The Canonsburg-Houston Joint Authority

Transcription

1 The Canonsburg-Houston Joint Authority Financial Statements and Required Supplementary and Supplementary Information Year Ended December 31, 2013 with Independent Auditor s Report

2 THE CANONSBURG-HOUSTON JOINT AUTHORITY TABLE OF CONTENTS Independent Auditor's Report Management s Discussion and Analysis i Financial Statements: Statement of Net Position 1 Statement of Activities 2 Balance Sheet - Governmental Funds 3 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 4 Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Funds 5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance of Governmental Funds to the Statement of Activities 6 Notes to Financial Statements 7 Supplementary Information: Combining Balance Sheet General Fund 18 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance General Fund 19

3 Pittsburgh 503 Martindale Street Suite 600 Pittsburgh, PA Main Fax Harrisburg 3003 North Front Street Suite 101 Harrisburg, PA Main Fax Butler 112 Hollywood Drive Suite 204 Butler, PA Main Fax Independent Auditor s Report Board of Directors The Canonsburg-Houston Joint Authority We have audited the accompanying financial statements of the governmental activities and each major fund of The Canonsburg-Houston Joint Authority (Authority), as of and for the year ended December 31, 2013, and the related notes to the financial statements, which comprise the Authority s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Authority as of December 31, 2013, and the respective changes in financial position for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Pursuing the profession while promoting the public good

4 Board of Directors The Canonsburg-Houston Joint Authority Independent Auditor s Report Page 2 Report on Summarized Comparative Information We have previously audited the Authority s 2012 financial statements and we expressed an unmodified audit opinion on those audited financial statements in our report dated, June 24, In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2012 is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages i through iii be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Authority s financial statements as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements taken as a whole. Pittsburgh, Pennsylvania June 25, 2014

5 The Canonsburg-Houston Joint Authority Management s Discussion and Analysis As management of The Canonsburg-Houston Joint Authority (Authority), we offer readers of the Authority s financial statements this narrative overview and analysis of the Authority s financial performance during the fiscal years ending December 31, 2013 and We encourage readers to consider the information presented here in conjunction with the financial statements that follow this section. Financial Highlights The Authority does not record capital assets related to the plant facilities. The facilities are recorded on the books of the lessee. The Authority, however, records the lease receivable amount to be received in accordance with the Agreement of Lease. The revenue for the Authority was $1,713,998 for fiscal year 2013, a 69% increase from $1,011,637 for fiscal year This was due to an increase in revenues from tap fees. The Authority s expenses in 2013 were $655,992 compared to $1,307,800 in This decrease in expenses was due primarily to the completion of the upgrade project design. At the close of fiscal year 2013, the Authority has net position of $2,377,851 compared to $1,319,845 for fiscal year Net change in fund balance for the Authority was $1,071,210 for 2013 compared to a net loss of $276,658 for This is largely due to the decrease in expenses and increased revenue. During 2013, the Authority implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement reclassifies certain items that were reported as assets and liabilities as deferred outflows of resources and deferred inflows of resources. As a result of this statement, net position was restated to remove bond issue costs that were previously considered assets. The net position as of December 31, 2012 was reduced to $1,319,845 by a restatement of $44,682. The net position as of December 31, 2011 was reduced to $1,609,625 by a restatement of $51,065. Overview of the Financial Statements This annual report includes this management s discussion and analysis report, the independent auditor s report, and the basic financial statements of the Authority. The financial statements also include notes that explain in more detail some of the information in the financial statements. Required Financial Statements The financial statements of the Authority report information using accounting methods similar to those used by private-sector businesses, through the use of accrual basis of accounting. These financial statements include the Statement of Net Position and the Statement of Activities. The Statement of Net Position includes all of the Authority s assets and deferred outflows of resources as well as liabilities (including long-term debt), with the difference between the two i

6 reported as net position. Over time, increases or decreases in the net position may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. The current year s revenues and expenses are accounted for in the Statement of Activities. This statement measures the success of the Authority s operations over the past year and can be used to determine whether the Authority has successfully recovered all its costs. The fund financial statements are prepared using the current financial resources measurement focus and modified accrual basis of accounting and include the Balance Sheet and the Statement of Revenues, Expenditures, and Changes in Fund Balance. Reconciliations of the Fund Financial Statements to the government-wide financial statements are provided to explain the differences created between the statements. Net Position Table 1: Statement of Net Position Assets Cash and cash equivalents $ 207,786 $ 28,972 Investments 3,174,519 2,395,915 Grants receivable - 137,912 Lease rental receivable 3,543,239 4,345,749 Total Assets 6,925,544 6,908,548 Deferred Outflows of Resources Deferred charge on refunding 50,060 58,403 Total Deferred Outflows of Resources 50,060 58,403 Liabilities Accounts payable 82, ,772 Accrued interest payable 14,164 16,560 Bond payable: Current 830, ,000 Non-current 3,700,000 4,530,000 Bond discount (28,479) (33,226) Total bonds payable 4,501,521 5,296,774 Total Liabilities 4,597,753 5,647,106 Net Position Unrestricted 2,377,851 1,319,845 Total Net Position $ 2,377,851 $ 1,319,845 ii

7 Table 2: Statement of Activities General Revenues $ 1,383,983 $ 687,183 Expenses Net of Program Revenues: General government 364, ,960 Sanitary sewer 48,279 73,443 Interest on long-term debt (86,591) (86,440) Total Expenses, Net 325, ,963 Change in Net Position 1,058,006 (289,780) Net Position, Beginning of the Year 1,319,845 1,609,625 Net Position, End of the Year $ 2,377,851 $ 1,319,845 Long-Term Debt No new debt was issued in 2013 and bond payments totaling $998,715 were made during the year. The Authority has outstanding net bonds payable of $4,530,000 as of December 31, Requests for Information This financial report is designed to provide our customers and creditors with a general overview of the Authority s finances. Questions concerning any information provided in this report or request for additional financial information should be addressed to The Canonsburg-Houston Joint Authority, 68 East Pike Street, Canonsburg, PA iii

8 THE CANONSBURG-HOUSTON JOINT AUTHORITY STATEMENT OF NET POSITION DECEMBER 31, 2013 (With Comparative Totals at December 31, 2012) Assets Cash and cash equivalents $ 207,786 $ 28,972 Investments 3,174,519 2,395,915 Grants receivable - 137,912 Lease rental receivable 3,543,239 4,345,749 Total Assets 6,925,544 6,908,548 Deferred Outflows of Resources Deferred charge on refunding 50,060 58,403 Total Deferred Outflows of Resources 50,060 58,403 Liabilities Accounts payable 82, ,772 Accrued interest payable 14,164 16,560 Bonds payable: Current 830, ,000 Non-current 3,700,000 4,530,000 Bond discount (28,479) (33,226) Total bonds payable 4,501,521 5,296,774 Total Liabilities 4,597,753 5,647,106 Net Position Unrestricted 2,377,851 1,319,845 Total Net Position $ 2,377,851 $ 1,319,845 See accompanying notes to financial statements. 1

9 THE CANONSBURG-HOUSTON JOINT AUTHORITY STATEMENT OF ACTIVITIES (With Comparative Totals for Year Ended December 31, 2012) Functions/Programs Net (Expense) Revenue and Changes Comparative Program Revenues in Net Position Totals Charges for Operating Grants Capital Grants Governmental Expenses Services and Contributions and Contributions Activities December 31, 2012 Governmental activities: General government $ 364,289 $ - $ - $ - $ (364,289) $ (989,960) Sanitary sewer (capital outlay) 82, ,015 (48,279) (73,443) Interest on long-term debt 209, ,000-86,591 86,440 Total governmental activities $ 655,992 $ - $ 296,000 $ 34,015 (325,977) (976,963) General revenues: Surplus revenue 1,371, ,514 Interest income Miscellaneous income 12,675 12,559 Total general revenues 1,383, ,183 Change in Net Position 1,058,006 (289,780) Net Position: Beginning of year, as restated 1,319,845 1,609,625 End of year $ 2,377,851 $ 1,319,845 See accompanying notes to financial statements. 2

10 THE CANONSBURG-HOUSTON JOINT AUTHORITY BALANCE SHEET - GOVERNMENTAL FUNDS DECEMBER 31, 2013 (With Comparative Totals at December 31, 2012) Assets Debt Debt Total General Service Service Reserve Governmental Comparative Totals Fund Fund Fund Funds December 31, 2012 Cash and cash equivalents $ 207,786 $ - $ - $ 207,786 $ 28,972 Investments 2,173, ,000,922 3,174,519 2,395,915 Grants receivable ,912 Total Assets $ 2,381,380 $ 3 $ 1,000,922 $ 3,382,305 $ 2,562,799 Liabilities and Fund Balance Liabilities: Accounts payable $ 82,068 $ - $ - $ 82,068 $ 333,772 Fund Balance: Restricted for debt service - 3 1,000,922 1,000,925 1,000,811 Unassigned 2,299, ,299,312 1,228,216 Total Fund Balance 2,299, ,000,922 3,300,237 2,229,027 Total Liabilities and Fund Balance $ 2,381,380 $ 3 $ 1,000,922 $ 3,382,305 $ 2,562,799 See accompanying notes to financial statements. 3

11 THE CANONSBURG-HOUSTON JOINT AUTHORITY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2013 Total Fund Balance - Governmental Funds $ 3,300,237 Amounts reported for governmental activities in the statement of net position are different because: Governmental funds report the effect of issuance premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. At December 31, 2013, these items consist of: Bond issue discount of $71,202, net of amortization of $42,723 $ 28,479 Deferred charge on refunding of $125,147, net of amortization of $75,087 50,060 The long-term receivable from the Borough of Canonsburg for lease rental payments is not due and receivable in the current period and, therefore, is not reported as a receivable in the funds. 78,539 3,543,239 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Additionally, accrued interest is not due and payable in the current period and, therefore, is not reported as a liability in the funds. Long-term liabilities at year-end consist of: Bonds payable, net Accrued interest on bonds (4,530,000) (14,164) (4,544,164) Total Net Position - Governmental Activities $ 2,377,851 See accompanying notes to financial statements. 4

12 THE CANONSBURG-HOUSTON JOINT AUTHORITY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS (With Comparative Totals for Year Ended December 31, 2012) Debt Debt Total General Service Service Reserve Governmental Comparative Totals Fund Fund Fund Funds December 31, 2012 Revenues: Lease rental $ 1,098,510 $ - $ - $ 1,098,510 $ 1,095,182 Surplus transfer from Sewer System Fund 1,371, ,371, ,514 Grant revenue 34, ,015 1,546 Interest Other 12, ,675 12,559 Total revenues 2,516, ,516,508 1,783,911 Expenditures: Current operating: Administrative 12, ,490 33,276 Payroll and related employee benefits 81, , ,337 Rent 13, ,774 16,181 Legal fees 23, ,439 12,557 Engineering and consulting 232, , ,120 Repairs and maintenance ,489 Capital outlay 82, ,294 74,989 Debt service: Principal - 800, , ,000 Interest - 198, , ,620 Total expenditures 446, ,715-1,445,298 2,060,569 Excess (Deficiency) of Revenues over Expenditures 2,069,811 (998,714) 113 1,071,210 (276,658) Other Financing Sources (Uses): Transfers in - 998, , ,604 Transfers out (998,715) - - (998,715) (995,604) Total other financing sources (uses) (998,715) 998, Net Change in Fund Balance 1,071, ,071,210 (276,658) Fund Balance: Beginning of year 1,228, ,000,809 2,229,027 2,505,685 End of year $ 2,299,312 $ 3 $ 1,000,922 $ 3,300,237 $ 2,229,027 See accompanying notes to financial statements. 5

13 THE CANONSBURG-HOUSTON JOINT AUTHORITY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Net Change in Fund Balance - Governmental Funds $ 1,071,210 Amounts reported for governmental activities in the statement of activities are different because: The repayment of the principal of long-term obligations consumes the current financial resources of governmental funds. The transaction, however, has no effect on net position. This amount is the repayment of principal of long-term obligations during the year. 800,000 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. Amortization of bond discount $ (4,747) Amortization of deferred charge on refunding (8,343) The lease rental received from the Borough of Canonsburg to satisfy the principal payment due on long-term obligations is recorded as revenue for the governmental funds; however, this transaction has no effect on net position. Additionally, as debt service funds are accrued or expended, the amount due from the Borough of Canonsburg is also affected. However, the change has no effect on the governmental funds. This amount is the net effect of these differences. Interest on long-term obligations in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, interest expense is recognized as the interest accrues, regardless of when it is due. The change in interest recognized in the statement of activities over the amount due is shown here. (13,090) (802,510) 2,396 Change in Net Position of Governmental Activities $ 1,058,006 See accompanying notes to financial statements. 6

14 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS 1. REPORTING ENTITY The Canonsburg-Houston Joint Authority (Authority) is a debt financing authority incorporated under the laws of the Commonwealth of Pennsylvania by the Boroughs of Canonsburg and Houston (Boroughs). A five-member appointed Board of Directors (Board) governs the Authority. The Boroughs appoint the members of the Board. The Authority does not have the power of taxation, but it has the power to incur long-term debt. However, lenders have required the Boroughs of Canonsburg and Houston to guarantee the debt issues. The Authority s financial statements are not incorporated into the combined financial statements of either Borough. The life of the Authority has been extended through 2054 under authoritative actions taken by the Boroughs. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the Authority. The effect of inter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The Authority has no business-type activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. 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 revenues not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related 7

15 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Amounts reported as program revenues include: 1) charges to customers or applicants for tap-in fees, 2) operating grants and contributions, and 3) capital grants and contributions. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Major revenues that are susceptible to accrual in governmental funds are grants from other governments and interest on investments. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. The Authority reports the following major governmental funds: General Fund The General Fund is the Authority s primary operating fund. Pursuant to the lease agreement between the Authority and the Boroughs, the primary proceeds in the General Fund consist of lease rentals paid by the Boroughs to be used for the Authority s debt service and administrative expenditures and surplus money from the Borough of Canonsburg s Sewer System Fund to be used for the Authority s expenses. In addition, the Authority is the recipient of various grants that are to be used to offset the costs of certain projects being undertaken. These grants are also recorded in the General Fund. Debt Service Funds (Debt Service Fund, Debt Service Reserve Fund) Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. The amount maintained in the Debt Service Reserve Fund is mandated by the various trust indentures to remain at least 110% of the average annual debt service requirements, but not less than 100% of the annual debt service requirements for each fiscal year. When both restricted and unrestricted resources are available for use, it is the Authority s policy to use restricted resources first, then unrestricted resources as they are needed. 8

16 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS Deposits and Investments Investments are stated at fair value based on quoted market prices. Investments are maintained in separate trust accounts and their use is limited for satisfying debt service requirements for previously issued bonds or future sewer system projects. Long-Term Obligations In the government-wide financial statements, long-term debt obligations are reported as liabilities. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method. Bonds are reported net of the applicable bond premium or discount. In the fund financial statements, in the year of a debt issuance, the face amount of debt issued is reported as an other financing source. Premiums received on debt issuances are also reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund Balance In the fund financial statements, governmental funds report fund balance in categories based on the level of restriction placed upon the funds. These levels are as follows: Nonspendable This category represents funds that are not in spendable form and includes such items as prepaid expenditures. The Authority currently has no nonspendable funds. Restricted This category represents funds that are limited in use due to constraints on purpose and circumstances of spending that are legally enforceable by outside parties. This category includes funds that are legally restricted for debt service payments. Committed This category represents funds that are limited in use due to constraints on purpose and circumstances of spending imposed by the Board. Such commitment is made via a Board resolution and must be made prior to the end of the fiscal year. Removal of this 9

17 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS commitment requires a Board resolution. The Authority currently does not have any committed funds. Assigned This category represents intentions of the Board to use the funds for specific purposes. The Authority currently does not have any assigned funds. Unassigned This category represents all other funds not otherwise defined. The Authority s policy is to use funds in the order of the most restrictive to the least restrictive. Net Position The government-wide financial statements are required to report three components of net position: Net Investment in Capital Assets This component of net position consists of capital assets (lease rental) net of accumulated depreciation and is reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. In addition, this component of net position includes the lease rental receivable, as this amount is owed to the Authority to pay off related debt, and any assets restricted for debt service. At December 31, 2013, the Authority s balance for this category of net position was zero, as the lease rental receivable and assets restricted for debt service equal the related debt. Restricted This component of net position consists of constraints placed on net position use through external restrictions. There is no restricted net position at December 31, Unrestricted This component of net position consists of net position that does not meet the definition of restricted or net investment in capital assets. 10

18 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS Budgetary Information The Authority does not adopt an annual budget for individual funds. Budgetary control over the Authority is maintained through compliance with the provisions of the trust indenture and lease agreement. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Adopted Pronouncements The Authority has adopted the following Governmental Accounting Standards Board (GASB) Statement for its 2013 financial statements: GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. This statement reclassifies certain items that were reported as assets and liabilities as deferred outflows of resources and deferred inflows of resources. As a result of this statement, net position was restated to remove bond issue costs that were previously considered assets. The net position as of December 31, 2012 was reduced to $1,319,845 by a restatement of $44,682. The net position as of December 31, 2011 was reduced to $1,609,625 by a restatement of $51,065. Pending Pronouncements GASB has issued Statement No. 69, Government Combinations and Disposals of Government Operations, effective for fiscal years beginning after December 15, 2013 (the Authority s financial statements for the year ended December 31, 2014). GASB Statement No. 69 provides new accounting and financial reporting standards for government mergers and acquisitions and for government operations that have been transferred or sold. The effect of implementation of this statement has not yet been determined. GASB has issued Statement No. 70, Accounting and Financial Reporting for Non-exchange Financial Guarantees, effective for financial statements for periods beginning after June 15, 2013 (the Authority s financial statements for the year ending December 31, 2014). This statement specifies the information required to be disclosed by governments that extend nonexchange financial guarantees, and requires a government that extends a non-exchange financial guarantee to recognize a liability when qualitative factors and historical data, if any, indicate 11

19 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS that it is more likely than not that the government will be required to make a payment on the guarantee. The effect of implementation of this statement has not yet been determined. Reclassification Certain amounts presented in the prior year have been reclassified in order to be consistent with the current year s presentation. Subsequent Events Subsequent events have been evaluated through the Independent Auditor's Report date, which is the date the financial statements were available to be issued. 3. CASH AND INVESTMENTS The Authority is permitted to invest funds consistent with sound business practices in the following types of investments and deposit accounts: Obligations of (a) the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, (b) the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth of Pennsylvania, or (c) of any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision. Act 20, a Pennsylvania law enacted in June of 1995, expands the allowable investment vehicles to include certain money market mutual funds rated as Aaa whose investments are limited to those mentioned in the previous paragraph. Deposits in savings accounts or time deposits or share accounts of institutions insured by the Federal Deposit Insurance Corporation to the extent that such accounts are so insured and, for any amounts above the insured maximum, provided that approved collateral as provided by law therefore shall be pledged by the depository. GASB Statement No. 40, Deposit and Investment Risk Disclosures, requires disclosures related to the following deposit and investment risks: credit risk (including custodial credit risk and concentration of credit risk), interest rate risk, and foreign currency risk. The following is a description of the Authority s deposit and investment risks: 12

20 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS Deposits Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the Authority s deposits may not be returned to it. The Authority does not have a formal deposit policy for custodial credit risk; however, as of December 31, 2013, none of the Authority s bank balance of $211,288 was exposed to custodial credit risk, as it was insured by the Federal Deposit Insurance Company. These deposits have carrying amounts of $207,786 as of December 31, 2013, all of which are reported as cash and cash equivalents in the statement of net position. Investments Credit Risk The Authority has no formal investment policy that would limit its investment choices based on credit ratings by nationally recognized statistical rating organizations. As of December 31, 2013, the Authority s investments in the JP Morgan U.S. Government Money Market Fund were rated Aaa by Moody s. Custodial Credit Risk Custodial credit risk for an investment is the risk that in the event of the failure of the counterparty, the Authority will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Authority does not have a formal investment policy for custodial credit risk; however, as of December 31, 2013, all of the Authority s investments are pooled or pooled in investment funds that are not subject to custodial credit risk because they are not evidenced by securities that exist in physical or book entry form. Interest Rate Risk The Authority does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates; however, as of December 31, 2013, all of the Authority s investments have maturities of less than one year and are therefore not exposed to interest rate risk. The Authority s investments at December 31, 2013 consist of: J.P. Morgan U.S. Government Money Market Fund $ 3,174,519 13

21 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS 4. LONG-TERM DEBT The following is a summary of note and bond transactions of the Authority for the year ended December 31, 2013: Balance at Balance at Amount Due December 31, 2012 Issued Retired December 31, 2013 in One Year Series I of 2003 $ 1,135,000 $ - $ (750,000) $ 385,000 $ 385,000 Series K of ,195,000 - (50,000) 4,145, ,000 $ 5,330,000 $ - $ (800,000) $ 4,530,000 $ 830,000 Sewer Revenue Bonds, Series I of 2003 and Series K of 2005, are secured by a trust indenture. Series I Bonds During April 2003, the Authority issued Guaranteed Sewer Revenue Bonds, Series I of 2003 (Series I Bonds), in the amount of $3,250,000 for the purpose of advance refunding the Series G Bonds. The Series I Bonds bear interest semi-annually at rates ranging from 1.15% to 3.70% and mature in At December 31, 2013, $385,000 is outstanding. Series K - During October 2005, the Authority issued Guaranteed Sewer Revenue Bonds, Series K of 2005 (Series K Bonds), in the amount of $4,600,000 for the purpose of advance refunding the Series H Bonds. The Series K Bonds bear interest semi-annually at rates ranging from 2.90% to 3.95% and mature in At December 31, 2013, $4,145,000 is outstanding. The bonds are payable out of revenues of the Authority derived from a direct financing lease between the Authority, as lessor, and the Boroughs, as lessee, whereby the Boroughs have pledged their full faith, credit, and taxing power, unlimited as to rate or amount, to unconditionally guarantee the full and prompt payment of their respective portions of principal and interest on the Bonds, when due. Initially, the Borough of Canonsburg s portion is equal to 88% and the Borough of Houston s portion is equal to 12%. The lease has been assigned to the trustee. 14

22 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS The amount necessary to amortize all outstanding bonds is as follows: Year Ended December 31, Principal Interest Total 2014 $ 830,000 $ 169,965 $ 999, , , , , , , ,000 75,158 1,000, ,000 40,008 1,000, ,000 2,568 67,568 $ 4,530,000 $ 536,155 $ 5,066, LEASE AGREEMENT The lease rental receivable on the statement of net position reflects that portion of future lease rentals applicable to the outstanding debt of the Authority less debt service funds held in trust plus accrued interest payable. The lease rental set by the agreement, dated December 1, 1961, as amended, between the Authority and the Boroughs of Canonsburg and Houston is sufficient to pay (i) the Authority s administrative expenses, and (ii) the debt service, with an appropriate coverage factor, on the Bonds or any authorized issue of additional bonds. The amounts payable on account of debt service need not, however, exceed 110% of the average annual debt service requirements in respect of a series of bonds. The Boroughs will continue to operate, maintain, and continuously insure the Sewer System, which includes the Treatment Plant Facilities, and the Boroughs will continue to operate, maintain, and continuously insure their respective collection systems, which are a part of the Sewer System. The Borough of Canonsburg maintains a Sewer System Fund in which the sewer revenues are deposited and from which the sewer operating expenses are paid. Under the lease agreement, the Borough shall withdraw from the Sewer System Fund and pay to the Authority or the assignee and pledge of the Authority as additional rental, all moneys in the Sewer System Fund in excess of $250,000 as of June 30 th of each year. The Authority received $1,371,014 from the Borough of Canonsburg during the year, which is shown on the statement of revenues, expenditures, and changes in fund balance as surplus transfer from Sewer System Fund. 15

23 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS 6. PENSION PLAN The Authority contributes to a defined contribution pension plan held in the name of its employees, administered by Hefren Tillotson. The required yearly contribution of the Authority is 5% of the employee s gross salary. During 2013, the Authority s actual contribution to the pension plan was $3,502. There are no requirements for employee contributions and, during 2013; no voluntary employee contributions were made. 7. INTERFUND TRANSFERS Interfund transfers for the year ended December 31, 2013 are summarized below: Fund Transfers In Transfers Out General: Revenue $ 347,684 $ 998,715 Surplus - 347,684 Debt Service 998,715 - $ 1,346,399 $ 1,346, RISK MANAGEMENT AND LITIGATION The Authority is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Authority manages most risk through an agreement with the Boroughs of Canonsburg and Houston with the purchase of commercial insurance coverage. The Authority estimates that the amount of actual or potential claims against the Authority as of December 31, 2013 will not materially affect the financial condition of the Authority and will be covered under the present insurance coverage. 9. COMMITMENTS AND CONTINGENCIES The Authority has completed the Act 537 Sewage Planning Facilities Plan Update (Plan) as required by the Pennsylvania Department of Environmental Protection (PaDEP). The Authority will be required to complete an upgrade to the plant infrastructure. The estimated total cost of the project is $22 million. The upgrade has been designed; however, the Authority is still in the process of selecting contractors to complete the project. 16

24 THECANONSBURG-HOUSTONJOINT AUTHORITY NOTES TO FINANCIAL STATEMENTS The Authority is subject to laws and regulations relating to the protection of the environment. The Authority s policy is to accrue environmental and cleanup-related costs of a non-capital nature when it is both probable that a liability has been incurred and when the amount can be reasonably estimated. Although it is not possible to quantify with any degree of certainty the potential financial impact of the Authority s continuing compliance efforts, the Authority believes any future remediation or other compliance-related costs will not have a material adverse effect on the financial condition or the reported result of operations of the Authority. 10. CONCENTRATION The Authority and the Boroughs have long-term service contracts with three surrounding municipalities (Township of Chartiers, North Strabane Township, and Cecil Township) and related municipal authorities (North Strabane Township Municipal Authority and The Cecil Township Municipal Authority) regarding provision of services and financing of capital projects. These service agreements provide that the service agreements shall terminate upon the final payment of bonds outstanding. The five municipalities and related municipal authorities are the sole customers of the Authority. Payments for services are accumulated in the Borough of Canonsburg s Sewer System Fund and affect the Boroughs ability to make required transfers to the Authority. These transfers are the Authority s primary source of revenue. As a result, the Authority is economically dependent on the municipalities continued compliance with the terms of the service agreements. 11. SUBSEQUENT EVENT In 2014, the Authority entered into a Memorandum of Understanding (MOU) with the Boroughs. The MOU is for the creation of an operating authority. Currently, the Authority functions as a lease-back, leasing back the day-to-day operations of the plant to Canonsburg Borough. As an operating authority, the operations and plant personnel will be under the jurisdiction of the Authority rather than the Boroughs. The Authority is still analyzing the financial impact of the MOU. When the Authority becomes operating in accordance with the MOU, it will have an indefinite life. 17

25 Supplementary Information

26 THE CANONSBURG-HOUSTON JOINT AUTHORITY COMBINING BALANCE SHEET - GENERAL FUND DECEMBER 31, 2013 Assets Total Revenue Surplus General Fund Fund Fund Cash and cash equivalents $ 207,786 $ - $ 207,786 Investments 163,364 2,010,230 2,173,594 Total Assets $ 371,150 $ 2,010,230 $ 2,381,380 Liabilities and Fund Balance Liabilities: Accounts payable $ - $ 82,068 $ 82,068 Fund Balance: Unassigned 371,150 1,928,162 2,299,312 Total Liabilities and Fund Balance $ 371,150 $ 2,010,230 $ 2,381,380 18

27 THE CANONSBURG-HOUSTON JOINT AUTHORITY COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - GENERAL FUND Total Revenue Surplus General Fund Fund Fund Revenues: Lease rental $ 850,826 $ 247,684 $ 1,098,510 Surplus transfer from Sewer System Fund - 1,371,014 1,371,014 Grant revenue 34,015-34,015 Interest Other 12,675-12,675 Total revenues 897,539 1,618,855 2,516,394 Expenditures: Current operating: Administrative 15,893 (3,403) 12,490 Payroll and related employee benefits 81,690-81,690 Rent 8,207 5,567 13,774 Legal fees - 23,439 23,439 Engineering and consulting - 232, ,896 Capital outlay - 82,294 82,294 Total expenditures 105, , ,583 Excess (Deficiency) of Revenues over Expenditures 791,749 1,278,062 2,069,811 Other Financing Sources (Uses): Net transfers in (out) (651,031) (347,684) (998,715) Net Change in Fund Balance 140, ,378 1,071,096 Fund Balance: Beginning of year 230, ,784 1,228,216 End of year $ 371,150 $ 1,928,162 $ 2,299,312 19