D.A. DAVIDSON & CO..

Transcription

1 NEW ISSUE BOOK-ENTRY OFFICIAL STATEMENT dated May 5, 2015 BANK QUALIFIED STANDARD & POOR S RATING: AA+ (See RATING herein.) In the opinion of Bond Counsel, under existing federal law and assuming compliance with applicable requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issue date of the Bonds, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax applicable to individuals. However, while interest on the Bonds also is not an item of tax preference for purposes of the alternative minimum tax applicable to corporations, interest on the Bonds received by corporations is taken into account in the computation of adjusted current earnings for purposes of the alternative minimum tax applicable to corporations, interest on the Bonds received by certain S corporations may be subject to tax, and interest on the Bonds received by foreign corporations with United States branches may be subject to a foreign branch profits tax. Receipt of interest on the Bonds may have other federal tax consequences for certain taxpayers. (See TAX MATTERS herein.) $4,885,000 MUKILTEO WATER AND WASTEWATER DISTRICT SNOHOMISH COUNTY, WASHINGTON WATER AND WASTEWATER REVENUE REFUNDING BONDS, 2015 DATED: Date of Delivery (Estimated to be May 21, 2015) DUE: October 1, as shown on the inside cover Mukilteo Water and Wastewater District, Snohomish County, Washington (the District ) provides this Official Statement in connection with the issuance of its Water and Wastewater Revenue Refunding Bonds, 2015 (the Bonds ). The Bonds will be issued as fully registered bonds under a book-entry only system, initially registered to Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York, which will act as initial securities depository for the Bonds (the Securities Depository ). Individual purchases of Bonds will be made in the principal amount of $5,000, or integral multiples thereof within a single maturity. The purchasers of the Bonds ( Beneficial Owners ) will not receive certificates representing their beneficial interest in the Bonds purchased, as long as the Bonds are in book-entry form. The Washington State fiscal agent, currently U.S. Bank National Association, will serve as registrar, paying agent and transfer agent for the Bonds (the Bond Registrar ). Interest on the Bonds will be payable semi-annually on October 1 and April 1, commencing October 1, 2015, to the maturity or prior redemption of the Bonds. The Bonds will mature on the dates and in the amounts and bear interest at the rates set forth on the inside cover. For so long as the Bonds are held in book-entry form, principal and interest payments will be paid by the Bond Registrar to the Securities Depository, which in turn is obligated to remit such payments to its broker-dealer participants for subsequent disbursement to the Beneficial Owners. (See THE BONDS Bond Registration and Book- Entry Only System AND APPENDIX F BOOK-ENTRY ONLY SYSTEM herein.) The Bonds are subject to redemption prior to their stated maturity dates as further described herein. (See THE BONDS Redemption Provisions and Purchase herein.) The Bonds are special obligations of the District payable solely from the Net Revenue of the District s water system and wastewater system and ULID Assessments. The Net Revenue and ULID Assessments are irrevocably pledged to the payment of the Parity Bonds, and the Parity Bonds constitute a lien and charge upon the Net Revenue and ULID Assessments prior and superior to any other charges whatsoever. The Bonds are payable solely out of the Bond Fund and do not constitute a debt or indebtedness of Snohomish County (the County ), the State of Washington (the State ) or any political subdivision thereof other than the District. Neither the full faith and credit nor the taxing power of the District, the County or the State are pledged to the payment of the Bonds. (See SECURITY herein.) The proceeds of the Bonds will be used to advance refund a portion of the District s outstanding Water and Wastewater Improvement and Refunding Revenue Bonds, 2008 and pay the costs related to the issuance and sale of the Bonds. (See THE BONDS Purpose and Use of Proceeds herein.) The District has designated the Bonds as qualified tax-exempt obligations for banks, thrift institutions and other financial institutions. (See TAX MATTERS Certain Other Federal Tax Consequences herein.) The Bonds are offered by the Underwriter when, as and if issued by the District, subject to the approving legal opinion of Foster Pepper PLLC, Seattle, Washington, Bond Counsel, which opinion will be delivered with the Bonds. The Bonds, in book-entry form, are expected to be available for delivery through the facilities of DTC for delivery by FAST automated securities transfer on or about May 21, 2015 (the Date of Delivery ). 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 making an informed investment decision. D.A. DAVIDSON & CO..

2 $4,885,000 MUKILTEO WATER AND WASTEWATER DISTRICT SNOHOMISH COUNTY, WASHINGTON WATER AND WASTEWATER REVENUE REFUNDING BONDS, 2015 MATURITY SCHEDULE DATED: Date of Delivery (Expected to be May 21, 2015) DUE: October 1, as shown below Year Amount Interest Rate Yield Price (% of Par) CUSIP No $425, % 1.550% % 62503PBK , PBL , PBM , PBN , PBP , PBQ , PBR , PBS , PBT2 $485, % Term Bonds due October 1, a price of %, yield 1.390%; CUSIP No PBJ4 1 1 The CUSIP numbers are included for convenience of the holders and potential holders of the Bonds. CUSIP is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by Standard & Poor s. The CUSIP numbers are not intended to create a database and do not serve in any way as a substitute for CUSIP service. No assurance can be given that the CUSIP numbers for the Bonds will remain the same after the date of issuance and delivery of the Bonds. Neither the District nor the 2 Underwriter takes any responsibility for the accuracy of the CUSIP numbers. Priced to the call date of October 1, 2025

3 MUKILTEO WATER AND WASTEWATER DISTRICT SNOHOMISH COUNTY, WASHINGTON 7824 Mukilteo Speedway Mukilteo, Washington (425) Certain District Officials: Board of District Commissioners... Mike Johnson, President Thomas McGrath, Vice President Thomas Rainville, Secretary General Manager... Jim Voetberg Finance Manager... Sue Parks Financial/Accounting Supervisor... Bev Templin Operations/Engineering Manager... Rick Matthews Certain Snohomish County Officials: Assessor... Cindy Portmann Treasurer and ex officio Treasurer of the District... Kirke Sievers Bond Counsel FOSTER PEPPER PLLC Seattle, Washington Underwriter D. A. DAVIDSON & CO. Seattle, Washington Bond Registrar Washington State Fiscal Agent currently, U.S. BANK NATIONAL ASSOCIATION Seattle. Washington 1 Neither the information on the District s website nor any links from that website is a part of this Official Statement, and such information cannot be relied upon to be accurate as of the date of this Official Statement, nor should any such information be relied upon to make investment decisions regarding the Bonds. i

4 No dealer, broker, salesman or other person has been authorized by the District or the Underwriter to give any information or to make any representations, in connection with the offering of the Bonds, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the District or the Underwriter. The information in this Official Statement was obtained from official and other sources the District considers to be reliable and, while not guaranteed as to accuracy, is believed by the District to be correct as of its date. The District makes no representation regarding the accuracy or completeness of the information in APPENDIX F BOOK-ENTRY ONLY SYSTEM, which has been obtained from DTC s website, or regarding the Underwriter. 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 by use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof. 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 a part of, its responsibilities 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 the information. The descriptions of the Bonds and the Bond Resolution (defined herein) and all references to other documents or materials not claiming to be quoted in full are only brief outlines of some of the provisions and do not claim to summarize or describe all provisions. Copies of such documents may be obtained from the District or the Underwriter. The Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Bond Resolution has not been qualified under the Trust Indenture Act of 1939, as amended. The Bonds have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary may be a criminal offense. In connection with the offering and issuance of the Bonds, the Underwriter may over-allot or effect transactions that stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time without prior notice to any person. Certain statements contained in this Official Statement reflect not historical facts but forecasts and forwardlooking statements. No assurance can be given that the future results discussed herein will be achieved, and actual results may differ materially from the forecasts described herein. In this respect, the words estimate, project, anticipate, expect, intend, forecast, and believe and similar expressions are intended to identify forward-looking statements. All projections, forecasts, assumptions and other forward-looking statements are expressly qualified in their entirety by the cautionary statements set forth in this Official Statement. These forward-looking statements speak only as of the date they were prepared. The District specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of this Official Statement, except as otherwise expressly provided in COMMITMENT TO PROVIDE CONTINUING DISCLOSURE and APPENDIX B CONTINUING DISCLOSURE. ii

5 TABLE OF CONTENTS SUMMARY STATEMENT... 1 INTRODUCTION... 2 THE BONDS... 2 Description of Bonds... 2 Authorization... 2 Payment of Bonds... 3 Bond Registration and Book-Entry Only System... 3 Redemption Provisions and Purchase... 3 Failure to Pay Bonds... 5 Defeasance... 5 PURPOSE AND USE OF PROCEEDS... 6 Refunding Plan... 6 SECURITY... 7 Pledge of Net Revenue and ULID Assessments... 7 Bond Fund and Accounts... 8 Flow of Funds... 9 Bond Covenants Future Parity Bonds UTILITY LOCAL IMPROVEMENT DISTRICTS General Description Lien of Assessments Impact of State Homestead Exemption District ULIDs THE SYSTEM The Water System Water Rates and Charges Major Water Accounts The Wastewater System Wastewater Treatment Facility Wastewater Rates and Charges Wastewater Flow Major Wastewater Accounts Interlocal Agreements Billing and Collection Process Rate Comparison SYSTEM DEBT AND OPERATING RESULTS Historical Operating Results Management Discussion and Analysis Parity Bonds Junior Lien Obligations Debt Payment Record District s Future Borrowing Plans Balances in Water System Funds THE DISTRICT Form of Local Government iii

6 Employment and District Administration Pension Plans Risk Management Financial Information Authorized Investments District Investments CERTAIN INVESTMENT CONSIDERATIONS Special Obligations of the District No Acceleration Limitations on Remedies Municipal Bankruptcies Seismic and Other Considerations APPROVAL OF BOND COUNSEL TAX MATTERS Certain Other Federal Tax Consequences LITIGATION UNDERWRITING RATING CONFLICTS OF INTEREST COMMITMENT TO PROVIDE CONTINUING DISCLOSURE ADDITIONAL INFORMATION AND MISCELLANEOUS DISCLOSURE STATEMENT APPROVAL OF OFFICIAL STATEMENT APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION... A-1 APPENDIX B CONTINUING DISCLOSURE... B-1 APPENDIX C FORM OF LEGAL OPINION... C-1 APPENDIX D AUDITED FINANCIAL STATEMENTS D-1 APPENDIX E CERTAIN DEFINITIONS... E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM... F-1 iv

7 $4,885,000 MUKILTEO WATER AND WASTEWATER DISTRICT SNOHOMISH COUNTY, WASHINGTON WATER AND WASTEWATER REVENUE REFUNDING BONDS, 2015 SUMMARY STATEMENT The following summary is qualified in its entirety by reference to the detailed information appearing elsewhere in this Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or to otherwise use it without this entire Official Statement. See APPENDIX E for the definitions of certain capitalized terms. ISSUER... Mukilteo Water and Wastewater District (the District ) is a municipal corporation organized under the laws of the State of Washington. The District is located in Snohomish County (the County ), in the City of Mukilteo. The District has a population of approximately 29,832 people, as estimated by the District. (See THE DISTRICT and APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION herein.) INTEREST AND PRIOR REDEMPTION... Interest on the Bonds is payable semi-annually each October 1 and April 1, commencing October 1, 2015, at the rates shown on the inside cover. (See THE BONDS Description of the Bonds herein.) The Bonds are subject to optional redemption prior to their stated maturities as described herein. Term Bonds, if any, will be subject to mandatory redemption as described herein. (See THE BONDS Redemption Provisions and Purchase herein.) AUTHORITY FOR ISSUANCE... The Bonds will be issued in accordance with the provisions of the Constitution and the laws of the State of Washington and pursuant to Resolution No of the District, adopted on April 13, 2015 (the Bond Resolution ). (See THE BONDS Authorization herein.) SOURCE OF REPAYMENT... The Bonds are special obligations of the District, payable solely from the Net Revenue of the District s water system and wastewater system and ULID Assessments. The Net Revenue and ULID Assessments are irrevocably pledged to the payment of the Parity Bonds, and the Parity Bonds constitute a lien and charge upon the Net Revenue and ULID Assessments prior and superior to any other charges whatsoever. The Bonds are payable solely out of the Bond Fund and do not constitute debt or indebtedness of the County, the State or any other political subdivision thereof other than the District. Neither the full faith and credit nor the taxing power of the District, the County or the State are pledged to the payment of the Bonds. (See SECURITY herein.) USE OF PROCEEDS... The proceeds of the Bonds will be used to advance refund a portion of the District s outstanding Water and Wastewater Improvement and Refunding Revenue Bonds, 2008 and pay the costs related to the issuance and sale of the Bonds. (See PURPOSE AND USE OF PROCEEDS herein.) 1

8 OFFICIAL STATEMENT $4,885,000 MUKILTEO WATER AND WASTEWATER DISTRICT SNOHOMISH COUNTY, WASHINGTON WATER AND WASTEWATER REVENUE REFUNDING BONDS, 2015 INTRODUCTION Mukilteo Water and Wastewater District, Snohomish County, Washington (the District ), a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington (the State ), furnishes this Official Statement in connection with the offering of $4,885,000 principal amount of Water and Wastewater Revenue Refunding Bonds, 2015 (the Bonds ). This Official Statement, which includes the cover page, inside cover page and appendices, provides information concerning the District, its water system and wastewater system (as further defined in the Bond Resolution, the System ) and the Bonds. Certain capitalized terms not otherwise defined herein are defined as provided in the Bond Resolution (defined herein), which definitions are included in APPENDIX E. Description of Bonds THE BONDS The Bonds will be issued in fully registered form, will be in the denomination of $5,000 each or any integral multiple within a single maturity ( Authorized Denominations ) and will be dated their Date of Delivery, expected to be May 21, The Bonds will mature on October 1 in the years and amounts set forth on the inside cover. The Washington State fiscal agent, currently U.S. Bank National Association, will serve as registrar, paying agent and transfer agent for the Bonds (the Bond Registrar ). The Bonds will bear interest from their Date of Delivery, or the most recent interest payment date to which interest has been paid or duly provided for, whichever is later, at the rates per annum set forth on the inside cover. Interest will be calculated on the basis of a 360-day year consisting of twelve 30-day months, and will be payable semi-annually on October 1 and April 1, commencing October 1, 2015, to the maturity or prior redemption of the Bonds. For so long as the Bonds are held by DTC in book-entry form, principal and interest payments will be made as described below under Bond Registration and Book-Entry Only System and in APPENDIX F BOOK-ENTRY ONLY SYSTEM. Authorization The Bonds will be issued pursuant to the provisions of the Constitution and applicable laws of the State and pursuant to Resolution No adopted by the District s Board of Commissioners on April 13, 2015 (the Bond Resolution ). 2

9 Payment of Bonds Principal of and interest on the Bonds are payable in lawful money of the United States of America. For as long as a Bond is registered in the name of the Securities Depository, payment of principal of and interest on that Bond will be made in accordance with the operational arrangements between the District and the Securities Depository (the Letter of Representations ). If a Bond ceases to be in book-entry form, interest on that Bond will be paid by electronic transfer on the interest payment date, or by check or draft of the Bond Registrar mailed on the interest payment date to the Registered Owner at the address appearing on the Bond Register as of the Record Date. However, the District is not required to make electronic transfers except pursuant to a request by a Registered Owner in writing received on or prior to the Record Date and at the sole expense of the requesting Registered Owner. Principal of each Bond not registered in the name of the Securities Depository is payable upon presentation and surrender of the Bond by the Registered Owner to the Bond Registrar. Bond Registration and Book-Entry Only System The Bonds initially shall be registered in the name of Cede & Co., as the nominee of DTC, acting as initial Securities Depository. Bonds so registered shall be held fully immobilized in book-entry form by DTC in accordance with the provisions of the Letter of Representations. Registered ownership of any Bond (or portion of a Bond) held in book-entry form may not be transferred except: (i) to any successor Securities Depository; (ii) to any substitute Securities Depository appointed by the District or such substitute Securities Depository s successor; or (iii) to any person if the Bond is no longer held in bookentry form. Upon the resignation of the Securities Depository from its functions as depository, or upon a termination of the services of the Securities Depository by the District, the District may appoint a substitute Securities Depository. If (i) a Securities Depository resigns from its functions as depository, and the District does not appoint a substitute Securities Depository, or (ii) the District terminates the services of the Securities Depository, the Bonds no longer will be held in book-entry form and the registered ownership of each Bond may be transferred to any person as provided in the Bond Resolution. (Also see APPENDIX F BOOK-ENTRY ONLY SYSTEM herein.) Neither the District nor the Bond Registrar have any obligation to participants of any Securities Depository or the persons for whom they act as nominees regarding the accuracy of any records maintained by the Securities Depository or its participants. Neither the District nor the Bond Registrar will be responsible for any notice which is permitted or required to be given to a Registered Owner except such notice as is required to be given by the Bond Registrar to the Securities Depository. Redemption Provisions and Purchase Optional Redemption. The Bonds stated to mature in the years 2019 through 2025, inclusive, are not subject to optional redemption prior to maturity. The Bonds stated to mature on or after October 1, 2026, are subject to redemption prior to their stated maturity dates, at any time on or after October 1, 2025, as a whole or in part, at a redemption price equal to 100 percent of the principal amount thereof, without premium, plus accrued interest to the date fixed for redemption. 3

10 Mandatory Sinking Fund Redemption. The Bonds stated to mature in 2019 are Term Bonds and, if not previously redeemed under the optional redemption provisions or purchased in the open market, are to be called for redemption at a redemption price equal to 100 percent of the principal amount thereof, without premium, plus accrued interest to the date fixed for redemption, on the dates and in the principal amount set forth below. 1 Maturity Term Bonds Date (Oct. 1) Redemption Amount 2015 $ 35, , , , ,000 Total $485,000 If a Term Bond is redeemed under the optional redemption provisions, defeased or purchased by the District and surrendered for cancellation, the principal amount of the Term Bond so redeemed, defeased or purchased (irrespective of its actual redemption or purchase price) shall be credited against one or more scheduled mandatory redemption installments for that Term Bond. The District shall determine the manner in which the credit is to be allocated. Selection of Bonds for Redemption; Partial Redemption. If fewer than all of the outstanding Bonds are to be redeemed at the option of the District, the District shall select the maturities to be redeemed. If fewer than all of the outstanding Bonds of a maturity are to be redeemed, the Securities Depository shall select Bonds registered in the name of the Securities Depository to be redeemed in accordance with the Letter of Representations, and the Bond Registrar shall select all other Bonds to be redeemed randomly in any manner as the Bond Registrar shall determine. All or a portion of the principal amount of any Bond that is to be redeemed may be redeemed in any Authorized Denomination. If less than all of the outstanding principal amount of any Bond is redeemed, upon surrender of that Bond to the Bond Registrar, there shall be issued to the Registered Owner, without charge, a new Bond (or Bonds, at the option of the Registered Owner) of the same maturity and interest rate in any Authorized Denomination in the aggregate principal amount to remain outstanding. Notice of Redemption. Notice of redemption of each Bond registered in the name of the Securities Depository shall be given in accordance with the Letter of Representations. Notice of redemption of each other Bond, unless waived by the Registered Owner, shall be given by the Bond Registrar not less than 20 nor more than 60 days prior to the date fixed for redemption by first-class mail, postage prepaid, to the Registered Owner at the address appearing on the Bond Register on the Record Date. The requirements of the preceding sentence shall be satisfied when notice has been mailed as so provided, whether or not it is actually received by any owner. Rescission of Optional Redemption Notice. In the case of an optional redemption, the notice of redemption may state that the District retains the right to rescind the redemption notice and the redemption by giving a notice of rescission to the affected Registered Owners at any time on or prior to the date fixed for redemption. Any notice of optional redemption that is so rescinded shall be of no effect, and each Bond for which a notice of redemption has been so rescinded shall remain outstanding. 4

11 Effect of Redemption. Interest on each Bond called for redemption shall cease to accrue on the date fixed for redemption, unless either the notice of optional redemption has been rescinded as described above, or money sufficient to effect the redemption is not on deposit in the Bond Fund or in a trust account established to refund or defease the Bond. Purchase. The District reserves the right and option to purchase any or all of the Bonds on the open market or offered to the District at any time at any price acceptable to the District plus accrued interest to the date of purchase. All Bonds so purchased will be canceled. Failure to Pay Bonds If the principal of any Bond is not paid when the Bond is properly presented at its maturity or redemption date, the District will be obligated to pay interest on that Bond at the same rate provided in the Bond from and after its maturity or redemption date until that Bond, both principal and interest, is paid in full or until sufficient money for its payment in full is on deposit in the Bond Fund, or in a trust account established to refund or defease the Bond, and the Bond has been called for payment by giving notice of that call to the Registered Owner. Defeasance The District may issue refunding bonds pursuant to State law or use money available from any other lawful source to carry out a refunding or defeasance plan, which may include (a) paying when due the principal of and interest on any or all of the Bonds (the defeased Bonds ); (b) redeeming the defeased Bonds prior to their maturity; and (c) paying the costs of the refunding or defeasance. If the District sets aside in a special trust fund or escrow account irrevocably pledged to that redemption or defeasance (the trust account ), money and/or Government Obligations maturing at a time or times and bearing interest in amounts sufficient to redeem, refund or defease the defeased Bonds in accordance with their terms, then all right and interest of the Owners of the defeased Bonds in the covenants of the Bond Resolution and in the funds and accounts obligated to the payment of the defeased Bonds will cease and become void. Thereafter, the Registered Owners of defeased Bonds will have the right to receive payment of the principal of and interest on the defeased Bonds solely from the trust account and the defeased Bonds will be deemed no longer outstanding. The term Government Obligations has the meaning given in RCW , as now in effect or as may hereafter be amended, currently: (1) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America and bank certificates of deposit secured by such obligations; (2) bonds, debentures, notes, participation certificates, or other obligations issued by the Banks for Cooperatives, the Federal Intermediate Credit Bank, the Federal Home Loan Bank system, the Export-Import Bank of the United States, Federal Land Banks, or the Federal National Mortgage Association; (3) public housing bonds and project notes fully secured by contracts with the United States; and (4) obligations of financial institutions insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, to the extent insured or to the extent guaranteed as permitted under any other provision of State law. 5

12 PURPOSE AND USE OF PROCEEDS The proceeds of the Bonds will be used to advance refund a portion of the District s outstanding Water and Wastewater Improvement and Refunding Revenue Bonds, 2008 (the 2008 Bonds ) and pay the costs related to the issuance and sale of the Bonds. Refunding Plan The Bond proceeds will be used to provide money to establish an irrevocable escrow to call, pay and redeem on October 1, 2018, the 2008 Bonds outstanding in the aggregate principal amount of $4,870,000 and scheduled to mature on October 1 in the years 2019 through 2023, inclusive, and 2028 (the Refunded Bonds ) at a price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption (the Refunding Plan ). From the proceeds of the Bonds, the District will purchase certain non-callable direct obligations of the United States (the Acquired Obligations ). The Acquired Obligations, together with additional proceeds of the Bonds, if necessary, and other money of the District available in the Principal and Interest Account of the Bond Fund, if any, will be deposited in the custody of U.S. Bank National Association, Seattle, Washington (the Refunding Trustee ). The maturing principal of the Acquired Obligations, interest earned thereon, and necessary cash balance, if any, will be used to accomplish the Refunding Plan. The Acquired Obligations, interest earned thereon, and necessary cash balance, if any, will be irrevocably pledged to and held in trust for the benefit of the owners of the Refunded Bonds by the Refunding Trustee, pursuant to a refunding trust agreement to be executed by the District and the Refunding Trustee. Information on the Refunded Bonds is as follows: Amount Refunded Amount Redemption Redemption Issue Outstanding Maturities Refunded Date (Call) Price 2008 Bonds $6,590, & $4,870,000 10/01/18 100% Refunded Bonds Payment Date (Oct. 1) Principal Amount Interest Rates CUSIP No $ 400, % 62503PAL , PAM , PAN , PAP , PAQ ,690, PAR7 Total $4,870,000 1 Represents the new money portion of each maturity. The refunding portion of each maturity will remain outstanding. 2 Term Bond. 6

13 Sources and Uses. The sources and uses of Bond proceeds are shown in the table that follows. Sources of Funds: Principal Amount of the Bonds... $4,885, Original Issue Premium , Total Sources of Funds... $5,495, Uses of Funds: Deposit to Escrow Account... $5,416, Costs of Issuance of the Bonds , Deposit to Debt Service Fund... 1, Total Uses of Funds... $5,495, Includes Bond Counsel fees, Underwriter s Discount, Refunding Trustee fee, CPA verification fee, rating agency fees and other related fees and expenses. Verification of Mathematical Calculations. Grant Thornton LLP, independent certified public accountants, will verify the accuracy of the mathematical computations concerning the adequacy of the maturing principal amounts of and interest earned on the Acquired Obligations to be placed together with other escrowed money in the escrow account to pay when due, pursuant to the call for redemption, the principal of and interest on the Refunded Bonds. The verification will also confirm the mathematical computations supporting the conclusion of Bond Counsel that the Bonds are not arbitrage bonds as defined by Section 148 of the Code. Pledge of Net Revenue and ULID Assessments SECURITY The Bonds are special revenue obligations of the District, payable solely from the Net Revenue and ULID Assessments. The District has irrevocably pledged to deposit Net Revenue and ULID Assessments into the Bond Fund for payment of the interest on and principal of the Parity Bonds. Such pledge constitutes a lien and charge upon the Net Revenue and ULID Assessments prior and superior to any other charge whatsoever. ULID Assessments means all assessments levied and collected in any utility local improvement district ( ULID ) of the District created for the acquisition or construction of additions to and extensions or betterments of the System, if such assessments are pledged to be paid into the Bond Fund, not including any prepaid assessments permitted by law to be paid into a construction fund or account. The definitions of Net Revenue and certain other capitalized terms, as set forth in the Bond Resolution, are provided in Appendix E. The Bonds are special revenue obligations of the District payable solely out of the Bond Fund, and are not an obligation of the County, the State, or any political subdivision thereof other than the District. Neither the full faith and credit nor the taxing power of the District, the County, the State or any other political subdivision thereof are pledged to the payment of the Bonds. 7

14 The District has reserved the right to issue additional bonds ( Future Parity Bonds ) on a parity of lien with the Bonds and the outstanding 2008 Bonds and 2012 Bonds if and only if the Parity Conditions are met. (See SYSTEM DEBT AND OPERATING RESULTS Parity Bonds and SECURITY Future Parity Bonds herein.) The Bonds, the outstanding 2008 Bonds and 2012 Bonds, and the Future Parity Bonds, if any, are collectively referred to herein as the Parity Bonds. Nothing in the Bond Resolution prevents the District from issuing revenue bonds that are a charge or lien upon the Net Revenue subordinate to the charge or lien of the Parity Bonds. (See SECURITY Future Parity Bonds herein.) Bond Fund and Accounts Bond Fund. A special fund of the District known as the Water and Wastewater Revenue Bond Fund (the Bond Fund ) has been previously established in the office of the District Treasurer and divided into two accounts: the Principal and Interest Account and the Reserve Account. So long as any Parity Bonds are outstanding, the District is required to set aside and pay into the Bond Fund all ULID Assessments on their collection and, out of the Net Revenue, certain fixed amounts without regard to any fixed proportion, namely: a) Into the Principal and Interest Account on or before each interest or principal and interest payment date of any Parity Bonds, at least an amount which, together with other money on deposit therein, will be sufficient to pay the interest, or principal and interest, to become due and payable on the Parity Bonds on that payment date, including any Parity Bonds subject to mandatory redemption on that date, and net payments due on Parity Payment Agreements; and b) Into the Reserve Account, in approximately equal annual payments, amounts necessary to fund the Reserve Requirement within five years from the date of issuance of such Parity Bonds after taking into account the capitalization of all or any part of the Reserve Requirement. Except for withdrawals therefrom and payments over time as authorized in the Bond Resolution, the Reserve Account is required to be maintained at the Reserve Requirement, as it is adjusted from time to time, at all times so long as any Parity Bonds are outstanding. For the purpose of determining the amount credited to the Reserve Account, obligations in which money in the Reserve Account has been invested are to be valued at market value. If there shall be a deficiency in the Principal and Interest Account to make payments of principal or mandatory redemption requirements of or interest on the Parity Bonds when due, the deficiency shall be made up from the Reserve Account, first, by the withdrawal of cash therefrom and second, by pro rata draws on each Reserve Insurance. Any deficiency created in the Reserve Account by reason of any such withdrawal or draw is to be made up within 12 months from Net Revenue and ULID Assessments available after making necessary provisions for the required payments into the Principal and Interest Account. Upon issuance of the Bonds, the Reserve Requirement will be $865, When the total amount in the Bond Fund equals the total amount of principal and interest due on all Parity Bonds then outstanding to the last maturity thereof, no further payment need be made into the Bond Fund, and the money in the Reserve Account may be applied to the payment of the last outstanding Parity Bonds. 8

15 Any money in the Reserve Account in excess of the Reserve Requirement may be withdrawn and deposited in the Principal and Interest Account and spent for the purpose of retiring Parity Bonds or may be deposited in any other fund or account and spent for any other lawful District purpose. The District may provide for the purchase, redemption or defeasance of any Parity Bonds by the use of money on deposit in any account in the Bond Fund so long as the money remaining in the accounts in the Bond Fund is sufficient to satisfy the required deposits in those accounts for the Parity Bonds remaining outstanding. Money in the Bond Fund may be kept in cash or invested in legal investments maturing, for investments in the Principal and Interest Account, not later than the dates when the funds are required for the payment of principal of or interest on the Parity Bonds and, for investments in the Reserve Account, maturing (or subject to redemption, or repurchase and redemption, at the option of the District) on a date not later than 15 years from the date of investment. The District may provide all or any part of the Reserve Requirement through Reserve Insurance, and the amount available to be drawn on Reserve Insurance shall be credited against the Reserve Requirement. If the District provides for all or any part of the Reserve Requirement through Reserve Insurance, excess amounts in the Reserve Account may be withdrawn and deposited in the Principal and Interest Account, subject to applicable State law and the Bond Resolution. Rate Stabilization Fund. There has been established in the office of the District Treasurer a Rate Stabilization Fund of the District. The District may at any time, as determined by the District and as consistent with the Bond Resolution, deposit in the Rate Stabilization Fund Gross Revenue and any other money received by the System and available to be used therefor, excluding principal proceeds of any Future Parity Bonds or other borrowing. The District may, upon authorization by resolution, at any time withdraw money from the Rate Stabilization Fund for inclusion in Net Revenue for the current fiscal year of the System, except that the total amount withdrawn from the Rate Stabilization Fund in any fiscal year of the System may not exceed the Annual Debt Service in that year. Such deposits or withdrawals may also be made up to and including the date 180 days after the end of the fiscal year for which the deposit or withdrawal will be included as Net Revenue for that fiscal year. No deposit of Gross Revenue shall be made into the Rate Stabilization Fund to the extent that the deposit would prevent the District from meeting the Coverage Requirement in the relevant fiscal year. Flow of Funds The District has covenanted in the Bond Resolution that all ULID Assessments will be paid into the Bond Fund. The Gross Revenue shall be used for the following purposes only and shall be applied in the following order of priority: a) To pay the Operation and Maintenance Expenses; b) To pay interest on Parity Bonds and net payments on Parity Payment Agreements when due; c) To pay the principal of Parity Bonds as it comes due at maturity or as the principal is required to be paid pursuant to mandatory redemption requirements applicable to Term Bonds, and to make the payments due under any reimbursement agreement with a bond insurer which agreement requires those payments to be treated on a parity of lien with the Parity Bonds; 9

16 d) To make all payments required to be made into the Reserve Account, all payments required to be made under any agreement relating to the provision of Reserve Insurance, and payments due under any reimbursement agreement with a bond insurer which agreement requires those payments to be treated on a parity of lien with the payments required to be made into the Reserve Account; e) To make all payments required to be made into any revenue bond, note, warrant or other revenue obligation redemption fund, debt service account or reserve account created to pay or secure the payment of the principal of and interest on any revenue bonds, notes, warrants or other obligations of the District secured by a lien or charge on Net Revenue subordinate to the lien and charge that secure the Parity Bonds; and f) To retire by redemption or purchase in the open market any outstanding revenue bonds or other revenue obligations of the System, to make necessary additional betterments, improvements and repairs to or extensions and replacements of the System, or for any other lawful System purposes. The District may transfer any money from any funds or accounts of the System legally available therefor, except bond redemption funds, refunding escrow funds or defeasance funds, to meet the required payments to be made into the Bond Fund. Bond Covenants The District has covenanted in the Bond Resolution with the Registered Owner of each Bond at any time outstanding, as follows: a) Operation and Maintenance. It will at all times maintain, preserve and keep the properties of the System in good repair, working order and condition, will make all necessary and proper additions, betterments, renewals and repairs thereto, and improvements, replacements and extensions thereof, and will at all times operate or cause to be operated the properties of the System and the business in connection therewith in an efficient manner and at a reasonable cost. Establishment and Collection of Rates and Charges. It will establish, maintain and collect rates and charges for water and for sanitary sewage disposal service and for all other utility services that will be fair and equitable, and will adjust those rates and charges from time to time so that: 1) The Gross Revenue will be sufficient to (i) pay all Operation and Maintenance Expenses, (ii) pay when due all amounts that the District is obligated to pay into the Bond Fund and the accounts therein, and (iii) pay all taxes, assessments or other governmental charges lawfully imposed on the System or the revenue therefrom or payments in lieu thereof and any and all other amounts which the District may now or hereafter become obligated to pay from the Gross Revenue by law or contract; and 2) The Net Revenue in each fiscal year will be not less than the Coverage Requirement; and 3) Except to aid the poor or infirm it will not furnish or supply or permit the furnishing or supplying of any water or wastewater service free of charge to any person, firm or corporation, public or private. The failure of the District to comply with paragraphs 1) and 2) of this subsection 0 shall not be an Event of Default as defined in the Bond Resolution if the District promptly retains an Independent Consultant to recommend to the Board adjustments in the rates of the System necessary to meet the requirements of those paragraphs and if the Board adopts the recommended modifications within 180 days after the date the failure became known to the Board. 10

17 b) Sale, Transfer or Disposition of the System. The District will sell, transfer or otherwise dispose of any of the works, plant, properties, facilities or other part of the System or any real or personal property comprising a part of the System only upon approval by resolution and only consistent with one or more of the following: 1) The District in its discretion may carry out such a sale, transfer or disposition (each, as used in the Bond Resolution, a transfer ) if the facilities or property transferred are not material to the operation of the System, or shall have become unserviceable, inadequate, obsolete or unfit to be used in the operation of the System or are no longer necessary, material or useful to the operation of the System; or 2) The District in its discretion may carry out such a transfer if the aggregate depreciated cost value of the facilities or property being transferred under this paragraph 2) in any fiscal year comprises no more than 3% of the total assets of the System; or 3) The District in its discretion may carry out such a transfer if the District receives from the transferee an amount equal to the greater of the following: i. An amount which will be in the same proportion to the net principal amount of Parity Bonds then outstanding (defined as the aggregate principal amount of Parity Bonds then outstanding less the amount of cash and investments in the Bond Fund allocable to the payment of principal or sinking fund requirements) that the Gross Revenue for the preceding fiscal year from the portion of the System so transferred bears to the total Gross Revenue for that fiscal year; or ii. An amount which will be in the same proportion to the net principal amount of Parity Bonds then outstanding (as defined above) that the Net Revenue for the preceding fiscal year from the portion of the System so transferred bears to the total Net Revenue for that fiscal year; or iii. An amount equal to the fair market value of the portion of the System so transferred. The proceeds of any such transfer shall be used promptly to redeem, defease in accordance with the Bond Resolution or purchase for retirement outstanding Parity Bonds and/or to provide for costs of additions to and betterments and extensions of the System. Notwithstanding the foregoing, if the City of Everett has annexed any of the works, plant, properties, facilities or other part of the System or any real or personal property of the District pursuant to either (i) the Agreement for Sewage Disposal Between the City of Everett and Mukilteo Water District dated May 4, 1983, as it may be amended, replaced or superseded, or (ii) the Agreement Between the City of Everett and the Mukilteo Water District Concerning Annexations of Portions of the District to the City dated May 23, 1984, as it may be amended, replaced or superseded, then in lieu of payment into the Bond Fund of an amount calculated in accordance with paragraph (3) above, the District may receive from the transferee (i.e., from the City of Everett) whatever amount is due from the City under the terms of those agreements. c) Liens on the System. Except as otherwise provided in the Bond Resolution, it will not at any time create or permit to accrue or to exist any lien or other encumbrance or indebtedness on Net Revenue or ULID Assessments or any part thereof prior or superior to the lien and charge that secure the Parity Bonds, and will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge on the Net Revenue or ULID Assessments or any part thereof prior or superior to, or on a parity 11

18 with, the lien and charge that secure the Parity Bonds, or which might impair the security of the Parity Bonds. d) Books and Accounts. It will keep proper books, records and accounts with respect to the operations, income and expenditures of the System in accordance with generally accepted accounting practices relating to municipal utilities and any applicable rules and regulations prescribed by the State, and will cause those books, records and accounts to be audited in accordance with the schedule established by the State Auditor pursuant to applicable law. It will prepare annual financial and operating statements as soon as practicable after the close of each fiscal year showing in reasonable detail the financial condition of the System as of the close of the previous year, and the income and expenses for such year, including the amounts paid into the Bond Fund and into any and all special funds or accounts created pursuant to the provisions of the Bond Resolution, the status of all funds and accounts as of the end of such year, and the amounts expended for maintenance, renewals, replacements and capital additions to the System. The District may charge a reasonable cost for providing such financial statements. e) Collection of Delinquent Accounts and ULID Assessments. It will, not later than March 1 of each year, take such legal action as may be feasible to enforce collection of all collectible delinquent accounts, and if on or before March 1 in any year two installments of any ULID Assessments have been delinquent for more than one year, it will proceed to foreclose on the delinquent assessments or delinquent installments thereof in the manner required by law on or before September 1 of such year. f) Maintenance of Insurance. It at all times will carry fire and extended coverage, public liability and property damage and such other forms of insurance with responsible insurers and with policies payable to the District on such of the buildings, equipment, works, plants, facilities and properties of the System as are ordinarily carried by municipal or privately owned utilities engaged in the operation of like systems, and against such claims for damages as are ordinarily carried by municipal or privately owned utilities engaged in the operation of like systems, or it will self-insure or will participate in an insurance pool or pools with reserves adequate, in the reasonable judgment of the District, to protect the System and the owners of the Parity Bonds against loss. g) Condemnation Awards and Insurance Proceeds. If the District receives any condemnation awards or proceeds of an insurance policy in connection with any loss of or damage to any property of the System, it will apply the condemnation award or insurance proceeds, in the District s sole discretion, either (i) to the cost of replacing or repairing the lost or damaged properties, (ii) to the payment, purchase or redemption of Parity Bonds, or (iii) to the cost of improvements to the System. h) Providing for the Reserve Requirement. To meet the Reserve Requirement after the issuance of the Bonds, the District will deposit into the Reserve Account from money of the District legally available therefor, the amount necessary, if any, to fund the Reserve Requirement within five years from the date of issuance of the Bonds in approximately equal annual payments. Future Parity Bonds The District reserves the right to issue Future Parity Bonds for purposes of the System or to refund a portion of the Parity Bonds if the following Parity Conditions are met and complied with at the time of the issuance of those Future Parity Bonds: 12

19 a) There may be no deficiency in the Bond Fund and no Event of Default shall have occurred and be continuing. b) The Parity Bond Authorizing Resolution must provide that all assessments and interest thereon that may be levied in any ULID created for the purpose of paying, in whole or in part, the principal of and interest on the Future Parity Bonds, shall be paid directly into the Bond Fund, except for any prepaid assessments permitted by law to be paid into a construction fund or account. c) The Parity Bond Authorizing Resolution must provide for the payment of principal of and interest on the Future Parity Bonds out of the Bond Fund. d) The Parity Bond Authorizing Resolution must provide for the payment of amounts into the Bond Fund to meet mandatory redemption requirements applicable to any Term Bonds to be issued and for regular payments to be made for the payment of the principal of such Term Bonds on or prior to their maturity, or, as an alternative, the mandatory redemption of those Term Bonds prior to their maturity from money in the Principal and Interest Account. e) The Parity Bond Authorizing Resolution must provide for the deposit into the Reserve Account of (i) the amount, if any, necessary to fund the Reserve Requirement upon the issuance of the Future Parity Bonds from Future Parity Bond proceeds or other money legally available, or (ii) Reserve Insurance or an amount of money plus Reserve Insurance necessary to fund the Reserve Requirement upon the issuance of the Future Parity Bonds. f) There must be on file with the District either: 1) a certificate of the General Manager of the District demonstrating that during any 12 consecutive calendar months out of the preceding 24 calendar months, Net Revenue was not less than the Coverage Requirement for all Parity Bonds plus the Future Parity Bonds (assuming that the debt service on the Future Parity Bonds for that 12-month period was the Average Annual Debt Service for the Future Parity Bonds); or 2) a certificate of an Independent Utility Consultant to the effect that the Net Revenue for the five fiscal years next following the earlier of (i) the first fiscal year during which interest on the Future Parity Bonds is not fully capitalized or, if no interest is capitalized, the fiscal year in which the Future Parity Bonds are issued, or (ii) the date on which substantially all new facilities financed with the Future Parity Bonds are expected to commence operations, such Net Revenue, further adjusted as provided in paragraphs (i) through (vi) below, will be not less than the Coverage Requirement. The certificate, in estimating the Net Revenue, shall use the historical Net Revenue for any 12 consecutive calendar months out of the 24 calendar months preceding the delivery of the Future Parity Bonds. The certificate may take into account the following adjustments: (i) (ii) Any changes in rates in effect and being charged, or rates to be charged in accordance with a program of specific rates, rate levels or increases in overall rate revenue that has been adopted by resolution; Net Revenue from customers of the System who have become customers during the 12-month period or thereafter, and his or her estimate of Net Revenue from any customers to be connected to the System who have paid the required connection charges, adjusted to reflect one year s Net Revenue from those customers; 13

20 (iii) (iv) His or her estimate of Net Revenue from customers anticipated to be served by facilities or improvements financed in substantial part by the Future Parity Bonds; and Net Revenue from any person, firm, corporation or municipal corporation under any executed contract for water or other utility service. If the Future Parity Bonds are issued for the sole purpose of refunding outstanding Parity Bonds, no such coverage certification is required if Annual Debt Service after the issuance of the Future Parity Bonds will not, for any fiscal year in which the Parity Bonds being refunded were scheduled to be outstanding, increase by more than $5,000. UTILITY LOCAL IMPROVEMENT DISTRICTS In the Bond Resolution, the District has covenanted that all ULID Assessments will be paid directly into the Bond Fund. (See SECURITY Pledge of Net Revenue and ULID Assessments above.) General Description Under State law (RCW ), a utility local improvement district ( ULID ) may be formed by the District in connection with the financing of water or wastewater improvements. A water sewer district may levy special assessments to pay in whole or in part the costs of any improvements, under a mode of annual installments extending over a period not exceeding 20 years on all property specially benefited by any local improvement on the basis of the special benefits. Lien of Assessments State law (RCW and ) provides that ULID assessments will be a lien on the property assessed from the time the assessment roll is placed in the hands of the county treasurer for collection. The assessments and interest thereon levied against the properties in a ULID are a lien and charge upon such property that is paramount and superior to any other lien or encumbrance theretofore or thereafter created except a lien for general taxes. The manner in which delinquent ULID assessments may be foreclosed is set forth in chapter RCW. Foreclosure proceedings may be initiated if on the first day of January, two installments of a ULID assessment are delinquent, or if the final installment has been delinquent for more than one year. Property foreclosed upon is sold by the District, and the laws governing appeals from general tax foreclosure judgments apply similarly to appeals from judgments obtained in local improvement assessment lien foreclosure action. Impact of State Homestead Exemption The Homestead law (chapter 6.13 RCW) permits an owner of a property to protect a certain portion the principal residence from forced sale. In City of Algona v Sharp, 30 Wn. App. 837, 638 P.2d 627 (1982), Division I of the Washington Court of Appeals held that the filing of a homestead exemption before a scheduled foreclosure sale of a primary residence valued at $25,000 or less effectively exempted that property from a forced sale to enforce delinquent special assessments in a special benefit assessment district such as a ULID. The statutory homestead exemption has been raised to $125,

21 District ULIDs ULID 11 was formed in 2002 to provide sewer improvements for the ULID 11 area, which were initially funded by the District. Following completion of the system, permanent financing was provided through bonds issued in Original Balance ULID No. Assessment Prepayments Outstanding ULID 11 (2002) $1,260,000 $198,895 $344,753 The District has no current plans for future ULIDs. The Water System THE SYSTEM The Mukilteo Water District (predecessor of the District) was formed in 1920 and is the oldest active water district in the State. The Water System currently provides water service to approximately 29,832 customers, covering a service area of 7.83 square miles. The transmission and distribution system consists of 95.6 miles of four to twenty-four inch water lines, five booster stations and a network of pressure reducing stations for the five pressure zones in the District. The storage system consists of four individual steel standpipe reservoirs with a combined capacity of million gallons ( MG ). The District distributes approximately 640 MG of water each year, over the last 10 years (638 MG average over the last 5 years). The majority of the customers are residential accounts. The District owns and maintains the storage, transmission, and distribution system within its service area. The District s water system is supplied through three connections with the City of Everett and two connections with the Alderwood Water and Wastewater District. All of the drinking water distributed by the District, whether purchased from the City of Everett or Alderwood Water and Wastewater District originates and is treated at the City of Everett water filtration plant. The City of Everett water filtration plant has sufficient water storage in its Spada Lake to supply its own customers and wholesale customers, such as the District, even during multiple low snow pack years. The water supply of the District is adequate to meet current peak demand and fire flow requirements. The System is in compliance with health and environmental laws. The District develops a water system comprehensive plan every six years that identifies deficiencies and recommends a CIP replacement schedule. 15

22 Water Rates and Charges The District s current bi-monthly water rates that became effective January 1, 2015 are shown below. Single Family: Multi-Family Rates: Commercial/Industrial: Meter Size Bi-Monthly Base Rate Volume Charge (per 1,000 gal) 5/8 Inch or 3/4 Inch $23.40 $ Inch ½ Inch Inch Meter Size Bi-Monthly Base Rate Volume Charge (per 1,000 gal) 5/8 Inch or 3/4 Inch $16.80 $ Inch ½ Inch Inch Inch Inch Inch Inch Inch 1, Additional Unit Meter Size Bi-Monthly Base Rate Volume Charge (per 1,000 gal) 5/8 Inch or 3/4 Inch $25.36 $ Inch ½ Inch Inch Inch Inch Inch Inch 1, Inch 2, Inch 5, Additional Unit

23 Irrigation: Fire Protection Rates: Connection Fees: Meter Size Bi-Monthly Base Rate Volume Charge (per 1,000 gal) 5/8 Inch or 3/4 Inch $ Inch ½ Inch Inch Volume Charge Bi-Monthly Base Rate (Per 1,000 GPM) Gravity Fire Service $ $22.08 Pumped Fire Service Meter Size Fee 3/4 Inch $ 5,241 1 Inch 13,104 1 ½ Inch 26,206 2 Inch 41,930 3 Inch 83,859 4 Inch 131,032 6 Inch 262,063 8 Inch 419, Inch 602, Inch 817, Inch 1,320, Inch 1,918, Inch 2,594,425 Rate Increases. The following table shows the percentage of rate increases adopted for the Water System between 2011 and Historical Rate Increases Effective January 1 System Water 6.4% 4.2% 4.2% 4.2% 4.2% 17

24 Water System Connections and Usage. The following tables present Water System connections by type and water consumption for years 2010 through Customer Type Single Family 5,461 4,463 4,480 4,506 4,547 Multi-family Commercial/Industrial Total 6,722 5, ,580 5,622 5,675 1 In 2011, the City of Everett assumed the assets associated with water accounts in an area annexed by the City in The City also reserves the right to assume the wastewater accounts in that area at any time. Total Annual Water Consumption (1,000 gal) Customer Type Single Family 361, , , , ,348 Multi-family 176, , , , ,128 Commercial/Industrial 151, , , , ,313 Total 689, , , , ,789 Water Demand. Following is a table presenting the annual supply, average daily demand and peak day demand for years 2010 through Demand presented in gallons per minute ( GPM ). Year Annual Supply (MG) Average Daily Demand (GPM) Peak Day Demand (GPM) ,199 1, ,214 1, ,177 2, ,155 2, ,332 2,038 Major Water Accounts The table below lists the ten largest accounts of the Water System by total annual charges and their respective annual water billings for These customers accounted for 16.0% of Total Water System Operating Revenues for 2014 of $3,863,385. Owner/Account Total 2014 Water Billing Percent of Total 2014 Operating Revenues 1. Bay Court at Harbour Pointe $110, % 2. Colby Creek Condos 106, Mukilteo School District No. 6 75, The Elliot at Mukilteo 61, The Boeing Company 54, Snohomish County Airport 51, Alara Harbour Pointe 49, Allied Ice/Reddy Ice 43, The Hampton at Harbour Pointe 32, Timberline Court 31, Total $616, % 18

25 Interlocal Agreements The District maintains water agreements with the following local jurisdictions: Water Purchase Agreement with the Alderwood Water and Wastewater District dated August 16, 2014, and amended on July 1, 2014; and Water Use Agreement with the City of Everett dated August 21, 2014, for the use of the Casino Rd. water connection. The Wastewater System The total wastewater service area is approximately 5,660 acres or 8.84 square miles, serving portions of the City of Everett, unincorporated Snohomish County, and a majority of the City of Mukilteo. The westside wastewater service area (Mukilteo and Paine Field) discharges to the District s Big Gulch Wastewater Treatment Facility and the eastside wastewater service area (City of Everett and unincorporated Snohomish County) discharges to the City of Everett s Wastewater Pollution Control Facility. The Wastewater System provides collection, pumping and treatment service to 5,538 residential customers, 593 multi-family customers, 280 commercial metered customers, and 1 commercial contract customer. The total wastewater connections for the District are 6,412. The District is near build-out, with growth coming from redevelopment of existing lots. The long-term forecast is that by 2020 the population within the District will increase to 30,825. The current population is 27,625. The Wastewater System has approximately 7 miles of force main ranging from 4 to 14 inches in diameter and 81 miles of gravity sewer line ranging from 8 to 18 inches. The pipe materials used for the gravity sewers consist of mostly concrete and PVC. The Wastewater System includes 13 lift stations. Ten of the lift stations are located in the area served by the Big Gulch Wastewater Treatment Facility. Three of the District s lift stations are located in areas where the effluent is pumped to the City of Everett. The majority of the collection system was built from 1970 to The District develops a wastewater comprehensive plan every six years that identifies deficiencies and recommends a replacement schedule, Wastewater Treatment Facility The District operates the Big Gulch Wastewater Treatment Facility, an oxidation-ditch secondary wastewater treatment facility serving approximately 3,000 acres. The facility utilizes an ultraviolet disinfection process before discharging treated effluent directly into Puget Sound. The Big Gulch Wastewater Treatment Facility was constructed in 1969, and upgraded in Recent projects include improvements to Aeration Basins A and B, the installation of an effluent filter, digester upgrade and the headworks upgrade project. The District s wastewater comprehensive plan was updated January The District and the System are in compliance with all regulations of the District s National Pollution Discharge Elimination system ( NPDES ) permit, which is issued through the Washington State Department of Ecology. The current permit will expire on May 31,

26 Wastewater Rates and Charges The District s current bi-monthly wastewater rates that became effective January 1, 2015 are shown below. Westside Wastewater Service Rates: Service Rates: Bi-Monthly Base Rate Volume Charge Single Family $ Multi-Family Commercial Class I: 1 5/8 or 3/4 Inch $ Inch ½ Inch Inch Inch 1, Inch 1, Strength Class Volume Charge Class I (0-300 MG) Class II ( MG) Class III (901-1,500 MG) Class IV (Over 1,500 MG) Commercial (Contract) 25, Commercial-Industrial Class I means non-residential customers including hotels, motels, stores, offices, service stations, schools, churches, governmental facilities, parks, manufacturing businesses, etc. General Facilities Charge: Base Rate Volume Charge Single Family $5,089 Multi-Family 5,089/1 st unit $3,817/each add l unit Hotels/Motels 5,089/1 st unit 2,545/each add l unit Commercial: ¾ meter 5, meter 12, ½ meter 25, meter 40, meter 81, meter 127,

27 Eastside Wastewater Service Rates: Service Rates: Bi-Monthly Base Rate Volume Charge Single Family $ Multi-Family $6.95 Commercial General Facilities Charge: Base Rate Volume Charge Single Family $4,297 Multi-Family 4,297/1 st unit $3,223/each add l unit Hotels/Motels 4,297/1 st unit 2,226/each add l unit Commercial: ¾ meter 4, meter 10, ½ meter 21, meter 34, meter 68, meter 107, Rate Increases. The following table shows the percentage of rate increases adopted for the Wastewater System between 2011 and 2015 Historical Rate Increases Effective January 1 System Westside Wastewater 8.8% 5.0% 5.0% 3.0% 3.0% Eastside Wastewater Wastewater System Connections. The following table presents Wastewater System connections by type for years 2010 through Customer Type Single Family 5,414 5,444 5,469 5,501 5,538 Multi-family Commercial/Industrial Total 6,263 6,294 6,318 6,350 6,411 21

28 Wastewater Flow The table below is a summary of measured influent wastewater flows for the Big Gulch Wastewater Treatment Plant. Average Dry Weather Flow (MGD) Maximum Monthly Average Flow (MGD) Average Annual Year Flow (MGD) Maximum Daily Flow (MGD) Paine Field, owned by Snohomish County, is a general aviation airport that serves the local commercial and private aviation industry, including several of Boeing s Everett facilities. Paine Field is served by the District as a commercial contract customer. An agreement between the District and Paine Field allows a waste discharge up to 250,000 gallons per day ( GPD ) average daily flow per month and loading not to exceed 600 lbs avg/day of biochemical oxygen demand ( BOD ) and 750 lbs avg/day of total suspended solids ( TSS ) in a given month. Flow from Paine Field is metered each month for the purpose of calculating sewer charges. Major Wastewater Accounts Year Average Dry Weather Flow (GPD) Maximum Monthly Flow (Maximum Per Day) , , , , , , , , , ,910 The table below lists the ten largest accounts of the Wastewater System by total annual charges and their respective annual wastewater billings for These customers accounted for 18.2% of Total Wastewater System Operating Revenues for 2014 of $7,036,534. Owner/Account Total 2014 Wastewater Billing Percent of Total 2014 Operating Revenues 1. Snohomish County Airport $ 333, % 2. Bay Court at Harbour Pointe 225, The Elliot at Mukilteo 157, Colby Creek 140, Alara Harbour Pointe 126, The Hamptons at Harbour Pointe 73, Towne Place Suites 58, Harbour Pointe Retirement 56, Longwood Village HOA 53, Nantucket Condos 52, Total $1,279, % 22

29 Interlocal Agreements The District maintains a number of wastewater agreements with the following local jurisdictions: Agreement with the City Everett originally dated May 4, 1983, that provides for the disposal of all wastewater generated within the original Mukilteo Water District boundaries; Agreement with Snohomish County dated September 23, 2003, for the conveyance of leachate from the Snohomish County Solid Waste Transfer Station to Everett for treatment; Agreement with the Snohomish County Airport at Paine Field (Bomarc Property) dated October 25, 1989, for conveyance of commercial sewer flows to the City of Everett s Wastewater Pollution Control Facility; Agreement with the City of Everett dated April 21, 1998, for providing sewer service to the Japanese Gulch area; Agreement with the Snohomish County Airport and Snohomish County dated June 14, 2013, to provide treatment of sewage flows from Paine Field; and Agreement with the Alderwood Water and Wastewater District dated July 10, 1991, to provide gravity sewer service within Alderwood Water and Wastewater District s boundaries. Franchise Agreement with the City of Mukilteo dated July 11, 2012, granting a non-exclusive franchise to construct, maintain, operate, replace and repair a water and sewer system within public rights-of-way of the City of Mukilteo, Washington. Billing and Collection Process The District currently bills its customers on a bi-monthly basis. Billing statements are mailed by the third day following the bi-monthly cycle. Payment is due on the 15th day of the month and any remaining balances after the 15th are considered delinquent. Reminder notices for delinquent balances are sent out 15 days after the due date. If payment of delinquent balances is not received within 30 days of the due date, a delinquent notice is mailed and a fee equal to 10% of the delinquent amount is assessed to the account. If payment of the delinquent amount is not received within 45 days of the due date, a service termination notice is mailed and a fee of $20 is assessed to the account. If payment is not received by the date specified on the service termination notice, water service will be terminated on the specified date, and the meter will be locked off. A $50 fee is assessed to the account and full payment, including all fees, is required before service is restored. The District locks an average of ten meters per month. 23

30 Rate Comparison Shown in the table below are residential water and wastewater rates for surrounding municipalities as provided by the Washington/Oregon Water and Wastewater Rate Survey for The 2013 rates shown are the bi-monthly base rates for residential usage. Water City of Arlington $68.23 Snohomish County Public Utility District Alderwood Water and Wastewater District City of Monroe Edmonds Utilities City of Everett City of Marysville The District City of Lynnwood Wastewater Lake Stevens Sewer District $75.00 City of Monroe City of Arlington The District Alderwood Water and Wastewater District City of Marysville City of Lynnwood City of Everett Edmonds Utilities Source: Washington/Oregon Water and Wastewater Rate Survey,

31 SYSTEM DEBT AND OPERATING RESULTS Historical Operating Results The following table presents the District s operating results for the years 2009 through 2014 and the budget for Actual Actual Actual Actual Actual Unaudited Budget Operating Revenue Residential Service Charges $5,045,926 $ 5,363,141 $4,428,535 $ 4,719,175 $ 5,137,981 $ 5,370,495 $ 5,522,800 Commercial & Multi-Family Service Charges 2,958,287 3,065,543 4,368,864 4,728,600 4,879,366 5,122,259 4,931,900 Schools Service Charges 61,929 15, Inspection Fees 26,555 12,829 5,250 5,000 5,875 7,250 2,400 Late Charges 39,312 41,030 51,975 51,486 56,053 81,580 79,500 Miscellaneous 694, , , , , , ,100 Total Operating Revenue $8,826,640 $ 8,850,829 $9,228,993 $ 9,845,317 $10,321,398 $10,899,919 $10,802,700 Operating Expenses Purchased Water $1,422,361 $ 1,394,604 $1,187,595 $ 1,188,489 $ 1,192,189 $ 1,121,250 $ 1,221,700 Wastewater Treatment 1,345,669 1,428,054 1,407,519 1,373,628 1,458,059 1,505,727 1,599,600 Operation Expenses 779, , , , , , ,600 General & Administrative 2,321,564 2,073,254 2,020,009 2,285,995 2,425,985 2,247,376 2,396,200 Total Operating Expenses $5,869,491 $ 5,706,764 $5,381,101 $ 5,647,652 $ 5,877,008 $ 5,617,834 $ 6,104,100 Net Operating Revenue $2,957,149 $ 3,144,065 $3,847,892 $ 4,197,665 $ 4,444,390 $ 5,282,085 $ 4,698,600 Non-Operating Revenues (Expenses) Investment Income $ 82,804 $ 32,294 $ 25,314 $ 18,443 $ 15,994 $ 12,604 $ 9,900 Interest on Assessments 28,976 35,534 23,573 25,323 19,076 20,646 17,200 Other Interest 2,018 5,834 4,676 2,595 1,465 2,493 0 FEMA Grant Net Gain (Loss) on Disposal of Assets 332,126 (1,161,726) (106,621) (1,373,041) (549,183) 10,470 0 Interest Expense (1,963) 0 (293,278) (242,144) (323,042) (429,993) (438,500) Total Non-Operating Revenues $ 443,961 $(1,087,964) $ (346,336) $(1,568,824) $ (835,690) $ (383,780) $ (411,400) Plus: Capital Contributions $2,052,505 $ 792,707 $ 584,866 $ 307,212 $ 852,896 $ 1,311,333 $ 658,800 Plus: ULID Assessments Net Revenue for Parity (Including ULID) $5,453,615 $ 2,848,808 $4,086,422 $ 2,932,598 $ 4,461,596 $ 6,209,638 $ 4,946,000 Outstanding Parity Debt Service (Including ULID) $ 672,612 $ 673,200 $ 667,313 $ 857,640 $ 900,046 $ 901,721 $ 897,363 Debt Service Coverage for Parity (Including ULID Assessment Payments) 8.11x 4.23x 6.12x 3.42x 4.96x 6.89x 5.51x Outstanding Junior Lien Debt Service 674,023 1,123,974 1,098,194 1,091,153 1,086,081 1,101,468 1,126,781 Annual Surplus $4,106,980 $1,051,634 $ 2,320,915 $ 997,823 $ 2,475,469 $ 4,206,449 $ 2,921,856 Source: Figures for years 2009 through 2013 are extracted from the District s audited financial statements, for year 2014 is extracted from the District s unaudited financial reports and for year 2015 figures are from the District s 2015 Budget. 25

32 Management Discussion and Analysis The District s overall financial position continues to be strong with sufficient liquidity, growing revenues and debt capacity to finance future capital improvements if necessary. The District is financed primarily by equity and substantial liquid assets are available to fund liabilities and construction. Capital assets decreased in 2014 due to depreciation in excess of construction activity, donated systems and asset purchases. Capital assets increased in 2013 due to growth in the District s customer base and upgrades to the District s water and wastewater system. Operating revenues are received principally from two sources: water service and wastewater service. An increase in water and wastewater revenues in 2014 and 2013 were primarily due to rate increases. Expenses increased in 2014 primarily due to an increase in depreciation expense. The increase in depreciation was caused by significant assets being placed in service in late The increase was partially offset by a decrease in water cost as a result of the District being able to purchase more of its water at a lower rate. Expenses increased in 2013 primarily due to increases in payroll and related costs and depreciation expense. The District operated at a profit in2014, 2013 and Operating results are augmented by earnings on investments, capital contributions, and other non-operating revenues, less non-operating expenses. The District collects capital contributions from new customers. These contributions consist of connection charges, grants, ULID assessments and donated systems. A seven year capital expenditure plan, approved through adoption of the 2015 Capital Budget, shows financing all capital projects though the District s current water and sewer rate structure. No new debt is anticipated over the current planning period. 26

33 Parity Bonds As of the date of issuance of the Bonds, other than the Bonds, the District will have outstanding Parity Bonds that include the $1,720,000 unrefunded portion of the 2008 Bonds and $2,985,000 outstanding principal amount of the 2012 Bonds. Loans which are subordinate lien obligations are excluded from this table but are shown below under Junior Lien Obligations. Set forth in the following table is the debt service schedule for the Bonds and Outstanding Parity Bonds for each of the years as listed. Interest figures may be rounded. Calendar 2008 Bonds 2012 Bonds The Bonds Total Parity Year Principal 1 Interest 1 Principal Interest Principal Interest Debt Service $ 385,000 $33,538 $ 145,000 $ 88,200 $ 35,000 $ 63,953 $ 750, ,000 52, ,000 86,025 10, , , ,000 38, ,000 83,775 10, , , ,000 22, ,000 81,150 15, , , ,000 5, ,000 78, , , , ,000 4, ,000 75, , , , ,000 3, ,000 71, , , , ,000 2, ,000 67, , , , ,000 1, ,000 62, , , , ,000 57, , , , ,000 52, ,000 85, , ,000 47, ,000 65, , ,000 41, ,000 44, , ,000 34, ,000 22, , ,000 26, , ,000 17, , ,000 9, ,000 Total $1,720,000 $162,225 $2,985,000 $980,250 $4,885,000 $1,678,503 $12,410,978 1 Excludes the Refunded Bonds. 27

34 Junior Lien Obligations Public Works Trust Fund Loans ( PWTF Loans ) are low-interest loans from the State of Washington (administered by the Washington State Department of Commerce) for repair, replacement, rehabilitation, reconstruction, and improvements to water, sewer, stormwater, road, bridge, and solid waste/recycling systems. As of January 31, 2015, the District has seven outstanding PWTF Loans that are secured by a pledge of Net Revenue which is junior to all other obligations of the System to which Net Revenue is pledged, including the Parity Bonds. In addition, the District has two outstanding Washington State Department of Ecology Loans and one Drinking Water State Revolving Fund Loan. Loan No. Year of Loan Total Amount Issued Amount Outstanding Maturity Year PW PRE $ 1,000,000 $ 693, PW PRE ,000, , PC ,739,575 4,930, PW ,000,000 4,462, PC ,950, , PC , , PW , , L , , L ,145, , , , Total $21,472,223 $13,059,945 Debt Payment Record The District has never defaulted on a payment of principal of or interest on any of its bonds or obligations. Furthermore, the District has never issued refunding bonds for the purpose of avoiding an impending default. District s Future Borrowing Plans Other than the Bonds, in the next two years, the District does not expect to incur any additional debt. 28

35 Balances in Funds As of January 31, 2015, the District had the following cash and investment balances in the following funds and accounts. Balance System Fund/Account As of 1/31/15 Water Maintenance Fund $ 344, Water Capital Improvement Fund 336, Water Capital Replacement Fund 5,632, Wastewater Maintenance Fund 373, Wastewater Capital Fund 1,901, East Wastewater Maintenance Fund 319, East Wastewater Cap Improve Fund 3,880, Revenue Bond Fund 204, ULID #11 Revenue Bond Fund 80, SRF Loan Reserve Fund-Big Gulch 67, SRF Loan Reserve Fund 39, PWTF Loan Fund 516, Bond Reserve Fund 721, Bond Fund 77, Total $14,496, THE DISTRICT The Mukilteo Water District was formed in 1920 and is the oldest active water district in the State, providing service to a portion of the Cities of Mukilteo and Everett and unincorporated Snohomish County. The District was authorized to provide sewer service to its south Everett customers in Olympus Terrace Sewer District had been created in 1969 to provide sewer service to the subdivision of Olympus Terrace and expanded over time to eventually provide sewer service to the greater Mukilteo area. In November 2007 voters approved the merger of Olympus Terrace Sewer District into Mukilteo Water District. In 2008 the name was changed to Mukilteo Water and Wastewater District. For a description of the economic and demographic information of the District, see APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION herein. 29

36 Form of Local Government The District is served by an elected three-member Board, whose members serve six-year, staggered terms. The Board meets twice each month and has responsibility for, among other things, budgets and rates. The day-to-day operation of the District is performed by a full-time manager appointed by the Board. The Board has authority to set rates and charges with no further rate review. The names of the Board members, as well as the dates in which of their respective terms of office expire are as listed below. Name Office Occupation Date 1st Elected to Board Term Expires Mike Johnson President M&O Superintendent, 01/01/ Alderwood Water & Wastewater District Thomas McGrath Vice President Retired 01/01/ Thomas Rainville Secretary Retired 01/01/ Employment and District Administration The number of employees of the District as of January 31, 2015 totals 21 full-time and no part-time employees. The operations of the District are administered by Mr. Jim Voetberg, the General Manager. Mr. Voetberg began his employment with the District in June He holds a Bachelor s Degree in Civil Engineering from Oregon State University. He is a licensed Professional Engineer in the State of Washington, and holds a Water Distribution Manager III certification with WA State Dept. of Health. Mr. Voetberg has over 20 years of executive management experience in the government sector, including developing and overseeing operational and capital budgets. The Finance Manager for the District is Ms. Sue Parks. Ms. Parks was hired by the District in June She holds a Bachelor s Degree in Accounting from Central Washington University and has been in the accounting field for over 30 years. Pension Plans The District provides all of its public employee pensions through the following statewide cost-sharing multiple-employer plans administered by the Washington State s Department of Retirement Systems ( DRS ): Public Employees Retirement System ( PERS ). PERS Plans 1 and 2 are defined benefit plans and PERS Plan 3 contains a hybrid defined benefit/defined contribution option. Contributions by both employees and employers are based on gross wages. PERS participants who joined the system by September 30, 1977 are Plan 1 members. PERS participants who joined on or after October 1, 1977, are Plan 2 members, unless they exercise an option to transfer to Plan 3. PERS participants who joined on or after September 1, 2002, have the irrevocable option of choosing membership in Plan 2 or Plan 3. State law requires systematic actuarial funding to finance the retirement plans. Actuarial calculations to determine employer and employee contributions are prepared by the Office of the State Actuary ( OSA ), a nonpartisan legislative agency charged with advising the Legislature and Governor on pension benefits and funding policy. To calculate employer and employee contribution rates necessary 30

37 to pre-fund the plans benefits, OSA uses actuarial cost and asset valuation methods selected by the Legislature as well as economic and demographic assumptions. The Legislature adopted the following economic assumptions for contribution rates beginning July 1, 2013: (1) 7.9% rate of investment return; (2) general salary increases of 3.75%; (3) 3.0% rate of Consumer Price Index increase; and (4) 0.95% growth in membership. The long-term investment return assumption is used as the discount rate for determining the liabilities for a plan. The 10-year average annual return on the investment of DRS retirement funds from was 8.35%. Plan Funding; Contribution Rates and Amounts. All State-administered retirement plans are funded by a combination of funding sources: (1) contributions from the State; (2) contributions from employers (including the State as employer and the District and other governmental employers); (3) contributions from employees; and (4) investment returns. Retirement funds are invested by the Washington State Investment Board, a 15-member board created by the Legislature in The District contributed $141,458 to PERS in 2013 and $149,018 to PERS in 2014, for all of the District s employees that are covered under PERS. Under State statute, contribution rates are adopted by the Pension Funding Council ( PFC ) in even-numbered years for the next ensuing State biennium. The rate-setting process begins with an actuarial valuation by the OSA, which makes non-binding recommendations to the Select Committee on Pension Policy, which then recommends contribution rates to the PFC. No later than the end of July in even-numbered years, the PFC adopts contribution rates, which are subject to revision by the Legislature. The following table outlines the current contribution rates of employees and employers. Contribution Rates for the Biennium Expressed as a Percentage of Covered Payroll Employer 1,2 Employee PERS Plan % 6.00% PERS Plan PERS Plan Variable 2 1 Includes a 0.18% DRS administration expense fee. 2 Rates vary from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member. Source: Department of Retirement Systems. In July 2014, the PFC adopted contribution rate increases to be phased in over the next three biennia, beginning with the biennium. For the biennium, the PFC adopted employer contribution rates of 11.00% (exclusive of any administrative expense fee) for PERS Plans 1, 2 and 3 and an employee contribution rate of 6.12% for PERS Plan 2. Plan Funding Status and Unfunded Actuarial Liability. While the District s prior contributions represent its full current liability under the retirement systems, any unfunded pension benefit obligations could be reflected in future years as higher contribution rates. It is expected that the contribution rates for employees and employers in Plans 2 and 3 will increase in the coming years. The OSA website (which is not incorporated into this Official Statement by reference) includes information regarding the values, funding levels and investments of these retirement plans. During the years 2001 through 2010 the rates adopted by the Legislature were lower than would have been required to produce actuarially required contributions to Plan 1, a closed plan with a large proportion of the retirees. The OSA actuarial valuation as of June 30, 2012, reflected the following: for 31

38 Plan 1, a funded ratio of 69% (with an unfunded actuarial accrued liability of $3.8 billion, and for Plans 2 and 3, a funded ratio of 111% (with an actuarial accrued surplus of $2.3 billion). The OSA actuarial valuation as of June 30, 2013, reflected the following: for Plan 1, a funded ratio of 63% (with an unfunded actuarial accrued liability of $4.8 billion), and for Plans 2 and 3, a funded ratio of 102% (with an actuarial accrued surplus of $0.5 billion). The decrease in funded status resulted principally from changed demographic assumptions, including projected improvements in mortality rates, and the statutory requirement that the assumed rate of return be reduced to 7.8% from 7.9%. OSA uses the Projected Unit Credit ( PUC ) cost method and the Actuarial Value of Assets ( AVA ) to report a plan s funded status. PUC is one of several acceptable measures of a plan s funded status under current GASB rules. The PUC cost method projects future benefits under the plan, using salary growth and other assumptions and applies the service that has been earned as of the valuation date to determine accrued liabilities. The AVA is calculated using a methodology which smoothes the effect of short-term volatility in the Market Value of Assets ( MVA ) by deferring a portion of annual investment gains or losses over a period of up to eight years. Plans 2 and 3 are accounted for in the same pension trust fund and may legally be used to pay the defined benefits of any Plan 2 and 3 member. Otherwise, assets for one plan may not be used to fund benefits for another plan; however, all employers in PERS are required to make contributions at a rate (percentage of payroll) determined by OSA every two years for the sole purpose of amortizing the Plan 1 unfunded actuarial accrued liability within a rolling 10-year period. The State Legislature has established certain maximum contribution rates that began in 2009 and will continue until 2015 and certain minimum contribution rates that are to become effective in 2015 and remain in effect until the actuarial value of assets in Plan 1 equals 100% of the actuarial accrued liability of Plan 1. These rates are subject to change by future legislation enacted by the State Legislature to address future changes in actuarial and economic assumptions and investment performance. In 2011, the State Legislature ended the future automatic annual increase, which is a fixed dollar amount multiplied by the member s total years of service, for most retirees in Plan 1, which is forecast to reduce the unfunded accrued actuarial liability in Plan 1. A lawsuit was filed challenging this legislation. In August 2014, the Washington State Supreme Court upheld the constitutionality of this legislation. The information in this section has been obtained from the District s financial statements and information on OSA and DRS s websites (which are not incorporated into this Official Statement by reference). GASB 45. In addition to pensions, many state and local governmental employers provide other post employment benefits ( OPEB ) as a part of total compensation to attract and retain the services of qualified employees. OPEB includes post employment healthcare, as well as other forms of post employment benefits when provided separately from a pension plan. Governmental Accounting Standards Board s standard concerning Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions ( GASB 45 ) provides for the measurement, recognition and display of OPEB expenses/expenditures, related liabilities (assets), note disclosures, and if applicable, required supplementary information in the financial reports. The District does not provide any current or retired employees OPEB that may or may not be required to be disclosed under GASB 45; and therefore, the District does not have an unfunded liability for OPEB. 32

39 Risk Management The District is a member of Enduris. Chapter RCW provides the exclusive source of local government entity authority to individually or jointly self-insure risks, jointly purchase insurance or reinsurance, and to contract for risk management, claims, and administrative services. Enduris was formed July 10, 1987 pursuant to the provisions of Chapter RCW, Chapter WAC, and Chapter RCW. As of August 31, 2013, there are 486 Enduris members representing a broad array of special purpose districts throughout the state. Enduris members share in the self-insured retention, jointly purchase excess and/or reinsurance coverage and provide risk management services and other related administrative services. Enduris provides per occurrence based policies for all lines of liability coverage including Public Official s Liability. The Property coverage is written on an all risk, blanket basis using current Statement of Values. The Property coverage includes but is not limited to mobile equipment, electronic data processing equipment, and business interruption, course of construction and additions, property in transit, fine arts, and automobile physical damage to insured vehicles. Boiler and machinery coverage is included on a blanket limit of $100 million for all members. Enduris offers employee dishonesty coverage up to a liability limit of $1,000,000. Members make an annual contribution to fund Enduris. Enduris acquires reinsurance from unrelated insurance companies on a per occurrence basis: $1,000,000 deductible on liability loss - the member is responsible for the first $1,000 of the deductible amount of each claim, while Enduris is responsible for the remaining $999,000 on liability loss; $250,000 deductible on property loss - the member is responsible for the first $1,000 of the deductible amount of each claim, while Enduris is responsible for the remaining $249,000 on property loss. Enduris is responsible for the $4,000 deductible on boiler and machinery loss. Insurance carriers cover all losses over the deductibles as shown to the policy maximum limits. Since Enduris is a cooperative program, there is a joint liability among the participating members. The contract requires members to continue membership for a period of not less than one (1) year and must give notice 60 days before terminating participation. The Master Agreement (Intergovernmental Contract) is automatically renewed after the initial one (1) full fiscal year commitment. Even after termination, a member is still responsible for contribution to Enduris for any unresolved, unreported and in-process claims for the period they were a signatory to the Master Agreement. Enduris is fully funded by its member participants. Claims are filed by members with Enduris and are administered in house. A Board of Directors consisting of seven (7) board members governs Enduris. Its members elect the Board and the positions are filled on a rotating basis. The Board meets quarterly and is responsible for conducting the business affairs of Enduris. The District s premiums paid in 2014 to participate in Enduris were $95,

40 Financial Information Accounting systems and budgetary controls are prescribed by the Office of the State Auditor in accordance with RCW and RCW The District complies with the systems and controls prescribed by the Office of the State Auditor and establishes procedures and records which reasonably assure safeguarding of assets and the reliability of financial reporting. Significant Accounting Policies. The District has elected to apply Financial Accounting Standards Board guidance to the extent that it does not conflict with or contradict guidance of GASB. GASB is the accepted standard setting body for establishing governmental accounting and financial reporting principles. Basis of Accounting. The District uses the full accrual basis of accounting where revenues are recognized when earned and expenses are recognized when incurred. This practice is not in accordance with GAAP. Fixed asset purchases are capitalized and long-term disabilities are accounted for in the appropriate funds. Auditing of District Finances. The State Auditor is required to examine the affairs of all local governments at least once every three years. The District has historically been audited bi-annually. Beginning in 2016, the District will be audited on an annual basis. The examination must include, among other things, the financial condition and resources of the District, whether the laws and constitution of the State are being complied with, and the methods and accuracy of the accounts and reports of the District. Reports of the auditor s examinations are required to be filed in the Office of the State Auditor and in the finance department of the District. The State Auditor last audited the District s financial statements for years 2012 through 2013, which is included as APPENDIX D hereto. Authorized Investments Chapter RCW limits the investment of public funds to the following authorized investments: bonds of the State and any local government in the State, which bonds are rated at the time of investment in one of the three highest credit ratings by a nationally recognized rating agency; general obligation bonds of other states and subdivisions thereof so long as those bonds are rated in one of the three highest categories of a nationally recognized rating agency; registered warrants of a local government within the same county as the entity making the investment; and any investment authorized by law for the State Treasurer or any local government exclusive of certificates of deposit of banks or bank branches not located in the State. Under chapter RCW, the State Treasurer may invest in non-negotiable certificates of deposit in designated qualified public depositories; in obligations of the U.S. government, its agencies and wholly owned corporations; in bankers acceptances; in commercial paper; in repurchase agreements; in the obligations of the federal home loan bank, federal national mortgage association and other government corporations subject to statutory provisions. Utility revenue bonds and warrants of any city and bonds or warrants of a local improvement district are also eligible investments (RCW ). Any municipal corporation, including the District, may authorize its county treasurer to invest money not required for immediate expenditure. Funds of the District, including debt service funds, have been invested by the Treasurer. The Treasurer may, upon the request of one or more units of local government that invest their money with the County, combine those moneys for the purposes of investment. The office of the Treasurer receives up to 5% of the earnings on such investments, subject to a maximum of $50 on each transaction, as its investment service fee. The Treasurer may reimburse its office for any expenses incurred in the establishment and maintenance of such a county investment pool. 34

41 Local Government Investment Pool. The State s Local Government Investment Pool ( LGIP ), which was authorized by the Legislature in 1986 and managed by the Office of the State Treasurer, is a voluntary pool that provides its participants the opportunity to take advantage of the economies of scale inherent in pooling. The LGIP also is intended to offer participants safety of principal and the ability to achieve a higher investment yield than otherwise would be available to them. The more than 540 local governments that participate in the LGIP are allowed 100 percent liquidity on a daily basis. As of February 28, 2015, the LGIP had a balance of approximately $8.6 billion. Although not regulated by the U.S. Securities and Exchange Commission (the SEC ), the LGIP is invested in a manner generally consistent with the SEC guidelines for Rule 2a-7 money market funds; for example, currently it has a maximum weighted average maturity ( WAM ) of 60 days and a maximum weighted average life of 120 days. The maximum final maturity is 397 days except for floating- and variable-rate securities and securities that are used for repurchase agreements. The WAM of the LGIP generally ranges from 30 to 60 days. Typical investment holdings of the LGIP are repurchase agreements, U.S. Treasury bills and notes, U.S. agency discount notes, coupons, floating- and variable-rate notes, reverse repurchase agreements and bank deposits. The benchmarks utilized for the LGIP are the Government and Agency money market net and gross yields reported by imoneynet. The net yield is utilized for external comparisons while the gross yield is used internally to assess portfolio manager performance. For a full description of the LGIP and its interest structure visit the State Treasurer s website at (which website is not incorporated into this official statement by reference). Authorized Investments for Bond Proceeds. The proceeds from the Bonds may only be invested in Acquired Obligations, as described herein. District Investments All investments of the District are made within the requirements of State law described above in the section Authorized Investments. The District s deposits and certificates of deposit are primarily covered by federal depository insurance ( FDIC ) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission ( PDPC ). As of January 31, 2015, the District had the following investments and maturities. Investment Maturities (In Years) Investment Type Fair Value Less Than More Than 2 LGIP $14,496,713 $14,496, Total $14,496,713 $14,496, CERTAIN INVESTMENT CONSIDERATIONS This section describes certain investment considerations and is not meant to be comprehensive or definitive. Special Obligations of the District The Bonds are special fund obligations of the District payable solely from the Net Revenue and ULID Assessments. The Bonds are not obligations of the County, the State or any other municipal corporation other than the District. Neither the full faith and credit nor the taxing power of the District, the County or the State is pledged to the payment of the Bonds. The Bonds are not general obligations of the District. 35

42 No Acceleration The Bond Resolution does not grant owners the right to accelerate the payment of the Bonds upon the occurrence and continuance of a default. The District is liable for principal and interest payments only as they become due. The inability to accelerate the Bonds upon a default could give rise to varying interests between owners of earlier and later maturing Bonds. In the event of multiple defaults in payment of principal or interest on the Bonds, the owners would be required to bring a separate action for each such payment not made. Any such action to compel payment or for money damages would be subject to the limitations on legal claims and remedies against public bodies under State law. Limitations on Remedies Any remedies available to the owners of the Bonds upon the occurrence of an event of default under the Bond Resolution are in many respects dependent upon judicial actions, which are in turn often subject to discretion and delay and could be both expensive and time consuming to obtain. If the District fails to comply with its covenants under the Bond Resolution or to pay principal of or interest on the Bonds, there can be no assurance that available remedies will be adequate to fully protect the interests of the owners of the Bonds. In addition to the limitations on remedies contained in the Bond Resolution, the rights and obligations under the Bonds and the Bond Resolution may be limited by and are subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium, and other laws relating to or affecting creditors rights, to the application of equitable principles, and to the exercise of judicial discretion in appropriate cases. The opinion to be delivered by Foster Pepper PLLC, as Bond Counsel, concurrently with the issuance of the Bonds, will be subject to limitations regarding bankruptcy, insolvency, and other laws relating to or affecting creditors rights. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX C. Municipal Bankruptcies A municipality such as the District must be specifically authorized under State law to seek relief under Chapter 9 of the U.S. Bankruptcy Code (the Bankruptcy Code ). A creditor, however, cannot bring an involuntarily bankruptcy proceeding against a municipality, including the District. The federal bankruptcy courts have discretionary powers under the Bankruptcy Code. Chapter RCW permits any taxing district (defined to include municipalities and any other district) to voluntarily petition for relief under the Bankruptcy Code. The legal opinion of Bond Counsel regarding the validity of the Bonds will be qualified by reference to bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium and other similar laws affecting the rights of creditors generally, and by general principles of equity. Seismic and Other Considerations The District s facilities are in an area of seismic activity, with frequent small earthquakes and occasional moderate and larger earthquakes. The District can give no assurance regarding the effect of an earthquake or other natural disaster or that proceeds of insurance carried by the District would be sufficient, if available, to rebuild and reopen the District s facilities or that the District s facilities or surrounding facilities and infrastructure could or would be rebuilt and reopened in a timely manner following a major earthquake or other natural disaster. 36

43 APPROVAL OF BOND COUNSEL Legal matters incident to the authorization, issuance and sale of the Bonds by the District are subject to the approving legal opinion of Foster Pepper PLLC, Seattle, Washington, Bond Counsel. A form of the opinion of Bond Counsel is attached hereto as APPENDIX C. The opinion of Bond Counsel is given based on factual representations made to Bond Counsel, and under existing law, as of the date of initial delivery of the Bonds, and Bond Counsel assumes no obligation to revise or supplement its opinion to reflect any facts or circumstances that may thereafter come to its attention, or any changes in law that may thereafter occur. The opinion of Bond Counsel is an expression of its professional judgment on the matters expressly addressed in its opinion and does not constitute a guarantee of result. Bond Counsel will be compensated only upon the issuance and sale of the Bonds. Bond Counsel expresses no opinion on the completeness or accuracy of any Official Statement, offering circular or other sales material relating to the Bonds. Bond Counsel has read portions of this document only to confirm that the descriptions of the terms of the Bonds and the authority to issue them conform to the Bonds and the applicable laws under which they are issued. TAX MATTERS Exclusion from Gross Income. In the opinion of Bond Counsel, under existing federal law and assuming compliance with applicable requirements of the Internal Revenue Code of 1986, as amended (the Code ), that must be satisfied subsequent to the issue date of the Bonds, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax applicable to individuals. Continuing Requirements. The District is required to comply with certain requirements of the Code after the date of issuance of the Bonds in order to maintain the exclusion of the interest on the Bonds from gross income for federal income tax purposes, including, without limitation, requirements concerning the qualified use of Bond proceeds and the facilities financed or refinanced with Bond proceeds, limitations on investing gross proceeds of the Bonds in higher yielding investments in certain circumstances, and the requirement to comply with the arbitrage rebate requirement to the extent applicable to the Bonds. The District has covenanted in the Bond Resolution to comply with those requirements, but if the District fails to comply with those requirements, interest on the Bonds could become taxable retroactive to the date of issuance of the Bonds. Bond Counsel has not undertaken and does not undertake to monitor the District s compliance with such requirements. Corporate Alternative Minimum Tax. While interest on the Bonds also is not an item of tax preference for purposes of the alternative minimum tax applicable to corporations, under Section 55 of the Code, tax exempt interest, including interest on the Bonds, received by corporations is taken into account in the computation of adjusted current earnings for purposes of the alternative minimum tax applicable to corporations (as defined for federal income tax purposes). Under the Code, alternative minimum taxable income of a corporation will be increased by 75% of the excess of the corporation s adjusted current earnings (including any tax exempt interest) over the corporation s alternative minimum taxable income determined without regard to such increase. A corporation s alternative minimum taxable income, so computed, that is in excess of an exemption of $40,000, which exemption will be reduced (but not below zero) by 25% of the amount by which the corporation s alternative minimum taxable income exceeds $150,000, is then subject to a 20% minimum tax. A small business corporation is exempt from the corporate alternative minimum tax for any taxable year beginning after December 31, 1997, if its average annual gross receipts during the three-taxable-year 37

44 period beginning after December 31, 1993, did not exceed $5,000,000, and its average annual gross receipts during each successive three-taxable-year period thereafter ending before the relevant taxable year did not exceed $7,500,000. Tax on Certain Passive Investment Income of S Corporations. Under Section 1375 of the Code, certain excess net passive investment income, including interest on the Bonds, received by an S corporation (a corporation treated as a partnership for most federal tax purposes) that has Subchapter C earnings and profits at the close of the taxable year may be subject to federal income taxation at the highest rate applicable to corporations if more than 25% of the gross receipts of such S corporation is passive investment income. Foreign Branch Profits Tax. Interest on the Bonds may be subject to the foreign branch profits tax imposed by Section 884 of the Code when the Bonds are owned by, and effectively connected with a trade or business of, a United States branch of a foreign corporation. Possible Consequences of Tax Compliance Audit. The Internal Revenue Service (the IRS ) has established a general audit program to determine whether issuers of tax-exempt obligations, such as the Bonds, are in compliance with requirements of the Code that must be satisfied in order for interest on those obligations to be, and continue to be, excluded from gross income for federal income tax purposes. Bond Counsel cannot predict whether the IRS would commence an audit of the Bonds. Depending on all the facts and circumstances and the type of audit involved, it is possible that commencement of an audit of the Bonds could adversely affect the market value and liquidity of the Bonds until the audit is concluded, regardless of its ultimate outcome. Certain Other Federal Tax Consequences Original Issue Premium. The Bonds have been sold at prices reflecting original issue premium ( Premium Bonds ). An amount equal to the excess of the purchase price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. A purchaser of a Premium Bond must amortize any premium over such Premium Bond's term using constant yield principles, based on the purchaser's yield to maturity. The amount of amortizable premium allocable to an interest accrual period for a Premium Bond will offset a like amount of qualified stated interest on such Premium Bond allocable to that accrual period, and may affect the calculation of alternative minimum tax liability described above. As premium is amortized, the purchaser's basis in such Premium Bond is reduced by a corresponding amount, resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis is reduced, no federal income tax deduction is allowed. Purchasers of Premium Bonds, whether at the time of initial issuance or subsequent thereto, should consult with their own tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to state and local tax consequences of owning such Premium Bonds. Bonds are Qualified Tax-Exempt Obligations for Financial Institutions. Section 265 of the Code provides that 100 percent of any interest expense incurred by banks and other financial institutions for interest allocable to tax-exempt obligations acquired after August 7, 1986, will be disallowed as a tax deduction. However, if the tax-exempt obligations are obligations other than private activity bonds, are issued by a governmental unit that, together with all entities subordinate to it, does not reasonably anticipate issuing more than $10,000,000 of tax-exempt obligations (other than private activity bonds and other District obligations not required to be included in such calculation) in the current calendar 38

45 year, and are designated by the governmental unit as qualified tax-exempt obligations, only 20 percent of any interest expense deduction allocable to those obligations will be disallowed. The District is a governmental unit that, together with all subordinate entities, reasonably anticipates issuing less than $10,000,000 of tax-exempt obligations (other than private activity bonds and other District obligations not required to be included in such calculation) during the current calendar year and has designated the Bonds as qualified tax-exempt obligations for purposes of the 80% financial institution interest expense deduction. Therefore, only 20% of the interest expense deduction of a financial institution allocable to the Bonds will be disallowed for federal income tax purposes. Reduction of Loss Reserve Deductions for Property and Casualty Insurance Companies. Under Section 832 of the Code, interest on the Bonds received by property and casualty insurance companies will reduce tax deductions for loss reserves otherwise available to such companies by an amount equal to 15% of tax exempt interest received during the taxable year. Effect on Certain Social Security and Retirement Benefits. Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take receipts or accruals of interest on the Bonds into account in determining gross income. Other Possible Federal Tax Consequences. Receipt of interest on the Bonds may have other federal tax consequences as to which prospective purchasers of the Bonds may wish to consult their own tax advisors. Potential Future Federal Tax Law Changes. Current and future legislative proposals, if enacted into law, may directly or indirectly cause interest on the Bonds to be subject in whole or in part to federal income taxation, prevent the beneficial owners of the Bonds from realizing the full benefits of the current federal tax status of interest on the Bonds, or affect, perhaps significantly, the market value or marketability of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors regarding the potential impact of any pending or proposed legislation or regulations. LITIGATION There is no litigation pending with process properly served on the District questioning the validity of the Bonds, the power and authority of the District to issue the Bonds, or the power and authority of the District to impose and collect the utility rates and charges pledged to the Bonds. UNDERWRITING D. A. Davidson & Co. (the Underwriter ) has agreed, subject to the terms of a Bond Purchase Agreement, to purchase the Bonds from the District at a price of % of the par value of the Bonds and will initially be reoffered at a price of % of the par value of the Bonds. The Bonds are initially being reoffered for sale to the public at the prices shown on the inside cover of this Official Statement. Concessions from the initial offering price may be allowed to selected dealers and special purchasers. The initial offering prices are subject to change after the date of this Official Statement. 39

46 RATING As noted on the cover page of this Official Statement, Standard & Poor s, a division of the McGraw-Hill Companies ( S&P ), has assigned its municipal bond rating of AA+ to the Bonds. The District has furnished S&P certain information and materials relating to the Bonds and the District, including certain information and materials which have not been included in this Official Statement. No application was made to any other rating agency for the purpose of obtaining an additional rating on the Bonds. The rating reflects only the view of the rating agency and an interpretation of such rating may be obtained only from the rating agency furnishing the same. There is no assurance that such rating will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agency, if, in the judgment of such agency, circumstances so warrant. Any such revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. Any further explanation of the rating may be obtained from the rating agency. CONFLICTS OF INTEREST All or a portion of the fees of the Underwriter and Bond Counsel are contingent upon the issuance and sale of the Bonds. In addition, Bond Counsel from time to time serves as counsel to the Underwriter with respect to bonds issued by issuers other than the District. None of the members of the Board or other officers of the District have any conflict of interest in the issuance of the Bonds that is prohibited by applicable law. COMMITMENT TO PROVIDE CONTINUING DISCLOSURE In order to permit the Underwriter of the Bonds to comply with paragraph (b)(5) of Rule 15c2-12 promulgated by the Securities and Exchange Commission ( Rule 15c2-12 ), the District has covenanted and agreed in the Bond Resolution, for the benefit of the Registered Owners or Beneficial Owners from time to time of the outstanding Bonds, to provide certain information annually to the Municipal Securities Rulemaking Board, and notice of the occurrence of certain events, as described in APPENDIX B CONTINUING DISCLOSURE (the Undertaking ). The information to be provided, the events as to which notice is to be given, if material, and a summary of other provisions of the Undertaking, including termination, amendment and remedies, are also set forth in APPENDIX B to this Official Statement. Breach of the Undertaking will not constitute an Event of Default under the Bond Resolution. A broker or dealer is to consider a known breach of the Undertaking, however, before recommending the purchase or sale of the Bonds in the secondary market. Thus, a failure on the part of the District to observe the Undertaking may adversely affect the transferability and liquidity of the Bonds and their market price. See APPENDIX B for the District s compliance with previous continuing disclosure undertakings. ADDITIONAL INFORMATION AND MISCELLANEOUS The descriptions of the Bond Resolution and other documents are brief summaries of certain provisions. Such summaries do not purport to be complete, and reference is made to such documents and contracts, copies of which are available, upon request and upon payment to the District of a charge for copying, mailing and handling, from the District, 7824 Mukilteo Speedway, Mukilteo, Washington

47 This Official Statement is not to be construed as a contract or agreement between the District and the Underwriter or holders of any of the Bonds. Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact. No representation is made that any of such statements will be realized. DISCLOSURE STATEMENT As a condition to the issuance of the Bonds, the District is required to deliver to the Underwriter at the time of the delivery of the Bonds a certificate substantially to the effect that this Official Statement did not, at the time the Bonds are issued, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in the light of the circumstances under which they were made, not misleading. APPROVAL OF OFFICIAL STATEMENT The execution and delivery of this Official Statement have been duly authorized by the District. MUKILTEO WATER AND WASTEWATER DISTRICT, SNOHOMISH COUNTY, WASHINGTON By: /s/ Jim Voetberg General Manager 41

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49 APPENDIX A Economic and Demographic Information

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51 ECONOMIC AND DEMOGRAPHIC INFORMATION The following discussion includes descriptive information obtained from a variety of sources. The information is presented to provide the reader with an overview of the economy of the District and County, but is not intended to be exhaustive or comprehensive. The District located in the City of Mukilteo (the City ) and serves approximately 29,832 customers in part of the City and the neighboring unincorporated portion of Snohomish County (the County ). The City of Everett ( Everett ) lies just north of the District. Population Trends Historical population trends are presented below for the City, Everett, the County and the State. Year City of Mukilteo City of Everett Snohomish County State of Washington , , ,000 6,968, , , ,500 6,882, , , ,900 6,817, , , ,000 6,767, , , ,335 6,724,540 Source: Washington State Office of Financial Management for inter-census estimates as of each April and the 2010 U.S. Census. Taxable Retail Sales The following table lists the taxable retail sales for all industries within the City, Everett and the County since Year City of Mukilteo City of Everett Snohomish County $185,745,985 $1,755,846,682 $ 8,520,995, ,314,021 2,453,078,134 11,172,614, ,296,280 2,402,359,979 10,341,322, ,477,018 2,301,802,843 9,742,663, ,435,413 2,307,525,524 9,735,983, ,291,092 2,242,049,220 9,614,802,878 1 First three quarters only. Source: Washington State Department of Revenue. A-1

52 Median Household Income Trends The following table shows the median household income in the County and the State for years 2010 through Year Snohomish County Washington State 2014 $65,454 $58, ,740 57, ,033 56, ,687 55, ,034 54,888 Source: Washington State Office of Financial Management. Values are in current dollars, 2013 figures are preliminary and 2014 figures are projected. Personal Income Trends The following table shows total and per capita personal income growth in the County from 2009 through 2013, the most recent data available from this source. Snohomish County Year Total Personal Income (000 s) Per Capita Income 2013 $34,858,553 $46, ,570,183 45, ,266,357 43, ,324,620 42, ,294,394 43,616 Source: U.S. Department of Commerce, Regional Economic Information Center, Bureau of Economic Analysis. A-2

53 Nonagricultural Wage and Salary Employment in Snohomish County The following table presents nonagricultural wage and salary employment in the County for years 2010 through February Figures are represented in thousands. Annual Average Employment Sector Total Nonfarm Mining, Logging, and Construction Manufacturing Trade, Transportation, and Utilities Information Financial Activities Professional and Business Services Educational and Health Services Leisure and Hospitality Other Services Government Average through February Source: Washington State Department of Employment Security. Residential Building Permit Data The following table presents the number and value of residential building permits in the City and Everett from 2010 through City of Mukilteo Single Family Duplexes/Multi-Family Year Permits Value Permits Units Value $10,601, $ ,502, ,573, ,891, ,064, City of Everett Single Family Duplexes/Multi-Family Year Permits Value Permits Units Value $28,329, $ 5,558, ,939, ,983, ,846, , ,206, ,574, ,321, ,721 Source: U.S. Census Bureau. A-3

54 Major Employers The following table lists the major employers in the County. Major Employers Employer Product/Business No. of Employees The Boeing Company Aircraft Manufacturing 40,000 U.S. Naval Station Everett Military 6,350 Washington State (includes colleges) Government 5,400 Providence Regional Medical Center Medical Services 3,500 Tulalip Tribe Enterprises Real Estate, Retail, Gaming 3,500 Snohomish County Government 2,700 Everett Clinic Healthcare 2,500 Premera Blue Cross Health Insurer 2,400 Walmart Retail 2,056 Everett School District Education 2,025 Phillips Medical Systems Ultrasound Technology 2,000 Edmonds School District Education 1,865 Safeway Retail - Grocery 1,700 Fred Meyer Retail - Grocery 1,700 Swedish Edmonds Hospital Healthcare 1,600 Fluke Electronics (Danaher) Electronic Test Equipment 1,200 Marysville School District Education 1,200 Albertson s Retail 1,200 City of Everett Government 1,136 Aviation Technical Services Aircraft Maintenance 1,000 Source: Economic Alliance Snohomish County, Labor Force and Unemployment The following table shows labor force and employment data for the County from 2010 through February 2015, as well as unemployment rates for the State and the United States for the same period. Snohomish County Unemployment Rates Year Labor Force Employed Snohomish County State of Washington United States , , % 6.9% 5.6% , , , , , , , , , , Average through February Source: Washington State Department of Employment Security. A-4

55 APPENDIX B Continuing Disclosure

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57 UNDERTAKING TO PROVIDE CONTINUING DISCLOSURE To meet the requirements of paragraph (b)(5) of Rule 15c2-12, as applicable to a participating underwriter for the Bonds, the District makes the following written Undertaking (the Undertaking ) for the benefit of holders of the Bonds: Undertaking to Provide Annual Financial Information and Notice of Listed Events The District undertakes to provide or cause to be provided, either directly or through a designated agent, to the MSRB, in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB: (i) (ii) (iii) Annual financial information and operating data of the type included in the final official statement for the Bonds and described in the Bond Resolution ( annual financial information ); Timely notice (not in excess of 10 business days after the occurrence of the event) of the occurrence of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notice of Proposed Issue (IRS Form 5701 TEB) or other material notices or determinations with respect to the tax status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) bond calls (other than scheduled mandatory redemptions of Term Bonds), if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the District, as such Bankruptcy Events are defined in Rule 15c2-12; (13) the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material; and Timely notice of a failure by the District to provide required annual financial information on or before the date specified in the Bond Resolution. Type of Annual Financial Information Undertaken to be Provided The annual financial information that the District undertakes to provide will consist of: (i) (1) annual financial statements prepared (except as noted in the financial statements) in accordance with applicable generally accepted accounting principles applicable to local governmental units of the State such as the District, as such principles may be changed from time to time, which statements may be unaudited, provided, that if and when audited financial statements are prepared and available they will be provided; (2) a statement of authorized, issued and outstanding bonded debt secured by Net Revenue; (3) debt service B-1

58 (ii) (iii) coverage ratios; and (4) general operating statistics such as the number of connections, the amount of water consumed and revenues; Will be provided not later than the last day of the ninth month after the end of each fiscal year of the District (currently, a fiscal year ending December 31), as such fiscal year may be changed as required or permitted by State law, commencing with the District s fiscal year ending December 31, 2014; and May be provided in a single or multiple documents, and may be incorporated by specific reference to documents available to the public on the Internet website of the MSRB or filed with the SEC. Amendment of Undertaking The Undertaking is subject to amendment after the primary offering of the Bonds without the consent of any holder of any Bond, or of any broker, dealer, municipal securities dealer, participating underwriter, Rating Agency or the MSRB, under the circumstances and in the manner permitted by Rule 15c2-12. The District will give notice to the MSRB of the substance (or provide a copy) of any amendment to the Undertaking and a brief statement of the reasons for the amendment. If the amendment changes the type of annual financial information to be provided, the annual financial information containing the amended financial information will include a narrative explanation of the effect of that change on the type of information to be provided. Termination of Undertaking The District s obligations under this Undertaking will terminate upon the legal defeasance of all of the Bonds. In addition, the District s obligations under this Undertaking will terminate if those provisions of Rule 15c2-12 which require the District to comply with this Undertaking become legally inapplicable in respect of the Bonds for any reason, as confirmed by an opinion of Bond Counsel delivered to the District, and the District provides timely notice of such termination to the MSRB. Remedy for Failure to Comply with Undertaking As soon as practicable after the District learns of any failure to comply with the Undertaking, the District will proceed with due diligence to cause such noncompliance to be corrected. No failure by the District or other obligated person to comply with the Undertaking will constitute an event of default (as defined in the Bond Resolution) in respect of the Bonds. The sole remedy of a Beneficial Owner of a Bond will be to take action to compel the District or other obligated person to comply with the Undertaking, including seeking an order of specific performance from an appropriate court. Compliance with Prior Continuing Disclosure Undertakings In the past five years, the District had two written continuing disclosure undertakings in effect under Rule 15c2-12 with respect to its 2008 Bonds and its 2012 Bonds (the Prior Undertakings ). The District timely filed with EMMA the financial statements required under the Prior Undertaking. In preparation of this Official Statement, the District determined to file additional operating data in accordance with the undertaking relating to the Bonds. The District does not believe it has failed to comply, in any material respect, with the Prior Undertakings in the past five years. B-2

59 APPENDIX C Form of Legal Opinion

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61 Mukilteo Water and Wastewater District Snohomish County, Washington [FORM OF BOND COUNSEL OPINION] [Date of Closing] Re: Mukilteo Water and Wastewater District, Snohomish County, Washington $4,885,000 Water and Wastewater Revenue Refunding Bonds, 2015 We have served as bond counsel to Mukilteo Water and Wastewater District, Snohomish County, Washington (the District ), in connection with the issuance of the above-referenced bonds (the Bonds ), and in that capacity have examined such law and such certified proceedings and other documents as we have deemed necessary to render this opinion. As to matters of fact material to this opinion, we have relied upon representations contained in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. The Bonds are issued by the District pursuant to Resolution No (the Bond Resolution ) to provide the funds necessary to refund a portion of the District s outstanding Water and Wastewater Improvement and Refunding Revenue Bonds, 2008, and pay the costs of issuance and sale of the bonds, all as set forth in the Bond Resolution. Reference is made to the Bonds and the Bond Resolution for the definitions of capitalized terms used and not otherwise defined herein. We have not been engaged to review and thus express no opinion concerning the completeness or accuracy of any official statement, offering circular or other sales or disclosure material relating to the issuance of the Bonds or otherwise used in connection with the Bonds. Under the Internal Revenue Code of 1986, as amended (the Code ), the District is required to comply with certain requirements after the date of issuance of the Bonds in order to maintain the exclusion of the interest on the Bonds from gross income for federal income tax purposes, including, without limitation, requirements concerning the qualified use of Bond proceeds and the facilities financed or refinanced with Bond proceeds, limitations on investing gross proceeds of the Bonds in higher yielding investments in certain circumstances and the arbitrage rebate requirement to the extent applicable to the Bonds. The District has covenanted in the Bond Resolution to comply with those requirements, but if the District fails to comply with those requirements, interest on the Bonds could become taxable retroactive to the date of issuance of the Bonds. We have not undertaken and do not undertake to monitor the District s compliance with such requirements. TEL: FAX: THIRD AVENUE, SUITE 3400 SEATTLE, WASHINGTON SEATTLE WASHINGTON SPOKANE WASHINGTON C-1

62 Based upon the foregoing, as of the date of initial delivery of the Bonds to the purchaser thereof and full payment therefor, it is our opinion that under existing law: 1. The District is a duly organized and legally existing municipal corporation under the laws of the State of Washington. 2. The Bonds have been duly authorized and executed by the District and are issued in full compliance with the provisions of the Constitution and laws of the State of Washington and the resolutions of the District relating thereto. 3. The Bonds constitute valid and binding obligations of the District payable solely out of the Net Revenue of the System and all ULID Assessments on their collection to be paid into the Bond Fund, except only to the extent that enforcement of payment may be limited by bankruptcy, insolvency or other laws affecting creditors rights and by the application of equitable principles and the exercise of judicial discretion in appropriate cases. 4. The Bonds are not general obligations of the District. 5. Assuming compliance by the District after the date of issuance of the Bonds with applicable requirements of the Code, the interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax applicable to individuals; however, while interest on the Bonds also is not an item of tax preference for purposes of the alternative minimum tax applicable to corporations, interest on the Bonds received by corporations is to be taken into account in the computation of adjusted current earnings for purposes of the alternative minimum tax applicable to corporations, interest on the Bonds received by certain S corporations may be subject to tax, and interest on the Bonds received by foreign corporations with United States branches may be subject to a foreign branch profits tax. We express no opinion regarding any other federal tax consequences of receipt of interest on the Bonds. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. We bring to your attention the fact that the foregoing opinions are expressions of our professional judgment on the matters expressly addressed and do not constitute guarantees of result. Respectfully submitted, C-2

63 APPENDIX D Audited Financial Statements

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65 Financial Statements Audit Report Mukilteo Water and Wastewater District Snohomish County For the period January 1, 2012 through December 31, 2013 Published December 31, 2014 Report No

66 Washington State Auditor Troy Kelley December 31, 2014 Board of Commissioners Mukilteo Water and Wastewater District Mukilteo, Washington Report on Financial Statements Please find attached our report on the Mukilteo Water and Wastewater District s financial statements. We are issuing this report in order to provide information on the District s financial condition. Sincerely, TROY KELLEY STATE AUDITOR OLYMPIA, WA Insurance Building, P.O. Box Olympia, Washington (360) TDD Relay (800)

67 TABLE OF CONTENTS Independent Auditor s Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards... 4 Independent Auditor s Report On Financial Statements... 6 Financial Section... 9 About The State Auditor s Office Washington State Auditor's Office Page 3

68 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Mukilteo Water and Wastewater District Snohomish County January 1, 2012 through December 31, 2013 Board of Commissioners Mukilteo Water and Wastewater District Mukilteo, Washington We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the Mukilteo Water and Wastewater District, Snohomish County, Washington, as of and for the years ended December 31, 2013 and 2012, and the related notes to the financial statements, which collectively comprise the District s basic financial statements, and have issued our report thereon dated December 12, As discussed in Note 1 to the financial statements, during the year ended December 31, 2013, the District implemented Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audits of the financial statements, we considered the District s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control. Accordingly, we do not express an opinion on the effectiveness of the District s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, Washington State Auditor's Office Page 4

69 or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the District s financial statements are free from material misstatement, we performed tests of the District s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. TROY KELLEY STATE AUDITOR OLYMPIA, WA December 12, 2014 Washington State Auditor's Office Page 5

70 INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS Mukilteo Water and Wastewater District Snohomish County January 1, 2012 through December 31, 2013 Board of Commissioners Mukilteo Water and Wastewater District Mukilteo, Washington REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the Mukilteo Water and Wastewater District, Snohomish County, Washington, as of and for the years ended December 31, 2013 and 2012, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed on page 9. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 Washington State Auditor's Office Page 6

71 considers internal control relevant to the District 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 District 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Mukilteo Water and Wastewater District, as of December 31, 2013 and 2012, and the changes in financial position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. Matters of Emphasis As discussed in Note 1 to the financial statements, in 2013, the District adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. 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 10 through 15 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any Washington State Auditor's Office Page 7

72 assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated December 12, 2014 on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control over financial reporting and compliance. TROY KELLEY STATE AUDITOR OLYMPIA, WA December 12, 2014 Washington State Auditor's Office Page 8

73 FINANCIAL SECTION Mukilteo Water and Wastewater District Snohomish County January 1, 2012 through December 31, 2013 REQUIRED SUPPLEMENTARY INFORMATION Management s Discussion and Analysis 2013 and 2012 BASIC FINANCIAL STATEMENTS Statement of Net Position 2013 and 2012 Statement of Revenues, Expenses and Changes in Net Position 2013 and 2012 Statement of Cash Flows 2013 and 2012 Notes to Financial Statements 2013 and 2012 Washington State Auditor's Office Page 9

74 MUKILTEO WATER AND WASTEWATER DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 AND 2012 INTRODUCTION Mukilteo Water and Wastewater District was founded in 1920 and provides water and wastewater services to customers residing within the District boundaries. Our mission is to provide safe, quality service and excellent customer service in a reliable, cost effective manner. MANAGEMENT S DISCUSSION AND ANALYSIS This section of management s discussion and analysis presents our review of the District s financial position as of December 31, 2013 and 2012 and our financial performance for the years then ended. Please read these comments in conjunction with the District s financial statements, which follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS The financial statements include a statement of net position, statement of revenues, expenses and changes in fund net position, statement of cash flows and notes to the financial statements. The statement of net position presents total assets and deferred outflows of resources and total liabilities and deferred inflows of resources with the difference between the two totals reported as net position. It provides information about the nature and amounts of investments in resources (assets), consumption of resources that are applicable to future periods (deferred outflows), obligations to District creditors (liabilities) and the acquisition of resources that are applicable to a future reporting period (deferred inflows). It provides a basis for evaluating the capital structure of the District and assessing its liquidity and financial flexibility. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial condition of the District is improving or deteriorating. The statement of revenues, expenses and changes in fund net position presents the results of the District s business activities over the course of the year. This information can be used to determine whether the District has successfully recovered all its costs through its user fees and other charges, and to evaluate our profitability and credit worthiness. The statement of cash flows reports cash receipts, cash payments and net changes in cash resulting from operating, financing and investing activities over the course of the year. It presents information regarding where cash came from and what it was used for. The notes to the financial statements provide useful information regarding the District s significant accounting policies, explain significant account balances and activities, certain material risks, estimates, obligations, commitments, contingencies, and subsequent events, if any. Washington State Auditor's Office Page 10

75 MUKILTEO WATER AND WASTEWATER DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 AND 2012 CONDENSED STATEMENTS OF NET POSITION AT DECEMBER 31 Restated * Capital assets $ 92,145,824 $ 88,873,562 $ 86,603,259 Other assets 15,402,038 18,437,633 18,295,371 Total assets $ 107,547,862 $ 107,311,195 $ 104,898,630 Deferred outflows of resources $ 17,022 $ 21,242 $ 26,025 Long-term liabilities $ 22,226,913 $ 23,416,136 $ 21,515,986 Other liabilities 3,458,855 3,797,852 3,611,450 Total liabilities $ 25,685,768 $ 27,213,988 $ 25,127,436 Deferred inflows of resources $ - $ - $ - Net investment in capital assets $ 68,398,861 $ 66,646,054 $ 65,601,447 Restricted amounts 1,325,481 1,255,414 1,146,058 Unrestricted amounts 12,154,774 12,216,981 13,049,714 Total net position $ 81,879,116 $ 80,118,449 $ 79,797,219 CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED DECEMBER 31 Restated * Wastewater service revenue $ 6,556,929 $ 6,258,645 $ 5,875,458 Water service revenue 3,460,418 3,189,130 2,921,941 Other wastewater operating revenues 91, , ,155 Other water operating revenues 212, , ,439 Total operating revenues 10,321,398 9,845,317 9,228,993 Wastewater operating expenses 2,010,816 1,864,385 1,859,608 Water operating expenses 1,440,207 1,497,272 1,501,484 General and administrative expenses, wastewater 1,507,819 1,337,836 1,125,327 General and administrative expenses, water 918, , ,682 Depreciation, wastewater 2,030,742 1,975,746 1,925,951 Depreciation, water 675, , ,623 Total operating expenses 8,583,638 8,211,217 7,874,675 Operating income 1,737,760 1,634,100 1,354,318 Non-operating revenue: Interest 36,535 46,361 53,563 Non-operating expenses: Bond issue costs - (50,108) - Interest and amortization (317,341) (243,294) (298,083) Net loss on disposal of assets (549,183) (1,373,041) (106,621) Income before capital contributions 907,771 14,018 1,003,177 Capital contributions 852, , ,866 Increase in net position, as restated $ 1,760,667 $ 321,230 $ 1,588,043 * Restatement due to implementation of GASB Statement No. 65. Refer to note 1 of the notes to the financial statements for additional information. Washington State Auditor's Office Page 11

76 MUKILTEO WATER AND WASTEWATER DISTRICT MANAGEMENT S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 AND 2012 FINANCIAL POSITION The District s overall financial position continues to be strong with sufficient liquidity, growing revenues and debt capacity to finance future capital improvements if necessary. The District is financed primarily by equity and substantial liquid assets are available to fund liabilities and construction. Capital assets are increasing due to growth in the District s customer base and upgrades to the District s water and wastewater system. The District is located in Snohomish County, Washington. The following charts indicate the components of financial position: 2013 STATEMENT OF NET POSITION 32% 1% 6% 43% Capital assets Other assets Deferred outflows of resources Long-term liabilities Other liabilities Deferred inflows of resources 0% 1% 10% 0% 7% Net investment in capital assets Restricted amounts Unrestricted amounts COMPARATIVE STATEMENT OF NET POSITION $100 $90 Capital assets M i l l i o n s $80 $70 $60 $50 $40 $30 $20 $10 $ Other assets Deferred outflows of resources Long-term liabilities Other liabilities Deferred inflows of resources Total net position Washington State Auditor's Office Page 12