CITY OF WATER FUND (An Enterprise Fund of the City of Springfield, Illinois) For the Years Ended February 28, 2018 and February 28, 2017
TABLE OF CONTENTS Page(s) Independent Auditor s Report... 1-2 Financial Statements: Balance Sheets... 3-4 Statements of Revenues, Expenses and Changes in Net Position... 5 Statements of Cash Flows... 6-7 Notes to the Financial Statements... 8-38 Required Supplementary Information Illinois Municipal Retirement Fund Schedule of Employer Contributions... 39 Schedule of the Water Fund s Proportionate Share of the Net Pension Liability... 40
INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Members of the City Council City of Springfield, Illinois We have audited the accompanying financial statements of the Water Fund, an enterprise fund of the City of Springfield, Illinois, as of and for the year ended February 28, 2018, and the related notes to the financial statements, as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Water Fund'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 Water Fund'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 Water Fund of the City of Springfield, Illinois, as of February 28, 2018, 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. Page 1
Prior Period Financial Statements The financial statements of the Water Fund, as of and for the year ended February 28, 2017, were audited by other auditors whose report dated June 28, 2017, expressed an unmodified opinion on those statements. Emphasis of Matter As discussed in Note 1, the financial statements present only the Water Fund enterprise fund and do not purport to, and do not, present fairly the financial position of the City of Springfield, Illinois, as of February 28, 2018, the respective changes in financial position, or cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the required supplementary information as listed in the table of contents be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the 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 financial statements, and other knowledge we obtained during our audit of the 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. The Water Fund has omitted the Management's Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the financial statements. Such missing information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of the financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. Our opinion on the financial statements is not affected by this missing information. Madison, Wisconsin June 25, 2018 Page 2
FINANCIAL STATEMENTS
CITY OF SPRINGFIELD WATER FUND Balance Sheets February 28, 2018 and February 28, 2017 2018 2017 Assets Utility plant (Note 2): Property, plant, and equipment in service $ 272,179,213 $ 261,826,942 Less accumulated depreciation 66,712,660 62,423,151 205,466,553 199,403,791 Construction work in progress 280,588 5,411,289 Net utility plant 205,747,141 204,815,080 Other property and investments (Note 3): Auxiliary service property 8,059,607 7,976,946 Less accumulated depreciation 4,266,850 4,132,426 3,792,757 3,844,520 Nonutility property, Hunter Lake, nondepreciable 24,276,364 23,742,728 Total other property and investments 28,069,121 27,587,248 Restricted assets: Cash and cash equivalents (Notes 4 and 5) 25,784,110 30,036,487 Investments (Notes 4 and 5) 800,000 - Accrued interest receivable 5,518 - Total restricted assets 26,589,628 30,036,487 Current assets: Cash and cash equivalents (Note 4) 2,782,802 6,970,575 Investments (Note 4) 2,000,000 - Accrued interest receivable 4,920 - Billed accounts receivable - consumers, net of allowance for doubtful accounts of $15,724; $13,520 in 2018 and 2017, respectively 2,275,310 1,921,772 Unbilled utility and other receivables, net of allowance for doubtful accounts of $14,635; $8,384 in 2018 and 2017, respectively 1,609,622 1,458,662 Inventories - materials and supplies 1,237,839 967,253 Other assets 15,810 15,810 Due from primary government (Note 6) 75,289 53,507 Prepaid expenses 94,737 109,283 Total current assets 10,096,329 11,496,862 Total assets 270,502,219 273,935,677 Deferred outflows of resources Loss on Refunding 238,479 89,745 IMRF Pension 626,486 4,303,803 Total deferred outflows of resources 864,965 4,393,548 Total assets and deferred outflows of resources $ 271,367,184 $ 278,329,225 See accompanying notes to financial statements. - 3 -
CITY OF SPRINGFIELD WATER FUND Balance Sheets February 28, 2018 and February 28, 2017 2018 2017 Net position, liabilities, and deferred inflows of resources: Net position: Net investment in capital assets $ 162,973,739 $ 160,592,272 Restricted for debt service 2,120,651 2,861,880 Restricted for system repairs and improvements 6,511,485 5,936,033 Unrestricted (18,993,826) (16,945,601) Total net position 152,612,049 152,444,584 Noncurrent liabilities: Long-term debt, net of current installments (Note 5) 84,896,093 87,942,861 IMRF pension obligation (Note 8) 5,293,078 14,497,045 Other postemployment benefits obligation (Note 12) 13,477,139 12,424,644 Compensated absences (Note 1) 629,122 694,911 Other payables 542,166 466,608 Total noncurrent liabilities 104,837,598 116,026,069 Current liabilities payable from restricted assets: Current installments of long-term debt (Note 5) 2,075,000 2,830,000 Accounts and contracts payable 23,560 100 Accrued interest payable 1,459,960 1,939,359 Total current liabilities payable from restricted assets 3,558,520 4,769,459 Current liabilities: Current installments of long-term debt (Note 5) 339,884 336,310 Other payables 255,516 219,581 Accounts and contracts payable 1,002,838 2,421,562 Accrued compensation 635,790 585,250 Compensated absences (Note 1) 752,294 754,337 Due to primary government (Note 6) 801,874 471,384 Total current liabilities 3,788,196 4,788,424 Total liabilities 112,184,314 125,583,952 Deferred inflows of resources IMRF Pension 6,570,821 300,689 Total net position, liabilities, and deferred inflows of resources $ 271,367,184 $ 278,329,225 See accompanying notes to financial statements. - 4 -
CITY OF SPRINGFIELD WATER FUND Statements of Revenues, Expenses and Changes in Net Position Years Ended February 28, 2018 and February 28, 2017 2018 2017 Operating revenues, water revenues and other $ 29,379,444 $ 28,314,263 Operating expenses: Source of supply 1,422,499 994,448 Pumping 1,261,075 1,350,473 Purification 4,868,965 4,889,644 Distribution 6,971,565 6,769,493 Accounting and collection 1,779,782 1,737,123 Administrative and general 1,726,958 1,744,284 Other post employment benefits (Note 12) 1,687,044 3,068,959 Depreciation 4,900,753 4,676,122 Total operating expenses 24,618,641 25,230,546 Operating income 4,760,803 3,083,717 Nonoperating income (expense): Investment income 156,189 116,817 Interest charges (3,818,317) (3,773,382) Auxiliary service property and nonutility property operations, net (Note 3) (1,620,505) (1,615,952) Other income (expense), net (165,588) (88,586) Total nonoperating income (expense) (5,448,221) (5,361,103) Change in net position before contributions and transfers (687,418) (2,277,386) Contribution revenue (Note 1) 1,290,710 1,155,303 Transfer out (Note 11) (435,827) (421,268) Change in net position 167,465 (1,543,351) Net position, beginning of year 152,444,584 153,987,935 Net position, end of year $ 152,612,049 $ 152,444,584 See accompanying notes to financial statements. - 5 -
CITY OF SPRINGFIELD WATER FUND Statements of Cash Flows Years Ended February 28, 2018 and February 28, 2017 2018 2017 Cash flows from operating activities: Receipts from customers $ 28,620,754 $ 28,303,253 Receipts from other funds 254,192 458,081 Payments to suppliers (7,063,383) (4,055,090) Payments to employees (9,174,148) (8,936,443) Payments to other funds (3,241,483) (3,936,275) Net cash from operating activities 9,395,932 11,833,526 Cash flows from noncapital financing activities: Transfer out (435,827) (421,268) Net payments made on inter-fund borrowing 308,708 1,558 Net cash from noncapital financing activities (127,119) (419,710) Cash flows from capital and related financing activities: Acquisition and construction of utility plant and auxiliary service property (6,470,573) (10,850,831) Principal paid on revenue bonds, refunding bonds and loan payable (3,936,310) (3,037,831) Interest paid on bonds and loan payable (4,368,518) (3,951,959) Auxiliary service and nonutility property operations, net (1,464,619) (1,468,553) Contribution revenue 1,290,710 1,155,303 Costs of issuance on bond refunding (121,900) - Other cash flows from capital and related financing 16,496 (649) Net cash from capital and related financing activities (15,054,714) (18,154,520) Cash flows from investing activities: Purchase of investments (4,300,000) - Proceeds from maturities of investments 1,500,000 2,250,000 Interest on investments 145,751 119,423 Net cash from investing activities (2,654,249) 2,369,423 Net increase (decrease) in cash and cash equivalents (8,440,150) (4,371,281) Cash and cash equivalents, beginning of year 37,007,062 41,378,343 Cash and cash equivalents, end of year $ 28,566,912 $ 37,007,062 Cash and cash equivalents, restricted 25,784,110 30,036,487 Cash and cash equivalents, unrestricted 2,782,802 6,970,575 Total cash and cash equivalents $ 28,566,912 $ 37,007,062 See accompanying notes to financial statements. - 6 -
CITY OF SPRINGFIELD WATER FUND Statements of Cash Flows Years Ended February 28, 2018 and February 28, 2017 2018 2017 Reconciliation of operating income to net cash from operating activities: Operating income $ 4,760,803 $ 3,083,717 Adjustments to reconcile operating income to net cash from operating activities: Depreciation 4,900,753 4,676,122 Change in assets and liabilities: (Increase) decrease in unbilled utility receivables (150,960) 370,103 (Increase) decrease in accounts receivable-consumers (353,538) 76,968 (Increase) decrease in inventories (270,586) 190,114 (Increase) decrease in prepaid expenses 14,546 (8,532) Increase (decrease) in accounts and contracts payable (1,395,264) (253,681) Increase (decrease) in other payables 111,493 308,076 Increase (decrease) in accrued compensation and compensated absences (17,292) 20,831 Increase (decrease) in accrued taxes payable - (42) Increase (decrease) in IMRF pension obligation, deferred outflows, and deferred inflows 743,482 1,116,262 Increase (decrease) in OPEB obligation 1,052,495 2,253,588 Net cash from operating activities $ 9,395,932 $ 11,833,526 Supplemental disclosures of noncash: Investing and capital and related financing activities: Refunding of bonds $ 16,610,000 $ - See accompanying notes to financial statements. - 7 -
CITY OF - WATER FUND NOTES TO FINANCIAL STATEMENTS February 28, 2018 and February 28, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Water Fund, an Enterprise Fund of the City of Springfield, Illinois (the City), have been prepared in conformity with accounting principles generally accepted in the United States of America, as applied to government units hereinafter referred to as generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting principles and financial reporting practices. The more significant of the Water Fund s accounting policies are described below. A. Fund Accounting and Financial Statement Presentation The Water Fund is a fund of the City and is classified as an Enterprise Fund (proprietary fund type). Enterprise Funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenue earned, expenses incurred, and/or change in net assets is appropriate for capital maintenance, public policy, management control, accountability or other purposes. The financial statements present only the financial position, changes in financial position, and cash flows of the City's Water Fund. These financial statements are not intended to present fairly the financial position, changes in financial position and cash flows of the City in conformity with GAAP. B. Basis of Accounting Basis of accounting refers to when revenue and expenses are recognized in the accounts and reported in the financial statements. The Water Fund utilizes the accrual basis of accounting, which recognizes revenue when it is earned, including an estimate of water revenue unbilled at the end of each accounting period, and expenses when they are incurred. The Water Fund, the Electric Light and Power Fund and the Sewer Fund jointly bill customers for services. - 8 -
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Operating Revenues and Expenses: Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with ongoing operations. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Retail revenue is billed monthly based on rates adopted by the City Council. For the years ended February 28, 2018 and February 28, 2017, retail customers of the water system paid an average price of $3.53 and $3.55, respectively per 100 cubic feet of water. Retail customer class average prices, for the 2018 and 2017 fiscal years, were as follows: 2018 2017 Inside City $ 3.46 $ 3.48 Outside City 4.48 4.50 Southern View 4.90 4.89 D. Utility Plant in Service and Auxiliary Service Property Property, plant and equipment are stated at cost. The cost of property additions, including replacements of units of property and improvements, is capitalized as property, plant and equipment. Cost includes labor, material and similar items, and indirect charges for such items as transportation and supervision. Capital assets are defined as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of one year. Interest expense incurred during the construction of major projects is included as part of the capitalized cost of the constructed capital assets. Maintenance and repairs of property and replacements of items determined to be less than units of property are charged to operations. Donated fixed assets are valued at their acquisition value on the date donated. Depreciation is provided on a straight-line basis over the estimated service lives of depreciable property, ranging from 10 to 100 years for the plant and distribution system, and from 5 to 33 years for equipment. Depreciation provided during the years ended February 28, 2018 and February 28, 2017, was approximately 1.8 percent and 1.8 percent, respectively, of depreciable utility plant at February 28, 2018 and February 28, 2017. E. Nonutility and Other Property Nonutility and other property represent property acquired for the proposed John H. Hunter Lake project. The cost of farmland, including legal and other acquisition costs are capitalized assets. Rental revenue and operating expenses are reported on the statements of revenue, expenses and changes in net position. - 9 -
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) F. Restricted Asset Accounts Restricted asset accounts are utilized in the Water Fund to comply with revenue bond ordinances. When both restricted and unrestricted resources are available for use, it is the City s policy to use restricted resources first, then, unrestricted resources, as they are needed. G. Cash and Cash Equivalents For purposes of the statement of cash flows, the Water Fund considers all highly liquid investments (including restricted assets) with an original maturity of three months or less to be cash equivalents. Illinois Funds are classified as cash and cash equivalents. H. Investments Investments as classified on the balance sheets are recorded at fair value using quoted market prices, except for certificates of deposit which are recorded at amortized cost. I. Inventories Inventories of materials and supplies are stated at the lower of cost or market, with cost determined on an average cost basis. Inventory is used for maintenance of utility plant, not for resale. J. Long-term Debt Issuance Costs, Premiums, Discounts and Deferred Gains/Losses on Refunding Long-term debt premiums, discounts and deferred gains/losses on refunding are amortized over the life of the related issue using the effective interest method. Longterm debt issuance costs are expensed as incurred. K. Contribution Revenue and Related Project Costs In accordance with GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, the Water Fund is required to recognize capital contributions from nonexchange transactions as revenues. Contributions are payments received from contractors and other businesses and individuals for special water construction projects and contributions from other City funds for certain capital projects. Excess contributions are refunded and deficient deposits are billed. Costs of the projects are capitalized and depreciated. - 10 -
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) L. Compensated Absences Water Fund employees are granted vacation and sick pay in varying amounts. In the event of termination, a non-union employee is reimbursed for accumulated vacation days up to the equivalent of two years vacation. A union employee normally must take vacation accrued during the fiscal year of accrual. Vested or accumulated vacation leave is recorded as an expense and liability as the benefits accrue to employees. Union employees may accumulate up to 90 days of sick leave to be paid upon death or retirement. Non-union employees may accumulate an unlimited number of days of sick leave. A portion of accumulated sick leave is to be paid upon death or retirement as decided by the City Council. No sick leave is paid upon termination. An actuarially determined liability is recognized for that portion of accumulated sick leave benefits estimated to be payable upon death or retirement. March 1 Additions Deletions February 28 Current 2018 $ 1,449,248 $ 808,538 $ 876,370 $ 1,381,416 $ 752,294 2017 1,441,111 746,327 738,190 1,449,248 754,337 M. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net assets that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources represents an acquisition of net assets that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. N. Budget Annually, the City adopts a budget for the Water Fund. The budget is adopted using the accrual basis of accounting. - 11 -
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) O. Net Position Net position represents the difference between assets and deferred outflows and liabilities and deferred inflows in the financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used for acquisition, construction or improvement of those assets. Net position invested in capital assets, net of related debt, excludes unspent bond proceeds. Restricted reserve funds were $16,468,454 and $19,299,114 as of February 28, 2018 and February 28, 2017, respectively. Net position is reported as restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. P. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Q. Reclassifications Certain fiscal year 2017 amounts have been reclassified to conform to the fiscal year 2018 presentation without effect on changes in net position. R. Effect of New Accounting Standards on Current Period Financial Statements GASB has approved GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, Statement No. 80, Blending Requirements for Certain Component Units, an amendment of GASB Statement No. 14, Statement No. 81, Irrevocable Split-Interest Agreements, Statement No. 83, Certain Asset Retirement Obligations, Statement No. 84, Fiduciary Activities, Statement No. 85, Omnibus, Statement No. 86, Certain Debt Extinguishment Issues, and Statement No. 87, Leases. When they become effective, application of these standards may restate portions of these financial statements. 2. UTILITY PLANT Utility plant activity for the year ended February 28, 2018, consists of the following: March 1 Additions Retirements February 28 Source of supply $ 31,597,567 $ - $ - $ 31,597,567 Pumping 63,500,007 359,624-63,859,631 Purification 38,386,231 6,594,887 26,333 44,954,785 Distribution 119,202,834 3,245,703 124,800 122,323,737 General purpose 9,140,303 763,300 460,110 9,443,493 Total utility plant $ 261,826,942 $10,963,514 $ 611,243 $ 272,179,213-12 -
2. UTILITY PLANT (Continued) Accumulated depreciation activity for the year ended February 28, 2018 consists of the following: March 1 Additions Retirements February 28 Source of supply $ 6,834,137 $ 262,266 $ - $ 7,096,403 Pumping 4,754,504 1,310,158-6,064,662 Purification 12,023,943 1,210,952 26,333 13,208,562 Distribution 32,206,002 1,765,880 124,800 33,847,082 General purpose 6,604,565 351,496 460,110 6,495,951 Total utility plant $ 62,423,151 $ 4,900,752 $ 611,243 $ 66,712,660 Utility plant, net of accumulated depreciation $ 199,403,791 $ 6,062,762 $ - $ 205,466,553 March 1 Additions Closeout February 28 Construction work in progress $ 5,411,289 $ 6,586,707 $ 11,717,408 $ 280,588 Net utility plant $ 204,815,080 $12,649,469 $ 11,717,408 $ 205,747,141 Utility plant activity for the year ended February 28, 2017, consists of the following: March 1 Additions Retirements February 28 Source of supply $ 31,597,567 $ - $ - $ 31,597,567 Pumping 60,553,076 2,951,931 5,000 63,500,007 Purification 38,128,816 277,415 20,000 38,386,231 Distribution 116,053,831 3,482,103 333,100 119,202,834 General purpose 8,932,913 510,629 303,239 9,140,303 Total utility plant $ 255,266,203 $ 7,222,078 $ 661,339 $ 261,826,942-13 -
2. UTILITY PLANT (Continued) Accumulated depreciation activity for the year ended February 28, 2017 consists of the following: March 1 Additions Retirements February 28 Source of supply $ 6,571,871 $ 262,266 $ - $ 6,834,137 Pumping 3,495,516 1,263,988 5,000 4,754,504 Purification 10,917,227 1,126,716 20,000 12,023,943 Distribution 30,836,749 1,702,353 333,100 32,206,002 General purpose 6,586,924 320,799 303,158 6,604,565 Total utility plant $ 58,408,287 $ 4,676,122 $ 661,258 $ 62,423,151 Utility plant, net of accumulated depreciation $ 196,857,916 $ 2,545,956 $ 81 $ 199,403,791 March 1 Additions Closeout February 28 Construction work in progress $ 3,699,242 $11,431,703 $9,719,656 $ 5,411,289 Net utility plant $ 200,557,158 $13,977,659 $9,719,737 $ 204,815,080 Utility plant under construction at February 28, 2018 and February 28, 2017, of $280,588 and $5,411,289, respectively includes interest on revenue bonds during construction, proceeds of which are used in financing the construction of certain assets. Interest expense is capitalized net of interest revenue on the investment of unexpended bond proceeds. Net interest expense of $0 was capitalized in fiscal years 2018 and 2017. 3. OTHER PROPERTY AND INVESTMENTS A. Auxiliary Service Property The land surrounding Lake Springfield, owned by the Water Fund, is used for residential properties, private recreational clubs and public purposes. All land except public land is leased under operating leases to individuals and groups for 40 to 99 year periods with options to renew. Auxiliary service property activity for the year ended February 28, 2018, consists of the following: March 1 Additions Retirements February 28 Land $ 1,196,029 $ - $ - $ 1,196,029 Lake buildings and improvements 3,512,759-9,843 3,502,916 Park buildings and improvements 1,424,971 11,433-1,436,404 General purpose equipment 1,843,187 92,689 11,618 1,924,258 Total auxiliary service property $ 7,976,946 $ 104,122 $ 21,461 $ 8,059,607-14 -
3. OTHER PROPERTY AND INVESTMENTS (Continued) A. Auxiliary Service Property (Continued) Accumulated depreciation activity for the year ended February 28, 2018 consists of the following: March 1 Additions Retirements February 28 Lake buildings and improvements $ 2,087,778 $ 67,487 $ 9,843 $ 2,145,422 Park buildings and improvements 849,638 21,082-870,720 General purpose equipment 1,195,010 67,316 11,618 1,250,708 Total accumulated depreciation $ 4,132,426 $ 155,885 $ 21,461 $ 4,266,850 Auxiliary service property, net of accumulated depreciation $ 3,844,520 $ (51,763) $ - $ 3,792,757 March 1 Additions Retirements February 28 Nonutility property, Hunter Lake, nondepreciable $ 23,742,728 $ 533,636 $ - $ 24,276,364 Total other property and investments $ 27,587,248 $ 481,873 $ - $ 28,069,121 Auxiliary service property activity for the year ended February 28, 2017, consists of the following: March 1 Additions Retirements February 28 Land $ 1,196,029 $ - $ - $ 1,196,029 Lake buildings and improvements 3,512,759 - - 3,512,759 Park buildings and improvements 1,413,441 11,530-1,424,971 General purpose equipment 1,818,938 82,089 57,840 1,843,187 Total auxiliary service property $ 7,941,167 $ 93,619 $ 57,840 $ 7,976,946-15 -
3. OTHER PROPERTY AND INVESTMENTS (Continued) A. Auxiliary Service Property (Continued) Accumulated depreciation activity for the year ended February 28, 2017 consists of the following: March 1 Additions Retirements February 28 Lake buildings and improvements $ 2,020,175 $ 67,603 $ - $ 2,087,778 Park buildings and improvements 829,130 20,508-849,638 General purpose equipment 1,193,561 59,289 57,840 1,195,010 Total accumulated depreciation $ 4,042,866 $ 147,400 $ 57,840 $ 4,132,426 Auxiliary service property, net of accumulated depreciation $ 3,898,301 $ 684,220 $ 738,001 $ 3,844,520 March 1 Additions Retirements February 28 Nonutility property, Hunter Lake, nondepreciable $ 23,092,441 $ 650,287 $ - $23,742,728 Total other property and investments $ 26,990,742 $ 1,334,507 $ 738,001 $27,587,248 B. Nonutility and Other Property As of February 28, 2018 and February 28, 2017, the Water Fund had acquired approximately 5,789 acres of farmland near Springfield for approximately $15,717,000. The land was acquired to construct the proposed John H. Hunter Lake, which would supplement the present Lake Springfield's potable water supply and provide cooling water for the City s Electric Light and Power Fund's generating system. As of February 28, 2018 and February 28, 2017, the Water Fund has incurred a total of $24,276,364 and $23,742,728 for the project, which includes the purchase price of the farmland and additional legal, engineering and other acquisition costs of $8,559,364 and $8,025,728, respectively. The project is classified as non-utility property, pending a final decision on the project. - 16 -
3. OTHER PROPERTY AND INVESTMENTS (Continued) C. Operations Operating revenue and costs of auxiliary service property and nonutility property follow: Year Ended February 28, 2018 2017 Revenue $ 1,304,128 $ 1,368,855 Costs and expenses (2,768,747) (2,837,408) Net expense before depreciation (1,464,619) (1,468,553) Less depreciation expense (155,886) (147,399) Net expense $ (1,620,505) $ (1,615,952) 4. DEPOSITS AND INVESTMENTS Following are the components of the Water Fund s cash, cash equivalents and investments: February 28, 2018 Unrestricted Restricted Total Cash and cash equivalents $ 2,782,802 $ 25,784,110 $ 28,566,912 Investments 2,000,000 800,000 2,800,000 $ 4,782,802 $ 26,584,110 $ 31,366,912 February 28, 2017 Unrestricted Restricted Total Cash and cash equivalents $ 6,970,575 $ 30,036,487 $ 37,007,062 Investments - - - $ 6,970,575 $ 30,036,487 $ 37,007,062 Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures - an Amendment of GASB Statement 3, requires disclosure of credit risk, concentration of credit risk, interest rate risk, and foreign currency risk and modifies previous custodial credit risk disclosure requirements. The City is empowered by statute to invest in certain types of securities as provided in the Public Funds Investment Act, 30 Illinois Compiled Statutes 235/1 et seq. Permitted investments include U.S. Government issued or secured debt, insured or collateralized certificates of deposit, highly rated state and municipal debt, and state pooled investments. Investments held by a trustee responsible for subordinate lien bond funds may include highly rated money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933. - 17 -
4. DEPOSITS AND INVESTMENTS (Continued) A. Custodial Credit Risk Custodial credit risk is the risk a government will not be able to recover deposits or investments that are in possession of an outside party. At February 28, 2018, the carrying amount of the Water Fund s deposits totaled $24,435,920 and the bank balances totaled $24,406,545. At February 28, 2017, the carrying amount of the Water Fund s deposits totaled $29,580,921 and the bank balances totaled $29,534,739. The City s investment policy requires that deposits with financial institutions be collateralized at 105 percent of the market value of the principal and interest of the deposit. The collateral is to be held by an independent third party with whom the entity has a current custody agreement. The City s bank balances are covered by the Federal Deposit Insurance Corporation (FDIC), Federal Home Loan Bank of Chicago irrevocable Letter of Credit, Insured Cash Sweep (ICS) accounts maintained in a deposit placement service, or collateral held at Independent Bankers Bank, Federal Reserve Bank of Chicago or Associated Bank Corporation. The City requires all security transactions entered into by the City be conducted on a delivery versus payment basis. Securities will be held by a third party custodian designated by the City Treasurer and evidenced by a safekeeping receipt. February 28, 2018 2017 Cash and cash equivalents: Restricted $ 25,784,110 $ 30,036,487 Unrestricted 2,782,802 6,970,575 28,566,912 37,007,062 Less: Illinois Funds not subject to collateral (4,130,992) (7,426,141) Carrying amount of deposits $ 24,435,920 $ 29,580,921 B. Investments Interest rate risk: The risk that changes in interest rates will adversely affect the fair value of an investment is interest rate risk. In accordance with the master revenue bond ordinance, the Water Fund limits investments to those with a maturity of five years or less. City policy places further limits stating that the City will not directly invest in securities with a maturity of greater than five years three months from the date of purchase. Reserve funds, however, may be invested in securities exceeding five years three months if the maturity of such investments is made to coincide as nearly as practicable with the expected use of funds. As of February 28, 2018 and February 28, 2017, the Water Fund had no investment balances with interest rate risk. - 18 -
4. DEPOSITS AND INVESTMENTS (Continued) B. Investments (Continued) Credit risk: The risk that an issuer or other counterparty to an investment will not fulfill its obligations is credit risk. The City is empowered by statute to invest in certain types of securities as provided in the Public Funds Investment Act, 30 Illinois Compiled Statutes 235/1 et seq. The Water Fund may only invest in certain securities in accordance with a master revenue bond ordinance. Investments are restricted to U.S. Government issued or secured debt, insured or collateralized certificates of deposits, highly rated state and municipal debt, and state pooled investments. Investments may not mature beyond five years. The associated investment credit risks are noted below. As of February 28, 2018, the Water Fund s investments were rated as follows: Investment Type Certificates of Deposit Illinois Funds Standard & Poor s N/A AAAm As of February 28, 2017, the Water Fund s investments were rated as follows: Illinois Funds Investment Type Standard & Poor s AAAm As of February 28, 2018 and February 28, 2017, the Water Fund had investments in the Illinois Funds which are valued at amortized cost. - 19 -
4. DEPOSITS AND INVESTMENTS (Continued) C. Concentration of Credit Risk The risk of loss attributed to the magnitude of a government s investments in a single issuer is concentration of credit risk. The City s investment policy calls for diversification of its investments by security type and institution. With the exception of U.S. Treasury notes and authorized pools, no more than 50 percent of the City s total investment portfolio will be invested in a single security type or with a single financial institution. The City s investment policy is written to encompass all City investments. Diversification levels in the policy are for the total investment portfolio. As of February 28, 2018 and February 28, 2017, the Water Fund had no investment balances with concentration of credit risk. The Water Fund categorizes its fair value measurements within the fair value established by generally accepted accounting principles. The hierarchy of inputs is used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 are significant unobservable inputs. 5. LONG-TERM DEBT Long-term debt activity during the fiscal year ended February 28, 2018, consists of the following: March 1 Additions Retirements February 28 (a) IEPA Loan Payable, Series 2002 $ 775,459 $ - $ 132,696 $ 642,763 (b) Revenue bonds, Series 2008 18,160,000-18,160,000 - (c) Revenue bonds, Series 2012 62,305,000-2,050,000 60,255,000 (d) IEPA Loan Payable L17-2530 2,446,234-174,731 2,271,503 (e) IEPA Loan Payable L17-3756 274,394-28,884 245,510 (f) Revenue bonds, Series 2018-16,610,000-16,610,000 Unamortized debt discount (232,285) - (232,285) - Unamortized debt premium 7,380,369-94,168 7,286,201 Total $ 91,109,171 $16,610,000 $20,408,194 87,310,977 Less current principal maturities (2,414,884) Long-term debt, net of current principal maturities $84,896,093-20 -
5. LONG-TERM DEBT (Continued) Long-term debt activity during the fiscal year ended February 28, 2017, consists of the following: March 1 Additions Retirements February 28 (a) IEPA Loan Payable, Series 2002 $ 904,675 $ - $ 129,216 $ 775,459 (b) Revenue bonds, Series 2008 18,910,000-750,000 18,160,000 (c) Revenue bonds, Series 2012 64,260,000-1,955,000 62,305,000 (d) IEPA Loan Payable L17-2530 2,620,965-174,731 2,446,234 (e) IEPA Loan Payable L17-3756 303,278-28,884 274,394 Unamortized debt discount (258,050) - (25,765) (232,285) Unamortized debt premium 7,519,946-139,577 7,380,369 Total $ 94,260,814 $ - $ 3,151,643 91,109,171 Less current principal maturities (3,166,310) Long-term debt, net of current principal maturities $87,942,861 (a) $2,325,284; Loan from the State of Illinois Environmental Protection Agency (IEPA) Water Revolving Fund - Drinking Water Project; final payment due April 28, 2022; interest 2.675 percent; principal and interest payable April 28 and October 28. This represents a subordinate lien obligation of the Water Fund. (b) $22,140,000; Water Revenue Bonds, Series 2008; initial principal payment due March 1, 2011; final payment due March 1, 2032; interest 4.0 percent to 5.5 percent; interest payable March 1 and September 1; principal payable March 1; to be repaid by net revenue of Water Fund. The remaining outstanding bonds totaling $17,380,000 were refunded during fiscal year 2018 with the issuance of the Water Revenue Refunding Bonds, Series 2018. (c) $68,050,000; Water Revenue Bonds, Series 2012; initial principal payment due March 1, 2013; final payment due March 1, 2037; interest 1.25 percent to 5 percent; interest payable March 1 and September 1; principal payable March 1; to be repaid by net revenue of Water Fund. (d) $4,532,613; ARRA Loan from the Illinois Environmental Protection Agency (IEPA) Water Revolving Fund, Drinking Water Project L17-2530; $3,375,699 loan payable at 0 percent interest; initial principal payment paid November 3, 2011; final payment due November 3, 2030. This represents a subordinate lien obligation of the Water Fund. (e) $599,757; ARRA Loan from the Illinois Environmental Protection Agency (IEPA) Water Revolving Fund, Drinking Water Project L17-3756; $433,253 loan payable at 0 percent interest; initial principal payment paid December 2, 2011; final payment due June 2, 2026. This represents a subordinate lien obligation of the Water Fund. (f) $16,610,000; Water Revenue Bonds, Series 2018; initial principal payment due March 1, 2019; final payment due March 1, 2032; interest 3.66 percent; interest payable March 1 and September 1; principal payable March 1; to be repaid by net revenue of Water Fund. - 21 -
5. LONG-TERM DEBT (Continued) Debt service requirements to maturity: Fiscal Year Revenue Revenue Loan Loan Ending Bonds Bonds Payable Payable February 28/29, Principal Interest Principal Interest Total 2019 $ 2,075,000 $ 3,160,388 $ 339,883 $ 16,289 $ 5,591,560 2020 3,105,000 3,351,957 343,553 12,619 6,813,129 2021 2,510,000 3,235,154 347,321 8,851 6,101,326 2022 2,625,000 3,128,069 351,191 4,981 6,109,241 2023 2,730,000 3,037,141 278,887 1,007 6,047,035 2024 2028 16,040,000 13,329,666 974,747-30,344,413 2029 2033 20,370,000 9,263,479 524,193-30,157,672 2034 2038 27,410,000 3,559,750 - - 30,969,750 $76,865,000 $ 42,065,604 $ 3,159,775 $ 43,747 $122,134,126 February 28, 2018 2017 Current principal maturities by issue: Revenue bonds, Series 2008 $ - $ 780,000 Revenue bonds, Series 2012 2,075,000 2,050,000 IEPA loan payable, Series 2002 136,269 132,695 IEPA loan payable ARRA Large Meter (L17-3756) 28,884 28,884 IEPA loan payable ARRA Chemical Feed (L17-2530) 174,731 174,731 $ 2,414,884 $ 3,166,310 On August 28, 2012, the City issued $68.050 million in Water Revenue Bonds with interest rates of 1.25% to 5%. Proceeds of $61.671 million were deposited into the 2012 Project fund to finance certain improvement expenditures associated with the City s water supply system and related facilities, and to pay the costs of issuance of the Series 2012 Bonds. Proceeds of $1.604 million were deposited into the debt service reserve fund to fully fund the Debt Service Reserve Account created under the Bond Ordinance. Additional proceeds of $13.106 million and a transfer from existing debt service reserve funds were deposited with the Escrow Trustee for a total of $14.657 million available to refund the $4.6 million remainder of the 1997 Water Revenue Series Bonds and have a portion of the net proceeds deposited in an irrevocable trust with an escrow agent to provide for future debt service payments on the refunded portion of the 2004 Water Revenue Series bonds. As a result, $9.005 million of the 2004 Series bonds are considered to be defeased and the liability for those bonds has been removed from the Water Fund. The refunding of the 1997 and 2004 Water Revenue Series bonds yielded aggregate savings of $763,409 (net present value $250,854) and $960,555 (net present value $842,935) respectively for the two issues. The Water Fund recorded a net loss on refunding for the 1997 and 2004 Issues of $66,717 and $596,392, respectively. - 22 -
5. LONG-TERM DEBT (Continued) On February 6, 2018, the City issued $16.610 million in Water Revenue Refunding Bonds with an interest rate of 3.66%. $16.486 million of the proceeds and a $1.37 million transfer from existing debt service funds were deposited with the Escrow Trustee for a total of $17.855 million available to refund the $17.38 million remainder of the 1997 Water Revenue Series Bonds. The refunding of the 2008 Water Revenue Bonds yielded aggregate savings of $2,510,562 (net present value $1,716,554). The Water Fund recorded a net loss on refunding of $208,919. The bond ordinances for the 2008, 2012 and 2018 bond issues establish certain reserve accounts and restrict transactions of these accounts. A description of these accounts and a schedule of activity for the year ended February 28, 2018 and February 28, 2017, are as follows: 2008, 2012 and 2018 Bond and Interest Accounts: Established to pay bond principal and interest when due. Amounts are to be deposited monthly to accumulate at a rate equal to a fractional amount of the current portion of long-term debt due plus a fractional amount of the next semi-annual interest payment due. 2008, 2012 and 2018 Debt Service Reserve Accounts: Established to pay bond principal and interest if sufficient funds are not available from other sources. The amount on deposit in each reserve account is to equal the maximum aggregate interest payment for the related debt issuance. Deposit deficiencies shall be funded in equal installments over thirty-six consecutive months. Emergency Repair Account: Established to pay for emergency repairs and replacements and to pay bond principal and interest when no other funds are available. The amount on deposit is to be not less than $1,000,000 or such other amount as the City Council may determine based upon the recommendation of an independent consulting engineer. Deposit deficiencies shall be funded in equal installments within sixty consecutive months. Renewal, Replacement and Improvement Account: Established to pay the cost of extraordinary maintenance, necessary repairs, and replacements or contingencies; routine maintenance, but only when no other funds are available; improvements and extensions or acquisitions for the system, including equipment; and payment of principal and interest if sufficient funds are not available in the respective Bond and Interest Accounts. Monthly funding is required to be no less than one-twelfth of 15 percent of revenue for the preceding fiscal year less costs of chemicals and pumping expenses. However, monthly funding may fall to one-fifteenth of 15 percent as long as, at the end of each year, the deposits to the account total 15 percent of net revenue less costs for chemicals and pumping expenses. - 23 -
5. LONG-TERM DEBT (Continued) Rebate Fund Account: Established to account for funds required to be deposited in order for the interest paid on the Series 2008 and 2012 Bonds to remain tax-exempt. Amounts are to be deposited on each anniversary date equal to the actuarial bond fund earnings for the year less allowable bond fund earnings which represent excess earnings on the gross funds for each computation period. Amounts on deposit must be paid to the U.S. Government on various anniversary dates. 2012 Improvement Account: Established to account for unexpended proceeds from the Series 2012 Bonds to be used to finance certain improvements to the municipal waterworks system. Various other agreements associated with the bond ordinances require the following: Additional revenue bonds can be issued if: 1. The debt service requirement after a new issuance is no greater than the amount set forth for each bond year prior to the bond issuance except for the last year, and that the debt service requirement after the new issuance is not greater than the average of all bond years (excluding the last) prior to the issuance as determined by an Officer s Certificate; 2. Estimated net revenues will be at least equal to 125 percent of Maximum Annual Debt Service on Outstanding Bonds as computed after the issuance of new bonds for each of the five fiscal years following the later of the date of delivery of new bonds or the last interest payment date for which interest on such bonds has been capitalized, as determined by an Officer s Certificate; or 3. The adjusted net revenue (all revenue of the system after deduction of the reasonable and necessary expenses of operation and maintenance, but before depreciation, interest expense, and amortization) during any twelve consecutive months within the eighteen months immediately preceding the issuance of new bonds shall be at least equal to 125 percent times the combined maximum annual debt service on the bonds then outstanding and the additional bonds to be issued, as determined by an Officer s Certificate. Subordinate Bonds may be issued for any lawful purpose of the City related to the System as determined by the City Council. Water charges are to be collected from the various City departments. The street and fire departments, however, may receive free water for street cleaning, sewer flushing and for use by the City s fire stations. Disposals of utility plant can only be of a routine operational nature. An annual operating budget for the Water Fund shall be adopted by the City. Investments, if any, are restricted as shown in the Deposits and Investments footnote (Note 4). Net revenue must equal or exceed the greater of 1.25 times principal and interest for each fiscal year, or 1.00 times principal and interest for each fiscal year plus amounts sufficient to meet reserve requirements. - 24 -
5. LONG-TERM DEBT (Continued) As of February 28, 2018, the City was in compliance with the debt covenants of the bond ordinances. Net revenue equaled 1.86 times principal and interest. As of February 28, 2017, the City was in compliance with the debt covenants of the bond ordinances. Net revenue equaled 1.77 times principal and interest. 2008 Bond 2012 Bond 2018 Bond and Interest and Interest and Interest Account Account Account Cash and cash equivalents and investments- February 29, 2016 reserve accounts $ 1,230,997 $ 3,472,473 $ - Add (deduct) Interest income 1,166 3,286 - Compliance deposits 1,709,173 4,979,492 - Bond issuance - - - Insurance proceeds - - - Bond and interest payments (1,695,775) (4,937,800) - Transfers from (to) restricted accounts - - - Transfers from (to) unrestricted accounts - - - 14,564 44,978 - Associated premium/discount - - - Adjustment to fair market value - - - - - - Cash and cash equivalents and investments- February 28, 2017 reserve accounts 1,245,561 3,517,451 - Add (deduct) Interest income 1,613 5,421 1 Compliance deposits 1,566,213 4,979,325 36,900 Bond issuance (1,118,358) - - Insurance proceeds - - - Bond and interest payments (1,694,687) (4,971,113) (37,151) Transfers from (to) restricted accounts (342) - 1,974 Transfers from (to) unrestricted accounts - - - (1,245,561) 13,633 1,724 Associated premium/discount - - - Adjustment to fair market value - - - - - - Cash and cash equivalents and investments- February 28, 2018 reserve accounts $ - $ 3,531,084 $ 1,724-25 -