TABLE13 – SUMMARY OFOPERATIONS(AMOUNTSINTHOUSANDS)
(1) In 1981, the City Council adopted a financial criterion for Dallas Water Utilities cost of service studies, which requires an annual review of customer service rates and the recommendation of rate adjustment when appropriate. Operating Revenues shown above reflect rate adjustments effective October 1 at the beginning of each fiscal year.
(2) Interest earnings and capitalized interest are included above as a reduction of Net Interest Expense.
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Operating Revenues(1) 2013 2012 2011 2010 2009
Water $ 330,006 $ 319,129 $ 321,997 $ 278,419 $ 271,399
Wastewater 221,492 208,245 202,284 189,108 196,530
551,498
$ $ 527,374 $ 524,281 $ 467,527 $ 467,929
Operating Expenses
Operation and Maintenance $ 259,556 $ 256,095 $ 251,295 $ 258,506 $ 264,908
Depreciation and Amortization 105,528 99,619 95,160 99,283 92,106
365,084
$ $ 355,714 $ 346,455 $ 357,789 $ 357,014
Operating Income $ 186,414 $ 171,660 $ 177,826 $ 109,738 $ 110,915
Net Interest Expense(2) (70,037) (70,841) (71,032) (65,284) (52,725)
Capital Contribution Received 11,411 5,510 8,040 10,345 14,825
Net Transfers (19,008) (17,210) (14,637) (12,038) (4,589)
Gain/(Loss) From Property Disposal (610) (249) 75 (93) 93
Change in Net Position $ 108,170 $ 88,870 $ 100,272 $ 42,668 $ 68,519
Water Customer Accounts 292,000 287,000 292,000 293,000 291,000
Wastewater Customer Accounts 276,000 272,000 274,000 275,000 276,000
Water Connections 329,000 328,000 330,000 331,000 330,000
Fiscal Year Ended September 30,
TABLE14 – PROJECTEDCOVERAGE ANDFUNDBALANCES
TABLE15 – SUMMARY OFNETREVENUESFORREVENUEBONDCOVERAGE- CASHBASIS(AMOUNTSINTHOUSANDS)(1)
(1) The figures shown in this table are presented on a cash basis and were developed in accordance with the provisions contained in the City’s Waterworks and Sewer System Revenue Bond Ordinances. Gross Revenues include cash receipts derived from operation and ownership of the System. Operating Expenditures are operating cash disbursements and payments required by certain reservoir and other contracts, included for this purpose under provisions of state law. Operating Expenditures exclude payments for capital purposes and for related debt, and will exclude any future payments to the City in lieu of ad valorem taxes, if made, as permitted by a May 1993 amendment to the City Charter (see “THE WATER AND WASTEWATER SYSTEM -Background” and “THE WATER AND WASTEWATER SYSTEM - Water and Wastewater Services Rates”).
(2) Cash payments for contractual services includes payments for the Water Transmission Facilities Financing Agreement in the amount of $7,903. Under Texas Government Code, Section 1502.056(c), “a contract between a municipality and an issuer, as defined by Section 1201.002, under which the municipality obtains from the issuer or the issuer provides part or all of the facilities or services of a utility system to the municipality may provide that payments made by the municipality from the revenue of the utility system are an operating expense of the municipality’s utility system.”
UTILITYPROPERTYANDSYSTEMEQUITY… The City’s water system consists generally of water supply resources, including water reservoirs and water rights, major water transmission and conveyance facilities, water treatment plants and treated water distribution facilities, and related miscellaneous assets designed to serve the City and other wholesale and retail customers located in the North Texas area. The City’s wastewater system consists generally of residential, commercial and industrial wastewater collection systems and wastewater treatment and disposal facilities for the City and other wholesale and retail customers located in the North Texas area.
Average Annual Principal and Interest Requirements, Fiscal Years 2015-2045 $ 111,245,725 Coverage of Average Requirements by Fiscal Year Ended 9-30-13 Net Revenues 2.89 x
M aximum Principal and Interest Requirements, Fiscal Year 2016 $ 182,860,321 Coverage of M aximum Requirements by Fiscal Year Ended 9-30-13 Net Revenues 1.76 x
Waterworks and Sewer Sy stem Revenue Bonds to be Outstanding (as of 03/25/2015) $2,106,323,000
Interest and Sinking fund (as of 9-30-13) $ 131,479,269
Reserve Fund (as of 9-30-13) $ 95,902,279
Gross Revenues 2013 2012 2011 2010 2009
Customer Charges $ 552,414 $ 531,949 $ 503,463 $ 474,241 $ 475,248
Interest Received 2,272 3,340 4,577 4,271 15,481
554,686
$ $ 535,289 $ 508,040 $ 478,512 $ 490,729
Operating Expenditures
Personnel Services $ 79,105 $ 71,447 $ 74,285 $ 77,542 $ 75,027
Supplies and Materials 83,261 82,518 82,069 78,121 81,240
Contractual and Other Services(2) 70,811 81,796 72,490 84,454 89,579
233,177
$ $ 235,761 $ 228,844 $ 240,117 $ 245,846
Net Revenues Available for Debt Service $ 321,509 $ 299,528 $ 279,196 $ 238,395 $ 244,883 Fiscal Year Ended September 30,
At September 30, 2013, property, plant and equipment of Dallas Water Utilities, stated at cost, less accumulated depreciation and amortization, together with the cost of construction in progress, was $4,210,570,000. At said date, the total net position of the System was $2,393,000,000 and consisted of amounts invested in capital assets, net of related debt, amounts restricted for bond requirements and unrestricted amounts. The ratio between debt and equity (net position) is subject to change based upon numerous factors, including, but not limited to, changes in capital improvement program implementation and whether debt or internal funds are used to pay for capital improvements.
TABLE16 – NETPOSITION ANDLONGTERMDEBT(AMOUNTSINTHOUSANDS)
(1) In accordance with GASB Statement 63, System Equity is now termed Net Position.
(2) Due to the implementation of GASB 63 and 65, deferred loss is no longer reported as a component of long term debt.
(3) Restated as a result of the implementation of GASB Statement 63.
FINANCIALPOLICIES
The original Financial Management Performance Criteria (“FMPC”) were adopted by the City Council in March 1978 as standards to guide managerial decisions in operating and capital budgeting, as well as to promote efficient administration of the City’s financial policies. In 1981, the City Council adopted a financial criterion for Dallas Water Utilities Cost of Service studies, which requires an annual review of Customer Service rates and the recommendation of rate adjustment when appropriate. Operating Revenues shown above reflect adjustments effective October 1 at the beginning of each fiscal year. The City Council last amended the FMPC in September 2011. The FMPC guide many of the City’s financial decisions and enable the City to achieve a long-term positive financial condition. The FMPC are evaluated for compliance each year during the budget preparation/approval process, at fiscal year end and prior to each debt issuance.
Financial criteria applying specifically to Dallas Water Utilities were updated by the City Council in September 28, 2011, to ensure prudent financial administration consistent with current circumstances and appropriate financial procedures.
Provisions of Dallas Water Utilities Financial Criteria include (1) adequacy of current revenues, (2) use of debt only for capital improvements with long expected useful lives, (3) maintenance of system equity and revenue bond coverage, (4) application of revenues for construction purposes, (5) annual cost of service reviews and recommendation of rate adjustments, and (6) use of water and wastewater funds solely for water and wastewater purposes.
The criteria are grouped into the following areas:
OPERATING PROGRAMS …These criteria pertain to revenues and expenditures, ad valorem tax levy, retirement systems and adequacy of reserves. As an example, certain criteria in this section require the City to maintain the Contingency and Emergency Reserves plus the undesignated, unreserved fund balance at a specified minimum level in relation to operating expenditures and to review the adequacy of other General Fund Reserve accounts at specified intervals.
CAPITALANDDEBTMANAGEMENT… These criteria pertain to the City’s general obligation bonds, debt levels and the use of certificates of obligation and tax increment financing zone/public improvement district financing. The City policy is to not use bond proceeds, grants or other non-recurring revenues for current expenses.
Net Position - System Equity(1) 2013 2012 2011(3) 2010 2009
Capital assets, net of related debt $ 2,011,972 $ 1,962,446 $ 1,899,076 $ 1,880,460 $ 1,827,258
Restricted 186,126 187,998 172,515 161,855 176,860
Unrestricted 194,902 134,386 124,369 64,450 59,979
Total Equity $ 2,393,000 $ 2,284,830 $ 2,195,960 $ 2,106,765 $ 2,064,097
Long-Term Debt Less Current Maturities
Revenue Bonds Payable(2) $ 2,016,107 $ 1,951,883 $ 1,857,406 $ 1,796,494 $ 1,638,060
Pension Obligation Bonds(2) 76,602 79,564 81,622 84,297 86,762
Total Long-Term Debt Less Current Maturities $ 2,092,709 $ 2,031,447 $ 1,939,028 $ 1,880,791 $ 1,724,822
Total $ 4,485,709 $ 4,316,277 $ 4,134,988 $ 3,987,556 $ 3,788,919
Percentage Equity 53.3% 52.9% 53.1% 52.8% 54.5%
Fiscal Year Ended September 30,
ACCOUNTING, AUDITINGANDFINANCIALPLANNING…These criteria pertain to audit and accounting standards and requirements for financial planning.
CASHMANAGEMENT…These criteria pertain to the disbursement, collection and deposit of all funds, investment of idle cash and banking services.
GRANTSANDTRUSTS…These criteria pertain to grant and trust administration.
WATERUTILITIES... These criteria pertain to Dallas Water Utilities system rates, revenues, reserves, and debt financing.
BASISOFACCOUNTING… The City policy is to adhere to the accounting principles set out by the Governmental Accounting Standards Board, as amended.
DEBTSERVICEFUNDBALANCES... The City maintains the Interest and Sinking Fund and the Reserve Fund supporting the Prior Encumbered Bonds in accordance with ordinance authorizing the issuances of the Prior Encumbered Bonds. The City will maintain the Debt Service Fund and the Reserve Fund supporting the Parity Obligations (including the Bonds) in accordance with the ordinances authorizing the issuance of Parity Obligations.
USEOFDEBTPROCEEDSANDGRANTS... The City policy is to use debt proceeds and grants for capital expenditures only, not for operations.
BUDGETARYPROCEDURES... The City policy is to begin the budgetary procedure at the department level in January of each year.
The budget proceeds through department levels until it reaches the City Manager level where it is refined and presented to Council in mid-August. The Council considers, amends and refines the budget until its final adoption prior to the end of September. The City adopted its 2014-2015 fiscal year budget by ordinance on September 17, 2014. The ordinance provides for budgetary control at the department level. Budgetary compliance is maintained in the automated accounting system and enforced at the department level by reserving appropriations by encumbering purchase orders and contracts.
PENSIONPLANS…Eligible City employees participate in the Employees' Retirement Fund of the City of Dallas, the Dallas Police and Fire Pension System, and the Police and Fire Supplemental Pension Fund. Descriptions of each of the City’s pension plans with selected financial data are set forth below.
In accordance with the Texas Constitution and related statutes, each of the City’s pension plans are administered by a board of trustees that are selected in accordance with the terms of the relevant plan document. These boards are responsible for administering each plan; hiring a plan administrator; selecting legal counsel; selecting the plan’s actuary; and approving sound actuarial assumptions for each plan. The contributions made to each plan by the City and the employees who participate in each plan are determined by the terms of the plan document and relevant City ordinances. The amount of the contributions described in the plan documents, are either fixed; determined by a fixed formula described in the plan that is based on annual calculations made by the plan’s actuary; or based on an actuarial calculation with specified assumptions and approved by the relevant board.
Additionally, each board also administers a qualified governmental excess benefit arrangement associated with each plan which are maintained solely for the purpose of providing its members with that part of the members’ benefits that would have been provided under its qualified plan but for certain limitations imposed by the Internal Revenue Code. The City is making all of the contributions as required by the plan documents, as requested by each plan administrator on behalf of each board of trustees. The financial information below is based entirely on information provided to the City by each plan administrator on behalf of each plan’s board of trustees.
As of the date of this Official Statement, the City has received an audited Comprehensive Annual Financial Report from the Dallas Police and Fire Pension System and the Supplemental Police and Fire Pension Plan of the City of Dallas, and from the Employees’ Retirement Fund of the City of Dallas for the period ended December 31, 2013. Additionally, the City has received unaudited calculations performed by the actuaries for each plan “as of” and for the period ended December 31, 2013.
Employees’ Retirement Fund of the City of Dallas . . . All eligible employees of the City, excluding fire fighters and police officers, participate in the Employees’ Retirement Fund of the City of Dallas (“ERF”). Benefits are based on credited service and average monthly earnings and include normal retirement pension at age 60, early retirement pension at age 55 if employed before May 9, 1972 or at least age 50, for active employees, where age and years of service total 78, service retirement pension at any age after 30 years of credited service and disability retirement pension as determined by the Board of Trustees of the ERF (the
“Board”). Survivor benefits are available before and after retirement. If a member’s employment is terminated after five years of service, the member may elect to receive pension benefits, when eligible, equal to the amount accrued to date of termination.
Contribution rates for employees and the City are subject to annual adjustments based on actuarial determinations and fixed formulas. Employees pay 37% and the City pays 63% of the total cost of the ERF, including the debt service on the City’s outstanding pension obligation bonds, but not exceeding 36% of payroll. This funding approach was added to the ERF plan terms in preparation
for the issuance of pension obligations bonds in 2005 to support the City’s long-term funding of the plan during future business cycles. On January 19, 2005, the City issued $399,347,609 par value Taxable General Obligation Pension Bonds, Series 2005.
Proceeds totaling $533,397,000 were contributed to the ERF to partially fund an unfunded actuarial accrued liability of approximately $646 million, which had been identified in the annual actuarial report of 2003. ERF invested the contributed proceeds consistent with its investment policy.
For the plan fiscal year ended on December 31, 2012 and 2013, the unfunded actuarial accrued liability (“UAAL”) was reported as
$672,232,000 and $536,561,000, respectively, and the annual actuarially required contribution rate the City would need to pay to fund the UAAL over 30 years for the respective periods were 40.47% and 37.74% of payroll. As of December 31, 2013, the actuarial value of the ERF’s assets were $3,074,284,000 and its funded ratio was 85.1%, based on the actuarial value of the assets. The funded ratio based on the market value of assets was 92.1%.
For the fiscal year ended September 30, 2014, each employee contributed 13.06% and the City contributed 22.23% of pay for a total of 35.29%. For the fiscal year that began October 1, 2014, the plan actuary notified the City that the contribution rates would not change under the fixed formula in the plan document that is codified as Chapter 40A of the Dallas City Code (“Chapter 40A”). This 35.29% of payroll is less than the annual actuarially required contribution calculated by the plan’s actuary based on the plan’s experience for the one-year period ended on December 31, 2013, but is consistent with the City’s long-term funding strategy implemented in 2005 and Chapter 40A. A portion of the City’s contribution is expected to pay $32,477,655 in debt service on the pension obligation bonds during the fiscal year beginning on October 1, 2014.
For additional detail about the City’s schedule of employer contributions, actuarial methods and assumptions, funded status and funded progress, see the City’s Comprehensive Annual Financial Report for the Fiscal Year ended September 30, 2013, particularly Note 16.
Dallas Police and Fire Pension System. . . The Dallas Police and Fire Pension System (the “DPFP System”) includes three pension plans identified as the “Combined Pension Plan” (formerly the “Old Plan”, “Plan A”, and “Plan B”). Although there are multiple benefit structures involved (such as “Group A”, which consists of former “Old Plan” and “Plan A” members, and “Group B”, which consists of former “Plan B” members), the Dallas Police and Fire Pension System is a qualified pension plan. All eligible employees of the Fire-Rescue Department and Police Department participate in one of the benefit structures within the plan, with Group B covering more than 99% of the members. Participation in Group B (formerly “Plan B”) is mandatory for those employed on or after March 1, 1973. All contributing members of the pension System were hired after that date and are now covered in Group B.
Additional benefit structures were added to the Group B benefits through plan amendments in 2006, 2011 and 2014. Persons who are eligible to retire but remain in City service may choose to be covered by the Deferred Retirement Option Plan (DROP) provisions of Group B. All members of the DPFP System and DROP currently contribute 8.5% of their computation pay excluding overtime and special assignment pay. As described in the more detail below, effective January 1, 2015, the contribution rate for current members in DROP changed to 4% of computation pay. The City contributes 27.5% of total wages and salaries.
Vesting of Service Requirement occurs for members of Group B hired before March 1, 2011, after five years. Generally, benefits for Group B are based on average computation pay over the employee's highest 36 consecutive months of credited service and are available for vested members attaining the age of 50. Reduced benefits are available to persons with five or more years of service at age 45 and to persons with 20 or more years of service at any age. Under Group B, disability benefits and survivors benefits are payable at occurrence.
Effective October 1, 2011, current members participating in DROP began making contributions to the DPFP System and all members hired on or after March 1, 2011 received reduced pension benefits. The reduced pension benefits applicable to new hires on or after March 1, 2011 included a multiplier between 2% and 3% depending on years of service, a 20-year vesting period (now amended to 10 years by the 2014 election as described below), an increase in the earliest age to retire to age 55, stricter criteria to receive disability benefits, and survivor benefits that are consistent with the reduced pension benefits.
On November 13, 2014, the Board of the DPFP System certified election results approving additional plan amendments, as more fully described in the paragraph below. Prior to the certification of the election results, a lawsuit was filed in State District Court by certain members of the DPFP System challenging the constitutionality of the plan amendments, particularly related to proposed amendments to DROP. On December 31, 2014, the State District Judge entered a final declaratory judgment ruling in favor of the plaintiffs and held that all of the 2014 plan amendments violated the Texas Constitution. An amended final judgment was entered on January 22, 2015 superseding the final judgment and affirming that the plan amendments respecting DROP and vesting rules violate the Texas Constitution thus rendering them null and void, but retracting the invalidation of another plan amendment. The DPFP Board has filed a motion seeking to invalidate or further modify this amended final judgment and, due to severe weather conditions, a hearing originally set for March 5, 2015 has been rescheduled to March 26, 2015.
If these plan amendments are ruled to be effective, the following provisions will be revised: (1) the contributions of current members participating in DROP would be reduced from the current 8.5% of computation pay to 4% of computation pay; (2) the DROP interest rate would be set at 5% effective October 1, 2017, with a step down from the current 8% DROP interest rate by one percent
(1%) each year until the rate reaches 5% as follows: 10/1/2014 - 8%; 10/1/2015 - 7%; 10/1/2016 - 6%; and 10/1/2017 - 5%, with additional triggers on which scheduled interest rates credited to DROP accounts could be adjusted each year based on the funded ratio and cumulative gain or loss in the DROP accounts; (3) any current member participating in DROP would be allowed a one-time opportunity to “revoke” or “undo” his or her election to enter DROP, such rescission to be made on the earlier of the date the member leaves active service or June 30, 2015; (4) only a DROP participant’s spouse who is the beneficiary of the participant’s DROP account could maintain a DROP Account after a participant’s death; (5) on attaining age 70½, all members and their surviving spouses would be required to take a distribution from DROP each year until the DROP account is paid out through distributions over a period that does not exceed 10 years.
These plan amendments would also lower the vesting provisions for members hired on or after March 1, 2011 from 20 years of pension service to 10 years of pension service. The change would also provide a DROP interest rate that would be the same for all DROP participants regardless of hire date. In addition, on January 7, 2015, DPFP System’s independent actuary, Buck Consultants, LLC, certified to the DPFP System under section 6.14 of the combined plan document that the need to shift plan assets to pay future DROP benefits could lead to a situation that “could be considered a significant actuarial loss” to the System. In response to this communication, on January 8, 2015, the DPFP Board voted to suspend new DROP enrollments pending the outcome of the litigation challenging the plan amendments for all DPFP participants starting on April 1, 2015.
These plan amendments would also lower the vesting provisions for members hired on or after March 1, 2011 from 20 years of pension service to 10 years of pension service. The change would also provide a DROP interest rate that would be the same for all DROP participants regardless of hire date. In addition, on January 7, 2015, DPFP System’s independent actuary, Buck Consultants, LLC, certified to the DPFP System under section 6.14 of the combined plan document that the need to shift plan assets to pay future DROP benefits could lead to a situation that “could be considered a significant actuarial loss” to the System. In response to this communication, on January 8, 2015, the DPFP Board voted to suspend new DROP enrollments pending the outcome of the litigation challenging the plan amendments for all DPFP participants starting on April 1, 2015.