RD319 - Virginia Resources Authority Comprehensive Annual Financial Report of the Virginia Resources Authority – A Component Unit of the Commonwealth of Virginia – Year Ended June 30, 2020
In accordance with the requirements set forth in Section 62.1-222 of the Code of Virginia, as amended, I am pleased to present the fiscal year 2020 financial statements of the Virginia Resources Authority (“VRA", “Authority"). As you know, the statute requires the Authority to publish, at the close of each fiscal year, a complete set of financial statements presented in conformance with accounting principles generally accepted in the United States of America (GAAP) and audited in accordance with Government Auditing Standards generally accepted in the United States of America.
Management assumes full responsibility for the completeness and reliability of the information contained in this report, which is based upon a comprehensive framework of internal control that has been established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of material misstatements.
The fiscal year ended June 30, 2020 was audited by CliftonLarsonAllen LLP, a licensed certified public accounting firm. I am pleased to report that as a result of an audit of the Authority’s financial records and transactions of all funds, CliftonLarsonAllen has issued an unmodified opinion on the Authority’s financial statements for the year ended June 30, 2020.
GAAP requires management to provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of a Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it.
VRA was established in 1984 as a public body corporate and as a political subdivision of the Commonwealth of Virginia pursuant to the Virginia Resources Authority Act (Chapter 21 of Title 62.1 of the Code of Virginia, as amended). VRA is governed by an eleven-member Board of Directors, appointed by the Governor. Members include four state agency representatives, including the State Treasurer, whose agencies, along with VRA, co-manage specific loan funds. VRA’s Executive Director, also appointed by the Governor, administers, manages, and directs the affairs of the Authority, subject to the policies, control, and direction of its Board of Directors.
VRA was established to provide an additional source of funding for local infrastructure projects. Initially providing financing for local water and wastewater projects, projects eligible for VRA financing have increased over the years to 18 distinct project types. These project areas reflect the capital improvement priorities of local governments and priority areas identified by Virginia’s Governors and Legislature to improve the health, safety, and general welfare of Virginia’s counties, cities and towns.
VRA Financing Programs
VRA’s Virginia Pooled Financing Program (VPFP) is available to Virginia counties, cities, towns, and other political subdivisions requiring financing for any one of the designated project areas eligible for VRA financing. Authorized project areas include water, sewer, transportation, public safety, energy, local government buildings, parks and recreational facilities, administrative and operations systems, and a variety of other capital improvement projects. VPFP borrowers realize savings from VRA’s unique state credit enhancements based in part on the Commonwealth’s moral obligation, shared expenses, and a straightforward and customer-friendly loan process. VRA’s high credit rating, a natural “AAA" for the senior bonds and “AA" for the subordinate bonds, results in favorable access to the capital markets for Virginia localities without the need for additional credit enhancements.
In addition to the VPFP, the Authority currently serves as co-manager of five state capitalized loan/grant funds: Virginia Water Facilities Revolving Fund (VWFRF), Virginia Water Supply Revolving Fund (VWSRF), the Virginia Airports Revolving Fund (VARF), Virginia Dam Safety and Flood Prevention and Protection Fund (VDSFPPF), and Virginia Brownfields Restoration and Economic Redevelopment Assistance Fund (VBAF).
Two funds, the VWFRF and the VWSRF, receive capitalization grants each year from the U.S. Environmental Protection Agency, which includes a state match requirement from the Commonwealth. The VARF, VDSFPPF, and VBAF are solely capitalized by appropriations from the Commonwealth. The VWFRF, VWSRF, VARF, and VDSFP operate as revolving loan funds with the initial capitalization monies invested and, along with the investment earnings and loan repayments, are then loaned to qualified borrowers for eligible projects. The VBAF solely issues grants for eligible projects.
The Virginia Transportation Infrastructure Bank (VTIB) was created in 2011 to finance the design and construction of roads and highways, including toll facilities, mass transit, freight, passenger and commuter rail, including rolling stock, port, airport and other transportation facilities. VRA is the manager of VTIB and performs certain duties under an agreement with the Commonwealth Transportation Board and the Secretary of Finance.
Additionally, legislation was approved in the 2015 Session of the General Assembly establishing the Virginia Tobacco Region Revolving Fund, administered by VRA. The assets of the Fund are to be used to make loans to local governments for the financing of any project authorized by the Virginia Tobacco Region Revitalization Commission.
The Commonwealth of Virginia closed fiscal year 2020, which ended on June 30, with positive general fund revenue growth over the last year. Preliminary figures indicate that the Commonwealth concluded fiscal year 2020 with 2.0% growth in general fund revenue collections, approximately $236.5 million below the official forecast. While the shortfall was expected due to the impacts of COVID-19 on the state’s economy and budget, it is smaller than anticipated. The main drivers of the revenue shortfall were payroll withholding and sales taxes. Non-withholding income tax payments, mainly from 2019 tax returns, were on target and income tax refunds contributed positively to the bottom line revenues.
Staff efforts along with those of state agency and private sector partners resulted in many successes and opportunities during FY2020. The Authority took full advantage of market conditions to deliver cost-effective financing to all regions of the Commonwealth. With the support and guidance of the Board of Directors and Executive Director, the Authority delivered value to local government borrowers through its Virginia Pooled Financing Program (VPFP) and through other loan programs it administers for state agencies. Not only were staff efforts directed at the VPFP and the revolving loan funds co-managed with state agencies, efforts were also directed at the Virginia Tourism Corporation’s gap financing program that relies on VRA assistance in managing technical aspects of the program.
Major accomplishments for the Authority during FY2020 include:
• Receiving a ratings upgrade from Moody’s for VRA’s VPFP State Moral Obligation Revenue bonds from ‘Aa2’ to ‘Aa1’
• Maintaining outstanding credit ratings – VRA has consistently maintained high investment grade credit ratings for each of its rated financial programs
• Sustaining a record of no payment defaults in bond programs
• Monitoring borrowers exhibiting financial stress and concerns
• Financing investments of 130 new loans and grants totaling $739.1 million for 107 different entities through VRA programs
• Facilitating refunding opportunities for net present value debt service savings of $36.7 million through the Virginia Pooled Financing Program for 24 localities
• Transferring approximately $2.2 million to the Portfolio Risk Management Reserve to further enhance the pooled bond program credit
Additional FY2020 accomplishments for the Authority include:
• Assisting state agency partners in successfully managing their loan and grant programs
o Department of Environmental Quality – $204.3 million for 26 loans
• Maintaining qualified staff through professional and career development training initiatives
• Achieving the Government Finance Officers Association’s Certificate of Achievement for
• Excellence in Financial Reporting for the FY2019 Comprehensive Annual Financial Report (CAFR)
FY2020 Financial Results
VRA ended the fiscal year with assets and deferred outflows of $5.3 billion, a 0.2% increase over the prior year. With assets and deferred outflows exceeding liabilities and deferred inflows by $1.8 billion, VRA’s net position increased 4.8%. Approximately 98.6% of total net position is restricted for making loans and grants through the various loan programs administered by VRA. Operating revenues ($150.1 million) and expenses ($175.2 million) both increased during the fiscal year, primarily because of loan disbursement and repayment activity. Overall, VRA’s financial position remains strong at the conclusion of fiscal year 2020.
Long-term Financial Planning
VRA works with its agency partners to project program demand. For the Virginia Water Facilities Revolving Fund, VRA utilizes a long-term financial model to determine lending capacity under various scenarios. The model is updated at least annually. Ongoing communications with agency partners helps ensure effective planning.
VRA continues its practice of completing a five-year budget projection using certain assumptions for growth and project volume. Each year the assumptions are updated and the projection is revised accordingly.
Finally, completion of the Authority’s fiscal year 2020 CAFR would not have been possible without the Authority’s knowledgeable and dedicated team of professionals. A special note of gratitude goes to the Authority’s personnel who assisted in this effort. I would also like to extend our thanks to the Authority’s Board of Directors for their continuing support in planning and conducting the financial operations of the Virginia Resources Authority in a responsible manner.
/s/ Stephanie Hamlett