CITY OF HERMITAGE MANAGEMENT'S DISCUSSION AND ANALYSIS AND BASIC FINANCIAL STATEMENTS DECEMBER 31, 2015

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1 MANAGEMENT'S DISCUSSION AND ANALYSIS AND BASIC FINANCIAL STATEMENTS TOGETHER WITH INDEPENDENT AUDITOR'S REPORT AND SUPPLEMENTARY INFORMATION

2 270 East Connelly Boulevard Shenango Valley Freeway Sharon, Pennsylvania Fax John K. Williams, CPA Alice F. Mattocks, CPA, CGMA Gregory J. Koch, CPA Alan J. Porsch, CPA Nancy J. Black, CPA Ruth Ann Sholler, CPA Jason E. Tomko, CPA, CGMA Brenda L. McCall, CPA Jack F. Kuchcinski, CPA Patty L. Ryser, CPA Todd M. Davies, CPA Norbert F. Dietrich, Jr., CPA TO WHOM IT MAY CONCERN: The distribution of the City of Hermitage, Pennsylvania, financial statements consists of the following: City of Hermitage Board of Commissioners City Manager Assistant City Manager City Finance Director City Solicitor (5 Copies) (1 Copy) (1 Copy) (1 Copy) (1 Copy) Sharon, Pennsylvania June 28, 2016 Member AICPA Private Companies Practice Section

3 TABLE OF CONTENTS PAGE NUMBER INDEPENDENT AUDITOR'S REPORT 1-3 MANAGEMENT'S DISCUSSION AND ANALYSIS - REQUIRED SUPPLEMENTARY INFORMATION - (UNAUDITED) 4-12 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 13 STATEMENT OF ACTIVITIES BALANCE SHEET - GOVERNMENTAL FUNDS 16 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES STATEMENT OF NET POSITION - PROPRIETARY FUNDS 23 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION - PROPRIETARY FUNDS 24 STATEMENT OF CASH FLOWS - PROPRIETARY FUND TYPES - BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS 25 STATEMENT OF FIDUCIARY NET POSITION - FIDUCIARY FUNDS 26 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION - FIDUCIARY FUNDS 27 NOTES TO THE FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) - STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL FUND PENSION PLAN - (UNAUDITED) RETIREE HEALTH PLAN - (UNAUDITED) 78 SCHEDULE OF CHANGES IN NET PENSION LIABILITY - NON-UNIFORM 79 SCHEDULE OF CHANGES IN NET PENSION LIABILITY - POLICE 80

4 TABLE OF CONTENTS PAGE NUMBER SCHEDULES OF EMPLOYER CONTRIBUTIONS - ALL PENSION PLANS 81 SCHEDULES OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY - ALL PENSION PLANS 82 NOTES TO THE SCHEDULES OF EMPLOYER CONTRIBUTIONS AND CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY 83 SUPPLEMENTARY INFORMATION - EXHIBIT "A" COMBINING BALANCE SHEET - CAPITAL PROJECTS FUND TYPES 84 EXHIBIT "B" EXHIBIT "C" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - CAPITAL PROJECTS FUND TYPES - BUDGET AND ACTUAL 85 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE CONSTRUCTION FUND 86 EXHIBIT "D" BALANCE SHEETS - COMMUNITY DEVELOPMENT DEPARTMENT 87 EXHIBIT "E" EXHIBIT "F" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - COMMUNITY DEVELOPMENT DEPARTMENT STATEMENT OF SOURCE AND STATUS OF FUNDS - C.D.B.G. PROGRAM YEAR EXHIBIT "G" STATEMENT OF PROGRAM COSTS - C.D.B.G. PROGRAM YEAR EXHIBIT "H" STATEMENT OF SOURCE AND STATUS OF FUNDS - C.D.B.G. PROGRAM YEAR EXHIBIT "I" STATEMENT OF PROGRAM COSTS - C.D.B.G. PROGRAM YEAR EXHIBIT "J" EXHIBIT "K" EXHIBIT "L" STATEMENT OF SOURCE AND STATUS OF FUNDS - HOME INVESTMENT PARTNERSHIP PROGRAM GRANT - PROGRAM YEAR STATEMENT OF PROGRAM COSTS - HOME INVESTMENT PARTNERSHIP PROGRAM GRANT - PROGRAM YEAR STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - REVOLVING LOAN FUNDS 97 EXHIBIT "M" COMBINING BALANCE SHEET - ALL NON-MAJOR GOVERNMENTAL FUNDS 98

5 TABLE OF CONTENTS PAGE NUMBER EXHIBIT "N" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - ALL NON-MAJOR GOVERNMENTAL FUNDS - BUDGET AND ACTUAL 99 EXHIBIT "O" COMBINING BALANCE SHEET - DEBT SERVICE FUND TYPES 100 EXHIBIT "P" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - DEBT SERVICE FUND TYPES - BUDGET AND ACTUAL 101 EXHIBIT "Q" COMBINING STATEMENT OF NET POSITION - SEWER SYSTEM FUND 102 EXHIBIT "R" COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION - SEWER SYSTEM FUND 103 EXHIBIT "S" STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS - POLICE PENSION FUND 104 EXHIBIT "T" STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - POLICE PENSION FUND 105

6 270 East Connelly Boulevard Shenango Valley Freeway Sharon, Pennsylvania Fax John K. Williams, CPA Alice F. Mattocks, CPA, CGMA Gregory J. Koch, CPA Alan J. Porsch, CPA Nancy J. Black, CPA Ruth Ann Sholler, CPA Jason E. Tomko, CPA, CGMA Brenda L. McCall, CPA Jack F. Kuchcinski, CPA Patty L. Ryser, CPA Todd M. Davies, CPA Norbert F. Dietrich, Jr., CPA INDEPENDENT AUDITOR'S REPORT Board of Commissioners City of Hermitage Hermitage, Pennsylvania REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Hermitage, Pennsylvania, as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the City of Hermitage, Pennsylvania's basic financial statements as listed in the table of contents. MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR'S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 auditor's 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. Member AICPA Private Companies Practice Section

7 City of Hermitage 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 opinions. OPINIONS In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Hermitage, Pennsylvania, as of December 31, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. EMPHASIS OF MATTER - CHANGE IN ACCOUNTING PRINCIPLE As discussed in Note "2" to the financial statements, the City of Hermitage, Pennsylvania, adopted Governmental Accounting Standards Board (GASB) Statement No. 68 Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27 and GASB Statement No. 71 Pension Transition for Contributions Made Subsequent to the Measurement Date - an amendment of GASB Statement No. 68, which requires the City of Hermitage to record its net pension liability and related items on the government-wide financial statements. As a result, net position as of January 1, 2015, has been restated. Our opinions are not modified with respect to this matter. OTHER MATTERS REQUIRED SUPPLEMENTARY INFORMATION Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, budgetary comparison information, pension plan information, and retiree health plan information on pages 4 to 12, 74 to 75, 76 to 77, 78, and 79 to 83, respectively, 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 - 2 -

8 City of Hermitage 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. SUPPLEMENTARY INFORMATION Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Hermitage, Pennsylvania's basic financial statements. The accompanying supplementary schedules identified in the table of contents as supplementary information, such as the combining and individual non-major funds, agency funds, and private purpose trust funds financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual non-major funds, agency funds, and private purpose trust funds financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. The information, except for the employees' pension plan information on pages 76 to 77 and 79 to 83, and general fund budget and actual on pages 74 to 75, has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual non-major funds, agency funds, and private purpose trust funds financial statements are fairly stated in all material respects in relation to the financial statements taken as a whole. The information on pages 74 to 83 has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion or provide any assurance on them. Sharon, Pennsylvania June 28,

9 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED The discussion and analysis of the City of Hermitage's (City) financial performance provides an overall review of the City's financial activities for the year ended December 31, The intent of the discussion and analysis is to look at the City's financial performance as a whole. Readers should also review the financial statements and notes to enhance their understanding of the City's financial performance. The financial statements also include Hermitage Municipal Authority as a blended component unit of the sewer fund. Hermitage Municipal Authority also issues separate financial statements as of December 31, FINANCIAL HIGHLIGHTS Key financial highlights for 2015 are as follows: In total, net position decreased $ 1.5 million. Net position of governmental activities decreased by $.8 million, and net position of business-type activities increased by $.7 million. The decrease in governmental activities is primarily the result of decreased capital grants related to community development. The decrease in business-type activities is primarily the result of additional depreciation expense now that the system is complete and in use. Total revenues were $ 18.2 million. General revenues accounted for $ 10.1 million of revenue or 56 percent of all revenues. Program specific revenues in the form of charges for services, fees, fines and forfeitures, and grants accounted for $ 8.1 million or 44 percent of total revenues. The City had $ 12.8 million in expenses related to governmental activities, $ 2.0 million of these expenses were offset by program specific charges for services and grants. General revenue (primarily taxes) of $ 10.0 million was insufficient to cover the remainder of the expenses, resulting in a decrease in net position of $.8 million. At the end of the current year, the unassigned fund balance of the general fund was $ USING THE ANNUAL REPORT This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand the City of Hermitage as a financial whole, an entire operating entity. The statements then proceed to provide an increasingly detailed look at specific financial activities. The Statement of Net Position and Statement of Activities provide information about the activities of the whole City, presenting both an aggregate view of the City's finances and longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term, as well as what remains for future spending. The fund financial statements also look at the City's most significant funds. In the case of the City of Hermitage, the General Fund, the Capital Projects Fund, the Community Development Department, and the Sewer System Fund are the most significant funds

10 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED As described in Note "2" to the financial statement, "Adoption of New Accounting Pronouncement", the City has adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 68 Accounting and Financial Reporting for Pensions and GASB Statement No. 71 Pension Transition for Contributions Made Subsequent to the Measurement Date - as Amended of GASB Statement No. 68 for the year ended December 31, The adoption of this principle resulted in a restatement for the City's opening net position as of January 1, 2015, in the amount of $ 117,126. Prior year balances reflected in the management's discussion and analysis have been updated, for comparison purposes, to reflect the change. REPORTING THE CITY AS A WHOLE GOVERNMENT-WIDE FINANCIAL STATEMENTS Statement of Net Position and the Statement of Activities - While this document contains the various funds used by the City to provide programs and activities, the view of the City as a whole looks at all financial transactions and asks the question, "How did we do financially during 2015?" The Statement of Net Position and the Statement of Activities answer the question. These statements include all assets, deferred outflows of resources, liabilities, and deferred inflows of resources using the accrual basis of accounting similar to the accounting used by most private sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid. These two statements report the City's net position and changes in that position. This change in net position is important because it tells the reader that, for the City as a whole, the financial position of the City has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Non-financial factors include the City's property tax base, facility conditions, required services, and other factors. In the Statement of Net Position and the Statement of Activities, the City is divided into two (2) distinct kinds of activities: Governmental Activities - Most of the City's programs and services are reported here including general government, protection to persons and property, public works, culture and recreation, conservation and development, health and welfare, debt service, and employee payroll taxes, benefits, and insurance. Business-Type Activities - These services are provided on a charge for goods or services basis to recover the expenses of the goods or services provided. The sewer operating fund is reported as business activity. The Governmental Funds Balance Sheet can be found on page 16 of this report

11 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED REPORTING THE CITY'S MOST SIGNIFICANT FUNDS FUND FINANCIAL STATEMENTS The analysis of the City's major funds begin on page 16. Fund financial reports provide detailed information about the City's major funds. The City uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the City's most significant funds. The City's major governmental funds are the General Fund, the Capital Projects Fund, and the Community Development Department Fund. GOVERNMENTAL FUNDS Most of the City's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balance left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental funds statements provide a detailed short-term view of the City's general governmental operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance local government services. The relationships (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and the governmental funds is reconciled in the financial statements on pages 17 through 18 and 21 through 22, respectively. PROPRIETARY FUNDS Proprietary funds use the same basis of accounting as business-type activities; therefore, these fund financial statements will essentially match the government-wide financial statements except for the inclusion of the proprietary funds share of the internal service fund. THE CITY AS A WHOLE The Statement of Net Position provides the perspective of the City as a whole. A comparison of the City's net position for 2015 compared to 2014 is as follows: NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL ASSETS:- Cash and Cash Equivalents $ 3,441 $ 5,393 $ 2,768 $ 2,979 $ 6,209 $ 8,372 Taxes Receivable, Net Net Sewer Fee and Assessments Receivable Due from Other Governments

12 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL Loans Receivable Other Receivables Consumable Supplies Inventory of Land Held for Sale 1,064 1,064 1,064 1,064 Net Capital Assets 18,418 18,995 57,442 59,051 75,860 78,046 Long-Term Portion - Assessments Receivable Internal Balances ( 90) ( 91) Prepaid Expenses Net Pension Asset - Police 229 1, ,444 TOTAL ASSETS:- $ 24,823 $ 28,290 $ 61,752 $ 63,578 $ 86,575 $ 91,868 DEFERRED OUTFLOWS OF RESOURCES:- Pensions $ 1,748 $ 0 $ 0 $ 0 $ 1,748 $ 0 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES:- $ 26,571 $ 28,290 $ 61,752 $ 63,578 $ 88,323 $ 91,868 LIABILITIES:- Current Portion Debt $ 695 $ 695 $ 10,585 $ 1,944 $ 11,280 $ 2,639 Accounts Payable Retainage Payable Accrued Salaries and Benefits Accrued Interest Bonds Payable 8,245 8,895 23,874 32,379 32,119 41,274 Notes Payable 2,180 2,225 11,226 11,871 13,406 14,096 Special Termination Benefits Unearned Revenue Other Post-Employment Benefits 1,290 1, ,492 1,406 Net Pension Liability (PMRS) 1,050 1,043 1,050 1,043 TOTAL LIABILITIES:- $ 14,500 $ 15,647 $ 47,425 $ 48,420 $ 61,925 $ 64,

13 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED NET POSITION (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL DEFERRED INFLOWS OF RESOURCES - Current Portion Deferred Refunding ($ 5) ($ 5) $ $ ($ 5) ($ 5) Current Portion Unamortized Bond Discount ( 9) ( 9) ( 9) ( 9) Unamortized Bond Discount ( 205) ( 214) ( 205) ( 214) Deferred Amount on Refunding ( 8) ( 13) ( 540) ( 443) ( 548) ( 456) Pensions TOTAL DEFERRED INFLOWS OF RESOURCES:- $ 256 $ 43 ($ 540) ($ 443) ($ 284) ($ 400) TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 14,756 $ 15,690 $ 46,885 $ 47,977 $ 61,641 $ 63,667 NET POSITION:- Net Investment in Capital Assets $ 7,960 $ 7,962 $ 11,891 $ 12,857 $ 19,851 $ 20,819 Restricted ,467 Unrestricted 3,337 3,949 2,598 1,966 5,935 5,915 TOTAL NET POSITION:- $ 11,815 $ 12,600 $ 14,867 $ 15,601 $ 26,682 $ 28,201 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET ASSETS:- $ 26,571 $ 28,290 $ 61,752 $ 63,578 $ 88,323 $ 91,868 Total assets and deferred outflows of resources decreased $ 3.5 million, primarily the result of decreases in cash and equivalents and investments of $ 2.2 million net capital assets of $ 2.2 million due to a mix of continued work on capital projects, offset by current year depreciation, offset by $.5 million increase in net pension asset and the deferred outflows of resources related to pensions. Total liabilities and deferred inflows decreased $ 2.0 million, primarily as a result of the $ 1.2 million decrease in bonds and notes payable, a - 8 -

14 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED $.8 million decrease in payables and retainage in total, offset by a $.2 million increase in net pension liability and the deferred inflows of resources related to pensions. Various other small increases and decreases netted each other out. The following table shows the revenues, expenses, and changes in net position for 2015 and 2014: (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL REVENUES AND OTHER SOURCES:- Program Revenues - Charges for Services, Fees, Fines, and Forfeitures $ 623 $ 641 $ 6,030 $ 5,976 $ 6,653 $ 6,617 Operating Grants and Contributions 1,022 1, ,094 1,062 Capital Grants and Contributions General Revenues - Property, Per Capita, Earned, Other Taxes 9,125 9,079 9,125 9,079 Unrestricted Grants, Subsidies and Contributions Investment Earnings Licenses and Permits Other Sale of Fixed Assets TOTAL REVENUES AND OTHER SOURCES:- $ 11,969 $ 12,774 $ 6,225 $ 6,096 $ 18,194 $ 18,870 PROGRAM EXPENSES AND OTHER USES:- General Government - Administration $ 830 $ 927 $ $ $ 830 $ 927 Tax Collection Legal Services

15 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED (IN THOUSANDS) GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL General Government Buildings and Plant Protection to Persons and Property - Police 2,689 2,531 2,689 2,531 Fire Protective Inspection Planning and Zoning Public Works - Storm Sewers Highways and Streets 2,625 3,097 2,625 3,097 Other Culture and Recreation - Parks and Recreation Libraries Conservation and Development - 1,275 1,476 1,275 1,476 Unallocated Depreciation Interest on Debt Employee Payroll Taxes, Benefits, and Insurance - 1,813 1,938 1,813 1,938 Sanitary Sewer Operations - 6,958 5,422 6,958 5,422 TOTAL EXPENSES AND OTHER USES:- $ 12,755 $ 13,644 $ 6,958 $ 5,422 $ 19,713 $ 19,066 INCREASE (DECREASE) IN NET POSITION:- ($ 786) ($ 870) ($ 733) $ 674 ($ 1,519) ($ 196) GOVERNMENTAL ACTIVITIES Governmental activities for 2015 resulted in a decrease in net position of $.8 million. The decrease is primarily the result of decreased grant funding on conservation and development projects. The City's revenues consist of: local (taxes, fees, and other) 85 percent; and state and federal revenues (subsidies and grants) 15 percent

16 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED The City's program expenses are 11 percent general government, 30 percent protection to persons and property, 22 percent public works, 3 percent culture and recreation, 10 percent conservation and development, 10 percent debt service and depreciation, and 14 percent employee payroll, taxes, benefits, and insurance. The City's reliance on state and federal grants and local tax revenues is apparent. A decrease in state and federal revenues would have a direct impact on the level of local revenue needed to meet program expenses. BUSINESS-TYPE ACTIVITIES Business-type activities consist only of sanitary sewer operations. This program had revenue of $ 6.2 million and expenses of $ 7.0 million. This activity receives no support from tax revenue. THE CITY'S FUNDS Financial information related to the City's major funds starts on page 16. These funds are accounted for using the modified accrual basis of accounting. All governmental funds had total revenues of approximately $ 12.2 million, and expenditures of approximately $ 13.1 million. The decrease in fund balance of $ 1.0 million mainly resulted from a decrease in grant funding related to conservation and development projects. The general fund accounts for 84 percent of total revenues (not including long-term debt proceeds) and 70 percent of total expenditures. GENERAL FUND BUDGET HIGHLIGHTS The City's budget is prepared on the modified accrual basis of accounting. The most significant budgeted fund is the general fund. There were no budget transfers made during The revenue and other financing sources budget was approximately $ 10.6 million. The actual revenue and other financing sources was $ 10.7 million. The actual 2015 revenue was slightly over budget; however, the City has experienced volatility in revenues since the recession, due to the dependency on earned income tax as the major source of revenue. As of the date of this report, there are no new conditions that would significantly impact the projected tax revenues of the City. The expenditure and other financing uses budget was approximately $ 11.4 million compared to actual expenditures and other financing uses of $ 10.7 million. A review of budget to actual expenditures indicates that each major area was under budget for the fiscal year 2015, with the exception of operating transfers out, legal services, workers' compensation expense, street lighting, and pension contributions

17 MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED UNAUDITED CAPITAL ASSET AND DEBT ADMINISTRATION CAPITAL ASSETS At the end of fiscal year 2015, the City had $ 75.9 million invested in land, buildings, sewer system, and equipment (cost $ million, less accumulated depreciation of $ 40.2 million). DEBT ADMINISTRATION At December 31, 2015, the City (including the blended component unit) had approximately $ 56.0 million in net bonds and note payable obligations outstanding, with approximately $ 11.3 million due within one (1) year. For additional information on bonds and notes, see Notes "2" and "4" to the financial statements. At December 31, 2015, the City's non-electoral limit for debt (250 percent of borrowing base) was approximately $ 25.9 million, excluding existing and self-liquidating debt. FOR THE FUTURE The financial outlook for the City continues to be stable; however, there is always a concern for state fiscal issues and economic restraints. As the preceding information shows, the City depends on its taxpayers and grant funding. The City anticipates that volatility in the Mercer County area, as well as the entire nation makes the amount of future tax requirements uncertain. As of the date of this report, no new conditions are expected that would significantly impact the financial status of the City. Of course, stability and growth depend upon the general economic conditions, including the unemployment rate of the City's taxpayers. Mercer County's economy, like the entire economy of the United States of America, continues to be challenged by volatility. The cost of operations is anticipated to continue to increase, which will be funded with both taxes and state and federal grants. CONTACTING THE CITY'S FINANCIAL MANAGEMENT The financial report is designed to provide our citizens, taxpayers, and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Mr. Gary Hinkson, City Manager, at the City of Hermitage, 800 North Hermitage Road, Hermitage, Pennsylvania

18 STATEMENT OF NET POSITION GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL CURRENT ASSETS:- Cash and Cash Equivalents $ 3,440,929 $ 2,768,117 $ 6,209,046 Taxes Receivable, Net 635, ,307 Net Sewer Fee and Assessments Receivable 800, ,135 Due from Other Governments 449, ,972 Other Receivables 126, ,130 Loans Receivable 235, ,000 Consumable Supplies 25,000 10,000 35,000 Inventory of Land Held for Sale 1,064,175 1,064,175 Internal Balances ( 90,526) 90,526 0 Prepaid Expenses 1,144 1,144 TOTAL CURRENT ASSETS:- $ 5,885,987 $ 3,669,922 $ 9,555,909 NON-CURRENT ASSETS:- Capital Assets - Land $ 785,027 $ 64,000 $ 849,027 Land and Site Improvements 5,564,729 5,564,729 Building and Building Improvements 17,440,502 1,021,702 18,462,204 Vehicles, Furniture, Fixtures, and Equipment 8,317,447 1,779,001 10,096,448 Sewer System 80,249,248 80,249,248 Construction-in-Progress 857, ,321 $ 32,107,705 $ 83,971,272 $ 116,078,977 Accumulated Depreciation ( 13,690,046) ( 26,529,108) ( 40,219,154) NET CAPITAL ASSETS:- $ 18,417,659 $ 57,442,164 $ 75,859,823 Other Assets - Loans Receivable 290, ,392 Assessments Receivable 621, ,106 Prepaid Expenses 19,300 19,300 Net Pension Asset - Police 229, ,352 TOTAL NON-CURRENT ASSETS:- $ 18,937,403 $ 58,082,570 $ 77,019,973 DEFERRED OUTFLOWS OF RESOURCES:- Pensions $ 1,747,749 $ 0 $ 1,747,749 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES:- $ 26,571,139 $ 61,752,492 $ 88,323,631 GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL CURRENT LIABILITIES:- Current Portion of Long-Term Debt $ 695,000 $ 10,584,561 $ 11,279,561 Accounts Payable 349, , ,370 Retainage Payable 151, ,090 Accrued Interest Expense 115, , ,269 Accrued Salaries, Benefits, and Withholdings 70,629 13,194 83,823 TOTAL CURRENT LIABILITIES:- $ 1,230,520 $ 11,501,593 $ 12,732,113 NON-CURRENT LIABILITIES:- Bonds Payable $ 8,245,000 $ 23,874,344 $ 32,119,344 Notes Payable 2,180,000 11,225,649 13,405,649 Unearned Revenue 199, , ,274 Special Termination Benefits 306, ,292 Other Post-Employment Benefits 1,289, ,130 1,491,753 Net Pension Liability - PMRS 1,050,174 1,050,174 Commitments and Contingencies 0 TOTAL NON-CURRENT LIABILITIES:- $ 13,270,257 $ 35,923,229 $ 49,193,486 TOTAL LIABILITIES:- $ 14,500,777 $ 47,424,822 $ 61,925,599 DEFERRED INFLOWS OF RESOURCES:- Unamortized Bond Discount ($ 213,466) $ ($ 213,466) Deferred Amount on Refunding ( 13,357) ( 539,629) ( 552,986) Amounts Related to Pensions 482, ,771 TOTAL DEFERRED INFLOWS OF RESOURCES:- $ 255,948 ($ 539,629) ($ 283,681) TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 14,756,725 $ 46,885,193 $ 61,641,918 NET POSITION:- Net Investment in Capital Assets $ 7,959,751 $ 11,890,961 $ 19,850,712 Restricted 518, , ,781 Unrestricted 3,336,647 2,598,573 5,935,220 TOTAL NET POSITION:- $ 11,814,414 $ 14,867,299 $ 26,681,713 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION:- $ 26,571,139 $ 61,752,492 $ 88,323,631 The Accompanying Notes are an Integral Part of These Statements

19 PAGE 1 OF 2 STATEMENT OF ACTIVITIES YEAR ENDED PROGRAM REVENUES CHARGES FOR SERVICES, FEES, OPERATING CAPITAL NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION FINES, AND GRANTS AND GRANTS AND GOVERNMENTAL BUSINESS-TYPE EXPENSES FORFEITURES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES TOTAL GOVERNMENTAL ACTIVITIES:- GENERAL GOVERNMENT - Administration $ 829,742 $ 275 $ $ ($ 829,467) $ ($ 829,467) Tax Collection 155, ,632 ( 30,503) ( 30,503) Legal Services 56,735 ( 56,735) ( 56,735) General Government Buildings and Plant 368,720 21,319 ( 347,401) ( 347,401) TOTAL GENERAL GOVERNMENT:- $ 1,410,332 $ 146,226 $ 0 $ 0 ($ 1,264,106) $ 0 ($ 1,264,106) PROTECTION TO PERSONS AND PROPERTY - Police $ 2,689,003 $ 166,282 $ 123,432 $ ($ 2,399,289) $ ($ 2,399,289) Fire 477,958 ( 477,958) ( 477,958) Protective Inspection 301, ,923 ( 169,597) ( 169,597) Planning and Zoning 368,059 ( 368,059) ( 368,059) TOTAL PROTECTION TO PERSONS AND PROPERTY:- $ 3,836,540 $ 298,205 $ 123,432 $ 0 ($ 3,414,903) $ 0 ($ 3,414,903) PUBLIC WORKS - Highways and Streets $ 2,625,258 $ $ 480,858 $ 280,000 ($ 1,864,400) $ ($ 1,864,400) Storm Sewers 111,620 ( 111,620) ( 111,620) Other 22,108 26,627 4,519 4,519 TOTAL PUBLIC WORKS:- $ 2,758,986 $ 0 $ 507,485 $ 280,000 ($ 1,971,501) $ 0 ($ 1,971,501) CULTURE AND RECREATION - Parks and Recreation $ 292,501 $ 48,113 $ $ 33,400 ($ 210,988) $ ($ 210,988) Libraries 100,000 ( 100,000) ( 100,000) TOTAL CULTURE AND RECREATION:- $ 392,501 $ 48,113 $ 0 $ 33,400 ($ 310,988) $ 0 ($ 310,988) CONSERVATION AND DEVELOPMENT - $ 1,275,000 $ 130,081 $ 0 $ 0 ($ 1,145,019) $ 0 ($ 1,145,019) UNALLOCATED EXPENSES - Depreciation $ 937,702 $ $ $ ($ 937,702) $ ($ 937,702) Interest on Debt 330,803 ( 330,803) ( 330,803) TOTAL UNALLOCATED EXPENSES:- $ 1,268,505 $ 0 $ 0 $ 0 ($ 1,268,505) $ 0 ($ 1,268,505) EMPLOYEE PAYROLL TAXES, BENEFITS, AND INSURANCE - Payroll Taxes and Fringe Benefits $ 416,676 $ $ 390,623 $ ($ 26,053) $ ($ 26,053) Insurance Premiums 1,395,871 ( 1,395,871) ( 1,395,871) TOTAL EMPLOYEE PAYROLL TAXES, BENEFITS, AND INSURANCE:- $ 1,812,547 $ 0 $ 390,623 $ 0 ($ 1,421,924) $ 0 ($ 1,421,924) TOTAL GOVERNMENTAL ACTIVITIES:- $ 12,754,511 $ 622,625 $ 1,021,540 $ 313,400 ($ 10,796,946) $ 0 ($ 10,796,946) The Accompanying Notes are an Integral Part of These Statements

20 PAGE 2 OF 2 STATEMENT OF ACTIVITIES YEAR ENDED PROGRAM REVENUES CHARGES FOR SERVICES, FEES, OPERATING CAPITAL NET (EXPENSE) REVENUE AND CHANGES IN NET POSITION FINES, AND GRANTS AND GRANTS AND GOVERNMENTAL BUSINESS-TYPE EXPENSES FORFEITURES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES TOTAL BUSINESS-TYPE ACTIVITIES:- Sewer Operations $ 6,958,788 $ 6,030,717 $ 72,036 $ 0 $ 0 ($ 856,035) ($ 856,035) TOTAL:- $ 19,713,299 $ 6,653,342 $ 1,093,576 $ 313,400 ($ 10,796,946) ($ 856,035) ($ 11,652,981) GENERAL REVENUES AND SPECIAL ITEMS:- TAXES - Property Taxes, Levied for General Purposes, Net $ 1,297,914 $ $ 1,297,914 Public Utility Realty, Earned Income and Other Taxes Levied for General Purposes, Net 7,827,084 7,827,084 Grants, Subsidies, and Contributions Not Restricted 476, ,387 Investment Earnings 11, ,540 Miscellaneous Income 111, ,586 Licenses and Permits 286, , ,532 TOTAL GENERAL REVENUES AND SPECIAL ITEMS:- $ 10,010,978 $ 122,065 $ 10,133,043 CHANGE IN NET POSITION:- ($ 785,968) ($ 733,970) ($ 1,519,938) NET POSITION - BEGINNING AS ORIGINALLY STATED:- $ 12,483,256 $ 15,601,269 $ 28,084,525 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:- 117, ,126 NET POSITION AT BEGINNING OF YEAR, AS RESTATED:- $ 12,600,382 $ 15,601,269 $ 28,201,651 NET POSITION - ENDING:- $ 11,814,414 $ 14,867,299 $ 26,681,713 The Accompanying Notes are an Integral Part of These Statements

21 BALANCE SHEET GOVERNMENTAL FUNDS COMMUNITY TOTAL CAPITAL DEVELOPMENT NON-MAJOR GOVERNMENTAL GENERAL FUND PROJECTS FUND DEPARTMENT FUNDS FUNDS ASSETS:- Cash and Cash Equivalents $ 834,028 $ 939,062 $ 1,020,686 $ 387,015 $ 3,180,791 Receivables - Taxes, Net 92,028 92,028 Due from Other Governmental Units 118, , ,972 Loans Receivable 575, ,392 Other 125,000 1, ,130 Due from Other Funds 5,240 17,601 22,841 Consumable Supplies 25,000 25,000 TOTAL ASSETS:- $ 1,199,706 $ 939,062 $ 1,946,371 $ 387,015 $ 4,472,154 LIABILITIES:- Accounts Payable $ 81,146 $ 111,091 $ 140,136 $ $ 332,373 Accrued Salaries and Benefits 68,815 1,814 70,629 Due to Other Funds 107,616 17,601 5, ,457 Unearned Revenue 575, ,392 TOTAL LIABILITIES:- $ 257,577 $ 128,692 $ 722,582 $ 0 $ 1,108,851 DEFERRED INFLOWS OF RESOURCES:- Unearned Revenue - Taxes $ 92,028 $ 0 $ 0 $ 0 $ 92,028 TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 349,605 $ 128,692 $ 722,582 $ 0 $ 1,200,879 FUND BALANCES:- Nonspendable - Consumable Supplies $ 25,000 $ $ $ $ 25,000 Restricted - 0 8, ,745 42, ,016 Assigned - 825, , , ,081 2,728,259 TOTAL FUND BALANCES:- $ 850,101 $ 810,370 $ 1,223,789 $ 387,015 $ 3,271,275 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES:- $ 1,199,706 $ 939,062 $ 1,946,371 $ 387,015 $ 4,472,154 The Accompanying Notes are an Integral Part of These Statements

22 PAGE 1 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION TOTAL FUND EQUITY - GOVERNMENTAL FUNDS:- $ 3,271,275 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital Assets Used in Governmental Activities are not Financial Resources and, Therefore, are not Reported as Assets in Governmental Funds. The Cost of Assets is $ 32,107,705, and the Accumulated Depreciation is $ 13,690, ,417,659 Property Taxes and Wage Taxes Receivable will be Collected Next Year, but are not Available Soon Enough to Pay for the Current Period's Expenditures and, Therefore, are Unearned or not Recorded in the Funds. 635,307 Balances of the Wage Tax Agency Fund that is Available but will not be Turned Over to the City Soon Enough to Pay for the Current Period's Expenditures and, Therefore, not Recorded in the Funds. 260,138 Cost of Inventory of Land Held for Sale Not Recorded in the Governmental Funds. 1,064,175 Net Economic Development Loans Receivable that will be Collected in Future Years that are not Available Soon Enough to Pay for the Current Period's Expenditures. Deferred Balance $ 376,224 Less $ 50,000 Reserve for Uncollectable Loans. 326,224 Unamortized Bond Discount is Reported as Expenditures in the Governmental Funds. The Original Balance is $ 283,931 and Accumulated Amortization is $ 70, ,466 Deferred Outflows of Resources Related to Pensions are Applicable to Future Periods and Therefore, are not Reported in the Funds. 327,030 Long-Term Liabilities, Including Bonds Payable, are not Due and Payable in the Current Period and, Therefore, are not Reported as Liabilities in the Funds. Long-Term Liabilities at Year-End Consist of: The Accompanying Notes are an Integral Part of These Statements

23 PAGE 2 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Bonds Payable ($ 8,895,000) Notes Payable ( 2,225,000) Special Termination Benefits ( 306,292) Deferred Amount on Refunding 13,357 Accrued Interest on Debt ( 115,428) Other Post-Employment Benefits ( 1,289,623) Deferred Outflows of Resources Related to Pension, Net 937,948 Net Pension Liability, Net ( 820,822) ( 12,700,860) TOTAL NET POSITION - GOVERNMENTAL ACTIVITIES:- $ 11,814,414 The Accompanying Notes are an Integral Part of These Statements

24 PAGE 1 OF 2 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED COMMUNITY TOTAL CAPITAL DEVELOPMENT NON-MAJOR GOVERNMENTAL GENERAL FUND PROJECTS FUND DEPARTMENT FUNDS FUNDS REVENUES:- Taxes $ 8,830,340 $ 521,872 $ $ $ 9,352,212 Licenses and Permits 286, ,969 Fines, Forfeits, and Costs 124, ,337 Interest, Rents, and Royalties 600 1,736 15,994 22,427 40,757 Grants and Gifts 532, , ,858 1,811,327 Departmental Earnings and Assessments 346, , ,416 Miscellaneous 81,426 30, ,586 TOTAL REVENUES:- $ 10,203,231 $ 553,608 $ 914,480 $ 503,285 $ 12,174,604 EXPENDITURES:- General Government - Administration $ 575,924 $ 53,251 $ 196,166 $ 1,631 $ 826,972 Tax Collection 155, ,135 Legal Services 56,735 56,735 General Government Buildings and Plant 352,726 71, ,324 TOTAL GENERAL GOVERNMENT:- $ 1,140,520 $ 124,849 $ 196,166 $ 1,631 $ 1,463,166 Protection to Persons and Property - Police $ 2,681,915 $ 134,072 $ $ $ 2,815,987 Fire 413,365 64, ,958 Protective Inspection 301, ,520 Planning and Zoning 368, ,059 TOTAL PROTECTION TO PERSONS AND PROPERTY:- $ 3,764,859 $ 134,072 $ 0 $ 64,593 $ 3,963,524 Public Works - Highways and Streets $ 1,698,651 $ 519,359 $ 457,708 $ $ 2,675,718 Storm Sewers 82,985 28, ,620 Other 45 6,200 6,245 Public Safety 36,863 36,863 TOTAL PUBLIC WORKS:- $ 1,698,651 $ 602,344 $ 523,251 $ 6,200 $ 2,830,446 Culture and Recreation - Parks and Recreation $ 278,999 $ 26,578 $ 79,271 $ $ 384,848 Libraries 100, ,000 TOTAL CULTURE AND RECREATION:- $ 378,999 $ 26,578 $ 79,271 $ 0 $ 484,848 Conservation and Development - $ 0 $ 593,879 $ 608,471 $ 64,000 $ 1,266,350 The Accompanying Notes are an Integral Part of These Statements

25 PAGE 2 OF 2 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED COMMUNITY TOTAL CAPITAL DEVELOPMENT NON-MAJOR GOVERNMENTAL GENERAL FUND PROJECTS FUND DEPARTMENT FUNDS FUNDS Employee Payroll Taxes, Benefits, and Insurance - Payroll Taxes and Fringe Benefits $ 743,706 $ $ $ $ 743,706 Insurance Premiums 1,321,431 1,321,431 TOTAL EMPLOYEE PAYROLL TAXES, BENEFITS, AND INSURANCE:- $ 2,065,137 $ 0 $ 0 $ 0 $ 2,065,137 Debt Service - $ 0 $ 1,011,955 $ 0 $ 4,409 $ 1,016,364 TOTAL EXPENDITURES:- $ 9,048,166 $ 2,493,677 $ 1,407,159 $ 140,833 $ 13,089,835 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES:- $ 1,155,065 ($ 1,940,069) ($ 492,679) $ 362,452 ($ 915,231) OTHER FINANCING SOURCES (USES):- Operating Transfers In $ 514,200 $ 1,795,503 $ 379,834 $ $ 2,689,537 Operating Transfers Out ( 1,658,565) ( 546,374) ( 398) ( 484,200) ( 2,689,537) TOTAL OTHER FINANCING SOURCES (USES):- ($ 1,144,365) $ 1,249,129 $ 379,436 ($ 484,200) $ 0 REVENUES AND OTHER SOURCES (UNDER) EXPENDITURES AND OTHER (USES):- $ 10,700 ($ 690,940) ($ 113,243) ($ 121,748) ($ 915,231) BEGINNING FUND BALANCE:- 839,401 1,501,310 1,337, ,763 4,186,506 ENDING FUND BALANCE:- $ 850,101 $ 810,370 $ 1,223,789 $ 387,015 $ 3,271,275 The Accompanying Notes are an Integral Part of These Statements

26 PAGE 1 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES YEAR ENDED TOTAL NET CHANGE IN FUND BALANCE - GOVERNMENTAL FUNDS:- ($ 915,231) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital Outlays are Reported in Governmental Funds as Expenditures. However, in the Statement of Activities, the Cost of Those Assets is Allocated Over Their Estimated Useful Lives as Depreciation Expense. This is the Amount by Which Depreciation Expense Outlays Exceed Capital Outlays and Net Book Value of Disposed Assets in the Period. Capital Outlays $ 360,787 Depreciation Expense ( 937,702) ( 576,915) Because Some Property Taxes will not be Collected for Several Months After the City's Fiscal Year Ends, They are not Considered as "Available" Revenues in the Governmental Funds. Unearned Tax Revenues Decreased by this Amount this Year. 37,419 Repayment of Debt is an Expenditure in the Governmental Funds, but the Repayment Reduces Long-Term Liabilities in the Statement of Net Position. 694,803 Economic Development Loans Issued and Repayments Received are Expenditures and Revenues in the Governmental Funds. However, these Disbursements and Receipts Increase and Decrease Loan Receivable Balances in the Statement of Net Position. During 2015, Loans Issued are $ 150,000 and Repayments Received are $ 100,178. ( 49,822) In the Statement of Activities, Pension Benefits are Measured by the Amounts Incurred During the Year. In the Governmental Funds, However, Expenditures for this Item are Measured by the Amount of Financial Resources Paid. This Amount Represents the Difference Between the Amount Incurred Versus the Amount Paid. 327,030 The Following Amounts Represent Changes in Balances from the Prior Year: Amortization of Deferred Amount on Refunding ($ 5,172) Amortization of Bond Discount ( 9,138) The Accompanying Notes are an Integral Part of These Statements

27 PAGE 2 OF 2 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES YEAR ENDED Accrued Interest Expense 5,068 Special Termination Benefits ( 17,162) Wage Tax Receivable 8,569 Unclaimed Wage Taxes ( 210,977) Other Post-Employment Benefits ( 74,440) ( 303,252) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES:- ($ 785,968) The Accompanying Notes are an Integral Part of These Statements

28 STATEMENT OF NET POSITION PROPRIETARY FUNDS BUSINESS-TYPE ACTIVITIES ENTERPRISE FUNDS SEWER SYSTEM FUND INTERNAL SERVICE FUND BUSINESS-TYPE ACTIVITIES ENTERPRISE FUNDS SEWER SYSTEM FUND INTERNAL SERVICE FUND CURRENT ASSETS:- Cash and Cash Equivalents $ 2,768,117 $ Sewer Fees and Assessments Receivable 800,135 Consumable Supply Inventory 10,000 Internal Balances 90,526 Prepaid Expenses 1,144 17,090 TOTAL CURRENT ASSETS:- $ 3,669,922 $ 17,090 NON-CURRENT ASSETS:- Capital Assets - Land $ 64,000 $ Buildings 1,021,702 Vehicles, Furniture, Fixtures, and Equipment 1,779,001 Sewer System 80,249,248 Construction-in-Progress 857,321 $ 83,971,272 $ 0 Accumulated Depreciation ( 26,529,108) 0 NET CAPITAL ASSETS:- $ 57,442,164 $ 0 OTHER ASSETS:- Delayed Assessments Receivable 621,106 Prepaid Expenses 19,300 TOTAL NON-CURRENT ASSETS:- $ 58,082,570 $ 0 CURRENT LIABILITIES:- Current Portion of Long-Term Debt $ 10,584,561 $ Accounts Payable 306,907 17,090 Retainage Payable 151,090 Accrued Salaries, Benefits, and Withholdings 13,194 Accrued Interest Payable 445,841 TOTAL CURRENT LIABILITIES:- $ 11,501,593 $ 17,090 NON-CURRENT LIABILITIES:- Bonds Payable $ 23,874,344 $ Notes Payable 11,225,649 Unearned Revenue 621,106 Other Post-Employment Benefits 202,130 TOTAL NON-CURRENT LIABILITIES:- $ 35,923,229 $ 0 TOTAL LIABILITIES:- $ 47,424,822 $ 17,090 DEFERRED INFLOWS OF RESOURCES:- Deferred Amount on Refunding ($ 539,629) $ 0 TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 46,885,193 $ 17,090 NET POSITION:- Net Investment in Capital Assets $ 11,890,961 $ Restricted 377,765 Unrestricted 2,598,573 TOTAL NET POSITION:- $ 14,867,299 $ 0 TOTAL ASSETS:- $ 61,752,492 $ 17,090 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION:- $ 61,752,492 $ 17,090 The Accompanying Notes are an Integral Part of These Statements

29 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS YEAR ENDED BUSINESS-TYPE ACTIVITIES ENTERPRISE FUNDS SEWER SYSTEM FUND INTERNAL SERVICE FUND OPERATING REVENUES:- Departmental Earnings and Assessments $ 6,030,717 $ 1,389,556 Licenses and Other 121,563 Grants and Gifts 72,036 TOTAL OPERATING REVENUES:- $ 6,224,316 $ 1,389,556 OPERATING EXPENSES:- Collection $ 520,375 $ Treatment 1,312,562 Administration 664,173 Special Services 323,733 Professional Services 291,423 Other Operating 16,279 Payroll Taxes, Benefits, and Insurance 496,095 1,389,556 Depreciation 1,901,380 Bond Issue Costs 159,100 TOTAL OPERATING EXPENSES:- $ 5,685,120 $ 1,389,556 OPERATING INCOME:- $ 539,196 $ 0 NON-OPERATING REVENUES (EXPENSES):- Investment Income $ 502 $ Interest Expense ( 1,273,668) TOTAL NON-OPERATING REVENUES (EXPENSES):- ($ 1,273,166) $ 0 INCOME BEFORE OPERATING TRANSFERS:- ($ 733,970) $ 0 OPERATING TRANSFERS IN (OUT):- 0 0 CHANGES IN NET POSITION:- ($ 733,970) $ 0 NET POSITION - BEGINNING OF YEAR:- 15,601,269 0 NET POSITION - END OF YEAR:- $ 14,867,299 $ 0 The Accompanying Notes are an Integral Part of These Statements

30 STATEMENT OF CASH FLOWS PROPRIETARY FUND TYPES BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS YEAR ENDED BUSINESS-TYPE ACTIVITIES ENTERPRISE FUNDS SEWER SYSTEM FUND INTERNAL SERVICE FUND CASH FLOWS FROM OPERATING ACTIVITIES:- Cash Received from Customers $ 6,053,058 $ 1,392,752 Other Revenue Received 193,599 CASH PROVIDED BY OPERATING ACTIVITIES:- $ 6,246,657 $ 1,392,752 Cash Paid for Operating Expenses ( 2,114,218) ( 1,392,752) Cash Paid for Personnel Expenses ( 1,500,533) NET CASH FLOWS FROM OPERATING ACTIVITIES:- $ 2,631,906 $ 0 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:- Proceeds from Long-Term Debt, Net of Issuance Discounts $ 9,762,686 $ Acquisition and Construction of Fixed Assets ( 863,538) Cash Paid for Long-Term Debt ( 10,397,772) Cash Paid for Interest Expense ( 1,344,388) NET CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:- ($ 2,843,012) $ 0 CASH FLOWS FROM INVESTING ACTIVITIES:- Interest Earnings $ 502 $ 0 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:- ($ 210,604) $ 0 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR:- 2,978,721 0 CASH AND CASH EQUIVALENTS AT END OF YEAR:- $ 2,768,117 $ 0 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:- Operating Income $ 539,196 $ (Increase) Decrease in Receivables 22,341 ( 3,196) Increase in Payables 187,853 3,196 Increase in Other Post-Employment Benefits 11,668 (Decrease) in Accrued Payroll and Taxes ( 31,333) Depreciation Expense 1,901,380 Decrease in Internal Balances 801 NET CASH FLOWS FROM OPERATING ACTIVITIES:- $ 2,631,906 $ 0 The Accompanying Notes are an Integral Part of These Statements

31 STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS POLICE PENSION TRUST FUND AGENCY FUND ASSETS:- Cash and Cash Equivalents $ 216,895 $ 300,000 Investments, at Fair Value 14,533,827 TOTAL ASSETS:- $ 14,750,722 $ 300,000 LIABILITIES:- Accrued Expenses $ 7,946 $ Distributions Due to Other Taxing Districts 300,000 TOTAL LIABILITIES:- $ 7,946 $ 300,000 NET POSITION:- Held in Trust for Pension Benefits $ 14,742,776 $ 0 TOTAL LIABILITIES AND NET POSITION:- $ 14,750,722 $ 300,000 The Accompanying Notes are an Integral Part of These Statements

32 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS YEAR ENDED POLICE PENSION TRUST FUND ADDITIONS:- Contributions $ 390,383 Net Investment Income ( 244,308) TOTAL ADDITIONS:- $ 146,075 DEDUCTIONS:- Pension Benefit Payments $ 763,566 Fees and Expenses 58,899 TOTAL DEDUCTIONS:- $ 822,465 CHANGE IN NET POSITION:- ($ 676,390) NET POSITION - BEGINNING OF YEAR:- 15,419,166 NET POSITION - END OF YEAR:- $ 14,742,776 The Accompanying Notes are an Integral Part of These Statements

33 NOTES TO THE FINANCIAL STATEMENTS 1. NATURE OF ORGANIZATION AND OPERATIONS REPORTING ENTITY The City of Hermitage (City) was incorporated in 1832 as Hickory Township, with the subsequent name change to the Municipality of Hermitage on January 1, 1976, on which date the Municipality became a Home Rule Charter City. On January 1, 1984, Hermitage became a third-class city. The City operates under an elected Board of Commissioners/Commissioner-Appointed City Manager form of government. The City's major operations include Public Safety, Fire Protection, Public Works, Health and Sanitation, Parks and Recreation, Community Development, and General Administrative Services. The City has implemented the requirements of Governmental Accounting Standards Board (GASB) Statement No. 14 (GASB 14) The Financial Reporting Entity; and, as required by accounting principles generally accepted in the United States of America (U.S. GAAP), these financial statements present the City (the primary government) and its component unit. The component unit discussed below is included in the City's reporting entity because of the significance of its financial relationship with the City. BLENDED COMPONENT UNIT The Hermitage Municipal Authority (Authority) is governed by a five (5) member board appointed by the City. The City has guaranteed the debt the Authority has incurred in connection with sewer system improvements. Although it is legally separate from the City, the Authority is reported as if it were part of the primary government because its purpose is to finance, construct, and maintain the sewer system operated by the City. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the City have been prepared in conformity with U.S. GAAP as prescribed by GASB. The more significant of the City's accounting policies are described below. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS At December 31, 2015, the City implemented the following new standards issued by GASB: GASB Statement No. 68 Accounting and Financial Report for Pensions - an amendment of GASB Statement No. 27 GASB Statement No. 71 Pensions Transition for Contributions Made Subsequent to the Measurement Date - an amendment of GASB Statement No. 68 MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The government-wide financial statements are reported using the "economic resources measurement focus" and the "accrual basis of accounting", as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized

34 NOTES TO THE FINANCIAL STATEMENTS as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the "current financial resources measurement focus" and the "modified accrual basis of accounting". Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be "available" when they are collectable within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, early retirement, and post-employment healthcare benefits, are recorded only when payment is due. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the City. For the most part, the effect of interfund activity has been removed from these statements. The statement of activities demonstrates the degree to which the direct expense of a given program is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific program. "Program revenues" include: 1) charges to citizens or users who purchase, use, or directly benefit from goods, services, or privileges provided by a given function, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as "general revenues". Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. FUND ACCOUNTING The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance, revenues, and expenditures or expenses, as appropriate. Resources are allocated to, and accounted for, in individual funds based upon the purposes for which they are to be spent. Major Governmental Funds:- The general fund is the City's primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund

35 NOTES TO THE FINANCIAL STATEMENTS The capital projects fund accounts for resources accumulated and payments made for the acquisition and improvement of sites, construction and remodel of facilities, and procurement of equipment for the City. This includes the capital equipment and facilities, capital improvement reserve, and construction funds. The Community Development Department accounts for resources accumulated and payments made for various Community Development rehabilitation, economic development, and other projects within the City. These projects are generally funded with grants, in particular, the Community Development Block Grant. Major Enterprise Fund:- Sewer System Fund - The sewer system fund is used to account for all financial transactions related to the operations of the sewer system. Additionally, the City reports the following fund types: Special Revenue Funds - The special revenue funds are used to account for the proceeds of specific revenue sources (other than special assessments, expendable trusts, or sources for major capital projects) that are restricted to expenditures for specified purposes. These include the highway aid fund, the LindenPointe facilities fund, the TIF public safety fund, and the oil and gas revenue fund. Debt Service Funds - The debt service funds are used to account for the accumulation of resources for, and payment of, interest and principal on debt. The funds included in this category are the Fire Department PEMA loan fund and the vested sick leave reserve fund. Internal Service Fund - The internal service fund is used to account for the self-insurance program that the City operates for its employees. The internal service fund provides services to both governmental activities and business-type activities and, consequently, has been allocated to both in the entity-wide statement of net position and the statement of activities. Fiduciary Funds - Fiduciary funds are used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, or other governments. These include private-purpose trust and agency funds. Private-purpose trust funds account for resources, including both principal and earnings, which must be expended according to the provision of a trust

36 NOTES TO THE FINANCIAL STATEMENTS agreement, and are accounted for in essentially the same manner as proprietary funds. Agency funds are purely custodial and, thus, do not involve measurement of results of operations. Funds included in this category are the police pension trust fund and the wage tax distribution fund. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. BUDGETS AND BUDGETARY ACCOUNTING An operating budget is adopted each year for the general fund on a modified accrual basis of accounting. The Pennsylvania Third Class City Code dictates specific procedures relative to adoption of the City's budget and reporting of its financial statements, specifically: The City, before levying annual municipal taxes, is required to prepare an operating budget for the succeeding fiscal year. The City is required to prepare a proposed budget by the last stated meeting in November. The proposed budget must be available for public inspection for a period of ten (10) days, and this fact must be published in a newspaper of general circulation. After the ten (10) days referred to above, the budget may be revised. The final budget must be completed by December 31, and an ordinance levying the taxes together with the budget must be filed with the Department of Community and Economic Development. The City may amend the budget during January; however, the ten (10) day public notice procedure referred to above must be complied with. This amended budget must be adopted by the City before the fifteenth (15th) of February and refiled with the Department of Community and Economic Development. The City may modify the budget after final adoption provided that the appropriations, transfers, or expenditures are available within current year's revenues or borrowings allowed by law. The budget figures reflected in the financial statements represent original appropriations of the City and do not include budget transfers. ENCUMBRANCES Encumbrances for goods or purchased services are documented by purchase orders or contracts. Appropriations lapse at December 31, and encumbrances outstanding at that time are either cancelled or appropriately provided for in the subsequent year's budget

37 NOTES TO THE FINANCIAL STATEMENTS CASH AND TEMPORARY INVESTMENTS Cash and temporary investments consist of cash, certificates of deposit, money market accounts, and savings accounts. In these investments, cost is equal to the market value. CONSUMABLE SUPPLY - INVENTORIES Consumable supply inventories of the general fund and sewer system fund are conservatively estimated. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. INVENTORY OF LAND HELD FOR SALE In the entity-wide financial statements, inventory of land held for sale represents the amount of costs incurred in connection with the LindenPointe Planned Technical Park that the City expects to recover from land sales within the Park. In 2010, the City sold lots for $ 83,096 cash and two (2) other lots under a restricted use ten (10) year deferred/declining mortgage. As a result of the sales, the City recognized a gain of $ 98,096 in the entity-wide financial statements. The deferred/declining mortgage receivable is being amortized to offset the deferral in the governmental financial statements. In the entity-wide financial statements, it is being amortized to grant expense annually, off-set by amortization of the $ 26,383 deferred gain on the sale that was recognized. CAPITAL ASSETS Capital assets, which include land, land and site improvements, building and improvements, furniture and equipment, construction-in-progress, and sewer system are reported in the government-wide financial statements. The City defines capital assets as assets with an initial, individual, or group cost of more than $ 1,000 and an estimated useful life in excess of one (1) year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during construction is not capitalized. Capital assets (excluding land) of the City are depreciated using the straight-line method over the following estimated lives: ASSET CLASS - YEARS Site Improvements 20 Buildings 40 Leasehold Improvements 20 Infrastructure 50 Permanent Fixtures 20 Machinery 15 Telephone Systems 15 Refrigeration Equipment 15 General Plant Equipment 15 Equipment

38 NOTES TO THE FINANCIAL STATEMENTS ASSET CLASS - YEARS Furniture and Fixtures 15 Office Furniture and Fixtures 15 Office Machines and Devices 8 EDP Equipment 5 Laboratory Equipment 10 Firearms 20 Radio Equipment 10 Power Feed Mains 20 Vehicles 8 "On-Board" Vehicle Equipment 10 Mobile Equipment 10 EDP Software 5 Miscellaneous Equipment 10 Due to GASB 34 requirements regarding the treatment of fully-depreciated assets during the year of implementation, lives for some assets do not conform to the above guidelines. LONG-TERM OBLIGATIONS In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable statement of net position for debt issued beginning in fiscal year Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. In the fund financial statements, governmental fund types recognize bond premiums and discounts during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. FUND BALANCE In the fund financial statements, governmental funds report aggregate amounts for five (5) classifications of fund balances based on the constraints imposed on the use of these resources. The nonspendable fund balance classification includes amounts that cannot be spent because they are either (a) not in spendable form - prepaid items or inventories; or (b) legally or contractually required to be maintained intact. The spendable portion of the fund balance comprises the remaining four (4) classifications: restricted, committed, assigned, and unassigned. Restricted Fund Balance - This classification reflects the constraints imposed on resources either (a) externally by creditors, grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. Committed Fund Balance - These amounts can only be used for specific purposes pursuant to constraints imposed by formal resolutions or ordinances of the City Board of Commissioners - the City's highest level of decision

39 NOTES TO THE FINANCIAL STATEMENTS making authority. Those committed amounts cannot be used for any other purpose unless the City Board of Commissioners removes the specified use by taking the same type of action imposing the commitment. This classification also includes contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements. Assigned Fund Balance - This classification reflects the amounts constrained by the City's "intent" to be used for specific purposes, but are neither restricted nor committed. The City Manager has the authority to assign amounts to be used for specific purposes. Assigned fund balances include all remaining amounts (except negative balances) that are reported in governmental funds, other than the general fund, that are not classified as nonspendable and are neither restricted nor committed. Unassigned Fund Balance - This fund balance is the residual classification for the general fund. It is also used to report negative fund balances in other governmental funds. When both restricted and unrestricted resources are available for use, it is the City's policy to use externally restricted resources first, then unrestricted resources - committed, assigned, and unassigned - in order as needed. PROGRAM REVENUES In the statement of activities, revenues that are derived directly from each activity or from parties outside the City's taxpayers are reported as program revenues. All other governmental revenues are reported as general. All taxes are classified as general revenue even if restricted for a specific purpose. OPERATING REVENUES AND EXPENSES Operating revenues and expenses for proprietary funds result from providing services and producing and delivering goods and/or services. They also include all revenues and expenses not related to capital and related financing, non-capital financing, or investing activities. INTERNAL AND INTERFUND BALANCES AND ACTIVITIES In the process of aggregating the financial information for the government-wide statement of net position and statement of activities, some amounts reported as interfund activity and balances in the fund financial statements have been eliminated or reclassified. Fund Financial Statements Interfund activity, if any, within and among the governmental and proprietary fund categories is reported as follows in the fund financial statements: 1. Interfund Loans - Amounts provided with a requirement for repayment are reported as interfund receivables and payables

40 NOTES TO THE FINANCIAL STATEMENTS 2. Interfund Services - Sales or purchases of goods and services between funds are reported as revenues and expenditures/expenses. 3. Interfund Reimbursements - Repayments from funds responsible for certain expenditures/expenses to the funds that initially paid for them are not reported as reimbursements but as adjustments to expenditures/expenses in the respective funds. 4. Interfund Transfers - Flow of assets from one fund to another where repayment is not expected are reported as transfers in and out. Government-Wide Financial Statements Interfund activity and balances, if any, are eliminated or reclassified in the government-wide financial statements as follows: 1. Internal Balances - Amounts reported in the fund financial statements as interfund receivables and payables are eliminated in the governmental and business-type activities columns of the statement of net position, except for the net residual amounts due between governmental and business-type activities, which are reported as internal balances. 2. Internal Activities - Amounts reported as interfund transfers in the fund financial statements are eliminated in the government-wide statement of activities except for the net amount of transfers between governmental and business-type activities, which are reported as transfers - internal activities. The effects of interfund services between funds, if any, are not eliminated in the statement of activities. TAXES Annually, the City levies a real estate tax in conjunction with its budget procedure. In 2015, based on a County assessed valuation, the tax rate was 5 Mills. The tax is payable at a two (2) percent discount through April 30 and at a ten (10) percent penalty after June 30. All uncollected real estate taxes on January 1 are filed by the elected tax collector with the County for collection. Outstanding tax levies are offset on the governmental funds balance sheet as deferred revenue so as not to be included in the City's general fund balance. The City also levies taxes under Act 511 of 1965 (Local Tax Enabling Act): $ 35 per capita tax, two and one-quarter (2.25) percent earned income tax, one-half (1/2) of one (1) percent realty transfer tax and a $ 52 Local Services Tax (LST). Tax receivables of governmental activities in the entity-wide statement of net position consist of the following: Wage Taxes $ 543,279 Real Estate Taxes 94,205 Reserve for Uncollectable Real Estate Taxes ( 26,472) Per Capita Taxes 28,

41 NOTES TO THE FINANCIAL STATEMENTS Reserve for Uncollectable Per Capita Taxes ( 4,265) NET TOTAL:- $ 635,307 It is the City's policy to reserve for uncollectable real estate and per capita taxes at a rate approximating its historical collection rate. As required by GASB 34, the estimated amount of unclaimed non-resident wage taxes held by the wage tax distribution fund that is available to the City has been included in cash and cash equivalents in governmental activities in the entity-wide financial statements. CASH FLOWS The City has complied with GASB Statement No. 9 (GASB 9) Reporting Cash Flows of Proprietary and Non-Expendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting requirements. For purposes of the cash flows statement, the City considers all highly liquid debt instruments purchased with an initial maturity of three (3) months or less, to be cash equivalents. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. UNEARNED REVENUES Unearned revenues of $ 575,392 of the Community Development Department Fund represent loan receivables. Unearned revenues of $ 621,106 of the enterprise fund type represent deferred assessments due from sewer projects. The City has made it a policy to recognize the revenue from the deferred assessments as miscellaneous revenue as it is received. DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources in the statement of net position represent a consumption of net position that applies to a future reporting period and so will not be recognized as an outflow of resources (expense/expenditure) until that time. The City has one (1) item that qualifies for reporting in this category. The item is related to pensions and represents the City's contributions to the pension plan (Pennsylvania Municipal Retirement System) subsequent to the pension liability measurement date under GASB No. 68, changes in assumptions of the plan actuarially, and net difference between projected and actual earnings on pension plan investments. DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources represent an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has one (1) item that qualifies for reporting in this category. The item relates to pensions reported in the

42 NOTES TO THE FINANCIAL STATEMENTS statement of net position. This represents the net difference between projected and actual earnings on pension plan investments and the changes in proportion and the difference between expended and actual experience. Unavailable Revenue - Property taxes represent receivables to be collected and included in revenues of future fiscal years, as well as amounts collected in advance that will be included in revenues of future fiscal years. General fund reserve for unpaid taxes consist of delinquent taxes receivable, which were levied in the current and prior years, but will not be available to pay liabilities of the current period. Delinquent taxes receivable represent the gross face amount of taxes levied and the actual amount of future collections is unknown. RECEIVABLES ON SEWER SERVICES Receivables on sewer services represent billed, uncollected amounts at December 31, 2015, due from users of the City's sewer system. Receivable balances at December 31, 2015, have been reduced by an allowance for old, liened sewer fees. The allowance as of December 31, 2015, is $ 300,000. The users are residential and commercial entities located in the Hermitage area. FAIR VALUE OF FINANCIAL INSTRUMENTS Because the debt instruments of the component unit's PENNVEST assisted projects are unique instruments based on government program requirements, it was not deemed informative or practicable to estimate their fair value in accordance with GASB 72. COMPARATIVE DATA AND RECLASSIFICATIONS Comparative data for the prior year have been presented in certain sections of the accompanying financial statements in order to provide an understanding of changes in the City's financial position and operations. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with current year's presentation. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the City to concentration of credit risk consist principally of cash and resident receivables. Concentrations of credit risk with respect to resident receivables are due to the nature of the business, geographic region, and financial status of the tenants. The City places a majority of its cash with one (1) financial institution. The Federal Deposit Insurance Corporation (FDIC) insures all deposit accounts, including checking and savings accounts, money market deposit accounts, and certificates of deposit. The standard insurance amount is $ 250,000 per depositor, per insured bank, per ownership category. In the normal course of business, the City may have deposits in excess of federal insured coverage. As of December 31, 2015, the City had approximately $ 5,800,000 in excess of FDIC insured limits. Deposits of the City in excess of FDIC insured limits are collateralized as public fund deposits by securities pledged to pooled public funds accounts as required by law under the Deposits of Public Monies Act Number 27, of the 1971 Pennsylvania Session. This significantly minimizes the concentration of credit risk

43 NOTES TO THE FINANCIAL STATEMENTS 3. CAPITAL ASSETS Capital assets activity for the year ended December 31, 2015, is as follows: BALANCE BALANCE DECEMBER 31, DECEMBER 31, 2014 ADDITIONS DELETIONS 2015 Governmental Activities:- Capital Assets Not Being Depreciated - Land $ 785,027 $ $ $ 785,027 Capital Assets Being Depreciated - Land and Site Improvements 5,558,509 6,220 5,564,729 Building and Building Improvements 17,416,722 56,640 ( 32,860) 17,440,502 Vehicles, Furniture, Fixtures, and Equipment 8,576, ,927 ( 557,188) 8,317,447 TOTALS:- $ 32,336,966 $ 360,787 ( 590,048) $ 32,107,705 Accumulated Depreciation For - Land and Site Improvements ($ 1,179,874) ($ 213,305) $ ($ 1,393,179) Buildings and Building Improvements ( 5,471,231) ( 438,803) 32,860 ( 5,877,174) Vehicles, Furniture, Fixtures, and Equipment ( 6,691,287) ( 285,594) 557,188 ( 6,419,693) TOTAL ACCUMULATED DEPRECIATION:- ($ 13,342,392) ($ 937,702) $ 590,048 ($ 13,690,046) Governmental Activities Capital Assets, Net - $ 18,994,574 ($ 576,915) $ 0 $ 18,417,659 Business-Type Activities:- Capital Assets Not Being Depreciated - Land $ 64,000 $ $ $ 64,000 Construction-in- Progress 32,367, ,561 ( 31,748,412) 857,321 Capital Assets Being Depreciated - Vehicles, Furniture, Fixtures, and Equipment 1,742,964 53,890 ( 17,853) 1,779,

44 NOTES TO THE FINANCIAL STATEMENTS BALANCE BALANCE DECEMBER 31, DECEMBER 31, 2014 ADDITIONS DELETIONS 2015 Building and Building Improvements 1,021,702 1,021,702 Sewer System 48,500,836 31,748,412 80,249,248 TOTALS:- $ 83,696,674 $ 32,040,863 ($ 31,766,265) $ 83,971,272 Accumulated Depreciation For - Vehicles, Furniture, Fixtures, and Equipment ($ 2,137,667) ($ 36,999) $ 17,853 ($ 2,156,813) Building and Building Improvements ( 271,311) ( 25,543) ( 296,854) Sewer System ( 22,236,603) ( 1,838,838) ( 24,075,441) TOTAL ACCUMULATED DEPRECIATION:- ($ 24,645,581) ($ 1,901,380) $ 17,853 ($ 26,529,108) BUSINESS-TYPE ACTIVITIES - CAPITAL ASSETS, NET:- $ 59,051,093 $ 30,139,483 ($ 31,748,412) $ 57,442,164 Depreciation expense is included in the statement of activities as follows: Governmental Activities - Unallocated:- $ 937,702 Business-Type Activities:- Sewer System $ 1,901, LONG-TERM LIABILITIES Long-term liabilities as of December 31, 2015, consisted of the following: GOVERNMENTAL ACTIVITIES:- Refunding Series of 2010A General Obligation Bonds payable for purpose of refunding Series of 2003 General Obligation Bonds which were issued for various capital improvement projects. Annual maturities of this issue are at interest rates varying from 0.50 percent to 3.10 percent through August $ 625,000 Series of 2010B General Obligation Bonds payable for purpose of refunding Series of 2005 General Obligation Bonds which were issued for various capital improvement projects

45 NOTES TO THE FINANCIAL STATEMENTS Annual maturities of this issue are at interest rates varying from 0.50 percent to 3.50 percent through August ,075,000 General Obligation Note, Series of 2014 payable for purpose of refunding the 2009A General Obligation Bonds, and to fund capital projects in the City's Capital Improvement Fund. Annual maturities of this issue are at the interest rate of 2.1 percent through August ,225,000 Series of 2012 General Obligation Bonds payable for purpose of funding construction projects through the City's Community Development Fund. Annual maturities of this issue are at interest rates varying from percent to 3.25 percent through August ,080,000 Refunding Series of 2012A General Obligation Bonds payable for the purpose of refunding the 2009B General Obligation Bonds, and to fund construction projects in the City's Capital Improvement Fund. Annual maturities of this issue are at interest rates varying from.6 percent to percent through August ,115,000 SUBTOTAL - NOTES AND BONDS:- $ 11,120,000 Special termination benefits (See Note "9") 306,292 Other post-employment benefits (See Note "15") 1,289,623 Deferred amounts from issuance discount ( 213,466) Deferred amounts on refunding ( 13,357) Net Pension Liability 1,050,174 TOTAL LONG-TERM LIABILITIES:- $ 13,539,266 CURRENT PORTION:- ( 680,743) TOTAL LONG-TERM LIABILITIES - GOVERNMENTAL ACTIVITIES:- $ 12,858,523 Governmental Activities long-term liability activity for the year ended December 31, 2015, is as follows: BALANCE BALANCE DECEMBER 31, DECEMBER 31, DUE WITHIN 2014 ADDITIONS DELETIONS 2015 ONE YEAR General Obligation Note $ 2,275,000 $ ($ 50,000) $ 2,225,000 $ 45,000 Governmental Activities:- General Obligation Debt - Series of 2010A Refunding Bonds 820,000 ( 195,000) 625, ,000 Series of 2010B Refunding Bonds 2,460,000 ( 385,000) 2,075, ,

46 NOTES TO THE FINANCIAL STATEMENTS BALANCE BALANCE DECEMBER 31, DECEMBER 31, DUE WITHIN 2014 ADDITIONS DELETIONS 2015 ONE YEAR Series 2012 Bonds 2,090,000 ( 10,000) 2,080,000 5,000 Refunding Series 2012A Bonds 4,165,000 ( 50,000) 4,115,000 50,000 Deferred Amounts for Issuance Discount ( 222,604) 9,138 ( 213,466) ( 9,085) PEMA Loan 4,803 ( 4,803) 0 TOTAL BONDS, NOTES, LOANS PAYABLE, NET:- $ 11,592,199 $ 0 ($ 685,665) $ 10,906,534 $ 685,915 Deferred Amounts on Refunding ( 18,529) 5,172 ( 13,357) ( 5,172) Special Termination Benefits (Note "9") 289,130 17, ,292 Other Post-Employment Benefits (See Note "15") 1,215,183 74,440 1,289,623 Net Pension Liability 1,043,690 6,484 1,050,174 NET TOTAL GOVERNMENTAL ACTIVITIES:- $ 14,121,673 $ 98,086 ($ 680,493) $ 13,539,266 $ 680,743 LONG-TERM LIABILITIES The above liabilities are generally paid through general fund appropriations. Interest expense (including amortization of $ 14,310 as discussed below) incurred by the City for governmental activities totals $ 330,803 for Following is a schedule of accrued interest as of December 31, 2015: Series of 2010A Bonds $ 6,638 Series of 2010B Bonds 23,999 Series of 2012 Bonds 24,324 Series of 2012A Bonds 42,945 General Obligation Note ,522 TOTAL:- $ 115,428 The deferred amounts on refunding represent the difference between the payment made to the Refunded Bond Escrow Agent of $ 5,594,629 (net of bond issue costs) and the principal and interest amounts of the Series 1999 Bond to August 15, 2003, of $ 5,517,053. This amount of $ 77,576 is being amortized as interest expense over the original 15-year life of the Bonds in the entity-wide statement of activities. During 2015, $ 5,172 was charged to interest expense

47 NOTES TO THE FINANCIAL STATEMENTS The discounts of $ 283,931 on the Bonds and Notes are being amortized as interest expense over the lives of the Bonds. During 2015, $ 9,138 was charged to interest expense. The following is a schedule of approximate maturities of the debt as of December 31, 2015: 2010A 2010B 2012A 2012 BONDS BONDS BONDS BONDS PAYABLE PAYABLE PAYABLE PAYABLE 2016 $ 200,000 $ 395,000 $ 50,000 $ 5, , ,000 50,000 5, , ,000 50,000 10, ,000 50,000 5, ,000 50,000 5, ,625,000 25, ,240,000 2,025,000 TOTALS:- $ 625,000 $ 2,075,000 $ 4,115,000 $ 2,080,000 GENERAL OBLIGATION TOTAL TOTAL DEBT NOTE PRINCIPAL INTEREST SERVICE 2016 $ 45,000 $ 695,000 $ 307,807 $ 1,002, , , ,243 1,006, , , ,537 1,006, , , , , , , ,678 1,003, ,535,000 4,185, ,880 5,027, ,265, ,493 3,500,493 TOTALS:- $ 2,225,000 $ 11,120,000 $ 2,427,513 $ 13,547,513 BUSINESS-TYPE ACTIVITIES:- The long-term debt of the sewer fund consists of the following loans of the Authority, which are guaranteed by the City: Guaranteed Sewer Revenue Bonds: Series of 2010A Bonds at 1.23 percent to 4.30 percent, maturing 2012 to 2032 (A) $ 985,000 Series of 2010B Bonds at 1.90 percent to 3.45 percent, maturing 2010 to 2019 (B) 8,400,000 Series A of 2012 Guaranteed Sewer Revenue Bonds at.65 percent to 3.0 percent, maturing 2013 to 2023 (C) 10,495,000 Series B of 2012 Guaranteed Sewer Revenue Bonds at.65 percent to 3.5 percent, maturing 2013 to 2032 (D) 2,295,

48 NOTES TO THE FINANCIAL STATEMENTS Series C of 2012 Guaranteed Sewer Revenue Bonds at.65 percent to percent, maturing 2013 to 2033 (E) 1,800,000 Series of 2015 Guaranteed Sewer Revenue Bonds at 2.0 percent to 3.28 percent, maturing 2015 to 2033 (F) 10,000,000 TOTAL SEWER REVENUE BONDS PAYABLE:- $ 33,975,000 LESS: Current Portion, Net of Bond Discount/Premium ( 9,939,383) Net Long-Term Deferred Amount for Issuance Discount and Premium ( 161,273) BONDS PAYABLE, NET:- $ 23,874,344 (A) During 2010, the Authority issued $ 19,105,000 of Guaranteed Sewer Revenue Bonds to refund, on a current refunding basis, $ 1,165,000 of the Series of 1999 Bonds, to fund Phase II of Treatment Plant, to pay premium on a debt service Surety Bond, and to pay costs of issuing and insuring the bonds. (B) During 2011, the Authority entered into an agreement with PENNVEST to provide financing for the upgrade and expansion of the wastewater treatment plant. PENNVEST is providing a loan for $ 13,788,203. Monthly payments of interest only at 1.00 percent through January 2014, then 60 monthly payments, beginning in 2015 of $ 63,411, including interest at 1.00 percent for 36 months, increased to 1.06 percent, followed by 180 payments of $ 63,696, including interest at 1.06 percent. The loan matures 20 years after payments begin. The loan is collateralized by a lien on the sewer revenues of the Authority and also by a pledge of the City's taxing authority. (C) During 2012, the Authority issued $ 12,855,000 of Series A Guaranteed Sewer Revenue Bonds to advance refund the Authority's outstanding balance of the 2003 Bonds. (D) During 2012, the Authority issued $ 2,440,000 of Series B Guaranteed Sewer Revenue Bonds to currently refund the outstanding balance of the Authority's 2006 Bonds. (E) During 2012, the Authority issued $ 2,500,000 of Series C Guaranteed Sewer Revenue Bonds to fund various capital projects. (F) During 2015, the Authority issued $ 10,000,000 of Series 2015 Guaranteed Sewer Revenue Bonds with interest rates ranging from 2.00 percent to 3.28 percent, maturing 2033, to refund a portion of the Authority's outstanding Guaranteed Sewer Revenue Bonds, Series A of 2010; pay the premium on a debt service reserve fund surety bond, fund various capital projects of the Authority, and pay the cost of issuing the Bonds

49 NOTES TO THE FINANCIAL STATEMENTS Sewer Revenue Note: $ 13,788,203 PENNVEST loan for upgrade and expansion of the waste water treatment plant at 1.00 percent to 1.06 percent, maturing to The balance represents drawdowns to December 31, $ 11,870,827 LESS: Current Portion ( 645,178) NOTE PAYABLE, NET:- $ 11,225,649 OTHER POST-EMPLOYMENT BENEFITS (SEE NOTE "15"):- $ 202,130 TOTAL LONG-TERM DEBT, NET OF BOND DISCOUNT/PREMIUM - BUSINESS-TYPE ACTIVITIES:- $ 35,302,123 Business-Type Activities long-term liability activity for the year ended December 31, 2015, is as follows: BALANCE BALANCE JANUARY 1, DECEMBER 31, DUE WITHIN 2015 BORROWINGS PAYMENTS WRITE-OFF 2015 ONE YEAR Bonds Payable - Series A of Sewer Revenue Bonds $ 16,865,000 $ ($ 8,465,000) $ $ 8,400,000 $ 8,400,000 Series B of Sewer Revenue Bonds 1,215,000 ( 230,000) 985, ,000 Series A of Sewer Revenue Bonds 11,310,000 ( 815,000) 10,495,000 1,095,000 Series B of Sewer Revenue Bonds 2,345,000 ( 50,000) 2,295, ,000 Series C of Sewer Revenue Bonds 2,015,000 ( 215,000) 1,800,000 10,000 Series of 2015 Sewer Revenue Bonds 10,000,000 10,000,000 50,000 SUBTOTAL - BONDS PAYABLE:- $ 33,750,000 $ 10,000,000 ($ 9,775,000) $ 0 $ 33,975,000 $ 9,900,

50 NOTES TO THE FINANCIAL STATEMENTS BALANCE BALANCE JANUARY 1, DECEMBER 31, DUE WITHIN 2015 BORROWINGS PAYMENTS WRITE-OFF 2015 ONE YEAR Deferred Amounts for Issuance Discount ( 395,040) ( 237,314) 15, ,657 ( 490,708) ( 20,421) Deferred Amounts for Issuance Premium 329, ,435 59,804 SUBTOTAL - BONDS PAYABLE, NET:- $ 33,684,395 $ 9,762,686 ($ 9,759,011) $ 125,657 $ 33,813,727 $ 9,939,383 Note Payable - PENNVEST 12,509,588 0 ( 638,761) 11,870, ,178 TOTAL BONDS AND NOTE PAYABLE:- $ 46,193,983 $ 9,762,686 ($ 10,397,772) $ 125,657 $ 45,684,554 $ 10,584,561 The above liabilities are paid through sewer fund appropriations. Bond issuance discounts of $ 158,597, $ 14,257, $ 77,719, $ 35,018, $ 30,990, and $ 237,314 on the Series A of 2010 Bonds, the Series B of 2010 Bonds, the Series A, B, and C of 2012 Bonds, and the Series of 2015 Bonds, respectively, are being amortized over the life of the Bonds in the entity-wide financial statements. Amortization for 2015 totalled $ 23,309 and has been charged to interest expense. As of December 31, 2015, the total unamortized portion of the bond discount is $ 609,045. Bond issuance premium of $ 329,435 on the Series A 2012 Bond will be amortized over the life of the Bonds in the entity-wide financial statements beginning in Following is a schedule of accrued interest as of December 31, 2015: Bonds Payable - Series A of 2010 $ 136,935 Series B of ,961 Series A of ,075 Series B of ,960 Series C of ,138 Series of ,005 TOTAL BONDS PAYABLE:- $ 436,

51 NOTES TO THE FINANCIAL STATEMENTS Note Payable 9,767 TOTAL:- $ 445,841 Interest expense (including amortization discussed above) in the entity-wide financial statements totalled $ 1,273,668 for The approximate payments required for the general long-term debt to maturity are as follows: PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST SERIES A OF SERIES A OF SERIES B OF SERIES B OF SERIES A OF SERIES A OF 2010 BONDS 2010 BONDS 2010 BONDS 2010 BONDS 2012 BONDS 2012 BONDS 2016 $ 8,400,000 $ 136,935 $ 235,000 $ 25,769 $ 1,095,000 $ 251, ,000 19,309 1,110, , ,000 12,038 1,145, , ,000 4,144 1,185, , ,475, , ,485, , TOTALS:- $ 8,400,000 $ 136,935 $ 985,000 $ 61,260 $ 10,495,000 $ 1,126,075 PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST SERIES B OF SERIES B OF SERIES C OF SERIES C OF SERIES SERIES 2012 BONDS 2012 BONDS 2012 BONDS 2012 BONDS 2015 BONDS 2015 BONDS 2016 $ 110,000 $ 61,616 $ 10,000 $ 62,644 $ 50,000 $ 297, ,000 60,210 15,000 62,425 55, , ,000 58,629 5,000 62,250 55, , ,000 56,716 5,000 62,163 55, , ,000 54,466 15,000 61,931 60, , , ,647 55, , ,000 1,447, , ,478 60, ,518 4,970,000 1,097, ,000 11,813 1,635, ,325 4,445, ,785 TOTALS:- $ 2,295,000 $ 656,575 $ 1,800,000 $ 1,025,672 $ 10,000,000 $ 4,271,563 PRINCIPAL INTEREST PENNVEST PENNVEST (BASED ON (BASED ON TOTAL AMOUNT TOTAL AMOUNT TOTAL TOTAL DEBT OF LOAN) OF LOAN) PRINCIPAL INTEREST SERVICE 2016 $ 645,178 $ 128,730 $ 10,545,178 $ 965,212 $ 11,510, , ,379 2,191, ,510 2,979, , ,964 2,228, ,137 2,971, , ,485 2,284, ,714 2,975, , ,234 2,341, ,197 2,985, ,460, ,901 8,945,040 2,581,309 11,526, ,637, ,739 9,412,364 1,773,510 11,185, ,757,796 65,262 8,172, ,185 8,611,981 TOTALS:- $ 12,146,560 $ 1,346,694 $ 46,121,560 $ 8,624,774 $ 54,746,

52 NOTES TO THE FINANCIAL STATEMENTS 5. RESTRICTED NET POSITION AND FUND BALANCES RESTRICTED NET POSITION The following is a schedule of restricted net position in the entity-wide financial statements. GOVERNMENTAL ACTIVITIES:- Public Works - Highways $ 183 Community Development 466,745 Tax Incremental Funding (TIF) 42,751 Capital Projects 8,337 TOTAL GOVERNMENTAL ACTIVITIES:- $ 518,016 BUSINESS-TYPE ACTIVITIES:- Debt Service $ 377,765 The following is a schedule of fund balances restricted for specific use and designated in the governmental funds financial statements. GOVERNMENTAL FUNDS - CAPITAL PROJECTS FUNDS - Restricted for Capital Projects $ 8,337 COMMUNITY DEVELOPMENT DEPARTMENT - Restricted for Community Development Department Activities 466,745 NON-MAJOR FUNDS - Restricted for Public Works - Highways 183 Restricted for Incremental Financing 42,751 RESTRICTED FOR SPECIFIC USE:- ASSIGNED:- TOTAL RESTRICTED FOR SPECIFIC USE:- $ 518,016 GENERAL FUND - Assigned for Subsequent Budget Year Expenditures $ 825,101 CAPITAL PROJECTS FUNDS - Assigned for Construction and Acquisition of Capital Assets 802,033 COMMUNITY DEVELOPMENT DEPARTMENT - Assigned for Community Development Department Activities 757,044 SUBTOTAL:- $ 2,384,178 NON-MAJOR FUNDS - Assigned for Vested Accumulated Sick Leave and Debt Service $ 163,

53 NOTES TO THE FINANCIAL STATEMENTS Assigned for Future Development Costs of LindenPointe Facilities 49,821 Assigned for Oil and Gas Rescue Fund 131,215 TOTAL NON-MAJOR FUNDS:- $ 344,081 TOTAL ASSIGNED:- $ 2,728, INTERFUND RECEIVABLES AND PAYABLES The composition of interfund balances in the governmental and proprietary funds financial statements as of December 31, 2015, is as follows: RECEIVABLE FUND PAYABLE AMOUNT Due To/From Other Funds:- Sewer Fund General Fund $ 90,526 Community Development Construction Fund Department 17,601 General Fund Community Development Fund 5,240 Health Care Fund General Fund 17,090 INTER-FUND TRANSFERS TOTAL:- $ 130,457 A reconciliation of and purpose of transfers between funds during 2015 is as follows: GOVERNMENTAL FUNDS - INTER-FUND TRANSFERS RECEIVED BY:- General Fund $ 514,200 Construction Fund 1,515,986 Community Development Department 379,834 Capital Equipment and Facilities Fund 279,517 TOTAL TRANSFERS FROM OTHER FUNDS:- $ 2,689,537 INTER-FUND TRANSFERS PAID BY:- General Fund - Additional Funding of Construction $ 1,283,820 Additional Funding of Capital Equipment and Facilities 279,517 Reimbursement for Community Development Costs 95,228 Capital Improvement Reserve Fund - Additional Funding of Community Development 170,000 Additional Funding of Construction 232,166 Reimbursement for Garage 30,000 Construction Fund - Reimbursement for Community Development Costs 103,601 Highway Aid Fund - For Highway Costs Reimbursement 481,

54 NOTES TO THE FINANCIAL STATEMENTS Community Development Department - Additional Funding for Community Development Department Programs Construction Fund - Additional Funding of Community Development 4,607 TIF Public Safety Fund - Reimbursement for Tax Financing 2,500 Capital Equipment and Facilities Fund - Additional Funding to Community Development 6,000 TOTAL TRANSFERS TO OTHER FUNDS:- $ 2,689, DEFINED BENEFIT PENSIONS NON UNIFORM PENSION PLAN SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PENSION For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions and pension expense, information about the fiduciary net position of the Pennsylvania Municipal Retirement System (PMRS Pension Plan) and additions, to/deductions from PMRS's fiduciary net position have been determined on the same basis as they are reported by PMRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. GENERAL INFORMATION ABOUT THE PENSION PLAN PLAN DESCRIPTION The City's Non-Uniform Pension Plan (Plan) is a single-employer defined benefit pension plan controlled by the provisions of Ordinance No adopted pursuant to Act 15 of The Plan is administered by PMRS, which is an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for participating municipal pension plans. PMRS issues a separate Comprehensive Annual Financial Report (CAFR). The CAFR is available on the PMRS website. A copy of the CAFR can be obtained by contacting the PMRS accounting office. BENEFIT PROVISIONS The Plans provide retirement, disability, and death benefits to Plan members and their beneficiaries. Cost-of-living allowances are provided at the discretion of the Plan. EMPLOYEES COVERED BY BENEFIT TERMS At December 31, 2014, the following employees were covered by the benefit terms:

55 NOTES TO THE FINANCIAL STATEMENTS NON- UNIFORM Inactive Employees or Beneficiaries Currently Receiving Benefits 34 Inactive Employees Entitled to, But Not Yet Receiving Benefits 4 Active Employees 65 TOTAL:- 103 CONTRIBUTIONS Act 205 requires that annual contributions be based upon the Plan's Minimum Municipal Obligation (MMO). The MMO is based upon the Plan's biennial actuarial valuation. In accordance with the Plan's governing ordinance, non-uniform members contribute 3.50 percent of compensation to the Plan. The plans may also be eligible to receive an allocation of State aid from the General Municipal Pension System State Aid Program, which must be used for pension funding. Any funding requirements established by the MMO in excess of employee contributions and State aid must be paid by the municipality with Act 205. NET PENSION LIABILITY The City's net pension liability was measured as of December 31, 2014, and the total pension liability (TPL) used to calculate the net pension liability was determined by an actuarial valuation as of that date. ACTUARIAL ASSUMPTIONS The actuarial assumptions used in this report are as follows: These assumptions are based on the PMRS Experience Study for the period covering January 1, 2005 through December 31, 2008, issued by the actuary in July 2010 as well as subsequent Board approved assumption changes, such as the decrease in the regular interest to 5.50 percent for the January 1, 2015 actuarial valuation. A. HEALTHY LIFE MORTALITY Rates of Pre-Retirement Mortality - Males: RP 2000 with one (1) year set back Females: RP 2000 with five (5) year set back Rates of Post-Retirement Mortality - Males and Females: RP 2000 Sex-Distinct Mortality Table The current mortality assumptions, while not reflecting projections for improvements as recommended under Actuarial Standard of Practice No. 35 are subject to experience review every four (4) years at which time the Board receives recommendations of changes to reflect changes in experience over those expected from the tables applied over the five (5) year period preceding the experience analysis. Such experience review is required by State statute

56 NOTES TO THE FINANCIAL STATEMENTS In addition, the retired life reserves measured by PMRS is annually reviewed against the actuarial liability for retirees to ensure they are within a reasonable level of difference which has been proven to remain consistent year by year as a reflection of the effectiveness of the reserves and the underlying actuarial assumption for mortality. B. DISABLED LIFE MORTALITY RATES Males and Females: RP 2000 with 10 year set forward C. TERMINATION RATES BEFORE RETIREMENT TERMINATION RATES FOR MUNICIPAL PARTICIPANTS NUMBER OF ACTIVE MEMBERS IN PLAN SERVICE < <1 20.0% 20.0% % 20.0% % 15.0% % 12.0% 4 8.0% 7.0% 5 6.0% 7.0% 6 4.0% 6.0% 7 3.0% 5.0% 8 3.0% 5.0% 9 2.5% 5.0% % 3.0% D. DISABILITY INCIDENCE RATES Municipal - 40 percent of 1964 OASDI (Social Security) Experience for Males. Sample rates are: VALUATION AGE RATE (%) % % % % % Type of Disability - a. 15 percent of disablements are assumed to be service related for municipal plans, and b. 50 percent of disablements are assumed to be service related for uniform plans

57 NOTES TO THE FINANCIAL STATEMENTS E. WORKERS' COMPENSATION Service-related disability benefits payable from municipal plans are offset by 25 percent of final average salary. F. SALARY SCALE AGE SALARY SCALE TOTAL RATE (%)* (INCLUDING) INFLATION) % % % % % % % % % * Add 2 percent for each of the first three (3) years of service. G. RATES OF RETIREMENT Municipal Members - MUNICIPAL RATE OF AGE RETIREMENT 1 Under 46 5% % % % 62 30% % 65 35% % % 1 Rates indicated are adjusted by adding 5 percent (and 10 percent for ages under current rate assumptions) for the year in which the member is first eligible for normal retirement. H. MARITAL STATUS AND SPOUSE'S AGE (IF APPLICABLE) 85 percent of active members and are assumed to be married for retirees with 50 percent J&S form of payment. Male spouses are assumed to be three (3) years older than female spouses

58 NOTES TO THE FINANCIAL STATEMENTS I. SOCIAL SECURITY PROJECTIONS (IF APPLICABLE) a. The Social Security Taxable Wage Base will increase by 3.5 percent compounded annually; b. The Consumer Price Index will increase 3.0 percent compounded annually; and c. The Average Total Wages of All Workers will increase by 3.5 percent compounded annually. J. POST-RETIREMENT COST-OF-LIVING INCREASES (IF APPLICABLE) 3.0 percent per year, subject to plan limitations K. INVESTMENT RETURN ASSUMPTION 5.50 percent compounded annually, net of expenses L. ADMINISTRATIVE EXPENSES The expense assumption is based upon the expected expenses for the current year. ACTUARIAL COST METHOD Entry Age Normal Actuarial Cost Method. Entry age is defined as attained age less credited service. The normal cost rate is derived as a level percent of future compensation of current employees, on an individual basis. This rate is applied to the projected payroll and projected employee contributions are deducted. Actuarial gains (or losses), including the effect of contributions greater or lesser than the previously determined actuarial level, are reflected by decreases (or increases) in the unfunded actuarial liability. CHANGE IN NET PENSION LIABILITY - NON-UNIFORM INCREASE (DECREASE) TOTAL PLAN PENSION FIDUCIARY NET PENSION LIABILITY NET POSITION LIABILITY (a) (b) (a) - (b) BALANCES AT DECEMBER 31, 2013:- $ 16,024,246 $ 14,980,556 $ 1,043,690 CHANGES FOR THE YEAR:- Service Cost $ 367,369 $ $ 367,369 Interest 888, ,007 Differences Between Expected and Actual Experience ( 25,504) ( 25,504) Contributions - Employer 227,632 ( 227,632) Contributions - Member 123,895 ( 123,895) PMRS Investment Income 817,563 ( 817,563) Market Value Investment Income* 87,712 ( 87,712)

59 NOTES TO THE FINANCIAL STATEMENTS CHANGE IN NET PENSION LIABILITY - NON-UNIFORM INCREASE (DECREASE) TOTAL PLAN PENSION FIDUCIARY NET PENSION LIABILITY NET POSITION LIABILITY (a) (b) (a) - (b) Benefit Payments ( 498,730)( 498,730) 0 PMRS Administrative Expense ( 2,060) 2,060 Additional Administrative Expense ( 31,354) 31,354 NET CHANGES:- $ 731,142 $ 724,658 $ 6,484 BALANCES AT DECEMBER 31, 2014:- $ 16,755,388 $ 15,705,214 $ 1,050,174 * Reflects the net investment income/(loss) of ($ 49,821) and the income/(loss) due to the difference between expected and actual asset values of $ 137,533, which includes the impact from allocation of assets in support of the underlying retiree liabilities. This report does not reflect changes in benefits or assumptions after January 1, Because the beginning and end of year TPL are based upon different actuarial valuation dates, there is a difference between expected and actual experience reported this year. The beginning of year TPL is based upon the January 1, 2013 actuarial valuation, with liabilities measured at December 31, 2012, rolled forward to December 31, The end of year TPL is based upon the January 1, 2015 actuarial valuation with liabilities measured at December 31, Except as noted below, the TPL as of December 31, 2014, was based upon the data, actuarial methods and assumptions, and plan provisions described earlier in this footnote. SENSITIVITY OF THE NET PENSION LIABILITY TO CHANGES IN THE DISCOUNT RATE The following presents the net pension liability of the City, calculated using the discount rate of 5.50 percent, as well as what the City's net pension liability would be if it were calculated using a discount rate that is one-percent-point lower (4.50 percent) or one-percent-point-higher (6.50 percent) than the current rate. NON-UNIFORM 1% DISCOUNT 1% DECREASE RATE INCREASE 4.50% 5.50% 6.50% Total Pension Liability $ 18,567,881 $ 16,755,388 $ 15,189,765 Plan Fiduciary Net Position 15,705,214 15,705,214 15,705,214 NET PENSION LIABILITY:- $ 2,862,667 $ 1,050,174($ 515,449) Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 84.6% 93.7% 103.4%

60 NOTES TO THE FINANCIAL STATEMENTS PENSION EXPENSE AND DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS For the year ended December 31, 2015, with a measurement date of December 31, 2014, the City recognized pension expense of $ 823,534. As of December 31, 2015, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: NON-UNIFORM DEFERRED DEFERRED OUTFLOWS OF INFLOWS OF RESOURCES RESOURCES Differences Between Expected and Actual Experience $ $ 20,403 Net Difference Between Projected and Actual Earnings on Pension Plan Investments 70,170 Contributions Made Subsequent to the Measurement Date 327,030 TOTAL:- $ 327,030 $ 90,573 Amounts reported as deferred inflows of resources will be recognized in pension expense as follows: YEAR ENDED DECEMBER 31: ($ 22,643) 2017 ( 22,643) 2018 ( 22,643) 2019 ( 22,644) TOTAL:- ($ 90,572) POLICE PENSION PLAN The Police Pension Plan assets are reported in the financial statements as a pension trust fund. DESCRIPTION OF PLAN The City of Hermitage Police Pension Plan is a single-employer defined benefit pension plan controlled by the provisions of Ordinance Number 11-94, adopted pursuant to Act 62. Prior to the adoption of Ordinance Number 11-94, the Pension Plan was governed by Chapter I, Part 7, B, of the City's Code of Ordinances. The Plan is governed by the Board of Commissioners, which is responsible for the management of plan assets. The Board of Commissioners has delegated the authority to manage Plan assets to the National Advisors Trust Company, FSB. PLAN MEMBERSHIP Membership of the Plan consisted of the following at December 31, 2015:

61 NOTES TO THE FINANCIAL STATEMENTS Inactive plan members or beneficiaries currently receiving benefits 22 Inactive plan members entitled to but not yet receiving benefits 2 Active plan members 29 TOTAL MEMBERS:- 53 Components of the Net Pension Liability at December 31, 2015 Measurement Date - Total pension liability $ 14,513,424 Plan fiduciary net position 14,742,776 NET PENSION LIABILITY (ASSET):- ($ 229,352) Plan Fiduciary Net Position as a Percentage of the Total Pension Liability (Asset): % Sensitivity of the Net Pension Liability to Changes in Discount Rate - POLICE PENSION PLAN 1% DISCOUNT 1% DECREASE RATE INCREASE 5.75% 6.75% 7.75% Total Pension Liability $ 16,346,141 $ 14,513,424 $ 12,990,636 Plan Fiduciary Net Position 14,742,776 14,742,776 14,742,776 NET PENSION LIABILITY (ASSET):- $ 1,603,365 ($ 229,352) ($ 1,752,140) BENEFIT PROVISIONS As of December 31, 2015, the Pension Plan's benefit provisions were as follows: Eligibility Requirements - Normal Retirement - Available upon attainment of age 55 with 25 years of service, or age 50 with 20 years of service for those hired on or after January 1, Early Retirement - Voluntary: age 50 with 24 years of service; involuntary: 8 years of service. None for those hired on or after January 1, Vesting percent after the completion of ten (10) years of service. None for those hired on or after January 1, Normal Retirement Benefit Formula - Hired before 1/1/2001: The sum of (a) and (b): (a) 65 percent of final 36 months average salary; (b) service increment equal to 1/40th of (a) for each year of service in excess of 25 years. The maximum monthly increment is $ 100 (5.020)

62 NOTES TO THE FINANCIAL STATEMENTS Hired on or after 1/1/2001: The sum of (a) and (b): (a) 50 percent of greater of final 60 months average salary or monthly salary at retirement; (b) 1/40th of (a) for each year of service in excess of 20 years. The maximum monthly increment is $ 100 (5.020-A and A) Early Retirement Benefit Formula - Refund of accumulated contributions or Accrued Benefit at date of actual retirement; payable at Normal Retirement (5.030). Benefit may be elected immediately but will be reduced for early commencement according to the following table. Reductions from age 50 are actuarially reduced. RESULTING AGE WHEN PERCENTAGE OF BENEFIT BEGINS REDUCTION AVERAGE SALARY % % % % % Survivor Benefit - Pre-Retirement - Refund of contributions, plus interest (7.010). If eligible to retire at time of death, 50 percent of the benefit that would have been payable had he retired at the time of his death (7.020 and 7.020A). If killed while in service, same benefits except that for vested officers not eligible to retire at time of death, 50 percent of the benefit deferred to earliest retirement age (7.050 and A). Post-Retirement - For married participants, 50 percent of the participant's monthly retirement benefit payable to the spouse until death or remarriage. In the event of death or remarriage, dependent children will receive an equal share of the benefit until age 18 (7.030 and A). Remarriage penalty does not apply to participants covered under A. Disability Benefit - Service Related - 50 percent of final 36 month average salary offset by any payments that the participant is eligible to receive under the provisions of the Pennsylvania Occupational Disease Act (6.020). Immediate Normal Retirement Benefit for those hired on or after January 1, 2001 (6.020-A and A). Non-Service Related - If a participant has completed ten (10) years of Aggregate Service, he will receive a monthly benefit equal to 30 percent of his final 36 month average salary offset by any payments that the participant is eligible to receive under the provisions of the Pennsylvania Workers' Compensation Act of the Pennsylvania Occupational Disease Act (6.020). None for those hired after January 1, 2001 (6.020-A)

63 NOTES TO THE FINANCIAL STATEMENTS Vested Benefit - 65 percent of final 36 months of average salary payable at the participant's Normal Retirement age multiplied by a fraction. The fraction is the number of completed years of service at date of termination divided by the number of projected years of service the officer would have had at Normal Retirement Date. The fraction cannot exceed 1 and is equal to 1 once the officer achieves 25 years (1.010 and 8.030). Participants hired on or after 1/2001 who terminate before becoming eligible for a Normal Retirement Benefit are entitled to a refund of accumulated contributions only (8.020-A). SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OF THE PLAN BASIS OF ACCOUNTING The Plan's basis of accounting is discussed in Note "2". VALUATION OF INVESTMENTS Investments are reported at fair value. Consequently, the investment account is adjusted for unrealized gains and unrealized losses. The Plan's investments are discussed in Note "8". CONTRIBUTIONS Contribution requirements of the plan employees are established and may be amended by the Municipality, pursuant to governing state legislation. Employer contribution requirements are determined as established by the "Municipal Pension Plan Funding Standard and Recovery Act" of December 18, 1984, Act 205. Plan members are required to contribute 3.5 percent plus $ 1 a month of pay to the Plan. Employees hired on or after January 1, 2001, contribute 5.0 percent plus $ 1 a month. The employer is required to meet the minimum funding standards of the Plan based on the most recent actuarial valuation report as required by Act 205. The Pension Plan may also receive an annual allocation from the General Municipal Pension System State Aid Program. INVESTMENT CONCENTRATIONS At December 31, 2015, all investments are in various mutual funds (See Note "8"). In addition, the Plan did not have any investment transactions with related parties during the year. CHANGE IN NET PENSION LIABILITY - POLICE PENSION PLAN INCREASE (DECREASE) TOTAL PLAN NET PENSION PENSION FIDUCIARY LIABILITY LIABILITY POSITION (ASSET) (a) (b) (a) - (b) BALANCES AT DECEMBER 31, 2014:- $ 13,974,927 $ 15,419,167 ($ 1,444,240) CHANGES FOR THE YEAR:- Service Cost $ 384,075 $ 384,075 Interest 941, ,

64 NOTES TO THE FINANCIAL STATEMENTS CHANGE IN NET PENSION LIABILITY - POLICE PENSION PLAN INCREASE (DECREASE) TOTAL PLAN NET PENSION PENSION FIDUCIARY LIABILITY LIABILITY POSITION (ASSET) (a) (b) (a) - (b) Differences Between Expected and Actual Experience ( 438,888) ( 438,888) Changes of Assumptions 416, ,253 Contributions - Employer 312,478 ( 312,478) Contributions - Member 77,905 ( 77,905) Net Investment Income ( 285,484) 285,484 Benefit Payments, Including Refunds of Employee Contributions ( 764,234) ( 764,234) Administrative Expense ( 17,056) 17,056 NET CHANGES:- $ 538,497 ($ 676,391) $ 1,214,888 BALANCES AT :- $ 14,513,424 $ 14,742,776 ($ 229,352) Actuarial methods and significant assumptions used for the above for 2015: Valuation date January 1, 2015 Actuarial cost method Entry age normal level percent of payroll Asset valuation method Smoothed value of assets Investment return 7.0 percent Projected salary increases 5.0 percent Post-retirement increases None Measurement Date December 31, 2015 Discount Rate percent, net of investment expenses Method - It was not necessary to perform a projection of Plan Net Fiduciary Position in order to determine if a depletion date was reached since that would be impossible as long as the City funds the plan using the actuarially determined contribution (ADC) required under Act 205 of The funding method would not allow the assets to be depleted; i.e., required contributions would increase to the extent that such a circumstance would be averted. Long-Term Expected Rate of Return (LTRR) on Plan Assets percent, net of investment expenses Municipal Bond Rate (MBR) - N/A

65 NOTES TO THE FINANCIAL STATEMENTS Periods (Number of Year) of Projected Benefit Payments - Discounted at LTRR: All years (i.e., no depletion date) Discounted at MBR: None Target allocation and best estimate of arithmetic real return for each asset class, net of investment expenses: Long-Term Expected Class Target Allocation Real Rate of Return Global Equities 70% 5.12% Core Fixed Income 30% 2.19% Period and method for amortizing unfunded actuarial accrued liability: Under Act 205 of 1984, the unfunded actuarial accrued liability is amortized as a level dollar amount over the lesser of: a. i. 30 years, with respect to the initial liability as of 1/1/85 (or first valuation); ii. 20 years, with respect to changes due to plan provisions and actuarial assumptions; iii. 10 years, with respect to changes in benefits for currently retired members; iv. 15 years, with respect to actuarial gains and losses; or b. The average assumed working lifetime of active employees as of the date the liability was established. PENSION EXPENSE AND DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS POLICE PENSION PLAN DEFERRED DEFERRED OUTFLOWS OF INFLOWS OF RESOURCES RESOURCES Differences Between Expected and Actual Experience $ $ 392,198 Changes in Assumptions 371,971 Net Difference Between Projected and Actual Earnings on Pension Plan Investments 1,048,748 TOTAL:- $ 1,420,719 $ 392,198 Amounts reported as deferred inflows of resources will be recognized in pension expense as follows:

66 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31: $ 259, , , , ( 2,408) 2021 and Thereafter ( 8,187) TOTAL:- $ 1,028, DEPOSITS AND INVESTMENTS The City has implemented GASB Statement No. 40 Deposit and Investment Risk Disclosure. This Standard establishes and modifies disclosure requirements related to deposit risks (custodial credit and foreign currency risks), and investment risks (credit, interest rate, and foreign currency risks), as applicable to the City. The City's cash and investments, except for the investments discussed below, consist of various checking, savings accounts, money market funds, funds management accounts, and business checking/sweep, which are fully collateralized or guaranteed as to principal and interest via collateral arrangements or federal insurance. For these types of investments, cost is equal to market value. The carrying amount of deposits is separately displayed on the balance sheet as cash and cash equivalents. Collateral is required for demand deposits and at 100 percent of all amounts not covered by federal deposit insurance as required by Pennsylvania Pledge Act 72 (72 P.S Et Seq of 1971). Obligations that may be pledged as collateral are obligations of the United States of America and its agencies. CUSTODIAL CREDIT RISK - DEPOSITS Custodial credit risk is the risk that, in the event of a bank failure, the City's deposits may not be returned to it. As of December 31, 2015, $ 5,799,164 of the City's bank balance of $ 6,049,164 was exposed to custodial credit risk as noted below: Uninsured and Uncollateralized $ 216,895 Uninsured and Collateral Held by or for Pledging Bank, Not in the City's Name (But Subject to the Pennsylvania Pledge Act 72) 5,582,269 TOTAL:- $ 5,799,164 Investment policies of the pension trust fund are governed by the City resolution, the fiduciary standards and requirements of the Employee Retirement Income Security Act of 1974 (ERISA), and other laws and regulations applicable to employee benefit plans. Other investments are governed by City resolution and state laws and regulations

67 NOTES TO THE FINANCIAL STATEMENTS The investments of the City as of December 31, 2015, are summarized below. The investments are uninsured and unregistered investments held by the financial institution's trust department or agent in the City's name: COST FAIR VALUE POLICE PENSION FUND :- Mutual Funds - Equities $ 4,886,635 $ 7,500,934 Bonds 4,594,781 4,637,126 International 2,182,277 2,395,767 TOTAL:- $ 11,663,693 $ 14,533,827 Police pension investments are not subject to any specific maturity dates. FAIR VALUE MEASUREMENTS The City's investments discussed above are subject to the provisions of Governmental Accounting Standards Board (GASB 72) Fair Value Measurement and Application. The investments are level 1 and are measured at fair value on a recurring basis for the years ending December 31, The following table presents the fair value measurements of assets and liabilities recognized in the accompanying statements of financial position measured at fair value on a recurring basis and the level within the GASB 72 fair value hierarchy in which the fair value measurements fall at December 31, 2015 and 2014: FAIR VALUE MEASUREMENTS AT REPORTING DATE USING QUOTED PRICES IN ACTIVE SIGNIFICANT MARKETS FOR OTHER SIGNIFICANT IDENTICAL OBSERVABLE UNOBSERVABLE DECEMBER 31, ASSETS INPUTS INPUTS 2015 (LEVEL 1) (LEVEL 2) (LEVEL 3) ASSETS:- Long-Term Investments - Stocks, Mutual Funds, and Bonds $ 14,533,827 $ 14,533,827 $ 0 $ 0 Methods and assumptions used by the City in estimating fair values are as follows: Stocks and Mutual Funds - The fair values of these financial statements are based on quoted market prices. 9. COMMITMENTS AND CONTINGENCIES CONTINGENT LIABILITIES The City, along with the Borough of Sharpsville and South Pymatuning Township, has entered into a Joint Service Agreement which is the security for a loan obtained by the Upper Shenango Valley Water Pollution Control Authority for the financing of its sewer and treatment plant projects

68 NOTES TO THE FINANCIAL STATEMENTS Under this Joint Service Agreement dated September 1974, the City is contingently liable to the extent of approximately $ 30,000. During 2010, the City of Sharon Sanitary Authority completed an approximately $ 40,000,000 renovation to the Sewer Treatment Plant. The City, along with other local governments, is potentially contingently liable for a portion of this debt, approximating $ 15,000 as of December 31, Various minor items of equipment are leased under various agreements, some of which contain renewal provisions at the City's option. All such lease agreements have been accounted for as operating leases. The future minimum commitments for these leases are not material to the City's operations. GRANT PROGRAMS The City participates in both federal and state assisted grant programs. These programs are subject to program compliance audits by the grantors or their representatives. The City is potentially liable for any expenditures which may be disallowed pursuant to the terms of these grant programs. Management is not aware of any material items of noncompliance which would result in the disallowance of program expenditures. In connection with the United States Department of Commerce - Economic Development Administration (EDA) $ 4,208,000 grant for the construction of the LindenPointe Tech Training Center, the City has signed a mortgage agreement with EDA. The mortgage is for 20 years and will be enforced by EDA if the City uses or disposes of the Tech Center in violation of EDA regulations within that time period. CONCENTRATION OF SOURCE OF SUPPLY OF LABOR Certain employees of the City are members of labor unions. The contract with the police union is effective January 1, 2013 to December 31, In 2015, a new contract was agreed upon that is effective January 1, 2016 to December 31, The contract with A.F.S.C.M.E. for non-uniform employees is effective May 1, 2014 to April 30, LITIGATION In the normal course of operations, the City is involved in various civil disputes. It is the opinion of the City's counsel that these are primarily covered by the City's liability insurance and any unfavorable outcome resulting from these actions would not have a material effect on the City's financial position. SPECIAL TERMINATION BENEFITS Non-uniform employees of the City, excluding management employees, receive payments upon retirement (age 60 with 15 years of service) of $ 40 for each accumulated sick day up to 155 days, with a maximum benefit of $ 6,200. There are currently eight (8) non-uniform employees eligible for such days as of December 31, 2015, amounting to a total benefit of $ 36,

69 NOTES TO THE FINANCIAL STATEMENTS Non-uniform management employees, excluding police department employees, receive payments for accumulated sick days upon retirement (age 60 with 15 years of service) or $ 50 for each accumulated sick day up to 180 days. There are currently four (4) non-uniform management employees eligible for the severance pay as of December 31, 2015, amounting to a total benefit of $ 19,490. Police officers, including police management employees, receive payments upon retirement (upon ten [10] years of service) of their current daily rate for each accumulated sick day up to 155 days. As of December 31, 2015, this benefit totals $ 250,147. Special termination benefits total $ 306,292 at December 31, 2015, and have been recorded in the governmental activities of the entity-wide financial statements. 10. LOANS RECEIVABLE Loans receivable represent the unpaid balance on loans to qualifying Hermitage businesses at year-end, the Block Grant Housing Rehabilitation Program Loans, and for the sale of land discussed in Note "2". The receivable of $ 525,392 net of a $ 50,000 allowance for uncollectable business loans at December 31, 2015, consists of $ 234,196 for outstanding business loans, $ 234,253 for housing rehabilitation loans, and $ 56,943 for the land sale. 11. AUTHORITY RENTALS The City rents sewer facilities from the Authority under operating leases that have been extended to Authority rentals of the City for 2015 were $ 3,085,215. As discussed in Note "2" above, the Authority has been blended into the City's financial statements and the above rental payments have been netted in the process of blending the entities. During 2011, the Authority received a PENNVEST loan. In conjunction therewith, the fifth amendment to the Agreement of Lease and Guaranty was executed. This agreement incorporates the City's Sewer Utility Fund's previous obligations with the Authority regarding the PENNVEST, Steel Valley Assistance Loans, Series A and B of 2010 Bonds, Series A, B, and C of 2012 Bonds, in addition to the 2011 PENNVEST loan. The City covenants under the terms of the lease that, if in any year revenues derived from the operation of the sewer system are insufficient to enable the Sewer Utility Fund to meet its current obligations, the City will provide the funds from its operating budget. All of these debts of the Authority have been determined to be self-liquidating debts. The lease is to fund various

70 NOTES TO THE FINANCIAL STATEMENTS obligations of the Authority incurred for the mandated renovation and construction of various parts of the sewer system. These lease agreements have not been capitalized by the City or the Authority since the lease does not transfer all of the risk of ownership of the sewer system to the City. Accordingly, payments received from the City for the lease agreements are recognized as lease rental revenue in the Authority's financial statements. The following is a schedule of approximate future lease rental payments of the City under the lease agreements, together with the present value of the payments: YEAR ENDED DECEMBER 31: LEASE RENTAL PAYMENTS 2016 $ 2,671, ,682, ,675, ,681, ,692, ,078, ,088, ,363,199 TOTAL LEASE PAYMENTS:- $ 41,933,272 LESS: Approximate Amount Representing Interest ( 4,260,712) NET VALUE OF FUTURE LEASE PAYMENTS:- $ 37,672, SEWER CONSTRUCTION PROJECT During 2015, the Authority continued to pursue the repairs on the damaged No. 3 Mesophyllic Digester. Work also continued on getting the SCADA system fully operational with the help of an engineering firm. Food waste processing was supplemented by additional waste food received from various small food processors. A new solid food processing machine was being tested which can handle dry solid packaged food products. This will allow for additional sources of food wastes which can be used in the production of bio-gas (methane) thereby reducing the amount of natural gas being purchased. Other lesser projects which were not completed by the contractor are being finished up as time permits. Some work was completed in the Woodlawn Pump Station Watershed, however, some additional work remains. 13. DEBT SERVICE RESERVE FUNDS As required by the Indenture of the Series of 2010 Guaranteed Sewer Revenue Bonds, bond proceeds were used to purchase a $ 2,556,988 Surety Bond. As required, this Surety Bond has been placed in the 2010 Debt Service Reserve Fund held by the Trustee of the Bonds

71 NOTES TO THE FINANCIAL STATEMENTS Also as required by the Indenture of the Series of A, B, and C of 2012 Guaranteed Sewer Revenue Bonds, bond proceeds were used to purchase a $ 1,711,422 Surety Bond. As required, this Surety Bond has been placed in the 2012 Debt Service Reserve Fund held by the Trustee of the Bonds. As required by the Indenture of the Series of 2015 Guaranteed Sewer Revenue Bonds, bond proceeds were used to purchase a $ 2,289,463 Surety Bond. As required, this Surety Bond has been placed in the 2015 Debt Service Reserve Fund held by the Trustee of the Bonds. 14. SELF INSURANCE The City is self-insured for dental and vision benefits for employees. 15. POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS PLAN DESCRIPTION The City administers a single-employer defined benefit healthcare plan (the Retiree Health Plan). The Plan provides healthcare insurance (including prescription) until retirees are Medicare eligible and a $ 5,000 death benefit (some current retirees have a $ 2,500 death benefit) for eligible retirees through the City's group health insurance plan, which covers both active and retired members. Benefit provisions are established through negotiations between the City and the unions representing City employees and are renegotiated each bargaining period. In addition, coverage is provided for management and elected officials. The Retiree Health Plan does not issue a publicly available financial report. FUNDING POLICY The contribution requirements of the City and plan members are established through negotiations with the City's unions. Contribution requirements for management and elected officials are established by City Commissioners. The required contribution is based on pay-as-you-go financing with the City funding on a cash basis as benefits are paid and beginning January 1, 2013, certain City categories of employees had mandatory contributions to the Plan. Retired participants pay a cost to cover their spouses. If retirement is after July 1, 2000, the retired participant pays the difference between the husband and wife premium and individual premium. ANNUAL OPEB COST AND NET OPEB OBLIGATION The City's annual Other Post-Employment Benefit (OPEB) cost (expense) is calculated based on the Annual Required Contribution of the Employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not-to-exceed 30 years. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the City's net OPEB obligation to the Retiree Health Plan:

72 NOTES TO THE FINANCIAL STATEMENTS Annual Required Contribution $ 316,189 Interest on Net OPEB Obligation 56,226 Adjustment to Annual Required Contribution ( 78,162) ANNUAL OPEB COST:- $ 294,253 Contributions Made * ( 208,145) INCREASE IN NET OPEB OBLIGATION:- $ 86,108 Net OPEB Obligation - Beginning of Year 1,405,645 NET OPEB OBLIGATION - END OF YEAR:- $ 1,491,753 * Actuarially determined. City paid premiums on behalf of active members should be adjusted for purposes of financial reporting to reflect the actuarially determined contribution (rather than the premium) allocated to the retirees. The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for 2015, 2014, 2013, and 2012: PERCENTAGE OF ANNUAL YEAR ENDED ANNUAL OPEB COST NET OPEB DECEMBER 31 OPEB COST CONTRIBUTED OBLIGATION 2012 $ 293, % $ 1,115, , % 1,283, , % 1,405, , % 1,491,753 FUNDED STATUS AND FUNDING PROGRESS As of December 31, 2014, the most recent actuarial valuation date, the Plan was.07 percent funded. The actuarial accrued liability for benefits was $ 2,830,394, and the actuarial value of assets was $ 1,920, resulting in an unfunded actuarial accrued liability (UAAL) of $ 2,828,474. The covered payroll (annual payroll of active employees covered by the Plan) was $ 5,064,241 and the ratio of the UAAL to the covered payroll was 55.9 percent. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following

73 NOTES TO THE FINANCIAL STATEMENTS the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. ACTUARIAL METHODS AND ASSUMPTIONS Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The following assumptions were made and methods used: Mortality Rate - Active and retired police employees - For healthy lives, mortality is in accordance with the RP-2000 Mortality Table adjusted for blue collar employees and with full generational mortality improvement projected by Scale BB2D. For disabled lives, mortality is in accordance with the RP-2000 Disabled Mortality Table. Active and retired non-uniformed employees - For healthy lives, mortality is in accordance with the RP-2000 Mortality Table and with full generational mortality improvement projected by Scale BB2D. For disabled lives, mortality is in accordance with the RP-2000 Disabled Mortality Table. Turnover - None assumed for Police Officers; light turnover (T-1) for Non-Uniformed Employees other than Elected Officials, 100 percent for Elected Officials (i.e., Elected Officials were not valued). Retirement - Police assumed to retire at age 55 with 25 years of service and Non-Uniformed are assumed to retire at age 60 with 15 years of service. Disability - None assumed Discount Rate - Prior Valuation: 4.00 Percent Current Valuation: 4.00 Percent Marital Status - 80 percent of active participants are assumed to have a covered spouse at retirement. The husband is assumed to be three (3) years older than the wife

74 NOTES TO THE FINANCIAL STATEMENTS Participation - Medical - 75 percent of eligible employees (including those who currently waived coverage) are assumed to elect single member coverage at retirement and 0 percent are assumed to cover their spouse. Life Insurance - There is no election for basic life insurance coverage. Trend Rates - Healthcare cost and premium (for the purpose of projecting future retiree contributions) trend rates are shown below. YEAR MEDICAL TREND % Short-term rates % % Long-term rates (see below) % % 2064 and Later 4.00% The SOA Long Term Healthcare Cost Trends Resource (Getzen) Model and its baseline projections (as updated November 2012) are based on an econometric analysis of historical U.S. medical expenditures and the judgments of experts in the field. The long-run projection and input variables have been developed under the guidance of the SOA Project Oversight Group. The baseline model reflects growing resistance to health care spending by reducing the Health Care share of GDP resistance point from 25 percent to 22 percent, and the year for limiting cost growth to GDP growth was moved down to 2060 from The inputs shown are updated from the model's baseline assumptions to recognize more recent information from the 2014 Medicare Trustees Report, from National Health Expenditure data as of August 2014, and general research. Results were rounded to the nearest 50 basis points AND LATER Rate of Inflation (GDP Deflator) 2.30% 2.30% 2.30% Rate of Growth in Real Income/GDP Per Capita 1.70% 1.70% 1.70% Income Multiplier for Health Spending 1.40% 1.40% 1.20% Extra Trend Due to Technology and Other Factors 0.90% 0.90% 0.80% Percent of GDP Projected in % 18.40% 18.40% Health Share of GDP Resistance Point 22.00% 22.00% 22.40% Year to Limiting Cost Growth to GDP Growth

75 NOTES TO THE FINANCIAL STATEMENTS Long-term trends were developed using the Society of Actuaries Long-Term Healthcare Trends Resource Model and its baseline projections are based on an econometric analysis of historical U.S. medical expenditures and the judgments of experts in the field. The long-run projection and input variables have been developed under the guidance of the SOA Project Oversight Group. Based on the current plan provisions and demographics of this Plan, we expect trends to be lower in the long-term than the trends produced by the model's baseline assumptions. We have modified the SOA POG baseline assumptions for: 1) the Health Share of GDP Resistance Point to 20 percent (baseline is 25 percent) and for: 2) Year of Limiting Growth to GDP Growth to 2025 (baseline is 2075). Results were rounded, smoothed and further adjusted (.6 percent) to reflect expectation of increased trend rates through 2020 due to provisions in the Affordable Care Act. Excise Tax on High Cost Plan Under ACA (Cadillac Tax) - Certain provisions of the Act are not well defined and may be clarified through future legislation or guidance. This provision of the law is not effective until 2018 and presumably many employers will alter their benefits if necessary to avoid the effects of the tax. Under current accounting standards, we cannot reflect any presumption that the Plan will be altered. Projected retiree-coverage thresholds for 2018 are shown below. The amounts include adjustment for assumed cost increases in the Federal Employees Health Benefits Plan that are projected to exceed 55 percent for the period 2010 through 2018: Estimated 2018 Dollar Limit on Self-Only Coverage $ 10,200 Estimated 2018 Dollar Limit on Other Than Self-Only Coverage $ 27,500 Changes in CPI-U 2.7% A 1 percent additional increase is used in 2019, as specified by law. Type of Entity as Defined by GASB 45 - The City participates in Teamsters #261 Multi-Employer plan. However, the premium rates it is charged reflect its own experience (i.e. not a true pooled arrangement). The filing status of the plan is "Multi-Employer" and so, for Cadillac Tax purposes, the other than self-only limit is assumed to apply. Expected Per Member Annual Claims Cost - An annual per member claims cost was developed for the Under 65 retiree population based upon the premiums it is charged by the Teamsters #252 Fund: Due to the small size of the group, premiums are used as an approximation to average claims cost. A composite premium is developed using a health care model that takes into account the plan sponsor's medical and prescription drug benefit plan provisions and the member's characteristic such as age, sex, and level of coverage

76 NOTES TO THE FINANCIAL STATEMENTS The estimated per member claims costs above were then spread to reflect lower expected claims cost at younger ages and higher claims cost at older ages using aging factors shown below. Annual pre-medicare per capita claims cost normalized to age 64 is $ 11,303. Aging Factors - AGES ANNUAL INCREASES % % % % % % % 90 and Older 0.5% Cost Sharing Offsets - The Summary of Plan Provisions section contains an outline of retiree and dependent cost sharing. This report develops a net liability equal to age-adjusted estimated per member claims costs offset by retiree or other dependent cost sharing. Current levels are shown below: MONTHLY RETIREE CONTRIBUTION FOR RETIREMENTS OCCURRING IN 2015 Single Coverage $ Section Projected Net Claims Payments - YEAR ENDING DECEMBER 31: PROJECTED CLAIM PAYMENTS MANAGEMENT POLICE AFSCME AND OTHER TOTAL 2014 $ 60,137$ 73,804$ 39,945 $ 173, ,679 98,772 36, , , ,439 46, , , ,972 50, , , ,192 57, , ,586 73,255 53, , ,770 56,181 48, , ,868 49,340 34, , ,973 73,335 39, , ,221 64,775 26, ,057 TEN-YEAR TOTAL:- $ 527,413 $ 814,065 $ 433,338 $ 1,774,816 Assumed Increase in Salary - Not Applicable, benefits are not salary related

77 NOTES TO THE FINANCIAL STATEMENTS The Society of Actuaries (SOA) Long Run Healthcare Trends Resource Model: The SOA Long-Run Medical Cost Trends Model and its baseline projections are based on an econometric analysis of historical U.S. medical expenditures and the judgments of experts in the field. The long-run projection and input variables have been developed under the guidance of the SOA Project Oversight Group. Based on the current plan provisions and demographics of this Plan, we expect trends to be lower in the long-term than the trends produced by the model's baseline assumptions. We have modified the SOA POG baseline assumptions for (1) the Health Share of GDP Resistance Point to 20 percent (baseline is 25 percent) and for (2) Year of Limiting Growth to GDP Growth to 2025 (baseline is 2075). Results were rounded, smoothed, and further adjusted (.6 percent) to reflect expectation of increased trend rates through 2020 due to provisions in the Affordable Care Act. Amortization Period - 30 year amortization Amortization Method - Level Dollar, open amortization Actuarial Cost Method - Projected Unit Credit Actuarial Value of Plan Assets - The City does not accumulate assets in a dedicated trust, or an equivalent arrangement, for purposes of funding its retiree healthcare obligation. Therefore, the actuarial value of plan assets is zero. Type of Entity - Single employer plan: A plan that covers the current and former employees including beneficiaries of only one (1) employer. 16. ASSESSMENTS RECEIVABLE Assessments receivable represent front footage of either vacant land or of developed lots in excess of 200 feet. For the Bobby Run, Sample Road, and South Darby/Miller Road Sewer Projects, these assessments are valued at $ 18, $ 25, and $ 27 per front foot, respectively, and are delayed until the property is sold or vacant land is developed. At such time, the entire delayed assessment of the property becomes currently due. Consequently, these are reported as unearned revenues and will be recognized as the property is sold or developed. 17. NET INVESTMENT IN CAPITAL ASSETS At December 31, 2015, net investment in capital assets is composed of the following:

78 NOTES TO THE FINANCIAL STATEMENTS GOVERNMENTAL BUSINESS-TYPE ACTIVITIES ACTIVITIES TOTAL Net Capital Assets $ 18,417,659 $ 57,442,164 $ 75,859,823 Capital Asset Related Debt ( 10,679,711) ( 45,551,203) ( 56,230,914) Discount on Debt 213, ,466 Unexpended Bonds 8,337 8,337 TOTAL:- $ 7,959,751 $ 11,890,961 $ 19,850, SUBSEQUENT EVENTS The City has evaluated subsequent events through June 28, 2016, the date which the financial statements were available to be issued, and concluded that no subsequent events have occurred that would require recognition or disclosure in the financial statements or notes

79 PAGE 1 OF 2 REQUIRED SUPPLEMENTARY INFORMATION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL GENERAL FUND YEAR ENDED (UNAUDITED) VARIANCE WITH BUDGET BUDGETED POSITIVE AMOUNTS ACTUAL (NEGATIVE) REVENUES:- Taxes $ 8,691,300 $ 8,830,340 $ 139,040 Licenses and Permits 282, ,969 4,469 Fines, Forfeits, and Costs 115, ,337 9,337 Interest, Rents, and Royalties Grants and Gifts 574, ,671 ( 41,329) Departmental Earnings and Assessments 464, ,888 ( 117,112) Miscellaneous 44,175 81,426 37,251 TOTAL REVENUES:- $ 10,171,575 $ 10,203,231 $ 31,656 EXPENDITURES:- General Government - Administration $ 616,614 $ 575,924 $ 40,690 Tax Collection 157, ,135 2,216 Legal Services 52,750 56,735 ( 3,985) General Government Buildings and Plant 377, ,726 24,641 TOTAL GENERAL GOVERNMENT:- $ 1,204,082 $ 1,140,520 $ 63,562 Protection to Persons and Property - Police $ 2,718,904 $ 2,681,915 $ 36,989 Fire 432, ,365 18,892 Protective Inspection 387, ,520 86,121 Planning and Zoning 550, , ,274 TOTAL PROTECTION TO PERSONS AND PROPERTY:- $ 4,089,135 $ 3,764,859 $ 324,276 Public Works - Highways and Streets - General Services $ 1,397,812 $ 1,204,918 $ 192,894 Winter Maintenance 330, ,759 17,741 Traffic Control Devices 55,000 50,001 4,999 Street Lighting 115, ,258 ( 258) Road and Bridge Maintenance 24,000 15,715 8,285 TOTAL PUBLIC WORKS:- $ 1,922,312 $ 1,698,651 $ 223,661 NOTE: No budget amendments or transfers were made during The tax anticipation note budget is shown as only a net budget expense for the interest

80 PAGE 2 OF 2 REQUIRED SUPPLEMENTARY INFORMATION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL GENERAL FUND YEAR ENDED (UNAUDITED) VARIANCE WITH BUDGET BUDGETED POSITIVE AMOUNTS ACTUAL (NEGATIVE) Culture and Recreation - Recreation $ 251,309 $ 204,236 $ 47,073 Parks 75,500 74, Libraries 100, ,000 0 TOTAL CULTURE AND RECREATION:- $ 426,809 $ 378,999 $ 47,810 Employee Payroll Taxes, Benefits, and Insurance - Pension Fund Contributions $ 551,365 $ 552,340 ($ 975) Workers' Compensation 167, ,494 ( 1,494) Unemployment Compensation 28,000 22,872 5,128 Insurance Premiums 1,474,903 1,321, ,472 TOTAL EMPLOYEE PAYROLL TAXES, BENEFITS, AND INSURANCE:- $ 2,221,268 $ 2,065,137 $ 156,131 TOTAL EXPENDITURES:- $ 9,863,606 $ 9,048,166 $ 815,440 EXCESS OF REVENUES OVER EXPENDITURES:- $ 307,969 $ 1,155,065 $ 847,096 OTHER FINANCING SOURCES (USES):- Operating Transfers In $ 460,000 $ 514,200 $ 54,200 Operating Transfers Out ( 1,563,337) ( 1,658,565) ( 95,228) TOTAL OTHER FINANCING SOURCES (USES):- ($ 1,103,337) ($ 1,144,365) ($ 41,028) REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER (USES):- ($ 795,368) $ 10,700 $ 806,068 BEGINNING FUND EQUITY:- 795, ,401 44,033 ENDING FUND EQUITY:- $ 0 $ 850,101 $ 850,101 NOTE: No budget amendments or transfers were made during The tax anticipation note budget is shown as only a net budget expense for the interest

81 PAGE 1 OF 2 PENSION PLAN REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) SCHEDULE OF FUNDING PROGRESS - ACTUARIAL (UAAL) ACCRUED EXCESS EXCESS AS A LIABILITY ASSETS PERCENTAGE ACTUARIAL ACTUARIAL (AAL) OVER AAL FUNDED OF COVERED VALUATION VALUE OF ENTRY AGE (UAAL) RATIO COVERED PAYROLL DATE ASSETS (a) NORMAL (b) (a - b) (a b) PAYROLL (c) [(a - b) c] NON-UNIFORM 1/1/09 $ 11,681,103 $ 11,879,845 ($ 198,742) 98.3% $ 3,366,047 ( 5.9%) 1/1/11 12,963,054 13,189,676 ( 226,622) 98.3% 3,387,472 ( 6.7%) 1/1/13 14,601,041 15,300,060 ( 699,019) 95.4% 3,306,881 ( 21.1%) 1/1/15 16,025,160 16,846,711 ( 821,551) 95.1% 3,448,297 ( 23.8%) POLICE 1/1/09 $ 10,698,115 $ 11,015,000 ($ 316,885) 97.1% $ 1,908,227 ( 16.6%) 1/1/11 11,467,437 11,665,318 ( 197,881) 98.3% 1,795,189 ( 11.0%) 1/1/13 12,621,177 12,040, , % 1,925, % 1/1/15 15,419,167 13,555,040 1,864, % 2,037, % SCHEDULE OF EMPLOYER CONTRIBUTIONS - NON-UNIFORM POLICE ANNUAL ANNUAL YEAR ENDED REQUIRED PERCENTAGE REQUIRED PERCENTAGE DECEMBER 31 CONTRIBUTION CONTRIBUTED CONTRIBUTION CONTRIBUTED 2009 $ 218, % $ 157, % , % 176, % , % 279, % , % 266, % , % 265, % , % 237, % , % 228, % NOTES TO THE SUPPLEMENTARY SCHEDULES 1. The information presented in the required supplementary schedules was determined as part of the actuarial valuation at the date indicated. 2. Actuarial methods and significant assumptions used for the most recent year reported above:

82 PAGE 2 OF 2 PENSION PLAN REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) NON-UNIFORM - Valuation date January 1, 2015 Actuarial cost method Entry age normal Asset valuation method Contract value Investment return 5.5 percent compounded annually, net of investment income withheld to cover certain administration and investment expenses Projected salary increases 3.0 percent inflation and age-related scale for merit/seniority Post-retirement increases Where applicable, 3.0 percent per year POLICE - Valuation date... January 1, 2015 Actuarial cost method... Entry age normal level percent of payroll Asset valuation method... Smoothed value of assets Investment return percent Projected salary increases percent and a scale for post-2011 hires Post-retirement increases... None

83 SCHEDULE OF FUNDING PROGRESS FOR THE RETIREE HEALTH PLAN REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) ACTUARIAL ACCRUED UAAL LIABILITY AS A (AAL) UNFUNDED PERCENTAGE ACTUARIAL ACTUARIAL PROJECTED AAL FUNDED OF COVERED VALUATION VALUE OF UNIT (UAAL) RATIO COVERED PAYROLL DATE ASSETS (a) CREDIT (b) (b - a) (a b) PAYROLL (c) [(b - a) c] 12/31/08 $ 0 $ 2,447,298 $ 2,447, % $ 4,970, % 12/31/11 0 2,602,480 2,602, % 4,902, % 12/31/14 1,920 2,830,394 2,828,474.07% 5,064, %

84 SCHEDULE OF CHANGES IN NET PENSION LIABILITY - NON-UNIFORM REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) MEASUREMENT YEAR ENDING DECEMBER 31 TOTAL PENSION LIABILITY:- Service Cost (Beginning of Year) $ 367,369 Interest (Includes Interest on Service Cost) 888,007 Differences Between Expected and Actual Experience ( 25,504) Benefit Payments, Including Refunds of Member Contributions ( 498,730) NET CHANGE IN TOTAL PENSION LIABILITY- $ 731,142 TOTAL PENSION LIABILITY - BEGINNING:- 16,024,246 TOTAL PENSION LIABILITY - ENDING:- $ 16,755,388 PLAN FIDUCIARY NET POSITION:- Contributions - Employer $ 227,632 Contributions - Member 123,895 PMRS Investment Income 817,563 Market Value Investment Income 87,712 Benefit Payments, Including Refunds of Member Contributions ( 498,730) PMRS Administrative Expense ( 2,060) Additional Administrative Expense ( 31,354) NET CHANGE IN PLAN FIDUCIARY NET POSITION:- $ 724,658 PLAN FIDUCIARY NET POSITION - BEGINNING:- 14,980,556 PLAN FIDUCIARY NET POSITION - ENDING:- $ 15,705,214 NET PENSION LIABILITY - ENDING:- $ 1,050,174 NOTES TO SCHEDULE:- The above schedule will eventually build up to ten (10) years of information. Plan Changes: None Assumption Changes: None

85 SCHEDULE OF CHANGES IN NET PENSION LIABILITY - POLICE REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) MEASUREMENT YEAR ENDING DECEMBER 31 TOTAL PENSION LIABILITY:- Service Cost (Beginning of Year) $ 384,075 Interest (Includes Interest on Service Cost) 941,291 Differences Between Expected and Actual Experience ( 438,888) Changes in Assumptions 416,253 Benefit Payments, Including Refunds of Member Contributions ( 764,234) NET CHANGE IN TOTAL PENSION LIABILITY- $ 538,497 TOTAL PENSION LIABILITY - BEGINNING:- 13,974,927 TOTAL PENSION LIABILITY - ENDING:- $ 14,513,424 PLAN FIDUCIARY NET POSITION:- Contributions - Employee $ 77,905 Contributions - Employer 312,478 Investment Income (Net) ( 285,484) Benefit Payments, Including Refunds of Member Contributions ( 764,234) Administrative Expense ( 17,056) NET CHANGE IN PLAN FIDUCIARY NET POSITION:- ($ 676,391) PLAN FIDUCIARY NET POSITION - BEGINNING:- 15,419,167 PLAN FIDUCIARY NET POSITION - ENDING:- $ 14,742,776 NET PENSION LIABILITY - ENDING:- ($ 229,352) NOTES TO SCHEDULE:- The above schedule will eventually build up to ten (10) years of information. Plan Changes: None Assumption Changes: None

86 SCHEDULES OF EMPLOYER CONTRIBUTIONS LAST 10 MEASUREMENT YEARS (IF AVAILABLE) REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) NON-UNIFORMED MEASUREMENT YEAR ENDING DECEMBER 31 Actuarially Determined Contribution $ 227,512 Contributions in Relation to the Actuarially Determined Contribution* 227,632 CONTRIBUTION DEFICIENCY (EXCESS):- ($ 120) COVERED-EMPLOYEE PAYROLL:- $ 3,445,770 CONTRIBUTIONS AS A PERCENTAGE OF COVERED-EMPLOYEE PAYROLL:- 6.61% POLICE MEASUREMENT YEAR ENDING DECEMBER 31 Actuarially Determined Contribution $ 312,478 Contributions in Relation to the Actuarially Determined Contribution* 312,478 CONTRIBUTION DEFICIENCY (EXCESS):- $ 0 COVERED-EMPLOYEE PAYROLL:- $ 1,888,731 CONTRIBUTIONS AS A PERCENTAGE OF COVERED-EMPLOYEE PAYROLL: % *Information provided by PMRS and not reconciled to determine the cause of any deviation from the Actuarially Determined Contribution (if applicable)

87 SCHEDULES OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY LAST 10 MEASUREMENT YEARS (IF AVAILABLE) REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) NON-UNIFORMED MEASUREMENT YEAR ENDING DECEMBER 31 Total Pension Liability $ 16,755,388 Plan Fiduciary Net Position 15,705,214 NET PENSION LIABILITY:- $ 1,050,174 PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF TOTAL PENSION LIABILITY: % COVERED-EMPLOYEE PAYROLL:- $ 3,445,770 NET PENSION LIABILITY AS A PERCENTAGE OF ITS COVERED-EMPLOYEE PAYROLL: % POLICE MEASUREMENT YEAR ENDING DECEMBER 31 Total Pension Liability $ 14,513,424 Plan Fiduciary Net Position 14,742,776 NET PENSION LIABILITY (ASSET):- ($ 229,352) PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF TOTAL PENSION LIABILITY: % COVERED-EMPLOYEE PAYROLL:- $ 1,888,731 NET PENSION ASSET AS A PERCENTAGE OF ITS COVERED-EMPLOYEE PAYROLL: % * The amounts presented for each year were determined as of the measurement date, which is December 31 of the year listed. This schedule is intended to illustrate information for ten (10) years. However, until a full 10-year trend is compiled, the City is presenting information for those years only for which information is available

88 NOTES TO THE SCHEDULES OF EMPLOYER CONTRIBUTIONS AND CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY LAST 10 MEASUREMENT YEARS (IF AVAILABLE) REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) NOTES TO SCHEDULES: Valuation Date: Actuarially determined contribution rates are calculated as of January 1 for the odd valuation year at least two (2) years prior to the end of the fiscal year in which the contributions were reported. Therefore, the Actuarially Determined Contribution for calendar year 2014 is based upon the January 1, 2011 actuarial valuation. A summary of the key assumptions and methods used to determine the contribution rates: Actuarial Cost Method: Entry Age Amortization Period: Level dollar based upon the amortization periods in Act 205 Asset Valuation Method: Based upon the municipal reserves Discount Rate: 5.50 percent Inflation: 3.0 percent Salary Increases: Age related scale with merit and inflation component COLA Increases: 3.0 percent for those eligible for a COLA Pre-Retirement Mortality: Males - RP 2000 with one (1) year set back; Females - RP 2000 with five (5) year set back Post-Retirement Mortality: Sex distinct RP 2000 Combined Healthy Mortality The above schedules will eventually build up to ten (10) years of information

89 EXHIBIT "A" COMBINING BALANCE SHEET CAPITAL PROJECTS FUND TYPES (WITH COMPARATIVE TOTALS AS OF DECEMBER 31, 2014) CAPITAL EQUIPMENT AND CAPITAL 2012 FACILITIES CONSTRUCTION IMPROVEMENT CONSTRUCTION TOTALS FUND FUND RESERVE FUND ASSETS:- Cash and Cash Equivalents $ 133,431 $ 193,484 $ 603,810 $ 8,337 $ 939,062 $ 1,460,531 Due from Other Funds 0 274,922 TOTAL ASSETS:- $ 133,431 $ 193,484 $ 603,810 $ 8,337 $ 939,062 $ 1,735,453 LIABILITIES:- Accounts Payable $ 5,609 $ 105,482 $ $ $ 111,091 $ 213,586 Due to Other Funds 17,601 17,601 20,557 TOTAL LIABILITIES:- $ 5,609 $ 123,083 $ 0 $ 0 $ 128,692 $ 234,143 FUND BALANCE:- 127,822 70, ,810 8, ,370 1,501,310 TOTAL LIABILITIES AND FUND BALANCE:- $ 133,431 $ 193,484 $ 603,810 $ 8,337 $ 939,062 $ 1,735,

90 EXHIBIT "B" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE CAPITAL PROJECTS FUND TYPES - BUDGET AND ACTUAL YEAR ENDED (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED DECEMBER 31, 2014) CAPITAL EQUIPMENT AND CAPITAL IMPROVEMENTS TOTALS FACILITIES FUND CONSTRUCTION FUND RESERVE 2012 CONSTRUCTION FUND BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) REVENUES:- Investment Earnings $ $ 88 $ $ $ $ 1,648 $ $ $ 0 $ 1,736 $ 800 $ 2,006 Local Services Tax 525, , , , , ,350 Other 30, , ,000 Wage Tax Settlement ,479 TOTAL REVENUES:- $ 0 $ 88 $ 525,000 $ 521,872 $ 0 $ 31,648 $ 0 $ 0 $ 525,000 $ 553,608 $ 470,800 $ 696,835 EXPENDITURES:- PUBLIC WORKS - Highways and Street Department $ 105,500 $ 61,318 $ 350,000 $ 441,776 $ $ 16,265 $ $ $ 455,500 $ 519,359 $ 510,000 $ 502,332 Storm Sewers 150,000 82, ,000 82,985 55, ,904 PUBLIC SAFETY - Police Equipment 95, ,072 95, ,072 90,000 85,467 Fire Equipment 50,000 50, ,000 2,315 CONSERVATION AND DEVELOPMENT - 710, ,421 17, , ,879 1,091, ,935 PARKS - 25,000 26,578 25,000 26,578 50,000 34,357 GENERAL GOVERNMENT - Project Administration 0 17 Municipal Building Renovations 90,000 71,598 90,000 71, , ,405 Equipment 25,000 25, ,000 16,600 Special Projects 53,251 53, ,300 DEBT SERVICE - 1,011,320 1,011,955 1,011,320 1,011,955 1,005,695 1,000,290 BOND ISSUE COSTS ,500 TOTAL EXPENDITURES:- $ 390,500 $ 293,566 $ 2,221,320 $ 2,083,403 $ 0 $ 33,723 $ 0 $ 82,985 $ 2,611,820 $ 2,493,677 $ 3,079,313 $ 3,204,422 REVENUES OVER (UNDER) EXPENDITURES:- ($ 390,500) ($ 293,478) ($ 1,696,320) ($ 1,561,531) $ 0 ($ 2,075) $ 0 ($ 82,985) ($ 2,086,820) ($ 1,940,069) ($ 2,608,513) ($ 2,507,587) OTHER FINANCING SOURCES (USES):- Transfers from Other Funds $ 279,517 $ 279,517 $ 1,520,986 $ 1,515,986 $ $ $ $ $ 1,800,503 $ 1,795,503 $ 1,956,009 $ 2,203,006 Transfers to Other Funds ( 6,000) ( 103,601) ( 402,166) ( 432,166) ( 4,607) ( 402,166) ( 546,374) ( 460,000) ( 905,610) Proceeds from Long-Term Debt ,310,000 Payment to Bond Escrow Agent ( 2,047,503) TOTAL OTHER FINANCING SOURCES (USES):- $ 279,517 $ 273,517 $ 1,520,986 $ 1,412,385 ($ 402,166) ($ 432,166) $ 0 ($ 4,607) $ 1,398,337 $ 1,249,129 $ 1,496,009 $ 1,559,893 REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER (USES):- ($ 110,983) ($ 19,961) ($ 175,334) ($ 149,146) ($ 402,166) ($ 434,241) $ 0 ($ 87,592) ($ 688,483) ($ 690,940) ($ 1,112,504) ($ 947,694) BEGINNING FUND BALANCE:- 110, , , , ,195 1,038, ,929 1,262,512 1,501,310 1,476,245 2,449,004 ENDING FUND BALANCE:- $ 0 $ 127,822 $ 0 $ 70,401 $ 574,029 $ 603,810 $ 0 $ 8,337 $ 574,029 $ 810,370 $ 363,741 $ 1,501,

91 EXHIBIT "C" STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE 2012 CONSTRUCTION FUND YEAR ENDED ACTUAL COST ESTIMATE REVENUES:- Net Bond Proceeds (Net of Discount and Issue Costs) $ 0 $ 2,002,378 EXPENDITURES:- Neighborhood Improvement Project (NIP) Target Area "A" Phase IV $ $ 143,569 Longview, Morefield Reconstruction 847,431 Stormwater, Cohassett, Ridgewood, North Darby, Catalina 129,000 Indian Run Phase IV 360,000 Butterfly Lane Stormwater Phase II 82, ,000 Administration and Delivery 162,378 TOTAL EXPENDITURES:- $ 82,985 $ 2,002,378 REVENUES OVER (UNDER) EXPENDITURES:- ($ 82,985) $ 0 OTHER FINANCING SOURCES AND (USES):- Transfer to Other Funds ($ 4,607) $ 0 REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER (USES):- ($ 87,592) $ 0 BEGINNING FUND BALANCE:- 95,929 0 ENDING FUND BALANCE:- $ 8,337 $

92 EXHIBIT "D" COMMUNITY DEVELOPMENT DEPARTMENT BALANCE SHEETS AND ASSETS:- Cash and Cash Equivalents $ 1,020,686 $ 1,613,185 Grants Receivable 331,562 60,589 Loans Receivable 575, ,636 Due from Construction Fund 17,601 20,557 Other Accounts Receivable 1,130 1,180 TOTAL ASSETS:- $ 1,946,371 $ 2,279,147 LIABILITIES:- Accounts Payable $ 140,136 $ 245,910 Accrued Payroll 1,814 11,030 Due to General Fund 5,240 3,314 Unearned Revenue 575, ,636 Due to 2012 Construction Fund 98,225 TOTAL LIABILITIES:- $ 722,582 $ 942,115 FUND BALANCE:- Restricted $ 466,745 $ 547,432 Assigned 757, ,600 TOTAL FUND BALANCE:- $ 1,223,789 $ 1,337,032 TOTAL LIABILITIES AND FUND BALANCE:- $ 1,946,371 $ 2,279,

93 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE EXHIBIT "E" PAGE 1 OF 3 COMMUNITY DEVELOPMENT DEPARTMENT YEAR ENDED (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED DECEMBER 31, 2014) COMMUNITY COMMUNITY MISCELLANEOUS DEVELOPMENT DEVELOPMENT COMMUNITY COMMUNITY SOLID PEDESTRIAN BLOCK GRANT BLOCK GRANT DEVELOPMENT REVOLVING MARKETING WASTE AND AND TRAIL FUND FUND 2011 HOME ACCOUNT LOAN FUNDS PROGRAM RECYCLING FACILITY REVENUES:- Interest and Rents $ $ $ $ $ 7,594 $ $ $ Grants and Gifts 15, , ,619 26,627 Loan Repayments 100,528 Fees Other TOTAL REVENUES:- $ 15,897 $ 104,645 $ 306,619 $ 0 $ 108,122 $ 0 $ 26,627 $ 0 EXPENDITURES:- GENERAL GOVERNMENT - Administration $ 7,637 $ 33,375 $ 47,525 $ 103,723 $ 3,906 $ $ $ PUBLIC WORKS - Highways and Streets Storm Sewers Sanitation (Recycling) 45 Public Safety CONSERVATION AND DEVELOPMENT - Economic Development 150,000 5,502 Housing Rehabilitation 8,260 71, ,094 PARKS AND RECREATION - 2,460 TOTAL EXPENDITURES:- $ 15,897 $ 104,645 $ 306,619 $ 103,723 $ 153,906 $ 5,502 $ 45 $ 2,460 REVENUES OVER (UNDER) EXPENDITURES:- $ 0 $ 0 $ 0 ($ 103,723) ($ 45,784) ($ 5,502) $ 26,582 ($ 2,460) OTHER FINANCING SOURCES (USES):- Transfers from Other Funds 103,723 6,000 Transfers to Other Funds REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER (USES):- $ 0 $ 0 $ 0 $ 0 ($ 45,784) $ 498 $ 26,582 ($ 2,460) BEGINNING FUND BALANCE: ,726 26,833 20,131 20,441 ENDING FUND BALANCE:- $ 0 $ 0 $ 0 $ 0 $ 591,942 $ 27,331 $ 46,713 $ 17,

94 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE EXHIBIT "E" PAGE 2 OF 3 COMMUNITY DEVELOPMENT DEPARTMENT YEAR ENDED (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED DECEMBER 31, 2014) TRAINING AND LINDEN POINTE PENNDOT VALLEY VIEW/ e CENTER WORKFORCE TRAFFIC RECREATION ROUTE 18 JOY CONE FACILITY STULL FARM CENTER TECHNICAL SIGNAL PLAN SIGNAL ACCESS FUND IMPROVEMENTS MANAGEMENT CENTER ACCESS STUDY REVENUES:- Interest and Rents $ $ $ 4,200 $ $ 4,200 $ $ $ Grants and Gifts 30,610 30, ,000 10,000 Loan Repayments Fees Other TOTAL REVENUES:- $ 30,610 $ 30,000 $ 4,200 $ 0 $ 4,200 $ 0 $ 250,000 $ 10,000 EXPENDITURES:- GENERAL GOVERNMENT - Administration $ $ $ $ $ $ $ $ PUBLIC WORKS - Highways and Streets 30, ,708 Storm Sewers Sanitation (Recycling) Public Safety 33,272 CONSERVATION AND DEVELOPMENT - Economic Development 70,411 34,828 9,106 Housing Rehabilitation PARKS AND RECREATION - 5,870 22,695 TOTAL EXPENDITURES:- $ 33,272 $ 30,000 $ 70,411 $ 5,870 $ 34,828 $ 9,106 $ 427,708 $ 22,695 REVENUES OVER (UNDER) EXPENDITURES:- ($ 2,662) $ 0 ($ 66,211) ($ 5,870) ($ 30,628) ($ 9,106) ($ 177,708) ($ 12,695) OTHER FINANCING SOURCES (USES):- Transfers from Other Funds 50,377 30,628 9, ,000 Transfers to Other Funds ( 398) REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER (USES):- ($ 3,060) $ 0 ($ 15,834) ($ 5,870) $ 0 $ 0 $ 2,292 ($ 12,695) BEGINNING FUND BALANCE:- 3, ,405 15,834 47, ,705 ENDING FUND BALANCE:- $ 0 $ 355,405 $ 0 $ 42,051 $ 0 $ 0 $ 2,292 $ 9,

95 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE EXHIBIT "E" PAGE 3 OF 3 COMMUNITY DEVELOPMENT DEPARTMENT YEAR ENDED (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED DECEMBER 31, 2014) HERMITAGE INDUSTRIAL ATHLETIC CORRIDOR LAND FEDERAL COMPLEX STORM WATER DEVELOPMENT FORFEITURE TOTALS PHASE II MANAGEMENT FUND MONEY REVENUES:- Interest and Rents $ $ $ $ $ 15,994 $ 26,094 Grants and Gifts 23, ,798 1,571,648 Loan Repayments 100, ,698 Fees Other ,850 TOTAL REVENUES:- $ 23,560 $ 0 $ 0 $ 0 $ 914,480 $ 1,741,790 EXPENDITURES:- GENERAL GOVERNMENT - Administration $ $ $ $ $ 196,166 $ 261,253 PUBLIC WORKS - Highways and Streets 457,708 1,022,658 Storm Sewers 28,635 28,635 5,865 Sanitation (Recycling) 45 17,586 Public Safety 3,591 36,863 18,665 CONSERVATION AND DEVELOPMENT - Economic Development 269, ,085 Housing Rehabilitation 338, ,947 PARKS AND RECREATION - 48,246 79, ,063 TOTAL EXPENDITURES:- $ 48,246 $ 28,635 $ 0 $ 3,591 $ 1,407,159 $ 2,777,122 REVENUES OVER (UNDER) EXPENDITURES:- ($ 24,686) ($ 28,635) $ 0 ($ 3,591) ($ 492,679) ($ 1,035,332) OTHER FINANCING SOURCES (USES):- Transfers from Other Funds 379, ,745 Transfers to Other Funds ( 398) ( 21,271) REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER (USES):- ($ 24,686) ($ 28,635) $ 0 ($ 3,591) ($ 113,243) ($ 151,858) BEGINNING FUND BALANCE:- 46,957 46,954 88,766 5,299 1,337,032 1,488,890 ENDING FUND BALANCE:- $ 22,271 $ 18,319 $ 88,766 $ 1,708 $ 1,223,789 $ 1,337,

96 EXHIBIT "F" COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS PROGRAM YEAR 2014: CONTRACT NUMBER C STATEMENT OF SOURCE AND STATUS OF FUNDS PERIOD JUNE 30, 2015 THROUGH CUMULATIVE TO DECEMBER 31 DRAWDOWNS:- Total Program Year 2014 Funds Allocated to Recipient $ 288,311 LESS: Unobligated Funds Reprogrammed 0 Total Adjusted Program Year 2014 Resources $ 288,311 LESS: Funds Drawndown by Recipient 0 FUNDS STILL AVAILABLE - PROGRAM YEAR 2014:- $ 288,311 BALANCES:- Total Program Year 2014 Funds Drawndown by Recipient $ 0 Program Income Applicable to Program Year Total Program Year 2014 Funds Available $ 0 LESS: Funds Applied to Program Year 2014 Costs (Exhibit "G") ( 15,897) TOTAL PROGRAM YEAR 2014 FUNDS HELD (APPLIED IN EXCESS OF FUNDS RECEIVED):- ($ 15,897) TOTAL PROGRAM YEAR 2014 FUNDS AVAILABLE FOR DISPOSITION:- $ 272,

97 EXHIBIT "G" COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS PROGRAM YEAR 2014: CONTRACT NUMBER C STATEMENT OF PROGRAM COSTS PERIOD JUNE 30, 2015 THROUGH EXPENDITURES AMENDED CUMULATIVE TO AUTHORIZED DECEMBER 31 QUESTIONED COSTS COSTS PROGRAM ACTIVITY:- ADMINISTRATION - $ 28,831 $ 7,637 $ HOUSING REHABILITATION - 259,480 8,260 TOTAL PROGRAM COSTS:- $ 288,311 $ 15,897 $ 0 FUNDING: C.D.B.G $ 288,311 Program Income 0 TOTAL:- $ 288,

98 EXHIBIT "H" COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS PROGRAM YEAR 2013: CONTRACT NUMBER C STATEMENT OF SOURCE AND STATUS OF FUNDS PERIOD FEBRUARY 13, 2014 THROUGH CUMULATIVE TO DECEMBER DRAWDOWNS:- Total Program Year 2013 Funds Allocated to Recipient $ 300,000 $ 300,000 LESS: Unobligated Funds Reprogrammed 0 0 Total Adjusted Program Year 2013 Resources $ 300,000 $ 300,000 LESS: Funds Drawndown by Recipient ( 244,248) ( 171,975) FUNDS STILL AVAILABLE - PROGRAM YEAR 2013:- $ 55,752 $ 128,025 BALANCES:- Total Program Year 2013 Funds Drawndown by Recipient $ 244,248 $ 171,975 Program Income Applicable to Program Year Total Program Year 2013 Funds Available $ 244,248 $ 171,975 LESS: Funds Applied to Program Year 2013 Costs (Exhibit "I") ( 299,913) ( 195,268) TOTAL PROGRAM YEAR 2013 FUNDS HELD (APPLIED IN EXCESS OF FUNDS RECEIVED):- ($ 55,665) ($ 23,293) TOTAL PROGRAM YEAR 2013 FUNDS AVAILABLE FOR DISPOSITION:- $ 87 $ 104,

99 EXHIBIT "I" COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS PROGRAM YEAR 2013: CONTRACT NUMBER C STATEMENT OF PROGRAM COSTS PERIOD FEBRUARY 13, 2014 THROUGH EXPENDITURES AMENDED CUMULATIVE TO AUTHORIZED DECEMBER 31 QUESTIONED COSTS COSTS ADMINISTRATION - $ 54,000 $ 53,913 $ 20,538 $ HOUSING REHABILITATION - 100, ,000 28,730 STREET/ROAD IMPROVEMENTS - 146, , ,000 TOTAL PROGRAM COSTS:- $ 300,000 $ 299,913 $ 195,268 $ 0 PROGRAM ACTIVITY:- FUNDING: C.D.B.G. $ 300,000 Program Income 0 TOTAL:- $ 300,

100 EXHIBIT "J" HOME INVESTMENT PARTNERSHIP PROGRAM GRANT PROGRAM YEAR 2013: CONTRACT NUMBER C STATEMENT OF SOURCE AND STATUS OF FUNDS PERIOD AUGUST 13, 2013 THROUGH CUMULATIVE TO DECEMBER DRAWDOWNS:- Total Year 2013 Funds Allocated to Recipient $ 500,000 $ 500,000 LESS: Unobligated Funds Reprogrammed 0 0 Total Adjusted Year 2013 Resources $ 500,000 $ 500,000 LESS: Funds Drawndown by Recipient ( 461,863) ( 118,018) FUNDS STILL AVAILABLE - YEAR 2013:- $ 38,137 $ 381,982 BALANCES:- Total Year 2013 Funds Drawndown by Recipient $ 461,863 $ 118,018 Program Income Applicable to Year Total Year 2013 Funds Available $ 461,863 $ 118,018 LESS: Funds Applied to Year 2013 Costs (Exhibit "K") ( 461,863) ( 155,244) TOTAL YEAR 2013 FUNDS HELD (APPLIED IN EXCESS OF FUNDS RECEIVED):- $ 0 ($ 37,226) TOTAL YEAR 2013 FUNDS AVAILABLE FOR DISPOSITION:- $ 38,137 $ 344,

101 EXHIBIT "K" HOME INVESTMENT PARTNERSHIP PROGRAM GRANT PROGRAM YEAR 2013: CONTRACT NUMBER C STATEMENT OF PROGRAM COSTS PERIOD AUGUST 13, 2013 THROUGH EXPENDITURES AMENDED CUMULATIVE TO AUTHORIZED DECEMBER 31 QUESTIONED COSTS COSTS PROGRAM ACTIVITY:- ADMINISTRATION - $ 84,000 $ 71,400 $ 23,875 $ HOUSING REHABILITATION - 416, , ,369 TOTAL PROGRAM COSTS:- $ 500,000 $ 461,863 $ 155,244 $ 0 FUNDING: C.D.B.G. $ 500,000 Program Income 0 TOTAL:- $ 500,

102 EXHIBIT "L" STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE REVOLVING LOAN FUNDS YEAR ENDED WITH COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2014 LANDSCAPE LOCAL AND FACADE REVOLVING REVOLVING TOTALS LOAN FUND LOAN FUND REVENUES:- Interest Earned $ 7,594 $ $ 7,594 $ 9,214 Loan Repayments 100, , ,698 Other TOTAL REVENUES:- $ 108,122 $ 0 $ 108,122 $ 150,412 EXPENDITURES:- Administration $ 3,906 $ $ 3,906 $ 3,500 Economic Development 150, ,000 75,000 TOTAL EXPENDITURES:- $ 153,906 $ 0 $ 153,906 $ 78,500 REVENUES OVER (UNDER) EXPENDITURES:- ($ 45,784) $ 0 ($ 45,784) $ 71,912 BEGINNING FUND BALANCE:- 500, , , ,814 ENDING FUND BALANCE:- $ 454,880 $ 137,062 $ 591,942 $ 637,

103 EXHIBIT "M" COMBINING BALANCE SHEET ALL NON-MAJOR GOVERNMENTAL FUNDS LINDEN OIL TIF DEBT POINTE AND GAS PUBLIC HIGHWAY SERVICE FACILITIES REVENUE SAFETY AID FUNDS FUND FUND FUND FUND TOTALS ASSETS:- Cash and Cash Equivalents $ 163,045 $ 49,821 $ 131,215 $ 42,751 $ 183 $ 387,015 TOTAL ASSETS:- $ 163,045 $ 49,821 $ 131,215 $ 42,751 $ 183 $ 387,015 LIABILITIES:- $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 FUND BALANCE:- Assigned $ 163,045 $ 49,821 $ 131,215 $ $ $ 344,081 Restricted 42, ,934 TOTAL FUND BALANCE:- $ 163,045 $ 49,821 $ 131,215 $ 42,751 $ 183 $ 387,015 TOTAL LIABILITIES AND FUND BALANCE:- $ 163,045 $ 49,821 $ 131,215 $ 42,751 $ 183 $ 387,

104 EXHIBIT "N" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE ALL NON-MAJOR GOVERNMENTAL FUNDS - BUDGET AND ACTUAL YEAR ENDED LINDEN POINTE OIL AND GAS TIF PUBLIC DEBT SERVICE FUNDS FACILITIES FUND REVENUE FUND SAFETY FUND HIGHWAY AID FUND TOTALS BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) REVENUES:- Interest Earned $ 25 $ 435 $ 100 $ 188 $ 100 $ 242 $ 100 $ 89 $ 500 $ 754 $ 825 $ 1,708 Grants and Gifts 460, , , ,858 Royalties 1, ,550 Shale Impact Fees 15,000 19,169 15,000 19,169 TOTAL REVENUES:- $ 25 $ 435 $ 100 $ 188 $ 15,100 $ 20,961 $ 100 $ 89 $ 460,500 $ 481,612 $ 475,825 $ 503,285 CONSERVATION AND DEVELOPMENT - $ $ $ 64,000 $ 64,000 $ $ $ $ $ $ $ 64,000 $ 64,000 ADMINISTRATION - 1, ,631 PUBLIC WORKS - 6, ,200 FIRE - 64, ,593 DEBT SERVICE - 11,600 4,409 11,600 4,409 TOTAL EXPENDITURES:- $ 11,600 $ 76,833 $ 64,000 $ 64,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 75,600 $ 140,833 REVENUES OVER (UNDER) EXPENDITURES:- ($ 11,575) ($ 76,398) ($ 63,900) ($ 63,812) $ 15,100 $ 20,961 $ 100 $ 89 $ 460,500 $ 481,612 $ 400,225 $ 362,452 OTHER FINANCING SOURCES (USES):- Transfers to Other Funds $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ($ 2,500) ($ 2,500) ($ 460,000) ($ 481,700) ($ 462,500) ($ 484,200) REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER (USES):- ($ 11,575) ($ 76,398) ($ 63,900) ($ 63,812) $ 15,100 $ 20,961 ($ 2,400) ($ 2,411) $ 500 ($ 88) ($ 62,275) ($ 121,748) BEGINNING FUND BALANCE:- 15, , , , , ,254 45,168 45, , ,763 ENDING FUND BALANCE:- $ 4,182 $ 163,045 $ 49,692 $ 49,821 $ 125,060 $ 131,215 $ 42,768 $ 42,751 $ 796 $ 183 $ 222,498 $ 387,

105 EXHIBIT "O" COMBINING BALANCE SHEET DEBT SERVICE FUND TYPES WITH COMPARATIVE TOTALS AS OF DECEMBER 31, 2014 FIRE VESTED DEPARTMENT SICK LEAVE PEMA LOAN RESERVE TOTALS FUND FUND ASSETS:- Cash and Cash Equivalents $ 11,362 $ 151,683 $ 163,045 $ 239,443 TOTAL ASSETS:- $ 11,362 $ 151,683 $ 163,045 $ 239,443 LIABILITIES:- $ 0 $ 0 $ 0 $ 0 FUND BALANCE:- Assigned $ 11,362 $ 151,683 $ 163,045 $ 239,443 TOTAL LIABILITIES AND FUND BALANCE:- $ 11,362 $ 151,683 $ 163,045 $ 239,

106 EXHIBIT "P" COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE DEBT SERVICE FUND TYPES - BUDGET AND ACTUAL YEAR ENDED WITH COMPARATIVE TOTALS FOR THE YEAR ENDED DECEMBER 31, 2014 FIRE DEPARTMENT VESTED SICK TOTALS PEMA LOAN FUND LEAVE RESERVE FUND BUDGET ACTUAL BUDGET ACTUAL BUDGET ACTUAL ACTUAL (UNAUDITED) (UNAUDITED) (UNAUDITED) REVENUES:- Interest $ 25 $ 24 $ 0 $ 411 $ 25 $ 435 $ 529 EXPENDITURES:- Vested Sick Leave - General Government $ $ $ $ 1,631 $ 0 $ 1,631 $ 0 Vested Sick Leave - Police ,161 Vested Sick Leave - Public Works 6, ,200 3,540 Debt Service 11,600 4,409 11,600 4,409 11,583 Other Vested Sick Leave - Fire 64, ,593 0 TOTAL EXPENDITURES:- $ 11,600 $ 4,409 $ 0 $ 72,424 $ 11,600 $ 76,833 $ 56,301 REVENUES OVER (UNDER) EXPENDITURES:- ($ 11,575) ($ 4,385) $ 0 ($ 72,013) ($ 11,575) ($ 76,398) ($ 55,772) BEGINNING FUND BALANCE:- 15,757 15, ,696 15, , ,215 ENDING FUND BALANCE:- $ 4,182 $ 11,362 $ 0 $ 151,683 $ 4,182 $ 163,045 $ 239,443 NOTE: No formal budget prepared for vested sick leave fund. This item is necessary to fund the future cost of paying accumulated sick leave benefits to retiring employees. City previously funded this item in full. Each year the fund must be renewed and adjusted, depending on projected costs

107 EXHIBIT "Q" COMBINING STATEMENT OF NET POSITION SEWER SYSTEM FUND CITY OF HERMITAGE HERMITAGE SEWER SYSTEM MUNICIPAL FUND-OPERATING AUTHORITY TOTAL CITY OF HERMITAGE HERMITAGE SEWER SYSTEM MUNICIPAL FUND-OPERATING AUTHORITY TOTAL ASSETS:- CURRENT ASSETS:- Cash and Cash Equivalents $ 1,844,711 $ 923,406 $ 2,768,117 Receivables - Sewer Fees, Net 745, ,749 Assessments 54,386 54,386 Inventories 10,000 10,000 Due from Other Funds 90,526 90,526 Prepaid Expenses 1,144 1,144 TOTAL CURRENT ASSETS:- $ 2,690,986 $ 978,936 $ 3,669,922 NON-CURRENT ASSETS:- Capital Assets - Land $ $ 64,000 $ 64,000 Buildings 1,021,702 1,021,702 Vehicles, Furniture, Fixtures, and Equipment 1,134, ,434 1,779,001 Sewer System 7,957,921 72,291,327 80,249,248 Construction-in-Process 857, ,321 $ 9,092,488 $ 74,878,784 $ 83,971,272 Accumulated Depreciation ( 8,466,621) ( 18,062,487) ( 26,529,108) NET CAPITAL ASSETS:- $ 625,867 $ 56,816,297 $ 57,442,164 LIABILITIES:- CURRENT LIABILITIES:- Current Portion of Long-Term Debt (Net of Bond Premium/Discount) $ $ 10,584,561 $ 10,584,561 Accounts Payable 146, , ,907 Retainage Payable 151, ,090 Accrued Payroll and Taxes 13,194 13,194 Accrued Interest Payable 445, ,841 TOTAL CURRENT LIABILITIES:- $ 159,606 $ 11,341,987 $ 11,501,593 NON-CURRENT LIABILITIES:- Bonds Payable (Net of Bond Premium/ Discount) $ $ 23,874,344 $ 23,874,344 Notes Payable 11,225,649 11,225,649 Unearned Revenue 621, ,106 Other Post-Employment Benefits 202, ,130 TOTAL NON-CURRENT LIABILITIES:- $ 202,130 $ 35,721,099 $ 35,923,229 TOTAL LIABILITIES:- $ 361,736 $ 47,063,086 $ 47,424,822 DEFERRED INFLOWS OF RESOURCES:- Deferred Amount on Refunding $ 0 ($ 539,629) ($ 539,629) TOTAL LIABILITIES AND DEFERRED INFLOWS OF RESOURCES:- $ 361,736 $ 46,523,457 $ 46,885,193 NET INVESTMENT IN CAPITAL ASSETS:- $ 625,867 $ 11,265,094 $ 11,890,961 DELAYED ASSESSMENTS RECEIVABLE:- $ 0 $ 621,106 $ 621,106 PREPAID EXPENSE:- $ 0 $ 19,300 $ 19,300 TOTAL NON-CURRENT ASSETS:- $ 625,867 $ 57,456,703 $ 58,082,570 TOTAL ASSETS:- $ 3,316,853 $ 58,435,639 $ 61,752,492 NET POSITION:- RESTRICTED:- For Debt Service $ 0 $ 377,765 $ 377,765 UNRESTRICTED:- $ 2,329,250 $ 269,323 $ 2,598,573 TOTAL NET POSITION:- $ 2,955,117 $ 11,912,182 $ 14,867,299 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION:- $ 3,316,853 $ 58,435,639 $ 61,752,

108 EXHIBIT "R" COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION SEWER SYSTEM FUND YEAR ENDED CITY OF HERMITAGE HERMITAGE SEWER SYSTEM MUNICIPAL FUND-OPERATING AUTHORITY TOTAL OPERATING REVENUES:- Departmental Earnings and Assessments $ 6,027,525 $ 3,192 $ 6,030,717 Licenses and Other 75,481 46, ,563 Grants and Gifts 72,036 72,036 TOTAL OPERATING REVENUES:- $ 6,175,042 $ 49,274 $ 6,224,316 OPERATING EXPENSES:- Collection $ 520,375 $ $ 520,375 Treatment 1,312,562 1,312,562 Administration 664, ,173 Special Services 323, ,733 Professional Services 291, ,423 Other Operating 16,279 16,279 Payroll Taxes, Benefits, and Insurance 496, ,095 Depreciation 41,127 1,860,253 1,901,380 Bond Issue Costs 159, ,100 TOTAL OPERATING EXPENSES:- $ 3,358,065 $ 2,327,055 $ 5,685,120 OPERATING INCOME (LOSS):- $ 2,816,977 ($ 2,277,781) $ 539,196 NON-OPERATING REVENUES (EXPENSES):- Investment Income $ 502 $ $ 502 Interest Expense ( 1,273,668) ( 1,273,668) TOTAL NON-OPERATING REVENUES (EXPENSES):- $ 502 ($ 1,273,668) ($ 1,273,166) INCOME (LOSS) BEFORE OPERATING TRANSFERS:- $ 2,817,479 ($ 3,551,449) ($ 733,970) OPERATING TRANSFERS IN (OUT):- ( 3,085,215) 3,085,215 0 CHANGES IN NET POSITION:- ($ 267,736) ($ 466,234) ($ 733,970) NET POSITION - BEGINNING OF YEAR:- 3,222,853 12,378,416 15,601,269 NET POSITION - END OF YEAR:- $ 2,955,117 $ 11,912,182 $ 14,867,

109 EXHIBIT "S" POLICE PENSION FUND STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS AND CASH AND CASH EQUIVALENTS:- $ 216,895 $ 223,593 INVESTMENTS, AT FAIR VALUE:- Mutual Funds - Equities $ 7,500,934 $ 9,037,617 Bonds 4,637,126 3,837,785 International 2,395,767 2,326,839 TOTAL INVESTMENTS:- $ 14,533,827 $ 15,202,241 TOTAL ASSETS:- $ 14,750,722 $ 15,425,834 LESS: Accrued Expenses 7,946 6,668 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS:- $ 14,742,776 $ 15,419,166 (A schedule of funding progress is presented on Pages 76 and 77)

110 EXHIBIT "T" POLICE PENSION FUND STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS YEARS ENDED AND ADDITIONS:- CONTRIBUTIONS:- Members $ 77,905 $ 78,818 Commonwealth of Pennsylvania 312, ,849 TOTAL CONTRIBUTIONS:- $ 390,383 $ 387,667 INVESTMENT INCOME:- Unrealized Gain (Loss) in Fair Value of Investments ($ 814,727) $ 329,605 Interest and Dividends 547, ,793 Gain on Sale of Investments 22,792 22,090 NET INVESTMENT INCOME:- ($ 244,308) $ 791,488 TOTAL ADDITIONS:- $ 146,075 $ 1,179,155 DEDUCTIONS:- Pension Benefit Payments $ 763,566 $ 766,226 Fees and Expenses 58,899 57,926 TOTAL DEDUCTIONS:- $ 822,465 $ 824,152 NET INCREASE (DECREASE):- ($ 676,390) $ 355,003 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS AT BEGINNING OF YEAR:- 15,419,166 15,064,163 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS AT END OF YEAR:- $ 14,742,776 $ 15,419,