CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Quarterly Report for the Period Ending September 30, 2018

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2 Overview of the Financial Statements The Chesapeake Bay Bridge and Tunnel District s (the District) financial report for the quarter ended September 30, 2018 provides long-term and short-term information about the District s overall financial status. This report consists of two parts: management s discussion and analysis and the basic financial statements, including notes to the basic financial statements. Management s discussion and analysis introduces the basic financial statements and provides an analytical overview of the District s financial activities. The basic financial statements are the statements of net position as of and 2017, the related statements of revenues, expenses, and changes in net position and the statement of cash flows for the quarter and year then ended. The notes to the basic financial statements consist of information that is essential to a user s understanding of the basic financial statements. As it is considered a special-purpose government engaged only in business-type activities, the District follows enterprise fund reporting; accordingly, the basic financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under this basis, revenues are recognized in the period in which they are earned, expenses are recognized in the period in which they are incurred, and depreciation of nonbridge-tunnel infrastructure assets is recognized in the statements of revenues, expenses, and changes in net position. All assets and deferred outflows of resources and liabilities and deferred inflows of resources resulting from the operation of the District are included in the statements of net position. Financial Highlights for the Quarter Gross toll revenues before deductions for the first quarter of fiscal year 2019 (Q1 FY19) were $18,769,693 and were 1.9% less than toll revenues in the first quarter of fiscal year 2018 (Q1 FY18). During Q1 FY19, total revenue vehicles of 1,275,516 crossed the District s facility. This represents a decrease in vehicular traffic of 27,303, or 2.1% less than Q1 FY18. Other revenues in Q1 FY19 totaled $238,141, which is a decrease of $193,331, or 44.8% over other revenues in Q1 FY18. The year over year decrease is primarily due to the closure of the restaurant and gift shop on September 30, 2017 as part of the parallel tunnel construction project. Operating expenses before District facility expenses in Q1 FY19 totaled $3,446,853, which is an increase in operating expenses of $44,163, or 1.3% from Q1 FY18. Non-operating revenues/expenses is a net revenue in Q1 FY19 of $1,348,633, which is an improvement of $1,913,168 from Q1 FY18. Total net position at was $705,299,765, a 5.5% increase over total net position at September 30, Contacting the District s Financial Management This financial report is designed to provide the bondholders, customers, and other interested parties with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have any questions about this report or need additional financial information, address your request to the Executive Director or the Deputy Executive Director of Finance and Operations, Lankford Highway, Cape Charles, Virginia

3 Statements of Net Position and 2017 Assets and Deferred Outflows of Resources Current assets: Cash (note 3) $ 1,676, ,339 Investments (notes 3 and 6) 84,622,204 57,415,198 Accounts receivable and accrued interest receivable, net 1,148,241 1,365,320 Prepaid expenses and other assets 486, ,329 Note receivable 35,072 Total current assets 87,933,928 60,210,258 Restricted assets: Cash (note 3) 17,286 12,552 Investments (notes 3 and 6) 171,425, ,374,831 Accrued interest receivable 234, ,541 Total restricted assets 171,677, ,646,924 Investments (notes 3 and 6) 126,663, ,374,650 Long-term note receivable 12,490 Capital assets (note 4): Bridge and tunnel facilities, including capitalized interest 422,370, ,933,330 Construction in progress Thimble Shoal Parallel Tunnel 281,009, ,493,350 Miscellaneous capital assets, net of accumulated depreciation 10,199,093 10,989,413 Total capital assets 713,578, ,416,093 Bond insurance costs, net of accumulated amortization 2,716,720 2,829,013 Deferred outflow of resources: Pension contributions 970, ,226 Differences between expected and actual experience - Pension 39,650 86,299 Pension investment experience 809,919 OPEB Contributions 216,136 Differences between expected and actual experience - OPEB 246,608 Total deferred outflows of resources 1,472,560 1,860,444 Total assets and deferred outflows of resources $ 1,104,042,331 1,063,349,872 Liabilities, Deferred Inflows and Net Position Current liabilities: Accounts payable and accrued expenses $ 7,166,704 11,319,121 Accrued interest 3,956,438 3,956,438 Unearned revenue 741, ,608 Total current liabilities 11,864,811 16,004,167 Long-term liabilities: Long-term debt, net of current portion (note 5) 369,789, ,901,839 Net pension liability 10,414,363 12,591,061 Other postemployment benefit liability 5,148,033 5,367,423 Total long-term liabilities 385,351, ,860,323 Deferred inflows of resources: Differences between expected and actual experience - Pension 262, ,887 Change in Assumptions - Pension 453,204 Pension investment experience 469,713 Change in Assumptions - OPEB 380,493 Total deferred inflows of resources 1,566, ,887 Total liabilities and deferred inflows of resources 398,782, ,131,377 Commitments and contingencies Net position: Net investment in capital assets 458,606, ,661,789 Restricted for debt service 51,887,085 60,087,684 Restricted for forfeited property 11,080 10,621 Unrestricted 194,795, ,458,401 Total net position 705,299, ,218,495 Total liabilities and net position $ 1,104,082,331 1,063,349,872 3

4 Chesapeake Bay Bridge & Tunnel District Statement of Revenues, Expenses, and Changes in Net Position As of & 2017 Three Months Ended Twelve Months Ended September, 2018 September, 2017 September, 2018 September, 2017 Operating revenues: Toll $ 18,410,093 18,763,383 55,944,383 56,457,563 Other 238, ,472 1,150,285 1,240,101 Total operating revenues 18,648,234 19,194,855 57,094,668 57,697,664 Operating Expenses: Administration 87,494 79, , ,416 Finance 179, , , ,200 Operations 1,125,368 1,088,060 4,399,610 4,308,570 Maintenance 931, ,703 3,870,276 3,717,387 General 884, ,508 3,497,694 3,343,198 Consultants 57,370 92, , ,410 Utilities 181, , , ,830 Total operating expenses before district facility expenses 3,446,853 3,402,690 14,108,330 13,800,011 District Facility Expenses: Insurance Expenses 253, ,136 1,028, ,578 Depreciation Expenses 287, ,857 1,152,973 1,242,287 Bridge and Tunnel Preservation Expenses 896,088 1,102,555 2,171,530 3,354,083 Other Capital Asset Expenses & Expenditures 55, ,707 (100,006) 50,997 Total district facility expenses 1,492,878 1,733,255 4,253,028 5,472,945 Total operating and district facility expenses 4,939,731 5,135,945 18,361,358 19,272,956 Operating income 13,708,503 14,058,910 38,733,310 38,424,708 Nonoperating revenues (expenses): Change in fair value of investments 9,174 (166,310) (2,483,597) (3,742,545) Interest income 1,804,913 1,590,768 6,479,359 6,091,266 Interest expense - Bonds (465,454) (1,990,611) (4,137,971) (9,308,253) Bond Issuance Costs (2,340,449) Loss on Asset Disposal - - (1,835,351) - Other expenses, net - 1,618 (12,742) 8,365 Total nonoperating expenses, net 1,348,633 (564,535) (1,990,302) (27,614,719) Increase in net position 15,057,136 13,494,375 36,743,008 10,809,989 Total net position, beginning of period 690,242, ,724, ,218, ,408,506 Prior year adjustment of net position ,262 - Total net position, end of period $ 705,299, ,218, ,299, ,218,495 4

5 Statements of Cash Flows For the period ended and 2017 Q1 FY2019 Q1 FY2018 Cash flows from operating activities: Toll collections from customers $ 18,384,579 18,663,261 Scrip sales 95,040 98,464 Leasing revenue 172, ,991 Payments to employees for services and employee benefits (3,215,142) (2,528,138) Payments to suppliers and consultants (945,469) (1,575,674) Other (28,360) (133,181) Net cash provided by operating activities 14,462,792 14,950,723 Cash flows from investing activities: Purchases of investments (197,506,510) (376,498,834) Interest income 1,474,405 1,547,674 Sales and maturities of investments 216,218, ,123,626 Net cash used in investing activities 20,186,025 39,172,466 Cash flows from capital and related financing activities: Capitalized expenditures (36,519,789) (46,583,648) Forfeited assets 1, Bond proceeds 10,385,296 Disposal of capital assets 934 Interest paid (7,912,875) (7,912,875) Net cash provided by (used in) capital and related financing activities (34,045,836) (54,494,905) Net increase (decrease) in cash 602,981 (371,716) Cash, beginning of period 1,090,978 1,295,607 Cash, end of period $ 1,693, ,891 Cash and restricted cash are presented in the accompanying statements of net assets as follows: Cash $ 1,676, ,339 Restricted cash 17,286 12,552 $ 1,693, ,891 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 13,708,503 14,058,911 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 287, ,857 (Increase) decrease in operating assets: Accounts receivable 86, ,008 Prepaid expenses and other assets 143, ,217 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 271,384 5,443 Pension liabilities OPEB liabilities Unearned revenue (35,037) (34,713) Net cash provided by operating activities $ 14,462,792 14,950,723 5

6 Chesapeake Bay Bridge and Tunnel District Statement of Cash & Investments As of GENERAL REVENUE BOND RESOLUTION FUNDS: Cash Investments Totals Unrestricted: Revenue Fund $ 1,582,480 3,019,193 4,601,673 Operations & Maintenance Reserve Fund - 3,837,046 3,837,046 Reserve Maintenance Fund 49,703 16,748,384 16,798,087 General Fund 44, ,721, ,765,813 Restricted: Parallel Thimble Shoal Tunnel Project Fund - 109,379, ,379,056 Parallel Thimble Shoal Tunnel Project Fund - TIFIA - 9,056,055 9,056,055 Parallel Thimble Shoal Tunnel Project Fund - VTIB - 1,337,561 1,337,561 Series 2016 Bonds - Capitalized Interest Fund - 23,785,181 23,785,181 Series 2016 Bonds - Interest Fund - 1,975,168 1,975,168 TIFIA Debt Service Reserve Fund - 22,551,977 22,551,977 VTIB Debt Service Reserve Fund - 3,340,380 3,340,380 OTHER RESTRICTED ASSETS: Restricted Asset Forfeited Property Account 17,286-17,286 Totals $ 1,693, ,751, ,445,283 6

7 Chesapeake Bay Bridge and Tunnel District Statement of Investments As of BB&T Coupon Maturity Purchase Maturity Market Value Description Rate Date Date Value 9/30/2018 Revenue Bond - Revenue Fund BB&T Trust Deposit Variable Not Fixed $ 3,019, $ 3,019, ,019, ,019, General Revenue Bond - Operations & Maintenance Reserve Fund US Treasury Notes 1.500% 12/31/18 01/11/18 3,810, ,803, BB&T Trust Deposit Variable Not Fixed 33, , ,843, ,837, General Revenue Bond - TIFIA Debt Service Reserve Fund Fannie Mae Global Notes 1.625% 11/27/18 07/07/17 11,365, ,354, FNMA Benchmark Notes 1.875% 12/18/20 07/07/17 11,360, ,118, BB&T Trust Deposit Variable Not Fixed 79, , ,804, ,551, General Revenue Bond - VTIB Debt Service Reserve Fund Fannie Mae Global Notes 1.625% 11/27/18 07/07/17 1,680, ,678, FNMA Benchmark Notes 1.875% 12/28/20 07/07/17 1,680, ,644, BB&T Trust Deposit Variable Not Fixed 17, , ,377, ,340, General Revenue Bond - Series 2016 Interest Fund US Treasury Notes 1.250% 12/31/2018 9/26/ , , US Treasury Notes 1.375% 12/31/2018 9/18/2018 1,320, ,317, BB&T Trust Deposit Variable Not Fixed 4, , ,979, ,975, Thimble Shoal Project Fund Local Government Investment Pool Variable Not Fixed 109,370, ,370, BB&T Trust Deposit Variable Not Fixed 8, , ,379, ,379, Thimble Shoal Project Fund - TIFIA BB&T Trust Deposit Variable Not Fixed 9,056, ,056, ,056, ,056, Thimble Shoal Project Fund - VTIB BB&T Trust Deposit Variable Not Fixed 1,337, ,337, ,337, ,337, Capitalized Interest Fund US Treasury Notes 1.375% 12/31/18 11/10/16 3,775, ,766, US Treasury Notes 1.625% 06/30/19 11/10/16 3,805, ,779, US Treasury Notes 1.625% 12/31/19 11/10/16 3,835, ,783, US Treasury Notes 1.625% 06/30/20 11/10/16 3,865, ,787, US Treasury Notes 1.750% 12/31/20 11/10/16 3,900, ,807, US Treasury Notes 1.125% 06/30/21 11/10/16 4,900, ,674, BB&T Trust Deposit Variable Not Fixed 185, , ,265, ,785, GR Reserve Maintenance Fund Federal Home Loan Bank Discount Note Discount 11/2/2018 9/4/ , , Federal Home Loan Bank Discount Note Discount 12/3/2018 9/4/ , , Natixis NY Branch Commercial Paper Discount 12/14/18 07/30/18 300, , US Treasury Notes 0.750% 02/15/19 01/10/18 3,050, ,031, US Treasury Notes 1.500% 02/28/19 07/30/18 10,680, ,641, BB&T Trust Deposit Variable Not Fixed 1,480, ,480, ,810, ,748,

8 Chesapeake Bay Bridge and Tunnel District Statement of Investments As of BB&T Coupon Maturity Purchase Maturity Market Value Description Rate Date Date Value 9/30/2018 GR General Fund Natixis NY Branch Commercial Paper Discount 11/01/18 07/26/18 $ 5,000, $ 4,989, Svenska Handelsbanken NY LT CD 1.890% 01/10/19 01/10/17 3,750, ,740, BNP Paribas NY Branch Commercial Paper Discount 02/25/19 07/26/18 3,000, ,969, Credit Agricole CIB NY Commercial Paper Discount 02/25/19 07/23/18 4,400, ,354, MUFG Bank LTD Commercial Paper Discount 02/25/19 07/26/18 5,420, ,363, JP Morgan Securities Commercial Paper Discount 02/25/19 07/28/18 5,425, ,368, Freddie Mac Global Notes 1.750% 05/30/19 12/15/16 5,000, ,975, Freddie Mac Global Notes 1.750% 05/30/19 02/03/17 2,210, ,198, US Treasury Notes 1.500% 05/31/19 11/14/16 540, , US Treasury Notes 1.250% 06/30/19 07/11/17 2,150, ,129, Federal National Mortgage Assn % 06/20/19 12/14/16 2,400, ,386, Federal Home Loan Mortgage Corp. Notes 0.875% 07/19/19 01/03/17 6,320, ,236, Freddie Mac Global Notes 1.250% 08/01/19 07/30/12 2,300, ,274, Federal Home Loan Bank 0.875% 08/05/19 08/03/16 5,000, ,928, Freddie Mac Notes 1.375% 08/15/19 07/18/17 1,965, ,944, US Treasury Notes 1.250% 08/31/19 08/27/18 6,560, ,477, US Treasury Notes 1.000% 09/30/19 04/30/15 1,755, ,726, Freddie Mac Global Notes 1.250% 10/02/19 09/28/12 3,000, ,958, International Bank of Recon & Dev Global 1.875% 10/07/19 09/27/17 1,675, ,661, Fannie Mae Global Notes 1.000% 10/24/19 12/06/16 7,100, ,975, FNMA Benchmark Note 1.750% 11/26/19 12/03/14 2,000, ,978, US Treasury Notes 1.875% 12/31/19 09/26/18 2,740, ,711, Freddie Mac Global Notes 1.500% 01/17/20 02/03/17 1,850, ,821, Freddie Mac Agency Notes 1.500% 01/17/20 04/03/17 5,000, ,921, IBM Corporation Notes 1.900% 01/27/20 02/23/17 3,650, ,605, Microsoft Corp % 02/06/20 01/30/17 910, , Apple Inc. Bonds 1.900% 02/07/20 02/02/17 2,945, ,910, Federal Home Loan Bank Notes 2.125% 02/11/20 08/01/18 3,210, ,183, Nordea Bank CD 2.720% 02/20/20 02/20/18 2,690, ,678, Federal National Mortgage Assn % 02/28/20 02/24/17 7,600, ,470, Toyota Motor Credit Corp % 04/17/20 04/11/17 1,020, ,004, Federal Home Loan Mortgage Corp. Notes 1.375% 04/20/20 04/20/17 1,995, ,952, Federal Home Loan Mortgage Corp. Notes 1.375% 04/20/20 05/31/17 9,000, ,808, Federal Home Loan Mortgage Corp. Notes 1.375% 04/20/20 06/29/17 2,200, ,153, Federal Home Loan Mortgage Corp. Notes 1.375% 04/20/20 06/05/17 4,365, ,271, Federal Home Loan Mortgage Corp. Notes 1.375% 04/20/20 06/26/17 3,000, ,936, Federal Home Loan Mortgage Corp. Notes 1.375% 04/20/20 11/13/17 1,570, ,536, FNMA Notes 1.500% 07/30/20 08/31/17 3,750, ,664, US Treasury Notes 1.625% 07/31/20 09/26/18 2,035, ,991, International Bank of Recon & Dev Global 1.561% 09/12/20 09/19/17 3,355, ,266, Federal Home Loan Bank Notes 1.375% 09/28/20 09/07/17 2,325, ,259, Proctor & Gamble Co. Corp. Notes 1.900% 10/23/20 10/25/17 730, , Swedbank New York CD 2.270% 11/16/20 11/17/17 2,655, ,602, Johnson & Johnson Corp. Notes 1.950% 11/10/20 11/10/17 755, , Federal Home Loan Mortgage Corp. Notes 1.875% 11/17/20 12/06/17 2,045, ,004, Walmart Stores Inc. Corp. Notes 1.900% 12/15/20 10/20/17 3,400, ,327, Asian Development Bank Note 2.250% 01/20/21 01/19/18 1,730, ,702, Freddie Mac Notes 2.375% 02/16/21 07/05/18 2,455, ,426, Freddie Mac Notes 2.375% 02/16/21 08/03/18 3,000, ,965, Berkshire Hathaway Inc % 03/15/21 03/05/18 2,525, ,475, African Development Bank Note 2.625% 03/22/21 03/14/18 1,295, ,283, Toyota Motor Credit Corp. Notes 2.950% 04/13/21 04/10/18 2,090, ,080, Federal Home Loan Mortgage Corp. Notes 6.000% 06/01/21 06/22/06 51, , US Treasury Notes 1.125% 06/30/21 09/26/17 5,760, ,494, US Treasury Notes 1.125% 06/30/21 10/26/17 3,355, ,200, US Treasury Notes 1.125% 06/30/21 08/28/17 3,460, ,300, US Treasury Notes 1.125% 06/30/21 11/30/17 2,800, ,671, US Treasury Notes 1.125% 07/01/21 01/25/18 2,050, ,955, International Bank of Recon & Dev Global 2.750% 07/23/21 07/25/18 2,635, ,618, US Treasury Notes 2.000% 10/31/21 03/01/18 2,835, ,760, Federal National Mortgage Assn % 11/01/21 11/16/06 29, , Federal Home Loan Mortgage Corp. Notes 5.500% 02/01/22 04/10/07 68, , Fannie Mae Pool 3.000% 06/01/22 08/17/12 291, , Federal Home Loan Mortgage Corp. Notes 6.000% 07/01/22 07/17/07 34, , GNMA Pool # % 01/01/27 04/16/13 498, , GNMA Pool # % 03/01/27 04/16/13 299, , GNMA Pool #MA % 04/01/27 06/18/12 830, , Fannie Mae Pool # % 06/01/32 07/17/12 886, , BB&T Trust Deposit Variable Not Fixed Not fixed 181, , ,927, ,721, Total All Investments $ 386,800, $ 382,751,

9 Vehicular Traffic Statistics DESCRIPTION/CLASS CURRENT YEAR 3 Months 12 Months July August September Ended Ended Cars/Light Trucks: /30/18 09/30/18 Class 1 365, , ,729 1,001,332 2,932,753 Class 1 Round Trip 36,500 37,011 29, , ,252 Class 1 Commuter 13,723 15,229 12,301 41, ,966 Class 2 4,739 4,712 2,870 12,321 31,810 Class 2 Round Trip ,150 3,588 Class 3 6,252 5,854 3,604 15,710 42,787 Class 3 Round Trip ,165 4,081 Class ,303 Class 4 Round Trip Sub Total 427, , ,617 1,176,364 3,555,741 Heavy Trucks: Class 9 5,822 5,667 4,435 15,924 56,189 Class 10 1,451 1,615 1,549 4,615 19,171 Class 11 1,334 1,260 1,047 3,641 13,012 Class 12 25,075 24,651 21,203 70, ,427 Class ,260 Class Sub Total 33,911 33,479 28,493 95, ,868 Buses: Class ,494 Class Class ,725 10,624 Sub Total 1,163 1, ,269 12,850 Totals 462, , ,102 1,275,516 3,935,459 DESCRIPTION/CLASS PRIOR YEAR 3 Months 12 Months July August September Ended Ended Cars/Light Trucks: /30/17 09/30/17 Class 1 386, , ,565 1,027,497 3,005,103 Class 1 Round Trip 36,004 34,969 29, , ,453 Class 1 Commuter 14,014 16,008 15,046 45, ,217 Class 2 5,234 4,695 3,160 13,089 32,169 Class 2 Round Trip ,099 3,432 Class 3 5,813 4,967 3,891 14,671 39,539 Class 3 Round Trip ,040 3,749 Class ,985 Class 4 Round Trip Sub Total 448, , ,226 1,203,820 3,615,843 Heavy Trucks: Class 9 5,738 5,771 4,682 16,191 56,814 Class 10 1,939 1,968 1,492 5,399 19,246 Class 11 1,488 1,474 1,269 4,231 14,563 Class 12 22,944 23,701 21,688 68, ,040 Class ,989 Class Sub Total 32,565 33,351 29,477 95, ,644 Buses: Class ,593 Class Class 15 1,038 1, ,959 12,310 Sub Total 1,253 1,211 1,142 3,606 14,650 Totals 482, , ,845 1,302,819 3,986,137 9

10 (1) Organization and Summary of Operations The Chesapeake Bay Bridge and Tunnel District (the District) was created as a political subdivision of the Commonwealth of Virginia by Chapter 693 of the Acts of Virginia of Chapter 693 was subsequently amended by the following Chapters of the Acts of Virginia: Chapters 462 and 714 of the 1956 Session, Chapter 24 of the 1959 Extra Session, Chapters 228 and 605 of the 1962 Session, Chapter 348 of the 1964 Session, Chapter 203 of the 1990 Session, Chapter 548 of the 1998 Session, Chapters 238 and 705 of the 2000 Session, and Chapters 270 and 297 of the 2005 Session, (collectively, the Acts). All such Acts have been codified into Title 33.2 Code of Virginia, Chapter 22. The District comprises the area, all within the Commonwealth of Virginia, in Accomack and Northampton Counties, the Cities of Virginia Beach, Hampton, Newport News, Chesapeake, Norfolk, and Portsmouth, and the area of the Chesapeake Bay between these subdivisions. By the Acts, the Chesapeake Bay Bridge and Tunnel Commission (the Commission) was created as the governing body of the District. These Acts authorized the Commission to acquire, establish, construct, maintain, repair, and operate a project comprising public ferry service over and across the waters between any two points within the boundaries of the District, where such public ferry services would form a connecting link in the system of state highways. Under the Acts, the Commission was also authorized to establish, construct, maintain, repair, and operate a bridge or tunnel or a bridge and tunnel project from any point within the boundaries of the District to a point in the County of Northampton, including such approaches and approach highways as the Commission deemed necessary to facilitate the flow of traffic in the vicinity of such project or to connect such project with the highway system or other facilities in the state. The Chesapeake Bay Bridge and Tunnel (the Bridge-Tunnel) is a 20-mile, four-lane trestle and bridge and two-lane tunnel crossing at the mouth of the Chesapeake Bay between the City of Virginia Beach and Northampton County on the Eastern Shore of Virginia. The Bridge-Tunnel consists principally of low-level trestles, four bridges, two tunnels, approach highways, and an earth-fill causeway. The Bridge-Tunnel is designated as part of U.S. Route 13, the main north-south highway on Virginia s Eastern Shore and the only direct link between Virginia s Eastern Shore and the metropolitan area of south Hampton Roads, Virginia. The District sold a revenue bond issue of $200,000,000 (1960 Bonds) under a Trust Indenture dated July 1, 1960, and constructed the two-lane bridge and tunnel project. The project was opened to traffic on April 15, The Commission discontinued ferry service following the opening of the two-lane bridge and tunnel project. On April 15, 1964, the Bridge-Tunnel opened as a two-lane facility. A three-staged parallel crossing project began in Stage 1 of this project was completed in April This stage included construction of parallel trestles, bridges, roadways, and rehabilitation of the original two-lane facility. Stage 2 is ongoing and will consist of construction of an additional two-lane tunnel under Thimble Shoal Channel. Stage 3 will complete the parallel crossing with construction of an additional two-lane tunnel under Chesapeake Channel. 10

11 (2) Summary of Significant Accounting Policies The District is accounted for under the economic resources measurement focus and the accrual basis of accounting as a special-purpose government engaged in business-type activities, which follows enterprise fund reporting. Special-purpose governments engaged in business-type activities are used to account for the ongoing activities that are financed and operated similar to those often found in the private sector. Accordingly, revenues are recognized in the period earned and expenses are recognized when they are incurred. The District distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from the District s ongoing operations. Operating revenues include revenue from toll collection, recognized when travelers cross the bridge and tunnel, and lease income. Operating expenses include District facility and administrative expenses. All revenues and expenses not meeting these definitions are reported as nonoperating revenues and expenses. The statements of net position reports all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and the residual net position of the District. Deferred outflows of resources are defined as a consumption of net position by the District that is applicable to a future reporting period. Similarly, deferred inflows of resources are defined as an acquisition of net position by the District that is applicable to a future reporting period. (a) Cash and Investments Cash includes cash on hand and various checking accounts. In accordance with GAAP, the District reports its investment securities at fair market value. Fair market value is determined as of the statements of net position date. The fair value is based on either quotations obtained from national security exchanges or on the basis of quotations provided by a pricing service, which uses information with respect to transactions on bonds, quotations from bond dealers, market transactions in comparable securities, and various relationships between securities. (b) Restricted Assets In accordance with applicable covenants of certain bond issues, cash, investments, and accrued interest receivables have been appropriately restricted. When both restricted and unrestricted resources are available for use, it is the District s policy to use restricted resources first, and then unrestricted resources, as they are needed. (c) Capital Assets The bridge and tunnel assets are stated at cost and include capitalized interest. No provision for depreciation or obsolescence of the Bridge-Tunnel facilities is provided as the District has adopted the modified approach to account for these assets. Nonbridge and tunnel assets are being depreciated over their estimated useful lives of 3 years up to 50 years. (d) Restricted Net Position Restricted net position, as defined by GAAP, is reported when constraints are placed on the use of assets either externally by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling 11

12 legislations. At and 2017, the District had net position restricted for debt service of $51,887,085 and $60,087,684, respectively. (e) Management s Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and deferred outflows and liabilities and deferred inflows and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (f) Revenue Recognition Toll revenues represent the tolls collected, net of any deductions such as credit card fees, EZ Pass fees and medical and educational toll discounts. Revenues are recognized when earned. (g) Pensions For purposes of measuring net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District s Retirement Plan and the additions to/deductions from the District s Retirement Plan s net fiduciary position have been determined on the same basis as they were reported by the Virginia Retirement System (VRS). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. (h) New Accounting Pronouncements In FY2018, the District adopted GASB Statement No. 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions., which replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple- Employer Plans, for OPEB. Statement No. 75 addresses accounting and financial reporting for other postemployment benefits (OPEB), like retiree health insurance, that is provided to the employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about defined benefit OPEB also are addressed. Due to limitations on the information available for the prior fiscal year, it was determined to be impractical for the District to restate the FY17 financial statements. As such, the cumulative effect of applying GASB Statement No. 75 is being reported as a prior period adjustment increasing the beginning balance of net position for FY18 by $338,262 of which $213,142 represents deferred outflows of resources related to benefit payments/opeb contributions made by the District in FY17 that will be recognized in 12

13 total OPEB liability in FY18 under GASB Statement No. 75. The remaining adjustment of $125,120 is a result of a decrease in the total OPEB liability at June 30, (3) Cash Deposits and Investments. (a) Deposits The carrying value of the District s deposits (unrestricted and restricted) was $1,693,959 and $923,891 at and 2017, respectively. The entire bank balance was covered for both fiscal years by federal depository insurance or collateralized in accordance with the Virginia Security for Public Deposits Act (VSPD Act). In accordance with the VSPD Act, the District s depository institution pledged collateral in the form of federal agency obligations with a market value equal to 110% of the District s deposits with a third-party trustee in the name of the Treasurer of the Commonwealth of Virginia. In the event that the banking institution fails, the Treasurer will take possession of the collateral, liquidate it, and reimburse the District up to the value of its deposits. The State Treasury Board is responsible for monitoring compliance with the collateralization and reporting requirements of the VSPD Act and for notifying local governments of compliance by banks. (b) Investments The District is authorized to invest in obligations of the United States or agencies thereof; obligations of any state or territory of the United States and any political subdivision thereof; obligations permitted by the laws of the Commonwealth of Virginia; repurchase agreements with respect to the foregoing obligations; certificates of deposit, time deposits, or interest in money market portfolios issued by any bank, banking association, savings and loan association, or trust company insured by the FDIC or Federal Savings and Loan Insurance Corporation; commercial paper, shares in one or more open-ended investment funds provided that the funds are registered under the State Securities Act or the Federal Investment Company Act; bankers acceptances; and units representing beneficial interests in investment pools created pursuant to the Government Non-Arbitrage Investment Act of the Commonwealth of Virginia. (c) Credit Risk Credit risk is defined as the risk that an issuer or other counterparty to an investment will not fulfill its obligations. As required by state statute, the policy requires that commercial paper have a short-term debt rating of no less than A-1 (or its equivalent) from at least two of the following: Moody s Investors Service, Standard & Poor s, Fitch Investors Service, and Duff and Phelps. Corporate notes, negotiable certificates of deposit, and bank deposit, notes maturing in less than one year must have a short-term debt rating of at least A-1 by Standard & Poor s and P-1 by Moody s Investors Service. Notes having a maturity of greater than one year must be rated AA by Standard & Poor s and Aa by Moody s Investors Service. 13

14 The District s investment securities using the Standard & Poor s credit quality ratings scale are presented below: Standard & Poor's credit rating Investment Type AAA AA+ AA AA- A-1+ A-1 A+ Total US Agencies - 115,028, ,296, ,324,790 Federal Agency Mortgage- Backed - 2,989, ,989,615 Commercial Paper ,344,995-23,344,995 Certificate of Deposit ,021, ,021,960 US Treasuries - 78,004, ,004,477 Supra National 10,532, ,532,693 Corporate Notes 1,638,702 2,910,281 5,803,505 3,799, ,605,711 17,757,550 12,171, ,932,725 5,803,505 12,821,310 1,296,436 23,344,995 3,605, ,976,078 (d) Concentration of Credit Risk The District s investment policy establishes guidelines on portfolio composition by investment type in order to control concentration of credit risk. As of, the District s portfolio was invested as follows: 2018 Percentage Investment type Fair value of portfolio U.S. Treasuries $ 78,004, % U.S. Agencies 116,324, Federal Agency Mortgage- Backed 2,989, Supra-National Agency 10,532, Commercial Paper 23,344, Certificate of Deposit 9,021, Money Market Funds 124,775, Corporate Notes 17,757, $ 382,751, % (e) Interest Rate Risk Interest rate risk is defined as the risk that changes in interest rates will adversely affect the fair value of an investment. The District s investment policy limits the investment of funds as a means of limiting exposure to fair value losses. Investments in the General Resolution General Fund are limited to investments with maturities that are consistent with the schedule of planning, development, and construction of parallel tunnels that would complete the parallel crossing. Investments are selected based on the current perception of the direction of interest rates with a greater emphasis on yield and a lesser emphasis on liquidity. 14

15 Proceeds from the sale of bonds issued by the District are invested in compliance with the specific requirements of the bond covenants without further restriction as to the maximum term of securities purchased. As of, the District had the following investments and maturities: Investment maturities (in years) Fair Less Greater Not Investment type value than 1 year 1 to 3 years than 3 years fixed U.S. Treasuries $ 78,004,476 36,137,188 39,106,376 2,760,912 U.S. Agencies 116,324,790 39,274,323 77,050,467 Federal Agency Mortgage-Backed 2,989,614 52,831 2,936,783 Supra-National Agency 10,532,692 10,532,692 Commercial Paper 23,344,995 23,344,995 Certificates of Deposit 9,021,960 3,740,325 5,281,635 Money Market Funds 124,775, ,775,247 Corporate Notes 17,757,550 17,757,550 Total $ 382,751, ,496, ,781,551 5,697, ,775,247 (f) Summary of Changes in Fair Value of Investments The calculation of realized gains and losses is independent of the calculation of the change in fair value (including purchases and sales) that occurred during the year. Realized gains and losses on investments that were held by the District during previous years, but sold during the current year, were used to compute the change in fair value of investments for the previous year as well as the current year. The change in fair value of investments for the quarter ended is calculated as follows: Q1 FY19 Fair value of investments at end of quarter $ 382,751,324 Add: Proceeds from sales and maturities during the quarter 216,218,130 Less: Cost of investments purchased during the quarter (197,506,510) Fair value of investments at beginning of quarter (401,453,770) Change in fair value of investments $ 9,174 (4) Capital Assets Capital assets include bridge and tunnel assets, capitalized interest and financing expenses, and other capital assets. The bridges, trestles, approach roads, Fisherman Island Causeway, tunnels, portal islands with all attached improvements, toll plaza infrastructure and the rest area facility, and site-wide utilities are 15

16 classified as bridge and tunnel assets. Capitalized interest and financing expenses include the amount of money that was funded from the 1960 Bonds issued for debt service and associated costs of the bonds during construction until the opening of the Bridge-Tunnel in Miscellaneous capital assets include all other assets that the District has capitalized such as land, buildings, fleet vehicles, and equipment. The District utilizes the modified approach to infrastructure reporting on bridge and tunnel assets and capitalized interest and financing expenses. In lieu of reporting depreciation on bridge and tunnel assets, the costs incurred for maintaining bridge and tunnel assets at the condition level that is specified by Commission policy are reported as preservation expenses on the accompanying statements of revenues, expenses, and changes in net position. The District has elected to continue to use the traditional approach or depreciation method for buildings, fleet vehicles, and equipment that are depreciable, as stipulated in the District s Capital Asset Policy. U.S. generally accepted accounting principles (GAAP) requires that governmental entities that utilize the modified approach for infrastructure reporting must have their governing board set a policy for the condition levels at which modified approach assets will be maintained. GAAP also requires that a third party perform condition level assessments of the modified approach assets annually and that the condition levels for the current and prior two fiscal years be disclosed in the notes to the financial statements. The Commission s preservation policy is to maintain 90% of the bridge and tunnel assets at a maintenance rating program (MRP) condition level of good or better. 16

17 Jacob s Engineering, Inc., the District s consulting engineer, has inspected the District s bridge and tunnel assets. Jacob s Engineering, Inc. determines the MRP condition level for the bridge and tunnel assets as a numeric scaled rating. The numeric scaled rating is based on a condition index utilized by the Virginia Department of Transportation whereby 0 is a failed condition level and 9 is an excellent condition level. The table below defines the numeric scaled ratings assigned by Jacob s Engineering, Inc.: MRP Numeric code scale Numeric Narrative code code Definition 9 Excellent Component/Element has been recently put in service or remains in new condition 8 Very Good No problems noted, potential exists for minor preventative maintenance 7 Good Potential exists for minor maintenance 6 Satisfactory Potential exists for major maintenance 5 Fair Potential exists for minor repair or rehabilitation 4 Poor Potential exists for major repair or rehabilitation 3 Serious Major repair or rehabilitation required 2 Critical The need for repair or rehabilitation is urgent. Component/Element should be taken out of service until indicated repair is complete. 1 Imminent Failure Component is out of service; study feasibility for repair or rehabilitation 0 Failed Component is out of service and beyond repair, replacement required The following two tables derive percentages in different ways. Trestles and bridges that have an MRP numeric condition level are described as a percentage of lane miles. All other bridge and tunnel assets that have an MRP numeric condition level are described as a percentage of that specific bridge and tunnel asset. The following tables detail the MRP condition level of bridge and tunnel assets for the last three years: Percentage of capital assets at an MRP condition Level 7 or better Bridge and tunnel assets Approach roads 100% 100% 100% Fisherman Island Causeway Tunnels Portal islands Toll plaza infrastructure Site-wide utilities

18 Percentage of land miles at an MRP condition Level 7 or better Bridge and tunnel assets Original bridges 100% 100% 100% Parallel crossing bridges Original trestles Parallel crossing trestles (5) General Resolution Revenue Bonds Bond activity for Q1 FY19 was as follows: Amortization Balance, of costs, Balance, Amounts due June 30, Bond premiums, Capitalized September 30, within 2018 proceeds discounts, net Interest 2018 one year 2016 Subordinate Tier TIFIA Bonds $ - 9,048,806-32,844 9,081, Subordinate Tier VTIB Bonds - 1,336,490-4,885 1,341, First Tier General Resolution Revenue Bonds 359,750,023 - (383,938) - 359,366,085 - $ 359,750,023 10,385,296 (383,938) 37, ,789,110 - In July 2016, the Commission awarded a contract to Chesapeake Tunnel Joint Venture to design and build the Parallel Thimble Shoal Tunnel Project (the Project ). On October 24, 2016, to finance the costs of the Project, the Commission adopted and approved a new General Revenue Bond Resolution (the 2016 Resolution ) along with three Supplemental Resolutions authorizing the issuance of $321,515,000 First Tier General Resolution Revenue Bonds, Series 2016 (the Series 2016 Bonds ), a loan from the United States Department of Transportation under the TIFIA program (the TIFIA Loan ) in the amount of up to $338,528,672, plus capitalized interest and a loan from the Virginia Transportation Infrastructure Bank (the VTIB Loan ) in the amount of up to $50,000,000, plus capitalized interest. The Series 2016 Bonds are term bonds maturing from July 1, 2041 through July 1, 2055 with coupon interest rate of 4.0% to 5.0%. The proceeds from the Series 2016 Bonds, along with the proceeds of the TIFIA Loan and VTIB Loan and cash contributed by the District will be utilized to finance the develoment and construction of the Parallel Thimble Shoal Tunnel Project. The remaining portion of the proceeds from the Series 2016 Bonds will be utilized to (i) pay capitalized interest on a portion of the Series 2016 Bonds to and including July 1, 2021, (ii) to obtain a municipal bond debt service reserve insurance policy for the Series 2016 Bonds, and (iii) to pay the related issuance expenses, including bond insurance premiums. The Series 2016 Bonds are subject to optional redemption prior to maturity by the District on or after July 1, 2026, in whole or in part, at par plus accrued interest. The Series 2016 Bonds are subject to mandatory sinking fund redemption in part prior to maturity on July 1 of each year starting in

19 The 2041 Term Bond and the 2055 Term Bond are insured by Assured Guaranty Municipal Corporation. The Series 2016 Bonds Debt Service Reserve Fund Requirement of $24,774,566 is secured by a debt service reserve fund policy also issued by Assured Guaranty Municipal Corporation. The TIFIA Loan and the VTIB Loan are issued on the Subordinate Lein of the 2016 Resolution and bear interest rates of 2.88% and 2.90%, respectively. The loans do not incur interest until drawn which is in the Fall of Both loans have first semi-annual interest repayments commencing January 1, 2021 and first annual principal repayments commencing on July 1, Final repayment on both loans is July 1, The underlying credit rating on the Series 2016 Bonds is Baa2 and BBB by Moody s Investors Service and S&P Global Ratings, respectively. The TIFIA Loan is also rated Baa2 and BBB by Moody s Investors Service and S&P Global Ratings, respectively. The VTIB Loan is unrated. The bond premiums for General Resolution Revenue Bonds are being accreted using the straight-line method, which is not materially different from using the effective-interest method, over the period the bonds will be outstanding. Tolls and other revenues derived from the operation of the Bridge-Tunnel are pledged as security for the General Resolution Revenue Bonds. The General Revenue Bond Resolution includes covenants such as minimum toll rate covenant ratios and minimum debt service reserve requirements. (6) Fair Value Measurements The District utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The District determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at measurement date. Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantively the full term of the asset or liability. Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identified assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The level in the fair value hierarchy within which a fair value measurement, in its entirety falls in, is based on the lowest level input that is significant to the fair value measurement in its entirety. 19

20 Portfolio investments are assigned a level based upon the observability of the inputs which are significant to the overall valuation. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. All of the District s investments in debt securities are in one of the four categories below and therefore the entire portfolio of debt securities is Level 2. Debt securities classified in Level 2 are valued using the following approaches: U.S. Treasuries, U.S. Agencies, and Supra-Nationals: quoted prices for similar securities in the market are used to draw appropriate correlations; Corporate Notes and Municipal Bonds: relevant trade data, benchmark quotes and surveys of the dealer community are incorporated into the evaluation process; Certificates of Deposit: matrix pricing based on various market makers and dealers; Federal Agency Mortgage-Backed: solicited prices from market buy and sell side sources, including primary and secondary dealers, portfolio managers and research analysts are used. The fair value of investments in money market funds is based on the published net asset values per share of those funds. The District has the following recurring fair value measurements as of June 30, 2018: Fair value measurements using Quoted prices in active Significant markets for other Significant Fair identical observable unobservable value assets inputs inputs 2018 (Level 1) (Level 2) (Level 3) Investments by fair value level: U.S. Treasuries $ 78,004,476 78,004,476 Supra-National Agency 10,532,692 10,532,692 U.S. Agencies 116,324, ,324,790 Federal agency mortgage-backed 2,989,614 2,989,614 Certificate of Deposit 9,021,960 9,021,960 Commercial Paper 23,344,995 23,344,995 Corporate notes 17,757,550 17,757,550 Total investments by fair value level 257,976, ,976,077 Investments measured at the net asset value (NAV): Money market funds 124,775,247 Total investments measured at the NAV 124,775,247 Total investments measured at fair value $ 382,751,324 20