Port of Port Arthur Navigation District of Jefferson County

The Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor any offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. delivery throughthefacilities ofDTConoraboutDecember29,2016(the“Date of Delivery”). of OpinionBondCounsel” attachedheretoasAppendixC.Itisexpectedthat theBondswillbeavailablefor Parkhurst &HortonL.L.P., Austin,Texas,BondCounselfortheDistrict.See“LEGAL MATTERS”hereinand“Form (the “InitialPurchaser”),subject totheapprovingopinionsofAttorneyGeneral oftheStateTexasandMcCall fund redemption.See“THEBONDS–MandatorySinking FundRedemption”herein. to createoneormoretermBonds(the“TermBonds”), eachsuchTermBondshallbesubjecttomandatorysinking Optional Redemption”herein. “Refunded Bonds”),assetforthinScheduleIherein, and ii)paythecostofissuanceonBonds. owners oftheBonds.See“THEBONDS–Book-Entry-OnlySystem”herein. distribution of the amountssopaidtoparticipatingmembers of DTCforsubsequent payment tothebeneficial the BondswillbepayablebyBOKF,NA,Austin,Texas(the“PayingAgent/Registrar”)toCede&Co.,which make owners thereof.ForaslongCede&Co.isthesoleregisteredownerofBonds,principalandintereston of $5,000orintegralmultiplesthereof.NophysicaldeliverytheBondswillbemadetobeneficial the book-entry-onlysystemdescribedherein.BeneficialownershipofBondsmaybeacquiredindenominations will actassecuritiesdepositoryfortheBonds.IndividualpurchasesofBondsinitiallybemadepursuant to Co., asregisteredownerandthenomineeforTheDepositoryTrustCompany,NewYork,York(“DTC”) which Interest willbecalculatedonthebasisofa360-dayyeartwelve30-daymonths. payable onMarch1,2017,andeachSeptember1thereafteruntilmaturityorpriorredemption. Unlimited TaxPortRefundingBonds,Series2016A(the“SeriesBonds”). of PaymenttheBonds.”SimultaneouslywithissuanceBonds,Districtplanstoissue$3,445,000* Texas, JeffersonCountyoranyotherentitythantheDistrict.See“DESCRIPTIONOFTHEBONDS— Source the DistrictasprovidedinOrder.TheBondsarenotissuedby,northeyanywayobligationsof Stateof receipts ofanannualadvaloremtax,withoutlegallimitastorateoramount,leviedallontaxableproperty within and theorderauthorizingBonds.TheBondsaredirectobligationsofDistrictpayable from the Chapters 1207and1371,TexasGovernmentCode,asamended,anelectionheldonMay10,2008(the“2008Election”), State ofTexas,(the“State”)includingChapter197,Actsthe58thLegislature,RegularSession1963,asamended, Port RefundingBonds,TaxableSeries2016B(the“Bonds”)pursuanttotheConstitutionandgenerallawsof (Interest AccruesfromtheDateofDelivery) CODE OF1986,ASAMENDED.SEE“TAXMATTERS”HEREIN. * Preliminary, subject to change. Dated Date:December1,2016 BOOK-ENTRY-ONLY NEW ISSUE PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS The Bondsareofferedfordelivery,when,asandifissued bytheDistrictandreceivedinitialpurchaser If theprincipalamountsdesignatedinserialmaturity scheduleontheinsidecoverpagehereofarecombined The Bonds are not subject to optional redemption prior to their scheduled maturities. See “THE BONDS – No Proceeds fromthesaleofBondswillbeusedtoi)refundcertainoutstandingbondsDistrict(the The Bondswillbeissuedinfully-registeredformand,whenissued,registeredthenameofCede & Interest willaccruefromtheDateofDelivery(definedbelow)BondstoInitialPurchaserand is Port ofArthurNavigationDistrictJeffersonCounty,Texas(the“District”)isissuingitsUnlimitedTax THE BONDSARENOTOBLIGATIONSDESCRIBEDINSECTION103(A)OFINTERNALREVENUE (A politicalsubdivisionoftheStateTexashavingboundarieswithinJeffersonCounty)

UNLIMITED TAXPORTREFUNDINGBONDS,TAXABLESERIES2016B PRELIMINARY OFFICIAL STATEMENT DATED DECEMBER 6, 2016 BIDS DUE: TUESDAY, DECEMBER13, 2016AT10:00A.M.(CST)

SEE INSIDECOVERFORMATURITYSCHEDULE

$20,930,000* (see “OTHERINFORMATION–MunicipalRating”herein) RATING: Moody’sInvestorsService“Aa3” Due: March1—Seeinsidecoverpage

MATURITY SCHEDULE

$20,930,000* PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS UNLIMITED TAX PORT REFUNDING BONDS, TAXABLE SERIES 2016B

Initial Principal Interest Reoffering (a) (b) Maturity Amount* Rate Yield CUSIP No (c) 3/1/2017 $ 310,000 % % 3/1/2018 290,000 3/1/2019 2,330,000 3/1/2020 2,370,000 3/1/2021 2,430,000 3/1/2022 2,485,000 3/1/2023 2,555,000 3/1/2024 2,635,000 3/1/2025 2,720,000 3/1/2026 2,805,000

(Interest accrues from Date of Delivery)

(a) The Bonds are not subject to redemption prior to maturity. See “THE BONDS – No Optional Redemption”. (b) The initial reoffering prices or yields of the Bonds are furnished by the Initial Purchaser (as identified on the cover page hereof) and represent the initial offering prices or yields to the public, which may be changed by the Initial Purchaser at any time. (c) CUSIP numbers are included solely for the convenience of the owners of the Bonds. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by MOODY’S Capital IQ on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Global Services. None of the Initial Purchaser, the District, nor the Financial Advisor is responsible for the selection or correctness of the CUSIP numbers set forth herein.

* Preliminary, subject to change. ii The Port of Port Arthur Navigation District of Jefferson County, Texas (the “District”) was created by a Special Act of the 55th Legislature under provisions of Section 59, Article XVI of the Texas Constitution, ratified by referendum on June 13, 1964. The District is independent from other local or state governments and operates within district boundaries of approximately 58 square miles, including the City of Port Arthur and a part of the City of Groves. The five member elected Board of Port Commissioners governs the District.

Board of Port Commissioners

Board Members Position John Comeaux President Raymond C. Johnson Vice President Linda Turner Spears Secretary/Treasurer Norris Simon, Jr. Commissioner Mark Underhill Commissioner

Official Representatives

Name Position Floyd Gaspard Executive Port Director Larry A. Kelley, Jr. Deputy Port Director Orlando Ciramella Senior Director of Trade Judy Bettis Director of Finance

Consultants

Bond Counsel ...... McCall Parkhurst & Horton L.L.P. Austin, Texas

Certified Public Accountants ...... Brammer, Begnaud & Lattimore, CPA Port Arthur, Texas

Legal Counsel ...... Moore Landrey LLP Beaumont, Texas

Financial Advisor ...... USCA Municipal Advisors, LLC Houston, Texas

For Additional Information Contact:

Judy Bettis Floyd Gaspard Mr. Jim Gilley Finance Director Executive Port Director USCA Municipal Advisors, LLC Port of Port Arthur Port of Port Arthur 4444 Westheimer, Suite G500 P.O. Box 1428 P.O.Box 1428 Houston, Texas 77027 Port Arthur, Texas 77641 Port Arthur, Texas 77641 Telephone: (713) 366-0555 221 Houston Avenue 221 Houston Avenue Facsimile (713) 588-8882 Port Arthur, Texas 77640 Port Arthur, Texas 77640 [email protected] Telephone: (409) 983-2011 Telephone: (409) 983-2011 [email protected] [email protected]

iii

USE OF INFORMATION IN OFFICIAL STATEMENT

For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (“Rule15c 2-12”) and in effect on the date of this Preliminary Official Statement, this document, schedules, and appendices attached hereto constitutes an “official statement” of the District with respect to the Bonds that has been “deemed final” by the District as of its date except for the omission of no more than the information permitted by Rule 15c2-12.

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

All the summaries of the statutes, bond order, contracts, audited financial statements, engineering and other related reports set forth in this Official Statement are made subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions, and reference is made to such documents, copies of which are available from the District.

Certain information set forth herein has been obtained from the District and other sources, which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Initial Purchaser.

No broker, dealer, sales representative or any other person has been authorized by the District, the Financial Advisor or the Initial Purchaser to give any information or to make any representation other than as contained in this Official Statement in connection with the offering described in it and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing.

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. 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 any implication that there has been no change in the matters described herein since the date hereof. See “CONTINUING DISCLOSURE OF INFORMATION” herein for a description of the District’s undertaking to provide certain information on a continuing basis.

The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Initial Purchaser after such Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering prices, including to dealers who may sell the Bonds into investment accounts.

IN CONNECTION WITH THIS OFFERING, THE INITIAL PURCHASER MAY OVER ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

NEITHER THE DISTRICT NOR ITS FINANCIAL ADVISOR MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK-ENTRY-ONLY SYSTEM DESCRIBED UNDER “THE BONDS – BOOK-ENTRY-ONLY SYSTEM” HEREIN.

The agreements of the District and others related to the Bonds are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Bonds is to be construed as an agreement with the Initial Purchaser of the Bonds. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION.

THIS OFFICIAL STATEMENT CONTAINS “FORWARD-LOOKING” STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES AND 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.

References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, Rule 15c2-12.

TABLE OF CONTENTS

MATURITY SCHEDULE ...... ii No Litigation Certificate ...... 16 DISTRICT OFFICIALS, ADMINSTRATION AND TAX MATTERS ...... 16 CONSULTANTS ...... iii Certain Federal Income Tax Considerations ...... 16 USE OF INFORMATION IN OFFICIAL Certain U.S. Federal Income Tax Consequences to STATEMENT ...... iv U.S. Holders ...... 17 OFFICIAL STATEMENT SUMMARY ...... vi Disposition of Bonds ...... 17 SELECTED INFORMATION OF THE DISTRICT...... viii Defeasance of the Bonds ...... 17 INTRODUCTION ...... 1 State, Local and Other Tax Consequences ...... 17 THE PLAN OF FINANCING ...... 1 Certain U.S. Federal Income Tax Consequences to Sources and Uses ...... 2 Non-U.S. Holders ...... 17 THE BONDS ...... 2 Information Reporting and Backup Withholding ...... 18 General ...... 2 CONTINUING DISCLOSURE OF INFORMATION ...... 18 Description ...... 2 Annual Reports ...... 18 Authority for the Bonds ...... 3 Event Notices ...... 18 Source of Payment ...... 3 Limitations and Amendments ...... 19 No Optional Redemption ...... 3 Compliance with Prior Undertakings ...... 19 Mandatory Sinking Fund Redemption ...... 3 OTHER INFORMATION ...... 20 Notice of Redemption ...... 3 Municipal Rating ...... 20 Defeasance ...... 4 Verification of Accuracy of Mathematical Book-Entry-Only System ...... 5 Computations ...... 20 Ownership ...... 7 Financial Advisor ...... 20 Transfers Exchange and Registration ...... 7 Initial Purchaser ...... 20 Bondholder Remedies ...... 8 GENERAL CONSIDERATIONS ...... 20 Paying Agent/Registrar ...... 8 Prices and Marketability ...... 20 Record Date for Interest Payment ...... 8 Legal Investments and Eligibility to Secure AD VALOREM TAXES ...... 9 Public Funds in Texas ...... 21 Tax Rate Limitation ...... 10 Securities Laws ...... 21 Levy and Collection of Taxes ...... 10 Sources and Compilation of Information ...... 21 Tax Delinquencies ...... 10 Forward-Looking Statements ...... 21 THE DISTRICT ...... 11 Approval of Official Statement ...... 22 General ...... 11 Certification of the Official Statement ...... 22 Security ...... 11 Audited Financial Statements ...... 22 Proposed Legislation ...... 11 MISCELLANEOUS...... 22 Federal Funding for Security ...... 12 District Operations ...... 12 APPENDICES APPENDIX A – Financial Information And Debt Information Operating History ...... 13 APPENDIX B – Selected Data From Draft Comprehensive Annual Employee Retirement System ...... 13 Financial Report Port Of Port Arthur Navigation District, Texas Post Employment Benefits ...... 13 Fiscal Year Ended July 31, 2016 and Annual Financial Report Pollution Control Revenue Bonds ...... 13 Fiscal Year Ended July 31, 2015 Financial Policies ...... 13 APPENDIX C – Form of Opinion of Bond Counsel INVESTMENTS ...... 14 Investment Policy ...... 14 Current Investments ...... 15 SPECIAL CONSIDERATIONS ...... 15 Litigation ...... 15 LEGAL MATTERS ...... 15 Legal Opinions ...... 15

OFFICIAL STATEMENT SUMMARY

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

The Issuer Port of Port Arthur Navigation District of Jefferson County, Texas (the “District”).

The Bonds $20,930,000* Port of Port Arthur Navigation District of Jefferson County, Texas Unlimited Tax Port Refunding Bonds, Taxable Series 2016B (the “Bonds”) are being issued in the principal amounts, maturities, and at the rates per annum as set forth on the inside cover page hereof.

Interest The Bonds are dated December 1, 2016. Interest will accrue from the initial date of delivery of the Bonds to the Initial Purchaser at the rates indicated on the inside cover page hereof, with interest payable on March 1, 2017, and on each September 1 and March 1 thereafter until maturity or earlier redemption. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bonds will be issued only in fully-registered form in integral multiples of $5,000 of principal amount. See “THE BONDS – Description” herein.

Paying Agent/Registrar The initial Paying Agent/Registrar for the Bonds is BOKF, NA, Austin, Texas.

Authority for Issuance The Bonds are issued by the District pursuant to the Constitution and general laws of the State of Texas (the “State”) including Chapter 197, Acts of the 58th Legislature, Regular Session 1963, as amended, Chapter 1371, Texas Government Code, as amended, an election held on May 10, 2008 (the “Election”) and the order authorizing the Bonds, and, pursuant to such order, a pricing certificate executed by a pricing officer setting forth certain terms of the Bonds (collectively, the “Order”).

Redemption The Bonds are not subject to optional redemption prior to maturity. Additionally, if the principal amounts designated in the serial maturity on the inside cover page hereof are combined to create on or more term Bonds (the “Term Bonds”), each such Term Bond shall be subject to mandatory sinking fund redemption. See “THE BONDS – No Optional Redemption” and “Mandatory Sinking Fund Redemption” herein.

Source of Payment Principal of and interest on the Bonds is payable from the proceeds of an annual ad valorem tax, without legal limit as to rate or amount, levied against all taxable property located within the District. The Bonds are obligations solely of the District and are not obligations of the State of Texas, Jefferson County, Texas or any entity other than the District. See “THE BONDS – Sources of Payment” herein.

Use of Proceeds Proceeds from the sale of the Bonds will be used to (i) refund certain outstanding bonds of the District (the “Refunded Bonds”), as set forth in Schedule I herein, and (ii) pay the cost of issuance on the Bonds.

Book-Entry-Only The Bonds are initially issuable only to Cede & Co., the nominee of DTC pursuant to a book- System entry-only system. No physical delivery of the Bonds will be made to the beneficial owners of the Bonds. Principal of and interest on the Bonds will be paid to Cede & Co., which will distribute such payment to the participating members of DTC for remittance to the beneficial owners of the Bonds. See “THE BONDS – Book-Entry-Only System” herein.

* Preliminary, subject to change.

Additional Bonds Simultaneously with the issuance of the Bonds, the District plans to issue approximately $3,445,000* of its Unlimited Tax Port Refunding Bonds, Series 2016A (the “Series 2016A Bonds”).

Authorized but The District has $89,950,000 of authorized but unissued Bonds approved at an election held Unissued Bonds on May 7, 2016 (the “2016 Election”). The District is considering the issuance of a portion of the authorized but unissued debt in 2017.

Payment Record The District has not defaulted on its outstanding debt obligations.

Municipal Rating Moody’s Investors Service (“Moody’s) has assigned its underlying municipal bond rating of “Aa3” to the Bonds. See “MUNICIPAL RATING” herein.

Tax Matters The Bonds are not obligations described in Section 103(a) of the Internal Revenue Code of 1986, as amended. See “TAX MATTERS” herein.

Delivery It is expected that the Bonds will be available for delivery through the facilities of DTC on or about December 20, 2016 (the “Date of Delivery”).

Legality Delivery of the Bonds is subject to the approval by the Attorney General of the State of Texas and the rendering of an opinion as to legality by McCall Parkhurst & Horton L.L.P., Bond Counsel, Austin, Texas.

vii

SELECTED FINANCIAL INFORMATION

2016 Assessed Value, Net of Exemptions $ 5,597,558,850 Ad Valorem Tax Rate $ 0.1666 2016 Tax Levy (Adjusted) $ 9,331,225 District Population (2005) 56,684

Direct Ad Valorem Tax Debt as of September 1, 2016 Unlimited Tax Port Refunding Bonds, Series 2008A $ 19,210,000 Unlimited Tax Port Improvement Bonds, Series 2008B 7,825,000 Total Outstanding Tax Debt $ 27,035,000

Plus: The Series 2016A Bonds $ 3,280,000 * Plus: The Series 2016B Bonds $ 20,965,000 * Less: The Refunded Bonds $ 22,575,000 * Total $ 28,705,000 *

Direct Ad Valorem Tax Bonds as a Percentage of Assessed Value 0.51% Direct Ad Valorem Tax Bonds per Capita $ 506

Source: Municipal Advisory Council of Texas. *Preliminary, subject to change. The Distirct plans to issue the Series 2016A Bonds and the Series 2016B Bonds simultaneously.

viii

Official Statement Relating to:

$20,930,000* PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS UNLIMITED TAX PORT REFUNDING BONDS, TAXABLE SERIES 2016B (A political subdivision of the State of Texas having boundaries entirely within Jefferson County)

INTRODUCTION

This Official Statement is provided to furnish information in connection with the offering by the Port of Port Arthur Navigation District of Jefferson County, Texas (the “District”) of its Unlimited Tax Port Refunding Bonds, Taxable Series 2016B in the aggregate principal amount of $20,930,000* (the “Bonds”). Simultaneously with the issuance of the Bonds, the District plans to issue approximately $3,445,000* of its Unlimited Tax Port Refunding Bonds, Series 2016A (the “Series 2016A Bonds”).

Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Order (the “Order”) to be adopted by the Board of Commissioners of the District (the “Board”), the governing body of the District, authorizing the issuance of the Bonds, except as otherwise indicated herein.

The Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the “State”) including Chapter 197, Acts of the 58th Legislature, Regular Session 1963, as amended, Chapter 1371, Texas Government Code, as amended, an election held on May 10, 2008 (the “2008 Election”), and the order authorizing the Bonds, and, pursuant to such order, a pricing certificate executed by a pricing officer setting forth certain terms of the Bonds (collectively, the “Order”).

The Bonds are issued for the purposes described below and are payable from the proceeds of an annual ad valorem tax levied upon all taxable property within the District, without legal limit as to rate or amount. See “THE BONDS – Sources of Payment” herein.

The District’s audited general purpose financial statements for the fiscal year ended July 31, 2016, which are included in Appendix B, present information on the general financial condition of the District at the dates and for the periods described therein.

THE PLAN OF FINANCING

Refunded Bonds

The Refunded Bonds (as indicated in Schedule I attached hereto) and the interest due thereon are to be paid on their scheduled interest payment dates and dates of redemption from funds to be deposited with BOKF, NA, Austin, Texas (the “Escrow Agent”), pursuant to an Escrow Agreement (the “Escrow Agreement”) between the District and the Escrow Agent.

The Order provides that from the proceeds of the sale of the Bonds to the Initial Purchaser, the District will deposit with the Escrow Agent an amount, which, when added to the investment earnings thereon, will be sufficient to pay all amounts coming due on the Refunded Bonds on their interest payment dates and to accomplish the discharge and final payment of the Refunded Bonds on their respective redemption dates. Such funds will be held by the Escrow Agent in a special escrow account (the “Escrow Fund”) and used to purchase a portfolio of securities authorized under 1207.067 Texas Government Code which are direct obligations of the United States of America (the “Escrowed Securities”). By the deposit of the proceeds of the Bonds and other funds of the District, if any, with the Escrow Agent pursuant to the Escrow Agreement, the District will have effected the defeasance of the Refunded Bonds in accordance with applicable State law and the Order authorizing the Refunded Bonds. As a result of such defeasance, the Refunded Bonds will be outstanding only for the purpose of receiving payments from the Escrow Fund held for such purpose by the Escrow Agent and such Refunded Bonds will not be deemed as being outstanding obligations of the District payable from taxes nor for the purpose of applying any limitation on the issuance of debt. Under the Escrow Agreement, the Escrow Fund is irrevocably pledged to the payment of principal of and interest on the Refunded Bonds.

* Preliminary, subject to change.

Grant Thornton LLP, a nationally recognized accounting firm, will issue its report (the “Report”) verifing at the time of delivery of the Bonds to the Initial Purchaser the mathematical accuracy of the schedules that demonstrate the Escrowed Securities will mature and pay interest in such amounts which, together with uninvested funds, if any, in the Escrow Fund, will be sufficient to pay, when due, the principal of and interest on the Refunded Bonds. Such maturing principal of and interest on the Escrowed Securities will not be available to pay the Bonds (see “OTHER INFORMATION - Verification of Accuracy of Mathematical Computations”).

By the deposit of the Escrowed Securities and cash, if necessary, with the Escrow Agent pursuant to the Escrow Agreement, the District will have effected the defeasance of all of the Refunded Bonds in accordance with State law and in reliance upon the Report. As a result of such defeasance, the Refunded Bonds will be outstanding only for the purpose of receiving payments from the Escrowed Securities and any cash held for such purpose by the Escrow Agent and such Refunded Bonds will not be deemed as being outstanding obligations of the District payable from taxes nor for the purpose of applying any limitation on the issuance of debt, and the District will have no further responsibility with respect to amounts available in the Escrow Fund for the payment of the Refunded Bonds from time to time, including any insufficiency therein caused by the failure to receive payment when due on the Escrowed Securities.

Sources and Uses

Proceeds from the sale of the Bonds will be used to i) refund certain outstanding bonds of the District (the “Refunded Bonds”), as set forth in Schedule I herein, and ii) pay the cost of issuance on the Bonds.

The following table sets forth the estimated sources and uses of funds associated with the proceeds from the sale of the Bonds.

Sources of Funds: Par Amount $ Original Issue Reoffering Premium Total $ Uses of Funds: Deposit to Escrow Fund $ Initial Purchaser’s Discount Issuance Costs1 Total $

1 Includes professional costs, rating agency fees, fees of the Paying Agent/Registrar, rounding amount and any other costs of issuance.

THE BONDS

General

The following is a description of some of the terms and conditions of the Bonds, which description is qualified in its entirety by reference to the Order. Copies of the Order may be obtained upon request to the District. Certain terms not defined elsewhere in the Official Statement are defined in the Order.

Description

The Bonds will bear interest at the rates and will mature on the dates and in the amounts as set forth on the inside cover page hereof. The Bonds are dated December 1, 2016. Interest will accrued from the initial date of initial delivery to the Initial Purchaser and will be payable on March 1, 2017, and on each September 1 and March 1 thereafter, until maturity or prior redemption.

The Bonds will be issued only in fully-registered form, in integral multiples of $5,000 of principal amount, for any one maturity, and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company, New York, New York (“DTC”) pursuant to the book-entry-only system described herein. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by BOKF, NA, Austin, Texas (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.

Authority for the Bonds

The Bonds are issued pursuant to the provisions of the Constitution and laws of the State of Texas, including particularly (i) Article XVI, Section 59 of the Texas Constitution, (ii) Chapter 197, Acts of the 58th Legislature, Regular Session, 1963, as amended, (iii) Chapter 1371, Texas Government Code, (iv) Chapter 1207, Texas Government Code, and (v) the Order.

Source of Payment of the Bonds

The Bonds are payable from the receipts of a separate annual ad valorem tax, unlimited as to rate or amount, levied on taxable property within the District. See “AD VALOREM TAXES.” Pursuant to the provisions of the Order, the Port Commissioners, on behalf of the District, have levied and agreed to assess and collect these annual ad valorem taxes. In each year the Port Commissioners, on behalf of the District, will determine the specific tax to be collected to pay interest as it accrues and principal as it matures on the Bonds of both series and will assess such taxes for that year. The receipts of such taxes are to be credited to separate funds to be used solely for the payment of the principal of and interest on the Bonds.

Authorized But Unissued Bonds

On May 7, 2016, voters of the District authorized the issuance of $89,950,000 of bonds payable from the levy of an unlimited ad valorem tax for refunding certain obligations of the District and providing funds for improvements to the port facilities. After the issuance of the Bonds, the District will have $89,950,000 of authorized but unissued Bonds.

No Optional Redemption

The Bonds are not subject to optional redemption prior to maturity.

Mandatory Sinking Fund Redemption

In addition to the foregoing optional redemption provision, if principal amounts designated in the serial maturity schedule on the inside cover page hereof are combined to create term Bonds (the “Term Bonds”), each such Term Bond shall be subject to mandatory sinking fund redemption commencing on March 1 of the first year which has been combined to form such Term Bond and continuing on March 1 in each year thereafter until the stated maturity date of that Term Bond, and the amount required to be redeemed in any year shall be equal to the principal amount for such year set forth in the serial maturity schedule on the inside cover page hereof.

The particular Term Bond to be mandatorily redeemed shall be selected by lot or other customary random selection method. The principal amount of the Term Bond to be mandatorily redeemed on such mandatory redemption date shall be reduced by the principal amount of such Term Bond which, by the 45th day prior to such mandatory redemption date, either has been purchased in the open market and delivered or tendered for cancellation by or on behalf of the District to the Paying Agent/Registrar or optionally redeemed and which, in either case, has not previously been made the basis for a reduction under this sentence.

Notice of Redemption

The Paying Agent/Registrar shall give notice of any redemption of Bonds by sending notice by United States mail, first class, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the registered owner of each Bond to be redeemed, in whole or in part, at the address of the registered owner shown 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 AND ANY CONDITION TO REDEMPTION SPECIFIED THEREIN HAVING BEEN SATISFIED, 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.

Defeasance

The Order provides for the defeasance of the Bonds and the termination of the pledge of taxes and all other general defeasance covenants in the Order under certain circumstances. Any Bond and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a “Defeased Obligation”) within the meaning of the relevant Order, except to the extent provided below for the Paying Agent to continue payments and for the District to retain the right to call Defeased Obligations to be paid at maturity, when the payment of all principal and interest payable with respect to such Bond to the due date or dates thereof (whether such due date or dates be by reason of maturity, upon redemption, or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemption or the establishment of irrevocable provisions for the giving of such notice) or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent or an eligible trust company or commercial bank for such payment (1) lawful money of the United States of America sufficient to make such payment, (2) Defeasance Securities (defined below) that mature as to principal and interest in such amounts and at such times as will ensure the availability, without reinvestment, of sufficient money to provide for such payment and when proper arrangements have been made by the District with the Paying Agent or an eligible trust company or commercial bank for the payment of its services until after all Defeased Obligations shall have become due and payable or (3) any combination of (1) and (2). At such time as a Bond shall be deemed to be a Defeased Obligation, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes levied as provided in the Order, and such principal and interest shall be payable solely from such money or Defeasance Securities.

The deposit under clause (ii) above shall be deemed a payment of a Bond when proper notice of redemption of such Bonds shall have been given or the establishment of irrevocable provisions for the giving of such notice, in accordance with the relevant Order. Any money so deposited with the Paying Agent or an eligible trust company or commercial bank may at the discretion of the Board of Port Commissioners also be invested in Defeasance Securities, maturing in the amounts and at the times as set forth in the Order, and all income from such Defeasance Securities received by the Paying Agent or an eligible trust company or commercial bank that is not required for the payment of the Bonds and interest thereon, with respect to which such money has been so deposited, shall be turned over to the District.

All money or Defeasance Securities set aside and held in trust pursuant to the provisions of the Order for the payment of principal of the Bonds and premium, if any, and interest thereon, shall be applied to and used solely for the payment of the particular Bonds and premium, if any, and interest thereon, with respect to which such money or Defeasance Securities have been so set aside in trust. Until all Defeased Obligations shall have become due and payable, the Paying Agent shall perform the services of Registrar for such Defeased Obligations the same as if they had not been defeased, and the District shall make proper arrangements to provide and pay for such services as required by the Order.

If money or Defeasance Securities have been deposited or set aside with the Paying Agent or an eligible trust company or commercial bank for the payment of Bonds and such Bonds shall not have in fact been actually paid in full, no amendment of the defeasance provisions of the Order shall be made without the consent of the registered owner of each Bond affected thereby.

To the extent that, upon the defeasance of any Defeased Obligation to be paid at its maturity, the District retains the right under Texas law to later call that Defeased Obligation for redemption in accordance with the provisions of the Order, the District may call such Defeased Obligation for redemption upon complying with the provisions of Texas law and upon the satisfaction of the provisions set forth above regarding such Defeased Obligation as though it was being defeased at the time of the exercise of the option to redeem the Defeased Obligation and the effect of the redemption is taken into account in determining the sufficiency of the provisions made for the payment of the Defeased Obligation.

Any escrow agreement or other instrument entered into between the District and the Paying Agent or an eligible trust company or commercial bank pursuant to which money and/or Defeasance Securities are held by the Paying Agent or an eligible trust company or commercial bank for the payment of Defeased Obligations may contain provisions permitting the investment or reinvestment of such moneys in Defeasance Securities or the substitution of other Defeasance Securities upon the satisfaction of certain requirements. All income from such Defeasance Securities received by the Paying Agent or an eligible trust company or commercial bank which is not required for the payment of the Bonds and interest thereon, with respect to which such money has been so deposited, will be remitted to the District.

Under current State law, “Defeasance Securities” means any securities and obligations now or hereafter authorized by State law that are eligible to discharges obligations such as the Bonds. Current State law permits defeasance with the following types of securities: (a) direct, noncallable obligation of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the Board of Port Commissioners of the District adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the Board of Port Commissioners of the District adopt or approve the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent.

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 Order does not contractually limit such investments, registered owners will 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. There is no assurance that the ratings for U.S. Treasury securities used as Defeasance Securities or those for any other Defeasance Security will be maintained at any particular rating category.

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 credited by The Depository Trust Company, New York, New York (“DTC”), 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 District, the Financial Advisor and the Initial Purchaser believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof.

The District cannot and does not give any assurance that (1) DTC will distribute payment 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 in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds, in the aggregate principal amount of 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, 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 Bonds. 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 a 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 registered 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 companies 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: “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.

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. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive physical Bonds representing their ownership interests in 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 Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect 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. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them.

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. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, principal, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Paying Agent/Registrar, on payable date 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 is 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 District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, principal, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent/Registrar. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and reimbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bonds are required to be printed and delivered. Discontinuance by the District of use of the system of book-entry transfers through DTC may require compliance with DTC operational arrangements.

The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). Discontinuance of the system of book-entry transfers by the District may require the consent of Participants under DTC’s Operational Arrangements. In that event, Bond Bonds will be printed and delivered.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but neither the District, the Financial Advisor nor the Initial Purchaser takes responsibility for the accuracy thereof.

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 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 Order will be given only to DTC.

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 District, 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 Order and summarized under “THE BONDS – Transfers and Exchanges” below.

Ownership

The District, the Paying Agent/Registrar and any agent of either may treat the person in whose name any Bond is registered as the owner of such Bond for the purposes of receiving payment of the principal thereof and the interest on the Bond and for all other purposes whatsoever, whether or not such Bond is due or overdue. Neither the District, the Paying Agent/Registrar, or any agent of either will be affected by any notice to the contrary.

Transfer, Exchange and Registration

In the event the Book-Entry-Only System should be discontinued printed certificates shall be delivered to the owners of the Bonds, and thereafter, any Bond may, in accordance with its terms and the terms of the Order, be transferred or exchanged for Bonds of other authorized denominations upon the Security Register by the Bondholder, in person or by his duly authorized agent, upon surrender of such Bond to the Paying Agent/Registrar for cancellation, accompanied by a written instrument of transfer or request for exchange duly executed by the Bondholder or by his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. Upon surrender for transfer of any Bond at the principal payment office of the Paying Agent/Registrar, the Paying Agent/Registrar will register and deliver, in the name of the designated transferee or transferees, one or more new Bonds executed on behalf of, and furnished by, the District, of authorized denominations and having the same stated maturity and of a like aggregate principal amount and interest rate as the Bond or Bonds surrendered for transfer. At the option of the Bondholder, Bonds may be exchanged for other Bonds of authorized denominations and having the same stated maturity, bearing the same rate of interest, and of like aggregate principal amount as the Bonds surrendered for exchange, upon surrender of the Bonds to be exchanged at the principal corporate trust office of the Paying Agent/Registrar. Whenever any Bonds are so surrendered for exchange, the Paying Agent/Registrar will register and deliver new Bonds executed on behalf of, and furnished by, the District to the Bondholder requesting the exchange. See “THE BONDS - Book-Entry-Only System” herein for a description of the system to be utilized initially in regard to ownership and transferability of Bonds.

All Bonds issued upon any transfer or exchange of Bonds will be delivered at the principal corporate trust office of the Paying Agent/Registrar, or sent by United States registered mail to the Bondholder at his request, risk, and expense, and upon the delivery thereof, the same shall be the valid obligations of the District, evidencing the same obligation to pay, and entitled to the same benefits under the Order, as the Bonds surrendered in such transfer or exchange.

All transfers or exchanges of Bonds will be made without expense or service charge to the Bondholder, except as otherwise herein provided, and except that the Paying Agent/Registrar will require payments by the Bondholder requesting such transfer or exchange of any tax or other governmental charges required to be paid with respect to such transfer or exchange. See “THE BONDS - Book-Entry-Only System” herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds.

Bondholders’ Remedies

The Order establishes the following occurrences or events as “Events of Default”: (i) the failure to make payment of the principal of or interest on any of the Bonds when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement or obligation of the District, the failure to perform which materially, adversely affects the rights of the holders of the Bonds, including but not limited to, their prospect or ability to be repaid in accordance with the Order, and the continuation thereof for a period of 60 days after notice of such default is given by any holder to the District. The Order does not provide for a trustee to enforce the covenants and obligations of the District. In no event will registered owners have the right to have the maturity of the Bonds accelerated as a remedy. A registered owner of Bonds could seek a judgment against the District if a default occurred in the payment of principal of or interest on any such Bonds; however, such judgment could not be satisfied by execution against any property of the District and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A registered owner’s only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the District to levy, assess and collect an annual ad valorem tax sufficient to pay principal of and interest on the Bonds as it becomes due or perform other material terms and covenants contained in the Order. In general, Texas courts have held that a writ of mandamus may be issued to require a public official to perform legally imposed ministerial duties necessary for the performance of a valid contract, and Texas law provides that, following their approval by the Attorney General and issuance, the Bonds are valid and binding obligations for all purposes according to their terms. However, the enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The District is also eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code (“Chapter 9”). Although Chapter 9 provides for the recognition of a security interest represented by a specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. 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 bond holders of an entity which has sought protection under Chapter 9. Therefore, should the District avail itself of Chapter 9 protection from creditors, the ability to enforce 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 Order and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors, including rights afforded to creditors under the Bankruptcy Code.

Paying Agent/Registrar

The initial Paying Agent/Registrar is BOKF, NA, Austin, Texas. The Paying Agent/Registrar covenants that it will at all times, until the Bonds are duly paid maintain an agency for the performance of the duties of the Paying Agent/Registrar. In the Order, the District retains the right to replace the Paying Agent/Registrar. Every Paying Agent/Registrar must at all times be a commercial bank or trust company organized and doing business under the laws of the United States of America or of any state, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $10,000,000, subject to supervision or examination by federal or state authority, registered as a transfer agent with the United States Securities and Exchange Commission. Upon any change in the Paying Agent/Registrar, the District agrees to promptly cause a written notice thereof to be sent to each Holder affected by the change, which notice shall also give the address of the new Paying Agent/Registrar.

Record Date for Interest Payment

The record date (“Record Date”) for the interest payable on any interest payment date of the Bonds means the close of business on the 15th calendar 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 District. Notice of the Special Record Date and of the scheduled payment date of the past due interest, 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 Registered Owner of an affected 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.

AD VALOREM TAXES

The appraisal of property within the District is the responsibility of the Jefferson County Appraisal District (the “Appraisal District”). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The District may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the District by petition filed with the Appraisal Review Board.

Reference is made to those sections of VTCA, Texas Tax Code, popularly known as the Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution (“Article VIII”) and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, and the exemption of certain personal property from ad valorem taxation.

Under Section I-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant:

(1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision;

(2) An exemption of up to 20% of the market value of residence homesteads; minimum exemption $25,000.

In the case of residence homestead exemptions granted under Section I-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created.

State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted up to $12,000. Article VIII provides that eligible owners of both agricultural land (Section l-d) and open-space land (Section l-d-l), including open-space land devoted to farm or ranch purposes or open-spaced land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section l-d and l-d- l.

Nonbusiness vehicles, such as automobiles or light trucks, arc exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. The District does not tax nonbusiness vehicles. Boats owned as nonbusiness property are exempt from ad valorem taxation.

Article VIII, Section l-j of the Texas Constitution provides for freeport property to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. The exemption became effective for the 1991 fiscal year and thereafter unless action to tax such property has been taken prior to April 1, 1990. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The District has taken no action to tax freeport property.

In addition, under Section 11.253 of the Texas Tax Code, “Goods-in-transit” are exempt from taxation unless a taxing unit opts out of the exemption. Goods-in-transit are defined as tangible personal property that: (i) is acquired in or imported into the State to be forwarded to another location in the State or outside the State; (ii) is detained at a location in the State in which the owner of the property does not have a direct or indirect ownership interest for assembling, storing, manufacturing, processing, or fabricating purposes by the person who acquired or imported the property; (iii) is transported to another location in the State or outside the State not later than 175 days after the date the person acquired the property in or imported the property into the State; and (iv) does not include oil, natural gas, petroleum products, aircraft, dealer’ s motor vehicle inventory, dealer’s vessel and outboard motor inventory, dealer’s heavy equipment inventory, or retail manufactured housing inventory. The District has not taken action to tax goods-in-transit.

The District grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $40,000; the disabled are granted an exemption based on percentage of disability. The District has also granted an exemption of 20% of the market value of the residence homestead; minimum exemption of $25,000.

The Board of Port Commissioners are responsible for levying taxes on behalf of the District. While the District’s rates of taxation differ from the County’s, the procedures for assessing, levying and collecting tax are, except as otherwise described below, substantially the same as those followed by the County.

Tax Rate Limitation

The Board of Port Commissioners levy a separate annual ad valorem tax. The District’s tax rate in 2016 is $.0923 for debt service and $0.0743 for maintenance and operations. The District’s tax for maintenance and operations is limited to $0.10 per $100, but there is no limitation on the rate which may be levied for debt service on unlimited tax bonds.

By each September 30 or as soon thereafter as practicable, the Port Commissioners adopt a tax rate per $100 taxable value for the current year. The tax rate consists of two components: (i) a rate for funding of maintenance and operation expenditures, and (ii) a rate for debt service.

Under the Property Tax Code, the District must annual calculate and publicize its “effective tax rate” and “rollback tax rate”. The District may not adopt a rate that exceeds the prior year’s levy until it has held two public hearings on the proposed increase following notice to the taxpayers and otherwise complied with the Property Tax Code. The Property Tax Code provides that the District will be prohibited from adopting a tax rate that exceeds the lower of the rollback tax rate of one hundred eight (108%) of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the District’s website if the District owns, operates or controls an internet website and public notice be given by television if the District has free access to a television channel) and the District has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate, the qualified voters of the District by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate.

Levy and Collection of Taxes

The District is responsible for the collection of its taxes, unless it elects to transfer such functions to another governmental entity. Before the later of September 30 or the 60th day after the date that the certified appraisal role is received by the District, the rate of taxation must be set by the Port Commissioners of the District based upon the valuation of property within the District as of the preceding January 1 and the amount required to be raised for debt service and maintenance and operations purposes. Taxes are due October 1, or when billed, whichever comes later, and become delinquent after January 31 of the following year. A delinquent tax incurs a penalty from six percent (6%) to twelve percent (12%) of the amount of the tax, depending on the time of payment, and accrues interest at the rate of one percent (1%) per month. If the tax is not paid by the following July 1, an additional penalty of up to twenty percent (20%) may, under certain circumstances, be imposed by the District. The Property Tax Code also makes provision for the split payment of tax, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances.

District’s rights in the Event of Tax Delinquencies

Taxes levied by the District are a personal obligation of the owner of the property. The District has no lien for unpaid taxes on personal property but does have a lien for unpaid taxes on real property, which lien is discharged upon payment. On January 1 of each year, such tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The District’s tax lien is on a parity with the tax liens of other such taxing units. A tax lien on real property takes priority over the claims of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. The automatic stay in bankruptcy will prevent the automatic attachment of tax liens with respect to post-petition tax years unless relief is sought and granted by the bankruptcy judge. Personal property, under certain circumstances, is subject to seizure and sale for the payment of delinquent taxes, penalty and interest.

Except with respect to taxpayers who are 65 years of age or older, at any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for

delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights, or bankruptcy proceedings which restrict the collection of taxpayer debts.

Tax Abatement and Reinvestment Zones

Cities and Counties may create one or more tax increment financing zones, under which the tax values on property in the zone are “frozen” at the value of the property at the time of creation of the zone. Other overlapping taxing units may agree to contribute all or part of future ad valorem taxes levied and collected against the value of property in the zone in excess of the “frozen” value to pay or finance the costs of certain public improvements in the zone. Taxes levied by the District against the values of real property in the zone in excess of the “frozen value” are not available for general city use but are restricted to paying or financing “project costs” within the zone.

Cities and Counties also may enter into one or more tax abatement agreements to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on its property. The City or County, in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years.

THE DISTRICT

General

The Port of Port Arthur Navigation District of Jefferson County, Texas was created by a Special Act of the 55th Legislature under provisions of Section 59, Article XVI of the Texas Constitution, ratified by referendum on June 13, 1964. The District is independent from other local or state governments and operates within district boundaries of approximately 58 square miles, including the City of Port Arthur and a part of the City of Groves. The five member elected Board of Port Commissioners governs the affairs of the District, with management responsibilities vested in the Executive Port Director. The District provides the services of a Public Ocean Terminal with railroad access to the nation.

The District includes the Port Arthur Navigation District Industrial Development Corporation (PANDIDC), a Texas non- profit corporation, whose purposes are to promote and develop new and expanded enterprises in the District, and to promote and encourage employment and public welfare. Bonds issued by the Corporation are payable from revenue derived as a result of the industrial development facilities funded by pollution control and industrial development bonds. These bonds are not a liability or contingent liability of the District and do not create a lien upon any of the District’s properties or revenue; only the industrial facilities for which they are issued.

Security

The Coast Guard has implemented heightened security measures in the Channel following the terrorist attacks in New York and Washington, D.C. on September 11, 2001. The Coast Guard is responsible for the security level in the Channel and bears the costs of such security. The District has not incurred any significant additional expenses for security measures beyond its historical security expenses and has not experienced any significant decline in revenues since September 11.

Proposed Legislation

Maritime Security legislation has passed both houses of Congress that would require all ports in the United States to have a comprehensive security plan. The legislation would assign additional responsibilities to the Coast Guard in regard to port security and would authorize the Maritime Administration to prescribe regulations to require port authorities to establish a maritime transportation security program. At this time, the District cannot predict the final form of any legislation that may be enacted into law or future executive orders or rules or regulations that may be prescribed by federal, state or local authorities relating to port security nor the impact of such measures, if any, on District revenues.

Federal Funding for Security

In September 2003, the District was approved for a $707,120 financial assistance grant from the United States Department of Homeland Security, Office of Domestic Preparedness (ODP); Security Grant Round 2. This grant allowed the Distinct to purchase and install exterior lighting, an access control system and monitoring equipment in and around the central command center and perimeter of the terminal facility. Additionally a security consultant was hired to evaluate the District’s security plan, make recommendations and assist with the implementation of such. As of July 31, 2007, the District completed this project, capitalized acquired assets and expended all grant funds.

In March 2004, the District was approved for a financial assistance grant from the United States Department of Homeland Security, Transportation Security Administration (TSA); Security Grant Round 3. This grant allowed the District to design and construct a central command center with applicable equipment, fencing and equipment enhancements both for the strategic terminal and channel access sites. Of the estimated total project cost of $1,172,900, $938,320 is the federal share and $234,580 is the recipient (District) share of cost. As of July 31, 2007, the District completed this project and capitalized the constructed and acquired capital assets. The District has expended $1,937,823 and received $938,320 of grant funds.

In May 2006, the District was approved for a financial assistance grant from the United States Department of Justice, Office of Justice Programs (OJP); Security Grant Round 5. The District will use this grant funding for the costs related to the implementation of the District’s Vehicle Security Barriers (project 1), Inspection Queue Area (project 2), and Underwater Detection Systems (project 3) projects. Of the total project costs totaling $4,115,810, $3,313,960 is the federal share and $801,850 is the recipient (District) share of cost. As of July 31, 2007, the District has expended $803,207 and received $659,102 of grant funds.

In October 2006, the District was approved for a financial assistance grant from the United States Department of Homeland Security Preparedness Directorate, Office of Grants and Training; Security Grant Round 6. The District will use this grant funding for the costs related to the acquisition and installation of surveillance cameras, video processors and recorders, control panels and applicable accessories. Of the estimated total project cost of $560,057, $420,020 is the federal share and $140,007 is the recipient (District) share of the cost. As of July 31, 2007, the District has expended $5,655 and requested $4,240.98 of grant funds.

In August 2007, the District was approved for a financial assistance grant from the United States Department of Homeland Security Preparedness Directorate, Office of Grants and Training; Security Grant Round 7. The District will use this grant funding for the costs related to training, the acquisition, installation and implementation of the TWIC access system and surveillance equipment and applicable accessories. Of the estimated total project cost of $299,400, $224,550 is the federal share and $74,850 is the recipient (District) share of the cost.

In addition, the District charges a security surcharge fee to help defray its costs relating to security protection for its docks and facilities.

District Operations

Located nineteen miles from the Gulf of Mexico, the District’s public facilities (the “Port”) handle forest, iron and steel products and general breakbulk trade. Forest products are the dominant export commodity, followed by iron and steel piping, while iron and steel slabs and coils are the primary import cargoes.

Port facilities include the public ocean terminal, which is situated in the southwest corner of the 64 acre port complex, which fronts a full mile on the Sabine Neches Gulf Intracoastal Waterway. Berths One and Two provide 1200 linear feet of berthing space with forty foot depths, 1600 meters downstream from the 40 feet deep, 900 foot wide turning point. These berths include 360,000 square feet of concrete dock platform, including aprons and covered storage space. An open paved area totaling 125,000 square feet behind Berths One and Two allows for 800 lb. per square foot loading and the entire area (embracing 25 acres) is fenced and well lighted. In addition, the Port has approximately 200,000 sq. ft. of covered transit shed. Additional information about the District can be found in Appendix A.

Operating History

Summaries of the District’s revenues and operating expenditures have been prepared from draft audited financial records of the District for the fiscal year ended July 31, 2016 and can be found in Appendix A, Table 9. Such summaries do not purport to be complete and prospective purchasers of the Bonds are advised to refer to the audited financial statements for complete information concerning the District’s finances. See “APPENDIX B--Excerpts from the Port of Port Arthur Navigation District Annual Financial Report.”

Employee Retirement System

The District provides pension, disability and death benefits for all of its full-time employees through a nontraditional defined benefit plan in the state-wide Texas County and District Retirement System (TCDRS). The District has elected the annually determined contribute rat plan provisions of the TCDRS Act. The plan is funded by monthly contributions from both the employee members and the employer based on the covered payroll of employee members. For more information on the District’s Employee Retirement System, see the audited Annual Financial Statement for the year ended July 31, 2016.

Other Post-Employment Benefits

The District offers its employees a deferred compensation plan through the International City Management Association, created in accordance with Internal Revenue Code Section 457. The plan, available to all District employees, permits them to defer a portion of their salary until future years in order to provide them with retirement income and other deferred benefits. The plan is funded entirely by employee contributions. The District has no post-employment benefits for which it is liable.

Pollution Control Revenue Bonds

The District is authorized under State law to issue revenue bonds to finance the acquisition, construction and improvement of facilities designed to reduce or eliminate pollution and to lease or sell such facilities. As of July 31, 2016, the District has issued $1,357,925,000 of such Pollution Control Bonds outstanding. The Pollution Control Bonds are special obligations and are payable solely out of revenue derived from the users of the projects. The bonds are not an indebtedness or pledge of the credit of the District within the meaning of any constitutional or statutory provision and shall not be general obligations of the District and shall never be paid in whole or in part from any funds raised by taxation or any revenues or other funds of the District except those derived by it in connection with the use of the projects.

Financial Policies

Basis of Accounting. The District’s policy is to adhere to the accounting principles set out by the Governmental Accounting Standards Board, as amended.

Fund Balance in Operating Funds. The District’s practice is to maintain surplus and unencumbered funds equal to at least $500,000 in the Operating Fund and $100,000 in the Debt Service Fund. This allows the District to avoid interim borrowing pending tax receipts and to maintain prudent reserves for contingencies. The County which collects taxes for the District, divides each dollar of taxes collected into its component parts of Maintenance and Operations and Debt Service and remits the taxes to the District upon receipt.

Tax Collections for Debt Service. The District deposits interest and sinking fund taxes collected by the County on behalf of the District into separate accounts where such monies are invested until required.

Debt Service Fund Balance. The District’s practice is to carry forward at the end of each fiscal year debt service funds sufficient to meet debt service requirements through at least the first six months of the ensuing fiscal year.

Use of Bond Proceeds, Grants, Etc. The District’s policy is to use bond proceeds for capital expenditures only. Such proceeds are not used to fund operations other than capital related expenses.

Budgetary Procedures. The District’s policy is to begin the budgetary procedure in early June of each year. The Budget is prepared by the Port Director. The preliminary budget is presented to the Board of Port Commissioners for review where it is refined at workshop sessions until adoption, usually in late July. The budget for 2016-17 was based upon the assumption of tax collections at a 95% rate. The Board of Port Commissioners is responsible for monitoring the expenditures of the District to determine that they do not exceed appropriations.

INVESTMENTS

Investment Policy

The District invests its funds in investments authorized by Texas law in accordance with written investment policies approved by the District, a copy of which is available upon request. Among other things, the District’s Investment policy provides that the investment officers maintain a list of financial institutions authorized by the Board to provide investment services to the District. The investment officers also shall conduct an annual review to determine the financial and operating status of each broker/dealer and prepare and submit to the Board a quarterly report of investment transactions and holdings of the District’s funds. Both Texas law and the District’s investment policies are subject to change. As required under Texas law, the District’s written investment strategy and policy emphasize safety of principal and liquidity, and address investment diversification, yield, maturity, and the quality and capability of investment management.

Under Texas law, the District is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (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 is 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) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit (i) issued by a depository institution that has its main office or a branch office in the State of Texas, that 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 Bonds described in clauses (1) through (6) or in any other manner and amount provided by law for District deposits, or (ii) where; (a) the funds are invested by the District through a depository institution that has a main office or branch office in this state and that is selected by the District; (b) the depository institution selected by the District arranges for the deposit of funds in one or more federally insured depository institutions, wherever located; (c) the certificates of deposit are insured by the United States or an instrumentality of the United States; (d) the depository institution acts as a custodian for the District with respect to the certificates of deposit; and (e) at the same time that the certificates of deposit are issued, the depository institution selected by the District receives deposits from customers of other federally insured depository institutions, wherever located, that is equal to or greater than the funds invested by the District through the depository institution selected under clause (ii)(a) above, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) 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 (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the District, held in the District’s name and deposited at the time the investment is made with the District or a third party designated by the District; (iii) a loan made under the program is placed 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, (10) certain bankers’ acceptances with the remaining term of 270 days or less, if the short-term obligations 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-loan money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share and (13) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, 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. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph.

The District 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 AAA-m or an equivalent by at least one nationally recognized rating service. The District may also contract with an investment management firm registered under the Investment Advisors Act of 1940 (15 U.S.C. Section 80b-1 et. Seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the District retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the District must do so by order, ordinance, or resolution.

The District is specifically prohibited from investing in: (1) obligations whose payments 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.

Current Investments

As of July 31, 2016, the District has $39,950,361 invested in certificates of deposits, bonds and other investments. See APPENDIX A – Note 2. The market value of such investments is approximately 100% of their book value. No funds of the District are invested in derivative securities; i.e., securities whose rate of return is determined by reference to some other instrument, index or commodity.

SPECIAL CONSIDERATIONS

Litigation

The District is not aware of any litigation of any nature which has been filed or is pending at this time which would enjoin the issuance of the Bonds or would affect the provisions made for payment or security of the Bonds, or would have a material adverse impact on the financial condition of the District.

The District is exposed to various risks of losses related to torts, theft of, damage to and destruction of fixed assets; error and omissions; injuries to employees; and natural disasters. The District has obtained commercial insurance coverage for these risks and provided various employee education and prevention programs. Various claims and lawsuits are pending against the District. In the opinion of District management, after consultation with legal counsel, the potential loss on all claims and lawsuits will not materially affect the District’s financial position.

LEGAL MATTERS

Legal Opinions

The Bonds are offered when, as and if issued, subject to the approval by the Attorney General of the State and the rendering of and opinion as to legality by McCall Parkhurst & Horton L.L.P., Austin, Texas, Bond Counsel for the District.

The District will furnish the Initial Purchaser with a complete transcript of proceedings held incident to the authorization and issuance of the Bonds, including the approving opinion of the Attorney General of the State of Texas as recorded in the Bond Register of the Comptroller of Public Accounts of the State, to the effect that the Bonds are valid and legally binding Bonds of the District under the Constitution and laws of the State. The District will also furnish the approving legal opinion of Bond Counsel in substantially the form attached hereto as Appendix C.

In its capacity as Bond Counsel, McCall Parkhurst & Horton L.L.P. has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the District for the purpose of passing upon the accuracy or completeness of this Official Statement. Bond Counsel’s role in connection with the Official Statement was limited to reviewing the information describing the Bonds in the Official Statement to verify that such descriptions conform to the provisions of the Order. No person is entitled to rely upon such firm’s limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the accuracy or completeness of any of the information contained herein.

The legal fee to be paid to Bond 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 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 the 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.

No-Litigation Certificate

The District will furnish the Initial Purchaser certificate, dated as of the date of delivery of the Bonds, executed by both the President and the Secretary of the Board of Commissioners of the District, to the effect that no litigation of any nature is then pending or threatened in any court, restraining or enjoining the issuance or delivery of the Bonds; affecting the provisions made for the payment of or security for the Bonds; in any manner questioning the authority or proceeding for the issuance, execution or delivery of the Bonds; or affecting the validity of the Bonds.

TAX MATTERS

Certain Federal Income Tax Considerations

General. The following discussion is a summary of certain expected material federal income tax consequences of the purchase, ownership and disposition of the Bonds and is based on the Internal Revenue Code of 1986 (the “Code”), the regulations promulgated thereunder, published rulings and pronouncements of the Internal Revenue Service (“IRS”) and court decisions currently in effect. There can be no assurance that the IRS will not take a contrary view, and no ruling from the IRS, has been, or is expected to be, sought on the issues discussed herein. Any subsequent changes or interpretations may apply retroactively and could affect the opinion and summary of federal income tax consequences discussed herein.

The following discussion is not a complete analysis or description of all potential U.S. federal tax considerations that may be relevant to, or of the actual tax effect that any of the matters described herein will have on, particular holders of the Bonds and does not address U.S. federal gift or estate tax or (as otherwise stated herein) the alternative minimum tax, state, local or other tax consequences. This summary does not address special classes of taxpayers (such as partnerships, or other pass-thru entities treated as a partnerships for U.S. federal income tax purposes, S corporations, mutual funds, insurance companies, financial institutions, small business investment companies, regulated investment companies, real estate investment trusts, grantor trusts, former citizens of the U.S., broker-dealers, traders in securities and tax-exempt organizations, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be subject to or personal holding company provisions of the Code or taxpayers qualifying for health insurance premium assistance credit) that are subject to special treatment under U.S. federal income tax laws, or persons that hold Bonds as a hedge against, or that are hedged against, currency risk or that are part of hedge, straddle, conversion or other integrated transaction, or persons whose functional currency is not the “U.S. dollar”. This summary is further limited to investors who will hold the Bonds as “capital assets” (generally, property held for investment) within the meaning of Section 1221 of the Code. This discussion is based on existing statutes, regulations, published rulings and court decisions, all of which are subject to change or modification, retroactively.

As used herein, the term “U.S. Holder” means a beneficial owner of a Bond who or which is: (i) an individual citizen or resident of the United States, (ii) a corporation or partnership created or organized under the laws of the United States or any political subdivision thereof or therein, (iii) an estate, the income of which is subject to U.S. federal income tax

regardless of the source; or (iv) a trust, if (a) a court within the U.S. is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust validly elects to be treated as a U.S. person for U.S. federal income tax purposes. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Bond that is not a U.S. Holder.

THIS SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND DOES NOT DISCUSS ALL ASPECTS OF THE U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF BONDS IN LIGHT OF THE HOLDER’S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. PROSPECTIVE HOLDERS OF THE BONDS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE BONDS BEFORE DETERMINING WHETHER TO PURCHASE BONDS, INCLUDING UNDER APPLICABLE STATE OR LOCAL LAWS, OR ANY OTHER TAX CONSEQUENCE. THE FOLLOWING DISCUSSION IS NOT INTENDED OR WRITTEN TO BE USED TO AVOID PENALITES THAT MIGHT BE IMPOSED ON THE TAXPAYER IN CONNECTION WITH THE MATTERS DISCUSSED THEREIN.

FOREIGN INVESTORS SHOULD ALSO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES UNIQUE TO NON-U.S. HOLDERS.

Certain U.S. Federal Income Tax Consequences to U.S. Holders

Periodic Interest Payments and Original Issue Discount. The Bonds are not obligations described in Section 103(a) of the Code. Accordingly, the stated interest paid on the Bonds or original issue discount, if any, accruing on the Bonds will be includable in “gross income” within the meaning of Section 61 of the Code of each owner thereof and be subject to federal income taxation when received or accrued, depending upon the tax accounting method applicable to such owner.

Disposition of Bonds

An owner will recognize gain or loss on the redemption, sale, exchange or other disposition of a Bond equal to the difference between the redemption or sale price (exclusive of any amount paid for accrued interest) and the owner’s tax basis in the Bonds. Generally, a U.S. Holder’s tax basis in the Bonds will be the owner’s initial cost, increased by income reported by such U.S. Holder, including original issue discount and market discount income, and reduced, but not below zero, by any amortized premium. Any gain or loss generally will be a capital gain or loss and either will be long-term or short-term depending on whether the Bonds has been held for more than one year.

Defeasance of the Bonds

Defeasance of any Bond may result in a reissuance thereof, for U.S. federal income tax purposes, in which event a U.S. Holder will recognize taxable gain or loss as described above.

State, Local and Other Tax Consequences

Investors should consult their own tax advisors concerning the tax implications of holding and disposing of the Bonds under applicable state or local laws, or any other tax consequence, including the application of gift and estate taxes. Certain individuals, estates or trusts may be subject to a 3.8% surtax on all or a portion of the taxable interest that is paid on the Bonds. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE FOREGOING MATTERS.

Certain U.S. Federal Income Tax Consequences to Non-U.S. Holders

A Non-U.S. Holder that is not subject to U.S. federal income tax as a result of any direct or indirect connection to the U.S. in addition to its ownership of a Bond, will not be subject to U.S. federal income or withholding tax in respect of a Bond, provided that such Non-U.S. Holder complies, to the extent necessary, with identification requirements including delivery of a signed statement under penalties of perjury, certifying that such Non-U.S. Holder is not a U.S. person and providing the name and address of such Non-U.S. Holder. Absent such exemption, payments of interest, including any amounts paid or accrued in respect of accrued original issue discount, may be subject to withholding taxes, subject to reduction under any

applicable tax treaty. Non-U.S. Holders are urged to consult their own tax advisors regarding the ownership, sale or other disposition of a Bond.

The foregoing rules will not apply to exempt a U.S. shareholder of a controlled foreign corporation from taxation on the U.S. shareholder’s allocable portion of the interest income received by the controlled foreign corporation.

Information Reporting and Backup Withholding

Subject to certain exceptions, information reports describing interest income, including original issue discount, with respect to the Bonds will be sent to each registered holder and to the IRS. Payments of interest and principal may be subject to backup withholding under Section 3406 of the Code if a recipient of the payments fails to furnish to the payor such owner’s social security number or other taxpayer identification number (“TIN”), furnishes an incorrect TIN, or otherwise fails to establish an exemption from the backup withholding tax. Any amounts so withheld would be allowed as a credit against the recipient’s federal income tax. Special rules apply to partnerships, estates and trusts, and in certain circumstances, and in respect of Non-U.S. Holders certifications as to foreign status and other matters may be required to be provided by partners and beneficiaries thereof.

CONTINUING DISCLOSURE OF INFORMATION

In the Order, the District has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The District is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the District will be required to provide certain financial information and operating date which is customarily prepared by the District and is publically available and timely notice of certain specified events to the Municipal Securities Rulemaking Board (the “MSRB”).

Such information will be provided in an electric format, as prescribed by the MSRB, and will be made available free of charge via the Electronic Municipal Market Access (“EMMA”) system at www.emma.msrb.org.

Annual Reports

The District shall provide annually to the MSRB, (i) within six (6) months after the end of each Fiscal Year of the District ending in or after 2016, financial information and operating data with respect to the District of the general type included in this Official Statement under the Schedules in Appendix A attached hereto numbered 2-8 and including financial statements of the District if audited financial statements of the District are then available, and (2) if not provided as part such financial information and operating data, audited financial statements of the District, when and if available. Any financial statements so to be provided shall be (i) prepared in accordance with the accounting principles described in the rules to the financial statements for the most recently concluded Fiscal Year, or such other accounting principles as the District may be required to employ, from time to time, by State law or regulation, and (ii) audited, if the District 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 District 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 District may provide updated information in full text or may incorporate by reference documents available on EMMA or filed with the U.S. Securities and Exchange Commission (the “SEC”).

The District’s current fiscal year end is July 31. Accordingly, it must provide updated information by the last day of January in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify the MSRB of the change.

Event Notices

The District will also provide to the MSRB notices of certain events on a timely basis no later than 10 business days after the event. The District will provide notice 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 District; (13) the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into of 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 trustee or the change of name of the trustee, if material. (Neither the Bonds nor the Order make any provision for a trustee.)

Limitations and Amendments

The District has agreed to update information and to provide notices of material events only as described above. The District 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 District 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 District 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 District to comply with its agreement. The District 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 District, 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 District (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the registered and beneficial owners of the Bonds. The District may also repeal or amend the provisions of its continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the District also may amend the provisions of its continuing disclosure agreement in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling the Bonds in the primary offering of the Bonds, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the District 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

In connection with prior transactions, the District has entered into undertakings pursuant to which it agreed to provide certain continuing disclosure information and notices of material events. The District is required to file, within six months after the end of each fiscal year, certain audited financial information and operating data. The District’s fiscal year ends on July 31, and filings are required by the end of January of the following year. For the fiscal years ended in July 31, 2012, through July 31, 2015, the District did not timely file audited or unaudited financial statements. Audited financial statements for July 31, 2012 were filed on March 22, 2013, for July 31, 2013 were filed on March 11, 2014, for July 31, 2014 were filed on April 29, 2015 and for July 31, 2015 were filed on March 9, 2016. The District filed a notice of its failure to timely file its audited financial statements for July 31, 2015 on March 14, 2016. The District filed notice of its failure to timely file its audited financial statements for July 31, 2012 through July 31, 2014 on July 27, 2016. Working through its financial advisor, the District agrees to make future annual filings and notice filings in a timely manner.

OTHER INFORMATION

Municipal Rating

Moody’s Investors Service (“Moody’s) assigned its municipal bond rating of “Aa3” to this issue of Bonds. An explanation of the rating may be obtained from Moody’s. The rating reflects only the view of Moody’s and the District makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by Moody’s, if in the judgment of Moody’s, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds.

Verification of Accuracy of Mathematical Computations

Grant Thornton LLP, a firm of independent public accountants, will deliver to the District, on or before the settlement date of the Bonds, its verification report indicating that it has verified, in accordance with attestation standards established by the American Institute of Certified Public Accountants, the mathematical accuracy of the mathematical computations of the adequacy of the cash and the maturing principal of and interest on the Escrowed Securities, to pay, when due, the maturing principal of, interest on and related call premium requirements of the Refunded Bonds.

The verification performed by Grant Thornton LLP will be solely based upon data, information and documents provided to Grant Thornton LLP by the District and its representatives. Grant Thornton LLP has restricted its procedures to recalculating the computations provided by the District and its representatives and has not evaluated or examined the assumptions or information used in the computations.

Financial Advisor

USCA Municipal Advisors, LLC (“USCA”), a subsidiary of U.S. Capital Advisors, LLC, is employed as Financial Advisor to the District 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. USCA, in its capacity as Financial Advisor, has not verified and 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.

USCA has reviewed the information in this Official Statement in accordance with its responsibilities to the District and, as applicable, to investors under federal securities laws as applied to the facts and circumstances of this transaction, but USCA does not guarantee the accuracy or completeness of such information.

Initial Purchaser

After requesting competitive bids for the Bonds, the District has accepted a bid tendered by ______(the “Initial Purchaser”) to purchase the Bonds at the rates shown on the insider cover page of this Official Statement at a price of $______, (which reflects the par amount of the Bonds $______, plus a premium (less discount) of $ ______). No assurance can be given that any trading market will be developed for the Bonds after their initial sale by the District. The District has no control over the prices at which the Bonds will initially be re-offered to the public.

The Initial Purchaser has reviewed the information in this Official Statement pursuant to its responsibilities to investors under the federal securities law, but the Initial Purchaser does not guarantee the accuracy or completeness of such information.

GENERAL CONSIDERATIONS

Prices and Marketability

The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by the Initial Purchaser on or before the date of delivery of the Bonds, stating the prices at which a substantial amount of the

Bonds of each maturity have been sold to the public. For this purpose, the term “public” shall not include any person who is a bondhouse, broker, dealer, or similar person acting in the capacity of Initial Purchaser or wholesaler. The District has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Initial Purchaser at the yields specified on the inside cover page of this Official Statement. Information concerning reoffering yields or prices is the responsibility of the Initial Purchaser.

The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Initial Purchaser after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts.

Legal Investments and Eligibility to Secure Public Funds in Texas

Pursuant to the Texas Public Securities Act, Chapter 1201, Texas Government Code, as amended, the Bonds, whether rated or unrated, are legal and authorized investments for insurance companies, fiduciaries or trustees, and for municipalities and other political subdivisions or public agencies. Most political subdivisions in the State are required to adopt investment guidelines under the Public Funds Investment Act, Chapter 2256, Texas Government Code, and such political subdivisions may impose a requirement consistent with such act that the Bonds have a rating of not less than “A” or its equivalent to be legal investments of such entity’s funds. The “Public Funds Collateral Act,” Chapter 2257, Texas Government Code, provides that deposits of public funds, as defined in such chapter, must be secured by eligible security. “Eligible Security” is defined to include local government obligations (such as the Bonds) with a rating from a nationally recognized investment firm of “A” or its equivalent. See “OTHER INFORMATION – Municipal Rating” herein.

The District makes no representation that the Bonds will be acceptable to public entities to secure their deposits, or acceptable to any such entities or institutions for investment purposes. No review by the District has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states.

Securities Laws

No registration statement relating to the Bonds has been filed with the United States Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction. The District assumes no responsibility for registration or qualification of the Bonds under the securities laws of any other jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or 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 or qualification provisions in such other jurisdictions.

Sources and Compilation of Information

The information contained in this Official Statement has been obtained primarily from the District and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the District. This is no guarantee that any of the assumptions or estimates contained herein will be realized. The summaries of the statutes, the Order and other related documents are included herein subject to all the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information.

Forward-Looking Statements

The statements contained in this Official Statement, and in any other information provided by the District, that are not purely historical, are forward-looking statements, including statements regarding the District’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 District on the date hereof, and the District assumes no obligation to update any such forward-looking statements.

The District’s actual results could differ materially from those in such forward-looking statements. The forward-looking statements 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 District. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate.

Approval of the Official Statement

This Official Statement has been “deemed final” by the District as of its date except for the omission of no more than the information permitted by Rule 15c2-12. The Order will approve the form and content of this Official Statement and any addenda, supplement or amendment thereto and authorize use in the re-offering of the Bonds by the Initial Purchaser.

Certification of the Official Statement

At the time of payment for and delivery of the Bonds, the District will furnish a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the District contained in this Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of the Bonds and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the District 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 District, and their activities contained in this Official Statement are concerned, such statements and data have been obtained from sources which the District believes to be reliable and the District 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 District since the date of the last audited financial statements of the District.

The Order approved the form and content of this Official Statement and any addenda, supplement or amendment thereto and authorized its further use in the reoffering of the Bonds by the Initial Purchaser.

Audited Financial Statements

Brammer, Begnaud & Lattimore, the District’s independent auditor, has not reviewed, commented on, or approved, and is not associated with, this Official Statement. The report of Brammer, Begnaud & Lattimore, relating to the District’s financial statements for the fiscal year ended July 31, 2016 is included in this Official Statement in APPENDIX B; however, Brammer, Begnaud & Lattimore, has not performed any procedures on such financial statements since the date of such report, and has not performed any procedures on any other financial information of the District, including without limitation any of the information contained in this Official Statement, and has not been asked to consent to the inclusion of its report, or otherwise be associated with this Official Statement.

MISCELLANEOUS

All information contained in this Official Statement is subject in all respects to the complete information contained in the original sources thereof. No opinions, estimates or assumptions whether or not expressly identified as such, should be considered statements of fact. Statements made herein regarding the Bonds are qualified in their entirety by reference to the forms thereof included in the Orders and the information with respect thereto included in the Orders.

This Official Statement was approved by the Board of Port Commissioners.

PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS

/s/ President, Board of Port Commissioners ATTEST:

/s/ Secretary, Board of Port Commissioners

Schedule I – Summary of Refunded Bonds

U/L Tax Port Ref Bonds, Series 2008A U/L Tax Port Imp Bonds, Series 2008B

Maturity Principal Interest Rate Call Date Maturity Principal Interest Rate Call Date 3/1/2019 1,355,000 4.250% 3/1/2018 3/1/2019 795,000 5.625% 3/1/2018 3/1/2020 1,410,000 4.250% 3/1/2018 3/1/2020 840,000 5.625% 3/1/2018 3/1/2021 1,475,000 4.500% 3/1/2018 3/1/2021 885,000 5.625% 3/1/2018 3/1/2022 1,540,000 4.625% 3/1/2018 3/1/2022 675,000 5.375% 3/1/2018 3/1/2023 1,605,000 4.750% 3/1/2018 3/1/2023 715,000 5.375% 3/1/2018 3/1/2024 1,685,000 4.750% 3/1/2018 3/1/2024 755,000 5.500% 3/1/2018 3/1/2025 1,770,000 4.750% 3/1/2018 3/1/2025 930,000 5.500% 3/1/2018 3/1/2026 1,850,000 4.750% 3/1/2018 3/1/2026 980,000 5.500% 3/1/2018 Total 12,690,000 Total 6,575,000

APPENDIX A

FINANCIAL INFORMATION AND DEBT INFORMATION

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Schedule 1 - Pro-Forma Debt Service

The following table reflects the debt service on the District’s outstanding obligations, less the Refunded Bonds, and including the Series 2016A Bonds and the Series 2016B Taxable Bonds.

Debt Service Requirements

Less: U/L Tax Refunding Bonds, 2016A (a)(b) U/L Tax Refunding Bonds, Taxable 2016B (a)(b) FYE Outstanding Refunded Total 9/30 Debt Service Obligations Principal Interest Total Principal Interest Total Debt Service 2017$ 3,481,863 $ 548,881 45,000$ 22,188$ 67,188$ $ 310,000 $ 115,009 $ 425,009 $ 3,425,178 2018 3,483,113 1,097,763 25,000 111,600 136,600 290,000 578,247 868,247 3,390,197 2019 3,482,763 3,482,763 385,000 111,100 496,100 2,330,000 573,549 2,903,549 3,399,649 2020 3,477,119 3,477,119 385,000 103,400 488,400 2,370,000 528,114 2,898,114 3,386,514 2021 3,486,463 3,486,463 400,000 91,850 491,850 2,430,000 474,078 2,904,078 3,395,928 2022 3,480,294 3,480,294 410,000 79,850 489,850 2,485,000 413,814 2,898,814 3,388,664 2023 3,477,838 3,477,838 425,000 67,550 492,550 2,555,000 344,979 2,899,979 3,392,529 2024 3,481,500 3,481,500 440,000 54,800 494,800 2,635,000 267,818 2,902,818 3,397,618 2025 3,481,888 3,481,888 455,000 37,200 492,200 2,720,000 184,025 2,904,025 3,396,225 2026 3,479,813 3,479,813 475,000 19,000 494,000 2,805,000 94,809 2,899,809 3,393,809 Total$ 34,812,650 29,494,319$ 3,445,000$ $ 698,538 4,143,538$ $ 20,930,000 $ 3,574,440 $ 24,504,440 $ 33,966,308

(a) Preliminary, subject to change. (b) The District is issuing the Series 2016A Bonds and the Series 2016B Bonds simultaneously.

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Schedule 2 – Tonnage by Commodities

Commodity 2016 2015 2014 2013 2012 Wood Pellets 393,543 418,751 333,319 - - Linerboard 69,307 100,017 76,640 94,398 80,370 Gasoline 74,696 139,269 7,077 14,195 - Other Cargo 610 309 - - - Pipe - 1,887 - - 4,595 Napatha - 18,393 - 55,874 Bio Diesel - 6,072 - - - Woodpulp-Roles & Bales - - - 5,944 3,703 Project Cargo 93 1,341 379 857 409 FAME 7,755 Military Cargo 18,802 - 15 170 31,050 Total Exports 564,806 686,039 417,430 171,438 120,127

Project Cargo 5,649 4,069 73 3,054 Rail-Heat TR - 4,988 - - - Woodpulp 282,059 322,542 264,854 250,464 217,060 Ultra low SU - 4,964 - 7,613 Other Cargo 252 - 385 189 284 Wood Pellets 6,956 - - - - Steel/Aluminum Products - - 11,007 5,008 Military Cargo 10,448 5,799 15,431 3,330 31,223 Containers 1,692 - 13 - - Total Imports 307,056 337,398 285,720 268,044 261,188

Total Tonage 871,862 1,023,437 703,150 439,482 381,315

TABLE 3 - Vessel Counts (unaudited)

- Vessel Counts 2016 2015 2014 2013 2012

Ships 44 93 80 55 48 Layberths 155 138 107 78 41 Tugs 3 - - - - Barges 9 50 6 18 5 Railcars $ 4,262 3,885 3,861 4,077 3,956 Trucks 6,373 5,040 6,241 3,983 4,533 Lightering 49 8 - - -

Totals 10,895 9,214 10,295 8,211 8,583

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Schedule 4 – Taxable Assessed Value by Category

Taxable Appraised Value for Tax Year 2016 2015 2014 2013 2012 Category Amount % Amount % Amount % Amount % Amount % Real Property Residential, Single-Family$ 1,108,642,454 10.37%$ 1,091,529,945 9.78%$ 1,063,949,301 8.83%$ 1,055,721,996 8.39%$ 1,051,159,380 11.00% Residential, Multi-Family 174,845,390 1.63% 156,130,105 1.40% 146,456,130 1.21% 141,652,462 1.13% 142,602,340 1.49% Vacant Lots/Tracts 59,279,437 0.55% 59,630,261 0.53% 53,974,002 0.45% 55,655,783 0.44% 55,479,363 0.58% Acreage (Land Only) 27,764,400 0.26% 28,104,580 0.25% 32,699,200 0.27% 34,085,340 0.27% 98,136,960 1.03% Farm and Ranch Improvements 63,867,140 0.60% 64,482,400 0.58% 67,564,876 0.56% 65,254,762 0.52% 1,785,350 0.02% Commmercial 525,162,635 4.91% 518,936,962 4.65% 507,185,053 4.21% 514,050,685 4.09% 525,016,640 5.49% Industrial 6,903,935,530 64.55% 7,152,225,650 64.11% 7,493,433,596 62.16% 8,175,120,740 64.97% 6,083,939,850 63.66% Real, Minerals, Oil and Gas 7,064,798 0.07% 12,126,770 0.11% 20,391,582 0.17% 22,054,589 0.18% 41,005,770 0.43%

Personal Property Utilities $ 134,047,930 1.25%$ 136,557,310 1.22%$ 125,854,660 1.04%$ 123,779,000 0.98%$ 124,020,420 1.30% Commercial 287,849,816 2.69% 293,135,729 2.63% 302,691,150 2.51% 425,434,620 3.38% 275,078,630 2.88% Industrial 842,214,790 7.87% 1,105,314,750 9.91% 1,473,602,180 12.22% 1,597,971,810 12.70% 1,158,892,860 12.13% Other Personal 18,321,550 0.17% 387,800 0.00% 401,850 0.00% 13,450,700 0.11% 464,350 0.00% Total Exempt Property 542,917,775 5.08% 537,465,344 4.82% 767,778,142 6.37% 358,959,839 2.85% - 0.00% Total Appraised Value $ 10,695,913,645 100.00%$ 11,156,027,606 100.00%$ 12,055,981,722 100.00%$ 12,583,192,326 100.00%$ 9,557,581,913 100.00%

Less: Exemptions Homestead cap $ 1,294,435 $ 1,107,892 $ 1,849,950 $ 1,336,024 $ 34,128,640 Agricultural Exemptions 26,708,960 27,151,520 31,950,660 33,743,890 591,977,420 Tax Abatements 3,115,133,500 3,333,004,940 3,390,294,416 3,822,275,620 328,380,525 Homestead Exemptions 284,480,982 337,954,642 332,838,394 325,383,347 7,030,484 Disabled Exemptions 60,163,223 10,067,775 8,707,958 7,623,054 4,948,700 Primarily Charitable org. 1,116,340 69,020 69,020 - - Pollution Control Property 1,011,158,211 1,018,099,919 1,036,481,460 1,002,129,960 - Other exempt property 598,299,144 616,491,044 830,567,327 528,387,863 - Total Deductions 5,098,354,795 5,343,946,752 5,632,759,185 5,720,879,758 966,465,769

Net Taxable Value 5,597,558,850 $ 5,812,080,854 $ 6,423,222,537 $ 6,862,312,568 $ 8,591,116,144

NOTE: Valuations shown are certified taxable assessed values reported by the Jefferson County Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. Beginning 2013, market values are provided. Prior years are shown at appraised values.

Schedule 5 – Tax Levies, Collections and Delinquencies

Tax Assessed Debt Service Maintenance Total Total Amount Percent Collected FYE Year Valuation Tax Tax Tax Rate Levy Collected Current Total 7/31 2012$ 8,591,116,144 0.0413$ 0.0868$ 0.1281$ $ 11,013,811 $ 10,974,605 98.76% 99.68% 2013 2013 6,860,976,544 0.0517 0.1130 0.1647 11,302,229 11,038,091 97.91% 97.67% 2014 2014 6,418,197,149 0.0554 0.1590 0.2144 13,771,389 13,586,632 97.94% 98.75% 2015 2015 6,116,509,742 0.0566 0.1000 0.1566 9,581,033 8,504,129 93.38% 88.76% 2016 2016 5,597,558,850 0.0923 0.0743 0.1666 9,331,225 in process of collection 2017

(a) Source: Port of Port Arthur Navigation District of Jefferson County Annual Financial Report for the Year Ended July 31, 2016.

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Schedule 6 – Ten Largest Taxpayers

Percent of 2016 Taxable Type of Total Taxable Ten Largest Taxpayers Assessed Value Business Assessed Value Motiva Refinery $ 1,617,612,065 Oil Refinery and Storage 28.90% The Premcor Refining Group 780,899,754 Petroleum Refining 13.95% Chevron Phillips Chemical Co. 279,336,669 Chemicals 4.99% Enterprise Texas Pipeline LP 212,535,140 Energy Services 3.80% Flint Hills Resources LP 170,307,662 Refining & Chemicals 3.04% Air Products & Chemicals LP 166,276,730 Chemicals 2.97% Praxair Inc. 108,337,810 Specialty Gas and Coatings 1.94% Chevron USA Inc. 90,608,080 Oil Refinery and Storage 1.62% Entergy Texas Inc. 53,228,090 Electrical Utility 0.95% MPT of Port Arthur LLC 50,536,070 Medical Facilities 0.90% $ 3,529,678,070 63.06%

2016 Total Taxable Assessed Value (a) $ 5,597,558,850

(a) Source: The District.

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A-4

Schedule 7 – Statement of Net Assets

For Fiscal Year Ended July 31st 2016 2015 2014 2013 2012 ASSETS Current Assets $ 38,824,237 $ 34,427,969 $ 31,224,861 $ 24,503,682 $ 22,658,591 Restricted Assets 5,464,507 6,151,664 1,921,640 5,748,411 5,775,520 Capital Assets 67,667,558 68,513,979 65,680,755 66,081,237 65,457,229 Other Assets 1,202,086 2,601,319 1,186,882 498,597 375,728 TOTAL ASSETS $ 113,158,388 $ 111,694,931 $ 100,014,138 $ 96,831,927 $ 94,267,068

LIABILITIES Current Liabilities $ 4,296,889 $ 4,362,910 $ 4,122,462 $ 4,805,176 $ 3,739,054 Long Term Debt Net of Current Portion 24,490,287 26,603,479 28,612,080 30,904,068 33,101,804 Other Liabilities 6,304 7,880 - - - TOTAL LIABILITIES $ 28,793,480 $ 30,974,269 $ 32,734,542 $ 35,709,244 $ 36,840,858

NET ASSETS Invested in Capital Assets, net of Related Debt $ 40,363,818 $ 38,812,063 $ 34,415,137 $ 32,971,445 $ 30,551,773 Net Assets Restricted for Debt Service 1,283,017 1,441,952 1,859,933 5,676,816 5,684,043 Net Assets Restricted for Promotion and Development 358,429 259,068 167,402 96,826 91,969 Restricted for Insurance Escrow 200,000 200,000 200,000 180,000 180,000 Restricted for Debt Service Reserve Fund 3,882,288 4,580,393 874,618 - - Unrestricted 38,277,356 35,427,186 29,762,507 22,197,596 20,918,425 TOTAL NET ASSETS $ 84,364,908 $ 80,720,662 $ 67,279,597 $ 61,122,683 $ 57,426,210

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Schedule 8 – Statement of Revenues and Expenditures

(1) (1) For Fiscal Year Ended July 31 2016 2015 2014 2013 2012 Operating Revenues Loading and Unloading $ 2,661,113 $ 2,667,616 $ 2,314,538 $ 2,080,301 $ 1,929,654 Wharfage 542,651 741,831 287,749 249,955 284,501 Dockage 2,664,204 2,749,180 2,065,340 1,455,741 1,014,337 Line Handling 292,175 301,475 236,720 144,400 96,900 Shed/Pier Hire 67,200 57,085 73,100 80,100 57,505 Cleaning 111,200 113,770 116,750 76,800 70,200 Gantry Crane Use 62,100 18,850 36,275 28,975 34,625 Security Surcharge 306,059 297,430 228,244 210,469 332,283 Other 195,975 93,086 174,841 40,220 73,074 Storage Fees 27,795 2,845 21,679 7,054 28,035 Terminal/Warehouse Lease 149,610 198,570 786,421 600,044 1,188,607 Property Rental 65,360 76,360 113,960 71,342 469,997 Total Revenues $ 7,145,442 $ 7,318,098 $ 6,455,617 $ 5,045,401 $ 5,579,718

Operating Expenditures Salaries $ 1,822,614 $ 1,672,630 $ 1,644,566 $ 1,523,654 $ 1,445,492 Properties and Facility Maintenance 2,758,432 1,007,561 1,039,533 1,235,171 887,255 Depreciation 2,734,518 2,828,159 2,718,293 2,665,149 2,688,178 Loading/Unloading 2,279,214 2,290,010 2,075,924 1,780,562 1,710,158 Other 2,916,926 2,480,656 2,548,778 4,498,999 2,958,442 Total Operating Expenditures $ 12,511,704 $ 10,279,016 $ 10,027,094 $ 11,703,535 $ 9,689,525 Promotion and Development 287,341 285,991 267,728 280,224 266,224 Total Expenditures $ 12,799,045 $ 10,565,007 $ 10,294,822 $ 11,983,759 $ 9,955,749

Operating Gain (Loss) $ (5,653,603) $ (3,246,909) $ (3,839,205) $ (6,938,358) $ (4,376,031)

Non-operating Revenues (Expenses) Property Taxes $ 8,945,569 $ 13,346,417 $ 10,800,724 $ 10,355,456 $ 9,018,961 Interest Revenue 327,768 210,911 140,342 195,785 226,794 Interest Expense (1,423,717) (1,515,558) (1,599,751) (1,679,616) (1,843,091) (Loss on) Disposal of Assets, Pass through, Lawsuit 1,215,783 76,875 - - Other 1,344,800 145,842 254,929 647,899 417,885 Net Non-operating Revenue (Expense) $ 9,194,420 $ 13,403,395 $ 9,673,119 $ 9,519,524 $ 7,820,549

Income before Capital Grants $ 3,540,817 $ 10,156,486 $ 5,833,914 $ 2,581,166 $ 3,444,518

Capital Grants and Contributions 103,430 3,284,581 322,998 1,115,307 16,052

Excess of Revenue over Expenditures $ 3,644,247 $ 13,441,067 $ 6,156,912 $ 3,696,473 $ 3,460,570

Net Position beginning of year $ 80,720,662 $ 67,279,595 $ 61,122,683 $ 57,426,210 $ 53,965,640 Net position end of year $ 84,364,909 $ 80,720,662 $ 67,279,595 $ 61,122,683 $ 57,426,210 (1) Restated.

A-6

APPENDIX B

SELECTED DATA FROM DRAFT ANNUAL FINANCIAL REPORT PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS FISCAL YEAR ENDED JULY 31, 2016 AND ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JULY 31, 2015

A-7 [THIS PAGE INTENTIONALLY LEFT BLANK] Annual Financial Report

Port of Port Arthur Navigation District Of Jefferson County, Texas

For the Year Ended July 31, 2016

Board of Commissioners

Mr. John Comeaux - President Mr. Raymond C. Johnson - Vice President Mrs. Linda Turner Spears - Secretary/Treasurer Mr. Mark Underhill - Commissioner

Mr. Norris Simon, Jr.v#iCommissioner

Port Director, CEO Mr. Floyd Gaspard

ff Deputy Port Director Mr. Larry Kelley

Director of Finance Mrs. Judy A. Bettis PORT OF PORT ARTHUR NAVIGATION DISTRICT Table of Contents OF JEFFERSON COUNTY, TEXAS July 31, 2016

Tables Page INTRODUCTORY SECTION

Table of Contents

FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis 4 Z Basic Financial Statements: - Statement of Net Position 4 14 Statement of Revenues, Expenses and Changes In Net Position 16 Statement of Cash Flows 17 Notes to Financial Statements 19 Required Supplemental Information X m Schedule of Changes in Net Pension Liability and Related Ratios 37 Schedule of Employer Contributions 38 SUPPLEMENTAL SCHEDULES Schedule of Insurance in Force % 39 Statement of Revenues and Expenses - Actual and Budget 41 General Long-Term Debt Requirements--By Years ; 43 Schedule of Cash and Investments 45 Securities Pledged by Wells Fargo Bank, N.A., as Sec ties$ffte{Iwi|~ 47 STATISTICAL SECTION (UNAu|6 PEp) ^ Tonnage Report by by Yea | Tons) ^ 48 Commodo &||piort Vessel Counts ^ 2 48 Outstanding Debt Payable from Ad Valorem -Taxes 3 49 District lax Rates 4 49 Taxable Assessed Valuation by CategOl# 5 5fi Tax Levies. Collections and Delinquencies 6 51 Ten Largest Taxpayers||k jtk 7 52 Statement of Revenues and Expenditures^- Revenue Fund 53 Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards 54 ilr

-i- FINANCIAL SECTION

imvw PORTARTHUR iUERNATlOiiAL

Port of Port Arthur Navigation District BBL Brammer, Begnaud & Lattimore, CPAs Ill a professional services firm

INDEPENDENT AUDITOR’S REPORT

December , 2016

Port Commissioners Port of Port Arthur Navigation District of Jefferson County, Texas Port Arthur, Texas

Report on the Financial Statements

We have audited the accompanying financial statemei the Port of|P|S Arthur Navigation District of Jefferson County, Texas, as of for the years ended I, 2016 and 20 tod the related notes to the financial statements, which collectively comprise district’s basic financialltfeternents^ as listed in the table of contents. ^ Management’s Responsibility for the I& ncial Statem

Management is responsible for the prep fro g fair presBp|§ ipn of these financial statements in accordance with accounting principles genenfH the Um tates of America; this includes the design ^ ^^ , implementation and maintenance of ..nl||^aal conflialjBlevant^toW^&reparation and fair presentation of financial statements thataB^m^ om misstatfrhent, wpaS&up to ftS^'or error. Auditor’s Rcsponsibil: ^

Our responsibility is to expre pit diese final||l statements based on our audits. We conducted our audits g &with^ah tfiasgi latifl ' iiygj|||j ^^ ^ lfrggneralp ccepted in the United States of America and j ^^ the stand Hppfica &finaiicl^ iEydils^ oorirai|||yn fSovernment^ Auditing Standards, issued by the ^ cjeneral ^ Comptrd|||| of^^till United ^ Those^ stamlffds require that we plan and perform the audit to obtain ^ le whetiiytu; reaslll& assurance arcl^ financial statements are free from material misstatement. An audit involve|§||rforming proc es to olWh audit evidence about the amounts and disclosures in the financial statement. . Thye procedure!! ected depend on the auditor’s judgment, including the assessment of the risk of materiaf|§||sjatement9 the financial statements, whether due to fraud or error. In making those risk assessments, l puditoj aiders internal control relevant to the entity’s preparation and fair presentation of the financil^ its in order to design audit procedures that are appropriate in the circumstances, but not for the pUfrose 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.

3240 Central Mall Drive, Port Arthur,Texas 776421 409-983-16691 409-724-0452 www.bblcpa.com ^ ^ Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Port of Port Arthur Navigation District of Jefferson County, Texas as of July 31, 2016 and 2015, and the changes in financial position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of Amg

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the UjgHBlates of America''|'f &jre that the management’s discussion and analysis on pages 4 to 13 and otherflgmed supplementary inra ion on pages 37 and 38 be presented to supplement the basic financial statout metn|»jof preparing the information and consistency ^anagCTi ' comparing the information for ^wir ^ jespon oour inquires, the basic financial ^ afflejllfeathe statements, and other knovi i btained daf||g our basilphancial^ statements. We do not express an opinion « an jrance or or |j j$£ae ^|s ,k ^pmati^ ause^ the limited procedures do not provide us with sufficidn idence^ ^tolj ress an ofcfjlljyor providelny^ |^ ^^|^|? ^ ^ ^^ assurance Supplemental d Other^

Our audi pcbnducfei yne pi ion on the financial statements that collectively compris ^KPort of Port^A^ jrNavi; District’s^SS§ic financial statements. The introductory section, supplemefllt|^ kschedules, am^^ £tion listed in the table of contents are presented for purposes of additional^ mMvsis and are n$ of the basic financial reporting. The introductory an Stefistical sect|||have not been subject to the auditing procedures applied in the audit of the basic financial|sf p£ients, aJiiccordingly. we do not express an opinion or provide any assurance on them. ^

Other Reporting Required bpSovernment Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December , 2016 on our consideration of the District’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that 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 internal control over financial reporting or compliance. That report is an integral part of an audit performed in accordance with 2 Governmental Auditing Standards in considering the District’s internal control over financial reporting and compliance.

Brammer, Begnaud & Lattimore

3 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) JULY 31, 2016

As management of the Port of Port Arthur Navigation District of Jefferson County, Texas (District), we offer readers as an introduction to the District’s financial statements, this narrative overview and analysis of the District’s activities and financial performance for the fiscal years ended July 31, 2016 and 2015. This discussion and analysis is designed to assist the reader in focusing on the significant financial issues and activities and to identify any significant changes in financial position. We encourage readers to consider the information presented here in conjunction with the District’s financial statements taken as a whole. All amounts, unless otherwise indicated are expressed in whole dollars. ^ FINANCIAL HIGHLIGHTS

The total net position of the District at July 31, 2016 was $£4,364,908, The unrestricted net position of $38,277,356 may be usedto meet the, District’s current ongoing obligations to employees and creditors and increased by $2,85Qj1i70 or approximately 8.0% over prior year. The District’s total net position increased|$ 14,246 or 4.5% ovei|||g prior year. Of that amount, income before capital grants and contributions produced an increase of $3,540,817. This change is due to an increase in revenues, both operating^and non-operating. The District’s total debt decreased in 2016 by ($2,180,789) or approximately (7.0%), the result of scheduled debt service payments. ^

OVERVIEW OF THE ] VANCIAL ATEMENTS

' The District’s basic financial st4femettMj Qinprised df, the financial statements and notes to the financial statements. The basic financial statements^ and notes can be found on pages 14 through 36 of this report. Since tM District is comprised^ of a single enterprise fund, no fund level financial statements are shown. This report also contains other supplementary and statistical information in addition to the basic financial statements themselves.

Basic Financial Statements

The basic financial statements are designed to provide readers with a broad overview of the District’s finances, in a manner sirriiljiplo a private-sector business. These statements offer short and long-term financial information about its activities.

The Statement of Net Position includes all of the District’s assets, liabilities, deferred inflows/outflows of resources, and provides information about the nature and amounts of investments in resources (assets) and the obligations to District creditors (liabilities). The assets and liabilities are presented in a format, which distinguishes between current and long-term assets and liabilities. Net position increases when revenues exceed expenses. An increase in assets without a corresponding increase to liabilities, results in increased net position, which indicates an improved financial position. 4 The Statement of Revenue, Expenses and Net Position accounts for all the District’s current year’s revenues and expenses. All changes in net position is reported as soon as the underlying event occurs, regardless of timing or related cash flows. Thus revenue and expenses are reported in this statement for some items that will only result in cash flows in future periods (e.g., earned but unused vacation leave).

The Statement of Cash Flow primary purpose is to provide information about the District’s cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing and financing activities and provides answers to such questions as where did cash come from, whatA|hs cash used for, and what was the change in cash balance during the reporting period.

The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. ft Other Information ^(jk The basic financial statements include not only the District, but also its component units. The component unit is blended in the District’s financial statements because of the significance of its operational and financial relationship with the District. The Port of £prt Arthur Navigation District of Jefferson County, Texas includes the Port Arthur Navigation District Industrial Development Corporation (PANDIDC), whose operations are included in the Revenue Fund. The Pollution Control Bonds and Industrial Development Bonds issued through the PANDIDC are not reported as general long-term debt of, nor are the associated contract receivables includedas assets of, the reporting entity. Disclosure of the bonds and full information regarding the nature of these special obligations are made in the notes. These bonds are not reported on the face pf these financial statements due to the fact that they are not legally or morally obligations of the District. The Directors of the PANDIDC are appointed by the Port Commissioners.

In addition to the financial statements and accompanying notes, this report also presents certain statistical information and other supplemental information. Statistical information presented on a multi-year basis and other information including disclosures for compliance with the Securities and Exchange Rule 15c2-12 are presented for the purposes of additional analysis and are not a required part of the basic financial statements. Statistical and other information can be found on pages 37 through 53 of this report.

FINANCIAL ANAVLSIS

The fundamental question that is most asked of business is, as a whole, “ Are you better off or worse off as a result of the year’s activities?” The Statement of Net Position, and the Statement of Revenue, Expenses and Changes Net Position report information about the District’s activities in a way that will answer this question. These two statements report the net position of the District and changes in them. You can think of the District’s net positions - the difference between assets and liabilities - as one way to measure financial health or financial position. Over time, increases or decreases in the District’s net positions are one indicator of whether its financial health is improving or deteriorating.

5 Statement of Net Position

The Statement of Net Position serves over time as a useful indicator of the District’s financial health or position. It distinguishes assets and liabilities as to their expected use for operations, restricted purposes and capital investments. The following condensed Statement of Net Assets provides an overview of the District’s net assets as of July 31, 2016, 2015 and 2014: Statement of Net Position

100,014,138 2014 32,734,542 $67,279,597

111,694,931 2015 30,974,269 $80,720 %

% 113,158,388 2016 28,793,480 ^ ___i__ $84,364,908 m $- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,' Total Assets T Total Liabilities TO Resli 2016-2015 2015-2014 Change Change 2016 2014% .. Restated Restated Assets Current Assets ! Restricted Assets Capital Assets Other Assets 'W %% Total Assets fj|3,158,388 111,694,931 014,138 1,463,457 11,680,793 Liabilities ^ W//. Current Liabilities ,29 4,362,910 4122,462 (66,021) 240,448

Long Term Du. Net of current Portion 28,612,080 (2,113,192) (2,008,601) Other Liabilities 0 ( 1.576) 7,880

Total Liabilities 28,793,480 30,974,269 32,734,542 (2,180,789) (1,760,273) ' Net Position Invested in Capital Assets, 1 net of Related Debt 40,363,818 38,812,063 34,415,137 1,551,755 4,396,926 Net Assets Restricted W for Debt Service ^ 1,283,017 1,441,952 1,859,933 (158,935) (417,981) Net Assets Restricted for ^ ^ Promotion & Development^ 358,429 259,068 167,402 99,361 91,666 Restricted for Insurance Escrow 200,000 200,000 200,000 0 0 Restricted for Debt Service Reserve Fund 3,882,288 4,580,393 874,618 (698,105) 3,705,775 874,618 Unrestricted 38.277.356 35.427.186 29,762,507 2.850,170 5.664,679

Total Net Position 84.364.908 80.720.662 67.279.597 3.644.246 13.441.065

6 2016 - 2015

The District’s net position of $84,364,908 at the close of 2016 increased by $3,644,246 over 2015. By far, the largest portion of the District’s net position (47.8%) reflects its investment in capital assets, less any related outstanding debt used to acquire those assets. The District uses these capital assets to provide services to its customers and consequently, these assets are not available for future spending. Although the District’s investment in 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. The District’s net position restricted for a debt service reserve fund (4.6%) represent resources for future principal and interest payments of long-term debt and contingent property tax refunds resulting from valuation- changes. Unrestricted net position (45.37%) may be used to meet the District’s ongoing obligations tt> employees and creditors. The remainder of the District’s net position represents resources thjw ar p )ject to external legal restrictions on how they may be used. ^ ^ The District’s total liabilities decreased by $2,180,789 (7% C 2015. A decrease in long-term debt is the primary reason for the change. ^ 2015 - 2014

The District’s net position of $80,720,662 at the close of 2015 increased by $13,441,065 over 2014. By far, the largest portion of the District’s net position (48%) refleinipts investment in capital assets, less any related outstanding debt used to acquire those assets. The District uses these capital assets to provide services to its customers and consequently, these assets are not available for future spending. Although the District’s investment in capital assets is reprip|d; p.et of related debt, it should be noted that the resources needed to repay this debt must jbe provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The District’s net position restricted for a debt service reserve fund (5.67%) represent resources for future principal and interest payments of long-term debt and contingent property tax refunds resulting from valuation issues. Unrestricted net position (43.89%) may be used to meet the District’s ongoing obligations to employees and creditors. The remainder of the District’s pet position represents resources that are subject to external legal .L..;„L.- t — — may be used*

Change Statement of Revenues* Ex ises* in Net Position The Statement' jbf Revenues, Expenses and Net Position serves as a measure to determine how successful the Di$Jrict was during the past year in recovering its costs through its terminal fees and other charges, as wdll as to its. profitability and credit worthiness. The following Statement of Revenue, Expenses and Changes in Net Position summarize the operations of the District for the year ended July 31, 2016, 20l5ind 2014:

7 16,000,000 Statement of Revenue, Expenses, Changes in Net Position

14.000.000 13,405, 395$13,441,067 $12,799,045

12.000.000 $10,565,007 $10,294,822 73,119 10,000,000 94,420

8,000, 000 7, 145,4 7,318,0 455,6 $6,156,912 6, 000,000 m « $3,644,247 4.000.000 3,284,5)

2.000.000 22, 998 103,430 M 0 %

a Total Operating Revenues ; vil Operating Expenses Net Non-Operating Revenues {Exp . ) Capital Grants/Contributions 2016 - 2015 2015-2014 1 2016 % 015 2014 Variance Variance Revenue % M?mm^ Operating Revenues: Loading and Unloading ,661,113 $2,667,616 $2,314,538 ($6,503) $353, m w 078 Wharfage 9 542,651 831 287,749 (199,180) m 454,082 Dockage 1.749, 80 2,065,340 (84,976) I 683,840 Security Sut g 306,059 297,430 228,244 8,629 69,186 . .1. dling 301,475 236,720 (9,300) Ltaej 64,755 Shed and^ Pier Hire 67,200 57,085 73,100 10,115 (16,015)

Cleaning 111,200 113,770 116,750 2,570) f (2,980) Gantry Crane Use w 62,100 18,850 36,275 43,250 (17,425) Storage Fees m 27,795 2,845 21,679 24,950 (18,834) Other Fees 195,975 93,086 174,841 102,889 (81,755) Property Rental 65,360 76,360 113,960 (11,000) (37,600)

Terminal/Warehouse Lease 149,610 198,570 786,421 (48,960) 1587,8511 Total Operating Revenues 7,145,442 7,318,098 6,455,617 (172,656) 862,481

8 Expenses Operating Expenses: Loading/Unloading Subcontractor Cost 2,279,214 2,290,010 2,075,924 (10,796) 214,086 Personnel 1,822,614 1,672,630 1,644,566 149,984 28,064 Property-Facility Maint. 2,758,432 1,007,561 1,039,533 1,750,871 (31,972) Depreciation/Amortization 2,734,518 2,828,159 2,718,293 (93,641.00) 109,866 Expense Promotion/Development Exp. 287,341 285,991 267,728 1,350 18,263 Other Operating Expenses 2.916.926 2.480.656 2.548.778 436.270 (68.122) Total Operating Expenses $12,799,045 $10,565,007 S10,294,822 $2,234,038 270,185 % m Operating Gain (Loss) 15.653.603) (3.246.909) (3.839.205) (2,406,694) 592.296

Non-Operating Revenues (Expenses) W Property Taxes 8,945,569 13,346,417 10,800,724 (4,400,848) 2,545,693 Interest Revenue 327,768 210,911 140,342 116,857 70,569

Interest Expense, net (1*423,717) (1,515,558) 1,599,751) 91,841 84,193 Gain/(Loss)-Asset Disposal, Lawsuit % . Proceeds 1 ,080.026 2,S 78383 ,875 (135,757) 1,138,908 Storm Damages-FEMA ' Other Non-Operating I Revenue (Expenses) 264.774 145.842 254.929 118.932 (109.087) Net Non-Operating Revenues (Exp.) 9,194,420 13,403,395 9,673,119 (4,208,975) 3,730,276 % X Income Before Capital 3.540.817 56.486 5.833.914 (6.615.669) 4.322.572 Grants/Contributions * m X Capital ^ 103,430 3,284,581 322,998 (3,181,151) 2,961,583 ^ $3,644,247 $13,441,067 $6,156,912 ($9,796,820) 7,284,155 Changes^^in Net^Position^^^^^ Total Net Postiition , Beginning of $80,720,662 $67,279,595 $61,122,683 $13,441,067 $6,156,912 Year

Total Net Position, End of Year $84,364,909 $80,720,662 $67,279,595 $3,644,247 $13,441,067

9 Revenues 2016 - 2015 Operating revenues in 2016 decreased by ($172,656) or approximately (2.36%) compared to 2015. Non-Operating Revenues. The District’s largest revenue stream is derived from property taxes. Property tax revenues decreased by ($4,400,848) or approximately (33%). This decrease was primarily due to decreased property valuations. Property tax revenues account for approximately 84% of non-operating revenues and approximately 50% of total operating and non-operating revenues. The District received other income from interest revenue, foreign trade zone fees and various other miscellaneous income sources totaling $1,672,568; this included $1,080,021) funds received Federal Emergency Management Agency (FEMA) for facility restorations and repairs and disaster assistance relied as a result of Hurricane RITA. 2015 - 2014 Operating revenues in 2015 increased by $862,481or approximately 13% comparedto 2014. The primary contributor of this increase is revenue generated by increased dockage from lay berthing opportunities. - Non-Operating Revenues. The District’s largest revenue stream is derived from property taxes. Property tax revenues ($13,346,417) accountdgr approximately 89% of non-operating revenues and approximately 60% of total operating and non-operating revenues. The ^District received other income from interest revenue, foreign trade zone fees and various other miscellaneous income sources totaling $1,572,536; this included funds received as a result of a lawsuit settlement for damages incurred in

Expenses

2016 - 2015 Operating expenses in 2016 increased by $2,234,038 or 215% when compared to 2015. The largest contributing fptdl| is increase were expenses for maintenance dredging and associated engineering; and other professional services. Other operating and non-operating expenses were comparable to prior^year^^; i.e. loading/unloading, security services, contracted services, gantry and equipment repairs and maintenance, professional fees, property related insurance, personnel and health care cost, interest expense on outstanding debt, etc.

2015 - 2014 Operating expenses in greased by $270,185 or 2.6% when compared to 2014. Operating and non-operating expenses were comparable to prior year; i.e. loading/unloading, security services, contracted services, gantry and equipment repairs and maintenance, professional fees, property related insurance, personnel and health care cost, interest expense on outstanding debt, etc. Normal operating expenses were comparable to prior year; i.e. loading/unloading, security services for the military cargo handling, increased gantry repair and maintenance, etc. Continued increases in expenses, which included professional fees, property related insurance, personnel and health care cost, are all contributing factors to increases of other operating and non-operating expenses.

10 Capital Grants, Contribution and Appropriation

2016 - 2015

Capital grants and contributions decreased by ($3,181,151) over 2015. The District is the recipient of a number of federal and state grants from a variety of programs. These grant funds are recorded on the basis of project expenditures made. As projects are advanced and expenditures incurred, grant funds are requested on a reimbursement basis and then recognized. Capital grants, contributions and appropriations at July 31, 2016 include:

Security Grant - Round 14 103

2015 - 2014

Capital grants and contributions increased by $2,961,583 over:2014. The District is the recipient of a number of federal and state grants from a variety of programs. These grant funds are recordedpn the basis of project expenditures made. As projects are advanced and expenditures incurred, gfaiit funds are requested on a reimbursement basis and then recognized. Capital grants, contributions and appropriations at July 31, 2015 include: Economic Development Administratiom(EDA) Grant Department of Transportation (DOT) 8

CAPITAL ASSETS AND DEBT ADMINISTRA

Capital Assets

2016 - 2015

The District H capital|gssets as o'f ^fUly 31, 2016 amounts to $67,667,558 (net of accumulated depreciatio ns inve|jtaent in capital assets include port facilities, machinery and equipment, property^ and buildings, furniture apd equipment, intangibles and construction in progress. This ahiomit|; epresents a net decrease (including additions and retirements) of $846,421. Additional information regarding the district’s capital assets can be found in Note 6 to the financial statements on pages 31-32.

2015 - 2014

The District’s investment in capital assets as of July 31, 2015 amounts to $68,513,979 (net of accumulated depreciation). This investment in capital assets include port facilities, machinery and equipment, property and buildings, furniture and equipment, intangibles and construction in progress. This amount represents a net increase (including additions and retirements) of $2,833,224 or 4.3%. Additional information regarding the district’s capital assets can be found in Note 6 to the financial statements on pages 31-32.

11 The following summarizes the District’s capital assets (net of accumulated depreciation) as of July 31, 2016, 2015 and 2014:

Restated 2016 - 2015 2015-2014 2016 2015 2014 Change Change

Capital assets, not being depreciated: Land $6,944,139 $6,944,139 $6,944,139 $0 $0 Construction in progress 10.217.810 8.437,620 3.734.942 1.780.190 4.702,678 17,161,949 15,381,759 10,679,081 1,780,190 4,702,678

Capital assets, being depreciated net: Office Building and Improvements 315,453 |jl72 %38,192 (21,419) (1,320) Wharves and Terminals 49,521,756 51^,8843§jk W,383,461 (2,362436) (1,498,869) Furniture, Fixtures, Equipment 283,548 437,40(®g; 722,341 (153,852) (284,941) Investigations and Studies 384:852 473.356 W 57.680 (88.504) (84.324) 50,505,609 53,132,220 55^,001,674 (2,626,611) (1,869,454) Net Capital Assets 67,667,558 68,5: 65,680,755 (846,421) 2,833,224

Long Term Debt

As of July 31, 2016, the DistricLh&d lotfg temu ondeddbbt outstanding of $26,670,287. This amount is comprised ofjunlimited tax refunding and improvement^ bonds. The District’s debt increased as the result of restfucturing46dnd>;obligafions and the issuing of new bond issues in 2008. Additional information regarding the District’s long term debt can be found in Note 8 to the financial statements on p a g 3 4. The following table summarizes the District’s long term debt outstanding as of July 31, 2016, 2015 and 2014:

2016 - 2015 2015 - 2014 2016 2015 2014 Change Change

Unlimited Refunding Bonds $18,939,214 $20,394,404 $21,786,120 ($1,455,190) ($1,391,716) Improvement Bonds 7,731,073 8.294.077 8.830.959 (563.004) (536.882)

$26,670,287 $28,688,481 $30,617,079 ($2,018,194)($1,928,598)

During the current fiscal year ending, the District was notified of a misapplication of assessment on property owned by Motiva Enterprises, LLC that is not within the boundaries of the District. The resulting refund amount equaled $182,072, payable in two equal payments on or before June 30, 2016 (paid) and October 31, 2016 (property tax liability of $91,036). 12 ECONOMIC OUTLOOK

Since 2012, the District and the local region have experienced the effects from the construction of facilities by German Pellets, LLC. The District entered into a long-term (25-year) agreement with this dry bulk exporter for cargo handling. The District saw significant growth in the movement of this dry bulk operation, along with a revenue growth.

The District continues to benefit from increased lay-berthing opportunities. This revenue stream accounts for approximately 19% of the revenue from terminal operations. The District is confident with that its’ facility design, its’ proximity to the Gulf of Mexico and positiopfon the Sabine-Neches Waterway, that this will continue to show a steady revenue growth.

The District also has several real opportunities to enter into an agreement ?with companies for the handling of cargo from the operations of a liquid bulk terminal.

These projects all have created new and increased job opportunities for the region and District’s work force. Growth has also spurred the need for additional capital investment by the District to accommodate these, as well as other potential growth opportunities. The District continues to make land improvements on the 55-acre tract of land acquired adjacent to its’ existing water-side property, i.e. land clearance, road access, rail, street and drainage improvements. These improvements have strongly enhanced marketing efforts to utilize this acreage for additional economic development projects.

REQUEST FOR INFORMATION

This financial report is designed to provide a general overview of the District’s finances for all those with an interest in its finances. Question concerning any of the information provided in this report or request for additional financial information should be addressed to the District’s Director of Finance, P. O. Box 1428, Port Arthidlj|| 7764 jj

13 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF NET POSITION JULY 31, 2016 AND 2015

2016 2015 CURRENTASSETS Cash and Cash Equivalents (Note 2) $6,136,788 $5,197,694 Investments 29,772,727 25,504,924 Recevables: Accounts Receivables,Net of Allowance 2,014£,906 1,297,279 Taxes Receivable - Delinquent 478,512 475,671 Grants Receivable # n 193,011 Other Receivables 10,066 1,301,631 H, Accrued Interest Receivable 69,547 51,905 Note Receivable - Current 0 Prepaid Insurance 341,691 405,8554

TOTAL CURRENT ASSETS 824,237 $34,427,969

NON-CURRENT ASSETS Restricted Assets (Notes 1 and 8) Cash and Cash Equivalents (Note 2) % $5,141, $5,835,439 I Investments % Pi! 0 0 Taxes Receivable - Delinquent 1% m 323,167 316,225 Accrued Interest and Other Receivables 0 % 0 % Total Restricted Assets $5,464,507 $6,151,664

^ $17,161,949 $15,381,759 Capital Assets, Being Depreciated, Net (Note 6) 50,505,609 53,132,220 PL Total Capital Assets, Net V $67,667,558 $68,513,979 Ijk %1 Other Non-Current Assets Net Pension Assets (Note1) $658,297 1182 082 3 $ , , Deferred Outflows $543,789 71,372 Deferred Contribution - TXDOT Project 0_ 1,347,865

Total Other Non-Current Assets $1,202,086 $2,601,319

TOTAL ASSETS $113,158,388 $111,694,931

14 The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF NET POSITION JULY 31, 2016 AND 2015

2016 2015 CURRENT LIABILITIES Accounts Payable $910,517 $973,344 Accrued Expenses 495,913 217,239 Current Maturity Property Tax Refund Liability (Note 8) 91.036 431,656 Current Restricted Liabilities Payable from 'M Restrict Assets: Accounts Payable - Promotion & Development Fund 13,634 7,246 General Obligation Bonds Payable (Note 7) 2,180,000 2,085,000 Accrued Interest Payable - General Obligation Bond 542,418 581,781 Retainage Payable 63,371 66,644

Total Current Liabilities $4,362,910

NON-CURRENT LIABILITIES . General Obligation Bonds Payable (Note 7) $2 $26,603,479

Total Non-Current Liabilities $24,490,287 $26,603,479 % J DEFERRED INFLOWS OF RESOURCES %, Deferred Inflows % $6,304 $7,880 1 4 % Total Deferred Inflows of Resources w $6,304 $7,880

TOTAL LIABILITIES and DEFERRED INFLOWS $28,793,480 $30,974,269

NET POSITION: Invested in Capital Assets:s,Net of RelatedRelate Debt $40,363,818 $38,812,063 Restricted for General Obligation Bonds Debt Service 1,283,017 1,441,952 Restricted for Promotion and Development 358,429 259,068 Restricted for Insurance Escrow 200,000 200,000 Restricted for Debt Service Reserve Fund 3,882,288 4,580,393 Unrestricted 38,277,356 35,427,186

TOTAL NET POSITION $84,364,908 $80,720,662

15 The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION JULY 31, 2016 AND 2015

2016 2015 OPERATING REVENUE Public Ocean Terminal Operations $6,930,472 $7,043,168 Rental Income 65,360 76,360 Terminal (Space) Lease Revenues 149,610 198,570

TOTAL OPERATING REVENUE $7,145,442 $7,318,098

OPERATING EXPENSES Loading & Unloading Subcontractor Cost $2,279,214 Personnel 1,822,614 Properties & Facilities Maintenance 2,758,432 1,007,561 Other Operating Expenses 2,480,656 Depreciation Expense VIS 2,828,159 Promotion and Development Expenses 287,341 285,991 m TOTAL OPERATING EXPENSES $12,799,045 $10,565,007 % OPERATING (LOSS) % ($5,653,603) ($3,246,909) %% % % NON-OPERATING REVENUE (EXPENSES) h Property Tax Revenues $8,945,569 $13,346,417 Interest Income % 327,768 210,911 Interest Expense (Net) % (1,423,717) (1,515,558) Management Fees 0 0 15,000 20,000 249,774 125,842 Gain/(Loss) on Sale of Assets, Lawsuit Settlement 0 1,215,783 Storm Damages - Insurance Proceeds, FEMA Grants 1,080,026 0 Storm Damages - Expenses 0_ 0_ m, § NET NON-OPERATING REVENUE (EXPENSES) $9,194,420 $13,403,395

INCOME BEFORE CAPITAL GRANTS AND CONTRIBUTIONS $3,540,817 $10,156,486

CAPITAL GRANTS AND CONTRIBUTIONS 103,430 3,284,581

CHANGE IN NET POSITION $3,644,247 $13,441,067 TOTAL NET POSITION - Beginning of Year, As Restated $80,720,662 $67,279,595

TOTAL NET POSITION - End of Year $84,364,909 $80,720,662

16 The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF CASH FLOW FOR THE YEARS ENDED JULY 31, 2016 AND 2015

2016 201 Cash Flows From Operating Activities: Cash Receipts From Customers $6,828,411 $6,838,529 Cash Receipts From Other Sources 1,577,131 1,301,005 Cash Payments to Suppliers for Goods and Services (8,156,595) (7,137,802) Cash Payments to Employees for Services (1,935,772) (1,777,356)

Net Cash Provided by (Used For) Operating Activities ($1,686,825) ($775,624)

Cash Flows from Noncapital Financing Activities: % Property Tax Revenue $8,935,786 % $13,316,137 Operating Grants Received $1,080,026 Management Fees 0 Foreign Trade Zone and Other Non-Operating Revenue 15,000 20,000 Non-Operating Expenses 0 0

Net Cash Provided by (Used) Noncapital Financing Activities % %$10,030,812 $13,336,137 Cash Flows From Capital and Related Financing Activities: Acquisition and Construction of Capital Assets X % ($1,884,265) ($5,647,914) Deferred Contributions ($1,347,864) Interest Paid % a”, (1,478,406) Capital Grants 100,430 3,091,569 Other Revenues % 249,774 125,842 Debt Principal Payments h (2,085,000) (2,000,000) m, W Net Cash Provided by (Used) Capital Financing Activities F ($4,141,315) ($7,256,773)

Cash Flows From Investing Activities: m Purchase of Investment Securities ($14,099,845) ($12,052,992) Proceeds from Investment Redemption 9,832,042 5,991,986 Interest Received on Investments 310,126 193,673

Net Cash Provided by (Used For) Investing Activities ($3,957,677) ($5,867,333)

Net Increase (Decrease) in Cash and Cash Equivalents $244,995 ($563,592) Cash and Cash Equivalents at Beginning of Year $11,033,133 $11,596,725

Cash and Cash Equivalents at End of Year $11,278,128 $11,033,133

17 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF CASH FLOW FOR THE YEARS ENDED JULY 31, 2016 AND 2015

2016 2015 Reconciliation of Operating Income (Loss) to Net Cash Provided By (Used For) Operating Activities: Operating Income (Loss) ($5,653,603) ($3,246,909)

Adjustments to Reconcile Operating Income (Loss) to aw, Net Cash Provided By (Used For) Operating Activities: Im" Depreciation, Amortization Expense $2,801,32 $2,828,159 Decrease (Increase) in Assets: Accounts, Taxes and Other Receivable 739,524 (510,960) Prepaid Expenses 64,163 (16,945) Net Pension Asset, Deferred Outflows/Inflows 523,785 92 1 Increase (Decrease) in Liabilities: J *% Accounts Payable 128,260 Accrued Liabilities % Z2787, (15,921) Prepaid Lease 0 0 Other Liabilities : 0 Accrued Interest Payable % (39,363) 0 1I Total Adjustments % $3,966,778 $2,471,285

Net Cash Provided By (Used For) Operating Activities 1 ($1,686,825) ($775,624) © II i

18 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas (District) have been prepared in conformity with accounting principles generally accepted in the United States of America(GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard- setting body for establishing governmental accounting and financial reporting principles. The more significant of the District’s accounting policies are described below.

GENERAL HISTORY OF THE PORT OF PORT ARTHUR NAVIGATION DISTRICT The Port of Port Arthur Navigation District of Jefferson County, Texas was created bydv§pecial Act of the 58th Legislature under provisions of Section 59, Article XVI of the Texas Constitution, ratified by referendum on June 13, 1964. The District is independent from other local or state governments and operates within district boundaries of approximately 58 square miles, including the City of Port Arthur and a partoftheCity of Groves. The five- member elected Board of Port Commissioners governs the affairs of the District, with management responsibilities vested in the Port Directorate Office. The District provides the services ofttPublic Ocean Terminal with railroad access to the nation.

REPORTING ENTITY In evaluating howto define the District (the Primary Government) for financial reporting purposes, management has considered all potential component units. The decision to include or exclude a potential component unit in the reporting entity was made by applying the criteria set forth in Section 2100 of the GASB Codification of Governmental Accounting and Financial Reporting Standards. GASB defines the reporting entity as the primary government and those component units for which the primary government is financially accountable. The Component Unit discussed below is blended ifirfrie District's financial statements because of the significance of its operational and financial relationship with the District.

COMPONENT UNIT The Port of Port Arthur Navigation District of Jefferson County,Texas includes the Port Arthur Navigation District Industrial Development Corporation (PANDIDC), a public corporation, whose purposes are to promote and develop new and expanded enterprises in the District, and to promote and encourage employment and public welfare. Bonds issued by the Corporation are payable from revenues derived as a result of the industrial development facilities funded by Pollution Control and Industrial Development Bonds. These bonds are not a liability or contingent lability of the District or a lien on anyof its properties or revenue, other than the industrial facilities for which they ate issued. Disclosure of the bondsfahd full information regarding the nature of these special obligations is made inNptes 4 and 5 that follow. Tfie Directors of the Port Arthur Navigation District Industrial Development Corporation are appointed by the Port Commissioners.

BASIS OF ACCOUNTING The District operates as an enterprise fund to report on its financial position and the results of its operations. Enterprise fiihds are useiilb account for operations (a) that are financed and operated in a manner similar to private businessenterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuihfgibhsis be financed or recovered primarily through user charges; or (b) where the governing boliy bas decided; that periodic determination of revenues earned, expenses incurred, and/or net incbfjie^ is appropriate for capital maintenance, public policy, management control, accountability, or other^ purposes. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Measurement focus is a term used to describe which transactions are recorded within the various financial statements. Basis of accounting refers to when transactions are recorded regardless of the measurement focus applied. All enterprise funds are accounted for on a flow of economic resources measurement focus, whereby all assets and all liabilities associated with the operation of these funds are included on the statement of net position. Proprietary fund equity is classified as net position. Enterprise fund operating statements present increases (e.g., revenues) and decreases (e.g., expenses) in net position.

19 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

The accrual basis of accounting is utilized by enterprise funds. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the District’s enterprise fund are charges to customers for the use of facilities and services provided. Operating expenses for enterprises funds 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 revenue and expenses. A An annual budget for the District is adopted on a basis consistent th generally accepted accounting principles for proprietary funds, as a prudent management tool^. Periodic budget reports are prepared for management to maintain proper budgetary controjy |jff r.e reviewed by the Port Commission. ^

CASH AND CASH EQUIVALENTS The District’s cash and cash equivalents consists of cash on hand, cash heldon deposit with financial institutions in demand deposits accounts, and short-term investments with original maturities of three months oftef&jrom date of acquisition.

INVESTMENTS State statute authorizes the District to invest in obligations of the tlfiifed States Treasury, or its agencies and instrumentalities; direct obligations of the State of Texas or its agencies; obligations of states, agencies, counties, cities and other political subdivisions of any st tejiaving a rating of not less than A; certificates of deposits, prime domestic banker’s acceptances; certain commercial^ paper, certain mutual funds; fully collateralized repurchase agreements and public funds investment pools.

Investments that mature within one year of acquisition are sta tor amortized cost. Investments with a remaining maturity of more than one year at the time of purchase are Carried at fair value. Any realized gains and losses in fair value are reported in the operations of the current^period^^^. PROPERTY, PLANT AND EQUIPMENT Property constructed of acquired by purchase is stated at cost; Contributed assets are stated at cost, if available, or estimated fair market value on the date received. Major outlaysfor capital assets and improvements are capitalized as projects are constructed. Net interest costs, if material, arecapitalized on major construction projects during the construction period. No interest Was capitalized for the fiscal years July 31, 2016 and 2015. Dei radiation is computed using the straight-line method over the following useful lives:

^ Assets Years Building and Improvements 10 - 40 Docks and Wharves 20 - 40 .'Equipment and Vehicles 5 - 2 0 % Office Equipment 5 - 1 0 Investigations and Studies 10

TRADE RECEIVABLES Trade receivables are reported at net value utilizing the allowance method to account for bad debt expense. Receivables as of year-end including applicable allowances for uncollectible accounts are as follows:

Trade Receivable, net 2016 2015 Trade Accounts $2,038,412 $1,324,711 Less Allowance for doubtful accounts 123.5061 127.4321

Trade accounts, net $2,014.906 $1.297.279

20 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

PROPERTY TAX RECEIVABLES Property taxes are levied as of October 1 on property values assessed on January 1. The billings are considered past due on February 1, after the respective tax billing date at which time the applicable tax is subject to interest. On July 1 of the following year, liens and penalties and interest are assessed. The District’s property taxes are collected by the Jefferson County Tax Assessor-Collector. The District is permitted by State Law to levy taxes up to $ .10 per $100 assessed valuation for operation and maintenance of the District other than the payment of principal and interest on long-term debt and in unlimited amounts for the payment of principal and interest on long-term debt. The tax rate for operations and maintenance was $.10 per $100 valuations for the year ended July 31, 2016 and for the year ended July 31, 2015, $.10 per $100 and a reserve fund tax rate of.058991 for the payment future principal and interest of ldng-term debt and contingent property tax refunds resulting from valuation issues of prior year collections. The tax rate for the retirement of principal and interest on general obligations long-term debt was $.05664471 atJuly 31, 2016 and $.055381 at July 31 2015 per $100 valuation. Property taxes are recorded as a receivable ;; when levieci ^> RESTRICTED ASSETS ^ The “ general obligation bond debt service fund” account is used to segregate resources accumulated fpr general obligation bond debt service payments over the next twelve months. COMPENSATED ABSENCES District employees are granted vacation at rates of 10 to 25 days per year arid may accumulate up to a maximum of 20 to 50 days, depending on their length of employment. Employees who are eligible for more than 10 days of vacation may elect to sell back to the District a -trjiBamum of 10 days of unused vacation per calendar year. Upon termination, employees are paid for any unused accumulated vacation up to the. maximum accumulated days. Vacation pay is accrued when incurred and recorded as a liability.

A statement of changes in compensated absences for the year ended July 31, 20W follows: ji ndtag /a -Balance Vacation $107,800 $109,74' ^ $143,427 A statement of cl si compensated abbsenci: :es for the year ended July 31, 2015 follows: Beginning Ending Balance .Additions Reductions Balance $147,328 $.00,237 $102,189 $145,376

DEFERRED OUTFLOWS/INFLOWS OF RESOURCES In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resourd Jhis represents a consumption of net position that applies to a future period(s) and will not be recognized^ - tjMi outflow of respites (as either an expense or expenditure) until that period. The District reports deferred gains^^ ort refunding and deferred contributions on pension plans. A deferred gain on refunding results from the difference in the; carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over thiie si ter pfthe life of the refunded or refunding debt. Deferred contributions for the pension plans were made di ng the^ fiscal year but after the measurement date of the actuarial report. These amounts will be recognized during the next measurement period.

In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This represents an acquisition of net position that applies to a future period(s) and will not be recognized as inflow or resources (revenue) until that period. The District has an item that qualifies for reporting in this category: Certain amounts related to pensions must be deferred. Differences between projected and actual earnings on pension plan investments are deferred and amortized over five years. Changes in pension plan assumptions are deferred and amortized over the expected remaining service lives of employees.

21 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

NET POSITION Net position represents the differences between assets and liabilities. Net investment in capital assets consists of capital assets net of accumulated depreciation and the outstanding balances of any borrowing spent for the acquisition, construction or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation or through external restrictions imposed by creditors, grantors or laws or regulations. Net position unrestricted indicates assets that are available for future periods.

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

RECENT ACCOUNTING PRONOUNCEMENTS

GASB 72 — Fair Value Measurement and Application - this statement addresses accounting and financial reporting issues related to fair value measurements for assets (such as investments) and liabilities (such as split interest agreements), and provides gaudancedfer determining a fair value for financial reporting purposes and guidance for disclosures :o all fair value measurements. This requirement is effective for fiscal years beginning after; June 30, 2016. GASB 72 was implemented in the year ended July 3%2pl6 and it had an initiaterial impact on the District’s financial statements.

GASB 71 — Tax Abatement Disclosures • this statement addressdlpiifbrmation needed by financial statement users about certain limitations— on a government's^ability to raise resources. This includes limitations on revenue raising capacity reisultirigfirhm gOvernment programs that use tax abatements by indiv u a/apd entities that is beneficial to the government or its’ citizens. This statement is effective for ^fiscal years beginning after December 15, 2015. The District has ^ ) implemented GASjjfc^l in the year ended July 31, % 16. NOTE 2 INVESTMENTS The Distri and 2015 Hows:

20 6 2015 mg Fair Carrying Fair estment Type Value Value Value Certificates of Deposits i§ $21,861,000 $21,975,380 $19,922,000 $19,910,581 Municipal Bonds W $ 1,019,072 $ 1,021,900 $ 1,395 276 $ 1,395,235 U.S. Fe Mgency Secifity $ 6,892,655 $ 6,905,086 $ 4,187,648 $ 4,189,084 State Investment Pool - TEXPOOL $10.177.634 $10.177.634 $10,304,846 $10.304.846 ^Total $39,950,361 $40,080,000 $35,809,770 $35,799,746 Investments Included in: Cash Equivalent - Unrestricted $ 5,313,374 $ 5,313,374 $ 4,738,904 $ 4,738,904 Cash Equivalents^- Restricted $ 4,864,260 $ 4,864,260 $ 5,565,942 $ 5,565,942 Other Investments- Unrestricted $29,772,727 $29,902,366 $25,504,924 $25,494,900 Other Investments - Restricted $ 0 $ 0 $ 0 $ 0 Total $39,950,361 $40,080,000 $35,809,770 $35,799,746

Investments in the proprietary fund are in the form of U. S. Government obligations. They are recorded in the books of the separate Rinds at cost. Pooled investment funds are stated at fair value.

22 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

INTEREST RATE RISK The Public Funds Investment Act (PFIA) governs the types of investments that the District may invest in. The PFIA authorizes the District to invest in (1) obligations of the US Government, the State of Texas, their agencies and instrumentalities with a maximum stated maturity of three-years, excluding mortgage backed securities; (2) fully insured or collateralized certificates of deposits issued by depositary institution that has its main office or branch office in Texas, with a maximum stated maturity of three years; (3) fully collateralized repurchase agreements, with a maximum stated maturity of ninety-days except for bond fund flex repurchase agreements, which will match expenditures plans on the bond funds; (4)Not less than A Rated States (other than Texas), Agencies, Counties, Cities and Other Political Subdivisions; (5)Rated not less than AAA mutual funds registered with the Securities and Exchange Commission; and (6) Rated not less than AAA Investment Pool which markets its portfolio to market daily and stabilizes at a $1 net asset value.

The State Comptroller of Public Accounts exercises oversight responsibility ove the Texas Local Government Investment Pool (TexPool). Oversight includes the ability to significantly mflueric^ fdperations, designation of management and accountability for fiscal matters. TexPool operates in a mariner consistent^ with the Securities and Exchange Commission’s rule 2a7 of the Investment Company Act of l9405-TexPool useljatnortized cost rather than the market value to report net assets share prices. Accordingly*;thefair value of the posin TexPool is the same as the value of TexPool shares. ^^ CUSTODIAL CREDIT RISK Custodial risk is the risk that in the event of a bank failure, the District’s deposits may not be returned to it. The Investment Policy of the District requires that all time and demand deposits of the district be secured by pledged collateral with a market value equal to or greater than 102% of the principal plus accrued interest, less the amount insured by Federal Deposit Insurance Corporation (FDIC). The amount Collateralized with securities held by the pledging financial institution’s agent in the District’sname, was $1,075,7 lO' l ly 31, 2016 and $776,918 at July 31, 2015. The District’s average collected balance with Wells Fargo Bank ^was fi;p39,102 at July 31, 2016 and $968,264 at July 31, 2015. ^^

NOTE 3 PENSION PLAN Plan Description The District provides pension, disability, and death benefits for all of its full-time employees through a nontraditional definedbqtiefit plan in thestate-wide Texas bounty and District Retirement System (TCDRS). The Board of Trustees of the TCDRS is responsible for the administration of the statewide agent multiple-employer public employee retirement system consisting qf over 700 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 78768-2034.

Plan Membership Inactive plan members or beneficiaries currently receiving benefits 6 Inactive plan members entitled to but not yet receiving benefits 4 ActivC' nembers 18 Benefits^Provided The plan ^provisions are adopted^by the governing body of the District, within the options available in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 or more years of service or with 30 yearsofservice regardless of age or when the sum of their age and years of service equals 75 or more. A member is vested after 8 years but must leave their accumulated contributions in the plan to receive any employer-financed benefits. Members, who withdraw their personal contributions in a lump-sum, are not entitled to any amounts contributed by their employer.

Benefit amounts are determined by the sum of the employee's contributions to the plan, with interest, and employer- financed monetary credits. The level of these monetary credits is adopted by the governing body of the employer within the actuarial constraints imposed by the TCDRS Act so that the resulting benefit can be expected to be adequately financed by the employer’s commitment to contribute. At retirement, death, or disability, the benefit is calculated by converting the sum of the employee's accumulated contributions and the employer-financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act.

23 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

Contributions The District has elected the annually determined contribution rate (Variable Rate) plan provisions of the TCDRS Act. The plan is funded by monthly contributions from both the employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the district is actuarially determined annually. The District contributed using the actuarially determined rates of 1.5% for the months of August through December in 2014, 1.5% for the months of January through December in 2015 and .68% for the months of January through July in 2016. The contribution rate payable by the employee members for the 2014- 2015 and 2015 - 2016 years is the rate of 7% as adopted by the governing body of the District. The employee contribution rate and the district’s contribution rate may be changed by the governing body of the District within the options available in the TCDRS Act. The contribution made by the District in cess of the actuarially determined rate is classified as net pension asset and reflected in other non-current assets^. Investments The long-term expected rate of return on TCDRS assets is determined by adding expected inflation to expected long-term real returns, and reflecting expected volatility and correlationf he capitdf rket assumptions and information shown below are provided by TCDRS’ investment consultant,Clifrwater LLC.T$enumbers shown are based on January 2016 information for a 7-10 year time horizon. W""*"^,,. ^ Note that the valuation assumption for long-term expected return is re-assessed at a minimum of ew|||four years, and is set based on a 30-year time horizon; the most recent analysis was perrojpied in 2013.

Asset Target Geometric Real Rate of Return Allocation (Expected minus Inflation) US Equities 14.50% 5.45% Private Equity 14.00% 5% Global Equities 1.50% 75% International Equities - Developed 10.00% 5.45% International Equities- Emerging 6.45% Investment - Grade Bonds 3.00% .00% High-Yield Bonds ^ 3.009# 5.10% Opportunistic Credit 2.00% 5.09% Direct Lending 5.00% 6.40% Distressed Debt % 3.00% 8.10% 3.00% 4.00% , , ) 3.00% 6.80% E?Silssrs 5.00% 6.90% Hed®^% - 25.00% 5.25%

24 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

Partial Lump Sum Option (PLOP) The Partial Lump Sum Option (PLOP) offers participants the option of receiving a partial pension benefit as a lump-sum cash payment at the time of retirement in an amount equal to participant contribution. When a participant elects the PLOP, monthly benefit payments are reduced.

Net Pension Liability / (Asset) [December 31, 2014| [December 31, 2015|

Total pension liability $3,876,352 $4,395,988 Fiduciary net position 5,058,434 5,054,284 Net pension liability / (asset) (1,182,082) (658,296) Fiduciary net position, as a % of total pension liability 130.49% 114.97%

Pensionable covered payroll $1,624,085 $1,707,540 Net pension liability as a % of covered payroll 5 (38.55%) Discount Rate jA % 4 8.10% Long-term expected rate of return, '° investment expenses 10% ' 8.10% Net of ^' W % The total pension liability was determined by an actuarial valuation^ as of the valuation date, calculated based on the discount rate and actuarial assumption following.

The discount rate reflects the long-term rate of return funding valuation assum])tjipftof8.00%, plus 0.1% adjustment to be gross of administrative expenses as requirec|^ 68. Actuarial Methods and Assumptions Used for Funding^^ Valuations The actuarial assumptions that determined the total pension^liability as of December 31, 2015 were based on the results of an actuarial experience study for the period^Janua i , 2009- December 31, 2012, except where required to be different by GASB 68. Following js a description of the assumptions used in the December 31, 2014 actuarial valuation analysis for the District. ^

Economic Assumptions - TCDRS System-wide economic assumptions: Real rate of return 5.0% Inflation ' 3.0% Long-term investment return 8.0% The assumed long-teffh investment return of 8% is net after investment and administrative expenses. It is assumed returns will equal the nominal annual ratepf 8% for calculating the actuarial accrued liability and the normal cost contribution rate for the retirement plan of each participating employer. ^/Subdivision Accumulation Fund 9% % Employee Savings Fund 7% Current Service Annuity Reserve Fund 7% Assuming interest \$||bc esredited at these nominal annual rates to the various funds, we have then assumed the following: - Anahnual rate of 9% for calculating the actuarial accrued liability and normal cost contributions rate for the retirement plan to each participating employer. - An annual rate of 7% required under the TCDRS Act for:(1) accumulating current service credit and multiple matching credit after the valuation date; (2) accumulating prior service credit after the valuation date; (3) determining the amount of the monthly benefit at future dates of retirement or disability; and (4) calculating the actuarial accrued liability of the system-wide Current Service Annuity Reserve Fund,

The annual salary increase rates assumed for individual members vary by length of service and by entry-age group. The annual rates consist of a general wage inflation component of 3.5% (made up of 3% inflation and .5% productivity increase assumptions) and a merit, promotion and longevity component that on average approximates 1.4% per year for a career employee. 25 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

Mortality rates for depositing members are based on the RP-2000 Active Employee Mortality Table for males with a two-year set-forward and for females with a four-year set back, both with the projection scale AA.

Schedule of Changes in Net Pension Liability / (Asset)

Increases (Decreases) Changes in Net Pension Total Pension Fiduciary Net Pension Liability / (Asset) Liability Net Position Liability/(Asset) (a) (b) (a)-(b)

Balances as of December 31, 2014 $3,876,352 $5,058 4 $(1,182,082) ;; Changes for the year: Service Cost 168,010 168,010 Interest on total pension liability 318,197 318,197 Effect of plan changes (12,943) \ (12,943) Effect of economic/demographics gains or losses 95,353 95 53 Effect of assumptions changes or inputs 38,77 ,774 Refund of contributions 0 0 Benefit payments (87,755) 0 Administrative Expenses : (3,638) 3,638 Member contributions 19,528 (119,528) Net investment income 968) 62,968 Employer contributions m 25,612) Others % (5.071) Balance as of December 31, 2015 $(658,296)

Interest on total pension liability reflects the change in the.liability due to the time value of money. TCDRS does not charge fees or interest. Refle«||f w annuity purchase rates applicable to all TCDRS employers effective January T, 2018. O^ ates to allc pon of system-wid tems. Sensitivity Analysis ^ ^ ( The following iresents ^the netpen5i9nii^1i6iiity :bf .co.i4nty/district, calculated using the discount rate of 8.10%, the Pjstrict’s net pension liability would be if it were calculated using a discount rate that is 1 percentage point (7.10%) or I percentage higher (^9.10%) than the current rate. 'mm,.. Current 1% Discount Rate Increase 7.10% 8.10% 9.10%

Total pension liability $4,871,449 $4,395,988 $3,987,355 Fiduciary net position 5.054.284 5.054.284 5.054.284 Net pension liability / (assst) ($182,835) ($658,296) ($1,066,929)

Deferred Inflows / Outflows of Resources

Deferred Inflows Deferred Outflows Of Resources of Resources

Differences between expected and actual experience $6,304 $79,461 Changes of assumptions 0 32,312 Net difference between projected and actual earnings 0 424,527 Contributions made subject to measurement date N/A Employer determined

26 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

Amounts currently reported as deferred outflows of resources and deferred inflows of resources related to pensions, excluding contributions made subsequent to the measurement date, will be recognized in pension expense as follows: Year ended December 31: 2016 $130,376 2017 $130,376 2018 $130,376 2019 $116,514 2020 $ 22,355 Thereafter $ 0

Additional future deferred inflows and outflows of resources may impact these nutribers.

EMPLOYEE SECTION 457 PLAN The Port offers its employees a deferred compensation plan through the Interfi mnal City ly psgement Association (ICMA), created in accordance with Internal Revenue Code Section|4 3§v£he plan,availablei&q jPort employees, permits them to defer a portion of their salary until future years ip order to provide^ them ^with tmjfpment income and other deferred benefits. This plan is funded entirely by employee contributions. The deferreaci^ tnpcnsation is infnrACPpanlp not availablen\:niloKlo Into employeesm/ooc ntililuntil ftermination^rmirtofinn, retirementrofiromonf, deanaalhAn iunforeseeabje emergency. ^ / * 'Wjfa^ , Ik All amounts of compensation deferred under the plan, are maintamj^ ||? under j.Trwagreement with 1C for the exclusive benefit of the eligible employees and their beneficiaries^ . Nb part of the corpus or income of the trust shall revert to the employer or be used for or diverted to purposes other titan the exclusive benefit of participants and their beneficiaries. The employee contribiltjopto this plan cannot exceed$17,500 for 2014, $18,000 for2015 and $18,500 for 2016. The Port has no liability for losses under the plan, but does have the duty of due care that would be required of an ordinary prudent invest Investments in the plan are $1,358,637 at July 31,|20 6 and ! at July 3 U 2015.

NOTE 4 RESTRICTED ASSETS Certain resources set aside for the repayment of the District revenue bonds, capital projects and promotion and development are classified as restricted assets on the balance^ because their use is limited by applicable bond covenants and applicable commissioners’ action. Components pfadstricted assets as of July 31, 2016 and July 31, 2015 in the enterprise fund

Compon sets ,, iiterprise fund are as follows: ^^^^ ^ Promotion and A ^^ ubliS Development Total Cash and Cash Equivalents $ 4,842,138 $ 299,202 $ 5,141,340 Investment Taxes/Other Receivable 323,167 323,167 Accrued Interest Receivable

Total Restricted Assets $ 5.165.305 $ 299.202

Components of restricted assets as of July 31, 2015 in the enterprise fund are as follows: General Obligation Promotion and Bonds Development Total

Cash and Cash Equivalents $ 5,706,120 $ 129,319 $5,835,439 Investments Taxes/Other Receivable 316,225 316,225 Accrued Interest Receivable

Total Restricted Assets $ 6122,345 $ 129.319 S6,1L L6M 27 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

NOTES POLLUTION CONTROL REVENUE BONDS The District is authorized under the Clean Air Financing Act to issue revenue bonds to finance the acquisition, construction and improvement of facilities designed to reduce or eliminate air pollution and to lease or sell such facilities. The District has issued revenue bonds for the purpose of construction and subsequent installment sale financing of pollution control equipment. The following is a summary of the Pollution Control Bonds that have been issued and outstanding as of July 31, 2016.

$37,000,000.00 Pollution Control Revenue Refunding Bonds, Series 1994 (Texaco, Inc. Project) due October 1, 2024. Optional or mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance $37,000,000

$18,425,000 Multi-Mode Variable Rate Demand Revenue Bonds, Series 199 r.(jPinaOil and Chemical Company Project) due May 1, 2033. Optional and mandatory early redemption^ provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 18,425,000

$25,000,000 Multi-Mode Variable Rate Demand Revenue Bonds, Series 1998 (BASF Corporation Project) due April 1, 2033. Optional and mandatory early redemption provided. Interest at floatjngrate. Interest due monthly on first business day. Current Balance _ 25,000,000 $15,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (BASF CorporationV Project), Series 2000A. Optional and special early mandatory early redempiiOrt proyided. Interest at floating rate. Interest due monthly on first business day. Current Balance 15,000,000 |§ k $10,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (Fina Oil^ and Chemical Company Project), Series 2000B. Optional and special mandatory early redemption provided. Interest floating rate. Interest due monthly on first business day. Currenf Balmc|» ) 10,000,000 | ijP* $10,000,000 Variable Rate Revenue Bonds, Series 2002B Chemical, Inc.) Optional and mandatory early provided. ^ redemption Interest due monthly on first business day. Current Balance Iff 10,000,000 $4,500,000 Variable Rate Revenue Bonds, Series 2002C (ATOFINA Petro^Chemical, Inc.) Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance jfjw, Wr 4,500,000 $148,000,000 Motiva Environmental Facilities Revenue Bonds, Series 2002, Due December 2027, Optionaland mandatory early redemption provided. Interest due monthly on first business day. Current Balance 148,000,000

$15 000,000 Multi-Mode Var&ble Rate Demand Revenue Bonds (BASF Corporation Project), Series^ 2&02A - Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 15,000,000 $15,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (BASF Corporation Project), Series 2003A. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on firsfbusiness day. Current Balance 15,000,000

$10,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (ATOFINA Petrochemicals, Inc. Project), Series 2000B. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 10,000,000 $50,000,000 TOTAL Exempt Facilities Revenue Bonds (Total Petrochemicals USA, Inc.) Series 2008, Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 50,000,000

$50,000,000 TOTAL Petrochemical USA, Inc Project, Exempt Facilities Revenue Bonds Series 2009, due March 1, 2039. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 50,000,000

28 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

$300,000,000 Motiva Enterprises LLC Project, Environmental Facilities Revenue Bonds, Series 2009, Subseries A, Subseries B and Subseries C, due December 1, 2039. Optional and mandatory early redemption provided. Interest due monthly on the 15th business day. Current Balance 300,000,000

$50,000,000 TOTAL Petrochemical USA, Inc. Project, Exempt Facilities Revenue Bonds Series 2010, due March 1, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 50,000,000

$300,000,000 Motiva Enterprises LLC Project, Environmental Facilities Revenue Bonds,.Series 2010, Subseries A, Refunding Subseries B and Refunding Subseries C, due April 1, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Bslunce M 300,000,000 $300,000,000 Motiva Enterprises LLC Project, Environmental Facilities Revenue Borf|||teries 2010, Subseries D, Subseries E, due November 9, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance < 300.000.000 Total %SI.357.925.000

Pollution Control Facilities have been sold under installment sales agreements. The installment salesagreements state that the companies shall pay as and for the purchase price for the projectsan amount equal to the aggregate principal amount of the bonds, and as interest on the purchase price of the project an&mount equal to the aggregate interest and premium, if any, on the bonds, all of which ll be payable at the times^ , and in the manner and amounts, and according to the other terms set forth in the indentures^ . The Trust Indentures state that the bonds and couponsare Special obligations of the pfl|indare payable solely out of revenue derived from the sale of the projects. The bonds shall neverconstitute an indebtedness or pledge of the credit of the Port within the meaning of any constitutional or statutory provision, and shall not be general obligations of the Port or the State and shall never b$ paid in whole or in part from any funds raised by taxation or any revenues or other funds of the Port except thos? derived by it in connection with the sale of the projects. NOTE 6 PORT AERTHUR NAVIGATION DISTRICT INDUSTRIAL DEVELOPMENT CORPORATION On August 5, 1981, the District authorized the establishment andincorporation ofthe Port Arthur Navigation District Industrial Development Corporation under the Laws of the State of Texas. The purpose of the corporation is the financing of industrial development projects pursuant to the provisions of the Development Corporation Act of 1979. The fo I lowing is a summary of the I ndustrial Development Bonds that have been issued and outstanding as of July 31, 2oi^gf $25,000,000 Exempt Facilities' tenue Bonds (Air Products and Chemicals Inc. Project) Series 2000. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly, ot|§ ifst business day. ^Current Balance $25,000,000 $25,000,000%Exempt Facilities RevenueI Bonds (Air Products and Chemicals Inc. Project) Series 2001. Optional and mandatpjypearly redemption provided. Interest is at a floating rate. Interest due monthly on first busine^s^day. Current Balance 25,000,000 $22,500,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2002. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 22,500,000

$25,000,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2005. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 25,000,000

$53,000,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2006. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 53,000,000 29 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

$95,765,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2010A, due 12/01/2040. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 95,765,000

$100,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2011, due 06/01/2041. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 100,000,000

$150,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2012, due 03/01/2042. Optional and mandatory early redemption provided. Intepill is at a floating rate. Interest due monthly on first business day. Current Balance ^ 150,000,000 $100,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USAy c P ject) Series 2012A, due 09/01/2042. Optional and mandatory early redemption provided^ .^ Irtf|||st is at a floating rate. Interest due monthly on first business day. CurrentTJalatfce 100,000,000 * ^ jP v ’* $50,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA* . Inc. Project) Series 2012B, due 12/01/2042. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business c Tent Balan . .000

Total ^^^ ^ $ 646,265.000 m. As required by the Trust Indentures, special trust fun.ds for the construction of|:|f||acilities and the payment of bond principal and interest have been established. The Trust Indentures state that the bondsaqdcpupons are limited obligations of the issuer and are payable by the issuer solely out of revenuesderived from or in connecfn|||dtli thp agreement. The Bonds shall never be paid out of any other funds of the corporatiorl aLsuch revenues from.dhd in connection with the agreement. NEITHER THE STATE, THE PORT OF PORT ARTHUR^ NAVIGATION|i )iSTRICT OF JEFFERSON COUNTY, TEXAS, THE PORT ARTHUR NAVIGATION^ DISTRICT INDUSTRIAL DEVELOPMENT CORPORATION NOR ANY POLITICAL CORPORATION, SUBDIVISION 6|R GENCY OF THE STATE SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, ANY, OR INTEREST ON THE BONDS. NEITHER THE FAITH AND CREDIT NOR THEfpNG POWER (% THE STATE, THE PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS^ OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF PRINCIPAL OR OF PREMIUM, IF ANY, OR THE INTEREST ON SU^BON^,

30 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

NOTE 7 PROPERTY, PLANT AND EQUIPMENT As reported in Note 1, the Port Commissioners voted to report the Port’s operations in a Proprietary Fund beginning with the fiscal year ending July 31, 1998. In the past, it was the policy of the Port of Port Arthur Navigation District to record all infrastructure and other fixed asset additions in the General Fixed Asset Account Group. However, with the change in the accounting policies, all General Fixed Assets were transferred into the Proprietary Fund. Additionally, depreciation was calculated on these assets over their useful lives and recorded for prior years as accumulated depreciation and for the current year as depreciation expense.

Capital Asset Activity for the year ended July 31, 2016 was as follows:

Beginning Ending August I, 2015 Additions Retire July 31, 2016 Capital Assets. Not Being Depreciated: %

Land - Port Site $6,944,139 ,139 Work in Progress 8,437,620 $1,780, 10, % Total Capital Assets, /9k i Not Being Depreciated 15,381,759 1,780,19 0 17, 161,94

Capital Assets. Being Depreciated:

Furniture, Fixtures and Equipment 2 240 999 9 5 3, 2,2 3 6,0 2 0 ' ’ Port Facilities - V # Executive Offices 844 668 13 908 858,576 ' ^ Port Facilities - % Investigations and Studies 212,576 t 1,034 1,213,610 Port Facilities - 1% Wharves and Terminals f.. 9,240 45,501 90,434,741 Total Capital Assets, 1 Being Depreciated,, ,122 53,658 ,742,947 ^ 94

Depreciation: Furnitureif ptures and Equip^rtmt 1,803,599 201,316 52,443 1,952,472 Port Facilities Executive Offices jjv 507,796 35,327 543,123 Port Facilities - Investigations and Studies 739, 220 89,538 828,758

Port Facilities • Wharves and Terminals 38,504,648 2,408,337 40,912,985 Total Accumulated Depreciation 41,555,263 2,734,518 52,443 44,237,338

Total Capital Assets, Being Depreciated, Net 53,132,220 (2,625,396) 1,215 50,505,609

Total Capital Assets, Net $68,513,979 ($845,206) $1,215 $67,667,558

31 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

Capital Asset Activity for the year ended July 31, 2015 was as follows:

Beginning Ending August 1, 2014 Additions Retirements July 31, 2015

Capital Assets. Not Being Depreciated:

Land - Port Site $6,944,139 $6,944,139 Work in Progress 3,734,942 $5,181,524 $478,846 8,437,620

Total Capital Assets, Not Being Depreciated 10,679,081 5,181,524 15,381,759 Capital Assets. Being Depreciated: if% Furniture, Fixtures and Equipment 2,271,207 16 46,863 2 - ' Port Facilities 4 Executive Offices 812,820 31, m. 5pK Port Facilities - Investigations and Studies 1,208,497 4,079 1,212,576 Port Facilities - Wharves and Terminals 89,483,118 906,122 90,389,240 Total Capital Assets, %% Being Depreciated 93.775.642 4 ' 46,8 94,687,483 t 958m Less Accumulated i4 Depreciation # - t 4 Furniture, Fixtures 4 i and Equipment m 48,866 30 46,863 1,803,599 Pori Facilities - m Executive Offio m 3,168 507,796 Port Facilities fInvestigations and Stu 650,817 88,403 739,220 PortFaSf|§ g - Wharves and Terminals 36,099 657 2,404,991 38,504,648 Total Accumulated Depreciation 38,773,968 2,828,158 46,863 41,555,263

Total Capital Assets, Being Depreciated, Net 55,001,674 (1,869,454) 0 53,132,220

Total Capital Assets, Net $65,680,755 $3,312,070 $478,846 $68,513,979

32 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

NOTE 8 LONG TERM DEBT On September 25, 2008, the District issued general obligation bonds. Unlimited Tax Refunding Bonds, Series 2008A (non-AMT), in the amount of $24,885,000 to refund certain outstanding Bonds of the District, refund a bank loan and pay cost of issuance. Unlimited Tax Port Improvement Bonds. Series 2008B (AMT), in the amount of $10,000,000 to pay a portion of the cost of projects to acquire, purchase, construct, enlarge, extend, repair or develop facilities or aids to or useful or necessary in the operation or development of the District’s ports and water -ways or in aid of navigation and commerce thereon and pay the issuance cost. These bonds will be repaid from the receipt of separate annual ad valoren taxes without legal limit as to rate, levied on all taxable property within the District. /MK^ ^ A statement of changes in long-term debt for the year end|jpfJuly 6 is as follows ^

Beginning Ending Current Balance Addition's Reductions Balance Portion General Obligation W/ Debt X% Series 2008A Unlimited Tax Refunding Bonds $20,394,404 $0 190 $18,939,214 $1,570,000 Series 2008B w Unlimited Tax Improvement Bonds 8,294,0' 0 563004;> ’7,731,073 610,000 Totals $28,688,481 $2,018, 1 $26,670,287 $2,180,000

A Statement of Change ng-term\debt 'foor the year ended July 31, 2015 is as follows: /mL,. Beginning Ending Current -Balance Additionsw: Reductions Balance Portion bligatio t : ISA Unlimited Tax Refundin ads 1,786,120 $0 $1,391,716 $20,394,404 $1,505,000 Series 2008B ited m x Improvement Bonds ,830.959 0 536.882 8,294,077 580.000 Totals $30,617,079 $0 $1,928,598 $28,688,481 $2,085,000

Total debt service requirement as of July 31, 2016 are as follows:

Principal Interest Total 2017 $2,180,000 $1,301,714 $3,481,714 2018 2.275.000 1,202,962 3,477,962 2019 2.380.000 1,097,830 3,477,830 2020 2.495.000 987,106 3,482,106 2021 2.610.000 871,238 3,481,238 Thereafter 15,090,000 2,315,618 17,405,618 Total $27,030,000 $7, 776,468 $34,806,468

33 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015 Long-term debt as of July 31, 2016 and 2015 is summarized as follows ^

2016 2015

Series 2008A Serial and Term Refunding Bonds $24,885,000 Issue Variable Rate 4.0%-4.75%, Issued September 2008, Maturing March 1, 2026 $19,205,000 $20,710,000

Series 2008B Serial and Term Improvement Bonds $10,000,000 Issue, AV Variable Rate 4.0%-5.65%, Issued September 2008, Maturing March 1, 2026 7,$j 8,405,000 Total Bonds 27,030,000 29,115,000 Accretion Payable % Total Bonds and Accretion Payable 27,030,0000 29,115,000 Less Current Maturities 2,180,000 2,085/ Long-term Debt, Net * $24,860,000 $27,030,000 NOTE 9 PROPERTY TAX REFUND PAYMENTS AND LIABILITY f During several fiscal years, settlements was reach ||a ( result of lawsuits betW The Pjemcor Refining Group Inc., Premcor Pipeline Company, Port Arthur Coker Comp|||n I,,P., and Valero Energy Corporation” (plaintiffs) vs. Jefferson County Appraisal District (defendant). The^settlement agreements required^^the Jefferson County Appraisal District to revise the market value of plaintiffs property to an agreed value(decrease) for tax years 2006 to 2010 and tax years 2012 to 2015. The plaintiff will in turn, waive and forego any claim to interest which may be owed on any refund to which they may bc,,chtt 0 MIct assets and revenue were reduced:and refunds paid in full as of July 31, 2015 in the amount of $2, Ci32^.^ ( During this fiscal yeaf^ef ^ uly 31, 2|if, the courts ruled th%,the Jefferson County Appraisal District reduce the 2012 taxable value for Che^^^ hillip aical Company. The resulting refund amount equaled $107,920. During the current fiscal year^ ^, theTpstrict^^was notified of a misapplication of assessment on property owned by Motiva Enterprises, LLC that is not%{thin the boundaries of the District. The resulting refund amount equaled $182,071, payable in tw^ paymeif or before June 30, 2016 and October 31, 2016. NOTBWlk 4k ^ PROPERTY TAX ABATEMENTS^ The ^ District negotiates property^ tax abatement agreements on an individual basis. The District has tax abatement agreements with the following cbthpanies as of July 31, 2016:

Percentage of Taxes Amount of Taxes Company. Project Abated during Fiscal Year Abated during Fiscal Year Praxair, Inc. Expansion of Hydrbgen Complex 80% $ 277,787

Valero Port Arthur Refinery COEXII Expansion Project 90% $ 732,259

Motiva, Project #1 95% $4,176,080

Each agreement, authorized by the Texas Property Redevelopment and Tax Abatement Act, Tex. Tax Code Chapter 312, as amended, and by resolution of the Port of Port Arthur Navigation District of Jefferson County, Texas, desires to increase its tax base by encouraging the development, expansion, modernization or other improvement of real property within the District. 34 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

The Board of Commissioners of the District elected to be eligible to grant abatements and adopt the Jefferson County Amended Uniform Tax Abatement Policy and incorporate herein by reference, and as may be amended or otherwise in effect from time to time following adoption of each resolution, save and except that such policy shall apply to eligible projects (i) lying and being situated on real property within the District and (ii) which, in the discretion of the Board of Commissioners of the District, taking into consideration the Standards for Tax Abatement as set forth in its policy, provides for job creation, use of local labor, and use of local vendors and suppliers, with “local” being defined as residing within Jefferson County and to the extent feasible within the boundaries of the District.

NOTE 11 RISK MANAGEMENT AND LITIGATION M Risk Management The District is exposed to various risks of loss related to torts; theft of, damageto and destruction ofassets; errors and omissions; and natural disasters for which the District obtains insurance coverage through' commercial insurance carriers. Workman’s compensation is covered through participation in a public entity risk^ pool, where risk is transferred to the pool within policy limits purchased. $w Litigation From time to time, the District is subject to routine litigation incidental to its optionsV . Management bejj es that the results of any such claims or litigation will not materially affect the District’s financial position. The attorney^ for the District estimates that the amount of actual or potential claims against the District will not materially affect the financial condition of the Port.

NOTE 12 Major Customers and Concentration of Risk The District receives a significant portion of its tax revenues ffbm feftochemical industry. Major customers ofthe District for this fiscal year, were Fibria Celulose US Inc. (formally;Aracruz), International Paper Company, Gearbulk Inc., Grieg Star ShippingJformerly Star Shipping). German^ Pellets Texas, Inc. and the Military. The District also received a significantariiQiipt of revenue from iy-Berthingsettees and warehouse and terminal space ' ^ rental and lease fees. ^ JP Other Inforngtfcn and Restated! A Letter of Agreementwas executra||toyeen the DisnmiSnd Gulf Copper & Manufacturing Corporation, effective August 18, 2010. This agreement states.tKat thirty days after the District received all documentation which effect a transfer of title of the Mem uxiliary|t?||mg Djy Dock, designated as AFDM-2, a sale of the AFDM-2 to Gulf Copper & Manufacturing Cof ^ gion will be made in accordance with the terms of a Bill of Sale. This Bill of Sale was executed effective April^13, 2011. Un rthe terms of the sale, the District shall receive usage fee payments beginning on the earlier to occur^of(a) the first day of commercial operation ofthe Dry Dock or (b) March 31, 2012. Payments are based upon the monthly occupancy^ usage of (1) if no vessel is occupying the dry dock, payment is $125 per day; (2) if dry dock is occupiej&vith any barge or self-propelled vessel less than two-hundred fifty feet in length, payment is $411 per day; or (3) iwlry dock is occupied with a self-propelled vessel of two-hundred fifty feet or more in length, payment is $822 per day. At the end of the Diy Dock’s useful life, Gulf Copper is responsible for the disposal of the asset.

The District was notified at July 14, 2015, that a settlement was reached as a result of a lawsuit filed against BP Corporation North America, BP Exploration and Production, Inc. and any parents, subsidiaries, affiliates, successors, assigns, officers, directors, employees, agents and representatives, resulting from the Deepwater Horizon Oil Spill, which occurred in January 2010. This settlement constituted a full and final settlement of all claims against BP, and all other BP entities, resulting from this incident. The District received $1,215,783 as its portion of this settlement.

The District received funds in the amount of $1,080,025 at June 6, 2016, from the Federal Emergency Management Agency (FEMA), for facility restorations and repairs and disaster assistance and relief. This was as a result of Hurricane RITA.

35 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015

NOTE 14 SUBSEQUENT EVENTS Management has evaluated events and transactions subsequent to the statement of net position date through the date of the auditor’s report (date financial statements are available to be issued) for potential recognition or disclosure in the financial statement. Management has not identified any such matters requiring disclosure.

I% AL% * ¥ m

% % % * % I w si

36 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS

Year Ended Year Ended Total Pension Liability December 31, 2015 December 31, 2014 Service $168,010 $166,654 Interest on total pension liability 318,197 , 288,481 Effect of plan changes 14,854 Effect of assumption changes or inputs 'ar- Effect of economic/demographic (gains) or losses (9,456) Benefit payments/refunds of contributions i 87, (111,198) Net change in total pension liability K 636 349,335 Total pension libility, beginning ^3,876,352 % 3,527,018 Total pension liability, ending (a) $4,395,988 3,876,352

Fiduciary Net Position Employer contributions 25,612 24,361 Member contributions 528 113,686 Investment income net of investment ex| 317,359 Benefit payments/refunds of contributions m (111,198) Administrative expenses % m (3 638) (3,765) Other -%% 5^,071 4,091 Net change in fiduciary net po$ii % (4,150) 344,534 Fiduciary net position, beginningJiff 5,058,434 4,713,900 Fiduciary net position, ending (i $5,054,284 $5,058,434 Net pension liability t (asset), ending = 1 - (b) ($658,296) ($1,182,082)

Fiduciaiy ion as a % of ension hility 114.97% 130.49% Pensionable^ payroll ^ $1,707,541 $1,624,085 Net pension liability as a% of covered payroll ^ -38.55% 72.78% ^^ ^^ -

Notes to Schedule Benefit changes. None Changes in actuarial assumptions and methods. None This schedule will be 10 years as information is available.

37 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF EMPLOYER CONTRIBUTIONS

Actuarially Actual Contribution Pensionable Actual Contribution Year Ending Determined Employer Deficiency Covered as a % of Covered December 31 Contribution Contribution (Excess) Payroll Payroll 2006 $58,261 $58,261 $0 $920,395 mm, 6.3% 2007 54,753 54,753 0 855,518 6.4% 2008 53,948 53,948 0 923,74ft 5.8% 2009 65,214 65,214 0 5.9% 2010 84,198 584,198 (500.000) 1,236,381 47.3% 2011 84,330 284,330 (200.000) 1369,001 20.8% 2012 36,237 36,237 2.5% 2013 24,931 24,931 1.6% 2014 12,505 24,361 (11,856) 1,624,085 5% 2,015 16,051 25,612 (9,561) 1,707,540 1

Notes to Schedule % Actuarial valuation date 12/31/2013 Methods and assumptions used to determine contribution rates: m Actuarial Cost Method. Amortization method . / Level percentage of payroll, closed Amorization period in years | 0.0 |fs (based^on pntribution rate calculated in 12/31/2015 valuation) Asset valuation method ^ Subdivision accumulation fund w Salary Increases Varies by age and service. 4.9.9%«, average over career including inflation. Inflation 3.0% Investment rate of Return 8.0% net of investment expenses, including inflation Re,i Members who are eligible for service retirement are assumed to commence receiving 7i r benefit paymerifs based on age. The average age at service retirement for recent ! retirees is 61. Mortality mhe 2015 actuarial valuation, assumed life expectancies were adjusted as a result of adopting a new projection scale (110% of the MP-2014 Ultimate Scale) for 2014 & later. Previously Scale AA had been used. The base table is the RP-2000

/ table projected with Scale AA to 2014. Changes in Plan Provisions Effective with the 2015 calendar year, employer contributions reflect that a 40% Reflected in the Schedule ^CPI COLA was adopted

38 SUPPLEMENTAL SCHEDULES

m PORT ARTHUR IHTEBNATIOHAL

Port of Port Arthur Navigation District PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF INSURANCE IN FORCE July 31, 2016

Policy Coinsurance Annual Company Number Type Property Amount Deductible Applicable Inception Expiration Premiums Navigators Insurance Company SE15LIA73498182 Marine Liability Insurance General Umbrella Liability 12/31/15 12/31/16 $ 35,609 Marsh Insurance

Travelers Indemnity Company ZPD 41M16829 15 ND Commerical Property Berths 1, 2, and 3 21 054 100,000 10/26/15 10/26/16 $ 303,302 - - - ' k ' %- ik Dock & Piers Fender System \ 192 150 - x ’ Ilk Berths 4 and 5 14,563^,500 Modular Fender System 1,020,000 w Rail Causeway (1969) 400,000 Rail Causew t-1* 400,000 ^^ Travelers Indemnity Company H-660-1F695544-TCT-15 Commerical Property Transit Sheds, Wi JPk25,831,235 100,000 F90% 10/26/15 10/26/16 174,932 Command Center, Admin Business Personal Property,

' .x- Business Income/Exlra Exps.

Fidelity and Deposit Company LPM758919101 U S. Customs Bond 01/20/16 01/20/17 $ 1,250 ISs p % The Fidelity and Deposit Companies CCP 1497403 22 Public Employee Theft Commerical Crime I nrs 250,000 2,500 03/15/16 03/15/17 $ 573 Travelers Property Casualty Company of ZOL-10S62286-15-ND Marine General and Terminal Terminal Operator's Legal Liab. 1,000,000 25,000 06/15/16 06/15/17 S 64,400 of America Operators Legal Liability Insurance "^

Allied World Surplus Lines Insurance Co. 0202 - 6177 Officers Public Official Li.ii 'il.:;. and 5.000.000 25,000 06/15/16 06/15/17 $ 25,978 Employment Practices Liability

Wright National Flood Insurance Company 42 1150346196 06 Commercial ExecutiveOffice Building 500.000 1,000 05/17/16 05/17/17 s 5,163 s ( 221 Houston Avenue) Building Contents 140.000 1,000 05/17/16 05/17/17

Wright National Flood Insurance Company •12 11 16 04 Commercial Command Center Building 500.000 1,000 09/18/15 09/18/16 $ 3,083 * H Building Contents 450.000 1,000 09/18/15 09/18/16 Progressive County Mutual Insurance Co. 04511782-7 Comprehensive and General Combined Liability 1.000.000 250 04/09/16 04/09/17 $ 3,176 |N!|ij*biliiy Auto Policy Personal Injury 10,000

Texas Mutual Insurance Company TSF-0001175799 Employees and Commissioners 1,000,000 01/13/16 01/13/17 S 24,059 F

CNA Surety 15555303 Notary Errors and Omissions Floyd Gaspard 25,000 07/21/14 07/21/18 $ 71

CNA Surety 71135122N Notary Errors and Omissions Sandra Myers 25,000 08/06/15 08/06/19 S 71

39 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF INSURANCE IN FORCE July 31, 2016

Policy Coinsurance Annual ' . Company Number Type Property i Deductible Applicable Inception Expiration Premiums

Fidelity and Deposit Company POB8348835-06 Port Commissioners Bond Mark L. Underhill ;P 05/11/15 05/11/17 $ 185 (Zurich) POB7591700 03 Port Commissioners Bond Linda Turner Spears # 05/22/15 05/22/17 S 185 POB 30087692 T Port Commissioners Bond Raymond Johnson 05/10/15 05/10/17 % 185 POB7612676 02 Port Commissioners Bond John Comeaux .000 12/21/15 12/21/17 % 185 CNA Surety Company POB62038431 Port Commissioners Bond Norris Simon, Jr. pp 1 ,000 05/21/15 05/21/17 % 93

Texas Windstorm Association 61847508 Windstorm and Hail Executive m 906,641 9. XT. 06/29/16 06/29/17 % 8,779 Business li 99,960 168 Hrs 1 06/29/16 06/29/17 S 1,571 Building Contents #m .000 1,300 80% 06/29/16 06/29/17 s 1,229 #P Building Contents /Dock 64,173 1,000 80% 06/29/16 06/29/17 s 668

Texas Windstorm Association 61847508 Windstorm and Hail it Shed #1 4.424.000 44,420 Waived 06/29/16 06/29/17 s 37,247

43,598 Waived 06/29/16 06/29/17 s 45,838

Command Ccn 756,650 7,567 50% 06/29/16 06/29/17 s 2,746 Canopy # 5,326 80% 06/29/16 06/29/17 s 4,116 Readw Under Canopy sr ; 1,681 80% 06/29/16 06/29/17 s 1,684 - 1 Z Business Personal Property 440,400 4,404 80% 06/29/16 06/29/17 s 1,278

Texas Windstorm Association 61847508 and Hail Large Warehouse Building 2,214,300 22,143 80% 06/29/16 06/29/17 $ 6,513 200 Houston Avenue

Business IncomeTixtra Exps, 99,960 168 Hrs 06/29/16 06/29/17 $ 592

186,600 1,866 80% 06/29/16 06/29/17 s 2,037 0 211 Houston Avenue P Business Income/Extra Exps. 9,000 168 Hrs. 06/29/16 06/29/17 $ 127 P

1PI # /I

40 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUE AND EXPENSES - ACTUAL AND BUDGET FOR THE YEAR ENDED JULY 31, 2016 # X # Variance With

X BUDGETED AMOUNTS •X ACTUAL Final Budget ORIGINAL FINAL XAM^MOUNTS0 Positive (Negative) Operating Revenue Loading $1,941,700 00 ,754 $59,054 X Unloading 498,750 J 498,750 X 59 161,609 # Wharfage 962,520 ^ 962,520 542. (419,869) Layberthing 1,616,685 1^,616,685 1,305,6 ' (311,050) Dockage 464,820 464,820 1.358.569 893,749 sXX' ^ Security Surcharges 272,300 300 306,059^ 33,759 Gantry Crane 17,165 165 62,100 44,935 Cleaning 99,840 0 111,200 11,360

Line Handling 0 270 / 292,175 21,285 . 'SS Shed and Pier Hire 51,28 67,200 15,920 Storage 3,1151 27,795 24,680 Other Operating Revenue 195,975 116,625 Property Rentals, Terminal/Warehouse Lease;: to ,000 214,970 25,970 s Property Taxes (DS and O&M) n* 9,684,235 9,684,235 8.945.569 (738,666) Total Operating Revenue x $16,151,650 $16,151,650 $16,091,010 ($60,640) Operating Expenses N Salaries v\ $1,705 585w $1,705,585 $1,822,614 ($117,029) # Employee Benefits 82,179 582,179 $617,239 (35,060)

Sales and Marketing Expenses li : 301,845 301,845 $287,341 14,504 x y. s\ ^ Insurance and Bonds ^ ' 924,605 924,605 794,902 129,703 XV Legal, Engineering ther Professional 516,257 (185,257) X '.V 331.000 331.000

Office Expenses Xv 3S i 26,500 26,500 26,019 481 V Port Commission Fees 30,600 30,600 30,600 0 Other Expenses 1 75,000 75,000 53,528 21,472 Utilities X - 352,401 352,401 322,663 29,738 Maintenance Dredging V 600.000 600.000 1,395,048 (795,048) Spoil Areas #8 & #11 Maintenance 37,941 37,941 37,941 0

Miscellaneous Terminal s'* 5,000 5,000 32,686 (27,686) 41 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUE AND EXPENSES - ACTUAL AND BUDGET FOR THE YEAR ENDED JULY 31, 2016 # ^ Variance With BUDGETED AMOUNTS ACTUAL Final Budget ORIGINAL FINAL - #^ OUNTS Positive (Negative) Repairs and Maintenance NX \ - General Repairs and Maintenance 600,000 00,000 0,669 89,331 (Less) Insurance Proceeds 0 0 0 0 Gantry Repairs and Maintenance 80,000 # 80,000 ^20^,; 59,739 ' Railroad Repairs and Maintenance 50,000 63,48 V (13,487) Vehicle, Equipment Repairs and Maintenance 50,000 50,000 149,984 (99,984) % \ Bulkhead Repairs and Maintenance 50,000 50,000 4,000 46,000 Loading - Subcontractor 1,632,131 HSi.131 1,663,543 (31,412) Unloading - Subcontractor 470,753 4 6-15,671 (144,918)

Outside Services o 982 > 1,000,512 (18,072) " Interest Expense (Net) $1,467,53 $1,423,717 $43,813 Bond Administrative Cost and Arbitrage Expense 0 % Tax Collection Expense 145, ° 145,000° 99,563 45,437 000# ^^ Depreciation Expense 2,826,400 2,826,400 2,734,518 91,882 Total Operating Expenses # $13,326,910 $13,326,910 $14,222,761 ($895,852) % Operating Income (Loss) X $2,824,740 $2,824,740 $1,868,249 ($956,491) N » || Non-Operating Revenue (Expenses) Interest Income $HHf200,000 $200,000 $327,768 $127,768 Management Fees » 0 0 0 0

Ci* Foreign Trade Zone Revenues V 20,000 20,000 15,000 (5,000) Capital Grants 3 0 0 103,430 103,430 Storm Damages-lnsurance Proceeds, FEMA Grantsim. 0 0 1,080,026 1,080,026 Miscellaneous Other Revenue_(ExpensesExper ) 20,000 15,000 249,774 234,774 Gain(Loss)Sale/Disposal of Assets, Lawsuit f 0 0 0 0 Total Non-Operating Revenue (Expenses) $240,000 $235,000 $1,775,998 $1,540,998 Net Income (Loss) F $3,064,740 $3,059,740 $3,644,247 $584,507 \v 42 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS GENERAL LONG-TERM DEBT REQUIREMENTS-BY YEARS UNLIMITED TAX REFUNDING BONDS -SERIES 2008A July 31, 2016 #

Unlimited Tax Refunding Bonds A $ , Series 2008 - 24,885 000 # 88 September 1, MarchjjH Total Principal -CS'isSSS Year Ended Interest Principal ^ est and Interest # ##

2017 436,913 1,570,(100 436,913 2,443,826 2018 403,550 1.635.000 403,550 2,442,100 2019 367,784 1.705.000 ^ 7,784 |F 2,440,568 2020 331,406 1.780.000 ^ ^ 2,442,812 2021 293,58k^ 1,855,000 ,#^293,» 2,442,162 2022 251,84^r k 1,940,000 ¥ 251,844 2,443,688 2023 206,981 ^ 2,030,000 % 206,981 2,443,962 2024 158,769 ^ 2,125,000 "Wl58,769 2,442,538 2025 108 30 2,446,600 ’ ° 2026+ $45,336 li§L 25»,000 # 55,336 2,445,672 £ V- To- $ 2.614.4 $ 2.614.464 $ 24.433.928 i vN I

/IP 43 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS GENERAL LONG-TERM DEBT REQUIREMENTS-BY YEARS UNLIMITED TAX PORT IMPROVEMENT BONDS 2008B, July 31, 2016 4 ^ Unlimited Tax Port Improvement Bonds Series 2008B - $10,000,000 ,# September 1, March^t 1I, Total Principal ST Year Ended Interest Principal and Interest idlestsit 2017 213,944 610.000 213,944 1,037,888 2018 197,931 640 00( 197 931 ,035,862 ' - ’ 2019 181,131 675.000 ^^ 31 1,037,262 2020 162,147 715,o4^ 1,039,294 2021 755,000 # 142^,0 1,039,076 2022 120,803 795.000 120,803 1,036,606 2023 99,438 840.000^\ 99,438 1,038,876 2024 76,863 885,000 76,863 1,038,726 2025 52,525 52,525 1,035,050 2026 26,950 26,950 1,033,900 r

To s $ 1.273.770 | 10, 372.540

& §1

1 / 44 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF CASH AND INVESTMENTS JULY 31, 2016 AND 2015 jr Date Maturity Investment #Market^ Investment Market Owned By: Acquired Date Cost Value Cost Value 2015 H CASH AND CASH EQUIVALENTS — |N ik Unrestricted A k # Texas Treasury - TEXPOOL Various n/a 5,313,374 $ 5,313,374 4,738,904 $ 4,738,904 Cash Various n/av^| 823,414 823,414 458,790 458,790 Total Unrestricted Cash and Cash Equivalents 136,78 6,136,788 $F 5,197,694 $ 5,197,694 #v Restricted Texas Treasury - TEXPOOL Vario $ 4,864,2 S 4,864,260 $ 5,565,942 $ 5,565,942 Cash Various sk 277,080 .277..,080 269,497 269,497 Total Restricted Cash and Cash Equivalent V S 5,141,340 $ 5,141,340 $ 5,835,439 $ 5,835,439

TOTAL CASH AND CASH EOU1VAL $ 11,278,128 $ 11,278,128 $ 11,033,133 $ 11,033,133 V OTHER INVESTMENTS Hk & Jr 1 Unrestricted t \ » Amarillo TX ISD GO Bonds - 2.0% 03 02/01/16 317,279 317,504 Birdville TX ISD GO Bonds - .50% v\\ /30/13 02/15/16 249,328 249,593 Port Arthur TX ISD GO Bonds .50% 13 02/15/16 100,914 101,075 - • • Williamson Cnty TX Toll Bonds - 2.0% 0 02/15/16 226,851 227,151 Federal National Mortgage Assn.. .875% 03/28/14 03/28/17 400,254 - HI 400.000 Federal National Mortgage Assn.. - 0% 04/24/14 05/15/17 492,655 498,254 487,648 493,383 Federal National Mortgage Assn.. - 1.070% 08/22/14 08/22/17 500,000 500,129 500.000 501,096 City of Lubbock TX GO Bonds - 1.230% 03/09/15 02/15/18 500,560 502,890 500,904 499,915 Federal Home Loan Bank - 1.05% 04/27/15 04/27/18 500,000 499,204 Federal Home Loan Bank - 1.05% 05/11/15 05/11/18 500,000 498,792 Federal Home Loan Bank - 1.08% 05/18/15 05/18/18 500,000 498,083 Federal National Mortgage Assn..(F/^M) - 1.20% 05/27/15 05/25/18 500,000 499,033 45 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF CASH AND INVESTMENTS JULY 31, 2016 AND 2015

Date Maturity Investment Market Investment Market Owned By: Acquired Date Cost Value Cost Value 2016 < 2015

Unrestricted A. X- Federal National Mortgage Assn.. Note - 1.30% 06/29/15 06/29/18 300.000 299,577 Federal National Mortgage Assn.. (F/M)- 1.20% 06/29/15 06/29/18 500,000 503,008 500.000 499,662 ^ N DFW-TX Airport Taaxable Muni Bonds 3.12% 03/15/16 11/01/18 519,010 - 518.512 1 Federal National Mortgage Assn..(F/M) - 1.20% 02/26/16 02/26/19 500,000 500,044 Federal National Mortgage Assn..(F/M) - 1.25% 03/15/16 03/15/19 4 )0,000 500,192 Fed. Home Loan Mortgage (FreddieMac)- 1.3% 03/29/16 03/29/19 400,000 400,066 Federal Farm Credit Bk (FFCB) - 1.19% 500 500,570 Fed. Home Loan Mortgage Corp.(FHLMC)-1.15% y 500,000 500.083 X Federal Home Loan Bank (FH:B) - 1.5% 04/26/16 04/26/19 00 501,433 Ik 3«M> T Federal Home Loan Bank (FH:B) - 1.25% 04/26/16 04/29/19 500,000 500,007 Federal National Mortgage Assn..(FNMA) 1.20% 05/26/16 05/23 9 50«;000 500,169 - * X' * Fed. Home Loan Mortgage Corp.(FHLMC)-1.35% 05/24/16 05/2%9 — 500,000 500,106 Federal National Mortgage Assn..(FNMA)-l.40% 06/13/16 06/13/^19 500,000 500,943 Federal National Mortgage Assn..(FNMA)|-|j 5% 07/26/19av 500,000 500.084 Certificates of Deposits |x|||X Various 21,861,000 21,975,380 19,922,000 19,910,581 8 N Total Unrestricted Other Investments $ 29,772,727 $ 29,902,366 $ 25,504,968 $ 25,494,900 AVV*1 xs TOTAL OTHER INVESTMENTS $ 29,772,727 $ 29,902,366 $ 25,504,968 $ 25,494,900

TOTAL CASH AND INVESTMENTS s r $ 41,050,855 $ 41,180,494 $ 36,538,101 $ 36,528,033

s 1n X # p x

46 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SECURITIES PLEDGED BY WELLS FARGO BANK, N.A. AS SECURITY FOR DEPOSITS July 31, 2016 ^ ## Securities Pledged Maturity * Coupon % Mar alue

Security # , $ , 29 FMAC 3128MMSN4 Par 478 698.64 09/01/ 3.CPfc\, $ 23 FNMA Security #31417CLR4, Par $546328.82 07/01/42 .00% $ ^571^,487

* TOTAL 0 P $ 1,075,710 ## * i 1 n ftp # P 1

1i 0§ ## I

47 \ STATISTICAL SECTION (UNAUDI

im pornmmR iSTERSATiQHAL W i n J*l i

Port of Port Arthur Navigation District PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 1 Tonnage Report By Commodities(in Short Tons) Fiscal Years Ending July 31 (UNAUDITED)

Commodity 2016 2015 2014 2013 2012

Mis. - Other Cargo 610 309 0 0 0 Linerboard 69,307 100,017 76,640 94,398 80,370 Wood Pellets 393,543 418,751 333,319 0 Pipe 0 1,887 0 4,595 n 1 O 7Q7 Naptha l 0 5 Bio Diesel 0 6,072 0 0 Gasoline 74,696 139,269 7,077 0 Woodpulp - Rolls & Bales 0 0 Ox, 5,944 3 Project Cargo 93 1,341 A 857 ft Military Cargo 18,802 0 170 3 FAME 7,755 0 _ 0 0 Total Exports 564, 806 686,039 i 17 438 120, 127 Project Cargo 5,649 4,069 3,054 0 Rail - Heat TR 4,988 0 0 0 Woodpulp 282,059 ms 264,854 217,060 Wood Pellets 6,956 ? 0 0 Ultra Low SU 4.964 7,613 Other Cargo 252 284 Linerboard/Hardboards/Plywood V* 0 0 Steel, Aluminum, Rail Products 0 ,007 5,008 y Military Cargo , 10,448 15,431 3,330 31,223 Containers ,/m l 6%p 3 0 0 Petroleum Coke, Diesel Prod ^ o 1 0 0 0 Total Imports ^307 ,056 337 ,398 268,044 261 , 188 TOTAL TO 871,862 1 ,023,437 703, 150 439 ,482 381 , 315

PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 2 VESSEL COUNTS FISCAL YEARS ENDING JULY 31, m (UNAUDITED) VESSEL COUNTS 2016 2015 2014 2013 2012

Ships 44 93 80 55 48 Layberths 55 138 107 78 41 Tugs 3 0 0 0 0 Barges 9 50 6 18 5 Railcars 4,262 3,885 3,861 4,077 3,956 Trucks 6,373 5,040 6,241 3,983 4,533 Lightering 49 8 TOTAL VESSEL COUNT 10,895 9,214 10,295 8,211 8,583

48 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 3 OUTSTANDING DEBT PAYABLE FROM AD VALOREM TAXES July 31, 2016

Outstanding Debt Amount

Unlimited Tax Refunding Bonds, Series 2008A $ 19,210,000 Unlimited Tax Port Improvement Bonds, Series 2008B S 7.82S 000 W "" ifW Totals $ 27,035.000 X

X 1 m

PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNT.. .HEXAS, Table 4 DISTRICT TASNhfct (UNAUDITED) f 1% " % , ,• Jmf Operativer 1 1ebt Service r Maintenance KService* Reserve Fund Total % lUfk w 1 2015 0.100000 0.056645 m 0.156645 '; 2014 0.100000 0:055381 ;058991 0.214372 ^ 0.013020 0.164725 3* sas^^ sat 0.128150 0.128150 fat- 0.128150 M 0.068872 » 0.059278 0.128150 200 0.081190 0.046960 0.128150 2007 0.069807 0.058343 0.128150 2006 % 0.056325 0.071825 0.128150

49 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 5 TAXABLE ASSESSED VALUATION BY CATEGORY (UNAUDITED)

Market Value Appraised Values Tax Year 2016 Tax Year 2015 JfTax Year 2014 Tax Year 2013 Tax Year 2012 Amount % Amount % Amount Amount % Amount % Real Property Single Family 1,108,642,454 10.37% 1,091,529,945 10.2||t |J,063)949,301 9.54% 1,055,721,996 8.76% 1,051,159,380 11.00% Multifamily 174,845,390 1.63% 156,130,105 1.46% '146,456,130 1.31% 141,652.462 1.17% 142,602,340 1.49% ) ^ Vacant lots/tracts 59,279,437 0.55% 59,630,261 056% 53,974,002 0.48% 55,655.783 0.46% 55,479,363 0.58% Acreage 27,764,400 0.26% 28,104,580 0.26% 32,699,200 0.29% 34,085,340 0.28% 98,136,960 1.03% Farm & ranch imps 63,867,140 0.60% 64,482,400 0.60% 67,564,876 0.61% 65,254.762 0.54% 1,785,350 0.02% Commercial 525,162,635 4.91% 518,936,962 S S% 507 85,053 4.55% 51 0.685 4.26% 525,016,640 5.49% Industrial 6,903,935,530 64.55% 7,152,225,650 66.87% 7,493,433* ,596 67.17% 8,175,120.740 67.81% 6,083,939,850 63.66% Oil/gas/minerals 7,064,798 0.07% 12,126,770 ^0.1I? #20,391,582 0.18% 22^,054.589 0.18% 41,005,770 0.43% Personal Property Utilities ,047,930 1.25% , %^ , % 134 136,557 310 1.28 ^ 125,854 660 1.131.1 123,779.000 1.03% 124,020,420 1.30% _ _ Commercial 287,849,816 2.69% 293,135,729 2.74.. .%. -302- ,691,150 2.72 . 7 1 % 425,434.620 3.53% 275,078,630 2.88% Industrial 842,214,790 7.87% VTJS5)314,750 10.33% 1,473,602,180 >43.21% 1,597,971.810 13.25% 1,158,892,860 12.13% Other Personal 18,321,550 0.17% % 0.00% 4 0.00% 13,450,700 0.11% 464,350 0.00% Total Exempt Property 542,917,775 5.08% ~S37.46S.344 5,02% 767,778^,142 688% 358,959839 2.98% Appraised Value (2012- % ^^ 2009) 10,695,913,645 100.00% 11,156-w,027,606^104,30% 12,055.981,722 108.07% 12,583,192,326 104.37% 9,557,581,913 100.00% Less: Deduetions JF Homestead Cap Jfl,294,435 1,107 892 1,849,950 1,336,024 34,128,640 Agriculture Exemptions 26,708,960 27,151^,520 31,950,660 33,743,890 591,977,420 Tax Abatements 3,115,133,500 3,333,004,940V 3,390,294,416 3,822,275,620 328,380,525 Homestead Exemptions 333,802,767 1 337,954,642 332,838,394 325,383,347 7,030,484 Veterans Exemptions 10,841)438 8,707,958 7,623,054 4,948,700 Primarily Charitable Org. 1,116,340 69,020 0 0 Pollution Control Property 1,011,158,211 1 ,018,099,919 1,036,481,460 1,002,129,960 Other Exempt Property S98,299,1 616,491,044 830,567,327 528,387,863 Total Deductions f 5,098,354,795 5,343,946,752 5,632,759,185 5,720,879,758 966,465,769 Net Taxable Value 5,597,558,850 5,812,080,854 6,423,222,537 6,862,312,568 8,591,116,144 / ilk * Beginning , Market provided. years inAppraised 2013 Values are Proir are shown/at Values. 50 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 6 TAX LEVIES, COLLECTIONS AND DELIQUENCIES (UNAUDITED)

Tax Assessed Debt Service Maintenance Total Total mount xCurrent % Total % FYE Year Valuation Tax Rate Tax Rate Tax Rate Assessed lected Collected Collected 7/31 ##11 2007 4,845,646,010 0.058343 0.069807 0.128150 6.209,697 Tfe 97.89% 98.78% 2008 2008 5,632,564,784 0.046960 0.081190 0.128150 7,218.196 7,28 9*5 99.82% 100.87% 2009 2009 6,230,484,626 0.059278 0.068872 0.128150 7,984,388 7,856.279^ 97.85% 98.40% 2010 2010 6,894,243,024 0.054566 0.073584 0.128150 8.834.981 8,676,006 98.05% 98.20% 2011 2011 7,012,054,208 0.053768 0.074382 0.12815 8,985,952 8,944,148 |N||27% 99.53% 2012 2012 8,591,116,144 0.041334 0.086816 0.12 11,009,519 10,974,605 98.76% 99.68% 2013 2013 6,860,976,544 0.064725 0.100000 0.16 ^ 11,301,750 11,038,091 97:91% 97.67% 2014 2014 6,418,197,149 0.114372 0.100000 0.214372 13,758,816 13,586,632 97.94% 98.75% 2015 2015 6,116,509,742 0.056645 0.100000 0.156645\f 1 ZtLtLAZ 9,581,179 %8,CAi504,129mfl 93.38% 88.76% 2016 2016 5,597,248,352 0.092310 0.074335 0.166645 9,331,255 In Process of Collection 2017

Port of Port Arthuiik, ates 0.140000 0.120000 ~ 0.100000 0.0800G§U 1

CO 0.060000 0 # #* 0.040000 m 0.020000 0.000000

51 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 7 TEN LARGEST TAXPAYERS (UNAUDITED)

2016 Assessed % of Taxpayer Type of Property Valuation Total

Motiva Refinery Oil Refinery & Storage $1,617,612,065 28.90% The Premcor Refining Group Inc. Petroleum Refining & Supplier $ 780,899,754 13.95% Chevron Phillips Chemical Co. Chemical Company $ 279,336,669 4.99% Enterprise Texas Pipeline LP Energy Services Provider $ 212,535,140 % Flint Hills Resources LP (1) Refining & Chemical Company $ 170,307,662 % V, Air Products & Chemicals Inc. Chemical Company $ 166,276,73 ^ 2.97% Praxair Inc. Producer-Speciality Gases & Coating $ I08,337,8) f 5%, 1.94% Chevron U S A Inc Oil Refinery & Storage ^ Entergy Texas Inc. Electrical Utility l S MPT of Port Arthur LLC Medical Facilities $

X Vs//,. m

i $3,529,678,0“ / 3f06% 1i f^ (1) Acquired Huntsman Corporation Chemical & Polymer ^ - 's assetS ^ %^ ^ i% m i%w mmm. mm m i

52 PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 8 STATEMENT OF REVENUES AND EXPENDITURES - REVENUE FUND YEAR ENDED JULY 31, '(UNAUDITED)

07/31/16 07/31/15 07/31/14 07/31/13 07/31/12

Operating Revenues Loading 2,000,754 2,132,722 1,717,292 1,566,229 1,431,244 Unloading 660,359 534,894 597,245 514,072 498,411 Wharfage 542,651 741,831 J&W 249,955 284,501 Dockage 2,664,204 2,749,180 2,065,340 1,455,741 1,014,337 Line Handling 292,175 301,475 36,721 144,400 96,900 Shed/Pier Hire 67 200 * 80,100 57,505 > 5W W00 Cleaning 111,200 113%^ Mp) 76,800 70,200 Gantry Crane Use 62,100 |§ g,850 3|f k 28,975 34,625 Security Surcharge 306,059 #^29f 30 228^ 4 210,469 332,283 Other 195,975^ ^ 93,^086 174,^841^^Mp.220 73,074 Storage Fees 2M& 21.679 ^ 28.035 Total Public Ocean Terminal Revenues 6,930,472 7,043,168 5,555,236 4,374,014 3,921,114 Total Other Revenues 1.875.916 1.845.722 1,293.299 1.331.361 2,241.139 Total Public Ocean Terminal and Other Revenues 8,806,388 8$8$890 6,848,535 5,705,375 6,162,253 Property Tax Revenues - Operating & Maintenance 5.705.109 10,015.060 7,407,812 7,009,956 5.234,208 Total Revenues .511.497 18 903.9 ; ,14,256.347 12,715.331 11.396.461

Operating Expenditures ^ Salaries 1,644,566 1,523,654 1,445,492 Employee Benefit Programs 563,733 468,377 603,742 Private Security ,329 81$272 759,521 659,392 673,207 Insurance & Bonds 7%902 609,529 824,026 764,970 715,893 Properties and Facilities Maintenance 748^|02 730,432 607,743 718,268 608,099 Maintenance Dredging 1.395,048 (131,664) 372,929 364,956 450,000 Loading/Unloading/Misc.Terminal Expenses 2,279,214 2,290,010 2,075,924 1,780,562 1,710,158 Other Operating Expense* . 1.271,839 978.495 1.104.396 2.729.907 794.755 Total Operating Expenditures^ excluding Depreciation 9(777,187 7,450,857 7,952,838 9,010,087 7,001,346 Promotion & Development Expenditures 287.341 285.991 267.728 280.224 266.224 Total Expenditures 10.064.528 7.736.848 8,220,566 9,290.312 7,267.571 * Excess of Revenues over Expenditures— 4,446,969 11.167.102 6.035.781 3,425,022 4,128,889 «1 V

53 BBL Brammer, Begnaud & Lattimore, CPAs Ill a professional services firm

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROAL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAL AUDITING STANDARDS

December , 2016

Port Commissions § Port of Port Arthur Navigation District of Jefferson County,JFe$,a r}'.. Port Arthur, Texas H:, We have audited, in accordance with auditing standaefflilmerallymi accepted^tlf ig United States Of America and the standards -applicable to financial audits coif ro in Government AudMjjfcEtandards, issued by the Comptroller General of the United States, the finaiiSi||'|atements gf the Port^ ofPort Arthur Navigation District of Jefferson County, Texas as of and for the^^yel||||ded JtrijPkl - 2016 and m slatedlat notes to the financial statements, which collectively ggtpprise the Distrl b lnancial statemen^|( patnd have issued our report thereon dated December , 2Q16; ^^ ^^ ^ Internal Control Over Financial Reportifrjp; " ItWk In planning and performit nr audit of the financial statements, we bordered the District’s internal control over financial reporting (uraflfhl controlftO determine ottnauditing procedures that are appropriate in the circumstances foffl urpose Mispressing ’C ftions on wilinancial statements, but not for the purpose of expressing an ©|l|ipn on tM|bffectivene||f the District’s internal control. Accordingly, we do not express an opinion on^^|$|feefl|imes$..of the^^Duct^^ ’s internal control. A deficieiipyWbuerntiT&it&Kpl exiMi||y ien the M l ppration of a control does not allow management or empldye§s, in the normhi|||uj;se of ffgrming^their^assigned functions, to prevent, or detect and correct misstatementson a timely ba A rntM kweakness^ is a deficiency, or combination of deficiencies, in internal confi ich that thereTs^ a ^reasd te possibility that a material misstatement of the entity’s financial statenili| will not be^$p»nted^, ofdetected and corrected on a timely basis. A significant deficiency is a^^de?^rcl|cy, or a conciliation^^of deficiencies, in internal control that is less severe than a material weakness, yeflMportant enough to merit attention by those charged with governance.

Our consideration of interri f f was for the limited purpose described in the first paragraph of this section and was not designedly^^ identify all deficiencies in internal control that might be material weaknesses or significant deficiencies^^ . Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However material weaknesses may exist that have not been identified.

3240 Central Mall Drive, Port Arthur,Texas 77642| 409-983-1669| 409-724-0452 www.bblcpa.com ^ ^ Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District’s basic financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contacts and grant agreements, noncompliance with vyh|h could have a direct and material effect on the determination of financial statement amounts. Howjgilpoviding an opinion on compliance with those provisions was not an objective of our audit and, accgjpjmpv- we do not express such an opinion. The results of our tests disclose no instances of noncomp er matters that are required to be reported under Government Auditing Standards. ^^^^^^^ Purpose of this Report

The purpose of this report is solely to describe the scj|l f our testing of intemraurtrol and compliance opBllfa and die results of that testing, and not to provide an ^ ..on ti pifectiveness of%e District’s internal control or on compliance. This repoj gn integral pa(t.q jp?audit performed Hflccordance with Government Auditing Standards in consil|lffi|%he District’s mlilfal^ ^ control and compliance. Accordingly, this communication is not suitable for anwi^^ t pose. %^^^ *

Brammer, Begnaud & La

55 Port of Port Arthur Navigation District of Jefferson County, Texas

Annual Financial Report For the Year Ended July 31, 2015

INTER NATIONAL Annual Financial Report

Port of Port Arthur Navigation District Of Jefferson County, Texas

For the Year Ended July 31, 2015

Board of Commissioners

Mr. John Comeaux - President Mr. Raymond C. Johnson - Vice President Mrs. Linda Turner Spears - Secretary/Treasurer Mr. Mark Underhill - Commissioner Mr. Norris Simon, Jr. - Commissioner

Port Director, CEO Mr. Floyd Gaspard

Deputy Port Director Mr. Larry Kelley

Prepared By:

Director of Finance Mrs. Judy A. Bettis PORT OF PORT ARTHUR NAVIGATION DISTRICT Table of Contents

OF JEFFERSON COUNTY, TEXAS_ July 31, 2015

Tables Page INTRODUCTORY SECTION

Table of Contents i

FINANCIAL SECTION Independent Auditors' Report 1 Management's Discussion and Analysis 4 Basic Financial Statements: Statement of Net Position 14 Statement of Revenues, Expenses and Changes In Net Position 16 Statement of Cash Flows 17 Notes to Financial Statements 19 Required Supplemental Information Schedule of Changes in Net Pension Liability and Related Ratios 36 Schedule of Employer Contributions 37 SUPPLEMENTAL SCHEDULES Schedule of Insurance in Force 38 Statement of Revenues and Expenses - Actual and Budget 40 General Long-Term Debt Requirements— By Years 42 Schedule of Cash and Investments 44 Securities Pledged by Wells Fargo Bank, N.A., as Securities for Deposits 46 STATISTICAL SECTION (UNAUDITED) Tonnage Report by Commodity by Years (Short Tons) 1 47 Vessel Counts 2 47 Outstanding Debt Payable from Ad Valorem Taxes 3 48 District Tax Rates 4 48 Taxable Assessed Valuation by Category 5 49 Tax Levies, Collections and Delinquencies 6 50 Ten Largest Taxpayers 7 51 Statement of Revenues and Expenditures - Revenue Fund 8 52 SINGLE AUDIT SECTION Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards 53 Independent Auditors' Report on Compliance For Each Major Major Program and Report on Internal Control Over Compliance in Accordance with Circular A-133 55 Schedule of Expenditures of Federal Awards 57 Notes to Schedule of Expenditures of Federal Awards 58 Schedule of Findings and Questioned Costs 59 Scheduke of Prior Audit Findings 60

-i- '

nut i BBL Brammer, Begnaud & Lattimore, CPAs a professional services firm

INDEPENDENT AUDITOR’S REPORT

February 15, 2016

Port Commissioners Port of Port Arthur Navigation District of Jefferson County, Texas Port Arthur, Texas

Report on the Financial Statements

We have audited the accompanying financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas, as of for the years ended July 31, 2015 and 2014, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risk of material misstatements 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.

3240 Central Mall Drive, Port Arthur,Texas 77642 | 409-983-1669| 409-724-0452 www.bblcpa.com Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Port of Port Arthur Navigation District of Jefferson County, Texas as of July 31, 2015 and 2014, and the changes in financial position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 4 to 13 and other required supplementary information on pages 36 and 37 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consist of inquires of management about methods of preparing the information and comparing the information for consistency with management’s responses to our inquires, 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

Supplementary and Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Port of Port Arthur Navigation District’s basic financial statements. The introductory section, supplementary schedules, and the statistical section listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial reporting. The accompanying schedule of expenditures of federal financial awards, pages 57 and 58, is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and is also not a required part of the basic financial statements.

The supplemental schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate 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 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 accordance with auditing standards generally accepted in the United States of America. In our opinion,

2 the supplemental schedules and the schedule of expenditures of federal awards are fairly stated, in all material respects in relation to the basic financial statements as a whole.

The introductory and statistical section have not been subject 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 February 15, 2016 on our consideration of the District’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that 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 internal control over financial reporting or compliance. That report is an integral part of an audit performed in accordance with Governmental Auditing Standards in considering the District’s internal control over financial reporting and compliance.

Brammer, Begnaud & Lattimore

3 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) JULY 31, 2015

As management of the Port of Port Arthur Navigation District of Jefferson County, Texas (District), we offer readers as an introduction to the District’s financial statements, this narrative overview and analysis of the District’s activities and financial performance for the fiscal years ended July 31, 2015 and 2014. This discussion and analysis is designed to assist the reader in focusing on the significant financial issues and activities and to identify any significant changes in financial position. We encourage readers to consider the information presented here in conjunction with the District’s financial statements taken as a whole. All amounts, unless otherwise indicated, are expressed in whole dollars.

FINANCIAL HIGHLIGHTS

µ The total net position of the District at July 31, 2015 was $80,720,662. Of this amount, $35,427,186 is considered unrestricted, and may be used to meet the District’s current ongoing obligations to employees and creditors. µ The District’s total net position increased $13,441,065 or 19.98% over the prior year. Of that amount, income before capital grants and contributions produced an increase of $10,156,486. This change is due to an increase in revenues, both operating and non-operating. µ The District’s total debt decreased in 2015 by ($1,760,273) or (5.4%), the result of scheduled debt service payments.

OVERVIEW OF THE FINANCIAL STATEMENTS

The District’s basic financial statements are comprised of the financial statements and notes to the financial statements. The basic financial statements and notes can be found on pages 14 through 35 of this report. Since the District is comprised of a single enterprise fund, no fund level financial statements are shown. This report also contains other supplementary and statistical information in addition to the basic financial statements themselves.

Basic Financial Statements

The basic financial statements are designed to provide readers with a broad overview of the District’s finances, in a manner similar to a private-sector business. These statements offer short and long-term financial information about its activities.

4 The Statement of Revenue, Expenses and Net Position accounts for all the District’s current year’s revenues and expenses. All changes in net position is reported as soon as the underlying event occurs, regardless of timing or related cash flows. Thus revenue and expenses are reported in this statement for some items that will only result in cash flows in future periods (e.g., earned but unused vacation leave).

The Statement of Cash Flow primary purpose is to provide information about the District’s cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing and financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period.

The notes provide additional information that is essential to a full understanding of the data provided in the financial statements.

Other Information

The basic financial statements include not only the District, but also its component units. The component unit is blended in the District’s financial statements because of the significance of its operational and financial relationship with the District. The Port of Port Arthur Navigation District of Jefferson County, Texas includes the Port Arthur Navigation District Industrial Development Corporation (PANDIDC), whose operations are included in the Revenue Fund. The Pollution Control Bonds and Industrial Development Bonds issued through the PANDIDC are not reported as general long-term debt of, nor are the associated contract receivables included as assets of, the reporting entity. Disclosure of the bonds and full information regarding the nature of these special obligations are made in the notes. These bonds are not reported on the face of these financial statements due to the fact that they are not legally or morally obligations of the District. The Directors of the PANDIDC are appointed by the Port Commissioners.

FINANCIAL ANAYLSIS

The fundamental question that is most asked of business is, as a whole, “Are you better off or worse off as a result of the year’s activities?” The Statement of Net Position, and the Statement of Revenue, Expenses and Changes Net Position report information about the District’s activities in a way that will answer this question. These two statements report the net position of the District and changes in them. You can think of the District’s net positions - the difference between assets and liabilities - as one way to measure financial health or financial position. Over time, increases or decreases in the District’s net positions are one indicator of whether its financial health is improving or deteriorating.

5 Statement of Net Position

6,156,914 (2,974,702) I 3,182,211 Statement of Net Position

13,441,065 (1,760,273) 11,680,793

61,122,683 luma 96,831,927

67,279,597 ■ 100,014,138

80,720,662 111,694,931

(20,000,000) 20,000.000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 Total Net Position ■ Total Liabilities ■ Total Assets

Restated Restated 2015-2014 2014-2013 Change Change 2015 2014 2013 Restated Restated Assets Current Assets 34,427,969 31,224,861 24,503,682 3,203,108 6,721,179 Restricted Assets 6,151,664 1,921,640 5,748,411 4,230,024 (3,826,771) Capital Assets 68,513,979 65,680,755 66,081,237 2,833,224 (400,482) Other Assets 2.601.319 1.186.882 498.597 1.414.437 688.285

Total Assets 111,694,931 100,014,138 96,831,927 11,680,793 3,182,211

Liabilities Current Liabilities 4,362,910 4,122,462 4,805,176 240,448 (682,714) Long Term Debt, Net of current Portion 26,603,479 28,612,080 30,904,068 (2,008,601) (2,291,988) Other Liabilities 7,880 0 0 7.880 0

Total Liabilities 30,974,269 32,734,542 35,709,244 (1,760,273) (2,974,702)

Net Position Invested in Capital Assets, net of Related Debt 38,812,063 34,415,137 32,971,445 4,396,926 1,443,692 Net Assets Restricted for Debt Service 1,441,952 1,859,933 5,676,816 (417,981) (3,816,883) Net Assets Restricted for Promotion & Development 259,068 167,402 96,826 91,666 70,576 Restricted for Insurance Escrow 200,000 200,000 180,000 - 20,000 Restricted for Debt Service Reserve Fund 4,580,393 874,618 - 3,705,775 874,618 Unrestricted 35.427.186 29.762.507 22.197.596 5.664.679 7.564.911

Total Net Position 80.720.662 67.279.597 61.122.683 13.441.065 6.156.914 6 2015-2014

The District’s net position of $80,720,662 at the close of 2015 increased by $13,441,065 over 2014. By far, the largest portion of the District’s net position (48%) reflects its investment in capital assets, less any related outstanding debt used to acquire those assets. The District uses these capital assets to provide services to its customers and consequently, these assets are not available for future spending. Although the District’s investment in 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. The District’s net position restricted for a debt service reserve fund (5.67%) represent resources for future principal and interest payments of long-term debt and contingent property tax refunds resulting from valuation issues. Unrestricted net position (43.89%) may be used to meet the District’s ongoing obligations to employees and creditors. The remainder of the District’s net position represents resources that are subject to external legal restrictions on how they may be used.

2014-2013

The District’s net position of $67,279,597 at the close of 2014 increased by $6,156,914 over 2013. By far, the largest portion of the District’s net position (51.65%) reflects its investment in capital assets, less any related outstanding debt used to acquire those assets. The District uses these capital assets to provide services to its customers and consequently, these assets are not available for future spending. Although the District’s investment in 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. The District’s net position restricted for a debt service reserve fund (1.3%) represent resources for future principal and interest payments of long-term debt and contingent property tax refunds resulting from valuation issues of prior year collections. Unrestricted net position (44.24%) may be used to meet the District’s ongoing obligations to employees and creditors. The remainder of the District’s net position represents resources that are subject to external legal restrictions on how they may be used.

Statement of Revenues, Expenses, Change in Net Position

The Statement of Revenues, Expenses and Net Position serves as a measure to determine how successful the District was during the past year in recovering its costs through its terminal fees and other charges, as well as to its profitability and credit worthiness. The following Statement of Revenue, Expenses and Changes in Net Position summarize the operations of the District for the year ended July 31, 2015, 2014 and 2013:

7 16000000

14000000 13,403,395 $13,441,067

12000000

10000000

8000000

6000000

4000000

2000000

0 ■ Total Operating Revenues Total Operating Expenses ■ 13,403,395 ■ Capital Grants/Contributions ■ Changes in Net Position

Restated Restated 2015-2014 2014-2013 Variance Variance 2015 2014 2013 Restated Restated Revenue Operating Revenues: Loading and Unloading $2,667,616 $2,314,538 $2,080,301 $353,078 $234,237

Wharfage 741,831 287,749 249,955 454,082 37,794 Dockage 2,749,180 2,065,340 1,455,741 683,840 609,599 Security Surcharges 297,430 228,244 210,469 69,186 17,775 Line Handling 301,475 236,720 144,400 64,755 92,320 Shed and Pier Hire 57,085 73,100 80,100 (16,015) (7,000) Cleaning 113,770 116,750 76,800 (2,980) 39,950 Gantry Crane Use 18,850 36,275 28,975 (17,425) 7,300 Storage Fees 2,845 21,679 7,054 (18,834) 14,625 Other Fees 93,086 174,841 40,220 (81,755) 134,621

8 Rental 76,360 113,960 71,342 (37,600) Property 42,618 198.570 786.421 600.044 1587.8511 Terminal/Warehouse Lease 186.377 Total Operating Revenues 7,318,098 6,455,617 5,045,401 862,481.00 1,410,216

Expenses Operating Expenses: Loading/Unloading Subcontractor Cost 2,290,010 2,075,924 1,780,562 214,086 295,362 1,672,630 1,644,566 1,523,654 Personnel 28,064.00 120,912.00 Maint. 1,007,561 1,039,533 1,235,171 Property-Facility (31,972.00) (195,638.00) Depreciation/Amortization 2,828,159 2,718,293 2,665,149 Expense 109,866.00 53,144.00 Promotion/Development Exp. 285,991 267,728 280,224 18,263.00 (12,496) 2.480.656 2.548.778 4.498.999 Other Operating Expenses (68.122.00) (1.950.221) $10,565,007 $10,294,822 $11,983,759 $270,185 Total Operating Expenses (1,688,937)

Operating Gain (Loss) <3.246.9091 13.839.2051 16.938.3581 592.296 3.099.153

Non-Operating Revenues (Expenses)

Property Taxes 13,346,417 10,800,724 10,355,456 2,545,693 445,268 Interest Revenue 210,911 140,342 195,785 70,569 (55,443) Interest Expense, net (1,515,558) (1,599,751) (1,679,616) 84,193 79,865 (Loss) on Disposal of Assets, Pass-Through, Lawsuit 1,215,783 76,875 0 1,138,908 76,875 Other Non-Operating Revenue (Expenses) 145.842 254.929 647.899 1109.0871 1392.9701 Net Non-Operating Revenues (Exp.) 13,403,395 9,673,119 9,519,524 3,730,276 153,595

Income Before Capital 10.156.486 5.833.914 2.581.166 4.322.572 3.252.748 Grants/Contributions

Capital Grants/Contributions 3,284,581 322,998 1,115,307 2,961,583 (792,309)

Changes in $13,441,067 $6,156,912 $3,696,473 $7,284,155 Net Position 2,460,439

Total Net Position, Beginning of $67,279,595 $61,122,683 $57,426,210 $6,156,912 $3,696,473 Year

Position, $80,720,662 $67,279,595 $61,122,683 $13,441,067 Total Net End of Year 6,156,912

9 Revenues 2015-2014 Operating revenues in 2015 increased by $862,481or approximately 13% compared to 2014. The primary contributor of this increase is revenue generated by increased dockage from lay-berthing opportunities. Non-Operating Revenues. The District’s largest revenue stream is derived from property taxes. Property tax revenues ($13,346,417) account for approximately 89% of non-operating revenues and approximately 60% of total operating and non-operating revenues. The District received other income from interest revenue, foreign trade zone fees and various other miscellaneous income sources totaling $1,572,536; this included funds received as a result of a lawsuit settlement for damages incurred in 2010.

2014-2013 Operating revenues in 2014 increased by $1,410,216 or approximately 28% compared to 2013. The primary contributor of this increase is revenue generated by a newly acquired dry bulk export customer. Non-Operating Revenues. The District’s largest revenue stream is derived from property taxes. Property tax revenues ($10,800,724) account for approximately 96% of non-operating revenues and approximately 61% of total operating and non-operating revenues. As a result in a decrease in property values, the District increased the property tax rate incrementally to insure a continuity in property tax revenue when compared to prior year. The District also received income from interest revenue, foreign trade zone fees and various other miscellaneous income sources totaling $479,046.

Expenses

2015-2014

Operating expenses in 2015 increased by $270,185 or 2.6% when compared to 2014. Operating and non-operating expenses were comparable to prior year; i.e. loading/unloading, security services, contracted services, gantry and equipment repairs and maintenance, professional fees, property related insurance, personnel and health care cost, interest expense on outstanding debt, etc.

2014-2013

Operating expenses in 2014 decreased by ($1,688,937) or (14%) when compared to 2013. Increased management over-site of normal operating expenses produced marginal decreases of said expenses.

As the District continues its’ economic development efforts, land that was previously acquired required “soil remediation.” This operation required professional services not normally utilized by the District.

Normal operating expenses were comparable to prior year; i.e. loading/unloading, security services for the military cargo handling, increased gantry repair and maintenance, etc. Continued increases in expenses, which included professional fees, property related insurance, personnel and health care cost, are all contributing factors to increases of other operating and non-operating expenses. 10 Capital Grants, Contribution and Appropriation

2015-2014

Capital grants and contributions increased by $2,961,583 over 2014. The District is the recipient of a number of federal and state grants from a variety of programs. These grant funds are recorded on the basis of project expenditures made. As projects are advanced and expenditures incurred, grant funds are requested on a reimbursement basis and then recognized. Capital grants, contributions and appropriations at July 31, 2015 include: Economic Development Administration (EDA) Grant $ 193,012 Department of Transportation (DOT) $2,659,958 Security Grant - Round 14 $431,611

2014-2013

Capital grants, contributions and appropriations decreased by ($792,309) compared to 2013. The District completed several federal grants for variety of programs. These funding sources are recorded on the basis of project expenditures made. As projects are advanced and expenditures incurred, grant funds are requested on a reimbursement basis and then recognized. Capital grants, contributions and appropriations at July 31, 2014 include:

Security Grant -Round 12 $ 322,998

CAPITAL ASSETS AND DEBT ADMINISTRATON

Capital Assets

2015-2014

2014-2013

The District’s investment in capital assets as of July 31, 2014 amounts to $65,680,755 (net of accumulated depreciation). This investment in capital assets include land, office building and improvements, the wharf and terminal facilities, furniture, fixtures and equipment, investigations and studies and construction in progress. This amount represents a net decrease (including additions and retirements) of ($400,482) or (.6%) when compared to 2013. Additional information regarding the district’s capital assets can be found in Note 6 to the financial statements on pages 31-32.

11 The following summarizes the District’s capital assets (net of accumulated depreciation) as of July 31, 2015, 2014 and 2013:

2015 - 2014 2014 - 2013 2015 2014 2013 Change Change Capital assets, not being depreciated: Land $6,944,139 $6,944,139 $6,878,354 $0 $65,785 Construction in progress 8.437.620 3.734.942 3.573.137 4.702.678 161.805 15,381,759 10,679,081 10,451,491 4,702,678 227,590

Capital assets, being depreciated, net: Office Building and Improvements 336,872 338,192 370,931 (1,320) (32,739) Wharves and Terminals 51,884,592 53,383,461 53,676,022 (1,498,869) (292,561) Furniture, Fixtures and Equipment 437,400 722,341 995,892 (284,941) (273,551) Investigations and Studies 473.356 557.680 586.901 184.3241 129.22 D 53,132,220 55,001,674 55,629,746 (1,869,454) (628,072)

Net Capital Assets $68,513,979 $65,680,755 $66,081,237 $2,833,224 ($400,482)

Long Term Debt

As of July 31, 2015, the District had long term bonded debt outstanding of $26,603,479. This amount is comprised of unlimited tax refunding and improvement bonds. The District’s debt increased as the result of restructuring bond obligations and the issuing of new bond issues in 2008. Additional information regarding the District’s long term debt can be found in Note 8 to the financial statements on pages 33 - 34. The following table summarizes the District’s long term debt outstanding as of July 31, 2015, 2014 and 2013:

2015-2014 2014 - 2013 2015 2014 2013 Change Change

Unlimited Refunding Bonds $20,394,405 $21,786,120 $23,119,484 ($1,391,715) ($1,333,364) Improvement Bonds 8.294.077 8.830.959 9.341.769 1536.8821 1510.8101

$28,688,482 $30,617,079 $32,461,253 ($1,928,597) ($1,844,174)

In accordance with a settlement agreement between “The Premcor Refining Group, Premcor Pipeline Company, Port Arthur Coker Company, L.P. and Valero Energy Corporation” with the Jefferson County Appraisal District, a reduction in the market value of taxable property for the tax year of 2014 was agreed to, resulting in a $431,656 property tax refund liability.

12 ECONOMIC OUTLOOK

The District continues to benefit from increased lay-berthing opportunities. This revenue stream accounts for approximately 26% of the revenue from terminal operations. The District is confident with that its’ facility design, its’ proximity to the Gulf of Mexico and position on the Sabine-Neches Waterway, that this will continue to show a steady revenue growth.

The District also has several real opportunities to enter into an agreement with companies for the handling of cargo from the operations of a liquid bulk terminal.

These projects all have created new and increased job opportunities for the region and District’s work force. Growth has also spurred the need for additional capital investment by the District to accommodate these, as well as other potential growth opportunities. The District continues to make land improvements on the 55-acre tract of land acquired adjacent to its’ existing water-side property, i.e. land clearance, road access, rail and drainage improvements. These improvements have strongly enhanced marketing efforts to utilize this acreage for additional economic development projects.

REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the District’s finances for all those with an interest in its finances. Question concerning any of the information provided in this report or request for additional financial information should be addressed to the District’s Director of Finance, P. O. Box 1428, Port Arthur, TX 77641.

13 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF NET POSITION JULY 31, 2015 AND 2014

Restated 2015 2014 CURRENT ASSETS Cash and Cash Equivalents (Note 1) $5,197,694 $9,981,306 Investments 25,504,924 19,561,258 Recevables: Accounts Receivables, Net of Allowance 1,297,279 858,680 Taxes Receivable - Delinquent 475,671 386,554 Grants Receivable 193,011 0 Other Receivables 1,301,631 13,487 Accrued Interest Receivable 51,905 34,667 Prepaid Insurance 405,854 388,909 TOTAL CURRENT ASSETS $34,427,969 $31,224,861

NON-CURRENT ASSETS Restricted Assets (Notes 1 and 8) Cash and Cash Equivalents (Note 1) $5,835,439 $1,615,419 Investments 0 0 Taxes Receivable - Delinquent 316,225 306,221 Accrued Interest and Other Receivables 0 0 Total Restricted Assets $6,151,664 $1,921,640

Capital Assets Capital Assets, Not Being Depreciated (Note 7) $15,381,759 $10,679,081 Capital Assets, Being Depreciated, Net (Note 7) 53,132,220 55,001,674 Total Capital Assets, Net $68,513,979 $65,680,755

Other Non-Current Assets Net Pension Assets (Note 3) $1,182,082 $1,186,882 Deferred Outflows $71,372 0 Deferred Contribution - TXDOT Project 1,347,865 0

Total Other Non-Current Assets $2,601,319 $1,186,882

TOTAL ASSETS $111,694,931 $100,014,138

The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS

STATEMENT OF NET POSITION JULY 31, 2015 AND 2014

Restated 2015 2014 CURRENT LIABILITIES Accounts Payable $973,344 $842,120 Accrued Expenses 217,239 233,160 Current Maturity Property Tax Refund Liability (Note 9) 431,656 362,815 Current Restricted Liabilities Payable from Restrict Assets: Accounts Payable - Promotion & Development Fund 7,246 10,210 General Obligation Bonds Payable (Note 8) 2,085,000 2,005,000 Accrued Interest Payable - General Obligation Bonds 581,781 615,982 Retainage Payable 66,644 53,175

Total Current Liabilities $4,362,910 $4,122,462

NON-CURRENT LIABILITIES General Obligation Bonds Payable (Note 8) $26,603,479 $28,612,080

Total Non-Current Liabilities $26,603,479 $28,612,080

DEFERRED INFLOWS OF RESOURCES Deferred Inflows (Note 3) $7,880 $0

Total Deferred Inflows of Resources $7,880 $0

TOTAL LIABILITIES and DEFERRED INFLOWS $30,974,269 $32,734,542

NET POSITION: Invested in Capital Assets, Net of Related Debt 38,812,063 $34,415,137 Restricted for General Obligation Bonds Debt Service 1,441,952 1,859,933 Restricted for Promotion and Development 259,068 167,402 Restricted for Insurance Escrow 200,000 200,000 Restricted for Debt Service Reserve Fund 4,580,393 874,618 Unrestricted 35,427,186 29 762,507

TOTAL NET POSITION $80,720,662 $67,279,597

The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JULY 31, 2015 AND 2014

Restated 2015 2014 OPERATING REVENUE Public Ocean Terminal Operations $7,043,168 $5,555,236 Rental Income 76,360 113,960 Terminal (Space) Lease Revenues 198,570 786,421

TOTAL OPERATING REVENUE $7,318,098 $6,455,617

OPERATING EXPENSES Loading & Unloading Subcontractor Cost $2,290,010 $2,075,924 Personnel 1,672,630 1,644,566 Properties & Facilities Maintenance 1,007,561 1,039,533 Other Operating Expenses 2,480,656 2,548,778 Depreciation Expense 2,828,159 2,718,293 Promotion and Development Expenses 285,991 267,728

TOTAL OPERATING EXPENSES $10,565,007 $10,294,822

OPERATING (LOSS) ($3,246,909) ($3,839,205)

NON-OPERATING REVENUE (EXPENSES) Property Tax Revenues $13,346,417 $10,800,724 Interest Income 210,911 140,342 Interest Expense (Net) (1,515,558) (1,599,751) Management Fees 0 0 Foreign Trade Zone Revenue 20,000 20,000 Other Revenues 125,842 241,829 (Gain)/Loss on Sale of Assets, Lawsuit Settlement, Pass-Through Exp. 1,215,783 76,875 Arbitrage Rebate Expense 0 (6,900)

NET NON-OPERATING REVENUE (EXPENSES) $13,403,395 $9,673,119

INCOME BEFORE CAPITAL GRANTS AND CONTRIBUTIONS $10,156,486 $5,833,914

CAPITAL GRANTS AND CONTRIBUTIONS 3,284,581 322,998

CHANGE IN NET POSITION $13,441,067 $6,156,912

TOTAL NET POSITION - Beginning of Year, As Restated $67,279,595 $61,122,683

TOTAL NET POSITION - End of Year $80,720,662 $67,279,595

16 The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF CASH FLOW FOR THE YEARS ENDED JULY 31, 2015 AND 2014

Restated 2015 2014 Cash Flows From Operating Activities: Cash Receipts From Customers $6,838,529 $5,769,731 Cash Receipts From Other Sources 1,301,005 1,241,338 Cash Payments to Suppliers for Goods and Services (7,137,802) (8,069,864) Cash Payments to Employees for Services (1,777,356) (1,729,625)

Net Cash Provided by (Used For) Operating Activities ($775,624) ($2,788,420)

Cash Flows from Noncapital Financing Activities: Property Tax Revenue $13,316,137 $10,683,844 Management Fees 0 0 Foreign Trade Zone and Other Non-Operating Revenue 20,000 20,000 Non-Operating Expenses 0 (6,900)

Net Cash Provided by (Used) Noncapital Financing Activities $13,336,137 $10,696,944

Cash Flows From Capital and Related Financing Activities: Acquisition and Construction of Capital Assets ($5,647,914) ($2,441,996) Deferred Contributions ($1,347,864) 0 Interest Paid (1,478,406) (1,556,481) Capital Grants 3,091,569 431,306 Other Revenues 125,842 318,704 Debt Principal Payments (2,000,000) (1,920,000)

Net Cash Provided by (Used) Capital Financing Activities ($7,256,773) ($5,168,466)

Cash Flows From Investing Activities: Purchase of Investment Securities ($12,052,992) ($11,608,326) Proceeds from Investment Redemption 5,991,986 11,517,036 Proceeds From Note Collections 0 0 Interest Received on Investments 193,673 142,872 Note Receivable Interest Received 0 0

Net Cash Provided by (Used For) Investing Activities ($5,867,333) $51,582

Net Increase (Decrease) in Cash and Cash Equivalents ($563,592) $2,791,640

Cash and Cash Equivalents at Beginning of Year $11,596,725 $8,805,085

Cash and Cash Equivalents at End of Year $11,033,133 $11,596,725

The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS

STATEMENT OF CASH FLOW FOR THE YEARS ENDED JULY 31, 2015 AND 2014

Restated 2015 2014 Reconciliation of Operating Income (Loss) to Net Cash Provided By (Used For) Operating Activities: Operating Income (Loss) ($3,246,909) ($3,839,205)

Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided By (Used For) Operating Activities: Depreciation Expense $2,828,159 $2,718,293 Decrease (Increase) in Assets: Accounts, Taxes and Other Receivable (510,960) (32,522) Prepaid Expenses (16,945) (1,396) Net Pension Asset 58,692 (688,283)

Increase (Decrease) in Liabilities: Accounts Payable 128,260 (771,312) Accrued Liabilities (15,921) (141,439) Prepaid Lease 0 0 Other Liabilities 0 0 Accrued Interest Payable 0 (32,556)

Total Adjustments $2,471,285 $1,050,785

Net Cash Provided By (Used For) Operating Activities ($775,624) ($2,788,420)

The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas (District) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard¬ setting body for establishing governmental accounting and financial reporting principles. The more significant of the District’s accounting policies are described below.

GENERAL HISTORY OF THE PORT OF PORT ARTHUR NAVIGATION DISTRICT The Port of Port Arthur Navigation District of Jefferson County, Texas was created by a Special Act of the 58th Legislature under provisions of Section 59, Article XVI of the Texas Constitution, ratified by referendum on June 13,1964. The District is independent from other local or state governments and operates within district boundaries of approximately 58 square miles, including the City of Port Arthur and a part of the City of Groves. The five- member elected Board of Port Commissioners governs the affairs of the District, with management responsibilities vested in the Port Directorate Office. The District provides the services of a Public Ocean Terminal with railroad access to the nation.

REPORTING ENTITY In evaluating how to define the District (the Primary Government) for financial reporting purposes, management has considered all potential component units. The decision to include or exclude a potential component unit in the reporting entity was made by applying the criteria set forth in Section 2100 of the GASB Codification of Governmental Accounting and Financial Reporting Standards. GASB defines the reporting entity as the primary government and those component units for which the primary government is financially accountable. The Component Unit discussed below is blended in the District's financial statements because of the significance of its operational and financial relationship with the District.

COMPONENT UNIT The Port of Port Arthur Navigation District of Jefferson County, Texas includes the Port Arthur Navigation District Industrial Development Corporation (PANDIDC), a public corporation, whose purposes are to promote and develop new and expanded enterprises in the District, and to promote and encourage employment and public welfare. Bonds issued by the Corporation are payable from revenues derived as a result of the industrial development facilities funded by Pollution Control and Industrial Development Bonds. These bonds are not a liability or contingent liability of the District or a lien on any of its properties or revenue, other than the industrial facilities for which they are issued. Disclosure of the bonds and full information regarding the nature of these special obligations is made in Notes 4 and 5 that follow. The Directors of the Port Arthur Navigation District Industrial Development Corporation are appointed by the Port Commissioners.

BASIS OF ACCOUNTING The District operates as an enterprise fund to report on its financial position and the results of its operations. Enterprise funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges,’ or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Measurement focus is a term used to describe which transactions are recorded within the various financial statements. Basis of accounting refers to when transactions are recorded regardless of the measurement focus applied. All enterprise funds are accounted for on a flow of economic resources measurement focus, whereby all assets and all liabilities associated with the operation of these funds are included on the statement of net position. Proprietary fund equity is classified as net position. Enterprise fund operating statements present increases (e.g., revenues) and decreases (e.g., expenses) in net position.

19 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014

The accrual basis of accounting is utilized by enterprise funds. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred

An annual budget for the District is adopted on a basis consistent with generally accepted accounting principles for proprietary funds, as a prudent management tool. Periodic budget reports are prepared for management to maintain proper budgetary control, and are reviewed by the Port Commission.

CASH AND CASH EQUIVALENTS The District’s cash and cash equivalents consists of cash on hand, cash held on deposit with financial institutions in demand deposits accounts, and short-term investments with original maturities of three months or less from date of acquisition.

INVESTMENTS State statute authorizes the District to invest in obligations of the United States Treasury, or its agencies and instrumentalities; direct obligations of the State of Texas or its agencies; obligations of states, agencies, counties, cities and other political subdivisions of any state having a rating of not less than A; certificates of deposits, prime domestic banker’s acceptances; certain commercial paper, certain mutual funds; fully collateralized repurchase agreements and public funds investment pools.

Investments that mature within one year of acquisition are stated at cost or amortized cost. Investments with a remaining maturity of more that one year at the time of purchase are carried at fair value. Any realized gains and losses in fair value are reported in the operations of the current period.

PROPERTY, PLANT AND EQUIPMENT Property constructed or acquired by purchase is stated at cost. Contributed assets are stated at cost, if available, or estimated fair market value on the date received. Major outlays for capital assets and improvements are capitalized as projects are constructed. Net interest costs, if material, are capitalized on major construction projects during the construction period. No interest was capitalized for the fiscal years July 31, 2015 and 2014.

Depreciation is computed using the straight-line method over the following useful lives:

Assets Years Building and Improvements 10-40 Docks and Wharves 20-40 Equipment and Vehicles 5-20 Office Equipment 5 - 10 Investigations and Studies 10

Trade Receivable, net 2015 2014 Trade Accounts $1,324,711 $877,659 Less Allowance for doubtful accounts (27.4321 (18,9691

Trade accounts, net $1,297.279 $858,680

20 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014

The District is permitted by State Law to levy taxes up to $ .10 per $100 assessed valuation for operation and maintenance of the District other than the payment of principal and interest on long-term debt and in unlimited amounts for the payment of principal and interest on long-term debt. The tax rate for operations and maintenance was $.10 per $100 valuations for the year ended July 31, 2015 and a reserve fund tax rate of .058991 for the payment future principal and interest of long-term debt and contingent property tax refunds resulting from valuation issues of prior year collections. The current tax rate for the retirement of principal and interest on general obligations long-term debt was $.055381 per $100 valuation. Property taxes are recorded as a receivable when levied.

RESTRICTED ASSETS The “general obligation bond debt service fund” account is used to segregate resources accumulated for general obligation bond debt service payments over the next twelve months.

COMPENSATED ABSENCES District employees are granted vacation at rates of 10 to 25 days per year and may accumulate up to a maximum of 20 to 50 days, depending on their length of employment. Employees who are eligible for more than 10 days of vacation may elect to sell back to the District a maximum of 10 days of unused vacation per calendar year. Upon termination, employees are paid for any unused accumulated vacation up to the maximum accumulated days. Vacation pay is accrued when incurred and recorded as a liability.

A statement of changes in compensated absences for the year ended July 31, 2015 follows: Beginning Ending Balance Additions Reductions Balance Vacation $147,328 $100,237 $102,189 $145,376

A statement of changes in compensated absences for the year ended July 31, 2014 follows: Beginning Ending Balance Additions Reductions Balance Vacation $134,397 $99,605 $86,674 $147,328

DEFERRED OUTFLOWS/INFLOWS OF RESOURCES In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This represents a consumption of net position that applies to a future period(s) and will not be recognized as an outflow of resources (as either an expense or expenditure) until that period. The District reports deferred gains on refunding and deferred contributions on pension plans. A deferred gain on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Deferred contributions for the pension plans were made during the fiscal year but after the measurement date of the actuarial report. These amounts will be recognized during the next measurement period.

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

RECENT ACCOUNTING PRONOUNCEMENTS GASB 61— The FinancialReportingEntity- Omnibus,' an amendment of GASBStatements No.14 and No. 34 modifies existing requirements for the assessment of potential component units in determining what should be included in the financial reporting entity, the display of component units (blending vs. discrete presentation), and certain disclosure requirements. GASB 61 was implemented in the year ended December 31, 2013 and did not have a significant impact on the District.

GASB 65 — Items Previously Reported as Assets and Liabilities specified the items that were previously reported as assets and liabihties that should now he reported as deferred outflows of resources, deferred inflows of resources, outflows of resources, or inflows of resources. GASB 65 was implemented in the year ended December 31, 2013 and had no impact on the District.

GASB 66 — Technical Correction-20121an amendment of GASB Statements No. 10 and No. 62 was implemented in the year ended December 31, 2013 and had no impact on the District. GASB 62 — Codification of Accounting and Financial Reporting Guidance Contained in Pre- November 30, 1989FASBand AICPA Pronouncementsincorporates into the GASB's authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: • Financial Accounting Standard Boards (FASB) statements and interpretations • Accounting Principles Board Opinions • Accounting Research Bulletins of the American Institute of Certified Public Accountants Committee on Accounting Procedures

GASB 62 was implemented retroactively in the year ended December 31, 2012, and did not have a significant impact on the District’s financial statements.

GASB 63 — FinancialReporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position provide financial reporting guidance for deferred outflows of resources and deferred inflows of resources. Deferred outflows of resources are the consumption of net assets by the government that is apphcahle to a future reporting period and deferred inflows of resources are the acquisition of net assets by the government that is applicable to a future reporting period. Deferred outflows of resources and deferred inflows of resources are incorporated into the definitions of the required components of the residual measure and that measure is renamed as net position, rather than net assets. GASB 63 was implemented in the year ended December 31, 2012. The District has implement this at July 31, 2015 and 2014. GASB 68 — Accounting and Financial Reporting for Pensions,' an amendment of GASBStatement No.27 — revises and establishes new financial reporting requirements for most state and local governments that provide their employees with pension benefits. Statement 68 will require governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. This statement is effective for financial statements for fiscal years beginning after June 15, 2014. The District has implemented this at July 31, 2015 and 2014. GASB 71 — Pension Transition for Contributions Made Subsequent to the Measurement Date — amends GASB 68 pertaining to pension contributions made subsequent to the measurement date and the year end of the District. Its’ effective date was to he applied simultaneously with provisions of Statement 68. The District implemented the statement this year and it had an immaterial impact on the District.

22 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014

NOTE 2 INVESTMENTS The District’s investments at July 31, 2015 and 2014 are as follows:

2015 2014 Carrying Fair Carrying Fair Investment Tvpe Value Value Value Value Certificates of Deposits $19,922,000 $19,910,581 $16,457,000 $16,460,216 Municipal Bonds $ 1,395,276 $ 1,395,235 $ 1218,947 $ 1,219,525 U.S. Federal Agency Security $ 4,187,648 $ 4,189,084 $ 1,885,311 $ 1,881,225 State Investment Pool - TEXPOOL $10,304,846 $10,304,846 $10,952,473 $10,952,473 Total $35,809,770 $35,799,746 $30,513,731 $30,513,439 Investments Included in: Cash Equivalents - Unrestricted $ 4,738,904 $ 4,738,904 $ 9,689,639 $ 9,689,639 Cash Equivalents - Restricted $ 5,565,942 $ 5,565,942 $ 1,262,834 $ 1,262,834 Other Investments - Unrestricted $25,504,924 $25,494,900 $19,561,258 $19,560,966 Other Investments - Restricted $ 0 $ 0 $ 0 $ 0 Total $35,809,770 $35,799,746 $30,513,731 $30,513,439

Investments in the proprietary fund are in the form of U. S. Government obligations. They are recorded in the books of the separate funds at cost. Pooled investment funds are stated at fair value.

The State Comptroller of Public Accounts exercises oversight responsibility over the Texas Local Government Investment Pool (TexPool). Oversight includes the ability to significantly influence operations, designation of management and accountability for fiscal matters. TexPool operates in a manner consistent with the Securities and Exchange Commission’s rule 2a7 of the Investment Company Act of 1940. TexPool uses amortized cost rather than the market value to report net assets share prices. Accordingly, the fair value of the position of TexPool is the same as the value of TexPool shares.

CUSTODIAL CREDIT RISK Custodial risk is the risk that in the event of a bank failure, the District’s deposits may not be returned to it. The Investment Policy of the District requires that all time and demand deposits of the District be secured by pledged collateral with a market value equal to or greater than 102% of the principal plus accrued interest, less the amount insured by Federal Deposit Insurance Corporation (FDIC). The amount collateralized with securities held by the pledging financial institution’s agent in the District’s name, was $776,918 at July 31, 2015 and $605,000 at July 31, 2014. The District’s average collected balance with Wells Fargo Bank was $968,264 at July 31, 2015 and $997,922 at July 31,2014.

NOTE 3 PENSION PLAN Plan Description The District provides pension, disability, and death benefits for all of its full-time employees through a nontraditional defined benefit plan in the state-wide Texas County and District Retirement System (TCDRS). The Board of Trustees of the TCDRS is responsible for the administration of the statewide agent multiple-employer public employee retirement system consisting of 677 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 78768-2034. 23 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS

OF JEFFERSON COUNTY, TEXAS _ FISCAL YEARS ENDED JULY 31, 2015 AND 2014

Plan Membership Inactive plan members or beneficiaries currently receiving benefits 6 Inactive plan members entitled to but not yet receiving benefits 0 Active plan members 17

Benefits Provided The plan provisions are adopted by the governing body of the District, within the options available in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 or more years of service or with 30 years of service regardless of age or when the sum of their age and years of service equals 75 or more. A member is vested after 8 years but must leave their accumulated contributions in the plan to receive any employer-financed benefits. Members, who withdraw their personal contributions in a lump-sum, are not entitled to any amounts contributed by their employer.

Investments The long-term expected rate of return on TCDRS assets is determined by adding expected inflation to expected long-term real returns, and reflecting expected volatility and correlation. The capital marker assumptions and information shown below are provided by TCDRS’ investment consultant, Cliffwater LLC. The numbers shown are based on January 2015 information for a 7-10 year time horizon.

Note that the valuation assumption for long-term expected return is re-assessed at a minimum of every four years, and is set based on a 30-year time horizon; the most recent analysis was performed in 2013.

Asset Target Geometric Real Rate of Return Allocation (Expected minus Inflation) US Equities 16.50% 5.35% Private Equity 12.00% 8.35% Global Equities 1.50% 5.65% International Equities - Developed 11.00% 5.35% International Equities - Emerging 9.00% 6.35% Investment - Grade Bonds 3.00% 0.55% High-Yield Bonds 3.00% 3.75% Opportunistic Credit 5.00% 5.54% Direct Lending 2.00% 5.80% Distressed Debt 3.00% 6.75% REIT Equities 2.00% 4.00% Commodities 2.00% -0.20% Master Limited Partnerships (MLPs) 2.00% 5.30% Private Real Estate Partnerships 3.00% 7.20% Hedge Finds 25.00% 5.15%

24 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014

Pension Liability / (Asset) December 31. 2013| iDccember 31,2014

Total pension liability $3,527,018 $3,876,352 Fiduciary net position 4,713,900 5,058,434 Net pension liability / (asset) (1,186,882) (1,182,082) Fiduciary net position, as a % of total pension liability 133.65% 130.49%

Pensionable covered payroll $1,538,945 $1,624,085 Net pension liability as a % of covered payroll (77.12%) (72.78%)

Discount Rate 8.10% 8.10% Long-term expected rate of return, Net of investment expenses 8.10% 8.10%

The total pension liability was determined by an actuarial valuation as of the valuation date, calculated based on the discount rate and actuarial assumption following.

The discount rate reflects the long-term rate of return funding valuation assumption of 8.00%, plus 0.1% adjustment to be gross of administrative expenses as required by GASB 68.

Actuarial Methods and Assumptions Used for Funding Valuations The actuarial assumptions that determined the total pension liability as of December 31, 2014 were based on the results of an actuarial experience study for the period January 1, 2009- December 31, 2012, except where required to be different by GASB 68. Following is a description of the assumptions used in the December 31, 2014 actuarial valuation analysis for the District.

Economic Assumptions - TCDRS System-wide economic assumptions: Real rate of return 5.0% Inflation 3.0% Long-term investment return 8.0%

The long-term investment return of 8% is net of investment expenses and is expected to enable the system to credit interest at the nominal annual rates shown below to the following major funds: Subdivision Accumulation Fund 9% Employee Savings Fund 7% Current Service Annuity Reserve Fund 7%

Assuming interest will be credited at these nominal annual rates to the various funds, we have then assumed the following: • An annual rate of 9% for calculating the actuarial accrued liability and normal cost contributions rate for the retirement plan to each participating employer. • An annual rate of 7% required under the TCDRS Act for: (1) accumulating current service credit and multiple matching credit after the valuation date; (2) accumulating prior service credit after the valuation date; (3) determining the amount of the monthly benefit at future dates of retirement or disability; and (4) calculating the actuarial accrued liability of the system-wide Current Service Annuity Reserve Fund,

The annual salary increase rate assumed for individual members vary by length of service and by entry-age group. The annual rates consist of a general wage inflation component of 3.5% (made up of 3% inflation and .5% productivity increase assumptions) and a merit, promotion and longevity component that on average approximates 1.4% per year for a career employee. 25 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS

OF JEFFERSON COUNTY, TEXAS _ FISCAL YEARS ENDED JULY 31, 2015 AND 2014

Schedule of Changes in Net Pension Liability / (Asset)

Increases (Decreases) Changes in Net Pension Total Pension Fiduciary Net Pension Liability / (Asset) Liability Net Position Liability/(Asset) (a) (b) (a) -(b)

Balances as of December 31, 2013 $3,527,018 $4,713,900 $(1,186,882)

Changes for the year: Service Cost 166,654 166,654 Interest on total pension liability 288,481 288,481 Effect of plan changes 14,854 14,854 Effect of economic/demographics gains or losses (9,456) (9,456) Effect of assumptions changes or inputs 0 0 Refund of contributions (25,729) (25,729) 0 Benefit payments (85,469) (85,469) 0 Administrative Expenses (3,765) 3,765 Member contributions 113,686 (113,686) Net investment income 317,359 (317,359) Employer contributions 24,361 (24,361) Others 0 4.091 (4.0911

Balance as of December 31, 2014 $3,876,352 $5,058,434 $(1,182,082)

Interest on total pension liability reflects the changes in the liability due to the time value of money. TCDRS does not charge fees or interest. Other relates to allocation of system-wide items.

Sensitivity Analysis The following presents the net pension liability of the county/district, calculated using the discount rate of 8.10%, as well as what the District net pension liability would be if it were calculated using a discount rate that is 1 percentage point (7.10%) or 1 percentage higher (9.10%) than the current rate.

1% Current 1% Decrease Discount Rate Increase 7.10% 8.10% 9.10%

Total pension liability $4,281,035 $3,876,352 $3,532,209 Fiduciary net position 5.058.434 5.058.434 5.058.434 Net pension liability / (asset) ($777,399) ($1,182,082) ($1,526,225)

Deferred Inflows / Outflows of Resources

Deferred Inflows Deferred Outflows Of Resources of Resources

Differences between expected and actual experience $7,880 $0 Changes of assumptions 0 0 Net difference between projected and actual earnings 0 55,449 Contributions made subject to measurement date N/A Employer determined

26 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014

Amounts currently reported as deferred outflows of resources and deferred inflows of resources related to pensions, excluding contributions made subsequent to the measurement date, will be recognized in pension expense as follows: Year ended December 31: 2015 $12,286 2016 $12,286 2017 $12,286 2018 $12,286 2019 $(1,576) Thereafter $ 0

Additional future deferred inflows and outflows of resources may impact these numbers.

EMPLOYEE SECTION 457 PLAN The Port offers its employees a deferred compensation plan through the International City Management Association (ICMA), created in accordance with Internal Revenue Code Section 457. The plan, available to all Port employees, permits them to defer a portion of their salary until future years in order to provide them with retirement income and other deferred benefits. This plan is funded entirely by employee contributions. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency.

All amounts of compensation deferred under the plan, are maintained under a trust agreement with ICMA for the exclusive benefit of the eligible employees and their beneficiaries. No part of the corpus or income of the trust shall revert to the employer or be used for or diverted to purposes other than the exclusive benefit of participants and their beneficiaries. The employee contribution to this plan cannot exceed $17,000 for 2013, $17,500 for 2014 and $18,000 for 2015. The Port has no liability for losses under the plan, but does have the duty of due care that would be required of an ordinary prudent investor.

Investments in the plan are $1,246,321 at July 31, 2015 and $1,146,368 at July 31, 2014.

NOTE 4 RESTRICTED ASSETS Certain resources set aside for the repayment of the District’s revenue bonds, capital projects and promotion and development are classified as restricted assets on the balance because their use is limited by applicable bond covenants and applicable commissioners’ action. Components of restricted assets as of July 31, 2013 in the enterprise fund are as follows:

Components of restricted assets as of July 31, 2015 in the enterprise fund are as follows: General Obligation Promotion and Bonds Development Total

Cash and Cash Equivalents $ 5,706,120 $129,319 $ 5,835,439 Investments Taxes/Other Receivable 316,225 316,225 Accrued Interest Receivable _

Total Restricted Assets $ 6.022.345 $ 129.319 $ 6.151.664

Components of restricted assets as of July 31, 2014 in the enterprise fund are as follows: General Obligation Promotion and Bonds Development Total

Cash and Cash Equivalents $ 1,553,712 $ 61,707 $1,615,419 Investments Taxes/Other Receivable 306,221 306,221 Accrued Interest Receivable _

Total Restricted Assets $ 1.859.933 $ 61.707 $1.921.640

27 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014 NOTE 5 POLLUTION CONTROL REVENUE BONDS The District is authorized under the Clean Air Financing Act to issue revenue bonds to finance the acquisition, construction and improvement of facilities designed to reduce or eliminate air pollution and to lease or sell such facilities. The District has issued revenue bonds for the purpose of construction and subsequent installment sale financing of pollution control equipment. The following is a summary of the Pollution Control Bonds that have been issued and outstanding as of July 31, 2015.

$18,425,000 Multi-Mode Variable Rate Demand Revenue Bonds, Series 1998 (Fina Oil and Chemical Company Project) due May 1, 2033. Optional and mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 18,425,000

$15,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (BASF Corporation Project), Series 2000A. Optional and special early mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 15,000,000

$10,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (Fina Oil and Chemical Company Project), Series 2000B. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 10,000,000

$10,000,000 Variable Rate Revenue Bonds, Series 2002B (ATOFINA Petro Chemical, Inc.) Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 10,000,000 $4,500,000 Variable Rate Revenue Bonds, Series 2002C (ATOFINA Petro Chemical, Inc.) Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 4,500,000

$148,000,000 Motiva Environmental Facilities Revenue Bonds, Series 2002, Due December 2027, Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 148,000,000

$15,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (BASF Corporation Project), Series 2002A. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 15,000,000

$15,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (BASF Corporation Project), Series 2003A. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 15,000,000

28 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014

$50,000,000 TOTAL Petrochemical USA, Inc Project, Exempt Facilities Revenue Bonds Series 2010, due March 1, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 50,000,000

$300,000,000 Motiva Enterprises LLC Project, Environmental Facilities Revenue Bonds, Series 2010, Subseries A, Refunding Subseries B and Refunding Subseries C, due April 1, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 300,000,000

$300,000,000 Motiva Enterprises LLC Project, Environmental Facilities Revenue Bonds, Series 2010, Subseries D, Subseries E, due November 9, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 300.000.000

Total $1.357.925.000

The Trust Indentures state that the bonds and coupons are special obligations of the Port and are payable solely out of revenue derived from the sale of the projects. The bonds shall never constitute an indebtedness or pledge of the credit of the Port within the meaning of any constitutional or statutory provision, and shall not be general obligations of the Port or the State and shall never be paid in whole or in part from any funds raised by taxation or any revenues or other funds of the Port except those derived by it in connection with the sale of the projects.

NOTE 6 PORT AERTHUR NAVIGATION DISTRICT INDUSTRIAL DEVELOPMENT CORPORATION On August 5, 1981, the District authorized the establishment and incorporation of the Port Arthur Navigation District Industrial Development Corporation under the Laws of the State of Texas. The purpose of the corporation is the financing of industrial development projects pursuant to the provisions of the Development Corporation Act of 1979. The following is a summary of the Industrial Development Bonds that have been issued and outstanding as of July 31, 2015:

$25,000,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2000. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly, on first business day. Current Balance $25,000,000

$25,000,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2001. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 25,000,000

$22,500,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2002. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 22,500,000

29 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS

OF JEFFERSON COUNTY, TEXAS _ FISCAL YEARS ENDED JULY 31, 2015 AND 2014

$150,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2012, due 03/01/2042. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 150,000,000

$100,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2012A, due 09/01/2042. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 100,000,000

$50,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2012B, due 12/01/2042. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 50.000.000

Total $ 646.265.000

As required by the Trust Indentures, special trust funds for the construction of the facilities and the payment of bond principal and interest have been established. The Trust Indentures state that the bonds and coupons are limited obligations of the issuer and are payable by the issuer solely out of revenues derived from or in connection with the agreement. The Bonds shall never be paid out of any other funds of the corporation except such revenues from and in connection with the agreement. NEITHER THE STATE, THE PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS, THE PORT ARTHUR NAVIGATION DISTRICT INDUSTRIAL DEVELOPMENT CORPORATION NOR ANY POLITICAL CORPORATION, SUBDIVISION OR AGENCY OF THE STATE SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE, THE PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF PRINCIPAL OR OF PREMIUM, IF ANY, OR THE INTEREST ON SUCH BONDS.

30 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014

Capital Asset Activity for the year ended July 31,2015 was as follows:

Beginning Ending August 1, 2014 Additions Retirements July 31, 2015 Capital Assets. Not Beine Depreciated-

Land - Port Site $6,944,139 $6,944,139 Work in Progress 3,734,942 $5,181,524 $478,846 8,437,620

Total Capital Assets, Not Being Depreciated 10,679,081 5,181,524 478,846 15,381,759

Canital Assets. Beine Depreciated:

Furniture, Fixtures and Equipment 2,271,207 16,655 46,863 2,240,999 Port Facilities - Executive Offices 812,820 31,848 844,668 Port Facilities - Investigations and Studies 1,208,497 4,079 1,212,576 Port Facilities - Wharves and Terminals 89,483,118 906,122 90,389,240

Total Capital Assets, Being Depreciated 93,775,642 958,704 46,863 94,687,483 Less Accumulated Depreciation:

Furniture, Fixtures and Equipment 1,548,866 301,596 46,863 1,803,599 Port Facilities - Executive Offices 474,628 33,168 507,796 Port Facilities - Investigations and Studies 650,817 88,403 739,220

Port Facilities - Wharves and Terminals 36,099,657 2,404,991 38,504,648 Total Accumulated Depreciation 38,773,968 2,828,158 46,863 41,555,263

Total Capital Assets, Being Depreciated, Net 55,001,674 (1,869,454) 0 53,132,220

Total Capital Assets, Net $65,680,755 $3,312,070 $478,846 $68,513,979

31 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS

OF JEFFERSON COUNTY, TEXAS _ FISCAL YEARS ENDED JULY 31, 2015 AND 2014

Capital Asset Activity for the year ended July 31, 2014 was as follows:

Beginning Ending August 1, 2013 Additions Retirements July 31, 2014

Capital Assets. Not Being Depreciated:

Land - Port Site $6,878,354 $65,785 $6,944,139 Work in Progress 3,573,137 1,356,531 $1,194,726 3,734,942

Total Capital Assets, Not Being Depreciated 10,451,491 1,422,316 1,194,726 10,679,081

Capital Assets, Being Depreciated:

Furniture, Fixtures and Equipment 2,242,156 29,051 2,271,207 Port Facilities - Executive Offices 812,820 812,820 Port Facilities - Investigations and Studies 1,151,526 56,971 1,208,497 Port Facilities - Wharves and Terminals 87,478,919 2,004,199 89,483,118

Total Capital Assets, Being Depreciated 91,685,421 2,090,221 0 93,775,642

Less Accumulated Depreciation:

Furniture, Fixtures and Equipment 1,246,264 302,602 1,548,866 Port Facilities - Executive Offices 441,889 32,739 474,628 Port Facilities - Investigations and Studies 564,625 86,192 650,817

Port Facilities - Wharves and Terminals 33,802,897 2,296,760 36,099,657 Total Accumulated Depreciation 36,055,675 2,718,293 0 38,773,968

Total Capital Assets, Being Depreciated, Net 55,629,746 (628,072) 0 55,001,674

Total Capital Assets, Net $66,081,237 $794,244 $1,194,726 $65,680,755

32 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS_ FISCAL YEARS ENDED JULY 31, 2015 AND 2014

NOTE 8 LONG TERM DEBT On September 25, 2008, the District issued general obligation bonds. Unlimited Tax Refunding Bonds, Series 2008A (non-AMT), in the amount of $24,885,000 to refund certain outstanding Bonds of the District, refund a bank loan and pay cost of issuance. Unlimited Tax Port Improvement Bonds. Series 2008B (AMT), in the amount of $10,000,000 to pay a portion of the cost of projects to acquire, purchase, construct, enlarge, extend, repair or develop facilities or aids to or useful or necessary in the operation or development of the District’s ports and water ways or in aid of navigation and commerce thereon and pay the issuance cost. These bonds will be repaid from the receipt of separate annual ad valorem taxes, without legal limit as to rate, levied on all taxable property within the District.

A statement of changes in long-term debt for the year ended July 31, 2015 is as follows:

Beginning Ending Current Balance Additions Reductions Balance Portion General Obligation Debt Series 2008A Unlimited Tax Refunding Bonds $21,786,120 $0 $1,391,716 $20,394,404 $1,505,000 Series 2008B Unlimited Tax Improvement Bonds 8,830,959 0 536,882 8,294,077 580,000 Totals $30,617,079 $0 $1,928,598 $28,688,481 $2,085,000

A Statement of Changes in long-term debt for the year ended July 31, 2014 is as follows:

Beginning Ending Current Balance Additions Reductions Balance Portion General Obligation Debt: Series 2008A Unlimited Tax Refunding Bonds $23,119,477 $0 $1,333,357 $21,786,120 $1,450,000 Series 2008B Unlimited Tax Improvement Bonds 9,341,776 0 510,817 8,830,959 555,000 Totals $32,461,253 $0 $1,844,174 $30,617,079 $2,005,000

Total debt service requirement as of July 31, 2015 are as follows:

Principal Interest Total 2016 $2,085,000 $1,396,126 $3,481,126 2017 2,180,000 1,301,714 3,481,714 2018 2,275,000 1,202,962 3,477,962 2019 2,380,000 1,097,830 3,477,830 2020 2,495,000 987,106 3,482,106 Thereafter 17,700,000 3,186,856 20,886,856 Total $29,115,000 $9,172,594 $38,287,594

33 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2015 AND 2014 Long-term debt as of July 31, 2015 and 2014 is summarized as followsÿ

2015 2014

Series 2008A Serial and Term Refunding Bonds $24,885,000 Issue Variable Rate 4.0%-4.75%, Issued September 2008, Maturing March 1, 2026 $20,710,000 $22,160,000

Series 2008B Serial and Term Improvement Bonds $10,000,000 Issue, Variable Rate 4.0%-5.65%, Issued September 2008, Maturing March 1, 2026 8,405,000 8,960,000 Total Bonds 29,115,000 33,040,000 Accretion Payable 0 0 Total Bonds and Accretion Payable 29,115,000 31,120,000 Less Current Maturities 2,085,000 2,005,000 Long-term Debt, Net $27,030,000 $29,115,000

NOTE 9 PROPERTY TAX REFUND PAYMENTS AND LIABILITY During several fiscal years, settlements was reached as a result of law-suites between “The Premcor Refining Group Inc., Premcor Pipeline Company, Port Arthur Coker Company, L.P., and Valero Energy Corporation” (plaintiffs) vs. Jefferson County Appraisal District (defendant). The settlement agreements required the Jefferson County Appraisal District to revise the market value of plaintiff s property to an agreed value (decrease) for tax years 2006 to 2010 and tax years 2012 to 2015. The plaintiff will in turn, waive and forego any claim to interest which maybe owed on any refund to which they may be entitled. Net assets and revenue have been reduced and refunds paid as follows:

Tax year 2006 $ 66,324 2007 $288,565 2008 $307,895 2009 $359,125 2010 $429,352 2012 $591,870 2013 $521,345 2014 $431,656 (payable at July 31, 2015)

During this fiscal year ending July 31, 2013, the courts ruled that the Jefferson County Appraisal District reduce the 2012 taxable value for Chevron Phillips Chemical Company. The resulting refund amount equals $107,920.

NOTE 10 RISK MANAGEMENT AND LITIGATION Risk Management The Port is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the Port obtains insurance coverage through commercial insurance carriers. Workman’s compensation is covered through participation in a public entity risk pool, where risk is transferred to the pool within policy limits purchased.

Litigation From time to time, the District is subject to routine litigation incidental to its operations. Management believes that the results of any such claims or litigation will not materially affect the District’s financial position. The attorney for the Port estimates that the amount of actual or potential claims against the Port will not materially affect the financial condition of the Port.

34 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS

OF JEFFERSON COUNTY, TEXAS__ FISCAL YEARS ENDED JULY 31, 2015 AND 2014

NOTE 11 Major Customers and Concentration of Risk The District receives a significant portion of its tax revenues from the petrochemical industry. Major customers of the District for this fiscal year, were Fibria Celulose USA, Inc. (formally Aracruz), International Paper Company, Gearbulk Inc., Grieg Star Shipping (formerly Star Shipping) and the Military. The District also received a significant amount of revenue from Lay-Berthing services and warehouse and terminal space rental and lease fees.

NOTE12 Other Information and Restatements A Letter of Agreement was executed between the District and Gulf Copper & Manufacturing Corporation, effective August 18, 2010. This agreement states that thirty days after the District received all documentation which effect a transfer of title of the Medium Auxiliary Floating Dry Dock, designated as AFDM-2, a sale of the AFDM-2 to Gulf Copper & Manufacturing Corporation will be made in accordance with the terms of a Bill of Sale. This Bill of Sale was executed effective April 13, 2011. Under the terms of the sale, the District shall receive usage fee payments beginning on the earlier to occur of (a) the first day of commercial operation of the Dry Dock or (b) March 31, 2012. Payments are based upon the monthly occupancy usage of (1) if no vessel is occupying the dry dock, payment is $125 per day; (2) if dry dock is occupied with any barge or self-propelled vessel less than two-hundred fifty feet in length, payment is $411 per day; or (3) if dry dock is occupied with a self-propelled vessel of two-hundred fifty feet or more in length, payment is $822 per day. At the end of the Dry Dock’s useful life, Gulf Copper is responsible for the disposal of the asset.

NOTE 13 CHANGE IN ACCOUNTING PRINCIPLES AND PRIOR PERIOD ADJUSTMENT The District implemented GASB Statement 38 Accounting and Financial Reporting for Pensions. The objective of this statement is to improve accounting and financial reporting by state and local governments for pensions. This resulted in a direct increase in net position of $644,037 for July 31, 2014.

Increase net pension asset $644,037.00

The District was notified that a property taxpayer filed lawsuits against the Jefferson County Appraisal District challenging the valuation of the property for the 2015 tax rolls (subsequent tax year). The District is not a party to the lawsuit but if the plaintiff is successful in getting the valuation reduced, the District would see a reduction in the 2015 property tax revenues.

35 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITITY AND RELATED RATIOS

2014 Total Pension Liability Service Cost $ 166,654 Interest on total pension liability 288,481 Effect of plan changes 14,854 Effect of assumption changes or inputs Effects of economic/demographic or losses (9,456) Benefit payments/refunds of contributions (111,198) Net change in total pension liability 349,335

Total pension liability, beginning 3,527,018 Total pension liability, ending (a) $ 3,876,352

Fiduciary Net Position Employer contributions $ 24,361 Member contributions 113,686 Investment income net of investment expenses 317,359 Benefit payments/refunds of contributions (111,198) Administrative expenses (3,765) Other 4,091 344,534

Fiduciary net position, beginning 4,713,900 Fiduciary net position, ending (b) $ 5,058,434

Net pension liability / (asset), ending (a) - (b) $ (1,182,082)

Fiduciary net position as a % of total pension liability 130.49% Pensionable covered payroll $ 1,624,085 Net pension liability as a % of covered payroll -72.78%

Notes to Schedule Benefit changes. None Changes in actuarial assumptions and methods. None This schedule will be 10 years as information is available.

36 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF EMPLOYER CONTRIBUTIONS

Actuarially Actual Contribution Pensionable Actual Contribution Year Ending Determined Employer Deficiency Covered as a % of Covered December 31 Contribution Contribution (Excess) Payroll Payroll

2005 Not Available Not Available Not Available Not Available Not Available 2006 $ 58,261 $ 58,261 $ $ 920,395 6.3% 2007 54,753 54,753 0 855,518 6.4% 2008 53,948 53,948 0 923,768 5.8% 2009 65,214 65,214 0 1,109,079 5.9% 2010 84,198 584,198 (500,000) 1,236,381 47.3% 2011 84,330 284,330 (200,000) 1,369,001 20.8% 2012 36,237 36,237 0 1,421,044 2.5% 2013 24,931 24,931 0 1,538,945 1.6% 2014 12,505 24,361 (11,856) 1,624,085 1.5%

Notes to Schedule Actuarial valuation date 12/31/2013 Actuarial Cost Method. Entry age Amortization method Level percentage of payroll, open Amorization period in years 30 Asset valuation method Subdivision accumulation fund 5-yr. smoothed value Employees savings fund Fund value Investment return - includes inflation at the stated rate 8.0% Projected salary increase - includes inflation at the stated rate 4.9% Inflation 3.0% Cost-of-living adjustment 0.0% Actuarial value of assets $3,988,612 Actuarial accrued liability (AAL) 3,401,778 Unfunded or (overfunded) actuarial accrued liability (UAAL or (OAAL) (586,834) Funded ratio 117.25% Annual covered payroll (actuarial) 1,538,945 UAAL or (OAAL) as percentage of covered payroll -38.13%

37 Supplemental Schedules PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF INSURANCE IN FORCE July 31, 2015

Policy Coinsurance« Annual Company Number Type Property Amount Deductible Applicable_ Inception Expiration Premiums Navigators Insurance Company SE14LIA7349-81/82 Excess Marine Liability Insurance General Umbrella Liability $30,000,000 12/31/14 12/31/15 $ 32,384 Marsh Insurance

Travelers Indemnity Company ZPD-41M16829-1 4-ND Commerical Property Berths 1, 2, and 3 21,054,420 100,000 10/26/14 10/26/15 $ 306,870 - Dock & Piers Fender System 192,150 Berths 4 and 5 14,563,500 Modular Fender System 1,020,000 Rail Causeway (1969) 400,000 50,000 Rail Causeway (1992) 400,000 50,000

Travelers Indemnity Company H-660-1F695544-TCT-14 Commerical Property Transit Sheds, Warehouses, 25,831,235 100,000 90% 10/26/14 10/26/15 172,237 Command Center, Admin. Building Business Personal Property, Equipment Business Income/Extra Exps

Fidelity and Deposit Company LPM758919101 U S. Customs Bond Custodian of Bonded 100,000 • . 01/20/15 01/20/16 $ 1,250 Merchandise

The Fidelity and Deposit Companies CCP 1497403 19 Public Employee Theft Commerical Crime Bond 250,000 2,500 - 03/15/15 03/15/16 $ 621

The Travelers Indemnity Company Z0L-10S62286-15-ND Marine General and Terminal 1,000,000 25,000 • 06/15/15 06/15/16 $ 62,500 Operator’s Legal Liability Insurance

ACE Westchester Ins Company EON G24139840 006 Directors & Officers Public Entity Liability 5,000,000 25,000 - 06/15/15 06/15/16 $ 30,041

Wright National Flood Insurance Company 42 1150346196 05 Commercial Flood Insurance Executive Office Building 500,000 1,000 05/17/15 05/17/16 $ 4,903 (221 Houston Avenue)

Building Contents 140,000 1,000 - 05/17/14 05/17/15 Wright National Flood Insurance Company 42 1150585516 03 Commercial Flood Insurance Command Center Building 500,000 1,000 - 09/18/14 09/18/15 $ 2,778 Building Contents 450,000 1,000 - 09/18/13 09/18/14

Progressive County Mutual Insurance Co. 04511782-7 Comprehensive and General Combined Liability 1,000,000 250 • 04/09/15 04/09/16 $ 3,433 Liability Auto Policy Personal Injury 10,000 •

Texas Mutual Insurance Company TSF-0001175799 Workers' Compensation Employees and Commissioners 1,000,000 - 01/13/15 01/13/16 $ 26,411

CNA Surety 15555303 Notary Errors and Omissions Floyd Gaspard 25,000 - • 07/21/14 07/21/18 $ 71

CNA Surety 71135122N Notary Errors and Omissions Sandra Myers 25,000 • 08/06/15 08/06/19 $ 71

38 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF INSURANCE IN FORCE July 31, 2015

Policy Coinsurance Annual Company Number Type Property Amount Deductible Applicable Inception Expiration Premiums

Fidelity and Deposit Company POB8348835-06 Port Commissioners Bond Mark L. Underhill 1,000 05/11/15 05/11/17 S 185 (Zurich) POB7591700 03 Port Commissioners Bond Linda Turner Spears 1,000 - 05/22/15 05/22/17 $ 185 POB 30087692 T Port Commissioners Bond Raymond Johnson 1,000 • 05/10/15 05/10/17 $ 185 POB761267601 Port Commissioners Bond John Comeaux 1,000 • 12/21/13 12/21/15 S 185 CNA Surety Company POB62038431 Port Commissioners Bond Norris Simon, Jr. 1,000 • 05/21/15 05/21/17 s 93

Texas Windstorm Association 61847507 Windstorm and Hail Executive Office Building 906,641 9,066 80% 06/29/15 06/29/16 $ 10,178 Business Income/Extra Exps. 99,960 168 Hrs. 06/29/15 06/29/16 s 1,496 Building Contents 130,000 1,300 80% 06/29/15 06/29/16 $ 1,338 Building Contents /Dock Office 64,173 1,000 80% 06/29/15 06/29/16 s 716

Texas Windstorm Association 61847507 Windstorm and Hail Transit Shed #1 4,424,000 44,420 Waived 06/29/15 06/29/16 $ 67,696

Transit Shed #2 4,359,827 43,598 Waived 06/29/15 06/29/16 $ 75,868

Command Center 756,650 7,567 80% 06/29/15 06/29/16 $ 3,204 Canopy 532,638 5,326 80% 06/29/15 06/29/16 s 6,238 Readers - Under Canopy 168,062 1,681 80% 06/29/15 06/29/16 s 1,834

Business Personal Property 440,400 4,404 80% 06/29/15 06/29/16 $ 1,557

Texas Windstorm Association 61847507 Windstorm and Hail Large Warehouse Building 2,214,300 22,143 80% 06/29/15 06/29/16 $ 8,595 200 Houston Avenue Business Income/Extra Exps. 99,960 168 Hrs. 06/29/15 06/29/16 s 564

Small Warehouse Building 186,600 1,866 80% 06/29/15 06/29/16 $ 2,498 211 Houston Avenue Business Income/Extra Exps. 9,000 168 Hrs. 06/29/15 06/29/16 $ 121

39 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUE AND EXPENSES - ACTUAL AND BUDGET FOR THE YEAR ENDED JULY 31, 2015

Variance With BUDGETED AMOUNTS ACTUAL Final Budget ORIGINAL FINAL AMOUNTS Positive (Negative) Operating Revenue Loading $1,959,180 $1,959,180 $2,132,722 $173,542 Unloading 776,760 776,760 534,894 (241,866) Wharfage 686,530 686,530 741,831 55,301 Layberthing 1,152,000 1,152,000 1,825,335 673,335 Dockage 520,510 520,510 923,845 403,335 Security Surcharges 264,510 264,510 297,430 32,920 Gantry Crane 26,090 26,090 18,850 (7,240) Cleaning 128,350 128,350 113,770 (14,580) Line Handling 265,600 265,600 301,475 35,875 Shed and Pier Hire 82,630 82,630 57,085 (25,545) Watchman 0 0 0 0 Storage 26,095 26,095 2,845 (23,250) Other Operating Revenue 170,745 170,745 93,086 (77,659) Property Rentals, Terminal/Warehouse Lease 216,000 216,000 274,930 58,930 Property Taxes 10,664,005 10.664.005 13.346.417 2.682,412

Total Operating Revenue $16,939,005 $16,939,005 $20,664,515 $3,725,510

Operating Expenses Salaries $1,679,235 $1,679,235 $1,672,630 $6,605 Employee Benefits 563,951 563,951 $482,154 81,797 Sales and Marketing Expenses 314,945 314,945 $285,991 28,954 Insurance and Bonds 975,850 975,850 609,529 366,321 Legal and Professional Fees 330,000 330,000 226,632 103,368 Office Expenses 28,000 28,000 23,260 4,740 Bad Debt Expense 0 0 0 0 Port Commission Fees 30,600 30,600 30,600 0 Other Expenses 79,000 79,000 59,783 19,217 Utilities 397,970 397,970 351,320 46,650 Maintenance Dredging 500,000 500,000 (131,664) 631,664 Spoil Areas #8 & #11 Maintenance 37,941 37,941 37,941 0 Remediation Expenses 0 0 0 0

40 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUE AND EXPENSES - ACTUAL AND BUDGET FOR THE YEAR ENDED JULY 31, 2015

Variance With BUDGETED AMOUNTS ACTUAL Final Budget ORIGINAL FINAL AMOUNTS Positive (Negative)

Repairs and Maintenance General Repairs and Maintenance 500,000 500,000 530,211 (30,211) (Less) Insurance Proceeds 0 0 (37,242) 37,242 Gantry Repairs and Maintenance 300,000 300,000 82,944 217,056 Railroad Repairs and Maintenance 80,000 80,000 35,552 44,448 Vehicle, Equipment Repairs and Maintenance 50,000 50,000 116,467 (66,467) Bulkhead Repairs and Maintenance 50,000 50,000 2,500 47,500 Miscellaneous Terminal 5,000 5,000 9,824 (4,824) Loading - Subcontractor 1,574,480 1,574,480 1,779,143 (204,663) Unloading - Subcontractor 778,620 778,620 510,867 267,753 Outside Services 867,000 867,000 918,678 (51,678) Interest Expense (Net) $3,483,406 $3,483,406 $1,515,558 $1,967,848 Bond Administrative Cost and Arbitrage Expense 0 0 0 0 Tax Collection Expense 135,000 135,000 139,728 (4,728) Depreciation Expense 2,753,580 2,753,580 2,828,159 (74,579) Total Operating Expenses $15,514,578 $15,514,578 $12,080,565 $3,434,014 Operating Income (Loss) $1,424,427 $1,424,427 $8,583,950 $7,159,523 Non-Operating Revenue (Expenses) Interest Income $125,000 $125,000 $210,911 $85,911 Management Fees 0 0 0 0 Foreign Trade Zone Revenues 20,000 20,000 20,000 0 Capital Grants, Net Expenditures 2,215,402 2,215,402 3,284,581 1,069,179 Non-Capital Grant Expenditures 0 0 0 0 Storm Damages-lnsurance Proceeds, FEMA Grants 0 0 0 0 Miscellaneous Other Revenue (Expenses) (357,815) (357,815) 125,842 483,657 Gain(Loss)Sale/Disposal of Assets, Lawsuit (5,000) (5,000) 1,215,783 1,220,783

Total Non-Operating Revenue (Expenses) $1,997,587 $1,997,587 $4,857,117 $2,859,529

Net Income (Loss) $3,422,014 $3,422,014 $13,441,067 $10,019,052

41 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS GENERAL LONG-TERM DEBT REQUIREMENTS-BY YEARS UNLIMITED TAX REFUNDING BONDS -SERIES 2008A July 31, 2015

Unlimited Tax Refunding Bonds Series 2008A - $24,885,000 September 1, March 1,_ Total Principal Year Ended Interest Principal Interest and Interest

2016 468,894 1,505,000 468,894 2,442,788 2017 436,913 1,570,000 436,913 2,443,826 2018 403,550 1,635,000 403,550 2,442,100 2019 367,784 1,705,000 367,784 2,440,568 2020 331,406 1,780,000 331,406 2,442,812 2021 293,581 1,855,000 293,581 2,442,162 2022 251,844 1,940,000 251,844 2,443,688 2023 206,981 2,030,000 206,981 2,443,962 2024 158,769 2,125,000 158,769 2,442,538 2025 108,300 2,230,000 108,300 2,446,600 2026 55,336 2,335,000 55,336 2,445,672

• Totals $ 3.083.358 $ 20.710.000 $ 3.083.358 $ 26.876.716

42 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS GENERAL LONG-TERM DEBT REQUIREMENTS-BY YEARS UNLIMITED TAX PORT IMPROVEMENT BONDS 2008B July 31, 2015

Unlimited Tax Port Improvement Bonds Series 2008B - $10,000,000 September 1, March 1,_ Total Principal Year Ended Interest Principal Interest and Interest

2016 229,169 580,000 229,169 1,038,338 2017 213,944 610,000 213,944 1,037,888 2018 197,931 640,000 197,931 1,035,862 2019 181,131 675,000 181,131 1,037,262 2020 162,147 715,000 162,147 1,039,294 2021 142,038 755,000 142,038 1,039,076 2022 120,803 795,000 120,803 1,036,606 2023 99,438 840,000 99,438 1,038,876 2024 76,863 885,000 76,863 1,038,726 2025 52,525 930,000 52,525 1,035,050 2026 26,950 980,000 26,950 1,033,900

Totals $ 1.502.939 $ 8.405.000 $ 1.502.939 $ 11.410.878

43 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF CASH AND INVESTMENTS JULY 31, 2015 AND 2014

Date Maturity Investment Market Investment Market Owned By: Acquired Date Cost Value Cost Value 2015 2014 CASH AND CASH EOUIVALENTS Unrestricted

Texas Treasury - TEXPOOL Various n/a $ 4,738,904 $ 4,738,904 $ 9,689,639 $ 9,689,639 Cash Various n/a 458,790 458,790 291,667 291,667 Total Unrestricted Cash and Cash Equivalents $ 5,197,694 $ 5,197,694 $ 9,981,306 $ 9,981,306

Restricted Texas Treasury - TEXPOOL Various n/a $ 5,565,942 $ 5,565,942 $ 1,262,834 $ 1,262,834 Cash Various n/a 269,497 269,497 352,585 352,585 Total Restricted Cash and Cash Equivalent $ 5,835,439 $ 5,835,439 $ 1,615,419 $ 1,615,419

TOTAL CASH AND CASH EQUIVALENTS $ 11,033,133 $ 11,033,133 $ 11,596,725 $ 11,596,725

OTHER INVESTMENTS

Unrestricted Federal Home Loan Mortgage Corp. - 1.0% 07/28/14 07/28/17 - - 500,000 498,285 Houston Hotel GCC\SPL Revenue Bond - 5.0% 08/28/12 09/01/14 - - 316,151 316,222 Amarillo TX ISD GO Bonds - 2.0% 03/21/13 02/01/16 317,279 317,504 321,837 322,522 Birdville TX ISD GO Bonds - .50% 04/30/13 02/15/16 249,328 249,593 248,088 247,572 Port Arthur TX ISD GO Bonds - .50% 05/06/13 02/15/16 100,914 101,075 102,604 102,413 Williamson Cnty TX Toll Bonds - 2.0% 05/08/13 02/15/16 226,851 227,151 230,267 230,796 Federal Home Loan Mortgage Corp. - 1.0% 04/17/14 04/17/17 - - 500,000 499,799 Federal National Mortgage Assn.. - .875% 03/28/14 03/28/17 400,000 400,254 400,000 398,920 Federal National Mortgage Assn.. - 0% 04/24/14 05/15/17 487,648 493,383 485,311 484,220 Federal National Mortgage Assn.. - 1.070% 08/22/14 08/22/17 500,000 501,096 - -

44 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF CASH AND INVESTMENTS JULY 31, 2015 AND 2014

Date Maturity Investment Market Investment Market Owned By: Acquired Date Cost Value Cost Value 2015 2014

Unrestricted City of Lubbock TX GO Bonds - 1.230% 03/09/15 02/15/18 500,904 499,915 - - Federal Home Loan Bank - 1.05% 04/27/15 04/27/18 500,000 499,204 - - Federal Home Loan Bank - 1.05% 05/11/15 05/11/18 500,000 498,792 - - Federal Home Loan Bank - 1.08% 05/18/15 05/18/18 500,000 498,083 - - Federal National Mortgage Assn..(F/M) - 1.20% 05/27/15 05/25/18 500,000 499,033 - - Federal National Mortgage Assn.. (F/M)~ 1.20% 06/29/15 06/29/18 500,000 499,662 - - Federal National Mortgage Assn.. Note - 1.30% 06/29/15 06/29/18 300,000 299,577 - - Certificates of Deposits Various Various 19,922,000 19,910,581 16,457,000 16,460,217

Total Unrestricted Other Investments $ 25,504,968 $ 25,494,900 $ 19,561,258 $ 19,560,966

TOTAL OTHER INVESTMENTS $ 25,504,968 $ 25,494,900 $ 19,561,258 $ 19,560,966

TOTAL CASH AND INVESTMENTS $ 36,538,101 $ 36,528,033 $ 31,157,983 $ 31,157,691

45 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SECURITIES PLEDGED BY WELLS FARGO BANK, N.A. AS SECURITY FOR DEPOSITS July 31, 2015

Securities Pledged Maturity Coupon % Market Value

FMAC Security #3132GRZM6, Par $ 954.44 03/01/42 3.50% $ 989 FNMA Security #3136A5E93, Par $ 168,667 06/25/41 0.59% $ 169,133 FNMA Security #3136A5E93, Par $ 106,051 09/01/41 4.00% $ 113,150 FNMA Security #3138AUSN8, Par $ 605,798 10/01/41 2.54% $ 639,441 FNMA Security #3138X1HU3, Par $ 5,644 07/01/43 3.50% $ 5,862

TOTAL $ 928,575

PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 1 Tonnage Report By Commodities(in Short Tons) Fiscal Years Ending July 31 (UNAUDITED)

Commodity 2015 2014 2013 2012 2011

Mis. - Other Cargo 309 0 0 0 0 Linerboard 100,017 76,640 94,398 80,370 69,401 Wood Pellets 418,751 333,319 0 0 0 Pipe 1,887 0 0 4,595 0 Naptha 18,393 0 55,874 0 0 Bio Diesel 6,072 0 0 0 0 Gasoline 139,269 7,077 14,195 0 0 Woodpulp - Rolls & Bales 0 0 5,944 3,703 0 Project Cargo 1,341 379 857 409 678 Military Cargo 0 15 170 31,050 3,355

Total Exports 686,039 417,430 171,438 120,127 73,434

Project Cargo 4,069 73 3,054 0 5,776 Rail - Heat TR 4,988 0 0 0 0 Woodpulp 322,542 264,854 250,464 217,060 207,395 Ultra Low SU 0 4,964 0 7,613 0 Other Cargo 0 385 189 284 18,656 Linerboard/Hardboards/Plywood 0 0 0 0 117 Steel, Aluminum, Rail Products 0 0 11,007 5,008 0 Military Cargo 5,799 15,431 3,330 31,223 27,645 Containers 0 13 0 0 0 Petroleum Coke, Diesel Products 0 0 0 0 8,728

Total Imports 337,398 285,720 268,044 261,188 268,317

TOTAL TONNAGE 1,023,437 703,150 439,482 381,315 341,751

PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 2 VESSEL COUNTS FISCAL YEARS ENDING JULY 31, (UNAUDITED)

VESSEL COUNTS 2015 2014 2013 2012 2011

Ships 93 80 55 48 64 Layberths 138 107 78 41 62 Tugs 0 0 0 0 0 Barges 50 6 18 5 9 Railcars 3,885 3,861 4,077 3,956 3,401 Trucks 5,040 6,241 3,983 4,533 2,873 Lightering 8 TOTAL VESSEL COUNT 9,214 10,295 8,211 8,583 6,409

47 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 3 OUTSTANDING DEBT PAYABLE FROM AD VALOREM TAXES July 31, 2015

Outstanding Debt Amount

Unlimited Tax Refunding Bonds, Series 2008A $ 20,710,000 Unlimited Tax Port Improvement Bonds, Series 2008B $ 8.405.000

Totals $ 29,115,000

PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 4 DISTRICT TAX RATES (UNAUDITED)

Operations and Debt Debt Service Maintenance Service Reserve Fund Total

2014 0.100000 0.055381 0.058991 0.214372 2013 0.100000 0.051705 0.013020 0.164725 2012 0.086816 0.041334 0.128150 2011 0.074382 0.053768 0.128150 2010 0.073584 0.054566 0.128150 2009 0.068872 0.059278 0.128150 2008 0.081190 0.046960 0.128150 2007 0.069807 0.058343 0.128150 2006 0.056325 0.071825 0.128150 2005 0.032794 0.095356 0.128150

48 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 5 TAXABLE ASSESSED VALUATION BY CATEGORY (UNAUDITED)

Market Value Appraised Values Tax Year 2014 Tax Year 2014 Tax Year 2013 Tax Year 2012 Tax Year 2011 Amount % Amount % Amount % Amount % Amount % Real Property Single Family 1,091,529,945 9.78% 1,063,949,301 8.83% 1,055,721,996 8.39% 1,051,159,380 11.00% 1,076,234,250 14.24% Multifamily 156,130,105 1.40% 146,456,130 1.21% 141,652,462 1.13% 142,602,340 1.49% 133,227,200 1.76% Vacant lots/tracts 59,630,261 0.53% 53,974,002 0.45% 55,655,783 0.44% 55,479,363 058% 57,451,200 0.76% Acreage 28,104,580 0.25% 32,699,200 0.27% 34,085,340 0.27% 98,136,960 1.03% 39,305,490 0.52% Farm & ranch imps 64,482,400 0.58% 67,564,876 0.56% 65,254,762 0.52% 1,785,350 0.02% 1,337,740 0.02% Commercial 518,936,962 4.65% 507,185,053 4.21% 514,050,685 4.09% 525,016,640 5.49% 522,482,190 6.91% Industrial 7,152,225,650 64.11% 7,493,433,596 62.16% 8,175,120,740 64.97% 6,083,939,850 63.66% 4,351,807,710 57.57% Oil/gas/minerals 12,126,770 0.11% 20,391,582 0.17% 22,054,589 0.18% 41,005,770 0.43% 47,247,350 0.62% Personal Property Utilities 136,557,310 1.22% 125,854,660 1.04% 123,779,000 0.98% 124,020,420 1.30% 118,590,460 1.57% Commercial 293,135,729 2.63% 302,691,150 2.51% 425,434,620 3.38% 275,078,630 2.88% 300,483,290 3.97% Industrial 1,105,314,750 9.91% 1,473,602,180 12.22% 1,597,971,810 12.70% 1,158,892,860 12.13% 911,081,400 12.05% Other Personal 387,800 0.00% 401,850 0.00% 13,450,700 0.11% 464,350 0.00% 431,350 0.01% Total Exempt Property 537,465,344 4.82% 767,778,142 6.37% 358,959,839 2.85% Appraised Value (2012- 2009) 11,156,027,606 100.00% 12,055,981,722 100.00% 12,583,192,326 100.00% 9,557,581,913 100.00% 7,559,679,630 100.00% Less: Deductions Homestead Cap 1,107,892 1,849,950 1,336,024 34,128,640 288,610 Agriculture Exemptions 27,151,520 31,950,660 33,743,890 591,977,420 193,365,880 Tax Abatements 3,333,004,940 3,390,294,416 3,822,275,620 328,380,525 335,574,452 Homestead Exemptions 337,954,642 332,838,394 325,383,347 7,030,484 6,326,970 Veterans Exemptions 10,067,775 8,707,958 7,623,054 4,948,700 12,069,510 Primarily Charitable Org. 69,020 69,020 0 0 0 Pollution Control Property 1,018,099,919 1,036,481,460 1,002,129,960 Other Exempt Property 616,491,044 830,567,327 528,387,863 Total Deductions 5,343,946,752 5,632,759,185 5,720,879,758 966,465,769 547,625,422

Net Taxable Value 5,812,080,854 6,423,222.537 6,862,312,568 8,591,116,144 7,012,054,208

* Beginning 2013, Market Values are provided. Proir years are shown at Appraised Values. Additionally, other exempt property categories were added.

49 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 6 TAX LEVIES, COLLECTIONS AND DELIQUENCIES (UNAUDITED)

Tax Assessed Debt Service Maintenance Total Total Amount Current % Total % FYE Year Valuation Tax Rate Tax Rate Tax Rate Assessed Collected Collected Collected 7/31

2006 4,156,441,554 0.071825 0.056325 0.128150 5,326,482 5,159,404 95.32% 96.86% 2007 2007 4,845,646,010 0.058343 0.069807 0.128150 6,209,697 6,133,992 97.89% 98.78% 2008 2008 5,632,564,784 0.046960 0.081190 0.128150 7,218,196 7,280,985 99.82% 100.87% 2009 2009 6,230,484,626 0.059278 0.068872 0.128150 7,984,388 7,856,279 97.85% 98.40% 2010 2010 6,894,243,024 0.054566 0.073584 0.128150 8,834,981 8,676,006 98.05% 98.20% 2011 2011 7,012,054,208 0.053768 0.074382 0.128150 8,985,952 8,944,148 98.27% 99.53% 2012 2012 8,591,116,144 0.041334 0.086816 0.128150 11,009,519 10,974,605 98.76% 99.68% 2013 2013 6,860,976,544 0.064725 0.100000 0.164725 11,301,750 11,038,091 97.91% 97.67% 2014 2014 6,418,197,149 0.114372 0.100000 0.214372 13,758,816 13,586,632 97.94% 98.75% 2015 2015 6,116,509,742 0.056645 0.100000 0.156645 9,581,179 In Process of Collection 2016

Port of Port Arthur Property Tax Rates 0.140000 0.120000 0.100000 0.080000 o> 03 0.060000 a: 0.040000 0.020000 0.000000

BDebt Service Fund Year ■O&M Fund

50 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 7 TEN LARGEST TAXPAYERS (UNAUDITED)

2015 Assessed %of Taxpayer Type of Property Valuation Total

Motiva Refinery Oil Refinery & Storage $1,770,899,720 30.47% The Premcor Refining Group Inc. Petroleum Refining & Supplier $1,145,168,988 19.70% Chevron Phillips Chemical Co. Chemical Company $ 257,589,037 4.43% Enterprise Texas Pipeline LP Energy Services Provider $ 215,104,670 3.70% Flint Hills Resources LP (1) Refining & Chemical Company $ 208,875,350 3.59% Air Products & Chemicals Inc. Chemical Company $ 161,300,730 2.78% Chevron U S A Inc Oil Refinery & Storage $ 119,852,550 2.06% Praxair Inc. Producer-Speciality Gases & Coating $ 110,753,190 1.91% MPT of Port Arthur LLC Medical Facilities $ 51,090,130 0.88% Entergy Texas Inc. Electrical Utility $ 49,484,060 0.85%

$4,090,118,425 70.37%

(1) - Acquired Huntsman Corporation's Chemical & Polymer assets.

51 PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 8 STATEMENT OF REVENUES AND EXPENDITURES - REVENUE FUND YEAR ENDED JULY 31, '(UNAUDITED)

07/31/15 07/31/14 07/31/13 07/31/12 07/31/11

Operatinq Revenues Loading 2,132,722 1,717,292 1,566,229 1,431,244 1,325,368 Unloading 534,894 597,245 514,072 498,411 375,444 Wharfage 741,831 287,749 249,955 284,501 261,155 Dockage 2,749,180 2,065,340 1,455,741 1,014,337 928,101 Line Handling 301,475 236,721 144,400 96,900 124,825 Shed/Pier Hire 57,085 73,100 80,100 57,505 46,426 Cleaning 113,770 116,750 76,800 70,200 71,170 Gantry Crane Use 18,850 36,275 28,975 34,625 21,375 Security Surcharge 297,430 228,244 210,469 332,283 259,241 Other 93,086 174,841 40,220 73,074 64,071 Storage Fees 2.845 21.679 7.054 28.035 35.782 Total Public Ocean Terminal Revenues 7,043,168 5,555,236 4,374,014 3,921,114 3,512,958 Total Other Revenues 1.845.722 1.293.299 1.331.361 2.241.139 2.908.095 Total Public Ocean Terminal and Other Revenues 8,888,890 6,848,535 5,705,375 6,162,253 6,421,053 Property Tax Revenues - Operating & Maintenance 10.015.060 7.407.812 7.009.956 5.234.208 4,604.530 Total Revenues 18.903.951 14.256.347 12.715.331 11.396.461 11,025.583

Operating Expenditures Salaries 1,672,630 1,644,566 1,523,654 1,445,492 1,352,883 Employee Benefit Programs 482,154 563,733 468,377 603,742 750,452 Private Security 819,272 759,521 659,392 673,207 583,971 Insurance & Bonds 609,529 824,026 764,970 715,893 944,909 Properties and Facilities Maintenance 730,432 607,743 718,268 608,099 814,041 Maintenance Dredging (131,664) 372,929 364,956 450,000 (211,000) Loading/Unloading/Misc.Terminal Expenses 2,290,010 2,075,924 1,780,562 1,710,158 1,507,751 Other Operating Expenses 978.495 1.104.396 2.729.907 794.755 873,754 Total Operating Expenditures excluding Depreciation 7,450,857 7,952,838 9,010,087 7,001,346 6,616,761 Promotion & Development Expenditures 285.991 267.728 280.224 266.224 250.140 Total Expenditures 7.736.848 8.220.566 9.290.312 7.267.571 6.866.901

Excess of Revenues over Expenditures 11.167.102 6.035.781 3.425.022 4.128.889 4,158.681

BBL Brammer, Begnaud & Lattimore, CPAs Ill a professional services firm

February 15, 2016

Port Commissions Port of Port Arthur Navigation District of Jefferson County, Texas Port Arthur, Texas

We have audited, 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, the financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas as of and for the year ended July 31, 2015 and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our report thereon dated February 15, 2016.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (internal control) to determine our auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identity any deficiencies in internal control that we consider to be material weaknesses. However material weaknesses may exist that have not been identified.

3240 Central Mall Drive, Port Arthur, Texas 77642 | | 409-724-0452 www.bblcpa.com Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District’s basic financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclose no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Brammer, Begnaud & Lattimore

54 BBL Brammer, Begnaud & Lattimore, CPAs a professional services firm

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FRO EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH CIRCULAR A-133

February 15, 2016

Port Commissioners Port of Port Arthur Navigation District of Jefferson County, Texas Port Arthur, Texas

Report on Compliance for Each Major Federal Program

We have audited the Port of Port Arthur Navigation District of Jefferson County, Texas compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the District’s major federal programs for the year ended July 31, 2015. The District’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.

Management’s Responsibility

Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal programs.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for each of the District’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non- Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination on the District’s compliance.

3240 Central Mall Drive, Port Arthur, Texas 77642 | | www.bblcpa.com Opinions on Each Major Federal Program

In our opinion, the District complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended July 31, 2015.

Report on Internal Control over Compliance

Management of the District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the District’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance on each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we considered to be material weaknesses. However, material weaknesses may exist and not been identified.

Purpose of this Report

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose.

Brammer, Begnaud & Lattimore 56 ort of Port Arthur Navigation District of Jefferson County, Texas Schedule of Expenditures of Federal Awards Year Ended July 31, 2015

Federal CFDA Grant Federal Federal Program or Cluster Title Number Number Expenditures

U.S. Department of Homeland Security Direct Programs Port Security Grant #14 97.056 EMW-2014-PU-00149 $ 431.611

Total Department of Homeland Security $ 431.611

U.S. Department of Commerce Direct Programs Public Works Assistance 11.300 $ 193.011

Total Department of Commerce $ 193.011

U.S. Department of Transportation/ Texas Department of Transportation Highway Planning and Construction (Federal-Aid Highway Program) 20.205 $ 2.659.958

Total Department of Transportation $ 2.659.958

Total expenditures of Federal Funds $ 3.284.580

The accompanying notes are an integral part of this schedule 57 Port of Port Arthur Navigation District of Jefferson County, Texas Notes to Schedule of Expenditures of Federal Awards Year ended July 31, 2015

Note 1- General

The accompanying Schedule of Expenditures of Federal/State Awards presents the activity of all Federal and State financial assistance programs for the Port of Port Arthur Navigation District of Jefferson County, Texas. The District’s reporting entity is defined in the Notes to the District’s financial statements. All Federal and State financial assistance received directly from Federal and State agencies and pass-through other governmental agencies are is included on the schedule.

Note 2 - Basis of Presentation

The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Port of Port Arthur Navigation District of Jefferson County, Texas and is presented on the accrual basis of accounting, which is described in the Notes to the District’s financial statements.

58 Port of Port Arthur Navigation District of Jefferson County, Texas Schedule of Findings and Questioned Costs Year Ended July 31, 2015

I. Summary of Audit Results

1. The auditor’s report expresses an unqualified opinion on the basic financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas.

2. No significant deficiencies or material weaknesses relating to the audit of the financial statements are reported in the “Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standands.”

3. No instances of noncompliance material to the financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas which would be required to be reported in accordance with Government Auditing Standards were disclosed during the audit.

4. No significant deficiencies or material weaknesses relating to the audit of the major federal award programs are reported in the “Independent Auditor’s Report on Compliance with Each Major Federal Program and Report on Internal Control over Compliance in Accordance with OMB Circular A-133.”

5. The auditor’s report on compliance for major Federal Award Programs for the Port of Port Arthur Navigation District of Jefferson County, Texas expresses an unmodified opinion on all major programs.

6. No audit findings that are required to be reported in accordance with Section 510(a) of OMB Circular A-133 are reported in this schedule.

7. The programs tested as major programs included:

U.S. Department of Homeland Security Port Security Grant (CFDA - 97.056) U.S. Department of Transportation CMAQ Project Grant (FDA 20.205)

8. The dollar threshold used to determine between Type A and Type B programs was $300,000.

9. The District is not a low-risk auditee.

II. Findings related to the financial statements - None

III. Findings and questioned cost for Federal Awards - None

IV. Prior year audit findings requiring corrective action - None

59 Port of Port Arthur Navigation District of Jefferson County, Texas Schedule of Prior Audit Findings Year ended July 31, 2015

None Reported

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APPENDIX C

FORM OF OPINION OF BOND COUNSEL

[THIS PAGE INTENTIONALLY LEFT BLANK] LAW OFFICES MC CALL, PARKHURST & HORTON L.L.P.

717 NORTH HARWOOD 600 CONGRESS AVENUE 700 N. ST. MARY'S STREET

SUITE 900 SUITE 1800 SUITE 1525

DALLAS, TEXAS 75201-6587 AUSTIN, TEXAS 78701-3248 SAN ANTONIO, TEXAS 78205-3503

TELEPHONE: 214 754-9200 TELEPHONE: 512 478-3805 TELEPHONE: 210 225-2800

TELECOPY: 214 754-9250 TELECOPY: 512 472-0871 TELECOPY: 210 225-2984

[An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Bonds, assuming no material changes in facts or law.]

PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS UNLIMITED TAX PORT REFUNDING BONDS, TAXABLE SERIES 2016B IN THE AGGREGATE PRINCIPAL AMOUNT OF $______

AS BOND COUNSEL FOR THE PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS (the "Issuer") of the Bonds described above (the "Bonds"), we have examined into the legality and validity of the Bonds, which bear interest from the dates specified in the text of the Bonds, until maturity or redemption, at the rates and payable on the dates as stated in the text of the Bonds, and maturing subject to redemption on the dates specified in the text of the Bonds, all in accordance with the terms and conditions stated in the text of the Bonds.

WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and laws of the State of Texas, and a transcript of certified proceedings of the Issuer, and other pertinent instruments authorizing and relating to the issuance of the Bonds, including one of the executed Bonds (Bond Number T-1).

BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Bonds have been authorized, issued and delivered in accordance with law; that the Bonds constitute valid and legally binding general obligations of the Issuer in accordance with their terms except as the enforceability thereof may be limited by governmental immunity, bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws now or hereafter enacted relating to creditors' rights generally or by general principles of equity which permit the exercise of judicial discretion; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of said Bonds have been levied and pledged for such purpose, without limit as to rate or amount, on all taxable property within the Issuer.

WE EXPRESS NO OPINION as to any federal, state or local tax consequences of acquiring, carrying, owning or disposing of the Bonds.

C-1 OUR SOLE ENGAGEMENT in connection with the issuance of the Bonds is as Bond Counsel for the Issuer, and, in that capacity, we have been engaged by the Issuer 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 for no other reason or purpose. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other material relating to the financial condition or capabilities of the Issuer, or the disclosure thereof in connection with the sale of the Bonds, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Bonds and have relied solely on certificates executed by officials of the Issuer as to the current outstanding indebtedness of the Issuer and the assessed valuation of taxable property within the Issuer. 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.

THE FOREGOING OPINIONS represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result.

OUR OPINION IS BASED ON EXISTING LAW, which is subject to change. Such opinion if further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinion 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.

Respectfully,

C-2

PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS • UNLIMITED TAX PORT REFUNDING BONDS, TAXABLE SERIES 2016B Financial Advisor to the District , LLC dvisors A unicipal USCA M