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VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 2017 Together With Independent Auditor’s Report (BSC BERT SMITH & CO. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Govemment) CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2017 TABLE OF CONTENTS Independent Auditor's Report. ..................................................................................................................... I Management's Discussion and Analysis ..................................................................................................... .4 Basic Consolidated Financial Statements Consolidated Statement of Net Position ................................................................................................. 10 Consolidated Statement of Revenues, Expenses, and Changes in Net Position .................................... .11 Consolidated Statement of Cash Flows .................................................................................................. 12 Notes to the Basic Consolidated Financial Statements ........................................................................... 13 Supplementary information Consolidated Combining Schedule of Net Position ............................................................................... 25 Consolidated Combining Schedule of Revenues, Expenses, and Changes in Net Position ................... 26 : BSC BERT SMITH & CO. CERTIFIED PUBLIC ACCOUNTANTS & MANAGEMENT CONSULTANTS 1090 Vermont Ave., NW. Suite 920 Washington, DC 20005 PO. Box 2478 Kingshill, VI 00851 111 South Calvert St Suite 2700 Baltimore, MD 21202 T:202.393.5600 TF: 1.855.479.0548 F: 202.393.5608 bertsmithco.com bsmith@bertsmithco.com INDEPENDENT AUDITOR’S REPORT Board of Directors Virgin Islands Economic Development Authority St. Thomas, U.S. Virgin Islands Report on the Financial Statements We have audited the consolidated accompanying statement of net position of the Virgin Islands Economic Development Authority (the “Authority”) and its wholly owned subsidiary Economic Development Park Corporation, a component unit of the Government of the U.S. Virgin Islands, as of and for the year ended September 30, 2017 and the related statement of revenues, expenses, and changes in net position and cash flows for the year then ended and the related notes to the consolidated financial statements. 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. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including, the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments; the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. AN INDEPENDEDT MEMBER OF |BDO ALLIANCE USA Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of September 30, 2017, and the respective changes in net position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note | to the consolidated financial statements, the consolidated financial statements present only the Authority’s financial position and the changes in financial position and cash flows and do not purport to, and do not, present fairly the financial position of the Government of the U.S. Virgin Islands as of September 30, 2017 and changes in the financial position of the Government of the U.S. Virgin Islands for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Report on Comparative Information We have previously audited the Authority’s September 30, 2016 consolidated financial statements, and our report dated, April 13, 2017, expressed an unmodified opinion thereon. In our opinion, the comparative information presented herein as of and for the year ended September 30, 2016, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Required Supplementary Information Accounting principles generally accepted in the United States require that the management’s discussion and analysis information on pages 4 through 10 and the Schedule of Proportionate Share of the Net Pension Liability and the Schedule of Contributions on pages 27 and 28 be presented to supplement the basic financial statements. Such information, although not a part of the basic consolidated financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of the financial reporting for placing the basic consolidated financial statement in an appropriate operational, economic or historic 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 consolidated 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 an opinion on the Authority’s basic consolidated financial statements. The other supplementary information listed in the accompanying table of contents on pages 31 and 32 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic consolidated 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 consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information is fairly stated in all material respects in relation to the basic consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 27, 2018 on our consideration of the Authority’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority’s internal control over financial reporting and compliance. Rect Sm eG St. Croix, U.S. Virgin Islands March 27, 2018 VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 2017 INTRODUCTION The Virgin Islands Economic Development Authority (the “Authority”) is a semi-autonomous governmental instrumentality responsible for the development, promotion, and enhancement of the economy of the U.S. Virgin Islands. The Authority is the umbrella organization which assumes, integrates, and unifies the functions of the following subsidiary entities: the Economic Development Bank (“EDB”), the Economic Development Commission (“EDC”), and the Enterprise and Zone Commission (CEZC*), The Authority operates under one Governing Board (“Board”). The Authority’s aim is to achieve maximum efficiency of operations to avoid duplication of services, positions, and responsibilities; to reduce expenses of personnel, physical plant and operations; and to develop comprehensive programs for the economic development of the U.S. Virgin Islands. The Authority is funded primarily by allotments from the Office of Management and Budget via the Department of Finance based on an approved budget authorized by the Legislature of the Virgin Islands. As management of the Authority, we offer the readers of the Authority’s consolidated financial statements this narrative overview and analysis of the financial activities of the Authority for the year ended September 30, 2017. We encourage readers to consider the information presented here in conjunction with the Authority’s consolidated financial statements. This overview and analysis is required by accounting principles generally accepted in the United States of America (“GAAP”), and the Governmental Accounting Standards Board (“GASB”) Statement No. 34, Basic Financial Statements— and Management’s Discussion and Analysis—for State and Local Governments. OVERVIEW OF THE FINANCIAL STATEMENTS The consolidated financial statements consist of four parts: management’s discussion and analysis, the financial statements, notes to the financial statements, and supplementary schedules. The Authority is a component unit of the Government of the U.S. Virgin Islands, and follows enterprise fund reporting. The consolidated financial statements, therefore, are presented in a manner similar to that of a private business, using the economic resources measurement focus and the accrual basis of accounting. » The Consolidated Statement of Net Position: This statement includes all of the Authority’s assets, deferred outflows of resources and deferred inflows of resources, and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to creditors (liabilities). The assets and liabilities are presented in order of liquidity. The resulting net position presented in these statements is displayed as restricted or unrestricted. Vv The Consolidated Statement of Revenues, Expenses, and Changes in Net Position: 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 activities of the Authority’s operations over the past year and can be used to determine whether the Authority has successfully recovered all of its costs through appropriations and the services it provides. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 2017 » Statement of Cash Flows: The primary purpose of this statement is to provide information about the Authority’s net cash used in operating activities, capital, and related financing activities, and provide information regarding the sources and uses of cash and the changes in the cash balance during the reporting period. The notes to the financial statements provide additional information essential to the full understanding of the Authority’s financial statements. » Notes to the Financial Statements: The notes to the consolidated financial statements provide additional information that is essential to the full understanding of the data provided in the financial statements. > Supplementary Schedules: The Authority’s consolidated financial statements by fund is presented as supplementary schedules. These schedules separate the consolidated financial statements and operations for each of the Authority’s major funds. 2017 FINANCIAL HIGHLIGHTS ¢ The Authority’s net position (deficit) increased by $1,522,884 or 46% compared to fiscal year 2016. ¢ The Authority’s total assets and deferred outflow of resources increased by $1,616,474 or 4% and total liabilities increased by $2,623,074 or 7% compared to fiscal year 2016. ¢ The Authority’s operating revenues decreased by $78,697 or 4% and operating expenses increased by $1,111,163 or 15% compared to fiscal year 2016. e Government appropriations increased by $655,163 or 14% compared to fiscal year 2016. Condensed Consolidated Statements of Net Position as of September 30, 2017 and 2016 % 2017 2016 Variance Variance Assets Current Assets $ 11,276,290 $ 5,961,209 $ 5,315,081 89% Noncurrent Assets 17,598,808 22,529,698 (4,930,890) -22% Capital Assets, net —__ 1,480,227. - 1,599,152. (118,925) -7% Total Assets 30,355,325 30,090,059 ; 265,266 | _. | Ah Deferred Outflows of Resources 8,005,594 6,654,386 1,351,208 20% Total Assets and Deferred Outflows of Resources $ 38,360,919 $ 36,744,445 $ 1,616,474 4% Liabilities Current Liabilities $ 13,979,376 $ 13,477,681 $ 501,695 4% Noncurrent Liabilities __ 28,611,714 ; 26,490,335 2,121,379 8% Total Liabilities 42,591,090 39,968,016 2,623,074 T% Deferred Inflows of Resources 630,725 114,441 516,284 451% Total Liabilities and Deferred Inflows of Resources $ 43,221,815 $ 40,082,457 $ 3,139,358 8% Net Position Net Investment in Capital Assets $ 1,480,227 $ 1,599,152 $ (118,925) -7% Restricted 16,722,958 21,210,583 (4,487,625) -21% Unrestricted (23,064,081) (26,147,747) 3,083,666 -12% Total Net Position $ (4,860,896) $ (3,338,012) $ (1,522,884) 46% ee VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 2017 Current Assets Current assets increased by $5,315,081 or 89% compared to last fiscal year. This total includes an increase in cash and cash equivalents of $4,900,399 or 117% due to funds drawn from the State Small Business Credit Initiative (SSBCI) program to be used as collateral in support of business loans offered by local banks; accounts receivables also increased by $587,253 or 94% due to the Authority not receiving its last one month of allotment by the end of the fiscal year, plus other amounts that include non-compliance fees and fines imposed on beneficiaries in the Economic Development Commission (EDC) program. There was also an increase in prepaid and other assets of $7,268 or 13%. The total of these increases were offset by a decrease in investment of $179,839 or 16% due to the liquidation of a certificate of deposit to fund urgent roof repairs at the Economic Development Park Corporation (EDPC) on St. Croix. Noncurrent Assets Noncurrent assets decreased by $4,930,890 or 22% compared to last fiscal year. This decrease was due mainly to a reduction in restricted cash and cash equivalents of $4,274,955 or 33%. These funds were reclassified to provide the collateral support required to assist borrowers that qualified under the State Small Business Credit Initiative (SSBCI) program. There was a decrease in restricted investments of $664,391 or 11% as borrowers in the SSBCI program continue to pay down their loans and to reduce the level of required collateral. The total decrease was offset by an increase in loan receivable, net of allowance for doubtful accounts, by $8,456 or 0.25%. This was due to an increase in the dollar value and numbers of loans closed during the period. Capital Assets Capital assets, net of accumulated depreciation, decreased by $118,925 or 7% compared to last fiscal year. The overall reduction in capital assets is due to the net effect of capital additions totaling $294,510 and the reduction of $413,435 in capital asset values for the year due to depreciation. Current Liabilities Current liabilities increased by $501,695 or 4% compared to last fiscal year. Contributing to this was an increase of $439,430 or 157% in accounts payable. This increase includes $400,000 that represented the local match of a federal grant. These funds will be returned to the local government due to the Authority’s inability to use the federal funds as intended. There was also an increase in accrued expenses of $9,228 or 17% due to increases in payroll liability costs. Noncurrent Liabilities Noncurrent liabilities increased by $2,121,379 or 8% compared to last fiscal year. For this category, net liability pension increased by $2,537,713 or 10% which represents the Authority’s share of the Government Employees’ Retirement System’s (GERS) unfunded liability obligation for FY 2017 based on GASB 68, in addition to an increase in compensated absences of $55,564 VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 2017 or 36% which was due mainly to the reclassification from the current to the non-current category. The amount for security deposits increased by $16,274 or 52% due to additional tenants occupying rental space in the Economic Development Park Corporation (EDPC). In the loan payable account, the amount was reduced by $27,577 or 9% due to the Authority paying its Intermediary Relending Program (IRP) annual installment debt payment ahead of time. The reduction of $400,000 as Relief Revolving Matching Funds was due to removing the funds from the account which will be returned to the local government. These funds were to be used as a match for a federal grant that could not be utilized due to the intricate grant criteria. Deferred revenues in the amount of $1,000,000 were reduced by $60,595 or 6% to recognize the amount received from the sale of the tour buses. Net Position Net position represents residual interest in the Authority’s assets and deferred outflows of resources after all liabilities and deferred inflows of resources are deducted for reporting purposes and are divided into three major components: - Net Investment in Capital Assets ~ Restricted Net Position Unrestricted Net Position The Authority’s total net position (deficit) increased by $1,522,884 or 46% compared to last year. This increase includes a reduction in restricted net position of $ 4,487,625 or 21%, which resulted in a reduction in collateral for loans, reduced balances, or were already paid off. The release of collateralized funds increased the unrestricted net position by $3,083,666 or 12%. Additionally, capital assets, net of related depreciation decreased by $118,925 or 7%, and is the net effect of asset acquired, totaling $294,510, and depreciation expense of $413,435 for the year. Condensed Consolidated Statements of Revenues, Expenses, and Changes in Net Position for the Years Ended September 30, 2017 and 2016 % 2017 2016 Variance Variance Operating Revenues $ 1,733,718 $ 1,812,415 $ (78,697) -4% Operating Expenses (8,939,463) (7,849,297) (1,090,166) 14% Operating Loss (7,205,745) (6,036,882) (1,168,863) 19% Net Non-operating Revenues 5,682,861 4,928,943 753,918 15% Changes in Net Position (1,522,884) (1,107,939) (414,945) 37% Net Position, Beginning of Year (3,338,012) (2,230,073) (1,107,939) 50% Net Position, End of Year $ (4,860,896) $ (3,338,012) $ (1,522,884) 46% VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 2017 Revenues ¢ Operating revenues decreased by $78,697 or 4% compared to last fiscal year. Included in this amount was an increase of $74,841 or 13% in application and processing fees due to an increase in the number of applications for Economic Development Commission (EDC) benefits. The amount billed for penalties and fines increased by $145,757 or 83% due to the increased number of EDC beneficiaries found in violation of their Certificates. Additionally, rental income increased by $14,481 or 3% due to the improved occupancy at the Economic Development Park Commission (EDPC) and there was an increase in interest of $2,454 or 2% due to the refinancing and/or modification of troubled loans making it easier for borrowers to make payments. However, grant revenue decreased by $238,497 or 79% because the grant funds received to assist in the incubator operation were expended last year. Allocation bond proceeds decreased by $55,430 or 91% due to a decline in the number of borrowers utilizing the bonding program. Operating Expenses * Operating expenses increased by $1,111,163 or 15% compared to last fiscal year. This includes an increase of $840,491 or 16% in personnel service costs due to the unfunded liability of Government Employees Retirement System (GERS) and the implementation GASB 68; an increase of $71,803 or 10% in general and administrative costs because of the purchase of liability insurance to cover the industrial parks on both islands and the office building in Frederiksted that are owned by Economic Development Park Corporation (EDPC), and to cover the additional expenses for hurricane-related damages. Occupancy costs went up by $6,501 or 2% based on the rental agreement with the Nisky Shopping Center for the office space in St. Thomas, and advertising costs increased by $84,959 or 38% due to additional marketing activities undertaken by the Authority. The cost for professional services increased by $346,662 or 61% as a result of contractual obligations for: an Economic Impact Study; a new online EDC application program; recruitment for a Chief Executive Officer; and the performance of various legal services. ¢ Additionally, travel expenses increased by $31,550 or 50% to cover the costs for transportation and accommodations on St. Croix for board members and other staff personnel attending a three- day Board Retreat. However, grant expenditures decreased by $238,497 or 79% due to the ending of the incubator grant funding, and bad debt expense decreased by $32,306 or 21% as the Authority worked with delinquent borrowers through loan refinancing or restructuring to bring their loans current. Non-operating Revenues and Expenses ¢ Non-operating revenues increased by $753,918 or 15% compared to last year. The change was due mainly to an increase of $655,163 or 14% in government allotments that were appropriated to fund an economic impact study and complement the marketing budget. Other income increased by $98,714 or 151% due to EDC compliance fines received and approved by the Board to rehabilitate and rejuvenate buildings within the Enterprise Zones. On the other hand, interest expense and finance charges decreased by $662 or 29% as a result of paying the annual installment on the (IRP) loan from the U.S. Department of Agriculture before its due date. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 2017 CAPITAL ASSETS Total asset acquisition this year was $294,510 compared to $158,666 last year, an increase of 86%. The net effect of these additions in the capital asset account and this year’s total depreciation expense of $413,435 results in an overall decrease in capital assets of $118,925 or 7% compared to last year. 2017 2016 Building & Building Improvements $ 9,344,682 $ 9,160,848 Leasehold Improvements 867,889 867,889 Equipment 1,239;937 1,190,689 Furniture & Fixture 370,393 370,393 Vehicles 418,625 357,197 Leasehold Equipment 20,585 20,585 Total Costs 12,262,111 11,967,601 Less: Accumulated Depreciation (10,781,884) (10,368,449) Net Capital Assets $ 1,480,227 $ 1,599,152 REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the Authority’s finances for those with an interest in the Authority’s operation. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Virgin Islands Economic Development Authority, 8000 Nisky Shopping Center, Suite 620, St. Thomas, VI 00802. VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) CONSOLIDATED STATEMENT OF NET POSITION AS OF SEPTEMBER 30, 2017 (With Comparative Totals for 2016) ASSETS AND DEFERRED OUTFLOWS OF RESOURCES Current Assets: Cash and Cash Equivalents Investments Other Receivables, net Prepaid and Other Assets Total Current Assets Noncurrent Restricted Assets: Restricted Cash and Cash Equivalents Restricted Investments Restricted Loans Receivable, net Total Noncurrent Restricted Assets Capital Assets, net Total Assets Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources LIABILITIES AND DEFERRED INFLOWS OF RESOURCES Current Liabilities: Accounts Payable Accrued Expenses Compensated Absences Interest Payable Deferred Revenue Loan Payable, current Total Current Liabilities Noncurrent Liabilities: Compensated Absences Security Deposits Deferred Revenue Relief Revolving Funds Loan Payable Net Pension Liability Total Noncurrent Liabilities Total Liabilities Deferred Inflows of Resources Total Liabilities and Deferred Inflows of Resources NET POSITION Net Position: Net Investment in Capital Assets Restricted Net Position Unrestricted Net Position Total Net Position 2017 2016 $ 9,077,101 $ 4,176,702 928,886 1,108,725 1,208,910 621,657 61,393 54,125 11,276,290 5,961,209 8,858,425 13,133,380 5,321,089 5,985,480 3,419,294 3,410,838 17,598,808 22,529,698 1,480,227 1,599,152 30,355,325 30,090,059 8,005,594 6,654,386 $ 38,360,919 $ 36,744,445 $ 718,558 $ 279,128 64,567 55,339 188,057 166,767 20,116 19,670 12,962,700 12,931,650 25,378 25,127 13,979,376 13,477,681 211,231 155,667 47,457 31,183 939,405 1,000,000 : 400,000 266,413 293,990 27,147,208 24,609,495 28,611,714 26,490,335 42,591,090 39,968,016 630,725 114,441 $ 43,221,815 $ 40,082,457 $ 1,480,227 $ 1,599,152 16,722,958 21,210,583 (23,064,081) (26,147,747) $ (4,860,896) —$ (3,338,012) The accompanying notes are an integral part of these consolidated financial statements. s$0s VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) CONSOLIDATED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2017 (With Comparative Totals for 2016) Operating Revenues: Allocation of Bond Proceeds Application and Processing Fees Rental Income Interest Income from Loans Grant Revenue Penalties Other Operating Revenue Total Operating Revenues Operating Expenses: Personnel Costs General and Administrative Occupancy Advertising Professional Services Travel Grant Expenditures Bad Debt Total Operating Expenses Operating Loss Before Depreciation Depreciation Operating Loss Nonoperating Revenues: Government Appropriations Interest Income Other Income Interest Expenses and Finance Charges Total Nonoperating Revenues Changes in Net Position Net Position, Beginning of the Year Net Position, End of Year $ (4,860,896) 2017 2016 $ 5,165 $ 60,595 655,308 580,467 440,130 425,649 143,631 141,177 63,180 301,677 321,138 175,381 105,166 127,469. 1,733,718 1,812,415 5,947,223 5,106,732 785,623 713,820 289,156 282,655 306,586 221,627 916,776 570,114 94,830 63,280 63,180 301,677 122,654 154,960 8,526,028 7,414,865 (6,792,310) (5,602,450) (413,435) (434,432) (7,205,745) (6,036,882) 5,455,163 4,800,000 65,075 65,696 164,207 65,493 (1,584) (2,246) 5,682,861 4,928,943 (1,522,884) (1,107,939) (3,338,012) __(2,230,073) $ (3,338,012) The accompanying notes are an integral part of these consolidated financial statements. =i VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2017 (With Comparative Totals for 2016) Cash Flows from Operating Activities Cash Received from Allocation of Bond Proceeds Cash Received from Application and Processing Fees Cash Received from Tenants Cash Received from Loan Repayments Cash Received from Other Operating Income Cash Received from Federal Government Cash Paid for Grant Programs Cash Paid for Goods and Services Cash Paid to Employees for Services Loan Disbursements Net Cash (Used in) Provided by Operating Activities Cash Flows from Noncapital Financing Activities Cash Received from Primary Government Other Income Interest Expense and Finance Charges Net Cash Provided by Noncapital Financing Activities Cash Flows from Capital and Related Financing Activities Note Principal Payments Acquisition of Property and Equipment Net Cash Used in Capital and Related Financing Activities Cash Flows from Investing Activities Interest Income Return of Relief Revolving Funds Net Sale of Investments Net Cash Provided by (Used in) Investing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year Operating Loss Adjustments to Reconcile Operating Loss to Net Cash Provided by (Used in) Operating Activities: Depreciation Expense Bad Debt Expense Increase in Deferred Outflows of Resources Increase in Net Pension Liability (Increase) Decrease in Accounts Receivable (Increase) in Prepaid Expenses (Increase) in Loans Receivable Increase (Decrease) in Accounts Payable and Accrued Expenses Increase (Decrease) in Compensated Absences (Decrease) Increase in Deferred Revenue Increase (Decrease) in Security Deposit Increase in Deferred Inflows of Resources Increase in Interest Payable Net Cash (Used in) Provided by Operating Activities 2017 2016 $ : $ 65,925 504,122 470,452 414,883 383,809 921,475 697,740 561,478 597,587 94,230 9,051,780 (63,180) (301,677) (1,934,861) (2,362,940) (4,197,126) (3,614,911) (937,735) (598,912) (4,636,714) 4,388,853 4,980,786 4,800,000 99,198 78,922 (1,584) (2,246) 5,078,400 4,876,676 (27,326) (24,158) (294,510) (158,666) (321,836) (182,824) 61,364 71,897 (400,000) : 844,230 (1,152,978) 505,594 (1,081,081) 625,444 8,001,624 17,310,082 9,308,458 $ 17,935,526 $ 17,310,082 $ (7,205,745) 413,435 122,654 (1,351,208) 2,537,713 (165,304) (7,268) (8,457) 448,658 76,854 (31,050) 16,274 516,284 446 _S__ (4,636,714) $ (6,036,882) 434,432 154,960 (4,398,702) 5,806,388 107,264 (7,733) (1,401) (490,101) (30,305) 8,750,103 (14,000) 114,440 390. $ 4,388,853 The accompanying notes are an integral part of these consolidated financial statements. Sle VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY (A Component Unit of the Virgin Islands Government) NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Governance: The Virgin Islands Economic Development Authority (the “Authority”), was created on December 21, 2000, as an umbrella authority to assume, integrate and unify the functions of the Government Development Bank, the Economic Development Commission, the Economic Park Development Corporation (formerly known as the Industrial Development Park Corporation) and the Small Business Development Agency under an executive board, which consists of seven members appointed by the Governor. The Authority is a public corporation and a semi-autonomous instrumentality of the Government of the Virgin Islands and operates under the provisions of Act of 6390, approved by the Twenty-third Legislature of the United States Virgin Islands. The general purposes and functions of the Authority were previously carried out by the Government Development Bank for the United States Virgin Islands which was created originally in 1978 by Act No. 902, and subsequently amended in 1995 and 1996. The mission of the Authority is to accelerate the economic development of the Virgin Islands by providing financial and technical assistance to industrial and commercial enterprises to create and save jobs in the community. In this regard, the Authority is authorized, among other things, to make loans to eligible small business enterprises. The Authority is a component unit of the Government of the Virgin Islands and as such, its financial statements are included in the Comprehensive Annual Financial Statements of the Central Government. Economic Dependency: The Authority’s sustainability depends primarily on appropriations from the Government of the Virgin Islands. In addition, it earns income from application fees, processing fees, compliance fees, and rental income from its Economic Park facilities. During fiscal year ended September 30, 2017, the Authority received appropriations totaling $5,455,163 from the Government of the Virgin Islands, which approximates 96% of its nonoperating revenue. Basis of Presentation: The Authority’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board. The Authority uses the economic resources measurement focus and follows the accrual basis of accounting whereby revenue is recorded when earned and expenses are recorded when incurred. The Authority distinguishes between operating and nonoperating revenues and expenses. Operating revenues and expenses generally result from providing services in connection with the Authority’s principal ongoing business operations. Operating expenses include costs and losses resulting from services, administrative expenses, and depreciation expense. All other revenues and expenses are reported as nonoperating revenues and expenses. Nonoperating revenues consist of interest generated from restricted and unrestricted investments in short-term investment instruments. Separate Funds: The accounts of the Authority are organized on the basis of funds, each of which is considered to be a separate accounting entity. All transactions are recorded in a separate set of self- balancing accounts, which include assets, liabilities, fund net assets, revenues and expenses. During fiscal year ended September 30, 2017, the Authority maintained twelve (12) accounting entities and ten (10) major funds which constitute major transactions of the Authority. 2182 NOTE 1—-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The following is a summary of these funds: Government Development Bank Fund (GDB) accounts for the locally funded Micro Loan Program. This fund accounts for interest income from the operating account and certificates of deposits, local government appropriations, and administrative costs. The Authority’s administration and processing of loan applications on behalf of the Virgin Islands Department of Agriculture and the Virgin Islands Energy Office also occur within this fund. Those transactions have however, been excluded from the Authority’s financial statements. Economic Development Commission Fund (EDC) accounts for application, activation and annual compliance fees. Local government appropriations are also accounted for in this account together with related administrative costs. Small Business Development Agency (SBDA) accounts for the Federal Economic Development Administration Loan Funds from the U.S. Department of Agriculture, Farmers and Fishermen Local Loans, Frederiksted Revolving Loan Fund and the SDBA Direct Loan Fund. Appropriations from the central government and administrative costs are also accounted for under this fund. The SBDA legislation does not allow interest earned from its loan portfolio to be used for administrative purposes. The interest income is restricted and is used for issuing new loans. Economic Park Development Corporation (EPDC) accounts for the activities conducted by the EPDC. The EPDC was established in March 1984 to acquire, operate, and improve industrial parks in order to provide suitable sites for the location of industries to the Virgin Islands. The EPDC accounts for rental and investment income, and administrative costs associated with its operation. The EPDC does not receive any appropriations from the local government. Intermediary Relending Program (IRP) accounts for loans that are funded by the United States Department of Agriculture Rural Development Program. The interest income earned from these loans is applied to the program’s administrative costs. Enterprise Zone Commission (EZC) accounts for funds committed to the task of offering incentives to businesses that invest in severely economically depressed designated areas of St. Thomas and St. Croix. As a result, employment opportunities are provided to residents of the areas so designated. Economic Development Authority (Authority) accounts for loans that are funded through U.S. Department of Agriculture. ~ Tax Increment Financing (TIF) this fund allows projects to be financed by pledging the increases in tax revenues that can be reasonably anticipated to be collected by the government once the financed project or activity is completed. Economic Development Management (EDM) this account was established to record all administrative costs associated with the day-to-day operations of the Authority. ~ State Small Business Credit Initiative (SSBCI) this fund was established by the Small Business Jobs Act of 2010 by the Federal Government to Collateral Support Program, the Credit Guarantee Program and the Payment, Surety and Performance Bond Program. -14- NOTE 1 —- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) State Trade and Export Promotion Grant Program (STEP) this program is funded by a federal grant from U.S. Small Business Administration. The program authorized by the Small Business Jobs Act of 2010 is a 3-year trade and export promotion pilot initiative to make matching-fund grants for states to assist ‘eligible small business concerns.’ The program objectives are to increase the number of small businesses that are exporting, and to increase the value of exports for those small businesses. Disaster Small-Midsized Enterprises Incubator Program — The Authority was awarded a Federal grant in the amount of $1,000,000 that is matched with $200,000 of local funding for the establishment of an incubator program on the island of St. Croix. The program promotes resource collaborations between the local government and other community based institutions to create an avenue to spark economic viability and sustainability. ¢ Cash and Cash Equivalents: For the purposes of reporting cash flows, cash and cash equivalents are defined as cash on hand, demand deposits, certificate of deposits with financial institutions and all highly liquid investments available for current use with an initial maturity of three months or less. e Investments: Investments in marketable securities or other short-term investments of cash with readily determinable fair values and investments in debt securities are reported at their fair values in the Authority’s statement of net assets. ¢ Restricted Cash and Cash Equivalents: This consists of cash and cash equivalents to be used for specific purposes as specified by legislation or by a grant agreement. ¢ Allowance for Uncollectible Accounts (Loan Losses): The Authority provides for losses when a specific need for an allowance is indicated. The provision for loan losses charged to operating expenses is the amount necessary to report the net asset at its estimated realizable value. In determining the adequacy of the allowance, management considers the composition of the loan portfolio, economic factors, historical loss experience, and value and sufficiency of collateral in the current level of the allowance. ¢ Capital Assets: The Authority capitalizes all property and equipment at cost. The property and equipment is capitalized and depreciated using the straight line method over the assets estimated useful lives. The cost of normal maintenance and repairs that do not add to the value of the assets or materially extends the life of the assets are not capitalized. Depreciation has been provided using the straight line method. The estimated economic lives of the Authority’s property and equipment varied as follows: Equipment and Furniture and Fixtures 3-5 Years Vehicles 5 Years Buildings and Leasehold Improvements 5-27 Years The Authority evaluated its capital assets in accordance with GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries and determined that there was no impairment loss for the year ended September 30, 2017. TS NOTE 1 —-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ¢ Compensated Absences: The Authority has recognized the liability for annual leave, which is payable to employees upon separation. Sick leave balances are not paid out upon termination, however liability for the balances exists in the event an employee transfers to another government agency; such liability is recognized at the time of the transfer. The liability for both amounts is calculated based on the Authority’s salary rates in effect at the statement of net position date. ¢ Use of Estimates: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenditures during the reporting period. Accordingly, actual results could differ from those estimates. NOTE 2 NATURAL DISASTERS — HURRICANES IRMA AND MARIA On September 6 and 19, 2017, the United States Virgin Islands were struck by two Category five hurricanes. The extent and severity of the storms was unprecedented and resulted in catastrophic damage to the Territory. The Authority suffered damages in the amount of $8,979,280. The Authority’s assets are covered under the Government of the Virgin Islands Property Insurance Program. The insurance program covers substantially all the property of the Virgin Islands Government. The program provides coverage for all risks including windstorm, earthquake, and floods. The Virgin Islands Department of Property and Procurement manages all activity related to the Property Insurance Program. The Authority realized $0 in insurance recoveries in fiscal year 2017. On or about September 7 and 20, 2017, the President of the United States declared the United States Virgin Islands a disaster area and eligible for Federal Emergency Management Agency (FEMA) recovery assistance. The Authority requested financial assistance from FEMA to aid with storm related losses caused by the hurricanes, reimbursement of expenditures will be secured through Federal assistance and other contributions. As of September 30, 2017, the Authority has not received any Federal assistance or other contributions from FEMA. NOTE 3 CASH AND CASH EQUIVALENTS Cash and cash equivalents consisted of the following at September 30, 2017: Unrestricted Restricted Total Cash and Cash Equivalents $ 9,077,101 $8,858,425 $17,935,526 Custodial Risk is the risk that in the event of bank failure the Authority’s deposits may not be returned to it. Cash consists of cash on hand held by depository institutions and trustees in the Authority’s name. During the fiscal year, including the final date of the period, September 30, 2017, accounts at each financial institution were insured by the Federal Deposit Insurance Corporation up to $250,000. Cash in excess of this limit are $23,200,542 and are fully collateralized. =o NOTE 3 — CASH AND CASH EQUIVALENTS (Continued) Restricted Cash and Cash Equivalents: The restricted cash and cash equivalents at September 30, 2017 consisted of the following: Micro Credit Loan Program $ 1,710,456 Farmers and Fishermen Loan Fund 286,803 Frederiksted Revolving Loan Fund 270,733 Performance Bonding Loan Fund 1,373,754 Intermediary Relending Loan Fund 94,503 SBDA Revolving Loan Fund 776,402 SBDA Administration Loan Fund I 136,175 SBDA Administration Loan Fund II 244,672 SSBCI Grant 3,964,927 $ 8,858,425 The restrictions above relate to revolving loan funds established through legislation to offer direct assistance to various industries and businesses and to aid in the creation of economic opportunities within the United States Virgin Islands. NOTE 4 INVESTMENTS The Authority categorizes its fair value measurement within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other than observables inputs; Level 3 inputs are significant observable inputs. At September 30, 2017, the Authority’s investments consisted of certificate of deposits which had a recurring fair value of $6,249,975 at year-end. The certificate of deposits is classified as Level 2 in the fair value hierarchy and is valued at amortized cost plus accrued interest. Investment Maturities Less than Investment Type Fair Value 1 Year 1-5 Years Certificates of Deposits $ 6,243,975 $ 922,886 $5,321,089 NOTE 5 RESTRICTED NET POSITION FOR LOAN PROGRAMS AND OTHER FUNDS The restricted net position at September 30, 2017, consists of the following: Micro Credit Loan Program $ 4,942,364 Farmers and Fishermen Loan Fund 3115755 Frederiksted Revolving Loan Fund 270,733 Performance Bonding Loan Fund 2,654,387 Intermediary Relending Loan Fund (97,288) SBDA Revolving Loan Fund 1,459,549 SBDA Administration Loan Fund I 218,245 SBDA Administration Loan Fund II 378,618 SSBCI Grant 6,584,595 316,722,958 = fe NOTE 6 LOANS RECEIVABLE Restricted Loans receivable as of September 30, 2017 was as follows: Loan Principal $ 3,908,186 Allowance for Doubtful Accounts (488,892) Net Loans Receivable $ 3,419,294 The loans bear interest rates ranging from 4% to 12%. The majority of the allowance for doubtful accounts is attributed to SBDA & GDB loans which were assumed by the Authority at its inception. No additional allowance was recorded in fiscal year 2017. NOTE 7 OTHER RECEIVABLES The other receivables balance as of September 30, 2017: Other Other Receivables Allowance Receivables, net Interest Receivable $ 11,848 $ - $ 11,848 Performance Bonding Receivable 412,646 * 412,646 GDB Receivable 22,035 - 22,035 EDC Fees & Charges 231,393 (7,500) 223,893 SBDA Receivable 1,785 - 1,785 Rent Receivable 75,046 (27,500) 47,546 Grant Receivable-Board Up & Scrape and Paint Program 40 - 40 EZC Compliance Receivable 10,979 - 10,979 Tax Increment Financing Fund 30,015 (30,015) - Economic Development Management 478,348 . 478,348 Receivable - Taxi-Tour Bus (210) - (210) Total $ 1,273,925 $ (65,015) $ 1,208,910 Provision for uncollectible accounts was $65,015 in fiscal year 2017. NOTE 8 CAPITAL ASSETS Capital assets are composed of the following at September 30, 2017: Beginning Ending Balance Additions Retirement Balance Capital Assets Building and Building Improvements $ 9,160,848 $ 183,834 $ - $ 9,344,682 Leasehold Improvements 867,889 - - 867,889 Equipment 1,190,689 49,248 - 1,239,937 Furniture and Fixtures 370,393 - - 370,393 Vehicles 357,197 61,428 . 418,625 Leasehold Equipment 20,585 - - 20,585 Total Capital Assets 11,967,601 294,510 - 12,262,111 Accumulated Depreciation Building and Building Improvements (8,369,688) (222,128) - (8,591,816) Leasehold Improvements (300,167) (77,333) - (377,500) Equipment (1,179,367) (72,928) - (1,252,295) Furniture and Fixtures (257,726) (7,433) . (265,159) Vehicles (240,916) (33,613) - (274,529) Leasehold Equipment (20,585) . - (20,585) Total Accumulated Depreciation (10,368,449) (413,435) - (10,781,884) Capital Assets, net $ 1,599,152 $ (118,925) $ - $ 1,480,227 eiRes NOTE 8 — CAPITAL ASSETS (Continued) Depreciation expense for the year ended September 30, 2017 totaled $413,435. During 2017, the Authority was impacted by Hurricanes Irma and Maria and certain assets sustained physical damage and other assets require considerable effort to restore their service utility. The Authority evaluated its capital assets in accordance with GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. The Authority did not recognize any impairment loss for the year ended September 30, 2017. NOTE 9 LOANS PAYABLE The Authority entered into an Intermediary Relending Program loan agreement (IRP) with the United States Department of Agriculture Rural Business Cooperative Services on April 21, 1998. This agreement requires the repayment of the approved loan principal of $670,530 to begin after three (3) years in twenty- seven (27) equal annual installments. An interest rate of 1% accrues on the outstanding balance. As of September 30, 2017, the outstanding loan balance was $291,791. As of September 30, 2016, the outstanding loan balance is comprised of the following: Due Beginning Ending Within Balance Additions Deductions Balance One Year Loan Payable $ 319,117 $ - $ (27,326) $ 291,791 $ 25,378 Future minimum payments to the U.S. Department of Agriculture are as follows: 2018 $ 25,378 2019 25,632 2020 25,889 2021 26,148 2022-2028 188,744 Total $ 291,791 NOTE 10 COMPENSATED ABSENCES Compensated absences balance as of September 30, 2017 was $399,288 of which $188,057 is due within a year. NOTE 11 LEASES Lessor --- The Authority leases commercial properties it owns through the Economic Park Development Corporation. The terms of the leases vary from one to five years, with monthly rent payments dependent on the amount of square footage occupied and the location of the property. Lessee --- The Authority leases office space, under a five year lease term, from January 1, 2013 through December 31, 2017, for office and common area spaces with increases in rent on the 2™ and 4" anniversaries equal to the percentage of the cost of living increase for the preceding year, based upon the Consumer Price Index (CPI-U) as published by the U.S. Department of Labor Bureau of Labor Statistics. In addition, the Industrial Park buildings are located on parcels of leased land. The land is rented under a thirty (30) year term lease which expired May 2013. Two additional ten year option periods are available to the Industrial Park with the rental amounts based upon the Bureau of Labor Statistics’ Consumer Price Index. = 10> NOTE 11 —LEASES (Continued) Rent expense for the year ending September 30, 2017 was $289,156. The aggregate lease commitment for the Authority is as follows as of September 30, 2017: October — December 2017 $ 41,650 Total $ 41,650 NOTE 12 DEFERRED REVENUE Current Deferred Revenue: Out of $12,962,700 reflected in the financial statements $12,920,121 represents the amount not expended as of September 30, 2017 from the grant funds received in fiscal year 2012 from the United States Department of Treasury for the State Small Business Credit Initiative. Noncurrent Deferred Revenue: In October 2009, the Virgin Islands Public Finance Authority (VIPFA) issued $87,000,000 in bonds of which $5,000,000 was allotted to the Authority. These funds are to be utilized for developmental loan programs and are drawn down from VIPFA as loans are issued. Out of the noncurrent deferred revenue reflected in the financial statements $939,405 represents advance funds received from VIPFA in fiscal year 2009. The deferred revenue will be relieved as additional loans are made in the future. NOTE 13 PENSION PLAN The Authority follows the provisions of GASB Statement No. 68 Accounting and Financial Reporting for Pensions — an amendment of GASB Statement No. 27. This Statement establishes financial reporting standards for state and local governments for pensions. Plan Description The Authority’s employees are members of the Employees’ Retirement System of the Government of the U.S. Virgin Islands (“GERS”), cost sharing multiple employer defined benefit, public employee retirement system as defined by GASB 68. The system was established by the Government to provide retirement, death and disability benefits to its employees. All of the Authority’s full-time regular employees are mandated to participate in the retirement plan administered by GERS. The Authority’s part-time employees who regularly work more than 50% of the normal work period, and full-time regular employees who at the time of employment are under age 55 years with one year of government service are eligible to participate in the system. Effective January 1, 2015, the Authority’s required contribution was 20.5% of the member’s annual salary. Prior to that date, the percentage was 17.5%. Effective January 1, 2015, member contributions were 9 and 9.5% for Tier I and Tier II employees. Prior to that, member contributions were 8 and 8.5% for Tier I and Tier II employees respectively. Total amount of the Authority’s covered payroll for the year ended September 30, 2017 was $2,580,450. Plan descriptions, funding policies, and a schedule of employee required and paid contributions for the defined benefit plans are presented in the Virgin Islands Comprehensive Annual Financial Report (CAFR) for the fiscal year ended September 30, 2017. The CAFR also provides detailed historical trend information showing the progress in accumulating sufficient assets to pay benefits when due. In addition, GERS issues a publicly available report that includes financial statements and required supplementary information. This report may be obtained from the Employees Retirement System of the Government of the Virgin Islands, GERS Complex, 3438 Kronprindsens Gade, St. Thomas, VI 00802. -20;- NOTE 14 NET PENSION LIABILITY Net Pension Liability Effective July 1, 2014, the Entity implemented the provlslons of GASB Statement No. 68, Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27, as amended by GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - an amendment of GASB Statement No. 68. Following is a description of the pension plan and accounting for pension expense, liabilities, and deferred outflows/inflows of resources. Plan Description and Benefits Full time employees of the Authority are members of the Government Employees’ Retirement System of the Virgin Islands (GERS), a cost sharing multiple-employer, defined benefit pension plan (the plan) established as of October1,1959 in accordance with Title 3, Chapter 27 of the Virgin Islands Code to provide retirement, death, and disability benefits. Benefits may be extended to beneficiaries of plan members. The plan covers all employees of the Government, including the Entity, except employees compensated on a contract fee basis, casual, per diem or provisional and part time employees who work less than 20 hours per week. Persons over the age of 55 may opt out of the plan by providing formal notification to the plan. Vesting of benefits occurs after 10 years of service. Benefits may be extended to beneficiaries of plan members. There are two tiers within the plan: Tier I: | Employees hired prior to September 30, 2005 Tier II: | Employees hired on or after October 1, 2005 Regular employees who have completed 30 years of credited service or have attained age 60 with at least 10 years of credited service are eligible for a full-service retirement annuity. Members who are considered “safety employees” as defined in the Code are eligible for full retirement benefits when they have earned at least 20 years of service or have reached the age of 55 with at least 10 years of credited service. Regular and safety employees who have attained age 50 with at least 10 years of credited service may elect to retire early with a reduced benefit. The monthly annuity benefit payment is determined by applying a stipulated benefit ratio to the member’s average compensation. Average compensation for Tier I members is determined by averaging the five highest years of credited service within the last ten years of service, subject to the maximum salary limitations in effect during such service. Average compensation for Tier II members is determined by averaging the most recent five years of credited service within the last ten years of service, subject to the maximum salary limitations in effect during the service. The maximum annual salary that can be used in this computation is $65,000, except for senators and judges, whose annual salary is used. Funding and Contribution Policy Contributions to GERS are established by the Board of Trustees of GERS. The Government’s required employer contribution for Tier I and Tier II members was 20.5% of the member’s annual salary. Effective January 1, 2017, Tier I member contributions increased by 1% to 11% of annual salary for regular employees. Member contributions will increase an additional 1% on January 1, 2018. =O l- NOTE 14 — NET PENSION LIABILITY (Continued) Effective January 1, 2017, Tier II member contributions increased by 1% to 11.5% of annual salary for regular employees, and will increase an additional 1% on January 1, 2018. Prior to June 29, 2000, member contributions were refundable without interest upon withdrawal from employment before retirement. Effective July 1, 2009, GERS’ Board of Trustees approved an effective annual interest rate on refunded contributions of 2% per annum. Both the Plan and the Authority have a September fiscal year end. GASB Statement No. 68 requires that the reported results must pertain to liability and asset information within certain defined time frames. For this report, the following time frames are used: Valuation Date: October 1, 2016 Measurement Date: September 30, 2016 Measurement Period: October 1, 2015 — September 30, 2016 The Authority’s proportionate share of employer contributions recognized by GERS was $427,405 for the Plan’s fiscal year ended September 30, 2016. Pension Liabilities and Expense and Deferred Outflows/Inflows of Resources As of September 30, 2017, the actuarial calculated net pension liability for the Authority’s proportionate share of the net pension liability of the Plan was $27,147,208. The net pension liability of the Plan is measured as of September 30, 2016, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of October 1, 2016. Actuarially determined proportionate share information from GERS was estimated by management based on an average four-year respective share of the Authority’s contributions to the Plan relative to all contributions to the Plan. At September 30, 2016, the Authority’s proportion was .5868 percent, which was a decrease of .0176 from its proportion measured as of September 30, 2015. For the year ended September 30, 2017, the Authority recognized $528,993 of pension expense, inclusive of amortization of deferred outflows of pension related items. Following is a schedule of deferred outflows/inflows of resources allocated to the Authority in the computation of net pension liability: Deferred Deferred Outflows by Inflows of Resources Resources Change in assumptions $ 5,600,115 $ - Difference between expected and actual experience 854,114 - Net difference between projected and actual earnings on pension plan investments 326,639 - Change in proportionate share 695,733 630,725 Contributions made subsequent to measurement date 548,480 . $ 8,025,081 $ 630,725 Amounts reported as deferred outflows, exclusive of contributions made after the measurement date, will be recognized in pension expense as follows: NOTE 14-— NET PENSION LIABILITY (Continued) Year ending September 30, 2017 1,698,853 2018 1,698,853 2019 1,336,632 2020 1,247,516 2021 432,011 Thereafter 432,011 Actuarial Assumptions A summary of the actuarial assumptions and methods used to calculate the total pension liability as of September 30, 2016, is provided below, including any assumptions that differ from those used in the October 1, 2016 actuarial valuation. Refer to October 1, 2016 actuarial valuation report for a complete description of all other assumptions, which can be found on GERS’ website Inflation Rate: 2.50% Salary Increases: 3.25% including inflation Actuarial Cost Method: Entry Age Normal Expected Rate of Return: 7.00% Municipal Bond Yield: 3.06% Discount Rate: 3.20% Mortality Table: RP-2014 Blue Collar Investment Rate of Return The long-term expected rate of return of 7.0% on plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the plan’s target asset allocation as of September 30, 2016, are summarized as follows: Long-Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 29% 6.59% International equity 12% 8.29% Fixed income 27% 1.59% Cash 2% 0.99% Alternative 30% 5.50% Discount Rate The discount rate used to measure the total pension liability was 3.20% as of September 30, 2016 and 3.84% as of September 30, 2015. The projection of cash flows used to determine the discount rate assumed plan member contributions will be made at the current contribution rate, including the future increases in the employee contribution rates legislated. Based on those assumptions, the plan’s fiduciary net position was not projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments of 7.0% was applied to all periods of projected benefit payments that are covered by projected assets. For periods where projected future benefit payments are not covered by projected assets, the yield on a 20-year AA Municipal Bond index was applied, which was 3.06% and 3.71% at September 30, 2016 and 2015, respectively. ais NOTE 14 -— NET PENSION LIABILITY (Continued) Sensitivity of Proportionate Share of Net Pension Liability to Changes in the Discount Rate The following presents the Authority’s allocation of its proportionate share of the net pension liability (NPL) for the plan, calculated using the discount rate, and what the allocation of the Authority’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1% (2.20%) lower or 1% (4.20%) higher than the current rate. 1% Decrease Share Share of NPL 1% Increase of NPL @ 2.20% @3.20% Share of NPL @4.20% $31,728,951 $27,147,208 $23,357,018 Detailed information about pension plan’s fiduciary net position is available in the separately issued GERS financial report. NOTE 15 COMMITMENTS AND CONTINGENCIES In the normal course of business, the Authority has various outstanding commitments at September 30, 2017, which includes outstanding loan commitments in the process of being approved by the Board of Directors which are not reflected on the statement of net assets. The Authority asserts that there have not been any material claims, suits or complaints filed nor are any pending against the Authority. In the opinion of management, all other matters which are asserted or unasserted are without merit and would not have a significant effect on the financial position or results of operations if they were disposed of unfavorably. NOTE 16 RISK MANAGEMENT The Authority is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; and natural disasters for which the Authority has commercial insurance coverage. Annual premium payments are made in proportion to the anticipated exposure to the liability losses assessed. NOTE 17 SUBSEQUENT EVENTS The Authority’s management has evaluated subsequent events through March 27, 2018, the date the financial statements were available to be issued. The accompanying financial statements recognize the effects of subsequent events that provided evidence about conditions that exist at the balance sheet date, including the estimates inherent in the process of preparing financial statements. The accompanying financial statements do not recognize the effect of subsequent events that did not exist at the balance sheet date, but disclosures of such events, if any, are included in the accompanying notes. The Authority is making significant progress towards restoring its facilities which were damaged by Hurricanes Irma and Maria in September 2017. The Authority is in the process of accumulating the associated costs and expenses with respect to remediation, clean-up, mitigation, and the restoration of services. The Authority has not reallocated budgeted funds in fiscal year 2018. As indicated earlier, the Authority is insured under the Virgin Islands Property Insurance Program. The Authority continues to work closely with Federal agencies, such as the Federal Emergency Management Agency (FEMA), to maximize its recovery from all available sources, subject to any sublimits and retentions. The eventual amount and timing for receipt of such funds cannot be predicted at this time. The full impact of these hurricanes on the Authority remains unknown at this time and therefore, it is also not yet possible for the Authority to estimate the impact of hurricane-related losses on revenue collections or expenditures. -24- SUPPLEMENTARY INFORMATION VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENT OF NET POSITION AS OF SEPTEMBER 30, 2017 (With Compara,e Totals fo< 1016) ASSETS GOB EDM EDC SBDA EPDC IRP EZC USE TIF SSBCI STEP INCUBATOR Tour Bus Biminalk:lns 2017 1016 Current Assets: Cash aid Cash Eq"""""5 s s 863,19:l S 1,555,2\li S 1,m s 37 263 S s 122.147 s 1 S 6,46a 13' $ 2,575 S 27,163 S s s 9,077,101 S 4,176.702 imesUl\"'11S 928,886 928.886 1.1Da,72S Recei,eble, net 437,020 '82,232 223893 1,76S 47,5'6 11,019 5,625 (2101 1.208,910 621.657 ʼ iom Olher Fund 2,302,985 697,568 2.565.0& 274,359 10 21,797 5,862,207 ?repad & Ot/lef Assets 45.880 15.513 61,393 54,125 Te4a1 C<mnt Assets 2,740.005 3.018,259 4.3\4.277 277,373 100.Il2 133.166 I 6,473.759 24,372 27,163 (210) 5,862,207 11,276,290 5,961,209 Non.Current R.utricU:d As!l!ts.-: Resll\Cted Cash & CaSII EQUlllieots 3.084 210 1.333938 9',503 380,841 3,964,927 8,858.425 13.133,380 Reslncted ʽ\llSl""'1ts 2.701,421 2,619,668 5.321,089 5,985,480 Resll\Ct«l loail Recei"1llle, net 2,538.126 565,152 100,000 216,016 3,419,294 3,410,838 Total Ncr>Current ReslliCted As"'1S 8,321757 1,899,090 19'.503 596,863 6,584,595 17,598808 22,529,698 C.tpital Assets. net 10,131 616,&:6 'J0.978 762.272 1,480,227 I 599.152 Tobi I Assets 11,073,893 3,635.105 4,3\4,277 2,267,441 862,600 19',503 133,166 596,863 I 13,068,354 24.372 27,163 (210] 5,862,207 30.355.JZS 30.090.059 Defured Outflows of ReSOlJrces 7,376.737 62M57 8.005,59' 6,654,336 Total Assets and Deferred Otrtftowsof Resources 11,073,893 11,011,842 4,344,277 2,267,441 1,491,461 194,503 133,166 596,863 I 13.058,354 2'.372 27,163 (210) 5,862.207 38,360,919 36,744,"5 LIABILITIES c..rent Liatilities Aecru>ts Payable 395 251,718 47,500 402502 16.443 718,558 279.llS A«:r\led E;ri,e,,ses 61,157 3,410 64 567 55,339 Compensa'.ed Abseoces 172,125 15.932 188057 166,767 ʾl.,..tPayatl!e 18,245 1,87i 20.116 19.670 1M to OU,,, FIMld 5,089,590 10 1,190 295,891 7,596 17,743 444,808 5,379 5.862,207 -- 34.436 12,920,121 8,143 12,962,700 12,931,650 Loog Payable 25,378 25,378 25,127 Tot,! lment Uab,hties 18.640 5,574,590 47,510 403692 331,676 27,249 34.436 7,596 12,937,864 a1,3 444,808 5.379 5,862,207 13,979.376 13.477.631 ʿ U3ahues Com,ensaled Ati.eoc.s 192.342 18,889 211 231 155,667 Seruf1y Cepostjs 47,457 47,457 31.183 -Re- 939,405 939.•05 1,000,000 ReliefRe-,1\ing Ftnis 400,000 Loan Par,,Ole 266,413 266.413 293,990 Net Pensoon Uaˀl.ty 24,963,452 2,183,756 27,1472C8 24,009,495 Total Non-Current liabilities 939,,05 25.155,794 2,250,102 261i,dl3 2&611.714 26.490,335 Total Liabilities 958.045 30,730,384 47,510 403.692 2,581,778 19:l,662 34,436 7,596 12,937,864 8.143 444,808 5,379 5.862,207 42,591,090 39,568,016 Deftrred Inflows of Resources 519,612 111,113 630,725 114,4'1 Total LiabilitJesand Oeferrad Inflows o.f Resources SSS,045 31.249,996 47,510 403692 2,m.891 293,662 3',4:,S 7,596 12,937.864 8,143 444,808 5,379 5,862,207 4l221,B15 40,082,457 NET POSITlON Net lmestmen1 ln Capjlal Assets 10,131 616,MS 'J0.978 762,2n 1,®,227 1,599,152 Restrrcted Net Position 7,596,751 2,042,037 97,lSB 596,863 6,584,595 16.917,53' 21,210.583 lhestricted Net Posnoo 2,508$6 (20,855,000) 4,296.767 (2o"9,26o) (1,963,702) (196,447) 98,730 (7,5951 (6,.:s<,105) 1s.m (417,645) (5.589) 123,258,657) (26,147,747) Total Ne-I Position s 10, 115,&18 S (20,238, 154) S 4,2\li,767 S 1,863,749 S (1,201,430) S (99,159) S 98.730 S 596.863 S (7,5951 S 120,491) S 16,229 S (417,6"5) S {5,589) S s l',_860.896) S (l338.012) - 25- VIRGIN ISLANDS ECONOMIC DEVELOPMENT AUTHORITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITON FOR THE YEAR ENDED SEPTEMBER 30, 2017 (Wnh Comparative Totals for 2016) GOB EOM EOC SBDA EPOC IRP EZC Operating Revenues USE TIF SSBCI STEP INCUBATOR Tour Bus 2017 2016 Allocation <i Bond P10eeeds s 5,165 , ' ' ' s s s s s s s s s 5,165 S 60,595 Apprica1ion and P10eessing Fees 10,808 644,500 655.308 580,467 Rental Income 440,530 (400) 440.130 425,649 tnteresl oo:xne from Loans 109,635 25,475 8,521 143,631 141,177 GranlR- 22,000 41,180 63,180 301,677 Penalties 321,138 321,138 175,381 Othe, Ope,ating Income 33,74< 3.031 68.369 105,166 127,469 Total Operating Re\lenues 148,54li 10,808 965,638 28,506 508.919 22,000 8.521 41,180 (400) 1,733,718 1,812,41S Operating Expenses P"5onnel Costs 5,503,900 443,323 5,947,223 5,106.732 General and Administrath.e (11,536) 579,422 323 69 203,700 91 13,275 138 45 185,623 713,820 Occupancy 246,998 42,158 289,156 282.655 Ad\OOising 306,586 306,586 221.627 Professional Setlites 914,349 2.427 916,716 570,114 Tra'<ll 91,719 3,051 94,830 63,280 Grant Expenditu,es 22,000 41,1&:> 63,1&:) 301.677 Ba<!Debl 16,565 34,363 15,236 56,400 122,654 154,<lM Total Operating Expenses (11,536) 7,643.034 16,888 69 729,112 15.333 35,275 56,628 41,225 8,526,028 7,414.865 Operating Income (Loss) Bebe Owreciation 160.082 {1,632,226) 948.750 28.437 (220,193) (15.333) (13,275) (48,107) ( 45) (400) (6,792,310) (5,602,451) Dep,ecialion 683 177,154 325 5,960 229,313 413,4:lS 4..144.'l? Operating Income (Loss) 159.399 (7,809.380) 948.425 22.477 (449,506) (15,333) (13,215) (48,107) (45) (400) (7,205,745) (6,036,883} Non()perating Re,enues (Expenses) Go,,,mment Appropriation 5.455,163 5,455,163 4.800,000 Interest Income 28,132 213 339 120 35,67! 65,075 65,697 00,e, Income 12,024 8,460 111.959 31.764 164,207 65,493 lnle<es1 Expense & Finance Charges (1,564) (1,584) (2,24<) Total Non-Operating R.....,es 5,495,919 8.673 339 (1,4<4) 111,959 31.764 35,671 5,682,861 4,928.944 Changes in Net Assets 159,399 (2,313,461) 948,425 31,150 (449,167) (16,797) 98,684 (16.343) 35,626 {400) (1,522.884) (1.107.939) Net Assets, Beginning of Year 9,956,449 (17,924,693) 3,348 342 1,832,599' (152,263) (82,362) 4o 613,206 (7,595) 84,864 16,229 (417,245) {5,589) (3,338.012) (2,230,073) Net Assets, End <i Year s 10,115.848 S (20,238,154) S 4,296.767 S 1.863,749 S (1,201,430) S !99, 159) S 98.730 S 596.863 S (7,595) S 120,400 S 16,229 S {417,645) S (5,589) S (4,860.6961 s (3,338,012) - 26 -