Wilkinsburg-Penn Joint Water Authority

Transcription

1 Wilkinsburg-Penn Joint Water Authority Financial Statements and Required Supplementary, Supplementary, and Other Information Years Ended December 31, 2014 and 2013 with Independent Auditor s Reports

2 YEARS ENDED DECEMBER 31, 2014 AND 2013 TABLE OF CONTENTS Independent Auditor's Report Management s Discussion and Analysis i Financial Statements: Statements of Net Position 1 Statements of Revenues, Expenses, and Changes in Net Position 3 Statements of Cash Flows 4 Notes to Financial Statements 5 Required Supplementary Information - Pension: Schedule of Pension Funding Progress 22 Schedule of Employer Contributions 23 Note to Required Supplementary Information 24 Required Supplementary Information - OPEB: Schedule of OPEB Funding Progress 25 Note to Required OPEB Supplementary Information 26 Supplementary Information: Property, Plant, and Equipment Schedule 1 27 Other Current Liabilities Schedule 2 28 Capital Contributions Schedule 3 29

3 YEARS ENDED DECEMBER 31, 2014 AND 2013 TABLE OF CONTENTS (Continued) Fixed Asset Activity Schedule 4 30 Other Information - Pension Related Schedules: Statement of Plan Net Position Schedule 5 32 Statement of Changes in Plan Net Position Schedule 6 33 Note to Pension Related Schedules 34 Independent Auditor s Report in Accordance with Government Auditing Standards: 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 35

4 Independent Auditor s Report Board of Directors Wilkinsburg-Penn Joint Water Authority Report on the Financial Statements We have audited the accompanying financial statements of the Wilkinsburg-Penn Joint Water Authority (Authority), as of and for the years ended December 31, 2014 and 2013, and the related notes to the financial statements, which collectively comprise the Authority s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express 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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of December 31, 2014 and 2013, and the respective 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.

5 Board of Directors The Wilkinsburg-Penn Joint Water Authority Independent Auditor s Report Page Two Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis, the pension information, and the post-employment benefits other than pension benefits information presented as the required supplementary information as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Authority s basic financial statements. The accompanying supplementary information and the pension related schedules as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. This information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The pension related schedules as listed in the table of contents have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 18, 2015 on our consideration of the Authority 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 Authority s internal control over financial reporting and compliance. Pittsburgh, Pennsylvania March 18, 2015

6 Wilkinsburg-Penn Joint Water Authority MANAGEMENT S DISCUSSION AND ANALYSIS December 31, 2014 As management of the Wilkinsburg-Penn Joint Water Authority (Authority), we offer readers of the Authority s financial statements this narrative overview and analysis of the financial activities of the Authority for the fiscal year ended December 31, We encourage readers to consider the information presented here in conjunction with the Authority s financial statements, which begin on page 1. Financial Highlights The assets of the Authority exceeded its liabilities at the close of the most recent fiscal year by $90,183,350 (net position), representing an increase of $3,525,618 from December 31, The Authority had operating revenues of $24,198,290, operating expenses of $21,672,715, non-operating revenues of $1,020,197, non-operating expenses of $16,938, and interest expense of $255,296 for the year ended December 31, Other condensed financial information is included in the following tables: Condensed Statements of Net Position Table 1 Fiscal Year Fiscal Year Dollar Change Current assets $ 22,559,190 $ 20,148,952 $ 2,410,238 Capital assets and other long-term assets 81,510,958 79,738,053 1,772,905 Total Assets $ 104,070,148 $ 99,887,005 $ 4,183,143 Current liabilities $ 5,270,556 $ 4,440,830 $ 829,726 Noncurrent liabilities 8,616,242 8,788,443 (172,201) Total Liabilities $ 13,886,798 $ 13,229,273 $ 657,525 Net investment in capital assets $ 66,682,140 $ 65,159,880 $ 1,522,260 Restricted net position 7,179,652 6,092,563 1,087,089 Unrestricted net position 16,321,558 15,405, ,269 Total Net Position $ 90,183,350 $ 86,657,732 $ 3,525,618 i

7 Condensed Statements of Net Position Table 2 Fiscal Year Fiscal Year Dollar Change Current assets $ 20,148,952 $ 17,868,252 $ 2,280,700 Capital assets and other long-term assets 79,738,053 78,695,335 1,042,718 Total Assets $ 99,887,005 $ 96,563,587 $ 3,323,418 Current liabilities $ 4,440,830 $ 4,195,171 $ 245,659 Noncurrent liabilities 8,788,443 9,569,945 (781,502) Total Liabilities $ 13,229,273 $ 13,765,116 $ (535,843) Net investment in capital assets $ 65,159,880 $ 63,300,718 $ 1,859,162 Restricted net position 6,092,563 6,092,563 - Unrestricted net position 15,405,289 13,405,190 2,000,099 Total Net Position $ 86,657,732 $ 82,798,471 $ 3,859,261 Condensed Statements of Revenues, Expenses, and Changes in Net Position Table 3 Fiscal Year Fiscal Year Dollar Change Operating revenues $ 24,198,290 $ 22,613,191 $ 1,585,099 Nonoperating revenues 1,020, ,082 77,115 Total revenues 25,218,487 23,556,273 1,662,214 Operating expenses (operations) 21,672,715 20,049,486 1,623,229 Nonoperating expenses 16,938 86,487 (69,549) Interest expense 255, ,415 (24,119) - Total expenses 21,944,949 20,415,388 1,529,561 Net Income before Capital Contributions 3,273,538 3,140, ,653 Capital contributions 252, ,376 (466,296) Net Income 3,525,618 3,859,261 (333,643) Net position, beginning of year 86,657,732 82,798,471 3,859,261 Net position, end of year $ 90,183,350 $ 86,657,732 $ 3,525,618 ii

8 Condensed Statements of Revenues, Expenses, and Changes in Net Position Table 4 Fiscal Year Fiscal Year Dollar Change Operating revenues $ 22,613,191 $ 22,658,036 $ (44,845) Nonoperating revenues 943, , ,488 Total revenues 23,556,273 23,390, ,643 Operating expenses (operations) 20,049,486 19,386, ,870 Nonoperating expenses 86,487 73,896 12,591 Interest expense 279, ,575 (547,160) - Total expenses 20,415,388 20,287, ,301 Net Income before Capital Contributions 3,140,885 3,103,543 37,342 Capital contributions 718,376 18, ,170 Net Income 3,859,261 3,121, ,512 Net position, beginning of year 82,798,471 79,676,722 3,121,749 Net position, end of year $ 86,657,732 $ 82,798,471 $ 3,859,261 Overview of the Financial Statements This Management s Discussion and Analysis is intended to serve as an introduction to the Authority s basic financial statements. Since the Authority is engaged only in business-type activities, its basic financial statements are comprised of only two components: 1) enterprise fund financial statements and 2) notes to financial statements. This report also contains other supplementary information in addition to the basic financial statements. Enterprise fund financial statements. The enterprise fund financial statements are designed to provide readers with a broad overview of the Authority s finances, in a manner similar to private-sector businesses. The statements of net position present information on the Authority s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. The statements of revenues, expenses, and changes in net position present information showing how the Authority s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the cash flows. Thus, revenues and expenses are reported in these statements for some items that will only result in cash flows in future fiscal periods (e.g., earned but unused vacation leave). iii

9 The statements of cash flows present information on the Authority s flow of cash during the most recent fiscal year. The flow of cash is broken down into four component activities: operating, noncapital financing, capital financing, and investing. These statements also provide a reconciliation of operating income to cash flows from operating activities. Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government s financial position. In the case of the Authority, assets exceeded liabilities by $90,183,350 at the close of the 2014 fiscal year. Assets exceeded liabilities by $86,657,732 at the close of the 2013 fiscal year. By far the largest portion of the Authority s assets (71% in 2014 and 74% in 2013) reflects capital assets (e.g., buildings, machinery, and equipment). Net fixed assets, including work in progress, had a book value of $74,205,071 and $73,503,054 as of December 31, 2014 and 2013, respectively. The Authority uses these capital assets to provide services to its customers; consequently, these assets are not available for future spending. The unrestricted net position of the Authority is available for future use to provide services. The net position of the Authority increased by $3,525,618 and $3,859,261 during 2014 and 2013, respectively. Most of this increase can be attributed to an increase in cash reserves from delaying certain budgeted capital projects. Operating revenues increased by $1,585,099 in 2014 due to a 7% increase in residential water revenue. This increase is caused by a 7.5% billed water rate increase that became effective January 1, Operating revenues decreased by $44,845 in 2013 due to a 25% reduction in the unbilled water revenue account. This decrease was due to the Authority changing approximately 7,200 accounts from quarterly billing to monthly billing. Operating expenses increased by $1,623,229 (8%) in 2014 and $662,870 (3%) in 2013 due to an increase in labor costs, health care costs, and paving costs. The Authority continues to utilize every effort possible to keep cost increases to a minimum. Capital Asset and Debt Administration CAPITAL ASSETS As of December 31, 2014, the Authority s capital assets amounted to $74,205,071 (net of accumulated depreciation). These assets include buildings, improvements, equipment, computer software, infrastructure, and construction in progress of $1,517,468. The Authority has begun the task of upgrading the large transmission mains. For the foreseeable future the Authority does not plan to issue bonds to fund these projects. The Authority plans to only spend on capital what it can generate from current revenues. iv

10 LONG-TERM DEBT As of December 31, 2014, the Authority had bonds outstanding of $7,560,000, of which $850,000 is payable within one year. This debt financed capital asset acquisition and rehabilitation. POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS The Authority offers post-employment benefits other than pension benefits, and a liability is recorded on the financial statements for these benefits. The Authority, at this time, does not plan to fund the total amount of the liability but will instead continue to pay the premiums for the retirees as they come due. As of December 31, 2014, this liability was $1,817,076. FUTURE CHANGES AFFECTING OPERATING ACTIVITIES Near the end of the first quarter of 2016, the Authority will no longer provide water to the communities of Monroeville and Plum. These communities supply approximately 12% of the current year s water revenues. Plans are being made to make the necessary changes to minimize the effect this will have on overall Authority operations. Contacting the Authority s Financial Management The financial report is designed to provide a general overview of the Authority s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Finance Director, Wilkinsburg-Penn Joint Water Authority, 2200 Robinson Blvd., Pittsburgh, PA v

11 STATEMENTS OF NET POSITION DECEMBER 31, 2014 AND 2013 Assets Current assets: Cash and cash equivalents $ 12,229,134 $ 12,712,674 Investments and time deposits 5,791,174 2,185,028 Accounts receivable due from customers less allowance for losses in collection of $128,500 in 2014 and ,877,207 1,714,688 Unbilled water service 403,609 1,557,868 Other notes and accounts receivable, net 1,212,789 1,056,033 Inventories of materials and supplies 962, ,872 Prepaid insurance 82,491 43,789 Total current assets 22,559,190 20,148,952 Noncurrent assets: Land 531, ,130 Construction in progress 1,517,468 4,267,204 Total nondepreciable fixed assets 2,048,598 4,798,334 Property, plant, and equipment 129,230, ,309,003 Less: accumulated depreciation (57,074,154) (54,604,283) Net depreciable fixed assets 72,156,473 68,704,720 Total fixed assets 74,205,071 73,503,054 Restricted funds held by Trustee: Investments 7,179,652 6,092,563 Other assets 126, ,436 Total Assets $ 104,070,148 $ 99,887,005 (Continued) See accompanying notes to financial statements. 1

12 STATEMENTS OF NET POSITION DECEMBER 31, 2014 AND 2013 (Continued) Liabilities Current Liabilities: Current maturities of Water Revenue Bonds payable $ 850,000 $ 825,000 Accounts payable 420, ,085 Accrued interest payable 69,151 76,369 Accrued salaries, wages, and pension 185,836 - Consumers' advances and deposits 275, ,501 Other current liabilities 3,469,420 2,752,875 Total current liabilities 5,270,556 4,440,830 Noncurrent Liabilities: Long-term debt, Water Revenue Bonds payable Less: current maturities and unamortized deferred refunding loss 6,710,000 7,560,000 Unamortized premium 89, ,610 Net other postemployment benefit obligation 1,817,076 1,127,833 Total noncurrent liabilities 8,616,242 8,788,443 Total Liabilities 13,886,798 13,229,273 Net Position Net investment in capital assets 66,682,140 65,159,880 Restricted for debt service 5,679,552 4,592,463 Restricted for capital projects 1,500,100 1,500,100 Unrestricted 16,321,558 15,405,289 Total Net Position 90,183,350 86,657,732 Total Liabilities and Net Position $ 104,070,148 $ 99,887,005 (Concluded) See accompanying notes to financial statements. 2

13 STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEARS ENDED DECEMBER 31, 2014 AND Operating Revenues $ 24,198,290 $ 22,613,191 Operating Expenses (21,672,715) (20,049,486) Operating income 2,525,575 2,563,705 Non-operating: Non-operating revenues 1,020, ,082 Non-operating expenses (16,938) (86,487) Interest charges on long-term debt (255,296) (279,415) Net Income Before Capital Contributions 3,273,538 3,140,885 Capital Contributions 252, ,376 Net Income 3,525,618 3,859,261 Net Position: Beginning of year 86,657,732 82,798,471 End of year $ 90,183,350 $ 86,657,732 See accompanying notes to financial statements. 3

14 STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2014 AND Cash Flows From Operating Activities: Cash received from users $ 42,165,833 $ 38,740,446 Cash payments to employees for service (12,068,106) (10,776,072) Cash payments to municipalities for sewage collections (17,162,508) (15,567,692) Cash payments to suppliers for goods and services (5,589,374) (6,424,659) Net cash provided by (used in) operating activities 7,345,845 5,972,023 Cash Flows From Non-Capital Financing Activities: Net jobbing work revenue ,134 Rental income 67,527 72,791 Penalty income 868, ,776 Other non-capital revenues (expenses) 66,748 (24,648) Net cash provided by (used in) non-capital financing activities 1,003, ,053 Cash Flows From Investing Activities: Proceeds from sales and maturities of investments 1,938,555 4,073,626 Purchase of investments (5,544,701) (4,082,305) Interest earned on investments 46 17,264 Net cash provided by (used in) investing activities (3,606,100) 8,585 Cash Flows From Capital and Related Financing Activities: Principal payments on debt (825,000) (805,000) Payments for capital acquisitions (4,146,202) (2,897,303) Interest paid (255,296) (279,415) Net cash provided by (used in) capital and related financing activities (5,226,498) (3,981,718) Net Increase (Decrease) in Cash and Cash Equivalents (483,540) 2,836,943 Cash and Cash Equivalents: Beginning of year 12,712,674 9,875,731 End of year $ 12,229,134 $ 12,712,674 Reconciliation of Operating Income to Net Cash and Cash Equivalents From Operating Activities: Operating income $ 2,525,575 $ 2,563,705 Adjustments to reconcile operating income to net cash provided by (used in) operating activities: Depreciation expense 2,606,715 2,555,751 Change in: Accounts receivable (162,519) (35,056) Unbilled water service 1,154, ,837 Other notes and accounts receivable (156,756) 68,375 Inventories (83,914) 6,384 Prepaid expenses (38,702) 1,382 Accounts payable (60,488) 33,193 Accrued salaries and wages 185,836 - Consumer advances received (refunded) (29,949) 2,407 Net other postemployment benefit obligation 689,243 54,942 Other accrued liabilities 716, ,103 Total adjustments 4,820,270 3,408,318 Net cash provided by (used in) operating activities $ 7,345,845 $ 5,972,023 Noncash Activities: Capital contributions $ 252,080 $ 718,376 See accompanying notes to financial statements. 4

15 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Wilkinsburg-Penn Joint Water Authority (Authority) was created under the Municipality Authorities Act of 1945 (Act No. 164 approved on May 2, 1945) by the Borough of Wilkinsburg and the Township of Penn (now known as the Municipality of Penn Hills). Other municipalities, which later became districts of the Authority, were the Boroughs of East Pittsburgh, Churchill, Edgewood, Forest Hills, North Braddock, Swissvale, and Turtle Creek. The Authority also directly services the following areas: East McKeesport, Wilmerding, Pitcairn, Chalfant, Wilkins Township, Braddock Hills, Rankin, and Trafford along with portions of Braddock, North Versailles, Monroeville, North Huntingdon, and Pittsburgh. Wholesale customers are those communities that buy their water from the Authority, but service their own users. Wholesale customers include Plum Borough, Monroeville, and Braddock. Wholesale agreements with Plum Borough and Monroeville will be ending in Revenues from these agreements represent approximately twelve percent of operating revenues. Reporting Entity Consistent with the Governmental Accounting Standards Board (GASB), the criteria used by the Authority to evaluate the possible inclusion of related entities within its reporting entity is financial accountability and the nature and significance of the relationship. Based upon the application of these criteria, management has identified no component units and only the accounts of the Authority are included in the financial statements. Additionally, the Authority does not meet the criteria to be included in any other governmental entity as a component unit. Basis of Accounting The Authority is considered to be an enterprise fund and, as such, is accounted for using the economic resources measurement focus and accrual basis of accounting. Accordingly, revenues are recognized when earned and expenses are recognized when incurred. Statements of Cash Flows The Authority considers all time deposits and highly liquid assets with maturities of three months or less when purchased to be cash equivalents. 5

16 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 Unbilled Water Services Unbilled water services reflect services performed as of December 31, 2014 and 2013, but not billed until after January 1, 2015 and Other Notes and Accounts Receivable Other notes and accounts receivable reflect sewage billed as of December 31, 2014 and Allowance for Losses in Collection Allowance for losses in collection represent an estimate based on management s review of collections in prior years. Property, Plant, and Equipment Property, plant, and equipment acquired since May 15, 1946, date of inception of the Authority, are carried at cost, including the Authority's labor and overhead. Depreciation is computed on the straight-line method with useful lives ranging from 5 to 85 years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts. A gain or loss on the retirement of these assets is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred, significant renewals and betterments are capitalized. A reduction of assets is made for retirements resulting from renewals and betterments. Investments Investments in PLGIT, a common law trust, and in money market funds are reported at fair market value. See Note 2 below for further discussion. Inventories Inventories are valued at average cost. Advances under Line Extension Agreements Advances from consumers for extension of services will revert to the Authority after the expiration of the related agreements (ten or twenty years) and will then be recognized as contributed capital. During the open years of the agreements, nominal amounts are generally refunded to the consumers for new taps. 6

17 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 Income Taxes The Authority is not subject to state or federal income taxes. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures or expenses during the reporting period. Actual results could differ from those estimates. Net Position Net Position is classified in three components. These classifications are defined as follows: Net investment in capital assets This component of net position consists of capital assets net of accumulated depreciation reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted This component of net position consists of constraints placed on net position use through external restrictions. As of December 31, 2014 and 2013, respectively, the Authority had $7,179,652 and $6,092,563 of restricted net position. Unrestricted This component of net position is the net amount of the assets and liabilities that are not included in the determination of net investment in capital assets or the restricted components of net position. Revenues The Authority distinguishes operating revenues and expenses from nonoperating revenues and expenses. Operating revenues and expenses generally result from providing services in connection with the Authority s principal ongoing operations. The principal operating revenues of the Authority are charges for the purification, pumping, distribution, and billing of water. Operating expenses for the Authority include the cost of services and administrative expenses. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. 7

18 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 Capital Contributions Capital contributions represent amounts contributed for the construction and purchase of property, plant, and equipment. Pending Pronouncements GASB has issued Statement No. 68, Accounting and Financial Reporting for Pensions, and Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, effective for fiscal years beginning after June 15, These statements revise existing guidance for the financial reports of most pension plans, and establish new financial reporting requirements for most governments that provide their employees with pension benefits. The effect of implementation of these statements has not yet been determined. Subsequent Events Subsequent events have been evaluated through the Independent Auditor s Report date, which is the date the financial statements were available to be issued. 2. CASH, CASH EQUIVALENTS, AND INVESTMENTS The Authority maintains all cash deposits in qualified public depositories and invests in securities of the United States Government. The Authority considers all time deposits and highly liquid assets with maturities of three months or less to be cash equivalents. The Authority is required by Act 72 of the Commonwealth of Pennsylvania to maintain its deposits in accounts that are properly collateralized. Collateralization is permitted to be on a "pooled basis." Custodial credit risk deposits: Custodial credit risk is the risk that in the event of a bank failure, the Authority s deposits may not be returned to it. The Authority does not have a formal deposit policy for custodial credit risk. As of December 31, 2014 and 2013, $12,377,016 and $12,129,504 of the Authority s bank balance of $12,627,380 and $12,629,504, respectively, were exposed to custodial credit risk. This portion of the deposit portfolio is collateralized in accordance with Act 72 of the Pennsylvania state legislature which requires the institution to pool collateral for all governmental deposits and have the collateral held by an approved custodian in the institution s name. As of December 31, 2014 and 2013, $250,364 and $500,000, respectively, of the bank balances are insured by the Federal Deposit Insurance Corporation. As of December 31, 2014 and 2013, deposits have an aggregate carrying amount of $12,229,134 and $12,712,674, respectively, and are reported as cash in the statements of net position. 8

19 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 Custodial credit risk investments: For an investment, this is the risk that, in the event of the failure of the counterparty, the government will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The Authority does not have a policy regarding custodial credit risk; however, deposits are in compliance with Act 72. PLGIT was established as a common law trust organized under the laws of the Commonwealth of Pennsylvania to enable designated governmental units to pool their available funds for investment in instruments. The Authority s deposits in these pooled funds are not subject to custodial credit risk because they are not evidenced by securities that exist in physical or book entry form. These funds are included in investments and time deposits on the statements of net position. The fair value of the Authority s position in the external investment pools is the same value of the pool shares. All investments in an external investment pool that is not SECregistered are subject to oversight by the Commonwealth of Pennsylvania. At December 31, 2014 and 2013, PLGIT investment balances were classified as follows: Bank Balance Carrying Amount December 31, 2014 December 31, 2014 Pooled Funds (interest-bearing cash equivalents): PLGIT $ 2,196,706 $ 2,196,716 Bank Balance Carrying Amount December 31, 2013 December 31, 2013 Pooled Funds (interest-bearing cash equivalents): PLGIT $ 2,185,028 $ 2,185,028 Included with the PLGT investment balances above, at December 31, 2014 and 2013, money market funds of $3,594,458 and $0, respectively, are included in current assets on the financial statements as investments and time deposits. Other Investments At December 31, 2014 and 2013, the Authority's investments were held in money market funds and are considered cash and cash equivalents. As of December 31, 2014 and 2013, the Authority's bank balance of these additional investments totaled $7,179,652 and $6,092,563, respectively, and the Authority's total carrying balances of these investments totaled $7,179,652 and $6,092,563, respectively. 9

20 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 Interest Rate Risk: The Authority does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation to the Authority. As of December 31, 2014 and 2013, all of the Authority s investments were rated AAA by Standard & Poor s. 3. PROPERTY, PLANT, AND EQUIPMENT The details of property, plant, and equipment at December 31 are as follows: Land $ 531,130 $ 531,130 Buildings, structures, and improvements 7,520,711 7,323,181 Water pumping stations 16,621,183 16,458,054 Reservoirs 15,711,819 14,973,112 Distribution system 80,463,129 75,292,397 General equipment 8,889,925 8,698,877 Construction work in progress 1,517,468 4,267,204 Construction not classified 23, , ,279, ,107,337 Less: accumulated depreciation (57,074,154) (54,604,283) $ 74,205,071 $ 73,503,054 Depreciation expense for the years 2014 and 2013 amounted to $2,606,715 and $2,555,751, respectively. Construction work in progress consists of projects related to the upgrade of the large transmission mains and the radio reading devices. 4. TRUST FUNDS The Authority has established certain funds with a Trustee as required under the 1982 Trust Indenture, as amended by supplements to the Trust Indenture. Funds are principally invested in money market instruments. 10

21 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 As required by the Fourth Supplemental to the Trust Indenture for Water Revenue Bonds dated as of July 15, Series of 1993, various monies are to be deposited periodically to the following funds for a specific purpose: Debt Service Reserve Fund To pay principal and interest at maturity or redeem prior to maturity. Capital Additions Fund To pay costs of acquiring and constructing capital additions. Surplus Fund Repository for undesignated funds above projected capital needs. As required by the Fifth Supplemental to the Trust Indenture for Water Revenue Bonds dated as of July 15, 1982, Series of 2002, various monies are to be deposited periodically to the following funds for a specified purpose: 2002 Debt Service Fund To pay interest and principal semi-annually on bonds Debt Service Reserve Fund To pay principal and interest at maturity or redeem prior to maturity Surplus Fund Repository for undesignated funds above projected capital needs. All of the requirements of the Trust Indenture have been met as of December 31, 2014 and The following amounts were held by the Trustee as of December 31: 11

22 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND Surplus Fund $ 729,494 $ 729,494 Debt Service Reserve Fund 1,424 1,424 Capital Additions Fund 1,500,100 1,500, Bond Sinking Fund 1,087, Debt Service Reserve Fund 3,226,589 3,226, Surplus Fund 634, ,957 $ 7,179,652 $ 6,092, LONG-TERM DEBT Bonds were first issued pursuant to a Trust Indenture dated as of July 15, 1982, (the 1982 Indenture) as amended and supplemented by a First Supplemental Trust Indenture dated as of September 27, 1983, a Second Supplemental Trust Indenture dated as of August 15, 1986, a Third Supplemental Trust Indenture dated as of June 15, 1992, a Fourth Supplemental Trust Indenture dated as of September 15, 1993, a Fifth Supplemental Trust Indenture dated as of October 15, 2002, and a Sixth Supplemental Trust Indenture dated as of July 15, The proceeds of the sale of the Series 2011 Water Revenue Bonds were used to advance refund all of the Authority s outstanding Water Revenue Bonds, Series A of The proceeds of the sale of the Series 2002 Water Revenue Bonds were used to pay the costs of capital projects as part of the Authority's Capital Program. The proceeds of the sale of the Series B 2002 Water Revenue Refunding Bonds were used to currently refund all of the outstanding Water Revenue Refunding Bonds, Series A of Water Revenue Refunding Bonds - Water Revenue Bonds, payable at December 31, 2014, are comprised of the following individual issues: $9,410,000 Water Revenue Bonds, Series of 2011, dated July 15, 2011, payable in annual principal installments commencing September 15, 2011, ranging from $90,000 to $1,050,000 through September 15, Average interest rate is 3%. $ 7,560,000 Less: Current portion (850,000) Long-term portion $ 6,710,000 12

23 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 The annual requirements to amortize all debt outstanding as of December 31, 2014, including interest payments of $1,132,181 for the Bonds, are as follows: Year Ending December 31, Principal Interest Total 2015 $ 850,000 $ 237,087 $ 1,087, , ,587 1,086, , ,337 1,090, , ,188 1,083, , ,438 1,085, ,050, ,544 3,259,544 $ 7,560,000 $ 1,132,181 $ 8,692,181 The following is a summary of bond payable transactions of the Authority for the year ended December 31, 2014: Balance at New Principal Balance at Interest December 31, 2013 Issuances Defeasement Payments December 31, 2014 Payments Water Revenue Bonds, Series of 2011 $ 8,385,000 $ - $ - $ (825,000) $ 7,560,000 $ 255,296 The Authority is required to make periodic payments for debt service to the Trustee to fund interest and principal payments to the bondholders. The following is a summary of bond payable transactions of the Authority for the year ended December 31, 2013: Balance at New Principal Balance at Interest December 31, 2012 Issuances Defeasement Payments December 31, 2013 Payments Water Revenue Bonds, Series of 2011 $ 9,190,000 $ - $ - $ (805,000) $ 8,385,000 $ 285,988 Debt Covenants The debt covenants for all revenue bonds contain rate covenant provisions requiring the Authority to charge rates for services that are sufficient to pay current expenses and to cover specified debt service amounts, and provide any amounts required to replenish the Debt Service Reserve Fund. For fiscal years 2014 and 2013, revenues generated plus operating cash 13

24 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 were sufficient to pay current expenses and cover the specified debt service amounts. All required debt service payments were made timely during 2014 and PENSION PLANS Plan Descriptions The Authority sponsors defined benefit pension plans that cover management employees and utility workers union employees of the Authority. The plans provide retirement and death benefits to plan members and their beneficiaries. The Authority retains the right to establish, amend, or terminate the benefit provisions of the plans. Plan provisions are established by municipal ordinance with the authority for municipal contributions required by Act 205 of the Commonwealth (Act). Membership of the plans consisted of the following at January 1, 2013, the date of the latest actuarial valuation: Management Utility Workers Union Retirees and beneficiaries receiving benefits Terminated plan members entitled to but not yet receiving benefits 1 6 Active plan members Disabled participants - - Total Summary of Significant Accounting Policies The Authority does not account for the investments or activity of its pension plans within the financial statements. Contributions and Funding Policy The Authority contributes to the plans on a regular basis an amount at least equal to the actuarial recommendation in order to maintain a proper funding level. During 2014 and 2013, the required MMO obligation for the plans was $594,912 and $511,359, respectively. 14

25 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 The Authority s 2014 and 2013 annual pension cost and contributions are as follows: 2014 Management Workers Union Total Annual pension cost $ 476,243 $ 118,669 $ 594,912 Contributions made 476, , , Management Workers Union Total Annual pension cost $ 390,925 $ 120,434 $ 511,359 Contributions made 390, , ,359 Three-Year Trend Information Management Annual Percentage Net Pension Year Pension of APC Obligation Ending Cost (APC) Contributed (Asset) 12/31/2012 $ 385, % $ - 12/31/ , % - 12/31/ , % - Utility Workers Union Annual Percentage Net Pension Year Pension of APC Obligation Ending Cost (APC) Contributed (Asset) 12/31/2012 $ 100, % $ - 12/31/ , % - 12/31/ , % - 15

26 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 Management Annual required contribution $ 476,243 $ 390,925 Interest on annual required contribution - - Adjustment to annual required contribution - - Annual pension cost 476, ,925 Contributions made (476,243) (390,925) Increase in pension obligation - - Net obligation - beginning of year - - Net obligation - end of year $ - $ - Utility Workers Union Annual required contribution $ 118,669 $ 120,434 Interest on annual required contribution - - Adjustment to annual required contribution - - Annual pension cost 118, ,434 Contributions made (118,669) (120,434) Increase in pension obligation - - Net obligation - beginning of year - - Net obligation - end of year $ - $ - Schedule of Funding Progress The Authority s funded status and related information for the Plans as of the latest actuarial valuation date, January 1, 2013, is as follows: 16

27 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND 2013 Management Excess Excess of (Deficiency) as a Actuarial Actuarial Assets Percentage of Value of Accrued Over (Under) Funded Covered Covered Assets Liability (AAL) AAL Ratio Payroll Payroll $ 8,864,368 $ 10,624,445 $ (1,760,077) 83.43% $ 2,195, % Utility Workers Union Excess Excess of (Deficiency) as a Actuarial Actuarial Assets Percentage of Value of Accrued Over (Under) Funded Covered Covered Assets Liability (AAL) AAL Ratio Payroll Payroll $ 16,208,645 $ 14,196,373 $ 2,012, % $ 3,964, % The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the date indicated. Additional information as of the latest actuarial valuation follows: Management Utility Workers Union Actuarial valuation date 1/1/2013 1/1/2013 Actuarial cost method Entry Age Entry Age Amortization method Level dollar closed Level dollar open Amortization period 9 years 17 years Asset valuation method Fair value Fair value Actuarial assumptions: Investment rate of return 7.5% - Pre-retirement 7.5% - Pre-retirement 5.0% - Post-retirement 5.0% - Post-retirement Projected salary increases 4.5% 4.5% Cost of living adjustments 3.00% 3.00% 17

28 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND POST-EMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (OPEBS) Plan Description The Authority will provide full-time employees who retire at age 62, 63, or 64 medical, dental, and vision coverage for the retiree and spouse until the retiree attains age 65. Life insurance benefits are also available to those who retire after age 55 with at least 5 years of service. For management employees, the amount of life insurance depends on the employment class reached upon retirement, which ranges from $6,000 to $12,250. For Union employees, the life insurance amount is $5,250. As of the January 1, 2014, actuarial report for health benefits, there were 26 management active plan participants and 59 union active participants and 2 management retired participants and 3 union retired participants receiving benefits. As of the January 1, 2014, actuarial report for life insurance benefits, there were 27 management active plan participants and 61 union active participants and 17 management retired participants and 32 union retired participants receiving benefits. Funding Policy Health and insurance benefits are expensed when incurred and are financed on a pay-as-you-go basis. No amounts were required to be reimbursed by retirees receiving benefits. The Authority s annual OPEB cost is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a closed period not to exceed 30 years. The following table shows the component of the Authority s annual OPEB cost for the year, the amount actually contributed, and changes in the Authority s net OPEB obligation. 18

29 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND Annual required contribution $ 1,075,850 $ 366,771 Interest on net OPEB obligation 50,752 48,280 Adjustment to annual required contribution (69,239) (65,866) Annual OPEB cost 1,057, ,185 Implicit rate subsidy - (48,280) Contributions made (368,120) (245,963) Increase in net OPEB obligation 689,243 54,942 Net OPEB obligation - beginning of year 1,127,833 1,072,891 Net OPEB obligation - end of year $ 1,817,076 $ 1,127,833 The annual required contribution for 2014 increased as a new actuary valuation was performed in 2014 which resulted in an increased liability for OPEB. The Authority s annual OPEB cost, the percentage of annual OPEB cost contributed and the net OPEB obligation were as follows: Annual Percentage Net OPEB Year OPEB of AOC Obligation Ending Cost (AOC) Contributed (Asset) 12/31/2012 $ 352,407 44% $ 1,072,891 12/31/ ,185 84% 1,127,833 12/31/2014 1,057,363 35% 1,817,076 The ARC for the current year was computed as of January 1, 2014 using the following actuarial assumptions: Actuarial cost method entry age normal cost Amortization method level dollar Amortization period 30-year open period Interest rate 4.5% compounded annually Mortality RP-2000 Combined Mortality Table projected with 75% of scale AA, Blue Collar Adjustment is applied for Union members. Cost trends Dental 0% for 2014 and 3% for all subsequent years Cost trends Medical declining scale starting with a 12% increase for 2014, 11% for 19

30 NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND , 10% for 2016, 9.25% for 2017, 8.5% for 2018 and 7.5% for 2019 with the rate of increase declining by 0.5% each year thereafter to 5% for 2024 and later. Disablement None assumed Retirement Age 62 Participant Percentage 100% of future eligible employees Coverage Level 75% elect husband/wife coverage, 25% elect individual Spouse Age: Female spouse assumed to be 3 years younger than male spouse. Rounding of Ages: Ages are rounded to nearest birthday in applying all age-based demographic assumptions to the determination of actuarial cost. As of January 1, 2014, the schedule of funding progress for the Authority s OPEB is as follows: Unfunded Actuarial Actuarial Actuarial Funded Value of Accrued Liability Accrued Liability Ratio Assets (a) (AAL) (b) (UAAL) (b)-(a) (a)/(b) Management $ - $ 3,778,429 $ 3,778,429 0% Union - 6,228,248 6,228,248 0% Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Healthcare cost trend assumptions are added on recent experience and anticipated future cost increases under the Authority s medical plans. Amounts determined regarding the funded status and the annual required contributions of the employer are subject to continual revision as actual results compared with past expectations and new estimates are made about the future. The schedule of funding progress presents multi-year trend information about whether the actuarial valuation of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time or each valuation and historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. 20