City of Portsmouth, New Hampshire $19,650,000* General Obligation Capital Improvement Loan Bonds

PRELIMINARY OFFICIAL STATEMENT AND NOTICE OF SALE DATED MAY 22, 2018 Ratings: See “Rating” herein. New Issue S&P Global Ratings:

In the opinion of Locke Lord LLP, Bond Counsel, based upon an analysis of existing law and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under the Internal Revenue Code of 1986 (the “Code”). Interest on the Bonds will not be included in computing the alternative minimum taxable income of individuals or, except as described herein, corporations. Under existing law, interest on the Bonds is exempt from the New Hampshire personal income tax on interest and dividends. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. The Bonds will not be designated as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Code. See “Tax Exemption” herein.

CITY OF PORTSMOUTH, NEW HAMPSHIRE $19,650,000* GENERAL OBLIGATION CAPITAL IMPROVEMENT LOAN BONDS

DATED DUE Date of Delivery June 15 (as shown below) The Bonds are issuable only in fully registered form without coupons and, when issued, will be registered in the name of Cede & Co., as Bondholder and nominee for The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form, in the denomination of $5,000 or any integral multiple thereof. See “Book- Entry-Transfer System” herein. Principal of the Bonds will be paid on June 15 of the years in which the Bonds mature. Interest on the Bonds will be payable semiannually on June 15 and December 15, commencing December 15, 2018. So long as DTC or its nominee, Cede & Co., is the Bondowner, such payments will be made directly to DTC. Disbursement of such payments to the DTC Participants is the responsibility of DTC. Disbursement of such payments to the Beneficial Owners is the responsibility of the DTC Participants and the Indirect Participants as more fully described herein. An opinion of Bond Counsel will accompany the Bonds to the effect that the Bonds are valid general obligations of the City of Portsmouth, New Hampshire (the “City”) and that all taxable property in the City is subject to taxation without limitation as to rate or amount to pay the Bonds and the interest thereon; provided that, to the extent the City has established any development districts pursuant to Chapter 162-K of the New Hampshire Revised Statutes Annotated, taxes levied on certain taxable property located within any such district may be restricted and unavailable to pay the principal of and interest on the Bonds. The Bonds are subject to redemption prior to their stated maturity dates as described herein. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE CITY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ______MATURITIES, AMOUNTS*, RATES, YIELDS, CUSIPS

Due Principal Interest Cusip Due Principal Interest Cusip June 15 Amount* Rate Yield 737050 June 15 Amount* Rate Yield 737050 2019$ 1,440,000 %% 2029$ 525,000 %% 2020 1,440,000 2030 525,000 2021 1,440,000 2031 525,000 2022 1,440,000 2032 525,000 2023 1,440,000 2033 525,000 2024 1,440,000 2034 525,000 2025 1,440,000 2035 525,000 2026 1,440,000 2036 525,000 2027 1,440,000 2037 525,000 2028 1,440,000 2038 525,000 ______

THE BONDS ARE OFFERED FOR SALE AT 11:00 A.M. EASTERN STANDARD TIME ON WEDNESDAY, JUNE 6, 2018, AT HILLTOP SECURITIES INC. 54 CANAL STREET, BOSTON, MASSACHUSETTS IN THE CASE OF SEALED PROPOSALS AND IN THE CASE OF ELECTRONIC PROPOSALS, VIA PARITY, IN THE MANNER SET FORTH IN THE NOTICE OF SALE. REFERENCE IS MADE TO THE NOTICE OF SALE DATED MAY 22, 2018 FOR THE CONDITIONS OF SUCH SALE. The Bonds will be certified as to genuineness by U.S. Bank National Association, Boston, Massachusetts and are offered subject to the final approving opinion of Locke Lord LLP, Boston, Massachusetts, Bond Counsel, as aforesaid, and to certain other conditions referred to herein and in the Notice of Sale. Hilltop Securities Inc., Boston, Massachusetts has acted as Financial Advisor to the City with respect to the Bonds. The Bonds in definitive form will be delivered to DTC, or its custodial agent, on or about June 20, 2018. ______*Preliminary, subject to change. This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under shallno circumstances 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 jurisdictionwould be in which such offer, solicitation, or sale unlawful prior to registration or qualification under the securities laws of any such jurisdiction. TABLE OF CONTENTS

Page Page

SUMMARY STATEMENT 3 Tax Outstanding 28 NOTICE OF SALE 4 Significant Taxpayers 29 Bidding Parameters 5 Tax Increment Financing for EXHIBIT 1 – Form of Issue Price Certificates 9 Development Districts 29

OFFICIAL STATEMENT 15 CITY FINANCES: INTRODUCTION 15 Budgetary Procedure 30 Budget Trends 30 THE BONDS: Revenues 30 Description of the Bonds 15 Enterprise Operations (Water and Sewer) 30 Redemption Provisions 15 Annual Audits 31 Notice of Redemption 16 Financial Statements 31 Record Date 16 Governmental Funds Balance Sheet Book-Entry Transfer System 16 June 30, 2017 through June 30, 2015 32 Source of Payment and Remedies 17 Statement of Revenues, Expenditures and Authorization of the Bonds and Changes in Fund Balances Use of Proceeds 18 June 30, 2017 35 Principal Payments by Purpose 18 June 30, 2016 36 Tax Exemption 18 June 30, 2015 37 Rating 19 June 30, 2014 38 Financial Advisory Services of June 30, 2013 39 Hilltop Securities Inc. 19 Unassigned General Fund Balances 40 Opinion of Bond Counsel 20 New Hampshire School Finance 40 Continuing Disclosure 20 Investment of City Funds 40

THE CITY OF PORTSMOUTH, NEW HAMPSHIRE: INDEBTEDNESS: General 21 Authorization Procedure and Limitations 41 Land Area 21 Tax Anticipation Note Borrowing 41 Government 21 Direct Debt Summary 41 Principal Executive Officers 21 Selected Debt Ratios 42 Education 21 Annual Debt Service Projected School Enrollments and Projections 22 as of June 30, 2017 42 Post-Secondary Education 22 Authorized Unissued Debt and Prospective Utilities 22 Financing 43 Transportation and Services 22 RETIREMENT SYSTEM 43 Economic Condition 22 Other Post-Employment Benefits 43 Population Trends 25 EMPLOYEE RELATIONS 44 Population, Income and Wealth Levels 25 LITIGATION 44 Employment and Payrolls 25 Major Employers 26 APPENDIX A – June 30, 2017 Audit APPENDIX B – Proposed Form of Legal Opinion of PROPERTY TAXATION Bond Counsel Tax Levy Computation 27 APPENDIX C – Proposed Form of Continuing Assessed Valuations 27 Disclosure Certificate Assessed Valuations by Classification 28 Tax Levies and Collections 28 ______

The information set forth herein has been obtained from the City and from other sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness. Any statements made in this Preliminary Official Statement involving matters of opinion, whether or not expressly so stated, are intended merely as opinion and not as representations of fact. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Preliminary Official Statement nor any sale of the Bonds described herein shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. SUMMARY STATEMENT The information set forth below is qualified in its entirety by the information and financial statements appearing elsewhere in the Official Statement. Date and Time of Sale: Wednesday, June 6, 2018 at 11:00 a.m., Eastern Standard Time.

Location of Sale: Hilltop Securities Inc., 54 Canal Street, Boston, Massachusetts.

Issuer: City of Portsmouth, New Hampshire.

Issue: $19,650,000* General Obligation Capital Improvement Loan Bonds (the “Bonds”).

P. O. S. Dated: May 22, 2018.

Dated Date of the Bonds: Date of Delivery.

Principal Due: June 15, 2019 through June 15, 2038, as detailed herein.

Interest Due: Semi-annually on June 15 and December 15, commencing December 15, 2018.

Purpose and Authority: Bond proceeds will finance a variety of capital improvements as authorized by the City Council under provisions of Chapter 33 of the New Hampshire Revised Statutes Annotated as detailed herein.

Redemption: The Bonds are subject to redemption prior to their stated maturities as described herein.

Security: The Bonds will be valid general obligations of the City of Portsmouth, New Hampshire, and the principal of and interest on the Bonds are payable from taxes which may be levied upon all taxable property in the City without limitation as to rate or amount; provided that, to the extent the City has established any development districts pursuant to Chapter 162-K of the New Hampshire Revised Statutes Annotated, taxes levied on certain taxable property located within any such district may be restricted and unavailable to pay the principal of and interest on the Bonds.

Credit Ratings: The City has applied to S&P Global Ratings for a rating on the Bonds.

Bond Insurance: The City has not contracted for the issuance of any policy of municipal bond insurance or any other credit enhancement facility.

Basis of Award: Lowest True Interest Cost (TIC), as of the dated date.

Tax Exemption: Refer to "Tax Exemption" herein and Appendix B, “Proposed Form of Legal Opinion" of Bond Counsel.

Continuing Disclosure: Refer to “THE BONDS – Continuing Disclosure” herein and Appendix C “Proposed Form of Continuing Disclosure Certificate”.

Bank Qualification: The Bonds WILL NOT be designated by the City as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended.

Paying Agent U.S. Bank National Association, Boston, Massachusetts.

Legal Opinion: Locke Lord LLP, Boston, Massachusetts.

Delivery and Payment: It is expected that delivery of the Bonds in book-entry only form will be made to The Depository Trust Company, or its custodial agent, on or about June 20, 2018 against payment in Federal Funds.

City Official: Questions concerning the Official Statement should be addressed to: Ms. Judith Belanger, Finance Director, City of Portsmouth, New Hampshire, Tel: (603) 610-7223 or Peter Frazier, Managing Director, Hilltop Securities Inc., Boston, Massachusetts, Tel: (617) 619-4409. ______*Preliminary, subject to change. 3 NOTICE OF SALE

CITY OF PORTSMOUTH, NEW HAMPSHIRE

$19,650,000* GENERAL OBLIGATION CAPITAL IMPROVEMENT LOAN BONDS

The City of Portsmouth, New Hampshire (the “City”), will receive sealed and electronic (as described herein) proposals until 11:00 a.m. eastern standard time, Wednesday, June 6, 2018 for the purchase of the following described General Obligation Capital Improvement Loan Bonds (the "Bonds") of the City:

$19,650,000* General Obligation Capital Improvement Loan Bonds payable June 15 of the years and in the amounts as follows:

Due Principal Due Principal June 15 Payment* June 15 Payment* 2019$ 1,440,000 2029 **$ 525,000 2020 1,440,000 2030 ** 525,000 2021 1,440,000 2031 ** 525,000 2022 1,440,000 2032 ** 525,000 2023 1,440,000 2033 ** 525,000 2024 1,440,000 2034 ** 525,000 2025 1,440,000 2035 ** 525,000 2026 1,440,000 2036 ** 525,000 2027 1,440,000 2037 ** 525,000 2028 1,440,000 2038 ** 525,000 ______*Preliminary, subject to change. **Callable maturities. May be combined into one, two or three Term Bonds.

The Bonds will be dated as of their date of delivery. Principal of the Bonds will be payable on June 15 of the years in which the Bonds mature. The City reserves the right to increase or decrease such principal amounts shown for the Bonds for any year as described below. Interest will be payable semiannually on June 15 and December 15, commencing December 15, 2018.

The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued in fully registered form by means of a book-entry system with no physical distribution of bond certificates made to the public. One certificate for each maturity of the Bonds will be issued to DTC and immobilized in its custody. Ownership of the Bonds in principal amounts of $5,000 or integral multiples thereof, will be evidenced by the book-entry system, with transfers of ownership affected on the records of DTC and its participants pursuant to rules and procedures established by DTC and its participants. The winning bidder, as a condition to delivery of the Bonds, shall be required to deposit the Bonds with DTC, registered in the name of Cede & Co. Interest and principal on the Bonds will be payable to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to DTC participants will be the responsibility of DTC, and disbursements of such payments to beneficial owners will be the responsibility of such participants and indirect participants as more fully described herein. The City will not be responsible or liable for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants.

Bonds maturing on or prior to June 15, 2028 are not subject to redemption prior to their stated maturity dates. Bonds maturing on or after June 15, 2029 are subject to redemption prior to maturity, at the option of the City, on or after June 15, 2028, either in whole or in part on any interest payment date, and if in part, by lot within a maturity, at the par amount of the Bonds to be redeemed plus accrued interest to the redemption date.

For Bonds maturing on June 15, 2029 and thereafter, bidders may specify that all of the principal amount of such Bonds in any two or more consecutive years may, in lieu of maturing in each such year, be combined to comprise a maturity of Term Bonds scheduled to mature in the latest of the combined years, and shall be subject to mandatory redemption prior to maturity at par as described above, in each of the year and in the principal amounts specified in the foregoing maturity schedule. Bidders may specify no more than three maturities of Term Bonds.

4 Bidding Parameters

Bidders shall state the rate or rates of interest per annum which the Bonds are to bear in a multiple of 1/20 or 1/8 of one percent, but shall not state (a) more than one interest rate for any Bonds having a like maturity or (b) any interest rate which exceeds the interest rate stated for any other Bonds by more than 3 percent, and (c) any coupon in excess of 5.00%.

THE SUCCESSFUL BIDDER MAY NOT WITHDRAW ITS BID OR CHANGE THE INTEREST RATES BID OR THE INITIAL REOFFERING PRICES, AS A RESULT OF ANY CHANGES MADE TO THE ANNUAL PRINCIPAL AMOUNTS WITHIN THESE LIMITS. The dollar amount bid for the Bonds by the winning bidder will be adjusted, if applicable, to reflect changes in the dollar amount of the amortization schedule. Any price that is adjusted will reflect changes in the dollar amount of the underwriter’s discount and original issue premium, if any, but will not change the per bond underwriter’s discount (net of insurance premium, if any) provided in such bid. Nor will it change the interest rate specified for each maturity. Any such adjustments will be communicated to the winning bidder for the Bonds by 4 p.m. local time on the day of the sale.

As between proposals which comply with this Notice of Sale, the award will be to the bidder who offers to purchase all the Bonds at the lowest net effective interest rate to the City. Such interest rate shall be determined on a true interest cost (TIC) basis, which shall mean that rate which, as of the delivery date, discounts semiannually all future payments on account of principal and interest to the price bid. In the event there is more than one proposal specifying the lowest such rate, the Bonds will be awarded to the bidder whose proposal is selected by the City Treasurer by lot among all such proposals.

Bids must be submitted either:

(a) In a sealed envelope marked “Proposal for Bonds” and addressed to Judith Belanger, Finance Director, City of Portsmouth, New Hampshire c/o Hilltop Securities Inc. 54 Canal Street, Boston, Massachusetts 02114. Signed blank bid forms may be faxed to (617) 619-4411 prior to submitting bids, and actual bids may be telephoned to Hilltop Securities Inc., telephone (617) 619-4400, at least one-half hour prior to the 11:00 a.m. sale and after receipt of the faxed bid form by Hilltop Securities Inc. Hilltop Securities Inc. will act as agent for the bidder, but neither the City nor Hilltop Securities Inc. shall be responsible for any errors in connection with bids submitted in this manner.

(b) Electronically via Parity in accordance with this Notice of Sale. To the extent any instructions or directions set forth in Parity conflict with this Notice of Sale, the terms of this Notice of Sale shall control. For further information about Parity, potential bidders may contact the Financial Advisor to the City or I-deal at 40 West 23rd Street, 5th Floor, New York, NY 10010 (212) 404-8102. An electronic bid made in accordance with this Notice of Sale shall be deemed an offer to purchase the Bonds in accordance with the terms provided in this Notice of Sale and shall be binding upon the bidder as if made by a signed and sealed written bid delivered to the City.

The award of the Bonds to the winning bidder will not be effective until the bid has been approved by the Treasurer and the City Manager.

The right is reserved to reject all bids and to reject any bid not complying with this Notice of Sale and, so far as permitted by law, to waive any irregularity with respect to any proposal.

The City has not contracted for the issuance of any policy of municipal bond insurance for the Bonds. If the Bonds qualify for issuance of any such policy or commitment therefor, any purchase of such insurance or commitment shall be at the sole option and expense of the bidder. Proposals shall not be conditioned upon the issuance of any such policy or commitment. Any failure of the Bonds to be so insured or of any such policy or commitment to be issued shall not in any way relieve the purchaser of its contractual obligations arising from the acceptance of its proposal for the purchase of the Bonds. Should the bidder purchase municipal bond insurance, all expenses associated with such policy or commitment will be borne by the bidder, except for the fee paid to S&P Global Ratings for a rating on the Bonds. Any such fee paid to S&P Global Ratings would be borne by the City.

In order to assist bidders in complying with Rule 15c2-12 (b)(5) promulgated by the Securities and Exchange Commission, the City will undertake to provide annual reports and notices of certain significant events. A description of this undertaking is set forth in the Preliminary Official Statement dated May 22, 2018.

The Bonds will not be designated as “qualified tax-exempt obligations” for the purpose of Section 265(b)(3) of the Code.

5 It shall be a condition to the obligation of the successful bidder to accept delivery of and pay for the Bonds that it shall be furnished, without cost, with (a) the approving opinion of the firm of Locke Lord LLP, Boston, Massachusetts, substantially in the form appearing as Appendix B of the Preliminary Official Statement dated May 22, 2018, (b) a certificate in the form satisfactory to Bond Counsel dated as of the date of delivery of the Bonds and receipt of payment therefor to the effect that there is no litigation pending or, to the knowledge of the signers thereof, threatened which affects the validity of the Bonds or the power of the City to levy and collect taxes to pay them, (c) a certificate of the City Treasurer to the effect that, to the best of her knowledge and belief, as of the date of sale the Preliminary Official Statement did not, and as of the date of the delivery of the Bonds, the Final Official Statement does not, contain any untrue statement of a material fact and does not omit to state a material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading, and (d) a Continuing Disclosure Certificate in the form described in the Preliminary Official Statement.

The successful bidder shall assist the City in establishing the issue price of the Bonds and shall execute and deliver to the City on the Closing Date an “issue price” or similar certificate, in the applicable form set forth in Exhibit 1 to this Notice of Sale, setting forth the reasonably expected initial offering prices to the public or the sales price of the Bonds together with the supporting pricing wires or equivalent communications, or, if applicable, the amount bid, with such modifications as may be appropriate or necessary, in the reasonable judgment of the successful bidder, the City and Bond Counsel. All actions to be taken by the City under this Notice of Sale to establish the issue price of the Bonds may be taken on behalf of the City by Hilltop Securities, Inc. (the “Financial Advisor”) and any notice or report to be provided to the City may be provided to the Financial Advisor.

Competitive Sale Requirements. If the competitive sale requirements (“competitive sale requirements”) set forth in Treasury Regulation § 1.148-1(f)(3)(i) (defining “competitive sale” for purposes of establishing the issue price of the Bonds) have been satisfied, the City will furnish to the successful bidder on the Closing Date a certificate of the Financial Advisor, which will certify each of the following conditions to be true:

1. The City has disseminated this Notice of Sale to potential underwriters in a manner that is reasonably designed to reach potential underwriters;

2. All bidders had an equal opportunity to bid;

3. The City received bids from at least three underwriters of municipal bonds who have established industry reputations for underwriting new issuances of municipal bonds; and

4. The City awarded the sale of the Bonds to the bidder who submitted a firm offer to purchase the Bonds at the highest price (or lowest interest cost), as set forth in this Notice of Sale.

Any bid submitted pursuant to this Notice of Sale shall be considered a firm offer for the purchase of the Bonds, as specified in the bid. Unless a bidder notifies the City prior to submitting its bid by facsimile (fax number: 617- 619-4411) or by telephone to the Financial Advisor (617-619-4400) or in its bid submitted via Parity, that it will not be an “underwriter” (as defined below) of the Bonds, by submitting its bid, each bidder shall be deemed to confirm that it has an established industry reputation for underwriting new issuances of municipal bonds. Unless the bidder has notified the City that it will not be an “underwriter” (as defined below) of the Bonds, in submitting a bid, each bidder is deemed to acknowledge that it is an “underwriter” that intends to reoffer the Bonds to the public.

In the event that the competitive sale requirements are not satisfied, the City shall so advise the successful bidder.

Failure to Meet the Competitive Sale Requirements – Option A – The Successful Bidder Intends to Reoffer the Bonds to the Public and the 10% test to apply. If the competitive sale requirements are not satisfied and the successful bidder intends to reoffer the Bonds to the public, the City will use the first price at which 10% of a maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity, applied on a maturity-by-maturity basis, of the Bonds. The successful bidder shall advise the Financial Advisor if any maturity of the Bonds satisfies the 10% test as of the date and time of the award of the Bonds. The City will not require bidders to comply with the “hold-the-offering-price rule” set forth in the applicable Treasury Regulations and therefore does not intend to use the initial offering price to the public as of the Sale Date of any maturity of the Bonds as the issue price of that maturity.

If the competitive sale requirements are not satisfied, then until the 10% test has been satisfied as to each maturity of the Bonds or all of the Bonds are sold to the public, the successful bidder agrees to promptly report to the Financial Advisor the prices at which the unsold Bonds of each maturity have been sold to the public, which reporting obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been satisfied for each maturity of the

6 Bonds or until all the Bonds of a maturity have been sold. The successful bidder shall be obligated to report each sale of Bonds to the Financial Advisor until notified in writing by the City or the Financial Advisor that it no longer needs to do so.

By submitting a bid and if the competitive sale requirements are not met, each bidder confirms that: (i) any agreement among underwriters, any selling group agreement and each retail distribution agreement (to which the bidder is a party) relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each underwriter, each dealer who is a member of the selling group, and each broker-dealer that is a party to such retail distribution agreement, as applicable, to report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it is notified by the successful bidder that either the 10% test has been satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the public, if and for so long as directed by the successful bidder and as set forth in the related pricing wires and (ii) any agreement among underwriters relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each underwriter that is a party to a retail distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such retail distribution agreement to report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it is notified by the successful bidder or such underwriter that either the 10% test has been satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the public if and for so long as directed by the successful bidder or such underwriter and as set forth in the related pricing wires.

Sales of the Bonds to any person that is a related party to an underwriter shall not constitute sales to the public for purposes of this Notice of Sale. Further, for purposes of this Notice of Sale:

1. “Public” means any person other than an underwriter or a related party,

2. “Underwriter” means (A) any person that agrees pursuant to a written contract with the City (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the public), and

3. A purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (i) at least 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other).

Failure to Meet the Competitive Sale Requirements – Option B – The Successful Bidder Intends to Reoffer the Bonds to the Public and Agrees to Hold the Price of the Maturities of Bonds for Which the 10% Test in Option A Is Not Met as of the Sale Date. The successful bidder may, at its option, notify the Financial Advisor in writing, which may be by email (the “Hold the Price Notice”), not later than 4:00 p.m. local time on the Sale Date, that is it has not sold 10% of the maturities of the Bonds listed in the Hold the Price Notice (the “Unsold Maturities”) and that the successful bidder will not offer the Unsold Maturities to any person at a price that is higher than the initial offering price to the public during the period starting on the Sale and ending on either of (i) the close of the fifth business day after the Sale Date or (ii) the date on which the successful bidder has sold at least 10% of the Unsold Maturity to the public at a price that is no higher than the initial offering price to the public. If the successful bidder delivers a Hold the Price Notice to the Financial Advisor, the successful bidder must provide to the Issuer on or before the Closing Date, in addition to the certification described in Option A above, evidence that each underwriter of the Bonds, including underwriters in an underwriting syndicate or selling group, has agreed in writing to hold the price of the Unsold Maturities in the manner described in the preceding sentence.

Failure to Meet the Competitive Sale Requirements and/or the Successful Bidder Does Not Intend to Reoffer the Bonds to the Public – Option C. If the successful bidder has purchased the Bonds for its own account and will not distribute or resell the Bonds to the public, then, whether or not the competitive sale requirements were met, the reoffering price certificate will recite such facts and identify the price or prices at which the purchase of the Bonds was made.

It is anticipated that CUSIP identification numbers will be printed on the Bonds. The City assumes no responsibility for any CUSIP Service Bureau or other charge that may be imposed for the assignment of such numbers.

7 Additional information concerning the City and the Bonds is contained in the Preliminary Official Statement dated May 22, 2018, to which prospective bidders are directed. The Preliminary Official Statement is provided for informational purposes only and is not a part of this Notice of Sale. Said Preliminary Official Statement is deemed final by the City except for the omission of the reoffering price(s), interest rate(s), delivery date, the identity of the underwriter(s), and any other pertinent terms of the Bonds depending on such matters, but is subject to change without notice to completion or amendment in a Final Official Statement.

Copies of the Preliminary Official Statement may be obtained from Hilltop Securities Inc. 54 Canal Street, Boston, Massachusetts 02114 (Telephone: 617-619-4400). Within seven (7) business days following the award of the Bonds in accordance herewith, 10 copies of the Final Official Statement will be available from the Hilltop Securities Inc. to the successful bidder for use in reoffering the Bonds. Upon request, additional copies will be provided at the expense of the requester.

The Bonds in definitive form will be delivered to The Depository Trust Company or its custodial agent on or about June 20, 2018 for settlement in federal funds.

______

CITY OF PORTSMOUTH, NEW HAMPSHIRE /s/ Ms. Judith Belanger, Finance Director

May 22, 2018

8 EXHIBIT 1

[Issue Price Certificate for Use If the Competitive Sale Requirements Are Met]

City of Portsmouth, New Hampshire $19,650,000* General Obligation Capital Improvement Loan Bonds dated June 20, 2018

ISSUE PRICE CERTIFICATE AND RECEIPT

The undersigned, on behalf of ______(the “Successful Bidder”), hereby certifies as set forth below with respect to the sale of the above-captioned obligations (the “Bonds”) of the City of Portsmouth, New Hampshire (the “Issuer”).

1. Reasonably Expected Initial Offering Prices.

(a) As of the Sale Date, the reasonably expected initial offering prices of the Bonds to the Public by the Successful Bidder are the prices listed in Schedule A (the “Expected Offering Prices”). The Expected Offering Prices are the prices for the Maturities of the Bonds used by the Successful Bidder in formulating its bid to purchase the Bonds. Attached as Schedule B is a true and correct copy of the bid provided by the Successful Bidder to purchase the Bonds.

(b) The Successful Bidder was not given the opportunity to review other bids prior to submitting its bid.

2. Defined Terms.

(a) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate Maturities.

(b) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly.

(c) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is June 6, 2018.

(d) Underwriter means (i) any person, including the Successful Bidder, that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public).

3. Receipt. The Successful Bidder hereby acknowledges receipt of the Bonds and further acknowledges receipt of all certificates, opinions, and other documents required to be delivered to the Successful Bidder, before or simultaneously with the Bonds, which certificates, opinions, and other documents are satisfactory to the Successful Bidder.

The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the Successful Bidder’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Locke Lord LLP in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds.

Dated: ______, 2018 [NAME OF SUCCESSFUL BIDDER]

By: ______Name: Title: ______*Preliminary, subject to change.

SCHEDULE A

EXPECTED OFFERING PRICES

(To Be Attached)

SCHEDULE B

COPY OF SUCCESSFUL BIDDER’S BID

(To Be Attached)

10 EXHIBIT 1 – OPTION A

[Issue Price Certificate for Use If the Competitive Sale Requirements Are Not Met and the Hold the Price Rule Is Not Used]

City of Portsmouth, New Hampshire $19,650,000* General Obligation Capital Improvement Loan Bonds dated June 20, 2018

ISSUE PRICE CERTIFICATE AND RECEIPT

The undersigned, on behalf of ______, (the “[Successful Bidder][Representative]”), on behalf of itself [and [NAMES OF OTHER UNDERWRITERS]] hereby certifies as set forth below with respect to the sale and issuance of the above- captioned obligations (the “Bonds”) of the City of Portsmouth, New Hampshire (the “Issuer”).

1. Sale of the Bonds. As of the date of this certificate, [except as set forth in following paragraph,] for each Maturity of the Bonds, the first price at which at least 10% of such Maturity of the Bonds was sold to the Public is the respective price listed in Schedule A.

[Only use the next paragraph if the 10% test has not been met or all of the Bonds have not been sold for one or more Maturities of Bonds as of the Closing Date.]

For each Maturity of the Bonds as to which no price is listed in Schedule A, as set forth in the Notice of Sale for the Bonds, until at least 10% of each such Maturity of the Bonds is sold to the Public (the “10% test”) or all of the Bonds are sold to the Public, the [Successful Bidder][Representative] agrees to promptly report to the Issuer’s financial advisor, Hilltop Securities Inc. (the “Financial Advisor”) the prices at which the unsold Bonds of each Maturity have been sold to the Public, which reporting obligation shall continue after the date hereof until the 10% test has been satisfied for each Maturity of the Bonds or until all the Bonds of a Maturity have been sold. The [Successful Bidder][Representative] shall continue to report each sale of Bonds to the Financial Advisor until notified by email or in writing by the State or the Financial Advisor that it no longer needs to do so.

2. Defined Terms.

(c) Underwriter means (i) any person, including the [Successful Bidder][Representative], that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public).

3. Receipt. The [Successful Bidder][Representative] hereby acknowledges receipt of the Bonds and further acknowledges receipt of all certificates, opinions, and other documents required to be delivered to the [Successful Bidder][Representative], before or simultaneously with the Bonds, which certificates, opinions, and other documents are satisfactory to the [Successful Bidder][Representative].

The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the [Successful Bidder][Representative]’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Locke Lord LLP in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds.

Dated: ______, 2018 [SUCCESSFUL BIDDER][REPRESENTATIVE]

By: ______Name: ______Title: *Preliminary, subject to change.

SCHEDULE A SALE PRICES (To be Attached)

12 EXHIBIT 1 – OPTION B

[Issue Price Certificate for Use If the Competitive Sale Requirements Are Not Met and the Hold the Price Rule Is Used]

City of Portsmouth, New Hampshire $19,650,000* General Obligation Capital Improvement Loan Bonds dated June 20, 2018

ISSUE PRICE CERTIFICATE AND RECEIPT

The undersigned, on behalf of ______(the (“[Successful Bidder][Representative]”), on behalf of itself [and [NAMES OF OTHER UNDERWRITERS] ]hereby certifies as set forth below with respect to the sale and issuance of the above- captioned obligations (the “Bonds”) of the City of Portsmouth, New Hampshire (the “Issuer”).

[Only use the next paragraph if the 10% test has not been met as of the Sale Date.]

For each Maturity of the Bonds as to which no price is listed in Schedule A (the “Unsold Maturities”), as set forth in the Notice of Sale for the Bonds, the [Successful Bidder][Representative] and any other Underwriter did not [and will not] reoffer the Unsold Maturities until the earlier of (i) ______, 20__ or (ii) the date on which the [Successful Bidder][Representative] or any other Underwriter sold at least 10% of each Unsold Maturity at a price that is no higher than the initial offering price to the Public.

2. Defined Terms.

3. Receipt. The [Successful Bidder][Representative] hereby acknowledges receipt of the Bonds and further acknowledges receipt of all certificates, opinion and other documents required to be delivered to the [Successful Bidder][Representative], before or simultaneously with the delivery of the Bonds, which certificates, opinions and other documents are satisfactory to the [Successful Bidder][Representative].

The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the [Successful Bidder’s][Representative’s] interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Locke Lord LLP in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds.

Dated: ______, 2018 [SUCCESSFUL BIDDER][REPRESENTATIVE]

By: ______Name: Title: ______[*Preliminary, subject to change.]

SCHEDULE A

SALE PRICES

(To be Attached)

14 OFFICIAL STATEMENT

CITY OF PORTSMOUTH, NEW HAMPSHIRE

$19,650,000* GENERAL OBLIGATION CAPITAL IMPROVEMENT LOAN BONDS

INTRODUCTION

This Official Statement is provided for the purpose of presenting certain information relating to the City of Portsmouth, New Hampshire (the "City") in connection with the sale of $19,650,000* aggregate principal amount of its General Obligation Capital Improvement Loan Bonds hereinafter referred to as the "Bonds". The information contained herein has been furnished by the City, except information attributed to another governmental agency or official as the source.

THE BONDS

Description of the Bonds

The Bonds will be dated as of their date of delivery and will bear interest payable semiannually on June 15 and December 15, commencing December 15, 2018. The Bonds shall mature on June 15 of the years and in the principal amounts as set forth on the cover page of this Official Statement.

The Bonds are issuable in fully registered form without coupons, and, when issued will be registered in the name of Cede & Co., as Bondowner and nominee for The Depository Trust Company ("DTC"), New York, New York. DTC will act as securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form, in the denomination of $5,000 or any integral multiple thereof and purchasers will not receive physical certificates representing their interest in Bonds purchased. So long as Cede & Co. is the Bondowner, as nominee of DTC, references herein to the Bondowners or registered owners shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners (as defined herein) of the Bonds. (See "Book-Entry Transfer System" herein.)

Principal and semiannual interest on the Bonds will be paid by U. S. Bank National Association, Boston, Massachusetts, as Paying Agent. So long as DTC or its nominee, Cede & Co., is the Bondowner, such payments will be made directly to such Bondowner. Disbursement of such payments to the DTC Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is the responsibility of the DTC Participants and the Indirect Participants, as more fully described herein.

Redemption Provisions

Optional Redemption

Mandatory Redemption

Term Bonds, if any, shall be subject to mandatory redemption commencing on June 15 of the first year which has been combined to form such Term Bonds and continuing on each year thereafter until the stated maturity date of any such Term Bonds. The amount redeemed or part of maturity in any years shall be equal to the principal amount for that year set forth in the schedule as on the cover page of this official statement. Principal amounts to be redeemed in any year by mandatory redemption shall be redeemed at par (without premium), plus accrued interest to the redemption date, and shall be selected by lot from among the Term Bonds then subject to redemption. The City Treasurer may credit against any mandatory redemption requirement term Bonds which have been purchased and cancelled by the City or have been redeemed and not theretofore applied as a credit against any mandatory redemption requirement.

______*Preliminary, subject to change.

15 Notice of Redemption

So long as DTC is the registered owner of the Bonds, notice of any redemption of Bonds, prior to their dates of maturity, specifying the Bonds (or the portions thereof) to be redeemed shall be mailed by registered mail to DTC not more than 60 days nor less than 30 days prior to the redemption date. Any failure on the part of DTC to notify its Direct Participants of the redemption or failure on the part of DTC’s Direct or Indirect Participants or a nominee of a Beneficial Owner (having received notice from a DTC participant or otherwise) to notify the beneficial Owners shall not affect the validity of the redemption.

Record Date

The record date for each payment of interest on the Bonds is the last business day of the month preceding the interest payment date. With respect to overdue interest or interest on any overdue amount, the Paying Agent may establish a special record date to the Bondowner. The special record date may not be more than twenty (20) days before the date set for payment. The Paying Agent will mail notice of a special record date to the Bondowners at least ten (10) days before the special record date.

Book-Entry Transfer System

The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued in fully-registered form registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One-fully registered certificate will be issued for each maturity of each series of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly- owned subsidiary of the Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

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

To facilitate subsequent transfers, all securities 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 securities with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the securities deposited with it, DTC's records reflect only the identity of the Direct Participants to whose accounts such securities are

16 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.

Redemption notices shall be sent to DTC. If less than all of a maturity is 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 such other DTC nominee) will consent or vote with respect to securities deposited with it unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer of such securities or its paying agent as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts such securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal and interest payments on securities deposited with DTC 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 issuer of such securities or its paying agent, on the 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 issuer of such securities or its paying agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the issuer of such securities or its paying agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to securities held by it at any time by giving reasonable notice to the issuer of such securities or its paying agent. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered to Beneficial Owners.

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

The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof.

Source of Payment and Remedies

In the opinion of Bond Counsel, the Bonds, when duly issued, will constitute valid general obligations of the City and all taxable property in the City is subject to taxation without limit as to rate or amount to pay the same; provided that, to the extent the City has established any development districts pursuant to Chapter 162-K of the New Hampshire Revised Statutes Annotated, taxes levied on certain taxable property located within any such district may be restricted and unavailable to pay the principal of and interest on the Bonds. See “City Finances-Tax Increment Financing for Development Districts.”

Chapter 33 of the New Hampshire Revised Statutes Annotated ("RSA"), known as the "Municipal Finance Act", provides that the amount of each payment of principal and interest on all loans issued by a municipality shall, without vote of the municipality, be annually assessed and collected. Except for certain taxes or any other bonds on the increased assessed value in development districts, no provision is made, however, for a lien on any portion of the tax levy or any other funds to secure bonds or notes, or judgments thereon, in priority to other claims. See “City Finances-Tax Increment Financing for Development Districts”.

The obligations of the City and enforcement thereof are subject to the exercise of the sovereign police powers of the State of New Hampshire and the constitutional powers of the United States of America, to the federal bankruptcy act and other existing and future laws affecting creditors’ rights to the extent the same may be constitutionally applied, and to the exercise of judicial discretion in accordance with general equitable principals.

17 Authorization of the Bonds and Use of Proceeds

This Original Date of Municipal Finance Purpose Issue* Authorization Authorization Act and Resolution Elementary School Facility Improvements $ 5,000,000 $ 5,000,000 4/3/2017 7-2017 High School athletic Field Lighting 550,000 550,000 7/10/2017 19-2017 Citywide Street, Sidewalk, and Facility Improvements 6,200,000 10,950,000 7/10/2017 20-2017 Water Line Replacements & Pleasant Street Water Line Improvements 3,100,000 3,100,000 7/10/2017 21-2017 Consent Decree Mitigation, Sewer Line Replacements, Wastewater Pumping Station, & Union Street Sewer 4,800,000 4,800,000 . 7/10/2017 22-2017 Total $ 19,650,000 *

Principal Payments by Purpose

Streets, Sewer Line & Elementary High School Sidewalks and Water Line Pumping Year School* Athletic Fields* Facilities* Replacements* Station* Total* 2019$ 250,000 $ 55,000 $ 620,000 $ 185,000 $ 330,000 $ 1,440,000 2020 250,000 55,000 620,000 185,000 330,000 1,440,000 2021 250,000 55,000 620,000 185,000 330,000 1,440,000 2022 250,000 55,000 620,000 185,000 330,000 1,440,000 2023 250,000 55,000 620,000 185,000 330,000 1,440,000 2024 250,000 55,000 620,000 185,000 330,000 1,440,000 2025 250,000 55,000 620,000 185,000 330,000 1,440,000 2026 250,000 55,000 620,000 185,000 330,000 1,440,000 2027 250,000 55,000 620,000 185,000 330,000 1,440,000 2028 250,000 55,000 620,000 185,000 330,000 1,440,000 2029 250,000 125,000 150,000 525,000 2030 250,000 125,000 150,000 525,000 2031 250,000 125,000 150,000 525,000 2032 250,000 125,000 150,000 525,000 2033 250,000 125,000 150,000 525,000 2034 250,000 125,000 150,000 525,000 2035 250,000 125,000 150,000 525,000 2036 250,000 125,000 150,000 525,000 2037 250,000 125,000 150,000 525,000 2038 250,000 125,000 150,000 525,000 Total$ 5,000,000 $ 550,000 $ 6,200,000 $ 3,100,000 $ 4,800,000 $ 19,650,000

______*Preliminary, subject to change.

Tax Exemption

In the opinion of Locke Lord LLP, Bond Counsel to the City (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”). Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other federal tax consequences arising with respect to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. The Bonds will not be designated as “qualified tax- exempt obligations” for purposes of Section 265(b)(3) of the Code.

The Code imposes various requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. Failure to comply with these requirements may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The City has covenanted to comply with such requirements to ensure that interest on the Bonds will not be included in federal gross income. The opinion of Bond Counsel assumes compliance with these requirements.

Bond Counsel is also of the opinion that, under existing law, interest on the Bonds is exempt from the New Hampshire personal income tax on interest and dividends. Bond Counsel expresses no opinion on any other New Hampshire tax consequences arising with respect to the Bonds. Bond Counsel expresses no opinion as to the taxability of the Bonds or

18 the income therefrom or any other tax consequences arising with respect to the Bonds under the laws of any state other than New Hampshire. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix B hereto.

To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and is exempt from Massachusetts personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the reasonably expected initial offering price to the public (as defined in the Notice of Sale). However, if the competitive sale requirements (as defined in the Notice of Sale) are not met, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public. The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Bondholders should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase such Bonds in the original offering to the public at the reasonably expected initial offering price to the public, or, if applicable, the first price at which a substantial amount of such Bonds is sold to the public.

Bonds purchased, whether at original issuance or otherwise, for an amount greater than the stated principal amount to be paid at maturity of such Bonds, or, in some cases, at the earlier redemption date of such Bonds (“Premium Bonds”), will be treated as having amortizable bond premium for federal income tax purposes and for purposes of the New Hampshire personal income tax on interest and dividends. No deduction is allowable for the amortizable bond premium in the case of obligations, such as the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a Bondholder’s basis in a Premium Bond will be reduced by the amount of amortizable bond premium properly allocable to such Bondholder. Holders of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds.

Prospective Bondholders should be aware that from time to time legislation is or may be proposed which, if enacted into law, could result in interest on the Bonds being subject directly or indirectly to federal income taxation, or otherwise prevent Bondholders from realizing the full benefit provided under current federal tax law of the exclusion of interest on the Bonds from gross income. To date, no such legislation has been enacted into law. However, it is not possible to predict whether any such legislation will be enacted into law. Further, no assurance can be given that any pending or future legislation, including amendments to the Code, if enacted into law, or any proposed legislation, including amendments to the Code, or any future judicial, regulatory or administrative interpretation or development with respect to existing law, will not adversely affect the market value and marketability of, or the tax status of interest on, the Bonds. Prospective Bondholders are urged to consult their own tax advisors with respect to any such legislation, interpretation or development.

Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from the New Hampshire personal income tax on interest and dividends, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Bondholder’s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Bondholder or the Bondholder’s other items of income, deduction, or exclusion. Bond Counsel expresses no opinion regarding any such other tax consequences, and Bondholders should consult with their own tax advisors with respect to such consequences.

Rating

Application has been made to S&P Global Ratings for a rating on the Bonds. Said rating, if obtained, will reflect only the rating agency’s views and will be subject to revision or withdrawal, which could affect the market price of the Bonds.

Financial Advisory Services of Hilltop Securities, Inc.

Hilltop Securities, Inc., Boston, Massachusetts serves as financial advisor to the City.

19 Opinion of Bond Counsel

All legal matters incidental to the authorization and issue of the Bonds are subject to approval of the firm Locke Lord LLP, Boston, Massachusetts. A proposed form of the legal opinion of Bond Counsel is included herein as Appendix B.

Other than as to matters expressly set forth herein as the opinion of Bond Counsel, Bond Counsel are not passing upon and do not assume any responsibility for the accuracy or adequacy of the statements made in this Official Statement and make no representation that they have independently verified the same.

Continuing Disclosure

In order to assist the Underwriter in complying with Rule 15c2-12(b)(5) promulgated by the Securities and Exchange Commission (the “Rule”), the City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than 270 days after the end of each fiscal year (the "Annual Report"), and to provide notices of the occurrence of certain significant events. The covenants will be contained in a Continuing Disclosure Certificate, the proposed form of which is provided in Appendix C. The Certificate will be executed by the signers of the Bonds, and incorporated by reference in the Bonds.

The City believes that, in the past five years, it has complied in all material respects with any previous undertakings to provide annual reports or notices of significant events in accordance with the Rule.

20 THE CITY OF PORTSMOUTH, NEW HAMPSHIRE

General

The City of Portsmouth, New Hampshire (the “City” or “Portsmouth”) was originally settled in 1623 and was incorporated in 1849. It is located in Rockingham County on New Hampshire's seacoast on the Piscataqua River midway between Portland, Maine, 50 miles to the north, and Boston, Massachusetts, 50 miles to the south.

Portsmouth is the New Hampshire seacoast's trade and cultural center and a major distribution market for points in northern New England. Situated along interstate 95, Portsmouth is served to the west by routes U.S. 4, N.H. 16 and 101 and, to the north and south, by the Spaulding Turnpike and U.S. Route 1.

Land Area

Portsmouth's land area is 15.2 square miles; 60 percent of the area is presently developed. Of the remaining 40 percent, 25 percent is appropriate for development and 15 percent is classified as wetlands.

Government

The City is governed by a City Manager and City Council. The City Manager is the chief administrative officer and a nine- member City Council is elected at large.

Principal Executive Officers

Term and Manner Expiration Office Name Manner of Selection Date City Council Jack Blaylock, Mayor Elected for 2 Years 12/31/2019 Cliff Lazenby, Assistant Mayor Elected for 2 Years 12/31/2019 Doug Roberts Elected for 2 Years 12/31/2019 Nancy Pearson Elected for 2 Years 12/31/2019 Josh Denton Elected for 2 Years 12/31/2019 Chris Dwyer Elected for 2 Years 12/31/2019 Rebecca Perkins Elected for 2 Years 12/31/2019 Ned Raynolds Elected for 2 Years 12/31/2019 Rick Becksted Elected for 2 Years 12/31/2019 City Manager John P. Bohenko Appointed By City Council Indefinite Finance Director/Treasurer Judith Belanger Appointed By City Council Indefinite

City Clerk Kelli L. Barnaby Appointed By City Council Indefinite

Education

Public education is provided by the City and is administered by a nine-member School Board, which is responsible for the educational program. Although the City Council approves or disapproves the total school budget, the individual expenditures within that budget are the prerogative of the School Board. Members are elected every four years; terms expire in 2019 and 2021, as follows:

School Board

Term Expires Term Expires Ann M. Walker 2019 Nancy Novelline Clayburgh 2021 Roseann Vozella Clark 2019 Tara Kennedy 2021 Gary Epler 2019 Kristin Jeffrey 2021 Patrick L. Ellis 2019 Brian French 2021 Jeffrey Landry 2021

21 School Enrollments

The Portsmouth Public School System serves approximately 2,693 students in grades K-12; a vocational program is available to students in grades 9-12. In addition, programs are offered for pre-school students and the learning disabled through Special Education and a wide range of Adult Education courses are available to the community, including Adult Basic Education, a Diploma Program and enrichment courses.

Post-Secondary Education

In addition to the University of New Hampshire located in Durham and Great Bay Community College in Stratham, which are located 12 and 10 miles from Portsmouth, respectively, many institutions of higher education are available near the City. These institutions include: UNH School for Lifelong Learning, Hesser Junior College, Southern New Hampshire University, Franklin Pierce College, Antioch/New England College and New England School of Business Services.

Utilities

Electric and Gas - Public Service Company of New Hampshire, interconnected with the New England Power Company Exchange, supplies all electrical power. Gas service is provided by Unitil, Allied Gas Division and Sea 3. Both natural gas and LPG are available.

Water and Sewer - Water and sewer services are provided by the City under an Enterprise Fund concept, with user charges set to ensure adequate coverage of operating expenses and payments on outstanding debt. (See “Enterprise Operations Water and Sewer” under “CITY FINANCES,” below.)

Transportation and Services

Overnight truck delivery is available from Portsmouth throughout the northeast market serving 36 percent of the nation's population plus eastern Canada. Portsmouth is served by 21 regular route carriers and UPS. The Boston & Maine Railroad provides daily freight service. Greyhound and Trailways bus services also provide daily interstate service. By vehicle, Logan International Airport, as well as the financial and medical centers of Boston, are one hour’s commute south. Frequent daily limousine service is also available.

Manchester Airport is located approximately one hour west and Portland International Airport Portland, Maine, is located one hour north of Portsmouth. Amtrak passenger rail link service is now available between Portland and Boston with stops in Dover, Exeter and Durham, NH. Regional bus service is provided by COAST (Cooperative Alliance for Seacoast Transportation). Using Portsmouth as one terminus, COAST serves the region with frequent service.

The New Hampshire State Port Authority's Portsmouth facility currently provides a concrete pier 600 feet by 50 feet, with a 35-foot deep berth alongside, a 10 acre storage area and 50,000 square feet of warehouse space. The newest state pier has doubled its capacity and accommodates additional bulk cargo products and container and barge services. The harbor is ice-free year round and is the closest ice-free port to Europe. The Port operates the only active Foreign Trade Zone north of New York.

Economic Condition

In fiscal year 2017, Portsmouth realized gains in employment, new building activity, existing property renovations, infrastructure improvements and tax base. The real estate market saw positive absorption with stable lease rates and the regional economic drivers of Pease International Tradeport and the Portsmouth Naval Shipyard experienced continued growth.

Portsmouth businesses provide employment for much of the New Hampshire Seacoast workforce. According to the NH Employment Security Office, Portsmouth’s total average quarterly employment at the end of the 2016 was 32,611 compared to 31,735 at the end of 2015 indicating an increase of 876 jobs. The average weekly wage increased from $1,186 to $1,283 during the same time period. As of June 30, 2017, the unemployment rate in Portsmouth remained low at 2%, the same rate as June 30, 2016.

Construction activity in FY17 increased slightly with a 5% increase in building permits issued over FY16. The following table illustrates that 3,259 permits were issued for projects with a construction value of over $134 million. Accordingly, construction costs were up by 6% although permit fees decreased slightly from the previous year. As expected, the total number of inspections performed was also up from the previous year by 11%. As in the previous years, commercial

22 projects outpaced industrial projects. For residential construction, most of the permits issued in FY17 were for renovations versus new dwelling construction.

Along with its skilled workforce and superior quality of life, the City benefits from two major economic assets that attract diverse businesses and are important economic drivers that contribute significantly to the regional workforce. These economic assets are the Pease International Tradeport and the Portsmouth Naval Shipyard. Their economic contributions are highlighted below.

Pease International Tradeport:

 The Tradeport is home to over 275 companies and over 9,500 workers, many in well-paying technology and advance manufacturing jobs.

 Estimated annual wage base at the Tradeport is $700 million (direct and indirect).

 Businesses at the Tradeport contribute an estimated $16 million in Business Profit Taxes and Rooms and Meals Taxes to the State and $7 million to the City of Portsmouth for municipal services.

 Driven by activity at Pease, the pace of job growth in Portsmouth (71%) has been more than twice that of New Hampshire since the Pease Airforce Base closure in 1990 (AER, Inc.). The Portsmouth Naval Shipyard (PNSY) located in Kittery, Maine is the U.S. Government’s oldest continuously operating naval shipyard and the largest regional employer with noteworthy direct and indirect economic impacts:

 The Seacoast Shipyard Association’s regional economic impact report of the PNSY for calendar year 2016 shows an economic impact of $756,068,941.

 The Shipyard employs a total of 6,329 employees with a payroll of $496 million up from 6,099 employees with a payroll of $482 million in calendar year 2015.

 Projected new hires will accommodate an increased workload consistent with the Navy’s scheduled maintenance plan for Los Angeles Class and Virginia Class nuclear submarines.

 The shipyard purchased $77 million of goods and services in 2016; an increase of $17 million over calendar year 2015.

 Total contracted facility services purchased in 2016 was $140 million making it a significant source of direct and indirect expenditures in the region. The Seacoast office and industrial real estate market experienced positive absorption and strong demand in FY17. The CBRE/New England 2017 Market Outlook Report states that Portsmouth and Pease Tradeport comprise 48% of the total Seacoast office market and 2016 was the seventh consecutive year of decreasing vacancy rates within the Seacoast market. In addition, the reports states that, “High demand and shrinking amount of available land for new construction has resulted in historically high sale prices.”

Colliers International real estate advisory firm reported that average office vacancy rate for the Portsmouth submarket for properties over 10,000 square feet was 5.4% for the quarter ending June 30, 2017. Vacancies rates for industrial property over 10,000 square feet was 2.1%. This compares to respective office and industrial vacancy rates of 7.3% and 2.2% for the second quarter 2016. The current average asking lease rate for Class A office space is $31.00 per square foot (gross) which is on par with the $31.50 per square foot in the first quarter. The average asking lease rate for Class B office space remained the same as the first quarter of 2017 at $23.00 per square foot. The average asking lease rate for industrial space over 10,000 square feet is $8.00 triple net compared to $9.31 in the first quarter of 2017.

In the City’s Central Business District (CBD), construction on the 24,000 square foot, mixed-use development at 173 - 174 Market Street continues. When complete, the complex will add first floor retail and residences on the two upper levels. Another significant downtown project that was permitted is a new 143-room AC Hotel on Vaughan Street.

In the Islington Street corridor, the historic Frank Jones Brewery redevelopment is ongoing. When complete, this renovation project will add mixed retail and 54 residential apartments to the long-vacant, historic brick structures and new vitality to this part of Portsmouth’s West End.

23 Other notable development activity includes:

 Biopharmaceutical manufacturer Lonza Biologics at Pease International Tradeport is implementing its expansion cell therapy and mono 1 products with a phased $200 million capital improvement investment including more than 1 million square feet in office/manufacturing/warehousing plus two 4-story parking facilities. Initially 150 new skilled jobs will be created with the potential for another 250 future hires.  Wheelabrator Technologies recently relocated from Hampton, New Hampshire, to 100 Arboretum Drive at Pease Tradeport bringing 100 new jobs in the clean energy from waste sector.  Insurcomm, a fire and disaster restoration company has completed its 40,000 square foot office and storage facility at the Heritage/Constitution Industrial Park and brought new jobs to the community.  Wentworth Douglas Hospital has expanded its operation to Pease offering medical office care and associated health care jobs.  The Air National Guard is ramping up for the new KC 46A refueling tankers slated to bring 100 new jobs and a $7 million payroll when the Pegasus tankers begin arriving in February 2018.  215 - 235 Commerce Way is approved for a new office building at the Portsmouth Business Park.

Portsmouth is a destination location known for its arts, culture, historic architecture, and culinary and craft brewing offerings. The concentration of theatres, historic homes, restaurants, museums, and galleries drive this sector of the economy and fuel a creative workforce of actors, writers, historians, musicians, and graphic design and architectural firms. Through a series of music, arts, seafood, beer, and film festivals, these businesses attract visitors year-round which, in turn, support the growing hospitality and leisure industry. This creative sector is a significant contributor to the local economy and continues to expand as is evidenced by the recent Americans for the Arts Economic Prosperity Report. This report on the impact of local non-profit cultural institutions in the greater Portsmouth area is done every five years. In 2016 this sector contributed $58 million to the local economy, up from $41 million in 2011.

Portsmouth is often the subject of numerous articles and accolades in a variety of media. A list of representative examples of this recognition follows:

 Livability.com includes Portsmouth in the 2017 Top 100 Best Places to Live and The Best Cities for Entrepreneurs, May 2017.  Portsmouth Ranked Second Most - Tax Friendly NH City for Retirement in Smart Asset.com, May 2017.  US New and World Report – USNews.com travel website lists Portsmouth as the Most Scenic Getaway in New Hampshire, June 6, 20017.  Millennial Personal Finance ranks Portsmouth in the top 500 Cities for Pet Friendliness, April 2017.  Boston.com featured where to eat, play and stay in Portsmouth in April 2017.  Portsmouth was the only NH city featured in USA Today article listing “Most Picturesque Small Towns in Each State,” January 13, 2017.  Strawberry Banke Museum featured in The 50 Top Educational Attractions in the Northeast, Oct. 2016.  Blue Water Mortgage website includes Portsmouth in article, 10 Best Towns in New Hampshire to Hang Your Hat in 2016, Fall 2016.  Portsmouth listed in ranking of “Top Ten Prettiest Towns to Retire,” by marketwatch.com, September 2016.  Thrillist.com includes Portsmouth in article entitled “Top-20-small-townsaccording- to-the-dude-who-visited-every- country 2016.  Portsmouth listed as a “Top 7 Destination Road Trips under $500 in US News online travel site, Sept. 2016.  Portsmouth included in Collections Etcetera blog as “One of the Best 39 Small Towns Worth Visiting,” August 11,2016.  Portsmouth ranked as a “Top Small City by National Geographic Traveler Digital Nomad series, July 2016.

24 Population Trends 2010 2000 1990 1980 1970 21,233 20,784 20,750 (1) 26,254 25,717

Source: U.S. Department of Commerce, Bureau of the Census. (1) Excludes the population residing on Pease Air Force Base at the time of the census; including the residents of Pease would result in a population of 25,925. Pease Air Force Base closed in 1991.

Population, Income and Wealth Levels

The following table compares the most recent three census years' averages for the City, the State and the United States.

Portsmouth New Hampshire United States Median Age: 2010 40.3 41 37.2 2000 38.5 37 35.3 1990 30.9 34 32.9 Median Family Income: 2010$ 80,820 $ 74,634 $ 60,609 2000 59,630 57,575 50,046 1990 38,750 (1) 41,628 35,225 Per Capita Income: 2010$ 35,858 $ 30,949 $ 26,059 2000 27,540 23,844 21,587 1990 15,557 15,959 14,420

Source: U.S. Department of Commerce, Bureau of the Census. (1) Excludes the population residing on Pease Air Force Base at the time of the census; including the residents of Pease would result in a Median Family Income of $34,344. Pease Air Force Base closed in 1991.

Employment and Payrolls

Private Industry and Government Annual Averages for 2016

Number of Average Annual Average Industry Establishments Employment Weekly Wage Total, Private plus Government 1,844 32,396 $ 1,204 Total Private 1,790 30,515 1,214 Goods-Producing Industries 121 2,706 1,429 Wholesale Trade 128 1,050 1,888 Retail Trade 249 3,641 638 Transportation and Warehousing 33 675 1,015 Information 41 1,984 1,790 Finance and Insurance 136 3,974 1,940 Real Estate and Rental and Leasing 65 373 1,266 Professional and Technical Service 305 3,263 1,544 Management of Companies/Enterprises 27 568 2,547 Administrative and Waste Services 117 2,246 977 Educational Services 27 320 662 Health Care and Social Assistance 199 4,557 1,042 Arts, Entertainment, and Recreation 39 463 450 Accommodation and Food Services 173 3,770 461 Other Services Except Public Admin 125 801 789 Total Government 55 1,881 1,050 Federal Government 14 282 1,612 State Government 29 577 777

Source: New Hampshire Department of Employment Security, Economic and Labor Market Bureau. Data based upon place of employment, not place of residence. 25 Major Employers

Portsmouth Naval Shipyard

The Portsmouth Naval Shipyard (PNSY) is located in Kittery, Maine, just across the Piscataqua River from the City. It is a major submarine overhaul and refueling facility as well as the U.S. government’s oldest continuously operating naval shipyard. It is also the largest regional employer with a highly skilled, technical workforce. The Seacoast Shipyard Association’s regional economic impact report of the PNSY for calendar year 2016 shows an economic impact of $756,068,941. The Shipyard employs a total of 6,329 employees with a payroll of $496 million up from 6,099 employees with a payroll of $482 million in calendar year 2015. The shipyard purchased $77 million of goods and services in 2016; an increase of $17 million over calendar year 2015. Total contracted facility services purchased was $140 million in 2016 making it a significant source of direct and indirect expenditures in the region. Largest Employers

The following table sets forth the largest employers in the City, excluding the City itself.

Number of Business Nature of Business Employees

US Dept of State Consular Center Passport/Visa services 1,601 Liberty Mutual Insurance 1,000 HCA Hospital Hospital 1,000 Lonza Biologics Biotechnology 950 Bottomline Technologies Software 450 Amadeus Software 420 John Hancock Finance 400 Highliner Food Processor 394 Service Credit Union Banking 317

Source: NH Employment Security – NH Community Profile.

26 PROPERTY TAXATION Tax Levy Computation The following table summarizes the computation of Portsmouth's property tax levy for the current and last four fiscal years:

Fiscal Year 2018 2017 2016 2015 2014 Estimated Requirements General Government$ 42,410,237 $ 41,705,435 $ 38,564,984 $ 37,937,566 $ 35,575,219 Education 46,573,529 44,684,084 43,382,210 41,806,896 39,820,958 Collective Bargaining Contigency - - - - - County Tax 5,466,000 5,277,514 5,002,383 4,764,174 4,540,274 Capital Outlay 1,985,000 2,000,000 1,765,000 1,600,000 1,365,000 Debt Service: Principal 9,670,540 9,318,167 8,610,407 8,092,905 7,394,905 Interest 3,097,554 2,950,481 2,879,184 3,079,088 2,967,937 Projected New Debt 317,060 327,162 267,034 59,530 120,844 Interest on Temporary Loans 275,000 250,000 275,000 275,000 350,000 Overlay 950,000 950,000 950,000 1,000,000 950,000 Total:$ 110,744,920 $ 107,462,843 $ 101,696,202 $ 98,615,159 $ 93,085,137 Less Estimated Receipts and Available Funds: Local Receipts$ 20,249,314 $ 19,111,825 $ 18,070,990 $ 17,475,886 $ 15,802,118 Receipts from State & Adjustments 3,412,382 3,325,723 3,269,732 3,125,638 3,128,280 Transfer from Surplus 4,077,315 4,539,300 2,223,500 3,746,897 1,920,500 Total:$ 27,739,011 $ 26,976,848 $ 23,564,222 $ 24,348,421 $ 20,850,898 Veteran's Exemptions 483,133 480,500 522,000 $ 531,500 $ 549,500 DRA Adjustment 139,018 (103,523) 281,629 999,979 139,614 Local Property Tax 72,449,943 69,792,065 68,451,259 65,668,492 63,179,345 State Education Tax 11,178,117 11,070,907 10,484,350 10,129,725 9,744,008 Excess State Education Tax - - - - Gross Tax Levy 83,628,060 80,862,972 78,935,609 75,798,297 72,923,353 Net Assessed Valuation$ 5,468,344,022 $ 4,771,704,551 $ 4,727,842,643 $ 4,182,368,805 $ 4,096,603,575 Tax Rate per $1,000 of Assessed Value$ 15.38 $ 17.04 $ 16.79 $ 18.10 $ 17.91 Tax Levy per Capita (1) $ 3,885.34 $ 3,761.77 $ 3,672.11 $ 3,563.12 $ 3,427.98

______Source: Finance Department (1) Based on 2016 population of 21,524 for fiscal 2018, 2014 population of 21,463 for fiscal years 2015 – 2017 and 2013 population of 21,273 for fiscal year 2014. Assessed Valuations According to New Hampshire State Statute RSA 75:8-a, the assessors and/or selectmen shall reappraise all real estate within the municipality so that the assessments are at full and true value at least as often as every fifth year beginning with the first year. Tax Years 2015 and 2017 marked revaluation years for the City. The 2017 revaluation was effective April 1, 2017. In addition, in accordance with state law, in the years that there is not a full revaluation, the City review and adjusts property valuations (if necessary) annually to maintain proportionality. The following table sets forth the trend in the City's valuations:

Less Net Local Equalized DRA Determined Fiscal Gross Statutory Assessed Assessed Overall Equalization Year Tax Year Valuation Exemptions (1) Valuation Valuation (2) Assessment (3) 2018 2017$ 5,513,753,322 $ 45,409,300 $ 5,468,344,022 N/A N/A 2017 2016 4,818,313,051 46,608,500 4,771,704,551 $ 5,713,043,888 86.6 % 2016 2015 4,775,175,843 47,333,200 4,727,842,643 5,166,602,923 92.5 2015 2014 4,231,972,105 49,603,300 4,182,368,805 4,924,402,209 86.4 2014 2013 4,146,413,775 49,810,200 4,096,603,575 4,526,473,144 91.9

Source: New Hampshire Department of Revenue Administration. (1) Exemptions for disabled, elderly, environment and education. (2) Estimated full value as determined annually by the New Hampshire Department of Revenue Administration. (3) As determined by the Department of Revenue Administration. 27 Assessed Valuations by Classification

The following chart compares assessed valuations by classification for the following fiscal years:

2018 2017 2016 Property Type Amount % of Total Amount % of Total Amount % of Total

Residential$ 3,111,498,590 56.4 %$ 2,579,556,964 53.5 %$ 2,538,609,064 53.2 % Commercial/Industrial 2,402,254,732 43.6 2,238,756,087 46.5 2,236,566,779 46.8 Total Real Estate$ 5,513,753,322 100.0 %$ 4,818,313,051 100.0 %$ 4,775,175,843 100.0 %

Source: City Assessor’s Office.

Tax Levies and Collections

Property taxes are due on December 1 and June 1 of each fiscal year. The following table presents tax collections for the last five fiscal years:

Net Collected Fiscal Gross Tax Net At Fiscal Year End (2)(3) Year Levy Tax Levy (1) $ %

2017$ 80,862,972 $ 80,406,957 $ 78,768,028 98.0 % 2016 78,935,609 78,413,113 76,816,032 98.0 2015 75,798,297 74,936,960 73,219,903 97.7 2014 75,798,217 72,401,876 70,320,311 97.1 2013 70,547,791 70,007,505 67,688,563 96.7

(1) Net after deduction of overlay reserve for abatements and war service credits. (2) Actual collections of levy (less refunds and amounts refundable) including proceeds of tax titles and possessions attributable to such levy. (3) Collections for the current fiscal year are comparable to previous fiscal years.

Taxes Outstanding

As of June 30 Aggregate (1) Tax Liens

2017$ 2,057,926 $ 418,997 2016 2,153,669 556,588 2015 2,257,090 535,474 2014 2,841,865 760,300 2013 3,043,500 684,377

Source: Finance Department. (1) For five prior fiscal years. Excludes abated taxes; includes taxes in litigation, if any.

28 Significant Taxpayers

Following is a list of the City's significant taxpayers, based on assessed valuations for fiscal 2018, none of whom are delinquent in their current tax payments.

Fiscal 2018 % of Total Name Nature of Business Assessed Valuation Valuation PUBLIC SERVICE CO OF NH Utility$ 207,492,234 3.76 % HCA HEALTH SERVICES OF NH INC Hospital 84,923,200 1.54 BRANFORD HOLDING LLC (65%) Apartment Complex 49,508,800 0.90 SERVICE FEDERAL CREDIT UNION Office Building 41,637,900 0.76 LIBERTY MUTUAL INSURANCE CO Office Building 37,813,800 0.69 HANOVER APARTMENTS LLC Apartment Comples 33,931,300 0.62 NORTHERN UTILITIES INC Utility 31,166,329 0.57 INISHMAAN ASSOC LTD PTNSHP Apartment Complex 30,364,200 0.55 KANERD DEVELOPMENT LLC Industrial Building 27,106,600 0.49 HARBORSIDE ASSOC Hotel 26,045,900 0.47 DPF 1600 WOODBURY AVENUE LLC Shopping Center 24,648,600 0.45 BROMLEY PORTSMOUTH LLC Shopping Center 23,202,400 0.42 WAL-MART REAL ESTATE BUSINESS TRUST Retail Store 20,763,900 0.38 PARADE RESIDENCE HOTEL LLC Hotel 19,730,700 0.36 CHATHAM PORTSMOUTH LLC Hotel 19,400,500 0.35 OCW RETAIL PORTSMOUTH LLC Retail Store 19,136,600 0.35 BED BATH & BEYOND INC Retail Store 17,723,700 0.32 222 INTERNATIONAL LP Office Building 16,209,500 0.29 PATRIOTS PARK ASSN Apartment Complex 16,007,900 0.29 COLE BJ PORTFOLIO II LLC Retail Store 15,431,600 0.28 PIONEER INTERNATIONAL DEVELOPMENT LLC Office Building 15,130,600 0.27 325 CORPORATE DRIVE II LLC Office Building 14,253,000 0.26 273 CORPORATE DRIVE LLC Office Building 13,805,300 0.25 TOWER HILL DEVELOPMENT LLC Office Building 13,597,400 0.25 PORTWALK HI LLC Hotel 12,976,200 0.24 $ 832,008,163 15.09 %

Tax Increment Financing For Development Districts

Cities and towns in New Hampshire are authorized to establish development districts to encourage increased development. All or a portion of the taxes on growth in assessed value in such districts may be pledged and used solely to finance capital and administrative costs incurred by the city or town in developing the district in accordance with its development program and tax increment financing plan for the district. This may include pledging such “tax increments” for the payment of bonds issued by the city or town to finance development projects. As a result of any such pledge, property taxes raised on the increased assessed value in development districts are not available for other municipal purposes.

In May 2006, the City Council adopted NH RSA 162-K, the state regulation that allows a community to adopt Tax Increment Financing districts. At this time the City has not entered into any TIF Agreements.

29 CITY FINANCES

Budgetary Procedure

On or about January 15, a directive is issued from the Finance Director requesting line item budget proposals from each department for submission by March 15. All increased appropriation requirements must be substantiated fully. The City Manager and Finance Director schedule individual departmental reviews with supervisors. The City Manager's recommendations are then presented to the Council prior to May 1. The Council also schedules individual departmental reviews to properly evaluate the Manager's Budget by a majority vote or cut by a majority vote.

A public hearing is then set by the Council to review the budget requirements with the general public. After due consideration to the public, the Council makes a final decision. A resolution is required for acceptance of the final budget by a majority vote.

The final budget and resolution are then presented to the State Department of Revenue Administration for review and issuance of the tax rate. Certain limitations which are set by State statute must be followed before the rate is established.

Budget Trends

The following table summarizes budget trends for the following fiscal years:

Fiscal Fiscal Fiscal Fiscal Fiscal 2019 2018 2017 2016 2015 General Government $ 11,149,943 $ 10,517,828 $ 10,156,870 $ 9,858,624 $ 9,504,876 Education 48,086,136 46,573,529 44,684,084 43,382,210 41,806,896 Public Safety 20,246,534 19,610,248 18,723,745 17,613,291 17,116,794 Public Works 6,844,223 6,635,216 6,427,261 6,237,609 6,124,370 Library 1,921,013 1,860,546 1,776,114 1,719,529 1,647,214 Debt Service 14,570,912 13,360,154 12,870,810 12,031,625 11,506,523 Capital Outlay 2,005,000 1,985,000 2,000,000 1,765,000 1,600,000 Other (1) (2) (3) 7,041,466 7,935,148 8,727,514 6,516,305 7,524,861 Unclassified (4) 2,760,566 2,267,251 2,096,445 1,922,009 1,783,625 Totals $ 114,625,793 $ 110,744,920 $ 107,462,843 $ 101,046,202 $ 98,615,159

Water $ 8,436,724 $ 8,121,195 $ 8,095,161 $ 7,931,272 $ 7,371,302 Sewer $ 12,146,597 $ 11,193,646 $ 10,298,740 $ 10,864,068 $ 9,910,619

Source: Finance Department. (1) Includes Contingency, Overlay, Collective Bargaining Contingency, and County Tax. (2) Includes Municipal Complex Renovation Supplemental Appropriation fiscal 2015 and fiscal 2018. (3) Includes Middle School Renovations Supplemental Appropriation of $650,000 in fiscal 2016 only. (4) Includes Property Liability Insurance, IT Equipment Replacements, Rolling Stock and Other Non-Operating expenses.

Revenues

Property Taxes - The principal revenue source of the City is the tax on real property. The amount to be levied in each year is the amount appropriated or required by law to be raised for municipal expenditures less estimated receipts from other sources and less appropriations voted from available funds.

Enterprise Operations (Water and Sewer)

The City operates and maintains a water supply and distribution system serving approximately 7,919 water customers in Portsmouth and parts of six surrounding communities. The City also operates and maintains a wastewater collection and treatment system serving over 6,198 customers. The operation of these services is the responsibility of the Public Works Department and includes control and maintenance of over 150 miles of water mains, gate valves, hydrants, meters, nine water supply wells, several storage facilities, a water treatment facility, 20 pump stations, several major interceptors and lateral networks, combined sewer/storm water collection, and interceptors and lateral networks, and an advanced primary wastewater treatment plant. In addition, water treatment, distribution and waste collection and treatment systems

30 previously operated and maintained by the Air Force have been incorporated into the existing operations including a secondary treatment plant.

The financial activities of the Water and the Sewer Operations are accounted for in two separate Enterprise Funds. These two funds are self-sustaining and are supported by user fees and charges. The accounting, budgeting and rate setting of each of these two funds are separate from the other and from the General Fund.

Annual Audits

The City's accounts were most recently independently audited for fiscal year ended June 30, 2017 by Melanson Heath & Company, P.C., Certified Public Accountants, of Portsmouth, New Hampshire.

The attached audit report speaks only as of its date, and only to the matters expressly set forth therein. The auditors have not been engaged to review this Official Statement or to perform audit procedures regarding the post-audit period, nor have the auditors been requested to give their consent to the inclusion of their report in Appendix A. Except as stated in their report, the auditors have not been engaged to verify the financial information set out in Appendix A and are not passing upon and do not assume responsibility for the sufficiency, accuracy or completeness of the financial information presented in that appendix.

Financial Statements

Set forth on the following pages are Governmental Funds Balance Sheets for fiscal years ending June 30, 2017, June 30, 2016 and June 30, 2015 and a Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Funds, for the fiscal years ending June 30, 2017 through June 30, 2013. All such statements were extracted from the City’s audited financial statements.

31 (1)

______(1) Extracted from audited financial statements of the City.

32 CITY OF PORTSMOUTH, NEW HAMPSHIRE (1)

______(1) Extracted from audited financial statements of the City.

34 CITY OF PORTSMOUTH, NEW HAMPSHIRE (1)

______(1) Extracted from audited financial statements of the City.

35 CITY OF PORTSMOUTH, NEW HAMPSHIRE (1)

______(1) Extracted from audited financial statements of the City.

36 ______(1) Extracted from audited financial statements of the City.

37 CITY OF PORTSMOUTH, NEW HAMPSHIRE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR YEAR ENDED JUNE 30, 2014 (1)

Nonmajor Total Governmental Governmental General Funds Funds REVENUES Property Taxes $ 72,865,380 $ 98,914 $ 72,964,294 Licenses and Permits 5,140,721 - 5,140,721 Intergovernmental 3,139,113 8,074,968 11,214,081 Charges for Services 10,876,056 3,781,483 14,657,539 Investment Income 64,486 1,078,667 1,143,153 Interest on Taxes 279,531 - 279,531 Fines and Costs 728,591 19,349 747,940 Contributions - 569,549 569,549 Other 1,728,132 122,730 1,850,862 Total Revenues 94,822,010 13,745,660 108,567,670

EXPENDITURES Current: General Government 7,859,924 90,351 7,950,275 Public Safety 16,769,878 392,765 17,162,643 Education 40,557,086 5,122,862 45,679,948 Public Works 6,256,263 2,914,227 9,170,490 Health and Human Services 673,703 - 673,703 Culture and Recreation 2,416,690 1,178,093 3,594,783 Community Development - 1,039,811 1,039,811 Debt Service: Principal 7,394,905 - 7,394,905 Interest 3,045,212 - 3,045,212 Capital Outlay 1,188,535 16,245,832 17,434,367 Intergovernmental 4,667,200 - 4,667,200 Total Expenditures 90,829,396 26,983,941 117,813,337

Excess (Deficiency) of Revenues Over (Under) Expenditures 3,992,614 (13,238,281) (9,245,667)

Other Financing Sources (Uses): Bond Premium 1,233,245 - 1,233,245 Issuance of Bonds - 9,050,000 9,050,000 Transfers In 1,121,068 1,811,538 2,932,606 Transfers Out (1,911,538) - (1,911,538) Total Other Financing Sources (Uses) 442,775 10,861,538 11,304,313

Net change in Fund Balances 4,435,389 (2,376,743) 2,058,646

Fund Balances, at Beginning of Year 40,185,463 33,550,391 73,735,854 Fund Balances, at End of Year $ 44,620,852 $ 31,173,648 $ 75,794,500 ______(1) Extracted from audited financial statements of the City.

38 CITY OF PORTSMOUTH, NEW HAMPSHIRE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR YEAR ENDED JUNE 30, 2013 (1)

Nonmajor Total School Governmental Governmental General Renovations Funds Funds REVENUES Property Taxes $ 69,355,426 $ - $ - $ 69,355,426 Licenses and Permits 4,669,868 - - 4,669,868 Intergovernmental 2,718,335 - 5,218,258 7,936,593 Charges for Services 10,199,596 - 3,685,952 13,885,548 Investment Income 92,119 - 767,693 859,812 Interest on Taxes 371,247 - - 371,247 Fines and Costs 772,094 - 37,738 809,832 Contributions - - 2,030,714 2,030,714 Other 433,577 - 282,239 715,816 Total Revenues 88,612,262 - 12,022,594 100,634,856

EXPENDITURES Current: General Government 7,499,657 - 147,508 7,647,165 Public Safety 15,738,669 - 507,495 16,246,164 Education 38,436,560 - 4,838,242 43,274,802 Public Works 5,874,213 - 2,850,197 8,724,410 Health and Human Services 663,744 - - 663,744 Culture and Recreation 2,243,641 - 948,056 3,191,697 Community Development - - 743,466 743,466 Debt Service: Principal 8,257,905 - - 8,257,905 Interest 3,091,322 - - 3,091,322 Capital Outlay 723,057 11,305,357 4,767,837 16,796,251 Intergovernmental 4,426,943 - - 4,426,943 Total Expenditures 86,955,711 11,305,357 14,802,801 113,063,869

Excess (Deficiency) of Revenues Over (Under) Expenditures 1,656,551 (11,305,357) (2,780,207) (12,429,013)

Other Financing Sources (Uses): Bond Premium 184,652 - - 184,652 Issuance of Bonds - - 2,767,000 2,767,000 Transfers In 1,176,820 - 1,720,672 2,897,492 Transfers Out (1,919,914) - - (1,919,914) Total Other Financing Sources (Uses) (558,442) - 4,487,672 3,929,230

Net change in Fund Balances 1,098,109 (11,305,357) 1,707,465 (8,499,783)

Fund Balances, at Beginning of Year 39,087,354 16,873,776 25,779,788 81,740,918 Fund Balances, at End of Year $ 40,185,463 $ 5,568,419 $ 27,487,253 $ 73,241,135 ______(1) Extracted from audited financial statements of the City.

39 Unassigned General Fund Balances (1)

Unassigned As of General June 30 Fund Balance

2018 (projected)$ 14,950,564 2017 14,505,641 2016 13,158,178 2015 12,509,745 2014 11,790,868 2013 11,027,473

(1) Source: Audited Financial Statements.

New Hampshire School Finance

On December 17, 1997, The New Hampshire Supreme Court ruled that the State’s system of financing elementary and secondary public education primarily through local property taxes was unconstitutional. Since that decision, the state legislature has taken a number of actions to address the issues raised by the Supreme Court and to meet its constitutional obligation with respect to school funding. Many of such actions have been subject to subsequent review and decisions by the Supreme Court. For a detailed description of the history and status of the school funding litigation and the resulting legislation affecting the extent and manner in which the state participates in the financing of public education, see the State’s most recent Information Statement which has been filed with the Municipal Securities Rulemaking Board pursuant to Securities and Exchange Commission Rule 15c2-12.

Investment of City Funds

Under RSA 48:16, the treasurer of a New Hampshire city may deposit its funds in the New Hampshire Public Deposit Investment Pool (the “NHPDIP”) or in solvent banks in the State, and also in banks outside the State if the deposits are fully secured by collateral in the form of obligations of the United States, U.S. agencies or the State. The treasurer may also invest any excess funds, not immediately needed for expenditure, in the NHPDIP, U.S. obligations, savings bank deposits in New Hampshire savings banks, or certificates of deposit and repurchase agreements of New Hampshire banks or banks recognized by the State Treasurer.

Overnight deposits held at the City’s major financial institutions are collateralized with securities held in a Federal Reserve Bank of Boston Joint Custody Account. A security transfer requires both parties agreement. Current collateral is U.S. government securities.

According to the NHPDIP Program Administrator, MBIA Municipal Investors Service Corporation, NHPDIP invests only in high grade short term federal securities, variable rate obligations backed by federal agencies having monthly or quarterly resets based on indexes like the prime rate, LIBOR, or a combination of the two, the highest grade short term commercial paper instruments, and very short-term (usually overnight) repurchase agreements secured by high quality collateral which is valued daily and fully delivered to the program’s custodial bank to be held for the benefit of the pools participants. In addition, MBIA Inc., corporate parent of the Program Administrator, has agreed that it will guarantee, so long as its subsidiary serves as Program Administrator, that no pool participant will be exposed to loss of funds upon account liquidation.

40 INDEBTEDNESS

Authorization Procedure and Limitations

Bonds and notes are generally authorized on behalf of the City by vote of two-thirds of all the members of the City Council.

The general debt limit of the municipality is 3 percent of “base valuation” (see below), except for school purposes. The debt limit for school purposes is 7 percent of said base valuation and school debt is not counted toward the 3 percent limitation. Water and sewer projects ordered by the State Water Supply and Pollution Control Commission are excluded from the measure of indebtedness. Other water projects are subject to a separate special debt limit of 10 percent of base valuation. Borrowings authorized by special legislative acts rather than the general municipal finance statutes are sometimes excluded from a city’s or town’s debt limit.

The base valuation for computing the debt limit is determined in accordance with New Hampshire RSA 33:4-b and is calculated annually by the State Department of Revenue Administration (the “DRA”). The DRA’s 2016 Equalization Survey as reported on April 26, 2017 indicates that the City’s base valuation for computing its debt limit was $5,651,979,770.

Temporary loans in anticipation of taxes, bonds or serial notes, and federal and state aid are not included in the usual measure of indebtedness. The maximum term for temporary loans in anticipation of taxes is one year from the date of issue; for temporary loans in anticipation of bonds, five years; and for notes in anticipation of federal or state aid, five years.

Tax Anticipation Note Borrowing

The City has not issued any Tax Anticipation Notes during the last ten fiscal years.

Direct Debt Summary Debt Outstanding as of June 30, 2017 General Obligation Bonds Sewer $ 50,340,012 Water 29,832,268 School 50,962,635 Landfill 458,427 General 34,413,500 Total $ 166,006,842 This Issue of Bonds 19,650,000 *

Short Term Debt Bond Anticipation Notes Outstanding (1) 22,000,000 Total Bond Anticipation Notes 22,000,000 Total Direct Debt: $ 207,656,842

______*Preliminary, subject to change. (1) Payable June 22, 2018. To be renewed to June 21, 2019.

41 Selected Debt Ratios

June 30, 2017 2016 2015 2014 2013 Total Bonded Debt $ 166,006,842 $ 162,937,840 $ 155,971,260 $ 154,565,807 $ 134,504,760 Population 20,784 20,784 20,784 20,784 20,784 Per Capita $ 7,987 $ 7,840 $ 7,504 $ 7,437 $ 6,472 % of Equalized Valuation 2.94 % 3.60 % 3.45 % 3.41 % 3.14 %

Annual Debt Service as of June 30, 2017 (1)

Fiscal Outstanding New Money (3) State Aid Net Principal Year Principal Interest Principal Interest School (2) Debt Service Retired 2018 $ 16,123,661 $ 5,813,279 -$ -$ $ (1,770,305) $ 20,166,635 8.7 % 2019 15,646,026 5,255,22 5 1,440,000 786,000 (1,770,305) 21,356,947 17. 9 2020 15,055,738 4,720,528 1,440,000 728,400 (1,770,305) 20,174,360 26. 8 2021 14,461,671 4,151,988 1,440,000 670,800 (1,770,305) 18,954,154 35. 3 2022 14,331,671 3,624,334 1,440,000 613,200 (1,770,305) 18,238,900 43. 8 2023 13,165,659 3,095,281 1,440,000 555,600 (1,770,305) 16,486,235 51.7 2024 10,942,531 2,642,164 1,440,000 498,000 (754,083) 14,768,613 58.4 2025 10,367,531 2,241,25 5 1,440,000 440,400 (754,083) 13,735,103 64.7 2026 9,507,626 1,860,471 1,440,000 382,800 (754,083) 12,436,814 70. 6 2027 8,247,626 1,510,612 1,440,000 325,200 (754,083) 10,769,355 75.8 2028 7,402,626 1,242,613 1,440,000 267,600 (754,083) 9,598,756 80.6 2029 6,767,791 1,006,270 525,000 210,000 (754,083) 7,754,978 84.5 2030 5,912,791 782,111 525,000 189,000 (754,083) 6,654,819 88.0 2031 5,059,305 586,393 525,000 168,000 (679,083) 5,659,616 91.0 2032 4,794,794 411,32 5 525,000 147,000 (679,083) 5,199,036 93.9 2033 2,869,794 274,681 525,000 126,000 - 3,795,475 95.7 2034 2,395,000 175,97 5 525,000 105,000 - 3,200,975 97.3 2035 1,380,000 92,52 5 525,000 84,000 - 2,081,525 98.3 2036 1,090,000 49,06 9 525,000 63,000 - 1,727,069 99.2 2037 485,000 15,76 3 525,000 42,000 - 1,067,763 99.7 2038 - - 525,000 21,000 - 546,000 100.0 Totals$ 166,006,842 $ 39,551,862 $ 19,650,000 $ 6,423,000 $ (17,258,577) $ 214,373,127

______(1) Excludes temporary loans, lease-purchase obligations, overlapping debt and unfunded pension liability. (2) The City receives annually school construction aid payments from the State of New Hampshire equal to between 30% and 55% of eligible principal payments on its school bonds.

42 Authorized Unissued Debt and Prospective Financing

Following delivery of the Bonds, the City will have approximately $122,671,897 of authorized unissued debt as follows:

Purpose Amount Coakley Landfill $ 4,641,897 Parking Facility 26,200,000 Peirce Island Wastewater Treatment Facility 81,900,000 Elementary School Upgrades 5,000,000 Fire Boat 180,000 Various City-wide projects 4,750,000 $ 122,671,897

RETIREMENT SYSTEM

Full-time employees of the City, including teachers, are covered by the New Hampshire Retirement System, which is a cost sharing, multiple employer, public employee retirement system (PERS). Municipal employees and teachers are required to pay 7 percent, police personnel are required to pay 11.55 percent and fire personnel are required to pay 11.80 percent of their gross earnings to the pension plan. The City makes annual contributions to the pension plan equal to the amount required by state statutes. The City’s contributions to the Retirement System follow:

Fiscal Year Contribution

2017 $7,864,015 2016 7,660,491 2015 7,084,082 2014 6,105,353 2013 5,046,588

Additional information concerning the New Hampshire Retirement System can be found at https://www.nhrs.org/.

Other Post-Employment Benefits

The City does not pay for health care and life insurance benefits for retirees, their dependents, or their survivors with the exception of the City Manager and a retired Superintendent of Schools. However, retirees may purchase health care and life insurance benefits at the City’s group plans’ rates.

In accordance with RSA-100A:50, employees upon retirement may continue to participate in the same medical insurance or health care group or plan as its active employees. The City of Portsmouth requires each retiree who elects to continue on the City’s plan, to pay 100% of their health insurance plan. The City’s share of the health plan costs for active employees is paid on a pay-as-you-go basis.

The Governmental Accounting Standards Board (“GASB”) promulgated its Statement Nos. 43 and 45, which required public sector entities to report the future costs of these non-pension, post-employment benefits in their financial statements. These accounting standards do not require pre-funding the payment of these costs as the liability for such costs accrues, but the basis applied by the standards for measurement of costs and liabilities for these benefits is conservative if they continue to be funded on a pay-as-you-go basis and will result in larger yearly cost and liability accruals than if the cost of such benefits were pre-funded in a trust fund in the same manner as traditional pension benefits. Cities and towns that choose to self-insure all or a portion of the cost of the health care benefits they provide to employees and retirees may establish a trust fund for the purpose of paying claims. In addition, cities and towns may establish a trust fund for the purpose of pre-funding other post- employment benefits liability in the same manner as traditional pension benefits.

The City completed an actuarial valuation of its non-pension, post-employment benefit liability for the fiscal year ending June 30, 2017. The City’s unfunded accrued actuarial liability is $14,015,797 and the Annual Required Contribution (ARC) is $1,405,021. The City’s unfunded accrued actuarial liability assumes an investment rate of 4.5%.

43 EMPLOYEE RELATIONS

The City currently employs 1,248 full and part-time persons, 63% of whom belong to collective bargaining groups as shown below. There are a total of 16 bargaining units.

Number of Employees Contract Employee Category Represented by (Not FTE) Expires

Management Local Association (PMA) 53 6/30/2019 Foreman and Supervisors Local Association (SMA) 23 6/30/2019 Public Works A.F.S.C.M.E. (1386) 80 6/30/2019 Library & Clericals A.F.S.C.M.E. (1386B) 34 6/30/2020 Fire Department: Fire Officers Local Association 13 6/30/2019 Firefighters I.A.F.F. 45 6/30/2019 Police Department: Ranking & Supervisory Officers Local Association 17 6/30/2018 Non-Rankin IBPO Local 402 46 6/30/2018 Civilian Local Association 18 6/30/2018 School: Principals, Asst. Principals & Directors Local Association 17 6/30/2019 Teachers NEA/NH 279 6/30/2019 Clerical PACE NEA/NH 25 6/30/2018 Custodial AFSCME Local 1386 21 6/30/2020 Cafeteria AFSCME Local 1386 12 6/30/2019 Paraprofessionals Local Association 95 6/30/2019 Custodial Supervisors Local Association 6 6/30/2019 Total Union: 784

Non-Union 458 Individual Contracts 6 Grant Total 1,248

LITIGATION

Coakley Landfill – For approximately a 10 year period ending 1982 the City was the operator of a municipal refuse landfill site located in North Hampton, New Hampshire identified as the Coakley Landfill. The Coakley Landfill was designated a federal superfund site in the early 1980’s resulting in the City as well as numerous other parties, including municipalities and private entities, entering two federal Consent Decrees mandating remediation of the site under the direction of the United States Environmental Protection Agency. Liability under the Consent Decree is joint and several. The parties who had signed the Consent Decrees then entered further agreements describing the manner in which they would cooperatively remediate the site and pay for that remediation. Since 1992 the remediation of the site has been ongoing under the supervision of the United States Environmental Protection Agency and the New Hampshire Department of Environmental Services.

In December 1991, the City Council authorized the issuance of $8.9 million in bonds to pay for the costs of the project. To date, the City has borrowed $4,258,103 from the State Revolving Loan Fund against this authorization. The City is receiving state aid payments in connection with the project in the total amount of $954,346.54 payable over the life of the loan. The City awaits a final determination of the City’s remaining liability and has $4,641,897 remaining in the bond authority to pay its liability, if necessary. The current estimate of when the City’s final liability will be determined is 2031.

Wastewater Treatment Facility – The City is obligated under a consent Decree with the Environmental Protection Agency (EPA) and New Hampshire Department of Environmental Services (DES) to complete construction of an upgraded wastewater treatment facility and achieve secondary treatment permit limits by April 2020. Construction commenced in September 2016 and substantial completion is anticipated in May 2020. The City's request for a schedule extension has been agreed to by Federal and State regulators and approved by the U.S. District Court for the District of New Hampshire. Bond authorization of up to $75 million was approved for the construction effort and the construction effort is on schedule.

44 Other legal matters – Between 1995 and 1967 the City constructed a sewer line across property of the State of New Hampshire located off the Route 1 By-pass. The State had given the City permission, but no formal easement was ever recorded. In 2003, after passing through several owners, the property came to be owned by 150 Greenleaf Avenue Realty Trust, the principal of which is James Boyle. Mr. Boyle now seeks removal of the sewer line from his property as well as substantial money damages as a result of his allegations that the sewer line has flooded his property and otherwise impeded his development of the land into a second automobile dealership. The City disputes his clams. On February 6, 2017 a jury awarded the property owner $3,570,000. Post-trial motions are being filed to reduce the jury verdict. In Addition, appeals to the New Hampshire Supreme Court are likely. Therefore, it is not the City's Legal Department's expectation that the case will reach resolution or that the City’s liability, if any exists, will be determined with finality for several years. The City also has commenced eminent domain proceedings to acquire rights in the property; $345,000 is being offered to acquire rights as supported by an appraisal.

In addition to the above, there are various suits pending in courts within the State in which the City is a defendant. In the opinion of Counsel for the City, no litigation is pending, or to his knowledge, threatened, which is likely to result, either individually or in the aggregate, in final judgements against the City that would materially affect its financial position.

______

CITY OF PORTSMOUTH, NEW HAMPSHIRE /s/ Judith Belanger, Finance Director May 22, 2018

45 THIS PAGE INTENTIONALLY LEFT BLANK APPENDIX A On the Cover This year’s cover denotes the diversity of attributes that the City of Portsmouth has to offer its residents and its guests. These Citywide characteristics include a strong sense of community, heritage, culture, passion, tradition and honor. The City staff work hard to preserve the culture and community values of Portsmouth while creating a vibrant, distinguished, and relevant community.

Photos Utilized on this Cover (Top) – Portsmouth is the home of the State’s only deep-water port offering an appeal that is unique to the City. Photo taken by Abby Mills (Middle, Left) – A moment of Community from the African Burying Ground Reburial Ceremony. Photo captured by David J. Murray, http://www.ClearEyePhoto.com (Bottom, Left) – Honoring of our Troops, past and present, who protect and serve our City and our Country. Troops marching at the 2015 Memorial Day Parade, taken by Rebecca Skane, Portsmouth, NH (Top, Right) – A salute to the altruistic men, women and children of the Pease Greeters who ensure the reverent welcoming home of our troops as well as the continued expression of gratitude to our veterans. Photo taken by www.aflyer.com/1306_c_thebigsky.html (Middle Right) – A City Landmark, The Memorial Bridge, reopened in 2013. Photo by Abby Mills (Bottom, Right) – Inspiring generations with a love of learning about heritage, architecture, agriculture, and Portsmouth’s extensive history, a scene from Strawbery Banke, photo by the Strawbery Banke Museum, strawberybanke.org Thank you to the photographers who captured these distinctive and idyllic Portsmouth Moments, helping us to capture the heart of Portsmouth.

CITY OF PORTSMOUTH, NEW HAMPSHIRE

Comprehensive Annual Financial Report

For the Year Ended June 30, 2017

Prepared by: The Finance Department

Judith Belanger Andrew Purgiel Finance Director Deputy Finance Director

(This page intentionally left blank.) City of Portsmouth, New Hampshire Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2017

TABLE OF CONTENTS

Page INTRODUCTORY SECTION:

Transmittal Letter A-1 Organizational Chart A-23 Directory of Officials A-24 GFOA Certificate of Achievement A-25

FINANCIAL SECTION:

Independent Auditors’ Report A-27

Management’s Discussion and Analysis A-30

Basic Financial Statements:

Government-wide Financial Statements:

Statement of Net Position A-47

Statement of Activities A-48

Fund Financial Statements:

Governmental Funds:

Balance Sheet A-50

Reconciliation of Total Governmental Fund Balances to Net Position of Governmental Activities in the Statement of Net Position A-51

Statement of Revenues, Expenditures, and Changes in Fund Balances A-52

Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities A-53

Statement of Revenues and Other Sources, and Expenditures and Other Uses - Budget and Actual - General Fund A-54 Page Proprietary Funds:

Statement of Net Position A-55

Statement of Revenues, Expenses, and Changes in Fund Net Position A-56

Statement of Cash Flows A-57

Fiduciary Funds:

Statement of Fiduciary Net Position A-58

Statement of Changes in Fiduciary Net Position A-59

Notes to Financial Statements A-61

Required Supplementary Information:

Pension:

Schedule of Proportionate Share of the Net Pension Liability A-96

Schedule of Pension Contributions A-97

OPEB:

Schedule of OPEB Funding Progress A-98

Supplementary Statements and Schedules:

Governmental Funds:

Combining Financial Statements:

Combining Balance Sheet - Nonmajor Governmental Funds A-102

Combining Statement of Revenues, Expenditures, and Changes in Fund Equity - Nonmajor Governmental Funds A-108

Fiduciary Funds:

Combining Statement of Fiduciary Net Position - Private Purpose Trust Funds A-114

Combining Statement of Changes in Fiduciary Net Position - Private Purpose Trust Funds A-115

Combining Statement of Changes in Assets and Liabilities - Agency Funds A-116 Page

STATISTICAL SECTION:

Financial Trends

Net Position by Component A-118

Changes in Net Position A-119

Fund Balances, Governmental Funds A-120

Changes in Fund Balances, Governmental Funds A-121

Combined Enterprise Fund Revenue, Expenses, and Changes in Fund Net Position A-122

Revenue Capacity

General Government Tax Revenues by Source A-123

Property Tax Levies and Collections A-124

Assessed and Estimated Full Value of Real Property A-125

Principal Taxpayers A-126

Property Tax Rates per $1,000 of Assessed Value - Direct and Overlapping Governments A-127

Utility Fund Net Budget, Billable Volumes and Rates A-128

Portsmouth’s Share of the Rockingham County Tax Apportionment A-129

Debt Capacity

Ratios of Long Term Debt Outstanding and Legal Debt Limits A-130

Ratios of Outstanding Debt by Debt Type A-131

Direct and Overlapping Governmental Activities Debt A-132

Ratios of General Bonded Debt Outstanding A-133 Page Demographic and Economic Information

Demographic Statistics A-134

Principal Employers A-135

Operating Information

Operating Indicators by Function A-136

Capital Asset Statistics by Function A-137

City Government Employees by Function - Full Time Equivalents A-138 CITY OF PORTSMOUTH

Municipal Complex 1 Junkins Avenue Portsmouth, New Hampshire 03801 (603) 431-2000

December 12, 2017

Mayor and City Council City of Portsmouth One Junkins Avenue Portsmouth, NH 03801

To the Citizens, Mayor, and City Council of the City of Portsmouth:

The Comprehensive Annual Financial Report of the City of Portsmouth for the Fiscal Year ended June 30, 2017, is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the following data, including financial statements, supporting schedules and statistical tables, is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the City. To provide a reasonable basis for making the representations, management has established a comprehensive internal control framework that is designed to both protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the financial statements in conformity with generally accepted accounting principles. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements.

City Charter, as well as State statutes require an annual audit by independent certified public accountants. The City’s audit firm is Melanson Heath and Company, PC. The independent auditor’s report is located at the front of the financial section of this report. In addition, the City is required to undergo an annual audit in conformity with the provisions of the Single Audit Act Amendments of 1996 and Uniform Guidance. Information related to the Single Audit, including the Schedule of Expenditures of Federal Awards, findings and recommendations, and auditor’s reports on the internal control structure and compliance with applicable laws and regulations, are not included in this year’s CAFR but are available in a separate report.

Management’s discussion and analysis (MD&A) immediately follows the independent auditors’ report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should

A-1 be read in conjunction with it for additional narrative overview and analysis of the City’s activities. This report includes all funds of the City. This report does not report on the Portsmouth Housing Authority or Rockingham County. These governmental units are independent of the City and do not meet the criteria for inclusion in the reporting entity, and accordingly are excluded from this report.

PROFILE OF THE GOVERNMENT

Originally settled in 1623, the City of Portsmouth was incorporated in 1849. It is located on New Hampshire’s seacoast on the Piscataqua River midway between Portland, Maine, 50 miles to the north, and Boston, Massachusetts, 49 miles to the south. Portsmouth is the New Hampshire seacoast’s trade and cultural center and a major distribution market for points in northern New England. Situated along Interstate 95, Portsmouth is served to the west by routes U.S. 4, N.H. 16 and 33 and to the north and south by the Spaulding Turnpike and U.S. Route 1.

The Organization of the Government

The City of Portsmouth has operated under the Council-Manager form of government since 1947. The City Council comprises the Mayor and 8 members, and is responsible for enacting ordinances, resolutions, and regulations governing the City, as well as for appointing the members of various statutory and advisory boards. As Chief Administrative Officer, the City Manager is responsible for enforcement of laws and ordinances. The City Manager appoints and supervises the heads of the departments of the City organization with the exception of the School, Police, and Fire Departments.

The School Board consists of nine elected citizens of Portsmouth. The School Board sets policies and goals and has line item control over its annual budget; however, the City Council is responsible for the funding of the School Department.

The Police Commission consists of three elected citizens of Portsmouth. The Com- mission sets policies and goals; however, the City Council is responsible for the funding of the Police Department.

The Fire Commission consists of three elected citizens of Portsmouth. The Commis- sion sets policies and goals, however, the City Council is responsible for the funding of the Fire Department.

Services Provided

The City of Portsmouth provides the full range of municipal services normally associated with a municipality including police and fire protection, emergency medical services, public works operations, financial administration, planning and zoning, code enforcement, health and welfare services, parks operation and maintenance, recreation, senior services, library services, public education, parking and transportation, community and economic development, solid waste collection and disposal, and general administrative services.

A-2 Water and sewer services are provided under an Enterprise Fund concept, with user charges set to ensure adequate coverage of operating expenses and payments on outstanding debt.

Budget Process

The City’s fiscal year begins on July 1 of each year and ends the following June 30. As required by the City of Portsmouth’s Charter, the City Manager submits a recommended six-year Capital Improvement Plan three months before the final submission date of the fiscal year recommended budget. The fiscal year recommended budget must be submitted to the City Council at least 45 days (May 15) before the start of the fiscal year. The budget, which includes the General Fund and Enterprise Funds, is prepared and presented by department and functions, which each require an appropriation.

The City ensures compliance with legal provisions embodied in the annual appropriated budget approved by the City’s governing body by use of budgetary controls. Activities of the General Fund and Enterprise Funds are included in the annual appropriated budget. Project length financial plans are adopted for the Capital Project Funds. The City maintains an encumbrance accounting system as one technique of accomplishing budgetary control; encumbered amounts are carried over at year-end. The City Manager, with the approval of the Council, may transfer any unencumbered appropriation balance or any portion thereof from one department to another.

The City Council, by charter, must adopt a budget by June 30. If the City Council takes no action on or prior to June 30, the budget submitted by the City Manager is deemed to have been adopted by the City Council per the City Charter.

Once the budget is adopted, no appropriations shall be made for any purpose not included in the annual budget as adopted unless voted by a two-thirds majority of the City Council after a public hearing is held to discuss said appropriation.

FACTORS AFFECTING FINANCIAL CONDITIONS

Local Economy

In Fiscal Year 2017, Portsmouth realized gains in employment, new building activity, existing property renovations, infrastructure improvements and tax base. The real estate market saw positive absorption with stable lease rates and the regional economic drivers of Pease International Tradeport and the Portsmouth Naval Shipyard experienced continued growth.

Employment - Portsmouth businesses provide employment for much of the New Hampshire Seacoast workforce. According to the NH Employment Security Office, Portsmouth’s total average quarterly employment at the end of the 2016 was 32,611

A-3 compared to 31,735 at the end of 2015 indicating an increase of 876 jobs. The average weekly wage increased from $1,186 to $1,283 during the same time period.

As of June 30, 2017, the unemployment rate in Portsmouth remained low at 2%, the same rate as June 30, 2016. The following chart depicts the respective rates for the state of New Hampshire, New England and the nation in June 2017 at 2.9%, 4.1%, and 4.4% and the comparison from 2011- June 30, 2017.

Annual Average Unemployment Rate (%) (Source NH Economic & Labor Market Information Bureau) 2017 2011 2012 2013 2014 2015 2016 (as of 6/30) U.S. 8.9 8.6 8.1 5.4 5.0 4.9 4.4 New England 8.0 6.9 6.5 5.4 5.0 3.5 4.1 State of NH 5.4 5.5 5.0 4.3 3.4 2.8 2.9 Portsmouth 4.7 4.1 4.1 3.2 2.5 2.0 2.0

Building Permits - Construction activity in FY17 increased slightly with a 5% increase in building permits issued over FY16. The following table illustrates that 3,259 permits were issued for projects with a construction value of over $134 million. Accordingly, construction costs were up by 6% although permit fees decreased slightly from the previous year. As expected, the total number of inspections performed was also up from the previous year by 11%. As in the previous years, commercial projects outpaced industrial projects. And for residential construction, most of the permits issued in FY17 were for renovations versus new dwelling construction.

2017 Permit Data: 2016 Permit Data: Residential 2,013 Residential 1,929 Commercial 1,246 Commercial 1,157 Total Permits Issued: 3,259 Total Permits Issued: 3,086 Total Fees Collected: $1,014,996 Total Fees Collected: $1,020,583 Total Construction Value: $134,395,844 Total Construction Value: $126,249,200 Inspections Performed 4,930 est. Inspections Performed 4,408 est.

Year to Year Change Chg. In # of Permits Chg. In Construction Cost FY16 - FY17 ↑ 5% ↑ 6%

Unique Economic Drivers - Along with its skilled workforce and superior quality of life, the City benefits from two major economic assets that attract diverse businesses and are important economic drivers that contribute significantly to the regional workforce. These economic assets are the Pease International Tradeport and the Portsmouth Naval Shipyard. Their economic contributions are highlighted below.

A-4 Pease International Tradeport:

 The Tradeport is home to over 275 companies and over 9,500 workers, many in well-paying technology and advance manufacturing jobs.  Estimated annual wage base at the Tradeport is $700 million (direct and indirect).  Businesses at the Tradeport contribute an estimated $16 million in Business Profit Taxes and Rooms and Meals Taxes to the State and $7 million to the City of Portsmouth for municipal services.  Driven by activity at Pease, the pace of job growth in Portsmouth (71%) has been more than twice that of New Hampshire since the Pease Airforce Base closure in 1990 (AER, Inc.).

The Portsmouth Naval Shipyard (PNSY) located in Kittery, Maine is the U.S. Govern- ment’s oldest continuously operating naval shipyard and the largest regional employer with noteworthy direct and indirect economic impacts:  The Seacoast Shipyard Association’s regional economic impact report of the PNSY for calendar year 2016 shows an economic impact of $756,068,941.  The Shipyard employs a total of 6,329 employees with a payroll of $496 million up from 6,099 employees with a payroll of $482 million in calendar year 2015.  Projected new hires will accommodate an increased workload consistent with the Navy’s scheduled maintenance plan for Los Angeles Class and Virginia Class nuclear submarines.  The shipyard purchased $77 million of goods and services in 2016; an increase of $17 million over calendar year 2015.  Total contracted facility services purchased in 2016 was $140 million making it a significant source of direct and indirect expenditures in the region.

Real Estate Market Activity - The Seacoast office and industrial real estate market experienced positive absorption and strong demand in FY17. The CBRE/New England 2017 Market Outlook Report states that Portsmouth and Pease Tradeport comprise 48% of the total Seacoast office market and 2016 was the seventh consecutive year of decreasing vacancy rates within the Seacoast market. In addition, the reports states that, “High demand and shrinking amount of available land for new construction has resulted in historically high sale prices.”

A-5 rate for Class B office space remained the same as the first quarter of 2017 at $23.00 per square foot. The average asking lease rate for industrial space over 10,000 square feet is $8.00 triple net compared to $9.31 in the first quarter of 2017.

Development Activity - In the City’s Central Business District (CBD), construction on the 24,000 square foot, mixed-use development at 173 - 174 Market Street continues. When complete, the complex will add first floor retail and residences on the two upper levels. Another significant downtown project that was permitted is a new 143-room AC Hotel on Vaughan Street.

Other notable development activity includes:  Biopharmaceutical manufacturer Lonza Biologics at Pease International Tradeport is implementing its expansion cell therapy and mono 1 products with a phased $200 million capital improvement investment including more than 1 million square feet in office/manufacturing/warehousing plus two 4-story parking facilities. Initially 150 new skilled jobs will be created with the potential for another 250 future hires.  Wheelabrator Technologies recently relocated from Hampton, New Hampshire, to 100 Arboretum Drive at Pease Tradeport bringing 100 new jobs in the clean energy from waste sector.  Insurcomm, a fire and disaster restoration company has completed its 40,000 square foot office and storage facility at the Heritage/Constitution Industrial Park and brought new jobs to the community.  Wentworth Douglas Hospital has expanded its operation to Pease offering medical office care and associated health care jobs.  The Air National Guard is ramping up for the new KC 46A refueling tankers slated to bring 100 new jobs and a $7 million payroll when the Pegasus tankers begin arriving in February 2018.  215 - 235 Commerce Way is approved for a new office building at the Portsmouth Business Park.

Creative Economy - Portsmouth is a destination location known for its arts, culture, historic architecture, and culinary and craft brewing offerings. The concentration of theatres, historic homes, restaurants, museums, and galleries drive this sector of the economy and fuel a creative workforce of actors, writers, historians, musicians, and graphic design and architectural firms. Through a series of music, arts, seafood, beer, and film festivals, these businesses attract visitors year-round which, in turn, support the growing hospitality and leisure industry. This creative sector is a significant contributor to the local economy and continues to expand as is evidenced by the recent

A-6 Americans for the Arts Economic Prosperity Report. This report on the impact of local non-profit cultural institutions in the greater Portsmouth area is done every five years. In 2016 this sector contributed $58 million to the local economy, up from $41 million in 2011.

Portsmouth is often the subject of numerous articles and accolades in a variety of media. A list of representative examples of this recognition follows:

 Livability.com includes Portsmouth in the 2017 Top 100 Best Places to Live and The Best Cities for Entrepreneurs, May 2017.  Portsmouth Ranked Second Most - Tax Friendly NH City for Retirement in Smart Asset.com, May 2017.  US New and World Report – USNews.com travel website lists Portsmouth as the Most Scenic Getaway in New Hampshire, April 3, 20017.  Millennial Personal Finance ranks Portsmouth in the top 500 Cities for Pet Friendliness, April 2017.  Boston.com featured where to eat, play and stay in Portsmouth in April 2017.  Portsmouth was the only NH city featured in USA Today article listing “Most Picturesque Small Towns in Each State,” January 13, 2017.  Strawbery Banke Museum featured in The 50 Top Educational Attractions in the Northeast, Oct. 2016.  Blue Water Mortgage website includes Portsmouth in article, 10 Best Towns in New Hampshire to Hang Your Hat in 2016, Fall 2016.  Portsmouth listed in ranking of “Top Ten Prettiest Towns to Retire,” by marketwatch.com, September 2016.  Thrillist.com includes Portsmouth in article entitled “Top-20-small-townsaccording-to-the-dude-who-visited-every-country 2016.  Portsmouth listed as a “Top 7 Destination Road Trips under $500 in US News online travel site, Sept. 2016.  Portsmouth included in Collections Etcetera blog as “One of the Best 39 Small Towns Worth Visiting,” August 11,2016.  Portsmouth ranked as a “Top Small City by National Geographic Traveler Digital Nomad series, July 2016.

Major Initiatives and Accomplishments

In Fiscal Year 2017, the City continued working on a number of major financial, economic, and community development initiatives as well as city-wide infrastructure upgrades and improvements funded through a variety of sources.

A-7 Parks, Playgrounds and Historic Cemeteries

 Prescott Park Master Plan – In 2017 the City Council adopted the Prescott Park Master Plan. The ten-acre waterfront park is a major public green space and primary waterfront resource, which is in need of significant investment in order to ensure its vitality into the future. The park itself lies within the City’s Historic District and is home to historic structures as well as a variety of waterfront infrastructure including docks and piers as well as gardens, foun- tains, mature trees, and lawn areas. In addition to the work of planning for the future of the physical infrastructure, a mayoral-Appointed Advisory Committee was created to assist City staff in the governance of the park as well as the creation of policies in line with the Master Plan vision of “Park First”.  Sagamore Creek - The City is in the process of implementing the Sagamore Creek Master Plan including moving forward with key regulatory approvals for design work. The opening of the Sagamore Creek Land for greater public access and enjoyment was a recommendation of the Mayoral-appointed Blue Ribbon Committee on the Sagamore Creek Land. The plan, adopted by the City Council in December 2015, included a series of modest improvements that will enhance public access, protect sensitive habitat, preserve existing trails, and ensure the site is inviting and usable to all members of the Portsmouth community. The funding for these improvements has been set aside through the City’s Capital Improvement Plan.  Historic Cemetery Improvements - Building on restoration, stabilization, and other improvement projects in recent years, the City, in collaboration with volunteers and other partners, continued to focus on maintaining its seven historic cemeteries. Recent improvements have included the North Cemetery front enclosure wall and the Union Cemetery gate and wrought iron fence. In addition, a receiving tomb was upgraded and reworked to eliminate a haz- ardous condition by preserving the structure’s facade and reusing its original materials to create inviting landscape features. These efforts are part of a phased program identified in the Historic Cemetery Master Plan. Planning work continues for improvements to the remaining “edges” of the North and Union cemeteries as well as the stabilization and preservation of the Wendell Tomb in the Pleasant Street Cemetery.

Recreation

 Paul A. Doble Senior Center - The creation of a long-awaited home for the senior programming continues to be a major priority. The year’s long process to acquire the surplus military property known as the Paul A. Doble Army Reserve Center advanced to the final stages of real estate transfer through the completion of the Section 106 process and advancement of other environmental work by the U.S. Army Reserve. Meanwhile, the City’s Recreation Board, its Senior Subcommittee, and City staff have worked with engineers and architects on the adaptive reuse of the Doble building at 125 Cottage

A-8 Street. Public outreach for the design and engineering process will take place in September 2017.  Recreation Fields – In 2017, the City completed the purchase of approximately 50 acres of land for long-awaited multi-use recreation fields. The newly acquired acre parcel known as the “Foundation Land” has the potential for addressing a number of high priority needs in the areas of wetland protection, expanding the City’s recycling program operations, as well as the creation of a regulation-sized outdoor rectangular fields. In addition, the City moved forward with the design and bidding for the Route 33/Greenland Road Recreation Field. Construction is scheduled to take place in 2018 on one regulation-sized outdoor field with associated amenities including athletic lighting, a gravel parking area, a utility/storage building and future connection to the Rail Trail corridor.  Dog Parks - In 2017, the City established a new Off-Leash Dog Area at Route 33 Park and Ride. This land, which is about 5 acres and includes walking trails, was developed for the community following the closure of the Peirce Island off-leash dog area. The Peirce Island area will remain closed during the entirety of the Peirce Island Wastewater Treatment facility upgrade project, which is expected to last four years. In addition to walking trails, the Route 33 location provides ample space and parking for pet owners. The land’s proximity to the Hampton Rail Trail and the Great Bog area also has further potential to serve as a walkable and bikeable connector between these public spaces. For more information on off-leash dog areas in Portsmouth, please visit http://files.cityofportsmouth.com/maps/OffLeashArea.pdf

City’s Cultural Commission

 City Cultural Plan - Art-Speak, d/b/a the City’s Cultural Commission continued efforts related to the City’s Cultural Plan including: o Completed 800 audience intercept surveys for the Economic Prosperity Study surveys and submitted them to Americans for the Arts (AFTA) for analysis and reporting. In June, the President presented the initial results to the City Council. o Managed the public art process for the new municipal parking garage including: 1. Participation in City’s joint building committee for the project. 2. Held two public input sessions to gather concepts for the Request for Proposals (RFP) for the artwork. 3. Developed a project webpage and drafted RFP for public review. o Refined the branding campaign for A Tiny Bit Huge. o Laid the groundwork to update the City’s Cultural Plan. o Initiated the Street Canvas Public Art Project for private buildings. o Laid the groundwork for the Arts Reinvestment Funding.

A-9 Public Outreach

 City Website - In FY17 and continuing into FY18, the City began to roll out a new Citywide Website design. The goal was to redesign the current City Website, with a new look and feel that is more user friendly on mobile devices. To achieve this, the City converted the existing static website to a content management system using Drupal 8 and will host in the cloud. The new site features a more prolific use of visuals as well as more user-friendly menus. The City will also be creating a better cross department news and information system to keep citizens better informed no matter what their website destination.  Popular Annual Financial Report (PAFR) – In FY17 the City of Portsmouth published its first Popular Annual Financial Report (PAFR), a financial document designed to present a condensed overview of the City’s financial position in an easy to read format. The PAFR highlights pertinent financial information including expenditures, revenues, fund balance, debt-service, and capital asset investment for the General Fund, as well as the Water and Sewer Funds (not all component units) for the fiscal year ended June 30, 2016. All the information in the PAFR is extracted from the City’s audited 2016 Comprehensive Annual Financial Report (CAFR) which is prepared in accordance with Generally Accepted Accounting Principles (GAAP). The PAFR also features information on Citywide accomplishments, statistical data, brief departmental highlights and more.  City Projects Page – The City’s Public Works Department upgraded the annual construction project map to make it interactive. The single map allows a resident to focus in on an area of the City that they are interested in or have questions about and link to information specific to the construction project in that area.  Code Red – This last winter the City’s the Department Public Works added Snow Emergency and Parking ban notification messaging to improve communications with impacted residents. In cooperation with the City’s Police Depart- ment the Public Works Department implemented “Code Red” a voluntary notification application which allows residents to be contacted via SMS message or via email when a snow emergency parking ban has been declared.  Water Sewer Outreach o Water Quality Report - In FY17 City staff completely updated the format of the water system’s annual water quality report. The water quality report is a regulatory required document that is prepared and made available to all customers of the water system both by mailing and on the City’s website. The previous format was a four-page template which included brief sum- maries of the required water quality information and combined data from the two water systems that the City’s Water Division manages – the Portsmouth water system and the Pease Tradeport water system. The newly formatted document was expanded to eight pages. Additionally, separate documents were prepared for the two water systems with specific water quality data presented related to each water system. Finally, an

A-10 entire page was prepared that focused on the emerging contaminants defined as PFAS compounds. These contaminants were discovered in the Pease Tradeport water system’s Haven Well in 2014 and found to be above the EPA’s health advisory level. This well was taken out of service but additional sampling and data has been ongoing with all other Portsmouth and Pease Tradeport water supply sources. o Water Supply Update - The Water Division continued to provide monthly water supply updates which tracked and assessed water supply conditions, especially with respect to recovery from the historic drought of 2016. Addi- tional graphics and information about precipitation, water streamflow, reser- voir and groundwater well levels and capacity were reported. Water demand was tracked and compared with average system demands to better inform water users of any potential water restrictions. Fortunately, the weather in 2017 provided much needed precipitation and water supplies recovered noticeably from their 2016 levels.  Click N’ Fix - In a continued effort to improve service, the Public Works Depart- ment is using “Portsmouth Click N’ Fix” to improve public outreach and resource allocation. This program is a convenient way for residents to communicate with the Department of Public Works. It allows residents to report issues and request Department services through online and mobile applications and serves as a direct link to our work order management system. In addition, the application provides added metrics for the Department to measure levels of service per various Public Works’ activities and provides immediate acknowledgement that a service request has been received and communicates when requests are resolved.  Public Works Twitter Account - In addition to this new expanded public outreach tool, the City continues its efforts to educate the citizens on continuing projects as well as inform them of news and various alerts in real time. This objective has been achieved through different channels of communication including continuous press releases and updates sent to the media, website reorganization, and ongoing outreach and insights shared on the Public Works’ Twitter page.  Adopt A Spot - The Adopt-A-Spot program continues to gain new participants with an additional thirty spots for a total of over ninety spots maintained by individuals and groups throughout the City. The City continues to partner with local garden clubs to better support gardeners in the program and assist in developing spots that support sustainable initiatives.

City Infrastructure

 State Bridges - The Department of Public Works, in cooperation with the New Hampshire Department of Transportation (NHDOT), has been working on replacing 7 State-owned bridges in the City. These bridges have been “Red Listed” by the NHDOT and require near-term replacement funded 100% by the State of New Hampshire. To date, 4 of these bridges have been completed and one eliminated.

A-11  South Mill Pond Tennis Courts – In late spring 2017, the City completed the reconstruction of the South Mill Pond recreation courts. After only minor updates over several decades, the site received an in-depth assessment to make the proper upgrades to both the basketball and tennis courts. The project included the complete removal of the 50+ year old courts, fencing and the installation of six new tennis courts and two basketball courts.  Street and Sidewalk Improvements - The City continued its investment in the vital infrastructure of streets and sidewalks as follows: o Completed paving of a new bus access to the New Franklin School to improve traffic management at the school. o Completed paving of Colombia Street. o Completed paving of Summer Street. o Continued repair of the High/Hanover Parking Facility deck spalling, repaint- ing of structural steel, and replacement of joint sealant. o Completed paving of the City Hall lower parking lot. o Completed Hanover Street sidewalk and utility project. o Completed the design and bid of phase 3B improvements to the McDonough Street Neighborhood Area. o Began construction of the first phase of the Market Street Gateway improvements project. o Completed paving of Woodlawn Circle. o Completed paving of Austin Street from Summer to Middle Street. o Completed paving of approximately 3,900 feet of FW Hartford Avenue. o Completed paving of Arthur Brady Drive. o Completed paving of Durgin Lane. o Completed paving of Greenleaf Avenue from Lafayette Road to the Route 1 Bypass. o Continued the Citywide Sidewalk Reconstruction Program and the Pave- ment Management and Rehabilitation Long-Range Plan.  Solar Arrays – The City of Portsmouth completed two large solar energy arrays located at the Portsmouth High School and Portsmouth’s Madbury Water Treatment Plant. The combined total size of the arrays is 578 kilowatts DC and will produce more than 700,000 kilowatt hours of renewable electricity annually. The array at the Portsmouth High School is located on the roof of the school and is estimated to generate about 11% of the school’s energy needs, while the array at the Water Treatment Plant is ground-mounted and generating about 25% of the plant’s energy needs. The environmental benefit of the generation from the two arrays is equivalent to a reduction in 525,000 pounds of coal burned or 55,000 gallons of gasoline consumed each year.

A-12  Street Light Replacement Project - This project converts all the City’s high- pressure sodium cobra-head streetlights located on utility poles to LED cobra- head streetlights. The conversion results in energy savings of 494,000 kwh per year equaling 350 tons of CO2 emissions equivalent reduction and improvements to nighttime visibility on roadways.  Market Street Gateway Improvement Project – Project goals for this corridor improvement project include traffic calming, safe pedestrian and bicycle travel ways, landscaping improvements, historic lighting, and clear signage to direct visitors along this one mile section of the road from Interstate 95 to the Central Business District. Additional project elements include the creation of two pas- sive recreation parks along the waterfront. In FY17, the City’s design consultant RSG Associates completed the final project construction plans, bid specifica- tions, and cost estimates. Following a successful RFP process, SUR Contractors began the work in the spring for Phase 1 of the project from Kearsarge Way to Albacore Way.

Parking and Transformation

 Wayfinding - The City continued implementation of its citywide Wayfinding Plan which identified appropriate wayfinding types, messaging, locations, and a uniform and recognizable design menu that is unique to the City. The Plan documents are available online at https://www.cityofportsmouth.com/planportsmouth/wayfinding- plan. The signs and improvements included in this phase were for vehicular and pedestrian signage in and around the downtown core. In addition, the City developed a comprehensive identity system and logo for the City’s Parking Division (ParkPortsmouth) and began to develop an interior wayfinding and signage system for the downtown Hanover Parking Garage. The next phase of the Wayfinding Plan implementation will focus on pedestrian signs in and around the downtown as well as providing more pre-arrival information on the City’s web page to help visitors navigate to and within the City.  Downtown Parking Shuttle - The City continued to operate a free downtown parking shuttle between the Market Street Church Parking Lot on Market Street to the Hanover Parking Garage. From the first weekend in July to Labor Day weekend, the shuttle operated Friday, Saturday, and Sunday from mid- day to late evening. The shuttle also provided service for special events including Market Square Day, the Halloween Parade, the Holiday Parade, and First Night. Over 35 days of service, the shuttle transported 5,932 passengers. The average daily ridership was 169 riders, ranging from a low of 50 on the first Sunday in August to a high of 621 for the Holiday Parade in December.  Public Transit - The City’s local and regional public transit providers are the Cooperative Alliance for Seacoast Transportation (COAST) and UNH Wild Cat Transit. The City of Portsmouth is a member community of the Cooperative Alliance for Seacoast Transportation (COAST) regional bus service. COAST operates both fixed-route bus service as well as on-demand service for ADA riders. As a member community, Portsmouth pays annual dues that support COAST’s operations. Two of COAST’s regional fixed-route buses provide

A-13 service to Portsmouth – Route 2 (connecting to Rochester, Somersworth, Dover, Newington) and the Clipper Connection (providing express commuter service between Portsmouth Naval Shipyard, Portsmouth Market Square, Pease Tradeport, and Rochester). In addition, COAST operates two fixed- route buses within Portsmouth city-limits – Lafayette Rd Trolley (Route 41) and Pease Tradeport Trolley (Route 40). City staff represent the City on the COAST Board of Directors and continue to work closely with COAST to evaluate the routes in Portsmouth to improve efficiencies, overall ridership, and consider potential expansions of service. Wildcat Transit is operated and managed by the University of New Hampshire (UNH) and provides bus service between downtown Portsmouth and UNH. During the month of December, the City collaborates with COAST to provide free weekend service around the Downtown on the Vintage Christmas Trolley. This service is provided to support Portsmouth’s annual Vintage Christmas event.  New Foundry Place Parking Garage - In FY16, the City Council reaffirmed the vote to authorize the bonding for a new parking garage. That authorization came after a thorough review of all downtown properties by the Economic Development Commission (EDC). A preferred site, located in the North End, adjacent to the railroad tracks, was selected to support a 600-space garage. The project involves a public/private partnership to secure the land and to re-develop this underutilized area. The project design was completed and a construction management firm was selected to begin construction. Completion is anticipated in September 2018.  Zagster - The City’s new public bike-share program, managed and operated by Zagster, began in May 2017. Zagster offers a complete bike-share package that is tailored for each community, provides turnkey service that requires minimal involvement from the City to manage and operate, is scalable and adaptive to changing needs and demand, and includes locally based regular service and maintenance for all equipment. The City has entered into a 3-year agreement with Zagster for 30 bikes and 6 stations. The agreement provides that additional bikes may be added to the system within this 3-year period if the City decides there is sufficient demand (and funds). During the first two months of operation, the system users logged 548 rides.  Bicycle Network - The City continues to implement the recommendations of the citywide Bicycle Pedestrian Plan, which was adopted in 2014. The plan lays out a complete citywide bicycle network, provides guidelines and standards for bicycle facilities, and includes a prioritized list of infrastructure improvements to improve connectivity and safety for bicyclists. Staff continues to work to incorporate accommodations for bicyclists in all road improvement projects to the extent possible. Some examples of projects completed or started in FY17 include: the Market Street Gateway Project which includes an multi-use path parallel to the road as well as on-road bicycle lanes; the Maplewood Avenue road reconstruction project which will improve the road for all travelers using Complete Street principles; the design of sidewalks, bike lanes and drainage improvements along Peverly Hill Road; and design of an on-road bicycle route along Middle Street/Lafayette Road between the High School and Downtown.

A-14 Planning, Design and Inspection

 Master Plan 2025 - The City's Master Plan is a planning document designed to guide land use and development within Portsmouth and is updated every 10 years. In FY17, the City completed a comprehensive and adopted the 2025 Master Plan, which is the result of a three-year planning effort that included extensive public input, researched and documented existing conditions, identified community assets and anticipated challenges, and ultimately developed a comprehensive vision for the future along with recommendations for achieving that vision over the next decade. The plan’s structure is designed to be acces- sible to a variety of users, who can read it at different levels of specificity.

With that goal in mind, the Plan is organized in three major sections. Part I presents five conceptual Themes that frame the Master Plan — Vibrant, Authentic, Diverse, Connected, and Resilient. Each of these Themes is supported by several Goals that describe broadly how Portsmouth can hope to fulfill that Theme. For each of the Goals, specific Actions are listed that City agencies and other partner organizations can implement to realize the Goals. Part II of the Plan describes five geographic Focus Areas representing different types of land use and development in the City – the Urban Core, Corridors, Urban and Suburban Neighborhoods, and Parks & Open Space – and illustrates how the various goals and specific actions might apply in each of these varied landscapes. Part III is framed to assist the City’s various departments in Implementation listing all action items by topics such as land use, transportation, and recreation.  Housing Committee Recommendations - In 2016, the Mayor established a Blue Ribbon Housing Committee charged with taking initial actions to implement the Master Plan housing goals. The Committee’s initial tasks included surveying the entirety of Portsmouth to identify the proper areas for zoning changes that would support housing creation. The zoning changes are intended to enable market forces to create the kind of Portsmouth the residents have chosen to live in. The Committee issued a final report in November 2016, which the City Council adopted, recommending zoning amendments to increase the supply and diversity of housing stock in the City. In December 2016, the City Council adopted a policy supporting the Housing Committee’s recommendations and identifying key principles to guide future initiatives in support of housing. The report’s recommendations identified three initial areas of focus: 1) along the Lafayette Road commercial corridor and sites along Route 1 Bypass and Outer Market Street; 2) both sides of Mirona Road; 3) the I-95 Exit 7 Area.

The Housing Committee’s report also identified a number of general recommendations for each of these areas, including allowing an appropriate mix of residential uses, encouraging a mix of uses, and providing incentives for workforce housing. In addition to accommodating more residential uses, the Committee also recommended zoning amendments include standards for the design and scale of new development. Working with independent planning

A-15 consultant, Ted Brovitz, the Planning Board has started work on these zoning amendments.  Vaughn Worth Bridge Strategic Revitalization Committee - In spring 2017, the Mayor appointed the Vaughan-Worth-Bridge Strategic Revitalization Committee. The Blue Ribbon Committee’s charge is to develop options for future use of City-owned property in this downtown area and report back to the City Council with strategic recommendations as to how the City can best use its property in service to the community. Topics to be covered include land use, urban design, public infrastructure, and timing. The Committee began its work with a general information session as well as one for direct abutters and business owners. To assist in this work, the City will be contracting with an urban design firm to advance concepts for the future of this area and make recommendations to the City Council.  North Mill Pond Multi-Use Path - The Planning Department continues to work on design and acquisition of right-of-way for the creation of the North Mill Pond Multi-Use Path, which would be a paved path for use by bicycles and pedestrians extending from Market Street to Bartlett Street, with a brief on- road connection on Maplewood Avenue. As proposed, the path would be a minimum of 10’ wide with 2’ of clear space on either side. In 2017, through the land use permitting and approval process for a new development along Vaughan Street, the City successfully secured rights to develop a portion of the trail and linear community park between the Market Street and Maple- wood Avenue.  Hampton Branch Rail Trail - The former Hampton Branch abandoned rail corridor that extends from Portsmouth to Hampton includes 3.6 miles in Portsmouth. This corridor has been designated as the future off-road route of the NH Seacoast Greenway. The NH Department of Transportation has funding to acquire the rail corridor, as well as partial funding to convert it to a multi-use trail. NHDOT is continuing to negotiate the acquisition of the right- of-way from PanAm. The City continues to participate in a regional collaboration of communities along the corridor to plan and prepare for the construction and management of the trail once acquisition is complete. The Portsmouth portion will be constructed in phases, beginning with the 0.8-mile segment between Barberry Lane and Route 33.  McIntyre Building - The Thomas J. McIntyre Federal Building has been home to several offices of the Federal government for over 50 years. Located on Daniel Street, the building has supported offices of the Internal Revenue Service, the Social Security administration, the Federal Bureau of Investigation, and the U.S. Postal Service. Since 2004, the General Services Administration (GSA) has been planning to relocate the functions from this property to another location in Portsmouth. In fall 2016, the GSA officially began its disposal process, declaring the building to be surplus to its needs.

The City of Portsmouth has been invited to submit an application pursuant to the Historic Monument Program in order to request that the Thomas J. McIntyre

A-16 Federal building be transferred to City ownership under the General Services Administration's Surplus Property disposal regulations.

Constructed in 1967, the Thomas J. McIntyre Building is a contributing structure to the proposed Portsmouth National Register Historic District.

The City will seek out private partners to preserve the historic elements of the property while returning it to an active, integrated part of the downtown. It will do so by requesting development teams submit their qualifications for the City's review, and then invite selected teams to submit more specific proposals outlin- ing how they intend to marry the City's goals for the site with their team's proposed reuse. The City Council will seek public input and participation as it chooses a partner to assist in a successful application to the Historic Surplus Property (a.k.a. Historic Monument) Program.

Through acquiring the site and subsequently leasing it to a preferred developer, the City hopes to:

o Capitalize on the rare opportunity to shape redevelopment of a downtown block in the City’s best interests by promoting public/non- profit/commercial use of its ground floor. o Re-connect the site with Daniel, Penhallow, and Bow Streets via new pedestrian ways, introduction of open space and public parking uses, and revitalizing the area with new uses. o Ensure redevelopment/reuse of the site that meets the City’s economic development goals. o Accomplish the above in a fiscally prudent manner, through a public- private partnership.

 View Permit Software - The City recently introduced ViewPoint Cloud, a new software system that offers an online permitting center to the community. Through ViewPoint, users can apply for a variety of City Inspection permits online from anywhere 24 hours a day, seven days a week, monitor the status of the application online, and receive notifications via email as their applications are reviewed and processed.

Water, Wastewater and Stormwater

 Pease Tradeport Water Quality - Through an agreement with the United States Air Force, the City installed two 20,000 lb. granular activated carbon vessels (GACs) to filter and remove PFCs from the Harrison and Smith Wells at the existing Grafton Road water facility. This installation will ensure effective technology is in place to properly treat the PFCs and enhance the overall performance of the Pease Tradeport water system. This work followed an initial pilot study that was completed in June 2016. Pilot testing results indicated that the GAC filter media will remove PFCs without significant

A-17 pressure, build-up, or fouling in the media. General chemistry results also indicated acceptable levels for pH and alkalinity with no anticipated disruption to the existing water distribution system. Frequent sampling, filter monitoring, and operational requirements from the Harrison and Smith Wells’ demonstration project will be evaluated for the first six months of operation. Information from both the pilot and the demonstration study will then be used by the City’s consultant to revise the final design parameters for treatment of the Haven Well.  Wastewater Treatment Upgrades o Peirce Island - In FY17, the City of Portsmouth awarded the Peirce Island Treatment Facility Upgrade to Methuen Construction, of Salem, New Hampshire in August 2016. Construction began September 1, 2016, and kicked off the largest construction project in the City’s history. The first three months of work focused on roadway preparation to the treatment facility and mobilizing equipment and materials. Significant upgrades to the entire facility are taking place over the four-year construction time period and the major change will be the construction of a secondary level treatment system called a Biological Aerated Filter (BAF). In the BAF process, wastewater flows upwards through tanks (called cells) that are filled with media. The cells provide treatment of the wastewater and filtration as it flows through the system. This system will also provide nitrogen removal through a second stage of BAF treatment. During the course of the treatment upgrade the existing treatment facility will continues to operate. Con- struction continues successfully on the project and was approximately 25% complete through the end of FY17. o Pease - The Pease Wastewater Treatment Facility will undergo upgrades in FY18. Portions of the Pease facility have not been upgraded since its original construction in the 1950s. Upgrades are planned to be completed in phases utilizing the recommendations of previous engineering evalua- tions. During FY17, the design of the first phase to upgrade the headworks (screening, grit removal, and raw sewage pumping) was completed and the project will be under construction in FY18.  Sewer Separation Projects - Work on the collection system continued with the implementation of the City’s Long-term Control Plan to reduce Combined Sewer Overflows (CSO). The primary focus of these projects is to separate the sanitary sewer system from the stormwater drainage system. This effort reduces the volume of CSO and localized flooding as well as provides improved water quality discharged to receiving waters during precipitation events. The City is continuing to follow the process required in its Consent Decree with the Environmental Protection Agency for CSO reduction. Already completed are a number of stipulated sewer separation projects (Bartlett Street area, Lincoln Avenue area, and Cass Street area) and an evaluation called a Post Construc- tion Monitoring Plan to determine the effectiveness of these sewer separation projects. The Post Construction Monitoring Plan submitted to EPA this year demonstrated that significant reduction in CSO has occurred as a result of separation work. Further reduction in CSO is ongoing and is now required

A-18 through the City's Supplemental Compliance Plan (SCP). The SCP is a requirement of the Consent Decree and once finalized will stipulate the City's CSO mitigation efforts for the next eight years. The work will include the construction of seven planned projects that include sewer separation by October 2023 and an update to the Long-Term Control Plan beginning in 2023. This will allow the City to evaluate the success of those projects when developing the next Long-Term Control Plan Update. In this fiscal year, the first of the seven projects began with the McDonough Street Phase 3B construction.

The second phase of a City-wide evaluation of the condition of the sewers was performed in FY17 and the work continues. The City has an old sewer collection system with many pipes being over 100 years old. The second phase included field inspection of the pipes in the areas where excessive amounts of extraneous groundwater and stormwater were measured in the sewer collection system during the first phase of work. The next phase of the work to be completed in FY18 includes an evaluation of potential direct connections that contribute to excessive flows in the system. Based on these studies, a prioritized list of projects will be developed for sewer replacement and rehabilitation and brought forward as part of the City's capital improvement program budgeting process. This list and the implementation schedule will be used for years to come as a roadmap for future sewer improvements. This project also includes a pilot study to identify and determine the best means to implement a sump pump removal program in the City.

The Sewer Division continues to pursue initiatives to improve collection system operations which include the restaurant grease removal program and cleaning and inspections. The City will continue with its annual cleaning and inspection with the goal of the entire system (~115 miles) being cleaned and inspected every five years. Focused inspections will be performed as planned and the studies being performed this fiscal year will focus on historic problem areas and make recommendations for improvements. The City will continue its annual replacement of sewer pipes as needed in advance of annual paving areas and in locations of planned capital projects such as the Maplewood Avenue (North Mill Pond to Woodbury Avenue) Reconstruction project and the Islington Street Corridor Improvements project.  Stormwater System Initiatives - City staff continued to track and assess the potential regulatory requirements related to the pending EPA Municipal Separate Storm Sewer System (MS4) stormwater requirements. One of the requirements of the current stormwater permit draft is an assessment of all City stormwater infrastructure. To accomplish this task, the Department of Public Works continued to employ two University of New Hampshire students to intern in the GIS department (for the fourth year). These interns use global positioning equipment, cameras, and their own eyes to track down and inspect the City’s stormwater infrastructure. The City also continued its participation in the Seacoast Stormwater Coalition, working with adjacent New Hampshire Communities to plan for and address future permit requirements. This included work with the DES’s Pollution Tracking Assessment Tool (PTAP) which will

A-19 create unified way for participating communities to track stormwater Best Management Practices (BMP).

Long-Term Financial Planning

The City continues to address and monitor legislative issues while still maintaining strong and stable financial operations.

Statewide Education Property Tax – The Statewide Education Property Tax assessment process remain essentially the same for FY17 and FY18. Each Fall, the Depart- ment of Revenue Administration notifies each municipality of the amount it must raise through the Statewide Education Property Tax (SWEPT) for the following school year. Municipalities send the revenue raised by the Statewide Education Property Tax directly to their school district. Historically Portsmouth has raised tax revenue above the State determined cost of an adequate education and has been able to retain this revenue for local education costs. Prior to FY06, Portsmouth was a “Donor” community, forced to raise an additional $11,750,318 in SWEPT for the State to distribute to other communities. The City is mindful of the fact that as long as SWEPT exists, the Legislature could change the education funding formula and return to “Donor” communities. The New Hampshire Legislature failed to adopt a constitutional amendment to abolish the Statewide Education Property Tax (SWEPT) in FY17. The Legislature created a committee to study education funding and the cost of an opportunity for an adequate education. The committee will render its report, which will include proposed legislation, in November 2018. The City will monitor the committee’s meetings and report on any proposed legislative that would recommend a change to the education funding formula in 2018. The City will also track the progress of the school voucher bill under consideration next session and will continue to monitor the Legislature’s future education funding bills, including any bills that may make changes to KENO funding for kindergarten. The City Council’s Legislative Subcommittee comprised of the Mayor and three City Councilors. The Legislative Subcommittee works with City Staff and the Portsmouth Delegates to monitor legislation on education funding. In addition, City Staff also monitors the Legislature’s activity on education funding on behalf of the Coalition Communities, a coalition of former “Donor” communities, through funding by the City and contributions from Coalition-member communities.

Bond Rating - In June 2017, Standard & Poor’s Rating Group (S&P) affirmed the City's bond rating to AAA citing its City’s very strong economy, very strong management with strong policies and practices, strong budgetary performance, very strong budgetary flexibility, strong liquidity, and strong debt and contingent liabilities position as positive factors.

Relevant Financial Policies

The following are financial policies and long-term financial guidelines which the City follows in managing its financial and budgetary affairs. The goal of these policies and

A-20 guidelines is to ensure that financial resources are well managed and available to meet the present and future needs of the citizens of the City of Portsmouth.

Leave at Termination – The City has addressed in two methods the significant liability owed to employees for accumulated sick leave pay when they leave municipal service.

1. The City eliminated future growth in this liability by negotiating in all 16 labor agreements that all employees hired after July 1996 can no longer accumulate unlimited sick leave. Thus, the liability can be capped and it is now possible to estimate reductions of this liability through attrition. 2. The Leave at Termination Fund created in fiscal year 1999 eliminated annual budget spikes which negatively impacted the operating budget associated with sick leave pay owed to employees upon termination. Each department annually budgets a fixed amount for each fiscal year determined by an actuarial study and periodic review, which is transferred into this fund where this liability is paid. Each department builds a fund balance, which is carried over from year to year to fund future liabilities, thus stabilizing the annual operating budget.

As of the close of the current fiscal year, City-wide liability for accrued employee benefits was $6,827,621, a net increase $119,512 as compared to prior year.

Unassigned Fund Balance – City Council adopted in Fiscal Year 1998 a Fund Balance Ordinance which was amended in 2012 to comply with the fund balance model established by Governmental Accounting Standards Boards (GASB) Statement No. 54. The operational objective of the Ordinance was further amended in 2013 to recognize that the financial management goal of the City of Portsmouth is to annually maintain an Unassigned Fund Balance between 10% and 17% of total general fund appropriations. As of June 30, 2017, the Unassigned Fund Balance is 13.5% of appropriations.

Debt Service Planning – It is the policy of the City to keep operational net debt costs at no more than 10% of annual general fund expenditures toward net debt service payments. Current and future debt service is projected out over a 10-year period along with projected annual appropriations and estimated revenues related directly to debt. The framework of this analysis assists with the planning of future capital projects that will be funded through debt issuances. For FY16, the amount of net annual debt remains within the policy limits at 8.39%.

AWARDS AND ACKNOWLEDGEMENTS

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Portsmouth for its Comprehensive Annual Financial Report for the

A-21 Fiscal Years ending June 30, 1988, 1989, and for twenty-one consecutive years from 1995 to 2016.

To be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program standards. Such reports must satisfy both Generally Accepted Accounting Principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. The City believes that its current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and will submit it to the GFOA to determine its eligibility for another certificate.

This report reflects the City’s commitment to improve and maintain financial statements in conformity with the highest standards of accountability. The strong financial position and excellent financial results reflected in this report, would not have been possible without the leadership, support, and fiscal policies established by the City Council and City Manager, John P. Bohenko.

In addition, the City of Portsmouth also received the GFOA’s Distinguished Budget Presentation Award for twelve consecutive years; fiscal year beginning July 1, 2006, to 2017. To receive this award, a governmental unit must publish a budget document judged proficient as a policy document, a financial plan, an operations guide, and a communications device. This award is valid for one year only. For long-term planning, the City will continue to work to enhance the information provided in this document for its citizens, as well as continue to meet the national standard requirements established by GFOA.

The preparation of the Comprehensive Annual Financial Report on a timely basis was would not have been possible without the dedication and professional efforts of the staff in the Finance Department and diligent efforts of department heads and other City staff. In particular, I would like to express my sincere appreciation to Deputy Finance Director, Andrew Purgiel, who assisted and contributed to the preparation of this report.

Sincerely,

Judith A. Belanger Finance Director

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A-26 102 Perimeter Road Nashua, NH 03063 (603)882-1111 melansonheath.com INDEPENDENT AUDITORS’ REPORT

Additional Offices: To the Honorable Mayor and City Council Andover, MA City of Portsmouth, New Hampshire Greenfield, MA Manchester, NH Ellsworth, ME

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Portsmouth, New Hampshire (the City), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the Table of Contents.

Management’s Responsibility for the Financial Statements

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

Auditors’ Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are

A-27 appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’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.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Portsmouth, New Hampshire, as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the general fund for the year then ended in accordance 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 Management’s Discussion and Analysis, and the Pension and OPEB schedules appearing on pages 96 to 98 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with evidence sufficient to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements.

A-28 Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 12, 2017 on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

December 12, 2017

A-29 MANAGEMENT’S DISCUSSION AND ANALYSIS

The City of Portsmouth’s (the City’s) management offers readers this narrative overview and analysis of the financial activities of the City of Portsmouth for the fiscal year ended June 30, 2017. The City’s financial performance is discussed and analyzed within the context of the accompanying financial statements and disclosure following this section.

FINANCIAL HIGHLIGHTS

 As of the close of the current fiscal year, total assets and deferred outflows minus liabilities and deferred inflows for governmental and business activities exceeded liabilities by $215,689,974. This is an increase of $14,686,266 in comparison to the prior year.  As of the close of the current fiscal year, governmental funds reported combined ending fund balances of $85,781,423, an increase of $661,812 in comparison with the prior year.  At the end of the current fiscal year, unassigned fund balance for the general fund was $14,505,641, an increase of $1,347,463 in comparison with the prior year.

OVERVIEW OF FINANCIAL STATEMENTS

This discussion and analysis is intended to serve as an introduction to the City of Portsmouth’s basic financial statements. The basic financial statements comprise three components: (1) government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-Wide Financial Statements

The government-wide financial statements which report the City’s governmental activities separately from its business-type activities are designed to provide readers with a broad overview of the City’s finances. There are two basic governmental-wide financial statements: the statement of net position and the statement of activities. All activities included within the government-wide financial statements are measured and reported using the economic resources measurement focus and the accrual basis of accounting similar to a private-sector business.

 The Statement of Net Position- presents information on all assets and deferred outflows and liabilities and deferred inflows, with the difference reported as “net position” instead of fund balances as shown on the Fund Statements. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating.

A-30  The Statement of Activities- presents information showing how the City’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave).

Both of the government-wide financial statements include two different types of City Activities and can be found on pages 47-49 of this report.

 Governmental Activities: The activities in this section represent most of the City’s basic services and are principally supported by taxes, grants, and intergovernmental revenues. The governmental activities of the City include general government, public safety, education, public works, health and human services, culture and recreation, and community development. Other governmental activities include special revenue and capital projects funds.  Business-Type Activities: These activities are normally intended to recover all or a significant portion of their costs through user fees and charges. These business-type activities of the City include the water and sewer activities.

Fund Financial Statements

A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and demonstrate compliance with finance-related legal requirements. The City’s funds are divided into three categories: governmental funds, proprietary funds and fiduciary funds.

 Governmental funds: Governmental funds are used to account for essentially the same functions reported as governmental activities in the government- wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a City’s near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government- wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

A-31 An annual appropriated budget is adopted for the general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget.

The basic governmental fund financial statements can be found on pages 50- 54 of this report.

 Proprietary funds: The City’s proprietary funds provide goods and services to the general public and charge a user fee. These activities are reported in enterprise funds.

Enterprise funds are used to report the same functions presented as business- type activities in the government-wide financial statements. The City of Portsmouth maintains two enterprise funds which are used to account for water and sewer operations.

Proprietary funds provide the same type of information as the business-type activities reported in the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water and sewer operations, both of which are considered to be major funds of the City of Portsmouth.

The basic proprietary funds financial statements can be found on pages 55- 57 of this report.

 Fiduciary Funds: These funds are used to account for resources held for the benefit of parties outside the City. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds.

The basic fiduciary fund financial statements can be found on pages 58-59 of this report.

Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found beginning on page 61 of this report.

Supplementary Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information which is required to be disclosed by the accounting principles generally accepted in the United States of America.

A-32 GOVERNMENT-WIDE FINANCIAL ANALYSIS

Changes in net position may be observed and used to discuss the changing financial position of the City as a whole.

Financial Position- The following table provides a summary of the City’s net position at June 30 for the current and prior fiscal years.

Summary of Net Position (000s) Governmental Business-Type Activities Activities Total 2017 2016 2017 2016 2017 2016 Current and other assets $ 121,360 $ 103,816 $ 67,243 $ 57,103 $ 188,603 $ 160,919 Capital assets 203,982 190,814 146,351 125,457 350,333 316,271 Total assets 325,342 294,630 213,594 182,560 538,936 477,190 Deferred outflows 26,497 7,760 1,207 360 27,704 8,120 Total assets and deferred outflows $ 351,839 $ 302,390 $ 214,801 $ 182,920 $ 566,640 $ 485,310

Long-term liabilities $ 202,258 $ 173,298 $ 90,398 $ 89,533 $ 292,656 $ 262,831 Other liabilities 30,999 15,851 25,914 1,992 56,913 17,843 Total liabilities 233,257 189,149 116,312 91,525 349,569 280,674 Deferred inflows 1,315 3,471 66 162 1,381 3,633 Net position: Net investment in capital assets 120,182 113,266 64,499 60,256 184,681 173,522 Restricted 23,682 17,380 488 650 24,170 18,030 Unrestricted (26,597) (20,876) 33,436 30,327 6,839 9,451 Total net position 117,267 109,770 98,423 91,233 215,690 201,003 Total liabilities, deferred inflows and net position $ 351,839 $ 302,390 $ 214,801 $ 182,920 $ 566,640 $ 485,310

The largest portion of net position reflects our investment in capital assets (e.g., land, buildings, machinery and equipment); less any related debt used to acquire those assets that is still outstanding. As of year-end, net investment in capital assets is $184,681,339, an increase of $11,159,574 as compared to prior year. These capital assets are used to provide services to citizens; consequently, these assets are not available for future spending. Although the 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.

An additional portion of net position of $24,169,660 or 11% represents resources that are subject to external restrictions on how they may be used. The unrestricted net position of $6,838,975 represents amounts without constraints established by enabling legislation, external agreements or other legal requirements. The unrestricted net position was reduced by a deficit in governmental activities resulting from the recognition of the net pension liability representing the City’s share of the New Hampshire Retirement System liability in accordance with Governmental Accounting Standards Board Statement No. 68. The City’s governmental activities will continue to report a deficit until the funding mechanisms and asset returns improve at the state system.

A-33 Please refer to the Financial Statement Note 21 for additional information on the OPEB liability.

Financial Results - The following is a summary of condensed government-wide financial data of changes in net position for the current fiscal and prior fiscal year.

Summary of Changes in Net Position (000s) Governmental Business-Type Activities Activities Total 2017 2016 2017 2016 2017 2016 Revenues: Program revenues: Charges for services $ 25,301 $ 23,992 $ 23,632 $ 23,470 $ 48,933 $ 47,462 Operating grants and contributions 5,959 4,932 - - 5,959 4,932 Capital grants and contributions 3,630 3,113 1,397 877 5,027 3,990 General revenues: Property taxes 78,956 77,273 - - 78,956 77,273 Interest on taxes 169 209 - - 169 209 Grants and contributions not restricted to specific programs 1,112 1,032 - - 1,112 1,032 Special assessment 1,871 - - - 1,871 - Investment income 1,219 473 270 98 1,489 571 Other 1,493 2,061 332 197 1,825 2,258 Total revenues 119,710 113,085 25,631 24,642 145,341 137,727 Expenses: General government 13,504 12,673 - - 13,504 12,673 Public safety 20,725 18,094 - - 20,725 18,094 Education 54,272 50,084 - - 54,272 50,084 Public works 14,284 12,654 - - 14,284 12,654 Health and human services 675 564 - - 675 564 Culture and recreation 4,331 4,096 - - 4,331 4,096 Community development 1,278 1,116 - - 1,278 1,116 Interest on long-term debt 3,157 3,213 - - 3,157 3,213 Water operations - - 7,907 7,701 7,907 7,701 Sewer operations - - 10,534 9,657 10,534 9,657 Total expenses 112,226 102,494 18,441 17,358 130,667 119,852 Change in net position before permanent fund contributions 7,484 10,591 7,190 7,284 14,674 17,875 Contributions to permanent fund principal 13 27 - - 13 27 Change in net position 7,497 10,618 7,190 7,284 14,687 17,902 Net position - beginning of year 109,770 99,152 91,233 83,949 201,003 183,101 Net position - end of year $ 117,267 $ 109,770 $ 98,423 $ 91,233 $ 215,690 $ 201,003

A-34 Governmental Activities. Governmental activities for the year resulted in an increase in net position of $7,496,612 which is a decrease of $3,121,326 from the prior year change. Governmental activities realized the following significant transactions:

 Property tax increased by $1,473,768 or 2% from the prior year.  All other revenues combined resulted in a net increase of $3,821,739 from the prior year primarily due to an increase of interest on investments of $745,796, special betterment assessment of $1,870,839, and in increase in operating grants and contributions of $1,026,987.  Overall governmental expenses experienced a net increase of $8,625,774 or 8.3% from prior year primarily due a reduction in the discount rate used to measure the total pension by the state retirement system, cost of living adjustments and other personnel expenses such as retirement and health insurance premiums.

The charts below identify revenues and expenses by source for Governmental activities.

Business-Type activities. Business-type activities for the year resulted in an increase in net position of $7,189,654 which is a decrease of $94,242 or 1.3% from the prior year. The key elements of the changes are as follows:

• Operating revenues over operating expenses of $7,878,453 is mainly attributed to $4,145,326 raised for capital projects that did not begin before the close of the fiscal year and $1,405,000 raised for rate stabilization for the State Revolving Loan payments for the upgrades of the Peirce Island Wastewater Facility which will begin in Fiscal Year 2021. Remaining surplus is attributed to revenues raised for operating expenses that did not occur during the fiscal year. • Non-operating revenues of $601,631 represent an increase of $306,918 due to an increase in investment income and bond premium amortization. • Non-operating expenses of $2,687,548 represent a decrease of $264,598 from interest expense.

A-35  Capital grants and contributions of $1,397,118 represents an increase of $520,319 due to contributions made from the Air Force for well and water source projects at Pease and State force agreements on Middle Road.

The charts below identify revenues and expenses by source for business-type activities

FINANCIAL ANALYSIS OF THE CITY’S FUNDS

As noted earlier, fund accounting is used to ensure and demonstrate compliance with finance-related legal requirements.

Governmental funds. The focus of governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing financing requirements. In particular, unassigned fund balance may serve as a useful measure of a City’s net resources available for spending at the end of the fiscal year.

As of the end of the current fiscal year, governmental funds reported combined ending fund balances of $85,781,423, an increase of $661,812 in comparison with the prior year.

General Fund The general fund is the chief operating fund. As a measure of the general fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund budget.

City Council adopted in Fiscal Year 1998 the “Unassigned Fund Balance Ordinance” to maintain assigned fund balance within a certain range. This ordinance was amended in fiscal year 2013 which mandates that the city will maintain an unassigned fund balance of between 10% and 17% of total general fund appropriations.

Unassigned fund balance at the end of the fiscal year was $14,505,641 or 13.5% of the final general fund budget. This is an increase of $1,347,463 from prior year.

A-36 The table demonstrates that over the last eight years, the unassigned fund balance exceeded 10% of the final general fund budget.

Total fund balance for the general fund at the end of the current fiscal year, was $51,023,046 or 47.5% of the final general fund budget. This is an increase of $410,799 or 1% from prior year. The key factors in this change are as follows:

 A decrease of fund balance of $665,800 from budgetary use of fund balance.  A net increase to fund balance of $4,285,972 from revenues and other financing sources exceeding final budget estimates net of budgeted use of Fund Balance. This amount does not include the tax adjustment.  A net increase of $1,131,499 from remaining departmental appropriations.  A decrease of fund balance of $669,977 due to an increase in abatement liabilities from FY16.  An increase of fund balance of $425,199 from excess funding to the Leave at Termination Account.  A decrease of fund balance of $63,620 from expenditures exceeding appropriations in the Health Insurance Stabilization Account.  A decrease of fund balance of $30,000 from reserves for support of the Statewide Property Tax Coalition.  A net decrease of $128,972 to fund balance from the decrease of year end carry forwards.

Building and Infrastructure Fund Our Building and Infrastructure Fund qualifies as a major fund again in fiscal 2017. Fund balance decreased by $3,875,873 from the on-going construction of the Foundry Place Parking facility partially funded with short-term notes.

A-37 Debt Service Fund In fiscal year 2017, we designated our Debt Service Fund as a major fund. Assess- ments made on Commerce Way will be received in future years to pay principal and interest costs associated with area improvements.

Non-major Funds At the end of the current fiscal year, total fund balance of non-major governmental funds was $34,252,528, which is a net increase of $4,130,191 from prior year. Key factors in this change are as follows:

 A decrease of $828,071 in Community Development Special Revenue funds.  A net increase of $1,332,902 in the Miscellaneous Grants and Donations Special Revenue fund mainly from a bequest to both the Police and Fire Departments totaling $376,260 and the Woodbury Turning Lane project where $713,322 in funding has yet to be expended.  An increase of $1,216,964 from surplus of parking related revenue reported in the Parking & Transportation Special Revenue Fund.  An increase of $1,653,412 in Non-Major Funds-Capital Project Funds due to unexpended bond proceeds.  An increase of $607,167 in Permanent Funds due to increased investment income.

Proprietary funds. Proprietary funds provide the same type of information found in the business-type activities reported in the government-wide financial statements, but in more detail. Proprietary fund financial statements use the accrual basis of accounting, like the government-wide financials. As such, there is no reconciliation needed between the government-wide financial statements for business type activities and the proprietary fund financial statements.

The net position for the water and sewer funds at the end of the year increased $7,189,654 to a total of $98,422,916. The water fund increased by $1,981,027 and the sewer fund increased by $5,208,627 mainly attributed to revenue raised for future rate stabilization and capital projects.

Unrestricted net position of the water and sewer funds at the end of the year increased by $3,109,417 to a total of $33,436,307. The water fund unrestricted net position is $8,751,652, while the sewer fund unrestricted net position is $24,684,655.

Restricted for debt service of $487,644 is related to the Pease Wastewater Treatment Plant debt which is contributed from the Pease Development Authority.

Net investment in capital assets increased by $4,242,785, of which the water fund capital assets increased by $1,624,280 and the sewer fund capital assets increased by $2,618,505.

A-38 To provide adequate revenues to meet expenditures for operations, debt service, and capital improvements, the City’s rates are based on a two-step, inclining block rate structure for both water and sewer usage. For water consumption for FY17, the first ten units (one unit equals 100 cubic feet or 748 gallons) water consumed per month was billed at $4.15 per unit; all units over ten units per month was billed at a rate of $5.00 per unit. For sewer, which is measured by water consumption, which the first ten units was billed at $12.24 per unit; all units over ten units per month was billed at a rate of $13.47 per unit.

GENERAL FUND BUDGETARY HIGHLIGHTS

There were four supplemental appropriations during FY17:

 $1,850,000 to buy land for future recreation fields  $400,000 to buy land at 850 Banfield Road  $201,000 for Public Safety Officers contracts  $64,800 for two union contracts

The difference between the final amended budget and actual results is a positive variance of $5,550,104 with revenues exceeding estimated budgets by $4,418,605 and expenditures were less than the estimated budget by $1,131,499. Significant variances include:

 Positive variance in Licenses and Permits of $1,231,660 is mainly attributed to an excess of $652,812 as a result of an increase number of motor vehicle registrations and $501,194 in building, electrical and plumbing permits resulting from renovations and new construction citywide.  Positive variance in Intergovernmental of $186,805 mainly attributed to school tuition.  Positive variance in Charges for Services of $638,063 primarily consists of an excess of $225,472 from the Pease Development Authority (PDA) and $347,868 from ambulance fees.  Positive variance in Investment Income of $246,973.  Positive variance in Other Financing Sources of $2,044,889 is attributed to unbudgeted bond premiums $1,219,889 and a transfer in from a Capital project of $650,000 and a transfer in from a special revenue fund of $175,000. Both transfers were to reimburse the general fund for fiscal year 2016 supplemental appropriations.  Current operating expenditures resulting in a positive variance of $509,930 is attributed to $237,295 in the Police Department and, $147,194 in other General Government departments mainly due to vacancies; $37,504 surplus in street light electricity and, $20,808 from welfare direct assistance.

A-39 Non-operating expenditures resulting in a net positive variance of $621,569 is mainly attributed to $507,567 surplus in debt related expenditures and a positive variance of $74,157 from County Tax.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital assets. Total investment in capital assets for governmental and business-type activities at year-end amounted to $350,333,401 (net of accumulated depreciation), an increase $34,062,385 from the prior year. This investment in capital assets includes land, buildings, system improvements, and machinery and equipment.

Capital Assets (000s) (net of depreciation)

Governmental Business-type Activities Activities Totals Amount % 2017 2016 2017 2016 2017 2016 Change Change Land $ 18,221 $ 15,782 $ 2,871 $ 2,526 $ 21,092 $ 18,308 $ 2,784 15.21% Building and improvement 108,558 100,170 20,971 21,789 129,529 121,959 7,5706.21% Machinery and equipment 7,403 7,522 12,812 13,818 20,215 21,340 (1,125) -5.27% Infrastructure 56,865 57,083 70,259 70,505 127,124 127,588 (464) -0.36% Construction in Progress 12,936 10,257 39,438 16,819 52,374 27,076 25,298 93.43% Total Assets $ 203,983 $ 190,814 $ 146,351 $ 125,457 $ 350,334 $ 316,271 $ 34,063 10.77%

Major capital asset events during the current fiscal year included the following:

 Construction in progress for governmental activities totaled $12,935,428 at year end which $6,416,844 is attributed to the Foundry Place Parking Facility construction, $1,112,033 upgrades to School and recreation field lighting, and $3,897,215 to various streets, sidewalks.  Governmental funds capitalization of assets totaled $17,925,600 summarized as follows:  Land purchase for future recreation fields $1,886,122.  Land Purchase at 850 Banfield Road $552,474.  A variety of other sidewalk and street construction contributed to capital assets of $1,445,539.  Little Harbour School renovations $10,981,257.  General government vehicles capitalized during the current year which included Public Works vehicles of $235,372, Police vehicles of $132,539, Fire vehicles of $263,168, and School vehicles of $14,717.  Construction in progress in the water fund totaled $5,953,378 at year end primarily due to $2,897,172 for the construction on the Hobb’s Hill water tower, $312,245 for Greenland Well, $442,908 for the Maplewood waterline projects, $949,264 for water source, water pressure and Stage Two

A-40 Disinfection By-Product Rule Implementation, and $776,921 for a carbon filtration system.  The water fund had increases to capital assets of $835,256 during the year which primarily consisted of $49,765 for vehicles and equipment, $502,686 for various other waterline upgrades and $252,870 for well improvements.  Construction in progress in the sewer fund totaled $33,484,139 at year end primarily due to $31,170,664 for the design of the Peirce Island wastewater treatment plant, $878,004 for upgrades to the Pease wastewater treatment plant, $699,494 for upgrades to the Lafayette Pump Station, and $735,977 for various other sewer system improvements.  The sewer fund had increases to capital assets of $1,230,830 during the year which primarily consisted of $637,269 for various other sewer system upgrades, $345,000 to purchase land on Greenleaf Ave, and $248,561 in equipment and vehicle investments.

Additional information on the City of Portsmouth’s capital assets can be found in Note 10 on pages 77-78 of this report.

Long-term debt. At the end of the current fiscal year, total bonded debt and State revolving fund loans outstanding, including business-type activities (water and sewer departments) was $178,853,065 as shown in the table below, all of which was backed by the full faith and credit of the government.

State Revolving Fund Loan (SRF) program was created by the New Hampshire Legislature in 1987. This SRF program provides low-interest loans to help municipalities with projects such as wastewater treatment projects, landfill closures, and public water supply improvements.

The City of Portsmouth’s General Obligation bonds have an AAA rating from Standard and Poor’s Global rating services.

Outstanding Debt (000s)

Governmental Business-type Activities Activities Totals 2017 2016 2017 2016 2017 2016 General obligation bonds $ 85,375 $ 81,756 $ 53,947 $ 51,487 $ 139,322 $ 133,243 State revolving fund loans 458 671 26,226 29,024 26,684 29,695 Unamortized premium 7,947 7,455 4,900 4,856 12,847 12,311 Total Debt $ 93,780 $ 89,882 $ 85,073 $ 85,367 $ 178,853 $ 175,249

The City of Portsmouth’s total debt increased by $3,604,552 or 2% during the current fiscal year. The key factors in this net increase are:

 Reductions of outstanding debt principal in the amount of $15,440,999.

A-41  The issuance of General Obligation bonds and loans of $18,510,000 for the following projects:  $400,000 for a Fire Apparatus.  $610,000 for Fire Station 3 Improvements.  $5,000,000 for improvements to Elementary School Facilities.  $6,850,000 for Streets and Sidewalk Improvements.  $900,000 for Sewer Line Improvements.  $2,500,000 for Wastewater Pumping Station Improvements.  $2,250,000 for Water line replacement and Storage Improvements.

Under current state statutes, the City’s general obligation bonded debt issuances are subject to legal limitations based on various percentages of “base valuation”. The “base valuation” for computing debt limit is determined by adding the amount of taxable property lost to cities and towns as a result of the enactment of the State Business Profits Tax Law, to the equalized assessed valuation (full value) as determined by the State Department of Revenue Administration.

The general debt limit of the City is 3 percent of “base valuation”, (see below), except for landfill closures, school, water and sewer purposes, which have their own independent limits. The debt limit for school purposes is 7 percent, for water purposes is 10 percent of a base valuation, and debt for landfill closure and sewer purposes are exempt from the debt limit and are not counted toward the 3 percent limitation. Bor- rowings authorized by special legislative acts rather than the general municipal finance statutes can also be excluded from the City’s debt limit. As of June 30, 2017, the City’s net general obligation bonded debt was well below the legal limits.

The base valuation for computing debt limit for the City of Portsmouth is $5,651,979,770. The debt limit and outstanding debt is as follows:

Debt Limit Calculation

Bonds Outstanding Percent of including Unamortized Allowable Debt Maximum Bond Premiums Authorized Unissued Total Gross Debt % of Legal Limit Debt Limit as of June 30, 2017 as of June 30, 2017 as of June 30, 2017 Debt Service Used Purpose Municipal 3.00% $ 169,559,393 $ 38,585,293 $ 23,200,000 $ 61,785,293 36% Landfill closure (1) N/A - 458,427 4,641,897 5,100,324 N/A School 7.00% 395,638,584 54,736,498 5,000,000 59,736,498 15% Water 10.00% 565,197,977 32,068,516 - 32,068,516 6% Sewer (1) N/A - 53,004,331 75,000,000 128,004,331 N/A Total $ 1,130,395,954 $ 178,853,065 $ 107,841,897 $ 286,694,962 (1) Exempt from Debt Limit

Additional information on long-term debt can be found in Note 17 on pages 79-83 of this report.

A-42 ECONOMIC CONDITIONS AND NEXT YEAR’S BUDGETS AND RATES

As of June 30, 2017, the City of Portsmouth’s unemployment rate was 2%, unchanged from FY16. The State’s unemployment average for the same period was 2.9%, the average rate for New England was 4.1% and the nation’s average rate was 4.4%.

The budget and tax rate for the General Fund for FY18 has been approved by the Department of Revenue Administration. The total budget is $109,448,605, an increase of $1,985,762 or 1.85% from the prior year final budget. The tax rate has been set at $15.38 per $1,000 of assessed value. This is a decrease of $1.66 or 9.75% from prior year.

The City of Portsmouth has appropriated a total of $2,550,000 from committed fund balance of which $2,400,000 for debt service payments, $150,000 for abatements and $231,000 from unassigned fund balance to offset two capital outlay projects in the fiscal year 2018 budget to maintain a moderate tax rate.

Both the Water and Sewer Division user rates are based on a two-tier inclining rate block structure based on units of water consumed. One unit is equal to 100 cubic feet or 748 gallons of water. This two-tier inclining rate block structure provided an equitable method of financing of water treatment and wastewater operations. The large volume users have a greater impact on system operations.

 The water rate did not increase in FY18 from FY17 and has not increased since FY11 remaining at $4.15 for the first 10 units of water consumed per month and $5.00 per unit for consumption over 10 units per month. The meter charge rate also remained the same and is based on the service meter size.  Sewer charges are based on water consumption. The sewer rate increased from $12.24 to $12.73 per unit for the first 10 units of water consumed per month. The rate for consumption over 10 units per month increased from $13.47 to $14.00 per unit.

REQUESTS FOR INFORMATION

This financial report is designed to provide a general overview of the City of Portsmouth’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional financial information can be found on the city’s web page at www.cityofportsmouth.com or should be addressed to:

Office of Finance Director City of Portsmouth 1 Junkins Avenue Portsmouth, New Hampshire 03801

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A-44 Basic Financial Statements

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A-46 CITY OF PORTSMOUTH, NEW HAMPSHIRE STATEMENT OF NET POSITION JUNE 30, 2017 Governmental Business-Type Activities Activities Total ASSETS Current: Cash and short-term investments $ 58,310,157 $ 59,139,990 $ 117,450,147 Investments 55,445,595 - 55,445,595 Receivables, net of allowance for uncollectibles: Property taxes 1,638,929 - 1,638,929 User fees - 3,682,212 3,682,212 Departmental and other 834,390 - 834,390 Contributions - 790,877 790,877 Intergovernmental 857,842 2,345,659 3,203,501 Special assessment 187,069 - 187,069 Loans and interest 19,912 - 19,912 Inventory 47,355 223,018 270,373 Other assets 93,901 - 93,901 Total current assets 117,435,150 66,181,756 183,616,906 Noncurrent: Receivables, net of allowance for uncollectibles: Property taxes 432,971 - 432,971 Contributions - 1,060,445 1,060,445 Special assessment 1,496,701 - 1,496,701 Loans 1,994,990 - 1,994,990 Capital assets: Land and construction in progress 31,156,731 42,308,583 73,465,314 Other capital assets, net of accumulated depreciation 172,825,508 104,042,579 276,868,087 Total non-current assets 207,906,901 147,411,607 355,318,508 TOTAL ASSETS 325,342,051 213,593,363 538,935,414 DEFERRED OUTFLOWS OF RESOURCES Related to pensions 26,497,290 1,207,358 27,704,648 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $ 351,839,341 $ 214,800,721 $ 566,640,062 LIABILITIES Current: Accounts payable $ 3,366,778 $ 3,074,838 $ 6,441,616 Accrued liabilities 1,309,356 797,715 2,107,071 Notes payable 22,000,000 19,673,837 41,673,837 Deposits held in custody - 39,667 39,667 Retainage payable 500,956 2,086,359 2,587,315 Unearned revenue 134,048 15,000 149,048 Tax refunds payable 3,257,070 - 3,257,070 Other current liabilities 431,403 226,400 657,803 Current portion of long-term liabilities: Bonds and loans payable 10,645,506 6,673,970 17,319,476 Other liabilities 745,089 49,483 794,572 Total current liabilities 42,390,206 32,637,269 75,027,475 Noncurrent: Bonds and loans payable, net of current portion 83,134,712 78,398,877 161,533,589 Net pension liability 94,579,959 4,357,065 98,937,024 Net OPEB obligation 6,249,508 349,917 6,599,425 Other liabilities, net of current portion 6,903,383 569,059 7,472,442 Total noncurrent liabilities 190,867,562 83,674,918 274,542,480 TOTAL LIABILITIES 233,257,768 116,312,187 349,569,955 DEFERRED INFLOWS OF RESOURCES Related to pensions 1,314,515 65,618 1,380,133 NET POSITION Net investment in capital assets 120,182,374 64,498,965 184,681,339 Restricted externally or constitutionally for: Grants 6,025,954 - 6,025,954 Debt 1,680,450 487,644 2,168,094 Permanent funds: Nonexpendable 1,633,062 - 1,633,062 Expendable 6,039,106 - 6,039,106 Restricted by enabling legislation 8,303,444 - 8,303,444 Unrestricted (26,597,332) 33,436,307 6,838,975 TOTAL NET POSITION 117,267,058 98,422,916 215,689,974 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION $ 351,839,341 $ 214,800,721 $ 566,640,062

The accompanying notes are an integral part of these financial statements.

A-47 CITY OF PORTSMOUTH, NEW HAMPSHIRE

STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2017

Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Governmental Activities: General government $ 13,503,790 $ 9,118,467 $ 222,578 $ 6,924 Public safety 20,724,528 1,447,285 555,126 - Education 54,271,573 6,620,461 4,120,317 2,357,693 Public works 14,283,986 6,978,104 464,524 424,769 Health and human services 674,704 90,178 - - Culture and recreation 4,331,428 1,046,097 346,005 229,080 Community development 1,278,188 - 250,365 611,940 Interest on long-term debt 3,157,534 - - - Total Governmental Activities 112,225,731 25,300,592 5,958,915 3,630,406

Business-Type Activities: Water services 7,906,621 9,029,792 - 583,845 Sewer services 10,534,561 14,602,295 -813,273 Total Business-Type Activities 18,441,182 23,632,087 -1,397,118 Total $ 130,666,913 $ 48,932,679 $ 5,958,915 $ 5,027,524

General Revenues: Property taxes Interest on taxes Grants and contributions not restricted to specific programs Special assessment Investment income Other revenues Contributions to permanent fund principal Total general revenues and contributions to permanent fund principal Change in net position

Net Position: Beginning of year End of year

The accompanying notes are an integral part of these financial statements.

A-48 Net (Expenses) Revenues and Changes in Net Position Business- Governmental Type Activities Activities Total

$ (4,155,821) $ - $ (4,155,821) (18,722,117) - (18,722,117) (41,173,102) - (41,173,102) (6,416,589) - (6,416,589) (584,526) - (584,526) (2,710,246) - (2,710,246) (415,883) - (415,883) (3,157,534) - (3,157,534) (77,335,818) - (77,335,818)

- 1,707,016 1,707,016 - 4,881,007 4,881,007 - 6,588,023 6,588,023 (77,335,818) 6,588,023 (70,747,795)

78,955,625 - 78,955,625 168,675 - 168,675

1,111,547 - 1,111,547 1,870,839 - 1,870,839 1,219,261 270,077 1,489,338 1,493,503 331,554 1,825,057 12,980 - 12,980

84,832,430 601,631 85,434,061 7,496,612 7,189,654 14,686,266

109,770,446 91,233,262 201,003,708 $ 117,267,058 $ 98,422,916 $ 215,689,974

A-49 CITY OF PORTSMOUTH, NEW HAMPSHIRE GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2017

Building Nonmajor Total and Debt Governmental Governmental General Infrastructure Service Funds Funds ASSETS Cash and short-term investments $ 8,867,720 $ 23,906,980 $-$ 25,535,456 $ 58,310,156 Investments 45,285,447 - - 10,160,147 55,445,594 Receivables: Property taxes 2,071,900 - - - 2,071,900 Departmental and other 720,671 - - 113,719 834,390 Intergovernmental - - - 857,843 857,843 Special assessment - - 1,683,770 -1,683,770 Loans and interest - - - 2,014,901 2,014,901 Due from other funds 229,778 - - - 229,778 Advances to other funds 567,160 - - - 567,160 Inventory - - - 47,355 47,355 Other assets 93,901 - - - 93,901 TOTAL ASSETS $ 57,836,577 $ 23,906,980 $ 1,683,770 $ 38,729,421 $ 122,156,748

LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES LIABILITIES Accounts payable $ 981,711 $ 1,134,783 $ - $ 1,250,281 $ 3,366,775 Accrued liabilities 880,669 - - 73,437 954,106 Unearned revenue - - - 134,049 134,049 Notes payable - 22,000,000 - - 22,000,000 Retainage payable - 263,043 - 237,913 500,956 Tax refunds liability 3,257,070 - - - 3,257,070 Due to other funds - - 3,320 226,458 229,778 Advances from other funds - - - 567,160 567,160 Other liabilities 431,403 - - - 431,403 TOTAL LIABILITIES 5,550,853 23,397,826 3,320 2,489,298 31,441,297 DEFERRED INFLOWS OF RESOURCES Unavailable revenues - taxes 884,622 - - - 884,622 Unavailable revenues - other 378,056 - 1,683,755 1,987,595 4,049,406 TOTAL DEFERRED INFLOWS OF RESOURCES 1,262,678 - 1,683,755 1,987,595 4,934,028 FUND BALANCES Nonspendable 567,160 - - 1,680,417 2,247,577 Restricted - 6,624,068 - 31,159,449 37,783,517 Committed 26,964,585 1,301,220 - 1,428,415 29,694,220 Assigned 8,985,660 - - - 8,985,660 Unassigned 14,505,641 (7,416,134) (3,305) (15,753) 7,070,449 TOTAL FUND BALANCES 51,023,046 509,154 (3,305) 34,252,528 85,781,423 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 57,836,577 $ 23,906,980 $ 1,683,770 $ 38,729,421 $ 122,156,748

The accompanying notes are an integral part of these financial statements.

A-50 CITY OF PORTSMOUTH, NEW HAMPSHIRE

RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES IN THE STATEMENT OF NET POSITION

JUNE 30, 2017

Total governmental fund balances $ 85,781,423

Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 203,982,239

Revenues are reported on the accrual basis of accounting and are not deferred until collection. 4,934,028

Deferred inflows and outflows of pension resources are not financial resources nor are they available to pay current-period expenditures. Pension related inflows and outflows consist of: Deferred inflows 26,497,290 Deferred outflows (1,314,515)

In the Statement of Activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until due. (355,250)

Long-term liabilities, net of related deferred outflows and inflows, are not due and payable in the currnet period and, therefore, are are not reported in the governmental funds. Net pension liability (94,579,959) General obligation bonds & loans payable, including (93,780,218) unamortized premiums Other post-employement benefits payable (6,249,508) Compensated absences payable (6,209,076) Estimated liability for landfill postclosure care costs (1,439,396)

Net position of governmental activities $ 117,267,058

The accompanying notes are an integral part of these financial statements.

A-51 CITY OF PORTSMOUTH, NEW HAMPSHIRE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2017

Building Nonmajor Total and Debt Governmental Governmental General Infrastructure Service Funds Funds Revenues: Property taxes $ 78,902,463 $ - $ - $ - $ 78,902,463 Licenses and permits 6,327,360 - - - 6,327,360 Intergovernmental 3,388,764 - - 6,183,445 9,572,209 Charges for services 12,302,381 - - 5,728,218 18,030,599 Investment income 331,973 - - 887,288 1,219,261 Interest on taxes 168,675 - - - 168,675 Fines and costs 816,111 - - 74,685 890,796 Contributions - - - 1,141,640 1,141,640 Special assessment - - 187,084 - 187,084 Other 222,861 - - 188,700 411,561 Total Revenues 102,460,588 - 187,084 14,203,976 116,851,648

Expenditures: Current: General government 10,010,428 1,350 - 438,684 10,450,462 Public safety 18,156,829 - - 573,382 18,730,211 Education 43,588,034 85,990 - 6,201,825 49,875,849 Public works 7,270,220 31,947 - 3,178,279 10,480,446 Health and human services 658,401 - - - 658,401 Culture and recreation 2,734,246 - - 985,634 3,719,880 Community development - - - 1,026,946 1,026,946 Debt service: Principal 9,318,167 - 134,710 - 9,452,877 Interest 3,045,076 - 55,679 90,000 3,190,755 Capital outlay 716,649 12,616,586 - 4,589,506 17,922,741 Intergovernmental 5,203,357 - - - 5,203,357 Total Expenditures 100,701,407 12,735,873 190,389 17,084,256 130,711,925 Excess (deficiency) of revenues over (under) expenditures 1,759,181 (12,735,873) (3,305) (2,880,280) (13,860,277)

Other Financing Sources (Uses): Issuance of bonds - 8,860,000 - 4,000,000 12,860,000 Bond/BAN premium 1,219,889 - - 442,200 1,662,089 Transfers in 825,000 - - 3,393,271 4,218,271 Transfers out (3,393,271) - - (825,000) (4,218,271) Total Other Financing Sources (Uses) (1,348,382) 8,860,000 - 7,010,471 14,522,089 Net change in fund balances 410,799 (3,875,873) (3,305) 4,130,191 661,812 Fund Balances, at Beginning of Year 50,612,247 4,385,027 - 30,122,337 85,119,611 Fund Balances, at End of Year $ 51,023,046 $ 509,154 $ (3,305) $ 34,252,528 $ 85,781,423

The accompanying notes are an integral part of these financial statements.

A-52 CITY OF PORTSMOUTH,NEW HAMPSHIRE RECONCILIATION OF THE STATEMENT OF REVENUES EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017

Net changes in fund balances - Total governmental funds $ 661,812

Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense: Capital outlay purchases 20,604,932 Depreciation (7,436,392)

Revenues in the Statement of Activities that do not provide current financial resources are fully deferred in the Statement of Revenues, Expenditures and Changes in Fund Balances. Therefore, the recognition of revenue for various types of accounts receivable (i.e. property taxes and other receivables) differ between the two statements. This amount represents the net change in deferred revenue. 1,699,946

The issuance of long-term debt (bonds and loans) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the financial resources of governmental funds. Neither transaction, however, has any effect on net position: Issuance of long-term debt (12,860,000) Premium received on issuance of long-term debt (1,219,889) Repayments of debt 9,452,877 Bond premium amortization 728,600

In the Statement of Activities, interest is accrued on outstanding long-term debt, whereas in governmental funds interest is not reported until due. 33,176

Pension and OPEB liabilities, including related outflows and inflows are reported in the statement of net position and the statement of activitites, but are not reported in governmental funds. Net pension liability (24,112,181) Pension related deferred outflows of resources 18,737,406 Pension related deferred inflows of resources 2,156,129 Other post-employment benefits (856,418)

Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore, are not reported as expenditures in the governmental funds. Compensated absences (93,386) Change in net position of governmental activities $ 7,496,612

The accompanying notes are an integral part of these financial statements.

A-53 CITY OF PORTSMOUTH, NEW HAMPSHIRE

GENERAL FUND

STATEMENT OF REVENUES AND OTHER SOURCES, AND EXPENDITURES AND OTHER USES - BUDGET AND ACTUAL

FOR THE YEAR ENDED JUNE 30, 2017

Budgeted Amounts Original Final Actual Variance With Budget Budget Amounts Final Budget Revenues and other sources: Taxes $ 80,886,495 $ 80,586,495 $ 80,655,072 $ 68,577 Licenses and permits 5,045,700 5,095,700 6,327,360 1,231,660 Intergovernmental 9,300,723 9,300,723 9,487,528 186,805 Charges for services 5,315,555 5,565,555 6,203,618 638,063 Investment income 85,000 85,000 331,973 246,973 Interest and penalties 230,000 230,000 168,675 (61,325) Fines and costs 733,000 733,000 816,111 83,111 Other revenues 184,616 184,616 164,468 (20,148) Other financing sources: Bond premiums - - 1,219,889 1,219,889 Transfers in 1,142,454 1,142,454 1,967,454 825,000 Use of fund balance: To reduce taxes 1,700,000 1,700,000 1,700,000 - For property appraisal 73,500 73,500 73,500 - For land for recreational fields and other municpal uses - 1,850,000 1,850,000 - For non-recurring capital outlay projects 250,000 250,000 250,000 - For contractual obligations - 265,800 265,800 - For purchase of 850 Banfield Road - 400,000 400,000 - Total Revenues and Other Sources 104,947,043 107,462,843 111,881,448 4,418,605

Expenditures and other uses: Current: General administrative 5,988,611 6,094,963 6,047,403 47,560 Other general administrative 1,637,380 1,129,878 1,044,977 84,901 Public works 6,376,183 6,427,261 6,390,249 37,012 Community services 3,240,444 3,262,228 3,204,838 57,390 Regulatory services 1,396,717 1,434,078 1,415,622 18,456 Emergency management 11,837 11,837 4,252 7,585 Police department 9,936,918 10,382,847 10,145,552 237,295 Fire department 8,230,100 8,340,898 8,321,469 19,429 School department 44,684,084 44,684,084 44,683,782 302 Non-operating 23,444,769 25,694,769 25,073,200 621,569 Total Expenditures and Other Uses 104,947,043 107,462,843 106,331,344 1,131,499 Excess of revenues and other sources over expenditures and other uses $ - $ - $ 5,550,104 $ 5,550,104

The accompanying notes are an integral part of these financial statements.

A-54 CITY OF PORTSMOUTH, NEW HAMPSHIRE PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2017 Business-Type Activities Enterprise Funds Water Sewer Total ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current: Cash and short-term investments $ 20,307,596 $ 38,832,394 $ 59,139,990 Receivables, net of allowance for uncollectibles: User fees 1,451,028 2,231,184 3,682,212 Contributions 423,270 367,607 790,877 Intergovernmental - 2,345,659 2,345,659 Inventory 158,722 64,296 223,018 Total current assets 22,340,616 43,841,140 66,181,756 Noncurrent: Contribution receivables, net of current portion 324,100 736,345 1,060,445 Capital assets: Land and construction in progress 6,532,978 35,775,605 42,308,583 Capital assets, net of accumulated depreciation 45,707,614 58,334,965 104,042,579 Total noncurrent assets 52,564,692 94,846,915 147,411,607 TOTAL ASSETS 74,905,308 138,688,055 213,593,363 DEFERRED OUTFLOW OF RESOURCES Related to pensions 582,502 624,856 1,207,358 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES $ 75,487,810 $ 139,312,911 $ 214,800,721 LIABILITIES AND DEFERRED INFLOWS OF RESOURCES Current: Accounts payable $ 290,579 $ 2,784,259 $ 3,074,838 Accrued liabilities 354,701 443,014 797,715 Deposits held in custody 15,429 24,238 39,667 Retainage payable 52,402 2,033,957 2,086,359 Unearned revenue 15,000 - 15,000 Notes payable - 19,673,837 19,673,837 Other current liabilities 226,400 - 226,400 Current portion of long-term liabilities: Bonds and loans payable 2,443,652 4,230,318 6,673,970 Other liabilities 23,391 26,092 49,483 Total current liabilities 3,421,554 29,215,715 32,637,269 Noncurrent: Bonds and loans payable, net of current portion 29,624,864 48,774,013 78,398,877 Net pension liability 2,132,971 2,224,094 4,357,065 Net OPEB obligation 198,837 151,080 349,917 Other liabilities, net of current portion 269,001 300,058 569,059 Total noncurrent liabilities 32,225,673 51,449,245 83,674,918 TOTAL LIABILITIES 35,647,227 80,664,960 116,312,187 DEFERRED INFLOWS OF RESOURCES Related to pensions 32,123 33,495 65,618 NET POSITION Net investment in capital assets 31,056,808 33,442,157 64,498,965 Restricted for debt service - 487,644 487,644 Unrestricted 8,751,652 24,684,655 33,436,307 TOTAL NET POSITION 39,808,460 58,614,456 98,422,916 TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES $ 75,487,810 $ 139,312,911 $ 214,800,721

The accompanying notes are an integral part of these financial statements.

A-55 CITY OF PORTSMOUTH, NEW HAMPSHIRE

PROPRIETARY FUNDS

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION

FOR THE YEAR ENDED JUNE 30, 2017

Business-Type Activities Enterprise Funds Water Sewer Total Operating Revenues: Charges for services $ 8,129,970 $ 14,205,902 $ 22,335,872 Licenses and permits 627,915 183,625 811,540 Departmental revenue 271,907 212,768 484,675 Total Operating Revenues 9,029,792 14,602,295 23,632,087

Operating Expenses: Personnel services 3,059,049 3,347,636 6,406,685 Non-personnel services 2,057,142 3,499,124 5,556,266 Depreciation 1,737,531 2,053,152 3,790,683 Total Operating Expenses 6,853,722 8,899,912 15,753,634 Operating Income 2,176,070 5,702,383 7,878,453

Nonoperating Revenues (Expenses): Investment income 94,267 175,810 270,077 Bond premium amortization 179,744 151,810 331,554 Interest expense (1,052,899) (1,634,649) (2,687,548) Total Nonoperating Revenues (Expenses) (778,888) (1,307,029) (2,085,917) Income Before Contributions and Transfers 1,397,182 4,395,354 5,792,536 Capital contributions 583,845 813,273 1,397,118 Change in Net Position 1,981,027 5,208,627 7,189,654 Net Position at Beginning of Year 37,827,433 53,405,829 91,233,262 Net Position at End of Year $ 39,808,460 $ 58,614,456 $ 98,422,916

The accompanying notes are an integral part of these financial statements.

A-56 CITY OF PORTSMOUTH, NEW HAMPSHIRE PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2017 Business-Type Activities Enterprise Funds Water Sewer Total Cash Flows From Operating Activities: Receipts from customers and users $ 9,101,448 $ 14,618,466 $ 23,719,914 Payments to employees for salaries and related benefits (2,922,913) (3,240,779) (6,163,692) Payments to suppliers for goods and services (2,224,474) (3,425,023) (5,649,497) Net Cash Provided By Operating Activities 3,954,061 7,952,664 11,906,725

Cash Flows From Capital and Related Financing Activities: Acquisition and construction of capital assets (1,862,719) (18,664,798) (20,527,517) Proceeds from general obligation bonds 2,250,000 3,400,000 5,650,000 Principal payments on bonds and loans (2,142,528) (3,845,593) (5,988,121) Proceeds from revolving loan - 17,328,178 17,328,178 Proceeds from premium 127,593 248,172 375,765 Capital contributions 744,403 1,220,268 1,964,671 Interest expense (947,005) (1,604,202) (2,551,207) Net Cash Used For Capital and Related Financing Activities (1,830,256) (1,917,975) (3,748,231)

Cash Flows From Investing Activities: Investment income 94,267 175,810 270,077 Net Cash Provided by Investing Activities 94,267 175,810 270,077 Net Change in Cash and Short-Term Investments 2,218,072 6,210,499 8,428,571 Cash and Short-Term Investments, Beginning of Year 18,089,524 32,621,895 50,711,419 Cash and Short-Term Investments, End of Year $ 20,307,596 $ 38,832,394 $ 59,139,990

Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating income $ 2,176,070 $ 5,702,383 $ 7,878,453 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 1,737,531 2,053,152 3,790,683 Changes in assets, liabilities, and deferred outflows/inflows: User fees 45,717 14,990 60,707 Inventory 58,021 (42,939) 15,082 Deferred outflows - related to pensions (406,185) (441,007) (847,192) Accounts payable (37,896) 117,040 79,144 Accrued liabilities 10,937 15,938 26,875 Retainage payable (187,457) - (187,457) Net OPEB obligation 11,892 23,082 34,974 Compensated absences 27,398 (4,273) 23,125 Net pension liability 539,225 562,261 1,101,486 Deferred inflows - related to pensions (47,131) (49,144) (96,275) Other liabilities 25,939 1,181 27,120 Net Cash Provided By Operating Activities $ 3,954,061 $ 7,952,664 $ 11,906,725

Noncash Investing and Financing Activities Capital contributions not yet received $ 379,105 $ 513,406 $ 892,511 The accompanying notes are an integral part of these financial statements.

A-57 CITY OF PORTSMOUTH, NEW HAMPSHIRE

FIDUCIARY FUNDS

STATEMENT OF FIDUCIARY NET POSITION

JUNE 30, 2017

Private Purpose Trust Agency Fund Funds ASSETS

Cash and short-term investments $ 661,552 $ 384,036 Investments 6,714,860 - Other assets 80 -

Total Assets $ 7,376,492 $ 384,036

LIABILITIES AND NET POSITION

Other liabilities $ - $ 384,036

Total Liabilities - 384,036

NET POSITION

Total net position held in trust $ 7,376,492 $ -

The accompanying notes are an integral part of these financial statements.

A-58 CITY OF PORTSMOUTH, NEW HAMPSHIRE

FIDUCIARY FUNDS

STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

FOR THE YEAR ENDED JUNE 30, 2017

Private Purpose Trust Fund

Additions: Investment income $ 762,012 Contributions 179,586

Total additions 941,598

Deductions: Payments to beneficiaries 319,864

Total deductions 319,864

Net increase 621,734

Net position: Beginning of year 6,754,758

End of year $ 7,376,492

The accompanying notes are an integral part of these financial statements.

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A-60 CITY OF PORTSMOUTH, NEW HAMPSHIRE

Notes to Financial Statements

1. Summary of Significant Accounting Policies

The accounting policies of the City of Portsmouth, New Hampshire (the City) conform to generally accepted accounting principles (GAAP) as applicable to governmental units. The following is a summary of the more significant policies:

A. Reporting Entity

The City is a municipal corporation governed by an elected City Council, including a Mayor, eight members, and an appointed City Manager. As required by generally accepted accounting principles, these financial statements present the City and applicable component units for which the City is considered to be financially accountable. In fiscal year 2017, it was determined that no entities met the required GASB 14 (as amended) criteria of component units.

B. Government-wide and Fund Financial Statements

Government-wide Financial Statements The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Changes in Net Position) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. However, internal eliminations do not include services provided to city departments. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.

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

A-61 Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation

Government-wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as is the proprietary fund and fiduciary fund financial statements. Reve- nues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements.

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

Fund Financial Statements Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measur- able and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers property tax revenues and loans to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.

The City reports the following major governmental funds:

 The General Fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

A-62  The Building and Infrastructure Fund is used to account for building and infrastructure improvements.  The Debt Service Fund is used to account for the betterment improvement on Commerce Way.

The proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recognized when earned and expenses are recorded when liabilities are incurred.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the enterprise fund are charges to customers for sales and services. Operating expenses for enterprise 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 nonoperating revenues and expenses.

The City reports the following major proprietary funds:

 Water Enterprise Fund is used to account for the operation of a water treatment plant, City Wells and water system.  Sewer Enterprise Fund is used to account for the operations of two sewer treatment plants, pumping stations and sewer lines.

Fiduciary Funds employ the same economic resources measurement focus and accrual basis of accounting as do proprietary funds. Under this method, revenues are recognized when earned and expenses are recorded when liabilities are incurred.

The City also reports the following fiduciary funds:

 The Private-Purpose Trust Funds are used to account for trust arrangements, under which principal and investment income exclusively benefits individuals, private organizations, or other governments. Private Purpose Trust Funds held by the City include trust arrangements for the Parks, Scholarships, Worthy Poor, Memorials, and Commemorations.  Agency Funds account for fiduciary assets held by the City in a custodial capacity as an agent on behalf of others. Agency Funds held by the City include the Claremont Coalition Fund, and School Fund. Agency Funds, however, only report assets and liabilities, and thus have no measurement focus.

A-63 D. Cash and Investments

Cash balances from all funds, except those required to be segregated by law, are combined to form a consolidation of cash. Each of those funds’ portions of consolidated cash is displayed on its respective balance sheet as “cash and short-term investments”. Cash balances are invested to the extent available, and interest earnings are recognized in the appropriate funds. Cash and short-term investments are separately held and reflected in proprietary, permanent, fiduciary, and certain special revenue funds.

Under New Hampshire RSA 48:16, whenever the City treasurer has in custody an excess of funds which are not immediately needed for the purpose of expenditure, the City treasurer shall invest the same in accordance with the investment policy adopted by the mayor and board of aldermen or city council under RSA 47:6, II. The treasurer may invest in participation units in the public deposit investment pool established pursuant to RSA 383:22, in deposits, including money market accounts or certificates of deposit, of federally insured banks chartered under the laws of New Hampshire or the federal government with a branch within the state, or in obligations fully guaranteed as to principal and interest by the United States government. The obligations may be held directly or in the form of securities of or other interests in any open-end or closed-end management-type investment company or investment trust registered under 15 U. S. C. Section 80a-1 et seq., if the portfolio of the investment company or investment trust is limited to such obligations and repurchase agreements fully collateralized by such obligations.

For purpose of the statement of cash flows, the proprietary funds consider investments with original maturities of three months or less to be short- term investments.

Investments are considered holdings of greater than three months and are carried at fair value.

E. Interfund Receivables and Payables

Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due from/to other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans).

Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate the portion not available for appropriation and not available as expendable financial resources.

A-64 The government-wide Statement of Activities eliminates transfers as reported within the segregated governmental and business-type activities columns. Only transfers between the two columns appear in this statement.

F. Inventories

Inventories are valued at cost using the first-in/first-out (FIFO) method for business-type activities. The costs of governmental fund-type inventories are recorded as expenditures when purchased rather than when consumed, except for the School Lunch fund, a nonmajor governmental fund, which used the FIFO method.

G. Capital Assets

Capital assets, which include buildings, improvements, machinery and equipment, land, construction in progress, and infrastructure assets are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial individual cost of more than $10,000 and an estimated useful life in excess of five years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at acquisition value at the date of donation.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized.

Major outlays for capital assets and improvements are capitalized as projects are constructed.

Property, plant, equipment, and infrastructure of the City is depreciated using the straight-line method over the following estimated useful lives:

Assets Years Buildings 20 - 50 Improvements 20 Machinery and equipment 5 - 10 Infrastructure 20 - 50

H. Compensated Absences

It is the City’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits depending on their date of hire. All vested sick and vacation pay is accrued when incurred in the government-wide, proprietary, and fiduciary fund financial statements.

A-65 I. Long-Term Obligations

In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt, and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type Statement of Net Position.

J. Fund Equity

Fund equity at the governmental fund financial reporting level is classified as “fund balance”. Fund equity for all other reporting is classified as “net position”.

Fund Balance - Generally, fund balance represents the difference between the current assets/deferred outflows and current liabilities/deferred inflows. The City reserves those portions of fund balance that are legally segregated for a specific future use or which do not represent available, spendable resources and therefore, are not available for appropriation or expenditure. Unassigned fund balance indicates that portion of fund balance that is available for appropriation in future periods.

The City’s fund balance classification policies and procedures are as follows:

1) Nonspendable funds are either unspendable in the current form (i.e., inventory and advances to other funds) or can never be spent (i.e., nonspendable balances of permanent funds) because they are legally or contractually required to be maintained intact. 2) Restricted funds are used solely for the purpose in which the fund was established. They represent amounts that are restricted to specific purposes by constraints imposed by creditors, grantors, contributors, or laws or regulations of other governments, or constraints imposed by law through constitutional provisions or enabling legislation. In the case of special revenue funds, these funds are created by statute or otherwise have external constraints on how the funds can be expended. In case of capital project funds, these funds are financed by issuance of bonds. In the case of permanent funds, these funds represent the income portion of permanent trust funds. 3) Committed funds are reported and expended as a result of annual resolutions passed by the City Council, the highest decision-making authority in the City. Subsequent City Council meeting is necessary to modify or rescind a fund balance commitment. 4) Assigned funds are used for specific purposes as established by management. These funds, which include general fund encumbrances, have been assigned for specific goods and services ordered but not yet paid for. The funds have been established by

A-66 various City departments for the expenditure of current year budgetary financial resources upon vendor performance in the subsequent budgetary period. The City’s Charter authorizes the City Manager to approve assignments established by departments. 5) Unassigned funds represent the residual classification for the general fund and include all amounts not contained in the other classifications. Unassigned amounts are available for any purpose. Temporary fund balance deficits are reported as negative amounts in the unassigned classification in other governmental funds. Posi- tive unassigned amounts are reported only in the general fund.

When an expenditure is incurred that would qualify for payment from multiple fund balance types, the City uses the following order to liquidate liabilities: restricted, committed, assigned and unassigned.

Net Position - Net position represents the difference between assets/deferred outflows and liabilities/deferred inflows. Net investment in capital assets, consist of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used 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 adopted by the City or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. All other net position is reported as unrestricted.

K. Use of Estimates

The preparation of basic financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures for contingent assets and liabilities at the date of the basic financial statements, and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used.

L. Mandated Fund Balance

In August 1997 (revised for GASB 54 terminology in fiscal year 2012), the City Council adopted ordinances Chapter I, Sections 1:1401 and 1:1402 that mandates the City’s Unassigned Fund Balance be maintained (amended in fiscal year 2013) between 10% and 17% of total current year appropriations.

Specific City Council ordinances are as follows:

Section 1:1401 - Mandated Fund Balance

The General Fund Balance of the City, at the end of any fiscal year as recorded in accordance with generally accepted accounting principles (GAAP) and excluding any and all reserves, and any dedicated fund

A-67 balances of the General Fund (otherwise referred to as Unassigned Fund balance of the General Fund) shall be maintained at the prescribed amount of not less than 10% of the actual Total General Fund appropriations for that fiscal year.

Section 1:1402 - Operational Objective

Notwithstanding the provision of Section 1:1401, it is recognized that the financial management goal of the City of Portsmouth is to annually maintain an Unassigned Fund Balance between 10% and 17% of total actual General Fund appropriations.

2. Stewardship, Compliance, and Accountability

A. Budgetary Information

An annual appropriated budget is adopted for the City’s general fund. In January, the City Manager issues a directive requesting line-item budget proposals from each department. In accordance with the City ordinance, the departments must submit their budget to the City Manager no later than March 15. The City Manager schedules individual department reviews with supervisors. In accordance with the City Charter, the City Manager’s recommendations must be submitted to the City Council no later than 45 days prior to the first day of the fiscal year (May 15). The City Council, through the City Manager, schedules public work-sessions with the individual departments.

The City Council then calls a public hearing to review budget requirements with the general public. After due consideration to the public, the Council makes a final decision. A resolution is required for acceptance for the final budget by a majority vote. Departments are legally limited to their total budget as voted.

The final budget and resolution are then presented to the Department of Revenue Administration for their review and approval of the tax rate. Cer- tain limitations set by state statute must be adhered to before the rate is established. Any changes in the budget after the tax rate is set must be made within the revenues and reserves estimated as available by the City Manager and must be approved by an affirmative vote of a two-thirds majority of the City Council.

After the budget has been adopted, no expenditure may be incurred, except pursuant to a budget appropriation unless there is a specific additional appropriation thereof. The head of any department, with the approval of the manager, may transfer any unencumbered balance or any portion thereof from one fund or agency within his/her department to another fund or agency within his/her department. The City Charter established that the legal level of control is at the department level.

A-68 Budget appropriations lapse at the end of the fiscal year except for any appropriations either supported by formal purchase contracts or approval by the City Manager to be carried forward.

B. Budget/GAAP Reconciliation

The budgetary data for the general fund is based upon accounting principles that differ from generally accepted accounting principles (GAAP). Therefore, in addition to the GAAP basis financial statements, the results of operations of the general fund are presented in accordance with budgetary accounting principles to provide a meaningful comparison to budgetary data.

The following is a summary of adjustments made to the actual revenues and other sources, and expenditures and other uses, to conform to the budgetary basis of accounting.

Revenues Expenditures and Other and Other Excess General Fund Financing Sources Financing Uses (Deficiency) Revenues/Expenditures (GAAP Basis) $ 102,460,588 $ 100,701,407 $ 1,759,181 Other financing sources/uses (GAAP Basis) 2,044,889 3,393,271 (1,348,382) Subtotal (GAAP Basis) 104,505,477 104,094,678 410,799 Recognize tax revenue on an accrual basis 132,632 - 132,632 Reverse expenditures of prior year appropriation carryforwards - (3,189,474) 3,189,474 Reclassify use of overlay 1,619,977 1,619,977 - Use of fund balance 4,539,300 - 4,539,300 Indirect costs from enterprise funds 1,142,454 1,142,454 - Add end-of-year appropriation carryforwards - 3,060,501 (3,060,501) Other reconciling items (58,392) (396,792) 338,400 Budgetary Basis $ 111,881,448 $ 106,331,344 $ 5,550,104

C. Deficits

Other than the General Fund, the City’s major funds (Building and Infrastruc- ture and Debt Service) had unassigned fund balance deficits of $7,416,134 and $3,305, respectively at June 30, 2017. These deficits will be funded through future issuance of debt and special assessments not yet due. The School Lunch nonmajor special revenue fund had an unassigned fund balance deficit of $15,753 at June 30, 2017, which will be funded through future user charges, intergovernmental reimbursements, and a General Fund subsidy.

A-69 3. Cash and Investments

A. Custodial Credit Risk

The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e. g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The City’s policy is to follow New Hampshire RSA 48:16 and 383:22. Under New Hampshire RSA 48:16, the City Treasurer shall deposit money in participation units in the public deposit investment pool established pursuant to RSA 383:22, or in federally insured banks chartered under the laws of New Hampshire or the federal government with a branch within the state, except that funds may be deposited in federally insured banks outside the state if such banks pledge and deliver to a third party custodial bank or the regional federal reserve bank collateral security for such deposits of the following types:

(a) United States government obligations; (b) United States government agency obligations; or (c) Obligations of the State of New Hampshire in value at least equal to the amount of the deposit in each case.

As of June 30, 2017, $1,168,757 of the City’s cash bank balance of $117,855,493 was exposed to custodial credit risk as uninsured or uncol- lateralized. The uninsured amount includes $795,736 invested in state pool, and $373,021 covered under a custodian’s errors and omissions policy.

The State Treasurer’s Investment Pool operates in accordance with appropriate state laws and regulations. The reported value of the pool is the same as the fair value of the pool shares.

At June 30, 2017, the City had the following investments:

Average Average Fair Effective Credit Value Duration Quality Investment Type Debt Securities: Bond Mutual Funds $ 3,660,208 4.2 A1 Other Investments: Equity Mutual Funds 11,435,852 N/A N/A Certificates of Deposits 47,064,395 N/A N/A Total $ 62,160,455

A-70 The City’s investments are exposed to custodial credit risk because the related securities are uninsured, unregistered and held by the City’s brokerage firm, which is also the counterparty to these securities. This risk is managed by the custodian’s errors and omissions policy and securities are held in a separately identifiable trust accounts.

B. Credit Risk

Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. State law employs the prudent person rule whereby investments are made as a prudent person would be expected to act, with discretion and intelligence, to seek reasonable income, preserve capital, and, in general, avoid speculative investments.

Under New Hampshire RSA 31:27, the city trustees of trust funds may establish, maintain and operate one or more common trust funds, in which may be combined money and property belonging to the various trusts in their care, for the purpose of facilitating investments, providing diversifi- cation and obtaining reasonable income; provided however, that said common trust funds shall be limited to the investments authorized in RSA 31:25; provided further, that not more than $10,000, or more than 10 percent of the fund whichever is greater of any City or city common trust funds shall be invested under RSA 31:25 in the obligations of any one corporation or organization, excepting deposits in any federally or state-chartered bank or association authorized to engage in a banking business in this state, in credit unions in this state, or in obligations of the United States and of the State of New Hampshire and its subdivisions; or in participation units in the public deposit investment pool established pursuant to RSA 383:22, or in shares of open-ended mutual funds selected by the trustees for investment under RSA 31:25.

The trustees are also required to report annually to the State attorney general any securities retained under the provisions of the statute.

C. Concentration of Credit Risk

The trustees of trust fund policy on the concentration of credit risk is to limit the amount that may be invested in any one issue to $15,000 or 10% of the value of the account whichever is greater. The City does not have a formal policy on the concentration of credit risk.

The City had the following investments in a single issuer which are greater than 5% of total investments:

Citizens Bank Certificate of Deposit $5,015,222 Century Bank Certificate of Deposit $40,270,020

A-71 SPDR S&P 500 ETF $4,100,928 Vanguard Dividend Appreciation ETF $4,689,103

D. Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The City does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.

E. Foreign Currency Risk

Foreign currency risk is the risk that changes in foreign exchange rates will adversely affect the fair value of an investment. The City’s policy limits investments to domestic securities.

F. Fair Value

The City categorizes its fair value measurements within the fair value hierarchy established by Governmental Accounting Standards Board Statement No. 72 Fair Value Measurement and Application (GASB 72). The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

The City has the following recurring fair value measurements as of June 30, 2017: Fair value measurements using: Quoted prices in active Significant Significant markets for observable unobservable identical assets inputs inputs Description (Level 1) (Level 2) (Level 3) Investments by fair value level: Debt securities: Ishares Barclays intermediate credit bond fund EFT $ 1,794,904 $ - $ 1,794,904 $ - Ishares tips bonds 246,370 - 246,370 - Ishares 1-3 year treasury bond 899,227 - 899,227 - Vanguard high-yield corporate ADM 719,707 - 719,707 - Equity mutual funds SPDR S&P 500 EFT 4,100,928 4,100,928 - - Vanguard dividend appreciation ETF 4,689,103 4,689,103 - - Invesco diversified dividend A 30,676 30,676 - - Vanguard FTSE 1,665,113 1,665,113 - - Vanguard emerging market EFT 950,032 950,032 - - Total $ 15,096,060

A-72 The City also holds $47,064,395 in certificates of deposits that are nonpar- ticipating interest-earning investment contracts and therefore uses the cost-based measurement for these investments.

4. Property Taxes Receivable

Property taxes were committed in October and were due in two installments, on December 12, 2016 and June 3, 2017. Taxes unpaid by December 13, 2016 and June 4, 2017 accrued interest at 12% until September 10, 2017. A tax lien was recorded on all properties with taxes unpaid as of September 10, 2017, at which time interest began accruing at 18%. The City may foreclose on properties two years after the lien date.

Property tax revenues are recognized in the fiscal year for which taxes have been levied to the extent that they become available, i.e., due or receivable within the current fiscal year and collected within the current period or within 60 days of year-end.

The City annually budgets an amount (overlay for abatements) for property tax abatements and refunds. All abatements and refunds are charged to overlay.

Taxes receivable at June 30, 2017 by levy year are comprised of:

Property Taxes: 2016 $ 1,638,929 Unredeemed Taxes: 2015 195,494 2014 108,544 Prior Years 124,374 Elderly Liens and Deferred Taxes 4,559 Total $ 2,071,900

5. User Fees Receivable

User fees receivable in water and sewer funds include amounts due from customers for water and sewer usage. User fees receivable are reported net of an allowance for doubtful accounts estimated at up to 100% of accounts receivable depending on the aging of the receivables. Water and sewer delinquent receivables are liened in a similar manner as property taxes, described in Note 4.

A-73 User fees receivable and related allowance for doubtful accounts at June 30, 2017 consist of the following:

Water Sewer Fund Fund Total Billed user fees $ 740,533 $ 921,229 $ 1,661,762 Unbilled at year end 857,759 1,358,011 2,215,770 Less: Allowance for doubtful accounts (147,264) (48,056) (195,320) Net Amount $ 1,451,028 $ 2,231,184 $ 3,682,212

6. Departmental and Other Receivables

Departmental and other receivables, as reported in the governmental funds, represent ambulance, police detail, and other receivables.

Police Ambulance Detail Other Total Gross receivable $ 1,675,304 $ 154,683 $ 328,571 $ 2,158,558 Less: Allowance for doubtful accounts (1,297,249) (26,919) - (1,324,168) Total $ 378,055 $ 127,764 $ 328,571 $ 834,390

7. Contribution Receivables

Contributions receivable, as reported in business-type funds represent agreements between the City and the contributors, for which the City has met its purpose restrictions requirements. Receivables at June 30, 2017 include the following: Water Sewer Fund Fund Total Capital contributions receivable $ 747,370 $ 616,308 $ 1,363,678 Contributions restricted for bonds payable - 487,644 487,644 Total $ 747,370 $ 1,103,952 $ 1,851,322

Contributions receivable at June 30, 2017 are due as follows:

Water Sewer Fund Fund Total Less than one year $ 423,270 $ 367,607 $ 790,877 One to five years 219,100 713,093 932,193 More than five years 105,000 23,252 128,252 Total $ 747,370 $ 1,103,952 $ 1,851,322

A-74 8. Intergovernmental Receivables

This balance represents reimbursements requested from Federal and State agencies for expenditures incurred in fiscal 2017.

9. Interfund Fund Receivables/Payables and Transfers

Although self-balancing funds are maintained, most transactions flow through the general fund. In order to obtain accountability for each fund, interfund receivable and payable accounts must be utilized. The following is an analysis of the June 30, 2017 balances in interfund receivable and payable accounts: Due From Due To Fund Other Funds Other Funds Governmental Funds: General fund $ 229,778 $ - Debt service fund - 3,320 Nonmajor Funds: Special Revenue Funds: School categorical revenues - 197,476 Police grants - 18,758 Swimming pool - 10,224 Total $ 229,778 $ 229,778

The balance due to general fund from police grants resulted from a short-term loan made to establish working capital. The balance due to general fund from the remaining special revenue funds result from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made.

The composition of advances to/from other funds (amounts considered to be long-term) as of June 30, 2017 is as follows:

Advances to Advances from Fund Other Funds Other Funds Governmental Funds: General fund $ 567,160 $ - Nonmajor Funds: Special Revenue Funds: City trust funds - 567,160 Total $ 567,160 $ 567,160

The advance from the General fund, to City trusts, represents a loan agreement signed in fiscal year 2015 for the replacement of the Prescott Park south dock system. The loan will be repaid by the marine maintenance trust.

A-75 The City reports interfund transfers between many of its funds. The sum of all transfers presented in the table agrees with the sum of interfund transfers presented in the governmental and proprietary fund financial statements. The following is an analysis of interfund transfers made in fiscal year 2017:

Governmental Funds: Transfers In Transfers Out General Fund $ 825,000 $ 3,393,271 Nonmajor Funds: Special Revenue Funds: Community development - 200,000 School lunch 132,951 - School categorical revenues 1,030,097 - Miscellaneous grants and contributions 688,916 - Conservation 521 - Swimming pool 150,000 175,000 Library 23,831 - Library trust - 13,066 City trust - 10,766 Capital Project Funds: School renovations - 650,000 Transportation management 200,000 - Transportation state - 80,343 Vehicle/equipment replacement 1,026,329 - Technology equipment 444,801 - Subtotal Nonmajor Funds 3,697,446 1,129,175 Grand Total $ 4,522,446 $ 4,522,446

The $825,000 transfer into the General fund, represents the repayment of funds loaned to the school renovations fund for Middle School repairs of $650,000, and the swimming pool fund of $175,000.

The majority of the transfers out of the General fund represent the City’s practice of funding capital with current year revenues, including the $1,026,329 transfer into vehicle/equipment replacement. The $444,801 transfer into technology equipment, and the $688,916 into the miscellaneous grants and contributions fund are for partial funding of the Woodbury turning lanes/signal upgrades project. The transfer of $1,030,097 to the school categorical revenues fund represents school department appropriations transferred for special education expenses.

Other transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) use unrestricted revenues collected in the general fund to finance various programs and accounted for in other funds in accordance with budgetary authorizations.

A-76 10. Capital Assets

Capital asset activity for the year ended June 30, 2017 was as follows (in thousands): Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets, being depreciated: Buildings $ 139,199 $ 11,505 $- $ 150,704 Improvements 4,134 - - 4,134 Infrastructure 80,671 2,649 (2,267) 81,053 Machinery and equipment 21,526 1,334 (1,307) 21,553 Total capital assets, being depreciated 245,530 15,488 (3,574) 257,444 Less accumulated depreciation for: Buildings (39,554) (3,015) - (42,569) Improvements (3,609) (102) - (3,711) Infrastructure (23,588) (2,867) 2,267 (24,188) Machinery and equipment (14,004) (1,453) 1,307 (14,150) Total accumulated depreciation (80,755) (7,437) 3,574 (84,618) Total capital assets, being depreciated, net 164,775 8,051 - 172,826 Capital assets, not being depreciated: Land 15,782 2,439 - 18,221 Construction in progress 10,257 10,363 (7,684) 12,936 Total capital assets, not being depreciated 26,039 12,802 (7,684) 31,157 Governmental activities capital assets, net $ 190,814 $ 20,853 $ (7,684) $ 203,983

Beginning Ending Balance Increases Decreases Balance Business-Type Activities: Capital assets, being depreciated: Buildings $ 37,156 $ - $ (92) $ 37,064 Improvements - 4 - 4 Infrastructure 87,493 1,371 (797) 88,067 Machinery and equipment 30,361 346 (182) 30,525 Total capital assets, being depreciated 155,010 1,721 (1,071) 155,660 Less accumulated depreciation for: Buildings (15,367) (818) 92 (16,093) Infrastructure (16,988) (1,620) 797 (17,811) Machinery and equipment (16,543) (1,352) 182 (17,713) Total accumulated depreciation (48,898) (3,790) 1,071 (51,617) Total capital assets, being depreciated, net 106,112 (2,069) - 104,043 Capital assets, not being depreciated: Land 2,526 345 - 2,871 Construction in progress 16,819 23,864 (1,245) 39,438 Total capital assets, not being depreciated 19,345 24,209 (1,245) 42,309 Business-type activities capital assets, net $ 125,457 $ 22,140$( 1,245) $ 146,352

A-77 Depreciation expense was charged to functions of the City as follows (in thousands):

Governmental Activities: General government $ 316 Public safety 625 Education 2,298 Public works 3,445 Culture and recreation 504 Community development 249 Total depreciation expense - governmental activities $ 7,437

Business-Type Activities: Water $ 1,737 Sewer 2,053 Total depreciation expense - business-type activities $ 3,790

11. Deferred Outflows of Resources

Deferred outflows of resources represent the consumption of net position by the City that is applicable to future reporting periods. Deferred outflows of resources have a positive effect on net position, similar to assets. Deferred outflows of resources related to pensions, in accordance with GASB Statement No. 68, Accounting and Financial Reporting for Pensions, are more fully discussed in Note 20.

12. Accounts Payable

Accounts payable represent additional 2017 expenditures paid after June 30, 2017.

13. Accrued Liabilities

Accrued liabilities represent a reserve for insurance claims and accrued payroll in governmental funds, and accrued payroll and accrued interest in business-type funds.

14. Tax Refunds Payable

This balance consists of an estimate of refunds due to property taxpayers for potential abatements pending with the state Board of Tax and Land Appeals and Superior Court.

A-78 15. Other Liabilities

This balance consists primarily of municipal escrow accounts, and various other miscellaneous liabilities.

16. Notes Payable

The City had notes payable during the year ended June 30, 2017 in the governmental funds and sewer enterprise fund.

The following are changes in notes payable for the year ended June 30, 2017: Interest Maturity Beginning Ending Rate Date Balance Additions Reductions Balance Parking Garage Land Acquisition and Construction Taxable BAN 1.20% 6/23/2017 $ 5,000,000 $ - $ (5,000,000) $ - Taxable BAN 1.50% 6/23/2017 2,000,000 - (2,000,000) - BAN 3.00% 6/22/2018 - 22,000,000 - 22,000,000 Total governmental activities 7,000,000 22,000,000 (7,000,000) 22,000,000 Water Pollution Control State Revolving Loan SRL 2.55% 6/1/2021 - 19,673,837 - 19,673,837 Total business-type activities - 19,673,837 - 19,673,837

Grand total notes payable $ 7,000,000 $ 41,673,837 $ (7,000,000) $ 41,673,837

17. Long-Term Debt

A. Long-Term Debt Supporting Activities

General obligation bonds and state revolving loans, issued by the City for various municipal improvements, are approved by the voters and repaid with property taxes recorded in the general fund and water and sewer charges recorded in the enterprise funds. The commerce way bond issued in fiscal year 2016 is being repaid by the Debt Service Fund, from special assessment revenues. These bonds are required to be fully paid within 20 years from the date of issue and are backed by the full faith and credit of the City. The City’s borrowing capacity is restrained by State law.

Compensated absences, net pension liability, and net OPEB obligation are repaid from the funds that the costs relate to, mostly general, water, and sewer funds.

A-79 B. General Obligation Bonds and State Revolving Loans

General obligation bonds and state revolving loans have been issued for both governmental and business-type activities. General obligation bonds and state revolving loans currently outstanding are as follows: Amount Serial Outstanding Original Maturities Interest as of Governmental Activities: Issue Through Rate(s) % 6/30/17 Coakley Landfill $ 3,605,774 08/01/18 0.85 $ 360,577 Coakley Landfill OU2 652,330 07/01/19 1.02 97,850 Streets, Sidewalks, Bridges 2008 2,500,000 06/15/18 3.71 250,000 School Improvements 2008 500,000 06/15/18 3.71 50,000 Fire Station 2 3,650,000 06/15/28 3.98 182,000 Purchase of Land for Fire Station 2 1,300,000 06/15/28 3.98 61,000 Capital Improvements 2009 Fire Station 2 1,500,000 01/15/29 3.76 150,000 Capital Improvements 2009 3,500,000 01/15/19 3.76 700,000 Capital Improvements 2010 1,800,000 05/15/20 3.27 540,000 School Improvements 2010 500,000 05/15/20 3.27 150,000 Middle School Construction 15,000,000 05/15/30 3.27 9,750,000 Middle School Construction 22,500,000 12/01/31 2.68 16,875,000 Capital Improvements 2011 6,400,000 12/01/21 2.68 3,200,000 Refunding High School 17,325,000 09/15/22 1.40 10,105,000 Streets Sidewalks, Bridge 2013 2,267,000 06/15/23 2.38 1,350,000 School Improvements 2013 500,000 06/15/23 2.38 300,000 Facilities, Streets and Sidewalks 2014 5,750,000 06/01/24 1.78 4,025,000 Middle School Construction 3,300,000 06/01/34 2.87 2,805,000 School Energy Efficiency Improvements 345,000 10/21/17 2.09 127,635 Capital Improvements 2015 3,475,000 06/30/25 2.10 2,775,000 School Facility Improvements 2015 750,000 06/30/25 2.10 600,000 Refunding Library 2015 3,335,000 08/01/25 2.09 2,985,000 Streets, Sidewalks, Bridge 2016 6,100,000 06/15/26 1.87 5,490,000 Fire Apparatus 2016 523,290 06/15/21 1.87 415,000 School Facilities 2016 500,000 05/15/26 1.87 450,000 Little Harbour School Facility Improvement 2016 5,000,000 05/15/26 1.87 4,750,000 Commerce Way 2016 1,524,710 05/15/26 1.87 1,390,000 Refunding Fire Station 2 Construction and Land 2,332,000 05/15/26 1.87 2,332,000 Refunding Fire Station 2 Improvements 708,500 01/15/29 1.57 708,500 Elementary School Facilities 2017 5,000,000 06/15/37 2.56 5,000,000 Street, Sidewalks, Facilities 2017 6,850,000 06/15/27 1.63 6,850,000 Fire Apparatus 2017 400,000 06/15/22 1.26 400,000 Fire Station 3 Improvements 2017 610,000 06/15/27 1.63 610,000 Total Governmental Activities $ 85,834,562

A-80 Amount Serial Outstanding Original Maturities Interest as of Business-Type Activities:IssueThrough Rate(s) % 6/30/17 Water: Upgrade to Motor Control $ 300,000 01/01/22 3.98 $ 75,000 Corrosion Control Program 288,000 01/01/22 3.80 72,000 Constitution Avenue 4,800,000 01/01/22 3.70 1,440,000 Spinney Tank 1,162,560 12/01/22 3.73 348,768 Madbury WTP Design 2,000,000 06/01/28 2.49 1,100,000 Water Treatment Plant 16,000,000 01/15/29 3.94 1,685,000 Madbury WTP 5,000,000 06/01/32 2.72 3,750,000 Hobb's Hill Water Tank 3,500,000 06/01/34 2.87 2,975,000 Greenland Well & Water Line 4,800,000 06/15/35 2.99 4,320,000 Water System Pressure and Storage 4,100,000 06/15/36 1.87 3,895,000 Refunding Madbury Plant 7,921,500 01/15/29 1.57 7,921,500 Water Line Replacement and Storage 2,250,000 06/15/37 2.55 2,250,000 Sewer: Waste Water Treatment Plant Pease 6,586,836 03/01/20 1.02 964,352 Sewer Projects Phase I 4,931,361 08/01/21 1.36 1,232,840 Sewer Projects Phase II 8,898,110 12/01/24 1.87 3,559,244 Lower Court Utilities Upgrade 688,563 07/01/27 2.38 378,709 Phase III Sewer 5,508,137 12/01/27 2.38 3,029,474 Sewer-Rye Line Pump Station 1,069,714 11/01/29 2.58 695,314 Sewer-201 Facility Study 1,000,000 01/01/30 2.58 650,000 Bartlett Street 5,290,233 01/01/31 2.62 3,703,163 Sewer PIWWTP 3,000,000 01/01/31 2.68 2,250,000 Sewer WWTP - Plant 8,000,000 09/15/12 2.31 6,000,000 State St Utilities Upgrade 1,500,433 09/01/21 1.36 750,217 Lincoln 3C 3,929,000 06/15/33 2.38 3,125,000 Lincoln Separation 5,595,874 06/01/33 3.35 4,476,699 Pierce Island WWTP 10,000,000 06/01/34 2.87 8,500,000 Pease WWTP 2014 3,500,000 06/01/34 2.87 2,975,000 Pease WWTP 2015 1,000,000 06/15/35 2.99 900,000 Lafayette Pumping Station 4,000,000 06/15/36 1.87 3,750,000 Sewer Line and Pump Station 900,000 06/15/27 1.63 900,000 Pumping Station 2,500,000 06/15/37 2.56 2,500,000 Total Business-Type Activities $ 80,172,280

A-81 C. Future Debt Service

The annual payments to retire all general obligation long-term debt outstanding as of June 30, 2017 are as follows:

Governmental Principal Interest Total 2018 $ 9,805,540 $ 3,151,805 $ 12,957,345 2019 9,337,905 2,804,132 12,142,037 2020 8,792,617 2,463,616 11,256,233 2021 8,520,000 2,095,359 10,615,359 2022 8,390,000 1,758,709 10,148,709 2023 - 2027 26,850,000 4,923,863 31,773,863 2028 - 2032 11,558,500 1,437,614 12,996,114 2033 - 2037 2,580,000 212,613 2,792,613 Total $ 85,834,562 $ 18,847,711 $ 104,682,273

Business-Type Principal Interest Total 2018 $ 6,318,121 $ 2,661,474 $ 8,979,595 2019 6,308,121 2,451,094 8,759,215 2020 6,263,121 2,256,911 8,520,032 2021 5,941,671 2,053,129 7,994,800 2022 5,941,671 1,865,625 7,807,296 2023 - 2027 25,380,974 6,425,920 31,806,894 2028 - 2032 18,378,807 2,593,298 20,972,105 2033 - 2037 5,639,794 393,612 6,033,406 Total $ 80,172,280 $ 20,701,063 $ 100,873,343

D. Bond Authorizations/Unissued

Long-term debt authorizations which have not been issued or rescinded as of June 30, 2017 are as follows:

Purpose Amount Governmental activities: Coakley landfill $ 4,641,897 Deer St. parking facility 23,200,000 School facilities 5,000,000 Subtotal governmental 32,841,897 Business-type activities: Pierce Island wastewater treatment facility upgrade 75,000,000 Subtotal business-type 75,000,000 Total Bond Authorizations/unissued $ 107,841,897

A-82 E. Changes in General Long-Term Liabilities

During the year ended June 30, 2017, the following changes occurred in long-term liabilities (in thousands): Equals Total Total Less Long-Term BalanceBalance Current Portion 7/1/16 Additions Reductions 6/30/17 Portion 6/30/17 Governmental Activities General obligation bonds $ 81,756 $ 12,860 $ (9,240) $ 85,376 $ (9,593) $ 75,783 Unamortized premium 7,455 1,220 (728) 7,947 (840) 7,107 Subtotal 89,211 14,080 (9,968) 93,323 (10,433) 82,890 State revolving loans 671 - (213) 458 (213) 245 Net pension liability 70,468 24,112 - 94,580 - 94,580 Net OPEB obligation 5,393 1,363 (506) 6,250 - 6,250 Other: Landfill closure 1,440 - - 1,440 - 1,440 Accrued employee benefits 6,115 541 (448) 6,208 (745) 5,463 Subtotal 7,555 541 (448) 7,648 (745) 6,903 Totals $ 173,298 $ 40,096 $ (11,135) $ 202,259 $ (11,391) $ 190,868

Equals Total Less Long-Term Balance Balance Current Portion 7/1/16 Additions Reductions 6/30/17 Portion 6/30/17 Business-Type Activities General obligation bonds $ 51,487 $ 5,650 $ (3,190) $ 53,947 $ (3,520) $ 50,427 Unamortized premium 4,856 376 (332) 4,900 (356) 4,544 Subtotal 56,343 6,026 (3,522) 58,847 (3,876) 54,971 State revolving loans 29,024 - (2,798) 26,226 (2,798) 23,428 Net pension liability 3,256 1,101 - 4,357 - 4,357 Net OPEB obligation 315 56 (21) 350 - 350 Other: Accrued employee benefits 596 109 (87) 618 (49) 569 Totals $ 89,534 $ 7,292 $ (6,428) $ 90,398 $ (6,723) $ 83,675

F. Prior Year Defeasance of Debt

In fiscal year 2016, certain outstanding bonds were defeased by placing proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust accounts and the defeased bonds are not included in the financial statements.

Defeased debt still outstanding at June 30, 2017 was $12,419,785.

A-83 18. Deferred Inflows of Resources

Deferred inflows of resources are the acquisition of net position by the City that are applicable to future reporting periods. Deferred inflows of resources have a negative effect on net position, similar to liabilities. The City reports three items as deferred inflows of resources: one which is attributable to the changes in the net pension liability, and the other two which arise from the current financial resources measurement focus and the modified accrual basis of accounting in governmental funds. Deferred inflows of resources related to pension will be recognized in pension expense in future years and are more fully described in Note 20.

Unavailable revenues are reported in the governmental funds balance sheet in connection with receivables for which revenues are not considered available to liquidate liabilities of the current year.

19. Governmental Funds - Balances

Fund balances are segregated to account for resources that are either not available for expenditure in the future or are legally set aside for a specific future use.

The following types of fund balances are reported at June 30, 2017:

Nonspendable - This fund balance classification includes an offset for inventory, advances to other funds, and reserves for the principal portion of permanent trust funds.

Restricted - This fund balance classification includes various special revenue funds, capital project balances funded by bond issuances and grants, and the income portion of permanent trust funds.

Committed - This fund balance classification includes General Fund capital reserve funds set aside by City Council vote for future debt payments, health insurance costs, future tax abatements, capital acquisitions and improvements, subsequent year’s use of fund balance, and amounts used from operations for capital per City Council resolutions.

Assigned - This fund balance classification includes General Fund surplus balances that management assigns for specific purposes with City Council approval.

Unassigned - This fund balance classification includes General Fund available balance and other funds’ temporary fund balance deficits.

A-84 The following types of fund balances are reported at June 30, 2017:

Building and Debt Nonmajor Total General Infrastructure Service Governmental Governmental Fund Fund Fund Funds Funds Nonspendable Advance to other funds $ 567,160 $ - $ - $ - $ 567,160 Inventory - - - 47,355 47,355 Nonexpendable permanent funds - - - 1,633,062 1,633,062 Total Nonspendable 567,160 - - 1,680,417 2,247,577 Restricted Bonded projects and capital contributions - 6,624,068 - 10,169,183 16,793,251 Community development - - - 1,662,509 1,662,509 Education - - - 508,013 508,013 Police and fire - - - 607,431 607,431 Public works improvements - - - 1,007,940 1,007,940 US route 1 and constitution ave expansion - - - 500,000 500,000 Woodbury ave turning lane and signals - - - 855,831 855,831 Ocean road improvements - - - 500,000 500,000 Parking and transportation - - - 4,993,478 4,993,478 Portwalk place services and repairs - - - 82,785 82,785 Conservation - - - 1,219,034 1,219,034 Recreation - - - 619,816 619,816 Human resources - - - 5,679 5,679 Legal - - - 70,425 70,425 Planning - - - 49,658 49,658 Library - - - 25,879 25,879 Trusts for education and recreation - - - 2,242,682 2,242,682 Expendable permanent funds - - - 6,039,106 6,039,106 Total Restricted - 6,624,068 - 31,159,449 37,783,517 Committed Debt service 14,531,863 - - - 14,531,863 Health insurance 8,064,645 - - - 8,064,645 Tax appraisal 1,431,074 - - - 1,431,074 Compensated absences 1,689,179 - - - 1,689,179 Claremont coalition 628,180 - - - 628,180 Coakley landfill 619,644 - - - 619,644 Capital - 1,301,220 - 1,428,415 2,729,635 Total Committed 26,964,585 1,301,220 - 1,428,415 29,694,220 Assigned Encumbered for: Finance 75,538 - - - 75,538 Human resources 22,000 - - - 22,000 Planning 95,826 - - - 95,826 Legal 63,519 - - - 63,519 Police 246,509 - - - 246,509 Fire 75,727 - - - 75,727 Education 87,781 - - - 87,781 Public works 505,322 - - - 505,322 Recreation 51,080 - - - 51,080 Capital 6,054,800 - - - 6,054,800 Health and senior services 3,630 - - - 3,630 Contingency 771,034 - - - 771,034 General administration 157,801 - - - 157,801 Landfill monitoring 212,271 - - - 212,271 Revaluation 67,365 - - - 67,365 IT upgrades and replacements 264,457 - - - 264,457 Use of unassigned fund balance for FY18 231,000 - - - 231,000 Total Assigned 8,985,660 - - - 8,985,660 Unassigned 14,505,641 (7,416,134) (3,305) (15,753) 7,070,449 Total Fund Balance $ 51,023,046 $ 509,154 $ (3,305) $ 34,252,528 $ 85,781,423

A-85 20. Retirement System

The City follows the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, with respect to the State of New Hampshire Retirement System (NHRS).

A. Plan Description

Full-time employees participate in the New Hampshire Retirement System (NHRS), a cost-sharing, multiple-employer defined benefit contributory pension plan and trust established in 1967 by RSA 100-A:2 and qualified as a tax-exempt organization under Sections 401(a) and 501(a) of the Internal Revenue Code. The plan is a contributory, defined benefit plan providing service, disability, death, and vested retirement benefits to members and their beneficiaries. Substantially all full-time state employees, public school teachers and administrators, permanent firefighters, and permanent police officers within the State of New Hampshire are eligible and required to participate in the system. Full-time employees of political subdivisions, including counties, municipalities, and school districts, are also eligible to participate as a group if the governing body of the political subdivision has elected participation.

The New Hampshire Retirement System, a Public Employees Retirement System (PERS), is divided into two membership groups. State or local employees and teachers belong to Group I. Police officers and firefighters belong to Group II. All assets are held in a single trust and are available to each group. Additional information is disclosed in the NHRS annual report publicly available from the New Hampshire Retirement System located at 54 Regional Drive, Concord, New Hampshire 03301-8507.

B. Benefits Provided

Group I members at age 60 or 65 (for members who commence service after July 1, 2011) qualify for a normal service retirement allowance based on years of creditable service and average final salary for the highest of either three or five years, depending on when their service commenced. The yearly pension amount is 1/60 or 1.667% of average final compensation (AFC), multiplied by years of creditable service. At age 65, the yearly pension amount is recalculated at 1/66 or 1.515% of AFC multiplied by years of creditable service.

Group II members who are age 60, or members who are at least age 45 with at least 20 years of creditable service, can receive a retirement allowance at a rate of 2.5% of AFC for each year of creditable service, not to exceed 40 years. Members commencing service on or after July 1, 2011 or members who have a nonvested status as of January 1, 2012 can receive a retirement allowance at age 52.5 with 25 years of service or age 60. The benefit shall be equal to 2% of AFC times creditable service

A-86 up to 42.5 years. However, a member who commenced service on or after July 1, 2011 shall not receive a retirement allowance until attaining the age of 52.5, but may receive a reduced allowance after age 50 if the member has at least 25 years of creditable service where the allowance shall be reduced, for each month by which the benefit commencement date precedes the month after which the member attains 52.5 years of age by ¼ of 1% or age 60.

Members of both groups may qualify for vested deferred allowances, disability allowances and death benefit allowances subject to meeting various eligibility requirements. Benefits are based on AFC or earned compensation and/or service.

C. Contributions

Plan members are required to contribute a percentage of their gross earnings to the pension plan, which the contribution rates are 7% for employees and teachers 11.55% for police and 11.80% for fire. The City makes annual contributions to the pension plan equal to the amount required by Revised Statutes Annotated 100-A:16, and range from 10.86% to 25.32% of covered compensation. The City’s contributions to NHRS for the year ended June 30, 2017 was $6,662,274, which was equal to its annual required contribution.

D. Summary of Significant Accounting Policies

For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the NHRS and additions to/deductions from NHRS’ fiduciary net position have been determined on the same basis as they are reported by NHRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with benefit terms. Investments are reported at fair value.

E. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

At June 30, 2017, the City reported a liability of $98,937,024 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2016. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. At June 30, 2017, the City’s proportion was 1.86 percent, which was the same as its previous year proportion.

A-87 For the year ended June 30, 2017, the City recognized pension expense of $7,864,015. In addition, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Contributions subsequent to measurement date $ 7,864,014 $ - Changes in proportion and differences between employer contributions and share of contributions 1,199,677 130,804 Difference between expected and actual experience 274,945 1,249,329 Net difference between projected and actual investment earnings 6,190,009 - Changes in assumption 12,176,003 - Total $ 27,704,648 $ 1,380,133

Deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date will be recognized in pension expense in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Deferred Outflows/(Inflows) Year ended June 30: of Resources 2018 $ 3,771,101 2019 3,771,101 2020 5,934,178 2021 4,755,218 2022 228,903 Total $ 18,460,501

F. Actuarial Assumptions

The total pension liability in the June 30, 2016 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Inflation 2.5 percent per year Salary increases 5.6 percent average, including inflation Investment rate of return 7.25 percent, net of pension plan investment expense, including inflation

A-88 Mortality rates were based on the RP-2014 employee generational mortality tables for males and females, adjusted for mortality improvements using Scale MP-2015, based on the last experience study.

The actuarial assumptions used in the June 30, 2016 valuation were based on the results of the most recent actuarial experience study, which was for the period July 1, 2010 to June 30, 2015.

The long-term expected rate of return on pension plan investments was selected from a best estimate range determined using the building block approach. Under this method, an expected future real return range is calculated separately for each asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return net of investment expenses by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major class are summarized in the following table: Weighted Average Average Long- Target Term Expected Allocation Real Rate of Asset Class Percentage Return Large Cap Equities 22.50 % 4.25% Small/Mid Cap Equities 7.50 4.50% Total domestic equities 30.00

Int'l Equities (unhedged) 13.00 4.75% Emerging Int'l Equities 7.00 6.25% Total international equities 20.00

Core Bonds 5.00 0.64% Short Duration 2.00 -0.25% Global Multi-Sector Fixed Income 11.00 1.71% Absolute Return Fixed Income 7.00 1.08% Total fixed income 25.00

Private equity 5.00 6.25% Private debt 5.00 4.75% Opportunistic 5.00 3.68% Total alternative investments Real estate 10.00 3.25% Total alternative investments 25.00 Total 100.00 %

A-89 G. Discount Rate

The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that the plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. For purposes of the projection, member contributions and employer service cost contributions are projected based on the expected payroll of current members only. Employer contributions are determined based on the pension plan’s actuarial funding policy and as required by RSA 100-A:16. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

H. Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate

The following presents the City’s proportionate share of the net pension liability calculated using the discount rate of 7.25 percent, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (6.25%) or 1 percentage-point higher (8.25%) than the current rate:

Current 1% Decrease Discount Rate 1% Increase Fiscal Year Ended (6.25%) (7.25%) (8.25%) June 30, 2017 $ 127,127,335 $ 98,937,024 $ 75,557,628

I. Pension Plan Fiduciary Net Position

Detailed information about the pension plan’s fiduciary net position is available in the separately issued NHRS financial report.

21. Post-Employment Healthcare and Life Insurance Benefits

GASB Statement 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions, requires governments to account for other post-employment benefits (OPEB), primarily healthcare, on an accrual basis rather than on a pay-as-you-go basis. The effect is the recognition of an actuarially required contribution as an expense on the State- ment of Activities when a future retiree earns their post-employment benefits, rather than when they use their post-employment benefit. To the extent that an entity does not fund their actuarially required contribution, a post-employment benefit liability is recognized on the Statement of Net Position over time.

A-90 A. Plan Description

In addition to providing the pension benefits described, the City provides post-employment healthcare and life insurance benefits for retired employees through the City’s single employer defined benefit plan. The benefits, benefit levels, employee contributions and employer contributions are governed by RSA 100-A:50. As of June 30, 2017, the actuarial valuation date, approximately 60 retirees and 699 active employees meet the eligibility requirements. The plan does not issue a separate financial report.

B. Benefits Provided

The City provides medical, prescription drug, mental health/substance abuse and life insurance to retirees and their covered dependents. All active employees who retire from the City and meet the eligibility criteria will receive these benefits.

C. Funding Policy

Retirees contribute 100% of the cost of the health plan, as determined by the City. The City contributes the remainder of the health plan costs on a pay- as-you-go basis.

D. Annual OPEB Costs and Net OPEB Obligation

The City’s fiscal 2017 annual OPEB expense is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost per year and amortize the unfunded actuarial liability over a period of thirty years. The following table shows the components of the City’s annual OPEB cost for the year ending June 30, 2017, the amount actually contributed to the plan, and the change in the City’s net OPEB obligation based on an actuarial valuation as of June 30, 2017. Annual Required Contribution (ARC $ 1,405,021 Interest on net OPEB obligation 256,861 Adjustment to ARC (243,295) Annual OPEB cost 1,418,587 Contributions made (527,195) Increase in net OPEB obligation 891,392 Net OPEB obligation - beginning of year 5,708,033 Net OPEB obligation - end of year $ 6,599,425

A-91 The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation were as follows:

Percentage of Annual OPEB OPEB Cost Net OPEB Fiscal Year Ended Cost Contributed Obligation 2017$ 1,418,587 37.2%$ 6,599,425 2016$ 1,547,662 39.0%$ 5,708,033 2015$ 1,547,662 39.0%$ 4,763,552 2014$ 1,702,453 52.2%$ 3,819,072 2013$ 1,702,453 52.2%$ 3,005,989 2012$ 1,493,990 58.4%$ 2,192,906 2011$ 1,493,990 58.4%$ 1,571,921

E. Funded Status and Funding Progress

The funded status of the plan as of June 30, 2017, the date of the most recent actuarial valuation was as follows:

Actuarial accrued liability (AAL) $ 14,015,797 Actuarial value of plan assets - Unfunded actuarial accrued liability (UAAL) $ 14,015,797 Funded ratio (actuarial value of plan assets/AAL) 0% Covered payroll (active plan members) $ 43,981,815 UAAL as a percentage of covered payroll 31.9%

Actuarial valuations of an ongoing plan involve estimates of the value of reported amount and assumptions about the probability of occurrence of events far into the future. Examples included assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of OPEB Funding Progress, presented as required supplementary information following the Notes to Financial State- ments, presents multiyear trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

F. Actuarial Methods and Assumptions

Projections of benefits for financial reporting purposes are based on the plan as understood by the City and the plan members and include the types of benefits provided at the time of each valuation and the historical

A-92 pattern of sharing of benefit costs between the City and plan members to that point. The actuarial methods and assumptions used include tech- niques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the June 30, 2017 actuarial valuation, the projected unit credit cost method was used. The actuarial value of assets was not determined as the City has not advance funded its obligation. The actuarial assumptions included a 4.5% investment rate of return and an initial annual healthcare cost trend rate of 9% which decreases to a 5% long-term rate for all healthcare benefits after ten years. The amortization costs for the initial UAAL is a level percentage of payroll for a period of 30 years, on an opened group basis. This has been calculated assuming the amortization payment increases at an inflation rate of 3.0%.

22. Commitments and Contingencies

Grants - Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount of expenditures which may be disallowed by the grantor cannot be determined at this time, although the City expects such amounts, if any, to be immaterial.

Coakley Landfill – For the period 1972 through 1982, the Coakley Landfill site, located in North Hampton, New Hampshire, served as the municipal refuse disposal site for the City of Portsmouth and for the Towns of North Hampton, New Castle, and Pease Air Force Base. In December 1984, the City was advised by the State of New Hampshire that the City was considered to be a Potentially Responsible Party (PRP) under the provisions of the Comprehen- sive Environmental Response, Compensation and Liability Act (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986, for contamination conditions which exist at the site.

In December 1992, a total of 27 responsible parties, including the City, entered into a Consent Decree (Decree) with the United States Environmental Protec- tion Agency (EPA). The Decree commits the City to expend a significant amount as its share of the costs to remedy conditions at the site and to monitor and maintain the site once the remedial steps have been completed. The Decree estimated the total cost of the cleanup to be approximately $22 million, with the City’s share of these costs estimated to be approximately $8.9 million, to be contributed over a number of years as needed by the project. Liability amongst the responsible parties is joint and several and is in no way limited by the estimate in the Decree. Should one of the responsible parties default on its obligations, the remaining parties will assume the liability for the defaulting party.

A-93 In December 1991, the City Council authorized the issuance of $8.9 million in bonds to pay for the costs of the project. To date, the City has borrowed $4,258,103 from the State Revolving Loan Fund against this authorization. The City is receiving state aid payments in connection with the project in the total amount of $493,644 payable over the life of the loan. The City awaits a final determination of the City’s remaining liability and has $4,641,897 remaining in the bond authority to pay its liability, if necessary.

Wastewater Treatment Facility – The City of Portsmouth is obligated under a consent Decree with the Environmental Protection Agency (EPA) and New Hampshire Department of Environmental Services (DES) to complete construction of an upgraded wastewater treatment facility and achieve secondary treatment permit limits by May 2017. Construction commenced in September 2016 and substantial completion is anticipated in May 2020. The City’s request for a schedule extension has been agreed to by Federal and State regulators and approved by the U.S. District Court for the District of New Hampshire. Bond authorization for up to $75 million was approved for the construction effort.

Greenleaf Avenue Realty Trust – Between 1995 and 1997 the City constructed a sewer line across property of the State of New Hampshire located off the Route 1 By-pass. The State had given the City permission, but no formal easement was ever recorded. In 2003, after passing through several owners, the property came to be owned by 150 Greenleaf Avenue Realty Trust. In 2010, 150 Greenleaf Avenue Realty Trust commenced a legal action against the City of Portsmouth with multiple claims sounding in trespass, nuisance, and inverse condemnation related to the construction of a municipal sewer line across the property in the late 1960s and the alleged unlawful detention of water on the property. In February 2017, a New Hampshire Superior Court jury awarded Mr. Boyle $3.57 million on his various claims, the sole damages for which were lost profits. The City has vigorously contested many issues throughout the course of litigation including those related to the applicability and calculation of lost profits.

Subsequent to the jury’s verdict, both parties filed post-trial motions which would set aside or alter the verdict. The Trial Court judge has yet to rule on a number of those motions including ones which would substantially change or set aside the jury verdict. Regardless of the Trial Court’s ultimate rulings on the post-trial motions, both parties anticipate an appeal to the New Hampshire Supreme Court. The City stands a reasonable likelihood of success on one or more of the issues likely to be appealed and consequently it is more likely than not that the verdict will be either eliminated or reduced to an immaterial amount. This litigation is likely to take several more years to resolve.

Separate from but related to the Greenleaf Avenue Realty Trust Litigation, the City of Portsmouth took by eminent domain a portion of the property at 150 Greenleaf Ave in order to acquire the rights to maintain the sewer line, detain water for stormwater purposes, and protect wetlands. The owner has

A-94 contested the City’s right to take that action and contested the amount offered for compensation. That litigation is likely to take several years to resolve.

Other legal matters – In addition to the above, there are various suits pending in courts within the State in which the City is a defendant. In the opinion of Counsel for the City, no litigation is pending, or to his knowledge, threatened, which is likely to result, either individually or in the aggregate, in final judgements against the City that would materially affect its financial position.

23. Implementation of New GASB Standard

The Governmental Accounting Standards Board (GASB) has issued State- ment No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, replacing requirements of Statements No. 45 and 57, effective for the City beginning with its year ending June 30, 2018. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. In addition, this Statement details the recognition and disclosure requirements for employers with payables to defined benefit OPEB plans that are administered through trusts that meet the specific criteria and for employers whose employees are provided with defined contribution OPEB.

A-95 CITY OF PORTSMOUTH, NEW HAMPSHIRE

SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2017 (Unaudited)

New Hampshire Retirement System Proportion Proportionate of the Share of the Proportionate Share of the Plan Fiduciary Net Position Fiscal Measurement Net Pension Net Pension Net Pension Liability as a Percentage of the Total Year Date Liability Liability Covered Payroll Percentage of Covered Payroll Pension Liability June 30, 2017 June 30, 2016 1.86% $98,937,024$ 46,508,941 212.73% 58.30% June 30, 2016 June 30, 2015 1.86% $73,723,357$ 45,846,939 160.80% 65.47% June 30, 2015 June 30, 2014 1.84% $68,991,223$ 43,883,269 157.22% 66.32%

Schedules are intended to show information for 10 years. Additional years will be displayed as they become available.

See Independent Auditors' Report.

A-96 CITY OF PORTSMOUTH, NEW HAMPSHIRE

SCHEDULE OF PENSION CONTRIBUTIONS REQUIRED SUPPLEMENTARY INFORMATION JUNE 30, 2017 (Unaudited)

New Hampshire Retirement System Contributions in Relation to the Contractually Contractually Contribution Contributions as Fiscal Required Required Deficiency Covered a Percentage of Year Contribution Contribution (Excess) Payroll Covered Payroll June 30, 2017 $ 6,662,274 $ 6,662,274 $ - $ 46,508,941 14.3% June 30, 2016 $ 6,243,379 $ 6,243,379 $ - $ 45,846,939 13.6% June 30, 2015 $ 5,962,925 $ 5,962,925 $ - $ 43,883,269 13.6%

Schedules are intended to show information for 10 years. Additional years will be displayed as they become available.

See Independent Auditors' Report.

A-97 CITY OF PORTSMOUTH, NEW HAMPSHIRE SCHEDULE OF OPEB FUNDING PROGRESS REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 (Unaudited)

Other Post-Employment Benefits Actuarial Accrued UAAL as Liability a Percent- Actuarial (AAL) - Unfunded age of Actuarial Value of Projected AAL Funded Covered Covered Valuation Assets Unit Credit (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) [(b-a)/c] 06/30/17$ - $ 14,015,797 $ 14,015,797 0.0%$ 43,981,815 31.9% 06/30/15$ - $ 14,833,362 $ 14,833,362 0.0%$ 42,543,250 34.9% 06/30/13$ - $ 16,485,101 $ 16,485,101 0.0%$ 35,783,000 46.1% 06/30/11$ - $ 14,476,591 $ 14,476,591 0.0%$ 37,748,418 38.4% 06/30/09$ - $ 15,064,283 $ 15,064,283 0.0%$ 35,619,012 42.3%

See Independent Auditors' Report.

A-98 Combining Financial Statements

A-99 NON-MAJOR GOVERNMENTAL FUNDS

SPECIAL REVENUE FUNDS

Special Revenue Funds are established to account for resources obtained and expended for specified purposes and restricted by law or local action.

Special Revenue Funds are established for the following purposes:

 Community Development: to account for the use of Community Development Block Grant Funds as received from the federal government through the New Hampshire Office of State Planning. Current grants are mainly designed for City of Portsmouth economic development, housing rehabilitation, public service, and public facilities.  School Lunch: to account for local funds and funds received from the federal and state governments to provide lunches at City of Portsmouth schools.  School Categorical Revenues: to account for funds received from the federal and state governments for special programs and projects at City of Portsmouth schools.  Miscellaneous Grants and Contributions: to account for the various other funds of the City designated for specific purposes.  Police Grants: to account for federal and State grants for the Police Department.  Seizure: to account for Federal Equitable Sharing program funds received from seized funds and equipment.  Parking and Transportation: to account for operations of the City’s parking facility, parking enforcement, parking meter operations and parking administration funded by funds generated from these parking activities.  Portwalk Place: to account for public works services, private street maintenance, parking enforcement services and reserve for future repair and maintenance costs of the private street.  Housing Subsidy: to account for housing subsidy grants to provide assistance to first time homebuyers.  Conservation: to account for Land Use Change Tax dedicated for the acquisition or preservation of open space.  Unmet Parking Needs: to account for fees collected for unmet parking needs to be used within the Central Business District for transportation related improvements.  Recreation: to account for fees collected for sports and other recreational activities and related expenditures.

A-100  Swimming Pool: to account for operations of the Portsmouth indoor swimming pool.  Library: to account for certain revenues, including equipment fees and donations and related expenditures incurred in operation of this public library located at 175 Parrott Avenue.  Library Trust: to account for expendable gifts received by the Library.  City Trust: to account for the various expendable portions of the City’s trusts.

CAPITAL PROJECT FUNDS

Capital Project Funds are established to account for resources obtained and expended for the acquisition of major capital facilities or equipment other than those employed in the delivery of services accounted for in Enterprise Funds.

The current funds were established for the following purposes:

 School Renovations: to fund Middle School renovation costs.  Transportation Management: to fund transportation management projects.  Transportation State: to account for transportation projects funded both by City and State funds and as where the City manages the project.  Vehicle/Equipment Replacement: to fund purchases of vehicles and equipment.  Technology Equipment: to fund purchases of technology equipment.

PERMANENT FUNDS

Permanent Funds are established to account for certain assets held by the City in a fiduciary capacity as trustee. The following is a description of City Permanent Funds:

 City Trust: to account for various bequests to the City designated for particular purposes.  Library Trust: to account for nonexpendable gifts received by the library with income restricted for maintenance of the library grounds.

A-101 CITY OF PORTSMOUTH, NEW HAMPSHIRE

Combining Balance Sheet

Nonmajor Governmental Funds

June 30, 2017

Special Revenue Funds School Miscellaneous Community School Categorical Grants and Development Lunch Revenues Contributions

ASSETS

Cash and short-term investments $ 1,091,925 $ 57,745 $ - $ 4,181,545 Investments - - - - Receivables: Departmental and other - 60,551 - 52,715 Intergovernmental - - 711,257 46,812 Loans and interest 968,264 - - 15,089 Inventory - 47,355 - -

TOTAL ASSETS $ 2,060,189 $ 165,651 $ 711,257 $ 4,296,161

LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES

Liabilities: Accounts payable $ 501 $ - $ - $ 53,740 Accrued liabilities 1,722 - 5,768 1,335 Unearned revenue - 134,049 - - Retainage payable - - - - Due to other funds - - 197,476 - Advances from other funds - - - -

TOTAL LIABILITIES 2,223 134,049 203,244 55,075

Deferred Inflows of Resources: Unavailable revenues 941,439 - - 15,089

Fund Balances: Nonspendable - 47,355 - - Restricted 1,116,527 - 508,013 4,225,997 Committed - - - - Unassigned - (15,753) - -

TOTAL FUND BALANCES 1,116,527 31,602 508,013 4,225,997

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 2,060,189 $ 165,651 $ 711,257 $ 4,296,161

A-102 Special Revenue Funds Parking Unmet Police and Portwalk Housing Parking Grants Seizure Transportation Place Subsidy Conservation Needs

$- $ 94,113 $ 5,146,507 $ 82,785 $ 189,966 $ 886,631 $ ------

------95,224 4,550 ------1,031,067 ------

$95,224 $ 98,663 $ 5,146,507 $ 82,785 $ 1,221,033 $ 886,631 $ -

$ 261 $ 9,215 $ 100,011 $ - $ - $ - $ - 1,947 - 53,018 ------18,758 ------

20,966 9,215 153,029 - - - -

- - - - 1,031,067 - -

------74,258 89,448 4,993,478 82,785 189,966 886,631 ------

74,258 89,448 4,993,478 82,785 189,966 886,631 -

$95,224 $ 98,663 $ 5,146,507 $ 82,785 $ 1,221,033 $ 886,631 $ -

(continued)

A-103 (continued) Special Revenue Funds

Swimming Library City Recreation Pool Library Trust Trust Subtotals

ASSETS

Cash and short-term investments $ 172,180 $ 44,796 $ 191,391 $ 149,977 $ 350,006 $ 12,639,567 Investments - - - 30,676 2,459,355 2,490,031 Receivables: Departmental and other - - - - - 113,266 Intergovernmental - - - - - 857,843 Loans and interest - - - - 481 2,014,901 Inventory - - - - - 47,355

TOTAL ASSETS $ 172,180 $ 44,796 $ 191,391 $ 180,653 $ 2,809,842 $ 18,162,963

LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES

Liabilities: Accounts payable $ 5,835 $ 3,522 $ 18,417 $ - $ - $ 191,502 Accrued liabilities - 9,647 - - - 73,437 Unearned revenue - - - - - 134,049 Retainage payable ------Due to other funds - 10,224 - - - 226,458 Advances from other funds - - - - 567,160 567,160

TOTAL LIABILITIES 5,835 23,393 18,417 - 567,160 1,192,606

Deferred Inflows of Resources: Unavailable revenues - - - - - 1,987,595

Fund Balances: Nonspendable - - - - - 47,355 Restricted 166,345 21,403 172,974 180,653 2,242,682 14,951,160 Committed ------Unassigned - - - - - (15,753)

TOTAL FUND BALANCES 166,345 21,403 172,974 180,653 2,242,682 14,982,762

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 172,180 $ 44,796 $ 191,391 $ 180,653 $ 2,809,842 $ 18,162,963

A-104 Capital Project Funds Vehicle/ School Transportation Transportation Equipment Technology Renovations Management State Replacement Equipment Subtotals

$ 327,228 $ 10,760,939 $ 238,176 $ 1,371,424 $ 196,523 $ 12,894,290 ------

------

$ 327,228 $ 10,760,939 $ 238,176 $ 1,371,424 $ 196,523 $ 12,894,290

$ 852 $ 980,146 $ - $ 36,422 $ 41,359 $ 1,058,779 ------237,913 - - - 237,913 ------

852 1,218,059 - 36,422 41,359 1,296,692

------

------326,376 326,376 9,542,880 56,412 243,515 - 10,169,183 - - 181,764 1,091,487 155,164 1,428,415 ------

326,376 326,376 9,542,880 238,176 1,335,002 155,164 11,597,598

$ 327,228 $ 10,760,939 $ 238,176 $ 1,371,424 $ 196,523 $ 12,894,290

(continued)

A-105 (continued) Permanent Funds Total Nonmajor City Library Governmental Trust Trust Subtotals Funds

ASSETS

Cash and short-term investments $ 1,599 $ - $ 1,599 $ 25,535,456 Investments 7,665,582 4,534 7,670,116 10,160,147 Receivables: Departmental and other 453 - 453 113,719 Intergovernmental - - - 857,843 Loans and interest - - - 2,014,901 Inventory - - - 47,355

TOTAL ASSETS $ 7,667,634 $ 4,534 $ 7,672,168 $ 38,729,421

LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES

Liabilities: Accounts payable $ - $ - $ - $ 1,250,281 Accrued liabilities - - - 73,437 Unearned revenue - - - 134,049 Retainage payable - - - 237,913 Due to other funds - - - 226,458 Advances from other funds - - - 567,160

TOTAL LIABILITIES - - - 2,489,298

Deferred Inflows of Resources: Unavailable revenues - - - 1,987,595

Fund Balances: Nonspendable 1,629,062 4,000 1,633,062 1,680,417 Restricted 6,038,572 534 6,039,106 31,159,449 Committed - - - 1,428,415 Unassigned - - - (15,753)

TOTAL FUND BALANCES 7,667,634 4,534 7,672,168 34,252,528

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 7,667,634 $ 4,534 $ 7,672,168 $ 38,729,421

A-106 (This page intentionally left blank.)

A-107 CITY OF PORTSMOUTH, NEW HAMPSHIRE

Combining Statement of Revenues, Expenditures and Changes in Fund Equity

Nonmajor Governmental Funds

For the Year Ended June 30, 2017

Special Revenue Funds School Miscellaneous Community School Categorical Grants and Development Lunch Revenues Contributions

Revenues: Intergovernmental $ 593,875 $ 305,752 $ 3,814,565 $ 980,458 Charges for services - 509,042 - - Investment income 9,307 - - 398 Fines and costs - - - 9,409 Contributions - - - 75,445 Other 86,282 - - 17,350

Total Revenues 689,464 814,794 3,814,565 1,083,060

Expenditures: Current: General government - - - 111,137 Public safety - - - 34,633 Education - 915,746 4,828,299 - Public works - - - 2,695 Culture and recreation - - - 26,506 Community development 915,097 - - 11,814 Debt service: Interest - - - - Capital outlay 402,438 - - 252,289

Total Expenditures 1,317,535 915,746 4,828,299 439,074

Excess (deficiency) of revenues over (under) expenditures (628,071) (100,952) (1,013,734) 643,986

Other Financing Sources (Uses): Issuance of bonds - - - - Bond/BAN premium - - - - Transfers in - 132,951 1,030,097 688,916 Transfers out (200,000) - - -

Total Other Financing Sources (Uses) (200,000) 132,951 1,030,097 688,916

Net change in fund balances (828,071) 31,999 16,363 1,332,902

Fund Balances, beginning of year 1,944,598 (397) 491,650 2,893,095

Fund Balances, end of year $ 1,116,527 $ 31,602 $ 508,013 $ 4,225,997

A-108 Special Revenue Funds Parking Unmet Police and Portwalk Housing Parking Grants Seizure Transportation Place Subsidy Conservation Needs

$ 351,840 $ - $ - $ - $ - $ - $ - - - 4,421,485 34,513 - - - - 397 ------65,276 - - - - - 2,210 2,210 ------14,106 - - 70,922 - -

354,050 354,050 79,779 4,421,485 34,513 70,922 - -

- - - - - 150,000 - 336,764 336,764 38,498 ------3,127,205 14,403 - - 2,603 ------100,035 - -

- - 90,000 ------429,516 - - - -

336,764 336,764 38,498 3,646,721 14,403 100,035 150,000 2,603

17,286 17,286 41,281 774,764 20,110 (29,113) (150,000) (2,603)

------442,200 ------521 ------

- - 442,200 - - 521 -

17,286 17,286 41,281 1,216,964 20,110 (29,113) (149,479) (2,603)

56,972 56,972 48,167 3,776,514 62,675 219,079 1,036,110 2,603

$ 74,258 $ 89,448 $ 4,993,478 $ 82,785 $ 189,966 $ 886,631 $ -

(continued)

A-109 (continued)

Special Revenue Funds

Swimming Library City Recreation Pool Library Trust Trust Subtotals

Revenues: Intergovernmental $ - $ - $ - $ - $ - $ 6,046,490 Charges for services 168,254 451,002 79,922 - 64,000 5,728,218 Investment income - - 30 2,484 64,983 77,599 Fines and costs - - - - - 74,685 Contributions - - 7,498 - 298,507 383,660 Other 40 - - - - 188,700

Total Revenues 168,294 451,002 87,450 2,484 427,490 12,499,352

Expenditures: Current: General government - - - - - 261,137 Public safety - - - - - 409,895 Education - - - - 166,120 5,910,165 Public works - - - - - 3,146,906 Culture and recreation 155,238 464,421 114,141 275 9,551 770,132 Community development - - - - - 1,026,946 Debt service: Interest - - - - - 90,000 Capital outlay - - - - - 1,084,243

Total Expenditures 155,238 464,421 114,141 275 175,671 12,699,424

Excess (deficiency) of revenues over (under) expenditures 13,056 (13,419) (26,691) 2,209 251,819 (200,072)

Other Financing Sources (Uses): Issuance of bonds ------Bond/BAN premium - - - - - 442,200 Transfers in - 150,000 23,831 - - 2,026,316 Transfers out - (175,000) - (13,066) (10,766) (398,832)

Total Other Financing Sources (Uses) - (25,000) 23,831 (13,066) (10,766) 2,069,684

Net change in fund balances 13,056 (38,419) (2,860) (10,857) 241,053 1,869,612

Fund Balances, beginning of year 153,289 59,822 175,834 191,510 2,001,629 13,113,150

Fund Balances, end of year $ 166,345 $ 21,403 $ 172,974 $ 180,653 $ 2,242,682 $ 14,982,762

A-110 Capital Project Funds Vehicle/ School Transportation Transportation Equipment Technology Renovations Management State Replacement Equipment Subtotals

$- $ - $ 136,955 $ - $ - $ 136,955 ------545,000 200,000 - - - 745,000 ------

545,000 200,000 136,955 - - 881,955

- - - - 177,547 177,547 - - - 66,411 97,076 163,487 241,263 - - 10,881 39,516 291,660 - 12,550 - 18,823 - 31,373 ------

------2,875,482 4,572 625,209 - 3,505,263

241,263 2,888,032 4,572 721,324 314,139 4,169,330

303,737 (2,688,032) 132,383 (721,324) (314,139) (3,287,375)

- 3,600,000 - 400,000 - 4,000,000 ------200,000 - 1,026,329 444,801 1,671,130 (650,000) - (80,343) - - (730,343)

(650,000) 3,800,000 (80,343) 1,426,329 444,801 4,940,787

(346,263) 1,111,968 52,040 705,005 130,662 1,653,412

672,639 8,430,912 186,136 629,997 24,502 9,944,186

$ 326,376 $ 9,542,880 $ 238,176 $ 1,335,002 $ 155,164 $ 11,597,598

(continued)

A-111 (continued)

Permanent Funds Total Nonmajor City Library Governmental Trust Trust Subtotals Funds

Revenues: Intergovernmental $ - $ - $ - $ 6,183,445 Charges for services - - - 5,728,218 Investment income 809,626 63 809,689 887,288 Fines and costs - - - 74,685 Contributions 12,980 - 12,980 1,141,640 Other - - - 188,700

Total Revenues 822,606 63 822,669 14,203,976

Expenditures: Current: General government - - - 438,684 Public safety - - - 573,382 Education - - - 6,201,825 Public works - - - 3,178,279 Culture and recreation 215,502 - 215,502 985,634 Community development - - - 1,026,946 Debt service: Interest - - - 90,000 Capital Outlay - - - 4,589,506

Total Expenditures 215,502 - 215,502 17,084,256

Excess (deficiency) of revenues over (under) expenditures 607,104 63 607,167 (2,880,280)

Other Financing Sources (Uses): Issuance of bonds - - - 4,000,000 Bond/BAN premium - - - 442,200 Transfers in - - - 3,697,446 (1) Transfers out - - - (1,129,175) (1)

Total Other Financing Sources (Uses) - - - 7,010,471

Net change in fund balances 607,104 63 607,167 4,130,191

Fund Balances, beginning of year 7,060,530 4,471 7,065,001 30,122,337

Fund Balances, end of year $ 7,667,634 $ 4,534 $ 7,672,168 $ 34,252,528

(1) Transfers in and out were netted on page 52 to eliminate activity within nonmajor governmental funds.

A-112 FIDUCIARY FUNDS

PRIVATE-PURPOSE TRUST FUNDS

Private-Purpose Trust Funds represent contributions used to account for trust arrangements, under which principal and investment income exclusively benefit individuals, private organizations, or other governments.

Park: represents contributions used to compensate local artists performing in Prescott Park Arts Festival and to maintain and provide for upkeep of the Lower State Street Park.

Scholarship: represents contributions used to subsidize education costs for eligible students.

Worthy Poor: represents contributions to help eligible residents with living costs.

Memorial: represents contributions used to maintain Emerson Hovey Fountain in Prescott Park, construction of memorial for veterans, and presentation of travel talks for the public.

Commemoration: represents contributions for celebration on Emancipation Day, tri-centennial celebration in 2076, and to further Japanese-American relations.

AGENCY FUNDS

Agency Funds are established to account for fiduciary assets held by the City in a custodial capacity as an agent on behalf of others.

Claremont Coalition: represents contributions from various local governments in the State of New Hampshire, which are used to pay legal costs related to state-wide property tax issue.

School: represents primarily student activity funds, which are contributions from students and fundraising receipts used to pay for student-related activities.

A-113 CITY OF PORTSMOUTH, NEW HAMPSHIRE

Combining Statement of Fiduciary Net Position

Private Purpose Trust Funds

June 30, 2017

Worthy Park Scholarship Poor Memorial Commemoration Total

ASSETS

Cash and short-term investments $ 134,190 $ 11,236 $ 64,547 $ 446,783 $4 ,796 $ 661,552 Investments - 6,714,860 - - - 6,714,860 Other assets - - - 80 - 80

Total Assets $ 134,190 $ 6,726,096 $ 64,547 $ 446,863 $4 ,796 $ 7,376,492

Net position held in trust $ 134,190 $ 6,726,096 $ 64,547 $ 446,863 $4 ,796 $ 7,376,492

A-114 CITY OF PORTSMOUTH, NEW HAMPSHIRE

Combining Statement of Changes in Fiduciary Net Position

Private Purpose Trust Funds

For the Year Ended June 30, 2017

Worthy Park Scholarship Poor Memorial Commemoration Total

ADDITIONS

Investment income $ 7,105 $ 698,919 $ 7,002 $ 48,466 $ 520 $ 762,012 Contributions 173,407 6,179 - - - 179,586

Total Additions 180,512 705,098 7,002 48,466 520 941,598

DEDUCTIONS

Payments to beneficiaries 162,385 156,024 182 1,259 14 319,864

Net increase 18,127 549,074 6,820 47,207 506 621,734

NET POSITION

Beginning of year 116,063 6,177,022 57,727 399,656 4,290 6,754,758

End of year $134,190 $ 6,726,096 $ 64,547 $ 446,863 $4 ,796 $ 7,376,492

A-115 CITY OF PORTSMOUTH, NEW HAMPSHIRE

Combining Statement of Changes in Assets and Liabilities

Agency Funds

For the Year Ended June 30, 2017

Balance Balance July 1, June 30, 2016 Additions Deductions 2017 Claremont Coalition:

Assets - cash and short-term investments $ 4,687 $ 42,003 $ (23,315) $ 23,374

Liabilities - other liabilities $ 4,687 $ 42,003 $ (23,315) $ 23,375

School:

Assets - cash and short-term investments $ 316,353 $ 708,098 $ (663,788) $ 360,662

Liabilities - other liabilities $ 316,353 $ 708,098 $ (663,788) $ 360,663

Totals:

Assets - cash and short-term investments $ 321,040 $ 750,101 $ (687,103) $ 384,036

Liabilities - other liabilities $ 321,040 $ 750,101 $ (687,103) $ 384,038

A-116 CITY OF PORTSMOUTH, NEW HAMPSHIRE

STATISTICAL SECTION

The City of Portsmouth comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City’s overall financial health.

Page Financial Trends These schedules contain trend information to help the reader understand how the City’s financial performance and well- being have changed over time. 118 - 122

Revenue Capacity These schedules contain information to help the reader assess the City’s most significant local revenue source, the property tax. 123 - 129

Debt Capacity These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. 130 - 133

Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place. 134 - 135

Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the service the City provides and the activities it performs. 136 - 138

A-117 City of Portsmouth, New Hampshire

Net Assets/Position by Component Last Ten Fiscal Years (accrual basis of accounting)

Fiscal Year 2008 2009 2010 2011 2012 2013 (1)(2) 2014 2015 2016 2017

Governmental Activities Net invested in capital assets $ 59,571,267 $ 64,657,970 $ 71,574,714 $ 75,937,883 $ 78,587,672 $ 85,565,006 $ 100,313,414 $ 109,917,788 $ 113,265,585 $ 120,182,374 Restricted 14,514,810 14,103,944 14,696,926 15,701,688 17,147,890 17,238,560 17,107,717 16,604,810 17,379,705 23,682,016 Unrestricted 19,928,592 26,730,894 29,747,020 33,595,065 36,242,831 37,952,181 40,877,993 (27,370,090) (20,874,844) (26,597,332) Total governmental activities net position $ 94,014,669 $ 105,492,808 $ 116,018,660 $ 125,234,636 $ 131,978,393 $ 140,755,747 $ 158,299,124 $ 99,152,508 $ 109,770,446 $ 117,267,058

Business-type activities Net invested in capital assets $ 29,978,192 $ 35,326,336 $ 38,650,422 $ 43,749,770 $ 42,709,386 $ 47,882,518 $ 50,987,816 $ 56,301,452 $ 60,256,180 $ 64,498,965 Restricted 1,950,574 1,788,026 1,625,478 1,462,931 1,300,383 1,137,835 975,288 812,740 650,192 487,644 Unrestricted 15,314,959 11,027,529 12,193,230 13,546,674 21,966,267 23,551,956 27,699,734 26,835,174 30,326,890 33,436,307 Total business-type activities net position $ 47,243,725 $ 48,141,891 $ 52,469,130 $ 58,759,375 $ 65,976,036 $ 72,572,309 $ 79,662,838 $ 83,949,366 $ 91,233,262 $ 98,422,916

Primary government Net invested in capital assets $ 89,549,459 $ 99,984,306 $ 110,225,136 $ 119,687,653 $ 121,297,058 $ 133,447,524 $ 151,301,230 $ 166,219,240 $ 173,521,765 $ 184,681,339 Restricted 16,465,384 15,891,970 16,322,404 17,164,619 18,448,273 18,376,395 18,083,005 17,417,550 18,029,897 24,169,660 Unrestricted 35,243,551 37,758,423 41,940,250 47,141,739 58,209,098 61,504,137 68,577,727 (534,916) 9,452,046 6,838,975 Total primary government net position $ 141,258,394 $ 153,634,699 $ 168,487,790 $ 183,994,011 $ 197,954,429 $ 213,328,056 $ 237,961,962 $ 183,101,874 $ 201,003,708 $ 215,689,974

Notes: (1) Beginning in 2013, the City began reporting net position rather than net assets, in conformity with GASB Statement 63. Prior to that time, net investment in capital assets was labeled invested in capital assets, net of related debt. (2) As Restated

A-118 City of Portsmouth, New Hampshire Changes in Net Assets/Position Last Ten Fiscal Years (accrual basis of accounting) Fiscal Year 2008 2009 2010 2011 2012 2013 (1)(2) 2014 2015 2016 2017 Expenses Governmental activities: General government $ 9,883,434 $ 10,267,024 $ 10,689,349 $ 10,919,895 $ 11,717,003 $ 11,905,707 $ 11,652,734 $ 12,330,468 $ 12,673,140 $ 13,503,790 Public safety 15,834,025 16,041,765 16,915,999 16,579,407 16,854,982 17,576,460 18,479,571 17,697,750 18,094,404 20,724,528 Education 38,923,454 39,306,880 41,474,811 43,416,528 44,280,725 44,546,643 47,492,836 49,212,516 50,084,302 54,271,573 Public works 8,780,132 9,363,174 9,303,285 9,659,576 9,834,737 10,303,800 11,337,941 12,367,464 12,653,506 14,283,986 Health and human Services 651,557 680,790 693,053 644,424 601,503 689,895 675,256 582,910 565,256 674,704 Culture and recreation 3,616,584 3,535,606 3,620,162 3,694,425 3,804,755 3,634,914 3,895,264 3,888,467 4,095,642 4,331,428 Community development 1,240,509 1,150,573 1,330,221 764,771 981,022 863,416 1,125,562 888,705 1,115,661 1,278,188 Interest 2,251,976 2,367,351 2,527,611 2,702,329 3,781,050 3,095,996 3,013,917 3,123,714 3,213,394 3,157,534 Total governmental activities expenses 81,181,671 82,713,163 86,554,491 88,381,355 91,855,777 92,616,831 97,673,081 100,091,994 102,495,305 112,225,731

Business-type activities: Water services 4,380,171 4,755,959 5,223,793 5,365,583 5,905,875 6,621,011 7,012,453 6,866,489 7,701,340 7,906,621 Sewer services 6,704,018 7,228,930 6,632,817 7,081,798 8,052,017 8,456,885 9,018,802 9,187,296 9,656,429 10,534,561 Total business-type activities expenses 11,084,189 11,984,889 11,856,610 12,447,381 13,957,892 15,077,896 16,031,255 16,053,785 17,357,769 18,441,182 Total primary government expenses $ 92,265,860 $ 94,698,052 $ 98,411,101 $ 100,828,736 $ 105,813,669 $ 107,694,727 $ 113,704,336 $ 116,145,779 $ 119,853,074 $ 130,666,913

Program Revenues Governmental activities: Charges for services General government $ 6,988,685 $ 6,926,238 $ 6,186,248 $ 6,259,000 $ 6,702,933 $ 6,800,409 $ 7,421,658 $ 7,620,989 $ 8,468,071 $ 9,118,467 Public safety 737,216 714,666 834,164 1,235,321 1,248,411 1,127,299 1,196,161 1,161,585 1,023,934 1,447,285 Education 5,432,171 5,358,926 5,895,619 5,882,803 5,817,036 5,958,503 5,884,555 6,462,707 6,684,384 6,620,461 Public Works 3,778,437 3,813,473 3,818,291 3,918,395 4,396,016 4,654,656 5,092,527 5,878,880 6,666,633 6,978,104 Health and Human Services 34,970 25,711 13,008 48,054 22,152 85,079 100,002 89,398 101,805 90,178 Culture and Recreation 640,476 651,610 600,894 543,575 506,975 874,509 955,544 969,031 1,047,332 1,046,097 Total charges for services 17,611,955 17,490,624 17,348,224 17,887,148 18,693,523 19,500,455 20,650,447 22,182,590 23,992,159 25,300,592 Operating grants and contributions 4,885,064 5,070,581 6,172,231 7,168,204 6,876,190 4,929,483 5,114,762 5,631,065 4,931,928 5,958,915 Capital grants and contributions 2,763,722 5,312,633 6,966,317 2,619,401 2,561,524 3,032,801 12,137,864 5,106,620 3,113,261 3,630,406 Total governmental activities program revenues 25,260,741 27,873,838 30,486,772 27,674,753 28,131,237 27,462,739 37,903,073 32,920,275 32,037,348 34,889,913

Business-type activities: Charges for services Water services 5,087,122 5,379,413 6,727,586 8,914,913 9,057,948 8,839,035 9,114,578 8,849,199 9,225,357 9,029,792 Sewer services 6,450,632 5,691,064 6,010,072 7,249,404 10,422,913 11,962,934 13,210,967 13,724,391 14,244,796 14,602,295 Total charges for services 11,537,754 11,070,477 12,737,658 16,164,317 19,480,861 20,801,969 22,325,545 22,573,590 23,470,153 23,632,087 Capital grants and contributions 1,883,304 1,694,101 3,378,786 2,487,884 1,642,521 784,754 719,148 638,259 876,799 1,397,118 Total business-type activities program revenues 13,421,058 12,764,578 16,116,444 18,652,201 21,123,382 21,586,723 23,044,693 23,211,849 24,346,952 25,029,205 Total primary government program revenues $ 38,681,799 $ 40,638,416 $ 46,603,216 $ 46,326,954 $ 49,254,619 $ 49,049,462 $ 60,947,766 $ 56,132,124 $ 56,384,300 $ 59,919,118

Net (Expenses)Revenue Governmental activities $ (55,920,930) $ (54,839,325) $ (56,067,719) $ (60,706,602) $ (63,724,540) $ (65,154,092) $ (59,770,008) $ (67,171,719) $ (70,457,957) $ (77,335,818) Business-type activities 2,336,869 779,689 4,259,834 6,204,820 7,165,490 6,508,827 7,013,438 7,158,064 6,989,183 6,588,023 Total primary government net expense $ (53,584,061) $ (54,059,636) $ (51,807,885) $ (54,501,782) $ (56,559,050) $ (58,645,265) $ (52,756,570) $ (60,013,655) $ (63,468,774) $ (70,747,795)

General Revenues and Other Changes in Net Assets/Position Governmental activities: Property taxes$ 59,057,518 $ 63,041,949 $ 63,648,465 $ 65,993,838 $ 67,341,676 $ 69,226,282 $ 72,594,154 $ 73,416,098 $ 77,272,916 $ 78,955,625 Interest on taxes 131,228 136,306 270,299 300,578 266,690 371,247 279,531 289,805 208,972 168,675 Grants and contributions not restricted to specific programs 1,535,543 1,985,289 1,110,062 1,143,748 1,238,571 989,067 957,070 1,025,926 1,032,133 1,111,547 Special Assessment ------1,870,839 Investment income (loss) 972,640 (193,672) 1,084,222 1,520,906 478,214 861,855 1,143,154 252,292 473,465 1,219,261 Other revenues 1,557,015 1,347,592 476,898 960,388 267,608 1,045,112 2,321,745 1,967,808 2,061,211 1,493,503 Gain on sale of capital asset - - - - - 1,426,433 - - - - Permanent fund contributions 2,281 - 3,625 3,120 11,538 11,450 17,731 34,330 27,198 12,980 Total governmental activities 63,256,225 66,317,464 66,593,571 69,922,578 69,604,297 73,931,446 77,313,385 76,986,259 81,075,895 84,832,430

Business-type activities: Investment income 363,795 118,477 65,045 50,705 42,733 17,408 239 57,554 98,047 270,077 Other revenues - - 2,360 34,720 8,438 70,038 76,852 176,950 196,666 331,554 Total business-type activities 363,795 118,477 67,405 85,425 51,171 87,446 77,091 234,504 294,713 601,631 Total primary government $ 63,620,020 $ 66,435,941 $ 66,660,976 $ 70,008,003 $ 69,655,468 $ 74,018,892 $ 77,390,476 $ 77,220,763 $ 81,370,608 $ 85,434,061

Change in Net Assets/Position Governmental activities $ 7,335,295 $ 11,478,139 $ 10,525,852 $ 9,215,976 $ 5,879,757 $ 8,777,354 $ 17,543,377 $ 9,814,540 $ 10,617,938 $ 7,496,612 Business-type activities 2,700,664 898,166 4,327,239 6,290,245 7,216,661 6,596,273 7,090,529 7,392,568 7,283,896 7,189,654 Total primary government $ 10,035,959 $ 12,376,305 $ 14,853,091 $ 15,506,221 $ 13,096,418 $ 15,373,627 $ 24,633,906 $ 17,207,108 $ 17,901,834 $ 14,686,266 Notes: (1) Beginning in 2013, the City began reporting net position rather than net assets, in conformity with GASB Statement 63. (2) As restated

A-119 City of Portsmouth, New Hampshire

Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting)

Fiscal Year 2008 2009 2010 2011 2012 2013 (3) 2014 2015 2016 2017

All governmental funds (1) Reserved for encumbrances $ 4,952,158 $ 5,710,359 $ 6,468,001 $ - -$ -$ -$ -$ -$ -$ Reserve for Inventory - 21,142 21,287 ------Reserved for advances 156,000 95,000 43,500 ------Reserve for perpetual permanent funds 1,588,492 1,588,492 1,588,492 ------Total Reserved 6,696,650 7,414,993 8,121,280 ------Designated Unreserved 16,070,029 16,509,100 18,289,507 ------Undesignated 31,555,100 33,020,510 42,890,153 ------Nonspendable - - - 1,632,425 1,616,387 1,652,765 1,654,749 2,338,528 2,271,832 2,247,577 Restricted - - - 27,107,030 37,311,546 29,485,301 28,494,530 27,200,344 31,096,850 37,783,517 Committed - - - 22,466,249 26,363,315 25,056,206 27,219,500 26,784,433 30,930,948 29,694,220 Assigned - - - 5,294,862 5,978,717 6,533,785 6,656,298 7,621,331 8,887,314 8,985,660 Unassigned - - - 10,329,071 10,470,953 11,007,797 11,769,423 11,838,381 11,932,667 7,070,449 Total all governmental funds $ 54,321,779 $ 56,944,603 $ 69,300,940 $ 66,829,637 $ 81,740,918 $ 73,735,854 $ 75,794,500 $ 75,783,017 $ 85,119,611 $ 85,781,423

General Fund Reserved for encumbrances $ 4,952,158 $ 5,710,359 $ 6,468,001 ------Reserved for advances 156,000 95,000 43,500 ------Total Reserved 5,108,158 5,805,359 6,511,501 ------Designated Unreserved 16,070,029 16,509,100 18,289,507 ------Undesignated 7,756,054 9,875,900 10,069,956 ------Nonspendable (2) - - - 28,000 6,000 - - 672,927 610,160 567,160 Committed - - - 19,960,221 22,631,684 22,624,205 26,173,686 24,544,530 27,956,594 26,964,585 Assigned - - - 5,294,862 5,978,717 6,533,785 6,656,298 7,621,331 8,887,314 8,985,660 Unassigned - - - 10,329,071 10,470,953 11,027,473 11,790,868 12,509,746 13,158,179 14,505,641 Total General Fund $ 28,934,241 $ 32,190,359 $ 34,870,964 $ 35,612,154 $ 39,087,354 $ 40,185,463 $ 44,620,852 $ 45,348,534 $ 50,612,247 $ 51,023,046

All other governmental funds Inventory $ - $ 21,142 $ 21,287 -$ -$ -$ -$ -$ -$ -$ Reserve for perpetual permanent funds 1,588,492 1,588,492 1,588,492 ------Total Reserved $ 1,588,492 $ 1,609,634 $ 1,609,779 $ - -$ -$ -$ -$ -$ -$ Undesignated, reported in: Special revenue funds 8,440,924 9,301,673 9,347,520 ------Capital projects funds 11,164,120 10,853,843 20,179,357 ------Permanent funds 4,194,002 2,989,094 3,293,320 ------Nonspendable - - - 1,604,425 1,610,387 1,652,765 1,654,749 1,665,601 1,661,672 1,680,417 Restricted - - - 27,107,030 37,311,546 29,485,301 28,494,530 27,200,344 31,096,850 37,783,517 Committed - - - 2,506,028 3,731,631 2,432,001 1,045,814 2,239,903 2,974,354 2,729,635 Unassigned - - - - - (19,676) (21,445) (671,365) (1,225,512) (7,435,192) Total all other governmental funds $ 25,387,538 $ 24,754,244 $ 34,429,976 $ 31,217,483 $ 42,653,564 $ 33,550,391 $ 31,173,648 $ 30,434,483 $ 34,507,364 $ 34,758,377

Notes: (1) FY 2011 fund balances reflect implementation of GASB Statement 54. (2) This nonspendable fund balance is for an advance to trustees of trusts for upgrades at Prescott Park. (3) As restated

A-120 City of Portsmouth, New Hampshire

Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting)

Fiscal Year 2008 2009 2010 2011 2012 2013 (3) 2014 2015 2016 2017 Revenues

Real estate taxes $ 59,149,241 $ 62,507,154 $ 63,840,741 $ 65,792,501 $ 67,203,467 $ 69,355,426 $ 72,964,294 $ 73,635,672 $ 77,428,695 $ 78,902,463 Licenses and permits 4,729,604 4,736,101 4,111,438 4,097,592 4,517,610 4,669,868 5,140,721 5,311,858 6,045,153 6,327,360 Intergovernmental 8,958,668 12,406,095 13,942,037 9,933,900 10,270,965 7,936,593 11,214,081 11,195,901 8,684,813 9,572,209 Charges for service 11,999,676 11,770,319 12,326,877 12,887,711 13,309,488 13,885,548 14,657,539 15,938,798 17,393,610 18,030,599 Investment income 972,642 (193,673) 1,084,222 1,520,906 478,213 861,856 1,143,153 252,291 473,465 1,219,261 Interest on taxes 131,228 136,306 270,299 300,578 266,690 371,247 279,531 289,805 208,972 168,675 Fines and costs 924,357 970,280 892,889 853,011 848,243 809,832 747,940 836,479 804,327 890,796 Contributions 139,248 50,283 306,795 871,594 217,658 2,526,208 569,549 602,041 287,408 1,141,640 Special Assessment ------187,084 Other 568,229 594,945 441,635 954,176 456,282 715,816 1,850,862 1,424,041 1,696,903 411,561 Total revenues 87,572,893 92,977,810 97,216,933 97,211,969 97,568,616 101,132,394 108,567,670 109,486,886 113,023,346 116,851,648

Expenditures

General government 5,824,517 6,075,631 6,300,028 6,167,661 5,925,769 6,669,587 6,929,207 7,449,378 7,556,377 10,450,462 Public safety 15,260,082 15,368,533 15,980,896 15,791,806 16,145,072 16,246,164 17,162,643 17,415,808 17,892,961 18,730,211 Education 37,735,944 39,733,580 40,600,275 42,223,687 43,426,320 43,274,802 45,679,948 47,346,209 48,242,046 49,875,849 Public works 7,669,166 7,838,831 8,027,090 7,862,765 7,617,764 8,724,410 9,170,490 9,638,677 9,777,531 10,480,446 Health and human services 646,877 705,227 692,997 642,402 607,995 663,744 673,703 588,645 589,457 658,401 Culture and recreation 3,072,046 3,007,027 3,064,439 3,207,984 3,268,232 3,194,516 3,594,783 4,256,940 3,802,522 3,719,880 Community development 1,231,984 1,158,173 2,569,207 799,099 1,649,106 743,466 1,039,811 1,768,051 817,479 1,026,946 Debt service Principal 5,127,905 5,682,906 6,107,905 6,327,905 6,327,905 8,257,905 7,394,905 8,092,905 8,610,407 9,452,877 Interest 2,284,850 2,420,957 2,397,714 2,754,978 3,264,915 3,091,322 3,045,212 3,170,237 2,983,390 3,190,755 Capital outlay (1) 6,172,464 9,943,934 12,982,848 9,703,505 21,714,928 16,796,251 17,434,367 9,928,572 13,524,700 17,922,741 Intergovernmental 3,578,292 3,628,417 3,949,898 4,201,480 4,181,246 4,426,943 4,667,200 4,832,388 5,100,513 5,203,357 Total expenditures 88,604,127 95,563,216 102,673,297 99,683,272 114,129,252 112,089,110 116,792,269 114,487,810 118,897,383 130,711,925

Excess of revenues Over(under) expenditures (1,031,234) (2,585,406) (5,456,364) (2,471,303) (16,560,636) (10,956,716) (8,224,599) (5,000,924) (5,874,037) (13,860,277)

Other Financing Sources (Uses) Issuance of bonds/loans 8,700,000 5,000,000 17,300,000 - 29,400,000 2,767,000 9,050,000 4,600,000 13,648,000 12,860,000 Issuance of refunding bond - - - - 17,325,000 - - 3,335,000 3,040,500 - Bond/BAN premium 42,083 208,230 512,701 - 4,369,900 184,652 1,233,245 586,229 1,958,633 1,662,089 Transfers in 824,503 1,235,682 1,429,660 3,058,431 2,905,868 1,919,914 1,911,538 3,706,034 2,716,667 4,218,271 Payment to refunded bond escrow agent - - - - (19,622,983) - - (3,531,788) (3,436,502) - Transfers out (824,503) (1,235,682) (1,429,660) (3,058,431) (2,905,868) (1,919,914) (1,911,538) (3,706,034) (2,716,667) (4,218,271) Total governmental activities 8,742,083 5,208,230 17,812,701 - 31,471,917 2,951,652 10,283,245 4,989,441 15,210,631 14,522,089

Net Change in fund balances $ 7,710,849 $ 2,622,824 $ 12,356,337 $ (2,471,303) $ 14,911,281 $ (8,005,064) $ 2,058,646 $ (11,483) $ 9,336,594 $ 661,812

Debt Service as a percentage of non-capitalized expenditures (2) 9.06% 9.50% 9.70% 10.14% 10.49% 12.00% 11.33% 10.99% 11.07% 11.48%

(1) Certain Capital expenditures from various functions have been capitalized on the Statement of Net Assets/Position.

(2) Capital Outlay Purchases from the Reconciliation of the Statement of Revenues Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities. are used to calculate this ratio. (3) As restated A-121 City of Portsmouth, New Hampshire

Combined Enterprise Fund Revenue, Expenses, and Changes in Fund Net Assets/Position Last Ten Fiscal Years

Increase Revenue Expenses (Decrease) Fiscal Charges for Licenses Operations & Interest Total Net Total Net Year Services and Permits Departmental Other Total Maintenance Depreciation Expense Total Position Position (1)

2017$ 22,335,872 $ 811,540 $ 484,675 $ 1,998,749 $ 25,630,836 $ 11,962,951 $ 3,790,683 $ 2,687,548 $ 18,441,182 $ 7,189,654 $ 98,422,916 2016 22,283,052 751,904 435,197 1,171,512 24,641,665 10,947,720 3,457,903 2,952,146 17,357,769 7,283,896 91,233,262 2015 21,362,069 726,695 484,826 872,763 23,446,353 13,280,245 3,347,761 2,531,819 19,159,825 4,286,528 83,949,366 2014 20,961,597 867,053 496,895 796,239 23,121,784 10,590,342 3,132,231 2,308,682 16,031,255 7,090,529 79,662,838 2013 19,622,020 631,727 548,222 872,200 21,674,169 9,810,340 2,950,004 2,317,552 15,077,896 6,596,273 72,572,309 2012 18,421,963 642,677 413,611 1,696,302 21,174,553 9,428,113 2,612,231 1,917,548 13,957,892 7,216,661 65,976,036 2011 15,267,463 624,333 272,521 2,573,309 18,737,626 8,586,943 2,073,581 1,786,857 12,447,381 6,290,245 58,759,375 2010 11,909,267 568,783 259,608 3,446,191 16,183,849 8,026,190 1,995,862 1,834,558 11,856,610 4,327,239 52,469,130 2009 10,227,288 585,696 230,464 1,839,607 12,883,055 8,535,745 1,873,959 1,575,185 11,984,889 898,166 48,141,891 2008 10,695,209 596,662 280,468 2,247,099 13,819,438 8,223,562 1,764,697 1,130,515 11,118,774 2,700,664 47,243,725

Includes Water and Sewer Funds

Water Fund Revenue, Expenses, and Changes in Fund Net Assets/Position Last Ten Fiscal Years Increase Revenue Expenses (Decrease) Fiscal Charges for Licenses Operations & Interest Total Net Total Net Year Services and Permits Departmental Other Total Maintenance Depreciation Expense Total Position Position (1)

2017$ 8,129,970 $ 627,915 $ 271,907 $ 857,856 $ 9,887,648 $ 5,116,191 $ 1,737,531 $ 1,052,899 $ 7,906,621 $ 1,981,027 $ 39,808,460 2016 8,409,115 538,471 277,771 584,481 9,809,838 4,728,684 1,577,929 1,394,727 7,701,340 2,108,498 37,827,433 2015 7,998,954 552,155 298,090 276,604 9,125,803 5,852,601 1,521,953 937,092 8,311,646 814,157 35,718,935 2014 8,191,372 618,554 304,652 142,381 9,256,959 4,712,670 1,419,960 879,823 7,012,453 2,244,506 34,904,778 2013 8,023,896 431,680 383,459 102,743 8,941,778 4,212,763 1,370,019 1,038,229 6,621,011 2,320,767 32,660,272 2012 8,321,997 465,232 268,109 78,336 9,133,674 3,859,673 1,198,958 847,244 5,905,875 3,227,799 30,339,505 2011 8,302,713 422,694 189,506 141,291 9,056,204 3,730,792 731,813 902,977 5,365,582 3,690,622 27,111,706 2010 6,115,419 430,914 181,253 123,570 6,851,156 3,598,521 686,804 938,468 5,223,793 1,627,363 23,421,084 2009 4,759,495 448,697 158,447 98,454 5,465,093 3,762,879 666,409 326,671 4,755,959 709,134 21,793,721 2008 4,422,348 472,406 192,368 87,433 5,174,555 3,608,206 585,529 186,436 4,380,171 794,384 21,084,587

Sewer Fund Revenue, Expenses, and Changes in Fund Net Assets/Position Last Ten Fiscal Years Increase Revenue Expenses (Decrease) Fiscal Charges for Licenses Operations & Interest Total Net Total Net Year Services and Permits Departmental Other Total Maintenance Depreciation Expense Total Position Position (1)

2017$ 14,205,902 $ 183,625 $ 212,768 $ 1,140,893 $ 15,743,188 $ 6,846,760 $ 2,053,152 $ 1,634,649 $ 10,534,561 $ 5,208,627 $ 58,614,456 2016 13,873,937 213,433 157,426 587,031 14,831,827 6,219,036 1,879,974 1,557,419 9,656,429 5,175,398 53,405,829 2015 13,363,115 174,540 186,736 596,159 14,320,550 7,427,644 1,825,808 1,594,727 10,848,179 3,472,371 48,230,431 2014 12,770,225 248,499 192,243 653,858 13,864,825 5,877,672 1,712,271 1,428,859 9,018,802 4,846,023 44,758,060 2013 11,598,124 200,047 164,763 769,457 12,732,391 5,597,577 1,579,985 1,279,323 8,456,885 4,275,506 39,912,037 2012 10,099,966 177,445 145,502 1,617,966 12,040,879 5,568,440 1,413,273 1,070,304 8,052,017 3,988,862 35,636,531 2011 6,964,750 201,639 83,015 2,432,018 9,681,422 4,856,151 1,341,768 883,880 7,081,799 2,599,623 31,647,669 2010 5,793,848 137,869 78,355 3,322,621 9,332,693 4,427,669 1,309,058 896,090 6,632,817 2,699,876 29,048,046 2009 5,467,793 136,999 72,017 1,741,153 7,417,962 4,772,866 1,207,550 1,248,514 7,228,930 189,032 26,348,170 2008 6,272,861 124,256 88,100 2,159,666 8,644,883 4,615,356 1,179,168 944,079 6,738,603 1,906,280 26,159,138

Notes: (1) Beginning in 2013, the City began reporting net position rather than net assets, in conformity with GASB Statement 63.

A-122 City of Portsmouth, New Hampshire

General Government Tax Revenues by Source Last Ten Fiscal Years (modified accrual basis of accounting)

Fiscal Property Payment in Tax Interest Year Taxes Lieu of Tax & Penalties Total

2017$ 80,717,918 $ 168,577 $ 168,675 $ 81,055,170 2016 77,191,614 119,625 208,972 77,520,211 2015 73,492,844 142,828 289,805 73,925,477 2014 72,721,967 143,413 279,531 73,144,911 2013 69,241,043 114,383 371,247 69,726,673 2012 67,008,930 194,537 266,690 67,470,157 2011 65,639,699 152,802 300,578 66,093,079 2010 63,633,412 207,329 270,299 64,111,040 2009 62,387,310 119,844 136,306 62,643,460 2008 59,000,841 148,400 131,228 59,280,469

Data Source: Finance Department Records

A-123 City of Portsmouth, New Hampshire

Property Tax Levies and Collections Last Ten Fiscal Years

Property TaxCollected within the Balance at Subsequent Balance at end Fiscal Levied forFiscal Year of the Levy Fiscal Year End Tax of Current Total Collections to Date Number of Parcels Year Fiscal Year Amount % of Levy of Levy Year Collections Fiscal year Amount % of Levy in Levy Liened % Liened

2017$ 80,300,633 $ 78,661,704 98.0% $ 1,638,929 $ - $ 1,638,929 $ 78,661,704 98.0% 8,567 113 1.3% 2016 78,413,113 76,816,032 98.0% 1,597,081 1,401,587 195,494 78,217,619 99.8% 8,536 112 1.3% 2015 74,936,960 73,219,903 97.7% 1,717,057 1,608,513 108,544 74,828,415 99.9% 8,559 121 1.4% 2014 72,401,876 70,320,311 97.1% 2,081,565 2,040,457 41,108 72,360,767 99.9% 8,540 133 1.6% 2013 70,007,505 67,688,563 96.7% 2,318,942 2,279,302 39,640 69,967,864 99.9% 8,522 172 2.0% 2012 67,841,808 65,297,485 96.2% 2,544,323 2,544,197 126 67,841,682 100.0% 8,457 208 2.5% 2011 67,027,315 64,531,067 96.3% 2,496,248 2,496,122 127 67,027,188 100.0% 8,360 214 2.6% 2010 64,141,858 61,788,074 96.3% 2,353,785 2,320,351 33,434 64,108,424 99.9% 8,321 204 2.5% 2009 63,263,633 61,011,224 96.4% 2,252,409 2,252,133 276 63,263,357 100.0% 8,299 235 2.8% 2008 60,035,344 57,924,795 96.5% 2,110,549 2,110,301 248 60,035,097 100.0% 8,268 151 1.8%

Data Source: Audited Internal Financial Statements, Property Tax Warrants and Reports of Tax Lien Executions

Tax liens are placed within 60 days after the end of the fiscal year.

A-124 City of Portsmouth, New Hampshire

Assessed and Estimated Full Value of Real Property Last Ten Fiscal Years

Ratio of Total Less Total Direct Assessed Local Assessed Value (1) Exemptions Total Taxable Tax Rate per Total Value to Fiscal Current Use/ Commercial/ Total Assessed to Assessed Assessed $1,000 of Equalized Total Estimated Year Conservation Residential Industrial Utilities Value Value (1) Value (1) Assessed Value Valuation (2) Full Value

2017$ 56,064 $ 2,579,500,900 $ 2,026,331,316 $ 212,424,771 $ 4,818,313,051 $ 46,608,500 $ 4,771,704,551 $ 15.95 $ 5,713,043,888 84.3% 2016 57,856 2,538,551,208 2,016,983,163 219,583,616 4,775,175,843 47,333,200 4,727,842,643 15.71 5,166,602,923 92.4% 2015 57,450 2,362,869,900 1,670,440,660 198,604,095 4,231,972,105 49,603,300 4,182,368,805 16.94 4,924,402,209 85.9% 2014 61,620 2,327,198,200 1,612,709,460 206,444,495 4,146,413,775 49,810,200 4,096,603,575 16.77 4,526,473,144 91.6% 2013 79,920 2,303,569,472 1,588,643,960 200,685,995 4,092,979,347 49,212,300 4,043,767,047 16.46 4,281,196,422 95.6% 2012 79,620 2,272,393,300 1,552,957,800 194,836,478 4,020,267,198 48,822,500 3,971,444,698 16.22 4,174,795,440 96.3% 2011 105,400 2,258,277,800 1,514,466,100 181,789,500 3,954,638,800 51,607,000 3,903,031,800 16.33 4,088,268,814 96.7% 2010 76,300 2,192,502,720 1,495,856,932 173,122,669 3,861,558,621 54,022,100 3,807,536,521 16.05 4,161,741,642 92.8% 2009 76,300 2,107,371,800 1,552,244,510 173,183,053 3,832,875,663 51,835,700 3,781,039,963 16.03 4,249,484,787 90.2% 2008 81,900 2,045,544,400 1,564,037,390 173,251,525 3,782,915,215 51,929,800 3,730,985,415 15.39 4,086,528,948 92.6%

Data Sources: (1) State MS-1 Report of Assessed Values (2) NH Department of Revenue Administration's annual Equalization Survey

A-125 City of Portsmouth, New Hampshire

Principal Taxpayers Current Year and Nine Years Ago

FY 2017 Percentage of FY 2008 Percentage of Assessed Total Taxable Assessed Total Taxable Taxpayer Type of Business Value Rank Assessed Value Value Rank Assessed Value Public Service Co of NH Utility $ 174,420,558 1 3.66% $ 162,212,511 1 4.35% HCA Health Services of NH Inc. Hospital 82,410,300 2 1.73% 53,732,000 2 1.44% Branford Holding LLC-10 yars ago TGM Beechstone LLC Apartment Complex 46,882,900 3 0.98% 30,510,000 4 Service Credit Union Bank 41,140,900 4 0.86% Liberty Mutual Insurance Office Building 35,435,100 5 0.74% 44,861,800 3 1.20% Hanover Apartments LLC Apartments 32,461,200 6 0.68% Northern Utilities Utility 26,804,000 7 0.56% Kanerd Development LLC Industrial Building 25,562,100 8 0.54% Harborside Assoc. Hotel 24,877,400 9 0.52% 23,624,700 5 0.63% Inishmaan Assoc LTD Partnership Apartments 24,040,900 10 0.50% 18,787,190 9 DPF 1600 Woodbury Ave LLC (Durgin Sq&DSP&Endicott) Retail 20,812,800 6 0.56% Bromley Portsmouth LLC Retail 20,184,700 7 0.54% Harborside Assoc. Office Building 18,988,200 8 0.51% Wal-Mart Real Est Business TR Reatail 16,079,400 10 0.43%

Total Principal Taxpayers $ 514,035,358 10.77%$ 409,793,301 10.98% Total Net Assessed Taxable Value $ 4,771,704,551 $ 3,730,985,415

Data Source: City of Portsmouth Assessing Department

A-126 City of Portsmouth, New Hampshire

Property Tax Rates per $ 1,000 of Assessed Value Direct and Overlapping Governments Last Ten Fiscal Years

Overlapping City Direct Rates Rate

Estimated Fiscal Local State Total Total Full Value Year City School School (1) School Direct County Total Rate

2017 $ 8.13 $ 5.41 $ 2.41 $ 7.82 $ 15.95 $ 1.09 $ 17.04 $ 14.15 2016 8.07 5.33 2.31 7.64 15.71 1.08 16.79 15.28 2015 8.80 5.61 2.53 8.14 16.94 1.16 18.10 15.28 2014 8.72 5.56 2.49 8.05 16.77 1.14 17.91 16.11 2013 8.55 5.49 2.42 7.91 16.46 1.09 17.55 16.48 2012 8.42 5.34 2.46 7.80 16.22 1.05 17.27 16.33 2011 8.50 5.40 2.43 7.83 16.33 1.08 17.41 16.51 2010 8.01 5.72 2.32 8.04 16.05 1.04 17.09 15.54 2009 8.14 5.49 2.40 7.89 16.03 0.95 16.98 15.01 2008 7.55 5.50 2.34 7.84 15.39 0.95 16.34 14.82

Data Source: NH State Department of Revenue Administration

Notes:

(1) The NH State Legislature revised Education funding in Fiscal Year 2000, establishing a State Education Property Tax. Although warranted by the state, the taxes are collected by the City and spent for local school purposes. This rate does not apply to utility assessments. Utilities are billed directly by the State of NH. A-127 City of Portsmouth, New Hampshire

Utility Fund Net Budget, Billable Volumes and Rates Last Ten Fiscal Years

Fiscal Amount to be Raised by Rates (1) Billable Volume Used for Setting Rates (2) Rates per HCF (4) (5) Year Water Sewer Water Sewer (3) Water Sewer Combined

2017$ 8,021,380 $ 14,710,029 1,688,000 1,125,000 $ 4.15/5.00 $ 12.24/13.47 $ 16.39/18.47 2016 7,805,987 14,126,590 1,642,974 1,123,800 4.15/5.00 11.77/12.95 15.92/17.95 2015 7,433,983 13,899,608 1,565,239 1,160,278 4.15/5.00 11.21/12.34 15.36/17.34 2014 7,300,831 13,100,514 1,538,972 1,151,863 4.15/5.00 10.68/11.75 14.83/16.75 2013 7,549,916 10,389,358 1,577,620 1,020,971 4.15/5.00 9.54/10.49 13.69/15.49 2012 7,369,573 8,907,408 1,577,620 1,020,971 4.15/5.00 8.29/9.11 12.44/14.11 2011 7,914,865 6,702,250 1,687,128 1,157,405 4.15/5.00 5.50/6.05 9.65/11.05 2010 6,242,731 6,116,404 1,691,523 1,121,714 3.30/3.90 5.00/5.50 8.30/8.90 2009 4,709,071 6,313,698 1,741,523 1,171,714 2.40/2.85 5.00/5.50 7.40/8.35 2008 3,627,389 6,119,175 1,724,280 1,171,714 1.90/2.20 4.89/5.33 6.79/7.53

Data Source: City of Portsmouth Budget and Budget Resolutions

Notes: (1) Amount to be raised by rate equals the net budget, i.e., appropriations less other revenue sources. (2) Billable Volume is the estimated billable water consumption in hundred cubic feet units (HCF). (3) Sewer charges are based on the amount of water consumed. (4) One hundred cubic feet (HCF) equals 748 gallons. (5) FY08 implementation of a 2 tier-inclining rate structure for both water and sewer. First rate is for water consumption of 10 units or less. Second rate is for consumption over 10 units.

A-128 City of Portsmouth, New Hampshire

Portsmouth's Share of the Rockingham County Tax Apportionment Last Ten Fiscal Years (based on percentage of equalized value)

Total Equalized Values Apportionment of County Tax Levy

Add: Equalization Portsmouth of PILOTS and RR Tax Portsmouth Tax Base Valuation Less: Equalization of Total Fiscal County Portsmouth's Portsmouth's Share Portsmouth's Share Year for Debt Limits State Shared Revenues Equalized Valuation Rockingham County Portsmouth's % Year Tax Levy Share (1) $ Change % Change

2016$ 5,651,979,770 $ 61,064,118 $ 5,713,043,888 $ 49,090,222,780 11.6378447% 2017$ 46,916,696 $ 5,203,357 $ 102,846 2.0% 2015 5,118,914,757 47,688,166 5,166,602,923 46,585,299,985 11.0906293% 2016 46,013,873 5,100,511 268,123 5.5% 2014 4,871,579,273 52,822,935 4,924,402,208 44,425,117,020 11.0847253% 2015 44,809,156 4,832,388 165,188 3.5% 2013 4,481,154,370 45,318,774 4,526,473,144 41,972,510,217 10.7843756% 2014 43,873,563 4,667,200 240,257 5.4% 2012 4,238,460,159 42,736,264 4,281,196,423 40,244,948,862 10.6378478% 2013 43,141,885 4,426,943 245,697 5.9% 2011 4,129,016,814 45,778,625 4,174,795,439 40,684,633,568 10.2613569% 2012 41,991,666 4,181,246 (20,234) -0.5% 2010 4,044,429,991 43,838,823 4,088,268,814 41,057,907,008 9.9573240% 2011 42,232,608 4,201,480 251,582 6.4% 2009 4,112,257,420 49,484,222 4,161,741,642 41,833,160,979 9.9484274% 2010 41,779,570 3,949,898 321,481 8.9% 2008 4,244,939,572 4,545,215 4,249,484,787 44,948,403,778 9.4541395% 2009 40,037,695 3,628,417 50,125 1.4% 2007 4,083,981,593 2,547,355 4,086,528,948 45,092,725,896 9.0625015% 2008 38,778,613 3,578,292 304,323 9.3%

Data Sources: NH Department of Revenue Administration Equalization Surveys County Tax Warrants Adopted Rockingham County Budgets

*Revised due to court settlement

(1) Rockingham County uses the previous year's proportion percentage to calculate City's tax obligation.

A-129 City of Portsmouth, New Hampshire

Ratios of Long Term Debt Outstanding and Legal Debt Limits Last Ten Fiscal Years

Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Issued Debt at June 30 City Depts.$ 28,049,999 $ 29,529,999 $ 27,385,000 $ 24,020,000 $ 27,555,001 $ 25,727,000 $ 27,511,103 $ 27,609,999 $ 31,358,500 $ 34,413,500 City-Unamortized Bond Premium 39,979 37,875 148,923 141,161 847,236 954,977 1,741,039 2,162,776 3,527,421 4,171,793 Landfill 2,374,572 2,161,666 1,948,760 1,735,855 1,522,951 1,310,048 1,097,144 884,238 671,332 458,427 School Dept. 29,000,000 27,050,000 40,600,000 37,850,000 55,925,000 52,475,000 51,915,000 49,055,000 50,397,607 50,962,635 School-Unamortized Bond Premium 715,300 664,207 1,012,662 941,592 4,526,586 4,186,573 4,198,367 3,865,809 3,926,897 3,773,863 Total Governmental Funds 60,179,850 59,443,747 71,095,345 64,688,608 90,376,774 84,653,598 86,462,654 83,577,822 89,881,757 93,780,218

Water Fund 4,883,520 22,455,992 22,028,464 20,929,382 19,606,919 23,037,202 24,971,873 28,040,824 29,724,796 29,832,268 Water-Unamortized Bond Premium 627,995 596,597 565,192 533,796 502,396 883,158 993,224 2,288,399 2,236,248 Sewer Fund 18,832,750 23,289,050 20,814,451 20,336,083 33,813,720 36,705,514 52,926,789 50,381,197 50,785,603 50,340,010 Sewer-Unamortized Bond Premium - - - - 772,748 870,421 2,414,740 2,323,564 2,567,959 2,664,321 Total Issued Debt at June 30 $ 83,896,120 $ 105,816,783 $ 114,534,857 $ 106,519,264 $ 145,103,957 $ 145,769,131 $ 167,659,214 $ 165,316,631 $ 175,248,514 $ 178,853,065

Authorized Unissued Debt June 30 City Depts. $ 27,500,000 $ 12,500,000 $ - $ 6,900,000 $ - $ 1,600,000 $ 1,600,000 $ 24,800,000 $ 23,352,000 $ 23,200,000 Landfill 4,641,897 4,641,897 4,641,897 4,641,897 4,641,897 4,641,897 4,641,897 4,641,897 4,641,897 4,641,897 School Dept. - - 22,500,000 22,500,000 - 3,300,000 - 5,025,000 5,025,000 5,000,000 Total Governmental Funds 32,141,897 17,141,897 27,141,897 34,041,897 4,641,897 9,541,897 6,241,897 34,466,897 33,018,897 32,841,897

Water Fund 11,420,000 18,420,000 18,475,000 18,162,303 18,162,303 13,162,303 13,162,303 - - - Sewer Fund 23,201,890 19,970,992 19,066,245 19,996,531 16,206,299 8,706,299 3,110,425 - 75,000,000 75,000,000 Total Authorized Unissued Debt June 30$ 66,763,787 $ 55,532,889 $ 64,683,142 $ 72,200,731 $ 39,010,499 $ 31,410,499 $ 22,514,625 $ 34,466,897 $ 108,018,897 $ 107,841,897

Gross Debt June 30 City Depts. $ 55,589,978 $ 42,067,874 $ 27,533,923 $ 31,061,161 $ 28,402,237 $ 28,281,977 $ 30,852,142 $ 54,572,775 $ 58,237,921 $ 61,785,293 Coakley Landfill 7,016,469 6,803,563 6,590,657 6,377,752 6,164,848 5,951,945 5,739,041 5,526,135 5,313,229 5,100,324 School Dept. 29,715,300 27,714,207 64,112,662 61,291,592 60,451,586 59,961,573 56,113,367 57,945,809 59,349,504 59,736,498 Total Governmental Funds 92,321,747 76,585,644 98,237,242 98,730,505 95,018,671 94,195,495 92,704,551 118,044,719 122,900,654 126,622,115

Water Fund 16,303,520 41,503,987 41,100,061 39,656,877 38,303,018 36,701,901 39,017,334 29,034,048 32,013,195 32,068,516 Sewer Fund 42,034,640 43,260,042 39,880,696 40,332,614 50,020,019 46,282,234 58,451,954 52,704,761 128,353,562 128,004,331 Total Gross Debt June 30 $ 150,659,907 $ 161,349,672 $ 179,217,999 $ 178,719,995 $ 184,114,456 $ 177,179,630 $ 190,173,839 $ 199,783,528 $ 283,267,411 $ 286,694,962

Base Value for Debt Limits (1) $ 4,083,981,593 $ 4,244,939,572 $ 4,112,257,420 $ 4,044,429,991 $ 4,129,016,814 $ 4,238,460,159 $ 4,481,154,370 $ 4,871,579,273 $ 5,118,914,757 $ 5,651,979,770

Legal Debt Limits (% of Base Value) City - 3% (2)$ 122,519,448 $ 127,348,187 $ 123,367,723 $ 121,332,900 $ 123,870,504 $ 127,153,805 $ 134,434,631 $ 146,147,378 $ 153,567,443 $ 169,559,393 School - 7% (2) 285,878,712 297,145,770 287,858,019 283,110,099 289,031,177 296,692,211 313,680,806 341,010,549 358,324,033 395,638,584 Water - 10% (2) 408,398,159 424,493,957 411,225,742 404,442,999 412,901,681 423,846,016 448,115,437 487,157,927 511,891,476 565,197,977

Debt Against Legal Debt Limits City Depts. 55,589,978 42,067,874 27,533,923 31,061,161 28,402,237 28,281,977 30,852,142 54,572,775 58,237,921 61,785,293 School Dept. 29,715,300 27,714,207 64,112,662 61,291,592 60,451,586 59,961,573 56,113,367 57,945,809 59,349,504 59,736,498 Water Fund 16,303,520 41,503,987 41,100,061 39,656,877 38,303,018 36,701,901 39,017,334 29,034,048 32,013,195 32,068,516 Exempt from Legal Debt Limits (3) 49,051,109 50,063,605 46,471,353 46,710,366 56,957,615 52,234,179 64,190,995 58,230,896 133,666,791 133,104,655 Total Debt at June 30$ 150,659,907 $ 161,349,672 $ 179,217,999 $ 178,719,995 $ 184,114,456 $ 177,179,630 $ 190,173,839 $ 199,783,528 $ 283,267,411 $ 286,694,962

Unused Capacity of Legal Debt Limits City Depts. $ 66,929,470 $ 85,280,313 $ 95,833,800 $ 90,271,739 $ 95,468,267 $ 98,871,827 $ 103,582,489 $ 91,574,603 $ 95,329,522 $ 107,774,100 School Dept. 256,163,412 269,431,563 223,745,357 221,818,508 228,579,591 236,730,638 257,567,439 283,064,740 298,974,529 335,902,086 Water Fund 392,094,639 382,989,970 370,125,681 364,786,122 374,598,663 387,144,115 409,098,103 458,123,879 479,878,281 533,129,461

% of Legal Debt Limits Used City Depts. 45.4% 33.0% 22.3% 25.6% 22.9% 22.2% 22.9% 37.3% 37.9% 36.4% School Dept. 10.4% 9.3% 22.3% 21.6% 20.9% 20.2% 17.9% 17.0% 16.6% 15.1% Water Fund 4.0% 9.8% 10.0% 9.8% 9.3% 8.7% 8.7% 6.0% 6.3% 5.7%

Data Source Audited Financial Statements

Notes: (1) Base Value for Debt Limits computed by the NH Department of Revenue Administration (2) Legal debt limit percentage rates set by NH State statute (3) Debt exempt from Debt limits consists of Landfills and Sewer debt. A-130 City of Portsmouth, New Hampshire

Ratios of Outstanding Debt by Debt Type Last Ten Fiscal Years

Governmental Activities - General Obligation Debt and State Revolving Loans % of Debt Fiscal Debt to Personal Year City Depts. School Dept. Total per Capita Income

2017$ 39,043,720 $ 54,736,498 $ 93,780,218 $ 4,357 9.7% 2016 35,557,253 54,324,504 89,881,757 4,181 9.3% 2015 30,657,013 52,920,809 83,577,822 3,894 9.1% 2014 30,349,286 56,113,367 86,462,654 4,063 10.2% 2013 27,992,025 56,661,573 84,653,598 3,979 10.1% 2012 29,925,188 60,451,586 90,376,774 4,262 10.8% 2011 25,897,016 38,791,592 64,688,608 3,047 8.5% 2010 29,482,683 41,612,662 71,095,345 3,440 9.0% 2009 31,729,540 27,050,000 58,779,540 2,864 7.7% 2008 30,424,571 29,000,000 59,424,571 2,883 8.0%

Business-Type Activities - General Obligation Debt and State Revolving Loans % of Debt Fiscal Debt to Personal Year Water Fund Sewer Fund Total per capita Income

2017 $ 32,068,516 $ 53,004,331 $ 85,072,847 $ 3,952 8.8% 2016 32,013,195 53,353,562 85,366,757 3,971 8.8% 2015 29,034,048 52,704,761 81,738,809 3,808 8.9% 2014 25,855,031 55,341,529 81,196,560 3,816 9.6% 2013 23,539,598 37,575,935 61,115,533 2,873 7.3% 2012 20,140,715 34,586,468 54,727,183 2,581 6.6% 2011 21,494,574 20,336,083 41,830,657 1,970 5.5% 2010 22,625,061 20,814,451 43,439,512 2,102 5.5% 2009 22,455,992 23,289,050 45,745,042 2,229 6.0% 2008 4,883,520 18,832,750 23,716,270 1,151 3.2%

Total Debt % of Debt Fiscal Primary Debt to Personal Year Government per capita Income

2017$ 178,853,065 8,309 18.4% 2016 175,248,514 8,153 18.1% 2015 165,316,631 7,702 18.0% 2014 167,659,214 7,879 19.8% 2013 145,769,131 6,852 17.4% 2012 145,103,957 6,843 17.4% 2011 106,519,264 5,017 14.0% 2010 114,534,857 5,542 14.5% 2009 104,524,582 5,094 13.7% 2008 83,140,841 4,034 11.2%

Data Source: Finance Department Records A-131 City of Portsmouth, New Hampshire

Direct and Overlapping Governmental Activities Debt As of June 30, 2017.

Net General Obligation Percentage Amount End of Debt Applicable to Applicable to Calendar Year Outstanding (1) Portsmouth (2) Portsmouth

Rockingham County 2016 $6,416,914 11.6378447%$ 746,790

Subtotal, Overlapping Debt 746,790

City of Portsmouth Direct Debt 93,780,218

Total Direct Debt and Overlapping Debt $ 94,527,008

Data Sources: (1) Rockingham County Audited Financial Statements are for calendar year-end, therefore, this amount is as of December 31, 2016. (2) NH Department of Revenue Administration. City of Portsmouth's equalized valuation as a percentage of the total equalized valuation of Rockingham County.

A-132 City of Portsmouth, New Hampshire

Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years

Governmental Activities Business Type Activities Primary Government General Debt % of Debt General Debt % of Debt General Debt % of Debt Fiscal Obligation per to Estimated Fiscal Obligation per to Estimated Fiscal Obligation per to Estimated Year Bonds Capita Actual Value Year Bonds Capita Actual Value Year Bonds Capita Actual Value

2017$ 93,321,791 4,336$ 1.6% 2017$ 58,847,067 2,734$ 1.0% 2017$ 152,168,858 7,070$ 2.7% 2016 89,210,425 4,150 1.7% 2016$ 56,342,856 2,621$ 1.1% 2016$ 145,553,281 6,771$ 2.8% 2015 82,693,584 3,853 1.7% 2015$ 49,916,787 2,326$ 1.0% 2015$ 132,610,371 6,179$ 2.7% 2014 85,365,510 4,012 1.9% 2014$ 46,542,896 2,187$ 1.0% 2014$ 131,908,406 6,199$ 2.9% 2013 83,343,550 3,918 1.9% 2013$ 29,216,820 1,373$ 0.7% 2013$ 112,560,370 5,291$ 2.6% 2012 88,853,823 4,190 2.1% 2012$ 26,763,387 1,262$ 0.6% 2012$ 115,617,210 5,452$ 2.8% 2011 62,952,753 2,965 1.5% 2011$ 16,988,874 $ 800 0.4% 2011$ 79,941,627 $ 3,765 2.0% 2010 69,146,585 3,346 1.7% 2010$ 18,987,116 $ 919 0.5% 2010$ 88,133,701 $ 4,264 2.1% 2009 57,282,081 2,792 1.3% 2009$ 19,542,360 $ 952 0.5% 2009$ 76,824,441 $ 3,744 1.8% 2008 57,805,278 2,805 1.4% 2008$ 3,960,000 $ 192 0.1% 2008$ 61,765,278 $ 2,997 1.5%

Data Source: Finance Department Records

A-133 City of Portsmouth, New Hampshire

Demographic Statistics Last Ten Fiscal Years

Unemployment Rates (3) Fiscal Personal Per Capita City of State Year Population Income Income Portsmouth of NH US

2017 21,524 (1) $ 969,914,488 $ 45,062 (5) 2.0% 2.9% 4.4% 2016 21,496 (1) 968,652,752 45,062 (5) 1.9% 2.8% 4.9% 2015 21,463 (1) 916,985,212 42,724 (5) 2.7% 3.8% 5.3% 2014 21,280 (1) 847,752,640 39,838 (5) 3.2% 4.3% 6.3% 2013 21,273 (1) 836,964,912 39,344 (5) 4.2% 5.2% 7.1% 2012 21,206 (1) 834,328,864 39,344 (5) 4.2% 5.4% 8.4% 2011 21,233 (4) 761,372,914 35,858 (4) 4.5% 5.2% 9.3% 2010 20,668 (1) 792,039,096 38,322 (2) 4.7% 5.9% 9.6% 2009 20,520 (1) 761,784,480 37,124 (2) 5.7% 5.2% 7.6% 2008 20,610 (1) 740,434,860 35,926 (2) 3.3% 3.6% 4.9%

Data Sources: (1) NH Office of Energy and Planning population estimates. (2) Trended amounts based on 2002-2005 US Dept. of Commerce, Bureau of Economic Analysis information for Rockingham County. (3) NH Employment Security ELMI Data as of June 30. (4) 2010 Census. (5) U.S. Census Bureau-American Community Survey 5-Year Estimates.

A-134 City of Portsmouth, New Hampshire

Principal Employers Current Year and Nine Years Ago

2017 2008 Percentage of Percentage of Number of Total City Number of Total City Employer Type of Business Employees Rank Employment Employees Rank Employment US Dept of State Consular Center (2) Passport/Visa services 1,633 1 5.01 % Liberty Mutual Insurance 1,015 2 3.12 837 3 2.89 % HCA Hospital Hospital 1,100 3 3.38 1,150 1 3.97 Lonza Biologics Biotechnology 879 4 2.70 650 5 2.25 City of Portsmouth (FTEs) Municipal services 734 5 2.25 719 4 2.48 Bottomline technologies Software 454 6 1.39 John Hancock Finance 400 7 1.23 Highliner Foods Food Processor 324 8 0.99 Service Credit Union Banking 287 9 0.88 Erie Scientific/Thermo Fisher Laboratory equipment 285 10 0.87 350 7 1.21 US Dept of State National Passport Center (2) Passport Services 900 2 3.11 US Dept of State National Visa Center (2) Visa services 550 6 1.90 Direct Capital Commercial Leasing 326 8 Newmarket International Software 252 9 0.87 LabCorp Medical Lab 225 10 0.78

Total Principal Employers 7,111 21.83 % 5,959 19.46 %

(1) Total City Employment 32,579 28,941

Data Source: NH Employment Security-NH Community Profiles

Notes (1) NH Economic and Labor Market Information Bureau - Employment and Wages Covered (QCEW) calendar year annual average ending during fiscal year. (2) US Dept of State National Visa and Passport Centers combined in FY2014 to US Dept of State Consular Center

A-135 City of Portsmouth, New Hampshire

Operating Indicators by Function Last Ten Fiscal Years

Function (1) Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Government Taxable property parcels assessed 8,268 8,299 8,321 8,360 8,457 8,522 8,540 8,559 8,536 8,601 Registered Voters 17,461 19,188 17,945 18,463 13,858 17,047 15,894 18,807 17,069 17,939 Votes Cast: Municipal Election 4,142 3,904 3,654 4,755 4,673 State Primary 2,009 2,812 3,318 2,273 3,525 State General Election 8,434 9,339 13,556 Presidential Primary 9,586 4,832 9,842 Presidential General 13,135 13,215 13,556 Building Permits 2,137 1,974 1,981 2,146 2,184 2,265 2,433 2,502 3,086 3,259 Estimated construction value $89,800,000 $69,142,992 $51,243,703 $40,900,000 $105,094,218 $54,033,264 $73,323,755 $73,308,353 $126,249,200 $134,395,844 Public Safety Police (2) Service Calls 38,248 35,931 33,742 31,115 36,782 38,673 39,963 40,820 40,019 49,423 Number of Arrests 1,553 1,361 1,266 1,189 1,137 1,113 1,144 1,033 1,063 1,103 Traffic Activity: Number of MV Stops Summons/Citation 1,444 1,133 798 838 458 345 278 273 343 2,022 Written Warning 5,645 4,683 2,560 3,072 1,784 1,683 2,003 2,532 3,339 4,662 Verbal Warning or No Action 3,484 2,807 2,325 3,166 2,994 2,403 2,381 3,627 4,414 4,833 Total MV Stops 10,573 8,623 5,683 7,076 5,236 4,431 4,662 6,432 8,096 11,517 Accidents 763 773 703 1,057 1,112 1,121 692 734 678 663 DWI arrests 117 131 89 68 51 57 49 68 55 100 Fire and EMS Fire Rescue 2,287 2,535 2,570 2,472 2,473 2,553 2,418 2,776 2,670 2,845 Ambulance 2,338 2,447 2,562 2,970 3,026 3,134 3,124 3,211 3,452 3,576 Education (3) High School Fall Enrollment 1,073 1,052 1,072 1,120 1,100 1,129 1,075 1,077 1,110 1,117 Public Works Parking Enforcement Parking violations (Tickets written) 64,901 62,803 58,291 52,806 57,218 48,357 43,371 39,371 48,268 43,997 Streets resurfaced (miles) 3.77 4.20 2.80 0.86 6.69 5.75 9.70 6.50 3.80 2.10 Human Services - General Assistance Number of applicants 586 845 681 628 597 684 616 423 348 303 Culture and Recreation Public Library Circulation of materials 443,371 484,735 488,630 476,721 474,687 449,548 424,828 421,739 413,734 411,840 Annual visits 285,495 293,772 455,834 295,682 275,698 295,485 329,771 321,131 352,962 378,351 Water System: Water main breaks 26 32 41 10 27 29 37 31 29 21 Daily average consumption (millions of gallons) 4.7 4.4 4.4 4.5 4.6 4.4 4.7 4.5 4.6 3.9 Peak daily consumption (millions of gallons) 5.7 5.3 5.0 5.2 7.1 7.1 5.6 6.0 6.3 6.1 Sewage System: Daily average treatment (millions of gallons) 5.6 6.8 6.7 5.9 5.8 5.4 4.2 5.0 3.7 4.4

Data Source: (1) Various City departments (2) 2012 eliminated "traffic car" (3) NH Department of Education A-136 City of Portsmouth, New Hampshire

Capital Asset Statistics by Function Last Ten Fiscal Years

Function Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Public Safety Police Number of stations 1 1 1 1 1 1 1 1 1 1 Number of vehicles 30 30 30 30 30 30 30 30 30 30 Fire and Rescue Number of stations 3 3 3 3 3 3 3 3 3 3 Number of vehicles 18 18 18 19 19 19 19 19 19 19 Number of boats 1 1 1 1 1 1 1 1 1 1 Education High School Buildings 1 1 1 1 1 1 1 1 1 1 Middle School Buildings 1 1 1 1 1 1 1 1 1 1 Elementary School Buildings 3 3 3 3 3 3 3 3 3 3 Public Works Miles of streets 104 104 105 105 105 105 105 105 105 105 Number of bridges 16 16 15 15 15 15 15 15 15 15 Culture and Recreation: Libraries 1 1 1 1 1 1 1 1 1 1 Community centers 3 3 3 2 2 2 2 2 2 3 Number of boat dock facilities 2 2 2 2 2 2 2 2 2 2 Swimming pools 3 3 3 3 3 3 3 3 3 3 Tennis courts 10 10 10 10 10 10 10 10 10 10 Water system: Miles of water mains 175 175 175 175 175 176 174 174 174 174 Number of service connections 7,887 7,888 7,915 7,955 7,963 8,035 8,023 8,038 8,096 8,100 Storage capacity in gallons (millions of gallons) 9.5 9.5 9.5 9.5 10.4 10 10 10 10 10 Maximum daily capacity of plant (millions of gallons) 4.2 4.2 4.2 4.2 4.2 5.0 4.5 4.5 4.5 4.5 Number of fire hydrants 1,072 1,081 1,081 1,087 970 970 1,013 1,017 1,034 1,036 Sewage System: Miles of sanitary sewers 107 107 107 108 108 108 106 107 106 106 Number of treatment plants 2 2 2 2 2 2 2 2 2 2 Number of service connections 6,252 6,284 6,293 6,310 6,342 6,244 6,392 6,404 6,427 6,475 Maximum daily capacity of treatment (millions of gallons) 24.0 24.0 24.0 24.0 24.0 24.0 25.3 25.3 25.3 25.3

Data Source: Various city departments A-137 City of Portsmouth, New Hampshire

City Government Employees by Function - Full Time Equivalents Last Ten Fiscal Years

Function Fiscal Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Government Executive 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Finance 18.0 17.8 17.8 17.0 17.6 17.6 17.8 20.3 21.4 22.6 Human Resources 3.0 3.0 3.0 3.4 3.4 4.0 5.0 5.0 4.0 4.0 City Clerk 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Legal 5.5 6.0 6.0 5.0 5.0 5.5 5.5 6.0 6.6 8.0 Planning 6.2 6.2 6.2 6.2 5.0 6.0 7.5 7.5 8.5 8.5 Inspection 4.5 4.5 4.5 4.5 4.5 4.5 5.1 5.1 5.7 5.8 Health 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 2.2 2.2 Total General Government 43.6 44.0 44.0 42.6 42.0 44.1 47.3 50.4 53.4 56.0

Public Safety Police - Sworn Officers: General Fund Funded 63.6 65.1 64.1 64.0 61.0 59.6 59.2 60.2 58.7 60.7 Grant Funded 4.4 2.9 2.9 1.0 1.0 2.4 1.8 1.8 3.3 3.3 Dispatch 10.0 11.0 10.0 10.0 10.0 10.0 10.0 10.0 11.0 11.0 Parking Enforcement Police - Non-sworn employees: General Fund Funded 12.2 12.4 10.4 9.0 9.0 8.9 9.0 10.8 10.8 11.4 Grant Funded 0.9 0.6 0.6 2.0 2.0 2.1 0.5 0.5 0.5 0.6 Total Police Department 91.0 92.0 88.0 86.0 83.0 83.0 80.5 83.3 84.3 87.0

Fire and Rescue 60.0 61.0 61.0 59.0 59.0 60.0 60.0 60.0 60.0 60.0 Fire Clerical 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Total Public Safety 152.5 154.5 150.5 146.5 143.5 144.5 142.0 144.8 145.8 148.5

Education Administrators 14.0 14.1 14.1 14.1 12.2 13.2 13.2 13.2 13.7 13.7 Teachers 253.9 254.7 253.2 241.9 233.9 241.8 240.96 243.00 243.5 245.4 Clerical 23.8 23.3 22.8 22.5 21.7 20.7 20.7 20.7 20.9 20.9 Paraprofessional 41.4 49.1 46.5 40.0 45.4 43.2 42.7 41.0 44.0 43.2 School custodians 24.3 24.3 24.3 23.9 23.9 25.4 24.9 26.0 25.9 25.9 Security 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Technicians 7.0 6.9 6.9 7.8 7.0 7.0 7.0 7.0 7.0 7.0 System maintenance 5.0 5.0 5.0 5.0 4.0 4.0 4.0 4.0 4.0 4.0 Total Education 370.3 378.4 373.8 356.2 349.0 356.3 354.4 355.9 360.0 361.1

Public Works General Fund functions 60.0 60.7 60.7 60.7 58.5 58.5 59.3 58.1 54.2 54.4 Parking Fund 14.5 14.5 16.9 16.9 16.9 17.5 18.7 18.2 23.8 26.3 Water 24.8 24.8 24.8 24.3 23.3 22.3 22.6 22.9 26.9 26.5 Sewer 23.4 23.4 23.4 22.8 22.8 24.0 27.4 27.4 29.6 30.3 Total Public Works 122.6 123.3 125.8 124.7 121.5 122.3 128.0 126.6 134.5 137.4

Culture and Recreation Recreation 8.5 8.5 7.5 4.5 4.5 5.2 5.3 5.8 5.7 5.7 Public Library 15.0 16.0 15.0 20.2 20.2 21.7 20.9 20.9 20.9 21.8 Total Culture and Recreation 23.5 24.5 22.5 24.7 24.7 26.9 26.2 26.7 26.6 27.5

Human Services Welfare 2.0 2.0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Total Human Services 2.0 2.0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5

Community Development Community Development 3.9 3.2 2.1 2.1 1.4 1.3 1.3 1.6 2.3 1.9 UDAG 1.0 1.0 1.0 1.1 1.1 1.2 1.2 2.2 1.2 1.0 Total Community Development 4.9 4.2 3.1 3.2 2.5 2.5 2.4 3.8 3.5 2.9 Total All Functions 719.4 730.8 721.1 699.3 684.6 698.1 701.8 709.6 725.1 734.8

Percent of Total General Government 6.1% 6.0% 6.1% 6.1% 6.1% 6.3% 6.7% 7.1% 7.4% 7.6% Public Safety 21.2% 21.1% 20.9% 21.0% 21.0% 20.7% 20.2% 20.4% 20.1% 20.2% Education 51.5% 51.8% 51.8% 50.9% 51.0% 51.0% 50.5% 50.2% 49.7% 49.1% Public Works 17.0% 16.9% 17.4% 17.8% 17.7% 17.5% 18.2% 17.8% 18.5% 18.7% Culture and Recreation 3.3% 3.4% 3.1% 3.5% 3.6% 3.9% 3.7% 3.8% 3.7% 3.7% Human Services 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Community Development 0.7% 0.6% 0.4% 0.5% 0.4% 0.4% 0.3% 0.5% 0.5% 0.4% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Data Source: Budgeted Positions per City of Portsmouth Budget. A-138 PROPOSED FORM OF LEGAL OPINION APPENDIX B

(Date of Delivery)

Judith Belanger, Finance Director City of Portsmouth Portsmouth, New Hampshire

$19,650,000* City of Portsmouth, New Hampshire General Obligation Capital Improvement Loan Bonds Dated June 20, 2018

We have acted as bond counsel to the City of Portsmouth, New Hampshire (the “City”) in connection with the issuance by the City of the above-referenced bonds (the “Bonds”). In such capacity, we have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion.

As to questions of fact material to our opinion we have relied upon representations and covenants of the City contained in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation.

Based on our examination, we are of the opinion, under existing law, as follows:

1. The Bonds are valid and binding general obligations of the City and, except to the extent they are paid from other sources, the principal of and interest on the Bonds are payable from taxes which may be levied upon all taxable property in the City without limitation as to rate or amount; provided that, to the extent the City has established any development districts pursuant to Chapter 162-K of the New Hampshire Revised Statutes Annotated, taxes levied on certain taxable property located within any such district may be restricted and unavailable to pay the principal of and interest on the Bonds.

2. Interest on the Bonds is excluded from the gross income of the owners of the Bonds for federal income tax purposes. In addition, interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. Interest on the Bonds is included in computing a corporation’s adjusted current earnings for taxable years

* Preliminary, subject to change.

B-1 beginning before January 1, 2018. In rendering the opinions set forth in this paragraph, we have assumed compliance by the City with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, and continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with all such requirements. Failure by the City to comply with certain of such requirements may cause interest on the Bonds to become included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. We express no opinion regarding any other federal tax consequences arising with respect to the Bonds.

3. The interest on the Bonds is exempt from the New Hampshire personal income tax on interest and dividends. We express no opinion regarding any other New Hampshire tax consequences arising with respect to the Bonds or any tax consequences arising with respect to the Bonds under the laws of any state other than New Hampshire.

This opinion is expressed as of the date hereof, and we neither assume nor undertake any obligation to update, revise, supplement or restate this opinion to reflect any action taken or omitted, or any facts or circumstances or changes in law or in the interpretation thereof, that may hereafter arise or occur, or for any other reason.

The rights of the holders of the Bonds and the enforceability of the Bonds may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted to the extent constitutionally applicable, and their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.

/S/ LOCKE LORD LLP

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APPENDIX C

PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Portsmouth, New Hampshire (the “Issuer”) in connection with the issuance of its $19,650,000* General Obligation Capital Improvement Loan Bonds dated June 20, 2018 (together, the “Bonds”). The Issuer covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer for the benefit of the Owners of the Bonds and in order to assist the Participating Underwriters in complying with the Rule.

SECTION 2. Definitions. For purposes of this Disclosure Certificate the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

“MSRB” shall mean the Municipal Securities Rulemaking Board as established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934, or any successor thereto or to the functions of the MSRB contemplated by this Disclosure Certificate. Filing information relating to the MSRB is set forth in Exhibit A attached hereto.

“Obligated Person” shall mean the Issuer.

“Owners of the Bonds” shall mean the registered owners, including beneficial owners, of the Bonds.

“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“Rule” shall mean Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

SECTION 3. Provision of Annual Reports.

(a) The Issuer shall, not later than 270 days after the end of each fiscal year, provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in

* Preliminary, subject to change.

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Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Issuer may be submitted when available separately from the balance of the Annual Report.

(b) If the Issuer is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the Issuer shall send a notice to the MSRB, in substantially the form attached as Exhibit B.

SECTION 4. Content of Annual Reports. The Issuer's Annual Report shall contain or incorporate by reference the following:

(a) quantitative information for the preceding fiscal year of the type presented in the Issuer's Official Statement dated June 6, 2018 relating to the Bonds regarding (i) the revenues and expenditures of the Issuer relating to its operating budget, (ii) capital expenditures, (iii) fund balances, (iv) property tax information, (v) outstanding indebtedness and overlapping debt of the Issuer, (vi) pension obligations of the Issuer, and (vii) other post-employment benefits liability of the Issuer, and

(b) the most recently available audited financial statements of the Issuer, prepared in accordance with generally accepted accounting principles (except for the omission, if any, of a statement of fixed assets). If audited financial statements for the preceding fiscal year are not available when the Annual Report is submitted, the Annual Report will include unaudited financial statements for the preceding fiscal year and audited financial statements for such fiscal year shall be submitted when available.

Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Issuer or related public entities, which (i) are available to the public on the MSRB internet website or (ii) have been filed with the Securities and Exchange Commission. The Issuer shall clearly identify each such other document so incorporated by reference.

SECTION 5. Reporting of Significant Events.

(a) The Issuer shall give notice, in accordance with the provisions of this Section 5, of the occurrence 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

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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 the Owners 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 Obligated Person.*

13. The consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of the Obligated Person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.

14. Appointment of a successor or additional trustee or the change of name of a trustee, if material.

(b) Upon the occurrence of a Listed Event, the Issuer shall, in a timely manner not in excess of ten (10) business days after the occurrence of the event, file a notice of such occurrence with the MSRB.

SECTION 6. Transmission of Information and Notices. Unless otherwise required by law, all notices, documents and information provided to the MSRB shall be provided in electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB.

SECTION 7. Termination of Reporting Obligation. The Issuer's obligations under this Disclosure Certificate shall terminate upon prior redemption or the payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Issuer shall give notice of such termination in the same manner as for a Listed Event under Section 5(b).

* As noted in the Rule, this event is considered to occur when any of the following occur: (i) the appointment of a receiver, fiscal agent or similar officer for the Obligated Person in a proceeding under the U.S. Bankruptcy Code or in any proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Obligated Person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or (ii) the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Obligated Person.

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SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Issuer may amend this Disclosure Certificate and any provision of this Disclosure Certificate may be waived if such amendment or waiver is permitted by the Rule, as evidenced by an opinion of counsel expert in federal securities law (which may include bond counsel to the Issuer), to the effect that such amendment or waiver would not cause the Disclosure Certificate to violate the Rule. The first Annual Report filed after enactment of any amendment to or waiver of this Disclosure Certificate shall explain, in narrative form, the reasons for the amendment or waiver and the impact of the change in the type of information being provided in the Annual Report.

If the amendment provides for a change in the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information in order to provide information to investors to enable them to evaluate the ability of the Issuer to meet its obligations. To the extent reasonably feasible, the comparison shall also be quantitative. A notice of the change in the accounting principles shall be sent to the MSRB.

SECTION 9. Default. In the event of a failure of the Issuer to comply with any provision of this Disclosure Certificate any Owner of the Bonds may seek a court order for specific performance by the Issuer of its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not constitute a default with respect to the Bonds, and the sole remedy under this Disclosure Certificate in the event of any failure of the Issuer to comply with this Disclosure Certificate shall be an action for specific performance of the Issuer's obligations hereunder and not for money damages in any amount.

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SECTION 10. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Owners of the Bonds from time to time, and shall create no rights in any other person or entity.

Date: June ___, 2018 CITY OF PORTSMOUTH, NEW HAMPSHIRE

By______Finance Director and Treasurer

By______City Manager

[EXHIBIT A: Filing Information for the MSRB] [EXHIBIT B: Form of Notice of Failure to File Annual Report]

C-5 THIS PAGE INTENTIONALLY LEFT BLANK PROPOSAL FOR BONDS Ms. Judith Belanger, Finance Director June 6, 2018 City of Portsmouth, New Hampshire c/o Hilltop Securities Inc., 3rd Floor 54 Canal Street Boston, Massachusetts 02114

Dear Ms. Belanger:

For $19,650,000* City of Portsmouth, New Hampshire, General Obligation Capital Improvement Loan Bonds as further described in your Notice of Sale dated May 22, 2018, which Notice of Sale is hereby made a part of this proposal, we bid...... and accrued interest to date of delivery for each $100 par value of bonds, bearing interest at the rate or rates per annum as follows: Due Due June 15 Rate June 15 Rate 2019 ...... …% 2029 ** ...... …% 2020 ...... 2030 ** ...... 2021 ...... 2031 ** ...... 2022 ...... 2032 ** ...... 2023 ...... 2033 ** ...... 2024 ...... 2034 ** ...... 2025 ...... 2035 ** ...... 2026 ...... 2036 ** ...... 2027 ...... 2037 ** ...... 2028 ...... 2038 ** ...... **TERM BONDS (Optional – No more than three Term Bonds) First Year of Mandatory Redemption Year of Maturity Interest Rate

The undersigned hereby acknowledges receipt of the Preliminary Official Statement referred to in the aforementioned Notice of Sale.

INSURED BY: TOTAL PREMIUM: Syndicate Manager

Syndicate Manager Address Telephone: Fax:

The following is our computation of the net interest cost and percent true interest cost calculated in accordance with the Notice of Sale, is for informational purposes only, and is subject to verification prior to award. Gross Interest Cost $ Underwriter's Premium $ Net Interest Cost $ Percent True Interest Cost % (four decimals)

Hilltop Securities Inc. would be pleased to assist you in entering your bid on these Bonds if you will mail or fax your signed bid form in advance and telephone figures about one-half hour before the time of sale. The City and Hilltop Securities Inc. are not responsible for errors in bids submitted in this manner. TELEPHONE (617) 619-4400 FAX (617) 619-4411 HILLTOP SECURITIES INC.

______*Preliminary, subject to change.