OFFICIAL STATEMENT DATED APRIL 13, 2016
NEW ISSUES — Book-Entry-Only
Ratings: See “OTHER INFORMATION— Ratings” herein
In the opinion of Bond Counsel, interest on the Obligations is excludable from gross income for federal income
tax purposes under existing law, subject to the matters described under “TAX MATTERS” herein, and is not includable
in the federal alternative minimum taxable income of individuals. See “TAX MATTERS” for a discussion of the
opinion of Bond Counsel, including the alternative minimum tax consequences for corporations.
METROPOLITAN TRANSIT AUTHORITY
OF HARRIS COUNTY, TEXAS
$126,245,000
SALES AND USE TAX
REFUNDING BONDS
SERIES 2016A
Interest accrues from the date of delivery
$25,635,000
SALES AND USE TAX REFUNDING
CONTRACTUAL OBLIGATIONS
SERIES 2016B
CUSIP Prefix: 41422E
Due: As shown on the inside cover
The Sales and Use Tax Refunding Bonds, Series 2016A (the “Series 2016A Sales Tax Bonds”), and the Sales and Use
Tax Refunding Contractual Obligations, Series 2016B (the “Series 2016B Contractual Obligations” and, together with the
Series 2016A Sales Tax Bonds, the “Obligations”) are being issued by the Metropolitan Transit Authority of Harris County,
Texas (the “Authority” or “METRO”) for the purposes described herein. See “PLAN OF FINANCE.”
Interest on the Series 2016A Sales Tax Bonds will accrue from the date of delivery at the rates specified on the inside
cover page, will be payable on each May 1 and November 1, commencing November 1, 2016, and will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Interest on the Series 2016B Contractual Obligations will accrue
from the date of delivery at the rates specified on the inside cover page, will be payable on each May 1 and November 1,
commencing November 1, 2016, and will be calculated on the basis of a 360-day year consisting of twelve 30-day months.
The definitive Obligations will be registered and delivered only to Cede & Co., the nominee of The Depository Trust
Company (“DTC”), pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Obligations may
be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Obligations will be made
to the beneficial owners thereof. Principal of, premium, if any, and interest on the Obligations will be payable by the Paying
Agent/Registrar to Cede & Co., which will make distribution of the amounts so paid to the participating members of DTC for
subsequent payment to the beneficial owners thereof. See “BOOK-ENTRY-ONLY SYSTEM” herein. The initial Paying Agent/
Registrar and Trustee is Wells Fargo Bank, N.A., Dallas, Texas. See “THE OBLIGATIONS – Trustee/Paying Agent/Registrar.”
The Obligations are secured, equally and ratably with outstanding debt obligations and any future parity obligations
(collectively, the “Senior Lien Obligations”), by a grant to Wells Fargo Bank, N.A., Dallas, Texas, as trustee (the “Trustee”),
of a senior lien on and pledge of 75% of the sales and use tax revenues collected and received by the Authority, plus any
investment income earned on moneys in certain funds to which such revenue is deposited. See “THE OBLIGATIONS –
Security and Source of Payment.” A sales and use tax is levied by the Authority at the rate of 1% on all taxable transaction
within the Authority’s boundaries. See “REVENUES AND INVESTMENTS.” The Obligations are not Reserve Fund
Participants (as defined in this Official Statement) and therefore are not secured by a debt service reserve fund,
which secures other Senior Lien Obligations. See “THE OBLIGATIONS – Debt Service Reserve Funds” and “DEBT AND
OTHER OBLIGATIONS – Table 6 – Outstanding Debt as of January 31, 2016.”
The Series 2016A Sales Tax Bonds are being issued for the purposes of (a) refunding certain outstanding Sales and Use
Tax Bonds set forth in Schedule I hereto (the “Refunded Bonds”), and (b) paying costs of issuance of the Series 2016A Sales
Tax Bonds. The Series 2016B Contractual Obligations are being issued for the purposes of (a) refunding certain Sales and
Use Tax Contractual Obligations set forth in Schedule I hereto (the “Refunded Contractual Obligations”), and (b) paying
costs of issuance of the Series 2016B Contractual Obligations. See “PLAN OF FINANCE.”
SEE INSIDE COVER PAGE FOR MATURITY SCHEDULES AND PRICES
The Series 2016A Sales Tax Bonds are subject to redemption prior to maturity as set forth herein. The Series 2016B
Contractual Obligations are subject to redemption prior to maturity as set forth herein. See “The OBLIGATIONS – Redemption”.
The Obligations are offered for sale when, as and if issued by the Authority and accepted by the Underwriters listed
below, subject, prior to sale, to the withdrawal or modification of the offer without notice, and, prior to delivery, to the
approving opinions of the Attorney General of Texas and the opinions of Andrews Kurth LLP, Houston, Texas, Bond Counsel.
See APPENDIX C —“Form of Bond Counsel’s Opinion.” Certain additional matters will be passed upon for the Authority by
its Special Disclosure Counsel, Escamilla & Poneck, LLP, Houston, Texas. Certain matters will be passed upon for the
Underwriters by Greenberg Traurig, LLP, Houston, Texas, as Counsel to the Underwriters.
It is expected that the Obligations will be available for delivery through DTC on or about April 27, 2016.
Cabrera Capital Markets, LLC
Citigroup
Crews & Associates
MATURITY SCHEDULES
$126,245,000
Sales and Use Tax Refunding Bonds,
Series 2016A
Maturity
(November 1)(1)
2021
2022
2023
2024
2025
2026
2027
2028
2029
Principal
Amount ($)
4,390,000.00
4,615,000.00
4,855,000.00
16,470,000.00
17,315,000.00
18,210,000.00
19,135,000.00
20,110,000.00
21,145,000.00
Interest
Rate (%)
5.000
5.000
5.000
5.000
5.000
5.000
5.000
5.000
5.000
Offering
Yield (%)(3)
1.210
1.390
1.540
1.690
1.820
1.950
2.060
2.130
2.190
CUSIP
No.(4)
41422EFU2
41422EFL2
41422EFM0
41422EFN8
41422EFP3
41422EFQ1
41422EFR9
41422EFS7
41422EFT5
(Interest accrues from date of delivery)
$25,635,000
Sales and Use Tax Refunding Contractual Obligations,
Series 2016B
Maturity
(November 1)(2)
2020
2021
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Principal
Amount ($)
1,390,000.00
1,460,000.00
1,600,000.00
1,685,000.00
1,770,000.00
1,860,000.00
1,960,000.00
2,060,000.00
2,165,000.00
2,255,000.00
2,355,000.00
2,475,000.00
2,600,000.00
Interest
Rate (%)
5.000
5.000
5.000
5.000
5.000
5.000
5.000
5.000
5.000
3.500
5.000
5.000
5.000
Offering
Yield (%)(3)
1.100
1.210
1.540
1.690
1.820
1.950
2.060
2.130
2.190
2.500
2.340
2.400
2.460
CUSIP
No.(4)
41422EFV0
41422EFW8
41422EFX6
41422EFY4
41422EFZ1
41422EGA5
41422EGB3
41422EGC1
41422EGD9
41422EGE7
41422EGF4
41422EGG2
41422EGH0
(Interest accrues from date of delivery)
(1)
The Authority reserves the right, at its option, to redeem the Series 2016A Bonds having stated maturities on and after November 1, 2027,
in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on November 1, 2026, or any date thereafter, at the par
value thereof plus accrued interest to the date of redemption.
(2)
The Authority reserves the right, at its option, to redeem the Series 2016B Contractual Obligations having stated maturities on and after
November 1, 2027, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on November 1, 2026, or any date
thereafter, at the par value thereof plus accrued interest to the date of redemption.
(3)
The initial offering yield is calculated to maturity or the first optional par redemption date, whichever produces a lower yield.
(4)
CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein is provided by Standard and Poor's CUSIP
Service Bureau, a Division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any
way as a substitute for the CUSIP Services. None of the Authority, the Financial Advisor or the Underwriters is responsible for the
selection or correctness of the CUSIP numbers set forth herein.
ii
The Obligations have not been registered under the United States Securities Act of 1933, as amended, in reliance upon exemptions contained
in such Act. Any registration or qualification of the Obligations in accordance with applicable provisions of securities laws of the states in
which the Obligations may have been registered or qualified and the exemption from registration or qualification in other states cannot be
regarded as a recommendation thereof.
In making an investment decision, investors must rely on their own examination of the terms of this offering, including the merits and risks
involved. The Obligations have not been recommended by any federal or state securities commission or regulatory authority. Furthermore,
the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Official Statement. Any representation to the
contrary may be a criminal offense.
This Official Statement includes descriptions and summaries of certain events, matters, laws and documents. Such descriptions and
summaries do not purport to be complete, and all such descriptions, summaries and references thereto are qualified in their entirety by
reference to this Official Statement in its entirety and to each such law or document, copies of which may be obtained from the Authority or
from the Financial Advisor to the Authority. Any statements made in this Official Statement or the appendices hereto involving matters of
opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made
that any of such opinions or estimates will be realized.
References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the
reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into,
and are not part of, this final official statement for purposes of, and as that term is defined in, the Rule.
This Official Statement is delivered in connection with the sale of securities referred to herein and may not be reproduced or used, in
whole or in part, for any other purposes.
The Underwriters have provided the following sentence for inclusion in this Official Statement: The Underwriters have reviewed the
information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal
securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or
completeness of such information.
This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the
Obligations in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. No dealer, salesman or other person
has been authorized by the Authority to give any information or to make any representation other than those contained herein, and,
if given or made, such other information or representation must not be relied upon as having been authorized by the Authority or
any other person. The information and expressions of opinion herein are subject to change without notice, and neither the delivery
of this Official Statement nor any sale made hereunder shall, under any circumstances, create the implication that there has been no
change in the matters described herein since the date hereof.
The cover page contains certain information for general reference only. Investors must read the entire Official Statement to obtain
information essential to make an investment decision. See “INVESTMENT CONSIDERATIONS” for a discussion of factors that
should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Obligations.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OBLIGATIONS AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
CERTAIN STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS OFFICIAL STATEMENT (INCLUDING,
WITHOUT LIMITATION, ALL APPENDICES HERETO) CONSTITUTE “FORWARD-LOOKING STATEMENTS.”
SUCH
STATEMENTS ARE GENERALLY IDENTIFIABLE BY THE TERMINOLOGY USED, SUCH AS “PLAN,” “EXPECT,” “ESTIMATE,”
“BUDGET,” “FORECAST” OR SIMILAR WORDS.
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. THE AUTHORITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARDLOOKING STATEMENT IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH
SUCH STATEMENTS ARE BASED CHANGE. INVESTORS SHOULD NOT PLACE UNDUE RELIANCE ON SUCH FORWARDLOOKING STATEMENTS. PLEASE REVIEW THE FACTORS DESCRIBED BELOW UNDER “INVESTMENT CONSIDERATIONS”
AND ELSEWHERE HEREIN WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS.
iii
TABLE OF CONTENTS
The cover page hereof, this page, the appendices included herein and any addenda, supplement or amendment hereto, are part of the Official
Statement.
OFFICIAL STATEMENT SUMMARY ...................... IV
DEBT AND OTHER OBLIGATIONS ......................... 16
SALES TAX-SUPPORTED DEBT ....................................... 16
MASTER LEASE PURCHASE PROGRAM ........................... 17
OUTSTANDING DEBT ..................................................... 17
TABLE 6 —OUTSTANDING DEBT AS OF JANUARY
31, 2016 ..................................................................... 18
ANNUAL DEBT SERVICE REQUIREMENTS ...................... 18
TABLE 7 – ANNUAL DEBT SERVICE REQUIREMENTS
SECURED BY PLEDGED REVENUES ............................. 19
MAXIMUM AND AVERAGE ANNUAL DEBT SERVICE
REQUIREMENTS .......................................................... 19
DEBT SERVICE COVERAGE ............................................ 19
GENERAL MOBILITY CONTRACTS .................................. 20
GENERAL MOBILITY ESCROW ....................................... 20
DEBT POLICY ................................................................. 20
SWAP POLICY ................................................................ 20
LEASE/LEASEBACK TRANSACTIONS .............................. 20
RETIREMENT PLANS ...................................................... 20
RISK FACTORS RELATING TO PENSION SYSTEMS ........... 27
OTHER POST-EMPLOYMENT BENEFITS .......................... 28
CLAIMS AND LITIGATION AFFECTING THE
AUTHORITY ................................................................ 29
INTRODUCTION ............................................................ 1
OFFERING ........................................................................ 1
DESCRIPTION OF THE AUTHORITY ................................... 1
PLAN OF FINANCE ....................................................... 1
ESTIMATED SOURCES AND USES OF FUNDS ..................... 2
THE OBLIGATIONS ...................................................... 2
DESCRIPTION ................................................................... 2
AUTHORITY FOR ISSUANCE ............................................. 3
REDEMPTION ................................................................... 3
NOTICE OF REDEMPTION ................................................. 3
SECURITY AND SOURCE OF PAYMENT ............................. 3
OUTSTANDING AND ADDITIONAL PARITY
OBLIGATIONS .............................................................. 4
DEBT SERVICE RESERVE FUNDS...................................... 5
FLOW OF FUNDS .............................................................. 5
INVESTMENT OF FUNDS ................................................... 6
DEFEASANCE ................................................................... 6
TRUSTEE/PAYING AGENT/REGISTRAR ............................. 6
AMENDMENTS TO RESOLUTIONS ..................................... 7
CAPITAL PROGRAM .................................................. 30
DESCRIPTION ................................................................. 30
BOOK-ENTRY-ONLY SYSTEM .................................. 7
EFFECT OF TERMINATION OF BOOK-ENTRY-ONLY
SYSTEM ....................................................................... 8
INVESTMENT CONSIDERATIONS .......................... 31
FORWARD-LOOKING STATEMENTS ................................ 31
FUNDING OF CAPITAL IMPROVEMENT PROGRAM
AND OPERATIONS ....................................................... 31
RISKS ASSOCIATED WITH FEDERAL FUNDING................ 31
RISKS RELATING TO BUILD AMERICA BONDS................ 32
LOSS OF TAX EXEMPTION .............................................. 32
GOVERNMENT DEBT CEILING ........................................ 32
REGULATIONS AND RESTRICTIONS AFFECTING THE
AUTHORITY ................................................................ 32
THE AUTHORITY HAS LIMITED ABILITY TO
INCREASE OR MAINTAIN REVENUE ............................ 32
ADDITIONAL OBLIGATIONS MAY BE INCURRED ............ 33
THE AUTHORITY’S UNFUNDED FUTURE EXPENSES
FOR PRIOR EMPLOYMENT MAY GROW
SUBSTANTIALLY AND ADVERSELY AFFECT ITS
FINANCIAL CONDITION .............................................. 33
PAYMENT OF SHORT-TERM PARITY OBLIGATIONS
MAY DEPEND ON MARKET ACCESS AND
POSSIBLE MARKET DISRUPTIONS ............................... 33
MAINTENANCE COSTS ................................................... 34
OPERATING REVENUES; NO PROPERTY TAXES .............. 34
THE STATE COMPTROLLER MAY OFFSET CURRENT
DISTRIBUTIONS FOR OVERPAYMENTS OR REMIT
SALES AND USE TAX REVENUE LESS
FREQUENTLY.............................................................. 34
ADVERSE LEGISLATION COULD BE ENACTED ............... 34
RIGHTS OF OWNERS ARE LIMITED ................................. 35
THE AUTHORITY .......................................................... 9
GENERAL......................................................................... 9
JURISDICTION .................................................................. 9
BOARD OF DIRECTORS .................................................... 9
MANAGEMENT ................................................................ 9
TRANSIT SYSTEM ............................................................ 9
RIDERSHIP INFORMATION .............................................. 10
TABLE 1 – SELECTED RIDERSHIP STATISTICS FOR
THE LAST FIVE FISCAL YEARS ................................... 10
FLEET REPLACEMENT POLICIES .................................... 10
REVENUES AND INVESTMENTS ............................ 10
TABLE 2 - COMBINED SOURCES OF REVENUE................ 11
SALES AND USE TAX AUTHORITY................................. 11
OPERATING REVENUE ................................................... 13
TABLE 3 – CURRENT FARES FISCAL YEAR 2016............ 13
GRANTS ......................................................................... 13
INVESTMENTS ................................................................ 14
TABLE 4 – CASH AND INVESTMENTS (AS OF
JANUARY 31, 2016) ................................................... 14
EXPENDITURES .......................................................... 14
BUDGET......................................................................... 14
FISCAL YEAR 2016 BUDGET .......................................... 16
FINANCIAL HEDGES FOR FUEL ...................................... 16
TABLE 5 — OPERATING AND CAPITAL
EXPENDITURES AND DEPRECIATION .......................... 16
iv
VERIFICATION OF MATHEMATICAL
COMPUTATIONS ..................................................... 35
OTHER INFORMATION ............................................. 38
RATINGS ........................................................................ 38
LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE
PUBLIC FUNDS IN TEXAS ............................................ 38
LEGAL MATTERS ........................................................... 38
AUTHENTICITY OF FINANCIAL DATA AND OTHER
INFORMATION ............................................................ 39
FINANCIAL ADVISOR ..................................................... 39
UNDERWRITING ............................................................. 39
INDEPENDENT AUDITORS ............................................... 39
TAX MATTERS............................................................. 35
TAX EXEMPTION ........................................................... 35
FUTURE TAX LEGISLATION ........................................... 36
TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE
PREMIUM ON THE OBLIGATIONS ................................ 36
CONTINUING DISCLOSURE OF
INFORMATION ........................................................ 36
ANNUAL REPORTS ......................................................... 37
CERTAIN EVENT NOTICES ............................................. 37
LIMITATIONS AND AMENDMENTS.................................. 37
COMPLIANCE WITH PRIOR UNDERTAKINGS .................. 38
GENERAL INFORMATION ........................................ 40
SCHEDULE AND APPENDICES
Schedule of Refunded Bonds and Refunded Contractual Obligations…………...S-1
Selected Provisions of the Resolutions ................................................................. A-1
Audited Financial Statements and Unaudited Management’s Discussion
and Analysis and Supplemental Information .................................................. B-1
Forms of Bond Counsel’s Opinions ..................................................................... C-1
Selected Information Regarding Harris County, Texas ........................................ D-1
v
OFFICIAL STATEMENT SUMMARY
This summary is subject in all respects to the more complete information and definitions contained or incorporated in this Official Statement.
The offering of the Obligations to potential investors is made only by means of this entire Official Statement. No person is authorized to
detach this summary from this Official Statement or to otherwise use it without the entire Official Statement.
THE AUTHORITY ......................... The Metropolitan Transit Authority of Harris County, Texas (the “Authority” or “METRO”) is a
metropolitan rapid transit authority created pursuant to legislation now codified as Chapter 451, Texas
Transportation Code, as amended, and was confirmed at a confirmation and tax election held on
August 12, 1978. The Authority provides transit services to, and collects sales and use taxes on taxable
transactions in a 1,286-square mile area with a population of approximately 3.6 million people. The
Authority also serves other areas by contract. See “THE AUTHORITY.” See also the inside back cover
for a map depicting the Authority’s service area and sales tax jurisdiction.
THE OBLIGATIONS ......................... The Sales and Use Tax Refunding Bonds, Series 2016A (the “Series 2016A Sales Tax Bonds”), and the
Sales and Use Tax Refunding Contractual Obligations, Series 2016B (the “Series 2016B Contractual
Obligations” and, together with the Series 2016A Sales Tax Bonds, the “Obligations”) are being issued by
the Authority in the aggregate principal amounts shown on the inside cover page hereof.
USE OF PROCEEDS.......................... The Series 2016A Sales Tax Bonds are being issued for the purposes of (a) refunding certain outstanding
Sales and Use Tax Bonds set forth in SCHEDULE I hereto (the “Refunded Bonds”), and (b) paying costs
of issuance of the Series 2016A Sales Tax Bonds. The Series 2016B Contractual Obligations are being
issued for the purposes of (a) refunding certain outstanding Sales and Use Tax Contractual Obligations set
forth in SCHEDULE I hereto (the “Refunded Contractual Obligations”), and (b) paying costs of issuance
of the Series 2016B Contractual Obligations. See “PLAN OF FINANCE.”
AUTHORITY FOR ISSUANCE ......... The Series 2016A Sales Tax Bonds are being issued as Sales Tax Bonds and are authorized by
Chapters 1207 and 1371, Texas Government Code, as amended, Section 451.359, Texas Transportation
Code, as amended, and a resolution adopted by the Board of Directors of the Authority authorizing the
issuance of the Series 2016A Sales Tax Bonds. See “THE OBLIGATIONS — AUTHORITY FOR
ISSUANCE.”
The Series 2016B Contractual Obligations are authorized by Chapter 1371, Texas Government Code, as
amended, Chapter 271, Subchapter A, Texas Local Government Code, as amended, and a resolution
adopted by the Board of Directors of the Authority authorizing the issuance of the Series 2016B
Contractual Obligations. See “THE OBLIGATIONS — AUTHORITY FOR ISSUANCE.”
PAYMENT OF INTEREST .............. Interest on the Series 2016A Sales Tax Bonds accrues from the date of delivery and is payable
November 1, 2016, and each May 1 and November 1 thereafter until maturity or prior redemption.
Interest on the Series 2016B Contractual Obligations accrues from the date of delivery and is payable
November 1, 2016, and each May 1 and November 1 thereafter until maturity or prior redemption.
SECURITY FOR
THE OBLIGATIONS .........................
The Obligations are secured, equally and ratably with outstanding and any future parity obligations
(collectively, the “Senior Lien Obligations”), by a senior lien on and pledge of 75% of the sales and use tax
revenues collected and received by the Authority, plus any investment income earned on moneys in certain
funds to which such revenue is deposited (together, the “Pledged Revenues”). See “THE OBLIGATIONS –
SECURITY AND SOURCE OF PAYMENT.” A sales and use tax is levied by the Authority at the rate of 1% on all
taxable transactions within the Authority’s boundaries. See “REVENUES AND INVESTMENTS.” The
Obligations are not Reserve Fund Participants and therefore are not secured by a debt service reserve
fund, which secures other Senior Lien Obligations.
ADDITIONAL PARITY
OBLIGATIONS ................................. Subject to certain requirements, the Authority may issue additional parity Senior Lien Obligations, as well as
obligations secured by a junior lien on and pledge of the Pledged Revenues. See “THE OBLIGATIONS –
OUTSTANDING AND ADDITIONAL PARITY OBLIGATIONS.” The Authority has authorized the issuance of up to
$175 million of commercial paper notes, which are secured on a parity with the Senior Lien Obligations,
including the Obligations, but are not secured by a debt service reserve fund. See “PLAN OF FINANCE”
and “DEBT AND OTHER OBLIGATIONS.”
REDEMPTION............................... The Authority reserves the right, at its option, to redeem the Series 2016A Bonds having stated maturities
on and after November 1, 2027, in whole or in part, in authorized denominations on November 1, 2026, or
any date thereafter, at 100% of the principal amount, plus accrued interest to the date of redemption.
vi
The Authority reserves the right, at its option, to redeem the Series 2016B Contractual Obligations having
stated maturities on and after November 1, 2027, in whole or in part, in authorized denominations on
November 1, 2026, or any date thereafter, at 100% of the principal amount, plus accrued interest to the
date of redemption.
TAX EXEMPTION ......................... In the opinion of Bond Counsel, interest on the Obligations is excludable from gross income for federal
income tax purposes under existing law, subject to the matters described under the caption “TAX
MATTERS” herein, and is not includable in the federal alternative minimum taxable income of
individuals. See “TAX MATTERS” for a discussion of the opinion of Bond Counsel, including the
alternative minimum tax consequences for corporations.
RATINGS ..................................... The following ratings have been assigned to the Obligations.
RATINGS.”
Moody’s
Aa2
See “OTHER INFORMATION –
S&P
AA+
PAYMENT RECORD ...................... The Authority has never defaulted in the payment of its obligations.
RISK FACTORS ............................ An investment in the Obligations involves certain risks. See “INVESTMENT CONSIDERATIONS.”
ADDITIONAL INFORMATION ........ For additional information regarding the Authority, please contact:
Debbie Sechler
Executive Vice President and Chief Financial Officer
Metropolitan Transit Authority of Harris County, Texas
1900 Main Street
Houston, Texas 77002
(713) 739-4930
vii
or
Bruce W. Rideaux
Senior Managing Consultant
Public Financial Management, Inc.
750 North Saint Paul Street, Suite
540
Dallas, Texas 75201
(214) 247-7074
METROPOLITAN TRANSIT AUTHORITY OF HARRIS COUNTY, TEXAS
BOARD MEMBERS
Board Member
Position
Appointing Authority
Mrs. Carrin F. Patman
Mr. Jim Robinson
Ms. Cindy Siegel
Mr. Troi Taylor
Mr. Christof Spieler
Mr. Don Elder, Jr.
Ms. Lisa Gonzales Castañeda
Dr. Lex Friedeu
Mr. Sanjay Ramabhadran, P.E.
Chair
First Vice-Chair
Second Vice-Chair
Secretary
Board Member
Board Member
Board Member
Board Member
Board Member
City of Houston
Harris County
Multi-Cities
City of Houston
City of Houston
Multi-Cities
Harris County
City of Houston
City of Houston
OFFICERS
Officer
Position
Mr. Thomas C. Lambert
Mr. Tom Jasien
Mr. Terence Fontaine
Mr. Tim Kelly
President & Chief Executive Officer
Deputy Chief Executive Officer
Executive Vice President, Government and Public Affairs
Executive Vice President, Operations, Public Safety and
Customer Service
Executive Vice President, Finance and Administration
Vice President, Audit
General Counsel
Executive Vice President, Planning, Engineering and
Construction
Ms. Debbie Sechler
Mr. Arthur C. Smiley, III
Ms. Alva Treviño
Mr. Roberto Treviño
CONSULTANTS AND ADVISORS
Bond Counsel
Andrews Kurth LLP
Houston, Texas
Special Disclosure Counsel
Escamilla & Poneck, LLP
Houston, Texas
Financial Advisor
Public Financial Management, Inc.
Dallas, Texas
Trustee and Paying Agent/Registrar
Wells Fargo Bank, N.A.
Dallas, Texas
viii
OFFICIAL STATEMENT
Relating to
METROPOLITAN TRANSIT AUTHORITY
OF HARRIS COUNTY, TEXAS
$126,245,000
SALES AND USE TAX REFUNDING BONDS
$25,635,000
SALES AND USE TAX REFUNDING
CONTRACTUAL OBLIGATIONS
SERIES 2016B
SERIES 2016A
INTRODUCTION
OFFERING
This Official Statement, which includes the Appendices hereto, provides certain information regarding the issuance by the
Metropolitan Transit Authority of Harris County, Texas (the “Authority” or “METRO”), of its Sales and Use Tax Refunding
Bonds, Series 2016A (the “Series 2016A Sales Tax Bonds”) and its Sales and Use Tax Refunding Contractual Obligations,
Series 2016B (the “Series 2016B Contractual Obligations” and, together with the Series 2016A Sales Tax Bonds, the
“Obligations”), each in the aggregate principal amount shown above.
Capitalized terms used in this Official Statement, except as otherwise indicated herein, have the meanings assigned to such terms
in the respective resolutions authorizing the issuance of the Series 2016A Sales Tax Bonds and the Series 2016B Contractual
Obligations adopted by the Board of Directors of the Authority (the “Board”) on February 24, 2016 (each, a “Resolution” and
together, the “Resolutions"), excerpts from which are attached as APPENDIX A. Each of the Resolutions recognizes and
confirms the prior appointment of Wells Fargo Bank, N.A., as trustee (together with any successor, the “Trustee”) for the sole
purpose of holding certain funds for the payment of the Obligations authorized by the Resolutions, as described herein.
There follows in this Official Statement descriptions of the Obligations and certain information regarding the Authority and its
finances. All descriptions of laws and documents contained herein are only summaries and are qualified in their entirety by
reference to each such law and document. Copies of such documents may be obtained from the Authority’s Financial Advisor,
Public Financial Management, Inc., 750 North Saint Paul Street, Suite 540, Dallas, Texas 75201.
DESCRIPTION OF THE AUTHORITY
The Authority is a metropolitan rapid transit authority created pursuant to legislation now codified as Chapter 451, Texas
Transportation Code, as amended (the “Authority Act”). Its creation was confirmed at a confirmation and tax election held on
August 12, 1978. The Authority provides transit service for, and collects sales and use taxes on taxable transactions in, a 1,286
square mile area with a population of approximately 3.6 million, including the cities of Houston, Bellaire, Bunker Hill Village,
El Lago, Hedwig Village, Hilshire Village, Humble, Hunters Creek Village, Katy, Missouri City, Piney Point Village, Southside
Place, Spring Valley Village, Taylor Lake Village, and West University Place (the “Participating Municipalities”), and
significant portions of unincorporated Harris County. The Authority also provides transit service for other areas by contract. See
“THE AUTHORITY.”
PLAN OF FINANCE
The Series 2016A Sales Tax Bonds are being issued for the purposes of (a) advance refunding certain of the Authority’s
outstanding Sales and Use Tax Bonds as set forth on SCHEDULE I hereto (the “Refunded Bonds”) and (b) paying the costs of
issuance of the Series 2016A Sales Tax Bonds. The Series 2016B Contractual Obligations are being issued for the purpose of (a)
advance refunding certain of the Authority’s outstanding Sales and Use Tax Contractual Obligations as set forth on SCHEDULE
I hereto (the “Refunded Contractual Obligations” and, together with the Refunded Bonds, the “Refunded Obligations”) and (b)
paying the costs of issuance of the Series 2016B Contractual Obligations.
The Refunded Obligations and the interest due thereon are to be paid on the scheduled interest payment dates, call dates or
maturity dates of each such Refunded Obligation, as the case may be, from funds to be deposited with Wells Fargo Bank, N.A.,
as escrow agent (the “Escrow Agent”), to an escrow fund for the Refunded Bonds or an escrow fund for the Refunded
Contractual Obligations (collectively, the “Escrow Funds”) created under an escrow agreement relating to the Refunded
Obligations to be entered into between the Authority and the Escrow Agent (the “Escrow Agreement”).
The Resolutions provide that from the proceeds of the sale of the Series 2016A Sales Tax Bonds and the Series 2016B Sales and
Use Tax Contractual Obligations and other available funds of the Authority, if any, the Authority will deposit with the Escrow
Agent the amounts necessary to accomplish the defeasance and final payment of the Refunded Obligations at their respective
payment or redemption dates. Such funds will be held by the Escrow Agent in the respective Escrow Fund and will be used to
purchase a portfolio of obligations authorized under State law. The Escrow Funds are irrevocably pledged to the payment of
principal of and interest on the Refunded Obligations.
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The Authority has covenanted to make timely deposits into the Escrow Funds, from lawfully available funds, in the amounts
required to pay the principal of and interest on the Refunded Obligations should, for any reason, the cash balances on deposit or
scheduled to be on deposit in the Escrow Funds are insufficient to make such payments.
Causey Demgen & Moore P.C. (the “Verification Agent”) will verify at the time of delivery of the Obligations to the
Underwriters that funds initially placed in the Escrow Fund will be sufficient to pay, when due, the principal of and interest on
the Refunded Obligations. See “VERIFICATION OF MATHEMATICAL COMPUTATIONS.”
ESTIMATED SOURCES AND USES OF FUNDS
The following schedule is an estimate of the sources and uses of proceeds of the Series 2016A Sales Tax Bonds:
Series 2016A Sales Tax Bonds
Sources of Funds:
Principal amount of Sales Tax Bonds
Original issue premium
TOTAL
$
Other Sources of Funds:
Transfer from Debt Service Funds
Release from Debt Service Reserve Funds
TOTAL
$126,245,000.00
33,707,249.25
159,952,249.25
$3,323,955.56
________72,800.65
$
3,396,756.21
Uses of Funds:
Deposit to Escrow Fund(1)
Costs of issuance(2)
TOTAL
$
$162,389,519.52
959,485.94
163,349,005.46
___________________
(1)
(2)
Includes $3,323,955.56 transferred from the Interest and Sinking funds and $72,800.65 released from the Reserve Fund related to the
Refunded Bonds.
Costs of issuance include underwriters discount, financial advisor fees, rating agency fees, trustee and paying agent/registration fees,
legal fees, verification agent fees, printing expense and rounding amounts.
The following schedule is an estimate of the sources and uses of proceeds of the Series 2016B Contractual Obligations:
Series 2016B Contractual Obligations
Sources of Funds:
Principal amount of Contractual Obligations
$25,635,000.00
Original issue premium
6,045,691.50
TOTAL
$
31,680,691.50
Other Sources of Funds:
Transfer from Debt Service Funds
Release from Debt Service Reserve Funds
TOTAL
Uses of Funds:
Deposit to Escrow Fund(1)
Costs of issuance(2)
TOTAL
___________________
(1)
(2)
$
$665,341.11
650,119.01
1,315,460.12
$
$32,693,854.37
302,297.25
32,996,151.62
Includes $665,341.11 transferred from the Interest and Sinking funds and $650,119.01 released from the Reserve Fund related to the
Refunded Contractual Obligations.
Costs of issuance include underwriters’ discount, financial advisor fees, rating agencies fees, paying agent/registrar fees, legal fees,
verification agent fees, printing expense and rounding amounts.
THE OBLIGATIONS
DESCRIPTION
The Series 2016A Sales Tax Bonds will accrue interest from the date of delivery thereof, and mature on November 1 in each of
the years and in the amounts shown on the inside cover page hereof. Interest will be computed on the basis of a 360-day year of
twelve 30-day months, and will be payable on May 1 and November 1 of each year, commencing November 1, 2016, until
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maturity or earlier redemption. The Series 2016B Contractual Obligations will accrue interest from the date of delivery thereof,
and mature on November 1 in each of the years and in the amounts shown on the inside cover page hereof. Interest will be
computed on the basis of a 360-day year of twelve 30-day months, and will be payable on May 1 and November 1 of each year,
commencing November 1, 2016, until maturity or earlier redemption. The definitive Obligations will be issued only in fully
registered form in any integral multiple of $5,000 for any one series and maturity. All Obligations will be initially registered and
delivered only to Cede & Co., the nominee of The Depository Trust Company (“DTC”), pursuant to the Book-Entry-Only System
described herein. No physical delivery of the Obligations will be made to the beneficial owners thereof. Principal of, premium,
if any, and interest on the Obligations will be payable by the Paying Agent/Registrar to Cede & Co., which will make distribution
of the amounts so paid to the participating members of DTC, for subsequent payment to the beneficial owners of the Obligations.
See “BOOK-ENTRY-ONLY SYSTEM.”
AUTHORITY FOR ISSUANCE
The Series 2016A Sales Tax Bonds are issued pursuant to a Resolution adopted by the Board of Directors of the Authority on
February 24, 2016. In addition, the Series 2016A Sales Tax Bonds are authorized by Chapters 1201, 1207 and 1371, Texas
Government Code, as amended, and Section 451.359 Texas Transportation Code, as amended.
The Series 2016B Contractual Obligations are issued pursuant to a Resolution adopted by the Board of Directors of the Authority
on February 24, 2016. In addition, the Series 2016B Contractual Obligations are authorized by Chapters 1201, 1207 and 1371,
Texas Government Code, as amended, and Chapter 271, Subchapter A, Texas Local Government Code, as amended.
REDEMPTION
The Authority reserves the right, at its option, to redeem the Series 2016A Sales Tax Bonds having stated maturities on and after
November 1, 2027, in whole or (from time to time) in part, on any date on or after November 1, 2026, at a redemption price equal
to the principal amount thereof plus accrued interest thereon from the most recent interest payment date to which interest has
been paid or duly provided for, to the date of redemption.
The Authority reserves the right, at its option, to redeem the Series 2016B Contractual Obligations having stated maturities on
and after November 1, 2027, in whole or (from time to time) in part, on any date on or after November 1, 2026, at a redemption
price equal to the principal amount thereof plus accrued interest thereon from the most recent interest payment date to which
interest has been paid or duly provided for, to the date of redemption.
If less than all of the Obligations of a maturity are to be redeemed, at the option of the Authority, the Paying Agent/Registrar
shall select the Obligations of such maturity to be redeemed by lot or other means acceptable to it. If an Obligation subject to
redemption is in a denomination larger than $5,000, a portion of such Obligation may be redeemed, but only in integral multiples
of $5,000. In selecting portions of Obligations for redemption, each Obligation shall be treated as representing that number of
Obligations of $5,000 denomination which is obtained by dividing the principal amount of such Obligation by $5,000. Upon
presentation and surrender of any Obligation for redemption in part, the Paying Agent/Registrar, in accordance with the
provisions of the Resolution, shall authenticate and deliver in exchange therefor an Obligation or Obligations of like maturity and
interest rate in an aggregate principal amount equal to the unredeemed portion of the Obligation so surrendered.
NOTICE OF REDEMPTION
Notice of any redemption, identifying the Obligations or portions thereof to be redeemed, shall be sent by first class mail, postage
prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying
Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption, provided that any notice of optional
redemption may be conditioned on the authorization and issuance of a series of refunding bonds by the Authority, or any other
condition. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the
redemption price of the Obligations called for redemption. If such notice of redemption is given, and if due provision for such
payment is made, all as provided above, the Obligations that are to be so redeemed thereby automatically shall be redeemed prior
to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as
being outstanding except for the purpose of being paid with the funds so provided for such payment. See “BOOK-ENTRYONLY SYSTEM.”
SECURITY AND SOURCE OF PAYMENT
The Obligations are payable from all legally available funds of the Authority. The Obligations are secured equally and ratably with
certain outstanding debt obligations and any future parity obligations (collectively, the “Senior Lien Obligations”) by a senior lien
on and pledge of 75% of the sales and use tax revenues collected and received by the Authority, plus any investment income earned
on moneys in the Revenue Fund and the Sales Tax Interest and Sinking Fund for any such obligations referred to herein (together,
the “Pledged Revenues”). See “– OUTSTANDING AND ADDITIONAL PARITY OBLIGATIONS” below. Under the Resolutions, the
Authority has agreed to cause the Pledged Revenues to be paid directly to the Trustee.
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A sales and use tax is levied by the Authority at the rate of 1% on all taxable transactions within the Authority’s boundaries. See
“REVENUES AND INVESTMENTS.”
The Authority has reserved the right to issue or incur additional parity obligations, as described under “– OUTSTANDING AND
ADDITIONAL PARITY OBLIGATIONS,” and the right to pledge and grant liens on Pledged Revenues in the future, on a basis
subordinate to the pledge and lien securing the Senior Lien Obligations to secure Junior Lien Obligations and Subordinate Lien
Obligations. See “Section 22. Pledges and Sources of Payment; Tax Levy; Other Security” and “Section 33. Additional
Obligations” in APPENDIX A – SELECTED PROVISIONS OF THE RESOLUTIONS.
In the Resolution, the Authority has covenanted and agreed that, while any Obligations are outstanding, it will not reduce the rate
at which its sales and use tax is levied below its current rate of 1% or take action to apply such tax to less than all taxable
transactions. See “REVENUES AND INVESTMENTS – SALES AND USE TAX AUTHORITY – Imposition of Tax.”
Although the Obligations are payable from fare revenue as well as sales and use tax revenue, under the Authority Act, the
expenses of operating and maintaining the Authority’s mass transit system (the “System”) are a first lien on and charge against
any revenue from operation or ownership of the System. The Authority has not historically earned (and does not expect to
earn) any net revenue from the operation or ownership of its transit system. Consequently, prospective investors should not
rely on operating revenue as a source of payment of the Obligations.
The Obligations are not payable from funds raised or to be raised by property taxes. The Authority has no authority to levy
property taxes.
The Obligations are not Reserve Fund Participants and therefore are not secured by a debt service reserve fund, which
secures other Senior Lien Obligations.
OUTSTANDING AND ADDITIONAL PARITY OBLIGATIONS
Senior Lien Obligations and other debt in the total aggregate principal amount of $1,141,000,000 were outstanding as of January
31, 2016, consisting of (i) $663,505,000 aggregate principal amount of Sales Tax Bonds, $303,660,000 aggregate principal
amount of contractual obligations and $117,400,000 aggregate principal amount of commercial paper notes, all of which are
secured by a senior lien on and pledge of Pledged Revenues on a parity with the Obligations, and (ii) $56,435,000 aggregate
principal amount of certificates of participation, which are subject to appropriation. See “DEBT AND OTHER OBLIGATIONS
– OUTSTANDING DEBT.” Proceeds of the Series 2016A Sales Tax Bonds will be used to refund the Refunded Bonds and proceeds
of the Series 2016B Contractual Obligations will be used to refund the Refunded Contractual Obligations.
In the Resolutions, the Authority reserves the right to issue additional parity bonds, notes and other debt obligations (as further
defined in APPENDIX A, “Additional Obligations”) and enter into credit agreements (as further defined in APPENDIX A,
“Senior Credit Agreements”) payable from any and all legally available funds and secured, equally and ratably with the
Obligations, by a lien on and pledge of the Pledged Revenues, but only if (while any Senior Lien Obligations remain
Outstanding) the Pledged Revenues for the preceding Fiscal Year or any consecutive 12-month period out of the 18-month period
preceding the month in which the resolution authorizing such parity Additional Obligations or Senior Credit Agreement is
adopted were at least 200% of the maximum annual debt service (“MADS”) on all Senior Lien Obligations, after giving effect to
the issuance of the Additional Obligations or execution of the Senior Credit Agreement.
Under the Resolutions, Additional Obligations may also be issued on a parity with the Obligations to refund or defease Senior
Lien Obligations (including termination payments under interest rate management agreements), regardless of the amount of
historical Pledged Revenues, if the issuance of such Additional Obligations will not increase MADS on Senior Lien Obligations
by more than 10%. See “Section 33. Additional Obligations” in APPENDIX A – SELECTED PROVISIONS OF THE RESOLUTIONS.
For purposes of the debt service coverage tests described in the preceding two paragraphs, Pledged Revenues may be adjusted to
give retroactive effect to (A) any increase in the sales and use tax rate that has occurred before the authorization of the Additional
Obligations or Senior Credit Agreement and (B) any increase in the percentage of sales and use tax revenues dedicated by the
Authority to purposes other than the payment of principal of and interest and other obligations on Senior Lien Obligations, as if
either such increase had been in effect for the entire applicable period.
For these purposes, MADS is defined by the Resolutions to assume the accrual of variable rate interest at hedged or average
historical rates, and to assume the refunding of demand debt and bullet maturities (including the CP Notes), as described in
APPENDIX A. Accordingly, the MADS assumed in issuing Additional Obligations and entering into Senior Credit Agreements
may be less than the maximum amount of debt service that could actually come due on Senior Lien Obligations in a year, and the
difference could be substantial.
When issuing Additional Obligations, the Authority will determine whether such Additional Obligations shall be secured by a
debt service reserve fund. If the Additional Obligations are secured by a debt service reserve fund, the Authority must fund any
resulting increase in the required balance of such debt service reserve fund with monthly deposits ratably over the next 36
4
months, to the extent not then funded with proceeds of the Additional Obligations or funds on hand. See “– DEBT SERVICE
RESERVE FUNDS” below.
DEBT SERVICE RESERVE FUNDS
The Obligations are not Reserve Fund Participants. Pursuant to the Resolution, the Authority is not required to maintain
and fund a debt service reserve fund for the Obligations.
The Authority, however, is required to maintain and fund debt service reserve funds (each a “Reserve Fund” and collectively the
“Reserve Funds”) for other Senior Lien Obligations and Additional Obligations that the Authority designates at or before the time of
issue (the “Reserve Fund Participants”). The required balance of each Reserve Fund is equal to 50% of pro forma MADS for all
Senior Lien Obligations Outstanding designated by the Authority to be payable from such Reserve Fund. See “DEBT AND OTHER
OBLIGATIONS – TABLE 6 – OUTSTANDING DEBT AS OF JANUARY 31, 2016 for the series of Senior Lien Obligations which have been
designated Reserve Fund Participants.
On each date for payment of principal of or interest or other amounts on Senior Lien Obligations payable from a Reserve Fund,
including upon call for redemption, the Trustee is required to transfer from such Reserve Fund to the paying agent for such Senior
Lien Obligations an amount sufficient, together with funds then transferred from the applicable Interest and Sinking Fund, to pay
such principal, interest, and other amounts when due.
For Additional Obligations payable from a Reserve Fund, or if the balance of a Reserve Fund is less than the applicable Reserve
Fund Requirement as of any valuation date, the Trustee is required to make monthly transfers from the Revenue Fund in
substantially equal monthly deposits over a three-year period into such Reserve Fund as required to increase its balance to its
Reserve Fund Requirement. The Authority may provide for satisfaction of a Reserve Fund Requirement with the purchase or
acquisition of a Reserve Fund Surety Policy (defined in APPENDIX A) or with the deposit into such Reserve Fund of cash or
investment securities. A Reserve Fund Surety Policy may be drawn upon only after all other amounts in the Reserve Fund have been
used or applied, and other amounts in the Reserve Fund may be used to reimburse and repay an issuer of a Reserve Fund Policy for
amounts drawn thereon together with interest thereon and related costs.
The combined balance of the Reserve Funds was $29,171,588.38 as of January 31, 2016, consisting of a balance of
(i) $20,940,677.26 for the Reserve Fund established for Senior Lien Obligations issued as Sales Tax Bonds and
(ii) $8,230,911.12 for the Reserve Fund established for Senior Lien Obligations issued as Contractual Obligations. These
balances in each Reserve Fund exceed the reserve Fund requirements for the Senior Lien Obligations issued as Sales Tax Bonds
and Contractual Obligations, respectively, that have been designated as Reserve Fund Participants. In the event an additional
deposit is required due to an increase in the Reserve Funds Requirements, the Authority expects to fund such differences between
the current balances and the Reserve Fund requirements with cash deposits over the three year period as required by the
resolutions authorizing those Reserve Fund Participants.
FLOW OF FUNDS
The Resolutions recognize and confirm the prior establishment and maintenance of certain funds and accounts for the application of
the proceeds of the Obligations and for the Pledged Revenues. The Trustee holds the “Revenue Fund” to receive and administer
Pledged Revenues, and an “Interest and Sinking Fund” to provide for the payment of the Senior Lien Obligations, including the
Obligations.
Revenue Fund. Pledged Revenues must be deposited directly to the Revenue Fund held by the Trustee under the
Resolutions as received. Pursuant to the Resolutions, moneys in the Revenue Fund will be applied immediately upon receipt as
follows:
First,
to make all deposits into the Interest and Sinking Fund as described below and, if the applicable Senior Lien
Obligations are ratably secured thereby, in any other interest and sinking fund provided in any order or resolution
authorizing the issuance of any other parity Senior Lien Obligations;
Second, to make all deposits into the Reserve Funds as required by the resolutions authorizing the Reserve Fund Participants, if
any, and in any other reserve fund provided in any order or resolution authorizing the issuance of any Senior Lien
Obligations other than Reserve Fund Participants; provided that on any date on which there is a deficiency in a Reserve
Fund, the Trustee may not apply any moneys to any other such fund in an amount greater than that required to produce
a balance therein equal to 50% of the MADS on the Senior Lien Obligations payable from such other reserve fund
ratably over a 36-month period from the original date of any deficiency therein, unless an additional deposit to the
Reserve Funds is made to cure any deficiency in the Reserve Funds at the same rate;
Third,
to make all other deposits not made pursuant to clause Second above into any reserve fund provided in any order or
resolution authorizing the issuance of any Senior Lien Obligations;
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Fourth,
to make all other deposits required by the Resolutions and in any order or resolution authorizing the issuance of any
Senior Lien Obligations and any related agreement or credit agreement;
Fifth,
to make all deposits required by any order or resolution authorizing the issuance of any Junior Lien Obligations; and
Sixth,
to make all deposits required by any order or resolution authorizing the issuance of any Subordinate Lien Obligations.
After making the foregoing transfers and deposits from the Revenue Fund, the Trustee is required to transfer any balance therein
to the Authority for use for any lawful purpose.
In case money on deposit in the Revenue Fund is at any time insufficient to make in full all deposits and transfers, then such
deposits and transfers then to be made from the Revenue Fund shall be made from such money in the priority set out above, but
ratably according to the aggregate amount within each priority to be deposited and without any preference within a priority.
Interest and Sinking Fund. The Resolutions provide that, for so long as any Obligations remain Outstanding, the
Trustee shall transfer from the Revenue Fund to the Interest and Sinking Fund, on each date on which funds are deposited to the
Revenue Fund, such amounts which, when added to other amounts in the Interest and Sinking Fund, will provide for the
accumulation, in substantially equal monthly installments, of amounts sufficient to pay (i) the interest scheduled to become due
on all Outstanding Senior Lien Obligations on the next succeeding interest payment date (other than interest scheduled to become
due but anticipated to be paid with the proceeds of such Senior Lien Obligations), (ii) the principal of all such Outstanding Senior
Lien Obligations scheduled to mature on the next succeeding principal payment date (other than maturing principal anticipated to
be paid with the proceeds of such Senior Lien Obligations), (iii) payments due and payable to Credit Providers on Senior Credit
Agreements (e.g., the current credit agreements for the CP Notes) on ensuing payment dates; and (iv) the redemption price of all
such Outstanding Senior Lien Obligations called or scheduled for redemption on the next redemption date, plus all fees, charges
and other amounts payable to the Trustee any paying agent/registrar, market agent, broker/dealer, remarketing agent or Credit
Provider in respect of such Senior Lien Obligations; provided that in all cases the Trustee is required to deposit an amount
sufficient to ensure that the Interest and Sinking Fund has adequate funds on deposit to make all required principal, interest and
other payments on Senior Lien Obligations through the immediately succeeding month, assuming accrual of interest at the
maximum rate for any period for which the rate has not been fixed and payment thereof on the last day of such succeeding
month. For a description of the application of amounts deposited to the Interest and Sinking Fund, see “Section 26. Revenue
Fund and Interest and Sinking Fund” in “APPENDIX A — SELECTED PROVISIONS OF THE RESOLUTIONS.” If the balance of the
Interest and Sinking Fund is not sufficient to pay principal of and interest and other amounts payable on all Senior Lien
Obligations secured by a pledge of money deposited therein when due, available funds must be transferred ratably to the paying
agents for such Senior Lien Obligations, including those entitled to the benefits of a Reserve Fund, in proportion to the amount
then due on each, before computing the deficiency to be funded from the applicable Reserve Fund.
Proceeds of any issue of Senior Lien Obligations on deposit in an Interest and Sinking Fund will be available to pay interest only
on such issue of Senior Lien Obligations and will be credited against the transfer requirements described in the preceding
paragraph only for such issue of Senior Lien Obligations.
INVESTMENT OF FUNDS
The Revenue Fund, the Reserve Funds and the Interest and Sinking Fund may be invested by the Trustee at the direction of the
Authority solely in investments authorized for the investment of the Authority’s funds. The Resolutions impose no additional
credit or term limitations on the investments, except that investments must mature by the date when invested funds are expected
to be applied. See “Section 29. Investment of Trust Funds” in “APPENDIX A — SELECTED PROVISIONS OF THE RESOLUTIONS.”
DEFEASANCE
The Resolutions provide that the Obligations may be defeased in any manner now or hereafter permitted by law, including by
irrevocably depositing in trust (i) direct noncallable obligations of United States of America, including obligations that are
unconditionally guaranteed by the United States of America; (ii) noncallable obligations of an agency or instrumentality of the
United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that are rated
as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent; (iii) noncallable
obligations of a state or an agency or a county, municipality or other political subdivision of a state that have been refunded and that
are rated as to investment quality by a nationally recognized investment rating firm not less than “AAA” or its equivalent; or (iv)
cash. Upon defeasance, Obligations will no longer be considered outstanding for purposes of the applicable Resolution, and the
Authority will no longer be obligated to provide funds to pay such Obligations, except from and to the extent of the deposited cash
and obligations. See “Section 43. Defeasance” in “APPENDIX A — SELECTED PROVISIONS OF THE RESOLUTIONS.”
TRUSTEE/PAYING AGENT/REGISTRAR
The initial Trustee and Paying Agent/Registrar is Wells Fargo Bank, N.A., Dallas, Texas. In the Resolutions, the Authority
retains the right to replace the Trustee and Paying Agent/Registrar, and either may resign under conditions set out in the
Resolutions. The Authority covenants to maintain and provide a Trustee and Paying Agent/Registrar for Senior Lien
6
Obligations, including the Obligations, at all times until such Senior Lien Obligations are duly paid. Any successor Trustee or
Paying Agent/Registrar must be a bank, trust company, financial institution or other agency duly qualified and legally authorized
to serve as and perform the duties and services of Paying Agent/Registrar for the Obligations and have a minimum capital and
surplus of at least $1 billion. The Resolutions provide that no resignation or removal of the Trustee may be effective until a
successor has been appointed, qualified and accepted its appointment.
The Trustee has been appointed for the sole purpose of receiving, holding, investing, and disbursing the Pledged Revenues and
Reserve Funds. The Trustee is not empowered to enforce the Resolutions or otherwise act on behalf of the Owners of the
Obligations. See “Section 36. The Trustee” in “APPENDIX A — SELECTED PROVISIONS OF THE RESOLUTIONS.”
AMENDMENTS TO RESOLUTIONS
Each Resolution constitutes a contract with the Owners, from time to time, of the Obligations, is binding on the Authority and the
Trustee, and shall not be amended or repealed by the Authority so long as any Obligations remain Outstanding, except as follows:
The Authority may, without the consent of or notice to any Owners, but with notice to the Trustee, from time to time and at any
time, amend a Resolution, in any manner not detrimental to the interests of the Owners of the Obligations authorized thereby,
including the curing of any ambiguity, inconsistency or formal defect or omission therein. In addition, the Authority may, with
the written consent of the Trustee and the Owners who own in the aggregate 51% of the principal amount of such Obligations, as
applicable, then Outstanding, amend, add to or rescind any of the provisions of the related Resolution, provided that, without the
consent of all affected Owners of Outstanding Obligations authorized thereby, no such amendment, addition, or rescission shall
(i) extend the time or times of payment of the principal of and interest on such Obligations, reduce the principal amount thereof,
the redemption price or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest
on such Obligations, (ii) give any preference to any such Obligation over any other such Obligation or (iii) reduce the aggregate
principal amount of the such Obligations or Senior Lien Obligations required to be held by the Owners for consent to any such
amendment, addition or rescission.
BOOK-ENTRY-ONLY SYSTEM
This section describes how ownership of the Obligations is to be transferred and how the principal of, premium, if any, and
interest on the Obligations are to be paid to and credited by DTC while the Obligations are registered in its nominee name. The
information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure
documents such as this Official Statement. The Authority believes the source of such information to be reliable, but takes no
responsibility for the accuracy or completeness thereof.
The Authority cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Obligations,
or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to
DTC or its nominee (as the registered owner of the Obligations), or redemption or other notices, to the Beneficial Owners, or
that they will do so on a timely basis or (3) DTC will serve and act in the manner described in this Official Statement. The
current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to
be followed in dealing with DTC Participants are on file with DTC.
DTC will act as securities depository for the Obligations. The Obligations will be issued as fully-registered securities registered
in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative
of DTC. One fully-registered security certificate will be issued for each series and maturity of the Obligations, each in the
aggregate principal amount of such series and maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law,
a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a
“clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for
over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments
(from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade
settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic
computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical
movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository
Trust & Clearing Corporation (“DTCC”). DTCC, is the holding company for DTC, National Securities Clearing Corporation
and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its
regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers
and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules
applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be
found at www.dtcc.com.
7
Purchases of Obligations under the DTC system must be made by or through Direct Participants, which will receive a credit for
the Obligations on DTC’s records. The ownership interest of each actual purchaser of each Obligation (“Beneficial Owner”) is
in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation
from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial
Owner entered into the transaction. Transfers of ownership interests in the Obligations are to be accomplished by entries made
on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Obligations, except in the event that use of the book-entry system for the
Obligations is discontinued.
To facilitate subsequent transfers, all Obligations deposited by Direct Participants with DTC are registered in the name of DTC’s
partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit
of Obligations with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change
in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Obligations; DTC’s records reflect only
the identity of the Direct Participants to whose accounts such Obligations are credited, which may or may not be the Beneficial
Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants,
and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject
to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Obligations may wish to
take certain steps to augment the transmission to them of notices of significant events with respect to the Obligations, such as
redemptions, tenders, defaults, and proposed amendments to the Obligation documents. For example, Beneficial Owners of
Obligations may wish to ascertain that the nominee holding the Obligations for their benefit has agreed to obtain and transmit
notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the
registrar and request that copies of notices be provided directly to them.
Redemption notices shall be sent to DTC. If less than all Obligations of the same series and maturity are being redeemed, DTC’s
practice is to determine by lot the amount of the interest of each Direct Participant of such series and maturity to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Obligations unless authorized by
a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to
the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to
those Direct Participants to whose accounts Obligations are credited on the record date (identified in a listing attached to the
Omnibus Proxy).
Redemption proceeds, principal and interest payments on the Obligations will be made to Cede & Co., or such other nominee as
may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s
receipt of funds and corresponding detail information from the Authority or Agent, on payable date in accordance with their
respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered
in “street name,” and will be the responsibility of such Participant and not of DTC nor its nominee, the Trustee, the Paying
Agent/Registrar, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time.
Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be
requested by an authorized representative of DTC) is the responsibility of the Trustee, the Paying Agent/Registrar or the
Authority, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Obligations at any time by giving reasonable notice
to the Authority or the Trustee or the Paying Agent/Registrar. Under such circumstances, in the event that a successor depository
is not obtained, Obligation certificates are required to be printed and delivered.
The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities
depository). In that event, Obligation certificates will be printed and delivered to DTC.
The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the
Authority believes to be reliable, but the Authority takes no responsibility for the accuracy thereof.
EFFECT OF TERMINATION OF BOOK-ENTRY-ONLY SYSTEM
In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued
by the Authority, printed certificates will be issued to the holders and the Obligations will be subject to transfer, exchange and
registration provisions as set forth in the Resolutions.
8
THE AUTHORITY
GENERAL
The Authority is a metropolitan rapid transit authority created pursuant to legislation now codified as Chapter 451, Texas
Transportation Code, as amended, and confirmed at a confirmation and tax election held on August 12, 1978.
JURISDICTION
The Authority provides transit service for, and collects sales and use taxes on taxable transactions in a 1,286 square mile area
with a population of approximately 3.6 million, including the cities of Houston, Bellaire, Bunker Hill Village, El Lago, Hedwig
Village, Hilshire Village, Humble, Hunters Creek Village, Katy, Missouri City, Piney Point Village, Southside Place, Spring
Valley Village, Taylor Lake Village, and West University Place (the “Participating Municipalities”), and significant portions of
unincorporated Harris County. The Authority also serves by contract, but does not collect sales and use taxes in, other areas.
BOARD OF DIRECTORS
The Authority is governed by a nine-member Board of Directors, each of whom serves a two-year term. Five directors are
nominated by the Mayor of the City of Houston, Texas (the “City”) and confirmed by the Houston City Council, two directors are
appointed by the mayors of the Authority’s 14 other Participating Municipalities (the “Multi-Cities”) and two directors are
appointed by the Harris County Commissioners Court. A list of the current members of the Board, the position held by each
member and the appointing entity for each member are listed on page viii hereof.
MANAGEMENT
The management of the Authority is under the direction of its President and Chief Executive Officer, who performs any duties
delegated to him by the Board. A list of certain of the Authority’s key executives is provided on page viii hereof.
TRANSIT SYSTEM
The Authority is organized to develop, operate and maintain a mass transit system to serve the residents within and visitors to its
area. The Authority’s transit system is a multi-modal system consisting of the following components:
Bus System - The Authority provides public bus service within its service area utilizing a fleet of approximately 1,280
buses, including the Greenlink CNG buses, 40 alternative service vehicles, as well as 155 METROLift paratransit service vans,
plus passenger facilities, including 9,805 active bus stops, and 34,159 parking spaces. In Fiscal Year 2014, METRO buses ran 41
million revenue miles in a service area of 1,286 square miles with approximately 68 million boardings. In August 2015, METRO
implemented a completely redesigned local bus network, updated to match service needs with appropriate service types and
levels. Since these changes, the Authority has seen a 1.1% increase in Local ridership as of January 2016. See “TABLE 1 —
SELECTED RIDERSHIP STATISTICS FOR THE LAST SIX FISCAL YEARS.”
HOV/HOT Lane System – The High Occupancy Vehicle (“HOV”) lane program and the High Occupancy Toll
(“HOT”) lane program are cooperative efforts among the Texas Department of Transportation (“TxDOT”), Harris County and
the Authority. The programs are funded through a combination of federal, state and local resources. As of January 2016,
METRO has 139.1 miles of HOV/HOT lanes on Houston freeways. For Fiscal Year 2015, the total HOV/HOT lane ridership is
approximately 276 million.
Under the HOT program, METRO has converted several HOV lanes to provide solo drivers the opportunity to use the
lanes by paying a toll charge. Such drivers are allowed to use the system by paying a toll with an authorized EZ Tag issued by
Harris County or one of the other interoperable toll tags available for use on toll road systems in the State of Texas. The
Authority has a contract with Harris County for the processing of toll transactions on the Authority’s HOT lanes. The
Authority’s operational responsibilities for the HOV/HOT lanes include HOV/HOT lane enforcement, debris removal,
maintenance and repair of electronic gates and signs, opening and closure of HOV/HOT lane gates and dispatch operations,
including assignment of wreckers to remove disabled vehicles. TxDOT is responsible for cleaning and maintaining the
HOV/HOT lanes. City wreckers perform the removal of stalled or disabled vehicles from HOV/HOT lanes.
Light Rail System - The Authority's first light rail line began operation on January 1, 2004. Now extended to
12.8 miles, the line begins at the Northline Transit Center, serving HCC Northeast and Northline Commons mall, and then
continues south through Houston’s Central Business District, Midtown, the Museum District, Rice University, the Texas Medical
Center and the NRG (formerly Reliant) Park Complex to the Fannin South Park & Ride Lot. There are 24 stations along the
route. METRO had about 15.3 million light rail boardings in Fiscal Year 2015. The Authority opened two additional light rail
lines in Fiscal Year 2015, the Purple (Southeast) and Green (East End) Lines. Destinations served by these new lines include
Texas Southern University, the University of Houston, and BBVA Compass Stadium. These new lines added another 8.9 miles of
light rail lines, with an additional mile on the East End Line upon completion of the Hughes overpass. With these additional lines,
METRO’s total light rail is 22.9 miles. See “CAPITAL IMPROVEMENT PROGRAM.”
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Paratransit Service - The Authority’s METROLift paratransit service provided service to 14,958 registrants using both
METRO-owned lift-equipped vans and contractor-owned and operated accessible minivans in Fiscal Year 2015.
Commuter Vanpool Service – In Fiscal Year 2015, the Authority's METRO STAR commuter vanpool service had 696
vanpools, taking approximately 2.48 million trips annually with approximately 7,066 riders. In Fiscal Year 2016, the Authority
is estimating 2.53 million trips annually, with approximately 7,485 riders, making METRO STAR one of the largest vanpool
programs in the nation.
RIDERSHIP INFORMATION
Table 1 below presents selected information regarding the Authority’s ridership during the Fiscal Years ending September 30,
2011 through 2015 and comparative data for the four months ended January 31, 2015 and 2016.
TABLE 1 – SELECTED RIDERSHIP STATISTICS FOR THE LAST FIVE FISCAL YEARS
Transit boarding
Revenue vehicle miles(1)
Passenger Miles – Transit
HOV/HOT Ridership(2)
Passenger Miles(3)
Total Actual Passenger
Car Revenue Miles
HOV/HOT Lane Miles
(1)
(2)
(3)
(4)
2011
81,032,075
57,119,898
537,017,914
24,706,519
254,724,211
901,194
134.7
Fiscal Year Ended September 30
2012
2013
2014
81,020,887
84,266,386
85,389,587
57,332,904
68,324,181
69,134,726
534,648,747
574,724,199
605,100,948
24,936,852
25,371,590
25,386,535
257,098,944
261,581,093
261,735,176
905,795
140.8
989,373
140.8
1,577,592
139.1
2015
86,089,171
71,162,933
573,489,760
26,723,748
275,521,842
2,350,774
139.1
Four Months Ended
January 31
2015
2016
28,230,964
30,087,463
14,503,427
15,549,399(4)
161,650,432
165,369,129(4)
8,672,160
8,897,019
91,160,020
91,728,266
768,233
139.1
1,349,306 (4)
139.1
“Revenue Vehicle Miles” are the miles traveled when a vehicle is available to the general public and there is an expectation of carrying
passengers.
Includes cars, vans, and non-Authority buses.
Includes carpool/vanpool non-Authority buses on transitway.
The statistics represent estimates of the Authority as these figures are not finalized until fiscal year end.
FLEET REPLACEMENT POLICIES
Bus Replacement. The Authority’s fleet replacement plan is designed to ensure service reliability. In accordance with
FTA standards, the Authority assumes a useful life of 12 years for each bus. Therefore, the Authority replaces one-twelfth of its
approximately 1,200 vehicle bus fleet, or approximately 100 buses, each year. The Authority may alter the rate of bus retirement
to address unanticipated service changes and service demands. The Authority’s replacement plan is updated regularly and
incorporated into the capital and operating budgets.
Rail Car Replacement. The Authority has not adopted a rail car replacement policy. In accordance with FTA
standards, the Authority assumes a life expectancy of 25 years of each rail car. The oldest rail cars in the Authority’s fleet were
purchased in 2003. Plans for replacement of rail cars will be considered as needed in future capital and operating budgets.
REVENUES AND INVESTMENTS
The Authority’s principal sources of revenue are (1) a 1% sales and use tax imposed on all taxable personal property and service
transactions within the Authority’s boundaries, (2) federal and state grants for operations and capital projects and (3) transit fares
and other operating revenue. The amount of revenue received by the Authority from these and other sources in the last five fiscal
years (audited) and comparative (unaudited) data for the four month periods ended January 31, 2015 and 2016, are shown in the
following table:
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TABLE 2 - COMBINED SOURCES OF REVENUE
Sales and use tax(1)
Operating revenue(2)
Grants:
Capital(3)
Service-related(4)
Investment income(5)
Other(6)
TOTAL
(1)
(2)
(3)
(4)
(5)
(6)
2011
Fiscal Year Ended September 30,
2012
2013
2014
2015
Four Months Ended
January 31, (Unaudited)
2015
2016
$536,572,595
68,740,526
$593,732,843
66,887,319
$642,515,462
72,782,991
$685,167,303
76,282,549
$715,160,213
74,651,045
$252,875,624
24,840,516
$239,514,888
23,610,973
21,767,789
53,685,295
327,467
643,766
$681,737,438
1,341,560
46,877,743
625,042
3,030,912
$712,495,419
3,372,883
65,610,667
768,527
3,831,776
$788,882,306
3,173,736
54,644,364
328,666
4,487,310
$824,083,928
1,839,039
35,574,004
597,015
10,647,581
$838,468,897
16,182
1,586,966
107,917
993,689
$280,420,894
461,704
1,396,569
377,845
1,596,093
$266,958,072
Represents 100% of sales and use tax revenue of the Authority. Only 75% of the sales and use tax revenue is included in Pledged
Revenues. See “REVENUES AND INVESTMENTS — SALES AND USE TAX.”
Represents farebox receipts, special events fares and route guarantees for specific transit service. See “— OPERATING REVENUE.”
Represents revenue received under recurring federal capital grant programs. Other FTA capital programs are non-recurring, are
specific to individual projects and are awarded through competitive selection process. Non-recurring federal capital grants received
by the Authority in Fiscal Years 2011 through 2015 are excluded from the table and ranged from $43,265,045 to $352,449,930 in the
last five fiscal years.
Represents revenue under federal programs for bus and rail capitalized preventive maintenance, the regional vanpool program, new
bus service and alternative fuel/clean air programs. Other FTA programs, the Federal Highway Administration and state programs are
non-recurring, are specific to individual projects and are awarded through competitive selection process. FEMA funds are received
based on reimbursement of actual eligible expenditures associated with a natural disaster. Non-recurring federal grants for non-capital
uses received by the Authority in Fiscal Years 2011 through 2015 are excluded from the table and ranged from $30,178 to $4,902,356
in the last five fiscal years.
See “TABLE 4 – CASH AND INVESTMENTS” for information relating to the Authority’s investments.
Other income consists of miscellaneous revenues such as parking revenue, concession sales, leased property revenue and rebates on
procurement cards.
SALES AND USE TAX AUTHORITY
Imposition of Tax. State law authorizes the Authority to impose a sales tax on the sale within the Authority’s
boundaries of all items subject to the state sales tax and a use tax on the use, storage or consumption within the Authority’s
boundaries of any such taxable items purchased, leased or rented from a retailer, at a rate established by the Board in accordance
with the Authority Act. The Board has established the rate at 1%, as authorized by public vote when the Authority was
confirmed in 1978. The sales tax and use tax is referred to herein as the “sales tax.”
Section 451.061, Texas Transportation Code, authorizes the Authority to impose fares, tolls, charges, rents, and other
compensation in amounts sufficient to produce revenue, together with sales tax revenue received by the Authority, in an amount
adequate to: (1) pay all expenses necessary to operate and maintain its transit system; (2) pay when due debt service, sinking fund
and reserve fund payments agreed to be made with respect to all Authority obligations payable in whole or in part from such
revenue; and (3) fulfill the terms of any other agreement with the holders of any such obligations. The total of compensation and
sales taxes imposed may not exceed the amounts necessary to produce revenue sufficient to meet the obligations of the Authority
under Chapter 451, Texas Transportation Code. See “EXPENDITURES – BUDGET.”
Section 451.061(e) specifies that the right of the State of Texas (the “State”) to regulate sales taxes is not limited by Section
451.061, but also includes specific provisions that recognize the rights of holders of Authority obligations, including protections
against (i) alterations to the power given to the Authority under Section 451.061 to impose sales taxes, fares, tolls, charges, rents,
and other compensation in amounts sufficient to satisfy its debt service and other obligations and (ii) any impairment of the rights
and remedies of holders of such obligations until such obligations have been fully discharged.
2003 Election. Pursuant to an election held within the Authority in November 2003 (the “2003 Election”), 25% of sales
tax revenue collected by the Authority through September 30, 2015 is dedicated for street improvements and mobility projects
(referred to herein as “General Mobility”). The remaining 75% of the sales tax revenue is available for the payment of the
Authority’s operating expenses and other obligations, including repayment of bonds, notes, commercial paper notes, leases and
other obligations and, along with any investment income earned on moneys in certain funds to which such revenues are
deposited, constitutes Pledged Revenues.
2012 Election. Pursuant to an election held on November 6, 2012 (the “2012 Election”), the qualified voters of the
Authority elected to continue the dedication of the Authority’s sales tax revenue for the period October 1, 2015 through
December 31, 2025, for street improvements and related projects, to be calculated as follows: (1) an amount equal to 25% of the
sales and use tax revenues collected by the Authority during its Fiscal Year 2014, which is the period October 1, 2013 through
September 30, 2014 (such amount, the “2014 Collection”), shall be paid to Harris County, the City and the other cities within the
Authority’s jurisdiction; and (2) in any Authority fiscal year in which the amount of sales and use tax revenues collected by the
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Authority is greater than the 2014 Collection, the 25% General Mobility portion of such additional amount (the “Incremental
Collection”) shall be divided equally, with (a) 50% of the Incremental Collection being paid to Harris County, the City and the
other cities within the Authority’s jurisdiction and (b) 50% of the Incremental Collection being retained by the
Authority. However, in any Authority fiscal year in which the amount of sales and use tax revenues collected by the Authority is
less than the 2014 Collection, the total payment made to Harris County, the City and the other cities within the Authority’s
jurisdiction for that fiscal year shall be 25% of the sales and use tax revenues collected by the Authority during such fiscal
year. Any future Incremental Collection by the Authority does not constitute Pledged Revenues.
Taxable Transactions. Taxable items include any tangible personal property and certain taxable services, unless
exempted from the sales and use tax. “Taxable services” include certain amusement services; personal services; motor vehicle
parking and storage services; the repair, maintenance and restoration of most tangible personal property; credit reporting services;
debt collection services; insurance services; information services; real property services; data processing services; real property
repair and remodeling services; security services; telephone answering services; internet access services; and certain transmission
or delivery of taxable electricity usage. Many items are exempted from the sales tax by State law, including items purchased for
resale, food products (except food products which are sold for immediate consumption, e.g., by restaurants, lunch counters, etc.),
health care supplies (including medicines, corrective lens and various therapeutic appliances and devices), agricultural items (if
the item is to be used exclusively on a farm or ranch or in the production of agricultural products), gas and electricity purchased
for residential use, newspapers and magazines. In addition, items which are taxed under other State laws are generally exempted
from sales taxes. These items include certain natural resources, cement, motor vehicles and insurance premiums, although
alcohol and tobacco products are taxed under both State alcohol and tobacco taxes as well as the sales tax. In addition, purchases
made by various exempt organizations are not subject to the sales tax. Such organizations include the federal and state
governments, political subdivisions, Indian tribes, religious institutions and certain charitable organizations and non-profit
corporations. In addition, sales of telecommunication services (including cable and satellite TV services) are exempt from the
Authority’s sales tax unless the Board determines to suspend the exemption and the suspension is approved at an election within
the Authority. To date, the Board has not taken any actions to suspend the exemption for telecommunication services.
In general, a sale or use of a taxable item happens when such sale or use occurs within the jurisdiction in which the sale or use is
consummated. For purposes of the Authority’s tax, the use, storage or consumption of tangible personal property is considered to
be consummated at the location where the item is first stored, used or consumed in an area of the State where a mass transit sales
tax is imposed. Thus, the use is considered to be consummated in the Authority if the item is shipped from outside the State or
outside any other State mass transit agency with sales tax authority, for first use, storage or consumption within the Authority’s
jurisdiction.
Collection Procedures. With certain exceptions, sales taxes in the State are collected at the point of sale and are
remitted to the State Comptroller of Public Accounts (the “Comptroller”) by, generally speaking, the business that collects the tax
resulting from a taxable transaction. The Comptroller collects sales taxes based upon the amount of taxes reported by the seller
or purchaser. Taxpayers who collect $500 or more in State sales tax in a month must remit the taxes on or before the 20th day of
the month following the month in which the taxes were collected. Taxpayers who collect less than $500 in State sales tax per
month (or less than $1,500 per calendar quarter) may file quarterly or annually depending on the amount collected. Under State
law, a collecting taxpayer may deduct ½% of the amount of taxes due as reimbursement for the cost of collecting the taxes. In
addition, taxpayers who file monthly or quarterly may prepay the taxes due and deduct 1¼% of the amount of the prepayment in
addition to the ½% for the cost of collecting the sales tax.
The Comptroller is required by law to distribute funds to the Authority as often as feasible, but not less frequently than quarterly.
Historically, and at the present time, the Comptroller distributes the funds monthly. Distributions to the Authority are made by
electronic funds transfers.
Seasonality and Recent Collections. The Authority's sales and use tax receipts are seasonal, with the greatest monthly
collections typically received in the months of February and August, reflecting taxes on retail sales in the holiday and back-toschool seasons. In the last three fiscal years, receipts in the lowest revenue months were 71.0%, 68.8%, and 66.4% respectively,
of collections in the highest revenue months. During Fiscal Year 2015, estimated sales and use tax receipts, in the amount of
$715,160,213 were 4.38% higher than audited amounts in Fiscal Year 2014, in the amount of $685,167,303. Sales and use tax
receipts for the first four months of Fiscal Year 2016 were $239,514,888, compared to $252,875,624 for the first four months of
Fiscal Year 2015, representing a 5.28% decrease.
Collection and Allocation of Delinquent Taxes. Although sales and use taxes are imposed on purchasers, retail sellers
are responsible for collecting the taxes and are the only source from which the taxes can practically be collected. Accordingly,
collections are dependent on the solvency and continued operation of retail sellers. The Comptroller is responsible for enforcing
the collection of sales taxes in the State. Under State law, the Comptroller utilizes sales tax permits, payment bonds and audits to
encourage timely payment of sales taxes. Each entity selling, renting, leasing or otherwise providing taxable goods or services is
required to have a sales tax permit. As a general rule, every person who applies for a sales tax permit for the first time, or who
becomes delinquent in paying the sales or use tax, is required to post a bond in an amount sufficient to protect against the failure
to pay taxes. A person who has filed security is entitled to have the Comptroller return the security if, in the Comptroller’s
judgment, the person has for two consecutive years continuously complied with the conditions of the security. The Comptroller’s
audit procedures include auditing the largest 2% of the sales taxpayers (who report about 65% of all sales tax in the State
12
annually) every three or four years. Other taxpayers are selected at random or upon some other basis for audits. The Comptroller
also engages in taxpayer education programs and mails a report to each taxpayer before the last day of the month, quarter or year
that it covers.
Once a taxpayer becomes delinquent in the payment of a sales or use tax, the Comptroller may collect the delinquent tax by using
one or more of the following methods: (1) collection by an automated collection center or local field office; (2) estimating the
taxpayer’s liability based on the highest amount due in the previous 12 months and billing them for it; (3) filing liens and
requiring a new or increased payment bond; (4) utilizing forced collection procedures such as seizing assets of the taxpayer (e.g.,
a checking account) or freezing assets of the taxpayer that are in the custody of third parties; (5) removing a taxpayer’s sales and
use tax permit; and (6) certifying the account to the Attorney General’s Office to file suit for collection. The Authority may not
sue for delinquent taxes unless it joins the Attorney General as a plaintiff or unless it first receives the permission of the Attorney
General and the Comptroller.
In addition to the sales taxes levied by the Authority, the State imposes a 6¼% sales tax for its own purposes and the City
imposes a 1% sales tax, in each case applied to essentially the same taxable transactions as those to which the Authority's sales
tax is applied. If the Comptroller is unable to collect the full amount of sales tax liability, collections are applied to the State’s
share of the sales tax, first, and the applicable municipality’s share, second, before distributing any part of the collections to the
Authority.
OPERATING REVENUE
The Authority derives operating revenue from transportation fares, which include bus, rail and METROLift fare box receipts plus
ticket sales from special events and the Texas Medical Center Route Guarantee Services. The Authority last increased fares by
an average of 25% effective November 2, 2008. A fare increase for METROLift, METRO’s paratransit service, was approved in
November 2015 and was enacted February 1, 2016. The current fares established by the Board for most commonly used services
are set forth below.
TABLE 3 – CURRENT FARES FISCAL YEAR 2016
Local/METRORail
Park & Ride Zone 1
Park & Ride Zone 2
Park & Ride Zone 3
Park & Ride Zone 4
Day Pass
METROLift Paratransit*
Discounted Fare
$0.60
$1.00
$1.60
$1.85
$2.25
$1.50
n/a
Full Fare
$1.25
$2.00
$3.25
$3.75
$4.50
$3.00
$1.25
________________
*For METROLift Paratransit outside the ADA service area, Full Fare is $2.50
Groups eligible for the discounted fare are:
•
•
•
•
Senior citizens aged 65 to 69 (seniors 70 and older ride free)
Disabled riders
Students age 6 through college/university (children 5 and under ride free)
Medicare cardholders
The Authority is required by the Authority Act to impose reasonable and nondiscriminatory fares, tolls, charges, rents and other
compensation for the use of its mass transit system sufficient to produce revenue in an amount that, together with tax revenue
received by the Authority, is adequate to pay all expenses necessary to operate and maintain the system, to pay principal of and
interest on obligations of the Authority, to make required sinking fund and reserve fund deposits for such obligations, and to
fulfill the terms of agreements with the holders of such obligations.
GRANTS
The Authority is the recipient of a number of federal and state grants from a variety of programs including Urbanized Area
(“UZA”) Formula grants, New Starts, Fixed Guideway Modernization (“FGM”), Bus and Bus Facilities (“BBF”), Congestion
Mitigation/Air Quality (“CMAQ”), Surface Transportation Program (“STP”), State of Good Repair (“SOGR”) and Department of
Homeland Security. The UZA, BBF, and SOGR grants are annual allocations, with amounts based on the Authority’s operating
and financial data relative to other transit authorities in the country. A SOGR allocation for Fiscal Year 2016 has been made in
the amount of $8,933,120. UZA allocations averaged approximately $64.0 million between Fiscal Year 2011 and Fiscal Year
2015. A UZA allocation of $74,651,029 has been allocated for Fiscal Year 2016 but such allocation will be shared with regional
partners and the final allocation determination specific to the Authority will be determined later in the fiscal year. BBF
allocations averaged $7.7M and SOGR $9.1M between Fiscal Year 2013 and Fiscal Year 2015, respectively. A BBF allocation
for Fiscal Year 2016 has been made in the amount of $7,855,233. Other grant programs are awarded on a discretionary basis
13
through competitive processes at the federal and local levels. Note that with the passage of the Moving Ahead for Progress in the
21st Century (MAP-21) legislation that took effect on October 1, 2012, several grant program changes took place. Notable grant
programs repealed by MAP-21 include Clean Fuels, Fixed Guideway Modernization, discretionary Bus & Bus Facilities
(“BBF”), Job Access & Reverse Commute (“JARC”), and New Freedom. Notable new grant programs created by MAP-21
include State of Good Repair (“SOGR”), formula Bus & Bus Facilities (“BBF”), and Enhanced Mobility of Seniors and
Individuals with Disabilities.
INVESTMENTS
The Authority invests surplus revenue in accordance with its Investment Policy. Certain features of the Authority’s Investment
Policy are summarized in Note 2 (beginning on page 29) to the Authority’s financial statements for the Fiscal Year ended
September 30, 2015, under the section captioned “Deposits and Investment Activities Including Compliance with the Texas
Public Funds Investment Act (TPFIA),” which are attached hereto as APPENDIX B. The Authority’s current Investment Policy
was approved and adopted by the Board on April 23, 2015. The allocation of cash and investments in the Authority’s operating
fund as of January 31, 2016, is summarized below.
TABLE 4 – CASH AND INVESTMENTS (AS OF JANUARY 31, 2016)
Par Value
$155,000,000
59,677,618
25,000,000
20,000,000
5,824,785
$265,502,403
Investments
U.S. Agency Bonds
Local Government Investment Pools
U.S. Treasury Notes
Certificates of Deposit
Cash
Total
Percentage of
Portfolio
58.38%
22.48
9.42
7.53
2.19
100.00%
The table above reflects General and Operating funds and does not include monies escrowed for General Mobility program
commitments, funds held in the Reserve Funds or the Interest and Sinking Fund or proceeds of Authority debt obligations. See
“DEBT AND OTHER OBLIGATIONS – GENERAL MOBILITY CONTRACTS” and “– GENERAL MOBILITY ESCROW.”
EXPENDITURES
BUDGET
The Authority Act requires the Board to adopt an annual operating budget of all major expenditures by type and amount for each
fiscal year before conducting any business in the fiscal year. The Authority must hold a public hearing on each proposed annual
operating budget, or any amendment to the budget, before adopting the budget or amendment.
The Authority constantly manages performance against its budget. Detailed financial reports are produced monthly and quarterly
for review by the Board. Each department prepares quarterly reports and meets with the Board to review the departmental budget
performance against goals and business initiative accomplishments.
The Authority budgets its Total Operating Expenses for each fiscal year. “Total Operating Expense” is the sum of all employee
labor, the cost of supporting that labor (e.g., insurance, space, utilities) and the direct costs for operating and maintaining the bus
and rail system, including purchased transportation and support vehicles (e.g., parts, fuel, tires, batteries, etc.) and also includes
the labor expenses of the Authority’s employees incurred when those employees perform work on capital improvement projects.
The following table summarizes Fiscal Year 2015 actual and budgeted operating expenses by cost category and the Fiscal Year
2016 operating budget.
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14
OPERATING BUDGET BY COST CATEGORY
Change in Budget
FY 2016 vs. FY 2015(2)
Variance(1)
FY 2015
Actual
FY 2015
Budget
Expense Category
Salaries and Wages
Fringe Benefits
Subtotal Labor and Fringe
Benefits
Amount
%
FY 2016
Budget
Amount
%
$ 202,442,887
99,102,203
$ 202,514,298
99,000,952
$ 71,411
(101,251)
0.04%
-0.10%
$ 222,573,757
109,092,856
$ 20,130,870
9,990,653
9.94%
10.08%
$ 301,545,090
$ 301,515,250
$ (29,840)
-0.01%
$ 331,666,613
$ 30,121,523
9.99%
$ 41,331,291
21,667,314
51,998,864
4,516,671
93,342,065
8,224,172
$ 36,985,292
24,149,529
50,130,030
4,604,524
90,538,726
7,050,129
$ (4,345,999)
2,482,215
(1,868,834)
87,853
(2,803,339)
(1,174,043)
-10.52%
11.46%
-3.59%
1.95%
-3.00%
-14.28%
$ 42,779,211
24,871,902
49,403,346
4,910,742
99,584,504
9,099,282
$ 1,447,920
3,204,588
(2,595,518)
394,071
6,242,439
875,110
3.50%
14.79%
-4.99%
8.72%
6.69%
10.64%
Subtotal Non-Labor
$ 221,080,377
$ 213,458,231
$ (7,622,146)
-3.45%
$ 230,648,987
$ 9,568,610
4.33%
Subtotal Labor and Non-Labor
$ 522,625,467
$ 514,973,481
$ (7,651,986)
-1.46%
$ 562,315,600
$ 39,690,133
7.59%
$ -10,000,000
$ ---
$ -(10,000,000)
--%
-100.00%
$ -10,938,323
$ -938,323
-- %
9.38%
-(17,633,767)
(38,796)
(21,638,020)
(38,796)
(4,004,253)
22.71%
-(14,982,923)
-2,650,844
-15.03%
$ (7,633,767)
$ (21,676,816)
$ (14,043,049)
183.96%
$ (4,044,600)
$ 3,589,167
-47.02%
$ 514,991,700
$ 493,296,665
$ (21,695,035)
-4.21%
$ 558,271,000
$ 43,279,300
8.40%
Services
Materials and Supplies
Fuel & Utilities
Casualty and Liability
Purchased Transportation
Leases, Rentals and Miscellaneous
Emergency Fund
Contingency
Cost Reimbursement (Cost
Recovery)
Allocation to Capital Program and
GMP
Subtotal Contingency/ Allocation
Total Operating Expenses
(1)
(2)
Fiscal Year 2015 Actual compared to Fiscal Year 2015 Budget.
Fiscal Year 2016 Budget compared to Fiscal Year 2015 Budget.
The Authority also budgets its annual capital expenditures, consisting of capitalized purchases comprising part of Total Operating
Expenses as well as the costs of labor and support costs to plan, manage and implement General Mobility, Capital Improvements,
METRORail and Debt Service together with labor and support costs for bus and rail service funded by Formula and CMAQ
capital funds. The sum of the total amount is referred to as the “Capital Program.” The following table summarizes the
Operating and Capital Budgets for Fiscal Years 2015 and 2016.
SUMMARY OF BUDGETS
Purpose
Variance(1)
Amount
%
$ (21,695,035)
(4.21%)
FY 2015 Budget
$ 514,991,700
FY 2015 Actual
$ 493,296,665
General Mobility
173,019,224
149,357,899
(23,661,325)
(13.68%)
172,586,519
Capital Improvement
180,839,000
115,611,373
(65,227,627)
(36.07%)
176,983,000
(9,798,000)
(5.25%)
METRORail Expansion
178,674,000
121,192,818
(57,481,182)
(32.17%)
83,208,000
(89,524,000)
(51.83%)
91,532,081
87,859,302
(3,672,779)
(4.01%)
96,941,601
5,409,520
5.91%
$ 1,139,056,005
$967,318,057
$(171,737,948)
(15.08%)
$1,087,990,120
$(51,065,885)
(4.48%)
Operating Budget
FY 2016 Budget
$ 558,271,000
Change in Budget
FY 2016 vs. FY 2015(2)
Amount
%
$ 43,279,300
8.40%
Capital Program:
Debt Service
TOTAL
(1)
(2)
Fiscal Year 2015 Actual compared to Fiscal Year 2015 Budget.
Fiscal Year 2016 Budget compared to Fiscal Year 2015 Budget.
15
(432,705)
(0.25%)
Substantial risks that could cause a variance between actual and budgeted expenses include possible increases in pension and
other employee benefit funding requirements, possible increases in unhedged energy costs or failures of hedges, increased costs
from possible storm damage and other risks that cannot be predicted or avoided. Neither the Authority’s budgets nor the data in
the above tables employ generally accepted accounting principles since they are prepared to manage, rather than to fairly present,
financial condition and performance. Accordingly, the data in the above tables may differ from financial data appearing
elsewhere in this Official Statement.
Although the Authority has successfully limited its actual expense to budgeted expense in each of the last seven fiscal years,
there can be no assurance that it will be successful in doing so in the future.
FISCAL YEAR 2016 BUDGET
METRO has approved its Fiscal Year 2016 budgets for operations, General Mobility, its Capital Program and Debt Service. The
highest priorities for Fiscal Year 2016 include increasing ridership with a back to basics approach to delivering quality transit
services, which includes a transition from expanding its system to operating and improving its system. See “INVESTMENT
CONSIDERATIONS— FORWARD LOOKING STATEMENTS.”
FINANCIAL HEDGES FOR FUEL
The Authority employs physical forward and financial commodities contracts to provide fuel and energy commodity price
certainty for up to 24 months of expected consumption. Counterparties to the fuel hedging contracts must either have a minimum
long-term rating of “A3” or “A-” assigned by at least two of the three nationally recognized rating agencies or comply with
collateral posting requirements. Certain features of the Authority’s Fuel Hedge Policy and outstanding diesel fuel swaps are
summarized in Note 7 (beginning on page 46) to the Authority’s financial statements for the Fiscal Year ended September 30,
2015, under the sections captioned “Fuel Hedge Policy” and “Outstanding Diesel Fuel Swaps” which are attached hereto as
APPENDIX B.
Table 5 below describes the Authority’s expenditures by category for its Fiscal Years ending September 30, 2011 through 2015
and comparative information for the four-month periods ending January 31, 2015 and 2016.
TABLE 5 — OPERATING AND CAPITAL EXPENDITURES AND DEPRECIATION
2011
2012
Fiscal Year Ended September 30,
2013
2014
2015
Four Months Ended
January 31, (unaudited)
2015
2016
Operating cost before
depreciation
Infrastructure(1)
Capital additions(2)
Total expenditures
$ 432,207,302
188,467,654
401,886,804
$1,022,561,760
$ 436,406,460
222,054,292
490,115,732
$1,148,576,484
$ 455,222,735
170,373,931
555,215,767
$1,180,812,433
$ 481,754,946
161,502,564
369,878,818
1,013,136,328
$ 521,298,340
149,505,814
257,921,754
928,725,908
$ 154,333,877
24,070,163
57,522,094
235,926,134
$ 170,704,746
42,612,859
31,139,473
244,457,078
Depreciation(3)
$ 138,295,447
$ 137,094,956
$ 136,642,238
$ 160,049,291
$ 173,469,603
$ 55,765,094
$ 71,854,884
(1)
(2)
(3)
See page 46 of the Fiscal Year 2015 Financial Statements in the section captioned “Agreements to Fund Local Infrastructure and Mobility
Programs.”
See page 32 of the Fiscal Year 2015 Financial Statements for a discussion and description of capital additions.
The Authority does not maintain a capital replacement fund to provide for the replacement of depreciated assets.
DEBT AND OTHER OBLIGATIONS
SALES TAX-SUPPORTED DEBT
Voter Authorized. In the 2003 Election, voters authorized the issuance of $640,000,000 of bonds payable from a pledge of
75% of the sales and use tax revenue collected by the Authority (the “Voted Sales Tax Bonds”) to fund projects for its transit
system. The Authority has issued all of the bonds authorized at the 2003 Election. The Authority may hold one or more future
elections to authorize additional sales tax bonds.
Under current State law, in addition to the Voted Sales Tax Bonds and other sales tax bonds approved by future elections, the
Authority may issue certain other Senior Lien Obligations without an election, specifically (i) contractual obligations and
(ii) commercial paper notes and sales and use tax bonds or notes with a five-year or shorter term.
Contractual Obligations. Contractual obligations may be issued as Senior Lien Obligations on a parity with the Voted
Sales Tax Bonds and may be issued to finance vehicles and other personal property. As of January 31, 2016, $303,660,000 in
aggregate principal amount of contractual obligations, all constituting Senior Lien Obligations, were outstanding.
16
Commercial Paper Notes. The Authority has established a $400 million commercial paper program (“CP Program”)
for the issuance of Sales and Use Tax Revenue Commercial Paper Notes (the “CP Notes”) in multiple separate series. As
described in further detail below, the current maximum issuance capacity of the CP Program is $175 million, which is the amount
of authorized CP Notes secured by credit facilities. The current CP Program expires in June 2018, and, consistent with the terms
of the Authority Act, the Authority expects to renew the CP Program for an additional five years prior to its expiration. The CP
Notes are Senior Lien Obligations payable on a parity with the Obligations. The CP Notes are not secured by the Reserve Funds.
As of March 31, 2016, CP Notes were outstanding in the aggregate principal amount of $117,400,000.
The Authority has contracted for liquidity support for the CP Notes by means of (1) a $100,000,000 line of credit
provided by JPMorgan Chase Bank, N.A. and (2) a $75,000,000 line of credit provided by State Street Bank and Trust Company.
The lines of credit obligate the respective banks to provide liquidity for the payment of the principal of (but not interest on)
maturing CP Notes, subject to certain conditions. If a bank makes an advance to pay for maturing CP Notes, the Authority must
repay such advances over a two-year period. Unless otherwise extended pursuant to the terms of each agreement, the stated
expiration dates for the credit facilities are as follows: JPMorgan Chase Bank, N.A. (line of credit), June 6, 2018; and State
Street Bank and Trust Co. (line of credit), June 6, 2017. The Authority expects to either renew or replace one or more of the
facilities on or before such expiration dates.
MASTER LEASE PURCHASE PROGRAM
The Authority has established a Master Lease Purchase Program for the lease-purchase financing from time to time of equipment,
including buses, bus rapid transit vehicles and rail rapid transit vehicles. The lease-purchase payments due under each lease
purchase agreement are payable from sales and use taxes and other revenues, subject to appropriation on an annual basis, and are
not secured by the Pledged Revenues. The Authority has entered into two lease-purchase agreements under the Master Lease
Purchase Program. It is currently lease-purchasing 98 buses pursuant to the Series 2008A Lease Purchase Agreement, financed
by $62,255,000 Series 2008A Certificates of Participation, and 60 buses pursuant to the Series 2008B Lease Purchase
Agreement, financed by $45,785,000 Series 2008B Certificates of Participation. The aggregate principal portion of the
Authority’s outstanding lease-purchase obligations as of January 31, 2016, was $56,435,000. The Series 2008A Lease Purchase
Agreement has a final maturity of November 1, 2020, and the Series 2008B Lease Purchase Agreement has a final maturity of
November 1, 2021. The Authority may no longer enter into new lease-purchase agreements pursuant to the Master Lease
Purchase Program, which expired on June 15, 2013.
OUTSTANDING DEBT
The following table summarizes selected terms of debt of the Authority payable from and, except for certificates of participation,
secured by a senior lien on and pledge of Pledged Revenues on a parity with the Obligations and expected to be outstanding upon
issuance of the Obligations. The table includes the Obligations and excludes the Refunded Bonds and Refunded Contractual
Obligations.
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17
TABLE 6 —OUTSTANDING DEBT AS OF JANUARY 31, 2016
Principal Amount
Outstanding
Interest
Reserve Fund
Participant
Final
Maturity
$ 75,025,000
82,555,000
453,350,000
52,575,000
$663,505,000
Fixed
Fixed
Fixed
Fixed
Yes(1)
Yes(1)
Yes(1)
No
2029
2038
2041
2020
Contractual Obligations,(4)
Series 2009B
Series 2009D
Series 2010A
Series 2011B
Series 2014
Series 2015B
Subtotal
35,745,000
19,465,000
25,855,000
35,500,000
124,610,000
62,485,000
$303,660,000
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Yes(2)
Yes(2)
Yes(2)
Yes(2)
No
No
2033
2021
2022
2023
2029
2028
Commercial Paper Notes(3)
Series A-1
Series A-3
Subtotal
94,400,000
23,000,000
$117,400,000
Variable
Variable
No
No
N/A
N/A
29,910,000
26,525,000
$56,435,000
Fixed
Fixed
No(5)
No(5)
2020
2021
Series
Senior Lien Obligations:
Sales and Use Tax Bonds,(3)
Series 2009A
Series 2009C
Series 2011A
Series 2015A
Subtotal
Lease Purchase Obligations:
Series 2008A Certificates of Participation
Series 2008B Certificates of Participation
Subtotal
$1,141,000,000
Total
_________________________
(1)
(2)
(3)
(4)
(5)
Secured by the Sales Tax Bond Reserve Fund.
Secured by the Contractual Obligation Reserve Fund.
A portion of the proceeds of the Series 2016A Sales Tax Bonds will be used to refund $54,000,000 of Sales and Use Tax Bonds, Series
2009A and $81,980,000 of the Sales and Use Tax Bonds, Series 2011A.
A portion of the proceeds of the Series 2016B Contractual Obligations will be used to refund $28,365,000 of Sales and Use Tax Contractual
Obligations, Series 2009B.
Secured by the Certificates of Participation Reserve Fund.
ANNUAL DEBT SERVICE REQUIREMENTS
The following table sets forth the Authority’s annual debt service requirements on Senior Lien Obligations (other than CP Notes)
to be outstanding after issuance of the Obligations, as well as the portion of debt service requirements expected to be paid to the
Authority by the federal government, computed based upon the noted assumptions. The table excludes debt service on the CP
Notes and the Series 2008A and Series 2008B certificates of participation. See “PLAN OF FINANCE” and “– OUTSTANDING
DEBT.”
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18
TABLE 7 – ANNUAL DEBT SERVICE REQUIREMENTS SECURED BY PLEDGED REVENUES
Fiscal
Year
Ending
Sept. 30
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
Outstanding
Senior Lien
Obligations
Debt Service(1)(2)
$72,923,659
73,731,031
82,476,606
90,831,256
98,695,469
69,557,256
64,800,881
62,771,156
56,666,281
39,674,906
39,679,781
39,679,531
39,677,281
32,758,281
32,759,281
42,462,969
42,584,813
43,266,625
43,061,578
42,847,594
42,621,094
42,388,203
42,144,844
41,886,891
41,756,000
41,755,750
41,758,500
TOTAL
$1,405,217,519
The Obligations
1,390,000
5,850,000
4,615,000
6,455,000
18,155,000
19,085,000
20,070,000
21,095,000
22,170,000
23,310,000
2,255,000
2,355,000
2,475,000
2,600,000
7,644,177
7,560,175
7,560,175
7,560,175
7,525,425
7,344,425
7,082,800
6,806,050
6,190,800
5,259,800
4,280,925
3,251,800
2,170,175
1,033,175
410,963
312,625
191,875
65,000
Total Debt
Service
$
7,644,177
7,560,175
7,560,175
7,560,175
8,915,425
13,194,425
11,697,800
13,261,050
24,345,800
24,344,800
24,350,925
24,346,800
24,340,175
24,343,175
2,665,963
2,667,625
2,666,875
2,665,000
$151,880,000
$82,250,539
$234,130,539
Principal
$
Interest
$
Combined
Total Debt
Service
$72,923,659
81,375,208
90,036,781
98,391,431
106,255,644
78,472,681
77,995,306
74,468,956
69,927,331
64,020,706
64,024,581
64,030,456
64,024,081
57,098,456
57,102,456
45,128,931
45,252,438
45,933,500
45,726,578
42,847,594
42,621,094
42,388,203
42,144,844
41,886,891
41,756,000
41,755,750
41,758,500
$1,639,348,058
Less:
Build
America Bond
Subsidy(3)
$ (1,851,399)
(1,851,399)
(1,851,399)
(1,851,399)
(1,851,399)
(1,851,399)
(1,851,399)
(1,851,399)
(1,851,399)
(1,986,480)
(1,986,480)
(1,986,480)
(1,986,480)
(1,986,480)
(1,986,480)
(1,894,802)
(1,707,234)
(1,511,125)
(1,306,052)
(1,091,595)
(867,333)
(632,784)
(387,527)
(131,080)
$(38,111,003)
Combined
Total Net Debt
Service
$71,072,260
79,523,809
88,185,382
96,540,032
104,404,245
76,621,282
76,143,907
72,617,557
68,075,932
62,034,226
62,038,101
62,043,976
62,037,601
55,111,976
55,115,976
43,234,129
43,545,204
44,422,375
44,420,526
41,755,999
41,753,761
41,755,419
41,757,317
41,755,811
41,756,000
41,755,750
41,758,500
$1,601,237,055
________________________________
(1)
(2)
(3)
Excludes debt service on the CP Notes.
Excludes debt service on the refunded bonds.
Represents federal subsidy for the Series 2009C Sales Tax Bonds issued as direct subsidy “Build America Bonds.” The schedule assumes a
6.8% reduction (subject to change) applied from fiscal years 2016 through 2024 (the last year of sequestration under current law). See “–
OUTSTANDING DEBT” and “INVESTMENT CONSIDERATIONS – RISKS ASSOCIATED WITH FEDERAL FUNDING” and “–
RISKS RELATING TO BUILD AMERICA BONDS.”
MAXIMUM AND AVERAGE ANNUAL DEBT SERVICE REQUIREMENTS
After the issuance of the Obligations, the MADS and combined average annual debt service requirements on the Senior Lien
Obligations (other than the CP Notes) will be $104,404,245 and $59,305,076, respectively. In addition to the Senior Lien
Obligations, the Authority is obligated on lease purchase obligations for the Series 2008A and Series 2008B certificates of
participation, which are secured by a lien on buses. If debt service on the Senior Lien Obligations (other than the CP Notes) and
the lease purchase obligations are combined, MADS would be $116,333,685 and the combined average annual debt service
requirements would be $62,148,643. The foregoing calculations take into account projected federal subsidy payments (as shown
on Table 7) on the Series 2009C Obligations issued as direct subsidy “Build America Bonds” and exclude debt service payments
on the CP Notes.
DEBT SERVICE COVERAGE
Sales and use tax revenues accrued for Fiscal Year 2015 amounted to $715,160,213. Pledged Revenues for Fiscal Year 2015 are
equal to 75% of such amount, or $536,370,160. Coverage of the MADS and combined average annual debt service requirements
on the Senior Lien Obligations (other than CP Notes) by Fiscal Year 2015 Pledged Revenues, after giving effect to the issuance
19
of the Obligations, is equal to 5.14 and 9.04, respectively. If debt service on the Senior Lien Obligations (other than the CP
Notes) and the Series 2008A and Series 2008B certificates of participation is combined, these ratios equal 4.61 and 8.63,
respectively. The foregoing calculations take into account projected federal subsidy payments on the Series 2009C Obligations
issued as direct subsidy “Build America Bonds” and exclude debt service payments on the CP Notes.
GENERAL MOBILITY CONTRACTS
Pursuant to the 2012 Election and interlocal agreements, the Authority is committed through December 31, 2025, to make
payments to or on behalf of Harris County, the City and the Participating Municipalities of up to 25% of sales and use tax
revenue collected by the Authority for General Mobility projects. The Authority is also committed by the 2012 Election to seek
additional voter authority to renew its General Mobility commitments beyond December 31, 2025.
GENERAL MOBILITY ESCROW
Recognizing the potential liquidity risks associated with varying rates at which sales tax revenues pledged to General Mobility
will be billed to the Authority by other local governments, in October 2010 the Authority established an escrow account to isolate
funds dedicated to intergovernmental obligations. Contributions are deposited to the escrow account each month from sales tax
receipts in amounts up to 25% of the current net receipts. As of January 31, 2016, the Authority had collected and escrowed
$88,150,690.71 in sales tax revenues committed to the General Mobility program in the service area that had not been billed for
reimbursement by the partner local governments. See “EXPENDITURES – FISCAL YEAR 2015 BUDGET.”
DEBT POLICY
In April 2009, the Board approved an updated Debt Policy for the Authority (the “Debt Policy”). The Debt Policy sets forth
guidance on the type of debt that may be incurred by the Authority (e.g., long-term versus short-term), the source of payment for
its debt obligations and other factors to be considered when incurring debt. The Debt Policy allows the Authority to incur debt
for only the following purposes: financing capital assets, improving infrastructure, refunding or defeasing existing obligations,
funding capitalized interest, paying costs of issuance or making deposits to reserve funds and other funds required in debt
instruments. The Debt Policy specifies budgeting interest costs on variable rate debt, such as 1% above the two-year historical
average rate for the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Index (formerly the BMA
Municipal Swap Index), plus ongoing costs such as credit facilities. Additionally, the Debt Policy specifies financial policies
such as the use of external economists for sales tax projections and maintaining a working capital reserve amount of at least 15%
of annualized budgeted operating expenditures. Compliance with all continuing disclosure agreements is part of the Debt Policy.
SWAP POLICY
The Authority has a policy of not entering into derivative transactions related to the Authority’s debt. The Authority does,
however, enter into financial hedges, which are described under “EXPENDITURES – FINANCIAL HEDGES FOR FUEL.”
LEASE/LEASEBACK TRANSACTIONS
The Authority has no outstanding lease/leaseback agreements as of March 31, 2016. During Fiscal Year 2014, the Authority
early terminated all its then remaining lease/leaseback agreements with additional payments limited to $124,586 in legal and
financial advisory fees.
Certain information about the lease/leaseback transactions is summarized in Note 7 of the Authority’s financial statements for the
Fiscal Year ended September 30, 2015, attached hereto as APPENDIX B.
RETIREMENT PLANS
METRO has three pension plans and two postemployment healthcare plans. Two of the pension plans are noncontributory,
single-employer, defined-benefit plans and one is a defined contribution plan. The postemployment healthcare plans are singleemployer, defined benefit plans that are available to eligible retirees.
Pension and postemployment healthcare contributions are authorized by METRO’s Board of Directors during the annual
budgeting process. Monthly pension contributions are placed into separate trust accounts and will be used to fund pension
payments as they become due. Other postemployment benefits are funded on a pay-as-you-go basis. Independently audited
financial statements are available for both defined-benefit pension plans on METRO’s Web site. METRO has no access to
pension plan assets as they are kept in separate trust accounts and managed by two separate administrative committees. The
Plans’ asset custodian and disbursing agent is State Street Bank, which is responsible for executing/recording all investment
transactions authorized by the plans and issuing monthly checks to retirees.
Calculating amounts used in financial reporting and management of the retirement plans requires the use of actuarial
assumptions. These assumptions reflect a long-term perspective and use techniques that are designed to reduce short-term
volatility in determining liabilities and expenses. Each year these assumptions are reviewed with the plans’ actuary and adjusted
20
based on actual performance. The amount ultimately paid may vary significantly from the amounts currently reported since
retirement liabilities are based on long-term estimates and actuarial projections. See also “APPENDIX B – Audited Financial
Statements – Note 4” for a discussion of the Authority’s retirement plans.
The information reflected below is based on GASB 68 Accounting and Financial Reporting for Pension which became
effective in Fiscal Year 2015.
Defined Benefit Plans GASB Statement No. 68 Disclosure Requirements. The required disclosure information below
only contains the current year since recalculation of prior years is not required, and if prior years are not determined in accordance
with GASB 68 they should not be reported.
The net pension liability for both defined benefit pension plans was measured as of December 31, 2014 and the total pension
liability used to calculate the net pension liability was determined by an actuarial valuation dated January 1, 2014. The actuarial
valuation was based on the discount rate and actuarial assumptions listed on page 41 of the Fiscal Year 2015 Financial
Statements, and then projected forward to the measurement date in accordance with GASB Statement No. 68.
The discount rate used to determine the total pension liability for both defined benefit pension plans was 6.75%, which is the
same as the long-term expected investment rate of return. The use of the same rate is appropriate only when the depletion
analysis, which covers the life of the individual plan, has projected cash inflows from contributions and investment earnings
which will equal or exceed the projected outflows for expenses and benefit payments.
The projected long-term expected rate of return on pension plan investments was determined using a building-block method in
which the best-estimate ranges of expected future real rates of returns (expected returns, net of pension plan investment expense
and inflation) were developed for each major asset class. These ranges are combined to produce the projected 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. The best estimates of the projected arithmetic, real rates of return for each major asset class included
in the Plan’s target asset allocation as of January 1, 2014 are reflected in the individual plans section of this report.
The combined net pension liability for both defined benefit pension plans as of September 30, 2015 was:
Transport Workers Union
Pension Plan, Local 260,
AFL-CIO (TWUPP)
Non-Union
Net pension liabilities
$ 61,050,504
$ 116,911,315
Total
$ 177,961,819
The combined deferred outflows for both defined benefit pension plans as of September 30, 2015 were:
Deferred outflows
Non-Union
Contributions between January 1, 2015
through September 30, 2015
Net difference between projected and
actual earnings on pension investments
Total deferred outflows
TWUPP
Total
$ 9,020,858
$ 15,209,896
$ 24,230,754
3,699,242
4,454,275
8,153,517
$ 12,720,100
$ 19,664,171
$ 32,384,271
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21
Significant actuarial assumptions used in METRO’s defined benefit plans valuations is listed below:
TWUPP
Valuation date
Cost method
Inflation rate
Asset-valuation method
Investment rate of return
Funding policy
Cost-of-living adjustments
Projected salary increase
Assumed annual
retirement rate
Mortality and disabled mortality
NUPP
January 1, 2014
Entry age normal
2.3% per year IRS salary limit
Five-year smoothed market value
6.75% per annum
Meeting the ADC requirements
None
None
Varying percentage ranging
from 5% to 100% for ages 60
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
January 1, 2014
Entry age normal
2.3% per year IRS salary limit
Five-year smoothed market value
6.75% per annum
Meeting the ADC requirements
None
2.5% per annum
Varying percentage ranging
from 20% to 100% for ages 55
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
Level dollars/reestablished
annually
29 years closed
No (as of October 1, 2012)
Level dollars/reestablished
annually
29 years closed
No (as of October 1, 2007)
Amortization of gains/losses:
Method
Period
Open to new members
TWUPP Defined Benefit Pension Plan. METRO established the TWUPP for the purpose of accumulating funds to pay
retirement benefits and certain related administrative costs. The Plan, closed to new members on October 1, 2012, is a single
employer, noncontributory defined benefit pension plan which is for employees covered by the collective bargaining agreement.
Retirement benefits were established during periodic negotiations with the Transport Workers Union of America, AFL-CIO and
Local 260 of the Transport Workers Union of America, AFL-CIO (Union). Postemployment health care costs are not included in the
TWUPP.
TWUPP provides for monthly normal retirement benefits based on the participant’s years of service, but not less than $300 each
month. The calculation for the monthly normal retirement benefit is based on the designated dollar amount times the number of
credited years of service. The designated dollar amount used to determine the monthly normal retirement benefit is based on date
of retirement and as allowed by the Union labor agreement. The most current monthly amounts paid for recent retirees are as
follows:
August 1, 2002 through July 31, 2003
August 1, 2003 through July 31, 2004
August 1, 2004 through July 31, 2005
August 1, 2005 through July 31, 2006
August 1, 2006 through July 31, 2007
August 1, 2007 through January 31, 2009
February 1, 2009 through present
$ 50
51
52
52
53
54
60
Participants can only receive monthly distributions unless their balance is $5,000 or less, then the participant can elect to receive
a lump-sum payment.
TWUPP participants are 100% vested after five years of credited service. Participants become eligible to receive benefits at the
earlier of 28 years of credit services or at age 60 with 5 years of credited service. The requirements for early retirement with
reduced benefits are that an employee reaches age 55 with 25 years of credited service. In addition, TWUPP provides for
disability retirement benefits with the requirement of having 5 years of credit service. Additional requirements include five years
of vesting service for vested deferred retirement benefits and for preretirement spousal benefits.
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22
Changes in plan participants between January 1, 2014 and January 1, 2013 were:
Participants
2014
2,241
2013
2,274
Change
(33)
Terminated and vested
555
607
(52)
1,018
925
93
175
194
(19)
177
108
69
4,166
4,108
58
Active
Retired
Disabled
Beneficiaries
Total for all participants
The sensitivity analysis schedule, provided below, is used to evaluate the effect on the total pension liability and related net
pension liability for a 1% change in the discount rate as of December 31, 2014.
1%
Decrease to
5.75%
Net pension liability
Current Discount
Rate of 6.75%
$ 154,303,909
1%
Increase to
7.75%
$ 116,911,315
$ 84,992,520
Change in Net Pension Liability for the TWUPP
December 31, 2014
Total pension liability
Changes for the year:
Service cost
Interest on total pension liability
Changes of benefit terms
Difference between expected and
actual experience
Changes of assumption
Benefit payments
Net change in total pension liability
Total pension liability beginning
Total pension liability ending
$
5,435,165
22,446,888
(15,923,974)
11,958,079
334,943,305
346,901,384
Plan fiduciary net position :
Contributions from the employers
Net investment income
Benefit payments
Administrative expenses
Net change in plan fiduciary net position
Plan fiduciary net position - beginning
Plan fiduciary net position - ending
METRO’s net pension liability
13,477,182
8,434,984
(15,923,974)
(319,754)
5,668,438
224,321,631
229,990,069
$ 116,911,315
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23
The best estimates of the projected arithmetic, real rates of return for each major asset class included in TWUPP target asset allocation
as of January 1, 2014 are listed below:
Long-term
Target
Expected Real
Asset Class
Index
Allocation
Rate of Return
Cash
Citigroup 90-Day T-Bills
1.13%
0.53%
Core Fixed Income
Barclays Aggregate
34.55%
2.05%
Large Cap U.S. Equities
S&P 500
38.46%
4.02%
Small Cap U.S. Equities
Russell 2000
13.16%
4.43%
Developed Foreign Equities
MSCI EAFE
12.70%
4.43%
Assumed Inflation – Mean
2.30%
Assumed Standard Deviation
2.00%
Portfolio Arithmetic Mean Return
6.86%
Portfolio Standard Deviation
11.54%
Long-Term Expected Rate of Return
6.75%
Pension Plan Expense and Deferred Outflows. During Fiscal Year 2015, METRO recognized $15,312,548 of pension
expense. Deferred outflows included $4,454,275 for the net difference between projected and actual earning and $15,209,896 for
pension payments made between January 1, 2015 and September 30, 2015. The net difference between projected and actuarial
earning will be amortized using the straight-line method over the next four years to pension expense as follows:
2016
2017
2018
2019
Total
$1,113,569
1,113,569
1,113,569
1,113,568
$4,454,275
The deferred outflows for the payments made between January 1, 2015 and September 30, 2015 will be reflected in the next actuarial
report when determining financial information.
Non-union Pension Plan. METRO established the Non-Union Pension Plan and Trust (NUPP) during December 1975
for the purpose of accumulating funds to pay retirement benefits and certain related administrative costs. The Plan was closed to new
participants on September 30, 2007, is a single employer, noncontributory (since March 1, 1984) defined benefit pension plan which
covers full-time police officers and administrative staff. Retirement benefits are established and can be amended by METRO’s
Board of Directors. Postemployment healthcare costs are not included in the Plan.
The Plan participants are 100% vested after 5 years and can retire at age 65 (normal retirement age) or with reduced benefits after
age 55 with 15 years of credited service. Monthly benefits are calculated using three factors, which include employee’s average
earnings for the last three years, number of service years, and the retirement factor. The minimum monthly normal retirement
benefit is $300 for those who retire at or after age 65 and with five years of credited service. The NUPP offers several annuity
options and a discounted lump-sum payment.
To receive a lump sum payment, vested employees must withdraw their funds by the end of the year following their termination.
After this time has expired, they must select one of the annuity options upon their eligible retirement date. Employees who are
totally disabled will continue to earn service years until their normal retirement age with their compensation, as of their disability
date, used to calculate their pension benefit.
Changes in plan participants between January 1, 2014 and January 1, 2013 were:
Participants
Active
Terminated and vested
Retired
2014
657
2013
694
Change
(37)
98
118
(20)
193
209
(16)
Disabled
12
13
(1)
Beneficiaries
24
28
(4)
984
1,062
(78)
Total participants
24
Change in Net Pension Liability for the Non-Union Pension Plan
December 31,
2014
Total pension liability
Changes for the year
Service cost
Interest on total pension liability
Changes of benefit terms
Difference between expected and
actual experience
Changes of assumption
Benefit payments
Net change in total pension liability
Total pension liability beginning
Total pension liability ending
$
2,753,593
13,384,981
(8,704,519)
7,434,055
199,823,621
207,257,676
Plan fiduciary net position
Contributions from the employers
Net investment income
Benefit payments
Administrative expenses
Net change in plan fiduciary net position
Plan fiduciary net position – beginning
Plan fiduciary net position – ending
9,006,301
4,217,106
(8,704,519)
(224,559)
4,294,329
141,912,843
146,207,172
METRO’s net pension liability ending
$
61,050,504
The best estimates of the projected arithmetic, real rates of return for each major asset class included in the Plan’s target asset
allocation as of January 1, 2014, are listed below.
Long-term
Target
Expected Real
Asset Class
Index
Allocation
Rate of Return
Cash
Citigroup 90-Day T-Bills
1.79%
0.53%
Core Fixed Income
Barclays Aggregate
33.75%
2.05%
Large Cap U.S. Equities
S&P 500
46.43%
4.02%
Small Cap U.S. Equities
Russell 2000
10.68%
4.43%
Developed Foreign Equities
MSCI EAFE
7.35%
4.43%
Assumed Inflation – Mean
2.30%
Assumed Standard Deviation
2.00%
Portfolio Arithmetic Mean Return
6.85%
Portfolio Standard Deviation
11.49%
Projected Long-term Expected
Investment Rate of Return
6.75%
The sensitivity analysis schedule, provided below, is used to evaluate the effect on the total pension liability and related net
pension liability for a 1% change in the discount rate as of December 31, 2014.
1%
Decrease to 5.75%
Net pension liability
$
Current Discount
Rate of 6.75%
75,830,520
$
25
61,050,504
1%
Increase to
7.75%
$
48,107,822
During Fiscal Year 2015, METRO recognized $8,886,785 of pension expense. Deferred outflows included $3,699,242 for the
net difference between projected and actual earning and $9,020,858 for pension payment made between January 1, 2015 and
September 30, 2015. The net difference between projected and actuarial earning will be amortized using the straight-line method
over the next four years to pension expense as follows:
Fiscal Year
2016
2017
2018
2019
Total
Amount
$ 924,810
924,810
924,810
924,812
$ 3,699,242
The deferred inflow for the payments made between January 1, 2015 and September 30, 2015 will be reflected in the next
actuarial report when determining financial information.
Information below was prepared in accordance with GASB 27 Accounting for Pensions by State and Local Government
Employers and Statement No. 50, Pension Disclosure which were in effect for Fiscal Year 2014. Plan benefits, which are
the same, are discussed in the GASB 68 disclosure section of this document.
Contributions and changes in the net pension obligations for METRO’s defined benefit pension plans for Fiscal Year 2014 were:
Annual required contributions (ARC)
Interest on net pension obligation
Adjustment to ARC
Annual pension cost
Fiscal Year 2014
TWUPP
NUPP
$ 13,691,651
$ 8,966,585
(1,634,847)
(467,211)
1,827,338
530,604
13,884,142
9,029,978
Contributions
Change in net pension obligation
Beginning net pension obligation (asset)
Ending net pension obligation (asset)
Percentage of pension cost contributed
Percentage of ARC contributed
13,691,651
192,491
(20,435,579)
$ (20,243,088)
98.61%
100.00%
8,966,585
63,393
(5,911,380)
$(5,847,987)
99.30%
100.00%
The funded status of the TWUPP and NUPP pension plans as of January 1, 2014 (in thousands) was:
Actuarial
Value of
Assets
TWUPP
NUPP
Actuarial
Accrued
Liabilities
(AAL)
Unfunded
Actuarial
Accrued
Liability
(UAAL)
$ 206,052
$ 279,959
$ 73,907
129,399
161,398
31,999
Funded Ratio
Percentage
73.6%
80.2
Covered
Payroll
$92,277
45,602
UAAL as a
Percentage of
Covered Payroll
80.1%
70.2
NUPP annual required contributions (ARC) are based on actuarial valuations prepared annually by an independent actuary from data
furnished by METRO. The unfunded actuarial accrued liability as of January 1, 2014 was $31,999,660 and the pension expense
recognized in the financial statements for the current and previous two fiscal years was $9,029,978, $8,764,797, and $8,873,835,
respectively. Actual contributions for the current and previous two fiscal years were $8,966,585, $8,615,666, and $8,907,720,
respectively.
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26
Significant actuarial assumptions used in METRO’s plan valuations and funded status is listed below:
TWUPP
NUPP
Valuation date
January 1, 2014
January 1, 2014
Cost method
Projected unit credit
Projected unit credit
Inflation rate
2.5% per year IRS salary limit
2.5% per year IRS salary limit
Asset-valuation method
Five-year smoothed market value
Five-year smoothed market value
Investment rate of return
8.0% per annum
8.0% per annum
Funding policy
Meeting the ARC requirements
Meeting the ARC requirements
Cost of living adjustments
None
None
Projected salary increase
Assumed annual
retirement rate
None
2.5% per annum
Varying percentage ranging
from 5% to 100% for ages 60
through 70
Varying percentage ranging
from 20% to 100% for ages 55
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
Level dollars/reestablished
annually
29 years closed
No (as of October 1, 2012)
Level dollars/reestablished
Annually
28 years closed
No (as of October 1, 2007)
Mortality and disabled mortality
Amortization of gains/losses:
Method
Period
Open to new members
The TWUPP and NUPP Annual Pension Cost (APC) and Net Pension Obligations are as follows:
Annual
Pension Cost
Percentage of
APC Funded
Year-End
Net Pension
Obligation (Asset)
TWUPP
2012
$ 14,344,181
99.04%
$ (20,617,580)
2013
14,544,413
98.75
(20,435,579)
2014
13,884,142
98.61
(20,243,088)
NUPP
2012
$ 8,873,835
100.38%
$ (6,060,511)
2013
8,764,797
98.30
(5,911,380)
2014
9,029,978
99.30
(5,847,987)
Defined Contribution Pension Plan (DCPP). The NUPP was closed October 1, 2007 and the TWUPP was closed
October 1, 2012 to new employees. Individuals hired after those dates are placed into a DCPP. As part of DCPP, METRO will
contribute 2% of the employee’s annual salary and will match up to an additional 4% of their contributions. All contributions are
placed into a third-party trust account. Employee’s vesting rates are 40% after the second year and 20% annually thereafter.
Contributions by METRO for the current and previous two fiscal years were $2,954,478, $1,964,943, and $1,121,291, with
employees contributing $2,406,028, $1,654,991, and $1,040,871, respectively.
RISK FACTORS RELATING TO PENSION SYSTEMS
There are numerous actuarial assumptions that an actuary makes in evaluating a pension plan. Any material deviation
between actual results and the actuary’s assumptions over an extended period of time can have a significant impact on actuarial
funding. These deviations can include, but are not limited to, actual investment performance different than assumed, changes in
post-retirement longevity of retirees, and changes in the level of benefits provided. See also “Investment Considerations --The
Authority’s Unfunded Future Expenses for Prior Employment May Grow Substantially and Adversely Affect its Financial
Condition.”
27
OTHER POST-EMPLOYMENT BENEFITS
METRO sponsors two single-employer, defined benefit Other Postemployment Healthcare Plans, which include the Transport
Workers Union Metropolitan Transit Authority Health & Welfare Trust (Trust) and the Non-Union Plan. These plans cover
medical, dental, and life insurance for retirees with a retiree’s contribution being based on years of service for the Non-Union
Plan. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the
employer and plan members) and include the types of benefits provided at the time of each valuation and historical pattern of cost
sharing between the employer and plan members. METRO is on a pay-as-you-go funding basis for these benefits.
The Trust is a separate legal entity that is managed by four trustees who are responsible for managing resources and establishing
benefits. Two of the trustees are from the Transport Workers Union Local 260, AFL-CIO and two are from METRO. Payments
to the Trust are irrevocable and made monthly based on amounts established during contract negotiations with the union. To
qualify for this retirement benefit, an employee must be 60 years old with 5 years of credited services, any age with 28 years of
credited services, or 55 years old with 25 years of credited services or meet disability qualifications. Actual contributions for the
current and previous two fiscal years were $9,194,420, $8,574,434, and $8,116,228, respectively.
The Non-Union Plan is administered by METRO and covers full-time employees with payments made as services are provided.
To qualify for this benefit, an employee must be 55 years or older with 5 years of credited services. Employees hired after
December 31, 2009 are not eligible for postretirement medical and dental benefits. Effective October 1, 2012, METRO moved
post-65 retirees and spouses to Extend Health. This plan is capped at $2,801 per person annually and includes medical, dental,
vision, and pharmacy. Actual contributions for the current and previous two fiscal years were $3,078,282, $2,767,380, and
$3,211,888, respectively.
Significant actuarial assumptions used in METRO’s Other Postemployment Plans valuations are as follows:
Trust
Non-Union
Valuation date
Biennially on January 1st
Biennially on January 1st
Cost method
Projected unit credit
Projected unit credit
Healthcare cost trend rate
Varying from 7.1% declining
to 4.5 % after 2100
Varying from 8% declining
to 4.6% after 2083
Investment rate of return
without prefunding
4.0% per annum
4.0% per annum
Funding policy
Pay-as-you-go
Pay-as-you-go
Assumed annual
retirement rate
Varying percentage ranging
from 5% to 100% for age 55
through 70
Varying percentage ranging
from 20% to 100% for ages 55
through 70
Inflation assumption
2.5% per annum, compound
annually
2.75% per annum, compound
annually
Mortality basis after normal
retirement
Healthy lives (sex distinct)
RP-2000 Combined Mortality
Table projected to 2014 using
Projection Scale AA
Healthy lives (sex distinct)
RP-2000 Combined Mortality
Table projected to 2013 using
Projection Scale AA
Disabled lives (sex distinct)
RP-2000 Disabled Mortality
Table projected to 2014 using
Projection Scale AA
Disabled lives (sex distinct)
RP-2000 Disabled Mortality
Table projected to 2013 using
Projection Scale AA
Level dollars/reestablished
annually
30 years closed
Yes
Level dollars/reestablished
annually
30 years closed
No (as of January 1, 2010)
Amortization of gains and losses:
Method
Period
Open to new members
28
The following calculations for Other Postemployment Benefit (OPEB) Cost, Net OPEB Obligation, and Funded Status of the
plans are based on independent actuarial reports. The Non-Union report was dated January 1, 2015 while the Trust was dated
January 1, 2014.
Fiscal Year 2015
Annual required contributions
Interest on prior year net postemployment benefit obligation
Adjustment to annual required
Contributions
Other postemployment cost
Contribution
Change in net postemployment
benefit obligation
Beginning net postemployment
benefit obligation
Ending net postemployment benefit
obligation
Percentage of postemployment benefit
cost contributed
Fiscal Year 2014
Trust
$ 36,787,050
Non-Union
$ 6,609,938
Trust
$ 36,787,050
Non-Union
$ 10,155,179
4,663,896
2,254,416
4,663,896
1,735,335
(6,601,199)
34,849,747
9,194,420
(3,252,264)
5,612,090
3,078,282
(6,601,199)
34,849,747
8,574,434
(2,412,370)
9,478,144
2,767,380
25,655,327
2,533,808
26,275,313
6,710,764
145,685,418
56,360,394
119,410,105
49,649,630
$171,340,745
$ 58,894,202
$145,685,418
$ 56,360,394
26.38%
54.85%
24.60%
29.20%
OPEB cost and Net OPEB obligations for the last three years are:
Annual
OPEB Cost
Trust
2013
2014
2015
Percentage of
OPEB Funded
Year-End
Net OPEB
Obligation
$ 27,315,686
34,849,747
34,849,747
29.71
24.60
26.38
$ 119,410,105
145,685,418
171,340,744
9,478,144
9,478,144
5,612,090
33.89
29.20
54.85
49,649,630
56,360,394
58,894,202
Non-Union
2013
2014
2015
No assets have been accumulated for the OPEB liability since METRO funds on a pay-as-you-go basis. The schedule of funding
progress as calculated by an independent actuary (in thousands) was:
Valuation
Date
October 1, 2014
OPEB Plan
Trust
October 1, 2014
Non-Union
–
Actuarial
Accrued
Liabilities
$ 409,644
Unfunded
Actuarial
Accrued
Liabilities
(UAAL)
$ 409,644
Funded
Ratio
Percentage
–
–
70,198
70,198
–
Actuarial
Value of
Assets
CLAIMS AND LITIGATION AFFECTING THE AUTHORITY
The Authority is a defendant in various lawsuits and is aware of pending claims arising in the ordinary course of its governmental
and enterprise activities, certain of which seek substantial damages. That litigation includes lawsuits claiming damages that
allege that the Authority caused personal injuries and wrongful deaths; class actions and other lawsuits and claims alleging
discriminatory hiring and promotion practices; various claims from contractors for additional amounts under construction
contracts; and various other liability claims. The status of such litigation ranges from an early discovery stage to various levels of
appeal of judgments both for and against the Authority. The amount of damages is limited in certain cases under the Texas Tort
Claims Act and is subject to appeal. The Authority regularly reviews the potential cost exposure of such cases and does not
anticipate these exposures will interfere with the normal course of business. The Authority intends to defend itself vigorously
against the suits; however, no prediction can be made, as of the date hereof, with respect to the liability of the Authority for such
claims or the final outcome of such suits.
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The Authority is also aware that various claims for inverse condemnation may be asserted against the Authority, the aggregate
amounts of which are unknown and could affect the capital cost of METRORail Expansion.
CAPITAL PROGRAM
DESCRIPTION
The Authority Act requires the Board to adopt an annual budget which specifies major expenditures by type and amount. Each
year the Board approves a rolling five year Capital Program Budget, which is revised annually to include new projects to reflect
changes in priorities, established through input from the Board, staff, and citizens. The Capital Program consists of MetroRail
Expansion (MRE) and the Capital Improvement Program (CIP).
The Authority’s funding of its Capital Program Budget is subject to available funding sources and access to the financial
markets. The Authority does not intend to issue any debt that could be expected to adversely affect the sufficiency of revenues
to pay costs of operation and maintenance of the Authority’s transportation services. Consequently, the Authority intends to
adjust its capital plans as necessary to finance the plans consistent with available resources and operating needs.
The Authority’s Fiscal Year 2016-2020 Capital Program Budget reflects expenditures of $759.6 million, with $142.6 million
budgeted for MRE and $617 million budgeted for CIP.
The table below summarizes the $260.2 million Capital Program Budget for Fiscal Year 2016:
Capital Program
Fiscal Year 2016 Annual Budget
(in millions)
Description
METRORail Expansion Program (MRE)(2)
Fiscal Year 2016
Budget(1)
LRT Lines
Other MRE Projects
$ 79.657
3.551
Total MRE
$ 83.208
Capital Improvement Program (CIP)
State of Good Repair
Bus and Van Acquisitions
State of Good Repair Projects
$ 65.398
57.877
Total State of Good Repair
$ 123.275
Enhancement of Existing Assets &
Accessibility Projects
Service Expansion &
GMP Increment
Total CIP
24.061
29.647
$ 176.983
TOTAL Capital Program
$ 260.191
________________________________
(1)
(2)
Reflects a decrease of $99.3 million or 27.6% over the Fiscal Year 2015 approved budget. This decline is largely due to an $89.5 million or a
52% decrease in METRORail expansion expenditures and a $9.8 million or 5.2% decrease in planned Capital Improvement Program
expenditures. (Fiscal Year 2016 Business Plan & Budget Book)
Funding sources include grant revenues of $28.136 million. An additional $55.072 million will be used from fund balance to cover
remaining expenditures. (Fiscal Year 2016 Business Plan & Budget Book)
The Fiscal Year 2016 budget allots $83.2 million for MRE program expenditures: specifically, $79.7 million for the LRT lines
and $3.6 million for other rail related expenses; $171.6 million for the CIP program: specifically, $123.3 million for State of
Good Repair projects (including bus acquisitions, METROLift van replacements, bus and facilities improvements and support
vehicles), $24.1 million for projects that enhance existing assets and $29.6 million for projects relating to service expansion.
See below for additional detail regarding Fiscal Year 2016 priorities for the MRE and CIP budgets.
30
METRORail Expansion. METRORail Expansion (MRE) expanded METRO’s existing LRT system by adding three
additional lines (North, Southeast, and East End). This program included the design and construction of approximately 15 miles
of LRT, 24 LRT stations, a storage facility at the Southeast line, a service and inspection facility at the East End line, and the
procurement of 39 Light Rail Vehicles (LRV) for the opening-day fleets. The expansion also includes additions to the existing
Main Street Red Line and expansion of the existing Rail Operations Center (ROC). The Harrisburg overpass is currently under
construction and is expected to be completed in Fiscal Year 2017.
Capital Improvement Program. The CIP provides for the capital needs that are outside the scope of the METRORail
Expansion (e.g., bus replacement, facility renovations, procurement of equipment, etc.). The infrastructure supported by the
Fiscal Year 2016 CIP budget includes facilities (maintenance and administrative support), revenue rolling stock (rail cars, buses
and paratransit vans), and bus system infrastructure including transit center improvements and bus shelters. Maintenance of these
assets is critical to ensure a high level of service, reliability and optimized operating costs.
INVESTMENT CONSIDERATIONS
THE PURCHASE OF THE OBLIGATIONS IS SUBJECT TO CERTAIN RISKS. EACH PROSPECTIVE INVESTOR IN
THE OBLIGATIONS IS ENCOURAGED TO READ THIS OFFICIAL STATEMENT IN ITS ENTIRETY, INCLUDING
ALL APPENDICES HERETO. PARTICULAR ATTENTION SHOULD BE GIVEN TO THE FACTORS DESCRIBED
BELOW, WHICH, AMONG OTHERS, COULD AFFECT THE PAYMENT OF PRINCIPAL OF AND INTEREST ON
THE OBLIGATIONS AND WHICH COULD ALSO AFFECT THE MARKET PRICE OF OBLIGATIONS TO AN
EXTENT THAT CANNOT BE DETERMINED.
FORWARD-LOOKING STATEMENTS
The statements contained in this Official Statement, and in other information provided by the Authority, that are not purely
historical, are forward-looking statements, including statements regarding the Authority's expectations, hopes, intentions or
strategies regarding the future. All forward-looking statements included in this Official Statement are based on information
available to the Authority on the date hereof, and the Authority assumes no obligation to update any such forward-looking
statements.
The forward-looking statements herein are necessarily based on various assumptions and estimates that are inherently subject to
numerous risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying
assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers,
business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related
to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict accurately and, therefore, there can be no assurance
that the forward-looking statements included in this Official Statement will prove to be accurate.
FUNDING OF CAPITAL IMPROVEMENT PROGRAM AND OPERATIONS
The Authority’s funding of its capital improvement plan is subject to available funding sources and access to the financial
markets. The amount of debt service the Authority pays will directly affect the amount of the Pledged Revenues available to the
Authority to support its operations, maintenance and capital reinvestment needs. The Authority does not intend to issue any debt
that could be expected to adversely affect the sufficiency of revenues to pay costs of operation and maintenance of the
Authority’s transportation services. Consequently, the Authority intends to adjust its capital plans as necessary to finance the
plans consistent with available resources and operating needs.
RISKS ASSOCIATED WITH FEDERAL FUNDING
The receipt of capital grants from the FTA is not assured and is subject to approval by the FTA, Secretary of Transportation and
Office Management and Budget as well as appropriation by the U.S. Congress, to the allocation and delivery procedures of the
U.S. Department of Transportation (“USDOT”) and the FTA, and to compliance by the Authority with conditions to the grants.
Under the Sequestration Transparency Act of 2012 (“STA”), if Congress fails to enact legislation to reduce the federal deficit by
$1.2 trillion, as required by the Budget Control Act of 2011, the STA will automatically trigger large scale cuts in the federal
budget. The STA went into effect March 1, 2013.
If federal funding for transit programs is reduced, whether as a result of the STA or for other reasons, METRO’s receipt of FTA
grant funding, as well as METRO’s substantial recurring revenue from the FTA, could be delayed, not approved or cancelled.
31
RISKS RELATING TO BUILD AMERICA BONDS
The Authority's Series 2009C Sales Tax Bonds were issued as direct subsidy “Build America Bonds.” The Authority elected to
receive a subsidy payment from United States Treasury equal to 35% of the interest the Authority pays on the Series 2009C Sales
Tax Bonds. In order to receive the subsidy, the Authority is required to make certain filings with the Internal Revenue Service.
If the Authority fails to make the required filings, it will not be eligible to receive the subsidy payments. Additionally, the
proceeds of "Build America Bonds" have a number of limitations on their use. If the Authority were to use the proceeds of the
Series 2009C Sales Tax Bonds for expenditures other than capital expenditures, reasonably required reserve funds, and costs of
issuance, the Series 2009C Sales Tax Bonds would not be eligible for the subsidy payments or as an offset against amounts owed
by the Authority to the federal government. In federal fiscal year 2013, the subsidy was reduced to 8.7%, as a result of
sequestration. In federal fiscal years 2014, 2015 and 2016, the subsidy is reduced to 7.2%, 7.3% and 6.8%, respectively. To
date, in 2015 the Authority realized a reduction of $72,507 in subsidy payments as a result of the sequestration reduction. The
subsidy reduction in fiscal year 2015 equals 0.12% of the Authority’s total fiscal year 2015 combined debt service on Senior Lien
Obligations (including the Obligations but excluding the CP Notes). Subsidy payments could be further reduced, or eliminated,
as a result of a change in law, as a result of sequestration. The Authority has determined that the reduced amount of the subsidy to
be received from the Treasury in relation to the Series 2009C Sales Tax Bonds as a result of Sequestration will not have a
material impact on the financial condition of the Authority or its ability to pay regularly scheduled debt service on Series 2009C
Sales Tax Bonds when and in the amounts due and owing.
LOSS OF TAX EXEMPTION
In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Obligations, the
Authority has covenanted in the Resolution to comply with the applicable requirements of the Internal Revenue Code of 1986, as
amended. The interest on the Obligations could become includable in gross income for purposes of federal income taxation
retroactive to the date of issuance of such Obligations as a result of acts or omissions of the Authority in violation of this or other
covenants in the Resolution applicable to the Obligations. The Obligations are not subject to redemption or any increase in
interest rates in the event of an event of taxability and will remain outstanding until maturity or prior redemption in accordance
with the provisions contained in the Resolution. See “TAX MATTERS.”
GOVERNMENT DEBT CEILING
The federal government has been periodically subject to the risk of a failure to raise the nation’s debt ceiling. This event could
have a material adverse impact on the operations of the Authority. The Authority cannot make any assurances as to the degree to
which a failure to raise the debt ceiling might have on the operations of the Authority.
REGULATIONS AND RESTRICTIONS AFFECTING THE AUTHORITY
The operations of the Authority are affected by a variety of contractual, statutory and regulatory restrictions and limitations. The
Authority also has been required to implement enhanced security measures mandated by the FTA, DHS and Authority
management. It is not possible to predict whether future restrictions or limitations on Authority operations will be imposed,
whether future legislation or regulations will affect anticipated federal funding or collections for the Authority, whether
additional requirements will be funded by the federal government or require funding by the Authority, or whether such
restrictions or legislation or regulations would adversely affect the Pledged Revenues.
THE AUTHORITY HAS LIMITED ABILITY TO INCREASE OR MAINTAIN REVENUE
The Authority has imposed the maximum sales tax authorized by law, and it has no authority to impose property taxes in
proportion to value or to impose other taxes without an election. Unless additional taxes are authorized at an election, the
Authority’s sales and use tax revenue will be limited by changes in the value of taxable transactions within its boundaries, which
are beyond its control. Variations in the amount of receipts can be affected adversely by a number of variables, including
possible (1) changes in State law and administrative practices governing the remittance and allocation of sales and use tax
receipts, (2) changes in the transactions against which the sales and use tax may be imposed, (3) further migration of commerce
to Internet sales that are not taxed or taxes from which cannot be effectively collected, and (4) changes in economic activity
within the Authority’s taxing jurisdiction. Sales and Use tax receipts immediately reflect changes in the economic conditions
within the Authority’s taxing jurisdiction. Depending on the level of variation, such variations may impact the Authority’s ability
to meet its debt service requirements.
The increasing use of the Internet to conduct electronic commerce may affect the collection of the sales and use tax. To the
extent that transactions subject to the sales and use tax imposed by the Authority avoid normal collection and remittance
procedures because they occur over the Internet, the Authority’s receipt of sales and use tax may be adversely affected. At this
time, the Authority is unable to predict how Internet sales may affect the amount of sales and use tax collected in the future. If,
due to increases in Internet or other tax-exempt sales, the Authority’s sales and use tax revenue decreases or increases more
slowly than operating expenses and debt service requirements, the Authority’s ability to pay the Obligations and maintain
operations could be adversely affected to an extent that cannot be predicted.
32
The federal Internet Tax Freedom Act, as amended, imposes a moratorium on taxes on online commerce. The Act was first
approved in 1998 and has been extended twice, most recently in 2007. The amendments to this act extend the moratorium until
November 2015. There can be no assurance that the Act will not be extended past that time.
For additional investment considerations regarding the Authority’s sales and use tax, including seasonality, collection and
delinquency issues, see the section captioned “REVENUES AND INVESTMENTS — SALES AND USE TAX AUTHORITY.”
ADDITIONAL OBLIGATIONS MAY BE INCURRED
Subject to certain financial tests and limitations contained in the Resolution, the Authority may issue Additional Obligations secured
by a pledge of and lien on Pledged Revenues on a parity with the Obligations. Such Additional Obligations may or may not be
entitled to the benefits of the Reserve Fund. The Authority may issue (i) additional bonds approved by voters at a future election or
(ii) bonds or other obligations that do not require voter approval in order to provide financing for components of the Authority’s
capital improvement plan. Under the Resolution, the Authority may also issue non-voted Additional Obligations for other purposes,
including for the purchase of buses, rail cars and other equipment. The debt service requirements for the payment of any such
Additional Obligations may be substantial. The financial tests that must be satisfied to permit the issuance of Additional Obligations
are based on certain assumptions concerning future revenue and debt service requirements. Actual debt service requirements may
exceed assumed requirements, and the excess could be substantial. In addition, the Authority may issue obligations secured by a
junior lien without meeting any of the financial tests and limitations of the Resolution. See “– RIGHTS OF OWNERS ARE LIMITED”
below.
THE AUTHORITY’S UNFUNDED FUTURE EXPENSES FOR PRIOR EMPLOYMENT MAY GROW SUBSTANTIALLY AND ADVERSELY
AFFECT ITS FINANCIAL CONDITION
Pension. For its two defined benefit pension plans, the Authority has cumulatively contributed more than the annual
required contributions. This has resulted in smaller unfunded liabilities than if the Authority had funded exactly the ARC each
year. Under current accounting rules, this has resulted in a “net pension asset” of $20.2 million for TWUPP and $5.8 million for
NUPP. If employee compensation in the years prior to retirement, or employee life expectancies are higher, or future Authority
contributions to or investment returns on plan assets are lower, than those assumed, the combined UAAL for the Authority’s
pension plans would be higher, and the increase could be substantial. In calculating the UAAL for its pension plans, the
Authority assumed a rate of return on plan assets and used a discount rate equal to 8% per annum. For additional information,
see “DEBT AND OTHER OBLIGATIONS – RETIREMENT PLANS.”
OPEB. The Authority has historically funded OPEB on a pay-as-you-go basis. If the Authority begins to prefund for
OPEB, the expected effects include:
•
Substantial reductions in the unfunded liabilities for OPEB. This would be due both to the direct effect of prefunding,
and to the likely use of a higher discount rate for OPEB liabilities.
•
Substantial reductions in the annual required contributions. This would be primarily due to the likely use of a higher
discount rate for OPEB liabilities.
•
In the short run, a larger cash expenditure for OPEB. Any prefunding would be in addition to pay-as-you-go costs. In
the long run, prefunding is expected to reduce budget outlays for OPEB.
The Authority’s UAAL for OPEB is expected to continue to grow significantly, unless the Authority begins to fund for current
accruals of estimated OPEB expenses. If medical costs rise faster than expected or employees retire sooner than expected or live
longer than expected, OPEB costs may grow at a higher rate than projected. Unless the Authority restricts the growth of or
reduces its UAAL for OPEB, it may be required to pay substantial OPEB costs from current revenues in future years, and its
financial condition may be adversely affected, before the Obligations are retired. OPEB costs are also sensitive to changes in
Federal and State regulation of medical care and insurance, and future changes may substantially increase or decrease costs to the
Authority. For additional information, see “DEBT AND OTHER OBLIGATIONS – OTHER POST-EMPLOYMENT BENEFITS.”
PAYMENT OF SHORT-TERM PARITY OBLIGATIONS MAY DEPEND ON MARKET ACCESS AND POSSIBLE MARKET DISRUPTIONS
The Authority may issue up to $175 million of CP Notes if needed to pay for costs of its Capital Improvement plan, including
cost overruns, or to offset delays or a reduction in federal funding. The Authority is obligated to redeem the CP Notes within two
years after expiration of the supporting line of credit or standby letter of credit, as applicable, unless the CP Notes are sooner
refunded. The Authority may also issue parity Additional Obligations that are short-term obligations or subject to mandatory
tender by the owners thereof and purchase or redemption by the Authority, with or without a supporting credit or liquidity
facility.
Given recent history of the financial markets, the Authority cannot provide any assurance that it will have market access to
remarket or refund such obligations, if issued, upon mandatory tender thereof for purchase or at maturity. The Authority may be
unable to remarket or refund such parity obligations at that time due to then-existing market conditions or an unanticipated and
substantial deterioration in the financial condition of the Authority. The Authority is not obligated to fund or maintain any
33
reserve fund for payment of the CP Notes or Additional Obligations, but, if it elects to do so, such Senior Lien Obligations could
be entitled to be paid from one of the Reserve Funds. In addition, Pledged Revenues in excess of monthly accruals of debt
service may be expended for other purposes. Consequently, if the CP Notes or any parity short-term or demand obligations
cannot be remarketed or refunded and if Pledged Revenues and other legally available funds on hand are not sufficient to pay or
redeem such obligations when due and pay principal of and interest on the other parity Senior Lien Obligations, the Reserve
Funds could be depleted, and the Authority may be unable to pay principal of and interest on the Obligations in full when due.
The credit markets experience substantial disruption from time to time. There can be no assurance as to the timing of any
disruption or the extent of any recovery. Disruptions in the credit markets could delay the Authority's ability to finance projects
or result in increased borrowing costs for projects currently under construction or contemplated.
MAINTENANCE COSTS
Successful operation of the Authority’s transit system will require timely and adequate maintenance and replacement of
components. No assurance can be given that sufficient funds will be available to maintain the transit system adequately over the
long term. Any significant deterioration in the transit system may result in increased operating costs, reduced usage and,
accordingly, reduced fare box revenues. Increased maintenance and operating costs may adversely affect the Authority's
financial condition.
OPERATING REVENUES; NO PROPERTY TAXES
The Authority derives operating revenue from transportation fares, which include bus, rail and METROLift fare box receipts plus
ticket sales from special events and the Texas Medical Center Route Guarantee Services. Although the Obligations are payable
from fare revenue as well as sales and use tax revenue, under the Authority Act, the expenses of operating and maintaining the
Authority’s transit system are a first lien on and charge against any revenue from operation or ownership of the system. The
Authority has not historically earned (and does not expect to earn) any net revenue from the operation or ownership of its transit
system. Consequently, prospective investors should not rely on operating revenue as a source of payment of the Obligations.
The Obligations are not payable from funds raised or to be raised by property taxes. The Authority has no authority to levy
property taxes.
THE STATE COMPTROLLER MAY OFFSET CURRENT DISTRIBUTIONS FOR OVERPAYMENTS OR REMIT SALES AND USE TAX
REVENUE LESS FREQUENTLY
The Comptroller periodically identifies underpayments and overpayments of sales and use tax revenues and responds to claims
by taxpayers. In the event that the Comptroller determines that the Authority received an overpayment, the sales and use tax
revenues for future periods are subject to reduction or the Authority may be required to make a repayment in order to reimburse
the overpayment. Under State law, the Authority has no legal standing or ability to intervene or appeal the Comptroller’s
determination. State law requires the Comptroller to remit sales and use tax revenue to the Authority as often as feasible and at
least quarterly. The Comptroller remits sales and use tax revenues to the Authority and other taxing entities on a monthly basis.
While the Authority has no reason to believe that the Comptroller’s current practice will be discontinued, there is no assurance
that the Comptroller will continue to remit sales and use tax revenues to the Authority on a monthly basis. Thus, temporary cash
flow irregularities could occur.
ADVERSE LEGISLATION COULD BE ENACTED
The Texas Legislature and the U.S. Congress may enact legislation that could materially affect the operations, financial condition
and financial prospects of the Authority. In odd-numbered years, the Texas Legislature meets in a regular session lasting
140 days. The most recent session of the Texas Legislature ended on June 1, 2015. When the Texas Legislature is not in regular
session, the Governor of Texas may call one or more special sessions, at his discretion, each lasting no longer than 30 days.
There can be no assurance that the Texas Legislature or the U.S. Congress will not enact tax moratoriums or exemptions or other
legislation that may adversely affect the operations of the Authority or its ability to pay the Obligations.
Tax legislation, administrative actions taken by tax authorities, and court decisions may cause interest on the Obligations to be
subject, directly or indirectly, to federal income taxation or state income taxation, or otherwise prevent the beneficial owners of
the Obligations from realizing the full current benefit of the tax status of such interest. For example, future legislation to resolve
certain federal budgetary issues may significantly reduce the benefit of, or otherwise affect, the exclusion from gross income for
federal income tax purposes of interest on all state and local obligations, including Obligations. In addition, such legislation or
actions (whether currently proposed, proposed in the future or enacted) could affect the market price or marketability of the
Obligations. Prospective purchasers of the Obligations should consult their own tax advisors regarding any pending or proposed
federal or state tax legislation, regulations or litigation, and its impact on their individual situations, as to which Bond Counsel
expresses no opinion.
34
RIGHTS OF OWNERS ARE LIMITED
The Resolution does not establish specific events of default with respect to the Obligations. The Resolution provides no right to
the acceleration of maturity of the Obligations upon the failure of the Authority to observe any covenant under the Resolution. In
addition, under State law, the Authority is immune from a suit for damages from any default by the Authority on the Obligations
or under the Resolution. Even if a judgment against the Authority could be obtained, it could not be enforced by direct levy and
execution against the Authority’s property, which under State law is exempt from forced sale. An owner’s only practical remedy,
if a default occurs, is a mandamus or mandatory injunction proceeding to compel Authority officers to observe or perform any of
their undisputed obligations under the Resolution. The enforcement of any such remedy may be difficult and time consuming,
and an owner of the Obligations could be required to enforce such remedy on a periodic basis. Except for acting as custodian for
the Pledged Revenues until disbursed, the Trustee is not empowered to represent the interests of the owners of the Obligations
upon any failure of the Authority to perform in accordance with the terms of the Resolution, or upon any other condition. The
opinions of Bond Counsel will note that all opinions relative to the enforceability of the Resolution and the Obligations are
qualified with respect to the customary rights of debtors relative to their creditors.
The Authority is authorized by State law to file a petition for the adjustment of its debts under the United States Bankruptcy
Code. The Authority may do so under Chapter 9 of the Bankruptcy Code if it is unable to pay its debts as they become due and it
desires to effect a plan to adjust its debts. If the Authority files a petition for the adjustment of its debts under Chapter 9, owners
of the Obligations would be automatically stayed from taking action to enforce their claims against the Authority during the
pendency of the case, unless permitted by the court; the Authority’s pledge of Pledged Revenues as security for the Obligations
would be ineffective as to revenues collected after the commencement of the case; and with the approval of the court the
Authority could use previously collected Pledged Revenues for purposes other than paying the Obligations if it provides
“adequate protection” to the owners of the relevant Obligations, among other consequences. In a proceeding for the adjustments
of its debts, the Authority could propose, and the court could order, a plan that changes payment terms on the Obligations without
the consent of the owners of the affected Obligations, if the plan is accepted by at least one class of Authority creditors and the
court determines that the plan is in the best interests of the Authority’s creditors and does not discriminate unfairly among, and is
fair and equitable to, each class of creditors whose claims are impaired and have not accepted the plan. For these purposes, a
plan would be deemed accepted by the owners of the Obligations if approved by the owners of two-thirds in amount and a
majority in number of the claims for the Obligations. All descriptions herein of contractual obligations of the Authority on the
Obligations and under the Resolution are subject to these provisions of the Bankruptcy Code.
VERIFICATION OF MATHEMATICAL COMPUTATIONS
The accuracy of the mathematical computations of (i) the adequacy of the maturing principal of and interest earned on the
Federal Securities together with other available funds, if any, held in the Escrow Fund; and (ii) the “yield” on the portfolio of
obligations in the Escrow Fund, and on the Obligations, prepared by the Underwriters or the Financial Advisor, will be verified
by Causey Demgen & Moore P.C., independent certified public accountants (the “Verification Agent”).
These computations will be based upon information and assumptions supplied by the Financial Advisor or the Underwriters on
behalf of the Authority. The Verification Agent has restricted its procedures to recalculating the computations provided by the
Underwriters and has not evaluated or examined the assumptions or information used in the computations.
TAX MATTERS
TAX EXEMPTION
The delivery of the Obligations is subject to the opinion of Bond Counsel to the effect that interest on the Obligations for federal
income tax purposes (1) will be excludable from gross income, as defined in Section 61 of the Internal Revenue Code of 1986, as
amended to the date of such opinion (the “Code”), pursuant to Section 103 of the Code and existing regulations, published
rulings, and court decisions, and (2) will not be included in computing the alternative minimum taxable income of the owners
thereof who are individuals or, except as described below, corporations. Forms of Bond Counsel’s anticipated opinions are
reproduced as APPENDIX C. The statute, regulations, rulings, and court decisions on which such opinion will be based are
subject to change.
Interest on the Obligations owned by a corporation, other than an S corporation, a regulated investment company, a real estate
investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust
(FASIT) will be included in such corporation’s adjusted current earnings for purposes of calculating such corporation’s
alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative
minimum tax imposed by the Code is computed.
In rendering the foregoing opinions, Bond Counsel will rely upon representations and certifications of the Authority made in a
certificate dated the date of initial delivery of the Obligations pertaining to the use, expenditure, and investment of the proceeds
of the Obligations and will assume continuing compliance by the Authority with the provisions of the Resolutions subsequent to
the issuance of the Obligations. The Resolutions contain covenants by the Authority with respect to, among other matters, the
use of the proceeds of the Obligations and the facilities or equipment financed or refinanced therewith by persons other than state
35
or local governmental units, the manner in which the proceeds of the Obligations are to be invested, the periodic calculation and
payment to the United States Treasury of any “arbitrage profits” from the investment of the proceeds, and the reporting of certain
information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the Obligations
to be includable in the gross income of the owners thereof from the date of the issuance of the Obligations.
Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes,
regulations, published rulings and court decisions and the representations and covenants of the Authority described above. No
ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to the matters addressed in the opinion of
Bond Counsel, and Bond Counsel’s opinion is not binding on the IRS. The IRS has an ongoing program of auditing the taxexempt status of the interest on tax-exempt obligations. If an audit of the Obligations is commenced, under current procedures
the IRS is likely to treat the Authority as the “taxpayer,” and the beneficial owners (“Owners”) of the Obligations would have no
right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest of the
Obligations, the Authority may have different or conflicting interests from the Owners of the Obligations. Public awareness of
any future audit of the Obligations could adversely affect the value and liquidity of the Obligations during the pendency of the
audit, regardless of its ultimate outcome.
Except as described above, Bond Counsel will express no other opinion with respect to any federal, state or local tax
consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or
disposition of, the Obligations. Prospective purchasers of the Obligations should be aware that the ownership of tax-exempt
obligations such as the Obligations may result in collateral federal tax consequences to, among others, financial institutions, life
insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United
States, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement
benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who
may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses
allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these
consequences to their particular circumstances.
FUTURE TAX LEGISLATION
Tax legislation, administrative actions taken by tax authorities, and court decisions may cause interest on the Obligations to be
subject, directly or indirectly, to federal income taxation or state income taxation, or otherwise prevent the beneficial owners of
the Obligations from realizing the full current benefit of the tax status of such interest. For example, future legislation to resolve
certain federal budgetary issues may significantly reduce the benefit of, or otherwise affect, the exclusion from gross income for
federal income tax purposes of interest on all state and local obligations, including the Obligations. In addition, such legislation
or actions (whether currently proposed, proposed in the future or enacted) could affect the market price or marketability of the
Obligations. Prospective purchasers of the Obligations should consult their own tax advisors regarding any pending or proposed
federal or state tax legislation, regulations or litigation, and its impact on their individual situations, as to which Bond Counsel
express no opinion.
TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE PREMIUM ON THE OBLIGATIONS
The initial public offering price of certain Obligations (the “Premium Bonds”) may be greater than the amount payable on such
Obligations at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond
(assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount
payable at maturity constitutes premium to the initial purchaser of such Premium Bond. The basis for federal income tax
purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium,
although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such
reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income
tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium that is amortizable each year
by an initial purchaser is determined by using such purchaser’s yield to maturity.
Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable
bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of
owning and disposing of Premium Bonds.
CONTINUING DISCLOSURE OF INFORMATION
In the Resolution, the Authority has made the following agreement for the benefit of the holders and beneficial owners of the
Obligations. The Authority is required to observe the agreement for so long as it remains obligated to advance funds to pay the
Obligations. Under the agreement, the Authority will be obligated to provide certain updated financial information and operating
data annually, and timely notice of specified events, to the Municipal Securities Rulemaking Board (the “MSRB”). Access to
such information will be made available to the public without charge by the MSRB on its Electronic Municipal Market Access
(“EMMA”) website at www.emma.msrb.org.
36
ANNUAL REPORTS
The Authority will provide certain updated financial information and operating data to the MSRB annually. The information to
be updated includes all quantitative financial information and operating data with respect to the Authority of the general type
included in this Official Statement under Tables numbered 1 through 7 and in APPENDIX B.
The Authority may provide updated information in full text or may incorporate by reference certain other publicly available
documents, as permitted by Rule 15c2-12 (the “Rule”) of the United States Securities and Exchange Commission (the “SEC”).
The updated information will include audited financial statements, if the Authority commissions an audit and it is completed by
the required time. If audited financial statements are not available by the required time, the Authority will provide unaudited
financial information and operating data which is customarily prepared by the Authority by the required time, and audited
financial statements when and if such audited financial statements become available. Any such financial statements will be
prepared in accordance with the accounting principles described in APPENDIX B or such other accounting principles as the
Authority may be required to employ from time to time pursuant to state law or regulation.
The Authority’s current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each
year, unless the Authority changes its fiscal year. If the Authority changes its fiscal year, it will notify the MSRB of the change.
CERTAIN EVENT NOTICES
The Authority will notify the MSRB in a timely manner not in excess of ten (10) business days after the occurrence of the event,
of any of the following events with respect to the Obligations, to the extent applicable: (1) principal and interest payment
delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial
difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity
providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final
determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with
respect to the tax status of the Obligations, or other material events affecting the tax status of the Obligations; (7) modifications to
rights of holders of the Obligations, if material; (8) Obligation calls, if material, and tender offers; (9) defeasances; (10) the
release, substitution, or sale of property securing repayment of the Obligations, if material; (11) rating changes; (12) bankruptcy,
insolvency, receivership or similar event of the Authority; (13) the consummation of a merger, consolidation or acquisition
involving the Authority or the sale of all or substantially all of the assets of the Authority other than in the ordinary course of
business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to
any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or name
change of a trustee, if material
In addition, the Authority will provide timely notice to the MSRB of any failure by the Authority to provide information, data, or
financial statements in accordance with its agreement described above under “– ANNUAL REPORTS.
LIMITATIONS AND AMENDMENTS
The Authority has agreed to update information and to provide notices of material events only as described above. The Authority
has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of
operations, condition or prospects or agreed to update any information that is provided, except as described above. The Authority
makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell
Obligations at any future date. The Authority disclaims any contractual or tort liability for damages resulting in whole or in part
from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement. Holders or
beneficial owners of Obligations may seek as their sole remedy a writ of mandamus to compel the Authority to comply with its
agreement. No default by the Authority with respect to its continuing disclosure agreement shall constitute a breach of or default
under the Resolutions for purposes of any other provision of the Resolutions. Nothing in this paragraph is intended or shall act to
disclaim, waive or otherwise limit the duties of the Authority under federal and state securities laws. The Authority’s
undertakings and agreements are subject to appropriation of necessary funds and to applicable legal restrictions.
The Authority may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise
from a change in legal requirements, a change in law or a change in the identity, nature, status or type of operations of the
Authority, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Obligations in the offering
described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of
such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal
amount of the outstanding Obligations consent to the amendment or (b) any person unaffiliated with the Authority (such as
nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and
beneficial owners of the Obligations. The Authority may also amend or repeal the provisions of this continuing disclosure
agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that
such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not prevent an
underwriter from lawfully purchasing or selling Obligations in the primary offering of the Obligations. If the Authority so
amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance
37
with its agreement described above under “– ANNUAL REPORTS” an explanation, in narrative form, of the reasons for the
amendment and of the impact of any change in the type of financial information and operating data so provided.
COMPLIANCE WITH PRIOR UNDERTAKINGS
For the past five years, the Authority has not failed to comply with any previous undertaking in accordance with the Rule.
OTHER INFORMATION
RATINGS
Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services
LLC business (“S&P”) have assigned the following respective municipal bond ratings to the Obligations based on the Authority’s
underlying credit.
Moody’s
Aa2
S&P
AA+
An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect
only the respective views of such organizations and the Authority makes no representation as to the appropriateness of the
ratings. The Authority is not obligated to maintain the current ratings on the Obligations and there is no assurance that such
ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or
both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward
revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Obligations.
Neither the Authority nor the Financial Advisor nor the Underwriters will undertake responsibility to oppose any revision or
withdrawal of such ratings. A securities rating is not a recommendation to buy, sell, or hold securities.
LEGAL INVESTMENTS AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS
Section 1201.041 of the Public Security Procedures Act (Chapter 1201, Texas Government Code) provides that the Obligations
are negotiable instruments, investment securities governed by Chapter 8, Texas Business and Commerce Code, and are legal and
authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of municipalities or other
political subdivisions or public agencies of the State. With respect to investment in the Obligations by municipalities or other
political subdivisions or public agencies of the State, the Public Funds Investment Act, Chapter 2256, Texas Government Code,
requires that the Obligations be assigned a rating of “A” or its equivalent as to investment quality by a national rating agency.
See “OTHER INFORMATION – RATINGS” herein. In addition, various provisions of the Texas Finance Code provide that,
subject to a prudent investor standard, the Obligations are legal investments for state banks, savings banks, trust companies with
capital of one million dollars or more and savings and loan associations. The Obligations are eligible to secure deposits of any
public funds of the State, its agencies and its political subdivisions, and are legal security for those deposits to the extent of their
market value. No review by the Authority has been made of the laws in other states to determine whether the Obligations are
legal investments for various institutions in those states.
LEGAL MATTERS
The Authority will furnish a complete transcript of proceedings incident to the authorization and issuance of the Obligations to
the Underwriters, including the unqualified approving legal opinions of the Attorney General of Texas approving the initial
Obligations and to the effect that the Obligations are valid and legally binding obligations of the Authority, and based upon
examination of such transcript of proceedings, the approving legal opinions of Andrews Kurth LLP, Bond Counsel, including to
the effect that the interest on the Obligations will be excludable from gross income for federal income tax purposes under Section
103(a) of the Code and the alternative minimum tax imposed on individuals, subject to the matters described under “TAX
MATTERS.” The Form of Bond Counsel’s Opinion are attached hereto as APPENDIX C. The legal fees to be paid to Bond
Counsel for services rendered in connection with the issuance of the Obligations is contingent upon the issuance of the
Obligations. Certain matters will be passed upon for the Authority by its General Counsel and its Special Disclosure Counsel,
Escamilla & Poneck, LLP, Houston, Texas. Certain matters will be passed upon for the Underwriters by their Counsel,
Greenberg Traurig, LLP, Houston, Texas.
Bond Counsel and Special Disclosure Counsel are engaged by, and represent only, the Authority. Andrews Kurth LLP and
Escamilla & Poneck, LLP represent the Underwriters from time to time in matters unrelated to the issuance of the Obligations.
The various legal opinions to be delivered concurrently with the delivery of the Obligations express the professional judgment of
the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney
does not become an insurer or guarantor of that expression of professional judgment, of the transaction opined upon, or of the
future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal
dispute that may arise out of the transaction.
38
AUTHENTICITY OF FINANCIAL DATA AND OTHER INFORMATION
The financial data and other information contained herein have been obtained from Authority records, audited financial
statements and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates
contained herein will be realized. All of the summaries of the statutes, documents and resolutions contained in this Official
Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport
to be complete statements of such provisions and reference is made to such documents for further information. Reference is
made to original documents in all respects.
FINANCIAL ADVISOR
Public Financial Management, Inc. is employed as Financial Advisor to the Authority in connection with the issuance of the
Obligations. The Financial Advisor fees for services rendered with respect to the sale of the Obligations are contingent upon the
issuance and delivery of the Obligations. Public Financial Management, Inc., in its capacity as Financial Advisor, does not
assume any responsibility for the information, covenants and representations contained in any of the legal documents with respect
to the federal income tax status of the Obligations, or the possible impact of any present, pending or future actions taken by any
legislative or judicial bodies.
The Financial Advisor to the Authority have provided the following sentence for inclusion in this Official Statement. The
Financial Advisor has reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities
to the Authority and, as applicable, to investors under the federal securities laws as applied to the facts and circumstances of this
transaction, but the Financial Advisor does not guarantee the accuracy or completeness of such information.
UNDERWRITING
Cabrera Capital Markets, LLC, as representative of the Underwriters, has agreed, subject to certain conditions, to purchase the
Obligations at a discount of $685,616.73 from their initial offering prices, as specified inside the cover page.
The Obligations to be offered to the public may be offered and sold to certain dealers (including the respective Underwriters and
other dealers depositing Obligations into investment trusts) at prices lower than the public offering prices of such Obligations,
and such public offering prices may be changed, from time to time, by the Underwriters. The Authority has also agreed to
reimburse the Underwriters for certain expenses in connection with the offering.
The offering of the Obligations by the Underwriters is subject to receipt and acceptance and subject to the Underwriters’ right to
reject any order in whole or in part.
The Obligations are a new issue of securities with no established trading market. The Authority has been advised by the
Underwriters that they intend to make a market in the Obligations but are not obligated to do so and may discontinue marketmaking at any time without notice. No assurance can be given as to the liquidity of the trading market for the Obligations.
The Underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may
include securities trading, commercial and investment banking, financial advisory, investment management, investment research,
principal investment, hedging, financing and brokerage activities. Certain of the Underwriters and their respective affiliates have,
from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the
Authority, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the Underwriters and their respective affiliates may make or hold a
broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments
(which may include bank loans and/or credit default wraps) for their own account and for the accounts of their customers, and
may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may
involve securities and/or instruments of the Authority. The Underwriters and their respective affiliates may also make investment
recommendations and/or publish or express independent research views in respect of such securities or instruments and may at
any time hold or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Citigroup Global Markets Inc., an underwriter of the Obligations, has entered into a retail distribution agreement with each of
TMC Bonds L.L.C. (“TMC”) and UBS Financial Services Inc. (“UBSFS”). Under these distribution agreements, Citigroup
Global Markets Inc. may distribute municipal securities to retail investors through the financial advisor network of UBSFS and
the electronic primary offering platform of TMC. As part of this arrangement, Citigroup Global Markets Inc. may compensate
TMC (and TMC may compensate its electronic platform member firms) and UBSFS for their selling efforts with respect to the
Obligations.
INDEPENDENT AUDITORS
The Authority’s financial statements, as of and for the year ending September 30, 2015, included in this Official Statement in
APPENDIX B, have been audited by KPMG LLP, independent auditors, as stated in their report appearing herein, which is based
39
on their audit and the reports of other auditors. The report of KPMG LLP includes references to the introduction and statistical
sections of the Authority’s Comprehensive Annual Financial Report (“CAFR”) for the year ending September 30, 2014, which
are not included in APPENDIX B. A complete copy of the CAFR is available from the Authority upon request.
KPMG LLP has not been engaged to perform and has not performed, since the date of its report included in APPENDIX B, any
procedures on the financial statements addressed in that report. KPMG LLP also has not performed any procedures relating to
this Official Statement.
GENERAL INFORMATION
This Official Statement does not create a contract between or among the Authority, the Underwriters and the purchasers of the
Obligations. The Resolutions approve the form and content of this Official Statement, and any addenda, supplement or
amendment thereto, and authorize its further use in the reoffering of the Obligations by the Underwriters.
This Official Statement has been approved by the Authority.
40
SCHEDULE I
SCHEDULE OF REFUNDED BONDS
Maturity
11/1/2021
11/1/2022
11/1/2023
11/1/2024
11/1/2025
11/1/2026
11/1/2027
11/1/2028
11/1/2029
Sales and Use Tax Bonds, Series 2009A
Interest Rate
Par Amount
Call Date
5.000%
4,870,000
11/1/2019
5.000%
5,120,000
11/1/2019
5.000%
5,385,000
11/1/2019
5.000%
5,660,000
11/1/2019
5.000%
5,950,000
11/1/2019
5.000%
6,255,000
11/1/2019
5.000%
6,575,000
11/1/2019
5.000%
6,915,000
11/1/2019
5.000%
7,270,000
11/1/2019
Call Price
100%
100%
100%
100%
100%
100%
100%
100%
100%
Maturity
11/1/2024
11/1/2025
11/1/2026
11/1/2027
11/1/2028
11/1/2029
Sales and Use Tax Bonds, Series 2011A
Interest Rate
Par Amount
Call Date
5.000%
12,015,000
11/1/2021
5.000%
12,630,000
11/1/2021
5.000%
13,280,000
11/1/2021
5.000%
13,960,000
11/1/2021
5.000%
14,670,000
11/1/2021
5.000%
15,425,000
11/1/2021
Call Price
100%
100%
100%
100%
100%
100%
SCHEDULE OF REFUNDED CONTRACTUAL OBLIGATIONS
Maturity
11/1/2020
11/1/2021
11/1/2023
11/1/2024
11/1/2025
11/1/2026
11/1/2027
11/1/2028
11/1/2029
***
11/1/2033
Sales and Use Tax Contractual Obligations, Series 2009B
Interest Rate
Par Amount
Call Date
5.000%
1,570,000
11/1/2019
5.000%
1,650,000
11/1/2019
4.000%
1,795,000
11/1/2019
4.250%
1,870,000
11/1/2019
4.250%
1,950,000
11/1/2019
5.000%
2,045,000
11/1/2019
4.500%
2,145,000
11/1/2019
5.000%
2,250,000
11/1/2019
5.000%
2,365,000
11/1/2019
***
***
***
5.000%
10,725,000
11/1/2019
S-1
Call Price
100%
100%
100%
100%
100%
100%
100%
100%
100%
***
100%
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APPENDIX A
SELECTED PROVISIONS OF THE RESOLUTION
Presented below are excerpts of certain provisions contained in the Resolution. Such excerpts are not to be considered full
statements pertaining thereto. Reference is directed to the Resolution for the complete text thereof. Copies of such documents
are available upon request from the Authority or the Authority’s Bond Counsel.
1.
DEFINITIONS. THROUGHOUT THIS OFFICIAL STATEMENT THE FOLLOWING TERMS AND EXPRESSIONS AS
USED HEREIN SHALL HAVE THE MEANINGS SET FORTH BELOW:
“Acts” means, together, Chapters 1201, 1207 and 1371, Texas Government Code, as amended, and Sections 451.352
and 451.359, Texas Transportation Code, as amended.
“Additional Obligations” means any bonds, notes or other debt obligations (including capital lease obligations and
obligations to make deferred payments for goods and services in furtherance of METRO Solutions Phase 2, which deferred
payments have been assigned to a third party and used to make payments to owners of public securities) which the Authority
reserves the right to issue or incur in Section 33 of this Resolution, which are secured by a senior lien on Pledged Revenues.
“Adjustable Rate Obligations” means any Senior Lien Obligations that initially bear interest at an adjustable or variable
rate of interest, including Adjustable Rate Obligations which may be, but have not yet been, converted to Senior Lien Obligations
bearing a fixed rate of interest.
“Attorney General” means the Attorney General of Texas.
“Authority” means the Metropolitan Transit Authority of Harris County, Texas.
“Authority Act” has the meaning provided in the recitals hereto.
“Authorized Representative” means the Chair of the Board or, in the event of his or her inaccessibility or incapacity,
the President and Chief Executive Officer of the Authority or, in the event of his or her inaccessibility or capacity, the Vice Chair
of the Board or, in the event of his or her inaccessibility or incapacity, the Chief Financial Officer and, except for purposes of
executing an Officer’s Pricing Certificate, their designees. The execution of a document by any such officer as an Authorized
Representative shall conclusively evidence the inaccessibility or incapacity of any other such officer with superior authority.
“BABs” means any Series 2009 Bonds which the Authority has designated as a “Build America Bond” pursuant to
Section 54AA of the Code.
“Board” means the Board of Directors of the Authority.
“Bond Insurance Policy” means the financial guaranty insurance policy or policies, if any, issued by the Bond Insurer
that guarantees the scheduled payment of principal of and interest on the Bonds when due, as provided in the Officer’s Pricing
Certificate.
“Bond Insurer” means the provider of a Bond Insurance Policy, if any, as provided in the Officer’s Pricing Certificate.
“Bond Purchase Agreement” means the purchase agreement between the Authority and the Underwriters relating to the
Bonds.
“Bonds” means the Authority’s Sales and Use Tax Refunding Bonds, Series 2016A.
“Bullet Obligation” means all Senior Lien Obligations of a series maturing in any single year in a principal amount
that totals at least 15% of the initial aggregate principal amount of the entire series of such Senior Lien Obligations.
“Business Day” means any day other than a Saturday, a Sunday, or another day on which commercial banks generally
located in the State of New York or the State of Texas are authorized or required by law or executive order to close.
“Code” means the Internal Revenue Code of 1986, as amended to the date of delivery of the Bonds.
“Comptroller” means the Comptroller of Public Accounts of the State of Texas.
“Construction Fund” means that certain fund established pursuant to and used in accordance with Section 27 of the
Resolution.
A-1
“Contractual Obligations” means the Sales and Use Tax Refunding Contractual Obligations, Series 2016B of the
Authority authorized to be issued in the maximum aggregate principal amount of $45,000,000 by resolution of the Board adopted
of even date herewith.
“CP Notes” means the Sales and Use Tax Commercial Paper Notes, Series A of the Authority currently authorized to
be issued in the maximum aggregate principal amount of $175,000,000.
“Credit Agreement” means a credit agreement, as such term is defined in Chapter 1371, Texas Government Code: as
amended, including but not limited to a loan agreement, revolving credit agreement, agreement establishing a line of credit, letter
of credit, reimbursement agreement, insurance contract, commitment to purchase obligations, purchase or sale agreement, interest
rate swap, cap, floor, collar, or similar agreement, or other commitment or agreement authorized by the Board in anticipation of,
related to, or in connection with the authorization, issuance, sale, resale, security, exchange, payment, purchase, remarketing, or
redemption of some or all of the Authority’s obligations (as such term is defined in Chapter 1371) or interest on obligations, or
both, or as otherwise authorized by such chapter.
“Credit Provider” means a party to a Credit Agreement other than the Authority.
“Debt Service Requirements” means, with respect to any Senior Lien Obligations for any period of time for which such
calculation applies, an amount equal to the sum of the following:
a.
INTEREST: CURRENT INTEREST SCHEDULED TO BE PAID DURING SUCH PERIOD ON OR UNDER SUCH SENIOR
LIEN OBLIGATIONS; PLUS
b.
PRINCIPAL: THAT PORTION OF THE PRINCIPAL OF, OR COMPOUNDED INTEREST ON, SUCH SENIOR LIEN
OBLIGATIONS PAYABLE DURING SUCH PERIOD (EITHER AT MATURITY OR BY REASON OF SCHEDULED
MANDATORY REDEMPTIONS OR UPON DEMAND, BUT AFTER TAKING INTO ACCOUNT ALL PRIOR OPTIONAL AND
MANDATORY REDEMPTIONS OF SENIOR LIEN OBLIGATIONS); PROVIDED, HOWEVER, THAT, IN MAKING SUCH
CALCULATION, THE FOLLOWING RULES SHALL APPLY:
i.
Refinancing Assumption: For any series of Senior Lien Obligations issued as Short Term Obligations,
Demand Obligations, or Bullet Obligations, Debt Service Requirements may be computed on the
assumption that the principal amount shall be refinanced at maturity (or an earlier date on which
principal thereof is payable on demand) by fixed rate Senior Lien Obligations bearing interest at (a) if
the interest on such obligations is excludable from gross income of the owners thereof for federal
income tax purposes, a Revenue Bond Index published by the Bond Buyer or any successor
publication or (b) if the interest on such obligations is not excludable from gross income of the owners
thereof for federal income tax purposes, the yield on the Treasury Constant Maturity Series as
reported in Federal Reserve Statistical Release H. 15, Selected Interest Rates of the Board of
Governors of the Federal Reserve System, or any successor publication, as certified by the Authority’s
financial advisor, in both cases (a) and (b) within 30 days prior to the date of such calculation (or the
gross fixed or capped rate payable by the Authority under an interest rate swap or cap agreement that
substantially hedges the rate of interest on such Senior Lien Obligations) and maturing in substantially
equal annual payments of principal and interest over a term of 25 years (or such longer period as a
nationally recognized financial advisor or investment banker certifies is then reasonably attainable) or
less; and
ii.
Interest Rate Assumption: For any series of Senior Lien Obligations issued as Adjustable Rate
Obligations that are not Short Term Obligations, Demand Obligations, or Bullet Obligations, Debt
Service Requirements may be computed on the assumption that such Senior Lien Obligations will
bear interest at (a) to the extent the rate of interest thereon is effectively hedged by an interest rate
swap or cap agreement, the gross fixed or capped rate payable by the Authority under such agreement,
and (b) otherwise the greater of (i) the average rate on such Senior Lien Obligations over a 12-month
period ending within two months of the date of such calculation and (ii) a rate estimated by the
Authority’s financial advisor in a written certificate delivered to the Authority at the time of such
calculation to be the average rate of interest such Senior Lien Obligations would bear if issued as
long-term bonds, in the same principal amount and with the same priority of lien, bearing interest at
fixed rates based on the average life of the Adjustable Rate Obligations; and
iii.
Effect of Federal Subsidies: For any series of Senior Lien Obligations for which the Authority is
entitled to receive payments from the federal or state government in such period on account of, and
substantially contemporaneously with, interest paid on such Senior Lien Obligations, the amount to be
received in such period may be deducted from such interest in computing Debt Service Requirements.
A-2
Debt Service Requirements shall be calculated with the assumption that no Senior Lien Obligations Outstanding at the
time of calculation will cease to be Outstanding except by reason of the payment of scheduled principal maturities or scheduled
mandatory redemptions, except as provided above.
“Demand Obligation” means any Senior Lien Obligation the principal of which is payable by the Authority on demand
of the owner or holder thereof.
“DTC” means The Depository Trust Company, New York, New York, or any successor securities depository.
“DTC Participant” means brokers and dealers, banks, trust companies, clearing corporations and certain other
organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities
transactions among DTC Participants.
“Escrow Agent” means Wells Fargo Bank, N.A., and its successors in such capacity.
“Escrow Agreement” means the agreement between the Authority and the Escrow Agent for the Refunded Bonds.
“Fiscal Year” means the Fiscal Year of the Authority, currently beginning on October 1 of any year and ending on
September 30 of the next succeeding year, but which may be changed by the Board.
“Interest and Sinking Fund” means the fund confirmed by the Authority pursuant to Section 26 of the Resolution.
“Interest Payment Date,” means May 1, 2016, and each November 1 and May 1 thereafter until maturity or prior
redemption, unless otherwise provided in the Officer’s Pricing Certificate.
“Junior Lien Obligations” means any one or more of those series of bonds, notes or other debt obligations (including
capital lease obligations and obligations to make deferred payments for goods and services in furtherance of METRO Solutions
Phase 2, which deferred payments have been assigned to a third party and used to make payments to owners of public securities)
or Credit Agreements that are secured, with or without other security, by a lien on Pledged Revenues that is junior and
subordinate to the lien thereon securing the Senior Lien Obligations but is senior and superior to the lien thereon securing the
Subordinate Lien Obligations.
“Maximum Annual Debt Service Requirements” for any Senior Lien Obligations means the maximum Debt Service
Requirements for such Senior Lien Obligations calculated to occur in any future Fiscal Year or the then current Fiscal Year.
“Officer’s Pricing Certificate” means a certificate to be signed by the Authorized Representative and containing the
information regarding the Bonds specified in the Officer’s Pricing Certificate.
“Outstanding” means, when used with respect to Senior Lien Obligations, as of the date of determination, all Senior
Lien Obligations theretofore delivered under the Resolution or other authorizing resolution, except:
a.
CANCELLED OBLIGATIONS: SENIOR LIEN OBLIGATIONS THERETOFORE CANCELED AND DELIVERED TO THE
AUTHORITY OR DELIVERED TO THE PAYING AGENT/REGISTRAR FOR CANCELLATION;
b.
TRANSFERRED AND EXCHANGED OBLIGATIONS: SENIOR LIEN OBLIGATIONS UPON TRANSFER OF OR IN
EXCHANGE FOR AND IN LIEU OF WHICH OTHER SENIOR LIEN OBLIGATIONS HAVE BEEN DELIVERED; AND
c.
DEFEASED OBLIGATIONS: SENIOR LIEN OBLIGATIONS WHICH HAVE BEEN RELEASED, DISCHARGED OR
EXTINGUISHED IN ACCORDANCE WITH THE TERMS THEREOF, OR DUE TO THE DEPOSIT OF CASH OR
INVESTMENTS WITH THE PAYING AGENT THEREFOR OR AN ESCROW AGENT, THE OBLIGATION OF THE
AUTHORITY TO PAY THE SAME IS PAYABLE SOLELY FROM AND TO THE EXTENT OF SUCH CASH AND
INVESTMENTS AND INCOME THEREFROM.
“Owner” or “Registered Owner” means any person who shall be the registered owner of any outstanding Bond.
“Paying Agent/Registrar” means the entity identified as such in the Paying Agent/Registrar Agreement.
“Paying Agent/Registrar Agreement” means the paying agent/registrar agreement relating to the Bonds.
“Person” means any individual, corporation, partnership, joint venture, unincorporated association, association, trust,
joint stock company, unincorporated organization, government or government agency or other legal entity capable of carrying on
a trade or business.
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“Pledged Revenues” means seventy-five percent (75%) of the revenues collected and received by the Trustee or the
Authority from its levy of the Sales and Use Tax, plus any investment income earned on any moneys in the Revenue Fund, the
Interest and Sinking Fund and any reserve fund for Senior Lien Obligations, including the Reserve Fund, which are hereby
pledged as security for payment of the Bonds and any other Senior Lien Obligations and all other funds or revenues, if any,
including additional Sales and Use Tax revenues, which the Authority pledges hereafter as security for payment of the Senior
Lien Obligations.
“Record Date” for interest due on the Bonds on any Interest Payment Date means the fifteenth day of the month next
preceding such Interest Payment Date whether or not such day is a Business Day.
“Proposition” has the meaning provided in the recitals hereto.
“Register” means the books of registration kept by the Paying Agent/Registrar in which are maintained the names and
addresses of, and the principal amounts of the Bonds of each maturity registered to, each Owner.
“Reserve Fund” means the shared reserve fund for the Reserve Fund Participants confirmed by the Authority pursuant
to Section 24 of the Resolution.
“Reserve Fund Participant” means each of the Series 2009 Bonds, the Series 2011 Bonds, and Additional Obligations
which the Authority designates at or before the time of issue as Reserve Fund Participants to share the Reserve Fund. All such
issues designated as a Reserve Fund Participant shall be entitled to a parity claim on the funds deposited in the shared Reserve
Fund, as and to the extent provided in Section 28 of the Resolution. None of the Contractual Obligations, the Series 2015
Contractual Obligations, the Series 2014 Contractual Obligations the Series 2011 Contractual Obligations, the Series 2009
Contractual Obligations, the Bonds, or the Series 2015 Bonds are Reserve Fund Participants.
“Reserve Fund Requirement” means an amount equal to 50% of the Maximum Annual Debt Service Requirements on
the Reserve Fund Participants. The reserve fund requirement, if any, for Additional Obligations which are not Reserve Fund
Participants shall be provided in the order or resolution authorizing their issuance.
“Reserve Fund Surety Policy” shall mean any reserve fund surety policy or bond, letter of credit or other instrument,
however denominated, provided by a qualifying financial institution as described in the following sentence, pursuant to which the
Trustee or Paying Agent may draw on such Reserve Fund Surety Policy to enable the Reserve Fund to make a required transfer to
the Interest and Sinking Fund. Reserve Fund Surety Policies may only be acquired from a financial institution with a long term
credit rating in one of the two highest generic rating categories from at least two nationally recognized rating services and having
a credit rating or claims paying ability such that the purchase of such surety policy will not cause any rating agency then rating
any Senior Lien Obligations to withdraw or lower its rating.
“Resolution” as used herein and in the Bonds means the Resolution authorizing the Bonds.
“Revenue Fund” means the fund confirmed by the Authority pursuant to Section 24 of the Resolution.
“Sales and Use Tax” means the tax levied by the Authority pursuant to the Authority Act, orders of the Authority’s
Board and an election held within the Authority on August 12, 1978. Under the authority of the Authority Act and pursuant to
such resolutions, the rate of such tax is equal to 1% of the receipts from the sale at retail or on the sale price or the lease or rental
price on the storage, use or other consumption of all taxable items within the boundaries of the Authority.
“Senior Credit Agreement” means any Credit Agreement to the extent the obligations of the Authority thereunder are
Senior Lien Obligations.
“Senior Lien Obligations” means the Series 2009 Bonds, the Series 2011 Bonds, the Series 2015 Bonds, the Bonds, the
Series 2009 Contractual Obligations, the Series 2010 Contractual Obligations, the Series 2011 Contractual Obligations, the Series
2014 Contractual Obligations, the Series 2015 Contractual Obligations, the Contractual Obligations, the CP Notes, any
Additional Obligations, and any Senior Credit Agreements.
“Series 2009 Bonds” means the Authority’s Sales and Use Tax Bonds, Series 2009A and the Authority’s Sales and Use
Tax Bonds, Taxable Series 2009C (Direct-Subsidy Build America Bonds), each previously issued as Senior Lien Obligations.
“Series 2009 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series
2009B, previously issued as Senior Lien Obligations.
“Series 2010 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series
2010A, previously issued as Senior Lien Obligations.
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“Series 2011 Bonds” means the Authority’s Sales and Use Tax Bonds, Series 2011A, previously issued as Senior Lien
Obligations.
“Series 2011 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series
2011B, previously issued as Senior Lien Obligations.
“Series 2014 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series 2014,
previously issued as Senior Lien Obligations.
“Series 2015 Bonds” means the Authority’s Sales and Use Tax Bonds, Series 2015A, previously issues as Senior Lien
Obligations.
“Series 2015 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series
2015B, previously issued as Senior Lien Obligations.
“Series 2016 Contractual Obligations” means the Authority’s Sales and Use Tax Refunding Contractual Obligations,
Series 2016B, concurrently issued with the Bonds as Senior Lien Obligations.
“Short Term Obligations” means each series of bonds, notes and other debt obligations issued pursuant to a commercial
paper or other similar financing program, the payment of principal of which is scheduled to be payable within one year from the
date of issuance and is contemplated at the time of issuance to be refinanced through the issuance of Additional Obligations.
“Subordinate Lien Obligations” means any one or more of any series of bonds, notes or other obligations (including
lease obligations and obligations to make deferred payments for goods and services in furtherance of METRO Solutions Phase 2
and which have been assigned to a third party and used by such third party to make payments to owners of public securities) or
Credit Agreements secured, with or without other security, by a lien on Pledged Revenues that is junior and subordinate to the
lien thereon of the Senior Lien Obligations and the Junior Lien Obligations.
“Trustee” means Wells Fargo Bank, N.A., as the trustee under the Resolution and any successor to or replacement of
such trustee appointed to serve in such capacity in accordance with the Resolution.
“Underwriters” means the entities defined as such in the Bond Purchase Agreement.
22.
Pledges and Sources of Payment; Tax Levy; Other Security.
(a)
Pledge of Pledge Revenues. The Authority has heretofore transferred, set over and assigned, and does hereby
again TRANSFER, SET OVER and ASSIGN, to the Trustee all of the Pledged Revenues, in trust, in order to provide for the
payment of the principal of, interest on, and other payment obligations under the Senior Lien Obligations, Junior Lien
Obligations and Subordinate Lien Obligations and all expenses of paying the same, subject to paragraph (c) below and to provide
for the disposition of the remaining Pledged Revenues in accordance with the Resolution. In order to facilitate the transfer made
in the foregoing sentence, the Authority has heretofore appointed and does hereby confirm its irrevocable appointment of the
Trustee as its lawful agent and attorney-in-fact for the purpose of (i) performing those duties of its treasurer which consist of
receiving the Pledged Revenues from the Comptroller pursuant to the Act and other applicable law and (ii) taking such steps as
may be necessary, if any, to perfect and maintain the liens granted hereunder. The Pledged Revenues shall be set aside for and
are hereby irrevocably pledged to the payment of the Senior Lien Obligations, including the Series 2009 Bonds, the Series 2011
Bonds, the Series 2015 Bonds, the Bonds, the Series 2009 Contractual Obligations, the Series 2010 Contractual Obligations, the
Series 2011 Contractual Obligations, the Series 2014 Contractual Obligations, the Series 2015 Contractual Obligations, the
Contractual Obligations, any Additional Obligations, any Senior Credit Agreements, any Junior Lien Obligations and any
Subordinate Lien Obligations.
(b)
Parity Senior Lien Obligations. The Senior Lien Obligations may be payable from all legally available funds
of the Authority and shall be equally and ratably secured by (i) a senior lien on and pledge of the Pledged Revenues, as collected
and received by the Authority or the Trustee, which pledge and lien is expressly made senior to the pledge of and lien on Pledged
Revenues which the Authority has granted or may grant to secure the Junior Lien Obligations and the Subordinate Lien
Obligations and (ii) to the extent such Senior Lien Obligations are Reserve Fund Participants, the Reserve Fund.
(c)
Deposit of Pledged Revenues. The Authority shall, by appropriate notice, direction, request or other legal
method, cause the Comptroller to pay all Pledged Revenues (or, if required by the Comptroller, all Sales and Use Tax collections)
directly to the Trustee for the account of the Revenue Fund. If the Comptroller shall refuse or shall not be legally obligated to
make transfers in accordance with such notice, direction or request, then the Authority shall itself cause the Pledged Revenues to
be transferred to the Trustee in their entirety immediately upon receipt thereof by the Authority or by others for its account
wherever located. If all Sales and Use Tax collections are paid to the Trustee by the Comptroller, then the Trustee shall promptly
remit all such payment that is not Pledged Revenues to the Authority. All Pledged Revenues received by the Trustee shall be
deposited in the Revenue Fund and applied in accordance with the Resolution.
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(d)
Limitation on Security for Termination Payments. The lien on and pledge of Pledged Revenues granted by
the Resolution shall not secure payment of any termination payment under an interest rate management agreement; provided,
however, that nothing in the Resolution shall prevent the Authority from granting a junior or subordinate lien on and pledge of
the Pledged Revenues for such purpose.
23.
Levy of Sales and Uses Tax; Covenant to Levy Sales and Use Tax. The orders levying the Authority’s
Sales and Use Tax previously adopted by the Board are hereby approved, ratified and readopted in full, and the Resolution shall
be cumulative of such orders.
24.
Special Funds. The Authority hereby recognizes and confirms the prior establishment of (a) the Revenue
Fund, which Fund shall be maintained with the Trustee and shall be kept separate and apart from all other funds and accounts of
the Authority (b) the Interest and Sinking Fund, which shall be maintained as a separate fund with the Trustee, which shall hold
such Fund in trust for the registered owners of the Senior Lien Obligations, and (c) the Reserve Fund, which shall be maintained
as a separate fund with the Trustee, which shall hold such Fund in trust for the registered owners of the Reserve Fund
Participants. All of the foregoing Funds shall be used solely as herein provided so long as any Senior Lien Obligation remains
Outstanding.
The Authority or the Trustee may create accounts and subaccounts within any Fund created by the Resolution when, in
the judgment of the Authority or the Trustee, the creation of such accounts or subaccounts will enable the Authority or the
Trustee to better administer the Funds.
25.
Flow of Funds. The Trustee shall deposit the portion of the Sales and Use Tax payment that constitutes
Pledged Revenues into the Revenue Fund promptly after receipt. Immediately upon such deposit and upon each deposit to the
Revenue Fund thereafter, the Trustee shall apply moneys from time to time on deposit to the credit of the Revenue Fund in the
following order of priority:
(a)
First, to make all deposits into the Interest and Sinking Fund as provided herein and, if the Bonds are ratably
secured thereby, in any other interest and sinking fund provided in any order or resolution authorizing the issuance of any other
Senior Lien Obligations;
(b)
Second, to make all deposits into the Reserve Fund as provided herein and in any other reserve fund provided
in any order or resolution authorizing the issuance of any Senior Lien Obligations other than Reserve Fund Participants, provided
that on any date on which there is a deficiency in the Reserve Fund, the Trustee shall not apply any moneys to any other such
fund in an amount greater than that required to produce a balance therein equal to 50% of the Maximum Annual Debt Service
Requirements on the Senior Lien Obligations payable from such other reserve fund ratably over a 36-month period from the
original date of any deficiency therein unless an additional deposit to the Reserve Fund is made to cure such deficiency in the
Reserve Fund at the same rate;
(c)
Third, to make all other deposits not made pursuant to clause (ii) above into any reserve fund provided in any
order or resolution authorizing the issuance of any Senior Lien Obligations;
(d)
Fourth, to make all other deposits required by any order or resolution authorizing the issuance of any Senior
Lien Obligations and any related agreement or Credit Agreement;
(e)
Fifth, to make all deposits required by any order or resolution authorizing the issuance of any Junior Lien
Obligations (a copy of which shall be provided by the Authority to the Trustee on or before the date of issuance of such Junior
Lien Obligations);
(f)
Sixth, to make all deposits required by any order or resolution authorizing the issuance of any Subordinate
Lien Obligations (a copy of which shall be provided by the Authority to the Trustee on or before the date of issuance of such
Subordinate Lien Obligations); and
(g)
Seventh, to the Authority for any lawful purpose.
In case such moneys on deposit in the Revenue Fund shall at any time be insufficient to make in full all deposits and
transfers then due and unpaid as provided above then such deposits and transfers shall be made from such moneys in the priority
set out above, but ratably according to the aggregate amount within each priority to be deposited and without preference within a
priority.
26.
Revenue Fund and Interest and Sinking Fund. Moneys from time to time on deposit to the credit of the
Revenue Fund shall be applied by the Trustee as follows:
(a)
Transfers to Interest and Sinking Fund. Subject to subsections (b) and (c) below, for so long as any Bonds
remain Outstanding, the Trustee shall transfer from the Revenue Fund to the Interest and Sinking Fund on each date on which
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funds are deposited to the Revenue Fund such amounts which, when added to other amounts in the Interest and Sinking Fund,
will provide for the accumulation, in substantially equal monthly installments, of amounts sufficient to pay (i) the interest
scheduled to become due on all Outstanding Senior Lien Obligations on the next succeeding interest payment date (other than
interest scheduled to become due but anticipated to be paid with the proceeds of Senior Lien Obligations), (ii) the principal of all
Outstanding Senior Lien Obligations scheduled to mature on the next succeeding principal payment date (other than maturing
principal anticipated to be paid with the proceeds of Senior Lien Obligations), (iii) payments due and payable to Credit Providers
on Senior Credit Agreements on ensuing payment dates; and (iv) the redemption price of all Outstanding Senior Lien Obligations
called or scheduled for redemption on the next redemption date, plus all fees, charges and other amounts payable to any Paying
Agent/Registrar, market agent, broker/dealer, remarketing agent or Credit Provider in respect of Senior Lien Obligation; provided
that in all cases the Trustee shall transfer an amount sufficient to ensure that the Interest and Sinking Fund has adequate funds on
deposit to make all required principal, interest, and other payments on Senior Lien Obligations through the immediately
succeeding month, assuming accrual of interest at the maximum rate for any period for which the rate has not been fixed and
payment thereof on the last day of such succeeding month.
(b)
Limitation on Use of Capitalized Interest. Proceeds of any issue of Senior Lien Obligations on deposit in the
Interest and Sinking Fund shall be available to pay interest only on such Senior Lien Obligations and shall be credited against the
transfer requirements described in subsection (a)(i) above only for such issue of Senior Lien Obligations.
(c)
BABs Subsidies. The refundable credit received pursuant to Section 6431 of the Code in respect of the
Series 2009 Bonds designated Series 2009C shall be deposited directly into the Interest and Sinking Fund upon receipt and shall
be used solely for the purposes of paying interest on the Series 2009 Bonds designated Series 2009C while they remain
Outstanding. In determining the amount to be transferred to the Interest and Sinking Fund, no balance therein attributable to the
Series 2009 Bonds designated Series 2009C shall be credited against the principal, interest or other payment requirements on any
other Senior Lien Obligations.
(d)
Suspension of Payments. Whenever the total amount on deposit to the credit of the Interest and Sinking Fund
shall be equal to the sum of the aggregate principal amount of all Outstanding Senior Lien Obligations plus the aggregate amount
of all interest accrued and to accrue thereon and all bank charges and other costs and expenses related to the payment thereof, no
further payments need be made into such Funds, and the Senior Lien Obligations shall not be regarded as being Outstanding
except for the purpose of being paid with the moneys on deposit in such Funds.
(e)
Application of Interest and Sinking Fund. Monies deposited to the credit of the Interest and Sinking Fund
shall be used solely for the purpose of paying the principal of and interest and other payments on the Outstanding Senior Lien
Obligations, plus all bank charges, fees and expenses of the Trustee and paying agents and registrars and Credit Providers, and
other costs and expenses, relating to such payment. On or before each due date for the payment of principal and/or interest or
other amounts on Senior Lien Obligations, the Trustee shall pay (or transfer to the applicable paying agent for the payment of)
the principal of and interest and other amounts payable on the Senior Lien Obligations on such date, together with an amount
equal to all bank charges, fees and expenses of the Trustee and paying agents and registrars and Credit Providers and other costs
and expenses relating to such payment; provided that, if the balance of the Interest and Sinking Fund is insufficient on any such
date to pay such principal, interest and other amounts then due in full, then the Trustee shall apply all available funds therein to
pay (or transfer to the applicable paying agents for the payment of) such principal, interest, and other amounts ratably, in
proportion to the amounts then due, without any preference or priority of any Senior Lien Obligation over any other Senior Lien
Obligations. Any moneys remaining in the Interest and Sinking Fund after all Senior Lien Obligations are no longer Outstanding
shall be transferred to the Revenue Fund.
(f)
Payment of the Bonds: The Trustee shall pay, out of the Interest and Sinking Fund, to the Paying Agent in no
event later than each applicable principal payment date and Interest Payment Date for any Outstanding Bonds, an amount (as
determined by the Paying Agent) sufficient for the Paying Agent to pay principal of and interest on the Outstanding Bonds due
on such dates (and to be paid by such Paying Agent).
27.
Construction Fund. The Authority does not anticipate creating a Series 2016A Construction Fund as a
special fund of the Authority held by the Authority in connection with the issuance of the Bonds.
28.
Reserve Fund.
(a)
Funding of Reserve Fund. If the Reserve Fund is not fully funded on the date of issuance of any Reserve
Fund Participant with proceeds of such issuance, other funds of the Authority or a combination of both, or if the balance of the
Reserve Fund is less than the Reserve Fund Requirement as of any other valuation date, then on each date on which funds are
deposited to the Revenue Fund, the Trustee shall transfer into the Reserve Fund, out of money held in the Revenue Fund, an
amount equal to 1/36 of the Reserve Fund Requirement or the amount needed to attain the Reserve Fund Requirement, whichever
is lesser, which transfers shall continue until the Reserve Fund contains the Reserve Fund Requirement; provided, however, that
the Authority may provide for other or greater transfers in connection with the purchase or acquisition of any Reserve Fund
Surety Policy or otherwise.
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(b)
Application of Reserve Fund. If, on any Interest Payment Date, any date a principal installment is due or any
other date, after giving effect to all transfers pursuant to Section 25, the Paying Agent/Registrar and other paying agents for the
Reserve Fund Participants have not received sufficient funds to make all payments of interest on and principal of the Reserve
Fund Participants then due and payable or to make any other then required payments on Reserve Fund Participants, the Trustee
shall transfer amounts from the Reserve Fund to the Paying Agent/Registrar and other paying agents to the extent necessary to
enable them to make such payments; provided that, if the balance of the Reserve Fund is insufficient on any such date to make all
such transfers in full, then the Trustee shall apply all available funds therein to make transfers to the applicable paying agents
ratably, in proportion to the transfers then due, without any preference or priority of any Reserve Fund Participant over any other
Reserve Fund Participant.
(c)
Use to Retire Reserve Fund Participant. When the amount in the Reserve Fund, together with the amounts in
the Interest and Sinking Fund available for such purpose, is sufficient to fully pay all Outstanding Reserve Fund Participants in
accordance with their terms (including principal or redemption price and interest thereon), the funds on deposit in the Reserve
Fund at the direction of the Authority may be used to pay the principal and redemption price of and interest on all Outstanding
Reserve Fund Participants.
(d)
Surety Bonds. In lieu of cash or investment securities, the Reserve Fund Requirement may be satisfied in
whole or in part with one or more Reserve Fund Surety Policies. Such policies may be drawn upon only after all other amounts in
the Reserve Fund have been used or applied, and other amounts in the Reserve Fund may be used to reimburse and repay issuers
of such policies for amounts drawn thereon together with interest thereon and related costs.
(e)
Application of Surplus. Whenever the amount in the Reserve Fund exceeds the Reserve Fund Requirement
and all reimbursement and repayment obligations pursuant to any debt service Reserve Fund Surety Policy have been satisfied,
the Authority may direct the Trustee to transfer such excess to the Interest and Sinking Fund or to any other Fund hereunder.
(f)
Investment earnings on proceeds of any Series 2009 Bond designated as Series 2009C held in the Reserve
Fund shall be transferred by the Trustee to the Authority for deposit in the Construction Fund on or before the first Business Day
of each calendar month to be used for capital expenditures, as determined under general federal income tax principles, unless and
until the Authority receives an opinion from nationally recognized bond counsel that such transfer is not required for the Series
2009 Bond designated as Series 2009C to qualify as BABs. For a period of five years from the date of issuance of any Series
2009 Bond designated as Series 2009C, all or a portion of the proceeds of such Series 2009 Bond designated as Series 2009C
held in the Reserve Fund may be transferred to the Construction Fund at the direction of the Authority upon the Authority’s
receipt of an opinion of nationally recognized bond counsel that such transfer is permitted under applicable law and will not
adversely affect the qualification of the Series 2009 Bond designated as Series 2009C as BABs. The Authority shall immediately
replace such transferred proceeds with cash, investment securities, a Reserve Fund Surety Policy or any combination of the
foregoing.
29.
Investment of Trust Funds. Amounts in any fund or account held by the Trustee may, to the extent
permitted by applicable law, be invested in accordance with the Authority’s investment policy upon written instruction of an
Authorized Representative and the Trustee shall have no obligation or responsibility for selecting such investments or for any
loss therefrom. Such investments shall mature in such amounts and at such times as may, in the judgment of such Authorized
Representative, be necessary to provide funds when needed to make timely payments from such fund or account. In order to
comply with the directions of such Authorized Representative, the Trustee may cause the liquidation prior to their maturities of
obligations in which funds have been invested, and the Trustee shall not be liable for any loss or penalty of any nature resulting
therefrom. In order to avoid loss in the event of a need for funds, the Authority may instruct the Trustee, in lieu of a liquidation of
investments in the fund or account needing funds, to exchange such investments for investments in another fund or account that
may be liquidated at no, or at a reduced, loss.
Obligations purchased as an investment of any money credited to any Fund or any account thereof shall be deemed at
all times to be a part of such Fund or account. Except as otherwise provided herein, the interest accruing on obligations so
purchased and any profit realized from such investment shall be credited to the Revenue Fund and any loss resulting from such
investment shall be charged to such Fund or account. For the purpose of determining the amount on deposit to the credit of any
such Fund, obligations in which money in such Fund shall have been invested shall be computed at the fair market value thereof.
All money in excess of the amount guaranteed by the Federal Deposit Insurance Corporation or other federal agency
shall be continuously secured by the Trustee, for the benefit of the Authority and the owners of the Senior Lien Obligations, as
their interests appear, either (a) in the manner provided by the Public Funds Collateral Act, Chapter 2257, Texas Government
Code, or (b) in any other manner as may then be required or permitted by applicable state or federal laws and regulations
regarding the security for, or granting a preference in the case of, the deposit of trust funds; provided, however, that it shall not be
necessary for the Trustee or the Paying Agent/Registrar to give such security for the deposit with it of any money to be used to
pay principal (and premium, if any) or interest which is at the time of such deposit due and payable with respect to any Senior
Lien Obligations, or for the Trustee to give security for any money which shall be represented by obligations purchased under the
provisions of this Section as an investment of such money.
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The Trustee shall retain all records of its application and investment of funds hereunder for at least six years after the final
maturity of Bonds.
33.
Additional Obligations.
(a)
Right to Issue: Subject to the requirements of subsection (b) of this Section, the Authority reserves the right
to issue or enter into, at any time and from time to time, in one or more installments, for any lawful purpose, the Contractual
Obligations, the CP Notes, Additional Obligations, and Senior Credit Agreements, all of which, when issued or otherwise entered
into and delivered, shall be payable from and secured by the senior lien on and pledge of the Pledged Revenues to the Trustee
confirmed by the Resolution on a parity with all other Senior Lien Obligations and shall in all respects be on a parity and of equal
dignity with and shall be secured in the same manner as the Bonds. Such pledge of and lien on the Pledged Revenues securing
the Senior Lien Obligations is and shall be senior to the pledge of and lien on the Pledged Revenues which the Authority has
granted or may grant to secure the Junior Lien Obligations and the Subordinate Lien Obligations.
(b)
Conditions to Issuance: Except as provided in paragraph (c) of this Section, no Additional Obligations may
be issued and no Senior Credit Agreements may be entered into unless the Chief Financial Officer of the Authority shall certify
to the Trustee in writing that, for either the preceding Fiscal Year or any consecutive 12-month period out of the 18-month period
preceding the month in which the order or resolution authorizing such Additional Obligations or Senior Credit Agreement is
adopted (the “Base Period”):
(1)
Historical/Pro Forma Coverage: The Pledged Revenues were not less than 200% of the Maximum
Annual Debt Service Requirements, after giving effect to the issuance of the Additional Obligations or execution of the Senior
Credit Agreement, as applicable; or
(2)
Pro Forma Coverage: Pledged Revenues, adjusted to give effect to the occurrence prior to the
adoption of the order or resolution authorizing such Additional Obligations of (A) any increase in the Sales and Use Tax rate or
(B) any increase in the percentage of the Sales and Use Tax revenues designated by the Authority as Pledged Revenues, as if
either such increase had been in effect for the entire Base Period, would have been not less than 200% of the Maximum Annual
Debt Service Requirements after giving effect to the issuance of the Additional Obligations or execution of the Senior Credit
Agreement, as applicable.
(c)
Exception. Additional Obligations issued to refund Senior Lien Obligations are not subject to subsection (b)
of this Section if their issuance will not increase Maximum Annual Debt Service Requirements by more than 10%.
34.
Covenant to Maintain Sales and Use Tax Rate. The Authority agrees and covenants that at all times while
there are Outstanding Bonds, it will not reduce the rate at which the Sales and Use Tax is levied below its current rate of I% of
the receipts from the sale at retail or on the sale price or the lease or rental price on the storage, use or other consumption of all
taxable items within the boundaries of the Authority or take action to apply such tax to less than all of such transactions.
36.
The Trustee.
(a)
Appointment. Wells Fargo Bank, N.A. has heretofore been appointed, and is hereby again appointed as
Trustee, for the sole purpose of holding, investing, securing and disbursing the Pledged Revenues in accordance with the
Resolution and is not acting in a fiduciary capacity for the Owners. The Trustee shall not be responsible for any Pledged
Revenues until such Pledged Revenues are actually received by the Trustee. The Trustee undertakes to perform such functions
and duties and only such functions and duties as are specifically set forth in the Resolution, and no implied duties or obligations
shall be read into the Resolution against the Trustee.
(b)
Limited Obligations. The Trustee shall be under no obligation to perform any duty or exercise any right or
power under the Resolution until it is provided with adequate funds to do so and receives an indemnity reasonably satisfactory to
it against any and all costs and expenses, outlays, and counsel fees and other disbursements, and against all liability not due to its
negligence or willful misconduct. No provision of the Resolution shall require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or to
take any action, which in the judgment of the Trustee would conflict with any rule of law or with the terms of the Resolution or
would expose it to liability.
(c)
Compensation. The Authority shall pay to the Trustee from time to time reasonable compensation for its
services. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The
Authority shall promptly reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such
expense shall include the reasonable compensation and out-of-pocket expenses of its agents and counsel.
(d)
Limited Liability. The Trustee shall be protected and shall incur no liability in acting or proceeding, or in not
acting or not proceeding, in good faith, reasonably and in accordance with the terms of the Resolution, upon any resolution,
order, notice, request, consent, waiver, certificate, statement, affidavit, requisition, bond or other paper or documents which it
shall in good faith reasonably believe to be genuine and to have been adopted or signed by the proper board or person, or to have
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been prepared and furnished pursuant to any of the provisions of the Resolution, or upon the written opinion of any attorney (who
may be an attorney for the Authority), engineer, appraiser or accountant (any of which, unless otherwise specified herein, may be
an employee of the Authority) reasonably believed by the Trustee to be qualified in relation to the subject matter. The Trustee
shall not be liable for any error of judgment made in good faith by the Trustee unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts. The Trustee shall not be liable with respect to any action taken or omitted to be taken
by it in good faith in accordance with the express provisions of the Resolution.
(e)
Establishing Facts Prior to Action. Whenever, in the administration of the trust confirmed by the Resolution,
the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action
hereunder, such matter (unless other evidence in respect thereof is specifically prescribed herein) may, in the absence of bad faith
on the part of the Trustee, be deemed to be proved and established by a certificate of an Authorized Representative; and, in the
absence of bad faith on the part of the Trustee, such certificate shall constitute full authority for any action taken, suffered or
omitted by the Trustee under the provisions of the Resolution in reliance thereon.
(f)
Use of Released Funds. The Trustee shall not be concerned with or accountable to anyone for the subsequent
use or application of any money which shall be released or withdrawn and used in accordance with the provisions hereof.
(g)
Executing Powers Through Third Parties. The Trustee may execute any of the trusts or powers hereof and
perform the duties required of it hereunder by or through attorneys, accountants, agents or receivers and may, in all cases, pay,
and be reimbursed for, the reasonable fees and expenses thereof. The Trustee shall not be responsible for the conduct of such
attorneys, accountants, agents or receivers it appointed with due care.
(h)
Limited Responsibility for the Bonds and Bond Documents. The Trustee shall not be responsible for any
recital or statement in the Resolution, any amendment to the Resolution, the Bonds, or any official statement or other disclosure
document prepared or distributed in connection with the Bonds or for the validity of the execution by the Authority of the
Resolution, any amendment to the Resolution or the Bonds, or for the validity of the execution of any other or supplemental
instrument by the Authority, or for the validity or sufficiency of the security for the Bonds issued hereunder or intended to be
secured hereby, or for the value of or title to the security for the Bonds pledged hereunder or for the creditworthiness of the
Authority. Except as otherwise expressly provided herein, the Trustee shall have no duty to ascertain or inquire as to the
performance or observance of any of the terms, conditions, covenants or agreements herein or in an amendment to the
Resolution, but the Trustee may require of the Authority full information and advice as to the performance of such covenants,
conditions and agreements set forth herein and in an amendment to the Resolution.
(i)
No Representation of Warranty. Reserved.
(j)
No Obligation or Duty. The permissive right of the Trustee to do things enumerated in the Resolution shall
not be construed as an obligation or duty of the Trustee. The Trustee shall not be required to give any bond or surety in respect of
the execution of its trusts and powers hereunder or otherwise in respect of these premises, except as provided in Section 29.
Nothing contained herein or in the Bonds shall be construed to impose any duties upon the Trustee beyond those expressly
contained in the Resolution or in an amendment to the Resolution. All immunities, indemnities and other provisions of the
Resolution as related to the duties and liabilities of the Trustee shall apply to its duties and liabilities with respect to the Bonds.
(k)
No Individual Liability. Under no circumstances shall the Trustee be liable in its individual capacity for the
obligations evidenced by the Bonds. In accepting the trust hereby created, the Trustee acts solely as Trustee for the trust estate
hereunder and not in its individual capacity and, except as otherwise provided herein, all persons, including without limitation the
Owners and the Authority, having any claim against the Trustee arising from the Resolution shall look for payment only from the
funds and accounts held by the Trustee hereunder.
(l)
Indemnification of the Trustee. The Authority hereby covenants and agrees, to the extent permitted by
applicable law and solely from the amounts held or required to be held hereunder, to indemnify the Trustee for any loss, liability,
outlays and reasonable fees of its in-house and/or outside counsel, other reasonable disbursements, expenses or advances
reasonably incurred or made, without negligence or willful misconduct on the part of the Trustee, arising out of or in connection
with its acceptance or administration of the trust or performance of its duties hereunder. All indemnifications and releases from
liability granted to the Trustee hereunder shall extend to its directors, officers, employees, officials and agents.
(m)
Trustee May Purchase Senior Lien Obligations. The Trustee shall not be disqualified from buying, selling,
holding, owning or dealing in Senior Lien Obligations solely because it is trustee hereunder, nor is the Trustee disqualified from
being the depository of the Authority of moneys not entrusted to it hereunder.
(n)
Trustee May Resign or be Removed. The Trustee may resign and thereby become discharged from the trusts
confirmed upon the acceptance thereof by a successor by notice in writing to be given to the Authority and by notice mailed,
postage prepaid to all Owners not less than 60 days before such resignation is to take effect, but such resignation shall take effect
immediately upon the appointment of a successor Trustee pursuant to this Section, if such successor Trustee shall be appointed
before the time specified by such notice and shall accept such appointment. If no successor Trustee is appointed within 60 days
after the date of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the
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appointment of a successor Trustee. The Trustee may be removed, with or without cause, at any time by an instrument or
concurrent instruments in writing, filed with the Trustee, and signed by the Owners of a majority in principal amount of the
Senior Lien Obligations.
(o)
Successor Trustee. The Authority covenants that at all times while any Bonds are Outstanding it will engage
a legally qualified bank, trust company, financial institution or other agency with a minimum capital and surplus at the time of
deposit of at least $1,000,000,000 to act as Trustee for the Bonds. The Authority reserves the right to change the Trustee for the
Bonds on not less than sixty (60) days’ written notice to the Trustee, as long as any such notice is effective not less than 60 days
prior to the next succeeding principal or interest payment date on the Bonds. Any successor Trustee appointed under the
Resolution shall execute, acknowledge, and deliver to its predecessor Trustee, and also to the Authority, an instrument accepting
such appointment, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become fully vested
with all moneys, estates, properties, rights, powers, duties, and obligations of such predecessor Trustee, with like effect as if
originally named as Trustee; but the Trustee ceasing to act shall nevertheless, on the written request of the Authority, or of the
successor Trustee, execute, acknowledge, and deliver such instruments of assignment and further assurance and do such other
things as may reasonably be required for more fully and certainly vesting and confirming in such successor Trustee all the right,
title, and interest of the predecessor Trustee in and to any property held by it under the Resolution, and shall pay over, assign, and
deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Any such
successor Trustee shall promptly notify any paying agents and registrars of its appointment as Trustee. Each Trustee hereunder,
by acting in that capacity, shall be deemed to have agreed to the provisions of the Resolution. No resignation or removal of the
Trustee and no appointment of a successor Trustee pursuant to this Section shall become effective until the acceptance of
appointment by the successor Trustee under this Section.
37.
Related Matters. To satisfy in a timely manner all of the Authority’s obligations under the Resolution; the
Paying Agent/Registrar Agreement and the Bond Purchase Agreement, the Authorized Representative and all other appropriate
officers, agents and representatives of the Authority are hereby authorized and directed to take all other actions that are
reasonably necessary to provide for the issuance of the Bonds, including, without limitation, executing and delivering on behalf
of the Authority all certificates, consents, receipts, requests and other documents as may be reasonably necessary to satisfy the
Authority’s obligations under the Bond Purchase Agreement, the Paying Agent/Registrar Agreement, the Escrow Agreement and
the Resolution and to direct the transfer and application of funds of the Authority consistent with the provisions of the
Resolution.
38.
Resolution a Contract - Amendments. The Resolution shall constitute a contract with the Owners from
time to time, be binding on the Authority and the Trustee, and shall not be amended or repealed by the Authority so long as any
Bond remains Outstanding except as permitted in this Section. The Authority may, without the consent of or notice to any
Owners but with notice to the Trustee, from time to time and at any time, amend the Resolution in any manner not detrimental to
the interests of the Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In
addition, the Authority may, with the written consent of the Trustee and Owners who own in the aggregate 51% of the principal
amount of the Bonds then Outstanding, amend, add to, or rescind any of the provisions of the Resolution; provided that, without
the consent of all Owners of Outstanding Bonds, no such amendment, addition, or rescission shall (i) extend the time or times of
payment of the principal of and interest on the Bonds, reduce the principal amount thereof, the redemption price, or the rate of
interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Bonds, (ii) give any
preference to any Bond over any other Bond, or (iii) reduce the aggregate principal amount of Bonds required to be held by
Owners for consent to any such amendment, addition, or rescission.
No one or more Owner of Outstanding Bonds shall have any right in any manner whatever by virtue of, or by availing
of, any provision of the Resolution to affect, disturb, or prejudice the rights of any other Owner of Outstanding Bonds or the
Trustee, or to obtain or to seek to obtain priority or preference over any other Owner of Outstanding Bonds or to enforce any
right under the Resolution, except in the manner herein provided and for the equal and ratable benefit of all Owners of
Outstanding Bonds and, on a basis subordinate thereto, all Owners of Junior Lien Obligations and Subordinate Lien Obligations.
46.
Defeasance. The Authority may defease the provisions of the Resolution (except as herein expressly stated),
and discharge its obligation to the Owners of any or all of the Senior Lien Obligations (except to the extent otherwise expressly
provided therein) to pay the principal of and interest thereon from other funds, by depositing with the Paying Agent/Registrar, the
Comptroller or any other entity with which such deposits may be made (as specified in Section 1207.061, Texas Government
Code, as amended) which has a minimum capital and surplus at the time of deposit of at least $100,000,000 either:
(a)
Cash Deposit. Cash in an amount equal to the principal amount of and interest thereon to the date of maturity
or earlier redemption, if any, or
(b)
Governmental Obligations. Pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable
obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of
America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are
unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally
recognized investment rating firm not less than “AAA” or its equivalent; or (iii) noncallable obligations of a state or an agency or
a county, municipality, or other political subdivision of a state that have been refunded and that are rated as to investment quality
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by a nationally recognized investment rating firm not less than “AAA” or its equivalent, which, in the case of {i), (ii) or (iii), may
be in book entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder,
without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money
in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose,
shall be verified by a nationally recognized firm of accountants or actuaries sufficient to provide for the timely payment of the
principal of and interest thereon to the date of maturity or earlier redemption, if any; provided, however, that if any of such Bonds
are to be redeemed prior to their respective dates of maturity, irrevocable provision shall have been made for giving notice of
redemption as provided in the Resolution. Upon such deposit, such Bonds shall no longer be regarded to be Outstanding and
shall no longer be subject to other redemption at the option of the Authority. Any surplus amount not required to accomplish
such defeasance shall be returned to the Authority.
Upon such defeasance of all Senior Lien Obligations as provided in this Section, the lien on and pledge of the Pledged
Revenues and powers of the Trustee granted under the Resolution and all. covenants, agreements and other obligations of the
Authority to the Owners thereof shall thereupon cease, terminate and become void and be discharged and satisfied. In such
event, the Trustee shall cause an accounting for such period or periods as shall be requested by the Authority to be prepared and
filed with the Authority and, upon the request of the Authority, shall execute and deliver to the Authority all such instruments as
may be desirable to evidence such discharge and satisfaction, and shall pay over or deliver to the Authority all moneys or
securities held by it pursuant to the Resolution which are not required for the payment of principal or redemption price, if
applicable, on Senior Lien Obligations not theretofore surrendered for such payment, or redemption.
48.
Legal Holidays. In any case where the date interest becomes payable on the Bonds or principal of the
Bonds matures or the date fixed for redemption of any Bonds shall not be a Business Day, then payment of interest or
principal need not be made on such date, but payment may be made on the next succeeding Business Day and in the same
amount with the same force and effect as if made on the scheduled date for payment, and no interest shall accrue for the
period from the date of maturity or redemption to the date of actual payment.
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APPENDIX A (CONTINUED)
SELECTED PROVISIONS OF THE SERIES 2016B SALES AND USE TAX
REFUNDING CONTRACTUAL OBLIGATIONS RESOLUTION
Presented below are excerpts of certain provisions contained in the Resolution. Such excerpts are not to be considered full
statements pertaining thereto. Reference is directed to the Resolution for the complete text thereof. Copies of such documents
are available upon request from the Authority or the Authority’s Bond Counsel.
1.
DEFINITIONS. THROUGHOUT THIS OFFICIAL STATEMENT THE FOLLOWING TERMS AND EXPRESSIONS AS USED HEREIN SHALL
HAVE THE MEANINGS SET FORTH BELOW:
“Acts” means, together, Chapters 1201, 1207, 1371, Texas Government Code, as amended, and the Public Property
Finance Act, Chapter 271, Subchapter A, Texas Local Government Code, as amended.
“Acquisition Fund” means that certain fund established pursuant to and used in accordance with Section 27 of the
Resolution.
“Additional Obligations” means any bonds, notes or other debt obligations which the Authority reserves the right to
issue or incur, as provided in Section 33 of the Resolution, which are secured by a senior lien on Pledged Revenues.
“Adjustable Rate Obligations” means any Senior Lien Obligations that initially bear interest at an adjustable or variable
rate of interest, including Adjustable Rate Obligations which may be, but have not yet been, converted to Senior Lien Obligations
bearing a fixed rate of interest.
“Attorney General” means the Attorney General of Texas.
“Authority” means the Metropolitan Transit Authority of Harris County, Texas.
“Authority Act” has the meaning provided in the recitals hereto.
“Authorized Representative” means the Chair of the Board or, in the event of his or her inaccessibility or incapacity,
the President and Chief Executive Officer of the Authority or, in the event of his or her inaccessibility or capacity, the Vice Chair
of the Board or, in the event of his or her inaccessibility or incapacity, the Chief Financial Officer and, except for purposes of
executing an Officer’s Pricing Certificate, their designees. The execution of a document by any such officer as an Authorized
Representative shall conclusively evidence the inaccessibility or incapacity of any other such officer with superior authority.
“BABs” means any Series 2009 Bonds which the Authority has designated as a “Build America Bond” pursuant to
Section 54AA of the Code.
“Board” means the Board of Directors of the Authority.
“Bond Insurance Policy” means the financial guaranty insurance policy or policies, if any, issued by the Bond Insurer
that guarantees the scheduled payment of principal of and interest on the Contractual Obligations when due, as provided in the
Officer’s Pricing Certificate.
“Bond Insurer” means the provider of a Bond Insurance Policy, if any, as provided in the Officer’s Pricing Certificate.
“Bond Purchase Agreement” means the purchase agreement between the Authority and the Underwriters relating to the
Contractual Obligations.
“Bullet Obligation” means all Senior Lien Obligations of a series maturing in any single year in a principal amount
that totals at least 15% of the initial aggregate principal amount of the entire series of such Senior Lien Obligations.
“Business Day” means any day other than a Saturday, a Sunday, or another day on which commercial banks generally
located in the State of New York or the State of Texas are authorized or required by law or executive order to close.
“Code” means the Internal Revenue Code of 1986, as amended to the date of delivery of the Contractual Obligations.
“Comptroller” means the Comptroller of Public Accounts of the State of Texas.
“Contractual Obligations” means the Authority’s Sales and Use Tax Refunding Contractual Obligations, Series 2016B
issued and to be issued as Senior Lien Obligations pursuant to the Resolution.
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“CP Notes” means the Sales and Use Tax Commercial Paper Notes, Series A of the Authority currently authorized to
be issued in the maximum aggregate principal amount of $175,000,000.
“Credit Agreement” means a credit agreement, as such term is defined in Chapter 1371, Texas Government Code: as
amended, including but not limited to a loan agreement, revolving credit agreement, agreement establishing a line of credit, letter
of credit, reimbursement agreement, insurance contract, commitment to purchase obligations, purchase or sale agreement, interest
rate swap, cap, floor, collar, or similar agreement, or other commitment or agreement authorized by the Board in anticipation of,
related to, or in connection with the authorization, issuance, sale, resale, security, exchange, payment, purchase, remarketing, or
redemption of some or all of the Authority’s obligations (as such term is defined in Chapter 1371) or interest on obligations, or
both, or as otherwise authorized by such chapter.
“Credit Provider” means a party to a Credit Agreement other than the Authority.
“Debt Service Requirements” means, with respect to any Senior Lien Obligations for any period of time for which such
calculation applies, an amount equal to the sum of the following:
a.
INTEREST: CURRENT INTEREST SCHEDULED TO BE PAID DURING SUCH PERIOD ON OR UNDER SUCH SENIOR
LIEN OBLIGATIONS; PLUS
b.
PRINCIPAL: THAT PORTION OF THE PRINCIPAL OF, OR COMPOUNDED INTEREST ON, SUCH SENIOR LIEN
OBLIGATIONS PAYABLE DURING SUCH PERIOD (EITHER AT MATURITY OR BY REASON OF SCHEDULED
MANDATORY REDEMPTIONS OR UPON DEMAND, BUT AFTER TAKING INTO ACCOUNT ALL PRIOR OPTIONAL AND
MANDATORY REDEMPTIONS OF SENIOR LIEN OBLIGATIONS); PROVIDED, HOWEVER, THAT, IN MAKING SUCH
CALCULATION, THE FOLLOWING RULES SHALL APPLY:
i.
Refinancing Assumption: For any series of Senior Lien Obligations issued as Short Term Obligations,
Demand Obligations, or Bullet Obligations, Debt Service Requirements may be computed on the
assumption that the principal amount shall be refinanced at maturity (or an earlier date on which
principal thereof is payable on demand) by fixed rate Senior Lien Obligations bearing interest at (a) if
the interest on such obligations is excludable from gross income of the owners thereof for federal
income tax purposes, a Revenue Bond Index published by the Bond Buyer or any successor
publication or (b) if the interest on such obligations is not excludable from gross income of the owners
thereof for federal income tax purposes, the yield on the Treasury Constant Maturity Series as
reported in Federal Reserve Statistical Release H. 15, Selected Interest Rates of the Board of
Governors of the Federal Reserve System, or any successor publication, as certified by the Authority’s
financial advisor, in both cases (a) and (b) within 30 days prior to the date of such calculation (or the
gross fixed or capped rate payable by the Authority under an interest rate swap or cap agreement that
substantially hedges the rate of interest on such Senior Lien Obligations) and maturing in substantially
equal annual payments of principal and interest over a term of 25 years (or such longer period as a
nationally recognized financial advisor or investment banker certifies is then reasonably attainable) or
less; and
ii.
Interest Rate Assumption: For any series of Senior Lien Obligations issued as Adjustable Rate
Obligations that are not Short Term Obligations, Demand Obligations, or Bullet Obligations, Debt
Service Requirements may be computed on the assumption that such Senior Lien Obligations will
bear interest at (a) to the extent the rate of interest thereon is effectively hedged by an interest rate
swap or cap agreement, the gross fixed or capped rate payable by the Authority under such agreement,
and (b) otherwise the greater of (i) the average rate on such Senior Lien Obligations over a 12-month
period ending within two months of the date of such calculation and (ii) a rate estimated by the
Authority’s financial advisor in a written certificate delivered to the Authority at the time of such
calculation to be the average rate of interest such Senior Lien Obligations would bear if issued as
long-term bonds, in the same principal amount and with the same priority of lien, bearing interest at
fixed rates based on the average life of the Adjustable Rate Obligations; and
iii.
Effect of Federal Subsidies: For any series of Senior Lien Obligations for which the Authority is
entitled to receive payments from the federal or state government in such period on account of, and
substantially contemporaneously with, interest paid on such Senior Lien Obligations, the amount to be
received in such period may be deducted from such interest in computing Debt Service Requirements.
Debt Service Requirements shall be calculated with the assumption that no Senior Lien Obligations Outstanding at the
time of calculation will cease to be Outstanding except by reason of the payment of scheduled principal maturities or scheduled
mandatory redemptions, except as provided above.
“Demand Obligation” means any Senior Lien Obligation the principal of which is payable by the Authority on demand
of the owner or holder thereof.
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“DTC” means The Depository Trust Company, New York, New York, or any successor securities depository.
“DTC Participant” means brokers and dealers, banks, trust companies, clearing corporations and certain other
organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities
transactions among DTC Participants.
“Escrow Agent” means Wells Fargo Bank, N.A. and its successors in such capacity.
“Escrow Agreement” shall mean the agreement between the Authority and the Escrow Agent for the Refunded
Contractual Obligations.
“Equipment” has the meaning specified in Section 2.
“Fiscal Year” means the Fiscal Year of the Authority, currently beginning on October 1 of any year and ending on
September 30 of the next succeeding year, but which may be changed by the Board.
“Interest and Sinking Fund” means the fund confirmed by the Authority pursuant to Section 26 of the Resolution.
“Interest Payment Date,” means May 1, 2016, and each November 1 and May 1 thereafter until maturity or prior
redemption, unless otherwise provided in the Officer’s Pricing Certificate.
“Junior Lien Obligations” means any one or more of those series of bonds, notes or other debt obligations (including
capital lease obligations and obligations to make deferred payments for goods and services in furtherance of METRO Solutions
Phase 2, which deferred payments have been assigned to a third party and used to make payments to owners of public securities)
or Credit Agreements that are secured, with or without other security, by a lien on Pledged Revenues that is junior and
subordinate to the lien thereon securing the Senior Lien Obligations but is senior and superior to the lien thereon securing the
Subordinate Lien Obligations.
“Maximum Annual Debt Service Requirements” for any Senior Lien Obligations means the maximum Debt Service
Requirements for such Senior Lien Obligations calculated to occur in any future Fiscal Year or the then current Fiscal Year.
“Officer’s Pricing Certificate” means a certificate to be signed by the Authorized Representative and containing the
information regarding the Contractual Obligations specified in the Officer’s Pricing Certificate.
“Outstanding” means, when used with respect to Senior Lien Obligations, as of the date of determination, all Senior
Lien Obligations theretofore delivered under the Resolution or other authorizing resolution, except:
a.
CANCELLED OBLIGATIONS: SENIOR LIEN OBLIGATIONS THERETOFORE CANCELED AND DELIVERED TO THE
AUTHORITY OR DELIVERED TO THE PAYING AGENT/REGISTRAR FOR CANCELLATION;
b.
TRANSFERRED AND EXCHANGED OBLIGATIONS: SENIOR LIEN OBLIGATIONS UPON TRANSFER OF OR IN
EXCHANGE FOR AND IN LIEU OF WHICH OTHER SENIOR LIEN OBLIGATIONS HAVE BEEN DELIVERED; AND
c.
DEFEASED OBLIGATIONS: SENIOR LIEN OBLIGATIONS WHICH HAVE BEEN RELEASED, DISCHARGED OR
EXTINGUISHED IN ACCORDANCE WITH THE TERMS THEREOF, OR DUE TO THE DEPOSIT OF CASH OR
INVESTMENTS WITH THE PAYING AGENT THEREFOR OR AN ESCROW AGENT, THE OBLIGATION OF THE
AUTHORITY TO PAY THE SAME IS PAYABLE SOLELY FROM AND TO THE EXTENT OF SUCH CASH AND
INVESTMENTS AND INCOME THEREFROM.
“Owner” or “Registered Owner” means any person who shall be the registered owner of any outstanding Contractual
Obligation.
“Paying Agent/Registrar” means the entity identified as such in the Paying Agent/Registrar Agreement.
“Paying Agent/Registrar Agreement” means the paying agent/registrar agreement relating to the Contractual
Obligations.
“Person” means any individual, corporation, partnership, joint venture, unincorporated association, association, trust,
joint stock company, unincorporated organization, government or government agency or other legal entity capable of carrying on
a trade or business.
“Pledged Revenues” means seventy-five percent (75%) of the revenues collected and received by the Trustee or the
Authority from its levy of the Sales and Use Tax, plus any investment income earned on any moneys in the Revenue Fund, the
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Interest and Sinking Fund and any reserve fund for Senior Lien Obligations that are Reserve Fund Participants, which are hereby
pledged as security for payment of the Contractual Obligations and any other Senior Lien Obligations and all other funds or
revenues, if any, including additional Sales and Use Tax revenues, which the Authority pledges hereafter as security for payment
of the Senior Lien Obligations.
“Record Date” for interest due on the Contractual Obligations on any Interest Payment Date means the fifteenth day of
the month next preceding such Interest Payment Date whether or not such day is a Business Day.
“Register” means the books of registration kept by the Paying Agent/Registrar in which are maintained the names and
addresses of, and the principal amounts of the Contractual Obligations of each maturity registered to, each Owner.
“Reserve Fund” means the shared reserve fund for the Reserve Fund Participants confirmed by the Authority pursuant
to Section 24 of the Resolution.
“Reserve Fund Participant” means the Series 2009 Contractual Obligations, the Series 2010 Contractual Obligations,
the Series 2011 Contractual Obligations and Additional Obligations which the Authority designates at or before the time of issue
as Reserve Fund Participants to share the Reserve Fund. All such issues designated as a Reserve Fund Participant shall be entitled
to a parity claim on the funds deposited in the shared Reserve Fund as and to the extent provided in Section 28 of the Resolution.
None of the Series 2009 Bonds, the Series 2011 Bonds, the Series 2015 Bonds, the Series 2016 Bonds, the Series 2014
Contractual Obligations, the 2015 Contractual Obligations, or the Contractual Obligations are Reserve Fund Participants.
“Reserve Fund Requirement” means an amount equal to 50% of the Maximum Annual Debt Service Requirements on
the Reserve Fund Participants. The reserve fund requirement, if any, for the Contractual Obligations or any Additional
Obligations which are not Reserve Fund Participants shall be provided in the order or resolution authorizing their issuance.
“Reserve Fund Surety Policy” shall mean any reserve fund surety policy or bond, letter of credit or other instrument,
however denominated, provided by a qualifying financial institution as described in the following sentence, pursuant to which the
Trustee or Paying Agent/Registrar may draw on such Reserve Fund Surety Policy to enable the Reserve Fund to make a required
transfer to the Interest and Sinking Fund. Reserve Fund Surety Policies may only be acquired from a financial institution with a
long term credit rating in one of the two highest generic rating categories from at least two nationally recognized rating services
and having a credit rating or claims paying ability such that the purchase of such surety policy will not cause any rating agency
then rating any Senior Lien Obligations to withdraw or lower its rating.
“Resolution” as used herein and in the Contractual Obligations means the Resolution authorizing the Contractual
Obligations.
“Revenue Fund” means the fund confirmed by the Authority pursuant to Section 24 of the Resolution.
“Sales and Use Tax” means the tax levied by the Authority pursuant to the Authority Act, orders of the Authority’s
Board and an election held within the Authority on August 12, 1978. Under the authority of the Authority Act and pursuant to
such resolutions, the rate of such tax is equal to 1% of the receipts from the sale at retail or on the sale price or the lease or rental
price on the storage, use or other consumption of all taxable items within the boundaries of the Authority.
“Senior Credit Agreement” means any Credit Agreement to the extent the obligations of the Authority thereunder are
Senior Lien Obligations.
“Senior Lien Obligations” means the Series 2009 Bonds, the Series 2011 Bonds, the Series 2015 Bonds, the Series
2016 Bonds, the Series 2009 Contractual Obligations, the 2010 Contractual Obligations, the 2011 Contractual Obligations, the
Series 2014 Contractual Obligations, the Series 2015 Contractual Obligations, the Contractual Obligations, the CP Notes, any
Additional Obligations, and any Senior Credit Agreements.
“Series 2009 Bonds” means the Authority’s Sales and Use Tax Bonds, Series 2009A and the Authority’s Sales and Use
Tax Bonds, Taxable Series 2009C (Direct-Subsidy Build America Bonds), each previously issued as Senior Lien Obligations.
“Series 2009 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series 2009B
and Sales and Use Tax Contractual Obligations, Series 2009D, previously issued as Senior Lien Obligations.
“Series 2010 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series
2010A, previously issued as Senior Lien Obligations.
“Series 2011 Bonds” means the Authority’s Sales and Use Tax Bonds, Series 2011A, previously issued as Senior Lien
Obligations.
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“Series 2011 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series
2011B, previously issued as Senior Lien Obligations.
“Series 2014 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series
2014A, previously issued as Senior Lien Obligations.
“Series 2015 Contractual Obligations” means the Authority’s Sales and Use Tax Contractual Obligations, Series
2015B, previously issued as Senior Lien Obligations.
“Series 2015 Bonds” means the Authority’s Sales and Use Tax Bonds, Series 2015A, previously issued as Senior Lien
Obligations.
“Series 2016 Bonds” means the Authority’s Sales and Use Tax Refunding Bonds, Series 2016A, concurrently issued
with the Contractual Obligations as Senior Lien Obligations.
“Short Term Obligations” means each series of bonds, notes and other debt obligations issued pursuant to a
commercial paper or other similar financing program, the payment of principal of which is scheduled to be payable within one
year from the date of issuance and is contemplated at the time of issuance to be refinanced through the issuance of Additional
Obligations.
“Subordinate Lien Obligations” means any one or more of any series of bonds, notes or other obligations (including
lease obligations and obligations to make deferred payments for goods and services in furtherance of METRO Solutions Phase 2
and which have been assigned to a third party and used by such third party to make payments to owners of public securities) or
Credit Agreements secured, with or without other security, by a lien on Pledged Revenues that is junior and subordinate to the
lien thereon of the Senior Lien Obligations and the Junior Lien Obligations.
“Trustee” means Wells Fargo Bank, N.A., as the trustee under the Resolution and any successor to or replacement of
such trustee appointed to serve in such capacity in accordance with the Resolution.
“Underwriters” means the entities defined as such in the Bond Purchase Agreement.
22.
Pledges and Sources of Payment; Tax Levy; Other Security.
(a)
Pledge of Pledge Revenues. The Authority has heretofore, transferred, set over and assigned, and does hereby
again TRANSFER, SET OVER and ASSIGN, to the Trustee all of the Pledged Revenues in trust, in order to provide for the
payment of the principal of, interest on, and other payment obligations under the Senior Lien Obligations, Junior Lien
Obligations and Subordinate Lien Obligations and all expenses of paying the same, subject to paragraph (c) below, and to
provide for the disposition of the remaining Pledged Revenues in accordance with the Resolution. In order to facilitate the
transfer made in the foregoing sentence, the Authority has heretofore appointed and does hereby confirm its irrevocable
appointment of the Trustee as its lawful agent and attorney-in-fact for the purpose of (i) performing those duties of its treasurer
which consist of receiving the Pledged Revenues from the Comptroller pursuant to the Act and other applicable law and (ii)
taking such steps as may be necessary, if any, to perfect and maintain the liens granted hereunder. The Pledged Revenues shall be
set aside for and are hereby irrevocably pledged to the payment of the Senior Lien Obligations, including the Series 2009 Bonds,
the Series 2011 Bonds, the Series 2015 Bonds, the Series 2016 Bonds, the Series 2009 Contractual Obligations, the Series 2010
Contractual Obligations, the Series 2011 Contractual Obligations, the Series 2014 Contractual Obligations, the 2015 Contractual
Obligations, the Contractual Obligations, any Additional Obligations, any Senior Credit Agreements, any Junior Lien Obligations
and any Subordinate Lien Obligations.
(b)
Parity Senior Lien Obligations. The Senior Lien Obligations may be payable from all legally available funds
of the Authority and shall be equally and ratably secured by (i) a senior lien on and pledge of the Pledged Revenues, as collected
and received by the Authority or the Trustee, which pledge and lien is expressly made senior to the pledge of and lien on Pledged
Revenues which the Authority has granted or may grant to secure the Junior Lien Obligations and the Subordinate Lien
Obligations and (ii) to the extent such Senior Lien Obligations are Reserve Fund Participants, the Reserve Fund.
(c)
Deposit of Pledged Revenues. The Authority shall, by appropriate notice, direction, request or other legal
method, cause the Comptroller to pay all Pledged Revenues (or, if required by the Comptroller, all Sales and Use Tax collections)
directly to the Trustee for the account of the Revenue Fund. If the Comptroller shall refuse or shall not be legally obligated to
make transfers in accordance with such notice, direction or request, then the Authority shall itself cause the Pledged Revenues to
be transferred to the Trustee in their entirety immediately upon receipt thereof by the Authority or by others for its account
wherever located. If all Sales and Use Tax collections are paid to the Trustee by the Comptroller, then the Trustee shall promptly
remit all such payment that is not Pledged Revenues to the Authority. All Pledged Revenues received by the Trustee shall be
deposited in the Revenue Fund and applied in accordance with the Resolution.
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(d)
Limitation on Security for Termination Payments. The lien on and pledge of Pledged Revenues granted by
the Resolution shall not secure payment of any termination payment under an interest rate management agreement provided,
however, that nothing in the Resolution shall prevent the Authority from granting a junior or subordinate lien on and pledge of
the Pledged Revenues for such purpose.
23.
Levy of Sales and Uses Tax; Covenant to Levy Sales and Use Tax. The orders levying the Authority’s
Sales and Use Tax previously adopted by the Board are hereby approved, ratified and readopted in full, and the Resolution shall
be cumulative of such orders.
24.
Special Funds. The Authority hereby recognizes and confirms the prior establishment of (a) the Revenue
Fund, which Fund shall be maintained with the Trustee and shall be kept separate and apart from all other funds and accounts of
the Authority (b) the Interest and Sinking Fund, which shall be maintained as a separate fund with the Trustee, which shall hold
such Fund in trust for the registered owners of the Senior Lien Obligations, and (c) the Reserve Fund, which shall be maintained
as a separate fund with the Trustee, which shall hold such Fund in trust for the registered owners of the Reserve Fund
Participants. All of the foregoing Funds shall be used solely as herein provided so long as any Senior Lien Obligation remains
Outstanding.
The Authority or the Trustee may create accounts and subaccounts within any Fund created by the Resolution when, in
the judgment of the Authority or the Trustee, the creation of such accounts or subaccounts will enable the Authority or the
Trustee to better administer the Funds.
25.
Flow of Funds. The Trustee shall deposit the portion of the Sales and Use Tax payment that constitutes
Pledged Revenues into the Revenue Fund promptly after receipt. Immediately upon such deposit and upon each deposit to the
Revenue Fund thereafter, the Trustee shall apply moneys from time to time on deposit to the credit of the Revenue Fund in the
following order of priority:
(a)
First, to make all deposits into the Interest and Sinking Fund as provided herein and, if the Contractual
Obligations are ratably secured thereby, in any other interest and sinking fund provided in any order or resolution authorizing the
issuance of any other Senior Lien Obligations;
(b)
Second, to make all deposits into the Reserve Fund as provided herein and in any other reserve fund provided
in any order or resolution authorizing the issuance of any Senior Lien Obligations other than Reserve Fund Participants, provided
that on any date on which there is a deficiency in the Reserve Fund, the Trustee shall not apply any moneys to any other such
fund in an amount greater than that required to produce a balance therein equal to 50% of the Maximum Annual Debt Service
Requirements on the Senior Lien Obligations payable from such other reserve fund ratably over a 36-month period from the
original date of any deficiency therein unless an additional deposit to the Reserve Fund is made to cure such deficiency in the
Reserve Fund at the same rate;
(c)
Third, to make all other deposits not made pursuant to clause (ii) above into any reserve fund provided in any
order or resolution authorizing the issuance of any Senior Lien Obligations;
(d)
Fourth, to make all other deposits required by any order or resolution authorizing the issuance of any Senior
Lien Obligations and any related agreement or Credit Agreement;
(e)
Fifth, to make all deposits required by any order or resolution authorizing the issuance of any Junior Lien
Obligations (a copy of which shall be provided by the Authority to the Trustee on or before the date of issuance of such Junior
Lien Obligations);
(f)
Sixth, to make all deposits required by any order or resolution authorizing the issuance of any Subordinate
Lien Obligations (a copy of which shall be provided by the Authority to the Trustee on or before the date of issuance of such
Subordinate Lien Obligations); and
(g)
Seventh, to the Authority for any lawful purpose.
In case such moneys on deposit in the Revenue Fund shall at any time be insufficient to make in full all deposits and
transfers then due and unpaid as provided above then such deposits and transfers shall be made from such moneys in the priority
set out above, but ratably according to the aggregate amount within each priority to be deposited and without preference within a
priority.
26.
Revenue Fund and Interest and Sinking Fund. Moneys from time to time on deposit to the credit of the
Revenue Fund shall be applied by the Trustee as follows:
(a)
Transfers to Interest and Sinking Fund. Subject to subsections (b) and (c) below, for so long as any
Contractual Obligations remain Outstanding, the Trustee shall transfer from the Revenue Fund to the Interest and Sinking Fund
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on each date on which funds are deposited to the Revenue Fund such amounts which, when added to other amounts in the Interest
and Sinking Fund, will provide for the accumulation, in substantially equal monthly installments, of amounts sufficient to pay
(i) the interest scheduled to become due on all Outstanding Senior Lien Obligations on the next succeeding interest payment date
(other than interest scheduled to become due but anticipated to be paid with the proceeds of Senior Lien Obligations), (ii) the
principal of all Outstanding Senior Lien Obligations scheduled to mature on the next succeeding principal payment date (other
than maturing principal anticipated to be paid with the proceeds of Senior Lien Obligations), (iii) payments due and payable to
Credit Providers on Senior Credit Agreements on ensuing payment dates; and (iv) the redemption price of all Outstanding Senior
Lien Obligations called or scheduled for redemption on the next redemption date, plus all fees, charges and other amounts
payable to any Paying Agent/Registrar, market agent, broker/dealer, remarketing agent or Credit Provider in respect of Senior
Lien Obligation; provided that in all cases the Trustee shall transfer an amount sufficient to ensure that the Interest and Sinking
Fund has adequate funds on deposit to make all required principal, interest, and other payments on Senior Lien Obligations
through the immediately succeeding month, assuming accrual of interest at the maximum rate for any period for which the rate
has not been fixed and payment thereof on the last day of such succeeding month.
(b)
Limitation on Use of Capitalized Interest. Proceeds of any issue of Senior Lien Obligations on deposit in the
Interest and Sinking Fund shall be available to pay interest only on such Senior Lien Obligations and shall be credited against the
transfer requirements described in subsection (a)(i) above only for such issue of Senior Lien Obligations.
(c)
BABs Subsidies. The refundable credit received pursuant to Section 6431 of the Code in respect of the
Series 2009 Bonds designated Series 2009C shall be deposited directly into the Interest and Sinking Fund upon receipt and shall
be used solely for the purposes of paying interest on the Series 2009 Bonds designated Series 2009C while they remain
Outstanding. In determining the amount to be transferred to the Interest and Sinking Fund, no balance therein attributable to the
Series 2009 Bonds designated Series 2009C shall be credited against the principal, interest or other payment requirements on any
other Senior Lien Obligations.
(d)
Suspension of Payments. Whenever the total amount on deposit to the credit of the Interest and Sinking Fund
shall be equal to the sum of the aggregate principal amount of all Outstanding Senior Lien Obligations plus the aggregate amount
of all interest accrued and to accrue thereon and all bank charges and other costs and expenses related to the payment thereof, no
further payments need be made into such Funds, and the Senior Lien Obligations shall not be regarded as being Outstanding
except for the purpose of being paid with the moneys on deposit in such Funds.
(e)
Application of Interest and Sinking Fund. Monies deposited to the credit of the Interest and Sinking Fund
shall be used solely for the purpose of paying the principal of and interest and other payments on the Outstanding Senior Lien
Obligations, plus all bank charges, fees and expenses of the Trustee and paying agents and registrars and Credit Providers, and
other costs and expenses, relating to such payment. On or before each due date for the payment of principal and/or interest or
other amounts on Senior Lien Obligations, the Trustee shall pay (or transfer to the applicable paying agent for the payment of)
the principal of and interest and other amounts payable on the Senior Lien Obligations on such date, together with an amount
equal to all bank charges, fees and expenses of the Trustee and paying agents and registrars and Credit Providers and other costs
and expenses relating to such payment; provided that, if the balance of the Interest and Sinking Fund is insufficient on any such
date to pay such principal, interest and other amounts then due in full, then the Trustee shall apply all available funds therein to
pay (or transfer to the applicable paying agents for the payment of) such principal, interest, and other amounts ratably, in
proportion to the amounts then due, without any preference or priority of any Senior Lien Obligation over any other Senior Lien
Obligations. Any moneys remaining in the Interest and Sinking Fund after all Senior Lien Obligations are no longer Outstanding
shall be transferred to the Revenue Fund.
(f)
Payment of the Contractual Obligations: The Trustee shall pay, out of the Interest and Sinking Fund, to the
Paying Agent/Registrar in no event later than each applicable principal payment date and Interest Payment Date for any
Outstanding Contractual Obligations, an amount (as determined by the Paying Agent/Registrar) sufficient for the Paying
Agent/Registrar to pay principal of and interest on the Outstanding Contractual Obligations due on such dates (and to be paid by
such Paying Agent/Registrar).
27.
Acquisition Fund. The Authority does not anticipate creating a Series 2016B Acquisition Fund as a special
fund of the Authority held by the Authority.
28.
Reserve Fund.
(a)
Funding of Reserve Fund. If the Reserve Fund is not fully funded on the date of issuance of any Reserve
Fund Participant (including the Contractual Obligations if so designed by the Authority) with proceeds of such issuance, other
funds of the Authority or a combination of both, or if the balance of the Reserve Fund is less than the Reserve Fund Requirement
as of any other valuation date, then on each date on which funds are deposited to the Revenue Fund, the Trustee shall transfer
into the Reserve Fund, out of money held in the Revenue Fund, an amount equal to 1/36 of the Reserve Fund Requirement or the
amount needed to attain the Reserve Fund Requirement, whichever is lesser, which transfers shall continue until the Reserve
Fund contains the Reserve Fund Requirement; provided, however, that the Authority may provide for other or greater transfers in
connection with the purchase or acquisition of any Reserve Fund Surety Policy or otherwise.
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(b)
Application of Reserve Fund. If, on any Interest Payment Date, any date a principal installment is due or any
other date, after giving effect to all transfers pursuant to Section 25, the Paying Agent/Registrar and other paying agents for the
Reserve Fund Participants have not received sufficient funds to make all payments of interest on and principal of the Reserve
Fund Participants then due and payable or to make any other then required payments on Reserve Fund Participants, the Trustee
shall transfer amounts from the Reserve Fund to the Paying Agent/Registrar and other paying agents for the Reserve Fund
Participants to the extent necessary to enable them to make such payments; provided that, if the balance of the Reserve Fund is
insufficient on any such date to make all such transfers in full, then the Trustee shall apply all available funds therein to make
transfers to the applicable paying agents ratably, in proportion to the transfers then due, without any preference or priority of any
Reserve Fund Participant over any other Reserve Fund Participant.
(c)
Use to Retire Reserve Fund Participant. When the amount in the Reserve Fund, together with the amounts in
the Interest and Sinking Fund available for such purpose, is sufficient to fully pay all Outstanding Reserve Fund Participants in
accordance with their terms (including principal or redemption price and interest thereon), the funds on deposit in the Reserve
Fund at the direction of the Authority may be used to pay the principal and redemption price of and interest on all Outstanding
Reserve Fund Participants.
(d)
Surety Bonds. In lieu of cash or investment securities, the Reserve Fund Requirement may be satisfied in
whole or in part with one or more Reserve Fund Surety Policies. Such policies may be drawn upon only after all other amounts in
the Reserve Fund have been used or applied, and other amounts in the Reserve Fund may be used to reimburse and repay issuers
of such policies for amounts drawn thereon together with interest thereon and related costs.
(e)
Application of Surplus. Whenever the amount in the Reserve Fund exceeds the Reserve Fund Requirement
and all reimbursement and repayment obligations pursuant to any debt service Reserve Fund Surety Policy have been satisfied,
the Authority may direct the Trustee to transfer such excess to the Interest and Sinking Fund or to any other Fund hereunder.
29.
Investment of Trust Funds. Amounts in any fund or account held by the Trustee may, to the extent
permitted by applicable law, be invested in accordance with the Authority’s investment policy upon written instruction of an
Authorized Representative and the Trustee shall have no obligation or responsibility for selecting such investments or for any
loss therefrom. Such investments shall mature in such amounts and at such times as may, in the judgment of such Authorized
Representative, be necessary to provide funds when needed to make timely payments from such fund or account. In order to
comply with the directions of such Authorized Representative, the Trustee may cause the liquidation prior to their maturities of
obligations in which funds have been invested, and the Trustee shall not be liable for any loss or penalty of any nature resulting
therefrom. In order to avoid loss in the event of a need for funds, the Authority may instruct the Trustee, in lieu of a liquidation of
investments in the fund or account needing funds, to exchange such investments for investments in another fund or account that
may be liquidated at no, or at a reduced, loss.
Obligations purchased as an investment of any money credited to any Fund or any account thereof shall be deemed at
all times to be a part of such Fund or account. Except as otherwise provided herein, the interest accruing on obligations so
purchased and any profit realized from such investment shall be credited to the Revenue Fund and any loss resulting from such
investment shall be charged to such Fund or account. For the purpose of determining the amount on deposit to the credit of any
such Fund, obligations in which money in such Fund shall have been invested shall be computed at the fair market value thereof.
All money in excess of the amount guaranteed by the Federal Deposit Insurance Corporation or other federal agency
shall be continuously secured by the Trustee, for the benefit of the Authority and the owners of the Senior Lien Obligations, as
their interests appear, either (a) in the manner provided by the Public Funds Collateral Act, Chapter 2257, Texas Government
Code, or (b) in any other manner as may then be required or permitted by applicable state or federal laws and regulations
regarding the security for, or granting a preference in the case of, the deposit of trust funds; provided, however, that it shall not be
necessary for the Trustee or the Paying Agent/Registrar to give such security for the deposit with it of any money to be used to
pay principal (and premium, if any) or interest which is at the time of such deposit due and payable with respect to any Senior
Lien Obligations, or for the Trustee to give security for any money which shall be represented by obligations purchased under the
provisions of this Section as an investment of such money.
The Trustee shall retain all records of its application and investment of funds hereunder for at least six years after the final
maturity of Contractual Obligations.
33.
Additional Obligations.
(a)
Right to Issue: Subject to the requirements of subsection (b) of this Section, the Authority reserves the right
to issue or enter into, at any time and from time to time, in one or more installments, for any lawful purpose, the CP Notes,
Additional Obligations, and Senior Credit Agreements, all of which, when issued or otherwise entered into and delivered, shall be
payable from and secured by the senior lien on and pledge of the Pledged Revenues to the Trustee confirmed by the Resolution
on a parity with all other Senior Lien Obligations and shall in all respects be on a parity and of equal dignity with and shall be
secured in the same manner as the Contractual Obligations. Such pledge of and lien on the Pledged Revenues securing the Senior
Lien Obligations is and shall be senior to the pledge of and lien on the Pledged Revenues which the Authority has granted or may
grant to secure the Junior Lien Obligations and the Subordinate Lien Obligations.
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(b)
Conditions to Issuance: Except as provided in paragraph (c) of this Section, no Additional Obligations may
be issued and no Senior Credit Agreements may be entered into unless the Chief Financial Officer of the Authority shall certify
to the Trustee in writing that, for either the preceding Fiscal Year or any consecutive 12-month period out of the 18-month period
preceding the month in which the order or resolution authorizing such Additional Obligations or Senior Credit Agreement is
adopted (the “Base Period”):
(1)
Historical/Pro Forma Coverage: The Pledged Revenues were not less than 200% of the Maximum
Annual Debt Service Requirements, after giving effect to the issuance of the Additional Obligations or execution of the Senior
Credit Agreement, as applicable; or
(2)
Pro Forma Coverage: Pledged Revenues, adjusted to give effect to the occurrence prior to the
adoption of the order or resolution authorizing such Additional Obligations of (A) any increase in the Sales and Use Tax rate or
(B) any increase in the percentage of the Sales and Use Tax revenues designated by the Authority as Pledged Revenues, as if
either such increase had been in effect for the entire Base Period, would have been not less than 200% of the Maximum Annual
Debt Service Requirements after giving effect to the issuance of the Additional Obligations or execution of the Senior Credit
Agreement, as applicable.
(c)
Exception. Additional Obligations issued to refund Senior Lien Obligations are not subject to subsection (b)
of this Section if their issuance will not increase Maximum Annual Debt Service Requirements by more than 10%.
34.
Covenant to Maintain Sales and Use Tax Rate. The Authority agrees and covenants that at all times while
there are Outstanding Contractual Obligations, (i) it will not reduce the rate at which the Sales and Use Tax is levied below its
current rate of 1% of the receipts from the sale at retail or on the sale price or the lease or rental price on the storage, use or other
consumption of all taxable items within the boundaries of the Authority or take action to apply such tax to less than all of such
transactions and (ii) it will maintain its sales and use tax rate and apply such amounts to pay its Outstanding Series 2009 Bonds,
Outstanding Series 2009 Contractual Obligations, Outstanding Series 2010 Contractual Obligations, Outstanding Series 2011
Bonds, Outstanding Series 2011 Contractual Obligations, Outstanding Series 2014 Contractual Obligations, Outstanding Series
2015 Bonds, Outstanding Series 2015 Contractual Obligations and other obligations issued pursuant to the authority of the
election held within the Authority on November 4, 2003 or other obligations issued pursuant to Chapter 451, Texas
Transportation Code, as amended.
36.
The Trustee.
(a)
Appointment. Wells Fargo Bank, N.A. has heretofore been appointed, and is hereby again appointed as
Trustee, for the sole purpose of holding, investing, securing and disbursing the Pledged Revenues in accordance with the
Resolution and is not acting in a fiduciary capacity for the Owners. The Trustee shall not be responsible for any Pledged
Revenues until such Pledged Revenues are actually received by the Trustee. The Trustee undertakes to perform such functions
and duties and only such functions and duties as are specifically set forth in the Resolution, and no implied duties or obligations
shall be read into the Resolution against the Trustee.
(b)
Limited Obligations. The Trustee shall be under no obligation to perform any duty or exercise any right or
power under the Resolution until it is provided with adequate funds to do so and receives an indemnity reasonably satisfactory to
it against any and all costs and expenses, outlays, and counsel fees and other disbursements, and against all liability not due to its
negligence or willful misconduct. No provision of the Resolution shall require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or to
take any action, which in the judgment of the Trustee would conflict with any rule of law or with the terms of the Resolution or
would expose it to liability.
(c)
Compensation. The Authority shall pay to the Trustee from time to time reasonable compensation for its
services. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The
Authority shall promptly reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such
expense shall include the reasonable compensation and out-of-pocket expenses of its agents and counsel.
(d)
Limited Liability. The Trustee shall be protected and shall incur no liability in acting or proceeding, or in not
acting or not proceeding, in good faith, reasonably and in accordance with the terms of the Resolution, upon any resolution,
order, notice, request, consent, waiver, certificate, statement, affidavit, requisition, bond or other paper or documents which it
shall in good faith reasonably believe to be genuine and to have been adopted or signed by the proper board or person, or to have
been prepared and furnished pursuant to any of the provisions of the Resolution, or upon the written opinion of any attorney (who
may be an attorney for the Authority), engineer, appraiser or accountant (any of which, unless otherwise specified herein, may be
an employee of the Authority) reasonably believed by the Trustee to be qualified in relation to the subject matter. The Trustee
shall not be liable for any error of judgment made in good faith by the Trustee unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts. The Trustee shall not be liable with respect to any action taken or omitted to be taken
by it in good faith in accordance with the express provisions of the Resolution.
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(e)
Establishing Facts Prior to Action. Whenever, in the administration of the trust confirmed by the Resolution,
the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action
hereunder, such matter (unless other evidence in respect thereof is specifically prescribed herein) may, in the absence of bad faith
on the part of the Trustee, be deemed to be proved and established by a certificate of an Authorized Representative; and, in the
absence of bad faith on the part of the Trustee, such certificate shall constitute full authority for any action taken, suffered or
omitted by the Trustee under the provisions of the Resolution in reliance thereon.
(f)
Use of Released Funds. The Trustee shall not be concerned with or accountable to anyone for the subsequent
use or application of any money which shall be released or withdrawn and used in accordance with the provisions hereof.
(g)
Executing Powers Through Third Parties. The Trustee may execute any of the trusts or powers hereof and
perform the duties required of it hereunder by or through attorneys, accountants, agents or receivers and may, in all cases, pay,
and be reimbursed for, the reasonable fees and expenses thereof. The Trustee shall not be responsible for the conduct of such
attorneys, accountants, agents or receivers it appointed with due care.
(h)
Limited Responsibility for the Contractual Obligations and Related Documents. The Trustee shall not be
responsible for any recital or statement in the Resolution, any amendment to the Resolution, the Contractual Obligations, or any
official statement or other disclosure document prepared or distributed in connection with the Contractual Obligations or for the
validity of the execution by the Authority of the Resolution, any amendment to the Resolution or the Contractual Obligations, or
for the validity of the execution of any other or supplemental instrument by the Authority, or for the validity or sufficiency of the
security for the Contractual Obligations issued hereunder or intended to be secured hereby, or for the value of or title to the
security for the Contractual Obligations pledged hereunder or for the creditworthiness of the Authority. Except as otherwise
expressly provided herein, the Trustee shall have no duty to ascertain or inquire as to the performance or observance of any of the
terms, conditions, covenants or agreements herein or in an amendment to the Resolution, but the Trustee may require of the
Authority full information and advice as to the performance of such covenants, conditions and agreements set forth herein and in
an amendment to the Resolution.
(i)
No Representation of Warranty. Reserved.
(j)
No Obligation or Duty. The permissive right of the Trustee to do things enumerated in the Resolution shall
not be construed as an obligation or duty of the Trustee. The Trustee shall not be required to give any bond or surety in respect of
the execution of its trusts and powers hereunder or otherwise in respect of these premises, except as provided in Section 29.
Nothing contained herein or in the Contractual Obligations shall be construed to impose any duties upon the Trustee beyond
those expressly contained in the Resolution or in an amendment to the Resolution. All immunities, indemnities and other
provisions of the Resolution as related to the duties and liabilities of the Trustee shall apply to its duties and liabilities with
respect to the Contractual Obligations.
(k)
No Individual Liability. Under no circumstances shall the Trustee be liable in its individual capacity for the
obligations evidenced by the Contractual Obligations. In accepting the trust hereby created, the Trustee acts solely as Trustee for
the trust estate hereunder and not in its individual capacity and, except as otherwise provided herein, all persons, including
without limitation the Owners and the Authority, having any claim against the Trustee arising from the Resolution shall look for
payment only from the funds and accounts held by the Trustee hereunder.
(l)
Indemnification of the Trustee. The Authority hereby covenants and agrees, to the extent permitted by
applicable law and solely from the amounts held or required to be held hereunder, to indemnify the Trustee for any loss, liability,
outlays and reasonable fees of its in- house and/or outside counsel, other reasonable disbursements, expenses or advances
reasonably incurred or made, without negligence or willful misconduct on the part of the Trustee, arising out of or in connection
with its acceptance or administration of the trust or performance of its duties hereunder. All indemnifications and releases from
liability granted to the Trustee hereunder shall extend to its directors, officers, employees, officials and agents.
(m)
Trustee May Purchase Senior Lien Obligations. The Trustee shall not be disqualified from buying, selling,
holding, owning or dealing in Senior Lien Obligations solely because it is trustee hereunder, nor is the Trustee disqualified from
being the depository of the Authority of moneys not entrusted to it hereunder.
(n)
Trustee May Resign or be Removed. The Trustee may resign and thereby become discharged from the trusts
confirmed upon the acceptance thereof by a successor by notice in writing to be given to the Authority and by notice mailed,
postage prepaid to all Owners not less than 60 days before such resignation is to take effect, but such resignation shall take effect
immediately upon the appointment of a successor Trustee pursuant to this Section, if such successor Trustee shall be appointed
before the time specified by such notice and shall accept such appointment. If no successor Trustee is appointed within 60 days
after the date of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee. The Trustee may be removed, with or without cause, at any time by an instrument or
concurrent instruments in writing, filed with the Trustee, and signed by the Owners of a majority in principal amount of the
Senior Lien Obligations.
A-22
(o)
Successor Trustee. The Authority covenants that at all times while any Contractual Obligations are
Outstanding it will engage a legally qualified bank, trust company, financial institution or other agency with a minimum capital
and surplus at the time of deposit of at least $1,000,000,000 to act as Trustee for the Contractual Obligations. The Authority
reserves the right to change the Trustee for the Contractual Obligations on not less than sixty (60) days’ written notice to the
Trustee, as long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment
date on the Contractual Obligations. Any successor Trustee appointed under the Resolution shall execute, acknowledge, and
deliver to its predecessor Trustee, and also to the Authority, an instrument accepting such appointment, and thereupon such
successor Trustee, without any further act, deed or conveyance, shall become fully vested with all moneys, estates, properties,
rights, powers, duties, and obligations of such predecessor Trustee, with like effect as if originally named as Trustee; but the
Trustee ceasing to act shall nevertheless, on the written request of the Authority, or of the successor Trustee, execute,
acknowledge, and deliver such instruments of assignment and further assurance and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in such successor Trustee all the right, title, and interest of the
predecessor Trustee in and to any property held by it under the Resolution, and shall pay over, assign, and deliver to the
successor Trustee any money or other property subject to the trusts and conditions herein set forth. Any such successor Trustee
shall promptly notify any paying agents and registrars of its appointment as Trustee. Each Trustee hereunder, by acting in that
capacity, shall be deemed to have agreed to the provisions of the Resolution. No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Section shall become effective until the acceptance of appointment by the
successor Trustee under this Section.
37.
Related Matters. To satisfy in a timely manner all of the Authority’s obligations under the Resolution, the
Paying Agent/Registrar Agreement and the Bond Purchase Agreement, the Authorized Representative and all other appropriate
officers, agents and representatives of the Authority are hereby authorized and directed to take all other actions that are
reasonably necessary to provide for the issuance of the Contractual Obligations, including, without limitation, executing and
delivering on behalf of the Authority all certificates, consents, receipts, requests and other documents as may be reasonably
necessary to satisfy the Authority’s obligations under the Bond Purchase Agreement, the Paying Agent/Registrar Agreement, the
Escrow Agreement and the Resolution and to direct the transfer and application of funds of the Authority consistent with the
provisions of the Resolution.
38.
Resolution a Contract - Amendments. The Authority hereby contractually obligates and commits itself to
utilize the net proceeds of the Contractual Obligations, after payment of the costs of issuance and any Bond Insurance Policy
premium related thereto, for the refunding of the Refunded Contractual Obligations, the proceeds of which were used to fund the
acquisition of the Equipment in accordance with the terms and provisions hereof. This Resolution shall constitute a contract with
the Owners from time to time, be binding on the Authority and the Trustee, and shall not be amended or repealed by the
Authority so long as any Contractual Obligation remains Outstanding except as permitted in this Section. The Authority may,
without the consent of or notice to any Owners, but with notice to the Trustee, from time to time and at any time, amend this
Resolution in any manner not detrimental to the interests of the Owners, including the curing of any ambiguity, inconsistency, or
formal defect or omission herein. In addition, the Authority may, with the written consent of the Trustee and Owners who own in
the aggregate 51% of the principal amount of the Contractual Obligations then Outstanding, amend, add to, or rescind any of the
provisions of this Resolution; provided that, without the consent of all Owners of Outstanding Contractual Obligations, no such
amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Contractual
Obligations, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify
the terms of payment of the principal of or interest on the Contractual Obligations, (ii) give any preference to any Contractual
Obligation over any other Contractual Obligation, or (iii) reduce the aggregate principal amount of Contractual Obligations
required to be held by Owners for consent to any such amendment, addition, or rescission.
No one or more Owner of Outstanding Contractual Obligations shall have any right in any manner whatever by virtue
of, or by availing of, any provision of the Resolution to affect, disturb, or prejudice the rights of any other Owner of Outstanding
Contractual Obligations or the Trustee, or to obtain or to seek to obtain priority or preference over any other Owner of
Outstanding Contractual Obligations or to enforce any right under the Resolution, except in the manner herein provided and for
the equal and ratable benefit of all Owners of Outstanding Senior Lien Obligations and, on a basis subordinate thereto, all
Owners of Junior Lien Obligations and Subordinate Lien Obligations.
45.
Defeasance. The Authority may defease the provisions of the Resolution (except as herein expressly stated),
and discharge its obligation to the Owners of any or all of the Senior Lien Obligations (except to the extent otherwise expressly
provided therein) to pay the principal of and interest thereon from other funds, by depositing with the Paying Agent/Registrar, the
Comptroller or any other entity with which such deposits may be made (as specified in Section 1207.061, Texas Government
Code, as amended) which has a minimum capital and surplus at the time of deposit of at least $100,000,000 either:
(a)
Cash Deposit: Cash in an amount equal to the principal amount of and interest thereon to the date of maturity
or earlier redemption, if any, or
(b)
Governmental Obligations: Pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable
obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of
America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are
unconditionally guaranteed or insured by the agency or instrumentality and that are rated as to investment quality by a nationally
A-23
recognized investment rating firm not less than “AAA” or its equivalent; or (iii) noncallable obligations of a state or an agency or
a county, municipality, or other political subdivision of a state that have been refunded and that are rated as to investment quality
by a nationally recognized investment rating firm not less than “AAA” or its equivalent, which, in the case of (i), (ii) or (iii), may
be in book- entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder,
without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money
in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose,
shall be verified by a nationally recognized firm of accountants or actuaries sufficient to provide for the timely payment of the
principal of and interest thereon to the date of maturity or earlier redemption, if any; provided, however, that if any of such
Contractual Obligations are to be redeemed prior to their respective dates of maturity, irrevocable provision shall have been made
for giving notice of redemption as provided in the Resolution. Upon such deposit, such Contractual Obligations shall no longer
be regarded to be Outstanding and shall no longer be subject to other redemption at the option of the Authority. Any surplus
amount not required to accomplish such defeasance shall be returned to the Authority.
Upon such defeasance of all Senior Lien Obligations as provided in this Section, the lien on and pledge of the Pledged
Revenues and powers of the Trustee granted under the Resolution and all covenants, agreements and other obligations of the
Authority to the Owners thereof shall thereupon cease, terminate and become void and be discharged and satisfied. In such event,
the Trustee shall cause an accounting for such period or periods as shall be requested by the Authority to be prepared and filed
with the Authority and, upon the request of the Authority, shall execute and deliver to the Authority all such instruments as may
be desirable to evidence such discharge and satisfaction, and shall pay over or deliver to the Authority all moneys or securities
held by it pursuant to the Resolution which are not required for the payment of principal or redemption price, if applicable, on
Senior Lien Obligations not theretofore surrendered for such payment, or redemption.
47.
Legal Holidays. In any case where the date interest becomes payable on the Contractual Obligations or
principal of the Contractual Obligations matures or the date fixed for redemption of any Contractual Obligations shall
not be a Business Day, then payment of interest or principal need not be made on such date, but payment may be made on
the next succeeding Business Day and in the same amount with the same force and effect as if made on the scheduled date
for payment and no interest shall accrue for the period from the date of maturity or redemption to the date of actual
payment.
A-24
APPENDIX B
AUDITED FINANCIAL STATEMENTS
AND
UNAUDITED MANAGEMENT’S DISCUSSION AND ANALYSIS
AND SUPPLEMENTAL INFORMATION
[THIS PAGE LEFT BLANK INTENTIONALLY]
KPMG LLP
811 Main Street
Houston, TX 77002
Independent Auditors’ Report
The Board of Directors
Metropolitan Transit Authority
Harris County, Texas:
Report on the Financial Statements
We have audited the accompanying financial statements of the Metropolitan Transit Authority of Harris
County, Texas (the Authority), as of and for the years ended September 30, 2015 and 2014, and the related
notes to the financial statements, which collectively comprise the Authority’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 U.S. generally accepted accounting principles; 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 audits. We conducted our
audit in accordance with auditing standards generally accepted in the United States of America and the
standards applicable to the financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we
express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective
financial position of the Metropolitan Transit Authority of Harris County, Texas, as of September 30, 2015 and
2014, and the respective changes in financial position and cash flows thereof for the years then ended in
accordance with U.S. generally accepted accounting principles.
KPMG LLP is a Delaware limited liability partnership,
the U.S. member firm of KPMG International Cooperative
(“KPMG International”), a Swiss entity.
7
Emphasis of Matter
As discussed in note 1 to the financial statements, effective October 1, 2014 the Authority adopted
Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting
for Pensions – an amendment of GASB No. 27 and GASB Statement No. 71, Pension Transition of
Contributions Made Subsequent to the Measurement Date – an amendment of GASB No. 68. Our opinion is
not modified with respect to this matter.
Other Matters
Required Supplementary Information
U.S. generally accepted accounting principles require that the management’s discussion and analysis on pages
10–21 and required supplemental information 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 an opinion on the financial statements that collectively
comprise the Authority’s basic financial statements. The introductory and statistical sections are presented
for purposes of additional analysis and are not a required part of the basic financial statements. Such
information has not been subjected to the auditing procedures applied in the audit of the basic financial
statements, and accordingly, we do not express an opinion or provide any assurance on it.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated March 14, 2016 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 to describe the scope of our testing of internal control over financial reporting and compliance
and the results of that testing, and not to provide an opinion on internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance with Government Auditing
Standards in considering the Authority’s internal control over financial reporting and compliance.
Houston, Texas
March 14, 2016
8
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9
Management’s Discussion and Analysis (MD&A)
(Unaudited)
Governmental Accounting Standard No. 34, Basic Financial Statements and Management’s
Discussion and Analysis for State and Local Government, requires externally issued financial
reports that are prepared in accordance with generally accepted accounting principles to include
an MD&A section. This section is to provide an objective and easily readable analysis of the
government’s financial activities based on currently known facts, decisions, or conditions. MD&A
should discuss the current-year results in comparison with prior year, with emphasis on the current
year. This fact-based analysis should discuss the positive and the negative aspects of the
comparison with the prior year. Governments are encouraged to use charts, graphics, and tables to
enhance the understandability of the information presented.
10
Metropolitan Transit Authority of Harris County, Texas
Management’s Discussion and Analysis
(Unaudited)
This section of the CAFR presents a discussion and analysis of METRO’s financial performance during the fiscal
years ending September 30, 2015, 2014, and 2013. Please read it in conjunction with the introductory section of the
report and METRO’s financial statements, which immediately follow this section. Numbers presented in the
Management’s Discussion and Analysis tables are rounded and may differ slightly from the financial statements.
Financial Highlights
The FY2015 beginning net positon was reduced by $177.8 million as METRO implemented GASB Statement No.
68, Accounting and Financial Reporting for Pensions. This new statement, which focuses on defined benefit
pension plans, changed the method of calculating pension cost, increased disclosures and required several financial
statement adjustments. These adjustments included recording a pension liability, deferred outflow of resources and
removing the prepaid pension assets. Additional information on this change is provided in note 1 and note 4 of the
financial statements.
During FY2015, METRO’s net position improved by $33.9 million as sales tax receipts continued to increase,
surplus land was sold, funding from the Federal Transit Administration (FTA) for operating/capital programs was
available to offset expenses, and cost containment programs, relative to increased service levels, continued to be
effective.
x
Total Resources, as reported on schedule A-1, has declined during the last three years as grant funded capital
programs were being completed, delays with the federal government passing appropriation bills for new
grants, and a reduction of $4.1 million in FY2015 related to the sale of grant funded land that will be refunded
to the FTA. These declines were partially offset by growth in sales tax receipts.
x
Total Operating Expense, as reported on schedule A-1, continue to increase during the last three years as three
new light-rail lines started revenue service, (two in FY2015 and one in FY2014), METROLift assisted more
customers, two additional High Occupancy Toll (HOT) lanes became operational, and the new bus network,
designed over multiple years, was implemented during FY2015.
x
Total Nonoperating Expenses, as reported on schedule A-1, were relatively consistent between the three years
with the exception of $105.7 million in FY2014 for asset impairment and $19.1 million in FY2013 for land
transferred to the City of Houston as part of the street replacement program implemented during rail
construction. The land transfer in FY2013 was reported as part of local infrastructure assistance.
x
Total Assets and Deferred Outflows, as reported on schedule A-2, increased during the last three years as
METRO completed several major capital programs which included: three new light-rail lines, two HOT lane,
expanded the light-rail maintenance facility, added a new light-rail storage facility, upgraded bus operating
facilities, replaced buses, added new light-rail cars and implemented several new computer applications.
Included in this increases was $32.4 million of deferred pension outflows and $13.1 million of potential losses
due to the fuel hedge program. Declines were generally related to depreciation, sale of surplus land, asset
impairments and termination/amortization of prepaid leases. Additional information for net capital assets can
be found in note 3 and prepaid leases in note 7 of the financial statements.
x
Total Liabilities and Deferred Inflows, as reported on schedule A-2, increased during the last two years with
$61.1 million related to other postemployment benefits (OPEB), new long-term debt (including premium)
totaling $235.8 million (of which $60.0 million was used to retire commercial paper), and recording, in
FY2015, the initial pension liability of $178.0 million as required by GASB Statement No. 68. Proceeds from
the long-term debt, with the exception of retiring commercial paper, were used to purchase buses and light-rail
cars. Declines generally related to scheduled repayment of long-term debt, retirement of commercial paper,
and the amortization and termination of deferred rental payments. Additional information for pension and
OPEB can be found in note 4 and debt in note 7 to the financial statements. METRO had no deferred inflows
for FY2015 and FY2014 and $1.3 million in FY2013 for diesel fuel swaps.
11
OVERVIEW OF THE FINANCIAL STATEMENTS
The financial section of this report consists of four parts: management’s discussion and analysis (this section),
the basic financial statements, the notes to the financial statements, and the required supplementary
information. METRO’s financial statements are prepared in conformity with U.S. generally accepted
accounting principles (GAAP) as applied to government units on an accrual basis. Under this basis, revenues
are recognized in the period in which they are earned, expenses are recognized in the period in which they are
incurred, and depreciation of assets is recognized in the Statements of Revenues, Expenses, and Changes in
Net Position.
FINANCIAL ANALYSIS OF METRO
Summarized Changes in Net Position
(in millions) A-1
Resources
Transportation fares
Sales tax
Investment income
Intergovernmental revenue
Other income
Grant proceeds (includes capital
grants used for maintaining assets)
Grant proceeds (capital)
Total resources
Expenses
Operating
Scheduled service
Nonscheduled service
Service support
Organizational support
Depreciation
Total operating expenses
Nonoperating expenses
Noncapitalized interest cost
Loss on sale of assets/impairment
Funds passed to subrecipients
Local infrastructure assistance
Total nonoperating expenses
Total expenses
Change in net position
Net position - beginning of the yearrestated (Note 1)
Net position, end of the year
FY2015
FY2014
Change
$
$
$
74.7
715.2
0.6
1.8
8.8
76.3
685.2
0.3
1.8
2.6
%
Change
FY2013
(1.6)
30.0
0.3
–
6.2
(2.1) %
4.4 %
100.0 %
0.0 %
238.5 %
$
72.8
642.5
0.8
2.0
1.8
40.2
64.9
(24.7)
(38.1) %
71.8
56.6
897.9
108.4
939.5
(51.8)
(41.6)
(47.8) %
(4.4) %
256.9
1,048.6
337.9
66.3
71.5
45.6
173.5
312.6
62.4
64.8
42.0
160.0
25.3
3.9
6.7
3.6
13.5
694.8
641.8
53.0
14.5
3.1
2.1
149.5
169.2
864.0
33.9
10.7
105.0
3.4
161.5
280.6
922.4
17.1
1,949.2
$ 1,983.1
2,109.8
$ 2,126.9
12
8.1
6.3
10.3
8.6
8.4
8.3
%
%
%
%
%
294.1
55.7
60.7
44.7
136.6
%
591.8
3.8
(101.9)
(1.3)
(12.0)
(111.4)
(58.4)
16.8
35.5 %
(97.0) %
(38.2) %
(7.4) %
(39.7) %
(6.3) %
98.2 %
9.9
0.5
2.0
170.4
182.8
774.6
274.0
(160.6)
$(143.8)
(7.6) %
(6.8) %
1,835.8
$ 2,109.8
Increases to Net Position (Revenues) with Related Discussions
800
715.2
685.2
700
642.5
600
500
400
300
256.9
200
100
74.7
40.2 56.6 11.2
108.4
76.3
64.9
72.8
71.8
4.7
4.6
0
FY2015
FY2014
Transportation fares
Sales tax
Capital grants
Miscellaneous revenue
FY2013
Operating grants
In millions
Transportation fares include transit user and HOT lanes revenues. The $1.6 million decline in revenue for
FY2015 relates to a $2.7 million or 4% decline in transportation fares slightly offset by a $1.1 million increase
or 16% in HOT lane usage. The increase for FY2014 and FY2013 in fares primarily came from additional
utilization of HOT lanes.
Sales tax revenue is 1% of taxable sales within METRO’s service area and is collected by the Texas
Comptroller Office and wired monthly to METRO. Increases in sales tax collections over the last three years
are related to growth in the local economy and the coordination of sales tax collections with the state.
Operating grants (includes capital grants authorized by the FTA for use in maintaining capital assets) are
provided by the FTA and used to offset the cost of maintaining the revenue fleet and operating specific transit
programs such as METROLift and Van Pool. Grants funds are contingent on appropriations from the federal
government and subsequent award of grant dollars by the FTA, which is METRO’s primary federal oversight
agency. Recent declines are primarily related to delays in passing appropriation bills by the federal
government.
Capital grants are provided by the FTA and used to help fund the design, construction, purchase, and
enhancement of capital assets. Grants funds are contingent on appropriations from the federal government and
subsequent award of grant dollars by the FTA. The decline during the last three years relates to the progress
made in completing or nearing completion of several major capital programs and a reduction in FY2015 of $4.1
million from the sale of grant funded land that will be refunded to the FTA during FY2016.
Miscellaneous revenues consist of investment income, intergovernmental revenue, real estate, and other
nonoperating activities. The increase in FY2015 is from slight improvements in both real estate and investment
earnings and a $6 million cash payment for the settlement of the 2010 BP oil spill in the Gulf of Mexico. The
money received from the BP settlement was used to fund additional contributions to both defined benefit
pension plans. Activities for FY2014 and FY2013 were relatively consistent.
13
Decreases to Net Position (Expenses) and Related Discussions
400.0
350.0
337.9
312.6
294.1
300.0
250.0
200.0
173.5
149.5
161.5
160.0
150.0
100.0
50.0
170.4
136.6
119.1
66.3 71.5
62.4 64.8
45.6
42.0
55.7 53.9
44.7
19.7
12.4
FY2015
FY2014
FY2013
Scheduled service
Nonscheduled service
Service support
Organizational support
Other activities
Depreciation
Local infrastructure assistance
In millions
Scheduled services consist of bus/light-rail services and include vehicle operations, maintenance, safety, and
training. Increases during the last three years generally came from preventive maintenance, contact services,
operations of three new light-rail lines, and expanding/improving bus and light-rail service by designing and
implementing METRO’s new bus network.
Nonscheduled service includes METROLift, METROVan, and HOT lanes. Increases during the last three years
generally came from expansion of METROLift services and cost related to operating two additional HOT lanes.
Service support includes planning, transit security, insurance, fare collection, and facility maintenance.
Increases during the last three years were generally from developing and implementing METRO’s new bus
network, additional insurance cost for new light-rail lines, and additional maintenance to the operating facilities
due to their age.
Organizational support includes business, community/governmental development, administrative, finance,
personnel, information systems, purchasing, executive oversight, audit, and legal. Total cost for this category
was relatively consistent for the last three years with the increase in FY2015 relating to implementing
METRO’s new bus network and providing additional support to operate three new light-rail lines and two HOT
lanes.
Other activities consist of noncapitalized interest expense, funds passed to grant subrecipients, and loss on sale
of assets/impairment. Changes during the last three years primarily related to asset impairment of $105 million
in FY2014 and increases in noncapitalized interest expense as capital programs were completed and interest
capitalization was reduced.
14
Depreciation and amortization increased over the last three years as three light-rail lines were placed into
service, two additional HOT lanes were completed, new buses and light-rail cars were purchased, and various
facility upgrades were finished.
Local infrastructure assistance provides funding for street, sidewalks, bridges, and congestion mitigation
payments to cities within METRO’s service area and Harris County. Funding limits were established by the
voter approved 2012 referendum using 25% of the FY2014 sales tax with any growth in sales tax collection
shared equally between METRO and the program. The voters approved continuing the program through
December 31, 2025 with the increased allocation to METRO limited for use on non-rail activity. In addition to
the sales tax allocation, costs associated with certain infrastructure improvements that are made as part of
METRO’s capital program may also be reported as local infrastructure assistance. Funds held by METRO and
not yet disbursed under this program total $95.9 million at the end of FY2015. Additional information is
located in note 7 to the financial statements.
The amounts disbursed during the last three years are relatively consistent with the slight decline related to
lower reimbursement requests related to construction projects from local governments. In addition to routine
activity, METRO transferred $19.1 million of land to the City of Houston as part of the light-rail construction
street replacement agreement in FY2013.
Summarized Statement of Net Position
(in millions)
A-2
FY2015
Assets and deferred outflows
Cash and investments
Receivables
Material and supplies inventory
Capital assets (net)
Prepaid and other assets
Deferred outflows – diesel fuel swaps
Deferred outflows – defined pension plans
Total assets and deferred outflows
FY2014
Amount
of
Percentage
Change
Change
$ 512.1
142.1
29.0
3,139.6
10.9
15.0
32.4
$ 418.7
155.5
24.7
3,081.4
39.7
1.9
–
$ 93.4
(13.4)
4.3
58.2
(28.8)
13.1
32.4
3,881.1
3,721.9
159.2
4.3 %
3,653.5
Liabilities and deferred inflows
Trade payables
Commercial paper
Capital leases and debt payables
Other liabilities
Defined benefit pension plans
Other postemployment benefits
Deferred inflows – diesel fuel swaps
Total liabilities and deferred inflows
114.4
121.3
1,174.0
80.1
178.0
230.2
–
83.3
183.4
1,067.8
58.5
–
202.0
–
31.1
(62.1)
106.2
21.6
178.0
28.2
–
37.3 %
(33.9) %
9.9 %
36.9 %
100.0 %
14.0 %
–
149.0
187.0
938.2
99.1
–
169.1
1.3
1,898.0
1,595.0
303.0
19.0 %
1,543.7
Net position:
Investment in capital assets, net of related debt
Restricted assets, debt payments
Unrestricted assets
Total net position
2,016.5
79.1
(112.5)
2,027.4
65.7
33.8
(10.9)
13.4
(146.3)
(0.5) %
20.4 %
(432.8) %
1,948.4
56.8
104.6
$ 2,126.9
$(143.8)
(6.8) %
$ 2,109.8
$ 1,983.1
15
22.3 %
(8.6) %
17.4 %
1.9 %
(72.5) %
689.5 %
100.0 %
FY2013
(Restated)
$
374.0
194.2
20.4
2,978.8
86.1
–
–
Assets and Net Investments in Capital Assets
600
3,500
512.1
3,081.4
2,978.8
418.7
2,500
374.0
400
2,016.5
2,027.4
2,000
300
200
3,139.6
3,000
500
155.5
142.1
1,500
194.2
1,000
86.1
58.3
100
41.6
24.7
29.0
500
20.4
0
FY2015
FY2014
Cash and investments
Material and supplies inventory
1,948.4
0
FY2013
FY2015
Receivables
Prepaid and other assets
FY2014
FY2013
Capital assets net of accumulated depreciation
Net investment in capital assets
In Millions
In Millions
Cash and investments consist of demand deposits and investments. Increases during the last three years were
primarily related to cash received from sales tax, the issuance of new debt in FY2015 and FY2014 as well as the
timing of reimbursements from the FTA for capital/operating grants reduced by payments for operating, capital,
and local infrastructure assistance. More information about cash and investments is located in note 2 to the
financial statements.
Receivables include sales tax, grants, bus passes, and miscellaneous activities. The decline during the last three
fiscal years relate to lower FTA receivables as grant funded light-rail lines started revenue service and delays in
the federal government passing appropriation bills to fund grants.
Material and supplies inventory consists of diesel fuel, bus, light-rail, and nonrevenue vehicle parts used to maintain
the various fleets. Increases during the last three years are from parts that will be used to maintain the three new
light-rail lines and the additional light-rail cars that are needed to effectively operate all four light-rail lines.
Prepaid and other assets include deferred rental payments, insurance, and prepaid rent. The decline during the last
three years relates to the annual amortization and termination of several prepaid rental agreements, and the
elimination in FY2015 of the prepaid pension asset totaling $32.2 million as part of the GASB Statement No. 68
implementation. Additional information on the deferred rental agreements are reflected in note 7 to the financial
statements.
Deferred outflows – diesel fuel swap represents the projected amounts owed by METRO to the counterparties and is
based on the difference between market price of individual swaps as of September 30, 2015 and their fixed future
payment price. The amounts payable to the counterparties totaled $15.0 million in FY2015, $1.9 million in FY014
and $0 in FY2013. The increase over the last two years relates to the dramatic decline in oil prices and the hedging
of most of the diesel fuel requirements through FY2017. The offset to this amount is reported in other liabilities and
will change as diesel fuel prices fluctuate. Additional information is located in note 7 to the financial statements.
16
Deferred outflows –pension plans totals $32.4 million and includes $24.2 million of payments made to the pension
plans between January 1, 2015 and September 30, 2015 and $8.2 million of deferred pension expense that reflects
lower than expected investment earnings. The $24.2 million will be included as part of pension expense in
FY2016 while the $8.2 million will be amortized as part of pension expense over the next four years. This is the
first year these amounts are reported in the financial statements using GASB Statements No. 68, Accounting and
Financial Reporting for Pensions and GASB 71, Pension Transition for Contributions Made Subsequent to the
Measurement Date. New disclosure requirements and additional information is located in note 4 to the financial
statements.
Capital assets net of accumulated depreciation increased during the last three year due to light-rail expansion,
construction of two additional HOT lanes, facilities upgrades, replacement of buses and other capital activity
reduced by depreciation, retirements, asset impairments, and land transferred to the City of Houston as part of the
light-rail expansion agreement. Changes by asset category are reflected in note 3 to the financial statements.
The net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the
outstanding balance of bonds, contractual obligations, capital leases, and other borrowings that are attributable to
the acquisition, construction, or improvement of those assets. Increases during the last three years are from several
major capital projects that were primarily paid for by grants provided by the FTA and local sales tax.
Liabilities and Net Position for Restricted and Unrestricted Assets
1,400.0
1,200.0
1,174.0
1,067.8
1,000.0
938.2
800.0
600.0
400.0
200.0
121.3
114.4
230.2
178.0
80.1
79.1
202.0
183.4
83.3
58.5
-
65.7 33.8
187.0
149.0
169.1
99.1
-
104.6
56.8
FY2015
(200.0)
FY2014
FY2013
(112.5)
Trade payables
Commercial paper
Capital leases and debt payables
Other liabilities and deferred inflows
Defined benefit pension plans
Other postemployment benefits
Restricted assets, debt payments
Unrestricted assets
In Millions
Trade payables are amounts owed to vendors who have provided goods or services. During the last three years, the
amount owed has varied significantly depending on the timing of major capitals projects such as HOT lanes and
light-rail expansion and subsequent payments to vendors.
Commercial paper was used to fund general mobility payments due to local governments and declined by $65.7
million over the last three years. This decline was funded by payments of $ 5.7 million from revenue and refinancing
17
$60 million of commercial paper (moving to long-term) by issuing Sales and Use Tax Bond Series 2015A.
Additional information on debt and the commercial paper program is reflected in note 7 of the financial statements.
Capital leases and debt payables consist of capital leases, bonds, contractual obligations, and accrued interest that
were used to fund light-rail expansion and bus replacements. Increases in long-term debt during the last two years
(including premium) totaled $ 235.8 million, of which $60.0 million was used to retire commercial paper and the
reminder was used to purchase buses and light-rail cars. Declines were from scheduled repayment of principal.
METRO continues to make all principal and interest payment on time and received a debt rating of Aa2 by
Moody’s Investors Service, Inc. and AA+ by Standard & Poor’s Ratings Services on its FY2015 debt issues.
Additional information on outstanding debt and related changes are reflected in note 7 to the financial statements.
Other liabilities include accrued payroll, injuries and damages, deferred rental payments, deferred Q card revenue,
projected payments for deferred outflows-diesel fuel swaps, and other miscellaneous liabilities. The increase in
FY2015 primarily relates to $4.2 million payable to the FTA (from the sale of grant funded land), potential fuel
hedge payment of $13.1 million, and the actuarially determined increase in risk management claims by $4.0
million due to operating three additional light-rail lines and METRO’s new bus network. The decline over the
last three years primarily relates to the amortization and early termination of the deferred rental payments.
Defined benefit pension plans reflects the $178.0 million owed by METRO, the plan sponsor, to the two defined
benefit pension plans based on their independent actuarial reports. This is the first year this amount is reported in
the financial statements as required by GASB Statement No. 68, Accounting and Financial Reporting for
Pensions. Both plans are closed to new members and additional information is located in note 1 and note 4 to the
financial statements.
Other postemployment benefits (OPEB) consist of two plans which provide medical, dental, and life insurance
benefits for eligible retirees and are discussed in note 4 to the financial statements. The plan covering nonunion
employees was closed January 1, 2010 while the plan for employees covered by the collective bargaining
agreement (union) remains open to new participants. The OPEB liability increased by $ 61.1 million over the
last two years as METRO funds these benefits on a pay-as-you-go basis. The increase relates to $ 9.2 million for
nonunion and $ 51.9 million for the union plan.
Restricted assets - debt payments consist of funds held by the Trustee, Wells Fargo Bank, N.A., and was established
as part of METRO’s debt agreements. These funds will be used to make principal and interest payments and to
protect lenders in case of default. METRO requires the Trustee to invest these funds in local government
investment pools that are authorized under the Texas Public Funds Investment Act. Changes for the last three years
include establishing new sinking fund accounts for debt issued in FY2015 and FY2014 and the timing of cash
receipts and subsequent disbursements.
Unrestricted assets is calculated by adding total assets, plus deferred outflows; reduced by total liabilities, total
inflows, investments in capital assets, net of related debt, and restricted assets-debt payments. Amounts reported
as unrestricted must be reviewed in conjunction with estimated future cash flows to determine what funds are
available to expand or implement new programs.
The decline during the last three years are from acquiring additional capital assets and adding funds to restricted
assets that will be used in making principal and interest payments. The largest (noncash) item totaled $178
million and related to recording pension amounts required for the GASB Statement No. 68 implementation as
discussed in note 1 to the financial statements.
OUTSTANDING COMMITMENTS
METRO has various contracts and purchase orders, some of which extend over several fiscal years. During the last
three years, they amounted to $402 million in FY2015, $598 million in FY2014, and $767 million in FY2013. This
decline relates to progress being made toward completing major capital programs such as light-rail expansion and
HOT lanes.
18
The following was taken from a report prepared by Dr. Robert Gilmer:
Dr. Robert. W. “Bill” Gilmer
C.T. Bauer College of Business/Institute
for Regional Forecasting
12/28/2015, METRO Sales Tax Allocations
Outlook for METRO Sales Tax Revenues: 2016-2019
Early this year, sales tax revenues for METRO and the City of Houston moved into contraction in response to the
on-going Fracking Bust. Figure 1 shows the history of sales tax allocations paid to the City for Houston and
METRO since the 1980s. These series are marked by a number of one-time events that drove extraordinary tax
collections, such as Y2K, the Super Bowl in 2004Q1, a combination of the World Series and Hurricane Katrina in
2005Q4, and Hurricane Ike in late 2008. Revenues also show a pronounced response to cyclical events in
Houston, especially to five periods of major declines in U.S. drilling activity: the 1982-87 oil bust, the Asian
Financial Crisis in 1997-98, the 2001-03 U.S. recession and fall of Enron, the 2008-09 Great Recession and oil
price collapse, and the current Fracking Bust. Every event except the Asian Financial Crisis brought recession to
Houston, and all resulted in significant losses of sales tax revenue. Revenue losses to these events ranged from 7.8
to 16.8 percent for the City and 7.3 to 21.9 percent for METRO.
Recent years had been very good for City and METRO sales tax revenues. Figure 2 shows the period of revenue
losses to the Great Recession, and that -- ignoring the 2008 bump from Hurricane Ike – these cyclical losses were
restored by late 2011. After 2011Q4, the Fracking Boom takes control of both Houston’s economy and local
sales tax revenues. Over the period from 2009Q4 to 2014Q4 METRO’s revenue grew 6.6 percent per year in real
dollars, and then accelerated after 2011, expanding at 6.8 percent annually. These growth rates are far above the
average of the last 25 years, when both the City and METRO saw an inflation-adjusted rate of 2.8 percent per
year.
After peaking in late 2015, METRO sales tax revenues are down 4.4 percent, and City revenues are down 4.8
percent. The collapse of oil prices and domestic drilling activity is responsible for this decline. In 12 months
19
Houston’s economic outlook has been turned completely on its head. The near-term forecast for sales tax revenue
is discussed at the end of this document, but the outlook is down substantially from last year, and down even from
earlier this year. Why is it down?
„ Sales tax revenues are generally responsive to the performance of the Houston economy, but even more
responsive to declines in drilling activity. We are now in the middle of the worst drilling downturn
since the 19080’s, with the number of working rigs down by nearly two thirds. Hope for any quick exit
from the Fracking Bust was lost over the summer with the announcement of the Iranian nuclear
agreement.
„ The fracking boom premium over the last three years was at least 4 percent per annum, and it is now
gone.
„ Because of strong U.S. economic expansion and a construction boom in east Houston, local economic
activity may narrowly avoid recession. However, payroll job growth will be barely positive, and the
normal 2.8 percent trend growth in revenue is also off the table for 2016.
„ The sensitivity of sales tax revenues to drilling will probably drag the change in revenues into negative
territory by 10-12 percent measured from 2014Q4 and the trough. Sales tax collections should continue
to fall well into 2016 in the most favorable circumstances. The timing of any recovery - and the
subsequent pace of revenue growth --depends primarily on unpredictable oil markets.
Oil Markets Lose Out
A recent editorial in the Oil and Gas Journal reads: “If not for the Iranian increment [of new production] the oil
market in 2016 would be headed for long awaited balance.” Announced in mid-July, the Iranian nuclear
agreement will allow Iran to legally return to world oil markets, to immediately bring new supplies from floating
storage, and in coming months to add significant new barrels from renovated oil fields. Opinion on just how
much oil the Iranians can deliver and how soon varies widely, but the price of oil fell hard on the heels of the
20
announcement. Over the 60 days before the surprise agreement, U.S. crude price had bounced back to average
$57 dollars per barrel, but by late July the price was back under $50 per barrel, and it has stayed well below that
level since then.
Oil markets briefly appeared to have grabbed the brass ring this summer, with the prize being the return of higher
crude prices. Drilling activity had fallen steeply in early 2010, tumbling faster and further than the 2008-09
downturn, and by mid-July the number of working rigs was only 44.4 percent of the 2014 peak. But higher oil
prices in May and June seemed to bring an end to the decline, and even a brief upturn in drilling activity. The
upturn lasted only a few weeks, however, ending with the Iranian agreement. Another 150 rigs have been lost
since oil prices collapsed once more, the U.S. rig count is now down 63.3 percent from the peak, and we find
ourselves mired in the worst setback to U.S. drilling and exploration since the 1980s.
When the brass ring was snatched from world oil markets, it was a significant loss for Houston’s economy as
well. As soon as oil prices stabilized in the spring, local oil-related layoffs slowed, payroll employment briefly
turned around, and most economic indicators showed that Houston’s economy had found some positive footing.
A V-shaped recovery in oil price and drilling activity would have brought a V-shaped recovery for Houston’s
economy as well. This quick turnaround would have been the best possible outcome for Houston, and was the
most likely outcome until the Iranian deal was announced. Now Houston faces the fallout from sustained low oil
prices and a very deep downturn in drilling.
The Houston Economy Now
Three big events currently shape the outlook for Houston. First, Houston benefits from a strong U.S. economy
that supports many jobs throughout the metropolitan area. Local companies that reach into national markets such
as HP, BMC Software, United Airlines, AIG, and Sysco benefit from national strength. After eight years of
recession and sluggish recovery, the US economy finally appears to have put the Great Recession behind it. We
assume throughout this discussion that the US payroll employment grows at 1.7 percent per year, adding an
average of 200,000 new jobs per month.
The most important factor currently shaping Houston’s economy is the collapse of oil prices and drilling. Once
the payroll employment data for Houston are revised in March, they are likely to show that 2015 brought the loss
of over 30,000 jobs in oil and gas production, oil services, and oil-related manufacturing. The timing and pace of
any drilling recovery is uncertain, and we will look at three scenarios to see how this oil downturn might play out.
However, the V-shaped recovery that was the best and most likely option last summer is now off the table.
Houston will see no quick and easy return strong job growth.
Finally, the third factor driving the local economy – and most surprising – is a major boom in building
downstream petrochemical, refining and liquefied natural gas (LNG) plants. Primarily driven by low natural gas
prices, over $50 billion in oil-industry construction is underway in east Houston, bringing an influx of skilled
construction workers. These are temporary workers, and the plants will leave relatively few jobs in their wake
once completed, but this construction could not be better timed as a counter to mounting layoffs from the drilling
collapse.
Pulling the three events together, the result is likely to be very slow job growth in 2015 and 2016. At the spring
Symposium, the IRF forecast for 2015 Houston employment called for 13,000 new jobs in Houston, and the
Texas Workforce Commission says that after 11 months we are on track for 17,300. The Dallas Fed does early
and preliminary revisions to the payroll employment data, and their calculations indicate that Houston is perhaps
on track to add about 4,000 new jobs. All sources agree that the number of new jobs is small but positive, and
down substantially from the 100,000 new jobs per year that Houston added each year from 2012-2014. But no
recession is yet underway, and Houston is certainly not experiencing a recession anything like the 1980s, where
the metro area lost 13.3 percent of its jobs – better than one in eight.
21
Basic Financial Statements
Generally Accepted Accounting Principles
Generally accepted accounting principles (GAAP) are uniform minimum standards of and guidelines
to financial accounting and reporting. Adherence to GAAP assures that financial reports of all state
and local governments regardless of jurisdictional legal provisions and customs contain the same
types of financial statements and disclosures, for the same categories and types of funds and
activities, based on the appropriate measurement and classification criteria.
Adherence to GAAP is essential to assuring a reasonable degree of comparability among the
financial reports of state and local governmental units. Governmental accounting systems thus must
provide data that permit reporting on the financial status and operations of a government in
conformity with GAAP.
GAAP establishes standards for preparing a comprehensive annual financial report, which includes
management’s discussion and analysis (MD&A), basic financial statements, notes to the financial
statements, required supplementary and statistical information.
22
Metropolitan Transit Authority of Harris County, Texas
Statements of Net Position
September 30, 2015 and 2014
2015
Assets
Current assets
Cash
Investments
Investments – restricted
Receivables
Sales tax
Federal government - Federal Transit Administration
Bus passes and other receivables
Total receivables
Material and supplies inventory
Total current assets
Noncurrent assets
Investments – restricted
Capital assets, net of depreciation
Prepaid pension
Other noncurrent assets
Prepaid rental payments
Total noncurrent assets
Total assets
Deferred outflow of resources
Diesel fuel
Pensions
Total deferred outflows of resources
Liabilities
Current liabilities
Trade payables
Accrued compensation and benefits
Liabilities for injuries and damages
Other current liabilities
Capital lease obligations
Debts payable
Debt interest payable
Derivative instrument-diesel fuel swaps
Total current liabilities
Noncurrent liabilities
Liabilities for injuries and damages
Commercial paper
Deferred rental payments
Capital lease obligations
Debts payable
Other postemployment benefits
Defined benefit pension plans
Total noncurrent liabilities
Total liabilities
Net position
Net investment in capital assets
Restricted assets – debt payments
Unrestricted assets
Total net position
$
5,426,047
410,462,331
45,240,619
23
$
3,671,108
316,174,054
31,839,343
117,212,671
12,041,883
12,855,952
142,110,506
28,996,881
632,236,384
119,462,662
25,218,342
10,798,847
155,479,851
24,749,710
531,914,066
50,949,645
3,139,596,631
–
3,645,852
7,246,855
3,201,438,983
3,833,675,367
67,007,168
3,081,386,561
26,091,075
3,518,211
10,067,401
3,188,070,416
3,719,984,482
15,041,432
32,384,271
47,425,703
1,899,588
–
1,899,588
114,457,190
30,140,189
4,866,124
13,385,191
8,951,781
28,155,000
20,429,616
15,041,432
235,426,523
83,276,299
26,922,386
4,657,529
8,687,095
8,543,263
13,920,000
20,515,002
1,899,588
168,421,162
9,390,567
121,300,000
7,246,855
57,614,124
1,058,832,615
230,234,947
177,961,819
1,662,580,927
1,898,007,450
6,196,311
183,400,000
10,067,401
66,723,307
958,059,450
202,045,812
–
1,426,492,281
2,016,537,016
79,101,851
(112,545,247)
$ 1,983,093,620
The accompanying notes are an integral part of the financial statements.
2014
1,594,913,443
2,027,406,944
65,681,932
33,881,751
$ 2,126,970,627
Metropolitan Transit Authority of Harris County, Texas
Statements of Revenues, Expenses, and Changes in Net Position
for the Years Ended September 30, 2015 and 2014
2015
Operating revenues
Transportation fares
$
Operating expenses
Scheduled services - fixed route
Bus and rail operations – direct
Contract service
Material distribution
Preventative maintenance
Central shop and maintenance support
Safety and training
Subtotal scheduled services - fixed route
Nonscheduled services –special
METROLift
METROVan
HOT lanes and special events
Subtotal non-scheduled services – special
Service support
Service planning and evaluation
Marketing
Transit security and traffic management
Insurance and claims
Ticket and fare collection
Facility maintenance
Subtotal service support
Organizational support
Business, community, and governmental development
Administrative, financial, and personnel
Information systems
Purchasing
Oversight, audit, and legal
Subtotal organizational support
Depreciation and amortization
Total operating expenses
Operating loss
Nonoperating revenues (expenses)
Sales tax
Investment income
Intergovernmental revenue
Noncapitalized interest expense
Other income
Grant proceeds
Local infrastructure assistance
Loss for asset impairment
Funds passed to subrecipients
Gain (loss) on sale or disposal of assets
Total nonoperating revenues (expenses)
Net decrease before capital grants
Capital grant proceeds
Changes in net position
Net position beginning of the year (as restated, note 1)
Net position end of the year
The accompanying notes are an integral part of the financial statements.
24
74,651,045
2014
$
76,282,549
202,944,079
49,839,742
6,244,556
54,180,889
21,073,250
3,612,522
337,895,038
183,586,708
49,298,303
6,086,883
52,289,574
20,208,555
1,135,164
312,605,187
52,171,593
5,475,396
8,610,185
66,257,174
49,503,466
5,193,777
7,669,836
62,367,079
4,947,792
9,728,386
21,118,036
5,754,471
3,562,149
26,414,559
71,525,393
3,545,587
7,001,452
19,326,396
7,036,234
3,955,040
23,928,168
64,792,877
2,894,550
14,334,333
17,684,558
3,217,201
7,490,093
45,620,735
173,469,603
694,767,943
(620,116,898)
3,551,653
13,646,454
16,371,349
3,249,771
5,170,576
41,989,803
160,049,291
641,804,237
(565,521,688)
715,160,213
597,015
1,841,467
(14,501,373)
8,841,043
40,230,897
(149,505,814)
–
(2,097,344)
(3,130,847)
597,435,257
(22,681,641)
56,584,181
33,902,540
1,949,191,080
$ 1,983,093,620
685,167,303
328,666
1,843,453
(10,723,830)
2,643,857
64,927,095
(161,502,564)
(105,756,522)
(3,368,756)
755,594
474,314,296
(91,207,392)
108,344,176
17,136,784
2,109,833,843
$ 2,126,970,627
Metropolitan Transit Authority of Harris County, Texas
Statements of Cash Flows
for the Years Ended September 30, 2015 and 2014
2015
Cash flows from operating activities:
Receipts from transportation fares
Payments to employees
Payments to suppliers for goods and services
Net cash used in operating activities
Cash flows from noncapital financing activities:
Sales tax
Proceeds from grants
Receipts from miscellaneous income
Payments for local infrastructure assistance
Net cash provided by noncapital financing activities
Cash flows from capital and related financing activities:
Proceeds from grants
Proceeds from the issuance of sales tax contractual obligation
Principal payments related to commercial paper
Principal payments related to debts
Interest payments related to debts
Purchase of investment from the issuance of sales tax contractual obligation
Sale of investments relating to sales tax contractual obligation
Interest rebates from Build America Bonds
Proceeds from sale of assets
Capital purchases
Net cash flows used in capital and related financing activities
Cash flows from investing activities:
Proceeds from sale and maturities of investments
Purchase of investments
Interest income
Net cash flows used in investing activities
Net change in cash
Cash at beginning of year
Cash at end of year
Reconciliation of operating loss to net cash used in operating activities:
Operating loss
Depreciation and amortization
Changes in assets and liabilities:
(Increase) in accounts receivable
(Increase) decrease in inventory and other assets
Decrease in prepaid pension
Increase (decrease) in accrued compensation and benefits
Increase in deferred outflows – pension plans
Increase in other postemployment benefits
Increase in liabilities for injuries and damages
Increase (decrease) in trade payables and other liabilities
Net cash used in operating activities
Noncash investing activities:
Net (increase) decrease in fair value of investments
Inflows from reissuance of commercial paper
Outflows from reissuance of commercial paper
The accompanying notes are an integral part of the financial statements.
25
$
74,694,665
(293,164,556)
(190,767,056)
(409,236,947)
2014
$
76,045,172
(258,397,002)
(198,587,470)
(380,939,300)
717,839,256
38,133,553
8,816,485
(143,292,240)
621,497,054
676,575,464
92,301,511
2,752,187
(162,438,790)
609,190,372
72,825,801
133,703,345
(62,100,000)
(22,463,263)
(50,886,131)
(93,759,658)
96,415,905
1,841,467
19,788,142
(212,171,140)
(116,805,532)
125,423,461
153,231,351
(3,600,000)
(21,494,906)
(45,564,178)
(101,665,615)
59,612,850
1,843,453
2,698,318
(396,438,402)
(225,953,668)
411,893,381
(506,264,439)
671,422
(93,699,636)
1,754,939
3,671,108
$
5,426,047
342,072,698
(344,930,097)
731,799
(2,125,600)
171,804
3,499,304
3,671,108
$
$ (620,116,898)
173,469,603
$
(2,017,812)
(5,156,208)
26,212,267
3,217,802
(32,384,271)
28,189,135
3,402,851
15,946,584
$ (409,236,947)
(360,413)
1,347,571
255,884
(507,830)
–
32,986,077
159,871
(9,348,063)
$ (380,939,300)
$
$
(82,781)
541,400,000
(541,400,000)
(565,521,688)
160,049,291
70,705
1,168,900,000
(1,168,900,000)
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
1. Summary of Significant Accounting Policies
The Metropolitan Transit Authority of Harris County, Texas (METRO) prepares its financial statements in
accordance with generally accepted accounting principles established or approved by the Governmental
Accounting Standards Board (GASB), the more significant of which are described below:
Reporting Entity
METRO is a stand-alone governmental entity as defined by GASB Statement No. 14, The Financial
Reporting Entity, amended by GASB Statement No. 39, Determining Whether Certain Organizations Are
Component Units and GASB Statement No. 61, The Financial Reporting Entity: Omnibus-An Amendment
of GASB Statement No. 14 and No. 34.
METRO is a political subdivision of the state of Texas established in 1977. METRO began operations in
1979 to develop, maintain, and operate a public mass transportation system, principally within Harris
County, Texas, and is governed by a nine-member Board of Directors (the Board). Five are nominated by
the Mayor of the City of Houston and confirmed by the City Council. Two are nominated by the Harris
County Judge and confirmed by the Harris County Commissioners Court, and two are elected by the Mayors
of the 14 cities other than Houston within METRO’s service area.
Related Organizations
The City of Houston, Texas (the City), provides governmental services as authorized or required by its
charter. While the City appoints a voting majority of METRO’s board members, it is not financially
accountable for the actions of METRO since it is unable to impose its will, and a financial benefit or burden
relationship does not exist.
Nature of Operating and Nonoperating Activities
Operating
METRO uses the flow of economic resources measurement focus and accrual basis of accounting when
preparing financial statements. Under this approach, revenues are recognized when earned and expenses
are recognized when incurred.
Operating revenue includes transit fares and HOT lane fees while operating expenses consist of transit
operations, traffic management, and organizational support.
Transit operations provide the public with a high-quality and cost-effective public transportation system.
Transit operations include designing/constructing maintenance facilities, light-rail lines, transit centers,
Park & Ride lots, and bus storage facilities; selecting bus/rail routes; purchasing buses/rail equipment;
maintaining equipment; and hiring/training personnel who deliver transit services and provide security.
Traffic management activities assist in improving regional mobility by providing traffic and transportation
law enforcement activities in order to increase safety for the area’s motorists and pedestrians.
Organizational support provides METRO with oversight, direct assistance, and community/business
development opportunities.
Nonoperating
Nonoperating revenue and expenses include the 1% sales tax levied in METRO’s service area, investment
income, intergovernmental revenue, nontransit related lease arrangements, operating grants, local
infrastructure assistance, and loss on sale or disposal of assets.
26
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Cash and Investments Activities, which Include Compliance with the Texas Public Fund Investment Act
(TPFIA)
Cash consists of amounts maintained in demand deposit and petty cash accounts.
METRO’s deposit and investment activities comply with policies established by the Board of Directors and
the TPFIA. The TPFIA requires, as part of the annual financial statement audit, the independent auditor
perform compliance reviews some of which include: the Board of Directors has: adopted a written
investment policy and strategies that comply with TPFIA, the policy and investment strategies are reviewed
at least annually, and adequately trained investment officers have been designated and ensure that
investment activity is reported, reviewed, and accepted by the Board of Directors at least quarterly. The
investment policy must also include a listing of authorized investments, which can include: Obligations of
the United States of America, its agencies, and instrumentalities, money market mutual funds, commercial
paper, fully collateralized repurchase agreements, local government investment pools, certificates of
deposit, and other investments authorized by the TPFIA. The Board of Directors may also place additional
limits on investment options.
All investments are reported at fair value with investments from borrowing reflected as restricted
investments in the Statements of Net Position. Restricted assets reflected as current will be used to pay
amounts reported as current liabilities.
Receivables
Receivables generally consist of amounts due from customers, grantor agencies, cost-sharing agreements,
employees, warranties, and miscellaneous activities.
Inventories of Materials and Supplies
Inventories are valued using a weighted average costing method and consist principally of diesel fuel, repair
parts, and other supplies that are used to maintain buses, light-rail cars, equipment, and facilities.
Capital Assets
METRO’s overall capitalization policy requires expenditures to be capitalized when they exceed $5,000
and (a) the useful life of the asset acquired exceeds one year and/or (b) the useful life of an existing asset is
increased beyond its original useful life. Depreciation of such property and equipment is calculated using
the straight-line method over the following estimated useful lives:
Park & Ride lots
Buses
Other property and equipment
Transitways
Rail cars
Rail infrastructure
Buildings and improvements
4 - 30 years
3 - 12 years
3 - 10 years
4 - 30 years
4 - 25 years
4 - 50 years
4 - 40 years
Capital assets, including capital leases, are recorded at historical cost and expenditures relating to normal
repair and maintenance are expensed as incurred. The cost and accumulated depreciation of assets retired
or sold are removed from the accounts with any gain or loss reported as part of nonoperating revenues
(expenses) on the Statements of Revenues, Expenses, and Changes in Net Position. Liabilities relating to
capital leases are reflected separately in the Statements of Net Position.
27
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Compensated Absences
Compensated absences are earned by full-time and part-time employees with part-time employees earning
benefits at a reduced rate based on hours worked.
Employees covered by the collective bargaining agreement earn vacation hours each December 31 based
on years of service. A maximum of 200 vacation hours per year can be earned. Earned vacation hours must
be used in the next calendar year or paid to the employees upon their termination. These employees also
accumulate 8 sick hours per month up to a maximum of 240 hours based on date of hire and years of service.
Accumulated sick pay in excess of 64 hours may be sold each September 30 back to METRO at various
rates based on attendance. Vacation and sick pay for these employees are expensed when earned, with
unpaid balances being reported as part of accrued compensation and benefits (a liability) on the Statements
of Net Position.
Full-time employees not covered by the collective bargaining agreement can earn vacation hours up to
16.67 each month and can accumulate up to 600 hours based on years of service and hire date. Vacation
expense is recorded when earned, with the unused balance being reported as part of accrued compensation
and benefits (a liability) in the Statements of Net Position. Employees are paid for their unused vacation
time upon termination. In addition, these employees receive 80 hours of sick leave per year at the beginning
of each calendar year. Unused sick leave cannot be carried forward to subsequent years and there is no
payment at the end of a calendar year or when the employee terminates. Sick leave for Non-Union
employees is expensed when incurred.
Pension Plans
METRO has two defined benefit pension plans and one defined contribution plan. Accounting and financial
reporting standards for defined benefit pensions plans require including the net pension liability, deferred
outflows/inflows of resources, pension expense, and information about the Plans’ fiduciary net position in
METRO’s financial statements. The amounts reported were determined on the same basis as reported by
the individual pension plans. For this purpose, benefit payments are recognized when due and payable in
accordance with the benefit terms and investments are reported at fair value. Individual pension plans
comprehensive annual financial reports (CAFR) for the defined benefit pension plans, are located on
METRO’s Web site with certain information taken from these CAFRs located in note 4.
Commercial Paper
Obligations for the issuance of tax-exempt commercial paper are reported as a current liability unless they
are supported by a noncancellable, revolving credit, and term loan agreement that exceeds one year as of
the date of the Statements of Net Position. In addition, the agreement must be issued by an organization
with the financial capacity to support their commitment. Obligations that meet these requirements have
been reported as a noncurrent liability in the Statements of Net Position.
Sales Tax
Revenue from the 1% sales tax is recognized when taxable sale transactions occur within METRO’s service
area. The Comptroller of the State of Texas collects and distributes these amounts to the appropriate
governmental organizations with funding normally occurring within 60 days from date of the sale. The
amount reported is net of a 2% collection and distribution service fee withheld by the State of Texas.
Use of Estimates
The preparation of financial statements in conformity with U. S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
28
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
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 these estimates.
New Accounting and Reporting Standards
During FY2015 METRO implemented GASB Statement No. 68, Accounting and Financial Reporting for
Pensions and No.71, Pension Transition for Contributions Made Subsequent to the Measurement Date.
These standards require restating the beginning net position balance for FY2015 by removing the prepaid
pension asset and recording the deferred outflows and a net pension liability. These changes are reflected
in the following schedule.
Adjustments to the Beginning Net Position
Net position beginning of the year, as previously reported
Adjustments to beginning net position
Recording deferred outflows
Removal of prepaid pension asset
Recognition of net pension liability
TWUPP
Non-Union pension plan
Total adjustments to beginning net position
Restated net position , beginning of the year
October 1, 2014
$ 2,126,970,627
16,843,980
(26,091,075)
(110,621,674)
(57,910,778)
(177,779,547)
$ 1,949,191,080
New GASB statements that are being evaluated by METRO include:
Statement No. 72, Fair Value Measurement and Application
Statement No. 73, Accounting and Financial Reporting for Pension and Related
Assets That Are Not Within Scope of GASB Statement 68, and Amendments to
Certain Provision of GASB Statements 67 and 68
Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other
Than Pension Plans
Statement No. 75, Accounting and Financial Reporting for Postemployment
Benefits Other Than Pensions
Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for
State and Local Governments
Statement No. 77, Tax Abatement Disclosures
Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined
Benefit Pension Plans
Statement No. 79, Certain External Investment Pools and Pool Participants
Statement No. 80, Blending Requirements for Certain Component Units
Effective
FY2016
FY2016
FY2017
FY2018
FY2016
FY2016
FY2016
FY2016
FY2017
2. Deposits and Investment Securities:
Deposits and Investments Including Compliance with the Texas Public Fund Investment Act (TPFIA)
METRO’s deposit and investment activity complies with the TPFIA or policies (if more restrictive)
established by the Board of Directors. Some items required by the TPFIA include written investment
policies, designation of adequately trained investment officers, submissions (at least quarterly) of
investment reports to the Board of Directors, and compliance reviews performed annually by the external
29
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
auditors as part of the financial statement audit. In addition, the investment policy must be approved by the
Board of Directors annually, which includes a list of authorized broker/dealers and investments, which are
limited to obligations of the United States of America, its agencies; instrumentalities; money market mutual
funds; commercial paper; fully collateralized repurchase agreements; local government investment pools;
certificates of deposit; and other investments authorized by the TPFIA.
Interest Rate and Credit Risk
METRO’s investment policy is to minimize interest rate and credit risk by investing a majority of the
portfolio in short-term investments such as commercial paper, money market mutual funds,
instrumentalities, agencies, and obligations of the United States with maturities generally less than two
years. Investments not issued by a government or sponsored agency must be rated not less than AAAm, A1, P-1, F-1, or equivalent by a nationally recognized rating organization.
Custodial Credit Risk
METRO’s investment policy requires bank deposits to be insured by Federal Deposit Insurance Corporation
or collateralized at least 102 percent of value with the collateral held by a nonaffiliated, federally insured
financial institution. Investment securities are registered in METRO’s name and held by an independent
custodian.
Concentration of Credit Risk
METRO’s investment policy requires a diversified portfolio that minimizes the risk of loss resulting from
overconcentration of assets in specific maturity, issuer, or class of securities while placing limits on the
allocation of funds between investment types.
Investments issued or explicitly guaranteed by the U.S. government, its agencies, or instrumentalities;
money market mutual funds; and investment pools are not subject to concentration of credit risk disclosure
and represented $456,652,595 or 90.1% of total investments.
Investments in a single issuer that were not explicated guaranteed by the U.S government and exceeded 5%
of the investment portfolio included:
Investments in Government
Sponsored Enterprises
Percentage
of
Investment
Portfolio
Amount
Federal Agricultural Mortgage Corporation
$
49,890,350
9.8%
Federal National Mortgage Association
29,972,700
5.9%
Federal Farm Credit Bank
26,996,310
5.3%
$ 106,859,360
Total
Deposits
METRO’s checking accounts and book balances for cash as of September 30, 2015 and 2014 were:
Fiscal 2015
Unrestricted
Bank balances
Book balances
$
5,049,075
5,426,047
30
Fiscal 2014
$
2,945,862
3,671,108
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Investments
The fair value of METRO’s investments is estimated based on quoted market prices. The investments held
at September 30, 2015 and 2014 are indicative of the type of investments made by METRO during each
fiscal year and consist of the following:
Fiscal 2015
Fiscal 2014
Credit
Fair Value
Fair Value
Ratings
Unrestricted investments
U.S. agencies
$ 106,859,360
$ 61,942,140
Aaa/AA+
Local government investment pool
253,602,971
218,231,914
AAAm
Municipal commercial paper
30,000,000
20,000,000
A-1, P-1,F-1
Certificate of deposit
20,000,000
10,000,000
Collateral =Aaa
Municipal bonds
–
6,000,000
SP-1+, F1+/Aaa/AAA
Aa3/AA
Total unrestricted investments
Restricted investments
Local government investment pool
Total restricted assets
Total Investments
410,462,331
316,174,054
96,190,264
96,190,264
$ 506,652,595
98,846,511
98,846,511
$ 415,020,565
AAAm
Investment by type and weighted average maturity as of September 30, 2015 and 2014 consisted of the
following:
Fiscal 2015
Fair Value
Investment securities:
U.S. agencies
Local government investment pool
Municipal commercial paper
Certificate of deposit
Investment securities:
U.S. agencies
Local government investment pool
Municipal commercial paper
Certificate of deposit
Municipals bonds
Less Than
1 Year
More Than
1 Year
$106,859,360
349,793,235
30,000,000
20,000,000
$506,652,595
$
–
$
–
–
–
–
Fiscal 2014
Fair Value
Less Than
1 Year
More Than
1 Year
$ 61,942,140
317,078,425
20,000,000
10,000,000
6,000,000
$415,020,565
$ 35,007,350 $ 26,934,790
–
317,078,425
–
20,000,000
–
10,000,000
–
6,000,000
$388,085,775 $ 26,934,790
$ 106,859,360
349,793,235
30,000,000
20,000,000
$506,652,595
31
Average
Maturity
214 days
43 days
34 days
110 days
Average
Maturity
367 days
50 days
120 days
60 days
1 day
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
3. Capital Assets
Changes in capital assets for fiscal year 2015 were as follows:
October 1, 2014
Capital assets not depreciated:
Land
Construction in progress
$ 300,060,651
1,202,923,837
Total capital assets not depreciated
1,502,984,488
Capital assets depreciated:
Administration and operating facilities
Park and ride lots and transit centers
Buses and equipment
Rail cars
Rail infrastructure
Transitways/HOT lanes
Other property and equipment
Total capital assets depreciated
Less accumulated depreciation
and amortization:
Additions
257,921,754
257,921,754
434,027,120
281,758,241
808,902,366
130,560,691
815,330,972
573,968,934
55,675,411
–
–
–
–
–
–
–
–
3,100,223,735
September 30,
2015
$
4,600,778
(1,401,041,383)
$ 280,190,888
59,804,208
(24,470,541)
(1,396,440,605)
339,995,096
(2,625,765)
(2,352,937)
(56,432,913)
(362,727)
(8,614,840)
10,185,073
17,685,879
86,807,036
127,635,550
1,141,877,373
4,947,774
7,301,920
441,586,428
297,091,183
839,276,489
257,833,514
1,957,208,345
578,916,708
54,362,491
(70,389,182)
1,396,440,605
4,426,275,158
$ (24,470,541)
–
$
Transfers
and
Completed
Projects
Reductions
and
Retirements
–
–
–
Administration and operating facilities
(252,953,827)
(17,443,325)
2,143,609
Park &Ride lots and transit centers
Buses and equipment
Rail cars
Rail infrastructure
Transitways/HOT lanes
Other property and equipment
(190,176,622)
(537,511,122)
(40,878,634)
(112,383,462)
(349,067,324)
(38,850,671)
(8,794,459)
(72,674,952)
(17,944,597)
(28,087,945)
(22,289,380)
(6,234,946)
2,338,221
55,162,720
362,727
(1,521,821,662)
1,578,402,073
(173,469,604)
(173,469,604)
68,617,643
(1,771,539)
Total accumulated depreciation
and amortization
Total capital assets being depreciated, net
Total capital assets, net
$ 3,081,386,561
$ 84,452,150
–
–
(10,932)
10,932
–
–
–
–
–
8,610,366
$ (26,242,080)
–
1,396,440,605
$
–
(268,253,543)
(196,632,860)
(555,034,286)
(58,449,572)
(140,471,407)
(371,356,704)
(36,475,251)
(1,626,673,623)
2,799,601,535
$ 3,139,596,631
Total interest cost incurred (net of amortization for premium and discount) for the current and previous two
fiscal years were $45,849,975 and $43,596,097, of which $31,348,602 and $32,872,267 was capitalized.
32
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Changes in capital assets for fiscal year 2014 were as follows:
October 1, 2013
Capital assets not depreciated:
Land
Construction in progress
$ 290,666,726
1,679,396,372
Total capital assets not depreciated
1,970,063,098
Capital assets depreciated:
Administration and operating facilities
Park and ride lots and transit centers
Buses and equipment
Rail cars
Rail infrastructure
Transitways/HOT lanes
Other property and equipment
Total capital assets depreciated
Less accumulated depreciation
and amortization:
Administration and operating facilities
Park & Ride lots and transit centers
Buses and equipment
Rail cars
Rail infrastructure
Transitways/HOT lanes
Other property and equipment
Total accumulated depreciation
and amortization
Total capital assets being depreciated, net
Total capital assets, net
Reductions
and
Retirements
Additions
16,736,522
(747,010,379)
$ 300,060,651
1,202,923,837
1,502,984,488
(7,342,597)
(99,340,974)
369,878,818
(106,683,571)
(730,273,857)
(10,599,711)
23,199,381
–
–
(38,936,589)
(2,279,705)
(15,776,278)
(26,039,414)
109,205,176
17,092,672
576,068,565
2,384,003
2,324,060
434,027,120
281,758,241
808,902,366
130,560,691
815,330,972
573,968,934
55,675,411
(93,631,697)
730,273,857
3,100,223,735
–
421,427,450
281,758,241
738,633,779
115,747,724
255,038,685
571,584,931
79,390,765
–
–
–
–
–
–
–
–
2,463,581,575
–
(247,126,273)
(16,427,265)
10,599,711
(181,768,807)
(512,236,631)
(32,113,024)
(96,391,778)
(326,737,777)
(58,479,192)
(8,407,815)
(63,724,084)
(11,045,315)
(31,767,962)
(22,329,547)
(6,347,303)
–
38,449,593
2,279,705
15,776,278
(1,454,853,482)
1,008,728,093
(160,049,291)
(160,049,291)
93,081,111
(550,586)
$ 2,978,791,191
September 30,
2014
369,878,818
$
$ 209,829,527
$
Transfers
and
Completed
Projects
–
25,975,824
$ (107,234,157)
–
–
–
–
–
–
–
(252,953,827)
–
(1,521,821,662)
1,578,402,073
730,273,857
$
–
(190,176,622)
(537,511,122)
(40,878,634)
(112,383,462)
(349,067,324)
(38,850,671)
$ 3,081,386,561
Asset impairments for FY2014 consist of environmental and engineering work totaling $61.8 million for
the University Light-rail line, $34.2 million for the Uptown Light-rail line, $8.6 million for the Hughes
underpass (redesigned as an overpass), and $1.2 million for restarting the asset management system. While
this cost has been removed from METRO’s Statement of Net Position, information obtained from this work
is being shared with other governmental agencies.
METRO remains committed to completing the University Light-rail line and will continue to evaluate
funding options with the FTA and local leaders.
Total interest cost incurred (net of amortization for premium and discount) for the current and previous two
fiscal years were $43,596,097, and $44,439,446 of which $32,872,267 and $34,550,561 was capitalized.
4. Retirement Plans
METRO has three pension plans and two postemployment healthcare plans. Two of the pension plans are
noncontributory, single-employer, defined-benefit plans and one is a defined contribution plan. The
postemployment healthcare plans are single-employer, defined benefit plans that are available to eligible
retirees.
33
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Pension and postemployment healthcare contributions are authorized by METRO’s Board of Directors
during the annual budgeting process. METRO’s funding policy, for both pension plans, is to contribute
each year the annual, actuarially determined contribution in equal payments over a 12 month period.
The monthly pension contributions are placed into separate trust accounts and will be used to fund pension
payments as they become due. Other postemployment benefits are funded on a pay-as-you-go basis.
Independently audited financial statements are available for both defined-benefit pension plans on
METRO’s Web site. METRO has no access to pension plan assets as they are kept in separate trust accounts
and managed by two separate administrative committees. The Plans’ asset custodian and disbursing agent
is State Street Bank, which is responsible for executing/recording all investment transactions authorized by
the plans and issuing monthly checks to retirees.
Calculating amounts used in financial reporting and management of the retirement plans requires the use
of actuarial assumptions. These assumptions reflect a long-term perspective in determining liabilities and
expenses. Each year these assumptions are reviewed with the plans’ actuary and adjusted based on actual
performance. The amount ultimately paid may vary significantly from the amounts currently reported since
retirement liabilities are based on long-term estimates and actuarial projections.
The information reflected from page 34 to page 40 is based on GASB 68 Accounting and Financial
Reporting for Pensions which became effective in FY2015.
The net pension liability for both defined benefit pension plans was measured as of December 31, 2014 and
the total pension liability used to calculate the net pension liability was determined by an actuarial valuation
dated January 1, 2014. The actuarial valuation was based on the discount rate and actuarial assumptions
listed on the next page and projected forward to the measurement date in accordance with GASB Statement
No. 68. METRO has not completed an actuarial experience study.
The discount rate used to determine the total pension liability for both defined benefit pension plans was
6.75% which is the same as the long-term expected investment rate of return. The use of the same rate is
appropriate only when the depletion analysis, which covers the life of the individual plan, has projected
cash inflows from contributions and investment earnings which will equal or exceed the projected outflows
for expenses and benefit payments.
The projected long-term expected rate of return on pension plan investments was determined using a
building-block method in which the best-estimate ranges of expected future real rates of returns (expected
returns, net of pension plan investment expense and inflation) were developed for each major asset class.
These ranges are combined to produce the projected 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. The best estimates of the projected arithmetic, real rates of return for each major asset class
included in the Plan’s target asset allocation as of January 1, 2014 are reflected in the individual plans
section of this report.
The combined net pension liability for both defined benefit pension plans as of September 30, 2015 was:
Transport Workers
Union Pension Plan,
Local 260, AFL-CIO
(TWUPP)
Non-Union
Net pension liabilities
$ 61,050,504
34
$ 116,911,315
Total
$ 177,961,819
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
The combined deferred outflows for both defined benefit pension plans as of September 30, 2015 were:
Deferred outflows
Contributions between January 1, 2015
through September 30, 2015
Net difference between projected and
actual earnings on pension investments
Total deferred outflows
Non-Union
TWUPP
Total
$ 9,020,858
$ 15,209,896
$ 24,230,754
3,699,242
$ 12,720,100
4,454,275
$ 19,664,171
8,153,517
$ 32,384,271
Significant actuarial assumptions used in METRO’s defined benefit plans valuations are listed below:
Valuation date
Cost method
Inflation rate
Investment rate of return
Funding policy
Cost-of-living adjustments
Projected salary increase
Assumed annual
retirement rate
Mortality and disabled mortality
TWUPP
NUPP
January 1, 2014
Entry age normal
2.3% per year IRS salary limit
6.75% per annum
Meeting the ADC requirements
None
None
Varying percentage ranging
from 5% to 100% for ages 60
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
January 1, 2014
Entry age normal
2.3% per year IRS salary limit
6.75% per annum
Meeting the ADC requirements
None
2.5% per annum
Varying percentage ranging
from 20% to 100% for ages 55
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
Level dollars/reestablished
annually
29 years closed
No (as of October 1, 2012)
Level dollars/reestablished
annually
29 years closed
No (as of October 1, 2007)
Amortization of gains/losses:
Method
Period
Open to new members
TWUPP Defined Benefit Pension Plan
METRO established the TWUPP for the purpose of accumulating funds to pay retirement benefits and
certain related administrative costs. The Plan, closed to new members on October 1, 2012, is a single
employer, noncontributory defined benefit pension plan which is for employees covered by the collective
bargaining agreement. Retirement benefits were established during periodic negotiations with the
Transport Workers Union of America, AFL-CIO and Local 260 of the Transport Workers Union of
America, AFL-CIO (Union). Postemployment health care costs are not included in the TWUPP.
35
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
TWUPP provides for monthly normal retirement benefits based on the participant’s years of service, but
not less than $300 each month. The calculation for the monthly normal retirement benefit is based on the
designated dollar amount times the number of credited years of service. The designated dollar amount used
to determine the monthly normal retirement benefit is based on date of retirement and as allowed by the
Union labor agreement. The most current monthly amounts paid for recent retirees are as follows:
August 1, 2002 through July 31, 2003
August 1, 2003 through July 31, 2004
August 1, 2004 through July 31, 2005
August 1, 2005 through July 31, 2006
August 1, 2006 through July 31, 2007
August 1, 2007 through January 31, 2009
February 1, 2009 through present
$ 50
51
52
52
53
54
60
Participants can only receive monthly distributions unless their balance is $5,000 or less, then the participant
can elect to receive a lump-sum payment.
TWUPP participants are 100% vested after five years of credited service. Participants become eligible to
receive benefits at the earlier of 28 years of credit services or at age 60 with 5 years of credited service. The
requirements for early retirement with reduced benefits are that an employee reaches age 55 with 25 years
of credited service. In addition, TWUPP provides for disability retirement benefits with the requirement of
having 5 years of credit service. Additional requirements include five years of vesting service for vested
deferred retirement benefits and for preretirement spousal benefits.
Changes in plan participants between January 1, 2014 and January 1, 2013 were:
Participants
Active
Terminated and vested
Retired
Disabled
Beneficiaries
Total for all participants
2014
2,241
555
1,018
175
177
4,166
2013
2,274
607
925
194
108
4,108
Change
(33)
(52)
93
(19)
69
58
The sensitivity analysis schedule, provided below, is used to evaluate the effect on the total pension liability
and related net pension liability for a 1% change in the discount rate as of December 31, 2014.
Net pension liability
1%
Decrease to
5.75%
$ 154,303,909
36
Current
Discount Rate
of 6.75%
$ 116,911,315
1%
Increase to
7.75%
$ 84,992,520
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Change in Net Pension Liability for the TWUPP
December 31,
2014
Total pension liability
Changes for the year:
Service cost
Interest on total pension liability
Changes of benefit terms
Difference between expected and
actual experience
Changes of assumption
Benefit payments
Net change in total pension liability
Total pension liability beginning
Total pension liability ending
$
5,435,165
22,446,888
(15,923,974)
11,958,079
334,943,305
346,901,384
Plan fiduciary net position :
Contributions from the employer
Net investment income
Benefit payments
Administrative expenses
Net change in plan fiduciary net position
Plan fiduciary net position - beginning
Plan fiduciary net position - ending
METRO’s net pension liability
13,477,182
8,434,984
(15,923,974)
(319,754)
5,668,438
224,321,631
229,990,069
$ 116,911,315
The best estimates of the projected arithmetic, real rates of return for each major asset class included in
TWUPP target asset allocation as of January 1, 2014 are listed below:
Long-term
Expected Real
Target
Rate of Return
Allocation
Asset Class
Index
Cash
Citigroup 90-Day T-Bills
1.13%
0.53%
Core Fixed Income
Barclays Aggregate
34.55%
2.05%
Large Cap U.S. Equities
S&P 500
38.46%
4.02%
Small Cap U.S. Equities
Russell 2000
13.16%
4.43%
Developed Foreign Equities
MSCI EAFE
12.70%
4.43%
Assumed Inflation – Mean
2.30%
Assumed Standard Deviation
2.00%
Portfolio Arithmetic Mean Return
6.86%
Portfolio Standard Deviation
11.54%
Long-Term Expected Rate of Return
6.75%
37
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
TWUPP Pension Plan Expense and Deferred Outflows
During FY2015, METRO recognized $15,312,548 of pension expense and deferred outflows of $4,454,275
for the net difference between projected and actual earnings and $15,209,896 for pension payments made
between January 1, 2015 and September 30, 2015. The net difference between projected and actual earnings
will be amortized using the straight-line method over the next four years to pension expense as follows:
2016
2017
2018
2019
Total
$1,113,569
1,113,569
1,113,569
1,113,568
$4,454,275
The deferred outflow for the payments made between January 1, 2015 and September 30, 2015 will be
reflected in the next actuarial report when determining financial information.
Non-union Pension Plan
METRO established the Non-Union Pension Plan and Trust (NUPP) during December 1975 for the purpose
of accumulating funds to pay retirement benefits and certain related administrative costs. The Plan, closed
to new participants on September 30, 2007, is a single employer, noncontributory (since March 1, 1984)
defined benefit pension plan which covers full-time police officers and administrative staff. Retirement
benefits are established and can be amended by METRO’s Board of Directors. Postemployment healthcare
costs are not included in the Plan.
The Plan participants are 100% vested after 5 years and can retire at age 65 (normal retirement age) or with
reduced benefits after age 55 with 15 years of credited service. Monthly benefits are calculated using three
factors, which include employee’s average earnings for the last three years, number of service years, and
the retirement factor. The minimum monthly normal retirement benefit is $300 for those who retire at or
after age 65 and with five years of credited service. The NUPP offers several annuity options and a
discounted lump-sum payment.
To receive a lump sum payment, vested employees must withdraw their funds by the end of the year
following their termination. After this time has expired, they must select one of the annuity options upon
their eligible retirement date. Employees who are totally disabled will continue to earn service years until
their normal retirement age with their compensation, as of their disability date, used to calculate their
pension benefit.
Changes in plan participants between January 1, 2014 and January 1, 2013 were:
Participants
2014
657
2013
694
98
118
(20)
193
209
(16)
Disabled
12
13
(1)
Beneficiaries
24
28
(4)
984
1,062
(78)
Active
Terminated and vested
Retired
Total participants
Change in Net Pension Liability for the Non-Union Pension Plan
38
Change
(37)
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
December 31,
2014
Total pension liability
Changes for the year
Service cost
Interest on total pension liability
Changes of benefit terms
Difference between expected and
actual experience
Changes of assumption
Benefit payments
Net change in total pension liability
Total pension liability beginning
Total pension liability ending
$
2,753,593
13,384,981
(8,704,519)
7,434,055
199,823,621
207,257,676
Plan fiduciary net position
Contributions from the employer
Net investment income
Benefit payments
Administrative expenses
Net change in plan fiduciary net position
Plan fiduciary net position – beginning
Plan fiduciary net position – ending
METRO’s net pension liability ending
9,006,301
4,217,106
(8,704,519)
(224,559)
4,294,329
141,912,843
146,207,172
$
61,050,504
The best estimates of the projected arithmetic, real rates of return for each major asset class included in
the Plan’s target asset allocation as of January 1, 2014, are listed below.
Long-term
Expected Real
Target
Rate of Return
Allocation
Asset Class
Index
Cash
Citigroup 90-Day T-Bills
1.79%
0.53%
Core Fixed Income
Barclays Aggregate
33.75%
2.05%
Large Cap U.S. Equities
S&P 500
46.43%
4.02%
Small Cap U.S. Equities
Russell 2000
10.68%
4.43%
Developed Foreign Equities
MSCI EAFE
7.35%
4.43%
Assumed Inflation – Mean
2.30%
Assumed Standard Deviation
2.00%
Portfolio Arithmetic Mean Return
6.85%
Portfolio Standard Deviation
11.49%
Long-Term Expected Rate of
Return
6.75%
39
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
The sensitivity analysis schedule, provided below, is used to evaluate the effect on the total pension
liability and related net pension liability for a 1% change in the discount rate as of December 31, 2014.
1%
Decrease to
5.75%
$ 75,830,520
Net pension liability
Current
Discount Rate
of 6.75%
$ 61,050,504
1%
Increase to
7.75%
$ 48,107,822
Pension Plan Expense and Deferred Outflows
During FY2015, METRO recognized $8,886,785 of pension expense and deferred outflows of $3,699,242
for the net difference between projected and actual earning and $9,020,858 for pension payments made
between January 1, 2015 and September 30, 2015. The net difference between projected and actuarial
earning will be amortized using the straight-line method over the next four years to pension expense as
follows:
Fiscal Year
2016
2017
2018
2019
Total
Amount
$ 924,810
924,810
924,810
924,812
$ 3,699,242
The deferred outflow for the payments made between January 1, 2015 and September 30, 2015 will be
reflected in the next actuarial report when determining financial information.
Information reflected below through page 42 was prepared in accordance with GASB 27 Accounting
for Pensions by State and Local Government Employers and Statement No. 50, Pension Disclosure
which were in effect for FY2014. Plan benefits, which are the same, are discussed in the GASB 68
disclosure section of this report.
Contributions and changes in the net pension obligations for METRO’s defined benefit pension plans for
FY2014 were:
Fiscal Year 2014
TWUPP
$ 13,691,651
Annual required contributions (ARC)
Interest on net pension obligation
NUPP
$ 8,966,585
(1,634,847)
(467,211)
1,827,338
530,604
Annual pension cost
13,884,142
9,029,978
Contributions
13,691,651
8,966,585
192,491
63,393
Adjustment to ARC
Change in net pension obligation
Beginning net pension obligation (asset)
Ending net pension obligation (asset)
Percentage of pension cost contributed
Percentage of ARC contributed
(20,435,579)
(5,911,380)
$ (20,243,088)
$(5,847,987)
98.61%
100.00%
40
99.30%
100.00%
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
The funded status of the TWUPP and NUPP pension plans as of January 1, 2014 (in thousands) was:
TWUPP
NUPP
Actuarial
Value of
Assets
$ 206,052
Actuarial
Accrued
Liabilities
(AAL)
$ 279,959
Unfunded
Actuarial
Accrued
Liability
(UAAL)
$ 73,907
129,399
161,398
31,999
Funded
Ratio
Percentage
73.6%
80.2
Covered
Payroll
$ 92,277
45,602
UAAL as a
Percentage
of Covered
Payroll
80.1%
70.2
Annual required contributions (ARC) for the TWUPP and the NUPP were based on actuarial valuations
prepared annually by an independent actuary from data furnished by METRO. Pension expense for
FY2014, FY2013 and FY2012 was $13,884,142, $14,544,413 and $14,344,181 for the TWUPP and
$9,029,978, $8,764.797 and $8,873,835 for the NUPP. Contributions during this same time totaled
$13,691,651, $14,362,412 and $14,206,770 for the TWUPP and $8,966,585, 8,615,666 and $8,907,720 for
the NUPP.
Significant actuarial assumptions used in METRO’s plan valuations and funded status is listed below:
TWUPP
Valuation date
Cost method
Inflation rate
Asset-valuation method
Investment rate of return
Funding policy
Cost of living adjustments
Projected salary increase
Assumed annual
retirement rate
Mortality and disabled mortality
NUPP
January 1, 2014
Projected unit credit
2.5% per year IRS salary limit
Five-year smoothed market value
8.0% per annum
Meeting the ARC requirements
None
None
Varying percentage ranging
from 5% to 100% for ages 60
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
January 1, 2014
Projected unit credit
2.5% per year IRS salary limit
Five-year smoothed market value
8.0% per annum
Meeting the ARC requirements
None
2.5% per annum
Varying percentage ranging
from 20% to 100% for ages 55
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
Level dollars/reestablished
annually
29 years closed
No (as of October 1, 2012)
Level dollars/reestablished
Annually
28 years closed
No (as of October 1, 2007)
Amortization of gains/losses:
Method
Period
Open to new members
41
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
The TWUPP and NUPP Annual Pension Cost (APC) and Net Pension Obligations are as follows:
Annual
Pension Cost
Percentage of
APC Funded
Year-End
Net Pension
Obligation (Asset)
TWUPP
2012
2013
2014
$ 14,344,181
14,544,413
13,884,142
99.04%
98.75
98.61
$ (20,617,580)
(20,435,579)
(20,243,088)
NUPP
2012
2013
2014
$ 8,873,835
8,764,797
9,029,978
100.38%
98.30
99.30
$ (6,060,511)
(5,911,380)
(5,847,987)
Defined Contribution Pension Plan (DCPP)
The NUPP was closed October 1, 2007 and the TWUPP was closed October 1, 2012 to new employees.
Individuals hired after those dates are placed into a DCPP. As part of DCPP, METRO will contribute 2%
of the employee’s annual salary and will match up to an additional 4% of their contributions. All
contributions are placed into a third-party trust account. Employee’s vesting rates are 40% after the second
year and 20% annually thereafter. Contributions by METRO for the current and previous two fiscal years
were $2,954,478, $1,964,943, and $1,121,291, with employees contributing $2,406,028, $1,654,991, and
$1,040,871, respectively.
Other Postemployment Benefits Other Than Pension
METRO sponsors two single-employer, defined benefit Other Postemployment Healthcare Plans, which
include the Transport Workers Union Metropolitan Transit Authority Health & Welfare Trust (Trust) and
the Non-Union Plan. These plans cover medical, dental, and life insurance for retirees with a retiree’s
contribution being based on years of service for the Non-Union Plan. Projections of benefits for financial
reporting purposes are based on the substantive plan (the plan as understood by the employer and plan
members) and include the types of benefits provided at the time of each valuation and historical pattern of
cost sharing between the employer and plan members. METRO is on a pay-as-you-go funding basis for
these benefits.
The Trust is a separate legal entity that is managed by four Trustees who are responsible for managing
resources and establishing benefits. During FY2015 the Transport Workers Union Local 260, AFL-CIO
assumed full responsibilities for managing the Trust and now appoints all Trustees. Payments to the Trust
are irrevocable and made monthly based on amounts established during contract negotiations with the
union. To qualify for this retirement benefit, an employee must be 60 years old with 5 years of credited
services, any age with 28 years of credited services, or 55 years old with 25 years of credited services or
meet disability qualifications. Actual contributions for the current and previous two fiscal years were
$9,194,420, $8,574,434, and $8,116,228, respectively.
The Non-Union Plan is administered by METRO and covers full-time employees with payments made as
services are provided. To qualify for this benefit, an employee must be 55 years or older with 5 years of
credited services. Employees hired after December 31, 2009 are not eligible for postretirement medical and
dental benefits. Effective October 1, 2012, METRO moved post-65 retirees and spouses to Extend Health.
This plan is capped at $2,801 per person annually and includes medical, dental, vision, and pharmacy.
42
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Actual contributions for the current and previous two fiscal years were $3,078,282, $2,767,380, and
$3,211,888, respectively.
Significant actuarial assumptions used in METRO’s Other Postemployment Plans valuations are as follows:
Trust
Non-Union
Valuation date
Cost method
Biennially on January 1st
Projected unit credit
Biennially on January 1st
Projected unit credit
Healthcare cost trend rate
Varying from 7.1% declining
to 4.5 % after 2100
Varying from 8% declining
to 4.6% after 2083
Investment rate of return
without prefunding
4.0% per annum
4.0% per annum
Funding policy
Pay-as-you-go
Pay-as-you-go
Assumed annual
retirement rate
Varying percentage ranging
from 5% to 100% for age 55
through 70
Varying percentage ranging
from 20% to 100% for ages 55
through 70
Inflation assumption
2.5% per annum, compound
annually
2.75% per annum, compound
annually
Mortality basis after normal
retirement
Healthy lives (sex distinct)
RP-2000 Combined Mortality
Table projected to 2014 using
Projection Scale AA
Healthy lives (sex distinct)
RP-2000 Combined Mortality
Table projected to 2015 using
Projection Scale AA
Disabled lives (sex distinct)
RP-2000 Disabled Mortality
Table projected to 2014 using
Projection Scale AA
Disabled lives (sex distinct)
RP-2000 Disabled Mortality
Table projected to 2015 using
Projection Scale AA
Level dollars/reestablished
annually
30 years closed
Yes
Level dollars/reestablished
annually
30 years closed
No (as of January 1, 2010)
Amortization of gains and losses:
Method
Period
Open to new members
43
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
The following calculations for Other Postemployment Benefit (OPEB) Cost, Net OPEB Obligation, and
Funded Status of the plans are based on independent actuarial reports. The Non-Union report was dated
January 1, 2015 while the Trust was dated January 1, 2014.
Fiscal Year 2015
Annual required contributions
Interest on prior year net postemployment benefit obligation
Adjustment to annual required
Contributions
Other postemployment cost
Contribution
Change in net postemployment
benefit obligation
Beginning net postemployment
benefit obligation
Ending net postemployment benefit
obligation
Fiscal Year 2014
Trust
$ 36,787,050
Non-Union
$ 6,609,938
Trust
$ 36,787,050
Non-Union
$ 10,155,179
4,663,896
2,254,416
4,663,896
1,735,335
(6,601,199)
34,849,747
9,194,420
(3,252,264)
5,612,090
3,078,282
(6,601,199)
34,849,747
8,574,434
(2,412,370)
9,478,144
2,767,380
25,655,327
2,533,808
26,275,313
6,710,764
145,685,418
56,360,394
119,410,105
49,649,630
$171,340,745
$ 58,894,202
$145,685,418
$ 56,360,394
26.38%
54.85%
24.60%
29.20%
Percentage of postemployment benefit
cost contributed
OPEB cost and Net OPEB obligations for the last three years are:
Annual
OPEB Cost
Trust
2013
2014
2015
Non-Union
2013
2014
2015
Percentage of
OPEB Funded
Year-End
Net OPEB
Obligation
$ 27,315,686
34,849,747
34,849,747
29.71
24.60
26.38
$ 119,410,105
145,685,418
171,340,745
9,478,144
9,478,144
5,612,090
33.89
29.20
54.85
49,649,630
56,360,394
58,894,202
No assets have been accumulated for the OPEB liability since METRO funds on a pay-as-you-go basis.
The schedule of funding progress as calculated by an independent actuary (in thousands) was:
Actuarial
Valuation Date
January 1, 2014
January 1, 2015
OPEB Plan
Trust
Non-Union
Actuarial
Value of
Assets
–
–
Actuarial
Accrued
Liabilities
$ 409,644
70,198
44
Unfunded
Actuarial
Accrued
Funded
Liabilities
Ratio
(UAAL)
Percentage
–
$ 409,644
–
70,198
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
5. Self-Insurance
The Risk Management Department is responsible for developing and implementing safety/training
programs, purchasing insurance policies, and establishing a self-insured liability for workers’ compensation
and third-party property and bodily injury claims. This self-insured liability is adjusted annually based on
an independent actuarial study. Prior to the next actuarial update, the Risk Management Department will
make monthly adjustments to the self-insured liability balance for cash payments, new claims, and
estimated amounts for incurred but not yet reported claims. The increase in claims and changes in estimates
relates to the new light-rail lines, METRO’s new bus network and the method used to establish estimated
number of future claims.
The purchased insurance policies cover property risk, some of which include premises, fiduciary,
commercial crime, windstorm, national flood insurance (at certain locations), railroad, and pollution.
Settlements for these activities have not exceeded METRO’s insurance coverage for any of the past three
fiscal years.
METRO is protected by governmental immunity, except as provided by the Texas Tort Claims Act (TTCA).
Under the TTCA, METRO’s liability is capped at $100,000 per person and $300,000 per accident for
property damage, personal injury, and death proximately caused by wrongful act or omission or the
negligence of an employee acting within his scope of employment.
Balance and related changes for the self-insured liability for FY2015 and FY2014 were:
Balance at the
Beginning of
the Fiscal
Year
Claims and
Changes in
Estimates
Claim
Payments
Balance at the
End of the
Fiscal Year
October 1, 2014 September 30, 2015
$ 10,853,840
$ 8,268,975
$ (4,866,124)
$ 14,256,691
October 1, 2013 September 30, 2014
10,693,969
4,817,400
(4,657,529)
10,853,840
METRO’s ultimate liability for claims may be more or less than the amount accrued; however, management
believes the differences will not materially affect its financial position.
6. Public/Private Development and Partnership
Development
During FY2006, METRO leased 11.5 acres of land for 99 years to A-S 90 HWY 290-Skinner, L.P. (lessee),
the right (a ground lease) to develop, construct, operate, and maintain a mixed-use residential and
commercial facility. METRO maintains a continuing financial interest in the property and must grant prior
approval for certain activities, sales, assignments, transfers, and subleasing by the lessee.
As part of the development program, METRO paid $16,630,466 to the lessee for the construction of a
multilevel parking garage. The garage provides parking for tenants and Park & Ride patrons and is
maintained by METRO with up to 20% of certain expenses billed to the lessee. The lessee is responsible
for maintaining the grounds and may bill METRO up to 33.89% of the cost to maintain the drainage
facilities/detention pond and certain common areas. The remaining cost associated with the property and
improvement (excluding the garage) is paid by the lessee with most payments being included when
calculating METRO’s 25% share of cash flow participation rent.
45
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
METRO receives $50,000 annually in base rent, paid monthly, and cash flow participation rent calculated
as 25% of the net cash flows of the leases less most expenses, reasonable reserves, and the base rent. Upon
certain payment events, METRO will receive participation payments calculated as 25% of the net proceeds.
These payment events include sale, casualty, condemnation action, or permanent financing of the project.
All cash flow participation rent will cease if the lessee sells its interest to a third party. No cash flow
participation rents or payment events have been received by METRO through FY2015.
Partnership
METRO entered into a taxable limited partnership (Wellington Fisher, Ltd.) during FY2005 for the
acquisition and development of certain land for transit-related projects. METRO is the limited partner with
Wellington Fisher One LLC as the general partner. This partnership will continue for 50 years unless the
general partner enters bankruptcy or the general partner determines, with the approval of the limited partner,
that the partnership should be dissolved.
The partnership owns land located near downtown Houston, and net earnings generally consist of parking
fees reduced by property taxes, administrative cost, and fees paid to the general partner.
METRO’s share of the partnership through December 31, 2014 was $13,375,755, which included
$13,169,171 for land and inception-to-date net earnings of $206,584. METRO’s share of land is reported
in the Statements of Net Position as part of capital assets, net of depreciation while the net income is
reported in the Statements of Revenues, Expenses, and Changes in Net Position as nonoperating income.
7. Commitments and Contingencies
In addition to the retirement plans discussed in note 4, METRO has various commitments and contingencies
as listed below:
Outstanding Value of Contracts
METRO has various contracts for materials, services, and construction activities some, of which cover
multiple fiscal years. The outstanding value of contracts as of September 30, 2015 was approximately $402
million. Payments to vendors will be made from sales tax collections, transit fares, debt proceeds, and
grants.
Agreements to Fund Local Infrastructure Improvements and Mobility Programs Through September 30,
2014 (Extended by Voters in the November 2012 Referendum to December 31, 2025)
METRO makes payments to or on behalf of Harris County, the City of Houston, and the 14 cities (Multicities) within METRO’s service area for infrastructure improvement and mobility programs. These
payments were reauthorized during a special election held during FY2004, which designated 25% of
METRO’s sales tax through September 30, 2014. Unspent funds remain with the program until used or
reallocated by the Board. The voters approved, on November 6, 2012, continuing the program through
December 31, 2025 with modifications to the allocation method. The program establishing a cap using
FY2014 sales tax 25% allocated amount with any growth shared equally between METRO and the program.
Final distribution of funds to local governments will be based on interlocal agreements as approved by the
Board of Directors. Funds held and not yet disbursed at the end of FY2015 totaled $95.9 million.
Expenses related to these agreements are reported as local infrastructure assistance in the Statements of
Revenues, Expenses, and Changes in Net Position as funding requests are received and accepted by
METRO.
46
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Lease/Sublease Agreements for Operating Facilities and Buses
During FY2014, METRO early terminated the remaining facility leases with additional payments limited
to $124,586 in legal and financial advisory fees. The remaining lease terms and amounts to be amortized
are:
Transit buses
Fare boxes/radios
Lease
Expiration
Date
Jan 1, 2016
Jan 1, 2018
Transit buses
Fare boxes/radios
Total
September 30, 2014
Unamortized
Balance
$ 1,214,787
8,852,614
$ 10,067,401
Current
Year
Amortization
$ 607,392
2,213,154
$ 2,820,546
September 30, 2013
Unamortized
Balance
Current
Year
Amortization
Facility:
Buffalo Bayou
Kashmere
Transit buses
Transit buses
Fare boxes/radios
Total
$
5,790,082
29,997,301
3,492,976
1,822,179
11,065,768
$ 52,168,306
Amortization
Period
(Years)
14
16
$
–
–
3,492,976
607,392
2,213,154
$ 6,313,522
47
September 30, 2015
Unamortized
Balance
$
607,395
6,639,460
$ 7,246,855
Negotiated
Early
Purchase
$
5,790,082
29,997,301
–
–
–
$ 35,787,383
September 30, 2014
Unamortized
Balance
$
–
–
–
1,214,787
8,852,614
$ 10,067,401
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Debt
Debt consists of commercial paper, capital leases, bonds, and contractual obligations, which are supported
by sales and use taxes revenues. Commercial paper is reported as current or long-term depending on credit
support arrangements, which allow for financing on a long-term basis if needed.
Commercial Paper
METRO is authorized to issue up to $400 million in Sales and Use Tax Revenue Commercial Paper Notes
(CP). These notes are supported by pledging 75% of METRO’s Sales and Use Tax Revenue and interest
earned on related investments. To support the CP program in case of a remarketing failure, METRO has
two revolving credit and term loan agreements totaling $275 million. A-1 is for $100 million with JPMorgan
Chase Bank, National Association, which expires June 6, 2018. A-3 is for $75 million with State Street
Bank and Trust Company, which expires June 6, 2017. Commercial paper is reported as a long-term
liability, on the Statements of Net Position since both revolving credit and term loan agreements expire
more than one year after September 30, 2015. In the event of a remarketing failure, the credit line will be
invoked to fund maturities and will incur interest costs as follows:
Period
Bank Rate
Day 1 through Day 14
Initial Base Rate
Day 15 through Day 90
Base Rate
Day 91 through Day 180
Base Rate plus 2.00% per annum
Day 181 through the day the amount
is due and payable
Term Out Rate
Where the “Initial Base Rate” means for any day the higher of (a) the Banks’ (as discussed above) U.S.
prime commercial lending rate in effect for such day (as such U.S. prime commercial lending rate is
announced from time to time by the Bank at its principal New York office) and (b) the sum of 1.00% per
annum plus the Federal Funds Rate for such day (it being understood that each change in such Initial Base
Rate is to be effective for purposes of this agreement on the day on which such change is effective for the
Bank’s purposes). Each determination of the Initial Base Rate by the Bank will be conclusive and binding
on METRO and the Bank, absent manifest error; “Base Rate” means for any day the higher of (a) the
Bank’s U.S. prime commercial lending rate in effect for such day (as such U.S. prime commercial lending
rate is announced from time to time by the Bank at its principal New York office) plus 2.00% per annum
(b) the sum of 3.00% per annum plus the Federal Funds Rate for such day (it being understood that each
change in such Base Rate is to be effective for purposes of this Agreement on the day on which such change
is effective for the Bank’s purposes), and (c) 9.00% per annum. Each determination of the Base Rate by the
Bank will be conclusive and binding on METRO and the Bank, absent manifest error; where “Term Out
Rate” shall never exceed the “Maximum Interest Rate” meaning the lesser of (a) maximum non-usurious
interest rate that may, under applicable federal law and applicable state law (including specifically Chapter
1204, Texas Government Code), be contracted for, charged, or received under such laws and (b) 25% per
annum. METRO is also required to pay an annual commitment fee of 1.20% for funds that are available,
whether used or unused.
48
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Proceeds from CP were used to make payments for General Mobility expenditures, or eliminating
outstanding notes of the same series. Changes and outstanding CP by series as of September 30, 2015 were
as follows:
Series
A-1
A-3
Total
October 1, 2014
$ 160,400,000
23,000,000
$ 183,400,000
Series
A-1
A-1
A-1
Amount Issued
$ 29,400,000
30,650,000
38,250,000
98,300,000
A-3
A-3
14,000,000
9,000,000
23,000,000
$ 121,300,000
Total
Proceeds
$ 495,400,000
46,000,000
$ 541,400,000
Repayments
$ (557,500,000)
(46,000,000)
$ (603,500,000)
September 30, 2015
$ 98,300,000
23,000,000
$ 121,300,000
Maturity
Date
01/15/2016
12/15/2015
12/10/2015
Remaining Days
Outstanding
107
76
71
Nominal Rate
%
0.17
0.16
0.15
12/15/2015
12/10/2015
76
71
0.16
0.15
Changes for CP by series for FY 2014 were as follows:
Series
A-1
A-3
Total
October 1, 2013
$ 160,400,000
26,600,000
$ 187,000,000
Proceeds
$ 1,053,900,000
115,000,000
$1,168,900,000
49
Repayments
$(1,053,900,000)
(118,600,000)
$(1,172,500,000)
September 30, 2014
$ 160,400,000
23,000,000
$ 183,400,000
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Capital Leases, Bonds, and Contractual Obligations
Future payments for capital leases, bonds, and contractual obligations are as follows:
Fiscal Year
2016
2017
2018
2019
2020
2020-2025
2026-2030
2031-2035
2036-2040
2041-2045
Payments
Unamortized
net premium
Total debt
Capital Leases
Principal
Interest
Total
$ 8,951,781 $ 3,061,314 $ 12,013,095
9,352,311
2,655,643
12,007,954
9,745,000
2,184,494
11,929,494
10,250,000
1,679,791
11,929,791
10,775,000
1,154,440
11,929,440
16,390,000
738,148
17,128,148
–
–
–
–
–
–
–
–
–
–
–
–
$65,464,092 $11,473,830 $ 76,937,922
1,101,813
$66,565,905
Bonds and Contractual Obligations
Principal
Interest
Total
$ 28,155,000 $ 48,848,622 $ 77,003,622
33,330,000
48,560,956
81,890,956
43,680,000
46,956,531
90,636,531
54,160,000
44,831,181
98,991,181
64,675,000
42,180,394
106,855,394
196,175,000 174,902,669
371,077,669
187,730,000 127,932,656
315,662,656
140,335,000
85,719,454
226,054,454
167,590,000
43,207,032
210,797,032
79,490,000
4,024,250
83,514,250
$ 995,320,000 $ 667,163,745 $1,662,483,745
Total
$89,016,717
93,898,910
102,566,025
110,920,972
118,784,834
388,205,817
315,662,656
226,054,454
210,797,032
83,514,250
$1,739,421,667
91,667,615
$1,086,987,615
Capital Leases
The Board has authorized the use of a Master Lease Purchase Finance Program (MLPFP) for the purchase
of buses and light-rail cars. Funds from the MLPFP were used to purchase 158 buses that were placed into
service during FY2008 and FY2009. In addition to the MLPFP, METRO entered into other leases, which
include a 50-year lease with three 15-year extensions for the use of land and related improvements for a
Park & Ride lot. Land improvements for the Park & Ride lot have been capitalized and will be depreciated
over its remaining useful life with payments for the land being reported as an operating lease. Capital leased
assets are depreciated over their estimated useful life or the life of the lease, if shorter, and have been
reported as part of capital assets, net with a corresponding capital lease liability on the Statements of Net
Position. Scheduled lease payments over the remaining lease terms are as follows:
MLPFP
Series A
Fiscal Year
Principal
2016
2017
2018
2019
2020
2021-2025
$ 5,245,000
5,455,000
5,675,000
5,985,000
6,240,000
6,555,000
$ 35,155,000
Series B
Interest
$ 1,491,837
1,276,103
1,009,207
725,963
442,781
143,391
$ 5,089,282
Principal
$ 3,630,000
3,820,000
4,070,000
4,265,000
4,535,000
9,835,000
$ 30,155,000
50
Total
Interest
$ 1,563,875
1,377,625
1,175,287
953,828
711,659
594,757
$ 6,377,031
Principal
$ 8,875,000
9,275,000
9,745,000
10,250,000
10,775,000
16,390,000
$ 65,310,000
Interest
$ 3,055,712
2,653,728
2,184,494
1,679,791
1,154,440
738,148
$ 11,466,313
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Future payments for other leases:
Park & Ride Land Improvements
Fiscal Year
2016
2017
2018
2019
2020
2021-2024
All Capital Leases
Principal
$ 76,781
77,311
–
–
–
–
Interest
$ 5,602
1,915
–
–
–
–
Total
$ 82,383
79,226
–
–
–
–
Principal
$ 8,951,781
9,352,311
9,745,000
10,250,000
10,775,000
16,390,000
Interest
$ 3,061,314
2,655,643
2,184,494
1,679,791
1,154,440
738,148
Total
$12,013,095
12,007,954
11,929,494
11,929,791
11,929,440
17,128,148
$ 154,092
$ 7,517
$ 161,609
65,464,092
$11,473,830
$76,937,922
Unamortized premium
Total
1,259,215
$ 66,565,905
Changes during the last two years for capital lease obligations are as follows:
Remaining
Balance of
Capital Leases
October 1, 2014
MLPFP:
Series A
Series B
Park & Ride land
improvements
Total
$ 40,150,000
33,630,000
227,355
$ 74,007,355
Remaining
Balance of
Capital Leases
October 1, 2013
MLPFP:
Series A
Series B
Park & Ride land
improvements
Total
$ 44,920,000
36,920,000
297,261
$ 82,137,261
Principal
Payments
Additions
$
$
–
–
$ (4,995,000)
(3,475,000)
$
–
–
(73,263)
$ (8,543,263)
–
$ 1,259,215
Principal
Payments
Additions
$
$
Unamortized
Premium
530,102
729,113
Unamortized
Premium
–
–
$ (4,770,000)
(3,290,000)
$
–
–
(69,906)
$ (8,129,906)
–
$ 1,416,616
51
596,364
820,252
Current Year
Amortization
of Premium
$
Combined
Balance
September 30,
2015
(66,263)
(91,139)
$ 35,618,839
30,792,974
–
$ (157,402)
154,092
$ 66,565,905
Current Year
Amortization
of Premium
Combined
Balance
September 30,
2014
$
(66,262)
(91,139)
$ 40,680,102
34,359,113
–
$ (157,401)
227,355
$ 75,266,570
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Bonds and Contractual Obligations
During FY2015 METRO issued two additional long-term debt obligations which included Series 2015A
Sales and Use Tax Bonds for $52.6 million and Series 2015B Sales and Use Tax Contractual Obligations
for $62.5 million. Series 2015A was used to refund certain commercial paper notes while Series 2015B
was issued to fund the purchase of buses.
Interest and principal payments for bonds and contractual obligations are guaranteed from sales tax
receipts that are deposited directly by the bank each month into a third-party trust account. Funds
deposited in the third-party trust account or debt proceeds not yet disbursed are reported as Investments –
restricted in the Statements of Net Position. Scheduled payments over the remaining life of the bonds and
contractual obligations with changes during the last two fiscal years are as follows:
Sales and Use Tax Bonds and Contractual Obligations
Bonds
Series 2009A
(Rail Construction)
Contractual Obligations
Series 2009B
(Rail Vehicles)
Fiscal Year
Principal
Interest
2016
2017
2018
2019
2020
2021-2025
2026-2030
2031-2035
2036-2039
$ 3,610,000
3,795,000
3,990,000
4,195,000
4,410,000
25,670,000
32,965,000
–
–
$ 3,841,500
3,656,375
3,461,750
3,257,125
3,042,000
11,578,250
4,285,625
–
–
$ 78,635,000
$ 33,122,625
Principal
$
1,275,000
1,330,000
1,385,000
1,440,000
1,500,000
8,610,000
10,755,000
10,725,000
–
$ 37,020,000
Build America Bonds
Series 2009C
(Rail Construction)
Interest
$
1,681,625
1,629,525
1,575,225
1,518,725
1,459,925
6,187,688
4,043,250
1,105,875
–
$ 19,201,838
Principal
$
–
–
–
–
–
–
–
41,745,000
40,810,000
$ 82,555,000
Interest
$
5,675,656
5,675,656
5,675,656
5,675,656
5,675,656
28,378,281
28,378,281
21,459,454
5,767,782
$ 112,362,078
Sales and Use Tax Bonds and Contractual Obligations
Contractual Obligations
Series 2009D
(Buses)
Fiscal Year
Principal
2016
2017
2018
2019
2020
2021-2025
2026-2030
2031-2035
2036-2040
2041-2044
$
2,815,000
2,915,000
3,030,000
3,160,000
3,290,000
7,070,000
–
–
–
–
$ 22,280,000
Contractual Obligations
Series 2010A
(Buses)
Interest
$
903,700
803,175
684,275
558,500
423,413
358,000
–
–
–
–
$ 3,731,063
Principal
Interest
3,120,000
3,195,000
3,350,000
3,525,000
3,660,000
12,125,000
–
–
–
–
$ 28,975,000
$ 1,296,500
1,177,625
1,014,000
859,750
697,750
929,125
–
–
–
–
$ 5,974,750
$
52
Bonds
Series 2011A
(Rail Construction)
Principal
$
7,660,000
8,050,000
8,465,000
8,895,000
9,355,000
54,485,000
69,965,000
87,865,000
126,780,000
79,490,000
$ 461,010,000
Interest
$
22,859,000
22,466,250
22,053,375
21,619,375
21,163,125
98,107,875
82,628,375
63,154,125
37,439,250
4,024,250
$ 395,515,000
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Fiscal Year
2016
2017
2018
2019
2020
2021-2025
2026-2030
2016
2017
2018
2019
2020
2020-2025
2026-2030
2031-2035
2036-2040
2041-2045
Unamortized
Premium
Total
Sales and Use Tax Bonds and Contractual Obligations
Contractual Obligations
Contractual Obligations
Sales and Use Tax
Series 2011B
Series 2014
Series 2015A
(Buses)
(Rail Vehicles)
(Refunding Commercial Paper)
Principal
Interest
Principal
Interest
Principal
Interest
$
–
$ 3,680,000
$ 1,594,000
$ 5,995,000
$ 6,380,375
$ 2,533,823
–
3,830,000
1,443,800
6,300,000
6,073,000
2,628,750
3,985,000
1,287,500
6,625,000
5,749,875
8,755,000
2,628,750
4,150,000
1,124,800
6,965,000
5,410,125
17,525,000
2,191,000
4,320,000
955,400
7,320,000
5,053,000
26,295,000
1,314,750
–
–
19,215,000
1,882,950
42,640,000
19,232,750
–
–
–
–
54,760,000
7,118,750
$ 52,575,000
$ 11,297,073
$ 39,180,000
$ 8,288,450
$ 130,605,000
$ 55,017,875
Sales and Use Tax Bonds and Contractual Obligations
Contractual Obligations
Series 2015B
(Buses)
Total
Principal
Interest
Principal
Interest
$
28,155,000
$
48,848,622
$
–
$ 2,082,443
33,330,000
48,560,956
3,915,000
3,006,800
43,680,000
46,956,531
4,095,000
2,826,125
54,160,000
44,831,181
4,305,000
2,616,125
64,675,000
42,180,394
4,525,000
2,395,375
196,175,000
174,902,669
26,360,000
8,247,750
187,730,000
127,932,656
19,285,000
1,478,375
–
140,335,000
85,719,454
–
–
–
167,590,000
43,207,032
–
–
79,490,000
4,024,250
$ 62,485,000
$ 22,652,993
995,320,000
$ 667,163,745
Total
$ 77,003,622
81,890,956
90,636,531
98,991,181
106,855,394
371,077,669
315,662,656
226,054,454
210,797,032
83,514,250
$1,662,483,745
91,667,615
$1,086,987,615
The Build America Bonds Series 2009C receives a special interest rebate each year from the federal
government, which was reduced starting in FY2014 as part of the sequestration. The amount to be received
will range from $1.8 million in FY2015 to $130 thousand in FY2039. The rebate is reported as
Intergovernmental revenue in the Statements of Revenues, Expenses, and Changes in Net Position. Interest
cost reported in this schedule has not been reduced for this rebate.
53
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Changes during the last two years for sales and use tax bonds consist of the following:
Changes in Bonds and Contractual Obligations
Addition
Payments
to
Retire
Bonds
–
–
–
–
–
–
–
–
52,575,000
62,485,000
$115,060,000
$ (3,430,000)
(1,225,000)
–
(2,730,000)
(3,000,000)
–
(3,535,000)
–
–
–
$(13,920,000)
October 1, 2014
Principal
Series
2009A
2009B
2009C
2009D
2010A
2011A
2011B
2014
2015A
2015B
Total
$ 82,065,000
38,245,000
82,555,000
25,010,000
31,975,000
461,010,000
42,715,000
130,605,000
–
–
$ 894,180,000
Changes in Premium (Discount)
$
Changes in Bonds and Contractual Obligations
Series
2009A
2009B
2009C
2009D
2010A
2011A
2011B
2014
Total
$ 85,330,000
39,430,000
82,555,000
27,650,000
34,855,000
461,010,000
46,110,000
–
$ 776,940,000
Addition
–
–
–
–
–
–
–
130,605,000
$130,605,000
$ (3,265,000)
(1,185,000)
–
(2,640,000)
(2,880,000)
–
(3,395,000)
–
$(13,365,000)
$
$ 4,852,433
715,722
(897,097)
1,789,914
2,530,690
42,807,023
4,882,838
21,117,927
7,824,303
10,819,042
$ 96,442,795
Current Year
Amortization
of (Premium)
Discount
Combined
Balance
September 30,
2015
$ (323,496)
(37,670)
37,379
(198,879)
(361,527)
(1,585,445)
(542,537)
(1,508,423)
(58,950)
(195,632)
$ (4,775,180)
$ 83,163,937
37,698,052
81,695,282
23,871,035
31,144,163
502,231,578
43,520,301
150,214,504
60,340,353
73,108,410
$ 1,086,987,615
Changes in Premium (Discount)
Payments
to
Retire
Bonds
October 1, 2013
Principal
Unamortized
Premium
(Discount)
Unamortized
Premium
(Discount)
$ 5,175,929
753,392
(934,476)
1,988,793
2,892,217
44,392,468
5,425,375
22,626,350
$ 82,320,048
Current Year
Amortization
of (Premium)
Discount
$ (323,496)
(37,670)
37,379
(198,879)
(361,527)
(1,585,445)
(542,537)
(1,508,423)
$ (4,520,598)
Combined
Balance
September 30,
2014
$ 86,917,433
38,960,722
81,657,903
26,799,914
34,505,690
503,817,023
47,597,838
151,722,927
$ 971,979,450
The weighted average interest rate paid on outstanding debt is approximately 3.28% and ranges from 0.13%
for commercial paper to 4.96% for long-term debt.
54
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Operating Lease
METRO leases land, office space, and software under various operating leases. In most cases, management
expects to renew or replace these leases as they expire. Actual rental expenses for FY2015 and FY2014
were $5,842,251 and $5,306,654, respectively. Future payments for operating leases assume a 2% annual
increase from the current year expense and consist of the following:
Fiscal Year Ending
2016
2017
2018
2019
2020
Total
Total Minimum
Operating Leases
Payments
$ 5,959,096
6,078,278
6,199,842
6,323,838
6,450,314
$ 31,011,368
Fuel Hedge Policy
The Board adopted a fuel hedge policy. As part of this policy, METRO can develop and implement a plan
through physical forward contracts and/or financial contracts, which will provide fuel price certainty for up
to 24 months of expected consumption. The tactics to achieve this goal could include: Fixed Price Future
Delivery Contracts, Guaranteed Price Contracts (Swaps), Maximum/Minimum Price Contracts (Collars),
and Maximum Price Contracts (Caps). Credit risk is minimized because all counterparties of contracts shall
either have a minimum long-term rating of A3 or A- by at least two of the three nationally recognized rating
agencies or have collateral posting requirements for entities with ratings below this level. Fuel purchases
and related swap agreements cover the same time period and use the same index, which is the Platts U.S.
Gulf Coast Ultra Low Sulfur Diesel. No up-front cash is received or paid by METRO when entering into
any of these transactions. Diesel fuel swaps are considered effective with the positive or negative fair value
being reflected in the Statements of Net Position as either a deferred inflow or outflow with a related current
asset or current liability. No derivatives were reclassified during the previous two years from a hedging
derivative to an investment derivative. METRO has adequate on-site diesel fuel storage facilities and will
purchase all related hedged diesel fuel.
Outstanding Diesel Fuel Swaps
METRO had 60 diesel fuel swaps totaling 19,740,000 gallons outstanding as of September 30, 2015 of
which 30 swaps totaling 10,584,000 gallons will settle in FY2016 and 30 swaps totaling 9,156,000 gallons
will settle in FY2017. The outstanding swaps represent most of the anticipated diesel fuel requirements for
each fiscal year.
METRO had 41 diesel fuel swaps totaling 20,496,000 gallons outstanding as of September 30, 2014 of
which 23 swaps totaling 10,836,000 gallons settled in FY2015 and 18 swaps totaling 9,660,000 gallons will
settle in FY2016.
Market values of the outstanding swaps are calculated by the counterparties, Bank of America Merrill
Lynch and Goldman Sachs, both of whom are nationally recognized commodity traders. Outstanding
hedges had a negative value of $15,041,432 for FY2015 and $1,899,588 for FY2014. These amounts are
reported on the Statements of Position as a deferred outflow of resources-diesel fuel swaps with a
corresponding derivative instruments – diesel fuel swaps liability. Swaps, which settled during FY2015
increased diesel fuel cost by $10,174,063 and reduced diesel fuel cost by $992,834 for FY2014. These
amounts were included as part of current operating cost in the Statements of Revenues, Expenses, and
Changes in Net Position.
55
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
Compensated Absences (vacation and sick) are earned, as discussed in note 1, based on employee
classification. The ending balance is payable next fiscal year and has been reported in the current liability
section of the Statements of Net Position as part of accrued compensation and benefits.
Changes during the last two years were:
Beginning
Balance
Expensed
Additions
Ending
Balance
October 1, 2014 September 30, 2015
$ 15,098,818
$(15,857,810)
$ 16,556,193
$ 15,797,201
October 1, 2013 September 30, 2014
$ 14,662,239
$(14,857,798)
$ 15,294,377
$ 15,098,818
Litigation
Houston Rapid Transit (HRT) is the design/build contractor for METRO’s three new light-rail lines that
went into service during FY2014 and FY2015. METRO and HRT are working to resolve performance
issues relating to the axle counters installed on all three light-rail lines. Based on the terms of the contract,
METRO believes HRT is financially responsible for resolving this issue. In addition, HRT submitted a
claim in FY2014 totaling $12.6 million for moving from a Global Positioning System to an axle vehicle
location system. METRO has not accepted and believes this claim to be meritless based on terms of the
contracts.
Construcciones y Auxlliar do Ferrocarriles, S.A. (CAF) is one of the companies which METRO uses to
purchase light-rail vehicles. These vehicles have experienced several performance related issues which has
resulted in METRO delaying payments to CAF and METRO notifying CAF that it will exercise its
contractual right to seek liquidating damages from CAF.
No amounts are reported in the financial statements for the items discussed above since the individual
contractors are responsible for resolving issues related to their products.
In addition to the items discussed above, METRO is a defendant in various legal actions occurring in the
normal course of its operations and has recognized, to the extent it believes necessary, liabilities for any
reasonably expected losses that might arise from the final resolution of such litigation. In certain cases,
however, management is not presently able to determine the ultimate liability, if any, that might arise upon
final resolution of the various legal actions. In these instances, management believes the ultimate liability
in excess of amounts recorded, if any, will not materially affect METRO’s financial position.
Federal and State Grants
Expenditures financed by federal and state grants are subject to audit by the granting agencies. Management
believes no significant liability will arise from any such audits.
The rail expansion program which is funded by the FTA and local dollars consists of Phase One and Phase
Two. With Phase One nearing completion, METRO calculated a preliminary true-up which compared
eligible grant cost to related reimbursements received from the FTA. Based on this analysis, METRO would
owe approximately $30.6 million to the FTA if no additional eligible grant related cost was incurred during
the reminder of Phase One and the completion of Phase Two. The final amount, if any, reimbursable to the
FTA will be determined during the final close-out which is expected to occur during FY2021.
Other Interlocal Agreements
56
Notes to the 2015 and 2014 Financial Statements for the Metropolitan Transit Authority of Harris County, Texas
These agreements are designed to reduce operating and capital cost while improving mobility throughout
the service area. Some of these agreements include coordinating procurement and major construction
activities, paying for maintenance/coordination of traffic lights along the light-rail lines and possible future
construction modifications to the West Part Toll Road. These agreements are in addition to the local
infrastructure improvements and mobility programs agreements discussed on page 46.
8. Subsequent Events
Management has evaluated subsequent events through March 14, 2016 the date the financial statements
were available to be issued. No changes were made, or are necessary to be made, to METRO’s financial
statements as a result of this evaluation.
57
Required Supplemental Information
Schedule of Changes in the Net Pension Liability for the Transport Worker Union Pension Plan,
Local 260, AFL-CIO (TWUPP)
(Unaudited)
December 31,
2014
Total pension liability
Changes for the year
Service cost
Interest on total pension liability
Changes of benefit terms
Difference between expected and
actual experience
Changes of assumption
Benefit payments
Net change in total pension liability
Total pension liability - beginning
Total pension liability - ending
Plan fiduciary net position
Contributions from the employers
Net investment income
Benefit payments
Administrative expenses
Net change in plan fiduciary net position
Plan fiduciary net position – beginning
Plan fiduciary net position – ending
METRO’s ending net pension liability
Plan fiduciary net position as a percentage of the
total pension liability
Covered-employee payroll
$
5,435,165
22,446,888
–
–
–
(15,923,974)
11,958,079
334,943,305
346,901,384
13,477,182
8,434,984
(15,923,974)
(319,754)
5,668,438
224,321,631
229,990,069
$ 116,911,315
66.30%
$ 92,277,465
METRO’s net pension liability as a percentage of
covered-employee payroll
126.70%
This schedule is presented to illustrate the requirements to show information for 10 years. However,
recalculation of prior years is not required, and if prior years are not determined in accordance with
GASB Statement No. 68 they should not be reported.
58
Required Supplemental Information
Schedule of Employer Contributions
for the Last 10 Fiscal Years
for Transport Worker Union Pension Plan (TWUPP)
(Unaudited)
For the Twelve
Months Ending
December 31
2014
Actuarially
Determined
Contribution
2013
2012
$13,477,182
14,335,058
14,444,476
2011
Actual
Contribution
$13,477,182
Contribution
Deficiency
(Excess)
$
–
Covered
Payroll
$92,277,465
Contribution
as a % of
Covered
Payroll
14.61%
14,335,058
14,444,476
–
–
91,830,000
94,043,000
15.61%
15.36%
13,493,650
13,493,650
–
93,675,000
14.40%
2010
12,416,838
12,416,849
(11)
88,184,000
14.08%
2009
2008
2007
12,185,737
8,826,606
8,527,492
12,185,737
8,826,606
16,527,492
–
–
(8,000,000)
85,317,000
84,414,000
81,287,000
14.28%
10.46%
20.33%
2006
2005
9,402,722
9,959,068
17,540,722
18,759,068
(8,138,000)
(8,800,000)
82,900,000
87,157,000
21.16%
21.52%
Significant actuarial assumptions used in METRO’s plan valuations and funded status is listed below:
TWUPP
Valuation date
Cost method
Inflation rate
Asset-valuation method
Investment rate of return
Funding policy
Cost of living adjustments
Projected salary increase
Assumed annual
retirement rate
Mortality and disabled mortality
January 1, 2014
Projected unit credit
2.5% per year IRS salary limit
Five-year smoothed market value
8.0% per annum
Meeting the ARC requirements
None
None
Varying percentage ranging
from 5% to 100% for ages 60
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
Amortization of gains/losses:
Method
Period
Open to new members
Level dollars/reestablished
annually
29 years closed
No (as of October 1, 2012)
59
Required Supplemental Information
Schedule of Changes in the Net Pension Liability for the Non-union Pension Plan
(Unaudited)
December 31,
2014
Total pension liability
Changes for the year
Service cost
Interest on total pension liability
Changes of benefit terms
Difference between expected and
actual experience
Changes of assumption
Benefit payments
Net change in total pension liability
Total pension liability - beginning
Total pension liability - ending
$
–
–
–
(8,704,519)
7,434,055
199,823,621
207,257,676
Plan fiduciary net position
Contributions from the employers
Net investment income
Benefit payments
Administrative expenses
Net change in plan fiduciary net position
Plan fiduciary net position – beginning
Plan fiduciary net position – ending
METRO’s ending net pension liability
Plan fiduciary net position as a percentage of the
total pension liability
Covered-employee payroll
2,753,593
13,384,981
9,006,301
4,217,106
(8,704,519)
(224,559)
4,294,329
141,912,843
146,207,172
$
61,050,504
70.54%
$ 45,601,509
METRO’s net pension liability as a percentage of
covered employee payroll
133.88%
This is the initial year of implementation of GASB Statement No. 68. Historical information to present
additional nine years in conformity with the requirements of GASB Statement No. 68 is not available.
Additional years will be added prospectively, until 10 years of information is available.
60
Required Supplemental Information
Schedule of Employer Contributions
for the Last 10 Fiscal Years for the Non-union Pension Plan
(Unaudited)
For the Twelve
Months Ending
December 31
2014
Actuarially
Determined
Contribution
$ 9,006,301
2013
Contribution
as a % of
Covered
Payroll
19.75%
Actual
Contribution
$ 9,006,301
Contribution
Deficiency
(Excess)
$
–
Covered
Payroll
$ 45,601,509
8,847,436
8,847,436
–
44,388,906
19.93%
2012
8,215,493
8,215,493
–
47,184,896
17.41%
2011
10,689,258
10,689,264
(6)
57,702,434
18.52%
2010
10,833,143
11,143,438
(310,295)
56,962,295
19.56%
2009
12,652,758
12,652,758
–
63,625,252
19.89%
2008
8,948,287
8,948,287
–
62,929,627
14.22%
2007
9,503,253
13,503,253
(4,000,000)
64,349,486
20.98%
2006
9,151,972
9,751,968
(599,996)
58,554,000
16.65%
2005
9,627,759
11,287,759
(1,660,000)
62,869,000
17.95%
Significant actuarial assumptions used in METRO’s plan valuations and funded status is listed below:
NUPP
Valuation date
Cost method
Inflation rate
Asset-valuation method
Investment rate of return
Funding policy
Cost of living adjustments
Projected salary increase
Assumed annual
retirement rate
Mortality and disabled mortality
January 1, 2014
Projected unit credit
2.5% per year IRS salary limit
Five-year smoothed market value
8.0% per annum
Meeting the ARC requirements
None
2.5% per annum
Varying percentage ranging
from 20% to 100% for ages 55
through 70
RP-2000 Combined Mortality with
Projection Scale AA to year 2014
Amortization of gains/losses:
Method
Period
Open to new members
Level dollars/reestablished
Annually
28 years closed
No (as of October 1, 2007)
61
Required Supplemental Information
Prepared using GASB 27, GASB 45 and GASB 50
Schedule of Funding Progress for Pension Plans and Other Postemployment Benefit Plans
for Non-Union and Transport Workers Union
(Amounts in Thousands)
(Unaudited)
Non-Union
Pension plan
Other Postemployment
Transport Workers Union
Pension Plan
Other Postemployment Benefits
Actuarial
Accrued
Liability
(AAL)
Unit credit
(b)
Unfunded
Actuarial
Accrued
Liability
(UAAL)
(b-a)
Funded
Ratio
Percentage
(a/b)
UAAL as a
Percentage of
Covered
Payroll
((b-a)/c)
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Jan 1, 2014
Jan 1, 2013
Jan 1, 2012
$ 129,399
113,145
110,276
$ 161,398
150,509
142,052
$ 31,999
37,364
31,776
80.2%
75.2%
77.6%
$ 45,602
44,389
47,185
70.2%
84.2%
67.3%
Jan 1, 2015
Jan 1, 2013
Jan 1, 2011
–
–
–
70,198
108,927
129,261
70,198
108,927
129,261
–
–
–
44,389
57,702
63,625
245.4%
224.0%
179.6%
Jan 1, 2014
Jan 1, 2013
Jan 1, 2012
206,052
181,661
173,838
279,959
267,359
255,553
73,907
85,698
81,715
73.6%
67.9%
68.0%
92,277
91,830
94,043
80.1%
93.3%
86.9%
Jan 1, 2014
Jan 1, 2012
Jan 1, 2010
–
–
–
409,644
338,260
301,284
409,644
338,260
301,284
–
–
–
92,277
94,043
88,184
443.9%
359.7%
347.1%
Other Postemployment Benefits actuarial studies are updated biennially.
Covered payroll reported by the defined benefit pension plans approximates the value related to covered payroll for OPEB.
62
Covered
Payroll
(c)
APPENDIX C
FORMS OF BOND COUNSEL’S OPINIONS
[THIS PAGE LEFT BLANK INTENTIONALLY]
600 Travis, Suite 4200
Houston, Texas 77002
713.220.4200 Phone
713.220.4285 Fax
andrewskurth.com
April 27, 2016
WE HAVE ACTED as Bond Counsel for the METROPOLITAN TRANSIT
AUTHORITY OF HARRIS COUNTY, TEXAS (the “Authority”) in connection with an issue of
bonds (the “Bonds”) described as follows:
METROPOLITAN TRANSIT AUTHORITY OF HARRIS COUNTY, TEXAS,
SALES AND USE TAX REFUNDING BONDS, SERIES 2016A, in the aggregate
principal amount of $126,245,000 maturing on November 1 in each year from 2021
through 2029, inclusive. The Bonds are issuable in fully registered form only, in
denominations of $5,000 and any integral multiple of $5,000 in excess thereof, bear
interest, and may be transferred and exchanged as set out in the Bonds and in the
resolution (the “Resolution”) adopted by the Board of the Authority (the “Board”)
authorizing their issuance.
WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with
respect to the legality and validity of the Bonds under the Constitution and laws of the State of
Texas and with respect to the exclusion of interest on the Bonds from gross income under federal
income tax law. In such capacity we have examined the Constitution and laws of the State of
Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the
issuance of the bonds that are being refunded with the proceeds of the Bonds, as described in the
Resolution (the “Refunded Bonds”). The transcript contains certified copies of certain
proceedings of the Authority and Wells Fargo, N.A., the Escrow Agent for the Refunded Bonds;
the report (the “Report”) of Causey Demgen & Moore P.C. , which verifies the sufficiency of the
deposit made with the Escrow Agent for the refunding of the Refunded Bonds, and the
mathematical accuracy of certain computations of the yield on the Bonds and the obligations
acquired with the proceeds of the Bonds; certain certifications and representations and other
material facts within the knowledge and control of the Authority, upon which we rely; and certain
other customary documents and instruments authorizing and relating to the issuance of the Bonds
and the firm banking and financial arrangements for the discharge and final payment of the
Refunded Bonds. We have also examined executed Bond No. T-1 of this issue.
WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified,
any original proceedings, records, data or other material, but have relied upon the transcript of
certified proceedings. We have not assumed any responsibility with respect to the financial
condition or capabilities of the Authority or the disclosure thereof in connection with the sale of
the Bonds. Our role in connection with the Authority’s Official Statement prepared for use in
connection with the sale of the Bonds has been limited as described therein.
BASED ON SUCH EXAMINATION, it is our opinion as follows:
(1)
The transcript of certified proceedings evidences complete legal authority
for the issuance of the Bonds in full compliance with the Constitution and laws of the State
C-1
April 27, 2016
Page 2
of Texas presently in effect; the Bonds constitute valid and legally binding obligations of
the Authority enforceable in accordance with the terms and conditions thereof, except to
the extent that the rights and remedies of the owners of the Bonds may be limited by laws
heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, or
moratorium or other similar laws affecting the rights of creditors of political subdivisions
and the exercise of judicial discretion in appropriate cases; and the Bonds have been
authorized and delivered in accordance with law;
(2)
The Bonds are payable from all legally available funds of the Authority and
are secured, as to both principal and interest, by a lien on and pledge of the Pledged Revenues
(as defined in the Resolution), including, but not limited to, seventy-five percent (75%) of the
revenues collected and received by the Authority from the levy of its Sales and Use Tax (as
defined in the Resolution) plus any investment income earned on any moneys in the Revenue
Fund (as defined in the Resolution) and the Interest and Sinking Fund (as defined in the
Resolution) which lien is senior to any other lien on or pledge of such Pledged Revenues,
except parity liens and pledges permitted by the Resolution; and
(3)
The escrow agreement between the Authority and the Escrow Agent (the
“Escrow Agreement”) has been duly executed and delivered and constitutes a binding and
enforceable agreement in accordance with its terms; the establishment of the Escrow Fund
pursuant to the Escrow Agreement and the deposits made therein constitute the making of
firm banking and financial arrangements for the discharge and final payment of the
Refunded Bonds; in reliance upon the accuracy of the calculations contained in the Report,
the Refunded Bonds, having been discharged and paid, are no longer outstanding and the
lien on and pledge of Pledged Revenues as set forth in the resolutions authorizing their
issuance will be appropriately and legally defeased; the holders of the Refunded Bonds
may obtain payment of the principal of, redemption premium, if any, and interest in the
Refunded Bonds only out of the funds provided therefor now held in escrow for that
purpose by the Escrow Agent pursuant to the terms of the Escrow Agreement; and
therefore the Refunded Bonds are deemed to be fully paid and no longer outstanding,
except for the purpose of being paid from the funds provided therefor in the Escrow
Agreement.
IT IS OUR FURTHER OPINION, also based on our examination as described above, and
subject to the restrictions hereinafter described, that, pursuant to section 103 of the Internal
Revenue Code of 1986, as amended to the date hereof (the “Code”), and existing regulations,
published rulings, and court decisions thereunder, and assuming continuing compliance by the
Authority with the provisions of the Resolution after the date hereof, interest on the Bonds (1) will
be excludable from the gross income, as defined in section 61 of the Code, of the owners thereof
for federal income tax purposes, and (2) will not be included in computing the alternative
minimum taxable income for federal income tax purposes of the owners thereof who are
individuals or, except as described below, corporations.
WE CALL TO YOUR ATTENTION THAT, with respect to our opinion in clause (2) of
the previous paragraph, interest on the Bonds owned by a corporation will be included in such
corporation’s adjusted current earnings for purposes of calculating the alternative minimum
taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real
estate mortgage investment conduit (REMIC), a real estate investment trust (REIT), or a financial
C-2
April 27, 2016
Page 3
asset securitization investment trust (FASIT). A corporation’s alternative minimum taxable
income is the basis on which the alternative minimum tax imposed by section 55 of the Code is
computed.
EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or
local tax consequences under present law, or future legislation, resulting from the ownership of,
receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective
purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the
Bonds, may result in collateral federal tax consequences to, among others, financial institutions,
life insurance companies, property and casualty insurance companies, certain foreign corporations
doing business in the United States, certain S corporations with Subchapter C earnings and profits,
individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are
deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations,
taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals
otherwise qualified for the earned income tax credit. Prospective purchasers should consult their
tax advisors as to the consequences of investing in the Bonds.
OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such
opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to
update or supplement our opinions to reflect any facts or circumstances that may thereafter come
to our attention or to reflect any changes in any law that may thereafter occur or become effective.
Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue
Service; rather, such opinions represent our legal judgment based upon our review of existing law
that we deem relevant to such opinions and in reliance upon the representations and covenants
referenced above.
C-3
600 Travis, Suite 4200
Houston, Texas 77002
713.220.4200 Phone
713.220.4285 Fax
andrewskurth.com
April 27, 2016
WE HAVE ACTED as Bond Counsel for the METROPOLITAN TRANSIT
AUTHORITY OF HARRIS COUNTY, TEXAS (the “Authority”) in connection with an issue of
contractual obligations (the “Obligations”) described as follows:
METROPOLITAN TRANSIT AUTHORITY OF HARRIS COUNTY, TEXAS,
SALES AND USE TAX REFUNDING CONTRACTUAL OBLIGATIONS,
SERIES 2016B, in the aggregate principal amount of $25,635,000 maturing on
November 1 in the years 2020, 2021 and 2023 through 2033, inclusive. The
Obligations are issuable in fully registered form only, in denominations of $5,000
and any integral multiple of $5,000 in excess thereof, bear interest, and may be
transferred and exchanged as set out in the Obligations and in the resolution (the
“Resolution”) adopted by the Board of the Authority (the “Board”) authorizing
their issuance.
WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with
respect to the legality and validity of the Obligations under the Constitution and laws of the State
of Texas and with respect to the exclusion of interest on the Obligations from gross income under
federal income tax law. In such capacity we have examined the Constitution and laws of the State
of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the
issuance of the obligations that are being refunded with the proceeds of the Obligations, as
described in the Resolution (the “Refunded Obligations”). The transcript contains certified copies
of certain proceedings of the Authority and Wells Fargo, N.A., the Escrow Agent for the Refunded
Obligations; the report (the “Report”) of Causey Demgen & Moore P.C., which verifies the
sufficiency of the deposit made with the Escrow Agent for the refunding of the Refunded
Obligations, and the mathematical accuracy of certain computations of the yield on the
Obligations and the obligations acquired with the proceeds of the Obligations; certain
certifications and representations and other material facts within the knowledge and control of the
Authority, upon which we rely; and certain other customary documents and instruments
authorizing and relating to the issuance of the Obligations and the firm banking and financial
arrangements for the discharge and final payment of the Refunded Obligations. We have also
examined executed Obligation No. T-1 of this issue.
WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified,
any original proceedings, records, data or other material, but have relied upon the transcript of
certified proceedings. We have not assumed any responsibility with respect to the financial
condition or capabilities of the Authority or the disclosure thereof in connection with the sale of
the Obligations. Our role in connection with the Authority’s Official Statement prepared for use
in connection with the sale of the Obligations has been limited as described therein.
BASED ON SUCH EXAMINATION, it is our opinion as follows:
C-4
April 27, 2016
Page 2
(1)
The transcript of certified proceedings evidences complete legal authority
for the issuance of the Obligations in full compliance with the Constitution and laws of the
State of Texas presently in effect; the Obligations constitute valid and legally binding
obligations of the Authority enforceable in accordance with the terms and conditions
thereof, except to the extent that the rights and remedies of the owners of the Obligations
may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency,
reorganization, or moratorium or other similar laws affecting the rights of creditors of
political subdivisions and the exercise of judicial discretion in appropriate cases; and the
Obligations have been authorized and delivered in accordance with law;
(2)
The Obligations are payable from all legally available funds of the
Authority and are secured, as to both principal and interest, by a lien on and pledge of the
Pledged Revenues (as defined in the Resolution), including, but not limited to, seventy-five
percent (75%) of the revenues collected and received by the Authority from the levy of its
Sales and Use Tax (as defined in the Resolution) plus any investment income earned on any
moneys in the Revenue Fund (as defined in the Resolution) and the Interest and Sinking Fund
(as defined in the Resolution) which lien is senior to any other lien on or pledge of such
Pledged Revenues, except parity liens and pledges permitted by the Resolution; and
(3)
The escrow agreement between the Authority and the Escrow Agent (the
“Escrow Agreement”) has been duly executed and delivered and constitutes a binding and
enforceable agreement in accordance with its terms; the establishment of the Escrow Fund
pursuant to the Escrow Agreement and the deposits made therein constitute the making of
firm banking and financial arrangements for the discharge and final payment of the
Refunded Obligations; in reliance upon the accuracy of the calculations contained in the
Report, the Refunded Obligations, having been discharged and paid, are no longer
outstanding and the lien on and pledge of Pledged Revenues as set forth in the resolutions
authorizing their issuance will be appropriately and legally defeased; the holders of the
Refunded Obligations may obtain payment of the principal of, redemption premium, if
any, and interest in the Refunded Obligations only out of the funds provided therefor now
held in escrow for that purpose by the Escrow Agent pursuant to the terms of the Escrow
Agreement; and therefore the Refunded Obligations are deemed to be fully paid and no
longer outstanding, except for the purpose of being paid from the funds provided therefor
in the Escrow Agreement.
IT IS OUR FURTHER OPINION, also based on our examination as described above, and
subject to the restrictions hereinafter described, that, pursuant to section 103 of the Internal
Revenue Code of 1986, as amended to the date hereof (the “Code”), and existing regulations,
published rulings, and court decisions thereunder, and assuming continuing compliance by the
Authority with the provisions of the Resolution after the date hereof, interest on the Obligations
(1) will be excludable from the gross income, as defined in section 61 of the Code, of the owners
thereof for federal income tax purposes, and (2) will not be included in computing the alternative
minimum taxable income for federal income tax purposes of the owners thereof who are
individuals or, except as described below, corporations.
WE CALL TO YOUR ATTENTION THAT, with respect to our opinion in clause (2) of
the previous paragraph, interest on the Obligations owned by a corporation will be included in
such corporation’s adjusted current earnings for purposes of calculating the alternative minimum
C-5
April 27, 2016
Page 3
taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real
estate mortgage investment conduit (REMIC), a real estate investment trust (REIT), or a financial
asset securitization investment trust (FASIT). A corporation’s alternative minimum taxable
income is the basis on which the alternative minimum tax imposed by section 55 of the Code is
computed.
EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or
local tax consequences under present law, or future legislation, resulting from the ownership of,
receipt or accrual of interest on, or the acquisition or disposition of, the Obligations. Prospective
purchasers of the Obligations should be aware that the ownership of tax-exempt obligations, such
as the Obligations, may result in collateral federal tax consequences to, among others, financial
institutions, life insurance companies, property and casualty insurance companies, certain foreign
corporations doing business in the United States, certain S corporations with Subchapter C
earnings and profits, individual recipients of Social Security or Railroad Retirement benefits,
taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry taxexempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations
and individuals otherwise qualified for the earned income tax credit. Prospective purchasers
should consult their tax advisors as to the consequences of investing in the Obligations.
OUR OPINIONS ARE BASED ON EXISTING LAW, which is subject to change. Such
opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to
update or supplement our opinions to reflect any facts or circumstances that may thereafter come
to our attention or to reflect any changes in any law that may thereafter occur or become effective.
Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue
Service; rather, such opinions represent our legal judgment based upon our review of existing law
that we deem relevant to such opinions and in reliance upon the representations and covenants
referenced above.
C-6
APPENDIX D
SELECTED INFORMATION REGARDING HARRIS COUNTY, TEXAS
Harris County is a southeast Texas county and a major component of the Houston Primary Metropolitan Statistical Area
(“PMSA”). The economy is based on petrochemicals, tourism, shipping, refining, chemicals, space exploration, manufacturing,
and education. The County is ranked as the 6th largest manufacturing county in the country. The County seat is Houston, Texas.
The Authority does not provide service to or collect sales and use taxes in certain portions of eastern Harris County, including the
cities of Baytown, La Porte and Pasadena. The chart below presents selected demographic statistics for all of Harris County,
including those portions not served by the Authority, for years 2006 through 2015.
Demographic Statistics
(2006 – 2015)
(Unaudited)
Fiscal
Year
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
Source:
PMSA
Per Capita
Population(a) Personal Income(a)
6,652.4
$ 54,946
6,490.2
54,820
6,333.8
52,644
6,186.9
52,358
6,060.7
48,789
5,949.1
44,969
5,826.1
43,698
5,676.4
49,350
5,540.9
44,637
5,423.6
43,252
(a)
(b)
(c)
(d)
Per Capita
Personal Income
(State of Texas)(b)
Unavailable
45,669
43,807
43,505
41,235
38,282
37,037
39,892
36,992
35,554
Harris County
Total Retail
Sales (c)
Unavailable
$84,071,247,936
79,598,558,097
76,623,589,919
65,858,385,218
57,288,630,374
62,716,250,637
64,291,119,973
60,050,945,166
54,977,767,472
Harris County
Unemployment
Rate(a)
4.6%
4.9%
6.2%
6.8%
7.9%
8.2%
7.6%
4.8%
4.3%
5.0%
Referenced to the Fiscal Year 2015 Financial Statements
U.S. Department of Commerce, Bureau of Economic Analysis.
Windows on State Governments, the website of Glenn Hegar, Texas Comptroller of Public Accounts.
Texas Workforce Commission.
D-1
Unemployment
Rate (State
of Texas) (d)
4.7%
4.6%
6.0%
6.8%
7.9%
8.2%
7.5%
4.9%
4.3%
4.9%
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METROPOLITAN TRANSIT AUTHORITY OF HARRIS COUNTY, TEXAS • Sales and Use Tax Refunding Bonds, Series 2016A and Sales and Use Tax Refunding Contractual Obligations, Series 2016B