o provide the traveling public with a safe, cost effective, and unique MISSION T driving experience across the scenic .

PROFILE

or fifty-four years, the Chesapeake Bay - localities within the District. The District is comprised F has captured worldwide attention as a of six cities: Virginia Beach, Norfolk, Portsmouth, modern wonder and an important East Chesapeake, Hampton, Newport News; and the two Coast travel convenience. Crossing over and under Eastern Shore counties of Northampton and Accomack. open waters where the Chesapeake Bay meets the Atlantic Ocean, the Bridge-Tunnel provides a direct link Following its opening on April 15, 1964, the Bridge- between Coastal Virginia and the Tunnel was selected “One of the Seven Engineering ( plus the Eastern Shore counties in Wonders of the Modern World” in a worldwide and Virginia), and saves 75 miles from the journey competition that included more than one hundred major between Virginia Beach and points north of Wilmington, projects. In addition, in 1965, it was distinguished as Delaware, as compared to the I-64/I-95 corridor. “The Outstanding Achievement” by the American Society of Civil . In 2000, the The Chesapeake Bay Bridge and Tunnel Commission is Bridge-Tunnel was recognized by Structural the governing body of the District. The Commission magazine as one of the “Seven consists of eleven members who are appointed by the Wonders of America for the 20th Century.” In 2007, the Governor of the Commonwealth of Virginia. One Chesapeake Bay Bridge-Tunnel was selected as one of member represents the Commonwealth Transportation Virginia’s “Top Seven Manmade Wonders” in an online Board and the remaining ten members represent the poll conducted by the Richmond Times-Dispatch.

COMMISSION

FREDERICK T. STANT, III Chairman, City of Virginia Beach

THOMAS W. MEEHAN, SR. Vice Chairman, City of Newport News

JOHN F. MALBON Secretary-Treasurer, Commonwealth Transportation Board

PAUL E. BIBBINS, JR., PhD Northampton County

JEFFREY K. WALKER Northampton County

CHRIS SNEAD City of Hampton

JEFFREY A. ROWLAND City of Chesapeake

KAREN S. JAMES City of Portsmouth

REEVES W. MAHONEY City of Norfolk

GREGORY L. DUNCAN, SR. Accomack County

KEITH COLONNA Accomack County

JEFFREY B. HOLLAND Executive Director 

The members of the Chesapeake Bay Bridge and Tunnel Commission have worked diligently during 2018 in administering the affairs of the District in the best interest of the bondholders and the traveling public.

In May, the Commission approved the operating expense budget for the District for fiscal year 2018-2019, in the amount of $15,236,722, which was a 1.3 % increase versus the prior year.

The Commission, working through the Commission Alumni Society, continues to prioritize its with former Commission members and to update them on the Commission and the District, as the Commission Alumni continue to serve as ambassadors of the Chesapeake Bay Bridge-Tunnel.

COMMISSION MEMBERS COMMISSION MEMBERS

FREDERICK T. STANT, III JEFFREY A. ROWLAND CHAIRMAN CITY OF CHESAPEAKE CITY OF VIRGINIA BEACH KAREN S. JAMES THOMAS W. MEEHAN, SR. CITY OF PORTSMOUTH VICE CHAIRMAN CITY OF NEWPORT NEWS REEVES W. MAHONEY CITY OF NORFOLK JOHN F. MALBON SECRETARY-TREASURER GREGORY L. DUNCAN, SR. COMMONWEALTH CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT ACCOMACK COUNTY TRANSPORTATION BOARD 32386 LANKFORD KEITH COLONNA PAUL E. BIBBINS, JR. PhD ACCOMACK COUNTY NORTHAMPTON COUNTY CAPE CHARLES, VIRGINIA 23310 JEFFREY K. WALKER NORTHAMPTON COUNTY 757/331-2960 FAX 757/331-4565

CHRIS SNEAD JEFFREY B. HOLLAND CITY OF HAMPTON WWW.CBBT.COM EXECUTIVE DIRECTOR

February 20, 2019

The Honorable Ralph S. Northam Governor, Commonwealth of Virginia Office of the Governor Post Office Box 1475 Richmond, Virginia 23218

Dear Governor Northam:

We are pleased to submit the Annual Report on the operation of the Chesapeake Bay Bridge and Tunnel District for the year January 1 through December 31, 2018, in accordance with the provisions of Chapter 22, Title 33.2 of the Code of Virginia, formerly Paragraph 16, Chapter 714 of the 1956 Acts of the General Assembly.

As you will see, 2018 was an excellent year for the District. The following pages include information on the District’s volumes, revenue bonds, financial status, operations, maintenance, promotional activities and community involvements.

Thank you for all that you do for the Commonwealth. If you have any questions concerning this Report or the operation of the Bridge-Tunnel, please let us know and we would be most happy to discuss them with you.

CHESAPEAKE BAY BRIDGE AND TUNNEL COMMISSION

Frederick T. Stant, III, Chairman

1 | Parallel Thimble Shoal Channel Tunnel

he Parallel Thimble Shoal Tunnel (the “PTST”) project is being T undertaken by the Chesapeake Bay Bridge and Tunnel District (“the District”) to provide a second tunnel under Thimble Shoal Channel. When complete, the new tunnel will carry two of traffic southbound and the exisng tunnel will carry two lanes of traffic northbound, thereby improving the safety for the travelling public.

The Project development team ulized the design‐build delivery method wherein pre‐qualified teams, veed by the CBBT, were selected to submit proposals to design and build the project. The District developed a set of technical requirements, which were supplied to the teams, and then over the course of several meengs, the bid package was revised to refine the project scope, minimize risk, and reduce costs. In July 2016, the contract was awarded to the low bidder, Chesapeake Tunnel Joint Venture (“CTJV”), in the amount of $756 million.

The new tunnel will be slightly longer than the exisng tunnel due to alignment, approximately 6,500 feet in length, and will be constructed using a tunnel boring , or TBM. A TBM excavates and erects the tunnel as it mines, and the PTST Project is the first transportaon tunnel in the Mid‐Atlanc region to be constructed using this methodology.

The islands at the end of each tunnel require extensive work to allow the TBM to pass, including the expansion of each island via an engineered berm. A TBM is a mobile machine, but it must mine through soils. Sand and several different types of rock will be imported to expand the islands and create the berms. Sand placement comes first and then the rock, smaller sizes lowest and largest sizes on top, to protect the expanded island from the elements.

A groundbreaking ceremony was held in September 2017 and Project tours were hosted in August 2018 to provide a unique opportunity for the general public to learn more about the Project, its progress and to see what’s taking place on the islands. The project is scheduled for compleon in 2023. Work completed in 2018

Detailed design and perming:  Detailed project design advanced to approximately 85%.  Permits for land‐based work were completed in 2017.  Permit for in‐water work from Department of Environmental Quality (DEQ) received before Christmas and the US Army Corps of Engineers (USACE) permit is expected in early 2019.

Construcon Work:  Deep foundaon work, which involves the digging of rectangular holes straight down into the body of the island using specialized excavaon equipment, is ongoing. These holes, once excavated, are then filled with a

| 2

Parallel Crossing Phase II

and steel that will become part of and construcon services as well as materials the TBM launching/receiving pits, and eventually be supply. transformed into the open approaches of the new tunnel roadway. The District’s responsive website connues to offer  The soils under the island areas over which the TBM informaon to a variety of project stakeholders, will pass must be strengthened to ensure the TBM including travelers, students and contractors. It also does not sink in the so soils. The soil strengthening provides a library of all pernent documents and will also serve to inhibit water penetraon into the informaon as it pertains specifically to the Parallel new tunnel. The strengthening involves injecng a Thimble Shoal Tunnel Project. Addionally, the Project cemenous material called grout into the soil and Connect e‐Newsleer connues to provide more than mixing it with the in‐place soils. Preliminary work to 740 interested pares with up‐to‐date informaon and develop grout mixes compable with the in‐situ soils milestone noficaons related to the Parallel Thimble was completed in fall 2018. Shoal Tunnel Project.  Ongoing work at Lile Creek project office locaon includes armor stone stockpiling and fabricaon work for some of the support that will be needed to allow the contractor to expand the islands.

Tunnel Boring Machine (TBM):  The TBM has been constructed and Factory Acceptance Tesng (FAT) was performed in .  The TBM will be stored at the factory unl CTJV arranges to have it shipped to the site in 2019.

Tunnel Segments:  Concrete Systems, Inc. (CSI) has erected a facility in Pictured above: Jet grout testing on Portal Island #1. Chesapeake, VA, to produce the precast concrete Pictured below: Armor stone stockpiled at Little Creek. tunnel segments, and producon should begin in early 2019.  A total of 9,900 tunnel segments that make up the 990 tunnel rings will be produced. CSI will be employing local labor for fabricaon of the segments as well as of the segments to the project site.  Plant tesng and segment producon startup is forecast in the first quarter of 2019 with full producon in the second quarter of 2019.

DBE Goal: Pictured below is the CSI Plant in Chesapeake, VA.  CTJV has completed approximately 20% of the Disadvantaged Business Enterprise (DBE) goal of approximate‐ ly $20 million for the project and has a plan in place to meet or exceed the project goal. Various businesses have been retained to provide both design

3 | Meet CHessie

ccording to tunneling tradion, a TBM cannot begin work unl it is given a name. A The name is generally that of a female, as a sign of good luck for the project ahead. In keeping with tradion, the CBBT announced the kick‐off of a TBM Naming Contest in January. This contest was open to all 6th grade students within the represented localies of the District. Students were asked to submit an essay of 200 words or less or a 2‐minute (or less) video that reflected the chosen name for the TBM. Students were encouraged to be wiy and creave; however, the names had to be a female name or character, real or ficonal, and had to have some significance to the Commonwealth, the Chesapeake Bay region, nature, transportaon or engineering.

More than 120 entries were received and the Top 10 finalists were selected by a Review Commiee comprised of representaves from the Project Partners. The Top 10 names were then published in an on‐line poll and opened to the public for vong. Aer two weeks of on‐line vong, the CBBT and its partners on the Parallel Thimble Shoal Tunnel Project were excited to announce the winning name for the Project’s tunnel boring machine…Chessie! The winning entry was submied by Grace Bentley of Nandua Middle School, located in Onley, VA.

Pictured above is Chessie, the Tunnel Boring Machine that will be used to construct the Parallel Thimble Shoal Tunnel.

Pictured to the left is Grace Bentley (center), with her family and CBBT Commission and staff, as she was presented with a certificate for the winning entry.

| 4

TRAFFIC and Revenue

he Chesapeake Bay Bridge‐Tunnel (the “CBBT”) T provides the only direct north/south route across the lower Chesapeake Bay and completes the coastal transportaon corridor stretching from Maine to Florida.

Traffic totaled 3,931,637 in 2018, a decrease of 67,591, or 1.7% under the 3,999,228 vehicles recorded in 2017. Cars and light trucks accounted for 90.4% of the total traffic or 3,552,076 vehicles, a decrease of 2.0% versus 2017. Heavy trucks totaled 366,693 vehicles or 9.3% of total traffic, an increase of 1.5% over 2017. Buses totaled 12,868 vehicles or 0.3% of the total traffic, and registered a decrease of 6.8% from 2017.

A comparison by classes on a monthly and yearly basis can be found on page vii of the aached financial report. A review of traffic changes since incepon of the facility is indicated in the graph below.

5 |

Gross toll revenue for calendar year 2018 totaled about the toll rate schedule revisions as well as to $57,130,577, a decrease of $773,863 or 1.3% provide a general overview on the Parallel Thimble below gross toll revenue received in 2017. The Shoal Tunnel Project. District accepts cash, E‐ZPass, scrip, and credit cards in the toll lanes for customer convenience. Lile Creek Property The District purchased property at Lile Creek in E‐ZPass ulizaon for 2018 totaled 70.6% of the 1995 to be used as a staging area for the total revenue for calendar year 2018, as compared construcon of the Parallel Crossing Project, and to 67.1% in calendar year 2017. In calendar year Phase I of the Project was completed in 1999. The 2018, the District incurred total E‐ZPass and credit property on Lile Creek Harbor is now being card fees of $1,092,565 for processing electronic leased to the contractor team for the Parallel payments as compared to $1,056,423 during the Thimble Shoal Tunnel Project and connues to previous year. As a result, net toll revenues for produce excellent income for the District. In 2018, 2018 totaled $55,899,454 versus $56,710,311 in income from leases of the Lile Creek property the prior year. totaled $996,513.

At its November 13, 2018 meeng, the Virginia Originals Gi Shop Chesapeake Bay Bridge and Tunnel Commission Virginia Originals LLC, operated by Chris and voted to approve a toll rate increase, effecve Kellson Savvides of Virginia Beach, relocated a January 1, 2019. This toll rate increase is small gi shop to the North Toll Plaza Rest Area compliant with the resoluon that was adopted by Building in October 2017 upon the closing of the the Commission in August 2013, by which the restaurant and space on One Island. Though Commission approved a toll rate increase effecve the new retail space is small, the offerings are huge January 2014 and approximate 10% increases and Virginia Originals connues to offer Bridge‐ every five years thereaer. These toll rate Tunnel memorabilia as well as other unique items increases were approved to fund the acceleraon from the Commonwealth and beyond. In 2018, of the project procurement, award and contract of the District received a total of $8,419 from the the Parallel Thimble Shoal Project from 2021 to lease of the new rest area gi shop. 2016. A series of public informaon meengs were held in November 2018 to inform the public

BONDS

inancing for the District’s Parallel Thimble Bonds”), a subordinate loan from the United States F Shoal Tunnel Project closed in November Department of Transportaon under the TIFIA 2016. The Project financing included the issuance program (the “TIFIA Loan”) in the amount of up to of $321,515,000 First Tier General Resoluon $338,528,672, plus capitalized interest and a Revenue Bonds, Series 2016 (the “Series 2016 subordinate loan from the Virginia Transportaon

| 6

Infrastructure Bank (the “VTIB Loan”) in the Lien of the 2016 General Revenue Bond Resoluon amount of $50,000,000, plus capitalized interest. and bear interest rates of 2.88% and 2.90%, respecvely. The loans do not incur interest unl The Series 2016 Bonds are term bonds maturing drawn, which began in August 2018. from July 1, 2041 through July 1, 2055 with coupon interest rate of 4.0% to 5.0%. The proceeds from The underlying credit rang on the Series 2016 the Series 2016 Bonds, along with the proceeds of Bonds is Baa2 and BBB by Moody’s Investors the TIFIA Loan and VTIB Loan and cash contributed Service and S&P Global Rangs, respecvely. The by the District will be ulized to finance the TIFIA Loan is also rated Baa2 and BBB by Moody’s development and construcon of the Parallel Investors Service and S&P Global Rangs, Thimble Shoal Tunnel Project. respecvely. The VTIB Loan is unrated.

The TIFIA Loan and the VTIB Loan are highly sought All of the District’s outstanding debt porolio is aer funding sources for major transportaon fixed rate debt. projects as they offer low long‐term interest rates and flexible repayment schedules. The TIFIA Loan and the VTIB Loan are issued on the Subordinate

OPERATIONS

Customer Service departments including Accomack and During 2018, the Operaons Division rendered Northampton County Sheriff’s Offices, Cape assistance to 391 customers who experienced Charles, Chincoteague, CBN/Regent University, some type of difficulty with their vehicles while Eastern Shore Community College, Exmore, crossing the facility. Parksley, and Tangier.

Customer Assistance Personnel Training and Connuing Educaon The CBBT’s Driver Assistance Program connues to The District provides opportunies throughout the be well received by the traveling public. year for its employees to parcipate in specialized Operaons Division employees will drive a trainings or connuing educaon classes. customer’s personal across the facility to Throughout 2018, our Operaons personnel pre‐empt an unsafe incident from occurring due to aended the following: any phobia when driving across the facility. This is a free service for customers who are traveling in a  FBINAA (FBI Naonal Academy Associates) First car, van, SUV or pickup truck. In 2018, the Line Supervisors School Operaons Division assisted 741 customers with  Field Training Officer School driving over the facility as a result of  “FBI Civil Rights—JTTF‐Bombs” workshop gephyrophobia, acrophobia, etc.  Crisis Intervenon training  “Dynamics of Officer/Cizen Encounters” In‐Service School training The Chesapeake Bay Bridge‐Tunnel Police  “GLOCK Armorer’s” course Department conducted two Law Enforcement  “Safe Driving Train the Trainer” course In‐Service Schools, which were aended by a total  “Northeast Counterdrug on Courtroom of 15 District Police Officers as well as 22 other Tesmony in Narcoc Cases” training Police Officers from local and regional  “Reasonable Suspicion” training

7 |

 “De‐escalaon and Minimizing Use of Force” Traffic Summonses and Arrests training The Police Department issued 3,374 traffic  “Dangerous Crossroads Ahead” VMLIP summonses, of which 22 were for driving under Workshop the influence. Addionally, the department  “Interview and Interrogaon” training handled 17 felony arrests during calendar year  “VALOR Survive and Thrive” training 2018. Total traffic summonses increased by 12%  “Invesgang and Prosecung DUID Cases” when compared to last year. Of important note, training the Chesapeake Bay Bridge‐Tunnel does not  FBI 9th Annual Law Enforcement Symposium receive summons proceeds from the Courts. All  2018 Virginia Gang Conference related to gang proceeds are credited to the Commonwealth’s acvies and invesgaons Literary Fund.  Impact of Trauma on Law Enforcement Officers Conference Accidents and Safety Benchmarks  Virginia Associaon of Chiefs of Police 2018 During 2018, 20 reportable vehicular accidents Midyear Conference occurred on the facility, which involved five  Vehicle Interdicon (Passenger) training personal injuries and two fatalies. This  DUI Refresher/Updates represents a 20% decrease when compared with  “Hazardous Materials and Tank 25 accidents in 2017. As a result of the 20 Inspecons” training accidents, esmated vehicle damage totaled  Federal Motor Carrier Safety School $248,200, and damage to District property totaled  Customer Service Workshop $277,330.  Fire Truck training Since compleon of the Parallel Crossing Project in Cerficaon: 1999, the injury rate on the CBBT is 10.925 injuries  Virginia Criminal Network (VCIN) Training per 100 million miles traveled, or approximately  TASER Instructor training 11% of the naonal average, which is 99 injuries  Radar/ Cerficaon per 100 million miles traveled.  Firearms Instructor Pre‐shoot Training  Firearms Instructor The Naonal Highway Traffic Safety Administraon  Firearms Familiarizaon and Qualificaons gauges the fatalies per 100 million miles driven training naonwide as 1.16 in the latest reporng year of  Defensive Taccs Instructor Cerficaon 2017. The fatality rate on the CBBT per 100 million  Instructor Chemical Aerosol Projector training miles driven is 0.6032, or just above half of the  General Instructor Cerficaon naonal average.  Speed Measurement Instructor course  Breath Alcohol Operators Wind Restricons  Cerfied Basic Life Support Instructor Occasionally, the District will have to restrict  CPR Training certain traffic from crossing the facility as the result of strong winds or storm cells moving across the Bay. In 2018, a total of 228 hours of restricons were put in place, with winds ranging from 40 mph to greater than 65 mph. The facility was closed to all traffic for a total of 31 hours. To decrease delay mes for some travelers, the

| 8

District offers complimentary wind vans to assist in Addionally, the Operaons Division/Police transporng exterior cargo that would otherwise Department escorted 432 oversized loads, which restrict passenger cars and pickup trucks from required traffic to be stopped at both ends of each crossing during the restricted periods. The District tunnel, resulng in 143 hours of traffic stoppages. connues to use Twier to disseminate any wind Nighme work details in the during restricons to the traveling public. calendar year 2018 totaled 125, resulng in 941 hours of traffic stoppages. In summary, during the Tunnel Closures calendar year 2018, there was a total of 583 lane During 2018, a total of 26 vehicles were disabled in closures in the tunnels, which resulted in a total of the tunnels, which required traffic control unl 1130 hours of traffic stoppages. District‐provided wrecker service arrived. This resulted in 45 hours of traffic stoppages.

Engineering, Maintenance AND

Management Information Systems

Annual Inspecon (FHWA), and the Virginia Department of Trans‐ The Annual Inspecon of the Lucius J. Kellam, Jr. portaon (VDOT). A report on the 2018 Annual Bridge ‐ Tunnel was performed by Jacobs Inspecon was submied to the District on Engineering Group Inc. (Jacobs) during September of January 7, 2019. 2018. This inspecon is conducted annually as required by Secon 504 of the District’s Revenue Addionally, effecve August 13, 2015, as Bond Resoluon Covenant. The inspecon of the defined in the Code of Federal Regulaons, the facility was performed using inspecon procedures FHWA established the Naonal Tunnel that followed the general recommended guidelines Inspecon Standards (NTIS) for highway tunnels. and regulaons of the Naonal Bridge Inspecon The NTIS require tunnel owners to establish an Standards (NBIS), as defined in the Code of Federal inspecon program with the minimum standard to Regulaons, the Federal Highway Administraon inspect the tunnels, to maintain a tunnel inventory, to report inspecon findings to the FHWA, and to correct any crical findings found during the inspecon. In accordance with this mandate, an inspecon of the Chesapeake Channel Tunnel was performed following the recom‐ mended guidelines and regulaons of NTIS, as defined in

9 | the Code of Federal Regulaons, by the FHWA, Maintenance and Management Informaon and by VDOT. Systems The Maintenance and Management Informaon Underwater Inspecon Systems Divisions oversee and maintain the During the past year, Jacobs conducted an following throughout the year: underwater inspecon of the substructure units of Trestles A’NB, ANB and ASB, following the guidelines  Approach totaling eight lane miles of the NBIS. Jacobs retained the diving services of  12 low‐lying concrete totaling 50 lane Croon Diving Corp. for the underwater inspecon miles poron of this work. Jacobs/Croon provided an  Four high level steel bridges over navigaon on‐site engineer/inspector, as appropriate. The channels underwater inspecon of these bridges and trestles  Four manmade islands totaling 20 acres connue the inspecon cycle for the facility’s bridge  13 buildings totaling just under 100,000 square and trestle structures in accordance with the NBIS feet mandated requirement that the frequency of  Just under 100 fleet vehicles, ranging from underwater inspecon not exceed five years. police units to heavy construcon equipment, to underdeck bridge inspecon vehicles with The annual inspecon cycle was formalized in a arculang work plaorms report received on January 7, 2019. The summarized  Electrical distribuon system complete with its findings by Jacobs regarding the inspecon cycle own Transformer Staon and four sets of were: double‐ended switchgear to adequately power every aspect of the facility No crical findings and the overall condion rangs  State‐of‐the‐art fiber opc network ulizing are summarized below: “Next Generaon” hardware, spanning 40 miles and providing high‐speed connecvity for the Cluster Item Rang District’s communicaons, security and control systems A. Approach Roads 8  Complex Electronic Toll Collecon System 8 B. Fisherman Island providing 10 lanes for payment using E‐ZPass, all C. Tunnels 7 major credit cards, cash or scrip D. Portal Islands 7  Drinking and domesc use wells, storm water E. Toll Plaza 8 and sanitary systems F. Site‐Wide Ulies 8  Water and sewer lines from Virginia Beach at South Plaza and Lile Creek

| 10

 A 37‐acre commercial , with bulkhead and light design, working hand‐in‐hand with Kenall finger , accommodang a 20 foot dra Lighng. This partnership connues with the design, refinement, and implementaon of high Capital Projects intensity lighng toward the ends of the tunnel. The Commission approved its Capital Projects in the The District’s goal in this process is to reduce District’s Long‐Term Capital Projects Plan, which maintenance of tunnel lighng, resulng in less extends to 2035. The following lists some of the lane closures and disrupon to customers, as major projects that were completed or were in well as reduced overall energy expenses. Near construcon in 2018: the end of 2018, the District received all of the CT‐2 and CT‐3 light fixtures and iniated the  Pavement Marking, Restriping Trestles – This wholesale replacement; all of the fixtures will be project was bid on April 24, 2018 and was replaced in 2019. awarded to Spivey Pavement Markings, Inc. The  Upper Lateral Support Hangers ‐ The District project was completed on July 19, 2018. developed a lateral bracing hanger repair for the  Design, Mill and Repave Trestles‐Replace End NCB‐NB lateral bracing elements to fix repeve – Jacobs was awarded the Design for this past design breaks that occurred frequently. To project. The project will be adversed in 2019 date, District forces have installed these at 114 of with construcon scheduled to begin in 2020. 144 locaons, ulizing a rented 60‐foot boom  Fire Life Safety Tunnel Signage – In 2018, the snooper vehicle to navigate around the deep District installed “Distance to Exit” signage in steel girder spans. The final 30 brackets will be both Chesapeake and Thimble Shoal Tunnels, in repaired in 2019. accordance with NFPA 502 requirements.  Chesapeake Tunnel Invert Slab Repairs – This Connuing Educaon, Training and Conferences project is repairing delaminated concrete. The Throughout 2018, our Maintenance Division project was started in 2018 and connues into personnel aended the following: 2019 and will repair approximately 10,000 square feet of delaminated concrete. The  A Virginia Department of Health, Division of project was compevely bid and was awarded Drinking Water Class was aended by District to Coastal Gunite Construcon Company. Tunnel Mechanics at the Eastern Shore Esmated compleon is December 2019. Community College. The class was entled  Replace Lights in Chesapeake Tunnel – The “Efficient Energy Use in Drinking Water District connues to expand on its LED pilot Producon” and is used toward their CEUs for project for tunnel lighng. Over the previous required held licensure. year, the District has fine‐tuned the low intensity

11 |

 CTJV’s Safety Director hosted a Confined Space  The District Custodian aended a 40‐hour class Training Class that was aended by two entled “Crisis Intervenon Team (CIT) Training” Electrical Mechanical employees. at the Eastern Shore Community College District.  A Virginia Department of Health, Division of  The Engineering Technician aended an AutoCad Drinking Water Class was aended by District Class at Tidewater Community College. Tunnel Mechanics at the Eastern Shore  The District Safety Manual was updated and Community College. The class was entled distributed to all employees. “Public Health, Consumer Confidence, and Drink‐  Safety meengs are held each month for all ing Water” and is used toward their CEUs for available Maintenance personnel. Topics for required held licensure. 2018 included:  The Director of Maintenance aended an  Safe Driving Tips for Snow and Ice AASHTO Subcommiee meeng on Bridges and  Slips, Trips and Falls Structures (SCOBS) in Burlington, Vermont.  Hand Safety—Gloves  District HVAC Mechanic aended a four‐day  First Aid class on AC Refrigeraon, Boiler Maintenance  Beat the Heat‐Prevenng and Treang and Safety conducted by TPC Trainco. Heat Disorders  A Virginia Department of Health, Division of  Personal Protecve Equipment Drinking Water Class was aended by District  Driving to Distracon Tunnel Mechanics at the Eastern Shore  Electric Arc Flash Safety Community College. The class was entled “Iron  Traffic Control Safety and Manganese in Water Samples” and is used  Complacency in the Workplace toward their CEUs for required held licensure.  Snow Plow Safety

Marketing and community relations

General Adversing extension of the CBBT markeng. Twier connues The District connues to promote the Chesapeake as a plaorm to inform followers of up‐to‐date Bay Bridge‐Tunnel with adversing and public traffic and weather condions on the facility, with relaons through cooperave adversing and 12,096 direct followers to date. Facebook is used to promoonal efforts with surrounding localies, the provide general informaon, photography, and Virginia Corporaon, the Coastal Virginia history, as well as an addional means to Tourism Alliance, the Eastern Shore Tourism disseminate informaon to the social public. Our Commission, and the Virginia Restaurant, Lodging “friends” community connues to grow with a and Travel Associaon. As a result of these efforts, current following of 19,802. Instagram is used as an response was made to 5,000 individuals requesng extension of Facebook with a current following of literature and informaon on the Chesapeake Bay 1,428. Bridge‐Tunnel and surrounding areas. In addion to requests made by individuals for literature, more The District develops and publishes informaonal than 182,000 pieces of bulk mail (promoonal brochures, flyers, and newsleers for its brochures and toll schedules) were shipped to employees and rerees throughout the year. individual businesses for display in their brochure The “Follow the Gulls” promoonal brochure was racks. Website visits topped the charts at 566,559 in revised to include general informaon on the 2018, and social media connues to be a posive Parallel Thimble Shoal Tunnel Project and an E‐ZPass

| 12 brochure, specific to its use on the CBBT, addresses frequently asked quesons One Millionth Visitor about the E‐ZPass system, including Welcomed account replenishment and toll discounts offered by the CBBT. New Toll Schedules n November 30, 2018, Linda Burne and her were designed and printed in husband Don, who were vising Coastal preparaon of the toll rate increase that O Virginia from Independence, MO along with their became effecve on January 1, 2019. In daughter and grandson, made a trip across the Chesapeake 2018, the District worked with CGI Bay Bridge‐Tunnel and stopped at the Eastern Shore of Communicaons, through an iniave Virginia Welcome Center. Lile did she know she would be with the Eastern Shore Chamber of welcomed as the one millionth visitor! Linda and her Commerce, to develop a 2‐minute video family were welcomed by Center Manager Allan Burns and highlighng this engineering marvel. The his staff and were presented with a large gi basket video is an asset to the District’s website complete with gi cards, coupons and an assortment of and social media pages, as well as visitors local goodies, including an 8‐night stay on Virginia’s to the Chamber’s website. Eastern Shore. All items were generously donated by many of the Eastern Shore’s local tourism partners. The Tours Burnes were honored and look forward to vising Throughout the year, presentaons and Virginia’s Eastern Shore in 2019. “behind‐the‐scenes” tours of the facility were provided to more than 650 people. Tour parcipants included students from regional high schools and colleges including Broadwater Academy and Olin College of Engineering; Elizabeth City’s Summer Transportaon Instute; VDOT; VMRC; tHRive; Virginia Society of Professional Engineers; and other special ‐interest groups. These tours connue to provide parcipants with a vast amount of transparent knowledge regarding the District, its history and mission, general operaons and maintenance, and the Parallel Thimble Shoal Tunnel Project. The District also connues to work with local news media and travel writers, as operated by the Eastern Shore of Virginia Tourism well as Virginia Tourism Corporaon in Commission, connues to thrive. The travel ambassadors, an effort to publicize and promote the comprised largely of volunteer staff led by Welcome Center Chesapeake Bay Bridge‐Tunnel and its Manager Allan Burns, acvely engage the visitors when surrounding regions to various markets. they come into the Center in order to determine their vacaon preferences and to convert them from “travelers” Partnerships to “visitors,” as they guide them to the many Eastern Shore The CBBT’s partnership with the Eastern aracons and amenies. A total of 109,277 visitors were Shore Tourism Commission remains welcomed during the 2018 calendar year, a 4.3% increase strong. The Eastern Shore Southern over visitaon in 2017. Since opening its doors in 2009, Gateway Welcome Center, located within this center has welcomed more than 1,005,000 visitors. the North Toll Plaza Rest Area and

13 |

E‐ZPass to purchase scrip toll ckets for local residents who E‐ZPass usage on the Chesapeake Bay Bridge‐ need to travel across the Chesapeake Bay for Tunnel connues to grow, with more than 70% of medical reasons. This Medical Tolls Program has the District’s customers ulizing E‐ZPass in the toll benefited many Eastern Shore residents over the lanes. A full‐service E‐ZPass Customer Service Office past 26 years. A total of $106,600 was donated in connues to operate at the CBBT’s Administraon Calendar Year 2018. Building, providing valuable assistance with account maintenance and updates, payments and sales. In The Educaonal Toll Program was created in 2010 2018, the District assisted more than 4,500 to provide assistance to students commung across customers with their Virginia E‐ZPass accounts and the Chesapeake Bay Bridge‐Tunnel for the purpose sold more than 450 “On‐the‐Go” retail of furthering their post‐secondary educaon. This transponders, including E‐ZPass FLEX tags, which successful program is a partnership between the work on the nearby 64 Express Lanes. Chesapeake Bay Bridge‐Tunnel and the Eastern Shore Community College, who administers the Employee Relaons program. A total of $30,000 was donated in From healthy vending to biometric screenings, Calendar Year 2018. vascular arterial screenings, skin cancer screenings and a flu shot clinic, the District connues to For more than 25 years, the Eastern Shore of aggressively promote a healthier work Virginia Habitat for Humanity has worked in environment. In advance of the holidays, a “60 partnership with God and people everywhere to Miles in 60 Days” walking program was introduced build simple and affordable homes in decent to encourage employees to get moving. Designed communies. Through a partnership with the to be achievable for all, this program helped bring Tunnel Project Team, the local Sheriff’s awareness to individual daily habits and will serve Department and the “Shop” students at a local high as a foundaon for future walking programs. A school, the District pledged to provide 1,000 fitness room is available around the clock to all volunteer hours to assist in the construcon of a employees, including a treadmill, ellipcal, and Habitat home. Construcon began in the spring of Smith machine. A personal trainer provides 2016 and more than 775 volunteer hours were on‐site assistance with customized workouts twice donated to this project and the dedicaon and a week and yoga classes are offered twice a week, blessing of our first home took place on May 21, teaching techniques to calm the mind and body as 2017. Thanks to the ongoing support of the well as to improve strength, flexibility and Parallel Thimble Shoal Tunnel Project Team, self‐awareness. comprised of members from CTJV, HNTB, Jacobs, Mo MacDonald and the CBBT, more than 1,500 Community Relaons hours have been provided to this non‐profit The Commission and District connue to donate organizaon and assistance has been provided thus funds to a medical toll fund administered by far with the construcon and compleon of three Eastern Shore Rural Health, which in turn are used homes.

| 14

The District connues to parcipate in area Job Fairs, Birdwatching Tours as well as Career Days, that are hosted by local The CBBT’s habitat of schools and Chambers of Commerce on Virginia’s concrete, steel, asphalt and Eastern Shore. Through its partnership with the rocks located in open water Coastal Virginia Tourism Alliance and in support of create an inving rest stop Naonal Tourism Week, the District, as well as the for birds during spring and Eastern Shore Tourism Commission, connues to fall migraon. The District parcipate in “Thank a Visitor Day” at the Norfolk connues to offer birding Internaonal Airport. enthusiasts the opportunity to observe the many birds Each year, District employees and Commission and waterfowl from areas members parcipate in the Northampton County along the facility. During Department of Social Services’ “Angel Tree” the 2018 calendar year, Christmas program. Through our efforts, 25 angels, there were 9 birdwatching from newborns to age 11, were provided with tours conducted on #4 needed clothing items and winter coats. Assistance Island. Birding tours have been limited to the was also provided with the delivery of stockings, northernmost island as a result of the ongoing food, toys and bikes from the Salvaon Army in construcon for the Parallel Thimble Shoal Tunnel. Virginia Beach to more than 300 children on Virginia’s Eastern Shore. Special Olympics Torch Run Since 1987, the Chesapeake Bay Bridge–Tunnel has In February of each year, a “Super Bowl Food Blitz” parcipated in the Special Olympics Torch Run. to benefit the local Foodbank of Southeastern Designed to provide Police Officers an opportunity to Virginia, including Virginia’s Eastern Shore, is volunteer with Special Olympics in communies conducted at the CBBT. In 2018, 414 pounds of food where they live and work, the Torch Run is their and $374 was collected, which will provide more signature event. Each year in June, the Special than 1,380 meals. Olympics’ “Flame of Courage” is carried over more than 2,000 miles of Virginia’s roadways to Richmond District employees connue to support the Eastern to open the largest compeon for athletes with Shore of Virginia’s United Way campaign. Employees disabilies. On June 6, three District Police Officers pledged $15,454 to this year’s campaign, “What We represented the CBBT as they parcipated in the Do Today Can Change the Future,” thus providing final leg of the race down the Eastern Shore of valuable support to community organizaons and Virginia, running the final mile on the south side of non‐profit agencies. The United Way of Virginia’s the facility and passing the torch to awaing officers Eastern Shore recognized the District with a plaque in Virginia Beach. The overall Eastern Shore for its employee contribuon in excess of $10,000 to parcipaon raised $2,000 for this Special Olympics the campaign. cause in 2018.

15 |

| 16

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT

FINANCIAL STATEMENTS FOR CALENDAR YEAR 2018 i |

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

Overview of the Financial Statements The Chesapeake Bay Bridge and Tunnel District’s (the District) financial report for the years ended December 31, 2018 and 2017 provides long-term and short-term information about the District’s overall financial status. This report consists of two parts: management’s discussion and analysis and the basic financial statements, including notes to the basic financial statements. Management’s discussion and analysis introduces the basic financial statements and provides an analytical overview of the District’s financial activities. The basic financial statements are the statements of net position as of December 31, 2018 and 2017 and the related statements of revenues, expenses, and changes in net position. The notes to the basic financial statements consist of information that is essential to a user’s understanding of the basic financial statements.

As it is considered a special-purpose government engaged only in business-type activities, the District follows enterprise fund reporting; accordingly, the basic financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under this basis, revenues are recognized in the period in which they are earned, expenses are recognized in the period in which they are incurred, and depreciation of non-bridge-tunnel infrastructure assets is recognized in the statements of revenues, expenses, and changes in net position. All assets and deferred outflows of resources and liabilities and deferred inflows of resources resulting from the operation of the District are included in the statements of net position.

Financial Highlights for Year ended December 31, 2018  Gross toll revenues before deductions for the year ending 2018 were $57,130,577 and were 1.3% less than toll revenues in the previous year. During 2018, 3,931,637 total revenue vehicles crossed the District’s facility. This represents a 1.7% decrease in vehicular traffic over 2017. The slightly disproportional decrease in vehicular traffic compared to toll revenues in 2018 is due to the mix in traffic growth as the growth in commercial vehicle classes outpaced the growth in passenger cars and light trucks. Additionally, buses had a 6.8% decrease from 2017.  Other revenues in 2018 totaled $1,112,779, which is a decrease of 14.3% over other revenues in 2017. The decrease in other revenue is due to a decrease in lease income as a result of tenants terminating their leases at the Little Creek property. The entire property is now leased by CTJV as a staging area for Parallel Thimble Shoal Tunnel (PTST) .  Operating expenses in 2018, before District facility expenses, totaled $14,223,961, which is an increase in operating expenses of $456,969 or 3.3% from 2017.  Total net position at December 31, 2018 was $715,037,985, a 6.1% increase over total net position at December 31, 2017.

Contacting the District’s Financial Management This financial report is designed to provide the bondholders, customers, and other interested parties with a general overview of the District’s finances and to demonstrate the District’s accountability for the money it receives. If you have any questions about this report or need additional financial information, address your request to the Executive Director or the Deputy Executive Director of Finance and Operations, 32386 Lankford Highway, Cape Charles, Virginia 23310.

| ii iii |

| iv v |

| vi vii |

| viii

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

(1) Organization and Summary of Operations The Chesapeake Bay Bridge and Tunnel District (the District) was created as a political subdivision of the Commonwealth of Virginia by Chapter 693 of the Acts of Virginia of 1954. Chapter 693 was subsequently amended by the following Chapters of the Acts of Virginia: Chapters 462 and 714 of the 1956 Session, Chapter 24 of the 1959 Extra Session, Chapters 228 and 605 of the 1962 Session, Chapter 348 of the 1964 Session, Chapter 203 of the 1990 Session, Chapter 548 of the 1998 Session, Chapters 238 and 705 of the 2000 Session, and Chapters 270 and 297 of the 2005 Session, (collectively, the Acts). All such Acts have been codified into Title 33.2 Code of Virginia, Chapter 22. The District comprises the area, all within the Commonwealth of Virginia, in Accomack and Northampton Counties, the Cities of Virginia Beach, Hampton, Newport News, Chesapeake, Norfolk, and Portsmouth, and the area of the Chesapeake Bay between these subdivisions.

By the Acts, the Chesapeake Bay Bridge and Tunnel Commission (the Commission) was created as the governing body of the District. These Acts authorized the Commission to acquire, establish, construct, maintain, repair, and operate a project comprising public service over and across the waters between any two points within the boundaries of the District, where such public ferry services would form a connecting link in the system of state highways.

Under the Acts, the Commission was also authorized to establish, construct, maintain, repair, and operate a bridge or tunnel or a bridge and tunnel project from any point within the boundaries of the District to a point in the County of Northampton, including such approaches and approach highways as the Commission deemed necessary to facilitate the flow of traffic in the vicinity of such project or to connect such project with the highway system or other facilities in the state.

The Chesapeake Bay Bridge and Tunnel (the Bridge-Tunnel) is a 20-mile, four-lane trestle and bridge and two-lane tunnel crossing at the mouth of the Chesapeake Bay between the City of Virginia Beach and Northampton County on the Eastern Shore of Virginia. The Bridge-Tunnel consists principally of low-level trestles, four bridges, two tunnels, approach highways, and an earth-fill causeway. The Bridge-Tunnel is designated as part of U.S. Route 13, the main north-south highway on Virginia’s Eastern Shore and the only direct link between Virginia’s Eastern Shore and the metropolitan area of south Hampton Roads, Virginia.

The District sold a revenue bond issue of $200,000,000 (1960 Bonds) under a Trust Indenture dated July 1, 1960, and constructed the two-lane bridge and tunnel project. The project was opened to traffic on April 15, 1964. The Commission discontinued ferry service following the opening of the two-lane bridge and tunnel project.

On April 15, 1964, the Bridge-Tunnel opened as a two-lane facility. A three-staged parallel crossing project began in 1995. Stage 1 of this project was completed in April 1999. This stage included construction of parallel trestles, bridges, roadways, and rehabilitation of the original two-lane facility. Stage 2 will consist of construction of an additional two-lane tunnel under Thimble Shoal Channel. Stage 3 will complete the parallel crossing with construction of an additional two-lane tunnel under Chesapeake Channel.

(2) Summary of Significant Accounting Policies The District is accounted for under the economic resources measurement focus and the accrual basis of accounting as a special-purpose government engaged in business-type activities, which follows enterprise fund reporting. Special-purpose governments engaged in business-type activities are used to account for the ongoing activities that are financed and operated similar to those often found in the private sector. Accordingly, revenues are recognized in the period earned and expenses are recognized when they are incurred. The District distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from the District’s ongoing operations. Operating revenues include revenue from toll collection, recognized when travelers cross the bridge and tunnel, and lease income. ix |

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

Operating expenses include District facility and administrative expenses. All revenues and expenses not meeting these definitions are reported as non-operating revenues and expenses.

The statements of net position reports all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and the residual net position of the District. Deferred outflows of resources are defined as a consumption of net position by the District that is applicable to a future reporting period. Similarly, deferred inflows of resources are defined as an acquisition of net position by the District that is applicable to a future reporting period.

(a) Cash and Investments Cash includes cash on hand and various checking accounts.

In accordance with GAAP, the District reports its investment securities at fair market value. Fair market value is determined as of the statements of net position date. The fair value is based on either quotations obtained from exchanges or on the basis of quotations provided by a pricing service, which uses information with respect to transactions on bonds, quotations from bond dealers, market transactions in comparable securities, and various relationships between securities.

(b) Restricted Assets In accordance with applicable covenants of certain bond issues, cash, investments, and accrued interest receivables have been appropriately restricted. When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, and then unrestricted resources, as they are needed.

(c) Capital Assets The bridge and tunnel assets are stated at cost and include capitalized interest. No provision for depreciation or obsolescence of the Bridge-Tunnel facilities is provided as the District has adopted the modified approach to account for these assets. Non-bridge and tunnel assets are being depreciated over their estimated useful lives of 3 years up to 50 years.

(d) Restricted Net Position Restricted net position, as defined by GAAP, is reported when constraints are placed on the use of assets either externally by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislations. At December 31, 2018 and 2017, the District had net position restricted for debt service of $54,391,197 and $61,936,728 respectively.

(e) Management’s Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and deferred outflows and liabilities and deferred inflows and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(f) Revenue Recognition Toll revenues represent the tolls collected, net of any deductions such as credit card fees, E-ZPass fees and medical and educational toll discounts. Revenues are recognized when earned.

(g) Pensions The Virginia Retirement System (VRS) Political Subdivision Retirement Plan is a multi-employer, agent plan. For purposes of measuring net pension liability, deferred outflows of resources and deferred inflows of resources, related to pensions, and pension expense, information about the fiduciary net

| x

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

position of the District’s Retirement Plan and the additions to/deductions from the District’s Retirement Plan’s net fiduciary position have been determined on the same basis as they were reported by the Virginia Retirement System (VRS). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

(h) New Accounting Pronouncement In FY2018, the District adopted GASB Statement No. 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple- Employer Plans, for OPEB. Statement No. 75 addresses accounting and financial reporting for other postemployment benefits (OPEB), like retiree health , that is provided to the employees of state and local governmental employers. This Statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/ expenditures. For defined benefit OPEB, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about defined benefit OPEB also are addressed.

Due to limitations on the information available for the prior fiscal year, it was determined to be impractical for the District to restate the FY2017 financial statements. As such, the cumulative effect of applying GASB Statement No. 75 is being reported as a prior period adjustment increasing the beginning balance of net position for FY2018 by $338,262 of which $213,142 represents deferred outflows of resources related to benefit payments/OPEB contributions made by the District in FY2017 that will be recognized as a reduction in total OPEB liability in FY2018 under GASB Statement No. 75.

The remaining adjustment of $125,120 is a result of a decrease in the total OPEB liability at June 30, 2017. The FY2017 financial statements presented herein for comparative purposes still reflect the requirements of GASB Statements No. 45 and No. 57.

(3) Cash Deposits and Investments (a) Deposits The carrying value of the District’s deposits (unrestricted and restricted) were $1,576,041 and $1,101,233 at December 31, 2018 and 2017, respectively. The bank balance of these deposits was $1,214,789 and $718,529 at December 31, 2018 and 2017, respectively. The entire bank balance was covered for both fiscal years by federal depository insurance or collateralized in accordance with the Virginia Security for Public Deposits Act (VSPD Act). In accordance with the VSPD Act, the District’s depository institution pledged collateral in the form of federal agency obligations with a market value equal to 110% of the District’s deposits with a third-party trustee in the name of the Treasurer of the Commonwealth of Virginia. In the event that the banking institution fails, the Treasurer will take possession of the collateral, liquidate it, and reimburse the District up to the value of its deposits. The State Treasury Board is responsible for monitoring compliance with the collateralization and reporting requirements of the VSPD Act and for notifying local governments of compliance by banks.

(b) Investments The District is authorized to invest in obligations of the United States or agencies thereof; obligations of any state or territory of the United States and any political subdivision thereof; obligations permitted by the laws of the Commonwealth of Virginia; repurchase agreements with respect to the foregoing obligations; certificates of deposit, time deposits, or interest in money market portfolios issued by any bank, banking association, savings and loan association, or trust company insured by the FDIC or xi |

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

Federal Savings and Loan Insurance Corporation; commercial paper, shares in one or more open-ended investment funds provided that the funds are registered under the State Securities Act or the Federal Investment Company Act; bankers’ acceptances; and units representing beneficial interests in investment pools created pursuant to the Government Non-Arbitrage Investment Act of the Commonwealth of Virginia.

(c ) Credit Risk Credit risk is defined as the risk that an issuer or other counterparty to an investment will not fulfill its obligations. As required by state statute, the policy requires that commercial paper have a short-term debt rating of no less than “A-1” (or its equivalent) from at least two of the following: Moody’s Investors Service, Standard & Poor’s, Fitch Investors Service, and Duff and Phelps. Corporate notes, negotiable certificates of deposit, and bank deposit, notes maturing in less than one year must have a short-term debt rating of at least “A-1” by Standard & Poor’s and “P-1” by Moody’s Investors Service. Notes having a maturity of greater than one year must be rated “AA” by Standard & Poor’s and “Aa” by Moody’s Investors Service.

The District’s investment securities using the Standard & Poor’s credit quality ratings scale are presented below:

(d) Concentration of Credit Risk The District’s investment policy establishes guidelines on portfolio composition by investment type in order to control concentration of credit risk. As of December 31, 2018, the District’s portfolio was invested as follows:

(e) Interest Rate Risk Interest rate risk is defined as the risk that changes in interest rates will adversely affect the fair value of an investment. The District’s investment policy limits the investment of funds as a means of limiting

| xii

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

exposure to fair value losses. Investments in the General Resolution Debt Service Reserve Fund are limited to investments with maturities less than five years. Investments in the General Resolution General Fund are limited to investments with maturities that are consistent with the schedule of planning, development, and construction of parallel tunnels that would complete the parallel crossing.

Investments are selected based on the current perception of the direction of interest rates with a greater emphasis on yield and a lesser emphasis on liquidity.

Proceeds from the sale of bonds issued by the District are invested in compliance with the specific requirements of the bond covenants without further restriction as to the maximum term of securities purchased.

As of December 31, 2018, the District had the following investments and maturities:

(4) Capital Assets Capital assets include bridge and tunnel assets, capitalized interest and financing expenses, and other capital assets. The bridges, trestles, approach roads, Fisherman Island Causeway, tunnels, portal islands with all attached improvements, toll plaza infrastructure and the rest area facility, and site-wide utilities are classified as bridge and tunnel assets. Capitalized interest and financing expenses include the amount of money that was funded from the 1960 Bonds issued for debt service and associated costs of the bonds during construction until the opening of the Bridge-Tunnel in 1964. Miscellaneous capital assets include all other assets that the District has capitalized such as land, buildings, fleet vehicles, and equipment.

The District utilizes the modified approach to infrastructure reporting on bridge and tunnel assets and capitalized interest and financing expenses. In lieu of reporting depreciation on bridge and tunnel assets, the costs incurred for maintaining bridge and tunnel assets at the condition level that is specified by Commission policy are reported as preservation expenses on the accompanying statements of revenues, expenses, and changes in net position.

The District has elected to continue to use the traditional approach or depreciation method for buildings, fleet vehicles, and equipment that are depreciable, as stipulated in the District’s Capital Asset Policy.

U.S. generally accepted accounting principles (GAAP) requires that governmental entities that utilize the modified approach for infrastructure reporting must have their governing board set a policy for the condition levels at which modified approach assets will be maintained. GAAP also requires that a third party perform condition level assessments of the modified approach assets annually and that the condition levels for the current and prior two fiscal years be disclosed in the notes to the financial statements. xiii |

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

The Commission’s preservation policy is to maintain 90% of the bridge and tunnel assets at a maintenance rating program (MRP) condition level of “good” or better.

Jacob’s Engineering, Inc., the District’s consulting engineer, has inspected the District’s bridge and tunnel assets. Jacob’s Engineering, Inc. determines the MRP condition level for the bridge and tunnel assets as a numeric scaled rating. The numeric scaled rating is based on a condition index utilized by the Virginia Department of Transportation whereby 0 is a failed condition level and 9 is an excellent condition level. The below defines the numeric scaled ratings assigned by Jacob’s Engineering, Inc.:

The following two tables derive percentages in different ways. Trestles and bridges that have an MRP numeric condition level are described as a percentage of lane miles. All other bridge and tunnel assets that have an MRP numeric condition level are described as a percentage of that specific bridge and tunnel asset.

The following tables detail the MRP condition level of bridge and tunnel assets for the last three years:

| xiv

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

(5) General Resolution Revenue Bonds Bond activity for the year ended December 31, 2018 was as follows:

In July 2016, the Commission awarded a contract to Chesapeake Tunnel Joint Venture to design and build the Parallel Thimble Shoal Tunnel Project (the “Project”). On October 24, 2016, to finance the costs of the Project, the Commission adopted and approved a new General Revenue Bond Resolution (the “2016 Resolution”) along with three Supplemental Resolutions authorizing the issuance of $321,515,000 First Tier General Resolution Revenue Bonds, Series 2016 (the “Series 2016 Bonds”), a loan from the United States Department of Transportation under the TIFIA program (the “TIFIA Loan”) in the amount of up to $338,528,672, plus capitalized interest and a loan from the Virginia Transportation Infrastructure Bank (the “VTIB Loan”) in the amount of up to $50,000,000, plus capitalized interest.

The Series 2016 Bonds are term bonds maturing from July 1, 2041 through July 1, 2055 with coupon interest rate of 4.0% to 5.0%. The proceeds from the Series 2016 Bonds, along with the proceeds of the TIFIA Loan and VTIB Loan and cash contributed by the District will be utilized to finance the development and construction of the Parallel Thimble Shoal Tunnel Project. The remaining portion of the proceeds from the Series 2016 Bonds will be utilized to (i) pay capitalized interest on a portion of the Series 2016 Bonds to and including July 1, 2021, (ii) to obtain a municipal bond debt service reserve insurance policy for the Series 2016 Bonds, and (iii) to pay the related issuance expenses, including bond insurance premiums.

The Series 2016 Bonds are subject to optional redemption prior to maturity by the District on or after July 1, 2026, in whole or in part, at par plus accrued interest. The Series 2016 Bonds are subject to mandatory sinking fund redemption in part prior to maturity on July 1 of each year starting in 2035.

The 2041 Term Bond and the 2055 Term Bond are insured by Assured Guaranty Municipal Corporation. The Series 2016 Bonds Debt Service Reserve Fund Requirement of $24,774,566 is secured by a debt service reserve fund policy also issued by Assured Guaranty Municipal Corporation. xv |

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

The TIFIA Loan and the VTIB Loan are issued on the Subordinate Lien of the 2016 Resolution and bear interest rates of 2.88% and 2.90%, respectively. The loans do not incur interest until drawn which is in the Fall of 2018. Both loans have first semi-annual interest repayments commencing January 1, 2021 and first annual principal repayments commencing on July 1, 2025. Final repayment on both loans is July 1, 2054.

The underlying credit rating on the Series 2016 Bonds is Baa2 and BBB by Moody’s Investors Service and S&P Global Ratings, respectively. The TIFIA Loan is also rated Baa2 and BBB by Moody’s Investors Service and S&P Global Ratings, respectively. The VTIB Loan is unrated.

The bond premiums for General Resolution Revenue Bonds are being accreted using the straight-line method, which is not materially different from using the effective-interest method, over the period the bonds will be outstanding.

Tolls and other revenues derived from the operation of the Bridge-Tunnel are pledged as security for the General Resolution Revenue Bonds. The General Revenue Bond Resolution includes covenants such as minimum toll rate covenant ratios and minimum debt service reserve requirements.

(6) Fair Value Measurements The District utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The District determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

 Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at measurement date.  Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantively the full term of the asset or liability.  Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identified assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).

The level in the fair value hierarchy within which a fair value measurement, in its entirety falls in, is based on the lowest level input that is significant to the fair value measurement in its entirety.

Portfolio investments are assigned a level based upon the observability of the inputs which are significant to the overall valuation. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

All of the District’s investments in debt securities are in one of the four categories below and therefore the entire portfolio of debt securities is Level 2.

Debt securities classified in Level 2 are valued using the following approaches:

 U.S. Treasuries, U.S. Agencies, and Supra-Nationals: quoted prices for similar securities in the market are used to draw appropriate correlations;

| xvi

CHESAPEAKE BAY BRIDGE AND TUNNEL DISTRICT Notes to the Financial Statements & Governor’s Report As of December 31, 2018

 Corporate Notes and Municipal Bonds: relevant trade data, benchmark quotes and surveys of the dealer community are incorporated into the evaluation process;  Certificates of Deposit: matrix pricing based on various market makers and dealers;  Federal Agency Mortgage-Backed: solicited prices from market buy and sell side sources, including primary and secondary dealers, portfolio managers and research analysts are used.

The fair value of investments in money market funds is based on the published net asset values per share of those funds.

The District has the following recurring fair value measurements as of December 31, 2018:

xvii |

| xviii

he dream of a structure bridging the lower Chesapeake Bay to connect Virginia’s Eastern Shore with the mainland of Virginia became a reality with the opening of the Bridge-Tunnel on April 15, 1964. T This accomplishment can be attributed to the foresight, leadership, and untiring efforts of Lucius J. Kellam, Jr. of Belle Haven, Virginia. He served continuously from 1954 as Chairman of the Chesapeake Bay Bridge and Tunnel Commission and the former Chesapeake Bay Ferry Commission until 1993, when he was named Chairman Emeritus and continued to serve as an active member of the Commission until September 24, 1995. He was lauded as a diplomat, an executive, a public-spirited citizen, a man of the highest integrity, and a Virginia gentleman.

n recognition of the outstanding contributions made by Lucius J. Kellam, Jr., and his continued dedication to this major transportation facility, the members of the Chesapeake Bay Bridge and Tunnel I Commission, by resolution dated August 11, 1987, named this crossing in his honor. Kellam will be long remembered for his outstanding contributions to the Chesapeake Bay Bridge and Tunnel Commission and the Commonwealth of Virginia.