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HomeMy WebLinkAbout02-12-13 Regular Meeting of the La Porte Area Water AuthorityLA PORTE AREA WATER AUTHORITY AGENDA Notice is hereby given of a Regular Meeting of the La Porte Area Water Authority to be held on Tuesday, February 12, 2013 beginning at 6:00 pm. in the Downstairs Conference Room of the Public Works Service Center, 2963 North 23rd Street, La Porte, Texas, for the purpose of considering the following agenda items. All agenda items are subject to action. 1. Call to order. 2. Election of Officers. 3. Consider approval or other action of minutes from the August 1, 2012 meeting. 4. Receive La Porte Area Water Authority Annual Financial Report for Fiscal Year ending September 30, 2012. 6. Discuss the Southeast Water Purification Plant budget review process. 6. General Manager's Report. 7. Board Comments — Matters appearing on the: Recognition of community members, city employees, and upcoming events; Inquiry of staff regarding specific factual information or existing policy. a. Matters appearing on agenda. b. Inquiry of staff requiring a statement of specific factual information or a recitation of existing policy. 8. Adjournment. In compliance with the American with Disabilities Act, the City of La Porte will provide reasonable accommodations for persons attending public meetings. To better serve attendees, requests should be received 24 hours prior to the meeting. Please contact Patrice Fogarty, City Secretary, at 281.470.5019. CERTIFICATION I certify that a copy of the February 12, 2013, agenda of items to be considered by the La Porte Area Water Authority was posted on the City Hall bulletin board on or before February 2013 r Q vi lick, Publ Works Director I certify that the attached notice and agenda of items to be conWered by thcAl-a Porte Area Water Authority wa oved by mir from the City Hall bulletin board on the � day of , 2013. Signature of person removing from bulletin board 6 LA PORTE AREA WATER AUTHORITY AGENDA Notice is hereby given of a Regular Meeting of the La Porte Area Water Authority to be held on Tuesday, February 12, 2013 beginning at 6:00 pm. in the Downstairs Conference Room of the Public Works Service Center, 2963 North 23rd Street, La Porte, Texas, for the purpose of considering the following agenda items. All agenda items are subject to action. Call to order. 2. Election of Officers. Consider approval or other action of minutes from the August 1, 2012 meeting. 4. Receive La Porte Area Water Authority Annual Financial Report for Fiscal Year ending September 30, 2012. 5. Discuss the Southeast Water Purification Plant budget review process. 6. General Manager's Report. 7. Board Comments — Matters appearing on the: Recognition of community members, city employees, and upcoming events; Inquiry of staff regarding specific factual information or existing policy. a. Matters appearing on agenda. b. Inquiry of staff requiring a statement of specific factual information or a recitation of existing policy. Adjournment. In compliance with the American with Disabilities Act, the City of La Porte will provide reasonable accommodations for persons attending public meetings. To better serve attendees, requests should be received 24 hours prior to the meeting. Please contact Patrice Fogarty, City Secretary, at 281.470.5019. CERTIFICATION I certify that a copy of the February 12, 2013, agenda of items to be considered by the La Porte Area Water Authority was posted on the City Hall bulletin board on or before February 6, 2013. David S. Mick, Public Works Director I certify that the attached notice and agenda of items to be considered by the La Porte Area Water Authority was removed by me from the City Hall bulletin board on the day of , 2013. Signature of person removing from bulletin board LA PORTE AREA WATER AUTHORITY MINUTES August 1, 2012 The meeting was called to order at 6:04 PM by President David Janda. Members Present: President David Janda, Vice President Kenneth Schlather, Members Dennis Steger, Randy Woodard, Doug Martin Members Absent: None Others Present: General Manager Corby Alexander, Public Works Director David Mick, Director of Finance Michael Dolby 2. The minutes from the meeting held May 9, 2012 were reviewed and unanimously approved. 3. President David Janda welcomed new board member Doug Martin and new City Manager La Porte/General Manager LPAWA. 4. David Mick presented the Draft FY 2013 LPAWA Operating Budget and noted that staff received a revised budget estimate from the City of Houston the day prior. The previous City of Houston budget estimate was $0.6299/1000 gallons treated; the revised estimate is $0.6205/1000 gallons. FY 2013 billings to LPAWA member cities of La Porte, Shoreacres, and Morgan's Pointe will be based on the revised City of Houston estimate. The budget was unanimously approved. 5. David Mick updated the board on the progress of the budget discussions with the City of Houston. Houston did reduce their budget estimate as noted in the LPAWA Operating Budget discussion, but the conversations and work with Houston continues for the Southeast Water Purification Plant co -owners and Houston's consideration of further reductions. The board agreed that staff will continue to work through the committee of co -owners that is currently negotiating with Houston. 6. The General Manager had no additional report comments. 7. President David Janda and board member Dennis Steger both commented on the passing of Steve Valerius noting Steve's many contributions to a number of boards including the La Porte Area Water Authority and the City of La Porte as a whole. The entire board shared these sentiments. The board secretary position will be filled during the next board meeting. 8. There being no further business, the meeting adjourned at 6:20 PM Secretary PASSED AND APPROVED ON THIS DAY President LA PORTE AREA WATER AUTHORITY HARRIS COUNTY, TEXAS FINANCIAL REPORT September 30, 2012 LA PORTE AREA WATER AUTHORITY TABLE OF CONTENTS Exhibit _ Page Independent Auditors' Report 1 Management's Discussion and Analysis 4 Basic Financial Statements Statement of Net Assets B-1 10 Statement of Revenues, Expenses and Changes in Fund Net Assets B-2 11 Statement of Cash Flows B-3 12 Notes to the Financial Statements B-4 13 Supplemental Information Supplemental Schedules Included Within this Report 23 Schedule of Service and Rates E 24 Schedule of Enterprise Fund Expenses F 25 Schedule of Temporary Investments G 26 Schedule of Changes in Capital Assets 1 27 Long -Term Debt Service Requirements by Years J 28 Analysis of Changes in Long -Term Debt K 29 Statement of Revenues and Expenses - Five Years L 30 Insurance Coverage M 33 Board Members, Key Personnel and Consultants N 34 Schedule of Revenues and Expenses - 36 Budget and Actual (Budgetary Basis) (This page intentionally left blank) Independent Auditors' Report To the Board of Directors of The La Porte Area Water Authority La Porte, Texas We have audited the accompanying basic financial statements of the La Porte Area Water Authority (the "Authority"), a component unit of the City of LaPorte, Texas as of and for the year ended September 30, 2012. These financial statements are the responsibility of the Authority's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Authority, as of September 30, 2012, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 through 7 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. To the Board of Directors of The La Porte Area Water Authority La Porte, Texas The Texas Supplementary Information unless marked "unaudited" and the Schedule of Revenues and Expenses — Budget and Actual — (Budgetary Basis), is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the 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. Texas City, Texas February 13, 2013 2 Management's Discussion and Analysis LA PORTE AREA WATER AUTHORITY Management's Discussion and Analysis As management of the La Porte Area Water Authority, we offer readers of the Water Authority's financial statements this narrative overview and analysis of the financial activities of the Water Authority for the fiscal year ended September 30, 2012. Financial Highlights • The assets of the La Porte Area Water Authority exceeded its liabilities at the close of the most recent fiscal year by $7,156,249 (net assets). Of this amount, $2,573,265, unrestricted net assets, may be used to meet the government's ongoing obligations to citizens and creditors in accordance with the Water Authority's fund designation and fund policies. • The government's total net assets increased by $135,299. • The Water Authority's total bonded debt decreased by $605,000 during the current fiscal year. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction of the Water Authority's basic financial statements. The La Porte Area Water Authority is considered a component unit of the City of La Porte, Texas since the Water Authority provides approximately 86% of its services for the exclusive benefit of the City of La Porte. The Water Authority's basic financial statements are comprised of the fund financial statements and notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Fund financial statements — The operations of the Water Authority are recorded in a proprietary (enterprise) fund. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Water Authority, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. The statement of net assets presents information on all the Water Authority's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Water Authority is improving or deteriorating. The statement of revenues, expenses and changes in fund net assets presents information showing how the government's net assets changed during the fiscal year. All changes in net assets are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected receivables and accounts payable due to suppliers). The fund financial statements can be found on pages 10-12 of this report 4 LA PORTE AREA WATER AUTHORITY Management's Discussion and Analysis (continued) Notes to the Financial Statements — The notes provide additional information that is essential to a full understanding of the data provided in the fund financial statements. The notes to the financial statements can be found on pages 13-19 of this report. Other Information — In addition to the basic financial statements and accompanying notes, this report also presents certain supplementary information concerning the Water Authority's operations. Required supplementary information can be found on pages 23-36 of this report. Financial Analysis of the Government's Funds As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the La Porte Area Water Authority, assets exceeded liabilities by $7,156,249 at the close of the fiscal year. The largest portion of the Water Authority's net assets (60%) reflects its investment in capital assets (e.g., water production and distribution system), less any related debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide water services to the participants; consequently, these assets are not available for future spending. Although the Water Authority's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. La Porte Area Water Authority's Net Assets Current and other assets Capital assets Total Assets Current liabilities Noncurrent liabilities Total Liabilities Net Assets: Invested in capital assets, net of related debt Restricted Unrestricted Total Net Assets Business -Type Activities 2012 2011 $ 3,079,220 $ 2,942,301 7,274,825 7,737,763 10,3 54,045 10,680,064 841,455 658,412 2,356,341 3,000,702 3,197,796 3,659,114 4,293,484 4,132,061 289,500 408,500 2,573,265 2,480,389 $ 7,156,249 $ 7,020,950 An additional portion of the Authority's net assets (4%) represents resources that are subject to external restrictions for debt service. The remaining balance of unrestricted net assets ($2,573,265) represents funds available to meet other ongoing obligations to participants and/or creditors. 5 LA PORTE AREA WATER AUTHORITY Management's Discussion and Analysis (continued) Analysis of the Water Authority's Operations — the following table provides a summary of the Water Authority's operations for the year ended September 30, 2012. La Porte Area Water Authority's Change in Net Assets Operating revenues: Charges for Services Total operating revenues Operating expenses: Supplies Purchased water Services and charges Depreciation Total operating expenses Operating income (loss) Nonoperating revenues (expenses) Income (loss) before contributions and transfers Capital contributions Change in net assets Total net assets - beginning Total net assets - ending Business -Type Activities 2012 2011 $ 1,294,479 1,294,479 4,207 1,264,050 107,012 462,938 1,838,207 (543,728) $ 1,246,186 1,246,186 5,343 1,006,229 81,360 460,877 1,553,809 (307,623) (73,215) (87,546) (616,943) (395,169) 752,242 791,435 135,299 396,266 7,020,950 $ 7,156,249 6,624,684 $ 7,020,950 Total fund net assets increased by $135,299 in 2012. The actual water revenue and capital recovery fees for fiscal year ended September 30, 2012, of $1,353,579 were 25% higher than the amount budgeted of $1,087,149 due to an increase in consumption as a result of decreased rainfall. Interest earned on investments remained flat. The Water Authority has not made any revisions to the original appropriations approved by the City Council for the 2011-2012 budget. AI LA PORTE AREA WATER AUTHORITY Management's Discussion and Analysis (continued) Capital Assets and Debt Administration Capital Assets - The La Porte Area Water Authority's investment in capital assets as of September 30, 2012 amounts to $7,274,825 (net of accumulated depreciation). There were not any additions or retirements of capital assets during the current fiscal year. The only activity is current year depreciation in the amount of $462,938. Capital assets at year end consisted of the following: Ending Balance Water, sewer and drainage facilities Water production and distribution system $ 7,274,825 $ 7,274,825 Additional information of the La Porte Area Water Authority's capital assets can be found in Note 5 on page 16 of this report. Debt Administration — At the end of the fiscal year, the La Porte Area Water Authority had bonded debt payable of secured solely by water and sewer revenues. The revenue bonds have been rated "AA" by Standard & Poor's, Fitch and Moody's rating agencies. Additional information on the Water Authority's long-term debt can be found in Note 7 on page 17-18 of this report. Economic Facts and Next Year's Budgets and Rates The Water Authority has benefited from a strong and expanding economy from the past several years, but in this coming fiscal year, the Water Authority's budget may be increased to cover the Southeast Plant true -up cost. Request for Information This financial report is designed to provide a general overview of the La Porte Area Water Authority's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report of requests for additional information should be addressed to the Director of Finance, 604 West Fairmont Parkway, La Porte, Texas, 77571. (This page intentionally left blank) Basic Financial Statements LA TORTE AREA WATER AUTHORITY EXHIBIT B-1 STATEMENT OF NET ASSETS September 30, 2012 Assets Current assets: Cash $ 937,091 Investments 1,212,769 Accounts receivable, net of allowance for doubtful accounts 184,111 Accrued interest receivable 993 Deferred charges 49,057 Restricted assets: Restricted cash and temporary investments 695,199 Total current assets 3.079,220 Noncurrent assets: Water production and distribution system 15,435,810 Less: accumulated depreciation (8,160,985) Total noncurrent assets 7,274,825 Total Assets 10,354,045 Liabilities Current liabilities: Accounts payable 213,097 Current liabilities (payable from restricted assets): Current portion of revenue bonds 625,000 Accrued interest 3,358 Total current liabilities 941.455 Noncurrent liabilities Revenue bond, net of current portion 2,356,341 Total Liabilities 3_197.796 Net Assets Invested in capital assets, net of related debt 4,293,484 Restricted for debt service 289,500 Unrestricted 2,573,265 Total net assets $ 7,156,249 See Notes to the Financial Statements. 10 LA PORTE AREA WATER AUTHORITY EXHIBIT B-2 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS For the Year Ended September 30, 2012 Operating Revenues Charges for services $ 1,294,479 Total operating revenues 1,294,479 Operating Expenses Supplies 4,207 Purchased water 1,264,050 Other services and charges 107,012 Depreciation 462,938 Total operating expenses 1,838,207 Operating income (loss) (543,728) Nonoperating Revenues (Expenses) Interest income 5,945 Interest expense and fiscal charges (79,160) Total nonoperating revenue (expenses) (73,215) Income (loss) before contributions and transfers (616,943) Capital contributions 752,242 Change in net assets 135,299 Total net assets - beginning 7,020 950 Total net assets - ending $ 7,156,249 See Notes to the Financial Statements. 11 LA PORTE AREA WATER AUTHORITY EXHIBIT B-3 STATEMENT OF CASH FLOWS Year Ended September 30, 2012 Cash Flows from Operating Activities Receipts from customers $ 1,327,476 Payments to suppliers (1,211,596) Net cash provided by operating activities 115,880 Cash Flows from Capital and Related Financing Activities Payments received from participants for debt service 693,142 Payments received from participants for capital recovery 59,100 Principal payments on revenue bonds (605,000) Interest paid on capital debt (88,150) Net cash provided by capital and related financing activites 59,092 Cash Flows from Investing Activities Sale of investments 139,700 Interest and dividends 5,508 Net cash provided by investing activities 145,208 Net (decrease) in cash and cash equivalents 320,180 Balances - beginning of the year 1,312,110 Balances - end of the year $ 1,632,290 Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) $ (543,728) Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense 462,938 Change in assets and liabilities: Receivables, net 32,997 Accounts payable 163,673 Net Cash provided by operating activities Reconciliation of total cash and cash investments: Current Assets - cash and cash equivalents Restricted Assets - cash and cash equivalents Total cash and cash equivalents See Notes to the Financial Statements. 12 $ 115,880 $ 937,091 695,199 $ 1,632,290 LA PORTE AREA WATER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS Note 1 - Creation of Authority EXHIBIT B-4 The La Porte Area Water Authority (the "Authority") was created on May 30, 1981 by Chapter 729, Page 2678, Acts of the 67th Legislature of the State of Texas. This bill authorizes the Authority to purchase, construct or otherwise acquire waterworks systems, sanitary sewer systems, storm sewer systems and drainage facilities or parts of such systems of facilities and to operate and maintain such facilities. The Authority is authorized to set rates for services related to the aforementioned systems and facilities, and issue revenue bonds for the purpose of acquiring and maintaining such systems. The Authority comprises approximately 20,600 acres in Harris County, Texas. Note 2 - Summary of Significant Accounting Policies The accounting policies of the Authority conform with generally accepted accounting principles. The following is a summary of the most significant policies: A. Reporting Entity Generally accepted accounting principles for local governments include those principles prescribed by the Governmental Accounting Standards Board (GASB), the American Institute of Certified Public Accountants in the publication entitled Audits of State and Local Governmental Units and by the Financial Accounting Standards Board (when applicable). As allowed in Section P80 of GASB's Codification of Governmental Accounting and Financial Reporting Standards, the Authority has elected not to apply to its propriety activities Financial Accounting Standards Board Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins of the Committee of Accounting Procedure issued after November 30, 1989. The more significant accounting policies of the Authority are described below. Consideration regarding the potential for inclusion of other entities, organizations or functions in the Authority's financial reporting entity is based on criteria prescribed by generally accepted accounting principles. These same criteria are evaluated in considering whether the Authority is a part of any other governmental or other type of reporting entity. Criteria for determining component unit status under generally accepted accounting principles included considerations pertaining to organizations for which the primary government is financially accountable and considerations pertaining to other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The La Porte Area Water Authority is considered a component unit of the City of LaPorte, Texas by virtue of meeting the criteria noted above. The primary factor in determining component unit status is that the Authority provides approximately 86% of its services for the exclusive benefit of the City of La Porte. The Authority's financial operations are included as an Enterprise Fund in the City's Comprehensive Annual Financial Report as a blended component unit. The City of La Porte is referred to as "Primary Government" throughout the authority's financial statements. 13 LA PORTE AREA WATER AUTHORITY EXHIBIT B-4 NOTES TO THE FINANCIAL STATEMENTS (continued) Note 2 - Summary of Significant Accounting Policies (continued) B. Fund Accounting The operations of the Authority are recorded in an enterprise fund. Enterprise funds are used to account for operations (a) that are financed primarily through user charges or (b) where the governing body has decided that determination of net income is appropriate. The enterprise fund is a proprietary fund type. C. Basis of Accounting Enterprise Funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are presented on the statement of net assets in a classified format to distinguish between current and long-term assets and liabilities. Net assets are presented in three components: invested in capital assets, net of related debt; restricted; and unrestricted. Enterprise fund operating statements present increases (e.g., revenues), decreases (e.g., expenses) and changes in net total assets. Enterprise funds are accounted for using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized at the time liabilities are incurred. D. Cash Equivalents For purposes of the statement of cash flows, the Authority considers cash held in demand accounts and all short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. E. Physical Facilities and Depreciation Fixed assets, which consist of a water production and distribution system, are shown at original cost. Interest paid during construction of facilities, if any, is also included in this cost. Depreciation has been provided for the Authority's water production and distribution system using the straight-line method over a 30-year estimated useful life. Note 3 - Cash and Cash Equivalents Cash and cash equivalents represent the Authority's equity interest in the City's consolidated cash and cash equivalents account consisting of demand accounts and short-term investments with a maturity at date of purchase of three months or less. State statutes require that all funds in depository institutions be covered by federal depository insurance and/or be secured in the manner provided by law for security of funds. Cash and cash equivalent balances held by the City were entirely covered by federal depository insurance or security as required at September 30, 2012. At year end a portion of the Authority's cash and temporary investments were restricted as follows: Restricted for retirement of current debt service liablities and reserve requirements per bond covenents $ 695,199 Total Restricted Cash and Temporary Investments $ 695,199 14 LA PORTE AREA WATER AUTHORITY EXHIBIT B-4 NOTES TO THE FINANCIAL STATEMENTS (continued) Note 4 - Temporary Investments Temporary investments represent the Authority's equity interest in the City's investment pool. At year end a portion of the Authority's cash and temporary investments were restricted as follow: The carrying amount for temporary investments, at September 30, 2012, was $1,212,769, which is fair value. This represents 8.62% of the City's total portfolio. Pooled investments with the City consist of obligations of the United States and its agencies, certificates of deposit and investment pools in accordance with state statutes and the City's investment policies. Securities are registered and held by their agent in the City's name. The Authority's portion of the investment pool is 4.023% Interest earnings are allocated on the same pro-rata basis. The investment pool is not registered with the SEC or subject to any regulatory oversight. The fair value of the position in the pool is the same as the value of pool shares. The City has adopted GASB Statement No. 31, which establishes accounting and reporting standards for all of the City's investments. In accordance with Statement No. 31, the City reports all investments at fair value, except for "money market investments" and "20-like pools". Money market investments, which are short-term highly liquid debt instruments that may include U.S. Treasury and agency obligations, are reported at amortized costs. Investment positions in external investment pools that are operated in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940, such as TexPool and LOGIC, are reported using the pools' share price. Interest Rate Risk The Authority's investment policy specifies that the maximum stated maturity, from the date of purchase for any individual investment may not exceed 5 years and the maximum dollar -weighted average maturity for the pooled fund group may not exceed 2 years. At year end, the Authority's dollar -weighted average maturity of the investment portfolio was as follows: Investment Type Logic Texpool Certificates of Deposit Federal Home Loan Mortgage Corp (FHLMC) Federal Home Loan Bank (FHLB) Federal Farm Credit Bank (FFCB) Portfolio Weighted Average Maturity 15 Weighted Average Maturity (Days) 50 41 74 810 271 678 144 LA PORTE AREA WATER AUTHORITY EXHIBIT B-4 NOTES TO THE FINANCIAL STATEMENTS (continued) Note 4 - Temporary Investments (continued) Concentration of Credit Risk The Authority's investment policy places no limit on the amount the government may invest in any one issuer. At September 30, 2012, the Authority's investment portfolio consisted of the following investments: Investment Type LOGIC Texpool Certificates of Deposit Federal Home Loan Mortgage Corp (FHLMC) Federal Home Loan Bank (FHLB) Federal Farm Credit Bank (FFCB) Credit Risk Percentage of Total Portfolio 20% 52% 5% 3% 5% 15% 100% At year end balances in TexPool, a privately managed public funds investment pool was rated AAAm by Standard & Poor's and balances in LOGIC, a privately managed public funds investment pool was rated AAAm by Standard & Poor's. Federal Home Loan Mortgage Corporation notes, Federal Home Loan Banks bonds and Federal Farm Credit Bank notes were rated AA+ by Standard & Poor's. All credit ratings met acceptable levels required by legal guidelines prescribed in both the PFIA and the Authority's investment policy. Note 5 - Capital Assets An analysis of changes in physical facilities for the year ended September 30, 2012 follows: Capital assets being depreciated Water production and distribution system Less accumulated depreciation for: Water production and distribution system Total capital assets being depreciated, net Investment in capital assets from: Contributions by participants Beginning Balance Additions 15,435,810 (7,698,047) (462,938) 7,737,763 (462,938) Retirements & Ending Adjustments Balance 15,435,810 (8,160,985) 7,274,825 $ 7,737,763 $ (462,938) $ $ 7,274,825 *Depreciation expense of $462,938 charged to water services function/program. 16 LA PORTE AREA WATER AUTHORITY EXHIBIT B-4 NOTES TO THE FINANCIAL STATEMENTS (continued) Note 6 - Southeast Water Purification Plant The Authority and the City of Houston, Texas have entered into a Cost Sharing Water Project Contract (the "Contract") wherein the Authority, the Cities of La Porte, Morgan's Point and Shoreacres agree to jointly finance the construction and operation of the Southeast Water Purification Plant (Southeast Plant). Under the terms of the Contract, the Authority purchased 4.2 million gallons per day production and 5.25 million gallons per day pumping capacity. The Cities of LaPorte, Morgan's Point and Shoreacres have agreed to demand and pumping allocations of the Authority's purchase of water from the Southeast Plant. The required funds for the undivided interest in the Southeast Plant and the construction of a transmission and distribution system to transport water from the Southeast Plant were provided by issuance of $9.8 million revenue bonds. The water rate to be set by the Authority will not be less than an amount sufficient to provide for payment of all expenses in producing, treating and pumping the water in connection with transmission and distribution systems and to provide payment for the interest and principal of all bonds when the bonds become due and payable. Note 7 - Contract Revenue Bonds Payable, Debt Service Requirements and Bond Resolution Requirements On May 13, 2010, the La Porte Area Water Authority issued $4.085 million in Contract Revenue Refunding Bonds, Series 2010, with an average interest rate of 2.773% to purchase U.S. Government State and Local Government Series securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments of $2.95 million of unlimited tax bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net assets. The bonds are payable from the net revenue of the Authority. The bonds are in $5,000 denominations. Interest is payable on March 15 and September 15 of each year to maturity. The Authority is in compliance with all significant requirements and restrictions contained in the bond resolution. Bonds payable at September 30, 2012, are comprised of the following issue. Interest Amount Interest Maturity Payment Outstanding Rate Date Date $ 2,895,000 2.25-4.00% March 15, 2017 March 151 September 15 Bonds payable activity for the year ended September 30, 2012 was as follows: Beginning Retirements & Ending Bonds and Notes Payable Balance Additions Adjustments Balance Contract Revenue Refunding Premium on bonds Deferred amount on refunding $ 3,500,000 $ 94,534 11,168 $ 3,605,702 $ 17 $ (605,000) (17,312) (2,049) $ (624,361) $ 2,895,000 77,222 Amounts Due Within One Year $ 625,000 9,119 $ 2,981,341 $ 625,000 LA PORTE AREA WATER AUTHORITY NOTES TO THE FINANCIAL STATEMENTS (continued) EXHIBIT B-4 Note 7 - Contract Revenue Bonds Payable, Debt Service Requirements and Bond Resolution Requirements (continued) As of September 30, 2012, the debt service requirements on contract revenue bonds outstanding for the next five fiscal years are as follows: Due During Fiscal Year Ending 9/30 2013 2014 2015 2016 2017 Note 8 - Fund Net Assets Annual Requirement for All Bond Series Total Total Total Principal Interest Requirements $ 625,000 $ 73,556 $ 698,556 630,000 58,650 688,650 650,000 41,838 691,838 670,000 22,850 692,850 320,000 6,400 326,400 $ 2,895,000 $ 203,294 $ 3,098,294 The Authority provides surface water to the City of La Porte, Texas (the "City") and the Cities of Shoreacres and Morgan's Point in order for these entities to comply with certain requirements imposed by the Harris County Subsidence District. The City retains the rights to approximately 86% of the water capacity of the Authority with the Cities of Shoreacres and Morgan's Point retaining the rights to the remaining 14%. The City, Shoreacres and Morgan's Point have agreed to service the debt on the Authority's contract revenue bonds and to fund operations of the Authority in relation to their capacity rights and to purchase water based on actual consumption. As part of the debt service requirements, the participants are billed to build a reserve for future debt service requirements as set forth in the contract revenue bonds of the Authority. During the year, the Authority's billings were applied as follows: Water Supplied and Operating costs( User fees) $ 1,294,479 Debt Service Billings/ Charges 693,142 Capital recovery billings 59,100 Total Billings $ 1,987,621 Note 9 - Risk Management The Authority is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the Authority participates (through an endorsement on the City of La Porte's contract) along with other entities in the Texas Municipal League's Intergovernmental Risk Pool. The pool purchases commercial insurance at group rates for participants in the pool. Neither the Authority nor the City has additional risk or responsibility to the pool, outside of payment of insurance premiums. Neither the Authority nor the City had significantly reduced insurance coverage or had settlements that exceeded coverage amounts for the past three fiscal years. 18 LA PORTE AREA WATER AUTHORITY EXHIBIT B-4 NOTES TO THE FINANCIAL STATEMENTS (continued) Note 10 - Economic Dependency The Authority receives all of its support from three municipalities, with the City of La Porte being the largest contributor at approximately 86%. In addition, the Authority contracts with the City of La Porte to provide administrative oversight and operate the Authority's transmissions system. 19 (This page intentionally left blank.) 20 Supplementary Information 21 (This page intentionally left blank.) 22 LA PORTE AREA WATER AUTHORITY SUPPLEMENTAL SCHEDULES INCLUDED WITHIN THIS REPORT September 30, 2012 (Schedules included are checked or explanatory notes provided for omitted schedules.) ❑ D. Notes Required by the Water District Accounting Manual See "Notes to the Financial Statements (Exhibit B-4)," Pages 13-19 ® E. Schedule of Services and Rates ® F. Schedule of Enterprise Fund Expenses ® G. Schedule of Temporary Investments ❑ H. Analysis of Taxes Levied and Receivable (No tax levy) ® 1. Schedule of Changes in Fixed Assets ® J. Long -Term Debt Service Requirements, by Years ® K. Analysis of Changes in Long -Term Debt ® L. Statement of Revenues and Expenses, Enterprise Fund — Five Years ® M. Insurance Coverage ® N. Board Members, Key Personnel and Consultants ❑ O. Statement of Revenues, Expenses and Changes in Working Capital - Budget and Actual, Non-GAAP Presentation 23 LA PORTE AREA WATER AUTHORITY SCHEDULE OF SERVICE AND RATES Year ended September 30, 2012 1. Services provided by the District: SCHED ULE E Retail Water X Wholesale Water Drainage Retail Sewer Wholesale Sewer _Irrigation Parks/Recreation Fire Protection Security Solid Waste/Garbage Flood Control Roads Participates in joint venture, regional system, and and/or wastewater service (other than emergency interconnect) Other 2. Total Water Consumption during the Fiscal Year: (You may omit this information if your district does not provide water) Gallons pumped into system: 1,747,120,000 Gallons billed to customers: 1,672,151,000 3. Standby fees: Does the District assess standby fees? Yes 4. Location of District: County in which the District is located: Harris County Is the District located entirely within one county? Is the District located within a City? Entirely Water Accountability Ratio: (Gallons billed/Gallons pumped) 95.7% Yes X No Partly X Not at all City in which District is located Morgan's Point, Shoreacres and La Porte Is the Authority located within a city's extra territorial jurisdiction (ETJ)? Entirely Partly X Not at all City in which Authority is located Morgan's Point, Shoreacres and La Porte Is the general membership of the Board appointed by an office outside the Authority? Yes X No If yes, by Whom? La Porte City Council 24 LA PORTE AREA WATER AUTHORITY SCHEDULE OF ENTERPRISE FUND EXPENSES September 30, 2012 SCHEDULE F Professional Fees Auditing $ 6,000 Legal 232 Other 33,450 Purchased Service for Resale Bulk water purchase 1,264,050 Contracted Services Management/operation (primary government) 64,157 Administrative Expenses Supplies 4,207 Other administrative 3,173 Other Expenses Depreciation 462,938 Total Expenses $1,838,207 Number of persons employed by the District - 25 LA PORTE AREA WATER AUTHORITY SCHEDULE G SCHEDULE OF TEMPORARY INVESTMENTS Year ended September 30, 2012 Accrued Interest Maturity Face Interest Rate* Date Amount Receivable Equity interest in City of La Porte's investment pool 0.84% Demand $ 1,212,769 $ 993 Pooled investments with the City of La Porte consist of obligations of the United States and its agencies and investment pools in accordance with state statutes and the City of La Porte's investment policies. *Approximate return for September 2012. 26 LA PORTE AREA WATER AUTHORITY SCHEDULE OF CHANGES IN CAPITAL ASSETS Year ended September 30, 2012 Capital assets being depreciated Water production and distribution system Less accumulated depreciation for: Water production and distribution system Total capital assets being depreciated, net Investment in capital assets from: Contributions by participants See Accompanying Auditor's Report. Beginning Balance Additions 15,435,910 (7,698,047) (462,938) 7,737,763 (462,938) SCHEDULE I Retirements & Ending Adjustments Balance 15,435,910 (8,160,985) 7,274,825 $ 7,737,763 $ (462,938) $ $ 7,274,825 27 LA PORTE AREA WATER AUTHORITY LONG-TERM DEBT SERVICE REQUIREMENTS BY YEARS September 30, 2012 Due During SCHEDULE J Fiscal Year Annual Requirement for All Bond Series Ending Total Total Total 9/30 Principal _Interest Requirements 2013 $ 625,000 $ 73,556 $ 698,556 2014 630,000 58,650 688,650 2015 650,000 41,838 691,838 2016 670,000 22,850 692,850 2017 320,000 6,400 326,400 $ 2,895,000 $ 203,294 $ 3,098,294 See Accompanying Auditor's Report. 28 LA PORTE AREA WATER AUTHORITY ANALYSIS OF CHANGES IN LONG-TERM DEBT Year ended September 30, 2012 Series 2010 Total Interest rate 2.25% to 4.0% Date interest payable 03/15;09/15 Maturity dates 03/15/11-03/15/17 Bonds outstanding at beginning of year $ 3,500,000 $ 3,500,000 Retirements (605,000) (605,000) Refunded Issued Bonds outstanding at end of year $ 2,895,000 $2,895,000 Interest paid $ 88,150 $ 88,150 SCHEDULE K Paying Agent/Registrar Refunding Bonds Series 2010 The Bank of New York Mellon Trust Company, N.A. — Dallas, Texas Contract Tax Revenue Refunding Bond Authority Bonds* Bonds Bonds Amount authorized by voters $ - N/A N/A Amount issued - - 4,085,000 Remaining to be issued $ - $ - $ - * Includes all bonds secured with tax revenues. Bonds in this category may also be secured with other revenues in combination with taxes. Cash and temporary investment balances as of September 30, 2012 $ 2,845,059 Average annual debt service payment (principal and interest) for remaining term of all debt $ 619,659 29 LA PORTE AREA WATER AUTHORITY STATEMENT OFREVENUES AND EXPENSES - FIVE YEARS September 30, 2012 AMOUNTS 2012 _ 2011 2010 2009 2008 Operating Revenues User fees $ 1,294,479 $ 1,246,186 $ 929,497 $ 962,843 $ 985,972 Operating Expenses Supplies 4,207 5,343 14,761 7,050 46 Purchased water 1,264,050 1,006,229 813,405 818,482 745,775 Services and charges 107,012 81,360 151,592 89,202 85,459 Depreciation 462,938 460,877 461,171 461,465 451,689 Total Operating Expenses 1,838,207 1,553,809 1,440,929 1,376,199 1,282,969 Operating Loss (543,728) (307,623) (511,432) (413,356) (296,997) Nonoperating Revenues (Expenses) Interest income 5,945 25,167 25,187 29,957 77,870 Interest expense (79,160) (112,713) (156,871) (243,859) (272,369) Net nonoperating Revenues (73,215) (87,546) (131,684) (213,902) (194,499) Income (loss) Before Contributions and Operating Transfers (616,943) (395,169) (643,116) (627,258) (491,496) Contributions 752,242 791,435 860,304 860,304 860,388 Net Income (Loss) $ 135,299 $ 396,266 $ 217,188 $ 233,046 $ 368,892 See Accompanying Auditor's Report. 30 SCHEDULE L PERCENT OF TOTAL REVENUES 2012 2011 2010 2009 2008 100.00% 100.00% 100.00% 100.00% 100.00% 0.32% 0.43% 1.59% 0.73% 0.00% 97.65% 80.74% 87.51% 85.01% 75.64% 8.27% 6.53% 16.31% 9.26% 8.67% 35.76% 36.98% 49.62% 47.93% 45.81% 141.99% 124.69% 155.02% 142.93% 130.12% -41.99%-24.69%-55.02%-42.93%-30.12% 0.46% 2.02% 2.71 % 3.11 % 7.90% -6.12% -9.04%-16.88%-25.33%-27.62% -5.67% -7.03%-14.17%-22.22%-19.74% -47.66%-31.71%-69.19%-65.15%-49.85% 58.11% 63.51% 92.56% 89.35% 87.26% 10.45% 31.80% 23.37% 24.19% 37.41% 31 (This page intentionally left blank.) 32 LA PORTE AREA WATER AUTHORITY INSURANCE COVERAGE September 30, 2012 Amount of Type of Coverage From/To Coverage Insurer Name Comprehensive General and 10/01/11- $ - Texas Municipal League Contractual Liability Bodily 10/01/12 Intergovernmental Risk Pool* Injury and Property Damage: Per occurrence 2,000,000 Aggregate 4,000,000 Deductible 5,000 Pollution Liability 10/01/11- 2,000,000 Texas Municipal League 10/01/12 Intergovernmental Risk Pool* Errors and Omissions** 10/01/11- Texas Municipal League 10/01/12 Intergovernmental Risk Pool* Per act 3,000,000 Aggregate 6,000,000 Deductible 5,000 Automobile Liability 10/01/11- Texas Municipal League 10/01/12 Intergovernmental Risk Pool* Each occurrence 1,000,000 Each person 25,000 Deductible 1,000 "Directors are covered under the errors and omission policy. See Accompanying Auditor's Report. 33 SCHEDULE M Policy Cluase Insurance None None None None LA PORTE AREA WATER AUTHORITY SCHEDULEN BOARD MEMBERS, KEY PERSONNEL AND CONSULTANTS Page I of 2 September 30, 2012 Authority's Mailing Address: City of La Porte Michael Dolby 604 W. Fairmont Parkway LaPorte, Texas 77571 Authority's Business Phone Number: (281) 471-5020 Term of Office/ Appointed/ Expense Resident of Name and Address Expires Reimbursements Title at Year End Authority Board Members David Janda 8/30/2012 President 3601 East Desert Dr. Yes Position 4 LaPorte, TX 77571 8/31/2014 Doug Martin 6/11/2012 Member 1103 Oak Leaf Yes Position 3 LaPorte, TX 77571 8/31/2013 Randy Woodard 8/30/2011 Member 2601 S. Broadway Yes Position 1 LaPorte, TX 77571 8/31/2013 Ken Schlather 8/30/2012 Vice President 9811 Catlett Yes Position 5 LaPorte, TX 77571 8/31/2014 Dennis H. Steger 8/30/2011 Member 3201 Bayshore Dr. Yes Position 2 LaPorte, TX 77571 8/31/2013 Key Administrative Personnel Corby Alexander Michael Dolby General Manager Director of Finance Note: No director has any business or family relationship (as defined by the Texas Water Code) with major landowners in the Authority or with any of the Authority's consultants. See Accompanying Auditor's Report. 34 LA PORTE AREA WATER AUTHORITY BOARD MEMBERS, KEYPERSONNEL AND CONSULTANTS September 30, 2012 SCHEDULE N Page 2 of 2 Fees and Expense Name and Address Date Hired Reimbursements Title Consultants City of La Porte 1981 $62,852 Management/Operator 604 W. Fairmont Parkway LaPorte, TX 77571 Whitley Penn, LLP 2012 $6,000 Auditor 2000 Loop 197 North, Suite 200 Texas City, Texas 77590 The Bank of New York 1999 $0 Paying Agent Global Corporate Trust 2001 Bryan Street, loth Floor Dallas, TX 75201 See Accompanying Auditor's Report. 35 LA PORTE AREA WATER AUTHORITY SCHEDULE OF REVENUES AND EXPENSES - BUDGETANDACTUAL - (BUDGETARY BASIS) Year Ended September 30, 2012 Revenues Water revenue billing Total Revenues Operating Expenses Supplies Purchased water Other services and charges Depreciation Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Interest income Interest expense and fiscal charges Total Nonoperating Revenues (Expenses) Income (Loss) Before Contributions and Transfers Capital Contributions Change in Net Assets Total Net Assets, Beginning Total Net Assets, Ending See Accompanying Auditor's Report. Actual (Budgetary Variance Over Original Budget Final Budget Basis) (Under) $ 1,031,915 $ 1,031,915 $ 1,294,479 $ 262,564 1,031,915 1,031,915 1,294,479 262,564 5,200 5,200 4,207 (993) 983,892 1,048,982 1,264,050 215,068 132,415 82,325 107,012 24,687 - - 462,938 462,938 1,121,507 1,136,507 1,838,207 701,700 (89,592) (104,592) (543,728) (439,136) 7,500 7,500 5,945 (1,555) (88,150) (88,150) (79,160) 8,990 (80,650) (80,650) (73,215) 7,435 (170,242) (185,242) (616,943) (431,701) 748,384 748,384 752,242 3,858 578,142 563,142 135,299 (427,843) 7,020,950 7,020,950 7,020,950 (427,843) $ 7,599,092 $ 7,584,092 $ 7,156,249 $ (855,686) 36