 1,152,831 - Total Deferred Outflows of Resources $ 2,332,861 $ - Total Assets and Deferred Outflows $ 793,445,399 $ 737,512,707 Liabilities, Deferred Inflows of Resourcesand Net Position Current Liabilities Current Maturities of Long-Term Debt $ 9,030,187 $ 8,246,878 Accrued Interest Payable 964, ,297 Accrued Paid Time Off 692, ,985 Accounts Payable 20,051,415 30,526,933 Line of Credit 10,019,000 1,030,439 Due to City of Alexandria 637, ,224 Total Current Liabilities $ 41,395,712 $ 41,743,756 Long-term Liabilities Other Pos t Employment Benefits $ 2,314,146 $ 2,158,331 Net Pension Liability 7,268,852 - Bonds Payable, Less Current Portion, Net 109,618, ,083,086 Unamortized Premium/Discount 2,145,717 (61,161) Accrued Paid Time Off, Less Current Portion 230, ,948 Total Long-term Liabilities $ 121,578,497 $ 106,414,204 Total Liabilities $ 162,974,209 $ 148,157,960 Deferred Inflows of Resources Net difference between projected and actual earnings on pension plan inves tments $ 2,432,782 $ - Total Deferred Inflows of Resources $ 2,432,782 $ - Total Liabilities and Deferred Inflows of Resources $ 165,406,991 $ 148,157,960 Net Position Net Inves tment in Capital As s ets 586,995, ,784,921 Res tricted: Operating 4,121,500 4,035,954 Parity Debt Service 2,466,002 2,265,129 Improvement, Renewal & Replacement 10,388,212 10,498,386 Unres tricted 24,067,364 34,770,357 Total Net Position $ 628,038,408 $ 589,354,747 Total Liabilities, Deferred Inflows of Resources and Net Position $ 793,445,399 $ 737,512,707 See Notes to Financial Statement. 32

41 Operating Revenues Wastewater Treatment Fees $ 37,494,486 $ 37,606,611 Fairfax County Wastewater Fees 10,278,587 10,953,398 Miscellaneous 26,008 6,044 Total Operating Revenues $ 47,799,081 $ 48,566,053 Operating Expenses Personnel Services $ 11,915,152 $ 12,464,250 Utilities 2,937,466 3,224,653 Chemicals 1,437,048 1,660,137 Operations Maintenance 724, ,709 Arlington Sewage Disposal 2,227,676 1,641,233 Sludge Disposal 839, ,754 Amortization 990, ,004 Depreciation 9,248,798 8,566,803 Construction and Replacements, Sewage Disposal Systems 17, ,741 General, Administrative, Customer Service and Other 5,023,878 4,594,881 Total Operating Expenses $ 35,361,377 $ 35,137,165 Operating Income $ 12,437,704 $ 13,428,888 Non-operating Revenues (Expenses) Investment Income $ 483,340 $ 283,273 Interest on Debt (2,897,048) (2,887,878) Loss on Impaired Assets (999,811) (384,320) Sale of Property and Development Rights - 1,000,000 Total Non-operating Revenues (Expenses) $ (3,413,519) $ (1,988,925) Change in Net Position Before Capital Contributions $ 9,024,186 $ 11,439,963 Capital Contributions $ 38,870,682 $ 52,160,996 Change in Net Position $ 47,894,868 $ 63,600,959 Net Position Beginning, as resated (Note 14) $ 580,143,541 $ 525,753,787 Ending $ 628,038,408 $ 589,354,747 See Notes to Financial Statement. ALEXANDRIA RENEW ENTERPRISES Statement of Revenues, Expenses and Changes in Net Position Year Ended September 30, 2015 (With Comparative Totals for Year Ended September 30, 2014) 33

42 ALEXANDRIA RENEW ENTERPRISES Statement of Cash Flows Year Ended September 30, 2015 (With Comparative Totals for Year Ended September 30, 2014) Cash Flows from Operating Activities Cash Received from Customers $ 39,183,031 $ 37,939,373 Cash Received from Fairfax County for Operations 10,959,698 10,620,386 Cash Received from Other Sources 26,008 6,044 Payments to Suppliers for Goods and Services (12,327,368) (13,179,889) Payments to Employees for Services (12,723,360) (12,007,406) Net Cash Provided by Operations $ 25,118,008 $ 23,378,507 Cash Flows from Capital and Related Financing Activities Acquisition/Construction of Capital Assets $ (76,858,213) $ (73,497,087) Contribution from Fairfax County 24,729,401 51,162,883 Proceeds from State Grants 6,458,155 2,986,234 Proceeds from Sale of Property - 1,000,000 Net Proceeds from Debt Issuance 24,326,500 14,094,979 Proceeds of Line of Credit, net 8,988,561 - Payment to escrow agent on bond refunding (8,601,282) - Principal Payments on Debt (8,276,422) (7,816,201) Interest Paid on Borrowing (3,786,293) (2,981,432) Net Cash Used in Capital and Related Financing Activities $ (33,019,594) $ (15,050,623) Cash Flows from Investing Activities Proceeds from Sales and Maturities of Investments $ 14,187,988 $ 45,384,342 Purchase of Investments (14,774,154) (45,799,043) Interest Received on Investments 483, ,273 Net Cash Used in Investing Activities $ (102,826) $ (131,428) Net Increase (Decrease) in Cash and Cash Equivalents $ (8,004,412) $ 8,196,456 Cash and Cash Equivalents Beginning of Year $ 39,818,625 $ 31,622,169 End of Year $ 31,814,213 $ 39,818,625 34

43 ALEXANDRIA RENEW ENTERPRISES STATEMENT OF CASH FLOWS (continued) Year Ended September 30, 2015 (With Comparative Totals for Year Ended September 30, 2014) Reconcilation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ 12,437,704 $ 13,428,888 Adjustments to reconcile operating income to Net Cash Provided by Operating Activities: Amortization 990, ,004 Depreciation 9,248,798 8,566,803 Pension expense net of of employer contributions (689,873) - Changes in Assets and Liabilities Decrease In Accounts Receivable 1,104, ,202 Decrease (Increase) In Inventory 24,798 (14,579) Decrease (Increase) In Prepaid Expense 269,248 (96,056) Decrease (Increase) In Due from Fairfax County 681,111 (333,012) Decrease (Increase) In Accrued Vacation and Sick Leave (299,665) 275,250 Increase In Accounts Payable and Accrued Expenses 691,483 53,854 Increase in Other Post Employment Benefits 155, ,594 Increase In Customer Deposits 336, ,103 Increase (Decrease) in Payable to City of Alexandria 167,515 (115,543) Net Cash Provided by Operating Activities $ 25,118,008 $ 23,378,507 Noncash Capital and related Financing Activities Capital asset purchases included in accounts payable at year end $ 16,932,042 $ 16,597,584 Reimbursement of capital grants due to Fairfax County included in accounts payable at year end $ 1,890,982 $ 12,048,613 Capitalized interest $ 1,298,314 $ 879,217 35

44 ALEXANDRIA RENEW ENTERPRISES STATEMENT OF FIDUCIARY NET POSITION Year Ended September 30, 2015 (With Comparative Totals for Year Ended September 30, 2014) OPEB Trust Fund ASSETS Assets held in trust, at fair value Investment in pooled funds $ 551,093 $ 385,678 Total assets $ 551,093 $ 385,678 NET POSITION Held in trust for other post-employment benefits $ 551,093 $ 385,678 Total net position $ 551,093 $ 385,678 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION Year Ended September 30, 2015 (With Comparative Totals for Year Ended September 30, 2014) OPEB Trust Fund ADDITIONS/REDUCTIONS Contributions from employer $ 181,594 $ 382,000 Investment Income: Net increase (decrease) in fair value of investments (14,698) 4,702 Less investment expenses (1,481) (1,024) Net investment income (loss) (16,179) 3, Total Additions (Reductions) $ 165,415 $ 385,678 Change in net position $ 165,415 $ 385,678 Total Net Position Held in Trust for Other Post-employment Benefits - beginning of year $ 385,678 $ - Total Net Position Held in Trust for Other Post-employment Benefits - end of year $ 551,093 $ 385,678 See Notes to Financial Statement. 36

45 Notes to Financial Statements Note 1. Description of Entity and Significant Accounting Policies Description of Entity As of May 15, 2012, the Authority s Board amended its bylaws to adopt the name of Alexandria Renew Enterprises as the official trade name of the Authority. Alexandria Renew Enterprises (the Authority) is a special governmental unit created by the City Council of Alexandria, Virginia (City Council) in 1952 for the purpose of constructing, operating and maintaining a wastewater treatment system for the City of Alexandria, Virginia. The Authority is chartered by the State Corporation Commission and is an independent public body. The Authority is governed by five board members who serve staggered terms and are appointed by the City Council. Although the members of the Authority are appointed by the City Council, the Authority is not part of the City s reporting entity and not considered a component unit under GASB Statement No. 14. No component units are included in the Authority s financial statements. The following is a summary of the Authority s significant accounting policies: Basis of Presentation and Accounting The Authority s financial statements are presented on the accrual basis in accordance with accounting principles generally accepted in the United States of America as applicable to the enterprise fund of governmental units. The primary activities of the Authority are accounted for within a single proprietary (enterprise) fund. Proprietary funds are used to account for operations that are (a) financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public 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. The accounting and financial reporting treatment applied to the Authority is determined by its measurement focus. The transactions of the Authority are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operations are included on the statement of net position. Net position (i.e., total assets plus deferred outflows, net of total liabilities plus deferred inflows) are segregated into net investment in capital assets, restricted and unrestricted components. The Authority also has a fiduciary fund for assets held by the Authority in a trustee capacity for its employees. The OPEB trust fund accounts for the receipt and disbursement of assets held in trust for the other post-employment benefit (OPEB) plan of the Authority. 37

46 Notes to Financial Statements Note 1. Description of Entity and Significant Accounting Policies, continued Revenues and Expenses Operating revenues and expenses consist of those revenues and expenses that result from the ongoing principal operations of the Authority. Operating revenues consist primarily of charges for services. Non-operating revenues and expenses consist of those revenues and expenses that are related to financing and investing types of activities and result from nonexchange transactions or ancillary activities. In accordance with an agreement with Fairfax County, the Authority recognizes as revenue the County s proportionate share of current operating expenses. Cash and Cash Equivalents The Authority considers all highly liquid investments with maturity of three months or less from date of purchase to be cash equivalents. Inventory Inventory, consisting of items held for consumption, are valued at cost using the first-in, first-out method. Investments Investments are stated at fair value, plus accrued interest in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Financial Policy In August 2010 the Board of the Authority revised its financial policy to increase its restricted cash reserves. Currently, the Bond Indenture requires that the Authority keep 60 days of operating expenses in reserve and the Authority has appropriately restricted these amounts. The Authority s new internal policy requires its restricted cash reserves to increase to 120 days of operating expenses or $8,071,908 at year end; however, only the amounts that are required by the debt agreements are shown as restricted in the financial statements. Investment Policy In accordance with the Code of Virginia and other applicable law, including regulations, the Authority s investment policy (Policy) permits investments in U.S. Treasury Securities, U.S. agency securities, municipal obligations, prime quality commercial paper, banker s acceptances with domestic banks, corporate notes at least AA, negotiable certificates of deposit of domestic banks, money market funds registered under the Federal Investment act of 1940, repurchase agreements collateralized by the U. S. Treasury and Federal Agency obligations, and the State Treasurer s Local Government Investment Pool (the Virginia LGIP, a 2a-7 like pool). 38

47 Notes to Financial Statements Note 1. Description of Entity and Significant Accounting Policies, continued Investment Policy, continued Pursuant to Sec of the Code of Virginia, the Treasury Board of the Commonwealth sponsors the LGIP and has delegated certain functions to the State Treasurer. The LGIP reports to the Treasury Board at their regularly scheduled monthly meetings and the fair value of the position in LGIP is the same as the value of the pool shares (i.e., the LGIP maintains a stable net asset value of $1 per share). The Policy limits investment maturities to five years maximum maturity for any investment, unless the Board of Directors approves an exception in writing. The investment policy establishes the maximum percentage of the portfolio permitted in each of the following instruments: U.S. Treasury Obligations Federal Agency Obligations Municipal Obligations Commercial Paper Bankers Acceptance Corporate Notes Negotiable Certificates of Deposit Money Market Mutual Funds Repurchase Agreements Local Government Investment Pool (LGIP) 100%, no limitation 100%, 35% issuer limit 10%, 3% issuer limit 25%, 3% issuer limit 25%, 3% issuer limit 10%, 3% issuer limit 10%, 50% issuer limit 100%, 50% issuer limit 35%, 35% issuer limit 100%, no limitation Capital Assets Purchased or constructed property, plant and equipment with a cost greater than $5,000 and an estimated useful life of 5 years or more is capitalized and recorded at historical cost. Interest related to costs and major improvements, renewals and replacements is capitalized as a cost of the project. Depreciation is computed on the straight-line basis over the estimated useful lives of the related assets. The estimated useful lives are as follows: Plant & Infrastructure Machinery & Equipment 67 years 5-10 years Capital assets also include intangible assets such as purchased capacity rights for the Arlington sewer treatment plant upgrade and expansion. Intangible assets are amortized over 40 years. Accrued Paid Time-Off Benefit There are no changes to the Authority s PTO policy since it converted employee s vacation and sick time benefit to a paid time-off benefit (PTO) during the 2014 fiscal year. The policy permits employees to accumulate a limited amount of earned but unused PTO benefits, which will be paid to employees upon separation from service. The accrued PTO Benefit is included in the Statement of Net Position as a liability. The accrued PTO benefit payable is included in the following table: 39

48 Notes to Financial Statements Note 1. Description of Entity and Significant Accounting Policies, continued Balance Balance Current 9/30/2014 Increases Decreases 9/30/2015 Portion $935,787 $968,216 ($980,735) $923,268 $692,451 Balance Balance Current 9/30/2013 Increases Decreases 9/30/2014 Portion $751,089 $680,216 ($495,518) $935,787 $701,840 Allocation of Expenses For purposes of the statement of revenues, expenses and changes in net position, payroll taxes and fringe benefits were allocated to operations and administration based on direct salaries. Restricted Net Position Certain funds have been or will be created (for internal purposes) in accordance with the flow of funds provisions of a Master Indenture of Trust executed in connection with bonds issued by the Authority to finance the installation of upgrade facilities for wastewater treatment and related costs. The following is a summary of those internal funds: Operating Fund The Operating Fund pays operating expenses for administration and operation and maintenance of the Sewage Disposal System as they become due. By the fifth business day before the end of each month, the Authority transfers an amount to bring the balance on deposit to one-sixth of the current annual amount budgeted for operating expenses, in accordance with the provisions outlined by the Master Indenture of Trust. The balance of the Operating Fund as of September 30, 2015 and 2014 was $4,121,500 and $4,035,954, respectively. Parity Debt Service Fund The Parity Debt Service Fund is created for debt that is in parity to revenue bonds pursuant to the Master Indenture of Trust. This fund is used to pay interest and principal payments for the Virginia Revolving Loan Fund when they become due. By the fifth business day before the end of the month, the Authority transfers an amount to bring the balance on deposit equal to the interest and principal accrued until the payment is due. The balance of the Parity Debt Service Fund as of September 30, 2015 and 2014 was $2,466,002 and $2,265,129, respectively. 40

49 Notes to Financial Statements Note 1. Description of Entity and Significant Accounting Policies, continued Improvement, Renewal and Replacement Fund The purpose of this fund is to provide for payment of capital improvements, costs of renewals and replacements, and improvements to the treatment plant portion of the Sewage Disposal System that is used jointly by the Authority and Fairfax County. The contribution to the fund is.7% of the total amount of capital expenditures made subsequent to October 1, 1997 for the joint portion of the system. The Authority funds this contribution at 40% and Fairfax County at 60%. The balance of the Improvement, Renewal and Replacement Fund as of September 30, 2015 and 2014 was $10,388,212 and $10,498,386, respectively. Construction Fund The Construction Fund was established to pay for the constructing of any improvement to the portion of the plant used jointly by the Authority and Fairfax County. Certain cash and investments are restricted to meet the requirements of the Master Indenture of Trust. Estimates The preparation of financial statements 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. Actual results could differ from those estimates. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Authority s Retirement Plan and the additions to/deductions from the Authority s Retirement Plan s net fiduciary position have been determined on the same basis as they were reported by the Virginia Retirement System (VRS). 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. 41

50 Notes to Financial Statements Note 1. Description of Entity and Significant Accounting Policies, continued Deferred Outflows/Inflows of Resources Deferred Outflows In addition to assets, the statements which present financial position report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Authority has two items that qualify for reporting in this category, which consists of contributions subsequent to the measurement date for pensions; this will be applied to the net pension liability in the next fiscal year. The second item is the deferred loss on refunding, which results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Deferred Inflows In addition to liabilities, the statements which present financial position report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to future periods and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has one type of item. The deferred inflow is the net difference between projected and actual earnings on pension plan investments. This difference will be recognized in pension expense over a closed five year period. Note 2. Cash on Deposit Deposits with banks are covered by the Federal Deposit Insurance Corporation (FDIC) and collateralized in accordance with the Virginia Security for Public Deposits Act (the Act ) Section et. seq. of the Code of Virginia. Under the Act, banks and savings institutions holding public deposits in excess of the amount insured by the FDIC must pledge collateral to the Commonwealth of Virginia Treasury Board. Financial institutions may choose between two collateralization methodologies and depending upon that choice, will pledge collateral that ranges in the amounts from 50% to 130% of excess deposits. Accordingly, all deposits are considered fully collateralized. 42

51 Notes to Financial Statements Note 3. Receivables and Payables Receivables and payables were composed of the following as of September 30, 2015 and 2014: Accounts receivable: Billed Customer services $ 2,541,456 $ 2,229,913 Unbilled Customer services 2,064,973 3,731,166 Due from Other Governments 2,737,922 7,452,042 Other ,347 $ 7,344,898 $ 13,467,468 Accounts payable: Vendors $ 19,745,787 $ 30,260,192 Accrued expenses: Payroll, payroll taxes and other $ 305,628 $ 266,741 Total accounts payable and accrued expenses $ 20,051,415 $ 30,526,933 Note 4. Investments Investments consist of the following at September 30, 2015 and 2014: Investment Type Certificates of Deposit $ 1,034,350 $ 2,097,869 Commercial Paper - 449,943 Corporate Notes 1,929,063 2,208,305 Mutual Funds 1,861,834 2,314,492 US Agencies 12,176,461 13,802,230 US Treasuries 8,923,100 4,465,953 LGIP 117, ,099 Total $ 26,042,057 $ 25,455,891 43

52 Notes to Financial Statements Note 4. Investments, continued Custodial Credit Risk Custodial credit risk is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. At September 30, 2015 and 2014, none of the Authority s investments are exposed to custodial credit risk. Investment Type Rating Rating Agency Credit Exposure as a % of Total Investments Certificates of Deposit AA+/Aaa S& P/ Moody's 3.97% Commercial Paper AAA/Aaa S& P/ Moody's 0.00% Corporate Notes AA+/Aaa S& P/ Moody's 7.41% Mutual Funds AA-/Aa3 S& P/ Moody's 7.15% US Agencies A-1/P-1 S& P/ Moody's 46.76% US Treasuries A-1/P-1 S& P/ Moody's 34.26% LGIP AAAm Standard & Poor's 0.45% Municipal Bonds AAA Standard & Poor's 0.00% Interest Rate Risk Interest rate risk is the risk that changes in market interest rates that will adversely affect the fair value of an investment. The Authority s portfolio management approach is active, allowing for periodic restructuring of the investment portfolio to take advantage of current and anticipated interest rate moves. The authority minimizes its exposure to interest rate risk by having an average investment horizon of 2.5 years and a limit of less than 5 years. The Authority s investments as of September 30, 2015 and 2014 are classified by interest rate risk as detailed below: 44

53 Notes to Financial Statements Note 4. Investments, continued 2015 Investment Type Fair Value Less Than One Year 1-3 Years 4-5 Years Total Certificates of Deposit $ 1,034,350 $ 1,034,350 $ - $ - $ 1,034,350 Corporate Notes 1,929,063 1,365, ,051-1,929,063 Mutual Funds 1,861,834 1,861, ,861,834 US Agencies 12,176,461 2,652,305 9,524,156-12,176,461 US Treasuries 8,923,100 3,245 2,438,140 6,481,715 8,923,100 LGIP 117, , ,249 Total $ 26,042,057 $ 7,033,995 $ 12,526,347 $ 6,481,715 $ 26,042,057 Reconciliation of Investments Investments - restricted 8,710,692 3,745,786 3,271,882 1,693,024 8,710,692 Investments 17,331,365 3,288,209 9,254,465 4,788,691 17,331,365 Total $ 26,042,057 $ 7,033,995 $ 12,526,347 $ 6,481,715 $ 26,042, Investment Type Fair Value Less Than One Year 1-3 Years 4-5 Years Total Certificates of Deposit $ 2,097,869 $ 550,569 $ 1,547,300 $ - $ 2,097,869 Commerical Paper 449, , ,943 Corporate Notes 2,208,305-2,208, ,208,305 Mutual Funds 2,314,492 2,314, ,314,492 US Agencies 13,802,230 1,354,377 9,594,990 2,852,862 13,802,230 US Treasuries 4,465,953-2,060,692 2,405,262 4,465,953 LGIP 117, , ,099 $ 25,455,891 $ 4,786,480 $ 15,411,287 $ 5,258,124 $ 25,455,891 Reconciliation of Investments Investments - restricted 8,408,145 3,010,219 4,025,428 1,372,498 8,408,145 Investments 17,047,746 1,776,261 11,385,859 3,885,626 17,047,746 Total $ 25,455,891 $ 4,786,480 $ 15,411,287 $ 5,258,124 $ 25,455,891 45

54 Notes to Financial Statements Note 5. Capital Assets Changes in capital assets are as follows: Balance, Balance, September 30, September 30, 2014 Additions Reductions 2015 Capital assets, not being depreciated: Land $ 40,020,695 $ 139,690 $ - $ 40,160,385 Construction in progress 139,135,243 71,512,632 (5,195,389) 205,452,486 Total capital assets, not being depreciated $ 179,155,938 $ 71,652,322 $ (5,195,389) $ 245,612,871 Capital assets, being depreciated Plant & Infrastructure $ 579,094,040 $ 2,281,673 $ (1,206,923) $ 580,168,790 Plant Equipment & Office Equipment 12,501,219 7,805,819 (78,100) 20,228,938 Total capital assets, being depreciated $ 591,595,259 $ 10,087,492 $ (1,285,023) $ 600,397,728 Less accumulated depreciation for: Plant & Infrastructure $ (148,796,784) $ (8,023,757) $ 210,038 $ (156,610,503) Plant Equipment & Office Equipment (5,167,996) (1,225,042) 75,174 (6,317,864) $ (153,964,780) $ (9,248,799) $ 285,212 $ (162,928,367) Total capital assets being depreciated, net $ 437,630,479 $ 838,693 $ (999,811) $ 437,469,361 Capital assets, being amortized Capacity rights 39,331,690 $ 266,588 $ - $ 39,598,278 Less accumulated amortization for: Capacity rights (5,033,944) $ (990,197) $ - $ (6,024,141) Total capital assets being amortized, net 34,297,746 $ (723,609) $ - $ 33,574,137 Total capital assets $ 651,084,163 $ 71,767,406 $ (6,195,200) $ 716,656,368 46

55 Notes to Financial Statements Note 5. Capital Assets, continued Balance, Balance, September 30, September 30, 2013 Additions Reductions 2014 Capital assets, not being depreciated: Land $ 39,966,378 $ 54,317 $ - $ 40,020,695 Construction in progress 78,290,530 78,357,306 (17,512,593) 139,135,243 Total capital assets, not being depreciated $ 118,256,908 $ 78,411,623 $ (17,512,593) $ 179,155,938 Capital assets, being depreciated Plant & Infrastructure $ 563,855,128 $ 15,691,912 $ (453,000) $ 579,094,040 Machinery & Equipment 7,901,367 4,662,227 (62,375) 12,501,219 Total capital assets, being depreciated $ 571,756,495 $ 20,354,139 $ (515,375) $ 591,595,259 Less accumulated depreciation for: Plant & Infrastructure $ (141,246,576) $ (8,219,721) $ 69,011 $ (149,397,286) Machinery & Equipment (4,282,787) (347,082) 62,375 (4,567,494) $ (145,529,363) $ (8,566,803) $ 131,386 $ (153,964,780) Total capital assets being depreciated, net $ 426,227,132 $ 11,787,336 $ (383,989) $ 437,630,479 Capital assets, being amortized Capacity rights $ 38,463,786 $ 867,904 $ - $ 39,331,690 Less accumulated amortization for: Capacity rights $ (4,055,150) $ (978,794) $ - $ (5,033,944) Total capital assets being amortized, net $ 34,408,636 $ (110,890) $ - $ 34,297,746 Total capital assets $ 578,892,676 $ 90,088,069 $ (17,896,582) $ 651,084,163 Arlington County Purchased Capacity Rights The Authority has entered into agreements with Arlington County, in which capacity was purchased for the rights to use Arlington County s wastewater treatment plant. These costs are capitalized as an intangible asset. Arlington County holds title to the plant. 47

56 Notes to Financial Statements Note 6. Long-Term Debt On March 15, 1999, the Authority executed a new Master Indenture of Trust for the purpose of issuing sewer revenue bonds from time to time. These bonds will provide funds to pay the cost, or any part of the cost, of the Sewage Disposal System additions or improvements or to refund indebtedness and obligations previously incurred for such purposes. The Authority has issued and sold sewer revenue bonds to the Virginia Water Facilities Revolving Fund, acting by and through the Virginia Resources Authority (VRA). The Master Indenture of Trust constitutes a contract among the Authority, the Trustee and VRA governing bond issuance. Sewer bonds consist of the following at September 30, 2015 and 2014: Sewer revenue bond, Series 1998A, $9,000,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $334,540, including principal and interest at 4% due through March $ 2,116,784 $ 2,690,461 Sewer revenue bond, Series 2000A, $25,000,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $889,850, including principal and interest at 3.5% due through March ,350,600 8,833,977 Sewer revenue bond, Series 2000B, $60,400,000; by pledge of revenues of the Authority; interest only payments due March 2002 and March 2005; semi-annual installments of approximately $2,405,000, including principal and interest at 3.85% due through September ,557,367 36,738,303 Sewer revenue bond, Series 2004, $22,000,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $742,125, including principal and interest beginning March 2006 at 3.10% due through September ,579,035 12,678,704 48

57 Notes to Financial Statements Note 6. Long-Term Debt, continued Sewer revenue bond, Series 2006A, $3,000,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $105,060, including principal and interest beginning in March 2006 at 3.10% due through September ,639,197 1,794,873 Sewer revenue bond, Series 2006B, $12,000,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $412,313 at 3.10% due through March ,850,245 8,438,377 Sewer revenue bond, Series 2008B, $9,265,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; annual installments of $181,569 to $595,081, including principal and interest, increasing annually, beginning October 2009 at an average interest cost of 5.37% due through October ,000 8,480,000 Sewer revenue bond, Series 2009, $15,000,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $536,250 beginning March 2011 at 3.55% due through September ,535,783 12,214,020 Sewer revenue bond, Series 2011, $8,115,767; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $260,604 beginning March 2014 at 2.35% due through September ,609,531 7,946,249 49

58 Notes to Financial Statements Note 6. Long-Term Debt, continued Sewer revenue bond, Series 2014A, $12,500,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $392,261 beginning March 2016 at 2.1% due through September ,500,000 12,500,000 Sewer revenue bond, Series 2014B, $2,500,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; semi-annual installments of $78,452 beginning March 2016 at 2.1% due through September ,500,000 15,000 Sewer revenue bond, Series 2014C, $19,515,000; secured equally and ratably with other bond issues by pledge of revenues of the Authority; annual installments of $399,833 to $3,203,294, including principal and interest, beginning April 2015 at 3.63%, due through April ,515,000 - $ 118,553,542 $ 112,329,964 Plus unamortized premium less unamortized discounts 2,241,327 (61,161) $ 120,794,869 $ 112,268,803 50

59 Notes to Financial Statements INTENTIONALLY LEFT BLANK 51

60 Notes to Financial Statements Note 6. Long-Term Debt Future debt service requirements for principal and interest for each debt outstanding as of September 30, 2015 are as follows: Years Ending 1998 Loan 2000 Loan 2004 Loan 2006 Loan 2008 Loan 2009 Loan September 30, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest ,238 46,315 4,843,573 1,504,382 1,134, , , , ,000 34, , , ,119 32,433 5,029,744 1,321,552 1,169, , , , ,000 24, , , ,329 18,224 5,223,092 1,131,677 1,205, , , , ,000 14, , , ,098 3,679 5,744, ,485 1,243, , , , ,000 4, , , ,253, ,066 1,282, , , , , , ,813, ,197 5,543, ,590 4,331, ,778 4,212, , ,147,428 27,070 3,643, , $ 2,116,784 $ 100,651 $ 40,907,966 $ 6,292,358 $ 11,579,035 $ 1,779,222 $ 9,489,443 $ 1,406,115 $ 800,000 $ 77,725 $ 11,535,783 $ 2,385,108 52

61 Notes to Financial Statements Note 6. Long-Term Debt, (Continued) 2011 Loan 2014A Loan 2014B Loan 2014C Loan Total Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 344, , , , ,953 51,952 15, ,209 8,934,577 4,115, , , , , ,168 49,736 15, ,591 9,498,002 3,554, , , , , ,430 47,474 15, ,897 9,813,227 3,242, , , , , ,741 45,164 15, ,128 10,142,581 2,919, , , , , ,099 42, , ,594 10,452,132 2,578,330 2,029, ,004 3,006, , , ,862 1,390,000 4,203,663 34,934,278 8,196,916 2,280, ,582 3,337, , , ,957 3,590,000 3,670,913 14,673,405 4,937,299 1,494,679 61,862 3,705, , ,384 35,685 12,110,000 1,901,019 17,980,340 2,215,897 2,125, ,841 2,125, ,841 $ 7,609,531 $ 1,765,153 $ 12,500,000 $ 3,191,258 $ 2,500,000 $ 559,635 $ 19,515,000 $ 14,367,853 $ 118,553,542 $ 31,925,079 53

62 Notes to Financial Statements Note 6. Long-Term Debt, (Continued) The changes in debt for the years ended September 30, 2015 and 2014 are as follows: Balance Balance September 30, September 30, Due Within 2014 Additions Reductions 2015 One Year Sewer revenue bonds $ 112,329,964 $ 22,000,000 $ (15,776,422) $ 118,553,542 $ 8,934,577 Less deferred amounts: Issuance discount (61,161) 2,326,500 (24,012) 2,241,327 95,610 Total bonds payable $ 112,268,803 $ 24,326,500 $ (15,800,434) $ 120,794,869 $ 9,030,187 Balance Balance September 30, September 30, Due Within 2013 Additions Reductions 2014 One Year Sewer revenue bonds $ 106,045,789 $ 14,094,979 $ (7,810,804) $ 112,329,964 $ 8,242,758 Less deferred amounts: Issuance discount (65,370) - - 4,210 $ (61,161) 4,120 Total bonds payable $ 105,980,419 $ 14,094,979 $ (7,806,595) $ 112,268,803 $ 8,246,878 Interest due under the above obligations was $4,014,061 and $3,725,770 for the years ended September 30, 2015 and 2014, respectively. During fiscal years 2015 and 2014, the Authority was in compliance with the covenants associated with the outstanding bond indentures. Note 7. Current Year Refunding of Debt In November 2014, the Authority issued $7,800,000 in Virginia Resource Authority bonds with an average interest rate of 4.2%. These bonds were issued to partially refund and defease approximately $7,500,000 in outstanding bond issuances in The net proceeds of the refunding were $8,679,810 (including $879,810 in bond premium). The liability for the partially refunded bonds has been replaced with the liability from the new debt with the difference between the reacquisition price and the net carrying amount of the old debt being deferred and amortized over the life of the new debt in proportion to the stated interest due on the new debt. The outstanding principal of the defeased bonds is $7, as of September 30, The advanced refunding reduced total debt service payments over the next 24 years by approximately $651,000. This results in an economic gain (difference between the present values of the debt service payments on the old and new debt) of approximately $449,

63 Notes to Financial Statements Note 8. Net Position Net Position represents the difference between assets deferred outflows of resources, liabilities and deferred inflows of resources. The classification of net position at September 30, 2015 and 2014 was as follows: Net Investment in Capital Assets: Net Property and Equipment in Service $ 716,656,368 $ 651,084,163 Less: Revenue Bonds Payable (120,794,869) (112,268,803) Line of Credit (10,019,000) (1,030,439) Deferred Charge on Refunding 1,152,831 0 $ 586,995,330 $ 537,784,921 Restricted: Operating $ 4,121,500 $ 4,035,954 Parity Debt Service 2,466,002 2,265,129 Improvement, Renewal and Replacement 10,388,212 10,498,386 $ 16,975,715 $ 16,799,469 Unrestricted $ 24,067,364 $ 34,770,357 Note 9. Defined Benefit Pension Plan Plan Description All full-time, salaried permanent employees of Alexandria Renew Enterprises are automatically covered by VRS Retirement Plan upon employment. This plan is administered by the Virginia Retirement System (the System) along with plans for other employer groups in the Commonwealth of Virginia. Members earn one month of service credit for each month they are employed and for which they and their employer pay contributions to VRS. Members are eligible to purchase prior service, based on specific criteria a defined in the Code of Virginia, as amended. Eligible prior service that may be purchased includes prior public service, active military service, certain periods of leave, and previously refunded service. The System administers three different benefit structures for covered employees Plan 1, Plan 2, and Hybrid. Each of these benefit structures has a different eligibility criteria. The specific information for each plan and the eligibility for covered groups within each plan are set out in the table below: 55

64 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued About Plan 1 RETIREMENT PLAN PROVISIONS PLAN 1 PLAN 2 About Plan 2 HYBRID RETIREMENT PLAN About the Hybrid Retirement Plan Plan 1 is a defined benefit plan. The retirement benefit is based on a member s age, creditable service, and average final compensation at retirement using a formula. Employees are eligible for Plan 1 if their membership date is before July 1, 2010, and they were vested as of January 1, Plan 2 is a defined benefit plan. The retirement benefit is based on a member s age, creditable service, and average final compensation at retirement using a formula. Employees are eligible for Plan 2 if their membership date is on or after July 1, 2010, or their membership date is before July 1, 2010, and they were not vested as of January 1, The Hybrid Retirement Plan combines the features of a defined benefit plan and a defined contribution plan. Most members hired on or after January 1, 2014 are in this plan, as well as Plan 1 and Plan 2 members who were eligible and opted into the plan during a special election window. (see Eligible Members ) The defined benefit is based on a member s age, creditable service, and average final compensation at retirement using a formula. The benefit from the defined contribution component of the plan depends on the member and employer contributions made to the plan and the investment performance of those contributions. In addition to the monthly benefit payment payable from the defined benefit plan at retirement, a member may start receiving distributions from the balance in the defined contribution account, reflecting the contributions, investment gains or losses, and any required fees. 56

65 Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Notes to Financial Statements Eligible Members Employees are in Plan 1 if their membership date is before July 1, 2010, and they were vested as of January 1, Hybrid Opt-In Election VRS non-hazardous duty covered Plan 1 members were allowed to make an irrevocable decision to opt into the Hybrid Retirement Plan during a special election window held January 1 through April 30, The Hybrid Retirement Plan s effective date for eligible Plan 1 members who opted in was July 1, If eligible deferred members returned to work during the election window, they were also eligible to opt into the Hybrid Retirement Plan. Members who were eligible for an optional retirement plan (ORP) and had prior service under Plan 1 were not eligible to elect the Hybrid Retirement Plan and remain as Plan 1 or ORP. Eligible Members Employees are in Plan 2 if their membership date is on or after July 1, 2010, or their membership date is before July 1, 2010, and they were not vested as of January 1, Hybrid Opt-In Election Eligible Plan 2 members were allowed to make an irrevocable decision to opt into the Hybrid Retirement Plan during a special election window held January 1 through April 30, The Hybrid Retirement Plan s effective date for eligible Plan 2 members who opted in was July 1, If eligible deferred members returned to work during the election window, they were also eligible to opt into the Hybrid Retirement Plan. Members who were eligible for an optional retirement plan (ORP) and have prior service under Plan 2 were not eligible to elect the Hybrid Retirement Plan and remain as Plan 2 or ORP. Eligible Members Employees are in the Hybrid Retirement Plan if their membership date is on or after January 1, This includes: Political subdivision employees* Members in Plan 1 or Plan 2 who elected to opt into the plan during the election window held January 1 through April 30, 2014; the plan s effective date for opt-in members was July 1, Those employees eligible for an optional retirement plan (ORP) must elect the ORP plan or the Hybrid Retirement Plan. If these members have prior service under Plan 1 or Plan 2, they are not eligible to elect the Hybrid Retirement Plan and must select Plan 1 or Plan 2 (as applicable) or ORP. 57

66 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Retirement Contributions Employees contribute 5.00% of their compensation each month to their member contribution account through a pre-tax salary reduction. Some political subdivisions elected to phase in the required 5.00% member contribution but all employees will be paying the full 5.00% by July 1, Member contributions are tax-deferred until they are withdrawn as part of a retirement benefit or as a refund. The employer makes a separate actuarially determined contribution to VRS for all covered employees. VRS invests both member and employer contributions to provide funding for the future benefit payment. Retirement Contributions Employees contribute 5.00% of their compensation each month to their member contribution account through a pre-tax salary reduction. Some political subdivisions elected to phase in the required 5.00% member contribution but all employees will be paying the full 5.00% by July 1, Retirement Contributions A member s retirement benefit is funded through mandatory and voluntary contributions made by the member and the employer to both the defined benefit and the defined contribution components of the plan. Mandatory contributions are based on a percentage of the employee s creditable compensation and are required from both the member and the employer. Additionally, members may choose to make voluntary contributions to the defined contribution component of the plan, and the employer is required to match those voluntary contributions according to specified percentages. 58

67 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Creditable Service Creditable service includes active service. Members earn creditable service for each month they are employed in a covered position. It also may include credit for prior service the member has purchased or additional creditable service the member was granted. A member s total creditable service is one of the factors used to determine their eligibility for retirement and to calculate their retirement benefit. It also may count toward eligibility for the health insurance credit in retirement, if the employer offers the health insurance credit. Creditable Service Same as Plan 1. Creditable Service Defined Benefit Component: Under the defined benefit component of the plan, creditable service includes active service. Members earn creditable service for each month they are employed in a covered position. It also may include credit for prior service the member has purchased or additional creditable service the member was granted. A member s total creditable service is one of the factors used to determine their eligibility for retirement and to calculate their retirement benefit. It also may count toward eligibility for the health insurance credit in retirement, if the employer offers the health insurance credit. Defined Contributions Component: Under the defined contribution component, creditable service is used to determine vesting for the employer contribution portion of the plan. 59

68 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Vesting Plan Description, continued Vesting Vesting Vesting is the minimum length of service a member needs to qualify for a future retirement benefit. Members become vested when they have at least five years (60 months) of creditable service. Vesting means members are eligible to qualify for retirement if they meet the age and service requirements for their plan. Members also must be vested to receive a full refund of their member contribution account balance if they leave employment and request a refund. Members are always 100% vested in the contributions that they make. Same as Plan 1. Defined Benefit Component: Defined benefit vesting is the minimum length of service a member needs to qualify for a future retirement benefit. Members are vested under the defined benefit component of the Hybrid Retirement Plan when they reach five years (60 months) of creditable service. Plan 1 or Plan 2 members with at least five years (60 months) of creditable service who opted into the Hybrid Retirement Plan remain vested in the defined benefit component. Defined Contributions Component: Defined contribution vesting refers to the minimum length of service a member needs to be eligible to withdraw the employer contributions from the defined contribution component of the plan. Members are always 100% vested in the contributions that they make. Upon retirement or leaving covered employment, a member is eligible to withdraw a percentage of employer contributions to the defined contribution component of the plan, based on service. 60

69 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Calculating the Benefit The Basic Benefit is calculated based on a formula using the member s average final compensation, a retirement multiplier, and total service credit at retirement. It is one of the benefit payout options available to a member at retirement. An early retirement reduction factor is applied to the Basic Benefit if the member retires with a reduced retirement benefit or selects a benefit payout option other than the Basic Benefit. Calculating the Benefit See definition under Plan 1. Vesting (Continued) Defined Contributions Component: (Continued) After two years, a member is 50% vested and may withdraw 50% of employer contributions. After three years, a member is 75% vested and may withdraw 75% of employer contributions. After four or more years, a member is 100% vested and may withdraw 100% of employer contributions. Distribution is not required by law until age 70½. Calculating the Benefit Defined Benefit Component: See definition under Plan 1. Defined Contribution Component: The benefit is based on contributions made by the member and any matching contributions made by the employer, plus net investment earnings on those contributions. 61

70 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Average Final Compensation A member s average final compensation is the average of the 36 consecutive months of highest compensation as a covered employee. Service Retirement Multiplier VRS: The retirement multiplier is a factor used in the formula to determine a final retirement benefit. The retirement multiplier for non-hazardous duty members is 1.70%. Average Final Compensation A member s average final compensation is the average of their 60 consecutive months of highest compensation as a covered employee. Service Retirement Multiplier VRS: Same as Plan 1 for service earned, purchased, or granted prior to January 1, For non-hazardous duty members the retirement multiplier is 1.65% for creditable service earned, purchased, or granted on or after January 1, Average Final Compensation Same as Plan 2. It is used in the retirement formula for the defined benefit component of the plan. Service Retirement Multiplier Defined Benefit Component: VRS: The retirement multiplier for the defined benefit component is 1.00%. For members who opted into the Hybrid Retirement Plan from Plan 1 or Plan 2, the applicable multipliers for those plans will be used to calculate the retirement benefit for service credited in those plans. 62

71 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Normal Retirement Age VRS: Age 65. Earliest Unreduced Retirement Eligibility VRS: Age 65 with at least five years (60 months) of creditable service or at age 50 with at least 30 years of creditable service. Normal Retirement Age VRS: Normal Social Security retirement age. Earliest Unreduced Retirement Eligibility VRS: Normal Social Security retirement age with at least five years (60 months) of creditable service or when their age and service equal 90. Normal Retirement Age Defined Benefit Component: VRS: Same as Plan 2. Defined Contribution Component: Members are eligible to receive distributions upon leaving employment, subject to restrictions. Earliest Unreduced Retirement Eligibility Defined Benefit Component: VRS: Normal Social Security retirement age and have at least five years (60 months) of creditable service or when their age and service equal 90. Defined Contribution Component: Members are eligible to receive distributions upon leaving employment, subject to restrictions. 63

72 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Earliest Reduced Retirement Eligibility VRS: Age 55 with at least five years (60 months) of creditable service or age 50 with at least 10 years of creditable service. Cost-of-Living Adjustment (COLA) in Retirement The Cost-of-Living Adjustment (COLA) matches the first 3.00% increase in the Consumer Price Index for all Urban Consumers (CPI-U) and half of any additional increase (up to 4.00%) up to a maximum COLA of 5.00%. Eligibility: For members who retire with an unreduced benefit or with a reduced benefit with at least 20 years of creditable service, the COLA will go into effect on July 1 after one full calendar year from the retirement date. Earliest Reduced Retirement Eligibility VRS: Age 60 with at least five years (60 months) of creditable service. Cost-of-Living Adjustment (COLA) in Retirement The Cost-of-Living Adjustment (COLA) matches the first 2.00% increase in the CPI-U and half of any additional increase (up to 2.00%), for a maximum COLA of 3.00%. Eligibility: Same as Plan 1. Earliest Unreduced Retirement Eligibility Defined Benefit Component: VRS: Members may retire with a reduced benefit as early as age 60 with at least five years (60 months) of creditable service. Defined Contribution Component: Members are eligible to receive distributions upon leaving employment, subject to restrictions. Cost-of-Living Adjustment (COLA) in Retirement Defined Benefit Component: Same as Plan 2. Defined Contribution Component: Not applicable. Eligibility: Same as Plan 1 and Plan 2. 64

73 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Cost-of-Living Adjustment (COLA) in Retirement (Continued) Eligibility: (Continued) For members who retire with a reduced benefit and who have less than 20 years of creditable service, the COLA will go into effect on July 1 after one calendar year following the unreduced retirement eligibility date. Exceptions to COLA Effective Dates: The COLA is effective July 1 following one full calendar year (January 1 to December 31) under any of the following circumstances: The member is within five years of qualifying for an unreduced retirement benefit as of January 1, The member retires on disability. The member retires directly from short-term or long-term disability under the Virginia Sickness and Disability Program (VSDP). The member is involuntarily separated from employment for causes other than job performance or misconduct and is eligible to retire under the Workforce Transition Act or the Transitional Benefits Program. Cost-of-Living Adjustment (COLA) in Retirement (Continued) Exceptions to COLA Effective Dates: Same as Plan 1. Cost-of-Living Adjustment (COLA) in Retirement (Continued) Exceptions to COLA Effective Dates: Same as Plan 1 and Plan 2. 65

74 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Cost-of-Living Adjustment (COLA) in Retirement (Continued) Exceptions to COLA Effective Dates: (Continued) The member dies in service and the member s survivor or beneficiary is eligible for a monthly death-in-service benefit. The COLA will go into effect on July 1 following one full calendar year (January 1 to December 31) from the date the monthly benefit begins. Disability Coverage Members who are eligible to be considered for disability retirement and retire on disability, the retirement multiplier is 1.70% on all service, regardless of when it was earned, purchased, or granted. VSDP members are subject to a one-year waiting period before becoming eligible for non-workrelated disability benefits. Disability Coverage Members who are eligible to be considered for disability retirement and retire on disability, the retirement multiplier is 1.65% on all service, regardless of when it was earned, purchased, or granted. VSDP members are subject to a one-year waiting period before becoming eligible for non-work related disability benefits. Disability Coverage Employees of political subdivisions (including Plan 1 and Plan 2 opt-ins) participate in the Virginia Local Disability Program (VLDP) unless their local governing body provides and employer-paid comparable program for its members. Hybrid members (including Plan 1 and Plan 2 opt-ins) covered under VLDP are subject to a one-year waiting period before becoming eligible for non-work-related disability benefits. 66

75 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Plan Description, continued Purchase of Prior Service Members may be eligible to purchase service from previous public employment, active duty military service, an eligible period of leave or VRS refunded service as creditable service in their plan. Prior creditable service counts toward vesting, eligibility for retirement and the health insurance credit. Only active members are eligible to purchase prior service. When buying service, members must purchase their most recent period of service first. Members also may be eligible to purchase periods of leave without pay. Purchase of Prior Service Same as Plan 1. Purchase of Prior Service Defined Benefit Component: Same as Plan 1, with the following exceptions: Hybrid Retirement Plan members are ineligible for ported service. The cost for purchasing refunded service is the higher of 4.00% of creditable compensation or average final compensation. Plan members have one year from their date of hire or return from leave to purchase all but refunded prior service at approximate normal cost. After that one-year period, the rate for most categories of service will change to actuarial cost. Defined Contribution Component: Not applicable. 67

76 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued Employees Covered by Benefit Terms As of the June 30, 2013 actuarial valuation, the following employees were covered by the benefit terms of the pension plan: Number Inactive members or their beneficiaries currently receiving benefits 76 Inactive members: Vested inactive members 9 Non-vested inactive members 17 Inactive members active elsewhere in VRS 6 Total inactive members 32 Active members 95 Total covered employees 203 Contributions The contribution requirement for active employees is governed by of the Code of Virginia, as amended, but may be impacted as a result of funding options provided to political subdivisions by the Virginia General Assembly. Employees are required to contribute 5.00% of their compensation toward their retirement. Prior to July 1, 2012, all or part of the 5.00% member contribution may have been assumed by the employer. Beginning July 1, 2012 new employees were required to pay the 5.00% member contribution. In addition, for existing employees, employers were required to begin making the employee pay the 5.00% member contribution. This could be phased in over a period of up to 5 years and the employer is required to provide a salary increase equal to the amount of the increase in the employee-paid member contribution. 68

77 Notes to Financial Statements Note 9. Defined Benefit Pension Plan (Continued) Contributions (Continued) The Authority s contractually required contribution rate for the year ended June 30, 2015 was 11.08% of covered employee compensation. This rate was based on an actuarially determined rate from an actuarial valuation as of June 30, This rate, when combined with employee contributions, was expected to finance the costs of benefits earned by employee during the year, with an additional amount to finance any unfunded accrued liability. Contributions to the pension plan from the political subdivision were $956,177 and $852,928 for the years ended June 30, 2015 and June 30, 2014, respectively. Net Pension Liability The Authority s net pension liability was measured as of June 30, The total pension liability used to calculate the net pension liability was determined by an actuarial valuation performed as of June 30, 2013, using updated actuarial assumptions, applied to all periods included in the measurement and rolled forward to the measurement date of June 30, Actuarial Assumptions General Employees The total pension liability for General Employees in the Political Subdivision s Retirement Plan was based on an actuarial valuation as of June 30, 2013, using the Entry Age Normal actuarial cost method and the following assumptions, applied to all periods included in the measurement and rolled forward to the measurement date of June 30, Inflation 2.50% Salary increases, including inflation % Investment rate of return 7.00%, net of pension plan investment expense, including inflation* * Administrative expenses as a percent of the market value of assets for the last experience study were found to be approximately 0.06% of the market assets for all of the VRS plans. This would provide an assumed investment return rate for GASB purposes of slightly more than the assumed 7.00%. However, since the difference was minimal, and a more conservative 7.00% investment return assumption provided a projected plan net position that exceeded the projected benefit payments, the long-term expected rate of return on investments was assumed to be 7.00% to simplify preparation of pension liabilities. 69

78 Notes to Financial Statements Note 9. Defined Benefit Pension Plan (Continued) The actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the period from July 1, 2008 through June 30, Changes to the actuarial assumptions as a result of the experience study are as follows: Update mortality table Decrease in rates of service retirement Decrease in rates of disability retirement Reduce rates of salary increase by 0.25% per year Assumptions for Participants with General Employees Benefit Coverage 1. Mortality Rates 14% of deaths are assumed to be service related a. Pre-Retirement RP-2000 Employee Mortality Table Projected with Scale AA to 2020 with Males set forward 4 years and Females set back 2 years b. Post-Retirement RP-2000 Combined Mortality Table Projected with Scale AA to 2020 with Males set forward 1 year. c. Post-Disablement RP-2000 Disabled Life Mortality Table with Males set back 3 years and no provision for future mortality improvement. 70

79 Notes to Financial Statements Note 9. Defined Benefit Pension Plan (Continued) Actuarial Assumptions General Employees (Continued) Deaths Per 100 Members Male Participants Female Participants Age Pre Retirement Post Retirement Post Disablement Pre Retirement Post Retirement Post Disablement Mortality improvement is anticipated under the post-retirement mortality assumption as projected with scale AA. Long-Term Expected Rate of Return The long-term expected rate of return on pension System investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension System 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 asset allocation and best estimate of arithmetic real rates of return for each major asset class are summarized in the following table: 71

80 Notes to Financial Statements Note 9. Defined Benefit Pension Plan (Continued) Weighted Arithmetic Average Long-Term Long-Term Expected Expected Target Rate of Rate of Asset Class (Strategy) Allocation Return Return U.S. Equity % 6.46 % 1.26 % Developed Non U.S. Equity % 6.28 % 1.04 % Emerging Market Equity 6.00 % % 0.60 % Fixed Income % 0.09 % 0.01 % Emerging Debt 3.00 % 3.51 % 0.11 % Rate Sensitive Credit 4.50 % 3.51 % 0.16 % Non Rate Sensitive Credit 4.50 % 5.00 % 0.23 % Convertibles 3.00 % 4.81 % 0.14 % Public Real Estate 2.25 % 6.12 % 0.14 % Private Real Estate % 7.10 % 0.91 % Private Equity % % 1.25 % Cash 1.00 % (1.50)% (0.02)% Total % 5.83 % Inflation 2.50 % * Expected arithmetic nominal return 8.33 % * Using stochastic projection results provides an expected range of real rates of return over various time horizons. Looking at one year results produces an expected real return of 8.33% but also has a high standard deviation, which means there is high volatility. Over larger time horizons the volatility declines significantly and provides a median return of 7.44%, including expected inflation of 2.50%. 72

81 Notes to Financial Statements Note 9. Defined Benefit Pension Plan (Continued) Discount Rate The discount rate used to measure the total pension liability was 7.00%. The projection of cash flows used to determine the discount rate assumed that System member contributions will be made per the VRS Statutes and the employer contributions will be made in accordance with the VRS funding policy at rates equal to the difference between actuarially determined contribution rates adopted by the VRS Board of Trustees and the member rate. Through the fiscal year ending June 30, 2018, the rate contributed by the employer for the Political Subdivision Retirement Plan will be subject to the portion of the VRS Board-certified rates that are funded by the Virginia General Assembly. From July 1, 2018 on, participating employers are assumed to contribute 100% of the actuarially determined contribution rates. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore the long-term expected rate of return was applied to all periods of projected benefit payments to determine the total pension liability. Changes in Net Pension Liability Increase (Decrease) Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability (a)-(b) Balances at June 30, 2013 $ 45,136,677 $ 34,848,690 $ 10,287,987 Changes for the year: Service cost 757, ,878 Interest 3,092,779-3,092,779 Differences between expected and actual experience Contributions - Employer - 852,928 (852,928) Contributions - Employee - 583,295 (583,295) Net investment income - 5,462,840 (5,462,840) Benefit payments, including refunds of employee contributions (1,908,245) (1,908,245) - Administrative expenses - (29,559) 29,559 Other changes (288) Net Changes 1,942,412 4,961,547 (3,019,135) Balances at June 30, 3014 $ 47,079,089 $ 39,810,237 $ 7,268,852 73

82 Notes to Financial Statements Note9. Defined Benefit Pension Plan (Continued) Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the political subdivision using the discount rate of 7.00%, as well as what the political subdivision s net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.00%) or one percentage point higher (8.00%) than the current rate: 1.00% Current 1.00% Decrease Discount Increase (6.00%) Rate (7.00%) (8.00%) Authority's net pension liability $ 13,465,248 $ 7,268,852 $ 2,094,447 Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2015, the Authority recognized pension expense of $266,575. At September 30, 2015, the Authority reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ - $ - Change in assumptions - - Net difference between projected and actual earnings on pension plan investments - 2,432,782 Employer contributions subsequent to the measurement date 1,180,030 - Total $ 1,180,030 $ 2,432,782 74

83 Notes to Financial Statements Note 9. Defined Benefit Pension Plan, continued The Authority reported as deferred outflows of resources related to pensions resulting from the Political Subdivision s contributions subsequent to the measurement date will be recognized as a reduction of the Net Pension Liability in the year ended September 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending September 30, Reduction to Pension Expense 2016 $ 608, , , ,197 Thereafter 0 Payables to the Pension Plan At September 30, 2015, approximately $109,000 was payable to the Virginia Retirement System for the legally required contributions related to September 2015 payroll. Note 10. Other Post-Employment Benefits The Authority provides limited post-retirement benefits such as health, dental and vision insurance to retirees who have five or more years of service with the Authority. The Authority pays 25% of medical insurance costs of retirees with five or more years of service. The remaining amounts of insurance premiums are paid by the retiree. Prior to fiscal 2014 the Authority also provided a post-retirement life insurance benefit to retirees. The Authority has discontinued its post retirement life insurance coverage for retirees. The Authority had an actuarial valuation of post-employment benefits performed as of September 30, GASB Statement No. 45 does not require pre-funding of OPEB liabilities. The Authority began to pre-fund OPEB liabilities as recorded in its OPEB Trust Fund. At September 30, 2015 and 2014, the Authority has recorded a liability of $2,314,146 and $2,158,331, respectively, on the Statement of Net Position. 75

84 Notes to Financial Statements Note 10. Other Post-Employment Benefits, continued The Authority s annual OPEB cost was $267,308 and $256,000 for the health insurance plan, for fiscal years ending September 30, 2015 and 2014, respectively. The pay as you go cost for the Authority s OPEB benefits was $111,493 and $74,406 for the health insurance plan, for the years ending September 30, 2015 and 2014, respectively. The percentage of annual OPEB cost contributed is 42% and 29%, respectively, for the fiscal years ending September 30, 2015 and In accordance with GASB Statement No. 45, the Authority s OPEB expense is calculated based on the annual required contribution (ARC). The ARC represents a level of funding that, if paid on an on-going basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) over a period not to exceed thirty years. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members at that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the actuarial valuation, the entry age normal actuarial cost method was used. The valuation results are based on discount rate of 3.0%, an annual payroll growth rate of 3%, and an annual healthcare cost trend rate of 7.5% initially, decreasing annually to a rate of 4.4%. An inflation rate of 2.5% is used in the assumptions. The unfunded liability is amortized over an open period of 30 years at a level percentage of pay. Actuarial valuations of an on-going plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revisions as actual results are compared with past expectations and new estimates are made for the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. 76

85 Notes to Financial Statements Note 10. Other Post-Employment Benefits, continued The following table shows the calculation of the net OPEB obligation at September 30: September 30, Annual Required Contribution (ARC) Add: Interest on prior years OPEB Obligation Less: Adjustment to ARC Annual OPEB Costs Pay as You Go OPEB Cost (Contributions) Increase in Net OPEB Obligations Net OPEB Obligations End of Year ,216 64,750 (76,658) 267,308 (111,493) 155,815 2,314, ,566 59,302 (67,868) 256,000 (74,406) 181,594 2,158, ,561 55,370 (63,368) 261,563 (130,504) 131,059 1,976, ,691 44,228 (50,617) 480,302 (108,900) 371,402 1,845, ,792 29,577 (36,929) 615,440 (127,080) 488,360 1,474, ,096 14,811 (18,173) 595,734 (103,507) 492, , , ,157 (82,468) 493, ,689 As of September 30, 2013, the most recent actuarial valuation date, the plan was not funded. However, the Authority has established an OPEB Trust for the purpose of funding its future obligations. Subsequent to year end, the Authority has modified its retiree health benefits such as the adoption of high deductible health insurance plans that will reduce its liability in future years. The actuarial value of assets was undetermined at year end 2015; however the Authority had an unfunded actuarial accrued liability (UAAL) of $3,793,763. The covered payroll was $8,944,084 and the ratio of the UAAL to covered payroll was 42.2%. Three-Year Trend Information Annual Percentage Net OPEB OPEB of Annnual OPEB Obligations September 30, Costs Contributions End of Year 2015 $ 267, % $ 2,314, $ 256, % $ 2,158, $ 261, % $ 1,976,737 During 2014, the Authority established a trust fund to fund the cost of OPEB. The trust fund was established by the Authority with the Virginia Pooled OPEB Trust Fund (Trust), sponsored by the Virginia Municipal League and the Virginia Association of Counties. The Trust is established as an investment vehicle for participating employers to accumulate assets to fund OPEB Plan assets for purposes of GASB Statement No. 45 are segregated and restricted in a trust, in which (a) contributions to the plan are irrevocable, (b) assets are dedicated to providing benefits to retirees and their beneficiaries, and (c) assets are legally protected from creditors of the employer or plan administrator, for the payment of benefits in accordance with terms of the plan. 77

86 Notes to Financial Statements Note 10. Other Post-Employment Benefits, continued Investment decisions for the fund s assets are made by the Board of Trustees. The Board of Trustees established investment objectives, risk tolerance and asset allocation policies in light of the investment policy, market and economic conditions, and generally prevailing prudent investment practices. The Board of Trustees also monitors the investments to ensure adherence to the adopted policies and guidelines. In addition, the Trustees review, monitor, and evaluate the performance of the investments and its investment advisors in light available investment opportunities, market conditions and publicly available indices for the generally accepted evaluation and measurement of such performance. Specific investment information for the Trust can be obtained by writing to VML/VACo Finance Program, 1108 East Main Street, Richmond, Virginia Note 11. Line of Credit The Authority maintained its Bank Line of Credit under the same terms as in prior year. The interest rate is a variable rate calculated for each month as 69.75% of the one-month LIBOR rate plus 55 basis points. The rate was 0.520% and 0.83% at September 30, 2015 and 2014, respectively. The Authority has pledged net revenues to secure the payment of principal and interest. The revolving credit agreement constitutes subordinate debt under the Master Indenture of Trust discussed in Note 6. The Authority s line of credit was established to provide for funds to meet cash flow needs for construction activity as required. Activity on this line of credit for the years ended September 30, 2015 and 2014 consists of the following: Balance, beginning $ 1,030,439 $ 1,030,439 Increases 10,019, Decreases (1,030,439) - - Balance, ending $ 10,019,000 $ 1,030,439 Interest and fees of $41,262 and $8,695 was paid on the line of credit during the fiscal years ended September 30, 2015 and 2014, respectively. Note 12. Risk Management The Authority is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These risks are covered by commercial insurance purchased from independent third parties. There have been no significant reductions in insurance coverage from the prior year. Settled claims have not exceeded insurance coverage in the past three years. 78

87 Notes to Financial Statements Note 13. Commitments and Contingencies Waste-to-Energy Facility In 1984, as an accommodation to the City of Alexandria and Arlington County, the Authority agreed to be a party to an agreement to construct a waste-to-energy facility. The Authority s main role is to help meet imposed funding requirements. During 1985, the facility was sold to a private equity owner. As a condition of the sale, Alexandria Renew Enterprises and the Arlington Solid Waste Authority will hold the title to the facility until the obligation of the purchase agreements are met. In 1998, two series of revenue bonds were issued on behalf of the waste-to-energy facility. The Series 1998A revenue bonds were issued to refund the original Series 1954 bonds. Series 1998B bonds were issued to finance capital improvements, including retrofitting the facility with certain air pollution control equipment. In accordance with the agreements, at no time will the revenues or assets of the Authority be obligated or used to satisfy the debts and liabilities of the waste-to-energy facility. Other During the current fiscal year, the Authority entered into various construction contracts. As of September 30, 2015, approximately $30.4 million is outstanding for work that has not yet been completed. From time to time, the Authority is involved in various legal actions arising in the normal course of business. In the opinion of management, such matters will not have a material effect upon the financial position of the Authority. Note 14. Restatement of Net Position In the current year the Authority adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions An Amendment of GASB Statement No. 27, as amended by GASB Statement No. 71. This standard replaces the requirements of GASB Statements No. 27 and No. 50 as they relate to governments that provide pensions through pension plans administered as trusts or similar arrangements that meet certain criteria. The new Statement requires governments providing defined benefit pensions to recognize the long-term obligation for pension benefits as a liability for the first time and to more comprehensively and comparably measure the annual costs of pension benefits. The Statement also enhances accountability and transparency through revised and new note disclosures and required supplementary information, including disclosing descriptive information about the types of benefits provided, how contributions to the pension plan are determined, and assumptions and methods used to calculate the pension liability. Comparative prior year information, to the extent presented, has not been restated because the necessary information is not available. The following is a summary of the restatement to fund balance and net position, as applicable, resulting from the adoption of GASB Statement No. 68: 79

88 Notes to Financial Statements Note 14. Restatement of Net Position, continued Net position, September 30, 2014, as previously reported $ 589,354,747 Recognition of pension related liabilities and deferred outflows in accordance with GASB No. 68 (9,211,206) Net position September 30, 2014, as restated $ 580,143,541 Note 15. New Governmental Accounting Standards Board (GASB) Pronouncements The Governmental Accounting Standards Board (GASB) has issued the following Statements which are not yet effective. GASB Statement No.72, Fair Value Measurement and Application addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. This Statement will be effective for the year ending June 30, GASB Statement No.74, Financial Reporting for Postemployment Benefit Plans Other than Pensions improves the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement will be effective for the year ending June 30,

89 Notes to Financial Statements Note 15. New Governmental Accounting Standards Board (GASB) Pronouncements, continued GASB Statement No.75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement will be effective for the year ending June 30, GASB Statement No.76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments identifies in the context of the current governmental financial reporting environment the hierarchy of generally accepted accounting principles (GAAP). The GAAP hierarchy consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement will be effective for the year ending June 30, 2016 and should be applied retroactively. Earlier application is permitted. GASB Statement No.77, Tax Abatement Disclosures, requires governments to disclose information about the nature and magnitude of tax abatements granted to a specific taxpayer, typically for the purpose of economic development. This does not cover programs that reduce the tax liabilities of broad classes of taxpayers, such as senior citizens or veterans, and which are not the product of individual agreements with each taxpayer. The Statement does not consider issues related to recognition. This Statement will be effective for the year ending June 30, Management has not yet evaluated the effects, if any, of adopting these standards. 81

90 SUPPLEMENTARY SECTION 82