PRELIMINARY OFFICIAL STATEMENT DATED DECEMBER 2, 2010
NEW ISSUE -- BOOK-ENTRY ONLY Rating: Standard & Poor’s: “A”
In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Bonds (including, in the case of Bonds sold at an original issue discount, the difference between the initial offering price and par) is excluded from gross income for Federal income tax purposes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific item of tax preference under §57 of the Internal Revenue Code of 1986, as amended (the “Code”) for purposes of the Federal individual or corporate alternative minimum taxes. The Bonds, and interest income therefrom, are free from taxation for purposes of personal income, corporate net income and personal property taxes within the Commonwealth of Pennsylvania. (See “TAX MATTERS” herein.)
The Authority has designated the Bonds as “Qualified Tax-Exempt Obligations” pursuant to §265(b)(3) of the Code (relating to the deductibility of interest expense by certain financial institutions).
$19,290,000* Butler Area Sewer Authority (Butler County, Pennsylvania) Sewer Revenue Bonds, Series of 2010
Dated: Date of Delivery Principal Due: July 1, as shown herein Interest Payable: January 1 and July 1 First Interest Payment: July 1, 2011
The Butler Area Sewer Authority Sewer Revenue Bonds, Series of 2010 (the "Bonds"), in the aggregate principal amount of $19,290,000*, will be issued in registered form, without coupons in denominations of $5,000 principal amount or any integral multiple
thereof. The Bonds will be registered in the name of Cede & Co., as the registered owner and nominee of the Depository Trust Company ("DTC"), New York, New York. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or any integral multiple thereof only under the book-entry system maintained by DTC through its brokers and dealers who are, or act through, DTC Participants. The purchasers of the Bonds will not receive physical delivery of the Bonds. For so long as any purchaser is the
ch jurisdiction. ch jurisdiction. beneficial owner of a Bond, that purchaser must maintain an account with a broker or a dealer who is, or acts through, a DTC u Participant to receive payment of principal of and interest on the Bonds. See "BOOK-ENTRY ONLY SYSTEM" herein. If, under the without notice. The Bonds may not be sold nor may offers to buy be accepted prior to the time of the of the time to prior be accepted to buy offers may nor be sold not may Bonds The notice. without circumstances described herein, Bonds are ever issued in certificated form, the Bonds will be subject to registration of transfer, exchange
ffer to sell or the solicitation ofan offerto buy, nor shall therebe any sale of Bonds inany jurisdiction in and payment as described herein. The Bank of New York Mellon Trust Company, N.A., Pittsburgh, Pennsylvania will serve as trustee
laws of any s of any laws for the Bonds (the "Trustee"). Semiannual interest on the Bonds when due will be paid on January 1 and July 1 of each year by check drawn on the Trustee mailed to the registered owners of the Bonds as of the Record Date, (as described herein see "The BONDS" infra). The Bonds are issued pursuant to and secured by a Trust Indenture, dated as of December 1, 2010, between the Butler Area Sewer Authority (the "Authority") and the Trustee (the “Indenture”). The Bonds are secured under the Indenture by an assignment and pledge to the Trustee of Pledged Revenues, as herein described.
The Bonds are subject to redemption prior to maturity. See "THE BONDS - Optional Redemption" herein.
The Bonds are being issued and sold to provide funds which will be used to: 1) fund various capital projects (the “Capital Projects”); 2) fund a deposit to the Debt Service Reserve Fund; and 3) pay costs related to issuance of the Bonds (the “Project”).
The Bonds are special limited obligations of the Authority. Neither the credit nor the taxing power of the City of Butler, Butler Township or the Commonwealth of Pennsylvania or any other political subdivision thereof is pledged for the payment of the Bonds, nor shall the Bonds be, or be deemed to be, an obligation of the City of Butler, Butler Township or the Commonwealth of Pennsylvania or of any other political subdivision thereof, other than the Authority to the extent described herein. The Authority has no taxing power.
Continuing Disclosure Filings will be made to the Electronic Municipal Market Access ("EMMA") system, available at www.emma.msrb.org.
MATURITIES, AMOUNTS, INTEREST RATES, AND YIELDS ARE DISPLAYED INSIDE THE FRONT COVER
The Bonds are offered when, as and if issued and received by the Underwriter, subject to prior sale, to withdrawal or modification of the offer without notice, and to the approval of legality and tax exemption of the Bonds by Dinsmore & Shohl LLP, Pittsburgh, Pennsylvania, Bond Counsel. Certain legal matters will be passed upon for the Authority by its Solicitor, Dillon McCandless King Coulter & Graham, LLP, Butler, Pennsylvania. Phoenix Advisors, LLC, Downingtown, Pennsylvania is acting as financial advisor on this transaction. It is anticipated that the Bonds will be available for delivery through DTC on or about December 30, 2010.
Dated: ______, 2010 ______*Preliminary, subject to change. Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an o an constitute Statement Official Preliminary this shall circumstances no Under form. final in delivered is Statement Official securities applicable the under or qualification to registration prior be unlawful would or sale solicitation offer, such which This Preliminary Official Statement and the information contained herein are subject to completion, amendment or other changes changes or other amendment to completion, are subject herein contained the information and Statement Official Preliminary This
$19,290,000* Butler Area Sewer Authority (Butler County, Pennsylvania) Sewer Revenue Bonds, Series of 2010
MATURITY DATES, PRINCIPAL AMOUNTS, INTEREST RATES AND YIELDS
Dated: Date of Delivery Principal Due: July 1, as shown herein Interest Payable: January 1 and July 1 First Interest Payment: July 1, 2011
Maturity Date Principal Interest July 1, Amount Rate Yield CUSIP 2014 $445,000 % % 2015 450,000 2016 460,000 2017 455,000 2018 445,000 2019 440,000 2020 455,000 2021 475,000 2022 495,000 2023 515,000 2024 535,000 2025 560,000 2026 585,000 2027 615,000 2028 760,000 2029 1,035,000 2030 1,085,000 2031 1,240,000 2032 1,600,000 2033 2,335,000 2034 4,305,000 BUTLER AREA SEWER AUTHORITY Butler County, Pennsylvania
Authority Address 100 Litman Road Butler, Pennsylvania 16001
MEMBERS OF THE AUTHORITY Gerald S. Patterson, Jr. - Chairman John M. Heim - Vice Chairman Van Peterson - Secretary Michael English - Treasurer George E. Shockey - Assistant Secretary and Treasurer
Executive Director Thomas D. Rockovich
Operations Director M. John Schon
Finance Director Ronata L. Lavorini, CPA
Authority Solicitor Dillon McCandless King Coulter & Graham, LLP Butler, Pennsylvania
Consulting Engineers Chester Engineers Moon Township, Pennsylvania
Trustee and Paying Agent The Bank of New York Mellon Trust Company, N.A. Pittsburgh, Pennsylvania
Bond Counsel Dinsmore & Shohl LLP Pittsburgh, Pennsylvania
Independent Auditor Maher Duessel, Certified Public Accountants Pittsburgh, Pennsylvania
Financial Advisor Phoenix Advisors, LLC Downingtown, Pennsylvania
Underwriter ______
No broker-dealer, salesperson or other person has been authorized by the Authority or the Underwriter to give any information or to make any representations with respect to the Bonds, other than those in this Official Statement, and if given or made, such other information or representations must not be relied upon. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Bonds by any person in any state or other jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale prior to registration or qualification of the Bonds pursuant to the applicable laws of any such jurisdiction. The information set forth herein has been obtained from the Authority and other sources that are believed to be reliable, but the Underwriter does not guarantee the accuracy or completeness of such information and such information is not to be construed as a representation by the Underwriter. Any statement herein involving matters of opinion or forecasts of the occurrence of future events or circumstances are, whether or not expressly so stated, intended as such and not as representations of fact. 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 affairs of the Authority since the date hereof.
Upon issuance, the Bonds will not be registered under the Securities Act of 1933, as amended, and will not be listed on any stock or other securities exchange, nor has the Indenture been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon exemptions contained in such acts. The registration or qualification of the Bonds in accordance with applicable provisions of securities laws of the states in which the Bonds have been registered or qualified and the exemption from registration or qualification in other states, cannot be regarded as a recommendation thereof. Neither the Authority nor the Commonwealth of Pennsylvania has passed upon the merits of the Bonds or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. Neither the Securities and Exchange Commission nor any other federal, state, municipal or other governmental entity will have passed upon the accuracy or adequacy of this Official Statement or approved the Bonds for sale.
The information in this Official Statement concerning The Depository Trust Company ("DTC") and DTC's book- entry system has been obtained from DTC, and the Authority takes no responsibility for the accuracy thereof. Such information has not been independently verified by the Authority and the Authority makes no representation as to the accuracy or completeness of such information. Certain information set forth in this Official Statement has been furnished by the Authority and other sources that are believed to be reliable. Such information is not guaranteed as to accuracy or as to completeness and is not considered to be a representation of the Authority.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE 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 WITHOUT PRIOR NOTICE.
TABLE OF CONTENTS Page INTRODUCTORY STATEMENT ...... 1 THE AUTHORITY ...... 2 Introduction ...... 2 PURPOSE OF THE ISSUE AND PLAN OF FINANCING ...... 2 General ...... 2 Estimated Sources and Uses of Funds ...... 3 THE BONDS...... 3 General ...... 3 Payment of Principal and Interest...... 3 Transfer, Exchange and Registration of the Bonds...... 4 Optional Redemption...... 5 Notice of Redemption...... 5 BOOK ENTRY ONLY SYSTEM ...... 5 THE SEWER SYSTEM ...... 7 Description and History of the Sewer System ...... 7 Authority Employment...... 8 Authority Labor Relations...... 9 Authority Pension Plans ...... 9 Insurance Coverage of the Authority...... 9 Billing and Collection Procedures ...... 9 Accounts Receivable ...... 10 Ten Largest Customers...... 10 Recent Equivalent Dwelling Unit Trends...... 11 Sewer Service Charges ...... 11 System Rate Schedule ...... 12 SOURCE OF PAYMENT AND RATE COVENANT...... 12 BUDGET AND FINANCES ...... 13 SUMMARY OF CERTAIN PROVISIONS OF THE TRUST INDENTURE ...... 15 Application of Proceeds of the Bonds ...... 15 Revenue Fund...... 15 Debt Service Fund ...... 15 Debt Service Reserve Fund ...... 16 Bond Redemption and Improvement Fund...... 16 Defaults and Remedies ...... 17 Rate Covenant ...... 17 AUTHORITY BOND INDEBTEDNESS ...... 17 FUTURE FINANCINGS...... 18 TAX MATTERS ...... 18 Original Issue Discount ...... 19 Original Issue Premium...... 20 Not Arbitrage Bonds...... 20 Market Discount ...... 20 CONTINUING DISCLOSURE AGREEMENT ...... 21 MISCELLANEOUS ...... 22 Approval of Legality ...... 22 Litigation ...... 22 Annual Audit ...... 22 Bond Rating...... 22 Bond Underwriting...... 22 Financial Advisor ...... 23 Other Matters...... 23
APPENDIX A - Description of the Service Area APPENDIX B - Authority’s Financial Statements APPENDIX C - Bond Counsel Opinion APPENDIX D - Debt Service Schedule APPENDIX E - Engineer’s Report OFFICIAL STATEMENT
BUTLER AREA SEWER AUTHORITY (Butler County, Pennsylvania)
$19,290,000* Sewer Revenue Bonds, Series of 2010
INTRODUCTORY STATEMENT
This Official Statement, including the cover page hereof and appendices hereto, is furnished by the Butler Area Sewer Authority (the "Authority") to set forth certain information concerning the Authority and the issuance of its $19,290,000* aggregate principal amount of Sewer Revenue Bonds, Series of 2010 (the "Bonds").
The Bonds are being issued and secured by the Authority under a Trust Indenture dated as of December 1, 2010 (the "Indenture"), between the Authority and The Bank of New York Mellon Trust Company, N.A., Pittsburgh, Pennsylvania, as trustee (the "Trustee").
The proceeds of the Bonds will be used to: 1) fund various capital projects (the “Capital Projects”), as further described herein; 2) fund a deposit to the Debt Service Reserve Fund; and 3) pay costs related to issuance of the Bonds (the “Project”).
Brief descriptions of the Authority's Sewer System, the areas serviced by the Authority, the Bonds, the security for the Bonds, and the Indenture are included in this Official Statement.
The Authority has no power to pledge the credit or the taxing power of the City of Butler, Butler Township, the Commonwealth of Pennsylvania or any political subdivision thereof, nor shall the Bonds be obligations of City of Butler, Butler Township, the Commonwealth of Pennsylvania or any political subdivision thereof, nor shall the City of Butler, Butler Township, the Commonwealth of Pennsylvania or any political subdivision thereof be liable for the payment of principal of or interest on the Bonds. The Authority has no taxing power.
Summaries of certain Authority financial information have been obtained from Authority officials. The financial statements of the Authority for fiscal year ended June 30, 2010 were audited by Maher Duessel, Certified Public Accountants and are included herein as "APPENDIX B." Copies of the Authority's financial statements are available upon written request, with payment of duplication and mailing costs. Such request should be mailed to the Authority's address as shown herein.
Neither the delivery of this Official Statement nor the sale of the Bonds made hereunder shall, under any circumstances, create any implication that there have been no changes in the affairs of the Authority, the Bond Insurer (if applicable), the System (defined herinafter), or the communities or areas served by the Authority since the date of the Official Statement or the date as of which particular information contained herein is given, if earlier.
Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Indenture.
1 THE AUTHORITY
Introduction
The Butler Area Sewer Authority is a body corporate and politic, organized under the Pennsylvania Municipal Authorities Act of 2001, P.L. 287, as amended and supplemented (the “Act”), having been duly organized under said Act by the joint action of the City of Butler and Butler Township (the “Incorporating Municipalities”), both of Butler County, Pennsylvania. The Authority’s Certificate of Incorporation was issued by the Secretary of the Commonwealth of Pennsylvania on November 13, 1962. On May 6, 1997, an Amendment to the Articles of Incorporation was filed to extend the life of the Authority to February 6, 2046.
The Authority is governed by a Board of five voting members, three of whom are appointed by the Butler City Council for a period of five years each. The other two members are appointed by the Butler Township Commissioners for a period of five years each. The terms of the members are staggered so that the term of at least one member expires each year and, in accordance with the Act, a successor is appointed each year. Members of the Board may be re-appointed.
The following table sets forth the names, offices and term expirations for the current members of the Authority Board:
Member Authority Office Term Expires Gerald S. Patterson, Jr. Chairman December 31, 2011 John M. Heim Vice Chairman December 31, 2010 Van Peterson Secretary December 31, 2013 Michael English Treasurer December 31, 2012 George E. Shockey Assistant Secretary/Treasurer December 31, 2014
The day-to-day management of the Authority is overseen by the Executive Director, Thomas D. Rockovich.
The Authority is empowered to exercise any and all powers conferred by the Act as may be necessary with respect to the construction, ownership, operation, and maintenance either in whole or part of the Sanitary Sewer System (the “System”). Said powers include the power to acquire, by purchase or condemnation, sites and rights of way necessary in connection with said construction, ownership, operation, and maintenance of the System. The Authority is also empowered to enter into contracts, agreements, and leases, either in the capacity of the lessee or lessor, respecting the construction and operation of the System.
Additionally, the operation and maintenance of the System is governed pursuant to terms and provisions of the Water Pollution Control Agreement for Central Butler County, dated February 20, 1974 (the “Service Agreement”). This Service Agreement was entered into by and between the Authority and the Service Area Municipalities: the City of Butler, Butler Township, Center Township, Summit Township, and East Butler Borough; and the other authorities within the Service Area: the Deshon Area Sanitary Disposal and Sewer Authority, and Municipal Water and Sewer Authority of Center Township. Additional Service Agreements are also in place between the Authority and Connoquenessing Township and Oakland Township.
PURPOSE OF THE ISSUE AND PLAN OF FINANCING
General
In general, the proceeds of the Bonds will be used, together with other available funds, to: 1) fund various capital projects (the “Capital Projects”), including the construction of four (4) new wet weather flow diversion pump stations with associated pipelines, diversion structures and other related machinery and
2 equipment, the construction of seven (7) new flow equalization/storage tanks on three sites (totaling over 22 million gallons of storage capacity), the upsizing of two interceptor sewers, and other renovations to the Authority’s main office and treatment plant facilities; 2) to fund a deposit to the Debt Service Reserve Fund; and 3) to pay costs related to issuance of the Bonds.
Estimated Sources and Uses of Funds
The following table sets forth the anticipated sources and uses of funds in connection with the Bonds.
Sources of Funds Par Amount of Bonds $ Net Original Issue Premium/Discount (1)
TOTAL SOURCES $
Uses of Funds Capital Project Fund Deposit $ Costs of Issuance(2) Debt Service Reserve Fund
TOTAL USES $
(1) See “Original Issue Premium” and “Original Issue Discount” under “TAX MATTERS” herein. (2) Consisting of legal, paying agent, insurance premium, if any, printing, rating fee, bond discount and miscellaneous expenses.
THE BONDS
General
The Bonds are being issued in the aggregate principal amount of $19,290,000*, are dated as of the date of delivery, bear interest from that date at the rates shown on the inside cover page hereof, payable January 1 and July 1 of each year, beginning July 1, 2011, and mature on July 1 in each of the years shown on the inside cover page hereof.
The Bonds are available for purchase only in book entry form. Beneficial ownership of the Bonds may be acquired, in denominations of $5,000 principal amount or any integral multiple thereof, only under the book-entry system maintained by The Depository Trust Company ("DTC"), New York, New York, through brokers and dealers who are, or act through DTC Participants. The purchasers of the Bonds (the "Beneficial Owners") will not receive any physical delivery of bond certificates, and beneficial ownership of the Bonds will be evidenced only by book entries maintained by DTC. For so long as any purchaser is the beneficial owner of a Bond, that purchaser must maintain an account with a broker or dealer who is, or acts through, a DTC Participant to receive payment of the principal of, redemption premium, if any, and interest on the Bonds. See "BOOK - ENTRY ONLY SYSTEM" herein.
Payment of Principal and Interest
When issued, the Bonds will be registered in the name of Cede & Co., as nominee for DTC. So long as Cede & Co., as nominee for DTC, is the registered owner of the Bonds, payments of principal of, redemption premium, if any, and interest on the Bonds, when due, are to be made by the Trustee to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC, and all such payments shall be valid and effective to satisfy fully and to discharge the obligations of the Authority with respect to, and to the extent of, principal, redemption premium, if any, and interest so paid.
3 If the use of a book-entry system for the Bonds is discontinued for any reason, bond certificates will be issued to the Beneficial Owners of the Bonds and payment of principal, redemption premium, if any, and interest on the Bonds shall be made as described in the following paragraphs.
Principal of the Bonds will be paid to the registered owners thereof or assigns, when due, upon surrender of the Bonds to the Trustee at its corporate trust office in Pittsburgh, Pennsylvania (or to any successor trustee at its designated office(s)).
Interest on any Bond held in physical, certificated form is payable to the registered owner of such Bond from the interest payment date next preceding the date of registration and authentication of the Bond, unless: (a) such Bond is registered and authenticated as of an interest payment date, in which event such Bond shall bear interest from said interest payment date; or (b) such Bond is registered and authenticated after a Record Date (hereinafter defined) and before the next succeeding interest payment date, in which event such Bond shall bear interest from such interest payment date; or (c) such Bond is registered and authenticated on or prior the Record Date next preceding July 1, 2011, in which event such Bond shall bear interest from the date of delivery; or (d) as shown by the records of the Trustee, interest on such Bond shall be in default, in which event such Bond shall bear interest from the date to which interest was last paid on such Bond. Interest shall be paid semiannually on January 1 and July 1 of each year, beginning July 1, 2011, until the principal sum is paid. Interest on each Bond while held in physical, certificated form is payable by check drawn on the Trustee, which shall be mailed to the registered owner whose name and address shall appear, at the close of business on the fifteenth (15th) calendar day (whether or not a day on which the Trustee is open for business) next preceding each interest payment date, respectively (the "Record Date"), on the registration books maintained by the Trustee, irrespective of any transfer or exchange of the Bond subsequent to such Record Date and prior to such interest payment date, unless the Authority shall be in default in payment of interest due on such interest payment date. In the event of any such default, such defaulted interest shall be payable to the person in whose name the Bond is registered at the close of business on a special record date for the payment of such defaulted interest established by notice mailed by the Trustee to the registered owners of the Bonds not less than fifteen (15) days preceding such special record date. Such notice shall be mailed to the persons in whose names the Bonds are registered at the close of business on the fifth (5th) day preceding the date of mailing.
If the date for the payment of the principal of or interest on any Bonds shall be a Saturday, Sunday, legal holiday or on a day on which banking institutions in the Commonwealth are authorized or required by law or executive order to close, then the date for payment of such principal or interest shall be the next succeeding day which is not a Saturday, Sunday, legal holiday or a day on which such banking institutions are authorized or required to close, and payment on such date shall have the same force and effect as if made on the nominal date established for such payment.
Transfer, Exchange and Registration of the Bonds
When issued, the Bonds will be registered in the name of Cede & Co., as nominee for DTC. So long as Cede & Co., as nominee for DTC, is the registered owner of the Bonds, transfers of ownership interests in the Bond are to be accomplished by entries made on the books of DTC Participants acting on behalf of the Beneficial Owners. See "BOOK ENTRY ONLY SYSTEM" herein.
If the use of the Book Entry Only System is discontinued and bond certificates are issued, any Bond will be transferable or exchangeable by the registered owner thereof upon surrender of such Bond to the Trustee, accompanied by a written instrument or instruments in form, with instructions, and with guaranty of signature satisfactory to the Trustee, duly executed by the registered owner of such Bond or his attorney-in-fact or legal representative. The Trustee shall enter any transfer of ownership of such Bond in the registration books and shall authenticate and deliver at the earliest practicable time in the name of the transferee or transferees a new fully registered Bond or Bonds of authorized denominations of the same tenor and maturity for the aggregate amount which the registered owner is entitled to receive.
4 If and when use of the Book-Entry Only System has been discontinued, the Authority and the Trustee shall not be required (a) to register the transfer of or exchange any Bonds then considered for redemption during a period beginning at the close of business on the fifteenth (15th) day next preceding any date of selection of Bonds to be redeemed and ending at the close of business on the day on which the applicable notice of redemption is mailed or (b) to register the transfer of or exchange any portion of any Bond selected for redemption until after the redemption date. Also, Bonds may then be exchanged for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity and interest rate.
Optional Redemption
The Bonds maturing on or after July 1, 2017 are subject to redemption prior to maturity at the option of the Authority, in whole or in part, at any time on or after July 1, 2016 in any order of maturity specified by the Authority and if in part within a maturity, then by lot, at a redemption price equal to 100% of the principal amount thereof to be redeemed plus interest accrued to the redemption date.
Notice of Redemption
Notice of redemption, identifying the Bonds to be redeemed and stating the redemption date, the redemption price and that on the redemption date the Bonds called for redemption will be due and payable at the designated corporate trust payment office of the Trustee, and further stating that from and after the redemption date interest on each Bond called for redemption shall cease to accrue, shall be given by the Trustee by causing the mailing of a copy of such notice of redemption by first class mail (postage prepaid) not more than 60 days and not less than 30 days before the applicable redemption date to the registered owner of each Bond to be redeemed in whole or in part, at such person's address shown on the Bond Register of the Authority. Failure to give such notice to any owner of a Bond, or any defect therein, shall not affect the validity of any proceeding for redemption as to the holders of any Bonds properly receiving such notice. Notice of redemption having been duly given to or waived by the holders of Bonds called for redemption, the Bonds called for redemption shall become due and payable on the redemption date designated and interest on such Bonds shall cease from the redemption date whether or not the Bonds shall be presented for payment. The principal amount of all Bonds so called for redemption, together with the accrued and unpaid interest thereon to the date of redemption, shall be paid by the Trustee or the Paying Agent upon presentation and surrender thereof in negotiable form. If at the time of mailing of notice of any optional redemption, the Authority shall not have deposited with the Trustee moneys sufficient to redeem all the Bonds called for redemption, such notice shall state that it is conditional and subject to the deposit of the redemption moneys with the Trustee not later than the redemption date, and such notice shall be of no effect unless such moneys are so deposited.
BOOK ENTRY ONLY SYSTEM
The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC.
DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade
5 settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of the Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks and trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations 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 certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other 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 transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security 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 registrar and request that copies of the notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
6 Redemption proceeds, distributions and dividend 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 Authority or the Trustee 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 Trustee or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
A Beneficial Owner shall give notice to elect to have its Bond purchased or tendered, through its Participant, to the Remarketing Agent, and shall affect delivery of such Bonds by causing the Direct Participant to transfer the Participant's interest in the Bonds, on DTC's records, to the Tender Agent. The requirement for physical delivery of the Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Bonds to the Tender Agent's DTC account.
DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered.
The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.
The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the accuracy thereof.
THE SEWER SYSTEM
The Authority's Sewer System serves the City of Butler and Butler Township and its environs with a public sanitary sewer collection and treatment system. Other municipalities served are Center Township, Summit Township, and East Butler Borough and portions of Connoquenessing, Oakland, and Penn Townships.
Description and History of the Sewer System
The City of Butler constructed the original wastewater treatment plant facilities in 1938 on the same site in Butler Township as the present-day treatment plant. In 1962, the City of Butler and Butler Township created the Butler Area Sewer Authority for the purposes of providing a non-political municipal body for solving sewage issues in the City of Butler and Butler Township through the expansion of the collection sewer system and the treatment plant facilities.
During 1963 and 1964, the Authority spent almost $3,000,000 to expand the collector sewer system and to expand and repair the original 1938 wastewater treatment facilities to a capacity of 5.0 million gallons per day (MGD). The facilities built by this 1963 Project served as the basis for a major expansion and upgrade of the facilities which was completed under the 1978 Construction Project. The 1978 Construction Project required the expenditure of $58,500,000 in construction fund moneys provided by the U.S. Environmental
7 Protection Agency (EPA) Construction Grants, new customer tap-in-fees, interest earnings, and proceeds of the Series 1978 Bond Issue and the Series of 1979 Construction Note Issue.
The 1978 Construction Project involved rehabilitation of existing sewage collection and interceptor lines, the construction of new sewer collection systems, interceptor lines, pumping stations and force mains, and the construction of substantial additions to expand the capacity of the wastewater treatment plant and any upgrading of the treatment plant processes to provide a tertiary treatment of the sewage.
More recently, the Authority implemented an on-going, long-term sewer rehabilitation and replacement program to routinely replace the aging sewage collection system infrastructure. The Deshon Area Sewer Rehabilitation Project began in 2006 and has been completed at a cost of $5,646,138. A second major system rehabilitation project, the Northwest Area Sewer Rehabilitation Project, is currently in the construction phase. Total estimated costs of this project at completion are $6,077,095. The Authority has entered into two loan agreements with PennVest to fund these rehabilitation costs.
The current wastewater treatment plant has a design and permitted average daily flow capacity of 10.0 MGD and a rated maximum flow capacity of 25.0 MGD. The treatment facility has a permitted average annual organic loading capacity of 12,750 lbs BOD5/day and is designed to serve an equivalent population of 75,000 people. As of December 31, 2009, the treatment plant served an average of 23,547 Equivalent Dwelling Units (EDUs) with an annual average daily sewage flow of 6.866 MGD and an annual average daily organic loading of 8,004 lbs BOD5/day.
As part of the Authority’s compliance with the Consent Order and Agreement, dated as of October 13, 2006, between the Authority and the Department of Environmental Protection, the Authority submitted and received approval for the “Act 537 Sewage Facilities Planning Study Update” on August 27, 2009 (the “Act 537 Plan”). The Plan proposed that the hydraulic capacity of the current wastewater treatment plant be re-rated to a permitted monthly average daily flow of 11.0 MGD and a peak flow capacity of 27.5 MGD. A request for approval of this proposed re-rating will be submitted to the DEP in 2011 in conjunction with NPDES Permit Renewal Application for the treatment plant.
The System primarily serves the City of Butler, Butler Township, Center Township, areas in East Butler Borough, and limited areas in Summit, Connoquenessing, Oakland, and Penn Townships. The collection system is comprised of over 300 miles of collection and interceptor sewers ranging in size from 6 inches to 48 inches in diameter and 23 sewage pumping stations which contribute flow to the wastewater treatment plant.
Authority Employment
The Authority currently employees forty (40) full-time and one part-time employee, comprised of ten administrative personnel, four hourly office personnel, and twenty-seven (27) hourly operations and maintenance personnel for the plant, pump stations, and collector sewer system, including realty transfer inspection crews. The day-to-day management of the Authority is overseen by the Executive Director. The operations of the Authority are overseen by the Operations Director. The Operations Director oversees the Authority Engineer, Project Engineer, Plant Superintendent, Field Operations Superintendent, Flow Meter Supervisor, and Inspection Programs Supervisor as well as the overall facilities operations and maintenance and laboratory operations. The Authority’s finances and finance department are overseen by the Finance Director including billing, data processing, accounting functions, and general office operations.
In addition to the above described administrative and hourly staff personnel, the Authority currently retains Dillon, McCandless, King, Coulter & Graham, L.L.P., Butler, Pennsylvania, as its legal counsel, Chester Engineers, Moon Township, Pennsylvania, as its Consulting Engineer, and Maher Duessel, Certified Public Accountants, Pittsburgh, Pennsylvania as the Authority’s independent auditor.
8 Authority Labor Relations
The four hourly office personnel and twenty-seven hourly operations and maintenance personnel for the plant, pump stations, and collector sewer system are represented for purposes of collective bargaining by District Council 84, American Federation of State, County, and Municipal Employees, AFL-CIO (Union). The current collective bargaining agreement was adopted on August 1, 2007 and expired on July 31, 2010. The Authority is currently in negotiations with the Union for a new labor agreement. The previous labor agreement has remained in effect and is expected to remain in effect throughout the negotiation period. The Authority considers its labor relations to be satisfactory. No work stoppages have ever been staged by the classified personnel of the Authority.
Authority Pension Plans
The Authority sponsors and maintains a single-employer, contributory, 401(a) defined contribution pension plan covering all eligible employees as defined by the plan document. Authority employees become eligible to participate in the plan upon obtaining twelve months of consecutive service and have worked a minimum of 1,000 hours during the period. Once eligible, the Authority currently contributes five percent of eligible compensation and the employee is required to contribute four percent of eligible compensation. Currently, all Authority employees are eligible to, and required to, participate in the plan. Employees are immediately vested in both the Authority and employee contributions.
In addition, the Authority sponsors and maintains two separate 457(b) defined contribution pension plans. The Authority provides no contribution into either of the two plans and participation by eligible employees is optional. Eligibility for one of the two plans is immediately upon employment at the Authority. The second plan establishes eligibility upon obtaining twelve months of consecutive service and having worked a minimum of 1,000 hours during the period. Currently, all employees are eligible to participate in the 457(b) plans. Employees are immediately vested in their contributions.
The Authority does not sponsor a defined benefit pension plan and therefore no actuarial valuation is necessary.
Insurance Coverage of the Authority
The Authority maintains adequate general insurance coverage against fire, property, liability, automobile, workers compensation and such other risks as are generally included in extended coverage endorsements. The limits of insurance are reviewed annually and updated as needed. Such insurances are carried in such amounts and with such responsible insurance companies that are duly qualified to conduct business within the Commonwealth of Pennsylvania. The Authority requires that all outside contractors to maintain appropriate insurance coverage during the performance of any alterations or capital improvements to the existing System, or the construction of any additions or extensions thereto. The Authority also retains a professional insurance consultant on an as-needed basis that assists in evaluating the insurance coverage of the Authority and its outside vendors and/or contractors.
Billing and Collection Procedures
The Authority bills all customers within its Service Area. The majority of customers, primarily residential, are billed on a quarterly basis. However, monthly billings are prepared and sent for larger volume customers such as industrial, commercial, and certain apartment complexes. Bills are payable within thirty days from receipt. The Authority pursues its own collection procedures with respect to delinquent accounts. In 1989, the Authority adopted penalty provisions to assess interest at a rate of 15% per year on delinquent accounts, which is applied on either a monthly (1.25%) or quarterly basis (3.75%) based on the billing cycle of the customer. The interest was in addition the existing 10% late payment penalty. In 1991, The Authority entered into a cooperative agreement with the local private water supply company to terminate water service for
9 delinquent Authority customers. The Authority will terminate water service to delinquent customers within a specified period of time and after exhausting all available means of collection; partial payments with notarized payment agreements are accepted by the Authority on an individualized basis. Pursuant to the provisions of the laws of the Commonwealth of Pennsylvania, the Authority is also empowered to and does obtain municipal liens against real property of debtors, such as those customers who are protected from water service terminations or those customers with increasing delinquent account balances.
Accounts Receivable
The following table shows the amount of billed Sewer Service Charges, including penalties and interest, receivable that were recorded by the Authority as of the end of each of the past ten fiscal years. It should be noted that the amounts listed below include the regular quarterly and monthly billing which are sent out in July of each year, but not due until after the closing date of the fiscal year. Therefore, a large portion of the receivable balance is a result of current billings. The Authority’s three year average outstanding Sewer Service Charges, including penalties and interest, receivable at June 30 was $707,665. The June 30 average balance excludes the effect of the July billing and more accurately reflects the overdue receivable balance of the Authority. In addition, the base sewer service rate has been increased from $13.00 per month per EDU as of August 1, 2000 to $27.00 per month per EDU as of July 31, 2010.
Year Amount Year Amount July 31, 2010 $ 1,673,049 July 31, 2005 $ 991,441 July 31, 2009 1,484,266 July 31, 2004 912,247 July 31, 2008 1,362,934 July 31, 2003 739,661 July 31, 2007 1,334,087 July 31, 2002 752,865 July 31, 2006 1,068,810 July 31, 2001 733,423
SOURCE: Authority’s independent audited financial statements for the years ended July 31 and Authority financial data.
The increase in the accounts receivable is directly proportional to the increase in the base sewer service rate over the last ten year period and more recently reflective of the current economy. The Authority’s pursues various collection procedures including liening properties and water shut-off, as described above, which results in minimal write-offs to account receivable balances. During the current and past fiscal year, the Authority’s budget for account receivable write-offs is $25,000 compared to the total revenue budgets of approximately $8,100,000 and $7,800,000, respectively.
Ten Largest Customers
The following table depicts the ten largest customers of the Authority, together with their estimated annual sewer use revenues, estimated annual usage, and average EDUs for each customer as of the fiscal year ended July 31, 2010.
10 Estimated Annual Estimated Annual Average Customer Sewer Use Revenues Usage(Gallons) EDUs Butler Memorial Hospital $214,800.00 34,616,800 721 Pennsylvania American Water 111,781.90 * 8,787,075 183 Villa/Highlands, Apartments 49,556.00 8,064,000 168 Moraine Pointe Plaza 48,225.00 7,728,000 161 AK Steel 47,916.69 7,680,000 160 Terrace Apartments 47,512.00 7,728,000 161 JSP International 45,891.57 7,342,650 153 Clearview Mall 43,638.89 6,838,292 142 Greenview Gardens, Apartments 40,212.00 6,528,000 136 Butler Arbors, Apartments 35,540.00 5,760,000 120
Total $685,074.05 101,072,817 2,105
* Includes suspended solids surcharge revenues.
The estimated total annual sewer use revenues generated by the ten largest customers of the Authority ($685,074) are equal to about 9.5% of the estimated total annual sewer use revenues generated by billings to the customers of the Authority ($7,232,743). The estimated annual revenue from the largest customer represents approximately 3.0% of the total annual billing revenues.
Recent Equivalent Dwelling Unit Trends
The number of average annual EDUs for each type of customer account, the total EDUs served by the Authority at the end of each calendar year since December 31, 2004, and the EDU and percentage change over the last six-year period are shown in the following table:
2004-2009 2004-2009 EDU Average Annual EDUs EDU Percentage Customer Type 2004 2005 2006 2007 2008 2009 Net Change Change Quarterly 20,621 20,825 20,775 20,876 20,937 20,727 106 0.50% Monthly 2,491 2,251 2,190 2,241 2,422 2,306 (185) -7.40% Industrial Waste 806 1,043 929 788 670 514 (292) -36.20%
Total EDUs Served 23,918 24,119 23,894 23,905 24,029 23,547 (371) -1.60%
Sewer Service Charges
The Authority’s Articles of Incorporation, the 1974 Service Agreement, and the subsequent Service Agreements with Oakland Township and Connoquenessing Township assigned the ownership and the operation and maintenance responsibility for all of the System within the Service Area to the Authority, and empowered the Authority to assess Sewer Service Charges necessary for the operation, maintenance, repair, and replacement of the System.
Where long-term debt was incurred or Authority funds were utilized to finance the construction of new sanitary sewer collection systems to extend sewer service to new Service Areas, such as the 1978 Construction Project, the Authority was also authorized to assess a Sewer Surcharge sufficient to meet the scheduled debt payments or reimbursement of Authority funds, respectively, for that district or area. The Sewer Surcharge has been utilized in lieu of front foot assessments. Currently, the Authority has only one Sewer Surcharge in effect for the Meridian/Heather Area, which accounts for only 57 of the Authority’s total EDUs. A second Sewer
11 Surcharge will be implemented as of January 1, 2011 for the recent sewer extension to serve the Dutchtown Road Area, which will affect no more than 12 of the Authority’s total EDUs.
The revenues needed for the operation, maintenance, repair, and replacement of the System are derived from the Sewer Service Charges imposed on the customers in the Service Area. Residential customers are billed on a flat rate basis for each EDU. Commercial and industrial customers are billed based upon actual water usage and an EDU unit rate basis for every 4,000 gallons per month of water usage. The total annual costs for the operation, maintenance, repair, and replacement of the System, including debt service, serves as the basis for determining the Authority’s annual Sewer Service Charge per EDU.
All sewer service customers are billed directly by the Authority and the total annual charge for any customer is the total of the Sewer Service Charge plus any applicable Sewer Surcharge. The quarterly and monthly Sewer Service Charges and Sewer Surcharges per EDU or unit, in effect as of July 1, 2010, are as follows:
System Rate Schedule
Per EDU (Unit) Per EDU (Unit) Per Quarter Per Month Unit Charges for Single-Family Residential $ 81.00 $ 27.00
Unit Charges for Multi-Family Residential First 25 units or any part thereof $ 81.00 $ 27.00 Next 25 units or any part thereof 80.50 26.83 Next 25 units or any part thereof 80.00 26.67 Next 25 units or any part thereof 79.50 26.50 All units over 100 79.00 26.33
Unit Charges for Commercial/Industrial Sewage For all units or any part thereof $ 81.00 $ 27.00
Sewer Surcharges Meridian/Heather Area $ 49.00 $ 16.33
The Sewer Services Charges noted above have been adopted by the Authority Board and approved by the Consulting Engineer. The current annual Sewer Service Charge of $324 per EDU covers the costs for the operation, maintenance, repair, and replacement of the System, including debt service. A minimum charge of $81.00 per quarter or $27.00 per month together with any applicable Sewer Surcharge is levied and assessed against any property connected to, abutting on, or convenient to the public Sewer System and feasible to connection thereto, regardless of whether or not the property is or is not receiving Sewer Services.
SOURCE OF PAYMENT AND RATE COVENANT
All Bonds outstanding under the Indenture are required to be equally and ratably secured. The Authority has assigned and pledged to the Trustee for the security and payment of all Bonds issued under the Indenture the Pledged Revenues of the Authority.
By the Indenture, the Authority has agreed to fix rates and other charges so that its Sewer Revenues in each Fiscal Year together with amounts representing Revenues received in prior years not exceeding 5% of such Revenues on hand at the beginning of the applicable Fiscal Year will be sufficient:
12 (a) for the payment of the estimated expenses of operating, maintaining and repairing the Sewer System, and making of all ordinary improvements, additions and extensions which may be necessary or proper to provide or maintain adequate service, the cost of which improvements, additions and extensions is not otherwise provided for; and
(b) for the payment of the estimated reasonable Administration Expenses; and
(c) to provide, after deducting the expenses referred to in subsections (a) and (b) of this Section, on an annual basis, an amount (i) beginning with the Fiscal Year ending July 31, 2011, at least one hundred ten percent (110%) of the Average Annual Debt Service Requirement, on all Bonds then Outstanding under the Indenture (including the Pennvest Debt, as defined in the Indenture), excluding any Bonds during any Fiscal Year to the extent that interest has been capitalized on said Bonds; and (ii) which will also equal the actual amount sufficient to pay the Debt Service Requirements for each Fiscal Year not otherwise provided for, plus the additional amount, if any, required to be transferred to the Debt Service Reserve Fund, or any other Fund under the terms of the Indenture, as supplemented.
BUDGET AND FINANCES
The Indenture requires that, prior to each Fiscal Year, the Authority file with the Trustee a budget for such year. The budget must set forth in reasonable detail the estimated expenses of operating, maintaining and repairing the Sewer System, the administration expenses of the Authority not otherwise provided for, making all ordinary improvements, additions and extensions to the Sewer System not otherwise provided for and operating contingencies for the next succeeding fiscal year.
The budget must be approved by the Consulting Engineer, who for this purpose may be an engineer who is an employee of the Authority. The budget may be amended or supplemented during the year which it covers, but such amendment or supplement shall not supersede any prior budget until it shall have been approved by such Engineer and filed with the Trustee.
Information with respect of the Authority's 2010 financial statements are set forth below and in “APPENDIX B” attached hereto.
The Indenture requires the Authority to establish and maintain a fund to be known as the "Revenue Fund" into which shall be deposited all Sewer Revenues received by the Authority, except receipts from tapping fees and refundable deposits under extension agreements, which the Authority may deposit with authorized depositories in separate accounts and use only to pay tapping costs or to make refunds pursuant to the extension agreements as the case may be.
While subject to the requirements imposed by the Indenture as to maintenance and utilization, the Revenue Fund and the other accounts of initial deposit as described above are not required to be maintained with the Trustee, nor does the Trustee exercise administrative control over withdrawals from such accounts.
13 BUTLER AREA SEWER AUTHORITY Summary Statement of Net Assets Balance at Balance at Balance at Balance at July 31, 2010 July 31, 2009 July 31, 2008 July 31, 2007 Assets: Current Assets $ 18,662,236 $ 19,517,335 $ 18,589,984 $ 16,063,937 Other Assets 51,199 76,797 102,395 127,993 Capital Assets 32,766,938 30,141,485 30,410,936 30,667,965 Total Assets 51,480,373 49,735,617 49,103,315 46,859,895 Liabilities and Net Assets: Current Liabilities 2,952,371 2,649,495 2,309,296 2,313,295 Non-Current Liabilities 7,678,578 6,847,037 8,037,412 7,494,173 Total Liabilities 10,630,949 9,496,532 10,346,708 9,807,468 Total Net Assets $ 40,849,424 $ 40,239,085 $ 38,756,607 $ 37,052,427
BUTLER AREA SEWER AUTHORITY Summary Statement of Revenue and Expenditures July 31, 2010 July 31, 2009 July 31, 2008 July 31, 2007 Operating Revenues: Sewer charges - residential $ 6,981,292 $ 6,899,639 $ 6,801,271 $ 6,387,227 Sewer charges - industrial waste 251,451 244,951 292,133 239,775 Other operating fees and charges 124,421 119,743 131,066 148,289 Total operating revenues 7,357,164 7,264,333 7,224,470 6,775,291 Operating Expenses: Operations and maintenance 4,410,738 4,231,849 4,145,732 4,022,885 Administration 895,108 570,510 587,769 538,914 Depreciation 1,755,862 1,756,569 1,715,278 1,699,041 Total operating expenses 7,061,708 6,558,928 6,448,779 6,260,840 Operating Income (Loss) 295,456 705,405 775,691 514,451 Non-Operating Revenues (Expenses): Capital grant 98,725 401,275 688,547 735,211 Interest income 245,459 313,245 (267,740) (281,228) Interest expense (205,325) (261,729) - 17,735 Amortization (99,608) (99,608) (99,608) (99,608) Total non-operating revenues (expenses) 39,251 353,183 321,199 372,110 Income (Loss) Before Capital Contributions 334,707 1,058,588 1,096,890 886,561 Capital Contributions: Tap-in fees 261,170 384,230 436,724 159,720 Developer contribution revenue 14,462 39,660 170,566 - Total capital contributions 275,632 423,890 607,290 159,720 Net Income (Loss) 610,339 1,482,478 1,704,180 1,046,281 Net Assets: Beginning of year 40,239,085 38,756,607 37,052,427 36,006,146 End of year $ 40,849,424 $ 40,239,085 $ 38,756,607 $ 37,052,427
14 SUMMARY OF CERTAIN PROVISIONS OF THE TRUST INDENTURE
The Bonds are to be issued by the Authority under the Indenture, dated as of December 30, 2010, by and between the Authority and the Trustee. The Bonds are secured by an assignment and pledge under the Indenture to the Trustee of the Pledged Revenues (as defined in the Indenture) from the Sewer System and certain other funds held under the Indenture. The following summarizes certain provisions of the Indenture, but is not regarded as a full statement thereof.
Application of Proceeds of the Bonds
The proceeds of the sale of the Bonds, including interest thereon accrued to the date of delivery, if any, shall be paid over to the Trustee and deposited by the Trustee in a Clearing Fund, which is hereby established. From the Clearing Fund the Trustee shall make the payments, disbursements and deposits as set forth in the Authority Certificate. Any reserves which shall be established in the Clearing Fund shall be disbursed from time to time by the Trustee pursuant to further written directions of the Chairman or Vice Chairman of the Authority and any balance ultimately remaining in the Clearing Fund on February 28, 2011 shall be deposited in the Debt Service Fund.
Revenue Fund
The Authority covenants to deposit all Receipts and Revenues from the Sewer System received by the Authority into the Revenue Fund. The moneys at any time on deposit in the Revenue Fund shall be applied by the Authority to the following purposes in the following order of priority:
(i) on or before the first day of each month, to the payment of administrative Expenses, including amounts budgeted by the Authority with respect to such month;
(ii) on the fourth (4th) business day prior to each interest/principal payment date, an amount equal to the payment of debt service on the Bonds and the Pennvest Debt, when due;
(iii) if necessary to restore the Debt Service Reserve Fund to an amount equal to the Debt Service Reserve Requirement;
(iv) to the payment of Subordinate Debt, if applicable;
(v) to the cost of constructing or acquiring Capital Additions or making extraordinary repairs or expenditures for extraordinary maintenance or the payment of indebtedness incurred by the Authority for such purposes;
(vi) the payment of any liabilities of the Authority arising out of its ownership of the Sewer System which are not properly payable out of any other Fund established by this Indenture; and
(vii) no later than the last business day of each fiscal year to the Bond Redemption and Improvement Fund, all remaining amounts on deposit in the Revenue Fund other than an amount equal to 3/12 of the estimated annual current expenses of the Authority based upon the budget of current expenses of the Authority plus any excess amount that the Authority determines to use to redeem Bonds pursuant to the provisions of the Indenture.
Debt Service Fund
Subject to the provisions contained in the Indenture, the Trustee shall transfer from the Revenue Fund on or before the fourth business day prior to January 1 and July 1 of each year beginning July 1, 2011, to the
15 Debt Service Fund, moneys which shall be sufficient to meet the current interest and principal requirements on the Bonds.
Debt Service Reserve Fund
There is hereby created a special fund known as the "Debt Service Reserve Fund" which shall be held in trust by the Trustee until applied as hereinafter provided. The Trustee shall deposit an amount equal to the Debt Service Reserve Requirement in the Debt Service Reserve Fund out of the proceeds of the Bonds as set forth in the Authority's Certificate.
The Debt Service Reserve Fund will be available to pay the interest and principal on the Bonds in case there is a deficiency in the Debt Service Fund in any year, and in the event of such a payment, deposits will be resumed into the Debt Service Reserve Fund until the required balance is restored.
Bond Redemption and Improvement Fund
There is hereby created a special fund known as the "Bond Redemption and Improvement Fund" which shall be held by the Trustee until applied as hereinafter provided. To the extent not paid out of any other Fund as set forth in the Indenture, the moneys at any time on deposit in the Bond Redemption and Improvement Fund shall be applied by the Trustee, so long as no event of default has occurred and is continuing, to any one or more of the following purposes as the Authority shall direct in writing:
(i) the cost of constructing or acquiring Capital Additions or making extraordinary repairs or expenditures for extraordinary maintenance or the payment of indebtedness incurred by the Authority for such purposes
(ii) the payment of any liabilities of the Authority arising out of its ownership of the Sewer System which are not properly payable out of any other Fund established by this Indenture including without limitation Subordinate Debt; or
(iii) the redemption or purchase of Bonds.
At any time that the Trustee shall be requested to apply moneys in the Bond Redemption and Improvement Fund to the purchase of Bonds, the Authority shall furnish to the Trustee an Officer's Certificate specifying the Bonds which it has agreed to purchase, the purchase price thereof, the names of the sellers and the expenses incurred in connection with such purchases. The Authority shall not purchase, and the Trustee shall not apply moneys in the Bond Redemption and Improvement Fund to the purchase of Bonds at a price in excess of the currently effective redemption price therefor or if such Bonds are not at the time redeemable, in excess of 105% of the principal amount thereof. The Trustee shall from time to time, at the direction of the Authority, apply moneys in the Bond Redemption and Improvement Fund to the redemption of the Bonds then subject to redemption. Such redemption shall be made only upon delivery to the Trustee at least fifteen (15) days prior to the date upon which the first notice of such redemption is required to be sent as provided in the Indenture, of a resolution of the Board designating the series of Bonds to be redeemed and authorizing all necessary action in connection with the redemption thereof.
At the time of the purchase or redemption of any Bonds with moneys in the Bond Redemption and Improvement Fund, the Trustee shall promptly transfer from the Debt Service Fund to the credit of the Bond Redemption and Improvement Fund the amount, if any, theretofore deposited to the credit of the Debt Service Fund on account of the payment of the principal of the Bonds which have been purchased or redeemed and any amount theretofore deposited to the credit of the Debt Service Fund on account of the payment of the interest on the Bonds which have been so purchased or redeemed since the last preceding interest payment date for such Bonds.
16 The Trustee shall promptly cancel all Bonds purchased in accordance with this Section or otherwise purchased in lieu of redemption.
The Trustee shall be authorized, without any direction from the Authority, to transfer moneys from the Bond Redemption and Improvement Fund to the Debt Service Fund to the extent that the moneys in the Debt Service Fund may at any time be insufficient to pay the Bonds as the same shall become due.
Issuance of Additional Bonds
The Authority may issue from time to time, and the Trustee shall authenticate, Additional Bonds for the purpose of providing (a) all or part of the funds necessary to refund Bonds, including accrued and unpaid interest and redemption premium, if any, and all costs and expenses incidental to redemption, (b) all or part of the funds required to construct or acquire Capital Additions, or (c) additional funds to complete the Project, or Capital Additions, including in each case the costs and the expenses of the financing.
Defaults and Remedies
The Indenture sets forth remedies available to the Trustee and the Bondholders in the event of a default under the Indenture. Among other things, events of default are defined in the Indenture to be the failure to pay the principal and interest on the Bonds when the same shall become due.
Upon the happening of an Event of Default as therein defined, the Trustee may enforce, and upon the written request of the holders of not less that 25% of principal amount of the Bonds then outstanding, accompanied by indemnity as provided in the Indenture, shall enforce for the benefit of all Bondholders all their rights provided under the Indenture and the Municipality Authorities Act, including the right of entry, of bringing suit, action or proceeding at law or in equity, and of having a receiver appointed. For a more precise statement of the events of Default and of the rights and remedies of the Trustee and Bondholders, reference is made to the Indenture.
Rate Covenant
The Authority covenants that it has adopted and will charge, maintain and collect throughout its service area in each fiscal year so long as any Bonds remain Outstanding and funds for their payment have not been provided, rates, rents and other charges with respect to the Sewer System which shall result in the Pledged Revenues being at least sufficient to provide in such fiscal year the sum of:
(i) funds to pay the Administrative Expenses of the Authority, plus
(ii) an amount equal to 110% of the Debt Service Requirements in such fiscal year with respect to its Outstanding Bonds, plus
(iii) funds sufficient to cure any deficiency in the Debt Service Reserve Fund, plus
(iv) funds sufficient to pay the amount due in such fiscal year on all Subordinate Debt and other payment obligations of the Sewer System.
AUTHORITY BOND INDEBTEDNESS
As of July 31, 2010, the Authority had outstanding long-term bond debt of $2,149,295, which is a $1,066,649 decrease from last year's outstanding obligation. The outstanding 1997 Series B - Tax Exempt Sewer Revenue Refunding Bonds (the “1997 Bonds”) are scheduled to be paid off in July 2012. The Authority will, prior to or contemporaneously with the closing of the 2010 Bonds, take the necessary steps under the trust
17 indenture dated as of November 1, 1997 between the Authority and U.S. Bank National Association (successor to National City Bank of Pennsylvania), as trustee (the “1997 Indenture”), to effect a legal defeasance of the 1997 Bonds and discharge the 1997 Indenture. In 2006, the Authority executed a loan agreement to borrow up to $7,029,130 from PennVest to fund the Deshon Area Sewer Rehabilitation Project and awarded construction contracts for this work (the “ 2006 PennVest Note”). During 2008, the project was completed and the loan agreement was modified to reflect the actual total principal drawn for construction in the amount of $5,646,138. Principal and interest payments continued during the current year and the outstanding balance as of July 31, 2010 is $5,053,117. The final payment is scheduled for March 1, 2028.
During the year, the Authority executed a loan agreement to borrow up to $6,077,095 from PennVest to fund the Northwest Area Sewer Rehabilitation Project and construction began on the project (the “2010 PennVest Note”). For the year ended July 31, 2010, the Authority began drawing loan proceeds in the amount of $1,815,678. Interest only payments began during the year. The project is expected to be completed in 2011 and principal and interest payments will then begin. The final payment is scheduled for September 1, 2031.
Both the 2006 PennVest Note and the 2010 PennVest Note will be included and defined in the Indenture as debt which is outstanding.
The Authority also applied for and received two funding offers for loans from PennVest in the amounts of $5,137,285 and $13,087,500 to partially fund the construction of four new wet weather flow diversion pump stations with associated pipelines, diversion structures and other related machinery and equipment, and the construction of seven new flow equalization/storage tanks on three sites. Both Loans are expected to close in February 2011 and will constitute additional Bonds under the Indenture.
FUTURE FINANCINGS
The Authority does not anticipate that additional long-term financing, other than those that have already been incurred or are otherwise pending closing, will be required within the next several years. Although the Authority understands that regulations may be modified from time to time that may require operational changes to be implemented by the Authority in the treatment of wastewater to maintain compliance with applicable laws, any such operational changes could result in the need for additional capital improvements and related costs. Such modifications and/or associated costs are unknown to the Authority at this time.
TAX MATTERS
State Income Tax Matters
In the opinion of Bond Counsel, the Bonds and interest income therefrom are free from taxation for purposes of personal income, corporate net income and personal property taxes within the Commonwealth of Pennsylvania.
Federal Income Tax Matters
In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Bonds is excluded from gross income for Federal income tax purposes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific item of tax preference under Section 57 of the Internal Revenue Code of 1986, as amended (the "Code") for purposes of the Federal individual or corporate alternative minimum taxes.
18 The Code imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for Federal income tax purposes of interest on obligations such as the Bonds. The Authority has covenanted to comply with certain restrictions designed to ensure that interest on the Bonds will not be includable in gross income for Federal income tax purposes. Failure to comply with these covenants could result in interest on the Bonds being includable in income for Federal income tax purposes and such inclusion could be required retroactively to the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. However, Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may adversely affect the tax status of the interest on the Bonds.
Certain requirements and procedures contained or referred to in the Resolution and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion regarding the Bonds or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Dinsmore & Shohl LLP.
Although Bond Counsel has rendered an opinion that interest on the Bonds is excludable from gross income for Federal and Pennsylvania income tax purposes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Bondholder's Federal, state or local tax liabilities. The nature and extent of these other tax consequences may depend upon the particular tax status of the Bondholder or the Bondholder's other items of income or deduction. Bond Counsel expresses no opinions regarding any tax consequences other than what is set forth in its opinion; each Bondholder or potential Bondholder is urged to consult with tax counsel with respect to the effects of purchasing, holding or disposing of the Bonds on the tax liabilities of the individual or entity.
For example, corporations are required to include all tax-exempt interest in determining "adjusted current earnings" under Section 56(c) of the Code, which may increase the amount of any alternative minimum tax owed. Receipt of tax-exempt interest, ownership or disposition of the Bonds may result in other collateral Federal, state or local tax consequences for certain taxpayers. Such effects include, without limitation, increasing the federal tax liability of certain foreign corporations subject to the branch profits tax imposed by Section 884 of the Code, increasing the federal tax liability of certain insurance companies, under Section 832 of the Code, increasing the federal tax liability and affecting the status of certain S corporations subject to the Sections 1362 and 1375 of the Code, increasing the federal tax liability of certain individual recipients of social security or railroad retirement benefits, under Section 86 of the Code and, for tax years beginning in 1996, limiting the use of the Earned Income Credit under Section 32 of the Code that might otherwise be available. Ownership of any Bond may also result in the limitation of interest and certain other deductions for financial institutions and certain other taxpayers, pursuant to Section 265 of the Code. Finally, the residence of a holder of Bonds in a state other than Pennsylvania, or being subject to tax in a state other than Pennsylvania, may result in income or other tax liabilities being imposed by such states or their political subdivisions based on the interest or other income from the Bonds.
Original Issue Discount
The Bonds maturing on ______through and including ______(the "Tax-Exempt Discount Bonds") are being offered and sold to the public at an original issue discount ("OID") from the amounts payable at their maturity. OID is the excess of the stated redemption price of a bond at maturity (the face amount) over the "issue price" of such bond. The issue price is the initial offering price to the public (other than to bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of bonds of the same maturity are sold pursuant to that initial offering. For Federal income tax purposes, OID on each bond will accrue over the term of the bond, and for the Tax-Exempt Discount Bonds, the amount of accretion will be based on a single rate of interest, compounded semiannually (the "yield to
19 maturity"). The amount of OID that accrues during each semi-annual period will do so ratably over that period on a daily basis. With respect to an initial purchaser of a Tax-Exempt Discount Bond at its issue price, the portion of OID that accrues during the period that such purchaser owns such Bond is added to the purchaser's tax basis for purposes of determining gain or loss at the maturity, redemption, sale, or other disposition of that Tax-Exempt Discount Bond and thus, in practical effect, is treated as stated interest, which is excludable from gross income for federal income tax purposes.
Holders of Tax-Exempt Discount Bonds should consult their own tax advisors as to the treatment of OID and the tax consequences of the purchase of such Discount Bonds other than at the issue price during the initial public offering and as to the treatment of OID for state tax purposes.
Original Issue Premium
The Bonds maturing on ______through and including ______(the "Premium Bonds") were sold at an original issue premium (the "Acquisition Premium"). Under the Code, the premium on the Premium Bonds is an adjustment to basis and must be amortized. No deduction is allowable on account of such premium. The method of amortization may be the method regularly employed by the taxpayer if such method is reasonable, or, in all other cases, must be the method prescribed by applicable Treasury Regulations, which provide that the amortizable bond premium is an amount which bears the same ratio to the bond premium on the Premium Bonds as the number of months in the taxable year during which the bond was held by the taxpayer bears to the number of months from the beginning of the taxable year (or, if the bond was acquired in the taxable year, from the date of acquisition) to the date of maturity. The basis of the Premium Bond is reduced by the amount of the amortizable bond premium.
Holders of any Bonds purchased at an Acquisition Premium should consult their own tax advisors as to the actual effect of such Acquisition Premium with respect to their own tax situation and as to the treatment of Acquisition Premium for state tax purposes.
Not Arbitrage Bonds
The Authority has covenanted that it will make no use of the proceeds of such issue which would cause the Bonds to be arbitrage bonds or notes, and has further covenanted to comply with the rebate and other requirements of Section 148 of the Code, and the regulations thereunder, during the term of such issue. Proper officers of the Authority will execute a certificate concerning the use of the proceeds of the Bonds in conformity with Section 148 of the Code and the regulations thereunder.
Market Discount
A tax-exempt bond or note such as a Bond, if acquired by purchase after April 30, 1993 other than at original issuance, is a "market discount bond" if the bond or note is purchased at a price less than its stated principal amount (or, in the case of a bond or note issued with original issue discount, its issue price increased for accruals of original issue discount), with such difference being the amount of "market discount". If a holder recognizes gain on the disposition of a market discount bond or note (including by early redemption or gift) a portion of the gain (up to the amount of market discount that accrued while the bond or note was held by such holder) will be treated as ordinary income and not as capital gain. For this purpose, market discount accrues on a straight-line basis or, if elected by the holder, on a constant interest rate basis; the election, on a bond-by- bond basis, is irrevocable once made.
The holder of a market discount bond or note may elect to include the market discount in income as taxable interest income as the market discount accrues. The current inclusion election, once made, applies to all market discount obligations acquired by such holder on or after the first day of the first taxable year in which the election applies and may not be revoked without the permission of the Internal Revenue Service ("IRS"). If
20 the current inclusion election is made, the holder's tax basis in the market discount bond or note is increased by the amount of market discount accruals included in income.
CONTINUING DISCLOSURE AGREEMENT
In order to assist the Underwriter in complying with the requirements of Rule 15c2-12 (the "Rule") promulgated by the Securities and Exchange Commission (the "Commission") pursuant to the Securities and Exchange Act of 1934, as amended, the Authority has covenanted in a Continuing Disclosure Agreement (the "Disclosure Agreement"), for the benefit of the owners of the Bonds, to provide:
(a) The Municipal Securities Rulemaking Board's ("MSRB") Electronic Municipal Market Access ("EMMA") system (discussed below) within 270 days after the end of each fiscal year: (i) a copy of its annual audited financial statements prepared in accordance with guidelines adopted by the Government Accounting Standards Board and American Institute of Certified Public Accountants' Audit Guide, Audits of State and Local Government; and (ii) an update of information of the type contained in this Official Statement under the subheadings in (b), below.
(b) In a timely manner, to the EMMA system notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) principal and interest payment delinquencies; (ii) non-payment related defaults; (iii) unscheduled draws on any debt service reserves reflecting financial difficulty; (iv) unscheduled draws on any credit enhancement reflecting financial difficulty; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (vii) modifications to rights of bondholders; (viii) bond calls; (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Bonds; (xi) rating changes; (xii) bankruptcy, insolvency, receivership or similar event of the obligated person; (xiii) consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (xiv) appointment of a successor or additional trustee or the change of name of a trustee. The Authority may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, if such other event is material with respect to the Bonds.
(c) In a timely manner, to the Paying Agent and EMMA system, notice of any failure by the Authority to provide the required annual financial information on or before the date specified in subparagraph (a) above.
The Authority may modify from time to time the specific types of information provided or the format of the presentation of such information, to the extent necessary as a result of a change in legal requirements or change in the nature of the Authority, provided that any such modification will be done in a manner consistent with the Rule and will not, in the opinion of a nationally recognized bond counsel, materially impair the interest of the holders of the Bonds. The Authority acknowledges that its undertaking pursuant to the Rule described under this heading is intended to be for the benefit of the Bondholders and shall been enforceable by any Bondholder or the Trustee on behalf of such Bondholder. However, the Disclosure Agreement states that a breach of this undertaking will not constitute a default under the Indenture or the Bonds but may be enforced by any owner of Bonds only by an action to compel the Authority with respect to its obligations pursuant to the Rule.
21 MISCELLANEOUS
Approval of Legality
Legal matters incident to the authorization, issuance and sale by the Authority to the Underwriter of the Bonds will be passed upon by Dinsmore & Shohl LLP, Pittsburgh, Pennsylvania, Bond Counsel to the Authority. Certain legal matters will be passed upon for the Authority by its Solicitor, Dillon McCandless King Coulter & Graham, LLP, Butler, Pennsylvania.
Litigation
There is no litigation of any nature now pending or threatened seeking to restrain or enjoin the issuance or sale of the Bonds, or contesting or affecting the validity of the Bonds or any proceedings of the Authority with respect to the issuance or sale thereof, or the pledge of any security provided for the payment of the Bonds or the existence or powers of the Authority. There are no pending or threatened legal proceedings materially adversely affecting the ability of the Authority to meet its obligations in connection with the Bonds.
Annual Audit
The Authority employs an independent certified public accountant to perform the functions and duties required by the Act. Said accountant is required to make an annual audit of the books, records and accounts of the Authority. The Authority, upon receipt, is required to furnish copies of the annual audit to the Trustee and to such Bondholders as make written request therefor.
The financial statements of the Authority for fiscal year ended July 31, 2010, were audited by Maher Duessel, Certified Public Accountants and are included herein as "APPENDIX B."
Bond Rating
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P") has assigned its long-term underlying municipal bond rating of "A" to the Bonds. Reference is made to the manual of S&P for a complete description of its rating procedures and other rating categories.
Such ratings reflect only the views of each organization, and an explanation of the significance of such ratings can only be obtained from S&P at the following address: Standard & Poor's Rating Services, 55 Water Street, New York, NY 10041. There is no assurance that these ratings will remain in effect for any given period of time or that they will not be revised downward or withdrawn entirely by S&P if, in its judgment, circumstances so warrant. Any such downgrade revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds.
Bond Underwriting
The Bonds have been purchased by ______, as the Underwriter. The Underwriter has agreed to purchase the Bonds at an aggregate purchase price of $ (which is the par amount of bonds less the bond discount of $ less the net original issue discount of $ ). The Bond Purchase Agreement for the Bonds provides that the Underwriter will purchase all the Bonds, if any are purchased, in accordance with the terms of the Bond Purchase Agreement, and requires that the Authority certify to the Underwriter that this Official Statement does not, to the knowledge of the Authority, contain any untrue statement of a material fact or omit any statement of any material fact necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. The initial public offering prices of the Bonds, set forth in the BOND MATURITY SCHEDULE shown on the inside of the Cover Page
22 of this Official Statement, may be changed by the Underwriter from time to time without any requirement of prior notice. The Underwriter reserves the right to join with other dealers in offering the Bonds to the public; and said Bonds offered to other dealers may be at prices lower than those offered to the public.
Financial Advisor
Phoenix Advisors, LLC, Downingtown, Pennsylvania, has served as Financial Advisor to the Authority with respect to the issuance of the Bonds ("Financial Advisor"). This Official Statement has been prepared with the assistance of the Financial Advisor. Certain information set forth herein has been obtained from the Authority and other sources, which are deemed reliable, but no warranty, guaranty or other representation as to the accuracy or completeness is made as to such information contained herein. There is no assurance that any of the assumptions or estimates contained herein will be realized. The Financial Advisor is an independent firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.
Other Matters
The summaries and descriptions of terms and provisions of the Bonds and the Indenture and all references to other materials not purported to be quoted in full, are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions thereof. References must be made to the aforesaid documents for the complete statement of the terms and provisions thereof. Copies of the aforesaid documents are available from the Authority and are on file at the principal corporate trust office of the Trustee. All estimates and assumptions herein have been made on the basis of available information and are believed to be reliable, but no representations whatsoever are made that such estimates or assumptions are correct or will be realized. So far as any statements herein involve matters of opinion, whether or not expressly so stated, they are intended merely as such and not as representations of fact.
The Authority has approved and authorized the distribution of this Official Statement.
BUTLER AREA SEWER AUTHORITY Butler County, Pennsylvania
By: ______Gerald S. Patterson, Jr., Chairman Date: December__, 2010
23 APPENDIX A
DESCRIPTION OF THE SERVICE AREA ECONOMIC AND DEMOGRAPHIC DESCRIPTION OF THE SERVICE AREA
General
The System primarily serves the City of Butler, Butler Township, Center Township, areas in the East East Butler Borough, and limited areas in Summit, Connoquenessing, and Oakland Townships all of which are in Butler County.
Transportation
Several major highways traverse Butler County (the “County”). Interstate 80 runs east and west along the northern border of the County, and interstate 79 runs north and south through the western section. The Pennsylvania Turnpike, Interstate 76, runs east and west along the southern border of the County. The Allegheny Valley Expressway, Pennsylvania Route 28, runs through the southeastern corner of the County. Direct access to New Castle, Pennsylvania and Youngstown, Ohio is provided by U.S. Route 422, and Pennsylvania Route 8 traverses the County running north and south. Several major roads, which connect with the interstate highway system, run in all directions from the City of Butler.
Railroads which serve the area include CSX Transportation, Canadian National, Genesee & Wyoming, and Norfolk Southern.
Commercial air service is provided by the Pittsburgh International Airport, which is less than one hour from the service area. Smaller craft are handled by several airports within the County. Principal among these is the Butler County Airport, which is located approximately six miles from the City of Butler and is operated by the Butler County Airport Authority. The Butler County Airport features a 4,801 foot asphalt surfaced runway.
Motor freight trucking service providers include; Black & White Express, Commercial Motor Freight, Inc., Dunmyre Motor Express, Inc., YRC (Yellow Roadway Company), Mason Dixon Tank Lines, Inc., and McCormick Trucking. Express services are available from numerous providers as well.
Access to the nation’s largest inland waterway is available via the Allegheny River at Freeport, located just outside the south eastern corner of the County. Bus services are provided by the Butler Transit Authority. Charter bus service providers include Butler Motor Transit Company and Campbell Bus Lines.
Public Utilities
Electric service is provided to the City of Butler, Butler Township, and other areas located within the System by Allegheny Power, an Allegheny Energy Company, and by PennPower, a FirstEnergy Company. Natural Gas is supplied by T. W. Phillips Gas & Oil Company. Water service is provided by Pennsylvania American Water. Sewer service is provided by the Authority. Telephone service is available through traditional providers such as CenturyLink as well as through alternative sources such as Armstrong Cable and multiple wireless providers including Verizon, AT&T, and Sprint.
Communications
Three radio stations and one newspaper serve the County. The Butler Eagle is an evening daily newspaper with a circulation of more than 26,500.
Health Care and Emergency Services
Butler Health System, including Butler Memorial Hospital and other outpatient facilities, are located throughout the County and Western Pennsylvania. Butler Health System currently has approximately 1,700 employees. Butler Memorial Hospital, located in Butler, is an acute-care, not-for-profit general hospital with a current capacity of 300 beds. The Veterans Administration Hospital is also located in Butler Townshipand currently has 623 employees. The Veterans Administration provides outpatient services that generate approximately 125,000 visits per year. The facility also provides 60 nursing home care beds, 10 compensated work therapy beds, and 56 domiciliary beds. In addition, a satellite hospital of UPMC Passavant, located in the southern corner of the County, a 35-bed hospital serves the residents of Cranberry Township and its neighboring communities.
Butler County operates a skilled nursing home known as Sunnyview Home, located in Butler Township, which has a capacity of 220 beds. Several other long term care facilities licensed by the Commonwealth of Pennsylvania are located in and around the service area.
In addition, area residents have easy access to the hospitals and health care agencies located in the Greater Pittsburgh metropolitan and surrounding areas.
Parks and Recreation
The County is noted for its beautiful scenery and excellent outdoor recreation facilities. Moraine State Park, located a short distance west of the service area, offers camping, hiking, boating, fishing, bicycling, skiing, and many other sports on a 15,000-acre site. Located within the Park is the 3,200-acre Lake Arthur, which includes 40 miles of shore line and areas preserved for waterfowl refuges. The Park attracts visitors from Allegheny County and surrounding counties in Western Pennsylvania. In addition, the City of Butler and Butler County operate various amenities including public parks, a swimming pool, and playgrounds. The County has a number of golf courses, many of which are open to the public. Many sports-minded tourists are attracted to the abundance of outdoor activities and events popular in this area.
Public Education
The Butler Area School District includes the following municipal units: the City of Butler, the Townships of Butler, Center, Clearfield, Connoquenessing, Oakland, and Summit and the Boroughs of Connoquenessing and East Butler. Within Pennsylvania, school districts are classified according to population as first, second, third, and fourth class, with the first having the largest population. The Butler Area School District is classified as a school district of the second class.
Higher Education
Slippery Rock University (University), located in the northwestern section of the County on 660-acres, is a member of the Pennsylvania State System of Higher Education and offers a variety of undergraduate and graduate programs to approximately 8,600 students. The University has 348 full-time faculty and 61 part- time faculty members.
The Butler County Community College (College) main campus, which opened in 1966, is located in Butler Township on 323 wooded acres and currently enrolls approximately 4,400 credit students. The College offers 63 associate degree, career, and transfer programs in business, humanities and social sciences, nursing and allied health, and science and technology. To better serve the community, the College offers non-credit classes for professional and recreational purposes, summer programs for children, training for business and industry, emergency medical services and public safety, and free classes for senior citizens.
The Regional Learning Alliance (RLA), which is located in Cranberry Township, is a 501(c)(3) non- profit organization that acts as the region’s Learning Center, capitalizing on the resources of a 12 member alliance of educational institutions. Members of the RLA include: Carlow University, DeVry University, Duquense University, Gannon University, Geneva College, La Roche College, Penn State University, Pittsburgh Technical Institute, Robert Morris University, Slippery Rock University, Strayer University, and West Virginia University. The University of Pittsburgh, Carnegie-Mellon University, Duquense University, Chatham College, Grove City College, Point Park University, Robert Morris College, La Roche College, and Community College of Allegheny County are located within one hour from Butler County.
Financial Institutions
There are numerous financial institutions located throughout the County. Headquartered in the County are NexTier Bank, Mars National Bank, and First National Bank of Slippery Rock. The County is also served by branch offices of major Pittsburgh commercial banks including Citizens Bank, PNC Bank, and First Commonwealth Bank.
ECONOMY OF THE AREA
The ten largest Employers which are located in the area depicted in the table below:
Employer Product/Service 2009 Employee Count Butler Health System (Butler Hospital) Health and Medical Services 1,807 Iron Mountain Underground Storage (including U.S. Investigations Services) Administrative Support Services 1,782 Verizon Wireless Retail and Utility Services 1,600 AK Steel (formerly Armco Steel) Manufacturing 1,500 Butler County Community College Educational Services 1,225 Traco Manufacturing 1,180 Butler School District Public Educational Services (K-12) 1,141 Wal-Mart (including Sam's Club) Retail Services 1,050 Giant Eagle (subsidiary Butler Refrigerated Meats) Retail Services 953 Slippery Rock University Educational Services 940
Source: County of Butler, Pennsylvania, Comprehensive Annual Financial Report (CAFR) for the year ended December 31, 2009
Business and industry have been attracted to the County due to the relatively low taxes and the availability of a variety of modes of transportation, most notably highway and railroad, allowing for easy access to major market areas.
The area continues to see development through the efforts of the Butler County Community Development Corporation located in the City of Butler which focuses on the development of local business parks. In addition, the area continues to realize benefits from the recently developed Cranberry Woods Business Park, located in the southwestern portion of the County of Butler. Businesses located in this park contribute to the above noted top ten largest employers and is expected to continue to do so with the recent addition of Westinghouse Electric Company which is expected to employ 3,000 individuals. In addition, within the last year, the Butler Commons retail plaza opened in Butler Township, and with its opening has brought new retailers to the area.
POPULATION
Percent Change 2000 1990 1980 1990-2000 Butler County 174,083 152,013 147,912 +14.5% Pennsylvania 12,281,054 11,881,643 11,863,895 + 3.4
Source: United States Department of Commerce, Bureau of the Census *Estimate
AGE COMPOSITION
Under 5 Years 18 Years and Over 65 Years and Over Butler County 10,322 140,422 26,358 Pennsylvania 732,259 9,635,078 1,893,694
Source: United States Department of Commerce, Bureau of the Census, 2000
COMPARATIVE SUMMARY OF GENERAL HOUSING CHARACTERISTICS
Occupied Housing Units Owner Total % Owner Owner Total Occupied Occupied Occupied Occupied Median Housing Housing Housing of all Median Monthly Political Subdivision Units Units Units Units Value Rent Butler County 69,868 51,285 65,862 77.9% $114,100 $487 Pennsylvania 5,249,750 3,406,337 4,777,003 71.3% 97,000 531
Source: United States Department of Commerce, Bureau of the Census, 2000
COMPARATIVE PER CAPITA INCOME TRENDS
Percent of Change Political Subdivision 1983 1985 1987 1990 2000 1983-2000 Butler County $8,332 $9,313 $10,376 $12,747 $20,794 +49.6% Commonwealth of PA 9,091 10,288 11,544 14,068 20,880 +29.7
Source: The Pennsylvania State University Data Center
COMPARATIVE PER CAPITA PERSONAL INCOME TRENDS
Percent of Change Political Subdivision 2006 2007 2008 2006-2008 Pittsburgh PMSA $38,846 $40,634 $42,104 + 8.4% Butler County 36,311 39,378 40,780 +12.3 Commonwealth of PA 37,078 38,738 39,762 + 7.2 United States 37,698 39,392 40,166 + 6.5
Source: U.S. Department of Commerce, Bureau of Economic Analysis
COMPARATIVE MONEY INCOME (as of 1999)
Median Median Household Family Per Capita Political Subdivision Income Income Income Butler County $42,308 $51,215 $20,794 Pennsylvania 40,106 49,184 20,880
Source: US Bureau of the Census, 2000
RECENT TRENDS IN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
Total Labor Employed Total Unemployment Force Labor Force Unemployed Rate Butler County 2009 99,200 92,200 7,000 7.1% 2008 99,100 94,500 4,600 4.7 2007 96,700 92,900 3,800 4.0 2006 96,400 92,300 4,100 4.3 2005 95,100 90,600 4,600 4.8
State 2009 6,414,000 5,895,000 519,000 8.1% 2008 6,441,000 6,099,000 342,000 5.3 2007 6,330,000 6,055,000 275,000 4.3 2006 6,309,000 6,022,000 286,000 4.5 2005 6,270,000 5,958,0000 312,000 5.0
Source: Labor Market Analysis, Pennsylvania Office of Employment Security.
LARGEST TAXPAYERS
The ten largest taxpayers in the county and their assessed valuations are listed below:
2009 Assessed % of Total Taxpayers Valuation Assessed Valuation 1. Clearview Mall $6,496,000 0.40% 2. Oxford Development Co. Moraine 4,101,020 0.25 3. Mine Safety Appliances 3,472,000 0.22 4. Northwestern Mutual 3,294,580 0.20 5. AK Steel (Armco Adv Materials Corp) 2,915,733 0.18 6. Kiebler Slippery Rock LLC Et Al 2,832,420 0.18 7. Gumberg Associates 2,524,250 0.16 8. Berkley Manor Apartments 2,179,250 0.14 9. North Pittsburgh Hotel LLC 2,156,970 0.13 10. Valencia Woods Inc. 1,978,666 0.12
Total $31,950,889 1.99%
Source: Tax Assessor of the County 2009
PROPERTY TAX LEVIES AND COLLECTIONS
Collected Within the Fiscal Year of the Tax Levy Percentage of Year Taxes Levied Amount Collected Original Levy 2009 $38,150,318 $36,722,850 96.26% 2008 35,921,402 34,648,173 96.46 2007 32,204,090 31,098,052 96.57 2006 31,589,822 30,498,217 96.54 2005 30,721,009 29,696,619 96.67
APPENDIX B
AUTHORITY’S FINANCIAL STATEMENTS Butler Area Sewer Authority
Single Audit
Years Ended July 31, 2010 and 2009 with Independent Auditor's Reports
MaherDuessel Certified Public Accountants
...... \ i ...... : '",::;jt~~!
~ ....-_J><~ ~U"i~ ~ ~
Pursuing the profession while promoting the public good4 www.md-cpas.com BUTLER AREA SEWER AUTHORITY
YEARS ENDED JULY 31, 2010 AND 2009
TABLE OF CONTENTS
Independent Auditor's Report
Management's Discussion and Analysis
Financial Statements:
Statements ofNet Assets 1
Statements ofRevenues, Expenses, and Changes in Net Assets 2
Statements of Cash Flows 3
Notes to Financial Statements 4
Required Supplementary Information:
Schedule of Funding Progress - Other Post-Employment Benefit Plans 21
Factors and Trends Used in Actuarial Valuation - Other Post Employement Benefits 22
Additional Information:
Combining Statements ofNet Assets: - July 31, 20 10 23 - July 31,2009 24
Combining Statements of Revenues, Expenses, and Changes in Net Assets: - Year Ended July 31, 2010 25 - Year Ended July 31, 2009 26
Schedule ofExpenditures ofFederal Awards 27
Notes to Schedule ofExpenditures ofFederal Awards 28 BUTLER AREA SEWER AUTHORITY
YEARS ENDED JULY 31, 2010 AND 2009
TABLE OF CONTENTS
(Continued)
Independent Auditor's Reports in Accordance with OMB Circular A-133:
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 Standards 29
Independent Auditor's Report on Compliance with Requirements that Could Have a Direct and Material Effect on its Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 31
Schedule ofFindings and Questioned Costs 33
Summary Schedule ofPrior Audit Findings 34 Pittsburgh Harrisburg Butler Three Gateway Center 3003 North Front Street 112 Hollywood Drive SixWest Suite 101 Suite 204 Pittsburgh, PA 15222 Harrisburg, PA 17110 Butler, PA 16001 MaherDuessel Main 412.471.5500 Main 717.232.1230 Main 724.285.6800 Cartifiad Pu b Jic AceDu ntants Fax 412.471.5508 Fax 717.232.8230 Fax 724.285.6875
Independent Auditor's Report
Board ofDirectors Butler Area Sewer Authority
We have audited the accompanying financial statements ofthe Butler Area Sewer Authority (Authority), as of and for the years ended July 31, 2010 and 2009, as listed in the table of contents. These financial statements are the responsibility of the Authority's management. 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 ofthe United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of July 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States ofAmerica.
In accordance with Government Auditing Standards, we have also issued our report dated October 26, 2010, on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose ofthat report is to describe the scope ofour testing ofinternal control over financial reporting and compliance and the results ofthat testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results ofour audit.
The Management's Discussion and Analysis section and required supplementary information on pages i through viii and pages 21 and 22, respectively, are not a required part ofthe basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose offorming opinions on the financial statements that collectively comprise the Authority's basic financial statements. The additional information listed in the table of contents is presented for purposes ofadditionally analysis and is not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards 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 financial statements of the Authority. The additional information and the schedule of expenditures of federal
Pursuing the profession while promoting the public good'" www.md-cpas.com Board ofDirectors Butler Area Sewer Authority Page 2
.awards have been subjected to the auditing procedures applied in the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Pittsburgh, Pennsylvania October 26, 2010 BUTLER AREA SEWER AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS
This section ofthe financial report presents the Management's Discussion and Analysis (MD&A) of the Butler Area Sewer Authority's financial condition and performance for the fiscal year ending July 31, 2010 in compliance with Statement No. 34 of the Government Accounting Standards Board (GASB). This analysis is intended to be read and used in conjunction with the included Financial Statements.
FINANCIAL IDGHLIGHTS
The following are key financial highlights during the fiscal year ended July 3I, 2010.
• The Authority experienced Net Income or an increase in Total Net Assets of $610,339 (1.5%) in the fiscal year ended July 31, 2010.
• During the year, the Authority continued to actively pursue federal and state grants to fund current and future projects. No new grant funds were awarded to the Authority during the year. However, the Authority has submitted applications for funding and is awaiting decisions relative to a Pennsylvania H2O grant and Federal State & Tribal Assistance Grant. During the prior year, the Authority was awarded a Pennsylvania H20 grant. Upon completion of all the projects during the current year, the Authority submitted a request for these grant funds and recorded a grant receivable balance of $500,000 as of July 31, 2010. In August 2010, the Authority received the entire balance of the grant. A separate independent grant audit will be completed and submitted to the awarding agency.
• In order to maximize the return on monies held in the Capital Improvement and Redemption Fund, the Authority instructed the Trustee of our current Trust Indenture to transfer the balance of funds required to payoff the future debt service obligations on bonds maturing through July 2012. Upon transfer ofthe funds to the Debt Service Fund, the Trustee released the Authority from the terms and conditions of the Trust Indenture. Subsequently, the Authority purchased treasury investments to create an economic defeasance of the bond debt. Consideration will be given if a legal defeasance should be pursued during the next fiscal year. Additional information regarding these bonds is located in the Footnotes.
• During the year, the Authority adopted Government Accounting Standards Board Statement No. 45 relating to the recording of post-retirement healthcare costs. These statements require that the Authority begin to recognize the cost of these future benefits in the audited financial statements on an annual basis. Such costs are recorded as an expense and appear as an unfunded liability in the Statement ofRevenues, Expenses, and Changes in Net Assets and the Statement of Net Assets, respectively. Although this is not a new obligation of the Authority, historically, these benefits were recorded at the time when the expense was incurred, or on a pay-as-you go basis. As of July 31, 2010, $262,690 has been recorded as an unfunded liability based on an actuarial valuation report completed during the year. Additional information regarding these GASB Statements and the future obligation ofthe Authority is located in the Footnotes.
• During the year, the Authority continued to maintain compliance with the October 16, 2006 Consent Order & Agreement (CO&A), as described later in the MD&A. In doing so, the Authority incurred expenses relative to the planning, design, bid and award, and other costs associated with moving a number of projects forward to the construction phase. To date, costs have been paid from Authority funds, not bond or note proceeds, therefore resulting in an overall decrease in cash/investment balances from the prior year and an increase in capital assets.
1 REQUIRED FINANCIAL STATEMENTS
The Financial Statements of the Authority are compiled using the Enterprise Fund method of accounting because the operations are financed and operated in a manner similar to private sector businesses, where the costs of providing services to the general public on a continuing basis are intended to be financed or recovered through user charges or sewer service fees. The Authority uses the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when the liability is incurred. The financial statements offer short-term and long term financial information about the Authority's activities.
The Statement ofNet Assets summarizes all ofthe Authority's assets and liabilities and provides information about the nature and amounts ofinvestments in resources or assets and the offsetting obligations or liabilities to Authority creditors. The overall financial condition ofthe Authority is reflected in this statement.
The Statement ofRevenues, Expenses, and Changes in Net Assets summarizes the revenues and expenses for the current fiscal year and past fiscal year. This statement measures the success of the Authority's operations over the past year and can be used to determine whether the Authority has successfully recovered all its costs through its sewage disposal rates and other fees. Changes in net assets can also be a useful indicator of whether the financial condition of the Authority is improving or deteriorating.
The third required financial statement is the Statement of Cash Flows. This statement provides information about the Authority's cash receipts and cash payments during the reporting period. The statement reports cash flows from operating activities, cash flows from capital and related financing activities, and cash flows from investing activities, as well as net changes in cash during the reporting period.
The Notes to the Financial Statements provide required disclosures and other information essential to a full understanding of material data provided in the statements. The notes present information on the Authority's accounting policies, the basis of accounting, investments, capital assets, outstanding debt, and other significant activities, such as material risks, obligations, commitments, contingencies, subsequent events, and future requirements, as applicable to the Authority.
FINANCIAL ANALYSIS
The 20 I0 financial statements include a direct line-by-line comparison to the previous 2009 financial statements. The following comparative condensed financial statements provide a comparison of key financial data and indicators for management for monitoring and planning purposes.
11 Table 1 presents a condensed summary ofthe Authority's Statement ofNet Assets.
Table 1 Condensed Statement ofNet Assets
Balance at Balance at July 31, 2010 July 31, 2009 Net Change
Assets: Current Assets $ 18,662,236 $ 19,517,335 $ (855,099) Other Assets 51,199 76,797 (25,598) Capital Assets 32,766,938 30,141,485 2,625,453
Total Assets
Liabilities and Net Assets: Current Liabilities 2,952,371 2,649,495 302,876 Non-Current Liabilities 7,678,578 6,847,037 831,541
Total Liabilities 10,630,949 9,496,532 1,134,417
Total Net Assets $ 40,849,424 $ 40,239,085 $ 610,339
The Authority's Current Assets decreased by $855,099 (4.4%) due primarily to the net decrease in CashlInvestments and a net increase in Accounts and Unbilled Sewer Receivables. The net decrease in cash/investments of $1,226,142 is more than offset by the increase to Capital Assets during the year of $2,625,453. The increase in Accounts Receivable of $291,343 is due to an increase in the Pennsylvania H20 grant receivable of $98,725 and an increase in sewer service receivables which reflects the current economy as well as the somewhat recent increases in sewer rates that result in quicker compounding of outstanding balances, including interest and penalty charges applied to individual accounts. In addition, quarterly billings are sent at the beginning of July and payment for services is due in mid August each year, therefore allowing for timing differences in receipt of payments from year to year. Finally, an increase in Unbilled Sewer Receivables of $79,700, which includes a $2.00 per month rate increase effective July 1, 2010, reflects charges for services that have been provided as ofJuly 31, 2010, but unbilled as of July 31,2010.
The increase in Capital Assets of $2,625,453 (8.7%) is due to the large outlay for capital purchases made during the year, the majority of which relate to the projects required by the CO&A as well as the Northwest Area Sewer Rehabilitation Project, described below. Overall, Total Assets increased by $1,744,756 (3.5%).
Liabilities and Net Assets
Current Liabilities increased by $302,876 (10.3%). An increase of approximately $210,000 in Vouchers Payable at the end of the current year compared to the prior year due to timing of purchases at year-end is a significant portion of the increase. Non-Current Liabilities increased by $831,541 (12.1 %) primarily due to the net difference in scheduled bond and note debt service payments and the draws on the new Northwest Area Sewer Rehabilitation Project note. A portion ofthe increase is also due to the recording ofthe post-retirement healthcare costs of$262,690 that
111 were not required to be reported in the prior year, as noted above. Overall, Total Liabilities increased by $1,134,417 (11.9%).
Table 2 presents a condensed summary ofthe Authority's Statement ofRevenues, Expenses, and Changes in Net Assets.
Table 2 Condensed Statement ofRevenues, Expenses, and Changes in Net Assets
Year Ended Year Ended July 31,2010 July 31,2009 Net Change Revenues: Sewer Charges $ 7,232,743 $ 7,144,590 $ 88,153 Other Operating Fees and Charges 124,421 119,743 4,678 Non-Operating Revenues 344,184 714,520 (370,336) Total Revenues Expenses: Operating Expenses, Net ofDepreciation 5,305,846 4,802,359 503,487 Depreciation 1,755,862 1,756,569 (707) Non-Operating Expenses 304,933 361,337 (56,404) Total Expenses Capital Contributions: Tap-In Fees 261,170 384,230 (123,060) Developer Contribution Revenue 14,462 39,660 (25,198) Total Capital Contributions 275,632 423,890 (148,258) Net Income (Loss) 610,339 1,482,478 (872,139) Net Assets: Beginning ofYear 40,239,085 38,756,607 1,482,478 End ofYear $ 40,849,424 $ 40,239,085 $ 610,339
Revenues
Total Revenues decreased from the prior year amount by $277,505 (3.5%). The decrease in revenues is due to two factors. The first being a decrease in interest income of approximately $67,800 from the prior year due to the continuing economic decline and decreasing return on investments. The other component is the decrease in PA H20 grant funds during the currentyear by approximately $302,500. Both ofthese revenue sources are external and are out ofthe control ofthe Authority. The Authority did experience an increase in Sewer Charges as the rate increase that took effect for the January 2009 billing was effective for the entire current year, but was in effect for only three quarterly billings in the prior year.
Expenses
Operating Expenses, Net of Depreciation increased by $503,487 (10.5%) from the previous year due primarily to increased costs associated with wages of approximately $106,000, which includes the new Executive Directors position for a full year, the recording ofthe post-retirement healthcare costs of $262,690, and increased healthcare costs of approximately $96,000.
IV Depreciation expense remained consistent, decreasing by $707 (0.04%). Non-Operating Expenses decreased by $56,404 (15.6%) due to decreased interest costs on maturing bond obligations. Overall, the Total Expenses increased by $446,376 (6.50/0).
Capital Contributions
Tap-In Fees and Developer Contributions decreased by $123,060 (32.0%) and $25,198 (63.5%), respectively, due to the economic downturn and reduction in residential and commercial development between the current and prior fiscal year. The Authority continues to be affected by the nationwide decrease in new housing demand and the lack of new large user tap-in fees, and believes that this trend will continue through at least the next fiscal year. During the current year, new development was not affected by new sewer connection permit limitations imposed by the Pennsylvania DEP under the CO&A. However, these permit limitations remain in existence and could limit connections and related revenues in future fiscal years. Overall, Capital Contributions decreased by $148,258 (35.0%).
Net Income (Loss)
During the fiscal year ending July 31,2010, the Authority experienced an overall Net Income of $610,339, which was $872,139 (58.8%) less than the Net Income of$I,482,478 for the fiscal year ending July 31, 2009.
CAPITAL IMPROVEMENTS
During the fiscal year, the Authority continued its on-going capital improvement expenditures for rehabilitation and evaluation of the sewer system and upgrades to the wastewater treatment facility, including those improvements mandated by the CO&A.
During the year, the Authority incurred costs and capitalized approximately $2,489,000 worth of sewer rehabilitation work related to the Northwest project. This Northwest project is the-second area-wide sewer rehabilitation project commenced by the Authority in recent years. The Authority also capitalized costs of approximately $1,245,000 during the year for the design and continued planning of the projects mandated by the CO&A and described below. Other capital projects and purchases during the year include; the construction of the Dutchtown road sewer extension (construction in progress at year-end with current year costs of $77,850), odor control project (construction in progress at year-end with current year costs of $25,796), pump station automatic transfer switch and roof replacement projects (total cost $210,146), multiple vehicle purchases including 2 dump trucks (total cost $234,651), among other capital purchases made during the year.
As the majority of the additions to Capital Assets, are non-depreciable assets, due to their status as construction in progress as of July 31, 2010, the current year depreciation expense remained consistent with the prior year. As these projects are completed, depreciation expense will increase. DEBT
At the end of the fiscal year, the Authority had outstanding long-term bond debt of $2,149,295, which is a $1,066,649 decrease from last year's outstanding obligation. The outstanding 1997 Series B- Tax Exempt Sewer Revenue Refunding Bonds are scheduled to be paid off in July 2012. The Authority is considering the possibility oflegally defeasing this debt.
In 2006, the Authority executed a loan agreement to borrow up to $7,029,130 from PennVest to fund the Deshon Area Sewer Rehabilitation Project and awarded construction contracts for this work. During 2008, the project was completed and the loan agreement was modified to reflect the actual total principal drawn for construction in the amount of $5,646,138. Principal and
v interest payments continued during the current year and the outstanding balance as of July 31, 2009 is $5,053,117. The final payment is scheduled for March 1, 2028.
During the year, the Authority executed a loan agreement to borrow up to $6,077,095 from PennVest to fund the Northwest Area Sewer Rehabilitation Project and construction began on the project. For the year ended July 31,2010, the Authority began drawing loan proceeds in the amount of$I,815,678. Interest only payments began during the year. The project is expected to be completed in early 2011 and principal and interest payments will then begin. The final payment is scheduled for September 1,2031.
The Authority also applied for and received two funding offers for loans from PennVest in the amounts of$5,137,285 and $13,087,500 to partially fund the Deshon Act 537 and Butler City Act 537 wet weather flow equalization tanks, diversion structures, and pumping station facilities required by the CO&A, respectively. The Authority anticipates closing on the loan offers prior to the end of20 I0 or the beginning of2011.
More detailed information about the Authority's long-term debt is presented in the Notes to Financial Statements.
CONDITIONS AFFECTING FUTURE FINANCIAL POSITION
Consent Order & Agreement
On February 20, 2001, the Authority entered into a voluntary Consent Order and Agreement (Agreement) with the Pennsylvania Department of Environmental Protection (DEP) to address Sanitary Sewage Overflows (SSOs) from the sewage collection system during wet weather periods. Under the terms of this Agreement, the Authority was required to develop and implement a Corrective Action Plan (CAP) to eliminate SSOs during wet weather periods. This initial CAP was designed to identify the sources of infiltration and inflow entering the sanitary sewage collection system and the causes of the SSOs, to identify the alternatives available to reduce, eliminate, store, and/or treat excess wet weather flows, to evaluate these various alternatives, and to determine a recommended long-range plan to eliminate the SSOs. Based on the results ofthe initial CAP, the Authority determined that structural improvements, such as wet weather equalization storage tanks, increased interceptor capacity, and/or additional treatment plant capacity, will be required to address the SSO problem.
In February 2006, the DEP notified the Authority and the seven municipalities served by the Authority that they would be required to enter into a revised Consent Order and Agreement (CO&A) to implement the plan. Negotiations of the terms of the revised CO&A were finalized and a revised CO&A dated October 13, 2006 was executed. The revised CO&A formalizes the time schedule for the municipalities and the Authority to prepare and adopt an Act 537 Sewage Facilities Plan Update and to complete the necessary capital improvements to address the sanitary sewage overflows by July 31, 2012. The revised CO&A stipulates civil penalties for the Authority and municipalities for failure to meet the July 31, 2012 deadline.
On April 24, 2009, the Authority submitted to the DEP for formal approval a report entitled "Act 537 Sewage Facilities Planning Study Update", dated February 2009, with Resolutions from all seven municipalities adopting this report as their Final Official Plan Update Revision ("Final Update Revision") in full accordance with the requirements of the CO&A. The Authority received a letter dated May 7, 2009 from the DEP with written review comments on the Final Update Revision and some additional e-mail comments from the DEP on June 15, 2009. The Authority submitted letter responses to address the DEP's review comments, including supplemental information and several revisions to the Final Update Revision. On August 28, 2009, the DEP formally approved this Final Update Revision.
VI The Final Plan Update proposes are-rating ofthe existing sewage treatment plant facility and the construction of interceptor sewer upgrades to increase conveyance capacity, four wet weather flow diversion pumping station facilities, and three flow equalization/storage tank facilities (22.1 million gallon total storage capacity) to temporarily store high, wet weather flows for subsequent treatment. These improvements will address the existing SSOs and enable the Authority to handle the future sewage needs ofthe service area municipalities.
In the fall of 2009, the Authority completed design work relative to the four wet weather flow diversion pumping station and equalization tank facilities. In 2010, design work began on the interceptor sewer upgrades. The Authority also applied for and received two funding offers for loans from PennVest in the amounts of$5,137,285 and $13,087,500 to partially fund the Deshon Act 537 and Butler City Act 537 wet weather flow equalization tanks, diversion structures, and pumping station facilities, respectively. The Authority anticipates closing on the loan offers prior to the end of 2010 or the beginning of 2011. During the year, construction contracts, in the amount of$6,883,900, were bid and awarded for the Deshon Act 537 project and site work began in August 2010. Construction contracts for the Butler City Act 537 projects were conditionally awarded by the Authority Board on October 12, 2010, in the amount of $22,471,804. Construction on that project is not anticipated to begin until early 2011.
The total project cost of the proposed facilities, including land acquisition, is estimated to be about $41,100,000. The project is scheduled to be completed by July 31,2012. The Authority is currently investigating potential grant opportunities and anticipates closing on a new bond issue in late 2010 or early 2011 to secure the remaining funding necessary. The Authority will also consider using existing capital funds for these improvements.
Energy Assessment Performance Contract
The Authority has entered into a project and development agreement to develop an energy assessment performance contract under Pennsylvania Act 77 of 2004, that permits the purchase and installation of energy efficient equipment in which the up front costs of the project are reimbursed over a fifteen year period through future energy savings. Energy savings are required to be reviewed and certified on an annual basis and if the estimated savings is not realized over the specific period, compensation will be reimbursed by the performance contractor. The project will be completed in two phases with the estimated cost of phase 1 being $1,715,725. Costs associated with phase 2 are unknown at this time. The Authority is investigating grant opportunities as well as considering funding the project through bond proceeds and/or existing capital funds.
Office and Plant Facilities Space Needs Assessment
The Authority has hired an Architectural Firm to perform a space needs assessment for both the office and plant facilities. Although the space assessment is in a preliminary phase, if approved, the renovations costs are estimated to be approximately $2,100,000. Financing for this project may be obtained through bond proceeds and/or existing capital funds.
Long-Term Sewer Rehabilitation and Replacement Program
In addition, a significant increase in annual expenditures will also be required to implement an on-going, long-term sewer rehabilitation and replacement program to routinely replace the aging sewage collection system infrastructure. The Authority's current sewer rehabilitation project is the Northwest Area Sanitary Sewer Rehabilitation Project, which is similar in nature to the recently completed Deshon Rehabilitation Project. During 2009, the Authority entered into a construction contract for approximately $4,875,000, and construction is scheduled to continue
Vll into early 2011 for this project. During the year, the Authority entered into a PennVest loan to fund the Northwest project in an amount not to exceed $6,077,095.
Sewer Service Charges
In order for the Authority to finance the mandatory capital improvements required by the CO&A as well as other Authority projects described above, the Authority has entered into or will enter into long-term debt agreements during the next fiscal year as described above. The funds necessary to satisfy these future debt service payments will be obtained through increases in sewer service charges. Substantial increases are expected to be made to the Authority's current relatively low rate structure; however, the amount is unknown at this time. Effective July 1, 2010, a $2.00 per month per equivalent dwelling unit (EDU) was approved by the Authority Board.
CONTACTING THE AUTHORITY
If you have any questions about this report or need additional financial information, contact the Butler Area Sewer Authority's Finance Director or Executive Director at 100 Litman Road, Butler, PA 16001-3256.
VHl BUTLER AREA SEWER AUTHORITY
STATEMENTS OF NET ASSETS
JULy 31,2010 AND 2009
2010 2009 Assets Current assets: Cash and cash equivalents $ 13,393,954 $ 2,135,842 Investments - trusteed accounts 2,389,498 14,873,752 Accounts receivable 2,176,884 1,885,541 Unbilled sewer receivable 701,900 622,200
Total current assets 18,662,236 19,517,335
Non-current assets: Unamortized bond discount and expenses 51,199 76,797
Capital assets, not being depreciated 5,127,150 1,298,559 Capital assets, net ofaccumulated depreciation 27,639,788 28,842,926
Total capital assets 32,766,938 30,141,485
Total non-current assets 32,818,137 30,218,282
Total Assets $ 51,480,373 $ 49,735,617
Liabilities and Net Assets Liabilities: Current liabilities: Vouchers payable $ 663,260 $ 414,414 Accrued expenses 834,923 784,392 Current maturities ofbonds payable 1,200,000 1,200,000 Current portion ofnotes payable 254,188 250,689
Total current liabilities 2,952,371 2,649,495
Non-current liabilities: Bonds payable 949,295 2,015,944 Notes payable 6,614,607 5,053,117 OPEB Obligation 262,690 Deferred refunding loss (148,014) (222,024) Total non-current liabilities 7,678,578 6,847,037
Total Liabilities 10,630,949 9,496,532
Net Assets: Invested in capital assets, net ofrelated debt 22,972,211 21,324,585 Restricted net assets 2,393,333 14,873,752 Unrestricted net assets 15,483,880 4,040,748
Total Net Assets 40,849,424 40,239,085
Total Liabilities and Net Assets $ 51,480,373 $ 49,735,617
See accompanying notes to financial statements. BUTLER AREA SEWER AUTHORITY
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
YEARS ENDED JULY 31, 2010 AND 2009
2010 2009 Operating Revenues: Sewer charges - residential $ 6,981,292 $ 6,899,639 Sewer charges - industrial waste 251,451 244,951 Other operating fees and charges 124,421 119,743 Total operating revenues 7,357,164 7,264,333 Operating Expenses: Operations and maintenance 4,410,738 4,231,849 Administration 895,108 570,510 Depreciation 1,755,862 1,756,569
Total operating expenses 7,061,708 6,558,928
Operating Income (Loss) 295,456 705,405 Non-Operating Revenues (Expenses): Capital grant 98,725 401,275 Interest income 245,459 313,245 Interest expense (205,325) (261,729) Amortization (99,608) (99,608)
Total non-operating revenues (expenses) 39,251 353,183 Income (Loss) Before Capital Contributions 334,707 1,058,588
Capital Contributions: Tap-in fees 261,170 384,230 Developer contribution revenue 14,462 39,660 Total capital contributions 275,632 423,890 Net Income (Loss) 610,339 1,482,478
Net Assets: Beginning of year 40,239,085 38,756,607
End of year $ 40,849,424 $ 40,239,085
See accompanying notes to financial statements.
2 BUTLER AREA SEWER AUTHORITY
STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2010 AND 2009
2010 2009 Cash Flows From Operating Activities: Sewer charges and fees $ 6,986,121 $ 6,746,057 Operations and maintenance (4,111,361) (3,895,101) Administrative expenses (632,418) (570,5]0)
Net cash provided by (used in) operating activities 2,242,342 2,280,446
Cash Flows From Capital and Related Financing Activities: Capita] grant 98,725 401,275 Tap-in fees 261,] 70 384,230 Proceeds from debt 1,815,678 Payments ofdebt (1,522,663) (1,522,663) Payments related to the acquisition, construction, or improvement ofcapital assets (4,381,3] 5) (1,447,458)
Net cash provided by (used in) capital and related financing activities (3,728,405) (2, ]84,6] 6)
Cash Flows From Investing Activities: Interest and dividends 245,459 313,245 Sale of investments 12,484,254 (385,129) Other income 14,462
Net cash provided by (used in) investing activities 12,744,]75 (71,884)
Net Increase (Decrease) in Cash and Cash Equivalents 1],258,1 ]2 23,946
Cash and Cash Equivalents: Beginning ofyear 2,] 35,842 2,111,896
End ofyear $ ]3,393,954 $ 2,135,842
Reconciliation of Operating Income (Loss) to Net Cash and Cash Equivalents From Operating Activities: Operating income (loss) $ 295,456 $ 705,405 Adjustments to reconcile operating income (loss) to cash and cash equivalents provided by (used in) operating activities: Depreciation 1,755,862 1,756,569 Change in assets and liabilities: Accounts receivables (371,043) (518,276) Accounts payable 299,377 336,748 OPEB Liability 262,690
Total adjustments 1,946,886 ],575,041
Net cash provided by (used in) operating activities $ 2,242,342 $ 2,280,446
See accompanying notes to financial statements.
3 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31,2010 AND 2009
1. ORGANIZATION
The Butler Area Sewer Authority (Authority) is a body corporate and politic organized under the Municipality Authorities Act of 1945, P.L. 382 (Act), as amended and supplemented having been duly organized, under said Act by joint action of the City of Butler (City) and the Township of Butler (Township), both of Butler County, Pennsylvania. Its Certificate of Incorporation was issued by the Secretary of the Commonwealth of Pennsylvania on November 13, 1962. On May 6, 1997, the articles of incorporation were amended to extend the existence ofthe Authority to February 6, 2046.
The Authority provides sanitary sewer collection and treatment for the City of Butler, Township of Butler, Center Township, areas in East Butler Borough, and limited areas of Summit, Connoquenessing, and Oakland Townships.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Authority have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. In applying the provisions of GASB Statement No. 20, "Accounting and Financial Reporting for Proprietary Funds," the Authority applies all GASB pronouncements and all Financial Accounting Standards Board pronouncements, Accounting Principles Board Opinions, and Accounting Research Bulletins issued on or before November 30, 1989 that do not conflict with or contradict GASB pronouncements.
Reporting Entity
The report includes all of the services provided by the Authority to residents and businesses within its service area. Authority services provided include operation and maintenance of sewage collection and treatment facilities.
The Board of Directors (Board) is a five-member Board with two members appointed by the Township and three appointed by the City. The Authority is not considered a component unit of either the Township or the City. The Authority is not financially accountable to either the Township or the City, nor does the Authority create a financial benefit or burden to either the Township or the City. The City does appoint a majority of Board members to the Authority, but because the City can not replace the Board members at will once they have been appointed, they do not exercise control ofthe Board.
4 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED mLY 31,2010 AND 2009
Basis ofAccounting
The activities ofthe Authority are presented as an Enterprise Fund because the operations are financed and operated in a manner similar to private business enterprises, where the intent ofthe governing body is that the costs ofproviding goods or services to the general public on a continuing basis be financed or recovered primarily through user charges.
As an Enterprise Fund, the Authority uses the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recognized when the liability is incurred.
Operating revenues and expenses consist of those revenues and expenses that result from the ongoing principal operation of the Authority. Operating revenues consist primarily of user charges. Non-operating revenues and expenses consist of those revenues and expenses that are related to the financing and investing types ofactivities.
When an expense is incurred for purposes for which there are both restricted and unrestricted net assets available, it is the Authority's policy to apply those expenses to restricted net assets to the extent such are available and then to unrestricted net assets.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Authority considers all highly liquid investments with a maturity ofthree months or less when purchased to be cash equivalents.
Capital Assets
Capital assets, which include land, vehicles, sewer system, pump stations, plant, and construction in progress, are recorded at cost.
Depreciation of all fixed assets is charged against operations. Depreciation on assets has been provided using the straight-line method over the estimated useful lives, as follows:
Sewer system 5 to 40 years Pump stations 5 to 40 years Plant 5 to 40 years Vehicles 5 years
The costs ofmaintenance and repairs that do not add to the value ofthe asset or materially extend asset lives are not capitalized.
5 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2010 AND 2009
Investments
Investments, principally government securities, mutual funds, and money market funds, are carried at fair value.
Bond Issue Costs and Discounts
Bond issue costs are deferred and amortized over the life of the related bonds using the straight-line method. The unamortized balance is an asset on the statements ofnet assets.
Original issue bond discounts are amortized over the life of the related bonds using the straight-line method ofamortization.
Deferred Refunding Loss
In accordance with GASB Statement No. 23, HAccounting and Reportingfor Refunding of Debt by Proprietary Activities, " the excess ofthe reacquisition price over the net carrying amount of the Series 1986 Bonds is recorded as deferred refunding loss. The deferred refunding loss is being amortized using the straight-line method over the originally scheduled life of the defeased issue, which extends to 2012. The unamortized balance is reflected as a reduction from the bonds payable.
Estimates
The preparation offinancial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Net Assets
GASB Statement No. 34, HBasic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, " requires the classification of net assets into three components - invested in capital assets, net of related debt; restricted; and unrestricted. These classifications are defined as follows:
• Invested in capital assets, net of related debt - This component of net assets consists of capital assets net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement ofthose assets.
6 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31,2010 AND 2009
• Restricted - This component of net assets consists of constraints placed on net assets use through external restrictions.
• Unrestricted - This component of net assets consists of net assets that do not meet the definition of"restricted" or "invested in capital assets, net ofrelated debt."
3. DEPOSITS AND INVESTMENTS
In accordance with the Municipality Authorities Act, in addition to deposits in institutions insured by the Federal Deposit Insurance Corporation (FDIC), the Authority may invest in any of the following: United States Treasury Bills, short-term obligations of the United States Government or its agencies or instrumentalities, or obligations of the United States or any of its agencies or instrumentalities backed by the full faith and credit of the United States or the Commonwealth of Pennsylvania. There were no deposit or investment transactions during 2010 and 2009 that were in violation ofthese policies.
GASB Statement No. 40, "Deposit and Investment Risk Disclosures, JJ requires disclosures related to the following deposit and investment risks: credit risk (including custodial credit risk and concentrations of credit risk), interest rate risk, and foreign currency risk. The following is a description ofthe Authority's deposit and investment risks:
Deposits
Custodial Credit Risk - Custodial credit risk is the risk that in the event of a bank failure, the Authority's deposits may not be returned to it. The Authority does not have a formal deposit policy for custodial credit risk.
As of July 31, 2010 and 2009, the Authority held four certificates of deposit through Pennsylvania Local Government Investment Trust (PLGIT), in the name ofthe Authority, and maturing within three months, that are covered under FDIC's general deposit insurance rules. As of July 31, 2010, $12,206,021 of the Authority's bank balance of $13,459,671 was exposed to custodial credit risk, which is collateralized in accordance with Act 72 of the Pennsylvania state legislature, which requires the institution to pool collateral for all governmental deposits and have the collateral held by an approved custodian in the institution's name. For July 31, 2009, one of the Authority's financial institutions participated in the FDIC's Transaction Account Guarantee Program. Under that program, through December 31, 2009, all non-interest bearing accounts and interest bearing accounts that do not exceed 0.5% are fully guaranteed by the FDIC for the entire amount in the account. Coverage under the Transaction Account Guarantee Program is in addition to and separate from the coverage available under the FDIC's general deposit
7 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2010 AND 2009
insurance rules. As of July 31, 2009, none of the Authority's bank balances of $2,142,928 was exposed to custodial credit risk, which was collateralized in accordance with Act 72 of the Pennsylvania state legislature, which requires the institution to pool collateral for all governmental deposits and have the collateral held by an approved custodian in the institution's name. These deposits have carrying amounts of $13,382,304 and $2,128,906 as of July 31, 2010 and 2009, respectively, and are reported as current assets in the statements ofnet assets.
In addition to the deposits noted above, included in cash and cash equivalents on the statements ofnet assets are PLGIT investments of$11,650 and $9,636 at July 31, 2010 and 2009, respectively. The fair value of the Authority's investments in PLGIT is the same as the value ofthe pool shares.
Investments
Included on the statements of net assets are the following investments held by the Authority at July 31, 2010 and 2009:
2010 2009 Maturity in years Maturity in years Fair Less Fair Less Investment Type Market VaIue than 1 year 2-5 years Market Value than 1 year Bond mutual funds $ 531 $ 53 1 $ $ 10,873,752 $ 10,873,752 certificaresofdeposit 4,000,000 4,000,000 U.S Treasuries 2,388,967 1,161,301 1,227,666
Total Investments $ 2,389,498 $ 1,161,832 $ 1,227,666 $ 14,873,752 ~$~~~14~,8~7~3,~75~2~
The fair value ofthe Authority's investments is the same as their carrying amount.
Credit Risk - The risk that an issuer or other counterparty to an investment will not fulfill its obligations is called credit risk. The Authority has no formal investment policy that would limit its investment choices based on credit ratings by nationally recognized statistical rating organizations.
Custodial Credit Risk - For an investment, custodial credit risk is the risk that in the event ofthe failure ofthe counterparty, the Authority will not be able to recover the value ofthe investments or collateral securities that are in the possession of the outside entity. The Authority does not have a formal investment policy for custodial credit risk.
8 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2010 AND 2009
Concentration of Credit Risk - The Authority places no limit on the amount the Authority may invest in anyone issuer.
Interest Rate Risk - The Authority does not have a formal investment policy that limits investment maturities as a means ofmanaging its exposure to fair value losses arising from increasing interest rates.
4. CAPITAL ASSETS
A summary of changes in capital assets for the years ended July 31, 2010 and 2009 follows:
Balance at Balance at August 1, 2009 Additions Deletions July 31,2010
Land $ 729,601 $ 13,563 $ (236) $ 742,928 Construction in progress 568,958 3,971,808 (156,544) 4,384,222 Capital assets, not being depreciated $ 1,298,559 $ 3,985,371 $ (156,780) $ 5,127,150
Vehicles $ 535,255 $ 234,651 $ (25,245) $ 744,661 Sewer system 42,739,328 27,114 42,766,442 Pwnp stations 4,437,942 210,146 4,648,088 Plant 26,640,698 82,112 26,722,810 Capital assets, being depreciated 74,353,223 554,023 (25,245) 74,882,001 Less accumulated depreciation (45,510,297) (1,755,862) 23,946 (47,242,213) Capital assets, net of accumulated depreciation $ 28,842,926 $ (1,201,839) $ (1,299) $27,639,788
9 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2010 AND 2009
Balance at Additions/ Deletions/ Balance at August 1, 2008 Transfers Transfers July 31,2009 Land $ 135,650 $ 593,951 $ $ 729,601 Construction in progress 179,243 811,693 (421,978) 568,958 Capital assets, not being depreciated $ 314,893 $ 1,405,644 $ (421,978) $ 1,298,559
Vehicles $ 511,616 $ 44,140 $ (20,501) $ 535,255 Sewer system 42,287,996 451,332 42,739,328 Pump stations 4,437,942 4,437,942 Plant 26,632,718 7,980 26,640,698 Capital assets, being depreciated 73,870,272 503,452 (20,501) 74,353,223 Less accumulated depreciation (43,774,229) (1,756,569) 20,501 (45,510,297) Capital assets, net of accumulated depreciation $ 30,096,043 $ (1,253,117) $ $28,842,926
5. DEBT
Bonds Payable
During 1997, the Authority issued Series B- Tax Exempt Sewer Revenue Refunding Bonds (Series B). Series B was comprised of Current Interest Bonds and Capital Appreciation Bonds in the amount of $8,243,839. The Current Interest Bonds were retired in 2004. The Capital Appreciation Bonds have rates ranging from 4.80% to 5.35% and mature from 2005 to 2012.
The Capital Appreciation Bonds (Bonds) have a present value of $2,149,295 and 3,215,944 at July 31, 2010 and 2009, respectively, with a future value of $2,400,000 and $3,600,000 at July 31,2010 and 2009, respectively. These bonds mature from January 1, 2007 to July 1, 2012. During 2010, the Authority negotiated with the Trustee to release all funds to the Authority held in trust in excess of the remaining bond payments. As of July 31, 2010, the Authority has a restricted investment held by the Trustee in the amount of $2,393,333 which approximates the remaining four bond payments.
10 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31,2010 AND 2009
Annual maturities ofthe bonds payable at July 31, 2010 are as follows:
Year Ending Bonds Payable July 31, Principal
2011 $ 1,200,000 2012 1,200,000 2,400,000 Less unaccreted interest (250,705) $ 2,149,295
Notes Payable - PennVest
During 2006, the Authority entered into a loan agreement with PennVest. The loan proceeds of $5,646,138 were used to fund the Deshon Area Sewer Rehabilitation Project. The interest rate for the first sixty months is 1.387% and is 2.774% for the remainder ofthe loan. Principal and interest payments are due in monthly installments of $26,889 for the first fifty-eight months and $29,688 for the remainder of the loan, with the final payment scheduled for March 1,2028.
During 2009, the Authority entered into a loan agreement to borrow up to $6,077,095 from PennVest to fund the Northwest Area Sewer Rehabilitation Project. During the year ended July 31, 2010, the Authority began drawing on the loan in the amount of $1,815,678. It is anticipated that the project will be completed around March 2011. The interest rate for the first sixty months is 2.270% and is 3.046% for the remainder of the loan. If the entire amount is borrowed, principal and interest payments are due in monthly installments of $31,526 for the first sixty months and $33,294 for the remainder ofthe loan, with the final payment scheduled for September 1, 2031.
Principal and interest payable in future years on both PennVest notes are as follows:
11 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2010 AND 2009
Fiscal Years Principal* Interest Total
2011 $ 254,188 $ 68,475 $ 322,663 2012 330,303 105,391 435,694 2013 326,690 120,200 446,890 2014 316,258 153,026 469,284 2015 324,752 144,532 469,284 2016-2020 1,744,249 627,520 2,371,769 2021-2025 2,003,836 374,265 2,378,101 2026-2030 1,451,097 95,750 1,546,847 2031 117,422 1,947 119,369 $ 6,868,795 $ 1,691,106 $ 8,559,901
* Only the principal and related interest drawn as of July 31, 2010 related to the 2009 PennVest loan is included in the maturity schedule. Approximately $4.3 million is anticipated to be drawn in the future and will be included in future maturity schedules
Changes in Long-Term Liabilities
The following is a summary of debt transactions of the Authority for the year ended July 31,2010:
Sewer Revenue PennVest PennVest Bonds Note (2006) Note (2009) Payable, beginning ofyear $ 3,215,944 $ 5,303,806 $ Additions 1,815,678 Increase in accreted value of capital appreciation bonds 133,351 Debt paYments (1,200,000) (250,689) Payable, end ofyear $ 2,149,295 $ 5,053,117 $ 1,815,678
12 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31,2010 AND 2009
The following is a summary of debt transactions of the Authority for the year ended July 31,2009:
SewerRevenue PennVest Bonds Note Payable, beginning ofyear $ 4,229,640 $ 5,551,044 Increase in accreted value of capital appreciation bonds 186,304 Debt payments (1,200,000) (247,238) Payable, end ofyear $ 3,215,944 $ 5,303,806
Neither the credit nor the taxing power of the City, the Township, or any political subdivision other than the Authority is pledged for the payment of the debt service payable. The debt is not an obligation of the City, the Township, or any other political subdivision other than the Authority.
6. PENSION PLAN
As of February 29, 2008, the accrued benefits for each participant of the defined benefit Pension Plan for Employees of Butler Area Sewer Authority (Plan) were calculated as actuarial equivalent account balances for the purpose of establishing individual account balances for the conversion ofthe Plan into a 40 1(a) defined contribution plan. As ofthe conversion date, no additional defined benefits will accrue under the Plan and effective March 1, 2008, the Plan began as a defined contribution plan. As of July 31, 2010, all Authority employees were eligible and participated in the Plan. The Plan requires that all employees be employed at least twelve consecutive months and work a minimum of 1,000 hours during this period, as defined by the Plan document, to be eligible to participate. The Plan year is defined as the calendar year and participants are required to contribute 40/0 of eligible compensation to their participant account. Employer contributions to the Plan are based on 5% of eligible compensation. Employee and employer contributions to the Plan were $88,545 and $110,683, respectively, for the year ended July 31, 2010. Employee and employer contributions to the Plan were $88,165 and $110,206, respectively, for the year ended July 31, 2009.
Effective March 1, 2008, the Authority adopted the Butler Area Sewer Authority 457 Plan (457 Plan). The 457 Plan year is defined as a calendar year and eligibility requirements of the 457 Plan are consistent with the eligibility requirements ofthe Plan noted above. As of July 31, 2010, all of the Authority's 41 employees are eligible to participate in the 457
13 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31,2010 AND 2009
Plan; however, most do not. Employee contributions are permitted up to the lesser of 100% of a participant's annual salary or the maximum annual dollar amount permitted by law. Employee contributions were $31,937 and $31,319 for the years ended July 31, 2010 and 2009, respectively.
Effective January 1, 2010, the Authority adopted the 457 Governmental Deferred Compensation Plan & Trust (Governmental Plan), in addition to the existing 457 Plan. The Governmental Plan year is defined as a calendar year. Contributions to the Governmental Plan are on a voluntary basis and may commence upon employment with the Authority, provided applicable enrollment documents are in place. As of July 31, 2010, all 41 of the Authority's employees are eligible to participate in the Governmental Plan. Employee contributions are permitted up to the lesser of 1000/0 of a participant's annual salary or the maximum dollar amount permitted by law. Employee contributions for the year ended July 31,2010 were $2,305.
7. POSTEl\1PLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (OPEBs)
Plan Description
In addition to the benefits described in Note 6, the Authority provides postemployment healthcare benefits in accordance with a labor agreement between the Authority and the American Federation of State, County, and Municipal Employees. Expenditures for post retirement healthcare benefits are recognized as incurred and amounted to $65,668 and $57,393 during the years ended July 31, 2010 and 2009, for approximately 19 retirees and beneficiaries.
Fiscal year 2010 was the first year that the Authority was required to report on OPEBs. The Authority elected to implement the standard prospectively, as retroactive recording was not required under GASB Statement No. 45.
As of August 1, 2009, the date of the most recent actuarial valuation, participants were as follows:
Employees Participants: Retired 9 Active 40 49
14 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31,2010 AND 2009
Details ofthe benefits provided are as follows:
Eligibility: Normal Retirement is age 65, but those participants who retire after December 31, 2000 are eligible for OPEB benefits after attaining age 62. Covered individuals are employee, spouse, and dependents. Benefits: For those employees retiring between ages 62 and 65, the Authority pays 100% of the medical and prescription drug coverage on the Authority's medical plan until Medicare eligibility (a period not to exceed 36 months). Upon Medicare eligibility, the retiring employee must convert to a Medicare Supplement Plan. The Authority pays the full cost of the employee's Security Blue Medicare Supplement, provided that Medicare eligibility is sustained. For those employees retiring at age 65, the Authority pays the full cost of the employee's Security Blue Medicare Supplement, provided that Medicare eligibility is sustained. The Authority will pay 100% of the medical and prescription drug coverage for the retiree's spouse or dependent(s) under the Authority's medical plan for a period not to exceed 36 months. Upon the spouse or dependent reaching Medicare eligibility (whether immediately if already at or past Medicare eligibility at the date of retirement, during the first 36 months following retirement, or after the 36 months of coverage under the Authority's plan lapses), the Authority will pay the full cost ofthe spouse's or dependent's Security Blue Medicare Supplement Plan, provided that Medicare eligibility is sustained. All benefits to the spouse and dependents cease upon the death of the retiring employee. Retiring employees may elect coverage on another health plan of their choosing, but must pay the difference in cost between the chosen health plan and the Authority's current active employee's health plan. Medical plans available: Pre-age 65 coverage: Highmark PPO Blue Option 1 with Prescription Drug. Medicare Supplement: Ifretired prior to December 31, 2000, Signature 65 with prescription drug; ifretired after December 31,2000, Security Blue.
Funding Policy
The cost of these benefits is expensed when incurred and are financed on a pay-as-you-go basis. For fiscal year 2010, the Authority incurred $65,668 for OPEBs.
The Authority's annual OPEB cost is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a closed period not to exceed 30 years. The following table shows the component ofthe Authority's annual OPEB cost for the year, the amount actually contributed, and ·changes in the Authority's net OPEB obligation:
15 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2010 AND 2009
Annual required contribution $ 328,358 Interest on net OPEB obligation Adjustment to annual required contribution
Annual OPEB cost 328,358 Contributions made (65,668)
Increase in net OPEB obligation 262,690 Net OPEB obligation - beginning ofyear
Net OPEB obligation - end ofyear $ 262,690
The Authority's annual OPEB cost, the percentage of annual OPEB cost contributed and the net OPEB obligation were as follows:
Annual 0/0 NetOPEB Fiscal Year Ending OPEB Cost Contributed Obligation (Asset) July 31,2010 $ 328,358 20.00% $ 262,690 July 31,2009 N/A N/A N/A July 31, 2008 N/A N/A N/A
N/A- not applicable, as 20 10 was the first year ofimplementation for GASB Statement No.45
The schedule offunding progress for the postemployment healthcare benefits is as follows:
UAAL as a Actuarial Accrued Unfunded Actuarial Percentage of Actuarial Value Liability Accrued Liability Funded Covered Covered Actuarial Valuation ofAssets (AAL) (VAAL) Ratio Payroll Payroll Date (a) (b) (b)-(a) (a)/(b) (c) {(b)-(a)/(cn
August I, 2009 $ $ 3,269,790 $ 3,269,790 0.0% $ 2,220,725 147.2% August 1,2008 N/A N/A N/A N/A N/A N/A August I, 2007 N/A N/A NA N/A N/A N/A
N/A - not applicable, as 2010 was the first year ofimplementation for GASB Statement No. 45
16 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31,2010 AND 2009
As 2010 was the first year of implementation for GASB Statement No. 45, the only actuarial valuation completed to date was as ofAugust 1, 2009.
Actuarial valuations ofan ongoing plan involve estimates ofthe value ofreported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Healthcare cost trend assumptions are based on recent experience and anticipated future cost increases under the Authority's medical plans. Amounts determined regarding the funded status and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.
Projections and calculations of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and covered members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value ofassets, consistent with the long-term perspective ofthe calculations.
For the August 1, 2009 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions used included a 4.5% per year interest rate for unfunded status and 7.0% per year for funded status. The ARC was developed based upon the sum of the normal cost and an annual amount to amortize the unfunded Actuarial Accrued Liability over a 30-year open period. The amortization method used is "level-dollar."
8. ENVIRONMENTAL AND OTHER CONTINGENT LIABILITIES
On February 20, 2001, the Authority entered into a voluntary Consent Order and Agreement (Agreement) with the Pennsylvania Department of Environmental Protection (DEP) to address Sanitary Sewage Overflows (SSOs) from the sewage collection system during wet weather periods. Under the terms of this Agreement, the Authority was required to develop and implement a Corrective Action Plan (CAP) to eliminate SSOs during wet weather periods. This initial CAP was designed to identify the sources of infiltration and inflow entering the sanitary sewage collection system and the causes ofthe SSOs, to identify the alternatives available to reduce, eliminate, store, and/or treat excess wet weather flows, to evaluate these various alternatives, and to determine a recommended long-range plan to eliminate the SSOs. Based on the results of the initial CAP, the Authority determined that structural improvements, such as wet weather equalization
17 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2010 AND 2009 storage tanks, increased interceptor capacity, and/or additional treatment plant capacity, will be required to address the SSO problem.
In February 2006, the DEP notified the Authority and the seven municipalities served by the Authority that they would be required to enter into a revised Consent Order and Agreement (CO&A) to implement the plan. Negotiations of the terms of the revised CO&A were finalized and a revised CO&A dated October 13, 2006 was executed. The revised CO&A formalizes the time schedule for the municipalities and the Authority to prepare and adopt an Act 537 Sewage Facilities Plan Update and to complete the necessary capital improvements to address the sanitary sewage overflows by July 31, 2012. The revised CO&A stipulates civil penalties for the Authority and municipalities for failure to meet the July 31, 2012 deadline.
On April 24, 2009, the Authority submitted to the DEP for formal approval a report entitled "Act 537 Sewage Facilities Planning Study Update", dated February 2009, with Resolutions from all seven municipalities adopting this report as their Final Official Plan Update Revision ("Final Update Revision") in full accordance with the requirements ofthe CO&A. The Authority received a letter dated May 7, 2009 from the DEP with written review comments on the Final Update Revision and some additional e-mail comments from the DEP on June 15, 2009. The Authority submitted letter responses to address the DEP's review comments, including supplemental information and several revisions to the Final Update Revision. On August 28,2009, the DEP formally approved this Final Update Revision.
The Final Plan Update proposes a re-rating of the existing sewage treatment plant facility and the construction of interceptor sewer upgrades to increase conveyance capacity, four wet weather flow diversion pumping station facilities, and three flow equalization/storage tank facilities (22.1 million gallon total storage capacity) to temporarily store high, wet weather flows for subsequent treatment. These improvements will address the existing SSOs and enable the Authority to handle the future sewage needs of the service area municipalities.
In the fall of 2009, the Authority completed design work relative to the four wet weather flow diversion pumping station and equalization tank facilities. In 2010, design work began on the interceptor sewer upgrades. The Authority also applied for and received two funding offers for loans from PennVest in the amounts of $5,137,285 and $13,087,500 to partially fund the Deshon Act 537 and Butler City Act 537 wet weather flow equalization tanks, diversion structures, and pumping station facilities, respectively. The Authority anticipates closing on the loan offers prior to the end of 2010 or the beginning of 2011. During the year, construction contracts, in the amount of $6,883,900, were bid and awarded for the Deshon Act 537 project and site work began in August 2010.
18 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31,2010 AND 2009
Construction contracts for the Butler City Act 537 projects were conditionally awarded by the Authority Board on October 12, 2010, in the amount of $22,471,804. Construction on that project is not anticipated to begin until early 2011.
The total project cost of the proposed facilities, including land acquisition, is estimated to be about $41,100,000. The project is scheduled to be completed by July 31, 2012. The Authority is currently investigating potential grant opportunities and anticipates closing on a new bond issue in late 2010 or early 2011 to secure the remaining funding necessary. The Authority will also consider using existing capital funds for these improvements.
9. SUBSEQUENT EVENTS
During the year, the Authority applied for and received two funding offers for loans from PennVest in the amounts of $5,137,285 and $13,087,500 to partially fund the Deshon Act 537 and Butler City Act 537 wet weather flow equalization tanks, diversion structures, and pumping station facilities required by the CO&A, respectively. The Authority anticipates closing on the loan offers prior to the end of 2010 or the beginning of 2011. The Deshon Act 537 Project interest rate for the first five years is 2.414% and is 3.11 7% for the remainder ofthe loan. The Butler City Act 537 Project interest rate for the first five years is 1.437 % and is 1.851% for the remainder ofthe loan.
The Authority is also working with a financial advisor and anticipates issuing bonds during the next fiscal year to fund the improvements as described above. The amount and terms ofthe issue are unknown to the Authority as ofthe date ofthis report.
As ofJuly 31, 2010, the Authority has entered into various construction contracts that have not been completed as of the end of the fiscal year. Amounts remaining on the contracts for construction services not performed as of July 31, 2010, include the Northwest Area Sanitary Sewer Rehabilitation Project in the amount of approximately $2,665,000, Odor Control Project in the amount ofapproximately $283,000, and the Deshon Act 537 Project in the amount of approximately $6,884,000. The Northwest Area Sewer Rehabilitation Project began during the year and construction will continue into 2011, financing for this project was obtained through a PennVest loan as described in footnote number 5. The Odor Control Project is scheduled to begin in late 2010 or early 2011 and financing is anticipated to be through either existing capital funds or bond proceeds. Construction for the Deshon Act 537 Project began in August 2010. The proceeds from the pending PennVest loan described above, existing capital funds, and bond proceeds will cover project costs.
19 BUTLER AREA SEWER AUTHORITY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2010 AND 2009
During October 2010, the Authority conditionally awarded four construction contracts for the Butler City Act 537 Project, totaling approximately $22,472,000. Construction is anticipated to begin in early 2011. The project will be funded from the pending PennVest loan described above, existing capital funds, and bond proceeds. The Authority has also begun the design work for upgrades to two interceptors with an expected cost of approximately $4,200,000. The Authority anticipates that bond proceeds will be used to fund this project.
20 BUTLER AREA SEWER AUTHORITY SCHEDULE OF FUNDING PROGRESS OTHER POST-EMPLOYMENT BENEFIT PLANS
YEAR ENDED JULy 31, 2010
(b-a) (Overfunded)/Unfunded (a) (b) (Overfunded) (alb) (c) Actuarial Accrued Actuarial Actuarial Actuarial Accrued Unfunded Actuarial Funded Covered Liability (b-a) as a Percentage Valuation Date Value ofAsset Projected Unit Credit Accrued Liability Ratio Payroll ofCovered Payroll «b-a)/c)
August 1,2009 $ - $ 3,269,790 $ 3,269,790 0.0% $ 2,220,725 147.2%
August 1,2008 N/A N/A N/A N/A N/A N/A
August 1, 2007 N/A N/A N/A N/A N/A N/A
N/A- not applicable as 2010 was first year ofimplementation for GASB Statement No. 45. N BUTLER AREA SEWER AUTHORITY
POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (OPEBs) FACTORS AND TRENDS USED IN ACTUARIAL VALUATION
YEAR ENDED JULY 31, 2010
The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the dates indicated. Additional infonnation as ofthe latest actuarial valuation follows:
Actuarial valuation date 8/1/2009
Actuarial cost method Entry Age Normal
Amortization method Level Dollar
Amortization period 30 years
Actuarial assumptions:
Interest Rate Unfunded 4.5% Funded 7.0%
Mortality 1994 Uninsured Pensioner Mortality Table
Annual trend rates for OPEB Costs:
Year Medical 2009 9.000/0 2010 9.000/0 20lJ 8.000/0 2012 7.00% 2013 6.000/0 2014 6.000/0 2015 and later 5.000/0
22 Additional Information 23 24 BUTLER AREA SEWER AUTHORITY
COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
'{EAR ENDED JULY 31, 2010
Capital Northwest Area Improvement Sewer Revenue Debt Service Debt Service and Redemption Rehabilitation Fund Fund Reserve Fund Fund --1!.2iect Fund Total Operating Revenues: Sewer charges - residential $ 6,981,292 $ $ $ - $ - $ 6,981,292 Sewer charges - industrial waste 251,451 - - 251,451 Other operating fees and charges 124,421 - 124,421 Total operating revenues ___7,357,164 - 7,357,164 Operating Expenses: Operations and maintenance 4,410,738 - - 4,410,738 Administration 895,108 - 895,108 Depreciation 1,755,862 - 1,755,862 Total operating expenses 7,061,708 - - 7,061,708 Operating Income (Loss) 295,456 - 295,456 Non-Operating Revenues (Expenses): Capital grant 98,725 98,725 Interest income 156,314 2,530 86,615 245,459 D: Interest expense (205,325) (205,325) Amortization (99,608) - - (99,608) Total non-operating revenues (expenses) (49,894) 2,530 86,615 39,251 Income (Loss) Before Capital Contributions and Operating Transfers 245,562 2,530 - 86,615 334,707 Capital Contributions: Tap-in fees 261,170 - - . 261,170 Developer contribution revenue 14,462 - 14,462 Total capital contributions 275,632 - - - 275,632 Net Income (Loss) Before Operating Transfers 521,194 2,530 - 86,615 - 610,339 Operating Transfers: Transfers in from: Revenue Fund . 1,798,000 1,798,000 Debt Service Fund 1,200,000 - - 9,272 1,209,272 Debt Service Reserve Fund 1,200,000 71 - 1,200,071 Deshon Area Sewer Rehabilitation Project Fund Capital Improvement and Redemption Fund 1,302,732 2,400,071 - 3,702,803 Transfers out to: Revenue Fund - (1,200,000) (1,302,732) (2,502,732) Debt Service Fund - (1,200,000) - (1,200,000) Debt Service Reserve Fund (2,400,071) (2,400,071) Capital Improvement and Redemption Fund (1,798,000) (9,272) (71) - (1,807,343) Net Income (Loss) 1,225,926 2,393,329 (1,200,071) (1,808,845) - 610,339 Net Assets: Beginning ofyear 25,577,248 4 1,200,071 13,461,762 40,239,085
End ofyear $ 26,803,174 $ 2,393,333 $ - -$- 11,652,917__ $ $ 40,849,424 BUTLER AREA SEWER AUTHORITY COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS YEAR ENDED JULY 31, 2009
Capital Deshon Area Improvement Sewer Revenue Debt Service Debt Service and Redemption Rehabilitation Fund Fund Reserve Fund Fund --f!2iect Fund Total Operating Revenues: Sewer charges - residential $ 6,899,639 $ $ $ $ . $ 6,899,639 Sewer charges - industrial waste 244,951 - 244,951 Other operating fees and charges 119,743 119,743
Total operating revenues 7,264,333 7,264,333 Operating Expenses: Operations and maintenance 4,231,849 4,231,849 Administration 570,510 570,510 Depreciation 1,756,569 1,756,569
Total operating expenses 6,558,928 . 6,558,928
Operating Income (Loss) 705,405 705,405 Non-Operating Revenues (Expenses): Capital grant 401,275 401,275 Interest income 179,051 133 10,325 122,620 1,116 313,245 "-' 0- Interest expense (261,729) (261,729) Amortization (99,608) (99,608)
Total non-operating revenues (expenses) 218,989 133 10,325 122,620 1,116 353,183
Income (Loss) Before Capital Contributions and Operating Transfers 924,394 __J}3 10,325 122,620 1,116 1,058,588 Capital Contributions: Tap-in fees. 384,230 384,230 Developer contribution revenue 39,660 39,660
Total capital contributions 423,890 423,890
Net Income (Loss) Before Operating Transfers ___1,348,284 133 10,325 122,620 1,116 1,482,478 Operating Transfers: Transfers in from: Revenue Fund 1,199,470 674,149 1,873,619 Debt Service Fund 1,200,000 . . 1,200,000 Debt Service Reserve Fund 14,118 14,118 Deshon Area Sewer Rehabilitation Project Fund 2,571 2,571 Capital Improvement and Redemption Fund 633,483 633,483 Transfers out to: Revenue Fund (1,200,000) (633,483) (2,571) (1,836,054) Debt Service Fund (1,199,470) (1,199,470) Capital Improvement and Redemption Fund (674,149) (14,118) (688,267)
Net Income (Loss) 1,310,719 (397) (3,793) 177,404 (1,455) 1,482,478 Net Assets: Beginning ofyear 24,266,529 401 1,203,864 13,284,358 1,455 38,756,607 End ofyear $ 25,577,248 $ 4 $ 1,200,071 $ 13,461,762 $ $ 40,239,085 BUTLER AREA SEWER AUTHORITY
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JULy 31,2010
Federal CFDA Federal Grantor / Pass-Through Grantor / Program Title Number Expenditures
U.S. Environmental Protection Agency/Office ofWater Passed Through PennVest: Capitalization Grants for Clean Water State Revolving Funds 66.458 $ 1,815,678
TOTAL FEDERAL AWARDS $ 1,815,678
See accompanying notes to schedule ofexpenditures offederal awards. 27 BUTLER AREA SEWER AUTHORITY
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED IDLY 31, 2010
1. GENERAL
The accompanying schedule ofexpenditures offederal awards presents the activity of all federal award programs ofthe Butler Area Sewer Authority.
2. BASIS OF ACCOUNTING
The accompanying schedule of expenditures of federal awards is presented using the accrual basis ofaccounting.
28 Butler Area SewerAuthority
Independent Auditor's Reports in Accordance with OMB Circular A-133
Year Ended July 31, 2010 Pittsburgh Harrisburg Butler . Three Gateway Center 3003 North Front Street 112 Hollywood Drive Six West Suite 101 Suite 204 Pittsburgh, PA 15222 Harrisburg, PA 17110 Butler, PA 16001 MaherDuessel Main 412.471.5500 Main 717.232.1230 Main 724.285.6800 Certified Public Accountants Fax 412.471.5508 Fax 717 .232.8230 Fax 724.285.6875
Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit ofFinancial Statements Performed in Accordance with Government Auditing Standards
Board ofDirectors Butler Area Sewer Authority
We have audited the financial statements ofthe Butler Area Sewer Authority (Authority) as ofand for the year ended July 31, 2010, and have issued our report thereon dated October 26, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the Authority's internal control over financial reporting as a basis for designing our auditing procedures for the purpose ofexpressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness ofthe Authority's internal control over financial reporting.
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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement ofthe Authority's financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Authority's financial statements are free of 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 disclosed no instances of noncompliance or other matters that are required to be reported under GovernmentAuditing Standards.
* *********
Pursuing the profession while promoting the public good@ www.md-cpas.com 29 Board ofDirectors Butler Area Sewer Authority Independent Auditor's Report on Internal Control over Financial Reporting
This report is intended solely for the infonnation and use of the Board of Directors, management, others within the Authority, and federal, state, and county awarding agencies and is not intended to be and should not be used by anyone other than these specified parties.
Pittsburgh, Pennsylvania October 26, 2010
30 Pittsburgh Harrisburg Butler Three Gateway Center 3003 North Front Street 112 Hollywood Drive Six West Suite 101 Suite 204 Pittsburgh, PA 15222 Harrisburg, PA 17110 Butler, PA 16001 MaherDuessel Main 412.471.5500 Main 717.232.1230 Main 724.285.6800 Ce rtified Pu blie AceDuntants Fax 412.471.5508 Fax 717 .232.8230 Fax 724.285.6875
Independent Auditor's Report on Compliance with Requirements that Could Have a Direct and Material Effect on its Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133
Board ofDirectors Butler Area Sewer Authority
Compliance
We have audited the Butler Area Sewer Authority's (Authority) compliance with the types ofcompliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-i33 Compliance Supplement that could have a direct and material effect on the Authority's major federal program for the year ended July 31, 2010. The Authority's major federal program is identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to its major federal program is the responsibility of the Authority's management. Our responsibility is to express an opinion on the Authority's compliance based on our audit.
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 General of the United States; OMB Circular A-I33, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-I33 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 Authority'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. Our audit does not provide a legal determination on the Authority's compliance with those requirements.
In our opinion, the Authority complied, in all material respects, with the requirements referred to above that could have a direct and material effect on its maj or federal program for the year ended July 31, 2010.
Internal Control over Compliance
Management of the Authority is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the Authority's internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-I33, 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 ofthe Authority'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
Pursuing the profession while promoting the public good'" www.md-cpas.com 31 Board ofDirectors Butler Area Sewer Authority Independent Auditor's Report on Compliance with Requirements that Could Have a Direct and Material Effect on its Major Program 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.
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 deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. ********** This report is intended solely for the information and use of the Board of Directors, management, others within the Authority, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.
Pittsburgh, Pennsylvania October 26, 2010
32 BUTLER AREA SEWER AUTHORITY
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED mLY 31, 2010
I. Summary ofAudit Results
1. Type ofauditor's report issued: Unqualified
2. Internal control over financial reporting:
Material weakness(es) identified? 0 yes ~ no Significant deficiencies identified that are not considered to be material weakness(es)? o yes ~ none reported
3. Noncompliance material to financial statements noted? 0 yes ~ no
4. Internal control over major programs:
Material weakness(es) identified? 0 yes ~ no Significant deficiencies identified that are not considered to be material weakness(es)? o yes ~ none reported
5. Type ofauditor's report issued on compliance for major programs: Unqualified
6. Any audit findings disclosed that are required to be reported in accordance with Section 5IO(a) ofCircular A-I33? D yes ~ no
7. Major Programs:
CFDA NumberCs) Name ofFederal Program or Cluster 66.458 Capitalization Grants for Clean Water State Revolving Funds
8. Dollar threshold used to distinguish between type A and type B programs: $300,000
9. Auditee qualified as low-risk auditee? D yes ~ no
II. Findings related to the financial statements which are required to be reported in accordance withGAGAS.
No matters were reported.
III. Findings and questioned costs for federal awards.
No matters were reported.
33 BUTLER AREA SEWER AUTHORITY
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
YEAR ENDED JULY 31,2010
No Single Audit in Prior Year
34 APPENDIX C
BOND COUNSEL OPINION OPINION OF BOND COUNSEL
The form of the approving legal opinion of Dinsmore Shohl LLP Bond Counsel, is set forth below. The actual opinion will be delivered on the date of delivery of the Bonds and may vary from the form set forth to reflect circumstances both factual and legal at the time of such delivery. Recirculation of this Official Statement shall create no implication that Dinsmore & Shohl LLP has reviewed any of the matters set forth in such opinion subsequent to the date thereof.
We have served as Bond Counsel to the Butler Area Sewer Authority (the "Authority") and do hereby undertake to advise you in connection with the issuance, sale and delivery of its $19,390,000 principal amount, Sewer Revenue Bonds, Series of 2010, (the "Bonds") issued in fully registered form, denominated in $5,000.00, or any integral multiple thereof, dated and bearing interest from December 30, 2010, maturing on various annual dates ending July 1, 2034.
In that capacity, we have examined the Constitution of the Commonwealth of Pennsylvania; the Municipality Authorities Act (53 Pa. C.S.A. §5601 et. seq), as amended (the "Act"); the Articles of Incorporation and related organizational documentation of the Authority (collectively, the "Charter"); the formal action of the Board of the Authority authorizing the incurrence of debt evidenced by the Bonds (the "Bond Resolution"); the Trust Indenture, dated as of December 30, 2010 (the “Indenture”) from the Authority to The Bank of New York Mellon Trust Company, N.A., as Trustee (the “Trustee”) providing for the issuance of, and security for, the Bonds; the Internal Revenue Code of 1986, as amended (the "Tax Code"); the Federal Income Tax Certificate of an authorized officer; and such other certificates, proceedings and law as we deemed necessary in order to render this opinion. Unless separately noted, we have not independently verified factual certifications either contained in official records and other documents of the Authority or made to us by the Authority or its officers and agents during the course of our engagement. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Indenture.
Both principal of and interest on the Bonds are payable at the designated corporate trust office of The Bank of New York Mellon Trust Company, N.A., Pittsburgh, Pennsylvania, as Trustee.
These proceedings demonstrate that, in the absence of any meritoriously-based action in a governmental or judicial forum affecting the validity of the Bonds, the same have been delivered upon full payment.
Based on the foregoing, we are of the opinion on this date as follows:
1. The Bonds are valid and binding revenue obligations of the Authority.
(a) The Bonds are issued for a valid purpose within the authority of the Act and the Charter.
(b) The Bond Resolution was duly and properly adopted and is in full force and effect.
(c) The Bonds conform, in all substantial respects, to the form provided in the Indenture.
2. The Bonds are secured by the Pledged Revenues derived by the Authority from the operation of its Sewer System, as defined in and according to all the terms of the Indenture, which includes, inter alia, a covenant to compel the Authority to maintain rates and other charges for the services of the Sewer System at a
64308_1.DOC level which will produce and revenues sufficient to pay: (i) the Administrative Expenses of the Authority, plus (ii) any amounts necessary to pay debt service on the Pennvest Note #71317 and Pennvest Note #71364, plus (iii) an amount equal to 110% of the Debt Service Requirements in such fiscal year with respect to its Outstanding Bonds plus (iv) funds sufficient to cure any deficiency in the Debt Service Reserve Fund, plus (v) funds sufficient to pay the amount due in such fiscal year on all Subordinate Debt and other payment obligations of the Sewer System.
3. The Bonds are payable and enforceable according to their own terms, those of the Indenture and all provisions of the Act; however, any such payment and enforcement could be restrained by a court of proper jurisdiction operating under the authority of bankruptcy, receivership and other similar laws of accommodation and adjustment of creditors' rights, as then applicable. The Bonds do not represent a debt or an obligation of the Commonwealth of Pennsylvania or any political subdivision thereof. The Authority has no taxing power.
4. The Bonds are authorized investments under the Probate, Estates and Fiduciaries Code, as amended, for fiduciaries and personal representatives (as such terms are therein defined) within the Commonwealth of Pennsylvania.
5. The Bonds, having all the qualities and incidents of negotiable instruments under Article 8 of the Uniform Commercial Code, are negotiable instruments.
6. Under the laws, regulations, rulings and judicial decisions in effect as of the date of this opinion, interest (including, in the case of bonds sold at an original issue discount, the difference between the initial offering price and par) on the Bonds is excludible from gross income for Federal income tax purposes. Furthermore, interest on the Bonds will not be treated as a specific item of tax preference, under Section 57(a)(5) of the Tax Code, in computing the alternative minimum tax for individuals and corporations. In rendering the opinions in this paragraph, we have assumed continuing compliance with certain covenants designed to meet the requirements of Section 103 of the Tax Code. We express no other opinion as to the federal tax consequences of purchasing, holding or selling the Bonds.
7. The Bonds, and interest income therefrom, are free from taxation for purposes of personal income, corporate net income and personal property taxes within the Commonwealth of Pennsylvania.
64308_1.DOC APPENDIX D
DEBT SERVICE SCHEDULE
To Be Determined APPENDIX E
ENGINEER’S REPORT
Butler Area Sewer Authority Butler County, Pennsylvania
Consulting Engineer's Annual Report, 2009/2010 Fiscal Year Budget, and 2010/2011 Fiscal Year Budget
November 2010
CHESTER ENGINEERS Butler Area Sewer Authority Butler County, Pennsylvania
Consulting Engineer's Annual Report, 2009/2010 Fiscal Year Budget, and 2010/2011 Fiscal Year Budget
November 2010
Prepared by: Michael F. McKee, P.E. Approved by: James R. Bowser, P.E. Project No.: 10-0555-MC-A-2010
CHESTER ENGINEERS
1555 Coraopolis Heights Road. Moon Township. PA 15108 412-809-6600 - Fax 412-809-6611 CONSULTING ENGINEER'S ANNUAL REPORT, 200912010 FISCAL YEAR BUDGET, AND 201012011 FISCAL YEAR BUDGET TABLE OF CONTENTS
Page No.
Summary iv System Review 1 Capital Additions, Improvements, And Extraordinary Maintenance/Replacement 2 DEP Consent Order and Agreement Compliance Activities 6 Financial Review 11 Fiscal Year 2008/2009 11 Fiscal Year 200912010 13 Budget Considerations 15 Insurance 17 Acknowledgments 17
Appendix A Discharge Limitations
AppendixB Anticipated ShOlt-Term Capital Improvement Projects
Appendix C Anticipated Long-Term Capital Improvement Projects
AppendixD Rate Schedule For New Service Connections
AppendixE Current Insurance Coverage
Butler Area Sewer Authority CHESTER 0555-2010/11-IOIBASA - 2010 Report.docllb -ii- ENGINEERS LIST OF TABLES
Page No. Table I Sewage Treatment Plant Fiscal Year 200812009 Performance Data I Table 2 Sewage Treatment Plant Fiscal Year 2009120 I0 Performance Data 2 Table 3 Comparison ofProjected Revenues and Expenses for the Fiscal Year Ending July 31, 2009 with the 2008/2009 Budget and the 2009120 I0 Adopted Budget 12 Table 4 Comparison ofProjected Revenues and Expenses for the Fiscal Year Ending July 31, 2010 with the 2009/2010 Budget and the 201012011 Adopted Budget 14 Table 5 Sewer System Rate Schedule 16
Butler Area Sewer Authority CHESTER 0555-201O/ll-10IBASA - 2010 Report.doc/lb -iii- ENGINEERS CONSULTING ENGINEER'S ANNUAL REPORT, 2009/2010 FISCAL YEAR BUDGET, AND 2010/2011 FISCAL YEAR BUDGET
This annual report, prepared for the Butler Area Sewer Authority, presents a review ofthe Sewer System operation and financial status for the fiscal years ended July 31, 2009, and July 31,2010. Additionally, this report identifies needed maintenance and capital addition items and includes the 20 I0/20 II operating budget. The conclusions and recommendations ofthis repoti are as follows: • The sewerage facilities have operated continuously and successfully during the past two fiscal years and numerous capital additions, improvements, and major maintenance/replacement projects were accomplished. • Extraordinmy repair/replacement and capital addition projects recommended for completion in fiscal year 20 I0/20 II include the Dutchtown Road Sewer Extension and the Northwest Area Sewer Rehabilitation project. • Financial operations for the twelve-month period ended July 31, 2010, show that approximately $1,768,000 will be deposited into the Capital Improvements and Redemption Fund. • Comparison of 2009/20I 0 budget projections, with revenues and expenses for this period indicates total revenues are expected to be approximately $73,605 less than budget and total operating expenses will be some $589,310 less than anticipated. • The 2010/2011 balanced budget anticipates total revenues of $8,108,000, total operating expenses of$5,451,000, and total other expenses of$2,656,900. It appears that the new rate structure that became effective Janumy I, 2009, should generate sufficient revenues to meet the Trust Indenture requirements and to provide for proper operation, maintenance, and repair ofthe Sewer System in fiscal year 2010/2011. • Insurance coverage maintained on the Sewer System should be reviewed and updated annually to ensure replacement values are up to date and meet the requirements ofthe Trust Indenture.
Butler Area Sewer Authority CHESTER 0555-2010/11-IO/BASA - 2010 Report.doc/lb -iv- ENGINEERS CONSULTING ENGINEER'S ANNUAL REPORT, 2009/2010 FISCAL YEAR BUDGET, AND 201012011 FISCAL YEAR BUDGET
The wastewater treatment plant was operated continuously and successfully during the past two fiscal years. Effluent permit requirements were met on both a monthly and yearly average basis. Table 1 was prepared using data obtained from the operator's monthly performance log and summarizes the operational and performance data for the 200812009 fiscal year.
Table 1 Sewage Treatment Plant Fiscal Year 2008/2009 Performance Data Average BOD Suspended Solids Flow Effluent Percent Effluent Percent Month (mgd) (m"/L) Removal (ml!!L) Removal June 2008 5.646 1.6 99.2 5.0 98.0 July 2008 5.194 1.6 99.3 4.3 98.5 August 2008 4.468 1.6 99.4 4.5 98.8 September 2008 4.531 1.6 99.4 4.1 98.9 October 2008 4.555 2.3 99.1 6.0 98.3 November 2008 5.208 2.6 98.9 7.3 97.7 December 2008 8.127 3.7 97.4 9.5 94.4 January 2009 7.420 3.4 97.7 8.5 94.6 February 2009 10.876 5.9 94.0 10.2 91.1 March 2009 8.247 3.6 97.0 9.3 93.5 April 2009 8.403 3.5 96.9 7.2 94.6 May 2009 6.451 2.4 98.4 4.5 97.6 IAVERAGE I 6.594 I 2.8 I 98.1 I 6.7 II 96.3 I NPDES Limits 10.000 30.0 5/1 - 10131 12.0 1111 - 4/30 24.0
The operating records show that flow to the plant averaged 6.594 million gallons per day (mgd) for the fiscal year, with the highest monthly average flow of 10.876 mgd occurring in FeblUary 2009. The effluent biological demand (BOD) averaged 2.80 milligrams per liter (mgjL) with an overall removal efficiency of 98.1 percent for the year. Suspended solids in the effluent averaged 6.7 mgjL with an overall removal efficiency of96.3 percent for the year. Table 2 summarizes the operational and performance data for the 2009/2010 fiscal year.
Butler Area Sewer Authority CHESTER 0555-2010/11-IO/BASA - 2010 Report.docllb -1- ENGINEERS Table 2 Sewage Treatment Plant Fiscal Year 2009/2010 Performance Data Average BOD Suspended Solids Flow Effluent Percent Effluent Percent Month (mgd) (mg/L) Removal (m~/L) Removal June 2009 5.640 1.7 99.\ 4.0 98.3 July 2009 5.935 2.2 98.9 5.4 97.9 August 2009 6.646 2.0 98.6 6.5 97.0 September 2009 4.846 1.8 99.2 6.5 97.9 October 2009 5.372 3.0 98.4 6.6 97.4 November 2009 4.722 2.5 98.8 5.5 98.0 December 2009 7.470 3.6 97.5 8.7 95.2 January 2010 8.34\ 4.6 96.9 9.9 93.9 February 2010 6.685 3.2 97.9 8.8 95.5 March 2010 10.489 6.\ 93.\ \2.7 89.1 April 20\0 6.Q92 3.2 98.\ 9.5 95.5 May2010 6.623 3.2 98.0 8.\ 95.9 AVERAGE II 6.572 I 3.1 II 97.9 II 7.7 II 96.0 I NPDES Limits 10.000 30.0 5/\ - \0/3\ 12.0 11/1 - 4/30 24.0
Flow to the plant averaged 6.572 mgd for the 2009/2010 fiscal year, with the highest monthly average flow of 10.489 mgd occurring in March 2010. The effluent BOD averaged 3.1 mg/L with an overall removal efficiency of 97.9 percent for the year. Suspended solids in the effluent averaged 7.7 mg/L with an overall removal efficiency of96.0 percent for the year. The National Pollution Discharge Elimination System (NPDES) permit limits for all discharge parameters are included in Appendix A.
During the 2008/2009 and 200912010 fiscal years, the Authority completed numerous capital additions, improvements, and major maintenance/replacement projects. The major projects completed include the following:
1. 2008/2009 Fiscal Year • Authority employees and contractor (Hutton Engineering Corp.) continued the on-going upgrade of the pump station SCADA system by finishing the SCADAPack hardware installation and software programming to conveli the
Butler Area Sewer Authority CHESTER 0555-201OIlI-10/BASA - 2010 Report.docllb -2- ENGINEERS Benbrook, Brewster, Brewster Booster, Bryson, Cupps, Greenwood, and Deshon pump stations to the new Citect SCADA system. • Contractor (Dumbaugh Electric) furnished a new Eurodrive gear motor to replace the old U.S. Varidrive gear motor ($5,785) and refurbished one of the two Moyno progressive cavity sludge feed pumps for the filter presses ($10,960). Authority employees removed and reinstalled the Moyno pump and gear motor. • Contractor (Doyle Equipment) performed major 8,000-hour maintenance service and repairs, including bucket repair, on John Deere Model 624E front end loader ($11,181) used for processed sludge handling. • Contractor (Eaton Corp.) performed preventative maintenance cleaning, inspection and calibration of the DP4000 Power Meter and eleven (11) DSll Model 608 circuit breakers in the Main Switch Gear at the wastewater treatment plant ($7,438). 2. 2009/2010 Fiscal Year • Contractor (Dennis Fleeher Contracting, Inc.) completed work on the installation of new standing seam metal roofs at nine (9) sewage pump stations - Benbrook, Brewster, Brewster Booster, Bryson, Cupps, Fisher Heights, Greenwood, NOlihvue, and Rock Lick. The total project cost for this pump station roofreplacement project was $105,765. • Contractor (ABC Electrical Contractors) completed work on the installation of new automatic transfer switches (ATS) at ten (10) sewage pump stations Benbrook, Brewster, Brewster Booster, Bryson, Cupps, Fisher Heights, Greenwood, Northvue, Rock Lick, and Karns Crossing. The total project cost for this ATS Replacement Project (Contract No. 2008-1) was $104,382. • Contractor (Excelsior Blower) furnished two (2) new Gardner-Denver Model 4500 rotary lobe blowers for the sludge aeration system ($34,297 material cost) and Authority employees installed the new blowers. • Authority employees and contractor (Hutton Engineering Corp.) completed the on-going upgrade of the pump station SCADA system by finishing the SCADAPack hardware installation and software programming to conveli the Center Avenue, Diamond Street, Negley and Zeigler pump stations to the new Citect SCADA system. The old proprietary Bristol Babcock equipment has now been replaced at all 19 ofthe monitored pump stations. • Authority employees replaced the wheel bearings (10) and the roller pillow block bearings (4) on the traveling bridges for the secondary clarifiers ($7,512 material cost).
Butler Area Sewer Authorily CHESTER 0555·2010/11·IOIBASA • 2010 Rcport.docllb -3- ENGINEERS In addition to the major capital improvements and major maintenance projects completed during the 2008/2009 and 2009/20 I0 fiscal years, the Authority also made the following major equipment purchases: I. 200812009 Fiscal Year • Purchased and took delivery oftwo (2) new 2009 Ford F-350 Super Duty 4x4 pickup tlUcks for the sewer crew and maintenance crew ($22,070 each, $44,140 total). • Purchased a new Savin Model C4040 full color copier/scanner/printer for the main office ($7,980). • Purchased and installed fourteen (14) fiberglass life ring cabinets with life rings and rope at various locations at wastewater treatment plant ($5,781). • Purchased two (2) Epson Capture One 60 remote check scanners for in-house processing and electronic deposit ofservice charge payments ($2,600). 2. 2009/2010 Fiscal Year • Purchased four (4) new MSA Firehawk M7 self-contained breathing apparatus (SCBA) cases to upgrade emergency chlorine leak response capabilities ($30,344). • Purchased and took delivery of a new 2010 Ford E-350 Econoline cargo van for private sewer service lateral dye testing and inspection ($20,292). • Purchased tln'ee (3) MSA Galaxy automatic calibration stations and four (4) new Altair gas meters to upgrade confined space monitoring capabilities ($12,652). • Purchased a new Printronix P7220 (2,000 Ipm) line printer for printing billing invoices and spreadsheet repOlis ($9,959). • Purchased and installed a new Westem Pro-Plus snow plow with Ultramount and controls for one of the two 2009 Ford F-350 4x4 trucks purchased last year ($5,528) and installed a second Ultramount and control system on the other 2009 Ford F-350 4x4 !tuck for duplicate plowing capability ($2,034). • Contractor (Crane America Services) performed annual inspection and preventative maintenance for six (6) Yale overhead hoists at the Authority's facilities ($480), and subsequently replaced the wire ropes for four (4) cranes ($4,974). During the 2008/2009 and 2009/2010 fiscal years, design and construction work was completed on the following major sewer replacement, relocation or extension projects: • PennDOT Wayne Street Bridge Replacement Sewer Relocation: The Pennsylvania Depatiment ofTransportation (PennDOT) replaced the existing Wayne Street Bridge
BUller Area Sewer Authority CHESTER 0555-2010/11-10IBASA - 2010 Report.docllb -4- ENGINEERS in a new location adjacent to the old bridge. The project necessitated the relocation of several sewer segments around the new bridge piers. On June 12,2007, the Authority Board authorized the firm of Markosky Engineering to prepare the plans and specifications for the sanitmy sewer relocation and incorporation into the bridge project. At the July 8, 2008 meeting, the Authority Board executed a Cost Sharing Agreement with PennDOT for this project. Total cost for the relocation of the sanitmy sewers, including engineering, was estimated to be $202,000, of which the Authority would be responsible for $48,700. The sanitary sewer relocation work was completed during 2009. As of July 31, 2010, the Authority has not received any further correspondence from PennDOT regarding the final construction cost or any invoices for the Authority's share ofthe project construction cost. • Monroe Street Bridge Replacement Sewer Relocation: The City of Butler, with funding from PennDOT, replaced the existing Monroe Street Bridge. This project also necessitated the relocation ofsome sanitary sewers near the new bridge piers. In 2008, the Authority paid Gateway Engineers to complete the plans and specifications for the sanitary sewer relocation and incorporated this work into the bridge project. The estimated cost for the sewer relocation work, including engineering costs, was $30,050. The sanitary sewer relocation work was completed in 2009. The constlUction cost is expected to be paid by PennDOT and the City ofButler, as palt of the project cost. • Dutchtown Road Sanitary Sewer Extension: Under Contract No. 2008-6, approximately 1,100 lineal feet of 8-inch sanitary sewer will be constructed to serve ten (10) propelties along Dutchtown Road between Township Line Road and Hampton Court that are upstream ofthe Authority's Sugar Creek Pump Station. The project will eliminate public health hazards and pollution from malfunctioning on-lot septic systems identified by the Butler Township Sewage Enforcement Officer (SEO). The Authority's engineering staff prepared the initial plans and specifications for this project in 2008. Unfortunately, the estimated user costs for this project are very high due to the small number of customers that would be served. After public meetings with local residents and Butler Township officials, the Authority revised the plans and specifications to solicit bids for two alternative sewer alignments; one with the sewer extension being built within the paved public road right-of-way and a second with the extension being built within a new public sewer right-of-way outside ofthe public road right-of-way. The second option, which would not require paving restoration work, could be less expensive, if local residents were willing to grant the necessary right-of-ways to the Authority. The Authority adveltised for bids in December 2009, and opened bids on January 25, 2010. Kaclik Excavating ofEvans City submitted the lowest responsive, responsible bid for both alternatives for the project. The bid cost was $140,078 for Alternative 1 (in-road construction) and $78,388 for Alternative 2 (in-yard constmction). In view of the cost savings, Butler Township recommended Alternative 2 and most of the
Butler Area Sewer Authority "b... CHESTER 0555·201 O/II·W/SASA • 2010 Reportdocl1b -5- 'W' ENGINEERS residents agreed to grant the right-of-ways. Accordingly, the Authority approved the selection of Alternative 2 and the award of Contract 2008-06, Dutchtown Road Sanitary Sewer Project (Alternative 2) to Kaclik Excavating on March 24, 2010. Construction started on May 10, 2010, and was completed on August 13, 2010. The Authority's final total project cost, including the survey, permit, legal and right-of way costs, but not the Authority's in-house engineering costs, was $85,151.
DEP Consent Order andAgreement Compliance Activities
On October 13, 2006, the Butler Area Sewer Authority (BASA) and its seven service area municipalities executed a new Consent Order and Agreement (CO&A) with the Pennsylvania Department of Environmental Protection (DEP). The CO&A mandated that BASA and the municipalities prepare and adopt an Act 537 Sewage Facilities Planning Study Update and then implement the recommended system improvements necessary to eliminate sanitary sewer overt1ows (SSOs) from the Ballpark, General Tire, and Deshon overt1ow structures by no later than July 31, 2012. During 2008/2009 and 200912010, the Authority completed, continued, or initiated work on the following major projects as part of the on-going corrective action plan to reduce infiltration and int10w of extraneous stonn water and groundwater entering the sanitary sewers and eliminate sanitary sewer overt1ows (SSOs) during wet weather periods: • Bessemer-Alton Street Storm and Sanitary Project: Under Contract No. 2008-02, 840 lineal feet of 36-inch storm sewers and 860 lineal feet of 8-inch sanitary sewers were constructed to replace approximately 585 lineal feet of 30-inch mainline sewer that is functioning as a combined sewer. Contract 2008-02 was a joint venture between the Butler Area Sewer Authority and Butler Township to upgrade the storm sewer system and eliminate a major source of int10w into the Authority's sanitary sewer system. Bids for construction were received on October 8, 2008. The $502,676 project, of which $398,750 was related to the constmction of new sanitary sewers, was awarded to Bauer Excavating in October 2008. Construction statted the first week of January 2009, and was completed on July 18, 2009. The Authority's final total project cost, including all engineering and right-of-way costs, was $421,978. • NOlthwest Butler Area Sewer Authority CHESTER 0555·20101ll·lOIBASA • 20 lO Rcport.docllb -6- ENGINEERS April 8, 2009, and a $4,874,631 construction contract was awarded to Insituform Technologies Incorporated (ITI) on April 29, 2009. After obtaining DEP approval of Insituform's DBE submittals, the Authority entered into a PENNVEST loan agreement to cover the updated project cost of $6,077,100. Insituform officially stmied work on this project on September 14, 2009, and the project is expected to be completed by March 7, 2011. • Final Act 537 Sewage Facilities Planning Study Update: On April 24, 2009, the Authority submitted to the DEP for formal approval a report entitled "Act 537 Sewage Facilities Planning Study Update", dated February 2009, with resolutions from all seven municipalities adopting this repmi as their Final Official Plan Update Revision ("Final Update Revision"), in accordance with the requirements of the CO&A. The Authority received a letter dated May 7, 2009, fi'om the DEP with written review comments on the Final Update Revision, and additional e-mail review comments fi'om the DEP on June 15, 2009. The Authority submitted letter responses to address the DEP's review comments, including supplemental information and several revisions to the Final Update Revision. On August 27, 2009, the DEP formally approved the "Act 537 Sewage Facilities Planning Study Update", dated February 2009, with subsequent revisions in May 2009 and June 2009. The Final Update Revision proposed the following Act 537 Sewage Facilities Plan Improvements to comply with the requirements of the CO&A to eliminate the existing SSOs and provide adequate conveyance and treatment for the future sewage needs ofthe service area municipalities: 1. Rerating the hydraulic capacity ofthe existing Sewage Treatment Plant (STP) to a permitted monthly average daily flow of 11.0 million gallons per day (mgd) and a peak flow capacity of27.5 mgd. 2. Constmction offlow diversion, pumping, and equalization tank facilities (two 3.0 million gallon tanks) adjacent to the Deshon Pump Station to store excess wet-weather flows and eliminate the existing Deshon SSO. 3. Construction of flow diversion, pumping, and equalization tank facilities (two 1.0 million gallon tanks) near the Monroe Pump Station to store excess wet weather flows and eliminate the existing Momoe SSO. 4. Construction of flow diversion, pumping, and force main facilities near the existing Ballpark and General Tire SSOs on the Sullivan Run Interceptor Sewer to pump excess wet weather flows to the Central Storage Equalization Tank facilities. 5. Construction of flow diversion, pumping, and force main facilities on the Connoquenessing Creek Interceptor Sewer to pump excess wet-weather flows to the Central Storage Equalization Tank facilities. Butler Area Sewer Authority CHESTER 0555-20IOfll-lOfBASA - 2010 Report.docflb -7- ENGINEERS 6. Construction ofCentral Storage Equalization Tank facilities (three 4.7 million gallon tanks) near the lower end of the Sullivan Run Interceptor Sewer to store excess wet-weather flows pumped from the Ballpark/General Tire and Connoquenessing flow diversion pump stations and eliminate the Ballpark and General Tire SSOs. 7. Conveyance system upgrades to increase the capacity ofthe existing Sullivan Run Interceptor Sewer and the Butcher Run Interceptor Sewer to meet the future sewage needs ofthe service area municipalities. The preliminary estimated total project cost to construct the proposed Act 537 Plan Improvement Projects was $30,393,000. • Act 537 Plan Implementation - Land Acquisition: During 2008-2009, the Authority completed the necessary actions to acquire all five of the properties where the proposed flow diversion pump stations and equalization storage tank facilities will be constructed: 1. Purchased 2.72 acres from Butler Township at a cost of$22,000 for the site of the proposed Deshon flow diversion, pump station, and flow equalization tank facilities. 2. Purchased of 7.24 acres from AK Steel Corporation at a cost of $225,600 for the site of the proposed equalization tanks at the Central Storage Tank location. 3. Purchased of0.28 acres from Robert Steighner at a cost of$22,950 for the site of the proposed Sullivan Run Interceptor flow diversion and pump station facilities. 4. Purchased of0.91 acres from the Estate ofAlex Horewitz at a cost of $38,000 for the site of the proposed MOill'oe Street Pump Station equalization tank facilities. 5. The Authority also filed a Declaration of Taking to acquire the fifth property by condemnation. After successful negotiations, the Authority subsequently executed a Settlement and Release Agreement with Sam A. Colosimo for the acquisition of his property located at 600 South Main Street in the City of Butler on August 26, 2009. The Colosimo propelty will be the site of the proposed Connoquenessing Flow Diversion and Pump Station facilities. • Act 537 Plan Implementation - Design and Permitting: During 2008-2009 and 2009 20 I0, the Authority took another major step to expedite the implementation of the proposed facilities by authorizing Chester Engineers to perform design engineering services for the wet weather flow diversion, pumping and equalization tank facilities for a total lump sum fee of $1,351,400. On October 7, 2009, the Authority's consulting engineer, Chester Engineers, submitted Water Quality Management Butler Area Sewer Authority CHESTER 0555-2010/11-I0/BASA - 2010 Report.docllb -8- ENGINEERS (WQM) Application No. 1009404 (Part II Permit) to the DEP, along with the plans and specifications for the construction of the proposed flow diversion pump station and equalization tank facilities that were recommended in the approved Act 537 Plan. The Authority received preliminary review comments via e-mail from the DEP, and submitted a written response to these DEP review comments on January 7, 2010. In late December 2009 and early January 2010, the Authority and DEP representatives had several discussions about the potential benefits of splitting the proposed Deshon flow diversion pump station and equalization tank facilities from the other Act 537 Plan flow diversion pump stations and equalization tank facilities. It was agreed that the Authority could proceed with the construction ofthese facilities as a separate project. On January 19, 2010, the DEP issued the Part II Water Quality Management Permit Amendment (WQM 1009404; APS ID No. 704560) for the consttuction ofthe proposed Deshon Act 537 Plan Improvement Project. During the first quatler of 20 I0, Chester Engineers submitted the revised permit applications for the required NPDES Stormwater permit, Erosion and Sedimentation (E&S) Control Plan, and General Petmit for the discharge of storm water during consttuction ofthe other Butler City Act 537 Plan Improvements to the Butler County Conservation District, and a revised Part II Water Quality Management Permit for the other Butler City Act 537 Plan improvements. On May 18,2010, the DEP approved and issued: (I) the Part II Water Quality Management Permit Amendment (WQM 1009404 - Amendment No. I), (2) Watershed Management Permit GPll1010607, and (3) Watershed Management Permit No. PAI06010001 required for the construction ofthe proposed Butler City Act 537 Plan Improvement Projects. In November 2009, the Authority also submitted the land development plans for the construction of the proposed Act 537 Plan improvements in the City of Butler and Butler Township. The Butler Township Planning Commission approved the land development plans for the proposed Deshon flow diversion pump station and equalization tank facilities (Deshon Act 537 Plan Improvement Project) at their meeting on December I, 2009. The Butler Township Zoning Hearing Board approved the necessary variances for the Deshon Act 537 Plan Improvement Project at their meeting on December 16, 2009. The Butler Township Commissioners subsequently approved the plan at their meeting on December 21, 2009. On January 6, 2010, the City of Butler also issued a letter approving the land development plans for the Monroe Street flow diversion and equalization tank sites, the Ball Park flow diversion pump station site, the Connoquenessing flow diversion pump station site, and the Central Storage equalization tank site. • Act 537 Plan Implementation - Deshon Act 537 Plan Improvement Project: On January 19, 2010, the Authority submitted a PENNVEST funding application to finance the estimated $10,274,570 project cost for the proposed Deshon Act 537 Plan Improvement Project. On March 23, 2010, the PENNVEST Board approved a low Butler Area Sewer Authority CHESTER 0555-20 10/11-10/SASA - 2010 Rcport.docllb -9- ENGINEERS interest loan of up to $5,137,285 to partially finance the proposed Deshon Act 537 Plan Improvement Project. The Authority Board accepted this loan offer from PENNVEST on April 13, 2010. The Authority advettised for bids on April 11, 2010, and bids were received on May 5, 2010. On May II, 2010, the Authority Board conditionally awarded the following contracts to the lowest responsive, responsible bidder contingent upon submission of satisfactory bonds and insurance certificates and DEP approval ofthe contractors DBE solicitation requirements: I. Contract No. 2010-1 - Deshon Equalization Tanks and Appurtenances: Natgun Corporation, Wakefield, MA - $2,753,300.00 2. Contract 20 I0-4 - Deshon Pump Station, Diversion Structure and Appmtenances: Howard Robson, Inc., Landisville, PA - $3,626,400.00 3. Contract No. 2010-11 - Deshon Project Electrical Work: Fuellgraff Electric Company, Butler, PA - $504,200.00 The Authority requested and received approval from PENNVEST on August 10, 2010 to proceed with constlUction prior to the closing of the PENNVEST loan. The official Notice to Proceed was issued to the contractors on August 26, 2010, and construction is scheduled to be completed by February 16,2012. • Act 537 Plan Implementation - Butler City Act 537 Plan Improvement Projects: On May 13, 2010, the Authority submitted a PENNVEST application to finance the estimated $26,175,000 project cost for the Butler City Act 537 Plan Improvement Projects. On July 20, 2010, the PENNVEST Board approved a low interest loan of up to $13,087,500 to partially finance the proposed Butler City Act 537 Plan Improvement Projects. On July 28, 2010, the Authority Board accepted this loan offer from PENNVEST. The Authority formally advettised for construction bids on August 23,2010, and bids were received on October 6, 2010. • Act 537 Plan Implementation - Sullivan Run and Butcher Run Interceptor Improvement Projects: On July 13, 2010, the Authority authorized Chester Engineers to perfOllli the necessary survey and design work for the upgrade and enlargement of the Sullivan Run and Butcher Run interceptor sewers that were proposed as part of the Act 537 Plan improvements for a lump sum fee of $250,650. The design work is expected to be completed by the end of20 I O. • Act 537 Plan Implementation - Financing Arrangements: During the first quarter of 2009, the Authority prepared and issued a Request for Proposals (RFP) for bond counsel services and financial advisory services to evaluate alternative financing options to implement the Act 537 plan improvement projects. Four bond counsel firms submitted proposals on February 26, 20 I0, and five financial advisor firms submitted proposals on March 3, 2010. On April 7, 2010, the Authority Board approved Dinsmore & Shohl as Authority's bond counsel and Phoenix Advisors as the Authority's financial advisor. These advisors and the Authority staff are Butler Area Sewer Authority CHESTER 0555-201O/II-10IBASA· 2010 Report.docllb -10- ENGINEERS evaluating altemative financing al1'angements for the funding ofthe non-PENNVEST pOllion of the costs for the Act 537 Plan improvement projects and other improvement projects being considered by the Authority. The Authority and its consultant, Delta Development Corporation, have also submitted federal and state grant applications for partial funding of the proposed Act 537 Plan improvements. In February 2010, the Authority submitted a FY2010 Federal Funding Request application under the STAG (State & Tribal Assistance Grant) program for a $1,176,000 grant to partially fund the estimated $3,522,000 project cost for the MOlioe equalization/storage tank facilities. On June 29,2010, the Authority submitted a PA H20 application to the Depallment of Community and Economic Development (DCED) requesting a $5,000,000 grant to partially fund the estimated $10,528,700 project cost for the Central Storage Tank facilities. Final decisions have not yet been made on these grant applications. Consideration has also been given towards planning for future capital improvements and/or major maintenance/replacement projects. Attached at the end of this repoll is Appendix A, "Anticipated Short-Term Capital Improvement Projects." This listing represents a prioritized ranking of the projects and improvements that should be completed or initiated during the 2010/2011 fiscal year or considered over the next three to five years. As indicated in the "Current Status" column, work has already been initiated on several ofthese major projects. A number of other potential major capital improvement projects are also listed as "Long-Term Major Capital Improvement Projects" in Appendix B. The specific nature and scope of these potential improvement projects are not well defined at this time. Fiscal Year 200812009 A review of projected results for the twelve-month period ended July 31, 2009, indicates that financial operations produced an increase in the fund balance of $1,006,220. The budget for fiscal year 2008/2009 was balanced. As shown on Table 3, Total Revenues for the twelve-month period were $7,810,270 or $52,120 more than budget. Comparison of revenues to budget projections indicates the following: • Income from sewer service charges was $7,700 or approximately 0.10 percent over budget projections. • Income from debt surcharges was $2,600 more than budget projections. • Income from interest and penalties was $3,900 or 2.2 percent higher than budget projections. • Sewer tapping fees were $342,000, almost 30 percent higher than anticipated. • Inspection fees were $2,600 less than budget projections. Buller Area Sewer Authority CHESTER 0555·201O/ll·IOIBASA· 2010 Report.docllb -11- ENGINEERS Table 4 Comparison of Projected Revenues and Expenses for the Fiscal Year Ended July 31, 2010 with the 2009/2010 Budget and the 201012011 Adopted Budget Estimated 7/3112010 201012011 200912010 Revenues Adopted Description Budget & Expenses Budget OPERATING REVENUES: Sewer Service Charges $ 7,015,100 $ 6,812,100 $ 7,469,800 Debt Surcharges 60,600 57,530 11 ,200 Interest & Penalty Income 167,000 165,200 166,700 Sewer Tapping Fees 269,500 263,900 137,250 Inspection Fees 7,000 4,800 3,200 Sewer Connection Fees 3,000 2,400 2,400 Miscellaneous Income 42,350 160,665 42,700 Realty Transfer Inspection Fees 49,950 63,950 49,950 Industrial Waste Billing 199,900 210,250 224,800 8,108,000~ TOTAL OPERATING REVENUES _7,814,400 _. ..7,740,795._ OPERATING EXPENSES: Plant Wages 884,300 855,400 894,300 Plant Operation & Maintenance 635,400 543,830 669,100 Biosolids Wages 8,300 8,200 8,300 Biosolids Operation & Maintenance 313,100 285,560 318,500 Pump Station Wages 131,200 128,700 131,200 Pump Station Operation & Maintenance 163,400 143,540 187,050 Sewer Wages 1,021,200 896,200 960,000 Sewer Operation & Maintenance 148,900 87,690 149,900 Transportation 52,700 42,950 52,950 Pretreatment Wages 18,900 18,800 68,900 Pretreatment Expenses 2,200 1,530 2,200 Office Wages 311,200 305,200 311,200 Office Expenses 110,200 59,540 81,900 Administrative Wages 102,600 102,400 102,600 Administrative Expenses 183,900 158,190 174,650 Employment Benefits 965,900 943,060 1,098,800 Professional Services 340,700 227,400 214,550 Miscellaneous Expense 25,000 21,600 25,000 TOTAL OPERATING EXPENSES 5,419,100 4,829,790 5,451,100 NET OPERATING REVENUES 2,395,300 2,911,005 2,656,900 OTHER EXPENSES & TRANSFERS: Debt Service on Bonds 1,200,000 - 550,000 PENNVEST Principal & Interest 322,700 322,700 322,700 Transfer to Capital Improvement Fund . 1,768,000 811,000 Capital Expenditures 872,600 357,700 973,200 TOTAL OTHER EXPENSES & TRANSFERS 2,395,300 2,448,400 2,656,900 INCREASE IN FUND BALANCE $ - $ 462,605 $ - Butler Area Sewer Authority "''''CHESTER 0555-2010/11-IO/BASA - 2010 Report.doc/lb -14- 'W' ENGINEERS • Miscellaneous income was $118,315 more than anticipated. • Realty transfer inspection fees were $14,000 or 28 percent higher than expected. • Fees from industrial waste treatment were $10,350 or approximately 5 percent higher than budget. Operating Expenses for the twelve-month period ended July 31, 2010 were $4,829,790 or $589,310 less than budget. The largest variations between estimated expenditures and budget projections for this period are noted below. • Overall plant operation and maintenance costs were $91,570 or 14 percent less than anticipated. • Sewer wages were under budget by $125,000 due to lower than expected costs for maintenance and repairs. • Sewer operation and maintenance costs were $61,210 or about 41 percent less than budget. • Office expenses were $50,660 or 46 percent less than the budgeted amount • Professional services expenses were $113,300 or 33 percent below budget. Under Other Expenses, budgeted capital improvement expenditures were $514,790 less than projected and $1,768,000 was transfelTed to the Capital Improvement and Redemption Fund. In addition, a: $462,605 increase in the fund balance was experienced. The budget for fiscal year 2010/2011 provides for current costs and expected trends. The budget is shown in detail on Table 4 and is summarized below. Total Operating Revenues $8,108,000 Total Operating Expenses 5,451,100 Net Revenues 2,656,900 Total Other Expenses 2,656,900 Increase (Decrease) in Fund Balance $ 0 Estimated operating revenues for fiscal year 2010/2011 are anticipated to be about $367,205 more than in the previous year. A projected $657,700 increase in sewer service charges and a $14,450 rise in industrial waste billing will be offset by revenue decreases in the following areas: • Debt surcharges are expected to be $46,330 less than last year. • Sewer tapping fees are expected to be $126,650 less in 2010/2011. • Miscellaneous income is expected to be $1I7,965 lower. Butler Area Sewer Authority CHESTER 0555·201011 I·IO/BASA· 2010 Report.docl1b -15- ENGINEERS • Realty transfer inspection fees are expected to decrease by $14,000 relative to last year's estimated results. Total Operating Expenses are projected at $5,451,100 for the coming fiscal year. The past fiscal year's expenses have been adjusted to include normally anticipated increases resulting from continued inflation. In addition: • Plant operation and maintenance expenses have been increased by approximately $164,170 over last year's actual expenses due to higher labor, utility, and material costs. • Biosolids operating costs are expected to increase by about $5,400 from last year's budget and increase by about $33,000 over last year's actual costs. • Pump station expenses are projected to be some $45,650 higher than last year's results due to increases in electrical power, maintenance, and repairs costs. • The adopted 2010/2011 budget for sewer maintenance expenses is projected to be $126,010 greater than last year's results. • Transportation costs are expected to increase by $10,000 over last year's results because ofhigher fuel and maintenance costs. • Pretreatment costs are expected to increase by almost $51,000 this year. • Office expenses reflect an approximate 8 percent increase over last year's results due to general increases in all areas. • Administrative expenses are projected to be $16,600 more than last year. • Employee Benefit costs reflect a projected increase of$155,740 or 16.5 percent over last year's results because ofanticipated health care premium increases. • Professional service fees are expected to be $12,850 less than last year's results. • Capital Improvement expenses, which are generally allocated to balance the budget and also satisfy the 10 percent coverage requirements under the Trust Indenture, are proposed to increase by $615,500 over last year's results. The adopted budget is based on the July 1, 2010 rate schedule in Table 5. Table 5 Sewer System Rate Schedule Per Vnit Per Vnit Vnit Charees for Domestic Sewaee Per Quarter Per Mouth First 25 uuits or any part thereof $ 81.00 $27.00 Next 25 units or any part thereof 80.50 26.83 Next 25 units or any part thereof 80.00 26.67 Nexl25 units or any part thereof 79.50 26.50 All units over 100 79.00 26.33 Butler Area Sewer Authority CHESTER 0555·201O/ll·IOIBASA· 2010 Report.docllb -16- ENGINEERS Table 5 Sewer System Rate Schedule (Continued) Per Unit Per Unit Unit Charees for Indnstrial Sewa!!e Per Quarter Per Month For all unils or any part Ihereof 81.00 27.00 Surcharges fOI' Debt Annual Quarter Meridian/Heather Area 196.00 49.00 In accordance with the requirements of Act 57 of 2003, which amended Act 203 of 1990, the Authority developed and adopted a rate schedule for new sewer service connections to the Authority's public sewer system. The schedule, which became effective on March I, 20 I0, provides for the charging of a tapping fee, a connection fee, and an inspection fee. Under the terms ofAct 57, the Authority is permitted to periodically review the rate schedule and to revise it as necessary. A copy ofthis new tapping fee schedule can be found in Appendix D. The Authority retains the services of an independent professional appraisal firm that appraises the properties of the Authority in order to ascel1ain sound insurable values. The Authority also retains the services of an independent professional insurance consultant to recommend any additional coverage that should be provided. We concur with this policy of the Authority and recommend that the appraisal is updated annually, and the insurance coverage is adjusted to meet changing conditions. Appendix E contains a summmy ofthe current insurance coverage carried by the Authority. The following persons served on the Butler Area Sewer Authority Board as ofJuly 31, 2010. Gerald S. Patterson, Jr. Chairman JohnM. Heim Vice Chairman Van Peterson Secretary Michael English Treasurer George E. Shockey Assistant Secretary and Treasurer We wish to thank Thomas D. Rockovich, Executive Director, M. John Schon, Operations Director, James W. Tomazich, Authority Engineer, Ronata L. Lavorini, Finance Director, and the staff of the Authority for their cooperation and assistance in the preparation of this annual report and budget. BUller Area Sewer Authority CHESTER 0555-2010/11-10IBASA - 2010 Report.docllb -17- ENGINEERS APPENDIX A DISCHARGE LIMITATIONS 3800·PM·WSWM0012 Rev. 4/2005 ronnlt , py COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF ENVIRONMENTAL PROTECTION c BUREAU OF WATER SUPPLY liND WASTEWATER MANAGEMENT -- AUTHORIZATION TO DISCHARGE UNDER THE NATIONAL POLLUTANT DISCHARGE ELIMINATION SYSTEM DISCHARGE REQUIREMENTS FOR PUBLICLY OWNED TREATMENT WORKS (POTWs) NPDES PERMIT NO; PA0026697 •• Amendment No.1 In compliance wllh the provisions of the Clean Water Act, 33 U.S.C. Section 1251 at saq. ("the Act") and Pennsylv!lnla's Clean Streams Law, as amended, 35 P.S. Section 691.1 at saq., Butler Area Sewer Authority 100 Littman Road Butler, PA 16001·3256 Is authorized to discharge from a facility known as Butler Area Sewer Authority, located at 100 Littman Road, Butler, PA 16001-3256, Butler Township, Butler C01.!nty to the Connoquenessing Creek (Outfall 001) and Butchers Run (Outfalls 005, 011-014) In Watershed 20·C In accordance with effluent IImllations, monitoring requlremente and other conditions set forth In Parts A, Band C hereof. THIS PERMIT SHALL BECOME EFFECTIVE ON MAR ::2 I 2008 THIS PERMIT SHALL EXPIRE AT MIDNIGHT ON October 12.2011 The authorlly granted by this permit Is subject to the follo\lling further qualifications: 1. If there Is a conflict between the application, lis supporting doc.uments and/or amendments and the terms and conditions of this permit, the terms end conditions shall apply. 2. Failure to comply wllh the terms, conditions or effluent ,limitations of this permilis grounds for enforcement action; for permit termination, revocation and relssuance, or modification; or for denial of B; permit renewal application. 3. A complete application for renewal of this permII, or notice of Intent to cease discharging by the expiration date, must be submitted to DEP at least 180 days prior to the above expiration date (unless permission has been granted by DEP for submission at a later date), using the appropriate NPDES permll application form. In the eveni that a timely and complete application for renewal has been submitted and DEP Is unable, through no fault of the permlltee, to reissue the permit before the above expiration date, the terms and conditions of this permit, Including submission of the Discharge Monllorlng Reports (DMRs), wlll be automaltcally continued and wlll remain fully effective and enforceable against the discharger unlll DEP takes final action on the pending permit application. 4. This NPDES permll does not constitute authorlzallon to construct or make modifications to wastewater treatment facilities necessary to meet the terms and conditions of this permII. DATE PERMIT ISSUED October 13.2006 ISSUeD BY ~L-l.tie.a ' rf. /.;~ e-' Rtcardo F. Gilson DATE PERMIT AMENDMENT ISSUED MAR 2 1 2006 TITLE: Water Management Program Manager Northwest Regional Office Page 1 of ~9 =~ioi-WSWlllOO12 Rev. 412005 Permit . Pennit No. PAOO26697 - Amendment No.1 ·PART.A5E:Ei7.J:.U~l!'7'~IMl1'A.1JON.~;:,M.ON.Jrp@ll~;~$;"'&~I,g;Ep~g~Ji.~f'QR,11.J'f~i~9,l;(I~!'IT§?~i2~~L%'i~!:i:'i!t[;!1§2'~;'lD"?!8~'::f:r2Sfuti:5:,!h:': !. For Outfall 001, latitude 40' 50' 21', longitude 79' 55' 13', River Mile Index43.73, Stream Code 34025 which receives wastewater from treated domestic sewage and industrial wastewater a. The permittee is authorized to discharge during the period from issuance date through expiration date. b. Based on the anticipated wastewater characteristics and flows described in the permitappucation and its supporting documents and/or amendments, the following effluent limitations and monitoring require~ents apply (see also Adlfrtional Requirements, Footnotes and Supplemental Information). Effluent Umitations Monitorinq Reauirements Mass Units Concentrations (maIL Minimum ,-, Discharge Parameter IbsJdavl '" Monthly Average Monthly Average Instantaneous Measurement Required Averaae Weekly Minimum Average Weekly Maximum l2J Frequency SampleType' Row (MGD) XX XX daily measurement CBOD5 ". (05101 - 10/31) 1001 1501 12 18 24 dally 24-hrcomp (11/01 - 04/30) 2001 3002 24 36 48 daily 24-hrcomp TSS 2502 3753 30 45 60 dally 24-hrcomp Ammonia Nitrogen (05101 -10131) 167 2 4 daily 24-hrcomp (11/01 - 04/30) 500 6 12 daily 24-hrcomp Fecal Coliform~ (05/01 - 09130) 200/100ml daily grab (10/01 -04130) 2000/100ml daily grab Page 2 of 19 3800-Pilll-WSWiIII0Q12 Rev.4/2D05 Penni! Permit No. PA0026697 - Amendment No.1 P../!IRl='k~'EFFLUEN1U2IMlT,Ai10NS;':'l\iioNft6RIN§,RECORDI ~_ For Outfall 001. (continued) Effluent Limitations Monitoring Requirements Mass Units Ibsldav\ \., Concentrations (mall Minimum \., Discharge Parameter Monthly Average Monthly Average Instantaneous Measurement Required Averaoe Weeklv Minimum Averaae Weekly Maximum (2) Frequency Sample Type Tota! Residual Chlorine 0.33 1.1 daily grab Dissolved Oxygen 5 daily grab Phosphorus 167 2 4 daily 24-hrcomp pH 6.0 9.0 daily grab xx - Monilor and report on monthly DMRs. • - Average monthly limits expressed as a geometric mean. Samples taken in compliance with the moniloring requirements specified above shall be tsken atthe following location(s): Outfall 001-after disinfection Page 3 ofi9 APPENDIXB ANTICIPATED SHORT-TERM CAPITAL IMPROVEMENT PROJECTS BUTLER AREA SEWER AUTHORITY ANTICIPATED SHORT·TERM CAPITAL IMPROVEMENT PROJECTS (AS OF JULY 31,2010) PROPOSED CAPITAL CURRENT ESTIMATED IMPROVEMENT PROJECTS STATUS CAPITAL COSTS 1. Dutchlown Road Sewer Extension Project Construction In Prograss Contract No. 2008-6 (95% Complale) $85,100 2. Rebuild/Rehabilitate entire old Northwest Area Conslructlon In Progress Sewer SUbsystem - Contract No. 2008-3 (50% Complete) 6,077,100 3. Purchase new utility bed pick-up truck with Contract Awarded lifting crane for maintenance crew Delivery In Fall 2010 75,600 4. Purchase new 5-ton aluminum bed dump truck Contract Awarded for Sewer Crew Delivery In Fall 2010 90,500 5. Purchase new 1.5-ton aluminum bed dump Conlract Awarded truck for Sewer Crew Delivery In Fall 2010 42,800 6. Odor Control System Improvements at WWTP Conlract Awarded Start August 2010 282,900 7. Deshon Act 537 Plan Improvement Project: Conlract Awarded Flow Diversion Pump Station and Two (2) Start Construction Equalization Storage Tanks In August 2010 6,644,700 8. Butler City Act 537 Plan Improvement Projects: PENNVEST Loan Three (3) Flow Diversion Pump Stations and Approved July 20,2010, Two (2) Equalization Storage Tank Feclllties Issued for Bids 26,175,000 9. Act 537 Plan Interceplor Improvements: Sullivan Design Work Authorized Run and Butchers Run Interceptor Upgrade July 13, 2010 4,200,000 10. Main Connoquenessing Creek Interceptor Contract Awarded Sewer Intemallnspectlon (RedZone) Work In Progress 70,300 11. Replace Main Aeration Tank Blowers at WWTP Johnson Controls and Instell new fine bubble diffusers Phasa I Improvements 650,000 12. Inslall new radio-based SCADA system upgrade at WWTP for new fiow diversion pump stations and equallzetlon/storage tanks facilities 30,000 13. Upgrade GPS equipment, establish survey grade base station, and purchase notebook computers & software for field Inspections 75,000 14. Purchase new survey grade transit (digital totel station) with tripod 10,000 15. Purchase pole-mounled, zoom camera system for manhole Inspection of sewer lines 15,000 16, Purchase new sewer TV van with main line pan & lilt camera and dlgltel video recording 150,000 17. Purchase and Install upgraded Intemel firewall 6,000 SUBTOTAL $48,880,000 Page 1 of4 BUTLER AREA SEWER AUTHORITY ANTICIPATED SHORT·TERM CAPITAL IMPROVEMENT PROJECTS (AS OF JULY 31, 2010) PROPOSED CAPITAL CURRENT ESTIMATED IMPROVEMENT PROJECTS STATUS CAPITAL COSTS 18. Purchase replacement mlnl·cameras for realty transfer Inspections (every 3-5 years) $30,000 19. Purchase new laptop computers and printers for the Plant and Sewer Maintenance Superintendents 3,000 20, Purchase replacement computer workstations for billing and engineering statt, and replacement laptop computer for flow metering crew 13,000 21. Purchase and Inslall new progressive cavity sludge transfer pump to replace existing Moyno pump 50,000 22. Purchase new service body truck for pump slatlon crew 55,000 23. Purchase new utility bed plck·up truck with lifting crane for sewer crew 75,000 24. Purchase new 4x2 heavy-duty pickUp truck for Flow Metering Crew 25,000 25. Purchase AutoCAD/SewerCAD software and CAD digitizer for engineering 23,000 28. Purchase mlnl·excavator and trailer for sewer repair and construction work 60,000 27. Purchase replacement portable remote ftow monitoring equipment for system flows 25,000 28. Purchase GPS tracking units & software for monitoring usage of BASA vehicles 15.000 29. Install new security gate with card aceess Johnson Controls system and video monitoring et meln plant Phase I Improvements 25,000 30. Purchase laboratory computer with L1MS and WWTP operations and reporting software 12,000 31. Purchase new replacement BOD Incubator for lab 5,000 32. Purchase new SCBAs and additional confined space entry equipment for outside crews 30,000 33. Point repair sewer rehabilitation project for main sewer lines In Meridian and Upper Sullivan Run Sewer Drainage Basins 900,000 ? 34. Phased contracting of manhole raising work In older sewer areas of City and Butler Township 600,000 ? 35. Replace sewege grinders at Monroe Pump Stetlon 200,000 SUBTOTAL $48,826,.000 Page 2 of 4 BUTLER AREA SEWER AUTHORITY ANTICIPATED SHORT-TERM CAPITAL IMPROVEMENT PROJECTS (AS OF JULY 31, 2010) PROPOSED CAPITAL CURRENT ESTIMATED IMPROVEMENT PROJECTS STATUS CAPITAL COSTS 36. Replace Zleglar Avenue Pump Stallon and discharge force main $365,000 37. Replace roof on Kams Crossing Pump Stallon 50,000 38. Replace roof on Chamlcal Building at WWTP Johnson Controls Phase IIlmprovemants ? 50,000 39. Replace roof on Blower Bldg., Thickener Bldg. & Johnson Controls tunnal penthouses at wastewater treatmant plant Phase 1I1mprovements ? 1oo,DOo 40. Install new vanable frequency drives for pumps Johnson Controls at Deshon Pump Station Phase II Improvements ? 200,000 ? 41. Install new venable frequency drlvas for pumps Johnson Controls at Kams Crossing and other pump stallons Phase IIlmprovemants ? 500,000 ? 42. Install security locks and panic door hardware on Johnson Controls all penthouse and building doors within plant Phasa 1I1mprovements ? 25,000 ? 43. Office Space Renovations/Addition Work 2,000,000 44. Phased contracting of sewer cleaning & televising work In older sewer areas of City & Butler Twp. 1,500,000 ? 45. Replace roof on Deshon Pump Station 65,000 46. Replace roofs on Monroe Pump Station 65,000 47. Purchase and Install new aluminum grating for PrimalY Setiling Tanks 50,000 48. Replace longitudinal sludge collactor chains, flights and sprockets In PnmalY Tanks 3, 4, & 5 200,000 49. Replace Negley Avenue Pump Ststlon 300,000 50. Replace September Drive Pump Station 300,000 51. Replace obsolete Federal Pacific Motor Control Centers In Blower Building, Main Pump Station, Solids Building, and Chemical Building 400,000 ? 52. ConstNct simulation manhole In Sewer Garage In-House for year-round confined space training Installation 5,000 53. Purchase new lawn tractor with mowar 8,000 54. Install fance and access gates to restrict access to BASA property (parking area) by Days Inn 15,000 55. ConstNct naw office for plant supenntendent In-House & records storage in old Coli Filter Room Inslallatlon 10,000 SUBTOTAL $65,164,000 Page 3 of4 BUTLER AREA SEWER AUTHORITY ANTICIPATED SHORT-TERM CAPITAL IMPROVEMENT PROJECTS (AS OF JULY 31, 2010) PROPOSED CAPITAL CURRENT ESTIMATED IMPROVEMENT PROJECTS STATUS CAPITAL COSTS 56. Purchase and Installinfiow Inserts for manholes subject to Infiltrallonllnfiow $100,000 57. Renovate and upgrade wastewater treatment plant laboratory, Including HVAC system 250,000 58. Install chemical feed odor control systems at several pump station locations 100,000 59. Construct new room with fume hood for solids In-House analyses In old Call Filter Room Installallon 20,000 60. Replace Inlet slide gates for Primary Tank No.1 60,000 61. Clean and paint ceiling and walls In sludge stabilization tank room of Solids Building 10,000 62. Purchase and Install new diaphragm/disc pump to replace prtmary sludge pump at plant 30,000 63. Install combustible gaslO, daficlency, and H,S monitoring systema at main pump stations 30,000 64. Install combustible gas, 0, deficiency, and H,S detection and alanm system at treatment plant 30,000 65. Install combustible gas, 0, deficiency, and H,S monltortng systams at other pump stations 50,000 66. Spot repair and waterproofing to seal top sur· faces of concrata walls and Plpa Tunnels 100,000 67. Construct roll-oll sludge contalnar loading area and vactor dump station behind garage 25,000 68. Replace old steel railings with new aluminum safety ralls In Prtmary Tank Nos. 1 & 2 150,000 69. Install safety kick plate ralls on existing safaty railings at treatment plant 75,000 70. Replece old steel overtJow weirs In Primary Tank Nos. 1 & 2 with new fiberglass weirs 30,000 71. Install new air containment and odor control system for Prtmary Seltllng Tanks 250,000 7 72. Purchase backhoe-mounted brush hog for main· talnlng storm watar ponds and trickling filters 5,000 TOTAL $56,479,000 Page 4 014 APPENDIXC ANTICIPATED LONG-TERM CAPITAL IMPROVEMENT PROJECTS BUTLER AREA SEWER AUTHORITY ANTICIPATED LONG·TERM CAPITAL IMPROVEMENT PROJECTS (AS OF JULY 31, 2010) PROPOSED CAPITAL CURRENT ESTIMATED IMPROVEMENT PROJECTS STATUS CAPITAL COSTS Renovate chlorine conlact tanks snd chlorine feed system, or replaca with new ultraviolet or hypochlorite disinfection system 2,000,000? Replace/renovale grit collection and grit washer equipment In Grit Building 500,000 ? Replace traveling bridge sludge collectors on secondary settling tanks 2,000,000 ? Upgrade solids dewatering capability by installing alternative dewatering equipment 4,000,000 ? Construct new gerege/sludge loading area to replaca outside loading area 500,000 ? Construct new separate, slde-stresm grease handling and treatment system at WWTP 300,000 ? Install new ouler walls on lrickllng fllters and backflll to grade level to allow flooding and eliminate existing side slope problems 1,000,000 ? Clean and palnl ceiling and clean and seal Interior walls of Thickener Building 100,000 ? Reconstruct portions of sanitary sewer collection system greater than 50 years old (Est. 160 miles) 170,000,000 ? Page 1 of 1 APPENDIXD RATE SCHEDULE FOR NEW SERVICE CONNECTIONS PUBLIC NOTICE In accordance with the requirements of Act 57 of 2003, the Butler Area Sewer Authority has developed and adopted a new rate schedule for new sewer service connections to the Public Sewer System owned, maintained, and operated by the Authority. The following new rate schedule shall become effective March 1, 2010, and shall apply to all new sewer service connections. All customers desiring to make a new sewer connection for a Single Family Residential house to the various segments of the Public Sewer System owned, maintained, and operated by the Butler Area Sewer Authority will be charged a connection fee and tapping fee In accordance with the following rate schedule: SANITARY SEWER CONNECTION INSPECTION TAPPING PERMIT SEGMENT USED FOR FEE (Per FEE (Per FEE TOTAL CLASS NEW CONNECTION Connectlonl Connectlonl (Per E.D.U.l FEE A Butler Area Sewer Authority $300.00 $100.00 $2,745.00 $3,145.00 public sewer with an existing wye connection B Butler Area Sewer Authority $150.00 $100.00 $2,745.00 $2,995.00 public sewer requiring a new sewer connection by owner C New sewer constructed by a $0.00 $100.00 $2,745.00 $2,845.00 developer since March 1, 2005 with an existing wye connection MULTI·FAMILY RESIDENTIAL TAPPING FEES All customers desiring to make a new sewer connection of a MUlti-Family Residential structure by a single service line shall pay a single connection fee and Inspection fee In accordance with the schedule shown above PLUS a tapping fee for each dwelling unit In accordance with the rate schedule shown above. An additional connection fee shall be paid for each additional physical connection to the Public Sewer System. Each apartment or dwelling unit having a separate kitchen and bath shall be considered to be one (1) Equivalent Dwelling Unit (E.D.U.). COMMERCIAL, INDUSTRIAL, INSTITUTIONAL, PUBLIC OR MIXED USE FEES All customers desiring to make a new connection of a building being used for Commercial, Industrial, Institutional, Public or Mixed Use (I.e., Residential and Commercial) by a single service line shall pay a single connection fee and inspection fee In accordance with the rate schedule above PLUS a tapping fee for each EqUivalent Dwelling Unit (E.D.U.) of water consumption. For the purposes of calculating the applicable tapping fee, an E.D.U. shall be defined as the assumed water use of 230 gallons per day, or 6,900 gallons per month, as established In accordance with the procedures mandated by Act 57 of 2003. The Initial tapping fee will be based on the estimated water usage for the development per the DEP-approved Sewage Facilities Planning Module. The tapping fee will subsequently be adjusted based on the actual metered average daily water usage after twelve (12) consecutive months of normal, full capacity operation. BUTLER AREA SEWER AUTHORITY Thomas D. Rockovich, Executive Director APPENDIXE CURRENT INSURANCE COVERAGE BUTLER AREA SEWER AUTHORITY INSURANCE COVERAGE - AS OF JULY 2010 1. Workers Compensation Insurance - Policy No. 100000014010109 Companion Property &Casualty Company (AmeriHealth) Gleason Agency, Inc., 551 Main Street, Suite 204, P. O. Box 8, Johnstown, PA 15907 Effective Dates: 10/01/2009 to 10/01/2010 Total Estimated Annual Premium =$59,810 Limits of Liability: Bodily Injury by Accident - $500,000 Each Accident Bodily Injury by Disease - $500,000 Each Employee Bodily Injury by Disease - $500,000 Policy Limit 2. Comprehensive Commercial Insurance Policy - Policy No. CPP 087 53 74 The Cincinnati Insurance Company, P. O. Box 145496, Cincinnati, OH 45250-5496 Mitchell Insurance, Inc., 400 North Main Street, P. O. Box 788, Butler, PA 16003-0788 Effective Dates: 10/01/2008 to 10/01/2011 Estimated Annual Premium =$49,208 Commercial General Liability: Each Occurrence Limit $1,000,000, General Aggregate Limit $2,000,000, Products-Completed Operations Aggregate Limit $2,000,000, Personal & Advertising Injury Limit $1,000,000; Employee Benefit Liability - Each Employee Limit $1,000,000, Aggregate Limit $3,000,000, $1,000 Deductible; Medical Expense Limit $10,000; Property Damage to Borrowed Equipment - $10,000 Limit, $250 Deductible Commercial Property Coverage: Property Schedule Statement of Values Per Industrial Appraisal Dated June 1, 2010: Blanket Building Limit (including Yard, Fences &Outside) - $34,902,354 (90%), $2,500 Deductible Blanket Contents Limit (Plant Equipment &Process Piping). $17,939,542 (90%), $2,500 Deductible Extra Expense - $100,000 Limit; $2,500 Deductible Electronic Data Processing Property - Blanket Coverage Limit $150,000, $2,500 Deductible Flood, Volcano and Earthquake - $1 ,000,000 Limit, Deductible $25,000 (Earthquake· Deductible 5%) Sewer Backup Coverage: $25,000 Limit Each Occurrence, $2,500 Deductible Crime Coverage: Employee Dishonesty - $100,000 Limit, Deductible $250; Theft Disappearance & Destruction Loss Inside &Outside Premises - $20,000 Limit, $250 Deductible Inland Marine Coverage: Scheduled Property - $413,331 Limit (80% Coinsurance), $250 Deductible; Equipment Leased or Rented - $28,000 Limit, $250 Deductible; General Floater: Miscellaneous Tools - $41,872 Limit ($500 per anyone item), $250 Deductible; Equipment Transportation Coverage: $100,000 Limit, $500 Deductible Electronic Data Processing Equipment Coverage: Scheduled Property· $218,475 Limit, $500 Basic Policy Deductible, $1,000 Specified Losses Deductible Duplicate &Backup Electronic Media &Records - $10,000 Limit; Off Premises - $50,000 Limit; Third-Party Host - $10,000 Limit; Business Income &Extra Expense - $30,000 Limit; 3. Automobile Insurance Coverage - Policy No. CPA 087 53 74 The Cincinnati Insurance Company, P. O. Box 145496, Cincinnati, OH 45250-5496 Mitchell Insurance, Inc., 400 North Main Street, P. O. Box 788, Butler, PA 16003-0788 Effective Dates: 10/01/2008 to 10/01/2011 Estimated Annual Premium =$13,018 Limits of Insurance: General Liability - $1,000,000 Any One Accident or Loss Personal Injury Protection - Basic First-Party Medical Expense Benefits - Up to $5,000 Uninsured Motorists - $35,000 Limit - Unstacked Underinsured Motorists - $35,000 Limit - Unstacked Physical Damage Comprehensive Coverage - Actual Cash Value or Cost of Repair Comprehensive Deductible - $250 Physical Damage Collision Coverage - Actual Cash Value or Cost of Repair Collision Deductible - $500 Hired &Non-Owned Automobiles -Included Under Physical Damage Comprehensive &Collision Page 1 of2 BUTLER AREA SEWER AUTHORITY INSURANCE COVERAGE - AS OF JULY 2010 (CONTINUED) 4. Machinery and Equipment Coverage - Policy No. BEP 266 72 99 The Cincinnati Insurance Company, P. O. Box 145496, Cincinnati, OH 45250-5496 Mitchell Insurance, Inc., 400 North Main Street, P. O. Box 788, Butler, PA 16003-0788 Effective Dates: 10/01/2008 to 10/01/2011 Annual Premium =$5,748 Limits of Insurance - $45,000,000 Comprehensive Coverage; Expediting Expense Limitation - $50,000 Hazardous Substance Limitation - $100,000 Ammonia Contamination Limitation - $100,000 Water Damage Limitation - $50,000 Data, Media, &Software Restoration Limitation - $50,000 Deductible: $1,000 5. Commercial Umbrella Excess liability Policy - Policy No. CPP 087 53 74 The Cincinnati Insurance Company, P. O. Box 145496, Cincinnati, OH 45250-5496 Mitchell Insurance, Inc., 400 North Main Street, P. O. Box 788, Butler, PA 16003-0788 Effective Dates: 10/01/2008 to 10/01/2011 Annual Premium =$11,794 Limits of Insurance: $4,000,000 Each Occurrence, $4,000,000 Aggregate Underlying Insurance: Employer's Liability (Workers Compensation) Bodily Injury by Accident - $500,000 Each Accident Bodily Injury by Disease - $500,000 Each Employee Bodily InjUry by Disease - $500,000 Policy Limit Commercial General Liability including Products-Completed Operations: Bodily Injury and Property Damage - $1,000,000 Each Occurrence Bodily Injury and Property Damage - $2,000,000 General Aggregate Bodily InjUry and Property Damage - $2,000,000 Products Completed Operations Aggregate Personal and Advertising Injury - $1,000,000 Any One Person or Organization Employee Benefit Liability - $1,000,000 Each Employee, $3,000,000 Aggregate Exceptions to Pollutant Exclusion - $1 ,000,000 Aggregate Automobile Liability (Any Auto): Bodily InjUry andlor Property Damage or Both Combined - $1,000,000 Each Occurrence 6. Directors, Officers, Trustees and Organization liability Coverage - Policy No. BCP 8671065 The Cincinnati Insurance Company, P. O. Box 145496, Cincinnati, OH 45250-5496 Mitchell Insurance, Inc., 400 North Main Street, P. O. Box 788, Butler, PA 16003-0788 Effective Dates: 10/01/2008 to 10/01/2011 Annual Premium =$4,666 (Claims Made Policy) Limils of Insurance: $4,000,000 in the Aggregate Deductible: $10,000 Each Claim 7. Employment Practices Liability Coverage - Policy No. BCP 86710 65 The Cincinnati Insurance Company, P. O. Box 145496, Cincinnati, OH 45250-5496 Mitchell Insurance, Inc., 400 North Main Street, P. O. Box 788, Butler, PA 16003-0788 Effective Dates: 10/01/2008 to 10/01/2011 Annual Premium =$1,320 (Claims Made Policy) Limits of Insurance: $4,000,000 in the Aggregate Deductible: $10,000 Each Claim 8. Industrial Appraisal Company Annual Review - June 1,2010 Fee $2,680 Page 2 of2