City of Myrtle Beach South Carolina

City of Myrtle Beach South Carolina SUPPLEMENTAL INFORMATION PROVIDED PER CONTINUING DISCLOSURE AGREEMENTS IN CONNECTION WITH OUTSTANDING ISSUES OF D...
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City of Myrtle Beach South Carolina

SUPPLEMENTAL INFORMATION PROVIDED PER CONTINUING DISCLOSURE AGREEMENTS IN CONNECTION WITH OUTSTANDING ISSUES OF DEBT AND OTHER OBLIGATIONS OF THE CITY FOR THE

FISCAL YEAR ENDED JUNE 30, 2016

CITY OF MYRTLE BEACH, SOUTH CAROLINA SUMMARY OF OUTSTANDING INDEBTEDNESS AS OF JUNE 30, 2016 General Obligation Bonds: Debt Issue Series 2008 Series 2009 Refunding Series 2011A Refunding Series 2011B Series 2012A Series 2012B Refunding Series 2015A Refunding Series 2015B Refunding Series 2015C

Original Issue Amount 12,300,000 625,000 2,800,000 15,800,000 4,030,000 7,560,000 7,553,000 1,560,000 8,349,000

Certificates of Participation: Debt Issue Refunding Series 2010

Original Issue Amount 9,820,000

Limited Obligation Bonds: Debt Issue Series 2009 Series 2014A Series 2014B

Original Issue Amount $10,065,000 $17,400,000 $44,515,000

South Carolina Jobs-Economic Development Authority (JEDA) Subordinate Revenue Bonds (Myrtle Beach Convention Center Hotel Project): Debt Issue Refunding Series 2015

Water Works & Sewer System Revenue Bonds: Debt Issue Series 2007 Series 2011 Series 2016

Original Issue Amount $16,405,000

Original Issue Amount $11,710,000 8,900,000 18,440,000

Note: The City also has outstanding Tax Increment Revenue Bonds, Series 2006A and 2006B, for which separate quarterly and annual reports of supplemental information are filed. Subsequent to June 30, 2016, the City refunded these obligations and the separate quarterly and annual reports are no longer required.

City of Myrtle Beach, SC SUPPLEMENTAL INFORMATION REPORTS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

Table of Contents SECTION 1--GENERAL OBLIGATION BONDS .................................................................................................. 5

FINANCIAL INFORMATION ............................................................................................................ 5 GENERAL FUND BUDGET ............................................................................................................. 6 CITY REVENUES ........................................................................................................................... 6 Revenues from Ad Valorem Taxes ........................................................................................................................6 Revenues from Business License Fee ...................................................................................................................7 Revenues for Current Services .............................................................................................................................7 Intergovernmental Revenues ................................................................................................................................7 LIMITED PURPOSE REVENUES ...................................................................................................... 8 Revenues from Local Hospitality Fees .................................................................................................................8 State-Shared Accommodations Tax ......................................................................................................................8 Local Accommodations Fee .................................................................................................................................8 Local Option Tourism Development Fee .............................................................................................................9 General Obligation Debt......................................................................................................................................9 OUTSTANDING GENERAL FUND INDEBTEDNESS......................................................................... 10 GENERAL OBLIGATION AND CERTIFICATE OF PARTICIPATION DEBT ON PER CAPITA BASIS ...... 10 COMPOSITE GENERAL FUND DEBT SERVICE .............................................................................. 11 OTHER CITY DEBT ..................................................................................................................... 11 LEGAL DEBT LIMIT OF COUNTIES, SCHOOL DISTRICTS AND SPECIAL PURPOSE DISTRICTS; OVERLAPPING DEBT .................................................................................................................. 12 MISCELLANEOUS DEBT INFORMATION ...................................................................................... 13 FUTURE DEBT PLANS; OTHER CAPITAL NEEDS ......................................................................... 13 MANAGEMENT DISCUSSION ....................................................................................................... 13 GENERAL DISCLOSURES ............................................................................................................ 14 HOSPITALITY FEE-RELATED DISCLOSURES ................................................................................ 14 SECTION 3—HOSPITALITY FEE REVENUE BONDS ..................................................................................... 15

HISTORICAL HOSPITALITY FEE COLLECTIONS ........................................................................... 15 HOSPITALITY FEE DEBT SERVICE COVERAGE ............................................................................ 16 SECTION 4—THE CONVENTION CENTER HOTEL PROJECT ................................................................... 17

EVENT SOLICITATION PRIORITIES & RESULTS ........................................................................... 17 HISTORICAL PERFORMANCE ...................................................................................................... 18 SECTION 5—WATERWORKS & SEWER SYSTEM REVENUE DEBT ......................................................... 19

DESCRIPTION OF THE SYSTEM .................................................................................................... 19 RETAIL SYSTEM, WHOLESALE WATER AND SEWER PURCHASE ARRANGEMENTS ..................... 19 SEWER SYSTEM.......................................................................................................................... 20 WATER ...................................................................................................................................... 23 FIRE TAP CHARGES .................................................................................................................... 24 SEWER ....................................................................................................................................... 24 RATE REGULATION .................................................................................................................... 24

City of Myrtle Beach, SC SUPPLEMENTAL INFORMATION REPORTS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

WATER AND SEWER BILLING AND COLLECTION POLICIES ......................................................... 25 RATE HISTORY........................................................................................................................... 25 HISTORICAL OPERATING RESULTS AND DEBT SERVICE COVERAGE .......................................... 26

SECTION 1--GENERAL OBLIGATION BONDS

Financial Information Five-Year Summary of General Fund Operations CITY OF MYRTLE BEACH, SOUTH CAROLINA Summary of Revenues, Expenditures and Changes in Fund Balances - General Fund Years Ended June 30, 2012 through 2016 2011-12

2012-13

2013-14

2014-15

2015-16

REVENUES Ad Valorem Taxes Licenses and Permits Intergovernmental Revenue Fines and Forfeitures Charges for Current Services Use of Money & Property Total Revenues

$17,087,137 22,135,007 2,423,618 947,103 2,556,219 3,711,988 $48,861,072

$18,578,685 22,952,056 2,561,079 1,011,354 2,677,081 3,020,736 $50,800,991

$18,438,826 24,228,244 2,638,747 1,073,051 2,836,541 3,126,782 $52,342,191

21,541,694 25,426,954 3,219,799 968,832 3,070,289 3,045,032 57,272,600

21,617,627 26,988,409 1,092,435 3,771,135 2,699,026 3,211,965 59,380,597

EXPENDITURES Operation & Maintenance: General Government Public Works Public Safety Transportation Cultural & Leisure Services Community Development Capital Outlay Total expenditures

$9,552,390 1,428,340 31,204,197 3,208,773 10,818,679 2,495,270 246,595 $58,954,694

$9,232,183 1,403,396 32,188,149 3,441,234 11,459,680 2,433,237 358,419 $60,516,298

$9,528,925 1,394,960 32,746,712 3,602,873 12,433,013 2,356,515 45,306 $62,102,304

10,990,108 1,429,807 35,410,807 3,555,023 12,884,810 2,454,462 2,288,636 69,013,653

10,648,854 39,598,835 3,814,833 3,142,912 7,591,956 6,452,736 865,645 72,115,771

(10,093,622)

(9,715,307)

(9,766,113)

(11,741,053)

(12,735,174)

10,308,329

11,382,934 11,020

10,949,622

12,900,972

(106,055) $10,202,274

(198,371) $11,195,583

(102,703) $10,846,919

11,767,446 165,306 2,220,000 (294,286 13,858,466

108,652 8,635,810

1,480,276 8,744,462

1,080,806 10,224,738

2,117,413 11,305,544

42,610 13,422,957

$8,744,462

$10,224,738

$11,305,544

13,422,957

13,465,567

Excess (deficiency) of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Interfund transfers Proceeds from Sale of Fixed Assets Capital Lease Obligations Operating transfers out Total other sources (uses) Net Change in Fund Balances Fund Balances Fund Balance, ending _____________________________

Source: Audited financial statements for Fiscal Years ended June 30, 2012 through 2016.

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(123,188) 12,777,784

General Fund Budget The following is a summary of the City's General Fund budget for Fiscal Year 2017.

2017 Budget Revenues Ad valorem Taxes Business Licenses Fees Other Licenses and Fees Intergovernmental Revenues Fines and Forfeitures Charges for Current Services Use of Money and Property Total Revenues

23,520,000 22,322,000 5,386,100 2,760,924 1,116,575 3,147,631 3,214,700 61,467,930

Expenditures Operations and Maintenance: General Government Public Works Administration Public Safety Transportation Cultural & Leisure Services Community Development Capital Outlay Total Expenditures

10,371,124 7,548,733 41,248,993 4,333,399 7,771,033 3,627,219 580,054 75,480,555

Excess (deficiency) of revenues over (under) expenditures

(14,012,625)

Other financing sources and (uses): Interfund Transfers In Interfund Transfers Out Proceeds from Sale of Fixed Assets Total other sources (uses)

14,050,926 (138,301) -013,912,625

Net Change in Fund Balances 1 Fund balance, Beginning of Fiscal Year Estimated fund balance, End of Fiscal Year

(100,000) 11,432,296 11,332,296

Prepared by: City Department of Financial Management & Reporting. 1

Budgeted reduction in fund balances results from expenditure of amounts for non-recurring capital improvements.

City Revenues Revenues from Ad Valorem Taxes The largest source of City operating revenues is the ad valorem tax levied on real property and certain classes of personal property within the City. A discussion of general tax information, tax rates and millage levied upon taxpayers of the City for City purposes is set forth in various sections below. All the revenues from ad valorem taxes and fees in lieu of taxes are either General Fund revenues and may therefore be used by the City on an unrestricted

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basis or are collected for the purposes of paying debt service on general obligation bonds of the City. For the five fiscal years shown below, the City has received the following amounts as revenues from ad valorem taxes:

Fiscal Year 2016 2015 2014 2013 2012

1

Taxes Collected1

Total Taxes and TDF Transfers 1

$30,913,506 29,807,247 25,842,751 25,112,930 24,819,307

$35,866,311 34,526,865 28,917,771 28,037,455 27,539,535

In 2010-11, the City adopted a tax credit for owner-occupied residences. The credit is in the amount of the taxes levied for operating purposes. The foregone property tax revenue is replaced in the affected funds by a transfer from the Tourism Development Fee (the “TDF”). This table shows the value of the net tax collections (Taxes Collected) as well as the total revenues resulting from the tax levy (Total Taxes and TDF Transfers).

Revenues from Business License Fee Every individual, firm, partnership, corporation or any other group or combination acting as a unit engaged or intending to engage in any calling, business, occupation or profession in the City is required to pay an annual license fee. The fee is comprised of a base fee ranging from $100 to $250 for the first $2,000 of gross income received or accrued for the previous calendar year and a rate ranging from $2.50 to $10.00 for every $1,000 thereafter (which rate declines after the first $1,000,000 of gross income). The gross income is verified by inspection of returns filed with the Internal Revenue Service, the Department of Revenue or the South Carolina Insurance Commission. For the five fiscal years shown, the City has received the following amounts as revenues from business license fees allocable to all funds, including, without limitation, the General Fund: Fiscal Year

Amount

2016 2015 2014 2013 2012

$22,133,249 20,579,202 19,050,721 18,354,589 17,795,885

Revenues for Current Services These funds comprise revenues from parks and recreation fees and charges for suburban fire services. For the five fiscal years shown, the City has received the following amounts from current services allocable to all funds, including, without limitation, the General Fund: Fiscal Year

Amount

2016 2015 2014 2013 2012 Intergovernmental Revenues

$6,506,212 6,250,252 5,221,830 4,962,611 5,090,014

Intergovernmental revenues comprise funds shared by the State or collected by the State for administrative convenience. They include the state-shared accommodations tax, which now exceeds $7,000,000 per year and also include discretionary grants that may cause unusual variations from that base amount. For the five fiscal years shown, the City has received the following amounts from intergovernmental sources allocable to all funds, including, without limitation, the General Fund:

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Fiscal Year

Amount

2016 2015 2014 2013 2012

$15,163,681 14,028,766 14,631,455 13,307,142 12,193,868

Limited Purpose Revenues The City has four major limited-purpose revenues: the local hospitality fee, a State-shared accommodations tax, the local accommodations fee and the local option Tourism Development Fee. All are accounted for in their own special revenue funds and are transferred into the General Fund or other special revenue funds when used in support of programs accounted for therein. Revenues from Local Hospitality Fees Hospitality fee revenues are set forth in the tables under the heading “HOSPITALITY FEE REVENUE BONDS” in this Supplemental Information document. State-Shared Accommodations Tax A two percent State-shared accommodations tax is imposed for a State-wide basis on the gross proceeds derived from the rental or charges for any rooms, campground spaces, lodgings or sleeping accommodations furnished to transients by any hotel, inn, tourist court, tourist camp, motel, campground, residence or any place in which rooms, lodgings or sleeping accommodations are furnished to transients for consideration. This tax does not apply where the facilities consist of less than six sleeping rooms, contained in a single building or where the period of stay is greater than 90 continuous days. Growth in the years indicated below has been heavier during the “shoulder seasons” of April through June and October through December. The tax is paid to the City and the County by the State 30 days after the end of each quarter (ending March 31, June 30, September 30 and December 31). Historical accommodations tax receipts for the City and the County are shown in the table below:

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Year

City Collections

City Growth Rate

County Collections

County Growth Rate

20161 2015 20141 20131 20121

$9,484,750 9,023,879 8,347,172 8,888,878 7,615,510

5.10% 8.11 (6.1) 16.72 13.19

$4,026,324 3,889,546 4,130,263 3,860,349 3,898,203

3.5% (5.8) 7.0 (0.7) 0.4

The City’s former Office of Budget & Evaluation estimated in 2014 that the true growth rate of recurring Accommodations Tax revenue for 2012 was about 7.1%, for 2013 about 6.8%, and for 2014 about 8.4%. The settlement of several lawsuits and consequent collections of liabilities that had accrued over a period of ten to twelve years caused the figures for those years to be skewed by $0.75 to $1.1 million. Those portions of 2012 and 2013 collections will not become part of the recurring base of this tax. Recurring collections are estimated in the neighborhood of $7.2 million for 2012 and $7.7 million for 2013 and approaching the actual collections of $8.3 million in 2014.

Sources: City Department of Financial Management and Reporting and Horry County Finance Department

Local Accommodations Fee A half percent (0.5%) local accommodations fee is imposed within the city limits of Myrtle Beach on the gross proceeds derived from the rental or charges for any rooms, campground spaces, lodgings or sleeping accommodations furnished to transients by any hotel, inn, tourist court, tourist camp, motel, campground, residence or any place in which rooms, lodgings or sleeping accommodations are furnished to transients for consideration. This fee does not apply where the facilities consist of fewer than six sleeping rooms, contained in a single building or where

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the period of stay is greater than 90 continuous days. The fee is paid directly to the City by the fee payer 20 days after the end of each month. The following table sets forth the amounts of local accommodations tax revenue collected during the Fiscal Years 2012 through 2016: Fiscal Year

Amount

2016 2015 2014 2013 2012

$2,628,545 2,526,007 2,322,855 2,239,700 2,216,260

Local Option Tourism Development Fee Effective August 1, 2009, a one percent local option Tourism Development Fee was imposed for a ten-year term on all taxable sales inside the City limits. This fee is to be used for tourism promotion in markets outside of South Carolina. Beginning in Fiscal Year 2011, twenty percent (20.0%) of the fees collected were required to be used for either property tax relief or tourist-related capital projects. Fiscal Year

Amount

2016 2015 2014 2013 2012

$27,187,371 24,952,836 23,298,736 23,508,833 23,500,800

General Obligation Debt Under the provisions of Article X, Section 14 of the State Constitution, an incorporated municipality may, in such manner and upon such terms and conditions as the General Assembly shall prescribe by general law, incur general obligation debt authorized by a majority vote of the qualified electors thereof voting in a referendum, without limitation as to amount, and incur, without an election, general obligation debt (in addition to bonded indebtedness existing on November 30, 1977, and bonded indebtedness authorized by a majority vote of qualified electors) in an amount not exceeding eight percent of the assessed value of all taxable property therein. As of June 30, 2016, the amount of new general obligation debt that could be issued by the City without a referendum was $, according to estimates provided by the City's Department of Financial Management & Reporting. The City's debt limitation as of June 30, 2016 is calculated as set forth in the following table:

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Assessed Value Total Assessed Value (which includes all taxable property and 1987 assessed value of merchants' inventory) Less Assessed Value of Property in TIF Districts

$424,952,905 (63,279,727)

Constitutional Debt Limit (8% of Assessed Value) Less Debt Applicable to Debt Limit Legal Debt Margin

28,933,854 (21,995,000) $ 6,938,854

Source: County Assessor, City Department of Financial Management & Reporting.

Outstanding General Fund Indebtedness As of June 30, 2016, the City had a total of $45,725,000 in general obligation bonded debt outstanding. The following table gives specific information concerning the general obligation bonds and the 2010 COPS of the City outstanding as of June 30, 2016:

Outstanding Debt Issue GO Bonds, Series 2008 GO Bonds, Series 2009A GO Bonds, Series 2011A GO Bonds, Series 2011B1 GO Bonds, Series 2012A GO Bonds, Series 2012B (Taxable) GO Bonds, Refunding Series 2015A GO Bonds, Refunding Series 2015B GO Bonds, Refunding Series 2015C 2010 COPs2

Final Maturity

Interest Rates

Balance as of June 30, 2016

March 2033 March 2017 March 2017 March 2028 March 2032 March 2032 September 2030 September 2025 September 2030 July 2017

4.50 - 5.00 3.41 2.00 - 3.00 3.00 - 5.00 2.00-2.75 3.00-3.50 2.38 1.99 2.38 2.50 - 4.00

685,000 90,000 200,000 12,995,000 3,645,000 7,560,000 7,530,000 1,555,000 8,260,000 3,205,000

1

Not subject to constitutional debt limit. Authority to issue was provided by referenda of November 6, 2001. Not subject to constitutional debt limit under statutes effective at the time of original issue.

2

General Obligation and Certificate of Participation Debt on Per Capita Basis The following table sets forth the amount of general obligation and 2010 COPs indebtedness of the City as of June 30, 2012 through 2016:

Fiscal Year 2016 2015 2014 2013 2012 1

GO and 2010 COPs Indebtedness $45,725,000 48,430,000 52,380,000 56,540,000 48,970,000

Debt Per Capita1 $1,687 1,786 1,932 2,085 1,806

Debt per capita calculations are based upon 2010 census information on population.

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Debt per $100 of Assessed Value $12.64 11.44 13.59 14.72 13.22

Debt per $100 of True Value $.60 0.64 0.76 0.79 0.69

Composite General Fund Debt Service The following table sets forth the debt service requirements for all outstanding general obligation and 2010 COPs indebtedness of the City. For purposes of the following table, totals may not add due to rounding. EXISTING GO BONDS Fiscal Year Ending June 30, 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Total

Principal 2,484,000 2,271,000 2,794,000 2,808,000 2,902,000 2,994,000 3,086,000 3,196,000 3,286,000 3,392,000 3,324,000 2,711,000 2,056,000 2,115,000 2,191,000 910,000 $42,520,000

Interest 1,328,810 1,240,195 1,155,256 1,062,622 967,800 869,233 778,432 684,642 587,293 485,272 383,333 278,996 198,750 144,671 72,345 28,869 $10,266,518

2010 COPs

Prin. & Int. 1,668,700 1,657,500

_________ $3,205,000

Total Debt Service 5,481,510 5,168,695 3,949,256 3,870,622 3,869,800 3,863,233 3,864,432 3,880,642 3,872,293 3,877,272 3,707,333 2,989,996 2,254,750 2,259,671 2,263,345 938,869 $56,112,718

Other City Debt In addition to the general obligation bonds and 2004 Hospitality Fee Revenue Bonds described above, the City has outstanding the following classifications of debt payable from specific sources of revenues. (i) Waterworks and Sewer System Revenue Bonds, Series 2007. As of June 30, 2016, the City had outstanding $1,160,000 Waterworks and Sewer System Revenue Bonds secured by a pledge of the revenues of the System. (ii) Waterworks and Sewer System Revenue Bonds, Series 2011. As of June 30, 2016, the City had outstanding $7,845,000 Waterworks and Sewer System Revenue Bonds secured by a pledge of the revenues of the System. (iii) Waterworks and Sewer System Revenue Bonds, Series 2016. As of June 30, 2016, the City had outstanding $18,440,000 Waterworks and Sewer System Revenue Bonds secured by a pledge of the revenues of the System. (iv) Tax Increment Revenue Bonds (Myrtle Beach Air Force Base Redevelopment Project Area), Series 2006A and Series 2006B. At June 30, 2016, the City had outstanding $26,825,000 Tax Increment Revenue Bonds (Myrtle Beach Air Force Base Redevelopment Project Area), Series 2006A (the “2006A TIF Bonds”) and $9,822,603 Tax Increment Bonds (Myrtle Beach Air Force Base Redevelopment Project Area), Junior Lien Series 2006B (the “2006B TIF Bonds,” and together with the 2006A TIF Bonds, the “2006 TIF Bonds”). The 2006 TIF Bonds are secured by a pledge of the revenues attributable to an increase in assessed value of certain real property located on the former Myrtle Beach Air Force Base, and in the case of the 2006A TIF Bonds, certain assessments imposed on a portion of such property. These bonds were refunded following the year ended June 30, 2016. (v) Hospitality Fee COPS. In 1998, the City and Horry County financed a minor league baseball stadium in the City, the construction of which was completed in April 1999, through the issuance of Myrtle Beach Public Facilities Corporation Certificates of Participation, Series 1998 (City of Myrtle Beach Stadium Project) (the “Prior Certificates”). The outstanding principal balance of these obligations as of June 30, 2016 was $2,205,000. The

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City's obligation requires the City to pay 70 percent of the debt service on the 2008 Certificate and is secured by a pledge of the Hospitality Fees senior to the pledge of such Hospitality Fees securing the 2014 Hospitality Fee Bonds. (vi) 2004 State Revolving Fund Loan. In 2004 the City financed a series of stormwater system improvements in drainage basins receiving runoff from various areas bordering the Atlantic Ocean in order to redirect the flow of storm drainage away from the ocean. The outstanding principal balance of this obligation, which is secured by a pledge of stormwater fees, as of June 30, 2016, was $6,477,897. (vii) Limited Obligation Bonds. In 2009 the City issued $10,065,000 Limited Obligation Bonds to finance certain improvements within the City's Redevelopment Project Area. The Limited Obligation Bonds are secured by a pledge of the revenues attributable to an increase in assessed value of certain real property located in the City’s Oceanfront Redevelopment Project Area. The outstanding principal balance of this obligation as of June 30, 2016 was $8,830,000. (viii) 2009 State Revolving Fund Loan. In 2009 the City financed stormwater system improvements in drainage basins located on 4th Avenue North. The outstanding principal balance of this obligation, which is secured by a pledge of stormwater fees, as of June 30, 2016 was $1,995,764. (ix) Tax Increment Revenue Bonds (Myrtle Beach Air Force Base Redevelopment Project Area), Series 2010. At June 30, 2016, the City had outstanding $6,425,000 Tax Increment Revenue Bonds (Myrtle Beach Air Force Base Redevelopment Project Area), Series 2010 (the “2010 TIF Bonds”). The 2010 TIF Bonds are secured by a pledge of the revenues attributable to an increase in the assessed value of certain real property located on the former Myrtle Beach Air Force Base. (x) Myrtle Beach Public Facilities Corporation Refunding Certificates of Participation (Myrtle Beach Convention Center), Series 2010. At June 30, 2016, the City had outstanding $3,205,000 Myrtle Beach Public Facilities Corporation Refunding Certificates of Participation (Myrtle Beach Convention Center), Series 2010 (the “2010 COPs”). The 2010 COPS are payable from such amounts, if any, as are annually appropriated by the City Council for such purpose. (xi) Limited Obligation Bonds Series 2014A and 2014B . At June 30, 2016, the City had outstanding $15,715,000 Limited Obligation Bonds Series 2014A and $43,895,000 Limited Obligation Bonds Series 2014B. The Series 2014A bonds were issued to finance the development and construction of a municipal sports complex and to refund Hospitality Fee Bonds Series 2004B originally issued for the Convention Center. Proceeds from the Series 2014B bonds were used to refund Hospitality Fee Bond Series 2004A, originally issued for the Convention Center Hotel refinancing, and to refund the 2002 Certificates of Participation originally issued for downtown redevelopment projects. (xii) 2014 State Revolving Fund Loan. In 2014 the City financed its 4th Avenue North Outfall project, constructing dual 84-inch reinforced concrete pipes extending approximately 1,200 feet offshore where the water can be cleaned effectively by natural processes. As a result, nine pipes that had discharged near public beaches were removed. The actual amount of the borrowing, not to exceed the authorized amount of $11,950,000, will be determined at the completion of the project. (xiii) Capital Lease Obligations. The City is also a party to certain capital lease obligations in the original issue amount of $9,236,605 entered into from 2007-2014 for the purpose of financing fire apparatus, telecommunications equipment and the refurbishment of prefunction space in the Center. In fiscal year 2015, the City entered into a master lease purchase agreement in the amount of $1,290,000 for system infrastructure to support a network of approximately 800 surveillance cameras to be installed along major arteries and in areas of high intensity traffic. The outstanding lease obligations totaled $5,717,553 as of June 30, 2016.

Legal Debt Limit of Counties, School Districts and Special Purpose Districts; Overlapping Debt Under the provisions of Article X, Section 14 of the State Constitution, each county, incorporated municipality and special purpose district may, in such manner and upon such terms and conditions as the General Assembly shall prescribe by general law, (a) incur general obligation debt authorized by a majority vote of the qualified electors thereof voting in a referendum, without limitation as to amount, and (b) incur, without an election, general obligation debt (in addition to bonded indebtedness existing on November 30, 1977, and bonded indebtedness authorized by a majority vote of qualified electors) in an amount not exceeding eight percent of the assessed value of all taxable property therein. School districts are subject to similar constraints pursuant to the provisions of Article X, Section 15, except that the cut-off date for bonded indebtedness is November 30, 1982.

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The following table sets forth the outstanding general obligation debt as of June 30, 2016 of each political subdivision which overlaps the City, either in whole or in part. Percentage Applicable to the City of Myrtle Beach 1

Jurisdiction

Principal Outstanding

Horry County Horry County School District

$111,231,634 467,505,000

1

22% 22%

Amount Applicable to the City of Myrtle Beach $24,470,959 102,851,100

The percentage of debt applicable to the City is based on the percentage of assessed valuation of property located in the City.

Source: City Department of Financial Management & Reporting and Horry County.

Miscellaneous Debt Information The City has not defaulted in the payment of principal or interest, or in any other material respect, with respect to any of its securities at any time within the last 25 years, nor has the City within such time issued any refunding bonds for the purpose of preventing a default in the payment of principal or interest on any of its securities then outstanding. The City has not used the proceeds of any bonds or other securities for current operating expenses at any time within the last 25 years. Future Debt Plans; Other Capital Needs The City anticipates the issuance of $21.2 million of General Obligation indebtedness over the course of the 20172021 5-year Capital Improvement Plan. Projects incorporated in the plan include an expansion of City Hall, renovation of Mary C. Canty Recreation Center, the acquisition and installation of a new Financial Software Package, renovation of the Facilities Maintenance shop at 13th Avenue South, Doug Shaw Stadium Renovations, Beach Renourishment, renovation of the Ted Collins Law Enforcement Center, construction of a Parks Maintenance Facility and court replacement at the Tennis Center. Additionally, the 2016-2020 Capital Improvement Plan contemplated debt funding for the construction of a $10 million Performing Arts theater at the Myrtle Beach Convention Center. As of June 30, 2016 debt for the project had not been issued and will likely occur in the next fiscal year. In November 2013, voters approved a bond referendum authorizing the City to issue up to $10 million in general obligation bonds for construction of a performing arts center adjacent to the Myrtle Beach Convention Center. Bonds issued under authority of the referendum must be issued within five years of the vote authorizing the issue. The project is included in the capital improvements program adopted for the fiscal years 2017-2019. Management Discussion Management discussion required under Continuing Disclosure agreements with respect to General Obligation and Certificate of Participation Debt appear in the transmittal letter required for the Comprehensive Annual Financial Report. This discussion can be located in the Introductory Section of the previously filed Comprehensive Annual Financial Report for the year ended June 30, 2016 under “Letter of Transmittal” on page v.

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SECTION 2—PUBLIC FACILITIES CORPORATION OBLIGATIONS General Disclosures General disclosures required under Continuing Disclosure agreements with respect to Public Facilities Corporation Obligations are identical to those required for General Obligation Bonds and are provided in Section 1 above. Hospitality Fee-related Disclosures Additional disclosures required under continuing disclosure agreements with respect to Public Facilities Corporation Obligation pertain to the Hospitality Fee revenues, which are pledged to the 1998 Stadium COPs. These disclosures are provided in Section 3 below.

[Remainder of page intentionally left blank.]

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SECTION 3—HOSPITALITY FEE REVENUE BONDS Historical Hospitality Fee Collections The following table sets forth the monthly amounts of City Hospitality Fees collected during the 12-month period ended June 30, 2016, based upon unaudited information. Month July August September October November December January February March April May June Total

Amount Collected 1,645,446 2,077,686 1,588,358 951,097 573,751 434,170 407,607 363,480 434,949 925,484 944,137 999,447 11,345,612

The following table sets forth the amount of Hospitality Fees collected by the City during the fiscal years 2012 through 2016, based upon unaudited information, by general source. The amounts shown in the table are presented on a cash basis and may differ from the audited figures, which are presented on an accrual basis.

Fiscal Year 2016 (1) 2015 2014 2013 2012

Food and Beverage Sales

Accommodations Revenues

$5,057,904 4,762,147 4,505,192 4,341,478 4,260,488

$5,258,407 4,947,070 4,664,799 4,453,961 4,353,525

Admissions

Total Hospitality Fees

$1,029,301 935,710 895,754 821,319 925,857

$11,345,612 10,644,927 10,065,785 9,616,757 9,539,870

___________ 1

No single collector of Hospitality Fees represented more than 2.5% of Hospitality Fees collected in Fiscal Year 2016.

15

Hospitality Fee Debt Service Coverage

2012

2013

2014

2015

2016

Hospitality Fee collections 1

9,463,908

9,855,620

10,068,246

10,835,209

11,310,659

Debt Service on Prior Lien Bonds Series 1998 COPs (Stadium) 2 Series 2002 COPs3 Series 2004A Bonds3 Series 2004B Bonds 3 Series 2014A LOB Bonds3 Series 2014B LOB Bonds 3

565,034 311,050 2,322,019 779,506 0 0

566,714 313,650 2,318,719 782,363 0 0

556,445 310,850 2,320,319 778,606 199,056 504,722

556,063 0 0 0 1,663,681 2,393,506

554,312 0 0 0 1,659,860 2,397,406

3,977,609

3,981,445

4,669,998

4,613,250

4,611,578

2.38

2.48

2.16

2.35

2.46

Total Annual Debt Service

Debt Service Coverage

_____________________ 1

This table contains audited figures stated on an accrual basis. Hospitality fee collections shown in the preceding table are stated on a cash basis and may vary from audited figures. 2 Series 1998 COPs financed the Stadium per the terms of the Prior Installment Sale Agreement. Figures show City Portion equal to 70% of total debt service on Prior Certificates. 3 Series 2002 COPs, Series 2004A Bonds and Series 2004B Bonds were refunded by the Series 2014 Bonds.

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SECTION 4—THE CONVENTION CENTER HOTEL PROJECT

Event Solicitation Priorities & Results The Center maintains an event solicitation policy (or guideline) that focuses upon achieving the greatest economic impact possible for the City, its hotels, restaurants and entertainment outlets. The Event Solicitation Priorities as set forth in the business plan and adopted by the City Council in 1999, assigns the following priorities to potential events:

Priority First Second Third Fourth

License Execution Anytime Five Years Prior Two Years Prior Eighteen Months Prior

Rooms Occupied Recurring Events One Time Events 1,000 + 1,500 + 500-999 750-1,499 300-500 500-700 300 500

Events are not considered definite until a license has been executed and initial deposits (25% of rental) are received. The following table includes the number of hotel room-nights consumed and total daily attendance of events licensed to lease the Center for Fiscal Years 2012 through 2016.

Fiscal Year

Number of Events

Hotel Rooms Generated

Total Daily Attendance

Exhibit Hall Occupancy

2012 2013 2014 2015 2016

154 168 163 182 210

172,600 155,750 162,200 178,350 183,700

542,075 527,600 528,400 563,650 574,300

65% 63 62 65 70

Source: Myrtle Beach Convention Center

The following table shows the number of events, projected hotel rooms generated and total daily attendance of events that have already executed a convention center license as of June 30, 2016 for Fiscal Years 2017 through 2020.

Fiscal Year

Number of Events

Estimated Hotel Rooms Generated

Estimated Total Attendance

2017 2018 2019 2020

168 135 93 91

164,500 145,250 112,700 107,300

545,000 468,400 446,950 413,680

Source: Myrtle Beach Convention Center

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Historical Performance The table below provides a summary of audited revenues and expenses of operations of the Hotel Corporation for the Fiscal Years ending June 30, 2012 through 2016.

Operating Revenues Operating Expenses Operating Gain (Loss) Nonoperating Revenues (Expenses) Revenues Debt forgiveness income Termination Fee Debt-related expenses Total Non-operating Revenues (Expenses)

2012

2013

2014

2015

2016

$ 14,450,618 (15,727,227) $ (1,276,609)

$ 14,400,716 (15,976,978) $ (1,576,262)

$ 15,305,492 (16,231,800) $ (926,308)

$16,263,236 (16,785,931) $ (522,695)

$16,977,797 (16,890,033 $ 87,764

$

$

$

$

43,442 250,000 (1,118,140)

$

(824,698)

113,249 250,000

(1,053,177)

87,869 250,000 570,000 (1,343,233)

(616,923)

(696,304)

$ (435,364)

$ (365,803)

(2,311,350)

(1,622,612)

(958,059)

(278,039)

(947,641)

(3,258,991)

(4,419,720)

(6,377,779)

(1,098,337) $

$

$ 1,120 250,000

Change in Net Position Total Net Position - Beginning, As Previously Reported Cumulative Effect of Adopting GASB Statement No. 65 Total Net Position - Beginning, as Restated

$ 1,153,666

$

(947,641)

$ (3,797,108)

$ (5,419,720)

$ (6,377,779)

Total Net Position - Ending

$

(947,641)

$ (3,258,991)

$ (5,419,720)

$ (6,377,779)

(6,655,818)

Debt Service Coverage Calculation: Gross Revenues (Operating and Non-operating Revenues) Operating Expenses Site Lease Payments Interest Earnings Depreciation Net Revenues Available for Debt Service

$14,494,060 (15,727,227) 3,394,082 (43,442) 1,811,231

$14,513,965 (15,976,978) 3,394,584 (113,249) 1,813,274

$15,412,365 (16,231,800) 3,417,160 (106,873) 1,692,303

$16,351,105 (16,785,931) 3,452,392 (87,869) 1,678,468

$16,978,917 (16,890,033) 3,470,336 (1,120) 1,751,434

$ 3,928,704

$ 3,631,596

$ 4,183,155

$4,608,165

$5,309,534

Debt Service for the Fiscal Year

$ 1,494,090

$ 1,494,287

$ 1,492,786

$1,372,213

1,368,112

2.43x

2.80x

3.36x

3.88x

Debt Service Coverage

(2,101,307)

(735,088)

106,873 250,000

1,153,666 -

2.63x

18

-

(538,117)

-

-

SECTION 5—WATERWORKS & SEWER SYSTEM REVENUE DEBT

Description of the System The System provides water services to approximately 19,180 water customers, including approximately 3,318 out-of-City customers, and wastewater services to approximately 16,967 customers, including approximately 2,612 out-of-City customers. The City employs approximately 56 people in managerial, clerical, maintenance and other capacities relating to the System.

Retail System, Wholesale Water and Sewer Purchase Arrangements The System is a wholesale customer of Grand Strand Water and Sewer Authority (“GSWSA”). The System acts as a retailer of water and sewer services, having sold its surface water treatment facility and its wastewater treatment facility (collectively, the “Treatment Plants”) to GSWSA in June 2006 pursuant to a Purchase and Sale and Water and Wastewater Service Agreement (the “Agreement”) between the City and GSWSA. The purpose of the sale was to gain efficiencies by virtue of GSWSA's greater freedom of movement in constructing new or expanded treatment facilities and its ability to distribute fixed costs across a broader customer base. The City expects that its contract with GSWSA will ensure adequate water and wastewater treatment capacity for the foreseeable future. The proceeds derived from the sale of the Treatment Plants were used by the City to defease certain prior indebtedness of the City secured by a pledge of revenues of the System. Under the Agreement, GSWSA covenants to operate and maintain its system and the Treatment Plants in a sound and efficient manner to provide wholesale water and wastewater treatment to the City. Water and wastewater service charges are based on metered flow and reflect costs of operation, maintenance, debt service, renewal, replacement, upgrade and expansion of the Treatment Plants and other costs directly associated with providing water and wastewater service to the City. GSWSA further covenants to expand its treatment facilities on a timely basis to insure adequate capacity to meet its obligations under the Agreement. Other than as set forth therein, the Agreement has no effect upon, and confers no rights to GSWSA in, the service area of the System. The Agreement has no termination provisions and shall inure to the benefit of any successors to the City or GSWSA.

Service Area The service area of the System includes the City and certain sections of unincorporated territory adjacent to the City to the north and west. The area presently served by the waterworks portion of the System is concentrated in developed areas within the service area and encompasses approximately 18 square miles. The sewer portion of the System is also presently concentrated in the developed areas of the City and the rest of the service area, but serves a slightly smaller area.

Water Distribution System The City’s water distribution system had its beginnings in the 1930s. The City presently maintains 375.45 miles of distribution lines varying in diameter from 2 inches to 48 inches. The City purchases treated water at wholesale rates from GSWSA.

The following table shows the growth in number of water customers and average daily water flow during the past ten years.

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Number of Customers and Average Daily Water Flow of the Waterworks System Customers As of December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2013 December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007

In City 15,862 15,245 14,721 14,336 14,180 14,069 13,440 13,564 13,608 13,245

Outside City 3,318 3,293 3,266 3,243 3,246 3,258 3,112 3,264 3,305 3,277

Total 19,180 18,538 17,987 17,579 17,426 17,327 16,552 16,828 16,913 16,522

Daily Flows (MGD) Billed from GSWS Annual Average Annual Peak 16.3 27.2 15.3 24.7 15.5 25.1 14.9 24.7 14.9 25.9 12.4 22.8 12.3 21.3 12.1 17.3 14.4 22.2 16.9 27.0

__________________________________________ Source: City Revenue Division and Public Utilities Department

Sewer System The City's wastewater collection system was initiated in the early 1940's utilizing the concept of separate sanitary and storm water collection systems. Due to the topography of the service area, the utilization of lift stations is necessary to avoid the construction of very deep collection lines. The City presently maintains 140 pump stations and approximately 109.71 miles of force mains within the System service area. In addition, the System consists of approximately 230.69 miles of gravity collection lines varying from six inches to 48 inches in diameter. The City contracts with GSWSA for wastewater treatment. The following table shows the growth in customers of the sewer system and average daily wastewater flow during the past ten years. Number of Customers and Average Daily Wastewater Flow of the Sewer System Customers As of December 31, 2016 December 31, 2015 December 31, 2014 December 31, 2013 December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 December 31, 2008 December 31, 2007

In City 14,355 13,790 13,338 13,034 12,907 12,824 12,263 12,381 12,431 12,135

Outside City 2,612 2,592 2,566 2,554 2,548 2,563 2,510 2,557 2,596 2,575

__________________________________________ Source: City Revenue Division and Public Utilities Department

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Total 16,967 16,382 15,904 15,588 15,455 15,387 14,773 14,938 15,027 14,710

Daily Flows (MGD) Billed From GSWS Annual Average Annual Peak 8.36 13.40 8.82 15.26 7.80 12.04 7.51 16.93 7.52 17.1 7.33 22.6 8.41 19.9 9.34 12.5 10.9 14.9 10.5 14.2

Customer Base Seasonal variations affect demand on the System. The following table reflects the ten largest customers of the System by revenues for fiscal year 2016.

Customer

Type of Business

Felcor-Hilton Myrtle Beach Travel Park Sea Mist Resort Grand Strand General Hospital Magnolia Pointe HOA Crown Reef Resort LLC Apache Family Campground Marriott at Grand Dunes Seawatch Plantation Brighton Dev Corp LLC

Revenues

% of Total Water and Sewer Revenue

Accommodations Campground Accommodations Medical Care Residential Association Accommodations Campground Accommodations Accommodations Accommodations

$516,415 376,390 344,551 266,456 254,960 206,163 189,952 163,806 164,628 162,070

2.01% 1.46 1.34 1.04 0.99 0.80 0.74 0.64 0.64 0.63

Totals:

$2,645,391

10.29%

__________________ Source: City Records.

Capital Improvements to the System During the past five Fiscal Years, the City has enlarged and extended the System with revenues derived from the System, from contributions for capital purposes and from the proceeds of borrowings. The City has spent approximately $18,328,959 during this period. The following table shows the amounts spent for capital improvements during each of the last five fiscal years. Capital Improvements, 2012-2016

Fiscal Year 2016 2015 2014 2013 2012 _________________

Waterworks System $1,217,601 839,526 464,729 1,058,536 816,075

Sewer System $2,160,451 1,200,975 4,609,828 3,347,484 2,613,754

Total System $3,378,052 2,040,501 5,074,557 4,406,020 3,429,829

Source: City Records.

The City has covenanted in the Ordinance to maintain and operate the System in good condition and to charge and collect such rates and charges for the services and facilities of the System so that the income and revenues of the System will be sufficient at all times to meet the requirements of the Ordinance and any Series Ordinances supplemental thereto.

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Water and Sewer Rates Current water charges are billed monthly and are composed of a base charge and a tiered volume charge. The base charge varies by meter size. The volume charge is $1.40 per thousand gallons for the first four thousand gallons, $2.64 for gallons 5,000 through 30,000 and $2.98 for all consumption over 30,000. These charges apply for all in-City customers. Out-of-City customers pay at a rate that is twice the in-City rate.

Water and Sewer Rates Base Water Charge

Meter Size (inches) 3/4" and 5/8" 1" 1-1/2" 2" 3" 4" 6"

In City Base Charge $ 2.51 4.18 8.35 13.36 29.21 41.73 83.45

Base Sewer Charge

Outside City Base Charge $ 5.02 8.36 16.70 26.72 58.42 83.46 166.90

In City Base Charge

Outside City Base Charge

$ 3.50 5.86 11.71 18.71 40.98 58.54 117.06

$ 7.00 11.72 23.42 37.42 81.96 117.08 234.12

Combined Monthly Base Charge

In City Total $ 6.01 10.04 20.06 32.07 70.19 100.27 200.51

Outside City Total $ 12.02 20.08 40.12 64.14 140.38 200.54 401.02

Volumetric Charges (Per 1,000 Gallons)

Gallons Used

Water Volume Charge

Sewer Volume Charge

In City Volume Charge

In City Volume Charge

Outside City Volume Charge

Outside City Volume Charge

0 – 4,999 $1.40 $2.80 $3.35 $6.70 5,000 -30,000 2.64 5.28 3.35 6.70 Over 30,000 2.98 5.96 3.35 6.70 *Note: All flow meters (cooling towers) and irrigation meters are assessed at this rate. _______________ Source: City Records

The City also imposes special charges. A fee of $25.00 is charged for returned checks on payment of an account; a $25.00 service charge for cut-off due to non-payment; and varying charges to pull a meter, either for nonpayment or at the owner's request, in lieu of levying the minimum charge. These charges are as follows: ¾" meter 1" meter 1-1/2" meter 2" meter

22

$113.83 148.40 260.52 369.18

Connection (Impact) and Tap Fees Each new water or sewer connection is converted to a residential equivalent to determine the impact upon the System. The connection (impact) fee schedule for water and sewer were amended in 2007 to provide for increases in the impact fees per the schedules appearing below. Water For each new water connection to the System, a person, corporation or other legal entity applying for water or sewer service is required to pay a connection (impact) fee based upon equivalent residential units (ERUs). Fiscal Year 2012 2013 2014 2015 2016

Fee Inside City 1,134 1,134 1,134 1,134 1,134

Fee Outside City 1,701 1,701 1,701 1,701 1,701

For each new water connection to the System, a person, corporation or other legal entity, in addition to the connection fee, pays a tap charge under the following schedule:

Meter Size

FY 2012

FY 2013

FY 2014

FY2015

FY2016

5/8" to 3/4" 1" 1.5" 2" 3" 4" 6"

$ 875

$ 875

$ 875

$ 875

$ 875

1,179 1,894 2,230 8,236 9,211 11,681

1,179 1,894 2,230 8,236 9,211 11,681

1,179 1,894 2,230 8,236 9,211 11,681

1,179 1,894 2,230 8,236 9,211 11,681

1,179 1,894 2,230 8,236 9,211 11,681

For irrigation meters, a person, corporation or other legal entity shall, in addition to the tap charge, pay a connection fee under the following schedule:

Meter Size

Connection Fee

¾" Commercial ¾" Residential1 1" Commercial 1" Residential1 1.5" 2" 3"

$ 500 850 1,250 1,662 2,500 4,000 8,750

1Includes

Backflow Device and Initial Testing.

The City has instituted a service to provide, install, and initially test approved double check valve backflow preventers for 3/4" and 1" irrigation meters on a residential customer's service line at the property line. The backflow

23

preventers will become the property of the customer, and the customer will become responsible for future maintenance and annual testing. The cost of the initial installation and testing is included in the charge noted in this section. Fire Tap Charges Fire Tap - Previous City Code provisions regarding Fire Tap and Connection Fees were repealed by Ordinance No. 2009-1, adopted on January 26, 2009, and replaced with language consistent with new provisions of State code. Fees are now computed on a case by case basis to reflect ‘actual costs including direct labor, direct material, the necessity of increased capacity, and other direct charges associated with the separate fire sprinkler line.

Sewer For each new sewer connection to the System, a person, corporation or other legal entity applying for sewer services pays a connection fee based upon ERUs. The connection fee per ERU for sewer is as follows:

Fiscal Year 2012 2013 2014 2015 2016

Fee Inside City 1,547 1,547 1,547 1,547 1,547

Fee Outside City 2,321 2,321 2,321 2,321 2,321

For each new sewer connection to the system, a person, corporation or other legal entity shall, in addition to the connection fee, pays a tap charge under the following schedule:

Service Pipe Size 6" 8" 10"

FY 2012 $3,318 3,853 4,291

FY 2013 $3,318 3,853 4,291

FY 2014 $3,318 3,853 4,291

FY 2015

FY 2016

$3,318 3,853 4,291

$3,318 3,853 4,291

Costs of service pipes of other sizes to be installed are determined on the basis of direct and indirect labor, direct material and overhead. Rate Regulation The rates and collection procedures of the City are not subject to review by any administrative body except the City Council of the City. Such rates and procedures are subject to judicial review upon action of a ratepayer. City Council believes their rates and collection procedures are reasonable under applicable legal standards. Water quality and sewer system effluent are subject to regulation by the United States Environmental Protection Agency and the South Carolina Department of Health and Environmental Control. Withdrawal of water from all sources is subject to regulation by the State of South Carolina.

24

Water and Sewer Billing and Collection Policies Deposits are not required of sewer customers. Deposits are required of water customers and are based upon meter size as set forth in the following table. Water Deposits Meter Size Owner Renter ¾" $60 $ 120 1" 90 180 1-1/2" 130 260 2" 170 340 3" 330 660 4" 550 1,100 6" 900 1,800 _________________ Source: City Records

Bills are mailed to all customers on a monthly basis. Where customers receive both water and sewer services, combined bills are prepared. If the monthly bill is not paid within 21 days of the billing date, a penalty of 5% is added. When an account becomes more than 10 days past due, water service is discontinued and a $25 service charge is levied. As a result, the City ultimately collects in excess of 99% of its water and sewer bills.

Rate History The following table shows a history of City rate increases over the past 20 years. The charge shown is based on a monthly water meter consumption of 7,500 gallons and reflects the combined charges for water and sewer services. Effective July, 1 2000 2001 2002 2003 2004 2007 2008 2011 2012 2013 2014 2015 2016 ________________________ 1

Charge 33.07 33.75 34.80 36.15 36.75 36.75 38.37 40.32 42.11 43.99 44.77 45.98 47.36

% Increase 3.0 2.0 3.1 3.9 1.7 0.0¹ 4.4 5.1 4.4 4.5 1.8 2.7 3.0

In 2007, the City adopted a structural change away from its previous minimum charge of 4,000 gallons of consumption and flat per thousand gallon consumption charge thereafter. It adopted a lower base rate and a variable consumption schedule that resulted in lower charges in the first tier of monthly consumption (0 to 4,000 gallons), was neutral in the second tier (4,001 to 30,000) and higher in the third tier (30,001 and above). The structural change was neutral to slightly positive for total water and sewer revenues at the time of its implementation.

25

Summary of Revenues and Expenses The table below provides a summary of audited revenues and expenses of operations of the System for the fiscal years 2012 through 2016. The table should be read in conjunction with the actual audited financial statements of the City for the fiscal years 2012 through 2016. The financial statements of the City for the fiscal years 2012 through 2016 were audited by Smith, Sapp, Bookhout, Crumpler and Calliham, P.A., Certified Public Accountants, Myrtle Beach, South Carolina. Operating Revenues Operating Expenses Operating Income Non-operating Revenues/ (Expenses) 1 Capital Contributions 2 Other Expenses 3 Change in Net Position 4 _______________

2012 $23,600,740 24,829,863 (1,229,123)

2013 $23,202,101 24,981,679 (1,779,578)

2014 $24,420,988 26,822,523 (2,401,535)

2015 $24,812,052 27,599,481 (2,787,429)

2016 $25,742,886 28,756,519 (3,013,633)

(342,812) 2,005,888 $1,148,300

(478,978) 3,350,634 $1,194,150

(572,712) 3,184,138 $1,246,000

(605,871) 4,436,233 $1,259,276

(683,834) 4,644,940 $(1,359,738)

$(714,347)

$(102,072)

(1,036,109)

(216,343)

(412,265)

1

Non-Operating revenues (expenses) include interest earnings, gains or losses on the sale of fixed assets, interest expense and bond amortization expenses. 2 Capital Contributions include impact fees and dedications, the non-cash portion of which is excluded below for purposes of determining net earnings and debt service coverage. 3 The Other Expense category is used to report the transfer of payments in lieu of franchise fees to the City’s General Fund. 4 For consistency with the Comprehensive Annual Financial Report, the GAAP nomenclature of “Change in Net Position”is used in this table. The numbers showing in this table as “Change in Net Position” are identical to those appearing below under “Net Income”. Net Income is used there for the sake of consistency with the Master Bond Ordinance and Series Ordinances.

Historical Operating Results and Debt Service Coverage The following table presents operating results and debt service coverage for fiscal years 2012 through 2016.

Net Income Exclusions from Net Income 1 Additions to Net Income1 Net Earnings Available for Debt Service1 Debt Service Debt Service Coverage _______________

2012 $(714,347)

2013 $(102,072)

2014 $(1,036,109)

2015 $(216,343)

2016 (412,265)

(638,557) 7,000,798

(2,424,857) 7,210,640

(2,325,389) 7,428,389

(2,786,446) 7,544,275

(2,778,538) 7,512,708

$5,647,894

$4,683,711

$4,066,528

$4,541,486

$4,321,905

$1,039,972 5.43x

$1,281,001 3.66x

$1,626,600 2.50x

$1,624,501 2.80x

$1,218,228 3.55x

1

The master bond ordinance provides for certain adjustments to Net Income for the purposes of determining “Net Earnings” and debt service coverage. These include exclusions of non-cash capital contributions and restricted investment earnings. Also included are additions for depreciation, amounts paid as interest on bonds and amounts transferred to the General Fund as indirect costs.

Management Discussion of Recent Operating Results As shown in the previous tables, the System’s operating revenues have risen from $23.6 million in 2012 to $25.7 million in 2016. Net Earnings available for debt service have exceeded budget for the past four years. Factors contributing to the improved performance include cost-control measures implemented in 2011 and the implementation of modest annual rate increases pursuant to the rate plan for Fiscal Years 2012 – 2016 (the “Rate Plan”). The Rate Plan is based upon an independent rate sufficiency analysis completed in May 2011. The City adopted the rate increases recommended in the plan with minor adjustments each year depending upon changing circumstances. The City conducts rate reviews in-house each year prior to adoption of the annual budget and, once 26

every five years, has a rate sufficiency study performed by an independent firm specializing in water and sewer finance. A new rate study was completed in February of 2016 and resulted in a recommended new rate plan for the Fiscal Years 2017 - 2021. City Council adopted a blended water and sewer rate increases of 5% in 2017 and reconfigured the current three tiered water volume rate structure to accommodate a fourth usage and tier rate. City Council will review the recommended rates annually with an anticipated increase and will fall in the range of 2.5% to 3.5% for the remainder of the five-year term.

27

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