RFP 2024-09 James River Water Authority Interim Financing.pdf

JAMES RIVER

WATER

AUTHORITY

JAMES RIVER WATER AUTHORITY

Request for Interim Financing

I. DATE: April 4, 2024

II. INTRODUCTION: In our capacity as Financial Advisor to the James River Water Authority (“JRWA” or “the Authority”), Raymond James & Associates, Inc. (“Raymond James”) is distribu�ng this Request for Interim Financing on behalf of JRWA to solicit proposals to provide Interim Financing in the form a direct bank loan evidenced by JRWA’s 2024 Bond An�cipa�on Note (“the Interim Financing”).

JRWA is an instrumentality formed by the Coun�es of Louisa and Fluvanna (“the Coun�es”) under the Virginia Water and Waste Authori�es Act to develop a system for the supply of raw water to the Coun�es in order to reduce the reliance on groundwater in the provisioning of safe, reliable drinking water to the ci�zens of both Coun�es. The Authority has obtained a permit from the Virginia Department of Environmental Quality to withdraw water from the James River at an average daily rate of 4.12 million gallons per day (mgd) from a point west of the former boundary of the Town of Columbia in Fluvanna County, and intends to construct the necessary facili�es to deliver raw water for treatment by the Coun�es.

The Authority intends to obtain long-term permanent financing for the facili�es through the Virginia Pooled Financing Program (“VPFP”) operated by the Virginia Resources Authority (“VRA”). VRA’s credit commitee has authorized the Authority’s par�cipa�on in the VPFP, subject to JRWA’s sa�sfac�on of certain condi�ons prior to the sale of VPFP Bonds, as more fully described below and in the atached VPFP Terms and Condi�ons (Exhibit A). JRWA expects to sa�sfy all of VRA’s condi�ons, but may be unable to do so prior to the deadline for par�cipa�on in the VPFP Spring 2024 Bonds. Therefore, JRWA is solici�ng proposals to provide Interim Financing for the Project (defined below), to allow project development and construc�on to con�nue without interrup�on. The Authority expects to repay the Interim Financing in full with a por�on of the proceeds of VRA VPFP Bonds once JRWA has sa�sfied all condi�ons for par�cipa�on in a VPFP bond sale, or from other sources of permanent financing that may be obtained by JRWA or the Coun�es. The Interim Financing will be secured by a pledge of the Authority’s revenues, as well as the Moral Obliga�on of the Coun�es pursuant to support agreements to be executed in advance of the closing on the Interim Financing.

III. OVERVIEW OF ORGANIZATION: JRWA is governed by a six-member Board of Directors, consisting of the

County Administrator and two citizen representatives from each of the Counties. JRWA and the Counties entered into a Service Agreement (attached as Exhibit B) on April 1, 2015 to provide for, among other things, the development of a System for the supply of raw water by the Authority to the Counties, the sale of raw water by the Authority to the Counties, and the allocation of the Authority’s capacity to the Counties, and the method for fixing and collecting rates and charges for the use of the System by the Counties.

System Revenues – Pursuant to Article IV of the Service Agreement (Exhibit B), Variable Operating and Maintenance Costs which can be attributed to water flows shall be split proportionately between the Counties based on actual water flow, and Fixed Operating and Maintenance Costs and Debt Service shall be divided evenly between the Counties.

JRWA previously obtained a permit from DEQ in November 2015 to withdraw water at a loca�on upstream of the confluence of the James and Rivanna Rivers at Bremo Bluff, and issued $7,695,000 of Revenue Bonds in 2016 through the VRA VPFP (“the Series 2016 Bonds”) to finance the design and construction of a raw water intake, a pump station and a raw water pipeline, as well as the acquisition of land and the rights-of-way necessary therefor (collectively, the “Original Project”). However, After consideration of historical concerns raised regarding the initial withdrawal site, the intake and pump station were moved to the current location.

IV. THE PROJECT: The Authority has obtained a new permit from the Virginia Department of Environmental

Quality to withdraw water from the James River at an average daily rate of 4.12 million gallons per day (mgd) from a new intake loca�on, at a point west of former boundary of the Town of Columbia in Fluvanna County. Pursuant to the Amended and Restated Comprehensive Agreement between JRWA and Faulconer Construc�on entered into on September 13, 2023, (“the Faulconer Agreement”) Faulconer shall design and build the James River Raw Water Project (“the Project”), a comprehensive turn-key raw water u�lity infrastructure system that will provide: 1) a raw water intake capable of receiving at least 12.0 MGD located in the James River, in accordance with the approved DEQ withdraw permit; 2) a raw water pump sta�on with two pumps, each capable of delivering approximately 4.0 MGD, with structure sized to accommodate future expansion; 3) a raw water distribu�on system transpor�ng to the exis�ng 24" Raw Water Main located adjacent to and running parallel with the Colonial Gas Pipelines in Fluvanna County, Virginia with the capacity to transport at least 12.0 MGD.

Addi�onal Project components not included in the Faulconer Comprehensive Agreement include:

- Archaeological data recovery (Phase III) studies, including research, fieldwork, analyses, and report produc�on necessary to comply with Sec�on 106 of the Na�onal Historic Preserva�on Act (NHPA) and guidelines of the Virginia Department of Historic Resources (DHR);

- Acquisi�on of necessary proper�es and easements;

- The purchase of wetland mi�ga�on credits as required by the DEQ permit;

- Construc�on Inspec�on and Project Management; and

- Such other ac�vi�es as may be required to complete the Project.

The total project budget is $45,610,650, as detailed in Exhibit C. The Authority has spent or will spend the remaining proceeds of the Series 2016 Bonds on project costs, and expects to ultimately finance the remaining project costs as well as interest during construction, reserves, and costs of issuance through the VPFP program, once all of the Terms and Conditions for such financing have been satisfied.

Permit Status

Permits from local, state and federal agencies are required before construction can begin on various phases of the project. As of the date of this Request, the status of key permits is described below:

• Virginia Department of Health (“VDH”), Approval of Preliminary Engineering Report – Approved 11/15/2023

• Virginia Department of Environmental Quality (“DEQ”), Surface Water Withdrawal Permit – Permit issued 10/20/2023

• Fluvanna County Special Use Permit – Permit issued 12/20/2023

• VDH Waterworks Construction Permits (Intake and Pump Station) – Permits issued on 3/21/2024

• VDH Waterworks Construction Permit (Raw Water Main) – Permit issued on 3/8/2024

• U.S. Army Corps of Engineers, Clean Water Act Section 404 Permit, Nationwide Permit – The Authority anticipates that this permit will be issued on or shortly after 4/15/2024. The last remaining step in the permitting process is to finalize an agreement to mitigate historic resources impacts. The draft agreement was revised to address all comments from interested parties and circulated for a final 15-day review on 3/20/2024.

• DEQ Construction General Permits – Updated applications submitted on 3/14/24 (site plan) and 3/21/24 (raw water main). JRWA anticipates that permits will be issued in May 2024.

V. INTERIM FINANCING – DESIRED STRUCTURE AND TERMS: JRWA is seeking proposals to provide interim financing to fund (a) Project Costs incurred pursuant to the Faulconer Agreement, (b) other Project Costs including archaeological studies, property and easement acquisition, acquisition of wetland mitigation credits, construction inspection and project managements, and other requirements, (c) interest on the Interim Financing, (d) costs of issuing the Interim Financing. JRWA may consider alternatives to the terms described below, if such alternative terms are determined to be either (1) more favorable to JRWA, or (2) necessary in order to obtain a financing proposal. All terms are subject to further discussion/negotiation.

Issuer: James River Water Authority

Structure: Option #1: Drawdown Bond; Option #2: Fully Drawn at Closing

Tax Treatment: Tax-Exempt, Non-Bank Qualified

Amount: Up to $30,000,000

Credit Ratings: JRWA will not apply for ratings for the Interim Financing, and has never applied for a credit rating from any credit rating agency. Louisa County is not currently rated by any rating agency. Fluvanna County currently has an issuer rating of Aa2 from Moody’s Ratings.

Advances: Drawn as needed by the Authority, subject to a reasonable limitation on the number of permitted draws per month;

Expected Advances: An estimated draw schedule is included as Exhibit D.

Interest Rate: Please provide both a Floating Rate, based upon a specified market index that is readily available to the public, and a Fixed Rate. For floating rate alternatives, please specify the frequency of rate resets. For fixed rate alternatives, the Authority requests that interest rate quotes be held firm through May 31, 2024.

If fixed rates cannot be held firm through this date, please specify the rate formula, timing and steps required for a rate lock.

Drawdown Loan

Floating Rate ___% of [1M Term SOFR]

Fixed Rate _____%

Unused Fee _____%

Daycount Basis:

Please specify whether interest will be calculated on a 30/360, Actual/Actual, or other daycount basis.

Yield Maintenance: Any other terms and conditions that would affect the cost of the financing to the JRWA must be specified, including any “yield maintenance provisions” for any events outside of the Authority’s control, such as changes in corporate tax rates, banking laws and regulations, capital requirements, etc. To the extent that you wish to include such terms in the financing documents, they must be specifically disclosed in your proposal. JRWA shall assume that “typical terms and conditions” do not include such yield maintenance provisions.

Interest Payments: The Authority seeks to capitalize interest, by making interest payment via draws on the Interim Financing. Please specify the frequency that interest payments will be due, and confirm that draws on the Interim Financing may be used to satisfy interest due prior to repayment of the Interim Financing.

Amortization: None (full amount outstanding to be due at maturity)

Maturity: June 30, 2025

Prepayment: Prepayable at any time (in whole or in part) without penalty is preferred. If a prepayment premium shall apply, please specify details necessary to calculate the prepayment premium.

Term Out Option: In the unlikely event that the Authority is unable to obtain long-term financing to repay the Interim Financing on or before maturity, the Authority may wish to consider a term out provision that converts the Interim Financing to a five-year amortizing term loan. Please provide pricing for such a term out option if available.

Security: A. The Authority intends for the 2024 BAN to be on parity with the existing Series 2016 Bonds, and issued with the consent of VRA.

B. The Interim Financing will be secured by a pledge of the Authority’s revenues, net of operating and maintenance expenses, including (i) all rates, fees, rentals, charges and other income properly allocable to the System under generally accepted accounting principles or resulting from the Authority’s ownership or operation of the System (including amounts appropriated for and paid to JRWA by the Counties under the Support Agreements), exclusive of user and other deposits subject to refund until such deposits have become the Authority's property, (ii) the proceeds of any insurance covering business interruption loss relating to the System,

(iii) interest on any money or securities related to the System, and (iv) any other income from other sources now or hereafter pledged or specifically made available by or on behalf of JRWA to or for the payment of Operation and Maintenance Expenses or debt service.

C. Each of the Counties shall adopt a Support Agreement that creates a non-binding obligation of such County to make a supplemental appropriation to JRWA in the event that the revenues available to JRWA are insufficient to pay debt service in a timely fashion.

D. No additional debt shall be incurred without the consent of the Lender.

E. There shall be no mortgage on any real estate holdings of JRWA or the

Counties.

F. The Authority intends to repay the Interim Financing with the a portion of the proceeds of (i) long-term financing to be issued via the VPFP, which the Authority expects to occur upon the earliest sale of VPFP Bonds by VRA following the satisfaction of the VRA Terms and Conditions contained in Exhibit A, (ii) other long-term financing issued by the Authority or other funds made available to the Authority for such purpose.

Fees: All upfront and ongoing fees and expenses (including counsel fees, wire fees, unused fees, etc.) that shall be the obligation of JRWA shall be specified and quantified in the term sheet.

Bank Counsel: Please specify the firm and primary contact for Bank Counsel (if any), and provide a not-to-exceed estimate of any Bank Counsel fees to be charged to JRWA.

Banking Relationship:

JRWA and the Counties do not intend to move any banking relationships or treasury services in connection with this financing, other than establishing accounts that are directly related to the drawdown of proceeds or the payment of debt service.

VI. Financing Schedule:

DATE ACTIVITY

4/4/2024 Request for Interim Financing Distributed 4/16/2024 Questions due to Raymond James 4/19/2024 Responses to questions issued 4/26/2024 Response to Request for Financing Due by 12:00pm (EDT)

4/26/2024 - 5/1/2024 Evaluation of Proposals and Negotiation with Lenders 5/8/2024 JRWA Board considers approval of Lender and financing documents

5/15/2024 & 5/20/2024 County Boards approve Support Agreements 5/23/2024 Closing

VII. CONTACTS:

Sean E. Ekiert, CFA Rachel Adams Managing Director Associate Raymond James & Associates, Inc. Raymond James & Associates, Inc.

(804) 225-1197 (804) 225-1130 sean.ekiert@raymondjames.com Rachel.adams@raymondjames.com

All questions should be directed to the contacts above. Raymond James and JRWA intend to respond to all questions and requests for additional information received prior to April 16th, 2024. Responses to questions will be circulated to all potential lenders.

VIII. AWARD CRITERIA:

The Authority is seeking the lowest-cost financing, with a straightforward closing process and ease of use.

Additional discussions may be held with those firms selected by the Authority as offering the most attractive proposals. After negotiations have been conducted with each offeror so selected, the Authority, with the assistance of its Financial Advisor, shall select the firm which has, in its opinion, made the best overall proposal and is deemed to be best suited among those submitting proposals.

The Authority may cancel this Request for Financing or reject proposals at any time and is not required to furnish a statement explaining why a particular proposal was rejected or not deemed to be the most advantageous.

mailto:sean.ekiert@raymondjames.com

IX. Information Regarding JRWA and the Counties: To assist with the analysis of JRWA, the following documents are attached:

Document Location

VRA Virginia Pooled Financing Program Term Sheet

Exhibit A (Attachment)

Service Agreement Exhibit B (Attachment) Project Budget Exhibit C

Preliminary Draw Schedule Exhibit D James River Water Authority Annual Financing Statements

Exhibits E through I (FY2018 through FY2022) (Attachments)

Fluvanna County Financial Statements https://www.fluvannacounty.org/finance/page/financial-reports

Louisa County Financial Statements https://www.louisacounty.gov/Archive.aspx?AMID=41

James River Water Authority FY2024 Annual Budget

Exhibit J (Attachment)

James River Water Authority FY2025 Annual Budget

Exhibit K (Attachment)

Fluvanna County FY2024 Annual Budget https://www.fluvannacounty.org/finance/page/budgetcip

Louisa County FY2024 Annual Budget https://www.louisacounty.gov/1457/Budget-Information https://www.fluvannacounty.org/finance/page/financial-reports https://www.louisacounty.gov/Archive.aspx?AMID=41 https://www.fluvannacounty.org/finance/page/budgetcip https://www.louisacounty.gov/1457/Budget-Information

EXHIBIT C – PROJECT BUDGET

ITEM DESCRIPTION COSTS

1 Mobilization $575,000 2 General Conditions $1,480,000 3 Design & Construction Engineering Services $3,850,000 4 Surveying $110,000 5 Railroad Insurance/Flagging & Improvements $350,000 6 Material Storage & Handling $700,000 7 Pump Station Laydown $35,000 8 Clearing for UG Electric Across Bremo Road $7,000 9 Existing Utility Protection & Potholing $75,000

10 Erosion Controls $475,000 11 Wetland and Sensitive Area Restoration $85,000 12 Temporary Construction Roads & Clearing $150,000 13 Pump Station Site Access Road $1,110,000 14 Site Access Road Storm Improvements $220,000 15 Pump Station Site Work $2,035,000

16 Pump Station Work 16a General Conditions $700,000 16b Concrete + Structural $2,900,000 16c Metals $880,000 16d Equipment $1,500,000 16e Mechanical $1,060,000 16f Electrical $3,600,000 16g Controls $410,000

17 Furnish & Install Porta Dam $715,000 18 Intake Pipe Work $585,000 19 Intake Structure $850,000 20 Build Access Road Down Ramp Into River $30,000 21 Restore Bank of James River with Class 2 Rip Rap $175,000 22 Dewater Swale Between Pump Station & Swale $30,000 23 24" Raw Water Line $9,800,000 24 Water Line Appurtenances $2,080,000 25 Water Line Testing $200,000 26 Rail Road & Electrical Jack & Bore $500,000 27 Jack & Bore Electrical Under Bremo Road (Now Open Cut) $55,000 28 Route 6 Jack & Bore $170,000 29 Jack and Bore at 127+00 Bremo Road (Now Open Cut) $70,000 30 Jack and Bore at 133+00 Gale Hill Road (Now Open Cut) $110,000 31 Rivanna Crossing- Open Cut $960,000 32 Rock Blasting & Removal $370,000 33 Site & Easement Restoration $460,000 34 QC testing $185,000 35 SWPP Development & Inspections $35,850

TOTAL CONTRACT CONSTRUCTION COSTS $39,687,850.00

Cultural Resource Consultants - (Through Mar. 2024) $50,000 CR Fieldwork & Study- PH III $3,000,000 MOA Costs - (Through Dec. 2023) $27,500 Construction Insp./Project Mgmt. Consultant (30 months) $700,000 Dominion Energy Electric Construction $1,000,000 Wetland Mitigation Credits $5,000 CSX Encroachment Agreement $7,500 USACE Permit $100 Nutrient Credits $100,000 Property Acquisition/Easements $1,000,000 Survey and Environmental Support - (Through Dec. 2023) $32,700

TOTAL PERMITTING, PROPERTY ACQ. AND CONST. SUPPORT COSTS $5,922,800.00

TOTAL JRWA PROJECT COSTS $45,610,650.00

EXHIBIT D – PRELIMINARY DRAW SCHEDULE

The draft draw schedule below is preliminary and subject to change. Project costs will be funded from remaining Series 2016 Bond proceeds until such proceeds are fully expended, which is expected to occur in May 2024.

Once permanent financing for the project is issues, the Interim Financing will be repaid in full and no further draws will occur.

Construction Other Costs Total Budget Total $ 39,687,850 $ 5,922,800 $ 45,610,650

Prior Expenditures $ 1,695,000 $ 1,495,371 $ 3,190,371

Apr-24 695,000 30,643 725,643 May-24 1,232,000 30,643 1,262,643 Jun-24 491,200 30,643 521,843 Jul-24 3,391,200 1,023,500 4,414,700

Aug-24 3,458,700 1,023,500 4,482,200 Sep-24 3,818,700 1,023,500 4,842,200 Oct-24 1,850,700 23,500 1,874,200 Nov-24 2,036,700 123,500 2,160,200 Dec-24 1,796,700 173,500 1,970,200 Jan-25 1,856,700 - 1,856,700 Feb-25 2,436,700 - 2,436,700 Mar-25 866,700 - 866,700

April 2025

- April 2027 14,061,850 944,500 15,006,350

Virginia Pooled Financing Program – Revenue Pledge –Terms and Conditions

March 15, 2024

Below is an outline of the proposed principal terms and conditions for the type of financing requested in the James River Water Authority application for funding from the Spring Series 2024A Virginia Pooled Financing Program (“VPFP”), which has been authorized by the Credit Committee of Virginia Resources Authority (“VRA”). The final terms and conditions will be set forth in the Local Bond Sale and Financing Agreement between VRA and the James River Water Authority, which will be executed in advance of the VPFP Spring Series 2024A bond issue pricing in May 2024. The following proposed terms are valid through December 31, 2024.

Borrower: James River Water Authority (the “Borrower”)

Amount: Requested proceeds of up to $42,510,650 plus costs of issuance, capitalized interest through April 1, 2025, and funds necessary to provide for the debt service reserve fund referenced below

Purpose: To finance the construction of a water intake facility, a pump station, and a raw water pipeline, together with related expenses (the “Project”)

Security: Water service and capacity revenue pledge, debt service reserve fund equal to maximum annual debt service (to be debt or equity funded at loan closing)

Rate Covenant: Net revenues available for debt service shall be 100% of

Borrower’s annual debt service payable from water revenues, including transfers from the Counties of Fluvanna and Louisa, Virginia

Qualified Independent Consultant Report:

If as of the end of any fiscal year, the Borrower is not in compliance with the revenue covenant, the Borrower will within 30 days of receipt of the annual audited financial statements request a consultant report with recommendations to bring the Borrower into compliance with the rate covenant

Moral Obligation:

Moral obligation pledges of the Counties of Fluvanna and Louisa, Virginia (collectively, the “Member Jurisdictions”) as acknowledged in support agreements of the governing body of each locality and acknowledgement and consent by resolution to the issuance of the proposed debt

Other Conditions:

Prior to pricing of the VPFP bonds to fund the proposed loan, the Borrower will provide evidence satisfactory to VRA of all required permits related to the Project, including but not limited to permits required from the U.S. Army Corps of Engineers (“USACE”) and all permits, with the exception of construction general permits, required from the Virginia Department of Environmental Quality (“DEQ”), including Virginia Water Protection Permit(s) and Section 401 Clean Water Act certifications;

construction general permits required by DEQ may be obtained after the pricing and closing of the VPFP bonds that will fund the proposed loan and the Borrower will certify to VRA that the Borrower has obtained such permits;

Prior to pricing of the VPFP bonds to fund the proposed loan, the Borrower will provide evidence satisfactory to VRA that all of the necessary easements needed for the Project have been obtained and Borrower will certify to VRA that the Borrower has obtained such easements, or provide an opinion of counsel that the Borrower can obtain all of the necessary easements through quick-take condemnation / eminent domain with no material adverse impact to the construction schedule for the Project;

Prior to pricing of the VPFP bonds to fund the proposed loan, the Borrower must provide evidence satisfactory to VRA of acquisition of a fee simple interest in the necessary land parcel(s) needed for the pump station and electrical station components of the Project and in such other land parcels necessary for the Project; such evidence may be in the form of a signed purchase agreement with specific performance as a requirement;

the Borrower will certify to VRA that the Borrower has acquired such fee simple interest in such land parcels;

Prior to pricing of the VPFP bonds to fund the proposed loan, the Borrower must provide evidence of the purchase of any and all wetland mitigation credits, stream mitigation credits, nutrient mitigation credits, and any other required environmental mitigation credits necessary for the Project along with a certification by the Professional Engineer of Record of the types and amounts of said credits as required and that the actual amount acquired meet or exceed these requirements;

During the life of the proposed loan, the Borrower and the Member Jurisdictions agree not to amend the service agreements, support agreements, or interjurisdictional agreement associated with the Project without the consent of VRA;

The Borrower must maintain an unrestricted cash balance in its enterprise fund of no less than 60 days of budgeted operating expenses to be tested annually based on audited financial statements or the Borrower will provide evidence of inclusion of annual operating expenses in the annual budgets of the Member Jurisdictions;

The Borrower will not issue subsequent debt without the consent of VRA;

VRA reserves the right to be reimbursed for any legal expenses incurred in the event that VRA has to defend a lawsuit challenging the proposed project or the issuance of the local bond or the related VRA bonds;

Prior to pricing of the VPFP bonds to fund the proposed loan, the Chair of the Borrower’s Board of Directors will provide a letter outlining a plan to ensure that the Borrower’s audits are provided to VRA within 180 days of the fiscal year end during the life of the proposed loan;

Notice to VRA prior to the pricing of the VPFP Spring Series 2024A bond issue if the Borrower becomes aware of any threatened or filed litigation with respect to the Project1;

Notice to VRA of intent to participate in the VPFP Spring Series 2024A bond issue no later than March 22, 20242

1 In the event of threatened or filed litigation with respect to the Borrower or the Project, VRA reserves the right to withdraw or alter the terms of this commitment in its sole discretion.

2 If a material adverse change has occurred in the financial condition of the Borrower as indicated in the financial statements, application and other information furnished to VRA between the date of the Borrower’s loan application to the VPFP and the VPFP bond pricing, VRA reserves the right to withdraw or alter the terms of this commitment in its sole discretion.

through the execution of the Borrower’s Local Bond Sale and Financing Agreement related to the proposed loan; it is understood that the Borrower must also fulfill the conditions set out in this term sheet for the proposed loan in order to participate in a VPFP transaction.

Other Highlighted Documentation:

Certified copies of the Borrower and Member

Jurisdiction local resolutions authorizing the proposed financing

Certified copies of Member Jurisdiction resolutions and support agreements

Legal Opinions:

Customary opinions as to authorization, validity, no litigation, and no private activity and other matters requested by VRA

General Covenants: To include those customary for these types of transactions, including events of taxability and others that are appropriate in the context of the financing

Payment Dates: April 1 - Interest

October 1 – Principal and interest

Final Local Bond Maturity:

No later than October 1, 2054

VRA Loan Origination Fee:

12.5 basis points of par amount and added to costs of issuance

Annual Administrative Fee:

12.5 basis points of outstanding principal and payable semi-annually

Annual Pass-through fees: Annual trustee fees; allocable costs associated with arbitrage rebate calculations

Acknowledgement:

The foregoing terms and conditions are hereby acknowledged the ________ day of __________________, 2024.

By: ___________________________________

Its: ___________________________________

VRA Contact:

Peter D’Alema Director of Program Management Virginia Resources Authority 1111 East Main Street Suite 1920 Richmond, VA 23219 804-616-3446 pdalema@virginiaresources.org

FINANCIAL STATEMENTS

JUNE 30, 2018

Financial Statements June 30, 2018

TABLE OF CONTENTS

Page

Independent Auditors’ Report 1-2

Financial Statements

Statement of Net Position 3 Statement of Revenues, Expenses, and Changes in Net Position 4 Statement of Cash Flows 5 Notes to Financial Statements 6-12

Compliance

Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

13-14

ROBINSON, FARMER, COX ASSOCIATES

A PROFESSIONAL LIMITED LIABILITY COMPANY CERTIFIED PUBLIC ACCOUNTANTS

Independent Auditors’ Report

To the Honorable Members of

Report on the Financial Statements

We have audited the accompanying financial statements of the business-type activities of James River Water Authority, as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Authority’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

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; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Specifications for Audits of Authorities, Boards, and Commissions, issued by the Auditor of Public Accounts of the Commonwealth of Virginia. 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 entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of James River Water Authority, as of June 30, 2018, and the changes in financial position, and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As described in Note 9 to the financial statements, in 2018, the Authority adopted new accounting guidance, GASB Statement Nos. 89 Accounting for Interest Cost Incurred Before the End of a Construction Period. Our opinion is not modified with respect to this matter.

Restatement of Beginning Balances

As described in Note 8 to the financial statements, in 2018, the Authority restated beginning balances for accrued interest payable and capitalized interest. Our opinion is not modified with respect to this matter.

Other Matters

Required Supplementary Information

Management has omitted management’s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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.

Our opinion on the basic financial statements is not affected by this missing information.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated January 31, 2019, on our consideration of James River Water Authority’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of James River Water Authority’s internal control over financial reporting or on compliance.

That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering James River Water Authority’s internal control over financial reporting and compliance.

Charlottesville, Virginia January 31, 2019

Assets

Current Assets Cash and cash equivalents $ 548,870 Accounts receivable 3,241 Due from other governments 35,411 Restricted Assets:

Cash and cash equivalents 7,313,257

Total Current Assets $ 7,900,779

Noncurrent Assets Capital Assets:

Construction in progress $ 2,378,710

Total Assets $ 10,279,489

Liabilities Current Liabilities Accounts payable $ 1,558 Retainage payable 25,174 Accrued interest payable 81,562 Bond payable, current portion 135,000 Bond premium, current portion 58,604

Total Current Liabilities $ 301,898

Noncurrent Liabilities Bond payable, noncurrent portion $ 7,700,000 Bond premium, noncurrent portion 946,321

Total Noncurrent Liabilities $ 8,646,321

Total Liabilities $ 8,948,219

Net Position Net investment in capital assets $ 353,506 Restricted for debt service 473,362 Unrestricted 504,402

Total Net Position $ 1,331,270

The accompanying notes to financial statements are an integral part of this statement.

JAMES RIVER WATER AUTHORITY

Statement of Net Position

Operating Expenses

Professional fees $ 33,500 Bank fees 157 Insurance 1,636 Other charges 225

$ 35,518

Net Operating Income (Loss) $ (35,518)

Nonoperating Revenues (Expenses) Interest income $ 116,833 Interest expense (277,226)

Total Nonoperating Revenues (Expenses) $ (160,393)

Income (loss) before capital contributions $ (195,911)

Capital contributions $ 560,138

Change in net position $ 364,227

Net position, beginning of year, as restated 967,043

Net position, end of year $ 1,331,270

The accompanying notes to financial statements are an integral part of this statement.

JAMES RIVER WATER AUTHORITY

Statement of Revenues, Expenses and Changes in Net Position Year Ended June 30, 2018

Total Operating Expenses

Cash flows from operating activities:

Payments to suppliers and vendors $ (35,681)

Net cash provided by (used for) operating activities $ (35,681)

Cash flows from capital and related financing activities:

Draws on restricted cash $ 984,558 Acquisition of plant and equipment (584,378) Capital contributions 524,727 Principal paid on bonds (130,000) Interest paid on bonds (339,323)

Net cash provided by (used for) capital and related financing activities $ 455,584

Net increase (decrease) in cash and cash equivalents $ 419,903

Cash and cash equivalents at beginning of year $ 128,967

Cash and cash equivalents at end of year $ 548,870

Reconciliation of operating income (loss) to net cash provided by (used for) operating activities:

Operating income (loss) $ (35,518) Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities:

Changes in operating assets and liabilities:

(Increase) decrease in accounts receivable (1,721) Increase (decrease) in accounts payable 1,558

Net cash provided by (used for) operating activities $ (35,681)

The accompanying notes to financial statements are an integral part of this statement.

JAMES RIVER WATER AUTHORITY

Statement of Cash Flows Year Ended June 30, 2018

Notes to Financial Statements

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

A. Organization and Purpose

The James River Water Authority (The Authority) was created by Louisa County, Virginia and Fluvanna County, Virginia on April 20, 2009 in order to cooperatively provide a reliable public water supply to county citizens. The counties wanted to delineate their respective rights and duties regarding a water pipeline and associated structures to be planned, designed, constructed and financed.

The Authority may fund a portion of the cost of these activities by issuing bonds, through direct contributions and from the counties, or charging connection fees or charges to the counties.

B. Basic Financial Statements

Management’s Discussion and Analysis: Government Accounting Standards Board Statement No. 34 requires the Financial Statements be accompanied by a narrative introduction and analytical overview of the government’s financial activities in the form of “management’s discussion and analysis” (MD&A).

Management has elected to omit the management’s discussion and analysis in these financial statements.

Statement of Net Position: The Statement of Net Position is designed to report to the financial position of the Authority. Governments report all capital assets in the Statement of Net Position and report depreciation expense the cost of “expensing” capital assets in the Statement of Revenues, Expenses, and Changes in Net Position. The net position of the government will be broken down into three categories: 1) net investment in capital assets, net of related debt; 2) restricted; and 3) unrestricted.

Statement of Revenues, Expenses and Changes in Net Position:

This statement is designed to report the results of operations during the fiscal year.

C. Basis of Accounting

James River Water Authority operates as an enterprise activity and its accounts are maintained on the accrual basis of accounting. Under this method, revenues are recognized when earned, and expenses are recorded as liabilities when incurred, without regard to receipt or payment of cash. The Authority accrues revenue for services rendered but not yet billed at the end of the fiscal year. The Authority follows all applicable GASB pronouncements and FASB pronouncements issued before November 30, 1989 unless these pronouncements conflict with or contradict GASB pronouncements. The Authority distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the Authority’s principal ongoing operations.

D. Cash Equivalents

The Authority has defined cash and cash equivalents to include cash on hand, demand deposits, certificates of deposit and money market funds.

June 30, 2018 (Continued)

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

E. Capital Assets and Depreciation

Purchased and constructed capital assets in service are recorded at historical cost. Capital assets are defined by the Authority as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of one year. Capital assets acquired by the Authority through contributions, such as from developers, are capitalized and recorded in the accounts at acquisition value on the date accepted. The Authority provides for depreciation of capital assets in service on the straight-line method at amounts estimated to amortize the cost of assets over their estimated useful lives, as follows:

Structures and Improvements 20 to 50 years Equipment 5 to 10 years

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset’s life are not capitalized.

Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. No interest was capitalized during the current or previous fiscal year.

F. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual amounts could differ from those amounts.

G. Net Position

Net position is the difference between a) assets and deferred outflows of resources and b) liabilities and deferred inflows of resources. Net investments in capital assets represent capital assets, less accumulated depreciation, less any outstanding debt related to the acquisition, construction or improvement of those assets.

H. Net Position Flow Assumption

Sometimes the Authority will fund outlays for a particular purpose from both restricted (e.g.) restricted bond or grant proceeds and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the financials statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied.

NOTE 2—DEPOSITS AND INVESTMENTS:

Deposits

Deposits with banks are covered by the Federal Deposit Insurance Corporation (FDIC) and collateralized in accordance with the Virginia Security for Public Deposits Act (the “Act”) Section 2.2-4400 et. seq. of the Code of Virginia. Under the Act, banks and savings institutions holding public deposits in excess of the amount insured by the FDIC must pledge collateral to the Commonwealth of Virginia Treasury Board.

Financial Institutions may choose between two collateralization methodologies and depending upon that choice, will pledge collateral that ranges in the amounts from 50% to 130% of excess deposits. Accordingly, all deposits are considered fully collateralized.

Investments

Statutes authorize the Authority to invest in obligations of the United States or agencies thereof, obligations of the Commonwealth of Virginia or political subdivisions thereof, obligations of the International Bank for Reconstruction and Development (World Bank), the Asian Development Bank, the African Development Bank, “prime quality” commercial paper and certain corporate notes, banker’s acceptances, repurchase agreements and the State Treasurer’s Local Government Investment Pool (LGIP).

Credit Risk of Debt Securities

The Authority does not have a policy related to credit risk of debt securities.

The Authority’s rated debt investments as of June 30, 2018 were rated by Standard & Poor’s and the ratings are presented below using Standard & Poor’s rating scale.

Rated Debt Investments AAAm AAf

Money Market Funds (SNAP) $ 7,313,257 $ -

Total $ 7,313,257 $ -

Investment maturities in years:

Fair Less Than

Investment Type Value 1 Year

Money Market Funds (SNAP) $ 7,313,257 $ 7,313,257

Total $ 7,313,257 $ 7,313,257

Rated Debt Investments' Values Fair Quality Ratings

External Investment Pool:

The value of the positions in the external investment pool (State Non-arbitrage Pool) is the same as the value of the pool shares. As SNAP is not SEC registered, regulatory oversight of the pool rests with the Virginia State Treasury. SNAP is an amortized cost basis portfolio under the provisions of GASB 79. There are no withdrawal limitations or restrictions imposed on participants.

NOTE 3—RELATED PARTY TRANSACTIONS:

Significant transactions between the James River Water Authority and the Counties of Louisa and Fluvanna are summarized below:

Capital contribution from Fluvanna $ 250,414 Capital contribution from Louisa 309,724

Total $ 560,138

NOTE 4—CONTINGENCIES:

The Authority knew of no potential or actual material claims for damages by any party against the Authority as of June 30, 2018.

NOTE 5—CONTRACTS AND COMMITMENTS:

On December 23, 2013, the Authority entered into a legal agreement with Hefty & Wiley, PC to provide General Counsel Legal Services for a fee of $2,500 per month.

On July 1, 2014, the Authority entered into an agreement with Raymond James & Associates, Inc. to provide Financial Advisory Services regarding construction proposals, financial terms and long-term financial projections. Fees are to be paid based on hourly rates.

On July 17, 2014, the Authority entered in an engineering consulting contract with McDonough Bolyard Peck, Inc. (MBP), to provide consulting services regarding the pipeline project.

On January 3, 2017, the Authority contracted with Falcouner Construction Company Inc. in the amount of $7,938,731 for design and construction of raw water intake and pump station and raw water pipeline.

NOTE 6—CAPITAL ASSETS:

Capital Asset Activity for the year was a follows:

Balance July 1, 2017 Balance as restated Additions Deletions June 30, 2018

Capital assets, not being depreciated:

Construction in Progress $ 1,899,862 $ 478,848 $ - $ 2,378,710

Total capital assets not being depreciated $ 1,899,862 $ 478,848 $ - $ 2,378,710

Net capital assets $ 1,899,862 $ 478,848 $ - $ 2,378,710

NOTE 7—LONG-TERM LIABILITIES:

The change in long-term liabilities during the year is as follows.

Balance Balance Amounts July 1, Issuances/ Retirements/ June 30, Due Within 2017 Increases Decreases 2018 One Year

VRA Revenue Bond $ 7,965,000 $ - $ 130,000 $ 7,835,000 $ 135,000 Premium on bonds 1,064,582 - 59,657 1,004,925 58,604

Total $ 9,029,582 $ - $ 189,657 $ 8,839,925 $ 193,604

Debt service requirements are as follows:

Year Ending

June 30, Principal Interest

2019 $ 135,000 $ 333,334 2020 140,000 326,912 2021 150,000 319,706 2022 155,000 311,891 2023 165,000 303,691 2024 170,000 295,106 2025 180,000 286,137 2026 190,000 276,956 2027 200,000 267,563 2028 210,000 258,006 2029 220,000 248,688 2030 230,000 239,256 2031 240,000 229,012 2032 250,000 217,956 2033 260,000 207,338 2034 270,000 197,231 2035 280,000 186,738 2036 290,000 175,856 2037 305,000 164,534 2038 315,000 152,747 2039 325,000 140,547 2040 340,000 127,856 2041 355,000 114,622 2042 365,000 100,922 2043 380,000 85,431 2044 400,000 67,944 2045 420,000 49,581 2046 435,000 30,372 2047 460,000 10,288

Total $ 7,835,000 $ 5,726,221

VRA Revenue Bonds

NOTE 7—LONG-TERM LIABILITIES: (CONTINUED)

Details of long-term liabilities are as follows:

Amount Due Within Outstanding One Year

VRA Revenue Bonds:

$7,695,000 VRA Revenue Bonds Series 2016 issued May 25, 2016 payable in various semi-annual payments through October 1, 2046, interest payable semi-annually at rates from 3.797% to 5.325% $ 7,835,000 $ 135,000

Premium on bonds 1,004,925 58,604

Total $ 8,839,925 $ 193,604

The Authority is required to separately maintain a reserve to cure any deficiencies in payment by the Authority. The current reserve is $473,362.

NOTE 8—RESTATEMENT OF NET POSITION:

Net Position as of June 30, 2017 was restated as follows:

Amount

Net Postion, beginning of year, as previously reported $ 1,251,095

Accrued Interest Payable (84,002)

To correct capitalized interest (200,050)

Net Postion, beginning of year, as restated $ 967,043

NOTE 9—ADOPTION OF ACCOUNTING PRINCIPLES:

The Authority implemented the financial reporting provisions of Governmental Accounting Standards Board Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction Period during the year ended June 30, 2018. This statement enhances the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and simplifies accounting for interest cost incurred before the end of a construction period. Such interest cost includes all interest that previously was accounted for in accordance with the requirements of paragraphs 5-22 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, which are superseded by this Statement. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund. This Statement also reiterates that in financial statements prepared using the current financial resources measurement focus, interest cost incurred before the end of a construction period should be recognized as an expenditure on a basis consistent with governmental fund accounting principles. The implementation of this Statement did not result in a restatement of net position.

ROBINSON, FARMER, COX ASSOCIATES

A PROFESSIONAL LIMITED LIABILITY COMPANY CERTIFIED PUBLIC ACCOUNTANTS

Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements

Performed in Accordance with Government Auditing Standards

To the Honorable Members of James River Water Authority Louisa, Virginia

We have audited, in accordance with the auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Specifications for Audits of Authorities, Boards, and Commissions, issued by the Auditor of Public Accounts of the Commonwealth of Virginia, the financial statements of the business-type…