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COMPREHENSIVE ANNUAL

FINANCIAL REPORT

FOR THE FISCAL YEARS ENDING DECEMBER 31, 2018 AND 2017

Western Lake Superior Sanitary District

Duluth, Minnesota

COMPREHENSIVE ANNUAL

F I N A N C I A L R E P O R T

WESTERN LAKE SUPERIOR SANITARY DISTRICT

DULUTH, MINNESOTA

FOR THE FISCAL YEARS ENDED DECEMBER 31, 2018 AND 2017

Prepared by Business Services Division

WESTERN LAKE SUPERIOR SANITARY DISTRICT DULUTH, MINNESOTA

COMPREHENSIVE ANNUAL FINANCIAL REPORT YEARS ENDED DECEMBER 31, 2018 AND 2017

TABLE OF CONTENTS

Page Number INTRODUCTORY SECTION

Letter of Transmittal 1 Certificate of Achievement 4 Organization Structure 5 Board of Directors 6 Political Boundaries 7

FINANCIAL SECTION Independent Auditors’ Report 8 Management’s Discussion and Analysis 11 Basic Financial Statements

Comparative Statement of Net Position 18 Comparative Statement of Revenues, Expenses, and Changes in Net Position 20 Comparative Statement of Cash Flows 22 Notes to Financial Statements 24

Required Supplementary Information

Schedule of WLSSD’s Proportionate Share of the Net Pension Liability 65 Schedule of WLSSD Contributions 66 Schedule of Changes in WLSSD’s OPEB Liability and Related Ratios 67

Supplementary Schedules

Detailed Schedule of Revenue Compared to Budget 68 Detailed Schedule of Expenses 69

Compared to Budget – Departmental Level Schedule of Expenditures of Federal Awards 72 Notes to the Schedule of Expenditures of Federal Awards 73

STATISTICAL SECTION (Last Ten Fiscal Years) (Unaudited)

Financial Trends Net Position by Component 76 Changes in Net Position 77 Operating Revenue by Source/Uses 78 Operating Expenses by Function/Object 79 Nonoperating Revenues and Expenses 80


COMPREHENSIVE ANNUAL FINANCIAL REPORT YEARS ENDED DECEMBER 31, 2018 AND 2017

TABLE OF CONTENTS (CONTINUED)

Page Number

STATISTICAL SECTION (Last Ten Fiscal Years) (Unaudited) – (Continued)

Revenue Capacity Total Wastewater Treated by Billing Parameters 81 Wastewater Volume 82 Operations and Maintenance Unit Costs 83 Solid Waste Volume (MSW) and Tipping Fee 84 Solid Waste Volume (MSW) 85 Principal Revenue Payers 86

Debt Activity

Ratio of Outstanding Debt by Type 87 Net Tax Capacity and Estimated Actual Value of Taxable Property 88 Net General Bonded Debt Ratios 89 Pledged Revenue Coverage 90

Demographic and Economic Information

Demographic and Economic Statistics 91 Principal Employers 92

Operating Information

Number of Employees by Identifiable Activity 93 Operating Indicators – Wastewater Operations 94 Capital Asset Statistics – Wastewater Operations 95

This Page Has Been Intentionally Left Blank.

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2626 Courtland Street

Duluth, MN 55806-1894

phone 218.722.3336

fax 218.727.7471

www.wlssd.com

Western Lake Superior Sanitary District

April 16, 2019 Board of Directors Western Lake Superior Sanitary District 2626 Courtland Street Duluth, Minnesota 55806 The Comprehensive Annual Financial Report of the Western Lake Superior Sanitary District (WLSSD) for the fiscal year ended December 31, 2018 is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with WLSSD. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner designed to fairly present the financial position and results of operations of the enterprise fund. All disclosures necessary to enable the reader to gain an understanding of the financial activities of the WLSSD have been included. Please refer to the Management Discussion and Analysis section of this document for a more detailed discussion of WLSSD financial and planning highlights. Services of WLSSD WLSSD is located in northeastern Minnesota, and encompasses 513 square miles and includes the cities of Cloquet, Carlton, Scanlon, and Wrenshall, and townships of Silver Brook, Thomson, and Twin Lakes in Carlton County and the cities of Duluth, Hermantown, Proctor, and Rice Lake, and the townships of Canosia, Duluth, Grand Lake, Lakewood, Midway, and Solway in St. Louis County. WLSSD was established in 1971 to improve and protect the waters of the lower St. Louis River basin. This was accomplished by providing wastewater treatment to the municipalities listed above, as well as to four large industrial customers. In 1974, the State Legislature also gave WLSSD the additional responsibility for solid waste management. The combination of both wastewater treatment and proper solid waste management resulted in the cleanup of the waters of the St. Louis River which remains one of the most significant events in the environmental history of this region. The WLSSD continues to make significant capital investments in our wastewater collection and treatment systems and our solid waste services. Long-term strategic, asset management and capital planning have ensured that the WLSSD continues to meet all financial, environmental and operational requirements.

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2018 Comprehensive Annual Financial Report Local Economy WLSSD serves a large geographic territory (513 square miles) with a relatively diverse service area and a population of approximately 138,700. The WLSSD serves a region with a diverse economy comprised of healthcare, forest products manufacturing, aviation and a large and robust higher education sector. The largest contributor to loadings is the forest products segment. During 2018, both the Sappi pulp and paper mill and the Verso paper mill in Duluth ran with little to no downtime. Long-term Financial Planning As part of the Master Planning Process, WLSSD develops ten (10) year capital plans for both Wastewater and Solid Waste operations. This planning process integrates projected changes in demand with an engineering assessment of the major components of the facility. These capital projections are utilized in combination with loading projections and operating assumptions to develop a ten year projection for operating costs. These projections are used to make informed decisions on debt and loan financing to ensure adequate fund balances are maintained over both the short and long-terms. Internal Controls WLSSD management is responsible for designing, establishing and maintaining an internal control system that protects WLSSD assets from loss, theft or misuse and ensures that adequate accounting data is compiled to prepare the financial statements in accordance with generally accepted accounting principles. Internal control systems are designed to provide reasonable assurance that these objectives are met, while recognizing that the cost of a control should not exceed the benefits. The evaluation of costs and benefits requires management estimates and judgments. WLSSD’s internal control system is continually monitored and evaluated by management as a good business practice. Independent Audit WLSSD’s enabling legislation requires an annual audit of all books and accounts to be made by independent certified public accountants or by the State Auditor’s office. This requirement has been complied with, and the certified public accountants’ opinion accompanies this report. The auditors will issue a management and compliance letter covering the review made as part of their examination of the District's system of internal control and compliance with applicable legal provisions. The management and compliance letter will not modify or affect in any way this report on the financial statements.

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2018 Comprehensive Annual Financial Report Awards The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the WLSSD for its Comprehensive Annual Financial Report for the fiscal year ended December 31, 2017. This was the thirty-fourth consecutive year that the WLSSD has received this prestigious award. In order to be awarded a Certificate of Achievement, WLSSD published an easily readable and efficiently organized Comprehensive Annual Financial Report. This report satisfied both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. Acknowledgments The accurate and timely preparation of this report could not have been accomplished without the efficiency and dedication of WLSSD's Business Services Division. We express our appreciation to all members of the division, and to the staff of the certified public accountants who reviewed and assisted in the preparation. We would also like to thank the WLSSD Board of Directors for their interest and support in planning and conducting the financial operations of the District in a responsible and progressive manner. Respectfully submitted,

Marianne Bohren Cathy Remington Executive Director Director of Finance

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BOARD OF DIRECTORS

Members Length of Service Appointment Date Term Expires

James Aird 9.5 Years 4/30/2009 7/1/2019

Dave Manderfeld 14.5 Years 8/24/2004 7/1/2019

Julene Boe 5.5 Years 7/1/2013 7/1/2019

Loren Lilly 1.5 Years 4/18/2017 7/1/2020

Laura Ness 1.5 Years 7/17/2017 7/1/2020

Marcia Podratz 6.5 Years 4/23/2012 7/1/2020

Ruth Janke 9.5 Years 7/1/2009 7/1/2021

Archie Chelseth 4.5 Years 7/1/2014 7/1/2021

Paul Thomsen 6.5 Years 6/25/2012 7/1/2021

Executive Team Length of Service

Marianne Bohren Executive Director 14.5 Years

Carrie Clement Manager of Planning & Technical Services 18 Years

Al Parrella Manager of Operations & Maintenance 40 Years

Position

FINANCIAL SECTION

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INDEPENDENT AUDITORS’ REPORT Board of Directors Western Lake Superior Sanitary District Duluth, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of Western Lake Superior Sanitary District (WLSSD), as of and for the years ended December 31, 2018 and 2017, and the related notes to the financial statements, which collectively comprise WLSSD’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion 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 WLSSD’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of WLSSD’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 opinion.

Board of Directors Western Lake Superior Sanitary District

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Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Western Lake Superior Sanitary District as of December 31, 2018 and 2017, and the respective changes in financial position and, cash flows, thereof, for the years 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 the Management’s Discussion and Analysis, Schedule of WLSSD’s Proportionate Share of the Net Pension Liability, and Schedule of Changes in WLSSD’s OPEB Liability and Related Ratios, as listed in the table of contents, 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 sufficient evidence 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 WLSSD’s basic financial statements. The introductory section, Detailed Schedule of Revenue Compared to Budget, Detailed Schedule of Expenses Compared to Budget - Departmental Level and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards, as required of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), is also presented for purposes of additional analysis and is not a required part of the basic financial statements. The Detailed Schedule of Revenue Compared to Budget, Detailed Schedule of Expenses Compared to Budget -Departmental Level, and Schedule of Expenditures of Federal Awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have 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.

Board of Directors Western Lake Superior Sanitary District

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Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 16, 2019, on our consideration of WLSSD'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 solely to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the WLSSD’s 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 WLSSD’s internal control over financial reporting and compliance.

CliftonLarsonAllen LLP Brainerd, Minnesota April 16, 2019


MANAGEMENT’S DISCUSSION AND ANALYSIS

(UNAUDITED)

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This section presents management’s analysis of the Western Lake Superior Sanitary District’s (WLSSD) financial condition and activities for the fiscal year ending December 31, 2018. Please read this information in conjunction with the financial statements, which follow this section.

FINANCIAL HIGHLIGHTS

Operating revenues increased by $817,572 or 2.27% higher than 2017. Total budgeted wastewater charges for 2018 increased by 1.94% over 2017. Overall, actual wastewater charges in 2018 were $367,267 higher than 2017 primarily due to increased unit costs. Solid waste user charges and service fees were $182,693 higher than 2017 due to volumes and user rates. The capacity availability fee was $108,769 higher than 2017 due to increased projects. Miscellaneous income was $158,842 higher than 2017 primarily due to increased paint care reimbursement revenue and increased hauled waste user charges.

Operating expenses before depreciation and amortization were 1.48% or $366,217 higher than prior year expenses. Operating expenses for chemicals were higher in 2018 by $169,345 primarily due to chemical price increases. Contract services were higher in 2018 by $135,338 primarily due to electrical contract services

WLSSD continued to fund a significant portion of capital projects from current revenues. Wastewater capital projects funded from current revenue were $3 million in 2018.

OVERVIEW OF THE FINANCIAL STATEMENTS

Management’s Discussion and Analysis (MD&A) serves as an introduction to the basic financial statements. The MD&A represents management’s examination and analysis of WLSSD’s financial condition and performance. The MD&A is required to accompany the basic financial statements and notes to the financial statements and, therefore, is included as required supplementary information.

REQUIRED FINANCIAL STATEMENTS

The financial statements of WLSSD are presented as an enterprise fund using the accrual basis of accounting that is similar to the accounting used by private sector companies. The Statement of Net Position includes all of WLSSD’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources and provides information about the nature and amounts of investments in resources (assets) and the obligation to creditors (liabilities). It also provides the basis for evaluating the capital structure and assessing the liquidity of WLSSD.



(UNAUDITED)

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REQUIRED FINANCIAL STATEMENTS (CONTINUED)

All of the current year’s revenues and expenses are accounted for in the Statement of Revenues, Expenses, and Changes in Net Position. This statement measures the performance of the operations over the past year and can be used to determine whether WLSSD has recovered all of its costs through its user fees and other charges. The Statement of Cash Flows reports cash receipts, cash payments, and net changes in cash resulting from operations, investments, and financing activities and provides answers to such questions as where did the cash come from, what was cash used for, and what was the change in the cash balance during the reporting period.

NET POSITION

To begin our analysis, a summary of WLSSD’s Statement of Net Position is presented in Table A-1.

2017 to 2018 2016 to 2017Increase Increase

2018 2017 2016 (Decrease) (Decrease)

Current and Other Assets $ 50,895 $ 46,978 $ 47,649 $ 3,917 $ (671)

Capital Assets 95,467 94,950 96,222 517 (1,272) Total Assets 146,362 141,928 143,871 4,434 (1,943)

Deferred Outflows of Resources 1,016 1,711 3,832 (695) (2,121)

Current Liabilities 11,100 11,146 11,570 (46) (424) Long-Term Debt 45,671 45,431 52,391 240 (6,960)

Total Liabilities 56,771 56,577 63,961 194 (7,384)

Deferred Inflows of Resources 1,687 1,563 1,247 124 316

Net Investment in Capital Assets 47,993 48,968 44,836 (975) 4,132 - Restricted 20,430 19,491 18,940 939 551 - Unrestricted 20,497 17,040 18,719 3,457 (1,679)

Total Net Position $ 88,920 $ 85,499 $ 82,495 $ 3,421 $ 3,004

Table A-1Condensed Statement of Net Position

(000’s)



(UNAUDITED)

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NET POSITION (CONTINUED)

As noted in the table above, total Net Position increased by $3.42 million in 2018 as compared to $3.00 million in 2017. The 2018 increase resulted from total assets increasing by $4.43 million, GASB 68 Deferred Outflows decreasing by $0.70 million, total liabilities increasing by $0.19 million, and GASB 68 Deferred Inflows increasing by $0.12 million. The 2017 increase resulted from total assets decreasing by $1.94 million, GASB 68 Deferred Outflows decreasing by $2.12 million and GASB 68 Deferred Inflows increasing by $0.32 million offset by a decrease in total liabilities of $7.38 million. In 2018, current and other assets increased by $3.92 million primarily due to an increase in cash and investments of $2.57 million, an increase in Accounts Receivable and Due from Other Governments of $0.14 million, an increase in inventory and prepaid expenses of $0.21 million and an increase of assets restricted for Wastewater Infrastructure Fund and Debt Service of $0.88 million. In 2017, current and other assets decreased by $0.67 million primarily due to a decrease in cash and investments of $1.03 million, a decrease in Due from Other Governments of $0.66 million, an increase in inventory and prepaid expenses of $0.37 million and an increase of assets restricted for Wastewater Infrastructure Fund and Debt Service of $0.56 million. In 2018, net capital assets increased by $0.52 million primarily due to capital outlays related to wastewater projects related to the Scanlon interceptor ($3.79 million), screw pump improvements ($0.38 million), Oxygen Plant and Main Switchgear improvements ($5.01 million) and other wastewater ($1.36 million) projects less depreciation expense ($10.02 million). In 2017, net capital assets decreased by $1.27 million primarily due to capital outlays related to wastewater projects related to the clarifier ($0.57 million), Lakeside interceptor ($0.37 million), Scanlon interceptor ($3.32 million), screw pump improvements ($0.94 million), Wrenshall pump station ($0.65 million), and other wastewater ($2.39 million) projects less depreciation expense ($9.5 million). Current liabilities decreased in 2018 by $0.05 million primarily due to a decrease in accounts payable ($0.49 million) and a decrease in Construction Contracts Payable ($0.19 million) offset by an increase in Due to Other Governments for year end user adjustments ($0.27 million) and an increase in General Obligation Debt Service ($0.40 million). Current liabilities decreased in 2017 by $0.42 million primarily due to a decrease in construction contracts payable for capital projects. The increase in long-term liabilities of 2018 of $0.24 million is primarily due to an increase in long-term debt financing (new debt issues higher than debt payoff of $1.26 million) offset by a decrease in GASB 68 Net Pension Liability of $1.02 million. The decrease in long-term liabilities of 2017 of $6.96 million is primarily due to a decrease in long-term debt financing (payoff of debt higher than new debt issues of $4.82 million) and a decrease in GASB 68 Net Pension Liability of $2.16 million.



(UNAUDITED)

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REQUIRED FINANCIAL STATEMENTS (CONTINUED) NET POSITION (CONTINUED)

2017 to 2018 2016 to 2017Dollar Change Dollar Change

Increase Increase


Operating Revenues Wastewater User Charges $ 26,786 $ 26,419 $ 26,704 $ 367 $ (285)

Solid Waste Fees 8,224 8,041 7,822 183 220 District-Wide Allocation 355 355 355 - -

Capacity Availability Fee 471 362 424 109 (62) Other Operating Revenues 988 829 884 159 (55) Nonoperating Revenues:

Earnings on Investments 601 294 157 307 137 Operating Grants 390 395 421 (5) (26) Other Nonoperating Revenue 14 5 3 9 2

Property Taxes 1,130 1,106 1,100 24 6 Total Revenues 38,959 37,807 37,870 1,152 (63)

Operating Expenses 25,155 24,788 24,877 367 (89) Depreciation Expenses 10,024 9,578 9,484 446 94 Non-Operating Expenses 708 773 840 (65) (67) Total Expenses 35,887 35,140 35,201 748 (62)

Income (Loss) Before Capital Contributions 3,072 2,667 2,669 404 (1)

Capital Contributions 349 336 1,657 13 (1,321)

Changes in Net Position 3,421 3,003 4,326 419 (1,323)

Beginning Net Position 85,499 82,495 78,169 3,004 4,326

Prior Period Adjustment - - - - -

Beginning Net Position, Restated - - 78,169 - (78,169)

Ending Net Position $ 88,920 $ 85,499 $ 82,495 $ 3,421 $ 3,004

Table A-2Condensed Statement of Revenues, Expenses, and Changes in Net Position

(000’s)



(UNAUDITED)

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NET POSITION (CONTINUED)

While the Statement of Net Position shows the change in financial position, the Statement of Revenues, Expenses and Changes in Net Position provides answers as to the nature and source of these changes. As can be seen in Table A-2 above, there was an increase in income or loss before capital contributions of $3.07 million in 2018, an increase in income or loss before capital contributions of $2.67 million in 2017, and an increase in income or loss before capital contributions of $2.67 million in 2016. Operating revenues increased by $0.82 million in 2018 primarily due to an increase in wastewater user charges of $0.37 million, an increase in solid waste user charges of $0.18 million, an increase in Capacity Availability Fee revenue of $0.11 million and an increase in other revenue charges of $0.16 million. Operating revenues decreased by $0.18 million in 2017 primarily due to a decrease in wastewater user charges of $0.28 million and other revenue charges of $0.12 million offset by an increase in solid waste user charges of $0.22 million. Non-operating revenues for 2018 increased by $0.34 million primarily due to an increase in earnings on investments. Non-operating revenues for 2017 increased by $0.12 million primarily due to an increase in earnings on investments. Total operating expenses increased by $0.37 million in 2018. Primary expense increases were $0.17 million for chemicals and $0.14 million for electrical contractors. Total operating expenses decreased by $0.09 million in 2017. Primary expense decreases of $0.29 million for chemicals were offset by $0.25 million expense increases for electrical contractors.



(UNAUDITED)

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CAPITAL ASSETS At the end of 2018, WLSSD had invested $331.01 million in capital assets as shown in Table A-3. Capital assets increased by $10.47 million primarily due to improvements to the wastewater plant and other wastewater improvements.

2017 to 2018 2016 to 2017Dollar Change Dollar Change

Increase Increase


Land & Easements $ 812 $ 812 $ 812 $ - $ - Improvements 220,449 210,351 202,312 10,098 8,039

Buildings & Structures 74,673 74,673 74,673 - - Furniture & Equipment 31,846 31,546 31,431 300 115

Motor Vehicle 3,234 3,160 3,072 73 88 Total 331,014 320,542 312,300 10,471 $ 8,242

235,547 225,593 216,079 9,954 $ 9,514

Net Capital Assets $ 95,467 $ 94,950 $ 96,222 $ 517 $ (1,272)

Less: Accumulated Depreciation

Table A-3Capital Assets

(000’s)

More detailed information about WLSSD’s capital assets is presented in Note 3.A.3 to the financial statements.

DEBT ADMINISTRATION

WLSSD is required to maintain, in a sinking fund at year-end, cash and investments to meet the debt service payments for the following year. Wastewater debt service charges are recovered entirely through user charges. It is the goal of management to maintain a minimum of 120% the following year’s debt service in the fund at year-end. Such a goal has been incorporated into all future long-term capital planning. General obligation indebtedness at year-end 2018 was $46.69 million. This amount includes $8.27 million in general obligation bonds and $38.42 million in general obligation notes from the State of Minnesota revolving loan fund. Additional general obligation revenue notes were issued in the amount of $8.91 million to fund wastewater infrastructure. More detailed information about WLSSD’s long-term debt activity is presented in Notes 3.B. 2-4.


OPERATING INFORMATION CAPITAL ASSET STATISTICS – WATERWATER OPERATIONS

LAST TEN FISCAL YEARS

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DEBT ADMINISTRATION (CONTINUED) General obligation indebtedness at year-end 2017 was $45.00 million. This amount includes $12.24 million in general obligation bonds and $32.76 million in general obligation notes from the State of Minnesota revolving loan fund. Additional general obligation revenue notes were issued in the amount of $2.39 million to fund wastewater infrastructure. More detailed information about WLSSD’s long-term debt activity is presented in Notes 3.B. 2-4.

ECONOMIC FACTORS

Table A-4 shows the wastewater rate history for each of the four billing parameters: flow, peak flow, BOD, and suspended solids for the period 2014 through 2018. For the five-year period presented the cost of flow increased by 5.91%, the cost of peak flow decreased by 4.33%, the cost of BOD decreased by 0.43% and the cost of suspended solids increased by 15.51%. The typical domestic strength (domestic equivalent) cost per 1000 gallons increased by 8.49% over this period. Domestic strength wastewater assumptions are 200 MG/L for BOD and 200 MG/L for suspended solids.

SuspendedFlow Peak Flow BOD Solids Domestic Equivalent

Fiscal Year (per 1000 gal) (per 1000 gal) (per lb) (per lb) Cost/1000 gallons2014 0.5438 0.0208 0.1632 0.2701 1.732015 0.5717 0.0243 0.1509 0.2777 1.77

2016 0.5472 0.0193 0.1432 0.3026 1.78

2017 0.5338 0.0193 0.1557 0.2930 1.78

2018 0.5759 0.0199 0.1625 0.3120 1.88

Table A-4Wastewater Rate History

FINANCIAL CONTACT

This financial report is designed to provide our customers and creditors with a general overview of WLSSD’s finances and to demonstrate WLSSD’s accountability. If you have questions about this report or need additional financial information, contact the Western Lake Superior Sanitary District, 2626 Courtland Street, Duluth, Minnesota 55806-1894.

BASIC FINANCIAL STATEMENTS


COMPARATIVE STATEMENT OF NET POSITION DECEMBER 31, 2018 AND 2017

The notes to the financial statements are an integral part of this statement. (18)

Assets and Deferred Outflows of Resources

Current Assets:Cash and Cash Equivalents $ 5,744,959 $ 5,981,372Investments 17,677,449 14,866,771Accounts Receivable 2,451,508 2,269,744Accrued Interest Receivable 212,586 103,121Due from Other Governments 1,405,708 1,446,031Inventory 2,317,103 2,185,960Prepaid Expense 458,864 375,849Assets Restricted for Memorial Fund Investments 2,516 2,582Assets Restricted for Wastewater Infrastructure Fund Capital Replacement Investments 2,759,288 3,099,560Assets Restricted for General Obligation Debt Service Investments 17,865,129 16,647,167

Total Current Assets 50,895,110 46,978,157

Noncurrent Assets:Capital Assets: 331,013,825 320,542,350 Less: Allowance for Depreciation (235,547,345) (225,592,861)

Total Capital Assets Net of Accumulated Depreciation 95,466,480 94,949,489

Total Assets 146,361,590 141,927,646

Deferred Outflows of Resources:Pension Related 1,016,343 1,710,968

Total Assets and Deferred Outflows of Resources 147,377,933 143,638,614

2018 2017


COMPARATIVE STATEMENT OF NET POSITION (CONTINUED) DECEMBER 31, 2018 AND 2017


Liabilities and Deferred Inflows of Resources

Current Liabilities:Accounts Payable $ 1,098,280 $ 1,584,745Salaries and Wages Payable 443,987 419,290Accrued Vacation Payable 474,615 501,218Compensatory Time Payable 238,494 278,408Payroll Deductions Payable 15,270 9,886Due to Other Governments 343,184 72,442Employee Benefits 18,270 16,633Construction Contracts Payable 772,739 965,497 Current Liabilities Payable from Restricted Assets: General Obligation Debt Service

Accrued Interest Payable 197,211 227,883 General Obligation Bonds 3,795,000 3,970,000 General Obligation Taxable Revenue Notes 3,703,192 3,099,520

Total Current Liabilities 11,100,242 11,145,522

Noncurrent Liabilities:General Obligation Taxable Revenue Notes 34,718,332 29,663,276General Obligation Bonds (Net of Unamortized

Bond Discounts and Premiums) 4,484,693 8,283,626Net Pension Liability 6,074,611 7,092,551Sick Leave Liability 68,919 119,788Other Postemployment Benefits Obligation 324,905 272,490

Total Noncurrent Liabilities 45,671,460 45,431,731

Total Liabilities 56,771,702 56,577,253

Deferred Inflows of Resources:Pension Related 1,686,593 1,563,158

Total Liabilities and Deferred Inflows of Resources 58,458,295 58,140,411

Net Position

Net Investment in Capital Assets 47,992,524 48,967,570Restricted:

Memorial Fund 2,516 2,582 Wastewater Infrastructure Fund Capital Replacement 2,759,288 3,099,560 General Obligation Debt Service 17,667,918 16,389,100

Unrestricted 20,497,392 17,039,391

Total Net Position $ 88,919,638 $ 85,498,203

2018 2017


COMPARATIVE STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

YEARS ENDED DECEMBER 31, 2018 AND 2017


Operating Revenue:User Charges - Municipalities $ 11,220,492 $ 11,189,619 User Charges - Industries 15,565,523 15,229,129 User Charges - Solid Waste 5,585,909 5,473,131 Service Fee - Solid Waste 2,638,047 2,568,132 District-wide Allocation 354,999 354,998 Capacity Availability Charges 471,143 362,374 Other Income 987,916 829,074

Total Operating Revenue 36,824,029 36,006,457

Operating Expenses:Salaries, Wages and Compensation 7,350,891 7,194,814 Employee Benefits 2,957,164 3,488,123 Other Postemployment Benefits 52,415 8,074 Professional Services 185,296 134,925 Safety and Training 148,481 115,029 Public Information and Other Special Services 221,656 207,956 Easements and Rents 61,907 57,871 Travel 13,305 13,734 Repairs and Maintenance 1,064,553 921,948 Solid Waste Disposal 5,007,245 4,912,086 Insurance 157,725 155,933 Outside Services 206,287 228,901 Contracted Services 2,168,394 2,033,056 Supplies 454,565 411,641 Utilities 3,459,444 3,464,940 Office Expenses 71,967 71,158 Chemicals 1,226,341 1,056,996 Dues, Publications, and Permits 102,061 97,775 Grants to Other Governmental Units 219,523 192,168 Miscellaneous 25,812 21,687 Depreciation 10,024,381 9,578,370

Total Operating Expenses 35,179,413 34,367,185

Operating Income (Loss) 1,644,616 1,639,272

2018 2017


COMPARATIVE STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (CONTINUED)

YEARS ENDED DECEMBER 31, 2018 AND 2017


Nonoperating Revenue (Expenses):Earnings on Investments $ 600,878 $ 294,140 Gain on Sale of Capital Asset 14,130 5,181 Operating Grants 390,401 395,190 Property Taxes 1,130,463 1,105,907 Interest Expense (660,592) (772,579) Loss on Disposal of Obsolete Inventory (47,701) (863)

Total Nonoperating Revenue (Expenses) 1,427,579 1,026,976

Income (Loss) Before Contributions 3,072,195 2,666,248

Capital ContributionsState 87,288 245,705 Federal 261,952 90,371

Total Capital Contributions 349,240 336,076

Changes in Net Position 3,421,435 3,002,324

Net Position - Beginning of Year 85,498,203 82,495,879

Net Position - End of Year $ 88,919,638 $ 85,498,203

2018 2017


COMPARATIVE STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 2018 AND 2017


Cash Flows from Operating ActivitiesCash Received from Customers $ 36,131,708 $ 35,758,922 Cash Paid to Suppliers (15,495,185) (14,283,362) Cash Paid to Employees (10,593,603) (10,377,361) Other Operating Revenues 987,916 829,074

Net Cash Provided by Operating Activities 11,030,836 11,927,273

Cash Flows from Noncapital Financing ActivitiesState and Federal Operating Grants 224,357 417,156 Property Taxes 1,130,213 1,104,101

Net Cash Provided by Noncapital Financing Activities 1,354,570 1,521,257

Cash Flows from Capital and Related Financing Activities Financing Activities

Proceeds from Sale of Capital Assets 14,130 5,181 Proceeds from Note Issues 8,907,728 2,393,725 Proceeds from Capital Contributions 349,240 336,076 Principal Paid on General Obligation Bonds (3,970,000) (4,330,000) Interest Paid on General Obligation Bonds (691,264) (795,094) Principal Paid on Public Facilities Authority General Obligation Note (3,249,000) (3,046,317) Acquisition or Construction of Capital Assets (10,734,130) (8,725,559) Loss on Disposal of Obsolete Inventory (47,701) (863)

Net Cash Used by Capital and Related Financing Activities (9,420,997) (14,162,851)

Cash Flows from Investing ActivitiesSale of Investments 34,566,572 27,089,737 Interest on Investments 491,413 244,114 Purchase of Investments (38,258,807) (30,942,145)

Net Cash Usec by Investing Activities (3,200,822) (3,608,294)

Net Increase (Decrease) in Cash and Cash Equivalents (236,413) (4,322,615)

Cash and Cash Equivalents - Beginning of Year 5,981,372 10,303,987

Cash and Cash Equivalents - End of Year $ 5,744,959 $ 5,981,372

2018 2017


COMPARATIVE STATEMENT OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2018 AND 2017


Reconciliation of Operating Income to Net Cash Provided by (Used in) Operating Activities

Net Operating Income (Loss) $ 1,644,616 $ 1,639,272 Adjustments to Reconcile Net Operating Income to Net Cash Provided by Operating Activities

Depreciation 10,024,381 9,578,370 Pension Adjustment (199,880) 273,208 Change in Assets and Liabilities Decrease (Increase) in Receivables 24,853 598,665 Decrease (Increase) in Inventory (131,143) (224,689) Decrease (Increase) in Prepaids (83,015) (144,061) Increase (Decrease) in Payables (248,976) 206,508

Net Cash Provided by Operating Activities $ 11,030,836 $ 11,927,273

2018 2017

Noncash Investing, Capital and Financing Activities

In 2018, WLSSD had $6,165 of bond discount amortized within interest expense. This amount is included within the principal paid on general obligation bonded debt. In 2018, WLSSD had $10,098 of bond premium amortized within interest expense. This amount is included within the principal paid on general obligation bonded debt. In 2018, WLSSD acquired capital assets of $772,739 which had not been paid for at year-end. The unpaid amount is shown as contracts payable. In 2017, WLSSD had $8,429 of bond discount amortized within interest expense. This amount is included within the principal paid on general obligation bonded debt. In 2017, WLSSD had $10,098 of bond premium amortized within interest expense. This amount is included within the principal paid on general obligation bonded debt. In 2017, WLSSD acquired capital assets of $965,497 which had not been paid for at year-end. The unpaid amount is shown as contracts payable.


NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2018 AND 2017

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1. Summary of Significant Accounting Policies

The accounting policies of the Western Lake Superior Sanitary District (WLSSD) conform to generally accepted accounting principles (GAAP) for the years ended December 31, 2018 and 2017. The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (statements and interpretations). This financial report has been prepared in conformity with Governmental Accounting Standards Board Statements.

A. Financial Reporting Entity

WLSSD was formed pursuant to 1971 Minnesota Laws, chapter 478, as amended. WLSSD was created for the purpose of protection of the public health, safety, and welfare of the area, for the preservation and best use of waters, land and other natural resources, for the prevention, control and abatement of water pollution and disposal of solid waste, and for the efficient and economic collection, treatment and disposal of sewage and solid waste. WLSSD is governed by a nine-member board which consists of one member appointed by Carlton County, three members appointed by the City of Cloquet, four members appointed by the City of Duluth and one member appointed by St. Louis County. The Board is organized with a chair and vice-chair elected in July of each year.

As required by generally accepted accounting principles, these financial statements present WLSSD (primary government) and its component units for which WLSSD is financially accountable. There is financial accountability if the Primary Government appoints a voting majority of an organization’s governing body and has the ability to impose its will on that governing body; or there is the potential for the organization to provide specific financial benefits or to impose specific financial burden on the Primary Government. Based on the criteria for determining component units, WLSSD is not required to include any component units.

B. Basis of Presentation - Fund Accounting

The accounts of WLSSD are presented as an enterprise fund. Enterprise funds are used to account for operations that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges.

C. Basis of Accounting

Accounting records are maintained on the accrual basis, under which revenues are recorded when earned, and expenses, including vacation leave, are recorded when incurred.

When both restricted and unrestricted resources are available for use, it is WLSSD’s policy to use restricted resources first, then unrestricted resources as needed.



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1. Summary of Significant Accounting Policies (Continued) D. Assets, Liabilities, and Net Position

1. Assets

Cash and Cash Equivalents For purposes of the statement of cash flows, WLSSD has defined cash and cash equivalents as deposits in checking and savings accounts and petty cash. All other investments are not considered to be cash equivalents.

WLSSD has elected to value all money market and participating interest-earning investment contracts that mature within one year of acquisition at amortized cost. All of WLSSD’s holdings in commercial paper, bankers’ acceptances, negotiable certificates of deposit, and government agency securities qualify for amortized cost reporting. WLSSD’s investments in money market mutual funds are valued at the current share price. The carrying value of the investments which are valued at amortized cost does not differ materially from the fair value of those investments.

Inventory The inventory consists of chemicals, fuels, and expendable supplies held for consumption. The chemicals and fuels were inventoried at year-end and were valued at cost using the first-in, first-out method. A perpetual inventory system is maintained for the supplies inventory, which is valued using the moving weighted-average cost method. Restricted Assets Certain funds of WLSSD are classified as restricted assets on the statement of net position because the restriction is either imposed by law through constitutional provisions or enabling legislation or imposed externally by creditors, grantors, contributors, or laws or regulations of other governments. Therefore, their use is limited by applicable laws and regulations. Restricted assets consist of monies specified for payment of memorial fund scholarships, wastewater infrastructure capital replacement, and bond and note principal and interest. These assets are offset by restricted net position.



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1. Summary of Significant Accounting Policies (Continued)

D. Assets, Liabilities, and Net Position (Continued)

1. Assets (Continued)

Capital Assets Capital assets are defined by WLSSD as assets with an initial, individual cost of more than $10,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated 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 asset’s lives are not capitalized.

Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. During 2018 and 2017, WLSSD capitalized $42,281 and $18,899 of interest, respectively.

Depreciation of capital assets is determined using the straight-line method. The estimated useful lives of the assets are:

Classification Range Buildings and Structures 30 Years Improvements Other Than Buildings 10-20 Years Furniture and Equipment: Furniture 10 Years Equipment 5-15 Years Motor Vehicles 5 Years



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D. Assets, Liabilities, and Net Position (Continued) 2. Liabilities

Compensated Absences Employees are granted from ten to twenty-six days of vacation per year depending on their years of service and union bargaining unit. Varying amounts of vacation, depending on length of service, may be accumulated and carried over to the succeeding year. Unused vacation is paid to employees upon their termination. Vacation leave is expensed when earned.

Effective January 1, 1984, employees no longer accrue sick leave. Personnel are authorized sick leave as needed up to a maximum of twenty weeks. Prior to 1984, sick leave was earned and accumulated at various rates based on length of service.

Other Post-Employment Benefits WLSSD’s supervisory/confidential employees participate in a post-retirement health savings plan administered by the Minnesota State Retirement System. At retirement, the value of supervisory/confidential employee’s vacation balance is transferred to the post-retirement health savings plan to be used to cover post-retirement medical expenses. The amounts are contributed tax-free and there are no taxes paid when the amounts are withdrawn from the employees account. Effective January 1, 2009, upon voluntary retirement under PERA, the value of a bargaining unit employee’s accumulated sick bank balance established as of December 31, 1983, will be transferred to a post-retirement health care savings plan administered by the Minnesota State Retirement System. Pensions For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA’s fiduciary net position have been determined on the same basis as they are reported by PERA except that PERA’s fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.



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D. Assets, Liabilities and Net Position (Continued) 3. Net Position

WLSSD’s net position is reported in three parts: (1) net investment in capital assets; (2) restricted net position; and (3) unrestricted net position. When an expense is incurred for purposes which both restricted and unrestricted net position is available, it is WLSSD’s policy to use restricted first, then unrestricted net position. It is WLSSD’s policy to maintain minimum unrestricted net position targets for solid waste and wastewater functions. In the solid waste function the operations fund should maintain unrestricted net position of at least 25% of the next year’s annual operating expenditures, or $1,192,896. In addition, the solid waste function should maintain a balance of $550,000 in the capital fund and $150,000 in the transfer station capital fund. In the wastewater function, the operations fund should maintain unrestricted net position of at least 25% of the next year’s annual operating expenditures, or $4,030,478. The wastewater function should maintain a balance of $1,000,000 in the capital fund plus the highest annual WIF set aside of $1,367,847, for a total at December 31, 2018 of $2,367,847.

E. Revenues

Operating revenues, such as user charges, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as operating grants and earnings on investments, result from non-exchange transactions or incidental activities. WLSSD's operating and maintenance costs are allocated to the municipalities and industries using WLSSD’s sewage treatment system through a user service charge. The allocation is based on the “Cost Apportionment Policy” adopted by the Board of Directors. The general planning, regulation, and technical assistance provided by WLSSD are funded by a district-wide allocation. These costs are allocated against all governmental units within WLSSD based on their assessed valuation.



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E. Revenues (Continued) Solid waste users are charged tipping fees based on the volume of refuse disposed and a hauler collected solid waste management fee based on the customer container sizes. The fees are approved by the Board. A line item fee is levied on residential parcels to cover use of the solid waste facilities such as the household hazardous waste facility and material recovery center. The amount to be charged against real estate per parcel is set by the Board and certified to St. Louis County and Carlton County for collection in the following year. In Minnesota, counties act as collection agents for all property taxes. The counties are required to distribute collections to WLSSD three times each year.

The property tax calendar is as follows:

Adopt final levy and certify to Counties October 15 Lien date January 1 Receive first installment from Counties prior year’s balance of tax collections January 26 First half property taxes due May 15 Receive second installment from County first half tax collections July 6 Second half property taxes due October 15 Receive third installment from County second half tax collections December 4

Capital contributions consist of federal and state capital grants for the construction of pump stations and other wastewater treatment system improvements.

F. Expenses

Operating expenses for proprietary funds include the cost of sales and services, administrative expenses, and depreciation on the capital assets. All expenses not meeting this definition are reported as other expenses.

G. Use of Estimates

The preparation of 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

H. Prior Period Comparative Financial Information/Reclassification Certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year’s presentation.



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2. Stewardship, Compliance, and Accountability

A. General Obligation Bond Reserve Requirement

The bond resolutions require that the value of cash, cash equivalents, and investments on hand at October 1, 2018 and 2017 plus the estimated revenues to be collected through September 30, 2019 and 2018, be not less than the amount of principal and interest due on the bonds in the next succeeding year. WLSSD has complied with this requirement.

B. Budgets and Budgetary Accounting

Minnesota Statutes §458D.08 requires WLSSD’s Board to adopt an annual budget. WLSSD follows these procedures in establishing the budgetary data reflected in the financial statements:

(1) During September thru October, the Executive Director submits to the

Board of Directors an estimate of revenues and expenses for the fiscal year commencing January 1. Revenues and expenses are budgeted on an accrual basis.

(2) The budget is adopted by the Board of Directors by the passage of a motion on or before November 1.

(3) The Board of Directors may increase or decrease the budget at any time by the passage of a motion. Management may increase or decrease line items within the budget.

(4) Budgetary control of expenses is maintained at the level of total expenses. For management control purposes, the expenses are controlled at the department level.

(5) Unexpended items within the budget lapse at year-end.



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2. Stewardship, Compliance, and Accountability (Continued)

B. Budgets and Budgetary Accounting (Continued)

Below is a summary statement of actual and budget revenues and expenses for the fiscal years ended December 31, 2018 and 2017:

Variance

FavorableBudget Actual (Unfavorable)

Operating Revenue:User Charges - Municipalities $ 11,497,030 $ 11,220,492 $ (276,538) User Charges - Industries 14,944,451 15,565,523 621,072 User Charges - Solid Waste 5,426,840 5,585,909 159,069 Service Fee - Solid Waste 2,380,000 2,638,047 258,047 District-wide Allocation 355,000 354,999 (1) Capacity Availability Charges 350,000 471,143 121,143 Other Income 796,475 987,916 191,441

Total Operating Revenue 35,749,796 36,824,029 1,074,233

Operating Expenses:Operating Expenses Before

Depreciation 25,484,725 25,155,032 329,693 Depreciation 9,648,251 10,024,381 (376,130)

Total Operating Expenses 35,132,976 35,179,413 (46,437)

Operating Income (Loss) 616,820 1,644,616 1,027,796

Nonoperating Revenue (Expenses):Earnings on Investments 173,000 600,878 427,878 Gain on Sale of Capital Asset - 14,130 14,130 Operating Grants 414,781 390,401 (24,380) Property Taxes 1,130,738 1,130,463 (275) Interest Expense (740,219) (660,592) 79,627 Loss on Disposal of Obsolete Inventory - (47,701) (47,701)

Total Nonoperating Revenue (Expenses) 978,300 1,427,579 449,279

Income (Loss) Before Contributions 1,595,120 3,072,195 1,477,075

Capital Contributions - 349,240 349,240

Change in Net Position $ 1,595,120 $ 3,421,435 $ 1,826,315

2018



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2. Stewardship, Compliance, and Accountability (Continued)

B. Budgets and Budgetary Accounting (Continued)

Variance

FavorableBudget Actual (Unfavorable)

Operating Revenue:User Charges - Municipalities $ 11,123,455 $ 11,189,619 $ 66,164 User Charges - Industries 14,807,349 15,229,129 421,780 User Charges - Solid Waste 5,208,365 5,473,131 264,766 Service Fee - Solid Waste 2,306,500 2,568,132 261,632 District-wide Allocation 355,000 354,998 (2) Capacity Availability Charges 350,000 362,374 12,374 Other Income 716,775 829,074 112,299

Total Operating Revenue 34,867,444 36,006,457 1,139,013

Operating Expenses:Operating Expenses Before

Depreciation 24,915,720 24,788,815 126,905 Depreciation 9,027,828 9,578,370 (550,542)

Total Operating Expenses 33,943,548 34,367,185 (423,637)

Operating Income (Loss) 923,896 1,639,272 715,376

Nonoperating Revenue (Expenses):Earnings on Investments 85,500 294,140 208,640 Gain on Sale of Capital Asset - 5,181 5,181 Operating Grants 399,538 395,190 (4,348) Property Taxes 1,106,075 1,105,907 (168) Interest Expense (910,248) (772,579) 137,669 Loss on Disposal of Obsolete Inventory - (863) (863)

Total Nonoperating Revenue (Expenses) 680,865 1,026,976 346,111

Income (Loss) Before Contributions 1,604,761 2,666,248 1,061,487

Capital Contributions - 336,076 336,076

Change in Net Position $ 1,604,761 $ 3,002,324 $ 1,397,563

2017



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3. Detailed Notes

A. Assets

1. Deposits and Investments Reconciliation of WLSSD’s total cash and investments to the financial statements follows:

Current Assets: 2018 2017

Cash and Cash Equivalents $ 5,744,959 $ 5,981,372

Investments 17,677,449 14,866,771

Restricted Assets:

Memorial Fund Investments 2,516 2,582

Wastewater Infrastructure Fund Capital Replacement

Investments 2,759,288 3,099,560

Debt Service Investments 17,865,129 16,647,167

Total Cash and Investments $ 44,049,341 $ 40,597,452

a. Deposits

Minnesota Statutes §§118A.02 and 118A.04 authorize WLSSD to designate a depository for public funds and to invest in certificates of deposit. Minnesota Statutes §118A.03 requires that all WLSSD’s deposits be protected by insurance, surety bond, or collateral. The fair value of collateral pledged shall be at least 10% more than the amount on deposit at the close of the financial institution's banking day, not covered by insurance or bonds. Authorized collateral includes treasury bills, notes and bonds; issues of U.S. government agencies; general obligations rated “A” or better, revenue obligations rated “AA” or better; irrevocable standby letters of credit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral.

Custodial Credit Risk Custodial credit risk is the risk that in the event of a financial institution failure, WLSSD’s deposits may not be returned to it. WLSSD’s policy is that all Certificates of Deposit shall be collateralized in compliance with Minnesota Statutes §118A.03. As of December 31, 2018, WLSSD’s bank balance was not exposed to custodial credit risk.



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3. Detailed Notes (Continued)

A. Assets (Continued)

1. Deposits and Investments (Continued)

b. Investments Minnesota Statutes §§118A.04 and 118A.05 generally authorize the following types of investments as available to WLSSD:

(1) securities which are direct obligations or are guaranteed or insured

issues of the United States, its agencies, its instrumentalities, or organizations created by an act of Congress, except mortgage-backed securities defined as “high risk” by Minnesota Statutes §118A.04, subd. 6;

(2) mutual funds through shares of registered investment companies provided the mutual fund receives certain ratings depending on its investments;

(3) general obligations of the State of Minnesota and its municipalities, and in certain state agency and local obligations of Minnesota and other states provided such obligations have certain specified bond ratings by a national bond rating service;

(4) bankers’ acceptances of United States banks; (5) commercial paper issued by United States corporations or their

Canadian subsidiaries that is rated in the highest quality category by two nationally recognized rating agencies and matures in 270 days or less; and

(6) with certain restrictions, in repurchase agreements, securities lending agreements, joint powers investment trusts, and guaranteed investment contracts.

The Minnesota Municipal Money Market Fund is a money market accounts that are valued at amortized cost with maturities of investments of one year or less. The Minnesota Municipal Market Trust Fund does not have its own credit rating. PMA Financial Network, Inc., who administers the Minnesota Municipal Money Market Fund Trust, holds an organization credit rating of AA by Standard & Poor’s.



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b. Investments (Continued)

Custodial Credit Risk The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. It is WLSSD’s policy that all investment securities be held in safekeeping in compliance with the requirements of Minnesota Statutes §118A.06. This statute allows investment securities to be held in safekeeping with (1) any federal reserve bank, (2) any bank authorized under the laws of the United States or any state to exercise corporate trust powers, including, but not limited to the bank from which the investment is purchased, (3) a primary reporting dealer in United States government securities to the Federal Reserve Bank of New York, or (4) a securities broker-dealer which is registered as a broker-dealer under chapter 80A or is exempt from the registration requirements, is regulated by the Securities and Exchange Commission, and maintains insurance through the Securities Investor Protection Corporation or excess insurance coverage in an amount equal to or greater than the value of the securities held.

At December 31, 2018 and 2017, WLSSD had no investments which were subject to custodial credit risk.

Interest Rate Risk Interest rate risk is the risk that changes in the market interest rates will adversely affect the fair value of an investment. WLSSD investment policy limits investment maturities to fewer than two years. The policy sets guidelines for the minimum percentages of the investment portfolio to be maintained at various maturities. In this way, WLSSD minimizes their exposure to interest rate risk by investing in both shorter and longer-term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.



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b. Investments (Continued) 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. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. It is WLSSD’s policy to invest only in securities that meet the ratings requirements set by state statute. Minnesota Statutes §118A.04 requires commercial paper to be rated in the highest quality category by at least two nationally recognized rating agencies and mature in 270 days or less. State and local government securities must be rated “A” or better for general obligation securities and “AA” or better for revenue obligations. Public funds may also be invested in United States securities which are direct obligations or are guaranteed or insured issues of the United States, its agencies, its instrumentalities, or organizations created by an act of Congress. Concentration of Credit Risk The concentration of credit risk is the risk of loss that may be caused by WLSSD’s investment in a single issuer. It is WLSSD’s policy to diversify the use of investment instruments to avoid incurring unreasonable risks inherent in over investing in specific instruments, individual financial institutions, or maturities. WLSSD’s investment in Federal Home Loan Bank Notes Securities comprises 33% of WLSSD’s total investments. WLSSD’s investment policy allows WLSSD to invest in U.S. treasury obligations, U.S. government agency securities, and certificates of deposit which are fully insured by the Federal Deposit Insurance Corporation, without limit. However, certificates of deposit are limited to 50% with any one depository. Repurchase agreements and bankers’ acceptances are limited by the investment policy to no more than 50% of the portfolio and no more than 50% with any one depository. Commercial paper is limited to no more than 50% of the portfolio and no more than 10% with any one issuer. Money market funds are limited to a maximum of 25% of the portfolio.



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Concentration of Credit Risk, Credit, and Interest Rate Risks

Value at

Investment Type Rating Agency 12/31/18

U.S. Government Agency Securities

Federal Home Loan Bank Notes AA+/AAA S&P/ Moody's 7% 5/28/2019 2,500,000$ Federal Home Loan Bank Notes AA+/AAA S&P/ Moody's 5% 3/27/2019 2,020,403

Federal Home Loan Bank Notes AA+/AAA S&P/ Moody's 9% 3/14/2019 3,500,000

Federal Home Loan Bank Notes AA+/AAA S&P/ Moody's 12% 12/20/2019 6,751,758

Total U.S. Government Agency Securities 14,772,161$

Carrying Value

Investment Type Rating Agency as of 12/31/18

Negotiable Certificates of Deposit

Bank of the Ozarks AR CD N/R,N/R N/A <5% 1/18/2019 245,700$

Discover Bank Greenwood DL CD N/R,N/R N/A <5% 1/24/2019 245,000

Banner Bank, Walla Walla WA CD N/R,N/R N/A <5% 1/25/2019 245,000

Ponce Bank Bronx CD N/R,N/R N/A <5% 1/25/2019 245,000

Citibank National Association CD N/R,N/R N/A <5% 1/25/2019 245,000

State Bank of India New York NY CD N/R,N/R N/A <5% 1/25/2019 245,000

Cathay Bank Los Angeles CA CD N/R,N/R N/A <5% 1/29/2019 245,000

Bank of Ruston LA CD N/R,N/R N/A <5% 1/30/2019 245,000

Merrick Bank South Jordan UT CD N/R,N/R N/A <5% 1/30/2019 245,000

Synovus Bank Columbus GA CD N/R,N/R N/A <5% 1/30/2019 245,000

Patriot Bank NA/Stamford CD N/R,N/R N/A <5% 1/31/2019 245,000

First Mid-Illinois Bank & Trust IL CD N/R,N/R N/A <5% 3/22/2019 245,000

Oriental Bank CD N/R,N/R N/A <5% 3/28/2019 244,000

Bank Barolda NY CD N/R,N/R N/A <5% 3/29/2019 244,000

Peoples Bank Holyoke MA CD N/R,N/R N/A <5% 3/29/2019 244,000

Valley Cent Bank Reading OH Cd N/R,N/R N/A <5% 3/29/2019 244,000

Prospect Bank / Edgar County B&TC IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Village Bank & Trust Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Crystal Lake B&TC NA Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Northbrook B&TC Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Schaumburg B&TC, Advantage National Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Beverly Bank & Trust Co Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

State Bank of the Lakes Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

St Charles B&TC Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Lake Forest B&T Co Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Wheaton Bank and Trust Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Hinsdale B&TC Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Libertyville B&TC Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Barrington B&TC Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Town Bank Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

Old Plank Trail Community Bank Wintrust IL CD N/R,N/R N/A <5% 4/22/2019 244,500

TCF National Bank CD N/R,N/R N/A <5% 4/25/2019 244,000

Synchrony Bank CD N/R,N/R N/A <5% 4/25/2019 244,000

Farmers & Merchant Savings Bank CD N/R,N/R N/A <5% 4/29/2019 244,000

Enerbank USA CD N/R,N/R N/A <5% 4/30/2019 244,000

UBS Bank USA Salt Lake City UT CD N/R,N/R N/A <5% 4/30/2019 244,000

Concentration Risk Interest Rate

Risk Credit Risk

Credit Rating Over 5 Percent of

Portfolio Maturity Date




Risk Credit Risk



(38)





Concentration of Credit Risk, Credit and Interest Rate Risks (Continued)

Value at

Investment Type Rating Agency 12/31/18 Credit Rating Over 5 Percent of



Risk Credit Risk

Sandhills Bank North, Myrtle Beach SC CD N/R,N/R N/A <5% 4/30/2019 244,000$

Bank of China NY CD N/R,N/R N/A <5% 5/20/2019 244,000

CFG Community Bank MD CD N/R,N/R N/A <5% 5/20/2019 244,200

Bank 7 OK CD N/R,N/R N/A <5% 5/20/2019 244,100

Cornerstone Bank York NE CD N/R,N/R N/A <5% 5/20/2019 244,200

Prudential Savings Bank PA CD N/R,N/R N/A <5% 5/20/2019 244,300

Post Oak Bank TX CD N/R,N/R N/A <5% 5/20/2019 244,300

Wintrust Bank/North Shore Comm Bank & Trust IL CD N/R,N/R N/A <5% 5/20/2019 244,200

New Omni Bank CA CD N/R,N/R N/A <5% 5/20/2019 244,300

Mission National Bank CA CD N/R,N/R N/A <5% 5/20/2019 244,400

Pacific Western Bank CA CD N/R,N/R N/A <5% 5/20/2019 244,400

Capital Community Bank UT CD N/R,N/R N/A <5% 5/20/2019 244,400

ZBNA CD N/R,N/R N/A <5% 5/21/2019 244,000

MUFG Union Bank San Francisco, CA CD N/R,N/R N/A <5% 5/22/2019 244,000

Fifth Third Bank Cincinnati OH CD N/R,N/R N/A <5% 5/23/2019 244,000

City National Bank of Florida, Miami CD N/R,N/R N/A <5% 5/24/2019 244,000

Wex Bank Midvale UT CD N/R,N/R N/A <5% 5/30/2019 244,000

Bank United National Association CD N/R,N/R N/A <5% 5/30/2019 244,000

First Internet Bank of Indiana CD N/R,N/R N/A <5% 6/24/2019 243,600

Millenium Bank IL CD N/R,N/R N/A <5% 6/24/2019 243,800

First Capital Bank TN CD N/R,N/R N/A <5% 6/24/2019 243,800

North American Banking Company MN CD N/R,N/R N/A <5% 6/24/2019 243,900

Newbank NA NY CD N/R,N/R N/A <5% 6/24/2019 243,900

Mainstreet Bank VA CD N/R,N/R N/A <5% 6/24/2019 243,900

National Bank of St. Anne IL CD N/R,N/R N/A <5% 6/24/2019 244,000

First Western Federal Savings Bank SD CD N/R,N/R N/A <5% 6/24/2019 244,000

Premier Bank IA CD N/R,N/R N/A <5% 6/24/2019 244,000

Servisfirst Bank FL CD N/R,N/R N/A <5% 6/24/2019 243,900

American Plus Bank NA CA CD N/R,N/R N/A <5% 6/24/2019 244,000

Corporate One Federal Credit Union N/R,N/R N/A <5% 6/24/2019 244,000

Ameris Bank Moultrie GA CD N/R,N/R N/A <5% 6/27/2019 244,000

Axiom Bank Maitland FL CD N/R,N/R N/A <5% 6/28/2019 244,000

Iberiabank Lafayette LA CD N/R,N/R N/A <5% 6/28/2019 244,000

State Bank of Fenton MI CD N/R,N/R N/A <5% 6/28/2019 244,000

Stifel Bank and Trust CD N/R,N/R N/A <5% 6/27/2019 244,000

East West Bank San Marino CA CD N/R,N/R N/A <5% 6/28/2019 244,000

United Bank Fairfax VA CD N/R,N/R N/A <5% 6/28/2019 244,000

Flagship Bank Wayzata MN CD N/R,N/R N/A <5% 6/28/2019 244,000

Citadel FCU PA CD N/R,N/R N/A <5% 11/15/2019 243,000

Northeast Community Bank NY CD N/R,N/R N/A <5% 11/15/2019 243,200

Elga Credit Union MI CD N/R,N/R N/A <5% 11/15/2019 243,200

Financial Federal Bank TN CD N/R,N/R N/A <5% 11/15/2019 243,400

Bank of America Charlotte NC CD N/R,N/R N/A <5% 11/21/2019 243,000

Branch Banking & Trust Winston Salem NC CD N/R,N/R N/A <5% 11/20/2019 243,000



(39)






Value at




Risk Credit Risk

Compass Bank Birmingham AL CD N/R,N/R N/A <5% 11/29/2019 243,000$

USNY Bank Geneva NY CD N/R,N/R N/A <5% 11/26/2019 243,000

Global Bank NY CD N/R,N/R N/A <5% 12/19/2019 243,200

Sonabank VA CD N/R,N/R N/A <5% 12/19/2019 243,000

Modern Bank National Association NY CD N/R,N/R N/A <5% 12/19/2019 243,200

CIBC Bank USA/Private Bank MI CD N/R,N/R N/A <5% 12/19/2019 243,200

Mizuho Bank USA CD N/R,N/R N/A <5% 12/26/2019 243,000

Bank of India NY CD N/R,N/R N/A <5% 12/26/2019 243,000

BMO Harris Bank IL CD N/R,N/R N/A <5% 12/27/2019 243,000

Renasant Bank Tupelo MS CD N/R,N/R N/A <5% 12/31/2019 243,000

Total Negotiable Certificates of Deposit 21,721,500

Total Investments 100% 36,493,661

Repurchase Agreements

US Bank - Sweep 5,160,240

Deposits 828,037

4M Fund N/A N/A N/A 890,848

Wells Fargo Government Fund AAA S&P/Moody's N/A 181,354

First American-Prime Obligation Fund AAA S&P/Moody's N/A 492,576

Petty Cash 2,625

Total Cash and Investments 44,049,341$

N/A - Not Applicable

<5% - Concentration is Less Than 5% of Investment



(40)






Value at

Investment Type Rating Agency 12/31/17

U.S. Government Agency Securities

Federal Home Loan Bank Notes AA+/AAA S&P/ Moody's 12% 3/19/2018 3,988,013$

Carrying Value

Investment Type Rating Agency as of 12/31/17

Negotiable Certificates of Deposit

Nexbank SSB TX CD N/R,N/R N/A <5% 1/26/2018 247,500$

KS Statebank / Kansas State Bank of Manhattan KS CD N/R,N/R N/A <5% 1/26/2018 247,500

Capital Bank TX CD N/R,N/R N/A <5% 1/26/2018 247,600

First Commons Bank NA MA CD N/R,N/R N/A <5% 1/26/2018 247,600

Orrstown Bank PA CD N/R,N/R N/A <5% 1/26/2018 247,600

Savoy Bank NY CD N/R,N/R N/A <5% 1/26/2018 247,600

Citizens State Bank of La Crosse WI CD N/R,N/R N/A <5% 1/26/2018 247,600

Bremer Bank NA MN N/R,N/R N/A <5% 1/26/2018 247,500

Southside Bank TX CD N/R,N/R N/A <5% 1/26/2018 247,700

Millbury National Bank MA CD N/R,N/R N/A <5% 1/26/2018 247,700

Banco do Brasil Americas FL CD N/R,N/R N/A <5% 1/26/2018 247,700

United Bank CT CD N/R,N/R N/A <5% 1/26/2018 247,700

Essa Bank & Trust Stoudsburg PA CD N/R,N/R N/A <5% 1/30/2018 249,000

Boston Private Bank & Trust Co CD N/R,N/R N/A <5% 1/31/2018 249,000

First Citrus Bank Tampa FL CD N/R,N/R N/A <5% 3/28/2018 249,000

Bar Harbor Bank & Trust ME CD N/R,N/R N/A <5% 3/29/2018 249,000

Atlantic Stewardship Bank NJ CD N/R,N/R N/A <5% 3/29/2018 249,000

City National Bank Miami FL CD N/R,N/R N/A <5% 3/29/2018 249,000

TCF National Bank CD N/R,N/R N/A <5% 3/29/2018 249,000

Corporate One Federal Credit Union OH CD N/R,N/R N/A <5% 3/26/2018 247,200

Bank North Carolina NC CD N/R,N/R N/A <5% 3/29/2018 248,000

Allegiance Bank Houston TX CD N/R,N/R N/A <5% 3/29/2018 248,000

Enterprise Bank NA CD N/R,N/R N/A <5% 3/30/2018 248,000

Peoples Bank Mangolia AR CD N/R,N/R N/A <5% 3/29/2018 248,000

First Internet Bank of IN CD N/R,N/R N/A <5% 3/26/2018 247,100

Cornerstone Bank York NE CD N/R,N/R N/A <5% 3/26/2018 247,200

Regent Bank OK CD N/R,N/R N/A <5% 3/26/2018 247,400

Middlefield Banking Company OH CD N/R,N/R N/A <5% 3/26/2018 247,400

Valley National Bank OK CD N/R,N/R N/A <5% 3/26/2018 247,300

Patriot Bank OK CD N/R,N/R N/A <5% 3/26/2018 247,400

Newbank NA NY CD N/R,N/R N/A <5% 3/26/2018 247,500

Fieldpoint Private Bank & Trust CT CD N/R,N/R N/A <5% 3/26/2018 247,500

Drake Bank MN CD N/R,N/R N/A <5% 3/26/2018 247,500

Premier Bank IA CD N/R,N/R N/A <5% 3/26/2018 247,600

ZBNA CD N/R,N/R N/A <5% 3/26/2018 249,000




Risk Credit Risk


Risk Credit Risk





(41)






Value at




Risk Credit Risk

F&M Bank Clarksville TN CD N/R,N/R N/A <5% 4/27/2018 249,000$

DMB Community Bank WI CD N/R,N/R N/A <5% 4/27/2018 249,000

Pacific Coast Bankers Bank Waln CD N/R,N/R N/A <5% 4/27/2018 249,000

Summit Street Bank Santa Rosa CA CD N/R,N/R N/A <5% 4/27/2018 249,000

SNB Bank NA OK CD N/R,N/R N/A <5% 4/20/2018 247,100

CFG Community Bank MD CD N/R,N/R N/A <5% 4/20/2018 247,000

First National Bank AR CD N/R,N/R N/A <5% 4/20/2018 247,100

Associated Bank NA WI CD N/R,N/R N/A <5% 4/20/2018 247,100

Wintrust Bank Chicago IL CD N/R,N/R N/A <5% 4/26/2018 249,000

Pacific Western Bank CA CD N/R,N/R N/A <5% 4/26/2018 249,000

Bank of China NY CD N/R,N/R N/A <5% 4/27/2018 249,000

Farmers Exchange Bank OK CD N/R,N/R N/A <5% 5/17/2018 246,800

Unity Bank MN CD N/R,N/R N/A <5% 5/17/2018 246,900

North Amnerican Banking Company MN CD N/R,N/R N/A <5% 5/17/2018 246,900

Farmers & Merchants Union Bank WI CD N/R,N/R N/A <5% 5/17/2018 246,900

Bank 7 OK CD N/R,N/R N/A <5% 5/17/2018 247,000

Comenity Capital Bank UT CD N/R,N/R N/A <5% 5/22/2018 249,000

Bank West San Francisco CA CD N/R,N/R N/A <5% 5/23/2018 249,000

Plains Capital Bank TX CD N/R,N/R N/A <5% 5/24/2018 249,000

Transportation Alliance Bank UT CD N/R,N/R N/A <5% 5/25/2018 249,000

Midcountry Bank Metropolis IL CD N/R,N/R N/A <5% 5/30/2018 249,000

Pacific Premier Bank CD N/R,N/R N/A <5% 5/30/2018 249,000

Parkway Bank & Trust Harwood Heights IL CD N/R,N/R N/A <5% 5/30/2018 249,000

Century Bank KY CD N/R,N/R N/A <5% 5/30/2018 249,000

First Foundation Bank Irvine CA CD N/R,N/R N/A <5% 5/31/2018 249,000

Investors Community Bank WI CD N/R,N/R N/A <5% 5/31/2018 249,000

Old National Bank Evansville IN CD N/R,N/R N/A <5% 5/31/2018 249,000

Royal Business Bank CA CD N/R,N/R N/A <5% 6/21/2018 246,500

Landmark Community Bank TN CD N/R,N/R N/A <5% 6/21/2018 246,500

Mainstreet Bank VA CD N/R,N/R N/A <5% 6/21/2018 246,500

First Capital Bank TN CD N/R,N/R N/A <5% 6/21/2018 246,500

Morgan Stanley Bank NA UT CD N/R,N/R N/A <5% 6/29/2018 246,000

Ally Bank Midvale UT CD N/R,N/R N/A <5% 6/29/2018 246,000

Morgan Stanley Pvt Bank CD N/R,N/R N/A <5% 6/29/2018 246,000

Seacoast National Bank Stuart FL CD N/R,N/R N/A <5% 6/29/2018 246,000

Compass Bank Birmingham AL CD N/R,N/R N/A <5% 6/29/2018 246,000

Grand River Bank Grandville MI CD N/R,N/R N/A <5% 6/29/2018 246,000

Rockford Bank & Trust Co IL CD N/R,N/R N/A <5% 8/20/2018 247,400

TBK Bank, SSB/The National Bank IL CD N/R,N/R N/A <5% 8/20/2018 247,400

State Bank of India Chicago IL CD N/R,N/R N/A <5% 8/27/2018 247,000

Goldman Sachs Bank NY CD N/R,N/R N/A <5% 8/29/2018 247,000

New York Community Bank Westbury NY CD N/R,N/R N/A <5% 8/30/2018 247,000

Superior Choice Credit Union Superior WI CD N/R,N/R N/A <5% 9/18/2018 246,700

MRV Banks MO CD N/R,N/R N/A <5% 9/18/2018 246,800



(42)






Value at




Risk Credit Risk

Crestmark Bank MI CD N/R,N/R N/A <5% 9/18/2018 247,000$

USAmeribank FL CD N/R,N/R N/A <5% 9/18/2018 246,900

Western Alliance Bank / Torrey Pines Bank CA CD N/R,N/R N/A <5% 9/18/2018 246,900

Texas Capital Bank TX CD N/R,N/R N/A <5% 9/18/2018 247,000

Financial Federal Bank TN CD N/R,N/R N/A <5% 9/18/2018 247,000

BMO Harris Bank Chicago IL CD N/R,N/R N/A <5% 9/27/2018 246,000

Chemical Bank & Trust Midland MI CD N/R,N/R N/A <5% 9/28/2018 246,000

Mbank Manistique MI CD N/R,N/R N/A <5% 10/26/2018 246,000

Metabank Storm Lake IA CD N/R,N/R N/A <5% 10/30/2018 246,000

Beal Bank Las Vegas NV CD N/R,N/R N/A <5% 10/31/2018 246,000

Enterprise Bank Allison Park PA CD N/R,N/R N/A <5% 11/21/2018 246,031

Community West Bank Goleta CA CD N/R,N/R N/A <5% 11/27/2018 246,000

Bank of India NY CD N/R,N/R N/A <5% 11/28/2018 246,000

Mainsource Bank Greensburg IN CD N/R,N/R N/A <5% 11/28/2018 246,000

Webbank Salt Lake City UT CD N/R,N/R N/A <5% 11/28/2018 246,000

Jonesboro St Bank Jonesboro LA CD N/R,N/R N/A <5% 11/29/2018 245,000

Meadows Bank Las Vegas NV CD N/R,N/R N/A <5% 11/30/2018 246,000

Cooperative Bank Roslindale CD N/R,N/R N/A <5% 11/30/2018 246,000

Public Service Credit Union CO CD N/R,N/R N/A <5% 12/17/2018 245,700

Sonabank VA CD N/R,N/R N/A <5% 12/17/2018 245,600

Quontic Bank FSB NY CD N/R,N/R N/A <5% 12/17/2018 245,700

Bank Leumi USA NY CD N/R,N/R N/A <5% 12/17/2018 245,900

T Bank NA TX CD N/R,N/R N/A <5% 12/17/2018 245,900 CIBC Bank USA / Private Bank MI CD N/R,N/R N/A <5% 12/17/2018 246,000 Great Midwest Bank WI CD N/R,N/R N/A <5% 12/17/2018 246,000 BNY Mellon CD N/R,N/R N/A <5% 12/19/2018 246,000 Safra National Bank NY CD N/R,N/R N/A <5% 12/27/2018 246,000 Sunwest Bank Irvine CA CD N/R,N/R N/A <5% 12/28/2018 246,000 Citizens St Bank Tyler TX CD N/R,N/R N/A <5% 12/28/2018 245,000 First Sentry Bank WV CD N/R,N/R N/A <5% 12/28/2018 246,000 Total Negotiable Certificates of Deposit 26,954,131

Total Investments 100% 30,942,144

Repurchase Agreements

Wells Fargo - Sweep 5,308,186

Deposits 673,186

4M Fund N/A N/A N/A 1,330,923

Wells Fargo Government Fund AAA S&P/Moody's N/A 1,977,648

First American-Prime Obligation Fund AAA S&P/Moody's N/A 362,890

Petty Cash 2,475

Total Cash and Investments 40,597,452$

N/A - Not Applicable

<5% - Concentration is Less Than 5% of Investment



(43)


A. Assets (Continued) 1. Deposits and Investments (Continued)


Fair Value Measurement

WLSSD uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures. WLSSD follows an accounting standard that defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and requires expanded disclosures about fair value measurements. In accordance with this standard, WLSSD has categorized its investments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level I) and the lowest priority to unobservable inputs (Level III). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets recorded on the statement of net position are categorized based on the inputs to the valuation techniques as follows:

Level I - Financial assets are valued using inputs that are unadjusted quoted prices in active markets accessible at the measurement date of identical financial assets. The inputs include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government and agency mortgage-backed securities that are traded by dealers or brokers in active over-the-counter markets. Level II - Financial assets are valued based on quoted prices for similar assets, or inputs that are observable, either directly or indirectly for substantially the full term through corroboration with observable market data.



(44)


A. Assets (Continued) 1. Deposits and Investments (Continued)


Fair Value Measurement (Continued)

Level III - Financial assets are valued using pricing inputs which are unobservable for the asset, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset.

Investments are measured as follows: Type Level 1 Level 2 Level 3 Total

Federal Home Loan Bank -$ 14,772,161$ -$ 14,772,161$

Investments Measured at Amortized Cost

4M Fund 890,848

Money Market Funds 673,930

Repurchase Agreements 5,160,240

Negotiable Certificates of Deposit 21,721,500

Total Investments Measured at Amortized Cost 28,446,518

Cash and Cash Equivalents 830,662

Total Cash and Cash Investments 44,049,341$

The Minnesota Municipal Money Market Fund Trust is an external investment pool (Pool) that is managed to maintain a dollar-weighted average portfolio maturity of no greater than 60 days and seeks to maintain a constant net asset value (NAV) per share of $1.00. The Pool elects to measure its investments at amortized cost in accordance with accounting statements issued by the Government Accounting Standards Board. WLSSD reports its investment in the Pool at the NAV per share, the fair value established by the Pool.



(45)


A. Assets (Continued) 2. Due from Other Governments

Due from other governments consists of the following:

2018 2017

Current AssetsMunicipality Service Charges $ 1,027,415 $ 1,005,912 Other 378,293 440,119

Total $ 1,405,708 $ 1,446,031

3. Capital Assets

Capital asset activity for the year ended December 31, 2018, was as follows:

Beginning Balance Increases Decreases Ending Balance Capital Assets, Not Depreciated

Land $ 605,265 $ - $ - $ 605,265

Easements 207,149 - - 207,149

Total Capital Assets,

Not Depreciated 812,414 - - 812,414

Capital Assets, Depreciated

Improvements 210,351,289 10,098,030 - 220,449,319

Buildings and Structures 74,672,544 - 74,672,544

Furniture and Equipment 31,545,831 300,195 - 31,846,026

Motor Vehicles 3,160,272 143,145 69,895 3,233,522

Total Capital Assets, Depreciated 319,729,936 10,541,370 69,895 330,201,411

Less: Accumulated Depreciation for:

Improvements 118,324,801 9,546,249 - 127,871,050

Buildings and Structures 73,360,665 120,698 - 73,481,363


Motor Vehicles 2,824,981 187,576 69,895 2,942,662

Total Accumulated Depreciation 225,592,861 10,024,379 69,895 235,547,345

Total Capital Assets, Depreciated, Net 94,137,075 516,991 - 94,654,066

Capital Assets, Net $ 94,949,489 $ 516,991 $ - $ 95,466,480



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3. Capital Assets (Continued)

Capital asset activity for the year ended December 31, 2017, was as follows:

Beginning Balance Increases Decreases Ending Balance Capital Assets, Not Depreciated

Land $ 605,265 $ - $ - $ 605,265

Easements 207,149 - - 207,149

Total Capital Assets,

Not Depreciated 812,414 - - 812,414

Capital Assets, Depreciated

Improvements 202,312,017 8,039,272 - 210,351,289

Buildings and Structures 74,672,544 - - 74,672,544


Motor Vehicles 3,072,356 151,929 64,013 3,160,272

Total Capital Assets, Depreciated 311,487,729 8,306,220 64,013 319,729,936

Less: Accumulated Depreciation for:

Improvements 109,179,929 9,144,872 - 118,324,801

Buildings and Structures 73,239,501 121,164 - 73,360,665


Motor Vehicles 2,718,514 170,480 64,013 2,824,981

Total Accumulated Depreciation 216,078,504 9,578,370 64,013 225,592,861

Total Capital Assets, Depreciated, Net 95,409,225 (1,272,150) - 94,137,075

Capital Assets, Net $ 96,221,639 $ (1,272,150) $ - $ 94,949,489



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B. Liabilities

1. Due to Other Governments

Due to other governments consists of the following:

Current liabilities - (Payable from current assets):

2018 2017User Adjustments $ 343,184 $ 72,442

2. Long-Term Debt

Long-term debt is comprised of the following:

Types of Indebtedness Final

Maturity Installment

Amounts Interest

Rates (%) Original Issues

Amount Outstanding Balance December 31, 2018

General Obligation Bonds

2011A G.O. Refunding Bonds 2020

2.00-3.50 $ 16,045,000 $ 3,350,000

2012E G.O. Refunding Bonds 2021

0.20-2.15 8,635,000 2,145,000

2015C G.O Refunding Bond 2021

0.65-2.05 2,680,000 1,250,000

2016B G.O Refunding Bond 2022

0.80-1.75 2,255,000 1,525,000

Total General Obligation Bonds $ 29,615,000 8,270,000

Less: Unamortized Discount (7,979)

Plus: Unamortized Premium 17,672

Total General Obligation

Bonds, Net $ 8,279,693

$90,000-$1,200,000

$1,620,000-$1,940,000

$245,000-$510,000

$365,000-$390,000



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B. Liabilities (Continued)

2. Long-Term Debt (Continued)



Amounts Interest



General Obligation Taxable Revenue Notes

2006 G.O. Taxable Revenue Note 2021 2.82 $ 3,579,691 $ 946,000

2007 G.O. Taxable Revenue Note 2023 2.611 2,359,776 885,000


2010 G.O. Taxable Revenue Note 2025 1.589 3,351,540 1,606,255

2010 G.O. Taxable Revenue Note 2025 1.59 678,748 302,000













$180,490-$523,000

$50,276-$132,000

$21,000- $25,000

$239,077-$324,000

$4,000- $186,000

$9,541- $158,000

$63,599-$131,000

$200,540- $240,255

$40,748- $45,000

$100,518- $191,000

$90,969- $150,000

$360,990-$501,000

$8,000- $11,000

$46,959- $117,000

$10,131- $23,000

$110,330- $265,000

$180,173- $399,000



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2. Long-Term Debt (Continued)



Amounts Interest



2016 G.O. Taxable Revenue Note 2031 1.00 $ 3,216,871 $ 2,584,946






Total General Obligation

Taxable Revenue Notes $ 72,173,224 $ 38,421,524

$29,416-$54,055

$65,173-$144,763

$97,922-$185,760

$86,317-$178,191

$555,847-$1,158,549

$105,016-$239,960



(50)



3. Debt Service Requirements

Debt service requirements at December 31, 2018, were as follows:

Year Ending

December 31

2019 $ 3,795,000 $ 194,660 $ 3,703,192 $ 499,568

2020 2,980,000 108,605 3,752,414 444,809

2021 1,105,000 28,220 3,812,683 389,188

2022 390,000 6,825 3,536,037 332,526

2023 - - 3,582,478 284,270

2024-2028 - - 14,739,223 771,767

2029-2033 - - 5,295,497 137,911

Total $ 8,270,000 $ 338,310 $ 38,421,524 $ 2,360,471

Principal Interest Principal Interest

General Obligation Notes General Obligation Bonds

4. Changes in Long-Term Liabilities

Long-term liability activity for the year ended December 31, 2018, was as follows:

Additions Reductions

General Obligation Bonds $ 12,240,000 $ - $ 3,970,000 $ 8,270,000 $ 3,795,000

Public Facilities Authority

General Obligation Notes 32,762,796 8,907,728 3,249,000 38,421,524 3,703,192

Total 45,002,796 8,907,728 7,219,000 46,691,524 7,498,192

Sick Leave Liability 119,788 2,469 53,338 68,919 -

OPEB Liability 272,490 81,761 29,346 324,905 -

Long-Term Liabilities $ 45,395,074 $ 8,991,958 $ 7,301,684 $ 47,085,348 $ 7,498,192

Beginning Balance Ending Balance

Due Within One Year



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4. Changes in Long-Term Liabilities (Continued)

Long-term liability activity for the year ended December 31, 2017, was as follows:

Additions Reductions

General Obligation Bonds $ 16,570,000 $ - $ 4,330,000 $ 12,240,000 $ 3,970,000

Public Facilities Authority

General Obligation Notes 33,415,388 2,393,725 3,046,317 32,762,796 3,099,520

Total 49,985,388 2,393,725 7,376,317 45,002,796 7,069,520

Sick Leave Liability 129,731 17,856 27,799 119,788 -

OPEB Liability 264,416 37,420 29,346 272,490 -

Long-Term Liabilities $ 50,379,535 $ 2,449,001 $ 7,433,462 $ 45,395,074 $ 7,069,520

Beginning Balance Ending Balance

Due Within One Year

The general obligation bonds and notes are retired with income from operations. WLSSD has a contingent liability against its full faith and credit to the extent that income from operations is insufficient to retire the general obligation bonds. The general obligation bonds of WLSSD are exempt from the limitations on net debt imposed by Minnesota law. WLSSD does not expect any retirements in 2019 and therefore, the current portion of the sick leave liability is zero.

5. Refunding Debt Issued

During 2016, WLSSD issued 2016 Taxable General Obligation Refunding Bonds, Series 2016B in the amount of $2,255,000 with an interest rate of .80 to 1.75 percent. These proceeds were used to provide for the current refunding of the 2007A General Obligation Bonds. The balance of the 2007A maturities being refunded was $2,505,000 and interest rates of 4.00 to 4.50 percent. As a result of this refunding, WLSSD decreased its debt service requirements $250,000 resulting in an economic gain (difference between the present value of the debt service payment on the old and new debt service) of $173,248. The deferred outflow related to the gain on refunding was not material to the financial statements of WLSSD and therefore was not recognized and amortized.



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6. Defined Benefit Pension Plans

a) Pension Description WLSSD participates in the following cost-sharing multiple-employer defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA’s defined benefit pension plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. PERA’s defined benefit pension plans are tax qualified plans under Section 401 (a) of the Internal Revenue Code.

All full-time and certain part-time employees of WLSSD are covered by the General Employees Plan. General Employees Plan members belong to the Coordinated Plan. Coordinated Plan members are covered by Social Security.

b) Benefits Provided

PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statute and can only be modified by the state legislature. Vested, terminated employees who are entitled to benefits, but are not receiving them yet are bound by the provisions in effect at the time they last terminate their public service. General Employees Plan benefits are based on a member’s highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA’s Coordinated Plan members. Members hired prior to July 1, 1989, receive the higher of Method 1 or Method 2 formulas. Only Method 2 is used for members hired after June 30, 1989. Under Method 1, the accrual rate for Coordinated members is 1.2% for each of the first 10 years of service and 1.7% for each additional year. Under Method 2, the accrual rate for Coordinated members is 1.7% for all years of service. The accrual rate for former MERF members is 2.0% for each of the first 10 years of service and 2.5% for each additional year. For members hired prior to July 1, 1989 a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989 normal retirement age is the age for unreduced Social Security benefits capped at 66.



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6. Defined Benefit Pension Plans (Continued)

b) Benefits Provided (Continued) Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. If the General Employees Plan is at least 90% funded for two consecutive years, benefit recipients are given a 2.5% increase. If the plan has not exceeded 90% funded, or have fallen below 80%, benefit recipients are given a 1.0% increase. A benefit recipient who has been receiving a benefit for at least 12 full months as of June 30 will receive a full increase. Members receiving benefits for a least one year but less than 12 full months as of June 30 will receive a pro rata increase.

c) Contributions Minnesota Statutes Chapter 353 sets the rates for employer and employee Contributions. Contribution rates can only be modified by the state legislature. Coordinated Plan members were required to contribute 6.50% of their annual covered salary in calendar year 2018. WLSSD was required to contribute 7.50% for Coordinated Plan members. WLSSD’s contributions to the General Employees Fund for the years ended December 31, 2018 and 2017 were $557,535 and $544,106, respectively. WLSSD’s contributions were equal to the required contributions as set by state statute.



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6. Defined Benefit Pension Plans (Continued) d) Pension Costs

At December 31, 2018 and 2017, WLSSD reported a liability of $6,074,611 and $7,092,551, respectively, for its proportionate share of the General Employees Fund’s net pension liability. WLSSD’s net pension liability reflected a reduction due to the State of Minnesota’s contribution of $16 million to the fund in 2018. The State of Minnesota is considered a non-employer contributing entity and the state’s contribution meets the definition of a special funding situation. The State of Minnesota’s proportionate share of the net pension liability associated with WLSSD totaled $199,096. The net pension liability was measured as of June 30, 2018 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. WLSSD’s proportion of the net pension liability was based on WLSSD’s contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2017 through June 30, 2018 relative to the total employer contributions received from all of PERA’s participating employers. At June 30, 2018 WLSSD’s proportion share was .1095% which was a decrease of 0.0016% from its proportion measured as of June 30, 2017. The District's Proportionate Share of the Net Pension Liability 6,074,611$ State of Minnesota's Proportionate Share of the Net Pension Liability 199,096 Total District's Proportionate Share of Net Pension Liability 6,273,707$

For the years ended December 31, 2018 and 2017, WLSSD’s recognized pension expense of $374,284 and $802,092 respectively for its proportionate share of the General Employees Plan’s pension expense. In addition, WLSSD recognized an additional $46,429 as pension expense (and grant revenue) for its proportionate share of the State of Minnesota’s contribution of $16 million to the General Employees Fund.



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6. Defined Benefit Pension Plans (Continued) d) Pension Costs (continued)

At December 31, 2018 and 2017, WLSSD reported its proportionate share of the General Employees Plan’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

DescriptionDeferred Outflows of

ResourcesDeferred Inflows of

ResourcesDifferences Between Expected and Actual Economic Experience 160,785$ 177,170$ Changes in Actuarial Assumptions 580,280 682,547 Net Difference Between Projected and Actual Earnings on Pension Plan Investments - 620,729 Changes in Proportion and Differences Between WLSSD Contributions and Proportionate Share of Contributions - 206,147WLSSD Contributions Subsequent to the Measurement Date 275,278 -

Total 1,016,343$ 1,686,593$

2018

DescriptionDeferred Outflows of

ResourcesDeferred Inflows of

ResourcesDifferences Between Expected and Actual Economic Experience 233,749$ 456,282$ Changes in Actuarial Assumptions 1,177,516 711,029 Net Difference Between Projected and Actual Earnings on Pension Plan Investments 45,808 - Changes in Proportion and Differences Between WLSSD Contributions and Proportionate Share of Contributions - 395,847WLSSD Contributions Subsequent to the Measurement Date 253,895 -

Total 1,710,968$ 1,563,158$

2017

$275,278 reported as deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended



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6. Defined Benefit Pension Plans (Continued) d) Pension Costs (continued)

December 31, 2019. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Pension Expense Amount

92,648$ (393,994) (517,396) (126,786)

20212022

Year Ended December 31,20192020

e) Actuarial Assumptions

The total pension liability in the June 30, 2018, actuarial valuation was determined using the following actuarial assumptions:

Inflation 2.50% per YearSalary Increases 3.25% per YearInvestment Rate of Return 7.50%

Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors, and disabilitants were based on RP-2014 tables for males or females, as appropriate, with slight adjustments to fit PERA’s experience. Cost of living benefit increases for retirees are assumed to be 1.25% per year. Actuarial assumptions used in the June 30, 2018, valuation were based on the results of actuarial experience studies. The most recent six-year experience study in the General Employees Plan was completed in 2015.



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6. Defined Benefit Pension Plans (Continued) e) Actuarial Assumptions (Continued)

The following changes in actuarial assumptions occurred in 2018: (1) The mortality projection scale was changed from MP-2015 to MP-2017. (2) The assumed benefit increase was changed from 1.0% per year through

2044 and 2.5% per year thereafter to 1.25% per year.

The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness of the long-term expected rate of return on a regular basis using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset Class Target Allocation Long-Term Expected Real

Rate of Return Domestic Stocks 36 % 5.10 %International Stocks 17 5.30Bonds 20 0.75Alternative Assets 25 5.90Cash 2 0.00

Totals 100 %



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6. Defined Benefit Pension Plans (Continued)

f) Discount Rate The discount rate used to measure the total pension liability in 2018 was 7.50%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net position of the General Employees Fund was projected to be available to make all projected future benefit payments of 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.

g) Pension Liability Sensitivity The following presents WLSSD’s proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what WLSSD’s proportionate share of the net pension liability would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate:

Description 1% Higher Current

Discount Rate 1% LowerJune 30, 2018

General Employees Fund Discount Rate 6.50% 7.50% 8.50%

Sensitivity of Net Pension Liability at Current Single Discount Rate 9,872,021$ 6,074,611$ 2,939,958$

June 30, 2017General Employees Fund Discount Rate 6.50% 7.50% 8.50%

Sensitivity of Net Pension Liability at Current Single Discount Rate 11,001,073$ 7,092,551$ 3,892,715$

h) Pension Plan Fiduciary Net Position Detailed information about each pension plan’s fiduciary net position is available in a separately-issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org.



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7. Postemployment Benefits

Plan Description and Funding Policy WLSSD participates in a single-employer fully-insured plan. There is no explicit subsidy for employees hired prior to December 31, 1983 with no accumulated sick leave and for employees hired on or after January 1, 1984. Active employees who retire from WLSSD when eligible to receive a retirement benefit from PERA, that do not qualify for the aforementioned benefits, and do not participate in any other health benefits program providing coverage similar to that herein described, will be eligible to continue coverage with respect to both themselves and their eligible dependents under WLSSD’s health benefits program. These retirees are required to pay 100% of the total premium cost. Since the premium is a blended rate determined on the entire active and retiree population, the retirees are receiving an implicit rate subsidy. The plan does not issue a publicly available financial report. Funding Policy WLSSD has no assets accumulated in a trust that meets the criteria in GASB 75. The authority to provide these benefits is established in Minnesota Statutes §471.61, subdivision 2a. The cost of other postemployment benefits is funded on a “pay-as-you-go” method. For the year ended December 31, 2018, WLSSD contributed $29,346 to the plan. Actuarial Methods and Assumptions WLSSD’s OPEB liability was measured as of January 1, 2018, and the total OPEB liability was determined by an actuarial valuation as of January 1, 2017. The total OPEB liability was determined by an actuarial valuation as of January 1, 2017, using the following actuarial assumptions, applied to all periods including in the measurement, unless otherwise specified: Inflation 2.50%Salary Increases 3.00%Health Care Trend Rates 6.25% Decreasing to

5.00% Over 5Years



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7. Postemployment Benefits (Continued)

Actuarial Methods and Assumptions (Continued) Mortality rates were based on the RP-2014 with projected mortality improvements based on scale MP-2016, and other adjustments. The actuarial assumptions used in the January 1, 2017 valuation were based on the results of an actuarial experience study for the period January 1, 2016 to December 31, 2016. The discount rate used to measure the total OPEB liability was 3.30%. The discount rate is based on the estimated yield of 20-year AA-rated municipal bonds. Since the most recent GASB 45 valuation, the following changes have been made: The discount rate was changed from 3.50% to 3.30%.

Changes in the OPEB Liability

Total OPEB Liability

Balance December 31, 2017 272,490$ Changes for the Year:

Service Costs 25,132 Interest Cost 10,852 Assumption Changes 45,777 Benefit Payments (29,346)

Net Change in Total OPEB Liability 52,415 Balance as of December 31, 2018 324,905$

The following presents the OPEB liability of WLSSD, as well as what the WLSSD’s OPEB liability would be if it were calculated using a discount rate one percentage lower or one percentage higher than the current discount rate:

1% Decrease Discount Rate 1% Increase(2.30%) (3.30%) (4.30%)

OPEB Liability 345,029$ 324,905$ 305,834$



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7. Postemployment Benefits (Continued)

Actuarial Methods and Assumptions (Continued) The following presents the OPEB liability of WLSSD, as well as what the WLSSD’s OPEB liability would be if it were calculated using healthcare cost trend rates that are 1% lower (5.25% decreasing to 4.00% over 5 years) or 1% higher (7.25% decreasing to 6.00% over 5 years) than the current healthcare cost trend rates:

Current Trend1% Decrease Rates (6.25% 1% Increase

(5.25% Decreasing (Decreasing to (7.25% Decreasingto 4.00%) 5.00%) to 6.00%)

OPEB Liability 294,117$ 324,905$ 360,868$ For the year ended December 31, 2018, the WLSSD recognized OPEB expense of $35,984. At December 31, 2018, WLSSD reported no deferred inflow of resources and no deferred outflows of resources.

4. Other Note Disclosures

A. Major Customers Major customers of services provided by WLSSD were as follows:

2018 2017 2018 2017Sappi Cloquet LLC $ 11,254,946 $ 10,211,714 30.6% 28.4%City of Duluth 8,881,800 8,854,932 24.1% 24.6%Verso Duluth Mill 3,558,272 4,102,422 9.7% 11.4%

Percentage ofUser Service Total User

Charges Service Charges



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4. Other Note Disclosures (Continued)

B. Construction Commitments

As of December 31, 2018, WLSSD had the following commitments with respect to unfinished capital projects.

Project

Remaining

Construction

Commitment

Expected Date of

Completion

Oxygen Supply 10,810,105$ 12/1/2019

Main Switchgear CHP 3,807,010 7/15/2020

Miscellaenous Interceptor Rehab Phase 1 2,235,841 9/1/201916,852,956$

C. Risk Management WLSSD is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; health and dental claims, injuries to employees, and natural disasters. These risks are covered by commercial insurance purchased from independent third parties except for dental claims which are self-insured, workers compensation and health insurance for which WLSSD belongs to public entity risk pools. WLSSD has a $50,000 deductible for property and a $1,000 deductible for liability insurance coverage per covered incident. There have been no significant reductions in insurance coverage during the current year. Settled claims from these risks have not exceeded insurance coverage in the past three fiscal years. WLSSD retains the risk of loss from claims related to employee dental. WLSSD has contracted with Delta Dental to administer WLSSD’s dental claims. WLSSD charges a premium to each employee and contributes an employer’s share based on negotiated union contracts to cover the estimated dental claims. Claims are recognized as they are paid.

2018 2017

Unpaid Claims, Beginning of Year -$ -$ Incurred Claims 77,368 69,329 Claim Payments (77,368) (69,329) Unpaid Claims, End of Year -$ -$



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C. Risk Management (Continued) Workers compensation coverage is obtained through the League of Minnesota Cities Insurance Trust – Group Self-Insured Workers’ Compensation Plan, a public entity risk pool operated by the League of Minnesota Cities to lower and stabilize its members’ workers’ compensation costs and to assure that its members have a source of coverage available. The League of Minnesota Cities purchases reinsurance to protect the program from catastrophic and abnormal claims. WLSSD pays an annual premium to the pool and has elected to have a deductible of $5,000 per occurrence (for medical costs only). The deductible option under this plan allows WLSSD to obtain a premium discount of 11%. As medical costs are incurred, the claims are paid by the pool and then are billed back to WLSSD up to the amount of the deductible per occurrence.

For group health insurance, WLSSD belongs to the North East Service Cooperative (NESC), a joint powers entity which sponsors a plan to provide group employee health benefits to its participating members. All members pool premiums and losses; however, a particular member may receive increases or decreases depending on a good or bad year of claims experience. Premiums are determined annually by the NESC and are based partially on the experience of WLSSD and partially on the experience of the group. The NESC solicits proposals from carriers and negotiates the contracts.

D. Postemployment Health Care – Northland VEBA Trust Plan

In 2007, WLSSD Board approved a Voluntary Employees’ Beneficiary Association (VEBA) plan for funding employee health benefits for supervisors effective January 1, 2008 as authorized under Sections 501(c)(9) and 213(d) of the IRS Code. Effective January 1, 2009, all employees were eligible for participation in this plan. The VEBA plan is a health reimbursement plan providing for individual employer-funded accounts that can be used to help pay eligible medical expenses incurred by participating employees. The plan is used in combination with a high-deductible health plan. Funding is provided through pre-tax contributions from WLSSD based on employee health care elections. The VEBA plan is administered by Compensation Consultants, Ltd. The current maximum WLSSD contribution for active participating employees is $3,000 for those with family medical coverage with a $3,700 deductible and $1,350 for active participating employees for those with single medical coverage with a $1,850 deductible. Any balance remaining in an employee’s account at year-end rolls over into the subsequent year. All bargaining unit and supervisory employees participating in WLSSD’s high-deductible medical insurance plan are covered by the VEBA plan.



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E. Legal Contingencies WLSSD may be involved in various claims and litigation. Although the outcome of any claims is not presently determinable, in the opinion of WLSSD’s attorney, the resolution of these matters will not have a material adverse effect on the financial condition of WLSSD.

REQUIRED SUPPLEMENTARY INFORMATION


SCHEDULE OF WLSSD’S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY DECEMBER 31, 2018

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Measurement Date

June 30, 2018

Measurement Date

June 30, 2017

Measurement Date

June 30, 2016

Measurement Date

June 30, 2015

0.1095% 0.1111% 0.1140% 0.1181%

6,074,611$ 7,092,551$ 9,256,235$ 6,120,555$

199,096 89,175 120,902 -

Total District's Proportionate Share of Net Pension Liability 6,273,707$ 7,181,726$ 9,377,137$ 6,120,555$

7,354,870$ 7,150,592$ 7,061,992$ 6,936,710$

82.59% 99.19% 131.07% 88.23%

79.50% 75.90% 68.81% 78.20%Plan Fiduciary Net Position as a Percentage of the Total Pension Liability

WLSSD's Proportionate Share of the Net Pension Liability as a Percentage of Its Covered Payroll

WLSSD's Covered Payroll

WLSSD's Proportionate Share of the Net Pension Liability

WLSSD's Proportion of the Net Pension Liability

State's Proportionate Share of the Net Pension Liability Associated with WLSSD

Note: Information prior to 2015 is not available.


SCHEDULE OF WLSSD CONTRIBUTIONS DECEMBER 31, 2018

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2018 2017 2016 2015 2014

PERAContractually Required Contribution 557,535$ 544,106$ 533,833$ 523,052$ 507,255$ Contributions in Relation to the Contractually Required Contribution (557,535) (544,106) (533,833) (523,052) (507,255) Contribution Deficiency (Excess) -$ -$ -$ -$ -$

WLSSD's Covered Payroll 7,433,800$ 7,254,747$ 7,117,773$ 6,974,027$ 6,996,621$

Contributions as a Percentage of Covered Payroll 7.50% 7.50% 7.50% 7.50% 7.25%

Note: Information prior to 2014 is not available.


SCHEDULE OF CHANGES IN WLSSD’S OPEB LIABILITYAND RELATED RATIOS

DECEMBER 31, 2018

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Measurement Date

January 1, 2018Total OPEB LiabilityService Cost 25,132$ Interest Cost 10,852 Assumption Changes 45,777 Benefit Payments (29,346) Net Change in Total OPEB Liability 52,415 Total OPEB Liability - Beginning 272,490 Total OPEB Liability - Ending 324,905$

Covered-Employee Payroll 6,924,798$

5%District's OPEB Liability as a Percentage of Covered-Employee Payroll

Notes to Schedule of Funding Progress WLSSD implemented GASB Statement No. 75 in 2018, and the above table will be expended to 10 years of information as the information becomes available. No assets are accumulated in a trust.

SUPPLEMENTARY SCHEDULES


DETAILED SCHEDULE OF REVENUE COMPARED TO BUDGET YEAR ENDED DECEMBER 31, 2018

WITH COMPARATIVE ACTUAL AMOUNTS FOR YEAR ENDED DECEMBER 31, 2017

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2018Variance 2017

Actual Favorable ActualBudget Revenue (Unfavorable) Revenue

Wastewater TreatmentUser Charges -

MunicipalitiesDuluth $ 9,094,981 $ 8,881,800 $ (213,181) $ 8,854,932

Cloquet 981,235 873,786 (107,449) 895,054

Proctor 302,046 359,284 57,238 336,941

Hermantown 458,391 461,668 3,277 430,969

Scanlon 104,182 107,780 3,598 119,565

Thomson Township (Esko) 130,903 130,222 (681) 132,220

Carlton 105,714 106,784 1,070 111,426

Twin Lakes Township 77,537 71,570 (5,967) 68,963

Wrenshall 19,092 19,856 764 23,671

Thomson 8,574 7,363 (1,211) 8,516

Jay Cooke 3,426 4,098 672 4,177

North Shore 43,398 41,959 (1,439) 43,768

Knife River 17,617 15,026 (2,591) 15,713

Oliver 16,974 16,577 (397) 16,422

Rice Lake Township 49,285 47,365 (1,920) 48,247

MPCA Landfill 11,374 10,381 (993) 13,964

Midway 4,567 4,594 27 4,450

Pike Lake 67,734 60,379 (7,355) 60,621

Total Municipalities 11,497,030 11,220,492 (276,538) 11,189,619

Industries Sappi 10,477,207 11,254,946 777,739 10,211,714

USG 453,711 505,893 52,182 482,540

Verso Duluth Mill 3,757,482 3,558,272 (199,210) 4,102,422

Specialty Minerals 256,051 246,412 (9,639) 432,453

Total Industries 14,944,451 15,565,523 621,072 15,229,129

Total Wastewater Treatment 26,441,481 26,786,015 344,534 26,418,748

User Charges - Solid Waste 5,426,840 5,585,909 159,069 5,473,131

Service Fee - Solid Waste 2,380,000 2,638,047 258,047 2,568,132

Other Revenue District-Wide Allocation 355,000 354,999 (1) 354,998

Capacity Availability Fee 350,000 471,143 121,143 362,374

Earnings on Investments 173,000 600,878 427,878 294,140

Operating Grants 414,781 390,401 (24,380) 395,190

Property Taxes 1,130,738 1,130,463 (275) 1,105,907

Capital Contributions - 349,240 349,240 336,076

Gain on Sale of Capital Asset - 14,130 14,130 5,181

Miscellaneous 796,475 987,916 191,441 829,074

Total Other Revenue 3,219,994 4,299,170 1,079,176 3,682,940

Total Revenue $ 37,468,315 $ 39,309,141 $ 1,840,826 $ 38,142,951


DETAILED SCHEDULE OF EXPENSES COMPARED TO BUDGET – DEPARTMENTAL LEVEL

YEAR ENDED DECEMBER 31, 2018 WITH COMPARATIVE ACTUAL AMOUNTS FOR

YEAR ENDED DECEMBER 31, 2017

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2018

Variance 2017

Actual Favorable Actual

Budget Expenses (Unfavorable) Expenses

Clean Water Production

Salaries & Benefits $ 2,113,200 $ 1,864,201 $ 248,999 $ 2,133,626

Electricity 2,088,839 1,822,057 266,782 1,873,000

Fuels 122,771 109,370 13,401 116,428

Chemicals 1,177,928 1,226,341 (48,413) 1,056,996

Other Operating Expenses 467,811 368,182 99,629 301,982

Total Clean Water Production 5,970,549 5,390,151 580,398 5,482,032

Conveyance System

Salaries & Benefits 506,561 478,739 27,822 508,080

Electricity 1,000,191 982,964 17,227 980,006


Total Conveyance System 2,168,612 1,926,426 242,186 2,013,248

Biosolids



Total Biosolids 894,578 846,200 48,378 851,294

Maintenance

Salaries & Benefits 2,192,799 2,016,633 176,166 2,066,750

Repairs 650,000 832,511 (182,511) 606,215

Contracted Services 440,000 711,101 (271,101) 771,788

Other Operating Expenses 115,300 144,096 (28,796) 142,757

Total Maintenance 3,398,099 3,704,341 (306,242) 3,587,510

Environmental Programs WastewaterSalaries & Benefits 193,794 188,479 5,315 188,131 Operating Expenses 83,034 82,481 553 72,053

Total Environmental Programs Wastewater 276,828 270,960 5,868 260,184

Transfer Station


Solid Waste Disposal 4,639,647 4,722,989 (83,342) 4,626,637

Operating Expenses 26,900 23,738 3,162 20,975

Total Transfer Station 4,729,334 4,805,257 (75,923) 4,708,137


DETAILED SCHEDULE OF EXPENSES COMPARED TO BUDGET – DEPARTMENTAL LEVEL (CONTINUED)



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2018

Variance 2017



Material Recovery Center Salaries & Benefits $ 430,606 $ 475,523 $ (44,917) $ 421,369

Solid Waste Disposal 294,815 295,445 (630) 293,327

Contract Services 251,765 242,352 9,413 238,601

Operating Expenses 60,800 52,787 8,013 40,135

Total Material Recovery Center 1,037,986 1,066,107 (28,121) 993,432

Organics


Operating Expenses 122,842 123,597 (755) 104,378

Total Organics 325,044 321,619 3,425 322,505

Household Hazardous Waste


Operating Expenses 413,850 448,422 (34,572) 423,601

Total Household Hazardous Waste 859,239 862,273 (3,034) 845,569

Environmental Programs Solid WasteSalaries & Benefits 416,030 337,373 78,657 374,720 Operating Expenses 394,481 368,464 26,017 334,564 Total Environmental Programs Solid Waste 810,511 705,837 104,674 709,284

Environmental Programs GrantsOperating Expenses 24,136 44,475 (20,339) -

Business Services

Salaries & Benefits 1,319,859 1,459,820 (139,961) 1,476,807

Other Postemployment Benefits - 52,415 (52,415) 8,074

Insurance 160,000 157,725 2,275 155,933

Professional Services 181,500 185,296 (3,796) 200,340


Total Business Services 2,359,084 2,557,670 (198,586) 2,430,872


DETAILED SCHEDULE OF EXPENSES COMPARED TO BUDGET – DEPARTMENTAL LEVEL (CONTINUED)



(71)

2018

Variance 2017



Planning & Engineering

Salaries & Benefits $ 962,624 $ 1,012,575 $ (49,951) $ 957,269

Contracted Services 4,000 2,041 1,959 16,633


Total Planning & Engineering 985,824 1,040,360 (54,536) 983,224

Management Information System




Total Management Information System 749,706 729,184 20,522 715,643

Lab Services




Total Lab Services 895,195 884,172 11,023 885,881

Non-Departmental Depreciation 9,648,251 10,024,381 (376,130) 9,578,370

Interest and Bond Amortization Expense 740,219 660,592 79,627 772,579

Other Non-Departmental - 47,701 (47,701) 863

Total Non-Departmental 10,388,470 10,732,674 (344,204) 10,351,812

Total Expenses $ 35,873,195 $ 35,887,706 $ 5,828 $ 35,140,627


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED DECEMBER 31, 2018

The notes to the schedule of expenditures of federal awards are an integral part of this statement. (72)

Federal Grantor Federal Pass-Through Agency Pass-Through CFDA Grant Program Title Grant Numbers Number Expenditures Subrecipients

U.S. Environmental Protection Agency Passed Through Minnesota Department of Employment and Economic Development Capitalization Grants for Clean Water State Revolving Funds Scanlon Interceptor Phase 4 MPFA-CWRF-L-011-FY17 66.458 $ 1,527,818 $ - Screw Pumps / Wrenshall Pump Station MPFA-CWRF-L-036-FY17 66.458 2,434 - Scanlon Interceptor Fiberglass Pipe Rehabilitation MPFA-CWRF-L-043-FY19 66.458 2,340,389 - Miscellaneous Interceptors MPFA-CWRF-L-044-FY19 66.458 107,354 - Screw Pumps Phase 2 MPFA-CWRF-L-042-FY19 66.458 678,051 - Main Switchgear CHP MPFA-CWRF-L-040-FY19 66.458 79,426 - Oxygen Supply MPFA-CWRF-L-041-FY19 66.458 5,365,768 -

Total U.S. Environmental Protection Agency $ 10,101,240 $ -

PassedThrough to


NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED DECEMBER 31, 2018

(73)

1. Reporting Entity The Schedule of Expenditures of Federal Awards presents the activities of federal award programs

expended by the Western Lake Superior Sanitary District. WLSSD’s reporting entity is defined in Note 1 to the financial statements.

2. Basis of Presentation

The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the Western Lake Superior Sanitary District under programs of the federal government for the year ended December 31, 2018. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the schedule presents only a selected portion of the operations of the Western Lake Superior Sanitary District, it is not intended to and does not present the financial position, changes in net position, or cash flows of the Western Lake Superior Sanitary District.

3. Summary of Significant Accounting Policies

Expenditures reported on the schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass-through entity identifying numbers are presented where available. WLSSD has elected to not use the 10% de minimis indirect cost rate allowed under Uniform Guidance.

4. Reconciliation to Comparative Statement of Revenues, Expenses, and Changes in Net

Position and Note 3.B.4.

Expenditures under CFDA No. 66.458 are capitalized in capital assets on the financial statements. The funding received under this program is federal grant funding shown as additions to the long-term debt payable. Other federal grants are reported as operating grants or federal contributions.


NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (CONTINUED) YEAR ENDED DECEMBER 31, 2018

(74)

4. Reconciliation to Comparative Statement of Revenues, Expenses, and Changes in Net Position and Note 3.B.4. (Continued)

Nonoperating Revenues: Operating Grants $ 390,401

Less: State Portion of Operating Grants (390,401)

Federal Portion of Operating Grants -

Capital Contributions - Federal 261,952

Public Facility Authority Loans 9,839,288

Expenditures Per Schedule of Expenditures of Federal Awards $ 10,101,240

STATISTICAL SECTION (Last Ten Fiscal Years)

(Unaudited)


STATISTICAL SECTION

(75)

This part of Western Lake Superior Sanitary District’s 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 WLSSD’s overall financial health. Contents Financial Trends – Pages 76-80

These schedules contain trend information to help the reader understand how WLSSD’s financial performance and well-being have changed over time.

Revenue Capacity – Pages 81-86 These schedules contain information to help the reader assess WLSSD’s revenue sources for both wastewater and solid waste generators.

Debt Capacity – Pages 87-90 These schedules contain information to help the reader assess the affordability of WLSSD’s current levels of outstanding debt and its ability to issue additional debt in the future.

Demographic and Economic Information – Pages 91-92 These schedules contain demographic and economic indicators to help the reader understand the environment within which WLSSD’s financial activities take place.

Operating Information – Pages 93-95 These schedules contain service and infrastructure data to help the reader understand how the information in WLSSD’s financial report relates to the services WLSSD provides and the activities it performs.

Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year.

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2017

2016

2015

2014

2013

2012

2011

2010

2009

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$

0

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8 $

0.5

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$

0

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2011

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2012

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2012

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2013

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2014

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2015

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2016

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2017

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2011

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2012

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2013

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2014

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1

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2015

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1

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2016

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2017

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2016

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2017

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2018

138,

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6,

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43,4

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Sour

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Sup

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Fis

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2009

WE

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LA

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TE

N F

ISC

AL

YE

AR

S

(93)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

WA

STE

WA

TE

RC

lean

Wat

er18

.14

18.5

719

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19.6

9

19

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(95)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

Was

tew

ater

Sa

nita

ry S

ewer

s (m

iles)

74.5

6074

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74.6

2074

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74.2

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T

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t Cap

acity

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GD

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Sou

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(Una

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ed)

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