The Waynesboro Borough Authority was created by ordinance of the Borough of Waynesboro, Pennsylvania and owns the water and sewer systems servicing customers of the Borough of Waynesboro and portions of Quincy Township and Washington Township. The Borough operates these systems under management agreements with the Authority. The Borough bills the customers and deposits collections into the Authority’s bank account (water). Quarterly, the Borough invoices the Authority for water costs incurred and the necessary transfers are made. The Borough transfers funds as needed to the Authority to pay its sewer debt service payments. The five members of the Authority are each appointed to five year terms by the mayor and council of the Borough. The Waynesboro Borough Authority is considered a component unit of the Borough of Waynesboro under the reporting entity criteria established by the Governmental Accounting Standards Board. There are no entities that could be considered component units of the Authority.

Basis of Accounting

As is the case with many municipal authorities, the accounts are maintained and these statements are prepared on a cash basis, reflecting only cash received and disbursed. Therefore, receivables, payables, depreciation and accrued items are not reflected and these statements are not intended to present the overall financial position or results of operations in conformity with generally accepted accounting principles.

Requirements of the trust indentures:

A. The Trust Indenture, dated May 15, 1992, and the Supplemental Trust Indenture dated

January 15, 1994, were entered into for the purpose of accounting for the funds related to the Water Revenue Bonds.

B. All transactions are recorded on the cash basis.

C. Investments are carried at cost.

D. Property and improvements are recorded at cost. These assets consist of a water supply dam and reservoir, capital additions to the water system, a water storage tank and related facilities, a sewer system and various equipment. Depreciation is not recorded on the property and improvements of the Authority.

Section 7.1 of the Pennsylvania Municipal Authorities Act defines allowable investments for authorities, which are summarized as follows:

ð U.S. Treasury bills.

ð Short-term obligations of the U.S. Government or its agencies.

ð Deposits in savings accounts or certificates of deposit insured by the FDIC, FSLIC, or NCUSIF to the extent that such accounts are so insured and for any amounts above the insured maximum, provided that approved collateral as provided by law shall be pledged by the depository.

ð Obligations of the U.S. Government, Commonwealth of Pennsylvania, or any agency, instrumentality, or political subdivision thereof, backed by the full faith and credit of the applicable government.

Allowable investments as specified by the Trust Indenture are direct obligations of the U.S. Government and bank savings or time deposits.

The Authority’s deposits and investments are categorized below to give an indication of the level of risk assumed by the Authority at December 31, 1999. Category 1 deposits and investments are either insured, registered, or securities which are held by the Authority’s agent in the Authority’s name. Investments may also be categorized as Category 2, which is defined as uninsured or unregistered investments for which the securities are held by the broker’s or dealer’s trust department or agent in the Authority’s name, and Category 3, which is defined as uninsured or unregistered investments for which the securities are held by the broker or dealer or by its trust department or agent but not in the Authority’s name. These deposits are secured by pooled securities maintained by the bank (not in the Authority’s name), or by the securities (U.S. Treasuries) underlying the funds.

On February 15, 1994, the Authority issued $ 4,085,000 of Water Revenue Bonds - Series of 1994 (dated as of January 15, 1994) to refinance the existing Water Revenue Bonds - Series of 1992 and pay all associated costs and expenses.

Interest is payable semi-annually on April 1 and October 1 of each year.

The Waynesboro Borough Authority has obtained two loans from the Commonwealth of Pennsylvania "PENNVEST" program. Both loans are secured by the Authority’s full faith and credit, a pledge of gross receipts generated from operations, and the guarantee of the Borough of Waynesboro.

The "PENNVEST" water loan is repayable over a fifteen year period, beginning in 1993. The interest rate was 2.767% per annum until July 1, 1997 then 4.322% per annum for the remainder of the term. The monthly debt service requirement was $ 20,479 until June 30, 1997, at which time it increased to $ 22,193, with final debt maturity in 2008. Principal and interest payments were $ 179,666 and

$ 86,654, respectively in 1999.

The "PENNVEST" sewer loan carries an interest rate of 4.978%. Monthly debt service requirements are $ 22,130. Principal and interest payments were $ 159,944 and $ 105,616, respectively, in 1999. The final payment is due in 2009.

Future principal payments on these loans are as follows:

Water Sewer Total

The Authority has reached an agreement with the Zullinger Water Association to manage the water system and ultimately take over the operations of the system. However, the Washington Township Municipal Authority (WTMA), a water/sewer utility in a bordering township, has filed an action for declaratory judgment against Waynesboro Borough Authority and Zullinger Water Association regarding this agreement with Zullinger. The ultimate outcome of these activities are uncertain at this time. During 1997, the water system was connected to the Zullinger water system. Since then, the Borough has billed and collected from Zullinger customers, and deposited the monies into a Zullinger bank account. Other than water sales to Zullinger Water Association, no Zullinger revenues are reflected in these financial statements.

On December 14, 1993, the Authority authorized the issuance of a 25 year note in an aggregate principal amount not to exceed $ 3,500,000 with the proceeds going to Quincy United Methodist Home (the "Home") for the financing of certain capital additions.

A local bank agreed to loan the funds (via purchasing the note) to the Home, and the Authority has assigned all right, title, and interest in and all sums payable by the Home to the bank.

The note originally carried an interest rate of 5.90% and required monthly principal and interest (at 85% of prime) installments in the amount of $ 20,760. During 1999 the interest rate was adjusted to 5.1% and the note now requires installments of $ 19,483. The note balance at December 31, 1999 is

$ 3,275,809. The note is secured by property and equipment owned by Quincy United Methodist Home.

Since the conduit debt described above is payable solely from resources of the Home because it ultimately received the financing, and the note is fully secured by the property and equipment of the Home, the Authority has no further obligation to repay the debt. Consequently, this debt and the corresponding mortgage receivable are not reflected in the Authority’s financial statements.