Subject to Change

PRELIMINARY OFFICIAL STATEMENT Dated July 11, 2019 Ratings: Moody’s: “Aa2” S&P: “AA+” See ("Other Information – Ratings” herein) NEW ISSUE: BOOK-ENTRY-ONLY

In the opinion of Bond Counsel, under existing law, interest on the Bonds is excludable from gross income for federal income tax purposes and the Bonds are not "private activity bonds". See "TAX MATTERS" for a discussion of the opinion of Bond Counsel. rities laws of any such jurisdiction. rities laws of any such jurisdiction. solicitation of an offer to buy nor shall THE BONDS HAVE NOT BEEN DESIGNATED AS "QUALIFIED TAX-EXEMPT OBLIGATIONS" FOR FINANCIAL INSTITUTIONS

$22,505,000* CITY OF IRVING, TEXAS (Dallas County) WATERWORKS AND SEWER SYSTEM NEW LIEN REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 2019

Dated Date: Date of Delivery Due: August 15, as shown on page 2 Interest accrues as of Date of Delivery

PAYMENT TERMS . . . Interest on the $22,505,000* City of Irving, Texas, Waterworks and Sewer System New Lien Revenue

atement constitute an offer to sell or the Refunding and Improvement Bonds, Series 2019 (the "Bonds") will accrue from the date of their delivery to the Initial Purchasers (the “Date of Delivery”), and will be payable February 15 and August 15 of each year commencing February 15, 2020, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "The Bonds - Book-Entry-Only System" herein. The initial Paying Agent/Registrar is Wilmington Trust, N.A., Dallas, Texas (see "THE BONDS - Paying Agent/Registrar").

AUTHORITY FOR ISSUANCE . . . The Bonds are being issued pursuant to the general laws of the State of Texas, particularly Texas Government Code, Chapters 1207 and 1502, as amended, and an ordinance to be adopted by the City Council authorizing the issuance of the Bonds (the "Ordinance"). The Bonds are special obligations of the City of Irving (the "City"), payable, both as to principal and

stances shall this Preliminary Official St Official stances shall this Preliminary interest, together with the Previously Issued New Lien Bonds and any Additional New Lien Bonds (each, as defined herein), solely from and secured by a lien on and pledge of the Pledged Revenues of the City's Waterworks and Sewer System (the "System"). The City has not covenanted nor obligated itself to pay the Bonds from monies raised or to be raised from taxation (see "THE are subject to completion or amendment. The securities referenced herein may not be sold nor offers to buy be accepted BONDS - Authority for Issuance").

PURPOSE . . . Proceeds from the sale of the Bonds will be used to: (i) refund a portion of the City’s outstanding waterworks and sewer

h such offer, solicitation or sale would be unlawful prior to offer, solicitation h such registration or qualification under the secu system revenue debt (the “Refunded Bonds”), as set forth in Schedule I – “Schedule of Refunded Bonds”, for debt service savings, (ii) provide funds to make certain improvements and extensions to the System, and (iii) pay the costs associated with the issuance of the Bonds.

CUSIP PREFIX: 463831 MATURITY SCHEDULE & 9 DIGIT CUSIP See Schedule on Page 2 he information contained herein is delivered in final form. Under no circum

LEGALITY . . . The Bonds are offered for delivery when, as and if issued and received by the Initial Purchaser(s) and subject to the approving opinion of the Attorney General of Texas and the opinion of Bracewell LLP, Dallas, Texas, Bond Counsel (see Appendix C, "Form of Bond Counsel's Opinion"). Certain legal matters will be passed upon for the City by Bracewell LLP, Disclosure Counsel.

DELIVERY . . . It is expected that the Bonds will be available for delivery through DTC on August 15, 2019.

BIDS DUE THURSDAY, JULY 18, 2019, AT 10:30 A.M., CT

* Preliminary; subject to change. This Preliminary Official Statement and t This Preliminary prior to the time the Official Statement there be any sale of these securities in any jurisdiction in whic there be any sale of these securities in any jurisdiction MATURITY SCHEDULE CUSIP Prefix: 463831 (1)

$22,505,000* WATERWORKS AND SEWER SYSTEM NEW LIEN REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 2019

Maturity Interest CUSIP Maturity Interest CUSIP 8/15 Amount* Rate Yield Suffix (1) 8/15 Amount* Rate Yield Suffix (1) 2020$ 1,005,000 2030$ 860,000 2021 1,060,000 2031 885,000 2022 1,110,000 2032 910,000 2023 1,160,000 2033 940,000 2024 1,220,000 2034 970,000 2025 1,285,000 2035 995,000 2026 1,345,000 2036 1,025,000 2027 1,420,000 2037 1,055,000 2028 1,485,000 2038 1,090,000 2029 1,565,000 2039 1,120,000

(Interest accrues from the Date of Delivery) ______(1) CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, which is managed on behalf of the American Bankers Association by S&P Global Intelligence. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. Neither the City nor the Financial Advisor shall be responsible for the selection or correctness of the CUSIP numbers shown herein.

OPTIONAL REDEMPTION . . . The City reserves the right, at its option, to redeem the Bonds having stated maturities on and after August 15, 2030, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2029, or any date thereafter, at a price of par value thereof plus accrued interest to the date of redemption (see "THE BONDS – Optional Redemption of the Bonds”).

* Preliminary; subject to change. 2

For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, as amended and in effect on the date hereof, this document constitutes an Official Statement of the City with respect to the Bonds that has been “deemed final” by the City as of its date except for the omission of no more than the information permitted by Rule 15c2-12.

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACT. THE REGISTRATION OR QUALIFICATION OF THE BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAW OF THE STATES IN WHICH THE BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE BONDS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.

The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the other matters described herein since the date hereof. See “CONTINUING DISCLOSURE OF INFORMATION” for a discussion of the City’s undertaking to provide certain information on a continuing basis.

This Official Statement includes descriptions and summaries of certain events, matters and documents. Such descriptions and summaries do not purport to be complete, and all such descriptions, summaries and references thereto are qualified in their entirety by reference to this Official Statement in its entirety and to each such document, copies of which may be obtained from the City or from the Financial Advisor to the City for this issuance. Any statements made in this Official Statement or the appendices hereto involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such opinions or estimates will be realized.

This Official Statement is delivered in connection with the sale of securities referred to herein and may not be produced or used, in whole or in part, for any other purpose.

This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. No dealer, salesman or other person has been authorized by the City to give any information or to make any representation other than those contained herein, and, if given or made, such other information or representation must not be relied upon as having been authorized by the City or any other person. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create the implication that there has been no change in the matters described herein since the date hereof.

THIS OFFICIAL STATEMENT CONTAINS “FORWARD-LOOKING” STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS TO BE DIFFERENT FROM THE FUTURE RESULTS, PERFORMANCE AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.

Neither the City nor its financial advisor make any representation or warranty with respect to the information contained in this Official Statement regarding the Depository Trust Company (“DTC”) or its book-entry-only system herein, as such information has been provided by DTC.

TABLE OF CONTENTS

OFFICIAL STATEMENT SUMMARY ...... 5 SELECTED PROVISIONS OF THE ORDINANCE .. 31 SELECTED FINANCIAL INFORMATION ...... 6 TAX MATTERS ...... 38 TAX EXEMPTION ...... 38 CITY OFFICIALS, STAFF AND CONSULTANTS ..... 7 ADDITIONAL FEDERAL INCOME TAX ELECTED OFFICIALS ...... 7 CONSIDERATIONS ...... 39 SELECTED ADMINISTRATIVE STAFF ...... 7 CONSULTANTS, ADVISORS AND INDEPENDENT CONTINUING DISCLOSURE OF INFORMATION 40 AUDITORS ...... 7 OTHER INFORMATION ...... 42 INTRODUCTION ...... 9 RATINGS ...... 42 LITIGATION ...... 42 PLAN OF FINANING ...... 9 REGISTRATION AND QUALIFICATION OF BONDS FOR THE BONDS ...... 10 SALE ...... 43 LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE THE SYSTEM ...... 17 PUBLIC FUNDS IN TEXAS ...... 43 WATERWORKS SYSTEM ...... 17 LEGAL MATTERS ...... 43 TABLE 1 - HISTORICAL WATER CONSUMPTION...... 19 AUTHENTICITY OF FINANCIAL DATA AND OTHER TABLE 2 - TEN LARGEST WATER CUSTOMERS FOR INFORMATION ...... 43 FISCAL YEAR 2018...... 19 FINANCIAL ADVISOR ...... 44 TABLE 3 - MONTHLY WATER RATES ...... 20 INITIAL PURCHASER OF THE BONDS ...... 44 WASTEWATER SYSTEM ...... 20 FORWARD-LOOKING STATEMENTS DISCLAIMER ...... 44 TABLE 4 - WASTEWATER USAGE ...... 21 CERTIFICATION OF THE OFFICIAL STATEMENT ...... 44 TABLE 5 - MONTHLY SEWER RATES ...... 21 WATER AND WASTEWATER SYSTEM CAPITAL SCHEDULE I – SCHEDULE OF REFUNDED BONDS IMPROVEMENT PLAN ...... 21 DEBT INFORMATION ...... 22 APPENDICES TABLE 6 - WATERWORKS AND SEWER SYSTEM GENERAL INFORMATION REGARDING THE CITY ...... A REVENUE DEBT SERVICE REQUIREMENTS ...... 22 EXCERPTS FROM THE ANNUAL FINANCIAL REPORT .. B TABLE 7 - AUTHORIZED BUT UNISSUED REVENUE FORMS OF BOND COUNSEL'S OPINIONS ...... C BONDS ...... 23 The cover page hereof, this page, the appendices included FINANCIAL INFORMATION ...... 25 herein and any addenda, supplement or amendment hereto, TABLE 8 - CONDENSED SCHEDULE OF OPERATIONS ... 25 are part of the Official Statement. TABLE 9 - COVERAGE AND FUND BALANCES ...... 26 TABLE 10 – CONNECTIONS ...... 26 TABLE 11 - CITY’S EQUITY IN SYSTEM ...... 27 DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT ...... 27 FINANCIAL POLICIES ...... 27 INVESTMENTS ...... 28 TABLE 12 - CURRENT INVESTMENTS ...... 30

OFFICIAL STATEMENT SUMMARY

This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement. The offering of the Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this summary from this Official Statement or to otherwise use it without the entire Official Statement.

THE CITY ...... The City of Irving is a political subdivision and municipal corporation of the State, located in Dallas County, Texas. The City covers approximately 67.9 square miles (see "INTRODUCTION - Description of the City").

THE BONDS ...... The Bonds are issued as $22,505,000* Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2019. The Bonds will be issued as serial bonds maturing August 15, in the years 2020 through 2039 (see "THE BONDS - Description of the Bonds").

PAYMENT OF INTEREST ...... Interest on the Bonds accrues from the Date of Delivery, and is payable February 15, 2020, and each February 15 and August 15 thereafter until maturity or prior redemption. (see "THE BONDS - Description of the Bonds," "THE BONDS – Optional Redemption of the Bonds").

AUTHORITY FOR ISSUANCE .. The Bonds are issued pursuant to the general laws of the State, including particularly Texas Government Code, Chapters 1207 and 1502, as amended, and an ordinance to be adopted by the City Council of the City (the "Ordinance"). (see "THE BONDS - Authority for Issuance").

SECURITY FOR THE BONDS ... The Bonds constitute special obligations of the City, payable, both as to principal and interest, together with the Previously Issued New Lien Bonds and any Additional New Lien Bonds (each, as defined herein), solely from and secured by a lien on and pledge of the Pledged Revenues of the City's Waterworks and Sewer System. The City has not covenanted nor obligated itself to pay the Bonds from monies raised or to be raised from taxation (see "THE BONDS - Security and Source of Payment"). NOT QUALIFIED TAX- EXEMPT OBLIGATIONS ...... The City has not designated the Bonds as "Qualified Tax-Exempt Obligations" for financial institutions.

OPTIONAL REDEMPTION ...... The City reserves the right, at its option, to redeem the Bonds having stated maturities on and after August 15, 2030, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2029, or any date thereafter, at par value thereof plus accrued interest to the date of redemption (see "THE BONDS – Optional Redemption of the Bonds").

TAX EXEMPTION ...... In the opinion of Bond Counsel, under existing law, interest on the Bonds is excludable from gross income for federal income tax purposes and the Bonds are not "private activity bonds." See "TAX MATTERS" for a discussion of the opinion of Bond Counsel.

USE OF PROCEEDS ...... Proceeds from the sale of the Bonds will be used to: (i) refund a portion of the City’s outstanding debt (the “Refunded Bonds”), as set forth in Schedule I – “Schedule of Refunded Bonds”, for debt service savings, (ii) provide funds to make certain improvements and extensions to the System and (iii) pay the costs associated with the issuance of the Bonds.

RATINGS ...... The Bonds have been assigned ratings of “Aa2” by Moody’s Investors Service, Inc. (“Moody’s”) and “AA+” by Standard & Poor’s Ratings Service, a Standard & Poor's Financial Services LLC business (“S&P”) (see "OTHER INFORMATION - Ratings").

* Preliminary; subject to change. 5

BOOK-ENTRY-ONLY SYSTEM ...... The definitive Bonds will be initially registered and delivered only to Cede & Co., the nominee of DTC pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds (see "THE BONDS - Book-Entry-Only System") .

PAYMENT RECORD ...... The City has never defaulted in payment of its bonds.

SELECTED FINANCIAL INFORMATION

Peak Day Estimated Daily Use Total Usage Net Revenues Average Annual Fiscal Year City Average (Thousands (Thousands Available for Debt Service Coverage Ended 9/30 Population Use of Gallons) of Gallons) Debt Service Requirements of Debt 2014 220,699 33,611 54,000 12,278,821$ 27,473,043 $ 11,715,422 2.35% 2015 228,653 31,420 63,000 11,467,400 26,375,879 12,074,003 2.18% 2016 231,040 34,004 65,000 12,411,410 31,131,572 11,778,043 2.64% 2017 234,710 35,792 56,000 13,689,570 43,569,526 11,798,235 3.69% 2018 237,490 39,253 66,000 14,327,480 48,988,503 11,226,187 4.37%

Source: City of Irving

For additional information regarding the City, please contact:

Jeff Litchfield Chris Janning Chief Financial Officer Or Marti Shew City of Irving Hilltop Securities Inc. 825 W. Irving Blvd. 1201 Elm Street, Suite 3500 Irving, Texas 75060 Dallas, Texas 75270 (972) 721-4615 (214) 953-4000

CITY OFFICIALS, STAFF AND CONSULTANTS

ELECTED OFFICIALS

Length of Term City Council Service Expires Occupation Rick Stopfer 2 years 2020 Retired - Automotive Consultant Mayor John Danish 6 years 2022 Attorney and Counselor at Law Councilmember - Place 1 Deputy Mayor Pro-Tem Alan Meagher 6 years 2022 Retired - Manager - Freight Company Councilmember - Place 2 Mayor Pro-Tem Dennis Webb 8 years 2020 Retired Fire Fighter/Pastor Councilmember - Place 3 Phil Riddle 4 years 2021 Retired - Firefighter Councilmember - Place 4 Oscar Ward 5 years 2020 Retired - General Manager Councilmember - Place 5 Albert Zapanta 6 years 2021 CEO - United States-Mexico Chamber of Commerce Councilmember - Place 6 Kyle Taylor 3 Years 2022 CEO - Irving Cares Councilmember - Place 7 David Palmer 4 Years 2021 Business Owner Councilmember - Place 8

SELECTED ADMINISTRATIVE STAFF Length of Total Service to Governmental Name Position City Service Chris Hillman City Manager 4 Years 20 Years Ramiro Lopez Assistant City Manager 10 Years 41 Years James Childers Assistant City Manager 1 Year 17 Years Philip Sanders Assistant City Manager 5 Months 24 Years Kuruvilla Oommen City Attorney 10 Years 19 Years Jeff Litchfield Chief Financial Officer 3 Years 40 Years Shanae Jennings City Secretary 8 Years 12 Years

CONSULTANTS, ADVISORS AND INDEPENDENT AUDITORS

Independent Auditors ...... Weaver and Tidwell, LLP Dallas, Texas Bond Counsel ...... Bracewell LLP Dallas, Texas Financial Advisor ...... Hilltop Securities Inc. Dallas, Texas

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OFFICIAL STATEMENT

RELATING TO

$22,505,000* CITY OF IRVING, TEXAS WATERWORKS AND SEWER SYSTEM NEW LIEN REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 2019

INTRODUCTION

This Official Statement, which includes the Appendices, provides certain information regarding the issuance of $22,505,000* City of Irving, Texas, Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2019 (the “Bonds”). Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the ordinance (the “Ordinance”) to be adopted on the sale date of the Bonds, except as otherwise indicated herein (see "Selected Provisions of the Ordinance").

There follows in this Official Statement descriptions of the Bonds and certain information regarding the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City's Financial Advisor, Hilltop Securities Inc., Dallas, Texas.

All financial and other information presented in this Official Statement has been provided by the City from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources, is intended to show recent historic information and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue or be repeated in the future (see “OTHER INFORMATION – Forward Looking Statements Disclaimer”).

DESCRIPTION OF THE CITY . . . The City is a political subdivision and municipal corporation of the State, duly organized and existing under the laws of the State, including the City's Home Rule Charter. The City was incorporated in 1914, and first adopted its Home Rule Charter in 1952. The City operates under a Council/Manager form of government with a City Council comprised of the Mayor and Eight Councilmembers. The term of office is three years. The City Manager is the chief executive officer for the City. Some of the services that the City provides are: public safety (police and fire protection), highways and streets, water and sanitary sewer utilities, health and social services, culture-recreation, public transportation, public improvements, planning and zoning, and general administrative services. The 2010 Census population for the City was 216,290, while the estimated 2019 population is 237,490. The City covers approximately 67.9 square miles.

PLAN OF FINANING

THE BONDS . . . Proceeds from the sale of the Bonds will be used to: (i) refund a portion of the City’s outstanding debt (the “Refunded Bonds”), as set forth in Schedule I – “Schedule of Refunded Bonds”, for debt service savings, (ii) provide funds to make certain improvements and extensions to the System, and (iii) pay the costs associated with the issuance of the Bonds.

REFUNDED BONDS . . . The principal and interest due on the Refunded Bonds are to be paid on the redemption date of such Refunded Bonds (the “Redemption Date”) from funds to be deposited pursuant to a certain Deposit Agreement (the "Deposit Agreement") between the City and the paying agent/registrar for the Refunded Bonds (the “Refunded Bonds Paying Agent”). The Ordinance provides that from the proceeds of the sale of the Bonds received from the Initial Purchaser, together with other lawfully available funds of the City, the City will deposit with the Refunded Bonds Paying Agent the amount necessary to accomplish the discharge and final payment of the Refunded Bonds on the Redemption Date. Such funds will be held by the Refunded Bonds Paying Agent, uninvested, in a special deposit account (the “Deposit Account”) and used to defease and redeem the Refunded Bonds on the Redemption Date.

* Preliminary; subject to change. 9

The City's financial advisor or the Refunded Bonds Paying Agent will execute a certificate verifying that the funds on deposit in the Deposit Account will be sufficient to pay, when due, the amount necessary to accomplish the discharge and final payment of the Refunded Bonds on the Redemption Date (the "Sufficiency Certificate").

By the deposit of cash with the Refunded Bonds Paying Agent pursuant to the Deposit Agreement, the City will have effected the defeasance of all of the Refunded Bonds in accordance with the law. It is the opinion of Bond Counsel that as a result of such defeasance and in reliance upon the Sufficiency Certificate, the Refunded Bonds will be outstanding only for the purpose of receiving payments from the cash held for such purpose by the Refunded Bonds Paying Agent and such Refunded Bonds will not be deemed as being outstanding obligations of the City payable System revenues nor for the purpose of applying any limitation on the issuance of debt.

SOURCES AND USES OF FUNDS . . . The proceeds from the sale of the Bonds will originate and be applied approximately as follows:

Sources of Funds Par Amount of Bonds Net Premium Transfers from Prior Debt Service Funds Total Sources

Us es of Funds

Cost of Issuance Underwriters Discount Deposit to Project Construction Fund Deposit to Escrow Deposit Fund Total Uses

[Remainder of this Page Intentionally Left Blank]

THE BONDS

DESCRIPTION OF THE BONDS . . . The Bonds are dated as of the Date of Delivery and mature on August 15 in each of the years and in the amounts shown on page 2. Interest will be computed on the basis of a 360-day year of twelve 30-day months, and will be payable on February 15 and August 15, commencing February 15, 2020. The definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company ("DTC") pursuant to the Book-Entry-Only System described herein. No physical delivery of the Bonds will be made to the owners thereof. Principal of, premium, if any, and interest on the Bonds will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See "Book-Entry-Only System" herein.

AUTHORITY FOR ISSUANCE OF THE BONDS. . . The Bonds are being issued pursuant to the Constitution and general laws of the State of Texas, particularly Texas Government Code, Chapters 1207 and 1502, as amended, and the Ordinance.

SECURITY AND SOURCE OF PAYMENT . . . The Bonds are special obligations of the City payable, both as to principal and interest, together with the Previously Issued New Lien Bonds and any Additional New Lien Bonds (each, as defined herein), solely from and secured by a lien on and pledge of the Pledged Revenues of the City’s Waterworks and Sewer System (the “System”). The City has reserved the right to issue Additional Bonds on a parity with the Bonds (the “Additional New Lien Bonds”), provided that any and all such Additional New Lien Bonds may be issued only in accordance with and subject to the covenants, conditions, limitations and restrictions which are set forth in the Ordinance. The Previously Issued New Lien Bonds and any Additional New Lien Bonds, shall be equally and ratably secured by and payable from an irrevocable first lien on and pledge of the Pledged Revenues (see “Selected Provisions of the Ordinance”).

The City currently has outstanding Previously Issued New Lien Bonds secured by and payable from a lien on and pledge of the Pledged Revenues on a parity with the Bonds as follows:

Outstanding Dated Debt Date 7/1/2019 Issue Description 05/15/09 9,955,000 (1) WW & SS New Lien Rev Ref & Imp Bds Ser 2009 03/01/11 32,220,000 WW & SS New Lien Rev Ref & Imp Bds Ser 2011 07/15/12 22,755,000 WW & SS New Lien Rev Ref & Imp Bds Ser 2012 07/31/13 14,170,000 WW & SS Niew Lien Rev Imp Bds Ser 2013 06/30/15 16,115,000 WW & SS New Lien Rev Ref & Imp Bds Ser 2015 08/18/16 24,750,000 WW & SS New Lien Rev Ref & Imp Bds Ser 2016 04/04/17 19,545,000 WW & SS New Lien Rev Imp Bds Ser 2017A 04/04/17 18,510,000 WW & SS New Lien Rev Ref Bds Ser 2017B 06/07/18 15,305,000 WW & SS New Lien Rev Bds Ser 2018 Subtotal$ 173,325,000 22,505,000 * WW & SS New Lien Rev Bds Ser 2019 Total$ 195,830,000

(1) $8,255,000 of the Series 2009 Bonds are being refunded with the Bonds. *Preliminary, subject to change.

The Bonds are not a charge upon any other income or revenues of the City other than the Pledged Revenues and shall never constitute an indebtedness or pledge of the general credit or taxing powers of the City. The Ordinance does not create a lien or mortgage on the System, except on the Pledged Revenues, and any judgment against the City may not be enforced by levy and execution against any property owned by the City.

As additional security, a New Lien Reserve Fund is required to be maintained in an amount at least equal to the greater of (i) 0.50 multiplied by the average annual Debt Service on the New Lien Bonds or (ii) 0.333 multiplied by the maximum annual Debt Service on the New Lien Bonds (the “New Lien Reserve Fund Requirement”). The City has covenanted in the Ordinance to 11

deposit to the New Lien Reserve Fund such amounts in equal monthly installments to cause the New Lien Reserve Fund Obligations to equal the New Lien Reserve Fund Requirement within 60 months of delivery of a series of New Lien Bonds. Any additional amount required to be accumulated in such Fund by reason of the issuance of Additional New Lien Bonds will be funded over a 60 month period in accordance with the provisions of the Ordinance (see "Selected Provisions of the Ordinance"). The City also reserves the right, in accordance with applicable law, to substitute a credit facility for cash or investments in the New Lien Reserve Fund.

PLEDGED REVENUES . . . The Pledged Revenues consist of the Net Revenues of the System required to establish and maintain the New Lien Interest and Sinking Fund and the New Lien Reserve Fund. The Bonds, the Previously Issued New Lien Bonds and any Additional New Lien Bonds are equally and ratably secured by a lien on and pledge of the Pledged Revenues.

RATES . . . The City has covenanted in the Ordinance that it will at all times charge and collect rates for services rendered by the System sufficient to pay all operating, maintenance, replacement and improvement expenses and any other costs deductible in determining Net Revenues and to pay interest on and the principal of the Bonds, and any Additional New Lien Bonds, and to establish and maintain the funds provided for in the ordinance authorizing the Previously Issued New Lien Bonds, and the Ordinance. The City has further covenanted that, if the System should become legally liable for any other indebtedness, it will fix and maintain rates and collect charges for the services of the System sufficient to discharge such indebtedness.

OPTIONAL REDEMPTION OF THE BONDS . . . The City reserves the right, at its option, to redeem Bonds having stated maturities on and after August 15, 2030, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on August 15, 2029, or any date thereafter, at par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds are to be redeemed, the City may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Paying Agent/Registrar (or DTC while the Bonds are in Book-Entry-Only form) shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. If a Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Paying Agent/Registrar on the redemption date.

NOTICE OF REDEMPTION . . . Not less than 30 days prior to a redemption date for the Bonds, the City shall cause a notice of redemption to be sent by United States mail, first class, postage prepaid, to the registered owners of the Bonds to be redeemed, in whole or in part, at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE.

The City reserves the right, in the case of an optional redemption, to give notice of its election or direction to redeem Bonds conditioned upon the occurrence of subsequent events. Such notice may state (i) that the redemption is conditioned upon the deposit of moneys and/or authorized securities, in an amount equal to the amount necessary to effect the redemption, with the Paying Agent/Registrar, or such other entity as may be authorized by law, no later than the redemption date, or (ii) that the City retains the right to rescind such notice at any time on or prior to the scheduled redemption date if the City delivers a certificate of the City to the Paying Agent/Registrar instructing the Paying Agent/Registrar to rescind the redemption notice, and such notice and redemption shall be of no effect if such moneys and/or authorized securities are not so deposited or if the notice is rescinded. The Paying Agent/Registrar shall give prompt notice of any such rescission of a conditional notice of redemption to the affected Owners. Any Bonds subject to conditional redemption and such redemption has been rescinded shall remain Outstanding, and the rescission of such redemption shall not constitute a default. Further, in the case of a conditional redemption, the failure of the City to make moneys and/or authorized securities available in part or in whole on or before the redemption date shall not constitute a default.

DEFEASANCE . . . The Ordinance provides that the City may discharge its obligations to the registered owners of any or all of the Bonds to pay principal, interest and redemption price thereon in any manner permitted by law. Under current Texas law, such discharge may be accomplished by either (i) depositing with the Comptroller of Public Accounts of the State of Texas a sum of money equal to the principal of, premium, if any, and all interest to accrue on the Bonds to maturity or prior

redemption or (ii) by depositing with any place of payment (paying agent) for bonds of the City payable from revenues or from ad valorem taxes or both, amounts sufficient to provide for the payment and/or redemption of the Bonds provided that such deposits may be invested and reinvested only in (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United State of America, (b) noncallable bonds of an agency or instrumentality of the United States of America, including bonds that are unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable bonds of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and on the date the governing body of the City adopts or approves the proceeding authorizing the issuance of refunding bonds to refund the Bonds that are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent. The foregoing obligations may be in book-entry only form, and shall mature and/or bear interest in such amounts as will be sufficient to provide for the scheduled payment and/or redemption of the Bonds. If any such Bonds are to be redeemed prior to their respective dates of maturity, provision must have been made for giving notice of redemption as provided in the Ordinance.

Upon such deposit as described above, such Bonds shall no longer be regarded to be outstanding or unpaid. Provided, however, the City has reserved the option, to be exercised at the time of the defeasance of the Bonds, to call for redemption, at an earlier date, those Bonds which have been defeased to their maturity date, if the City: (i) in the proceedings providing for the firm banking and financial arrangements, expressly reserves the right to call the Bonds for redemption; (ii) gives notice of the reservation of that right to the owners of the Bonds immediately following the making of the firm banking and financial arrangements; and (iii) directs that notice of the reservation be included in any redemption notices that it authorizes.

There is no assurance that the current law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Because the Ordinance does not contractually limit such investments, registered owners may be deemed to have consented to defeasance with such other investments, notwithstanding the fact that such investments may not be of the same investment quality as those currently permitted under State law.

BOOK-ENTRY-ONLY SYSTEM . . . This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and accredited by The Depository Trust Company (“DTC”), New York, New York, while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof.

The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC.

DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee). One fully registered certificate will be issued for each maturity of the Bonds in the aggregate principal amount of each such maturity and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing

Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owners entered into the transaction. Transfers of ownership interest in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participant to whose account such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds and principal and interest payments on the Bonds will be made to DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the City or the Paying Agent/Registrar on payable dates in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as in the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC (nor its nominee), the Paying Agent/Registrar or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal and interest to DTC is the responsibility of the City or Paying Agent/Registrar, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City and the Paying Agent/Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered.

The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered.

Use of Certain Terms in Other Sections of this Official Statement . . . In reading this Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all 14

rights of ownership must be exercised through DTC and the Book-Entry-Only System, and (ii) except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC.

Information concerning DTC and the Book-Entry-Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the City, the Financial Advisor or the Underwriters.

Effect of Termination of Book-Entry-Only System In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the City, printed Bonds will be issued to the holders and the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Ordinance and summarized under "THE BONDS - Transfer, Exchange and Registration" below.

PAYING AGENT/REGISTRAR . . . The initial Paying Agent/Registrar is Wilmington Trust N.A., Dallas, Texas. In the Ordinance, the City retains the right to replace the Paying Agent/Registrar. The City covenants to maintain and provide a Paying Agent/Registrar at all times until the Bonds are duly paid, and any successor Paying Agent/Registrar shall be a commercial bank or trust company organized under the laws of the State of Texas or other entity duly qualified and legally authorized to serve as and perform the duties and services of Paying Agent/Registrar for the Bonds. Upon any change in the Paying Agent/Registrar for the Bonds, the City agrees to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by United States mail, first class, postage prepaid, which notice shall also give the address of the new Paying Agent/Registrar.

Principal of the Bonds will be payable to the registered owner at maturity or prior redemption upon presentation at the principal office of the Paying Agent/Registrar. Interest on the Bonds will be payable by check, dated as of the interest payment date, and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying Agent/Registrar on the Record Date (see "THE BONDS - Record Date for Interest Payment" herein), or by such other method acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the registered owner. If the date for the payment of the principal of or interest on the Bonds shall be a Saturday, Sunday, legal holiday, or day on which banking institutions in the city where the Paying Agent/Registrar is located are authorized by law or executive order to close, then the date for such payment shall be the next succeeding day which is not such a Saturday, Sunday, legal holiday, or day on which banking institutions are authorized to close; and payment on such date shall have the same force and effect as if made on the original date payment was due.

TRANSFER, EXCHANGE AND REGISTRATION . . . In the event the Book-Entry-Only System should be discontinued, printed Bond certificates will be delivered and thereafter the Bonds may be transferred and exchanged on the registration books of the Paying Agent/Registrar only upon presentation and surrender to the Paying Agent/Registrar, and such transfer or exchange shall be without expense or service charge to the registered owner, except for any tax or other governmental charges required to be paid with respect to such registration, exchange and transfer. Bonds may be assigned by the execution of an assignment form on the respective Bonds or by other instrument of transfer and assignment acceptable to the Paying Agent/Registrar. New Bonds will be delivered by the Paying Agent/Registrar, in lieu of the Bonds being transferred or exchanged, at the designated office of the Paying Agent/Registrar, or sent by United States mail, first class, postage prepaid, to the new registered owner or his designee. To the extent possible, new Bonds issued in an exchange or transfer of Bonds will be delivered to the registered owner or assignee of the registered owner in not more than three business days after the receipt of the Bonds to be canceled, and the written instrument of transfer or request for exchange duly executed by the registered owner or his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. New Bonds registered and delivered in an exchange or transfer shall be in any integral multiple of $5,000 for any one maturity and for a like aggregate designated amount as the Bonds surrendered for exchange or transfer. See "Book-Entry-Only System" herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds. Neither the City nor the Paying Agent/Registrar shall be required to transfer or exchange any Bond called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation of transfer shall not be applicable to an exchange by the registered owner of the uncalled balance of a Bond.

REPLACEMENT BONDS . . . If any Bond is mutilated, destroyed, stolen or lost, a new Bond in the same principal amount as the Bond so mutilated, destroyed, stolen or lost will be issued. In the case of a mutilated Bond, such new Bond will be delivered only upon surrender and cancellation of such mutilated Bond. In the case of any Bond issued in lieu of an substitution for a Bond which has been destroyed, stolen or lost, such new Bond will be delivered only (a) upon filing with the City and the Paying Agent/Registrar a certificate to the effect that such Bond has been destroyed, stolen or lost and proof of the ownership thereof, and (b) upon furnishing the City and the Paying Agent/Registrar with indemnity satisfactory to them. The person 15

requesting the authentication and delivery of a new Bond must pay such expenses as the Paying Agent/Registrar may incur in connection therewith.

RECORD DATE FOR INTEREST PAYMENT . . . The record date ("Record Date") for the interest payable on the Bonds on any interest payment date means the close of business on the last business day of the preceding month.

In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a "Special Record Date") will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the City. Notice of the Special Record Date and of the scheduled payment date of the past due interest ("Special Payment Date", which shall be 15 days after the Special Record Date) shall be sent at least five business days prior to the Special Record Date by United States mail, first class postage prepaid, to the address of each Holder of a Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice.

BONDHOLDERS’ REMEDIES . . . The Ordinance authorizing the issuance of the Bonds establish the following Events of Default with respect to the Bonds: (i) defaults in the timely payment of principal of or interest on any of the Bonds, (ii) failure to make any deposit required by the Ordinance to be made to the New Lien Interest and Sinking Fund and the New Lien Reserve Fund, or (iii) defaults in the observance or performance of any other covenant, condition or obligation set forth in the Ordinance. Except for the remedy of mandamus to enforce the City’s covenants, conditions and obligations under the Ordinance, the Ordinance does not establish other remedies. The Ordinance does not provide for a trustee to enforce the covenants and obligations of the City. In no event will registered owners have the right to have the maturity of the Bonds accelerated as a remedy. The enforcement of the remedy of mandamus may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. No assurance can be given that a mandamus or other legal action under the Ordinance would be successful.

On June 30, 2006, the Texas Supreme Court ruled in Tooke v. City of Mexia, 197 S.W.3rd 325 (Tex. 2006) ("Tooke") that a waiver of sovereign immunity must be provided for by statute in "clear and unambiguous" language. Because it is not clear that the Texas Legislature has effectively waived the City’s immunity from suit for money damages, a Bondholder may not be able to bring such a suit against the City for breach of the Bonds or the Ordinance. Even if a judgment could be obtained, it could not be enforced by direct levy and execution against the City’s property.

On April 1, 2016, the Texas Supreme Court ruled in Wasson Interests, Ltd. v. City of Jacksonville, 59 Tex. Sup. Ct. J. 524 (Tex. 2016) that governmental immunity does not imbue a city with derivative immunity when it performs proprietary, as opposed to governmental, functions in respect to contracts executed by a city. Texas jurisprudence has generally held that proprietary functions are those conducted by a city in its private capacity, for the benefit only of those within its corporate limits, and not as an arm of the government or under the authority or for the benefit of the state. In Wasson, the Court recognized that the distinction between governmental and proprietary functions is not clear. Therefore, in considering municipal breach of contract cases, it is incumbent on the courts to determine whether a function is proprietary or governmental based upon the common law and statutory guidance. Issues related to the applicability of governmental immunity as they relate to the issuance of municipal debt have not been adjudicated. Each situation will be evaluated based on the facts and circumstances surrounding the contract in question. Chapter 1371, Texas Government Code (“Chapter 1371”), which pertains to the issuance of public securities by issuers such as the City, permits the City to waive sovereign immunity in the proceedings authorizing its bonds, but in connection with the issuance of the Bonds, the City is not using the authority provided by Chapter 1371 and has not waived sovereign immunity in the proceedings authorizing the Bonds.

Furthermore, the City is eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code. Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, such as the Pledged Revenues, such provision is subject to judicial construction. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the City avail itself of Chapter 9 protection from creditors, the ability to enforce any remedies under the Ordinance would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court), and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Ordinance and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. In addition, while the City has covenanted to secure the Bonds by a lien on the Pledged Revenues, Bond Counsel will opine only that a valid and enforceable lien has been granted

on the Pledged Revenues. Bond Counsel has not been requested to, and has not, rendered any opinion as to the priority status of the pledge of the Pledged Revenues.

THE SYSTEM

WATERWORKS SYSTEM

Source of Water Supply

The City’s primary water supply is Lake Chapman. The City also purchases a small amount of its water supply from the City of Dallas under a wholesale services contract. Under the terms of its wholesale services contract with the City of Dallas, the City may purchase more water from the City of Dallas than the current contract specifies, but at an increased cost, and the purchase of additional water would have an impact on the cost of water purchased under the contract in future years. Other major entities that are currently authorized to divert or use water from Lake Chapman, either as water rights holders or as parties to a contract with water rights holders include the North Texas Municipal Water District, the Upper Trinity Regional Water District (which derives its water rights pursuant to an agreement with the Sulphur River Municipal Water District) and the Sulphur River Municipal Water District. Lake Chapman (formerly Cooper Lake) is located on the Sulphur River, 90 miles east of Irving. The total available authorized diversion from the lake is 146,520 acre-ft year, and the City has acquired the right to divert or use 54,000 acre-feet of such total authorized amount. In addition, pursuant to a grant by the Texas Water Commission (predecessor to the Texas Commission on Environmental Quality), the North Texas Municipal Water District, which serves Garland, Mesquite, Richardson and several other cities and towns north and east of Dallas County, acquired the right to divert 57,214 acre-ft/year in Lake Chapman and the Sulphur River Municipal Water District secured the right to divert 35,306 acre-feet/year.

The U.S. Corps of Engineers (the “Corps”) construction of Lake Chapman was completed and deliberate impoundment occurred on September 28, 1991. The deliberate impoundment resulted in the start of initial use debt payments ($167,000 annually) and operation of maintenance payments (estimated at $100,000 annually) to the Corps. Effective on the tenth anniversary, the City began paying debt service on the future-use portion of the contract. In 2006, the Corps declared the final project costs and the annual debt service payments of $893,903.95 (consisting of $426,880.22 for present use and $467,023.73 for future use).

The City began accumulating funds from operations for the Lake Chapman project in 1970. The City entered into a contract with North Texas Municipal Water District (“NTMWD”) for joint engineering and construction of Phase I of the project. The City contributed $26,609,909, to a City/NTMWD joint construction fund for the design and construction of an intake/pump station, a pipeline, and related right-of-way acquisition from Lake Chapman to Lake Lavon and construction was completed in 1997. Phase II of the project involved the construction of a pump station, and a pipeline to transport the City’s water from Lake Lavon to Lake Lewisville. The total costs of the Lake Chapman Phase II project to the City was approximately $94,000,000. The City has paid all of its obligations relating to the construction of Lake Chapman Phase II. In June 2003, the City realized substantial completion of the Lake Chapman project and the delivery of the first water to the citizens of Irving.

The City entered into separate new agreements with the City of Dallas for treatment of Lake Chapman water (Treatment Services Contract) and to continue as a wholesale customer (Water Treatment Contract), which became effective on June 30, 2003. Under the agreements, the City continued its wholesale customer status with reduction in the wholesale demand volume by an amount equal to the volume of water being supplied under the Treatment Services Contract, which provides treatment services for the City’s Lake Chapman water supply.

For 2018-19 , the cost of potable water under the Water Treatment Contract is based upon a two-part rate consisting of a demand charge of $276,434 per million gallons per day (mgd) per annum or $8,709.56 per mgd per diem and a volume rate of $0.3650 per thousand gallons. The rate of flow controller representing the daily demand is currently set on 6.7 mgd.

Under the Treatment Services Contract, the cost paid to the City of Dallas is also based upon a two-part rate structure. For the fiscal year 2018-19, the demand charge is $36,781 per mgd per annum or $6,348.50 per mgd per diem and is based upon 63 mgd. The volume charge is $0.3118 per thousand gallons.

The City compensates the City of Dallas for the use of storage in Lake Lewisville, the use of the Lake Lewisville outlet works for the release of its water, the use of the existing Elm Fork River channel and associated Carrollton Dam, emergency water supply service, and readiness to serve by Dallas. The City’s annual payment to the City of Dallas is $216,367 and the contract expires in 2033. 17

In May 1999, the City entered into a 30-year contract with the Upper Trinity Regional Water District (“UTRWD”) for the transportation of UTRWD water from Lake Chapman to Lake Lewisville. The contract for the transportation of UTRWD water generated approximately $2,494,701 during the 2017-18 fiscal year.

Daily Usage and Storage Capacity

2018 average daily demand 39,253,000 Gallons Per Day (G.P.D.) 2018 maximum daily demand 66,000,000 G.P.D. 2019 average daily demand (est.) 35,000,000 G.P.D. 2019 maximum daily demand (est.) 62,000,000 G.P.D. Storage: Elevated 16,500,000 Gallons Ground 52,000,000 Gallons

Future Water Supply

The City has received approval of an indirect reuse authorization from the Texas Commission on Environmental Quality. The amended permit will allow the City to utilize reclaimed wastewater for golf course irrigation to supplement current supply. In addition, the City has access to additional reclaimed or reuse water, and is working with other regional water suppliers to develop new projects to increase available supplies. The City remains involved with the area’s other major water suppliers studying the potential development of water in the Sulphur River basin, including Lake Ralph Hall.

Water Quality

Treated water provided by the City is subject to extensive federal and state laws and regulations. The City currently expects to meet or surpass all federal and state established water standards, and its water system has been designated as “Superior” by the State of Texas. The 1996 amendments to the federal Safe Drinking Water Act redirected the approach of the Environmental Protection Agency (the “EPA”) to regulation, and resulted in several new regulatory initiatives. At this time, the City contracts with the City of Dallas to treat all of its drinking water.

City of Irving’s Water Management Plan

The City updated its Water Management Plan on August 7, 2014 as required by the Texas Commission on Environmental Quality (TCEQ) to meet the most current guidelines and requirements. The plan includes both the Drought Management Plan and the Water Conservation Plan. The Drought Management Plan lays out the City’s reactive requirements as water supply levels drop due to drought. There are three stages in the plan. Since implementation of the updated plan in 2014, the City enacted Drought Stage 1 once, which limited watering to twice-per-week. The City moved to Stage 1 on September 1, 2014 and the City suspended the Stage 1 restrictions on May 9, 2015 after the City’s water supplies reached capacity. Under the Drought Contingency Plan portion of the Water Management Plan, the City would move to once-per-week watering if Stage 2 is required by triggering conditions.

With no current drought restrictions in effect, the City currently operates under the requirements of the updated Water Conservation Plan. It is a proactive plan that continues to help conserve water when the Drought Plan is not active. While it also restricts irrigation to twice a week, the conservation plan does not include the additional water use restrictions required in Stage 1 of the Drought Management Plan.

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TABLE 1 - HISTORICAL WATER CONSUMPTION (THOUSANDS OF GALLONS)

Fiscal Year Daily Ended 9/30 Average Peak Day Peak Month Water Pumped Water Billed Water Revenue 2014 33,611 54,000 1,293,083 12,278,821 11,739,914$ 47,393,235 2015 31,420 63,000 1,635,510 11,467,400 11,679,810 50,346,757 2016 34,004 65,000 1,576,720 12,411,410 12,231,101 55,917,625 2017 35,792 56,000 1,410,960 13,689,570 12,115,652 62,064,292 2018 39,253 66,000 1,741,600 14,327,480 13,060,886 69,520,741

TABLE 2 - TEN LARGEST WATER CUSTOMERS FOR FISCAL YEAR 2018 (BASED ON GALLONS CONSUMED)

% of % of Total Total Water Usage Water Water Water Customer Type of Industry (000's) Usage Revenue Revenue Dr. Pepper Soft Drink Bottler 377,554 2.89%$ 1,614,706 2.41% America's Beverage Soft Drink Bottler 183,976 1.41% 786,355 1.18% Irving ISD School District 132,914 1.02% 687,333 1.03% Las Colinas Association Homeowner's Association 82,578 0.63% 428,625 0.64% Lake Carolyn REIT, LLC Apartments 64,708 0.50% 347,324 0.52% Bel Air at Las Colinas TT LLC Apartments 60,890 0.47% 328,056 0.49% University of Dallas University 60,715 0.46% 329,197 0.49% Brakebush Irving Food Processor 58,069 0.44% 312,871 0.47% Oak Villas Apts LLC Apartments 56,103 0.43% 300,637 0.45% Baylor Healthcare Healthcare Provider 54,290 0.42% 292,883 0.44%

Total 1,131,797 8.67%$ 5,427,988 8.12%

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TABLE 3 - MONTHLY WATER RATES Previous Rates Present Rates (Effective 10/01/2017) (Effective 10/01/2018) (a) Monthly Service Charge First 3,000 gallons of water, or less 5/8" and 3/4" Meter $11.38 $11.67 1" Meter $13.79 $14.14 1 1/2" Meter $19.33 $19.82 2" Meter $27.28 $27.97 3" Meter $43.92 $45.02 4" Meter $61.47 $63.01 6" Meter $107.50 $110.18 8" Meter $135.76 $139.16 10" Meter $197.33 $202.27 12" Meter $293.84 $301.19

(b) Residential water rates: Next 7,000 gallons , per 1,000 gallons $4.60 $4.72 Next 10,000 gallons, per 1,000 gallons $4.96 $5.09 All over 20,000 gallons: October-May consumption, per 1,000 gallons $5.30 $5.44 June -September consumption, per 1,000 gallons $5.83 $5.98

(c) Apartment water rates: Next 7,000 gallons, per 1,000 gallons $4.60 $4.72 Next 10,000 gallons, per 1,000 gallons $4.96 $5.09 All over 20,000 gallons: October-May consumption, per 1,000 gallons $5.30 $5.44 June -September consumption, per 1,000 gallons $5.83 $5.98

(d) Commercial water rates: Next 7,000 gallons, per 1,000 gallons $4.60 $4.72 Next 10,000 gallons, per 1,000 gallons $4.96 $5.09 All over 20,000 gallons: October-May consumption, per 1,000 gallons $5.30 $5.44 June -September consumption, per 1,000 gallons $5.83 $5.98

(e) Large Industrial water rates: All over 3,000 gallons, per 1,000 gallons $4.35 $4.46

Any customer receiving water service at one location or complex through more than one meter will receive only one 20,000 gallon allowance during the summer period (June through September) consumption before the conservation rate is applied.

If the City does not have a single meter of sufficient size to meter the water volume of an apartment, commercial or industrial customer and more than one meter must be used to meter the water quantity, the minimum water rate will be applied to one of said multiple meters only.

WASTEWATER SYSTEM

The City wastewater system consists of 656 miles of collection lines ranging in size from 6 inches to 54 inches in diameter. The City is divided into 12 collection basins. The City’s wastewater is delivered to the Trinity River Authority (“TRA”) for treatment through 20 points of entry into the TRA system. The City is the second largest Customer served by the TRA Central Regional Wastewater Treatment Plant located just south of the City of Irving.

TABLE 4 - WASTEWATER USAGE (THOUSANDS OF GALLONS)

Fiscal Year Daily Monthly Ended 9/30 Average Average Total Usage Total Revenues 2014 22,754 692,309 8,307,704 $ 27,308,004 2015 25,583 778,743 9,344,913 27,104,525 2016 27,639 840,696 10,088,346 29,972,415 2017 24,415 759,288 9,111,457 34,045,731 2018 25,731 780,223 9,362,673 35,435,108

TABLE 5 - MONTHLY SEWER RATES Previous Rates Current Rates (Effective 10/01/2017) (Effective 10/01/2018) per 1,000 gallons per 1,000 gallons

Residential: First 2,000 gallons $6.62 $6.79 Over 2,000 gallons $3.56 $3.65

Commercial: First 10,000 gallons $33.64 $34.49 Over 10,000 gallons $3.85 $3.95

Industrial: First 15,000 gallons $50.47 $51.74 Over 15,000 gallons $3.85 $3.95

Residential and Commercial rates are based on the average monthly metered water sales for January, February and March.

WATER AND WASTEWATER SYSTEM CAPITAL IMPROVEMENT PLAN

The City Council reviews a 5 year Capital Improvement Plan (CIP) annually. The approved CIP budget for the Fiscal Year ending September 30, 2019 includes the water and wastewater capital projects. Certain capital projects are anticipated to be funded with bond proceeds and other projects will be funded on a “pay as you go” basis. Funding for capital improvement projects in fiscal years 2019-23 will require annual approval by the City Council and such projects are subject to change.

Capital Improvement Program Water and Sewer System Fund FY 2018‐2019 thru 2022‐2023

2018‐2019 2019‐2020 2020‐2021 2021‐2022 2022‐2023 TOTAL REVENUE BOND FUNDING Water Improvements$ 7,320,000 $ 4,500,000 $ 4,000,000 $ 4,900,000 $ 8,000,000 $ 28,720,000

Wastewater Improvements$ 10,475,000 $ 8,750,000 $ 9,900,000 $ 8,400,000 $ 9,500,000 $ 47,025,000 Total Revenue Bonds $ 17,795,000 $ 13,250,000 $ 13,900,000 $ 13,300,000 $ 17,500,000 $ 75,745,000

NON‐BOND CIP Water and Sewer Non‐Bond CIP Funding$ 12,965,000 $ 13,950,000 $ 13,950,000 $ 13,700,000 $ 13,950,000 $ 68,515,000

Total Water and Sewer CIP$ 30,760,000 $ 27,200,000 $ 27,850,000 $ 27,000,000 $ 31,450,000 $ 144,260,000

DEBT INFORMATION

TABLE 6 - WATERWORKS AND SEWER SYSTEM REVENUE DEBT SERVICE REQUIREMENTS

Fiscal Year (1) Ended Previously Issued New Lien Bonds Series 2019 Bonds* Outstanding Total Debt 9/30 Principal Interest Total Principal Interest Total Principal Interest Total 2019$ 16,550,000 $ 7,215,613 $ 23,765,613 $ - $ - $ - $ 16,550,000 $ 7,215,613 $ 23,765,613 2020 15,485,000 6,017,800 21,502,800 1,005,000 928,250 1,933,250 16,490,000 6,946,050 23,436,050 2021 14,660,000 5,315,300 19,975,300 1,060,000 878,000 1,938,000 15,720,000 6,193,300 21,913,300 2022 12,950,000 4,725,650 17,675,650 1,110,000 825,000 1,935,000 14,060,000 5,550,650 19,610,650 2023 11,530,000 4,179,500 15,709,500 1,160,000 769,500 1,929,500 12,690,000 4,949,000 17,639,000 2024 10,700,000 3,701,163 14,401,163 1,220,000 711,500 1,931,500 11,920,000 4,412,663 16,332,663 2025 9,600,000 3,246,600 12,846,600 1,285,000 650,500 1,935,500 10,885,000 3,897,100 14,782,100 2026 9,455,000 2,816,725 12,271,725 1,345,000 586,250 1,931,250 10,800,000 3,402,975 14,202,975 2027 8,630,000 2,440,394 11,070,394 1,420,000 519,000 1,939,000 10,050,000 2,959,394 13,009,394 2028 7,905,000 2,061,294 9,966,294 1,485,000 448,000 1,933,000 9,390,000 2,509,294 11,899,294 2029 6,925,000 1,732,894 8,657,894 1,565,000 373,750 1,938,750 8,490,000 2,106,644 10,596,644 2030 7,200,000 1,452,463 8,652,463 860,000 295,500 1,155,500 8,060,000 1,747,963 9,807,963 2031 7,475,000 1,179,913 8,654,913 885,000 269,700 1,154,700 8,360,000 1,449,613 9,809,613 2032 5,735,000 903,081 6,638,081 910,000 243,150 1,153,150 6,645,000 1,146,231 7,791,231 2033 5,115,000 712,225 5,827,225 940,000 215,850 1,155,850 6,055,000 928,075 6,983,075 2034 4,040,000 527,263 4,567,263 970,000 187,650 1,157,650 5,010,000 714,913 5,724,913 2035 4,180,000 396,163 4,576,163 995,000 158,550 1,153,550 5,175,000 554,713 5,729,713 2036 3,380,000 251,522 3,631,522 1,025,000 128,700 1,153,700 4,405,000 380,222 4,785,222 2037 2,460,000 123,100 2,583,100 1,055,000 97,950 1,152,950 3,515,000 221,050 3,736,050 2038 1,095,000 38,325 1,133,325 1,090,000 66,300 1,156,300 2,185,000 104,625 2,289,625 2039 - - - 1,120,000 33,600 1,153,600 1,120,000 33,600 1,153,600 Totals$ 165,070,000 $ 49,036,988 $ 214,106,988 $ 22,505,000 $ 8,386,700 $ 30,891,700 $ 187,575,000 $ 57,423,688 $ 244,998,688

(1) Excludes the Refunded Bonds. Average life of the Bonds – 10.209 years. *Preliminary; subject to change.

TABLE 7 - AUTHORIZED BUT UNISSUED REVENUE BONDS

The City has no voted but unissued revenue bonds, and pursuant to State law, the City is not required to approve its revenue bonds through an election.

ANTICIPATED ISSUANCE OF REVENUE BONDS . . . The City expects to issue approximately $13.3 million additional New Lien Bonds in fiscal year 2019-2020. See “SELECTED PROVISIONS OF THE ORDINANCE – Additional New Lien Bonds.”

PENSION FUND . . . The City participates in three retirement plans. The Fireman's Relief and Retirement Fund (“FRRF”) is a defined benefit plan covering the City's firefighters. The Board of Trustees of the Irving FRRF is the administrator of the FRRF. FRRF is not a part of the City’s reporting entity because the City does not have fiduciary responsibility over the FRRF assets, is not able to impose its will on the FRRF, nor is the FRRF fiscally dependent on the City and the board is not appointed by the City Council. The Supplemental Benefit Plan (“SBP”) is a contributory defined benefit plan covering all full-time City employees (excluding Fire Civil Service employees and nonresident aliens). The SBP has an annual actuarial evaluation to determine whether or not the current contribution rate is sufficient to support the benefits of SBP. Beginning January 1995, the City ceased all employer contributions to the plan. However, the City reinstated contributions at a rate of 1.42% of covered payroll on January 1, 2012. For fiscal year 2018, the City made contributions of 2.14% for the months in 2017 and a contribution of 2.07% for the months in 2018. The City is also a member of the Texas Municipal Retirement System ("TMRS"). TMRS is a statewide agent multi-employer, joint contributory, hybrid-defined benefit plan. (For more detailed information concerning the retirement plans, see Appendix B, "Excerpts from the City's Annual Financial Report" - Note 10).

VOLUNTARY EMPLOYEE BENEFICIARY ASSOCIATION . . . Effective August 31, 2000, the City established the City of Irving Voluntary Employee Beneficiary Association (VEBA) Trust. The purpose of the plan was to provide a temporary monthly benefit to certain eligible retirees of the City to help cover a portion of the eligible retiree’s cost of medical coverage from the City. The benefit was initially established at a level that represented 75% of the “retiree- only” premium for the lowest cost medical plan offered by the City.

The VEBA Plan was significantly amended in September 2004 to include eligible active employees as well as eligible retirees. An eligible retiree means an individual who has retired or was eligible to retire from active service with the City before January 1, 2005 and has at least 25 years of service with the City before January 1, 2005. Benefit is received when the eligible retiree has attained either (i) 55 years of age and at least 30 years of service with the City or (ii) 60 years of age and at least 25 years of service with the City. The period of coverage commences with the enrollment of an eligible employee and ends on the later of (a) the date the eligible employee retires or (b) the last day of the month in which the eligible employee attains age 65. The monthly subsidy for eligible retirees is fixed at $168.75. Annual VEBA subsidy payments totaled $39,319 in fiscal year 2018.

Existing funds were allocated to establish a reserve sufficient to meet the full funding requirements at the time for the current retirees and future eligible employees. The City has not made contributions during the fiscal year to the Trust.

There are currently 15 retirees enrolled in the plan:

Quality Connect 9 Choice Open Access Plus 4 Open Access Plus 2

Because the amounts in the Trust are for the benefit of both retirees and current employees and because the City has used funds from the Trust to subsidize current employee premiums to the healthcare plan, the Trust does not qualify to be considered an Other Post-Employment Benefit Plan subject to GASB Statement 75. See Note 12 of the City’s Annual Financial Statement.

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VEBA does not issue separate audited GAAP financial statements. Its financial statements are presented below:

Statement of Plan Net Position

Assets Cash and cash equivalents$ 189,657 Total Assets$ 189,657

Net Assets Held in trust fo rpenaion benefits and other purposes$ 189,657

Statement of Changes in Plan Net Position

Additions Interest$ - Total additions 0 Deductions Benefits and refunds paid 39,319 Total Deductions 39,319 Net Change in plan net assets (39,319) Plan net assets, beginning of year 228,976 Plan net assets, end of year$ 189,657

OTHER POST-EMPLOYMENT BENEFITS . . . In the current fiscal year, the City implemented GASB Statement No. 75, Accounting and Financial Reporting for Post-employment Benefits Other Than Pensions (OPEB) that addresses accounting and financial reporting for OPEB that is provided to employees of state and local governmental entities. This statement establishes standards for recognizing and measuring liabilities, deferred outflows and inflows of resources, and expense. This statement replaces the requirements of GASB Statement No. 45, Accounting and financial Reporting by Employers for Post-employment Benefits Other Than Pensions, as amended, and GASB statement No. 57, OPEB Measurements by Agents Employers and Agent Multiple-Employer Plans.

The City offers two OPEB plans. Retirees meeting certain requirements can remain on the City’s group health and life insurance plan, and the City participates in a defined benefit group-term life insurance known as the Supplemental Death Benefits Fund (SDBF) and is administered by TMRS.

A summary of the OPEB liabilities, deferred outflows and inflows of resources and expenses are below and discussed in further detail in this footnote. Retiree Health Care TMRS- Plan SDBF Total

OPEB liability $ 10,826,227 $ 5,084,972 $ 15,911,199 Deferred outflow 660,826 373,245 1,034,071 Expense (current year) 347,736 336,285 684,021

Please refer to notes 13 (a) and (b) in the City’s Comprehensive Annual Financial Report for Fiscal Year Ended 9/30/2018 for discussion on the city’s Other Post Employment Obligations.

FINANCIAL INFORMATION

TABLE 8 - CONDENSED SCHEDULE OF OPERATIONS

Fiscal Year Ended September 30 2018 2017 2016 2015 2014 Operating Revenues: Charges for Services$ 112,051,868 $ 106,758,462 $ 92,380,186 $ 84,826,371 $ 82,397,005 Total Operating Revenues$ 112,051,868 $ 106,758,462 $ 92,380,186 $ 84,826,371 $ 82,397,005

Operating Expenses: Water Purchases$ 9,047,727 $ 12,254,911 $ 11,699,744 $ 7,193,237 $ 7,624,894 Sewer Treatment Costs 25,611,616 23,071,870 22,124,569 20,691,620 19,513,766 Personnel Services 12,726,268 12,040,573 12,058,898 11,361,206 10,611,547 Pension Expense 315,754 1,211,611 891,179 3,298,895 - OPEB Expense 61,562 - - - - Supplies 3,351,686 3,052,070 1,963,383 4,736,459 3,028,169 Maintenance 2,261,609 2,322,477 2,199,005 2,278,713 2,472,965 Light and Power 2,735,960 1,428,704 1,784,222 2,730,196 2,506,985 Depreciation 16,270,156 15,813,271 15,230,320 14,590,852 14,012,112 Sundry Charges 209,174 252,380 352,380 651,120 688,120 Administrative Charges 5,567,363 5,443,749 6,049,016 5,928,411 5,964,193 Other 3,176,736 4,046,862 3,378,480 3,000,437 2,636,329 Total Operating Expenses$ 81,335,611 $ 80,938,478 $ 77,731,196 $ 76,461,146 $ 69,059,080

Operating income (loss)$ 30,716,257 $ 25,819,984 $ 14,648,990 $ 8,365,225 $ 13,337,925

Add: Depreciation 16,270,156 15,813,271 15,230,320 14,590,852 14,012,112 Pension Expense 315,754 1,211,611 891,179 3,298,895 - OPEB Expense 61,562 - - - - Interest Income 1,739,774 724,660 361,083 120,907 123,006 Net Revenue Available for Debt Service$ 49,103,503 $ 43,569,526 $ 31,131,572 $ 26,375,879 $ 27,473,043

Average Annual Debt Service Requirement$ 11,666,604 $ 11,798,235 $ 11,778,043 $ 12,074,003 $ 11,715,422 Coverage Ratio 4.21 (1) 3.69 (1) 2.64 (1) 2.18 (1) 2.35

Maximum Annual Debt Service Requirement$ 23,765,613 $ 23,765,613 $ 21,974,693 $ 22,399,413 $ 21,863,514 Coverage Ratio 2.07 (1) 1.83 (1) 1.42 (1) 1.18 (1) 1.26

(1) GASB 68 implemented in FY 2015 and GASB 75 implemented in FY 2018 requires the recognition of pension expense and OPEB expense, respectively, based on actuarial valuations. Both of these obligations have been excluded from the coverage calculation based on the definition of net revenues available for debt service in the Ordinance.

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TABLE 9 - COVERAGE AND FUND BALANCES (1)

Average Annual Principal and Interest Requirements, 2019 - 2039 $ 11,666,604 Coverage of Average Requirements by 2018 Net Revenue Available for Debt Service 4.21

Maximum Principal and Interest Requirements, 2019$ 23,765,613 Coverage of Maximum Requirements by 2018 Net Revenue Available for Debt Service 2.07

Waterworks and Sewer System Revenue Bonds Outstanding, September 30, 2019$ 187,575,000

New Lien Bond Interest and Sinking Fund, 9/30/18$ 3,067,548 (2) New Lien Bond Reserve Fund, 9/30/18$ 7,913,949

(1) Includes the Previously Issued New Lien Bonds, and the Bonds being offered herein. Excludes the Refunded Bonds. (2) Any shortfall in the amount required for the New Lien Bond Reserve Fund will be funded in 60 equal monthly installments as provided for in the Ordinance.

TABLE 10 – CONNECTIONS

Fis cal Year Ended S eptember 3 0, 2018 (1) 2017(2) 2016(3) 2015(4) 2014(5)

Water Customers 48,495 47,504 46,966 46,745 45,558

Sewer Customers 45,447 44,741 43,505 43,849 42,988

(1) Includes 1,063 master meters (excluding private fire) serving 54,785 apartments and other multiple units (2) Includes 1,094 master meters (excluding private fire) serving 54,104 apartments and other multiple units (3) Includes 1,064 master meters (excluding private fire) serving 53,552 apartments and other multiple units (4) Includes 1,060 master meters (excluding private fire) serving 52,725 apartments and other multiple units (5) Includes 1,046 master meters (excluding private fire) serving 51,649 apartments and other multiple units

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TABLE 11 - CITY’S EQUITY IN SYSTEM

Fiscal Year Ended September 30 2018 2017 2016 2015 2014

Land$ 7,532,058 $ 7,463,388 $ 7,456,451 $ 6,789,452 $ 6,780,442 Water rights 20,939,506 20,939,506 20,939,506 20,939,506 20,939,506 Plant / infrastructure 685,445,064 663,052,609 639,358,015 633,697,364 611,380,214 Construction in progress 39,410,561 33,647,246 29,434,337 22,074,681 16,007,413 Less accumulated depreciation (283,128,902) (266,865,856) (251,122,582) (256,483,565) (241,892,712) Total capital assets, net$ 470,198,287 $ 458,236,893 $ 446,065,727 $ 427,017,438 $ 413,214,863

Cash and Investments$ 132,432,578 $ 111,650,374 $ 101,527,167 $ 100,443,120 $ 112,983,610 Other Resources 20,952,033 20,504,895 14,570,278 15,065,150 12,754,401

Total Resources$ 623,582,898 $ 590,392,162 $ 562,163,172 $ 542,525,708 $ 538,952,874

Deferred Outflow of Resources$ 4,732,786 $ 8,135,725 $ 8,738,297 $ 4,618,740 $ 3,280,698

Obligations Revenue Bond Payable$ 184,315,770 $ 185,412,836 $ 180,361,769 $ 179,303,407 $ 182,996,265 Other Obligations 41,631,111 44,298,275 46,519,882 36,364,447 34,770,516

Total Obligations$ 225,946,881 $ 229,711,111 $ 226,881,651 $ 215,667,854 $ 217,766,781

Deferred Inflow of Resources$ 1,777,949 $ 277,926 $ 265,157 $ 220,374 $ -

City's Equity in System$ 400,590,854 $ 368,538,850 $ 343,754,661 $ 331,256,220 $ 324,466,791

Percentage City Equity in System 64.24% 62.42% 61.15% 61.06% 60.20%

DALLAS COUNTY UTILITY AND RECLAMATION DISTRICT

In 1998, the City designated an area of land generally coterminous with the boundaries of the Dallas County Utility and Reclamation District (the "District") as a Tax Increment Reinvestment Zone. The District is a conservation, utility and reclamation district operating under article XVI, section 59, Texas Commission with broad powers under article III, Section 52, Texas Constitution, currently operating under Chapter 49, Texas Water Code and a series of special laws adopted by the Texas legislature. Pursuant to legislation passed in the 78th Regular Session of the Texas Legislature in 2003, the District is no longer presented as a component unit of the City. The City is not legally obligated for the obligations of the District.

FINANCIAL POLICIES

Government-wide and Fund Financial Statements . . . The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Government activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment; and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported as general revenues.

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

Measurement Focus, Basis of Accounting and Basis of Presentation . . . The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met.

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences, claims and judgments, landfill closure/post closure costs, and sales tax overpayments are recorded only when the liability has matured.

Property taxes, sales taxes, hotel/motel taxes, franchise fees and licenses, intergovernmental revenues, certain charges for services, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the City receives the cash.

INVESTMENTS

The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both state law and the City’s investment policies are subject to change.

LEGAL INVESTMENTS . . . Under Texas law, the City is authorized to invest in (1) obligations, including letters of credit, of the United States or its agencies and instrumentalities, including the Federal Home Loan Bank; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which are unconditionally guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) obligations issued, assumed or guaranteed by the State of Israel; (7) interest-bearing banking deposits that are (A) guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National credit Union Share Insurance Fund or its successor or (B) are invested through (i) a broker with a main office or branch office in this state that the investing entity selects from a list the governing body or designated investment committee of the City adopts or (ii) a depository institution with a main office or branch office in this state that the City selects; and (a) the broker or depository institution selected arranges for the deposit of the funds in the banking deposits in one or more federal insured depository institutions, regardless of where located, for the City’s account; and (b) the full amount of the principal and accrued interest of the banking deposits is insurance by the United States or an instrumentality of the United States; and (c) the City appoints as the City’s custodian of the banking deposits issued for the City’s account: (1) the depository institution selected pursuant to (ii) above or (2) an entity described by Section 2256.041(d); or (iii) a clearing broker dealer registered with the Securities and Exchange Commission and operating under Securities and Exchange Commission Rule 15c3-3; (8) certificates of deposit that are issued by a state or national bank domiciled in the State of Texas, a savings bank domiciled in the State of Texas, or a state or federal credit union domiciled in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits, (i) that are issued by an institution that has its main office or a branch office in the State of Texas and are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union share Insurance Fund, or are secured as to principal by obligations described in clauses (1) through (6) or in any other manner and amount provided by law for City deposits or a) where the funds are invested by an investing entity through: (i) a broker that has its main office or a branch office in this state and is selected from a list adopted by the City; or (ii) a depository institution that has its main office or a branch office in this state and that is selected by the investing entity; (b) where the broker or the depository institution selected by the investing entity under (a) arranges for the deposit of the funds in certificates of deposit in one or more federally insured depository institutions, wherever located, for the account of the City; (iii) the full amount of the principal and accrued interest of each of the certificates of deposit is insured by 28

the United States or an instrumentality of the United States; and (iv) the investing entity appoints the depository institution selected by the investing entity under (a), an entity described by Section 2257.041(d), or a clearing broker- dealer registered with the Securities and Exchange Commission and operating pursuant to Securities and Exchange Commission Rule 15c3-3 (17 C.F.R. Section 240.15c3-3) as custodian for the investing entity with respect to the certificates of deposit issued for the account of the City; (9) fully collateralized repurchase agreements that have a defined termination date, are fully secured by a combination of cash and obligations described in clause (1) which are pledged to the City, held in the City’s name, and deposited at the time the investment is made with the City or with a third party selected and approved by the City and are placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in the State; (10) certain bankers’ acceptances with the remaining term of 270 days or less, if the short-term Bonds of the accepting bank or its parent are rated at least “A-1” or “P-1” or the equivalent by at least one nationally recognized credit rating agency, (11) commercial paper with a stated maturity of 270 days or less that is rated at least “A-1” or “P-1” or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (12) no-load money market mutual funds registered with and regulated by the Securities and Exchange Commission that complies with federal Securities and Exchange Commission Rule 2a-7 (17 C.F.R. Section 270.2a-7), promulgated under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.); and (13) public funds investment pools that have an advisory board which includes participants in the pool and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. Texas law also permits the City to invest bond proceeds in a guaranteed investment contract, subject to limitations as set forth in the PFIA.

A political subdivision such as the City may enter into securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than A or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (10) through (12) above, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the City, held in the City’s name and deposited at the time the investment is made with the City or a third party designated by the City; (iii) a loan made under the program through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less.

The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAAm or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index.

INVESTMENT POLICIES . . . Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups, methods to monitor the market price of investments acquired with public funds, a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a delivery versus payment basis, and procedures to monitor rating changes in investments acquired with public funds and the liquidation of such investments consistent with the Public Funds Investment Act. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds’ investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment, (5) diversification of the portfolio, and (6) yield.

Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person’s own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly the investment officers of the City shall submit an investment report detailing: (1) the investment 29

position of the City, (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, the ending market value and fully accrued interest during the reporting period of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council.

ADDITIONAL PROVISIONS . . . Under Texas law the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officer with a personal business relationship or related within the second degree by affinity or consanguinity, as determined under Chapter 573, to an individual seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the City Council; (3) require the qualified representative of any business organization (defined by the Texas Public Funds Investment Act as an investment pool or investment management firm under contract with an investing entity to invest or manage the entity’s investment portfolio that has accepted authority granted by the entity under the contract to exercise investment discretion in regard to the investing entity’s funds) offering to engage in an investment transaction with the City to: (a) receive and review the City’s investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) perform an annual audit of the management controls on investments and adherence to the City’s investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict its investment in mutual funds in the aggregate to no more than 15 percent of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service, and to invest no portion of bond proceeds, reserves and funds held for debt service, in mutual funds; (8) require local government investment pools to conform to the new disclosure, rating, net asset value, yield calculation, and advisory board requirements; (9) adopt an ordinance or resolution stating that it has reviewed its investment policy and investment strategies and records any changes made to either its investment policy or investment strategy in the said ordinance or resolution; and (10) at least annually review, revise and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City.

TABLE 12 - CURRENT INVESTMENTS

As of March 31, 2019, the City's investable funds were invested in the following categories:

Carrying Value Market Value Pooled investments Federal Agricultural Mortgage Corp. (Farmer Mac)$ 13,568,271 $ 13,612,844 Federal Home Loan Bank 136,527,675 137,754,103 Federal Home Loan Mortgage Association (Freddie Mac) 46,425,021 46,914,906 Texpool Investment Pool 100,627,017 100,627,017 TexStar Investment Pool 102,307,194 102,307,194 Treasury bill (T-bill) 89,878,215 90,700,841 Subtotal$ 489,333,393 $ 491,916,905 Supplemental Benefit Plan (SBP) United States Treasury Notes$ 1,581,008 $ 1,581,008 Common Stocks 32,537,364 32,537,364 Alternative Investment/Hedge Fund 17,453,159 17,453,159 Mutual Funds 4,092,010 4,092,010 Corporate Bonds 6,094,522 6,094,522 Subtotal 61,758,062 61,758,062 Total$ 551,091,455 $ 553,674,967

SELECTED PROVISIONS OF THE ORDINANCE

The City Council will adopt separate Ordinance (the "Ordinance") authorizing the Bonds selected provisions of which are shown below:

“Additional New Lien Bonds” means the additional parity revenue bonds permitted to be issued by the Ordinance.

“Bond” or “Bond” means any of the Series 2019 authorized to be issued pursuant to the Ordinance.

“Bondholder” or “Holder” or “Owner” means the person who is the registered owner of a Bond or Bonds.

“Bonds” or “Bonds” means the City of Irving, Texas, Waterworks and Sewer System New Lien Revenue Improvement Bonds, Series 2019.

“Business Day” means any day other than a Saturday, Sunday or legal holiday or other day on which banking institutions in the State of Texas are generally authorized or obligated by law or executive order to close.

“Closing Date” means the date of the initial delivery of and payment for the Bonds.

“Code” means the Internal Revenue Code of 1986, as amended, and, with respect to a specific section thereof, such reference shall be deemed to include (a) the Regulations promulgated under such section, (b) any successor provision of similar import hereinafter enacted, (c) any corresponding provision of any subsequent Internal Revenue Code, and (d) the regulations promulgated under the provisions described in (b) and (c).

“Credit Facility” means (i) a policy of insurance or a surety bond, issued by an issuer of policies of insurance insuring the timely payment of debt service on governmental obligations, provided that a rating agency having an outstanding rating on such obligations would rate such obligations which are fully insured by a standard policy issued by the issuer in its two highest generic rating categories for such obligations; and (ii) a letter or line of credit issued by any financial institution, provided that a rating agency having an outstanding rating on the Bonds would rate the Bonds in its two highest generic rating categories for such obligations if the letter or line of credit proposed to be issued by such financial institution secured the timely payment of the entire principal amount of the Bonds and the interest thereon.

“Debt Service” means, as of any particular date of computation, with respect to any obligations and with respect to any period, the aggregate of the amounts required to be paid or set aside by the City as of such date or in such period for the payment of the principal of, premium, if any, and interest (to the extent not capitalized) on such obligations; assuming, in the case of obligations without a fixed numerical rate, that such obligations bear, or would have borne, interest at a rate equal to the greater of: (i) the actual rate in effect on the date of calculation, (ii) the average variable rate for the 12 months preceding the date of calculation if the outstanding obligations were subject to a variable rate during such 12 month period or (iii) (1) if interest on the indebtedness is excludable from gross income under the Code, the most recently reported Bond Buyer Revenue Bond Index rate as of the date of computation (or a comparable index if this index does not exist on such date), plus 50 basis points, or (2) if interest is not so excludable, the interest rate on direct U.S. Treasury obligations with comparable maturities, plus 50 basis points; and further assuming in the case of obligations required to be redeemed or prepaid as to principal prior to maturity, the principal amounts thereof will be redeemed prior to maturity in accordance with the mandatory redemption provisions applicable thereto.

“Designated Payment/Transfer Office” means (i) with respect to the initial Paying Agent/Registrar named herein, its office in Dallas, Texas, or at such other location designated by the Paying Agent/Registrar and (ii) with respect to any successor Paying Agent/Registrar, the office of such successor designated and located as may be agreed upon by the City and such successor.

“EMMA” means the Electronic Municipal Market Access System.

“Financial Obligation” means a (a) debt obligation; (b) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (c) guarantee of a debt obligation or any such derivative instrument; provided that “financial obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule.

“Gross Revenues” means all of the revenues of every nature received through the operation of the System. 31

“MSRB” means the Municipal Securities Rulemaking Board.

“New Lien Bonds” means collectively, the Bonds, the Previously Issued New Lien Bonds and any Additional New Lien Bonds issued pursuant to the Ordinance.

“New Lien Interest and Sinking Fund” means the City of Irving, Texas, Waterworks and Sewer System New Lien Revenue Bond Interest and Sinking Fund described in the Ordinance.

“New Lien Reserve Fund” means the City of Irving, Texas, Waterworks and Sewer System New Lien Revenue Bond Reserve Fund described in the Ordinance.

“New Lien Reserve Fund Obligations” means cash or investment securities of any of the type or types permitted under the Ordinance.

“New Lien Reserve Fund Requirement” means the amount which is equal to the greater of (i) .50 multiplied by the average annual Debt Service on the New Lien Bonds plus any Additional New Lien Bonds or (ii) .333 multiplied by the maximum annual Debt Service on the New Lien Bonds plus any Additional Junior Lien Bonds.

“Net Revenues” means the Gross Revenues less the Operation and Maintenance Expenses.

“Operation and Maintenance Expenses” means the expenses of operation and maintenance of the System, including all salaries, labor, materials, repairs and extensions necessary to render efficient service; provided, however, that only such repairs and extensions as, in the judgment of the City Council, reasonably and fairly exercised, are necessary to keep the System in operation and render adequate service to the City and the inhabitants thereof, or might be necessary to meet some physical accident or condition that would otherwise impair the Bonds, and any Additional New Lien Bonds shall be included as Operation and Maintenance Expenses.

“Pledged Revenues” means the Net Revenues of the System.

“Previously Issued New Lien Bonds” means the bonds of the following issues of the City to be outstanding upon the issuance of the Bonds authorized:

(a) Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2009 authorized by Ordinance duly passed and adopted May 28, 2009.

(b) Waterworks and Sewer System New Lien Revenue and Refunding Bonds, Series 2011 authorized by Ordinance duly passed and adopted February 3, 2011.

(c) Waterworks and Sewer System New Lien Revenue Improvement Bonds, Series 2012 authorized by Ordinance duly passed and adopted July 15, 2012.

(d) Waterworks and Sewer System New Lien Revenue Improvement Bonds, Series 2013 authorized by Ordinance duly passed and adopted July 11, 2013.

(e) Waterworks and Sewer System New Lien Revenue Improvement Bonds, Series 2015 authorized by Ordinance duly passed and adopted June 4, 2015.

(f) Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2016 authorized by Ordinance duly passed and adopted July 21, 2016.

(g) Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2017A authorized by Ordinance duly passed and adopted March 2, 2017.

(h) Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2017B authorized by Ordinance duly passed and adopted March 2, 2017.

(i) Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2018 authorized by Ordinance duly passed and adopted June 7, 2018.

“Surplus Revenues” means those Net Revenues that are in excess of the amounts required to establish and maintain the funds as provided in the Ordinance.

“System” means the City’s Waterworks and Sanitary Sewer System, including all present and future extensions, additions, replacements and improvements thereto.

“System Fund” means the City of Irving, Texas, Waterworks and Sewer System Revenue Fund as confirmed in the Ordinance.

Security for the Bonds.

The Bonds, the Previously Issued New Lien Bonds and any Additional New Lien Bonds are and shall be equally and ratably secured by and payable from an irrevocable lien on and pledge of the Pledged Revenues.

Limited Obligations.

The Bonds, the Previously Issued New Lien Bonds and any Additional New Lien Bonds, are special obligations of the City, payable solely from the Pledged Revenues, and do not constitute a prohibited indebtedness of the City. None of the Bonds, the Previously Issued New Lien Bonds or any Additional New Lien Bonds shall ever be payable out of funds raised or to be raised by taxation.

Creation of Funds.

The following special funds shall be reaffirmed and maintained at the City’s depository bank so long as the Bonds, Previously Issued New Lien Bonds or Additional New Lien Bonds are outstanding and unpaid; to wit:

(a) “City of Irving, Texas, Waterworks and Sewer System New Lien Revenue Bonds Interest and Sinking Fund,” herein called the “New Lien Interest and Sinking Fund;” and

(b) “City of Irving, Texas, Waterworks and Sewer System New Lien Revenue Bonds Reserve Fund,” herein called the “New Lien Reserve Fund.”

System Fund.

(a) All Gross Revenues, from day to day as collected, shall be deposited to the System Fund. The Operation and Maintenance Expenses shall be paid from the System Fund, upon approval of such payment by the City Council.

(b) The City shall transfer the Pledged Revenues from the System Fund to the New Lien Bonds Interest and Sinking Fund and the New Lien Bonds Reserve Fund at the times and in the amounts provided by the Ordinance.

Priority of Transfers to Funds.

(a) All Gross Revenues, from day to day collected, shall be deposited to the “System Fund.” Moneys on deposit in the System Fund shall first be used to pay all Operation and Maintenance Expenses, upon approval of such payment by the City Council. Pledged Revenues shall be transferred from the System Fund to the other Funds, in the order of priority, in the manner, and in the amounts set forth below:

(i) First: In satisfaction of the requirements of the New Lien Interest and Sinking Fund in accordance with the terms and conditions of the Ordinance;

(ii) Second: In satisfaction of the requirements of the New Lien Reserve Fund in accordance with the terms and conditions of the Ordinance.

New Lien Interest and Sinking Fund.

(a) The New Lien Interest and Sinking Fund shall be used to pay principal of, premium, if any, and interest on the Bonds, the Previously Issued New Lien Bonds and Additional New Lien Bonds as such become due and payable.

(b) The City shall make the following monthly deposits of Pledged Revenues to the credit of the Interest and Sinking Fund:

(i) such amounts in equal monthly installments, commencing on the 10th day of the month immediately succeeding a Closing Date, and on the 10th day of each month thereafter, as will be sufficient to pay that portion of the Debt Service constituting interest to come due on the Bonds on the next interest payment date, less any amounts already on deposit therein for such purpose derived from the proceeds of the Bonds or from any other lawfully available sources; and

(ii) such amounts, in equal monthly installments, commencing on the 10th day of the month immediately succeeding a Closing Date, and on the 10th day of each month thereafter, as will be sufficient to pay the next maturing principal of the Bonds.

(c) In addition to the foregoing requirements, the City shall make additional deposits into the New Lien Interest and Sinking Fund at the times and in the amounts specified in any ordinance authorizing the issuance of any Additional New Lien Bonds.

New Lien Reserve Fund.

(a) The City covenants and agrees that commencing on the 10th day of the month immediately succeeding the Closing Date, and on the 10th day of each month thereafter, it will deposit to the New Lien Reserve Fund such amounts in equal monthly installments to cause the New Lien Reserve Fund Obligations in the New Lien Reserve Fund to equal the New Lien Reserve Fund Requirement within 60 months of the Closing Date. Upon issuance of Additional New Lien Bonds, it will increase, if necessary, and accumulate the amount to be deposited in the New Lien Reserve Fund in accordance with the requirements set forth in the Ordinance. For so long as the funds on deposit in the New Lien Reserve Fund are equal to amounts then required to be on deposit therein, no additional deposit need be made therein. In the event the New Lien Reserve Fund at any time contains less than the amount then required to be on deposit therein, then, subject and subordinate to making the required deposits to the credit of the New Lien Interest and Sinking Fund, the City shall deposit to the New Lien Reserve Fund from the first available Net Revenues amounts equal to such deficiency; provided, however, the City shall cause any such deficiency to be cured by making monthly installments of at least 1/24th of any such deficiency on or before the 10th day of each month following a deficiency. The money on deposit in the New Lien Reserve Fund shall be used solely for the purpose of paying the principal of and interest on the Bonds and any Additional New Lien Bonds at any time there are not sufficient moneys on deposit in the New Lien Interest and Sinking Fund.

(b) The City may, at its option, withdraw all surplus in the New Lien Reserve Fund over the New Lien Reserve Fund Requirement and deposit the same in the System Fund; provided, however, that to the extent such surplus monies constitute bond proceeds, including interest and income derived therefrom, such amounts shall not be deposited to the System Fund and shall only be used for the purposes for which bond proceeds may be used.

(c) For the purpose of determining compliance with the requirements of subsection (a) of this Section, New Lien Reserve Fund Obligations shall be valued each year as of the last day of the City's fiscal year at their cost or market value, whichever is lower, except that any direct obligations of the United States (State and Local Government Series) held for the benefit of the New Lien Reserve Fund in book-entry form shall be continuously valued at their par value or face principal amount.

(d) To the extent permitted by, and in accordance with applicable law, the City may substitute a Credit Facility for cash or investment securities on deposit in the New Lien Reserve Fund or in substitution or replacement of any existing Credit Facility. Upon such replacement or substitution, cash or investment securities of any of the types permitted by the Ordinance, on deposit in the New Lien Reserve Fund which, taken together with the face amount of any existing Credit Facilities, are in excess of the New Lien Reserve Fund Requirement may be withdrawn by the City, at its option, and transferred to the System Fund; provided that the face amount of any Credit Facility may be reduced at the option of the City in lieu of such transfer. However, to the extent such surplus monies constitute bond proceeds, including interest and income derived therefrom, such amounts shall not be deposited to the System Fund and shall only be used for the purposes for which bond proceeds may be used. Any interest due on any reimbursement obligation under the Credit Facility shall not exceed the highest lawful rate of interest which may be paid by the City.

(e) If the City is required to make a withdrawal from the New Lien Reserve Fund for any of the purposes described in this Section, the City shall promptly notify the issuer of such Credit Facility of the necessity for a withdrawal from the New Lien Reserve Fund for any such purposes, and shall make such withdrawal first from available moneys or 34

investment securities then on deposit in the New Lien Reserve Fund, and next from a drawing under any Credit Facility to the extent of such deficiency. In the event that on the date of termination or expiration of any Credit Facility there is not on deposit in the New Lien Reserve Fund sufficient New Lien Reserve Fund Obligations, equal to the New Lien Reserve Fund Requirement, then, after making required deposits to the New Lien Interest and Sinking Fund, the City shall deposit to the New Lien Reserve Fund from the first available Net Revenues amounts necessary to satisfy the New Lien Reserve Fund Requirement; provided, however, the City shall cause any such deficiency to be cured by making monthly installments of at least 1/24th of the New Lien Reserve Fund Requirement on or before the 10th day of each month following such deficiency.

(f) In the event of the redemption or defeasance of any of the outstanding Bonds, the Previously Issued New Lien Bonds, or Additional New Lien Bonds, any New Lien Reserve Fund Obligations on deposit in the New Lien Reserve Fund in excess of the New Lien Reserve Fund Requirement may be withdrawn and transferred, at the option of the City, to the System Fund, as a result of (i) the redemption of the outstanding Bonds or Additional New Lien Bonds, or (ii) funds for the payment of the outstanding Bonds or Additional New Lien Bonds having been deposited irrevocably with the paying agent or place of payment therefor in the manner described in the Ordinance, the result of such deposit being that such outstanding Bonds or Additional New Lien Bonds no longer are deemed to be outstanding under the terms of the Ordinance. However, to the extent such surplus monies constitute bond proceeds, including interest and income derived therefrom, such amounts shall not be deposited to the System Fund and shall only be used for the purposes for which bond proceeds may be used.

(g) In the event there is a draw upon the Credit Facility, the City shall reimburse the issuer of such Credit Facility for such draw in accordance with the terms of any agreement pursuant to which the Credit Facility is issued from Pledged Revenues; however, such reimbursement from Pledged Revenues shall be subject to the provisions of subparagraph (f) hereof, and shall be subordinate and junior in right of payment to the payment of principal of and premium, if any, and interest on the Bonds.

Deficiencies in Funds.

If in any month the City shall, for any reason, fail to deposit into any Fund hereinabove created or reaffirmed the full amounts required to be deposited therein, amounts equivalent to such deficiencies shall be set apart and deposited to those funds from the first available and unallocated revenues of the following month or months, and such deposits shall be in addition to the deposits otherwise required to be made to those funds during such month or months.

Surplus Revenues.

Surplus Revenues may be used for the prior redemption of the Bonds, the Previously Issued New Lien Bonds or any Additional New Lien Bonds, or for any lawful purpose.

Security of Funds.

All funds created or reaffirmed by the Ordinance shall be secured in the manner and to the fullest extent permitted by the laws of the State of Texas for the security of public funds, and such funds shall be used only for the purposes permitted in this Ordinance.

Construction Fund.

(a) Moneys on deposit in the Construction Fund shall be used for the purposes of making permanent public improvements for which the Bonds were issued and paying the costs and expenses incurred in connection with the delivery of the Bonds.

(b) Moneys on deposit in the Construction Fund, at the option of the City, may be invested in any securities or obligations permitted under applicable law. Income derived from the investment of the money on deposit in the Construction Fund shall be retained therein, subject to limitations contained in the Ordinance.

Excess Bond Proceeds.

Upon completion of the improvements financed with the Bonds, any amount (exclusive of that amount retained for the payment of costs of such improvements not then due and payable) that remains in the Construction Fund shall be, at the option of the City, (i) transferred to the New Lien Interest and Sinking Fund, segregated in a special escrow 35

account and invested pursuant to the Ordinance, and used to redeem Bonds at the earliest date that the City has the option to redeem Bonds without premium or penalty; or (ii) used for the purpose of making permanent public improvements to the System for which additional bonds could be issued.

Additional New Lien Bonds.

(a) The City reserves the right at any time and from time to time, and in one or more series or issues, to issue additional revenue bonds (“Additional New Lien Bonds”) payable from the Pledged Revenues in the manner provided by law. Additional New Lien Bonds, when issued, shall be payable from and equally secured by a lien on and pledge of the Pledged Revenues in the same manner and to the same extent as the Bonds, the Previously Issued New Lien Bonds and any Additional New Lien Bonds and shall in all respects be of equal dignity.

The City may issue Additional New Lien Bonds, if the following conditions have been met:

(i) the City is not then in default as to any covenant, condition or obligation prescribed by an ordinance authorizing the issuance of any bonds payable from and secured by a lien on and pledge of the Net Revenues;

(ii) either:

(A) the Net Revenues of the System for any consecutive period of 12 months of the 15 months next preceding the month of the date of the Additional New Lien Bonds then to be issued, or for the City’s completed fiscal year next preceding the date of such Additional New Lien Bonds, are equal to at least the greater of (x) 1.25 times the average annual principal and interest requirements of all bonds to be outstanding after issuance of the Additional New Lien Bonds or (y) 1.10 times the maximum annual principal and interest requirement of all bonds to be outstanding after issuance of the Additional New Lien Bonds, in either case taking into account any scheduled mandatory sinking fund requirements, as certified by a certified public accountant; or

(B)(1) the Net Revenues of the System for any consecutive period of 12 months of the 15 months next preceding the month of the date of the Additional New Lien Bonds then to be issued, or for the City’s completed fiscal year next preceding the date of such Additional New Lien Bonds, substituting water and sewer rates to be in effect after the issuance of the Additional New Lien Bonds for the actual rates in effect during such preceding 12 month period, are equal to at least the greater of (x) 1.25 times the average annual principal and interest requirements of all bonds to be outstanding after issuance of the Additional New Lien Bonds or (y) 1.10 times the maximum annual principal and interest requirement of all bonds to be outstanding after issuance of the Additional New Lien Bonds, in either case taking into account any scheduled mandatory sinking fund requirements, as certified by a certified public accountant; and

(2) certification by consulting engineer or independent rate consultant that, based on rates to be in effect after the Additional Bonds are issued, the Net Revenues of the system for the 5-year period immediately following the delivery of such Additional Bonds, and taking into account any capitalized interest amounts, will be equal at least to the greater of (x) 1.25 times the average annual principal and interest requirements of all bonds to be outstanding after issuance of the Additional New Lien Bonds or (y) 1.10 times the maximum annual principal and interest requirement of all bonds to be outstanding after issuance of the Additional New Lien Bonds, in either case taking into account any scheduled mandatory sinking fund requirements.

Additional New Lien Bonds Reserve Fund Requirement.

Whenever Additional New Lien Bonds are issued, the amount to be accumulated and maintained in the New Lien Reserve Fund shall be increased to an amount equal to the New Lien Reserve Fund Requirement for all New Lien Bonds to be outstanding after the issuance of the Additional New Lien Bonds. Such additional amount shall be so accumulated in equal monthly installments during a period not to exceed five years from the date of the Additional New Lien Bonds.

New Lien Bonds.

The City reserves the right to issue, as authorized by law, bonds of inferior lien that are junior and subordinate in right and lien to the Bonds and any Additional New Lien Bonds.

Making and Collecting Rates and Charges.

The City covenants, reaffirms and agrees with the holders of the Bonds, the Previously Issued New Lien Bonds and any Additional New Lien Bonds that:

(i) the City at all times will charge and collect for services rendered by the System rates sufficient: (A) to pay all operating, maintenance, depreciation, replacement and betterment expenses, and any other costs deductible in determining Net Revenues;

(B) to pay the interest on and the principal of the Bonds and the Previously Issued New Lien Bonds; and

(ii) if any Additional New Lien Bonds are issued, or if the System becomes legally liable for any other indebtedness, the City will fix and maintain rates and collect charges for the services of the System sufficient to discharge such indebtedness.

Maintenance and Operation of System; Insurance.

The City covenants, reaffirms and agrees to maintain the System in good condition and to operate the System in an efficient manner and at a reasonable cost.

(a) So long as any of the Bonds, the Previously Issued New Lien Bonds or any Additional New Lien Bonds are outstanding, the City agrees to maintain, for the benefit of the holder or holders of such bonds, insurance on the System of a kind and in an amount that usually would be carried by private companies engaged in a similar type of business.

(b) Nothing in the Ordinance shall be construed as requiring the City to expend any funds that are derived from sources other than the operation of the System, but nothing therein shall be construed as preventing the City from doing so.

Records and Accounts.

The City hereby covenants, reaffirms and agrees that it has installed and that, so long as any of the Bonds or any interest thereon remain outstanding and unpaid, it will keep proper books of records and accounts (separate from all other records and accounts of the City) in which complete and correct entries shall be made of all transactions relating to the System.

System Fiscal Year.

The System shall be operated on the basis of a fiscal year commencing October 1 in each year, continuing through and ending September 30 of the following year.

Other Representations and Covenants.

The Ordinance confirms the following covenants and representations.

(a) The City has the lawful power to pledge the Pledged Revenues and has lawfully exercised said power under the Constitution and laws of the State of Texas, including said power existing under Chapter 1502, Texas Government Code.

(b) The City covenants that the Bonds, the Previously Issued New Lien Bonds and any Additional New Lien Bonds, shall be ratably secured under the pledge of the Pledged Revenues in such manner that no one bond shall have preference over any other bond.

(c) The City covenants and represents that, other than for payment of the Bonds, the Previously Issued New Lien Bonds, the rents, revenues, and income of the System have not in any manner been pledged to the payment of any debts or obligation of the City or of the System.

(d) The City covenants that so long as any of the Bonds or the Previously Issued New Lien Bonds remain outstanding, the City will not sell or encumber the System or any substantial part thereof, and that, with the exception of any 37

Additional New Lien Bonds, it will not encumber any revenue thereof unless such encumbrance is made junior and subordinate to the provisions of the Ordinance.

(e) The City covenants that no free service of the System will be allowed and that, should the City or any of its agencies or instrumentalities make use of the services and facilities of the System, payment of the reasonable value thereof shall be made by the City from sources other than the revenues and income of the System.

(f) To the extent that it legally may do so, the City covenants, reaffirms and agrees that, so long as any of the Bonds, the Previously Issued New Lien Bonds or any Additional New Lien Bonds or any interest thereon are outstanding, no franchise shall be granted for the installation or operation of any competing waterworks or sewer systems and that the City will prohibit the operation of any water or sewer system other than the System. The operation of any such system by anyone other than this City is hereby prohibited.

(g) The City covenants that any water customers delinquent for more than 90 days in payment of water charges shall be disconnected from the System until such delinquent charges and penalties have been paid.

(h) To the extent that it legally may do so, the City covenants, reaffirms and agrees that, so long as any of the Bonds, the Previously Issued New Lien Bonds or any Additional New Lien Bonds or any interest thereon are outstanding, the City will not impose any tax or excise on the purchasers of water or any tax or excise measured by the amounts of water so used or by the amounts of the bills payable for water so used.

Default and Remedies.

In addition to all the rights and remedies provided by the laws of the State of Texas, the City covenants and agrees that, in the event the City (i) defaults in the timely payment of principal of or interest on any of the Bonds, (ii) fails to make any deposit required by the Ordinance to be made to the New Lien Interest and Sinking Fund or the New Lien Reserve Fund or (iii) defaults in the observance or performance of any other covenant, condition or obligation set forth in the Ordinance, any Bondholder shall be entitled to a writ of mandamus issued by a court of proper jurisdiction compelling and requiring the City Council and all other officers of the City to observe and perform such covenant, condition or obligation. No delay or omission to exercise any right or power accruing upon any default under the Ordinance shall impair any such right or power or shall be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient.

TAX MATTERS

TAX EXEMPTION

In the opinion of Bracewell LLP, Bond Counsel, under existing law (i) interest on the Bonds is excludable from gross income for federal income tax purposes and (ii) the Bonds are not “private activity bonds” under the Internal Revenue Code of 1986, as amended (the "Code"), and, as such, interest on the Bonds is not subject to the alternative minimum tax on individuals.

The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds and the source of repayment of bonds, limitations on the investment of bond proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of bond proceeds be paid periodically to the United States and a requirement that the issuer file an information report with the Internal Revenue Service (the “Service”). The City has covenanted in the Ordinance that it will comply with these requirements.

Bond Counsel’s opinion will assume continuing compliance with the covenants of the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes and, in addition, will rely on representations by the City, the City’s Financial Advisor and the Underwriters with respect to matters solely within the knowledge of the City, the City’s Financial Advisor and the Underwriters, respectively, which Bond Counsel has not independently verified. If the City fails to comply with the covenants in the Ordinance or if the foregoing representations are determined to be inaccurate or incomplete, interest on the Bonds could become includable in gross income from the date of delivery of the Bonds, regardless of the date on which the event causing such inclusion occurs.

Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Bonds.

Bond Counsel’s opinions are based on existing law, which is subject to change. Such opinions are further based on Bond Counsel’s knowledge of facts as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinions to reflect any facts or circumstances that may thereafter come to Bond Counsel’s attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, Bond Counsel’s opinions are not a guarantee of result and are not binding on the Service; rather, such opinions represent Bond Counsel’s legal judgment based upon its review of existing law and in reliance upon the representations and covenants referenced above that it deems relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures, the Service is likely to treat the City as the taxpayer and the Owners may not have a right to participate in such audit. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds regardless of the ultimate outcome of the audit.

ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS

COLLATERAL TAX CONSEQUENCES . . . Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, low and middle income taxpayers otherwise qualifying for the health insurance premium assistance credit and individuals otherwise qualifying for the earned income credit. In addition, certain foreign corporations doing business in the United States may be subject to the “branch profits tax” on their effectively connected earnings and profits, including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Prospective purchasers of the Bonds should also be aware that, under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Bonds, received or accrued during the year.

TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE PREMIUM . . . The issue price of all or a portion of the Bonds may exceed the stated redemption price payable at maturity of such Bonds. Such Bonds (the “Premium Bonds”) are considered for federal income tax purposes to have “bond premium” equal to the amount of such excess. The basis of a Premium Bond in the hands of an initial owner is reduced by the amount of such excess that is amortized during the period such initial owner holds such Premium Bond in determining gain or loss for federal income tax purposes. This reduction in basis will increase the amount of any gain or decrease the amount of any loss recognized for federal income tax purposes on the sale or other taxable disposition of a Premium Bond by the initial owner. No corresponding deduction is allowed for federal income tax purposes for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Bond that is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Bond) is determined using the yield to maturity on the Premium Bond based on the initial offering price of such Premium Bond.

The federal income tax consequences of the purchase, ownership and redemption, sale or other disposition of Premium Bonds that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described above. All owners of Premium Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of amortized bond premium upon the redemption, sale or other disposition of a Premium Bond and with respect to the federal, state, local, and foreign tax consequences of the purchase, ownership, and sale, redemption or other disposition of such Premium Bonds.

TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT BONDS . . . The issue price of all or a portion of the Bonds may be less than the stated redemption price payable at maturity of such Bonds (the "Original Issue Discount Bonds"). In such case, the difference between (i) the amount payable at the maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Bonds. Generally, such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such 39

Original Issue Discount Bond continues to be owned by such owner. Because original issue discount is treated as interest for federal income tax purposes, the discussions regarding interest on the Bonds under the captions “TAX MATTERS - TAX EXEMPTION” and “TAX MATTERS - ADDITIONAL FEDERAL INCOME TAX CONSIDERATIONS - Collateral Tax Consequences” generally apply, and should be considered in connection with the discussion in this portion of the Official Statement.

In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income.

The foregoing discussion assumes that (i) the Underwriters have purchased the Bonds for contemporaneous sale to the public and (ii) all of the Original Issue Discount Bonds have been initially offered, and a substantial amount of each maturity thereof has been sold, to the general public in arm's-length transactions for a price (and with no other consideration being included) not more than the initial offering prices thereof stated on the inside cover page of this Official Statement. Neither the City nor Bond Counsel has made any investigation or offers any comfort that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions.

Under existing law, the original issue discount on each Original Issue Discount Bond accrues daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to (i) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (ii) the amounts payable as current interest during such accrual period on such Bond.

The federal income tax consequences of the purchase, ownership, and redemption, sale or other disposition of Original Issue Discount Bonds that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state, and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds.

TAX LEGISLATIVE CHANGES . . . Public Law No. 115-97 (i.e., Tax Cuts and Jobs Act), which makes significant changes to the Code, including changing certain provisions affecting tax-exempt bonds, such as the Bonds, was signed into law on December 22, 2017. Further, current law may change so as to directly or indirectly reduce or eliminate the benefit of the excludability of interest on the Bonds from gross income for federal income tax purposes. Any proposed legislation, whether or not enacted, could also affect the value and liquidity of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors with respect to any recently-enacted, proposed, pending or future legislation.

CONTINUING DISCLOSURE OF INFORMATION

In the respective Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to the Municipal Securities Rulemaking Board (the “MSRB”). The information will be available free of charge from the MSRB via the Electronic Municipal Market Access System (“EMMA”) at www.emma.msrb.org. This information will be available to securities brokers and others who subscribe to receive the information from the vendors.

ANNUAL REPORTS . . . The City shall provide annually to the MSRB, (1) within six months after the end of each fiscal year of the City, financial information and operating data with respect to the City of the general type included in the final Official Statement, being information of the type included in Tables 1-12 thereof, and (2) if not provided as part such financial information and operating data, audited financial statements of the City within 12 months after the end 40

of the fiscal year, when and if available. Any financial statements so to be provided shall be (i) prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the City may be required to employ, from time to time, by State law or regulation, and (ii) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within 12 months after any such fiscal year end, then the City shall file unaudited financial statements within such 12-month period and audited financial statements for the applicable fiscal year, when and if the audit report on such statements becomes available.

The financial information and operating data to be provided may be set forth in one or more documents or may be included by specific reference to any document available to the public on the MSRB’s internet web site or filed with the United States Securities and Exchange Commission (the “SEC”), as permitted by SEC Rule 15c2-12 (the “Rule”).

The City’s current fiscal year end is September 30. Accordingly, updated financial information and operating data included in the above-referenced Tables must be provided by March 31 in each year, and audited financial statements for the preceding fiscal year (or unaudited financial statements if the audited financial statements are not yet available) must be provided by September 30 of each year, unless the City changes its fiscal year. If the City changes its fiscal year, it will notify the MRSB of the change.

MATERIAL EVENT NOTICES . . . The City shall notify the MSRB, in a timely manner not in excess of ten (10) business days after the occurrence of the event, of any of the following events with respect to the Bonds: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults, if material; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of credit or liquidity providers, or their failure to perform; (6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Bonds, if material; (11) Rating changes; (12) Bankruptcy, insolvency, receivership or similar event of the City; (13) The consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) Appointment of a successor or additional Paying Agent/Registrar or change in the name of the Paying Agent/Registrar, if material; (15) Incurrence of a Financial Obligation of the City, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the City, any of which affect security holders, if material; and (16) Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the City, any of which reflect financial difficulties. In addition, the City will provide timely notice of any failure by the City to provide annual financial information in accordance with their agreement described above under “Annual Reports.”

For these purposes, (A) any event described in the immediately preceding clause (12) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets of business of the City, and (B) the City intends the words used in clauses (15) and (16) in the immediately preceding paragraph and in the definition of Financial Obligation to have the meanings ascribed to them in SEC Release No. 34-83885 dated August 20, 2018. The Ordinance defines “Financial Obligation” as a (a) debt obligation; (b) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (c) guarantee of a debt obligation or any such derivative instrument; provided that “financial obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule.

AVAILABILITY OF INFORMATION . . . The City has agreed to provide the foregoing information only as described above. Investors will be able to access continuing disclosure information filed with the MSRB at www.emma.msrb.org.

LIMITATIONS AND AMENDMENTS . . . The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the City to comply with its agreement.

The City may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the SEC Rule 15c2-12 or a court of final jurisdiction enters judgment that such provisions of the SEC Rule 15c2-12 are invalid, but only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds. If the City so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided.

COMPLIANCE WITH PRIOR UNDERTAKINGS . . . With respect to the City’s General Obligation debt, Table 1 – Valuations, Exemptions and General Obligation Debt was inadvertently omitted when the financial information and operating data was filed on March 31, 2015 for the City’s fiscal year ended September 30, 2014 as part of the City’s continuing disclosure obligation. The City filed a Material Event Notice with respect to the omission of such information on May 20, 2015, but did not file the missing table information along with the Material Event Notice. The missing information was filed along with a Material Event Notice on March 1, 2017.

The City’s Waterworks and Sewer System New Lien Revenue Bond rating was downgraded from Aa1 to Aa2 by Moody’s Investors Service on July 6, 2016. Notice of the downgrade was not filed until August 29, 2016, which was not timely in accordance with the City’s continuing disclosure obligations. The City failed to file a Material Event Notice along with the August 29, 2016 rating downgrade filing. The City filed the Material Event Notice related to the downgrade on February 23, 2017.

OTHER INFORMATION

RATINGS

The Bonds have been assigned ratings of “Aa2” by Moody’s Investors Service, Inc. (“Moody’s”) and “AA+” by Standard & Poor’s Ratings Service, a Standard & Poor's Financial Services LLC business (“S&P”). An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either of such rating companies, if in the judgment of either company, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Bonds.

LITIGATION

It is the opinion of the City Attorney and City Staff that there is no other pending litigation against the City that would have a material adverse financial impact upon the City or its operations. In addition, the City is not a party to any litigation or other proceeding pending or to its knowledge threatened in any court, agency, or other administrative body relating to or potentially affecting the issuance of, or security for, the Bonds.

REGISTRATION AND QUALIFICATION OF BONDS FOR SALE

The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2). The Bonds have not been approved or disapproved by the SEC, nor has the SEC passed upon the accuracy or adequacy of the Official Statement. The Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions.

LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS

Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Bonds are negotiable instruments governed by Chapter 8, Texas Business and Commerce Code, and are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State of Texas. With respect to investment in the Bonds by municipalities or other political subdivisions or public agencies of the State of Texas, the Public Funds Investment Act, Chapter 2256, Texas Government Code, requires that the Bonds be assigned a rating of not less than "A" or its equivalent as to investment quality by a national rating agency. See "OTHER INFORMATION - Ratings" herein. In addition, various provisions of the Texas Finance Code provide that, subject to a prudent investor standard, the Bonds are legal investments for state banks, savings banks, trust companies with capital of one million dollars or more, and savings and loan associations. The Bonds are eligible to secure deposits of any public funds of the State, its agencies, and its political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states.

LEGAL MATTERS

The City will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Bonds, including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Bond and to the effect that the Bonds are valid and legally binding obligations of the City, and based upon examination of such transcript of proceedings, the approving legal opinions of Bond Counsel, Bracewell LLP, Dallas, Texas, to like effect and to the effect that, under existing law, the interest on the Bonds will be excludable from gross income for federal income tax purposes and the Bonds are not private activity bonds, subject to the matters described under “TAX MATTERS” herein. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to retrain the issuance and delivery of the Bonds, or which would affect the provision made for their payment or security, or in any manner questioning the validity of said Bonds will also be furnished. Certain legal matters will be passed upon for the City by Bracewell LLP, as Disclosure Counsel. The legal fees to be paid Bond Counsel and Disclosure Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion of Bond Counsel will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the Book-Entry-Only System.

The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.

AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION

The financial data and other information contained herein have been obtained from City records, audited financial statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. 43

FINANCIAL ADVISOR

Hilltop Securities Inc. is employed as Financial Advisor to the City in connection with the issuance of the Bonds. The Financial Advisor's fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. Hilltop Securities Inc., in its capacity as Financial Advisor, does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies.

The Financial Advisor to the City has provided the following sentence for inclusion in this Official Statement. The Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to the City and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information.

Initial Purchaser of the Bonds

After requesting competitive bids for the Bonds, the City accepted the bid of ______(the "Initial Purchaser of the Bonds") to purchase the Bonds at the interest rates shown on page 3 of the Official Statement at a price of par plus a cash premium of $______. The Initial Purchaser of the Bonds can give no assurance that any trading market will be developed for the Bonds after their sale by the City to the Initial Purchaser of the Bonds. The City has no control over the price at which the Bonds are subsequently sold and the initial yield at which the Bonds will be priced and reoffered will be established by and will be the responsibility of the Initial Purchaser of the Bonds.

FORWARD-LOOKING STATEMENTS DISCLAIMER

The statements contained in this Official Statement, and in any other information provided by the City, that are not purely historical, are forward-looking statements, including statements regarding the City's expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the City on the date hereof, and the City assumes no obligation to update any such forward-looking statements. The City's actual results could differ materially from those discussed in such forward-looking statements.

The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate.

CERTIFICATION OF THE OFFICIAL STATEMENT

At the time of payment for and delivery of the Bonds, the City will furnish a certificate, executed by proper officers, acting in their official capacity, to the effect that to their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in its Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of said Bonds and the acceptance of the best bid therefor, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities, other than the City, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (d) there

has been no material adverse change in the financial condition of the City since the date of the last audited financial statements of the City.

The Ordinance authorizing the issuance of the Bonds will also approve the form and content of this Official Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Purchasers.

Mayor City of Irving, Texas ATTEST:

City Secretary

SCHEDULE I

Wastewater and Sewer System Revenue Refunding and Improvement Bonds, Series 2009

Original Principal Remaining Original Maturity Interest Amount Amount Dated Date Date Rates Refunded Outstanding 5/15/2009 8/15/2020 4.000%$ 680,000 $ - 8/15/2021 4.000% 710,000 - 8/15/2022 4.000% 740,000 - 8/15/2023 4.250% 765,000 - 8/15/2024 4.250% 800,000 - 8/15/2025 4.375% 835,000 - 8/15/2026 4.500% 870,000 - 8/15/2027 4.500% 910,000 - 8/15/2028 4.625% 950,000 - 8/15/2029 4.750% 995,000 - $ 8,255,000 $ -

The 2020-2029 maturities will be redeemed prior to maturity on September 17, 2019 at 100% of par.

APPENDIX A

GENERAL INFORMATION REGARDING THE CITY

THE CITY

Largest Employers in Irving 2019 (by number of employees)

1000 and over Vizient Verizon Communications Inc Citigroup Allstate Insurance Co YRC Freight Baylor Scott & White Medical Center - Irving Neiman Marcus Group Inc City of Irving Irving ISD DFW Int'l Airport Administration Building (D/FW Airport Board) 7-Eleven Microsoft Corporation – Las Colinas Cognizant Abbott Laboratories North Lake College Christus Health (Corporate Office)

500 – 999 Aegis Communications Group Inc Aviall Services Inc Computer Science Corporation Commercial Metals Company CVS Caremark Corporate Office Northrop Grumman Integrated Systems (Financial Service Zales Corp Center) Four Seasons Hotel Mantek Prime Therapeutics LLC Fedex DTC Certified Labs Chemsearch Corp Luminant Corporate Office Ace Cash Express Inc Nissan Motor Acceptance Corp Fedex Freight Sprint Dr Pepper Snapple Group Frito-Lay Inc MMC Group LP Michael's Stores Humana Liberty Mutual NCH Corp Epsilon BancTec AT&T University of Dallas Cigniti Inc AT&T Center for Learning U S Citizenship & Immigration Services Caris Life Sciences FedEx

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Housing ANNUAL HOUSING TOTALS ‐ NCTCOG* & CENSUS 2000 1990 Census Censu 2001* 2002* 2003* 2004* 2005* 2006* 2007* 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018* Single Family 29,140 32,783 33,050 33,557 33,849 34,212 34,572 34,955 35,377 35,810 36,168 36,465 40,636 40,834 41,077 41,390 41,726 42,093 42,609 43,261 Multifamily 40,027 46,333 47,234 48,308 48,308 48,308 48,308 49,224 50,116 51,467 51,938 52,225 49,292 49,421 49,936 50,576 50,598 51,046 52,109 52,554 Other 1,892 1,177 1,193 1,193 1,193 1,193 1,186 1,186 1,186 1,186 1,186 1,194 1,439 1,439 1,439 1,439 1,441 1,441 1,442 1,442 Total 71,059 80,293 81,477 83,058 83,350 83,713 84,066 85,365 86,679 88,463 89,292 89,884 91,367 91,694 92,452 93,405 93,765 94,580 96,160 97,257

*The totals from 2001 to 2009 and 2011 to 2017 are based on yearly estimates from the North Central Texas Council of Governments (NCTCOG) for January 1st of the stated year. These numbers are generated by adding new construction, reported by Building Inspections, to the 2000 Census totals. 1990, 2000, and 2010 recalibration are all Decennial Census numbers Housing types included in each category: Single Family-one family detached and duplexes Multifamily-three or more separate units in structures, such as apartments, townhouses, and condominiums Other- mobile home, trailer, houseboat, etc

The City maintains strict zoning practices that comply with generally accepted standards of health, safety and general welfare. The City requires construction to conform with the most recent standards of electrical, heating, air- conditioning, plumbing, masonry, framing and cement work. All private construction must pass City building inspections.

Economic Indices Calendar Various Data Year Building Permits 2018 918,698,933 2017 1,244,443,995 2016 787,767,416 2015 724,474,090 2014 525,783,143 2013 701,565,965

City of Irving Land Area Statistics

City of Irving Land Area Statistics Acreage Sq.Miles Total Area 43,429 67.9 Airport 6,054 9.5 Total Area Net of Airport 37,375 58.4

Developed Area (less Airport) 32,893 51.4

Total Undeveloped Area (less airport, includes floodplain) 4,481 7.0 Percentage Area Developed Net of Airport 88%

Percentage Area Undeveloped Net of Airport 12%

In keeping with its character as a modern, well-planned City, Irving's government center, where most administrative departments are located, is situated on a well landscaped tract that is easily accessible to the citizens it serves. The nearby Irving Criminal Justice Center houses Police and a Dallas County Branch Courthouse.

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The City is governed by a council-manager form of government. Candidates for election as councilperson and mayor are independent and non-partisan. They receive token remuneration. The Mayor and Council set policy, but the administration is directed by the City Manager.

An annual budget is prepared by the City staff and presented by the City Manager to the City Council for approval and adoption after public hearings. Expenditures and bonds of the City for the ensuring fiscal year are reflected in said annual budget and amendments thereto from time to time.

More than one hundred churches are located in Irving, representing almost all faiths. There are more than one hundred civic, service, professional and fraternal organizations. A partnership with Dallas County, Parkland Hospital and the Baylor HealthCare System saw the opening of a Community-Oriented Primary Care Clinic in south Irving, providing low to moderate income residents with a wide range of primary and preventive healthcare services, easing the strain of area emergency rooms.

Civic Facilities

The City of Irving is dedicated to constructing high quality work and ensuring the contractors who perform the work do so at the highest standards and efficiencies. To support this effort the City implemented the Construction Manager at Risk policy that is a quality based selection process for selecting the best contractor for the job, rather than settling for the lowest bidder. The contractor is brought on the project team early in the design phase so that he can collaborate with the design team to come up with more cost effective means of constructing the project, minimizing change orders and reducing the overall cost of the project. Another benefit of having the contractor early in the design phase is that as soon as the design is complete for certain elements, the contractor can begin construction while the design of remaining elements of the project are being completed, speeding up the completion time of the overall project.

Animal Shelter

The construction of 23,800 square foot animal shelter to replace the existing facility was completed in March 2010. The facility includes adoption and holding areas for dogs and cats, as well as play yards for the dogs and spacious kennels for the cats. The facility also has a veterinary clinic to provide spay/neuter and medical treatment for shelter animals. The facility is shared with DFW Humane Society, providing a unique partnership and an opportunity to increase the overall live release rate. This project replaced the existing 6,000 square foot animal shelter which was outdated and overcrowded. The City Council adopted a policy to increase the live release rate and the new facility has been designed to provide a new, user friendly shelter which has increased opportunities for residents to adopt animals.

On August 16, 2014, Irving Animal Services and the DFW Humane Society coordinated the “Empty the Shelter” pet adoption campaign with 31 other animal shelters from across North Texas. Pet adoption fees were waived to encourage adoptions. Over 2,200 animals were adopted including over 150 pets at the Irving Animal Care Campus. In 2015, NBC Universal stations from across the country participated and the event has occurred annually ever since. Over 256,000 animals have been adopted from more than 700 animal shelters nationwide.

In 2018, an Animal Services Volunteer Coordinator was added to the department to improve our level of care and reduce euthanasia. The additional volunteers and foster homes has enabled us to reach a 92% live release rate, our highest ever!

Irving Public Library System

The Irving Public Library System consists of three full-service, stand-alone libraries: South Irving, West Irving and Valley Ranch and one smaller neighborhood branch library, East. Bond funds from the 1999 program funded the 26,000 sq. ft. Valley Ranch Library that opened in October 2007. The City’s 2006 Bond Program included $18.2 million for land acquisition and construction of the South Irving and West Irving libraries.

The Library offers special programs for all ages, including an active Summer Reading Challenge that attracts more than 6,000 participants each year. Special programs include monthly cultural programs that explore all of the arts,

A-3 preschool hands-on science activities, computer classes, book clubs and programs for early childhood literacy. The One Book/One Irving, a community-wide initiative to encourage reading for pleasure, involves multiple community partners and averages over 8,000 participants each year.

Since 2015 the Library sponsored the annual North Texas Teen Book Festival at the Irving Convention Center. The largest free event of its kind in the nation brings together educators and fans of middle grade and young adult literature. In 2019 the Educator Day workshop, held the day before the festival, was attended by 750 teachers and librarians and over 14,000 fans enjoyed panels and met over 80 authors at the festival.

In addition to a print and AV collection of over 500,000 items, the Library maintains a substantial number of subscriptions to online research services, and provides access to e-books, electronic periodicals, downloadable or streaming music, movies and audiobooks. Online services for adults include language learning and academic test preparation services, technology courses through Lynda.com, as well as assistance with job interviewing and resume- writing.

The Friends of the Irving Public Library provide support to the Library through used book sales throughout the year. Library customers benefit from the fundraising efforts of the Friends with additional funding for new materials, equipment, and support for library programs and services.

The South Irving Library, located at 601 Schulze Drive, opened on March 23, 2015 with 52,670 square feet at a cost of $12.7 million. The new library includes areas for the adult, genealogy, teen and children's collections, three staffed service desks, a computer lab, reading room, an early learning center, conference rooms and a large group meeting room that can be divided into four smaller rooms. The library’s technology includes energy saving self-darkening glass; a digital creation space; and digital displays. The South Irving Library replaces the aging Central Library building, which continues to house the Irving Archives, library administration and technical services staff.

West Irving Library is a 25,000 square foot state of the art, net-zero library. This library, located at 4444 West Rochelle, near the corner of Rochelle and Esters Road, had a construction cost of $6.4 million and opened in April of 2011. The library includes areas for the adult, teen, and children's book collections. It features a 24-station computer lab, quiet reading room, group meeting room, 4 small conference rooms and a children's story time room. An outdoor reading patio is situated along the northwest end of the building. The facility received LEED Gold Certification, with geothermal energy for the heating and cooling of the entire structure, and additional electric capacity provided by solar panels.

When the Valley Ranch Library was constructed in 2007, a 5,000 square foot shell remained unfinished. The space was finished out and incorporated into the operations of the library in March 2014. In addition to space for collections, the 26,000 square foot facility includes two quiet reading rooms, a digital makerspace; four small conference rooms, computers for adults, children and teens; a program room and a coffee shop. Over the past five years this library has become the busiest location, averaging around 50% of all items circulated within the system each month.

East Branch Library, a 4,800 square foot facility located in the Human Services building, focuses on children’s services and also partners with the Irving Independent School District to provide adult literacy classes. The facility provides computers for adults and children, a program room, a quiet reading room and includes a collection of Spanish- language materials.

The three full services libraries (South, Valley Ranch and West) are open 64 hours each week; East is open 38 hours per week. All locations with the exception of East Branch are open 7 days a week, including Sunday from 1-5 p.m.

Higher Education

The University of Dallas, a private Roman Catholic institution offering bachelor and graduate degrees, is located on a 750-acre campus in the City. It offers a strong liberal arts program of over 50 undergraduate fields of study, 23 in master level and 5 in the Ph.D. level and a large graduate school of management. Within the boundaries of the campus are a Cistercian Preparatory School, Cistercian Monastery, Dominion Priory and the Holy Trinity Seminary. The Braniff Graduate Building, with its Willmore Kendall Study, is a focal point of graduate research and study. The

A-4 school cooperates with cultural and civic groups in Irving in making its programs and facilities available to them. The University has an enrollment of over 3,000 students.

North Lake College of the Dallas County Community College District opened its $21,000,000 campus in Irving in 1977. The 276-acre campus adjoins the Las Colinas industrial/residential development and is east of the Dallas/Fort Worth Airport. The multi-level campus has buildings that follow the contour of a hillside leading down to the lake. The roof of each level serves as a terraced walkway for students entering the levels above. North Lake College has an enrollment of approximately 12,000 students for credit courses. North Lake provides a university parallel program and a broad range of one and two year technical/occupational programs that prepare a person for entry into a chosen trade or career. In addition, North Lake operates three community campuses: North Campus in Coppell, South Campus in South Irving and a West Campus adjacent to DFW Airport.

Arts Center

In August 1980, the Irving City Council established the City of Irving Arts Board, which was charged with the responsibility of encouraging and supporting local arts activities and governance oversight of the Irving Arts Center. The work of the eleven-person Board is funded through a portion of the local hotel room occupancy tax. The Irving Arts Center boasts two well-equipped theaters; four galleries; meeting, classroom, reception and rehearsal facilities; and a beautiful sculpture garden on a ten-acre site. In April of 1986, the Arts Board opened the first phase of the Irving Arts Center. The facility was completed in 1990 with the opening of the two theaters.

The Arts Board operates a grants program providing financial assistance to organizations offering arts activities to Irving citizens and visitors. Funded activities include symphonic presentations, theatrical productions, art exhibits, youth programming, special guest artists and cultural festivals, many provided by the Center’s 10 resident art organizations.

The Arts Center has more than 91,500 square feet of performing and visual arts space, including a 719-seat concert hall (Carpenter Performance Hall), and a 251-seat theater (Dupree Theater). The Arts Center’s four gallery spaces offer more than 20 rotating exhibitions each year. The Main Gallery is a 3,800-square-foot art gallery space with 200 linear feet of wall space.

The Sculpture Garden features permanent installations by internationally renowned artists Jesús Moroles, Michael Manjarris and James Surls, and the Irving Centennial Mural, a monumental mosaic created by artist Francisco Mendoza with Irving youths. The Garden also features temporary exhibits of sculptures by both regional and national artists, including the long-term loan of sculpture by American artist Reuben Nakian from the Hirshhorn Museum and Sculpture Garden in Washington, D.C.

The Arts Center’s year-round youth and family programming features story times, live performances, Saturday School, art and theatre camps in the summer, Family Fundays and Holiday Open House. Over 15,000 children and families are served by these programs annually.

In 2007 the Irving Arts Center was named an affiliate of the Smithsonian Institution, becoming one of only 159 museums nationwide to earn the honor.

The Arts Center’s four gallery spaces have housed notable exhibitions from local, regional and national artists, including:

 Golden Legacy: Original Illustrations from 65 Years of Little Golden Books  Polar Obsession: Photographs by Paul Nicklen (National Geographic Society)  Rarely Seen: Photographs of the Extraordinary (National Geographic Society)  Will Moses: American Folk Artist (great grandson of American Folk Art icon, Grandma Moses)  A Place for All People: Introducing the National Museum of African American History and Culture (Smithsonian Institution Traveling Exhibition)  5th and 6th Annual Juried International Exhibitions of Contemporary Islamic Art  Grant Wood and the American Heartland: Prints & Works on Paper

A-5 In early 2014, the Arts Center presented Dance Theatre of Harlem: 40 Years of Firsts. This retrospective exhibition documented the first 40 years of the company. Including costumes, set pieces, photographs, video and other memorabilia, attendance reached over 12,000 during the 12 week run. The exhibition was held in conjunction with sold out performance by the acclaimed company.

October 1-December 31, 2014, the Irving Arts Center partnered with the National Geographic Society in Washington D.C. to present, “Peruvian Gold: Ancient Treasures Unearthed,” attracting more than 10,000 attendees to Irving. The National Geographic Museum and Irving Arts Center were the only U.S. locations to host the assembled collection of antiquities. Included were approximately 100 gold treasures dating from 1250 BC to 1450 AD, and the premiere showing of the largest and most ornate pre-Columbian headdress ever discovered.

January 13 – March 4, 2018 the Arts Center presented This Light of Ours: Activist Photographers of the Civil Rights Movement featuring 157 black and white photographs by nine activist photographers – 8 men and 1 woman who chose to document the national struggle against segregation and other forms of race-based disenfranchisement from within the movement. The exhibition highlights the efforts of unsung heroes, capturing the day-to-day struggles of everyday citizens working to register voters, hold workshops and march for civil rights. An audio guide accompanied the exhibition and public programming included a panel discussion with four of the five surviving photographers, Bob Fletcher, Matt Herron, Maria Varela and Tamio Wakayama. Irving Arts Center is the only arts institution in the state of Texas to have hosted this important exhibition during its five-year nationwide tour.

On January 12, 2018, the Irving City Council approved the formation of the Department of Arts and Culture. The new department consolidates the operations of the city’s cultural institutions, increasing the scope of the Irving Arts Board to include the three existing city of Irving museums; the Mustangs of Las Colinas Museum, the Ruth Paine House Museum and the Jackie Townsell Bear Creek Heritage Center, as well as the construction and operation of the new Irving Archives and Museum, to be opened in the Fall of 2019.

Transportation

The City is a growing and thriving residential, commercial, industrial, and entertainment area located approximately six miles west of the Dallas Central Business District (CBD) and approximately 20 miles east of the Fort Worth CBD. Several highways (SH 114, SH 161/President George Bush Turnpike (PGBT), SH 183, IH 635, and Loop 12) traverse the City and provide excellent access within the City and to the surrounding region. SH 183 is the primary east/west corridor through Irving and links the City to the Dallas and Fort Worth CBD’s. Nearly ½ of Dallas Fort Worth International Airport (DFWIA) is located within the western portion of Irving. This airport is a key hub in the US system and provides rapid access to points in North America, Europe, and Asia. Access to the airport is now provided by SH 183 (south entrance) and IH 635/SH 114 (north entrance). Dallas Area Rapid Transit (DART) Light Rail Transit connects the Dallas CBD with the DFWIA through the City with five rail stations located within Irving. Three additional light rail stations are planned within Irving and are to be constructed on the existing rail line when development in those areas warrants a station. DART provides express bus, local bus, commuter rail, park/ride, and para transit service to the City.

The Midtown Express interim project has been completed. This $847.6 million public-private project made significant improvements to SH 183 including reconstruction of east- and west-bound main lanes and frontage roads. The project also included a managed toll component to provide the connection of a larger managed toll system in north Texas. The project also included improvements to Loop 12 and SH 114 including adding managed toll lanes to improve transportation options in Irving. The project began in December 2014 and was completed in December of 2018. TxDOT has completed a $7 million Sound Mitigation Wall project in advance of the highway expansion to construct the necessary noise mitigation protection for the City’s residents. The sound walls have a pleasing aesthetic appeal while serving the functional role of protecting the City’s residents and neighborhoods. TxDOT is scheduled to let Phase 2 of the Diamond Interchange Project, including the reconstruction of the SH 183 and Loop 12 interchange, in June of 2019. This $420 million project is scheduled to be completed in 2024.

President George Bush Tollway/SH161 is a key link between the North Dallas region and IH 30/Southwest Dallas County to IH 20. The facility is tolled on the northern and southern portions, but the main lanes between Belt Line

A-6 Road and SH 183 remain non-tolled. A continuous frontage road system, which provides property access to the corridor and a non-tolled alternative for local traffic, has been the impetus for a significant level of development.

DART has completed the light rail transit (LRT) line through Irving connecting into DFWIA. The City seized a key opportunity to link land planning and transportation planning in the selection of station locations and in the allowed land uses near the alignment. The extension to DFWIA provides increased transit access for citizens, provides an alternative to traffic congestion (particularly in the SH 114 corridor), and encourages future growth near the alignment. Key opportunity areas include the Las Colinas Urban Center, land adjacent to the Hidden Ridge Verizon Campus (a new LRT station for this location is currently scheduled to be let for construction this year) and the Four Seasons Resort Hotel, the University of Dallas, and the former site of Texas Stadium. The City is uniquely situated on this rail line between DFWIA in the west and Love Field Airport in the east. This reinforces the City’s already favorable location for air service. Service on the five rail stations in Irving began in 2012 with the expectation that these areas will continue their transit oriented growth as residents live, work and play in the developments in these highly attractive areas.

The Trinity Railway Express (TRE, an operating entity of DART and the Fort Worth “T”) connects the Dallas and Fort Worth CBD’s, and the City is served by two stations (Downtown Irving-Heritage Crossing Station Transit Center and West Irving Rail Station). This line provides ready access to the Dallas Medical and Market Centers and CBD in the east and the DFWIA, North Richland Hills, and the Fort Worth CBD in the West. Access to DFWIA is provided via bus transfer at the Centerport Station. The City worked with DART to grade separate several crossings and “quiet zone” the City through enhanced crossings. These improvements enhanced surface transportation operations, and improved the quality of life for local residents. The City continues to work closely with the North Central Texas Council of Governments (NCTCOG) Regional Transportation Council (RTC) in the development of future infrastructure improvement planning and financing.

Parks and Recreation Department

The City of Irving Parks and Recreation Department plays a vital role in the community by providing a variety of activities and facilities in its 80 park sites totaling over 1,868 acres. The 1994 bond program provided $22.4 million and the 1999 bond program provided $38.6 million for the acquisition of park land and the construction of new park facilities. In November 2006, voters approved an additional $69 million for park and recreation purposes. Over the past several years, many major projects have been completed, with others currently under construction or funded with plans to initiate construction soon. The Parks and Recreation Department has hired Halff & Associations to update the Parks, Recreation and Open Space Master Plan beginning fall of 2018. The master plan will provide long and short range objectives for Parks and Recreation. The new master plan will be completed in the fall of 2019.

Neighborhood Parks continue to receive upgrades as part of the 1994 Bond Program. Beginning 1997 through 2014, playgrounds located at Sunrise, Southwest, Cottonwood Creek, Nichols, Hurwitz, Lee, Fritz Park, Woodhaven, Doris, North Lake Ranch, Pecan and Thomas Jefferson Parks have been renovated. In 2016, having met its recommended lifecycle, the Champion’s Park playground was replaced with a new modernized version. Northgate Park Phase II was completed in 2016, including a playground, sidewalk and parking lot. In 2017, a new playground and drinking fountain were installed at Senter Park, utilizing Community Development Block Grant funds. Scheduled for replacement in June of 2018, two heavily utilized school cooperative sites (M.C. Lively and A.S. Johnston) will be renovated featuring new playgrounds, drinking fountains, tables, benches and surfacing. The playground renovations in the older parks have allowed Irving to meet the new and upgraded playground requirements. These renovations included rubber surfacing to meet the ADA requirements and state of the art play equipment to meet the new CPSC and ASTM guidelines. These upgrades enhance the neighborhood parks, which are the cornerstone of the City's park system and raise the level of service being delivered on a neighborhood level. The addition of Shady Grove Trails Park, Rose Meadows Park, North Lake Ranch Park, Running Bear Park, and Mountain Creek Park continue to enhance the city’s park system.

Fritz Park Erosion Control Project was funded under the 1994 Bond Program. The project was designed to turn the Delaware Creek erosion problems throughout Fritz Park into an asset. The proposed solutions for the project combine sound engineering principals with aesthetics designed to enhance the beautiful park setting. The improvements cost $1.84 million and include decorative modular block retaining walls, natural stone retaining walls, construction of an amphitheater, a small pond, two waterfalls and a new pedestrian bridge. Construction was completed in the fall of 2000.

A-7 In 2017, Sunrise Park benefitted from the utilization of Community Development Block Grant funds, for much needed renovations. A one mile asphalt walking trail was widened and converted to concrete. Basketball and tennis courts were upgraded with new surfacing, fencing and Musco lighting systems. New benches, exercise equipment, light poles, drinking fountains, playground renovations and an ADA accessible parking lot completed the transformation.

Cimarron Park was the first major park acquired in the North Irving community of Valley Ranch. The 12-acre site is adjacent to Tom Landry Elementary School. The park improvements, completed in early 1996, include a pavilion, playground, 2 tennis courts, 2 basketball courts, a ¾ mile walking trail, and the addition of over 100 trees. A 19,000 square foot recreation center was added to the park’s amenities in 1998 and Irving’s first family aquatic center was constructed in 2008. In early 2015, 11 fiberglass light poles were replaced with new metal poles with LED fixtures and a MUSCO centralized lighting system installed in the park for $156,000.

Shady Grove Trail Park is a 13-acre park donated to the City by Bluebonnet Savings in 1994. The Park was planned by the Park Planning Division and constructed by City employees on the Park Construction Crew. Park staff completed the installation of two play units, four picnic shelters, a basketball court and an eight-foot wide, ½ mile concrete walking trail. The park also includes a historical plaza documenting the history of the Shady Grove Trail, a pioneer trail that ran through the park site in the 1800's. The park was dedicated for public use in November of 1998. This is the first park developed entirely by the Park Construction Crew, resulting in estimated savings of over $200,000 by not contracting out the development. Both Texas Recreation and Parks Society and Dallas County Historical Commission have recognized the park design as innovative.

A partnership with Irving Independent School District has resulted in the development of three neighborhood parks on elementary school campuses. The three campuses are M.C. Lively Elementary, A.S. Johnston Elementary and Sally B Elliott Elementary, with M.C. Lively and A.S. Johnston both scheduled for renovation in 2018. These parks were developed in sections of the City where the neighborhoods were completely built-out without any available park acreage. In the absence of vacant land availability, the partnership with IISD was formed to make better use of publicly owned property. The parks naturally are small; approximately two acres of development, including play equipment, picnic facilities, basketball courts and sandlot ball fields. For safety reasons, the parks are restricted to school usage during normal school hours, but are available to the public after school, weekends and summers. The parks have proven to be very popular and well received by the neighbors.

Centennial Park, a $2.8 million dollar development at the entry into the Heritage District, commemorated Irving's 100th Birthday. The park, along Delaware Creek, provides a Centennial sculpture of the City's founding fathers, a history wall highlighting numerous significant events in Irving’s history, a magnificent pavilion for group outings, and a replica of a pioneer cabin, renovated in 2015, and winding trails through wildlife inhabited woodlands. The park was dedicated as one of the major events in Irving’s Centennial Celebration on October 4, 2003. In December 2007, the city’s holiday extravaganza was expanded to include a light display at Centennial Park. The park’s plaza plaques were replaced and rededicated in April of 2017. The existing bronze plaques were showing wear, damage from vandalism and age. The black granite panels tell the story of regional history and Irving’s growth from humble beginnings.

North Lake Ranch Park is a $600,000 park funded through the 1999 bond program, and was dedicated in May 2007. The 12 acre park is the second largest park in Valley Ranch and includes a group picnic shelter, two play units, half-court basketball court, ¼ mile walking trail, and a large open sand lot play field. The park is irrigated and landscaped and is designed with a western ranch theme including a large ranch gateway entry and a 22 car parking lot. The park also includes public art, a 9’ tall by 10’ wide plate steel silhouette of a cowboy walking his horse. In 2014, the sidewalks were redesigned to provide a safety buffer between the park and the roadway. Additional renovations to this park including an accessible double swing set, a shade structure with two picnic tables, seven additional parking spaces and drainage improvements were completed in 2015, at a total cost of $115,000.

Tim Markwood Park is an 8.9 acre neighborhood park designated to accommodate the residents within a ½ mile walking distance. The park is long and linear with more dense vegetation near the center. The $800,000 project includes neighborhood park amenities such as a small playground with shade structure, swings, picnic shelter, concrete walking trail, drinking fountain, shade and ornamental trees, benches, security lighting and turf landscaping with irrigation. The park has two nodes of development, one on the east end adjacent to MacArthur and one near the middle in a small meadow. The park is linked from Rogers Road to MacArthur with a linear concrete walking trail. The main

A-8 development is located on the MacArthur end of the site and includes a playground, picnic shelter and park signage linked with a small walking loop.

Millennium Park and its feature fountain are symbols of the City of Irving’s commitment to customer service and entrance into the 21st century. The fountain is located on 2.1 acres situated between Irving Boulevard and Second Street. Public bids will be solicited in June 2018, for remodeling the fountain site. Currently, the large fountain pumps are located in a vault below grade, which has succumbed to flooding on several occasions. The fountain mechanisms will be redesigned to include relocating above ground pumps, to be housed in a mechanical building. Other features will include chemical injectors, external filters and state of the art color changing lighting systems. The project cost estimate is $500,000.00.

Cottonwood Creek Park underwent a $1,800,000 renovation that provided a fully accessible, ADA compliant playground by incorporating access ramps and utilizing wider connector ramps between the various play features. The theme of the playground is treehouses with four separate treehouses. They were designed to look like a traditional treehouses built on a large tree trunk. The playground includes over 50 play events, accommodates approximately 200 children, and includes slides, net climbers, games and play panels. Also included are four specialized handicapped swings and two tot swings.

This two-phased project included the development of a “Miracle League Field”, a fully accessible baseball field allowing special needs children to participate in baseball. This field is a scaled down version of a regular baseball field including backstop, dugouts and outfield fences. The field is short with the outfield fences being approximately 110 feet from home plate. The entire field is a poured in place rubber surfacing to protect the players if they should fall. In 2015, the 4-foot wide sidewalks throughout the park were replaced with 8-foot trails at a cost of $208,000.

Victoria Park received a complete playground renovation in 2014 with upgrades totaling $500,000. Included were 42 play unit elements with ADA upgrades, a drinking fountain, three shade structures with picnic tables, four new light poles with LED fixtures, and a MUSCO centrally controlled lighting system for the operation of park lighting. In the fall of 2017, the amphitheater was removed as a result of irregular use, safety concerns and deteriorating conditions.

Luzon Park is recognized as the oldest park property in the City of Irving. Renovations are currently underway, which will provide a new playground, Musco security lighting, gathering shelter, concrete walking trail, tables, benches, backstop and new split rail fencing. Completion is expected in June of 2018.

Mountain Creek Preserve is a 54-acre park leased from Dallas County in the southern portion of the City adjacent to Twin Wells Park. Phase III of Campión Trails is complete in MCP and was funded through a $500,000 matching development grant from the Texas Parks and Wildlife Department. The total development budget for the project was $1,000,000 and included one mile of primary trail, picnic pavilion, two river overlooks, playground area, basketball court, horseshoes, sandlot athletic fields, cricket pitch, secondary nature trails, paved parking, canoe launch, fishing access and equestrian activities. The park opened in the fall of 2000. Irving’s Tree Farm is located at the entrance into Mountain Creek Preserve. The groundbreaking took place in March 2013 and the first planting was in August 2013. The farm grows 3” caliper size trees that are utilized to reforest our parks, medians and open spaces. The trees are a mixture of native trees for this area.

Veterans Memorial Park is a $3,000,000 project and a tribute to all the Irving residents who have served our country in the armed forces. The entire project is designed to respectfully commemorate the ultimate sacrifices made by Irving residents. The main focus of the project is a Memorial Wall which includes the names of Irving residents whom have given their lives in the line of duty. There is a paved plaza located in front of the memorial wall which includes a granite map of the world. The plaza features history walls documenting the major conflicts since Irving was founded in 1903. Granite story boards tell stories of the contributions of Irving residents in that particular conflict. Bronze statues depicting a soldier from each of the five branches of the armed services sit in front of each section. The plaza fronts a large basin of water feeding a fountain and a series of waterfalls down to the main plaza. The project includes a series of battalion walls which include the donor granite pieces. An additional Liberty Bell sculpture was added to the park in 2014, an American eagle sculpture was added in 2015, and “A Mother’s Tears” sculpture was installed in 2016. In the fall of 2018, “The Fallen Soldier” statue will be added to the memorial garden.

A-9 The Dog Park is a $275,000 park based on a design with off-leash enclosed play areas, including separate sections for large and small dogs. Both enclosed play areas have been divided into two sections to provide an opportunity to promote uniform turf. Dividing the play areas allows for use rotation to keep the grass from being worn down. Each play area includes additional shade structures, shade trees and a range of amenities such as a dual-function drinking fountain for owners and dogs, seating areas, fire hydrants, trash receptacles and large Millsap Boulders for the dogs to climb on. The double gated entry areas are aligned to allow for access to both of the divided areas through one gate. Each play area also includes a walkway to the shade structure to allow for disabled accessibility. The facility is irrigated and Bermuda sod provides a resilient ground cover.

Campión Trails is a 22-mile greenbelt along the Elm and West Forks of the Trinity River extending south from Valley Ranch to Running Bear Park. The Campión Trails provide unique recreational activities for the citizens of Irving and are a key link in a regional greenbelt along the Trinity River corridor called the Trinity Trail System. Upon completion, the greenbelt will include 22 miles of 12' wide concrete primary trails, over 20 miles of secondary trails, and nine park nodes along the greenbelt. The trail system provides recreation trails for bicycling, walking, bird watching and other eco-tourism activities, as well as hiking and equestrian uses. There are areas of native bottomland hardwoods, which will be preserved for the environment and for the benefit of future generations. This area of the greenbelt provides a unique natural setting for Irving's citizens in the middle of an urban environment. Since 1997 the Department has completed over 13.15 miles of concrete (6.5 miles of primary trail in the Las Colinas area, and 6.65 miles in the southern section.) The completed trail runs through Bird's Fort Trail, California Crossing Park, Spring Trail Park, Keenan's Crossing Park, T.W. Richardson Grove and currently terminates in Sam Houston Trail Park with pedestrian access across the levee into Valley Ranch. In January of 2018, construction began on the 2.7 mile, North Campion Trail Extension. This trail section will span north from Sam Houston Trail and link with our neighbors in Coppell. The $1.2 million dollar project has a scheduled completion date of October, 2018.

The 1.75 mile extension from Twin Wells Park to Trinity View Park opened in October 2010. This extension of the primary trail is part of the southern section the Campión Trails system. The segment ties into the existing two mile primary trail at Mountain Creek Preserve and extends through Twin Wells Park into Trinity View Park making the entire southern section 3.5 miles in length. This additional trail cost $1.1 million and was funded with a $1.5 million Trail Grant from Dallas County Open Space Program. The remaining $400,000 from this grant funded an extension of the trail northward from Trinity View Park into River Hills Park. This extension added another ¼ mile of trail, bringing the southern section to a total of 4 miles. The River Hills Park Extension was completed in the spring of 2011.

The City received another $1.3 million in a 2010 trail grant from Dallas County Open Space Program, which funded the 1.5 mile Valley Ranch Extension of the primary trail on the northern segment of Campión Trails. The Valley Ranch Segment represents the northern end of Campión Trails and includes a second levee crossing into the Valley Ranch Development in the area of Cimarron Trail. This northern-most segment, which includes 12’ wide primary trail and a ½ mile turn around loop, is entirely located within Sam Houston Trail Park, and was completed in the fall of 2011. An additional trail extension was constructed connecting Mountain Creek Preserve to the Grand Prairie Trail HUB, and adding another 2.65 miles to the trail system. This extension of the southern segment runs westward from Mountain Creek Preserve, crosses under MacArthur Boulevard, and extends to Running Bear Park. The “Lone Star Trail” extension was completed in October 2015.

City Staff is currently working on an implementation plan to finish the remaining primary section of Campión Trails that will complete the entire 22 mile corridor. The third and final segment will be the center portion of the trail corridor, will travel around the old Texas Stadium site, and ultimately connect the northern and southern segments of the trail system.

The multiple neighborhood and community park trail segments, added to the Campion Trails segments, brings the total miles of trail offered to residents and visitors to just over 30 miles.

The City of Irving has multiple recreational facilities heavily utilized by the residents. The city is fortunate to have six full time recreation centers, two part-time recreation centers, one senior center, one teen center, three outdoor swimming pools, two year-round pools - one Natatorium located on North Lake College campus and one natatorium located adjacent to the Heritage Senior activity center - two family aquatic centers and two spray parks. The city also has a municipal golf course, seven racquetball courts, 38 lighted tennis courts, 24 softball and baseball fields, 28 soccer fields, four football fields, two disc golf courses, three cricket fields and one large multi-use field to meet the broad spectrum of activity demands. These facilities provide the infrastructure for year-round programming, including, volleyball, basketball,

A-10 gymnastics, track and field, lifeguard and swim instructor training, competitive swimming, water safety education, special needs aquatic programs, scuba diving, canoeing, baseball, softball, soccer, football and tennis, as well as many other fine athletic events. Summer Swim Day Camps are also provided each summer.

The Irving Golf Club provides recreation activities for thousands of Irving residents. The golf course, formally known as Twin Wells Golf Course, was completed in the fall of 1988. From its opening in September 1988 through September 2016, over 1,203,000 rounds of golf have been played there. The Golf Course was closed for renovations effective October 1, 2016. Renovations began in September, 2017 with the installation of a new river transfer pump that will pump Trinity River water to an irrigation pond that will supply the necessary water to irrigate the golf course. Additional course renovations began in January, 2018 to include a new irrigation system, putting greens, tee boxes and sand bunkers. Also reshaping of golf fairways on the front nine holes; reshaping and rerouting the back 9 holes; new turfgrass on the all golf fairways; the strategic replacement of some cart path areas; and, drainage improvements. Upgrades to the Irving Golf Club’s Clubhouse have been completed including a new roof and lighting upgrades, restroom updates, flooring, interior and exterior paint, etc. Total Capital funding of $5 million dollars has been expended for Golf Course and Clubhouse renovations. Additional funding of $160,000 was recently authorized by Irving’s City Council for adding a kitchen to the Clubhouse and construction commenced in May of 2019. Estimated opening of Irving Golf Club’s 18 holes and Clubhouse is expected to be in late 2019.

The Athletic Complex at Trinity View Park continues to receive new development and renovation. A beautiful 4-field adult softball complex was opened in the summer of 1989. In addition, four (4) youth football fields were constructed providing top quality fields for the football program. The 1994 bond program funded a new restroom for baseball which was the last item on the 1991 master plan. More resent updates include improvements to six (6) soccer fields with irrigation and lighting. Currently the department is renovating space to build a 7th field. Restroom renovations have also been completed at the adult softball complex and boys’ baseball fields 1 thru 6. To address our diverse population Cricket fields have also been added to our system with the construction of three (3) fields at Trinity View Park, Mountain Creek Preserve and Wyche Park.

Irving Soccer Complex, located near the airport, has 21 soccer fields. The City acquired 22 acres, increasing Harrington Park to 47 acres, and providing enough space for the Soccer Complex. The $3.050 million from the 1999 bond program provided tournament quality youth soccer fields for the Irving Soccer Association. There are fields for all youth age groups and the complex includes a restroom building, concession building, group pavilion, large pedestrian plaza, playground, concrete entry drive, park roads and parking for 391 cars. The complex also includes its own shop to house the dedicated maintenance staff. The fields are irrigated and soil was imported to ensure top quality turf for the fields. The complex hosted league play for the first time in the fall of 2003.

Senter Park Recreation Center, built in 1954, is Irving’s oldest recreation facility. The center received some renovations in 1970 and more significant improvements/expansion in 1990. Community Development Block Gant funds in the amount of $1,026,000 will be used to fund extensive renovations to the center scheduled to complete in 2019.

Georgia Farrow Recreation Center was constructed in the Bear Creek area in 1989 and at 18,000 square feet is the smallest of Irving’s recreation centers. Renovations to their men’s and women’s restrooms, kitchen area and front counter in the amount of $80,000 were completed in 2014. Additional renovations and expansion of the center are in the planning and design phase and scheduled to commence upon approval of a Section 108 loan to be repaid by Community Development Block Grant funds.

Lee Park Recreation Center was built in 1965 and the 1991 master plan was developed to guide the renovation and expansion. The 1994 bond program provided $2.6 million for the project and the expansion and renovation of the facility began in 1998. The renovation was completed and the building was dedicated in November 2000. The recreation center was expanded to 24,600 square feet and includes amenities such as a second volleyball gym, racquetball courts and a new fitness center to serve the citizen's needs.

Northwest Park Recreation Center was originally built in 1968 and the $2.4 million redevelopment of the center was included in the 1994 bond program. Due to structural problems, the old 11,000 SF building had to be demolished. The new building was dedicated in November 2002, expanding programming space to 16,000 square feet. The building

A-11 includes classrooms, gymnasium, fitness center, pre-school room, teen center, restrooms with locker rooms and showers. In 2015, two new tennis courts for $200,000 and 1 trail bridge replacement for $40,000 were completed.

Mustang Park Recreation Center was funded in 1994 using a 2.5 million dollar bond program. This recreation center is in the Hackberry Creek Area of North Irving. It is approximately 18,500 square feet and features a gymnasium, teen center, preschool area, large classroom, kitchen restrooms, locker rooms and a state of the art fitness center. The building opened in 2002. The tennis court was replaced for $100,000 in 2013. Sidewalk and driveway renovations in the amount of $23,000 were completed in 2015.

Cimarron Park Recreation Center is located in the North Irving community of Valley Ranch. The 19,000 square foot recreation center was opened in June of 1998 and provided the first indoor recreation opportunities for the far northern communities. This heavily-utilized facility provides diverse programming and classes designed to serve the area’s multi-cultural population.

After School Program – The Irving Parks and Recreation Department provides an after school recreation program from 3 to 6 p.m. at Cimarron Park Recreation Center, Lee Park Recreation Center, Mustang Park Recreation Center, Northwest Park Recreation Center, Senter Park Recreation Center and Georgia Farrow Recreation Center at West Park.

The Heritage Senior Center was funded by $7.5 million included in the 1999 Bond Program and was built in 2002- 2003, opening in December 2003. The Senior Center is located in the Heritage District on a 6-acre park at Second and Jefferson Streets. The project included a 29,000 square foot senior center and a 10,000 square foot indoor natatorium. The “dry side” of the center features a fitness center, 7,000 SF ballroom, billiards room, 122 person dining room, large kitchen, 21 station computer lab, three multi-purpose classrooms, craft room, library room, and administrative spaces. The center provides a variety of recreational activities as well as services such as transportation and daily lunch program. There is an outdoor plaza for activities and classes. The “wet-side” or Aquatic Center includes a 7,000 SF pool, current channel, 12 person hot tub, and variety of dressing rooms. The Aquatic Center hosts numerous exercise classes for seniors daily and serves as the only indoor LearnToSwim and water safety education site for children south of Highway 183. The entire site is landscaped and irrigated to provide a first class facility for the seniors.

Lively Pointe Youth Center and Lively Pointe Skate Park has become the hub for youth and teen activities. The skate park is a 20,000 SF concrete park with a Flow Bowl and Street Skate Plaza. The skate park was funded with $725,000 from the 1999 bond program and opened in May of 2007. The Lively Pointe Youth Center received a $2,000,000 renovation and expansion funded in the 1999 bond program. The building was extensively renovated to house the teen programs including a game room, computer game room and lab, classrooms, craft room, fitness center, television room and snack cantina. The project also included the addition of a gymnasium to make the overall size of the building approximately 24,000 square feet. Construction began in the summer of 2007, and the facility was dedicated September 9, 2008. Lively Pointe offers an Adult Therapeutic Day Program, and also serves as the home center for several of Irving’s Special Olympics teams. Upgrades to Lively Park totaling $79,000 included the replacement of an irrigation pump and the installation of a MUSCO centrally controlled lighting system in 2015.

Three Municipal Pools built in 1954, 1958 and 1964, were renovated during the 1980's. These enhancements resulted in an increase of attendance during the 80’s and 90’s. Lee Pool received filtration improvements in the mid 90’s and Senter pool received filtration improvements in 2014.

The North Lake Aquatic Center received major renovations completed 2017. The City’s partner at this facility, Irving ISD, provided immediate funding for the improvements and the City will contribute fifty percent via operating credits in subsequent years. A permanent roof structure, electrical improvements, and a new climate and water temperature control system were featured additions. The North Lake Aquatic Center serves as the base for Irving’s water safety education programs, lifeguard training, competitive swim teams, instructional programs, and self- directed fitness programs. Funding for additional improvements such as the interior of the pool, tile in the pool, and the mid-pool bulkhead will be requested in the 2019 budget.

The Heritage Aquatic Center sees heavy use every day. Opened in 2003 the building and infrastructure of this aquatic facility are due for updates and replacements. In June of 2018, new overhead lights, pool plaster, and HVAC climate control Dectron unit will be installed.

A-12 The 1999 bond program funded the construction of Cimarron Park Aquatic Center on the southeast corner of the site. The $3.5 million aquatic center was the first outdoor pool built in Irving since 1979 and is the only city pool north of Hwy. 114. The project includes a 10,000 square foot main pool with a zero depth entry and a water play unit. There is a separate toddler pool, double flume water slide, five lap lanes, numerous shade structures, concession stand and bath houses. The facility opened May 24, 2008. The City has allocated $700K in the 2018 budget to address issues with the original gutter and perimeter circulation system.

West Irving Aquatic Center is the latest family oriented water park to open in Irving. The $4.2 million aquatic facility is located west of Belt Line Road at 3701 Conflans Road. This is Irving's second family water park. The facility includes a zero entry splash pool with a water playground and a current channel, two water slides, a 4 lane 25-yard lap pool with handicapped ramps, and a climbing wall. There is a water fall out of the lap pool onto a wet deck connecting to the splash pool. A separate toddler pool with a small water playground is completely covered by a shade structure to keep children and parents cool. The pool has numerous other shade structures and shaded seating areas for the patrons. The bath house includes locker rooms, concession stand, first aid room, guard room and staff offices. The pool opened in June 2010. Overall attendance in Irving’s aquatics program in FY2014-15 was over 300,000.

Northwest and Southwest Park Spray grounds represent a new aquatic amenity to the City of Irving Park System. These zero-depth splash pad developments are available for youth and adults whom enjoy playing in water jets and spray nozzles. The two spray ground developments include ground mounted spray jets, pole mounted spray nozzles and tall dump and spray poles. The spray grounds recapture, filter and treat the water making these low water usage and low impact operations. The spray grounds opened for use in June of 2011 and are free to the public.

Special Events play a major role in family-oriented activities for Irving citizens. The largest event is the annual July 4th Event and Fireworks Show held in the Las Colinas Urban Center. Regional artists provide entertainment as residents enjoy a variety of food and activities in the children’s fun zone. The evening’s grand finale is a beautiful fireworks display accompanied by music. Earlier in the day, the City hosts an old-fashioned parade in the heart of the Irving Heritage District. Each year, an entertaining procession of citizens, businesses and civic groups showcase a variety of festive, patriotic floats. Thousands of citizens come out and enjoy the parade, food and post-parade concert in Heritage Park.

The spring and summer are highlighted by the Summer Concert Series in the Heritage District’s Whistlestop Plaza and the Cinco de Mayo festival hosted in May at Senter Park Recreation Center. Each year, more than 400 young people participate in the week-long competition during August. Additional youth and teen programs, services and events are offered throughout the year a Lively Pointe Youth Center. Highlights include the Irving Youth Council and Future Leaders of Irving programs, and the Supplies for Success and Irving’s Got Talent events.

Fall festivals are held at each neighborhood recreation center in October, offering a safe and wholesome Halloween experience for the entire family. The winter season features the annual Holiday Extravaganza celebration kicking off the holiday season for the Irving community. Following the Holiday Parade, the Mayor extends a personal greeting and launches the official Tree Lighting Ceremony and Fireworks Show. In January, Irving hosts a tribute program in honor of the Martin Luther King Jr. national holiday at the Irving Arts Center and Frost Fest, a snow play experience for kids.

Additional special events included the annual Irving Main Street Event and Manifolds on Main Car Show in the Heritage District. Laughs by the Lake and Canal Fest are hosted in the Las Colinas Urban Center District. Taste of Irving, a music and food festival, is hosted at Cimarron Park Recreation Center in the Valley Ranch area. Youth audiences can also enjoy the Irving Concert for Series for Kids, Children’s Day at the Theater and the One Act Play at the Irving Arts Center. Irving citywide events have received both state and regional event management awards.

A-13

APPENDIX B

EXCERPTS FROM THE

CITY OF IRVING, TEXAS

ANNUAL FINANCIAL REPORT

For the Year Ended September 30, 2018

The information contained in this Appendix consists of excerpts from the City of Irving, Texas Comprehensive Annual Financial Report for the Year Ended September 30, 2018, and is not intended to be a complete statement of the City's financial condition. Reference is made to the complete Report for further information.

Austin I Conroe I Dallas 1 Fort Worth I Houston Los Angeles I Midland 1 New York City 1 San Antonio A:m.m:tnce • Tax • Advisory

Independent AudHor's Report

To the Honorable Mayor and Members of City Council City of Irving, Texas

Report on the financial Statements

We have audited the accompanying financial statements of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of City of Irving, Texas (the City) as of and for the year ended September 30, 2018, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents.

Management's ResponslbiiHy for the financial Statements

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

Auditor's Responsibility

Our responsibility is to express 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the 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 auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Weaver and Tidwell, L.L.P. 2300 North Field Street, Suite 1000 1 Dallas, Texas 75201 Main: 972.490.1970 I Fax:972.702.8321 CPAs ANO ADVISORS I WEAVER.COM The Honorable Mayor and Members of City Council City of Irving, Texas

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information· of the City as of September 30, 2018, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of MaHer

As discussed in Note 1 (s) to the basic financial statements, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions. Beginning net position has been restated to reflect the change in accounting principle resulting from this statement. Our opinions are not modified with respect to this matter.

Other MaHers

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and Required Supplementary Information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by th~ Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming op1n1ons on the financial statements that collectively comprise the City's basic financial statements. The introductory section, other supplementary information, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements.

2 The Honorable Mayor and Members of City Council City of Irving, Texas

The other supplementary information, as listed in the table of contents, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in gccordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.

The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

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 the City'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 thdt report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City'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 the City's internal control over financial reporting and compliance.

w~ ~~~~-£.f. WEAVER AND TIDWELL, L.L.P.

Dallas, Texas January 31,2019

3 I T E X A S

4 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

Our discussion and analysis ·of the City of Irving's fmancial performance provides an overview of the City's financial activities for the fiscal year ended September 30, 2018. Please read it in conjunction with the accompanying letter of transmittal and the accompanying basic fmancial statements. We have also provided tables of comparative analyses of selected financial data.

FINANCIAL IDGHLIGHTS • The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows at the close of the fiscal year by $977.7 million (net position). Of this amount, $796 million (81.4%) represents the net investment in capital assets. Net position restricted for specific purposes totaled $138 million (14%); the remaining $43.5 million (4.5%) is unrestricted net position and may be used to meet the government's ongoing obligations to citizens and creditors.

• The City's total net position increased by $155.7 million compared to $822 million last year. During the fiscal year over $90 million was contributed to the city by the developer of the Entertainment Center. Property tax revenues are higher over prior year by $7.1 million as a result of higher assessed property values in the current year; other significant revenue increase drivers were: sales taxes are higher by $1 million, hotel occupancy taxes are higher by $1.7 million, TIF receipts are higher by $1.3 million and investment income is higher by $3 million. Water and sewer service charges are higher over prior year by $16 million primarily attributable to less stringent water restrictions in the current year as well as an increase of 6% water rates.

• The governmental funds reported combined fund balance of $288 million, a decrease of $2 million in comparison with prior year. Approximately 22% of this amount ($63.5 million) is available for spending at the City's discretion (unassigned fund balance).

• The unrestricted fund balance (the total of the committed, assigned and unassigned components of fund balance) for the general fund was $69.8 million, or approximately 32% of total general fund expenditure.

• The total outstanding long-term debt increased by $14 million primarily due to new debt issuances exceeding principal payments and debt refundings during the fiscal year.

• The Debt Service Fund fund balance was $20.4 million at year-end, which represents 41% of the annual debt service payments. Funds that are included in the Debt Service Fund can only be used for debt service.

UNDERSTANDING AND USING TIDS ANNUAL REPORT This discussion and analysis is intended to serve as an introduction to the City of Irving's basic fmancial statements. The City's basic financial statements are comprised of three components: 1) government-wide fmancial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic fmancial statements themselves.

5 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

The following table summarizes the major features of the City's fmancial statements, including the portion of the City government they cover and the types of information they contain.

Features of the City of Irving's Financial Statements

Fund Statements Government-wide Governmental Funds Proprietary Funds Fiduciary Funds Statements

Scope Entire City government (except The activities of the City thai are not Activities the City operates similar to Instances in which the City is fiduciary funds) proprietary or fiduciary, such as private husiness, such as the water the trustee or agent for someone police, fire, and parks. and sewer system else's resources, such as the retirement plan for City employees

Required financial Statement ofNet Position Balance Sheet Statement ofNet Position Statement of Fiduciary statements Net Position Statement of Activities Statement of Revenues, Statement of Revenues, Expenditures, and Changes Expenses, and Changes in Statement of Changes in in Fund Balances Fund Net Position Fiduciary Net Position

Statement of Cash Flows

Accounting hasis and Accrual accounting and economic Modified accrual accounting and Accrual accounting and economic Accrual accounting and measurement focus resources focus current financial resources focus resources focus economic reJOurces focus

Type of asset, liability, All assets liabilities and deferred Current assets, liabilities and All assets liabilities, deferred inflows All assets and liabilities, both deferred outflows of inflows and outflows of resources deferred inflows and outflows of of resources and outflows of resources short-tam and long-term; can resources and deferred both financial and capital, and short resources that come due during the both financial and capital, and short include capital assets inflows of resources term and long-term year or soon theresfter; no capital term and long-term information assets included

Type of inflow/outflow All revenues and expenses during Revenues for which cash is received All revenues and expenses during All revenues and expenses information year, regardless of when cash is during or soon afler the end of the year, regardless of when cash is during year, regardless of when received or paid year; expenditures when goods or received or paid cash is received or paid · services have beeo received and payment is due

6 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

REPORTING THE CITY AS A WHOLE

The Statement of Net Position and the Statement of Activities The government-wide statements are designed to provide the reader with a snapshot of the City of Irving's finances and activities as a whole. The statements are similar to those found in the annual reports of private-sector businesses.

The Statement ofNet Position includes all of the City's assets, liabilities, deferred outflow of resources and deferred inflow of resources, using the accrual basis of accounting. The Statement of Activities accounts for all of the revenues and expenses for the year regardless of when cash is received or paid. Over time, increases or decreases in the City's net position are an indicator of whether its financial health is improving or deteriorating. Non-fmancial factors, such as changes in the property tax base and the condition of the· infrastructure (roads, water and sewer lines, and buildings), should also be considered in order to assess the overall health of the City of Irving. The City's overall fmancial position is continuing to improve.

The Statement of Activities presents information showing how the City's net position changed during the most recent tiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave).

The government-wide fmancial statements of the City of Irving are divided into two categories:

• Governmental activities - Most of the City's basic services are included here, such as general government, police, fire, parks and recreation, community development, municipal court, animal services, library and public workS. Property taxes, sales taxes, and gross receipts taxes finance most of these activities. • Business-type activities - The City charges fees to customers to help cover the costs of providing water and sanitary sewer, solid waste and municipal drainage services.

REPORTING THE CITY'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide more detailed information about the City's most significant funds not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required to be established by State law and by bond covenants. The City Council establishes other funds to control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money.

Governmental funds- Most of the City's basic services are reported in governmental funds, which focus on how money :flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other fmancial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic 7 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited) services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information following the governmental funds statements that explain the relationships (or differences) between them.

The City of Irving presents information separately in the governmental funds Balance Sheet and in the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances for the General Fund, Debt Service and TIF Fund, which are considered to be major funds. Information from the remaining governmental funds is combined into a single, aggregate presentation. Individual fund data is provided later in the Comprehensive Annual Financial Report.

Proprietary funds - Services for which the City charges customers for the services it provides - whether to outside customers or to other units of the City - are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Activities. In fact, the City's enterprise funds (a type of proprietary fund) is the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows, for the individual enterprise funds which are Water and Sanitary Sewer, Solid Waste and Municipal Drainage. All enterprise funds are considered major funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the City's other programs and activities- such as the Garage and Equipment Replacement Fund, Computer Replacement Fund, and the Self-Insurance Fund.

The City as Trustee The City is the trustee, or fiduciary, for its employees' Supplemental Benefit Plan and Voluntary Employee Beneficiary Association. It is also responsible for other assets that - because of a trust arrangement - can be used only for the trust beneficiaries. All of the City's fiduciary activities are reported in separate Statements of Fiduciary Net Position and Changes in Fiduciary Net Position. We exclude these activities from the City's other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes.

THE CITY AS A WHOLE- GOVERNMENT-WIDE FINANCIAL ANALYSIS

The City's combined net position was $978 million as of September 30, 2018 as shown in Table 1. Net position over time as noted earlier, may serve as a useful indicator of a government's financial position. The net position for the governmental activities was $521 million and business type activities was $457 million. Changes in net position is shown in Table 2 for both the City's governmental and business-type activities. Note that only the unrestricted net position are available for future expenses.

' 8 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

Table 1

Net Position (In Millions)

Governmental Business-type Total Primary Activities Activities Government

2018 2017* 2018 2017* 2018 2017*

Current and other assets $ 361 $ 357 $ 167 $ 143 $ 528 $ 500 Capital assets 883 755 528 509 1,411 1,264 Total assets 1,244 1,112 695 652 1,939 1,764

Total deferred outflow of resources 50 72 6 11 56 83

Non"current liabilities outstanding 728 748 222 228 950 976 Other liabilities 23 24 19 18 42 42 Total liabilities 751 772 241 246 992 1,018

Total deferred inflow of resources 22 3 3 25 4

Net Position Net investment in capital assets 434 314 363 338 797 652 Restricted 126 129 12 12 138 141 Unrestricted (39) (34) 82 66 43 32 Total net position as previously reported 521 409 457 416 978 825 Net adjustments due to GASB 75* (2) (1) (3) Total net position $ 521 $ 407 $ 457 $ 415 $ 978 $ 822

The largest portion of the City's net position (81.5%) reflects its investment in capital assets (e.g., land, buildings, equipment, improvements, infrastructure and construction in progress), less any debt used to acquire those assets that is still outstanding. As the City uses these capital assets to provide service to citizens; consequently, these assets are not available for spending. Although the City'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.

An additional portion of the City's net position (14%) represents resources that are subject to external restriction on how they may be used. The remaining balance of unrestricted net position of $43 million may be used to meet the government's ongoing obligation to citizens and creditors.

At the end of the current fiscal year, the City of Irving was able to report positive balances in all three categories of net position, both for the City as a whole, as well as for its business-type activities. The same situation held true for the prior fiscal year. The negative unrestricted net position for the governmental

9 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited) activities is primarily due to the impacts of the implementation of GASB 68, Accounting and Financial Reporting for Pensions and GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions and the recognition of the net pension and OPEB liability, as well as, the deferred inflows and outflows of resources based on actuarial valuations. The negative unrestricted net positon for governmental activities increased by $5 million due to the implementation of GASB 75 which includes a $2 million restatement to the prior year balance. The overall effect of GASB 68 and 75 to the governmental activities unrestricted net position is a net decrease of $122.5 million (includes the net pension and OPEB liability and its respective deferred inflows and outflows). Setting aside the actuarial impacts of GASB 68 and 75, the unrestricted net position for governmental activities would be a positive $83.5 million.

Governmental Activities The City's program revenues for governmental activities had an increase of $81.7 million during the year primarily due to capital contributions from developers and other governmental entities. The general revenues reflected a net increase of $13 million compared to prior year. The net increase was primarily attributed to increases in property ($7.1 million) and sales ($1 million) taxes. The property tax certified roll for tax year 201 7 was up $1.3 billion due primarily to increases in both commercial real property values and residential values. Commercial values increased by 6% or $658 million from the prior year. Residential values increased significantly by $555.4 million or 8.8%. Business personal property also increased by $72.6 million or 1.25%. The certified roll of $24.27 billion has increased for the past six tax years, and has surpassed the pre-recession peak of $18.45 billion in tax year 2008. The composition of Irving's tax base is 72% commercial, which is a much larger proportion of the total tax base than other large cities in the Metroplex. As a result, Irving's revenues fluctuate with the business cycle to a greater extent than cities with primarily residential property bases. The business-oriented character of Irving is also reflected in hotel tax revenues, which are primarily driven by business travel. Hotel Occupancy revenues which showed a sustained recovery in revenue since the recession have increased at a lower rate for FY 2017-18 with collections exceeding the prior year's amount by $471,264 or 1.8%.

Expenses for governmental activities increased by $8 million. This is primarily attributed to sixteen additional full-time positions in various departments, a 2% cost of living adjustment for general government employees and an average 3% market based increase for civil service employees. Additional expenses during the year include increased funding of $1.1 million for street reconstruction as part of the "Road to the Future" initiative, over $1.1 million in increased information technology network improvements, increased funding of $385,327 for capitai equipment leases, and an increased allocation of $1.36 million to the city's TIF districts.

Business-type Activities Business type activities had a net position increase of $41.6 million or 10.8% increase for FY18. The increase in net position for FY17 was $31 million. This is primarily attributed to 6% rate increase in 2017- 18 for water and wastewater services and 5% in Solid Waste Services. A hot, dry summer also increased water and wastewater revenues.

10 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

Table 2 Changes in Net Position (In Thousands)

Governmental Business-type Activities Activities Total 2018 2017* 2018 2017* 2018 2017* Revenues: Program revenues: Charges for services $ 28,449 $ 30,675 $ 134,420 $ 127,216 $ 162,869 $ 157,891 Operating grants and contributions 15,980 14,406 15,980 14,406 Capital grants and contributions 90,592 8,262 11,378 7,286 101,970 15,547 General Revenues: Property taxes 143,327 136,148 143,327 136,148 Sales taxes 68,964 67,933 68,964 67,933 Other taxes and fees 49,585 47,350 49,585 47,350 Investment income 5,207 2,175 1,876 771 7,083 2,946 Miscellaneous 760 874 760 874 Gain on sale of assets 75 196 75 196 Total revenues 402,939 308,019 147,674 135,273 550,613 443,291

Expenses: General government 43,122 41,430 43,122 41,430 Police 66,527 65,431 66,527 65,431 Fire 53,450 52,978 53,450 52,978 Animal services 1,915 1,915 Parks and recreation 19,391 18,428 19,391 18,428 Municipal court 3,168 3,248 3,168 3,248 Library 7,850 8,218 7,850 8,218 Community development 40,167 35,600 40,167 35,600 Public works 36,592 32,658 36,592 32,658 Interest on long-term debt 19,602 21,929 5,979 19,602 27,908 Water and sanitary sewer 87,168 80,947 87,168 80,947 Solid waste 12,382 11,916 12,382 11,916 Municipal drainage 5,536 5,637 5,536 5,637 Total expenses 289,870 281,837 105,086 104,479 394,956 386,315 Increase (decrease) in net position before \ transfers I 13,069 26,182 42,587 30,794 155,657 56,976 Transfers 1,011 (144) (1,011) 144

Increase (decrease) in net position 114,080 26,038 41,577 30,938 155,657 56,976

Net position beginning of year 406,890 383,218 415,165 385,179 822,055 768,398 Net adjustments due to GASB 75* (2,366) (952) (3,318) Net position end of year $ 520,969 $ 406,890 $ 456,742 $ 415,165 $ 977,712 $ 822,056

11 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

ANALYSIS OF THE CITY'S FUNDS

Governmental Funds

The governmental funds reported combined fund balances of $298 million, a decrease of $2.2 million in comparison with the prior year. Approximately 22% of this amount ($63.5 million) constitutes unassigned fund balance, which is available for spending at the government's discretion. The remainder of the fund balance is either non-spendable, restricted, committed, or assigned to indicate that it is 1) not in spendable form ($181,976), 2) restricted for particular purposes ($214 million), 3) committed for particular purposes ($650,000), or 4) assigned for particular purposes ($9.5 million).

The unassigned fund balance of the General Fund at the end of the year was $64 million; total fund balance was $70 million. The General Fund fund balance increased by $2.3 million. The increase is primarily due to the $7.7 million excess of revenues over expenditures being offset with net transfers out of$5.4 million primarily to fund capital projects, as well as, fund the equipment replacement and computer replacement funds. As a measure of the general fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total general fund expenditures. Unassigned fund balance represents approximately 30% of total general fund expenditures, while total fund balance represents approximately 32% of that same amount.

The TIF fund, a major governmental fund, had a $12.5 million increase in fund balance during the current fiscal year primarily due to increased property values resulting in a 12% increase in tax revenues. This increase contributes to the $22.8 million of total revenues and is offset with $10.3 million in expenditures and transfers for TIF related projects.

The Debt Service Fund, the remaining major governmental fund, had a decrease in fund balance during the current year of $11.2 million, primarily due to $11 million held in reserves as part of the Combination Tax and Hotel Certificate of Obligations Bond, Series, 2009 disbursed to the escrow agent as part of the refunding of those bonds.

Proprietary Funds

The Proprietary Funds reported a combined net position on $456.7 million, an increase of $41 million in comparison to the prior year. Approximately 79% of this amount ($362.6 million) constitutes net investment in capital assets, 3% ($11.9 million) is restricted for debt service and 18% in unrestricted. This is primarily attributed to 6% rate increase in 2017-18 for water and wastewater services and 5% in Solid Waste Services. A hot, dry summer also increased water and wastewater revenues.

· General Fund Budgetary Highlights During the fiscal year ended September 30, 2018 the City Council adopted amendments to reduce the budget for the General Fund in the net amount of $9 million. An adjustment was made to reduce the revenue and expenditure budget so that property tax revenues allocated to the six TIF districts were recorded directly in the TIF funds rather than flowing through the General Fund. Revenues and expenditures were increased by $85,000 to recognize reimbursements from developers for construction materials testing. Unspent economic development incentive payments budget in the amount of $888,306 12 CITY OF ffiVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited) was reallocated and transferred to the Economic Development fund with no net change to General Fund expenditures. Unspent expenditures were transferred to the General Non-Bond CIP Fund for two projects in the amount of $260,000 for SCBA replacements and $30,000 for Oak Meadows Park project with no net change to General Fund expenditures.

Property Tax revenues for the current year were above the revised budget by approximately $280,247. Current year revenues were 100.65 percent of the adjusted budget, while penalties and interest were $6,886 above budget. Prior period collections were $381,903 below budget due to the settlement of prior year tax appraisal litigation resulting in refunds. Based on prior year's collection history, the estimated collection rate on the tax base was set at 98.25%. Actual collections for the year were 98.71% of the amount levied. As mentioned above, a budget adjustment was made during the year to account for property tax revenues allocated to the various TIF funds within those funds directly, reducing both revenues and expenditures in the General Fund by approximately $9.4 million.

Sales Tax revenues for FY 2017-18 were budgeted at $69.6 million. Actual revenues were below the budgeted amount by $938,773 or 1.35 percent. While tax revenues grew rapidly during the first years of the recovery, over the past three years revenue has continued to grow at a lower rate between 2.0 and 3.0 percent. While below budget, collections were 2.72 percent or $1.8 million above prior year actuals. Revenues were below budget projection primarily due to a major annual tax payer not reporting as expected in February and two significant negative audit adjustments in January and February.

Franchise Fee revenues were budgeted at $20.94 million, and actual revenues were $106,553 more at $21.05 million. The primary drivers of this increase were electric and natural gas franchises being slightly above estimates.

Permits and Inspections revenues for FY 2017-18 were budgeted at $5.6 million. Actual revenues were below budget by $163,022. The main driver of this decrease was building permit revenue at $273,744 below budget. This was partially offset by Plan Review fees being almost $32,000 above budget and other revenue line items.

Revenue from fees and licenses were $474,824 below the FY 2017-18 budget of$5.4 million. The primary driver was ambulance fees being $597,386 below budget with other revenues in the category slightly offsetting.

Interest income was $706,986 above budget as the Federal Reserve raised short-term rates three times by 25 basis points during the year. These increased rates were achieved without altering the composition of the city's investment portfolio or duration of the city's investments.

All other revenues combined were $179,867 below the revised budget of $20.87 million. General Fund revenues decreased from the revised budget primarily due to sales tax and ambulance fees being below budget, as described above. The overall revenue variance was just over $662,000, or approximately a third of a percent.

General Fund expenditures totaled $216.4 million, slightly less than $6 million below the revised budget of $222.35 million. Salary and benefit savings were less than a third of a percent below the revised budget, with a net savings to the General Fund of $4 77,700. Economic development activities came in $2.1 million below budget, including $1 million for economic development projects which was not spent during the 13 CITY OF mVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited) year. Land purchases for economic development were budgeted at $887,065 to partially reserve funds for a payment in the future fiscal year and were not expended in the current year. Outside services were $687,500 below budget across all general fund departments. Supplies were $684,000 below budget. Equipment and Building Maintenance accounts were $556,710 under budget. Other operating and capital savings accounted for the remaining savings, as expenditure budgets are prudently over-estimated.

During FY 2017-18, budgetary policy remained conservative and departments were asked to continue to identify cost saving measures. A focus during the year and for future budget planning has been to allocate revenue increases to increase funding for equipment and infrastructure replacement. In the next budget year, $3.1 million in savings from temporary vacancies was budgeted, but no authorized positions are held vacant.

CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of fiscal year 2018, the City had $1.4 billion invested in a broad range of capital assets including buildings, police and fire vehicles and equipment, park facilities, roads, bridges and water and sanitary sewer lines (see table 3). The total net increase (including additions and deductions) over the prior year was $128.4 million (17%) for governmental activities and $18.5 million (3.6%) in business type activities.

Table3 Capital Assets at Year End In thousands

Governmental Business-type Activities Activities Totals 2018 2017 2018 2017 2018 2017

Land $ 108,783 $ 105,785 $ 8,627 $ 8,555 $ 117,410 $ 114,340 Buildings and improvements 398,816 273,633 398,816 273,633 Equipment 126,275 135,398 126,275 135,398 Construction in progress 97,783 97,889 45,859 40,466 143,642 138,355 Infrastructure 508,144 487,797 766,397 734,757 1,274,541 1,222,554 Other 2,286 2,174 20,940 20,940 23,226 23,114 Total capital assets 1,242,087 1,102,676 841,823 804,718 2,083,910 1,907,394 Less: accumulated depreciation 358,965 347,969 313,920 295,333 672,885 643,302

Totals $ 883,122 $ 754,707 $ 527,903 $ 509,385 $ 1,411,025 $ 1,264,092

14 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

This year's major additions include (in millions):

Entertainment Center - ARK $124.1 Embassy Channel and Middle Delaware Creek 11.5 Royal Ridge Elevated Water Storage Tank 3.8 Stafford, Finley, Cranston Water & Wastewater Improvements 3.4 Royal Ridge Nort:h Supply Waterline 2.6

See Notes (1) (h) and (5) for more detailed information regarding capital asset activity.

Debt At year-end, the City had $751 million in outstanding debt, an increase of $14 million compared to $737 million last year, as shown in Table 4 below.

Table4 Outstanding Debt, at Year-End (In Millions)

Governmental Business-type Activities Activities Totals 2018 2017 2018 2017 2018 2017 General obligation bonds and Tax notes (backed by the City) $ 247 $ 221 $ $ $ 247 $ 221 Revenue bonds - (backed by specific tax and fee revenues) 263 287 177 178 440 465 Net premium 30 16 11 12 41 28 Other obligations 7 7 7 7 Water supply obligation ----16 . 16 16 16 Totals $ 547 $ 531 $ 204 $ 206 $ 751 $ 737 ======The City's general obligation debt continues to be rated Aaa by Moody's Investor Services and AAA by Standard and Poor's. The outstanding debt reported in governmental activities increased by $16 million during the fiscal year due to new debt and refunding issuances exceeding principal payments and refunded debt. The City issued $40.7 million in General Obligation bonds for various capital projects, $5.4 million in Tax Notes for purchasing and replacing information technology equipment, and $107.6 million in Combination Tax and Hotel Occupancy Tax Revenue Refunding Bonds to redeem $125;3 ·million of Combination Tax and Hotel Occupancy Tax Revenue Certificates of Obligations, Series 2009. As part of the refunding, an additional $11.1 million from prior debt service reserve funds and $3.3 million available from debt service funds were also used in redeeming the 2009 series bonds. City paid $26.6 million in principal debt payments. Net Premiums in governmental activities increased by $14 million due to $16.9 million received from new debt issuance offset by current year amortization of $2.4 million.

15 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

The outstanding debt reported in the business type activities decreased by $2 million during the fiscal year due to new debt issuances being less than the debt principal payments. $15.3 million in Waterworks & Sewer New Lien Revenue for certain improvements and extensions to the City's Waterworks and Sewer System. Debt principal payments made during the year was $16 million. Net premiums decreased by $1 million due to $1 million received from new debt issuance offset by $2 million in current year amortization.

Debt information is included in sections (1) (k) and (7) of the Notes to the Basic Financial Statements.

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES General Fund revenues for FY 2018-19 are budgeted at $234.8 million, which is almost $11.7 million higher than the adjusted FY 2017-18 level. FY 2018-19 includes increased property tax due to an increase in valuation of $1.75 billion to $26 billion while maintaining the tax rate of $0.5941. Sales tax revenue is projected to increase to $69.96 million based on a one pt::rcent increase from FY 2017-18 estimates available after three quarters of collections. Other revenues were budgeted based on trend analysis and a five year financial forecast with conservative growth projections to reflect the impact of increasing economic activity and new residential development upon the revenue streams of the Ge:p.eral Fund. Reductions in revenue from fines, fees, and permits have partially offset projected increases in property taxes, interest income and other fees.

The certified tax roll as of January 1, 2018 (affecting the 2018-19 fiscal year) is up $1.75 billion from the prior year. This increase is due to increases in commercial real property assessments of $1.0 billion or 9.3 percent and residential property increases of $785.6 million or 12.5 percent. Business personal property values decreased by $49.8 million or 0.86 percent. New construction in the amount of $590 million was added to the tax roll for tax year 2018. The tax rate was maintained at a rate of$0.5941 per $100 valuation. This amount will generate approximately $8.26 million more ad valorem tax revenues for the General Fund than in FY 2017-18.

Sales tax revenues have shown steady, robust growth since the end ofthe recession, exceeding the previous high in FY 2012-13 and increasing between eight and ten percent for fiscal years 2013 to 2015. Over the last three years, the rate of increase has slowed to just over two percent per year. In FY 2017-18 sales tax collections were reduced by two large audit adjustments dud a significant reduction in annual sales tax payments by a top 20 taxpayer. Sales tax revenue for FY 2018-19 was projected to increase by 1 percent over the revised estimate for FY 2017-18 to $69.89 million.

For FY 2018-19 total franchise fees have been projected to increase slightly from $20.87 million in FY 20i 7-18 to $21.15 million. A steadily improving local economy, including new commercial and residential development, is translating to modest increases in franchise fee revenues, which account for 9 percent of the General Fund budget.

Interest income has had a substantial recovery from recessionary lows as the Federal Reserve has continued periodic small increases of short-term interest rates from historic lows below 1%. Interest income for FY 2018-19 is budgeted at $1.35 million, an increase of over $800,000 since FY 2016-17. Federal Reserve policy should result in higher interest rates over the next year. However, the timing and degree of these changes are uncertain, so no assumptions were made to increase the budget above the prior year projected revenue. 16 CITY OF ffi.VING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited)

Irving continues to benefit from a growing economy in the North Central Texas region. New commercial and residential construction continues to grow the tax base and increase economic activity in the city, while presenting challenges to provide municipal services to a larger customer base. Property values have increased by over $8.7 billion in the past seven years to $26 billion. Based on economic indicators and the city's long-term financial forecast, budget staff projects gradual but continued growth in most revenue categories. These revenue increases are projected to fund operational and staffing increases necessary to provide current service levels to a growing residential and business community.

City management worked with City Council to develop a fifteen year long-range fmancial plan that will give policy guidance and identify funding sources for future costs, including planned service enhancements. This plan provides a framework for discussions of city policy that will guide the development of the budget for the next several years. Revenues and expenditures are reviewed monthly and the overall economic condition of the city is balanced against departmental and resident requests in an effort to maintain existing levels of service and increase customer satisfaction while maintaining a structurally balanced budget. The plan was presented to City Council in FY 2016.

General Fund expenditures budgeted for FY 2018-19 are $234.77 million, reflecting a 5.2 percent increase from the FY 2017-18 adjusted budget. The pass-through of property tax revenues to the six TIF districts was reduced from General Fund revenues and expenditures during the FY 2017-18 year and comparisons here are adjusted to reflect this and provide an "apples to apples" comparison of changes. Increased funding of equipment replacement is a key component of the budget as almost one cent of the property tax rate was shifted from debt service to operations and maintenance to provide dedicated funding of an additional $2.27 million for vehicle and equipment replacement. The total General Fund transfer to VERF, including lease payments, is approximately $5.84 million. After two years of pay-as-you-go funding for the "Road to the Future" street reconstruction program, the annual amount of $2.2 million was shifted to debt service transfers to help support increased debt-fmanced street projects. Additional furiding has been maintained for information technology improvements, including operating and capital upgrades in preparation for the replacement of the ERP (Enterprise Resource Planning) and utility billing systems. Fifty-five full time and fourteen part time positions across multiple General Fund departments were added to address the most critical staffing needs. The largest group of positions is the implementation of phase 1 of the Police staffmg plan, which will add 32 positions, including Police Officers Sergeants, and Dispatchers which will be phased in quarterly during the year. Phase 2 is proposed to add a similar amount in FY 2019-20. Other positions provide staffmg for increased hours at the West Irving Library and for night and weekend hours for Code Enforcement. The largest portion of General Fund expenditures are salaries and benefits at 70 percent of budget. The budget for FY 2018-19 includes full year funding for salary adjustments adopted during FY 2017-18 as well as partial-year funding for a 2 percent cost of living adjustment for general government employees and a market-based salary adjustment for Police and Fire civil service employees that will be implemented in the second quarter of the fiscal year. Merit and step plan costs for FY 2018-19 were projected at $1.4 million. Other staffmg changes had a net cost of $923,000 and included the transfer of three positions to the General Fund from the Municipal Drainage Utility (MDU) Fund. Base health insurance costs decreased by $580,000 due to a two pay period insurance holiday designed to reduce contributions into the insurance fund while maintaining fund balance targets for unexpected claims and increased usage. The projected General Fund cost of employee separation payments decreased by $100,000 as the cost of long-tenured employees retiring or leaving city employment

17 CITY OF IRVING, TEXAS

MANAGEMENT'S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2018

(Unaudited) stabilized. Other non-personnel related operating expenses increased by $5.2 million, including the increased transfer to the VERF of $2.27 million, almost $1 million in increased economic development incentive payments, almost $830,000 in capital and operational costs associated with supplemental budget requests, full year operating expenses for the Northlake Natatorium, and over $775,000 in increased maintenance and outside services contracts.

In the FY 2018-19 budget, rate increases of 2.5% were adopted for water and wastewater service. The adopted budget of approximately $108.5 million is projected to provide funding for all operating and capital expenditures while maintaining sufficient coverage to meet debt service covenants. The primary increase in the budget is a pass through cost of $3 million for sewer treatment from the Trinity River Authority (TRA). The TRA has implemented fee increases in the past five years in order to finance their own capital program.

The Solid Waste Services Fund is also an enterprise fund of the city, responsible for all operating costs associated with residential refuse collection and operation of the city's municipal landfill. Solid Waste Services continues to face several challenges, including risk management, health and safety issues; equipment replacement needs; and landftll development needs. The FY 2018-19 budget maintains the current service delivery model, with slight increases in operating costs and a transfer of $1.16 million to establish a solid waste non-bond capital project fund. There were no increases in solid waste rates or associated fees. The total budget for the Solid Waste Services Fund for FY 2018-19 is approximately $16.2 million.

The Municipal Drainage Utility (MDU) Fund is the city's third enterprise fund. Rates for the MDU were unchanged and the FY 2018-19 budget of $5.27 million is comparable to the previous year, with slightly lower personnel costs offset by increases in infrastructure maintenance and capital project funding.

CONTACTING THE CITY'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City's Financial Services Department at City of Irving, 825 W.lrving Blvd. Irving, TX 75060 or at 972-721-2401.

* * * *

18 City of Irving, Texas Statement of Net Position September 30, 2018

Governmental Business-type Activities Activities Total Assets: Cash and cash equivalents $ 160,435,874 $ 40,482,265 $ 200,918,139 Investments 168,641,870 54,444,947 223,086,817 Receivables (net of allowance for doubtful accounts) 30,440,163 21,721,527 52,161,690 Due from other governments 1,153,494 1 '153,494 Inventories 173,823 572,289 746,112 Prepaids 181,976 10,504 192,480 Restricted assets: Cash and cash equivalents 22,470,306 22,470,306 Investments 27,194,550 27,194,550 Accrued interest receivable 184,150 184,150 Capital assets: Non-depreciable 208,851,895 54,486,368 263,338,263 Depreciable (net) 674,269,740 473,416,461 1,147,686,201 Total assets 1,244,148,835 694,983,367 1 ,939,132,202 Deferred outflows of resources Deferred charge on refundings 10,827,170 2,553,439 13,380,609 Deferred outflow from pensions 38,301,889 3,251,402 41,553,291 Deferred outflow from OPEB 882,693 151,378 1,034,071 Total deferred outflow of resources 50,011,752 5,956,219 55,967,971 Liabilities: Accounts payable 10,776,340 7,625,357 18,401,697 Accrued wages & benefits 5,524,854 836,461 6,361,315 Accrued interest payable 2,054,314 1,426,473 3,480,787 Customer deposits 8,747,626 8,747,626 Unearned revenue 900,647 900,647 Retainage payable 2,210,520 861,461 3,071,981 Sundry payables 1,768,078 1,768,078 Non-current liabilities: Due within one year: Compensated absences 1,961,583 69,615 2,031,198 Lease payable 1,548,900 1,548,900 Bonds payable (includes bond premium) 30,708,341 18,489,181 49,197,522 Water supply obligations 366,816 366,816 Other obligations 976,038 976,038 Liability for unpaid claims 4,654,012 4,654,012 Due in more than one year: OPEB liability 13,575,369 2,335,830 15,911,199 Net pension liability 126,018,452 8,688,434 134,706,886 Compensated absences 30,731,460 1,090,626 31,822,086 Lease payable 4,160,837 4,160,837 Landfill closure postclosure liability 5,660,266 5,660,266 Bonds payable (includes bond premium) 509,700,495 169,431,710 679,132,205 Water supply obligations 15,836,298 15,836,298 Liability for unpaid claims 3,805,457 3,805,457 Total liabilities 751,075,697 241,466,154 992,541 ,851 Deferred inflow of resources Deferred inflow from pensions 22,115,440 2,730,737 24,846,177 Total deferred inflow of resources 22,115,440 2,730,737 24,846,177 Net position: Net investment in capital assets 433,548,845 362,612,284 796,161,129 Restricted for: Capital projects 127,436 127,436 Debt service 18,902,539 11,895,226 30,797,765 Community development projects 100,428,418 100,428,418 Other special purposes 6,710,768 6,710,768 Unrestricted {38, 7 48,556) 82,235,185 43,486,629 Total net position $ 520,969,450 $ 456,742,695 $ 977,712,145

See accompanying notes to basic financial statements

19 City of Irving, Texas Statement of Activities Year Ended September 30, 2018

Program revenues Operating Capital Charges for grants and grants and Function/Program Activities Exl!!nses services contributions contributions

Primary Government: Governmental activities: General government $ 43,121,990 $ 5,235,299 $ - $ Police 66,527,473 6,738,479 1,177,167 Fire 53,449,850 5,693,940 1,377 Animal services 47,337 Parks and recreation 19,391,273 1,561,633 137,259 Municipal court 3,167,737 5,833,736 Library 7,850,290 276,981 52,660 Community development 40,167,465 2,195,593 14,611,982 84,782,056 Public works 36,591,927 865,570 5,809,391 Interest on long-term debt 19,601,966 Total governmental activites 289,869,971 28,448,568 15,980,445 90,591,447 Business-type activities: Water and sanitary sewer 87,167,528 112,051,868. 6~195,602 Solid waste 12,381,561 17,062,897 1,628,701 Municipal drainage 5,536,479 5,305,713 3,553,573 Total business-type activities 105,085,568 134,420,478 11,377,876 Total primary government $ 394,955,539 $ 162,869,046 $ 15,980,445 $ 101,969,323

General revenues: Taxes: Property taxes Sales taxes Franchise fees Hotel/ motel occupancy taxes Other taxes and fees Investment income Miscellaneous Gain on sale of assets Transfers (net) Total general revenues and transfers Change in net position Net position, beg of year as restated (see note 1(s)) Net position, end of year

(continued)

See accompanying notes to basic financial statements

20 Net (Expense) revenue and changes in net position

Governmental Business-type Activities Activities Total

$ (37,886,691} $ $ (37 ,886,691) (58,611 ,827} (58,611 ,827) (47,754,533) (47,754,533) 47,337 47,337 (17,692,381} (17,692,381} 2,665,999 2,665,999 (7,520,649} (7,520,649} 61,422,166 61,422,166 (29,916,966) (29,916,966) 119,601 ,966) (19,601,966) (154,849,511) (154,849,511)

31,079,942 31,079,942 6,310,037 6,310,037 3,322,807 3,322,807 40,712,786 40,712,786 $ (154,849,511} $ 40,712,786 $ (114,136,725}

143,327,357 143,327,357 68,964,196 68,964,196 21,426,401 21,426,401 26,151,358 26,151,358 2,008,287 2,008,287 5,206,766 1,876,003 7,082,769 760,156 760,156 74,571 74,571 1,011,382 {1,011,382)

268,930,474 864,621 269,795,095 114,080,963 41,577,407 155,658,370 406,888,487 415, 165,288 822,053,775 $ 520,969,450 $ 456,742,695 $ 977,712,145

(concluded)

21 City of Irving, Texas Balance Sheet Governmental Funds September 30, 2018

Nonmajor Total Debt governmental governmental General service TIF funds funds Assets: Cash and cash equivalents $ 11,193,782 $ 482,272 $ 69,830,314 $ 67,501,023 $ 149,007,391 Investments 47,280,820 19,802,043 122,401 62,699;581 . 129,904,845 Receivables (net of allowance for doubtful. accounts): Taxes 13,503,048 502,678 6,857,863 20,863,589 Franchise fees 5,045,456 5,045,456 Accrued interest 478,182 169,860 113,793 378,001 1,139,836 Accounts receivable 2,376,190 725,613 3,101,803 Due from other funds 1,110,508 1,110,508 Due from other governments 1,153,494 1,153,494 Prepaids 179,476 2,500 181,976 Total Assets $ 81,167,462 $ 20,956,853 $ 70,066,508 $ 139,318,075 $ 311 ,508,898

Liabilities: Accounts payable 3,167,895 68,032 6,831,497 10,067,424 Accrued wages and benefits 5,086,446 363,498 5,449,944 Due to other funds 1,110,508 1,110,508 Retainage payable 2,081,192 2,081,192 Sundry payables 1,121,195 630,350 1,751,545 Unearned revenue 900,647 900,647 Total liabilities 9,375,536 68,032 11,917,692 21,361,260

Deferred inflows of resources Unavailable revenue 1,767,543 502,678 2,270,221 Total deferred inflows of resources 1,767,543 502,678 2,270,221

Fund Balances: Non-spendable: Prepaids 179,476 2,500 181,976 Restricted for: Retirement of general obligation bonds and tax notes 10,894,175 10,894,175 Retirement of special revenue bonds 6,971,877 6,971,877 Retirement of revenue bonds 2,588,123 2,588,123 Police 1,532,281 1,532,281 Parks and recreation 3,674,106 3,674,106 Community development 69,998,476 35,075,200 105,073,676 Public works 72,569,743 72,569,743 Other purposes 10,747,994 10,747,994 Committed to: Economic development 650,000 650,000 Assigned to: Parks and recreation 278,721 1,412,360 1,691,081 Community development 3,411,046 3,411,046 Public works 2,559,902 2,559,902 Other capital projects 441,362 441,362 Other purposes 1,365,788 1,365,788 Unassigned 64,139,352 {615,065~ 63,524,287 Total fund balances 70,024,383 20,454,175 69,998,476 127,400,383 287,877,417 Total liabilities, deferred inflows and fund balances $ 81,167,462 $ 20,956,853 $ 70,066,508 $ 139,318,075 $ 311 ,508,898

See accompanying notes to basic financial statements

22 City of Irving, Texas Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position September 30, 2018

Total fund balances-governmental funds $ 287,877,417

Amounts reported for governmental activities in the Statement of Net Position are different because:

Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. These assets consist of:

Equipment $ 64,848,930 Land 108,783,472 Buildings and improvements 398,667,389 Other capital assets 2,285,665 Infrastructure assets 507,878,595 Construction in progress 96,544,607 Accumulated depreciation (313,844,956) Total capital assets 865,163,702

Some revenues in the governmental funds are unavailable because they are not collected within the prescribed time period after year-end. On the accrual basis, however, those revenues are recognized when earned: 2,270,221

Internal service funds are used by management to charge the costs of certain activities, such as fleet management, insurance, and computer replacement, to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net position. 52,384,573

Some long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. Those liabilities consist of:

Bonds payable $ 509,890,000 Bond premium 30,518,836 Deferred charge in refunding (10,827,170) Accrued interest on bonds 2,054,314 Payable to NCTCOG 976,038 Compensated absences 32,693,043 Total long-term liabilitie~ (565,305,061)

Net pension liability and deferred inflows and outflows from pensions plans determined as of measurement date. (108,877,497)

OPEB liability and deferred inflows and outfows from OPEB plans determined as of measurement date. (12,543,905)

Net position of governmental activities. $ =====52=0=,9=6=9,=45=0=

See accompanying notes to basic financial statements

23 City of Irving, Texas Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended September 30,2018

Non major Total Debt governmental governmental General service TIF funds funds Revenues: Taxes $ 191,812,938 $ 30,922,273 $ 10,116,652 $ 28,537,082 $ 261,388,945 Fees, licenses, permits and inspections 10,369,310 10,369,310 Fines, forfeitures, and penalties 5,121,829 3,170,239 8,292,068 Charges for services 571,791 575,721 1,147,512 Intergovernmental and intragovernmental 6,544,213 11,736,313 4,422,673 22,703,199 Investment income 1,225,854 617,060 1,035,943 1,695,910 4,574,767 Miscellaneous 8,449,318 1,119,619 9,568,937 Total revenues 224,095,253 31,539,333 22,888,908 39,521,244 318,044,738

Expenditures: Current: General government 42,469,610 42,469,610 Police 63,646,430 1,400,340 65,046,770 Fire 46,613,111 46,613,111 Animal services Parks and recreation 17,014,894 309,304 17,324,198 Municipal court 2,988,691 197,420 3,186,111 Library 6,877,852 111,800 6,989,652 Community development 17,688,787 8,444,120 26,708,123 52,841,030 Public works 19,110,561 2,290,482 21,401,043 Debt service: Principal 26,610,000 26,610,000 Interest and other charges 33,842,850 438,536 34,281,386 Contract payments 157,585 157,585 Capital outlay 57,002,816 57,002,816 Total expenditures 216,409,936 60,610,435 8!444,120 88,458,821 373,923,312 Excess (deficiency) of revenues over (under) expenditures 7,685,317 (29,071,102) 14,444,788 (48,937,577) (55,878,574)

Other financing sources (uses): Issuance of general obligation, tax notes and certificate of obligation bonds 46,065,000 46,065,000 Issuance of revenue bonds Premium on bonds issued 11,547,609 5,385,608 16,933,217 Payments to refund escrow (117,963,613) (117,963,613) Refunding bonds issued 107,61o;ooo 107,610,000 Transfers in 1,513,328 16,589,588 4,896,776 22,999,692 Transfers out (6,874,7521 {1,886,3641 (13,227,1941 {21,988,3101 Total other financing sources (uses) (5,361 ,4241 17,783,584 (1,886,3641 43,120,190 53,655,986.

Net change in fund balances 2,323,893 (11 ,287,518) 12,558,424 (5,817,387) (2,222,588)

Fund balances, beginning of year. 67,700,490 31,741,693 57,440,052 133,217,770 290,100,005

Fund balances, end of year $ 70,024,383 $ 20,454,175 $ 69,998,476 $ 127,400,383 $ 287,877,417

See accompanying notes to basic financial statements

24 City of Irving, Texas Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of. Governmental Funds to the Statement of Activities Year Ended September 30, 2018

Net change in fund balances--total governmental funds $ (2,222,588)

Amounts reported for governmental activities in the Statement of Activities are different because:

Governmental funds report capital outlays as expenditu~es. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation and other miscellaneous activity involving capital assets (ie, disposals) in the current period.

Capital outlay expenditures $ 62,505,123 Depreciation expense (22,628,024) Net adjustment 39,877,099

Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. This adjustment is to recognize the net change in "unavailable" revenues. 79,520

Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. This adjustment is to recognize the receipt of capital assets from developers. . 90,359,825

The issuance of long-term debt (e.g., bonds,. tax anticipation notes) provides current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Position. Repayment of long-term debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Position. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. This amount is the net effect of these differences in the the treatment of long-term debt and related items.

Debt issued: GO bonds, certificates of obligation, revenue bonds and note payable $ 153,675,000 Bond premium 16,933,217 Bond premium amortization (2,444,231) Deferred charge on refunding amortization 922,546 Total debt issued 169,086,532 Repayments: To bondholders/debtors (26,610,000) Payment to Escrow agent: Principal (125,255,000) Refunding loss deferred (8,294,413) ( 133,549,413) Total repayments (160,159,413) Net adjustment (8,927,119)

Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds.

Decrease in sales tax overpayment to State Comptroller for sales taxes $ (293,112) Increase in the amount of compensated absences 857,964 Increase in accrued interest on general obligation bonds (957,447) Total adjustment 392,595

To record net change in pension activity (8,386,566)

To record net change in OPEB activity (577,940)

Internal service funds are used by management to charge the costs of certain activities, such as fleet management, insurance, and computer replacement, to individual funds.

Change in net position of the internal service funds 3,486,137

Change in net position of governmental activities $ ===1=14=,o==8=o,.,96=3=

See accompanying notes to basic financial statements

City of Irving, Texas Statement of Revenues, Expenses, and Changes in Net Position Proprietary Funds Year Ended September 30, 2018

Business·!J!ee Activities· ente!Erise funds Governmental Water and Activities- sanitary Solid Municipal Internal sewer waste drainage Totals service funds Operating revenues: Charges for services $ 112,051,868 $ 16,165,024 $ 5,305,713 $ 133,522,605 $ 44,387,104 Miscellaneous 897,873 897,873 343,574 Total operating revenues 112,051,868 17,062,897 5,305,713 134,420,478 44,730,678

Operating expenses: Water purchases 9,047,727 9,047,727 Sewer treatment costs 25,611,616 25,611,616 Personnel services 12,726,268 6,556,191 2,306,003 21,588,462 1,916,832 Penson expense 315,754 140,335 148,584 604,673 148,584 OPEB expense 61,562 30,838 6,840 99,240 6,840 Supplies 3,351,686 121,330 53,425 3,526,441 5,527,522 Maintenance 2,261,609 2,250,800 1,116,023 5,628,432 266,348 Light and power 2,735,960 2,735,960 Depreciation 16,270,156 980,600 1,399,594 18,650,350 4,790,388 Sundry charges 209,174 1,640 210,814 Administrative charges 5,567,363 935,079 41,771 6,544,213 Claims 24,887,204 Insurance premiums 2,588,979 Other 3,176,736 1,366,388 318,966 4,862,090 1,732,902 Total operating expenses 81,335,611 12,381,561 5,392,846 99,110,018 41,865,599 Operating income (loss) 30,716,257 4,681,336 {87,133) 35,310,460 2,865,079

Nonoperating revenues (expenses): Investment income 1,739,774 96,998 39,231 1,876,003 631,999 Interest expense and fiscal charges (5,822,749) (143,633) (5,966,382) (85,512) Gain (loss) on sale of capital assets (9,168) (9,168) 74,571 Total nonoperating revenues (expenses) (4,092,143) 96,998 {104,402) (4,099,547) 621,058 Income (loss) before contributions and transfers 26,624,114 4,778,334 (191,535) 31,210,913 3,486,137

Capital contributions 6,195,602 1,628,701 3,553,573 11,377,876 Transfers out (1,011,382) (1,011,382)

Change in net position 32,819,716 5,395,653 3,362,038 41,577,407 3,486,137 Net position, beginning of year as restated (see note 1(s)) 367,771,138 8,767,410 38,626,740 415,165,288 48,898,436

Net position, end of year $ 400,590,854 $ 14,163,063 $ 41,988,778 $ 456,742,695 $ 52,384,573

See accompanying notes to basic financial statements

27 City of Irving, Texas Statement of Cash Flows Proprietary Funds Year Ended September 30, 2018

Businass-~l!e Activities- ente!l!rise funds Governmental Water and Activities- sanitary Solid Municipal Internal sewer waste drainage Totals service funds Cash flows from operating activities: Receipts from customers $ 111,487,654 $ 16,300,025 $ 5,300,734 $ 133,088,413 $ 45,573,431 Payments to suppliers for goods, services and claims (50,444,682) (3,584,524) (1 ,682,349) (55,711,555) (33,616,999) Payments to employees (12,676,641) (6,575, 793) (2,349,754) (21,602,188) (1,923,014) Other receipts 897,873 897,873 133,116 Other payments (1 ,498,054) Net cash provided by operating activities 48,366,331 7,037,581 1,268,631 56,672,543 8,668,480

Cash flows from noncapital financing activities: Transfer to other funds {1,011,382) {1,011,382) Net cash used In noncapital financing activities !1 ,011,382) {1,011,382)

Cash flows from capital and related financing activities: Proceeds from sale of revenue bonds 15,305,000 15,305,000 Premium received on sale of bonds 1,243,545 1,243,545 Proceeds from lease agreement 1,321,116 Principal paid on lease payable (1,278,648) Proceeds from sale of capital assets 397,650 Acquisition of capital assets (22,054,284) (2,920,894) (833,395) (25,808,573) (3,291,279) Principal paid on revenue bonds (15,770,000) (200,000) (15,970,000) Principal paid on water supply rights (355,260) (355,260) . interest paid lease payable (85,512) Interest paid on revenue bonds I water supply rights !7.456,998) {143,633) {7,600,631) Net cash used in capital and related financing activities !29,087,997) {2,920,884) (1,177,028) !33, 185,919) {2,936,671)

Cash flows from investing activities: Interest on investments 1,503,870 85,896 31,218 1,620,984 447,572 Purchase of investments (130,097,678) (5,926,419) (2, 160, 782) (138,184,879) (44,436,667) Maturities and sale of investments 130,721,820 2,974,893 1,495,969 135,192,682 39,149,602 Net cash provided by (used in) Investing activities 2,128,012 {2.865,630) !633,595) {1,371,213) !4,839,493)

Net increase (decrease) in cash and cash equivalents 21,406,346 239,675 (541,992) 21,104,029 892,316

Cash and cash equivalents, beginning of year 33,670,664 5,471,654 2,706,224 41,848,542 10,536,167 Cash and cash equivalents, end of year 55,077,010 5,711,329 2,164,232 62,952,571 11,428,483 Classified as: Current assets - unrestricted 32,777,897 5,711,329 1,993,039 40,482,265 11,428,483 Current assets - restricted 22,131,185 171,193 22,302,378 Noncurrent assets - restricted 167,928 167,928 Total $ 55,077,010 $ 5,711,329 $ 2,1641232 $ 62,952,571 $ 11,4281483

(continued) See accompanying notes to basic financial statements

28 City of Irving, Texas Statement of Cash Flows Proprietary Funds Year Ended September 30, 2018

Business·!n!e Activities- ente!J!rise funds Governmental Water and activities- sanitary Solid Municipal Internal sewer waste drainase Totals service funds Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ 30,716,257 $ 4,681,336 $ (87,132) $ 35,310,461 $ 2,865,079 Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation 16,279,323 980,600 1,399,594 18,659,517 4,790,388 Changes in assets, deferred outflows of resources, liabilities and deferred Inflows of resources: (Increase) decrease in accounts receivable (371,426) 135,001 (4,979) (241,404) 975,869 (Increase) decrease in inventories 160,193 160,193 (39,955) Decrease in deferred outflow from pensions 3,025,056 1,344,469 509,065 4,878,590 509,065 (Increase) in difference outflow from OPEB (93,066) (47,971) (9,861) (150,898) (10,341) (Decrease) increase In accounts payable 1,122,725 820,882 (150,524) 1,793,083 (366,683) (Decrease) in accrued wages and beneflts (27,826) (24,781) (19,428) (72,035) (6,181) Increase in sundry payable 10,536 Increase in retainage payable 225,104 225,104 129,328 Increase in estimated liability for unpaid claims 154,676 Increase in OPEB payable 154,629 78,809 16,701 250,139 17,181 (Decrease) in net pension liabilities (4,209,325) (1,870,811) (467,703) (6,547,839) (467,703) Increase in landfill closure and post closure 268,191 268,191 (Decrease) in compensated absences 77.452 5,179 (24,323) 58,308 (Decrease) in deposits (192,788) (192,788) lncrrease In deferred inflow from pensions 1,500,023 666,677 107,221 2,273,921 107,221

Total adjustments 17,650,074 2,356,245 1,355,763 21,362,082 5,803,401 Net cash provided by operating activities $ 48,366,331 $ 7,037,581 $ 1,268,631 $ 56,672,543 $ 8,668,480

Noncash financing, capital, and Investing activities: Capitalized Interest $ 550,853 $ $ $ 550,853 $ Contributions of capital assets 6,195,602 3,553,573 9,749,175 Transfer of capital assets 1,628,701 1,628,701 Total noncash activities $ 6,746,455 $ 1,628,701 $ 3,553,573 $ 11,928,72.9 $

See accompanying notes to basic financial statements

29 City of Irving, Texas Statement of Fiduciary Net Position Fiduciary Funds September 30, 2018

Agency fund Pension Cash trust funds bond Assets

Cash and cash equivalents $ 2,034,168 $ 21,061 Investments, at fair value U.S. government securities 1,438,689 Common stock 30,892,698 Alternative investment/hedge funds 18,510,857 Mutual funds 4,016,795 Corporate bonds 6,048,884 Receivables: Accounts Receivable 97,111 Accrued interest on investments 172 Total assets 63,039,374 21,061

Liabilities

Sundry payables 21,061

Total liabilities 21,061

Net position

Net position restricted for pensions $ 63,039,374 $

See accompanying notes to basic financial statements

30 City of Irving, Texas Statement of Changes in Fidupiary Net Position Fiduciary Funds Year Ended Septemper 30, 2018

Pension trust funds

Additions: Employee contributions $ 2,618,492 Employer contributions 2,180,700 Investment income Net increase in fair value of investments 3,078,827 Interest income 1,666,216 Total investment income 4,745,043 Less investment expense {331,260} Net investment income 4,413,783 Total additions 9,212,975

Deductions: Benefits and refunds paid 3,912,959 Administrative costs 158,528 Total deductions 4,071,487

Change in net position 5,141,488

Net position, beginning of year 57,897,886

Net position, end of year $ 63,039,374

See accompanying notes to basic financial statements

31 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Page

1. Summary of Significant Accounting Policies 33

2. Cash and Cash Equivalents and Investments 43

3. Property Tax 46

4. Receivables 48

5. Capital Assets 50

6. Capital Leases 53

7. Long-Term Debt 54

8. Contractual Obligations for Water Supply and Wastewater Treatment 62

9. Inter-fund Balances 63

10. Self-Insurance Fund 64

11. Employee Pension Plans 65

12. Voluntary Employee Beneficiary Association 79

13. Other Post-Employment Benefits 80

14. Landfill Closure and Postclosure Care Cost 86

15. Tax Abatement and Economic Incentives 87

16. Commitments and Contingencies 87

17. Fund Balance/Net Position Deficit 88

18. Subsequent Events 88

19. New Accounting Principals 89

32 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

(1) Summary of Significant Accounting Policies The City of Irving,. Texas (the City), was incorporated in 1914 under Article XI of the Constitution of the State of Texas (Home-Rule Amendment). The City operates under a Council-Manager form of government and provides such services as are authorized by its charter to advance the welfare, health, comfort, safety, and convenience of the City and its inhabitants.

The accounting policies of the City conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to state and local governments. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant accounting and reporting policies and practices used by the City are described below:

(a) Reporting Entity The City is a municipality governed by an elected mayor and eight-member council. As required by GAAP, these fmancial statements present the City (the primary government) and its component units. The component units are included in the City's reporting entity because of the significance of their operational or financial relationships with the City based upon the criteria of GASB Statement No. 14, The Financial Reporting Entity, as amended by GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units and GASB Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34. Generally, GASB Statements No. 14 and GASB Statement No. 61 require entities upon which the City is able to impose its will, or that are fiscally dependent upon the City, to be included in the City's financial reporting entity. Additionally, those entities that the nature and significance of their relationship with the City is such that exclusion from the City's fmancial reporting entity would render the City's fmancial statements incomplete or misleading, should also be included in the City's reporting entity.

Blended Component Units- Those entities that meet the above-established criteria for inclusion, as well as either of the following criteria: (1) provide services entirely or almost entirely for the City, or (2) whose board is substantively the same as the City's Council, and (a) the primary government and the component unit have a financial benefit or burden relationship or (b) management (below the level of the elected officials) of the primacy government have operational responsibility for the activities of the component unit are required to be included· as part of the primary government's financial statements through "blended" presentation. The entities that meet the above-established criteria for inclusion as a blended component unit are:

City of Irving Supplemental Benefit Plan (SBP) - The board consists of nine members of which five are elected by employees and four are appointed by Council resolution. The Irving City Council adopts the budget for SBP and sets the employee and employer contribution rates based upon actuarial valuations. The Irving City Council is authorized to establish benefit levels and approve actuarial assumptions used in the determination of contribution levels. The SBP is a fiduciary fund and does not have separately issued financial statements.

City of Irving Voluntary Employee Beneficiary Association (VEBA) - The Irving City Council adopts the budget for the VEBA and sets the employee and employer contribution rates. The Irving City Council is authorized to establish benefit levels and approve assumptions

33 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

used in the determination of contribution levels. VEBA is a fiduciary :t}md and does not have separately issued fmancial statements.

Irving Housing Finance Corporation (IHFC)- The IHFC was incorporated in November 2006 for the purpose of benefiting and accomplishing public purposes of, and on behalf of, the City. The IHFC board is comprised of the City Council members, with the Mayor acting as President. All IHFC transactions are reviewed by the Executive Director of the Housing and Huinan Services Department and the IHFC Treasurer (City's Chief Financial Officer) who are employees of the City. IHFC is "blended" in the City's financial statements, as a special revenue fund, and does not have separately issued financial statements.

(b) Basis of Presentation

The basic fmancial statements include both government-wide (based on the City as a whole) and fund fmancial statements.

Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the non-fiduciary activities of the primary government and its component units. For the most part, the effect of i.ri.ter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.

The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment; and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not included among program revenues are reported as general revenues.

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide fmancial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund fmancial statements.

Measurement Focus, Basis ofAccounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund fmancial statements. The agency fund applies the accrual basis of accounting but has no measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recogruzed as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met.

Governmental fund fmancial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are 34 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018 collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences, claims and judgments, and sales tax overpayments are recorded only when the liability has matured.

Property taxes, sales taxes, hotel/motel taxes, gross receipts taxes, intergovernmental revenues, certain charges for services, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when the City receives the cash.

Funds Governmental funds are those through which most governmental functions typically are fmanced The City reports the following major governmental funds:

General Fund- The General Fund is the City's primary operating fund It accounts for all resources of the general government, except those that are required legally or by sound fmancial management to be accounted for in another fund.

Debt Service Fund- The Debt Service Fund accounts for the accumulatjon of resources for, and the payment of, general long-term debt principal and interest. The general long-term debt serviced by the Debt Service Fund consists of general obligation bonds and special revenue bonds due in annual installments from 2017 through 2053. The City's property tax is levied, in part, to fmance the debt service agreements of the general obligation bonds.

TIF Fund - The TIF fund accounts for the resources and expenditures incurred in administering Tax Increment Financing (TIF) programs. The City has 5 TIPs to support economic development and fmance public infrastructure.

Proprietary funds are used for services for which the City charges customers whether to outside customers or other units of the City. The City reports the following major proprietary funds: Water and Sanitary Sewer Fund - The Water and Sanitary Sewer Fund accounts for the provision of water and sewer services to the residents of the City. All actiVities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operation, maintenance, new construction, fmancing and related debt service, and billing and collections.

Solid Waste Fund ., The Solid Waste Fund accounts for the provision of solid waste collection and disposal services to the residents of the City. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operation, maintenance, new construction, and financing and related debt service.

Municipal Drainage - The Municipal Drainage Utility Fund accounts for fees assessed to property owners for improvements to the storm water drainage system and to provide for treatment facilities as required by federal legislation.

35 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Additionally, the City reports the following funds: Internal service funds account for garage and equipment replacement, the City's self insurance programs and computer replacement provided to other departments of the City, on a cost reimbursement basis. These funds primarily support governmental activities.

The pension trust funds account for the activities of the Supplemental Benefit Plan and the Voluntary Employee Beneficiary Association, which accumulate resources for pension related benefits to qualified City employees and an agency fund to account for cash bond funds.

As a general rule the effect of inter-fund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the City's enterprise functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.

Amounts reported as program revenues include 1) charges to. customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, generalrevenues include all taxes.

Proprietary funds distinguish 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 a proprietary fund's principal ongoing operations. The principal operating revenues of the City's proprietary funds are charges to customers for sales and services; operating expenses include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

Except in certain instances, when both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, and then unrestricted resources as they are needed.

For pension trust funds, contributions from members are recorded when the employer makes payroll deductions from plan members. Employer contributions are recognized when due. Benefits and refunds are recognized when due and payable in accordance with the terms of the plans.

Non-current governmental assets and liabilities not reported at the fund level are included in the Governmental activities column in the government-wide Statement ofNet Position.

(c) Cash, Cash Equivalents, and Investments State statutes and policy as established by the City Council authorize the City to invest in certificates of deposit, direct obligations of the U.S. Treasury including its agencies and instrumentalities, municipal bonds, and investment pools consisting of U.S. Treasury obligations, repurchase agreements, commercial paper, and mutual funds.

The City's policy is to record investments with maturities of one year or less at the time of purchase at amortized cost. All other investments are recorded at fair value. It is the City's (exclusive of the SBP Fund) practice to hold all investments to maturity.

36 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Trustees for the SBP are authorized to invest in fixed income, U.S. equities, non-U.S. equities, real estate, and alternative investments.

(d) Cash and Cash Equivalents For purposes of the statement of cash flows, the City considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased and investment pools to be cash equivalents.

(e) Inventories Inventories are recorded as expenditures in governmental funds at the time of purchase and accordingly, have not been reported on the governmental funds Balance Sheet. Inventories for the proprietary funds consist of fuel and parts, and are recorded at cost using the first in/fust out method.

(j) Inter-fund Transactions Inter-fund Receivables and Payables During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. These receivables and payables are classified as "due from" or "due to" other funds, as they are expected to be repaid within one year. Internal amounts due between governmental and business type activities as of the end of the year are reflected within the government-wide financial statements.

Transactions Between Funds

Transactions between funds, which would have been treated as revenues, expenditures, or expenses if they involved organizations external to the governmental unit, are accounted for as revenues, expenditures, or expenses in the funds involved Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from that fund which are. properly applicable to another fund are recorded as expenditures or expenses in the reimbursing fund and as reductions of the expenditure or expense in the fund reimbursed. Reimbursement for services provided by the General Fund to the enterprise funds are recorded as revenues and expenses respectively.

Eliminations are made in the Statement of Activities to remove the doubling-up effect of internal service fund activity. The effects of similar internal events that are, in effect, allocations of overhead expenses from one function to another or are within the same function are eliminated The effect of inter-fund services provided and used between functions is not eliminated in the Statement of Activities. Internal service fund asset and liability balances that are not eliminated in the Statement of Net Position are reported in the governmental activities column.

(g) Water Supply Rights Water supply rights represent the City's contractual rights to utilize water at Lake Chapman for municipal and industrial use. The City began receiving water from Lake Chapman during fiscal year 2003 .. Water rights are being amortized on a straight-line basis over the term of the related obligation of 50 years. See notes l(k) and 8 for additional information regarding the City's contractual obligations.

37 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

(h) Capital Assets Capital assets are defined by the government as those tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period. Property, plant, and equipment purchased or acquired is carried at historical cost or estimated historical cost if original cost is not available (estimated fair value, plus any ancillary charges, at time of receipt for assets contributed). Public domain (infrastructure) assets consisting of roads, bridges, curbs and gutters, streets and sidewalks, drainage systems and lighting systems have been recorded at estimated historical cost. Infrastructure assets are long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets.

The City of Irving's capitalization threshold for capital assets is $5,000. Major outlays for capital assets and improvements are capitalized as projects are constructed. Maintenance and repairs are charged to operations as incurred whereas improvements and betterments that extend the useful lives of capital assets are capitalized. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed, if significant. However, interest is not capitalized in the governmental activities, as this is prohibited under Generally Accepted Accounting Principles (GAAP). For fiscal year 2018, interest costs were capitalized in the Water and Sanitary Sewer fund in the amount of $550,853.

Capital assets are depreciated over their estimated useful lives unless they are inexhaustible (such as land, land improvements and art work). Capital assets that are being or have been depreciated are reported net of accumulated depreciation in the Statement of Net Position. Depreciation expense for capital assets that can be specifically identified with a function are included in that function's direct expenses whereas depreciation expense for shared capital assets are ratably included in the direct expenses of the appropriate function unless otherwise indicated as unallocated. Depreciation expense for general infrastructure assets is not allocated to the various functions but is reported as a direct expense of the function normally associated with capital outlays for, and maintenance of, infrastructure assets.

Capital assets are depreciated using the straight-line method over the following estimated useful lives:

Capital Assets Estimated Useful Life

Buildings and improvements 40-50 years Infrastructure and plant 50 years Furniture, fixtures, and equipment 5-20 years Vehicles 2-12 years

38 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

(i) Deferred outflows/inflows In addition to assets, the statement of fmancial position may have a separate section of deferred outflow of resources. This separate section will represent a consumption of net position that applies to a future period(s) and will not be recognized as an outflow of resources (expenses/expenditure) until then. The City has the following items that qualify for reporting in this category:

• Deferred charges on refundings - A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. Amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. o Pension and OPEB contributions after measurement date -These contributions are deferred and recognized in the following fiscal year. • Difference between projected and actual earnings related to pensions- This difference is deferred and amortized over a closed five year period. o Difference in assumption changes related to pensions and TMRS SDBF plan - This difference is deferred and amortized over a closed five year period. o Difference in assumption changes related to Retiree Health Care OPEB plan - This difference is deferred and amortized over the estimated average remaining service lives of all members determined as of the measurement date. ~~~ Difference in expected and actual experience related to pensions - This difference is deferred and amortized over a closed five year period.

In addition to liabilities, the statement of financial position may have a separate section of deferred inflow of resources. This separate section will represent an acquisition of net position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that time. The City has two items that qualify for reporting in this category. The difference between expected and actual economic experience related to pensions, and unavailable revenue. Unavailable revenue is reported only in the governmental funds balance sheet. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available.

(j) Federal and State Grants and Entitlements Grants and entitlements received for purposes normally financed through the general government are accounted for within the special revenue funds. Community Development Block Grants are the more significant grants classified as special revenue funds. Revenues are recognized when all eligibility requirements have been met and the funds are available.

(k) Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Deferred losses are amortized over the life of the bonds using the straight line method. In the fund financial statements, governmental funds recognize bond premiums and discounts as well as bond issuance costs, during the current period. The face amount of the debt issued is reported as other financing sources. Premiums received are reported as other financing sources while discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

39 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

General obligation bonds, which have been issued to fund capital projects of the general government, are to be repaid from the ad valorem tax revenues of the City. General obligation bond debt is recorded in the governmental activities column in the Statement of Net Position.

Special revenue bonds, which have been issued to fund a number of civic projects, are to be repaid primarily from the hotel occupancy tax revenues of the City. Special revenue bond debt is recorded in the governmental activities column in the Statement of Net Position.

Water and Sanitary Sewer revenue bonds, which have been issued to fund capital projects, are to be repaid from the net revenues of the Water and Sanitary Sewer System fund. Water and Sanitary Sewer revenue bond debt is accounted for in the Water and Sanitary Sewer fund. Likewise, Municipal Drainage Utility System revenue bonds issued for the purpose of drainage improvements are to be repaid from the net revenues of the Municipal Drainage fund.

Water supply obligations, which represent long-term contracts between the City and the U.S. government for specified rights to a water supply in return for payment of costs to construct facilities, are to be repaid from the net revenues of the Water and Sanitary Sewer fund. Water supply obligation debt is accounted for in the Water and Sanitary Sewer fund.

Inthe governmental funds Balance Sheet, liabilities arising from inter-fund activities and matured liabilities (other than those associated with proprietary or fiduciary funds) are reported as governmental fund liabilities. Matured liabilities include: (1) liabilities that normally are due and payable in full when incurred, and (2) the matured portion of general long-term indebtedness (the portion that has come due for payment). Debt service on formal debt issues (such as bonds and tax notes) is recognized as a governmental fund liability and expenditure when due.

(I) Compensated Absences All regular full-time employees accrue vacation and sick leave on a bi-weekly basis. Vacation leave may only be accrued up to a maximum number of hours, based on an employee's length of service. Sick leave may be accrued up to an unlimited amount. Compensatory leave may be accrued up to a maximum amount.

Upon employee termination and completion of the six (6) month orientation period, the City pays for unused vacation and compensatory leave up to a maximum allowable accrual. General government employees are not paid for accrued sick leave; however, police officers and firefighters may be paid up to 2,500 hours if certain requirements are met.

(m) Nature and Purpose of Classifications ofFund Equity

Governmental Funds fund balances classified as restricted are balances with constraints placed on the use of resources by creditors, grantors, contributors or laws or regulations of other governments. Fund balances classified as committed· can only be used for specific purpose pursuant to a formal action approved by the City Council through an ordinance. Assigned fund balances are constrained by the intent to be used for specific purposes but are neither restricted nor committed. Assignments are made by City Council or City management as discussed before the Audit and Finance Committee of the City Council and approved by the City Manager and Chief Financial Officer in accordance with the City's financial policies.

40 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

For the classification of Governmental Fund balances, the City considers expenditures to be made from the most restrictive first when more than one classification is available. Net position restricted for revenue bond retirement in the Proprietary Funds is a reserve required by revenue bond covenants.

Summary of major purpose classifications of fund equity:

Non- SEendable Restricted Committed Assisned Prepaids $ 181,976 $ - $ - $ Debt service 20,454,175 Police 1,506,985 Promote tourism and convention, venue and hotel industry 77,007,817 Special Assessments 715,009 Housing 182,888 Public infrastructure 28,718,964 Landfill improvements Economic development 650,000 3,411,046 Park improvements 720,083 Fire facilities City building improvements Municipal courts 1,787,376 Communications systems Encumbrances 1,365,788 Other 322,510 Total $ 181,976 $ 130,695,724 $ 650,000 $ 5,496,917

(n) Minimum Fund Balance Policy

It is the desire of the City to maintain adequate fund balance in operating funds to maintain liquidity, as well as, anticipation of economic downturns or natural disasters. The City Council has adopted a financial policy to target a minimum fund balance, for operations, of 30% of annual revenues.

(o) Net Position

In the government-wide financial statements, the net position is reported in three components (1) net investment in capital assets, (2) restricted, and (3) unrestricted. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of · other governments.

(p) Use ofEstimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect

41 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

(q) Pensions The City has three pension plans, Firemen's Relief and Retirement Fund, Supplemental Benefit Plan and Texas Municipal Retirement System. Information about the fiduciary net position of the City's 'pension plans and additions to/deductions from the plan's fiduciary net position have been determined on the same basis as they are reported by each of the City's pension plans. For this purpose, benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments in the plans are reported at fair value.

(r) Other Postemployment Benefits (OPEB) OPEB cost for retiree healthcare and similar, non-pension retiree benefits, is required to be measured and disclosed using the accrual basis of accounting. Annual OPEB cost is calculated in accordance with GASB Statement 75. (s) Restatement ofNet Position's Beginning Balance The implementation of Government Accounting Standards Board Statement 75, "Accounting and Financial Reporting for Postemployment Benefits Other Than Pension ", resulted in the restatement of beginning net position liability for the elimination of the previously reported OPEB liability and the beginning deferred outflow from OPEB. Prospectively applying this change results in the adjustment as follow:

Government-wide Statement of activities Governmental Business-type activities activities Beginning Net position at September 30, 2017 as previously reported $ 409,254,952 $ 416,117,115 Elimination of OPEB liability at September 30, 2017 9,741,431 1,133,384 Recording of OPEB liability at September 30, 2017 (12,148,981) (2,092,102) Deferred outflow from OPEB 41,085 6,891 Beginning Net position as restated at September 30, 2018 $ 406,888,487 $ 415,165,288

42 CITY OF mVING, TEXAS Notes to Basic Financial Statements September 30, 2018

Fund Level Proprietary statement of revenues, expenses and changes in net position Water and Solid Municipal Internal sanitary sewer waste drainage service funds Beginning Net position at September 30, 2017as previously reported $ 368,538,850 $ 8,809,594 $ 38,768,671 $ 48,718,512 Elimination of OPEB liability at September 30, 2017 509,667 623,717 321,855 Recording of OPEB liability at September 30,. 2017 (1,281,697) (667,994) (142,411) (142,411) Deferred outflow from OPEB 4,318 2,093 480 480 Beginning Net position as restated at September 30, 2018 '$ 367,771,138 $ 8,767,410 $ 38,626,740 $ 48,898,436

(2) Cash and Cash Equivalents and Investments State statutes, the City's Investment Policy and the City's Depository and 11:\vestment Agreement govern the investments of the City (exclusive of the SBP). Major provisions of the City's investment policy include the following: depositories must be FDIC-insured institutions, depositories must fully insure or collateralize all deposits, and investments must be purchased in the name of the City and be delivered to the City's agent for safekeeping. The deposits and investments of the SBP are held separately from those of other City funds by an outside trustee appointed by the City.

Deposits- At September 30, 2018, the carrying amount of the City's (exclusive of SBP) deposits was $38,739,066 and the bank balance was $42,894,586 which was entirely covered by federal depository insurance or by collateral held by the City's agent in the City's name. Supplemental Benefit Plan deposits of $1,844,511, representing money market mutual funds, are held by a bank trust and are managed by independent investment managers for the ultimate benefit of City employees who participate. These investments are reported at fair value. At September 30, 2018, the City's cash on hand totaled $14,867.

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43 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Investments- The City's investments held as of September 30, 2018, were as follows:

Fair Value Measurement Using

Quoted Prices Significant in Active Other Weighted Markets for Observable Average Carrying Identical Assets Inputs Maturity Amount (Level.l) (Level2) (days) City - Pooled investments Federal Home Loan Bank Disc. Notes $ 73,426,186 $ - $ 73,823,601 193 Federal Home Loan Mortgage Assoc. 38,579,984 38,850,552 132 Federal Fami Credit Bank Disc. Notes 7,186,234 7,216,555 137 Federal Agricultural Mortgage Corporation 26,192,873 26,418,457 106 Treasury Bill 104,896,088 105,413,227 162 Texpool Investment Pool 92,459,417 28 TexStar Investment Pool 92,386,194 30

Subtotal 435,126,976 251,722,392

Supplemental Benefit Plan (SBP) Fair Value: Federal National Mortgage Association 2,355 2,355 NA United States Treasury Notes 1,436,334 1,436,334 NA Common Stocks 30,892,698 30,892,698 NA Mutual Funds 4,016,795 4,016,795 NA Corporate Bonds 6,048,884 6,048,884 NA Alternative Investments/Hedge Funds 18,510,857 NA

Subtotal 60,907,923 30,892,698 11,504,368 Total $ 496,034,899 $ 30,892,698 $ 263,226,760

All of the above items with a maturity date of three months or less from date of purchase and investment pools are included in cash equivalents for financial reporting purposes.

Fair Value Measurement- The City categorizes its fair value measurement within the fair value hierarchy established by generally accepted accounting principles. GASB Statement No. 72, Fair Value Measurement and Application provides a framework for measuring fair value which established three level fair value hierarchy that describes the inputs that are used to measure assets and liabilities.

• Levell inputs are quoted prices (unadjusted) for identical assets and liabilities in active markets that government can access at the measurement date.

• Level 2 inputs are inputs (other than quoted prices within Levell) that are observable for an asset and liability, either directly or indirectly.

44 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

• Level3 inputs are unobservable inputs for an asset or liability. For current year, City reflects no Level 3 inputs.

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. If a price for an identical asset or liability is not observable, a government should measure fair value using another valuation technique that maximizes the use of· relevant observable inputs and minimizes the use of unobservable inputs. If the fair value of an asset or a liability is measured using inputs from more than one level of the fair value hierarchy, the measurement is considered to be based on the lowest priority level input that is significant to the entire measurement.

For the City, Investment Pools and Money Market accounts are measured at amortized cost or net asset value (NAV) and are exempt from fair value reporting. Texpool and TexStar investment pools are governed by the Public Funds Investment Act, Chapter 2256 of the Texas Government Code.

For the SBP (Plan), Commons Stock and Preferred Stock are classified in Level 1 of the fair value hierarchy using prices quoted in active markets for those securities. Alternative Investment/Hedge Funds are measured at NAV and are exempt from fair value reporting. TexSTAR and TexPool are external investments pools measured at amortized cost to report net position to compute share prices. Accordingly, the fair value of the position in these pools is the same as the value of the shares in each pool.

For the City, U.S. Government Agencies and U.S. Treasury Bills and for the SBP Plan, US Government Agencies, US Treasury Notes, Mutual Funds, Corporate Bonds and Municipal Obligations are classified in Level 2 of the fair value hierarchy are valued using a matrix pricing technique. Matrix pricing is used to value securities based on the securities' relationship to benchmark quoted prices.

Interest Rate Risk- This is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways the City of Irving manages its exposure to interest rate· risk is by diversifying its portfolio, investing in a combination of investment pools, treasury bills. The City also holds investments until maturity and times cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations and obligations. The City of Irving monitors the interest rate risk inherent in its portfolio by measuring the weighted average maturity of its portfolio on a quarterly basis. The City's investment policy (exclusive of SBP Fund) 'limits the weighted average of its portfolio to 365 days for its operating funds. At September 30, 2018, the maximum weighted average maturity (WAM) by investment type was 160 days~

The SBP portfolio managed by Federated Investors in a Core Aggregate strategy is constrained in regards to duration to that of the benchmark index, the Barclays Capital U.S. Aggregate Index with a typical duration range that is +/- 20% of the duration of this benchmark index. A portion of the SBP fixed income is invested in Blackstone Real Estate Income Fund (BRIEF). BRIEF primarily invests in commercial mortgage backed securities, CMBS, and a broad range of predominantly liquid real estate debt instruments and is generally hedged to protect against interest rate changes. Another portion is invested in Blackstone Real Estate Debt Securities (BREDS). BREDS primarily invest in public or private debt relating to real estate assets or real estate companies or real estate related holdings.

Credit Risk- Generally, this is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. By policy, the City of Irving requires a minimum rating of AAA or its 45 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

equivalent on some investments. The City's investments in U.S. Agency securities (FHLB, FAMC, FHLMC and FFCB) were rated AA+, AAA and Aaa by Standard & Poors, Fitch and Moody's, respectively. The investment in Texas Local Government Pools (Texpool and Texstar) carried a credit rating of AAA by Standard and Poor's as of September 30,2018.

The investment policy of the SBP requires that the fixed income account managed by any manager shall maintain a weighted average credit rating that falls within the "A" category or better, as determined by the major credit ratings agencies at all times. Mutual funds and private investments are controlled by their respective legal documents. Fixed income securities for SBP made up 31% of total investments as of September 30,2018.

Concentration of Credit Risk- The City of Irving limits investment in any investment type to a maximum of 50% of the portfolio except for investment pools which may be a maximum of only 20% of the portfolio excluding bond proceeds, per individual pool. For SBP, managers shall not invest more than 5% ofthe Funds' value in the issuesofany one issuer, with the sole exceptions ofthe U.S. Government, its agencies, or instrumentalities. The strategic target for all fixed income investments shall range from 35%- 100% .. The SBP limits this type of risk by requiring a maximum of 25% of the market value of the entire fund in an industry, and a maximum of 5% in any one company with the sole exception of the U.S. Government, its agencies or instrumentalities.

Custodial Credit Risk- This is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The City requires its collected deposits in excess of the federal depository insurance to be collateralized by the depository institution at the rate of 102.5% of the value of the deposits. The collateral must be in the form of an instrument authorized by the State of Texas Public Fund Investment Act held by the City's agent in the City's name.

(3) Property Taxes Property taxes attach as an enforceable lien on property as of January 1. The City's property tax is levied on October 1 on the taxable value listed as of the prior January 1 for all real and business personal property located in the City. Appraised values are established by the Dallas Central Appraisal District at 100% of estimated market value and are certified by the Appraisal Review Board. The taxable value for the beginning of fiscal year 2018 as provided by the Dallas County Tax Office was $24,131,805,578.

The City is permitted by Article XXI; Section 5, of the State of Texas Constitution to levy taxes up to $2.50 per $100 of appraised valuation for general governmental services including the payment of principal and interest on.general obligation long-term debt. Under the City Charter, however, a limit on taxes levied for the same governmental services has been established at $1.50 per $100 of appraised valuation. The tax rate for the year ended September 30, 2018 was $0.5941 ($0.4650 for general government and $0.1291 for debt service) per $100 of appraised valuation. Thus, the City has a tax margin of $0.90 per $100 and could levy up to approximately $217 million in taxes per year from the present appraised valuation.

Taxes are due immediately following the October 1 levy date and are considered delinquent after the following January 31. Current tax collections for the year ended September 30, 2018 were 99.42% of the adjusted tax levy.

Delinquent property taxes of $1,578,949 and $503,893 are included in taxes receivable in the General Fund and Debt Service Fund, respectively. 46 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

In Texas, county-wide central appraisal districts are required to assess all property within the appraisal district on the basis of 100% of its market value and are prohibited from applying any assessment ratios. The value of property within the appraisal district must be reviewed every three years; however, the City may, at its own expense, require annual reviews of appraised values. The City may challenge appraised values established by the appraisal district through various appeals and, if necessary, legal action. Under this system, the City sets tax rates on City property.

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47 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

(4) Receivables Receivables at September 30, 2018 for Governmental Activities of the City's individual major funds and non-major and internal service funds in the aggregate, including the applicable allowances for uncollectible accounts, consist of the following:

Total Debt Non-major Internal Governmental Receivables General Service TIF Funds Service Activities

Property taxes $ 2,234,975 $ 686,028 $ - $ - $ 2,921,003 Sales taxes 11,865,400 11,865,400 Hotel occupancy taxes 6,546,057 6,546,057 Admissions taxes 220,490 220,490 Franchise fees 5,045,456 91,316 5,136,772 Municipal court receivable 15,763,692 15,763,692 Accrued interest 478,182 169,860 113,793 378,001 289,479 1,429,315 Accounts receivable 3,276,599 725,613 59,807 4,062,019 Total gross receivables 38,664,304 855,888 113,793 7,961,477 349,286 47,944,748 Less allowance for doubtful accounts Property Taxes (597,327) (183,350) (780,677) Municipal ,court receivable (15,446,314) (15,446,314) Accounts receivable ~1,217,787} ~59,8072 ~1,277,594}

Total allowance ~17,261,428) (183,3502 ~59,807) ~17,504,5852 Total receivables, net $ 21,402,876 $ 672,538 $ 113,793 7,961,477 $ 289,479 $ 30,440,163

Receivables at September 30, 2018 for the City's enterprise funds net of allowance for uncollectible accounts consist of the following:

Water and Municipal Total Business- Receivables Sanitary Sewer Solid Waste Drainage type Activities

Accounts receivable $ 21,248,052 $ 1,562,492 $ 418,527 $ 23,229,071 Accrued interest 302,416 14,943 3,190 320,549 Accrued interest, restricted 179,133 5,017 184,150

Total gross receivables 21,729,601 1,577,435 426,734 23,733,770

Less allowance for doubtful accounts (1,360,361) (352,892) (114,840) (1,828,093)

Total receivables, net $ 20,369,240 $ 1,224,543 $ 311,894 $ 21,905,677

48 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Governniental funds report unavailable and unearned revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of unavailable revenue and unearned revenue reported in the governmental funds were as follows:

Unavailable Unearned . Delinquent property taxes receivable (general fund) $ 1,637,648 $ Accounts receivable (general fund) 129,895 Delinquent property taxes receivable (debt service fund) 502,678 Grant draw downs prior to meeting all eligibility requirements (non-major governmental funds) 900,647

Total unavailable/unearned for governmental funds $ 2,270,221 $ 900,647

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49 50 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

Depreciation expense was charged to functions/programs as follows (in thousands):

Governmental Business-Type Activities Activities

General government $ 7,578 $ Police 1,841 Fire 2,063 Public health and environmental services 1,121 Parks and recreation 2,963 Municipal court 84 Library 822 Planning and development 49 Drainage utilities 275 Public works 10,611 Solid Waste 981 Municipal drainage 1,399 Water and sanitary sewer 16,270 $ 27,407 $ 18,650

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51 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

The governmental activities construction in progress is funded principally by general obligation bonds or special revenue bonds and is comprised of the following as of September 30, 2018 (in thousands):

Expenditures Commitments Total Project Inception To For Future Authorization Sept. 30, 2018 Expenditures

Storm Sewer $ 7,615 $ 7,048 $ 567 Park Improvement 5,094 4,238 856 Fire 2,562 2,163 399 Convention Center Hotel 26,636 26,636 Convention Center Hotel Garage 8,290 8,290 City Building Improvement 679 679 Non-Bond CIP 3,905 2,626 1,279 Street Improvement 51,955 45,732 6,223 System Applications 2,974 371 2,603 Radio Communication 263 263

Total governmental activities $ 109,973 $ 97,783 $ 12,190

The business-type activities construction in progress is funded principally by revenue bonds and utility operations and is composed of the following as of September 30,2018 (in thousands):

Expenditures Commitments Total Project Inception To For Future Authorization Sept. 30, 2018 Expenditures

Water Improvement $ 7,370 $ 4,172 $ 3,198 Sewer Improvement 26,792 11,215 15,577 Water and Sewer 33,880 24,024 9,856 Municipal Drainage 2,524 2,024 500 Solid Waste 7,131 4,424 2,707

Total business-type activities $ 77,697 $ 45,859 $ 31,838

52 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

( 6) Capital Leases The City entered into a lease agreement as lessee for financing the acquisition of various fire equipment which is payable from governmental activities. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of their future minimum lease payments as of the inception date.

The assets acquired through a capital lease are as follows:

Governmental Activities Assets: Equipment $ 9,947,700 Less: Accumulated depreciation (1,917,889)

Total $ 8,029,811

The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2017 are as follows:

Year ending Governmental September 30 Activities

2019 1,646,147 2020 1,646,147 2021 1,409,369 2022 961,789 2023 281,988

Total minimum future lease payments 5,945,440

Less: Amount representing interest (235,703) Present value of minimum lease payments $ ======5,709,737

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53 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

(7) Long-Term Debt

Bonds payable at September 30, 2018 are comprised of the following:

Governmental Activities General Obligation Bonds $39,155,000 General Obligation Refunding and Improvement Bonds, Series 2009 due in annual principal payments ranging from $890,000 to $3,680,000 through September 15, 2029. Rates range from 2.5% to 5%. $ 12,290,000 $17,975,000 General Obligation Bonds, Series 2010 due in annual principal payments ranging from $895,000 to $900,000 through September 15, 2030. Rates range from 2% to 5%. 10,775,000 $34,770,000 General Obligation Refunding and Improvement Bonds, Series 2011 due in annual principal payments ranging from $105,000 to $7,930,000 through September 15, 2031. Rates range from 2.0% to 5.0%. 33,110,000 $22,350,000 General Obligation Refunding and Improvement Bonds, Series 2012 due in annual principal payments ranging from $605,000 to $1,680,000 through September 15,2032. Rates range from .05% to 3%. 16,695,000 $17,835,000 General Obligation Bonds, Series 2013 due in annual principal payments ranging from $890,000 to $895,000 through September 15, 2033. Rates range from 2% to 4.5%. 13,360,000 $19,860,000 General Obligation Bonds, Series 2014 due in annual principal payments ranging from $985,000 to $1,000,000 through September 15,2034. Rates range from 3% to 5%. 15,860,000 $22,770,000 General Obligation Refunding and Improvement Bonds, Series 2015 due in annual principal payments ranging from $620,000 to $4,730,000 through September 15, 2035. Rates range from 2% to 4%. 14,690,000 $43,195,000 General Obligation Refunding and Improvement Bonds, Series 2016 due in annual principal payments ranging from $1,185,000 to $8,445,000 through September 15, 2036. Rates range from 4% to 5.5%. 28,990,000 $30,080,000 General Obligation Bonds, Series 2017 A due in annual principal payments ranging from $235,000 to 3,105,000 through September 15, 2037. Rates range from 3% to 5%. 26,975,000

$30,405,000 General Obligation Refunding Bonds, Series 20 17B due in annual principal payments ranging from $1,205,000 to $2,885,000 through September 15, 2029. Rates range from 4% to 6%. 29,200,000 $2,545,000 Tax Notes, Series 2018 due in annual principal payments ranging from $505,000 to $510,000 through September 15, 2022. Rate is 2.09%. 2,040,000 $2,860,000 Tax Notes, Series 2018A due in annual principal payments ranging from $345,000 to $840,000 through September 15, 2022. Rate is 5%. 2,515,000 $40,660,000 General Obligation Bonds, Series 2018 due in annual principal payments ranging from $825,000 to $3,440,000 through September 15, 2038. Rates range from 3.375% to 5%. 40,660,000 $ 247,160,000

54 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Special Revenue Bonds $8,750,000 Combination Tax and Revenue Certificates of Obligation, Series 20 13A due in annual principal payments ranging from $40,000 to $780,000 through September 15, 2032. Rates range from 2% to 3%. $ 8,440,000 $3,210,000 Combination Tax and Revenue Certificates of Obligation, Series 2013B due in annual principal payments ranging from $40,000 to $250,000 through September 15, 2032. Rates range from 2% to 3.125%. 2,900,000 $5,775,000 General Obligation Refunding Taxable Bonds, Series 2013 due in annual principal payments ranging from $625,000 to $695,000 through September 15, 2021. Rates range from 1% to 2.25%. 2,045,000 $20,725,000 Combination Tax and Revenue Certificates of Obligation, Series 2014 due in annual principal payments ranging from $395,000 to $2,010,000 through September 15,2033. Rates ranges from 3% to 5%. 20,330,000 $24,660,000 Hotel Occupancy Tax Revenue Refunding Bonds, Taxable Series 20 14A due in annual principal payments ranging from $195,000 to $1,805,000 through August 15, 2053. Rates range from 4.606% to 7.25%. 24,660,000 $39,655,000 Hotel Occupancy Tax Revenue Bonds, Tax-Exempt Series 2014B due in annual principal payments ranging from $190,000 to $3,375,000 through August 15,2043. Rates range from .65% to 5.5%. 36,905,000 $13,025,000 Combination Tax and Revenue Certificates of Obligation, Taxable Series 2017A due in annual principal payments ranging from $155,000 to $995,000 through September 15,2037. Rates range from 3.1% to 3.65% 12,615,000 $25,040,000 Combination Tax and Revenue Certificate of Obligation, Taxable Series 2017B due in annual principal payments ranging from $395,000 to $1,775,000 through September 15, 2046. Rates range from 3.25% to 3.5% 25,040,000 $107,610,000 Combination Tax and Hotel Occupancy Tax Revenue Refunding Bonds, Series 2017 due in annual principal payments ranging from $1,490,000 to $9,080,000 through September 15, 2039. Rates range from 3% to 5.5%. 104,750,000 $ 237,685,000 Revenue Bonds

$29,095,000 Solid Waste Disposal System Revenue Refunding Taxable Bonds, Series 2012 due in annual principal payments ranging from $150,000 to $2,365,000 through September 30,2032. Rate is fixed at 4.67% for 15 years, thereafter based on adjusted LIBOR rate plus 270 basis points. $ 25,045,000 $ 25,045,000

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55 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Business-Type Activities Revenue Bonds $21,475,000 Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2009 due in annual principal payments ranging from $680,000 to $2,595,000 through August 15, 2029. Rates range from 3% to 5%. $ 9,955,000 $69,005,000 Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2011 due in annual principal payments ranging from $1,370,000 to $6,165,000 through August 15, 2031. Rates range from 4.5% to 5%. 32,220,000 $40,035,000 Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2012, due in annual principal payments ranging from $630,000 to $3,745,000 through August 15, 2032. Rates range from 1% to 3%. 22,755,000 $17,430,000 Waterworks and Sewer System New Lien Revenue Improvement Bonds, Series 2013, due in annual principal payments ranging from $600,000 to $1,210,000 through August 15,2033. Rates range from 2% to 4.25%. 14,170,000 $17,095,000 Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2015, due in annual principal payments ranging from $470,000 to $1,265,000 through August 15,2035.. Rates range from 2% to 4%. 16,115,000 $30,265,000 Waterworks and Sewer System New Lien Revenue Refunding and Improvement Bonds, Series 2016, due in annual principal payments ranging from $775,000 to $2,875,000 through August 15, 2036. Rates range from 3% to 5%. 24,750,000 $19,910,000 Waterworks and Sewer System New Lien Revenue Improvement Bonds, Series 2017 A, due in annual principal payments ranging from $365,000 to $1,400,000 through August 15, 2037. Rates range from 3% to 5%. 19,545,000 $19,285,000 Waterworks and Sewer System New Lien Revenue Refunding Bonds, Series 20 17B, due in annual principal payments ranging from $40,000 to 2.265,000 through August 15, 2028. Rates range from 2% to 5%. 18,510,000 $15,305,000 Waterworks and Sewer System New Lien Revenue Improvement Bonds, Series 2018, due in annual principal payments ranging from $435,000 to 1,095,000 through August 15, 2038. Rates range from 3% to 5%. 15,305,000 $2,120,000 Municipal Drainage Utility System Revenue Bonds, Series 2010 due in annual principal payments ranging from $80,000 to $145,000 through August 15,2030. Rates range from 2% to 4.25%. 1,430,000 $2,660,000 Municipal Drainage Utility System Revenue Bonds, Series 2013 due in annual principal payments ranging from $95,000 to $190,000 through August 15,2033. Rates range from 2% to 4.375%. 2,150,000 $ 176,905,000

56 . CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

Long-term liability activity for the year ended September 30, 2018 was as follows (in thousands):

Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities: Bonds: General obligation bonds $ 221,485 $ ' 46,065 $ 20,390 $ 247,160 $ 21,255 Special revenue bonds 260,300 107,610 130,225 237,685 4,405 Revenue bonds 26,295 1,250 25,045 1,305 Net premiums 16,030 16,933 2,444 30,519 3,743 Total bonds payable 524,110 170,608 154,309 540,409 30,708 Other liabilities: Liability for insurance claims 8,305 24,870 24,716 8,459 4,654 Lease payable 5,667 1,321 1,278 5,710 1,549 Compensated absences ' 31,835 16,482 15,624 32,693 1,962 OPEB liability 12,149 1,426 13,575 Net pension liability 167,139 41,121 126,018 Other obligations: NCTCOG 976 976 976 State comptroller 293 293 Total other liabilities 226,364 44,099 83,032 187,431 9,141 Total governmental activities long term liabilities $ 750,474 $ 214,707 $ 237,341 $ 727,840 $ 39,849

Beginning Ending Due Within Balance Additions Reductions Balance One Year Business-type activities: Bonds and contractual obligations payable payable: Revenue bonds $ 177,570 $ 15,305 $ 15,970 176,905 $ 16,755 Net premiums 11,651 1,244 1,879 11,016 1,734 Water supply obligations 16,558 355 16,203 367 OPEB liability 2,092 244 2,336 Net pension liability 15,236 6,548 8,688 Landfill closure and postclosure care liability 5,392 268 5,660 Compensated absences 1,102 1,149 1,091 1,160 70 Total business-type activities long-term liabilities $ 229,601 $ 18,210 $ 25,843 $ 221,968 $ 18,926

The City intends to retire its general obligation bonds, plus interest, from future ad valorem taxes and other revenues. Special revenue bonds, plus interest, will be repaid from future revenues such as hotel occupancy taxes, ad valorem taxes, public improvement district assessments, city and state local taxes and mixed beverage taxes. Solid Waste Disposal System Revenue bonds will be repaid from budgeted economic development revenues of the General Fund. Compensated absences, net pension obligations and net other postemployment benefit obligations are generally liquidated by the General Fund. The City has other obligations payable to North Central Texas Council of Governments (NCTCOG) and is payable per a land bank agreement and amount is estimated to be due in fiscal year 2020 and will be paid from available economic development funds in the

57 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

General Fund. Revenue bonds and water supply obligations of the Water and Sanitary Sewer Enterprise Fund and Municipal Drainage revenue bonds will be repaid, plus interest, from the net operating revenues of the funds. ,Future obligations for landfill closure and compensated absences will be funded using current and future revenues.

Annual debt service requirements to maturity for long-term bonded debt are as follows (in thousands):

General Obligation Special Revenue Governmental Activities Bonds Bonds Revenue Bonds Principal Interest Principal Interest Principal Interest

Years ending September 30: 2019 $ 21,255 $ 10,929 $ 4,405 $ 10,370 $ 1,305 $ 1,170 2020 21,705 9,597 5,125 10,209 1,370 1,112 2021 22,285 8,617 6,060 10,007 1,430 1,044 2022 21,370 7,618 6,365 9,761 1,500 978 2023 20,660 6,676 6,925 9,476 1,570 908 2024-2028 75,240 21,813 46,180 42,122 9,020 3,372 2029-2033 45,545 7,975 56,095 31,252 8,850 1,057 2034-2038 19,100 1,636 58,260 19,651 2039-2043 31,750 9,456 2044-2048 8,640 4,368 2049-2053 7,880 1,793

Total $ 247,160 $ 74,861 $ 237,685 $ 158,465 $ 25,045 $ 9,641

Business-T~12e Activities Revenue Bonds Water Su£Eli: Obli~ations Principal Interest Principal Interest

Years ending September 30: 2019 $ 16,755 $ 7,357 $ 367 $ 527 2020 16,375 6,512 379 515 2021 15,590 5,776 391 503 2022 13,920 5,150 404 490 2023 12,530 4,566 417 477 2024-2028 51,980 15,521 2,297 2,172 2029-2033 34,600 6,161 2,696 1,774 2034-2038 15,155 1,336 3,164 1,306 2039-2043 2,845 770 2044-2048 1,929 406 2049-2051 1,314 87

Total $ 176,905 $ 52,379 $ 16,203 $ 9,027

58 CITY OF mVING, TEXAS Notes to Basic Financial Statements September 30,2018

(a) General Obligation Bonds and Tax Notes

On July 5, 2018, the City of Irving issued $40,660,000 in General Obligation Bonds, Series 2018. Proceeds including $5,168,513 in net reoffering premiums will be used to provide (a) $27,200,000 for street improvements, (b) $3,830,000 for park improvements, (c) $1,300,000 for City building improvement, (d) $700,000 in fire services improvements, (e) $750,000 for radio communication improvements, (f) $11,720,000 in drainage improvements and (g) the cost associated with the issuance of bonds. These 20 year bonds have interest rates that range from 3.375% to 5%. Principal payments range from $825,000 to $3,440,000 and are payable annually and interest is payable semi-annually until maturity (September 15, 2038).

On April18, 2018 and July 5, 2018, the City of Irving issued $2,545,500 in Tax Notes, Series 2018 and $2,860,000 in Tax Notes, Series 2018A respectively. Tax Notes, Series 2018A included $217,092 in net premiums. Proceeds from both issues will be used (a) to acquire information technology related equipment and replacements and (b) the cost associated with the issuance of bonds. Tax Notes, Series 2018 and Series 2018A have annual rates of 2.09% and 5% respectively. Principal payments range from $505,000 to $510,000 for Series 2018 and $345,000 to $840,000 for Series 2018A and are payable annually and interest payable semi-annually until maturity (September 15, 2022).

The City is required by ordinance to create from ad valorem tax revenues a sinking fund sufficient to pay the current principal and interest installments as they become due. The Debt Service Fund has $10,894,175 available to service the general obligation bonds and tax notes as of September 30, 2018. The remaining fund balance is available to service special revenue bonds, as well as, revenue bonds.

Arbitrage provisions of the Tax Reform Act of 1986 require the City to rebate excess arbitrage earnings from bond proceeds to the Internal Revenue Service. For the fiscal year ended September 30, 2018, no rebate liability was accrued on General Obligation Bonds.

(b) Special Revenue Bonds On October 19, 2017, the City of Irving issued $107,610,000 in Combination Tax and Hotel Occupancy Tax Revenue Refunding Bonds, Series 2017. Total sources received in this refunding was $133,557,609 comprised of $119,157,609 of bond proceeds including premiums, $11,100,000 from prior reserve funds and $3,300,000 from funds dedicated for debt service. Sources from this refunding are to be used to redeem $125,255,000 of Combination Tax & Hotel Occupancy Tax Revenue Certificates of Obligation, Series 2009 and pay the cost associated with the issuance. The refunding bonds have interest rates that range from 3% to 5.5%. Principal payments range from $1,490,000 to $9,080,000 and are payable annually and interest payable semi-annually until maturity (September 15, 2039). The amount remitted to the escrow agent was $132,363,613 and will be held by the escrow agent until refunded bonds are redeemed. The reacquisition price exceed the net carrying amount of the old debt by $8,294,413. The amount is being amortized over the life of the refunded debt which is the same as the life of the new debt issued. This advanced refunding resulted in an economic gain of $23,055,718 and a reduction of debt service payments of $54,381,255.

The Combination Tax and Revenue Certificates of Obligation Bonds are Special Revenue bonds secured and payable from a pledge of ad valorem taxes, as well as, other specified pledged revenue such as (a) special assessments levied within the Public Improvement District, (b) State sales taxes, 59 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

State hotel occupancy taxes, City's sales taxes, mixed beverage taxes paid within the Convention Center Hotel project for a ten year period and (c) 5/7th of the hotel occupancy tax collected at the Convention Center Hotel project.

The Hotel Occupancy Tax Revenue Bonds, Combination Tax and Hotel Occupancy Tax Revenue Certificates of Obligation and the General Obligation Refunding Taxable Bonds are Special Revenue Bonds secured and payable from a pledge of both hotel occupancy taxes and ad valorem taxes. The City is required by Bond Ordinance to create and maintain an Interest and Sinking Fund to be used for the payment of debt service on the Special Revenue Bonds outstanding. These funds are restricted in use as explained below.

Interest and Sinking Fund - The Interest and Sinking Fund is used to pay principal and interest on the Special Revenue Bonds as they become due and payable. The City is required to make quarterly deposits to the fund to meet the debt service requirements. Amounts available to service the Special Revenue Bonds totaled $1,339,789.

Reserve Fund - The Reserve Fund is to be used to pay principal and interest on the Special · Revenue Bonds if the amount in the Interest and Sinking Fund is insufficient for such purpose. As of September 30, 2018, the total amount required to be accumulated in the Reserve Fund is $5,481,294. Actual accumulation in the Reserve fund at September 30, 2018 is $5,632,088.

(c) Solid Waste Disposal System (Heritage) Revenue Bonds The Solid Waste Disposal System (Heritage) Revenue Bonds are payable solely from and secured by a lien on and pledge of the Solid Waste Disposal System revenues; the debt service payments are made from the General Fund; therefore, the bonds are reflected as governmental activities.

Interest and Sinking Fund ~ The Interest and Sinking Fund is used to pay principal and interest on the Solid Waste Disposal System Revenue Bonds as they become due and payable. The City is required to make monthly deposits to the fund to meet the debt service requirements. Amounts available as of September 30, 2018 to service the Revenue Bonds totaled $27,592.

Reserve Fund - The Reserve Fund is to be used to pay principal and interest on the Solid Waste Disposal System Bonds if the amount in the Interest and Sinking Fund is insufficient for such purpose. On June 7, 2012, the reserve requirement for these revenue bonds was established at $2,418,815 which is determined by the lesser of (i) Maximum Annual Debt Service at date of issuance, (ii) 125% of average Debt Service or (iii) 10% of the original principal of bonds at date of issuance. As of September 30, 2018, the total amount required to be accumulated in the Reserve Fund is $2,481,815. Actual accumulation in the Reserve fund at September 30,2018 is $2,560,531.

(d) Municipal Drainage Utility System Revenue Bonds The Revenue Bonds are payable solely from and secured by a lien on and pledge of the Pledged Revenues of the Municipal Drainage Utility.

60 CITY OF ffiVING, TEXAS Notes to Basic Financial Statements September 30, 2018

Interest and Sinking Fund - The Interest and Sinking Fund is used to pay principal and interest on the Municipal Drainage Utility System Revenue Bonds as they become due and payable. The City is required to make equal monthly installments to the fund to meet the debt service requirements. Amounts available to service the Municipal Drainage Utility System Revenue Bonds totaled $353,944 at September 30, 2018.

Reserve Fund - The Reserve Fund is to be used to pay principal and interest on the revenue bonds if the amount in the Bond Fund is insufficient for such purpose. As of September 30, 2018, the total amount required to be accumulated in the Reserve Fund is $317,340. Actual accumulation in the Reserve fund at September 30, 2018 is $334,757.

(e) Water and Sanitary Sewer Revenue Bonds On July 5, 2018, the City sold $15,305,000 of Waterworks & Sewer System New Lien Revenue Improvement bonds, Series 2018. The bond proceeds and $1,243,546 of net premiums are to be used for certain improvements and extensions to the City's Waterworks and Sewer System and pay the cost associated with the issuance of the bonds.

The Revenue Bonds are payable solely from and secured by a lien on and pledge of the Pledged Revenues ofthe City's Waterworks and Sewer System (the System).

The City is required by Bond Ordinance to create and maintain certain funds to be held for the payment of debt service on the outstanding Revenue Bonds. These funds, as fully explained below, are restricted in use and held by the City.

New Lien Interest and Sinking Fund- The New Lien Interest and Sinking Fund is used to pay principal and interest on the New Lien Revenue Bonds as they become due and payable. The City is required to make equal monthly deposits to the fund to meet the debt service requirements. As of September 30, 2018, the amount required should be 1112 of the next principal payment and 1/6 of the next interest payment totaling $1,883,520. Amounts held in the New Lien Interest and Sinking Fund totaled $3,067,548 at September 30, 2018.

New Lien Reserve Fund- The New Lien Reserve Fund is used to pay principal and interest on the New Lien Revenue Bonds falling due at any time amounts in the New Lien Interest and Sinking Fund are insufficient to meet such payments. The Bond Ordinance requires the City to maintain an amount equal to greater of (i) 50% of the average annual principal and interest requirements of all outstanding bonds or (ii) 33.3% of the maximum annual principal and interest requirements of all outstanding bonds. Based on the outstanding New Lien Revenue Bonds at September 30, 2018, the total amount required to be accumulated within 60 months in the New Lien Reserve Fund is $7,913,949. Amounts held in the New Lien Reserve Fund at September 30, 2018 totaled $7,913,949.

Compliance with Debt Covenants- At September 30, 2018, and for the year then ended, management believes that the City was in compliance with all financial bond covenants on outstanding revenue and general obligation debt.

61 CITY OF ffiVING, TEXAS Notes to Basic Financial Statements September 30,2018

(f) Water Supply On March 29, 1968, the City entered into a water supply contract (the Agreement) with the U.S. government whereby the City has received the right to utilize a specified supply of water stored at Lake Chapman (formerly Cooper Reservoir), which has been designated for municipal and industrial use. The City began amortizing these rights in fiscal year 2004 over the term of the related obligation of 50 years. Interest rate on the obligation is 3 .25%.

Under the provisions of the Agreement, the City has incurred a contractual obligation which represents a specified percentage of the construction costs of the Lake by the U.S. Army Corps of Engineers, including estimated future operation, maintenance, and replacement costs after completion of the project.

The first payment for initial water supply use was due and payable within 30 days following the date upon which the Lake became operative for other purposes (date of deliberate impoundment September 28, 1991). Payments thereafter are due within 30 days of the anniversary date of the first payment. The first payment for future water supply use was due and payable within 30 days of the 1Oth anniversary of the date of notification of deliberate impoundment.

(g) Defeased Bonds Outstanding - In current and prior years, the City issued refunding bonds to defease certain outstanding bonds for the purpose of consolidation and to achieve debt service savings. The City has placed the proceeds from the refunding issues in irrevocable escrow accounts with a trust agent to ensure payment o( debt service on the refunded bonds. Accordingly, the trust account assets and liabilities for the defeased bonds are not included in the City's fmancial statements. Although defeased, the refunded debt from these earlier issues will not be actually retired until the call dates have come due or until maturity if they are not callable issues. On September 30,2018, $125,255,000 ofbonds outstanding are considered defeased.

(8) Contractual Obligations for Water Supply and Wastewater Treatment Long-term contracts between the City and other goveminental authorities give the City specified rights to water supply and wastewater treatment, in return for payment of costs to construct facilities serving the City and a portion of the operating expenses of those facilities.

Wastewater Treatment

On March 16, 1973, the City entered into an agreement with the Trinity River Authority (1RA) whereby TRA agreed to provide a wastewater treatment and disposal system for the benefit of the City and other cities located within the Upper Trinity River Basin. Each city pays its proportionate share of operating expenses and debt service of TRA. The City's annual payment for the year ended September 30, 2018 was $25,587,488. The agreement will remain in effect through the year 2023 or until any outstanding bonds or refunding bonds have been paid in full.

Water Supply

On February 22, 1955, the City, the City of Grand Prairie and the City of Dallas entered into an agreement whereby Dallas would provide treated water supply. The current contract expires in 2033. The annual payment for the year ended September 30, 2018 was $2,953,419.

62 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

On June 30,2003, the City entered into an agreement with the City of Dallas whereby Dallas would provide treatment of and storage for the City's water from Jim Chapman Lake for thirty years. The annual payment for the year ended September 30, 2018 was $5,559,249.

(9) Inter-fund Balances

(a) Inter-fund Receivables and Payables: Inter-fund receivable and payable balances at September 30, 2018 were as follows:

Receivables Payables

General fund $ 1,110,508 $ Non-major governmental 1,110,508 Total $ 1,110,508 $ 1,110,508

Inter-fund receivables and payables consist of:

• Administrative fees for the collection, accounting and distribution of hotel occupancy taxes due to General Fund.

• Receivables due from various non-major funds to the General fund;

These balances are expected to be liquidated during the next fiscal year.

(b) Inter-fund Transfers: Transfers are made from one fund to the other for services or assets provided to other funds. Transfers made between funds during the year are listed below.

Transfers In Debt Service Non-major General Fund Fund Governmental Total

Transfers out: General Fund $ $ 2,477,976 $ 4,396,776 $ 6,874,752 TIF 81,500 1,804,864 1,886,364 Solid Waste 1,011,382 1,011,382 Non-major governmental fUnds 1,431,828 11,295,366 500,000 13,227,194 $ 1,513,328 $ 16,589,588 $ 4,896,776 $ 22,999,692

Inter-fund transfers consist of: • General Fund to Debt Service for debt payments of revenue bonds;

• TIF transfers for debt payments and administrative cost.

• Convention Center Complex and Entertainment Venue, and Solid Waste funds to the Debt Service Fund to pay for the debt related to these activities;

• General Fund to several grants within the non-major governmental fund for grant activities and projects;

63 CITY OF IRVING, TEXAS Notes to Basic Firulncial Statements September 30,2018

• Transfers within non-major governmental funds to pay for capital projects.

(10) Self-Insurance Fund

The City is exposed to various risks of loss· related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees, natural disasters, and outstanding medical claims. During fiscal year 1989, the City established a Self-Insurance Fund (an internal service fund) to account for and finance its uninsured risks of loss. Under this program, the Self-Insurance Fund provides coverage for up to a maximum of $500,000 for each workers' compensation, employer liability claim, and combined workers' compensation and employer liability, and all physical damages to City vehicles. The City purchases commercial insurance for claims in excess of coverage provided by the Self Insurance Fund and for all other.risks of loss. Settled claims have not exceeded their commercial coverage for any of the past three fiscal years. The City also accounts for the provision of employee health insurance through the City-sponsored PPO and illdemnity plan. Premiums are paid into the fund by the City and by employees. Premiums are set by actuaries at an amount to cover claims, fees, administrative costs and the purchase of excess reinsurance. All actuarial-determined, outstanding medical claims are expected to be paid within the next twelve months.

All funds of the City participate in the program and make payments to the Self-Insurance Fund based on historical cost and actuarial estimates of the amounts needed to pay any unfunded portions o.f prior year claims and estimated current year claims and to establish a reserve for catastrophic losses. The reserve was $24,343,018 at September 30, 2018, which is represented by the net position of the City's Self Insurance Fund. The claims liability of$8,459,469 reported in the fund at September 30,2018 is based on the requirements of GASB No. 10, as amended, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues. It requires that a liability for claims be reported if information, prior to the issuance of the financial statements, indicates that it is probable that a liability has been incurred at the date of the financial statements, and the amount of the loss can be reasonably estimated. Effective January 1, 2007, the City no longer offered an HMO insurance plan. Employees previously in the HMO plan had the option to elect the City-sponsored PPO plan. The increase in participants resulted in increase in claims activity. The liability for unpaid claims includes the effects of specific incremental claims, adjustment expenses, and if probable material, salvage, and subrogation. Changes in the estimated liability for unpaid claims in fiscal years 2017 and 2018 were:

Current Year Beginning of Claims and Fiscal Year Changes in Balance at Fiscal Liability Estimates Claim Payments YearEnd

2016-2017 $ 9,398,203 $ 23,024,740 $ 24,118,150 $ 8,304,793

2017-2018 $ 8,304,793 $ 24,870,448 $ 24,715,772 $ 8,459,469

64 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

(11) Employee Pension Plans The City participates in three retirement plans at September 30, 2018. The Firemen's Relief and Retirement Fund (FRRF) is a defined benefit plan covering the City's firefighters. The Supplemental Benefit Plan is a contributory defined benefit plan covering all full-time City employees (excluding Fire Civil Service employees and nonresident aliens). The City is also a member of the Texas Municipal Retirement System (TMRS). TMRS is a statewide agent multi-employer, joint contributory, hybrid defmed benefit plan.

For employees participating in FRRF or TMRS, the total annual amount of the City contribution for retirement benefits for such employees shall not exceed 16.75% of the total annual salaries of such employees.

The FRRF and the Supplemental Benefit Plan are reported using the economic resources measurement focus and the accrual basis of accounting. Contributions, benefits, and refunds paid are recognized when due. A summary of the net pension liability, deferred outflow and inflows and pension expense are below and discussed further in detail in the following footnote:

FRRF SBP TMRS Total Net pension Liability $ 75,794,333 $ 23,666,981 $ 35,245,572 $ 134,706,886 Deferred outflow 18,372,396 5,722,370 17,458,525 41,553,291 Deferred inflow 5,091,187 19,754,990 24,846,177 Pension expense (current year) 5,631,441 1,550,377 1,204,746 8,386,564

(a) Firemen's Relief and Retirement Fund (FRRF) The Board of Trustees of the Irving FRRF is the administrator of the FRRF, a single-employer contributory defmed benefit pension plan. FRRF is not a part of the City's reporting entity because the City does not have fiduciary responsibility of the FRRF assets, is not able to impose its will on the FRRF, nor is the FRRF fiscally dependent on the City, since the Board of Trustees has the ability to complete certain essential fiscal events such as the determination of employee contribution rates, without approval by the City, and the board is not appointed by the City Council. FRRF covers current and former Fire Department personnel of the City, as well as certain beneficiaries of former Fire Department personnel. Separate audited fmancial statements are available and can be obtained by contacting Irving Fire Department at the City of Irving, 845 W. Irving Blvd, Irving, Texas 75060.

All full-time employees of the City of Irving Fire Department are members of the Irving FRRF.

Benefits: Members and the City each contribute to the Fund. Members contributions are ''picked up" by the City, as permitted under Section 414(h)(2) of the Internal Revenue Code. For this reason, a member's contributions are excluded from his taxable income when paid into the Fund.

Members receive credit for service for the period of employment during which they pay into, and keep on deposit in the Fund, the contributions required by the Fund. Service also includes periods 65 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018 during which the member received a disability benefit from the Fund in excess of the minimum $200 monthly benefit for covered members. However, the service granted during periods of disability is limited to the amount of service, if any, necessary to bring the member's total service up to 20 years.

Retirement, death, disability and terminations benefits are calculated based upon a member's average compensation. Average compensations is based on the member's pay for the 78 consecutive two-week pay periods during which his total pay was the highest.

Service retirement benefits are payable for the member's lifetime. fu the event a member's death precedes that of their spouse, two-thirds of the member's pension will be continued to the spouse for their lifetime. A member is eligible to elect early retirement upon completion of 20 years of service and attainment of age 45. A member who-retires under the early retirement provisions of the Fund will receive reduced monthly retirement benefits. fu the event of the disability of a plan participant before the date the_ plan participant qualifies for a service retirement benefit, the plan participant will receive a monthly benefit, payable in the same form as the service retirement benefit. However, disability benefits stop if a member recovers to the point they no longer meet the definition of disability under the plan. · fu the event of the death of a plan participant who is in active service, the plan participant's spouse will receive a monthly benefit equal to the sum of 42.33 percent of the member's average monthly compensation, plus two-thirds of the monthly retirement benefit which the member had accrued as of the date of his or her death. This benefit is payable for the spouse's lifetime; however, in the event of the spouse's death, the benefit is continued to the children eligible for the orphan's benefit.

The sum of all benefits payable on behalf of a plan participant may not exceed the service retirement benefit to which participant was entitled as of the date of participant's death. fu the event such benefits do exceed this limit, each beneficiary's benefit is reduced pro rata until the sum of the benefits complies with this limitation.

If a plan participant has completed at least 20 years of service but has not attained age 50 on participant's date of termination, participant will be entitled to receive a monthly retirement income commencing at age 50. The amount of such benefit will equal the monthly retirement benefit the plan participant had earned as of participant's date of termination.

Plan participants who terminate service prior to the date they complete ten years of service will be entitled to receive the return of their employee contributions. However, plan participants who terminate with at least ten years of service may elect to receive, in lieu of their accumulated contributions, a monthly retirement benefit, commencing on the date the plan participant would have both attained 11ge 50 and completed 20 years of service, equal to a pro rata share of participant's anticipated retirement benefit at date of termination, multiplied by the appropriate vested percentage.

66 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

The types of employees covered and current plan membership as of December 31, 2017 (the date of the most recent Plans fmancial statement) are as follows:

Retirees and beneficiaries currently receiving benefits 186 Terminated employees entitled to but not yet receiving benefits 2 Active members 365 Total 553 Contributions: The Irving FRRF is subject to a state-mandated minimum employer contribution rate equal to the lessor of (a) the fire fighter contribution rate or (b) 12 percent of covered payroll. The contribution rates of Plan members and the City are established under the terms of the Plan. An actuarial valuation is performed every two years to evaluate the levels to which Plan assets and contributions are able to meet the benefit liability. Cost of administering the Fund are paid form Plan assets.

The member's contribution rate was 12 percent of their covered payroll from October 1, 201 7 to December 31, 2017 and 13 percent of covered payroll from January 02, 2018 to September 30, 2018. Effective January 01, 2017, the City began contributing to the fund at a rate of 16.75% of covered payroll.

Net Pension Liability: The City's Net Pension Liability (NPL) was measured as of December 31, 2017 and the Total Pension Liability (TPL) used to calculate the NPL was determined by an actuarial valuation prepared as of December 31, 2017.

Actuarial assumptions: The TPL was determined using the following assumptions utilized in the preparation ofthe actuarial report prepared as ofDecember 31, 2017:

Inflation 2.75% Salary increases 3.00% to 11.30%, including inflation Investment Rate of Return 7.50%, net of pension plan investment expense, including inflation

Salary increases were based on service related tables. Mortality rates were changed from RP2000 Mortality Table, male and female rates, projected to 2015 using scale AA, with separate rates from males and females to the Employee and Healthy Annuitant Combined Rates from the RP-2000 Mortality Table, projected to 2024 using Scale AA, with separate rates for males and females. The mortality changes were made in order to recognize mortality improvement through the valuation date and provide a margin for future mortality improvements. The assumed retirement age and the salary increase rates were developed based on the plan's own experience. Disability and termination rates were based on published rates. The actuarial cost method used in the valuation is the individual entry age normal actuarial.

The assumed retirement age for active members are· based on a study which developed rates of retirement for ages 50 through 62, the age at which the large majority of retirements occur. Twenty years of service is required in order to be eligible for service retirement under the fund. The rate at which active members' salary is assumed to increase each year is 3.50% compounded annually.

67 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

The assumed 7.50 percent rate of return can be considered to include a provision for inflation. at 2.75 percent per year, although other combinations of real return, risk premium and inflation are also accounted for by an 7.50 percent assumed rate. The rate of return is net of trust expenses. The same inflation component was used in the assumed rate of return on the actuarial value of assets, the • assumed increases in compensation for individual members and other actuarial assumptions.

Plan assets are managed on a total return basis with a long-term objective of achieving and maintaining funded status for the benefits provided through the pension plan.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset cla8s. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Long-Term Expected Real Asset Target Rate of Return Class Allocations (Arithmetic) Fixed Income 9.57% 0.22% Large Cap Growth 12.41% 0.86% Large Cap Value 12.12% 1.06% Small and Mid Cap Growth 5.72% 0.45%

Small and Mid Cap Value 3.51% I 0.29% Emerging Markets 4.98% 0.41% International Equity 16.09% 0.81% Real Estate 19.06% 1.57% Absolute Return 5.12% 0.56% Alternative Investments 8.87% 0.20% Cash and Short-term Fixed 2.55% 0.00% 100.00%

Discount Rate: The discount rate used to measure the total pension liability was 7.50 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and the contributions from the City will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefits of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

68 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Changes in the Net Pension Liability: Increase (Decrease) · Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Balance at 12/31/2016 $ 263,248,311 $ 186,556,007 $ 76,692,304 Changes for the year Service cost 5,461,243 5,461,243 Interest 21,589,896 21,589,896 Change in benefit terms Difference between expected and actual experience (744,153) (744,153) Changes in assumption 14,226,764 14,226,764 Contributions - employer 5,404,238 (5,404,238) Contributions - employee 4,058,163 (4,058,163) Net investment income 32,063,819 (32,063,819) Benefit payments, including refunds of employee contributions (14,027,717) (14,027,717) Administrative expense (97,045) 97,045 Other changes 2,546 (2,546) Net changes 26,506,033 27,404,004 (897,971) Balance at 12/3112017 $ 289,754,344 $ 213,960,011 $ 75,794,333

The following presents the net pension liability of the City calculated using the discount rate of7.50 percent, as well as, what the Plan's net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher that the current rate:

1% Decrease Current 1% Increase 6.50% 7.50% 8.50% City's net pension liability $ . 98,213,820 $ 75,794,333 $ 56,556,973

Pension Plan Fiduciary Net Po~~tion: Detailed information about the Plan's Net Position is available in a separately issued audited fmancial statements and can be obtained by contacting the Irving Fire Department at the City of Irving at 845 W. Irving Blvd, Irving, Texas 75060.

Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions:

For the year ended September 30,2018, the City recognized pension expense of$5,631,441.

69 CITY OF m.VING, TEXAS Notes to Basic Financial Statements September 30,2018

At September 30, 2018, the City reported deferred outflows and inflows of resources related to pensions from the following sources:

Deferred Outflow Deferred Inflow of Resources of Resources Difference between projected and actual investment earnings $ - $ 4,006,132 Assumption changes 14,015,446 Difference between expected and actual experience 1,085,055 Contributions subsequent to the measurement date 4,356,950 $ 18,372,396 $ 5,091,187

Deferred outflow of resources related to pensions resulting from contributions subsequent to the measurement date of $4,356,950 will be recognized as a reduction of the net pension liability for the measurement date year ending December 31, 2018 (i.e., recognized in the City's financial statements September 30, 2019). Other amounts reported as deferred outflows and inflow of resources related to pensions will be recognized in pension expense as follows:

Outflow (inflows) of Resources 2018 $ 3,369,741 2019 2,007,305 2020 (1,788,647) 2021 (1,965,867) 2022 1,407,166 Thereafter 5,894,561 $ 8,924,259

(b) Supplemental Benefit Plan Effective March 1, 1984, the City established the City of Irving Supplemental Benefit Plan (SBP), a single-employer contributory defined benefit plan. The plan covers employees who are members of the Texas Municipal Retirement System (Government and Police employees). Participation in the plan provides employees the opportunity to supplement their refitement income as these employees will not be eligible for Social Security benefits based on their employment with the City. The plan also replaces to the extent possible, the types of benefits previously provided by the Social Security System such as survivor and disability benefits. Separate audited fmancial statements are available and can be obtained by contacting City of Irving Supplemental Benefit Plan, 825 W. Irving Blvd, Irving, Texas 75060.

70 CITY OF ffiVING, TEXAS Notes to Basic Financial Statements September 30,2018

Benefits: SBP provides retirement benefits, as well as, death and disability benefits. Retirement benefits vest after five years of credited service. Employees who retire at or after age 65 are entitled to an annual retirement benefit, payable for life or life of the beneficiary, depending on the benefit option selected by the retirees. Benefits are calculated based on 1112 of0.6% of their final average earnings for each year of credited service. The fmal average earnings amount is the average earnings in the three consecutive calendar years of service producing the highest such average. Employees are eligible for early retirement age at age 60 after five years of service, or at any age after completion of 20 years of service. All early retirees receive a reduced retirement benefit. Covered employees are required to contribute 2.5% of their earnings to SBP. If an employee leaves covered employment for reasons other than retirement, disability or death with less than five years of credited service, accumulated employee contributions are returned to the employee without interest. If an employee has five or more years of credited service, they may select either a refund of their contributions without interest or a monthly income payable at age 60 equal to the retirement benefit earned to date of termination. Disability benefits are payable six months after an employee is determined to be disabled under the provisions of SBP. Benefits are payable monthly and are equal to 1/12 of 70% of the participant's annualized pay rate at date of disablement reduced by disability income from the TMRS, Social Security, and workers' compensation. SBP also provides death benefits payable monthly to dependent children until attainment of age 25 and a single sum benefit to the surviving spouse.

Employees covered by benefit terms: All City full-time employees except Fire Civil Service employees are covered by SBP. As of December 31, 2017, membership consisted of:

Retirees and beneficiaries 404 Inactive, nonretired members (includes non vested members entitled to refund) 260 Active members 1,451 Total 2,115

Contributions: The employee contribution rate is 2.50%. The City Council established a maximum employer contribution level, which could be provided to support the benefits of the SBP. Council Resolution #12-16-82-582, enacted December 13, 1982, provided, in part, that the contribution to the SBP shall not exceed the Social Security tax which would otherwise be payable with respect to covered employees plus 3.69% of the salaries of such employees, less the City's contribution to the . TMRS. In January 1995, the City had ceased all employer contributions, but beginning January 1, 2012, Council approved resuming contributions to the Plan. For fiscal year 2018, the City made contributions of2.14% for the months in 2017 and contribution of2.07%% for the months in 2018. The total pension rates for 2018 are in compliance with the City Charter cap limit of no more than 16.75% of total salaries & wages contributed to retirement benefit plans. SBP, whichis considered part of the City's fmancial reporting entity, is included in this report as a pension trust fund.

Net Pension Liability: The City's Net Pension Liability (NPL) was measured as of December 31, 2017 and the Total Pension Liability (TPL) used to calculate the Net Pension Liability was determined by an actuarial valuation dated January 1, 2018.

Actuarial assumptions: The TPL in the January 1, 2018 actuarial valuation was determined using the following actuarial assumptions:

71 CITY OF ffiVING, TEXAS Notes to Basic Financial Statements September 30,2018

Inflation 2.50% Salary increases 3.50% to 10.50%, including inflation Investment Rate of Return 6. 75%, net of pension plan investment .. expense, including inflation

Salary increases were based on a service-related table. Mortality rates were based on the RP-2000 Tables for males and females projected on a fully generational basis by scale BB to account for. future mortality experience.

The actuarial assumptions used in the January 1, 2018 valuation were adopted by the Board to match the assumptions used by TMRS in their valuation of the City's TMRS liabilities. The assumptions are internally consistent and are considered reasonable, based on past and anticipated future experience of the Plan.

The pension plan's policy in regard to the allocation of invested assets is established and may be amended by the SPB Board. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the funding needs of the Plan.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Long-Term Expected Real Asset Rate of Return Class (Arithmetic) Cash and equivalents O%to 1% Diversified portfolio of domestic and international fixed income investments l%to 3% Diversified portfolio of domestic or global real estate 2%to 6% Diversified portfolio of domestic and international common stocks 4%to 8%

Discount Rate: The discount rate used to measure the total pension liability was 6.75%. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the actuarially determined contributions rates. Based on those assumptions, the Plan's fiduciary net position was projected to be available to make all projected future benefit payments of

72 CITY OF mVING, TEXAS Notes to Basic Financial Statements September 30, 2018 current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected beiJ.efit payments to determine the total pension liability. Changes in the Net Pension Liability: Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Balance at 12/31/2016 $ 78,400,901 $ 52,258,122 $ 26,142,779 Changes for the year Service cost 3,086,079 3,086,079 Interest 5,273,704 5,273,704 Change in benefit terms Difference between expected and actual experience 288,848 288,848 Changes in assumption Contributions - employer 2,083,347 (2,083,347) Contributions - employee 2,585,695 (2,585,695) Net investment income 6,592,197 (6,592,197) Benefit payments, including refunds of employee contributions (3,639,007) (3,639,007) Administrative expense (136,810) 136,810 Other changes Net changes 5,009,624 7,485,422 (2,475,798) Balance at 12/3112017 $ 83,410,525 $ 59,743,544 $ 23,666,981

Sensitivity of the net pension liability to changes in the discount rate: The sensitivity of the net pension liability to change in the discount rate, the following presents the plan's net pension liability, calculated using a discount rate of 6.75%, as well as what the plan's net pension liability would be if it were calculated using a discount rate that is one percent lower and one percent higher.

1% Decrease Current 1% Increase 5.75% 6.75% 7.75% City's net pension liability $ 35,201,964 $ 23,666,981 $ 14,188,120

Pension Plan Fiduciary Net Position: Detailed information about the Plan's Net Position is available in a separately issued audited financial statements and can be obtained by contacting City of Irving Supplemental Benefit Plan at 825 W. Irving Blvd, Irving, Texas 75060.

Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions:

For the year ended September 30, 2018, the City. recognized pension expense of$1,550,377.

At September 30, 2018, the City reported deferred outflows and inflows of resources related to pensions from the following sources:

73 CITY OF ffiVING, TEXAS Notes to Basic Financial Statements September 30, 2018

Deferred Outflow of Resources Difference between expected and actual economic experience $ 331,241 Assumption changes 2,960,831 Difference between projected and actual investment earnings 721,240 Contributions subsequent to the measurement date 1,709,058 $ ======5,722,370

Deferred outflow of resources related to pensions resulting from contributions subsequent to the measurement date of $1,709,058 will be recognized as a reduction of the net pension liability for the measurement date year ending December 31, 2018 (i.e., recognized in the City's financial statements September 30, 2019). Other amounts reported as deferred outflows and inflow of resources related to pensions will be recognized in pension expense as follows:

Net Deferred Outflow (inflows) of Resources 2018 $ 1,583,742 2019 1,431,796 2020 625,408 2021 161,478 2022 173,617 Thereafter 37,271 $ 4,013,312

(c) Texas Municipal Retirement System The City provides pension benefits for all of its full-time employees (except Fire Civil Service).

The City participates as one of 866 plans in the nontraditional, joint contributory, hybrid defined benefit pension plan administered by the Texas Municipal Retirement System (TMRS). TMRS is an agency created by the State of Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas Government Code (the TMRS Act) as an agent multiple-employer retirement system for municipal employees in the State of Texas. The TMRS Act places the general administration and management of the System with a six-member Board of Trustees. Although the Governor, with the advice and consent of the Senate, appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS's defmed benefit pension plan is a tax-qualified plan under Section 401 (a) of the Internal Revenue Code. TMRS issues a publicly available comprehensive annual financial report (CAFR) that can be obtained at www.tmrs.com.

74 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

All eligible employees of the city are required to participate in TMRS.

Benefits: TMRS provides retirement, disability, and death benefits. Benefit provisions are adopted by the governing body of the city, within the options available in the state statutes governing TMRS.

At retirement, the benefit is calculated as if the sum of the employee's contributions, with interest, and the city-financed monetary credits with interest were used to purchase an annuity. Members may choose to receive their retirement benefit in one of seven actuarially equivalent payments options. Members may also choose to receive a portion of their benefit as a Partial Lump Sum Distribution in an amount equal to 12, 24, or 36 monthly payments, which cannot exceed 75% of the member's deposits and interest.

At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are 200% of the employee's accumulated contributions.

In addition, the City has granted an annually repeating (automatic) basis a monetary credit referred to as an updated service credit (USC) which is a theoretical amount which takes into account salary increases or plan improvements. If at any time during their career an employee earns a USC, this amount remains in their account earning interest until retirement. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the employer match plus employer-financed monetary credits, such as USC, with interest were used to purchase an annuity. Also, the City has adopted a annually repeating (automatic) basis cost of living adjustments (COLA) for retirees equal to 30% oft~e change in the consumer price index (CPI).

A summary of the plan provisions for the City are as follows:

Plan year 2017 Employee deposit rate 7% Matching ratio (city to employee) 2 to 1 Years required for vesting 5 Service retirement eligibility (expressed as age/years of service) 60/5,0/20 100% Repeating, Updated Service Credit Transfers Annuity Increase (to retirees) 30%ofCPI

Employees covered by benefit terms: At the December 31, 2017 valuation and measurement date, the following employees were in covered by the benefit terms:

Retirees or beneficiaries currently receiving benefits 983 Inactive employees entitled to but not yet receiving benefits 493 Active employees 1,450 Total 2,926

75 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Contributions: The contribution rates for employees in TMRS are either 5%, 6%, or 7% of employee gross earnings, and the city matching percentages are either 100%, 150%, or 200%, both as adopted by the governing body of the city. Under the state law governing TMRS, the contribution rate for each city is determined annually by the consulting actuary, using the Entry Age Normal (EAN) actuarial cost method. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability.

Employees of the City were required to contribute 7% of their annual gross earnings during the fiscal year. For fiscal year 2018, the City made contributions of 14.61% for the months in 2017 and contribution of 14.68% for the months in 2018. The City's contributions to TMRS for fiscal year 2018 were $15,316,019 and were equal to the required contributions.

Net Pension Liability: The City's Net Pension Liability (NPL) was measured as of December 31, 2017, and the Total Pension Liability (TPL) used to calculate the Net Pension Liability was determined by an actuarial valuation as of that date.

Actuarial assumptions: The Total Pension Liability in the December 31, 2017 actuarial valuation was determined using the following actuarial assumptions:

Inflation 2.50% per year Overall payroll growth 2.70% Investment Rate of Return 6.75%, net of pension plan investment expense, including inflation

Salary increases were based on a service-related table. Mortality rates for active members, retirees, and beneficiaries were based on the gender-distinct RP2000 Combined Healthy Mortality Table with Blue Collar Adjustments, with male rates multiplied. by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. For disabled annuitants, the gender-distinct RP2000 Combined Healthy Mortality tables with Blue Collar Adjustments are used with males rates multiplied by 109% and female rates multiplied by 103% with a 3-year set-forward for both males and females. In addition, a 3% minimum mortality rate is applied to reflect the impairment for younger members who become disabled. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements subject to the 3% floor.

Actuarial assumptions used in the December 31, 2017, valuation were based on the results of actuarial experience studies. This experience study was for the period December 31, 2010 through December 31, 2014. Healthy post-retirement mortality rates for healthy and annuity purchase rates are based on a Mortality Experience Investigation Study covering 2009 through 2011, and dated December 31, 2013. These assumptions were fust used in the December 31, 2013 valuation, along with a change to the Entry Age Normal (EAN) actuarial cost method. Assumptions are reviewed annually. Plan assets are managed on a total return basis with an emphasis on both capital appreciation, as well as, the production of income, in order to satisfy the short term and long term needs ofTMRS.

The long-term expected rate of return on pension plan investments was ·determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each 76 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. In determining their best estimate of a recommended investment return assumption under the various alternative asset allocation portfolios, GRS focused on the area between (1) arithmetic mean (aggressive) without an adjustment for time (conservative) and (2) the · geometric mean (conservative) with an adjustment for time (aggressive The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Long-Term Expected Real Asset Target Rate of Return Class Allocations (Arithmetic) Domestic Equity 17.5% 4.55% International Equity 17.5% 6.35% Core Fixed Income 10.0% 1.00% Non-Core Fixed Income 20.0% 3.90% Real Return 10.0% 3.80% Real Estate 10.0% 4.50% Absolute Return 10.0% 3.75% Private Equity 5.0% 7.50% Total 100.0%

Discount Rate: The discount rate used to measure the Total Pension Liability was 6.75%. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rates specified in statute. Based on that assumption, the pension plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability.

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77 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

Changes in the Net Pension Liability:

Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability

Balance at 12/31/2016 $ 702,423,223 $ 622,883,180 $ 79,540,043 Changes for the year Service cost 16,573,549 16,573,549 Interest 46,896,183 46,896,183 Change ln benefit terms Difference between expected and actual experience (345,609) (345,609) Changes in assumption Contributions - employer 14,523,727 (14,523,727) Contributions - employee 7,049,857 (7,049,857) Net investment income 86,315,080 . (86,315,080) Benefit payments, including refunds of employee contributions (31,903,469) (31,903,469) Administrative expense (447,396) 447,396 Other changes (22,674) 22,674 Net changes 31,220,654 75,515,125 (44,294,471) Balance at 12/3112017 $ 733,643,877 $ 698,398,305 $ 35,245,572

The following presents the net pension liability of the City, calculated using the discount rate of 6.75%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.75%) or 1-percentage-point higher (7.75%) than the current rate:

1% Decrease Current 1% Increase 5.75% 6.75% 7.75% City's net pension liability $ 131,393,281 $ 35,245,572 $ (44,479,123)

Pension Plan Fiduciary Net Position: Detailed information about the pension plan's Fiduciary Net Position is available in a separately-issued TMRS financial report. That report may be obtained on the Internet at www.tmrs.com.

Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions:

For the year ended September 30, 2018, the City recognized pension expense of$1,204,746.

78 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

At September 30, 2018, the City reported deferred outflows and inflows of resources related to pensions from the following sources:

Deferred Outflow Deferred Inflow of Resources of Resources Difference between expected and actual economic experience $ - $ 2,346,346 Assumption changes 4,962,978 Difference between projected and actual investment earnings 17,408,644 Contributions subsequent to the measurement date 12,495,547 Total $ 17,458,525 $ 19,754,990

Deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date of $12,495,547 will be recognized as a reduction of the net pension liability for the measurement year ending December 31, 2018 (i.e. recognized in the city's fmancial statements September 30, 2019). Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows:

Net Deferred Outflow (inflows) of Resources 2018 $ 2,065,709 2019 861,818 2020 (8,753,852) 2021 (8,965,687) 2022 $ (14,792,012)

(12) Voluntary Employee Beneficiary Association Effective August 31, 2000, the City established the City of Irving Voluntary Employee Beneficiary Association (VEBA) Trust. The purpose of the plan was to provide a temporary monthly benefit to certain eligible retirees of the City to help cover a portion of the eligible retiree's cost of medical coverage from the City. The benefit was initially established at a level that represented 75% of the "retiree-only" premium for the lowest cost medical plan offered by the City.

79 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

employee attains age 65. The monthly subsidy for eligible retirees is fixed at $168.75. Annual VEBA subsidy payments totaled $39,319 in fiscal year 2018.

There are currently 15 retirees enrolled in the plan:

Quality Connect 9 Choice Open Access Plus 4 Open Access Plus 2

(13) Other Post-Employment Benefits In the current fiscal year, the City implemented GASB Statement No. 75, Accounting and Financial Reporting for Post-employment Benefits Other Than Pensions (OPEB) that addresses accounting and fmancial reporting for OPEB that.is provided to employees of state and local governmental entities. This statement establishes standards for recognizing and measuring liabilities, deferred outflows and inflows of

resources, and expense. This statement replaces the requirements of GASB Statement No. 45 1 Accounting and financial Reporting by Employers for Post-employment Benefits Other Than Pensions, as amended, and GASB statement No. 57, OPEB Measurements by Agents Employers and Agent Multiple-Employer Plans. ·

The City offers two OPEB plans. Retirees meeting certain requirements can remain on the City's group health and life insurance plan, and the City participates in a defmed benefit group-term life insurance known as the Supplemental Death Benefits Fund (SDBF) and is administered by TMRS.

A summary of the OPEB liabilities, deferred outflows and inflows of resources and expenses are below and discussed in further detail in this footnote.

Retiree Health TMRS- Care Plan SDBF Total OPEB liability $ 10,826,227 $ 5,084,972 $ 15,911,199 Deferred outflow 660,826 373,245 1,034,071 Expense (current year) 347,736 336,285 684,021

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80 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

(a) Retiree Health Care Plan

Plan Description: In addition to the pension benefits described in Note 11, as required by state law and defmed by City Policy, the City makes available health care benefits to all employees who retire from the City and who are receiving benefits from the City's sponsored retirement program (Texas Municipal Retirement System or Fireman's Relief and Retirement Fund) through a single-employer defmed benefit healthcare plan. This healthcare plan provides insurance of eligible retirees, their spouses and dependents through the City's group health insurance plan, which covers both active and retired members. Benefit provisions are established by management. City of Irving TMRS retirement eligibility is 5 years of service credits and 60 years of age of 20 years of service credit at any age. Firefighters may retire at age 50 with 20 years of service.

Retirees over the age of 65 as of January 1, 2010 can maintain coverage under the City's pian by paying the grandfathered retiree premiums. All future retirees and retirees who were under the age of 65 as of January 1, 2010 can be covered under the PEBA Medicare Supplement Plan at their own expense. A surviving spouse may elect to continue coverage at their own expense. Employees who retire under a disability retirement are immediately eligible for retiree health care benefits. Members terminating before normal retirement conditions are not eligible for retiree health care.

As of the December 31, 2017 actuarial valuation, membership in the plan is as follows:

Retiree and Beneficiaries 116 Inactive, Nonretired Members Active Members 1,801 Total members 1,917

Contributions and Funding Policy: Current retirees contribute to the retiree health plan the total blended premium for active participants and the City's contribution for actives. Retirees and their dependents currently receiving benefits are required to contribute a monthly specified amount toward the cost of health insurance premiums. Monthly retiree premiums contributed to the Plan are based on the benefits election of the Plan member and are as follows:

Grandfathered Premiums Choice Local Quality Open Quality Retired before 1/112011 Plus Access Connect Retiree only $ 907.06 $ 772.81 $ 543.95 Retiree and Spouse 1,886.69 1,603.69 1,147.76 Retiree and Children 1,832.29 1,557.45 1,059.63 Retiree and Family 2,837.32 2,411.72 1,633.50

Grandfathered Premiums Choice Quality Open Quality Retired after 12/31120 10 Local Plus Access Connect Retiree only $ 1,479.23 $ 1,352.64 $ 1,136.82 Retiree and Spouse 2,403.01 2,136.14 1,706.20 Retiree and Children 2,351.70 2,092.52 1,623.09 Retiree and Family 3,299.42 2,898.07 2,164.24

81 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Retired participants as of December 31, 2010 pay discounted premiums based on a grandfathered schedule. Members who retire after December 31, 2010 pay premiums according to a separate schedule and are eligible for a service based on wellness subsidy at retirement.

Services based subsidy (or members who retire after December 31. 2010:

• Employees with 5-9 years of service with City receive $175/monthly subsidy • Employees with 10-19 years of service with City receive $400/monthly subsidy • Employees with over 20 years of service with City receive $500/monthly subsidy

I WIN Wellness credits (or members who retire after December 31. 2010:

Until December 31, 2016, employees can earn I WIN wellness credits of $50, $100, or $150 per month during their employment with the City. At retirement, the accumulatCd wellness .credits will be divided by the number of months between the employee's age at retirement and age 65 to derive the monthly I WIN retiree medical subsidy.

OPEB Liability: The City's OPEB liability is measured as of December 31, 2017 and the total OPEB liability was determined by an actuarial valuation as of December 31, 2017.

Actuarial Assumptions: The total OPEB liability in the December 31, 2017 actuarial report was determined using the following actuarial assumptions:

J\cnuuialcostmetllod Individual entry-age Discount rate 3.31% as of December 31, 2017 Inflation 2.50% Salary increase 3.00% to 13.30%, inlcuding inflation Demographic asswnptions Based on tlle experience study covering tlle four-year period ending December 31, 2014 as conducted for tlle TMRS. For firefighters, tlle demographic asswnptions are tlle sanrre as tllose used to value tlle Irving Firemen's Relief and Retirement Fund. Mortality For healtlly TMRS retirees, tlle gender-distince RP2000 Combined Healtlly Mortality Tables witll Blue Collar J\djustment are used witll male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. For healtlly firefighter retirees, tlle gender-distinct RP-2000 Mortality tables projected to 2024 using Scale M. Healtll care trend rates Initial rate of7.50% declining to an ultimate rate of 4.258% after 16 years Paricipation rates 30% for IWIN participants and 15% for. IWIN non-participants witll over 20 years of service at retirement; 10% for IWIN participants and 5% for IWIN non-participants between 10 years to less than 20 years of service at retirement; and 0% for retirees witllless tllan 10 years at retirement Otller information: Notes The discount rate changed from3.81% as ofDecember 31,2016 to 3.31% as ofDecember 31, 2017

82 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Discount rate: For plans that do not have formal assets, the discount rate should equal the tax-exempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA ·credit rating as of measurement date. The municipal bond rate is 3.31% (based on the daily rate closest to but not later than the measurement date of the Fidelity "20-Year Municipal GO AA Index").

Changes in Total OPEB Liability:

Beginning at December 31, 2016 $ 9,835,039 Services cost 326,124 Interest on the total OPEB liability 379,544 Changes of assumptions 358,143 Benefit payments (72,623) Net change in total OPEB liability 991,188 Ending at December 31, 2017 $ 10,826,227 Sensitivity of the Total OPEB Liability to changes in the Discount Rate:

The following presents the total OPEB liability of the City, as well as what the City's OPEB liability would be if it were calculated using a discount rate one percent lower or one percent higher than the current discount rate.

Current Discount !%Decrease Rate Assumption 1% Increase 2.31% 3.31% 4.31% $ 11,582,611 $ 10,826,227 $10,123,000

Sensitivity of Total OPEB Liability to the Healthcare Cost Trend Rate Assumption

Regarding the sensitivity of the total OPEB liability to changes in the healthcare cost trend rates, the following presents the plan's total OPEB liability, calculated using the assumed trend rates as well as what the plan's total OPEB liability would be if it were calculated using a trend rate that is one percent lower or one percent higher.

Current Healthcare Cost 1% Decrease Trend Rate Assumption 1% Increase $ 10,445,549 $ 10,826,227 $11,272,642

The plan does not issue a separate report. For financial reporting purposes, the retiree health plan is accounted for in the Self Insurance Fund.

OPEB Expense and Deferred Outflows Resources Related to OPEB

For the year end September 30, 2018, the City recognized OPEB expense of $347,736, and reported deferred outflows of resources related to OPEB from the following resources:

83 CITY OF ffiVING, TEXAS Notes to Basic Financial Statements September 30, 2018 .

Deferred Outflows of Resources Changes in assumptions $ 321,576 Contributions subsequent to the measurement date 339,249 Total $ 660,825 ======Deferred outflows of resources of$339,249 pertained to employer contributions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability for fiscal year 2019. Other amounts reported as deferred outflows of resources will be recognized in OPEB expense in the following fiscal years: Year ending Deferred September 30 Outflows 2019 $ 36,567 2020 36,567 2021 36,567 2022 36,567 2023 36,567 Thereafter 138,741 Total $ 321,576

(b) TMRS Supplemental Death Benefits Fund (SDBF)

The SDBF covers both active and retiree benefits with no segregation of assets, and therefore doesn't meet the definition of a trust under GASB Statement 75 and as such the SDBF is considered to be an unfunded OPEB plan. The retiree portion of the SDBF is considered a single employer, defmed benefit OPEBplan.

Detailed information about the SDBF OPEB plan is available in a separately-issued TMRS financial report. That report may be obtained on the Internet at www.tmrs.com.

Benefit Plan Description: TMRS administers a defmed benefit group-term life insurance plan known as the SDBF. This is a voluntary program in which participating member cities may elect, by ordinance, to provide group-term life coverage for their active members, including or not including retirees. The death benefit for active employees provides a lump-sum payment approximately equal to the employee's annual salary (calculated based on the employee's actual earning, for the 12-month period preceding the month of death). The death benefit for retires is considered an OPEB and is a fixed amount of$7,500.

The City contributes to the SDBF at a contractually required rated as determined by an annual actuarial valuation. The rate is equal to the cost of providing one-year term life insurance. The funding policy for the SDBF program is to assure that adequate resources are available to meet all death benefit payments for the upcoming year. The intent is not to pre-fund retiree term life insurance during employee's entire careers. The SDBF contribution rate for retirees is 0.04%.

As of the December 31, 2017 actuarial valuation, membership in the plan is as follows:

84 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Inactive employees currently receiving benefits 771 Inactive employees entitled to but not yet receiving benefits 195 Active Members 1,450 Total members 2,416

OPEB Liability: The City's OPEB liability is measured as of December 31, 2017 and the total OPEB liability was determined by an actuarial valuation as of December 31, 2017.

Actuarial Assumptions: The total OPEB liability in the December 31, 2017 actuarial report was determined using the following actuarial assumptions:

Inflation 2.50% Salary increase 3.50% to 10.50% including inflation Discount rate 3.31% Retiree's share of benefit related costs $0 Administrative expenses All administrative expenses are paid through the Pension Trust and accounted for under the reporting requirements under GASB Statement No. 68. Mortality rates-service retirees RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB. Mortality rates-disabled retirees RP 2000 Combined Mortality Table with Blue Collar Adjustment with males rates multiplied by 109% and female rates multiplied by 103% wwith a 3 year set-forward for both ameles and females. The rates are projected on a fully generational basis with scale BB to account for future mortality improvements subject to the 3% floor.

Discount rate: For plans that do not have formal assets, the discount rate should equal the tax-exempt municipal bond rate based on an index of 20-year general obligation bonds with an average AA credit rating as of measurement date. The municipal bond rate is 3.31% (based on the daily rate closest to but not later than the measurement date of the Fidelity "20-Year Municipal GO AA Index").

Changes in Total OPEB Liability: Beginning at December 31, 2016 $ 4,406,044 Services cost 140,880 Interest on the total OPEB liability 168,450 Changes of assumptions 409,849 Benefit payments (40,251) Net change in total OPEB liability 678,928 Ending at December 31, 2017 $ 5,084,972

85 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

Sensitivity of the Total OPEB Liability to changes in the Discount Rate:

Current Discount 1%Decrease Rate Assumption 1% Increase 2.31% 3.31% 4.31% $ 6,140,528 $ 5,084,972 $ 4,267,041

OPEB Expense and Deferred Outflows Resources Related to OPEB

For the year end September 30, 2018, the City recognized OPEB expense of $336,285, and reported deferred outflows of resources related to OPEB from the following resources: ' Deferred Outflows of Resources Changes in assumptions $ 341,082 Contributions subsequent to the measurement date 32,163 Total $ 373,245 ======Deferred outflows of resources of $32,163 pertained to retiree contributions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability for fiscal year 2019. Other amounts reported as deferred outflows of resources will be recognized in OPEB expense in the following fiscal years: Year ending Deferred September 30 Outflows 2019 $ 68,767 2020 68,767 2021 68,767 2022 68,767 2023 66,014 Total $ 341,082

(14) Landfill Closure and Post-closure Care Costs The City owns and operates a sanitary landfill site located in the southeast portion of the City. The landfill operates on a "cell" basis, and state and federal laws will require the City to close the landfill once its capacity is reached and to monitor and maintain the site for 30 subsequent years. The landfill is recorded within the business type ·activities of the government-wide financial statements. The estimated total liability is $5,660,266 which represents the total closure and post-closure care cost liability based on the use of approximately 40% of the estimated capacity of the landfill at September 30, 2018. The City will recognize the remaining estimated liability for closure and post-closure care of approximately $13.8 million as the remaining estimated capacity is filled and is based on a 30 year post-closure period. The estimated cost of closure and post-closure care are subject to changes such as the effects of inflation, revision of laws, and other variables. 86 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

By State law, the City will be required to demonstrate fmancial assurance requirements each March. The City expects that by using a "Bond Rating Indicator of Financial Strength" the financial assurance requirements will be satisfied, and no trust account will be needed to finance closure and post-closure care costs.

(15) Tax Abatement and Economic Incentives

The City enters into economic development agreements designed to promote development and redevelopment within the City, spur economic improvement, stimulate commercial activity, generate additional sales tax and enhance the property tax base and economic vitality of the City. These programs · abate or rebate property taxes and sales tax, and may include incentive payments that are not tied to taxes. The City's economic development agreements are authorized under Chapter 380 of the Texas Local Government Code and Chapter 312 (Property Redevelopment and Tax Abatement Act) of the Texas Tax Code. Recipients may be eligible to receive economic assistance based on the employment impact, economic impact or community impact of the project requesting assistance. Recipients receiving assistance generally commit to build or remodeling real property and related infrastructure, demolishing and redeveloping outdated properties, expanding operations, renewing facilities leases, or bringing targeted businesses to the City. Agreements generally contain recapture provisions which may require repayment or termination if recipients do not meet the required provisions of the economic incentives.

The city has two categories of economic developing agreements;

Tax Abatements- Tax abatements under Chapter 312 of the Texas Code allows the City to designate tax reinvestment zones and negotiate tax abatement agreements with applicants. These. abatements agreements authorize the appraisal district to reduce the assessed value of the taxpayer's property by a percentage specified in the agreement, and the taxpayer will pay taxes on the lower assessed value during the term of the agreement. In fiscal year 2018, property taxes abated under this program were $68,260.

General Economic Development - The City enters into various agreements under Chapter 380 of the Texas Local Government Code to stimulate economic development. Agreements may rebate a percentage of property taxes, sales tax received by the City or reimbursement for cost incurred to improve site or sign. In fiscal year 2018, the City rebated $9,480,169 under these agreements ..

(16) Commitments and Contingencies The City is committed under certain construction contracts for various general government and water utility projects.

The City has been named as a defendant or codefendant in certain personal injury cases and a number of other matters of litigation, which are.pending with respect to various matters arising in the normal course ofthe City's operations. The outcome of these cases is not known at this time; however, City management is of the opinion that their resolution will not have a materially adverse impact on the City's fmancial position.

The Water and Sanitary Sewer Enterprise Fund is committed by contract to pay a portion of the operating and maintenance expenses for the useful lives of water supply facilities located at Lake Chapman (formerly the Cooper Reservoir). In addition, the City is committed by contract to pay a portion of the opevating costs and future debt service of the Trinity River Authority for wastewater treatment.

87 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018

The City participates in several federal and state grant programs that are governed by various rules and regulations of the grantor agencies. Costs charged to the respective grant programs are subject to audit and adjustment by the grantor agencies. To the extent that the City has not complied with the rules and regulations governing the grants, refunds of any money received may be required and the collectability of any related receivable at September 30, 2018 may be impaired. In the opinion of management, there are no significant contingent liabilities relating to compliance with the rules and regulations governing the respective grants.

In November 2004, the City entered into an agreement with a developer for reimbursement of the cost of constructing public infrastructure improvements under certain circumstances. The agreed upon total amount of possible reimbursement was $3,000,000 for the construction of the extension for the westbound Interstate Highway 635 access road to the intersections with Belt Line road and an entrance ramp to IH 635. The agreement was amended in June 2006 to increase the maximum amount of reimbursement to developer to ·$4,000,000 due to higher than expected costs. The annual payments are based on sales tax generated by the merchants on the site in excess of $1.00 per square foot. As long as less than 400,000 sq. ft. of retail space has been constructed, the City retains 60% of the excess sales tax and developer receives 40% of the excess. Should the square feet of retail construction meet or exceed 400,000, the City will retain 40% of the excess and the developer will receive 60% of the excess sales tax. In additions, for the first $1.00 per square foot of all retail space, for any amount over $.50 per square foot of sales tax revenue, the developer receives an aggregate annual reimbursement of up to $.50 per square foot of retail space. Each annual payment is subject to there being at least 10,000 square feet of building improvements on the property that are at least 85% occupied for the preceding calendar year. Gasoline service stations, convenience food stores and self-storage facilities do not qualify under this agreement. The owner of the building improvements must not be in bankruptcy. Any portion of the reimbursable amount not paid after expiration of fifty years will cease to be an obligation of the City. Payments of $1,661,163 have been made from 2009-2017, and $157,585 was paid in 2018. The outstanding balance of the reimbursable amount at September 30, 2018 was $2,181,252 and is not recorded as a liability since the payment is contingent on the collection of future tax revenues.

The City has also entered into a number of economic incentive agreements with developers and corporations that would require the City to abate or rebate future taxes or refund sales taxes to these developers or corporations.

(17) Fund Balance/Net Position Deficit

Funds with deficit fund balances as of September 30, 2018 were the HUD Grants Fund $567,780 and Emergency Management Fund $47,285. Grant fund reimbursements were requested as of September 30, 2018 but not received; therefore, the revenues are unearned.

(18) Subsequent Events

On December 6, 2018, the City disbursed $44,000,000 from its Tax Increment Reinvestment Zone No 1 to Ark Group Of Irving, Inc., in accordance to the Entertainment Center Second Amended and Restated TIF No. 1 Reimbursement Agreement.

88 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

(19) New Accounting Principles

GASB Statement No. 83 Certain Asset Retirement Obligation will be effective September 30, 2019. This Statement addresses accounting and financial reporting for certain asset retirement obligations (AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability based on the guidance in this Statement.

This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for AROs. This Statement requires that recognition occur when the liability is both incurred and reasonably estimable. The determination of when the liability is incurred should be based on the occurrence of external laws, regulations, contracts, or court judgments, together with the occurrence of an internal event that obligates a government to perform asset retirement activities. Laws and regulations may require governments to take specific actions to retire certain tangible capital assets at the end of the useful lives of those capital assets, such as decommissioning nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets may arise from contracts or court judgments. futernal obligating events include the occurrence of contamination, placing into operation a tangible capital asset that is required to be retired, abandoning a tangible capital asset before it is placed into operation, or acquiring a tangible capital asset that has an existing ARO.

GASB Statement No. 84, Fiduciary Activities will be effective September 30, 2020. The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and fmancial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities.

This Statement describes four fiduciary funds that should be reported, if applicable: · (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and ( 4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria.

GASB Statement No. 87, Leases will be effective September 30, 2021. The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments' fmancial statements by requiring recognition of certain lease assets and liabilities for ·leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities.

89 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30, 2018

The City is in the process of evaluating the impact of the implementation of these standards on its financial statements.

GASB Statement No. 88, Certain Disclosures related to debt, including direct borrowings and direct placements will be effective September 30, 2019. The primary objective of this Statement is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements.

This Statement defmes debt for purposes of disclosure in notes to financial statements as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established.

This Statement requires that additional essential information related to debt be disclosed in notes to fmancial statements, including unused lines of credit; assets pledged as collateral for the debt; and terms specified in debt agreements related to significant events of default with finance-related consequences, significant termination events with finance-related consequences, and significant subjective acceleration clauses. For notes to financial statements related to debt, this Statement also requires that existing and additional information be provided for direct borrowings and direct placements of debt separately from other debt.

The City is in the process of evaluating the impact of the implementation of these standards on its financial statements.

GASB Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction will be effective September 30, 2021. The objectives of this Statement are to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and to simplify accounting for interest cost incurred before the end of a construction period.

This Statement establishes accounting requirements 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 City is in the process of evaluating the impact of the implementation of these standards on its financial statements.

GASB Statement No. 90, Majority Equity Interests- (An Amendment of GASB Statement No. 14 and No. 61) will be effective September 30, 2020. The primary objectives of this Statement are to improve the consistency and comparability of reporting a government's majority equity interest in a legally separate organization and to improve the relevance of financial statement information for certain component 90 CITY OF IRVING, TEXAS Notes to Basic Financial Statements September 30,2018 units. It defmes a majority equity interest and specifies that a majority equity interest in a legally separate organization should be reported as an investment if a government's holding of the equity interest meets the definition of an investment. A majority equity interest that meets the defmition of an investment should be measured using the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund, or an endowment (including permanent and term endowments) or permanent fund. Those governments and funds should measure the majority equity interest at fair value.

The City is in the process of evaluating the impact of the implementation of these standards on its fmancial statements. ·

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91 APPENDIX C

FORM OF BOND COUNSEL'S OPINION

[Closing Date]

$______CITY OF IRVING, TEXAS WATERWORKS AND SEWER SYSTEM NEW LIEN REVENUE REFUNDING AND IMPROVEMENT BONDS SERIES 2019

WE HAVE represented the City of Irving, Texas (the “Issuer”) as its bond counsel in connection with an issue of bonds (the “Bonds”) described as follows:

CITY OF IRVING, TEXAS, WATERWORKS AND SEWER SYSTEM NEW LIEN REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 2019, dated August 15, 2019, in the principal amount of $______.

The Bonds mature, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Bonds and in the ordinance adopted by the City Council of the Issuer authorizing their issuance (the “Ordinance”).

WE HAVE represented the Issuer as its bond counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the Issuer or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the Issuer’s Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein.

IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the Issuer; an

Bracewell LLP T: +1.214.468.3800 F: +1.800.404.3970 1445 Ross Avenue, Suite 3800, Dallas, Texas 75202-2724 bracewell.com

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escrow deposit agreement (the “Deposit Agreement”) between the Issuer and The Bank of New York Mellon Trust Company N.A., as paying agent/registrar for the obligations being refunded (the “Refunded Bonds Paying Agent”); the certification of the Refunded Bonds Paying Agent (the “Sufficiency Certificate”) verifying the sufficiency of the deposits made with the Refunded Bonds Paying Agent for defeasance of the obligations being refunded (the “Refunded Bonds”); and customary certificates of officers, agents and representatives of the Issuer and other public officials; and other certified showings relating to the authorization and issuance of the Bonds. We have examined executed Bond No. 1 of this issue. We have also examined such applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), court decisions, Treasury Regulations and published rulings of the Internal Revenue Service (the “Service”) as we have deemed relevant. Capitalized terms used herein, unless otherwise defined, have the meanings set forth in the Ordinance adopted by the Issuer with respect to the issuance of the Bonds.

BASED ON SUCH EXAMINATION, IT IS OUR OPINION THAT:

(A) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and, therefore, the Bonds constitute valid and legally binding special obligations of the Issuer;

(B) The Bonds are payable from and secured by a lien on and pledge of the Pledged Revenues of the Issuer’s waterworks and sewer system, as defined and described in the Ordinance; and

(C) Firm banking and financial arrangements have been made for the discharge and final payment of the Refunded Bonds pursuant to the deposit of funds with the Paying Agent/Registrar for the Refunded Bonds, made in accordance with the Deposit Agreement and the Sufficiency Certificate, and therefore, the Refunded Bonds are deemed to be fully paid and no longer outstanding except for the purpose of being paid from the funds provided therefor to the Paying Agent/Registrar for the Refunded Bonds.

THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion.

IT IS OUR FUTHER OPINION THAT, under existing law:

(1) Interest on the Bonds is excludable from gross income for federal income tax purposes; and

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(2) The Bonds are not “private activity bonds” within the meaning of the Code and, as such, interest on the Bonds is not subject to the alternative minimum tax.

In providing such opinions, we have relied on representations of the Issuer, the Issuer’s financial advisor and the underwriters of the Bonds with respect to matters solely within the knowledge of the Issuer, the Issuer’s financial advisor and the underwriters, respectively, which we have not independently verified. In addition, we have assumed for purposes of this opinion continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code that affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. In the event that such representations are determined to be inaccurate or incomplete or the Issuer fails to comply with the foregoing covenants of the Ordinance, interest on the Bonds could become includable in gross income from the date of their original delivery, regardless of the date on which the event causing such inclusion occurs.

Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the receipt or accrual of interest on, or acquisition, ownership or disposition of, the Bonds.

Owners of the Bonds should be aware that the ownership of tax‐exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax‐exempt obligations, low and middle income taxpayers otherwise qualifying for the health insurance premium assistance credit and individuals otherwise qualifying for the earned income tax credit. In addition, certain foreign corporations doing business in the United States may be subject to the “branch profits tax” on their effectively‐connected earnings and profits (including tax‐exempt interest such as interest on the Bonds).

Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Service; rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures, the

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Service is likely to treat the Issuer as the taxpayer. We observe that the Issuer has covenanted in the Ordinance not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes.