Port of Port Arthur Navigation District of Jefferson County
The Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor any offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. BOOK-ENTRY-ONLY * Preliminary, subjectto change. about December21,2017(the “DateofDelivery”). attached heretoasAppendix C.ItisexpectedthattheBondswillbeavailablefordelivery throughthefacilitiesofDTConor L.L.P., Austin,Texas,BondCounsel fortheDistrict.See“LEGALMATTERS”hereinand “FormofOpinionBondCounsel” Purchaser”), subjecttotheapproving opinionsoftheAttorneyGeneralStateTexas andMcCall,Parkhurst&Horton See “THEBONDS–Mandatory SinkingFundRedemption”herein. one ormoretermBonds(the“TermBonds”),eachsuchTerm Bondshallbesubjecttomandatorysinkingfundredemption. Optional Redemption”herein. issuance oftheBonds.See“THEBONDS–SourcesandUses” herein. including theengineeringdesignandplanningthereof,(ii) capitalizeinterestthroughSeptember1,2018,and(iii)thecostsof aids tonavigationconsistentwithornecessarytheoperation ordevelopmentofportswaterwayswithintheDistrict, construct, improveordevelopwharves,docks,warehouses, otherstoragefacilities,terminalfacilitiesandor Book-Entry-Only System”herein. to theparticipatingmembersofDTCforsubsequentpaymentbeneficialownersBonds.See“THE BONDS– Association, Dallas, Texas (the“Paying Agent/Registrar”) toCede & Co., which will make distributionof the amounts so paid is thesoleregisteredownerofBonds,principalandinterestonBondswillbepayablebyU.S.Bank National thereof. No physical delivery of the Bonds will be made to the beneficial ownersthereof.ForaslongCede&Co. system describedherein.BeneficialownershipoftheBondsmaybeacquiredindenominations$5,000orintegral multiples securities depositoryfortheBonds.IndividualpurchasesofBondswillinitiallybemadepursuanttobook-entry-only registered ownerandthenomineeforTheDepositoryTrustCompany,NewYork,York(“DTC”)whichwill actas herein. Texas, JeffersonCounty,TexasoranyentityotherthantheDistrict.See“THEBONDS–SourcesofPayment Bonds” property locatedwithintheDistrict.TheBondsareobligationssolelyofDistrictandnot Stateof payable from the receipts of an annual ad valorem tax, withoutlegal limit as to rate or amount, levied against all taxable calculated on thebasis of a 360-day year of twelve 30-day months. The Bonds are direct obligationsof the District and are September 1,2018,andoneachMarch1thereafteruntilmaturityorpriorredemption.Interest willbe Government Code,asamended,anelectionheldonMay7,2016andtheorderauthorizingBonds. (the “State”) including Chapter 197, Acts of the 58th Legislature, Regular Session 1963, as amended, Chapter 1371, Texas Improvement Bonds,Series2017A(the“Bonds”)pursuanttotheConstitutionandgenerallawsofState of Texas, (Interest AccruesfromtheDateofDelivery) Dated Date:December1,2017 NEW ISSUE “TAX MATTERS”foradditionalinformation. income forpurposesofcalculatingthefederalalternativeminimumtaximposeduponindividualsandcorporations.See to suchuser.InterestontheBonds,however,isanitemoftaxpreferenceincludableinalternativeminimumtaxable 1986 andtheregulationsthereunder,isa“substantialuser”offacilitiesfinancedwithBondsor“relatedperson” during whichsuch Bond isheldbyapersonwho,withinthemeaningofSection147(a) of theInternalRevenueCode federal incometaxpurposes,exceptthatsuchexclusiondoesnotapplywithrespecttointerestonanyBondforperiod decisions existingonthedatehereof,interestBondsisexcludablefromgrossincomeofholdersthereoffor covenants bytheDistrict,asdefinedbelow,inaccordancewithexistingstatutes,regulations,publishedrulingsandcourt PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS The Bonds are offered for delivery, when, as and if issuedby the District and received by the initial purchaser (the “Initial If theprincipalamountsdesignatedinserialmaturityschedule ontheinsidecoverpagehereofarecombinedtocreate The Bondsaresubjecttooptionalredemptionpriortheir scheduledmaturitiesasdescribedherein.See“THEBONDS– Proceeds fromthesaleofBondswillbeusedtofinance(i)aportioncostsprojectsacquire,purchase, The Bonds will be issued in fully-registered form and, when issued, will be registered in the name of Cede & Co., as Interest willaccruefromtheDateofDelivery(definedbelow)BondstoInitialPurchaserandispayable on Port ofArthurNavigationDistrictJeffersonCounty,Texas(the“District”)isissuingitsUnlimitedTax Port In theopinionofBondCounseltoDistrict(asdefinedbelow),assumingcontinuingcompliancewithcertain (A politicalsubdivisionoftheStateTexashavingboundarieswithinJeffersonCounty)
UNLIMITED TAXPORTIMPROVEMENTBONDS,SERIES2017A(AMT) PRELIMINARY OFFICIAL STATEMENT DATED DECEMBER 6, 2017
BIDS DUE:TUESDAY, DECEMBER12, 2017AT9:30A.M.(CST)
SEE INSIDECOVERFORMATURITYSCHEDULE $59,540,000* (see “OTHERINFORMATION–MunicipalRating”) RATING: Moody’sInvestorsService“Aa3” Due: March1—Seeinsidecoverpage MATURITY SCHEDULE $ 59,540,000* PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS UNLIMITED TAX PORT IMPROVEMENT BONDS, SERIES 2017A (AMT)
CUSIP Prefix (b): 364316
Date Principal Interest CUSIP No. Date Principal Interest CUSIP No. March 1 Amount* Rate Yield (b) Suffix (c) March 1 Amount* Rate Yield (b) Suffix (c) 2019$ 200,000 % % 2033 (a) $ 2,250,000 % % **** **** 2034 (a) 2,365,000 2021 200,000 2035 (a) 2,480,000 2022 200,000 2036 (a) 2,605,000 2023 200,000 2037 (a) 2,735,000 2024 200,000 2038 (a) 2,855,000 2025 200,000 2039 (a) 2,970,000 2026 200,000 2040 (a) 3,090,000 2027 1,680,000 2041 (a) 3,210,000 2028 (a) 1,765,000 2042 (a) 3,340,000 2029 (a) 1,850,000 2043 (a) 3,475,000 2030 (a) 1,945,000 2044 (a) 3,615,000 2031 (a) 2,040,000 2045 (a) 3,755,000 2032 (a) 2,145,000 2046 (a) 3,905,000 (a) 2047 4,065,000
(Interest accrues from Date of Delivery)
(a) The District reserves the right, at its option, to redeem Bonds having stated maturities on or after March 1, 2028, in whole or in part, in principal amounts of $5,000 or any integral multiple thereof on March 1, 2027, or any date thereafter at par plus accrued interest from the most recent interest payment date to the date fixed for redemption. See “THE BONDS – Optional Redemption”. (b) The initial reoffering prices or yields of the Bonds are furnished by the Initial Purchaser (as identified on the cover page hereof) and represent the initial offering prices or yields to the public, which may be changed by the Initial Purchaser at any time. (c) CUSIP numbers are included solely for the convenience of the owners of the Bonds. CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, managed by S&P Global Capital IQ on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Global Services. None of the Initial Purchaser, the District, nor the Financial Advisor is responsible for the selection or correctness of the CUSIP numbers set forth herein.
* Preliminary, subject to change. ii
DISTRICT OFFICIALS, ADMINISTRATION AND CONSULTANTS
The Port of Port Arthur Navigation District of Jefferson County, Texas (the “District”) was created by a Special Act of the 55th Legislature under provisions of Section 59, Article XVI of the Texas Constitution, ratified by referendum on June 13, 1964. The District is independent from other local or state governments and operates within district boundaries of approximately 58 square miles, including the City of Port Arthur and a part of the City of Groves. The five member elected Board of Port Commissioners governs the District.
Board of Port Commissioners
Commissioners Position John Comeaux President Raymond C. Johnson Vice President Linda Turner Spears Secretary/Treasurer Norris Simon, Jr. Commissioner Mark Underhill Commissioner
Official Representatives
Name Position Floyd Gaspard* Executive Port Director Larry A. Kelley, Jr. Deputy Port Director Anthony Theriot Director of Trade Judy Bettis Director of Finance * Mr. Gaspard has announced his retirement as Executive Port Director effective December 31, 2017. At such time, Larry A. Kelley, Jr. will succeed Mr. Gaspard as Port Director.
Consultants
Bond Counsel ...... McCall, Parkhurst & Horton L.L.P. Austin, Texas
Certified Public Accountants ...... Brammer, Begnaud & Lattimore, CPA Port Arthur, Texas
Legal Counsel ...... Moore Landrey, LLP Beaumont, Texas
Financial Advisor ...... USCA Municipal Advisors, LLC Houston, Texas
For Additional Information Contact:
Judy Bettis Floyd Gaspard Mr. Jim Gilley Finance Director Executive Port Director USCA Municipal Advisors, LLC Port of Port Arthur Port of Port Arthur 4444 Westheimer, Suite G500 P.O. Box 1428 P.O.Box 1428 Houston, Texas 77027 Port Arthur, Texas 77641 Port Arthur, Texas 77641 Telephone: (713) 366-0555 221 Houston Avenue 221 Houston Avenue Facsimile (713) 588-8882 Port Arthur, Texas 77640 Port Arthur, Texas 77640 [email protected] Telephone: (409) 983-2011 Telephone: (409) 983-2011 [email protected] [email protected]
iii
USE OF INFORMATION IN OFFICIAL STATEMENT
For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (“Rule15c 2-12”) and in effect on the date of this Preliminary Official Statement, this document, schedules, and appendices attached hereto constitutes an “official statement” of the District with respect to the Bonds that has been “deemed final” by the District as of its date except for the omission of no more than the information permitted by Rule 15c2-12.
This Official Statement is delivered in connection with the sale of securities referred to herein and may not be reproduced or used, in whole or in part, for any other purposes.
All the summaries of the statutes, bond order, contracts, audited financial statements, engineering and other related reports set forth in this Official Statement are made subject to all of the provisions of such documents. These summaries do not purport to be complete statements of such provisions, and reference is made to such documents, copies of which are available from the District.
Certain information set forth herein has been obtained from the District and other sources, which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Initial Purchaser.
No broker, dealer, sales representative or any other person has been authorized by the District, the Financial Advisor or the Initial Purchaser to give any information or to make any representation other than as contained in this Official Statement in connection with the offering described in it and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing.
This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the matters described herein since the date hereof. See “CONTINUING DISCLOSURE OF INFORMATION” herein for a description of the District’s undertaking to provide certain information on a continuing basis.
The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Initial Purchaser after such Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering prices, including to dealers who may sell the Bonds into investment accounts.
IN CONNECTION WITH THIS OFFERING, THE INITIAL PURCHASER MAY OVER ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
NEITHER THE DISTRICT NOR ITS FINANCIAL ADVISOR MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT REGARDING THE DEPOSITORY TRUST COMPANY OR ITS BOOK-ENTRY-ONLY SYSTEM DESCRIBED UNDER “THE BONDS – BOOK-ENTRY-ONLY SYSTEM” HEREIN.
The agreements of the District and others related to the Bonds are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Bonds is to be construed as an agreement with the Initial Purchaser of the Bonds. INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING ALL APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION.
THIS OFFICIAL STATEMENT CONTAINS “FORWARD-LOOKING” STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS TO BE DIFFERENT FROM THE FUTURE RESULTS, PERFORMANCE AND ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT THE ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, Rule 15c2-12.
iv
TABLE OF CONTENTS
MATURITY SCHEDULE ...... ii FINANCIAL POLICIES AND INVESTMENTS ...... 13 DISTRICT OFFICIALS, ADMINSTRATION Financial Policies ...... 13 AND CONSULTANTS ...... iii Investment Policy ...... 13 USE OF INFORMATION IN OFFICIAL Current Investments ...... 14 STATEMENT ...... iv LEGAL MATTERS ...... 14 OFFICIAL STATEMENT SUMMARY ...... vi Litigation ...... 14 SELECTED INFORMATION OF THE Legal Opinions ...... 15 DISTRICT ...... viii No Litigation Certificate ...... 15 INTRODUCTION ...... 1 TAX MATTERS ...... 15 THE BONDS ...... 1 Opinion ...... 15 Purpose ...... 1 Federal Income Tax Accounting Treatment of Sources and Uses ...... 1 Original Issue Discount ...... 16 General ...... 2 Collateral Federal Income Tax Consequences ...... 17 Description ...... 2 Future and Proposed Legislation ...... 17 Authority for the Bonds ...... 2 Information Reporting and Backup Withholding ... 17 Source of Payment of the Bonds ...... 2 State, Local and Foreign Taxes ...... 18 Authorized But Unissued Bonds ...... 2 CONTINUING DISCLOSURE OF Redemption ...... 2 INFORMATION ...... 18 Notice of Redemption ...... 3 Annual Reports ...... 18 Defeasance ...... 3 Event Notices ...... 18 Book-Entry-Only System ...... 4 Limitations and Amendments ...... 19 Ownership ...... 6 Compliance with Prior Undertakings ...... 19 Transfer, Exchange and Registration ...... 6 OTHER INFORMATION ...... 19 Bondholder Remedies ...... 7 Municipal Rating ...... 19 Paying Agent/Registrar ...... 7 Financial Advisor ...... 19 Record Date for Interest Payment ...... 8 Initial Purchaser ...... 20 Limitation on Transfer of Bonds ...... 8 GENERAL CONSIDERATIONS ...... 20 Amendments ...... 8 Prices and Marketability ...... 20 AD VALOREM TAXES ...... 8 Legal Investments and Eligibility to Secure Tax Rate Limitation ...... 10 Public Funds in Texas ...... 20 Levy and Collection of Taxes ...... 10 Securities Laws ...... 20 District’s Rights in the Event of Tax Sources and Compilation of Information ...... 21 Delinquencies ...... 10 Forward-Looking Statements ...... 21 Tax Abatement and Reinvestment Zones ...... 10 Approval of Official Statement ...... 21 THE DISTRICT ...... 11 Certification of the Official Statement ...... 21 General ...... 11 Audited Financial Statements ...... 21 Security ...... 11 MISCELLANEOUS ...... 22 Proposed Legislation ...... 11 APPENDICES Federal Funding for Security ...... 1 1 APPENDIX A – FINANCIAL INFORMATION AND District Operations ...... 11 DEBT INFORMATION Operating History ...... 12 APPENDIX B – SELECTED DATA FROM ANNUAL Employee Retirement System ...... 12 FINANCIAL REPORT PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, Post Employment Benefits ...... 1 2 TEXAS FISCAL YEAR ENDED JULY 31, 2016 Pollution Control Revenue Bonds ...... 12 APPENDIX C – FORM OF OPINION OF BOND Impact of Recent Hurricane ...... 1 2 COUNSEL
v
OFFICIAL STATEMENT SUMMARY
This Official Statement Summary is subject in all respects to the more complete information contained therein. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. No person is authorized to detach this Official Statement Summary from the Official Statement or otherwise to use same without the entire Official Statement.
The Issuer Port of Port Arthur Navigation District of Jefferson County, Texas (the “District”).
The Bonds $ 59,540,000* Port of Port Arthur Navigation District of Jefferson County, Texas Unlimited Tax Port Improvement Bonds, Series 2017A (AMT) (the “Bonds”) are being issued in the principal amounts, maturities, and at the rates per annum as set forth on the maturity schedule on the inside cover page hereof.
Interest The Bonds are dated December 1, 2017. Interest will accrue from the initial date of delivery of the Bonds to the Initial Purchaser at the rates indicated on the inside cover page hereof, with interest payable on September 1, 2018, and on each March 1 and September 1 thereafter until maturity or earlier redemption. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bonds will be issued only in fully-registered form in integral multiples of $5,000 of principal amount. See “THE BONDS – Description” herein.
Paying Agent/Registrar The initial Paying Agent/Registrar for the Bonds is U.S. Bank National Association, Dallas, Texas.
Authority for Issuance The Bonds are issued by the District pursuant to the Constitution and general laws of the State of Texas (the “State”) including Chapter 197, Acts of the 58th Legislature, Regular Session 1963, as amended, Chapter 1371, Texas Government Code, as amended, an election held on May 7, 2016 (the “2016 Election”), the order authorizing the Bonds and, pursuant to such order, a pricing certificate executed by an authorized pricing officer setting forth certain terms on the Bonds (collectively, the "Order").
Redemption The District reserves the right, at its option, to redeem the Bonds having stated maturities on and after March 1, 2028, in whole or from time to time in part, in principal amounts of $5,000 or any integral multiple thereof, on March 1, 2027, or any day thereafter at par plus accrued interest from the most recent interest payment date to the date fixed for redemption. Additionally, if the principal amounts designated in the serial maturity on the inside cover page hereof are combined to create one or more term Bonds (the “Term Bonds”), each such Term Bond shall be subject to mandatory sinking fund redemption. See “THE BONDS – Optional Redemption” and “Mandatory Sinking Fund Redemption” herein.
Source of Payment Principal of and interest on the Bonds is payable from the proceeds of an annual ad valorem tax, without legal limit as to rate or amount, levied against all taxable property located within the District. The Bonds are obligations solely of the District and are not obligations of the State of Texas, Jefferson County, Texas or any entity other than the District. See “THE BONDS – Source of Payment” herein.
Use of Proceeds Proceeds from the sale of the Bonds will be used to finance (i) a portion of the costs of projects to acquire, purchase, construct, improve or develop wharves, docks, warehouses, other storage facilities, terminal facilities and other facilities or aids to navigation consistent with or necessary to the operation or development of ports or waterways within the District, including the engineering design and planning thereof, (ii) capitalize interest through September 1, 2018, and (iii) the costs of issuance of the Bonds. See “THE BONDS – Sources and Uses” herein.
* Preliminary, subject to change.
vi
Book-Entry-Only The Bonds are initially issuable only to Cede & Co., the nominee of DTC pursuant to a book- System entry-only system. No physical delivery of the Bonds will be made to the beneficial owners of the Bonds. Principal of and interest on the Bonds will be paid to Cede & Co., which will distribute such payment to the participating members of DTC for remittance to the beneficial owners of the Bonds. See “THE BONDS – Book-Entry-Only System” herein.
Authorized but This issue of Bonds is the second installment of $89,950,000 of authorized but unissued bonds Unissued Bonds approved by the voters of the District at an election held May 7, 2016. The District previously issued its Unlimited Tax Port Improvement Bonds, Series 2017 in an aggregate principal amount of $29,655,000 in May, 2017 which utilized $29,800,000 of the voted authorization of the May 2016 election. After the issuance of Bonds, the District will have $605,000 remaining authorized but unissued debt.
Payment Record The District has not defaulted on its outstanding debt obligations.
Municipal Rating Moody’s Investors Service (“Moody’s) has assigned its underlying municipal bond rating of “Aa3” to the Bonds. See “OTHER INFORMATION – Municipal Rating” herein.
Tax Exemption In the opinion of Bond Counsel, interest on the Bonds is excludable from the gross income of the holders thereof for federal income tax purposes, except that such exclusion does not apply with respect to interest on any Bond for any period during which such Bond is held by a person who, within the meaning of Section 147(a) of the Internal Revenue Code of 1986 and the regulations thereunder, is a "substantial user" of the facilities financed with the Bonds or a "related person" to such user. Interest on the Bonds, however, is an item of tax preference includable in the alternative minimum taxable income for purposes of calculating the federal alternative minimum tax imposed upon individuals and corporations. See "TAX MATTERS" for additional information, including a description of the alternative minimum tax consequences.
Delivery It is expected that the Bonds will be available for delivery through the facilities of DTC on or about December 21, 2017 (the “Date of Delivery”).
Legality Delivery of the Bonds is subject to the approval by the Attorney General of the State of Texas and the rendering of an opinion as to legality by McCall, Parkhurst & Horton L.L.P., Bond Counsel, Austin, Texas.
vii
SELECTED FINANCIAL INFORMATION OF THE DISTRICT
2017 Assessed Value, Net of Exemptions (a) $ 5,669,571,357 Ad Valorem Tax Rate$ 0.1694 2017 Tax Levy (Adjusted) 9,603,687 District Population (2016) 55,427
Direct Ad Valorem Tax Debt as of April 1, 2017 Unlimited Tax Port Refunding Bonds, Series 2008A$ 1,640,000 Unlimited Tax Port Improvement Bonds, Series 2008B 640,000 Unlimited Tax Port Refunding Bonds, Series 2016A 3,255,000 Unlimited Tax Port Refunding Bonds, Taxable Series 2016B 20,230,000 Unlimited Tax Port Improvement Bonds, Series 2017 29,655,000 Total Outstanding Tax Debt$ 55,420,000
Plus: The Bonds $ 59,540,000 * Total$ 114,960,000
Direct Ad Valorem Tax Bonds as a Percentage of Assessed Value 2.03% Direct Ad Valorem Tax Bonds per Capita$ 2,074
(a) Source: Municipal Advisory Council of Texas.
Estimated Annual Debt Service Requirements* Average Annual Debt Service$ 6,341,942 Maximum Annual Debt Service$ 8,300,556
2017 Tax Rate General Fund$ 0.0794 Debt Service Fund 0.0900 Total $ 0.1694
*Preliminary, subject to change.
viii Official Statement Relating to:
$59,540,000* PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS UNLIMITED TAX PORT IMPROVEMENT BONDS, SERIES 2017A (AMT) (A political subdivision of the State of Texas having boundaries entirely within Jefferson County)
INTRODUCTION
This Official Statement is provided to furnish information in connection with the offering by the Port of Port Arthur Navigation District of Jefferson County, Texas (the “District”) of its Unlimited Tax Port Bonds, Series 2017A (AMT) in the aggregate principal amount of $59,540,000* (the “Bonds”).
Capitalized terms used in this Official Statement have the same meanings assigned to such terms in the order authorizing the issuance of the Bonds, adopted by the Board of Port Commissioners of the District (the “Board”), and, pursuant to such order, a pricing certificate executed by an authorized pricing officer setting forth certain terms of the Bonds (collectively, the "Order"), except as otherwise indicated herein.
The Bonds are issued pursuant to the Constitution and general laws of the State of Texas (the “State”) including Chapter 197, Acts of the 58th Legislature, Regular Session, 1963, as amended, Chapter 1371, Texas Government Code, as amended, an election held on May 7, 2016, and the Order.
The Bonds are issued for the purposes described below and are payable from the proceeds of an annual ad valorem tax levied upon all taxable property within the District, without legal limit as to rate or amount. See “THE BONDS – Sources of Payment” herein.
The District’s audited general purpose financial statements for the fiscal year ended July 31, 2016, which are included in Appendix B, present information on the general financial condition of the District at the dates and for the periods described therein.
THE BONDS
Purpose
Proceeds from the sale of the Bonds will be used to finance (i) a portion of the costs of projects to acquire, purchase, construct, improve or develop wharves, docks, warehouses, other storage facilities, terminal facilities and other facilities or aids to navigation consistent with or necessary to the operation or development of ports or waterways within the District, including the engineering design and planning thereof, (ii) capitalize interest through September 1, 2018, and (ii) the costs of issuance of the Bonds.
Sources and Uses
The following table sets forth the estimated sources and uses of funds associated with the proceeds from the sale of the Bonds.
Sources of Funds: Par Amount $ Net Reoffering Premium Total $ Uses of Funds: Deposit to Project Fund $ Initial Purchaser’s Discount Deposit to Interest & Sinking fund as Capitalized Interest Issuance Costs1 Total $
1 Includes professional costs, rating agency fees, fees of the Paying Agent/Registrar, rounding amount and any other costs of issuance.
* Preliminary, subject to change.
1
General
The following is a description of some of the terms and conditions of the Bonds, which description is qualified in its entirety by reference to the Order. Copies of the Order may be obtained upon request to the District.
Description
The Bonds will bear interest at the rates and will mature on the dates and in the amounts as set forth on the inside cover page hereof. The Bonds are dated December 1, 2017. Interest will accrued from the initial date of initial delivery to the Initial Purchaser and will be payable on September 1, 2018, and on each March 1 and September 1 thereafter, until maturity or prior redemption.
The Bonds will be issued only in fully-registered form, in integral multiples of $5,000 of principal amount, for any one maturity, and will be initially registered and delivered only to Cede & Co., the nominee of The Depository Trust Company, New York, New York (“DTC”) pursuant to the book-entry-only system described herein. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by U.S. Bank National Association, Dallas, Texas (the “Paying Agent/Registrar”) to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for subsequent payment to the beneficial owners of the Bonds. See “THE BONDS – Book-Entry-Only System” herein.
Authority for the Bonds
The Bonds are issued pursuant to the provisions of the Constitution and laws of the State of Texas, including particularly (i) Article XVI, Section 59 of the Texas Constitution, (ii) Chapter 197, Acts of the 58th Legislature, Regular Session, 1963, as amended, (iii) Chapter 1371, Texas Government Code, as amended, (iv) the Order and (v) an election within the District held May 7, 2016.
Source of Payment of the Bonds
The Bonds are payable from the receipts of a separate annual ad valorem tax, unlimited as to rate or amount, levied on taxable property within the District. See “AD VALOREM TAXES.” Pursuant to the provisions of the Order, the Board of Port Commissioners, on behalf of the District, made provisions for the levy, assessment and collection of these annual ad valorem taxes. In each year the Board of Port Commissioners, on behalf of the District, will determine the specific tax to be collected to pay interest as it accrues and principal as it matures on the Bonds and will assess such taxes for that year. The receipts of such taxes are to be credited to a separate fund to be used solely for the payment of the principal of and interest on the Bonds.
Authorized But Unissued Bonds
This issue of Bonds is the second installment of $89,950,000 of authorized but unissued bonds approved by the voters of the District at an election held May 7, 2016. The District previously issued its Unlimited Tax Port Improvement Bonds, Series 2017 in an aggregate principal amount of $29,655,000 in May, 2017 which utilized $29,800,000 of the voted authorization of the May 2016 election. After the issuance of Bonds, the District will have $605,000 remaining authorized but unissued debt.
Redemption
Optional Redemption. The District reserves the right, at its option, to redeem Bonds having stated maturities on and after March 1, 2028, in whole or from time to time in part in principal amounts of $5,000 or any integral multiple thereof, on March 1, 2027, or any date thereafter, at par plus accrued interest from the most recent interest payment date to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the District will determine the maturity or maturities and the amounts thereof to be redeemed.
Mandatory Sinking Fund Redemption. In addition to the foregoing optional redemption provision, if principal amounts designated in the serial maturity schedule on the inside cover page hereof are combined to create term Bonds (the “Term Bonds”), each such Term Bond shall be subject to mandatory sinking fund redemption commencing on March 1 of the first year which has been combined to form such Term Bond and continuing on March 1 in each year thereafter until the stated maturity date of that Term Bond, and the amount required to be redeemed in any year shall be equal to the principal amount for such year set forth in the serial maturity schedule on the inside cover page hereof.
2
The particular Term Bond to be mandatorily redeemed shall be selected by lot or other customary random selection method. The principal amount of the Term Bond to be mandatorily redeemed on such mandatory redemption date shall be reduced by the principal amount of such Term Bond which, by the 45th day prior to such mandatory redemption date, either has been purchased in the open market and delivered or tendered for cancellation by or on behalf of the District to the Paying Agent/Registrar or optionally redeemed and which, in either case, has not previously been made the basis for a reduction under this sentence.
Notice of Redemption
The Paying Agent/Registrar shall give notice of any redemption of Bonds by sending notice by United States mail, first class, postage prepaid, not less than thirty (30) days before the date fixed for redemption, to the registered owner of each Bond to be redeemed, in whole or in part, at the address of the registered owner shown on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing such notice.
ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN AND ANY CONDITION TO REDEMPTION SPECIFIED THEREIN HAVING BEEN SATISFIED, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE.
With respect to any optional redemption of the Bonds, unless moneys sufficient to pay the principal of and premium, if any, and interest on the Bonds to be redeemed shall have been received by the Paying Agent/Registrar prior to the giving of such notice of redemption, such notice may state that said redemption is conditional upon the receipt of such moneys by the Paying Agent/Registrar on or prior to the date fixed for such redemption, or upon the satisfaction of any prerequisites set forth in such notice of redemption; and, if sufficient moneys are not received, such notice shall be of no force and effect, the District shall not redeem such Bonds and the Paying Agent/Registrar shall give notice, in the manner in which the notice of redemption was given, to the effect that the Bonds have not been redeemed.
Defeasance
The Order provides for the defeasance of the Bonds and the termination of the pledge of taxes and all other general defeasance covenants in the Order under certain circumstances. Any Bond and the interest thereon shall be deemed to be paid, retired and no longer outstanding (a “Defeased Obligation”) within the meaning of the relevant Order, except to the extent provided below for the Paying Agent to continue payments and for the District to retain the right to call Defeased Obligations to be paid at maturity, when the payment of all principal and interest payable with respect to such Bond to the due date or dates thereof (whether such due date or dates be by reason of maturity, upon redemption, or otherwise) either (i) shall have been made or caused to be made in accordance with the terms thereof (including the giving of any required notice of redemption or the establishment of irrevocable provisions for the giving of such notice) or (ii) shall have been provided for on or before such due date by irrevocably depositing with or making available to the Paying Agent or an eligible trust company or commercial bank for such payment (1) lawful money of the United States of America sufficient to make such payment, (2) Defeasance Securities (defined below) that mature as to principal and interest in such amounts and at such times as will ensure the availability, without reinvestment, of sufficient money to provide for such payment and when proper arrangements have been made by the District with the Paying Agent or an eligible trust company or commercial bank for the payment of its services until after all Defeased Obligations shall have become due and payable or (3) any combination of (1) and (2). At such time as a Bond shall be deemed to be a Defeased Obligation, such Bond and the interest thereon shall no longer be secured by, payable from, or entitled to the benefits of, the ad valorem taxes levied as provided in the Order, and such principal and interest shall be payable solely from such money or Defeasance Securities.
The deposit under clause (ii) above shall be deemed a payment of a Bond when proper notice of redemption of such Bonds shall have been given or the establishment of irrevocable provisions for the giving of such notice, in accordance with the relevant Order. Any money so deposited with the Paying Agent or an eligible trust company or commercial bank may at the discretion of the Board of Port Commissioners also be invested in Defeasance Securities, maturing in the amounts and at the times as set forth in the Order, and all income from such Defeasance Securities received by the Paying Agent or an eligible trust company or commercial bank that is not required for the payment of the Bonds and interest thereon, with respect to which such money has been so deposited, shall be turned over to the District.
3
All money or Defeasance Securities set aside and held in trust pursuant to the provisions of the Order for the payment of principal of the Bonds and premium, if any, and interest thereon, shall be applied to and used solely for the payment of the particular Bonds and premium, if any, and interest thereon, with respect to which such money or Defeasance Securities have been so set aside in trust. Until all Defeased Obligations shall have become due and payable, the Paying Agent shall perform the services of Registrar for such Defeased Obligations the same as if they had not been defeased, and the District shall make proper arrangements to provide and pay for such services as required by the Order.
If money or Defeasance Securities have been deposited or set aside with the Paying Agent or an eligible trust company or commercial bank for the payment of Bonds and such Bonds shall not have in fact been actually paid in full, no amendment of the defeasance provisions of the Order shall be made without the consent of the registered owner of each Bond affected thereby.
To the extent that, upon the defeasance of any Defeased Obligation to be paid at its maturity, the District retains the right under Texas law to later call that Defeased Obligation for redemption in accordance with the provisions of the Order, the District may call such Defeased Obligation for redemption upon complying with the provisions of Texas law and upon the satisfaction of the provisions set forth above regarding such Defeased Obligation as though it was defeased at the time of the exercise of the option to redeem the Defeased Obligation and the effect of the redemption is taken into account in determining the sufficiency of the provisions made for the payment of the Defeased Obligation.
Any escrow agreement or other instrument entered into between the District and the Paying Agent or an eligible trust company or commercial bank pursuant to which money and/or Defeasance Securities are held by the Paying Agent or an eligible trust company or commercial bank for the payment of Defeased Obligations may contain provisions permitting the investment or reinvestment of such moneys in Defeasance Securities or the substitution of other Defeasance Securities upon the satisfaction of certain requirements. All income from such Defeasance Securities received by the Paying Agent or an eligible trust company or commercial bank which is not required for the payment of the Bonds and interest thereon, with respect to which such money has been so deposited, will be remitted to the District.
Under current State law, “Defeasance Securities” means any securities and obligations now or hereafter authorized by State law that are eligible to discharge obligations such as the Bonds. Current State law permits defeasance with the following types of securities: (a) direct, noncallable obligations of the United States of America, including obligations that are unconditionally guaranteed by the United States of America, (b) noncallable obligations of an agency or instrumentality of the United States of America, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the Board of Port Commissioners of the District adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, and (c) noncallable obligations of a state or an agency or a county, municipality, or other political subdivisions of a state that have been refunded and that, on the date the Board of Port Commissioners of the District adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent.
There is no assurance that the current law will not be changed in a manner which would permit investments other than those described above to be made with amounts deposited to defease the Bonds. Because the Order does not contractually limit such investments, registered owners will be deemed to have consented to defeasance with such other investments, notwithstanding the fact that such investments may not be of the same investment quality as those currently permitted under State law. There is no assurance that the ratings for U.S. Treasury securities used as Defeasance Securities or those for any other Defeasance Security will be maintained at any particular rating category.
Book-Entry-Only System
This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and credited by The Depository Trust Company, New York, New York (“DTC”), while the Bonds are registered in its nominee name. The information in this section concerning DTC and the book-entry-only system has been provided by DTC for use in disclosure documents such as this Official Statement. The District, the Financial Advisor and the Initial Purchaser believe the source of such information to be reliable, but take no responsibility for the accuracy or completeness thereof.
The District cannot and does not give any assurance that (1) DTC will distribute payment of debt service on the Bonds, or redemption or other notices to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the beneficial owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The
4 current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC.
DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post- trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities Bonds. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is a holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its registered subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating: “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive physical Bonds representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co., or such other DTC nominee, do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to
5 those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, principal, and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Paying Agent/Registrar, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent/Registrar, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, principal, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Paying Agent/Registrar. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and reimbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository is not obtained, Bonds are required to be printed and delivered. Discontinuance by the District of use of the system of book-entry transfers through DTC may require compliance with DTC operational arrangements.
The District may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). Discontinuance of the system of book-entry transfers by the District may require the consent of Participants under DTC’s operational arrangements. In that event, Bonds will be printed and delivered.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but neither the District, the Financial Advisor nor the Initial Purchaser takes responsibility for the accuracy thereof.
Use of Certain Terms in Other Sections of this Official Statement
In reading this Official Statement it should be understood that while the Bonds are in the book-entry-only system, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the book-entry-only system, and (ii) except as described above, notices that are to be given to registered owners under the Bond Order will be given only to DTC.
Effect of Termination of Book-Entry-Only System
In the event that the book-entry-only system is discontinued by DTC or the use of the book-entry-only system is discontinued by the District, printed Bonds will be issued to the holders and the Bonds will be subject to transfer, exchange and registration provisions as set forth in the Bond Resolution and summarized under “THE BONDS – Transfer, Exchange and Registration” below.
Ownership
The District, the Paying Agent/Registrar and any agent of either may treat the person in whose name any Bond is registered as the owner of such Bond for the purposes of receiving payment of the principal thereof and the interest on the Bond and for all other purposes whatsoever, whether or not such Bond is due or overdue. Neither the District, the Paying Agent/Registrar, or any agent of either will be affected by any notice to the contrary.
Transfer, Exchange and Registration
In the event the Book-Entry-Only System should be discontinued printed certificates shall be delivered to the owners of the Bonds, and thereafter, any Bond may, in accordance with its terms and the terms of the Order, be transferred or exchanged for Bonds of other authorized denominations upon the Security Register by the bondholder, in person or by his duly authorized agent, upon surrender of such Bond to the Paying Agent/Registrar for cancellation, accompanied by a written instrument of transfer or request for exchange duly executed by the bondholder or by his duly authorized agent, in form satisfactory to the Paying Agent/Registrar. Upon surrender for transfer of any Bond at the principal payment office of the Paying Agent/Registrar, the Paying Agent/Registrar will register and deliver, in the name of the designated transferee or transferees,
6 one or more new Bonds executed on behalf of, and furnished by, the District, of authorized denominations and having the same stated maturity and of a like aggregate principal amount and interest rate as the Bond or Bonds surrendered for transfer. At the option of the bondholder, Bonds may be exchanged for other Bonds of authorized denominations and having the same stated maturity, bearing the same rate of interest, and of like aggregate principal amount as the Bonds surrendered for exchange, upon surrender of the Bonds to be exchanged at the principal corporate trust office of the Paying Agent/Registrar. Whenever any Bonds are so surrendered for exchange, the Paying Agent/Registrar will register and deliver new Bonds executed on behalf of, and furnished by, the District to the bondholder requesting the exchange. See “THE BONDS-Book- Entry-Only System” herein for a description of the system to be utilized initially in regard to ownership and transferability of Bonds.
All Bonds issued upon any transfer or exchange of Bonds will be delivered at the principal corporate trust office of the Paying Agent/Registrar, or sent by United States registered mail to the Bondholder at his request, risk, and expense, and upon the delivery thereof, the same shall be the valid obligations of the District, evidencing the same obligation to pay, and entitled to the same benefits under the Order, as the Bonds surrendered in such transfer or exchange.
All transfers or exchanges of Bonds will be made without expense or service charge to the Bondholder, except as otherwise herein provided, and except that the Paying Agent/Registrar will require payments by the Bondholder requesting such transfer or exchange of any tax or other governmental charges required to be paid with respect to such transfer or exchange. See “THE BONDS-Book-Entry-Only System” herein for a description of the system to be utilized initially in regard to ownership and transferability of the Bonds.
Bondholder Remedies
The Order establishes the following occurrences or events as “Events of Default”: (i) the failure to make payment of the principal of or interest on any of the Bonds when the same becomes due and payable; or (ii) default in the performance or observance of any other covenant, agreement or obligation of the District, the failure to perform which materially, adversely affects the rights of the holders of the Bonds, including but not limited to, their prospect or ability to be repaid in accordance with the Order, and the continuation thereof for a period of 60 days after notice of such default is given by any holder to the District. The Order does not provide for a trustee to enforce the covenants and obligations of the District. In no event will registered owners have the right to have the maturity of the Bonds accelerated as a remedy. A registered owner of Bonds could seek a judgment against the District if a default occurred in the payment of principal of or interest on any such Bonds; however, such judgment could not be satisfied by execution against any property of the District and a suit for monetary damages could be vulnerable to the defense of sovereign immunity. A registered owner’s only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the District to levy, assess and collect an annual ad valorem tax sufficient to pay the principal of and interest on the Bonds as it becomes due or perform other material terms and covenants contained in the Order. In general, Texas courts have held that a writ of mandamus may be issued to require a public official to perform legally imposed ministerial duties necessary for the performance of a valid contract, and Texas law provides that, following approval by the Attorney General and issuance, the Bonds are valid and binding obligations for all purposes according to their terms. However, the enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The District is also eligible to seek relief from its creditors under Chapter 9 of the U.S. Bankruptcy Code (“Chapter 9”). Although Chapter 9 provides for the recognition of a security interest represented by specifically pledged source of revenues, the pledge of taxes in support of a general obligation of a bankrupt entity is not specifically recognized as a security interest under Chapter 9. Chapter 9 also includes an automatic stay provision that would prohibit, without Bankruptcy Court approval, the prosecution of any other legal action by creditors or bondholders of an entity which has sought protection under Chapter 9. Therefore, should the District avail itself of Chapter 9 protection from creditors, the ability to enforce would be subject to the approval of the Bankruptcy Court (which could require that the action be heard in Bankruptcy Court instead of other federal or state court); and the Bankruptcy Code provides for broad discretionary powers of a Bankruptcy Court in administering any proceeding brought before it. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Order and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors, including rights afforded to creditors under the Bankruptcy Code.
Paying Agent/Registrar
The initial Paying Agent/Registrar is U.S. Bank National Association, Dallas, Texas. The Paying Agent/Registrar covenants that it will at all times, until the Bonds are duly paid maintain an agency for the performance of the duties of the Paying Agent/Registrar. In the Bond Resolution, the District retains the right to replace the Paying Agent/Registrar. Every Paying Agent/Registrar must at all times be a commercial bank or trust company organized and doing business under the laws of the United States of America or of any state, authorized under such laws to exercise corporate trust powers, having a combined
7 capital and surplus of at least $10,000,000, subject to supervision or examination by federal or state authority, registered as a transfer agent with the United States Securities and Exchange Commission. Upon any change in the Paying Agent/Registrar, the District agrees to promptly cause a written notice thereof to be sent to each bondholder affected by the change, which notice shall also give the address of the new Paying Agent/Registrar.
Record Date for Interest Payment
The record date (“Record Date”) for the interest payable on any interest payment date of the Bonds means the close of business on the 15th calendar day of the preceding month.
In the event of a non-payment of interest on a scheduled payment date, and for 30 days thereafter, a new record date for such interest payment (a “Special Record Date”) will be established by the Paying Agent/Registrar, if and when funds for the payment of such interest have been received from the District. Notice of the Special Record Date and of the scheduled payment date of the past due interest, which shall be 15 days after the Special Record Date, shall be sent at least five business days prior to the Special Record Date by United States mail, first class, postage prepaid, to the address of each Registered Owner of an affected Bond appearing on the registration books of the Paying Agent/Registrar at the close of business on the last business day next preceding the date of mailing of such notice.
Limitation on Transfer of Bonds
Neither the District nor the Paying Agent/Registrar are required to transfer or exchange any Bond during (i) the period commencing at the close of business on the Record Date and ending at the opening of business on the next interest payment date and (ii) called for redemption, in whole or in part, within 45 days of the date fixed for redemption; provided, however, such limitation on transfer will not be applicable to an exchange by the registered owner of the uncalled balance of a Bond.
Amendments
In the Order, the District has reserved the right to amend the Order without the consent of any holder for the purpose of amending or supplementing the Order to (i) cure any ambiguity, defect or omission therein that does not materially adversely affect the interests of the holders, (ii) grant additional rights or security for the benefit of the holders, (iii) add events of default as shall not be inconsistent with the provisions of the Order that do not materially adversely affect the interests of the holders, (iv) qualify the Order under the Trust Indenture Act of 1939, as amended, or corresponding provisions of federal laws from time to time in effect or (v) make such other provisions in regard to matters or questions arising under the Order that are not inconsistent with the provisions thereof and which, in the opinion of Bond Counsel for the District, do not materially adversely affect the interests of the holders.
The Order further provides that the holders of the Bonds aggregating in original principal amount 51% of the outstanding Bonds that are the subject of a proposed amendment shall have the right from time to time to approve any amendment not described above to the Order if it is deemed necessary or desirable by the District; provided, however, that without the consent of 100% of the holders in original principal amount of the then outstanding Bonds, no amendment may be made for the purpose of: (i) making any change in the maturity of any of the outstanding Bonds; (ii) reducing the rate of interest borne by any of the outstanding Bonds; (iii) reducing the amount of the principal of, or redemption premium, if any, payable on any outstanding Bonds; (iv) modifying the terms of payment of principal or of interest or redemption premium on outstanding Bonds, or imposing any condition with respect to such payment; or (v) changing the minimum percentage of the principal amount of the Bonds necessary for consent to such amendment. Reference is made to the Order for further provisions relating to the amendment thereof.
AD VALOREM TAXES
The appraisal of property within the District is the responsibility of the Jefferson County Appraisal District (the “Appraisal District”). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The District may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the District by petition filed with the Appraisal Review Board.
8
Reference is made to those sections of VTCA, Texas Tax Code, popularly known as the Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution (“Article VIII”) and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, and the exemption of certain personal property from ad valorem taxation.
Under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant:
(1) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision;
(2) An exemption of up to 20% of the market value of residence homesteads; minimum exemption $25,000.
In the case of residence homestead exemptions granted under Section 1-b, Article VIII, ad valorem taxes may continue to be levied against the value of homesteads exempted where ad valorem taxes have previously been pledged for the payment of debt if cessation of the levy would impair the obligation of the contract by which the debt was created.
State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted up to $12,000. Article VIII provides that eligible owners of both agricultural land (Section l-d) and open-space land (Section l-d-l), including open-space land devoted to farm or ranch purposes or open-spaced land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section l-d and l-d-l.
Nonbusiness vehicles, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax such property. The District does not tax nonbusiness vehicles. Boats owned as nonbusiness property are exempt from ad valorem taxation.
Article VIII, Section l-j of the Texas Constitution provides for freeport property to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. The exemption became effective for the 1991 fiscal year and thereafter unless action to tax such property has been taken prior to April 1, 1990. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The District has taken no action to tax freeport property.
In addition, under Section 11.253 of the Texas Tax Code, “Goods-in-transit” are exempt from taxation unless a taxing unit opts out of the exemption. Goods-in-transit are defined as tangible personal property that: (i) is acquired in or imported into the State to be forwarded to another location in the State or outside the State; (ii) is detained at a location in the State in which the owner of the property does not have a direct or indirect ownership interest for assembling, storing, manufacturing, processing, or fabricating purposes by the person who acquired or imported the property; (iii) is transported to another location in the State or outside the State not later than 175 days after the date the person acquired the property in or imported the property into the State; and (iv) does not include oil, natural gas, petroleum products, aircraft, dealer’ s motor vehicle inventory, dealer’s vessel and outboard motor inventory, dealer’s heavy equipment inventory, or retail manufactured housing inventory. The District has not taken action to tax goods-in-transit.
The District grants an exemption to the market value of the residence homestead of persons 65 years of age or older of $40,000; the disabled are granted an exemption based on percentage of disability. The District has also granted an exemption of 20% of the market value of the residence homestead; minimum exemption of $25,000.
The Board of Port Commissioners are responsible for levying taxes on behalf of the District. While the District’s rates of taxation differ from the County’s, the procedures for assessing, levying and collecting tax are, except as otherwise described below, substantially the same as those followed by the County.
9
Tax Rate Limitation
The Board of Port Commissioners may levy a separate annual ad valorem tax. The District’s tax rate in 2017 is $.1694 for debt service and $0.0743 for maintenance and operations. The District’s tax for maintenance and operations is limited to $0.10 per $100, but there is no limitation on the rate which may be levied for debt service on unlimited tax bonds.
By each September 30 or as soon thereafter as practicable, the Port Commissioners adopt a tax rate per $100 taxable value for the current year. The tax rate consists of two components: (i) a rate for funding of maintenance and operation expenditures, and (ii) a rate for debt service.
Under the Property Tax Code, the District must annually calculate and publicize its “effective tax rate” and “rollback tax rate”. The District may not adopt a rate that exceeds the prior year’s levy until it has held two public hearings on the proposed increase following notice to the taxpayers and otherwise complied with the Property Tax Code. The Property Tax Code provides that the District will be prohibited from adopting a tax rate that exceeds the lower of the rollback tax rate of one hundred eight percent (108%) of the effective tax rate until a public hearing is held on the proposed tax rate following a notice of such public hearing (including the requirement that notice be posted on the District’s website if the District owns, operates or controls an internet website and public notice be given by television if the District has free access to a television channel) and the District has otherwise complied with the legal requirements for the adoption of such tax rate. If the adopted tax rate exceeds the rollback tax rate, the qualified voters of the District by petition may require that an election be held to determine whether or not to reduce the tax rate adopted for the current year to the rollback tax rate.
Levy and Collection of Taxes
The District is responsible for the collection of its taxes, unless it elects to transfer such functions to another governmental entity. Before the later of September 30 or the 60th day after the date that the certified appraisal role is received by the District, the rate of taxation must be set by the Port Commissioners of the District based upon the valuation of property within the District as of the preceding January 1 and the amount required to be raised for debt service and maintenance and operations purposes. Taxes are due October 1, or when billed, whichever comes later, and become delinquent after January 31 of the following year. A delinquent tax incurs a penalty from six percent (6%) to twelve percent (12%) of the amount of the tax, depending on the time of payment, and accrues interest at the rate of one percent (1%) per month. If the tax is not paid by the following July 1, an additional penalty of up to twenty percent (20%) may, under certain circumstances, be imposed by the District. The Property Tax Code also makes provision for the split payment of tax, discounts for early payment and the postponement of the delinquency date of taxes under certain circumstances.
District’s Rights in the Event of Tax Delinquencies
Taxes levied by the District are a personal obligation of the owner of the property. The District has no lien for unpaid taxes on personal property but does have a lien for unpaid taxes on real property, which lien is discharged upon payment. On January 1 of each year, such tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The District’s tax lien is on a parity with the tax liens of other such taxing units. A tax lien on real property takes priority over the claims of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. The automatic stay in bankruptcy will prevent the automatic attachment of tax liens with respect to post-petition tax years unless relief is sought and granted by the bankruptcy judge. Personal property, under certain circumstances, is subject to seizure and sale for the payment of delinquent taxes, penalty and interest.
Except with respect to taxpayers who are 65 years of age or older, at any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for delinquent taxes against all or part of the same property. Collection of delinquent taxes may be adversely affected by the amount of taxes owed to other taxing units by the effects of market conditions on the foreclosure sale price, by taxpayer redemption rights, or bankruptcy proceedings which restrict the collection of taxpayer debts.
Tax Abatement and Reinvestment Zones
Cities and counties may create one or more tax increment financing zones, under which the tax values on property in the zone are “frozen” at the value of the property at the time of creation of the zone. Other overlapping taxing units may agree to contribute all or part of future ad valorem taxes levied and collected against the value of property in the zone in excess of the “frozen” value to pay or finance the costs of certain public improvements in the zone. Taxes levied by the District against the
10 values of real property in the zone in excess of the “frozen value” are not available for general city use but are restricted to paying or financing “project costs” within the zone.
Cities and counties also may enter into one or more tax abatement agreement to encourage economic development. Under the agreements, a property owner agrees to construct certain improvements on his property. The City or county, in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. The abatement agreement could last for a period of up to 10 years. See “Note 10 – Property Tax Abatements -Port of Port Arthur Navigation District of Jefferson County, Texas Annual Financial Report For the Year Ended July 31, 2016.”
THE DISTRICT General
The Port of Port Arthur Navigation District of Jefferson County, Texas was created by a Special Act of the 55th Legislature under provisions of Section 59, Article XVI of the Texas Constitution, ratified by referendum on June 13, 1964. The District is independent from other local or state governments and operates within district boundaries of approximately 58 square miles, including the City of Port Arthur and a part of the City of Groves. The five member elected Board of Port Commissioners governs the affairs of the District, with management responsibilities vested in the Executive Port Director. The District provides the services of a Public Ocean Terminal with railroad access to the nation.
The District includes the Port Arthur Navigation District Industrial Development Corporation (PANDIDC), a Texas nonprofit corporation, whose purpose is to promote and develop new and expanded enterprises in the District, and to promote and encourage employment and public welfare. Bonds issued by the Corporation are payable from revenue derived as a result of the industrial development facilities funded by pollution control and industrial development bonds. These bonds are not a liability or contingent liability of the District and do not create a lien upon any of the District’s properties or revenue; only the industrial facilities for which they are issued.
Security
The port maintains an active Maritime Security Plan as required by federal law. The District cannot predict future enacted legislation, executive orders or rules or regulations that may be prescribed by federal, state or local authorities relating to port security nor the impact of such measures, if any, on District revenues.
The Coast Guard implemented heightened security measures on the channel following the terrorist attacks of September 11, 2001. The Coast Guard is responsible for establishing the Maritime Security level on the channel and providing joint force protection in coordination with Jefferson County Sheriff’s Department. The two entities bear the costs of such security.
Proposed Legislation
Maritime Security legislation has passed both houses of Congress that would require all ports in the United States to have a comprehensive security plan. The legislation would assign additional responsibilities to the Coast Guard in regards to port security and would authorize the Maritime Administration to prescribe regulations to require port authorities to establish a maritime transportation security program. At this time, the District cannot predict the final form of any legislation that may be enacted into law or future executive orders or rules or regulations that may be prescribed by federal, state or local authorities relating to port security nor the impact of such measures, if any, on District revenues.
Federal Funding for Security
The District on a recurring basis has expenses for on-site security measures. Most of the added costs and enhanced security measures are reimbursed by port users and the port actively participates in the federal port security match grant program. Grants are recorded on the basis of project expenditures made. As projects are advanced and expenditures incurred, grant funds are requested on a reimbursement basis and then recognized. Capital grants, contributions and appropriations as of July 31, 2017 included Security Grant – Round 14 and Round 16 for $ 321,339.
District Operations
Located nineteen miles from the Gulf of Mexico, the District’s public facilities (the “Port”) handle a variety of forest, steel, military, products and general breakbulk trade cargo. To date, several types of forest products represent the dominant export commodity and import commodity.
11
Port facilities include the public ocean terminal, which is situated on a 149.5 acre port owned tract. The Port of Port Arthur fronts over 2 miles of shoreline on a co-located section of the Sabine Neches and Gulf Intracoastal Waterway. Berths One through Four provide 2,900 linear feet of berthing space maintained at a forty feet depth to match the federally authorized channel depth. The Port is located 1 mile downstream from the vessel turning basin. Port berths include 575,000 square feet of covered shed space. The facility is rail served on both the land and waterside. Live loading capacities range from 800 to 1,200 pounds per square foot. Additional information about the District can be found in Appendix A.
Operating History
Summaries of the District’s revenues and operating expenditures have been prepared from audited financial records of the District for the fiscal year ended July 31, 2016 and can be found in Appendix A, Schedule 8. Such summaries do not purport to be complete and prospective purchasers of the Bonds are advised to refer to the audited financial statements for complete information concerning the District’s finances. See “APPENDIX B – Selected Data from Annual Financial Report Port of Port Arthur Navigation District of Jefferson County, Texas, Fiscal Year Ended July 31, 2016”.
Employee Retirement System
The District provides pension, disability and death benefits for all of its full-time employees through a nontraditional defined benefit plan in the state-wide Texas County and District Retirement System (TCDRS). The District has elected the annually determined contribution rate plan provisions of the TCDRS Act. The plan is funded by monthly contributions from both the employee members and the employer based on the covered payroll of employee members. For more information on the District’s Employee Retirement System, see the audited Annual Financial Statement for the year ended July 31, 2016. See “APPENDIX B – Selected Data from Annual Financial Report Port of Port Arthur Navigation District of Jefferson County, Texas, Fiscal Year Ended July 31, 2016”.
Other Post-Employment Benefits
The District offers its employees a deferred compensation plan through the International City Management Association, created in accordance with Internal Revenue Code Section 457. The plan, available to all District employees, permits them to defer a portion of their salary until future years in order to provide them with retirement income and other deferred benefits. The plan is funded entirely by employee contributions. The District has no post-employment benefits for which it is liable.
Pollution Control Revenue Bonds
The District is authorized under State law to issue revenue bonds to finance the acquisition, construction and improvement of facilities designed to reduce or eliminate pollution and to lease or sell such facilities. As of July 31, 2017, the District has issued $1,357,925,000 of such pollution control bonds outstanding. The pollution control bonds are special obligations and are payable solely out of revenue derived from the users of the projects. The bonds are not an indebtedness or pledge of the credit of the District within the meaning of any constitutional or statutory provision and shall not be general obligations of the District and shall never be paid in whole or in part from any funds raised by taxation or any revenues or other funds of the District except those derived by it in connection with the use of the projects.
Impact of Recent Hurricane
On August 26, 2017, Hurricane Harvey made landfall on the Texas Gulf Coast and severely impacted numerous localities in the region. While Hurricane Harvey did impact Jefferson County and the Port Arthur area, the Port of Port Arthur Navigation District expects that the storm’s effect on the District’s financial operations will be negligible. The District maintains ample liquidity in the amount of $35,700,227 in unrestricted funds which includes $7,839,049 in unrestricted cash and cash equivalents and $30,861,178 in unrestricted investments. The unrestricted cash and cash equivalents amounts to approximately 60% of its Annual Operating Expenses. The District believes that its liquidity is more than adequate to address any unexpected expenditures related to the effects of Hurricane Harvey.
Further a large proportion, approximately 63%, of the District’s tax base consists of industrial activities, and these industrial companies were well-positioned to weather such storms as are common along the Gulf Coast. As a whole these companies suffered minimal damage and loss of productivity, and therefore the District expects that accordingly minimal loss of taxable values will result. The District expects that growth in the petrochemical industry will continue to support the local economy and lead to increased revenues for the District.
12
The Gulf Coast region where the District is located is subject to occasional destructive weather events, and there is no assurance that the District will not suffer damages from such destructive weather events in the future.
FINANCIAL POLICIES AND INVESTMENTS
Financial Policies
Basis of Accounting. The District’s policy is to adhere to the accounting principles set out by the Governmental Accounting Standards Board, as amended.
Fund Balance in Operating Funds. The District’s practice is to maintain surplus and unencumbered funds equal to at least $500,000 in the Operating Fund and $100,000 in the Debt Service Fund. This allows the District to avoid interim borrowing pending tax receipts and to maintain prudent reserves for contingencies. Jefferson County (the “County”), collects taxes for the District, divides each dollar of taxes collected into its component parts of Maintenance and Operations and Debt Service and remits the taxes to the District upon receipt.
Tax Collections for Debt Service. The District deposits interest and sinking fund taxes collected by the County on behalf of the District into separate accounts where such monies are invested until required.
Debt Service Fund Balance. The District’s practice is to carry forward at the end of each fiscal year debt service funds sufficient to meet debt service requirements through at least the first six months of the ensuing fiscal year.
Use of Bond Proceeds, Grants, Etc. The District’s policy is to use bond proceeds for capital expenditures only. Such proceeds are not used to fund operations other than capital related expenses.
Budgetary Procedures. The District’s policy is to begin the budgetary procedure in early June of each year. The Budget is prepared by the Port Director. The preliminary budget is presented to the Board of Port Commissioners for review where it is refined at workshop sessions until adoption, usually in late July. The budget for 2016-17 was based upon the assumption of tax collections at a 98% rate. The Board of Port Commissioners is responsible for monitoring the expenditures of the District to determine that they do not exceed appropriations.
Investment Policy
The District invests its funds in investments authorized by Texas law in accordance with written investment policies approved by the District, a copy of which is available upon request. Among other things, the District’s Investment policy provides that the investment officers maintain a list of financial institutions authorized by the Board to provide investment services to the District. The investment officers also shall conduct an annual review to determine the financial and operating status of each broker/dealer and prepare and submit to the Board a quarterly report of investment transactions and holdings of the District’s funds. Both Texas law and the District’s investment policies are subject to change. As required under Texas law, the District’s written investment strategy and policy emphasize safety of principal and liquidity, and address investment diversification, yield, maturity, and the quality and capability of investment management.
Under Texas law, the District is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, including letters of credit; (2) direct obligations of the State of Texas or its agencies and instrumentalities; (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States; (4) other obligations, the principal and interest of which is guaranteed or insured by or backed by the full faith and credit of, the State of Texas or the United States or their respective agencies and instrumentalities; (5) obligations of states, agencies, counties, cities and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent; (6) bonds issued, assumed or guaranteed by the State of Israel; (7) certificates of deposit (i) issued by a depository institution that has its main office or a branch office in the State of Texas, that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by Bonds described in clauses (1) through (6) or in any other manner and amount provided by law for District deposits, or (ii) where; (a) the funds are invested by the District through a depository institution that has a main office or branch office in this state and that is selected by the District; (b) the depository institution selected by the District arranges for the deposit of funds in one or more federally insured depository institutions, wherever located; (c) the certificates of deposit are insured by the United States or an instrumentality of the United States; (d) the depository institution acts as a custodian for the District with respect to the certificates of deposit; and (e) at the same time that the certificates of deposit are issued, the depository
13 institution selected by the District receives deposits from customers of other federally insured depository institutions, wherever located, that is equal to or greater than the funds invested by the District through the depository institution selected under clause (ii)(a) above, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) securities lending programs if (i) the securities loaned under the program are 100% collateralized, a loan made under the program allows for termination at any time and a loan made under the program is either secured by (a) obligations that are described in clauses (1) through (6) above, (b) irrevocable letters of credit issued by a state or national bank that is continuously rated by a nationally recognized investment rating firm at not less than “A” or its equivalent or (c) cash invested in obligations described in clauses (1) through (6) above, clauses (11) through (13) below, or an authorized investment pool; (ii) securities held as collateral under a loan are pledged to the District, held in the District’s name and deposited at the time the investment is made with the District or a third party designated by the District; (iii) a loan made under the program is placed through either a primary government securities dealer or a financial institution doing business in the State of Texas; and (iv) the agreement to lend securities has a term of one year or less, (10) certain bankers’ acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least “A-1” or “P-1” or the equivalent by at least one nationally recognized credit rating agency, (11) commercial paper with a stated maturity of 270 days or less that is rated at least “A-1” or “P-1” or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (12) no-loan money market mutual funds registered with and regulated by the Securities and Exchange Commission that have a dollar weighted average stated maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share and (13) no-load mutual funds registered with the Securities and Exchange Commission that have an average weighted maturity of less than two years, invest exclusively in obligations described in this paragraph, and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than “AAA” or its equivalent. In addition, bond proceeds may be invested in guaranteed investment contracts that have a defined termination date and are secured by obligations, including letters of credit, of the United States or its agencies and instrumentalities in an amount at least equal to the amount of bond proceeds invested under such contract, other than the prohibited obligations described in the next succeeding paragraph.
The District may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than AAA or AAA-m or an equivalent by at least one nationally recognized rating service. The District may also contract with an investment management firm registered under the Investment Advisors Act of 1940 (15 U.S.C. Section 80b-1 et. seq.) or with the State Securities Board to provide for the investment and management of its public funds or other funds under its control for a term up to two years, but the District retains ultimate responsibility as fiduciary of its assets. In order to renew or extend such a contract, the District must do so by order, ordinance, or resolution.
The District is specifically prohibited from investing in: (1) obligations whose payments represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index.
Current Investments
As of October 31, 2017, the District has $ $70,325,752 (unaudited) invested in certificates of deposits, bonds and other investments. The market value of such investments is approximately 100% of their book value. No funds of the District are invested in derivative securities; i.e., securities whose rate of return is determined by reference to some other instrument, index or commodity.
LEGAL MATTERS
Litigation
The District is not aware of any litigation of any nature which has been filed or is pending at this time which would enjoin the issuance of the Bonds or would affect the provisions made for payment or security of the Bonds, or would have a material adverse impact on the financial condition of the District.
14
The District is exposed to various risks of losses related to torts, theft of, damage to and destruction of fixed assets; error and omissions; injuries to employees; and natural disasters. The District has obtained commercial insurance coverage for these risks and provided various employee education and prevention programs. Various claims and lawsuits are pending against the District. In the opinion of District management, after consultation with legal counsel, the potential loss on all claims and lawsuits will not materially affect the District’s financial position.
Legal Opinions
The Bonds are offered when, as and if issued, subject to the approval by the Attorney General of the State and the rendering of opinion as to legality by McCall, Parkhurst & Horton L.L.P., Austin, Texas, Bond Counsel for the District. Bond Counsel has been engaged by and only represents the District in connection with the issuance of the Bonds.
The District will furnish the Initial Purchaser with a complete transcript of proceedings held incident to the authorization and issuance of the Bonds, including the approving opinion of the Attorney General of the State of Texas as recorded in the Bond Register of the Comptroller of Public Accounts of the State, to the effect that the Bonds are valid and legally binding Bonds of the District under the Constitution and laws of the State. The District will also furnish the approving legal opinion of Bond Counsel in substantially the form attached hereto as Appendix C.
In its capacity as Bond Counsel, McCall, Parkhurst & Horton L.L.P. has not independently verified any of the factual information contained in this Official Statement nor have they conducted an investigation of the affairs of the District for the purpose of passing upon the accuracy or completeness of this Official Statement. Bond Counsel’s role in connection with the Official Statement was limited to reviewing the information describing the Bonds in the Official Statement to verify that such descriptions conform to the provisions of the Bond Resolution. No person is entitled to rely upon such firm’s limited participation as an assumption of responsibility for, or an expression of opinion of any kind with regard to, the accuracy or completeness of any of the information contained herein.
The legal fee to be paid to Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the book-entry-only system.
The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment of the transaction opined upon, or of the future performance of the parties to the transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.
No-Litigation Certificate
The District will furnish the Initial Purchaser certificate, dated as of the date of delivery of the Bonds, executed by both the President and the Secretary of the Board of Port Commissioners of the District, to the effect that no litigation of any nature is then pending or threatened in any court, restraining or enjoining the issuance or delivery of the Bonds; affecting the provisions made for the payment of or security for the Bonds; in any manner questioning the authority or proceeding for the issuance, execution or delivery of the Bonds; or affecting the validity of the Bonds.
TAX MATTERS Opinion
On the date of initial delivery of the Bonds, McCall, Parkhurst & Horton L.L.P., Austin, Texas, Bond Counsel, will render its opinion that, in accordance with statutes, regulations, published rulings and court decisions existing on the date thereof (“Existing Law”), interest on the Bonds, for federal income tax purposes, will be excludable from the “gross income” of the holders thereof except for any holder who is treated pursuant to section 147(a) of the Internal Revenue Code of 1986 (the "Code") as a "substantial user" of the facilities financed with the Bonds or, a "related person" to such user. Except as stated above, Bond Counsel will express no opinion as to any other federal, state or local tax consequences of the purchase, ownership or disposition of the Bonds. See “APPENDIX C – Form of Opinion of Bond Counsel.”
In rendering their opinion, Bond Counsel (a) will rely upon information furnished by the District, and particularly written representations of the District with respect to certain material facts that are solely within its knowledge relating to the use of the proceeds of the Bonds, and the construction, use and management of the facilities financed with the Bonds and (b) will
15 assume continuing compliance with covenants of the Issuer with respect to arbitrage, the application of the proceeds to be received from the issuance and sale of the Bonds and certain other matters. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied subsequent to the issuance of the Bonds in order for interest on the Bonds to be, and to remain, excludable from gross income for federal income tax purposes. Although it is expected that the Bonds will qualify as tax-exempt obligations for federal income tax purpose as of the date of issuance, the tax-exempt status of the Bonds could be affected by future events. However, future events beyond the control of the Issuer, as well as the failure to observe the aforementioned representations or covenants, could cause the interest on the Bonds to become taxable retroactively to the date of issuance of the Bonds. The opinion of Bond Counsel is conditioned on compliance by the Issuer with such requirements, and Bond Counsel has not been retained to monitor compliance with these requirements subsequent to the issuance of the Bonds.
Bond Counsel’s opinion represents its legal judgment based upon its review of Existing Law and the reliance on the aforementioned information, representations and covenants. Bond Counsel’s opinion is not a guarantee of a result. Existing Law is subject to change by the Congress and to subsequent judicial and administrative interpretation by the courts and the Department of the Treasury. There can be no assurance that such Existing Law or the interpretation thereof will not be changed in a manner which would adversely affect the tax treatment of the purchase, ownership or disposition of the Bonds.
A ruling was not sought from the Internal Revenue Service by the District with respect to the Bonds or the property financed or refinanced with proceeds of the Bonds. No assurances can be given as to whether the Internal Revenue Service will commence an audit of the Bonds, or as to whether the Internal Revenue Service would agree with the opinion of Bond Counsel. If an Internal Revenue Service audit is commenced, under current procedures the Internal Revenue Service is likely to treat the District as the taxpayer and the Bondholders may have no right to participate in such procedure. No additional interest will be paid upon any determination of taxability.
Federal Income Tax Accounting Treatment of Original Issue Discount
The initial public offering price to be paid for one or more maturities of the Bonds may be less than the principal amount thereof or one or more periods for the payment of interest on the Bonds may not be equal to the accrual period or be in excess of one year (the “Original Issue Discount Bonds”). In such event, the difference between (i) the “stated redemption price at maturity” of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond would constitute original issue discount. The “stated redemption price at maturity” means the sum of all payments to be made on the Bonds less the amount of all periodic interest payments. Periodic interest payments are payments which are made during equal accrual periods (or during any unequal period if it is the initial or final period) and which are made during accrual periods which do not exceed one year.
Under Existing Law, any owner who has purchased such Original Issue Discount Bond in the initial public offering is entitled to exclude from gross income (as defined in section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the accrual period. For a discussion of certain collateral federal tax consequences, see discussion set forth below.
In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income.
Under Existing Law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner’s basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to the basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Original Issue Discount Bond.
The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of the treatment of interest accrued
16 upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Original Issue Discount Bonds.
Collateral Federal Income Tax Consequences
The following discussion is a summary of certain collateral federal income tax consequences resulting from the purchase, ownership or disposition of the Bonds. This discussion is based on Existing Law, which is subject to change or modification, retroactively.
The following discussion is applicable to investors, other than those who are subject to special provisions of the Code, such as financial institutions, property and casualty insurance companies, life insurance companies, individual recipients of Social Security or Railroad Retirement benefits, individuals allowed an earned income credit, certain S corporations with accumulated earnings and profits and excess passive investment income, foreign corporations subject to the branch profits tax, taxpayers qualifying for the health insurance premium assistance credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase tax-exempt obligations.
THE DISCUSSION CONTAINED HEREIN MAY NOT BE EXHAUSTIVE. INVESTORS, INCLUDING THOSE WHO ARE SUBJECT TO SPECIAL PROVISIONS OF THE CODE, SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF BONDS BEFORE DETERMINING WHETHER TO PURCHASE THE BONDS.
Interest on the Bonds is an item of tax preference, as defined in section 57(a)(5) of the Code, for purposes of determining the alternative minimum tax imposed on individuals and corporations by section 55 of the Code.
Under section 6012 of the Code, holders of tax-exempt obligations, such as the Bonds, may be required to disclose interest received or accrued during each taxable year on their returns of federal income taxation.
Section 1276 of the Code provides for ordinary income tax treatment of gain recognized upon the disposition of a tax-exempt obligation, such as the Bonds, if such obligation was acquired at a “market discount” and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue. Such treatment applies to “market discount bonds” to the extent such gain does not exceed the accrued market discount of such bonds; although for this purpose, a de minimis amount of market discount is ignored. A “market discount bond” is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the “revised issue price” (i.e., the issue price plus accrued original issue discount). The “accrued market discount” is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation to the number of days between the acquisition date and the final maturity date.
Future and Proposed Legislation
Tax legislation, administrative actions taken by tax authorities, or court decisions, whether at the Federal or state level, may adversely affect the tax-exempt status of interest on the Bonds under Federal or state law and could affect the market price or marketability of the Bonds. Any such proposal could limit the value of certain deductions and exclusions, including the exclusion for tax-exempt interest. The likelihood of any such proposal being enacted cannot be predicted. Prospective purchasers of the Bonds should consult their own tax advisors regarding the foregoing matters.
Information Reporting and Backup Withholding
Subject to certain exceptions, information reports describing interest income, including original issue discount, with respect to the Bonds will be sent to each registered holder and to the Internal Revenue Service. Payments of interest and principal may be subject to backup withholding under section 3406 of the Code if a recipient of the payments fails to furnish to the payor such owner's social security number or other taxpayer identification number (“TIN”), furnishes an incorrect TIN, or otherwise fails to establish an exemption from the backup withholding tax. Any amounts so withheld would be allowed as a credit against the recipient’s federal income tax. Special rules apply to partnerships, estates and trusts, and in certain circumstances, and in respect of non-U.S. holders, certifications as to foreign status and other matters may be required to be provided by partners and beneficiaries thereof.
17
State, Local and Foreign Taxes
Investors should consult their own tax advisors concerning the tax implications of the purchase, ownership or disposition of the Bonds under applicable state or local laws. Foreign investors should also consult their own tax advisors regarding the tax consequences unique to investors who are not United States persons.
CONTINUING DISCLOSURE OF INFORMATION
In the Order, the District has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The District is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the District will be required to provide certain financial information and operating data which is customarily prepared by the District and is publically available and timely notice of certain specified events to the Municipal Securities Rulemaking Board (the “MSRB”).
Such information will be provided in an electric format, as prescribed by the MSRB, and will be made available free of charge via the Electronic Municipal Market Access (“EMMA”) system at www.emma.msrb.org.
Annual Reports
The District shall provide annually to the MSRB, (1) within six (6) months after the end of each Fiscal Year of the District ending in or after 2018, financial information and operating data with respect to the District of the general type included in this Official Statement under the Schedules in Appendix A attached hereto numbered 2 through 8 and including financial statements of the District if audited financial statements of the District are then available, and (2) if not provided as part of such financial information and operating data, audited financial statements of the District, when and if available. Any financial statements so to be provided shall be (i) prepared in accordance with the accounting principles described in the rules to the financial statements for the most recently concluded Fiscal Year, or such other accounting principles as the District may be required to employ, from time to time, by State law or regulation, and (ii) audited, if the District commissions an audit of such statements and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within 12 months after any such fiscal year end, then the District shall file unaudited financial statements within such 12-month period and audited financial statements for the applicable fiscal year, when and if the audit report on such statements becomes available.
The District may provide updated information in full text or may incorporate by reference documents available on EMMA or filed with the U.S. Securities and Exchange Commission (the “SEC”).
The District’s current fiscal year end is July 31. Accordingly, it must provide updated information by the last day of January in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify the MSRB of the change.
Event Notices
The District will also provide to the MSRB notices of certain events on a timely basis no later than 10 business days after the event. The District will provide notice of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership, or similar event of the District; (13) the consummation of a merger, consolidation, or acquisition involving the District or the sale of all or substantially all of the assets of the District, other than in the ordinary course of business, the entry into of a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of the trustee, if material. (Neither the Bonds nor the Order make any provision for a trustee.)
18
Limitations and Amendments
The District has agreed to update information and to provide notices of material events only as described above. The District has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The District makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although holders of Bonds may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the District (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the registered and beneficial owners of the Bonds. The District may also repeal or amend the provisions of its continuing disclosure agreement if the SEC amends or repeals the applicable provisions of the Rule or any court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the District also may amend the provisions of its continuing disclosure agreement in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling the Bonds in the primary offering of the Bonds, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the District so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under “Annual Reports” an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided.
Compliance with Prior Undertakings
In connection with prior transactions, the District has entered into undertakings pursuant to which it agreed to provide certain continuing disclosure information and notices of material events. The District is required to file, within six months after the end of each fiscal year, certain audited financial information and operating data. The District’s fiscal year ends on July 31, and filings are required by the end of January of the following year. For the fiscal years ended in July 31, 2012, through July 31, 2015, the District did not timely file audited or unaudited financial statements. Audited financial statements for July 31, 2012 were filed on March 22, 2013, for July 31, 2013 were filed on March 11, 2014, for July 31, 2014 were filed on April 29, 2015 and for July 31, 2015 were filed on March 9, 2016. The District filed a notice of its failure to timely file its audited financial statements for July 31, 2015 on March 14, 2016. The District filed notice of its failure to timely file its audited financial statements for July 31, 2012 through July 31, 2014 on July 27, 2016. Working through its Financial Advisor, the District agrees to make future annual filings and notice filings in a timely manner.
OTHER INFORMATION
Municipal Rating
Moody’s Investors Service (“Moody’s) assigned its municipal bond rating of “Aa3” to this issue of Bonds. An explanation of the rating may be obtained from Moody’s. The rating reflects only the view of Moody’s and the District makes no representation as to the appropriateness of the rating. There is no assurance that such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by Moody’s, if in the judgment of Moody’s, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Bonds.
Financial Advisor
USCA Municipal Advisors, LLC (“USCA”), a subsidiary of U.S. Capital Advisors, LLC, is employed as Financial Advisor to the District in connection with the issuance of the Bonds. The Financial Advisor’s fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. USCA, in its capacity as Financial Advisor, has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies.
19
USCA has reviewed the information in this Official Statement in accordance with its responsibilities to the District and, as applicable, to investors under federal securities laws as applied to the facts and circumstances of this transaction, but USCA does not guarantee the accuracy or completeness of such information.
Initial Purchaser
After requesting competitive bids for the Bonds, the District has accepted a bid tendered by ______(the “Initial Purchaser”) to purchase the Bonds at the rates shown on the inside cover page of this Official Statement at a price of $______, (which reflects the par amount of the Bonds $______, plus a net premium of $ ______). No assurance can be given that any trading market will be developed for the Bonds after their initial sale by the District. The District has no control over the prices at which the Bonds will initially be re-offered to the public.
The Initial Purchaser has reviewed the information in this Official Statement pursuant to its responsibilities to investors under the federal securities law, but the Initial Purchaser does not guarantee the accuracy or completeness of such information.
GENERAL CONSIDERATIONS
Prices and Marketability
The delivery of the Bonds is conditioned upon the receipt by the District of a certificate executed and delivered by the Initial Purchaser on or before the date of delivery of the Bonds, stating the prices at which a substantial amount of the Bonds of each maturity have been sold to the public. For this purpose, the term “public” shall not include any person who is a bondhouse, broker, dealer, or similar person acting in the capacity of Initial Purchaser or wholesaler. The District has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Initial Purchaser at the yields specified on the inside cover page of this Official Statement. Information concerning reoffering yields or prices is the responsibility of the Initial Purchaser.
The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Initial Purchaser after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts.
Legal Investments and Eligibility to Secure Public Funds in Texas
Pursuant to the Texas Public Securities Act, Chapter 1201, Texas Government Code, as amended, the Bonds, whether rated or unrated, are legal and authorized investments for insurance companies, fiduciaries or trustees, and for municipalities and other political subdivisions or public agencies. Most political subdivisions in the State are required to adopt investment guidelines under the Public Funds Investment Act, Chapter 2256, Texas Government Code, and such political subdivisions may impose a requirement consistent with such act that the Bonds have a rating of not less than “A” or its equivalent to be legal investments of such entity’s funds. The “Public Funds Collateral Act,” Chapter 2257, Texas Government Code, provides that deposits of public funds, as defined in such chapter, must be secured by eligible security. “Eligible Security” is defined to include local government obligations (such as the Bonds) with a rating from a nationally recognized investment firm of “A” or its equivalent. See “OTHER INFORMATION – Municipal Rating” herein.
The District makes no representation that the Bonds will be acceptable to public entities to secure their deposits, or acceptable to any such entities or institutions for investment purposes. No review by the District has been made of the laws in other states to determine whether the Bonds are legal investments for various institutions in those states.
Securities Laws
No registration statement relating to the Bonds has been filed with the United States Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction. The District assumes no responsibility for registration or qualification of the Bonds under the securities laws of any other jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions.
20
Sources and Compilation of Information
The information contained in this Official Statement has been obtained primarily from the District and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the District. This is no guarantee that any of the assumptions or estimates contained herein will be realized. The summaries of the statutes, the Order and other related documents are included herein subject to all the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information.
Forward-Looking Statements
The statements contained in this Official Statement, and in any other information provided by the District, that are not purely historical, are forward-looking statements, including statements regarding the District’s expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the District on the date hereof, and the District assumes no obligation to update any such forward-looking statements.
The District’s actual results could differ materially from those in such forward-looking statements. The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the District. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate.
Approval of the Official Statement
This Official Statement has been “deemed final” by the District as of its date except for the omission of no more than the information permitted by Rule 15c2-12. The Order will approve the form and content of this Official Statement and any addenda, supplement or amendment thereto and authorize use in the re-offering of the Bonds by the Initial Purchaser.
Certification of the Official Statement
At the time of payment for and delivery of the Bonds, the District will furnish a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the District contained in this Official Statement, and any addenda, supplement or amendment thereto, on the date of such Official Statement, on the date of sale of the Bonds and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the District and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities, other than the District, and their activities contained in this Official Statement are concerned, such statements and data have been obtained from sources which the District believes to be reliable and the District has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the District since the date of the last audited financial statements of the District.
The Order approved the form and content of this Official Statement and any addenda, supplement or amendment thereto and authorized its further use in the reoffering of the Bonds by the Initial Purchaser.
Audited Financial Statements
Brammer, Begnaud & Lattimore, the District’s independent auditor, has not reviewed, commented on, or approved, and is not associated with, this Official Statement. The report of Brammer, Begnaud & Lattimore, relating to the District’s financial statements for the fiscal year ended July 31, 2016 is included in this Official Statement in APPENDIX B; however, Brammer, Begnaud & Lattimore, has not performed any procedures on such financial statements since the date of such report, and has not performed any procedures on any other financial information of the District, including without limitation, any of the
21 information contained in this Official Statement, and has not been asked to consent to the inclusion of its report, or otherwise be associated with this Official Statement.
MISCELLANEOUS
All information contained in this Official Statement is subject in all respects to the complete information contained in the original sources thereof. No opinions, estimates or assumptions whether or not expressly identified as such, should be considered statements of fact. Statements made herein regarding the Bonds are qualified in their entirety by reference to the forms thereof included in the Order and the information with respect thereto included in the Order. This Official Statement was approved by the Board of Port Commissioners.
PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS
/s/ ______President, Board of Port Commissioners ATTEST:
/s/ ______Secretary, Board of Port Commissioners
22
APPENDIX A
FINANCIAL INFORMATION AND DEBT INFORMATION
[THIS PAGE INTENTIONALLY LEFT BLANK]
Schedule 1 - Pro-Forma Debt Service
The following table reflects the debt service on the District’s outstanding ad valorem obligations including the Bonds.
The Bonds* FYE Outstanding Interest Total 7/31 Debt Service Principal Rate (a) Interest Total Debt Service 2018$ 5,691,199 $ - - $ 465,263 $ 465,263 $ 6,156,462 2019 5,483,450 200,000 5.000% 2,617,106 2,817,106 8,300,556 2020 4,773,550 - - 2,607,106 2,607,106 7,380,656 2021 4,515,050 200,000 5.000% 2,607,106 2,807,106 7,322,156 2022 4,508,450 200,000 5.000% 2,597,106 2,797,106 7,305,556 2023 4,494,150 200,000 5.000% 2,587,106 2,787,106 7,281,256 2024 4,502,300 200,000 5.000% 2,577,106 2,777,106 7,279,406 2025 4,492,100 200,000 5.000% 2,567,106 2,767,106 7,259,206 2026 4,465,675 200,000 5.000% 2,557,106 2,757,106 7,222,781 2027 1,851,000 1,680,000 5.000% 2,547,106 4,227,106 6,078,106 2028 1,855,250 1,765,000 5.000% 2,463,106 4,228,106 6,083,356 2029 1,852,250 1,850,000 5.000% 2,374,856 4,224,856 6,077,106 2030 1,852,250 1,945,000 5.000% 2,282,356 4,227,356 6,079,606 2031 1,855,000 2,040,000 5.000% 2,185,106 4,225,106 6,080,106 2032 1,852,663 2,145,000 5.000% 2,083,106 4,228,106 6,080,769 2033 1,853,069 2,250,000 5.000% 1,975,856 4,225,856 6,078,925 2034 1,855,969 2,365,000 5.000% 1,863,356 4,228,356 6,084,325 2035 1,852,469 2,480,000 5.000% 1,745,106 4,225,106 6,077,575 2036 1,852,744 2,605,000 5.000% 1,621,106 4,226,106 6,078,850 2037 1,855,150 2,735,000 4.375% 1,490,856 4,225,856 6,081,006 2038 1,850,925 2,855,000 4.000% 1,371,200 4,226,200 6,077,125 2039 1,853,675 2,970,000 4.000% 1,257,000 4,227,000 6,080,675 2040 1,854,550 3,090,000 4.000% 1,138,200 4,228,200 6,082,750 2041 1,855,150 3,210,000 4.000% 1,014,600 4,224,600 6,079,750 2042 1,853,550 3,340,000 4.000% 886,200 4,226,200 6,079,750 2043 1,854,750 3,475,000 4.000% 752,600 4,227,600 6,082,350 2044 1,853,550 3,615,000 4.000% 613,600 4,228,600 6,082,150 2045 1,854,950 3,755,000 4.000% 469,000 4,224,000 6,078,950 2046 1,855,819 3,905,000 4.000% 318,800 4,223,800 6,079,619 2047 1,854,169 4,065,000 4.000% 162,600 4,227,600 6,081,769 Total$ 81,854,824 $ 59,540,000 $ 51,797,832 $ 111,337,832 $ 193,192,656
(a) Interest rates shown for illustrative purposes only. *Preliminary. Subject to change.
A-1
Schedule 2 – Tonnage by Commodities (unaudited)
Commodity 2016 2015 2014 2013 2012 Wood Pellets 393,543 418,751 333,319 - - Linerboard 69,307 100,017 76,640 94,398 80,370 Gasoline 74,696 139,269 7,077 14,195 - Other Cargo 610 309 - - - Pipe - 1,887 - - 4,595 Napatha - 18,393 - 55,874 - Bio Diesel - 6,072 - - - Woodpulp-Roles & Bales - - - 5,944 3,703 Project Cargo 93 1,341 379 857 409 FAME 7,755 - - - - Military Cargo 18,802 - 15 170 31,050 Total Exports 564,806 686,039 417,430 171,438 120,127
Project Cargo 5,649 4,069 73 3,054 - Rail-Heat TR - 4,988 - - - Woodpulp 282,059 322,542 264,854 250,464 217,060 Ultra low SU - - 4,964 - 7,613 Other Cargo 252 - 385 189 284 Wood Pellets 6,956 - - - - Steel/Aluminum Products - - - 11,007 5,008 Military Cargo 10,448 5,799 15,431 3,330 31,223 Containers 1,692 - 13 - - Total Imports 307,056 337,398 285,720 268,044 261,188
Total Tonage 871,862 1,023,437 703,150 439,482 381,315
Schedule 3 – Vessel Counts (unaudited)
Vessel Counts 2016 2015 2014 2013 2012
Ships 44 93 80 55 48 Layberths 155 138 107 78 41 Tugs 3 - - - - Barges 9 50 6 18 5 Railcars 4,262 3,885 3,861 4,077 3,956 Trucks 6,373 5,040 6,241 3,983 4,533 Lightering 49 8 - - - Totals 10,895 9,214 10,295 8,211 8,583
A-2
Schedule 4 – Taxable Assessed Value by Category
TABLE 2 - TAXABLE ASSESSED VALUATIONS BY CATEGORY
Taxable Appraised Value for Tax Year 2017 2016 2015 2014 2013 Category Amount % Amount % Amount % Amount % Amount % Real Property Residential, Single-Family$ 1,136,437,973 10.76%$ 1,108,642,454 10.50%$ 1,091,529,945 10.21%$ 1,063,949,301 9.54%$ 1,055,721,996 8.76% Residential, Multi-Family 179,784,980 1.70% 174,845,390 1.66% 156,130,105 1.46% 146,456,130 1.31% 141,652,462 1.17% Vacant Lots/Tracts 49,965,236 0.47% 59,279,437 0.56% 59,630,261 0.56% 53,974,002 0.48% 55,655,783 0.46% Acreage (Land Only) 26,808,490 0.25% 27,764,400 0.26% 28,104,580 0.26% 32,699,200 0.29% 34,085,340 0.28% Farm and Ranch Improvements 64,987,050 0.62% 63,867,140 0.60% 64,482,400 0.60% 67,564,876 0.61% 65,254,762 0.54% Commmercial 531,505,705 5.03% 525,162,635 4.97% 518,936,962 4.85% 507,185,053 4.55% 514,050,685 4.26% Industrial 6,458,662,944 61.15% 6,903,935,530 65.36% 7,152,225,650 66.87% 7,493,433,596 67.17% 8,175,120,740 67.81% Real, Minerals, Oil and Gas 7,694,669 0.07% 7,064,798 0.07% 12,126,770 0.11% 20,391,582 0.18% 22,054,589 0.18%
Personal Property Utilities $ 137,766,800 1.30%$ 134,047,930 1.27%$ 136,557,310 1.28%$ 125,854,660 1.13%$ 123,779,000 1.03% Commercial 300,929,262 2.85% 287,849,816 2.73% 293,135,729 2.74% 302,691,150 2.71% 425,434,620 3.53% Industrial 852,970,400 8.08% 842,214,790 7.97% 1,105,314,750 10.33% 1,473,602,180 13.21% 1,597,971,810 13.25% Other Personal 25,715,160 0.24% 18,321,550 0.17% 387,800 0.00% 401,850 0.00% 13,450,700 0.11% Total Exempt Property 788,913,425 7.47% 542,917,775 5.14% 537,465,344 5.02% 767,778,142 6.88% 358,959,839 2.98% Total Appraised Value$ 10,562,142,094 100.00%$ 10,695,913,645 101.27%$ 11,156,027,606 104.30%$ 12,055,981,722 108.07%$ 12,583,192,326 104.37%
Less: Exemptions Homestead cap$ 1,223,057 $ 1,294,435 $ 1,107,892 $ 1,849,950 $ 1,336,024 Agricultural Exemptions 25,692,140 26,708,960 27,151,520 31,950,660 33,743,890 Tax Abatements 2,751,947,990 3,115,133,500 3,333,004,940 3,390,294,416 3,822,275,620 Homestead Exemptions 301,812,284 284,480,982 337,954,642 332,838,394 325,383,347 Disabled Exemptions 33,829,055 60,163,223 10,067,775 8,707,958 7,623,054 Primarily Charitable org. 1,207,643 1,116,340 69,020 69,020 - Pollution Control Property 949,101,055 1,011,158,211 1,018,099,919 1,036,481,460 1,002,129,960 Other exempt property 827,757,513 598,299,144 616,491,044 830,567,327 528,387,863 Total Deductions 4,892,570,737 5,098,354,795 5,343,946,752 5,632,759,185 5,720,879,758
Net Taxable Value 5,669,571,357 5,597,558,850 $ 5,812,080,854 $ 6,423,222,537 $ 6,862,312,568 - NOTE: Valuations shown are certified taxable assessed values reported by the Jefferson County Appraisal District to the State Comptroller of Public Accounts. Certified values are subject to change throughout the year as contested values are resolved and the Appraisal District updates records. Beginning 2013, market values are provided. Prior years are shown at appraised values.
Schedule 5 – Tax Levies, Collections and Delinquencies
Tax Assessed Debt Service Maintenance Total Total AmountPercent Collected FYE Year Valuation Tax Tax Tax Rate Levy Collected Current Total 7/31 2012$ 8,591,116,144 $ 0.0413 $ 0.0868 $ 0.1281 $ 11,013,811 $ 10,974,605 98.76% 99.68% 2013 2013 6,860,976,544 0.0517 0.1130 0.1647 11,302,229 11,038,091 97.91% 97.67% 2014 2014 6,418,197,149 0.0554 0.1590 0.2144 13,771,389 13,586,632 97.94% 98.75% 2015 2015 6,116,509,742 0.0566 0.1000 0.1566 9,581,033 8,504,129 93.38% 98.76% 2016 2016 5,597,558,850 0.0923 0.0743 0.1666 9,331,225 9,015,293 95.77% 96.61% 2017 2017 5,669,571,357 0.0900 0.0794 0.1694 9,603,687 In process of collection 2018
(a) Source: Port of Port Arthur Navigation District of Jefferson County.
(Remainder of the page intentionally left blank)
A-3
Schedule 6 – Ten Largest Taxpayers
Percent of 2017 Taxable Type of Total Taxable Ten Largest Taxpayers Assessed Value Business Assessed Value Motiva Refinery$ 1,617,612,065 Oil Refinery and Storage 28.53% The Premcor Refining Group 780,899,754 Petroleum Refining 13.77% Chevron Phillips Chemical Co. 279,336,669 Chemicals 4.93% Enterprise Texas Pipeline LP 212,535,140 Energy Services 3.75% Flint Hills Resources LP 170,307,662 Refining & Chemicals 3.00% Air Products & Chemicals LP 166,276,730 Chemicals 2.93% Praxair Inc. 108,337,810 Specialty Gas and Coatings 1.91% Chevron USA Inc. 90,608,080 Oil Refinery and Storage 1.60% Entergy Texas Inc. 53,228,090 Electrical Utility 0.94% MPT of Port Arthur LLC 50,536,070 Medical Facilities 0.89% $ 3,529,678,070 62.26%
2017 Total Taxable Assessed Value$ 5,669,571,357
Schedule 7 – Statement of Net Assets
For Fiscal Year Ended July 31st 2016 2015 2014 2013 2012 ASSETS Current Assets$ 38,824,237 $ 34,427,969 $ 31,224,861 $ 24,503,682 $ 22,658,591 Restricted Assets 5,464,507 6,151,664 1,921,640 5,748,411 5,775,520 Capital Assets 67,667,558 68,513,979 65,680,755 66,081,237 65,457,229 Other Assets 1,202,086 2,601,319 1,186,882 498,597 375,728 TOTAL ASSETS $ 113,158,388 $ 111,694,931 $ 100,014,138 $ 96,831,927 $ 94,267,068
LIABILITIES Current Liabilities$ 4,296,889 $ 4,362,910 $ 4,122,462 $ 4,805,176 $ 3,739,054 Long Term Debt Net of Current Portion 24,490,287 26,603,479 28,612,080 30,904,068 33,101,804 Other Liabilities 6,304 7,880 - - - TOTAL LIABILITIES $ 28,793,480 $ 30,974,269 $ 32,734,542 $ 35,709,244 $ 36,840,858
NET ASSETS Invested in Capital Assets, net of Related Debt$ 40,363,818 $ 38,812,063 $ 34,415,137 $ 32,971,445 $ 30,551,773 Net Assets Restricted for Debt Service 1,283,017 1,441,952 1,859,933 5,676,816 5,684,043 Net Assets Restricted for Promotion and Development 358,429 259,068 167,402 96,826 91,969 Restricted for Insurance Escrow 200,000 200,000 200,000 180,000 180,000 Restricted for Debt Service Reserve Fund 3,882,288 4,580,393 874,618 - - Unrestricted 38,277,356 35,427,186 29,762,507 22,197,596 20,918,425 TOTAL NET ASSETS $ 84,364,908 $ 80,720,662 $ 67,279,597 $ 61,122,683 $ 57,426,210
A-4
Schedule 8 – Statement of Revenues and Expenditures
For Fiscal Year Ended July 31 2016 2015 2014 (1) 2013 (1) 2012 Operating Revenues Loading and Unloading $ 2,661,113 $ 2,667,616 $ 2,314,538 $ 2,080,301 $ 1,929,654 Wharfage 542,651 741,831 287,749 249,955 284,501 Dockage 2,664,204 2,749,180 2,065,340 1,455,741 1,014,337 Line Handling 292,175 301,475 236,720 144,400 96,900 Shed/Pier Hire 67,200 57,085 73,100 80,100 57,505 Cleaning 111,200 113,770 116,750 76,800 70,200 Gantry Crane Use 62,100 18,850 36,275 28,975 34,625 Security Surcharge 306,059 297,430 228,244 210,469 332,283 Other 195,975 93,086 174,841 40,220 73,074 Storage Fees 27,795 2,845 21,679 7,054 28,035 Terminal/Warehouse Lease 149,610 198,570 786,421 600,044 1,188,607 Property Rental 65,360 76,360 113,960 71,342 469,997 Total Revenues $ 7,145,442 $ 7,318,098 $ 6,455,617 $ 5,045,401 $ 5,579,718
Operating Expenditures Salaries$ 1,822,614 $ 1,672,630 $ 1,644,566 $ 1,523,654 $ 1,445,492 Properties and Facility Maintenance 2,758,432 1,007,561 1,039,533 1,235,171 887,255 Depreciation 2,734,518 2,828,159 2,718,293 2,665,149 2,688,178 Loading/Unloading 2,279,214 2,290,010 2,075,924 1,780,562 1,710,158 Other 2,916,926 2,480,656 2,548,778 4,498,999 2,958,442 Total Operating Expenditures$ 12,511,704 $ 10,279,016 $ 10,027,094 $ 11,703,535 $ 9,689,525 Promotion and Development 287,341 285,991 267,728 280,224 266,224 Total Expenditures $ 12,799,045 $ 10,565,007 $ 10,294,822 $ 11,983,759 $ 9,955,749
Operating Gain (Loss) $ (5,653,603) $ (3,246,909) $ (3,839,205) $ (6,938,358) $ (4,376,031)
Non-operating Revenues (Expenses) Property Taxes$ 8,945,569 $ 13,346,417 $ 10,800,724 $ 10,355,456 $ 9,018,961 Interest Revenue 327,768 210,911 140,342 195,785 226,794 Interest Expense (1,423,717) (1,515,558) (1,599,751) (1,679,616) (1,843,091) (Loss on) Disposal of Assets, Pass through, Lawsuit 1,215,783 76,875 - - Other 1,344,800 145,842 254,929 647,899 417,885 Net Non-operating Revenue (Expense)$ 9,194,420 $ 13,403,395 $ 9,673,119 $ 9,519,524 $ 7,820,549
Income before Capital Grants$ 3,540,817 $ 10,156,486 $ 5,833,914 $ 2,581,166 $ 3,444,518
Capital Grants and Contributions 103,430 3,284,581 322,998 1,115,307 16,052
Excess of Revenue over Expenditures $ 3,644,247 $ 13,441,067 $ 6,156,912 $ 3,696,473 $ 3,460,570
Net Position beginning of year$ 80,720,662 $ 67,279,595 $ 61,122,683 $ 57,426,210 $ 53,965,640 Net position end of year$ 84,364,909 $ 80,720,662 $ 67,279,595 $ 61,122,683 $ 57,426,210 ______(1) Restated.
A-5 [THIS PAGE INTENTIONALLY LEFT BLANK]
APPENDIX B
SELECTED DATA FROM ANNUAL FINANCIAL REPORT PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS FISCAL YEAR ENDED JULY 31, 2016
[THIS PAGE INTENTIONALLY LEFT BLANK] Port of Port Arthur Navigation District of J efferson County, Texas
Annual Financial Report For the Year Ended July 31, 2016 Annual Financial Report
Port of Port Arthur Navigation District Of Jefferson County, Texas
For the Year Ended July 31, 2016
Board of Commissioners
Mr. John Comeaux - President Mr. Raymond C. Johnson - Vice President Mrs. Linda Turner Spears - Secretary/Treasurer Mr. Mark Underhill- Commissioner Mr. Norris Simon, Jr. - Commissioner
Mr. Floyd Gaspard Port Director, CEO
Mr. Larry Kelley Deputy Port Director
Mrs. Judy A. Bettis Director of Finance PORT OF PORT ARTHUR NAVIGATION DISTRICT Table of Contents OF JEFFERSON COUNTY, TEXAS July 31, 2016
Tables Page INTRODUCTORY SECTION
Table of Contents
FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis 4 Basic Financial Statements: Statement of Net Position 14 Statement of Revenues, Expenses and Changes In Net Position 16 Statement of Cash Flows 17 Notes to Financial Statements 19 Required Supplemental Information Schedule of Changes in Net Pension Liability and Related Ratios 37 Schedule of Employer Contributions 38 SUPPLEMENTAL SCHEDULES Schedule ofInsurance in Force 39 Statement of Revenues and Expenses - Actual and Budget 41 General Long-Term Debt Requirements--By Years 43 Schedule of Cash and Investments 45 Securities Pledged by Wells Fargo Bank, N.A., as Securities for Deposits 47 STATISTICAL SECTION (UNAUDITED) Tonnage Report by Commodity by Years (Short Tons) 48 Vessel Counts 2 48 Outstanding Debt Payable from Ad Valorem Taxes 3 49 District Tax Rates 4 49 Taxable Assessed Valuation by Category 5 50 Tax Levies, Collections and Delinquencies 6 51 Ten Largest Taxpayers 7 52 Statement of Revenues and Expenditures - Revenue Fund 8 53
Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards 54
-i- Financial Section !?}~k gnaUd & Lattimore, CPAs III a professiona/services firm
INDEPENDENT AUDITOR'S REPORT
December 19,2016
Port Commissioners Port of Port Arthur Navigation District of Jefferson County, Texas Port Arthur, Texas
Report on the Financial Statements
We have audited the accompanying financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas, as of for the years ended July 31, 2016 and 2015, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with aUditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditor's judgment, including the assessment ofthe risk of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
------3240 Central Mall Drive, Port Arthur, Texas 776421 to 409-983-16691 .. 409-724-0452 www.bblcpa.com Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Port of Port Arthur Navigation District of Jefferson County, Texas as of July 31, 2016 and 2015, and the changes in financial position and cash flo,,¥s for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 to 13 and other required supplementary information on pages 37 and 38 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic fmancial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consist of inquires of management about methods of preparing the information and comparing the information for consistency with management's responses to our inquires, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance
Supplementary and Other Information
Our audit was conducted for the purpose offorming an opinion on the financial statements that collectively comprise the Port of Port Arthur Navigation District's basic financial statements. The introductory section, supplementary schedules, and the statistical section listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial reporting.
The introductory and statistical section have not been subject to the aUditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated December 19, 2016 on our consideration of the District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over fmancial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or compliance. That report is an integral part of an audit performed in accordance with 2 Governmental Auditing Standards in considering the District's internal control over financial reporting and compliance.
~L-- P ~~-t L:;;;--~ Brammer, Begnaud & Lattimore
3 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) JULY 31, 2016
As management of the Port of Port Arthur Navigation District of Jefferson County, Texas (District), we offer readers as an introduction to the District's financial statements, this narrative overview and analysis of the District's activities and financial performance for the fiscal years ended July 31, 2016 and 2015. This discussion and analysis is designed to assist the reader in focusing on the significant financial issues and activities and to identify any significant changes in financial position. We encourage readers to consider the information presented here in conjunction with the District's financial statements taken as a whole. All amounts, unless otherwise indicated, are expressed in whole dollars.
FINANCIAL HIGHLIGHTS
• The total net position of the District at July 31, 2016 was $84,364,908. • The unrestricted net position of $38,277,356 may be used to meet the District's current ongoing obligations to employees and creditors and increased by $2,850,170 or approximately 8.0% over prior year. • The District's total net position increased $3,644,246 or 4.5% over the prior year. Of that amount, income before capital grants and contributions produced an increase of $3,540,817. This change is due to an increase in revenues, both operating and non-operating. • The District's total debt decreased in 2016 by ($2,180,789) or approximately (7.0%), the result of scheduled debt service payments.
OVERVIEW OF THE FINANCIAL STATEMENTS
The District's basic financial statements are comprised of the financial statements and notes to the financial statements. The basic financial statements and notes can be found on pages 14 through 36 of this report. Since the District is comprised of a single enterprise fund, no fund level financial statements are shown. This report also contains other supplementary and statistical information in addition to the basic financial statements themselves.
Basic Financial Statements
The basic financial statements are designed to provide readers with a broad overview of the District's finances, in a manner similar to a private-sector business. These statements offer short and long-term financial information about its activities.
The Statement of Net Position includes all of the District's assets, liabilities, deferred inflows/outflows of resources, and provides information about the nature and amounts of investments in resources (assets) and the obligations to District creditors (liabilities). The assets and liabilities are presented in a format, which distinguishes between current and long-term assets and liabilities. Net position increases when revenues exceed expenses. An increase in assets without a corresponding increase to liabilities, results in increased net position, which indicates an improved financial position.
4 The Statement of Revenue, Expenses and Net Position accounts for all the District's current year's revenues and expenses. All changes in net position is reported as soon as the underlying event occurs, regardless of timing or related cash flows. Thus revenue and expenses are reported in this statement for some items that will only result in cash flows in future periods (e.g., earned but unused vacation leave).
The Statement of Cash Flow primary purpose is to provide information about the District's cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing and financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period.
The notes provide additional information that is essential to a full understanding of the data provided in the financial statements.
Other Information
The basic financial statements include not only the District, but also its component units. The component unit is blended in the District's financial statements because of the significance of its operational and financial relationship with the District. The Port of Port Arthur Navigation District of Jefferson County, Texas includes the Port Arthur Navigation District Industrial Development Corporation (PANDIDC), whose operations are included in the Revenue Fund. The Pollution Control Bonds and Industrial Development Bonds issued through the PANDIDC are not reported as general long-term debt of, nor are the associated contract receivables included as assets of, the reporting entity. Disclosure of the bonds and full information regarding the nature of these special obligations are made in the notes. These bonds are not reported on the face of these financial statements due to the fact that they are not legally or morally obligations of the District. The Directors of the PANDIDC are appointed by the Port Commissioners.
In addition to the financial statements and accompanying notes, this report also presents certain statistical information and other supplemental information. Statistical information presented on a multi-year basis and other information including disclosures for compliance with the Securities and Exchange Rule 15c2-12 are presented for the purposes of additional analysis and are not a required part of the basic financial statements. Statistical and other information can be found on pages 37 through 53 of this report.
FINANCIAL ANAYLSIS
The fundamental question that is most asked of business is, as a whole, "Are you better off or worse off as a result of the year's activities?" The Statement of Net Position, and the Statement of Revenue, Expenses and Changes Net Position report information about the District's activities in a way that will answer this question. These two statements report the net position of the District and changes in them. You can think of the District's net positions - the difference between assets and liabilities - as one way to measure financial health or financial position. Over time, increases or decreases in the District's net positions are one indicator of whether its financial health is improving or deteriorating.
5 Statement of Net Position
The Statement of Net Position serves over time as a useful indicator of the District's financial health or position. It distinguishes assets and liabilities as to their expected use for operations, restricted purposes and capital investments. The following condensed Statement of Net Assets provides an overview of the District's net assets as of July 31,2016,2015 and 2014:
Statement of Net Position 100,014,138 2014 32734,542 $67,279,597
111,694,931 2015 30974,269 ••••••••••••••••••••• $80,720,662
113,158,388 2016 28793480 $84,364,908
$- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000
Tota I Assets Total Liabilities • Total Net Position Restated 2016-2015 2015-2014 Change Change 2016 2015 2014 Restated Restated Assets Current Assets 38,824,237 34,427,969 31,224,861 4,396,268 3,203,108 Restricted Assets 5,464,507 6,151 ,664 1,921,640 (687,157) 4,230,024 Capital Assets 67,667,558 68,513,979 65,680,755 (846,421) 2,833,224 Other Assets 1.202.086 2.601.319 1.186.882 (1.399.233) 1,414,437
Total Assets 113,158,388 111,694,931 100,014,138 1,463,457 11,680,793 Liabilities Current Liabilities 4,296,889 4,362,910 4122,462 (66,021 ) 240,448 Long Term Debt, Net of current Portion 24,490,287 26,603,479 28,612,080 (2,113,192) (2,008,601) Other Liabilities 6,304 7,880 o ( 1,576) 7,880
Total Liabilities 28,793,480 30,974,269 32,734,542 (2,180,789) (1,760,273) Net Position Invested in Capital Assets, net of Related Debt 40,363,818 38,812,063 34,415,137 1,551,755 4,396,926 Net Assets Restricted for Debt Service 1,283,017 1,441,952 1,859,933 (158,935) (417,981) Net Assets Restricted for Promotion & Development 358,429 259,068 167,402 99,361 91,666 Restricted for Insurance Escrow 200,000 200,000 200,000 o o Restricted for Debt Service Reserve Fund 3,882,288 4,580,393 874,618 (698,105) 3,705,775 874,618 Unrestricted 38.277.356 35,427,186 29,762.507 2,850.170 5.664.679
Total Net Position 84.364.908 80.720.662 67.279.597 3.644.246 ]3.44).065
6 2016 -2015
The District's net position of $84,364,908 at the close of 2016 increased by $3,644,246 over 2015. By far, the largest portion of the District's net position (47.8%) reflects its investment in capital assets, less any related outstanding debt used to acquire those assets. The District uses these capital assets to provide services to its customers and consequently, these assets are not available for future spending. Although the District's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The District's net position restricted for a debt service reserve fund (4.6%) represent resources for future principal and interest payments of long-term debt and contingent property tax refunds resulting from valuation changes. Unrestricted net position (45.37%) may be used to meet the District's ongoing obligations to employees and creditors. The remainder of the District's net position represents resources that are subject to external legal restrictions on how they may be used.
The District's total liabilities decreased by $2,180,789 (7%) over 2015. A decrease in long-term debt is the primary reason for the change.
2015 -2014
The District's net position of $80,720,662 at the close of 2015 increased by $13,441,065 over 2014. By far, the largest portion of the District's net position (48%) reflects its investment in capital assets, less any related outstanding debt used to acquire those assets. The District uses these capital assets to provide services to its customers and consequently, these assets are not available for future spending. Although the District's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The District's net position restricted for a debt service reserve fund (5.67%) represent resources for future principal and interest payments of long-term debt and contingent property tax refunds resulting from valuation issues. Unrestricted net position (43.89%) may be used to meet the District's ongoing obligations to employees and creditors. The remainder of the District's net position represents resources that are subject to external legal restrictions on how they may be used.
Statement of Revenues. Expenses. Change in Net Position
The Statement of Revenues, Expenses and Net Position serves as a measure to determine how successful the District was during the past year in recovering its costs through its terminal fees and other charges, as well as to its profitability and credit worthiness. The following Statement of Revenue, Expenses and Changes in Net Position summarize the operations of the District for the year ended July 31, 2016, 2015 and 2014:
7 16,000,000 Statement of Revenue, Expenses, Changes in Net Position
14,000,000 13,403,395$13,441,067 $12,799,045
12,000,000 $10,565,007 $10,294,822 ,119 10,000,000
8,000,000 7 ...... $6,156,912 6,000,000
$3,644,247 4,000,000
2,000,000 3 22,99 o
• Total Operating Revenues • Total Operating Expenses , Net Non-Operating Revenues (Exp.) • Capital Grants/Contributions 2016 - 2015 2015-2014 2016 2015 2014 Variance Variance Revenue Operating Revenues: Loading and Unloading $2,661,113 $2,667,616 $2,314,538 ($6,503) $353,078 Wharfage 542,651 741,831 287,749 (199,180) 454,082 Dockage 2,664,204 2,749,180 2,065,340 (84,976) 683,840 Security Surcharges 306,059 297,430 228,244 8,629 69,186 Line Handling 292,175 301,475 236,720 (9,300) 64,755 Shed and Pier Hire 67,200 57,085 73,100 10,115 (16,015) 111,200 113,770 116,750 (2,570) Cleaning (2,980) 62,100 18,850 36,275 43,250 Gantry Crane Use (17,425) Storage Fees 27,795 2,845 21,679 24,950 (18,834) Other Fees 195,975 93,086 174,841 102,889 (81,755) Property Rental 65 ,360 76,360 113,960 (11 ,000) (37,600) 149,610 198,570 786,421 (48,960) Terminal/Warehouse Lease (587,851) Total Operating Revenues 7,145,442 7,318,098 6,455,617 (172,656) 862,481
8 Expenses Operating Expenses: LoadinglUnloading Subcontractor Cost 2,279,214 2,290,010 2,075,924 (10,796) 214,086 Personnel 1,822,614 1,672,630 1,644,566 149,984 28,064 Property-Facility Maint. 2,758,432 1,007,561 1,039,533 1,750,871 (31,972) Depreciation/Amortization 2,734,518 2,828,159 2,718,293 (93,641.00) 109,866 Expense Promotion/Development Exp. 287,341 285,991 267,728 1,350 18,263 Other Operating Expenses 2,9 16,926 2,480,656 2,548,778 436,270 (68,122) Total Operating Expenses $12,799,045 $10,565,007 $10,294,822 $2,234,038 270,185
Operating Gain (Loss) (5,653,603) (3,246,909) (3,839,205) (2,406,694) 592,296
Non-Operating Revenues (Expenses)
Property Taxes 8,945,569 13,346,417 10,800,724 (4,400,848) 2,545,693 Interest Revenue 327,768 210,911 140,342 116,857 70,569 Interest Expense, net (1,423,717) (1,515,558) (1,599,751) 91,841 84,193 Gain/(Loss )-Asset Disposal, Lawsuit Storm Damages-FEMA Proceeds 1,080,026 1,215,783 76,875 (135,757) 1,138,908 Other Non-Operating Revenue (Expenses) 264,774 145,842 254,929 '118,932 (109,087) Net Non-Operating Revenues (Exp.) 9,194,420 13403395 9,673, 119 (4,208,975) 3,730276
Income Before Capital 3,540,817 10,156,486 5,833,914 (6,615,669) 4,322,572 Grants/Contributions
Capital Grants/Contributions 103,430 3,284,581 322,998 (3,181,151) 2,961,583
Changes in Net Position $3,644,247 $13,441,067 $6,156,912 ($9,796,820) 7,284,155
Total Net Position, Beginning of $80,720,662 $67,279,595 $61,122,683 $13,441,067 $6,156,912 Year
Total Net Position, End of Year $84,364,909 $80,720,662 $67,279,595 $3,644,247 $13,441,067
9 Revenues 2016 - 2015 Operating revenues in 2016 decreased by ($172,656) or approximately (2.36%) compared to 2015. Non-Operating Revenues. The District's largest revenue stream is derived from property taxes. Property tax revenues decreased by ($4,400,848) or approximately (33%). This decrease was primarily due to decreased property valuations. Property tax revenues account for approximately 84% of non-operating revenues and approximately 50% of total operating and non-operating revenues. The District received other income from interest revenue, foreign trade zone fees and various other miscellaneous income sources totaling $1,672,568; this included $1,080,025 funds received Federal Emergency Management Agency (FEMA) for facility restorations and repairs and disaster assistance relied as a result of Hurricane RITA.
2015 - 2014 Operating revenues in 2015 increased by $862,481or approximately 13% compared to 2014. The primary contributor of this increase is revenue generated by increased dockage from lay-berthing opportunities. Non-Operating Revenues. The District's largest revenue stream is derived from property taxes. Property tax revenues ($13,346,417) account for approximately 89% of non-operating revenues and approximately 60% of total operating and non-operating revenues. The District received other income from interest revenue, foreign trade zone fees and various other miscellaneous income sources totaling $1,572,536; this included funds received as a result of a lawsuit settlement for damages incurred in 2010.
Expenses
2016 -2015
Operating expenses in 2016 increased by $2,234,038 or 215% when compared to 2015. The largest contributing factor for this increase were expenses for maintenance dredging and associated engineering and other professional services. Other operating and non-operating expenses were comparable to prior year; i.e. loading/unloading, security services, contracted services, gantry and equipment repairs and maintenance, professional fees, property related insurance, personnel and health care cost, interest expense on outstanding debt, etc.
2015 -2014
Operating expenses in 2015 increased by $270,185 or 2.6% when compared to 2014. Operating and non-operating expenses were comparable to prior year; i.e. loading/unloading, security services, contracted services, gantry and equipment repairs and maintenance, professional fees, property related insurance, personnel and health care cost, interest expense on outstanding debt, etc. Normal operating expenses were comparable to prior year; i.e. loading/unloading, security services for the military cargo handling, increased gantry repair and maintenance, etc. Continued increases in expenses, which included professional fees, property related insurance, personnel and health care cost, are all contributing factors to increases of other operating and non-operating expenses.
10 Capital Grants, Contribution and Appropriation
2016 -2015
Capital grants and contributions decreased by ($3,181,151) over 2015. The District is the recipient of a number of federal and state grants from a variety of programs. These grant funds are recorded on the basis of project expenditures made. As projects are advanced and expenditures incurred, grant funds are requested on a reimbursement basis and then recognized. Capital grants, contributions and appropriations at July 31, 2016 include: Security Grant - Round 14 $ 103,430
2015 -2014
Capital grants and contributions increased by $2,961,583 over 2014. The District is the recipient of a number of federal and state grants from a variety of programs. These grant funds are recorded on the basis of project expenditures made. As projects are advanced and expenditures incurred, grant funds are requested on a reimbursement basis and then recognized. Capital grants, contributions and appropriations at July 31, 2015 include: Economic Development Administration (EDA) Grant $ 193,012 Department of Transportation (DOT) $2,659,958
CAPITAL ASSETS AND DEBT ADMINISTRATON
Capital Assets
2016 -2015
The District's investment in capital assets as of July 31, 2016 amounts to $67,667,558 (net of accumulated depreciation). This investment in capital assets include port facilities, machinery and equipment, property and buildings, furniture and equipment, intangibles and construction in progress. This amount represents a net decrease (including additions and retirements) of $846,421. Additional information regarding the district's capital assets can be found in Note 6 to the financial statements on pages 31-32.
2015 - 2014
The District's investment in capital assets as of July 31, 2015 amounts to $68,513,979 (net of accumulated depreciation). This investment in capital assets include port facilities, machinery and equipment, property and buildings, furniture and equipment, intangibles and construction in progress. This amount represents a net increase (including additions and retirements) of$2,833,224 or 4.3%. Additional information regarding the district's capital assets can be found in Note 6 to the financial statements on pages 31-32.
11 The following summarizes the District's capital assets (net of accumulated depreciation) as of July 31 , 2016,2015 and 2014:
Restated 2016 - 2015 2015-2014 2016 2015 2014 Change Change
Capital assets, not being depreciated: Land $6,944,139 $6,944,139 $6944 139 $0 $0 Construction in progress 10,217,810 8,437.620 3,734,942 1.780,190 4,702,678 17,161,949 15,381,759 10,679,081 1,780,190 4,702,678
Capital assets, being depreciated net: Office Building and Improvements 315,453 336,872 338,192 (21 ,419) (1 ,320) Wharves and Terminals 49,521,756 51,884,592 53,383,461 (2,362,836) (1,498,869) Furniture, Fixtures, Equipment 283,548 437,400 722,341 (153,852) (284,941) Investigations and Studies 384,852 473,356 557,680 (88,504) (84,324) 50,505,609 53,132,220 55,001,674 (2,626,611) (1,869,454)
Net Capital Assets 67,667,558 68,513,979 65,680,755 (846,421) 2,833,224
Long Term Debt
As of July 31, 2016, the District had long term bonded debt outstanding of $26,670,287. This amount is comprised of unlimited tax refunding and improvement bonds. The District's debt increased as the result of restructuring bond obligations and the issuing of new bond issues in 2008. Additional information regarding the District's long term debt can be found in Note 8 to the financial statements on pages 33 - 34. The following table summarizes the District's long term debt outstanding as of July 31, 2016, 2015 and 2014:
2016 -2015 2016 2015 2014 Chan e
Unlimited Refunding Bonds $18,939,214 $20,394,404 $21,786,120 ($1,455,190) ($1 ,391,716) Improvement Bonds 7.731,073 8294.077 8,830.959 (563 ,004) (536,882)
$26,670,287 $28,688,481 $30,617,079 ($2,018,194) ($1,928,598)
During the current fiscal year ending, the District was notified of a misapplication of assessment on property owned by Motiva Enterprises, LLC that is not within the boundaries of the District. The resulting refund amount equaled $182,072, payable in two equal payments on or before June 30, 2016 (paid) and October 31,2016 (property tax liability of$91,036). 12 ECONOMIC OUTLOOK
Since 2012, the District and the local region have experienced the effects from the construction of facilities by German Pellets, LLC. The District entered into a long-term (25-year) agreement with this dry bulk exporter for cargo handling. The District saw significant growth in the movement of this dry bulk operation, along with a revenue growth.
The District continues to benefit from increased lay-berthing opportunities. This revenue stream accounts for approximately 19% of the revenue from terminal operations. The District is confident with that its' facility design, its' proximity to the Gulf of Mexico and position on the Sabine-Neches Waterway, that this will continue to show a steady revenue growth.
The District also has several real opportunities to enter into an agreement with companies for the handling of cargo from the operations of a liquid bulk terminal.
These projects all have created new and increased job opportunities for the region and District's work force. Growth has also spurred the need for additional capital investment by the District to accommodate these, as well as other potential growth opportunities. The District continues to make land improvements on the 55-acre tract of land acquired adjacent to its' existing water-side property, i.e. land clearance, road access, rail, street and drainage improvements. These improvements have strongly enhanced marketing efforts to utilize this acreage for additional economic development projects.
REQUEST FOR INFORMATION
This financial report is designed to provide a general overview of the District's finances for all those with an interest in its finances. Question concerning any of the information provided in this report or request for additional financial information should be addressed to the District's Director of Finance, P. O. Box 1428, Port Arthur, TX 77641.
13 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF NET POSITION JULY 31, 2016 AND 2015
2016 2015 CURRENT ASSETS Cash and Cash Equivalents (Note 2) $6,136,788 $5,197,694 Investments 29,772,727 25,504,924 Recevables: Accounts Receivables, Net of Allowance 2,014,906 1,297,279 Taxes Receivable - Delinquent 478,512 475,671 Grants Receivable 0 193,011 Other Receivables 10,066 1,301,631 Accrued Interest Receivable 69,547 51,905 Note Receivable - Current 0 0 Prepaid Insurance 341,691 405,854
TOTAL CURRENT ASSETS $38,824,237 $34,427,969
NON-CURRENT ASSETS Restricted Assets (Notes 1 and 8) Cash and Cash Equivalents (Note 2) $5,141,340 $5,835,439 Investments 0 0 Taxes Receivable - Delinquent 323,167 316,225 Accrued Interest and Other Receivables 0 0
Total Restricted Assets $5,464,507 $6,151,664
Capital Assets Capital Assets, Not Being Depreciated (Note 6) $17,161 ,949 $15,381 ,759 Capital Assets, Being Depreciated, Net (Note 6) 50,505,609 53,132,220
Total Capital Assets, Net $67,667,558 $68,513,979
Other Non-Current Assets Net Pension Assets (Note 3) $658,297 $1,182,082 Deferred Outflows $543,789 71,372 Deferred Contribution - TXDOT Project 0 1,347,865
Total Other Non-Current Assets $1,202,086 $2,601,319
TOTAL ASSETS $113,158,388 $111,694,931
14 The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF NET POSITION JULY 31, 2016 AND 2015
2016 2015 CURRENT LIABILITIES Accounts Payable $910,517 $973,344 Accrued Expenses 495,913 217,239 Current Maturity Property Tax Refund Liability (Note 8) 91,036 431,656 Current Restricted Liabilities Payable from Restrict Assets: Accounts Payable - Promotion & Development Fund 13,634 7,246 General Obligation Bonds Payable (Note 7) 2,180,000 2,085,000 Accrued Interest Payable - General Obligation Bonds 542,418 581,781 Retainage Payable 63,371 66,644
Total Current Liabilities $4,296,889 $4,362,910
NON-CURRENT LIABILITIES General Obligation Bonds Payable (Note 7) $24,490,287 $26,603,479
Total Non-Current Liabilities $24,490,287 $26,603,479
DEFERRED INFLOWS OF RESOURCES Deferred Inflows $6,304 $7,880
Total Deferred Inflows of Resources $6,304 $7,880
TOTAL LIABILITIES and DEFERRED INFLOWS $28,793,480 $30,974,269
NET POSITION: Invested in Capital Assets, Net of Related Debt $40,363,818 $38,812,063 Restricted for General Obligation Bonds Debt Service 1,283,017 1,441,952 Restricted for Promotion and Development 358,429 259,068 Restricted for Insurance Escrow 200,000 200,000 Restricted for Debt Service Reserve Fund 3,882,288 4,580,393 Unrestricted 38,277,356 35,427,186
TOTAL NET POSITION $84,364,908 $80,720,662
15 The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION JULY 31,2016 AND 2015
OPERA TING REVENUE Public Ocean Terminal Operations $6,930,472 $7,043,168 Rental Income 65,360 76,360 Terminal (Space) Lease Revenues 149,610 198,570
TOTAL OPERATING REVENUE $7,145,442 $7,318,098
OPERA TlNG EXPENSES Loading & Unloading Subcontractor Cost $2,279,214 $2,290,010 Personnel 1,822,614 1,672,630 Properties & Facilities Maintenance 2,758,432 1,007,561 Other Operating Expenses 2,916,926 2,480,656 Depreciation Expense 2,734,518 2,828,159 Promotion and Development Expenses 287,341 285,991
TOTAL OPERATING EXPENSES $12,799,045 $10,565,007
OPERA TlNG (LOSS) ($5,653,603) ($3,246,909)
NON-OPERA TlNG REVENUE (EXPENSES) Property Tax Revenues $8,945,569 $13,346,417 Interest Income 327,768 210,911 Interest Expense (Net) (1,423,717) (1,515,558) Management Fees 0 0 Foreign Trade Zone Revenue 15,000 20,000 Other Revenues 249,774 125,842 Gain/(Loss) on Sale of Assets, Lawsuit Settlement 0 1,215,783 Storm Damages - Insurance Proceeds, FEMA Grants 1,080,026 0 Storm Damages - Expenses 0 0
NET NON-OPERA TlNG REVENUE (EXPENSES) $9,194,420 $13,403,395
INCOME BEFORE CAPITAL GRANTS AND CONTRIBUTIONS $3,540,817 $10,156,486
CAPITAL GRANTS AND CONTRIBUTIONS 103,430 3,284,581
CHANGE IN NET POSITION $3,644,247 $13,441,067
TOTAL NET POSITION - Beginning of Year, As Restated $80,720,662 $67,279,595
TOTAL NET POSITION - End of Year $84,364,909 $80,720,662
16 The accompanying notes are an integral part of this statement. PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF CASH FLOW FOR THE YEARS ENDED JULY 31, 2016 AND 2015
2016 2015 Cash Flows From Operating Activities: Cash Receipts From Customers $6,828,411 $6,838,529 Cash Receipts From Other Sources 1,577,131 1,301,005 Cash Payments to Suppliers for Goods and Services (8,156,595) (7,137,802) Cash Payments to Employees for Services (1,935,772) (1,777,356)
Net Cash Provided by (Used For) Operating Activities ($1,686,825) ($775,624)
Cash Flows from Noncapital Financing Activities: Property Tax Revenue $8,935,786 $13,316,137 Operating Grants Received $1,080,026 0 Management Fees 0 0 Foreign Trade Zone and Other Non-Operating Revenue 15,000 20,000 Non-Operating Expenses 0 0
Net Cash Provided by (Used) Noncapital Financing Activities $10,030,812 $13,336,137
Cash Flows From Capital and Related Financing Activities: Acquisition and Construction of Capital Assets ($1,884,265) ($5,647,914) Deferred Contributions $873,872 ($1,347,864) Interest Paid (1,396,126) (1,478,406) Capital Grants 100,430 3,091,569 Other Revenues 249,774 125,842 Debt Principal Payments (2,085,000) (2,000,000)
Net Cash Provided by (Used) Capital Financing Activities ($4,141,315) ($7,256,773)
Cash Flows From Investing Activities: Purchase of Investment Securities ($14,099,845) ($12,052,992) Proceeds from Investment Redemption 9,832,042 5,991,986 Interest Received on Investments 310,126 193,673
Net Cash Provided by (Used For) Investing Activities ($3,957,677) ($5,867,333)
Net Increase (Decrease) in Cash and Cash Equivalents $244,995 ($563,592) Cash and Cash Equivalents at Beginning of Year $11,033,133 $11,596,725
Cash and Cash Equivalents at End of Year $11,278,128 $11,033,133
17 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF CASH FLOW FOR THE YEARS ENDED JULY 31,2016 AND 2015
2016 2015 Reconciliation of Operating Income (Loss) to Net Cash Provided By (Used For) Operating Activities: Operating Income (Loss) ($5,653,603) ($3,246,909)
Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided By (Used For) Operating Activities: Depreciation, Amortization Expense $2,801,323 $2,828,159 Decrease (Increase) in Assets: Accounts, Taxes and Other Receivable 739,524 (510,960) Prepaid Expenses 64,163 (16,945) Net Pension Asset, Deferred Outflowsllnflows 523,785 58,692
Increase (Decrease) in Liabilities: Accounts Payable (401,328) 128,260 Accrued Liabilities 278,674 (15,921) Prepaid Lease 0 0 Other Liabilities 0 0 Accrued Interest Payable (39,363) 0
Total Adjustments $3,966,778 $2,471,285
Net Cash Provided By (Used For) Operating Activities ($1,686,825) ($775,624)
18 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas (District) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard• setting body for establishing governmental accounting and financial reporting principles. The more significant of the District's accounting policies are described below.
GENERAL HISTORY OF THE PORT OF PORT ARTHUR NAVIGATION DISTRICT The Port of Port Arthur Navigation District of Jefferson County, Texas was created by a Special Act of the 58th Legislature under provisions of Section 59, Article XVI of the Texas Constitution, ratified by referendum on June 13, 1964. The District is independent from other local or state governments and operates within district boundaries of approximately 58 square miles, including the City of Port Arthur and a part of the City of Groves. The five• member elected Board of Port Commissioners governs the affairs of the District, with management responsibilities vested in the Port Directorate Office. The District provides the services of a Public Ocean Terminal with railroad access to the nation.
REPORTING ENTITY In evaluating how to define the District (the Primary Government) for fmancial reporting purposes, management has considered all potential component units. The decision to include or exclude a potential component unit in the reporting entity was made by applying the criteria set forth in Section 2100 of the GASB Codification of Governmental Accounting and Financial Reporting Standards. GASB defines the reporting entity as the primary government and those component units for which the primary government is financially accountable. The Component Unit discussed below is blended in the District's financial statements because of the significance of its operational and financial relationship with the District.
COMPONENT UNIT The Port of Port Arthur Navigation District of Jefferson County, Texas includes the Port Arthur Navigation District Industrial Development Corporation (PANDIDC), a public corporation, whose purposes are to promote and develop new and expanded enterprises in the District, and to promote and encourage employment and public welfare. Bonds issued by the Corporation are payable from revenues derived as a result of the industrial development facilities funded by Pollution Control and Industrial Development Bonds. These bonds are not a liability or contingent liability ofthe District or a lien on any of its properties or revenue, other than the industrial facilities for which they are issued. Disclosure of the bonds and full information regarding the nature of these special obligations is made in Notes 4 and 5 that follow. The Directors of the Port Arthur Navigation District Industrial Development Corporation are appointed by the Port Commissioners.
BASIS OF ACCOUNTING The District operates as an enterprise fund to report on its financial position and the results of its operations. Enterprise funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent ofthe governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Measurement focus is a term used to describe which transactions are recorded within the various financial statements. Basis of accounting refers to when transactions are recorded regardless of the measurement focus applied. All enterprise funds are accounted for on a flow of economic resources measurement focus, whereby all assets and all liabilities associated with the operation of these funds are included on the statement of net position. Proprietary fund equity is classified as net position. Enterprise fund operating statements present increases (e.g., revenues) and decreases (e.g., expenses) in net position.
19 PORT OF PORT ARTHUR NA VIGA TlON DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
The accrual basis of accounting is utilized by enterprise funds. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred
Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the District's enterprise fund are charges to customers for the use offacilities and services provided. Operating expenses for enterprises funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenue and expenses.
An annual budget for the District is adopted on a basis consistent with generally accepted accounting principles for proprietary funds, as a prudent management tool. Periodic budget reports are prepared for management to maintain proper budgetary control, and are reviewed by the Port Commission.
CASH AND CASH EQUIVALENTS The District's cash and cash equivalents consists of cash on hand, cash held on deposit with financial institutions in demand deposits accounts, and short-term investments with original maturities ofthree months or less from date of acquisition.
INVESTMENTS State statute authorizes the District to invest in obligations of the United States Treasury, or its agencies and instrumentalities; direct obligations of the State of Texas or its agencies; obligations of states, agencies, counties, cities and other political subdivisions of any state having a rating of not less than A; certificates of deposits, prime domestic banker's acceptances; certain commercial paper, certain mutual funds; fully collateralized repurchase agreements and public funds investment pools.
Investments that mature within one year of acquisition are stated at cost or amortized cost. Investments with a remaining maturity of more than one year at the time of purchase are carried at fair value. Any realized gains and losses in fair value are reported in the operations of the current period.
PROPERTY, PLANT AND EQUIPMENT Property constructed or acquired by purchase is stated at cost. Contributed assets are stated at cost, if available, or estimated fair market value on the date received. Major outlays for capital assets and improvements are capitalized as projects are constructed. Net interest costs, if material, are capitalized on major construction projects during the construction period. No interest was capitalized for the fiscal years July 31,2016 and 2015.
Depreciation is computed using the straight-line method over the following useful lives:
Assets Years Building and Improvements 10 - 40 Docks and Wharves 20 - 40 Equipment and Vehicles 5 - 20 Office Equipment 5 - 10 Investigations and Studies 10
TRADE RECEIVABLES Trade receivables are reported at net value utilizing the allowance method to account for bad debt expense. Receivables as of year-end including applicable allowances for uncollectible accounts are as follows:
Trade Receivable, net 2016 2015 Trade Accounts $2038412 $1,324,711 Less Allowance for doubtful accounts (23.506) (27.432)
Trade accounts, net $2,014,906 $1,297,279
20 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
PROPERTY T AX RECEIVABLES Property taxes are levied as of October 1 on property values assessed on January 1. The billings are considered past due on February 1, after the respective tax billing date at which time the applicable tax is subject to interest. On July 1 of the following year, liens and penalties and interest are assessed. The District's property taxes are collected by the Jefferson County Tax Assessor-Collector.
The District is permitted by State Law to levy taxes up to $ .10 per $100 assessed valuation for operation and maintenance of the District other than the payment of principal and interest on long-term debt and in unlimited amounts for the payment of principal and interest on long-term debt. The tax rate for operations and maintenance was $.10 per $1 00 valuations for the year ended July 31,2016 and for the year ended July 31,2015, $.10 per $1 00 and a reserve fund tax rate of .058991 for the payment future principal and interest oflong-term debt and contingent property tax refunds resulting from valuation issues of prior year collections. The tax rate for the retirement of principal and interest on general obligations long-term debt was $.05664471 at July 31, 2016 and $.055381 atJuly 31 2015 per $100 valuation. Property taxes are recorded as a receivable when levied.
RESTRICTED ASSETS The "general obligation bond debt service fund" account is used to segregate resources accumulated for general obligation bond debt service payments over the next twelve months.
COMPENSATED ABSENCES District employees are granted vacation at rates of 10 to 25 days per year and may accumulate up to a maximum of 20 to 50 days, depending on their length of employment. Employees who are eligible for more than 10 days of vacation may elect to sell back to the District a maximum of 10 days of unused vacation per calendar year. Upon termination, employees are paid for any unused accumulated vacation up to the maximum accumulated days. Vacation pay is accrued when incurred and recorded as a liability.
A statement of changes in compensated absences for the year ended July 31,2016 follows: Beginning Ending Balance Additions Reductions Balance Vacation $145,376 $107,800 $109,749 $143,427
A statement of changes in compensated absences for the year ended July 31, 2015 follows: Beginning Ending Balance Additions Reductions Balance Vacation $147,328 $100,237 $102,189 $145,376
DEFERRED OUTFLOWSIINFLOWS OF RESOURCES In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This represents a consumption of net position that applies to a future period(s) and will not be recognized as an outflow of resources (as either an expense or expenditure) until that period. The District reports deferred gains on refunding and deferred contributions on pension plans. A deferred gain on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. Deferred contributions for the pension plans were made during the fiscal year but after the measurement date of the actuarial report. These amounts will be recognized during the next measurement period.
In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This represents an acquisition of net position that applies to a future period(s) and will not be recognized as inflow or resources (revenue) until that period. The District has an item that qualifies for reporting in this category: Certain amounts related to pensions must be deferred. Differences between projected and actual earnings on pension plan investments are deferred and amortized over five years. Changes in pension plan assumptions are deferred and amortized over the expected remaining service lives of employees.
21 PORT OF PORT ARTHUR NA VIGA TION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
NET POSITION Net position represents the differences between assets and liabilities. Net investment in capital assets consists of capital assets net of accumulated depreciation and the outstanding balances of any borrowing spent for the acquisition, construction or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation or through external restrictions imposed by creditors, grantors or laws or regulations. Net position unrestricted indicates assets that are available for future periods.
ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
GASB 72 - Fair Value Measurement and Application - this statement addresses accounting and financial reporting issues related to fair value measurements for assets (such as investments) and liabilities (such as split interest agreements), and provides guidance for determining a fair value for financial reporting purposes and guidance for disclosures related to all fair value measurements. This requirement is effective for fiscal years beginning after June 30, 2016. GASB 72 was implemented in the year ended July 31, 2016 and it had an immaterial impact on the District's financial statements.
GASB 71 - Tax Abatement Disclosures - this statement addresses information needed by financial statement users about certain limitations on a government's ability to raise resources. This includes limitations on revenue raising capacity resulting from government programs that use tax abatements by individuals and entities that is beneficial to the government or its' citizens. This statement is effective for fiscal years beginning after December 15, 2015. The District has implemented GASB 71 in the year ended July 31, 2016.
NOTE 2 INVESTMENTS The District's investments at July 31, 2016 and 2015 are as follows:
2016 2015 Carrying Fair Carrying Fair Investment T~e Value Value Value Value Certificates of Deposits $21,861,000 $21,975,380 $19,922,000 $19,910,581 Municipal Bonds $ 1,019,072 $ 1,021,900 $ 1,395276 $ 1,395,235 U.S. Federal Agency Security $ 6,892,655 $ 6,905,086 $ 4,187,648 $ 4,189,084 State Investment Pool- TEXPOOL $10,177,634 $10,177,634 ~ 10,3 04,846 ~ 10,304,846 Total $39,950,361 $40,080,000 $35,809,770 $35,799,746 Investments Included in: Cash Equivalents - Unrestricted $ 5,313,374 $ 5,313,374 $ 4,738,904 $ 4,738,904 Cash Equivalents - Restricted $ 4,864,260 $ 4,864,260 $ 5,565,942 $ 5,565,942 Other Investments - Unrestricted $29,772,727 $29,902,366 $25,504,924 $25,494,900 Other Investments - Restricted $ 0 $ 0 ~ 0 $ 0 Total $39,950,361 $40,080,000 $35,809,770 $35,799,746
Investments in the proprietary fund are in the form of U. S. Government obligations. They are recorded in the books of the separate funds at cost. Pooled investment funds are stated at fair value.
22 PORT OF PORT ARTHUR NA VIGA TION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
INTEREST RATE RISK The Public Funds Investment Act (PFIA) governs the types of investments that the District may invest in. The PFIA authorizes the District to invest in (1) obligations ofthe US Government, the State of Texas, their agencies and instrumentalities with a maximum stated maturity of three-years, excluding mortgage backed securities; (2) fully insured or collateralized certificates of deposits issued by depositary institution that has its main office or branch office in Texas, with a maximum stated maturity of three years; (3) fully collateralized repurchase agreements, with a maximum stated maturity of ninety-days except for bond fund flex repurchase agreements, which will match expenditures plans on the bond funds; (4)Not less than A Rated States (other than Texas), Agencies, Counties, Cities and Other Political Subdivisions; (5)Rated not less than AAA mutual funds registered with the Securities and Exchange Commission; and (6) Rated not less than AAA Investment Pool which markets its portfolio to market daily and stabilizes at a $1 net asset value.
The State Comptroller of Public Accounts exercises oversight responsibility over the Texas Local Government Investment Pool (TexPool). Oversight includes the ability to significantly influence operations, designation of management and accountability for fiscal matters. TexPool operates in a manner consistent with the Securities and Exchange Commission's rule 2a7 of the Investment Company Act of 1940. TexPool uses amortized cost rather than the market value to report net assets share prices. Accordingly, the fair value of the position ofTexPool is the same as the value of TexPool shares.
CUSTODIAL CREDIT RISK Custodial risk is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The Investment Policy of the District requires that all time and demand deposits ofthe District be secured by pledged collateral with a market value equal to or greater than 102% ofthe principal plus accrued interest, less the amount insured by Federal Deposit Insurance Corporation (FDIC). The amount collateralized with securities held by the pledging financial institution's agent in the District's name, was $1,075,710 atJuly 31,2016 and $776,918 atJuly 31,2015. The District's average collected balance with Wells Fargo Bank was $1,039,102 atJuly 31, 2016 and $968,264 at July 31, 2015.
NOTE 3 PENSION PLAN Plan Description The District provides pension, disability, and death benefits for all of its full-time employees through a nontraditional defined benefit plan in the state-wide Texas County and District Retirement System (TCDRS). The Board of Trustees of the TCDRS is responsible for the administration ofthe statewide agent multiple - employer public employee retirement system consisting of over 700 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 78768-2034.
Plan Membership Inactive plan members or beneficiaries currently receiving benefits 6 Inactive plan members entitled to but not yet receiving benefits 4 Active plan members 18
Benefits Provided The plan provisions are adopted by the governing body of the District, within the options available in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 or more years of service or with 30 years of service regardless of age or when the sum oftheir age and years of service equals 75 or more. A member is vested after 8 years but must leave their accumulated contributions in the plan to receive any employer-financed benefits. Members, who withdraw their personal contributions in a lump-sum, are not entitled to any amounts contributed by their employer.
Benefit amounts are determined by the sum ofthe employee's contributions to the plan, with interest, and employer• financed monetary credits. The level ofthese monetary credits is adopted by the governing body of the employer within the actuarial constraints imposed by the TCDRS Act so that the resulting benefit can be expected to be adequately financed by the employer's commitment to contribute. At retirement, death, or disability, the benefit is calculated by converting the sum ofthe employee's accumulated contributions and the employer-financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act.
23 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
Contributions The District has elected the annually determined contribution rate (Variable Rate) plan provisions of the TCDRS Act. The plan is funded by monthly contributions from both the employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the district is actuarially determined annually. The District contributed using the actuarially determined rates of 1.5% for the months of August through December in 2014, 1.5% for the months of January through December in 2015 and .68% for the months of January through July in 2016. The contribution rate payable by the employee members for the 2014- 2015 and 2015 - 2016 years is the rate of 7% as adopted by the governing body of the District. The employee contribution rate and the district's contribution rate may be changed by the governing body ofthe District within the options available in the TCDRS Act. The contribution made by the District in excess of the actuarially determined rate is classified as net pension asset and reflected in other non-current assets.
Investments The long-term expected rate of return on TCDRS assets is determined by adding expected inflation to expected long-term real returns, and reflecting expected volatility and correlation. The capital market assumptions and information shown below are provided by TCDRS' investment consultant, Cliffivater LLC. The numbers shown are based on January 2016 information for a 7-10 year time horizon.
Note that the valuation assumption for long-term expected return is re-assessed at a minimum of every four years, and is set based on a 30-year time horizon; the most recent analysis was performed in 2013.
Asset Target Geometric Real Rate of Return Allocation (Expected minus Inflation) US Equities 14.50% 5.45% Private Equity 14.00% 8.45% Global Equities 1.50% 5.75% International Equities - Developed 10.00% 5.45% International Equities - Emerging 8.00% 6.45% Investment - Grade Bonds 3.00% 1.00% High-Yield Bonds 3.00% 5.10% Opportunistic Credit 2.00% 5.09% Direct Lending 5.00% 6.40% Distressed Debt 3.00% 8.10% REIT Equities 3.00% 4.00% Master Limited Partnerships (MLPs) 3.00% 6.80% Private Real Estate Partnerships 5.00% 6.90% Hedge Finds 25.00% 5.25%
24 PORT OF PORT ARTHUR NA VIGA TlON DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
Partial Lump Sum Option (PLOP) The Partial Lump Sum Option (PLOP) offers participants the option of receiving a partial pension benefit as a lump-sum cash payment at the time of retirement in an amount equal to participant contribution. When a participant elects the PLOP, monthly benefit payments are reduced.
Net Pension Liability / (Asset) IDecember 31 , 201 41 IDecember 31 , 20151
Total pension liability $3,876,352 $4,395,988 Fiduciary net position 5,058,434 5,054,284 Net pension liability / (asset) (1,182,082) (658,296) Fiduciary net position, as a % of total pension liability 130.49% 114.97%
Pensionable covered payroll $1,624,085 . $1,707,540 Net pension liability as a % of covered payroll (72.78%) (38.55%)
Discount Rate 8.10% 8.10% Long-term expected rate of return, Net of investment expenses 8.10% 8.10%
The total pension liability was determined by an actuarial valuation as of the valuation date, calculated based on the discount rate and actuarial assumption following.
The discount rate reflects the long-term rate of return funding valuation assumption of8.00%, plus 0.1 % adjustment to be gross of administrative expenses as required by GASB 68.
Actuarial Methods and Assumptions Used for Funding Valuations The actuarial assumptions that determined the total pension liability as of December 31, 2015 were based on the results of an actuarial experience study for the period January 1, 2009 - December 31,2012, except where required to be different by GASB 68. Following is a description of the assumptions used in the December 31, 2014 actuarial valuation analysis for the District.
Economic Assumptions - TCDRS System-wide economic assumptions: Real rate of return 5.0% Inflation 3.0% Long-term investment return 8.0% The assumed long-term investment return of8% is net after investment and administrative expenses. It is assumed returns will equal the nominal annual rate of 8% for calculating the actuarial accrued liability and the normal cost contribution rate for the retirement plan of each participating employer.
Subdivision Accumulation Fund 9% Employee Savings Fund 7% Current Service Annuity Reserve Fund 7% Assuming interest will be credited at these nominal annual rates to the various funds, we have then assumed the following: An annual rate of9% for calculating the actuarial accrued liability and normal cost contributions rate for the retirement plan to each participating employer. An annual rate of7% required under the TCDRS Act for: (1) accumulating current service credit and multiple matching credit after the valuation date; (2) accumulating prior service credit after the valuation date; (3) determining the amount of the monthly benefit at future dates of retirement or disability; and (4) calculating the actuarial accrued liability of the system-wide Current Service Annuity Reserve Fund,
The annual salary increase rates assumed for individual members vary by length of service and by entry-age group. The annual rates consist of a general wage inflation component of 3.5% (made up of 3% inflation and .5% productivity increase assumptions) and a merit, promotion and longevity component that on average approximates 1.4% per year for a career employee. 25 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
Mortality rates for depositing members are based on the RP-2000 Active Employee Mortality Table for males with a two-year set-forward and for females with a four-year set back, both with the projection scale AA.
Schedule of Changes in Net Pension Liability / (Asset)
Increases (Decreases) Changes in Net Pension Total Pension Fiduciary Net Pension Liability / (Asset) Liability Net Position Liability /( Asset) (a) (b) (a) - (b)
Balances as of December 31, 2014 $3,876,352 $5,058,434 $(1,182,082)
Changes for the year: Service Cost 168,010 168,010 Interest on total pension liability 318,197 318,197 Effect of plan changes (12,943) (12,943) Effect of economic/demographics gains or losses 95,353 95,353 Effect of assumptions changes or inputs 38,774 38,774 Refund of contributions Benefit payments (87,755)° (87,755)° ° Administrative Expenses (3,638) 3,638° Member contributions 119,528 (119,528) Net investment income (62,968) 62,968 Employer contributions 25,612 (25,612) Others ° 5.071 (5.071) Balance as of December 31, 2015 $4,395,988 $5,054,284 $(658,296)
Interest on total pension liability reflects the change in the liability due to the time value of money. TCDRS does not charge fees or interest. Reflect new annuity purchase rates applicable to all TCDRS employers effective January 1, 2018. Other relates to allocation of system-wide items.
Sensitivity Analysis The following presents the net pension liability ofthe county/district, calculated using the discount rate of 8.10%, as well as what the District's net pension liability would be if it were calculated using a discount rate that is 1 percentage point (7.10%) or 1 percentage higher (9.10%) than the current rate.
1% Current 1% Decrease Discount Rate Increase 7.10% 8.10% 9.10%
Total pension liability $4,871,449 $4,395,988 $3,987,355 Fiduciary net position 5,054,284 5,054.284 5,054,284 Net pension liability I (asset) ($182,835) ($658,296) ($1,066,929)
Deferred Inflows / Outflows of Resources
Deferred Inflows Deferred Outflows Of Resources of Resources
Differences between expected and actual experience $6,304 $79,461 Changes of assumptions 32,312 Net difference between projected and actual earnings ° 424,527 Contributions made subject to measurement date N/A° Employer determined
26 PORT OF PORT ARTHUR NA VIGA TlON DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31 2016 AND 2015
Amounts currently reported as deferred outflows of resources and deferred inflows of resources related to pensions, excluding contributions made subsequent to the measurement date, will be recognized in pension expense as follows: Year ended December 31: 2016 $130,376 2017 $130,376 2018 $130,376 2019 $116,514 2020 $ 22,355 Thereafter $ 0
Additional future deferred inflows and outflows of resources may impact these numbers.
EMPLOYEE SECTION 457 PLAN The Port offers its employees a deferred compensation plan through the International City Management Association (lCMA), created in accordance with Internal Revenue Code Section 457. The plan, available to all Port employees, permits them to defer a portion of their salary until future years in order to provide them with retirement income and other deferred benefits. This plan is funded entirely by employee contributions. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency.
All amounts of compensation deferred under the plan, are maintained under a trust agreement with ICMA for the exclusive benefit of the eligible employees and their beneficiaries. No part of the corpus or income of the trust shall revert to the employer or be used for or diverted to purposes other than the exclusive benefit of participants and their beneficiaries. The employee contribution to this plan cannot exceed $17,500 for 20 14, $18,000 for 20 15 and $18,500 for 2016. The Port has no liability for losses under the plan, but does have the duty of due care that would be required of an ordinary prudent investor.
Investments in the plan are $1,358,637 atJuly 31, 2016 and $1,246,321 atJuly 31, 2015.
NOTE 4 RESTRICTED ASSETS Certain resources set aside for the repayment of the District's revenue bonds, capital projects and promotion and development are classified as restricted assets on the balance because their use is limited by applicable bond covenants and applicable commissioners' action. Components of restricted assets as of July 31, 2016 and July 31, 2015 in the enterprise fund are as follows:
Components of restricted assets as ofJuly 31, 2016 in the enterprise fund are as follows: General Obligation Promotion and Bonds Development
Cash and Cash Equivalents $ 4,842,138 $ 299,202 $ 5,141,340 Investments Taxes/Other Receivable 323,167 323,167 Accrued Interest Receivable
Total Restricted Assets $5 464507
Components of restricted assets as of July 31, 2015 in the enterprise fund are as follows: General Obligation Promotion and Bonds Development
Cash and Cash Equivalents $ 5,706,120 $129,319 $5,835,439 Investments Taxes/Other Receivable 316,225 316,225 Accrued Interest Receivable ______
Total Restricted Assets
27 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
NOTES POLLUTION CONTROL REVENUE BONDS The District is authorized under the Clean Air Financing Act to issue revenue bonds to finance the acquisition, construction and improvement of facilities designed to reduce or eliminate air pollution and to lease or sell such facilities. The District has issued revenue bonds for the purpose of construction and subsequent installment sale financing of pollution control equipment. The following is a summary of the Pollution Control Bonds that have been issued and outstanding as of July 31,2016.
$37,000,000.00 Pollution Control Revenue Refunding Bonds, Series 1994 (Texaco, Inc. Project) due October 1, 2024. Optional or mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance $37,000,000
$18,425,000 Multi-Mode Variable Rate Demand Revenue Bonds, Series 1998 (Fina Oil and Chemical Company Project) due May 1,2033. Optional and mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 18,425,000
$25,000,000 Multi-Mode Variable Rate Demand Revenue Bonds, Series 1998 (BASF Corporation Project) due April 1, 2033. Optional and mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 25,000,000
$15,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (BASF Corporation Project), Series 2000A. Optional and special early mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 15,000,000
$10,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (Fina Oil and Chemical Company Project), Series 2000B. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 10,000,000
$10,000,000 Variable Rate Revenue Bonds, Series 2002B (ATOFINA Petro Chemical, Inc.) Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 10,000,000 $4,500,000 Variable Rate Revenue Bonds, Series 2002C (ATOFINA Petro Chemical, Inc.) Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 4,500,000
$148,000,000 Motiva Environmental Facilities Revenue Bonds, Series 2002, Due December 2027, Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 148,000,000
$15,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (BASF Corporation Project), Series 2002A. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 15,000,000
$15,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (BASF Corporation Project), Series 2003A. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 15,000,000
$10,000,000 Multi-Mode Variable Rate Demand Revenue Bonds (ATOFINA Petrochemicals, Inc. Project), Series 20008. Optional and special mandatory early redemption provided. Interest at floating rate. Interest due monthly on first business day. Current Balance 10,000,000 $50,000,000 TOTAL Exempt Facilities Revenue Bonds (Total Petrochemicals USA, Inc.) Series 2008, Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 50,000,000
$50,000,000 TOTAL Petrochemical USA, Inc Project, Exempt Facilities Revenue Bonds Series 2009, due March 1,2039. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 50,000,000
28 PORT OF PORT ARTHUR NA VIGA TION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
$300,000,000 Motiva Enterprises LLC Project, Environmental Facilities Revenue Bonds, Series 2009, Subseries A, Subseries Band Subseries C, due December 1,2039. Optional and mandatory early redemption provided. Interest due monthly on the 15 th business day. Current Balance 300,000,000
$50,000,000 TOTAL Petrochemical USA, Inc. Project, Exempt Facilities Revenue Bonds Series 2010, due March 1, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 50,000,000
$300,000,000 Motiva Enterprises LLC Project, Environmental Facilities Revenue Bonds, Series 2010, Subseries A, Refunding Subseries B and Refunding Subseries C, due April I, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 300,000,000
$300,000,000 Motiva Enterprises LLC Project, Environmental Facilities Revenue Bonds, Series 2010, Subseries D, Subseries E, due November 9, 2040. Optional and mandatory early redemption provided. Interest due monthly on first business day. Current Balance 300,000,000
Pollution Control Facilities have been sold under installment sales agreements. The installment sales agreements state that the companies shall pay as and for the purchase price for the projects an amount equal to the aggregate principal amount ofthe bonds, and as interest on the purchase price of the projects an amount equal to the aggregate interest and premium, if any, on the bonds, all of which shall be payable at the times, and in the manner and amounts, and according to the other terms set forth in the indentures.
The Trust Indentures state that the bonds and coupons are special obligations of the Port and are payable solely out of revenue derived from the sale of the projects. The bonds shall never constitute an indebtedness or pledge ofthe credit of the Port within the meaning of any constitutional or statutory provision, and shall not be general obligations ofthe Port or the State and shall never be paid in whole or in part from any funds raised by taxation or any revenues or other funds of the Port except those derived by it in connection with the sale of the projects.
NOTE 6 PORT AERTHUR NAVIGATION DISTRICT INDUSTRIAL DEVELOPMENT CORPORATION On August 5, 1981, the District authorized the establishment and incorporation ofthe Port Arthur Navigation District Industrial Development Corporation under the Laws of the State of Texas. The purpose of the corporation is the financing of industrial development projects pursuant to the provisions of the Development Corporation Act of 1979. The following is a summary of the Industrial Development Bonds that have been issued and outstanding as of July 31, 2015:
$25,000,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2000. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly, on first business day. Current Balance $25,000,000
$25,000,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2001. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 25,000,000
$22,500,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2002. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 22,500,000
$25,000,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2005. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 25,000,000
$53,000,000 Exempt Facilities Revenue Bonds (Air Products and Chemicals Inc. Project) Series 2006. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 53,000,000 29 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
$95,765,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 20 lOA, due 12/0112040. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 95,765,000
$100,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2011, due 06/0112041. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 100,000,000
$150,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2012, due 03/0112042. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 150,000,000
$100,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2012A, due 09/0112042. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 100,000,000
$50,000,000 Exempt Facilities Revenue Bonds (TOTAL Petrochemical USA, Inc. Project) Series 2012B, due 12/0112042. Optional and mandatory early redemption provided. Interest is at a floating rate. Interest due monthly on first business day. Current Balance 50,000,000
$646 265 000
As required by the Trust Indentures, special trust funds for the construction of the facilities and the payment of bond principal and interest have been established. The Trust Indentures state that the bonds and coupons are limited obligations of the issuer and are payable by the issuer solely out of revenues derived from or in connection with the agreement. The Bonds shall never be paid out of any other funds of the corporation except such revenues from and in connection with the agreement. NEITHER THE STATE, THE PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS, THE PORT ARTHUR NAVIGATION DISTRICT INDUSTRIAL DEVELOPMENT CORPORATION NOR ANY POLITICAL CORPORATION, SUBDIVISION OR AGENCY OF THE STATE SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE, THE PORT OF PORT ARTHUR NA VIGA TION DISTRICT OF JEFFERSON COUNTY, TEXAS OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF PRINCIPAL OR OF PREMIUM, IF ANY, OR THE INTEREST ON SUCH BONDS.
30 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
NOTE 7 PROPERTY, PLANT AND EQUIPMENT As reported in Note 1, the Port Commissioners voted to report the Port's operations in a Proprietary Fund beginning with the fiscal year ending July 31, 1998. In the past, it was the policy of the Port of Port Arthur Navigation District to record all infrastructure and other fixed asset additions in the General Fixed Asset Account Group. However, with the change in the accounting policies, all General Fixed Assets were transferred into the Proprietary Fund. Additionally, depreciation was calculated on these assets over their useful lives and recorded for prior years as accumulated depreciation and for the current year as depreciation expense.
Capital Asset Activity for the year ended July 31,2016 was as follows:
Beginning Ending August 1, 2015 Additions Retirements Jul,y: 31, 2016
Capital Assets. Not Being Depreciated:
Land - Port Site $6,944,139 $6,944,139 Work in Progress 8,437,620 $1,780,190 $0 10,217,810
Total Capital Assets, Not Being Depreciated 15,381,759 1,780,190 0 17,161,949
Capital Assets, Being Denrecia ted:
Furniture, Fixtures and Equipment 2,240,999 48,679 53,658 2,236,020 Port Facilities - Executive Offices 844,668 13,908 858,576 Port Facilities - Investigations and Studies 1,212,576 1,034 1,213,610 Port Facilities - Wharves and Terminals 90,389,240 45,501 90,434,741
Total Capital Assets, Being Depreciated 94,687,483 109,122 53,658 94,742,947 Less Accumulated Depreciation:
Furniture, Fixtures and Equipment 1,803,599 201,316 52,443 1,952,472 Port Facilities - Executive Offices 507,796 35,327 543,123 Port Facilities - Investigations and Studies 739,220 89,538 828,758
Port Facilities - Wharves and Terminals 38,504,648 2,408,337 40,912,985 Total Accumulated Depreciation 41,555,263 2,734,518 52,443 44,237,338
Total Capital Assets, Being Depreciated, Net 53,132,220 (2,625,396) 1,215 50,505,609
Total Capital Assets, Net $68,513,979 ($845,206) $1,215 $67,667,558
31 PORT OF PORT ARTHUR NAVIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31 , 2016 AND 2015
Capital Asset Activity for the year ended July 31, 20 I 5 was as follows:
Beginning Ending August 1, 2014 Additions Retirements July 31, 2015
Capital A ets Not Being Depreciated:
Land' Port Site $6,944,139 $6,944,139 Work in Progress 3,734,942 $5,181,524 $478,846 8,437,620
Total Capital Assets, Not Being Depreciated 10,679,081 5,181,524 478,846 15,381,759
Capital Assets. Being Deprecia ted:
Furniture, Fixtures and Equipment 2,271,207 16,655 46,863 2,240,999 Port Facilities' Executive Offices 812,820 31,848 844,668 Port Facilities' Investigations and Studies 1,208,497 4,079 1,212,576 Port Facilities' Wharves and Terminals 89,483,118 906,122 90,389,240
Total Capital Assets, Being Depreciated 93,775,642 958,704 46,863 94,687,483 Less Accumulated Depreciation:
Furniture, Fixtures and Equipment 1,548,866 301,596 46,863 1,803,599 Port Facilities . Executive Offices 474,628 33,168 507,796 Port Facilities' Investigations and Studies 650,817 88,403 739,220
Port Facilities' Wharves and Terminals 36,099,657 2,404,991 38,504,648 Total Accumulated Depreciation 38,773,968 2,828,158 46,863 41,555,263
Total Capital Assets, Being Depreciated, Net 55,001,674 (1 ,869,454) 0 53,132,220
Total Capital Assets, Net $65,680,755 $3,312,070 $478,846 $68,513,979
32 PORT OF PORT ARTHUR NA VIGA TION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31 2016 AND 2015
NOTE 8 LONG TERM DEBT On September 25,2008, the District issued general obligation bonds. Unlimited Tax Refunding Bonds, Series 2008A (non-AMT), in the amount of $24,885,000 to refund certain outstanding Bonds of the District, refund a bank loan and pay cost of issuance. Unlimited Tax Port Improvement Bonds. Series 2008B (AMT), in the amount of $10,000,000 to pay a portion of the cost of projects to acquire, purchase, construct, enlarge, extend, repair or develop facilities or aids to or useful or necessary in the operation or development of the District's ports and water -ways or in aid of navigation and commerce thereon and pay the issuance cost. These bonds will be repaid from the receipt of separate annual ad valorem taxes, without legal limit as to rate, levied on all taxable property within the District.
A statement of changes in long-term debt for the year ended July 31,2016 is as follows:
Beginning Ending Current Balance Additions Reductions Balance Portion General Obligation Debt Series 2008A Unlimited Tax Refunding Bonds $20,394,404 $0 $1,455,190 $18,939,214 $1,570,000 Series 2008B Unlimited Tax
Improvement Bonds 8,294.077 0 563,004 7,731,073 6101000 Totals $28,688,481 $0 $2,018,194 $26,670,287 $2,180,000
A Statement of Changes in long-term debt for the year ended July 31,2015 is as follows:
Beginning Ending Current Balance Additions Reductions Balance Portion General Obligation Debt: Series 2008A Unlimited Tax Refunding Bonds $21,786,120 $0 $1,391,716 $20,394,404 $1,505,000 Series 2008B Unlimited Tax Improvement Bonds 8,830,959 0 536,882 8,294,077 580,000
Totals $30,617,079 $0 $1,928,598 $28,688,481 $2,085,000
Total debt service requirement as of July 31,2016 are as follows:
Principal Interest Total 2017 $2,180,000 $1,301,714 $3,481,714 2018 2,275,000 1,202,962 3,477,962 2019 2,380,000 1,097,830 3,477,830 2020 2,495,000 987,106 3,482,106 2021 2,610,000 871,238 3,481,238 Thereafter 15,090,000 2,315,618 17,405,618 Total $27,030,000 $7,776,468 $34,806,468
33 PORT OF PORT ARTHUR NA VIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015 Long-term debt as of July 31, 2016 and 2015 is summarized as follows:
2016 2015
Series 2008A Serial and Term Refunding Bonds $24,885,000 Issue Variable Rate 4.0%-4.75%, Issued September 2008, Maturing March 1, 2026 $19,205,000 $20,710,000
Series 2008B Serial and Term Improvement Bonds $10,000,000 Issue, Variable Rate 4.0%-5.65%, Issued September 2008, Maturing March 1, 2026 7,825,000 8,405,000 Total Bonds 27,030,000 29,115,000 Accretion Payable 0 0 Total Bonds and Accretion Payable 27,030,000 29,115,000 Less Current Maturities 2,180,000 2,085,000 Long-term Debt, Net $24,850,000 $27,030,000
NOTE 9 PROPERTY TAX REFUND PAYMENTS AND LIABILITY During several fiscal years, settlements was reached as a result of lawsuits between "The Premcor Refining Group Inc., Premcor Pipeline Company, Port Arthur Coker Company, L.P., and Valero Energy Corporation" (plaintiffs) vs. Jefferson County Appraisal District (defendant). The settlement agreements required the Jefferson County Appraisal District to revise the market value of plaintiffs property to an agreed value (decrease) for tax years 2006 to 2'01 0 and tax years 2012 to 2015. The plaintiff will in tum, waive and forego any claim to interest which may be owed on any refund to which they may be entitled. Net assets and revenue were reduced and refunds paid in full as of July 31, 2015 in the amount of$2,996,132.
During this fiscal year ending July 31,2013, the courts ruled that the Jefferson County Appraisal District reduce the 2012 taxable value for Chevron Phillips Chemical Company. The resulting refund amount equaled $107,920.
During the current fiscal year, the District was notified of a misapplication of assessment on property owned by Motiva Enterprises, LLC that is not within the boundaries of the District. The resulting refund amount equaled $182,071, payable in two equal payments on or before June 30, 2016 and October 31,2016.
NOTE 10 PROPERTY TAX ABATEMENTS The District negotiates property tax abatement agreements on an individual basis. The District has tax abatement agreements with the following companies as of July 31, 2016:
Percentage of Taxes Amount of Taxes Company Project Abated during Fiscal Yeal' Abated during Fiscal Year Praxair, Inc. Expansion of Hydrogen Complex 80% $ 277,787
Valero Port Arthur Refinery COEX II Expansion Project 90% $ 732,259
Motiva, Project #1 95% $4,176,080
Each agreement, authorized by the Texas Property Redevelopment and Tax Abatement Act, Tex. Tax Code Chapter 312, as amended, and by resolution of the Port of Port Arthur Navigation District of Jefferson County, Texas, desires to increase its tax base by encouraging the development, expansion, modernization or other improvement of real property within the District. 34 PORT OF PORT ARTHUR NA VIGATION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
The Board of Commissioners of the District elected to be eligible to grant abatements and adopt the Jefferson County Amended Uniform Tax Abatement Policy and incorporate herein by reference, and as may be amended or otherwise in effect from time to time following adoption of each resolution, save and except that such policy shall apply to eligible projects (i) lying and being situated on real property within the District and (ii) which, in the discretion of the Board of Commissioners ofthe District, taking into consideration the Standards for Tax Abatement as set forth in its policy, provides for job creation, use of local labor, and use of local vendors and suppliers, with "local" being defined as residing within Jefferson County and to the extent feasible within the boundaries of the District.
NOTE 11 RISK MANAGEMENT AND LITIGATION Risk Management The District is exposed to various risks ofloss related to torts; theft of, damage to and destruction ofassets; errors and omissions; and natural disasters for which the District obtains insurance coverage through commercial insurance carriers. Workman's compensation is covered through participation in a public entity risk pool, where risk is transferred to the pool within policy limits purchased.
Litigation From time to time, the District is subject to routine litigation incidental to its operations. Management believes that the results of any such claims or litigation will not materially affect the District's financial position. The attorney for the District estimates that the amount of actual or potential claims against the District will not materially affect the financial condition of the Port.
NOTE 12 Major Customers and Concentration of Risk The District receives a significant portion of its tax revenues from the petrochemical industry. Major customers ofthe District for this fiscal year, were Fibria Celulose USA, Inc. (formally Aracruz), International Paper Company, Gearbulk Inc., Grieg Star Shipping (formerly Star Shipping), German Pellets Texas, Inc. and the Military. The District also received a significant amount of revenue from Lay-Berthing services and warehouse and terminal space rental and lease fees.
NOTEl3 Other Information and Restatements A Letter of Agreement was executed between the District and Gulf Copper & Manufacturing Corporation, effective August 18, 2010. This agreement states that thirty days after the District received all documentation which effect a transfer of title ofthe Medium Auxiliary Floating Dry Dock, designated as AFDM-2, a sale ofthe AFDM-2 to Gulf Copper & Manufacturing Corporation will be made in accordance with the terms ofa Bill of Sale. This Bill of Sale was executed effective April 13,2011. Under the terms of the sale, the District shall receive usage fee payments beginning on the earlier to occur of (a) the first day of commercial operation of the Dry Dock or (b) March 31,2012. Payments are based upon the monthly occupancy usage of(1) if no vessel is occupying the dry dock, payment is $125 per day; (2) if dry dock is occupied with any barge or self-propelled vessel less than two-hundred fifty feet in length, payment is $411 per day; or (3) if dry dock is occupied with a self-propelled vessel of two-hundred fifty feet or more in length, payment is $822 per day. At the end of the Dry Dock's useful life, Gulf Copper is responsible for the disposal of the asset.
The District was notified at July 14,2015, that a settlement was reached as a result ofa lawsuit filed against BP Corporation North America, BP Exploration and Production, Inc. and any parents, subsidiaries, affiliates, successors, assigns, officers, directors, employees, agents and representatives, resulting from the Deepwater Horizon Oil Spill, which occurred in January 2010. This settlement constituted a full and final settlement of all claims against BP, and all other BP entities, resulting from this incident. The District received $1,215,783 as its portion ofthis settlement.
The District received funds in the amount of$1 ,080,025 at June 6, 2016, from the Federal Emergency Management Agency (FEMA), for facility restorations and repairs and disaster assistance and relief. This was as a result of Hurricane RITA.
35 PORT OF PORT ARTHUR NA VIGA TION DISTRICT NOTES TO FINANCIAL STATEMENTS OF JEFFERSON COUNTY, TEXAS FISCAL YEARS ENDED JULY 31, 2016 AND 2015
NOTE 14 SUBSEQUENT EVENTS Management has evaluated events and transactions subsequent to the statement of net position date through the date ofthe auditor's report (date financial statements are available to be issued) for potential recognition or disclosure in the financial statement. Management has not identified any such matters requiring disclosure.
36 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RA nos
Year Ended Year Ended Total Pension Liability December 31,2015 December 31,2014 Service $168,010 $166,654 Interest on total pension liability 318,197 288,481 Effect of plan changes (12,943) 14,854 Effect of assumption changes or inputs 38,774 Effect of economic/demographic (gains) or losses 95,353 (9,456) Benefit payments/refunds of contributions (87,755) (111,198) Net change in total pension liability 519,636 349,335
Total pension Iibility, beginning 3,876,352 3,527,018 Total pension liability, ending (a) $4,395,988 3,876,352
Fiduciary Net Position Employer contributions 25,612 24,361 Member contributions 119,528 113,686 Investment income net of investment expenses (62,968) 317,359 Benefit payments/refunds of contributions (87,755) (111,198) Administrative expenses (3,638) (3,765) Other 5,071 4,091 Net change in fiduciary net position (4,150) 344,534
Fiduciary net position, beginning 5,058,434 4,713,900
Fiduciary net position, ending (b) $5,054,284 $5,058,434
Net pension liability / (asset), ending = (a) - (b) ($658,296) ($1,182,082)
Fiduciary net position as a % of total pension liability 114.97% 130.49% Pensionable covered payroll $1,707,541 $1,624,085 Net pension liability as a% of covered payroll -38.55% -72.78%
Notes to Schedule Benefit changes. None Changes in actuarial assumptions and methods. None This schedule will be 10 years as information is available.
37 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF EMPLOYER CONTRIBUTIONS
Actuarially Actual Contribution Pensionable Actual Contribution Year Ending Determined Employer Deficiency Covered as a % of Covered December 31 Contribution Contribution (Excess) Payroll Payroll
2006 $58,261 $58,261 $0 $920,395 6.3% 2007 54,753 54,753 0 855,518 6.4% 2008 53,948 53,948 0 923,768 5.8% 2009 65,214 65,214 0 1,109,079 5.9% 2010 84,198 584,198 (500,000) 1,236,381 47.3% 2011 84,330 284,330 (200,000) 1,369,001 20.8% 2U12 36,237 36,237 U 1,421,U44 2.5% 2013 24,931 24,931 0 1,538,945 1.6% 2014 12,505 24,361 (11,856) 1,624,085 1.5% 2,015 16,051 25,612 (9,561) 1,707,540 1.5%
Notes to Schedule Actuarial valuation date 12/3112013 Methods and assumptions used to determ ine contribution rates: Actuarial Cost Method. Entry age . Amortization method Level percentage of payroll, closed Amorization period in years 0.0 (based on contribution rate calculated in 12/31/2015 valuation) Asset valuation method Subdivision accumulation fund 5-yr. smoothed market Salary Increases Varies by age and service. 4.9% average over career including inflation. Inflation 3.0% Investment rate of Return 8.0% net of investment expenses, including inflation Retirement Age Members who are eligible for service retirement are assumed to commence receiving benefit payments based on age. The average age at service retirement for recent retirees is 61. Mortality The 2015 actuarial valuation, assumed life expectancies were adjusted as a result of adopting a new projection scale (110% ofthe MP-2014 Ultimate Scale) for 2014 & later. Previously Scale AA had been used. The base table is the RP-2000 table projected with Scale AA to 2014. Changes in Plan Provisions Effective with the 2015 calendar year, employer contributions reflect that a 40% Reflected in the Schedule CPI COLA was adopted
38 Supplemental Schedules PORT OF PORT ARTHUR NAVIGA nON DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF INSURANCE IN FORCE July 31, 2016
Policy Coinsurance Annual Company Number Type Property Amount Deductible Applicable Inception Expiration Premiums Navigators Insurance Company SEI5LIA73498I82 Marine Liability Insurance General Umbrella Liability $30,000,000 12131115 12/31116 35,609 Marsh Insurance
Travelers IndelIUlity Company ZPD-41 MI 6829-15-ND Commerical Property Berths I, 2, and 3 21,054,420 100,000 10126/15 10126116 303,302 - Dock & Piers Fender System 192,150 Berths 4 and 5 14,563,500 Modular Fender System 1,020,000 Rail Causeway (1969) 400,000 50,000 Rail Causeway (1992) 400,000 50,000
Travelers Indemnity Company H-660-1 F695544-TCT -15 Commerical Property Transit Sheds, Warehouses, 25,831,235 100,000 90% 10126/15 10126116 174,932 Command Center, Admin. Building Business Personal Property, Equipment Business Income/Extra Exps.
Fidelity and Deposit Company LPM758919101 U. S. Customs Bond Custodian of Bonded 100,000 01120116 01/20/17 $ 1,250 Merchandise
The Fidelity and Deposit Companies CCP 1497433 22 Public Employee Theft Commerical Crime Bond 250,000 2,500 03/15116 03115/17 $ 573
Travelers Property Casualty Company of ZOL-IOS62286-15-ND Marine General and Terminal Terminal Operator's Legal Liab. 1,000,000 25,000 06/15116 06/15/17 $ 64,400 of America Operator's Legal Liability Insurance
Allied World Surplus Lines Insurance Co. 0202 - 6177 Directors & Officers Public Officiial Liability and 5,000,000 25,000 06115/16 06/15/17 $ 25,978 Employment Pracrices Liability
Wright National Flood Insurance Company 421150346196 06 Commercial Flood Insurance Executive Office Building 500,000 1,000 05/17/16 05117/17 $ 5,163 (221 Houston Avenue)
Building Contents 140,000 1,000 05/17/16 05117/17
Wright National Flood Insurance Company 42115058551604 Commercial Flood Insurance Command Center Building 500,000 1,000 09118115 09118116 $ 3,083
Building Contents 450,000 1,000 09/18/15 09/18/16
Progressive County Mutual Insurance Co. 045\1782-7 Comprehensive and General Combined Liability 1,000,000 250 04/09116 04109117 3,176 Liability Auto Policy Personal Inj ury 10,000
Texas Mutual Insurance Company TSF-0001175799 Workers' Compensation Employees and Commissioners 1,000,000 01113116 01113117 24,059
CNA Surety 15555303 Notary Errors and Omissions Floyd Gaspard 25,000 07/21114 07121118 $ 71
CNA Surety 71135122N Notary Errors and Omissions Sandra Myers 25,000 08106115 08/06119 $ 71
39 PORT OF PORT ARTHUR NAVIGAnON DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF INSURANCE IN FORCE July 31,2016
Policy CoinsW1lllce Annual Company l'wnber Type Property ArnOWIt Deductible Applicable Inception Expiration Premiwns
Fidelity and Deposit Company POB8348835-06 Port Commissioners Bond Mark L. Underhill 1,000 05/11 /15 05/11/17 S 185 (Zurich) POB7591700 03 Port Commissioners Bond Linda Turner Spears 1.000 05/22/15 05122/17 $ 185 POB 30087692 T Port Commissioners Bond Raymond Johnson 1,000 05/10/15 05/10117 S 185 POB761267602 Port Commissioners Bond John Comeaux 1,000 12121/15 12121117 S 185 CNA Surety Company POB6203843I Port Commissioners Bond Norris Simon, Jr. 1,000 05/2 1/15 05/21/17 S 93
Texas WindslOnn Association 61847508 Windstorm and Hail Executive Office Building 906,641 9,066 80% 06/29/16 06/29/17 $ 8,779 Business IncomelExtra Exps. 99,960 168 Hrs. 06/29116 06/29/17 $ 1,571 Building Contents 130,000 1,300 80% 06/29116 06/29117 $ 1,229 Building Contents IDock Office 64,173 1,000 80% 06/29116 06/29117 668
Texas Windstonn Association 61847508 Windstorm and Hail Transit Shed # I 4,424,000 44,420 Waived 06/29/16 06129117 37,247
Transit Shed #2 4,359,827 43,598 Waived 06129/16 06/29117 $ 45,838
Command Center 756,650 7,567 80% 06/29/16 06/29/17 2,746 Canopy 532,638 5,326 80% 06129116 06129/17 $ 4,1l6 Readers - Under Canopy 168,062 1,681 80% 06/29116 06129/17 $ 1,684
Business Personal Property 440,400 4,404 80% 06/29116 06/29/l7 $ 1,278
Texas Windstonn Association 61847508 Windstorm and Hail Large Warehouse Building 2,214,300 22,143 80% 06/29/16 06/29/17 $ 6,513 200 Houston Avenue Business Income/Extra Exps. 99,960 168 Hrs. 06/29116 06/29117 592
Small Warehouse Building 186,600 1,866 80% 06/29/16 06/29117 $ 2,037 211 Houston Avenue Business Income/Extra Exps. 9,000 168 Hrs. 06129/16 06129/l7 127
40 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUE AND EXPENSES - ACTUAL AND BUDGET FOR THE YEAR ENDED JULY 31, 2016 Variance With BUDGETED AMOUNTS ACTUAL Final Budget ORIGINAL FINAL AMOUNTS Positive (Negative) Operating Revenue Loading $1,941,700 $1,941,700 $2,000,754 $59,054 Unloading 498,750 498,750 660,359 161,609 Wharfage 962,520 962,520 542,651 (419,869) Layberthing 1,616,685 1,616,685 1,305,635 (311,050) Dockage 464,820 464,820 1,358,569 893,749 Security Surcharges 272,300 272,300 306,059 33,759 Gantry Crane 17,165 17,165 62,100 44,935 Cleaning 99,840 99,840 111,200 11,360 Line Handling 270,890 270,890 292,175 21,285 Shed and Pier Hire 51,280 51,280 67,200 15,920 Storage 3,115 3,115 27,795 24,680 Other Operating Revenue 79,350 79,350 195,975 116,625 Property Rentals, Terminal/Warehouse Lease 189,000 189,000 214,970 25,970 Property Taxes (OS and O&M) 9,684,235 9,684,235 8,945,569 (738,666) Total Operating Revenue $16,151,650 $16,151,650 $16,091,010 ($60,640) Operating Expenses Salaries $1,705,585 $1,705,585 $1,822,614 ($117,029) Employee Benefits 582,179 582,179 $617,239 (35,060) Sales and Marketing Expenses 301,845 301,845 $287,341 14,504 Insurance and Bonds 924,605 924,605 794,902 129,703 Legal, Engineering and Other Professional Fees 331,000 331,000 516,257 (185,257) Office Expenses 26,500 26,500 26,019 481 Port Commission Fees 30,600 30,600 30,600 0 Other Expenses 75,000 75,000 53,528 21,472 Utilities 352,401 352,401 322,663 29,738 Maintenance Dredging 600,000 600,000 1,395,048 (795,048) Spoil Areas #8 & #11 Maintenance 37,941 37,941 37,941 Miscellaneous Terminal 5,000 5,000 32,686 (27,686)° 41 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS STATEMENT OF REVENUE AND EXPENSES - ACTUAL AND BUDGET FOR THE YEAR ENDED JULY 31,2016 Variance With BUDGETED AMOUNTS ACTUAL Final Budget ORIGINAL FINAL AMOUNTS Positive (Negative) Repairs and Maintenance General Repairs and Maintenance 600,000 600,000 510,669 89,331 (Less) Insurance Proceeds 0 0 0 0 Gantry Repairs and Maintenance 80,000 80,000 20,261 59,739 Railroad Repairs and Maintenance 50,000 50,000 63,487 (13,487) Vehicle, Equipment Repairs and Maintenance 50,000 50,000 149,984 (99,984) Bulkhead Repairs and Maintenance 50,000 50,000 4,000 46,000 Loading - Subcontractor 1,632,131 1,632,131 1,663,543 (31,412) Unloading - Subcontractor 470,753 470,753 615,671 (144,918) Outside Services 982,440 982,440 1,000,512 (18,072) Interest Expense (Net) $1.467,530 $1.467,530 $1.423.717 $43,813 Bond Administrative Cost and Arbitrage Expense 0 0 0 0 Tax Collection Expense 145,000 145,000 99,563 45,437 Depreciation Expense 2,826,400 2,826,400 2,734,518 91,882 Total Operating Expenses $13,326,910 $13,326,910 $14,222,761 ($895,852)
Operating Income (Loss) $2,824,740 $2,824,740 $1,868,249 ($956,491)
Non-Operating Revenue (Expenses) Interest Income $200,000 $200,000 $327,768 $127,768 Management Fees 0 0 0 0 Foreign Trade Zone Revenues 20,000 20,000 15,000 (5,000) Capital Grants 0 0 103,430 103,430 Storm Damages-Insurance Proceeds, FEMA Grants 0 0 1,080,026 1,080,026 Miscellaneous Other Revenue (Expenses) 20,000 15,000 249,774 234,774 Gain(Loss)SalelDisposal of Assets, Lawsuit 0 0 0 0 Total Non-Operating Revenue (Expenses) $240,000 $235,000 $1,775,998 $1,540,998
Net Income (Loss) $3,064,740 $3,059,740 $3,644,247 $584,507
42 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS GENERAL LONG-TERM DEBT REQUIREMENTS--BY YEARS UNLIMITED TAX REFUNDING BONDS -SERIES 2008A July 31,2016
Unlimited Tax Refunding Bonds Series 2008A - $24,885,000 September 1, March 1, Total Principal Year Ended Interest Principal Interest and Interest
2017 436,913 1,570,000 436,913 2,443,826 2018 403,550 1,635,000 403,550 2,442,100 2019 367,784 1,705,000 367,784 2,440,568 2020 331,406 1,780,000 331,406 2,442,812 2021 293,581 1,855,000 293,581 2,442,162 2022 251,844 1,940,000 251,844 2,443,688 2023 206,981 2,030,000 206,981 2,443,962 2024 158,769 2,125,000 158,769 2,442,538 2025 108,300 2,230,000 108,300 2,446,600 2026 55,336 2,335,000 55,336 2,445,672
Totals $ 2614464 $ 19205000 $ 2614464 $ 24433928
43 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS GENERAL LONG-TERM DEBT REQUIREMENTS--BY YEARS UNLIMITED TAX PORT IMPROVEMENT BONDS 2008B July 31, 2016
Unlimited Tax Port Improvement Bonds Series 2008B - $10,000,000 September 1, March 1, Total Principal Year Ended Interest Principal Interest and Interest
2017 213,944 610,000 213,944 1,037,888 2018 197,931 640,000 197,931 1,035,862 2019 181,131 675,000 181,131 1,037,262 2020 162,147 715,000 162,147 1,039,294 2021 142,038 755,000 142,038 1,039,076 2022 120,803 795,000 120,803 1,036,606 2023 99,438 840,000 99,438 1,038,876 2024 76,863 885,000 76,863 1,038,726 2025 52,525 930,000 52,525 1,035,050 2026 26,950 980,000 26,950 1,033,900
Totals $ 1 273 770 $ 7 825 000 $ 1 273 770 $ 10372 540
44 PORT OF PORT ARTHUR NAVIOA TION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF CASH AND INVESTMENTS JULY 31, 2016 AND 2015
Date Maturity Investment Market Investment Market Owned By: Acguired Date Cost Value Cost Value 2016 2015
CASH AN D CASH EQUIVALENTS Unrestricted
Texas Treasury - TEXPOOL Various nla $ 5,313,374 $ 5,313,374 $ 4,738,904 $ 4,738,904 Cash Various nla 823,414 823,414 458,790 458,790
Total Unrestricted Cash and Cash Equivalents $ 6,136,788 $ 6,136,788 $ 5,197,694 $ 5,197,694
Restricted Texas Treasury - TEXPOOL Various nla $ 4,864,260 $ 4,864,260 $ 5,565,942 $ 5,565,942 Cash Various nla 277,080 277,080 269,497 269,497
Toral Restricted Castt and Cash Eauivalent $ 5,141,340 $ 5,141,340 $ 5,835,439 $ 5,835,439
TOTAL CASH AND CASH EQUIVALENTS $ 11,278,128 $ 11,278,128 $ 11,033,133 $ 11 ,033, 133
OTHER INVESTMENTS
Unrestricted
Amarillo TX ISD 00 Bonds - 2.0% 03/21113 02/01116 317,279 317,504 Birdville TX ISD 00 Bonds - .50% 04/30113 02115116 249,328 249,593 Port Arthur TX ISD 00 Bonds - .50% 05/06113 02115116 100,914 101,075 Williamson Cnty TX Toll Bonds - 2.0% 05/08113 02/15/16 226,851 227,151 Federal National Mortgage Assn .. - .875% 03/28114 03/28117 400,000 400,254 Federal National Mortgage Assn .. - 0% 04/24114 05/15117 492,655 498,254 487,648 493,383 Federal National Mortgage Assn .. - 1.070% 08/22114 08/22117 500,000 500,129 500,000 501,096 City of Lubbock TX 00 Bonds - 1.230% 03/09115 02115/18 500,560 502,890 500,904 499,915 Federal Home Loan Bank - 1.05% 04/27/15 04127/18 500,000 499,204 Federal Home Loan Bank - 1.05% 05/11115 05/11/18 500,000 498,792 Federal Home Loan Bank - 1.08% 05/18115 05/18/18 500,000 498,083 Federal National Mortgage Assn .. (F/M) - 1.20% 05/27/15 05/25/18 500,000 499,033
45 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SCHEDULE OF CASH AND INVESTMENTS JULY 31, 2016 AND 2015
Date Maturity Investment Market Investment Market
OwnedB~: Acguired Date Cost Value Cost Value 2016 2015
Unrestricted Federal National Mortgage Assn .. Note - 1.30% 06/29/15 06/29/18 300,000 299,577 Federal National Mortgage Assn .. (F/M)- 1.20% 06/29115 06/29/18 500,000 503,008 500,000 499,662 DFW-TX Airport Taaxable Muni Bonds - 3.12% 03115/16 1I/0I/18 518,512 519,010 Federal National Mortgage Assn .. (F/M) - 1.20% 02/26/16 02/26119 500,000 500,044 Federal National Mortgage Assn .. (F/M) - 1.25% 03115116 03/15119 500,000 500,192 Fed. Home Loan Mortgage (FreddieMac)- 1.3% 03/29116 03/29119 400,000 400,066 Federal Farm Credit Bk (FFCB) - 1.19% 04/25/16 04/25119 500,000 500,570 Fed. Home Loan Mortgage Corp.(FHLMC)-1.15% 04/26116 04/26119 500,000 500,083 Federal Home Loan Bank (FH:B) - 1.5% 04/26116 04/26/19 500,000 501,433 Federal Home Loan Bank (FH:B) - 1.25% 04/26116 04/29/19 500,000 500,007 Federal National Mortgage Assn .. (FNMA)-1.20% 05/26116 05/23119 500,000 500,169 Fed. Home Loan Mortgage Corp.(FHLMC)-1.35% 05/24/16 05/24/19 500,000 500,106 Federal National Mortgage Assn .. (FNMA)-1.40% 06113116 06/13119 500,000 500,943 Federal National Mortgage Assn .. (FNMA)-1.25% 07/27116 07/26119 500,000 500,084 Certificates of Deposits Various Various 21,861,000 21,975,380 19,922,000 19,910,581
Total Unrestricted Other Investments $ 29,772,727 $ 29,902,366 $ 25,504,968 ~ 25,494,900
TOTAL OTHER INVESTMENTS $ 29,772,727 $ 29,902,366 $ 25,504,968 $ 25,494,900
TOT AL CASH AND rNVESTMENTS $ 41,050,855 $ 41,180,494 $ 36,538,101 $ 36,528,033
46 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS SECURITIES PLEDGED BY WELLS FARGO BANK, N.A. AS SECURITY FOR DEPOSITS July 31,2016
Securities Pledged Maturity Coupon % Market Value
FMAC Security #3128MMSN4, Par $478,698.64 09/01/29 3.00% $ 504,223 FNMA Security #31417CLR4, Par $546328.82 07/01142 3.00% $ 571 ,487
TOTAL $ 1,075,710
47 Statistical Section (Unaudited) PORT OF PORT ARTHUR NA VIGA nON DISTRICT OF JEFFERSON COUNTY, TEXAS Table 1 Tonnage Report By Commodities(in Short Tons) Fiscal Years Ending July 31 (UNAUDITED)
Commodity 2016 2015 2014 2013 2012
Mis. - Other Cargo 610 309 0 0 0 Linerboard 69,307 100,017 76,640 94,398 80,370 Wood Pellets 393,543 418,751 333,319 0 0 Pipe 0 1,887 0 0 4,595 Naptha 0 18,393 0 55,874 0 Bio Diesel 0 6,072 0 0 0 Gasoline 74,696 139,269 7,077 14,195 0 W oodpulp - Rolls & Bales 0 0 0 5,944 3,703 Project Cargo 93 1,341 379 857 409 Military Cargo 18,802 0 15 170 31 ,050 FAME 7,755 0 0 0 0 Total Exports 564,806 686,039 417,430 171,438 120,127
Project Cargo 5,649 4,069 73 3,054 0 Rail- Heat TR 4,988 0 0 0 Woodpulp 282,059 322,542 264,854 250,464 217,060 Wood Pellets 6,956 0 0 0 0 Ultra Low SU 0 4,964 0 7,613 Other Cargo 252 0 385 189 284 LinerboardIHardboardslPlywood 0 0 0 0 Steel, Aluminum, Rail Products 0 0 11,007 5,008 Military Cargo 10,448 5,799 15,431 3,330 31,223 Containers 1,692 0 13 0 0 Petroleum Coke, Diesel Products 0 0 0 0 Total Imports 307,056 337,398 285,720 268,044 261,188
TOTAL TONNAGE 871 ,862 1,023,437 703,150 439,482 381 ,315
PORT OF PORT ARTHUR NAVIGA nON DISTRICT OF JEFFERSON COUNTY, TEXAS Table 2 VESSEL COUNTS FISCAL YEARS ENDING JULY 31, (UNAUDITED)
VESSEL COUNTS 2016 2015 2014 2013 2012
Ships 44 93 80 55 48 Layberths 155 138 107 78 41 Tugs 3 0 0 0 0 Barges 9 50 6 18 5 Railcars 4,262 3,885 3,861 4,077 3,956 Trucks 6,373 5,040 6,241 3,983 4,533 Lightering 49 8 TOTAL VESSEL COUNT 10,895 9,214 10,295 8,211 8,583
48 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 3 OUTSTANDING DEBT PAYABLE FROM AD VALOREM TAXES July 31, 2016
Outstanding Debt Amount
Unlimited Tax Refunding Bonds, Series 2008A $ 19,210,000 Unlimited Tax Port Improvement Bonds, Series 2008B $ 7,825,000
Totals $ 27,035,000
PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 4 DISTRICT TAX RATES (UNAUDITED)
Operations and Debt Debt Service Maintenance Service Reserve Fund Total
2015 0,100000 0.056645 0,1566115 2014 0.100000 0.055381 0.058991 0.214372 2013 0.100000 0.051705 0.013020 0,164725 2012 0.086816 0.041334 0,128150 2011 0,074382 0.053768 0,128150 2010 0.073584 0.054566 0,128150 2009 0,068872 0.059278 O. [28150 2008 0.081190 0.046960 0.128150 2007 0,069807 0.058343 0.128150 2006 0.056325 0.071825 0.128150
49 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 5 TAXABLE ASSESSED VALUATION BY CATEGORY (UNAUDITED)
Market Value Appraised Values Tax Year 2016 Tax Year 2015 Tax Year 2014 Tax Year 2013 Tax Year 2012 Amount % Amount % Amount % Amount % Amount % Real Property Single Family 1,108,642,454 10.37% 1,091,529,945 10.21% 1,063,949,301 9.54% 1,055,721,996 8.76% 1,051,159,380 11.00% Multifamily 174,845,390 1.63% 156,130, I 05 1.46% 146,456,130 1.31% 141,652,462 1.17% 142,602,340 1.49%
Vacant lots/tracts 59,279,437 0.55~Vo 59,630,261 0.56% 53,974,002 0.48% 55,655,783 0.46% 55,479,363 0.58% Acreage 27,764,400 0.26% 28,104,580 0.26% 32,699,200 0.29% 34,085,340 0.28% 98,136,960 1.03% Farm & ranch imps 63,867,140 0.60% 64,482,400 0.60% 67,564,876 0.61% 65,254,762 0.54% 1,785,350 0.02% Commercial 525,162,635 4.91% 518,936,962 4.85% 507,185,053 4.55% 514,050,685 4.26% 525,0 I 6,640 5.49% Industrial 6,903,935,530 64.55% 7,152,225,650 66.87% 7,493,433,596 67.17% 8,175,120,740 67.81% 6,083,939,850 63.66% Oil/gas/minerals 7,064,798 0.07% 12,126,770 0.11% 20,391,582 0.18% 22,054,589 0.18% 41 ,005,770 0.43%
Personal Property Utilities 134,047,930 1.25% 136,557,310 1.28% 125,854,660 1.13% 123,779,000 1.03% 124,020,420 1.30% Commercial 287,849,816 2.69% 293,135,729 2.74% 302,691,150 2.71% 425,434,620 3.53% 275,078,630 2.88% Industrial 842,214,790 7.87% 1,105,314,750 10.33% 1,473,602,180 13.21% 1,597,971 ,810 13.25% 1,158,892,860 12.13% Other Personal 18,321 ,550 0.17% 387,800 0.00% 401 ,850 0.00% 13,450,700 0.11% 464,350 0.00% Total Exempt Property 542,917,775 5.08% 537,465,344 5.02% 767,778,142 6.88% 358,959,839 2.98% Appraised Value (2012- 2009) 10,695,913,645 100.00% 11,156,027,606 104.30% 12,055,981,722 108.07% 12,583,192,326 104.37% 9,557,581,913 100.00%
Less: Deductions Homestead Cap 1,294,435 1,107,892 1,849,950 1,336,024 34,128,640 Agriculture Exemptions 26,708,960 27,151,520 31,950,660 33,743,890 591 ,977,420 Tax Abatements 3,115,133,500 3,333,004,940 3,390,294,416 3,822,275,620 328,380,525 Homestead Exemptions 333,802,767 337,954,642 332,838,394 325,383,347 7,030,484 Veterans Exemptions 10,841,438 10,067,775 8,707,958 7,623,054 4,948,700 Primarily Charitable Org. 1,116,340 69,020 69,020 0 0 Pollution Control Property 1,011 ,158,211 1,018,099,919 1,036,481,460 1,002,129,960 Other Exempt Property 598,299,144 616,491,044 830,567,327 528,387,863 Total Deductions 5,098,354,795 5,343,946,752 5,632,759,185 5,720,879,758 966,465,769
Net Taxable Value 5,597,558,850 5,812,080,854 6,423,222,537 6,862,312,568 8,591 ,116,144
* Beginning 2013, Market Values are provided. Proir years are shown at Appraised Values. Additionally, other exempt property categories were added.
50 PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 6 TAX LEVIES, COLLECTIONS AND DELIQUENCIES (UNAUDITED)
Tax Assessed Debt Service Maintenance Total Total Amount Current % Total % FYE Year Valuation Tax Rate Tax Rate Tax Rate Assessed Collected Collected Collected 7/31
2007 4,845,646,010 0.058343 0.069807 0.128150 6,209,697 6,133,992 97.89% 98.78% 2008 2008 5,632,564,784 0.046960 0.081190 0.128150 7,218,196 7,280,985 99.82% 100.87% 2009 2009 6,230,484,626 0.059278 0.068872 0.128150 7,984,388 7,856,279 97.85% 98.40% 2010 2010 6,894,243,024 0.054566 0.073584 0.128150 8,834,981 8,676,006 98.05% 98.20% 2011 2011 7,012,054,208 0.053768 0.074382 0.128150 8,985,952 8,944,148 98.27% 99.53% 2012 2012 8,591,116,144 0.041334 0.086816 0.128150 11,009,519 10,974,605 98.76% 99.68% 2013 2013 6,860,976,544 0.064725 0.100000 0.164725 11,301,750 11,038,091 97.91% 97.67% 2014 2014 6,418,197,149 0.114372 0.\00000 0.214372 13,758,816 13,586,632 97.94% 98.75% 2015 2015 6,116,509,742 0.056645 0.100000 0.156645 9,581,179 8,504,129 93.38% 88.76% 2016 2016 5,597,248,352 0.092310 0.074335 0.166645 9,331 ,255 In Process of Collection 2017
Port of Port Arthur Property Tax Rates 0.140000 0.120000 0.100000 0.080000 CI) ..... as 0.060000 0::: 0.040000 0.020000 0.000000 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~rp>rp>rp>~~~ &I Debt Service Fund Year a O&M Fund
51 PORT OF PORT ARTHUR NAVIGA nON DISTRICT OF JEFFERSON COUNTY, TEXAS Table 7 TEN LARGEST TAXPAYERS (UNAUDITED)
2016 Assessed %of Taxpayer Type of Property Valuation Total
Motiva Refinery Oil Refinery & Storage $1,617,612,065 28.90% The Premcor Refining Group Inc. Petroleum Refining & Supplier $ 780,899,754 13.95% Chevron Phillips Chemical Co. Chemical Company $ 279,336,669 4.99% Enterprise Texas Pipeline LP Energy Services Provider $ 212,535,140 3.80% Flint Hills Resources LP (I) Refining & Chemical Company $ 170,307,662 3.04% Air Products & Chemicals Inc. Chemical Company $ 166,276,730 2.97% Praxair Inc. Producer-Speciality Gases & Coating $ 108,337,810 1.94% Chevron USA Inc Oil Refinery & Storage $ 90,608,080 1.62% Entergy Texas Inc. Electrical Utility $ 53,228,090 0.95% MPT of Port Arthur LLC Medical Facilities $ 50,536,070 0.90%
$3,529,678,070 63.06%
(1) - Acquired Huntsman Corporation's Chemical & Polymer assets.
52 PORT ARTHUR NA VIGA TION DISTRICT OF JEFFERSON COUNTY, TEXAS Table 8 STATEMENT OF REVENUES AND EXPENDITURES - REVENUE FUND YEAR ENDED JULY 31, '(UNAUDITED)
07/31116 07/31115 07/31/14 07/31113 07/31/12
Operating Revenues Loading 2,000,754 2,132,722 1,717,292 1,566,229 1,431,244 Unloading 660,359 534,894 597,245 514,072 498,411 Wharfage 542,651 741,831 287,749 249,955 284,501 Dockage 2,664,204 2,749,180 2,065,340 1,455,741 1,014,337 Line Handling 292,175 301,475 236,721 144,400 96,900 ShedlPier Hire 67,200 57,085 73,100 80,100 57,505 Cleaning 111,200 113,770 116,750 76,800 70,200 Gantry Crane Use 62,100 18,850 36,275 28,975 34,625 Security Surcharge 306,059 297,430 228,244 210,469 332,283 Other 195,975 93,086 174,841 40,220 73,074 Storage Fees 27,795 2,845 21,679 7,054 28,035 Total Public Ocean Terminal Revenues 6,930,472 7,043,168 5,555,236 4,374,014 3,921,114 Total Other Revenues 1,875,916 1,845,722 1,293,299 1,331,361 2,241,139 Total Public Ocean Terminal and Other Revenues 8,806,388 8,888,890 6,848,535 5,705,375 6,162,253 Property Tax Revenues - Operating & Maintenance 5;705,109 10,015,060 7,407,812 7,009,956 5,234,208 Total Revenues 14,511,497 \8,903,951 14,256,347 12,715,331 11,396.461
Operating Expenditures Salaries 1,853,214 1,672,630 1,644,566 1,523,654 1,445,492 Employee Benefit Programs 617,239 482,154 563,733 468,377 603,742 Private Security 817,329 819,272 759,521 659,392 673,207 Insurance & Bonds 794,902 609,529 824,026 764,970 715,893 Properties and Facilities Maintenance 748,402 730,432 607,743 718,268 608,099 Maintenance Dredging 1,395,048 (131,664) 372,929 364,956 450,000 LoadinglUnloadinglMisc.Terminal Expenses 2,279,214 2,290,010 2,075,924 1,780,562 1,710,158 Other Operating Expenses 1,271,839 978,495 1,104,396 2,729,907 794,755 Total Operating Expenditures excluding Depreciation 9,777,187 7,450,857 7,952,838 9,010,087 7,001,346 Promotion & Development Expenditures 287,341 285,991 267,728 280,224 266,224 Total Expenditures 10,064,528 7,736,848 8.220,566 9,290,312 7,267,571
Excess of Revenues over Expenditures 4,446,969 11,167,102 6,035,781 3,425,022 4,128,889
53 !?m~~gnaUd & Lattimore, CPAs III a profe5Siona/services firm
1NDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROAL OVER FlNANCrAL REPORTING AND ON COMPLIANCE AND OTHER MATIERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAL A UDITING STANDARDS
December 19,2016
Port Commissions Port of Port Arthur Navigation District of Jefferson County, Texas Port Arthur, Texas
We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the Port of Port Arthur Navigation District of Jefferson County, Texas as of and for the year ended July 31, 2016 and the related notes to the financial statements, which collectively comprise the District's basic financial statements, and have issued our report thereon dated December 19,2016.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the District's internal control over financial reporting (internal control) to determine our auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, we do not express an opinion on the effectiveness of the District's internal control.
A deficiency in internal control exists when the design ur uperation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable poss.ibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However material weaknesses may exist that have not been identified.
54
3240 Central Mall Drive, Port Arthur, Texas 776421 \",409-983-1669111 409-724-0452 www.bblcpa.com Compliance and Other Matters
As part of obtaining reasonable assurance about whether the District's basic financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclose no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
'is"- P.,-.A..,L iAAZ$;: Brammer, Begnaud & Lattimore
55 [THIS PAGE INTENTIONALLY LEFT BLANK]
APPENDIX C
FORM OF OPINION OF BOND COUNSEL
[THIS PAGE INTENTIONALLY LEFT BLANK] [An opinion in substantially the following form will be delivered by McCall, Parkhurst & Horton L.L.P., Bond Counsel, upon the delivery of the Bonds, assuming no material changes in facts or law.]
PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS UNLIMITED TAX PORT IMPROVEMENT BONDS, SERIES 2017A IN THE AGGREGATE PRINCIPAL AMOUNT OF $______
AS BOND COUNSEL FOR THE PORT OF PORT ARTHUR NAVIGATION DISTRICT OF JEFFERSON COUNTY, TEXAS (the "Issuer") of the Bonds described above (the "Bonds"), we have examined into the legality and validity of the Bonds, which bear interest from the dates specified in the text of the Bonds, until maturity or redemption, at the rates and payable on the dates as stated in the text of the Bonds, and maturing subject to redemption on the dates specified in the text of the Bonds, all in accordance with the terms and conditions stated in the text of the Bonds.
WE HAVE EXAMINED the applicable and pertinent provisions of the Constitution and laws of the State of Texas, and a transcript of certified proceedings of the Issuer, and other pertinent instruments authorizing and relating to the issuance of the Bonds, including one of the executed Bonds (Bond Number T-1).
BASED ON SAID EXAMINATION, IT IS OUR OPINION that the Bonds have been authorized, issued and delivered in accordance with law; that the Bonds constitute valid and legally binding general obligations of the Issuer in accordance with their terms except as the enforceability thereof may be limited by governmental immunity, bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws now or hereafter enacted relating to creditors' rights generally or by general principles of equity which permit the exercise of judicial discretion; and that ad valorem taxes sufficient to provide for the payment of the interest on and principal of said Bonds have been levied and pledged for such purpose, without limit as to rate or amount, on all taxable property within the Issuer.
IT IS OUR FURTHER OPINION, except as discussed below, that the interest on the Bonds will be excludable from the gross income of the owners of the Bonds for federal income tax purposes under the statutes, regulations, published rulings and court decisions existing on the date of this opinion. The exceptions are as follows:
C-1 (1) interest on any Bond will be includable in the gross income of the owner thereof during any period that such Bond is owned by either a "substantial user" of the facilities financed with the proceeds of the Bonds or a "related person" of such user, as provided in Section 147(a) of the Internal Revenue Code of 1986, as amended (the "Code");
(2) interest on the Bonds will be included as an item of tax preference in determining the alternative minimum taxable income of the holder under Section 57(a)(5) of the Code.
OUR OPINIONS ARE BASED on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a guarantee of a result and are not binding on the Internal Revenue Service (the "Service"); rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures the Service is likely to treat the Issuer as the taxpayer. We observe that the Issuer has covenanted not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, may result in the treatment of interest on the Bonds as includable in gross income for federal income tax purposes.
EXCEPT AS STATED ABOVE, we express no opinion as to any other federal, state or local tax consequences of acquiring, carrying, owning or disposing of the Bonds, including the amount, accrual or receipt of interest on, the Bonds. Owners of the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds. In particular, but not by way of limitation, we express no opinion with respect to the federal, state or local tax consequences arising from the enactment of any pending or future legislation.
OUR SOLE ENGAGEMENT in connection with the issuance of the Bonds is as Bond Counsel for the Issuer, and, in that capacity, we have been engaged by the Issuer for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas, and with respect to the exclusion from gross income of the interest on the Bonds for federal income tax purposes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not independently investigated or verified any records, data, or other material relating to the financial condition or capabilities of the Issuer, or the disclosure thereof in connection with the sale of the Bonds, and have not assumed any responsibility with respect thereto. We express no opinion and make no comment with respect to the marketability of the Bonds and have relied solely on certificates executed by officials of the Issuer as to the current outstanding indebtedness of the Issuer and the assessed valuation of taxable property within the Issu- er. Our role in connection with the Issuer's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein.
C-2 THE FOREGOING OPINIONS represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of a result.
Respectfully,
C-3 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK]
USCA Municipal Advisors, LLC
Financial Advisor to the District