CITY OF VIRGINIA BEACH DEVELOPMENT AUTHORITY

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1 New Issue Book-Entry Only Ratings: Fitch: AA+ Moody s: Aa1 S&P: AA+ (See RATINGS herein) This Official Statement has been prepared by the City of Virginia Beach, Virginia (the City ), on behalf of the City of Virginia Beach Development Authority (the Authority ) to provide information on the Series 2016 Bonds, the security therefor, the City, the projects being financed with the proceeds of the Series 2016 Bonds and other relevant information. Selected information is presented on this cover page for the convenience of the user. To make an informed decision regarding the Series 2016 Bonds, a prospective investor should read this Official Statement in its entirety. CITY OF VIRGINIA BEACH DEVELOPMENT AUTHORITY $21,225,000 PUBLIC FACILITY REVENUE BONDS, SERIES 2016A $7,880,000 PUBLIC FACILITY REFUNDING REVENUE BONDS, SERIES 2016B (FEDERALLY TAXABLE) Dated Date: Date of Delivery Due: As shown on the inside cover Interest Rates/Yields See inside cover. Security THE SERIES 2016 BONDS WILL BE LIMITED OBLIGATIONS OF THE AUTHORITY, PAYABLE SOLELY FROM CERTAIN PAYMENTS TO BE MADE BY THE CITY, PURSUANT TO A SUPPORT AGREEMENT DATED AS OF SEPTEMBER 1, 2003, AS SUPPLEMENTED AND AMENDED (THE SUPPORT AGREEMENT ), BETWEEN THE CITY AND THE AUTHORITY, FROM CERTAIN FUNDS AND THE INVESTMENT INCOME THEREFROM HELD UNDER THE AGREEMENT OF TRUST, HEREIN DESCRIBED, UNDER WHICH THE SERIES 2016 BONDS WILL BE ISSUED. THE UNDERTAKING BY THE CITY TO MAKE PAYMENTS UNDER THE SUPPORT AGREEMENT WILL BE SUBJECT TO ANNUAL APPROPRIATIONS BY THE CITY. THE SUPPORT AGREEMENT, THE SERIES 2016 BONDS AND THE INTEREST THEREON SHALL NOT BE DEEMED TO CONSTITUTE A GENERAL OBLIGATION DEBT OR A PLEDGE OF THE FAITH AND CREDIT OF THE COMMONWEALTH OF VIRGINIA OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY AND THE CITY. THE AUTHORITY HAS NO TAXING POWER. See SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016 BONDS. Tax Status Interest on the Series 2016A Bonds (1) will not be included in gross income for federal income tax purposes and (2) will not be a specific preference item for purposes of the federal alternative minimum tax; however such interest is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations. Interest on the Series 2016B Bonds will be included in gross income for federal income tax purposes. Interest on the Series 2016A Bonds and Series 2016B Bonds will be exempt from income taxation by the Commonwealth of Virginia. See TAX MATTERS and Appendix C. Trustee U.S. Bank National Association, Richmond, Virginia. Purpose The proceeds of the Series 2016A Bonds will be used to finance various governmental capital improvements in the City of Virginia Beach, Virginia and to pay issuance costs of the Series 2016A Bonds. The proceeds of the Series 2016B Bonds will be used to refund certain taxable public facility revenue bonds previously issued by the Authority and to pay issuance costs of the Series 2016B Bonds. See THE CAPITAL PROJECTS and REFUNDING. Interest Payment Dates May 1 and November 1, commencing May 1, Redemption The Series 2016A Bonds are subject to redemption prior to maturity. See DESCRIPTION OF SERIES 2016 BONDS -- Redemption. The Series 2016B Bonds are not subject to redemption prior to maturity. Denominations $5,000 and integral multiples thereof. Closing/Delivery Date On or about November 3, Registration Full book-entry only; The Depository Trust Company, New York, New York. Appendix E. Financial Advisor Public Resources Advisory Group, New York, New York. Bond Counsel Kutak Rock LLP, Richmond, Virginia. Conditions Affecting Issuance The Series 2016 Bonds are offered when, as and if issued, subject to, among other conditions, the legal opinion of Kutak Rock LLP. Dated: October 18, 2016 See

2 City of Virginia Beach Development Authority $21,225,000 Public Facility Revenue Bonds, Series 2016A Due: November 1, as shown below Maturity Principal Amount Interest Rate Yield CUSIP Number ** 2017 $1,265, % 0.850% 92774G KV ,265, G KW ,265, G KX ,265, G KY ,265, G KZ ,265, G LA ,260, G LB ,260, G LC , G LD , G LE , * 92774G LF , * 92774G LG , * 92774G LH , * 92774G LJ , * 92774G LK , * 92774G LL , G LM , G LN , G LP , G LQ6 *Yield to November 1, 2026 optional redemption date. $7,880,000 Public Facility Refunding Revenue Bonds, Series 2016B (Federally Taxable) Due: May 1, as shown below Maturity Principal Amount Interest Rate Yield CUSIP Number ** 2017 $495, % 0.900% 92774G LR , G LS , G LT , G LU , G LV , G LW , G LX , G LY , G LZ , G MA , G MB , G MC6 Summary of Optional Redemption Provisions The Series 2016A Bonds maturing on and after November 1, 2027 are subject to redemption at the option of the Authority, at the direction of the City, in whole or in part, on any date on and after November 1, 2026 at the redemption price of 100% of the principal amount of the Series 2016A Bonds to be redeemed, plus interest accrued to the redemption date. See Redemption herein. The Series 2016B Bonds are not subject to redemption prior to maturity. See Redemption herein. ** A registered trademark of the American Bankers Association ( ABA ), used by Standard & Poor s in its operation of the CUSIP Service Bureau for the ABA. The above CUSIP (Committee on Uniform Securities Identification Procedures) numbers have been assigned by an organization not affiliated with the Authority, and the Authority is not responsible for the selection or use of the CUSIP numbers. The CUSIP numbers are included solely for the convenience of bondholders and no representation is made as to the correctness of such CUSIP numbers. CUSIP numbers assigned to securities may be changed during the term of such securities based on a number of factors including, but not limited to, the refunding or defeasance of such securities or the use of secondary market financial products. The Authority has not agreed to, and there is no duty or obligation to, update this Preliminary Official Statement to reflect any change or correction in the CUSIP numbers set forth above. (i)

3 THE SERIES 2016 BONDS ARE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SERIES 2016 BONDS ARE ALSO EXEMPT FROM REGISTRATION UNDER THE SECURITIES LAWS OF THE COMMONWEALTH OF VIRGINIA. NO DEALER, BROKER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS OFFICIAL STATEMENT, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE AUTHORITY OR THE CITY. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE SERIES 2016 BONDS BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. THIS OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT OR AGREEMENT BETWEEN THE CITY, THE AUTHORITY OR THE PURCHASERS OR HOLDERS OF ANY OF THE SERIES 2016 BONDS. THE INFORMATION HEREIN IS SUBJECT TO CHANGE WITHOUT NOTICE AND NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CITY OR THE AUTHORITY SINCE THE DATE HEREOF. TABLE OF CONTENTS Page INTRODUCTION... 1 AUTHORIZATION... 1 DESCRIPTION OF SERIES 2016 BONDS... 2 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016 BONDS... 3 THE FINANCING DOCUMENTS... 4 THE AUTHORITY THE CITY THE CAPITAL PROJECTS REFUNDING VERIFICATION OF MATHEMATICAL COMPUTATIONS ESTIMATED SOURCES AND USES OF FUNDS INVESTMENT CONSIDERATIONS LITIGATION APPROVAL OF LEGAL MATTERS TAX MATTERS FINANCIAL ADVISOR INDEPENDENT AUDITORS RATINGS SALE AT COMPETITIVE BIDDING CERTIFICATES OF AUTHORITY AND CITY OFFICIALS LEGALITY OF THE SERIES 2016 BONDS FOR INVESTMENT CONTINUING DISCLOSURE MISCELLANEOUS APPENDIX A The City of Virginia Beach, Virginia APPENDIX B Audited Financial Statements of the City for Fiscal Year ended June 30, 2015 APPENDIX C Proposed Form of Bond Counsel Opinion APPENDIX D Form of Continuing Disclosure Agreement APPENDIX E Information Regarding The Depository Trust Company and its Book-Entry System APPENDIX F Refunded Bonds (ii)

4 CITY OF VIRGINIA BEACH DEVELOPMENT AUTHORITY Dorothy L. Wood, Chair David L. Bernd Linwood O. Branch Bryan D. Cuffee Michael H. Levinson Stephen J. McNulty Jerrold L. Miller Peter K. Mueller Charles M. Salle Joseph E. Strange Shewling Moy CITY OF VIRGINIA BEACH THE CITY COUNCIL William D. Sessoms, Jr., Mayor Louis R. Jones, Vice Mayor M. Benjamin Davenport Robert M. Dyer Barbara M. Henley Shannon DS Kane John D. Moss Amelia N. Ross-Hammond John E. Uhrin Rosemary Wilson James L. Wood CERTAIN CITY OFFICIALS David L. Hansen, City Manager Mark D. Stiles, City Attorney Ruth Fraser, City Clerk Patricia A. Phillips, Director of Finance John T. Atkinson, City Treasurer BOND COUNSEL Kutak Rock LLP Bank of America Center 1111 East Main Street, Suite 800 Richmond, Virginia FINANCIAL ADVISORS Public Resources Advisory Group 39 Broadway, Suite 1210 New York, New York (iii)

5 CITY OF VIRGINIA BEACH DEVELOPMENT AUTHORITY $21,225,000 PUBLIC FACILITY REVENUE BONDS, SERIES 2016A $7,880,000 PUBLIC FACILITY REFUNDING REVENUE BONDS, SERIES 2016B (FEDERALLY TAXABLE) INTRODUCTION The purpose of this Official Statement, including the cover pages and appendices, is to set forth certain information in connection with the issuance and sale by the City of Virginia Beach Development Authority (the Authority ) of its $21,225,000 Public Facility Revenue Bonds, Series 2016A (the Series 2016A Bonds ) and its $7,880,000 Public Facility Refunding Revenue Bonds, Series 2016B (Federally Taxable) (the Series 2016B Bonds ). The Series 2016A Bonds and Series 2016B Bonds (collectively, the Series 2016 Bonds ) will be issued pursuant to Chapter 643 of the Acts of Assembly of 1964, as amended (the Act ), an Agreement of Trust dated as of September 1, 2003, as previously supplemented (the Master Agreement of Trust ), between the Authority and U.S. Bank National Association, Richmond, Virginia, as successor trustee (the Trustee ), and a Ninth Supplemental Agreement of Trust dated as of November 1, 2016 (the Ninth Supplemental Agreement of Trust and, together with the Master Agreement of Trust, the Agreement of Trust ), between the Authority and the Trustee. Pursuant to the terms of the Agreement of Trust, the Authority has determined to issue from time to time public facility revenue bonds or notes and use the proceeds thereof to finance or re-finance certain authority facilities (as defined in the Act), as requested by the City of Virginia Beach, Virginia (the City ). The Authority and the City have entered into a Support Agreement dated as of September 1, 2003, as previously supplemented and amended, and as further supplemented and amended by an Eighth Supplemental Support Agreement dated as of November 1, 2016 (the Support Agreement ), pursuant to which the City has requested the Authority to assist with the financing of the Capital Projects (as hereinafter defined) and refinancing of certain prior projects financed with taxable public facility revenue bonds through the issuance of the Series 2016 Bonds. The City has agreed to support such requests by paying to or on behalf of the Authority, subject to annual appropriation by the City Council of the City (the City Council ), certain amounts sufficient to pay the principal of and interest due on the Series 2016 Bonds. The proceeds of the Series 2016A Bonds will be used to finance the acquisition and construction of various governmental capital improvements in the City of Virginia Beach, Virginia (collectively, the Capital Projects ) and pay issuance costs of the Series 2016A Bonds. The proceeds of the Series 2016B Bonds will be used to refund and redeem in advance of their stated maturities or pay at maturity certain of the Authority s taxable Public Facility Revenue Bonds, as more particularly described in Appendix F, and to pay costs of issuance of the Series 2016B Bonds. See the sections THE CAPITAL PROJECTS and REFUNDING. The Series 2016 Bonds are equally and ratably secured under the Agreement of Trust with $313,620,000 in aggregate principal amount of the Authority s previously issued Public Facility Revenue Bonds, as more particularly described in Appendix A, under CITY INDEBTEDNESS AND CAPITAL PLAN Virginia Beach Development Authority Appropriation-Based Debt (the Prior Public Facility Revenue Bonds ). Capitalized terms not otherwise defined will have the meanings assigned such terms in the section herein THE FINANCING DOCUMENTS -- Definitions. AUTHORIZATION The Series 2016 Bonds were authorized to be issued by a resolution of the Authority adopted on September 20, 2016 and by a resolution of the City Council of the City adopted on September 20, 2016.

6 DESCRIPTION OF SERIES 2016 BONDS General The Series 2016 Bonds will be dated the date of their delivery. The Series 2016A Bonds will mature on November 1 in the years and in the amounts set forth on the inside cover. The Series 2016B Bonds will mature on May 1 in the years and in the amounts set forth on the inside cover. Interest on the Series 2016 Bonds will be payable on each May 1 and November 1, commencing May 1, 2017, until the earlier of maturity or with respect to the Series 2016A Bonds redemption, at the rates per year set forth on the inside cover. Interest will be calculated on the basis of a 360-day year of twelve 30-day months and will be payable by check or draft mailed to the registered holders as of the first day of the month preceding each interest payment date, provided that as long as the Series 2016 Bonds are in book-entry only form payments of principal of and interest on the Series 2016 Bonds will be made by wire transfer to The Depository Trust Company, New York, New York ( DTC ), or such other securities depository as may be appointed. If the date for making any payment on the Series 2016 Bonds is not a Business Day, then payment may be made on the next Business Day with the same effect as if made on the payment date, and no additional interest shall accrue. The Series 2016 Bonds will be issued in book-entry form only, registered in the name of Cede & Co., as nominee for DTC. Individual purchases of beneficial ownership in each series of the Series 2016 Bonds will be made in principal amounts of $5,000 and integral multiples thereof. Individual purchasers of beneficial ownership in the Series 2016 Bonds ( Beneficial Owners ) will not receive physical delivery of certificates representing their interest in the Series 2016 Bonds. Transfer of the Series 2016 Bonds and payment of principal of and interest on the Series 2016 Bonds will be effected as described in Appendix E. If the book-entry system is discontinued, replacement bond or note certificates will be delivered as described in the Agreement of Trust, and the Beneficial Owners will become the registered holders of the Series 2016 Bonds. Redemption Optional Redemption of Series 2016 Bonds. The Series 2016A Bonds that mature on or before November 1, 2026, are not subject to optional redemption prior to maturity. The Series 2016A Bonds that mature on or after November 1, 2027, may be redeemed by the Authority, at the direction of the City, prior to their stated dates of maturity, at any time on or after November 1, 2026, in whole or in part in integral multiples of $5,000, at the redemption price of 100% of the principal amount of such bonds to be redeemed plus interest accrued to the redemption date. The Series 2016B Bonds are not subject to optional redemption prior to maturity. Effect of Redemption. After the date on which any Series 2016A Bonds have been called for redemption, and sufficient funds for the payment of the principal of and unpaid interest accrued on such Series 2016A Bonds to the date fixed for redemption have been provided, interest on such Series 2016A Bonds will cease to accrue, and their registered holder will be entitled to receive payment only of the principal of and unpaid interest accrued to the redemption date on such Series 2016A Bonds. Notice of Redemption. Notice of redemption will be given by the Trustee by facsimile or electronic transmission, registered or certified mail or overnight express delivery not less than 30 and not more than 60 days before the redemption date to DTC, or, if DTC is no longer serving as securities depository for the Series 2016A Bonds, to the substitute securities depository, or, if no securities depository then exists, to the respective registered holders of the Series 2016A Bonds to be redeemed at their addresses as shown on the registration books maintained by the Trustee. Such notice may reference certain conditions to the redemption. So long as DTC or its nominee is registered owner of the Series 2016A Bonds, the Trustee will not be responsible for mailing notices of redemption to the Beneficial Owners. See Appendix E. In the case of an optional redemption, the notice may state that (1) it is conditioned upon the deposit of moneys in an amount equal to the amount necessary to effect the redemption with the Trustee no later than the redemption date or (2) the Authority, as directed by the City, retains the right to rescind such notice on or prior to 2

7 the scheduled redemption date (in either case, a Conditional Redemption ), and such notice and optional redemption shall be of no effect if such moneys are not so deposited or if the notice is rescinded. Any Series 2016A Bonds subject to Conditional Redemption where redemption has been rescinded shall remain Outstanding, and the rescission shall not constitute an Event of Default. Further, in the case of a Conditional Redemption, the failure of the Authority to make funds available on or before the redemption date shall not constitute an Event of Default, and the Trustee shall give immediate notice to DTC or any substitute securities depository or the affected Series 2016A Bondholders that the redemption did not occur and that the Series 2016A Bonds called for redemption and not so paid remain outstanding. Selection of Series 2016A Bonds for Redemption. If less than all of the Series 2016A Bonds are called for optional redemption, the maturities of the Series 2016A Bonds to be redeemed shall be selected by the Authority, upon the direction of the City. If less than all of the Series 2016A Bonds of a particular maturity are to be redeemed, the Series 2016A Bonds to be redeemed shall be selected by DTC, any successor securities depository pursuant to its rules and procedures or, if the book-entry system is discontinued, shall be selected by the Trustee in such manner as the Trustee in its discretion may determine. SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2016 BONDS Security for the Series 2016 Bonds The Series 2016 Bonds will be equally and ratably secured by (1) Annual Payments (as defined herein under THE FINANCING DOCUMENTS -- Definitions ) that will be assigned by the Authority to the Trustee and which will be applied to the payment of principal of and interest on the Series 2016 Bonds as set forth in the Agreement of Trust, without preference, priority or distinction of any Series 2016 Bond over any other Series 2016 Bond, and (2) certain funds established under the Agreement of Trust. The Series 2016 Bonds will be the ninth series of Bonds issued under the Agreement of Trust and will be equally and ratably secured under the Agreement of Trust with the Prior Public Facility Revenue Bonds; provided that moneys in any account or subaccount of the Bond Fund relating to a particular Series of Bonds shall secure only such Bonds; that moneys in any account or subaccount of the Project Fund relating to a particular Series of Bonds shall secure only such Bonds; and that any Series of Bonds may have other security pledged to its payment. The Series 2016 Bonds and the interest thereon are limited obligations of the Authority and are payable solely from and secured by a pledge of the revenues and receipts derived from the Support Agreement, certain funds established under the Agreement of Trust and the investment income therefrom. The undertaking by the City to make payments under the Support Agreement is subject to annual appropriation by the City Council. The City Council has no legal obligation to make any such appropriations. Except for funds established under the Agreement of Trust, neither the Capital Projects nor any other asset is being leased, mortgaged or pledged as security for payments due under the Support Agreement or the principal of and interest on the Series 2016 Bonds. See the section INVESTMENT CONSIDERATIONS. THE SERIES 2016 BONDS AND THE INTEREST THEREON SHALL NOT BE DEEMED TO CONSTITUTE A GENERAL OBLIGATION DEBT OR A PLEDGE OF THE FAITH AND CREDIT OF THE COMMONWEALTH OF VIRGINIA OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY AND THE CITY. NEITHER THE COMMONWEALTH OF VIRGINIA NOR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY AND THE CITY, SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR INTEREST ON THE SERIES 2016 BONDS OR OTHER COSTS INCIDENT THERETO EXCEPT FROM THE REVENUES AND RECEIPTS PLEDGED AND ASSIGNED THEREFOR, AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF VIRGINIA, OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY AND THE CITY, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE SERIES 2016 BONDS OR OTHER COSTS INCIDENT THERETO. THE AUTHORITY HAS NO TAXING POWER. The Support Agreement The Authority is issuing the Series 2016 Bonds for the purpose of providing funds to finance the costs of the Capital Projects and refunding the Refunded Bonds (herein defined). The Support Agreement provides for the 3

8 City to make payments on behalf of the Authority that will be sufficient to pay the principal of and interest on the Series 2016 Bonds as the same shall become due in accordance with their terms and provisions and the terms of the Agreement of Trust. The undertaking by the City to make payments under the Support Agreement constitutes a current expense of the City, subject to annual appropriation by the City Council of funds sufficient for such purpose. The City will not be liable for any such payments under the Support Agreement unless and until funds have been appropriated by the City Council for payment and then only to the extent of such appropriation. The Support Agreement requires the City to pay to the Trustee, as assignee of the Authority, Annual Payments (as defined herein under THE FINANCING DOCUMENTS -- Definitions ) in amounts and on or before dates calculated to be sufficient to pay principal of and interest when due on the Series 2016 Bonds and any additional bonds and notes issued under the Agreement of Trust. The Support Agreement also requires the City to pay certain Additional Payments (as defined herein under THE FINANCING DOCUMENTS -- Definitions ). Other provisions of the Support Agreement are summarized in the section herein THE FINANCING DOCUMENTS -- The Support Agreement. Bond Fund; Project Fund Under the Agreement of Trust, the Authority pledges to the Trustee all right, title and interest to the Support Agreement, including the Annual Payments made by the City, but excluding certain rights to receive payment of the Authority s fees and expenses and to receive notices thereunder. Such payments under the Support Agreement, along with the money in the Bond Fund and money in the Series 2016 Project Account pending its use to pay or reimburse costs of Capital Projects, are pledged to the payment of principal of and interest on the Series 2016 Bonds. The Agreement of Trust provides that the Trustee will deposit in the Bond Fund all Annual Payments received by the Trustee from the City under the Support Agreement together with any amounts transferred from the Series 2016 Project Account. From the Annual Payments, the Trustee will deposit in the subaccount in the Interest Account an amount equal to the interest due and payable on the next interest payment date for the Series 2016 Bonds and will deposit in the subaccount established for the Series 2016 Bonds in the Principal Account an amount equal to the principal due and payable on the next principal payment date for the Series 2016 Bonds. The Agreement of Trust provides that the Trustee will deposit in the Series 2016 Project Account the proceeds of the Series 2016A Bonds. The City will use money in the Series 2016 Project Account solely to pay or reimburse the costs of the Capital Projects after filing among its records requisitions providing required information with respect to the use of the amounts being requisitioned. Additional Bonds Additional bonds or notes secured on an equal and ratable basis with the Series 2016 Bonds and Prior Public Facility Revenue Bonds may be issued by the Authority from time to time under a Supplemental Agreement of Trust and an amendment to the Support Agreement providing for modification of the Annual Payments to provide for Annual Payments sufficient to pay principal of and interest on all obligations outstanding under the Agreement of Trust. THE FINANCING DOCUMENTS The following is a summary of certain provisions of the Agreement of Trust and the Support Agreement. This summary does not purport to be comprehensive or definitive and is qualified by references to such documents in their entirety, copies of which may be obtained at the office of the City Manager. All capitalized terms have the meanings set forth in the Agreement of Trust or the Support Agreement. In addition to defined terms appearing elsewhere in this Official Statement, the definitions of certain key terms used in the Agreement of Trust and the Support Agreement are also set forth below. 4

9 Definitions Additional Payments mean payments made by the City pursuant to the Support Agreement other than Annual Payments. Annual Payments mean the payments made by the City under the Support Agreement which payments are calculated to correspond in amount to the payments of principal and interest due on the Bonds and any additional obligations outstanding. Bond or Bonds means any bonds, notes or other obligations, including any notes or other obligations issued in anticipation of bonds, notes, or other obligations as the same shall be issued from time to time pursuant to Article III of the Master Agreement of Trust, including the Prior Public Facility Revenue Bonds and the Series 2016 Bonds. Bond Counsel means an attorney or a firm of attorneys nationally recognized on the subject of municipal bonds and reasonably acceptable to the Trustee. Bond Fund means the Bond Fund established in the Master Agreement of Trust. Bond Payment Date means the date on which any payment of principal of (whether at maturity or pursuant to mandatory sinking fund redemption) or interest on any Bonds is due. Business Day means a day on which banking business is transacted, but not including Saturday, Sunday or legal holiday, or any day which banking institutions are authorized by law to close in the city in which the Trustee has its principal corporate trust office. City. City Council means the Council of the City of Virginia Beach, Virginia, as the governing body of the Code means the Internal Revenue Code of 1986, as amended, including applicable regulations, rulings and revenue procedures promulgated or applicable thereunder. Fiscal Year means the twelve-month period beginning July 1 of one year end and ending on June 30 of the following year, or such other Fiscal Year of twelve months as may be selected by the City. Fitch means Fitch Ratings or its successors. Government Certificates means certificates representing proportionate ownership of Government Obligations, which Government Obligations are held by a bank or trust company organized under the laws of the United States of America or any of its states in the capacity of custodian of such certificates. Government Obligations means (a) bonds, notes and other direct obligations of the United States of America, (b) securities unconditionally guaranteed as to the timely payment of principal, if applicable, and interest by the United States of America or (c) bonds, notes and other obligations issued or guaranteed as to the timely payment of principal and interest by the Rural Utilities Service (certificates of beneficial ownership), Federal Housing Administration (debentures), General Services Administration (participation certificates), U.S. Maritime Administration (guaranteed Title XI financing), U.S. Department of Housing and Urban Development (project notes and local authority bonds), provided such obligations are backed by the full faith and credit of the United States of America. Stripped securities are permitted only if stripped by the agency itself. Government Obligations may be held directly by the Trustee or in the form of securities of any open-end or closed-end management type investment company or investment trust registered under the Investment Company Act of 1940, provided that the portfolio of such investment company or investment trust is limited to Government Obligations. Moody s means Moody s Investors Service or its successors. 5

10 Prior Public Facility Revenue Bonds means the public facility revenue bonds described in Appendix A under CITY INDEBTEDNESS AND CAPITAL PLAN Virginia Beach Development Authority Appropriation-Based Debt. Project Fund means the Project Fund established in the Master Agreement of Trust. Refunded Bonds means maturities of the Public Facility Revenue Bonds, Series 2005B (Federally Taxable) and Series 2007B (Federally Taxable) as more particularly described in Appendix F. Series or Series of Bonds means a separate series of Bonds issued under the Master Agreement of Trust and a Supplemental Agreement of Trust. The Series 2016 Bonds will constitute a Series of Bonds. Series 2016 Project Account means the Series 2016 Project Account established in the Ninth Supplemental Agreement of Trust and maintained within the Project Fund. Series 2016 Bonds means the Series 2016A Bonds and Series 2016B Bonds. Series 2016A Bonds means the Authority s $21,225,000 Public Facility Revenue Bonds, Series 2016A, authorized to be issued pursuant to the Ninth Supplemental Agreement of Trust. Series 2016B Bonds means the Authority s $7,880,000 Public Facility Refunding Revenue Bonds, Series 2016B (Federally Taxable), authorized to be issued pursuant to the Ninth Supplemental Agreement of Trust. S&P means Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc., or its successors. Supplemental Agreement of Trust means any Supplemental Agreement of Trust supplementing, amending or modifying the provisions of the Master Agreement of Trust entered into by the Authority and the Trustee pursuant to Article X of the Master Agreement of Trust. Supplemental Support Agreement means any Supplemental Support Agreement supplementing, amending or modifying the provisions of the Support Agreement entered into by the Authority and the City pursuant to the Master Agreement of Trust. The Agreement of Trust Establishment of Funds and Accounts. The following funds and accounts are established and utilized under the Agreement of Trust: (1) Project Fund, in which there is established with the City the Series 2016 Project Account; and (2) Bond Fund, in which there are established with the Trustee a separate Interest Account and Principal Account. The Agreement of Trust provides that separate subaccounts will be established for each series of Bonds issued under the Agreement of Trust. Pledge of Payments and Funds. All payments received by the Trustee under the Agreement of Trust (except certain payments to the Trustee for its fees and expenses) and all money in the Project Fund and the Bond Fund are pledged to the payment of the principal of and interest on the Bonds, subject only to the right of the Authority to apply them to other purposes as provided in the Agreement of Trust. The lien and trust created by the Agreement of Trust is for the equal and ratable benefit of the holders of the Prior Public Facility Revenue Bonds and the Series 2016 Bonds and any additional Bonds that may be issued under the Agreement of Trust, provided that moneys in any account or subaccount of the Bond Fund relating to a particular Series of Bonds shall secure only 6

11 such Bonds; and that moneys in any account or subaccount of the Project Fund relating to a particular Series of Bonds shall secure only such Bonds. Bond Fund. The Trustee will deposit in the Bond Fund installments of all Annual Payments received by the Trustee from the City, together with other amounts transferred from accounts in the Project Fund pursuant to the Support Agreement or the Agreement of Trust. The Trustee will deposit each installment and amount (a) to the applicable subaccount established in the Interest Account an amount equal to the interest due and payable on the next Bond Payment Date for the applicable Series of Bonds, and (b) to the applicable subaccount established in the Principal Account an amount equal to the principal due and payable on the next Bond Payment Date for the applicable Series of Bonds, whether at maturity or pursuant to redemption. The Trustee will withdraw from the respective subaccounts within the Interest Account on each Bond Payment Date, amounts equal to the amounts of interest due with respect to the Bonds on such Bond Payment Date, and will cause the same to be applied to the payment of interest due on such Bond Payment Date. The Trustee will withdraw from the respective subaccounts within the Principal Account on each Bond Payment Date, amounts equal to the amounts of principal due with respect to the Bonds on such Bond Payment Date, and will cause the same to be applied to the payment of principal due on such Bond Payment Date. In the event there are insufficient moneys in the Interest Account or the Principal Account on any Bond Payment Date to pay interest and principal due on such Bond Payment Date, the Trustee will transfer any excess amounts on deposit in the Interest Account or the Principal Account, as applicable, to the other Account in which there are insufficient moneys, being mindful of the provisos in the section Parity of Bonds below. The Trustee will pay from the Bond Fund when due the principal of and interest on the Bonds then outstanding and will redeem or purchase Bonds in accordance with the redemption provisions of the Bonds and the Agreement of Trust. Series 2016 Project Account. The City will use money in the Series 2016 Project Account solely to pay or reimburse all or a portion of the cost of the Capital Projects. The City will make payments from the Series 2016 Project Account after filing among its records requisitions providing required information with respect to the use of the amounts being requisitioned. Any balance remaining in the Series 2016 Project Account after payment of the cost of the Capital Projects will be used to pay principal of the Series 2016A Bonds, to purchase Series 2016A Bonds in the open market or to pay all or any portion of the cost of any other project designated by the City and approved by Bond Counsel. Parity of Bonds. Each Series of Bonds will be issued pursuant to a Supplemental Agreement of Trust and will be equally and ratably secured under the Agreement of Trust, without preference, priority or distinction; provided, that the moneys in an account of the Bond Fund or the Project Fund will secure only the applicable Series of Bonds to which such account relates; and provided further, that any Series of Bonds may have other security pledged to its payment. In connection with the issuance of each Series of Bonds, the Trustee may create additional accounts and subaccounts within any fund or account established by the Master Agreement of Trust. Investments. Any money held under the Agreement of Trust may be invested in obligations or securities that are permitted for the investment of public funds under the Investment of Public Funds Act (Chapter 45, Title 2.2 of the Virginia Code), or any successor provision of law applicable to such investments. Any investments will be held by or under the control of the Trustee or the City and while so held will be deemed a part of the fund in which such money was originally held. The earnings accruing on such investments, including any profit realized, will be credited to such funds, except as otherwise provided in the Agreement of Trust, and any loss resulting from such investments will be charged to such funds. The Trustee will sell and reduce to cash a sufficient amount of such investments whenever the cash balance in any fund is insufficient for its purposes. Events of Default and Remedies. Each of the following is an Event of Default under the Agreement of Trust: (1) default in the payment of interest on any Bond when due, (2) default in the payment of principal or premium, if any, of any Bond when due, (3) default in the observance or performance of any other covenant, condition or agreement on the part of the Authority under the Agreement of Trust or the Bonds, subject to certain rights of the Authority to notice and an opportunity to cure, and (4) any event of default under the Support Agreement. 7

12 Remedies; Rights of Bondholders. Upon the occurrence and continuation of an Event of Default, the Trustee may (and if requested by the holders of not less than 25% in aggregate principal amount of Bonds outstanding and if indemnified in accordance with prevailing industry standards will) proceed to protect and enforce the rights of the holders of the Bonds by suit, action or proceeding at law or in equity, including an action for specific performance of any covenant or agreement contained in the Agreement of Trust; provided, that the Trustee will have no right or authority to declare the entire unpaid principal of and interest on the Bonds due and payable. All remedies under the Agreement of Trust are cumulative. Other than the remedies described above, no holder of any Bond will have any right to institute any action, suit or proceeding at law or in equity for the enforcement of the Agreement of Trust, the execution of any of its trusts or any other remedy under it, unless (1) an Event of Default (as defined in the Agreement of Trust) has occurred and is continuing and the Trustee has notice of it; (2) the holders of 25% in aggregate principal amount of Bonds then outstanding have made written request to the Trustee, and offered it reasonable opportunity either to proceed to exercise the powers granted by the Agreement of Trust, to institute such action, suit or proceeding in its own name; (3) the Trustee has been indemnified as provided by the Agreement of Trust; (4) the Trustee has failed or refused within a reasonable time to comply with such request; (5) no direction inconsistent with such request has been given to the Trustee by the holders of a majority in principal amount of outstanding Bonds; and (6) notice of such action, suit or proceeding is given to the Trustee. Notwithstanding any other provision to the contrary, the holders of a majority in aggregate principal amount of Bonds outstanding, upon compliance with the Agreement of Trust s requirements as to indemnification of the Trustee, will have the right to direct all proceedings to be taken by the Trustee. Subject to limitations set forth in the Agreement of Trust, the Trustee may in its discretion, waive any Event of Default under the Agreement of Trust or any action taken pursuant to such Event of Default and will do so on the request of the holders of a majority in aggregate principal amount of Bonds then outstanding. However, no waiver will extend to any subsequent or other default or impair any right resulting from it. Discharge of Agreement of Trust. A Bond will be deemed no longer outstanding when any such Bond has been cancelled or surrendered for cancellation or purchased by the Authority from moneys in the Bond Fund or as to any Bond not so cancelled or purchased when (i) payment of the principal and the applicable premium, plus interest to the due date thereof shall have been made or caused to be made in accordance with the terms thereof, or (ii) payment of the principal and applicable premium, plus interest on such Bond to the due date thereof shall have been provided by irrevocably depositing with the Trustee (A) moneys sufficient to make such payment, (B) noncallable Government Obligations maturing as to principal and interest in such amount and at such times as will ensure the availability of sufficient moneys to make such payment, or (C) a combination of both such moneys and noncallable Government Obligations and (D) payment of all necessary and proper fees, costs and expenses of the Trustee shall have been made. Notwithstanding the foregoing, the Bonds which are to be redeemed before their maturity will be deemed paid and no longer outstanding only if such Bonds have been irrevocably called or designated for redemption. Supplemental Agreements of Trust. Any provision of the Agreement of Trust may be modified or altered by the Authority and the Trustee, by a Supplemental Agreement of Trust, upon consent of the holders of a majority in aggregate principal amount of Bonds outstanding; provided, that certain amendments relating to the payment of the Bonds may be made only with the consent of all holders of the applicable Bonds. In addition, the Authority and the Trustee may enter into Supplemental Agreements of Trust without the consent of holders of the Bonds, (1) to cure any ambiguity, formal defect or omission in the Agreement of Trust; (2) to grant to or confer upon the Bondholders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred on the Bondholders; (3) to modify, amend or supplement the Agreement of Trust in such manner as required to permit its qualification under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect or any state securities (Blue Sky) law; (4) to add to the covenants and agreements of the Authority in the Agreement of Trust other covenants and agreements to be observed by the Authority; (5) to modify the Agreement of Trust as required to permit the Authority to comply with the provisions of the Code relating to the rebate requirement with respect to investment of proceeds of the Bonds, provided that such modification does not materially adversely affect the holders of all Bonds then outstanding; (6) to modify the Agreement of Trust in such manner as may be required to maintain any rating on any Bonds, provided that such 8

13 amendment does not, in the opinion of the Trustee, materially adversely affect the holders of all Bonds then outstanding; (7) to authorize the issuance of and secure one or more Series of Bonds; and (8) to modify the Agreement of Trust in any manner that the Trustee concludes is not materially adverse to holders of all Bonds then outstanding. The Authority and the Trustee may enter into certain other Supplemental Agreements of Trust upon receiving the consent of certain percentages of holders of the Bonds. If such a Supplemental Agreement of Trust will affect only one Series of Bonds, it may be necessary to seek only the consent of the holders of a majority in aggregate principal amount of that Series of Bonds. Certain Covenants Regarding the Capital Projects. In the Agreement of Trust, the Authority has agreed to maintain, preserve and keep the Capital Projects, or cause the Capital Projects to be maintained, preserved and kept, in good condition. Further, the Authority has agreed to maintain insurance on the Capital Projects covering such risks as are customarily insured against by reasonable and prudent governmental bodies of like size for facilities of like kind. The Authority may self-insure as to any or all of such coverage. The Support Agreement Agreement to Provide Funds to Finance the Capital Projects. In the Support Agreement, the Authority agrees to the City s request to assist with the financing of the Capital Projects and refunding of the Refunded Bonds from the proceeds of the Series 2016 Bonds, and the City agrees to support such request by supplying the moneys necessary to pay principal of and interest on the Series 2016 Bonds, upon the terms and conditions set forth in the Support Agreement. The City agrees to make all Annual Payments and Additional Payments when and as the same shall become due and payable, subject to appropriation by the City Council of funds sufficient for such purpose. Bonds. In order to provide funds for all or a portion of the Capital Projects and to refund the Refunded Bonds, the Authority will agree to issue the Series 2016 Bonds bearing interest, maturing and having the other terms and provisions set forth in the Ninth Supplemental Agreement of Trust. Payments Under Support Agreement. Under the Support Agreement the City agrees to pay to the Authority, or its assignee, the Annual Payments set forth in the Support Agreement. The Annual Payments are in such amounts and are payable at such times as are calculated to be sufficient to pay principal of and interest on the Bonds, including the Series 2016 Bonds. The City will receive a credit against its obligation to make Annual Payments to the extent there are amounts on deposit in the Bond Fund; provided that such amounts have not been applied previously as a credit with respect to any Annual Payment. The City also agrees to make Additional Payments, including the reasonable fees and expenses of the Trustee and the expenses of the Authority. Payments of Annual Payments and Additional Payments by the City are subject to appropriations being made from time to time by the City Council in amounts sufficient for such purposes. In the Support Agreement, the City Council has directed the City Manager or other officer charged with the responsibility for preparing the City s annual budget to include in the budget for each Fiscal Year as a single appropriation the amount of all Annual Payments and estimated Additional Payments during such Fiscal Year. The City Manager or other officer charged with the responsibility for preparing the City s annual budget is required to deliver to the Trustee and the Authority within ten days after the adoption of the annual budget for each Fiscal Year, but not later than ten days after the beginning of each Fiscal Year, a certificate stating whether an amount equal to the Annual Payments and estimated Additional Payments which will be due during such Fiscal Year has been appropriated by the City Council. If any adopted annual budget does not include an appropriation of such funds, the City Council is required to take a roll call vote immediately after adoption of such annual budget acknowledging the impact of its failure to appropriate such funds. If, by fifteen days after the beginning of the Fiscal Year, the City Council has not appropriated funds for the payment of both Annual Payments and estimated Additional Payments for the then current Fiscal Year, the City Manager or other officer charged with the responsibility for preparing the annual budget will give written notice to the City Council of the consequences of such failure to appropriate, and request the City Council to consider a supplemental appropriation for such purposes. The City has the option to prepay Annual Payments at the times and amounts as necessary to exercise its option to cause the Bonds to be redeemed before maturity. 9

14 Agreement to Issue Additional Bonds to Finance Additional Projects. In order to finance the costs of additional projects, refinance previously financed projects and, if requested by the City, to complete the Capital Projects, the Authority agrees that it will, from time to time, issue additional obligations under the Agreement of Trust. The obligation of the Authority to finance the costs of additional projects, refinance existing projects or to complete the Projects and to issue additional Series of Bonds will be conditioned upon compliance with the provisions of the Master Agreement of Trust. Events of Default. Events of Default under the Support Agreement include (1) default in the due and punctual payment of an Annual Payment when the same becomes due and payable and continuation of such failure for a period of five days, or (2) failure of the City to pay when due any other payment due under the Support Agreement, or to observe and perform any covenant, condition or agreement, which failure shall continue for a period of 30 days after notice is given, with certain rights to cure as described in the Support Agreement. Notwithstanding the foregoing, failure to make any payment due or to perform any covenant under the Support Agreement which results from a failure of the City Council to appropriate moneys for such purposes will not constitute an Event of Default. Remedies. If an Event of Default occurs, remedies available to the Authority are to take whatever action at law or in equity, other than to declare the entire unpaid principal balance of Annual Payments to be immediately due and payable, as may appear necessary or desirable to collect Annual Payments and Additional Payments then due or to become due, or to enforce performance and observance of any obligation, agreement or covenant of the City. An event of non-appropriation is not an Event of Default. See the section INVESTMENT CONSIDERATIONS -- Non-Appropriation and Limited Remedies. The Support Agreement will be reinstated and any default waived upon certain conditions, including the payment of all arrears with respect to the Bonds. Amendments. The Support Agreement may be supplemented, amended or modified prior to the payment of all outstanding Bonds, only with the consent of the Trustee, given in accordance with the Master Agreement of Trust. THE AUTHORITY The Authority was created pursuant to the Act for the specific purposes of, among others, attracting new industries, expanding existing industries and providing facilities for use by governmental organizations. The Authority is a political subdivision of the Commonwealth of Virginia governed by a Board of Commissioners whose members are appointed for four-year terms by the City Council. The Authority is empowered, among other things, to acquire, construct, maintain, equip, own, lease and dispose of various types of facilities, including facilities for use by a city and by other governmental organizations or commercial enterprises, and to finance and refinance the same by issuance of its revenue bonds. The Authority has no taxing power. THE CITY The present City of Virginia Beach was formed on January 1, 1963, by the merger of Princess Anne County and the former smaller City of Virginia Beach. This merger created one of the largest cities in the Commonwealth of Virginia with an area of 310 square miles and 38 miles of shoreline on the Atlantic Ocean and the Chesapeake Bay. The City covers the entire eastern border of Virginia south of the Delmarva Peninsula and includes all of the area from the Chesapeake Bay to the North Carolina border. The City has the largest population of any city in the Commonwealth of Virginia. Appendix A contains additional financial and demographic information concerning the City. The City s audited financial statements for the Fiscal Year ended June 30, 2015, are contained in Appendix B. THE CAPITAL PROJECTS Generally. The Capital Projects to be financed in whole or in part with the proceeds of the Series 2016A Bonds have been authorized by City Council through the City s six-year Capital Improvement Program ( CIP ). 10

15 The CIP is revised annually and approved by City Council in conjunction with its adoption of the City s annual operating budget. For a more detailed discussion of the CIP, see the subsection Capital Improvement Program in Appendix A. The Capital Projects approved in the CIP and being financed with the Series 2016A Bonds are described below under Description of Capital Projects. Description of the Capital Projects. The programmed costs of the Capital Projects currently are estimated to be approximately $432 million. The City currently plans to finance approximately $144 million of these costs through the Authority s issuance of public facility revenue bonds in several series. The remaining costs of Capital Projects (approximately $288 million) will come from other funding sources, including state and federal funding, sale of property, general obligation bonds, General Fund appropriations and various fund balances, pay-as-you-go funding and private contributions. Prospective purchasers of the Series 2016A Bonds should note that the CIP is a six-year program and the funding sources and amounts are subject to modification over time at the discretion of City Council. The following sets forth brief descriptions of the Capital Projects to be financed in whole or in part with the proceeds of the Series 2016A Bonds: John B. Dey Elementary School Modernization (1-035) - This project is for the modernization of John B. Dey Elementary School. The estimated cost of this project is $23,289,241, of which $1,000,421 will be financed with the Series 2016A Bonds. Witchduck Road Phase II (2-025) - This project will improve capacity needs and mobility demands in this area of the City. Traffic volumes per day are anticipated to reach 64,000 by The estimated cost of this project is $60,594,239, of which $3,663,534 will be financed with the Series 2016A Bonds. Rosemont Road Phase V (2-038) - This project is for the construction of a four-lane divided roadway from Primrose Lane/Harbringer Road to Dam Neck Road, and will include a continuous 10-foot wide sidewalk along the east side of the corridor. This project also includes the upgrade of three existing traffic signals at Buckner Boulevard, Faculty Boulevard/Celtic Drive, and Concert Drive. The estimated cost of this project is $15,768,500, of which $634,361 will be financed with the Series 2016A Bonds. Pacific Avenue Improvements (2-045) - This project provides for the improvements to Pacific Avenue between 17 th Street and 22nd street within the existing right-of-way, to include undergrounding of existing overhead utilities and public utility upgrades. In addition, new LED street lighting and traffic light signal mast arms will be installed. The estimated cost of this project is $17,330,000, of which $2,325,434 will be financed with the Series 2016A Bonds. Landstown Road Improvements (2-050) - This project is for the widening of the existing Landstown Road to a four-lane undivided roadway with 4-footwide paved shoulders, open swale ditches, street lights and an 8- footwide asphalt path from its intersection with Landstown Centre Way south to the bend in Landstown Road. Existing aerial distribution lines will be relocated underground and existing aerial transmission lines will remain in current overhead locations. The estimated cost of this project is $7,334,000, of which $403,826 will be financed with the Series 2016A Bonds. First Colonial Road/Virginia Beach Boulevard Intersection Improvements (2-072) - This project will improve the First Colonial Road/Virginia Beach Boulevard intersection with the addition of turn lanes and traffic signalization improvements, widening areas of First Colonial Road from I-264 overpass to 1,000 feet south of Potters Road along Oceana Boulevard from four lanes to six lanes. The estimated cost of this project is $29,959,836, of which $2,909,321 will be financed with the Series 2016A Bonds. Sandbridge Road Nimmo VII-A (2-078) - This project is for the construction of Nimmo Parkway Phase VIIA, as a two-lane roadway with shoulders, extending from Sandpiper Road to approximately 1.1 mile west of Sandpiper Road. The project represents the first phase of Nimmo Parkway Phase VII, from Sandpiper Road to Atwoodtown Road. The estimated cost of this project is $1,732,000, of which $600,000 will be financed with the Series 2016A Bonds. 11

16 West Neck Road Phase IV (2-088) - This project is for the design and construction of a two-lane undivided parkway from Kellam High School to the end of the curve adjacent to the Fountain property, a distance of 5,750 feet. This project will provide paved shoulders for cyclists, pedestrian accommodations and drainage swales. The estimated cost of this project is $10,964,244, of which $108,462 will be financed with the Series 2016A Bonds. Light Rail Corridor Shared-Use Path (2-108) - This project will fund the design, construction, right-of-way acquisition (if needed) and site furnishings required to create a shared-use pathway within and/or along the former Norfolk-Southern right-of-way in conjunction with the light rail extension project to provide additional modes of transportation. The estimated cost of this project is $17,686,000, of which $91,779 will be financed with the Series 2016A Bonds. Holland Road Phase VI (VDOT) (2-158) - This project is for construction of a four-lane divided highway on a 100-foot right-of-way width from Dam Neck Road to Nimmo Parkway-PhaseV, and will include sidewalks, aesthetic treatments, street lighting, and landscaping. Existing aerial utilities will be relocated to a combination of new underground and overhead locations. The estimated cost of this project is $9,079,300, of which $1,543,958 will be financed with the Series 2016A Bonds. Princess Anne Road Phase VII (2-195) - This project is for construction of a four-lane divided roadway with a bike path, from General Booth Boulevard to Fisher Arch, a distance of approximately 1.25 miles. Improvements at the intersections of General Booth Boulevard, Elson Green Avenue and Upton Drive/Sandbridge Road are included as well as aesthetic upgrades. The estimated cost of this project is $40,073,163, of which $251,543 will be financed with the Series 2016A Bonds. Centerville Turnpike Phase II (2-409) - This project is for the construction of a four-lane divided highway within a 130 foot right-of-way from Indian River Road to Kempsville Road, and will provide improvements at the Kempsville Road and Indian River Road intersections, including triple left turn lanes onto Indian River Road from Centerville Turnpike, sidewalk, dedicated on-road bike lanes, landscaping, and relocation of existing aerial utilities to a new overhead location. The estimated cost of this project is $38,194,743, of which $1,043,738 will be financed with the Series 2016A Bonds. Adam Thoroughgood House Visitor Center Construction (3-019) - This project will expand the Adam Thoroughgood House site with the construction of a 3,000 square foot building that will include ADA compliant public rest rooms, a small gift shop, a video viewing area for mobility impaired patrons, an office for staff, collections storage, and an exhibit/education space. The estimated cost of this project is $2,244,826, of which $651,130 will be financed with the Series 2016A Bonds. Aquarium Marsh Pavilion Enhancements (3-028) - This project will enhance the Aquarium Marsh Pavilion and include the creation of children exhibit play areas, an Animal Conservation/Veterinary Care Exhibit, a more welcoming entrance, easier and more interesting travel between buildings, landscape enhancements, visitor amenities such as a small cafe, refurbishment of the Pavilion's gift store, support areas & theater. The estimated cost of this project is $11,616,580, of which $345,340 will be financed with the Series 2016A Bonds. CIT-Police Integrated Public Safety Record Management System (3-095) - This project implements the Criminal Justice Automated Systems Analysis. It is an integrated Public Safety Record Management System comprising mobile and electronic summons components and enhanced interfacing between the City s public safety agencies and State, Federal, and regional public safety systems. The estimated cost of this project is $16,396,385, of which $2,780,390 will be financed with the Series 2016A Bonds. Various Buildings Rehabilitation and Renewal III (3-137) - This project provides rehabilitation and renewal of interior and exterior systems for City owned buildings/facilities. It addresses a backlog of original roofs, which were installed from 1968 to It excludes roofs for fire stations and parks and recreations facilities, which are included in separate projects. It includes rehabilitation and replacement of the Fire Training Center s existing facility and libraries. The estimated cost of this project is $24,518,329, of which $1,108,211 will be financed with the Series 2016A Bonds. 12

17 Revenue Assessment and Collection System (3-200) - This project provides for a comprehensive and coordinated replacement of computer systems currently used to support tax revenue and collection. The estimated cost of this project is $11,924,799, of which $290,605 will be financed with the Series 2016A Bonds. Police Fourth Precinct Replacement (3-344) - This project provides a 17,000 square foot replacement facility for the existing 6,017 square foot facility at its current location, 840 Kempsville Road to include required parking and storage facilities. The estimated cost of this project is $8,007,206, of which $267,138 will be financed with the Series 2016A Bonds. Housing Resource Center (3-503) - This project is to construct an approximately 62,000 square foot Housing Resource Center that would provide shelter and services to homeless persons and those at risk of homelessness. In addition, some services may be available for the general community. The estimated cost of this project is $29,963,792, of which $2,025,672 will be financed with the Series 2016A Bonds. Winston-Salem Avenue Improvements (9-006) - This project will provide funding for design, property acquisition and construction of a two-lane roadway with on-street parking and five foot wide walkway on the north side, a nine foot wide walkway on the south side, LED street lighting, and landscaping consisting of trees, shrubs, and grasses within a sixty foot right-of-way along Winston-Salem Avenue between Pacific Avenue and Mediterranean Avenue. The estimated cost of this project is $8,320,000, of which $119,974 will be financed with the Series 2016A Bonds. Historic Kempsville (9-008) - This project will address and coordinate a number of related issues and opportunities to help support this redevelopment effort in the area generally surrounding the Princess Anne Road, Kempsville Road, and South Witchduck Road intersection to provide open space amenities, enhanced historic preservation and interpretation efforts, and help to better integrate adjoining neighborhoods in the immediate and surrounding area with this intersection area. The estimated cost of this project is $2,500,000, of which $346,693 will be financed with the Series 2016A Bonds. Arena Infrastructure Development-Off Site (9-017) - This project provides additional infrastructure improvements to support a privately owned and financed entertainment and sports arena of approximately 500,000- square feet and 16,500-seats (with expansion of up to 18,000) on 19th Street across from the Virginia Beach Convention Center. The estimated cost of this project is $21,151,000, of which $145,310 will be financed with the Series 2016A Bonds. Burton Station Road Improvements Phase III (9-091) - This project provides funding for design and construction of a new street with utilities, lighting, landscaping, sidewalks and drainage within an existing neighborhood where public sanitary sewer and water service and drainage are currently not available. The alignment will provide an area for commercial and residential development. The estimated cost of this project is $14,035,000, of which $233,444 will be financed with the Series 2016A Bonds. Oceanfront Capital Projects Reinvestment (9-096) - This project provides on-going funding to reinvest in various high impact capital projects at the oceanfront. The primary focus of the project is to replace Atlantic Ave., side streets, and boardwalk lighting with energy efficient attractive LED lighting. The Lighting replacements are planned in phases over 10 years and are roughly estimated at $5 million with annual amounts to be programmed at $450,000. The estimated cost of this project is $5,955,877, of which $929,548 will be financed with the Series 2016A Bonds. 29 th Street Improvements (9-108) - This project provides funding for improvements to 29 th Street in the Resort Area as a continuation of the Laskin Road Gateway Project. The project area is 29 th Street from Artic to Pacific Avenue and includes streetscape improvements including wide sidewalks and street trees, a new street with improved drainage, and undergrounding of overhead utilities. The estimated cost of this project is $3,200,000, of which $216,409 will be financed with the Series 2016A Bonds. 13

18 REFUNDING The proceeds of the Series 2016B Bonds will be applied to refund in advance of their stated maturities or pay at maturity certain of the Authority s Public Facility Revenue Bonds, Series 2005B (Federally Taxable) and Series 2007B (Federally Taxable), as more particularly described in Appendix F (the Refunded Bonds ) and to pay the costs of issuing the Series 2016B Bonds and related costs. The refunding will be accomplished by depositing in an escrow fund (the Escrow Fund ), with U.S. Bank National Association, as escrow agent (the Escrow Agent ), cash and/or noncallable obligations of the United States government ( Government Obligations ) sufficient to pay all principal and interest when due on such Refunded Bonds through and until the date that they are irrevocably called for redemption by the City on behalf of the Authority or mature, as appropriate. See Appendix F for a summary of maturities, principal amounts, redemption dates, redemption prices and maturity dates of the Refunded Bonds. Upon deposit of such amounts in the Escrow Fund, such Refunded Bonds will no longer constitute outstanding obligations of the Authority, will not be secured by the Master Trust Agreement, and will be payable solely from the Escrow Fund. VERIFICATION OF MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations made in connection with the Refunded Bonds and included in supporting schedules was verified by Samuel Klein and Company, Certified Public Accountants (the Verification Agent ) relating to computations of forecasted receipts of principal and interest on the investments in the Government Obligations (herein defined) and/or cash deposited in the escrow fund established for the Refunded Bonds and the scheduled payments of principal and interest required to redeem the Refunded Bonds or provide for payment at maturity as appropriate. Such computations were based solely on assumptions and information supplied by the City s financial advisor, Public Resources Advisory Group. The Verification Agent has restricted its procedures to verifying the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions or the achievability of the forecasted outcome. ESTIMATED SOURCES AND USES OF FUNDS The proceeds received from the sale of the Series 2016 Bonds are expected to be applied as follows: Sources of Funds Par Amount of Series 2016A Bonds $21,225, Par Amount of Series 2016B Bonds 7,880, Net Original Issue Premium of Series 2016ABonds 2,922, Net Original Issue Premium of Series 2016B Bonds 384, Total $32,411, Uses of Funds Deposit to Project Fund $24,036, Escrow Fund Deposit 8,116, Underwriter s Compensation 158, Costs of Issuance 100, Total $32,411,

19 INVESTMENT CONSIDERATIONS The following is a list of factors that should be considered in connection with the purchase of the Series 2016 Bonds. Source of Payments The Series 2016 Bonds are not general obligations of the Authority or the City but are payable only from revenues received by the Authority from the City under the Support Agreement and other moneys held by the Trustee and pledged to the payment of the Series 2016 Bonds. The ability of the Authority to make timely payments of principal and interest on the Series 2016 Bonds depends solely on the ability of the City to make timely payments under the Support Agreement. The undertaking by the City to make payments under the Support Agreement is subject to and dependent upon amounts being lawfully appropriated from time to time by the City Council in amounts sufficient for such purpose. The undertaking by the City to make payments under the Support Agreement is not a debt of the City within the meaning of any constitutional or statutory limitation or a pledge of the faith and credit or the taxing power of the City. The City Council is not legally obligated to appropriate the funds necessary to meet the City s financial obligation under the Support Agreement. Non-appropriation and Limited Remedies Pursuant to the Support Agreement, in the event that funds appropriated and budgeted by the City for the payment of its obligations under the Support Agreement are insufficient to make the required payments thereunder, the City Manager will submit a request, within 15 days after the beginning of the Fiscal Year, for a supplemental appropriation to cover the deficit. Any payment of principal of and interest on the Series 2016 Bonds is subject to appropriation by the City Council. In the event of non-appropriation of funds by the City Council, neither the City nor the Authority may be held liable for the principal of and interest payments on the Series 2016 Bonds following the last Fiscal Year in which funds to make payment under the Support Agreement were appropriated by the City Council. Upon an Event of Default under the Agreement of Trust, the Trustee has no right to accelerate the payment of the Series 2016 Bonds by declaring the entire principal of and interest on the Series 2016 Bonds to be due and payable. Similarly, upon an Event of Default under the Support Agreement, the Authority has no right to accelerate the payment of Annual Payments by declaring the Annual Payments to be due and payable. Political Risk The current City Council has evidenced in its resolution adopted in connection with the Series 2016 Bonds a present intent to make future appropriations of such funds as may be necessary to make payments due under the Support Agreement as and when such payments become due. There can be no guarantee, however, that the City Council will retain its current constituency in the future, and there can be no guarantee that a future City Council will retain the current City Council s policy with respect to the Series 2016 Bonds. No Assets Pledged as Security Outside of Funds and Accounts Except for revenues and receipts under the Agreement of Trust, neither the Capital Projects nor any other asset is being leased, mortgaged or pledged as security for payments due under the Support Agreement or the principal of and interest on the Series 2016 Bonds. Any Event of Default or non-appropriation of amounts due under the Support Agreement will not give the holders of the Series 2016 Bonds, either directly or indirectly, any right to have the Capital Projects or any other asset of the Authority or the City utilized to produce funds to be applied toward payment of the Series 2016 Bonds, except for funds established under the Agreement of Trust. Limitations on Enforceability of Remedies The realization of any rights upon a default under the Agreement of Trust or the Support Agreement will depend upon the exercise of various remedies specified therein. Any attempt by the Trustee or others to enforce 15

20 such remedies may require judicial action, which is often subject to discretion and delay. Under existing law, certain of the legal and equitable remedies specified in the Agreement of Trust or the Support Agreement may not be readily available. The City LITIGATION In the opinion of the City Attorney, no litigation is pending against the City which would (1) materially adversely affect the City s financial position, (2) restrain or enjoin the issuance, sale or delivery of the Series 2016 Bonds, or the application of proceeds of the Series 2016 Bonds as provided in the Agreement of Trust or the collection of revenues pledged under the Agreement of Trust, (3) in any way contest or affect any authority for the issuance or validity of the Series 2016 Bonds or the validity of the Agreement of Trust or the Support Agreement, or (4) in any way contest the creation, existence, powers or authority of the City. The Authority No litigation is pending against the Authority or, to the best of the knowledge of the Authority, threatened against the Authority (1) to restrain or enjoin the issuance, sale or delivery of the Series 2016 Bonds or the application of proceeds of the Series 2016 Bonds as provided in the Agreement of Trust or the collection of revenues pledged under the Agreement of Trust, (2) in any way contesting or affecting any authority for the issuance or validity of the Series 2016 Bonds or the validity of the Agreement of Trust or the Support Agreement, (3) in any way contesting the creation, existence, powers or authority of the Authority, or (4) contesting the validity of the Act or any provision thereof. APPROVAL OF LEGAL MATTERS Certain legal matters relating to the authorization and validity of the Series 2016 Bonds will be subject to the approving opinion of Kutak Rock LLP, Bond Counsel, which will be furnished at the expense of the City upon delivery of the Series 2016 Bonds, in substantially the form set forth in Appendix C (the Bond Opinion ). The Bond Opinion will be limited to matters relating to authorization and validity of the Series 2016 Bonds and to the tax status of interest thereon as described in the section TAX MATTERS. Bond Counsel has not been engaged to investigate the financial resources of the Authority and the City or their ability to provide for payment of the Series 2016 Bonds, and the Bond Opinion will make no statement as to such matters or as to the accuracy or completeness of this Official Statement or any other information that may have been relied on by anyone in making the decision to purchase Series 2016 Bonds. Certain legal matters will be passed on for the City and the Authority by the office of the City Attorney. Opinion of Bond Counsel TAX MATTERS The Bond Counsel Opinion will be dated and given on, and will speak only as of, the date of issuance and delivery of the Series 2016 Bonds. The Bond Counsel Opinion, among other things, will address certain federal and Virginia income tax treatment of the Series 2016 Bonds and interest thereon, as described below. Series 2016A Bonds General Matters. In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2016A Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinion described in the preceding sentence assumes the accuracy of certain representations and compliance by the Authority with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the Series 2016A Bonds. Failure to comply with such requirements could cause interest on the Series 16

21 2016A Bonds to be included in gross income for federal income tax purposes retroactive to their date of issuance. The Authority covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2016A Bonds. Notwithstanding Bond Counsel s opinion that interest on the Series 2016A Bonds is not a specific preference item for purposes of the federal alternative minimum tax, such interest will be included in adjusted current earnings of certain corporations, and such corporations are required to include in the calculation of alternative minimum taxable income 75 percent of the excess of such corporations adjusted current earnings over their alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). Original Issue Discount. The Series 2016A Bonds that have an original yield above their respective interest rates, as shown on the inside cover of this Official Statement (collectively, the Discount Bonds ), are being sold at an original issue discount. The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as described above. The amount of original issue discount that is treated as having accrued with respect to a Discount Bond is added to the cost basis of the owner of the bond in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received on disposition of such Discount Bond that are attributable to accrued original issue discount will be treated as taxexempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days that are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount that would have been the tax basis of such Discount Bond at the beginning of the particular accrual period if held by the original purchaser, (b) less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis for purposes of the preceding sentence is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts that have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount that would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Subsequent purchasers of Discount Bonds that purchase such bonds for a price that is higher or lower than the adjusted issue price of the bonds at the time of purchase should consult their tax advisors as to the effect on the accrual of original issue discount. Original Issue Premium. The Series 2016A Bonds that have an original yield below their respective interest rates, as shown on the inside cover of this Official Statement (collectively, the Premium Bonds ), are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. A purchaser of a Premium Bond must amortize any premium over such Premium Bond s term using constant yield principles, based on the purchaser s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, generally by amortizing the premium to the call date, based on the purchaser s yield to the call date and giving effect to any call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period, and the purchaser s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser s basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. 17

22 Backup Withholding. As a result of the enactment of the Tax Increase Prevention and Reconciliation Act of 2005, interest on tax-exempt obligations such as the Series 2016A Bonds is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments to any owner of the Series 2016A Bonds that fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to Section 6049 of the Code. The reporting requirement does not in and of itself affect or alter the excludability of interest on the Series 2016A Bonds from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. Internal Revenue Service Audits. The Internal Revenue Service has an ongoing program of auditing taxexempt obligations such as the Series 2016A Bonds to determine whether, in the view of the Internal Revenue Service, interest on such tax-exempt obligations is included in the gross income for federal income tax purposes. It cannot be predicted whether or not the Internal Revenue Service will commence an audit of any of the Series 2016A Bonds. If an audit is commenced, under current Internal Revenue Service procedures, the registered owners of the Series 2016A Bonds may have no right to participate in the audit process. The commencement of an audit could adversely affect the market value and liquidity of the related Series 2016A Bonds until the audit is concluded, regardless of the ultimate outcome. Changes in Federal and State Tax Law. From time to time, there are legislative proposals in the Congress and in the states that, if enacted, could alter or amend the federal and state tax matters referred to under this heading TAX MATTERS or adversely affect the market value of the Series 2016A Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value of the Series 2016A Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Series 2016A Bonds or the market value thereof would be impacted thereby. Purchasers of the Series 2016A Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based on existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Series 2016A Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation. In order to comply with the requirements of the Code, the City will execute and deliver a Non-Arbitrage and Tax Compliance Certificate ( Tax Agreement ) on the date of delivery of the Series 2016A Bonds. The covenants and agreements in the Tax Agreement are designed to satisfy the requirements of Section 103 and Sections 141 through 150, inclusive, of the Code, and the income tax regulations issued thereunder. However, Bond Counsel assumes no responsibility for, and will not monitor, compliance with the covenants and agreements in the Tax Agreement. In the event of noncompliance with such covenants and agreements, the available enforcement remedies may be limited by applicable provisions of law and, therefore, may not be adequate to prevent interest on the Series 2016A Bonds from becoming includable in gross income for federal income tax purposes. PROSPECTIVE PURCHASERS OF THE SERIES 2016A BONDS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS PRIOR TO ANY PURCHASE OF THE SERIES 2016A BONDS AS TO THE IMPACT OF THE CODE UPON THEIR ACQUISITION, HOLDING OR DISPOSITION OF THE SERIES 2016A BONDS. Series 2016B Bonds Bond Counsel is of the opinion that interest on the Series 2016B Bonds is included in gross income for federal income tax purposes. Bond Counsel has expressed no opinion regarding other tax consequences arising with respect to the Series 2016B Bonds under federal law or the laws of any other state or jurisdiction other than the Commonwealth of Virginia. Purchasers of the Series 2016B Bonds are urged to consult with an independent tax advisor as to the federal, state and local tax consequences of the purchase, ownership or disposition of the Series 2016B Bonds. 18

23 Any federal tax advice contained in this Official Statement respecting the Series 2016B Bonds was written to support the marketing of the Series 2016B Bonds and is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding any penalties that may be imposed under the Code. All taxpayers should seek advice based on such taxpayers particular circumstances from an independent tax advisor. This disclosure is provided to comply with Treasury Circular 230. Virginia Income Taxation In the opinion of Bond Counsel, under existing law of the Commonwealth of Virginia, interest on the Series 2016 Bonds is exempt from income taxation by the Commonwealth of Virginia. Interest on the Series 2016 Bonds may be subject to state or local income taxes in jurisdictions other than the Commonwealth of Virginia under applicable state or local tax laws. Prospective purchasers of the Series 2016 Bonds should consult their own tax advisors with respect to the state and local tax consequences of ownership of the Series 2016 Bonds, including the taxable status of the Series 2016 Bonds and the interest payable on such obligations in a particular state or local jurisdiction other than the Commonwealth of Virginia. FINANCIAL ADVISOR Public Resources Advisory Group serves as financial advisor to the City in connection with the issuance of the Series 2016 Bonds. The financial advisor s fee for services rendered with respect to the sale of the Series 2016 Bonds is not contingent upon the issuance and delivery of the Series 2016 Bonds. INDEPENDENT AUDITORS The City s financial statements for the fiscal year ended June 30, 2015, have been audited by the independent public accounting firm of Cherry, Bekaert, L.L.P. The City s basic financial statements and the independent auditors report thereon are presented herein as Appendix B. These basic financial statements, along with the related Notes to Financial Statements, are intended to provide a broad overview of the financial position and operating results of the City s governmental activities, business-type activities and major funds. Cherry, Bekaert, L.L.P. will not be reviewing any matters in connection with this Official Statement or any other matters related to the issuance of the Series 2016 Bonds. RATINGS Fitch Ratings has assigned a rating of AA+ (stable outlook) to the Series 2016 Bonds. Moody s Investors Service has assigned a rating of Aa1 (stable outlook) to the Series 2016 Bonds. S&P Global Ratings, a division of Standard & Poor s Financial Services LLC, has assigned a rating of AA+ (stable outlook) to the Series 2016 Bonds. The City requested that the Series 2016 Bonds be rated and furnished certain information to Fitch, Moody s and Standard & Poor s, including certain information that may not be included in this Official Statement. Each rating reflects only the view of such organization and any desired explanation of the significance of any ratings should be obtained from Fitch at One State Street Plaza, New York, New York 10004, from Moody s at 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, and from S&P at 55 Water Street, New York, New York Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. The rating is not a recommendation to buy, sell or hold the Series 2016 Bonds and should be evaluated independently. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Series 2016 Bonds. 19

24 SALE AT COMPETITIVE BIDDING The Series 2016A Bonds were offered for sale at competitive bidding at 10:30 a.m., Eastern Time, on Tuesday, October 18, The Series 2016A Bonds were awarded to the winning bidder, J.P. Morgan Securities LLC (the Series 2016A Underwriter ). The Series 2016A Underwriter has supplied the information as to the public offering yields of the Series 2016A Bonds as set forth on the inside cover. If all of the Series 2016A Bonds are resold to the public at such yields, the Series 2016A Underwriter has informed the City that it anticipates a total underwriting compensation of $110, The Series 2016A Underwriter may change the public offering yields from time to time. The Series 2016B Bonds were offered for sale at competitive bidding at 10:45 a.m., Eastern Time, on Tuesday, October 18, The Series 2016B Bonds were awarded to the winning bidder, SunTrust Robinson Humphrey (the Series 2016B Underwriter ). The Series 2016B Underwriter has supplied the information as to the public offering yields of the Series 2016B Bonds as set forth on the inside cover. If all of the Series 2016B Bonds are resold to the public at such yields, the Series 2016B Underwriter has informed the City that it anticipates a total underwriting compensation of $48, The Series 2016B Underwriter may change the public offering yields from time to time. CERTIFICATES OF AUTHORITY AND CITY OFFICIALS Concurrently with the delivery of the Series 2016 Bonds, the Authority will furnish to the successful bidder without cost (a) a certificate dated the date of delivery of the Series 2016 Bonds, signed by the appropriate Authority and City officials and stating that no litigation of any kind is then pending or, to the best of their information, knowledge and belief, threatened against the Authority or the City to restrain or enjoin the issuance or delivery of the Series 2016 Bonds and (b) a certificate dated the date of delivery of the Series 2016 Bonds, stating that the descriptions and statements in the Official Statement (except in the sections entitled Litigation and Tax Matters, in the columns Yield and CUSIP Number on the inside cover and in Appendix E), on the date of the Official Statement and on the date of delivery of the Series 2016 Bonds, were and are true and correct in all material respects, did not and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such descriptions and statements, in light of the circumstances under which they were made, not misleading. Such certificate will state, however, that such Authority and City officials did not independently verify the information indicated in the Official Statement as having been obtained or derived from sources other than the Authority or City and its officers but they have no reason to believe that such information is not accurate. The office of the City Attorney will furnish a certificate to the successful bidder concurrently with the delivery of the Bond Counsel Opinion dated the date of delivery of the Series 2016 Bonds, stating, among other things, that the statements in the section herein Litigation on the date of this Official Statement and on the date of delivery of the Series 2016 Bonds were and are true and correct in all material respects and did not and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such statements, in light of the circumstances under which they were made, not misleading. LEGALITY OF THE SERIES 2016 BONDS FOR INVESTMENT The Act provides that bonds issued by the Authority under the Act are legal and authorized investments for banks, savings banks, building and loan associations, insurance companies, fiduciaries, trustees and guardians and for all public funds of the Commonwealth of Virginia or other political corporations or subdivisions of the Commonwealth of Virginia. The Act also provides that bonds issued pursuant thereto may properly and legally be deposited with and received by any Commonwealth of Virginia or municipal officer or any agency or political subdivision of the Commonwealth of Virginia for any purpose for which the deposit of bonds or obligations of the Commonwealth of Virginia is now or may hereafter be authorized by law. CONTINUING DISCLOSURE To assist the winning bidder in complying with the provisions of Rule 15c2-12, under which the City is considered an obligated person with respect to the Series 2016 Bonds, the City has agreed to execute a continuing 20

25 disclosure agreement to provide certain annual financial information and event notices required by Rule 15c2-12 (collectively, Continuing Disclosure ). A form of that agreement is attached as Appendix C. As set forth in Appendix C, such undertaking requires the City to provide only limited information at specified times and does not require it to disclose all information that may affect the value of the Series 2016 Bonds. The City may choose to make additional information available from time to time, but has no obligation to do so. The City is required to file its annual Continuing Disclosure and any event notice with the Municipal Securities Rulemaking Board ( MSRB ). The MSRB designated its Electronic Municipal Market Access ( EMMA ) system as the repository for Continuing Disclosures filings. Bondholders will be able to access Continuing Disclosure filings with the MSRB at As described more fully in Appendix C, any Bondholder may take steps to enforce the obligation of the City to provide Continuing Disclosure, but any failure by the City under its obligation will not result in an event of default under the Series 2016 Bonds. Investors and other interested parties may contact the MSRB for additional information concerning its services. The City makes no representation as to the scope of the services provided to the secondary market by the MSRB or as to the costs for the provision of such services by the MSRB. MISCELLANEOUS The references herein to the Act and the financing documents are merely brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and reference is hereby made to all such documents for the complete terms thereof. Copies of the Support Agreement and the Agreement of Trust are on file with the City. This Official Statement has been approved and authorized by the Authority and the City for use in connection with the sale of the Series 2016 Bonds. Its purpose is to supply information to prospective buyers of the Series 2016 Bonds. Financial and other information contained in this Official Statement have been prepared by the City from its records, except where other sources are noted. The information speaks as of its date and is not intended to indicate future or continuing trends in the financial or economic position of the City. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the holders of the Series 2016 Bonds. With respect to any statements made in this Official Statement involving matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. Any questions concerning the contents of this Official Statement should be directed to the following: Department of Finance, Municipal Center, Virginia Beach, Virginia (757) ; or the City s financial advisor, Public Resources Advisory Group (212) The Authority makes no representation as to the accuracy or completeness of any information in this Official Statement and takes no responsibility for its contents, other than the information relating to the Authority in the sections THE AUTHORITY and LITIGATION -- The Authority. 21

26 The Authority and the City have each duly authorized the delivery of this Official Statement. The Authority and City have deemed this Official Statement final as of its date within the meaning of Rule 15c2-12. CITY OF VIRGINIA BEACH DEVELOPMENT AUTHORITY By /s/ Dorothy L. Wood Chair CITY OF VIRGINIA BEACH, VIRGINIA By /s/ David L. Hansen City Manager 22

27 APPENDIX A THE CITY OF VIRGINIA BEACH, VIRGINIA

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29 TABLE OF CONTENTS FOR APPENDIX A Page CERTAIN INFORMATION CONCERNING THE CITY... 1 Introduction... 1 Certain Elected Officials... 1 School Board... 2 Elected Officials... 2 Certain City Council Appointees and Administrative Staff Members... 3 Appointed Officials... 4 Governmental Services and Facilities... 5 General Overview of Governmental Organization and Selected Functions... 6 Functional Departments... 7 Economic and Demographic Factors Business and Industry Tax Increment Financing Districts Retail Sales Tourism and Conventions Military Medical Facilities Agribusiness Education Higher Education CITY INDEBTEDNESS AND CAPITAL PLAN Limitations on Incurrence of Debt Debt Management Policies Outstanding Debt Authorized but Unissued Bonds Water and Sewer System Debt Storm Water Utility System Debt Virginia Beach Development Authority Appropriation-Based Debt Agricultural Reserve Program Overlapping Debt Short-Term Borrowing Payment Record Impact of Future Economic Development on City Debt Comprehensive Plan Capital Improvement Program Highlights of the Adopted Capital Improvement Program for Fiscal Years FINANCIAL INFORMATION Basis of Accounting and Accounting Structure City of Virginia Beach Development Authority Hampton Roads Transportation District Commission City Financial Statements Investment Policies and Practices Certificate of Achievement Budgetary Process Highlights of the Adopted Operating Budget for Fiscal Year Audited Financial Results for Fiscal Year General Government Revenues Operating Data General Fund Operations FY-16 General Fund Unaudited Preliminary Financial Statements The Water and Sewer System Typical Water and Sewer Bills Operating Results-Water and Sewer System... 65

30 Water Contracts Adopted FY Water and Sewer Capital Improvement Program Adopted FY 2017 Water and Sewer Operating Budget Insurance Commitments and Contingencies Retirement and Pension Plans Other Postemployment Benefits Employee Relations and Collective Bargaining Southeastern Public Service Authority Regional Transportation Funding Legislation... 75

31 THE CITY OF VIRGINIA BEACH, VIRGINIA CERTAIN INFORMATION CONCERNING THE CITY Introduction The present City of Virginia Beach, Virginia was formed on January 1, 1963, by the merger of Princess Anne County and the former smaller City of Virginia Beach. This merger created one of the largest cities in the Commonwealth of Virginia (the Commonwealth ) with an area of 310 square miles and 38 miles of shore-line on the Atlantic Ocean and the Chesapeake Bay. The City covers the entire eastern border of Virginia south of the Delmarva Peninsula and includes all of the ocean-front area from the Chesapeake Bay to the North Carolina border. The City has the largest population of any city in Virginia with a population of 453,500 according to the 2015 estimate of the Weldon Cooper Center for Public Service. As a city on the eastern seaboard, Virginia Beach has always been known as a resort community. The strength of the City s economy, however, lies in its diversification. Construction/real estate, light industry, high-tech services, wholesale and retail sales, agriculture, four major military bases, and resort and convention trade are the major aspects of the economy. The City encourages and supports this diversification. Virginia Beach is an independent, full-service city with sole local governmental taxing power within its boundaries. It derives its governing authority from its City Charter granted by the General Assembly of the Commonwealth. The governing body of the City is the City Council, which formulates policies for the administration of the City. The current City Charter provides for a Council-Manager form of government. There is no overlapping debt or taxing powers with other political subdivisions. The water and sewer and storm water systems are operated on a self-supporting basis. The Executive Offices are located at the Municipal Center, Virginia Beach, Virginia 23456, telephone number (757) The telephone number for the Finance Department is (757) Certain Elected Officials The City operates under the Council-Manager form of government as established by its City Charter. There is an 11-member City Council vested with local legislative powers. Each member of the City Council is elected on an at large basis; however, seven seats must be filled by individuals who reside in the seven residence districts of the City. The City Charter was amended in 1995 to provide that the City s seven boroughs would be replaced by these approximately equally populated residence districts. There is no district residency requirement for the remaining four seats. The Mayor is elected by the voters and occupies one of these four seats. The City Council elects a Vice-Mayor from among its members. All members of the City Council are elected for four-year terms. The City Manager is the administrative head of the municipal government and carries out the policies of the City Council. The City Manager is appointed by the City Council and serves at the pleasure of the City Council. The City Council also appoints members to certain boards, commissions, and authorities as it deems necessary to the operation of the City. A-1

32 School Board The School Board is made up of 11 members. Seven seats must be filled on the School Board by individuals who reside in the seven respective residence districts of the City but each of the eleven elected School Board members are elected by the voters of the City at large. The School Board members serve four-year terms. The School Board exercises all of the powers conferred and performs all of the duties imposed upon them by general law. Elected Officials William D. Sessoms, Jr., Mayor. President and CEO of Towne Financial Services Group from 2011 to President of TowneBank, Virginia Beach from Elected to City Council in 1988, serving as Vice Mayor from 1992 to Re-elected to City Council as Mayor in 2008, re-elected in In 2012, he was recognized as elected official of the year by the Association of Defense Communities. Graduate of First Colonial High School and Virginia Commonwealth University. Louis R. Jones, Vice Mayor. Owner and operator of Hollomon-Brown Funeral Homes, Inc. Elected to City Council in 1982 and served as Mayor from 1982 to Re-elected to City Council in 1990, 1994, 1998, 2002, 2006, 2010 and Has served as Vice Mayor since Bachelor of Science degree in Business Administration from The College of William and Mary, Norfolk Division (now Old Dominion University). M. Benjamin Davenport, Councilman. Broker, Davenport Management Co. Started full time in the family business in June Elected to City Council in Possesses Virginia Class A Contractors License and Real Estate Broker s License. Robert M. Dyer, Councilman. Administrative Dean and Associate Professor, School of Government at Regent University. Elected to City Council in 2004; re-elected in 2008 and Bachelor of Science degree in Physical Therapy from Saint Louis University, Master of Public Administration degree from Fairleigh Dickinson University and a Ph.D. in Organizational Leadership from Regent University. Barbara M. Henley, Councilwoman. Partner, Henley Farms, LP. Elected to the City Council , during which time she served as Vice Mayor from 1982 to Re-elected to the City Council and Bachelor of Science degree in Elementary Education from Old Dominion University and a Masters in Urban Studies from Old Dominion University. Shannon DS Kane, Councilwoman. President and founder of EWR Management Group in Virginia Beach. Appointed to City Council in 2014 by members of Council to fill on an interim basis a portion of the term of a Council A-2

33 member who resigned. Reelected in a special election held in November Bachelor s degree in Communications and Public Relations from James Madison University. John D. Moss, Councilman. Serves as the Director for Submarine Program Requirements and Warfare Development for the Commander Submarine Force Atlantic. Elected to City Council in a special election in November 2011; reelected in Served two prior terms on City Council, as the Kempsville Borough Representative ( ) and as an At Large member ( ). Graduate of Princess Anne High School, Virginia Tech, Old Dominion, and Naval War College, as well as the Senior Federal Fellows Program, John F. Kennedy School of Government, Harvard University. Amelia N. Ross-Hammond, Councilwoman. Professor and director of service-learning and civic engagement at Norfolk State University. Elected to City Council in She holds a Doctorate in Educational Leadership, Curriculum and Instructions from the University of Denver, a Masters of Music Education from the College of New Jersey and a Bachelor s degree from Ithaca College. John E. Uhrin, Councilman. Since 1991, Director of Operations for Burlage Management, currently overseeing the operation of six hotels. Elected to City Council in 2006; re-elected in 2010 and John graduated from Kellam High School. He attained his Bachelor s degree in Business Administration with a concentration in Marketing and Finance from Old Dominion University. Rosemary Wilson, Councilwoman. Realtor with Prudential Towne Realty and former Virginia Beach school teacher as well as School Board member. Rosemary was recognized in 2012 by Lawyer s Weekly, as one of the Most Influential Woman in Virginia. Elected to City Council in 2000; re-elected in 2004, 2008, and Bachelor of Science degree in Education from Old Dominion University. James L. Wood, Councilman. Vice President of J D & W, Inc., a commercial general contracting firm. Elected to City Council in 2002; re-elected in 2006, 2010 and Graduate of Princess Anne High School. Bachelor of Science degree with special attainments in commerce from Washington and Lee University. Certain City Council Appointees and Administrative Staff Members The City Manager is responsible for planning, organizing, directing, and coordinating all activities of the City. The City Manager is also responsible for appointing and discharging all City employees and officers, though responsibilities may be delegated to subordinates. A major responsibility of the City Manager is the preparation of the annual City Operating Budget and Capital Improvement Program. The City Attorney has management, charge, and control of all legal business of the City. The City Attorney is chief legal advisor to the City Council, the City Manager, and all City departments and agencies. It is the duty of the City Attorney to advise the City Council concerning the legality of actions by the City and to represent the City in all matters affecting its interest. A-3

34 It is the responsibility of the Real Estate Assessor s Office annually to appraise all real property in the City. In addition, this office administers the Land Use Assessment Program for qualifying farm and forest lands and processes the Tax Relief for the Elderly and Disabled Program for qualifying senior citizens and disabled persons. The City Clerk s Office is responsible for recording and maintaining all legislative documents and actions of the City Council; preparing and monitoring the legislative budgets; and compiling annual financial disclosures for City Council and members of City Boards and Commissions. The City Clerk s Office also serves as liaison for all Sister City activities. Appointed Officials David L. Hansen, City Manager. Appointed City Manager effective January 26, Previously, Deputy City Manager since April 3, Responsible for the Finance Department among other City departments. Previously Chief Financial Officer and Resource Manager for the U.S. Army s Training and Doctrine Command at Fort Monroe. Bachelor of Science degree in Business Administration and Accounting from the University of Central Florida. Master in Business Administration and Contracting from the Florida Institute of Technology. Master of Science degree in Strategic Studies and Logistics from the Industrial College of the Armed Forces. Mark D. Stiles, City Attorney. Appointed City Attorney effective March 1, Served in City Attorney s Office since 1999 in roles including Deputy City Attorney for Litigation, Senior Litigation Attorney and Associate City Attorney. Employed as associate with the law firm of Willcox & Savage, P.C. from 1989 until Bachelor of Arts degree from West Virginia University (1986) and Juris Doctor degree from Washington & Lee University (1989). Ruth Hodges Fraser, City Clerk. City Clerk since January 1, Master Municipal Clerk, Bachelor of Arts degree in Administration from Potomac State College of West Virginia University. Thomas M. Leahy, III, Deputy City Manager. Appointed Interim Deputy City Manager on January 26, 2016 after appointment of David L. Hansen as City Manager. Previously, Director of Public Utilities for 12 years. Formerly Water Resources Manager for Public Utilities overseeing the Lake Gaston pipeline project, a $150 million endeavor to transfer 60 million gallons of water per day from Lake Gaston to southeast Virginia. Bachelor of Science and Master of Science degrees in Chemical Engineering from the University of Virginia and a Master of Public Administration degree from Old Dominion University and is a licensed Professional Engineer in Virginia. Patricia A. Phillips, Director of Finance. Director of Finance since April 16, Previously served as Director of the Office of Research and Strategic Analysis from 1975 to Also served as a public accountant for Coopers and Lybrand from 1970 through Bachelor of Science degree in Business Administration, Magna Cum Laude, A-4

35 Old Dominion University. Master in Business Administration degree, Old Dominion University. Certified Public Accountant since Governmental Services and Facilities The City provides general governmental services for its citizens including police and fire protection, emergency medical services, collection and disposal of refuse, water and sewer services, parks and recreation, libraries/culture, and maintenance of streets and highways. Other services provided by the City, which services are partially funded by the Commonwealth, include public education in grades kindergarten through twelfth, and certain technical and special education, mental health assistance, health and social services, agricultural services, and judicial activities. The City s main municipal complex includes eight general administrative buildings, a school administration building, a public safety building, a city jail and a judicial complex. In close proximity are a City garage complex, a highway maintenance facility, a public utilities operational maintenance facility, a waste management facility and a farmer s produce market. There are four police precincts, one Law Enforcement Training Academy, 19 fire stations, one fire/emergency medical services training center, one central library together with eight area libraries and two satellite library facilities, 236 developed city parks, and 87 public educational facilities located throughout the City. Some of the other major facilities provided by the City include a convention center, the Virginia Aquarium and Marine Science Center, seven recreational centers, a tennis complex, five municipal golf courses, a 6,000 seat multipurpose sports stadium, a performing arts center and a 20,000 capacity amphitheater, which books approximately 40 entertainment events per year. The City provides a comprehensive range of public services characteristic of its position as the most populous city in the Commonwealth. [Remainder of page intentionally left blank] A-5

36 City of Virginia Beach Organizational Chart General Overview of Governmental Organization and Selected Functions The City government structure has evolved to respond to the challenges of increased demand for quality service, infrastructure needs, potential reductions in state and federal funding and a slowdown in population and revenue growth. In 1991, a Management Leadership Team ( MLT ) was established to assist the City Manager with identifying and resolving organizational issues. The MLT continues to evolve to meet the changing needs of the community and the organization. The MLT includes the City Manager and three Deputy City Managers. The MLT oversees the integration and alignment of the organization toward City Council s vision and annual goals. In 1995, the City created Strategic Issue Teams to focus on City Council s vision and direction. Six business areas were identified: Economic Vitality, Safe Community, Quality Physical Environment, Quality Education for Lifelong Learning, Cultural and Recreational Opportunities, and Family and Youth Opportunities. A seventh area was identified by City Council in 2002 and named Quality Organization. A-6

37 These Strategic Issue Teams focus on the government organization as a quality-driven service provider delivering cost-effective services. As a result of the planning by the Strategic Issue Teams, A Community for a Lifetime: A Strategy to Achieve City Council s Vision for the Future was published in August 1998 and outlined the organization s long-range goals. For the next ten years the organization implemented the strategies, focused on three year priorities, and incorporated City Council s annual goals. In 2008 a new Strategic Plan was published. In 2011, the Strategic Issue Teams were challenged to begin a new planning process and City Council was presented with a new Strategic Plan to achieve their Vision in January The Strategic Plan is updated annually. To enhance the City Council s long time vision of A Community for a Lifetime, in March 2013 the Council adopted the City s first Sustainability Plan. It is a plan to develop communications and a scorecard to report on City and community progress towards achieving economic, environmental and social sustainability. Existing City plans and projects, and all new projects, are viewed through the sustainability lens. Sustainability metrics are being developed to track progress in achieving the goals set forth in the Sustainability Plan. Functional Departments The Department of Agriculture provides educational and resource services in agriculture, home economics, money management, 4-H, and community resource development. The department has three major divisions. The Virginia Beach Cooperative Extension Office offers educational programs and technical information on agriculture, horticulture, and money management. The Agriculture Reserve Program (ARP) is a land preservation program. The goal of the ARP is to promote and enhance agriculture as an important local industry that is part of a diverse local economy by purchasing development rights over a resource base of farmland. The Farmer s Market provides a venue for the sale of goods and products of local farmers and craftsmen and for the provision of rural heritage activities. The Office of the City Auditor. On December 11, 2007, City Council adopted an ordinance to recognize the Office of the City Auditor as a Council-appointed Office. This reorganization creates independence in the overseeing of the audit of financial information. The Council-appointed auditor has all the duties of the former position and reports directly to City Council under the new organizational structure. Among the auditor s duties is to conduct financial and performance audits of City departments, offices, boards, activities, agencies, programs and systems. These audits focus on efficiencies and the adequacy of internal controls, and all audits are conducted in accordance with Government Auditing Standards. The City Auditor also operates a fraud, waste and abuse hotline and oversees and coordinates investigations of suspected fraudulent activity. A Council-appointed Audit Committee consisting of two Council members, a citizen Certified Public Accountant, and two other citizen members with a background in finance, accounting, and/or auditing review the City Auditor s audit schedule and audit reports after issuance. Audit reports are forwarded to City Council and made available for public inspection on the City Auditor s office home page on The function of the Department of Communications and Information Technology is the processing and electronic storage of information used in the daily business of the City. The department collects, organizes and disseminates information to all City departments, City agencies, and the public school system. It also provides consulting services in related areas to municipal users to assist them in formulating goals, objectives and long-range plans. The department manages School and City video production services and facilities and provides information to the community on municipal government and the public school system through the City s Municipal Cable Television Station, Channels 46, 47 and 48. The department s services center around seven main operational areas: applications support, system support, telecommunications, multimedia services, geo-spatial information services, technology services, and business center. A-7

38 The Convention & Visitors Bureau coordinates the advertising and promotion of tourism and convention activities and is responsible for bringing leisure travelers, meetings, conferences, sports events, group tours and conventions to Virginia Beach. The department operates three year-round Visitor Information Centers and two seasonal kiosks in the resort area, and the award-winning Virginia Beach Convention Center. Approximately six million overnight visitors stayed in Virginia Beach in calendar year 2014, and an additional 7.2 million day visitors were also hosted by the city. Total 2015 visitor spending figures from the U.S. Travel Association were at a record high level with a spending volume of $1.4 billion. Visitor activity generated $122 million in City and State revenues in The Office of Cultural Affairs was created to reflect the importance of the role of arts and culture in making a well-rounded and vital community for a lifetime. The creation of this office demonstrates the rising significance of our cultural facilities in the City s structure. The role of the Office of Cultural Affairs consists of the following: develop the vision and direction for cultural arts in Virginia Beach, direct the Virginia Beach Arts and Humanities Commission, coordinate the City s Public Art Program, assist the newly formed 501(c)(3) non-profit organization, Public Art Virginia Beach Foundation, provide contract management for the Sandler Center for the Performing Arts; provide administrative leadership to the Sandler Center for the Performing Arts 501(c)(3) Foundation, and the Sandler Center Foundation s Endowment fundraising campaign. The Economic Development Department promotes and encourages the economic growth and diversity of the City. The department works with the City of Virginia Beach Development Authority to attract business and industry to the City and to develop sites for new or expanding businesses in the City s Business/Industrial Parks. Recent accolades include: Top 5 American City for Connectivity, fdi Intelligence, 2015; One of the Best Places to Own a Home in America, Porch.com, 2015; A+ City for Starting a Small Business, Thumbtack.com, 2015; One of America s Best Cities for Global Trade, Global Trade Magazine, 2014; One of America s 50 Best Cities to Live, 24/7 Wall Street, 2015; Top Ten U.S. Cities for Millennial College Students, USA Today, 2015; Most Affordable City in America in Which to Start a Family, Wise Bread, 2015; A Top 10 Beach Town for Retirees, CBS News, 2014; 5 th Best Run City in America, 24/7 Wall Street, 2014; and 3 rd out of 52 Best Cheap Cities for Raising a Family, Cheapism.com, The Department of Emergency Communications and Citizen Services (ECCS) is comprised of VB9-1-1 and VB VB9-1-1 (Emergency Communications) is a centralized public-safety answering point (PSAP) for citizens to access public safety services. VB9-1-1 also provides communications services for Police, Fire, Emergency Medical Services (EMS), Animal Control and other departments Citywide. In Fiscal Year 2016, VB9-1-1 received 532,687 incoming calls for public safety service. VB3-1-1 (Citizen Services) provides city information services via multiple communication channels such as telephone, online assistance, , fax, print, radio dispatching and emergency notifications. Also, VB3-1-1 assists walk-in customers and various city departments such as Real Estate Assessor, Code Enforcement, and after hours Public Utilities and Public Works, with their information/service requests. In Fiscal Year 2016 VB3-1-1 processed 119,512 inquiries. The Department of Emergency Medical Services (EMS) coordinates the pre-hospital emergency care provided by the 10 volunteer Rescue Squads, operating out of 19 stations. In Fiscal Year 2016, the department answered 44,051 calls for service which included providing a safe and efficient response to the scene, advanced treatment of patients and prompt transport to the hospital. The department operates multiple specialized resources, which include: mass casualty response, tactical (SWAT) medics, vehicle extrication services, a marine rescue team, lifeguard services and a collaborative Air Medical Ambulance (Police/EMS helicopter). In addition, the department provides initial, ongoing, recertification and/or A-8

39 other medical training for volunteer rescue, career EMS, fire department, police department, and/or emergency communications personnel. In Fiscal Year 2015 the Department of EMS consisted of approximately 845 volunteer rescue squad members and 50 uniformed career personnel. The Department of Finance oversees the financial affairs of the City and ensures the financial integrity of City operations. Departmental services include: payment of all City bills; maintenance of accounting records; payment of all City employees and administration of employee benefits; provision of insurance and operation of the self-insurance program; maintenance of the City s fixed assets inventory; procurement of all equipment, materials and services for all city agencies; and coordination and administration of the City s long-term debt program. The City s Fire Department, which is responsible for both fire prevention and fire suppression, handled approximately 45,100 fire and rescue incidents in Fiscal Year The City s firefighters respond to fire, medical and other emergency events from the City s 19 fire and rescue stations. In addition, volunteer personnel with proper training from the City s fire training center provide manpower contributions to a variety of department customer service areas. There are 1,278 volunteers active with our Citizen Emergency Response Team (CERT) and 50 volunteers who serve as firefighters, support technicians and administrative personnel. The Office of the General Registrar, pursuant to provisions in the Code of Virginia, is responsible for providing an accessible and fair means by which City residents can register to vote in general and special elections and primaries. The number of registered voters was 297,619 as of August 12, The Department of Housing and Neighborhood Preservation provides a variety of housing and neighborhood improvement services, including enforcement of the building maintenance code and property maintenance codes, provision of financial assistance to home owners for housing rehabilitation, and provision of financial assistance to eligible renters. In addition, an on-line Pattern Book that provides design guidelines and various types of information to assist homeowners who are planning rehabilitation, is now available on the city s website. The Department of Human Resources is responsible for developing and managing the City s human resource programs to ensure quality, efficiency and diversity. The department manages recruitment and retention, applicant testing, equal employment opportunity, FMLA/ADA, volunteer referrals, employee communications, policy creation and interpretation, employee recognition, leave programs, dispute resolution, performance management, workforce planning, and official personnel record documentation. The department assists in member development in the areas of leadership, personal and professional growth, organizational awareness, job skills, career counseling and coaching, employee safety, and occupational health services. Staff support is provided to the Human Rights Commission, the Investigation Review Panel and the Personnel Board. The Department of Human Services was created by merging the Department of Mental Health/Mental Retardation/Substance Abuse Services, the Department of Social Services, Pendleton Child Service Center, and the Juvenile Detention Center. The department continues to carry out the missions of the former departments including: providing Mental Health, Substance Abuse and Developmental services to children, adults, and the elderly, in order to improve quality of life and ensure community safety. Additionally, the department provides a range of child welfare services including child protective services, foster care, and employment services. The department is responsible for providing secure detention services for children before the juvenile and domestic relations court, and the department provides prevention orientation services to young children identified by the school system as being in need of early intervention services. The department is also responsible for Community A-9

40 Corrections/Pretrial Services which provides probation services and pretrial monitoring for adults who have been charged or convicted of misdemeanors or non-violent felonies. The Juvenile Probation Office provides support services to the Juvenile and Domestic Relations District Court. The office provides probation supervision, intake services, and parole services for juveniles. It provides court support by processing petitions and preparing social background investigations. The Department of Management Services develops and oversees the City Operating Budget and Six-Year Capital Improvement Program. The department provides assistance and direction to other City departments for any budget amendments for issues that arise during the year. The department also provides multi-year forecasting of revenues and expenditures, provides fiscal impact analysis, coordinates grant review, monitors performance measurement data, evaluates City programs and services, and assists departments in management issues, as assigned. The Media and Communications Group provides communication services to city officials, executive leadership and departments to inform and improve communications with citizens, promote civic engagement, manage issues and achieve strategic outcomes. The Department of Aquarium and Museums operates the Virginia Aquarium & Marine Science Center, the Francis Land House, the Thoroughgood House, the Lynnhaven House and the Princess Anne County Training School/Union Kempsville High School located in the Renaissance Academy. The Virginia Aquarium & Marine Science Center first opened in 1986 and was expanded to three times its original size in The expanded building encompasses 120,000 square feet. The Aquarium takes visitors on a journey of water through Virginia s marine environment by way of interactive exhibits and 800,000 gallons of aquariums that feature sharks, river otters, harbor seals and sea turtles. The Aquarium also offers a larger-than-life experience in its 3D Giant Screen National Geographic Branded Theater. The Theater was recently renovated with a $1.2 million upgrade that includes a new digital projection system, and the largest screen in Virginia. A $28 million renovation of the Aquarium s 20-year old original exhibit gallery was completed in late 2009, and features extensive additions to the exhibits, which represent Virginia s environment at various periods of time. The renovation includes a forty-foot, 100,000 gallon walk- through aquarium with spotted eagle rays and other colorful tropical fishes, an arid coastal desert, a volcanic region with Komodo dragons, and a misty peat swamp featuring Tomistoma crocodiles. The Aquarium had attendance of 664,085 and generated revenue of $12,100,000 in Fiscal Year In May of 2014, the Aquarium opened the largest Ropes/Zip Line course in North America. With this opening, the Aquarium increased attendance by 80,000 visitors per year. In January 2015, the Virginia Aquarium added boat trips departing from the Virginia Aquarium dock and almost 30,000 visitors enjoyed this added feature in FY2016. The Virginia Beach history museums promote Virginia Beach s historic resources with the community and ensure the preservation and education of our rich heritage. Specifically, the purpose of the Francis Land House is to collect, preserve and present historically accurate material reflecting life in eighteenth century Princess Anne County. The House is open year-round for tours and educational programming. The Thoroughgood House provides year-round tours and programs related to Adam Thoroughgood, a founding father of Virginia Beach, and early life in colonial Virginia. In March 2016, a $2.5 million education/visitor center began the construction process. This new center will open in the spring of Through public tours and programs, the Lynnhaven House presents life on a rural farm in 18 th century Princess Anne County. During tours, visitors learn about the Thelaball family who lived in the house during the 1700 s. The Princess Anne County Training School/Union Kempsville museum provides the community with the legacy of a segregated African American school history, and educates the visitors on the sacrifice, and the importance of education for African American students from 1934 until the school s closing in In Fiscal Year 2016, the historic house museums had attendance of 17,455 and earned $40,000 in revenue. The department also provides A-10

41 oversight, as well as an operational allotment and maintenance funding, for two other city-owned properties: the Old Coast Guard Station, and the dewitt Cottage, which houses the Atlantic Wildfowl Heritage Museum. The Organization Development Office enhances and supports organizational performance and individual development to improve the effectiveness and sustainability of a Quality Organization. The Office supports the organization, departments, and individual teams in strategic planning, leadership development, and assessing the culture of the organization. A key focus of the Office is change leadership, increasing the capacity of the organization to more effectively manage change. This includes such things as developing strategies and processes for the successful implementation of change initiatives by enhancing learning, communication, decision-making and alignment. The Department of Parks and Recreation s mission is to deliver parks, recreation programs and public spaces that reflect the priorities of our community; support tiered levels of service that recognize the diverse needs of the community; and focus on sustainability of core programs, services and facilities through efficient business practices. In Fiscal Year 2016 the Parks and Recreation Special Revenue Fund, which include parks, outdoor programs, recreation center operations and out-of-school programs, generated $15,211,426 in fees and charges. The Business Systems Division is responsible for managing the department s financial resources and technology, and coordinating the development of the operating budget and the department s human resources functions. The Planning, Design and Development Division updates the Virginia Beach Outdoors Plan and Bikeways and Trails Plan; manages the implementation of the plans and the construction and replacement of Parks and Recreation facilities through the department s Capital Improvement Program. The Programming and Operations Division is responsible for the following areas: providing recreation and leisure services to adults, senior citizens and youths; providing citizens with disabilities the opportunity to receive the benefits of recreation and leisure in the least restrictive environment; operating all parks and park facilities; operating two multi-purpose athletic complexes; operating five motorized boat launches; operating seven recreation centers located throughout the City, one of which, Bow Creek, was recently modernized and re-opened March 21, 2015, and Kempsville was recently closed for modernization and is scheduled to open in early 2017; managing 48 Open Space preservation areas, and operating Out-of-School Time programs. There are 245 City parks, 179 of these are classified as neighborhood parks, 13 are classified as community parks, 6 are classified as metro parks, 2 are classified as signature parks, 3 are classified as linear parks, 5 are classified as natural area parks, and 37 are classified as special use park facilities, 7 of which are under management agreements. The Landscape Management Division provides landscape maintenance services for: all public infrastructure, including roadways and public buildings; the Municipal Center; the Oceanfront resort area; Town Center; and all public open spaces, parks and school sites. The Department of Planning and Community Development provides policy assistance and operational support in the areas of transportation, land use planning, zoning and environmental resource protection. The department also provides plan review, inspection and code enforcement ensuring the quality of the built environment. Three divisions of Planning; Comprehensive Planning, Transportation Planning and the Environment and Sustainability Office (ESO), are responsible for maintaining longrange plans which provide guidance for the physical development of the City. Comprehensive Planning supports the Historic Review Board and the ESO supports the Chesapeake Bay Board and the Wetlands Board. The Current Planning Division provides staff support to the Planning Commission, the City Council on Planning items and the Board of Zoning Appeals. Current Planning also administers the City s Zoning Ordinance. The Department s Development Services Center reviews subdivision plans, site plans and land management plans, issues moving and hauling permits and provides surety administration. The Permits and Inspections Division ensures compliance with building code standards by inspecting all building, electrical, mechanical and plumbing construction in the City. A-11

42 The Police Department is composed of five major units: Administration, Professional Standards, Support, Operations, and Investigative Divisions. The department operates through four precincts located throughout the City. Virginia Beach s Part I Crime rate for 2015 was 24.0 crimes per 1,000 residents, which is a slight increase from the 2014 crime rate of 23.3 crimes per 1,000 residents. The Part I Crime rate includes violent and property crimes. The property crime rate was 22.0 per 1,000 residents. The violent crime rate was 1.0 crimes per 1,000 residents. According to the FBI s Crime in the United States 2014, the City s violent crime rate is the lowest among participating U.S. cities with a population of 350,000 to 900,000. The City continues to be one of the safest communities of its size in the country. The Department Public Health exists to promote and protect the health of the community. Community is defined as all the citizens, including tourists, and the environment. The department serves as the safety net in providing health services to the people who do not have access to care in the private sector such as the uninsured/underinsured and homeless individuals. The department provides clinics and services as follows: communicable disease (surveillance, investigation of individual cases and community outbreaks); Sexually Transmitted Infections (HIV/AIDS, syphilis, gonorrhea, Chlamydia, herpes, VA AIDS Drug Assistance Program); Tuberculosis (case management, Chest Clinic, directly observed treatment and preventive therapy); dental care for children (ages 3-17 years); Women, Infants and Children (WIC) Supplemental Food Program; Infant, Child & Adolescent Health Clinic (routine preventive health care and limited non-urgent sick care, immunizations (childhood and adult); pregnancy testing, pregnancy referral, and maternity care, family planning, home visiting, parent support, Healthy Start Program, Environmental Health (essential food protection: permitting and inspections of restaurants, dairy plants, day care facilities, schools and hospitals; essential sewage and water services: on-site sewage disposal systems and wells, ground water quality, recreational beach water monitoring; general environmental; rabies, public swimming pools, hair dressing, tanning, and nail salons, body art establishments); community-based services: health education and injury prevention; vital statistics: death and birth certificates. The Department of Public Libraries manages seven area libraries, a 95,000 square foot Central Library and 125,000 Joint-Use Library. It operates a mobile early literacy outreach center (bookmobile), provides library services (support) for visually and physically impaired citizens and maintains a public law library. The department has concluded work on a $26 million capital investment program. The department worked with Tidewater Community College Virginia Beach Campus on a Joint Use Library project that is located on the TCC-Virginia Beach campus. This 125,000 square foot facility serves the faculty and students of TCC and the entire Virginia Beach community and is jointly operated by the College and the department. The Joint Use Library construction project was funded with approximately $43 million with 80% provided by the Commonwealth of Virginia and 20% provided by the City of Virginia Beach. The Joint Use Library officially opened to the public on August 17, The total current square footage of the library system (including the portion of the Joint Use Library that is paid for and utilized by the City) is approximately 219,103. The Department of Public Utilities provides water and sanitary sewer services to City residents. As of June 30, 2016, the department had installed and continues to maintain more than 3,145 miles of water and sanitary sewer lines as well as operating and maintaining 408 sanitary sewer pumping stations, nine water pumping stations (including Lake Gaston), 12 water storage facilities with 26 million gallons of water capacity, and 8,338 fire hydrants. The department coordinates the engineering and administration of the development of raw water supplies for the City and oversees the City s water conservation programs. The Department of Public Works oversees the design and construction of new City structures and transportation systems, maintains a large portion of the City s infrastructure (e.g., roadways, bridges, storm water systems, beaches, traffic control devices, City-owned buildings and City-owned motorized A-12

43 equipment), and provides for collection, recycling and disposal of solid waste. The administration of the storm water management utility is also included as a responsibility of the department. The Office of Volunteer Resources coordinates the use of over 15,510 volunteers throughout City Departments, which is equivalent to FTEs, valued at more than $27 million (unaudited). Economic and Demographic Factors Based on the April 2010 census conducted by the U.S. Census Bureau, the population of the City of Virginia Beach was 437,994. This census confirmed Virginia Beach as the most populous city in the Commonwealth and the 34th largest city in the United States. In 2015, the Weldon Cooper Center for Public Service estimated the City s population at 453,500. The following table presents population figures for selected years. POPULATION AND RATE OF CHANGE VIRGINIA BEACH AND THE UNITED STATES SELECTED YEARS Year Virginia Beach Rate of Change United States Rate of Change ,200 N/A 179,323,175 N/A , % 203,302, % , ,542, , ,709, , ,424, , ,745, , ,222, Source: U.S. Census Bureau ( ); Virginia Beach and U.S. as of 7/1//2015, Weldon Cooper Center for Public Service FIVE MOST POPULOUS CITIES IN VIRGINIA City 2014 Population 2015 Population Virginia Beach 451, ,500 Norfolk 246, ,189 Chesapeake 235, ,283 Richmond 213, ,938 Newport News 183, ,454 Source: Weldon Cooper Center for Public Service [Remainder of page intentionally left blank] A-13

44 Income Presented below are tables on median household income, distribution of household income, per capita income, total personal income and median household effective buying income. Median household income is defined as the income of the household in the middle of all household incomes when sorted from lowest to highest. Per capita income is total personal income divided by the area s residential population. Total personal income is a measurement of the area s total income from all sources. Effective buying income is a measurement of disposable income or after-tax income. MEDIAN HOUSEHOLD INCOME Year Virginia Beach Commonwealth of Virginia United States 2006 $61,333 $56,277 $48, ,462 59,562 50, ,776 61,233 52, ,298 59,330 50, ,212 60,674 50, ,614 61,882 50, ,626 61,741 51, ,855 62,666 52, ,816 64,902 53, ,281 66,262 55,775 Source: Census Bureau s 2015 American Community Survey 1-year estimates DISTRIBUTION OF HOUSEHOLD INCOME 2015 Virginia Beach Virginia United States $100, % 31.8% 24.9% $75,000 - $99, $50,000 - $74, $25,000 - $49, Under $24, Source: Census Bureau s 2015 American Community Survey 1-year estimate PER CAPITA INCOME Virginia Beach $10,836 $21,724 $32,008 $46,429 $51,161 Norfolk 9,165 16,914 24,942 36,061 38,463 Chesapeake 9,630 19,019 28,226 42,011 45,616 Newport News 9,137 17,283 23,313 34,625 38,509 Commonwealth of Virginia 10,107 20,831 32,453 44,836 50,345 United States 10,091 19,584 30,587 40,144 46,049 Source: U.S. Department of Commerce, Bureau of Economic Analysis. Most recent information available as of September A-14

45 The City s 2014 per capita income ranks 13th among 105 Virginia localities for which the Bureau of Economic Analysis computes income. Virginia Beach s 2014 per capita income is 111.1% of the United States per capita income. TOTAL PERSONAL INCOME (In Millions) Virginia Beach $ 2,869 $8,169 $ 13,665 $20,386 $23,073 Commonwealth of Virginia 54, , , , ,185 Virginia Beach as a percent of State 5.3% 6.5% 5.9% 5.7% 5.5% Source: U.S. Department of Commerce, Bureau of Economic Analysis. Most recent information available as of September The following tables show median household effective buying income for the City, the Virginia Beach Metropolitan Statistical Area ( MSA ), the Commonwealth and the United States for the last ten calendar years, followed by comparative tables showing Virginia Beach as a percentage of the various regions. [Remainder of page intentionally left blank] A-15

46 Year MEDIAN HOUSEHOLD DISPOSABLE INCOME Virginia Beach Virginia Beach MSA Commonwealth of Virginia United States 2007 $47,317 $41,706 $46,028 $41, ,559 44,804 47,678 41, ,435 45,487 49,389 45, ,884 46,385 49,722 43, ,292 49,293 52,254 45, ,029 48,905 52,120 44, ,133 46,798 50,719 41, ,124 46,845 51,364 42, ,662 44,440 51,301 43, ,007 48,857 52,331 44,652 Year Virginia Beach As a Percent of U.S. Virginia Beach MSA As a Percent of U.S. Commonwealth As a Percent of U.S % % % Year Virginia Beach as a Percent of MSA Virginia Beach as a Percent of Commonwealth % % Source: Sales & Marketing Management ( ); Demographics USA ( ); Demographics Now (2009); Decision Data Resources ( ); Esri ( ) A-16

47 Housing and Construction The information in the following tables is presented to illustrate various housing characteristics for the City. As of January 1, 2016, the total dwelling units in the City were 176,902, excluding military housing. Single-family units represented 55.4 percent of this total. Selected data regarding the distribution of all dwelling units is as follows: DWELLING UNITS BY TYPE * 2015 Units 2016 Units % of 2016 Units by Type Single Family 97,936 98, % Multi-family Complex 34,258 34, Townhouse 19,695 19, Low Rise Condominium 19,960 20, Duplex 1,394 1, High Rise Condo/Co-op 2,841 2, Total 176, , % Source: City Real Estate Assessor. *Does not include Military Combined Units. For calendar year 2015, the City had issued a total of 33,395 permits valued at $942,458,801. The following table presents a further, historical breakdown of selected building permits by type. NUMBER OF SELECTED BUILDING PERMITS ISSUED AND VALUE (1)(3) Calendar Year Residential (2) Commercial Industrial Other Building Permits Total Estimated Value ,382 1, ,007 $817,683, , , ,839, , , ,118, , ,894, , ,141, ,640 1, , ,131, ,606 1, , ,631, ,772 1, , ,070, ,892 1, , ,451, ,940 1, , ,363,785 Source: City Department of Planning and Community Development, Division of Permits and Inspections (1) Represents building permits only. Does not include trade permits, e.g. electrical, plumbing, gas, mechanical and other types of permits. (2) One residential building permit does not necessarily equal one residential unit; in many instances one permit is for multiple residential units. (3) In 2011, a new permit reporting system was implemented which allowed a more efficient way of managing the number of permits issued per project: (1) instead of issuing multiple types of building permits per project, one building permit is issued per location; and (2) permit modifications no longer require the issuance of a new permit. Years 2011 forward the number of permits is not comparable to prior years. A-17

48 The following table presents annual new construction as reported by the City Assessor. The total value of new construction in the City for 2015 was $348,247,100, which is less than the 2014 value of $439,247,100 by $91,604,000. NEW CONSTRUCTION: NUMBER OF UNITS AND ESTIMATED VALUE (1) Residential Construction Commercial Construction (2) Calendar Year Number of Units Residential Addition Estimated Value Number of Permits Estimated Value Total Estimated Value ,905 3,016 $537,922, $151,479,530 $689,402, ,430 2, ,420, ,469, ,890, ,647 1, ,016, ,787, ,804, , ,966, ,865, ,831, ,267 1, ,054, ,811, ,865, , ,935, ,769, ,704, ,105 1, ,649, ,027, ,677, ,365 1, ,878, ,251, ,129, ,459 1, ,596, ,254, ,851, ,027 1, ,430, ,816, ,247,100 Source: Office of Real Estate Assessor Annual Report (1) Building/structures only (excludes land) (2) Represents general commercial, hotel, industrial and office, including additions. [Remainder of page intentionally left blank] A-18

49 Employment Employers in the City, excluding military, provided jobs for 174,138 persons through the fourth quarter of calendar year The following table presents the number of establishments, employment, and quarterly gross wages for the fourth quarter of calendar year CITY OF VIRGINIA BEACH NUMBER OF ESTABLISHMENTS, EMPLOYMENT AND QUARTERLY GROSS WAGES QUARTER ENDED DECEMBER 31, 2015 (NON-MILITARY) Industry Group Number of Establishments Average Emp. For Quarter Quarterly Gross Wages Average Weekly Wages Per Employee Private Services 6,778 84,566 $872,646,187 $794 Wholesale and Retail Trade 1,882 27, ,680, Construction 1,269 9, ,468,697 1,040 Financial, Insurance and Real Estate 1,310 12, ,229,106 1,379 Manufacturing 266 5,674 79,989,841 1,084 Transportation and Warehousing 199 2,197 23,290, Information 132 3,164 39,946, Agriculture, Forestry, Fishing and Mining , Total Private * 11, ,625 $1,598,997,883 $845 Public State Government 28 2,016 $17,084,073 $652 Local Government 53 20, ,448, Federal Government 44 6,206 93,109,711 1,154 Total Public ,513 $324,642,557 $876 TOTAL 11, ,138 $1,923,640,440 $850 Source: Virginia Employment Commission, Economic Information Services Division, Quarterly Census of Employment and Wages Report (QCEW). Based upon most current and available information. * Immaterial amounts have been suppressed in certain industry sub-categories, which are included in the total amounts. [Remainder of page intentionally left blank] A-19

50 The following table is a breakdown of employment by sector in the City. EMPLOYMENT BY SECTOR AS A PERCENTAGE OF TOTAL QUARTER ENDED DECEMBER 31, 2015 Services 48.6% Wholesale and Retail Trade 16.0 Government * 16.4 Construction 5.5 Financial, Insurance and Real Estate 7.1 Manufacturing 3.2 Transportation, Communications and Utilities 1.3 Information 1.8 Agriculture, Forestry, Fishing and Mining 0.1 Total 100.0% Source: Virginia Employment Commission, Economic Information Services Division. *Excludes active duty military personnel stationed at bases located in the City. As illustrated in the table below, the unemployment rate for the City has, for the most part, been consistently lower than the rates for the Hampton Roads MSA, the Commonwealth and the United States. ANNUAL AVERAGE UNEMPLOYMENT RATES (2) Virginia Beach 6.4% 6.0% 5.6% 5.5% 4.9% 4.3% 3.9% Virginia Beach MSA (1) Commonwealth United States Source: U.S. Department of Labor, Bureau of Labor Statistics, and Virginia Employment Commission (1) MSA includes the Virginia Cities of Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach and Williamsburg, and the Virginia Counties of Gloucester, Isle of Wight, James City, Mathews and York. Also includes Currituck County, and Gates County, North Carolina. (2) Reported for the month of July 2016 (not seasonally adjusted). Business and Industry The City has six major concentrations of office, industrial and commercial property: Airport Industrial Park, Greenwich/Witchduck Corridor, Central Business District/Pembroke area, Oceana West Corporate Park/Lynnhaven Corridor, Corporate Landing Business Park, and the Princess Anne BioCorridor For FY 16, the City s Department of Economic Development recorded the creation of nearly 1,600 new jobs and more than $320 million of new capital investment by 38 new and expanding companies. Highlights included creation of 440 new jobs by GEICO, 100 new jobs by Atlantic Bay Mortgage, 65 new technology jobs by Klett Consulting, 85 new jobs and $17.5 million investment by SANJO Fineblanking, and the proposed $240 million USM Arena project. Airport Industrial Park. The park encompasses 250 acres with four million square feet of light industrial and office space. National and international manufacturing, warehousing and distribution operations are located here. TASTE, a regional catering and restaurant company with 7 existing locations, relocated their corporate headquarters to AIP, investing $4.1 million. A-20

51 Greenwich/Witchduck Corridor. The Greenwich/Witchduck corridor currently contains 907,212 square feet of low and mid-rise suburban office space in business parks, including Interstate Corporate Center, Corporate Woods and Commerce Park that house corporate headquarters and business operations of many types. The Corridor currently contains 639,773 square feet of light industrial space and facilities housing regional warehousing and distribution operations. TopGolf recently opened a $30 million golf entertainment center, which since opening Dec 28, 2015 has been one of the top 3 performing facilities in the TopGolf family. Central Business District/Pembroke Area. The CBD encompasses 500 acres and 2.3 million square feet of low and high-rise office space in business parks including Town Center, Pembroke Office Park, Corporate Center and Convergence Center. The Town Center of Virginia Beach is a new urban Main Street style development located within the core of the City s Central Business District. The core area of the project spans 33 acres and, when completed, will include 850,000 square feet of Class A office space, 750,000 square feet of upscale retail, fine dining, a business class hotel, a luxury hotel with high-rise condominiums, a performing arts center, a central park, and apartments. The entire area is serviced by free structured parking. The corporate citizens in the area include numerous financial, information processing, law and professional service firms. Phases I, II, III and V, as described below, are complete. Phase IV is on hold indefinitely. The development agreement for Phase VI was approved by City Council in December Phase I included the construction of a 21-story, 254,000 square-foot Class A office tower, twostory and five-story self-contained office/retail buildings, totaling approximately 93,000 square feet, a 176 room, business-class Hilton Garden Inn Hotel, a two story Towne Bank, and a 1,284-space parking garage. Phase II included the construction of four additional blocks of property containing 341 residential luxury apartments in the Cosmopolitan building, 232,500 square feet of retail and office space, and two parking garages with a total of 1,430 parking spaces. The Phase III Development Agreement between the Virginia Beach Development Authority and the Town Center Associates, LLC was approved in September 2005, and a modification to the agreement was approved in June Phase III includes a 37-story, 236 room Westin Hotel and 119 luxury condominiums which opened in December 2007, 36,500 square feet of retail space, a structured parking garage with 735 public parking spaces and 212 private parking spaces, the 84,000 square-foot, 1,200 seat Sandler Center for the Performing Arts which opened in November 2007 and a 5-story 90,000 square-foot building consisting of Class A office and retail space. The Westin Virginia Beach Town Center Hotel and Residences is the tallest building in the Commonwealth at 500 feet to the tip of its architectural spire. Phase V of Town Center began construction in January 2013, and includes a 212,998 square foot office tower, 290 apartments, 26,600 square feet of retail, and approximately 900 parking spaces in a structured garage. Clark Nexsen is the anchor tenant for the new office tower which was completed in summer New-to-the-market retail tenants that have recently opened stores in Town Center include West Elm, Anthropologie, LuluLemon, Francesca s, Destination Maternity, Free People, Paper Source and Eclectic Design; Tupelo Honey Café opened their first Southeast Virginia restaurant in Summer Phase VI represents the highest ratio of private versus public investment, with more than $11 of private sector investment for every $1 of public investment. The $41 million project will feature a nine story mixed use building including 33,000 sf of new retail space, a 5,000 square foot restaurant, 120 new studio and one-bedroom apartments, an elevated public plaza and a $7.6 million privately funded 300-seat A-21

52 experimental theater. The Virginia Beach Development Authority approved the development agreement for this project in May Spinoff projects due to the success of Town Center include Pembroke Mall expansion and redevelopment highlighted by the region s first REI and Nordstrom Rack retail stores, the region s first urban-style Wal-Mart located two blocks to the west of Town Center, the CitiView mixed project on Bonney Road, and Convergence Center V, a new 50,000 square foot Class A office building with parking deck that opened March The Virginia Beach Development Authority approved a term sheet for the $62 million CityView 2 mixed use development in June Oceana West Corporate Park/Lynnhaven Corridor. The park encompasses 1,100 acres and currently contains 1.76 million square feet of low and mid-rise suburban office space and 5.5 million square feet of light industrial space. 195 acres are presently available for development. Corporate citizens in Oceana West and adjacent business parks, including Reflections, Sabre, Lynnhaven Industrial Area, Oceana East and Taylor Farms Industrial Park, comprise a wide variety of domestic and foreign firms, including corporate headquarters and manufacturing, warehousing and distribution operations. Virginia Governor Terry McAuliffe announced in July the decision by SANJO Fineblanking, a Barcelona-based manufacturer of fineblanked metal products, to invest $17.5 million in their new North American headquarters and manufacturing center in Virginia Beach. The project will also create 85 new jobs; construction will begin 3 rd quarter Corporate Landing Business Park. The park encompasses over 325 acres and is owned and operated by the City of Virginia Beach Development Authority. 125 acres are presently available for headquarters, professional services, research and development, office buildings, retail and two conference centers. Corporate citizens include world headquarters, regional offices, and high-tech manufacturing. This master-planned, multi-faceted park contains 38 acres of lakes, jogging trails, green space and recreational opportunities. 639,773 square feet of mid-rise suburban office is being developed. Major tenants in the park include GEICO (which has added more than 300 new employees since January 2014), corporate headquarters of Liberty Tax, and KBH/JES, which purchased and occupied a 45,000 square foot existing class A office building to serve as their corporate headquarters and technology development/training center. Green Flash Brewing also formally broke ground on their 50,000 square foot East Coast headquarters and brewery, which will open November The Virginia Beach Development Authority also sold 3.5 acres to Telefonica for development of a new 24,000 square foot data center to support a new highspeed transoceanic communications cable landing site to be located in Virginia Beach. The data center will support new cable projects by both Telefonica and a partnership between Microsoft and Facebook. These will be the first two transoceanic cable projects in the Mid-Atlantic. Princess Anne BioCorridor. The Virginia Beach Development Authority accepted ownership of 155 acres of land in this corridor for the future development of a bio/health science research park to support the city s new bio science business cluster initiative. The park is expected to accommodate up to 1 million square feet of new commercial space. The Development Authority also opened its first bioaccelerator in partnership with Tidewater Community College in Spring The 1,500 square foot space has been fully leased. Other Developments. Throughout Virginia Beach there are many additional smaller nodes of office and commercial activity including Little Neck, Oceanfront, Birdneck/Laskin Road, First Colonial and Kempsville. Norfolk Southern Right-of-Way and Light Rail. The City purchased a 10.6 mile corridor of rail line and a related easement that runs parallel to Interstate 264 and Virginia Beach Boulevard from Newtown Road to Birdneck Road for $40 million ($15 million City, $20 million State grant and $5 A-22

53 million from Hampton Roads Transit (HRT)). The purpose of the acquisition was to preserve the rail corridor for future transportation. HRT has conducted the Virginia Beach Transit Extension study (VBTES) and the Draft Environmental Impact Statement (DEIS) to examine the best transit options available for the corridor. The study looked at four alignment alternatives to extend one of two forms of fixed guideway transit: light rail or bus rapid transit within the above-mentioned corridor. On May 12, 2015, after the DEIS public comment period, City Council adopted a Locally Preferred Alternative that would extend The Tide light rail transit system to Town Center. The DEIS identified the need for an additional 12 HRT buses to enhance public transportation throughout the City including syncing up to the light rail line. Also, a 3.4-mile shared use pedestrian and bicycle path is being planned to run alongside the extension in order to create a true multi-modal east-west corridor straddling the City s planned Strategic Growth Areas. Over the past year HRT coordinated 30% Preliminary Engineering documents for light rail while the City developed 30% Preliminary Engineering documents for the parallel shared use pathway. The two sets of design documents will be combined in late fall 2016 as a Design-Build RFP for prequalified Design-Build teams to submit bids. The process will culminate with bids being opened by the spring 2017 in order for City Council to consider the final not to exceed cost for the project. No construction of a transit system will proceed until after the receipt of bids and the City Council has an opportunity to vote upon the Design-Build construction contract. The City and the Commonwealth reached an agreement whereby the Commonwealth will fund $155 million of the estimated $243 million total project cost. Sports and Entertainment Arena. In February 2014, the City received competing proposals for a $200 million sports and entertainment arena across from the Virginia Beach Convention Center. After extensive review and public participation, Council selected United States Management (USM) to work with City staff to develop a term sheet. On December 9, 2014, Council unanimously approved the term sheet and directed staff to develop a comprehensive development agreement. On December 8, 2015, City Council formally approved the agreements with USM to build the arena, subject to USM obtaining private financing. USM will assume all financial and operational risk in return for 1% of the existing hotel tax and all direct taxes paid by the arena to include real estate, personal property, business license, local sales, portion of the State sales tax, admissions and meals taxes. The City is responsible for up to $76.5 million in public infrastructure improvements that will be funded through the City s Tourism Investment Programs (TIP) Fund. To insure there will be adequate funds available in the TIP Fund for the infrastructure debt service, an additional $1/night hotel tax will be included in the hotel tax rate structure for a 5 year period. The arena will host live concerts, family events, conventions and trade shows, collegiate and youth athletic events, NBA/NHL exhibition games, and other events that will appeal to all facets of the community. USM has proposed changes to the development agreement whereby USM would issue unrated, privately placed taxable bonds. The size of the bond issue would have increased to $240 million to include a debt service reserve as well as capitalized interest and issuance costs. City Council rejected these changes on October 4, At this time, it is not certain if the project will have further adjustments or not. Tax Increment Financing Districts The City is one of the first localities in the Commonwealth to use Tax Increment Financing ( TIF ) districts as a means of supporting certain capital projects, usually involving one or more private or public partners. Tax Increment Financing is authorized under Sections through of the Code of Virginia, originally enacted in The City established three TIF districts to fund its share of three investment partnerships: the Lynnhaven Mall Expansion, the Sandbridge Beach Restoration Program and the Town Center of Virginia Beach. The City s funding commitment to each of the projects is paid through incremental tax revenues generated by each project in the related TIF district. In FY-12, fourteen years after it was created, the Lynnhaven Mall TIF district was dissolved after the City s A-23

54 commitment to the developer was met. The City continues to collect and apply the incremental revenue of the two remaining TIF Districts in accordance with the project development agreements. The City has not incurred debt for any of the TIF projects through the issuance of Tax Increment Financing Bonds. Sandbridge Beach Restoration Program: The Sandbridge area of the City was established as a TIF district by ordinance approved by City Council on December 1, An important real estate and aesthetic asset to the City, this area has long battled sand erosion. The City continues to pursue a multifront strategy of funding sand replenishment, including seeking federal funds, using local funds, and establishing a Special Service District. The use of TIF is another method to ensure stability to this area and to ensure that the primary beneficiaries of the program fund the bulk of the improvements. As of June 30, 2015, $95.9 million in incremental real estate taxes have been collected for sand replenishment, of which $80.1 million was declared excess over expected future project costs and returned to the General Fund over the last ten years. No debt has been issued or is planned to be issued for this program. The Town Center of Virginia Beach: The southern part of the Pembroke area of the City was established as a Tax Increment Financing district by ordinance approved by City Council on November 23, The district is called Central Business District-South. The 33-acre core area features Class-A high-rise office space, upscale retail space, hotels, restaurants and upscale residential apartments and condominiums, all within a village green park setting. The Town Center is supported by free public parking in several enclosed parking garages set within the center. The City has funded approximately $16 million for the public infrastructure and over $67 million for the parking garages and other public components through Phase III. The City invested another $1.0 million in public infrastructure and $20.1 million for a garage in Phase V (Phase IV is on hold), which was completed in FY-15. The development agreement for Phase VI was approved by City Council in May The City will invest $1.0 million for streetscapes and a pedestrian bridge and $2.9 million for a public plaza. Construction will start in September 2016 with expected completion in spring The City s investment leverages over $487 million of private sector investment. The City also benefits from increased personal, retail sales, admissions, restaurant, utility, business property, and license taxes. As of June 30, 2015, $55.8 million in revenues have been collected in the Central Business District South TIF Special Revenue Fund, which includes $3.0 million in hotel taxes which were generated within the core area of Town Center and transferred to the CBD-S TIF. Certain public infrastructure for the Town Center project was financed by the City through bonds issued by the Authority. It is expected that real estate tax revenues generated in the Town Center TIF District, along with core area hotel taxes, will be sufficient to pay the debt service on these prior Authority bond issues. The tax increment revenues and special taxes are not pledged to the payment of the Authority bonds. See the section entitled Virginia Beach Development Authority Appropriation-Based Debt for further discussion on Authority bonds issued for the benefit of the City. [Remainder of page intentionally left blank] A-24

55 CITY OF VIRGINIA BEACH MAJOR PRIVATE EMPLOYERS AS OF DECEMBER 31, 2015 Employer 1000 and over employees Sentara Healthcare Wal Mart Stihl Anthem Professional Hospitality Food Lion Caliper Support Svcs Christian Broadcasting Network Farm Fresh 500 to 999 employees GEICO, Government Employees Insurance Kroger Regent University New American Mortgage LLC Remedy Staffing U.P.S. Hall Automotive LLC Target Corp Catholic Diocese of Richmond Harris Teeter Supermarket McDonald's Checkered Flag Lifenet Westminster Canterbury Liberty Tax Service Medical Transport LLC 250 to 499 employees Norfolk Cent YMCA Amsec Gretna Health Care Center The Home Depot Red Lobster & The Olive Garden International Marketing Atlantic Shores Aor Management Co of Virginia Inc Architectural Graphics Inc Cendant Car Rental Group Inc Sutherland Global Services Hand & Heart ECPI College of Technology Atlantic Bay Mortgage Group Century Concrete Inc Charles Barker Toyota VW Inc Seniorcorp Industry Hospitals General Merchandise Stores Machinery Manufacturing Insurance Carriers and Related Activities Administrative and Support Services Food and Beverage Stores Administrative and Support Services Broadcasting (except Internet) Food and Beverage Stores Insurance Carriers and Related Activities Food and Beverage Stores Educational Services Credit Intermediation and Related Activities Administrative and Support Services Couriers and Messengers Motor Vehicle and Parts Dealers General Merchandise Stores Educational Services Food and Beverage Stores Food Services and Drinking Places Motor Vehicle and Parts Dealers Ambulatory Health Care Services Nursing and Residential Care Facilities Professional, Scientific, and Technical Services Ambulatory Health Care Services Religious, Grantmaking, Civic, Professional, and Similar Organizations Professional, Scientific, and Technical Services Nursing and Residential Care Facilities Building Material and Garden Equipment and Supplies Dealers Food Services and Drinking Places Administrative and Support Services Nursing and Residential Care Facilities Ambulatory Health Care Services Miscellaneous Manufacturing Rental and Leasing Services Professional, Scientific, and Technical Services Nursing and Residential Care Facilities Educational Services Credit Intermediation and Related Activities Specialty Trade Contractors Motor Vehicle and Parts Dealers Social Assistance Source: Virginia Employment Commission. A-25

56 Retail Sales The table presented below is a summary of the City s taxable retail sales; it does not include sales which are exempt from tax. Specifically exempt from the sales tax under Sections et seq. of the Virginia Retail Sales and Use Tax Act are sales of alcoholic beverages in government stores, sales of certain motor vehicles, trailers and semitrailers, mobile homes, and travel trailers, and sales of certain motor vehicle fuels. Also, the figures do not include the significant amount of non-taxable sales on military bases in the City. As shown in the table, annual taxable retail sales have increased by 28.5% from calendar year 2005 through calendar year TAXABLE RETAIL SALES Calendar Year Taxable Retail Sales 2005 $4,183,908, ,726,601, ,937,885, ,841,022, ,638,871, ,690,141, ,738,333, ,933,930, ,064,938, ,159,858, ,374,616,746 Source: Virginia Department of Taxation Tourism and Conventions Total 2015 visitor spending as reported by the U.S. Travel Association was a record high $1.4 billion, exceeding spending volume of $1.37 billion. Visitor activity generated $122 million in City and State tax revenues in 2015, up from $115 million in In 2015 the tourism and convention industry supported 12,924 jobs in the City to serve the many visitors year-round. The Virginia Beach Overnight Visitor Profile for the Summer of 2015 reports that customer loyalty remained high in summer 2015 with repeat visitation of approximately 76%, a figure which has remained essentially unchanged since summer Data for the Overnight Visitor Profile Reports comes from Continental Research Associates. Hotel performance increased during Citywide annual hotel occupancy for 2015 increased to 56.8% from 55.5% in 2014, according to Smith Travel Research December 2015 report data. In the more important key indicators of hotel revenue per available room (RevPAR) and total revenue for the year, the Virginia Beach hotel industry performance was up, again according to Smith Travel: Annual RevPAR was up 5.9% in 2015, from $67.21 in 2014 to $71.19, and total hotel revenue increased from $277,450,032 in 2014 to $288,506,475. Both Annual RevPAR and total hotel revenue increased over the previous record highs set in Revenue for all lodging in the city, which includes hotels, vacation home rentals and campgrounds, totaled $337.8 million for 2015, a record 7.1% increase, according to official city tax receipts. A-26

57 Overnight visitation to Virginia Beach reached 6.0 million during 2014 according to Longwoods International, a slight increase over Day visitors in 2014 climbed to 7.2 million, up 4.3% from 2013, according to Longwoods. For Fiscal Year 2015, the Convention Marketing and Sports Marketing Division booked a total of 198 future meetings/events extending through These bookings represent a total of more than 160,000 room nights. One of the most significant measures of any convention center is the number of room nights it generates in area hotels. For Fiscal Year 2015, 15 events will generate nearly 94,000 room nights citywide were occupied. In 2015 the Virginia Beach oceanfront Visitor Information Center, located off Interstate 264, became the first visitor center in the country to achieve LEED Gold certification for Existing Buildings; at the same time, the Virginia Beach Convention Center (VBCC) successfully renewed their 2010 LEED Gold certification under a more stringent rating system adopted by the U.S. Green Building Council. Both facilities are owned and managed by the City of Virginia Beach. The LEED (Leadership in Energy and Environmental Design) Green Building Rating System is the nationally accepted benchmark for the design, construction, and operation of high performance green buildings, which was developed by the U.S. Green Building Council (USGBC). Both facilities serve as an icon and leader in Virginia Beach s sustainable efforts. Virginia Beach currently has more than 11,300 hotel rooms with about 7,700 rooms located in the Resort Area. There are several key tourism-related projects, in various stages of discussion and review, intended to continue the forward the momentum of the industry. These include an arena adjacent to the VBCC and three new Oceanfront hotel projects including the restoration and reopening of the Historic Cavalier Hotel and a potential Entertainment Complex at the eastern end of the 19th Street Corridor. HOTEL ROOM AND MEAL TAX RECEIPTS FISCAL YEARS 2006 THROUGH 2015 Fiscal Year Hotel Meal Total Tax Receipts 2006 $20,982,033 $45,025,727 $66,007, ,616,459 46,743,465 69,359, ,623,107 48,069,618 71,692, ,955,423 48,304,462 71,259, ,801,413 48,442,376 71,243, ,169,996 50,594,181 74,764, ,003,788 53,254,313 78,258, ,049,027 55,122,465 81,171, ,643,369 56,872,794 83,516, ,914,212 59,968,375 87,882,587 Source: City Department of Finance. Military The military bases in Virginia Beach have an annual payroll of $1.96 billion for 36,223 armed services and civilian workers in A-27

58 Oceana Naval Air Station and Oceana Naval Air Station Dam Neck Annex. Oceana Naval Air Station ( NAS Oceana ) is the United States Navy s East Coast Master Jet Base. NAS Oceana is home to some 337 aircraft with 20 squadrons of F/A-18 Hornets and Super Hornets fighter/attack aircraft and one C-40A (Navy 737 variant) squadron. NAS Oceana/Dam Neck Annex, with a $1.1 billion economic impact, has 10,704 active duty personnel and 5,851 civilian employees with estimated $868 million in direct salaries totaling $1.1 billion with goods and services annually. (Source: The Navy Region Mid- Atlantic Hampton Roads Area FY-2015 Economic Impact Report.) NAS Oceana Dam Neck Annex s primary mission is to provide training in the operation and employment of combat direction and control systems. Dam Neck Annex provides the highest quality, most up-to-date training in aviation maintenance, administration and management, survival, evasion, resistance and escape training and conventional weapons training. The federal Base Realignment and Closure ( BRAC ) Commission was formed pursuant to Public Law to conduct an independent review of the recommendations and analysis of the Secretary of Defense and provide the President of the United States with its recommendations on the timely closure and realignment of military installations in the United States. Although the 2005 decision of the BRAC Commission recommending realignment of NAS Oceana by relocating the Master Jet Base to Cecil Field in Jacksonville, Florida is moot, the City of Virginia Beach remains committed to the Air Installations Compatible Use Zones (AICUZ) program it implemented in an effort to keep Virginia Beach as the home of the Navy s East Coast Master Jet Base. The AICUZ program includes a multi-pronged state/local partnership effort including land use laws, the acquisition of non-conforming uses, and incentivizing compatible uses. From FY-2007 through FY-2015, the City and the Commonwealth of Virginia contributed a combined total of $15 million per year, split 50/50, to this program. Now, the BRAC program is winding down, with a combined funding of $7.8 million in FY-2015, and City funding of $2.5 million, with no state funding in FY For FY-2017 and going forward, the funding for this program will come from sales of parcels within the area and sales of easements to the Navy. In total, $130 million has been spent to acquire non-conforming homes and businesses from willing sellers, without using condemnation. Joint Expeditionary Base Little Creek Fort Story. On October 1, 2009 two military bases in Virginia Beach operated by different branches of the military-the Navy's Little Creek Naval Amphibious Base and the Army's Fort Story-merged to become a single entity, with a unified command and a new name. The newly merged base is the biggest military employer in Virginia Beach, with a $1.25 billion economic impact. It has 14,969 active duty personnel and 4,699 civilian employees with an estimated payroll of $1.1 billion a year. It is the primary East Coast base supporting overseas contingency operations. The former Little Creek Naval Amphibious Base is the Navy's east coast major operating base for the expeditionary forces of the U.S. Atlantic Fleet. The former Fort Story was established as a coast artillery post in It is home to the 11th Transportation Battalion and provides an advanced joint training venue utilized by Navy, Marine Corps and Army. There are a combined 130 resident commands on Joint Expeditionary Base. (Source: The Navy Region Mid-Atlantic Hampton Roads Area FY-2015 Economic Impact Report.) The Federal Budget, specifically the impacts of sequestration mandated in Budget Control Act of 2011, impacted the Department of Defense (DOD) spending in the Hampton Roads region and created uncertainty in the regional economy. Subsequently, Congress and the executive branch reduced the impact of sequestration on defense spending by allowing flexibility in spending so cuts could be prioritized. Also helpful, Congress passed the Bipartisan Budget Act of 2013, which provides $63 billion in sequestration relief in FY-14 and FY-15, half of which applies to defense spending. This act also provides an additional $85 billion to the DOD for its overseas contingency operation and funding for a A-28

59 1% military and federal civilian workers salary increase in FY-14. (Source: ODU 2015 State of the Region Report.) In October 2015, Congress passed the Bipartisan Budget Act of 2015, which lifts the sequestration caps on defense spending by $40 billion over the next two fiscal years. In December 2015, Congress passed and the president signed a $1.14 trillion spending bill authorizing spending put forth in the budget policy bill. The President s FY-17 budget proposal lifts sequestration in future years. Medical Facilities Medical facilities in the City have expanded over the last few years. One of the premier hospitals in the region, Sentara Virginia Beach General, underwent major renovations to improve services to its patients. The 276-bed acute-care facility features trauma services 24/7, stroke center, cancer center, and many other health care services. It is the region s only Level III Trauma Center and home to the Sentara Heart Center. Sentara Princess Anne Hospital is a 160-bed acute care hospital, and employs 968 people. It serves Southern Virginia Beach as well as neighboring Chesapeake and northeastern North Carolina communities. Sentara Princess Anne Hospital, in partnership with Bon Secours Virginia, brings quality clinical outcomes, experienced physicians, award winning patient safety initiatives, advanced technology and a patient-centered approach to care for patients. Combined with more than 100 physicians and services offered on the multiple campus medical office buildings, Sentara Princess Anne Hospital is a comprehensive healthcare destination for the community. In addition, there are 20 urgent care centers for medical assistance throughout the City. Approximately 1,630 licensed doctors utilize the medical facilities in the City and approximately 527 dentists practice in the City. (Source: reference USA database, Virginia Board of Medicine, Sentara Agribusiness In 2016, the Agribusiness sector of Virginia Beach s economy continued to grow and provide a sustainable industry for the local economy. The agricultural industry serves as one of the key industries for the City with 9,379 acres of production land enrolled in the City Agricultural Reserve Program (ARP) thus preserving this land for farm land preservation. In addition to these preserved acres there is another 18,000+ acres in agriculture farm land being farmed. In 2015, the economic impact of the agricultural industry was estimated at $121 million and made up of a diverse AG business sector including production agriculture (soybeans, corn, wheat), fruits & vegetables (over 24 different locally grown products including the areas highly regarded strawberry crop), equine, livestock, and agri-tourism. Forty-four square miles of the City s 248 square miles of land consist of farmland and forestland. This land base supports over 200 farms and farm related businesses that contribute to the environment, quality of life, and economy of the city and the region. The natural attraction of the farm operations, green space, and the City s Farmers Market draws tour buses from outside the region, tourist excursions, farm educational tours, and children s agricultural educational program tours. The City has a year around farmers market that serves the community with local goods and products as well as offering community events such as Friday Night Hoe Downs, AG Theme Festivals and AG Educational events such as Farm Days, Harvest Fair, and Honey Festival. Agriculture continues to grow and is expected to be a sustainable long term viable economic engine for the City of Virginia Beach. Education Available within the City is a wide variety of educational facilities and programs, including public elementary, middle and high schools, nine specialized academies, private and parochial schools, and eight higher educational facilities. In terms of public enrollment, the City s public school system is the largest city school system in the Commonwealth. A-29

60 PUBLIC EDUCATION FACILITIES/PROGRAMS June 30, Elementary Schools 14 Middle Schools 11 High Schools 1 Technical and Career Education Center 1 Advanced Technology Center 1 Green Run Collegiate which is a Public Charter School 1 Brickell Academy at Old Donation School** 1 Plaza Middle School Middle Years International Baccalaureate Program 1 Princess Anne High School International Baccalaureate Magnet Center 1 Bayside High School Health Sciences Academy 1 First Colonial High School Legal Studies Academy 1 Kempsville High School Entrepreneurship and Business Academy 1 Landstown High School Governor's STEM* & Technology Academy 1 Salem High School Visual and Performing Arts Academy 1 Tallwood High School Global Studies and World Languages Academy 1 Ocean Lakes High School Math and Science Academy 1 Adult Learning Center 1 Juvenile Detention Center 1 Renaissance Academy Source: Business Services Office, Virginia Beach City Public Schools ** Formerly Old Donation Center and Kemps Landing Magnet [Remainder of page intentionally left blank] A-30

61 Public Schools. The City s public school March 31 average daily membership totaled 67,890 for the school year, a decrease of 0.67 percent over the previous year. Summarized below are the March 31 average daily membership and annual percentage change for the school year to school year PUBLIC SCHOOLS STUDENT POPULATION SCHOOL YEARS TO School Year Number of Students Percent Change ,452 (2.06)% ,473 (1.37) ,335 (1.61) ,225 (0.16) ,219 (0.01) ,977 (0.35) ,614 (0.53) ,569 (0.07) ,351 (0.32) ,890 (0.67) Source: Business Services Office, Virginia Beach City Public Schools. Private and Parochial Schools. According to The Virginia Council for Private Education, there are 17 accredited private and parochial schools in the City of Virginia Beach. Approximately 4,921 students are enrolled in these schools. (Sources: school web sites.) Higher Education Virginia Beach s higher educational resources include the Virginia Beach Higher Education Center, Virginia Wesleyan College, Tidewater Community College, the Advanced Technology Center, and Regent University. Virginia Beach is also home to branch campuses of Bryant & Stratton College, Centura College, ECPI University, George Washington University, Hampton University, Saint Leo University, South University, Strayer University, Troy University, Southern Illinois University, University of Virginia, Virginia Polytechnic Institute and State University, and The Art Institute of Atlanta. Town Center area is the location for four of these branch campuses: The Art Institute of Virginia Beach, Hampton University s The College of Virginia Beach, University of Phoenix, and Strayer University. Tidewater Community College ( TCC ), with an annual enrollment of nearly 40,000 students over four main campuses, is a division of the Virginia Community College System. The Virginia Beach campus has an enrollment of approximately 20,960 students. TCC offers the first two years of universityparallel instruction and over 140 career and technical programs. TCC is Hampton Road s largest provider of higher education and workforce development services. TCC is a resource for business and industry to gain technical employees, as well as expertise for training and retraining programs for current employees. TCC s Regional Health Professions Center (RHPC) is located on the Virginia Beach Campus. This 65,000 square-foot, three-story facility is where students learn in a simulated hospital, lab, paramedic and doctor s office environment. The 125,000- square- foot Joint-Use Library, built by TCC and the City of Virginia Beach, opened in August, The 89,000 square-foot Student Center opened in January, A-31

62 It includes a Welcome & Information Center, Barnes and Noble bookstore, a fitness center, a gym, a study lounge and more for students, staff and guests. Source: Virginia Wesleyan College is a four-year liberal arts private college located on the Virginia Beach/Norfolk boundary line. It was chartered in 1961 and founded by the United Methodist Church. It has an enrollment of approximately 1,300 students. There are approximately 33 majors in the undergraduate program including Criminal Justice, Foreign Languages and Literatures, and Mathematics and Computer Science. Source: Regent University, founded in 1978, has an enrollment of approximately 7,757. Regent consists of seven graduate schools and one undergraduate school. Regent offers more than 95 accredited areas of study. Graduate schools include Business & Leadership, Education, Government, Law, Divinity, Psychology & Counseling, and the College of Communications & Arts. Source: The Virginia Beach Higher Education Center is one of three Old Dominion University Regional Higher Education Centers (RHECs). The Virginia Beach Higher Education Center opened in 1999 through a partnership of the City of Virginia Beach, Old Dominion University and Norfolk State University. This partnership continues today among the City of Virginia Beach, Old Dominion University, Norfolk State University and Tidewater Community College. The Center also hosts the following organizations or programs: Institute for Learning in Retirement (ILR) and the Virginia Tidewater Consortium for Higher Education. Students can pursue undergraduate degrees in Communication, Criminal Justice, Engineering Technology, Health Sciences, Nursing, Psychology, Teacher Preparation, Work and Professional Studies, and more. Graduate degrees include Ph.D. s in English and Community College Leadership, and Master s Degrees in Nursing, Public Health, Business Administration, Educational Leadership, Accounting and Engineering Management, and more. Certification and licensure programs are also available. Source: The Advanced Technology Center (ATC) is a special Commonwealth of Virginia state/city partnership of Tidewater Community College, Virginia Beach Public Schools, and the City of Virginia Beach. The state provided $10 million and contributed the land. The City of Virginia Beach provided $12.5 million in funding. Through its partnership with the Virginia Beach Department of Economic Development, the Advanced Technology Center offers industry-certified training for high-school, college and continuing education students in areas that include, but are not limited to: Training and development, high-performance manufacturing, marine services and water transportation, telecommunications, radio and television, special communication services, and computer hardware and software development. This training, along with the Virginia Beach Public School s Workforce Readiness Program, ensures that Virginia Beach students have the skills that employers are looking for in today s fast-paced and techsavvy marketplace. ATC has a state-of-the-art theater for conferences, teleconferences, satellite broadcasts, webcasts, meetings, and training sessions. Source: [Remainder of page intentionally left blank] A-32

63 Limitations on Incurrence of Debt CITY INDEBTEDNESS AND CAPITAL PLAN Pursuant to the Constitution of Virginia (the Constitution ) and the Public Finance Act of 1991, Chapter 26, Title 15.2, Code of Virginia of 1950, as amended, a city in Virginia is authorized to issue bonds and notes secured by a pledge of its full faith and credit and unlimited taxing power. The Constitution and the Public Finance Act of 1991 also limit the indebtedness which may be incurred by cities to 10 percent of the assessed valuation of real estate subject to local taxation. There is no requirement in the Constitution or the Code of Virginia that the issuance of general obligation bonds of the City be subject to approval of the qualified voters of the City at referendum. As of June 30, 2016, the total assessed value of real property (including estimated Public Service property of $875,496,571 as of June 30, 2015) for the City was $52,891,871,075 which translates into a general obligation debt limit of $5,289,187,108. The City s net obligations subject to debt limitations as of June 30, 2016, totaled $697,520,721 and represented 13.18% of this limit. Debt outstanding as of September 1, 2016 subject to the debt limit is $689,557,546 and is 12.61% of the limit based on the Fiscal Year 2017 Land Book Value of $53,806,545,600 plus an additional amount of taxable public service corporation property with an estimated assessed value of $875,496,571 totaling $54,682,042,171. The City Charter further limits the City s power to create debt. It provides that no bonds or notes (other than refunding bonds, revenue anticipation notes, revenue bonds, and other obligations excluded from the City s debt limit under Section 10(a) of Article VII of the Constitution) shall be issued until their issuance has been authorized by a majority of the qualified voters of the City voting in an election on the question. The City Charter further provides, however, that the City Council may authorize bonds or notes without an election in any calendar year in such amounts as shall not increase the total indebtedness of the City, as determined in the manner set forth in Section 10(a) of Article VII of the Constitution, by more than $10,000,000 above the amount of such indebtedness at the beginning of such calendar year. For purposes of computing the annual limitation on the amount of bonds or other obligations that may be issued without an election, authorized and unissued bonds or other obligations which could have been issued without an election on December 31 in the year they were authorized may be issued in a subsequent year without affecting the annual limitation for such subsequent year. In addition, refunding bonds shall not be included for purposes of determining the amount of bonds or other obligations that may be issued without an election in any calendar year. Contractual obligations of the City other than bonds and notes are not included with the annual limitations described herein. Debt Management Policies The City has developed a series of Debt Management Policies to provide a functional tool for debt management and capital planning. The policies reiterate the City s commitment to principles such as rapid principal retirement, maintaining sufficient working capital to avoid the use of short-term borrowing for operating purposes, and the use of self-supporting or revenue-supported debt where appropriate. The policies also establish the following target levels for these key debt ratios: Overall Net Debt To Estimated Full Market Value. This ratio indicates the relationship between the City s debt and the taxable value of property in the City. It is an important indicator of the City s ability to repay its tax-supported debt, since property taxes are a major revenue source. A small ratio indicates that the City will be better able to withstand economic downturns. It is the City s policy that the computed value of this ratio should not exceed 3.5 percent of estimated full market value. A-33

64 Overall Net Debt Per Capita. This ratio indicates the per capita debt burden and is a general indication of the City s debt burden. A smaller ratio indicates a lighter burden. It is the City s policy that debt per capita should not exceed $3,000 per capita. Debt Per Capita To Per Capita Personal Income. This ratio is a measure of the capacity of citizens to finance tax-supported debt. A low ratio means that taxes required to repay debt represent a smaller portion of the average citizen s income. It is the City s policy that debt per capita should not exceed 6.5 percent of per capita income. Annual Debt Service To General Government Expenditures. This ratio measures the City s ability to repay debt without hampering other City services. A small ratio indicates a lesser burden on the City s operating budget. This computation presently has a guideline of 10 percent. In addition, the City staff monitors the Assessed Value Per Capita. This ratio reflects the strength of the City s tax base and the City s ability to finance tax-supported debt. The table below entitled Key Debt Ratios includes the computed value of this debt-load indicator. The City s debt load targets are evaluated periodically and are appropriately adjusted over time, taking into account the City s prospective debt issuances and the expectations and comparative standards of both the nationally recognized rating agencies and the financial community. The most recent adjustment was on May 12, 2015 when the City Council increased the City s Overall Net Debt Per Capita policy from $2,800 per capita to $3,000 per capita to accommodate certain major projects included in the FY-16 Capital Improvement Program. While the City s general obligation debt load may exceed the City s debt load targets from time to time, the City anticipates that its actual debt load ratios generally will fall within the City s debt load targets over time. [Remainder of page intentionally left blank] A-34

65 KEY DEBT RATIOS Fiscal Year Ended June September 1, 2016 (7) Overall Net Debt (1) $1,004,016,404 $971,940,595 $1,019,180,232 $1,024,010,842 $995,541,524 $988,896,658 (1) Net Debt Per Capita (2) $2,244 $2,162 $2,256 $2,258 $2,195 $2,181 Ratio to Estimated- Full Value (3) 2.0% 2.0% 2.1% 2.0% 1.9% 1.8% Ratio of Per Capita Debt to Per Capita Income (4) 4.5% 4.3% 4.5% 4.4% 4.3% 4.3% Ratio of Annual Debt Service to General Government Expenditures 8.4% 8.4% 8.2% 8.7% 8.6% 8.6% (5) Assessed Value Per Capita (6) $114,967 $110,717 $109,873 $113,457 $116,630 $120,578 (1) Includes debt as described in the following "Overall Net Debt Table". Does not include debt charged to the Water and Sewer or Storm Water Enterprise Funds or Agriculture Reserve Program. (2) Population estimates are by the Weldon-Cooper Center for Public Service and the 2010 Census. (3) Real property is assessed at 100 percent of fair market value. (4) Per capita income figures from U.S. Department of Commerce/Bureau of Economic Analysis for years subsequent to 2014 are not available. FY 2015 through 2017 are estimated based on FY (5) Estimated, based on Fiscal Year (6) Assessed values for , are as of June 30th each year. FY 2017 is as of September; includes Public Service of $875,496,571 to total $54,682,042,171. (7) Includes $21,225,000 Public Facility Revenue Bonds, Series 2016A and $7,880,000 Public Facility Refunding Revenue Bonds, Series 2016 B expected to be issued November 3, Source: City Financial Statements. [Remainder of page intentionally left blank] A-35

66 Outstanding Debt Information on the City s indebtedness is presented in the following tables. Included is information on overall net debt, selected debt service schedules on General Obligation bonds and Overall Net Debt, rapidity of principal retirement, and information on other types of debt. OVERALL NET DEBT As of September 1, 2016 General Obligation Bonds... $646,171,658 SPSA Contingent Debt Obligation (1)... 7,283,117 Public Facility Revenue Bonds (2) ,620,000 Water and Sewer Revenue Bonds (3) ,868,711 Storm Water Revenue Bonds (4)... 45,220,000 Agriculture Reserve Program Installment Purchase Agreements (5)... 43,385,888 $1,274,549,374 Plus: 2016A&B Public Facility Revenue & Refunding Revenue Bonds expected to be issued November 3, ,105,000 Less: Water and Sewer Revenue Bonds (3)... $218,868,711 SPSA Contingent Debt Obligation (1)... 7,283,117 Storm Water Revenue Bonds (4)... 45,220,000 Agriculture Reserve Installment Purchase Agreements (5)... 43,385, ,757,716 Overall Net Debt and Long-Term Obligations $988,896,658 (1) Represents Southeastern Public Service Authority guarantee of Debt. Not subject to City Charter as per Chapter 872 of the Virginia Acts of Assembly Session. (2) Includes 2010A, B & C Public Facility Revenue and Refunding Bonds, 2012 A & B Revenue and Refunding Bonds, 2013A Public Facility Revenue Bonds, 2014A & B Revenue and Refunding Bonds, and 2015A & B Public Facility Revenue and Refunding Bonds issued through the Virginia Beach Development Authority as limited obligations of the Authority, payable solely from payments made by the City. These obligations are described in the section "VBDA Appropriation-Based Debt" herein. Includes the effects of the refunding of $7,950,000 in principal amount of the Series 2005B and 2007B by the $7,880,000 Public Facility Refunding Revenue Bonds, Series 2016B expected to be issued November 3, (3) Water and sewer revenue bonds are not secured by a pledge of the City's full faith and credit and unlimited taxing power. These bonds are secured solely by the net revenues of the water and sewer system. (4) Storm water revenue bonds are not secured by a pledge of the City's full faith and credit and unlimited taxing power. These bonds are secured solely by the net revenues of the storm water utility system. (5) Represents installment purchase agreements which are general obligations of the City. Interest and principal payments are paid from a dedicated portion of real estate taxes. Principal payments will be made from maturing zero coupon Treasury securities purchased from the dedicated portion of real estate taxes. These obligations are described in the section "Agricultural Reserve Program" herein. Source: City Department of Finance. [Remainder of page intentionally left blank] A-36

67 OVERALL NET DEBT As of September 1, 2016 FISCAL TOTAL OUTSTANDING GENERAL OBLIGATION DEBT SERVICE (1) PLUS: DEVELOPMENT AUTHORITY DEBT SERVICE LESS: REFUNDED BONDS (2) PLUS: 2016 A&B PFRB (3) OVERALL NET DEBT YEAR PRINCIPAL INTEREST TOTAL PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST TOTAL $50,524, $23,270, $73,795, $11,300, $10,982, $465, $216, $495, $571, $61,854, $34,606, $96,461, ,353, ,170, ,523, ,295, ,643, , , ,020, ,124, ,993, ,533, ,526, ,814, ,301, ,115, ,820, ,132, , , ,035, ,045, ,964, ,110, ,074, ,930, ,611, ,541, ,720, ,692, , , ,060, , ,965, ,930, ,896, ,502, ,359, ,861, ,940, ,001, , , ,090, , ,742, ,941, ,683, ,715, ,469, ,184, ,835, ,396, , , ,110, , ,830, ,401, ,231, ,558, ,503, ,061, ,120, ,779, , , ,135, , ,938, ,774, ,712, ,315, ,676, ,991, ,565, ,392, , , ,155, , ,115, ,519, ,634, ,332, ,775, ,107, ,910, ,322, , , ,190, , ,452, ,508, ,960, ,194, ,956, ,150, ,865, ,502, , , ,155, , ,914, ,839, ,753, ,461, ,270, ,732, ,140, ,000, , , ,160, , ,441, ,618, ,060, ,408, ,578, ,987, ,775, ,570, , , ,175, , ,013, ,465, ,478, ,876, ,436, ,313, ,985, ,260, , , ,786, ,970, ,756, ,210, ,336, ,546, ,865, ,032, , , ,000, ,605, ,605, ,820, ,361, ,181, ,865, , , , ,610, ,396, ,006, ,320, ,611, ,931, ,865, , , , ,110, ,399, ,509, ,070, ,040, ,110, ,870, , , , ,865, ,581, ,446, ,070, , ,717, ,895, , , , ,890, , ,850, ,630, , ,903, ,940, , , , ,495, , ,910, ,065, , ,156, , , ,990, , ,123, , , , , , Totals $646,171, $201,743, $847,915, $321,570, $87,863, $7,950, $2,423, $29,105, $9,541, $988,896, $296,725, $1,285,622, (1) Debt service on bonds issued pursuant to the America Recovery and Reinvestment Act (ARRA) are presented at gross and does not reflect the federal government interest subsidies. (2) Reflects the refunding of the 2005B and 2007B Public Facility Revenue Bonds by the 2016B Public Facility Refunding Revenue Bonds. (3) Reflects the expected issuance of the $21,225,000 Public Facility Revenue Bonds, Series 2016A and $7,880,000 Public Facility Refunding Revenue Bonds, Series 2016B on November 3, A-37

68 Authorized but Unissued Bonds As of September 1, 2016, the City had authorized but unissued $147,691,888 of general obligation bonds and $106,064,375 of revenue bonds, as shown in the table below. Purpose Authorization Unissued Amount Security Year Manner Public Improvement $70,800,000 General Obligation 2016 Council Public Improvement 61,778,816 General Obligation 2015 Council Public Improvement 15,113,072 General Obligation 2014 Council Water and Sewer 20,000,000 Revenue 2015 Council Water and Sewer 27,000,000 Revenue 2014 Council Water and Sewer 5,682,666 Revenue 2013 Council Storm Water Utility 15,977,102 Revenue 2016 Council Storm Water Utility 16,656,167 Revenue 2015 Council Storm Water Utility 9,000,000 Revenue 2014 Council Storm Water Utility 11,748,440 Revenue 2013 Council Source: City Department of Finance. RAPIDITY OF PRINCIPAL RETIREMENT RAPIDITY OF PRINCIPAL RETIREMENT ALL GENERAL OBLIGATION BONDS (1) ALL OVERALL NET DEBT (2) September 1, 2016 September 1, 2016 Percentage of Percentage of Maturing Amount Total Debt Maturing Amount Total Debt Within Maturing Outstanding Within Maturing Outstanding 5 years $ 310,840,435 (3) 48.10% 5 years $ 489,350, % 10 years 504,701, % 10 years 791,211, % 15 years 615,336, % 15 years 941,731, % 20 years 646,171, % 20 years 988,896, % Source: City Department of Finance. (1) Does not include appropriation-based indebtedness. (2) Includes the $21,225,000 Public Facility Revenue Bonds, Series 2016A and the $7,880,000 Public Facility Refunding Revenue Bonds, Series 2016B expected to be issued November 3, (3) Includes remaining portion of FY17. Water and Sewer System Debt Pursuant to Article VII, Sec. 10(a)(3) of the Constitution of Virginia, the City has issued water and sewer revenue bonds which are secured solely by the net revenues of the water and sewer system. As of September 1, 2016, $218,868,711 of these bonds were outstanding. A-38

69 Storm Water Utility System Debt Pursuant to Article VII, Sec. 10(a)(3) of the Constitution of Virginia, the City has issued storm water utility revenue bonds which are secured solely by the net revenues of the storm water utility system. As of September 1, 2016, $45,220,000 of these bonds were outstanding. It is the City s policy to service all debt issued for storm water purposes by revenues from the storm water utility system. Virginia Beach Development Authority Appropriation-Based Debt On several occasions the Virginia Beach City Council has requested that the Authority finance various public facilities in the City pursuant to Chapter 643 of the Virginia Acts of Assembly of To meet the City s Financing Plans, the Authority has issued several series of bonds and refunding bonds for the City's benefit. The City s obligation to make payments under the Authority bonds is subject to the annual appropriation of funds for such purpose by the City Council, and is not general obligation debt of the City. The following paragraphs describe these bond issues. On February 24, 1998, the Authority issued $9,800,000 Lease Revenue Bonds payable solely from certain rental payments made by the City under an operating lease. The Lease Revenue Bonds financed the costs of acquiring and constructing a Social Services Building to be used by the City to house its Social Services Department. Principal outstanding on this agreement was refunded by the 2012B Public Facility Refunding Revenue Bonds issued in June, On June 14, 2002, the Authority issued its $20,815,000 Public Facility Revenue Bonds, Series 2002A, and its $3,040,000 Taxable Public Facility Revenue Bonds, Series 2002B, to finance the acquisition of a public parking facility and land for a public plaza in the Town Center development. These bonds are limited obligations of the Authority, payable solely from certain payments made by the City pursuant to a Support Agreement between the Authority and the City. The outstanding portion of the Series 2002A Bonds was refunded through the issuance of Public Facility Refunding Revenue Bonds in The 2002B Bonds have all been retired. On September 24, 2003, the Authority issued $165,000,000 Public Facility Revenue Bonds, with a portion of the proceeds being used for the construction of two parking garages in Town Center. The 2003A Public Facility Revenue Bonds were refunded by Public Facility Refunding Revenue Bonds issued in 2010 and 2012 and are no longer outstanding. On May 1, 2005, the Authority issued $103,900,000 of Public Facility Revenue Bonds (taxable and tax exempt) to fund various City projects and Authority initiatives, a portion of which completed the financing for the Block 10 garage in Town Center. These bonds are limited obligations of the Authority, payable solely from certain payments made by the City pursuant to a Support Agreement between the Authority and the City. The 2005A bonds are no longer outstanding. Principal outstanding on the taxable 2005B bonds will be redeemed prior to maturity with proceeds of the 2016B Public Facility Refunding Revenue Bonds. On June 26, 2007, the Authority issued an additional $100,865,000 of Public Facility Revenue Bonds (taxable and tax-exempt) to fund various City projects and Authority initiatives, a portion of which financed Phase III of the Town Center project. In addition to the Town Center projects, these improvements included the Convention Center Replacement, the Performing Arts Center, Open Space Site Acquisition programs, and the 31st Street Parking Garage, among other projects. The security for these bonds is a Support Agreement between the City and the Authority in which the City will make A-39

70 certain payments to the Authority that will be sufficient to pay debt service on these bonds. Principal outstanding on the 2007A bonds as of September 1, 2016 was $7,780,000. The principal outstanding on the taxable 2007B bonds will be paid at maturity or redeemed prior to maturity with proceeds of the 2016B Public Facility Refunding Revenue Bonds. On May 25, 2010, the Authority issued $17,000,000 Public Facility Revenue Bonds Series 2010A to finance various capital improvements; and $98,035,000 Series 2010B and $40,450,000 Series 2010C in Public Facility Refunding Revenue Bonds to achieve debt service savings which refunded portions of the Series 2002A, 2003A, 2005A and 2007A Public Facility Revenue Bonds issued by the Authority on behalf of the City. These bonds are limited obligations of the Authority, payable solely from certain payments made by the City pursuant to a Support Agreement between the Authority and the City. Principal outstanding on these bonds as of September 1, 2016 was $108,405,000. On June 20, 2012 the Authority issued $22,580,000 Public Facility Revenue Bonds, Series 2012A to finance various capital improvements; and $25,640,000 Public Facility Refunding Revenue Bonds, Series 2012B to achieve debt service savings by refunding all of the outstanding 1998 Lease Revenue Bonds and a portion of the outstanding 2003A Public Facility Revenue Bonds. The bonds are limited obligations of the Authority payable solely from payments made by the City pursuant to a Support Agreement between the Authority and the City. Principal outstanding on these bonds as of September 1, 2016 was $42,120,000. On June 19, 2013 the Authority issued $20,960,000 Public Facility Revenue Bonds, Series 2013A to finance various capital improvements. The bonds are limited obligations of the Authority payable solely from payments made by the City pursuant to a Support Agreement between the Authority and the City. Principal outstanding on these bonds as of September 1, 2016 was $18,230,000. On June 18, 2014 the Authority issued $44,975,000 Public Facility Revenue Bonds, Series 2014A to finance the Block 11 Garage and various capital improvements, and $20,320,000 Public Facility Refunding Revenue Bonds Series 2014B to achieve debt service savings on the 2005A Public Facility Revenue Bonds. These bonds are limited obligations of the Authority payable solely from payments made by the City pursuant to a Support Agreement between the Authority and the City. Principal outstanding on these bonds as of September 1, 2016 was $56,625,000. On June 25, 2015 the Authority issued $48,245,000 Public Facility Revenue Bonds, Series 2015A to finance various road projects and the remainder of the Bow Creek Recreation Center; and to continue the financing of the Kemps Landing/Old Donation Center replacement; and $34,885,000 Public Facility Refunding Revenue Bonds Series 2015B to achieve debt service savings on the 2007A Public Facility Revenue Bonds. These bonds are limited obligations of the Authority payable solely from payments made by the City pursuant to a Support Agreement between the Authority and the City. Principal outstanding on these bonds as of September 1, 2016 was $80,460,000. [Remainder of page intentionally left blank] A-40

71 The following table summarizes the debt issued by the Authority, the payment of which is subject to annual appropriation by the City Council: Bond Issue Purpose Amount Outstanding September 1, 2016 (1) 2016B Public Facility Revenue (2) Refunding Convention Center, Open Space, Garages & Town Center $7,880, A Public Facility Revenue Various Capital Improvements 45,575, B Public Facility Revenue Refunding Convention Center, Open Space, Garages, etc. 34,885, A Public Facility Revenue Garage and Various Capital Improvements 40,475, B Public Facility Revenue Refunding Convention Center, Open Space, Garages, etc. 16,150, A Public Facility Revenue Various Capital Improvements 18,230, A Public Facility Revenue Various Capital Improvements 18,920, B Public Facility Revenue Refunding of Social Services Building, Convention Center, Theatre, etc. 23,200, A Public Facility Revenue Various Capital Improvements 6,800, B Public Facility Refunding Revenue Refunding of Town Center Garages-Phase I, Convention Center, Open Space, Garages, etc. 66,245, C Public Facility Refunding Revenue Refunding of Convention Center, Open Space, Garages, etc. 35,360, A Public Facility Revenue Convention Center, Open Space, Garages, etc. 7,780, B Taxable Public Facility Revenue (3) Convention Center, Open Space, Garages, etc B Taxable Public Facility Revenue (3) Garages and Town Center - Total $321,500,000 (1) Does not include the $21,225,000 Public Facility Revenue Bonds, Series 2016A expected to be issued November 3, (2) The 2007B Public Facility Revenue Bonds ($2,805,000) and the 2005B Public Facility Revenue Bonds ($5,145,000) will be refunded by the $7,880,000 Public Facility Refunding Revenue Bonds, Series 2016B expected to be issued November 3, (3) Reflects refunding described in Footnote 2. Source: City Department of Finance. Agricultural Reserve Program On May 9, 1995, City Council adopted an ordinance establishing the Agricultural Reserve Program ( ARP ). The primary purpose of the ordinance is to promote and encourage the preservation of farmland in the rural southern portion of the City. Through ARP, the City acquires development rights in designated areas within the southern portion of the City through the purchase of agricultural land preservation easements. Landowners who meet certain eligibility criteria may sell an easement to the City while holding fee simple title to the land and continuing to farm. The City acquires these development rights by executing installment purchase agreements with the landowners. These agreements provide for the payment of the principal balance of the agreement in a single installment due approximately twenty-five years after execution of the agreement. Interest on the unpaid principal balance is payable semi-annually. On May 9, 1995, the City Council originally dedicated a one and one-half cent increase in the real estate tax to finance the program; on May 11, 2004, the City Council reduced this amount to one cent; on May 9, 2006, the City Council reduced this amount to 0.9 cents; on A-41

72 May 12, 2015, the City Council further reduced this amount to 0.56 cents to partially fund the City s share of the Virginia Beach Transit Extension project. These obligations constitute indebtedness within the meaning of Article VII, Section 10 of the Virginia Constitution and will be general obligations of the City, pledging the full faith and credit and unlimited taxing power of the City. By policy, interest and principal payments will be paid from a dedicated portion of real estate taxes. Principal payments will be made from maturing zero coupon Treasury securities purchased from the dedicated portion of real estate taxes. As of September 1, 2016, 92 installment purchase agreements totaling approximately 9,240 acres at a total purchase price of $43,385,888 had been executed. One additional application totaling approximately 102 acres are being processed by the City, valued at $680,787. Overlapping Debt The City is autonomous from any county, town, or other political subdivision. Currently, there are no overlapping jurisdictions with debt outstanding for which City residents are liable. Short-Term Borrowing The City does not borrow on a short-term basis for working capital purposes. The City s policy is to maintain the General Fund balance at a level that provides sufficient cash flow for working capital purposes. Payment Record The City has never defaulted in the payment of either principal of or interest on any indebtedness. Impact of Future Economic Development on City Debt The City, over a number of years, has developed a strategy for the development and redevelopment of certain areas in the City that will be a critical element of the City s future economic vitality. Targeted areas include the further development of the oceanfront to complement the convention center, including, for example, a convention center headquarters hotel and entertainment venues. Other targeted development involves public investment in transportation initiatives in the City, including light rail that will require additional debt. The use of public-private partnerships is a critical piece in these potential economic development projects. The public portion of these yet unnamed projects could involve additional debt not yet identified in the City s Capital Improvement Program. Comprehensive Plan The City of Virginia Beach Comprehensive Plan, It s Our Future: A Choice City, was adopted on May 17, It s Our Future: A Choice City (2016) builds on the strength of the previous Comprehensive Plan, It s Our Future (2009), yet updates it to reflect new state planning mandates, changed conditions within our community, and important priority issues that our citizens and the Planning Commission wanted to address. It reflects that our City leaders have made strategic choices over the decades bringing the City into maturity at 50, which have provided choices to the citizens and visitors, and has resulted in the City being viewed by the world as a city of choice or a Choice City. Moving forward and looking ahead to the Year 2040, the plan seeks to guide the City toward becoming a resilient city, with careful attention to planning for mitigation and adaption measures for sea level rise and recurrent flooding in response to the Virginia General Assembly instruction to all local governments in A-42

73 Hampton Roads during the 2015 Session. This Comprehensive Plan identifies such planning projections for both the short term (0-30 years) for municipal planning needs and the long-term (30-50 years) for infrastructure planning and design needs. There are a number of key planning policies embodied in the City s Comprehensive Plan that include urban and rural growth management strategies, such as the Green Line and Strategic Growth Area (SGA) components, economic development opportunities (Strategic Economic Growth Areas (SEGAs), multimodal transportation systems that include transit, other public facility improvements, environmental stewardship and resiliency, housing opportunities, neighborhood preservation, historic resource management and community design guidelines. By adopting these provisions of the Comprehensive Plan, the City has committed itself to advancing sound planning policies to achieve continued physical and fiscal viability for the next 25-year period looking ahead to the Year This is accomplished, in part, by creating a fair and workable balance between the supply of public service delivery systems and the demand placed on those systems by existing and future land uses, utilizing the primary enabling tool in Virginia for implementing local comprehensive plans the Capital Improvement Plan (CIP). The comprehensive planning policies of the City have been designed to achieve enhanced and manageable land development throughout our urban, suburban and rural areas. There are 8 Strategic Growth Areas (SGA) defined in this plan into which over 50 percent of the City s future growth will be directed. These carefully defined areas have been planned to advance the transformation of existing suburban patterns of development into a coherent set of high quality and environmentally sound mixed use urban centers. In addition, the plan recognizes that adequate urban facilities and services need to be focused on serving future growth in these SGA s thereby creating higher quality land uses and expanding the City s taxable revenue base while, at the same time, not compromising the reasonable levels of service to be provided in other areas of the City. By preventing future sprawl through the designation of SGAs for appropriate urban development, the City avoids net negative fiscal impacts for related capital and operating expenses that are too often linked to such development patterns. It is important to note that our comprehensive plan policies also recognize the need to preserve our stable residential neighborhoods in the Suburban Area from decline and a range of initiatives have been and will be established to further this objective. Having the SGAs also ensures the long-term preservation of the City s Rural Area, which is an economic engine for the City and a way of life for many citizens. Preservation of the Rural Area from growth pressures also provides benefit to all of our citizens as well as visitors, as pick-your-own and other farm-related businesses draw residents and visitors, alike, throughout the growing seasons into the southern part of our city to take advantage of its crop production bounty. The Comprehensive Plan outlines land use and other planning policies for the Princess Anne Commons &Transition Area. This area is strategically located between the more urbanized region of the City to the north of the Green Line and the rural areas to the south; the Princess Anne Commons component is within the Interfacility Traffic Area (ITA) between NAS Oceana and NALF Fentress in Chesapeake. The Princess Anne Commons &Transition Area are important components of the City s overall land use planning and economic development strategy. It is not the intent of the Comprehensive Plan for Princess Anne Commons or the Transition Area to become part of the urban area north of the Green Line, nor is it intended that the Transition Area be limited to the very low densities appropriate for rural growth. The policies of the Comprehensive Plan have been designed to ensure that this continues to be a well-planned area. In addition to the municipal center and courthouse complex, the Princess Anne Commons area comprises an impressive array of uses that define it as a special destination within the Hampton Roads Metropolitan Area. It includes a world-class amphitheater, as well as higher education institutions, medical facilities, sports centers and major parklands, among other activities. Other parts of the Princess Anne area include many well planned neighborhoods with considerable open space and protection of key environmental resources, such as our expansive West Neck Creek Park. A-43

74 The southern third of the city is rural and this Comprehensive Plan provides a set of policies to balance agricultural viability and environmental protection with limited well-managed residential and non-residential growth. For example, the Rural Preservation element of the Comprehensive Plan and the Agricultural Reserve Program, adopted by City Council in 1995, are major tools to promote the preservation of farmland and the rural way of life. A series of special Comprehensive Plan amendments, along with many related ordinances and process improvements were established as part of our Oceana Land Use Conformity Program. These actions occurred between 2005 and 2009 and provide complementary land use planning direction between the city and the Navy that allow us to achieve a balance between the city s responsibility to conduct land use planning decision making with the Navy s responsibility to ensure optimal military readiness. The overall land use planning guidance cited in the Comprehensive Plan, along with the strong public demand to live and work in Virginia Beach, will ensure continued well-planned growth in Virginia Beach into the foreseeable future. The Virginia Beach Comprehensive Plan is a dynamic instrument and City Council periodically reviews, enhances and amends the Plan when appropriate. On August 16, 2016 the Comprehensive Plan was amended to include the updated Virginia Beach Outdoors Plan (2016). Since 1971, the City Council has periodically revised and adopted the City s Master Transportation Plan (MTP), as needed, to address, in a comprehensive fashion, the need for an efficient, cost-effective and multimodal transportation system. This policy document, which is a component of the Comprehensive Plan, establishes transportation planning policies for Virginia Beach, and provides planning guidance for bikeways, scenic easements, and other similar features related to the City s major roadway system. The (MTP) in the 2009 Comprehensive Plan places greater emphasis on multimodal systems, especially mass transit modes to help provide alternative mobility consistent with the planning goals related to our Strategic Growth Areas. It was amended in 2010 to include the Major Street Network Ultimate Rights-of-Way and, again, in 2011 to incorporate an update of the City s Bikeways and Trails Master Plan. Decisions affecting the implementation of land use and transportation policies are based, in large measure, upon the guidance provided in the City s Comprehensive Plan and Master Transportation Plan. This multi-modal focus was continued with the 2016 Comprehensive Plan update and emerging mobility technologies (e.g., Intelligent Transportation Systems (ITS) and Alternative Transportation Choices such as Uber, Lyft, and Self-Driving Vehicles) were added to plan to acknowledge the rapidly mobility patterns and lifestyle choices. Providing multi-modal transportation choices to the citizens and visitors continues to remain the highest priority, followed closely by environmental stewardship, including responsiveness to storm water management. Creating a more connected community through enhancing public transit, building more sidewalks, and building an extensive system of multi-use trails for non-vehicular travel and ensuring safe pedestrian connections has also been identified by the citizens as a top priority. The Bikeways and Trails Plan, adopted in 2011 as an amendment to the Comprehensive Plan, is the blueprint for achieving greater non-motorized connectivity, along with the City s new Complete Streets Policy and Administrative Directive, adopted in As a result of the City s planning and implementation efforts, Virginia Beach was named a Bicycle Friendly Community at the Bronze Level by the League of American Bicyclists in The 2009 MTP s Primary Roadway Network Plan was also modeled with assistance from Old Dominion University s Center for Innovative Transportation Studies and the Virginia Modeling and Simulation Center to validate the need for the improvements shown on the plan or make lane call adjustments. The need for the proposed Southeastern Parkway and Greenbelt, which has long been a fixture on the MTP, was also modelled by ODU using build/no-build scenarios and in consideration of A-44

75 the local roadway network to determine if the project need remains and if the project is feasible with or without tolls. Findings and recommendations were presented to the City Council for a future decision, which may result in an amendment to the MTP. It s Our Future: A Choice City (2016) also aligns with the City Council-endorsed vision document for 2040, Envision Virginia Beach 2040 and A Community Plan for Sustainable Future (2013) the City s landmark Sustainability Plan. The City Council has continuously demonstrated its commitment to implementation of the Comprehensive Plan via both its Operating and Capital Improvement Budgets, and its Capital Improvement Plan, focusing on the public initiative recommendations contained in these various plans. Implementation has also occurred through preparation of amendments to development ordinances and other necessary steps to realize full implementation of these plans in so far as city government can affect change. It is the City s intention to provide appropriate incentives through adopted policies to encourage the private sector and other community organizations to partner with the City to realize plan goals. Capital Improvement Program The Capital Improvement Program covers a six-year period, although only the first year of the Capital Budget is actually appropriated. It identifies the funding needed for construction of City facilities, replacement and modernization of schools, replacement of utility infrastructure, acquisition of major pieces of equipment and computer systems, construction of roadways, infrastructure maintenance, and economic development projects. The CIP is the result of a process that balances the need for public facilities against the fiscal capability for the City to provide for these needs. Highlights of the Adopted Capital Improvement Program for Fiscal Years The CIP includes appropriations to date, the Capital Budget (year 1) with years 2 6 included for planning purposes. Since capital projects usually require several years to complete, funding associated with the CIP does not close-out annually. Planning over a six-year horizon ensures that projects are planned appropriately, both from a physical and fiscal perspective. The FY through FY CIP totals $1.56 billion. Only year 1 (the Capital Budget) is appropriated. The CIP includes major projects, as well as other projects to improve the road network, rehabilitate recreation centers, construct parks, modernize schools, and more. The school system will receive $61.3 million in FY funding to modernize and renovate schools and will receive more than $283 million over the entire six year program. Similarly, roadways will receive $80.1 million in funding next year to construct critical roads and light rail projects, and nearly $553 million over the sixyear program. School funding is primarily through the use of debt, while City funding uses a combination of pay-go, debt, fund balances, and state and federal funding. Below is an overall summary of the CIP by project type and means of financing: A-45

76 School funding is primarily through the use of debt, while City funding is a combination of pay-go, debt, fund balances, and state and federal funding. Means of Financing Year 1 FY Years 2-6 FY through FY Total 6 year Programmed Funding PAYGO $57,414,370 $269,370,773 $326,785,143 General Fund Balance 31,941,166 23,405,322 55,346,488 Other Fund Balance and Retained Earnings 3,035,496 56,549,115 59,584,611 Bonds & Lease Purchase 175,497, ,388, ,886,140 State & Federal 31,941, ,117, ,058,568 Other 3,793,424 8,632,145 12,425,569 Total $303,623,053 $1,257,463,466 $1,561,086,519 For more information on projects and financing, please refer to the complete Capital Improvement Program document on A-46

77 Basis of Accounting and Accounting Structure FINANCIAL INFORMATION All of the City s and School Board Component Unit Governmental Funds and Agency Funds (assets and liabilities) are accounted for using a current financial resources measurement focus and the modified accrual basis of accounting (except for the Agency Funds which have no measurement focus). Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The term available is limited to collection within fortyfive days of the fiscal year end. Levies made prior to the fiscal year end but which are not available are recorded as unearned. Expenditures are recorded when the related fund liability is incurred, if measurable (except for unmatured interest on general long-term debt which is recognized when due and paid). The following is a list of the major revenue sources which meet the susceptible to accrual criteria. General Property Taxes General Sales Tax Utility Taxes Hotel Taxes Restaurant Taxes Interest on Deposits and Investments Revenue from Commonwealth Revenue from Federal Government Amusement Taxes All City and School Board Component Unit Proprietary Funds are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. Unbilled Water and Sewer, Storm Water, and Waste Management Enterprise Funds accounts receivable for utility services provided through June 30 are included in the financial statements. The City operates on a July 1 through June 30 Fiscal Year. City of Virginia Beach Development Authority The Virginia Beach Development Authority initially was established for the purposes of attracting new industries and the expansion of existing industries. Over time, the Authority s powers have been expanded and now include the power to undertake financings for the City. In addition, the Authority is authorized to issue industrial development bonds after approval by the City Council and to purchase land to improve and sell for development. These bonds do not constitute indebtedness of the City but are secured solely by revenues from the organization on whose behalf the bonds were issued. The Authority s Commissioners are appointed by City Council. The City does not have legal title to any of the Authority s assets, nor does it have a right to the Authority s surpluses. However, in accordance with Governmental Accounting Standards Board Statements 14 and 61, the Authority is being presented as a blended component unit. Hampton Roads Transportation District Commission The City s financial statements include its share of the operating cost of the regional mass transit operations of the Hampton Roads Transportation District Commission. For Fiscal Year 2017, the City s share of budgeted operating costs was $7,183,999. A-47

78 City Financial Statements In the government-wide Statement of Net Position, both the governmental and business-type activities columns are presented on a consolidated basis by column and are reflected on a full accrual, and economic resources basis, which incorporates long-term assets and receivables as well as long-term debt and obligations. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. The program revenues must be directly associated with the function (public safety, public works, etc.) or a business-type activity. Program revenues include (1) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported as general revenues. The City does not allocate indirect expenses. funds: Fund financial statements are provided for governmental funds, proprietary funds, and fiduciary Major governmental funds are: The General Fund is the City s primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. Revenues are derived primarily from property and other local taxes, state and federal distributions, licenses, permits, charges for service, and interest income. A significant part of the General Fund s revenues is used principally to finance the operations of the City of Virginia Beach School Board. The Capital Projects Fund is used to account for the financial resources for the acquisition or construction of major capital facilities within the City. Major proprietary funds are: The Water and Sewer Fund provides water service and sanitary sewer waste collection and transmission services to Virginia Beach citizens and accounts for operations that are financed in a manner similar to private business enterprises. The Storm Water Fund accounts for the activities of the Storm Water Utility which charges a fee for operational and capital needs for Storm Water management in the City. The Waste Management Fund provides service to our residents for collection, management and disposal of solid waste, recyclable materials and other refuse. In addition, the fund is responsible for the operation of the City s landfill. The Development Authority Fund was established for the purpose of attracting new industries and the expansion of existing industries. These services are financed through fees for Industrial Revenue Bonds and other sources. Additionally, the City reports the following fund types: A-48

79 Special Revenue Funds account for revenue derived from specific sources that are restricted by legal and regulatory provisions to finance specific activities. Internal Service Funds account for the financing of goods and services provided to other departments and agencies of the City or to other governmental units on a cost reimbursement basis. Fiduciary Funds are used to account for assets held by the city in a trustee capacity or as an agent for individuals, private organizations and other governmental units. Investment Policies and Practices The City of Virginia Beach, as a political subdivision of the Commonwealth, is limited to investments permitted by the Code of Virginia of 1950, as amended. In addition, various bond resolutions and a City Council adopted investment policy further restrict the types of allowable investment activities. The City s investment practices are generally described in footnote 8 of the City s financial statements, included in Appendix A hereto. The City Treasurer is responsible for the investment of City funds. The City Treasurer invests the City s funds using internal active management, with external trustees and trust funds taking possession of applicable investments. Within the state permitted guidelines and the adopted investment policy, the City Treasurer limits the City s investments to the State Treasurer s Local Government Investment Pool, collateralized certificates of deposit, repurchase agreements, prime quality commercial paper, and prime quality fed eligible bankers acceptances. The City participates in the new VACo/VML Virginia Investment Pool. The City does not invest in derivative securities, utilize reverse repurchase agreements, nor otherwise leverage its investment portfolio. The City matches the maturity of its investments to cash flow needs to assure cash availability as necessary. Certificate of Achievement The Government Finance Officers Association of the United States and Canada ( GFOA ) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report ( CAFR ) for Fiscal Year In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report that substantially conforms to the high standards for financial reporting as promulgated by the GFOA. A Certificate of Achievement is valid for one year only. The City has been awarded a Certificate of Achievement (called a Certificate of Conformance prior to 1985) for its Comprehensive Annual Financial Report for 36 of the past 37 years. The City was also awarded the Certificate of Achievement for Distinguished Budget Presentation from the GFOA for its Fiscal Year 2015 budget. The City also received this award for 28 of the last 30 years. Budgetary Process The City Charter requires the City Manager to submit a balanced, proposed operating budget to the City Council at least 90 days before the beginning of each fiscal year which begins July 1. Each department of the City prepares its own budget request for review by the City Manager. The City Council is required to hold a public hearing on the budget at which time all interested persons have the A-49

80 opportunity to comment. If the proposed operating budget is not legally adopted by the City Council by June 1, the operating budget submitted by the City Manager will have full force and effect as if it had been adopted by the City Council. The School budget is approved by the School Board, transmitted to the City Manager for review, and then submitted to the City Council for consideration as part of the City s general operating budget. If the School Board determines that additional funding is needed, the School Board Chairman makes a formal written request to the City Council, and the School Board holds a public hearing on the issue. The City Manager is authorized to transfer appropriations up to a maximum of $100,000. Transfers in excess of $100,000 require City Council approval. Transfers between $25,000 to $100,000 are reported to City Council on a monthly basis. Additional appropriations must be offset by additional estimated revenues and/or a transfer from the proper undesignated fund balance and require a public hearing if the amount of the additional appropriation exceeds one percent of the total revenue in the approved budget. Unexpended appropriations (except for the Capital Projects and Grants Funds) lapse and are closed to the proper fund balance at the end of each fiscal year. The appropriation for the subsequent fiscal year is increased by the amount necessary to satisfy the outstanding encumbrances at June 30 of each fiscal year. The operating budget includes a portion of the funding for the Capital Improvement Program ( CIP ). General appropriations used to finance capital projects are shown both in the operating budget and in the CIP. The Department of Management Services annually prepares a six-year CIP. Because activities of capital projects often go beyond a fiscal year period, the accounting, encumbering, and controlling of the funds are based upon the length of project activities. Similarly, federal and state grants in the Grants and Grants Consolidated Funds are budgeted separately from the operating budget because these revenues do not necessarily coincide with the City s fiscal year. Each capital lease obligation has a subject-to-appropriation clause which generally states that each fiscal year s lease payments are subject to appropriation by City Council. These capital lease appropriations are offset by an equal amount of revenue (other financing sources). Highlights of the Adopted Operating Budget for Fiscal Year 2017 On March 22, 2016, the City Manager and staff presented the proposed FY-17 Operating Budget and Capital Improvement Program to City Council. The budgets were adopted on May 10. Between March 22 and May 10, Council held four workshops, two public hearings, and one reconciliation workshop. Revenues The Operating Budget for FY increased by 2.3%. This is the third year of local real assessment growth and really the first budget that reflects revenue growth without major tax rate increases. As the economy rebounds, many of City Council s high priority items that require funding both in the Operating Budget and in the CIP are able to be addressed. Local support for School funding will increase by 1.8%. Until the state becomes a full partner in supporting public schools, it will be difficult to meet major School Board initiatives. The school CIP does reflect additional bond capacity to address energy performance contracts, which have produced savings for the schools and will allow them to move several school modernization efforts forward over time. This summary highlights several major revenue A-50

81 and debt issues as well as briefly discusses funding initiatives for FY For more details on specific projects or departmental funding, reference the separate operating and CIP budget documents. Listed below is an overview of all major revenue streams included in the operating budget. The large negative number in the city budget (shown as a positive in the school s budget column) reflects the transfer of local funding to support the school system. While there are fee increases included in the budget, there are no major tax increases in the FY-17 budget. The Waste Management fee increased $1.64 per month. FY Adjusted Budget Revenues FY City Budget FY Schools Budget FY Total City & Schools Budget % Change Real Estate $528,290,337 $521,348,564 $21,035,920 $542,384, % Personal Property 143,202, ,979, ,979, % General Sales 59,780,905 63,160,061-63,160, % Utility Tax 25,579,267 25,472,704-25,472, % VA Telecommunications 18,225,052 16,998,982-16,998, % Business License 46,842,468 46,389,703-46,389, % Cable Franchise 8,146,171 8,703,443-8,703, % Restaurant Tax 60,768,863 64,881,611-64,881, % Amusement Tax 6,443,446 6,201,490-6,201, % Hotel Room Tax 29,118,287 31,525,371-31,525, % Cigarette Tax 12,474,084 11,853,670-11,853, % Revenue Sharing Formula ,242, ,242, % General Fund Balance 5,166,556 10,903,254-10,903, % Other Fund Balance 21,482,208 3,786,501 11,529,277 15,315, % Utility Fees 155,255, ,620, ,620, % Other Revenue 148,621, ,532,313 24,776, ,309, % Waste Collection Fee 30,886,560 33,644,400-33,644, % State Revenue 458,308, ,705, ,975, ,681, % Federal Revenue 113,575,251 43,369,377 70,519, ,888, % Total Operating Budget $1,872,167,527 $1,041,834,773 $873,080,013 $1,914,914, % Real estate is the largest local source of revenue for the city. Excluding state and federal revenue, real estate revenue represents over 40% of the city s local revenue collected. Growth of this revenue occurs through growth in assessments, new development, and growth in the tax rate. In FY , overall real estate revenue is anticipated to grow by nearly 3%. This increase is attributable to growth in real estate property values and new development. There is no change in the real estate tax rate included in the budget. Personal property taxes remain the most difficult for staff to estimate due to its June 5th due date. At the time estimates are made, only 19% of the revenue for the current year has been collected. Working closely with the Commissioner of Revenues Office, staff is projecting a 2.6% increase in this revenue stream. Of the $4 per $100 of assessed value, some is allocated to schools through the city/school revenue sharing formula and another 30 cents is allocated to support initiatives in public safety. A-51

82 There are more funding needs than the 30-cent dedication for public safety can cover. So in FY , $1.6 million in other tax revenues available in the General Fund are being used to ensure these critical public safety projects and new staff are funded. Initiatives being funded through this dedication include the new Burton Station Fire/EMS Station along with necessary trucks, equipment, and staffing. Funding is also provided to add 10 additional police officers in the operating budget and, as funding allows, to continue to add 10 each of the next several years. Five additional deputies are included in the Corrections Center to assist with medical staffing needs. Also, the staffing related to the body camera program for the police department is included beginning in FY and will increase as the program is expanded over the next four years. The necessary equipment is being purchased through the use of DEA funding. State revenues to the school system increased by $16.6 million. The state also provided a 2% pay increase to teachers and state employees on December 1, revenue (a state funding source for localities with a Police Department) is increasing by approximately $350,000. As the waste management program has transitioned into an enterprise fund, staff is cognizant of ensuring fiscal sustainability and has provided funding recommendations accordingly. One of the most critical items requiring additional funding is the replacement of rolling stock (trucks). In addition, and as noted in the FY City Comprehensive Annual Financial Report (CAFR), the waste management fund balance is negative. The main reason is changes in GASB pronouncements requiring pension liabilities to show as a liability in the accounting of enterprise funds. Current projections indicate the Waste Management Enterprise Fund will not grow out of this negative fund balance nor address the backlog of equipment needing replacement with the current rate of $ A rate increase of $1.64 per month is included in the operating budget to address the aforementioned concerns. One of the city s policies is to maintain an Undesignated General Fund fund balance of 8% to 12% of the following year s revenue. Current projections show that the June 30, 2016 Undesignated General Fund fund balance will be 10.4% of the following year s revenue. The city is able to achieve the 10.35% level even with an anticipated $10 million payment to SPSA out of fund balance due to the loss of revenue from SPSA as our contract with SPSA ends. The city was able to offset the payment to SPSA with savings from a hiring freeze in FY The fund balance summary is displayed in the Appendix section of this document. Expenditures Overall, the operating budget increased by 2.3% or $42.7 million, but when adjusted for the growth in population and inflation, it decreased by 0.6%. As the graph illustrates, since 1980 the operating budget has remained somewhat flat on a per-capita, inflation adjusted basis. Since 1980, the actual budget has grown by a compound annual growth rate of 6.9%, but only an annual rate of 1.9% net of population and inflation. A-52

83 The city and school system have addressed increased mandates and policy initiatives (lower class size, storm water, additional public safety personnel), which have required additional staff and have opened new and expanded facilities (Kellam High School, the Animal Care and Adoption Center, the Joint Use Library, the Juvenile Detention Center, Biznet Village (a care facility for intellectually disabled adults), the Nimmo Fire Station, the Convention Center, and Williams Farm and Bow Creek Recreation Centers). All of these facilities, combined with other various programmatic expansions, have added nearly 600 new staff to the budget while the city trimmed staffing levels in other areas. The increase in the operating budget includes funding for services critical to the community such as public safety, education, libraries, parks, and road maintenance. It also includes pay increases for teachers and city employees. The operating budget contains more employees with almost the entire increase in schools (120.5 FTEs) and the opening of the Kempsville Recreation Center (51.3 FTEs). The new school positions are related to new state funding the schools will be receiving. The following table details the 2.3% increase by major appropriation category. The operating budget and CIP provide the necessary resources to support families in need, maintain city infrastructure, provide a quality education, ensure public safety, and begin funding projects that will benefit generations to come. Services must be balanced with the ability of citizens to pay for those services. The table below attempts to illustrate the approximate annual impact taxes and fees will have on families. It is not perfect, but by using a consistent methodology, you can gain a sense of how families in the city have been affected by rates changes since A-53

84 As noted above, the operating budget asks the typical family to pay $85 more a year or approximately $7 more a month than they do in the current fiscal year. One positive budget driver that is impacting the budget is savings in fuel. Based on the current market assessment, the city s fuel budget for FY has been reduced by $1 million when compared to the FY operating budget and $3 million over the last two fiscal years. The decline in fuel prices over the last couple of years has resulted in a significant savings for the city. These funds have been diverted elsewhere within the operating budget to address other demands for services. A fuel reserve is included in the operating budget; however, should the market change and fuel prices significantly increase, staff may need to approach City Council for additional appropriation authority to purchase fuel. For more details on departmental funding please refer to the complete FY-17 Operating Budget on vbgov.com/budget. Audited Financial Results for Fiscal Year 2015 On December 8, 2015, the City Manager presented to City Council audited financial results for Fiscal Year 2015 for the City s major funds. The City s governmental funds reported combined ending fund balances of $553.2 million, a 2.1% increase compared to prior year s restated fund balance. The fund balance was restated due to the Waste Management fund converting to an enterprise fund. Governmental funds show increases in property tax revenues of $29.6 million primarily due to increases of property assessed values of 3.7% for real estate and 5.4% for personal property. The real estate tax rate remained at $0.93 per $100 of assessed valuation but the personal property tax rate increased by $0.30 (to $4.0) per $100 of assessed valuation. General Fund revenues totaled $1,017.0 million, which is $2.3 million under budget. Real estate and personal property tax revenues exceeded budget by $0.6 million and $7.1 million, respectively; however, other local taxes (including Business Licenses and General Sales Taxes) were under budget by $5.8 million. Actual City expenditures, including funding for Education, were $1,025.1 million or $47.0 million less than budgeted appropriations. City departmental expenditures were $47.0 million less than budget with the departments of Communications and Information Technology, Human Services, and Public Works having the most savings. Reservations against fund balance totaling $66.8 million were set up for nonspendable A-54

85 items ($7.1 million) such as inventories and accounts receivable and $59.7 million for restricted, committed, or assigned items such capital projects, education, grants, and School reversion. The final unassigned General Fund Balance for June 30, 2015 is $97.0 million or 9.3% of subsequent year s revenues, an amount within the City Council policy of 8 to 12%. The tables that follow contain audited results for the Fiscal Year ending June 30, General Government Revenues In Fiscal Year 2015, tax revenues accounted for 52.1 percent of general governmental revenue, State assistance 32.5 percent, federal sources 7.9 percent, and other sources 7.5 percent. The following table shows the City s Fiscal Year 2014 and 2015 actual revenues by source. General Governmental Revenues Fiscal Year 2015 and 2014 Revenues by Source FY 2015 FY 2014 * Increase (Decrease) from 2014 Source Amount Percent Amount Percent Amount Percent (millions) of Total (millions) of Total (millions) Change Local Sources: General Property Tax $ $ $ % Other Local Taxes % Fines and Forfeitures % Permits, Privilege Fees, and % Regulatory Licenses From Use of Money and % Property Charges for Services (0.2) (0.2)% Miscellaneous (0.5) (4.3)% Total Local % From Commonwealth % From Federal Government % Total Revenues $1, % $1, % $ % Source: City Department of Finance. * FY 2014 was restated due to the reclassification of the Waste Management Fund in FY-15. Operating Data Ad valorem property taxes and other local taxes contributed 46.7 and 23.0 percent, respectively, of the City s Governmental Funds revenues in Fiscal Year The City levies an ad valorem tax on the assessed value of real and personal property located within the City. Other local taxes include: (1) a one percent local sales tax (collected by the state and remitted to the City); (2) a tax on consumer utility bills of 20 percent each for gas, electric, water, and telephone on bills up to $15 per month for residential classes and 15 percent on the first $625 per month and 5 percent on the amount between $625 and $2,000 for industrial and commercial classes; (3) a cigarette tax of 70 cents per pack; (4) property transfer recordation taxes; (5) an automobile license fee; (6) various business, professional and occupational taxes; (7) an eight percent hotel room tax; (8) a restaurant meal tax of five and one-half percent; (9) an A-55

86 amusement tax of 10 percent on gross admissions for certain events; and (10) a flat rate of $1.00 added to hotel room charges to fund the Tourism Advertising Program or improvements at Sandbridge. The following table shows the City s principal tax revenues by source for each of the last ten fiscal years. Growth in real property taxes and total tax revenues has averaged 1.1% and 1.3%, respectively, over the past ten years. PRINCIPAL TAX REVENUES BY SOURCE FISCAL YEARS 2006 THROUGH 2015 Real Personal General Restaurant Total Fiscal Property Property Sales Utility Meal Other Tax Year Taxes Taxes Tax Tax Tax Taxes Revenue* 2006 $397,431,699 $129,482,648 $51,391,606 $47,778,078 $45,025,727 $105,702,298 $776,812, ,221, ,098,407 53,962,203 46,357,954 46,743, ,393, ,776, ,241, ,475,060 54,071,427 50,521,820 48,069, ,535, ,913, ,768, ,593,895 51,439,533 45,764,804 48,304, ,627, ,499, ,334, ,226,394 50,263,545 46,662,622 48,442, ,385, ,315, ,474, ,356,403 51,743,905 45,129,301 50,594, ,691, ,990, ,480, ,118,247 53,375,318 45,254,169 53,254, ,764, ,246, ,217, ,135,903 54,978,531 44,623,292 55,122, ,403, ,481, ,439, ,091,190 56,431,418 44,050,182 56,872, ,548, ,433, ,774, ,311,503 58,164,569 43,308,157 59,968, ,831, ,358,469 Source: City Department of Finance. * Includes penalty & interest ($10 minimum) on delinquent collections. An annual ad valorem tax is levied by the City on the assessed value of real property subject to taxation within the City as of July 1. The City assesses real property at 100 percent of its fair market value (with the exception of public service properties which are assessed by the State Corporation Commission). Real property taxes are due on December 5 and June 5 of the fiscal year in which they are levied. A penalty of ten percent of the tax owed or $10, whichever is greater, along with interest of 9.6 percent for the first year, is assessed on delinquent taxes. Subsequent year s interest penalty rates are set by the City Council and are currently 8.4 percent. A portion of tangible personal property located within the City is also assessed an annual ad valorem tax. The assessed value of personal property is 100 percent of appraised value. Personal property taxes are due June 5, and delinquent payments are subject to the same penalties as described above for real property. The following table sets forth the assessed value of all taxable property in the City for the last ten fiscal years. The assessed value of real and personal property in the City at June 30, 2015, was $56,022,609,329 including personal property, and public service real and personal property. [Remainder of page intentionally left blank] A-56

87 HISTORICAL ASSESSED VALUE FISCAL YEARS 2006 THROUGH 2015 Public Real Percentage Personal Percentage Service Percentage Percentage Property Change Property Change Property Change Total Change Fiscal Assessed From Assessed From Assessed From Assessed From Year Value (1) Prior Year Value Prior Year Value (2) Prior Year Value Prior Year 2006 $38,379,012, % $3,710,964, % $530,465,288 (15.07)% $42,620,442, % ,122,142, ,787,921, ,140, ,455,204, ,146,390, ,152,466, ,905, ,946,762, ,766,753, ,712,297,032 (10.60) 807,890, ,286,940, ,379,973,665 (2.44) 3,611,774,884 (2.71) 890,229, ,881,977,681 (2.29) ,975,401,446 (6.15) 4,078,095, ,509, ,981,006,483 (4.84) ,508,022,826 (2.82) 4,305,170, ,693, ,751,887,125 (2.16) ,851,994,658 (3.28) 4,249,692,532 (1.29) 929,843,170 (0.94) 54,031,530,360 (3.09) ,737,614,190 (0.23) 4,034,018,923 (5.08) 889,050,800 (4.39) 53,660,683,913 (0.69) ,577,279, ,569,833, ,496,571 (1.52) 56,022,609, Source: City Department of Finance. (1) Real property is assessed at 100% of fair market value. (2) Includes both real estate and personal property assessment. All public service property is taxed at the real estate tax rate, except for vehicles. The City is required to levy taxes on the assessed value of real and personal property without limit as to the rate or amount to the extent necessary to pay principal of and interest on its general obligation bonds. The following table sets forth the City s tax rates and tax levies on real property for Fiscal Years 2006 through [Remainder of page intentionally left blank] A-57

88 PROPERTY TAX RATES AND CHANGE IN TAX LEVY FISCAL YEARS 2006 THROUGH 2015 Tax Rate Real Annual Fiscal on Real Property Change in Year Property* Tax Levy Tax Levy % $393,544, % ,816, ,635, ,742, ,659,493 (2.43) ,147,507 (6.08) ,160,075 (2.82) ,057, ,015,531 (2.42) ,184, Source: City Department of Finance. * Tax rate per $100 of assessed value. The following table sets forth information concerning the City s property tax collection rate for each of its ten most recent fiscal years. CITY OF VIRGINIA BEACH, VIRGINIA PROPERTY TAX LEVIES AND COLLECTIONS Fiscal Years 2006 through 2015 Collected within the Total Fiscal Year of the Levy Collections Total Collections to Date Fiscal Tax Percentage In Subsequent Percentage Year Levy Amount Of Levy Years Amount Of Levy 2006 $531,438,288 $483,649, % $14,022,360 $497,671, % ,465, ,518, ,500, ,018, ,044, ,526, ,651, ,177, ,582, ,934, ,418, ,352, ,129, ,040, ,798, ,838, ,586, ,769, ,635, ,404, ,586, ,282, ,944, ,227, ,618, ,542, ,317, ,859, ,036, ,339, ,931, ,271, ,420, ,056, ,056,367 Source: City Department of Finance. Note: Collections in subsequent years represent delinquent accounts collected during the course of the fiscal year for all prior fiscal years. A-58

89 CITY OF VIRGINIA BEACH, VIRGINIA PRINCIPAL TAXPAYERS Fiscal Year Ending June 30, 2015 (Unaudited) Real Property Assessed Taxpayer Business Type Value 1 E. D. & A. F. Ruffin & B. L. Thompson Apartments/Shopping Center $ 400,274,500 2 Armada Hoffler Office/Retail/Vacant Land 345,303,000 3 Ramon W. Breeden, Jr. Apartments/Shopping Center 331,408,900 4 Virginia Electric & Power Company Utility 318,893,632 5 Lynnhaven Mall LLC Shopping Mall 289,279,000 6 J. M., R.J.F., A.D. & L.E. Caplan Real Estate 243,832,500 7 Pembroke Square Assoc. Shopping Mall 174,890,400 8 Christian Broadcasting Assoc./Net, Inc. Broadcasting 148,426,800 9 Verizon Virginia, Inc. Utility 145,731, Cheryl P. McLeskey Real Estate 137,371, Thomas J. Lyons, Jr. Hotels 132,055, Lake Gem Shopping Center/Fast-Food 118,258, Watergate Treehouse Associates LP Shopping Center 113,945, Aimco Maple Bay & Aimco Reflections LLC Apartments 100,013, Westminster Canterbury Real Estate 97,242, Potter Properties Shopping Mall 90,378, Windsor Lake & Shoreline Apartments LLC. Apartments/Shopping Center 89,099, Inland Diversified Virginia Beach Landstown LLC Shopping Center 79,956, Wal Mart Real Estate Business Trust Retail Stores 73,687, Virginia Natural Gas Utility 73,635, Sifen, Michael D. Real Estate 73,564, Occidental Development, Ltd. Apartments 61,767, Atlantic Shores Cooperative Apartments 58,658, BBR/Marina Shores LLC Shopping Center 48,474, Jack Rabbit Self Storage Real Estate 47,111,000 Total $ 3,793,259,438 Source: Office of Real Estate Assessor and Commissioner of the Revenue General Fund In accordance with the general practice of governmental units, the City records its transactions under various funds. The largest, the General Fund, is that from which all general costs of City government are paid and to which taxes and other revenues, not specifically directed by law or administrative action to be deposited in special revenue funds, are recorded. Examples of special revenue funds are the Special Service District, Parks and Recreation, and grants funds. The General Fund is comprised of revenue derived from ad valorem taxes, other local taxes, licenses, fees, permits, certain revenue from the federal and state governments, interest earned on invested cash balances, and other revenues. General Fund disbursements include the costs of general City government and transfers to the School Operating Fund for local share of school costs. A-59

90 General Fund Operations GENERAL FUND COMPARATIVE STATEMENT OF REVENUES AND EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE FISCAL YEARS 2011 THROUGH REVENUES: General Property Taxes $ 572,204,386 $ 496,816,269 $ 515,740,460 $ 506,900,885 $ 534,606,422 Other Local Taxes 211,836, ,148, ,285, ,932, ,149,185 Permits, Privilege Fees and Regulatory Licenses 3,824,168 4,239,786 4,222,312 4,715,452 5,138,080 Fines and Forfeitures 6,630,008 6,051,411 6,163,791 6,298,625 6,893,839 From Use of Money and Property 5,487,446 5,760,912 6,083,451 5,461,473 5,658,510 Charges for Services 44,276,986 51,547,766 42,722,379 54,332,704 54,550,938 Miscellaneous 10,376,708 11,187,052 11,310,202 4,375,470 4,890,797 From Other Local Governments 14,921, ,709 95,294 98,153 49,077 From Commonwealth 87,251, ,795, ,423, ,863, ,816,267 From Federal Government 22,369,097 20,997,970 17,591,661 18,444,890 19,436,950 Total Revenues $979,178,246 $955,792,903 $969,638,762 $969,423,597 $1,009,190,065 EXPENDITURES Operating: Legislative $ 1,104,591 $ 1,078,747 $ 1,298,568 $ 1,184,883 $ 1,208,704 Executive 2,481,195 2,542,012 2,539,253 2,528,002 2,615,031 Law 3,576,615 3,640,226 3,697,386 3,913,804 3,919,348 Finance 15,804,138 16,600,949 16,993,124 17,367,222 17,815,815 Human Resources 8,229,652 9,010,045 9,924,243 10,416,987 11,174,602 Judicial 13,426,046 13,885,107 13,749,135 13,967,384 13,764,333 Health 2,934,899 2,926,650 2,866,304 3,113,772 3,213,191 Human Services 104,475, ,251, ,393, ,656, ,981,434 Police 84,393,829 85,938,731 90,179,187 94,294,014 93,585,537 Public Works 89,138,253 95,579,937 64,492,013 63,605,392 63,686,224 Parks and Recreation 12,094,504 12,332,194 12,565,847 13,276,690 13,599,737 Library 15,098,228 15,137,306 15,762,279 17,089,262 17,337,750 Planning 9,324,289 9,325,638 9,226,718 9,284,748 9,873,045 Agriculture 727, , , , ,840 Economic Development 2,007,505 2,210,063 2,343,970 3,018,382 3,037,408 Convention and Visitor Development 8,279,202 8,471,124 8,166,937 8,856,836 8,573,209 Boards and Commissions 32,695,117 31,908,444 33,495,194 34,742,684 35,603,080 Fire 41,006,167 43,307,412 43,502,476 45,968,000 47,037,716 Museums 8,772,027 9,392,344 9,527,077 10,200,033 11,435,283 Management Services 1,484,095 1,471,547 1,595,914 1,481,262 1,526,664 Communications and Information Technology 19,371,700 20,947,491 22,348,352 22,121,372 22,008,128 Emergency Communications and Citizen Services 8,233,437 8,644,135 8,585,726 9,033,409 8,985,752 Emergency Medical Services 6,853,596 7,381,255 7,902,998 8,628,006 8,945,039 Strategic Growth Area - 1,011, ,819 1,223,232 1,136,261 Housing and Neighborhood Preservation 1,714,813 1,642,600 1,708,273 1,863,631 1,781,009 Debt Service - 44,507,197 45,741,033 44,503,190 47,834,837 Total Expenditures $ 493,226,725 $ 553,810,240 $ 530,256,559 $544,048,291 $554,439,977 EXCESS OF REVENUES OVER(UNDER) EXPENDITURES $ 485,951,521 $ 401,982,663 $ 439,382,203 $425,375,306 $454,750,088 A-60

91 GENERAL FUND OTHER FINANCING SOURCES (USES): Operating Transfers in $ 12,662,130 $ 10,786,767 $ 9,749,038 $ 7,928,412 $ 7,854,881 Operating Transfers out (503,248,341) (411,497,476) (451,633,310) (450,326,425) (470,649,963) Total Other Financing Sources (Uses) (490,586,211) (400,710,709) (441,884,272) (442,398,013) (462,795,082) EXCESS OF REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING (4,634,690) 1,271,954 (2,502,069) (17,022,707) (8,044,994) FUND BALANCE JULY 1 (1) 194,122, ,777, ,175, ,889, ,866,575 FUND BALANCE JUNE 30 $189,487,779 $191,049,432 $188,673,062 $171,866,575 $163,821,581 Source: City Department of Finance. (1) The beginning fund balance for the General Fund has been restated as a result of Special Revenue Funds being combined with the General Fund, in Fiscal Years 2011 thru The entire General Fund balance is not available for appropriation because of outstanding interfund and interagency loans, prepaid items, encumbrances, and designations for school capital projects. An analysis of the General Fund balance for Fiscal Year 2015 is as follows: Fund Balance - June 30 $163,821,581 Reserved For: Nonspendable Inventories and Loans Receivable $7,093,861 Restricted for Grants 1,080,998 Committed for Education 12,299,308 Assigned amounts for Operations 17,464,896 Assigned amounts for Education 14,894,051 Assigned amounts for Capital Projects 13,983,534 Total Reservations 66,816,648 Net Balance Available for Appropriation - July 1 $97,004,933 Source: City Department of Finance. [Remainder of page intentionally left blank] A-61

92 At the end of Fiscal Year 2015, the fund balance in the General Fund was $163,821,581. This balance represents a decrease of $8,044,994 from the previous year. The table below presents a comparison of the City's General Fund balance for the Fiscal Years 2011 through General Fund Balance: Nonspendable $ 453,056 $ 506,339 $ 581,099 $ 7,482,460 $ 7,093,861 Restricted 987, , , ,701 1,080,998 Committed 33,756,567 16,397,989 19,310,560 16,616,865 12,299,308 Assigned 41,286,701 69,462,951 65,524,909 50,789,758 46,342,481 Unassigned 113,003, ,961, ,363,793 96,084,791 97,004,933 Total General Fund $189,487,779 $191,049,432 $188,673,062 $171,866,575 $163,821,581 Source: City Department of Finance UNASSIGNED GENERAL FUND BALANCE AS PERCENT OF SUBSEQUENT YEARS BUDGETED REVENUES FISCAL YEARS 2006 THROUGH 2015 Fiscal Year Unassigned General Fund Balance June 30 Unassigned General Fund Balance As Percent of Subsequent Years Budgeted Revenues 2006 $123,383, % ,396, ,084, ,737, ,078, ,003, ,961, ,363, ,084, ,004, Source: City Department of Finance FY-16 General Fund Unaudited Preliminary Financial Statements The table below shows the General Fund unaudited preliminary financial results for FY-16 with comparisons to FY-15 and FY-14. A-62

93 CITY OF VIRGINIA BEACH, VA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE FISCAL YEARS ENDED JUNE 30, 2016, 2015, & 2014 UNAUDITED PRELIMINARY RESULTS REVENUES FY16 FY15 FY14 Local (includes $8M from SB) $ 880,942,490 $ 849,684,484 $ 813,006,365 State 154,197, ,588, ,520,364 Federal 20,326,517 19,436,952 18,444,891 TOTAL REVENUES $ 1,055,466,348 $ 1,016,709,439 $ 976,971,620 EXPENDlTURES Departmental $ 515,313,949 $ 517,404,429 $ 508,153,925 Debt Service 48,083,680 47,834,836 44,503,188 Transfers to Other Funds: Spec Rev/Enterprise/Int Svc Funds 38,909,089 28,762,594 23,595,405 Capital Improvement Projects 35,437,759 43,173,439 42,914,296 Total Transfers to Other Funds 74,346,848 71,936,033 66,509,701 School Division Transfer to School Operating Fund 400,586, ,108, ,374,889 Transfer To School CIP 4,233,448 2,107, ,022 Total School Division 404,819, ,215, ,848,911 TOTAL EXPENDITURES $ 1,042,563,938 $ 1,031,390,932 $ 1,005,015,725 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES $ 12,902,410 $ (14,681,493) $ (28,044,105) FUND BALANCES - JULY 1 150,477, ,493, ,323,617 FUND BALANCES - JUNE 30 $ 163,380,133 $ 139,812,363 $ 145,279,512 LESS: RESERVATIONS: Loans $ 6,276,131 $ 6,545,019 $ 6,943,548 Inventory 4,661, , ,912 Future Programs 545,746 1,129,323 1,995,976 School Reversion 15,507,729 12,316,533 12,199,743 FY 2017 School Operating Budget 409,000 2,000,000 2,000,000 School Revenue Sharing 1,171, ,518 - SPSA 10,062,505 5,166,556 - FY 2017 City CIP Budget 8,012,051 13,983,534 24,997,294 Comprehensive Services Board 675, Risk Management 2,000,000-1,000,000 TOTAL RESERVATIONS $ 49,322,037 $ 42,257,395 $ 49,675,473 UNASSIGNED FUND BALANCE - JUNE 30 $ 114,058,096 $ 97,554,968 $ 95,604,039 Percentage of Total Next FY Budget 10.72% 9.36% 9.46% Next FY Operating Budget Revenues $ 1,063,784,142 $ 1,042,325,495 $ 1,010,458,390 * Policy is to maintain 8-12 % of revenues in Fund Balance The Water and Sewer System The Department of Public Utilities operates the City owned Water Utility and the Sanitary Sewer Utility. The mission of the Department is to provide public water, including water for fire protection, A-63

94 and public sanitary sewer service to the urban areas of Virginia Beach. The goals are to provide quality public service at reasonable costs and to plan, build, operate and maintain its facilities to meet community needs, environmental responsibilities and regulatory requirements. The physical property of the City water system as of June 30, 2016, included approximately 1,499 miles of transmission and distribution mains, 8,338 fire hydrants, 12 water storage facilities, and nine pumping stations (including Lake Gaston). The City water system is fully metered, with tap sizes ranging from 3 to 12 inches. As of June 30, 2016, the water system had approximately 133,411 connections, representing a 0.4% increase over the number reported in 2015, and a customer base of approximately 440,256 people. The City Sanitary Sewer System includes collector lines, force mains and pump stations, which are used to collect and transport wastewater to the treatment facilities operated by the Hampton Roads Sanitation District ( HRSD ), the regional treatment agency. Virginia Beach citizens receiving sanitary sewer pay the City a fee for collection and transport of wastewater and HRSD a fee for treatment of the wastewater. The City s Sanitary Sewer System consists of 408 sewer pump stations and over 1,646 miles of pipeline ranging in size from 4 inches to 36 inches in diameter. As of June 30, 2016, the number of City sewer connections was 130,599, representing a 0.5% increase over the number reported in The HRSD, established in 1940, provides wastewater treatment services for 17 cities and counties in southeastern Virginia. The HRSD operates nine major treatment facilities in Hampton Roads and four small rural treatment facilities on the Middle Peninsula, with a total treatment capacity of 249 million gallons per day ( MGD ). Two HRSD plants are located in the City. The Chesapeake-Elizabeth Plant, in operation since 1968, has an operating capacity of 24 MGD, with a 2015 average annual flow estimated at 16.3 MGD. The Atlantic Plant has an operating capacity of 54 MGD and a 2015 average annual flow estimated at 30.9 MGD. The HRSD has a service population of about 1.7 million. The Water Utility and Sanitary Sewer Systems are operated and maintained in good working order including repairing, rebuilding, or replacing of equipment and structures when required. In addition, the City has developed an ongoing training program to develop a staff of personnel in sufficient numbers to promote safe and technically competent operation of the water and sewer utility. The estimated value of the water and sewage property, plant and equipment was $1,101,895,133 as of June 30, 2016, excluding land and construction in progress Millions of Gallons of Water Storage Miles of Water Lines 1,490 1,492 1,496 1,499 1,499 Miles of Sewer Lines 1,635 1,639 1,646 1,653 1,646 Number of Water Pump Stations (1) Number of Sewer Pump Stations Number of Water Connections 132, , , , ,411 Number of Sewer Connections 129, , , , ,599 Total Value of Utility System (2) $863,063,821 $976,268,875 $1,010,113,901 $1,037,365,461 $1,054,112,386 Source: City Department of Public Utilities. (1) Includes Lake Gaston (2) Includes Utility Plant; excludes certain assets included in property, plant and equipment value of $1,101,895,133; excludes depreciation The City s water and sewer system is operated on a self-sustaining basis, with rates and charges adjusted when necessary to assure a stream of revenues adequate to cover the costs of operations and A-64

95 maintenance of the system and debt service on all water and sewer system bonds. Revenues from water and sewer charges are reserved solely for the payment of water and sewer fund obligations and have not been used for any non-water or non-sewer related purpose. Water and sewer charges are maintained at a level sufficient to pay all water and sewer operating expenses and debt service. The following schedule lists historical water commodity rates, single-family residential sewer charges, and associated effective dates: Effective Date Water Commodity Rate (per 1,000 gallons) Sanitary Sewer Service Charge Single Family Residence (per month) July 1, July 1, July 1, July 1, July 1, July 1, July 1, July 1, July 1, July 1, Typical Water and Sewer Bills Under the City s current rate structure, a single family residence consuming 6,000 gallons for 30 days would receive a bill as follows: Current Rates Water Usage; 6 x $4.41 per 1,000 gallons $26.46 Minimum Service Availability Charge 4.41 Total Water $30.87 Sanitary Sewer Service Total Water and Sanitary Sewer Monthly Billing $61.68 In addition, the HRSD would charge the same residence $36.18 for wastewater treatment of 6,000 gallons during the same time period. The last HRSD rate increase was in July 1, Operating Results-Water and Sewer System The City Council fixes water and sanitary sewer rates and charges such that estimated income generated by such rates and charges will cover operating expenses and debt service relating to the water and sewer system. Funds and accounts relating to the Department of Public Utilities are kept separate from other funds and accounts of the City. The Department of Public Utilities has financed the construction and acquisition of water and sewer facilities through federal and Commonwealth grant proceeds, pay-as-you-go funding and the issuance of City general obligation water and sewer bonds, double barrel water and sewer bonds (secured both by water and sewer revenues and the City s general obligation pledge) and water and sewer revenue bonds. A-65

96 The Department is required by the City s bond resolutions, among other provisions, to establish rates sufficient to cover operations and maintenance and debt service on the general obligation water and sewer bonds and the water and sewer revenue bonds. There are no general obligation bonds issued for water and sewer purposes. In 2002, City Council approved a set of debt management policies for the Water and Sewer Enterprise Fund to assist in making short and long-term decisions regarding the water and sewer system. The policies incorporate three essential areas of debt management: liquidity, debt service coverage and pay-as-you-go funding. For liquidity, the water and sewer enterprise fund will pursue the goal of retaining working capital equal to 80% to 100% of one year s operating expenses. For debt service coverage, the goal is 1.5x. For pay-as-you-go funding, the goal of the water and sewer enterprise fund is to contribute approximately 25% of the annual capital program from non-borrowed funds. The water and sewer enterprise fund is in compliance with each of these debt management policies. The table on the following page presents the operating results of the Water and Sewer Enterprise Fund, exclusive of depreciation, as used in computing coverage of debt service, for Fiscal Year 2012 through Fiscal Year [Remainder of page intentionally left blank] A-66

97 SYSTEM OPERATING REVENUES, EXPENSES AND COVERAGE (in thousands of dollars) Unaudited 2016 Operating Revenues Service Charges $56,041 $62,231 $68,226 $74,518 $76,403 Water Usage 47,589 46,543 45,881 45,309 44,847 Interfund Services Provided ,169 - Miscellaneous ,636 1,187 1,771 Total Operating Revenues $104,514 $109,613 $115,743 $122,183 $123,021 Operating Expenses Water Treatment (Services) $25,353 $25,968 $23,188 $23,771 $24,488 Water Distribution 8,282 8,056 7,882 6,780 6,816 Sewer Collection 12,605 13,151 12,658 14,274 13,785 Administration & Engineering E 16,469 16,829 18,367 19,157 18,712 Customer Services 9,445 9,830 9,813 10,163 10,138 Total Operating Expenses (1) $72,154 $73,834 $71,908 $74,145 $73,939 Net Operating Income $32,360 $35,779 $43,835 $48,038 $49,082 Non-Operating Income Interest $524 $457 $405 $493 $597 Water Resource Recovery 2,414 Fee 3,265 3,905 2,116 3,120 Sewer Connection Fees 1,212 1, ,211 1,187 Norfolk Water True-Up (166) - 3,257-3,257 Total Non-Operating Income $4,835 $5,636 $6,545 $4,824 $7,455 Income Available For Debt Service $37,195 $41,415 $50,380 $52,862 $56,537 Annual Debt Service Water and Sewer Revenue Bonds $13,969 $13,932 $15,028 $17,175 $17,575 Coverage of Debt Service on Water and Sewer Revenue Bonds 2.66x 2.97x 3.35x 3.08x 3.22x Source: Department of Finance and Department of Public Utilities. (1) Does not include depreciation, fund transfers or other items excluded from the Resolution s definition of Operating Expenses. The City s water and sewer activities are operated on an enterprise fund accounting basis, Fiscal Year 2016 operating revenues were $123,021,471. This represents a 0.7% increase over Fiscal Year The Water and Sewer Enterprise Fund had a decrease in Net Position of $24,946,519 at the end of Fiscal Year A-67

98 Water Contracts Until the Lake Gaston Pipeline Project was completed in late 1997, the City had no independent water supply and obtained water from the City of Norfolk under a Water Sales Contract and a Water Service Contract. The Lake Gaston Pipeline Project was placed into formal operations on January 1, On that date, the City terminated the Water Sales Contract with Norfolk except for certain provisions that survived until June 30, The Water Services Contract, which obligates Norfolk to receive, treat, and deliver Lake Gaston water to the City, runs through the year In essence, the City has contracted for water system facilities and services related to the storage, transmission and treatment of Lake Gaston water. The facilities are owned by Norfolk, but dedicated to serving the City through the life of the Water Service Contract. Those facilities include: 1. Raw water storage (lakes); 2. Raw water pumping stations and transmission lines; 3. Water treatment plant capacity; and 4. Treated water storage, pumping and transmission. In accordance with the Water Services Contract, Norfolk develops projected rates applicable to the City for treated water service on a biennial basis based upon a cost of service study prepared by an independent consulting firm. Under the utility basis cost of service methodology, which follows traditional utility ratemaking standards, the City pays its allocable share of operations and maintenance expense, cost of the facilities dedicated to service the City, and services provided by Norfolk, including a reasonable rate of return on facilities dedicated to serving the City. For Fiscal Year 2016, the average effective projected rate to the City for delivery of bulk treated water is $2.10 per 1,000 gallons. For Fiscal Year 2017, the effective rate is $2.12 per 1,000 gallons, respectively. At the end of the second fiscal year in each biennial period, Norfolk s independent consultant completes and submits to the City a schedule of rates and annual billings applicable to the previous two fiscal years reflecting an allocation of cost of service based on actual costs incurred by the Norfolk water system. This allocation of actual costs resulted in a payment to the City from Norfolk of $825,386, which is currently being paid during the twelve month period of Fiscal Year This amount represents payments from the City over costs incurred by Norfolk during Fiscal Years 2014 and Adopted FY Water and Sewer Capital Improvement Program The Department of Public Utilities annually prepares the portion of the City s Capital Improvement Program (the CIP ) concerning the improvement and extension of the water and sewer system. According to the City s Fiscal Years CIP, the water and sewer projects amount to $453.0 million, a 1.4% decrease from the Fiscal Years CIP. Previous appropriations for such projects total $244.0 million. The Capital Budget for FY totals $32.4 million, leaving future funding needs of $176.6 million for the water and sewer system in years FY The following table presents the financing sources expected to meet the six-year capital plan for water and sewer. A-68

99 Water and Sewer System Capital Improvement Program Fiscal Year 2017 to Fiscal Year 2022 Financing Plan Projects Total Estimated Costs Previously Authorized Balance To Be Funded Funding Sources for Remaining Balance Water and Water and Sewer Fund Sewer (Pay-As-You- Revenue Bonds Go) Water Utility $ 102,821,095 $ 50,295,734 $ 52,525,361 $ 32,964,405 $19,560,956 Sewer Utility 350,225, ,740, ,485,000 76,230,595 80,254,405 Total $453,046,684 $244,036,323 $209,010,361 $109,195,000 $99,815,361 Source: Capital Improvement Program for Fiscal Years Adopted FY 2017 Water and Sewer Operating Budget In total, the Department of Public Utilities operating budget increased $3,072,207 to $123,753,986 in FY 2017 compared to the adjusted FY 2016 operating budget of $120,681,779. All current programs and services are maintained without rate increases. The current monthly impact to the typical single family residence are outlined in the table below. Adopted Water and Sanitary Sewer Rate Increases FY 2016 through FY 2017 FY 2016 FY 2017 Monthly Water Supply Charge (Single Family Residence, 6,000 gallons) $30.87 $30.87 Monthly Sanitary Sewer Charge (Single Family Residence, 5/8 Meter) Total Water and Sanitary Sewer $61.68 $61.68 Monthly Increase to Residential Bill ($) $ 0 $ 0 (Single Family Residence, 6,000 gallons, 5/8 Meter) Insurance The City utilizes a combination of commercial insurance and self-insurance to protect its assets, including employees, money, securities, and buildings and equipment. City buildings and their contents are covered by an all risk property insurance program which is written with a $50,000 per occurrence deductible. Other types of property insurance are written with deductibles ranging from $5,000 to $50,000 and include coverage for items such as computer equipment, heavy contractor s type equipment, fine arts and valuable papers. All City employees are bonded for $1,000,000. The City is primarily self-insured for the first $2,000,000 of any automobile liability, commercial general liability, public officials liability and police professional liability claims. The City has $10,000,000 of commercial insurance coverage above this self-insured retention on these lines of risks. A-69

100 The City is also primarily self-insured for workers compensation and carries commercial insurance in excess of any claims totaling $1,250,000 in any single occurrence for non-public safety claims and excess insurance is purchased for losses up to $25,000,000. The City s Risk Management Fund had a cash balance of $9,717,962 as of June 30, This amount, plus the FY-17 budgeted departmental contributions, is expected to be sufficient for expected draw-downs during the course of the current fiscal year. The most recent actuarial study conducted by the firm of Oliver Wyman determined that as of June 30, 2015, the un-discounted liability for current claims against the City was $30,857,594. Commitments and Contingencies The City participates in a number of federal and state grants, entitlements, and shared revenues programs. These programs are subject to program compliance audits by the applicable federal or state agency or its representatives. Furthermore, the U.S. Congress passed legislation called the Single Audit Act Amendment of 1996 which required most governmental recipients of federal assistance to have an annual independent organization-wide financial and compliance audit. The results thereof are incorporated in the audited financial statements for the City for the Fiscal Year ended June 30, The amounts, if any, of expenditures which may be disallowed by these audits cannot be determined at this time although the City expects such amounts, if any, to be immaterial. Retirement and Pension Plans Plan Description. The City has elected to participate in the Virginia Retirement System ( VRS ), and substantially all of the full-time salaried general government and school employees are covered by a retirement plan, group term life insurance, and disability and death benefits upon employment. The City is a separate cost-sharing pool within VRS, and makes contributions based on biennial rates set by VRS s actuarial calculations of the annual required contributions. The VRS Basic Benefit is a lifetime monthly benefit based on a retirement multiplier as a percentage of the member s average final compensation multiplied by the member s total service credit. For members hired before July 1, 2010, the monthly benefit is based on 1.7% (1.85% for hazardous duty employees) of the member s 36 consecutive months of highest compensation. For non-hazardous duty members hired or rehired on or after July 1, 2010 and members who were not vested on January 1, 2013, the monthly benefit is based on 1.65% of the member s 60 consecutive months of highest compensation. Effective January 1, 2014, all new employees without prior VRS service are required to enroll in the VRS Hybrid Plan except for sworn personnel, a combination of defined benefit and defined contribution plans. The Hybrid Plan, introduced to address future affordability, lowered the retirement multiplier and increased the number of months used to calculate the average final compensation. Funding Policy. Plan members are required by Title 51.1 of the Code of Virginia (1950), as amended, to contribute 5.00% of their creditable compensation toward their retirement, which up until July 1, 2012 was paid by the City as permitted by VRS. In another step taken by VRS to insure future affordability, as of July 1, 2012, new employees were required to pay the 5% member contribution. In addition, for existing employees, employers were required to begin making the employee pay the 5% member contribution. This is being phased in over a 5-year period from FY-13 FY-17 and the City is providing salary increases equal to the amount of the increase in the employee paid member contribution in each of the five years as required by VRS. A-70

101 In addition, the City and School Board are required to contribute the remaining amounts necessary to fund its participation in the VRS using the actuarial basis specified by the Code of Virginia as determined by VRS s actuaries and approved by the VRS Board of Trustees. The City and the School Board have never failed to make the contribution required by VRS. The City s contractually required contribution rate for the year ended June 30, 2015 was 16.35% of covered employee compensation. For FY-15, the City s employer contribution was $48.9 million. The School Board (non-teacher employees) contribution for the Fiscal Year ended 2015 was $3.7 million or 9.11% of annual covered payroll. Net Pension Liability. As of June 30, 2015, the City reported a net pension liability of $333.8 million. As of the same date, the School Board reported a net pension liability of $634.8 million ($624.0 million for its proportionate share of the Teacher Retirement Plan and $10.8 million for the non-teacher employees). For additional information on VRS please see Note 12 in the City s audited financial statements for the period ending June 30, 2015 attached as Appendix C to this Official Statement. The table below provides required supplementary information for the City and School Board net pension liability and employer contributions. Schedule of Employer s Share of Net Pension Liability and Related Ratios 2014 Total Pension Liability City School Board Service cost $ 35,838,242 $ 4,171,321 Interest 114,650,965 13,051,394 Changes of benefit terms - - Differences between expected and actual experience - - Changes in assumptions - - Benefit Payments, including refunds of employee contributions (77,985,409) (9,473,141) Net change in total pension liability 72,503,798 7,749,574 Total pension liability - beginning 1,676,863, ,185,052 Total pension liability - ending (a) $ 1,749,367,437 $198,934,626 Plan Fiduciary Net Position Contributions - employer $ 45,827,648 $ 3,646,317 Contributions - employee 14,813,559 2,000,972 Net investment income 194,451,721 25,850,848 Benefit Payments, including refunds of employee contributions (77,985,409) (9,473,141) Administrative expense (1,053,309) (141,126) Other 10,242 1,363 Net change in plan fiduciary net position 176,064,452 21,885,233 Plan fiduciary net position - beginning 1,239,531, ,226,515 Plan fiduciary net position - ending (b) $ 1,415,595,867 $188,111,748 Political subdivision's net pension liability - ending (a) - (b) $ 333,771,570 $ 10,822,878 Plan fiduciary net position as a percentage of the total Pension 80.9% 94.6% Covered-employee payroll $ 315,341,888 $ 40,427,033 City and School Board's net pension liability as a percentage of covered-employee payroll 106.0% 26.8% *Schedule is intended to show information for 10 years. Since 2015 is the first year for this presentation, no other data is available. However, additional years will be included as they become available. A-71

102 Date Contractually Required Contribution (1) Contributions in Relation to Contractually Required Contributions (2) Contribution Deficiency (Excess) (3) Employer's Covered Employee Payroll (4) Contributions as a % of Covered Employee Payroll (5) City 2014 $ 45,827,648 $ 45,827,648 $ - $315,341, $ 48,891,401 $ 48,891,401 $ - $322,555, School Board Nonprofessional 2014 $ 3,646,317 $ 3,646,317 $ - $ 40,427, $ 3,732,422 $ 3,732,422 $ - $ 40,970, Schedule is intended to show information for 10 years. Since 2015 is the first year for this presentation, no other data is available. However, additional years will be included as they become available. School Board Professional (Teacher) (a) (b) (c) (d) (e) Date Employer's Proportion of the Net Pension Liability Employer's Proportionate Share of the Net Pension Liability Employer's Covered Employee Payroll Employer's Proportionate Share of the NPL as a % of its Employee Payroll (b)/(c) Plan Fiduciary Net Position as a % of the Total Pension Liability June 30, % $623,937,000 $377,297, % 70.88% Schedule is intended to show information for 10 years. Since 2015 is the first year for this presentation, no other data is available. However, additional years will be included as they become available. The amounts presented have a measurement date of the previous fiscal year-end. Other Postemployment Benefits Plan Description. The City and School Board Other Postemployment Benefit Plans are each a single-employer, defined benefit plan, administered by the City and School Board in accordance with State and City statutes. Section of the Virginia State Code provides that every locality shall provide for the governmental functions of the locality, including employment of the officers and other employees. In connection with this employment, the City has established certain plans to provide postemployment benefits other than pensions as defined in Section of the Virginia Code to retirees and their spouses and eligible dependents. Employees who retire with at least 25 years of service with the City and School Board as well those who retire on a work-related disability compensable under the Workers Compensation Act before age 65 are eligible for access to health insurance coverage. This benefit is payable until the retiree becomes eligible for Medicare In accordance with Article 8, Chapter 15, Subtitled II of Title 15.2 of the Virginia Code, the City and School Board have elected to establish a trust for the purpose of accumulating and investing assets to A-72

103 fund Other Postemployment Benefits. The City and School Board in accordance with this election have joined the Virginia Pooled OPEB Trust Fund which invests funds contributed by each participating employer. It does not administer the retiree health benefits of each participating employer. Deposits to this trust are irrevocable and are held solely for the payment of OPEB benefits for the City and School Board. Funding Policy. Contribution requirements of the City, School Board and plan members are established and may be amended by the respective legislative bodies. The required contributions were actuarially determined and are based upon projected pay as you go financing requirements with an additional amount to prefund benefits. For the period ending June 30, 2015 the City and School Board contributed, $7,259,200 and $5,832,200 respectively. Plan members from each organization contributed $ per month for retiree-only point of services coverage. Retirees who elect HMO coverage will contribute less. City and School Board retirees with coverage for their spouses will contribute $ per month to age 65. Retirees who participate in the Wellness for Life program will receive reduced retiree rates. Employees who retire with at least 25 years of service with the City and School Board as well as those who retire on a work-related disability compensable under the Workers Compensation Act before age 65 are eligible for access to health insurance coverage. This benefit is payable until the retiree becomes eligible for Medicare. The City and School Board has determined that all current employees and retirees shall contribute to the cost of their health care coverage and no level of benefit shall be provided free of charge. The retiree contribution rate shall be based on the experience of the plan, the City and School Board s annual contribution amount and the remaining premium cost. For additional information please see Note 13 in the City s audited financial statements for the period ending June 30, 2015 attached as Appendix C to this Official Statement. Annual OPEB Cost. For 2015, the City and School Board s annual OPEB cost of $7,259,200 and $5,832,200, respectively, was equal to its required contribution. The City placed in its OPEB Trust a total of $574,700. The balance of the City s annual OPEB cost was paid during the year for health insurance subsidies for current retirees. The School Board s OPEB cost for 2015 totaled $6,404,200 and exceeded its annual required contribution of $5,832,200 by $572,000. This overage was withdrawn from the School Boards Trust Account and returned to the School Board. The City and School Board s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2015, 2014 and 2013 are presented below: City Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 6/30/2015 $ 7,259, % $ - 6/30/2014 $ 7,101, % $ - 6/30/2013 $ 8,871, % $ - School Board Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 6/30/2015 $ 5,832, % $ - 6/30/2014 $ 5,700, % $ - 6/30/2013 $ 7,858, % $ - A-73

104 Funded Status and Funding Progress. The funded status of the plan as of January 1, 2014, was as follows: City School Board Actuarial accrued liability (AAL) $ 83,582,300 $ 65,951,300 Actuarial value of plan assets 29,363,100 23,164,800 Unfunded actuarial accrued liability (UAAL) $ 54,219,200 $ 42,786,500 Funded ratio (actuarial value of plan assets/aal) 35.13% 35.12% Covered payroll (active plan members) $ 290,297,000 $ 421,065,100 UAAL as a percentage of covered payroll 18.68% 10.16% Employee Relations and Collective Bargaining There were 6,990 full-time City employees and approximately 10,220 School Board employees as of June 30, Some employees are members of unions or trade or professional associations. The City, however, does not, and cannot under Virginia law, bargain collectively with any of its employees. The Virginia General Assembly has rejected several recent legislative proposals to authorize public employees to engage in collective bargaining. Public employees of Virginia or of any county, city, or town in Virginia do not have a legal right to strike. Any such employee who engages in any organized strike or willfully refuses to perform his/her duties shall, according to Virginia law, be deemed to have terminated his/her employment. Re-employment of any such employee requires court approval. Southeastern Public Service Authority The Southeastern Public Service Authority (SPSA) has been the regional waste disposal system since 1985, and includes a waste-to-energy component that sells electricity to American Electric Power. In early 2009, SPSA had developed budgetary challenges as a result of several issues, including the loss of commercial waste revenues. The Chief Administrative Officers of the member communities developed a financial assistance plan to ensure the financial soundness of SPSA ( Financial Assistance Plan ). This multi-faceted strategy involved raising the municipal tipping fee from the then current $104/ton to $170/ton, the refinancing of some of SPSA s outstanding debt with a guarantee from five of the communities, a guarantee of a line of credit by two communities, and a deferral of reimbursement amounts by the City of Virginia Beach. The City pays the same per ton tipping fee as other SPSA member localities, but then is entitled to receive a refund equal to the difference between the blended average tipping fee paid and a cap amount set forth in the Ash and Process Residue Agreement. As part of the Financial Assistance Plan, the City Council agreed to continue deferring receipt of these payments for a time subject to SPSA s agreement to pay them in the future. All of the governing bodies of each of the other SPSA localities formally agreed to the Financial Assistance Plan. SPSA repaid on April 29, 2010 the amount of $18.1 million originally deferred. SPSA evaluated proposals to sell its waste to energy plant and executed an agreement with Wheelabrator on April 29, Virginia Resource Authority, SPSA s largest debtor, approved the transaction with the condition that each member jurisdiction provide a general obligation guaranty of a pro-rata portion of SPSA s outstanding debt owed to VRA. After the distribution of the Wheelabrator proceeds, the balance owed by SPSA to VRA is $20.67 million as of June 30, 2016, and Virginia Beach s pro-rata guaranty is currently at $6.27 million. SPSA is expected to have sufficient cash flows to meet all debt service requirements. Over the past six years that Wheelabrator has owned and operated the energy A-74

105 plant, Wheelabrator has invested over $60 million in capital improvements to the facility. SPSA continues to have sufficient cash flow for its operations. A new Use and Support Agreement has been signed by 7 of the 8 member communities for SPSA to continue providing waste disposal services when the existing agreement expires January 24, Projected tip fees will likely be at or below $65/ton. The tipping fee rate paid by all member localities is currently $125 per ton. Regional Transportation Funding Legislation The 2013 Virginia General Assembly adopted and enacted into law House Bill 2313, 2013 Va. Acts Chapter 766, which the Governor signed on April 3, Chapter 766 became effective July 1, While this legislation increases transportation funding statewide, it includes a regional funding mechanism that provides additional sales taxes and motor vehicles fuel taxes for the Hampton Roads Region, which includes the City of Virginia Beach. The moneys generated by the regional component of the transportation funding legislation may only be used for new construction projects on new or existing roads in the Hampton Roads Region as approved by the Hampton Roads Transportation Planning Organization. The Commonwealth and Hampton Roads Transportation Accountability Commission have agreed on an initial tranche of projects; construction started in This infusion of road funding should provide immediate positive economic impacts for the road construction industry. As projects are completed, the improved mobility should be positive for the tourism and hospitality industries that rely upon Virginia Beach s status as one of the East Coast s most popular drivable destinations. A-75

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107 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY OF VIRGINIA BEACH, VIRGINIA FOR THE FISCAL YEAR ENDED JUNE 30, 2015

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109 The Honorable Members of the City Council of City of Virginia Beach, Virginia We have audited the accompanying financial statements of the governmental activities, the business-type activities, the individual and aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Virginia Beach, Virginia, (the City ) as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Virginia Beach Community Development Corporation, which represent 4.81 percent, percent, and 0.73 percent, respectively, of the assets, net position, and revenues of the aggregate discretely presented component units. Those statements were audited by other auditors whose report has been furnished to us, and our opinions, insofar as it relates to the amounts included for the Virginia Beach Community Development Corporation, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of the United States, and the SpecificationsforAuditsofCounties,CitiesandTowns, issued by the Auditor of Public Accounts of the Commonwealth of Virginia. Those standards and specifications require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. B-1

110 In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the individual and aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City as of June 30, 2015, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. FundReclassification As described in Note 10 to the financial statements, effective July 1, 2014, the City has reclassified the beginning fund balance of the Governmental Activities to reflect the conversion of the Waste Management Fund from a Special Revenue Fund into an Enterprise Fund. Our opinions are not modified with respect to this matter. Restatement As described in Note 10 to the financial statements, effective July 1, 2014, the City adopted the provisions of Governmental Accounting Standards Board ( GASB ) Statement No. 68, AccountingandFinancialReportingfor Pensions anamendmentofgasbstatementno.27 and GASB Statement No. 71, PensionTransitionfor ContributionsMadeSubsequenttotheMeasurementDate andamendmentofgasbstatementno.68. Our opinions are not modified with respect to this matter. RequiredSupplementaryInformation Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and required supplemental information as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We, and other auditors, have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. In accordance with GovernmentAuditingStandards, we have also issued our report dated November 19, 2015, on our consideration of the City s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with GovernmentAuditing Standards in considering the City s internal control over financial reporting and compliance. Virginia Beach, Virginia November 19, 2015 B-2

111 MANAGEMENT S DISCUSSION AND ANALYSIS B-3

112 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS MANAGEMENT S DISCUSSION AND ANALYSIS The City of Virginia Beach has put together this section to provide readers with a narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, Readers are encouraged to consider the information presented here in conjunction with the transmittal letter at the front of this report and the City s financial statements which follow this section. FINANCIAL HIGHLIGHTS At the end of the fiscal year, the City s assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $3.4 billion. This amount represents a decrease of $108.6 million, or 3.3%, over prior year s restated net position of $3.3 million. The beginning net position for fiscal year 2015 was restated by a decrease of $391.6 million due to the implementation of GASB Statement No. 68. A large part of the net position is invested in capital assets or is restricted for capital projects and future debt service. The unrestricted net position deficit totals $141.0 million (Tables 1 and 2). Net position for governmental activities increased $61.8 million. During the year, the $1.2 billion generated in taxes and other revenues for governmental programs exceeded expenses by $77.7 million (before transfers). This is an improvement over the prior year, when revenues exceeded expenses by $59.4 million before transfers. In the City s business-type activities, net position increased by $46.8 million compared to prior year s increase of $48.7 million. The City s governmental funds reported combined ending fund balances of $553.2 million, a 2.1% increase compared to prior year s restated fund balance. The fund balance was restated due to the Waste Management fund converting to an enterprise fund. The total fund balance consists of 2.4% nonspendable, 6.9% restricted, 63.2% of committed, and 27.5% remaining amounts available for spending at the government s discretion (either assigned for specific purposes or unassigned). Governmental funds show increases in property taxes of $29.6 million primarily due to increases of property assessed values of 3.7% for real estate and 5.4% for personal property. The real estate tax rate remained at $0.93 per $100 of assessed valuation but the personal property tax rate increased by $0.30 (to $4.0) per $100 of assessed valuation. Other revenue sources that showed improved performance over prior year are other local taxes; fines and forfeitures; permits, privilege fees, and regulatory licenses; and revenues from use of money and property. The decrease in charges for services of $37.5 million in comparison to prior fiscal year were due to the waste management charges now being recorded in the Waste Management enterprise fund versus the special revenue as in prior year. Receipts from the Commonwealth and Federal government increased by $20.7 million and $6.1 million respectively. The general fund reported a decrease in fund balance of $8.0 million. Actual results were lower than budget for both general fund revenues ($2.7 million) and expenditures ($47.0 million). Total general fund transfers to other funds include $43.2 million for the capital improvement program. The City maintained its Triple-A bond rating from Moody s Investor Services, Standard & Poor s, and Fitch Ratings. During this fiscal year, new debt issued by the City included $51.3 million in General Obligation Public Improvement bonds, $48.2 million in Public Facility Revenue bonds, and $23.5 million in Storm Water Revenue Bonds. B-4

113 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS OVERVIEW OF THE FINANCIAL STATEMENTS This Comprehensive Annual Financial Report consists of four sections: introductory, financial, statistical, and single audit. The financial section is illustrated in the following Figure 1. This section of the report has three components: Management s Discussion and Analysis (this section), the basic financial statements, and required supplementary information. Figure 1: Components of the Financial Section The basic financial statements include two types of statements, government-wide and fund financial statements, that present different views of the City. MANAGEMENT DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION GOVERNMENT- WIDE FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Up until 2002, the primary focus of local government financial statements has been summarized fund-type information on a current financial resource basis. This approach has been modified and now the statements presented focus on the City as a whole (government-wide) as well as the major individual funds. The government-wide financial statements provide both long-term and short-term information about the City's overall financial status. The fund financial statements focus on the individual parts of the City government, reporting the operations of the City in more detail than the government-wide statements. Both perspectives (government-wide and individual fund) allow the reader to address relevant questions, broaden the basis for comparison (year-to-year or government to government), and enhance the City's accountability. Government-Wide Financial Statements The government-wide financial statements report information about the City as a whole, using accounting methods similar to those used by private-sector companies. The statement of net position components are reported using the full accrual basis of accounting. The statement of activities accounts for all of the current year's revenues and expenses, regardless of when cash is received or paid. The two government-wide statements report the City's net position and how it has changed. Net Position, the difference between the City s assets plus deferred outflows of resources and liabilities plus deferred inflows of resources, is one way to measure the financial health, or position, of the City. Over time, increases or decreases in the City's net position are an indicator of whether its financial health is improving or deteriorating. To assess the overall health of the City, one needs to consider other nonfinancial factors such as changes in the City's property tax base and condition of the City's infrastructure. B-5

114 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS The government-wide financial statements of the City are divided into three categories: Governmental Activities - Most of the City's basic services are included here, such as police, fire and other public safety services, parks and recreation, public works, and general administration. Property and sales taxes, charges for services, and state and federal grants finance most of these activities. Business-type activities - The City's water and sewer, storm water, economic development, and parking operations are reported here. Fees are charged to customers to help cover the costs of providing these services. Component units - The City includes three other entities in its report - the City of Virginia Beach School Board, the Development Authority and the Community Development Corporation (CDC). Although legally separate, these "component units" are important because the City is financially accountable for them, providing operating and capital funding. The Development Authority is presented as a blended component unit and included in the City s reporting entity. The School Board and CDC are presented as discretely component units and reported in separate columns of the entity-wide statements. Fund Financial Statements The fund financial statements provide detailed information about the City's most significant funds and will be more familiar to traditional readers of government financial statements. The focus is now on major funds rather than fund types. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements, such as general statutes or the City s budget ordinance. The City s funds are divided into the following categories: Governmental funds - Most of the City s basic services are included in governmental funds, which focus on (1) how cash and other financial assets can readily be converted to cash flow in and out and (2) the balances are yearend that are available for spending. Consequently, the governmental funds statements provide a short-term view that helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the government -wide statements, additional information is provided at the bottom of the governmental funds statements that explain the relationship (or differences) between them. Governmental funds include the general fund, debt service fund, capital projects fund, and special revenue funds (such as Parks and Recreation and Tourism Investment Program). Proprietary funds - Services for which the City charges customers a fee are generally reported in proprietary funds. These funds, like the government-wide statements, provide both long-term and short-term financial information. The City's enterprise funds (one type of proprietary fund) are the same as its business-type activities, but the fund financial statements provide more detail and additional information, such as cash flows. The City utilizes enterprise funds to account for its storm water, water and sewer, economic development, and parking operations. The Development Authority is presented as a blended component unit and its proprietary fund is included in the City s reporting entity as a major enterprise fund. The City uses internal service funds (the other type of proprietary fund) to report activities that provide supplies and services for the City's other programs and activities. The City s internal service funds are used for providing city garage and fuel services, risk management, printing, landscaping and information technology services. Fiduciary funds Used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations and other governmental units. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. The fiduciary funds are agency funds (Special Welfare and Escheat Property), the Pension Trust Fund and the Postemployment Benefits Trust Fund. The agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. These fiduciary activities are excluded from the City's government-wide financial statements because the City cannot use these assets to finance its operations. B-6

115 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS Net Position FINANCIAL ANALYSIS OF THE CITY AS WHOLE The statement of net position serves as a useful indicator of a government s financial position. In the case of the City, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $3.4 billion at the close of the fiscal year (Table 1). The City's combined net position (the City's bottom line) increased by $108.6 million over prior year s restated ending balance of $3.3 billion. The restatement was the result of the City implementing GASB Statement No. 68 in Fiscal Year 2015 and recording an adjustment to decrease net position by $391.5 million. Net position from governmental activities increased by $61.8 million. Business-type activities resulted in an increase in net position of $46.8 million. The largest component of the City s net position ($3.0 billion or 87.9%) is the investment in capital assets (e.g., land, buildings, machinery, and equipment), net of any outstanding related debt used to acquire those assets. The City uses these capital assets to provide services to citizens; therefore, these assets are not available for future spending. Although the City s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Net investment in capital assets for business-type activities represents, in the most part, the assets of the water, sewer, and storm water utilities. The City's unrestricted net position deficit, which is used to finance day-to-day operations, totaled a negative $141.0 million compared to prior year s restated net position deficit of $154.3 million. Included in the unrestricted net position deficit for governmental activities are fund balances of the general fund and most special revenue funds that have been committed or assigned at the fund level. The primary government capital assets total $4.4 billion, net of accumulated depreciation, and include roads, bridges, parks, water and sewer facilities, storm water, land, other long-lived assets, and projects in the construction in progress program. Under the tenancy in common with the School Board, the City has included $317.6 million of net book value of School Board property equal to the total outstanding principal balance of the on behalf debt at June 30, Capital assets increases resulted from additions to construction in progress for roadway projects, replacement of communication infrastructure, modernization of the Bow Creek recreation center, and the acquisition of several parcels of land purchased as part of the six-year program to protect the Oceana Naval Air Station from encroaching development (BRAC). Table 1 Statement of Net Position (in Millions) Governmental Business-Type Total Primary Activities Activities Government Current and Other Assets $ $ $ $ $ $ Capital Assets 3, , , , , ,328.4 Total Assets 4, , , , , ,286.2 Deferred Outflows of Resources Long-Term Debt Outstanding 1, , , ,919.9 Other Liabilities Total Liabilities 1, , , ,008.4 Deferred Inflows of Resources Net Position Net Investment in Capital Assets 2, , , ,989.9 Restricted Unrestricted (Deficit) - Restated (171.5) (183.1) (141.0) (154.3) Total Net Position $ 2,424.3 $ 2,362.5 $ 1,001.8 $ $ 3,426.1 $ 3,317.5 B-7

116 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS Changes in Net Position The City s net position increased by $108.6 million during the current year as compared to the $90.5 million increase in prior year. The following table summarizes the changes in net position: Revenues: Program Revenues: Charges for Services 84.9 Governmental Business-Type Total Activities Activities Primary Government $ $ $ $ $ $ Operating Grants & Contributions Capital Grants & Contributions General Revenues: - - Property Taxes Other Taxes Other Total Revenues 1, , , ,420.1 Expen se s: Legislative Executive Law Finance Human Resources Judicial Health Police Human Services Public Works Parks & Recreation Library Planning Agriculture Economic Development Convention & Visitor Bureau Communication & Information Technology Emergency Communication & Citizen Boards and Commissions Fire Management Services Education Housing & Neighborhood Preservation Museums Emergency Medical Services Strategic Growth Area General Government Water & Sewer Storm Water Development Authority Waste Management Parking Interest on Long-Term Debt Total Expenses 1, , , ,329.6 Excess (Deficiency) Before Transfers Transfers (15.9) (17.6) Change in Net Position Net Position Beginning 2, , , ,618.6 Restatement of Beginning Net Position - (351.7) - (39.9) - (391.6) Net Position Ending $ 2,424.3 $ 2,362.5 $ 1,001.8 $ $ 3,426.1 $ 3,317.5 * The beginning net position was restated due to the implementation of GASB Statement No. 68. B-8

117 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS Revenues The City s total revenues were $1,453.0 million, a $32.9 million or 2.3% increase over prior year. Increases in the personal property tax rate (8.1%), sewer rate monthly charges (11.0%), and storm water charge per ERU (4.1%) account for part of this change. Waste management charges for services are reported in the business-type activities due to the change of the fund from a special revenue to an enterprise fund. The largest revenue sources for the City are property taxes at 39.5%, charges for services at 20.6%, and other taxes (e.g. sales, utility, business license, meal, and lodging) at 19.5%. Capital and operating grants and contributions show a decrease of $20.0 million from prior year due decreased lane miles recorded as contributed roads. Program revenues are derived from the program itself and reduce the cost of the function of the City. For governmental activities, total program revenues were $301.9 million, a decrease of $54.5 million from prior year. General revenues, all other revenues besides program revenues, totaled $929.2 million. This represents an increase of $35.8 million over prior year, mainly the result of higher property tax revenues. For the current fiscal year, the City maintained its real estate tax rate of $0.93 per $100 of assessed valuation but increase its personal property of $3.70 to $4.00 per $100 of assessed valuation to fund public safety initiatives. Business-type activities generated program and general revenues of $221.9 million, primarily from charges for services ($214.3 million). Figure 2: Revenues by Source - Primary Government as of June 30, 2015 Charges for Services 20.6% Operating Grants 11.5% Capital Grants 3.9% Other 5.0% Other Taxes 19.5% General Property Taxes 39.5% B-9

118 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS Expenses Total cost of all programs and services was $1,344.4 million, a $14.8 million or 1.1% increase over prior year expenses. The City s expenses cover a range of services, which as a percent of total include education at 29.0%, public safety (police, fire, and emergency medical services) at 11.6%, and public works at 11.2%. Expenses for governmental activities totaled $1,153.4 million, a decrease of $37.0 million over prior year primarily due to the Waste Management Fund converting to an enterprise fund ($41.0 million decrease). This decrease was offset by additional City support towards education, salary increases totaling 3% (1% is the state mandated VRS increase for fulltime employees and a 2% general increase), and increases in expenditures related to enhancing tourism development. Other general government operating departments experienced only slight variations in spending over the previous fiscal year. Education continues to be one of the City's highest priorities and commitments. The City's funding for education totaled $390.0 million (net of the adjustment to account for the tenancy in common legislation) and it represents 49.1% (versus 47.2% in prior year) of the total School s revenues (exhibit 45). Expenses for the City s business-type activities totaled $191.0 million and includes expenses related to water, sewer, and storm water utility services as well as parking operations and economic development. The increase of $51.8 million over prior year is mainly due to the new Waste Management Enterprise fund. Figure 3: Expenses - Primary Government as of June 30, 2015 Human Services 8.2% Public Safety 11.6% Public Works 11.2% Interest on Debt 2.5% Other General Government 19.8% Parks and Recreation 3.5% Water and Sewer 8.2% Other Business Type 6.0% Education 29.0% B-10

119 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL ANALYSIS OF THE CITY S FUNDS The City uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Governmental funds The focus of the City s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. The total fund balance for the governmental funds at the end of the fiscal year was $553.2 million, an increase of $11.6 million from prior fiscal year. This change is a combination of decreases in fund balances of $8.0 million in the general fund offset by an increase in fund balance for the capital projects fund of $20.1 million. Decreases in the fund balance for the general fund was the combined result of increased property tax revenues offset by decreased other taxes and increased departmental spending. At the end of the fiscal year, the classification of total governmental fund balances was as follows: $13.5 million or 2.4% is nonspendable consisting in the City s loans receivable and investment in inventories. $38.0 million or 6.9% is restricted, which can be spent only for the specific purposes stipulated by external providers, such as grantors or restricted through legislation. This amount includes debt service costs ($29.0 million); federal and state grants in housing programs ($0.4 million), public safety initiatives ($3.1 million), seized forfeited assets ($3.3 million), human services ($1.1 million); and special service districts ($1.0 million). $349.7 million or 63.2% is committed, which can only be used only for the specific purposes imposed by the formal action of City Council. Included in committed fund balance is the funding for the capital improvement program ($299.3 million), parks and recreation activities ($12.7 million), agriculture reserve program activities ($13.5 million), tax increment financing ($8.4 million), and other smaller amounts in the nonmajor special revenue funds. $55.4 million or 10.0% is assigned, which applies to amounts that are intended for specific purposes but do not meet the criteria to be classified as restricted or committed. The assigned amounts include $19.2 million to be used in next year s capital program and $14.9 million for education. $96.6 million or 17.5% is unassigned, which is the residual classification for the general fund and includes all spendable amounts not contained in the other classifications. Items to be noted include: Real estate taxes of $481.8 million increased from $464.4 million in prior year. Real estate revenues are the City s single largest revenue source and comprised 39.3% of total revenues received for the year. This is mainly due to an increase of 3.7% in assessed values increased to $1.8B, which resulted in an additional $17.6 million in the amount levied. The real estate tax rate ($0.93 per $100 of assessed valuation) remained unchanged from prior year. Revenues recorded for personal property taxes of $90.9 million were higher than prior year by $12.2 million. The tax rate on personal property of $3.70 per $100 of assessed valuation increased to $4.0 to support public safety initiatives. In addition, personal property tax assessments increased by $236.0 million (5.4%). The City continues to receive PPTRA (personal property tax relief program) reimbursements from the state of $53.4 million, which are reported as state revenues. B-11

120 CITY OF VIRGINIA BEACH, VIRGINIA MANAGEMENT S DISCUSSION AND ANALYSIS Selected Tax Revenues by Source FY2015 Compared to FY2014 (in Millions) $500 $481.8 $464.4 $400 FY2015 FY2014 $300 $200 $100 $90.9 $78.7 $58.2 $56.4 $44.6 $44.0 $27.9 $26.6 $60.0 $56.9 $43.3 $44.1 $0 Real Estate Personal Property General Sales Business License Hotel Restaurant Utility Other Taxes revenue category, which includes taxes on general sales, utility purchases, cigarettes, hotel rooms, restaurant meal, amusement, business licenses, deeds, wills, and automobile licenses totaled $281.3 million. This represents an $9.4 million increase over the previous year mainly due to improved performance in hotel, meals, and cigarette taxes. Federal and state funding of $264.4 million, 21.68% of total revenues received, increased $26.8 million from prior year mainly due to support towards roadway projects such as the Lesner Bridge Replacement project. Charges for services decreased by $37.5 million over prior year in part due to the conversion of the waste management fund to an enterprise fund. City employees received a total of 3% increase (1% is the state mandated VRS increase for full-time employees and a 2% general increase).. In the aggregate the fund balances of the special revenue funds remained practically unchanged ($457,116). Significant changes in fund balance were in the Most of the changes were in the Agriculture Reserve Program ($1.9 million increase), Parks and Recreation ($2.1 million decrease), Tourism Investment Program ($1.3 million decrease), and Central Business District SSD ($1.1 million decrease). The capital projects fund reported $199.6 million in expenditures. Revenues received in this fund from the federal and state governments were $14.9 million and $29.9 million, respectively, which were mostly in support of transportation projects. General Obligation Public Improvement and Public Facility Revenue bonds and premiums totaling $109.5 million were issued in support of general government capital projects. The capital projects fund received cash funding totaling $73.0 million from the general fund and other special revenue funds. B-12