CITY OF WATERBURY, CONNECTICUT

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1 New Issue Book Entry Only Ratings (See Ratings herein) TAX-EXEMPT & TAXABLE In the opinion of Bond Counsel, rendered in reliance upon and assuming the accuracy of and continuing compliance with certain representations and covenants relating to the applicable requirements of the Internal Revenue Code of 1986, as amended (the Code ), under existing law, interest on the Lot A Bonds (as defined herein) is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax; however, with respect to certain corporations (as defined for federal income tax purposes) subject to the federal alternative minimum tax, such interest is taken into account in computing the federal alternative minimum tax. See Tax Exemption of the Lot A Bonds herein. In the opinion of Bond Counsel, under existing law, interest on the Lot B Bonds (as defined herein) is included in gross income for federal income tax purposes pursuant to the Code. See Tax Status of the Lot B Bonds herein. In the opinion of Bond Counsel, under existing statutes and regulations, interest on the Bonds (as defined herein) is excluded from Connecticut taxable income for purposes of the Connecticut income tax on individuals, trusts and estates and is excluded from amounts on which the net Connecticut minimum tax is based in the case of individuals, trusts and estates required to pay the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See Tax Exemption of the Lot A Bonds and Tax Status of the Lot B Bonds herein. CITY OF WATERBURY, CONNECTICUT GENERAL OBLIGATION BONDS, ISSUE OF 2015 CONSISTING OF: $23,000,000 GENERAL OBLIGATION BONDS, LOT A $7,000,000 TAXABLE GENERAL OBLIGATION BONDS, LOT B Dated: Date of Delivery Due: As set out on the inside cover The City of Waterbury s (the City ) General Obligation Bonds, Issue of 2015 consisting of General Obligation Bonds, Lot A (the Lot A Bonds ) and Taxable General Obligation Bonds, Lot B (the Lot B Bonds and together with the Lot A Bonds, the Bonds ) will be general obligations of the City, and the full faith and credit of the City will be irrevocably pledged to the prompt payment of the principal of and interest on the Bonds according to their terms. See SECURITY AND REMEDIES herein. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by BUILD AMERICAN MUTUAL ASSURANCE COMPANY. Interest on the Bonds will be payable semi-annually on the first day of February and August in each year until maturity as shown on the inside cover, commencing August 1, The Lot A Bonds are subject to redemption prior to maturity as described herein. The Lot B Bonds are NOT subject to redemption prior to maturity as described herein. The Bonds will be registered in the name of Cede & Co., as Bondowner and nominee for The Depository Trust Company ( DTC ), New York, New York. DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry-only form, in the denomination of $5,000 or any integral multiple thereof. Purchasers will not receive certificates representing their ownership interest in the Bonds. So long as Cede & Co. is the Bondowner, as nominee of DTC, reference herein to the Bondowner or owners shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners (as described herein) of the Bonds. (See Book-Entry-Only System herein.) The Bonds are offered for delivery when, as and if issued and received by William Blair & Company, L.L.C., Chicago, Illinois (the Underwriter ), subject to the final approving opinion of Pullman & Comley, LLC, Hartford, Connecticut, Bond Counsel. Certain matters will be passed on for the Underwriter by its counsel, Day Pitney LLP, Hartford, Connecticut. It is expected that delivery of the Bonds in book-entry-only form will be made through the facilities of DTC on or about December 2, This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. November 12, 2015

2 $23,000,000 LOT A BONDS MATURITY SCHEDULE Dated: Date of Delivery Due: August 1 Interest Interest Maturity Principal Rate Yield CUSIP Maturity Principal Rate Yield CUSIP 2018 $250, % 1.15% F $1,875, % 3.06% Q , G ,875, R , H ,875, S , J ,875, T , K ,875, U , L ,875, V , M ,875, W ,875, N ,500, X ,875, P ,000, Y3 $7,000,000 LOT B BONDS MATURITY SCHEDULE Dated: Date of Delivery Due: August 1 Interest Interest Maturity Principal Rate Yield CUSIP Maturity Principal Rate Yield CUSIP 2018 $1,000, % 1.929% Z $1,000, % 3.173% D ,000, A ,000, E ,000, B ,000, F ,000, C0 i

3 This Official Statement ( Official Statement ) is not to be construed as a contract or agreement between the City and the purchasers or holders of any of the Bonds. Any statements made in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended merely as opinion and not as representations of fact. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. All quotations from and summaries and explanations of provisions of laws and documents described herein do not purport to be complete and reference is made to said laws and documents for full and complete statements of their provisions. No dealer, broker, salesman or any other person has been authorized to give any information or to make any representations, other than the information and representations contained herein, in connection with the offering of the Bonds, and if given or made, such information or representations must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy any of the Bonds in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. The information set forth herein has been furnished by the City and other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness. Neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the City since the date hereof. Upon issuance, the Bonds will not be registered under the Securities Act of 1933, as amended, in reliance upon exemptions contained in such Act. The Bonds will not be listed on any stock or other securities exchange. Any registration or qualification of the Bonds in accordance with applicable provisions of securities laws of the states in which the Bonds may be registered or qualified and the exemption from registration or qualification in other states cannot be regarded as a recommendation thereof. Neither the Securities and Exchange Commission nor any other federal, state or other governmental entity or agency will have passed upon the accuracy of the Official Statement or, except for the City, approved the Bonds for sale. Any representation to the contrary may be a criminal offense. The information relating to The Depository Trust Company ("DTC") and the book-entry only system contained in this Official Statement have been furnished by DTC (see "Book-Entry-Only System" herein). No representation is made by the City as to the adequacy or accuracy of such information. The City has not made any independent investigation of DTC or the book-entry only system. The City deems this Official Statement to be Final for the purposes of Security and Exchange Commission Rule 15c2-12(b)(1), but is subject to revision or amendment. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted here from, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading Bond Insurance and Appendix D - Specimen Municipal Bond Insurance Policy. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING TRANSACTIONS, IF BEGUN, MAY BE ENDED OR INTERRUPTED AT ANY TIME WITHOUT NOTICE. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENTS AT PRICES LOWER OR YIELDS HIGHER THAN THE PUBLIC OFFERING PRICES OR YIELDS STATED ON THE INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES AND YIELDS MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER WITHOUT NOTICE. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. ii

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5 TABLE OF CONTENTS ISSUE SUMMARY LOT A... 1 ISSUE SUMMARY LOT B... 3 BOND INFORMATION... 5 Introduction... 6 Authority to Issue the Bonds... 6 Description of the Lot A Bonds... 6 Description of the Lot B Bonds... 7 Redemption Provisions... 7 Qualification for Financial Institutions... 7 Security and Remedies... 8 Description of the Projects... 8 Use of Proceeds Sources and Uses Book-Entry-Only System DTC Practices Ratings Underwriting Bond Insurance THE ISSUER The City Government Organization Principal City Officials Municipal Services Boards and Commissions Mayor s Administration Economic Development Debt Management Budget Finance Municipal Employees' Bargaining Organizations Municipal Employees School Enrollments ECONOMIC AND DEMOGRAPHIC INFORMATION Population and Density Population Distribution by Age Income Distribution Comparative Income Measures Educational Attainment Total Employment by Industry Employment Data Major Employers Number and Size of Households Age Distribution of Housing Housing Inventory Owner-Occupied Housing Values Building Permits Land Use Summary City Zoning Districts TAX BASE DATA Property Tax and Assessments Property Tax Levy and Collection Comparative Assessed Valuations Property Tax Levies and Collections Property Taxes Receivable Major Taxpayers (Top Twenty) DEBT AND FINANCIAL INFORMATION Principal Amount of Bonded Indebtedness Coverage History of Tax Revenue Intercept Secured Bonds Bond Authorization and Temporary Financing General Obligation Bonded Debt Maturity Schedule Revenue Supported Bonded Debt Maturity Schedule Authorized But Unissued Debt Short Term Debt Overlapping/Underlying Debt Debt Statement Current Debt Ratios Limitation on Indebtedness Statement of Statutory Debt Limitation Debt Limitation Base FINANCIAL ADMINISTRATION Fiscal Year Annual Audit Auditor s Disclaimer Accounting Budget Adoption Capital Budget Planning Significant Financial Policies Investment Policy Pension Programs Other Post-Employment Benefits General Fund Revenues and Expenditures LEGAL AND OTHER INFORMATION Litigation Tax Exemption of the Lot A Bonds Tax Status of the Lot B Bonds Availability of Continuing Disclosure Information Transcript and Closing Documents Legal Matters Concluding Statement APPENDIX A FINANCIAL STATEMENTS APPENDIX B-1 FORM OF OPINION OF BOND COUNSEL FOR LOT A BONDS APPENDIX B-2 FORM OF OPINION OF BOND COUNSEL FOR LOT B BONDS APPENDIX C FORM OF CONTINUING DISCLOSURE AGREEMENT APPENDIX D SPECIMEN MUNICIPAL BOND INSURANCE POLICY iv

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7 ISSUE SUMMARY LOT A GENERAL OBLIGATION BONDS The information in this section is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. Investors must read the entire Official Statement to obtain information essential to the making of an informed decision. The Official Statement speaks only as of its date and the information herein is subject to change. Issuer: Issue: Dated Date: City of Waterbury, Connecticut (the City ) $23,000,000 General Obligation Bonds, Lot A (the Lot A Bonds ) Date of Delivery Interest Due: February and August 1st in each year until maturity, commencing August 1, Principal Due Date: Record Date: Purpose: Security: Bank Qualification: Rating: Credit Enhancement: Redemption: Tax Exemption: Certifying Bank, Registrar, Transfer Agent, and Paying Agent: Legal Opinion: Underwriter: Financial Advisor: Continuing Disclosure: Delivery: Issuer Official: August 1st, as shown on the inside cover of the Official Statement. The close of business on the fifteenth (15 th ) day of January and July in each year (or the preceding business day if the 15 th is not a business day) The Lot A Bonds are being issued to finance various school facilities, road and public safety improvements, and other municipal improvements. The Lot A Bonds will be general obligations of the City, and the City will pledge its full faith and credit to the payment of principal of and interest on the Lot A Bonds when due. The Lot A Bonds shall NOT be designated by the City as qualified tax-exempt obligations under the provisions of Section 265(b) of the Internal Revenue Code of 1986, as amended, for purposes of the deduction by financial institutions for interest expense allocable to the Lot A Bonds. See Ratings herein. The City does not anticipate purchasing credit enhancement. The Lot A Bonds are subject to redemption prior to maturity as further described herein. See Appendix B-1 Form of Opinion of Bond Counsel For Lot A Bonds U.S. Bank National Association, Hartford, Connecticut Pullman & Comley, LLC, Bond Counsel, Hartford, Connecticut William Blair & Company, L.L.C., Chicago, Illinois Phoenix Advisors, LLC, Milford, Connecticut In accordance with the requirements of Rule 15c2-12(b)(5) promulgated by the U.S. Securities and Exchange Commission, the City will agree to provide, or cause to be provided, annual financial information and operating data, notices of listed events and notices of failure to provide required information with respect to the Lot A Bonds pursuant to a Continuing Disclosure Agreement to be executed by the City substantially in the form attached as Appendix C to this Official Statement. It is expected that delivery of the Lot A Bonds in book entry form to The Depository Trust Company will be made on or about December 2, Payment must be made in Federal Funds. For further information regarding this Official Statement and the City contact: Mr. Michael LeBlanc, Director of Finance, City Hall, 235 Grand Street, Waterbury, CT

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9 ISSUE SUMMARY LOT B TAXABLE GENERAL OBLIGATION BONDS The information in this section is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. Investors must read the entire Official Statement to obtain information essential to the making of an informed decision. The Official Statement speaks only as of its date and the information herein is subject to change. Issuer: Issue: Dated Date: City of Waterbury, Connecticut (the City ) $7,000,000 Taxable General Obligation Bonds, Lot B (the Lot B Bonds ) Date of Delivery Interest Due: February and August 1st in each year until maturity, commencing August 1, 2016 Principal Due Date: Record Date: Purpose: Security: Rating: Credit Enhancement: Redemption: Tax Status: Certifying Bank, Registrar, Transfer Agent, and Paying Agent: Underwriter: Financial Advisor: Legal Opinion: Continuing Disclosure: Delivery: Issuer Official: August 1st, as shown on the inside cover of the Official Statement The close of business on the fifteenth (15 th ) day of January and July in each year (or the preceding business day if the 15 th is not a business day) The Lot B Bonds are being issued to finance public projects including Waterbury Industrial Commons. The Lot B Bonds will be general obligations of the City, and the City will pledge its full faith and credit to the payment of principal of and interest on the Lot B Bonds when due. See Ratings herein. The City does not anticipate purchasing credit enhancement. The Lot B Bonds are NOT subject to redemption prior to maturity. See Appendix B-2 Form of Opinion of Bond Counsel For Lot B Bonds U.S. Bank National Association, Hartford, Connecticut William Blair & Company, L.L.C., Chicago, Illinois Phoenix Advisors, LLC, Milford, Connecticut Pullman & Comley, LLC, Bond Counsel, Hartford, Connecticut In accordance with the requirements of Rule 15c2-12(b)(5) promulgated by the U.S. Securities and Exchange Commission, the City will agree to provide, or cause to be provided, annual financial information and operating data, notices of listed events and notices of failure to provide required information with respect to the Lot B Bonds pursuant to a Continuing Disclosure Agreement to be executed by the City substantially in the form attached as Appendix C to this Official Statement. It is expected that delivery of the Lot B Bonds in book entry form to The Depository Trust Company will be made on or about December 2, Payment must be made in Federal Funds. For further information regarding this Official Statement and the City contact: Mr. Michael LeBlanc, Director of Finance, City Hall, 235 Grand Street, Waterbury, CT

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11 BOND INFORMATION Introduction Authority to Issue the Bonds Description of the Lot A Bonds Description of the Lot B Bonds Redemption Provisions Qualification for Financial Institutions Security and Remedies Description of the Projects Use of Proceeds Sources and Uses Book-Entry-Only System DTC Practices Ratings Underwriting 5

12 BOND INFORMATION Introduction This Official Statement, including the cover page, inside cover page and appendices, is provided for the purpose of presenting certain information relating to the City of Waterbury, Connecticut (the City ), in connection with the original sale of the City s $23,000,000 General Obligation Bonds, Lot A (the Lot A Bonds ), $7,000,000 Taxable General Obligation Bonds, Lot B (the Lot B Bonds and together with the Lot A Bonds, the Bonds ). The Bonds are being issued through a negotiated sale with the Underwriter, William Blair & Company, LLC, Chicago, Illinois. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. U.S. Bank National Association, Hartford, Connecticut will act as Registrar, Certifying Agent, Transfer Agent, and Paying Agent for the Bonds. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or holders of any of the Bonds. Any statement made in this Official Statement involving matters of opinion or estimates are not intended to be representations of fact, and no representation is made that any such opinion or estimate will be realized. Neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. All quotations from and summaries and explanations of provisions of statutes, charters, or other laws and acts and proceedings of the City contained herein do not purport to be complete and are qualified in their entirety by reference to the original official document; and all references to the Bonds and the proceedings of the City relating thereto are qualified in their entirety by reference to the definitive forms of the Bonds and such proceedings. The presentation of information is intended to show recent historical trends and is not intended to indicate future or continuing trends in the financial or other positions of the City. Except for information expressly attributed to other sources, all financial and other information presented herein has been provided by the City. No dealer, broker, salesman or other person has been authorized to give any information or to make any representation other than as contained in this Official Statement in connection with the placement described herein, and if given or made, such information or representation must not be relied upon as having been authorized. The information in this Official Statement has been provided by the City and from other sources which are believed to be reliable. Neither the delivery of this Official Statement nor the sale of any of the Bonds shall imply that the information herein is correct as of any time subsequent to the date hereof. Bond Counsel are not passing upon and do not assume responsibility for the accuracy or adequacy of the statements made in this Official Statement (other than matters expressly set forth as their opinions in Appendixes B-1 and B-2) and they make no representation that they have independently verified the same. Authority to Issue the Bonds The Bonds are issued pursuant to Title 7 of the Connecticut General Statutes, as amended, the City Charter and various resolutions adopted by the Board of Aldermen, as described herein. Description of the Lot A Bonds The Lot A Bonds will be dated the date of delivery and will bear interest at the rate or rates per annum shown on the inside cover, payable semiannually on February 1 and August 1 in each year until maturity, commencing August 1, Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Interest is payable to the registered owner as of the close of business on the fifteenth day of January and July (or the preceding business day if such fifteenth day is not a business day), in each year by check mailed to the registered owner; or so long as the Lot A Bonds are registered in the name of Cede & Co., as nominee of DTC, by such other means as DTC, the Paying Agent and the City shall agree. The Lot A Bonds are issuable only as fully registered bonds in book-entry form in denominations of $5,000 or any integral multiple thereof. The Bonds will mature as shown on the inside cover of this Official Statement. 6

13 Description of the Lot B Bonds The Lot B Bonds will be dated the date of delivery and will bear interest at the rate or rates per annum shown on the inside cover, payable semiannually on February 1 and August 1 in each year until maturity, commencing August 1, Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months. Interest is payable to the registered owner as of the close of business on the fifteenth day of January and July (or the preceding business day if such fifteenth day is not a business day), in each year by check mailed to the registered owner; or so long as the Lot B Bonds are registered in the name of Cede & Co., as nominee of DTC, by such other means as DTC, the Paying Agent and the City shall agree. The Lot B Bonds are issuable only as fully registered bonds in book-entry form in denominations of $5,000 or any integral multiple thereof. The Bonds will mature as shown on the inside cover of this Official Statement. Redemption Provisions Optional Redemption The Lot A Bonds maturing on or before August 1, 2025 are not subject to redemption prior to maturity. The Lot A Bonds maturing on August 1, 2026 and thereafter are subject to redemption prior to maturity, at the option of the City, on or after August 1, 2025, at any time, either in whole or in part, and by lot within a maturity, in such amounts and in such order of maturity as the City may determine, at the redemption price (expressed as a percentage of the principal amount of Lot A Bonds to be redeemed) set forth in the following table, plus interest accrued and unpaid to the redemption date: Redemption Date Redemption Price August 1, 2025 and thereafter 100% The Lot B Bonds are not subject to redemption prior to maturity. Notice of Redemption Notice of redemption shall be given by the City or its agent by mailing a copy of the redemption notice by first-class mail not less than thirty (30) days prior to the date fixed for redemption to the registered owner of any Lot A Bonds at the address of such registered owner as the same shall last appear on the registration books for the Lot A Bonds kept for such purpose. Failure to give such notice by mailing to any registered owner, or any defect therein, shall not affect the validity of the redemption of any other Lot A Bonds. Upon the giving of such notice, if sufficient funds available solely for redemption are on deposit with the Paying Agent, the Lot A Bonds, or portions thereof, so called for redemption will cease to bear interest after the specified redemption date. If less than all of the Lot A Bonds of any one maturity shall be called for redemption, the particular Lot A Bonds or portions of Lot A Bonds of such maturity to be redeemed shall be selected by lot in such manner as the City in its discretion may determine; provided, however, that the portion of any Lot A Bonds to be redeemed shall be in the principal amount of $5,000 or a multiple thereof and that, in selecting Lot A Bonds for redemption, each Lot A Bond shall be considered as representing that number of Lot A Bonds which is obtained by dividing the principal amount of such Lot A Bond by $5,000. The City, so long as a book-entry system is used for the Lot A Bonds, will send any notice of redemption only to DTC (or a successor securities depository) or its nominee. Any failure of DTC to advise any DTC Participant or of any DTC Participant or Indirect Participant to notify any Indirect Participant or Beneficial Owner of any such notice and its content or effect will not affect the validity of the redemption of such Lot A Bonds called for redemption. (See Book-Entry-Only System herein for a discussion of DTC and definitions of DTC Participant, Indirect Participant, and Beneficial Owner.) Redemption of a portion of the Lot A Bonds of any maturity by the City will reduce the outstanding principal amount of such maturity held by DTC. In such event it is the current practice of DTC to allocate by lot, through its book-entry system, among the interests held by DTC Participants in the Lot A Bonds to be redeemed, the interest to be reduced by such redemptions in accordance with its own rules or other agreements with DTC Participants. The DTC Participants and Indirect Participants may allocate reductions of the interest in the Lot A Bonds to be redeemed held by the Beneficial Owners. Any such allocation of interest in the Lot A Bonds to be redeemed will not be governed by the determination of the City authorizing the issuance of the Lot A Bonds and will not be conducted by or the responsibility of the City, the Registrar or Paying Agent. Qualification for Financial Institutions The Bonds shall NOT be designated by the City as qualified tax-exempt obligations under the provisions of Section 265(b) of the Internal Revenue Code of 1986, as amended, for purposes of the deduction by financial institutions for interest expense allocable to the Bonds. 7

14 Security and Remedies General The Bonds will be general obligations of the City, and the City will pledge its full faith and credit to pay the principal of and interest on the Bonds when due. Unless paid from other sources, the Bonds are payable from general property tax revenues. The City has the power under the Connecticut General Statutes to levy ad valorem taxes on all taxable property in the City without limit as to rate or amount, except as to certain classified property such as certified forest land taxable at a limited rate, and dwelling houses of qualified elderly persons of low income or of qualified disabled persons taxable at limited amounts. Bondholder Remedies The City is subject to suit on its bonds and notes, and a court of competent jurisdiction has the power in appropriate proceedings to render a judgment against the City. Courts of competent jurisdiction also have the power in appropriate proceedings to order the payment of a judgment on such bonds and notes from funds lawfully available therefor or, in the absence thereof, to order the City to take all lawful action to obtain the same, including the raising of the required amount in the next annual tax levy. In exercising their discretion as to whether to enter such an order, the courts may take into account all relevant factors, including the current operating needs of the City and the availability and adequacy of other remedies. Enforcement of a claim for payment of principal of or interest on such bonds and notes would also be subject to the applicable provisions of Federal bankruptcy laws and to provisions of other statutes, if any, hereafter enacted by Congress or the Connecticut General Assembly extending the time for payment or imposing other constraints upon enforcement insofar as the same may be constitutionally applied. Connecticut General Statutes Section provides that no Connecticut municipality shall file a petition to become a debtor under Chapter 9 of the Federal Bankruptcy Code, without the express prior written consent of the Governor. Tax Revenue Intercept Bonds After the issuance of the Bonds, the City will have outstanding approximately $26,705,000 of bonds (the Intercept Bonds ) secured by a tax revenue intercept mechanism established under the Indenture (as, hereinafter defined). All tax revenues payable to the City are paid directly to the Trustee and are deposited into the Tax Revenue Fund held under the Indenture. The tax revenues are then transferred to the Debt Service Fund until the applicable debt service requirements are satisfied for the benefit of the holders of the Intercept Bonds. Only after the applicable debt service requirements are satisfied are remaining amounts paid to the City for the payment of other City expenditures, including the payment of the principal and interest on the Bonds. See Annual Coverage History of Tax Revenue Intercept Secured Bonds herein. Description of the Projects Industrial Commons Redevelopment & Centralized DPW Facility: The Board of Aldermen approved at its meeting held on July 19, 2010, an appropriation in the amount of $60,420,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $60,420,000 for the acquisition and clean-up of, and improvements to, the Waterbury Industrial Commons ( WIC ) property located at 1875 Thomaston Avenue and originally to construct a Department of Public Works ( DPW ) Facility on the WIC site. In the fall of 2011, demolition began on the southern portion of the Mile Long Mill facility formerly the site of the Chase Brass & Copper manufacturing plant. Approximately 186,000 square feet of the northern portion of the facility has been rehabilitated and expanded to accommodate growth by existing tenants resulting in over 200,000 square feet of industrial space. The end result of this project is a remediated site that the City has leased to large-scale industrial tenants resulting in increased lease income, tax revenue and employment opportunities. The project, funded with $15 million in federal Department of Defense grant funds and local bond authorization commitments, resulting in one of the largest remediated industrial or manufacturing ready sites in New England. Long-term lease agreements have been negotiated with four major tenants who have committed to remain on the existing site. The DPW Facility was removed from the plans for the rehabilitated property site early in 2013 in order to allow the City to seek more attractive and viable options for expansions by existing tenants and the attraction of new businesses looking to establish operations on a first rate premier manufacturing site in close proximity to major highways and rail line capacity. In 2014, King Industry s acquired acres of a remediated brownfield industrial site at WIC. In September 2015, a ground breaking was held on the site. King Industries will invest $50 million for the construction of an 80,000 square foot manufacturing complex that will create an estimated 180 construction jobs and upon completion over 200 permanent manufacturing jobs. The DPW Facility will be located at the site of a former MacDermid facility acquired by the City in 2014 that is adjacent to Route 8. Selective demolition, renovation and new space construction at the former MacDermid site will begin in

15 St. Patrick s Hall Restoration: The Board of Aldermen approved at its meeting held on October 7, 2013, an appropriation in the amount of $8,100,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $8,100,000 the renovation of the historic building adjacent to the Palace Theatre and directly across the street from the University of Connecticut s (UCONN) downtown Waterbury location. The $8.1 million renovation of St. Patrick s Hall has resulted in a total transformation of the building and has furthered the revitalization of the East Main Street Arts and Education Corridor. The work is scheduled to be substantially completed by December of State historical tax credits totaling $2.1 million were applied for and awarded by the State s Historic Preservation Office. The tax credits are being sold to Eversource Energy. The proceeds from the sale of the tax credits along with $1.7 million in other grants awarded to the project will reduce the City s bond financing for the project to $4.4 million. Under the terms of a 20-year lease, UCONN will be leasing the renovated building from the City providing much needed classroom and conference room space to accommodate increased student enrollment at UCONN-Waterbury. Road Milling/Repaving & Sidewalks(2013 Capital Plan): The Board of Aldermen approved at its meeting held on March 11, 2013, an appropriation in the amount of $3,000,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $3,000,000 for City-wide milling, paving, resurfacing and other street improvements and sidewalk improvements. The capital appropriation for this project was originally included and approved as part of the Capital Budget. Road Milling/Repaving & Sidewalks (2014 Capital Plan): The Board of Aldermen approved at its meeting held on January 28, 2014, an appropriation in the amount of $2,000,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $2,000,000 for City-wide milling, paving, resurfacing and other street improvements and sidewalk improvements. The capital appropriation for this project was originally included and approved as part of the Capital Budget Public Safety Radio System Upgrade to P25: The Board of Aldermen approved at its meeting held on June 25, 2012, an appropriation in the amount of $4,500,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $4,500,000 for the purpose of funding the costs and expenses in connection with the complete upgrade of the City s existing Multi-Net public safety radio system to P25 compliant standards and the installation of the 3rd receiver/transmitter tower, resulting in a complete upgrade of the microwave system. Mobile & Portable Radios: The Board of Aldermen approved at its meeting held on October 20, 2014, an appropriation in the amount of $3,550,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $3,550,000 for the purpose of funding the costs and expenses in connection with the complete replacement of mobile & portable radios within the Police Department, Fire Department and Department of Public Works. The capital appropriation for this project was originally included and approved as part of the Capital Budget. Fire Apparatus (2013 Capital Plan): The Board of Aldermen approved at its meeting held on March 11, 2013, an appropriation in the amount of $500,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $500,000 for replacement of a fire engine. The $500,000 appropriation would be supplemented with an additional appropriation in the 2014 Capital Plan. Fire Apparatus (2014 Capital Plan): The Board of Aldermen approved at its meeting held on January 28, 2014, an appropriation in the amount of $500,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $500,000 for the replacement of a fire engine. The $500,000 appropriation supplemented the appropriation in the 2013 Capital Plan for a combined commitment of $1,000,000 for the replacement of a fire engine. Wallace Middle School Addition: The Board of Aldermen approved at its meeting held on June 20, 2011, an appropriation in the amount of $15,758,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $15,758,000 for an addition and alterations to the Wallace Middle School. The Wallace Middle School Addition & Alteration Project includes a two-story addition to the existing school facility and various interior alterations. The addition will house a new media center and associated rooms, a computer lab and several small teaching spaces for literacy, numeracy and bilingual instruction. The interior alterations will include converting the existing media center into science classrooms/labs. Waterbury Career Academy: The Board of Aldermen approved at its meeting held on June 9, 2008 an appropriation in the amount of $63,846,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $63,846,000 for the planning, design, construction and equipping of a new school, including land acquisition, environmental testing and remediation, demolition and disposal, equipment, consulting, and architectural and engineering services. The authorization was amended on September 19, 2011 to reflect an increase in the appropriation and bond authorization to $68,190,000. 9

16 Kennedy High School Additions & Alterations: The Board of Aldermen approved at its meeting held on June 25, 2012 an appropriation in the amount of $25,232,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $25,232,000 for the planning, design, construction and equipping of a new school addition including an auxiliary gym, a multi-story classrooms addition, an addition of a one-story nurse/health suite and multipurpose field improvements. Carrington Pre-K to 8 Elementary School: The Board of Aldermen approved at its meeting held on September 7, 2010, an appropriation in the amount of $34,700,000 and financing for the appropriation by issuing its bonds or notes in an amount not to exceed $34,700,000 for construction of a new building for the Carrington School, including land acquisition, environmental testing and remediation, demolition and disposal, equipment, consulting, architectural and engineering services. On May 20, 2013 the Board of Aldermen approved an amendment to the previously approved authorization to increase the New Carrington School project appropriation and bond authorization from $34,700,000 to $37,043,326. The $2,343,326 increase was necessary to provide for additional costs related to the discovery of PCB contamination in the old school requiring significantly more environmental testing, abatement and demolition costs. Crosby High School Field & Track: The Board of Aldermen approved at its meeting held on October 20, 2014 an appropriation in the amount of $2,700,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $2,700,000 for the replacement of the Crosby High School football field and track with synthetic turf. The capital appropriation for this project was originally included and approved as part of the Capital Budget. School Building Improvements: The Board of Aldermen approved at its meeting held on March 11, 2013 an appropriation in the amount of $500,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $500,000 for the replacement of school boilers and the replacement of a school chiller at Wilby High School and North End Middle School Complex. The capital appropriation for this project was originally included and approved as part of the Capital Budget Comprehensive School Facilities Plan: The Board of Aldermen approved at its meetings held on June 25, 2004 and March 5, 2007, an appropriation in the amount of $108,050,000 and financing for such appropriation by the issuance of bonds or notes in an amount not to exceed $101,500,000 for the purpose of funding the costs and expenses in connection with the Waterbury Pre-K-12 Comprehensive School Facilities Plan, including the cost of design, engineering, land acquisition, leasing, site development, construction, expansion, renovation, utilities, furniture, fixtures, equipment, legal fees, net interest on borrowing and other financing costs and expenses related to three new elementary schools and an expansion of Crosby High School to include a new media center. The authorization was amended by the Board of Aldermen on January 22, 2008 to reflect an increase in the appropriation to $120,382,255. The authorization was further amended by the Board of Alderman on April 5, 2010 to reflect an increase in the appropriation to $125,382,255. The bond authorization remains at $101,500,000. School Projects State Grant Reimbursement Program The State of Connecticut provides proportional progress payments for eligible school construction expenses on projects approved after July 1, The school projects being financed by the Lot A Bonds are anticipated to receive the estimated reimbursements shown below as such projects are constructed. The following projects with bonds or notes outstanding will be reimbursed under the current school construction grants program at the estimated reimbursement rates shown below: Estimate of Eligible Costs for Reimbursement (1) Estimated Reimbursement Rate (%) (1) Project Total Appropriation Estimated Grants (1) Wallace Middle School Addition $15,758,000 $14,961, $11,755,000 Waterbury Career Academy 68,190,000 66,880, ,548,000 Kennedy High School Addition & Alterations 25,232,000 24,464, ,222,000 Carrington Middle School 37,043,000 35,861, ,176,000 Comprehensive School Facilities Plan 125,382, ,935, ,625,000 Total $271,605,255 $259,102, $203,326,000 (1) Costs eligible for reimbursement are subject to final approval by the State of Connecticut Department of Education and are subject to change. 10

17 WIC Property Improvements Total Eligible Costs Reimbursement Project Appropriation For Reimbursement (1) Rate (%) (1) Grants (1) WIC Property Improvements & Department of PW Facility $60,420,000 $14,745, % $14,745,500 (1) The U.S. Department of Defense has awarded a grant to the City in the amount of $14,745,500 for environmental remediation and demolition costs at the former Waterbury Industrial Commons site which will become the site for the construction of a new Department of Public Works and Central Vehicle Maintenance Facility. Use of Proceeds Lot A Bonds and Lot B Bonds Bonds Authorized Prior Bonds Issued Grants Received Lot A Bonds Lot B Bonds Authorized But Unissued Project Industrial Commons Redevelopment & DPW Facility $60,420,000 $16,500,000 $15,362,650 $5,000,000 $4,000,000 $19,557,350 St. Patrick's Hall Restoration 8,100,000 1,754,808 1,000,000 3,000,000 2,345,192 Road Milling/Repaving & Sidewalks (2013 Capital Plan) 3,000,000 2,000, , ,000 Road Milling/Repaving & Sidewalks (2014 Capital Plan) 2,000,000 1,000,000 1,000,000 Public Safety Radio System Upgrade to P25 4,500,000 3,000,000 1,100, ,000 Mobile & Portable Radios 3,550,000 3,300, ,000 Fire Apparatus (2013 Capital Plan) 500, ,000 Fire Apparatus (2014 Capital Plan) 500, , ,000 Wallace Middle School Addition 15,758,000 2,500,000 10,543, ,000 2,514,239 Waterbury Career Academy 68,190,000 13,500,000 47,955, ,000 6,234,157 Kennedy High School Addition & Alterations 25,232,000 12,035,749 4,000,000 9,196,251 Carrington Pre K-8 School 37,043,000 6,500,000 26,353, ,000 3,389,104 Crosby High School - Football Field & Track 2,700,000 2,500, ,000 School Building Improvements 500, ,000 Comprehensive School Facilities Plan 101,500,000 23,000,000 73,463,426 1,500,000 3,536,574 Total $333,493,000 $67,000,000 $187,470,133 $23,000,000 $7,000,000 $49,022,867 Sources and Uses Sources: Lot A Bonds Lot B Bonds Principal Amount of Bonds $23,000, $7,000, Net Original Issue Premium 3,396, Total Sources $26,396, $7,000, Uses: Deposit to Capital Project Fund $23,000, $6,923, Deposit to Debt Service Fund 3,147, Insurance Premium 42, , Costs of Issuance 1 206, , Total Uses $26,396, $7,000, Includes Underwriter s Discount 11

18 Book-Entry-Only System Unless otherwise noted, the description which follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payment of interest and other payments on the Bonds to DTC participants or beneficial owners of the Bonds, confirmation and transfer of beneficial ownership interest in the Bonds and other bond-related transactions by and between DTC, the DTC participants and beneficial owners of the Bonds is based solely on information provided on DTC s website and presumed to be reliable. Accordingly, neither the City nor the Underwriter make any representation as to the completeness or the accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized bookentry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its related subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee does not affect any change in the beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The Bonds are subject to optional redemption prior to maturity. Redemption notices shall be sent to DTC in accordance with the Notice of Redemption (see BOND INFORMATION Notice of Redemption herein). If less than all of the Bonds within an issue are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & 12

19 Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on, and redemption premium, if any, with respect to the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC s receipt of funds and corresponding detail information from the City or the Paying Agent on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with bonds held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, nor its nominee, the paying agent, or the City subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest, and redemption premium, if any, to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or its agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The City may decide to discontinue the use of the system of the book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the City believes to be reliable but the City takes no responsibility for the accuracy thereof. DTC Practices The City can make no assurances that DTC, Direct Participants, Indirect Participants or other nominees of the Beneficial Owners of the Bonds will act in a manner described in this Official Statement. DTC is required to act according to rules and procedures established by DTC and its participants which are on file with the Securities and Exchange Commission. Ratings Standard and Poor s Rating Services ( S&P ) is expected to assign the Bonds an insured rating of AA based upon the issuance of the insurance policy to be issued by BUILD AMERICA MUTUAL ASSURANCE COMPANY at the time of delivery of the bonds. Standard & Poor s Rating Services ( S&P ) has assigned a rating of AA- with a stable outlook to the Bonds, and affirmed its AA- rating on the City s currently outstanding general obligation bonds. Fitch Ratings, Inc. ( Fitch ) has assigned a rating of A+ with a stable outlook to the Bonds, and affirmed its A+ rating on the City s currently outstanding general obligation bonds. Kroll Bond Rating Agency ( KBRA ) has assigned a rating of A+ with a stable outlook to the Bonds, and affirmed its A+ rating on the City s currently outstanding general obligation bonds. The City furnished to the rating agencies certain information and materials, some of which may not have been included in this Official Statement. A rating obtained reflects only the view of each rating agency and will be subject to revision or withdrawal, which could affect the market price of the City s bonds or notes, including the Bonds. Generally, a rating agency bases its rating upon such information and materials and upon investigations, studies and assumptions by the rating agency. There can be no assurance that a rating will continue for any given period of time or that it will not be lowered or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Any such downward change in or withdrawal of a rating may have an adverse effect on the marketability or market price of outstanding securities, including the Bonds. Each rating agency should be contacted directly for its rating on the Bonds and the explanation of such rating. 13

20 Underwriting The Bonds are being purchased by William Blair & Company, L.L.C. (the Underwriter ). The Underwriter has agreed, subject to certain conditions, to purchase the Lot A Bonds from the City at the net aggregate purchase price of $26,296, (consisting of the aggregate principal amount of $23,000,000.00, plus original issue premium of $3,396, and less an underwriter s discount of $99,666.67). The Underwriter has agreed, subject to certain conditions, to purchase the Lot B Bonds from the City at the net aggregate purchase price of $6,969, (consisting of the aggregate principal amount of $7,000,000, and less an underwriter s discount of $30,333.33). The Bond Purchase Contract between the Underwriter and the City (the Purchase Contract ) provides that the Underwriter will purchase all of the Bonds, if any are purchased. The obligation of the Underwriter to accept delivery of the Bonds is subject to various conditions contained in the Purchase Contract. The Underwriter intends to offer the Bonds to the public initially at the offering prices or yields set forth on the inside cover page of this Official Statement. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing the Bonds into unit investment trusts) and others at prices lower or yields higher than the public offering prices or yields stated on the inside cover page hereof. The initial offering prices or yields may be changed from time to time by the Underwriter without any requirement of prior notice. Bond Insurance Bond Insurance Policy Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Bonds (the Policy ). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. BUILD AMERICA MUTUAL ASSURANCE COMPANY BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: , and its website is located at: BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects the S&P s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn. Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of June 30, 2015 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $480.1 million, $41.5 million and $438.6 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at is incorporated herein by reference and may 14

21 be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE. Additional Information Available from BAM Credit Insights Videos For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at buildamerica.com/creditinsights/. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Obligor Disclosure Briefs Prior to the pricing of bonds that BAM has been selected to insure, BAM may prepare a pre-sale Obligor Disclosure Brief for those bonds. These pre-sale Obligor Disclosure Briefs provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes bonds insured by BAM, any pre-sale Obligor Disclosure Briefs will be updated and superseded by a final Obligor Disclosure Brief to include information about the gross par insured by CUSIP, maturity and coupon. BAM pre-sale and final Obligor Disclosure Briefs are easily accessible on BAM's website at buildamerica.com/obligor/. BAM will produce an Obligor Disclosure Brief for all bonds insured by BAM, whether or not a pre-sale Obligor Disclosure Brief has been prepared for such bonds. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Disclaimers The Obligor Disclosure Briefs and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit-related and other analyses and statements in the Obligor Disclosure Briefs and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Obligor Disclosure Briefs and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and the issuer and underwriter assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Bonds, whether at the initial offering or otherwise. 15

22 THE ISSUER The City Government Organization Principal City Officials Municipal Services Boards and Commissions Mayor s Administration Economic Development Debt Management Budget Finance Municipal Employees Bargaining Organizations Municipal Employees School Enrollments 16

23 THE ISSUER The City The City of Waterbury was founded in 1674, incorporated as a village in 1686 and as a city in Located in west-central Connecticut at the heart of a 19-town area known as the Central Naugatuck Valley Region, the City is 21 miles north of New Haven, 29 miles southwest of Hartford, and 24 miles east of Danbury. The City is conveniently located at the crossroads of two major expressways, Interstate 84 and Connecticut Route 8. To the east, I-84 provides direct access to Hartford and joins the Massachusetts Turnpike for travel to Boston and northern New England. Heading west, 1-84 passes through Danbury and crosses the states of New York and Pennsylvania, with connections to the New York Thruway and Interstate 80. Route 8 south meets the Connecticut Turnpike (1-95) in Bridgeport, making all of southern Connecticut and Fairfield County easily accessible. To the north, Route 8 ultimately leads to the Massachusetts Turnpike. The City is home to a passenger rail station and a regional bus terminal. Rail, passenger and freight service in the area are operated by Metro North and Conrail, respectively. Metro North offers daily passenger round trips between Waterbury and New York City, and freight service via New Haven makes shipments possible to any point in the country. The deep water ports of New Haven and Bridgeport are within 30 miles of the City. Bradley International Airport, New England s second largest airport, is located 45 miles northeast of the City while Westchester County (N.Y.) Airport is 60 minutes southeast of Waterbury. In addition, Tweed-New Haven Airport has regularly scheduled commuter flights to Newark, Philadelphia, Chicago and Washington D.C. The City maintains a diverse and growing business environment as evidenced by the enclosed listing of major employers and major taxpayers. Manufacturing, healthcare, higher education, financial services, utilities and retail all have significant representation within the City providing employment opportunities and offering goods and services locally, regionally and globally. Waterbury continues to advance a comprehensive economic development strategy with both public and private investments that are producing solid returns. This strategy is complemented by a partnership with the State to identify and remediate brownfield sites to repurpose former manufacturing facilities 17

24 into new manufacturing facilities and mixed-use development projects. This strategy is further complemented by a workforce development collaboration between the City s new technical career high school, Naugatuck Valley Community College, the Northwest Regional Workforce Investment Board and the Manufacturing Alliance of Connecticut. This collaborative effort is geared towards producing employment results through the training and placement of individuals (students, residents, etc.) into unfilled high wage, high tech advanced manufacturing jobs. The City serves as a regional center of higher education for the area, being the home of Post University, Naugatuck Valley Community College, and an expanding downtown branch of the University of Connecticut (UCONN). Graduate school needs are met by the Waterbury extensions of the University of New Haven and the University of Bridgeport. The UCONN s Waterbury campus offers a Master of Business Administration (MBA) program and the Teachers Certification Program. Graduate programs leading to a Master s of Social Work (MSW) and a Master s Degree in Nursing (MS) are also available. Post University s offerings include a comprehensive online degree program which has seen very significant increases in enrollment since the introduction of the program. The City is a regional center for medical and mental health services available to Waterbury s 110,000 residents and the surrounding region. The City is home to Waterbury Hospital and Saint Mary s Hospital, the City s largest and second largest private employers, respectively. Both hospitals are equipped with trauma centers, have emergency helicopter pads and are affiliated with Yale University School of Medicine. In addition to the two hospitals, Waterbury is home to the Harold Leever Regional Cancer Center, a collaborative venture of Waterbury Hospital and Saint Mary's Hospital committed to bringing the best possible cancer care to the local community. There are also several hospital-affiliated health and wellness centers and walk-in clinics throughout the City and more than 20 certified convalescent homes and rehabilitation facilities. The City provides its population of approximately 110,000 residents with a variety of housing options in all price ranges. Single-family dwellings from modest to luxurious, multi-family homes, apartments and condominiums meet the needs of workers and residents. The City provides special housing for senior citizens and for low- and middleincome families and assisted living facilities. The City s public school facilities serving approximately 18,800 students include four high schools, four middle schools (one of which is a magnet school for grades 6-12), twenty elementary schools, and two alternative schools. There are eleven private or parochial elementary schools, three private or parochial high schools and one vocationaltechnical high school. The City s schools are considered racially balanced by the State of Connecticut Department of Education. The City and its school system are strongly committed to Pre-Kindergarten to Twelfth Grade Education. As a major part of that effort, the City and its school system have engaged in an aggressive school construction initiative to improve and modernize its school building stock. Two new pre-k through eighth grade neighborhood schools, Gilmartin and Duggan, were opened in August 2010 and August 2011, respectively. A third new pre-k through eighth grade school, Jonathan E. Reed, was opened in August A fourth new pre-k through eighth grade school, Carrington, along with a new technical high school, Waterbury Career Academy, were opened in August A $15 million dollar project for a new media center and additional classroom space at the Wallace Middle school was completed in August A $25 million dollar addition and alteration project for the Kennedy High School will be completed in Public parks and recreation facilities offering tennis, swimming pools, ball fields, ice skating, and recreational programs are located throughout the City. The City continues renovations to several parks including the installation of new playscapes, splash pads, benches and handball courts along with the replacement of bathroom facilities. The City offers bathing, boating, and fishing facilities at Lakewood Park within the City and at Lake Quassapaug and Hitchcock Lake just outside the City limits. Two 18-hole City-owned golf courses and an acclaimed 18-hole private course are located in Waterbury, and several 9-hole golf courses are situated immediately adjacent to the City. Mattatuck State Forest with its many trails and campsites is only four miles from the center of the City. Black Rock State Park, with swimming and picnic facilities available, is a short drive away. The City s downtown area is home to the fully restored Palace Theater, the Waterbury Symphony Orchestra, Seven Angels Theater, Waterbury Ballet, and the Mattatuck Museum. These are just a few of the many cultural institutions available to Waterbury residents and the surrounding region. The Silas Bronson Library, the public library of the City, was established in 1869 by an endowment from Silas Bronson. The library is now jointly supported by the Silas Bronson endowment and public funds. This October, a nearly $1 million interior renovation to the Silas Bronson Library will be completed. There are over 240,000 volumes and 120 computer workstations in the main library available to the public, while a branch library operates in the Bunker Hill section of the City 18

25 Government Organization The City is governed by a Mayor who will now serve for a four-year term and a Board of Aldermen made up of 15 members elected for two-year terms. Also elected are the City Clerk, Town Clerk, Sheriff, and the ten-member Board of Education. Other officials are appointed by the Mayor. Principal City Officials Office Manner of Selection/ Length of Term Initial Term Date of Appointment Neil M. O Leary, Mayor Elected 2 years January 1, 2012 Paul Pernerewski Jr., President, Board of Aldermen Elected 2 years January 1, 2010 Charles L. Stango, President, Board of Education Elected 4 years January 1, 2012 Dr. Kathleen M. Ouellette, Superintendent of Schools Appointed August 2011 Michael LeBlanc, Director of Finance Appointed January 2009 Ofelia Matos, Director of Budget Appointed April 2002 Linda Wihbey, Corporation Counsel Appointed January 2012 Municipal Services Fire Department The Waterbury Fire Department is a professional fire department providing a wide range of emergency services including fire suppression, hazardous materials mitigation, technical rescue and emergency medical dispatch. The Department also provides non-emergency services including public fire education, Connecticut Fire Code and Licensing building inspections and plan review. Emergency services are provided by nine engine companies (with one also functioning as a rescue/hazmat company), three truck companies, and three chief officers operating from ten fire stations. The Fire Department is responsible for First Responder duties. Police Department When at full capacity, the Waterbury Police Department operates with a complement of 285 sworn officers and 90 civilian employees. Located at 255 East Main Street, Police Headquarters is a 34,200-square-foot facility housing administrative, uniformed and investigative services. Specialized units include K-9, Emergency Response Team, Bicycle Patrol, Polygraph Services, Traffic Engineering, Victim Services, Blight Enforcement, Crimes Analysis, Hostage Negotiation Team, Crisis Intervention Team, School Resource Officers, and a full-service Forensic Laboratory capable of ballistics analysis/comparison and DNA collection. The Department utilizes a fleet of approximately marked and unmarked marked police cruisers. Off-site facilities include Animal Control, Traffic Division, Parking, Training Division, Community Relations Division and a Police Academy. Public Health The Waterbury Department of Public Health is a full-time health department dedicated to the protection and promotion of good health for the citizens of the City. The Nursing Services Division provides both nursing expertise and nurse aide support to over 20,000 public, private and parochial students as well as public health nursing. The Environmental Health Division provides wide-ranging activities from investigation and inspection of food establishments, response to housing code complaints, litter and blight complaints and enforcement of the public health code. Efforts of the Department of Public Health continue to address the need for improved access to health services for all citizens through innovative programs and wide ranging grants (HIV Prevention and Case Management, Lead Prevention and Hazard Control, Immunizations, WIC, Healthy Choices, Injury Prevention and Public Health Emergency Preparedness). Education The City s school system serves grades pre-kindergarten through twelve and is governed by the local Board of Education. Waterbury has a 10-member Board of Education elected to four year staggered terms. The primary function of the Board is to establish policy. Some of the areas for which such policies are set include curriculum, budget requests submission, ensuring funds for education as appropriated by the City are properly expended, implementation of both State and Federal laws, and planning for facilities needed by the system, including construction and renovation. The City has twenty (20) elementary schools, four (4) middle schools and four (4) high schools (including one magnet school for grades 6-12) and two (2) alternative schools for grades K-12. Solid Waste & Recycling The City provides municipal solid waste collection and recycling pick-up services to its residents. The City closed its landfill in September 1999 pursuant to a closure order negotiated with the Connecticut Department of Environmental Protection and began hauling its municipal solid waste to a contracted facility for incineration. The City currently has a contract with Covanta Energy to provide disposal services. The contract with Covanta Energy does not include a put-or-pay provision or any other guarantees obligating the City. The initial contract term with Covanta Energy is for 5 years through June 2018 with an option for an additional 5-year term. 19

26 Public Works The Department of Public Works has nine core functional areas staffed by approximately 180 full-time and 215 parttime/seasonal employees. The functional areas consist of engineering & traffic, street maintenance, central vehicle maintenance, municipal solid waste collection, leisure activities, golf, and public building and park grounds maintenance, overseen by a centralized administrative office of the Director. Recreation The City has almost 1,000 acres dedicated to recreation including 31 parks, 4 recreation centers, two municipalowned 18-hole golf courses, 22 playgrounds, 3 outdoor swimming pools, one lake facility, 16 spray pools and one municipal multi-sport field stadium complex. There are over 120 athletic fields available to the public, which include activities such as basketball, soccer, tennis and croquet. The City continually appropriates capital funds and awarded State grants towards the upkeep, maintenance and restoration of the City s recreational parks, playgrounds and athletic facilities. Water The City has the largest municipally-owned water system in the State. It encompasses 7,000 acres of City-owned watershed and has sufficient capacity to provide 38 million gallons of water per day. The system consists of two inactive and five active reservoirs with a total capacity of 7.54 billion gallons of water. The water treatment plant was completed in 1987 at a cost of approximately $35 million. Average consumption for the fiscal year 2015 was 15.9 million gallons per day. The system serves customers located in Waterbury and neighboring communities and is a self-supporting enterprise fund of the City. A $17.7 million capital appropriation and bond authorization was approved in May 2015 for plant, equipment and system renewal capital costs anticipated to be incurred over the next five years. Water Pollution Control The City has approximately 320 miles of sanitary sewers and 20 pump stations. The City s upgraded MGD advanced Sewage Treatment Facility was put into operation in April of 2000 in accordance with a consent order between the City and the State of Connecticut Department of Environmental Protection. The planning, design and construction phases of this upgrade were funded through the State of Connecticut Clean Water Fund Program. Though the City is ultimately responsible to the State for repayment of the total cost of each phase of the upgrade, the City entered into agreements with municipal users of the Sewage Treatment Facility (Watertown, Wolcott, Cheshire and Prospect), whereby the municipal users are obligated to pay their allocable share of the costs for each phase of the upgrade. Pursuant to the State Clean Water Fund Program, the City has adopted a Sewer User Charge System to pay the costs of operating its collection and treatment system, including capital improvements and debt service on outstanding sewer bonds and Clean Water Fund notes. The EPA has mandated that all New England states establish limitations on phosphorous in all wastewater discharge permits. The State Department of Energy & Environmental Projection ( DEEP ) has established proposed limits that would require significant capital investment including the installation of effluent filter equipment along with chemical phosphorous removal and operational changes to reduce phosphorous nutrient loads to achieve a 0.2 mg/level currently being proposed by DEEP. Preliminary capital cost projections to meet the 0.2 mg/level were estimated at $45 million with the State offering 30% reimbursement towards construction costs. In October 2013, the State DEEP agreed to give Waterbury more time to comply with the strictest of its new phosphorus reduction requirements allowing for two phases (short-term & long-term) with 0.7 mg/level set as the first interim target limit. Achieving the short-term target of 0.7 mg/level can be accomplished with the addition of chemical additives and limited capital investment. The lower target limit of 0.2 mg/level will be required in eight (8) years allowing Waterbury the time needed to study and evaluate options for what will likely be a complicated and costly strategy to reach the 0.2 mg/level. A $10.3 million capital appropriation and bond authorization was approved in May 2015 for plant, equipment and system capital expenses, including investments to achieve lower phosphorus levels. Utilities Gas is supplied by the Yankee Gas Services Company for households and businesses. Electricity is furnished by The Connecticut Light & Power Company for households and businesses. Both companies are now under one entity called Eversource Energy. 20

27 Boards and Commissions The following Boards and Commissions are created by Charter and the Board of Aldermen has adopted ordinances setting forth the organizational structure and powers of such Boards and Commissions: Board of Commissioners of Public Health Board of Park Commissioners City Plan Commission Board of Police Commissioners Board of Fire Commissioners The Zoning Commission Board of Assessment Appeals Board of Commissioners of Public Works The Retirement Board Among the terms of the Code of Ordinances relating to Boards and Commissions are the following: (i) number of Board and Commission members (and, alternates, in the case of the Zoning Commission and the Board of Assessment Appeals), except as otherwise provided by the General Statutes, which number shall always be odd; (ii) terms of office, which may be staggered and shall not exceed four years; (iii) provision for the appointment of a Chair; (iv) standards for the keeping of records; (v) Aldermanic and minority party representation; (vi) public participation (including, but not limited to, public speaking); and (vii) frequency of meetings of all Boards and Commissions. The Charter also specifically authorizes the establishment of departments and agencies of the City that deal with key functions such as the legal department, government administration, public safety, health and community services, government operations and development and constables. Finance and Audit Review Commission Chapter 6 of the Charter established the Finance and Audit Review Commission ( FARC ). The first members were appointed on January 1, The FARC has the authority to examine all matters relating to the financial and budgetary efficiency, efficacy, and condition of the City. Notwithstanding the provisions of the Charter pertaining to the executive powers of the Mayor, the Department of Audit is under the direct supervision of the FARC. The FARC is authorized to audit and examine or cause to be audited and examined the books and accounts of all of the departments and officials of the City, including the Department of Education. The FARC is to review the contents of the annual audit and make recommendations to the Mayor regarding the manner and means of improving the administrative processes pertaining to the operations of the City. The FARC is responsible for the general supervision of the Department of Audit and shall give due consideration to requests from the Mayor or the Board of Aldermen in establishing and modifying the work plan of the FARC or its staff. Each officer and employee of any department, institution, board, commission or agency of the City is obligated to assist the FARC and the Department of Audit in carrying out its powers and duties as provided in the Charter. Mayor s Administration Mayor Neil M. O Leary was sworn into office in December 2011, was re-elected to a second two-year term in November 2013, and then was re-elected to the City s first four-year mayoral term on November 3, The Mayor has spent his first two terms in office spearheading multiple initiatives with the common goal of improving the quality of life for Waterbury citizens, growing the City s taxable grand list and increasing the City s employer base. Economic development is a core function of the Mayor s Office and his administration. The Mayor aims to transform the City into a multifaceted locale for advanced technology, niche manufacturing, healthcare, educational opportunities and cultural venues. The Mayor and his administrative and economic development teams continue a multifaceted effort to build a sustainable future for the City that makes the links between transportation, housing, and the environment so that the City remains a great place to live, work and do business. The Mayor believes that with the presence of a skilled and educated workforce, affordable real estate, and the convenience and culture of city life balanced by the nearby rural beauty of the countryside, the City will continue to draw interest from investors and developers who see Waterbury as a center for business, education and quality of life. The Mayor serves as the Chairman of the Naugatuck Valley Council of Governments (NVCOG) and is currently serving his second term as Vice Chair of the U.S. Conference of Mayors Advanced Manufacturing Task Force. 21

28 Economic Development Securing Waterbury s Resurgence The Mayor, since coming into office on December 1, 2011 has made economic development one of the major core functions of his Administration. The Mayor s focused efforts on economic development included the establishment of a full time Economic Development Director s position within the Mayor s executive cabinet. The Economic Development Director s core functions include the recruitment of new business, maintaining the stability and retention of existing business and the pursuit of developers and companies looking to invest in Waterbury. The Mayor s Economic Development team meets weekly to ensure that updates are communicated timely along with extensive discussions on all ongoing initiatives and potential new opportunities. The economic development program encompasses recruitment of new business, stability and expansion of existing business, remediation & repurposing of brownfield sites, downtown investment & development, housing, education & transportation along with public infrastructure improvements including recreation facilities and parks. New downtown housing and investment by professional companies, securing new manufacturing operations throughout the City and building alliances between all local education institutions, local workforce investments agencies, Waterbury s two major hospital institutions and local and State manufacturing alliances are seen as critical steps to the resurgence of the City and new employment opportunities. The Mayor & Economic Development Director work in close collaboration with the technical ability and resources of the Waterbury Development Corporation. The Waterbury Development Corporation (WDC) is the City s designated economic and community development agency. The WDC is the City of Waterbury s designated economic and community development agency. It was founded in May 2004 as a partnership of the public and private sectors and works collaboratively with city and state officials to stimulate and sustain Waterbury s economic resurgence by assessing and repurposing contaminated properties (brownfields), eliminating urban blight and decay, and managing various construction and capital improvement projects. This team approach has proven beneficial and has been further supported with establishing strong relationships and collaborative efforts involving the Connecticut Department of Economic & Community Development (DECD) and Connecticut Department of Transportation (CDOT). Securing State and Federal grants along with private investment is an integral component of the City s economic development efforts. The following announcements highlight the progress and transformational opportunities that continue here in the City of Waterbury: In July 2014, the State of Connecticut awarded $12.2 million to the City for the Waterbury NEXT strategy, which consists of six initiatives developed to build on the momentum of the City s revitalization in the last several years with the redevelopment of the Palace Theatre, the success of the UCONN Waterbury campus and continued reductions in crime and blight. The following outline provides information pertaining to the six initiatives: $5 million to support the redevelopment of the historic Howland Hughes building located at Bank Street. The city believes that with modern upgrades to the building s interiors and facades, a significant commercial tenant with up to 500 jobs could be attracted to downtown Waterbury. $4 million of improvements in public realm infrastructure in downtown Waterbury, including new pavement, curbs, basic street trees and lights, pavers, curb alignment and drainage, and upgrades to the West end of the city s green. The State and City believe this enhanced streetscape and public open space will make downtown Waterbury more attractive to employers and residents. $1 million to acquire the long-underutilized Anamet site located at 698 South Main Street, a contaminated brownfield site, which will enable both a new mixed-use development as well as the creation of the Naugatuck Valley Greenway, which will be a significant new public open space amenity for downtown Waterbury. The State has previously committed a $2 million grant to the City to fund the demolition and environmental remediation. $1.2 million to demolish the blighted and long-closed Prospect Street garage which will enable the construction of a new parking structure to meet the expected surge of demand for parking with an increasingly active downtown Waterbury. $1 million to support the City s acquisition of the historic Rose Hill campus located at 63 Prospect Street to be repurposed for a mix of non-profit, education and recreational uses. The City believes that repurposing this property for a mix of uses including non-profit office space, recreation and educational space, will accelerate the revitalization of Downtown Waterbury by enhancing the other investments that are being made in the downtown area. 22

29 In September 2014, the United States Department of Transportation announced that the City of Waterbury was selected as a recipient of a $14.4 million Transportation Investment Generating Economic Recovery Grant (TIGER) that will fund the Waterbury Active Transportation and Economic Resurgence (WATER) Project, comprising an integrated system of active transportation improvements including the reconstruction and expansion of a network of local streets to enhance development opportunities. The TIGER Grant will facilitate the transformation of the City s Freight Street and Naugatuck River transportation corridors. The WATER Project is a multi-faceted mobility enhancement project that is part of a larger ongoing initiative to reform and revitalize the city s landscape. The project will catalyze redevelopment of 60 acres of under-utilized downtown land around the city s train station, revitalize historically blighted river corridor neighborhoods and reshape the downtown into a vibrant, livable pedestrian-friendly community. It complements the Waterbury NEXT downtown initiative, and together, represents the most comprehensive and far-reaching plan to stimulate the City s economy and position Waterbury to capture a greater proportion of the region s future economic growth. In March 2015, the State Department of Housing committed $5 million to the restoration of the historic Brown Building at Bank and East Main streets in downtown Waterbury. The second and third floors of this historic building will be renovated into mixed-income one- and two-bedroom apartments. The building s façade will also be renovated. In August 2015, the U.S. Department of Housing & Urban Development awarded a $3 million dollar grant to the City for lead abatement projects in homes throughout the City. At the same time, the State awarded $1.1 million to the City to revitalize and expand affordable housing. In September 2015, a ground breaking ceremony was held at the City s Waterbury Industrial Commons site. In 2014, Mayor Neil M. O Leary and Richard S. King, signed closing documents on King Industry s acquisition of acres of a remediated brownfield industrial site at Waterbury Industrial Commons. The City of Waterbury had previously acquired the 30-acre brownfield site with the goal of turning Waterbury Industrial Commons in a first-rate premier industrial park. King Industries will invest $50 million for the construction of an 80,000 square foot manufacturing complex that should create an estimated 180 construction jobs and upon completion 200 permanent manufacturing jobs. Employment Base The City s Economic Development Team continues to provide assistance to companies large and small, including those already in Waterbury and those looking to come here. The City continues to advance its economic development strategy with both public and private investments as evidenced by the opening of more than 25 new businesses and the expansion of 15 existing businesses since January 2014, providing for over 1,250 new full and part-time employment opportunities within the City. The new businesses include manufacturing, retail, restaurant and professional businesses, allowing for continued expansion and diversification of the City s employment base. Businesses that have started construction or are scheduled to start construction in 2015 should bring an additional 680 new jobs to the City. The City s economic development team is utilizing new loans and grant programs established by and offered through the State Department of Economic and Community Development. These low interest loans combined with tax abatement programs continue to produce activity which is enhanced by Waterbury s location at the intersection of Route 8 and I-84 in the center of Connecticut. The unemployment rates of the City of Waterbury and the Waterbury labor market as a whole continue to trend lower representing the positive impact of local efforts over the past few years to create new job opportunities complemented by a steadily improving labor market. Waterbury s unemployment rate peaked at 16 percent in February 2010 the height of the Great Recession. By April 2015, it was 9.5 percent. In May 2015, it was cut further to 9.3 percent in a continued downward trend, and by August 2015, it was down again to 9.0 percent. The City continues to see significant activity in the manufacturing portion of its economic base resulting in the creation of new jobs. Waterbury Construction Career Initiative, a program run by the Northwest Regional Workforce Investment Board (NRWIB), allows residents to attend orientation sessions to learn about construction career opportunities. Many of those residents return and are enrolled in formal job training programs. In the resurgent area of manufacturing, significant employment openings remain as a result of a skills gap. Through a partnership with Naugatuck Valley Community College and the NRWIB, the City is training and placing its residents into high wage, high tech advanced manufacturing jobs. Programs expanding after-school academic and manufacturing training for City students have been implemented as well. In the summer of 2013, the Mayor requested an expansion of after-school academic and manufacturing training for City students. The offerings focus on manufacturing and S.T.E.M. (science, technology, engineering and math) opportunities. 23

30 Health Care Services The City and the surrounding region are currently served by two large Waterbury based hospitals - Waterbury Hospital and Saint Mary s Hospital, the second and third largest employers respectively in the City. Waterbury Hospital is located in the upper west end of the City and Saint Mary s Hospital is located downtown. The associated Cardiac Surgery Center and Harold Leever Cancer Center continue to experience growth in the number of patients it serves annually. Despite efforts of the O Leary Administration, attempts earlier this year to merge St. Mary s and Waterbury Hospitals were officially deemed unsuccessful. However, Waterbury Hospital in May announced plans to merge with the privately owned Prospect Medical Holdings Inc. of Los Angeles. In September, St. Mary s announced it had signed an agreement with Trinity Health and Saint Francis Care to further expand people-centered care in New England. These most recent announcements evidence the long-term viability of both institutions in the City. Downtown Revitalization Presently, downtown has well over 150 businesses located within its boundaries. These include professional offices, restaurants, entertainment venues, educational facilities, retail establishments and others. The downtown area offers elegantly refurbished brownstones and turn-of-the-century architecture with affordable housing opportunities, retail and office space. Parking is plentiful and strategically located throughout downtown. The Mayor, the Economic Development Director and the WDC actively reach out to existing downtown businesses to engage them in reinvestment opportunities and programs to further advance downtown revitalization. Aside from the aforementioned $12.2 million Waterbury Next initiative, the State Department of Housing contributed another $5 million for the renovation of the historic Brown Building Downtown. It is anticipated that this major commitment by the State along with the City s commitment of project management services and additional local funding will attract significant private investment and development in the near term and in turn, lead to additional opportunities for economic growth and job creation. The establishment and strengthening of collaborations with business leaders, the Waterbury Chamber, community groups and other key City stakeholders is at the core of the Waterbury Next initiative and deemed a most critical component to achieving its success. Waterbury-based Webster Bank, founded in 1935 and operating 169 banking centers in Connecticut, Westchester County, New York, Rhode Island and Boston has opened a new 3,000 sq. ft. banking center adjacent to its downtown Waterbury headquarters. Later this year, the downtown headquarters will be converted into office space to facilitate 50 human resources and procurement employees who will relocate from other bank locations in Connecticut into the downtown Waterbury location. With the expanding banking center and renovated headquarters, it is anticipated that over 100 additional jobs should be added in downtown Waterbury. The City is close to completing renovation of a vacant, City-owned 22,500 sq. ft. downtown building adjacent to the Waterbury Palace Theater. When finished later this year, the building will be leased to the University of Connecticut (UCONN) allowing for further expansion of UCONN s Waterbury campus in downtown Waterbury. The UCONN Waterbury branch originally located downtown in 2003 into a new state of the art $30 million dollar facility. The downtown branch is now educating far more students than originally planned. The upper floors of the leased facility will offer UCONN expanded space including six 50-student classrooms, a student lounge and a large meeting space directly across the street from its main downtown branch. Plans are for a Starbucks or similar business to occupy the street level retail space. Putting this building to new use and creating a strong identity with its surrounding uses will further expand the downtown hub for education and the arts. Multiple initiatives are underway to support the redevelopment of historical downtown buildings and gateway locations into market rate housing to help meet projected demand for downtown housing and contribute to the overall downtown revitalization initiative. Waterbury Development Corporation (WDC) Business Growth Group (BGG) Initiatives WDC Business Growth Group (BGG) administers business loans, tax abatements, and façade improvement loans and grants to existing City businesses and to businesses looking to open in the City. The availability of loans and other business incentives has made the BGG Waterbury s clearinghouse for business development inquiries. In addition, the BGG works in partnership with the City s Economic Development Office on business retention, expansion, and recruitment. In 2014, the Business Growth Group attended over 75 client meetings and visits also marked the third full year of the WDC s partnership with the State of Connecticut Department of Economic and Community Development s Small Business Express Loan program. In 2014, this program funded $600,000 in new loans locally as well as a backlog of approved loans of $400,000. To date these borrowers have committed to the creation of 146 new full time positions as well as retaining an additional 294. WDC s direct loan programs provided a total amount of $565,000 in new funding with an additional $815,000 in approved backlog moving forward into As of June 30, 2015, WDC is managing a loan portfolio containing fifty-nine loans with a total outstanding value of approximately $6 million. Forty-percent of the loan portfolio is related to manufacturing enterprises with the balance spread across the retail, service and food and beverage industries. 24

31 State and local enterprise zone tax abatement programs are available to qualifying business. If the owners of a manufacturing operation are considering Waterbury with other towns offering lower tax rates, the availability of tax abatement programs can help level the playing field. The awarded tax abatements reduce annual taxes for qualifying projects that are undertaken by local business owners for a period of 5 to 7 years. The City, through legislation, also offers two incentive programs for manufacturing and certain industrial projects. Such incentives provide an advantage to local business owners and attract private investment for the expansion and rehabilitation of Waterbury properties. WDC also administers the Enterprise Zone Program and the Urban Jobs Tax Abatement Program. Both of these programs continue to result in business retention, business creation, job creation and the enhancement of neighborhoods. Over 10 companies undertook projects and received tax abatements for the October 1, 2014 Grand List Year. Transportation Development The concept of developing a multi-modal transportation center to serve the City and the surrounding Central Naugatuck Valley Region has been discussed for several years. A Multi-Modal Transportation Center is envisioned to house and link a variety of transportation services including commuter rail, inter and intra city buses, taxis, shuttles (downtown, hotels, airport, etc.), commuter travel, and rail tourism activities. The WDC is facilitating a long-term phased approach to the ultimate goal of creating the multi-modal transportation center. Phase I resulted in the demolition of a long vacant building owned by the CDOT located adjacent to the City s active rail-line station in downtown. With the assistance of DOT, a former baggage area within the adjacent clock tower building is being programmed to provide a comfort station for commuter rail ridership. In April 2015, the State began work on the design of a new signalization system for the Waterbury Branch of the New Haven Line that will enhance safety and pave the way for more trains and improved service. Funding of $6 million to $7 million is being provided by the Connecticut Department of Transportation for the design. Additionally, in April 2015, the State began a massive undertaking to widen the east and west lanes of Interstate 84 through Waterbury, a project that s expected to take four to five years to complete. Once finished, the project will allow traffic to flow freely through Waterbury and open more opportunities for new and existing businesses. Brownfield Redevelopment Program Brownfield redevelopment is seen as an integral component of current and future economic development within the City. A combination of federal, state, and City funds are presently being used for the assessment and cleanup of many contaminated sites across the City. Brownfields have been the City s biggest obstacle to the provision of pad ready properties to support: manufacturing and processing; wholesaling, distribution operations, warehousing and freight handling; sub-assembly operations; and industrial services. The City and the Waterbury Development Corporation continue to leverage funds for the preparation of shovel-ready sites. To date, 20 brownfield sites have been assessed. A total of seven of those sites have been remediated and repurposed. The following is a summary of active brownfield projects that speak to the importance, continued commitment and significance of this initiative towards the City s sustainability and economic development strategy: Freight Street Redevelopment Project, Parcels located at 130 Freight Street and 000 West Main Street were originally the site of the American Brass Company followed by EWR and Phoenix Soil. They are currently abandoned and are awaiting redevelopment. The brownfield sites along Freight Street are large, flat, and have an ideal location along the river, making them particularly suitable for redevelopment. Freight Street has been identified in the recently commissioned update of the City s Plan of Conservation and Development and its Downtown Strategic Plan as the last viable opportunity to expand the core of downtown Waterbury and connect it with the Naugatuck River. The WDC is using over $260,000 of leveraged grant funds to assess surficial environmental conditions at both parcels. This work includes cataloguing the contents in all above-ground storage tanks and associated containment areas and inventorying the hazardous building materials contained within the existing buildings. The data will be used to design future environmental assessments and to develop a cost to demolish all of the structures. Ultimately, the City will use the results of these and future studies to determine if it should acquire the properties, which would allow it to control the future redevelopment of the parcels. Cherry Street Industrial Park Project, For the past several years the WDC has been working on four parcels within the Cherry Street Industrial Park. Work included the deconstruction of all existing structures and removal of associated debris and the closure of a large underground storage tank farm utilized in various historic manufacturing operations. The final component of this project was to enhance the streetscape to prepare the site for redevelopment. These improvements consist of new sidewalks, decorative fencing, and new street lights. This work will be completed this fall. A request for proposal for the redevelopment of the four parcels was advertised on September 28, The desired outcome is to sell the property to a developer who will build an industrial use on the site that will provide job opportunities for local residents and grow the City s Grand List. Responses are due on October 19,

32 Former Harper Leader Manufacturing Facility Project, In 2011, the WDC oversaw the removal of the dilapidated mill building and a limited environmental assessment to identify additional onsite environmental concerns. This assessment identified over 20 areas of environmental concern. Of the twenty, WDC is currently addressing two, a 10,000 gallon underground storage tank and the former hydroxide lagoon. A large underground storage tank was identified and funding was secured to remove the tank and to perform confirmation samples in the resulting grave. The next phase of the project is to perform a geophysical investigation on the site to ensure additional underground storage tanks are not present. A topographic survey identified a location that once housed a hydroxide lagoon that WDC will assess and perform remediation as funding allows. Mad River Redevelopment Project, Formerly the Nova Dye and Print facility. On April 7, 2012, a fire started and spread through the factory. The factory complex was largely destroyed. The City acquired the blighted property in November 2013 and leveraged $2.4 million in grant funds to demolish all remaining structures, remove all debris from the site, and install a fence around the entire perimeter of the property. Ongoing work includes the completion of Phase II and Phase III environmental site assessments and a topographic survey to identify the boundaries of wetland soils, the flood way, and 100-year and 500-year flood plains. All of these data will be used to help determine the most feasible reuse strategy for the site and to attract developers. Adjacent parcels along the banks of the Mad River once housed several large manufacturing operations. The City has taken possession of three adjacent parcels and is considering tax foreclosure on a fourth adjacent brownfield parcel. Various environmental site assessments and topographic surveys are in various stages of completion and the resultant data will be used to determine viable end uses for the properties and to solicit developers. Waterbury Industrial Commons Site Remediation & Redevelopment On July 19, 2010 the City approved a $60.4 million bonding and grant financing appropriation for the acquisition, clean-up/remediation and renovation of the Waterbury Industrial Commons Property located at 1875 Thomaston Avenue to the benefit of existing tenants and originally to provide a location for the planned construction of a centralized Department of Public Works & Vehicle Maintenance Facility. The City later decided against moving the maintenance facility there. In the fall of 2011, demolition began on the southern portion of the Mile Long Mill facility formerly the site of the Chase Brass & Copper manufacturing plant. Approximately 186,000 square feet of the northern portion of the facility has been rehabilitated and expanded to accommodate growth by existing tenants resulting in over 200,000 square feet of industrial space. The end result of this project is a remediated site that the City has leased to large-scale industrial tenants resulting in increased lease income, tax revenue and employment opportunities. The project, funded with $15 million in federal Department of Defense grant funds and local bond authorization commitments, has resulted in one of the largest remediated industrial or manufacturing ready sites in New England. Long-term lease agreements have been negotiated with four major tenants who have committed to remain on the existing site. Among them are LUVATA, an international company whose Waterbury plant will soon become the world s single-largest manufacturer of superconducting wire used in the health-care industry. The DPW Facility was removed from the plans for the rehabilitated property site early in 2013 in order to allow the City to seek more attractive and viable options for expansions by existing tenants and the attraction of new businesses looking to establish operations on a first rate premier manufacturing site in close proximity to major highways and rail line capacity. In 2014, Mayor Neil M. O Leary and Richard S. King signed closing documents on King Industry s acquisition of acres of a remediated brownfield industrial site at Waterbury Industrial Commons for $750,000. In September 2015, a ground breaking was held on the site. King Industries will invest $50 million for the construction of an 80,000 square foot manufacturing complex that will create an estimated 180 construction jobs and upon completion over 200 permanent manufacturing jobs. East End Development Commercial development continues to rapidly expand in the City s East End. The East End is home to existing retail complexes including Kohl s, Costco, and the CoCo Key s water resort and hotel conference center. Site work continues on two large scale private developments in the same East End location with a retail plaza recently opening that has experienced swift leasing. It is anticipated that over the next two years approximately 500,000 square feet of retail/commercial space will be available in this area contributing to the City s tax base and employment growth. Car Max, the used car super store, is finalizing plans to come to Progress Lane in 2015, creating up to 160 jobs. Education School Construction and Renovation Program The City and its school system are strongly committed to pre-kindergarten to twelfth grade education. The City embarked on an aggressive school construction program focused on meeting the needs of student enrollment and satisfying various deficiencies within the public school system nearly 10 years ago. Since then, two new pre-k through eighth grade neighborhood schools, Gilmartin and Duggan, were opened in August 2010 and August 2011, respectively. A third new pre-k through eighth grade school, Jonathan E. Reed, was opened in August A fourth new pre-k through eighth grade school, Carrington, along with a new technical high school, Waterbury 26

33 Career Academy, were opened in August A $15 million dollar project for a new media center and additional classroom space at the Wallace Middle school was completed in August A $25 million dollar addition and alteration project to the Kennedy High School will be completed in The City has completed significant renovation and additions to its high schools in response to identified accreditation needs. All schools have maintained their accreditation. They include the addition of media centers at Crosby and Kennedy High Schools, classroom additions at Wilby and Crosby High Schools, and renovations and upgrades to Wilby s Science Center. The district s alternate education building has also been renovated and reopened for the school year. The new Waterbury Career high school, opened in August 2013, has relieved enrollment pressures on the City s three comprehensive high schools and had provided Waterbury students with an alternative to the traditional high school curriculum with a focus on manufacturing, computer technology and human services. Earlier this year the City and Board of Education were strongly considering seeking approval for a new pre-k through eighth grade school in the City s East End. With over ten years having passed since the last public education facility assessment, the school district called for a current facility study to be completed along with a study on redistricting. The Board of Education recently received the facility utilization and redistricting study which is now being evaluated by the Board of Education. All of the projects described above have been financially supported in large measure by the State of Connecticut school construction reimbursement program. Having a strong, vibrant school system that additionally offers career directed course curriculum options at the high school level are considered a critical part of the City s overall sustainability and economic development strategies. Blight Demolition Program In January 2012, the Mayor announced an anti-blight campaign concentrated in inner city neighborhoods in the north and south ends of the City. The City and the WDC maintain this aggressive Anti-Blight/Demolition Program. The City s blight taskforce consisting of the Building Official, Fire Marshal, and representatives from the Health Department, City Planning Department, Police Department, Mayor s Office and the WDC meets weekly. The taskforce meets to discuss and prioritize properties slated for demolition. The City has a large number of properties that are vacant or that contain vacant and dilapidated buildings. The existence of these vacant and blighted properties/buildings contributes to the decline of our City s neighborhoods. It is further evident that the existence of these properties adversely affects the economic wellbeing of the City and is detrimental to the health, safety and welfare of City residents. The City utilizes the emergency powers of the Building Official for condemnation purposes to effect demolition of these rundown structures. Vacant/abandoned/foreclosed units are purchased, rehabilitated and put back into active use on the City s Grand List as part of this program or committed to open space for the benefit of the neighborhood. The City annually commits funding received from the federal Neighborhood Stabilization Program (NSP) towards the acquisition and rehabilitation of foreclosed residential properties. In addition, the City has committed $1.7 million under two separate bond authorizations approved by the City to continue this initiative. Community Development Block Grant Program (CDBG) In 2014, the City used its CDBG funds to address many priority needs. Social service programs selected for funding were prioritized by the Citizens Advisory Committee (CAC) with those meeting the basic needs of food, shelter/housing and health receiving the highest ranking; those serving the elderly, youth and transportation 2nd and education, case management and recreation 3rd. All programs selected for funding met this test. The social service programs served a total of 13,278 residents. There were eight projects selected for funding, three of which were proposed by non-profits; one of which serve the homeless and the very low income (Brass City Harvest). The other two serve low income youth; the elderly and the disabled (Police Activity League and the YMCA). The remaining five projects were City sponsored projects designed to upgrade and improve local sidewalks, improvements to City parks and interior and exterior improvements to the City s downtown Library. Home Program In 2014, the City used HOME Program funds to continue a concentrated effort on the support of large projects developed by non-profit organizations and community housing development organizations. HOME funds were used to increase the supply of new affordable rental housing; increase the supply of larger rental units (those with 3- bedrooms for families with children) and to expand the supply of new elderly rental units. Francis Xavier Plaza, LLC completed the rehabilitation of a former school into 20 units of supportive affordable housing. Liberty Commons Limited Partnership completed construction on Liberty Commons Apartments, a 33 unit rental project in early Liberty Commons provides families at or below 50% of the MFI affordable housing in the South End, one of the City s targeted neighborhoods. Gaffney Place Housing Revitalization Project rehabilitated longneglected vacant investor owned properties at Gaffney Place and Central Avenue close to downtown. Each of the properties required substantial renovations to make them decent, safe and affordable. Plans are to sell the properties to low income families and or individuals who will occupy the homes. In early 2015 a commitment of HOME funds 27

34 was made to the Naugatuck Valley Housing Development Corporation for bathroom renovations at Brookside Cooperatives, a limited equity co-op. This will assist 27 owners in continuing the affordability of the units. Recreation and Cultural Development Municipal Stadium Project, Municipal Stadium is the main athletic facility for the City with multiple baseball fields and a 130,000-square-foot synthetic football field. The City, with the assistance of DECD, has been slowly renovating the facility since 2006 to meet the growing needs of City athletes. Plans were finalized for the installation of a 1,800-person capacity aluminum grandstand and grandstand renovation work in December of The project consists of the installation of the aluminum decking system, completes the repointing (restoration) of the granite façade, the installation of parapet capstones atop the main wall, the restoration of the main entrance, egress lighting and site lighting. Construction will be completed during the fourth quarter of 2015, with punch list activities carrying into January The Mayor has directed WDC to work with the President of the Board of Aldermen to establish a bi-partisan working group made up of members of the Board of Alderman to aid in the development of a free standing structure to house spectator toilets, locker rooms and associated support spaces. WDC will be working with this group to design and construct this building in 2016, if funding allows. The City/WDC received notice from the Department of Economic and Community Development that additional funding has been approved by the State Bonding Commission for further renovations to the Municipal Stadium Complex grounds. The Project scope is being developed and will likely include renovation/reconstruction of the sidewalks, south parking lot, perimeter fencing and site lighting. Naugatuck River Greenway Project, Significant grant money has been awarded to the City for the physical construction of Phase I of a Greenway along the banks of the Naugatuck River. It is believed that the Greenway Project will reconnect residents of the City and the region with the Naugatuck River, encourage the use of alternate means of transportation, foster significant riverfront redevelopment and further Brownfield remediation, as well as promote healthier lifestyles and an improved quality of life. The identification of artifacts on a section of land adjacent to the Naugatuck River has temporarily delayed the final design and issuance of requests for proposals on project construction. It is anticipated that authorization to proceed will occur in early Debt Management The City is strongly committed to attaining the right balance of capital renewal and reinvestment within the City over time. Each and every bond authorization submitted for approval by the City s governing body is critically evaluated beforehand by the City s Administration. All merits of the project are evaluated to ensure the project fully warrants committing the City s bonding capacity for the identified purpose. The City s bond authorization and debt issuance program is designed to manage in increases to the City s annual debt service commitment over the next 5- years, then leveling off at an annual debt service cost in the 5%-6% range of total budget. A level annual debt service commitment in that 5%-6% range of total budget will provide for continual capital investment opportunities in education facilities, infrastructure and economic development initiatives for the long-term betterment of the City, its residents & businesses and to provide long-term sustainability of the City for generations to come. Since 2004, the City has approved $275.6 million in bond authorizations for construction of new schools, school additions and school renovation as new projects. All schools have maintained their accreditation. Approximately 78 percent of the total school project authorizations will be funded through the State of Connecticut s school construction reimbursement program. The City anticipates permanently financing a total of $68.8 million for approved school bond authorizations. Over the past 6 years, $49 million in bonding for school projects has occurred. Since 2004, the City has approved $196.1 million in bond authorizations to finance a complete historical restoration of City Hall at a cost of $36 million, a continual commitment of funding for infrastructure improvements including road reconstructions, sidewalks and road restoration, funding for city-wide public safety communication equipment, construction of a centralized DPW Facility, remediation and repurposing of a decades closed manufacturing facility and many other productive initiatives supporting continual reinvestment into the City. The City anticipates permanently financing $155.2 million for approved general purpose bond authorizations since 2004, net of grants awarded to the projects. The City aggressively seeks grant assistance on these general purpose projects as evidenced by a $15.7 million award from the Department of Defense and a $14.4 million T.I.G.E.R. Grant awarded to the City from the U.S. Department of Transportation. Over the past 6 years, $99.2 million in bonding for these projects has occurred. 28

35 Budget The City s Budget Office includes a Budget Director, a Policy & Management Budget Specialist and a high level Accountant position. Current budget performance is monitored on a weekly basis encompassing budget to actual analysis on all General Fund revenue and expenditure accounts. A Cost Containment & Oversight Committee (CCOC) meets weekly to review the budget performance results presented by the Budget Office. The close monitoring of budget performance and regular meetings of the CCOC allow for additional budget control measures to be implemented timely when deemed necessary. For more than ten years running, the City has produced fiscal year end budget surpluses while at the same time not drawing upon any designation of fund balance built into the budget. It is a testament to the efforts of the Budget Office, the CCOC and the fact that the City s adopted budget is based on sound principals, reasonable expectations and is not reliant upon one-time revenues. The budget development process begins with City departments submitting estimates of expenditures to the Mayor no later than the second Friday in January each year. The Mayor submits a general and capital budget to the Board of Aldermen on or before April 1, which is subject to at least two required public hearings and final action not later than midnight of the second business day following the first Wednesday after the first Monday in June. The Mayor s proposed budget for FY2016 was submitted to the Board of Aldermen on April 1, Two public hearings were held and the Board of Aldermen conducted several budget subcommittee meetings to review the Mayor s proposed budget with the Mayor, the Director of Budget and each Department Head. The FY2016 budget was adopted on June 8, Finance The Finance Department, overseen by the Director of Finance, is comprised of several divisions including Tax, Assessment, Purchasing, Risk Management, Treasury, Accounts Payable, Payroll and Pension & Benefits. The City s management is responsible for establishing and maintaining an internal control structure designed to ensure that its assets are protected from loss, theft or misuse, and to ensure that adequate accounting data is compiled to manage spending within prescribed budget limitations and for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. Comprehensive Annual Financial Report (CAFR) - The Finance Department submitted the City s Comprehensive Annual Financial Report for the fiscal year ending June 30, 2014 to the Government Finance Officers Association for certification. For the eighth (8) consecutive year the City s Comprehensive Annual Financial Report was awarded the Certificate of Achievement for Excellence in Financial Reporting. The Certificate of Achievement is the highest form of recognition in the area of governmental accounting and financial reporting, and its attainment represents a significant accomplishment of the Department of Finance. In order to receive the Certificate of Achievement, the Department of Finance published an easily readable and efficiently organized comprehensive annual financial report. The 2014 Comprehensive Annual Financial Report satisfies both accounting principles generally accepted in the United States of America and applicable legal requirements. Financial Statement Audit - On December 22, 2014 the City s Independent Auditor issued an unqualified opinion on the City s 2014 Comprehensive Annual Financial Report (CAFR) representing that in their opinion, The financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Waterbury, Connecticut, as of June 30, The Independent Auditor did not identify any deficiencies in the City s internal controls over financial reporting. Additionally, the Independent Auditor did not identify any instances of noncompliance or other matters that would be required to be reported under Governmental Auditing Standards. The audit of the City s financial statements for the fiscal year ended June 30, 2015 is currently being performed. 29

36 Municipal Employees' Bargaining Organizations Almost all City employees, with the exception of management, are represented by a bargaining organization as follows: Current General Government Bargaining Organization Positions Covered Contract Expiration Date Blue Collar Unit Local June 30, 2018 White Collar Unit Employee Association 727 June 30, 2017 Police Local June 30, Fire Local June 30, Nurses CT Health Care 40 June 30, 2016 Nurses Supervisors CT Health Care 3 June 30, 2017 Managers Local June 30, 2018 Department of Education Teachers Teachers CEA-NEA 1,594 June 30, 2016 Administrators Local 80, AFSA, AFL-CIO 94 June 30, 2018 School Crossing Guards Unaffiliated 62 June 30, 2016 Food Service & Library Pages C.S.E.A. Local 2001 SEIU AFL-CIO 216 June 30, 2016 Classroom & Trans Assistants C.S.E.A. Local 2001 SEIU AFL-CIO 64 June 30, Secretarial, Clerical C.S.E.A. Local 2001 SEIU AFL-CIO 55 June 30, (1) In arbitration. (2) In mediation. Source: Note: City of Waterbury Finance Department The negotiation of collective bargaining agreements is subject to binding arbitration under Connecticut Statutes. Connecticut General Statutes Sections 7-473c, and a to n provide a procedure for binding arbitration of collective bargaining agreements between municipal employers and organizations representing municipal employees, including certified teachers and certain other employees. The legislative body of the municipality may reject the arbitration panel's decision by a two-thirds majority vote. The State and the employee organization must be advised in writing of the reasons for rejection. The State will then appoint a new panel of either one or three arbitrators to review the decisions on each of the rejected issues. The panel must accept the last best offer of either party. In reaching its determination, the arbitration panel shall give priority to the public interest and the financial capability of the municipal employer, including consideration of other demands on the financial capability of the municipal employer. For binding arbitration of teachers contracts, in assessing the financial capability of a municipality, there is an irrefutable presumption that a budget reserve of 5% or less is not available for payment of the cost of any item subject to arbitration. In light of the employer's financial capability, the panel shall consider prior negotiations between the parties, the interests and welfare of the employee group, changes in the cost of living, existing employment conditions, and the wages, salaries, fringe benefits, and other conditions of employment prevailing in the labor market, including developments in private sector wages and benefits. Municipal Employees Total Budgeted Full-Time Employees Fiscal Year Ending 6/ General Government 1,052 1,058 1,073 1,070 1,075 Board of Education 2,215 2,273 2,287 2,240 2,227 Grant Funded Total Municipal Employees 3,681 3,745 3,776 3,692 3,660 Source: Note: City of Waterbury, Budget Book; City of Waterbury, Payroll Includes full-time, permanent part-time and personal contract employees. 30

37 School Enrollments Elementary K-5 & Pre-K Middle 6-8 Senior High 9-12 Total 1 School Year Historical ,572 4,147 4,492 18, ,583 4,219 4,482 18, ,591 4,307 4,326 18, ,438 4,176 4,526 18, ,321 4,147 4,681 18, ,282 4,050 4,730 18, ,501 4,077 4,809 18, ,720 4,026 4,876 18, ,761 4,099 4,938 18, ,637 4,206 4,912 18,755 Projected ,552 4,308 4,907 18, ,417 4,341 4,952 18, ,270 4,421 5,024 18,715 (1) School populations calculated as of October 1 for each school year. Source: Superintendent s Office, Waterbury Board of Education [THIS REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 31

38 ECONOMIC AND DEMOGRAPHIC INFORMATION Population and Density Population Distribution by Age Income Distribution Comparative Income Measures Educational Attainment Total Employment by Industry Employment Data Major Employers Number and Size of Households Age Distribution of Housing Housing Inventory Owner-Occupied Housing Values Building Permits Land Use Summary City Zoning Districts 32

39 ECONOMIC AND DEMOGRAPHIC INFORMATION Population and Density City of Waterbury New Haven County State of Connecticut Year Population % Change Density 1 Population % Change Population % Change , , , ,574, , , , ,405, , , , ,287, , , , ,107, , , , ,032, Source: U.S. Department of Commerce, Bureau of Census. (DP-1) 1. Per square mile: area 28.2 square miles Population Distribution by Age City of Waterbury New Haven County State of Connecticut Age 2010 % 2010 % 2010 % Under 5 7, , , , , , , , ,132, , , ,019, and over 13, , , Total 110, , ,574, Median Age (Years) Source: U.S. Department of Commerce, Bureau of Census, 2010 (DP-1) Income Distribution City of Waterbury New Haven County State of Connecticut Income for Families Families % Families % Families % $0 9,999 2, , , ,000 24,999 4, , , ,000 49,999 6, , , ,000 74,999 4, , , ,000 99,999 3, , , , ,999 3, , , ,000 or more 1, , , Total 26, , , Source: U.S. Department of Commerce, Bureau of Census, American Community Survey, (DP03). Comparative Income Measures City of Waterbury New Haven County State of Connecticut Per Capita Income, 2013 $21,120 $32,523 $37,892 Median Family Income, ,646 79,408 87,245 Median Household Income, ,639 61,996 69,461 % Families below poverty level, Source: U.S. Department of Commerce, Bureau of Census, American Community Survey, (DP03). 33

40 Educational Attainment Years of School Completed Age 25 & Over City of Waterbury New Haven County State of Connecticut Number % Number % Number % Less than 9th grade 6, , , th to 12th grade 8, , , High school graduate 25, , , Some college, no degree 12, , , Associate's degree 6, , , Bachelors degree 7, , , Graduate or professional degree 4, , , Total 71, ,014-2,443,761 - Percent high school graduate or higher Percent bachelor degree or higher Source: U.S. Department of Commerce, Bureau of Census, American Community Survey, (DP02). Total Employment by Industry City of Waterbury New Haven County State of Connecticut United States Sector Employed % Employed % Employed % Employed % Agriculture & forestry , , ,731, Construction 2, , , ,864, Manufacturing 6, , , ,867, Wholesale trade 1, , , ,937, Retail trade 5, , , ,415, Transportation & utilities 1, , , ,010, Information: , , ,056, Finance, Insurance & Real Estate 2, , , ,469, Services, including Education & Health Care 22, , , ,477, Public Administration 2, , , ,034, Total 45, , ,759, ,864, Source: U.S. Department of Commerce, Bureau of Census, American Community Survey, (DP03). Employment Data Average City of Waterbury Percentage Unemployed Annual City of Waterbury Labor State of Employed Unemployed Period Waterbury Market Area Connecticut Sept ,034 4, ,051 5, ,242 6, ,094 6, ,582 7, ,327 7, ,790 6, ,191 4, ,796 3, ,723 3, Source: Department of Labor, State of Connecticut, Office of Research, Historical Labor Force Monthly Data 34

41 Major Employers Employer Nature of Business Number of Employees 2015 City of Waterbury Government Services 3,745 Waterbury Hospital Medical and Mental Health Services 1,973 St. Mary's Hospital Medical Services 1,752 Post University Education 1,150 Naugatuck Valley Community College Education 915 New Opportunities of Waterbury Employment Services 450 Shop Rite Grocery 332 Wal-Mart Retail 332 Stop & Shop Companies Grocery 331 Eversource Utility 257 Texas Roadhouse Restaurant 249 Source: Direct Inquiry Number and Size of Households City of Waterbury New Haven County State of Connecticut Number % Number % Number % Persons in households 108, , ,574, Persons per household (average) Persons per family Family households 26, , , Non-family households 15, , , All households 42, , ,371, Family households by type Married couple 14, , , Female householders, no spouse 9, , , Other 2, , , Total family households 26, , , Non-family households by type Householders living alone 13, , , Other 2, , , Total non-family households 15, , , Source: U.S. Department of Commerce, Bureau of Census, 2010 (DP-1) Age Distribution of Housing City of Waterbury New Haven County State of Connecticut Year Structure Built Units % % % Built in 1939 or earlier 15, Built in , Built in , Built in , Built in , Built in present 1, Total: 47, Source: U.S. Department of Commerce, Bureau of Census, American Community Survey, (DP04). 35

42 Housing Inventory City of Waterbury New Haven County State of Connecticut Units in Structure Units % % % 1 unit detached 17, unit attached 2, to 4 units 14, to 9 units 5, or more units 8, Mobile home, trailer, other Total Units 47, Source: U.S. Department of Commerce, Bureau of Census, American Community Survey, (DP04). Owner-Occupied Housing Values City of Waterbury New Haven County State of Connecticut Value Number % % % Less than $50, $50,000 to $99,999 2, $100,000 to $149,999 6, $150,000 to $199,999 5, $200,000 to $299,999 3, $300,000 to $499, $500,000 to $999, $1,000,000 or more Totals 19, Source: U.S. Department of Commerce, Bureau of Census, American Community Survey, (DP04). Building Permits Fiscal Year Residential Commercial Total Ending 6/30 No. Value No. Value No. Value $15,025, $30,140,000 1,139 $45,165, ,280, ,976,000 1,203 55,256, ,881, ,047,000 1,196 27,928, ,542, ,372,366 1,104 77,915, ,885, ,507,000 1,084 51,392,800 Source: City of Waterbury Building Department Land Use Summary Type Acres Percent Residential 6, Commercial / Office 1, Industrial 1, Institutional 1, Vacant Land 3, Open Space 2, Other (resource extraction, water etc) 3, Total 18, Source: Waterbury Plan of Conservation and Development 36

43 City Zoning Districts Type Acres Percent Arterial Commercial District 1, % Central Business District % General Commercial District % Neighborhood Shopping District % Commercial Office District % General Industrial District % Limited Industrial District % Industrial Park District % High Density Residential District % Low Density Residential District 5, % Moderate Density Residential District 2, % Residential Office District % Single-Family Residential District 2, % Large Lot Single-Family Residential District 3, % Total 18, % Source: City of Waterbury GIS Zoning Map, Department of Public Works 2015 [THIS REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 37

44 TAX BASE DATA Property Tax and Assessments Property Tax Levy and Collection Comparative Assessed Valuations Property Tax Levies and Collections Property Taxes Receivable Major Taxpayers 38

45 TAX BASE DATA Property Tax and Assessments The maintenance of an equitable tax base and the location and appraisal of all real and personal property within the City for inclusion onto the Grand List are the responsibilities of the Assessor s Office. The Grand List represents the total assessed values for all taxable real and personal property and motor vehicles located within the City as of October 1. Each year the Board of Assessment Appeals determines whether adjustments to the Assessor s list on assessments under appeal are warranted. Assessments for real property are computed at 70% of the estimated market value at the time of the last general revaluation while assessments for motor vehicles and personal property are computed at 70% of their present market values. In accordance with Connecticut General Statutes, the City conducted a full revaluation of real property effective as of October 1, 2012 (commencing tax fiscal year ). The next full general revaluation will be on October 1, 2017 (commencing tax fiscal year ). Section of the Connecticut General Statutes establishes the revaluation cycle for Connecticut municipalities. Generally, Section 12-62, as amended, requires a revaluation every five years and requires the Assessor to fully inspect each parcel, including measuring or verifying the exterior dimensions of a building and entering and examining the interior of the building, once every ten assessment years. Section also imposes a penalty on municipalities that fail to effect revaluations as required, with certain exceptions. Municipalities may choose to phase-in real property assessment increases resulting from a revaluation, but such phase-in must be implemented in less than five years. The City did not utilize the phase-in option for real property increases on the October 1, 2012 revaluation. When a new structure, or modification to an existing structure, is undertaken, the Assessor s Office receives a copy of the permit issued by the Building Official. A physical appraisal is then completed and the structure is classified and priced from a schedule developed at the time of the last general revaluation. Property depreciation and obsolescence factors are also considered when arriving at an equitable value. All personal property (furniture, fixtures, equipment, supplies and machinery) is revalued annually. An Assessor s check and audit is completed periodically. Motor vehicle lists are furnished to the City by the State of Connecticut Department of Motor Vehicles and appraisals of motor vehicles are accomplished in accordance with an automobile price schedule recommended by the State Office of Policy and Management in cooperation with the Connecticut Association of Assessing Officials. Connecticut General Statutes Section 12-71b, as amended, provides that motor vehicles that are registered with the Commissioner of Motor Vehicles after the October 1 assessment date but before the next August 1 are subject to a property tax as if the motor vehicle has been included on the October Grand List. The tax is prorated and the proration is based on the number of months of ownership between October 1 and the following July 31. Motor vehicles purchased in August and September are not taxed until the next October 1 Grand List. The tax is not due until January 1st, a year and three months after the Grand List date. Property Tax Levy and Collection Property taxes are levied on all taxable assessed property on the Grand List of October 1 prior to the beginning of the fiscal year. Real and personal property taxes and motor vehicle taxes are payable in two installments on July 1 and January 1, except that taxes under $200 are payable in one installment on July 1. Motor vehicle supplemental bills are payable on January 1. A modest estimate for outstanding interest and lien fees anticipated to be collected during the fiscal year is normally included as a revenue item in the budget. Payments not received within one month after the due date become delinquent, with interest charged at the rate of one and one-half percent per month from the due date on the tax. In accordance with State law, the oldest outstanding tax is credited first. Outstanding real estate tax accounts are liened each year prior to June 30 with legal demands and alias tax warrants used in the collection of personal property and motor vehicle tax bills. Tax accounts are written off 15 years after the due date in accordance with State statutes. Property tax revenues are recognized when they become available. Available means due or past due and receivable within the current period or expected to be collected, but within 60 days, to be used to pay liabilities of the current period. Property taxes receivable not expected to be collected during the available period are reflected as deferred revenue. Section of the Connecticut General Statutes, as amended, requires each municipality to suspense, on an annual basis, the property taxes, which are deemed to be uncollectible. 39

46 Comparative Assessed Valuations ($ in thousands) Grand List Of 10/1 Residential Real Property % Commercial & Industrial Real Property % Other Land % Personal Property % Motor Vehicle % Gross Taxable Grand List Less Exemptions Net Taxable Grand List ,355, ,288 4,074, ,189, ,221 4,011, ,207, ,507 4,016, ,524, ,808 5,307, ,537, ,271 5,300, Revaluation Year Source: Assessor's Office, M-13 Summary. Property Tax Levies and Collections ($ in thousands) In Year Due Grand List Fiscal Year Net Taxable Mill Adjusted % % 10/1 Ending 6/30 Grand List Rate Tax Levy Collected Uncollected $4,074, In collection ,011, $232, ,016, , ,307, , ,300, , ,277, , Revaluation Year Source: City of Waterbury, Tax Collector's Office. Annual Levy Total % Uncollected Property Taxes Receivable Total Uncollected Taxes 2015 $10,674,000 $3,823, ,704,000 4,167, ,155,000 5,053, ,856, ,072, ,755,000 6,796,000 Fiscal Year Ending 6/30 Uncollected in Fiscal Year of Levy 1. First year of suspending delinquent motor vehicle taxes assigned for collection under a third party collection agent contract. Source: City of Waterbury - Finance Department 40

47 Major Taxpayers (Top Twenty) Property Assessed Value as of October 1, 2014 % of Net Taxable Grand List October 1, 2014 Name Nature of Business Connecticut Light & Power Co Utility 98,912, % Yankee Gas Co Utility 97,796, % Brass Mill Center LLC Retail 85,413, % Yankee Gas Services Co Utility 50,674, % Waterbury Generation LLC Power Generation 39,171, % BRE DDR BR Naugatuck CT LLC Retail 29,750, % Post University Inc Higher Education 14,479, % Brixmore GA Waterbury LLC Retail 13,326, % Waterbury VF LLC Retail 13,241, % Costco Wholesale Corp Big Box Retail 11,633, % 180 Scott Road Waterbury LLC Assisted Living 10,461, % Cooper Village LTD Partnership Housing 10,156, % Suso 4 Waterbury LP Retail 9,898, % Home Depot USA Inc Home Improvement 9,219, % T J Waterbury LLC Hospitality 9,117, % Reidville Drive LLC Retail 8,618, % Mattatuck Investors LLC Retail 8,260, % Target Corporation Retail/Household 8,050, % Deerfield Realty Co Apartment Housing 7,469, % Sunset Realty Company Apartment Housing 6,820, % TOTAL $542,471, % 1. Based on a 10/1/2014 Net Taxable Grand List of $4,074,848,477. Source: Assessor's Office, City of Waterbury. [THIS REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 41

48 DEBT AND FINANCIAL INFORMATION Principal Amount of Bonded Indebtedness Coverage History of Tax Revenue Intercept Secured Bonds Bond Authorization and Temporary Financing General Obligation Bonded Debt Maturity Schedule Revenue Supported Bonded Debt Maturity Schedule Authorized but Unissued Debt Short-Term Debt Overlapping/Underlying Debt Debt Statement Current Debt Ratios Limitation of Indebtedness Statement of Statutory Debt Limitation Debt Limitation Base 42

49 DEBT AND FINANCIAL INFORMATION Principal Amount of Bonded Indebtedness Pro Forma as of December 2, 2015 GENERAL OBLIGATION General Fund Debt Date of Issue Original Issuance Coupon Rates % Balance Outstanding Final Maturity Series 2007 Bonds 02/15/07 $27,055, $26,705, Series 2009 Bonds 09/02/09 28,000, ,900, Series 2009, Pension Obligation Bonds, 09/17/09 313,145, ,945, Series 2010 Bonds, Subseries B 09/01/10 8,000, ,000, Series 2010 Bonds, Subseries C 09/01/10 24,175, ,175, Series 2010 Bonds, Subseries D 09/01/10 4,700, ,700, Series 2011 Bonds 08/31/11 28,700, ,219, Series 2012A Bonds 06/26/12 20,000, ,375, Series 2012B Bonds 06/26/12 20,505, ,915, Series 2013 Bonds, Lot A 12/05/13 16,500, ,500, Series 2013 Taxable Bonds, Lot B 12/05/13 9,000, ,000, Series 2013 Refunding Bonds, Lot C 12/05/13 10,776, ,778, Series 2015 Bonds, Lot A 12/02/15 23,000,000 23,000, Series 2015 Bonds, Lot B 12/02/15 7,000,000 7,000, Total General Fund Bonds $456,212,500 Self-Liquidating Debt Sewer Bonds Series 2013 Refunding Bonds, Lot C 12/05/13 928, , Sewer Bonds Sub-Total $756,500 Water Bonds Series 2011 Bonds 08/31/11 $1,300, ,081, Series 2012A Bonds 06/26/12 1,500, ,275, Water Bonds Sub-Total $2,356,000 Total Self-Liquidating Bonds $3,122,500 Total General Obligation Bonds $459,325,000 REVENUE SECURED ONLY Sewer Bonds Date of Issue Original Issuance Coupon Rates % Balance Outstanding Final Maturity WWTP State loan (CWF 201D) 07/31/97 6,447, ,479 Jul 16 WWTP State loan (CWF 201-C1) 12/31/00 80,563, ,887,957 Jun 20 WWTP State loan (CWF 344C) 10/30/02 11,547, ,178,854 Apr 22 WWTP State loan (CWF 351C) 10/31/03 2,423, ,034,617 Apr 23 WWTP State loan (CWF 351C1) 04/30/04 2,953, ,287,609 Apr 23 WWTP State loan (CWF 201CD1) 06/30/04 1,137, ,628 Jul 20 WWTP State loan (CWF) 11/30/05 543, ,860 Apr 23 WWTP State loan (CWF) 06/30/07 225, ,450 Jul 20 Total Sewer Bonds $26,323,454 43

50 Coverage History of Tax Revenue Intercept Secured Bonds The City s outstanding bond series 2007 (the Parity Bonds ) are secured by a tax revenue intercept mechanism established under an Indenture of Trust dated August 12, 1993 by and between the City and U.S. Bank National Association, as successor to Fleet National Bank, as trustee (the Trustee ), as amended and supplemented (the Intercept Indenture ). All tax revenues payable to the City are paid directly to the Trustee and are deposited into the Tax Revenue Fund. The tax revenues are then transferred to the Debt Service Fund and the Special Capital Reserve Fund until the applicable debt service and reserve requirements are satisfied for the benefit of the holders of the Parity Bonds. Only after the applicable debt service and reserve requirements are satisfied are remaining amounts paid to the City for the payment of other City expenditures, including the payment of the principal and interest on the Bonds. However, the City will pledge its full faith and credit to pay the principal of and interest on the Bonds, as described in SECURITY AND REMEDIES herein. The following outlines the historical debt service coverage on the Parity Bonds. Intercept Debt Service (000s) Current Property Tax Collected within the Fiscal Year of Levy (000s) Coverage Ratio of Intercept Debt Service Date Annual Debt Service Requirement Satisfied Fiscal Year 2015 $1,248 $228, x 7/01/14 and 1/12/ , , x 7/02/13 and 1/03/ , , x 7/05/12 and 1/03/ , , x 7/07/11 and 1/16/ , , x 7/06/10 and 1/25/11 Bond Authorization and Temporary Financing In accordance with Chapter 10 of the City Charter, the City has the power to incur indebtedness by authorizing the issuance of its bonds and notes for such purposes, upon such terms, in such form and to such extent as is authorized and permitted by Connecticut General Statutes and applicable Special Acts of the State. Unless otherwise provided by the General Statutes or applicable Special Acts, bonds and notes shall be authorized by the affirmative vote of at least 10 members of the Board of Aldermen following the holding of a public hearing. The authorization must be approved by the Mayor. However, if the Mayor fails to take action on it within 10 days, the authorization is deemed operative. If the Mayor vetoes the authorization, the veto may be overridden by a succeeding affirmative vote of at least 10 members of the Board of Aldermen. No bonds or notes shall be issued until 30 days after publication of a notice of the adoption of the bond authorization. If, during such 30 day period, a petition requesting a referendum is signed by at least 5% of the voters of the City and filed with the City Clerk, the Board of Aldermen shall either repeal the bond resolution or hold the referendum, at which a majority of voters must approve the bond authorization. When general obligation bonds have been authorized, bond anticipation notes may be issued maturing in not more than two years (CGS Sec ). Temporary notes may be renewed up to ten years from their original date of issue as long as all project grant payments are applied toward payment of temporary notes when they become due and payable, and the Board of Aldermen schedules principal reductions by the end of the third year and for each subsequent year during which such temporary notes remain outstanding in an amount equal to a minimum of 1/20th (1/30th for water, sewer and certain school projects) of the estimated net project cost (CGS Sec a). The term of the bond issue is reduced by the amount of time temporary financing exceeds two years, or, for sewer projects, by the amount of time temporary financing has been outstanding. Temporary notes must be permanently funded no later than ten years from the initial borrowing date except for sewer notes issued in anticipation of State and/or Federal grants. If a written commitment exists, the municipality may renew the sewer notes from time to time in terms not to exceed six months until such time that the final grant payments are received (CGS Sec b). Temporary notes may also be issued for up to fifteen years for certain capital projects associated with the operation of a waterworks system (CGS Sec a) or sewerage system (CGS Sec a). In the first year following the completion of the project(s), or in the sixth year following the original date of issue (whichever is sooner), and in each year thereafter, the notes must be reduced by 1/15 of the total amounts of the notes issued by funds derived from certain sources of payment. Temporary notes may be issued in one-year maturities for up to fifteen years in anticipation of sewer assessments receivable, such notes to be reduced annually by the amount of assessments received during the preceding year (CGS Sec a). 44

51 General Obligation Bonded Debt Maturity Schedule Pro Forma as of December 2, General Purposes & Schools Pension Obligation Bonds Total Debt Service Fiscal Year Cumulative % Cumulative % Ended Principal Interest of Principal Principal Interest Total Debt Service 30-Jun Payments Payments Retired Payments Payments Payments Retired ,140,000 3,555, % 9,257,230 18,952, % ,550,000 8,399, % 8,900,000 18,297,300 49,146, % ,035,000 7,701, % 9,420,000 17,746,248 49,902, % ,685,000 7,047, % 9,700,000 17,068,540 48,501, % ,700,000 6,462, % 10,225,000 16,362,298 47,749, % ,880,000 5,843, % 10,500,000 15,627,701 45,851, % ,310,000 5,239, % 11,200,000 14,858,544 45,608, % ,875,000 4,613, % 12,000,000 14,036,220 40,525, % ,875,000 4,208, % 12,000,000 13,185,540 39,269, % ,875,000 3,789, % 12,000,000 12,334,860 37,998, % ,375,000 3,339, % 12,000,000 11,484,180 36,198, % ,225,000 2,882, % 12,000,000 10,633,500 34,740, % ,325,000 2,442, % 12,000,000 9,782,820 33,550, % ,425,000 1,984, % 12,000,000 8,932,140 32,341, % ,425,000 1,510, % 12,000,000 8,081,460 31,016, % ,525,000 1,060, % 12,000,000 7,230,780 28,816, % ,025, , % 12,000,000 6,380,100 25,116, % ,855, , % 12,000,000 5,529,420 21,867, % ,855, , % 12,000,000 4,678,740 20,829, % ,980, , % 12,000,000 3,828,060 17,962, % ,480,000 73, % 12,000,000 2,977,380 16,530, % ,000 28, % 12,000,000 2,126,700 14,635, % ,000 9, % 12,000,000 1,276,020 13,765, % ,000, ,340 12,425, % Total $195,380,000 $71,837,166 $263,945,000 $232,141,121 $763,303,287 Revenue Supported Bonded Debt Maturity Schedule Pro Forma as of December 2, Cumulative Fiscal Year Ending (6/30) Principal Payments Interest Payments Percentage Retired ,106, , ,097, , ,172, , ,276, , ,383, , ,041,017 36, ,493 15, ,968 2, $26,323,454 $1,393,671 1 Excludes payments made from July 1, 2015 through December 2,

52 Authorized But Unissued Debt As of December 2, 2015 (Pro-Forma) Bonds Authorized Date Bonds Previously Grants & New But Project Authorized (1) Authorized Issued Paydowns Bonds Unissued General Purpose W.A.T.E.R. - TIGER Project (5) 02/17/15 $19,500, $19,500,000 Demolition of Abandoned Properties 10/20/14 750, ,000 Public Works - Vehicle Replacements 10/20/14 540, ,000 Mobile & Portable Radios 10/20/14 3,550, ,300, ,000 Acquisition of Rose Hill Campus 09/22/14 3,000,000 1,000,000 2,000,000 Fire Apparatus 01/28/14 500, , ,000 Road Milling/Repaving & Sidewalks 01/28/14 2,000,000 1,000,000 1,000,000 Great Brook Culvert Replacement 11/25/13 3,100, ,100,000 St. Partick's Hall / Rectory Building 10/07/13 8,100,000 1,754,808 4,000,000 2,345,192 Restoration Road Milling/Repaving & Sidewalks 03/11/13 3,000,000 2,000, , ,000 Fire Apparatus 03/11/13 500, ,000 - Pearl Lake Road Reconstruction 03/11/13 7,000,000 5,000, ,000,000 Public Safety Radio System Upgrade to P25 06/25/12 4,500,000 3,000, ,100, ,000 Municipal Stadium Phase III 02/06/12 4,800,000 1,500, ,000 2,693,000 Police Parking Garage 02/07/11 3,950,000 3,100, ,000 Waterbury Industrial Commons & 07/19/10 60,420,000 16,500,000 15,362,650 9,000,000 19,557,350 Centralized DPW Facility Chase Avenue Reconstruction 09/03/08 8,205,000 6,770,000 1,435,000 Sidewalk and Curb Improvements 09/03/08 600, ,000 Underground Tank Removal 07/21/08 282, , ,000 Education 2 West Side Middle School Roof Replacement 10/20/14 3,040, ,040,000 Crosby High School - Football Field & 10/20/14 2,700, ,500, ,000 Track Crosby High School - Gym Floor 10/20/14 260, ,000 School Improvements 03/11/13 500, ,000 - Kennedy High School Additions & 06/25/12 25,232,000 12,035,749 4,000,000 9,196,251 Alterations Wallace Middle School Addition 06/20/11 15,758,000 2,500,000 10,543, ,000 2,514,239 Carrington Pre-k to 8 School 05/20/13 37,043,000 6,500,000 26,353, ,000 3,389,104 Waterbury Career Academy Technical 06/09/08 68,190,000 13,500,000 47,955, ,000 6,234,157 School Wilby High School 06/09/08 6,700,000 1,000,000 3,735,000 1,965,000 Special Education Facility 11/19/07 14,635,000 2,500,000 9,405,000 2,730,000 School Facilities Plan 06/25/04 101,500,000 23,000,000 73,463,426 1,500,000 3,536,574 Enterprise 3 Water Plant, Equipment System Renewal & Replacement 05/11/15 17,700, ,700,000 Water Filter Media Replacement WTP 10/20/14 840, ,000 Water - Rehabilitation of Water Mains 10/20/14 960, ,000 Water Meter Reading Program 10/11/11 2,500,000 1,500,000 1,000,000 Water Billing Technology 09/06/11 750, ,000 WPC Plant, Equipment & Infrastructure Renewal & Replacement 05/11/15 10,325,000 10,325,000 Total: $442,930,000 $88,520,000 $202,217,133 $30,000,000 $122,192, Date of original authorization. Some authorizations have been amended. 2. The City expects to be reimbursed approximately 78% of eligible project costs from the State in the form of progress payments, thus reducing the need for borrowing by that amount for the project. 3. Water - Self-liquidating. Debt service to be paid by Water Enterprise Fund 4. WPC - Self-liquidating. Debt service to be paid by WPC Enterprise Fund. 5. The City expects to receive $14.1 million from the Federal TIGER Grant Program, thus reducing the need for borrowing by that amount for the project.. Short Term Debt As of December 2, 2015, the City does not have any short-term debt outstanding. Overlapping/Underlying Debt The City has no overlapping or underlying indebtedness. 46

53 Debt Statement As of December 2, 2015 LONG TERM DEBT GENERAL OBLIGATION BONDS General Purpose $140,150,200 Schools $52,117,300 Sewers & Water $3,112,500 Pension Bonds $263,945,000 TOTAL LONG TERM DEBT $459,325,000 SHORT-TERM DEBT $0 TOTAL DIRECT DEBT $459,325,000 Less: Self-Supporting Debt ($3,112,500) TOTAL DIRECT NET DEBT $456,212,500 OVERLAPPING/UNDERLYING DEBT $ 0 TOTAL NET DIRECT DEBT $456,212,500 Current Debt Ratios As of December 2, 2015 (Grand List $ in thousands) Population (2010) 1 110,366 Net Taxable Grand List 10/1/14 at 70% of Full Value 2 $4,074,848 Estimated Full Value $5,821,212 Equalized Net Taxable Grand List (10/1/13) 3 $5,705,673 Income per Capita (2013) 4 $21,120 Estimated Full Value per Capita $52.74 Total Direct Total Net Debt Direct Debt Debt per Capita $4, $4, Ratio to Net Taxable Grand List (%) 11.27% 11.20% Ratio to Estimated Full Value (%) 7.89% 7.84% Ratio to Equalized Net Taxable Grand List (%) 8.05% 8.00% Debt per Capita to Income per Capita (%) 19.71% 19.57% 1. U.S. Department of Commerce, Bureau of Census, Assessor s Office, City of Waterbury 3. State of Connecticut, Fiscal Indicators Data Core Partners 4. U.S. Department of Commerce, Bureau of Census, American Community Survey, (DP03). Limitation on Indebtedness In accordance with the Connecticut General Statutes, the aggregate indebtedness of a municipality shall not exceed seven (7) times the annual receipts from taxation. A municipality also shall not incur indebtedness through the issuance of bonds which will cause aggregate indebtedness by class to exceed the following: General Purposes: School Purposes: Sewer Purposes: Urban Renewal Purposes: Unfunded Past Pension Obligation Purposes: 2.25 times annual receipts from taxation 4.50 times annual receipts from taxation 3.75 times annual receipts from taxation 3.25 times annual receipts from taxation 3.00 times annual receipts from taxation 47

54 "Annual receipts from taxation", (the "base") is defined as total tax collections of the municipality and only coterminous municipalities (including interest, penalties and late payments) plus state payments for revenue loss under CGS Section d and state payments under CGS Section The statutes also provide for exclusion from a municipality's debt limit calculations debt issued in anticipation of taxes; for the supply of water, gas, electricity; for the construction of subways for cables, wires and pipes; for the construction of underground conduits for cables, wires and pipes; and for two or more such purposes. There are additional exclusions for indebtedness issued in anticipation of the receipt of proceeds from assessments levied upon property benefited by any public improvement and for indebtedness issued in anticipation of the receipt of proceeds from State or Federal grants evidenced by a written commitment or contract but only to the extent such indebtedness can be paid from such proceeds. The statutes also provide for exclusion from debt limitation of any debt to be paid from a funded sinking fund. Statement of Statutory Debt Limitation Presented below is the statutory debt limitation for the City of Waterbury: Debt Limitation Base As of December 2, 2015 ($ in thousands) Total tax collections (including interest and lien fees) for the fiscal year ended June 30, $236,945 Tax Relief for Certain Elderly Persons 2 Debt Limitation Base $236,947 General Purposes Schools Sewers Urban Renewal Pension Deficit Debt Limitation FACTOR MULTIPLIED BY BASE 2 ¼ times base $533,131 4 ½ times base $1,066,262 3 ¾ times base $888,551 3 ¼ times base $770,078 3 times base $710,841 Total debt limitation $533,131 $1,066,262 $888,551 $770,078 $710,841 Indebtedness: Long-term debt outstanding $120,150 $42,117 $757 $0 $263,945 The Bonds (This Issue) 20,000 10,000 Overlapping debt: Bonds authorized and unissued: 57,553 35,065 31, Total Indebtedness $197,703 $85,183 $32,332 $0 $263,945 Less: Self-Supporting Debt ($32,332) Less: Federal Department of Defense Grant (15,363) Less: School Construction Grants 1 -- ($42,599) Net Indebtedness $182,340 $42,584 $0 $0 $263,945 Debt Limitation in Excess of Outstanding Indebtedness $350,791 $1,023,678 $888,551 $770,078 $446,896 1 Represents State of Connecticut school construction grants applicable to prior bond issues. (See School Projects herein). 2 Represents Self-Supporting Sewer Bonds and Clean Water Fund notes Note: In no case shall total indebtedness exceed $1,658,629,000 or seven times annual receipt from taxation. THE CITY OF WATERBURY HAS NEVER DEFAULTED IN THE PAYMENT OF PRINCIPAL OF OR INTEREST ON ITS BONDS OR NOTES. 48

55 FINANCIAL ADMINISTRATION Fiscal Year Annual Audit Auditor s Disclaimer Accounting Budget Adoption Capital Budget Planning Significant Financial Policies Investment Policy Pension Programs Other Post-Employment Benefits General Fund Revenues and Expenditures 49

56 FINANCIAL ADMINISTRATION Fiscal Year The City s fiscal year begins July 1 and ends June 30. Annual Audit Pursuant to the Municipal Auditing Act (Chapter 111 of the Connecticut General Statutes), the City is obligated to undergo an annual examination by an independent certified public accountant. The audit must be conducted under the guidelines issued by the State of Connecticut, Office of Policy and Management, and a copy of said audit report must be filed with the Office of Policy and Management. The City is in compliance with said provisions. For the 2014 fiscal year ended June 30, 2014, the financial statements of the various funds of the City were audited by Blum, Shapiro & Company, PC, Certified Public Accountants, West Hartford, Connecticut. The fiscal year ending 2014 Comprehensive Annual Financial Report ( CAFR ), including the Auditors' opinion, the Federal and State Single Audit Reports and the Report on Compliance and Internal Control over Financial Reporting were filed with the City Clerk prior to December 31, The City is currently preparing the CAFR for the fiscal year ending Auditor s Disclaimer Blum, Shapiro & Company, PC, Certified Public Accountants, West Hartford, Connecticut, the City s independent auditors, are not passing upon and do not assume responsibility for the sufficiency, accuracy or completeness of the financial information presented in this Official Statement (other than matters expressly set forth in Appendix A, "Financial Statements" herein), and make no representation that they have independently verified the same. The auditors have not been engaged nor performed audit procedures regarding the post audit period. The auditors have not been asked to nor have they provided their written consent to include their Independent Auditors' Report in this Official Statement. Accounting The City's accounting system is organized on a fund basis and uses funds and account groups to report on its financial position and results of operations. The City's accounting records are maintained on a modified accrual basis, with major revenues recorded when earned and expenditures recorded when incurred. The City's accounting policies conform to generally accepted accounting principles as applied to governmental units. The independent auditors issued an unqualified opinion for the fiscal year ended June 30, The City s 2014 Comprehensive Annual Financial Report ( CAFR ) has again received the Certificate of Achievement in excellence in Financial Reporting by the Government Finance Officers Association of the United States. The Certificate of Achievement is the highest form of recognition in the area of governmental accounting and financial reporting and its attainment represents a significant accomplishment by the City and its management. Budget Adoption City departments submit estimates of expenditures to the Mayor no later than the second Friday in January. The Mayor, with the assistance of a designated budget subcommittee consisting of the City s Director of Budget, Director of Finance and Mayoral Chief of Staff, evaluate in detail the amounts required by the departments of the City for the ensuing year. These estimated expenditures, accompanied by an estimate of the income necessary to meet such expenditures, are reviewed by the Mayor and once approved become the basis for the Mayor s Proposed Budget. On or before the first day of April of each year, the Mayor submits a budget to the Board of Aldermen (the Mayor s Proposed Budget ) which consists of: 1. An annual or current expenditure budget, which shall be a complete financial plan for the ensuing fiscal year, consisting of the budget proper and the budget message; and 2. A capital budget. Pursuant to the Charter, the budget must disclose the following: 1. A general executive summary of its content set forth in plain language; 50

57 2. An estimate of all revenue cash receipts anticipated from sources other than the tax levy of the ensuing fiscal year; 3. An estimate of the General Fund cash surplus at the end of the current fiscal year or of the deficit to be made up by appropriation; 4. The estimated expenditures necessary for the operation of the several departments, offices and agencies of the City; 5. Debt service requirements for the ensuing fiscal year; 6. An estimate of the sum required to be raised by the tax levy for the ensuing fiscal year, assuming a rate of current levy year collections not greater than the average rate of collection in the year of levy for the last three completed fiscal years. The Mayor may deviate from said assumed collection average. In the event the Mayor submits a budget containing such a deviation in the rate of collection in excess of (i) the three-year average or (ii) a rate of collection of 93 percent, whichever is lesser, said budget submission shall be accompanied by a certification by the Finance, Audit and Review Commission asserting that the assumption is a reasonable estimate upon which the Board of Aldermen may rely; 7. A balanced relation between the total estimated expenditures and total anticipated revenue cash receipts, taking into account the estimated General Fund cash surplus or deficit at the end of the current fiscal year; and 8. The anticipated income and expense as well as profit and loss for the ensuing fiscal year for each utility or other enterprise fund operated by the City. The Board of Aldermen considers and acts upon and may amend the estimates of the Mayor's proposed budget (except that it may not increase the Mayor s estimate of receipts) and make appropriations upon the basis of such estimates as may be necessary and proper to meet such expenses and shall levy a tax necessary to meet such expenses. The Board of Aldermen shall conduct at least two (2) public hearings. After its deliberations, it adopts a budget. Capital Budget Planning On an annual basis the City adopts a five-year Capital Plan. This Plan covers proposed capital funding needs to be funded through either one or a combination of funding sources, including contributions from the City s General Fund, proposed authorizations and State and federal grants. The Capital Plan is another critical planning tool for the City. The General Fund has made contributions from its previous year s surplus to the Capital Reserve/Equipment account. The City revisits the five-year Capital Plan on an annual basis prior to adoption of the next fiscal year s Capital Budget. The Capital Budget was adopted on June 8, 2015 and Capital Budgets were submitted as part of the adopted budget and are outlined on the following table. Actual Adopted Future Years Proposed Source of Funds Local Funding $805,000 $564,000 Estimated Grants 36,830,959 7,194,868 Bonds to be Authorized 3,550,000 Bonds Authorized 15,600,000 Enterprise Bonds Authorized 29,825,000 Enterprise Sinking Funds 1,300, ,090 To be Determined 1 $101,662,160 Total Sources: 84,360,959 $12,006,958 $101,662,160 Use of Funds Governmental Purposes: Public Works Infrastructure $4,146,000 $5,245,500 $58,284,720 Vehicle Replacement 2,258,000 2,519,206 5,194,000 Information Technology 166,500 94,900 77,000 Public Safety 3,904, , ,440 Education 6,000,000 1,407,500 Other 36,761,459 1,831,762 1,198,000 Self-Sustaining Enterprise Purposes: Water Pollution Control 10,875,000 29,896 35,600,000 Bureau of Water 20,250, , ,000 Total Uses: $84,360,959 $12,006,958 $101,662, Grant availability in subsequent years will significantly impact the City's decision to adopt project authorizations for the project priorities identified in the Capital Improvement Plan ( ). 51

58 Significant Financial Policies Financial Reporting: Financial operating statements are available to each department on a real-time basis. The Director of Budget prepares and distributes to the Mayor and Board of Aldermen projections of current fiscal operations for review and comment. Investment Funds: The City invests its available cash from various activities on a competitive basis with local institutions strictly in accordance with the General Statutes of Connecticut. The City participates in a combination of fully insured and fully collateralized funds and other funds in order to diversify the City's investment portfolio risk. Deposits are protected against loss under the Public Deposits Protection Act only when deposits are with a qualified public depository in the State of Connecticut. Investments are stated at fair value. Basis of Accounting: The accounts of the City Governmental Funds and Expendable Trust Funds are maintained on the modified accrual basis. Proprietary Fund and Pension Trust Funds are accounted for using the accrual basis of accounting. Litigation Liabilities: The City has established a special reserve fund in which funds are contributed from appropriate sources and maintained to meet liabilities in excess of budgeted funds. The City is self-insured for various general liability claims. Encumbrances: Encumbrance accounting, under which purchase orders, contracts and other commitments are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgeting interaction in the Governmental Funds. Investment Policy Eligible investments for Connecticut municipalities are governed by the Connecticut General Statutes, Sections and Refer to APPENDIX A AUDITORS REPORT under Notes to the Financial Statements, Note 3, regarding the City s cash and cash equivalent investments and investment policies. The City s investments do not include derivative products. Pension Programs City of Waterbury Retirement System A. Plan Description The City is the administrator of the City of Waterbury Retirement System, a defined benefit single-employer public employee retirement system (the PERS ) established and administered by the City to provide pension benefits for its non-teacher employees. The PERS is considered to be part of the City s financial reporting entity and is included in the City s financial reports as a pension trust fund. Membership as of July 1, 2014 of the PERS consisted of the following: Pension Plan Participant Profile as of July 1, 2014 Retirees and Beneficiaries Currently Receiving Benefits... 2,152 Terminated Employees Due Refund of Contributions..144 Terminated Employees Not Yet Receiving Benefits Current Active Members: Vested Non-Vested TOTAL... 4,034 Members are required to contribute to the Pension Plan and the City is required to contribute the remaining amounts necessary to finance the coverage for its employees. Benefits and contributions are established by the City and may be amended only by the City Charter and Union negotiation. Currently hired teachers and school administrators are covered by the State Teachers Retirement System. B. Significant Accounting Policies and System Assets The Pension Plan follows the accrual basis of accounting. The investments of the PERS are valued at fair market value. 52

59 Unaudited 2015 Audited 2014 Audited 2013 Audited 2012 Audited 2011 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS, JULY 1 st $432,667,502 $397,672,514 $378,715,297 $400,154,890 $351,294,441 ADDITIONS: Contributions: City employer contributions* 16,648,764 16,085,376 16,061,730 15,961,053 15,865,930 Plan members contributions 6,301,787 6,498,928 6,374,337 6,498,357 6,592,269 Total Contributions $22,950,551 $22,584,304 $22,436,067 $22,459,410 $22,458,199 Investment Income (loss): Net appreciation (depreciation) in fair market value of investments 1,330,591 52,296,551 34,711,388 (4,407,317) 64,045,384 Interest and dividends 10,419,626 10,219,679 10,302,557 9,041,137 9,495,561 Investment management fees (2,912,847) (2,919,999) (2,582,819) (2,561,044) (2,650,322) Net Investment Income (Loss) 8,837,370 59,596,231 42,431,126 2,072,776 70,890,623 DEDUCTIONS: Benefits Paid 47,333,144 45,989,213 45,223,689 45,073,310 44,091,054 Refunds, rollovers & pre-retirement death benefits 1,558,498 1,196, , , ,319 Total Deductions 48,891,642 47,185,547 45,909,976 45,971,779 44,488,373 NET INCREASE (DECREASE) (17,103,721) 34,994,988 18,957,217 (21,439,593) 48,860,449 NET ASSETS HELD, JUNE 30 th $415,563,781 $432,667,502 $397,672,514 $378,715,297 $400,154,890 * The Employer Contribution for fiscal years are in accordance with the ARC which accounts for the Pension Obligation Bond proceeds contribution to the Pension Trust in fiscal The City of Waterbury issued Pension Obligation Bonds on September 1, 2009 in the amount of $313,145,000. Issuance of Taxable General Obligation Pension Bonds Pursuant to Section 7-374c of the Connecticut General Statutes (the Act ), the City issued general obligation pension bonds in September 2009 in the amount of $313,145,000 to fund a majority of the unfunded past benefit obligation of the PERS. The City paid debt service totaling $27,431,412 in fiscal year 2015 on the outstanding pension bonds. The debt service obligation is $27,410,950 in fiscal year 2016 and is included in the fiscal year adopted budget. Annual Required Contribution (ARC) The City s ARC contribution for fiscal year 2015 was $16,648,764. The valuation completed as of July 1, 2013 recommends a required contribution of $17,002,782, which has been included in the City s adopted budget for fiscal year The July 1, 2014 valuation recommends a required contribution of $17,418,066 for fiscal year 2017 which will be included in the Mayor s proposed budget to be submitted in March Plan Funding Status The actuarial accrued liability for active and retired plan members is $584,894,830 as of July 1, The actuarial accrued asset value in the Pension Trust is $416,914,656, representing a plan funding status of 71.3 percent. The fiscal year 2016 pension plan contribution includes the sixth year of the thirty-year amortization period (established in fiscal year 2010) to amortize the remaining unfunded portion of the actuarial accrued liability following the City s issuance of pension obligations bonds in September Given the City s policy to prepare an actuarial pension plan valuation annually, adjustments to the planned funding strategy, comprising normal cost and amortization of the unfunded liability, can be made prospectively to take into account factors that ultimately affect the continued growth in the funded ratio. 53

60 The following is a summary of the Defined Benefit Single Employer Pension Funding Status: Year Actuarial Value of Assets Actuarial Accrued Liability Funded Ratio Unfunded Actuarial Accrued Liability 2015 $416,914,656 $584,894, % $167,980, ,147, ,776, % 165,629, ,637, ,274, % 164,637, ,484, ,209, % 156,725, ,409, ,456, % 159,047, ,606, ,960, % 160,354,000 Source: City of Waterbury Finance Department Note: Investment return assumption reduced by a quarter percent from 8.50% to 8.25% as reflected in the larger 2013 actuarial accrued liability and from 8.25% reduced to 8.20% reflected in the larger 2015 actuarial accrued liability. GASB #43 and 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other than Pensions ( OPEB ) The City, in accordance with various collective bargaining agreements, is committed to provide health and other benefits to eligible retirees and their spouses. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of occurrence of future events. Assumptions include future employment, mortality, and healthcare and other benefit cost trends. The Government Accounting Standards Board ( GASB ) has issued statements to establish financial reporting, liability calculation, along with the requirement to disclose the government s funding strategy and progress. The following is the July 1, 2014 census of City benefit participants: Active Member 3,255 Retirees & Spouses 3,667 Total 6,922 Post-employment benefit payments for the year ended June 30, 2015 for covered retirees and retiree spouses, net of retiree and other contributions, amounted to approximately $43.8 million. An actuarial valuation was prepared to value the City s estimated OPEB liability, as of July 1, The following reflects the summary of assumptions and results of the July 1, 2014 actuarial report ($ in thousands): Valuation date July 1, 2014 Actuarial cost method Projected Unit Credit Remaining amortization period 30 year, level dollar, open Actuarial assumptions: Investment rate of return 4.5% (reduced from 5.5%) Benefit cost trend 8.0% (grading down by 0.5% to an ultimate rate of 5% in 2020) Actuarial accrued liability July 1, 2014: Retired Age 65 & Older $561,571 Retired Under Age ,727 Active Employees Eligible for OPEB 283,396 Total Actuarial Accrued Liability July 1, 2014 $987,694 Net OPEB Obligation, July 1, 2014 $230,143 Annual OPEB Cost 72,028 Contributions made by the City (44,706) Net OPEB Obligation, June 30, 2015 $257,465 Source: July 1, 2014 GASB 43/45 Valuation Report & GASB 45 Disclosure Report as of June 30,

61 Other Post-Employment Benefits The City continues its commitment to meeting its obligations for medical benefits of both its active employees and benefit eligible retired employees, on a pay-as-you go basis, through the annual adoption of General Fund contributions to the City s Health Benefits internal service fund. In 2003, with an understanding of the long-term implications of the existing OPEB benefit program, the City, via the powers of the State Oversight Board at the time, modified collective bargaining agreements to significantly curtail the OPEB benefits for those employees hired after the contract modification date (2004 time frame). In addition, future retiree co-share requirements were established for those current employees grandfathered into the previous benefit program. At that time, all but one collective bargaining unit contract was modified for the comprehensive OPEB benefit reduction modifications. In the fall of 2011, the City successfully won those OPEB benefit reductions, via an arbitration award, on the last collective bargaining contract not previously subject to the OPEB benefit reductions. Over time the elimination and/or significant curtailment of post-employment medical coverage will begin to reduce the OPEB accrued liability and eventually significantly reduce the compounded cost impact of funding medical coverage for both actives employees and retirees. The current year-over-year health claims experience costs compounded by industry driven fee increases continue to demand a greater financial commitment from the City. The City s FY2015 adopted budget included a General Fund contribution increase of $5 million, raising the City s annual budgeted contribution for health costs from $66.6 to $72.1 million. Prior the close of FY2015, the City took the difficult step of closing the City s OPEB Reserve Fund and transferring reserves of $18.4 (representing a nominal 1.9% funding of the OPEB liability) into the City s Health Benefit s fund in order to stabilize the financial position of the Health Fund and additionally to provide sufficient excess reserves to cover a potential operational deficit in FY2016. Approving the closure of the OPEB Reserve fund that will provide for a two or three year stabilization period in the health fund, depending on claims experience, was done simultaneously with the Mayor s decision to move forward with a major cost saving Medicare Enrollment Initiative. The Medicare Enrollment Initiative is projected to conservatively save the City $5-$7 million annually in retiree health costs beginning on July 1, 2016 by transferring all Medicare eligible health costs over to Medicare, net of applicable deductibles. The City s OPEB liability is conservative projected to be reduced by $125 million once all retirees/spouses over 65 are enrolled into Medicare and all under 65 retirees/spouses are assumed to enroll into Medicare upon turning 65. The Medicare Enrollment Initiative that is currently underway requires the enrollment of all covered retirees and retiree spouses into Medicare A & B upon turning 65 and additionally requiring all retirees and retiree spouses currently over age 65 to enroll in Medicare A & B during the January 1, 2016 to March 31, 2016 General Enrollment Period, with an effective coverage date of July 1, Retirees who were not previously required to enroll into Medicare A & B, as the collective bargaining agreement was silent on the matter, will be reimbursed for late enrollment penalties, reimbursed for annual premiums and will be provided with a Medicare Wrap Plan by the City. The projected annual savings account for the cost of those reimbursements and the offering of a Medicare Wrap Plan. The budget development process for Fiscal 2017 will take into account current fiscal year claims experience and projected savings from the Medicare Enrollment Initiative to establish the General Fund contribution requirement needed in Fiscal 2017 to ensure that the financial condition of the Health Benefits fund remains stable. The successful reductions to OPEB benefits for current employees will reduce the City s long-term health benefit obligations but will have little impact on addressing the current year-over-year medical cost trend increases. Those cost increases necessitated the aforementioned use of the City s OPEB reserve funds and adoption of the Medicare Enrollment Initiative. Additionally, the City has implemented a National Preferred Formulary and Compound Management Program on its pharmacy program as cost containment measures on pharmacy benefits. The City is also aggressively negotiating the adoption of a consumer driven high-deductible health plan for all active employees. It is anticipated that the vast majority of the City s workforce will be enrolled in a consumer driven high deductible health plan by July 1, The City continues to make progress in shifting the cost of benefits from the employer to the employee by increasing plan participation co-shares and establishing employee deductible funding requirements. Complementing all of these initiatives is an ongoing series of health & wellness outreach programs. [THIS REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 55

62 General Fund Revenues and Expenditures (Numbers in 000s) The General Fund revenues, expenditures and changes in fund balance for the fiscal years ended June 30, 2011 through 2014 have been derived from the City s audited financial statements. The June 30, 2015 revenues, expenditures and changes in fund balance are year-end estimated actual amounts. The budget for is stated on a budgetary basis, which is different from the audited financial statements presentation. The City s independent auditors have not examined, reviewed or compiled any of the estimates presented below or expressed any conclusion or provided any other form of assurance with respect to such estimates, and accordingly, assumes no responsibility for them. The financial information presented herein is the responsibility of the City s management. ( Appendix A Financial Statements was taken from the City s General Purpose Financial Statements for the Fiscal Year ended June 30, 2014). Budget Estimated Audited Audited Actual Actual REVENUES Property Taxes $236,642 $238,274 $230,789 $224,710 $218,688 $218,483 Intergovernmental Revenue 1 132, , , , , ,419 Use of Money Department Income, Reimbursement, Charges for Services & other 20,330 19,085 18,874 18,626 19,391 19,087 Designation of Fund Balance 3, Total Revenues $392,855 $391,696 $383,036 $380,526 $377,606 $375,379 EXPENDITURES General Government $11,171 $10,711 $10,657 $10,660 $10,687 $11,120 General Financial 2 107, , , ,947 98,450 96,463 Public Works 18,136 17,982 17,671 18,755 17,305 18,793 Public Safety 44,745 44,848 45,033 43,837 45,720 43,580 Community Affairs Human Services 3,498 3,415 3,138 3,091 3,056 3,324 Culture and Recreation 2,057 1,890 1,700 1,715 1,896 1,893 Education 155, , , , , ,686 Transfers to Other Funds 2 45,911 47,531 47,743 47,163 45,293 45,314 Contingency Appropriation 4, Total Expenditures $392,855 $391,523 $382,996 $380,505 $377,591 $374,173 Results from Operations $0 $173 $40 $21 $15 $1,206 Fund Balance, July 1,... $22,462 $22,422 $22,401 $22,386 $21,180 Fund Balance, June $22,635 $22,462 $22,422 $22,401 $22,386 Ending Fund Balance as a % of Expenditures 5.8% 5.9% 5.9% 5.9% 6.0% 1. Excludes State of Connecticut on behalf contributions to the Connecticut State Teachers Retirement Systems 2. Includes annual debt service funding requirement for general purpose, education, and pension obligation bonds Source: City s Financial Statements from ; Management Estimated Actual 2015; City Approved Budget [THIS REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 56

63 LEGAL AND OTHER INFORMATION Litigation Tax-Exemption of the Lot A Bonds Tax Status of the Lot B Bonds Availability of Continuing Disclosure Information Transcript and Closing Documents Legal Matters Concluding Statement 57

64 LEGAL AND OTHER INFORMATION Litigation The City of Waterbury, its officers and employees are defendants in numerous lawsuits. The ultimate disposition and fiscal consequences of these lawsuits are not presently determinable. With respect to general liability claims, the City currently remains liable for the first $1.5 million in monetary damages but it also carries excess general liability insurance coverage, currently ten million dollars, beyond that. The applicability of excess liability coverage, or lack thereof, and the determination of the dollar limits applicable are dependent upon the timing of the incident giving rise to a given claim. The Corporation Counsel, after consultation with the City s Director of Finance, believes that the aggregate balances in the City s self-insurance reserve funds, and various insurance policies covering claims against the City, are adequate to meet its potential loss exposure in the aggregate for existing lawsuits. The City s Corporation Counsel has reviewed the status of pending lawsuits, and, where appropriate, has received the advice of independent counsel with respect to the status of certain of those pending lawsuits. Corporation Counsel is of the opinion that, as of the date of this Official Statement and given her knowledge of the circumstances as set forth in the preceding two paragraphs, there are no claims or litigation pending, or to her knowledge threatened, which could reasonably be expected to, individually or in the aggregate, result in final judgments against the City which would either have a material adverse effect on the finances of the City or impact the validity of its Bonds or the power of the City to levy and collect taxes to pay the principal and interest on its Bonds. Tax Exemption of the Lot A Bonds Federal Taxes. In the opinion of Pullman & Comley, LLC, Bond Counsel, under existing law, interest on the Lot A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax; however, with respect to certain corporations (as defined for federal income tax purposes) subject to the federal alternative minimum tax, such interest is taken into account in computing the federal alternative minimum tax. Bond Counsel s opinion with respect to the Lot A Bonds will be rendered in reliance upon and assuming the accuracy of and continuing compliance by the City with its representations and covenants relating to certain requirements of the Internal Revenue Code of 1986, as amended (the Code ). The Code and regulations promulgated thereunder establish certain requirements which must be satisfied at and subsequent to the issuance of the Lot A Bonds in order that interest on the Lot A Bonds be and remain excludable from gross income for federal income tax purposes. Failure to comply with such requirements may cause interest on the Lot A Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Lot A Bonds irrespective of the date on which such noncompliance occurs. In the Tax Compliance Agreement, which will be delivered concurrently with the issuance of the Lot A Bonds, the City will covenant to comply with certain provisions of the Code and will make certain representations designed to assure compliance with such requirements of the Code including, but not limited to, investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of Lot A Bond proceeds and certain other matters. The opinion of Bond Counsel delivered on the date of issuance of the Lot A Bonds is conditioned upon compliance by the City with such requirements. No other opinion is expressed by Bond Counsel regarding the federal tax consequences of the ownership of, or the receipt or accrual of interest on, the Lot A Bonds. Original Issue Discount. The initial public offering prices of the Lot A Bonds of certain maturities may be less than the stated principal amount. Under existing law, the difference between the stated principal amount and the initial offering price of each maturity of the Lot A Bonds will constitute original issue discount. The offering prices relating to the yields set forth on the cover page of this Official Statement for such Lot A Bonds is expected to be the initial offering prices to the public (excluding bond houses and brokers) at which a substantial amount of the Lot A Bonds are sold. Under existing law, original issue discount on the Lot A Bonds accrued and properly allocable to the owners thereof under the Code is excludable from gross income for federal income tax purposes if interest on the Lot A Bonds is excludable from gross income for federal income tax purposes. Under the Code, for purposes of determining an owner s adjusted basis in a Lot A Bond purchased at an original issue discount, original issue discount is treated as having accrued while the owner holds such Lot A Bond and will be added to the owner s basis. Original issue discount will accrue on a constant-yield-to-maturity method based on regular compounding. The owner s adjusted basis will be used to determine taxable gain or loss upon the sale or 58

65 other disposition (including redemption or payment at maturity) of such a Bond. For certain corporations (as defined for federal income tax purposes), a portion of the original issue discount that accrues in each year to such Lot A Bond will be included in the calculation of the corporation s federal alternative minimum tax liability. As a result, ownership of such a Lot A Bond by such a corporation may result in an alternative minimum tax liability even though such owner has not received a corresponding cash payment. Prospective purchasers of Lot A Bonds at an original issue discount should consult their own tax advisors as to the calculation of accrued original issue discount, the accrual of original issue discount in the case of Bondowners purchasing such Lot A Bonds after the initial offering and sale, and the state and local tax consequences of owning or disposing of such Lot A Bonds. Original Issue Premium. The initial public offering prices of certain maturities of the Lot A Bonds may be more than their stated principal amounts. An owner who purchases a Lot A Bond at a premium to its principal amount must amortize the original issue premium as provided in the applicable Treasury Regulations, and amortized premium reduces the owner s basis in the Lot A Bond for federal income tax purposes. Prospective purchasers of the Lot A Bonds should consult their tax advisors regarding the amortization of premium and the effect upon basis. Other Federal Tax Matters. Prospective purchasers of the Lot A Bonds should be aware that ownership of the Lot A Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, certain insurance companies, recipients of Social Security or Railroad Retirement benefits, certain S corporations, foreign corporations subject to the branch profits tax, taxpayers eligible for the earned income credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Bond Counsel does not express any opinion regarding such collateral tax consequences. Prospective purchasers of the Lot A Bonds should consult their tax advisors regarding collateral federal income tax consequences. State Taxes. In the opinion of Bond Counsel, under existing statutes, interest on the Lot A Bonds is excluded from Connecticut taxable income for purposes of the Connecticut income tax on individuals, trusts and estates and is excluded from amounts on which the net Connecticut minimum tax is based for individuals, trusts and estates required to pay the federal alternative minimum tax. Interest on the Lot A Bonds is included in gross income for purposes of the Connecticut corporation business tax. Accrued original issue discount on a Lot A Bond is also excluded from Connecticut taxable income for purposes of the Connecticut income tax on individuals, trusts and estates and is excluded from amounts on which the net Connecticut minimum tax is based for individuals, trusts and estates required to pay the federal alternative minimum tax. Owners of the Lot A Bonds should consult their own tax advisors with respect to the determination for state and local income tax purposes of original issue discount or original issue premium accrued upon sale or redemption thereof, and with respect to the state and local tax consequences of owning or disposing of such Lot A Bonds. Owners of the Lot A Bonds should consult their tax advisors with respect to other applicable state and local tax consequences of ownership of the Lot A Bonds and the disposition thereof. Proposed Legislation and Other Matters. Tax legislation and administrative actions taken by tax authorities (whether currently proposed, proposed in the future, or enacted) and court decisions, whether at the federal or state level, may adversely affect the tax-exempt status of interest on the Lot A Bonds under federal or state law or otherwise prevent beneficial owners of the Lot A Bonds from realizing the full current benefit of the tax status of such interest. In addition, such legislation, actions or decisions could affect the market price for, or the marketability of, the Lot A Bonds. Prospective purchasers of the Lot A Bonds should consult their own tax advisers regarding the foregoing matters. General. The opinion of Bond Counsel is rendered as of its date, and Bond Counsel assumes no obligation to update or supplement their opinion to reflect any facts or circumstances that may come to their attention or any changes in law that may occur after the date of their opinion. Bond Counsel s opinions are based on existing law, which is subject to change. Such opinions are further based on factual representations made to Bond Counsel as of the date of issuance. Moreover, Bond Counsel s opinions are not a guarantee of a particular result, and are not binding on the Internal Revenue Service or the courts; rather, such opinions represent Bond Counsel s professional judgment based on its review of existing law, and in reliance on the representations and covenants that it deems relevant to such opinions. 59

66 The discussion above does not purport to deal with all aspects of federal or state or local taxation that may be relevant to a particular owner of the Lot A Bonds. Prospective owners of the Lot A Bonds, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal, state and local tax consequences of owning and disposing of the Lot A Bonds. Tax Status of the Lot B Bonds Federal Taxes. In the opinion of Bond Counsel, under existing law, interest on the Lot B Bonds is included in the gross income of the owners thereof for federal income tax purposes. Ownership of the Lot B Bonds may result in other federal income tax consequences to certain taxpayers. The owners of the Lot B Bonds should consult their tax advisors with respect to the inclusion of interest on the Lot B Bonds in gross income for federal income tax purposes and any collateral tax consequences. State Taxes. In the opinion of Bond Counsel, under existing statutes, interest on the Lot B Bonds is excluded from Connecticut taxable income for purposes of the Connecticut income tax on individuals, trusts and estates and is excluded from amounts on which the net Connecticut minimum tax is based for individuals, trusts and estates required to pay the federal alternative minimum tax. Interest on the Lot B Bonds is included in gross income for purposes of the Connecticut corporation business tax. Accrued original issue discount on a Lot B Bond is also excluded from Connecticut taxable income for purposes of the Connecticut income tax on individuals, trusts and estates and is excluded from amounts on which the net Connecticut minimum tax is based in the case of individuals, trusts and estates required to pay the federal alternative minimum tax. Owners of Lot B Bonds purchased at an original issue discount or an original issue premium should consult their own tax advisors with respect to the determination for state and local income tax purposes of original issue discount or premium accrued upon sale or redemption thereof, and with respect to the state and local tax consequences of owning or disposing of Lot B Bonds purchased at an original issue discount or an original issue premium. Owners of the Lot B Bonds should consult their tax advisors with respect to other applicable state and local tax consequences of ownership of the Lot B Bonds and the disposition thereof. General. The opinion of Bond Counsel is rendered as of the date of issuance, and Bond Counsel assumes no obligation to update or supplement their opinion to reflect any facts or circumstances that may come to its attention or any changes in law that may occur after the date of its opinion. The discussion above does not purport to deal with all aspects of federal or state or local taxation that may be relevant to a particular owner of the Lot B Bonds. Prospective owners of the Lot B Bonds, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal, state and local tax consequences of owning and disposing of the Lot B Bonds. Availability of Continuing Disclosure Information The City prepares, in accordance with State law, annual audited financial statements and files such annual audits with the State of Connecticut, Office of Policy and Management within six months of the end of its fiscal year. The City provides, and will continue to provide, to the Municipal Securities Rulemaking Board s ( MSRB ) Electronic Municipal Market Access System ongoing disclosure in the form of the Comprehensive Annual Financial Report, recommended and adopted budgets, and other materials relating to its management and financial condition, as may be necessary or requested. In accordance with the requirements of Rule 15c2-12(b)(5) promulgated by the Securities and Exchange Commission, in connection with the issuance of the Bonds, the City will agree to provide or cause to be provided, (i) annual financial information and operating data, (ii) notice of certain events with respect to the Bonds, and (iii) timely notice of a failure of the City to provide the required annual financial information on or before the date specified in the Continuing Disclosure Agreement to be executed in substantially the form attached as Appendix C to this Official Statement. The City has previously undertaken in Continuing Disclosure Agreements entered into for the benefit of holders of certain of its general obligation bonds and notes to provide certain annual financial information and event notices pursuant to Rule 15c2-12(b)(5). The City has not failed in any material respect to meet any of its undertakings under such agreements during the past 5 years, except for a failure to timely file notice of a rating change on November 7, The failure to file was remedied four days late on November 21,

67 Transcript and Closing Documents Upon delivery of the Bonds, the Underwriter will be furnished with the following: 1. A Signature and No Litigation Certificates stating that at the time of delivery no litigation is pending or threatened affecting the validity of the Bonds or the levy or collection of taxes to pay the principal of and the interest on the Bonds. 2. A certificate on behalf of the City signed by the Mayor and Director of Finance which will be dated the date of delivery and attached to a signed copy of the Official Statement, and which will certify, to the best of said officials knowledge and belief, that at the time of the execution of the Purchase Contract, the descriptions and statements in the Official Statement relating to the City and its finances were true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and that there has been no material adverse change in the financial condition of the City from that set forth in or contemplated by the Official Statement. 3. Receipts for the purchase price of the Bonds. 4. The approving opinions of Pullman & Comley, LLC, Hartford, Connecticut for the Lot A Bonds and the Lot B Bonds in substantially the forms set out in Appendices B-1 and B-2 to this Official Statement. 5. An executed Continuing Disclosure Agreement for the Bonds in substantially the form set out in Appendix C of this Official Statement. 6. Within seven (7) business days after the award, the City will furnish the Underwriter with 15 copies of the Official Statement. 7. Such other documents or certifications required by the terms and conditions of a Purchase Contract entered into between the City and the Underwriter. A record of the proceedings taken by the City in authorizing the Bonds will be kept on file at the principal office of the Registrar and Paying Agent, U.S. Bank National Association of Hartford, Connecticut and may be examined upon reasonable request. Legal Matters Pullman & Comley, LLC, is acting as Bond Counsel in connection with the issuance of the Bonds. Delivery of the Bonds is conditioned upon delivery by Bond Counsel of its opinions substantially in the form set forth in Appendices B-1 and B-2 of this Official Statement. Concluding Statement To the extent that any statements made in this Official Statement involve matters of opinion or estimates such statements are made as such and not as representations of fact or certainty, and no representation is made that any of such statements will be realized. Information herein has been derived by the City from official and other sources and is believed by the City to be reliable, but such information other than that obtained from official records of the City has not been independently confirmed or verified by the City and its accuracy is not guaranteed. Additional information may be obtained upon request from the City of Waterbury Department of Finance, Attention Michael LeBlanc, Director of Finance, 235 Grand Street, Waterbury, Connecticut, telephone (203) This Official Statement has been duly prepared and delivered by the City, and executed for and on behalf of the City by the following officials: By: /S/ Neil M. O Leary By: /S/ Michael LeBlanc Neil M. O Leary, Mayor Michael LeBlanc, Director of Finance Dated as of: November 12,

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69 APPENDIX A - FINANCIAL STATEMENTS

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71 29 South Main Street P.O. Box West Hartford, CT Tel Fax blumshapiro.com Independent Auditors Report To the Honorable Mayor and Board of Aldermen City of Waterbury, Connecticut Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Waterbury, Connecticut, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City of Waterbury, Connecticut 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. Auditors 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 of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors 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 auditors consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. A-1 Blum, Shapiro & Company, P.C. An independent member of Baker Tilly International

72 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Waterbury, Connecticut, as of June 30, 2014 and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 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 A-3 through A-11, the budgetary comparison information on pages A-52 through A-55 and the required schedules for the Pension Trust Funds on pages A-56 through A-58 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, which 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. West Hartford, Connecticut December 22, 2014 A-2

73 CITY OF WATERBURY, CONNECTICUT MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2014 This discussion and analysis of the City of Waterbury, Connecticut s (the City) financial performance is provided by management to provide an overview of the City s financial activities for the fiscal year ended June 30, Please read this MD&A in conjunction with the transmittal letter and the City s financial statements, Exhibits I to IX. Overview of the Financial Statements The discussion and analysis is intended to serve as an introduction to the City s basic financial statements. The basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. The report also contains other supplementary information. The government-wide statement of net position and the statement of activities (Exhibits I and II, respectively) provide information about the activities of the City as a whole and present a longer-term view of the City s finances, similar to the private-sector. Fund financial statements are presented in Exhibits III to IX. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City s operations in more detail than the government-wide statements by providing information about the City s most significant funds. The remaining statements provide financial information about activities for which the City acts solely as a trustee or agent for the benefit of those outside of the government. Financial Highlights The City s net position, on a government-wide full accrual basis, decreased $13.3 million as a result of this year s operations. Net position of our governmental activities decreased $13.4 million. Net position of our business-type activities increased $132 thousand (Table 2). During the year, the City had government-wide expenses of $565.4 million compared with $552.2 million in government-wide program revenues, operating & capital grants, property taxes and other general revenues. The City s decrease in net position is largely attributable to the reported loss of $6.6 million in the City s internal service funds. The total positive net position of the City s internal services funds decreased from $21.9 million to $15.3 million. This change in net position is directly attributable to the loss reflected in the City s Health Benefits fund. Operation health care benefit costs increased by $8.1 million in fiscal year 2014, growing from $85.3 million to $93.4 million. In the City s business-type activities, expenses of $30.5 million, including depreciation expense of $5.8 million were supported by revenues of $29.1 million generated in user fees, other service revenue and investment income. Capital grants of $1.6 million substantially contributed to the overall increase in net position during FY2014. The General Fund reported a total fund balance this year of $22.4 million representing a marginal increase of $40 thousand following the year-end transfer out of $3.1 million to allocate budgetary surpluses to the City s internal service funds, debt service fund and to fund various other capital initiatives. The General Fund unassigned component of fund balance is $19.5 million with $3 million assigned to the FY2015 budget as a fund balance designation to limit tax levy growth. The General Fund s revenue resources available for appropriation were $3.8 million more than anticipated. Expenditures were $2.3 million less than appropriated. The net budgetary surplus of $6.1 million avoided any drawdown of the prior year s $3.0 million designation of fund balance for mil rate relief, and provided for $3.1 million in year-end budgetary surplus transfers to the City s internal service reserve funds and capital funds. Government-Wide Financial Statements The analysis of the City as a whole begins on Exhibits I and II. The statement of net position and the statement of activities report information about the City as a whole and about its activities for the current period. These statements include all assets and liabilities using the accrual basis of accounting. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City s net position and the changes within. The City s net position, the difference between assets and liabilities, is one way to measure the City s financial health, or financial position. Over time, increases or decreases in the City s net position are one indicator of whether its financial health is improving or deteriorating. The reader needs to consider other nonfinancial factors, however, such as changes in the City s property tax base and the condition of the City s capital assets, to assess the overall health of the City. A-3

74 In the statement of net position and the statement of activities the City reports the following activities: Governmental activities - Most of the City s basic services are reported here, including education, public safety, public works, human services, culture, and general administration. Property taxes, charges for services, and state and federal grants finance most of these activities. Business-type activities - The City charges a fee to customers to help it cover all or most of the cost of certain services it provides. The City s Bureau of Water Enterprise Fund and Water Pollution Control Enterprise Funds are reported here. Fund Financial Statements The fund financial statements begin with Exhibit III and provide detailed information about the most significant funds - not the City as a whole. Some funds are required to be established by Charter. However, the City establishes many other funds to help control and manage financial activities for particular purposes to show that it is meeting legal responsibilities for using grants and other money. The City s funds are divided into three categories: governmental, proprietary and fiduciary. Governmental Funds (Exhibits III and IV) - Most of the City s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City s general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City s programs. The relationship (or differences) between governmental activities (reported in the statement of net position and the statement of activities) and governmental funds is described in a reconciliation included with the fund financial statements. Proprietary Funds (Exhibits V, VI and VII) - When the City charges customers for the services it provides, whether to outside customers or to other units of the City, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the statement of net position and the statement of activities. In fact the City s enterprise funds (a component of proprietary funds) are the same as the business-type activities reported in the government-wide statements, but provide more detail and additional information, such as cash flows, for proprietary funds. Internal service funds (the other component of proprietary funds) are used to report activities that provide supplies and services for the City s other programs and activities - such as the City s Self Insured Internal Service Funds. Fiduciary Funds (Exhibits VIII and IX) - The City is the trustee, or fiduciary, for its employees pension plan. All of the City s fiduciary activities are reported in separate statements of fiduciary net position and changes in fiduciary net position. These activities are excluded from the City s other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. Government-Wide Financial Analysis The City s combined net position decreased from a year ago decreasing from $353.2 million to $339.9 million. The analysis below focuses on the net position (Table 1) and changes in net position (Table 2) of the City s governmental and business-type activities. A-4

75 TABLE 1 NET POSITION (In Thousands) Governmental Business-Type Activities Activities Total Current and other assets $ 385,216 $ 399,155 $ 28,501 $ 32,945 $ 413,717 $ 432,100 Capital assets 601, , , , , ,297 Total assets 987, , , ,137 1,197,340 1,187,397 Deferred charge on refunding 1,948 3,068 1,948 3,068 Long-term liabilities: Long-term debt 466, ,519 39,201 49, , ,997 Employee benefit obligations 267, , , ,549 Risk management and other 42,692 39,672 42,692 39,672 Other liabilities 37,113 51,754 1,936 2,188 39,049 53,942 Total liabilities 813, ,751 41,898 52, , ,160 Advance property tax collections Net Position: Net investment in capital assets 454, , , , , ,013 Restricted 2,360 2,235 2,360 2,235 Unrestricted (281,861) (260,076) 25,804 30,014 (256,057) (230,062) Total Net Position $ 175,054 $ 188,458 $ 164,860 $ 164,728 $ 339,914 $ 353,186 Net position of the City s governmental activities decreased by $13.4 million ($175.1 million compared to last year s net position of $188.5 million). Unrestricted net position - the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation or other legal requirements is a deficit of $281.9 million at the end of this year compared with $260.1 million at the end of last year. The $21.8 million increase in the City s governmental activities unrestricted net position deficit is derived from two significant factors. The first being the increase in the City s OPEB obligation accruing onto the statement of net position to the tune of $33.6 million which represents the difference between the actuarially recommended OPEB contribution of $71.6 million and the City s pay-asyou go contribution of $38.0 million. The second factor offsetting the increase in the unrestricted net position deficit from OPEB was the replenishment of cash reserves previously used to temporarily finance capitalized expenses as the City issued $26.5 million in permanent bond financing in November Fund balances in the City s General & Education Capital Improvement funds reflect a combined increase of $6.4 million representing the net cash benefit of those bond proceeds for ongoing capitalized expenses. The governmental activities net investment in capital assets amount of $454.6 million excludes $38.0 million of outstanding general obligation bonds previously issued for special capital reserve fund purposes. The special capital reserve fund bonds provided deficit financing and the establishment of other special reserves in 2002 unrelated to the City s capital assets. Outstanding general obligation bonds for capital asset construction purposes totaled $142.9 million as of June 30, Additionally, the net investment in capital assets excludes pension obligation bonds outstanding of $281.0 million as of June 30, The net position of the City s business-type activities increased by $132 thousand in 2014 ($164.9 million compared to last year s net position of $164.7 million). The increase in net position was supported by the receipt of $1.6 million in state capital grants used to finance the construction of a new capitalized pump station asset. The City generally can only use this net position to finance the continuing operations of the Bureau of Water and Water Pollution Control Enterprise Funds. A-5

76 TABLE 2 CHANGES IN NET POSITION (In Thousands) Governmental Business-Type Activities Activities Total Revenues: Program revenues: Charges for services $ 10,695 $ 10,563 $ 28,309 $ 28,976 $ 39,004 $ 39,539 Operating grants and contributions 229, , , ,032 Capital grants and contributions 29,315 63,753 1,593 5,712 30,908 69,465 General revenues: Property taxes 226, , , ,934 Grants and contributions not restricted to specific purposes 17,359 21,982 17,359 21,982 Unrestricted investment earnings 7,373 5, ,399 5,373 Other general revenues ,311 1,524 2,083 Total revenues 521, ,369 30,684 36, , ,408 Expenses: General government 127, , , ,929 Public works 28,265 26,803 28,265 26,803 Public safety 62,313 57,601 62,313 57,601 Development and community affairs 3,861 3,785 3,861 3,785 Human services 6,873 6,826 6,873 6,826 Education 272, , , ,396 Culture and recreation 5,626 5,496 5,626 5,496 Interest on long-term debt 28,153 27,122 28,153 27,122 Bureau of Water 11,449 11,813 11,449 11,813 Water Pollution Control 16,997 14,843 16,997 14,843 Utility Administrative Division 2,106 1,975 2,106 1,975 Total program expenses 534, ,958 30,552 28, , ,589 Change in Net Position (13,404) 34, ,408 (13,272) 41,819 Beginning Net Position 188, , , , , ,367 Ending Net Position $ 175,054 $ 188,458 $ 164,860 $ 164,728 $ 339,914 $ 353,186 Governmental Activities The City s total governmental revenues were $521.5 million as compared with $536.4 million in the prior year. Unrestricted investment earnings increased $2.0 million as the City s internal service fund invested reserves benefitted from continued solid market performance in FY2014 in addition to what occurred in FY2013. Capital grants decreased by $34.4 million as the City expended significantly less on capital outlays subject to State and Federal project cost reimbursements. Approximately 75% of eligible school construction project costs are reimbursed by the State as costs are incurred. The City expended $30.0 million on school construction, renovation and addition capital expenditures in FY2014 as reported in the Education Capital Improvement Fund, down from $72.8 million in FY2013 as multiple major construction projects were substantially completed by August The increase in operating grants and contributions is largely due to the State awarding increased State assistance grants to inner cities like Waterbury specifically to fund education improvement based programs. The total cost of all governmental programs and services was $534.9 million as compared with $501.9 million reported last year representing a $24 million or 4.8% increase. The overall increase in the cost of governmental operations is attributable to increase costs for health benefits coverage provided to active and retired employees and the increase in spending for education improvement based programs. Table 3 presents the cost of each of the City s five largest programs - general A-6

77 government, public works, public safety, human services and education - as well as each program s net cost (total cost less revenues generated by the activities). The net cost shows the financial burden that was placed on the City s taxpayers by each of these functions. TABLE 3 GOVERNMENTAL ACTIVITIES (In Thousands) Total Cost of Services Net Cost of Services General government $ 127,586 $ 117,929 $ 125,309 $ 116,070 Public works 28,265 26,803 20,361 15,661 Public safety 62,313 57,601 55,642 52,338 Human services 6,873 6,826 3,012 3,096 Education 272, ,396 31,303 (1,743) All others 37,640 36,403 30,208 30,188 Totals $ 534,901 $ 501,958 $ 265,835 $ 215,610 Business-Type Activities User fee revenues (charges for services) in the City s business-type activities (see Table 2) decreased by $667 thousand from $29.0 million in 2014 down to $28.3 million in The decrease in user fee revenues is a result of a larger than usual write down of receivables deemed uncollectible. Other general revenues decreased by $580 thousand due to modifications to a contractual lease agreement with the sewer sludge incinerator owner/operator resulting in a one-time increased net revenue to the Water Pollution Control fund realized in the prior fiscal year. Capital grants and contributions decreased $4.1 million as significant completion on a State funded project to relocate a major sewage disposal pump station was completed in fiscal Operating expenses, increased $1.9 million as the Water fund incurred higher costs on emergency repairs due to water main breaks and the Water Pollution Control fund incurred higher costs on chemicals used to reduce phosphorous limits in accordance with state/federal mandates. In the City s business-type activities, a Utility Administrative Division enterprise fund exists to consolidate the accounting, billing and collection activities of the Bureau of Water and Water Pollution Control under one Division. Premium cost allocations are included in the Bureau of Water and Water Pollution Control s operating budgets to fund the Administrative Division. Corresponding actual costs removed from the operating budgets have been replaced with a premium cost allocation expense. City Funds Financial Analysis Governmental Funds As the City completed the year, its governmental funds (as presented in the balance sheet - Exhibit III) reported a combined fund balance of $37.6 million as compared with $30.9 million last year. The City s General Fund reported a total fund balance this year of $22.5 million representing a marginal increase of $40 thousand following the year-end transfer out of $3.1 million to allocate budgetary surpluses to the City s internal service funds, debt service fund and to fund various other capital initiatives. The allocation of budgetary surpluses at year-end is a specific action taken by the City in order to remain in compliance with an Internal Revenue Service (IRS) working capital bond covenant restriction established with the City s issuance of special capital reserve fund deficit financing bonds in 2002 that limits the City s build-up of working capital funds in its General Fund. The IRS working capital restriction will expire when all of the City s special capital reserve fund bonds have been redeemed. The General Fund unassigned component of fund balance is $19.5 million with $3 million assigned to the FY2015 budget as a fund balance designation to limit tax levy growth. The General Fund s revenue resources available for appropriation were $3.8 million more than anticipated. Expenditures were $2.3 million less than appropriated. The net budgetary surplus of $6.1 million avoided any drawdown of the prior year s $3.0 million designation of fund balance for mil rate relief, and provided for $3.1 million in year-end budgetary surplus transfers to the City s internal service reserve funds, debt service fund and capital funds. A-7

78 The fund balance in the City s Debt Service fund decreased by $618 thousand as the City follows a planned drawdown of those reserves to assist with the smoothing in of required annual increases of General Fund debt service contributions in the next few years to finance of the City s comprehensive capital improvement program. The General Capital Improvement Fund and Education Capital Improvement Fund reported a combined increase of $6.4 million in fund balance resulting from the issuance of bond proceeds issued in November Those bond proceeds were used to fund ongoing construction, renovation and infrastructure improvement costs incurred during FY2013 & FY2014. The City has bonded $148.2 million since September 2009 for capital purposes and anticipates bonding another $15 to $20 million by the end of June 2015 to finance construction and renovation expenditures authorized as part of the City s comprehensive capital improvement plan. Proprietary Funds The City s self-insured programs for Health Benefits, General Liability, Workers Compensation, and Heart and Hypertension are reported as internal service funds of the City. The combined net position in the City s self-insured internal service funds is $15.3 million, including 17.8 million previously set aside in an OPEB Reserve Fund. The $15.3 million unrestricted net position represents a decrease of $6.6 million in unrestricted net position as health trend cost increases and poor claims experience continued to outpace the City s employer and employee contributions in FY2014. Benefits, claims and administrative expenses increased $10.5 million over last year, representing a 10.5% increase. The City has increased is General Fund contribution for health benefits by $5 million in FY2015. The increasing cost of health benefits continues to be the City s largest budgetary challenge. The City is aggressively addressing this issue through the implementation of benefit cost control measures, collectively bargaining for larger cost participation by employees and investigating options to restructure retiree plans to enable shifting primary coverage to Medicare. General Fund Budgetary Highlights General fund revenues came in $3.8 million more than budgetary revenue estimates. Total property taxes came in $4.6 million more than budgeted as the impacts of the City s expanded delinquent collection efforts continue to be realized. The City now utilizes a collection agency to purse delinquent motor vehicle taxes, has implemented a scoff-law booting program and has expanded the pool of properties that will be subject to collection of property taxes through tax sale auction. Current collections are also benefitting by the increased steps being taken to collect on delinquent taxes. Income from investments missed budgetary projections by $643 thousand as liquid fund rates remained well below half-a-percent. Charges for services also missed budgetary estimates by $1.1 million due to multiple categories of income missing anticipated revenues. Intergovernmental grants exceeded budgetary estimates by $1.0 million due to special education grants exceeding initial published amounts. The City s General Fund expenditures were $2.3 million less than budgeted. In October 2012, Mayor Neil M. O Leary established a Cost Containment and Oversight Committee (CCOC) to regularly meet with City department heads to closely monitor expenditure requests and to implement cost saving measures necessary to close any revenue estimate shortfalls prior to close of the fiscal year. The CCOC continued to meet regularly during fiscal year 2014 and continues to meeting in this current 2015 fiscal year charged with the objective of monitoring spending, meeting regularly with department heads, and taking actions necessary to ensure the realization of a budgetary surplus at year-end. The CCOC efforts during FY2014 and cooperation and support of the City s department heads allowed for significant budgetary savings in all functions of government. The General Fund s total fund balance as of June 30, 2014 is $22.5 million. An assigned portion of $3 million exists as the FY2015 adopted budget includes a designation of fund balance for mil rate relief as was done in the past five fiscal years. To the extent that the $3 million designation is not drawn upon during the current fiscal year it remains available for designation in the subsequent fiscal year. Capital Asset and Debt Administration Capital Assets At June 30, 2014 the City had $783.6 million invested in a broad range of capital assets, including land, buildings, park facilities, vehicles and equipment, roads and bridges, and water and sewer facilities and lines - Table 4. This amount represents a net increase (including additions, deductions and depreciation) of $28.3 million over last year. A-8

79 TABLE 4 CAPITAL ASSETS AT YEAR-END (Net of Depreciation) (In Thousands) Governmental Business-Type Activities Activities Total Land and land improvements $ 18,576 $ 20,428 $ 1,773 $ 1,773 $ 20,349 $ 22,201 Buildings, utility plant and improvements 361, ,033 64,646 66, , ,026 Infrastructure 38,002 40,049 55,952 57,158 93,954 97,207 Machinery and equipment 9,136 10,629 38,560 40,814 47,696 51,443 Vehicles 2,985 2, ,450 3,452 Construction in progress 172, ,209 20,340 16, , ,968 Totals $ 601,887 $ 571,105 $ 181,736 $ 184,192 $ 783,623 $ 755,297 Major capital activities during the year included the capitalization of $45.9 million in school construction and renovation capitalized costs, general building improvements and infrastructure improvements. More detailed information about the City s capital assets is presented in Note 5 to the financial statements. Long-Term Debt At June 30, 2014 the City had $499.1 million in bonds and notes outstanding versus $499.7 million last year - as shown in Table 5. TABLE 5 OUTSTANDING DEBT, AT YEAR-END (In Thousands) Governmental Business-Type Activities Activities Total General obligation bonds $ 461,824 $ 456,735 $ 2,619 $ 3,910 $ 464,443 $ 460,645 Serial notes payable 34,661 39,021 34,661 39,021 $ 461,824 $ 456,735 $ 37,280 $ 42,931 $ 499,104 $ 499,666 The City is strongly committed to attaining the right balance of capital renewal and reinvestment within the City over time. Since 2004, the City has approved $464 million in bond authorizations for capital renewal and reinvestment with an estimated bond financing requirement of $207.2 million net of grant reimbursements. Approximately 78 percent of the total school project authorizations will be funded through the State of Connecticut s school construction reimbursement program. The City s debt issuance program is predicated on incrementally increasing debt service up to an annual level commitment of 5%-6% of total budget. An annual debt service commitment in that range will meet the current project financing requirements and provide for continual capital investment opportunities in education facilities, infrastructure and economic development initiatives the long-term betterment of the City and its residents as well as sustainability of the City for generations to come. In October 2013, City representatives met with four credit rating agencies to present the City s current financial condition and outlook including a comprehensive overview of current economic development activities and financial management policies. Following those meetings the credit rating agencies issued updated ratings on the City s outstanding long-term debt and ratings for a new November 2013 bond sale. Standard & Poor s upgraded the City s prior rating two notches from A to AA- highlighting the City s very stable tax base, good General Fund reserve position and strong financial management policies and practices. Moody s, Fitch and Kroll reaffirmed the City s prior ratings of A1, A+ & A+ respectively. All rating agencies have reported a stable outlook for the City. A-9

80 In November 2013, the Mayor & Finance Director authorized the sale of $11.7 million, Series Lot C tax-exempt General Obligation Refunding Bonds, to refund and defease the City s $12.5 million in outstanding Series 2004A Special Capital Reserve Fund Bonds. The City s Board of Aldermen had approved the authorization to refund the outstanding 2004A Bonds anticipating that the refunding of those bonds would generate approximately $812,000 in interest cost savings. An actual net present value savings of $1.1 million was realized on November 20 th with the sale of the Series Lot C refunding bonds. In addition, the Mayor authorized the issuance of $16.5 million (Series Lot A Exempt General Obligation Bonds) and $10.0 million (Series 2013 Lot B Taxable General Obligation Bonds) to provide financing for ongoing capital and infrastructure improvements in accordance with previously approved bond authorizations. The combination of the rating upgrade, the other rating affirmations and still favorable market conditions allowed the City to refund and permanently finance a total of $38.2 million in general obligation bonds at a true interest cost of 3.77% with lower borrowing rate spreads to the AAA Municipal Market Data index when compared to the borrowing rate spreads when the City last issued bonds in June The value of the City s upgrade to the AA Rating Class on this bond sale alone was estimated at $750,000 in lower interest costs. Included in the outstanding debt as of June 30, 2014 are outstanding pension obligation bonds in the amount of $281 million and outstanding special capital reserve deficit bonds in the amount of $38 million. The Water Pollution Control (WPC) enterprise fund has self-supporting bond and clean water fund serial note outstanding debt totaling $34.7 million on June 30, The Bureau of Water enterprise fund has $2.6 million in self-supporting general obligation debt obligations outstanding as of June 30, The State limits the amount of general obligation debt that cities can issue based on formula determined under State Statutes based on type of debt and tax base. The City s outstanding general obligation debt is significantly below this $1.5 billion state-imposed limit. Other obligations include accrued vacation pay and sick leave. More detailed information about the City s long-term liabilities is presented in Note 8 to the financial statements. Economic Factors and Next Year s Budgets and Rates The City s annual budget setting process avoids the utilization of unreasonable assumptions to project revenues and appropriations. Ongoing budget monitoring systems are in place to allow the City to react timely to unanticipated revenue shortfalls or unplanned costs with controlled use of the budgeted contingency account for non-recurring expenses. The budget appropriation process is precise in its detail yet considers variables that may be encountered in the course of operations. The fiscal year 2015 budget has been crafted in a manner which takes into consideration the projected results of the fiscal year 2014 budget, the impact of the October 1, 2012 State mandated property revaluation and the impact of State modifications in the distribution of local aid designed to directly fund education improvement programs and infrastructure improvements. Revenue estimates were developed on the basis of achievable objectives and realism as a means to limit income deficiencies and thereby strengthening the likelihood of maintaining undesignated fund balance objectives. The City s current mill rate is significantly higher than surrounding towns and can serve as a detriment to home ownership & business development within the City. Any increase in the mil rate is considered a negative factor to the Administration s economic development and residential re-use/redevelopment efforts. The 2015 adopted budget tax levy however has been increased 1.24 mils largely to fund a $5 million increase in the General Fund s employer contribution to the Health Benefits internal service fund. Benefits, claims and administrative expenses increased $10.5 million over last year, representing a 10.5% increase. The increasing cost of health benefits continues to be the City s largest budgetary challenge. The City is aggressively addressing this issue through the implementation of benefit cost control measures, collectively bargaining for larger cost participation by employees and investigating options to restructure retiree plans to enable shifting primary coverage to Medicare. The implementation of Federal Health Care Reforms is also resulting in increases to the cost of the City s self-insured medical benefits programs as minimum benefit requirements are being expanded as part of the Reform Act. Federal health care reforms have yet have impact on reducing industry wide health care costs. The City utilizes bond financing as a preferred funding mechanism for larger infrastructure capital costs including road milling and repaving as well as for large capital equipment purchases. The bond financing of larger infrastructure projects is accounted for in the City s long-term capital debt issuance financing plan. The adopted budget includes a judicious designated use of fund balance in accordance with the City s fund balance policy. A-10

81 The fiscal year 2015 budget calls for $390.4 million in revenues which includes a $6.4 million increase in general property tax revenue. The FY2015 appropriated expenditure budget of $390.4 million has been increased by $8.2 million with $6.7 million allocated to general operating changes including health benefit. A mill rate of mills is applied to a net taxable grand list of $4.0 billion that reflects essentially no change from the fully implemented October 1, 2012 State mandated property revaluation. Property taxes are projected to provide 60.0% or $233.7 million of all revenues needed compared with 59.5% or $227.3 million in the prior year. The property tax collection rate exceeds 97%. The high rate of tax collection is a credit to the taxpaying residents of the City of Waterbury coupled with the use of appropriate methods of delinquent tax collection including tax sale auctions and engaging the services of a collection agency to pursue delinquent motor vehicle accounts. A budgeted collection rate of 96% allows for the realization of property tax revenue surpluses to buffer against any unanticipated shortfalls in other revenue categories. The City continues to advance its economic development strategy with both public and private investments as evidenced by the opening of 23 new businesses since January 2014 providing for over 700 new full and part-time employment opportunities within the City. The new businesses include manufacturing, retail, restaurant and professional businesses, allowing for continued expansion and diversification of the City s employment base. The City s unemployment rate at fiscal year end was 10.7% percent representing a 2.5% decrease over the 12 month period ending June 30, The local metropolitan area unemployment rate is down to 8.9%. The State and national unemployment rates were down to 6.8% and 6.5%, respectively. The City is also seeing significant activity in the manufacturing portion of its economic base resulting in the creation of new jobs. Waterbury Construction Career Initiative, a program run by the Northwest Regional Workforce Investment Board, allows residents to attend orientation sessions to learn about construction career opportunities. Many of those residents return and are enrolled in formal job training programs. In the resurgent area of manufacturing, significant employment openings remain as a result of a skills gap. Through a partnership with Naugatuck Valley Community College and the NRWIB, the City is training and placing its residents into high wage, high tech advanced manufacturing jobs. Through October, of this 2015 fiscal year, early revenue projections are showing a year end shortfall of $248 thousand and an expenditure savings of $109 thousand. The current projections assume full utilization of the $2.1 million contingency account by year end and also incorporate several worst case scenario assumptions. These estimates speak to the reality in current budgets that revenues are always subject to unanticipated reductions and therefore controlling costs is paramount to achieving a balanced budget by year end. To help improve the likelihood of achieving a balanced budget by year end, the Mayor has kept the Cost Containment & Oversight Committee (CCOC) in place to closely monitor and scrutinize department expenditure requests and position requests. As the City begins to prepare its fiscal year 2016 budget, it does so with the knowledge that there will again be intensified pressure on controlling increases to the expenditure budget by virtue of continued stagnant and/or reduced revenues generated locally, flat and/or reduced local aid provided by the State and the loss of federal stimulus program revenues. The outlook for the 2016 budget development and adoption presents a daunting task to balance the governmental service needs of the taxpayers and holding the line on property taxes in contrast with rising employee and retiree health benefit costs and the funding of general wage increases set through negotiations or arbitration. In the City s business-type activities, the Bureau of Water and Water Pollution Control rate charges remained unchanged for FY2015. FY2014 user/business consumption levels and associated water/sewer billings appear to have stabilized after several years of decline. Activity in the current fiscal year is being closely monitored to determine if systemic long-term trends have now developed that would require increases in user rates to compensate for the reduction in consumption levels. A water and sewer rate study has been completed and is being evaluated to determine what level of rate structure increases are needed to establish funding for a comprehensive capital renewal and replacement program and to stabilize annual operating budgets. Contacting the City s Financial Management This financial report is designed to provide citizens, taxpayers, customers, investors and creditors with a general overview of the City s finances and to show the City s accountability for the money it receives. If you have questions about this report or need additional financial information, please contact the Finance Department, City of Waterbury, 235 Grand Street, Waterbury, Connecticut A-11

82 CITY OF WATERBURY, CONNECTICUT EXHIBIT I STATEMENT OF NET POSITION JUNE 30, 2014 (In Thousands) Governmental Business-Type Activities Activities Total Assets: Cash and cash equivalents $ 30,395 $ 15,527 $ 45,922 Investments 77,938 77,938 Receivables, net 43,667 11,786 55,453 Internal balances 206 (206) - Net pension asset 232, ,448 Other current assets 562 1,394 1,956 Capital assets: Assets not being depreciated 184,523 22, ,636 Assets being depreciated, net 417, , ,987 Total assets 987, ,237 1,197,340 Deferred Outflows of Resources: Deferred charge on refunding 1,948 1,948 Liabilities: Accounts payable and accrued expenses 35,931 1,936 37,867 Unearned revenue 1,182 1,182 Noncurrent liabilities: Due within one year 42,802 6,276 49,078 Due in more than one year 733,243 33, ,929 Total liabilities 813,158 41, ,056 Deferred Inflows of Resources: Advance property tax collections Unavailable revenue - other charges 3,479 3,479 Total deferred inflows of resources 839 3,479 4,318 Net Position: Net investment in capital assets 454, , ,611 Restricted for trust purposes: Trust purposes - nonexpendable Trust purposes - expendable 2,154 2,154 Unrestricted (281,861) 25,804 (256,057) Total Net Position $ 175,054 $ 164,860 $ 339,914 The accompanying notes are an integral part of the financial statements A-12

83 CITY OF WATERBURY, CONNECTICUT EXHIBIT II STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Net (Expense) Revenue and Program Revenues Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business-Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental activities: General government $ 127,586 $ 2,277 $ $ $ (125,309) $ $ (125,309) Public works 28, ,303 5,266 (20,361) (20,361) Public safety 62,313 4,189 2, (55,642) (55,642) Development and community affairs 3,861 1,298 4, ,946 1,946 Human services 6, ,678 (3,012) (3,012) Education 272, ,574 23,450 (31,303) (31,303) Culture and recreation 5,626 1, (4,001) (4,001) Interest on long-term debt 28,153 (28,153) (28,153) Total governmental activities 534,901 10, ,056 29,315 (265,835) - (265,835) A-13 Business-type activities: Bureau of Water 11,449 11, Waste Treatment 16,997 16,744 1,371 1,118 1,118 Utility Administrative Division 2,106 (2,106) (2,106) Total business-type activities 30,552 28,309-1,593 - (650) (650) Total $ 565,453 $ 39,004 $ 229,056 $ 30,908 (265,835) (650) (266,485) General revenues: Property taxes 226, ,931 Grants and contributions not restricted to specific programs 17,359 17,359 Unrestricted investment earnings 7, ,399 Miscellaneous ,524 Total general revenues 252, ,213 Change in Net Position (13,404) 132 (13,272) Net Position at Beginning of Year 188, , ,186 Net Position at End of Year $ 175,054 $ 164,860 $ 339,914 The accompanying notes are an integral part of the financial statements

84 CITY OF WATERBURY, CONNECTICUT BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2014 (In Thousands) EXHIBIT III General Education Housing and Nonmajor Total Debt Capital Capital Educational Development Governmental Governmental General Service Improvement Improvement Grants Programs Funds Funds ASSETS Cash and cash equivalents $ 1,022 $ 1,845 $ 17,156 $ $ 4,981 $ 425 $ 3,224 $ 28,653 Investments 17,610 1,208 18,818 Receivables, net 13,817 2,523 9,480 1,251 12,310 3,303 42,684 Due from other funds 23,562 23,562 Other Total Assets $ 56,011 $ 1,845 $ 19,679 $ 9,480 $ 6,245 $ 12,735 $ 7,963 $ 113,958 LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES A-14 Liabilities: Accounts payable and accrued expenses $ 20,503 $ $ 4,669 $ 3,007 $ 2,864 $ 861 $ 322 $ 32,226 Due to other funds 16,691 1,332 18,023 Unearned revenue ,182 Total liabilities 20,503-4,672 19,988 3, ,951 51,431 Deferred inflows of resources: Unavailable revenue - property taxes 11,509 11,509 Unavailable revenue - loans receivable 11,457 11,457 Unavailable revenue - other receivables ,074 Advanced property tax collections Total deferred inflows of resources 13, , ,879 Fund balances: Nonspendable Restricted 15,007 2,154 17,161 Committed 1,845 2, ,191 8,242 Assigned 3,000 3,000 Unassigned 19,462 (10,508) (143) 8,811 Total fund balances 22,462 1,845 15,007 (10,508) 2, ,636 37,648 Total Liabilities, Deferred Inflows of Resources and Fund Balances $ 56,011 $ 1,845 $ 19,679 $ 9,480 $ 6,245 $ 12,735 $ 7,963 $ 113,958 (Continued on next page)

85 CITY OF WATERBURY, CONNECTICUT EXHIBIT III BALANCE SHEET - GOVERNMENTAL FUNDS (CONTINUED) JUNE 30, 2014 (In Thousands) Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Position: Amounts reported for governmental activities in the statement of net position (Exhibit I) are different because of the following: Fund balances - total governmental funds $ 37,648 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds: Governmental capital assets $ 867,659 Less accumulated depreciation (265,772) Net capital assets 601,887 Other long-term assets are not available to pay for current-period expenditures and, therefore, are not recorded in the funds: Property tax receivables greater than 60 days 7,352 Interest receivable on property taxes 4,157 Other receivables and deferred amounts 1,074 Housing loans 11,457 Net pension asset 232,448 Internal service funds are used by management to charge the costs of risk management to individual funds. The assets and liabilities of the internal service funds are reported with governmental activities in the statement of net position. 15,255 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds: Bonds and notes payable (461,824) Deferred charge on refunding 1,948 Unamortized bond premium (4,264) Interest payable on bonds and notes (3,698) Accrued compensated absences (31,319) Retired employee obligations (5,804) Net OPEB obligation (230,143) Landfill post-closure (1,120) Net Position of Governmental Activities (Exhibit I) $ 175,054 The accompanying notes are an integral part of the financial statements A-15

86 CITY OF WATERBURY, CONNECTICUT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) EXHIBIT IV Debt General Education Housing and Nonmajor Total Service Capital Capital Educational Development Governmental Governmental General Fund Improvement Improvement Grants Programs Funds Funds Revenues: Property taxes $ 230,789 $ $ $ $ $ $ $ 230,789 Intergovernmental 160,392 5,640 23,450 60,755 4,735 14, ,282 Investment income Charges for services 6, ,750 10,899 Reimbursements 12,162 12,162 Other , ,896 Total revenues 410, ,266 23,460 61,278 4,808 19, ,665 A-16 Expenditures: Current: General government 9, ,721 Public works 17,671 17,671 Public safety 45,033 4,327 49,360 Development and community affairs 1,034 4,832 5,866 Human services 3,138 3,739 6,877 Education 180,634 62,598 9, ,474 Culture and recreation 1,700 1,984 3,684 General financial 102, ,307 Capital outlay 23,061 29,961 53,022 Debt service: Principal 20,669 20,669 Interest 26,557 26,557 Total expenditures 361,140 47,226 23,061 29,961 62,598 4,832 19, ,208 Excess (Deficiency) of Revenues Over Expenditures 49,022 (46,253) (15,795) (6,501) (1,320) (24) 328 (20,543) Other Financing Sources (Uses): Issuance of bonds 21,500 5,000 26,500 Bond premium 1,859 1,859 Payment to refunded escrow agent (11,798) (11,798) Refunding bonds issued 10,776 10,776 Transfers in 44,812 2, , ,096 Transfers out (48,982) (14) (1,100) (50,096) Total other financing sources (uses) (48,982) 45,635 23,700 5,014 2,914 - (944) 27,337 Net Change in Fund Balances 40 (618) 7,905 (1,487) 1,594 (24) (616) 6,794 Fund Balance, July 1, ,422 2,463 7,102 (9,021) 1, ,252 30,854 Fund Balance, June 30, 2014 $ 22,462 $ 1,845 $ 15,007 $ (10,508) $ 2,789 $ 417 $ 5,636 $ 37,648 (Continued on next page)

87 CITY OF WATERBURY, CONNECTICUT EXHIBIT IV STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities: Amounts reported for governmental activities in the statement of activities (Exhibit II) are different because: Net change in fund balances - total governmental funds (Exhibit IV) $ 6,794 Governmental funds report capital outlays as expenditures. In the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense: Capital outlay 47,330 Depreciation expense (15,284) In the statement of activities, the loss on the sale or disposal of capital assets is reported. However, in the governmental funds, the transaction is not reported. Thus the change in net position differs from the change in fund balance by the loss on assets disposed. (1,264) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds, and revenues recognized in the funds are not reported in the statement of activities: Property tax receivable - accrual basis change (2,902) Property tax interest and lien revenue - accrual basis change (956) Housing assistance loans receivable - accrual basis change 1,617 Other receivables - accrual basis change 252 The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are amortized and deferred in the statement of activities. The details of these differences in the treatment of long-term debt and related items are as follows: General obligation bonds issued (26,500) Bond premiums issued (739) Bond principal payments 20,670 Refunding bonds issued (10,776) Bonds refunded 11,517 Deferred amount in refunding 280 Bond premium on refunding bonds (1,120) Amortization of deferred charge on refunding (1,400) Amortization of premiums and discounts 379 Other (666) 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. The details of the changes in other recorded obligations are as follows: Net OPEB benefit obligation (33,571) Net pension asset (717) Compensated absences 688 Retired employee obligations (577) Accrued interest 90 Landfill post closure care 70 Internal service funds are used by management to charge costs to individual funds. The net revenue of certain activities of internal services funds is reported with governmental activities. (6,619) Change in Net Position of Governmental Activities (Exhibit II) $ (13,404) The accompanying notes are an integral part of the financial statements A-17

88 CITY OF WATERBURY, CONNECTICUT EXHIBIT V STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2014 (In Thousands) Governmental Business-Type Activities Activities Major Funds Nonmajor Fund Water Pollution Utility Bureau of Water Control Administrative Internal Enterprise Fund Enterprise Fund Division Total Service Funds Assets: Current assets: Cash and cash equivalents $ 916 $ 14,611 $ $ 15,527 $ 1,742 Investments - 59,119 Receivables, net 4,549 7,237 11, Due from other funds Inventories 1,394 1,394 Total current assets 6,859 21,848 28,707 62,165 Noncurrent assets: Capital assets, net 56, , ,736 Total assets 63, , ,443 62,165 Liabilities: Current liabilities: Accounts payable and accrued expenses 481 1, ,936 5 Due to other funds ,333 Capital lease obligations Bonds and serial notes payable 132 5,383 5,515 Compensated absences Risk management claims - 15,157 Total current liabilities 686 7, ,418 20,495 Noncurrent liabilities: Capital lease obligations 1,312 1,312 Bonds and notes payable 2,488 29,277 31,765 Compensated absences Risk management claims - 26,415 Total noncurrent liabilities 2,783 30, ,686 26,415 Total liabilities 3,469 38, ,104 46,910 Deferred Inflows of Resources: Other charges 3,479 3,479 Net Position: Net investment in capital assets 54,279 84, ,056 Unrestricted 6,010 20,197 (403) 25,804 15,255 Total Net Position $ 60,289 $ 104,416 $ 155 $ 164,860 $ 15,255 The accompanying notes are an integral part of the financial statements A-18

89 CITY OF WATERBURY, CONNECTICUT EXHIBIT VI STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Business-Type Activities Major Funds Nonmajor Fund Water Pollution Utility Bureau of Water Control Administrative Internal Enterprise Fund Enterprise Fund Division Total Service Funds Operating Revenues: Operations $ 11,565 $ 16,744 $ $ 28,309 $ Employer premiums - 81,232 Charges for services - 10,073 Other ,985 Total operating revenues 12,083 16,982 29,065 97,290 Operating Expenses: Operations 7,405 10,342 17,747 Administration and general 2,503 1,225 2,106 5,834 Depreciation 1,437 4,374 5,811 Benefits, claims and administration - 110,644 Total operating expenses 11,345 15,941 2,106 29, ,644 Operating Income (Loss) 738 1,041 (2,106) (327) (13,354) Nonoperating Income (Expense): Investment income ,735 Interest expense (104) (759) (863) Loss on disposal of assets (297) (297) Net nonoperating income (expense) (103) (1,031) (1,134) 6,735 Income (Loss) Before Grants and Contributions (2,106) (1,461) (6,619) Capital Grants and Contributions 222 1,371 1,593 Transfers In 2,194 2,194 Transfers Out (1,097) (1,097) (2,194) Change in Net Position (240) (6,619) Total Net Position, July 1, , , ,728 21,874 Total Net Position, June 30, 2014 $ 60,289 $ 104,416 $ 155 $ 164,860 $ 15,255 The accompanying notes are an integral part of the financial statements A-19

90 CITY OF WATERBURY, CONNECTICUT EXHIBIT VII STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Governmental Business-Type Activities Activities Major Funds Nonmajor Fund Water Pollution Utility Bureau of Water Control Administrative Internal Enterprise Fund Enterprise Fund Division Total Service Funds Cash Flows from Operating Activities: Cash received from operations $ 12,175 $ 19,520 $ $ 31,695 $ City s contribution - 81,232 Cash received from employees and other ,000 Cash paid to employees for services (4,694) (4,041) (1,742) (10,477) Cash paid to vendors (5,836) (7,276) (409) (13,521) (104,453) Net cash provided by (used in) operating activities 2,163 8,441 (2,151) 8,453 (7,221) Cash Flows from Capital and Related Financing Activities: Capital grants 222 1,371 1,593 Acquisition and construction of capital assets (1,197) (2,177) (278) (3,652) Proceeds from bond issuance Principal payment - bonds, notes and leases (128) (7,600) (7,728) Interest paid on bonds and notes (104) (762) (866) Net cash used in capital and related financing activities (1,207) (8,239) (278) (9,724) - Cash Flows from Noncapital Financing Activities: Transfer from other funds 2,194 2,194 Transfer to other funds (1,097) (1,097) (2,194) Net cash provided by (used in) noncapital financing activities (1,097) (1,097) 2, Cash Flows from Investing Activities: Income on investments ,842 Purchases of investments - (2,698) Sales of investments - 6,062 Net cash provided by investing activities ,206 Net Decrease in Cash and Cash Equivalents (140) (870) (235) (1,245) (2,015) Cash and Cash Equivalents, July 1, ,056 15, ,772 3,757 Cash and Cash Equivalents, June 30, 2014 $ 916 $ 14,611 $ - $ 15,527 $ 1,742 Reconciliation of Operating Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Operating income (loss) $ 738 $ 1,041 $ (2,106) $ (327) $ (13,354) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense 1,437 4,374 5,811 (Increase) decrease in receivables 611 2,777 3,388 (58) Increase in inventory (88) (88) Increase in prepaid expenses - (321) Increase (decrease) in accounts payable and accrued expenses (528) (248) (200) Increase (decrease) in due to other funds (101) (101) 3,622 Increase (decrease) in compensated absences (7) Increase in risk management claim liabilities - 3,090 Net Cash Provided by (Used in) Operating Activities $ 2,163 $ 8,441 $ (2,151) $ 8,453 $ (7,221) Noncash Investing, Capital and Financing Activities: Amortization of Other Charges $ 569 Increase in Value of Investments $ 4,893 The accompanying notes are an integral part of the financial statements A-20

91 CITY OF WATERBURY, CONNECTICUT EXHIBIT VIII FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2014 (In Thousands) Pension Trust Agency Fund Funds Assets: Cash and cash equivalents $ 13,658 $ 2,136 Investments: Corporate bonds 56,839 U.S. treasury obligations 78,034 Asset backed securities 14,532 Managed futures 17,393 Common stock and equities 252,212 Total assets 432,668 $ 2,136 Liabilities: Deposits held for others $ 2,136 Net Position: Held in Trust for Pension Benefits $ 432,668 The accompanying notes are an integral part of the financial statements A-21

92 CITY OF WATERBURY, CONNECTICUT EXHIBIT IX FIDUCIARY FUNDS STATEMENT OF CHANGES IN PLAN NET POSITION PENSION TRUST FUND FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Additions: Contributions: Employer $ 16,085 Plan members 6,499 Total contributions 22,584 Investment income: Net appreciation in fair value of investments $ 52,297 Interest and dividends 10,220 Less: Investment management fees (2,920) Total investment income 59,597 Total additions 82,181 Deductions: Benefits $ 46,667 Refunds 519 Total deductions 47,186 Net Increase 34,995 Net Position Held in Trust for Pension Benefits, Beginning of Year 397,673 Net Position Held in Trust for Pension Benefits, End of Year $ 432,668 The accompanying notes are an integral part of the financial statements A-22

93 CITY OF WATERBURY, CONNECTICUT NOTES TO FINANCIAL STATEMENTS (amounts expressed in thousands) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Waterbury (the City) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant policies of the City are described below. A. Reporting Entity Waterbury was founded in 1674, incorporated as a village in 1686 and became a City in The City operates under a Mayor-Board of Aldermen form of government with officials elected at regular biennial elections. Included in the services provided by the City are public safety, highways and streets, sanitation, health and social services, culture, recreation, education, public improvement, planning and zoning, and general administrative services. Blended Component Unit Waterbury Development Agency The Waterbury Development Agency (WDA) was established in 1949 to administer various programs including urban renewal and economic development, central relocation and housing development. The WDA s sole remaining purpose of existence is to represent the City as its designated redevelopment agency, allowing for the performance of certain activities on behalf of the City that only a designated redevelopment agency can perform such as acquiring properties that will then be owned by the City. The WDA is included as part of the Housing and Development Programs Fund (Nonmajor Special Revenue Fund). Related Organizations The City has designated the Waterbury Development Corporation (the Corporation), among other designations, as the City s economic development agency, housing site development agency and community development agency. Under a subrecipient agreement between the City and the Corporation, the Corporation has assumed certain City responsibilities and obligations to administer grants and programs on behalf of the City. The City provides pass-through grant reimbursements to the Corporation from the City s Community Development Block Grant. The Mayor sits on the Board of the Corporation and is responsible for the ultimate appointment of 10 members of the 25 member Board. The Mayor is responsible for appointing board members to the City s Housing Authority and the Naugatuck Valley Development Corporation (NVDC). The City s accountability for these organizations extends beyond making these appointments. The City has provided for certain guarantees in the event a future environmental liability associated with NVDC s Brass Mill Center Project was to occur. B. 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 nonfiduciary activities of the City and its component units. For the most part, the effect of interfund 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. Likewise, the City is reported A-23

94 separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. 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, as are the proprietary funds and pension trust fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 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. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, charges for services, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received. The City reports the following major governmental funds: The General Fund is the City s primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. The Debt Service Fund accounts for financial resources transferred in from other funds to fund debt service obligations. The General Capital Improvement Fund accounts for all the financial resources including transfers from the General Fund and bond proceeds used to finance the City s general capital improvement projects. The Education Capital Improvement Fund accounts for all the financial resources including school construction grants, bond proceeds and transfers from the General Fund to finance the City s school building construction, addition and renovation projects. A-24

95 The Educational Grants Fund accounts for all the educational grants administered by the Board of Education. The Housing and Development Programs Fund accounts for the financial resources dedicated primarily for housing loan assistance and economic development initiatives. The City reports the following major proprietary funds: The Bureau of Water Enterprise Fund accounts for the operation of the City s water distribution system. The Water Pollution Control Fund accounts for the operation of the sewage treatment plant and collection systems. Additionally, the City reports the following fund types: The Internal Service Funds account for the City s risk management function. The Pension Trust Fund accounts for the activities of the City of Waterbury Retirement System, which accumulates resources for pension benefit payments to qualified City employees. The Agency Funds account for monies held by the City in an agent capacity for student groups and developer funds. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments in lieu of taxes and other charges between certain City functions because the elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include property taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the Bureau of Water and Water Pollution Control enterprise funds and of the City s internal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service fund include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City s policy to use restricted resources first, then unrestricted resources as they are needed. Unrestricted resources are used in the following order: committed, assigned then unassigned. A-25

96 D. Deposits and Investments The City s cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. State statutes authorize the City and the component units to invest in obligations of the U.S. Treasury, commercial paper, corporate bonds, repurchase agreements and certain other investments as described in Note 3. Investments for the City, as well as for its component units, are reported at fair value. E. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either due to/from other funds (i.e., the current portion of interfund loans) or advances to/from other funds (i.e., the noncurrent portion of interfund loans). All other outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. All trade and property tax receivables, including those for component units, are shown net of an allowance for uncollectibles. The property tax receivable allowance of $4,536 is equal to 35.7% of outstanding property taxes at June 30, Real, personal and motor vehicle property taxes are levied on the assessed value at the rate enacted by the Board of Aldermen in the annual budget ordinance. Property taxes are levied on all assessed property on the Grand List of October 1 prior to the beginning of the fiscal year and are billed on the following July 1 and January 1. Taxes are overdue on August 1 and February 1. Interest at the rate of 1-1/2% per month accrues on all overdue taxes. If taxes are unpaid as of June 30, following the payable date, a lien is placed on the real property. Property assessments are made at 70% of the market value. Property tax revenues are recognized when they become measurable and available. Available means due, or past due and collectible within 60 days of the end of the current period. The amount of property taxes receivable but not recorded as revenue is recorded as a deferred inflow of resources. Deferred inflows resulting from the accounting for property taxes is $8,168. F. Inventories and Prepaid Items All inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. G. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $10,000 (amount not rounded). Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. A-26

97 Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Property, plant, and equipment of the primary government, as well as the component units, is depreciated using the straight-line method over the following estimated useful lives: Assets Years Land improvements 20 Buildings 50 Other structures 25 Infrastructure Machinery and equipment 5-20 Vehicles 5 H. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position or fund balance that applies to a future period or periods and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City reports a deferred charge on refunding in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position or fund balance that applies to a future period or periods and so will not be recognized as an inflow of resources (revenue) until that time. The City reports advanced property tax collections and other charges in the government-wide statement of net position. For governmental funds, the City reports unavailable revenue, which arises only under the modified accrual basis of accounting. The governmental funds report unavailable revenues from several sources: property taxes, loans receivable, other receivables and advanced property tax collections. These amounts are deferred and recognized as an inflow of resources (revenue) in the period in which the amounts become available. I. Compensated Absences Employees are granted sick and vacation leave in varying amounts. Upon retirement, termination or death, eligible employees are compensated for unused sick and vacation leave (subject to certain limitations) at specified payment rates established by contract, regulation or policy. The General Fund generally liquidates this liability. Accumulated vacation and sick time is recognized as a liability of the City. J. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, longterm debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities or proprietary fund type statement of net position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of any significant applicable bond premium or discount. Significant bond issuance costs are reported as deferred charges and amortized over the term of the related debt. A-27

98 In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are 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. J. Fund Equity In the government-wide financial statements and in proprietary fund types, net position is classified in the following categories: Net Investement in Capital Assets - This category groups all capital assets, including infrastructure, into one component of net position. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction or improvement of these assets reduces this category. Restricted Net Position - This category represents the net position of the City, which is restricted by externally imposed constraints placed on the net position by grantors, contributors or laws and regulations of other governments. Unrestricted Net Position - This category represents the net position of the City, which is not restricted for any project or other purpose. In the fund financial statements, fund balances of governmental funds are classified in five separate categories. The five categories, and their general meanings, are as follows: Nonspendable Fund Balance - This represents amounts that cannot be spent due to form (e.g., inventories and prepaid amounts). Restricted Fund Balance - This represents amounts constrained for a specific purpose by external parties, such as grantors, creditors, contributors or laws and regulations of their governments. Committed Fund Balance - This represents amounts constrained for a specific purpose by a government using its highest level of decision-making authority (Board of Aldermen). An approval of a resolution by the Board of Aldermen is required to establish, modify or rescind a commitment of fund balance. Assigned Fund Balance - This balance represents amounts constrained for the intent to be used for a specific purpose by a governing board or a body or official that has been delegated authority to assign amounts by the City Charter. The assignment of fund balance requires formal approval of the City s Board of Aldermen. The City s Mayor or designee (Budget Director or Finance Director) are authorized to submit resolutions to the Board of Aldermen for assignment consideration. The City s Fund Balance Policy limits the assignment of fund balance as a revenue source for the subsequent year s budget to no more than 1% of the prior year s budgetary based actual expenditures. An approval of a resolution by the Board of Aldermen is required to establish, modify or rescind an assignment of fund balance. Unassigned Fund Balance - This represents fund balance in the General Fund in excess of nonspendable, restricted, committed and assigned fund balance. If another governmental fund has a fund balance deficit, it is reported as a negative amount in unassigned fund balance. A-28

99 K. Fund Balance Flow Assumptions Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned and unassigned fund balance in the governmental fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the government s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Information A budget for the General Fund is authorized annually by the Board of Aldermen. The procedures for establishing the budgetary data reflected in the basic financial statements are as follows: The Mayor submits to the Board of Aldermen a proposed operating budget for the fiscal year commencing July 1. The operating budget includes proposed expenditures and the means of financing them. The Board of Aldermen holds two public hearings and adjusts the proposed budget to incorporate taxpayer comments, as considered necessary. The budget is legally enacted through a Board of Aldermen resolution. At any time, in any fiscal year, upon recommendation of the Mayor and approval of the Board of Aldermen, the City may transfer any unexpended balance or any part thereof of any specific appropriation as made for that year to such other department or for such other purposes as the Board of Aldermen may designate. At any time, in any fiscal year, upon recommendation of the Mayor and approval of the Board of Aldermen, the City may increase the amount of any specific appropriation as made for that year to such department or for such purpose as the Board of Aldermen may designate. Any increased appropriation must be reconciled by an accompanying increase in revenue. Formal budgetary integration is employed as a management control device in the General Fund during the year. Formal budgetary integration is not employed in Capital Projects and Special Revenue Funds because budgetary control is alternately achieved by constraints imposed by the project authorization or grant awards related to these funds. Except for encumbrance accounting and budgeting for year-end accrued payroll, the budget is prepared on the modified accrual basis of accounting. The legal level of control, the level at which expenditures may not exceed appropriations, is at the department level. Generally, all unencumbered appropriations lapse at year end except those for capital project funds. Appropriations for capital projects are continued until completion of applicable projects even when projects extend more than one fiscal year. Encumbrance accounting is employed in governmental funds. Encumbrances (e.g., purchase orders, contracts) outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be re-appropriated and honored during the subsequent year. A-29

100 During fiscal year 2014 there were additional appropriations of $3,050 from fund balance. B. Deficit Fund Equity The following funds had deficit net position balances as of June 30, 2014: Amount Major Fund: Education Capital Improvement $ 10,508 * Nonmajor and Other Funds Internal Service Funds: Workers Compensation 2,075 ** Health Benefits 4,581 *** Special Revenue Funds: Recreational Programs 77 **** * Deficit balance will be funded by the issuance of bonds to permanently finance capital expenditures incurred on school construction. ** Deficit balances will be systematically funded by maintaining consistent levels of employer premiums along with the implementation of risk reduction programs designed to reduce program costs. *** Deficit will be funded by increased employer premiums budgeted for in fiscal 2015 along with the implementation of plan changes and other cost control measures designed to limit benefit cost trend increases. **** Deficit will be reduced in future years when additional revenues are realized. 3. CASH, CASH EQUIVALENTS AND INVESTMENTS The deposit of public funds is controlled by the Connecticut General Statutes (Section 7-402). Deposits may be made in a qualified public depository as defined by Statute or, in amounts not exceeding the Federal Deposit Insurance Corporation insurance limit, in an out of state bank as defined by the Statutes, which is not a qualified public depository. The Connecticut General Statutes (Section 7-400) permit municipalities to invest in: 1) obligations of the United States and its agencies, 2) highly rated obligations of any state of the United States or of any political subdivision, authority or agency thereof, and 3) shares or other interests in custodial arrangements or pools maintaining constant net position values and in highly rated no-load open end money market and mutual funds (with constant or fluctuating net position values) whose portfolios are limited to obligations of the United States and its agencies, and repurchase agreements fully collateralized by such obligations. Other provisions of the Statutes cover specific municipal funds with particular investment authority. The provisions of the Statutes regarding the investment of municipal pension funds does not specify permitted investments. Therefore, investment of such funds is generally controlled by the laws applicable to fiduciaries and the provisions of the applicable plan. The Statutes (Sections 3-24f and 3-27f) also provide for investment in shares of the State Short-Term Investment Fund (STIF) and the State Tax Exempt Proceeds Fund (TEPF). These investment pools are under the control of the State Treasurer, with oversight provided by the Treasurer s Cash Management Advisory Board, and are regulated under the State Statutes and subject to annual audit by the Auditors of Public Accounts. Investment yields are accounted for on an amortized-cost basis with an investment portfolio that is A-30

101 designed to attain a market-average rate of return throughout budgetary and economic cycles. Investors accrue interest daily based on actual earnings, less expenses and transfers to the designated surplus reserve, and the fair value of the position in the pool is the same as the value of the pool shares. Deposits Deposit Custodial Credit Risk - Custodial credit risk is the risk that, in the event of a bank failure, the City s deposit will not be returned. The City s formal deposit policy includes sections regarding safekeeping and custody of deposits to mitigate custodial credit risk. The deposit of public funds is controlled by the Connecticut General Statutes. Deposits may be placed with any qualified public depository that has its main place of business in the State of Connecticut. Connecticut General Statutes require that each depository maintain segregated collateral (not required to be based on a security agreement between the depository and the municipality and, therefore, not perfected in accordance with federal law) in an amount equal to a defined percentage of its public deposits based upon the depository s risk-based capital ratio. Based on the criteria described in GASB Statement No. 40, Deposits and Investment Risk Disclosures, $17,818 of the City s bank balance of $37,946 was exposed to custodial credit risk as follows: Uninsured and uncollateralized $ 16,466 Uninsured and collateral held by the pledging bank s trust department, not in the City s name 1,352 Total Amount Subject to Custodial Credit Risk $ 17,818 Cash Equivalents At June 30, 2014, the City s cash equivalents amounted to $61,716. The following table provides a summary of the City s cash equivalents (excluding U.S. government guaranteed obligations) as rated by nationally recognized statistical rating organizations. The pools all have maturities of less than one year. Standard & Poor s State Short-Term Investment Fund (STIF) AAAm Investments As of June 30, 2014, the City had the following investments: Investment Maturities (Years) Credit Fair Less More Investment Type Rating Value Than Than 10 Interest-bearing investments: Corporate bonds AAA to BBB+ $ 56,133 $ 22,241 $ 29,351 $ 4,541 Corporate bonds BBB to B 14,636 14,636 Asset backed securities AAA-AA+ 18,667 3,495 15,172 U.S. Government agencies AAA-AA+ 104,631 50,947 48,263 5,421 Certificates of Deposit N/A 7,944 6,706 1,238 Total 202,011 $ 79,894 $ 96,983 $ 25,134 Other investments: Common stock 275,489 Managed futures 17,393 Mutual funds 2,054 Total Investments $ 496,947 A-31

102 Interest Rate Risk - The City s formal investment policy limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements. Credit Risk - Investments - As indicated above, State Statutes limit the investment options of cities and towns. The City s investment policy further limits its investment choices including prohibiting investments in derivatives. Concentration of Credit Risk - The City s investment policy does not allow for an investment in securities that are not readily marketable, other than those securities or deposits that mature within seven days, in any one issuer that is in excess of five percent of the City s total investments. Custodial Credit Risk - Custodial credit risk for an investment is the risk that, in the event of the failure of the counterparty (the institution that pledges collateral or repurchase agreement securities to the City or that sells investments to or buys them for the City), the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City s formal investment policy includes sections regarding safekeeping and custody of investments to mitigate custodial credit risk. The City s individual investments in equities, corporate bonds, corporate asset backed securities and U.S. government agencies are uninsured and unregistered securities held by a counterparty or by its trust department or agent that are not in the City s name. 4. RECEIVABLES Receivables as of year end for the City s individual major funds and nonmajor, internal service and fiduciary funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Housing and Bureau Water Nonmajor General Education Educational Development of Pollution and Other General Capital Capital Grants Programs Water Control Funds Total Receivables: Taxes $ 12,704 $ $ $ $ $ $ $ $ 12,704 Accrued interest on taxes 10,067 10,067 Service fees 3,326 4,342 7,668 Unbilled revenue 1,832 1,890 3,722 Intermunicipal fees Intergovernmental 2,523 9,480 1, ,630 16,084 Loans 11,457 11,457 Accounts and other 4, ,371 2,688 8,509 Gross receivables 27,061 2,523 9,480 1,251 12,310 5,318 8,170 4,318 70,431 Less allowance for uncollectibles: Taxes (4,536) (4,536) Accrued interest on taxes (5,910) (5,910) Service fees (769) (933) (1,702) Accounts and other (2,798) (32) (2,830) Total allowance (13,244) (769) (933) (32) (14,978) Net Total Receivables $ 13,817 $ 2,523 $ 9,480 $ 1,251 $ 12,310 $ 4,549 $ 7,237 $ 4,286 $ 55,453 A-32

103 5. CAPITAL ASSETS Capital asset activity for the year ended June 30, 2014 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental activities: Capital assets not being depreciated: Land $ 13,659 $ $ (1,253) $ 12,406 Construction in progress 126,209 45, ,117 Total capital assets not being depreciated 139,868 45,908 (1,253) 184,523 Capital assets being depreciated: Land improvements 15,284 15,284 Buildings and improvements 476, ,613 Infrastructure 136, ,615 Machinery and equipment 42, (714) 41,856 Vehicles 12,623 1,154 (1,009) 12,768 Total capital assets being depreciated 683,437 1,422 (1,723) 683,136 Less accumulated depreciation for: Land improvements (8,515) (599) (9,114) Buildings and improvements (105,580) (9,962) (115,542) Infrastructure (96,566) (2,047) (98,613) Machinery and equipment (31,673) (1,750) 703 (32,720) Vehicles (9,866) (926) 1,009 (9,783) Total accumulated depreciation (252,200) (15,284) 1,712 (265,772) Total capital assets being depreciated, net 431,237 (13,862) (11) 417,364 Governmental Activities Capital Assets, Net $ 571,105 $ 32,046 $ (1,264) $ 601,887 Business-type activities: Capital assets not being depreciated: Land $ 1,773 $ $ $ 1,773 Construction in progress 16,759 3,581 20,340 Total capital assets not being depreciated 18,532 3,581-22,113 Capital assets being depreciated: Utility plant 102,015 (1,055) 100,960 Infrastructure 98,617 98,617 Machinery and equipment 76, (153) 76,242 Vehicles 3,167 (89) 3,078 Total capital assets being depreciated 280, (1,297) 278,897 Less accumulated depreciation for: Utility plant (35,022) (2,052) 760 (36,314) Infrastructure (41,459) (1,206) (42,665) Machinery and equipment (35,512) (2,323) 153 (37,682) Vehicles (2,472) (230) 89 (2,613) Total accumulated depreciation (114,465) (5,811) 1,002 (119,274) Total capital assets being depreciated, net 165,660 (5,742) (295) 159,623 Business-Type Activities Capital Assets, Net $ 184,192 $ (2,161) $ (295) $ 181,736 A-33

104 Depreciation expense was charged to functions/programs as follows: Depreciation expense was charged to functions/programs as follows: Governmental activities: General government $ 1,642 Public works (including parks) 2,713 Public safety 1,894 Education 7,572 Culture and recreation 1,463 Total Depreciation Expense - Governmental Activities $ 15,284 Business-type activities: Bureau of Water $ 1,437 Water Pollution Control 4,374 Total Depreciation Expense - Business-Type Activities $ 5,811 Construction Commitments The City has authorized capital projects for the improvement and expansion of the City s facilities, infrastructure and other capital items. The following is a summary of the City s authorized capital projects by major program and the related commitments as of June 30, 2014: Project Cumulative Balance Program Authorization Expenditures Encumbered June 30, 2014 General Capital Improvement $ 218,365 $ 148,035 $ 24,531 $ 45,799 Education Capital Improvement 349, ,820 28,993 19,428 Water Enterprise Improvement 15,079 11, ,236 WPC Enterprise Improvement 33,023 18,998 2,131 11,894 Utility Admin Enterprise Improvement $ 616,458 $ 479,970 $ 56,091 $ 80, INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS During the course of operations, transactions are processed through a fund on behalf of another fund. Additionally, revenues received in one fund are transferred to another fund. A summary of interfund balances as of June 30, 2014 is presented below: Receivable Fund Payable Fund Amount General Fund Nonmajor Governmental $ 1,332 General Fund Internal Service 5,333 General Fund Utility Administrative Division 206 General Fund Education Capital Improvement 16,691 Total $ 23,562 A-34

105 A summary of interfund transfers is presented below: Transfers In Utility Nonmajor Debt General Educational Educational Administrative Governmental Service Capital Capital Grants Division Funds Total Transfers out: General Fund $ 44,812 $ 1,100 $ $ 2,914 $ $ 156 $ 48,982 Debt Service Nonmajor Governmental Funds 1,100 1,100 Bureau of Water 1,097 1,097 Water Pollution Control 1,097 1,097 Total $ 44,812 $ 2,200 $ 14 $ 2,914 $ 2, $ 52,290 Transfers from the General Fund to the Debt Service and Nonmajor Governmental Funds are in accordance with budgetary appropriations authorizing the transfer of funds for designated purposes. Transfers from the General Fund to the General and Education Capital Improvement Funds are designed to locally fund portions of capital activities to reduce future bonding requirements. 7. DEFERRED CREDITS - WATER POLLUTION CONTROL ENTERPRISE FUND The State of Connecticut Department of Environmental Protection has provided Clean Water Financing in the form of serial notes for the City s sewage treatment plant. Pursuant to certain inter-municipal agreements, a portion of the plant financing agreement will be paid for by other municipalities in exchange for guaranteed capacity for those towns. The serial notes are not reflected on the City s statement of net position since the obligations are directly financed by the participating municipalities. Deferred credits are reflected as deferred inflows of resources as of June 30, 2014 amounting to $3,479 and will be amortized and recorded as revenue as the contributing municipalities make payments to the State of Connecticut. Fiscal Year Ending June 30, Deferred Credit Amortization 2015 $ Total $ 3,479 A-35

106 8. LONG-TERM DEBT Governmental Activities Changes in Long-Term Liabilities Long-term liability activity for the year ended June 30, 2014 was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Bonds payable $ 456,735 $ 37,276 $ 32,187 $ 461,824 $ 20,193 Add unamortized premiums 2,784 1, ,263 Total bonds payable 459,519 39,135 32, ,087 20,193 Accrued compensated absences 32,007 5,713 6,401 31,319 6,264 Retired employee obligations 5,227 2,011 1,434 5,804 1,118 Net OPEB obligation 196,572 71,601 38, ,143 Landfill post-closure 1, , Risk management 38, , ,644 41,572 15,157 Total Governmental Activities Long-Term Liabilities $ 732,997 $ 232,194 $ 189,146 $ 776,045 $ 42,802 The risk management claims accounted for in the Internal Service Funds are reported in the long-term liabilities as part of the above totals for governmental activities. All governmental long-term liabilities are generally liquidated by the General Fund. A schedule of governmental activities bonds and serial notes outstanding at June 30, 2014 is presented below: Amount of Balance Date of Interest Original Outstanding Description Issue Rate (%) Issue June 30, 2014 General purpose bonds payable: Refunding Bond and /05/ $ 7,271 $ 7,134 Refunding Bond - Special Capital Reserves 02/15/ ,055 26,755 Taxable Refunding Bond - Special Capital Reserves 06/26/ ,505 11,195 Capital Acquisition & Infrastructure Improvements 09/01/ ,000 14,800 Capital Acquisition & Infrastructure Improvements 09/01/ ,000 35,750 Capital Acquisition & Infrastructure Improvements 08/31/ ,200 9,396 Capital Acquisition & Infrastructure Improvements 06/26/ ,500 7,105 Waterbury Industrial Commons 12/05/ ,000 10,000 Capital Acquisition & Infrastructure Improvements 12/05/ ,500 11,500 Total general purpose 133,635 School bonds payable: Refunding Bond and /05/ ,505 3,439 School Construction 09/01/ ,000 6,400 School Construction 09/01/ ,000 3,125 School Construction 08/31/ ,500 17,210 School Construction 06/26/ ,500 12,020 School Construction 12/05/ ,000 5,000 Total school 47,194 Pension deficit bonds payable: Pension Obligation 09/17/ , ,995 Total $ 461,824 A-36

107 A schedule of governmental activities bonds outstanding at June 30, 2014 is presented below: Due During Fiscal Year Ending June 30, Principal Interest Total 2015 $ 20,193 $ 26,468 $ 46, ,398 25,777 47, ,104 25,003 47, ,088 23,991 48, ,907 22,693 45, ,226 94, , ,072 63, , ,916 34, , ,920 10,787 72,707 Total $ 461,824 $ 326,229 $ 788,053 General Obligation Bonds - Current Refunding On November 20, 2013, the City issued $11,705 of general obligation refunding bonds with interest rates ranging from 4.0 to 5.0%. The proceeds were used to advance refund the outstanding principal amount, or portions thereof, of $12,510 of general obligation bonds, Series 2004A dated October 1, The net proceeds of $12,922 (including a premium of $1,217 and issuance costs of $107) were deposited in an irrevocable trust with an escrow agent to provide funds for the future debt service payment of the refunded bonds. As a result, the Series 2004A general obligation bonds, or a portion thereof, are considered defeased and the liability for those bonds has been removed from the statement of net position. The refunding will reduce total debt service payments over the next three years by approximately $1,156 and represents an economic gain (difference between present values of the debt service payments on the old and the new debt) of $1,092. Compensated Absences Employees can accumulate unused vacation and sick leave (as determined by individual union contracts) until termination of their employment. At termination, pay-out provisions as determined by individual union contract provide for payments to vested employees net of provisions to exchange selected amounts of accumulated sick time for pension service years. The amount recorded represents 20% of the total accumulated time of employees to account for the estimated percentage of employees that will never vest and to account for those employees who have accrued days in excess of that, which will be paid by contract. Retired Employee Obligations Obligations to retired employees consist of amounts due to retired employees for unused compensated absences. The retired employee obligation at June 30, 2014 consisted of $5,161 due to retired Board of Education employees and $643 to retired fire department employees. The obligation will be amortized over various years as follows: Fiscal Year Ending June 30, Amount 2015 $ 1, , , Total $ 5,804 A-37

108 Landfill Post Closure Care Costs The City received a consent order from the State of Connecticut Department of Environmental Protection requiring as of October 9, 1994 that its landfill no longer accept any solid waste and that by October 31, 1996 the facility be capped. The City has closed and capped the landfill and is in the seventh year of a thirty (30) year required post closure monitoring period. Governmental Accounting Standard Board (GASB) Statement No. 18, Accounting for Municipal Solid Waste Landfill Closure and Postclosure Care Costs, requires a liability related to closure and post closure care to be estimated and recorded based on landfill capacity used to date. The City has estimated $1,120 for the post closure monitoring liability as of June 30, However, due to changes in technology, laws or regulations, these costs may change in the future. Business-Type Activities Changes in Long-Term Liabilities Long-term liability activity for the year ended June 30, 2014 was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Bond and serial notes payable $ 42,931 $ 929 $ 6,580 $ 37,280 $ 5,515 Add unamortized premiums Capital leases 2, , Accrued compensated absences Total Business-Type Activities Long-Term Liabilities $ 46,173 $ 1,193 $ 7,404 $ 39,962 $ 6,276 All business-type liabilities are generally liquidated by the Water and WPC user fees. A schedule of business-type activities bonds and serial notes outstanding at June 30, 2014 is presented below: Date of Interest Original Outstanding Description Issue Rate (%) Issue June 30, 2014 Business Type Activities: Bureau of Water: Infrastructure Improvements 08/31/ $ 1,300 $ 1,194 Infrastructure Improvements 06/26/ ,500 1,425 Water Pollution Control: Bonds payable: Refunding Bond and /05/ Serial notes payable - State of Connecticut: Clean Water Act 08/30/ , Clean Water Act 07/31/ , Clean Water Act 12/31/ ,647 24,385 Clean Water Act 10/30/ ,547 5,032 Clean Water Act 11/30/ ,424 1,215 Clean Water Act 05/30/ ,953 1,513 Clean Water Act 06/30/ , Clean Water Act 11/30/ Clean Water Act 06/29/ Total $ 37,280 A-38

109 A schedule of business-type activities bonds and serial notes outstanding at June 30, 2014 is presented below: Capital Leases Due During Fiscal Year Ending June 30, Principal Interest Total 2015 $ 5,515 $ 770 $ 6, , , , , , , , , , , Total $ 37,280 $ 3,346 $ 40,626 The City has entered into a twenty-year capital lease agreement for a sewage sludge incinerator facility that became operational in January 1997 and is operated by Synagro Technologies, Inc. The gross value of assets acquired through capital leases is $6,224 all of which is recorded as machinery and equipment. The assets are amortized over the life of the lease and are included as part of annual depreciation expense. The City s annual sludge disposal fee includes a capital cost component payable through The following is a schedule of future capital lease payments together with the net present value as of June 30, Year Ending June 30, Amount 2015 $ Minimum lease payments 2,120 Less: Amount representing interest at the City s incremental borrowing rate of interest (199) Present Value of Minimum Lease Payments $ 1,921 A-39

110 Bonds Authorized/Unissued Bonds authorized/unissued outstanding are as follows: Date Total Bonds Grants Authorized Project Description Authorized Authorized Issued Received Unissued General Purpose: Road Milling/Repaving & Sidewalks 01/28/14 $ 2,000 $ $ $ 2,000 Fire Apparatus 01/28/ St. Patrick s Hall/Rectory Building Renovation*** 10/07/13 8,100 1,283 6,817 Great Brook Culvert Replacement 11/25/13 3,100 3,100 Pearl Lake Road Reconstruction 03/11/13 7,000 5,000 2,000 Road Milling/Repaving & Sidewalks 03/11/13 3,000 2,000 1,000 Fire Apparatus 03/11/ Public Safety Radio System Upgrade to P25 06/25/12 4,500 3,000 1,500 Municipal Stadium Phase III 02/06/12 4,000 1, ,893 Police Parking Garage 02/07/11 3,950 3, Waterbury Industrial Commons/Centralized DPW Facility** 07/19/10 60,420 16,500 15,363 28,557 Chase Avenue Reconstruction 09/03/08 8,205 6,770 1,435 Sidewalk and Curb Improvements 09/03/ Division Street Drainage 09/03/08 1,200 1, Underground Tank Removal 07/21/ Buckingham Garage Elevator 07/21/ Golf Course Equipment 12/10/ Police Facility Projects 12/10/ Education: School Improvements 03/11/ Kennedy High School Additions & Alterations* 06/25/12 25, ,281 Wallace Middle School Addition* 06/20/11 15,758 2,500 8,872 4,386 Carrington Pre-k to 8 School* 05/20/13 37,043 6,500 26,343 4,200 Waterbury Career Academy Technical School* 06/09/08 68,190 13,500 47,956 6,734 Wilby High School* 06/09/08 6,700 1,000 4,567 1,133 Special Education Facility* 11/19/07 14,635 2,500 9,405 2,730 School Facilities Plan* 06/25/04 101,500 23,000 74,190 4,310 Bureau of Water: Water Meter Reading Program 10/11/11 2,500 1,500 1,000 Water Billing Technology 09/06/ Total $ 382,017 $ 91,170 $ 189,537 $ 101,310 * The City expects to receive approximately 78% of eligible project costs from the State in the form of progress payments. ** The City expects to receive $15,345 from Federal & State grants for site remediation and demolition. *** The City expects to receive $2,100 from State grants for building restoration. A-40

111 Debt Limitations The City s indebtedness does not exceed the legal debt limitations as required by the Connecticut General Statutes as reflected in the following schedule: Debt Net Category Limit Indebtedness Balance General purpose $ 519,964 $ 171,404 $ 348,560 Schools 1,039,928 59, ,416 Sewers 866,606 34, ,945 Urban renewal 751, ,059 Pension deficit 693, , ,290 The total of the City s net statutory indebtedness of $546.6 million does not exceed the legal debt limitation of $1.6 billion (seven times the base for debt limitation computation). Bonds authorized/unissued used in the calculation of net indebtedness are net of grants received of $171.3 million and estimated grants of $11.2 million to be received under the State s school building grant program in the form of proportional progress payments for eligible construction costs during certain construction phases of the school projects. The net indebtedness excludes water bonds payable of $2.6 million and water bonds authorized and unissued of $1.75 million. 9. RISK MANAGEMENT The City is self-insured in most areas of risk. Self-insured risks include general and auto liability, workers compensation, unemployment and employee health claims. The City s Legal Counsel defends the City in any lawsuits that arise from the normal course of operations. The City purchases commercial insurance for individual stop loss insurance coverage of $750 thousand for self-insured medical benefits. Additionally, the City purchases commercial insurance for excess coverage for self-insured general liability claims set at $10 million with a City retention of $1.5 million. Settlements over the last three years have not exceeded the insured coverage limits maintained by the City. The City has three self-insured medical plans for which payments are based upon actual claims (versus premium payments). In this case, a third party acts as a claims processor and a transfer of risk does not occur. All funds of the City participate in the program and make payments to the Self-Insurance Internal Service Fund to pay claims, claim reserves and administrative costs of the program. During the fiscal year ended June 30, 2014, $93.4 million in health care benefits and administrative costs were paid. Incurred but not reported health claims of $5.9 million have been accrued as a liability based upon information supplied by the City s Health Care Administrator. Actuarial estimated liability for claims incurred but not reported is not available. An actuarial study estimates the present value of general liability outstanding losses including case reserves for known claims and incurred but not reported claims at $3.6 million as of June 30, An actuarial study estimates the present value of workers compensation claims liabilities, including case reserves for known claims and incurred but not reported claims, at $22.6 million as of June 30, The present value of future costs to current eligible recipients subject to Heart and Hypertension benefits is estimated at $9.5 million as of June 30, The actuarial estimate is based on the present value of seven times current year paid benefits. A-41

112 Changes in the reserve amounts in fiscal years 2014 and 2013 were as follows: Beginning of year $ 38,482 $ 39,340 Fiscal year claims incurred and changes in prior years estimates 110,521 99,250 Fiscal year claims payments (107,431) (100,108) End of Year $ 41,572 $ 38, OPERATING LEASES Lease Agreements as Lessor The City leases the Waterbury Palace Theater to the Palace Theater Group under a twenty-year lease agreement commenced on November 10, 2004 whereby the Palace Theater Group serves as the sole and exclusive manager and maintainer of the Theater. The agreement permits use of the facility by the Waterbury Board of Education for its programs at an annual contribution of $250. Lease Agreements as Lessee The City has entered into various operating leases related to the rental of property for office space, storage, and Board of Education instructional use. In addition, the Waterbury Board of Education uses the Waterbury Palace Theater for its programs for an annual contribution of $250 in accordance with the City s theater lease agreement with the Palace Theater Group. The operating leases consist of both noncancelable operating leases and month-to-month lease arrangements. The costs for such leases were $1,432 for the fiscal year ended June 30, Future minimum lease payments are projected as follows: 2015 $ A-42

113 11. FUND EQUITY The components of fund balance at June 30, 2014 are as follows: Housing and Nonmajor General Debt General Education Educational Development Governmental Fund Service Capital Capital Grants Programs Funds Total Fund balances: Nonspendable: Inventory $ $ $ $ $ $ $ 205 $ 205 Prepaid assets Trust Restricted for: Trust 2,154 2,154 Capital improvements 15,007 15,007 Committed to: Debt service 1,845 1,845 Public safety Human services Development and community affairs General government Education 2,789 2,058 4,847 Assigned to: Subsequent year budget 3,000 3,000 Unassigned 19,462 (10,508) (143) 8,811 Total Fund Balances $ 22,462 $ 1,845 $ 15,007 $ (10,508) $ 2,789 $ 417 $ 5,636 $ 37, OTHER POSTEMPLOYMENT BENEFITS (OPEB) The City, in accordance with various collective bargaining agreements, is committed to provide health and other benefits to eligible retirees and their spouses. Benefits are established and amended through negotiations between the City and the various unions representing City employees. The City pays the full cost of life insurance premiums. The percentage contribution of employees and retirees for medical benefits are negotiated with the various unions representing the employees. Retired plan members and beneficiaries currently receiving benefits are required to contribute specified percentages towards the cost of receiving benefits under the City s self-insured medical benefits program. The postemployment benefit plan is a single-employer defined benefit plan and is considered to be part of the City s financial reporting entity. Plan benefit payments are included in the City s medical benefits fund. There are no stand-alone financial statements available for the plan. OPEB Benefits Funding Policy The City continues its commitment to meeting its obligations for medical benefits of both its active employees and retired employees, on a pay-as-you-go basis, through the annual adoption of General Fund contributions to the City s Health Benefits internal service fund. In 2003, with an understanding of the long-term implications of the existing OPEB benefit program compounded by industry trends of significant cost increases year over year, the City, via the powers of the State Oversight Board at the time, modified collective bargaining agreements to significantly curtail the OPEB benefit program for those employees hired after the contract modification date (2004 time frame). In addition, future retiree co-share requirements were established for those current employees grandfathered into the previous benefit program. At that time, all but one collective bargaining unit contract was modified for the comprehensive OPEB benefit reduction modifications. In the fall of 2011, the City successfully won those OPEB benefit reductions, via an arbitration award, on the last collective bargaining contract not previously subject to the OPEB benefit reductions. Over time the elimination and/or significant curtailment of postemployment medical coverage will begin to reduce the OPEB accrued liability and eventually significantly reduce the compounded cost impact of funding medical coverage for both actives employees and retirees. A-43

114 The City has budgeted $72.1 million in fiscal year 2015 towards the funding of medical benefits for both active and retired employees. Of that annual contribution approximately 53.3 percent or $38.4 million of that contribution amount will fund retired employee medical claims and prescription drugs (pay-as-you-go basis funding commitment) net of retiree contributions. The City maintains an OPEB Reserve Fund with accumulated reserves of $17.8 million as of June 30, The following is the current census of City benefit participants as of July 1, 2012: (not in thousands) Active members 3,189 Retirees 3,652 Total 6,841 Postemployment retiree benefit payments for the year ended June 30, 2014, net of retiree and other contributions, amounted to approximately $38,030. For the year ended June 30, 2014, retirees contributed $1,112. Annual OPEB Cost and Net OPEB Obligations The City s annual OPEB cost is calculated based on the annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of occurrence of future events. Assumptions include future employment, mortality, and healthcare and other benefit cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as accrual results are compared with past expectations and new estimates are made about the future. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the City s annual OPEB cost for the year, the amount actually contributed to the plan and changes in the City s net OPEB obligation (asset): Other Post Employment Benefits (OPEB) Annual recommended contribution (ARC) $ 73,613 Interest on net OPEB obligation 10,811 Adjustment to annual recommended contribution (12,823) Annual OPEB cost 71,601 Contributions made (38,030) Increase in net OPEB obligation 33,571 Net OPEB obligation, beginning of year 196,572 Net OPEB Obligation, End of Year $ 230,143 A-44

115 The City s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan and the net OPEB obligation (asset) for the fiscal years ended June 30, 2014, 2013 and 2012 is presented below. Fiscal Annual Percentage Net Year OPEB Actual of AOC OPEB Ending Cost (AOC) Contribution Contributed Obligation 6/30/12 $ 67,202 $ 34, % $ 166,605 6/30/13 67,690 37, ,572 6/30/14 71,601 38, ,143 Projections for benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2012 actuarial valuation, the projected unit credit actuarial cost method was used. The actuarial assumptions include a 5.5% investment rate of return, which is the rate of the expected long-term investment returns of plan assets calculated based on the funding policy of the plan at the valuation date. An annual healthcare cost trend rate of 9% is used initially, decreasing.5% per year to an ultimate rate of 5% for 2020 and later. The expected inflation rate is 4%. The remaining amortization period at July 1, 2012 remained open at 30 years. As of July 1, 2012, the actuarial accrued liability for benefits was approximately $889.6 million. The actuarial value of assets is $-0-, reflecting a 0% funding of the accrued liability. The unfunded accrued liability is amortized each year over a constant 30-year period, as a level dollar amount. Required Supplemental Information - OPEB The schedule of funding progress, presented below, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Schedule of Funding Progress Actuarial Accrued UFAL as a Actuarial Liability (AAL) % of Actuarial Valuation Value of Assets Projected Unit Credit Funded Ratio Covered Payroll Covered Payroll Date (a) (b) (a/b) (c) ((b-a)/c) 7/1/08 $ - $ 770,408 0% $ 163, % 7/1/10-801, , /1/12-889, , Schedule of Employer Contributions Fiscal Year Annual Required Actual Percentage Ended Contributions Contribution ARC Contributed 6/30/12 $ 68,577 $ 34, % 6/30/13 69,395 37, /30/14 73,613 38, A-45

116 13. EMPLOYEE RETIREMENT SYSTEMS AND PENSION PLANS City of Waterbury Retirement System A. Plan Description The City is the administrator of the City of Waterbury Retirement System, a single-employer public employee retirement system (PERS) established and administered by the City to provide pension benefits for its nonteacher employees. The PERS is considered to be part of the City s financial reporting entity and is included in the City s financial reports as a pension trust fund and there are no stand-alone financial statements available for the plan. Management of the Waterbury Retirement System rests with the Retirement Board. As required by 6C-10 of the Charter of the city there shall be a City of Waterbury Retirement Board (Retirement Board). The powers and duties of the Retirement Board are codified in City of Waterbury ordinances, Chapter 35: Pension and Retirement System. The Retirement Board consists of seven (7) members appointed by the Mayor. No more than one (1) member of the Board shall be a currently-employed management employee of the Department of Finance of the City, who shall serve a two-year term. No more than one (1) member shall be a currently-employed nonmanagement employee, who shall be appointed for a four (4) year term. No more than one (1) member shall be a member of the Board of Aldermen, who shall be appointed for a two (2) year term. The remaining four (4) members of the Retirement Board shall have professional or business experience in the in the areas of investments, finance, actuarial principles or retirement plan administration or similar qualifications. Membership as of July 1, 2012 of the PERS consisted of the following: Number of Employees (not in thousands) Retirees and Beneficiaries Currently Receiving Benefits 2,139 Terminated Employees Not Yet Receiving Benefits 50 Current Active Members 1,737 Total 3,926 Members are required to contribute to the Plan and the City is required to contribute the remaining amounts necessary to finance the coverage for its employees. Benefits and contributions are established by the City and may be amended only by the City Charter and Union negotiation. Benefits and refunds of the plan are recognized when due and payable in accordance with the terms of the plan. Administrative costs are financed by the plan and used in determining the City s annual required contribution. A-46

117 Refer to the PERS actuarial valuation report for summaries of specific plan provisions and actuarial assumptions and for eligibility and benefit exception provisions applicable to employees based on pre-existing hire dates and years of services. The following is a brief summary of current plan provisions: Retirement Employee Eligibility Benefit Vesting Contribution Police 25 Yrs. 2% of 10 Yrs. 9.5% Final Average Compensation Max. 70% Fire 25 Yrs. 2%/Yr. 10 Yrs. 9.5% Max. 70% Blue Collar Earlier of 2%/Yr. 10 Yrs. 7.5% 15 Yrs. and Age 65 Max. 70% 25 Yrs. and Age 55 White Collar Earlier of 2%/Yr. 10 Yrs. 7.5% 15 Yrs. and Age Yrs. and Age 55 Nurses Earlier of 2% of 10 Yrs. 7.5% 15 Yrs. and Age 65 FABC/ 25 Yrs. and Age 55 Yrs. of Service WMAA Earlier of 2%/Yr. 10 Yrs. 7.5% 15 Yrs. and Age Yrs. and Age 55 SAW 20 Yrs. 1%/Yr. None 3% (1% member and 2% by Board) Development Earlier of 2%/Yr. 10 Yrs. 7.5% 15 Yrs. and Age Yrs. and Age 55 B. Significant Accounting Policies Basis of Accounting - Financial statements are prepared using the accrual basis of accounting for the defined benefit pension plan. Plan member contributions are recognized in the period in which they are due. Employer contributions are recognized when due and a formal commitment to provide the contributions has been made. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Method Used to Value Investments - Investments are reported at market value. Securities traded on a national exchange are valued at the last reported sales price. Investment income is recognized as earned. A-47

118 C. Funding Policy Employees are required to contribute various percentages of their earnings to the PERS (See A above). If an employee leaves employment or dies before meeting the vesting requirements, accumulated employee contributions and interest are refunded. The City is required to contribute the remaining amounts necessary to finance the benefits for its employees as determined by its actuaries; the current rate is 20.5% of annual covered payroll. Benefits and employee contributions are fixed by contract and may be amended subject to union negotiations. Administrative costs of the Plan are financed through investment earnings. D. Investments The Retirement Board s policy in regard to the allocation of invested assets is to rely on the Plan s investment consultant to periodically present the results of a comprehensive asset allocation study on allocating assets between major asset classes in the capital markets. The asset allocation study assists the Retirement Board in determining a suitable strategic mix of asset classes in line with the Retirement Board s investment objectives, risk tolerance and investment time horizon. It is the policy of the Retirement Board to follow an investment strategy that balances risk with expected returns. Investments are made for the sole interest and exclusive purpose of providing returns for the Waterbury Retirement System (System). In addition to the statutory direction and restrictions, the Retirement System operates under the Prudent Person rule, used herein meaning that in investing the assets of the plan, the governing authorities of the systems, Funds, and plans shall exercise the judgment and care under the circumstances then prevailing that an institutional investor of ordinary prudence, discretion, and intelligence exercises in the management of large investments entrusted to it not in regard to speculation but in regard to the permanent disposition of Funds considering probable safety of capital as well as probable income. The following is a representation of the Board s adopted asset allocation strategy as of November Long-Term Target Expected Real Asset Class Allocation Rate of Return* Weighting Large Cap 30.00% 6.30% 1.89% Mid Cap 8.00% 7.30% 0.58% Small Cap 10.00% 8.00% 0.80% International Equity 8.00% 6.80% 0.54% Emerging Market Equity 5.00% 9.80% 0.49% REIT Equity 3.00% 4.50% 0.14% MLPs 2.00% 5.50% 0.11% Managed Futures 7.00% 5.80% 0.41% Preferred Stock 2.00% 3.30% 0.07% High Yield Income 4.00% 5.00% 0.20% Long Term Taxable Fixed Income 17.00% 1.80% 0.31% Short Term Taxable Fixed Income 4.00% 0.80% 0.03% Cash 0.00% 0.50% 0.00% Total Portfolio % 5.57% Long-Term Inflation Expectation 3.00% Long-Term Expected Nominal Return 8.57% * Long-Term Returns are provided by Wells Fargo Advisors. The returns are arithmetic means. A-48

119 Rate of Return - For the year ended June 30, 2014, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 15.13%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. E. Net Pension Liability of the City In accordance with Government Accounting Standards Board Statement No. 67, the components of the net pension liability of the City at June 30, 2014 were as follows: Total pension liability $ 595,167 Plan fiduciary net position (432,668) Net Pension Liability $ 162,499 Plan fiduciary net position as a percentage of the total pension liability 72.70% The City s net pension liability will be required to be recorded on the government wide statement of net position at June 30, Actuarial Assumptions: The total pension liability was determined by an actuarial valuation as of July 1, 2013, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 3.0% Salary increases Ranges from 3.0% to 6.5%, based on age Investment rate of return 8.25%, including inflation Mortality rates were based on the RP-2000 Mortality Table with separate male and female rates, with no collar adjustment for annuitants, projected to the valuation date with Scale AA. The long-term expected rate of return on pension plan investments was determined using a building block method in which best-estimate ranges of expected future real rates of return are developed. Best estimates of the real rates of return for each major asset class are included along with the pension plan s long-term target asset allocation. Since the rates term rates shown above are geometric averages. The impact of asset allocation and rebalancing is not reflected in the expected return. An expected rate of return of 8.25% was used. Discount Rate: The discount rate used to measure the total pension liability was 8.25%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. A-49

120 Sensitivity of the Net Pension Liability to Changes in the Discount Rate: The following presents the net pension liability of the City, calculated using the discount rate of 8.25%, as well as what the City s net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (7.25%) or 1 percentage point higher (9.25%) than the current rate: 1% Decrease in Current 1% Increase in Discount Rate Discount Rate Discount Rate (7.25%) (8.25%) (9.25%) Net Pension Liability as of June 30, 2014 $ 218,895 $ 162,500 $ 112,320 F. Annual Pension Cost and Net Pension Obligation In accordance with GASB No.27, the City s annual pension cost and net pension obligation (asset) to the PERS for the current year were as follows: Annual required contribution $ 16,085 Interest on net pension obligation (19,819) Adjustment to annual required contribution 20,536 Annual pension cost 16,802 Contributions made 16,085 Decrease in net pension asset 717 Net pension asset, beginning of year (233,165) Net Pension Asset, End of Year $ (232,448) The following is a summary of certain significant actuarial assumptions and other PERS information: Actuarial valuation date July 1, 2013 Actuarial cost method Projected Unit Credit Amortization method Level Dollar Remaining amortization period 27 years-closed Asset valuation method Actuarial Asset Smoothed Actuarial assumptions: Investment rate of return* 8.25% Payroll growth assumption 3% Cost-of-living adjustments n/a G. Trend Information *Inflation rate included 3% Net Annual Percentage Pension Pension of APC Obligation Fiscal Year Cost (APC) Contributed (Asset) 6/30/12 $ 16,295 98% $ (233,693) 6/30/13 16, (233,165) 6/30/14 16, (232,448) A-50

121 Net pension asset established after the $311.1 million employer contribution per the City s pension obligation bond issuance of $313.1 million in fiscal year Schedule of Funding Progress UAAL as a Actuarial Actuarial Unfunded % of Actuarial Value of Accrued AAL Funded Covered Covered Valuation Assets Liability (AAL) (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) 7/1/13 $ 405,148 $ 570,777 $ 165, % $ 82, % 7/1/12 398, , , % 78, % 7/1/11 394, , , % 81, % 7/1/10 383, , , % 78, % 7/1/09 381,606 * 541, , % 74, % 7/1/08 68, , , % 73, % * Includes pension bond proceeds accrued contribution of $311.1 million. State of Connecticut Teachers Retirement System Certified teachers employed by the City of Waterbury Board of Education are eligible to participate in the State of Connecticut Teachers Retirement System. This system is a cost-sharing multi-employer defined benefit PERS with the State acting as a non-employer contributor, which is administered under the provisions of Chapter 167a of the Connecticut General Statutes (CGS). The State of Connecticut Teachers Retirement System is considered to be a part of the State of Connecticut financial reporting entity and is included in the State s financial reports as a pension trust fund. Those reports may be obtained by writing to the State of Connecticut, Office of the State Comptroller, 55 Elm Street, Hartford, Connecticut, Full-time certified staff who are employed for an average of at least one-half of a school day are required to participate. A member who completes 10 years of service in Connecticut public schools is eligible for a vested benefit commencing at age 60. Members are required to contribute 7.25% of their annual salary while the contributions by the State are determined on an actuarial reserve basis described in CGS Sections and z. During fiscal year 2014, members contributed $7.9 million. The retirement system for teachers is funded by the State based upon the recommendation of the Teachers Retirement Board. Such contribution includes amortization of the actuarially computed unfunded liability. The City does not contribute to the Connecticut Teachers Retirement System nor has any legal obligation for benefits. For the year ended June 30, 2014, the City has recorded in the General Fund revenues and expenditures in the amount of $27.1 million as payments made by the State of Connecticut on behalf of the City. The City has no liability for teachers pensions. 14. CONTINGENT LIABILITIES The City is contingently liable in connection with litigation involving general liability, automobile liability, professional liability, law enforcement liability, employment practice liability, and other related miscellaneous suits and unasserted claims. These claims are estimated to total $3.6 million and the City has recorded a provision for these claims in the General Liability Internal Service Fund. The City is also contingently liable in connection with litigation involving contractual liability, tax appeals and environmental liability. There is no specific provision for these claims as the City currently does not expect probable losses. The City intends to vigorously defend these actions; however, there can be no assurance that the City will prevail. A-51

122 CITY OF WATERBURY, CONNECTICUT RSI-1 GENERAL FUND SCHEDULE OF REVENUES AND OTHER FINANCING SOURCES BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Variance Budgeted Amounts Favorable Original Final Actual (Unfavorable) Property taxes: Current property taxes $ 218,007 $ 218,007 $ 221,129 $ 3,122 Prior year property taxes 3,500 3,500 3, Supplemental auto list 1,650 1,650 2,691 1,041 Interest and penalties prior year 1,900 1,900 1,827 (73) Interest and penalties current year 1,150 1,150 1,147 (3) Total property taxes 226, , ,789 4,582 Intergovernmental: Exemptions for elderly (35) Veterans additional exemption Grant abatement for elderly housing (7) Pequot - State 3,040 3,040 3,036 (4) PILOT - State owned properties 3,733 3,733 3,735 2 PILOT - Private tax exempt property 5,440 5,440 5,436 (4) PILOT - Housing Authority (25) Distressed municipalities Education equalization 113, , , Nonpublic school transportation (17) Public school transportation 1,090 1,090 1,002 (88) Nonpublic school medical services Special Education - excess cost and agency placement 2,500 2,500 2,019 (481) Education services for the blind (100) Special Education - Medicaid ,567 1,017 Special revenue - federal grants Special revenue - state grants Total intergovernmental 132, , ,266 1,027 Investment income: Income from investments (643) Charges for services: Probate court costs - Wolcott (2) Proceeds - off track revenue (33) Deed transfer and recording fees (26) Real estate conveyance tax (99) Vital statistics and fees Landlord registrations 1 1 Dog pound fees and licenses (2) (Continued on next page) A-52

123 CITY OF WATERBURY, CONNECTICUT RSI-1 GENERAL FUND SCHEDULE OF REVENUES AND OTHER FINANCING SOURCES BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Variance Budgeted Amounts Favorable Original Final Actual (Unfavorable) Charges for services (continued): Zoning appeal fees $ 10 $ 10 $ $ (10) Refuse disposal charge (35) Sewer permits (18) False alarm fines (9) Parking violation fees (229) Garage and meters parking fees (2) Marriott ramp garage 5 5 (5) Building permits Electrical work permits Heating etc. permits (15) Plumbing permits (8) Restaurant license permits (49) Outside tuition (323) Building rental fees (86) Departmental charges (38) Other permits, licenses and fees (201) Total charges for services 7,251 7,251 6,108 (1,143) Reimbursements: Fringe benefit contribution - Grants 8,215 8,215 8, Park Department (1) Bureau of Water 1,958 1,958 1,729 (229) Waste Treatment 1,395 1,395 1,384 (11) Utility Admin. Division Total reimbursements 12,240 12,240 12,162 (78) Other: Telephone access lines (36) Miscellaneous sources Total other Total revenues $ 379,196 $ 379, ,036 $ 3,840 Budgetary revenues are different than GAAP revenues because: State of Connecticut on-behalf contributions to the Connecticut State Teachers Retirement System for City teachers are not budgeted. 27,126 Total Revenues and Other Financing Sources as Reported on the Statement of Revenues Expenditures and Changes in Fund Balances - Governmental Funds - Exhibit IV $ 410,162 A-53

124 CITY OF WATERBURY, CONNECTICUT RSI-2 GENERAL FUND SCHEDULE OF EXPENDITURES AND OTHER FINANCING USES BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Variance Budgeted Amounts Favorable Original Final Actual (Unfavorable) General Government: Office of the Mayor $ 714 $ 789 $ 786 $ 3 Board of Aldermen Legal Department 1,646 1,646 1, City Clerk Town Clerk Department of Human Resources Registrar of Voters City Sheriff Probate Court Finance Department 1,274 1,274 1, Department of Assessment Collector of Revenue 1,193 1,193 1, Department of Purchases Department of Audit Department of Budget Control Department of Information Technology 1,498 1,498 1, Total general government 9,947 10,052 9, Public Works: Public Works Administration Engineering 1,024 1, Public Works Services 4,764 4,844 4, Public Works Operations 11,873 11,803 11, Total public works 18,171 18,181 17, Public Safety: Police Department 26,411 26,411 26,405 6 Fire Department 17,388 18,628 18,628 - Total public safety 43,799 45,039 45,033 6 Planning and Development: Office of the City Plan Department of Inspections Total planning and development 1,114 1,114 1, Human Services: Department of Health 3,207 3,207 3, Education: Department of Education 155, , , Culture and Recreation: Silas Bronson Library 1,874 1,874 1, (Continued on next page) A-54

125 CITY OF WATERBURY, CONNECTICUT RSI-2 GENERAL FUND SCHEDULE OF EXPENDITURES AND OTHER FINANCING USES BUDGET AND ACTUAL (NON-GAAP BUDGETARY BASIS) (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2014 (In Thousands) Variance Budgeted Amounts Favorable Original Final Actual (Unfavorable) General Financial: Contractual services $ 978 $ 978 $ 937 $ 41 Employee benefits 6,180 6,180 6, Health benefits 66,639 66,639 66,639 - Pension 16,186 16,151 16, Legal - general liability 1,450 1,450 1,450 - Heart and hypertension 1,000 1,000 1,000 - Workers compensation 8,000 8,000 8,000 - Municipal groups Waterbury Senior Center Waterbury Development Corporation Contingency 1, (175) Total general financial 103, , , Total expenditures 337, , ,253 2,250 Other Financing Uses: Transfers Out: Debt Service Fund 44,562 44,812 44,812 - Special revenue programs 31 1,831 1,831 - Capital Improvement 100 1,100 1,100 - Total other financing uses 44,693 47,743 47,743 - Total $ 382,196 $ 385, ,996 $ 2,250 Budgetary expenditures are different than GAAP expenditures because: State of Connecticut on-behalf payments to the Connecticut State Teachers Retirement System for City teachers are not budgeted. 27,126 Total Expenditures and Other Financing Uses as Reported on the Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds - Exhibit IV $ 410,122 A-55

126 CITY OF WATERBURY, CONNECTICUT RSI-3 SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS LAST FISCAL YEAR - CITY (In Thousands) Total pension liability: Service cost $ 7,656 Interest 47,157 Benefit payments, including refunds of member contributions (47,186) Net change in total pension liability 7,627 Total pension liability - beginning 587,540 Total pension liability - ending 595,167 Plan fiduciary net position: Contributions - employer 16,085 Contributions - member 6,499 Net investment income 59,597 Benefit payments, including refunds of member contributions (47,186) Net change in plan fiduciary net position 34,995 Plan fiduciary net position - beginning 397,673 Plan fiduciary net position - ending 432,668 Net Pension Liability - Ending $ 162, Plan fiduciary net position as a percentage of the total pension liability 72.70% Covered-employee payroll $ 82,045 Net pension liability as a percentage of covered-employee payroll % A-56

127 CITY OF WATERBURY, CONNECTICUT RSI-4 SCHEDULE OF EMPLOYER CONTRIBUTIONS - CITY LAST TEN FISCAL YEARS Actuarially determined contribution $ 16,085 $ 16,062 $ 15,961 $ 15,866 $ 16,444 $ 41,610 $ 42,238 $ 42,345 $ 40,257 $ 40,374 Contributions in relation to the actuarially determined contribution 16,085 16,062 15,961 15,866 16,444 44,475 43,974 43,345 41,998 41,404 Contribution Deficiency (Excess) $ - $ - $ - $ - $ - $ (2,865) $ (1,736) $ (1,000) $ (1,741) $ (1,030) Covered-employee payroll $ 82,045 $ 78,512 $ 81,668 $ 78,151 $ 74,268 $ 73,978 $ 70,371 $ 69,555 $ 63,992 $ 66,159 Contributions as a percentage of covered-employee payroll 19.61% 20.46% 19.54% 20.30% 22.14% 60.12% 62.49% 62.32% 65.63% 62.58% Notes to Schedule Valuation date: July 1, 2013 Measurement date: June 30, 2014 Actuarially determined contribution rates are calculated as of June 30, two years prior to the end of the fiscal year in which contributions are reported A-57 Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age normal Amortization method Level dollar, closed Remaining amortization period 25 years, closed Asset valuation method Asset smoothing Inflation 3.0% Salary increases Ranges from 3.0% to 6.5%, based on age Investment rate of return 8.25% Retirement age - Police Officers with 10 years of service on 6/30/05, 20 years of service or age 55. All others, the later of 25 years of service and age 57 Retirement age - Fire The later of 25 years of service and age 57 Retirement age - Blue collar Earlier of either (1) if 10 years of service on 11/16/05, the later of 25 years of service and age 53, (2) Age 65 and 15 years of service, or (3) Age 55 and 25 years of service Retirement age - White collar Earlier of either (1) if 10 years of service on 4/11/06, the later of 25 years of service and age 53, (2) Age 65 and 15 years of service, or (3) Age 55 and 25 years of service Retirement age - Nurses Earlier of either (1) if hired prior to 12/7/95, 25 years of service, (2) Age 65 and 15 years of service, or (3) Age 55 and 25 years of service Retirement age - WMAA Earlier of either (1) if hired prior to 10/1/96, 25 years of service, (2) Age 65 and 15 years of service, or (3) Age 55 and 25 years of service Retirement age - Teachers 25 years of service Retirement age - SAW Age 65 Retirement age - Development Age 60 Mortality RP-2000 Mortality Table with separate male and female rates, with no collar adjustment for annuitants, projected to the valuation date with Scale AA The City issued $313 million in Pension Obligation Bonds on September 17, 2009 (FY 2010). Actuarially determined contribution adjusted thereafter to reflect deposit of bond proceeds into the Pension Trust.

128 CITY OF WATERBURY, CONNECTICUT RSI-5 SCHEDULE OF INVESTMENT RETURNS - CITY LAST FISCAL YEAR 2014 Annual money-weighted rate of return, net of investment expense 15.13% A-58

129 APPENDIX B-1 FORM OF OPINION OF BOND COUNSEL FOR THE LOT A BONDS

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131 December 2, 2015 City of Waterbury 235 Grand Street Waterbury, CT Re: $23,000,000 General Obligation Bonds, Lot A Dated Date of Delivery Ladies and Gentlemen: We have acted as bond counsel to the City of Waterbury, Connecticut (the City ) in connection with the sale and issuance of the City s $23,000,000 General Obligation Bonds, Lot A dated the Date of Delivery (the Bonds ). We have examined a record of proceedings of the City authorizing the Bonds, a Tax Compliance Agreement of the City dated December 2, 2015 (the Agreement ), such law and such other proceedings, certifications, and documents as we have deemed necessary to render this opinion. As to questions of fact material to our opinion we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. We are of the opinion that when the Bonds are duly certified by U.S. Bank National Association, they will be valid and binding general obligations of the City payable as to both principal and interest from ad valorem taxes which may be levied on all taxable property subject to taxation by the City without limitation as to rate or amount except as to classified property such as certified forest lands taxable at a limited rate and dwelling houses of qualified elderly persons of low income or of qualified disabled persons taxable at limited amounts pursuant to Connecticut statutes. We are further of the opinion that the Agreement is a valid and binding agreement of the City and it was duly authorized by the City. The rights of the holders of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights generally and by equitable principles, whether considered at law or in equity. The Internal Revenue Code of 1986, as amended (the Code ), establishes certain requirements that must be met at and subsequent to the issuance and delivery of the Bonds in order that interest on the Bonds be excludable from gross income under Section 103 of the Code. In the Agreement, the City has made covenants and representations designed to assure compliance with such requirements of the Code. The City has covenanted in the Agreement that it will at all times comply with all requirements of the Code that must be satisfied subsequent to B-1-1

132 Page 2 the issuance of the Bonds to ensure that interest on the Bonds shall not be included in gross income for Federal income tax purposes retroactive to the date of issuance of the Bonds, including covenants regarding, among other matters, the use, expenditure and investment of the proceeds of the Bonds. In rendering the below opinions regarding the Federal treatment of interest on the Bonds, we have relied upon and assumed (i) the material accuracy of the representations, statements of intention and reasonable expectations, and certifications of fact contained in the Agreement, and (ii) continuing compliance by the City with the covenants set forth in the Agreement as to such tax matters. In our opinion, under existing statutes and court decisions, (i) interest on the Bonds is excludable from gross income for Federal income tax purposes pursuant to Section 103 of the Code; and (ii) such interest is not an item of tax preference for purposes of the Federal alternative minimum tax imposed on individuals and corporations, however, such interest may be taken into account in determining adjusted current earnings for purposes of computing the Federal alternative minimum tax imposed on certain corporations. We express no opinion regarding other Federal income tax consequences caused by ownership or disposition of, or receipt of interest on the Bonds. We are further of the opinion that, under existing statutes, interest on the Bonds is excludable from Connecticut taxable income for purposes of the Connecticut income tax on individuals, trusts and estates; and interest on the Bonds is excludable from amounts on which the net Connecticut minimum tax is based for individuals, trusts and estates required to pay the Federal alternative minimum tax. We express no opinion regarding other State income tax consequences caused by ownership or disposition of, or receipt of interest on the Bonds. We have not been engaged or undertaken to review the accuracy, completeness or sufficiency of the Official Statement dated November 12, 2015 and other offering material relating to the Bonds except to the extent stated in the Official Statement and we express no opinion relating thereto excepting only the matters set forth as our opinion in the Official Statement. We have not undertaken to advise whether any events after the date of issuance of the Bonds, including the adoption of Federal tax legislation, may affect the tax status of the Bonds. Respectfully, PULLMAN & COMLEY, LLC B-1-2

133 APPENDIX B-2 FORM OF OPINION OF BOND COUNSEL FOR THE LOT B BONDS

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135 December 2, 2015 City of Waterbury 235 Grand Street Waterbury, CT Re: $7,000,000 Taxable General Obligation Bonds, Lot B Dated Date of Delivery Ladies and Gentlemen: We have acted as bond counsel to the City of Waterbury, Connecticut (the City ) in connection with the sale and issuance of the City s $7,000,000 Taxable General Obligation Bonds, Lot B dated the Date of Delivery (the Bonds ). We have examined a record of proceedings of the City authorizing the Bonds and such law and such other proceedings, certifications, and documents as we have deemed necessary to render this opinion. As to questions of fact material to our opinion we have relied upon the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation. We are of the opinion that when the Bonds are duly certified by U.S. Bank National Association, they will be valid and binding general obligations of the City payable as to both principal and interest from ad valorem taxes which may be levied on all taxable property subject to taxation by the City without limitation as to rate or amount except as to classified property such as certified forest lands taxable at a limited rate and dwelling houses of qualified elderly persons of low income or of qualified disabled persons taxable at limited amounts pursuant to Connecticut statutes. The rights of the holders of the Bonds and the enforceability thereof may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights generally and by equitable principles, whether considered at law or in equity. We are of the opinion that, under existing law, interest on the Bonds is included in gross income for federal income tax purposes pursuant to the Internal Revenue Code of 1986, as amended. We are further of the opinion that, under existing statutes, interest on the Bonds is excludable from Connecticut taxable income for purposes of the Connecticut income tax on individuals, trusts and estates; and interest on the Bonds is excludable from amounts on which B-2-1

136 Page 2 the net Connecticut minimum tax is based for individuals, trusts and estates required to pay the Federal alternative minimum tax. We express no opinion regarding other State income tax consequences caused by ownership or disposition of, or receipt of interest on the Bonds. We have not been engaged or undertaken to review the accuracy, completeness or sufficiency of the Official Statement dated November 12, 2015 and other offering material relating to the Bonds except to the extent stated in the Official Statement and we express no opinion relating thereto excepting only the matters set forth as our opinion in the Official Statement. We have not undertaken to advise whether any events after the date of issuance of the Bonds, including the adoption of Federal tax legislation, may affect the tax status of the Bonds. Respectfully, PULLMAN & COMLEY, LLC B-2-2

137 APPENDIX C FORM OF CONTINUING DISCLOSURE AGREEMENT

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139 CONTINUING DISCLOSURE AGREEMENT FOR BONDS BY THE CITY OF WATERBURY, CONNECTICUT In Connection With The Issuance and Sale of General Obligation Bonds, Issue of 2015 $23,000,000 General Obligation Bonds, Lot A $7,000,000 Taxable General Obligation Bonds, Lot B This Continuing Disclosure Agreement ( Agreement ) is executed and delivered as of December 2, 2015, by the City of Waterbury, Connecticut (the Issuer ) acting by its undersigned officers, duly authorized, in connection with the issuance of its General Obligation Bonds, Issue of 2015, consisting of $23,000,000 General Obligation Bonds, Lot A (the Lot A Bonds ) and $7,000,000 Taxable General Obligation Bonds, Lot B (the Lot B Bonds and together with the Lot A Bonds, the Bonds ), each dated December 2, Section 1. Definitions. In addition to the terms defined above, the following capitalized terms shall have the meanings ascribed thereto: Annual Report shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Section 2 of this Agreement. EMMA means the Electronic Municipal Market Access System as described in the 1934 Act Release #59062 and maintained by the Municipal Securities Rulemaking Board for the purposes of the Rule and as further described in Section 13 hereof. Final Official Statement means the official statement of the Issuer dated November 12, 2015, prepared in connection with the issuance of the Bonds. Fiscal Year End shall mean the last day of the Issuer s fiscal year, currently June 30. Listed Events shall mean any of the events listed in Section 4 of this Agreement. MSRB shall mean the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, as amended, or any successor thereto. Rule means rule 15c2-12 under the Securities Exchange Act of 1934, as of the date of this Agreement. SEC means the Securities and Exchange Commission of the United States, or any successor thereto. Section 2. Annual Reports. (a) The Issuer shall provide or cause to be provided to the MSRB, in accordance with the provisions of the Rule and of this Agreement, the following annual financial information and operating data regarding the Issuer (commencing with the information and data for the fiscal year ending June 30, 2015): (i) Audited financial statements of the Issuer as of and for the year ending on its Fiscal Year End prepared in accordance with generally accepted accounting principles, as promulgated by the Governmental Accounting Standards Board from time C-1

140 to time or mandated state statutory principles as in effect from time to time. As of the date of this Agreement, the Issuer is required to prepare audited financial statements of its various funds and accounts. (ii) To the extent not included in the audited financial statements described in (i) above, financial information and operating data as of and for the year ending on its Fiscal Year End of the following type: (A) the amounts of the gross and net taxable grand list; (B) a listing of the ten largest taxpayers on the grand list, together with each such taxpayer s taxable valuation thereon; (C) the percentage and amount of the annual property tax levy collected and uncollected; (D) a schedule of the long-term debt through maturity on outstanding long-term bonded indebtedness; (E) a calculation of the total net direct debt, total direct debt, and total overall net debt (reflecting overlapping and underlying debt); (F) the total direct debt, total net direct debt and total overall net debt of the Issuer per capita; (G) the ratios of total direct debt and total overall net debt of the Issuer to the Issuer s net taxable grand list; margins; obligations; (H) (I) (J) a statement of statutory debt limitations and debt the funding status of the Issuer s pension benefit the funding status of the Issuer s OPEB obligation; and (K) any other financial information and operating data not included in the audited financial statements. (b) The above-referenced information is expected to be provided by the filing of and cross reference to the Issuer s audited financial statements. The information may be provided in whole or in part by cross-reference to other documents provided to the MSRB, including official statements of the Issuer which will be available from the MSRB s internet web site or filed with the SEC. All or a portion of the financial information and operating data may be provided in the form of a comprehensive annual financial report or the annual adopted budget. (c) Subject to the requirements of Section 8 hereof, the Issuer reserves the right to modify from time to time the specific types of information or data provided or the format of the presentation of such information or data, to the extent necessary or appropriate; provided that the Issuer agrees that any such modification will be done in a manner consistent with the Rule. The Issuer also reserves the right to modify the preparation and presentation of financial statements described herein as may be required to conform with changes in Connecticut law applicable to C-2

141 municipalities or any changes in generally accepted accounting principles, as promulgated by the Governmental Accounting Standards Board from time to time. Section 3. Timing. The Issuer shall provide the information and data referenced in Section 2(a) not later than eight months after each Fiscal Year End for which such information is being provided. The Issuer agrees that if audited information is not available eight months after the close of any Fiscal Year End, it shall submit unaudited information by such time and will submit audited information when available. Section 4. Event Notices. (a) The Issuer agrees to provide or cause to be provided to the MSRB, within ten (10) business days of the occurrence of any of the following events with respect to the Bonds, notice of the occurrence of such event: (i) (ii) difficulties; (iii) difficulties; (iv) principal and interest payment delinquencies; unscheduled draws on debt service reserves reflecting financial unscheduled draws on credit enhancements reflecting financial substitution of credit or liquidity providers, or their failure to perform; (v) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax status of the Bonds, or other events affecting the tax status of the Bonds; Issuer; (vi) (vii) (viii) (ix) tender offers; bankruptcy, insolvency, receivership, or a similar proceeding by the Bond defeasances; and rating changes. (b) The Issuer agrees to provide or cause to be provided to the MSRB, within ten (10) business days of the occurrence of any of the following events with respect to the Bonds, notice of the occurrence of such event, if material: Bonds; (i) (ii) (iii) (iv) non-payment related defaults; modifications to rights of Bondholders; Bond calls; release, substitution, or sale of property securing repayment of the C-3

142 (v) consummation of a merger, consolidation, acquisition involving the Issuer, other than the ordinary course of business, or the sale of all or substantially all the assets of the Issuer, or the entry into a definitive agreement to engage in such a transaction, or a termination of such an agreement, other than in accordance with its terms; and (vi) appointment of a successor or additional trustee, or the change in the name of the trustee. Section 5. Notice of Failure. The Issuer agrees to provide or cause to be provided, in a timely manner to the MSRB, notice of any failure by the Issuer to provide the annual financial information described in Section 2(a) of this Agreement on or before the date set forth in Section 3 hereof. Section 6. Termination of Reporting Obligation. The Issuer s obligations under this Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds. Section 7. Agent. The Issuer may, from time to time, appoint or engage an agent to assist it in carrying out its obligations under this Agreement, and may discharge any such agent, with or without appointing a successor agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Agreement, the Issuer may amend this Agreement, and any provision of this Agreement may be waived, if such amendment or waiver is made in connection with a change in circumstances that arises from a change in legal requirements, a change in law, or a change in the identity, nature or status of the Issuer, and is supported by an opinion of counsel expert in federal securities laws, to the effect that (i) such amendment or waiver would not materially adversely affect the beneficial owners of the Bonds and (ii) the Agreement as so amended would have complied with the requirements of the Rule as of the date of the Agreement, taking into account any amendments or interpretations of the Rule as well as any changes in circumstances. A copy of any such amendment will be filed in a timely manner with the MSRB. The annual financial information provided on the first date following adoption of any such amendment will explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating or financial information provided. Section 9. Additional Information. Nothing in this Agreement shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communications, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Agreement. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Agreement, the Issuer shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Enforceability. The Issuer agrees that its undertaking pursuant to the Rule set forth in this Agreement is intended to be for the benefit of and enforceable by the beneficial owners of the Bonds. In the event the Issuer shall fail to perform its duties hereunder, the Issuer shall have the option to cure such failure after its receipt of written notice from any beneficial owner of the Bonds of such failure. The present address of the Issuer is City of Waterbury, 235 Grand Street, Waterbury, CT 06702, Attn: Director of Finance. In the event the Issuer does not cure such failure, the right of any beneficial owner of the Bonds to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the Issuer s obligations hereunder. No monetary damages shall arise or be payable C-4

143 hereunder nor shall any failure to comply with this Agreement constitute default of the Issuer with respect to the Bonds. Section 11. Connecticut. Governing Law. This Agreement shall be governed by the laws of the State of Section 12. Method of Filing. To the extent filings are required to be made to the MSRB under this Agreement, the Issuer shall transmit such filings or notices in an electronic format to the continuing disclosure service portal provided through MSRB s EMMA as provided at or any similar system that is acceptable to the SEC. IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in its name by its undersigned officers, duly authorized, all as of the date first above written. CITY OF WATERBURY, CONNECTICUT By: Neil M. O Leary Mayor By: Michael LeBlanc Director of Finance C-5

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145 APPENDIX D SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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147 MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. Owner means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that Owner shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. D-1

148 BAM may appoint a fiscal agent (the Insurer s Fiscal Agent ) for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer s Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer s Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer s Fiscal Agent on behalf of BAM. The Insurer s Fiscal Agent is the agent of BAM only, and the Insurer s Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer s Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked. This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT MUTUAL LIABILITY FOR ASSESSMENT. In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMPANY has caused this Policy to be executed on its behalf by its Authorized Officer. BUILD AMERICA MUTUAL ASSURANCE COMPANY By: Authorized Officer D-2

149 Notices (Unless Otherwise Specified by BAM) Address: 1 World Financial Center, 27th floor 200 Liberty Street New York, New York Telecopy: (attention: Claims) D-3

150 [THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]

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152 CITY OF WATERBURY, CONNECTICUT GENERAL OBLIGATION BONDS, LOT A and TAXABLE LOT B