CITY OF SPRINGFIELD, ILLINOIS. WATER FUND (An Enterprise Fund of the City of Springfield, Illinois)

Transcription

1 CITY OF WATER FUND (An Enterprise Fund of the City of Springfield, Illinois) For the Years Ended February 28, 2015 and February 28, 2014

2 TABLE OF CONTENTS Page(s) Independent Auditor s Report Financial Statements: Balance Sheets Statements of Revenues, Expenses and Changes in Net Position... 5 Statements of Cash Flows Notes to the Financial Statements

3 INDEPENDENT AUDITOR'S REPORT To the Honorable Mayor and Members of the City Council City of Springfield, Illinois We have audited the accompanying financial statements of the Water Fund, an Enterprise Fund of the City of Springfield, Illinois, as of and for the years ended February 28, 2015 and 2014, and the related notes to the financial statements, as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 opinion

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Water Fund of the City of Springfield, Illinois, as of February 28, 2015 and 2014, and the changes in financial position and the cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1, the financial statements present only the Water Fund and do not purport to, and do not present fairly the financial position of the City of Springfield, Illinois, as of February 28, 2015 and 2014, the changes in its financial position, and the cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Springfield, Illinois June 26,

5 FINANCIAL STATEMENTS

6 CITY OF SPRINGFIELD WATER FUND Balance Sheets February 28, 2015 and February 28, Assets Utility plant (Note 2): Property, plant, and equipment in service $ 246,614,729 $ 185,143,529 Less accumulated depreciation 55,538,719 53,615, ,076, ,527,912 Construction work in progress 6,343,093 48,508,336 Net utility plant 197,419, ,036,248 Other property and investments (Note 3): Auxiliary service property 7,734,955 7,570,044 Less accumulated depreciation 3,908,825 3,806,933 3,826,130 3,763,111 Nonutility property, Hunter Lake, nondepreciable 22,884,224 22,716,192 Total other property and investments 26,710,354 26,479,303 Restricted assets: Cash and cash equivalents (Notes 4 and 5) 35,218,024 47,271,159 Investments (Notes 4 and 5) 1,006,830 1,020,500 Accrued interest receivable ,225,212 48,292,017 Current assets: Cash and cash equivalents (Note 4) 6,162,161 10,629,063 Billed accounts receivable - consumers, net of allowance for doubtful accounts of $12,358; $127,530 in 2015 and 2014, respectively 1,745,332 1,765,302 Unbilled utility and other receivables, net of allowance for doubtful accounts of $4,503; $143,583 in 2015 and 2014, respectively 1,723,450 2,277,049 Inventories - materials and supplies 1,041, ,663 Other assets 15,810 15,810 Due from primary government (Note 6) 6,643,989 6,736,920 Prepaid expenses 87,102 67,063 Total current assets 17,419,082 22,428,870 Total assets 277,773, ,236,438 Deferred outflows of resources Loss on refunding 293, ,510 Total assets and deferred outflows of resources $ 278,066,794 $ 277,665,948 See accompanying notes to financial statements

7 CITY OF SPRINGFIELD WATER FUND Balance Sheets February 28, 2015 and February 28, Net position and liabilities: Net position: Net investment in capital assets $ 152,069,742 $ 145,005,269 Restricted for debt service 2,450,397 2,377,242 Restricted for system repairs and improvements 6,259,967 1,824,895 Unrestricted (447,781) 7,826,686 Total net position 160,332, ,034,092 Noncurrent liabilities: Long-term debt, net of current installments (Note 5) 94,416,887 97,384,652 IMRF pension obligation (Note 8) 568, ,715 Other postemployment benefits obligation (Note 12) 7,587,864 5,743,404 Compensated absences (Note 1) 609, ,892 Other payables 261, ,827 Total noncurrent liabilities 103,444, ,669,490 Current liabilities payable from restricted assets: Current installments of long-term debt (Note 5) 2,440,000 2,360,000 Accounts and contracts payable 326,646 3,433,191 Accrued interest and taxes payable 2,054,401 2,096,503 Total current liabilities payable from restricted assets 4,821,047 7,889,694 Current liabilities: Current installments of long-term debt (Note 5) 329, ,143 Other payables 199, ,562 Accounts and contracts payable 6,654,725 5,489,003 Accrued compensation 560, ,602 Compensated absences (Note 1) 813, ,348 Due to primary government (Note 6) 910, ,014 Total current liabilities 9,468,828 8,072,672 Total liabilities 117,734, ,631,856 Total net position and liabilities $ 278,066,794 $ 277,665,948 See accompanying notes to financial statements

8 CITY OF SPRINGFIELD WATER FUND Statements of Revenues, Expenses and Changes in Net Position Years Ended February 28, 2015 and February 28, Operating revenues, water revenues and other $ 28,954,212 $ 30,016,919 Operating expenses: Source of supply 1,292, ,307 Pumping 1,218,899 1,408,361 Purification 4,388,239 3,665,148 Distribution 5,748,835 6,279,981 Accounting and collection 1,605,582 1,675,588 Administrative and general 1,650,554 1,998,314 Other post employment benefits (Note 12) 2,272,507 1,373,461 IMRF pension expense (Note 8) 10,726 9,618 Depreciation 3,549,457 3,133,801 Total operating expenses 21,737,773 20,311,579 Operating income 7,216,439 9,705,340 Nonoperating income (expense): Investment income 4,796 4,488 Interest charges (1,206,179) (1,257,323) Auxiliary service property and nonutility property operations, net (Note 3) (2,176,422) (1,559,731) Other income (expense), net (957,674) (62,837) Total nonoperating income (expense) (4,335,479) (2,875,403) Change in net position before contributions and transfers 2,880,960 6,829,937 Contribution revenue (Note 1) 1,124,986 1,242,564 Transfer out (Note 11) (707,713) (913,247) Change in net position 3,298,233 7,159,254 Net position, beginning of year 157,034, ,874,838 Net position, end of year $ 160,332,325 $ 157,034,092 See accompanying notes to financial statements

9 CITY OF SPRINGFIELD WATER FUND Statements of Cash Flows Years Ended February 28, 2015 and February 28, Cash flows from operating activities: Receipts from customers $ 29,186,652 $ 28,701,629 Receipts from other funds 341, ,306 Payments to suppliers (8,094,724) (1,445,425) Payments to employees (8,789,094) (9,006,830) Payments to other funds (2,547,705) (2,502,175) Net cash from operating activities 10,096,258 16,091,505 Cash flows from noncapital financing activities: Transfer out (707,713) (913,247) Net payments made on inter-fund borrowing 411,676 (1,132,712) Net cash from noncapital financing activities (296,037) (2,045,959) Cash flows from capital and related financing activities: Acquisition and construction of utility plant and auxiliary service property (18,577,031) (29,514,161) Principal paid on revenue bonds, refunding bonds and loan payable (2,686,143) (1,947,930) Interest paid on bonds and loan payable (1,446,465) (1,302,249) Auxiliary service and nonutility property operations, net (2,049,173) (1,435,710) Interest capitalized for the acquisition and construction of utility plant (2,717,550) (2,717,550) Contribution revenue 1,124,986 1,242,564 Other cash flows from capital and related financing 8,181 (135,213) Net cash from capital and related financing activities (26,343,195) (35,810,249) Cash flows from investing activities: Purchase of investments - (1,021,290) Interest on investments 22,937 18,256 Net cash from investing activities 22,937 (1,003,034) Net increase (decrease) in cash and cash equivalents (16,520,037) (22,767,737) Cash and cash equivalents, beginning of year 57,900,222 80,667,959 Cash and cash equivalents, end of year $ 41,380,185 $ 57,900,222 Cash and cash equivalents, restricted 35,218,024 47,271,159 Cash and cash equivalents, unrestricted 6,162,161 10,629,063 Total cash and cash equivalents $ 41,380,185 $ 57,900,222 See accompanying notes to financial statements

10 CITY OF SPRINGFIELD WATER FUND Statements of Cash Flows Years Ended February 28, 2015 and February 28, Reconciliation of operating income to net cash from operating activities: Operating income $ 7,216,439 $ 9,705,340 Adjustments to reconcile operating income to net cash from operating activities: Depreciation 3,549,457 3,133,801 Change in assets and liabilities: (Increase) decrease in unbilled utility receivables 553,599 (809,392) (Increase) decrease in accounts receivable-consumers 19,970 (161,591) (Increase) decrease in inventories (103,575) 63,428 (Increase) decrease in prepaid expenses (20,039) (5,466) Increase (decrease) in accounts and contracts payable (2,770,991) 2,880,304 Increase (decrease) in other payables (142,067) 63,767 Increase (decrease) in accrued compensation and compensated absences (61,860) 152,845 Increase (decrease) in accrued taxes payable 139 (8,104) Increase (decrease) in IMRF pension obligation 10,726 9,618 Increase (decrease) in OPEB obligation 1,844,460 1,066,955 Net cash from operating activities $ 10,096,258 $ 16,091,505 Supplemental disclosures of noncash: Investing and capital and related financing activities: Unrealized (gain) loss from marking investments to fair value $ (288) $ (155) Investing, amortization of investment premium 13, See accompanying notes to financial statements

11 CITY OF - WATER FUND NOTES TO FINANCIAL STATEMENTS February 28, 2015 and February 28, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Water Fund, an Enterprise Fund of the City of Springfield, Illinois (the City), have been prepared in conformity with accounting principles generally accepted in the United States of America, as applied to government units hereinafter referred to as generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting principles and financial reporting practices. The more significant of the Water Fund s accounting policies are described below. A. Fund Accounting and Financial Statement Presentation The Water Fund is a fund of the City and is classified as an Enterprise Fund (proprietary fund type). Enterprise Funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenue earned, expenses incurred, and/or change in net assets is appropriate for capital maintenance, public policy, management control, accountability or other purposes. The financial statements present only the financial position, changes in financial position, and cash flows of the City's Water Fund. These financial statements are not intended to present fairly the financial position, changes in financial position and cash flows of the City in conformity with GAAP. B. Basis of Accounting Basis of accounting refers to when revenue and expenses are recognized in the accounts and reported in the financial statements. The Water Fund utilizes the accrual basis of accounting, which recognizes revenue when it is earned, including an estimate of water revenue unbilled at the end of each accounting period, and expenses when they are incurred. The Water Fund, the Electric Light and Power Fund and the Sewer Fund jointly bill customers for services

12 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Operating Revenues and Expenses: Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with ongoing operations. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Retail revenue is billed monthly based on rates adopted by the City Council. For the years ended February 28, 2015 and February 28, 2014, retail customers of the water system paid an average price of $3.52 and $3.49, respectively per 100 cubic feet of water. Retail customer class average prices, for the 2015 and 2014 fiscal years, were as follows: Inside City $ 3.44 $ 3.42 Outside City Southern View D. Utility Plant in Service and Auxiliary Service Property Property, plant and equipment are stated at cost. The cost of property additions, including replacements of units of property and improvements, is capitalized as property, plant and equipment. Cost includes labor, material and similar items, and indirect charges for such items as transportation and supervision. Capital assets are defined as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of one year. Interest expense incurred during the construction of major projects is included as part of the capitalized cost of the constructed capital assets. Maintenance and repairs of property and replacements of items determined to be less than units of property are charged to operations. Donated fixed assets are valued at their fair market value on the date donated. Depreciation is provided on a straight-line basis over the estimated service lives of depreciable property, ranging from 10 to 100 years for the plant and distribution system, and from 5 to 33 years for equipment. Depreciation provided during the years ended February 28, 2015 and February 28, 2014, was approximately 1.5 percent and 1.7 percent, respectively of depreciable utility plant at February 28, 2015 and February 28, E. Nonutility and Other Property Nonutility and other property represent property acquired for the proposed John H. Hunter Lake project. The cost of farmland, including legal and other acquisition costs are capitalized assets. Rental revenue and operating expenses are reported on the statements of revenue, expenses and changes in net position

13 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. Restricted Asset Accounts Restricted asset accounts are utilized in the Water Fund to comply with revenue bond ordinances. 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. G. Cash and Cash Equivalents For purposes of the statement of cash flows, the Water Fund considers all highly liquid investments (including restricted assets) with an original maturity of three months or less to be cash equivalents. Investments in the Illinois Funds are classified as cash and cash equivalents. H. Investments Investments are recorded at fair value using quoted market prices, except for Certificates of deposit which are recorded at cost. I. Inventories Inventories of materials and supplies are stated at the lower of cost or market, with cost determined on an average cost basis. J. Long-term Debt Issuance Costs, Premiums, Discounts and Deferred Gains/Losses on Refunding Long-term debt premiums, discounts and deferred gains/losses on refunding are amortized over the life of the related issue using the effective interest method. Longterm debt issuance costs are expensed as incurred. K. Contribution Revenue and Related Project Costs In accordance with GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, the Water Fund is required to recognize capital contributions from nonexchange transactions as revenues. Contributions are payments received from contractors and other businesses and individuals for special water construction projects and contributions from other City funds for certain capital projects. Excess contributions are refunded and deficient deposits are billed. Costs of the projects are capitalized and depreciated

14 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) L. Compensated Absences Water Fund employees are granted vacation and sick pay in varying amounts. In the event of termination, a non-union employee is reimbursed for accumulated vacation days up to the equivalent of two years vacation. A union employee normally must take vacation accrued during the fiscal year of accrual. Vested or accumulated vacation leave is recorded as an expense and liability as the benefits accrue to employees. Union employees may accumulate up to 90 days of sick leave to be paid upon death or retirement. Non-union employees may accumulate an unlimited number of days of sick leave. A portion of accumulated sick leave is to be paid upon death or retirement as decided by the City Council. No sick leave is paid upon termination. An actuarially determined liability is recognized for that portion of accumulated sick leave benefits estimated to be payable upon death or retirement. March 1 Additions Deletions February 28 Current 2015 $ 1,489,240 $ 881,435 $ 947,431 $ 1,423,244 $ 813, ,410, , ,609 1,489, ,348 M. 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 assets that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. In addition to liabilities, the statement of financial 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 assets that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. N. Budget Annually, the City adopts a budget for the Water Fund. The budget is adopted using the accrual basis of accounting

15 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) O. Net Position Net position represents the difference between assets and deferred outflows and liabilities and deferred inflows in the financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used for acquisition, construction or improvement of those assets. Net position invested in capital assets, net of related debt, excludes unspent bond proceeds. Unspent bond proceeds were $25,126,614 and $38,560,513 as of February 28, 2015 and February 28, 2014, respectively. Net position is reported as restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. P. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Q. Reclassifications Certain fiscal year 2014 amounts have been reclassified to conform to the fiscal year 2015 presentation without effect on changes in net assets. 2. UTILITY PLANT Utility plant activity for the year ended February 28, 2015, consists of the following: March 1 Additions Retirements February 28 Source of supply $ 31,607,727 $ 44,234 $ 54,394 $ 31,597,567 Pumping 4,731,812 51,937, ,910 56,093,193 Purification 28,586,146 9,014, ,310 36,841,202 Distribution 111,632,628 2,000, , ,450,665 General purpose 8,585, ,730 92,844 8,632,102 Total utility plant $ 185,143,529 $ 63,136,158 $ 1,664,958 $ 246,614,

16 2. UTILITY PLANT (Continued) Accumulated depreciation activity for the year ended February 28, 2015 consists of the following: March 1 Additions Retirements February 28 Source of supply $ 6,101,534 $ 262,464 $ 54,394 $ 6,309,604 Pumping 2,508, , ,910 2,313,216 Purification 11,114, , ,310 11,254,201 Distribution 27,943,841 1,615, ,500 29,376,721 General purpose 5,947, ,342 54,240 6,284,977 Total utility plant $ 53,615,617 $ 3,549,456 $ 1,626,354 $ 55,538,719 Utility plant, net of accumulated depreciation $ 131,527,912 $ 59,586,702 $ 38,604 $ 191,076,010 March 1 Additions Closeout February 28 Construction work in progress $ 48,508,336 $21,161,183 $63,326,426 $ 6,343,093 Net utility plant $ 180,036,248 $80,747,885 $63,365,030 $ 197,419,103 Utility plant activity for the year ended February 28, 2014, consists of the following: March 1 Additions Retirements February 28 Source of supply $ 30,324,582 $ 1,283,145 $ - $ 31,607,727 Pumping 4,688,501 43,311-4,731,812 Purification 27,658, ,086 35,000 28,586,146 Distribution 108,899,092 3,204, , ,632,628 General purpose 9,175, , ,336 8,585,216 Total utility plant $ 180,745,581 $ 5,863,784 $1,465,836 $ 185,143,

17 2. UTILITY PLANT (Continued) Accumulated depreciation activity for the year ended February 28, 2014 consists of the following: March 1 Additions Retirements February 28 Source of supply $ 5,855,864 $ 245,670 $ - $ 6,101,534 Pumping 2,387, ,605-2,508,185 Purification 10,324, ,063 35,000 11,114,182 Distribution 26,859,230 1,555, ,500 27,943,841 General purpose 6,520, , ,336 5,947,875 Total utility plant $ 51,947,652 $ 3,133,801 $1,465,836 $ 53,615,617 Utility plant, net of accumulated depreciation $ 128,797,929 $ 2,729,983 $ - $ 131,527,912 March 1 Additions Closeout February 28 Construction work in progress $ 22,540,265 $32,021,714 $ 6,053,643 $ 48,508,336 Net utility plant $ 151,338,194 $34,751,697 $ 6,053,643 $ 180,036,248 Utility plant under construction at February 28, 2015 and February 28, 2014, of $6,343,093 and $48,508,336, respectively includes interest on revenue bonds during construction, proceeds of which are used in financing the construction of certain assets. Interest expense is capitalized net of interest revenue on the investment of unexpended bond proceeds. Net interest expense of $2,713,581 and $2,703,985 was capitalized in fiscal year 2015 and fiscal year 2014, respectively. 3. OTHER PROPERTY AND INVESTMENTS A. Auxiliary Service Property The land surrounding Lake Springfield, owned by the Water Fund, is used for residential properties, private recreational clubs and public purposes. All land except public land is leased under operating leases to individuals and groups for 40 to 99 year periods with options to renew. Auxiliary service property activity for the year ended February 28, 2015, consists of the following: March 1 Additions Retirements February 28 Land $ 1,196,029 $ - $ - $ 1,196,029 Lake buildings and improvements 3,512, ,512,759 Park buildings and improvements 1,215, ,450-1,392,318 General purpose equipment 1,645,388 13,818 25,357 1,633,849 Total auxiliary service property $ 7,570,044 $190,268 $ 25,357 $ 7,734,

18 3. OTHER PROPERTY AND INVESTMENTS (Continued) A. Auxiliary Service Property (Continued) Accumulated depreciation activity for the year ended February 28, 2015 consists of the following: March 1 Additions Retirements February 28 Lake buildings and improvements $ 1,883,595 $ 68,290 $ - $ 1,951,885 Park buildings and improvements 796,869 12, ,559 General purpose equipment 1,126,469 46,269 25,357 1,147,381 Total accumulated depreciation $ 3,806,933 $ 127,249 $ 25,357 $ 3,908,825 Auxiliary service property, net of accumulated depreciation $ 3,763,111 $ 63,019 $ - $ 3,826,130 March 1 Additions Retirements February 28 Nonutility property, Hunter Lake, nondepreciable $ 22,716,192 $ 168,032 $ - $ 22,884,224 Total other property and investments $ 26,479,303 $231,051 $ - $ 26,710,354 Auxiliary service property activity for the year ended February 28, 2014, consists of the following: March 1 Additions Retirements February 28 Land $ 1,196,029 $ - $ - $ 1,196,029 Lake buildings and improvements 3,196, ,870-3,512,759 Park buildings and improvements 1,215, ,215,868 General purpose equipment 1,631,563 13,825-1,645,388 Total auxiliary service property $ 7,240,349 $ 329,695 $ - $ 7,570,

19 3. OTHER PROPERTY AND INVESTMENTS (Continued) A. Auxiliary Service Property (Continued) Accumulated depreciation activity for the year ended February 28, 2014 consists of the following: March 1 Additions Retirements February 28 Lake buildings and improvements $ 1,818,208 $ 65,387 $ - $ 1,883,595 Park buildings and improvements 786,384 10, ,869 General purpose equipment 1,078,320 48,149-1,126,469 Total accumulated depreciation $ 3,682,912 $ 124,021 $ - $ 3,806,933 Auxiliary service property, net of accumulated depreciation $ 3,557,437 $ 205,674 $ - $ 3,763,111 March 1 Additions Retirements February 28 Nonutility property, Hunter Lake, nondepreciable $ 22,659,596 $ 56,596 $ - $22,716,192 Total other property and investments $ 26,217,033 $ 262,270 $ - $26,479,303 B. Nonutility and Other Property As of February 28, 2015 and February 28, 2014, the Water Fund had acquired approximately 5,789 acres of farmland near Springfield for approximately $15,717,000. The land was acquired to construct the proposed John H. Hunter Lake, which would supplement the present Lake Springfield's potable water supply and provide cooling water for the City s Electric Light and Power Fund's generating system. As of February 28, 2015 and February 28, 2014, the Water Fund has incurred a total of $22,884,224 and $22,716,192 for the project, which includes the purchase price of the farmland and additional legal, engineering and other acquisition costs of $7,167,224 and $6,999,192, respectively. The project is classified as non-utility property, pending a final decision on the project

20 3. OTHER PROPERTY AND INVESTMENTS (Continued) C. Operations Operating revenue and costs of auxiliary service property and nonutility property follow: Year Ended February Revenue $ 842,687 $ 1,338,320 Costs and expenses (2,891,860) (2,774,030) Net expense before depreciation (2,049,173) (1,435,710) Less depreciation expense (127,249) (124,021) Net expense $ (2,176,422) $ (1,559,731) 4. DEPOSITS AND INVESTMENTS Following are the components of the Water Fund s cash, cash equivalents and investments: February 28, 2015 Unrestricted Restricted Total Cash and cash equivalents $ 6,162,161 $ 35,218,024 $ 41,380,185 Investments - 1,006,830 1,006,830 $ 6,162,161 $ 36,224,854 $ 42,387,015 February 28, 2014 Unrestricted Restricted Total Cash and cash equivalents $ 10,629,063 $ 47,271,159 $ 57,900,222 Investments - 1,020,500 1,020,500 $ 10,629,063 $ 48,291,659 $ 58,920,722 Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures - an Amendment of GASB Statement 3, requires disclosure of credit risk, concentration of credit risk, interest rate risk, and foreign currency risk and modifies previous custodial credit risk disclosure requirements. The City is empowered by statute to invest in certain types of securities as provided in the Public Funds Investment Act, 30 Illinois Compiled Statutes 235/1 et seq. Permitted investments include U.S. Government issued or secured debt, insured or collateralized certificates of deposit, highly rated state and municipal debt, and state pooled investments. Investments held by a trustee responsible for subordinate lien bond funds may include highly rated money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of

21 4. DEPOSITS AND INVESTMENTS (Continued) A. Custodial Credit Risk Custodial credit risk is the risk a government will not be able to recover deposits or investments that are in possession of an outside party. At February 28, 2015, the carrying amount of the Water Fund s deposits totaled $108,014 and the bank balances totaled $74,005. At February 28, 2014, the carrying amount of the Water Fund s deposits totaled $141,525 and the bank balances totaled $112,223. The City s investment policy requires that deposits with financial institutions be collateralized at 105 percent of the market value of the principal and interest of the deposit. The collateral is to be held by an independent third party with whom the entity has a current custody agreement. The City s bank balances are covered by the Federal Deposit Insurance Corporation (FDIC) and by collateral held in the City s name at the Federal Reserve Bank of Boston. The City requires all security transactions entered into by the City be conducted on a delivery versus payment basis. Securities will be held by a third party custodian designated by the City Treasurer and evidenced by a safekeeping receipt. February Cash and cash equivalents: Restricted $ 35,218,024 $ 47,271,159 Unrestricted 6,162,161 10,629,063 41,380,185 57,900,222 Less: Illinois Funds reclassified as investments (41,272,171) (57,758,697) Carrying amount of deposits $ 108,014 $ 141,525 B. Investments Interest rate risk: The risk that changes in interest rates will adversely affect the fair value of an investment is interest rate risk. In accordance with the master revenue bond ordinance, the Water Fund limits investments to those with a maturity of five years or less. City policy places further limits stating that the City will not directly invest in securities with a maturity of greater than five years three months from the date of purchase. Reserve funds, however, may be invested in securities exceeding five years three months if the maturity of such investments is made to coincide as nearly as practicable with the expected use of funds. At February 28, 2015, the Water Fund s investment balances were as follows: Maturities in Years Fair Market Less Than Value 6 Months Months Years Federal Home Loan Bank $ 1,006,830 $ 1,006,830 $ - $

22 4. DEPOSITS AND INVESTMENTS (Continued) B. Investments (Continued) At February 28, 2014, the Water Fund s investment balances were as follows: Maturities in Years Fair Market Less Than Value 6 Months Months Years Federal Home Loan Bank $ 1,020,500 $ - $ - $1,020,500 Credit risk: The risk that an issuer or other counterparty to an investment will not fulfill its obligations is credit risk. The City is empowered by statute to invest in certain types of securities as provided in the Public Funds Investment Act, 30 Illinois Compiled Statutes 235/1 et seq. The Water Fund may only invest in certain securities in accordance with a master revenue bond ordinance. Investments are restricted to U.S. Government issued or secured debt, insured or collateralized certificates of deposits, highly rated state and municipal debt, and state pooled investments. Investments may not mature beyond five years. The associated investments credit risk is noted above. As of February 28, 2015, the Electric Light and Power Fund s investments were rated as follows: Illinois Funds FHLB Investment Type Standard & Poor s AAAm AA+ As of February 28, 2014, the Electric Light and Power Fund s investments were rated as follows: Illinois Funds FHLB Investment Type Standard & Poor s AAAm AA+ As of February 28, 2015 and February 28, 2014, the Water Fund had investments in the Illinois Funds which are valued at amortized cost pursuant to Rule 2a-7 under the Investment Company Act of

23 4. DEPOSITS AND INVESTMENTS (Continued) C. Concentration of Credit Risk The risk of loss attributed to the magnitude of a government s investments in a single issuer is concentration of credit risk. The City s investment policy calls for diversification of its investments by security type and institution. With the exception of U.S. Treasury notes and authorized pools, no more than 50 percent of the City s total investment portfolio will be invested in a single security type or with a single financial institution. The City s investment policy is written to encompass all City investments. Diversification levels in the policy are for the total investment portfolio. As of February 28, 2015 and February 28, 2014, the Water Fund invested in the Federal Home Loan Bank note and the note did not exceed 5 percent of investments. 5. LONG-TERM DEBT Long-term debt activity during the fiscal year ended February 28, 2015, consists of the following: March 1 Additions Retirements February 28 (a) IEPA Loan Payable, Series 2002 $ 1,153,030 $ - $ 122,528 $ 1,030,502 (b) Revenue bonds, Series , ,000 - (c) Revenue bonds, Series ,325, ,000 19,630,000 (d) Revenue bonds, Series ,360,000-1,380,000 65,980,000 (e) IEPA Loan Payable L ,970, ,731 2,795,696 (f) IEPA Loan Payable L ,044-28, ,161 Unamortized debt discount (312,739) - (27,855) (284,884) Unamortized debt premium 7,929, ,179 7,702,854 Total $ 100,070,795 $ - $ 2,884,466 97,186,329 Less current principal maturities (2,769,442) Long-term debt, net of current principal maturities $ 94,416,887 Long-term debt activity during the fiscal year ended February 28, 2014, consists of the following: March 1 Additions Retirements February 28 (a) IEPA Loan Payable, Series 2002 $ 1,272,345 $ - $ 119,315 $ 1,153,030 (b) Revenue bonds, Series , , ,000 (c) Revenue bonds, Series ,990, ,000 20,325,000 (d) Revenue bonds, Series ,050, ,000 67,360,000 (e) IEPA Loan Payable L ,145, ,731 2,970,427 (f) IEPA Loan Payable L ,928-28, ,044 Unamortized debt discount (341,578) - (28,839) (312,739) Unamortized debt premium 8,191, ,393 7,929,033 Total $ 102,252,279 $ - $ 2,181, ,070,795 Less current principal maturities (2,686,143) Long-term debt, net of current principal maturities $ 97,384,

24 5. LONG-TERM DEBT (Continued) (a) $2,325,284; Loan from the State of Illinois Environmental Protection Agency (IEPA) Water Revolving Fund - Drinking Water Project; final payment due April 28, 2022; interest percent; principal and interest payable April 28 and October 28. This represents a subordinate lien obligation of the Water Fund. (b) $10,550,000; Water Revenue Bonds, Series 2004; initial principal payment due March 1, 2009; final payment was made March 1, 2014; interest 3.40 percent to 5.25 percent; interest payable March 1 and September 1; principal payable March 1; to be repaid by net revenue of Water Fund. (c) $22,140,000; Water Revenue Bonds, Series 2008; initial principal payment due March 1, 2011; final payment due March 1, 2032; interest 4.0 percent to 5.5 percent; interest payable March 1 and September 1; principal payable March 1; to be repaid by net revenue of Water Fund. (d) $68,050,000; Water Revenue Bonds, Series 2012; initial principal payment due March 1, 2013; final payment due March 1, 2037; interest 1.25 percent to 5 percent; interest payable March 1 and September 1; principal payable March 1; to be repaid by net revenue of Water Fund. (e) $4,532,613; ARRA Loan from the Illinois Environmental Protection Agency (IEPA) Water Revolving Fund, Drinking Water Project L ; $3,375,699 loan payable at 0 percent interest; initial principal payment paid November 3, 2011; final payment due November 3, This represents a subordinate lien obligation of the Water Fund. (f) $599,757; ARRA Loan from the Illinois Environmental Protection Agency (IEPA) Water Revolving Fund, Drinking Water Project L ; $433,253 loan payable at 0 percent interest; initial principal payment paid December 2, 2011; final payment due June 2, This represents a subordinate lien obligation of the Water Fund. Debt service requirements to maturity: Fiscal Year Revenue Revenue Loan Loan Ending Bonds Bonds Payable Payable February 29/28 Principal Interest Principal Interest Total 2016 $ 2,440,000 $ 4,041,250 $ 329,442 $ 26,730 $ 6,837, ,705,000 3,928, ,830 23,342 6,989, ,830,000 3,835, ,310 19,862 7,021, ,885,000 3,737, ,883 16,289 6,978, ,020,000 3,606, ,553 12,619 6,982, ,505,000 16,304,294 1,384,630 14,838 31,208, ,670,000 12,592, ,980-31,179, ,315,000 7,399, ,731-30,889, ,240,000 1,321, ,561,000 $85,610,000 $ 56,767,302 $ 4,158,359 $ 113,680 $146,649,

25 5. LONG-TERM DEBT (Continued) February Current principal maturities by issue: Revenue bonds, Series 2004 $ - $ 285,000 Revenue bonds, Series , ,000 Revenue bonds, Series ,720,000 1,380,000 IEPA loan payable, Series , ,528 IEPA loan payable ARRA Large Meter (L ) 28,884 28,884 IEPA loan payable ARRA Chemical Feed (L ) 174, ,731 $ 2,769,442 $ 2,686,143 On August 28, 2012, the City issued $ million in Water Revenue Bonds with interest rates of 1.25% to 5%. Proceeds of $ million were deposited into the 2012 Project fund to finance certain improvement expenditures associated with the City s water supply system and related facilities, and to pay the costs of issuance of the Series 2012 Bonds. Proceeds of $ million were deposited into the debt service reserve fund to fully fund the Debt Service Reserve Account created under the Bond Ordinance. Additional proceeds of $ million and a transfer from existing debt service reserve funds were deposited with the Escrow Trustee for a total of $ million available to refund the $4.6 million remainder of the 1997 Water Revenue Series Bonds and have a portion of the net proceeds deposited in an irrevocable trust with an escrow agent to provide for future debt service payments on the refunded portion of the 2004 Water Revenue Series bonds. As a result, $9.005 million of the 2004 Series bonds are considered to be defeased and the liability for those bonds has been removed from the Water Fund. The refunding of the 1997 and 2004 Water Revenue Series bonds yielded aggregate savings of $763,409 (net present value $250,854) and $960,555 (net present value $842,935) respectively for the two issues. The Water Fund recorded a net loss on refunding for the 1997 and 2004 Issues of $66,717 and $596,392, respectively. The bond ordinances for the 1997, 2004, 2008 and 2012 bond issues establish certain reserve accounts and restrict transactions of these accounts. A description of these accounts and a schedule of activity for the year ended February 28, 2015 and February 28, 2014, are as follows: 2004, 2008 and 2012 Bond and Interest Accounts: Established to pay bond principal and interest when due. Amounts are to be deposited monthly to accumulate at a rate equal to a fractional amount of the current portion of long-term debt due plus a fractional amount of the next semi-annual interest payment due. 2004, 2008 and 2012 Debt Service Reserve Accounts: Established to pay bond principal and interest if sufficient funds are not available from other sources. The amount on deposit in each reserve account is to equal the maximum aggregate interest payment for the related debt issuance. Deposit deficiencies shall be funded in equal installments over thirty-six consecutive months

26 5. LONG-TERM DEBT (Continued) Emergency Repair Account: Established to pay for emergency repairs and replacements and to pay bond principal and interest when no other funds are available. The amount on deposit is to be not less than $1,000,000 or such other amount as the City Council may determine based upon the recommendation of an independent consulting engineer. Deposit deficiencies shall be funded in equal installments within sixty consecutive months. Renewal, Replacement and Improvement Account: Established to pay the cost of extraordinary maintenance, necessary repairs, and replacements or contingencies; routine maintenance, but only when no other funds are available; improvements and extensions or acquisitions for the system, including equipment; and payment of principal and interest if sufficient funds are not available in the respective Bond and Interest Accounts. Monthly funding is required to be no less than one-twelfth of 15 percent of revenue for the preceding fiscal year less costs of chemicals and pumping expenses. However, monthly funding may fall to one-fifteenth of 15 percent as long as, at the end of each year, the deposits to the account total 15 percent of net revenue less costs for chemicals and pumping expenses. Rebate Fund Account: Established to account for funds required to be deposited in order for the interest paid on the Series 2004, 2008 and 2012 Bonds to remain taxexempt. Amounts are to be deposited on each anniversary date equal to the actuarial bond fund earnings for the year less allowable bond fund earnings which represent excess earnings on the gross funds for each computation period. Amounts on deposit must be paid to the U.S. Government on various anniversary dates Improvement Account: Established to account for unexpended proceeds from the Series 2008 Bonds to be used to finance certain improvements to the municipal waterworks system Improvement Account: Established to account for unexpended proceeds from the Series 2012 Bonds to be used to finance certain improvements to the municipal waterworks system

27 5. LONG-TERM DEBT (Continued) Various other agreements associated with the bond ordinances require the following: Additional revenue bonds can be issued if: 1. The debt service requirement after a new issuance is no greater than the amount set forth for each bond year prior to the bond issuance except for the last year, and that the debt service requirement after the new issuance is not greater than the average of all bond years (excluding the last) prior to the issuance as determined by an Officer s Certificate; 2. Estimated net revenues will be at least equal to 125 percent of Maximum Annual Debt Service on Outstanding Bonds as computed after the issuance of new bonds for each of the five fiscal years following the later of the date of delivery of new bonds or the last interest payment date for which interest on such bonds has been capitalized, as determined by an Officer s Certificate; or 3. The adjusted net revenue (all revenue of the system after deduction of the reasonable and necessary expenses of operation and maintenance, but before depreciation, interest expense, and amortization) during any twelve consecutive months within the eighteen months immediately preceding the issuance of new bonds shall be at least equal to 125 percent times the combined maximum annual debt service on the bonds then outstanding and the additional bonds to be issued, as determined by an Officer s Certificate. Subordinate Bonds may be issued for any lawful purpose of the City related to the System as determined by the City Council. Water charges are to be collected from the various City departments. The street and fire departments, however, may receive free water for street cleaning, sewer flushing and for use by the City s fire stations. Disposals of utility plant can only be of a routine operational nature. An annual operating budget for the Water Fund shall be adopted by the City. Investments, if any, are restricted as shown in the Deposits and Investments footnote (Note 4). Net revenue must equal or exceed the greater of 1.25 times principal and interest for each fiscal year, or 1.00 times principal and interest for each fiscal year plus amounts sufficient to meet reserve requirements. As of February 28, 2015, the City was in compliance with the debt covenants of the bond ordinances. Net revenue equaled 1.74 times principal and interest. As of February 28, 2014, the City was in compliance with the debt covenants of the bond ordinances. Net revenue equaled 2.15 times principal and interest

28 5. LONG-TERM DEBT (Continued) 2004 Bond 2008 Bond 2012 Bond And Interest and Interest and Interest Account Account Account Cash and cash equivalents and investments- February 28, 2013 reserve accounts $ 281,893 $ 1,187,066 $ 2,294,278 Add (deduct) Compliance deposits 297,500 1,712,214 4,521,534 Interest income Bond and interest payments (288,143) (1,695,675) (3,865,072) Transfers from (to) unrestricted accounts Transfers from (to) restricted accounts Insurance proceeds ,382 16, ,711 Associated premium/discount Adjustment to fair market value Cash and cash equivalents and investments- February 28, 2014 reserve accounts 291,275 1,203,709 2,950,989 Add (deduct) Compliance deposits - 1,709,491 4,820,255 Interest income Bond and interest payments (291,270) (1,698,475) (4,501,175) Transfers from (to) unrestricted accounts (5) - - Transfers from (to) restricted accounts Insurance proceeds (291,275) 11, ,279 Associated premium/discount Adjustment to fair market value Cash and cash equivalents and investments- February 28, 2015 reserve accounts $ - $ 1,214,799 $ 3,270,

29 5. LONG-TERM DEBT (Continued) 2004 Debt 2008 Debt 2012 Debt Service Reserve Service Reserve Service Reserve Account Account Account Cash and cash equivalents and investments- February 28, 2013 reserve accounts $ 288,789 $ 548,123 $ 1,604,910 Add (deduct) Compliance deposits Interest income ,152 Bond and interest payments Transfers from (to) unrestricted accounts Transfers from (to) restricted accounts Insurance proceeds ,152 Associated premium/discount - - (946) Adjustment to fair market value (791) Cash and cash equivalents and investments- February 28, 2014 reserve accounts 288, ,256 1,605,271 Add (deduct) Compliance deposits Interest income ,578 Bond and interest payments Transfers from (to) unrestricted accounts (288,861) - - Transfers from (to) restricted accounts ,373 Insurance proceeds (288,859) 73 21,951 Associated premium/discount Adjustment to fair market value Cash and cash equivalents and investments- February 28, 2015 reserve accounts $ - $ 548,329 $ 1,627,

30 5. LONG-TERM DEBT (Continued) Renewal Emergency Replacement & Water Repair Improvement Rebate Account Account Account Cash and cash equivalents and investments- February 28, 2013 reserve accounts $ 1,004,145 $ 3,291,590 $ 7,198 Add (deduct) Compliance deposits - 4,237,592 - Interest income 244 1,034 2 Bond and interest payments Transfers from (to) unrestricted accounts - (3,523,678) - Transfers from (to) restricted accounts Insurance proceeds - 87, ,553 2 Associated premium/discount Adjustment to fair market value Cash and cash equivalents and investments- February 28, 2014 reserve accounts 1,004,389 4,094,143 7,200 Add (deduct) Compliance deposits - 4,130,010 - Interest income Bond and interest payments Transfers from (to) unrestricted accounts - (2,801,943) - Transfers from (to) restricted accounts Insurance proceeds ,328,730 1 Associated premium/discount Adjustment to fair market value Cash and cash equivalents and investments- February 28, 2015 reserve accounts $ 1,004,523 $ 5,422,873 $ 7,

31 5. LONG-TERM DEBT (Continued) 2008 Water 2012 Water Improvement Improvement Total Cash and cash equivalents and investments- February 28, 2013 reserve accounts $ 2,354,736 $ 61,534,466 $ 74,397,194 Add (deduct) Compliance deposits ,768,840 Interest income ,565 16,728 Bond and interest payments - - (5,848,890) Transfers from (to) unrestricted accounts (2,354,886) (21,422,008) (27,300,572) Transfers from (to) restricted accounts Insurance proceeds ,605 (2,354,736) (21,408,443) (22,276,289) Associated premium/discount - - (946) Adjustment to fair market value (791) Cash and cash equivalents and investments- February 28, 2014 reserve accounts - 40,126,023 52,120,114 Add (deduct) Compliance deposits ,659,756 Interest income - 3,964 7,688 Bond and interest payments - - (6,490,920) Transfers from (to) unrestricted accounts - (16,653,434) (19,744,243) Transfers from (to) restricted accounts ,373 Insurance proceeds (16,649,470) (15,548,346) Associated premium/discount Adjustment to fair market value Cash and cash equivalents and investments- February 28, 2015 reserve accounts $ - $ 23,476,553 36,571,900 Lake improvement account* 152,015 Unrestricted portion 2012 Improvement Funds (499,061) Accrued interest receivable 358 Total restricted accounts $ 36,225,212 * Not related to long-term debt reserve accounts For the year ended February 28, 2014, the reconciliation of the reserve account to the restricted account was as follows: Cash and cash equivalents and investments February 28, 2014 $ 52,120,114 Lake improvement account* 151,996 Unrestricted portion 2012 Improvement Funds (3,980,451) Accrued interest receivable 358 Total restricted accounts $ 48,292,017 * Not related to long-term debt reserve accounts