CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Quarterly Report for the Period Ending December 31, 2016

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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 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 2015, the related statements of revenues, expenses, and changes in net position and the statement of cash flows for the quarter 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 second quarter of fiscal year 2017 (Q2 FY17) were $12,812,817 and were 5.5% more than toll revenues in the second quarter of fiscal year 2016 (Q2 FY16). During Q2 FY17, total revenue vehicles of 906,116 crossed the District s facility. This represents a 36,223 increase in vehicular traffic over Q2 FY16. Each month in Q2 FY17 represented a new record high volume for traffic and revenue when compared to the same month historically. All 3 months also exceeded the base case traffic and revenue forecast prepared by the District s traffic engineers at Steer Davies Gleave in October Other revenues in Q2 FY17 totaled $236,839, which is a decrease of $37,630 over other revenues in Q2 FY16. Operating expenses in Q2 FY17, before District facility expenses, totaled $3,428,820, which is an increase in operating expenses of $59,934 from Q2 FY16. Total net position at was $641,247,904, a 2.0% increase over total net position at December 31, Significant Events for Q2 FY17 On July 15, 2016, the District received revised technical and price proposals from all three teams involved in the procurement for a contract to design and construct a new parallel tunnel at the Thimble Shoal Channel. Based on the lowest price proposal of $755,987,318, the Commission awarded a contract to Chesapeake Tunnel JV, a joint venture of Dragados USA, Inc. and Schiavone Construction Company LLC, on July 27, Chesapeake Tunnel JV proposed a bored tunnel construction methodology and will begin construction in the fall of Total construction of the parallel tunnel is expected to take approximately five years. 1

3 The District had previously incurred its General Resolution Revenue Bonds, Series 1998, Series 2010A and Series 2011A (collectively, the Prior Bonds ) under its General Revenue Bond Resolution, adopted by the Commission on November 21, 1991, as amended and supplemented (the 1991 Resolution ). To finance the costs of the Project, the Commission determined that the Prior Bonds would be redeemed or defeased and the 1991 Resolution would be terminated so that a new general bond resolution could be issued. The District redeemed the Series 2010A and Series 2011A Bonds and terminated the interest rate swap associated therewith on November 1, Concurrently with the issuance of the Series 2016 Bonds on November 10, 2016, the District contributed additional monies from the General Fund in combination with funds released from the 1991 Resolution to fund the defeasance of the Series 1998 Bonds, which are non-callable. On October 24, 2016, 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 rates 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 development 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. 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 District Deputy Director of Finance and Operations, Lankford Highway, Cape Charles, Virginia

4 Chesapeake Bay Bridge and Tunnel District Statements of Net Position and 2015 Assets and Deferred Outflows of Resources Current assets: Cash $ 808, ,516 Investments 56,912, ,343,567 Accounts receivable and accrued interest receivable, net 1,014,825 1,110,028 Prepaid expenses and other assets 205, ,682 Note receivable 30,345 30,809 Total current assets 58,970, ,496,602 Restricted assets: Cash 18,186 1,837 Investments 366,228,049 24,205,413 Accrued interest receivable 1,209,219 26,745 Total restricted assets 367,455,454 24,233,995 Investments 113,369, ,570,145 Long-term note receivable 42,687 99,861 Derivative Investment - 1,164,318 Capital assets Bridge and tunnel facilities, including capitalized interest 423,933, ,933,330 Construction in progress - Thimble Shoal Parallel Tunnel 46,999,748 12,356,923 Miscellaneous capital assets, net of accumulated depreciation 11,427,092 11,150,972 Total capital assets 482,360, ,441,225 Bond insurance costs, net of accumulated amortization 2,913,233 71,153 Deferred outflows of resources: Derivative liability - 1,572,117 Loss on debt refunding - 9,185,278 Differences between expected and actual experience 132,948 - Pension contributions 1,100,254 1,150,561 Total deferred outflows of resources 1,233,202 11,907,956 Total assets and deferred outflows of resources 1,026,344, ,985,255 Liabilities, Deferred Inflows and Net Position Current liabilities: Accounts payable & accrued expenses 2,610,175 3,679,354 Current portion of long-term debt - 7,450,000 Accrued interest 2,241,981 1,627,492 Unearned revenue 694, ,686 Total current liabilities 5,546,979 13,458,532 Long-term liabilities: Long-term debt, net of current portion 362,053,654 81,560,072 Imputed borrowing payable - 2,122,846 Derivative liability - 1,572,117 Net pension liability 11,302,411 10,423,027 Other long-term liabilities 5,367,423 5,367,423 Total long-term liabilities 378,723, ,045,485 Deferred inflows of resources: Pension investment experience 826,523 1,885,710 Total liabilities and deferred inflows of resources 385,096, ,389,727 Commitments and contingencies Net position: Net investment in capital assets 424,811, ,937,245 3

5 Chesapeake Bay Bridge & Tunnel District Statement of Revenues, Expenses, and Changes in Net Position As of & 2015 Three Months Ended Six Months Ended Twelve Months Ended December, 2016 December, 2015 December, 2016 December, 2015 December, 2016 December, 2015 Operating revenues: Toll $ 12,516,159 $ 12,210,790 $ 31,526,615 $ 31,056,054 $ 56,405,705 $ 54,692,173 Other 236, , , ,546 1,217,366 1,137,148 Total operating revenues 12,752,998 12,485,259 32,208,543 31,723,600 57,623,071 55,829,321 Operating Expenses: Administration 51,537 99, , , , ,821 Finance 162, , , , , ,021 Operations 1,074,764 1,042,170 2,145,192 2,086,914 4,262,517 4,176,002 Maintenance 913, ,862 1,803,063 1,861,909 3,588,236 3,738,908 General 894, ,075 1,800,479 1,822,598 3,196,366 2,874,816 Consultants 163,867 66, , , , ,479 Utilities 167, , , , , ,143 Total operating expenses before district facility expenses 3,428,820 3,368,886 6,918,665 7,017,627 13,483,370 13,316,190 District Facility Expenses: Insurance Expenses 207, , , , , ,534 Depreciation Expenses 317, , , ,714 1,255,295 1,000,126 Bridge and Tunnel Preservation Expenses 897,721 1,737,504 1,767,414 2,649,593 4,387,166 5,638,989 Other Capital Asset Expenses & Expenditures 74, , , , , ,781 Total district facility expenses 1,496,974 2,555,111 3,058,076 4,619,029 7,438,580 7,971,430 Total operating and district facility expenses 4,925,794 5,923,997 9,976,741 11,636,656 20,921,949 21,287,620 Operating income 7,827,204 6,561,262 22,231,802 20,086,944 36,701,122 34,541,701 Nonoperating revenues (expenses): Change in fair value of investments (2,740,648) (1,503,001) (3,257,087) (1,280,106) (3,036,648) (1,965,357) Interest income 875, ,296 1,547,272 2,057,912 3,225,458 4,130,527 Interest expense (1,821,179) (1,277,108) (3,188,600) (2,618,065) (5,174,937) (5,565,758) Other post employment benefits (1,088,317) Bond Issuance Costs (1,983,628) - (2,050,743) - (2,050,743) - Loss on Early Debt Defesance (18,323,103) - (18,323,103) - (18,323,103) - Other expenses, net 5,250 (78,187) 5,296 (167,325) 1,311,228 (166,767) Total nonoperating expenses, net (23,987,806) (1,884,000) (25,266,965) (2,007,584) (24,048,745) (4,655,672) Increase in net position (16,160,602) 4,677,262 (3,035,163) 18,079,360 12,652,377 29,886,029 Total net position, beginning of year 657,408, ,918, ,283, ,516, ,595, ,709,499 Total net position, end of year $ 641,247,904 $ 628,595,528 $ 641,247,904 $ 628,595,528 $ 641,247,904 $ 628,595,528 4

6 Statements of Cash Flows Quarter ended December 31, 2016 Cash flows from operating activities: Toll collections from customers $ 12,303,188 Scrip sales 97,240 Leasing revenue 233,744 Payments to employees for services and employee benefits (2,960,782) Payments to suppliers and consultants (1,397,705) Other (49,766) Net cash provided by operating activities 8,225,919 Cash flows from investing activities: Purchases of investments (591,002,792) Interest income (58,632) Sales and maturities of investments 338,721,384 Net cash used in investing activities (252,340,040) Cash flows from capital and related financing activities: Capitalized expenditures (17,418,329) Forfeited assets 5,164 Disposal of capital assets 5,250 Bond proceeds 362,309,613 Interest Rate Exchange Agreement Termination (2,553,000) Bond issuance costs (2,197,827) Bond insurance costs (2,931,948) Bond defeasance (57,295,086) Debt principal repayments (35,850,000) Interest paid (56,451) Net cash used in capital and related financing activities 244,017,386 Net decrease in cash (96,735) Cash, beginning of quarter 923,269 Cash, end of quarter $ 826,534 Cash and restricted cash are presented in the accompanying statements of net assets as follows: Cash $ 808,348 Restricted cash 18,186 $ 826,534 Reconciliation of operating income to net cash provided by operating activities: Operating income 7,827,204 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 317,518 Increase (decrease) in operating assets: Accounts receivable (112,940) Prepaid expenses and other assets 174,041 Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 1,461 Net pension liability Unearned revenue 18,635 Net cash provided by operating activities $ 8,225,919 5

7 Chesapeake Bay Bridge and Tunnel District Statement of Cash & Investments As of GENERAL REVENUE BOND RESOLUTION FUNDS: Cash Investments Totals Unrestricted: Revenue Fund $ 778,480 $ 2,748,445 $ 3,526,925 Operations & Maintenance Reserve Fund - 3,652,337 3,652,337 Reserve Maintenance Fund 22,957 10,622,206 10,645,163 General Fund 6, ,258, ,265,535 Restricted: Parallel Thimble Shoal Tunnel Project Fund - 302,835, ,835,317 Series 2016 Bonds - Capitalized Interest Fund - 35,128,859 35,128,859 Series 2016 Bonds - Cost of Issuance Fund - 42,826 42,826 Series 2016 Bonds - Interest Fund - 2,241,981 2,241,981 TIFIA Debt Service Reserve Fund - 22,592,679 22,592,679 VTIB Debt Service Reserve Fund - 3,386,387 3,386,387 OTHER RESTRICTED ASSETS: Restricted Asset Forfeited Property Account 18,186-18,186 Totals $ 826,534 $ 536,509,661 $ 537,336,195 6

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 12/31/2016 Revenue Fund BB&T Trust Deposit Variable Not Fixed $ 2,748, $ 2,748, Money Rate Savings Account Variable Not Fixed $ 2,748, $ 2,748, Operations & Maintenance Reserve Fund BB&T Trust Deposit Variable Not Fixed 3,652, ,652, ,652, ,652, Series 2016 Bonds - Cost of Issuance Fund BB&T Trust Deposit Variable Not Fixed 42, , , , TIFIA Debt Service Reserve Fund BB&T Trust Deposit Variable Not Fixed 22,592, ,592, ,592, ,592, VTIB Debt Service Reserve Fund BB&T Trust Deposit Variable Not Fixed 3,386, ,386, ,386, ,386, Series 2016 Bonds - Interest Account BB&T Trust Deposit Variable Not Fixed 2,241, ,241, ,241, ,241, Parallel Thimble Shoal Tunnel Project Fund US Treasury Notes 3.250% 03/31/17 11/10/16 9,180, ,240, US Treasury Notes 0.875% 04/30/17 11/10/16 9,455, ,465, US Treasury Notes 0.625% 05/31/17 11/10/16 9,240, ,240, US Treasury Notes 0.625% 06/30/17 11/10/16 30,170, ,165, US Treasury Notes 2.375% 07/31/17 11/10/16 29,925, ,212, US Treasury Notes 1.875% 08/31/17 11/10/16 30,105, ,326, US Treasury Notes 1.875% 09/30/17 11/10/16 30,125, ,356, US Treasury Notes 0.750% 10/31/17 11/10/16 30,285, ,257, US Treasury Notes 2.250% 11/30/17 11/10/16 30,065, ,433, US Treasury Notes 1.000% 12/31/17 11/10/16 30,250, ,273, US Treasury Notes 0.875% 01/31/18 11/10/16 30,260, ,237, US Treasury Notes 0.750% 02/28/18 11/10/16 6,470, ,454, BB&T Trust Deposit Variable Not Fixed 26,169, ,169, ,699, ,835, Series 2016 Bonds - Capitalized Interest Fund US Treasury Notes 0.625% 06/30/17 11/10/16 3,520, ,519, US Treasury Notes 1.000% 12/31/17 11/10/16 3,720, ,722, US Treasury Notes 2.375% 06/30/18 11/10/16 3,735, ,807, US Treasury Notes 1.375% 12/31/18 11/10/16 3,775, ,787, US Treasury Notes 1.625% 06/30/19 11/10/16 3,805, ,833, US Treasury Notes 1.625% 12/31/19 11/10/16 3,835, ,853, US Treasury Notes 1.625% 06/30/20 11/10/16 3,865, ,866, US Treasury Notes 1.750% 12/31/20 11/10/16 3,900, ,898, US Treasury Notes 1.125% 06/30/21 11/10/16 4,900, ,742, BB&T Trust Deposit Variable Not Fixed 96, , ,151, ,128, Reserve Maintenance Fund Bank of Tokyo Mitsubishi Comm Paper Discount 01/13/17 07/13/16 1,340, ,339, Credit Agricole CIB NY Comm Paper Discount 03/27/17 09/26/16 1,300, ,297, Toyota Motor Credit Corp Comm Paper Discount 04/07/17 07/13/16 1,340, ,336, Freddie Mac Global Notes 1.000% 06/29/17 08/13/14 1,855, ,857, PFM Funds Prime Institutional Variable Not Fixed 623, , Money Rate Savings Account Variable Not Fixed 4,167, ,167, ,625, ,622,

9 Chesapeake Bay Bridge and Tunnel District Statement of Investments As of BB&T Coupon Maturity Purchase Maturity Market Value Description Rate Date Date Value 12/31/2016 General Fund Berkshire Hathaway Global Notes 1.600% 05/15/17 01/15/13 1,245, ,247, Toyota Motor Credit Corp. Notes 1.750% 05/22/17 05/12/14 2,590, ,595, Federal Home Loan Bank Notes 0.625% 05/30/17 07/28/15 2,160, ,159, US Treasury Notes 0.625% 05/30/17 01/11/16 780, , Bank of Tokyo Mitsubishi Comm Paper 0.000% 06/22/17 12/21/16 3,750, ,727, M Company Global Notes 1.000% 06/26/17 06/29/12 1,500, ,498, US Treasury Noes 0.750% 06/30/17 12/05/14 3,020, ,021, Federal Home Loan Bank Notes 0.750% 08/28/17 07/23/15 1,195, ,194, US Treasury Notes 0.625% 08/31/17 01/06/15 810, , US Bank NA Cincinnati Callable CD 1.375% 09/11/17 09/11/14 5,000, ,007, Bank of Montreal Chicago Commercial Paper 0.000% 09/15/17 12/22/16 3,750, ,712, FNMA Notes 1.000% 09/27/17 08/25/14 3,120, ,122, Fannie Mae Global Notes 0.875% 10/26/17 10/31/12 1,400, ,400, Chevron Corporation 1.345% 11/15/17 11/18/14 2,200, ,202, US Treasury Notes 2.250% 11/30/17 11/30/16 2,355, ,383, Chevron Corporation Global Notes 1.104% 12/05/17 11/30/12 1,045, ,042, General Electric Co. Notes 5.250% 12/06/17 10/29/14 4,700, ,868, Fannie Mae Global Notes 0.875% 12/20/17 10/30/12 940, , Toyota Motor Credit Corp. Notes 1.450% 01/12/18 01/07/15 580, , IBM Corporate Notes 1.125% 02/06/18 02/06/15 5,500, ,487, Berkshire Hathaway Global Notes 1.550% 02/09/18 02/11/13 2,450, ,454, Chevron Corporation Notes 1.365% 02/24/18 02/24/15 1,250, ,248, Exxon Mobil Corporation 1.305% 03/06/18 03/09/15 5,500, ,498, Federal Home Loan Mortgage Corp. Notes 0.750% 04/09/18 04/27/16 1,005, ,001, Microsoft Gorp. Global Notes 1.000% 05/01/18 05/02/13 1,225, ,221, Apple Inc. Global Notes 1.000% 05/03/18 05/03/13 2,225, ,216, Apple Inc. Global Notes 1.000% 05/03/18 05/03/13 2,000, ,992, Berkshire Hathaway Notes 1.300% 05/15/18 05/15/13 350, , Virginia State Taxable Build America Bonds 2.750% 06/01/18 10/27/10 6,780, ,914, International Bank of Recon & Dev Global 1.000% 06/15/18 04/30/15 1,340, ,334, Toyota Motor Credit Corp. Notes 1.550% 07/13/18 07/13/15 2,090, ,089, M Company Corporate Note 1.375% 08/07/18 08/07/15 3,600, ,598, FHLMC Reference Note 0.875% 10/12/18 12/16/16 5,000, ,972, FNMA Benchmark Note 1.125% 10/19/18 09/01/15 1,415, ,413, US Treasury Notes 0.750% 10/31/18 12/06/16 7,250, ,197, Fannie Mae Global Notes 1.625% 11/27/18 10/09/14 3,835, ,863, US Treasury Notes 1.375% 12/31/18 01/03/12 1,500, ,504, FHLB Notes 1.250% 01/16/19 12/13/16 2,000, ,999, FHLB Notes 1.250% 01/16/19 12/08/16 2,030, ,029, FHLB Notes 1.250% 01/16/19 12/16/16 5,000, ,998, Freddie Mac Global Notes 1.750% 05/30/19 12/15/16 5,000, ,047, US Treasury Notes 1.500% 05/31/19 11/14/16 5,015, ,038, Federal National Mortgage Assn % 06/20/19 12/14/16 2,400, ,425, Freddie Mac Global Notes 1.250% 08/01/19 07/30/12 2,300, ,290, Federal Home Loan Bank 8.750% 08/05/19 08/03/16 5,000, ,929, US Treasury Notes 1.000% 09/30/19 04/30/15 1,755, ,736, Freddie Mac Global Notes 1.250% 10/02/19 09/28/12 3,000, ,982, Fannie Mae Global Notes 1.000% 10/24/19 12/06/16 7,100, ,001, US Treasury Notes 3.375% 11/15/19 02/04/11 2,100, ,215, FNMA Benchmark Note 1.750% 11/26/19 12/03/14 2,000, ,015, US Treasury Notes 1.125% 12/31/19 11/29/16 1,885, ,866, US Treasury Notes 1.625% 06/30/20 11/10/16 1,415, ,415, US Treasury Notes 1.625% 06/30/20 11/10/16 1,865, ,865, Federal Home Loan Mortgage Corp. Notes 6.000% 06/01/21 06/22/06 118, , Federal National Mortgage Assn % 11/01/21 11/16/06 131, , Federal Home Loan Mortgage Corp. Notes 5.500% 02/01/22 04/10/07 139, , Fannie Mae Pool 3.000% 06/01/22 08/17/12 598, , Federal Home Loan Mortgage Corp. Notes 6.000% 07/01/22 07/17/07 48, , GNMA Pool # % 01/01/27 04/16/13 785, , GNMA Pool # % 03/01/27 04/16/13 426, , GNMA Pool #MA % 04/01/27 06/18/12 1,279, ,321, Fannie Mae Pool # % 06/01/32 07/17/12 1,215, ,264, Money Rate Savings Account Variable Not Fixed 1,826, ,826, ,889, ,258, Total All Investments $ 535,031, $ 536,509,

10 Vehicular Traffic Statistics DESCRIPTION/CLASS CURRENT YEAR 3 Months 6 Months 12 Months October November December Ended Ended Ended Cars/Light Trucks: /31/16 12/31/16 12/31/16 Class 1 223, , , ,039 1,711,342 3,003,436 Class 1 Round Trip 29,130 28,936 29,992 88, , ,389 Class 1 Commuter 13,958 13,798 13,652 41,408 80, ,186 Class 2 2,481 1,873 1,531 5,885 18,975 32,306 Class 2 Round Trip ,736 3,190 Class 3 3,267 2,354 2,039 7,660 21,743 37,325 Class 3 Round Trip ,735 3,344 Class ,022 1,905 Class 4 Round Trip Sub Total 273, , , ,086 2,021,716 3,589,266 Heavy Trucks: Class 9 4,810 4,449 4,065 13,324 29,627 56,171 Class 10 1,645 1,510 1,382 4,537 9,532 19,730 Class 11 1,258 1, ,263 7,657 14,893 Class 12 21,571 22,379 20,253 64, , ,334 Class ,349 2,916 Class Sub Total 29,589 29,648 26,801 86, , ,032 Buses: Class ,569 Class Class 15 1,201 1,194 1,100 3,495 7,131 13,365 Sub Total 1,382 1,357 1,253 3,992 8,228 15,736 Totals 304, , , ,116 2,212,998 3,960,034 DESCRIPTION/CLASS PRIOR YEAR 3 Months 6 Months 12 Months October November December Ended Ended Ended Cars/Light Trucks: /31/15 12/31/15 12/31/15 Class 1 217, , , ,183 1,690,260 2,916,284 Class 1 Round Trip 26,374 25,362 27,490 79, , ,393 Class 1 Commuter 13,261 11,615 12,034 36,910 74, ,618 Class 2 2,636 1,697 1,513 5,846 19,480 32,331 Class 2 Round Trip ,604 2,827 Class 3 3,217 2,057 1,968 7,242 20,359 34,499 Class 3 Round Trip ,626 3,032 Class ,009 1,841 Class 4 Round Trip Sub Total 263, , , ,294 1,977,768 3,446,006 Heavy Trucks: Class 9 4,507 3,941 3,919 12,367 27,607 51,644 Class 10 1,314 1,230 1,048 3,592 7,663 14,214 Class 11 1, ,997 7,298 13,715 Class 12 21,920 20,241 19,207 61, , ,957 Class ,904 Class Sub Total 29,189 26,516 25,256 80, , ,249 Buses: Class ,492 Class Class ,111 1,037 3,142 6,430 12,268 Sub Total 1,217 1,251 1,170 3,638 7,462 14,418 Totals 294, , , ,893 2,159,887 3,796,673 9

11 (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 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

12 (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

13 legislations. At and 2015, the District had net position restricted for debt service of $63,603,105 and $24,232,158, 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 In FY 2015, the District adopted GASB Statements No. 68, Accounting and Financial Reporting for Pensions, and No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. 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) Fair Value Measurements In FY2016, the District adopted GASB Statement No. 72, Fair Value Measurement and Application. The objective of GASB Statement No. 72 is to enhance comparability of financial statements among governments by requiring measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and accepted valuation techniques. This statement will also enhance fair value application guidance and related disclosures in order to provide information to financial statement users about the impact of fair value measurements on a government s financial position. This statement requires the District to use valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value. The techniques should be consistent with one or more of the following approaches: the market approach, the cost approach, or the income approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets and liabilities. The cost approach reflects the amount that would be required to replace the present service capacity of an asset. The income approach converts future amounts (such as cash flows or income and expenses) to a single current (discounted) amount. Valuation techniques should be applied consistently, though a change may be appropriate in certain circumstances. Valuation 12

14 techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. More information regarding the fair value of District investments can be found in note 6. (3) Cash Deposits and Investments (a) Deposits The carrying value of the District s deposits (unrestricted and restricted) was $826,534 and $827,353 at and 2015, respectively. The bank balance of these deposits was $633,490 and $455,169 at and 2015, 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

15 The District s investment securities using the Standard & Poor s credit quality ratings scale are presented below: Investment type AAA AA+ AA AA- A-1+ A-1 Total U.S. Treasuries $ 341,533, ,533,821 U.S. Agencies 56,780,342 56,780,342 Federal Agency M ortgage-backed 5,782,813 5,782,813 Supra-National Agency 1,334,552 1,334,552 State and Local Govt 6,914,108 6,914,108 Certificate of Deposit 5,007,870 5,007,870 Commercial Paper 1,336,812 10,076,509 11,413,321 Corporate Notes 1,221,753 9,707,853 4,051,365 25,213,354 40,194,325 Total $ 9,470, ,804,829 4,051,365 30,221,224 1,336,812 10,076, ,961,152 (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: 2016 Percentage Investment type Fair value of portfolio U.S. Treasuries $ 341,533, % U.S. Agencies 51,807, Federal Agency Mortgage- Backed 10,755, Supra-National Agency 1,334, State and Local Government 6,914, Certificate of Deposit 5,007, Money Market Funds 67,548, Commercial Paper 11,413, Corporate Notes 40,194, $ 536,509, % (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 14

16 based on the current perception of the direction of interest rates with a greater emphasis on yield and a lesser emphasis on liquidity. 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 $ 341,533, ,487,395 75,256,816 15,789,609 U.S. Agencies 51,807,517 10,674,298 40,995, ,562 Federal Agency Mortgage-Backed 10,755,638 5,974,117 4,781,521 Supra-National Agency 1,334,552 1,334,552 State and Local Govt 6,914,108 6,914,108 Commercial Paper 11,413,322 11,413,322 Certificates of Deposit 5,007,870 5,007,870 Money Market Funds 67,548,509 67,548,509 Corporate Notes 40,194,325 13,455,985 26,738,340 Total $ 536,509, ,038, ,213,590 20,708,692 67,548,509 (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: Q2 FY17 Fair value of investments at end of quarter $ 536,509,661 Add: Proceeds from sales and maturities during the quarter 338,721,384 Change in fair value of derivative instrument (1,251,974) Less: Cost of investments purchased during the quarter (591,002,792) Fair value of investments at beginning of quarter (285,716,927) Change in fair value of investments $ (2,740,648) 15

17 (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 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. 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.: 16

18 MRP Numeric code scale Numeric Narrative code code Definition 9 Excellent Component 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 immediately 2 Critical The need for repair or rehabilitation is urgent 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 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

19 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 (5) General Resolution Revenue Bonds Bond activity for the Q2 FY17 was as follows: Amortization Balance, of costs, Balance, A mounts due December 31, Bond premiums, Bond December 31, within 2015 proceeds discounts, net payments 2016 one year 1998 General Resolution Refunding Bonds $ 45,595,387 (1,190,387) (44,405,000) 2010A General Resolution Refunding Bonds 30,000,000 (30,000,000) 2011A General Resolution Refunding Bonds 5,850,000 (5,850,000) 2016 First Tier General Resolution Revenue Bonds 362,309,613 (255,959) 362,053,654 $ 81,445, ,309,613 (1,446,346) (80,255,000) 362,053,654 The District had previously incurred its General Resolution Revenue Bonds, Series 1998, Series 2010A and Series 2011A (collectively, the Prior Bonds ) under its General Revenue Bond Resolution, adopted by the Commission on November 21, 1991, as amended and supplemented (the 1991 Resolution ). 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 ); and to finance the costs of the Project, the Commission determined that the Prior Bonds would be redeemed or defeased and the 1991 Resolution would be terminated so that a new general bond resolution could be issued. The District redeemed the Series 2010A and Series 2011A Bonds and terminated the interest rate swap associated therewith on November 1, Concurrently with the issuance of the Series 2016 Bonds, the District contributed additional monies in combination with funds released from the 1991 Resolution to fund the defeasance of the Series 1998 Bonds, which are non-callable, on November 10, On October 24, 2016, 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 18

20 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. Amortization of original issue premium and deferred costs of insurance related to the Series 2016 Bonds was $237,244 for Q2 FY17. 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 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 anticipated to start in March 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. 19